Samantha Galvin from University of Denver’s Sturm Law School brings us this week’s designated orders. The first two orders she discusses demonstrate the difficulty pro se taxpayers have in determining when to appeal an adverse decision while the third order is a detailed opinion regarding the factors necessary to obtain a whistleblower award. The whistleblower case reminds us that many dispositive orders have the same amount of analysis as many opinions but when issued as an order lack any precedent and generally fly under the radar of those looking for Tax Court opinions. Keith
The week of July 2nd started off light but ended with a decent amount of designated orders – three are discussed below. The six orders not discussed involved the Court granting: 1) a petitioner’s motion to compel the production of documents under seal (here); 2) respondent’s motion for summary judgment when a petitioner did not respond nor show up at trial (here); 3) respondent’s recharacterized Motion to File Reply to Opposition to Motion for Summary Judgment (here); 4) respondent’s motion for summary judgment on a petitioner’s CDP case for periods that were already before the Tax Court and Court of Appeals (here); 5) respondent’s motion for summary judgment in CDP case where petitioners’ did not provide financial information (here); and 6) an order correcting the Judge’s name on a previously filed order to dismiss (here).
Ring the Final (Tax Court) Bell on Bell
Docket No. 1973-10L, Doug Stauffer Bell and Nancy Clark Bell v. CIR (Order here)
This first order is for a case that William Schmidt blogged about (here). Bob Kamman also followed up on this case, in the comments to William’s post, with useful background information that sheds light on the petitioners’ circumstances. In the last designated order, the Court had ordered petitioners to show cause as to why the Court should not dismiss their case for failure to prosecute no later than June 28. Petitioners did not respond to the order to show cause, so the Court has dismissed the case.
If you recall the petitioners filed for bankruptcy three separate times while their Tax Court case was pending but ultimately failed to complete the bankruptcy process each time. Then they prematurely appealed to the Fourth Circuit, which dismissed their case for lack of jurisdiction after finding that the IRS appeals’ determination (issued after remand by the Court) was not “a final order nor an appealable interlocutory or collateral order.”
Now that the Court has dismissed their case it becomes appealable, however, the petitioners’ lack of meaningful participation in the process up to this point unfortunately does not bode well for an appeal.
The next order I discuss also involves a premature attempt to appeal a not-yet-final Tax Court decision.
Appeal after Computations
Docket No. 12871-17, Duncan Bass v. CIR (Order here)
This case is pending under rule 155 and it is somewhat understandable why petitioner thought the decision was final. Petitioner was served a bench opinion on June 8, 2018, and subsequently appealed to the Fifth Circuit, however, the bench opinion was an interlocutory order and the Court withheld entry of its decision for the purposes of permitting parties to submit computations, as rule 155(a) allows.
Interlocutory orders are generally not appealable, but there is an exception for “orders that include a statement that a controlling question of law is involved with respect to which there is a substantial ground for differences of opinion” and “an immediate appeal from that order may materially advance the ultimate termination of the litigation.” The order in this case does not contain such a statement. As a result, the Court orders the parties to continue to comply with rule 155 to resolve the computational issues so that the Court may enter a final, and thus appealable, decision.
A Disappointed “Whistleblower”
Docket No. 8179-17W, Robert J. Rufus v. CIR (Order here)
The petitioner in this case is an accountant who was hired to help prepare a statement of marital assets as part of a divorce proceeding, which gave him access to his client’s soon-to-be ex-husband’s (“the ex-husband’s”) tax information. This information led petitioner to believe that the ex-husband had underreported gifts and treated gifts as worthless debts. He provided information about these two violations in an initial and supplemented submission to the Whistleblower Office, which ultimately denied him an award.
In this designated order, respondent moves for summary judgment on petitioner’s challenge of the denial of the award. Respondent argues that it did not abuse its discretion in denying the award because, although the ex-husband was audited and tax was assessed, the IRS did not rely on the information petitioner provided.
Regarding petitioner’s initial submission, the IRS examined the ex-husband’s underreporting of gifts but found that there was not enough independent, verifiable data to support a gift tax assessment. The ex-husband had also filed amended returns which included worthless debts of $23 million and generated losses which he carried back and forward in amended 2003, 2004, and 2006 returns. Petitioner was aware of these amended returns and provided the IRS with information about the worthless debts in a supplemented submission, alleging that the debts were actually gifts to family and friends. According to respondent, the large refund amounts claimed on the returns are what triggered the audit, rather than petitioner’s information.
The information petitioner sent was never seen or used until after the case was closed because the assigned revenue agent believed, for unexplained reasons, that the information was based on grand jury testimony and was tainted. In the audit, the revenue agent concluded the ex-husband failed to substantiate the bad debts he claimed and assessed tax accordingly.
The Whistleblower office sent petitioner a letter denying his claim regarding the gift tax liabilities to which petitioner responded stating that his claim involved the gift tax liabilities and the treatment of gifts as worthless debts. The Whistleblower Office then sent a final determination reviewing each item, and with respect to the worthless debt the IRS stated that it had identified the issue prior to receiving information from petitioner.
Petitioner petitioned Tax Court on that final determination arguing that the exam was initiated due to his information and the information was directly, and indirectly, beneficial to the IRS and resulted in the assessment of tax, penalties, and interest but he offered no evidence to support these claims. He also argued that respondent was too focused on the timing of his supplemented submission in an attempt to deny the award.
A whistleblower is entitled to an award if the secretary proceeds with any administrative or judicial action based on information submitted by the whistleblower. Additionally, the award is only available if the whistleblower’s target’s gross income exceeds $200,000, and if the amount or proceeds in dispute exceed $2,000,000. The IRS must take action and collect proceeds in order to entitle the whistleblower to an award. If the IRS’s action causes the whistleblower’s target to file an amended return, then the amounts collected based on the amended return are considered collected proceeds.
Since the petitioner in this case did not provide additional evidence, the Court reviews the administrative record which reflects that petitioner’s first submission was related to the gift tax issue, on which no proceeds were collected. The administrative record also reflects that petitioner’s supplemented submission about the worthless debts was not used in the exam of the amended returns and the revenue agent received the information after the returns were already selected for exam. Based on its review of the administrative record, the Court grants respondent’s motion for summary judgment.