In United States v. Jackson, 2013 U.S. App. LEXIS 1674 (3d Cir. 2013), here. This is a non-precedential opinion, but it has a interpretation of a key provision of the statute dealing with the interface of DOJ Tax and the IRS.
The facts are simply stated. The IRS referred a case to DOJ Tax to obtain a judgment against a taxpayer on a tax assessment. DOJ Tax obtained the judgment and thereafter seems to have sent the case back to the IRS for collection action on the judgment. The taxpayer and the IRS interacted. I am deliberately fuzzy about that interaction. It seems, however, that the taxpayer filed returns for at least some of the relevant years indicating less tax due and made payments. The IRS apparently accepted the returns and abated the tax (apparently the IRS just processed and abated without substantive consideration). Importantly, the IRS abated without DOJ Tax consent. The taxpayer claimed that the result of the interaction was that the IRS compromised or affirmatively abated he tax liability (which might mean that the only way the IRS could restore the assessment was to invoke the deficiency procedures if there were sufficient time on the statute). The taxpayer then moved to have the judgment declared satisfied.
One issue was whether the IRS abated in the manner claimed (rather than just made a mistake that might be correctable). But the predicate issue was whether the IRS even could abate or compromise the tax liability for less than the judgment obtained by DOJ Tax without DOJ Tax's approval. Section 7122(a), here, provides:
(a) AuthorizationCertainly, any action the IRS took was "after" the reference to DOJ Tax. So a straight-forward literal reading of the statute meant that the IRS lost the ability to compromise the tax liability, even after the judgment had been obtained and only the IRS was involved in the collection of the tax now reduced to judgment. That would mean that any abatement was void and hence the assessments could be reinstated. Here is the court's reasoning:
The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.
Jackson's main contention is that the IRS abated his tax liabilities. Under 26 U.S.C. § 7122(a), the IRS "may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the [DOJ] for prosecution and defense; and the Attorney General or his delegate may compromise any such case after reference to the [DOJ] for prosecution or defense." However, "[o]nce a tax matter is referred to the [DOJ], only the Attorney General or a person to whom authority has been delegated by the Attorney General may settle the matter." United States v. Forma, 784 F. Supp. 1132, 1139 (S.D.N.Y. 1992); see also Slovacek v. United States, 40 Fed. Cl. 828, 833 (1998) (agreeing with Forma); Int'l Paper Co. v. United States, 36 Fed. Cl. 313, 321 (1996) (agreeing with Forma); Brubaker v. United States, 342 F.2d 655, 662 (7th Cir. 1965) (determining that excess tax "liabilities cannot be compromised by the Attorney General or the [DOJ] unless and until the Commissioner refers [the matter] to the [DOJ] for prosecution or defense"); cf. Bergh v. Dep't of Transp., 794 F.2d 1575, 1577 (Fed. Cir. 1986) (noting that a compromise is "within the discretion of the agency conducting the litigation").
The IRS lost its authority to compromise Jackson's tax liabilities in April 2009 when it referred Jackson's case to the DOJ for prosecution. Accordingly, the abatements made in 2011 were void because they were made without authorization from the DOJ. See IRS Chief Counsel Notice CC-2011-020, 2011 WL 4402105 (Sept. 15, 2011) ("Abatement of tax for a tax period referred to [the DOJ] that is made without the approval of [the DOJ] is invalid and may be reversed, because the Service lacks the authority to take such action on the taxpayer's account without Justice approval."); cf. In re Bugge, 99 F.3d 740, 745 (5th Cir. 1996) (clerical error doctrine provides authority for reversal of abatement of original assessment in limited circumstances). Furthermore, the DOJ retains authority to compromise even if a judgment has been obtained and the case has been returned to the IRS for collection. See IRS Chief Counsel Notice CC-2011, 020, 2011 WL 4402105. Accordingly, the original assessments remained valid because the abatements made by the IRS were void. See id. (reassessment not necessary because the post-referral abatements were void).
Finally, Jackson's assertion that the District Court ignored applicable case law is meritless. As an initial matter, Jackson does not cite any particular authority to support his allegation. However, it appears that he is referring to the unpublished order of the United States District Court for the Eastern District of Oklahoma in United States v. Pound, No. CIV-07-427-RAW, 2010 U.S. Dist. LEXIS 82090, 2010 WL 2803918 (E.D. Okla. Feb. 2, 2010), which he attached to his motions. In Pound, the district court concluded that the taxpayer was entitled to post-judgment relief under Fed. R. Civ. P. 60(b)(5) & (6) after the IRS erroneously abated his liabilities. However, the District Court did not err in not following Pound because it had, at most, persuasive value. Furthermore, in 2011, after Pound was decided, the IRS specifically disagreed with Pound and determined that a "post-referral abatement made without approval by Justice is void and the abatement should be reversed and the Service's transcript records corrected." IRS Chief Counsel Notice CC-2011-020, 2011 WL 4402105. Accordingly, the District Court correctly did not follow Pound.This was counter-intuitive that DOJ Tax would retain sole authority even after the judgment was obtained and the case referred back to the IRS.
I wonder how far this extends. If the IRS refers to the case to IRS for prosecution (as opposed to reducing an assessment to judgment), the statute seems equally clear that compromises after that point have to be made by DOJ Tax. I have not had that experience (actually because I have never worked on a compromise after a criminal referral). I would be curious the experiences of others.
Jack-
ReplyDeleteSomething in the dim recesses of my memory tells me that IRS and DOJ take the position that a referral by IRS to DOJ can be criminal, civil or both. Thus, a criminal referral to DOJ for a particular year should not prohibit the IRS from entering into a post-conviction OIC (collection) with the taxpayer for the year covered by the conviction.
While I can't be completely certain of the correctness of my memory on this point, our office in the past has (favorably) resolved civil numbers with the cooperating Revenue Agent without DOJ involvement, post-conviction. We have also handled Tax Court cases in which civil tax liabilities are resolved for years for which there was a criminal conviction. These cases, if they settle, settle with Appeals or with IRS Chief Counsel, without DOJ approval.
If IRS can compromise civil numbers for years for which a criminal referral was made, they can certainly compromise the amounts owed for these years based on an inability to pay. I've never gone down that path, at least that I can recall. Seems to me that IRS in most cases would refuse to do an OIC based on public policy grounds. I had that happen once where the client was convicted of RICO offenses and emerged from Club Fed with no prospects of paying a large income tax liability.
Many years ago, an RO who was pounding my client demanded that we submit an OIC (collection) directly to him, even though the liability he was collecting had been reduced to judgment in District Court. I had a very contentious "discussion" with the RO about where to send the OIC. Because we wanted the RO to stand down on collection activity, we sent the OIC package to him (this was before OICs were all routed through the Service Center). Two months later I was yelled at by someone else in the IRS for not sending the OIC package to DOJ. I doubt that many ROs today realize that OICs must go to DOJ if there is a District Court judgment.