Monday, March 10, 2003
Substantively, Howard and Everlina Washington is a simple case. The Washingtons stated that the IRS could not collect the taxes due for the years in question be cause those debts had been discharged in bankruptcy. The Washingtons stated, �only if the taxes were filed after 2 years before the date of filing the petition [for bankruptcy] would the years in question be dischargeable [sic]. The tax years in question were filed 17 months before the date of the petition and not after 2 years before the date of the petition.� The majority says this argument �misconstrues and misapplies� the law, but that is only half right. Actually, it states the law almost perfectly with regards to late-filed returns. It also states the facts correctly, in that the returns were actually filed 17 months before the bankruptcy petition. It does obviously misapply the law, in that the Washingtons clearly did not understand the law they stated. One concurrence says their arguments border on the frivolous, but this is unfair, and a result of tax experts not appreciating the complexity of their subject matter for pro se petitioners. While the phase �after 2 years before the date� is simple and straight-forward to a tax expert, most non-tax people will be absolutely convinced that it means one of several different things other than what it actually does. The IRS was also collecting on taxes due for 1998. The Washingtons had asked that an overpayment from 1997 be applied to 1998, but the IRS had applied the overpayment to an amount due for 1990. The Washingtons made no argument regarding this issue, and Tax Court simply stated the IRS�s right to make such applications. The Washingtons also asked for abatement of penalties and interest, which Tax Court said they did not have the jurisdiction to consider in this collection matter because the Washingtons failed to raise the issues in their Appeals Hearing.
The fireworks in this case came over jurisdiction and standard of review. The judges had five different opinions about why they had the power to hear this case, and the proper method for making the decision. But they all agreed that they had the power and their decision was correct. I will discuss the opinions in the order that they should have been presented, as discussed in my prior post about this case.
The Bankruptcy Court had issued a general order dissolving all debts that were dissolvable, but had not made a specific ruling as to whether the debt relating to the tax years involved had been discharged. The majority noted that they had previously ruled that they did not have jurisdiction in a deficiency hearing to determine whether a debt for the years in question was discharged by the Bankruptcy Court because that had nothing to do with the deficiency. However, since whether or not the debt had been discharged was directly relevant to whether or not collection actions should proceed, they had jurisdiction in this case. The majority then discussed the substance of the case without stating the standard of review.
Judge Vasquez is unclear how a challenge to the appropriateness of a collection action includes whether or not the Bankruptcy Court discharged the liability. Vasquez thinks such a challenge should only be about the type and/or method of the collection action. Vasquez would therefore place jurisdiction under the Tax Court�s authority to rule on a challenge to the underlying liability in a collection proceeding where the taxpayer has not otherwise had such an opportunity to make such a challenge. The result is that when viewed as a challenge to the appropriateness of a collection action, the standard of review is abuse of discretion, but when ruling on a challenge to the underlying liability, Tax Court acts de novo. Vasquez stated that although the majority talked as if it was treating this as a challenge to the appropriateness of a collection action, the discussion of substantive issues seemed to apply a de novo standard.
Judge Beghe responds that a challenge to the appropriateness of a collection action includes whether it is appropriate to collect at all, and says that it is not a challenge to the underlying liability because the Bankruptcy Court does not dissolve tax debts, rather it dissolves individual debtors from their tax debts. I am not sure whether that distinction of Judge Beghe�s is best critiqued by a bankruptcy attorney or an analytic philosopher. Anyway Beghe believes that the majority�s analysis is valid under any standard of review, so their lack of stating the standard was no big deal. Judge Beghe also notes that Judge Vasquez has ruled that Tax Court can not rehear a decision as to whether a tax debt was discharged in bankruptcy when Bankruptcy Court has already made that ruling, and states further that when Tax Court hears the issue first, Bankruptcy Court must also abide by their decision.
Judge Halpern makes a distinction between an �underlying tax liability� and an �unpaid tax�, and states that a discharge in bankruptcy creates an affirmative defense to a collection action, citing as authority a New York City Civil Court case. Thus Halpern sides with viewing this case as a challenge to the appropriateness of a collection action. Halpern implies that the correct standard of review is �abuse of discretion� but appears to argue that if Tax Court is reviewing whether an Appeals Officer correctly applied the law, �abuse of discretion� is the same as de novo, apparently because the Appeals Officer has no discretion to misapply the law. That sounds to me like great reasoning to use in court against any administrative agency.
Finally, Chief Judge Wells pipes up to say that this opinion does not preclude taxpayers from seeking review in Bankruptcy Court after they have petitioned Tax Court. If the issues presented are more difficult than those in this case, Tax Court may defer to Bankruptcy Court upon considerations of comity, judicial efficiency, and not
knowing what the hell they're talking about dealing with bankruptcy matters with the expertise of a Bankruptcy Court.