Sanctions Despite Concessions

[LPC]

The 11th Circuit has affirmed a Tax Court decision per curiam, and I looked up the Tax Court decision to see if there was anything interesting. The Tax Court decision was an unpublished "order and decision" in which sanctions were imposed even though the taxpayer had conceded all issues prior to trial, which is unusual. So I've copied the TC opinion below.

Tristina Elmes v. Commissioner, No. 14950-06L (U.S. T.C. 7/28/2008), aff'd No. 08-16239 (11th Cir. 4/7/2009).

UNITED STATES TAX COURT
WASHINGTON, DC 20217

TRISTINA ELMES,
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.

Docket No. 14950-06L

ORDER AND DECISION

This case was on the Court's December 10, 2007 trial calendar for Miami, Florida. When it was called, there was no appearance by the petitioner, but counsel for respondent appeared and filed with the Court a stipulation of settled issues. The stipulation was a complete concession by petitioner of the only issue in the case -- whether respondent had abused his discretion in deciddng to collect petitioner's unpaid taxes for 1997-99 by levy.

The only issue left for the Court to decide is respondent's motion for sanctions under IRC section 6673. Such a motion is unusual when a petitioner concedes -- after all, section 6673 is aimed to deter petitioners who delay decisions, not those who by conceding their cases, hasten their entry.

But then Ms. Elmes's concession came only after an unusually intense litigation and an unusual approach to paying her income taxes. She is a "zero" return filer -- someone who files normal-looking tax forms, but enters zero on almost all the lines. This is a classically frivolous position that routinely attracts sanctions under section 6673, see, e.g., Meyer v. Commissioner, 89 TCM 1046, 1049 (2005). Respondent prepared substitute returns authorized to do under section 6020(b). He then sent her in due course a notice of deficiency and, when that didn't prompt her to file a petition in this court, he assessed the tax shown on the substitute returns.

He then tried to collect. This prompted petitioner to request a collection due process (CDP) hearing, but the only arguments she raised were equally frivolous; for example, that she was not a "person" under the Code. The IRS officer conducting the hearing warned her of this Court's authority to impose sanctions for frivolous arguments. We regard this to be a fair warning that she should not have persisted.

Nevertheless, she filed a petition challenging the the determination of the IRS to proceed with collection. The grounds stated in the petition related to lack of proper transaction codes in the IRS's computer, "naked assessments" and the like. In her pretrial memorandum, she acknowledged receiving the the notices bf deficiency but still demanded the right to challenge the amount of her alleged tax bill. Section 6330(c)(2)(B) specifically denies her any such right.

She then inundated IRS counsel with hundreds of pages of photocopied excerpts of regulations, manuals, and assorted other materials, all attached to affidavits or "determination letters" that by ahd large repeated the frivolity. Section 6673 authorizes sanctions whenever a petitioner takes a position that is "frivolous or groundless," sec. 6673(a) (1) (B), and it has no exception for frivolous litigation that stops just short of the courthouse door.

This is, nevertheless, petitioner's first trip to Tax Court and there is some benefit to the system that she gave up when she did. So it he Court will not award anywhere near the maximum
$25,000 penalty; instead, it is

ORDERED that the order to show cause why petitioner should not be sanctioned is made absolute and petitioner is liable for a penalty to the United States under I.R.C. § 6673(a) in the amount of $2,500.00. It is also

ORDERED and DECIDED that respondent may proceed with the collection of petitioner's federal income tax liabilities for the tax years 1997, 1998 and 1999, as described in the Notice of
Determination Concerning Collection Action(s) under Section 6320 and/or 6330, dated July 11, 2006.

(Signed) Mark V. Holmes
Judge

ENTERED: JUL 28 2008

[LPC]

Needless to say, this decision (and its affirmance) lend credence to the idea that Cryer could be sanctioned even though it is his first trip to Tax Court.

[jkeeb]

The case shows the benefit of counsel not trashing the crap sent by taxpayer.

[mutter]

Needless to say, this decision (and its affirmance) lend credence to the idea that Cryer could be sanctioned even though it is his first trip to Tax Court.

i am not the lawyer here but my understanding is that any type of judge from a JP to a supreme court judge can grant sanction to either party for just about any reason. ?????

[Prof]

Needless to say, this decision (and its affirmance) lend credence to the idea that Cryer could be sanctioned even though it is his first trip to Tax Court.

i am not the lawyer here but my understanding is that any type of judge from a JP to a supreme court judge can grant sanction to either party for just about any reason. ?????

No, not quite. While a judge generally has inherent power/authority and jurisdiction to grant sanctions on her own motion (sua sponte) or motion of another party, the governing standard is "abuse of discretion." While the tax arena is different, since I think that Congress has set the allowable amount of maximum sanctions, the "abuse" standard still applies within the limits set by Congress. (LPC: Is this a correct statement about the IRC? I am not sure.)

For example, if an attorney were to be sanction $1.0 million for being late to court, I would expect -- on appeal -- that appellate courts would find such a large amount to be unreasonable. However, if the maximum sanction allowed under the IRC is $X,000, then an amount of 1/2 that would almost certainly not be an abuse, absent very bad facts.

[LPC]

Needless to say, this decision (and its affirmance) lend credence to the idea that Cryer could be sanctioned even though it is his first trip to Tax Court.

i am not the lawyer here but my understanding is that any type of judge from a JP to a supreme court judge can grant sanction to either party for just about any reason. ?????

No, not just "any reason."

The authority for sanctions can come from statute, from rules of court, or from common law. When we talk about sanctions in Tax Court, we're usually talking about sanctions under IRC section 6673 (a)(1), which states that:

1) PROCEDURES INSTITUTED PRIMARILY FOR DELAY, ETC.

Whenever it appears to the Tax Court that--

(A) proceedings before it have been instituted or maintained by the taxpayer primarily for delay,

(B) the taxpayer's position in such proceeding is frivolous or groundless, or

(C) the taxpayer unreasonably failed to pursue available administrative remedies,

the Tax Court, in its decision, may require the taxpayer to pay to the United States a penalty not in excess of $25,000.

There are two important conditions here. One is that the taxpayer's position is "frivolous or groundless." (Let's ignore A and C for the time being.) The other is that the Tax Court has "discretion."

The standard for "frivolous" is actually clearer than the denizens of Lost Horizons would have you believe. In order to be "frivolous," a position must be not just wrong, but blatantly so. Specifically an argument is frivolous for purposes of section 6673(a)(1)(B) when it is "contrary to established law and unsupported by a reasoned, colorable argument for change in the law." Coleman v. Comm'r, 791 F.2d 68, 71 (7th Cir. 1986).

And, as Prof has pointed out, discretion can be abused. So appellate courts will reverse the imposition of sanctions if the appellate court believes that the sanctions represent an abuse of discretion. "Abuse of discretion" is a fairly broad standard, but it is not limitless.

[LPC]

The other is that the Tax Court has "discretion."

Clarification: Section 6673 itself does not mention "discretion," but every circuit seems to have decided that the proper standard on review is "abuse of discretion." See, for example, Burke v. Commissioner, 929 F.2d 110, 116 (2d Cir. 1991).

[Nikki]

And how many times have 6673 sanctions imposed by the Tax Court, either by motion or sua ponte, been reversed?

[Imalawman]

And how many times have 6673 sanctions imposed by the Tax Court, either by motion or sua ponte, been reversed?

25.239489(approx.)

[Nikki]

Your estimate appears to be approximately 25% too high.