[00:00:00] Speaker 00: Case number 23-1179. [00:00:02] Speaker 00: Elan Farai versus Commissioner of Internal Revenue at Balance. [00:00:07] Speaker 00: Ms. [00:00:08] Speaker 00: Ugolini for the balance. [00:00:09] Speaker 00: Mr. Robbins for the appellee. [00:00:18] Speaker 01: Good morning, Ms. [00:00:19] Speaker 01: Ugolini. [00:00:21] Speaker 00: Good morning. [00:00:22] Speaker 00: Please the court. [00:00:23] Speaker 00: I'm Francesca Ugolini, Council for the Commissioner of Internal Revenue. [00:00:27] Speaker 00: The question in this case is how the government is supposed to enforce the Section 6038B penalty against people like Alan Farhi, who simply refused to pay what they owe. [00:00:39] Speaker 00: He admits he willfully failed to report information about foreign corporations that he used to hide over $3 million from the IRS. [00:00:48] Speaker 00: He admits that he has no reasonable cause for this failure, that he owes the amount, but he says the IRS cannot collect it from him. [00:00:55] Speaker 00: The tax court went astray in accepting this argument because the IRS has the power to assess this penalty under its broad grant of authority in section 6201A of the code. [00:01:08] Speaker 00: This is supported by the statute's text, history, and context. [00:01:13] Speaker 00: The text of the statute speaks in very broad terms. [00:01:17] Speaker 00: It says the secretary is authorized and required to make the inquiries, determinations, and assessments of all taxes [00:01:24] Speaker 00: including interest, additional amounts, additions to the tax, and assessable penalties imposed by this title, that's all of Title 26, or accruing under any former internal revenue law. [00:01:38] Speaker 00: We submit that the term all taxes should be read to include the Section 6038B penalty because the parenthetical that starts with including broadens the term taxes to include other tax-related items, such as interest in various types of penalties. [00:01:54] Speaker 00: As this court and the Supreme Court have held, the term including is illustrative, not exhaustive. [00:02:00] Speaker 01: Ms. [00:02:01] Speaker 01: Ullini, I think it's difficult because we know from Sibelius that taxes and penalties are distinct generally, unless we have a reason, textual reason to think otherwise, or perhaps structural reason to think otherwise. [00:02:17] Speaker 01: And the parenthetical including references [00:02:22] Speaker 01: at least three specific categories of penalties, additional amounts, additions to the tax and assessable penalties and arguably creates a negative implication that those specified ones are the kinds of penalties meant. [00:02:41] Speaker 01: It doesn't include, doesn't say other penalties. [00:02:43] Speaker 01: So what is it that you're relying on? [00:02:47] Speaker 01: You're relying on the, [00:02:49] Speaker 01: fact that other types of penalties are referenced and that the parenthetical itself modifies the definition of tax and that therefore we should see the parenthetical as implicitly including other like items such as the 6038b penalty. [00:03:12] Speaker 00: And I would push back. [00:03:13] Speaker 00: I think that that's right. [00:03:14] Speaker 00: You've correctly summarized our argument, but I would push back against the notion that the fact that three types of penalties are listed creates a negative implication that other types of penalties that are similar in character to the enumerated types of penalties are not included. [00:03:29] Speaker 00: The case law does not bear out that sort of negative implication. [00:03:32] Speaker 00: On the contrary, the case law makes very clear that there's a presumption that including is illustrative and not exhaustive. [00:03:39] Speaker 00: And when looking at what else might be included in a non-exhaustive list, it's appropriate to include other items that keep company with the enumerated items. [00:03:49] Speaker 03: What about, I mean, oftentimes Congress will say including but not limited to, and then obviously [00:03:58] Speaker 03: We know that it's not an exhaustive list, but they didn't use but not limited to here. [00:04:04] Speaker 00: That's correct. [00:04:04] Speaker 00: I mean, that would make it even more clear that including is illustrative and not exhaustive. [00:04:09] Speaker 00: But this court, we cited a few cases in our brief. [00:04:12] Speaker 00: The FDA case and the American Hospital Association case interpreted the word including as illustrative and not exhaustive, notwithstanding that that extra language that would have really made it clear was not part of the language under consideration. [00:04:27] Speaker 03: You also rely on 7701C, which says that where including is used in a definition, it's intended to be, you know, not exhaustive. [00:04:38] Speaker 03: But I don't see that that helps you with 6201A because 6201A is not a definition. [00:04:49] Speaker 00: That's fair. [00:04:50] Speaker 00: I think 7701 does not get us all the way there. [00:04:55] Speaker 00: But as I said, this court's case law and the Supreme Court's case law bear out the interpretive principle that the word including in a statute, particularly in a list like this where there's a parenthetical [00:05:07] Speaker 00: And even the tax court recognized this. [00:05:11] Speaker 00: That's on page 250 of the Joint Appendix in its opinion. [00:05:15] Speaker 00: It recognized that this phrase in 6201 is not necessarily limited to the enumerated items. [00:05:22] Speaker 00: But the reason it gave for not reading the language as covering the Section 6038B penalty is because it was a non-exhaustive item. [00:05:28] Speaker 00: is because it said, well, this penalty bears no resemblance to taxes, whereas the other items in this parenthetical have some relationship to taxes. [00:05:36] Speaker 00: But that's not true. [00:05:38] Speaker 00: The other types of penalties that are specifically listed, additional amounts, assessable penalties, if you look in chapter 68 of the code where those penalties are all listed, there are plenty of fixed dollar information reporting penalties similar to the 6038B penalty. [00:05:57] Speaker 00: This is very similar to penalties that are explicitly included in the parenthetical. [00:06:04] Speaker 00: And this does bear a close relationship to taxes because the form that was required to be filed here is filed with an individual's federal tax return. [00:06:12] Speaker 00: It provides information about foreign income and assets and transactions that allows the IRS to determine a person's tax liability. [00:06:23] Speaker 00: And if you look at section 6501, which provides limitations periods on assessment of taxes, it actually, there is a specific provision that references 6038 saying, if it turns out you did not report anything related to foreign corporation, the limitations period doesn't start until this particular form required by 6038 is filed. [00:06:45] Speaker 03: Can I interrupt you? [00:06:48] Speaker 03: Can you tell me whether there's any aspect of the penalties that are set forth in 6038 that cannot be enforced if the only enforcement mechanism is a civil suit? [00:07:05] Speaker 00: No, I mean, so 6038 has two penalties. [00:07:08] Speaker 00: One is the reduction of the foreign tax credit, which I don't understand there to be any dispute that the IRS can assess that one because the reduction of the foreign tax credit results in an increase in tax. [00:07:19] Speaker 03: So the IRS has the power to... I mean, I just interrupt for a second. [00:07:23] Speaker 03: It doesn't... We'll find out from your friend on the other side, but they don't seem to concede that at least explicitly in their briefing. [00:07:31] Speaker 03: Did I miss that? [00:07:32] Speaker 00: I suppose, I don't know that they, I may have misspoke. [00:07:36] Speaker 00: I don't know that they conceded. [00:07:37] Speaker 00: I mean, the tax court, the tax court, I think, seemed to recognize that the foreign tax credit reduction penalty in 6038C was assessable. [00:07:47] Speaker 00: I mean, that penalty results in an increase in taxes. [00:07:50] Speaker 00: And so under the plain language of 6201A, the IRS would have authority to assess an increase in taxes that is occasioned by reducing a credit. [00:08:00] Speaker 01: 6038C, foreign tax credit reduction, that goes through the process for deficiencies. [00:08:08] Speaker 01: That's something that is subject to collection to process, hearing, and appeal to the tax court, unlike 6038B, [00:08:20] Speaker 01: a penalty for failure to file. [00:08:22] Speaker 01: Is that right? [00:08:23] Speaker 00: I believe that's right. [00:08:24] Speaker 00: I believe that the reduction of the foreign tax credit would result in a tax deficiency that would then require that to go through deficiency procedures. [00:08:32] Speaker 01: Right. [00:08:32] Speaker 01: And that would send it to the tax court, whereas the 6038B goes through basically [00:08:42] Speaker 01: its assessment and levy? [00:08:45] Speaker 00: Well, so OK, so if the penalty is assessable by the IRS as the government contends, the IRS would send a notice of the penalty assessment. [00:08:53] Speaker 00: And a taxpayer would not have the ability to challenge that in a deficiency proceeding in the tax court. [00:09:00] Speaker 00: But the taxpayer would be able to bring the very type of proceeding we have here, which is a collection due process proceeding. [00:09:05] Speaker 00: What Mr. Farhi did was he didn't pay the penalty. [00:09:08] Speaker 00: He waited to get a notice of intent to levy. [00:09:11] Speaker 00: presented him with administrative appeal options before the IRS, so that's a prepayment remedy, and then allowed him to appeal to the tax court. [00:09:19] Speaker 00: Now, however, if the 6038B penalty is not accessible by the IRS, then taxpayers do not have that option. [00:09:26] Speaker 01: IRS would just... Wait, he can or he can't go to the tax court on the 6038... I thought he couldn't go on the 6038B. [00:09:34] Speaker 01: He is under I'm thinking about Wheaton and Smith and that and actually our country home. [00:09:44] Speaker 00: He would not be able to go to the tax court in a deficiency proceeding, meaning he wouldn't get a notice of deficiency saying you owe this and you get to challenge this. [00:09:53] Speaker 00: But he would be able to go to the tax court for a collection due process proceeding. [00:09:57] Speaker 00: And that's- To the IRS for the collection due process. [00:10:01] Speaker 01: That's not going to the tax court. [00:10:02] Speaker 00: Well, it goes first to the IRS. [00:10:04] Speaker 00: You get your administrative hearing before the IRS. [00:10:07] Speaker 00: And then if you disagree with the notice of determination that's issued, you can appeal that to the tax court. [00:10:12] Speaker 00: And that is how this case came up. [00:10:14] Speaker 01: But isn't that- I thought the collection due process hearing was within the IRS. [00:10:18] Speaker 00: It is within the IRS. [00:10:19] Speaker 01: That's right. [00:10:20] Speaker 01: It's not within the tax court. [00:10:21] Speaker 00: The initial administrative hearing is within the IRS. [00:10:25] Speaker 00: But then the same statute that allows that administrative hearing, which is section 6330, if you look at section 6330D, it allows the taxpayer to appeal the IRS's determination to the tax court. [00:10:40] Speaker 00: So if you're unhappy with the outcome of the IRS administrative hearing, you can appeal to the tax court. [00:10:45] Speaker 00: And that's what Mr. Farhi did in this case. [00:10:48] Speaker 00: And then the tax court basically vacated the penalties because it held that the IRS lacked assessment authority and that's now this appeal. [00:10:56] Speaker 03: So is it your position that the term accessible penalty applies to a penalty that is subject to a deficiency proceeding and it also applies to a penalty that is not subject to a deficiency proceeding? [00:11:18] Speaker 00: Our view, so accessible penalty is defined nowhere in the Internal Revenue Code. [00:11:23] Speaker 00: The government's view is that an accessible penalty refers to any type of penalty that Congress has not specified must be collected by a civil action. [00:11:34] Speaker 00: So in this case, we haven't directly argued that this is an accessible penalty, but we think that would be a fair interpretation. [00:11:40] Speaker 00: But to answer your question, so I think in the tax court, the commissioner initially had made an argument [00:11:47] Speaker 00: that an accessible penalty means any sort of penalty that skips over deficiency procedures. [00:11:54] Speaker 00: We're not making that argument anymore. [00:11:56] Speaker 00: But ultimately, if this penalty is accessible, [00:12:00] Speaker 00: a taxpayer can get tax court review, it just would come up through a different procedure than the deficiency procedures. [00:12:07] Speaker 00: It would come up like this very case did, where you get to have an administrative hearing before the IRS. [00:12:14] Speaker 00: Not only do they look at the legality of the penalty, but they look at collection options. [00:12:18] Speaker 00: If the taxpayer can't afford to pay it, [00:12:20] Speaker 00: That hearing is the opportunity to make an offer to establish an offer and compromise, enter an installment agreement, work out payment options with the IRS. [00:12:29] Speaker 00: All of that is then reviewable in the tax court. [00:12:32] Speaker 00: And so you're still in a prepayment posture, but you're just in a different type of proceeding than a deficiency proceeding. [00:12:38] Speaker 00: And then it's reviewable by this court. [00:12:40] Speaker 00: Go ahead. [00:12:42] Speaker 03: You agree that there are some penalties that are not assessable penalties, right? [00:12:48] Speaker 00: That's correct. [00:12:50] Speaker 00: There are two penalties in the code where Congress has specifically said they must be collected by civil action. [00:12:57] Speaker 00: When this accessible penalties language was added to the code in 1954, at that time Congress also added three specific penalties that had to be collected by civil action. [00:13:09] Speaker 00: One of those has since been repealed. [00:13:11] Speaker 00: But it's our position that that language, accessible penalties, is meant to distinguish [00:13:16] Speaker 00: from the penalties that specifically have to be collected through a civil action. [00:13:19] Speaker 01: And those two, just to remind us, are? [00:13:21] Speaker 00: They are 5761 and 7269. [00:13:28] Speaker 00: And then the 54 code, as I mentioned, also added 7263, which has since been repealed. [00:13:36] Speaker 00: So what we have in this case, though, is congressional silence. [00:13:40] Speaker 00: The commissioner has recognized, we've recognized in our brief, that there is not an explicit coverage for the 6038b penalty. [00:13:48] Speaker 00: But given the broad, in our view, non-exhaustive language of the parenthetical and 6201a, and the fact that Congress has accepted other penalties from the IRS's assessment power, we think the right way to read the statute is that this penalty is covered by the IRS's assessment power. [00:14:05] Speaker 03: In my view, one of the most persuasive parts of your argument appears in pages, I think, 13 to 15 of your reply brief, where you basically talk about how there are some penalties that where Congress uses language that clearly indicates that they are to be assessable penalties [00:14:32] Speaker 03: that wouldn't be able to be assessed under Mr. Farhi's reading. [00:14:39] Speaker 03: I think Section 45, and I don't know if you cited it in your brief, but I think Section 6038C might also be an example of that. [00:14:55] Speaker 03: I guess what I'm trying to determine is I'm going to ask this question of Mr. Farhi's counsel. [00:15:15] Speaker 03: What are we to, I guess, make of that given that his argument is that [00:15:21] Speaker 03: Will the commissioner's reading render some language surplusage as well? [00:15:30] Speaker 00: I think we would submit that frankly under either reading there's surplusage in the statute. [00:15:35] Speaker 00: I mean just the very fact that there are 6201A and then there's two other provisions 6671 and 6665 all repeat the same assessment authority for the same category of penalties. [00:15:49] Speaker 00: So I see I'm over my time, so I don't want to keep talking about that unless you would like me to. [00:15:54] Speaker 01: You can keep going. [00:15:55] Speaker 01: We have a custom in this court that we will, as long as we have questions to ask, that we're not holding it against your rebuttal time. [00:16:03] Speaker 00: OK, thanks very much. [00:16:04] Speaker 00: I was just going to say that I think the tax court is very persuaded by the notion of surplusage, and that was what led the tax court to rule against the government in this case. [00:16:14] Speaker 00: But I think surplusage, [00:16:15] Speaker 00: is not a useful canon in this case because there is surplusage under either interpretation. [00:16:21] Speaker 00: And I think the duplication and the surplusage in this case really is a red herring, because at the end of the day, Congress only needs to provide assessment authority once. [00:16:30] Speaker 00: And we submit that it did so in 6201A, that that language is broad, [00:16:35] Speaker 00: that the parenthetical is non-exhaustive and that it can cover other similar types of items that are not expressly listed. [00:16:43] Speaker 01: So let me just, I know we went through this once, but so tax, and then it needs the parenthetical in 6201 in order to make clear that in this context, tax includes penalties because ordinarily the default rule under the code is that [00:16:58] Speaker 01: the tax is different from a penalty. [00:17:01] Speaker 01: And your argument is therefore that the parenthetical is not defining, like I said, is defining tax, but it's extending the definition of tax. [00:17:12] Speaker 01: But that the parenthetical itself is non-exhaustive so that it extends it in a way that is susceptible of including a penalty that is not denominated [00:17:24] Speaker 01: an assessable penalty, but should therefore be treated as an assessable penalty. [00:17:29] Speaker 01: Is that right? [00:17:30] Speaker 00: That's right. [00:17:31] Speaker 00: And if I could just add, you know, an additional thought to why that list should not be read as a discrete list. [00:17:37] Speaker 00: The three types of penalties mentioned on that list, these are not neatly identifiable categories. [00:17:44] Speaker 01: Well, they do correspond to sub chapters in the code. [00:17:47] Speaker 00: They do. [00:17:48] Speaker 00: However, even the tax court recognized that items outside of Chapter 68 are accessible by the IRS. [00:17:54] Speaker 00: And the code has yet a further provision in 7806B that says no inference is supposed to be drawn from groupings and labels within the code. [00:18:04] Speaker 00: And as we pointed out in our reply brief, [00:18:06] Speaker 00: Two appellate court, two circuit courts, in the context of construing this very same language as it appears in a different statute in an interest provision, refused to read this same list as admitted to items in Chapter 68. [00:18:19] Speaker 00: It construed the list according to its plain terms. [00:18:23] Speaker 00: And that's the motor fuels carrier case that was by the appellate division of the Court of Claims, the predecessor to the Federal Circuit, and then the Ninth Circuit in the Bardol case. [00:18:34] Speaker 00: The facts of those cases are a little bit complicated, and I'd be happy to explain them. [00:18:37] Speaker 00: But my point is that two circuit courts have already construed that exact language according to its plain terms and not limited specifically to Chapter 68. [00:18:48] Speaker 01: But as I recall, we have a much more recent case that goes the other way. [00:18:52] Speaker 01: I'm just searching for that. [00:18:59] Speaker 02: The fourth circuit. [00:19:00] Speaker 01: The fourth circuit case. [00:19:07] Speaker 01: which is, sorry, I'm just looking for it. [00:19:12] Speaker 01: You know, I'm referring to Ms. [00:19:18] Speaker 01: Sibley. [00:19:19] Speaker 00: I'm afraid I don't. [00:19:20] Speaker 00: Was this a case, was this a Fourth Circuit case that related to one of the Affordable Care Act penalties by any chance? [00:19:37] Speaker 02: Well, let me just ask so I'm clear where Judd Pillard was asking you just sort of summarily here. [00:19:45] Speaker 02: Basically, your position is that Congress gave the commission a very broad authority, an absent clear indication by Congress that it's taking it away or it's limiting it somehow. [00:20:05] Speaker 02: the IRS should be viewed as having the authority just based on what I'll call the plain, broad text and this non-exhaustive parenthetical. [00:20:18] Speaker 02: And that all of the canons that usually apply simply don't apply where the tax code is involved. [00:20:29] Speaker 00: I would agree with everything except the very last statement. [00:20:32] Speaker 02: I don't think we're saying that all of the usual canons shouldn't apply, but I think- I'm thinking about you say, you know, there's surplus edge, depending on your point of view, no matter which interpretation you think is the right one. [00:20:49] Speaker 02: So that canon is out of the, sort of not involved and canons about, you know, specificity versus generality. [00:21:00] Speaker 02: That's what I'm thinking about, those canons that we often use and that the Congress, at least the committees, use in trying to understand what was the congressional intent. [00:21:14] Speaker 02: And there have been some articles written by the Academy saying that we're both, that is courts and the legislature are proceeding on paths that really don't [00:21:30] Speaker 02: coincide with one another's understanding of what's happening in the legislative process. [00:21:36] Speaker 02: So that here, your argument falls very much in line with that thinking. [00:21:45] Speaker 02: We have some broad text. [00:21:48] Speaker 02: The usual canons that we look to don't apply. [00:21:53] Speaker 02: And when you start it out and you characterize [00:21:59] Speaker 02: your colleague's argument, I thought it wasn't that there was no way for the tax or the commissioner to collect, but rather he had to do it in a certain manner, namely through a civil action, not by assessment. [00:22:15] Speaker 00: Right. [00:22:15] Speaker 00: So that would be a civil action brought by the Department of Justice. [00:22:18] Speaker 00: It would not be a proceeding brought by the IRS. [00:22:22] Speaker 00: But I guess I just wanted to respond to your point about, I mean, the larger question of congressional intent. [00:22:29] Speaker 00: You know, this statute, this penalty was added to the Internal Revenue Code in, I believe it was 1982. [00:22:35] Speaker 00: So it has been out there for more than 40 years. [00:22:38] Speaker 00: In 1997, IRS has been assessing and collecting this penalty per its broad grant of authority under 6201A since that time. [00:22:47] Speaker 00: In 1997. [00:22:48] Speaker 00: So at this point, this is 17 years into this well established administrative practice. [00:22:53] Speaker 00: Congress increased the penalty from at that point. [00:22:55] Speaker 00: I think it was $1,000 initial penalty to a $24,000 continuation penalty. [00:23:00] Speaker 00: It increased the penalty to its current amounts of $10,000 and $50,000. [00:23:05] Speaker 00: And in all of this time, including with, as Farhi has pointed out, complaints from the Taxpayer Advocate Service about the IRS enforcing this penalty, in all of that time, Congress has never seen fit to step in and change the way the IRS is assessing and collecting this penalty. [00:23:25] Speaker 01: of the concerns that I understand is raised by the IRS's position here is whether given the what is it called the pre-appeal conference that one can get and this is this is an issue or sort of the overall process I think is well described in our country home enterprises the Seventh Circuit case if a taxpayer has a [00:23:52] Speaker 01: pre-appeal conference, as in that case, then they don't even get the collection due process hearing. [00:23:59] Speaker 01: And therefore, that truncates, that prevents them from going even to the tax court. [00:24:04] Speaker 01: So that was a case in which there was a tax penalty, and then there was a failure to file penalty. [00:24:15] Speaker 01: And I guess my question is whether the alarms that are raised, that let's say Mr. Farhi had had a [00:24:22] Speaker 01: free assessment conversation with the IRS under our country home the concern is that that could cut off his ability ever to have tax court review of this filing penalty. [00:24:40] Speaker 00: So I'm not familiar with our country home case and I'd be happy to you know read it and submit a supplemental letter but there there is no [00:24:48] Speaker 00: First of all, in the context of the 6038B penalty, there is an opportunity to confer with the IRS before assessment, is my understanding, because what happens, and this is explicit in the statute, the IRS is supposed to send a notice of your failure to file, and the notice says you failed to file, but if you think you have reasonable cause, write us and let us know what your reasonable cause is. [00:25:12] Speaker 00: And that's also explicit in the statute. [00:25:14] Speaker 00: I think it's 6038C4, [00:25:16] Speaker 00: specifically requires the secretary. [00:25:18] Speaker 00: So this is the IRS to make determinations about reasonable cause. [00:25:21] Speaker 00: So there is some opportunity for a sort of conversation with the IRS about whether you owe this penalty in the context of learning that, you know, you failed to file. [00:25:32] Speaker 00: But as to the point of, you know, is it possible for tax court review to be cut off? [00:25:37] Speaker 00: You know, I'd have to take a look at the our country home case. [00:25:40] Speaker 00: I really don't see how how that is possible. [00:25:43] Speaker 01: I mean, there is some concern in the scholarship and that this would happen to someone who's facing a reporting penalty. [00:25:54] Speaker 01: And if they do have a pre-assessment process, even with the IRS, that they would not have an opportunity for a collection due process hearing, because that would be a second similar hearing. [00:26:09] Speaker 01: And therefore, they would not have an opportunity to appeal to the tax court. [00:26:13] Speaker 01: And the question I was going to ask, although it's a little bit [00:26:16] Speaker 01: unfair, but I'm just put it out there anyway, is in our country home, there were kind of two tracks going on. [00:26:22] Speaker 01: The tax court was, there was a deficiency proceeding on the tax liability and a tax penalty was folded into that. [00:26:31] Speaker 01: But the penalty for failure to report was going on a separate track because it's not subject to an efficiency proceeding. [00:26:38] Speaker 01: And one way of understanding the situation there where the taxpayer was unable, due to the pre-assessment interaction with the IRS, to have a collection due process hearing and go to the tax court, one way of understanding that, and this is what I'm wondering whether I'm correct about this, is that the liability [00:26:58] Speaker 01: was being determined, the same liability that would affect the filing penalty, the failure to file penalty, was being determined in a proceeding that was going to the tax court on the deficiency. [00:27:11] Speaker 01: And that therefore, the tax court's determination of that liability would collaterally have stopped. [00:27:17] Speaker 01: The treatment of the filing penalty, the only thing that wasn't collaterally stopped on that was the amount [00:27:23] Speaker 01: of the filing penalty, and perhaps something like payment terms. [00:27:28] Speaker 01: But that is one of the concerns that your position raises, and it would be helpful if you are able to address it. [00:27:35] Speaker 00: Yeah. [00:27:36] Speaker 00: And so actually, I think now, and like I said, I'd be happy to take a look at our country home and send in a supplemental letter. [00:27:41] Speaker 00: But I think that I know now what you're getting at in that case. [00:27:44] Speaker 00: Um, in, so in the collection due process statute at section 6330, um, it does say that if you have had a prior opportunity for meaningful review of, let me just back up. [00:27:58] Speaker 00: Usually a collection due process proceeding is, is to, um, [00:28:02] Speaker 00: is an opportunity for the IRS to check that, you know, the procedures of law were followed here. [00:28:07] Speaker 00: It's an opportunity to review collection alternatives if the taxpayer can't pay and balance the need, you know, like taxpayer enforcement with sort of [00:28:18] Speaker 00: Fairness to the taxpayer. [00:28:20] Speaker 00: Now the statute does say, so normally it's not a place to review your underlying liability, but the statute does say that if you did not have a prior opportunity to contest your liability, then you can contest your liability in a collection due process hearing. [00:28:35] Speaker 00: And then that's also reviewable by the tax court. [00:28:38] Speaker 00: And so yes, there are a lot of cases out there where that question has been litigated, where maybe a taxpayer did have a prior opportunity to have their tax liability reviewed. [00:28:51] Speaker 00: That might have been in a tax court deficiency proceeding. [00:28:55] Speaker 00: And then the question becomes, OK, so you had your first bite at the apple. [00:28:58] Speaker 00: Then you didn't pay. [00:28:59] Speaker 00: Now we're talking about collection. [00:29:01] Speaker 00: And so in the collection due process hearing, the taxpayer wants to raise challenges to their liability again. [00:29:07] Speaker 00: If you had your first bite at the apple, you don't get the second bite under the CDP statute. [00:29:12] Speaker 00: So I think that's what our country home is probably talking about. [00:29:15] Speaker 00: But that would not happen in the context of this penalty, because this penalty, the 6030B penalty, is not subject to deficiency procedures in the first place. [00:29:25] Speaker 01: Well, it's the same penalty in our country home, except that because there's also a penalty for failure to pay. [00:29:37] Speaker 01: that same issue is going through deficiency procedures, even while the 6038B isn't. [00:29:44] Speaker 01: So there's kind of a coordination issue. [00:29:47] Speaker 01: And I actually have a related question. [00:29:49] Speaker 01: And it makes sense to me that you wouldn't have a second chance, partly because if that same liability issue is going to the tax court, why would you have a separate [00:30:00] Speaker 01: And I guess the same is potentially true of Mr. Farhi's position. [00:30:15] Speaker 01: If you're thinking about the coordination between 60-38 and 30-30, I think that's a good question. [00:30:19] Speaker 01: B, the fine amount, the dollar amount, and 6038C, which is the offset and the coordination between those two. [00:30:30] Speaker 01: Under Mr. Farhi's position, if the IRS has to have the Justice Department go to court in order to collect 6038B, then where is the opportunity? [00:30:42] Speaker 01: You haven't made this argument, but I'm wondering why. [00:30:44] Speaker 01: Where is the opportunity to coordinate? [00:30:46] Speaker 01: You're going to have the [00:30:49] Speaker 01: federal district court in the 6038B proceeding determine liability and a tax court in a case in which there's also a tax deficiency and potentially penalties related to that or the offset that is going to be wrapped up into the deficiency proceeding, right? [00:31:11] Speaker 00: Right. [00:31:11] Speaker 00: Although I don't know, you know, I would have to take a closer look at whether [00:31:16] Speaker 00: the foreign tax credit reduction penalty and the fixed dollar penalty. [00:31:20] Speaker 00: I know they have to be coordinated. [00:31:21] Speaker 00: The statute provides that you can't have both, but I'm not sure if they're actually sort of intermeshed. [00:31:26] Speaker 00: I'm not sure if the way the IRS does it is they decide whether to assess one versus the other. [00:31:31] Speaker 01: So that if you have- They offset the dollar amount against the reduction in tax. [00:31:37] Speaker 01: So at the end of the day, the whole case has to come together. [00:31:41] Speaker 01: But even more fundamentally, if there's a proceeding on [00:31:46] Speaker 01: the tax liability and the offset, I mean, putting aside the offset and the percentage penalty, then you could have a federal district court determining the same liability question now. [00:32:04] Speaker 01: And it seems like you have an even more serious collateral estoppel problem than in our country home. [00:32:12] Speaker 01: And whereas in our country home, the IRS is in a position, as they did there, they stayed the proceeding, the final levy on the filing penalty pending the outcome of the related deficiency procedure and appeal to the tax court. [00:32:32] Speaker 01: And that sort of allows the IRS to be in the driver's seat and make sure that if they lose, for example, on the liability issue in the tax court, that they'll just drop [00:32:42] Speaker 01: the filing penalty? [00:32:44] Speaker 00: Yeah, I'm not sure how often. [00:32:45] Speaker 00: I mean, I know one of the reasons the 6830 penalty was enacted. [00:32:49] Speaker 00: I mean, this is in the legislative history, is that the 6038C, the credit reduction penalty, was confusing and hard to figure out. [00:32:56] Speaker 00: It only applies if the taxpayer paid foreign taxes to begin with. [00:33:00] Speaker 00: And so you get a foreign tax credit. [00:33:02] Speaker 00: So I'm not sure in practice how often this problem arises, where you've got sort of a mix of both penalties. [00:33:08] Speaker 00: And then you've got maybe like a deficiency piece to be worked out. [00:33:11] Speaker 00: and then a non-deficiency penalty. [00:33:14] Speaker 00: But I would just submit that this entire procedural morass that you're describing is more of a reason to keep this in the IRS's hands versus sending all of this to the Department of Justice to sort out. [00:33:27] Speaker 01: That's my question. [00:33:27] Speaker 01: I wonder whether I'm correct about that and why it's not an argument that you relied on. [00:33:34] Speaker 01: And so, yes, it's effectively a friendly question, but puzzlement about whether I'm right about that. [00:33:41] Speaker 00: structural matter. [00:33:43] Speaker 00: I think I need to think about it a little more. [00:33:45] Speaker 00: And like I said, I'd be happy to send a letter following up about country home. [00:33:48] Speaker 00: I mean, I think you are right that we did posit in our brief that sending these cases to the Department of Justice would be worse for taxpayers for a few reasons. [00:33:57] Speaker 00: I mean, mainly because they would not have the opportunity to go to IRS appeals or have a collection due process hearing. [00:34:03] Speaker 00: One other reason is actually if a penalty is subject to assessment by the IRS, there's yet a further statute, 6751, that requires supervisory approval for those penalties. [00:34:14] Speaker 00: But if all of this is in DOJ's hands, all of those taxpayer protections go away. [00:34:19] Speaker 01: But it's also way worse for the IRS because, I mean, how often are you going to be able to get the Justice Department bringing lawsuits? [00:34:28] Speaker 01: I mean, there's a reason that Mr. Farhi's on the side he's on, notwithstanding what you say about it being [00:34:33] Speaker 01: better for taxpayers, too. [00:34:34] Speaker 00: Right, no, and it's certainly better for the government. [00:34:36] Speaker 00: I mean, no, and there's the question. [00:34:38] Speaker 00: I mean, the IRS, they are the tax collection experts. [00:34:41] Speaker 00: They have the capability and the machinery and the know-how to do this. [00:34:47] Speaker 00: One other piece that is less favorable to the government under the tax court's ruling is that the government has, DOJ would have half as much time to collect than the IRS does. [00:34:56] Speaker 00: In the code, Congress gave the IRS 10 years to collect an assessment. [00:35:00] Speaker 00: But under just the general 28 USC statute, I think it would be 2462, the Department of Justice would have to bring a civil action within five years. [00:35:08] Speaker 00: So certainly, it's certainly better for the government that the IRS be able to assess this penalty. [00:35:14] Speaker 00: But I wanted to point out that it's also better for taxpayers as well. [00:35:35] Speaker 00: I know I've used up a whole lot of time if I, oh, sorry. [00:35:39] Speaker 01: There are a number of provisions in the code that provide for penalties in the context of criminal offenses. [00:35:45] Speaker 01: And one thing that occurred to me, not as a tax expert, is [00:35:51] Speaker 01: accessible penalties in the list in the parenthetical might be distinguishing from penalties that must be collected by criminal action. [00:36:02] Speaker 01: But is it the case that the IRS can also assess penalties that are subject to criminal proceedings or no? [00:36:09] Speaker 00: So my understanding in a criminal context is that, you know, if there's a penalty that's actually a criminal fine, that has to be determined in a criminal prosecution. [00:36:19] Speaker 00: But in terms of other civil penalties that might be available, I mean, that civil proceeding always would come after a criminal proceeding if there is one. [00:36:27] Speaker 00: And so anything related to assessment would come afterwards. [00:36:31] Speaker 00: The IRS doesn't proceed with the civil side until after the criminal side is over. [00:36:35] Speaker 01: And just to be clear, you're not arguing that the 6038B penalty is within any of the terms explicitly listed in the parenthesis? [00:36:46] Speaker 00: I mean, we haven't made that argument explicitly in our brief. [00:36:49] Speaker 00: I mean, we do think that if you looked at the plain meaning of those terms, the code nowhere defines what an additional amount is. [00:36:58] Speaker 00: The items listed in Chapter 68A that are put together as additional amounts and additions to tax include things like failure to file penalties. [00:37:08] Speaker 01: That you're bringing me back to the thing I left hanging. [00:37:11] Speaker 01: It's the whistleblower case, the tax court case that I was thinking of that does treat [00:37:16] Speaker 01: the additions to the tax and additional amounts as terms of art. [00:37:19] Speaker 00: Correct. [00:37:19] Speaker 01: And you were saying that those are broader, more encompassing, undefined, but the tax court actually has said otherwise. [00:37:25] Speaker 00: That's right. [00:37:25] Speaker 00: The tax court in that whistleblower case was looking at, so that's a different statute, 7623, and it lists the items that, you know, if you provide, if a whistleblower provides information and the IRS ends up collecting proceeds as a result of that information, [00:37:38] Speaker 00: Then the whistleblower gets a percentage of the collected proceeds. [00:37:42] Speaker 00: And so I believe the statute lays out it lays out what what you know what the pot of available funds are, and I believe in that case, the dispute was over whether an F bar penalty that was collected so that's. [00:37:56] Speaker 00: those are penalties collected under the Bank Secrecy Act. [00:37:59] Speaker 00: This is administered by the IRS under an MOU with FinCEN, but the IRS is also involved in collecting, assessing and enforcing FBAR penalties for failure to file FBAR. [00:38:13] Speaker 00: It stands for, it's like a foreign account reporting penalty under [00:38:17] Speaker 00: I think it's 31 USC 5321. [00:38:19] Speaker 00: And so the question in that case was whether I guess the IRS ended up collecting additional taxes from the underlying taxpayer, but then also realized there were these unfiled foreign bank account reporting forms and collected FBAR penalties. [00:38:33] Speaker 00: And the question was whether [00:38:35] Speaker 00: I think the FBAR penalties counted as additional amounts that were part of the pot. [00:38:40] Speaker 00: You know, in that case, I mean, I don't think the tax court needed to hold that it was limited to Chapter 68 because there was another way to decide it just based on, you know, FBAR penalties are not even part of the Internal Revenue Code. [00:38:52] Speaker 00: They're provided for in 31 USC, not Title 26. [00:38:56] Speaker 00: So for example, FBAR penalties would really be outside the scope of what's covered in 6201A. [00:39:02] Speaker 00: But the language in 6201A is all taxes, including, and then this little list, imposed by this title. [00:39:10] Speaker 00: We're accruing under any former internal revenue law. [00:39:12] Speaker 00: So an additional amount under this title is covered by 6201A. [00:39:16] Speaker 00: And that phrase additional amount is also undefined and very unspecified in the code. [00:39:23] Speaker 00: Thank you. [00:39:24] Speaker 00: Thank you. [00:39:25] Speaker 00: We'll give you some rebuttal time. [00:39:27] Speaker 00: I was just going to reserve two minutes if that was okay. [00:39:29] Speaker 00: Thanks. [00:39:39] Speaker 04: May it please the court. [00:39:40] Speaker 04: I'm Edward Robbins. [00:39:41] Speaker 04: I'm the lawyer for Mr. Farhey. [00:39:44] Speaker 04: I'm with the firm of Hockman, Salkin, Tasher, and Perez, a tax firm in Beverly Hills. [00:39:51] Speaker 04: Before I get into the specific points I want to [00:39:54] Speaker 04: make, I wanted to say that the case the tax court wrote in this matter is magnificent. [00:40:03] Speaker 04: I thought I did a good job of briefing it. [00:40:04] Speaker 04: I'm not even at the same zip code as she was. [00:40:08] Speaker 04: It's correct, comprehensive, well-reasoned. [00:40:13] Speaker 04: She hits virtually every issue that's there. [00:40:18] Speaker 04: I really can't do much to add to it, and hopefully I won't see anything to detract from it. [00:40:24] Speaker 04: What I would like to respond to is if the court is concerned about the collection due process process that I can answer some of those questions. [00:40:37] Speaker 04: We are here on the result of a collection due process. [00:40:41] Speaker 04: That's how we got started. [00:40:43] Speaker 04: So very briefly, and I've done a number of these things for the taxpayers. [00:40:49] Speaker 04: You can't, as a practical matter, you can't get to the merits of your tax liability through a collection due process. [00:40:58] Speaker 04: And it was not designed to do that. [00:41:00] Speaker 04: It was designed to make sure that the collection procedures were correct, everything's in order, that the taxpayers are getting consideration for their complaints, I can't pay this, or maybe the assessment's late, whatever. [00:41:16] Speaker 04: It's very rare that you can finagle [00:41:19] Speaker 04: a merits determination to the tax court through a collection due process hearing. [00:41:24] Speaker 04: Normally, you'll get a letter, as the IRS is trying to collect from you, you'll get a letter and the first one will say, if you don't like this, you can go to appeals, all right? [00:41:36] Speaker 04: That's your opportunity right there, according to the IRS anyway. [00:41:39] Speaker 01: Go to appeals, meaning the Office of Appeals? [00:41:42] Speaker 04: Yes, yes. [00:41:44] Speaker 04: So that's your opportunity. [00:41:45] Speaker 04: And if you have your opportunity, you can't get the merits [00:41:48] Speaker 04: into the tax court. [00:41:49] Speaker 04: We didn't go to the merits in this case. [00:41:52] Speaker 04: We just skipped through all that. [00:41:53] Speaker 04: We went on the core jurisdictional basis for the collection due process. [00:41:59] Speaker 04: We were challenging the quote mode of collection. [00:42:03] Speaker 04: And so we never got into whether we'd have a prior opportunity or something like that. [00:42:07] Speaker 01: So what's your strongest authority for the notion that if there weren't a parallel proceeding as there was in our country home, if there was just as in your case standalone, well, there was the criminal proceeding, but if there was a standalone notice of the filing penalties, discussion of the merits with the appeals office, [00:42:31] Speaker 01: then assessment, then pre-collection, collection due process, opportunity or not in your view. [00:42:41] Speaker 04: Yes. [00:42:42] Speaker 01: Yes. [00:42:42] Speaker 01: So that would be available. [00:42:44] Speaker 01: And then if you went on appeal to the tax court, [00:42:47] Speaker 01: from there, the issues raised on liability before the appeals office and the issues raised on whatever ability to pay or calculation before in the collection due process, all those would be rolled into the tax court appeal. [00:43:01] Speaker 04: I believe that's true. [00:43:02] Speaker 04: There's an anomaly with the government's approach that we've heard here this morning. [00:43:10] Speaker 04: And I want to bring this up because I think it's important. [00:43:13] Speaker 04: You look at their briefs. [00:43:16] Speaker 04: You see a theme here that Congress could not possibly have written this 6038B penalty with no assessment authority. [00:43:30] Speaker 04: Impossible. [00:43:30] Speaker 04: That's just, it's a quote, absurd result. [00:43:34] Speaker 04: It's an anomalous result. [00:43:36] Speaker 04: No way Congress could have attended this. [00:43:39] Speaker 04: And we hear this theme over and over again. [00:43:41] Speaker 04: It's at pages 11, you see it, page 21 of the original brief. [00:43:45] Speaker 04: page 22, page 29, and the reply brief at page two. [00:43:52] Speaker 04: Without any support, they assume Congress would never have intentionally withheld assessment authority for the 6038B penalty, because that would be absurd. [00:44:02] Speaker 04: Let me suggest it's far from absurd for them, for Congress, to withhold assessment authority on the 6038B penalty, as well as many other information penalties. [00:44:13] Speaker 04: The 63 AB penalty is not alone. [00:44:16] Speaker 04: There's at least 16 others in the foreign information realm that don't have specific assessment authority as we don't have here. [00:44:26] Speaker 04: Why would Congress want to do this? [00:44:28] Speaker 04: Well, they would withhold the IRS's supercharged collection powers from the IRS when they try to collect on these penalties. [00:44:39] Speaker 04: And there's a good reason for that. [00:44:40] Speaker 04: And in fact, the government gave us [00:44:43] Speaker 04: a clue as to that reason, on page six of their original brief, they note that Congress, when they were looking at the 6038B penalties, this is in the congressional record, Senate report 97-494, Congress was concerned because the 6038B penalty could be, quote, unduly harsh in some cases. [00:45:09] Speaker 04: Well, indeed, it can be unduly harsh in some cases. [00:45:14] Speaker 04: And in fact, it is unduly harsh in thousands of cases. [00:45:20] Speaker 04: And we set that out at the Joint Appendix, pages 169 through 181. [00:45:27] Speaker 04: What happened was the IRS decided [00:45:33] Speaker 04: that it would be a good idea to systemically assess some of these foreign information penalties. [00:45:40] Speaker 04: And the first experiment they did was a 5472, which is an analog 5471, but for companies. [00:45:47] Speaker 04: And then they went to a second one for the analog to the 5471 to partnerships. [00:45:52] Speaker 04: They did systemic assessments, which means if you're the taxpayer, and they did this to thousands [00:46:02] Speaker 04: You're the taxpayer, and you'd find out, oops, they should have filed a 5471. [00:46:06] Speaker 04: And you file it late. [00:46:11] Speaker 04: They systemically assess your $5,000 penalty. [00:46:15] Speaker 04: You put your reasonable cost statement on 5471, and you get a reasonable cost. [00:46:19] Speaker 04: They are instructed, you find this on the internet, by their own rules for their employees, employees are instructed to ignore [00:46:30] Speaker 04: the reasonable cause assessment, excuse me, the reasonable cause argument, and just go ahead and assess. [00:46:36] Speaker 04: And if the taxpayer wants to raise reasonable cause, I guess he can raise it somewhere else, but not here. [00:46:43] Speaker 04: So this taxpayer trying to get in compliance, trying to do the right thing, files the tax return, files the 5471 late, and they hear from the IRS in the first instance, you owe us $10,000. [00:46:56] Speaker 04: Was this in your brief? [00:46:58] Speaker 04: Yes. [00:46:59] Speaker 04: It is. [00:47:00] Speaker 04: I cite the joint exhibit, page 169 through 181. [00:47:06] Speaker 04: I don't have my brief in front of me, but it's there. [00:47:09] Speaker 04: It's in the joint appendix and I referred to it in the brief. [00:47:13] Speaker 04: It's basically a horror show. [00:47:15] Speaker 03: What about the government points held in their reply brief, pages 13 to 15, that essentially [00:47:27] Speaker 03: your proposed interpretation of 6201A would mean that some penalties that Congress specifically intended to be accessible wouldn't be accessible under your reading. [00:47:48] Speaker 03: And the example that they give is, I think, section 45 [00:48:03] Speaker 03: IRC section 45. [00:48:07] Speaker 03: So what's your response to that? [00:48:08] Speaker 04: Well, my response to that is the same response I give for the FARE situation. [00:48:15] Speaker 04: There is either a specific assessment authority for the penalty or additional amount or anything else, or there's not. [00:48:24] Speaker 04: And if there's not there, Congress hasn't put it there. [00:48:28] Speaker 04: They can't assess it. [00:48:29] Speaker 03: Well, in 45, [00:48:32] Speaker 03: I guess it's E7, B, Romanet 2. [00:48:44] Speaker 03: It says deficiency procedures shall not apply with respect to the assessment or collection of any penalty imposed by this paragraph. [00:48:58] Speaker 03: How are we to construe that other than that Congress intended that those penalties are to be assessable penalties? [00:49:09] Speaker 04: Yeah, I think that's the way you could construe that with that language. [00:49:14] Speaker 04: Something analogous to that language isn't present here in these foreign information. [00:49:18] Speaker 04: Well, what about that? [00:49:20] Speaker 03: How can it be assessed if [00:49:23] Speaker 03: there is no specific authority to assess it either in 6201A or elsewhere in that section, IRC section 45. [00:49:36] Speaker 04: Well, in my opinion, it can either be assessed or it cannot be assessed. [00:49:41] Speaker 04: And if you're telling me that thing says it can't be assessed, then it can't be assessed. [00:49:47] Speaker 03: I'm not familiar with that section. [00:49:50] Speaker 03: Well, I mean, it's in the reply. [00:49:53] Speaker 03: They say that your interpretation of 6201 results in kind of a nonsensical result with respect to this section because Congress intended for that penalty to be assessable. [00:50:14] Speaker 03: But if 6201A doesn't give them that authority, [00:50:20] Speaker 03: then nothing else gives them that authority. [00:50:25] Speaker 03: I mean, that's your contention, right? [00:50:28] Speaker 03: Is that 6201A does not confer any general authority to assess penalties. [00:50:35] Speaker 03: Correct. [00:50:37] Speaker 03: OK. [00:50:37] Speaker 03: So the authority has to come from the actual provision that [00:50:45] Speaker 03: creates the penalty itself? [00:50:47] Speaker 04: Not necessarily. [00:50:48] Speaker 04: I'm OK with the theory that there are other things that that parenthetical could capture. [00:50:57] Speaker 04: But they have to jump through some hoops to get to there. [00:51:00] Speaker 04: It has to kind of look like a tax. [00:51:02] Speaker 04: It has to have something to do with tax, such as interest on a tax. [00:51:07] Speaker 04: They can assess that. [00:51:09] Speaker 04: But there's no tax element in the foreign information penalties. [00:51:14] Speaker 04: You can't look at the foreign information report and say it has anything to do with tax. [00:51:20] Speaker 04: It's just a report about facts. [00:51:22] Speaker 04: It doesn't fit in that parenthetical. [00:51:25] Speaker 04: All of the other elements have some kind of tax aspect to it. [00:51:29] Speaker 03: Well, what about your friend on the other side's reply brief where they say, well, the tax court got that wrong because [00:51:38] Speaker 03: The fixed dollar penalties are very much like lots of other penalties that are included in Chapter 38. [00:51:48] Speaker 03: Do you say that they're just wrong about that? [00:51:51] Speaker 03: They're really not like those other penalties? [00:51:56] Speaker 03: I'm sorry. [00:51:56] Speaker 03: Could you do that again? [00:51:59] Speaker 03: So the reply brief [00:52:05] Speaker 03: points out that they believe that the tax court simply got it wrong by construing the fixed dollar penalties of section 638 as completely different than the other sorts of penalties that are in subchapter 68. [00:52:32] Speaker 03: that are assessable. [00:52:33] Speaker 04: Well they're specifically made assessable law in 68. [00:52:37] Speaker 03: I understand that but the tax court believed that the 6038 penalties are just like completely different character or type of penalties that aren't similar to any of those that are in subchapter 68 in [00:52:58] Speaker 03: I think the opening brief and the reply brief of the commissioner says, well, that's just not correct. [00:53:07] Speaker 03: Those $6 penalties are similar to lots of different penalties that are in subchapter 68. [00:53:15] Speaker 04: I agree that there are penalties in chapter 68 that are assessable. [00:53:22] Speaker 04: And they're assessable, for example, 3520 penalty for gifts [00:53:28] Speaker 04: There is no specific assessment authority. [00:53:32] Speaker 04: But for other things covered by 3520, there is specific assessment authority to assess that. [00:53:39] Speaker 04: So Congress can enhance, in my view, picked and chosen various and sundry taxes to be accessible or not accessible. [00:53:52] Speaker 04: The reason you might deem it or cause it to not be accessible [00:53:58] Speaker 04: or in Congress is you don't like the penalty and you may be persuaded to vote for it, but I want the enforcement mechanism cut back because that will cause the IRS to take a little bit longer to look at these things and not do something like summarily assess with no contact at all to the taxpayer, summarily assess 10,000 penalties for billions of dollars only to turn around six months later and abate 80 of them because they're wrong. [00:54:29] Speaker 01: So do you doubt you don't question whether there's authority to assess the penalties under 6038 C. Which are the. [00:54:39] Speaker 01: the offsetting percentages. [00:54:41] Speaker 04: Yeah, the offsetting percentages, I think, have a tax element to it. [00:54:46] Speaker 04: Right. [00:54:47] Speaker 04: So if there's a tax element to it, yeah, they can assist with that. [00:54:50] Speaker 04: Oh, that's a good point. [00:54:51] Speaker 04: That would fit in the parenthetical. [00:54:53] Speaker 04: If they had bothered to put it in there, it would fit in there nicely. [00:54:56] Speaker 01: OK. [00:54:57] Speaker 01: But what about the coordination problem that I was asking Ms. [00:55:01] Speaker 01: Uglini about? [00:55:02] Speaker 01: If there is a case that involves [00:55:06] Speaker 01: 6038C penalty, but also 6038B. [00:55:10] Speaker 01: And that would presumably go under two separate tracks, because the 6038B penalty is not a deficiency. [00:55:18] Speaker 01: It wouldn't ride along with the deficiency from which the tax credit is going to be offset. [00:55:26] Speaker 01: And so you'd have liability on 6038C going to the tax board. [00:55:32] Speaker 01: And under your theory, you'd have [00:55:35] Speaker 01: liability for the 6038B going by an action from the Justice Department to a federal district court. [00:55:45] Speaker 01: What if they come up different with conflicting [00:55:48] Speaker 04: Well, that's, I guess, an administrative problem that pops up from time to time. [00:55:52] Speaker 01: But it's a serious administrative problem, because then you have this randomness of whichever reaches judgment first would be binding on the other, or is there a hierarchy between the tax court and the federal district? [00:56:03] Speaker 04: In my view, that's a problem they'd have to work out, because there's no assessment authority for the 6038 B penalty. [00:56:10] Speaker 01: Why shouldn't we read that as a reason that Congress assumed that the 6038 [00:56:16] Speaker 01: B penalty was assessed. [00:56:20] Speaker 01: Because then it would be as in our country home that IRS could hold the assessment of that pending the resolution of the tax court. [00:56:30] Speaker 01: The tax court said no liability. [00:56:32] Speaker 01: They'd let go of the filing fine. [00:56:36] Speaker 04: They have five years to sue for it. [00:56:41] Speaker 04: That should be plenty of time to work the element out. [00:56:46] Speaker 04: They have five years to sue to collect, under my theory, to collect the 6038b penalty. [00:56:52] Speaker 04: So I don't see a conflict coming up. [00:56:54] Speaker 04: Why would the Department of Justice, number one, probably isn't going to take it anyway if it's not big enough. [00:56:59] Speaker 04: That's the key to this switch. [00:57:01] Speaker 04: And if they say it's a big number, they say, well, we're going to have to cover this number. [00:57:08] Speaker 04: That should be easy without interfering with anything else. [00:57:10] Speaker 04: I'm sure the Department of Justice would just continue the thing until the tax court worked the other one out. [00:57:15] Speaker 04: That's why you worked that. [00:57:15] Speaker 01: So part of your response to the absurdity is these are relatively small penalties. [00:57:22] Speaker 01: They're kind of more as deterrents than as something that is regularly going to be collected, which is the various provisions of the tax code, and that the members who voted for it were thinking it's more of a message, a bark, than a bite. [00:57:38] Speaker 04: I would not agree with their small penalties. [00:57:42] Speaker 04: $10,000 penalty on the front end is big to me. [00:57:50] Speaker 01: It may be big for the taxpayer, but for the Justice Department, I'm not so sure. [00:57:55] Speaker 04: Oh, the Justice Department wouldn't touch that with a 10-foot pole. [00:57:57] Speaker 01: That's my point. [00:57:59] Speaker 01: So under your theory, you're seeing this as more of a big, in your view, a big bar. [00:58:08] Speaker 01: $10,000, it's going to encourage people to file, but it's not going to be often collected. [00:58:16] Speaker 04: I think, well, this is urban legend or inside baseball. [00:58:20] Speaker 04: I think DOJ has a $100,000 cap on the Bari referrals. [00:58:25] Speaker 01: Precisely. [00:58:27] Speaker 01: Which makes sense. [00:58:28] Speaker 01: So my characterization is correct in your view that we're trying to think of what would Congress's purpose be. [00:58:35] Speaker 01: And I hear you saying, I mean, put it in your own words. [00:58:38] Speaker 01: I just want to understand that this is not absurd. [00:58:42] Speaker 01: It's not incoherent because it's a message to taxpayers. [00:58:46] Speaker 01: You better file. [00:58:47] Speaker 01: And they don't necessarily know whether their case is going to be one that, I mean, how many people in the field know that there's a $100,000 cap? [00:58:55] Speaker 04: I just blew it. [00:58:57] Speaker 04: Well, now you have a chance to recover. [00:58:59] Speaker 04: You blame me. [00:59:00] Speaker 04: Yeah. [00:59:02] Speaker 04: That's a it's a serious penalty. [00:59:04] Speaker 04: And there's no reason to think the taxpayers necessarily just going to blow it off. [00:59:08] Speaker 04: The IRS can still send out the done letters and the increasing threats. [00:59:14] Speaker 04: You better pay this. [00:59:14] Speaker 04: We're going to sue you and stuff like that. [00:59:18] Speaker 01: And I'd say in Mr. Farre's case, it gets to be above one hundred thousand dollars. [00:59:22] Speaker 01: They're going to actually come out. [00:59:24] Speaker 04: They will. [00:59:24] Speaker 04: Yeah. [00:59:25] Speaker 04: So there's ways to deal with that. [00:59:29] Speaker 04: I think that the the [00:59:31] Speaker 04: Procedure of making the, what I call the supercharged collection powers unavailable to these foreign information penalties is a good move because what they did, what IRS did when they exercised the powers, unlawfully in my opinion, that they exercised them, they made a mess. [00:59:52] Speaker 04: And it's right there in the record. [00:59:55] Speaker 01: You had a rebuttal to the government makes an assertion that if the Section 63 AB penalties are excluded from the expanded definition of tax under 6201, that that would not only gut the IRS's ability to assess, but also to make inquiries or determinations of the penalties. [01:00:15] Speaker 01: And you argue, well, the IRS has plenty of authority elsewhere. [01:00:19] Speaker 01: And you point to 7601, 7602. [01:00:22] Speaker 01: Yes. [01:00:25] Speaker 01: And as I read those sections, those really empower the IRS to examine books and witnesses to determine the correctness of returns for liability for taxes. [01:00:37] Speaker 01: But in the situation of 6038, there isn't a return involved. [01:00:44] Speaker 01: So that wouldn't apply. [01:00:46] Speaker 04: No, it would apply. [01:00:47] Speaker 04: In the real world, [01:00:50] Speaker 04: Assuming our theory is correct, and you cannot assess the 6038B penalty for a 5471 late filing. [01:00:57] Speaker 04: In the real world, if the government wants to get into that form, they can do it. [01:01:04] Speaker 04: They can do it. [01:01:04] Speaker 04: They can collect all of that information on the 5471 form in the context of a tax examination of the taxpayer. [01:01:11] Speaker 04: There's no defense a taxpayer has that [01:01:15] Speaker 04: Oh, you can't see that because there's no assessment authority, C6201A. [01:01:21] Speaker 04: That's not going to work. [01:01:22] Speaker 04: The test for the information gathering capacity of the IRS is the broadest thing imaginable. [01:01:30] Speaker 04: They can get anything that may be relevant to the investigation. [01:01:37] Speaker 04: I can remember many times standing in front of a judge, and they asked me, well, how is that relevant, Mr. Robbins, on the summons enforcement? [01:01:43] Speaker 04: And the answer was, I don't know. [01:01:45] Speaker 04: Maybe that's the test and you don't know it until you see it. [01:01:49] Speaker 01: So they're going to be able to. [01:01:50] Speaker 01: Oh sure. [01:01:51] Speaker 01: Whether the form is filed. [01:01:53] Speaker 01: Sure. [01:01:54] Speaker 01: You're not seeing examining books in which is really the correctness of returns. [01:01:59] Speaker 01: It could be the correctness of the absence of a return. [01:02:01] Speaker 04: It could be anything. [01:02:03] Speaker 04: The information gathering capacity the IRS is most broad thing I think you can imagine. [01:02:10] Speaker 01: So you put little stock in the inquiries of determining the argument of the government. [01:02:16] Speaker 04: So let's see. [01:02:18] Speaker 04: Am I over? [01:02:20] Speaker 04: You are. [01:02:20] Speaker 03: I have a question. [01:02:23] Speaker 03: So there are some provisions in Title 26 where Congress said that the tax penalty [01:02:36] Speaker 03: shall be enforced by a lawsuit. [01:02:39] Speaker 03: Yes. [01:02:39] Speaker 03: And they say that in Title 26. [01:02:42] Speaker 03: Yes. [01:02:45] Speaker 03: You're saying that, OK, they didn't do that here in Title 26, so they have to rely on this kind of catch-all civil enforcement statute that's in Title 28 at 2461, right? [01:03:01] Speaker 04: Well, I always understood, and I could be wrong in this. [01:03:06] Speaker 04: the penalties or the sections that have a specific command from congress that you can only collect this through a civil suit i always assumed that was you send it over the department of justice and they do their thing and collect it i don't think there's another i don't think the irs goes into into court on their own they refer it to doj whether it's the the doj or the irs lawyers who are bringing the civil suit my question is more focused on [01:03:35] Speaker 03: In the tax code title 26, there are some penalties where it says they're in the tax code. [01:03:45] Speaker 03: This is to be civilly enforced. [01:03:47] Speaker 03: Yes. [01:03:48] Speaker 03: They didn't say that was 6308. [01:03:51] Speaker 03: You say that, well, we read in that, well, it can be enforced through the kind of general authority to enforce. [01:04:03] Speaker 03: Yes. [01:04:04] Speaker 03: through civil enforcement under Title 28 outside of the tax code. [01:04:09] Speaker 03: Yes. [01:04:11] Speaker 03: So what other penalties do you believe are enforceable under Title 28 civil enforcement? [01:04:22] Speaker 03: All of the ones that you listed in the brief? [01:04:24] Speaker 04: Yes. [01:04:24] Speaker 04: And I will make a disclaimer. [01:04:26] Speaker 04: I kind of put those together on the fly. [01:04:28] Speaker 04: A lot of them. [01:04:30] Speaker 04: I think there are 16 foreign information penalties that track [01:04:33] Speaker 04: the FARI situation with no specific assessment authority. [01:04:39] Speaker 04: And for those in our view, under our theory, for those ultimately if the taxpayer is forced to pay [01:04:50] Speaker 04: They will be taken to a civil court and district court and sued for it. [01:04:55] Speaker 04: They'll have a demand for, hey, this amount, give us $10,000. [01:04:59] Speaker 04: They say no. [01:05:00] Speaker 04: Send it over to Department of Justice. [01:05:02] Speaker 04: And they will sue them to collect a debt of the United States. [01:05:05] Speaker 04: It's a debt of the United States. [01:05:07] Speaker 04: And in the process of that lawsuit, they can [01:05:11] Speaker 04: do liens, they can seize property, they can do all whatever you can do in a civil suit in district court. [01:05:15] Speaker 04: So there is a remedy. [01:05:16] Speaker 01: Only after they've established a judgment. [01:05:19] Speaker 04: That's right. [01:05:20] Speaker 01: So it's a very different burden. [01:05:21] Speaker 01: Yes. [01:05:23] Speaker 03: And can you provide any example where that has happened with any of those penalties that you list that have to be enforced in that way? [01:05:30] Speaker 04: I can't because high arrest is assessing them. [01:05:36] Speaker 04: In my view, they are illegally assessing these penalties. [01:05:39] Speaker 04: So the answer to the question is no. [01:05:42] Speaker 04: But I haven't seen a $100,000 case be forwarded from the IRS to DOJ tax. [01:05:55] Speaker 04: But sooner or later, they're going to have to start doing that. [01:06:00] Speaker 01: So under your view, for example, in 26 USC 7272, there's a penalty for failure to register. [01:06:11] Speaker 01: It's not referred to as an assessable penalty. [01:06:14] Speaker 01: It's just referred to as a penalty of $50. [01:06:16] Speaker 01: Right. [01:06:18] Speaker 01: And it doesn't say that it has to go to court and recover it in a civil action. [01:06:22] Speaker 01: But your position is if the United States really wants to collect that, if it doesn't get it voluntarily, it has to go to court. [01:06:30] Speaker 04: Yes, unless they have assessment authority. [01:06:32] Speaker 01: But you're saying they don't. [01:06:33] Speaker 04: Well, yes. [01:06:34] Speaker 04: If they are lacking assessment authority, the only other alternative that I'm well, they can beg the taxpayer to pay it, and they might get a voluntary payment. [01:06:44] Speaker 01: If it doesn't say accessible penalty, and it's not in Chapter 68, then under your theory, it's not an accessible penalty. [01:06:57] Speaker 04: Correct. [01:06:58] Speaker 04: And the remedy is to go to court and sue. [01:07:02] Speaker 04: And there's obviously an administrative problem for the IRS with that because DOJ is not going to take a $50 case. [01:07:09] Speaker 01: Judge Rogers, did you have other questions? [01:07:13] Speaker 01: No? [01:07:13] Speaker 01: You're welcome. [01:07:15] Speaker 04: Thank you, Your Honor. [01:07:16] Speaker 01: Thank you very much. [01:07:19] Speaker 01: We especially appreciate the experts on... I've been doing this for 44 years. [01:07:27] Speaker 01: longer than this vision has been in. [01:07:29] Speaker 04: Yeah. [01:07:30] Speaker 01: Sorry, Ms. [01:07:35] Speaker 01: Ugolini, you reserved or sought to reserve? [01:07:39] Speaker 00: I sought to reserve two minutes. [01:07:40] Speaker 00: I just have a few points to make, so it might be less than two minutes. [01:07:44] Speaker 00: I just wanted to point out, I think that I heard my colleague concede now that the parenthetical in 6201A could cover other things that are not specifically listed there. [01:07:54] Speaker 00: And if you take a look at page 11 of our reply brief, we listed there six other types of penalties that operate similarly to the 6038B penalty in the sense that they are fixed dollar reporting penalties that are not necessarily derivative of a tax liability. [01:08:12] Speaker 00: I just wanted to make a couple points in response to what my colleague said about what he characterizes as systemic assessment problems with this penalty. [01:08:21] Speaker 00: In this case, there were no challenges to the penalty, the legality of the penalty, ability to pay. [01:08:29] Speaker 00: All the types of complaints about fairness or ability to pay that could have been raised in a collection due process proceeding were not raised here. [01:08:38] Speaker 00: That's a page of 14 and 15 of the joint appendix. [01:08:41] Speaker 00: That is the appeals officer's termination after the CDP proceeding. [01:08:46] Speaker 03: Your friend said that you can't really get into them challenging the merits and the collection due process proceeding. [01:08:54] Speaker 03: Do you agree with that? [01:08:55] Speaker 00: For this type of penalty, you can, because there's no prior opportunity to contest your liability. [01:09:04] Speaker 00: And this goes back to the discussion that Judge Pollard and I had that goes back to our country home case. [01:09:11] Speaker 00: In a collection due process proceeding, if you did not have a prior opportunity to contest the liability or the amount, then you can raise that in a collection due process proceeding. [01:09:21] Speaker 00: He did not raise that here. [01:09:24] Speaker 00: And I would just also point out that this is a case, if you look at page 93 of the joint appendix, Alan Farhe signed a non-prosecution agreement in which he agreed to pay all applicable taxes, interest, and penalties, and yet here we are. [01:09:38] Speaker 03: He should have added a sentence there that required him to agree that they could be assessed. [01:09:51] Speaker 03: You know, the time to get someone to agree to something is when you have the gun to their head, not. [01:09:59] Speaker 00: Your point is well taken. [01:10:04] Speaker 00: Well, I I'm not going to. [01:10:06] Speaker 00: I'll not reach my last point unless the court has further questions. [01:10:09] Speaker 00: I would just ask this court to reverse the decision of the tax court. [01:10:12] Speaker 00: Thank you. [01:10:13] Speaker 01: Thank you case.