Source: http://procedurallytaxing.com/tag/bryan-camp/
Timestamp: 2019-01-21 09:07:51
Document Index: 523494153

Matched Legal Cases: ['§6015', '§83', '§83', '§83', '§706', '§83', '§7522', '§7522', 'sui generis', '§6214', '§6512', '§6105', '§6105', '§706', '§706', '§706', 'art 123', '§706', '§706', '§706', '§706', '§6672', '§ 507', 'sui generis', '§523', '§1328', '§1328', '§523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 7213', '§ 6511']

More on the Successful Challenge to the Anti-inversion Regulations
October 2, 2017 by Guest Blogger 1 Comment
Today Professor Bryan Camp shares with us some of his views on the government’s loss in Chamber of Commerce v IRS, the challenge to Treasury’s anti-inversion regs that I discussed here.The case has been generating significant comment. For example, Professor Andy Grewal on the Notice & Comment blog nicely summarized the outcome and gave some additional context.
Below Professor Camp discusses why the court’s approach may be out of sync with traditional views of the Anti-Injunction Act. As Bryan suggests, the AIA battle is likely to be one where the Treasury may be able to circle the wagons and fend off early challenges to its rulemaking procedures. Les
I know everyone is chomping at the bit to get to the cool APA stuff, but I think the Anti-Injunction Act is the big issue here. Or at least should be. If I read the decision correctly (a big if), this appears to be a suit by an Association and they get standing only because one of their members believed that the regulation under attack would deny them a tax benefit they believed they would get absent this section 7874 regulation on inversion.
The court took an extremely narrow view of the Anti-Injunction Act, seeming to say that it only applies when a particular taxpayer seeks to contest an already assessed tax. The court believed that ANY attack on the procedural validity of ANY regulation is permissible under the anti-injunction act. The court says “Here, Plaintiffs do not seek to restrain assessment or collection of a tax against or from them or one of their members. Rather, Plaintiffs challenge the validity of the Rule so that a reasoned decision can be made about whether to engage in a potential future transaction that would subject them to taxation under the Rule.”
That statement reflects a poor understanding of tax administration. You could say that about ANY substantive tax reg. Is the court really saying that ANY tax regulation can be attacked by any taxpayer whose taxes are potentially affected by the regulation??? That cuts against loads of precedent going at least as far back at Fleet Equipment Co. v. Simon, 76-2 U.S. Tax Cas. (CCH) P16,231 (D.D.C. 2976). This is exactly the kind of suit that the Anti-Injunction Act is supposed to stop.
In contrast to substantive regs the courts have allowed suits to restrain implementation of regulations that go to tax administration, such as return preparer regulations or information reporting regulations. Those cannot be attacked in a refund suit and they do not affect the self-reporting taxpayers of the taxpayers subject to them. But the time and place to attack a substantive tax regulation is in a refund suit. Gosh and golly.
If the TP here wanted to attack the regulation, it could do so in a refund suit if it takes a different position, gets audited, and wants to fight. Sure, the regulation would be in place, but the TP would argue that the regulation gets zero deference because it was (allegedly) invalidly promulgated. Without the regulation, the IRS would still take the same position on the return item but the court would be faced with the TP’s position and the IRS position, unsupported by the authority of a valid regulation. Just like an assessment is not valid when not properly done.
Filed Under: Administrative Procedure Act (APA), AIA Tagged With: AndyGrewal, Bryan Camp
Lesson from Tax Court: Take Care When Representing Joint Filers
September 25, 2017 by Guest Blogger 1 Comment
We welcome back Professor Bryan Camp who has blogged with us on several prior occasions. Bryan and I worked together in Chief Counsel’s office in the General Litigation Division many years ago before he became a professor and everyone had the chance to learn what a great writer he is. He writes today about a case that first surfaced earlier this summer when a Tax Court order to show cause signaled trouble. I note that the case has a 2012 docket number and that it is not the only case involving petitioner husband on the Tax Court’s current and past docket. The age of the docket itself provides a cautionary tale for anyone picking up a case at calendar call.
The case involves the age old problem of representing a husband and wife where their interests do not align coupled with the practical problem of trying to reach a quick resolution at a calendar call. The lawyer involved, Frank Agostino, has served as the dean of the calendar call in Manhattan for many years. Frank’s tireless and significant efforts on behalf of low income taxpayers caused him to be recognized by the ABA Tax Section in 2012 with the Janet Spragen’s Pro Bono award. Here, he quickly devised a plan to resolve a long pending case but the Court, which no doubt also wanted to see the end of this long-standing case, raises concerns that must be raised in situations in which the positions of the parties do not align and one party ultimately refuses to sign a waiver. Note that after it issued the memorandum opinion, the Court issued a further order granting petitioner’s withdrawal of concession and discharging Frank, and his colleague, from the show cause order. Keith
Last week the Tax Court issued an opinion in Clark Gebman and Rebecca Gebman v. CIR, T.C. Memo 2017-184. It teaches a lesson about the pitfalls of representing a married couple and the very technical approach that a Court might use to apply conflict of interest rules to such representation.
The Gebmans had petitioned the Tax Court pro-se after receiving an NOD. One of the major issues was the taxability of distributions Mr. G. took from his IRAs.
At a January 30, 2017 calendar call in NYC they were still unrepresented. Now, the Tax Court, in conjunction with the ABA Tax Section, has implemented a calendar call program whereby attorneys show up at calendar call and volunteer their services to taxpayers. This is a most excellent program. Keith blogged about its history this past Spring and Judge Peter Panuthos also gives a great history of the program in 68 Tax Lawyer 439 (Spring 2015).
So up steps Frank Agostino at calendar call to help the Gebmans, pro bono. Trouble ensues. See below the fold for details.
Folks, we have all been there. Whether it is representing a closely held corporation, a family business, or joint filers, we have all been in situations where what is best for the group overall is not equally good for every individual in that group. When I was in practice we called this being a lawyer for “the situation” and it always, always, always raised conflict of interest flags that we needed to be sure were addressed.
In the Gebman’s case it appears that Frank concluded that Mr. Gebman simply had no non-frivolous argument to contest the NOD and that the best course of action for the couple would be to obtain spousal relief for Mrs. G. because Mr. G—who had been unemployed since 2007 (hence the apparent need to withdraw the IRA money)—was a turnip. It looks to me like Frank’s idea was to solve Mrs. G.’s problem at the liability stage (via spousal relief), thus shifting the payment burden to the Mr. G., The Turnip. Then Frank could solve Mr. G.’s collection problem in collection by showing Mr. G.’s turniptitude and obtaining a CNC or perhaps a DATC OIC.
Frank proceeded to implement this very reasonable strategy. At the January 30th calendar call, Mr. G. stands up and tells Judge Halpern “I’m going to do what’s best for my family, your Honor. And I’ve been counseled that I’ve made a mistake, and I need to be accountable to the Government.” At the same time Frank asked for leave to amend the Petition to put in an Innocent Spouse claim for Mrs. G.
Frank’s plan was a reasonable one. He was a being a great lawyer for the situation. But even the best plans fall prey to the winds of fortune. After the calendar call, recognizing that married couples always have an appearance of conflicting interests, Frank attempted to get both Mr. and Mrs. G to sign waivers and informed consent. Mr. G. refused. Moreover, Mr. G. “fired” Frank and eventually filed with the Tax Court two pro-se documents totally 50 pages of what the Court describes as containing “much rambling, extraneous matter…to show the injustice Mr. Gebman is claiming to be fighting.” Still, the documents were enough to trigger the Court’s concern that Frank might be disabled from representing Mrs. G. without Mr. G.’s continued consent.
Sure enough, Judge Halpern decided that in order to obtain the liability relief sought under the spousal relief provisions of either §6015(b) or (f), Mrs. G. would have to take a position about the facts surrounding the IRA distributions that would be materially adverse to Mr. G.’s interest. Specifically she would need to show that either the IRA distributions were solely an income item attributable solely to Mr. G. and that she did not benefit from the distributions, or she would have to show that he fraudulently (as to her) converted the IRA proceeds to his own use.
Given this conflict of interests concerning the nature of the IRA distributions, Judge Halpern concluded that Frank could not continue to represent Mrs. G. without a waiver from Mr. G. After all, Frank went into the Calendar Call and met with both spouses, gave advice to both spouses, and thereby established an attorney-client relationship with both spouses. By doing so Frank was now in a position to be advocating adverse to his former client. Moreover, although not specifically mentioned by the Court, Frank potentially received from Mr. G. information that he could use against Mr. G. in advocating for Mrs. G.’s spousal relief. This all creates the potential to breach Frank’s duty to Mr. G. under Model Rule of Professional Conduct 1.9, unless Frank gets a waiver from Mr. G. But Mr. G. has refused to sign a waiver. So Mrs. G. will have to find a new attorney or else proceed on her own.
To me, the take-away lesson here is the Tax Court’s narrow approach to determining a materially adverse interest. It takes a very technical approach and looks only at the taxpayer’s theoretical interests in avoiding liability. But Mr. G. had no practical interest in avoiding liability and, further, has no non-frivolous argument for doing so. Mr. G. is a turnip. He has no assets. If you have nothing to lose you don’t fear the reaper. The Tax Court refuses to consider the practical aspect of this case. It says “Mr. Agostino does not address the fact that during the normal 10-year collection period…Mr. Gebman’s fortunes may change.” True enough in theory, but doubtful in reality.
Bottom line is that although you may come up with a reasonable strategy while acting as a lawyer for the situation, beware of the technical conflicts that may exist and deal with them appropriately.
Filed Under: Tax Court Tagged With: Bryan Camp
Disclosing President Trump’s Tax Returns – An Unconventional Idea
February 22, 2017 by Guest Blogger 7 Comments
This post originally appeared on the Forbes PT site on February 21, 2017.
Whether you want to see President Trump’s returns or not, the controversy points out to me a couple of things we have gotten right that we ought to celebrate. After abuses of information at the IRS by President Nixon in an attempt by him to make life difficult for his enemies, Congress significantly tightened the disclosure laws in 1976. That legislation has worked. The legislation has worked in part because of the laws enacted but also in part because of the culture it has created at the IRS regarding taxpayer information. Despite a lot of curiosity about President Trump’s returns starting months before his election, the returns have not surfaced. He had no legal duty to disclose them even though precedent of many recent presidential candidates created a cultural expectation of disclosure. I celebrate the success of Congress and the IRS in protecting the returns.
Recently, Democrats on the Ways and Means Committee tried to use the power of their committee to make public President Trump’s personal income tax returns. This effort failed because they had insufficient votes. Professors Camp and Thuronyi suggest an alternative path to the disclosure of the returns to the Ways and Means Committee or one of the other tax writing committees of Congress. Their approach looks at a little used subsection of the laws governing tax disclosure. Although President Trump did not have a legal duty to disclose his returns and the disclosure laws protect them from disclosure in most circumstances, there may be a way to make them public and one such possibility is the subject of this post. Keith
Filed Under: Disclosure Tagged With: Bryan Camp, Victor Thuronyi
Tax Exceptionalism Lives? QinetiQ v. CIR
January 12, 2017 by Guest Blogger 1 Comment
We welcome back guest blogger Bryan Camp who is the George H. Mahon Professor of Law at Texas Tech. Professor Camp teaches both tax and administrative law which is why I sought him out for this guest post. The decision here is important. The lead attorney for the taxpayer, Jerry Kafka, is one of the best if not the best tax litigators in the country. Though his client lost this case the arguments made here were not frivolous. What could have been a game changer had the taxpayer won leaves us in the same posture we were in before the case was brought but with more light shone into the corners of tax and the APA. Keith
Keith emailed me last week and asked if I would care to blog about a recent 4th Cir. opinion affirming a Tax Court decision that upheld a proposed deficiency in the taxes of QinetiQ US Holdings (Q). (for previous PT posts on QinetiQ see here, here and here).It seems that Q took a big §83(h) deduction. On audit, the Service disallowed the deduction and sent Q a Notice of Deficiency (NOD). In court, Q argued that the NOD violated the Administrative Procedure Act (APA) because the NOD gave no explanation for the disallowance and, oh, by the way, the §83 deduction was proper. The Tax Court rejected both arguments. The 4th Cir. affirmed.
Maybe the §83 issue is interesting. If so, I’m sure the Surly Subgroup will blog it. To me, however, what makes this 4th Cir. opinion worthy of a shout out is its discussion about the relationship of the Administrative Procedure Act (APA) to tax procedure. Ever since the Supremes decided Mayo Foundation in 2011, it seems everybody and their little dogs have been declaring that something called “tax exceptionalism” is dead. The Fourth Circuit’s opinion gives a more nuanced take, one that is worth blogging about for three reasons. First, it represents a new front on the “tax exceptionalism” debate. Second, the Circuit’s opinion makes a critically important point about the relationship of the APA to tax procedure. Third the opinion could affect court review of other types of IRS determinations, such as CDP determinations.
I will consider each of these points in turn.
A New Front on Tax Exceptionalism Debate
QinectiQ represents a new front in the ongoing debate over the proper relationship of the APA to tax practice and procedure. Up to now, the debate has been chiefly about tax regulations and tax guidance. That’s the Mayo case and other cases where taxpayers have sought to challenge the procedure by which Treasury and the IRS have issued regulatory and similar guidance. This case involves the proper application of the APA to a very different type of agency action: an agency determination. The APA has some general standards that courts are supposed to use in reviewing agency determinations in particular cases, also known as “agency adjudications.”
Professor Steve Johnson at Florida State has written extensively and lucidly about the tax exceptionalism debate. In this short Florida Bar Review article from 2014 he encouraged tax practitioners to consider challenging NOD’s under an APA standard. Apparently the lawyers for Q read his article!
The APA is found at 5 U.S.C. Subchapter II. Section 706 says that courts should review agency adjudications to be sure they were not made arbitrarily. To do that, the court needs to see what the agency’s rationale was for its decision. So over time the Supreme Court has developed the requirement that “an agency provide reasoned explanation for its action.” FCC v. Fox Television, 556 U.S. 502, 515 (2009).
In QinectiQ, the taxpayer argued that the NOD failed the APA §706 standard. The NOD said only that Q had additional taxable income of “$177,777,501” because Q had “not established that [it was] entitled” to a deduction “under the provisions of [26 U.S.C. §83].” The NOD gave zero explanation for why the Service was disallowing the deduction. The failure to articulate a rational explanation for its disallowance decision meant that a review court had no way to police the NOD for arbitrariness.
In a short unpublished order, the Tax Court refused to apply the APA standard and held that the NOD was instead subject to the standard provided for in §7522(a). The taxpayer’s argument to the Fourth Circuit was essentially that §7522 and the APA standards were cumulative, not exclusive.
The Fourth Circuit affirmed the Tax Court. It believed the taxpayer’s attempt to apply the APA standard “fails to consider the unique system of judicial review provided by the Internal Revenue Code for adjudication of the merits of a Notice of Deficiency.” (p. 9 of slip opinion).
The Fourth Circuit thought two features of tax administration made the APA standard inapplicable. First, “because the Code’s provisions for de novo review in the tax court permit consideration of new evidence and new issues not presented at the agency level, those provisions are incompatible with the limited judicial review of final agency actions allowed under the APA.” (p. 10-11 of slip opinion). Second, the Tax Code’s provisions for judicial review of NOD’s pre-dated the APA. “Congress did not intend for the APA ‘to duplicate the previously established special statutory procedures relating to specific agencies.’” (p. 12 of slip opinion, quoting Bowen v. Massachusetts, 487 U.S. 879, 903 (1988)).
The Fourth Circuit’s consideration of these two features of tax administration is the more nuanced understanding that I think is worth commenting on.
The Proper Relationship of the APA to Tax Administration
The nuance is this: the APA is not sui generis. That is, the APA was enacted on top of existing agency practices and procedures. One simply cannot pretend that the APA was enacted in a vacuum! That’s the point I try to make about tax regulations in my article “A History of Tax Regulation Prior the Administrative Procedure Act,” 63 Duke L. J. 1673 (2014)
The APA was enacted on the basis of a massive, massive, study of federal agencies and their operations undertaken by the Attorney General’s Committee on Administrative Law (“the Committee”). The Committee’s Final Report is generally believed to be the most important influence on the text and application of the APA.
The Final Report grew out of a detailed study of then-existing agencies, a study contained in 27 Monographs written by staff, each running hundreds of pages. (Monograph 22 focused on the tax administration). At its inception, the Committee “had initially hoped to be able to suggest uniform rules for agency practice” (quote from Grisinger Law in Action: The Attorney General’s Committee on Administrative Procedure, 20 J. of Policy History 379 (2008)). In light of the information produced in the 27 monographs, however, the Final Report backed away considerably from that aspiration and instead prescribed a general framework for balancing the goals of agency efficiency and autonomy with the goals of agency transparency and protection of individuals from arbitrary agency actions. That is why the resulting APA was widely understood as standing for the proposition that “procedural uniformity was not well suited to the administrative process.” (Grisinger at 402; one sees the same theme in almost all the contemporary commentaries and reviews of the Final Report). That is, the APA provided generalized standards for controlling administrative actions rather than detailed prescriptions. This conventional view is elegantly summed up by Professors Hickman and Pierce: “the Administrative Procedure Act is to administrative law what the Constitution is to constitutional law.” Kristin E. Hickman, Richard J. Pierce, Jr., Federal Administrative Law: Cases and Materials, (Foundation Press, 2010) at 19.
What this means is that while the APA does apply to all agencies, including the IRS, it does not apply in the exact same way to all agencies. Every agency is “exceptional” in that every agency faces a different set of operational demands and requirements and organic statutory provisions. All of those variables must be reconciled to the general language of the APA and it should not surprise anyone that different reconciliations lead to different applications of the APA principles to different agencies. That is why the Supreme Court, in Bowen, said “When Congress enacted the APA to provide a general authorization for review of agency action in the district courts, it did not intend that general grant of jurisdiction to duplicate the previously established special statutory procedures relating to specific agencies.” 847 U.S. 879 at 903.
Put another way, the debate is not “whether” the APA applies, it’s “how” the APA applies. It is not so much whether the NOD review procedure “comply with” the APA as it is whether the procedures are “consistent with” the APA. Does the APA displace or otherwise affect otherwise applicable rules that govern what goes into the NOD and how the Tax Court reviews it?
That is what the Fourth Circuit recognizes in QinetiQ. The Tax Code’s specific statutory review structure makes the APA review standard inapplicable, for both historical and operational reasons. The historical reason is what I said above: the specific statutory structure for court review of NOD’s pre-dates the APA and the APA was not written to displace prior law. The operational reason is that taxpayers have the burden to prove entitlement for deductions and have every opportunity to do so in a de novo Tax Court review. That de novo nature of review is what makes the current practice acceptable. For example, if the IRS rejects a claimed deduction, tax law does not put the burden on the IRS to prove up the rejection. The burden remains on the taxpayer to prove up the entitlement, only now in front of the Tax Court (or district court if the taxpayer chooses to pay the deficiency and then go for a refund). It is the Tax Court’s job to determine or re-determine the taxpayer’s proper tax liability. That’s why it can either increase the proposed deficiency (§6214(a)) or actually order a refund (§6512(b)).
The Tax Court has recognized these points as well. It has a nice discussion of this kind of “tax exceptionalism” in Ax v. CIR, 146 T.C. No. 10 (2016) (which Les has previously blogged here and which Professors Stephanie Hoffer and Chris Walker give some very thoughtful comments here). In Ax, the taxpayer objected to the Service raising a new issue before the Tax Court, even though the Service acknowledged it bore the burden of proof. Like the taxpayer in QinetiQ, the taxpayer in Ax argued that because “the Supreme Court rejected the concept of ‘tax exceptionalism,’ the Administrative Procedure Act and [case law] bar Respondent from raising new grounds to support his final agency action beyond those grounds originally stated in the notice of final agency action” (e.g. the NOD). The Tax Court’s rejection of that position is worth reading.
III. The Door Is Still Open: Implications of QinetiQ on Other IRS “NODs”
Have you ever noticed how you need an NOD to get Tax Court review? I don’t just mean the “Notice of Deficiency.” I also mean the “Notice of Determination” from a CDP hearing. That’s a ticket to the Tax Court, too. But, sorry, a “Determination Letter” is not a ticket. Likewise, if a taxpayer petitions for “stand alone” spousal relief per §6105(f), the eventual “Notice of Determination” issued by IRS or Appeals is the ticket for Tax Court review (of course, §6105(e) also permits a taxpayer to seek judicial review in cases where the Service has not acted within 6 months of the initial request for spousal relief).
The point is that the Tax Court reviews agency decisions other than deficiency determinations. QinectiQ deals with only ONE kind of IRS determination (although by far the most frequent). The inimitable Steve Johnson gives an excellent and in-depth treatment of the variety of ways that the APA §706 might be applicable to a variety of IRS determinations in his Duke L. Rev. article “Reasoned Explanation and IRS Adjudication,” 63 Duke L. J. 1771.
The Fourth Circuit’s rationale for not applying the ABA §706 standard of review in QinectiQ actually suggests the ABA standard may be applicable to court review of some of these other IRS determinations. One sees this in the opinion’s discussion of Fisher v. Commissioner, 45 F.3d 396 (10th Cir. 1995). In Fisher, the 10th Circuit held an NOD invalid because the NOD implicitly denied, without explanation, a taxpayer’s request for penalty abatement. Since the Service has the discretion to grant or deny such requests, the 10th Circuit thought that the failure to explain why the Service was exercising its discretion to deny the relief violated “an elementary principal of administrative law that an administrative agency must provide reasons for its decisions.” 45 F.3d at 397. Unexplained exercise of discretion is per se arbitrary, says Fisher.
The Fourth Circuit could have just disagreed with Fisher. The IRS issued a well-reasoned AOD that explained why Fisher was wrong. AOD-1996-08, 1996 WL 390087. But the Fourth Circuit instead chose to distinguish Fisher, saying in footnote 6: “we do not read Fisher…as requiring a reasoned explanation in all Notices of Deficiency.” Hmmmm. Does that suggest that in situations where the Service is exercising discretion—like refusing to grant a request for spousal relief, or refusing to accept a collection alternative offered in a CDP hearing—that one of those decisions would be subject to the APA §706 standard, even when the Tax Code has very detailed special statutory procedures? After all, both the CDP provisions and spousal relief provisions were added by Congress after the APA.
Let’s look at CDP procedures. Currently the Tax Court’s approach to CDP review is both (a) abuse of discretion and (b) de novo. That’s not quite square with how the APA contemplates the relationship of a reviewing court to agency decisions. Here’s how the Court explained it in a recent CDP case, Drilling v. Commissioner, T.C. Memo 2016-103:
the standard of review employed by the Tax Court is abuse of discretion, except with respect to the existence or amount of the underlying tax liability, for which the standard of review is de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). The evidentiary scope of review employed by the Tax Court is de novo. Robinette v. Commissioner, 123 T.C. 85, 101 (2004), rev’d, 439 F.3d 455, 459-462 (8th Cir. 2006). That means that the Court’s review is not confined to evidence in the administrative record. See Speltz v. Commissioner, 124 T.C. 165, 177 (2005) (citing Robinette v. Commissioner, 123 T.C. at 94-104), aff’d, 454 F.3d 782 (8th Cir. 2006). If the Court remands a case to the Appeals Office, the further hearing is a supplement to the original hearing, not a new hearing, Kelby v. Commissioner, 130 T.C. 79, 86 (2008), but the position of the Appeals Office that the Court reviews is the position taken in the supplemental determination, id.
Notice that this means if the taxpayer wants to present new information, the Tax Court has the option of hearing that new evidence itself or sending the case to the Appeals Office for a “supplemental” hearing. See e.g. Drake v. Commissioner, T.C. Memo 2006–151, aff’d 511 F.3d 65 (1st Cir. 2007) (“The resulting section 6330 hearing on remand provides the parties with the opportunity to complete the initial section 6330 hearing while preserving the taxpayer’s right to receive judicial review of the ultimate administrative determination.”)
The Tax Court’s practice of allowing new information is IMHO a perfectly reasonable procedure and it reflects the ongoing nature of both CDP and 6015(f) determinations. Each of those determinations can be affected by facts that change at any time. But it is arguably NOT the procedure contemplated by the APA. Notably, the APA contemplates that the record, once made, is unalterable. And the danger of allowing an open record is that the Tax Court becomes mired “with tax enforcement details that Congress intended to leave with the IRS.” Robinette v. Commissioner, 439 F.3d 455, 459 (8th Cir. 2006) aff’ing in part 123 TC 85.
Both the CDP and the spousal relief review provisions were added by Congress long after the APA’s enactment. Perhaps the flip side of pre-existing administrative schemes not being displaced by the APA is that post-APA statutory provisions do not exclude application of APA §706 but incorporate that standard (unless of course Congress says the provisions are to be exclusive). Of course, the operational reasons for concluding that the §706 standard has been trumped by the specific CDP provisions may remain.
Those of us who study this stuff are not in agreement. For Les’ take, see here; for Stephanie Hoffer and Chris Walker’s take, see here. As Keith points out, the CDP procedures have astonishingly large gaps in them. But IMHO the APA does not mandate a uniform set of rules for the Tax Court to deal with those gaps. Like the U.S. Constitution, the APA simply provides the touchstone by which to measure any rules or procedures that the Tax Court or IRS come up with in implementing CDP. Claiming that a procedure violates §706 is like claiming one process or another violates “due process.” You first have to figure out what process is “due” before you can find a violation.
In sum, I believe the Fourth Circuit’s opinion in QinetiQ leaves open the door to argue that for non-deficiency determinations, APA §706 has greater applicability than for standard Tax Court review of deficiency notices. Personally, I think that (1) the specificity of the both the CDP and innocent spouse provisions, and (2) the specific relationship that the Tax Court has in supervising so many aspects of tax administration still trump the general provisions in the APA. But those two reasons for treating current procedure as may not be as applicable to other types of determinations, such as §6672 decisions, or penalty abatement decisions, or other “discretionary” decisions that are not clearly covered by specific Tax Code provisions.
Filed Under: Administrative Procedure Act (APA), Tax Court Tagged With: Bryan Camp
Is the Liability a Taxpayer Incurs under the Affordable Care Act for Failing to Obtain Health Insurance a Tax or a Penalty for Bankruptcy Purposes
September 7, 2016 by Guest Blogger 1 Comment
Today we welcome back guest blogger Professor Bryan Camp of Texas Tech. Professor Camp writes today on the issue of the proper classification of the liability imposed for failure to obtain health insurance. The issue can apply to many excise taxes and has importance in the bankruptcy context.
Before getting to Bryan’s post, I want to comment a misleading statement I made in the post last week entitled Bankruptcy Court Jurisdiction Over a Tax Claim. In that post I questioned the timing of the filing of their bankruptcy petition because I said they should have waited until three years had passed from the due date of the returns for all years. The issue has applicability to Bryan’s post and he gets it right. Thanks to Ken Weil for pointing out to me that if they filed a Chapter 13 plan and if they completed their plan there is no need to wait three years from the due date of the return to file bankruptcy if you seek to discharge a penalty. For debtors who complete a Chapter 13 plan, the discharge is covered by B.C. 1328(a). Prior to 2005, this provision gave what was called a superdischarge to debtors completing their Chapter 13 plans and made that chapter especially attractive to debtors with late filed returns, fraudulent returns and lots of other penalties. The changes in 2005 watered down the broad scope of the B.C. 1328(a) discharge but did not change the superdischarge of penalties. So, the timing of the bankruptcy vis a vis penalty discharge very much depends on the chapter of bankruptcy debtors choose and their ability to complete their Chapter 13 plan. Keith
Whether a debt is a tax or a penalty is not always easy to determine. The Supreme Court has weighed in on this topic twice, first in Sotelo v. United States, 436 U.S. 268 (1978)(in a case involving the trust fund recovery penalty) and then in United States v. Reorganized CF&I Fabricators of Utah, Inc., 518 U.S. 213 (1996)(in a case involving the excise tax for failure to properly fund a pension plan). In each case the Court determined that the label in the statute did not match the true nature of the statute.
Whether a liability in the Internal Revenue Code is a tax or a penalty has importance in the treatment of the liability in bankruptcy cases. Taxes can rise above other unsecured claims and have priority status in the payout process. Penalties cannot have priority status as unsecured claims. The latest liability to raise issues concerning its status as a tax or a penalty is the liability for failing to obtain health insurance. The liability arises because the Affordable Care Act (ACA) seeks to have as many individuals enroll as possible to make the pool of insured individuals better. Internal IRS guidance directs its employees to categorized the ACA penalty as an “excise tax” for bankruptcy purposes. See IRM 5.9.4.18.1 (“The individual SRP liability will be treated as an excise tax under USC § 507 (a)(8)(E).”)
For the reasons discussed below the fold, I do not think the courts are likely to consider the ACA penalty an excise tax which can achieve priority status. They are more likely to classify it as a penalty which will become a general unsecured claim.
First, the ACA calls it a penalty and not a “tax.” IRC 5000A(g) provides that “the penalty provided by this section shall be…assessed and collected in the same manner as an assessable penalty under subchapter B or chapter 68.” The Congressional decision to label this exaction a “penalty” and not a “tax” was a critical reason why the Supreme Court held that challenges to the penalty were not barred by the Anti-Injunction Act. National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566, 2582-3. The Court found that, although the label did not matter for constitutional purposes, it did matter for purposes of figuring out the relationship of the ACA penalty with other statutes because statutes “are creatures of Congress’s own creation. How they relate to each other is up to Congress, and the best evidence of Congress’s intent is the statutory text.” As in the NFIB case, here we have to figure out the relationship between the use of the work “tax” in the bankruptcy code and in the tax code. Accordingly, the Congressional decision to label the payment as a penalty, and to direct that it be collected in the same manner as other assessable penalties, establishes a strong presumption that it is not a tax for purposes of other statutes, including the Bankruptcy Code.
Therefore, I don’t see a bankruptcy court treating the ACA as an excise tax or any other kind of tax. I’m betting the IRS guidance is calling it an excise tax because section 5000A is in the excise tax chapter. Theoretically, one might defend the penalty as an excise tax because it is imposed on taxpayers for engaging in certain transactions—or failing to engage in specified transactions, which is economically the same thing. But I don’t see either of these two rationales for treating the ACA penalty as an excise tax as being very strong.
A good case to consider is In re Marcucci, 256 B.R. 685 (D. N.J. 2000), where the district court agreed with four bankruptcy courts that certain payments mandated by the State of New Jersey—payments quite similar in structure and purpose to the ACA penalty—were not excise taxes but were penalties. In Marcucci, the court considered the character of a “motor vehicle surcharge” that New Jersey imposed on drivers who were considered high risk or convicted of certain traffic offenses. These mandated payments to the state were to help the state fund a pool of money intended to even out the risk among all drivers. The surcharges had been imposed by private insurers but the New Jersey legislature decided that the market was unfair and inefficient and so rather than indirectly regulating surcharges, decided to have the surcharge program administered by the DMV. The state argued that these were excise taxes but the court disagreed.
The court first noted that “in cases where the Supreme Court has considered whether a particular exaction was a tax for bankruptcy purposes, the Court looked beyond the titular label given to the exaction and examined its actual operation” and “[t]he proper analysis therefore is to assess whether the attributes of the state’s claim, as provided by state law, fit the definition of a tax within the meaning of the Bankruptcy Code.”
The court then decided that the surcharge’s function was more like a penalty than a tax. “In contrast to a neutral tax, the surcharge system is designed to deter poor driving habits. As discussed above, the legislative history of the Insurance Reform Act implies that the surcharges are intended to penalize “bad drivers”. That the surcharge system requires payment of outstanding surcharges before allowing a driver to return to the roadways should not be confused with a general tax imposed upon all drivers for the privilege of driving. A motor vehicle surcharge is not a generic exaction imposed to raise revenue for the government, but a penalty imposed as a result of specific motor vehicle violations. The State merely appropriates the monies obtained from specifically established assessments to fund the Merit Rating Plan.” (internal quotes and citations omitted)
The NJ surcharge at issue in Marcucci is quite similar to the ACA shared responsibility payment. The ACA penalty is imposed more as a consequence for violating the Individual Mandate (and, consequently, to encourage compliance) than to raise revenue. See Jordan Barry and Bryan Camp, “Is the Individual Mandate Really Mandatory,” Tax Notes, June 25, 2012, p. 1633.
Second, however, just because the ACA penalty is not a tax does not automatically disqualify it from priority status. Some penalties get priority status in bankruptcy and some do not. Section 507(a)(8)(G) describes the kind of penalties that get priority status as “[a] penalty related to a claim of a kind specified in this paragraph and in compensation for actual pecuniary loss.” The legislative history provides that such claims cannot be punitive in nature and that in regard to taxes such claims represent collection of the principal tax liability under the misnomer of a “penalty” See 124 Cong. Rec. H. at 11,096 and 11,113 (Sept. 28, 1978). For this reason, these types of penalties are called “pecuniary loss penalties.” All other penalties are nonpecuniary loss penalties and they are treated as general unsecured claims.
I think it likely that a bankruptcy court would consider the ACA penalty to be a nonpecuniary loss penalty. First, note that the penalties described in 507(a)(8)(G) must be BOTH “related to” a tax described in paragraph (8), AND have the purpose of compensating the government for actual pecuniary loss. The ACA penalty is sui generis. It is simply not connected to any of the taxes described in paragraph 8. Therefore, it cannot be a pecuniary loss penalty, even if it was, in some sense, designed to compensate the government for some pecuniary loss. Further, I really do not see a court finding that the purpose of the penalty is to compensate for pecuniary loss. The NJ state government made a bold attempt to convince the court in Marcucci that the surcharge imposed on bad drivers was
In addition to the priority issue I would be remiss to omit a word about dischargeability. The starting point for discharge of non-priority tax penalties is governed by §523(a)(7). Non-pecuniary loss penalties may not get priority status, but they also may not be discharged in bankruptcy if they arose within three years prior to the petition date. The one exception to the 523(a)(7) rules are for debtors who successfully complete their Chapter 13 plans. They get a “super discharge” which, per §1328(a) includes an unqualified discharge of all non-pecuniary loss penalties. Chapter 13 debtors who fail to complete their plans, however, get the usual rules. §1328(b).
Here’s what the relevant part of §523(a)(7) provides:
A discharge…does not discharge an individual debtor from any debt-
(7) to the extent such a debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty-
11 U.S.C. § 523(a)(7).
The Ninth Circuit did a nice job in parsing this forest of double negatives in McKay v. U.S., 957 F.2d 689 (9th Cir. 1992). Here’s that Court’s explanation,
Carefully parsed, the section initially makes nondischargeable a “debt that is for a fine, penalty or forfeiture payable to and for the benefit of a governmental unit.” Withdrawn from this class, however, are any such fines, penalties, or forfeitures that are “compensation for actual pecuniary loss.” These are dischargeable. The double negative, “does not discharge” and “not compensation for actual pecuniary loss,” accomplishes this end.
Another group of penalties are withdrawn from the nondischargeable group. These appear in parts (A) and (B) of § 523(a)(7). Part (A) withdraws tax penalties attributable to taxes which are not nondischargeable. That is, part (A) makes dischargeable tax penalties attributable to dischargeable taxes. This follows because part (A) relates “to a tax of a kind not specified in paragraph (1) of this subsection.” 11 U.S.C. § 523(a)(7)(A) (emphasis added). Those types specified in paragraph (1) are not dischargeable taxes. In relevant part “paragraph (1) of this subsection” makes not dischargeable “any debt” that is “for a tax … with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax.” 11 U.S.C. § 523(a)(1)(C).
The other group of penalties withdrawn from the nondischargeable group is described in part (B). It is quite straightforward. It makes dischargeable any tax penalty “imposed with respect to a transaction or event that occurred before three years before the date of the filing of the petition.” A penalty imposed on unpaid taxes accruing more than three years before the filing of the bankruptcy petition is dischargeable.
The bottom line for me is that bankruptcy courts will likely treat the ACA penalty as a general unsecured claim, which means it stands way back in the payout line. The trick is to be sure that the due date of any return that omits paying the ACA penalty is older than three years before the bankruptcy petition date unless your client is one of those rare debtors who successfully completes their Chapter 13 plan, and then they do not need to worry about that.
Filed Under: ACA, Bankruptcy Tagged With: Bryan Camp
Op-Ed: Congress Reaches New Low in Proposed Censure of IRS Commissioner
July 20, 2016 by Guest Blogger 6 Comments
In today’s post we feature an Op-Ed from Professor Bryan Camp, the George H. Mahon Professor of Law at Texas Tech University School of Law. Professor Camp discusses a proposed Censure resolution pending in the House against IRS Commissioner John Koskinen. While the Republicans have a party platform plank urging impeachment, and while there is an impeachment resolution currently in Committee, the proposed Censure resolution is what is up for action and so is the subject of Camp’s post. Les
This post originally appeared on the Forbes PT site on July 19, 2016.
Congress Reaches New Low in Proposed Censure of IRS Commissioner
Among the pile of work waiting for Congress to take up in September is a real stinker. It is H. Res. 737, a proposal to censure the current IRS Commissioner John Koskinen. It was voted out of committee on June 15, 2016. Still pending in Committee is a resolution of impeachment, H. Res. 494. Lynnley Browning at Bloomberg has a very interesting review of these measures. And Leandra Lederman has a great summary of the events leading up to them over at Surly Subgroup.
Those who voted for H. Res. 737 are like my son who, when younger, would throw objects across the house in his fits of frustration. The difference, however, is that at least my son was careful to hurl objects that would not do much damage or break. In contrast, H. Res. 737 seeks to throw Commissioner Koskinen across the House and so risks doing great damage to a decent man and risks further breakage to a tax collection agency already weakened by relentless and mindless budget cuts.
Look, I’m a law professor. I try to teach my students more than just an understanding of the rules relating to taxation. I want them to respect the law-giving authorities, both the Congress that writes the laws and the agency that must administer the laws as written, the IRS.
H. Res. 737 undermines my teachings. The resolution is permeated with pettiness, putrid with peevish odors. In case you think I just like alliteration, let’s take a look at some of the “charges” in the document and you will see what I mean.
The fourth and fifth “Whereas” clauses assert that Mr. Koskinen “failed to live up to the promise” he made at one hearing to “be transparent” because he did not inform the Senate Finance Committee about potentially missing Lerner emails until, at most, four months after he might have known about that particular problem.
In fact, the White Paper attached as Appendix 3 to Mr. Koskinen’s June13, 2014, letter to the Finance Committee spends 9 pages of text and 11 pages of attachments explaining the multiple problems the IRS encountered in recovering emails. To any reasonable person, that’s transparency. There is no accusation that the White Paper lied, or hid information about the problems. And no one contests the basic truths of the White Paper: responding to the Finance Committee’s myriad demands sucked up millions and millions of dollars and human work time that had to be diverted from the agency’s mission. So these particular accusations do not even attempt to accuse Mr. Koskinen of deliberately lying or covering up or hiding or destroying the relevant emails. They cannot. They just accuse him of not being “transparent.”
Not only are these accusations baseless, they’re trashy. The entire reason that Congress even knew about the potentially missing email was because Mr. Koskinen was, in fact, transparent about the email search process and dutifully reported to Congress about several problems in June 2013. He was able to do so, in part, because he consistently attempted to inculcate a sense of duty within the IRS. Rather than hiding problems as the resolution asserts, Mr. Koskinen went to extreme lengths to disclose and explain them.
What seems to affront the sensitive souls of those who voted H. Res. 737 out of committee is that Ms. Lerner’s hard drive crashed in June 2011. They have faith, sure and pure, certain and implacable, that this was no accident and that Lerner was hiding something. I say “faith” because they have no evidence. Even the faith part is shaky: the TIGTA report that started it all (May 14, 2013) shows Lerner had no reason to hide or cover up anything in June 2011. No one was watching or investigating her in June 2011. The entire matter of inappropriate scrutiny of 501(c)(4) applications was still an internal matter. It did not hit the Congressional radar screen (according to the first TIGTA report, on page 3), until the 2012 election cycle. TIGTA began its investigation in June 2012, about a year after Lerner’s hard drive crashed. It sure takes a lot of faith to believe that a hard drive crash in June 2011 was Lerner’s attempt to thwart an investigation that started in June 2012. Gosh, you’d THINK she’d would have at least waited until May 2012 so she could get rid of more stuff…
But those searching for conspiracy have faith. Their faith guides them even a step further into fantasy: since Lerner’s hard drive must have contained incriminating evidence (because it crashed), it follows that the White Paper and Mr. Koskinen’s letter were just covering up the cover-up. You see, a determined and faithful conspiracy theorist is not deterred by a lack of evidence. A lack of evidence just proves a successful cover-up.
So the Senate Finance Committee sent a letter to TIGTA on June 23, 2014, asking TIGTA to (1) try to recover what the IRS could not and (2) investigate whether anyone should be charged for the crime of obstruction of justice.
The result of all this tempest was not even a teaspoon of information. After more than a year of work, TIGTA issued a report on June 30, 2015. It found no basis for obstruction of justice charges. True, TIGTA found sources overlooked by the IRS, such as loaner laptops, backup tapes stored in weird or forgotten places, and decommissioned email servers stored in closets. In other words, it found that the IRS—big shock here—was a pretty typical government bureaucracy filled with imperfect humans. All told, TIGTA reported that it found some 83 million unsearched emails on these new sources. That sounds like a lot…until you check your spam box. Of those 83 million, TIGTA found only 1,330 emails, linked to Lerner in some way, that were not among the 67,000 Lerner emails the IRS previously provided. Were any of these 1,330 emails from her busted hard drive, or were they emails that had been otherwise overlooked? The report does not specify.
And what did the Committee learn from these 1,330 additional emails? Squat. There was no evidence that any of these missing emails were in any way relevant to the original investigation. That is because the Senate Finance Committee had changed up its demands on the IRS. Up until early 2014, the IRS had worked hard to provide emails and other documents relative to the Committee’s original investigation of inappropriate scrutiny of 501(c)(4) applications from conservative groups. That is what Mr. Koskinen describes in his June 13, 2014, letter. But as the White Paper explains on pages 5-6, in early 2014 the Committee directed the IRS to re-do all the work it had already done and this time bring the committee any and all emails related to Ms. Lerner, regardless of their subject or content. Since what the IRS had produced had not given the Committee a basis for criminal charges, that just meant—to the faithful—that the IRS needed to be more forthcoming. The accusations in H. Res. 737 are all about Mr. Koskinen’s so-called failure to “obey” this expanded search command, issued in the form of a subpoena on February 14, 2014.
So, yea! here were a bunch of emails that IRS missed and TIGTA found. But none of them appear to have been relevant to the Committee’s original investigation; they simply were within the scope of its later demand for all of emails that were either to or from (or merely copied) Lois Lerner.
This does not deter the faithful who voted H. Res. 737 out of committee. Like my petulant son, they want to punish Mr. Koskinen for failing to give them what they were sure existed. He denied their faith. So they accuse him of failing to be “transparent.” It’s a silly, stupid, sad accusation that has no merit.
H. Res. 737 contains more accusations, all equally vapid. Later accusations claim Mr. Koskinen made a “series of false and misleading statements.” Why? Because certain statements he made turn out to be incorrect. The accusations really just accuse Mr. Koskinen of failing to be omniscient. All the statements that H. Res. 737 labels as “lies” and “false statements” are simply the result of normal information limitations in a bureaucracy. If one put the phrase “to the best of by knowledge” or “to the best of my ability” before each of the alleged false statements, they would no longer be false. The “falsity” of the statements arises only from events beyond Mr. Koskinen’s control or knowledge.
For example, H. Res. 737 accuses Mr. Koskinen of lying when he testified that the IRS had ‘‘confirmed that backup tapes from 2011 no longer existed because they have been recycled, pursuant to the Internal Revenue Service normal policy’’ and that ‘‘confirmed means that somebody went back and looked and made sure that in fact any backup tapes that had existed had been recycled.” If one puts the phrase “to the best of my knowledge” in front of these statements, they are no longer false. TIGTA’s investigation showed the statements to be false only in the sense of being incorrect, not in the sense of Mr. Koskinen being aware at that time that they were incorrect. Yep, some back up tapes did still exist in some closet even as Mr. Koskinen was claiming they did not. So Koskinen was wrong about that, but he was correct in the destruction was, at that time, the IRS normal policy and he was correct in that “somebody” had looked and not found the tapes. That’s what he knew. That’s what he testified to: the best of his knowledge. This is all in the TIGTA report.
So, yeah, Mr. Koskinen was not omniscient. But his statement was to the best of his knowledge and it’s his knowledge that turns out to have been imperfect. In fact, when the Inspector General himself testified in 2015 about his agency’s findings, one Congressman urged him to describe how often IRS employees were not cooperating. The Inspector’s response was “Very rarely, especially, in all candor, under the current Commissioner. He’s been extraordinarily cooperative.”
The Inspector went on to point out that while IRS employees were cooperative in responding to authorized requests, they were not good at sharing information outside the specific boundaries of his investigation. In his words: “so they were not compelled to provide us that information, but they neglected to.” What the Inspector did not say, however, was that IRS employees can be criminally charged under IRC § 7213 if they disclose information outside of a lawful request. Conviction is a felony punishable by up to 5 years in the slammer. If you had THAT hanging over your head, you’d probably make the choice to stick to disclosing the information requested and not volunteer.
H. Res. 737 is a petty product of petulance. I’ve watched Mr. Koskinen testify at several hearings and what I have seen is grace under pressure. He came out of retirement at age 74 to volunteer for his country. I would like to see any one of the yahoos who voted H. Res. 737 out of committee step up and volunteer to manage the IRS when they turn 74. Wait…no…on second thought, given how they have mangled their oversight duties, that is not a sight I hope to see.
I sincerely hope that when Congress re-convenes in September, the House will treat H. Res. 737 like the garbage it is and throw it away.
Postscript: I very much appreciate the support I received from the following fellow tax profs who were kind enough to review an earlier draft: Richard Winchester (Thomas Jefferson School of Law); Roberta Mann (University of Oregon School of Law); Leandra Lederman (Indiana University Maurer School of Law); Lisa Milot (University of Georgia School of Law); Tracy Kaye (Seton Hall University School of Law). Readers, if you find errors, don’t blame these folks; it’s my fault and not theirs! Finally, please remember that I here express my personal views and am not writing on behalf of Texas Tech University School of Law. -BTC
Filed Under: miscellaneous Tagged With: Bryan Camp
Guralnik – Equity Through Court Rules not Court Rulings
June 6, 2016 by Guest Blogger 1 Comment
Today we welcome back guest blogger Bryan Camp. Professor Camp, my former colleague in the General Litigation Division (aka collection division) of Chief Counsel, IRS now teaches at Texas Tech. Because Bryan teaches a wide range of subjects including administrative law and civil procedure in addition to tax, he has a perspective on the Guralnik case that someone like me, who is grounded primarily in tax, does not have.
It is weird to receive congratulations about a case in which the Court rejected your argument 16-0. I had never had the pleasure of losing by that margin before and hope to not have that pleasure again. It gives me a better perspective of how all of the Republican Presidential wannabes felt when the voters rejected them though even their voting margins were not as bad as mine. Without going too deeply into an analogy I am ill-equipped to carry out, the case reminds me a bit of the superpower movies of the past 10-15 years. The characters frequently have misgivings about the powers they find they have and struggle to cope with their special powers. The Harvard tax clinic argued that the Tax Court has powers it has not previously exercised. The Court emphatically rejected that idea. Yet, it found it had another power it had not previously exercised and which it had rejected on more than one occasion. I might argue that the power it found it had is a more exceptional power than the one the Harvard tax clinic suggested since the Supreme Court has previously limited the power of court Rules to expand jurisdictional limits but I have had my time to argue and now it is Professor Camp’s turn to explain. Keith
Congratulations to Keith and Carl for helping the Tax Court find a way to get to the right decision in Guralnik v. CIR, 145 T.C. No. 15 (June 2, 2016). Yeah, they struck out on the home run swing, but Mr. Guralnik still managed to eke out a win, in part I think because Tax Court (mistakenly) thought the step it took was not nearly as large as what Keith and Carl urged. I am grateful to the Procedurally Taxing gang for allowing me to write my thoughts about this very interesting 37 page Tax Court opinion.
The judge I clerked for in the Court of Federal Claims used to say “where equity lies, the law will follow.” Of course, he usually said that while strictly construing jurisdictional requirements to deny the petitioner relief. So he might as well have added the caveat: “but the law has not yet followed in this case.” Like the Court of Federal Claims, the Tax Court is very, very cautious about not overstepping its Congressionally-given bounds. In Guralnik, however, the Tax Court at least found some “law” to follow “equity” and so came to a good result. But one has to be discouraged by the convoluted path the Court took, a path forced upon it, in part, by the Supreme Court.
I have three comments about this case that may be of interest to readers. First, the Court’s opinion relies on what I believe is a mischievous distinction between “claim processing rules” and “jurisdictional rules.” Second, the Court could have done a better job applying that distinction. Third, by applying FRCP 6(a), the Court actually may be contradicting its own rationale for not applying equitable tolling, because FRCP 6(a) is best viewed as itself nothing more than an equitable tolling rule, albeit one put into the “form” of a rule (hence the law following equity idea). While I think the Court was right to follow the FRCP, I wish it had given a better reason than it did.
For those unfamiliar with the case, here are the facts reduced to their essentials: taxpayer (TP) was trying to file a collection due process (CDP) petition. TP tried to deliver the petition on the last day of the filing period, but was unable make delivery because the Tax Court was officially closed that day due to a snowstorm. So TP had to file the next day. The question was whether the petition was untimely.
The TP, aided by Keith and Carl’s amicus brief, urged the Tax Court to find that these circumstances equitably tolled the period for filing a timely petition. The Tax Court rejected the argument because, it said, the statute granting the Court subject matter jurisdiction (SMJ) over a CDP petition made the timely filing of the CDP petition part of the jurisdictional grant. The Tax Court reasoned that while it could apply equitable tolling to what it called “claim-processing rules” it could “not apply equitable tolling to a jurisdictional filing requirement.” The Court cited to Sebelius v. Auburn Reg’l Med. Ctr., 133 S. Ct. 817, 824 (2014) for that proposition.
TP won his backstop position, however. Federal Rule of Civil Procedure 6(a)(3)(A) says that “Unless the court orders otherwise, if the clerk’s office is inaccessible…on the last day for filing…then the time for filing is extended to the first accessible day that is not a Saturday, Sunday, or legal holiday.” The Tax Court had no difficulty in applying FRCP 6(a)(3)(A) to save the taxpayer, reasoning that “procedural rules for computing time are fully applicable where the time period in question embodies a jurisdictional requirement. Rather than expanding a court’s jurisdiction, Civil Rule 6 simply supplies the tools for counting days to determine the precise due date.” (Internal quotes and cites omitted).
The Silly Distinction between “Claim Processing” and “Jurisdictional” Timing Rules
The notion that courts have equitable powers to modify ordinary “claim processing” rules but have no ability to modify “jurisdictional” timing rules is a nefarious formalist distinction. This is not the Tax Court’s doing. The Court here is just obeying the distinction created by the Supreme Court in cases such as Irwin v. Department of Veterans Affairs. 498 U.S. 89 (1990). As that Court noted in Auburn Reg’l Med. Ctr., 133 S. Ct. 817 at 824, it has “tried in recent cases to bring some discipline to the use” of the term “jurisdiction” which it has called a “word of many, too many, meanings.” (Internal quotation marks and citations omitted).
I have two reasons for disliking the distinction. I think briefly stating them may help future courts (or to litigants educating courts!) who are called upon to make the distinction.
First, the word “jurisdiction” just means “power.” It is true there are many types of jurisdiction that one considers, but, for this type of case, we are concerned with the problem faced by all federal courts, whether established under Article I or III: their power over the substance of the lawsuit comes from statutes. We call that Subject Matter Jurisdiction (SMJ).
I do not believe rules about filing deadlines are usually really rules about power, such as to say “oh, you HAD power, but after this deadline passes, you no longer have power, nanny nanny boo boo.” All deadlines are “claim processing rules” in the sense that they speak to a party’s ability to invoke the power, to open the courthouse door, so to speak. They do not speak to a court’s power over a subject per se. Consider a statute that says “A party wishing to invoke the court’s subject matter powers must dance the Macarena for five minutes in the street before the party may open the courthouse door.” Determining whether a party actually performs the dance or leaves out a step is not a question about the court’s power over the subject of the lawsuit but is only a determination about whether the party has earned the right to come in. Determining whether a party has taken the proper action to have filed a timely petition is like evaluating whether the dance was properly done.
To be sure, there is a long-standing, never-ending, permanent, floating crap-game of arguments that one throws up to debate whether timing provisions are “substantive” or “procedural.” First year law students study one (and only one) dimension of this debate in the context of studying the Erie Doctrine. And when one looks carefully at the Erie case law, one finds that courts (and the Supreme Court) are careful to answer the question “is it substantive or procedural” with “why do you want to know.” So, while timing rules might be substantive for some purposes, that does not make them per se part and parcel of a jurisdictional grant.
The second reason I dislike the distinction is because it ignores the fundamentals of separation of powers. Every branch of government (legislative, executive, judicial) has the power to determine its own powers, subject to the allowed corrections from the other branches. So there is really no reason for courts not to apply equitable powers to modify even “jurisdictional” provisions. If the courts get it wrong, the legislatures can always come back and codify corrections. Maintaining the distinction between “claim processing rules” and “jurisdictional rules” just seems to create unneeded problems and litigation.
2. Applying the Silly Distinction to Section 6330.
Recognizing that the Tax Court was stuck with the distinction, I nonetheless wished it had given more attention to analyzing the particular statute that gives it SMJ over CDP claims. Section 6330(d) provides that the TP “may, within 30 days of a determination under this section, appeal such determination to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter).” (Emphasis supplied, for reasons you will shortly read.)
In the Guralnik opinion, the Tax Court focuses on the fact that the parenthetical occurs in the same sentence as the SMJ grant. That’s a strange reason to find the timing rule jurisdictional. There are two better reasons to find otherwise. First, the use of the word “and” is, to me, a HUGE clue that the SMJ grant has nothing to do with the 30 day period. Grammatically, the connector “and” denotes the start of a new independent clause, a clause that can stand on its own as a separate sentence. I am all the time telling my students to write shorter sentences. That often means substituting a period for an “and.” So, functionally, the clause after the “and” in 6330(d) is a different sentence.
Second, the statute says the Tax Court has SMJ “with respect to such matters.” If you want to find a reference in the same subsection, the word “such” most naturally references the phrase “determination under this section” and not the clause “within 30 days.” However, I think the better reading is to read section 6330 as a whole. In the immediately preceding subsection, 6330(c) lists all the “Matters Considered at Hearing.” So it makes sense to me that 6330(c) tells the IRS what matters it must consider at the CDP hearing and then 6330(d) tells the Tax Court it has SMJ over “such matters.” I think THAT’s the reference as to what the Tax Court has power to review. Again, SMJ is just the power Congress gives a court over the subject of a lawsuit. Here, the subject is the review of the CDP hearing and the “matters” contained in the CDP hearing are listed in 6330(c).
3. Is The Tax Court’s Reason for Applying FRCP 6 Consistent With Its Reason for Refusing to Apply Equitable Tolling?
Once the Tax Court concludes that the 30-day requirements is not just a “claim-processing rule” but is jurisdiction, it rejects the Taxpayer’s equitable tolling argument because, it says, “A court may not apply equitable tolling to a jurisdictional filing requirement.” The Court never explains why it cannot apply equitable tolling to a jurisdictional filing requirement but instead just cites to the Supreme Court’s opinion in Sebelius v.Auburn Reg’l Med. Ctr., 133 S. Ct. 817 (2914) and to its own opinion in Pollock v. CIR, 132 T.C. 21 (2009). When one reads the cited opinions, however, and then reads the opinions cited in the cited opinions (!) one sees two basic concerns courts have articulated in explaining their reluctance to use equitable powers to jurisdictional filing requirements. First is a concern for finality. Here is how the 11th Cir. has explained it:
The principal reason underlying decisions which hold that statutory periods of limitation are jurisdictional… is to set a definite point of time when litigation shall be at an end, unless within that time the prescribed application has been made; and if it has not, to advise prospective appellees that they are freed of the appellant’s demands. In the specific context of direct appeals from decisions of administrative agencies, the time limitation serves the important purpose of imparting finality into the administrative process, thereby conserving administrative resources and protecting the reliance interests of regulatees who conform their conduct to the regulations.
Brown v. Dir., Office of Workers’ Comp. Programs, 864 F.2d 120, 124 (11th Cir.1989) (citations and internal quote marks omitted).
The second concern is about the proper separation of powers. Courts might abuse their equitable tolling powers and thereby screw up a carefully calibrated statutory scheme. That’s the thrust of the Supreme Court’s concern in United States v. Brockamp, 519 U.S. 347 (1997), when it refused to allow equitable tolling to the section 6511 limitations on refund claims and suits.
Section 6511’s detail, its technical language, the iteration of the limitations in both procedural and substantive forms, and the explicit listing of exceptions, taken together, indicate to us that Congress did not intend courts to read other unmentioned, open-ended, “equitable” exceptions into the statute that it wrote. There are no counter-indications. Tax law, after all, is not normally characterized by case-specific exceptions reflecting individualized equities.
The nature of the underlying subject matter—tax collection—underscores the linguistic point. The IRS processes more than 200 million tax returns each year. It issues more than 90 million refunds. To read an “equitable tolling” exception into § 6511 could create serious administrative problems by forcing the IRS to respond to, and perhaps litigate, large numbers of late claims, accompanied by requests for “equitable tolling” which, upon close inspection, might turn out to lack sufficient equitable justification. See H.R. Conf. Rep. No. 356, 69th Cong., 1st Sess., 41 (1926) (deleting provision excusing tax deficiencies in the estates of insane or deceased individuals because of difficulties involved in defining incompetence). The nature and potential magnitude of the administrative problem suggest that Congress decided to pay the price of occasional unfairness in individual cases (penalizing a taxpayer whose claim is unavoidably delayed) in order to maintain a more workable tax enforcement system. At the least it tells us that Congress would likely have wanted to decide explicitly whether, or just where and when, to expand the statute’s limitations periods, rather than delegate to the courts a generalized power to do so wherever a court concludes that equity so requires.
United States v. Brockamp, 519 U.S. at 352 (citations and internal quote marks omitted).
Tax exceptionalism alert!! Note the way the Supreme Court acknowledges how “the nature of the underlying subject matter” is an important part of its analysis. That’s tax exceptionalism, folks.
It would have been helpful for the Tax Court to explicitly acknowledge these two traditional concerns underlying the historic refusal of courts to apply equitable tolling to jurisdictional timing periods because the Tax Court then goes on to find a substitute for equitable tolling in FRCP Rule 6.
FRCP Rule 6, however, is just a rule that explicitly permits federal courts to equitably toll a filing limitation when the place of filing is “inaccessible.” My claim that this is an equitable rule rests on two observations. First, note how FRCP 6(a)(3)(A) starts: “Unless the court orders otherwise…” In order words, the courts have discretion to overrule the rule. Why would they do that? Why, for “good cause.” That’s all equitable tolling is, a determination that for a good reason or good cause a seemingly late-filed document will be deemed to have been filed within the applicable period. FRCP just reverses the presumption, but it still leaves the determination up to the court. If there is a good reason to NOT extend the time for filing despite the inaccessibility of the court, the court may “order otherwise.” So in this case, for example, if Mr. Guralnik’s Fed Ex delivery person had been scheduled to deliver the package late, the fact that the Court was inaccessible the day before scheduled delivery would probably be a good reason to “order otherwise.”
Second, note that the FRCP applies whenever the clerk’s office is “inaccessible.” What does that word mean? Does that mean physically inaccessible? Some courts think so. U.S. Leather, Inc. v. H & W Partnership, 60 F.3d 222, 225, (5th Cir. 1995). Other disagree and say it means only when legally closed. In re Bicoastal Corp., 136 B.R. 288 (Bankr.M.D.Fla.1990). Does the term include situations when the clerk’s office is physically open but the party is trying to electronically file from across the country and the servers are down? All of these questions rest in the good hands and heads of the judges applying the FRCP. They will decide in light of what is fair. That is what the drafters say they intended in the 2009 Advisory Committee Notes: “The rule does not attempt to define inaccessibility. Rather, the concept will continue to develop through case law.” And “case law” here just means the judicial application both legal rules and of equitable rules. After all, law and equity have been merged in the federal courts since 1938. There is no longer a “law” side and an “equity” side and both sets of rules—legal and equitable—are in the judicial tool box under every federal bench.
So if the Tax Court is not going to apply “equitable tolling” doctrines to the section 6330 30-day deadline, why does it decide to use FRCP 6? After all, not only does the Advisory Committee say that the FRCP will develop by case law, the FRCP itself is a judge-made rule, subject to case law development, just as is the doctrine of equitable tolling. To be sure, the FRCPs are promulgated by the Supreme Court pursuant to the Rules Enabling Act (REA), but it would be difficult to argue that the writers of the REA thought they were thereby giving courts license to alter SMJ! So is not using the FRCP to alter the jurisdictional timing rule of 6330 doing exactly what the Tax Court says it courts cannot do??
The Tax Court thinks applying FRCP 6 is different than applying equitable tolling. It says “Rather than expanding a court’s jurisdiction, Civil Rule 6 simply supplies the tools for counting days to determine the precise due date. Such rules of procedure do nothing more than provide the court and the parties with a means of determining the beginning and end of a statute of limitations prescribed elsewhere in the law.” (Internal quotes and cites omitted).
I confess I do not follow this reasoning. That is, I think one can make the same statements about equitable tolling. Let’s try: “Rather than expanding a court’s jurisdiction, the rules of equitable tolling simply supply the tools for counting days to determine the precise due date. Such rules do nothing more than provide the court and the parties with a means of determining the beginning and end of a statute of limitations prescribed elsewhere in the law.”
Hmmm. What’s the difference here? Both sets of rules are entirely judge made! Well, one obvious difference is that the “rules” of equitable tolling are manifold whereas FRCP 6 is narrower, dealing with only one (recurring) set of facts that, as such, warrant an actual rule. The Tax Court implicitly claims that FRCP 6 gives parties more certainty than the myriad rules of equitable tolling. So that may go to the first concern about allowing equitable tolling of jurisdictional timing rules: finality. It would have been better for the Court to explicitly discuss that concern.
The Tax Court’s reluctance to embrace a far-reaching ill-defined equitable tolling concept may also reflect the Brockcamp concerns. That is, at first blush the CDP provisions do not appear nearly as integral to tax administration as the 6511 periods. Something like 1% of taxpayers who receive a CDP Notice actually try for a CDP hearing. But perhaps the concern is that if the Tax Court allows equitable tolling, you will start getting double or triple the number of petitions to deal with. Or more. You will start getting really, really stale petitions and lame excuses. Hey, I am a professor. I know from lame excuses. So is that what the Tax Court fears? Is it worried about opening the proverbial floodgates of lame excuses?
If the flood-gate concern is what is really animating the Tax Court’s decision here, it would have been useful to see it and to see the Tax Court more explicitly tie it to Brockcamp. I personally think there is a plausible argument that sticking with a bright line rule is itself equitable, especially since there is absolutely no constitutional concern here about due process. Phillips v. Commissioner, 283 U.S. 589 (1931). So I am not unhappy with the Tax Court’s Solomonic decision to reject one form of equitable tolling in favor of what may well be a more limited exercise of equitable tolling. And for this TP, in this case, that’s all that is needed.
Filed Under: Equitable tolling, Tax Court Tagged With: Bryan Camp
Initial Take on the Kuretski Language in the PATH Law
December 19, 2015 by Guest Blogger 7 Comments
In yesterday’s post summarizing some of the procedural provisions in PATH, I noted that the legislation in Section 441 (new Code Section 7441) includes a post-Kuretski “clarification” that the Tax Court is not an executive agency. In this brief post, guest poster Professor Bryan Camp offers his initial take on that provision. Les
I don’t see how the new Congressional language changes anything. By that I mean I don’t see how the language affects what the Tax Court does, can do, will do, nor how its decisions are reviewed by Article III courts. I don’t see how it affects what taxpayers do or what the Service does. The language does, however, allow academics to write new articles!
Of course the Tax Court is not an “agency” of the Executive branch. Agencies exercise a blend of rulemaking and adjudication. The Tax Court just adjudicates. It’s a court. As the Supreme Court said in Freytag, the Tax Court performs a judicial function. Specifically, it’s an Article I court established by Congress per the Necessary and Proper Clause as part of Congress’ exercise of the taxing power.
As the D.C. Cir. opinion in Kuretski pointed out, just because Congress created the Court by exercising Article I powers and not by exercising Article III powers does not make the Tax Court part of the “Legislative branch” because it does not perform the functions of writing statutes. And, since it was NOT created per the requirements of Article III, it’s not part of the “Judicial branch” and it does not perform the function of exercising “judicial power” which is a term of constitutional art.
So the Kuretski court decided the Tax Court had to be “located” within the Executive branch. Congress now just says it is not an “agency” within the Executive branch and is “independent” of the Executive branch.
So the Tax Court is not an Independent Agency (whatever that means, as recently discussed). So let’s call it an “Independent Court” (whatever that means, as I am sure will be discussed ad nauseum). Hell, let’s just call it a “Banana.”
“Where” it is located in some organizational chart is not relevant to what powers it can exercise or how it fits into the constitutional distribution of powers. What IS relevant is whether the Tax Court’s powers impermissibly entrench on some branch’s powers. And whether it does THAT depends on what its powers ARE and THIS language does not affect those powers.
The debate about the constitutional placement of the Tax Court reflects, in part, a larger debate about the nature of the structural Constitution. First, there are the Trinitarians. They read Articles I, II, and III as creating solid walls between the three great Departments of government, sort of like three big offices. You gots your Legislative office here, your Executive office there, and your Judicial office over there there. Just as a human cannot physically be in more than one office at once, neither can any governmental entity “be” in more than one of those rooms, nor can any person be an “official” of more than one office. So every governmental entity and governmental employee must be in one room or another.
Next up are the Unitarians. They see the Constitution as building a Great Room, not three offices separated by walls. In the Great Room are three power centers: legislative, executive, and judicial. There are no walls but each group of governmental actors has its own work space and own function. There is plenty of room to build new cubicles and the key idea is that no working group take over what another working group is supposed to be doing. It is not so important where each cubicle is physically located in the room as it is what each occupant is doing.
Finally, there are the Fourth Branchers. They use a more organic metaphor: the tree. Yes, you’ve all heard of the Three Branches of Government. These folks take that metaphor and suggest that there is room on the Constitutional trunk for new little branches to grow. So “Independent Agencies” can be seen as “fourth” branches. Not only do they not fit comfortably in any of the three “offices” as conceived of by the Trinitarians, they also combine functions (rulemaking and adjudication) and so cannot be easily located in the Great Room of the Unitarians.
I think under any of these models, this language does no work change. Some Trinitarians on an Administrative Law listserv have suggested that this language will ensure that when OTHER federal statutes refer to “Executive Agencies” those statutes will now be more obviously inapplicable to the Tax Court than before. But they agree with me that this language does not (or should not) impact what the Tax Court does or how it performs its function of adjudicating disputes between taxpayers and the Service.
The language changes nothing except to now create busy work for a lot of folks who should not have to waste their time on it.