In Part 1 of this article, we discussed a tax case, Boulware v. Commissioner[1], where, at a Tax Court hearing, the Tax Court asked taxpayer’s counsel if he had any legal argument in response to the IRS’s argument that civil fraud penalties should be imposed. Taxpayer’s counsel answered no. Later, following the hearing, taxpayer’s counsel changed his mind but was denied the opportunity to argue against the penalty in future proceedings.
Question. I have been asked: what should the taxpayer’s attorney have done in that situation? Should he or she have said something other than “no?”
My answer: There is no easy answer. But here are some ideas:
- Know the case. There is no substitute for preparation. Know your case and the elements that you need to prove or, in the case of a penalty, what the government needs to prove. Be prepared to contest the government’s arguments if there is a good basis to do so. I try to have in my hearing preparation a checklist of the elements needed to be proven. If the government has missed an element, don’t concede.
- Default to contest the point. If there is any way to contest the IRS’s argument consistent with your ethical duties under Rule 11, F.R.Civ. P, Circular 230, or other ethics guidelines, contest and don’t give in. Create a reasonable sounding argument and go with it. Easier said than done though. In Boulware v. Commissioner, perhaps the taxpayer’s lawyer could have said, rather than “No”, something like: We maintain that the penalty is improper, the government has failed to prove its case, the government has not met its burden as to each of the elements of the case, and we therefore object. This is not a foolproof approach, but maybe it preserves your general arguments for future hearings if you ever have better ideas.
- Remember the litigator’s credo. When the law is on your side, pound on the law. When the facts are on your side, pound on the facts. When neither is on your side, pound on the table. I do not endorse this advice, but it is a saying that has been around for a long time, so maybe there is some merit to it.
- Hope for the blessing of the patron saint of lawyers (St. Ivo) or luck. I don’t recommend this approach, but I have had my share of lucky breaks in a case. Hopefully, the times where luck bails someone out, that person learns the lesson to be better prepared the next time.
Practice Point. Know your case. But if you get caught, fall back to time honored practices such as pointing that the other side as not met their burden. But there is no substitute for preparation.
Taxpayers with issues that are in tax litigation or headed that way may contact Jared Le Fevre to discuss tax representation or strategy.
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).