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May 26, 2022 At Court

The U.S. Tax Court’s Promotion of Civility

William Schmidt

In discussing with other attorneys the issue of well-being in the legal profession, a frequent topic is kindness in the practice of law and, for practice before the U.S. Tax Court, its promotion of civility. The Tax Court is noted as a place where parties are encouraged to cooperate. The Court’s promotion of civility reinforces the idea of tax law as a collegial endeavor that serves as a model for cooperative behavior in court.

It appears that there are three main areas promoting civility in the Tax Court – the Tax Court Rules of Practice and Procedure, the Internal Revenue Manual and the people involved with the Tax Court.

The Tax Court Rules

The Tax Court provides the Tax Court Rules of Practice and Procedure on its website for easy access. Four rules are of special interest here: Rules 70, 90, 91, and 201. For starters, Rule 201(a) states that “Practitioners before the Court shall carry on their practice in accordance with the letter and spirit of the Model Rules of Professional Conduct of the American Bar Association.” That sets the tone for the expected behavior of practitioners before the Tax Court.

A significant emphasis on cooperation is established by Rule 91, Stipulations for Trial, and more specifically in Rule 91(a) – Stipulations Required.

(1) General: The parties are required to stipulate, to the fullest extent to which complete or qualified agreement can or fairly should be reached, all matters not privileged which are relevant to the pending case, regardless of whether such matters involve fact or opinion or the application of law to fact. Included in matters required to be stipulated are all facts, all documents and papers or contents or aspects thereof, and all evidence which fairly should not be in dispute. Where the truth or authenticity of facts or evidence claimed to be relevant by one party is not disputed, an objection on the ground of materiality or relevance may be noted by any other party but is not to be regarded as just cause for refusal to stipulate. The requirement of stipulation applies under this Rule without regard to where the burden of proof may lie with respect to the matters involved. Documents or papers or other exhibits annexed to or filed with the stipulation shall be considered to be part of the stipulation.
(2) Stipulations To Be Comprehensive: The fact that any matter may have been obtained through discovery or requests for admission or through any other authorized procedure is not grounds for omitting such matter from the stipulation. Such procedures should be regarded as aids to stipulation, and matter obtained through them which is within the scope of subparagraph (1) must be set forth comprehensively in the stipulation, in logical order in the context of all other provisions of the stipulation. A failure to include in the stipulation a matter admitted under Rule 90(f) does not affect the Court’s ability to consider such admitted matter.

Rule 91 goes on to consider when to file such stipulations, objections, motions to compel stipulation, and other matters, but that is beyond the scope of this article.

Note that the parties are expected to stipulate to relevant matters in the case that are not privileged. That includes, among other items, the facts, documents, papers and general evidence that should not be in dispute. That often leads to stipulations with examples such as the petitioner filed the tax return as received by the IRS on a specific date, the IRS issued a notice of deficiency on a later date, et cetera. As I have often counseled clients or pro se taxpayers at a calendar call, an agreement in the stipulation about those examples is to the fact that those documents were sent by a particular party and does not necessarily mean that both parties agree that what was stated on the particular document was a valid, binding conclusion for the parties.

As a result, the parties are forced into a position of sharing evidence and agreeing to facts that are not in dispute. It leads the parties in Tax Court away from a formal discovery process and instead encourages cooperation in building the agreed evidence for the Court. The Tax Court stipulation process runs counter to several other courts, where it is all too common for parties to keep evidence secret until forced to share it in formal discovery or in court.

That is not to say that formal discovery never happens in the Tax Court. There are several Tax Court Rules that cover the discovery process, but there are reminders in the Rules for practitioners that stipulations are the starting point. For example, Rule 70 (about discovery in general) states, “the Court expects the parties to attempt to attain the objectives of discovery through informal consultation or communication before utilizing the discovery procedures provided in these Rules.” Similarly, Rule 90 (about requests for admission) also states, “the Court expects the parties to attempt to attain the objectives of such a request through informal consultation or communication before utilizing the procedures provided in this Rule.” In other words, the parties are to start with stipulations about evidence and to turn to discovery procedures only if that process proves unsuccessful.

The underlying idea is that the parties are expected to share relevant evidence and not to lead with formal discovery. The structure of how the parties interact in Tax Court changes the approach of the parties and puts them in a position of cooperation. This may mean a learning curve for practitioners unfamiliar with this approach, but it reflects a design to have evidence that is not in dispute rise for submission to the Court as stipulated so that what remains is in dispute for trial.

The Internal Revenue Manual

A factor favoring this civil approach in the Tax Court is the IRS Commissioner’s role as Respondent, as represented by the Office of Chief Counsel. It provides stability when one of the parties has already agreed to follow the Rules, as codified in the Internal Revenue Manual (IRM).

On the stipulation of facts, the IRM states that “[t]he purpose of the stipulation of facts is to limit the trial to the facts in dispute, and to narrow the issues for trial. Tax Court Rule 91 requires the parties to prepare a comprehensive stipulation of facts before the trial. The Court takes a dim view of evidence offered at trial which could have been incorporated in a stipulation of facts.”

The IRM makes clear that it expects parties to cooperate on informal discovery.

Discovery and requests for admissions may not be commenced by a party until after that party has made a meaningful, good faith attempt to attain the objectives of discovery through informal consultation or communication. T.C. Rules 70(a), 90(a); Branerton Corp. v. Commissioner, 61 T.C. 691 (1974). The Tax Court is insistent that the parties use informal efforts to obtain needed information for the preparation of the case for trial. The court expects the parties to discuss, deliberate, and exchange ideas, thoughts, and opinions on an informal basis before resorting to the methods specified in the rules. Short cuts to the use of formal discovery will not be tolerated.

As noted, there may come a time when parties are not cooperating and Branerton letters leading to formal discovery are necessary, but it is clear that the rules regarding stipulation are intended to guide the parties and make formal discovery unnecessary in most cases.

The IRM focuses specifically on requests for admission in a later section.

Formal discovery and requests for admissions are unnecessary if the petitioner is cooperating, in full, in informal consultation and exchange of facts and documents and stipulation. Even though the Tax Court rules deem matters admitted under the admissions procedure to be part of the record in the case, the court does not contemplate that any of the discovery or admissions rules will serve as a substitute for the stipulation process. If formal discovery and requests for admissions are to be used, though, they should be used as early and completely as possible. Early and complete use of discovery will allow the attorney to obtain as much information as possible with adequate time to properly use the information at trial.

These explanations show that the IRM is reflective of the Tax Court Rules of Practice and Procedure in these areas. It directs IRS employees involved with the Tax Court to follow the Tax Court Rules with regard to starting with stipulations before resorting to formal discovery. By setting this standard, Respondent’s position is solidified as beginning in a state of cooperation regarding stipulations about evidence submitted to the Tax Court.

The People

None of this would happen without the people involved. Some of the main players are the Tax Court judges, the IRS Office of Chief Counsel, pro se taxpayers and tax attorneys that include pro bono attorneys and the Low Income Taxpayer Clinics.

It all begins, of course, with the Tax Court judges. They come to the Court with tax backgrounds, so they understand the matters before them. Beyond that, they also tend to display personalities that encourage cooperation. The judges often display traits of kindness and caring. Those traits help guide unrepresented taxpayers to agree to the stipulation process. Helpful personalities are important for unrepresented taxpayers since they are such a large part of the Tax Court process. Sources cite 75 to 80 percent, or more than 80 percent, as statistics for unrepresented petitioners in the Tax Court. Given the frequency with which judges on the Tax Court deal with unrepresented petitioners, those key personality traits of kindness and patience will direct the parties toward cooperation.

The Office of Chief Counsel also often deals with unrepresented petitioners, so Counsel attorneys often have to initiate the stipulation process. It is necessary for them to be patient with those petitioners who do not understand the process. In the author’s experience, Counsel attorneys generally try to be fair in finding the accurate amount of the taxpayer’s tax liability and cooperative in finding the correct evidence to present to the Court.

People who are dedicated to helping the large numbers of unrepresented taxpayers also take part in the process. Groups of pro bono attorneys and the Low Income Taxpayer Clinics have volunteered at Settlement Days and gone to Calendar Calls to help those who are unrepresented through the Tax Court process. It can require patient explaining of processes, since many of these taxpayers are unfamiliar with court procedure, tax law, the IRS or the specific administrative process with which they are dealing. It may also be necessary for these volunteers to assist taxpayers who do not trust what the Chief Counsel attorneys are saying. Having an uninvolved third party there to explain to the taxpayer that the Office of Chief Counsel is being honest with regard to the process is often necessary to get the taxpayer to be cooperative. By showing up and providing this assistance, these volunteers are already in the frame of mind to engage in a cooperative manner.

In conclusion, the Tax Court’s promotion of civility comes from the Tax Court Rules, the Internal Revenue Manual and the people involved with the Tax Court. The Tax Court sets the tone through the Tax Court Rules of Practice and Procedure. The IRS reflects that tone in the Internal Revenue Manual followed by its employees. Finally, the people involved with the Tax Court follow those directives and model cooperative behavior. By focusing on stipulations, the Tax Court directs the parties to cooperate at the beginning of the case and share evidence without resorting to formal discovery. As a result, the parties are less likely to disagree because they are in that cooperative mode. The U.S. Tax Court is thus a model for other court systems to act in a cooperative manner and direct people away from uncooperative behaviors.

    William Schmidt

    Kansas City, MO

    Supervising Attorney, Consumer Protection Unit, and Clinic Director, Low Income Taxpayer Clinic, Legal Aid of Western Missouri

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