Judicial Interpretations Chapter 5
What do We Need to Know About “Authorities” > What they are > Their source > Where to find them > How to use them
Federal Court System The third primary source of tax law
Trial Courts U.S. Tax Court } U.S. District Court} 3. U.S. Court of Federal Claims Appellate Courts U.S. Courts of Appeals U.S. Court of Appeals for the Federal Circuit Federal Court System (Cont’d)
Federal Court System (cont’d) • Final Appeal – all from the appeals courts U.S. Supreme Court
Judicial Interpretations (cont’d) • All litigation starts in one of the trial courts • Each trial court has it’s own unique and defining attributes and characteristics • Who decides in which trial court to litigate? Government or Taxpayer?
Burden of Proof • What is it? • Who carries it?
Burden of Proof (cont’d) • The RRA’98 changed the burden of proof, but w/o significance. The government carries the burden if the petitioner (must meet all): • Has presented credible evidence, • Maintains records and substantiates items as required, and • Cooperates with IRS’ reasonable requests for interviews, witnesses, info, documentations, etc.
Burden of Proof - §7491 • §7491 Burden shifts where taxpayer produces credible evidence-- • (1) General rule-- • If, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by subtitle A or B, the Secretary shall have the burden of proof with respect to such issue.
Burden of Proof - §7491 (cont’d) • (2) Limitations-- • Paragraph (1) shall apply with respect to an issue only if-- • (A) the taxpayer has complied with the requirements under this title to substantiate any item; • (B) the taxpayer has maintained all records required under this title and has cooperated with reasonable requests by the Secretary for witnesses, information, documents, meetings, and interviews; and ……….
Burden of Proof -§7491(cont’d) • c) Penalties-- • Notwithstanding any other provision of this title, the Secretary shall have the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or additional amount imposed by this title.
Buden of Proof - Tax Court Rule #142 • (a) – General – (1) The burden of proof shall be upon the petitioner, except as otherwise provided or determined by the court; and except that, in respect of any new matter, increases in deficiency, and affirmative defenses, pleaded in the answer, it shall be upon the respondent. As to affirmative defenses, see Rule 39.
Burden of Proof - Tax Court Rule #142 (cont’d) • (2) See Code Section 7491 where credible evidence is introduced by the taxpayer, or any item of income is reconstructed by the Commissioner based on statistical information on unrelated taxpayers, or any penalty, addition to tax, or additional amount is determined by the Commissioner.
Burden of Proof - Tax Court Rule #142 (cont’d) • (b) Fraud: In any case involving the issue of fraud with intent to evade tax, the burden of proof in respect to that issue is on the respondent, and that burden of proof is to be carried by clear and convincing evidence. Code Section 7454(a).
Burden of Proof (cont’d) • What about the District Court and the Court of Federal Claims? • The general rule of any trial court is that the Plaintiff / Claimant, etc. (the Taxpayer), must prove its case against the U.S. [§7422(e)].
§Burden of Proof (cont’d) • Exceptions: • §7454(a) Fraud w/intent to evade tax [except the TP has the burden to prove the portion that is not fraudulent - §6663(b)] • But defendant still carries the burden with respect to the civil matters • §183(b) Hobby loss – government has burden to overcome presumption of business purpose – where a profit is realized 3 out of five consecutive years • §534 Accumulated earnings tax
Non-Attorney Confidentiality Privilege • Non-attorney Confidentiality Privilege does not apply to • The preparation of tax returns • The giving of accounting or business advice • Tax accrual workpapers • State tax situations • Written communications between a tax practitioner and a corporation in connection with the promotion of any tax shelter.
Common Legal Terms • Per curiam – a decision of the whole court, rather than only one judge • Slip opinion – individual court decision published separately shortly after it is rendered. • Declaratory judgment – statutory remedy where plaintiff in doubt as to legal rights. Binding adjudication if rights, even if no relief is awarded. • En banc – more than one judge, or entire court, may hear a case. Rare – very significant/novel issue.
Collateral estoppel • Black’s Law Dictionary: “Collateral estoppel doctrine. Prior judgment between same parties on different cause of action is an estoppel as to those matters in issue or points controverted, on determination of which finding or verdict was rendered.” • “When an issue of ultimate fact has been determined by a valid judgment, that issue cannot be again litigated between the same parties in future litigation.” • Simply – you cannot again litigate on the same facts or issues • even in another court
Contrast Res Judicata • Black’s Law Dictionary: “Res judicata. A matter adjudged; a thing judicially acted upon or decided; a thing or matter settled by judgment. Rule that a final judgment rendered by a court of competent jurisdiction on the merits is conclusive as to the rights of the parties and their privies, and as to them, constitutes an absolute bar to a subsequent action involving the same claim, demand or cause of action.”
Res judicata distinguished from Estoppel • Black’s Law Dictionary: Estoppel is “A prior judgment between same parties, which is not strictly res judicata because based upon different cause of action, operates as an ‘estoppel’ only as to matters actually in issue or points controverted”
the point • Make sure you have identified the facts/issue correctly and completely, because you will not have a second chance.
U.S. Tax Court • Established by §7441 • Nineteen Judges – 19 of them • Judges are specialists • Fifteen year term • Circuit ride • Usually only one judge hears a case. But may be En Banc, depending on significance/impact of the issue
U.S. Tax Court(cont’d) • The Tax Court has the right to go beyond the issues brought before it and examine the petitioner’s entire return if it so desires. Extremely rare.
U.S. Tax Court(cont’d) • No jury option • Deficiency only – don’t have to pay first • How to get a case before the Court • “Calendar” process
U.S. Tax Court(cont’d) • TC decisions • Regular • Memorandum – only application (in Judge’s view) of existing law or interpretation of fact • May rely on both
U.S. Tax Court(cont’d) “The Golsen Rule” Jack E. Golsen, 54 TC 742 (1970)
U.S. Tax Court(cont’d) Does not hear • Claims for refund (although may find an overassessment) • Employment tax – With certain exceptions • Excise tax • Etc., - non-deficiency procedure taxes – With certain exceptions
New Tax Court Jurisdiction-RRA’98 • Determination of employment status (Employee v. Independent Contractor) • §7436 } • TC Rule 290 } • After certified or registered notice by IRS • Timely petition by TP • Small case division consideration available
New Tax Court Jurisdiction – RRA’98 (cont’d) • Innocent Spouse • §6015 – Relief from joint and several liability on joint return • TC Rule 320 • Liens and Levy’s • §6320 – Lien actions } • §6330 – Levy actions } • TC Rule 330
U.S. Tax Court (cont’d) • New/affirmative issues • Do not ignore dissenting opinions
U.S. Tax Court(cont’d) Small Case Division - §7463 • Special Trial Judges - §7743A • Not over $50k per year at issue • Petitioner may be pro se or represented • Petitioner’s option • Decision is final – may not be appealed • Decision is not published, not a precedent
Citations • Whatever the court, • Whatever the case, • Be sure to give a complete/accurate citation for any authority you rely on • See Appendix B
U.S. Tax Court(cont’d) Regular decisions are published by the GPO Citation: Fausner, Donald W., 55 TC 620 • 55 = TC Volume # • 620 = volume page # • 30,606 = TC decision number
U. S. Tax Court(cont’d) • Memorandum decisions cite depends upon the publisher; published only by the tax services • CCH: Fausner, Donald W., 30 T.C.M. 1187 (1971) • 30 = CCH TCM volume # • T.C.M. = CCH TC memorandum decisions • 1187 = page # • (1971) = year of decision • General (unpublished): Fausner, T.C. Memo 1971- (#)
U.S. District Court • Judges • Generalists • One judge • Jury upon request • Emotional / equity issues • Jury can only decide facts. Judge deals with legal matters.
U.S. District Court(cont’d) • How to get a case in U.S. District Court • Must have paid the tax, filed claim for refund • Tax paid with return • Tax paid subsequently • Amended return • Per administrative proceeding • Deposit
U.S. District Court(cont’d) Bankers & Farmers Life Insurance Company and Southern Medical Life Insurance Company, PLAINTIFF v. U.S., DEFENDANT, Civil Action No. W-76-CA-62, 1979-1 USTC ¶9333 (WD TX, 1979). (CCH cite)
U.S. District Court(cont’d) Bankers & Farmers, supra.: • “Thus, it appears to the Court that it was the proper function of the jury in this case to decide that the §815(d)(1) election was in fact the result of a good faith reliance by Bankers & Farmers on a material mistake of fact.”
U.S. District Court Bankers (cont’d) • “It is also clear that the withdrawal of the election in this case leads to the more equitable result.” (emphasis added)
U.S. District Court(cont’d) Bankers & Farmers Life Insurance Company, 79-1 USTC ¶9333 (CA-5, 1979). • “…… Bankers & Farmers contends the tax applied here is imposed on a taxpayer who incurred net losses rather than income during the period in question. • “…… argument cannot withstand careful scrutiny. An unapportioned tax on the net income of insurance companies is clearly within Congress’… taxing power.”
U.S. District Court(cont’d) Citation CCH: > Bankers & Farmers Life Insurance Company and Southern Medical Life Insurance Company v. U.S.A, (DC-Tex) 79-1 USTC ¶9333 > 79-1 = volume # > USTC = CCH’s United States Tax Cases > ¶9333 = Paragraph #
U.S. District Court(cont’d) • Reliability? • Varies • Good chance of overturn on appeal
U.S. Court of Federal Claims • National jurisdiction • Sixteen judges • Judges may travel to your location • All monetary claims against the U.S. • Judges are generalists • No jury option • Again, as the name implies, tax must have first been paid
United States Court Of Federal Claims
U.S. Court of Federal Claims(cont’d) • Citation - West: • 30 Fed. C1. 396 (1994). • 30 = volume # • Fed. C1. = West’s U.S. Court of Federal Claims • 396 = page # • 1994 = decision year
U.S. Court of Federal Claims (cont’d) • CCH cite • 94-1 USTC ¶50,044 (Fed. C1., 1994)