- ROBERT AND INES M. GILLESPIE, ET AL.,
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
Release Date: JULY 24, 2007
UNITED STATES TAX COURT
ROBERT AND INES M. GILLESPIE, ET AL.,/1/
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
Filed July 24, 2007.
These cases brought pursuant to sec. 6330, I.R.C., are before the Court to determine whether Ps must pay penalties pursuant to sec. 6673(a)(1), I.R.C., for instituting procedures primarily for delay, etc., and whether counsel must pay R's excess counsel fees pursuant to sec. 6673(a)(2), I.R.C., for unreasonably and vexatiously multiplying the proceedings.
1. Held: Ps penalized pursuant to sec. 6673(a)(1), I.R.C., for instituting and maintaining proceedings primarily for delay, making frivolous arguments and taking groundless positions, and unreasonably failing to pursue available administrative remedies.
2. Held, further, Ps' lead counsel liable for R's attorney's fees since he signed pleadings and other papers knowing Ps' claims to be meritless and, thus, abused the judicial process and unreasonably and vexatiously multiplied the proceedings.
Robert Alan Jones, Maria Angelisa L. Lacorte, and Mario P. Fenu, for petitioners.
Wesley J. Wong and Paul C. Feinberg, for respondent.
MEMORANDUM OPINION
HALPERN, Judge: The cases in this consolidated proceeding are before the Court to determine whether petitioners must pay penalties pursuant to section 6673(a)(1) and whether two of petitioners' counsel common to all of the cases, Robert Alan Jones (Mr. Jones) and Maria Angelisa L. Lacorte (Ms. Lacorte), must pay certain of respondent's costs pursuant to section 6673(a)(2). For the reasons that follow, we impose on petitioners penalties totaling $ 15,000 and on Mr. Jones costs totaling $ 12,798.
Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.
For convenience, we shall use the term "petitioners" to refer to all of the petitioners, collectively, and also to refer to the petitioners or the petitioner in each of the cases before us (notwithstanding that, in docket No. 3489-05L, there is only one petitioner). Generally, we shall use the term "counsel" to refer to Mr. Jones and Ms. Lacorte.
BACKGROUND
INTRODUCTION
All of these cases began with a petition for review of a determination by respondent's Appeals Office (Appeals) that respondent might proceed with certain activities to collect unpaid tax (or taxes) owed by petitioners. The docket numbers, petitioners, and years in issue are as follows:
Docket No. Petitioner Year(s)
3405-05L Robert & Ines M. Gillespie 1996, 1997,
1998
3489-05L Robert E. Gillespie Asset 1996, 1997,
Management Trust, 1998, 1999
Robert E. Gillespie, Trustee
3490-05L Robert E. & Ines M. Gillespie 1999
At the time the petitions were filed, all of the petitioners resided in Wabash, Indiana.
The parties to each case have entered into a stipulation of settled issues agreeing, among other things, that Appeals' determination that respondent might proceed with the collection activities in question in that case should be sustained. The only issues remaining for our decision are the penalties and costs mentioned above. Following the call of these cases from the calendar for the trial session of the Court at Las Vegas, Nevada, commencing on February 27, 2006 (the Las Vegas trial session), we ordered petitioners in each case to show cause in writing why a penalty should not be imposed on them pursuant to section 6673(a)(1), and we ordered Mr. Jones and Ms. Lacorte to show cause why in each case excess costs should not be imposed on them pursuant to section 6673(a)(2). We also ordered respondent to inform the Court of his (1) fees and costs incurred in these cases and (2) positions with respect to the penalties and costs at issue. We explained to the parties and to counsel that our orders to show cause were motivated by our concern that petitioners had raised, and counsel had abetted them in raising, meritless arguments that had served merely to delay the collection of taxes owing. In addition to ordering petitioners and counsel to respond in writing to our orders to show cause, we accorded each the opportunity to appear and be heard.
TAX LIABILITIES
On April 13, 2001, respondent issued to petitioners Robert and Ines M. Gillespie (the Gillespies) a notice of deficiency with respect to their joint 1996 through 1998 Federal income taxes, and, on May 9, 2003, respondent issued to them a notice of deficiency with respect to their 1999 Federal income tax. On April 13, 2001, respondent issued to petitioner Robert E. Gillespie Asset Management Trust, Robert E. Gillespie, trustee (the trust and the trustee, respectively), a notice of deficiency with respect to the trust's 1996 through 1998 Federal income taxes, and, on May 9, 2001, respondent issued to the trustee a notice of deficiency with respect to the trust's 1999 Federal income tax. No petitions were filed in this Court in response to any of those notices of deficiency, and respondent properly assessed the deficiencies determined in each case.
NOTICES
On March 22, 2004, respondent sent to the Gillespies with respect to their 1999 tax year a Final Notice -- Notice of Intent to Levy and Notice of Your Right to a Hearing (final notice). On March 29, respondent sent to the trustee with respect to the trust's 1996 through 1999 tax years a final notice.
On April 9, 2004, respondent sent to the Gillespies with respect to their 1996 through 1999 tax years a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 (NFTL). On that same date, respondent sent to the trustee with respect to the trust's 1996 through 1999 tax years an NFTL.
RESPONSES AND HEARING
On April 27, 2004, in response to the final notice they had received, the Gillespies filed with Appeals an Internal Revenue Service (IRS) Form 12153, Request for a Collection Due Process Hearing. On the Form 12153, the Gillespies stated their disagreement with the final notice as follows: "We disagree with the determination of the taxes and additions owed, and the calculations of the amounts due, if any." On May 13, 2004, in response to the two NFTLs they had received, the Gillespies filed with Appeals a second Form 12153. They stated their disagreement with the NFTLs in the same terms they had used to disagree with the final notice. On April 27, 2004, in response to both the final notice and the NFTL he had received, the trustee filed with Appeals a Form 12153. He stated his disagreement with the final notice and the NFTL in the same terms the Gillespies had used. Mr. Jones signed all of the Forms 12153 as petitioners' authorized representative.
On August 24 and 26, 2004, in response to the Forms 12153, an Appeals employee, Settlement Officer Catherine H. Watkins (the settlement officer), sent Mr. Jones similar letters scheduling hearings to be held on September 22, 2004, by telephone. In her letters, the settlement officer stated that, at the hearing, petitioners could discuss, among other things, collection alternatives. She instructed Mr. Jones that, for her to consider collection alternatives, including an offer-in-compromise, petitioners would have to (1) file returns for 2001, 2002, 2003, and, for the trust, 2000, which IRS records indicated had not been filed, and present her with signed copies, and (2) provide her with completed collection information statements. She enclosed the required forms and asked Mr. Jones to send her the items within 14 days of the date of the letter.
On September 21, 2004, Victoria Osborn (Ms. Osborn) faxed two similar letters from Mr. Jones's office to the settlement officer: "[T]o provide you with the information the taxpayer wants considered regarding the proposed collection action." In pertinent part, the letters state that (1) the assessments of taxes for 1996 and 1997 were untimely and (2) petitioners are considering collection alternatives for 1998 and 1999 but require additional documentation. The letters ask for a copy of the "Administrative/Examination File for 1999", the "ICS History", and the statutory notice of deficiency and proof of its mailing.
On September 22, 2004, at the time scheduled for the hearing, the settlement officer telephoned petitioners' counsel's office. Someone in the office conveyed a message to her from petitioners' counsel that the correspondence received on the previous day was to serve as the hearing.
DETERMINATIONS
On January 14, 2005, Appeals issued a "Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330" (notice) with respect to each of the Forms 12153. The notices sustain the filing of all of the liens and all of the proposed levy actions. Each notice is accompanied by an attachment, wherein the settlement officer sets forth the analysis leading to her conclusion that the collection actions should be sustained. The analysis in each attachment is similar, and the following are among the facts, generally similar in each attachment, on which the settlement officer relied: She had no prior involvement with the taxes at issue; she had furnished petitioners with copies of IRS Forms 4340, Certificate of Assessments, Payments, and Other Specified Matters, which explain and document the tax assessments for the years in issue; petitioners had not presented any acceptable collection alternatives, any financial information in order to consider collection alternatives, and had not filed all required tax returns; the proposed collection action balances the need for efficient collection with petitioners' concern that any collection action be no more intrusive than necessary; and applicable laws and administrative procedures were met. She discusses in detail why the assessments of tax for 1996 and 1997 were timely. She also warns petitioners that they "should be advised that unfounded allegations of procedural defects may be construed as frivolous Collection Due Process appeals and may be subject to monetary sanctions by the Tax Court under IRC Section 6673(a)(1)."
PETITIONS
On February 22, 2005, petitioners timely petitioned for review of the notices. Each petition assigns error in substantially the same terms. Except as noted, each (1) seeks to challenge the tax liability underlying the collection actions at issue; (2) submits that there are impermissible "whipsaws" with related entities or persons; (3) submits that the settlement officer did not make a determination from petitioners' tax returns; (4) claims the settlement officer did not allow them to raise collection alternatives, including an offer-in-compromise; (5) claims the settlement officer did not allow sufficient timefor them to retrieve IRS documentation "from their IMF transcripts-specific"; (6) alleges that the notice does not comply with administrative rules, regulations, and statutes because it contains no facts, does not contain a certificate of compliance by the settlement officer, and is not signed or attested to by the settlement officer; (7) in docket No. 348905L, alleges that the period of limitations expired for the 1996 and 1997 tax years; and (8) in docket Nos. 3405-05L and 3490-05L, claims "innocent spouse protection" for Mrs. Gillespie. Mr. Jones executed each petition on behalf of the named petitioner. Respondent answered the petitions, denying or otherwise countering those claims.
The petitions are substantially similar to petitions filed by Mr. Jones on behalf of taxpayers in at least eight other cases, six of them calendared for trial at the Las Vegas trial session. Five of those cases are the subject of our report in Davis v. Commissioner, released today as T.C. Memo. 2007-201.
Ms. Lacorte's Appearance
On November 15, 2005, Ms. Lacorte filed an entry of appearance in each case.
AMENDED PETITIONS
On December 16, 2005, approximately 2-1/2 months before commencement of the Las Vegas trial session, petitioners all moved for leave to amend petition. Those motions are signed by Mr. Jones and Ms. Lacorte. The accompanying amended petitions were lodged with the Court on the same date, and, on December 19, 2005, we ordered respondent to respond to the motions for leave to amend. On January 17, 2006, respondent informed the Court that he had no objection to our granting the motions. On January 19, 2006, we granted all of the motions, and we filed the amended petitions. Mr. Jones executed each amended petition on behalf of the named petitioners.
In each amended petition, petitioners aver numerous instances of abuse of discretion by the settlement officer; viz, (1) She did not give petitioners adequate time to make their case, including raising collection alternatives, such as an offer-in-compromise; (2) she failed to provide petitioners a copy of their individual master file and other relevant documentation; (3) the period of limitations had expired for the 1996 and 1997 tax years; (4) the settlement officer was biased against petitioners because of their use of the trust system; (5) there are impermissible "[whipsaws]" with related entities or individuals; and (6) in docket Nos. 3405-05L and 3490-05L, Mrs. Gillespie is entitled to "innocent spouse protection". In each case, respondent denied those averments.
The amended petitions are substantially similar to petitions filed by Mr. Jones on behalf of taxpayers in at least six other cases calendared for trial at the Las Vegas trial session. Five of those cases are the subject of our report in Davis v. Commissioner, supra.
MOTIONS FOR SUMMARY JUDGMENT
On January 17, 2006, respondent moved for summary judgment in each of the cases. Respondent relied on similar grounds in support of each motion: Since petitioners had received a notice of deficiency with respect to the underlying liability or liabilities (without distinction, liability), they could not challenge the liability. The settlement officer did not abuse her discretion in not considering collection alternatives since petitioners had not presented any collection alternatives. Indeed, the settlement officer was precluded from considering collection alternatives since petitioners had failed to satisfy the necessary prerequisites for such consideration; i.e., they had neither provided the settlement officer the requisite collection information nor had they filed their delinquent tax returns. The settlement officer had accorded petitioners adequate time to participate in and complete a proper hearing. Petitioners' claim that they did not have sufficient time to retrieve IRS documentation fails to raise any relevant issue. A settlement officer is not required to produce any documents at a section 6330 hearing. Petitioner Ines M. Gillespie had failed in docket Nos. 3405-05L and 3490-05L to raise an innocent spouse claim either on the Form 12153 or at any time during the administrative process, and, for that reason, she could not raise that claim in these proceedings. There is no merit to petitioners' claim that any assessment is untimely. Petitioners' claim that the settlement officer was biased against them because of their use of the trust system is frivolous and unsubstantiated. No other error assigned by petitioners raises any justiciable issue or shows any abuse of discretion by the settlement officer.
PETITIONERS' OBJECTIONS
On February 6, 2006, petitioners all filed objections to the motions for summary judgment. None of petitioners disputed that they failed to present collection alternatives. In each case, they argued that the settlement officer had not given them adequate time to make their case and they had required additional information to prepare collection alternatives and to resolve other issues relating to the years at issue. In docket No. 340505L, petitioners argued that the assessment of tax for 1997 was backdated. Mr. Jones and Ms. Lacorte signed all of the objections.
Orders Disposing of Motions for Summary Judgment and Motion for Penalty
On February 15, 2006, we issued orders granting in full the motions for summary judgment in docket Nos. 3489-05L and 3490-05L and granting in part the motion for summary judgment in docket No. 3405-05L. In substantial part, the orders are similar. In each, we concluded that petitioners were prohibited from challenging the underlying liability. We concluded that the settlement officer did not abuse her discretion in failing to consider collections alternatives since, although given adequate time to do so, petitioners had failed to present collection alternatives or provide the collection information and delinquent returns that are a prerequisite to Appeals' consideration of collection alternatives. We rejected petitioners' claim that the settlement officer was required to provide them copies of their individual master file and other documents. We cited the following authority specifically holding that an Appeals officer is not required to produce that type of information. Nestor v. Commissioner, 118 T.C. 162, 166-167 (2002); Lunsford v. Commissioner, 117 T.C. 183, 187-188 (2001); Carrillo v. Commissioner, T.C. Memo. 2005-290. We found petitioners' claim of bias to be frivolous and unsubstantiated. In docket Nos. 3489-05L and 3490-05L, we rejected petitioners' affirmative defenses of the statute of limitations because, in the first case, we deemed petitioners to have conceded that defense by not addressing it in their objection to respondent's motion for summary judgment and, in the second case, the claim did not deal with the year at issue in the case. In docket No. 3405-05L, we rejected a similar claim with respect to 1996 because we deemed petitioners likewise to have conceded the claim. We did, however, deny in part respondent's motion for summary judgment in docket No. 3405-05L because of petitioners' statute of limitations claim for 1997. Petitioners claimed that respondent had backdated the assessment of tax for that year, and as a result, collection of the tax was time barred. Petitioners supported their claim of backdating by an argument concerning the "cycle post date" of the assessment. Since that argument was unclear, but we were concerned that it might involve a material issue of fact, we declined to adjudicate summarily petitioners' statute of limitations claim for 1997.
In each of the orders we issued in response to the motions for summary judgment, we warned petitioners and counsel that we were considering the imposition of penalties on petitioners pursuant to section 6673(a)(1) and excess costs on counsel pursuant to section 6673(a)(2). In those orders, we stated our impressions that petitioners, aided by counsel, may have (1) instituted and maintained the proceeding before this Court primarily to delay the collection of their income tax liability, (2) in support of that goal, raised frivolous arguments andrelied on groundless claims, and (3) unreasonably failed to pursue their opportunity for a section 6330 hearing. We cataloged our concerns with respect to petitioners generally as follows: They had not challenged respondent's statements in support of the motion for summary judgment that petitioners received a notice of deficiency and failed to petition the Tax Court; they had failed to present the settlement officer any collection alternatives or the financial information necessary to consider collection alternatives; and, in the amended petition, they had made claims that had little or no substance, all but one of which (in docket No. 3405-05L) we had rejected. We also noted the similarity of the amended petitions to petitions filed by counsel in other cases calendared for trial at the Las Vegas trial session and the shortness of the period between filing those amended petitions and the start of the trial session. We expressed our skepticism with respect to the "cycle post date" argument made in support of the statute of limitations defense in docket No. 3405-05L, stating our suspicion, based on the rejection of the same or a similar argument in Dahmer v. United States, 90 AFTR 2d 2002-6804, 2002-2 USTC par. 50,806 (W.D. Mo. 2002) (Magistrate Judge's order), that the argument was frivolous. In docket Nos. 3489-05L and 3490-05L, the cases in which we granted respondent's motions for summary judgment in full, we ordered petitioners and counsel to appear and be prepared to show cause during the Las Vegas trial session why a penalty and excess costs should not be imposed on them, respectively. In docket No. 3405-05L, we left the penalty and cost issues for later resolution.
The Las Vegas Trial Session
At the call of these cases from the calendar for the Las Vegas trial session, the parties to each case informed the Court that they had agreed to a settlement sustaining Appeals' determination that respondent may proceed with the collection activities in question. In anticipation of receiving written agreements so stipulating, the Court stated that, following receipt of those agreements, the Court would vacate our orders granting in whole or in part the motions for summary judgment. We have received those agreements, and we have vacated those orders. At the Las Vegas trial session, we accorded each petitioner and counsel the opportunity to appear and be heard with respect to our orders to show cause why we should not impose on petitioners a penalty pursuant to section 6673(a)(1) and impose on counsel excess costs pursuant to section 6673(a)(2).
None of the petitioners appeared. Petitioner Robert E. Gillespie submitted his declaration stating in salient part that he was 80 years old and too ill to travel. The parties agreed to the following stipulation: Ms. Osborn is a forensic accountant; she is not recognized as an enrolled agent before the IRS, she reviewed petitioners' records and advised counsel for petitioners that the assessments were time barred.
Both Mr. Jones and Ms. Lacorte were accorded the opportunity to be heard with respect to our orders to show cause why excess costs should not be imposed on them pursuant to section 6673(a)(2), but each preferred to respond to our orders in writing.
DISCUSSION
I. Introduction
Section 6673(a) provides for the imposition of sanctions and the award of costs in Tax Court proceedings. In pertinent part, the provision provides:
SEC. 6673. SANCTIONS AND COSTS AWARDED BY COURTS.
(a) Tax Court Proceedings. --
(1) Procedures instituted primarily fordelay, etc. --
Whenever it appears to the Tax Court that --
(A) proceedings before it have beeninstituted or
maintained by the taxpayer primarily for delay,
(B) the taxpayer's position in suchproceeding is
frivolous or groundless, or
(C) the taxpayer unreasonablyfailed 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.
(2) Counsel's liability for excessivecosts. -- Whenever
it appears to the Tax Court that any attorney or other
person admitted to practice before the Tax Court has
multiplied the proceedings in any case unreasonably and
vexatiously, the Tax Court may require --
(A) that such attorney or other personpay
personally the excess costs, expenses, and
attorneys' fees reasonably incurred because of
such conduct * * *
II. Section 6673(a)(1) Liability of Petitioners
A. Positions of the Parties
Respondent's position is that we should impose a penalty upon petitioners for advancing frivolous arguments and making groundless claims and for instituting proceedings primarily for delay. Respondent acknowledges petitioner Robert E. Gillespie's declaration that he was too ill to travel; nevertheless, argues respondent, neither the declaration nor any other evidence establishes any reasons why sanctions should not be imposed, and there are no mitigating factors in the record. Respondent does point out that Mr. Jones and Ms. Lacorte represented several unrelated taxpayers in unrelated cases on the Las Vegas trial calendar and, in those unrelated cases, Mr. Jones and Ms. Lacorte made arguments similar to the frivolous arguments and groundless claims advanced in these cases. Respondent states: "The conduct of Mr. Jones and Ms. Lacorte in these other unrelated cases may suggest that petitioners relied heavily on the advice of their counsel and may not have known about the nature of the legal arguments advanced by counsel."
Petitioners filed responses to the Court's orders to show cause. They all argue that the standard for imposition of a penalty under section 6673 is bad faith, and bad faith does not encompass nonfrivolous arguments. They catalog both identical errors in, and defenses to, the settlement officer's determination that respondent may proceed with his collection actions; viz, (1) the affirmative defense of statute of limitations, (2) the imposition of double taxation, or "whipsaw", (3) an innocent spouse claim, (4) the presentation of collection alternatives, including an offer-in-compromise, (5) the settlement officer's failure to provide requested documents, and (6) the settlement officer's failure to accord them adequate time to perfect their defense. They argue that sanctions are not applicable to good faith efforts by taxpayers and their counsel to reach agreement with the IRS. Finally, they appear to argue that, notwithstanding the receipt of a statutory notice of deficiency, a taxpayer is entitled to raise the underlying tax liability in a section 6330 hearing.
B. Discussion
We shall impose section 6673(a)(1) penalties on petitioners in each case before us. We shall do so because we believe that petitioners instituted and have maintained the proceedings in those cases primarily for delay. We further believe that, in support of that goal, in each case, they raised frivolous arguments and relied on groundless positions. We have on more than one occasion during these proceedings stated our concern that petitioners had raised meritless arguments that served merely to delay the collection of tax. We accorded petitioners both a hearing and the opportunity to respond in writing to our concerns. Neither by petitioner Robert E. Gillespie's declaration nor by petitioners' written responses to our orders to show cause have petitioners shown us the merit of any averment, claim, or argument advanced by them./2/ In our orders disposing of the motions for summary judgment, we addressed each item in the catalog of errors and defenses presented in petitioners' written responses, and, except with respect to the affirmative defense of the statute of limitations (with respect to which, in docket No. 3405-05L, we withheld judgment), we found that none raised any issue that demonstrates error or abuse of discretion on the part of the settlement officer. We incorporate herein by this reference those findings and the analyses supporting them (summarized supra in our background discussion).
With respect to their affirmative defenses of the statute of limitations, petitioners apparently rely only on the stipulated fact that Ms. Osborn reviewed petitioners' records and advised counsel for petitioners that the assessments were time barred. The parties have also stipulated that Ms. Osborn is a forensic accountant and she is not recognized as an enrolled agent before the IRS. Ms. Osborn did not testify in these cases. Ms. Osborn did, however, testify in other consolidated cases heard at the Las Vegas trial session. She testified to nothing more remarkable than that, after an assessment of tax is made, record of that assessment is posted to the IRS' computerized record system. Davis v. Commissioner, T.C. Memo. 2007-201. Ms. Osborn's theory that assessment predating posting indicates something fraudulent was rejected by the court in Dahmer v. United States, 90 AFTR 2d 2002-6804, 2002-2 USTC par. 50,806 (W.D. Mo. 2002), in a ruling that accepted the Government's position that
the Dahmers' evidence that the June 25, 1993[,] assessment was
entered into the IRS administrative computer records in October
1993 provided no evidence of fraud because an assessment occurs
on the date an authorized official signs a summary record of
assessment containing the taxpayer's assessment rather than the
date the assessment is posted to the IRS computerized record
system. * * *
Indeed, petitioners neglect even to discuss Ms. Osborn or her "cycle post date" theory in their written responses to our orders to show cause, which suggests to us that they no longer attach any value to her testimony or theory. See Nicklaus v. Commissioner, 117 T.C. 117, 120 n.4 (2001) (concluding that taxpayers abandoned arguments and contentions asserted prior to the filing of their brief where they failed to advance those arguments and contentions on brief). We see no merit in the affirmative defense.
Petitioners' inability to show the merit of any averment, claim, or argument advanced by them leads us to the conclusion that they initiated and have maintained these proceedings primarily for delay, and we so find. A taxpayer's good faith reliance on the advice of counsel is not a defense to the imposition of a penalty under section 6673(a)(1)(B), nor need we excuse a taxpayer's failure to review pleadings and other documents filed on his behalf. The purpose of section 6673 is to compel taxpayers to think and to conform their conduct to settled principles before they file returns and litigate. Takaba v. Commissioner, 119 T.C. 285, 295 (2002); see also Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986). Indeed, petitioners were warned by the settlement officer that, by asserting unfounded allegations of procedural defects, they risked exposure to penalties under section 6673(a)(1).
Not only do we determine that petitioners are deserving of a penalty for conduct that violates section 6673(a)(1)(A) and (B), but we believe that they are deserving of a penalty pursuant to section 6673(a)(1)(C) for unreasonably failing to pursue available administrative remedies. As summarized in our background discussion under the heading Determinations, petitioners neither proposed any collection alternatives nor provided the settlement officer the financial information necessary to consider collection alternatives. Assuming that they had a case to make to the settlement officer, petitioners did not act reasonably in presenting less than their full case to her during the administrative process.
C. Conclusion
Taking into account respondent's position, we shall make absolute our orders to show cause in these cases and impose on petitioners in each case a penalty pursuant to section 6673(a)(1) in the amount of $ 5,000 (for a total, in all three cases, of $ 15,000).
III. Section 6673(a)(2) Liability of Counsel for Excessive
Costs
A. Positions of the Parties
Respondent's position is that we should impose excess costs on counsel pursuant to section 6673(a)(2). Respondent argues that, on behalf of their clients, counsel made only frivolous arguments and advanced only groundless claims, and they did so knowingly or, at least, recklessly. Respondent claims that at no point in these proceedings have they shown the merit of any argument or claim made by them on behalf of petitioners. Respondent focuses on Mr. Jones's perseverance in challenging petitioners' underlying tax liabilities notwithstanding the clear language of section 6330(c)(2)(B) prohibiting such challenges to taxpayers who have received notices of deficiency and the well-defined caselaw interpreting that section. Respondent notes that the motions to amend petitions were filed less than 2 months before the start of the Las Vegas trial session and the amended petitions contain only additional claims that were all determined to be meritless by the Court. Respondent implies that counsel filed the motions only to vex respondent. Respondent argues that the lack of citation to relevant legal authorities in the oppositions to the motions for summary judgment signed by both Mr. Jones and Ms. Lacorte indicates their lack of legal research or their willful disregard of adverse authority. Respondent concludes:
Mr. Jones' entire conduct in this case constitutes bad faith, in
that he knowingly or recklessly filed petitions, motions for
leave to amend petitions, amended petitions, and oppositions to
respondent's summary judgment motions that raised nothing but
frivolous, groundless, or statutorily precluded arguments. Ms.
Lacorte's involvement was limited to participation in the filing
of motions for leave to amend petition and oppositions to
respondent's summary judgment motions.
Respondent claims that he incurred excessive costs of $ 12,798 in litigating all of these cases and asks payment in that amount.
Alternatively, if we do not impose excess costs on Mr. Jones and Ms. Lacorte under section 6673(a)(2), respondent asks that we sanction both individuals under Rule 33(b), which sets standards in connection with counsel's signature on a pleading and provides that counsel may be sanctioned for failure to meet those standards.
Mr. Jones and Ms. Lacorte advance as their own defense the arguments made on behalf of petitioners. They also claim errors in respondent's calculation of his costs. Mr. Jones states that, at all times relevant to these cases, Ms. Lacorte was his employee, subject to his direction and advice, and is in no way responsible for the decisions made in connection with the initiation or prosecution of these cases. Ms. Lacorte agrees with that description of her relationship to Mr. Jones.
B. Discussion
1. Introduction
We accept that Mr. Jones is principally responsible for the decisions of counsel made in these cases and Ms. Lacorte, his employee, at all times worked under his direction and control. We shall hold only Mr. Jones financially responsible for the excessive costs we determine.
2. Requirements for an Award of Excess Costs
Section 6673(a)(2) plainly imposes three prerequisites to an award of excess costs. First, the attorney or other practitioner (without distinction, attorney) must engage in "unreasonable and vexatious" conduct. Second, that "unreasonable and vexatious" conduct must be conduct that "multiplies the proceedings." Finally, the dollar amount of the sanction must bear a financial nexus to the excess proceedings; i.e., the sanction may not exceed the "costs, expenses, and attorneys' fees reasonably incurred because of such conduct." See Amlong & Amlong, P.A. v. Denny's, Inc., 457 F.3d 1180, 1190 (11th Cir. 2006) (with reference to the analogous language of 28 U.S.C. sec. 1927).
3. Unreasonable and Vexatious Conduct
The purpose of section 6673(a)(2) is to penalize an attorney for his misconduct in unreasonably and vexatiously multiplying the proceedings. Congress has not, however, specified the degree of culpability that an attorney must exhibit before we may conclude that his conduct in multiplying the proceedings is unreasonable and vexatious. See, e.g., Takaba v. Commissioner, 119 T.C. at 296-298. The language of section 6673(a)(2) is substantially identical to that of 28 U.S.C. sec. 1927 (the two provisions serving the same purpose in different forums), and we have relied on caselaw under the latter to ascertain the degree of culpability necessary to make an award under the former. Takaba v. Commissioner, supra at 296-297. While most of the United States Courts of Appeals have required a showing of bad faith before awarding costs under 28 U.S.C. sec. 1927, a few have required only a showing of recklessness, a lesser degree of culpability. Id. at 297. Among those few is the Court of Appeals for the District of Columbia Circuit. See Reliance Ins. Co. v. Sweeney Corp., 792 F.2d 1137, 1138 (D.C. Cir. 1986). The venue for appeal of any award of costs imposed on Mr. Jones may be the Court of Appeals for the District of Columbia Circuit. See sec. 7482(b)(1) (second sentence); Takaba v. Commissioner, supra. If not, it may be the Court of Appeals for the Seventh Circuit. See sec. 7482(b)(1)(A). The Court of Appeals for the Seventh Circuit has held that a finding of bad faith is necessary before an attorney may be sanctioned under section 6673(a)(2). Johnson v. Commissioner, 289 F.3d 452, 456 (7th Cir. 2002), affg. 116 T.C. 111 (2001). The Court of Appeals added, however, that bad faith under section 6673(a)(2) is not a subjective concept: "'reckless' or 'extremely negligent' conduct will satisfy it." Id. Because we are unsure of appellate venue, and because we find that Mr. Jones's conduct would constitute bad faith under the Court of Appeals for the Seventh Circuit's test for bad faith, we shall for purposes of this case (and without deciding the standard in this Court), adopt that standard. See Takaba v. Commissioner, supra at 298.
We believe that Mr. Jones intentionally abused the judicial process by bringing and continuing these cases on behalf of petitioners knowing their claims to be without merit. In support of our determination to impose a section 6673(a)(1) penalty on petitioners, we found that they initiated and maintained these proceedings primarily for delay and, in support of that goal, raised frivolous arguments and relied on groundless positions. In other words, petitioners present no meritorious claims. Moreover, we have no doubt that Mr. Jones has known all along that petitioners' claims lack merit. We have no doubt of that because of Mr. Jones's candor in responding to the orders to show cause. In those responses, Mr. Jones admits that, while, on average, the cases he brings have merit, some do not:
The Orders to Show cannot be properly answered in the context of
analysis of individual issues raised on appeal from CDP [sec.
6330] hearings. This is true because there are some "L"
[sec. 6330] case docket numbers which standing alone do not have
appealable issue[s]. However, in conjunction with other related
"L" case docket numbers, and sometimes statutory notice
of deficiency docket numbers[, they] have sufficient appealable
issues, and "hazards of litigation" which justify
settlement of all docket numbers before the Court[,] as agreed
upon by petitioners, their counsel, and the IRS Office of Chief
Counsel acting on behalf of respondent.
All the amended petitions raise substantially the same issues. If Mr. Jones believed that those issues were "appealable issues", by which term we assume that he means meritorious issues, then there would be no reason for him to make his probabilistic argument; i.e., while some of my cases have no merit, some do, so that, on average, all of my cases have merit, and each is entitled to a portion of some wholesale settlement. That Mr. Jones does indeed take a wholesale approach to representing clients before this Court is supported by his request that we take notice that, during the three trial sessions of the Tax Court in Las Vegas, Nevada, between December 2004 and February 2006, Mr. Jones and his clients settled 67 cases, agreeing to make payments of $ 2,564,788 with respect to $ 11,067,835 of claimed liabilities./3/
A difficulty with Mr. Jones's wholesale approach, and the reason we believe that he intentionally abused the judicial process, is that, in taking that approach, Mr. Jones violated the well-known duty of an attorney before this Court to insure that there is merit to every case that he brings before the Court. That duty is imposed on Mr. Jones both by our Rules and by the ABA Model Rules of Professional Conduct (Model Rules), which, by Rule 201(a), govern his practice before this Court./4/
In pertinent part, Rule 33(b) provides:
(b) Effect of Signature: The signature of counsel * * *
constitutes a certificate by the signer that thesigner has read
the pleading; that, to the best of the signer's knowledge,
information, and belief formed after reasonable inquiry, it is
well grounded in fact and is warranted by existing law or a good
faith argument for the extension, modification, or reversal of
existing law; and that it is not interposed for any improper
purpose, such as to harass or to cause unnecessary delay or
needless increase in the cost of litigation. * * * If a pleading
is signed in violation of this Rule, the Court, upon motion or
upon its own initiative, may impose upon the person who signed it
* * * an appropriate sanction, which may include an orderto pay
to the other party or parties the amount of the reasonable
expenses incurred because of the filing of the pleading,
including reasonable counsel's fees.
The effect of a signature on a motion is the same as the effect of a signature on a pleading. Rule 50(a).
In pertinent part, Model Rules 3.1 states: "A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law."
Mr. Jones has signed pleadings and other papers to bring and defend these proceedings knowing petitioners' claims to be meritless./5/ He has done so in violation of our Rules and the Model Rules and, thus, has intentionally abused the judicial process. If by that conduct he has multiplied the proceedings, he is deserving of sanctions for unreasonably and vexatiously multiplying the proceedings within the meaning of section 6673(a)(2). See Johnson v. Commissioner, supra.
4. Multiplication of the Proceedings
These proceedings should never have been brought. All of respondent's costs are, thus, in a sense, excessive. There is, however, some disagreement among the Courts of Appeals in interpreting 28 U.S.C. sec. 1927 as to whether it is only possible to multiply, or prolong, the proceedings after a case has been initiated; presumably because an attorney cannot begin to multiply the proceedings until some proceeding has come into existence for the attorney to multiply. Compare Moore v. Keegan Mgmt. Co., 78 F.3d 431, 435 (9th Cir. 1996) (28 U.S.C. sec. 1927 "applies only to unnecessary filings and tactics once a lawsuit has begun"), with In re TCI Ltd., 769 F.2d 441, 448 (7th Cir. 1985) (under 28 U.S.C. sec. 1927, trial judge "had the authority to award the fees incurred right from the beginning"). We have not addressed the analogous issue under section 6673(a)(2), and we are not compelled to do so today since, with respect to respondent's costs incurred in responding to the first pleadings (i.e., answering the petitions), there is adequate basis under Rule 33(b) for imposing upon Mr. Jones respondent's reasonable expenses, including reasonable counsel's fees, incurred in answering those pleadings.
The text of Rule 33(b) is set forth supra. By signing a pleading, the signer certifies, among other things, that, after a reasonable inquiry, he has concluded that, to the best of his knowledge, the pleading is well grounded in fact and law. The signer must inquire into both the facts and the law at the time the pleading is filed. Versteeg v. Commissioner, 91 T.C. 339, 342 (1988). Mr. Jones does not argue that he made a reasonable inquiry that led to his erroneous conclusion that petitioners' claims had merit. Indeed, we have concluded that he signed the petitions knowing that they lacked merit. Mr. Jones signed the petitions in violation of Rule 33(b) and is deserving of a sanction on account thereof.
5. Excess Costs
Attorney's fees awarded under section 6673(a)(2) are to be computed by multiplying the number of excess hours reasonably expended on the litigation by a reasonable hourly rate. Takaba v. Commissioner, 119 T.C. at 303. The product is known as the "lodestar" amount. Id. To assist us in computing the lodestar amount, respondent has provided us with the declarations of attorneys Alan J. Tomsic, Wesley J. Wong, and Paul C. Feinberg (Messrs. Tomsic, Wong, and Feinberg, respectively, and the Tomsic, Wong, and Feinberg declarations, respectively). Attached to the Tomsic and Wong declarations are copies of reports generated from respondent's internal time keeping records showing the number of hours expended on these cases by Messrs. Tomsic and Wong. Although the Feinberg declaration includes the number of hours he expended on these cases, he does not provide reports similar to those provided by Messrs. Tomsic and Wong, declaring that he does not keep detailed records by individual case number for time he spends in a supervisory capacity. Messrs. Tomsic and Wong, explicitly, and Mr. Feinberg, by inference, calculate their time expended working on these cases from their first contacts with the cases; i.e., for Mr. Tomsic, from review of the case files leading to his drafting motions to extend time to answer.
Respondent asks to be reimbursed for 12 hours of Mr. Tomsic's time, at $ 150 an hour, 72 hours of Mr. Wong's time, at $ 125 an hour, and 10 hours of Mr. Feinberg's time, at $ 200 an hour. Respondent provides the following chart showing the allocations of hours and dollars among docket numbers.
3405-05L 3489-05L 3490-05L Total
Hours-Alan J. Tomsic 4 4 4
And the same cast of attorneys in a similar case:
LAURA K. DAVIS, ET AL.,
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
Release Date: JULY 24, 2007
UNITED STATES TAX COURT
LAURA K. DAVIS, ET AL.,/1/
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
Docket Nos. 144-05L, 145-05L, 146-05L, 147-05L, 149-05L.
Filed July 24, 2007.
These cases brought pursuant to sec. 6330, I.R.C., are before the Court to determine whether Ps must pay penalties pursuant to sec. 6673(a)(1), I.R.C., for instituting procedures primarily for delay, etc., and whether counsel must pay R's excess counsel fees pursuant to sec. 6673(a)(2), I.R.C., for unreasonably and vexatiously multiplying the proceedings.
1. Held: P husband penalized pursuant to sec. 6673(a)(1), I.R.C., for instituting and maintaining proceedings primarily for delay, making frivolous arguments and taking groundless positions, and
2. Held, further, Ps' lead counsel liable for R's attorney's fees since he signed pleadings and other papers knowing Ps' claims to be meritless and, thus, abused the judicial process and unreasonably and vexatiously multiplied the proceedings.
Robert Alan Jones, Maria Angelisa L. Lacorte, and Mario P. Fenu, for petitioners.
Alan J. Tomsic and Paul C. Feinberg, for respondent.
MEMORANDUM OPINION
HALPERN, Judge: Each of the cases in this consolidated proceeding is before the Court to determine whether the petitioner therein must pay a penalty pursuant to section 6673(a)(1) and whether two of petitioners' counsel common to all of the cases, Robert Alan Jones (Mr. Jones) and Maria Angelisa L. Lacorte (Ms. Lacorte), must pay certain of respondent's costs pursuant to section 6673(a)(2). For the reasons that follow, we impose on petitioner Jeffrey W. Davis (Mr. Davis) penalties totaling $ 15,000 and on Mr. Jones costs totaling $ 25,800.
Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Generally, we shall use the term "counsel" to refer to Mr. Jones and Ms. Lacorte.
BACKGROUND
Introduction
Each of these cases began with a petition for review of a determination by respondent's Appeals Office (Appeals) that respondent might proceed with certain activities to collect unpaid tax (or taxes) owed by petitioner. The docket numbers, petitioners, and years in issue are as follows:
Docket No. Petitioner Year(s)
144-05L Laura K. Davis 1999
145-05L JLD Asset Management Co., 1999
a/k/a JLD Asset Management
Trust, Jeffrey Davis, Trustee
146-05L Jeffrey W. Davis 1997, 1998
147-05L Jeffrey W. Davis 1999
149-05L Laura K. Davis 1997, 1998
Each petitioner resided in Beavercreek, Ohio, at the time he or she (without distinction, he) filed the petition.
At the call of these cases from the calendar for the trial session of the Court at Las Vegas, Nevada, commencing on February 27, 2006 (the Las Vegas trial session), the Court received from the parties to each case a proposed decision document sustaining Appeals' determination that respondent might proceed with the collection activities in question in that case. We filed each proposed decision document as a stipulation of settlement to facilitate the Court's dealing with the penalty and costs issues before us today. We ordered each petitioner to show cause in writing why, in each case in which he is involved, a penalty should not be imposed on him pursuant to section 6673(a)(1), and we ordered Mr. Jones and Ms. Lacorte to show cause why, in each case, excess costs should not be imposed on them pursuant to section 6673(a)(2). We also ordered respondent to inform the Court of his fees and costs incurred in these cases and of his positions with respect to the penalties and costs at issue. We explained to the parties and to counsel that our orders to show cause were motivated by our concern that petitioners had raised, and their counsel had abetted them in raising, meritless arguments that had served merely to delay the collection of taxes owing. In addition to ordering petitioners and their counsel to respond in writing to our orders to show cause, we accorded each the opportunity to appear and be heard. Finally, in the face of the stipulations of settlement, we vacated the orders we had entered granting, in whole or in part, respondent's motions for summary judgment.
1997 and 1998 Tax Liabilities
On March 5, 2001, respondent issued to Mr. Davis and petitioner Laura K. Davis (Ms. Davis) a notice of deficiency with respect to their joint 1997 and 1998 Federal income taxes. Mr. Davis timely filed a petition in this Court for a redetermination of the deficiencies; Ms. Davis did not file a petition. On February 11, 2003, we entered an order and decision in Mr. Davis's case, sustaining the deficiencies in full and imposing a penalty of $ 25,000 upon him under section 6673(a)(1) for instituting the case for purposes of delay and for making frivolous arguments./2/ Mr. Davis did not appeal the order and decision. Respondent timely assessed the 1997 and 1998 deficiencies and other amounts on August 1, 2001 (Ms. Davis, for 1997), September 24, 2001 (Ms. Davis, for 1998), and August 19, 2003 (Mr. Davis, for 1997 and 1998).
1999 Tax Liabilities
On April 7, 2003, respondent issued to petitioner JLD Asset Management Trust, Jeffrey W. Davis, trustee (the trust and the trustee, respectively), a notice of deficiency with respect to the trust's 1999 Federal income tax and issued to Mr. and Ms. Davis a notice of deficiency with respect to their 1999 Federal income tax. Neither the trustee, Mr. Davis, nor Ms. Davis filed a petition for redetermination of the deficiency, and respondent timely assessed the 1999 deficiencies and other amounts on August 19, 2003 (Mr. and Ms. Davis), and September 15, 2003 (the trust).
Notices
On March 15, 2004, respondent sent to each petitioner with respect to each year of that petitioner in issue a Final Notice -- Notice of Intent to Levy and Notice of Your Right to a Hearing (final notice).
On March 19, 2004, respondent sent to each petitioner with respect to each year of that petitioner in issue a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 (NFTL). Each NFTL notified the recipient that respondent had filed a lien with respect to the recipient's unpaid Federal income tax liability (or liabilities) for the year (or years) in issue.
Responses and Hearing
On April 13, 2004, in response to the final notices and the NFTLs, each petitioner filed with Appeals an Internal Revenue Service (IRS) Form 12153, Request for a Collection Due Process Hearing. On those forms, petitioners commonly allege that there exist "whipsaws" with related entities or persons. Ms. Davis alleges that she is an "innocent spouse". Mr. Jones signed the Forms 12153 as each petitioner's authorized representative.
On June 18, 2004, in response to the Forms 12153, an Appeals employee, Settlement Officer Michael A. Freitag (the settlement officer), sent Mr. Jones a letter scheduling a hearing for July 19, 2004, with respect to all of the hearing requests. Among other things, the letter states that, if Mr. Jones wishes to propose collections alternatives, such as an installment agreement or an offer-in-compromise, he must complete and submit current financial statements, along with verification, prior to the hearing date. The hearing was rescheduled for August 24, 2004, but Mr. Jones failed to appear. On September 7, 2004, the settlement officer held a telephone conference with Mr. Jones.
Determinations
On December 2, 2004, Appeals issued to each petitioner a "Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330" (notice). The notices sustain the filing of the lien and the proposed levy action. Each notice is accompanied by an attachment, wherein the settlement officer sets forth the analysis leading to his conclusion that the collection actions should be sustained. The analysis in each attachment is similar, and the following are among the facts, generally similar in each attachment, on which the settlement officer relied: Petitioner could not challenge the underlying tax liability because he had received a notice of deficiency. Petitioner had neither requested release or withdrawal of the NFTL nor shown that he was entitled to release or withdrawal of the NFTL. No collection alternatives, such as an offer-in-compromise or an installment agreement, were finalized with petitioner because he either did not respond with any alternatives or still believes that he does not owe the liability and that this is a whipsaw case. Where relevant, petitioner had not provided information necessary for innocent spouse relief for Ms. Davis. Appeals had verified the assessments of tax. The requirements of all applicable laws and administrative procedures had been met. The proposed collection action balanced the need for efficient collection with petitioner's concern that any collection action be no more intrusive than necessary.
Petitions
On January 3, 2005, each petitioner timely petitioned for review of the notice received by that petitioner. Each petitioner assigned error in substantially the same terms. Except as noted, each (1) sought to challenge the tax liability underlying the collection actions at issue; (2) submitted that there were impermissible "whipsaws" with related entities or persons; (3) submitted that the settlement officer did not make a determination from petitioner's tax returns; (4) claimed the settlement officer did not allow him to raise collection alternatives, including an offer-in-compromise; (5) claimed the settlement officer did not allow sufficient time for him to retrieve IRS documentation to test whether the period of limitations on assessment had expired; (6) alleged that the assessments were time barred and violated the statute of limitations; and (7) in docket Nos. 144-05L and 149-05L, claimed "innocent spouse protection" for Ms. Davis. Mr. Jones executed each petition on behalf of the named petitioner. Respondent answered the petitions, denying or otherwise countering those claims.
The petitions are substantially similar to petitions filed by Mr. Jones on behalf of taxpayers in at least eight other cases, six of them calendared for trial at the Las Vegas trial session. Three of those cases are the subject of our report in Gillespie v. Commissioner, released today as T.C. Memo. 2007-202.
Ms. Lacorte's Appearance
On November 17, 2005, Ms. Lacorte filed an entry of appearance in each case.
Amended Petitions
On December 16, 2005, approximately 2-1/2 months before commencement of the Las Vegas trial session, each petitioner moved for leave to amend petition. Those motions are signed by Mr. Jones and Ms. Lacorte. The accompanying amended petitions were lodged with the Court on the same date, and, on December 19, 2005, we ordered respondent to respond to the motions for leave to amend. On January 5 and 6, 2007, we filed respondent's objections to the motions. On January 10, 2006, we granted all of the motions, and we filed the amended petitions./3/ Mr. Jones executed each amended petition on behalf of the named petitioner.
In each amended petition, petitioner avers numerous instances of abuse of discretion by the settlement officer; viz, (1) He did not give petitioner adequate time to make his case, including raising collection alternatives, such as an offer-in-compromise; (2) petitioner's counsel was not provided documentation showing that the IRS had met the requirements of all applicable laws and administrative procedures; (3) the settlement officer failed to provide petitioner a copy of his individual master file; (4) the assessment of tax was backdated and collection was time barred; (5) the settlement officer was biased against petitioner "because of Petitioner's use of the trust system"; (6) "there are impermissible 'whipsaws' with related entities or individuals"; and (7) in docket Nos. 144-05L and 149-05L, Ms. Davis is entitled to "'innocent spouse protection'". In each case, respondent denied those averments.
The amended petitions are substantially similar to petitions filed by Mr. Jones on behalf of taxpayers in at least six other cases calendared for trial at the Las Vegas trial session. Three of those cases are the subject of our report in Gillespie v. Commissioner, supra.
Motions for Summary Judgment and Motion for Penalty
On January 5, 2006, in docket Nos. 146-05L and 149-05L, and on January 12, 2006, in the remaining cases, respondent moved for summary judgment. He relied on similar grounds in support of each motion: Since petitioner had received a notice of deficiency with respect to the underlying liability or liabilities (without distinction, liability), he could not challenge the liability. Thus, at his collection due process hearing, petitioner could raise only collection alternatives. Although nothing prevented him from doing so, he did not raise any collection alternative, nor did Ms. Davis present any basis for innocent spouse relief. Finally, no other error assigned by petitioner raised any justiciable issue or showed any abuse of discretion by the settlement officer. Respondent also moved in docket No. 146-05L (concerning Mr. Davis's 1997 and 1998 taxable years) that we impose a penalty on him under section 6673 in the amount of $ 25,000, "as petitioner has instituted this proceeding primarily for the purpose of delay, and petitioner's position * * * is frivolous or groundless."
Petitioners' Objections
On February 6, 2006, each petitioner filed an objection to respondent's motion for summary judgment. No petitioner disputed that he failed to present collection alternatives. Each argued that the settlement officer had not given him adequate time to make his case. Each claimed that he required additional information to prepare collection alternatives and to resolve other issues relating to the years at issue. In docket Nos. 144-05L, 145-05L, and 147-05L, petitioners specifically argued that the settlement officer failed to allow additional time to retrieve relevant documents from the IRS. Each petitioner argued that the settlement officer was biased against him on account of his use of the trust system and that there were impermissible whipsaws with related entities or individuals. Ms. Davis, in docket Nos. 144-05L and 149-05L, claimed that she is an innocent spouse. Petitioners in each case except for docket No. 145-05L also continued to argue that the assessments of tax on which the collection actions were based were time barred. Mr. Davis, in docket No. 146-05L, contested the section 6673 penalty. Mr. Jones and Ms. Lacorte signed each of the objections.
Orders Disposing of Motions for Summary Judgment and Motion for Penalty
On February 17, 2006, we issued orders granting in full respondent's motion for summary judgment in docket No. 145-05L and granting in part his motions for summary judgment in the other four cases. In substantial part, the orders were similar. In each, we concluded that petitioner was prohibited from challenging the underlying liability. We found that petitioner had approximately 5-1/2 months to submit information to the settlement officer regarding collection alternatives but failed to do so. We determined that, where petitioner had claimed that he needed additional documents, he had not described to the settlement officer or to the Court those documents or their relevance. We concluded that the settlement officer need not have waited any longer than he did to make his determination. We rejected petitioner's claim that the settlement officer was required to provide documentation verifying that all applicable laws and procedures were followed or to produce petitioner's individual or business master files. We cited the following authority specifically holding that an Appeals officer is not required to produce that type of information. Nestor v. Commissioner, 118 T.C. 162, 166-167 (2002); Lunsford v. Commissioner, 117 T.C. 183, 187-188 (2001); Carrillo v. Commissioner, T.C. Memo. 2005-290. We found petitioner's claim of bias to be frivolous and unsubstantiated. We found that, beyond Ms. Davis's bare assertion that she was entitled to innocent spouse relief, she had done nothing (e.g., setting forth facts showing a genuine issue for trial) to substantiate a claim to that relief. In the orders governing the four cases in which we granted respondent's motion for summary judgment only in part, we denied the motion only with respect to petitioner's affirmative defense of the statute of limitations./4/ Each of those petitioners based that defense on his claim that respondent had backdated his assessment (or assessments) of tax and, as a result, collection of the tax was time barred. In turn, each based his claim of backdating on his argument concerning the "cycle post date" of the assessment. Since that argument was unclear, but we were concerned that it might involve a material
By the order we issued in docket No. 146-05L, we also denied respondent's motion for a penalty under section 6673(a)(1). We explained that, because we were only granting partial summary judgment in that case, we would await further developments before determining whether a penalty is appropriate. We added that we would also consider imposing excess costs on counsel pursuant to section 6673(a)(2) should we conclude that counsel had taken actions to multiply the proceeding unreasonably and vexatiously. We likewise warned petitioners and counsel in the orders issued in the ot
