It is a bedrock principle of tax litigation that the US Tax Court is bound to following the precedent of the Circuit Court of Appeals to which its decisions are subject to appeal. See Golsen v. Comm’r, 54 T.C. 742 (1970). Generally, this determination is based on the residence of the taxpayer at the time the Tax Court petition is filed. For instance, if a taxpayer residing in Miami petitions the Tax Court for review of a Statutory Notice of Deficiency, appeal of the Tax Court’s decision will be to the 11th Circuit Court of Appeals, which covers Alabama, Florida, and Georgia. Logically, and more importantly, in adjudicating the taxpayer’s case, the Tax Court is bound by the precedents of the 11th Circuit.
However, in recent years the jurisdiction of the Tax Court has expanded from its traditional role of serving as a prepayment forum in tax deficiency cases. For example, the Tax Court has recently been granted jurisdiction over requests for innocent spouse relief, collection due process appeals, review of IRS denials of interest abatement requests, and the review of IRS whistleblower awards, among other varieties of actions.
With the expansion of the Tax Court’s jurisdiction, an exception to the “geographic” determination of the applicable Circuit Court of Appeals precedent appears to have developed. The source of this exception is Internal Revenue Code (hereinafter “IRC”) § 7482(b)(1). That statute sets forth six types of Tax Court cases that are subject to the general rule, outlined above, that the taxpayer’s residence (or principal place of business for taxpayer entities) will determine which Court of Appeals is the appropriate forum for review of the Tax Court’s decision. The cases subject to this general rule include review of determinations by the IRS of tax deficiencies alleged to be owed by individuals or entities, certain declaratory judgment actions, and partnership cases implicating TEFRA.
However, when expanding the Tax Court’s jurisdiction by statute (for example, by extending the Tax Court’s jurisdiction to collection due process appeals) Congress has not correspondingly amended IRC § 7482(b)(1) to include each new type of case the Tax Court can hear. In other words, while the variety of cases the Tax Court has power to decide has expanded, the six varieties of cases subject to the general geographic-determinative rule of IRC § 7482(b)(1) has remained the same.
This lack of correlation appears to implicate the catchall of IRC § 7482(b)(1), which states: “If for any reason no subparagraph (listing the six type of cases subject to the general, geographic-determinative venue provision) of the preceding sentence applies, then such decisions may be reviewed by the Court of Appeals for the District of Columbia.”
A plain reading of the appellate venue statute leads to the conclusion that regardless of the taxpayer’s residence at the time the Tax Court petition is filed, if the action is of a type not expressly set forth in IRC § 7482(b)(1), the D.C. Circuit Court of Appeals is the appropriate appellate venue. Consequently, under the Golsen rule, the D.C. Circuit’s precedents will govern these actions at the Tax Court level.
Recently, this interpretation of § 7482(b)(1) has been gaining more traction. For instance, in Whistleblower 14106-10W v. Comm’r, 137 T.C. 183 (2011), the Tax Court indicated that an appeal of that whistleblower action would lie with the D.C. Circuit under the § 7482(b)(1) catchall. Further, in Cohen v. Comm’r, 139 T.C. No. 12 (2012), another whistleblower case, the government sought to transfer appellate venue from the Third Circuit to the D.C. Circuit using the § 7482(b)(1) catchall (the motion was unopposed and the case is currently pending before the D.C. Circuit). Finally, in a case pending before the D.C. Circuit, Byers v. Comm’r, the taxpayer has argued that appeal of his collection due process case should lie in the D.C. Circuit, rather than the Eighth Circuit, which would be the geographically applicable Circuit Court of Appeal, based on the § 7482(b)(1) catchall provision.
THE EFFECT OF D.C. CIRCUIT APPELLATE REVIEW OF COLLECTION DUE PROCESS CASES
The impact of this interpretation of the statute could be wide-ranging. First, it is important to note that the under IRC § 7482(b)(2), the parties (i.e. the taxpayer and the IRS) can stipulate to review by a Circuit Court of Appeals of their choosing. However, in situations where the parties do not stipulate, review by the D.C. Circuit could be advantageous to a taxpayer.
A primary example of when review in the D.C. Circuit can be advantageous is a collection due process case. In a collection due process case, the IRS serves a notice of intent to begin collection activity or to lien or levy against the taxpayer’s property. Upon receipt of that notice, the taxpayer may invoke the review of the IRS Office of Appeals to determine whether the IRS’s proposed collection action is proper in light of the taxpayer’s financial circumstances. The taxpayer may also request a collection alternative (such as an offer in compromise or a payment plan) and assert other rights.
If the Appeals Office upholds the IRS’s proposed collection action, the taxpayer has the right to seek review of the Appeals Office’s determination in the Tax Court. In reviewing the determination, an issue arises as to the scope of the Tax Court’s review. The Tax Court has held that its review of the evidence presented at trial is de novo, which means it can accept new evidence not presented at the Appeals Office level. See Robinette v. Comm’r, 123 T.C. 85 (2004). However, three Circuit Courts of Appeal have held that the Tax Court is limited to review of the administrative record (so that if the taxpayer fails to present evidence at the Appeals Office level, the taxpayer will be precluded from introducing the evidence at the Tax Court level).
The D.C. Circuit Court of Appeals has not proscribed the scope of Tax Court review of a collection due process case (the three Circuit Courts that have done so are the First, Eighth, and Ninth). For that reason, a taxpayer residing in the First, Eighth, or Ninth Circuits seeking de novo review of the evidence in a collection due process case would be wise to assert and attempt to establish appeals venue in the D.C. Circuit under the IRC § 7482(b)(1) catchall (thereby establishing de novo review of evidence at the Tax Court level under Golsen), rather than the geographically applicable Circuit Court.
However, this is a two way street and can be disadvantageous to the taxpayer. If the DC Circuit establishes precedent that is contrary to the taxpayer’s interests, the government would be in position to ensure that the case is appealed to the D.C. Circuit, under the IRC § 7482(b)(1) catchall, thereby ensuring application of the negative precedent at the Tax Court level.
IMPLICATIONS FOR TAX COURT LITIGATION STRATEGY
The combination of the Golsen rule and the flexible nature of appeals court venue for Tax Court cases raises another interesting issue bearing on litigation strategy: at what point does a party (and the Tax Court) become bound by a particular Circuit Court’s jurisprudence? As stated above, the parties in a Tax Court case can stipulate to appeals venue in a particular Circuit Court of Appeals of their choosing. By so doing, the parties presumably bind themselves to the precedents of that Circuit Court under the Golsen rule. This indicates that the Appeals Court venue provision is not jurisdictional in nature, and the right to assert a particular appeals venue can be waived. That, in turn, raises the issue of whether a party can bind another party to a particular Circuit Court at the pleadings stage or some other stage of the litigation. Doing so would have the effect of cutting off the right to subsequently file a motion to transfer appeals venue.
Under Tax Court Rule 36(c), if a material allegation set forth in a petition is not expressly admitted or denied in the Respondent’s answer, the allegation is deemed admitted. Further, Tax Court precedent generally indicates that failure by a party in Tax Court litigation to respond to an argument on a specific point results in concession of that point. See Straight v. Comm’r,1999 WL 33587419 (U.S. Tax Court May 6, 1999).
This authority indicates that it may be beneficial in some circumstances for a litigant to assert its position regarding the proper appeals venue early in the case. Failure by other party to directly address the issue may result in waiver of the right to assert venue in an alternative appeals court. At the very least, raising the appeals venue issue early forces the parties to commit to a position and clarifies which Circuit’s law will govern the proceedings.
FUTURE CONGRESSIONAL ACTION
The issue of Appeals Court venue in collection due process cases is currently included in potential tax reforms being considered by Congress, a good compilation of which can be found here. Current draft legislation would apply the general geography-based appeals venue provision to both innocent spouse cases and collection due process cases. This legislation could have the effect of applying, on a nationwide basis, the more restrictive scope of Tax Court review currently in place in the First, Eighth, and Ninth Circuits. This important issue will undoubtedly continue to develop, both in Congress and with the resolution of the Byers case, over the next year.