In Uncategorized on 11/20/2014 at 17:11

From what appears to be a rich vein, here’s another of my sequels to Robert Gover’s 1962 novel, this time of the whistleblower variety. It’s a full-dress T. C., 143. 20, filed 11/20/14, and stars Robert Lippolis.

Judge Colvin tells IRS’s counsel to move to amend the answer, and forget about dismissing for want of jurisdiction.

Rob apparently shopped an individual taxpayer and some of his flow-throughs for underreporting income, out of which shopping IRS came away with $844,746. The Ogden Sunseteers tossed Bob a discretionary  Section 7623(a) 15% award (don’t we give that to waiters?).

Bob, wanting more,  appeals to Tax Court. IRS claims Bob should be happy with what he got, because he  has no basis for claiming a Section 7623(b) mandatory 15%-30% award.

Section 7623(b)(5) only allows a Section 7623(b) mandatory award if the amount “in dispute” exceeds $2 million. IRS says this is a jurisdictional limit. If $2 million isn’t on the table, IRS bids Rob and Judge Colvin a nice day, but there’s nothing doing.

Judge Colvin says Section 7623(b)(4) gives Tax Court jurisdiction. The Section 7623(b)(5) $2 million is an affirmative defense, not a jurisdictional limit. And IRS admits that Section 7623(b)(5) is not “jurisdictional in character”, but Bob should be tossed anyway. 143 T. C. 20, at p. 6.

For the nonlawyers among you, a jurisdictional limit means the Court can’t say anything. An affirmative defense means that, if the defense can be established, defense wins, but the Court has to decide if they established it.

So Judge Colvin hauls out statutes where Congress made dollar-amount jurisdictional limits, and cases where Circuit Courts of Appeal and the Supremes have canvassed the issue.

Judge Colvin: “Specifically, courts are to review whether Congress ‘clearly states that a threshold limitation on a statute’s scope shall count as jurisdictional’ * * * [b]ut when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional’ [in character].’ Moreover, the “jurisdictional analysis must focus on the ‘legal character’ of the requirement, * * * which * * * [may be] discerned by looking to the condition’s text, context, and relevant historical treatment”.143 T. C. 20, at p. 7 (Citations omitted, but save them for your next brief).

Legislative history sheds no light. And the mere fact that the limiting Section 7623(b)(5) follows the jurisdictional grant of Section 7623(b)(4) means nothing. “Mere proximity will not turn a rule that speaks in nonjurisdictional terms into a jurisdictional hurdle.”). 143 T. C. 20, at p. 8 (Citaiton omitted).

And Judge Colvin finds any number of statutes where Congress was very clear about what constituted a jurisdictional limit, and this isn’t one of them.

But if Section 7623(b)(5) is an affirmative defense, it must be pled and proven.

And the term “in dispute” was only defined by Reg. 301.7623-2(e)(2) for claims made or matters open on or after 8/12/14.

Rob’s claim was made long before that.

Judge Colvin ducks. No need to decide what was or was not “in dispute.” Rob claims he can’t know, because only IRS has the records and they may involve taxpayer privacy.

Judge Colvin tells IRS to plead it and prove it.

“The Commissioner generally should have easy access to all of the records or documents that would show whether the amount in dispute in ‘the action’, i.e., ‘any administrative or judicial action’, sec. 7623(b)(1), initiated against the target as a result of the whistleblower claim exceeds $2 million. Those documents may not be available to the whistleblower and may constitute confidential taxpayer information of the target. It would be unduly burdensome to require the whistleblower to provide or perhaps even to know of the existence of those records.” 143 T. C. 20, at p. 12.

But Judge Colvin will give IRS a second chance.

“We will deny respondent’s motion to dismiss for lack of jurisdiction. Rule 41, Amended and Supplemental Pleadings, provides that ‘leave [to amend a pleading] shall be given freely when justice so requires’, and that ‘[a] motion for leave to amend a pleading shall state the reasons for the amendment and shall be accompanied by the proposed amendment.’ We will issue an order allowing respondent 60 days to file a motion for leave to amend the answer to raise the section 7623(b)(5)(B) affirmative defense and to include allegations of fact supporting the amendment to the answer. If the Court grants respondent’s motion to amend raising the section 7623(b)(5)(B) affirmative defense, petitioner will have 45 days from the date of service of the amendment to answer to file a reply or 30 days from that date within which to move with respect to the amendment. See Rule 37.” 142 T. C. 20, at p. 14.

I bet that even post-8/12/14, IRS will have to plead and prove what was “in dispute”.





In Uncategorized on 11/19/2014 at 21:36

We all know that the record in a case is the key, the linchpin, the cornerstone; you win or lose on the record. An advocate’s whole art can be found in building the record.

No opinions out of Tax Court today, and the one STJ Lew (“He Can Spell”) Carluzzo designated hitter is a Rule 40(b) failure to state a claim by a frivolity merchant.

But here’s an example from The Judge With a Heart, STJ Robert N. Armen, Jr., who shows what happens when an advocate doesn’t build a record.

This is Dardanelle Community Hospital, LLC, Docket No. 303-14L, filed 11/19/14. And to show what a menschadicher dude I am, I won’t name IRS’s attorney.

IRS’s attorney moves for summary judgment. And STJ Armen gives the usual no-trial-is-needed, but nonmovant gets every favorable inference spiel.

But then IRS’ record crumbles. Badly.

STJ Armen: “The record in this case is sparse. In addition, the record lacks both a declaration by the settlement officer who conducted the hearing and certified transcripts of petitioner’s accounts.” Order, at p. 1. (Footnote omitted, but see infra, as my high-priced colleagues say).

Not a strong start. Procedure 101 taught us that summary J motions need to be accompanied by admissible proof, like affidavits, affirmations and declarations from persons with personal knowledge of the facts therein alleged, and copies of relevant documents, whose provenance is duly attested.

And the footnote hereinabove referred to doesn’t make things better. “Remarkably, although respondent did not offer certified (or indeed, any) transcript of account in support of his motion, petitioner attached as exhibits to its Opposition transcripts for two of the three taxable periods at issue in this case; notably, however, those transcripts were non-certified and temporally stale and therefore of little, if any, value. But even if we were to overlook respondent’s failure to offer certified transcripts of recent vintage, the fact remains that the record does not include any transcript for the most recent taxable period at issue.” Order, at p. 1, footnote 1.

When your adversary’s opposition papers include a hint of the essential evidence you left out, it is time to prepare for what someone, in a much more exalted position than anyone in IRS Counsel’s Office, called “the wrath to come.”

STJ Armen finds a couple of minor issues, like whether Dardanelle owed any taxes to begin with, and exactly what the SO verified by way of compliance with applicable law and administrative procedures.

So STJ Armen buries the summary J motion in a footnote. “In his motion, respondent invokes the bar of I.R.C. section 6330(c)(2)(B). In contrast, the settlement officer did not. Rather, the settlement officer ‘reviewed the documents submitted by the rep and the administrative record’ and ‘[b]ased on the evidence submitted by the taxpayer and the Service’s administrative record’ concluded that ‘[t]he taxpayer failed to meet the reasonable cause criteria.’ In so concluding, the settlement officer utilized a ‘four part multi-factor test to determine reasonable cause for non-compliance.’ In applying the test the settlement officer asserted that the taxpayer ‘has a long history with non-compliance dating back to 2010’, that the taxpayer ‘is not a first time depositor’, and that ‘[d]uring the time of the non-compliance the taxpayer paid all other creditors including pay checks to the LLC members.’ These are all factual matters, but there is no predicate to support them them [sic] in the record before us; and the ultimate issue of reasonable cause is, of course, a quintessentially factual matter, which is ordinarily not suitable for adjudication by summary disposition.” Order, at p. 2., footnote 2.

Better luck on the trial. And with your next summary J motion.



In Uncategorized on 11/18/2014 at 16:22

Here’s the latest and greatest information from a Big Four accounting firm.


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