Tax Court Sticks to Its Farhy Holding that the § 6038(b) Penalty Is Not Assessable (11/19/24)

I have previously written on the saga where the Tax Court held that the IRS had no assessment authority for the § 6038(b) penalty and was reversed by the D.C. Court of Appeals. See --

• Tax Court Holds that IRS Has No Authority to Assess § 6038(b) Penalties for Form 5471 Delinquencies (4/3/23; 4/23/23), here (discussing Farhy v. Commissioner, 160 T.C. 399 (2023)) and
• DC Circuit Holds IRS Has Assessment Authority for § 6038(b) Penalty, Reversing Tax Court (5/3/24; 5/4/24), here (discussing  Farhy v. Commissioner, 100 F.4th 223 (D.C. Cir. 2024)).

In Mukhi v. Commissioner, 163 T.C. ___, No. 8 (11/18/24) (reviewed opinion), TN here* and GS here, the Tax Court reaffirmed its Farhy holding because the case is appealable to the Eighth Circuit,  permitting the Tax Court to reach its own decision without being bound by the precedent of the D.C. Circuit in its Farhy decision. Only Judge Nega dissented without opinion, presumably on the basis of the D.C. Circuit Farhy decision.

This is a notice only blog. I think the Tax Court decision in Mukhi and Farhy wrong on the merits for reasons I have written on before in the cited blogs. When I say the Tax Court is wrong on the merits, I am not speaking to whether or not is should have sustained a wrong decision on stare decisis. On the issue of stare decisis, the Tax Court said (Slip Op. 5):

          The Tax Court adheres to the doctrine of stare decisis and thus affords precedential weight to our prior reviewed and division opinions. See Analog Devices, Inc. & Subs. v. Commissioner, 147 T.C. 429, 443 (2016). Because of our nationwide jurisdiction, the Court takes seriously its obligation to facilitate uniformity in the tax law. See Bankers Union Life Ins. Co. v. Commissioner, 62 T.C. 661, 675 (1974). When one of our decisions is reversed by an appellate court, the Court will “thoroughly reconsider the problem in the light of the reasoning of the reversing appellate court and, if convinced thereby, . . . follow the higher court.” Lawrence v. Commissioner, 27 T.C. 713, 716–17 (1957), rev’d per curiam on other grounds, 258 F.2d 562 (9th Cir. 1958). But if the Court  remains convinced that our original decision was right, the proper course is to “follow [our] own honest beliefs until the Supreme Court decides the point” and thus continue to apply our own precedent. Id. Our decision in Golsen v. Commissioner, 54 T.C. 742 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971), created “a narrow exception” to this approach. Lardas v. Commissioner, 99 T.C. 490, 494 (1992). In a given case, when a “squarely [o]n point” decision of the appellate court to which an appeal would lie contradicts our own precedent, we will follow the appellate court’s decision. See Golsen, 54 T.C. at 757. To do otherwise would be “futile and wasteful” given the inevitable reversal from the appellate court. See Lardas, 99 T.C.at 494–95.

* Note, those wanting to read the Tax Court Slip Opinion can retrieve it from the Tax Court docket entries here at #93. This is because the Tax Court does not provide permalinks to its opinions as do many Courts of Appeals and the Supreme Court. The Tax Court provides only temporary links which time out.