Rule in CDPs

Richard Hudec, Docket No. 1953-20L, filed 10/21/21*, is the usual you-didn’t raise it-at-Appeals-so-fuggedaboutit. Richard had an EA as agent (not Power of Attorney, Judge Christian N. (“Speedy”) Weiler; a power of attorney is a piece of paper or a concatenation of electrons wherewith the taxpayer-principal appoints a Representative or Agent). The EA may not have been in the picture at Appeals; I can’t discern the whole story from the order.

I only blog this order because Judge Speedy Weiler provides a footnote with the latest learning on which CCAs are record-rule-only, and which are free of the Administrative Procedures Act and the record rule in CDP abuse of discretion cases.

I include Judge Speedy Weiler’s “copious citation of precedent” to make my readers’ lives easier if they need to drag-and-drop for a brief or memo of law.

” The facts in this Order are principally derived from the administrative record developed before Appeals; however, our review of Appeals’ determination is not limited to the administrative record. In Robinette v. Commissioner, 123 T.C. 85, 95 (2004), rev’d, 439 F.3d 455 (8th Cir. 2006), we held that ‘when reviewing for abuse of discretion under section 6330(d), we are not limited by the Administrative Procedure Act * * * and our review is not limited to the administrative record.’ The Courts of Appeals for the First, Eighth and Ninth Circuits have concluded otherwise, holding that the so-called ‘record rule’ applies to Collection Due Process (CDP) cases before this Court. See Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff’g in part T.C. Memo. 2006-166, and aff’g in part, rev’g in part decisions in related cases; Murphy v. Commissioner, 469 F.3d 27 (1st Cir. 2006); Robinette v. Commissioner, 439 F.3d 455 (8th Cir. 2006), rev’g 123 T.C. 85 (2004). Under sec. 7482(b)(1)(G), appeal in this case would lie in the Court of Appeals for the Eleventh Circuit, absent a stipulation by the parties to the contrary. Since the Eleventh Circuit has not addressed the issue, our review of Appeals’ determination in this case is not limited by the record rule. See Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971).” Order, Footnote 1, at pp. 1-2.

And this gives me a springboard once again to suggest that essential elements of due process should not be constrained by State lines; Federal tax law is uniform for the entire country, so the scope of review should follow the flag, not cartography.

*Richard Hudec 1953-20L 10 21 21

Many non-practitioners think tax practice is arcane, casuist, hypertechnical, and dull. But I find the human interest side irresistible, so I’m reaching back to the first American playwright to be taken seriously in Europe, for today’s title of my sermonette. Clyde Fitch’s 1905 Broadway hit captions the latest installment in the Podlucky Saga; taking center stage is Karla S. Podlucky, co-starring in Gregory J. Podlucky & Karla S. Podlucky, Docket No. 453-17, filed 10/21/21*.

I’ll defer to Judge Albert G. (“Scholar Al”) Lauber, as he lectures us on the trial testimony hearsay exception in FRE 804(b)(1). Note this might be a dandy question for the upcoming Slaughter of the Innocents, a/k/a the US Tax Court admissions exam.

Karla wants innocent spousery, and as Greg is looking at $4 million in tax plus chops, she does well to bail. Except.

“In 2011 Mrs. Podlucky was indicted on counts of money laundering and conspiracy to commit money laundering. The Government alleged that petitioners used funds extracted from Le-Nature’s, Inc., a corporation of which petitioner husband had majority control, to purchase (and later sell) jewelry from various jewelers, including Van Cleef & Arpels (VCA).” Order, at p. 1.

Longtime Antiques Roadshow addicts (of whom I’m one) have often seen Arlie Sulka and colleagues lose it over even tiny  VCA pretties, to the tune of five figures plus.

Turns out on the money laundering trial one Brent Nestor, then VCA Senior VP for Sales, testified that Karla got custom-made baubles, and that he personally had to measure her wrists and fingers to make sure they fitted exactly. Brent got a thorough cross from Karla’s defense counsel on that trial. Now IRS wants to use Brent’s prior testimony to defeat innocent spousery via Karla’s guilty knowledge about the various rocks and minerals she got.

Problem is that Brent now resides in the Helvetian Confederacy, and the Swiss gov’t doesn’t allow foreigners to take testimony of its residents on its soil. And Brent says he ain’t goin’ nowhere, so The Long Arm of Judge Scholar Al can’t help here; for the backstory on said long arm, see my blogpost thus entitled.

Karla’s lawyer says the former trial testimony is hearsay. So it is (declarant not in the courtroom), but FRE 804(b)(1) comes to the rescue.

IRS claims “…Mr. Nestor’s testimony is admissible under FRE 804(b)(1), which provides an exception when (1) the declarant is unavailable,  (2) the testimony was given ‘at a trial * * * whether given during the current proceeding or a different one,’ and (3) the testimony is ‘now offered against a party who had * * * an opportunity and similar motive to develop it by direct, cross-, or redirect examination.’ FRE 804(b)(1).” Order, at p. 2.

No doubt Brent is unavailable, even to the long arm of Judge Scholar Al. And yes, there was Karla’s money laundering trial. But what about motive and opportunity?

“By cross-examining Mr. Nestor during the criminal trial, Mrs. Podlucky’s counsel had a ‘similar motive’ to develop Mr. Nestor’s testimony in an effort to show that Mrs. Podlucky had no knowledge of (and derived no benefit from) the jewelry arrangements. We accordingly conclude that Mr. Nestor’s prior testimony is admissible under FRE 804(b)(1).” Order, at p. 3 (“Somber reasoning and copious citation of precedents” omitted, but read it, Innocents, it might could be that it gets on the November Death March).

When the client is facing the slammer, there’s very serious motive to show they didn’t know nuthin’.

Now IRS is moving here for an order in limine to let in Brent’s launderette trial testimony.

“In their responses to the Motion in Limine petitioners do not address the hearsay rule or the requirements of FRE 804(b)(1). Nor do they dispute that Mr. Nestor is currently an ‘unavailable’ witness. Rather, petitioners contest granular details of his prior testimony and assert that his testimony is not relevant. Mr. Nestor’s testimony is clearly relevant because Mrs. Podlucky, by requesting innocent spouse relief, has placed her knowledge of the jewelry purchases at issue in this case. And to the extent petitioners believe Mr. Nestor’s testimony to be incorrect, they were free to testify to that effect at trial.”  Order, at pp. 3-4.

When the law is against you, pound the facts. When the facts are against you, pound the law. When both law and facts are against you, pound the table. Doesn’t work with Judge Scholar Al. I make IRS 1 to 8 in the Karla Bling stakes.

*Greg Podlucky & Karla Podlucky, 453-17 10 21 21

In an off-the-bencher, Judge Kerrigan notes that even though Douglas Leon Schnitzspahn, Docket No.: 8477-20S, filed 10/20/21*, “…is making progress on filing his tax returns, petitioner did not establish that his failure to file was due to reasonable cause. Accordingly the section 6651(a)(1) addition to tax is sustained….” Transcript, at p. 5.

Doug “…has a history of filing his tax returns late.” Transcript, at p. 2.

In this case Doug finally filed four (count ’em, four) years late, even taking his extension into account. IRS, not playing the waiting game, hits Doug with a SFR, with a SNOD at no extra charge. The only issue today is the add-ons, Transcript, at p. 4.

Doug can’t come up with a reasonable excuse for his late filing and late paying. And Judge Kerrigan notes that in most cases there is no reasonable cause excuse for nonpayment of estimated tax. “Generally, no reasonable cause exception exists for section 7765(a) addition to tax. [Sic; I think you meant 6654(a), Judge, as there is no Section 7765.]  Sec. 1.6654-1(a)(1), Income Tax Regs. There are exceptions to section 6654(a) addition to tax and petitioner does not meet the requirements of these exceptions. See sec. 6454(a) [sic; I think you meant Section 6654(e), Judge]. Accordingly petitioner is liable for the addition to tax pursuant to section 6654(a).” Transcript, at p. 6.

Not to discourage trying, but avoiding add-ons needs more than trying.

*Douglas Leon Schnitzspahn 8477-20S 10 20 21

Bob Gover’s 1962 masterpiece has truly been a gift that keeps on giving me good headlines. And last night The Great Chieftain of The Jersey Boys gave us a reminder that losing your “S” may not happen even if the chops, add-ons and interest take you over the $50K cutoff for small case treatment.

Though you may try for the Matthew 7:13 treatment, when disputed tax only is less than $50K,  small-claimerhood in US Tax Court is reached only when Section 7463(f) is in play.

Briefly, that means Section 6015 innocent spousery, CDP in Section 6330 NITL (but not Section 6320 NFTL; watch it), and Section 6404(h) interest abatement where the amount of interest in dispute is less than $50K.

All others, it’s $50K total in dispute: tax, interest, add-ons, and chops.

Check out Frantic Frank’s Continuing Ed online lectures. No charge, and well worth your time.

And no, I don’t get any compensation for any of this, other than intangible spiritual benefits.

I’m sure Kirk E. Heaton, Docket No. 10833-19L, filed 10/19/21*, is singing the words of the immortal Little Richard’s and Enotris Johnson’s 1957 hit, as that Obliging Jurist, Judge David Gustafson, lets Kirk amend his petition to claim CNC, and gently suggests to IRS’ counsel that maybe so perhaps they might settle this CDP (nudge nudge, wink wink).

Kirk is an oilfield pipeline welder in the Great Northwest, but he suffers from “… progressively worsening cervical and lumbar spondylosis in addition to shortness of breath, heart palpitations, high blood pressure, and a spot on his lung suspicious of asbestosis.” Order, at p. 2. This caused him to undergo two surgeries, and study to be an inspector rather than a welder, because he wanted to keep working, but employment is spotty. He had to stop paying off an old tax liability, but it has ballooned with interest and chops. He could stop working and go on disability, so he could be in CNC status, but IRS hit Kirk with a NITL for one year where he owes only $11K.

Kirk petitioned when Appeals said he could pay more than the $500 per month he offered. He didn’t raise CNC at the hearing because he said he wanted to go on working. The SO disallowed Kirk’s claimed health insurance payments because his non-liable spouse paid them out of a bank account in her name, and sustained the NITL.

Kirk petitioned, but never mentioned CNC therein. IRS moved for summary J, claiming no disputed facts. I suspect the Gonzaga University School of Law’s LITC got into the act here, because in replying to IRS’ motion, Kirk moves for leave to amend his petition to mention CNC..

IRS claims bad faith, delay of the game, and futility. Kirk says the NOD never mentioned CNC, so he didn’t mention it in his petition.

Judge Gustafson buys Kirk’s story.

“We find that Mr. Heaton’s reason for the amendment, that he inadvertently omitted the currently not collectible issue from the petition because it was not discussed at all in the notice of determination, excuses his delay for purposes of granting leave to amend, and that any inconvenience to the Commissioner in permitting the amendment is outweighed by the justice of allowing Mr. Heaton to advance all allegations of abuse of discretion regarding the notice of determination because the Commissioner has adequate time to respond to the currently not collectible issue.” Order, at p. 6.

As for bad faith, Kirk moved to amend as soon as he realized that he’d raised CNC at the CDP. But Judge Gustafson allows IRS to answer the CNC issue in supplementary papers, and he’ll consider it with the rest of IRS’ summary J motion.

IRS claims the amendment is futile, because the record doesn’t mention CNC, and the record is what determines abuse of discretion.

Judge Gustafson: “We do not agree that Mr. Heaton’s proposed amendment is futile because the amendment asserts that SO P’s failure to consider CNC status at all was an abuse of discretion. Because the notice of determination does not discuss CNC at all, we cannot know if there was a factual basis for failing to consider currently not collectible status as a collection alternative. Mr. Heaton appears to have had a good faith basis to request CNC status as a collection alternative on the basis of his excessive medical bills, irregular employment, and reliance on limited unemployment benefits during periods where he was not working, see IRM 5.16.1.2.9(6), and he raised the CNC issue both before and during the CDP hearing.

“Based on these facts and circumstances, we can assume that whether Mr. Heaton could qualify for CNC status warranted at least some consideration by Appeals and some discussion in the notice of determination, and that failure to consider the issue could conceivably be an abuse of discretion. In our view, justice favors allowing Mr. Heaton to advance all allegations of abuse of discretion by IRS Appeals, and whether Mr. Heaton could have qualified for CNC status on the basis of the information provided to SO P is a merits issue that we would rather consider not under a motion for leave but under the Commissioner’s motion for summary judgment.” Order, at p. 7. (Name omitted).

So Judge Gustafson tells Kirk and IRS to fold CNC in with the summary J mix, do the papers up accordingly, and see if y’all can settle, OK?

Personal note- Lumbar spondylosis is a very painful illness. It affects one of my nearest and dearest.

On a happier note, I can’t close without a Taishoff “Good job, First Class” to Jennifer A. Gellner, Esq., now or formerly honcho of the Gonzaga LITC Bulldogs.

*Kirk E Heaton 10833-19L 10 19 21

When it comes to TEFRA tohubohu, if you’re a partner there’s no advantage in hanging back. I’ve been making this point for more than ten (count ’em, ten) years. The minute you get wind of a FPAA, partner, you have to go all in.

That’s Judge Elizabeth Crewson Paris’ message to Ronald M. Goldberg, 2021 T. C. Memo. 119, filed 10/19/21.*

Ron claims he never got the NBAP, and the PS3817 proof of mailing was incompletely filled-out, but mox nix, says Judge Paris.

“… Mr. Goldberg cannot now demand a de novo review of his underlying liabilities for timely assessed partnership liabilities for multiple reasons. First, he failed to raise his underlying liabilities by timely challenging the earlier NFTL filing. Second, the FPAAs were validly issued, and Mr. Goldberg had actual notice of the TEFRA litigation but neither participated in nor made section 6223(e) elections to convert the proceedings to partner-level challenges (nor did he seek, pursuant to Rule 250, to remove the TMPs to whom he now objects).” 2021 T. C. Memo. 119, at p. 12.

Ron says 3SOL has run, and the TMP wrongfully agreed to extend. That avails Ron naught.

The question is whether a challenge to SOL is a challenge to liability. Ron is Golsenized to 7 Cir., which has held that it is. Therefore Ron had his chance. He sent a letter to IRS’ counsel during the FPAA challenging the SOL issue, but when IRS’ counsel invited Ron to get into the litigation, Ron did nothing.

I’ve said it before: a lot of Tax Court cases are lost before they ever get to Tax Court. Petitioners have to assert their claims early and often.

What will happen under the new representative regime remains to be seen, but I doubt it will favor those who hang back.

*Ronald M Goldberg 2021 T C Memo 119 10 19 21

Judge Cary Douglas (“CDP”) Pugh has an update for those who missed Norm Dacey’s 1965 best-seller, including (without limitation) a checklist for a petitioners’ attorney, the heirs of whose client want to avoid probate.

The “10 or so” heirs-at-law of the late Roberto Echaverry, Docket No. 19400-18, filed 10/18/21*, are scattered around FL and Nicaragua.  When the late Roberto became the late Roberto, his petition was already in the Glasshouse hopper, and his trusty attorney (whom I’ll call Zim) was on the case. It seems the case was on the settlement road while Roberto lived, but COVID intervened and stalled matters until the death of the late Roberto.

Judge CDP takes up the tale.

“A third Motion for Continuance, … which we granted… stated that petitioner died on August 9, 2020. It further stated that there were delays in probating petitioner’s estate due to the pandemic. [Thereafter]… the parties filed a Joint Status Report, advising that petitioner’s heirs were still in the process of probating petitioner’s estate.” Order, at p. 1.

IRS’ counsel, losing patience with FL’s legendary lassitude when it comes to estate administration (one popular legend says FL probate practice was Norm Dacey’s inspiration, although another says CA), moves to toss for want of prosecution, “…advising that respondent’s counsel was informed by petitioner’s counsel that one of petitioner’s sons reported that petitioner’s heirs would not be probating petitioner’s estate; petitioner has several children that live out of the county; and petitioner’s counsel would be filing a motion to withdraw from the case. The motion further stated that respondent received an email from petitioner’s counsel’s office, attaching a copy of petitioner’s death certificate and a list of, but no contact information for, petitioner’s heirs. Neither of those documents were attached to respondent’s Motion to Dismiss.” Order, at p. 2.

And Zim now moves to withdraw as counsel, but doesn’t provide a copy of the late Roberto’s death certificate, nor do more than list the names (but not the contact info) of the late Roberto’s heirs-at-law.

One must read between the lines to sense Judge CDP’s opinion of the lackadaisical practice the parties here evinced.

“If there has been no administration of a deceased petitioner’s estate, this Court may formulate an appropriate procedure to bring such a case to a close, including affording a decedent’s heirs at law an opportunity to take whatever action may be necessary to protect their interests. Neither party has yet provided the information the Court requires to move forward with this case.” Order, at p. 2. (Citation omitted).

So here’s the to-do list, and practitioners might want to keep a copy handy, in the sad case that your client cops it.

Get the caption amended; provide a list of names, addresses, and telephone or other contact info for all the offspring and other heirs-at-law; provide death certificate or other proof of death; make sure everyone gets the Notice of Remote Proceedings from the Clerk; and be ready to argue the motion to toss.

*Roberto Echaverry 19400-18 10 18 21

As at 12:09 p.m., EDT, the highest docket number assigned to Tax Court petitions filed in calendar 2021 has reached the above-stated number. Y’all will recall that, back on 8/16/21, Tax Court announced that it had reached out to selected stakeholders to seek ways and means to prevent assessment and collection actions where petitions had been filed but not been served on IRS. If you don’t, see my blogposts “Premature,” 7/23/21, and “Draining the Swamp,” 8/17/21.

Of course, the hardlaboring intake clerks and flailing datestampers have only gotten to the end of July.

I expect to see  at least 32,000 petitions by year’s end. The tsunami continues, the swamp overflows, and I await the report of the selected stakeholders as to their recommended remedies.

The Plot Thickens

Back in August, 2019, Ch J Maurice B (“Mighty Mo”) Foley didn’t designate his order in Michael D. Tringali & Kathleen L. Tringali, Docket No.15592-17, filed 8/29/19*, so I never blogged it. But that order revealed whose Dad filed the allegedly bogus petition.

M & K claimed “… that this case was initiated without their knowledge and that petitioner Michael D. Tringali’s father has established a post office box to receive and intercept mail related to this case.” Order, at p. 1.

OK, so if there had been an order directing M & K to ratify the petition, they never would have seen it. Except a docket search reveals no such order. Most unusual, unless Mike’s Dad is a USTCP or admitted attorney. In that case, he had better look up ABA Model Rule 8.4(c), which Rule 201(a) makes applicable to non-attorney practitioners as well as the rest of us. And CSTJ Lewis (“What A Name!”) Carluzzo might well ask Dad for a Rule 201(b) statement.

Well, unless there is a Rule 161 recon or Rule 162 vacation, or even less likely a disciplinary order, we will never know why no order directing ratification was sent to M & K, even if Dad could have intercepted it.

But I’m prepared to make a modest wager that Dad is a FL attorney.

*M & K Tringali 15592-17 8 29 19

The power to act for another in his/her/its/their place and stead is the top of a slippery slope, and the agreement of the other is even slipprier. Who better to toggle the switch to turn the power on or off than CSTJ Lewis (“The Right Spelling”) Carluzzo, as he does so today in Wendy Reiners & Kendall C. Hochman, Docket No. 4809-19L, filed 10/14/21*, and in Michael D. Tringali & Kathleen L. Tringali, Docket No. 15592-17**, of even date therewith (as my expensive colleagues would say).

Power on, to start. Ken H signed a document called a Durable Power of Attorney for Finances (POA).  By this document, Ken H appointed Wendy as “… his agent with authority ‘to prepare, sign, and file separate or joint income, and other tax returns and other governmental reports and documents; to file any claim for tax refund; and to represent * * * [him] in all matters before the Internal Revenue Service.'” Order, at p. 2. Wendy signed the Form 4549 for two of the years at issue on Ken H’s behalf, agreeing not to contest, waiving assessment, and telling IRS to go lien and grab. The third year at issue was self-reporteds.

Case comes up off a CDP, with Ken H’s rep claiming Wendy had no authority to bind Ken H.

“The POA is governed and construed in accordance with the laws of Connecticut, which support Mrs. Reiners’ authority as an agent of Mr. Hochman to sign the Form 4549 on his behalf. See Conn. Gen. Stat. Ann. sec. 1-351o (West 2016). It is clear that the POA granted Mrs. Reiners the authority to act as Mr. Hochman’s agent with respect to Federal tax matters, which she did by signing the Form 4549. One consequence of the valid Form 4549 is that petitioners cannot in this proceeding now challenge the tax liabilities… to which they have consented.” Order, at pp. 3-4. (Citations omitted).

So even a non-Form 2848 POA can bind the principal as to the IRS if properly prepared and executed in accordance with State law.

But now, power off, as CSTJ Lew shuts down the Tringalis. Here it’s a question of authority as to Tax Court. There was a SNOD sent to last-known-address.

“A petition captioned ‘Michael D. Tringali and Kathleen L. Tringali’ signed by the father of one of the petitioners was received by the Court and filed within that 90-day period. Neither petitioner signed the document treated as a petition.” Order, at p. 1.

Now there is any number of cases where an unadmitted person sends in a petition on behalf, and in the name(s), of taxpayers. The Ch J orders the named petitioners to ratify, and has the Clerk send out a ratification form. For whatever reason (or lack thereof), nobody checked to see if Dad was a USTCP or admitted attorney. As Dad’s name is not given, I cannot tell. Howbeit, M & K were surprised. Note the dates.

” In a motion for continuance, filed October 26, 2018, among other things, petitioners explain that the individual who signed the petition, even though a relative of one of them, did so without their knowledge or consent. According to that motion, petitioners further state that they first learned of this case on October 22, 2018, more than a year after the petition was filed. Their later attempt to ratify the filing of the petition is of no consequence as it is clear that an unauthorized act cannot be ratified.” Order, at pp. 1-2. (Citation omitted, but it’s Alfred J. Martin, 2000 T. C. Memo. 187, filed 6/27/00***).

Judge, that’s a little too simple. The whole purpose of the legal concept of ratification is to permit a person to adopt after the fact an act that they did not do (and maybe didn’t even know was done) as their own. But it has to be an act, not a nullity.

Martin never ratified the petition in his case (which was filed by an admitted attorney, btw, so it was facially a petition) and never tried to ratify it. Martin argued that he wanted to settle the case and sent the attorney a check for $50K, which was paid to the IRS.

By contrast, in Tringalis’ case, if Dad wasn’t a USTCP or an admitted attorney, the “petition” was a nullity from the getgo, even if M & K “ratified” it seven times over. But the issue isn’t authorized or unauthorized; the issue is “was it even a petition”?

If it was, M & K could ratify it if they acted diligently. If it wasn’t, there’s nothing to ratify. Power off.

*Wendy Reiners & K C Hochman 4809-19L 10 14 21

**M D Tringali & K L Tringali 15592-17 10 14 21

***Alfred J Martin 2000 T C Memo 187 6 27 00