Tuesday, September 18, 2012

DOJ Tax Authority to Settle Tax Cases in Joint Committee Cases (9/18/12)

In United States v. United States District Court for the Northern Mariana Islands, ___ F.3d ___, 2012 U.S. App. LEXIS 19134 (9th Cir. 2012), here, the Ninth Circuit held that, under the facts, the district court had abused its discretion in ordering, in a large tax refund suit, that a Government official with authority to settle the case be present at a compulsory settlement conference.  At the district court, in opposing that order at the trial letter, the Government stated:
because of the size of Baldwin's claim, the lowest-ranking official authorized to settle this case was the officer in charge of the Tax Division of the Department of Justice, the Assistant Attorney General of the Tax Division ("Assistant Attorney General"), fn3 and her authority is limited by the requirement that the Congressional Joint Committee on Taxation ("Joint Committee") reviews and has no adverse criticism to the proposed refund or settlement. fn4 See 28 C.F.R. §§ 0.160-.0162; see also Rules and Regulations, 76 Fed. 1Reg. 15212-02 (Mar. 21, 2011). The government argued that the personal participation of the Assistant Attorney General should not be required and proposed instead that the settlement conference be personally attended by the trial attorneys with primary responsibility for the handling of the case, with the Section Chief of the Tax Division's Office of Review ("Section Chief") available for consultation by telephone during the settlement conference. The Section Chief is authorized to accept offers in compromise in cases against the United States in which the amount of the government's concession, exclusive of statutory interest, does not exceed $1.5 million. See Rules and Regulations, 76 Fed. Reg. 15212-02 (Mar. 21, 2011).
   fn3 The position of Assistant Attorney General for the Tax Division was at that time vacant, so the authority to settle was delegated to the Principal Deputy Assistant Attorney General ("Principal Deputy"). See Principal Deputy Delegation, Department of Justice, Tax Division, Directive No. 142, http://www.justice.gov/tax/readingroom/2008ctm/CTM%20Chapter %203.htm#Directive No. 142 (last visited August 8, 2012). As a result, the government's motions in the district court and its initial papers in this court referred to the Principal Deputy as the lowest-ranking official authorized to settle this case. The appointment of Kathryn Keneally to serve as the Assistant Attorney General for the Tax Division was subsequently confirmed by the Senate and she assumed that position while this matter was pending in this court, so the Assistant Attorney General is again the lowest-ranking official with settlement authority. For simplicity, we will only refer to that position.
   fn4 The Assistant Attorney General can only accept an offer in compromise in excess of $2 million if the Joint Committee indicates that it has no adverse criticism of the proposed settlement. See 26 U.S.C. § 6405(a) (no refund in excess of $2 million shall be made until after the expiration of 30 days from the date the report is submitted to the Joint Committee); see also 28 C.F.R. § 0.160(b). If the IRS opposes or the Joint Committee has an adverse criticism of the proposed settlement, then only the Associate Attorney General can authorize the settlement. See 28 C.F.R. §§ 0.160(b), (d), 0.161(b). The Assistant Attorney General may, in some circumstances, redelegate his or her settlement authority, provided that the amount of the concession, exclusive of interest, is less than $2 million. See 28 C.F.R. § 0.168(a).
The District Court ordered the attendance of the person with authority to settle anyway.  The Government sought emergency mandamus from the Ninth Circuit to reverse the order.  The Court of Appeals reversed holding that, the district court had authority to make the order but had abused it discretion in issuing the order under the circumstances.  I won't address further the abuse of discretion and facts underlying it.

The interesting part for a Tax Procedure class is, of course, the authorizations for settlement within the Tax Division and the interplay with the requirement that settlements involving a refund exceeding $2,000,000 be submitted to the Joint Committee on Taxation.  I discuss that procedure in my Federal Tax Crimes book at p. 679-681 of the footnote version and 494-495 of the nonfootnoted version.  The text (without footnotes) is:
IV. Joint Committee Review of Large Refunds. 
Section 6405(a) prohibits refund of income or estate and gift taxes and most other refunds in excess of $2,000,000 until 30 days after the IRS has submitted a report to the Joint Committee on Taxation.  The $2,000,000 threshold is determined based on net over-assessments for the audit cycle in a multi-year review.  The report details the IRS's findings and conclusions with respect to the refund it proposes to make.  This gives the Joint Committee Staff an opportunity to review the proposed refund and comment thereon.   
Technically, § 6405(a) does not give the Joint Committee a veto power over the refund.  Moreover, the statute does not prohibit the refund if the Joint Committee Staff fails to do anything in the 30 day period nor, even, does it prohibit the refund if the Joint Committee staff disapproves.  Practically speaking, however, the IRS and the DOJ will almost invariably condition settlements requiring a refund over the threshold upon favorable review by the Staff of the Joint Committee.  
In a case pending in a court, the report must be made with respect to any full or partial settlement or concession which would result in refunds or credits exceeding $2,000,000.  For cases handled by the DOJ, DOJ will prepare and submit the report. 
A return to the taxpayer of an amount held as a cash bond rather than as a payment of tax is not a refund and need not be reported to the Joint Committee. 
Consider the following about the process: 
First, why does Congress require such a review if there is a refund of $2,000,000 but does not require the review if the IRS concedes a proposed deficiency of $2,000,000?  Isn’t the effect on the fisc the same in either event?  Although the statute does not contain an analogous requirement in a deficiency context, IRS Appeals does periodically submit reports to JCT on the largest deficiency cases. 
Second, if you are representing a large taxpayer in an audit where the IRS is noising about a deficiency exceeding $2,000,000 and you think the taxpayer may have a good defense in litigation, how would the potential for Joint Committee review affect your decision as to whether to prepay or deposit (both in order to stop the running of interest which would include the hot interest penalty for large underpayments)? 
Third, what is the correlation between the required Joint Committee review and the tentative refund procedure discussed above (pp. 677 ff.)?  A tentative refund for a large taxpayer may well exceed the $2,000,000 amount.  If the IRS must act on the application for refund before it has performed an audit, it will not be in a position to provide a meaningful report to the Joint Committee.  In that event, the refund is made within the 90 day period required by § 6411(b), and a report is made to Congress after the IRS has performed such audit as it chooses to make.
I have added the following to fn 2223 on p. 680 of the footnoted version of the text:  "See United States v. United States District Court for the Northern Mariana Islands, ___ F.3d ___, ___ n4 2012 U.S. App. LEXIS 19134, ______ n. 4 (9th Cir. 2012), discussing the interplay of this provision with the DOJ delegations of authority to settle cases.)."

No comments:

Post a Comment