Judicial Interpretations

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

Federal Court System (Cont’d)

Trial Courts

1. U.S. Tax Court }

2. 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)

• 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,

andCooperates 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 toThe preparation of tax returnsThe giving of accounting or business adviceTax accrual workpapersState tax situationsWritten 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.

United States Tax Court

U.S. Tax Court

Established by §7441Nineteen Judges – 19 of them

Judges are specialistsFifteen year termCircuit rideUsually 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.


No jury optionDeficiency only – don’t have to pay firstHow to get a case before the Court“Calendar” process


TC decisions Regular Memorandum – only application (in Judge’s

view) of existing law or interpretation of fact May rely on both


“The Golsen Rule”

Jack E. Golsen, 54 TC 742 (1970)


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)

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


Small Case Division - §7463Special Trial Judges - §7743ANot over $50k per year at issuePetitioner may be pro se or representedPetitioner’s optionDecision is final – may not be appealedDecision 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


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- (#)

United States District Court

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


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)


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)


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.”


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 #


• Reliability?– Varies– Good chance of overturn on appeal

U.S. Court of Federal Claims

National jurisdiction Sixteen judgesJudges may travel to your location

All monetary claims against the U.S.Judges are generalists

No jury optionAgain, as the name implies, tax must have

first been paid

United States CourtOf

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)

United States Courtsof

Appeals

U.S. Courts of Appeals

• Eleven geographic circuits

• One D.C. – D.C. District Court

• One Federal – U.S. Court of Federal Claims

• Thirteen Total

– Under which jurisdiction are you?

U.S. Courts of Appeals(cont’d)

• First level of judicial appeal

• Judges typically a panel of three

• Each Circuit CA is independent of all others. Obligated to follow only decisions of the U.S. Supreme Court.

U.S. Court of Appeals(cont’d)

Generally will hear only questions of law.Usually will not disturb the trial court’s

findings of fact.Why? The trial court, having heard witnesses

first hand, etc., is in the best position to determine the facts.

Will overturn a fact determination only if the trial court was clearly in error.

U.S. Courts of Appeals(cont’d)

Usually the final authority in tax matters.Why? The Supreme Court usually will hear

only three or four tax cases per year.

As a researcher, would generally have to rely on a decision of a CA of jurisdiction.

U.S. Courts of Appeal(cont’d)

• Citation - CCH:

• Bankers & Farmers Life Insurance Company v. U.S., (CA-5, rev’g DC) 1981-1 USTC ¶9369– 81-1 = CCH Volume– #9369 = page #

U.S. Courts of AppealCitations (cont’d)

• Citation - West:

• 643 F.2d 234– 643 = volume #– F.2d = West’s Federal Reporter, second series– 234 = page #

United States Supreme Court

U.S. Supreme Court

• No automatic right of appeal to the Supreme Court

• Petition by Writ of Certiorari – certiorari will be “granted” or “denied.”

U.S. Supreme Court

• Certiorari granted in very few tax cases; only when– Significant and widespread issue, and– Split among the Circuits.

U.S. Supreme Court(cont’d)

Denial of certiorari

• Is not an “upholding” or approval of the lower court decision, (and cannot be relied upon as such) although the lower court’s decision will stand.

U.S. Supreme Court(cont’d)

• Citations - Corn Products Refining Co.

• West: 76 SCt 20 (aff’g CA-2)

• Cumulative Bulletins: SCt (aff’g CA-2) 1955-2 CB 51

• CCH: (aff’g CA-2), 55-2 USTC ¶9746 (USSC, 1955)

• GPO Reporter: (aff’g CA-2), 350 US 46

Questions

?

Documents

Judicial Interpretations