Often times taxpayers and their legal counsel may be rushed in filing a petition in Tax Court to contest tax liability or may not have a detailed understanding of the tax case when it comes time for a hearing. In such cases, the taxpayer risks missing a legal argument and losing the chance to raise the legal argument at a later date.
Such was the fate of the taxpayer in Boulware v. Commissioner.[1] There, counsel for the taxpayer at the Tax Court hearing was asked by the Court if the taxpayer had a counter argument to the IRS’s position that the IRS supervisor timely approved a civil fraud penalty. The tax attorney responded: “No.”[2] At the tax trial, the Tax Court upheld the IRS fraud penalty. Several months later, the taxpayer filed a motion for reconsideration to demonstrate that the IRS had not timely obtained supervisor approval of the tax fraud penalty.
Alas for the taxpayer and his lawyer, it was too late to make the argument. The Tax Court denied the motion for reconsideration and the 9th Circuit Court of Appeals affirmed. The Court of Appeals ruled that the taxpayer was too late to assert the new legal argument:
- Even though helpful case law was handed down in another case after the Boulware The taxpayer could have made the same legal argument as was made in the new case and need not wait for the new case to be decided.[3]
- “A Rule 59(e) motion [for reconsideration] may not be used to raise arguments or present evidence for the first time when they could reasonably have been raised earlier in the litigation.”[4]
Practice Point. Beware of not knowing the tax case well enough and waiving arguments. The taxpayer may not be able to undo that waiver in later proceedings. This is the kind of ruling that makes lawyers paranoid and keeps lawyers awake at night.
About the Author. Jared M. Le Fevre is a 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, 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] 2021 WL 1626627 (9th Circuit 2021).
[2] Id. at *1.
[3] Id.
[4] Id. at *2, quoting Kona Enters. Inc. v. Est. of Bishop, 229 F.3d 877, 890 (9th Cir. 2000).