CHALLENGING THE TAX MAN(PART II): TAX LITIGATION 101

Travis Austin GreavesT. Joshua Wu

Greaves | Wu LLPwww.greaveswu.com

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OUTLINE

• Background• Tax Court v. Refund Forums• Going to Court• Pretrial Practice• Trial and Appeals

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POLL QUESTION #1

• Have you ever filed a case with the U.S. Tax Court?

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BACKGROUND

• Established under Article I● 19 Presidentially-appointed judges● Judges appointed for 15 year terms● Judges must take senior status at age 70

• Example of a Tax Court Judge

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BACKGROUND

• Chief Judge handles administrative matters• Washington, DC but travel circuit• Special trial judges

● Appointed by Chief Judge● Resolve small tax cases

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BACKGROUND

• Different types of opinions issued by the court● Bench opinions● Summary opinions● Memorandum opinions● Tax Court opinions

• IRS Office of Chief Counsel represents the government

• Both attorneys and non-attorneys may represent taxpayers in Tax Court● Attorneys must be barred in a state● Non-attorneys must first pass a written test

• Different types of trial sessions● Regular● Small 6

BACKGROUND - JURISDICTION

• Limited jurisdiction• Deficiency cases• Additions and penalties• TEFRA partnership cases• Declaratory judgments• Disclosure cases• Review of denial of costs • Reasonable litigation costs

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BACKGROUND - JURISDICTION (CONT.)• Interest abatement• Relief from joint and several liability• Collection due process hearing review• Employment status/tax cases• Equitable recoupment• Whistleblower cases• Foreign tax credit adjustments

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POLLING QUESTION #2

• True or False. A taxpayer may ask any federal court to review an IRS refusal to abate interest attributable to unreasonable errors and delays by the IRS.

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EXAMPLE

In 2013, Walt received an IRS audit notice regarding his 2011 individual tax return. Walt hired Jesse, an accountant, and Gus, an attorney, to represent him in the audit. After working with the case for a year (and obtaining extensions on assessment), the Revenue Agent issued Walt a notice of deficiency on December 1, 2014. Walt doesn’t believe he owes the amount in the deficiency notice, and asks Jesse and Gus how he should proceed.

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TAX COURT V. REFUND FORUMS

• Payment of tax• Government representative• Precedent• Discovery• Trial location• Jury trial• Rules to amend pleadings • Motions for failure to state a claim

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GOING TO COURT - NOTICE OF DEFICIENCY• The notice of deficiency advises the taxpayer of

delinquent taxes owed plus any penalties and interest.

• IRS must issue a valid notice of deficiency to the taxpayer prior to assessing a tax.● State it’s a “notice of deficiency” ● Indicate an amount of tax due● Identify the taxable period

• Notice of deficiency must be mailed to the taxpayer’s last known address prior to the expiration of the statute of limitations.

• No assessment or collection action may be taken by the IRS during the period for filing a petition (or, if filed, until the Court reaches a final decision). 12

GOING TO COURT - NOTICE OF DEFICIENCY

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EXAMPLE

After discussing the case with Jesse and Gus, Walt concludes that both precedent and ability to not immediately pay favor going to Tax Court. He decides he wants Gus to represent him, given his experience litigating Tax Court cases. What are the next steps in the pursuing the case?

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GOING TO COURT - FILING A PETITION

• Person filing the petition must be the taxpayer to whom the deficiency notice is addressed or an authorized representative.

•Generally, the petition must be filed within 90 days after the deficiency notice was mailed.

•Petition must provide clear and concise assignment of error and factual allegations supporting each assignment as well as a prayer for relief. Must include: ●Designation of place of trial (no restrictions)●Name and address of taxpayer●Prayer setting forth relief sought●Copy of notice of deficiency 15

GOING TO COURT - IRS’S ANSWER, PETITIONER’S REPLY, AMENDEDPLEADINGS

• IRS has 60 days from date of service of the petition to file an answer. Answer must inform the taxpayer and Court of the nature of the IRS’s defenses; IRS has burden of proof on any new issue raised

• Petitioner may file reply brief if the IRS’s answer includes defenses of other matters to which the IRS has the burden of proof.

• Amended pleadings: Party may file an amended pleading before a responsive pleading is served, or, if no responsive pleading is required, any time within 30 days after service of the former pleading. 16

EXAMPLE

Gus timely filed a petition on Walt’s behalf and all pleadings have been filed. Gus believes that there is information he can obtain from the IRS that will help him win Walt’s case. How does he go about obtaining such information?

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PRETRIAL PRACTICE - DISCOVERY

• Informal discovery - Branerton• Scope - may request any material from another party

that is (1) not privileged and (2) relevant.• Time - no discovery requests until 30 days after the

last responsive pleading has been filed• Tools

● Interrogatories ● Production requests ● Requests for admissions● Depositions ● Administrative summons● Motion to compel

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PRETRIAL PRACTICE - INTERROGATORIES

• May ask for up to 25 without leave of court• May be only be served on parties• No limit on interrogatories on opposing party’s

expert witness• Must be answered within 30 days of service• Party must respond in good faith or object• Not filed with court, unless a party files for

sanctions or a protective order

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PRETRIAL PRACTICE - PRODUCTIONREQUESTS

• Party may ask another party to produce documents, electronic information, or tangible items in the the party’s possession, custody, or control

• May also request to enter real property in the possession or control of the other party

• Written response must be served within 30 days of service.

• Not filed with court, unless a party files for sanctions or a protective order

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POLLING QUESTION #3

• How many interrogatories may a party ask for without leave of court?

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PRETRIAL PRACTICE - REQUESTS FORADMISSIONS

• Party may serve on another party a written request for the admission of truth of any matter

• Must relate to statements of fact or the application of law to fact in the particular case

• The served party has 30 days to respond to the request or the requested truths are deemed admitted.● Failing to admit or deny is unjustifiable in the

Court’s view, unless the matter is objectionable● Objections based on “relevance” are deemed

admitted

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PRETRIAL MATTERS - DEPOSITIONS

• Depositions may be used ● to impeach a deponent when the deponent is

testifying in trial● against an adverse party for any purpose● for any purposes if the deponent has passed away,

is located far away, is unable to attend due to health, or other special circumstances.

• May be written or oral questions• Must serve notice on every party, and then they

may object within 15 days of service

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PRETRIAL MATTERS - ADMINISTRATIVESUMMONS

• IRS may issue summonses to the taxpayer or to third parties requesting testimony or documents.

• Must generally be issued against taxpayer before petition is filed in Tax Court in order for the IRS to use such information in the current trial.

• May generally use information from a summons issued after filed petition if tax liability concerns:● A third party● A non-docketed tax year

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PRETRIAL MATTERS - MOTION TO COMPEL

• Motion to compel must be filed no later than 45 days before the start of the trial

• Party resisting discovery must make objections in response to motion to compel

• Failure to respond to motion could lead to contempt of court, or one of the following:● Order deeming certain facts established● Order precluding the party form opposing certain

claims or introducing certain evidence● Order striking out pleadings or parts of pleadings● Order staying proceedings or parts of pleadings● Order staying proceedings until the party complies

with discovery● Order dismissing the case or rendering default

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PRETRIAL PRACTICE - EXPERT WITNESSREPORTS

• All testifying experts must prepare a written report

• Must provide opposing counsel with the report no later than 30 days before the trial date

• Expert report must include:● Complete statement opinions and support● Facts and data considered● Exhibits used to summarize or support witness’

opinions● Witness’ qualifications● List of previous cases● Statement of compensation

• Court may also appoint expert witnesses 26

PRETRIAL PRACTICE - OTHER MATTERS

• Assigned based on designation in the petition

• Pretrial order• No required pretrial conference• Pretrial motions• Motions in limine• Stipulations• Settlement• Dismissal

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TRIAL AND APPEALS• Trial memorandum

● Must submit to court and opposing counsel at least 14 days before trial

● Must list witnesses, summary of testimony, time required for trial, status of stipulations and summary of facts and legal authorities

• Calendar call● Start of a trial session; judge sets time for trial● Inform judge whether case has settled, and, if so, the

basis for settlement• Burden of proof

● Taxpayer must prove by a preponderance of the evidencethat the IRS’ determination is erroneous.

● IRS bears burden with respect to increases in deficiency and affirmative defenses or where taxpayer produces “credible evidence”

● Raised to clear and convincing in some instances28

TRIAL AND APPEALS

• Evidence● Applies FRE● May compel witness testimony by obtain a subpoena

from Clerk’s office or from trial clerk at trial session• Post-trial brief

● Judge typically orders simultaneous post-trial briefs.● Opening briefs typically due 75 days after trial and

answering briefs due 45 days after that date.● General requirements for what parties must include

in the briefs.• Opinion

● Presiding judge drafts opinion, then sends to Chief Judge to review; Chief decides whether there should be a full court review.

● If full court review is not required, the opinion is circulated to the full court on the day it’s intended to be released to the public.

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TRIAL AND APPEALS

• Motion for reconsideration● Party may move for reconsideration of fact or

opinion within 30 days of release of opinion. ● Court considers a number of factors in deciding

whether to grant motion.• Decisions

● If no computations are required, the decision of the Court may be entered immediately.

● If computations are required, the parties meet to consider the final calculations and submit a report to the Court. If no agreement, parties submit separate computation reports; the Court will then determine the correct amount and enter a decision.

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TRIAL AND APPEALS

• Appeals● Must file notice within 90 days after the judge

entered the decision.● Taxpayer appealing deficiency must file a bond to

delay assessment and payment.● Venue is where individual resides or corporation’s

principal place of business or office.• IRS Acquiescence

● IRS may “acquiesce” or “non-acquiesce” to Tax Court decisions (i.e,. indicate whether IRS accepts holding and will/will not follow it with same controlling facts).

● If non-acquiesce, IRS states it does not agree with not follow the decisions in disposing of cases involving other taxpayers.

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POLLING QUESTION #4

• What’s the most valuable takeaway from today’s presentation?

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QUESTIONS?

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SPEAKERS

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Travis Austin Greaves(202) 412-0019LinkedIntgreaves@greaveswu.com

T. Joshua Wu(571) 294-3850LinkedInjwu@greaveswu.com