In Veal-Hill v. Comm’r of Internal Revenue, No. 19-2121, 2020 WL 6055418 (7th Cir. Oct. 14, 2020), the 7th Circuit Court of Appeals has updated the cost to the taxpayer who files a frivolous tax appeal. The Court has increased the amount to $5,000, an increase of the previous $4,000 amount set in 2006. The fee is “an approximation of the cost of the government attorneys’ wasted time in lieu of inviting proof of actual attorney’s fees.”[1]
What frivolous appeal compelled the Court to award sanctions to the IRS? The Court referred to a “spurious tort claim against a revenue agent”, along with “incoherent briefs filed by [taxpayer’s] two attorneys . . . The briefs . . . were practically devoid of coherent legal argument and primarily focuse[d] on irrelevant topics like biblical ethics and the life story of one of the attorneys.”[2] One of the attorneys (who were uncle and niece), the niece, was only on the case to electronically file court documents on behalf of her uncle who did not know how to use a computer. She was “truly embarrassed” by the brief her uncle submitted and asked to withdraw as counsel. The Court granted the withdrawal, after imposing sanctions.
The Court referred to the uncle by stating, “[I]t is readily apparent that his law practice should have ended before this case and he is not presently fit to represent clients in court.”[3] Of the niece, the Court rejected her argument that she was in essence acting only as an administrative assistant. The Court noted, “[Niece’s] response shows incredibly poor judgment in enabling [uncle’s] abuses . . . An attorney has a duty to the court that an administrative assistant does not. [Niece] submitted the briefs in her capacity as an attorney in violation of that duty and must share in the sanctions those briefs incurred.”[4] The Court imposed a $2,500 sanction on each attorney and ordered that a copy of the Court’s order be sent to the state bar of each lawyer for further disciplinary consideration.
Practice point: Be wary of filing frivolous tax appeals. In addition to a financial sanction, the taxpayer or its counsel could find themselves on the blistering end of a court dressing down.
Taxpayers who are considering filing a tax appeal are encouraged to contact Jared Le Fevre for an analysis of the appeal and to determine whether good grounds exist for the appeal.
Jared M. Le Fevre is a tax attorney and partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
[1] Veal-Hill v. Comm’r of Internal Revenue, No. 19-2121, 2020 WL 6055418, at *1 (7th Cir. Oct. 14, 2020).
[2] Veal-Hill v. Comm’r of Internal Revenue, No. 19-2121, Order (7th Cir. Oct. 14, 2020).
[3] Id.
[4] Id.