DocketNumber: Nos. 144-05L, 145-05L, 146-05L, 147-05L, 149-05L
Citation Numbers: 2007 T.C. Memo. 201, 94 T.C.M. 81, 2007 Tax Ct. Memo LEXIS 204
Judges: \"Halpern, James S.\"
Filed Date: 7/24/2007
Status: Non-Precedential
Modified Date: 11/20/2020
These cases brought pursuant to
1.
2.
MEMORANDUM OPINION
HALPERN,
Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Generally, we shall use the term "counsel" to refer to Mr. Jones and Ms. Lacorte.
Each of these cases began with a petition for review of a determination by respondent's Appeals Office (Appeals) that respondent might proceed with certain activities to collect unpaid tax (or taxes) owed by petitioner. The docket numbers, petitioners, and years in issue are as follows:
144-05L | Laura K. Davis | 1999 |
145-05L | JLD Asset Management Co., | 1999 |
a/k/a JLD Asset Managment | ||
Trust, Jeffrey Davis, Trustee | ||
146-05L | Jeffrey W. Davis | 1997, 1998 |
147-05L | Jeffrey W. Davis | 1999 |
149-05L | Laura K. Davis | 1997, 1998 |
Each petitioner *206 resided in Beavercreek, Ohio, at the time he or she (without distinction, he) filed the petition.
At the call of these cases from the calendar for the trial session of the Court at Las Vegas, Nevada, commencing on February 27, 2006 (the Las Vegas trial session), the Court received from the parties to each case a proposed decision document sustaining Appeals' determination that respondent might proceed with the collection activities in question in that case. We filed each proposed decision document as a stipulation of settlement to facilitate the Court's dealing with the penalty and costs issues before us today. We ordered each petitioner to show cause in writing why, in each case in which he is involved, a penalty should not be imposed on him pursuant to
On March 5, 2001, respondent issued to Mr. Davis and petitioner Laura K. Davis (Ms. Davis) a notice of deficiency with respect to their joint 1997 and 1998 Federal income taxes. Mr. Davis timely filed a petition in this Court for a redetermination of the deficiencies; Ms. Davis did not file a petition. On February 11, 2003, we entered an order and decision in Mr. Davis's case, sustaining the deficiencies in full and imposing a penalty of $ 25,000 upon him under
On April 7, 2003, respondent issued to petitioner JLD Asset Management Trust, Jeffrey W. Davis, trustee (the trust and the trustee, respectively), a notice of deficiency with respect to the trust's 1999 Federal income tax and issued to Mr. and Ms. Davis a notice of deficiency with respect to their 1999 Federal income tax. Neither the trustee, Mr. Davis, nor Ms. Davis filed a petition for redetermination of the deficiency, and respondent timely assessed the 1999 deficiencies and other amounts on August 19, 2003 (Mr. and Ms. Davis), and September 15, 2003 (the trust).
On March 15, 2004, respondent sent to each petitioner with respect to each year of that petitioner in issue a Final Notice -- Notice of Intent to Levy and Notice of Your Right to a Hearing (final notice).
On March 19, 2004, respondent sent to each petitioner with respect to each year of that petitioner in issue a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under
On April 13, 2004, in response to the final notices and the NFTLs, each petitioner filed with Appeals an Internal Revenue Service (IRS) Form 12153, Request for a Collection Due Process Hearing. On those forms, petitioners commonly allege that there exist "whipsaws" with related entities or persons. Ms. Davis alleges that she is an "innocent spouse". Mr. Jones signed the Forms 12153 as each petitioner's authorized representative.
On June 18, 2004, in response to the Forms 12153, an Appeals employee, Settlement Officer Michael A. Freitag (the settlement officer), sent Mr. Jones a letter scheduling a hearing for July 19, 2004, with respect to all of the hearing requests. Among other things, the letter states that, if Mr. Jones wishes to propose collections alternatives, such as an installment agreement or an offer-in-compromise, he must complete and submit current financial statements, along with verification, prior to the hearing date. The hearing was rescheduled for August 24, 2004, but Mr. Jones failed to appear. On September 7, 2004, the settlement officer held a telephone conference with Mr. Jones.
On *211 December 2, 2004, Appeals issued to each petitioner a "Notice of Determination Concerning Collection Action(s) Under
On January 3, 2005, each petitioner timely petitioned for review of the notice received by that petitioner. Each petitioner assigned error in substantially the same terms. Except as noted, each (1) sought to challenge the tax liability underlying the collection actions at issue; (2) submitted that there were impermissible "whipsaws" with related entities or persons; (3) submitted that the settlement officer did not make a determination from petitioner's tax returns; (4) claimed the settlement officer did not allow him to raise collection alternatives, including an offer-in-compromise; (5) claimed the settlement officer did not allow sufficient time for him to retrieve IRS documentation to test whether the period of limitations on assessment had expired; (6) alleged that the assessments were time barred and violated the statute of limitations; and (7) in docket Nos. 144-05L and 149-05L, claimed "innocent spouse *213 protection" for Ms. Davis. Mr. Jones executed each petition on behalf of the named petitioner. Respondent answered the petitions, denying or otherwise countering those claims.
The petitions are substantially similar to petitions filed by Mr. Jones on behalf of taxpayers in at least eight other cases, six of them calendared for trial at the Las Vegas trial session. Three of those cases are the subject of our report in
On November 17, 2005, Ms. Lacorte filed an entry of appearance in each case.
On December 16, 2005, approximately 2-1/2 months before commencement of the Las Vegas trial session, each petitioner moved for leave to amend petition. Those motions are signed by Mr. Jones and Ms. Lacorte. The accompanying amended petitions were lodged with the Court on the same date, and, on December 19, 2005, we ordered respondent to respond to the motions for leave to amend. On January 5 and 6, 2007, we filed respondent's objections to the motions. On January 10, 2006, we granted all of the motions, and we filed the amended petitions. 3 Mr. Jones executed each amended petition on behalf *214 of the named petitioner.
In each amended petition, petitioner avers numerous instances of abuse of discretion by the settlement officer; viz, (1) He did not give petitioner adequate time to make his case, including raising collection alternatives, such as an offer-in-compromise; (2) petitioner's counsel was not provided *215 documentation showing that the IRS had met the requirements of all applicable laws and administrative procedures; (3) the settlement officer failed to provide petitioner a copy of his individual master file; (4) the assessment of tax was backdated and collection was time barred; (5) the settlement officer was biased against petitioner "because of Petitioner's use of the trust system"; (6) "there are impermissible 'whipsaws' with related entities or individuals"; and (7) in docket Nos. 144-05L and 149-05L, Ms. Davis is entitled to "'innocent spouse protection'". In each case, respondent denied those averments.
The amended petitions are substantially similar to petitions filed by Mr. Jones on behalf of taxpayers in at least six other cases calendared for trial at the Las Vegas trial session. Three of those cases are the subject of our report in
On January 5, 2006, in docket Nos. 146-05L and 149-05L, and on January 12, 2006, in the remaining cases, respondent moved for summary judgment. He relied on similar grounds in support of each motion: Since petitioner had received a notice of deficiency with respect *216 to the underlying liability or liabilities (without distinction, liability), he could not challenge the liability. Thus, at his collection due process hearing, petitioner could raise only collection alternatives. Although nothing prevented him from doing so, he did not raise any collection alternative, nor did Ms. Davis present any basis for innocent spouse relief. Finally, no other error assigned by petitioner raised any justiciable issue or showed any abuse of discretion by the settlement officer. Respondent also moved in docket No. 146-05L (concerning Mr. Davis's 1997 and 1998 taxable years) that we impose a penalty on him under
On February 6, 2006, each petitioner filed an objection to respondent's motion for summary judgment. No petitioner disputed that he failed to present collection alternatives. Each argued that the settlement officer had not given him adequate time to make his case. Each claimed that he required additional information to prepare collection alternatives and *217 to resolve other issues relating to the years at issue. In docket Nos. 144-05L, 145-05L, and 147-05L, petitioners specifically argued that the settlement officer failed to allow additional time to retrieve relevant documents from the IRS. Each petitioner argued that the settlement officer was biased against him on account of his use of the trust system and that there were impermissible whipsaws with related entities or individuals. Ms. Davis, in docket Nos. 144-05L and 149-05L, claimed that she is an innocent spouse. Petitioners in each case except for docket No. 145-05L also continued to argue that the assessments of tax on which the collection actions were based were time barred. Mr. Davis, in docket No. 146-05L, contested the
On February 17, 2006, we issued orders granting in full respondent's motion for summary judgment in docket No. 145-05L and granting in part his motions for summary judgment in the other four cases. In substantial part, the orders were similar. In each, we concluded that petitioner was prohibited from challenging *218 the underlying liability. We found that petitioner had approximately 5-1/2 months to submit information to the settlement officer regarding collection alternatives but failed to do so. We determined that, where petitioner had claimed that he needed additional documents, he had not described to the settlement officer or to the Court those documents or their relevance. We concluded that the settlement officer need not have waited any longer than he did to make his determination. We rejected petitioner's claim that the settlement officer was required to provide documentation verifying that all applicable laws and procedures were followed or to produce petitioner's individual or business master files. We cited the following authority specifically holding that an Appeals officer is not required to produce that type of information.
By the order we issued in docket No. 146-05L, we also denied respondent's motion for a penalty under
As above stated, at the call of these cases from the calendar for the *222 Las Vegas trial session, we received from the parties to each case a decision document (which we filed as a stipulation of settlement) sustaining Appeals' determination that respondent may proceed with the collection activities in question. In the face of the stipulations of settlement, we vacated our orders granting in whole or in part respondent's motions for summary judgment. We accorded each petitioner and counsel the opportunity to appear and be heard with respect to our orders to show cause why we should not impose on petitioner a penalty pursuant to
Mr. Davis appeared and was heard on February 28, 2006. The salient points of his testimony are as follows: He did not recall being advised that, because he received notices of deficiency, he could not challenge his underlying tax liability in a
Victoria Osborn (Ms. Osborn) was called by petitioners and, in pertinent part, testified as follows: She lives in Colorado and has a bachelor of science from the University of Colorado, with concentrations in accounting and finance. Her profession is public accountant, forensic accountant, and certified fraud examiner. She is not, however, a certified public accountant, nor is she licensed by the State of Colorado to practice accounting. She has never been employed by the IRS, and is not an enrolled agent or otherwise authorized to represent taxpayers before the IRS pursuant to
Both Mr. Jones and Ms. Lacorte were accorded the opportunity to be heard with respect to our orders to show cause why excess costs should not be imposed on them pursuant to
(a) Tax Court Proceedings. --[1) Procedures instituted primarily for delay, etc.--Whenever it appears to the Tax Court that -- (A) proceedings before it have been instituted or maintained by the taxpayer primarily for delay, (B) the taxpayer's position in such proceeding is frivolous *225 or groundless, or (C) the taxpayer unreasonably failed to pursue available administrative remedies, the Tax Court, in its decision, may require the taxpayer to pay to the United States a penalty not in excess of $ 25,000. (2) Counsel's liability for excessive costs. -- Whenever it appears to the Tax Court that any attorney or other person admitted to practice before the Tax Court has multiplied the proceedings in any case unreasonably and vexatiously, the Tax Court may require -- (A) that such attorney or other person pay personally the excess costs, expenses, and attorney's fees reasonably incurred because of such conduct * * *
A.
Respondent's position is that we should impose a penalty against Mr. Davis in docket Nos. 146-05L (concerning Mr. Davis's 1997 and 1998 taxable years) and 147-05L (concerning his 1999 taxable year) for advancing frivolous arguments and making groundless claims and for instituting proceedings primarily for delay. Respondent points out that Mr. Davis's 1997 and 1998 taxable years were previously before the Court in a deficiency case in which we sustained the deficiencies in full and imposed *226 a penalty of $ 25,000 upon him under
Each petitioner filed a response to the Court's order to show cause. Each argues that the standard for imposition of a penalty under
Respondent has not asked us to impose a
With respect to his affirmative defense of the statute of limitations, Mr. Davis presents only the testimony of Ms. Osborn. She testified to nothing more remarkable than that, after an assessment of tax is made, record of that assessment is posted to the IRS' computerized record system. Ms. Osborn's theory that assessment predating posting indicates something fraudulent was rejected by the Magistrate Judge in the Dahmers' evidence that the June 25, 1993[,] assessment was entered into the IRS administrative computer records in October 1993 provided no evidence of fraud because an assessment occurs on the date an authorized official signs a summary record of assessment containing the taxpayer's assessment rather than the date the assessment is posted to the IRS computerized record system. * * *
Mr. Davis's inability to show the merit of any averment, claim, or argument advanced by him leads us to the conclusion that he initiated and has maintained these proceedings primarily for delay, and we so find. Indeed, *232 he was sanctioned for just such conduct (and fined $ 25,000) in the proceeding that he initiated to contest respondent's determination of his underlying tax liabilities for 1997 and 1998. A taxpayer's good faith reliance on the advice of counsel is not a defense to the imposition of a penalty under
Not only do we determine that Mr. Davis is deserving of a penalty for conduct that violates
Taking into account respondent's position, we shall discharge our orders to show cause in docket Nos. 144-05L and 149-05L, involving Ms. Davis, and 145-05L, involving the trustee, as to why a penalty should not be imposed on the petitioner pursuant to
III.
A.
Respondent's position is that we should impose excess costs on Mr. Jones and Ms. Lacorte pursuant to Mr. Jones' *235 entire conduct in this case constitutes bad faith, in that he knowingly or recklessly filed petitions, motions for leave to amend petitions, amended petitions, and oppositions to respondent's summary judgment motions that raised nothing but frivolous, groundless, or statutorily precluded arguments. Ms. Lacorte's involvement was limited to participation in the filing of motions for leave to amend petition and oppositions to respondent's summary judgment motions.
Alternatively, if we do not impose excess costs on Mr. Jones and Ms. Lacorte under
Mr. Jones and Ms. Lacorte advance as their own defense the arguments made on behalf of each petitioner. They also claim errors in respondent's calculation of his costs. Mr. Jones states that, at all times relevant to these cases, Ms. Lacorte was his employee, subject to his direction *236 and advice, and is in no way responsible for the decisions made in connection with the initiation or prosecution of these cases. Ms. Lacorte agrees with that description of her relationship to Mr. Jones.
We accept that Mr. Jones is principally responsible for the decisions of counsel made in these cases, and Ms. Lacorte, his employee, at all times worked under his direction and control. We shall hold only Mr. Jones financially responsible for the excessive costs we determine.
The purpose of
We believe that Mr. Jones intentionally abused the judicial process by bringing and continuing these cases on behalf of petitioners knowing their claims to be without merit. In support of our determination to impose a The Orders to Show cannot be properly answered in the context of analysis of individual issues raised on appeal from CDP [
The difficulty with Mr. Jones's wholesale approach, and the reason we believe that he intentionally abused the judicial process, is that, in taking that approach, Mr. Jones violated the well-known duty of an attorney before this Court to insure that there is merit to
In pertinent part, (b)
In pertinent part,
Mr. Jones has signed pleadings and other papers to bring and defend these proceedings knowing petitioners' claims to be meritless.8*244 He has done so in violation of our rules and the Model Rules and, thus, has intentionally abused the judicial process. If by that conduct he has multiplied the proceedings, he is deserving of sanctions for unreasonably and vexatiously multiplying the proceedings within the meaning of
These proceedings should never have been brought. All of respondent's costs are, thus, in a sense, excessive. There is, however, some disagreement among the Courts of Appeals in interpreting
The text of
Attorney's fees awarded under
Respondent asks to be reimbursed for 152 hours of Mr. Tomsic's time, at $ 150 an hour, and for 30 hours of Mr. Feinberg's time, at $ 200 an hour. Respondent provides the following chart showing the allocations of hours and dollars among docket numbers.
Hours-Alan J. Tomsic | 30 | 20 | 48 | 24 | 30 | 152 |
"Lodestar" amount at | $ 4,500 | $ 3,000 | $ 7,200 | $ 3,600 | $ 4,500 | $ 22,800 |
$ 150/hour (Tomsic) | ||||||
Hours-Paul C. Feinberg | 3 | 2 | 5 | 2 | 3 | 15 |
"Lodestar" amount | $ 600 | $ 400 | $ 1,000 | $ 400 | $ 600 | $ 3,000 |
$ 200/hour (Feinberg) | ||||||
"Lodestar" amount | $ 5,100 | $ 3,400 | $ 8,200 | $ 4,000 | $ 5,100 | $ 25,800 |
(Total) |
Mr. *247 Tomsic is the attorney with day-to-day responsibility for these cases. He is an attorney employed in the IRS Office of Chief Counsel in Las Vegas, Nevada. He has been a member of one or more State bars since 1981. He is admitted to practice before the United States Tax Court. His declaration contains the following chart showing the hours he spent on these cases.
Review case files and | 3 | 3 | 3 | 3 | 3 | 15 |
answer petition | ||||||
Request information | 5 | 1 | 1 | 2 | 1 | 10 |
and perform research | ||||||
Objections to motions | 2 | 2 | 2 | 2 | 2 | 10 |
for leave to amend | ||||||
Motions for summary | 6 | 5 | 20 | 4 | 15 | 50 |
judgment | ||||||
Answer amended | 2 | 2 | 2 | 2 | 2 | 10 |
petitions | ||||||
Review info and | 4 | -- | 12 | 4 | -- | 20 |
prepare settlement | ||||||
documents | ||||||
Prepare for and attend | 8 | 7 | 8 | 7 | 7 | 37 |
Las Vegas trial | ||||||
session | ||||||
Total | 30 | 20 | 48 | 24 | 30 | 152 |
Mr. Feinberg is an Associate Area Counsel in the IRS Office of Chief Counsel in Las Vegas, Nevada. He has been in that position since September 2002 and has been employed by the Chief Counsel since July 1991. He has been a member of one or more State bars since 1979. He is admitted to practice before the United States Tax Court. His responsibilities include, among other things, supervising the litigation of cases before the Court. In connection with these cases, he supervised *248 the activities of Mr. Tomsic, and, as supervisor, he familiarized himself with the cases, discussed handling of the cases and issues presented, reviewed all documents that were prepared for filing with the Court, and attended all proceedings concerning the cases at the Las Vegas trial session. He estimates that he spent a total of 15 hours on these cases.
Respondent claims that it is reasonable to utilize hourly charges of $ 150 and $ 200 for Messrs. Tomsic's and Feinberg's time, respectively, in computing the lodestar amounts for these cases. Respondent argues that those are the same rates that were allowed by the Court for the Commissioner's trial and supervisory attorneys in 2002, in
Mr. Jones does not question the reasonableness of the hourly rates claimed for either Mr. Tomsic or Mr. Feinberg. Mr. Jones has principally two objections to the award of excess costs. First, he objects to respondent's claim that all of the hours expended by his attorneys are excessive and deserving of compensation. Second, he claims that respondent fails to describe and substantiate the nature of the services rendered by his attorneys.
We see no merit *249 to either of Mr. Jones's objections. As we have made plain, these cases are without merit and never should have been brought. By their declarations, Messrs. Tomsic and Feinberg describe adequately their activities with respect to these cases. Mr. Tomsic's declaration is accompanied by computer records that, we assume, were made contemporaneously with the work performed, and that support his claim. Moreover, we are familiar with the procedural and factual history of these cases, and we believe that 152 hours was reasonably necessary for Mr. Tomsic to do the work he describes. We find that $ 150 is a reasonable hourly charge for Mr. Tomsic's time, and he reasonably expended 152 hours on this litigation. The lodestar amount for Mr. Tomsic is, thus, $ 22,800. We accept at face Mr. Feinberg's descriptions of his duty and activities and find reasonable his claim that he spent 15 hours in those activities. We find that $ 200 is a reasonable hourly charge for Mr. Feinberg's time, and he reasonably expended 15 hours on this litigation. The lodestar amount for Mr. Feinberg is, thus, $ 3,000.
The total lodestar amount for the time of Messrs. Tomsic and Feinberg is $ 25,800. Respondent has not *250 itemized costs for travel expense, photocopying, or supplies used in preparing the cases. Respondent limits his request for costs to the total lodestar amount. We shall require Mr. Jones to pay costs in that amount.
We find that $ 25,800 is a reasonable amount for respondent's excess attorney's fees incurred by reason of Mr. Jones's unreasonable and vexatious multiplication of these proceedings. Therefore, we shall make the orders to show cause absolute and order Mr. Jones personally to pay $ 5,100, $ 3,400, $ 8,200, $ 4,000, and $ 5,100 in docket Nos. 144-05L, 145-05L, 146-05L, 147-05L, and 149-05L, respectively, pursuant to
To reflect the foregoing,
1. Cases of the following petitioners are consolidated herewith: JLD Asset Management Co., a.k.a. JLD Asset Management Trust, Jeffrey Davis, Trustee, docket No. 145-05L; Jeffrey W. Davis, docket No. 146-05L; Jeffrey W. Davis, docket No. 147-05L; and Laura K. Davis, docket No. 149-05L. unreasonably failing to pursue available administrative remedies.↩
2. In support of our order and decision, we relied on the following deemed admissions (paragraph numbers and ellipses omitted): Petitioner Jeffrey W. Davis created a series of sham trusts designed to assist him in evading the payment of his Federal income and employment taxes. Petitioner Jeffrey W. Davis created the JLD Asset Management Trust to avoid paying his Federal taxes. The JLD Asset Management Trust is a sham trust. The Davis Charitable Trust is a sham trust. The petitioner Jeffrey W. Davis instituted this case to delay the assessment of his individual income taxes for the taxable years 1997 and 1998. The petitioner Jeffrey W. Davis instituted this case to use the Tax Court as a forum to present frivolous constitutional and procedural arguments against the United States' Federal income tax system. The petitioner Jeffrey W. Davis fired his attorney, Scott W. Gross, after Mr. Gross refused to file frivolous motions in connection with this case. The petitioner Jeffrey W. Davis intentionally, recklessly and negligently disregarded the Federal tax laws in the preparation of his 1997 and 1998 Federal income tax returns.
3. Respondent objected to the motions on, among other grounds, that the proposed amendments were frivolous or groundless, provided no basis for relief, and were being raised solely for the purpose of delay. We granted the motions in light of the facts before us and the standard set forth in
4. We determined that petitioner in docket No. 145-05L conceded that defense because the issue was not addressed in his opposition to the motion for summary judgment.↩
5. Unsupported by any citation of authority, Mr. Davis claims that the standard for imposition of a penalty under There is some question whether it is necessary for a court to find that a taxpayer acted in bad faith in order to impose a penalty on him under
6. That Mr. Jones takes a wholesale approach in representing clients before the Court is also evidenced by the fact that he made the same probabilistic argument in
7. As discussed in the text,
8. The pleadings and papers we have in mind are the petitions, motions for leave to amend petition, amended petitions, and objections to the motions for summary judgment.
9. Alternatively, with respect to respondent's attorney's fees allocated to reviewing case files and answering petition, we make the award pursuant to
Dr. Marjorie E. Nelson v. United States of America, ... , 796 F.2d 164 ( 1986 )
in-re-tci-limited-debtor-appeals-of-william-l-needler-associates , 769 F.2d 441 ( 1985 )
Reliance Insurance Company v. Sweeney Corporation, Maryland , 792 F.2d 1137 ( 1986 )
Robert B. Branch v. Internal Revenue Service , 846 F.2d 36 ( 1988 )
Richard D. May v. Commissioner of Internal Revenue , 752 F.2d 1301 ( 1985 )
in-re-keegan-management-co-securities-litigation-michael-moore-and , 78 F.3d 431 ( 1996 )
United States v. Melvin D. Wallace and Arthur M. Levin , 964 F.2d 1214 ( 1992 )
Lunsford v. Comm'r , 117 T.C. 183 ( 2001 )