In Uncategorized on 12/17/2014 at 16:24

I’m talking about The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Imperturbable, Implacable, Indefatigable, Illustrious, Irrefragable Foe of the Partitive Genitive, Judge Mark V. Holmes, and his ongoing love affair with the Chenery doctrine.

What is the Chenery doctrine, you may ask if you’re coming late to the scene at

See my blogpost “Chen-Chenery”, 8/21/14, wherein Judge Holmes explicated at length the Supremes’ 1943 and 1947 holdings in the Chenery case: “‘…a reviewing court, in dealing with a determination or judgment which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency.’” In short, the administrative agency (here IRS) is stuck with the record they had and what they did with it–not what they might have had and could have done with it. In short, coulda shoulda woulda doesn’t fly.

And here’s a designated hitter to the same effect, Fredric A. Gardner, 14877-13L, filed 12/17/14.

Fred is far from a model citizen. IRS hauled Fred and Mrs Fred into USDCDA (AZ) and enjoined them from continuing their tax shelter flogging. “That court found that they had organized or set up more than 300 corporations sole and 10 LLCs, and that the Gardners had charged $1200 per corporation sole, $800 for a trust, and $500 for an LLC. United States v. Gardner, No. CV05-3073-PCT-EHC, 2008 WL 906696, at *4 (D. Ariz. Mar. 21, 2008), affd, 457 F. App’x 611 (9th Cir. 2011).” Order, at pp. 1-2.

All these were shams, and Fred and Mrs Fred were found to have violated Section 6700, the bogus shelter flogger law.

IRS hit Fred with a $47K penalty, and when Fred sought CDP, claiming he never had a chance to contest the penalty, Appeals claimed his affirmed District Court loss put him out of court.

But when Judge Holmes asks IRS’s counsel how IRS came up with the $47K and where in the DC judgment were the findings that established it, Fred gets an unexpected bye.

“Counsel was unable, however, to point out anywhere in the district-court order or transcript anywhere that the District Judge had found a $47,000 penalty to be appropriate, and admitted that it was a revenue agent who had made the decision to assess that amount. (We should note that penalties under §6700 are immediately assessable – there’s no need for a notice of deficiency before recording the debt in the records of the IRS. See IRC §§ 6671 and 6703.) And it likewise proved impossible for respondent’s counsel to pinpoint any district-court findings supporting that amount. This made it impossible for us to sustain the Commissioner’s argument that the amount, even if not the liability for some amount, was essential to the District Court’s decision or necessarily decided in the injunction action – both essential elements on a claim of collateral estoppel.” Order, at p. 2.

For the benefit of a certain New Jersey tax attorney, I now point out that this was not the finest hour either of IRS or its counsel.

IRS’s counsel does some scrambling in the backfield, but Judge Holmes puts him in the sack, with a big loss.

“Respondent’s counsel even suggested that the $47,000 figure ‘was actually the revenue agent conflating section 6700 with aiding and abetting penalties in section 6701. . . . [T]hat appears to be why he referenced an underpayment . . .’

“The Court agrees – though with the important quibble that it would find ‘confusing’ rather than ‘conflating’ to be the right word-i.e., we think the revenue agent just made a mistake. But, more importantly here, Mr. Gardner never had the opportunity to challenge this mistake before or during his CDP hearing.” Order, at p. 3. (Footnote omitted, but read it–Section 6700 flogging penalties and Section 6701 aiding-and-abetting are different, and while IRS tries to stack them, Section 6701(f)(3) prohibits IRS from doubling up in a doc-prep case).

Even when down, IRS’s counsel (give the dude credit) tries to dump off the football.

“When we discussed this problem, respondent’s counsel argued instead that the penalty under § 6700 might have been set at $1000 per violation, and with the District Court’s finding that the Gardners had 300 clients, the $47,000 amount set by the revenue agent might be a bargain. This might be true, but under the Chenery doctrine we cannot sustain a notice of determination on grounds other than what the settlement officer relied on.” Order, at p. 3.

And Judge Holmes can’t tell what the revenue officer relied on. All the SO at Appeals did is say “well, there’s an injunction in USDCDA and affirmed by Ninth Circuit, so game over.” That’s not good enough.

Judge Holmes cites to Salahuddin, wherein Judge Gustafson joined the Chenery fan club. See my blogpost “Enough is Enough”, 5/17/12.

Salahuddin, 103 T.C.M. (CCH) at 1768 (stating that ‘our role under section 6330(d) is to review actions that the IRS took, not the actions that it could have taken’). Those grounds must be clearly set forth so that we do not have to guess about why the IRS decided what it did. See Chenery II, 332 U.S. at 195. We cannot uphold a determination simply because findings might have been made and considerations might be disclosed which might justify a conclusion.” Order, at p. 4.

Summary judgment for IRS denied. Go try the case.

  1. New Jersey loves Chenery & this blog. It may soon be assigned ready for the USTCP class.


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