The Tax Court doesn’t like frivolous arguments by petitioners. Indeed, if you bring a frivolous argument to Tax Court you can be fined up to $25,000. But what happens when an attorney deliberately pushes a frivolous argument for his clients? That’s what the Tax Court had to decide today.
The underlying case was a collection matter relating to 1993 and 1994 taxes (there’s no typographical error there). The petitioners made two arguments, but the Court didn’t think much of them. As I wrote last year when this case first came to the Tax Court, the case itself wasn’t particularly interesting. But Judge Halpern didn’t like the delaying tactics used by the petitioners’ attorney. The Court then wondered if a sanction to the attorney was warranted.
We found substantial authority rebutting petitioners’ claim that Ms. Hernandez could not rely on computer transcripts to verify that their unpaid tax had been properly assessed. We stated: “Nothing in evidence indicates any irregularity in the assessment procedure that would raise a question that the assessments were not validly made in accordance with the requirements of section 301.6203-1, Proced. & Admin. Regs.”…
We likewise found substantial authority that respondent had satisfied his obligation under section 6203 to furnish petitioners with the records of assessments of their unpaid tax. We stated that the information in the account transcripts furnished to petitioners by Ms. Hernandez “constitutes all of ‘the pertinent parts of the assessment’, which, pursuant to section 301.6203-1, Proced. & Admin. Regs., on their request, respondent must furnish to them.”
The words “substantial authority” are key here. This means (to us laypeople) that the attorney should have known these were bad arguments, and shouldn’t have moved forward with them. The petitioners received a $5,000 penalty their frivolity. The petitioners’ attorney was told,
We contemplated levying excess costs on Mr. MacPherson for unreasonably and unnecessarily bringing and prolonging the proceedings. We said that we would accord him the opportunity to respond to that charge.
So what’s needed for such an award to occur:
Section 6673(a)(2) plainly imposes three prerequisites to an award of excess costs. First, the attorney or other practitioner (without distinction, attorney) must engage in “unreasonable and vexatious” conduct. Second, that “unreasonable and vexatious” conduct must be conduct that “multiplies the proceedings.” Finally, the dollar amount of the sanction must bear a financial nexus to the excess proceedings; i.e., the sanction may not exceed the costs, expenses, and attorneys’ fees reasonably incurred because of such conduct…The purpose of section 6673(a)(2) is to penalize an attorney for his misconduct in unreasonably and vexatiously multiplying the proceedings.
It gets worse for the attorney:
We have already found that petitioners’ assignments of error are frivolous and groundless and were raised primarily for delay…We believe that Mr. MacPherson intentionally abused the judicial process by bringing and continuing this case on behalf of petitioners knowing their claims to be without merit…
Moreover, as to petitioners’ remaining assignments of error, months before respondent made his motion for summary judgment respondent’s counsel put Mr. MacPherson on notice that respondent considered those arguments frivolous and contrary to established law. At Mr. MacPherson’s request, respondent’s counsel provided to him the authority on which counsel relied. And so Mr. MacPherson had further knowledge that his claims were without merit…
Mr. MacPherson further multiplied the proceedings and vexatiously impeded the resolution of this case by objecting to respondent’s motion for summary judgment on the grounds that there was a genuine dispute as to material facts and then, in less than a week, reversing course and suggesting that the parties submit the case to the Court fully stipulated under Rule 122 or make crossmotions for summary judgment…
Finally, we find Mr. MacPherson to have multiplied proceedings in his response to our order to show cause. He submitted over 400 pages purporting to support his claim that sanctions are not appropriate, but much of it consists of Mr. MacPherson’s persistence with arguments we have already told him are frivolous.
And the attorney, in the view of the Tax Court, violated American Bar Association rules that state, “A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law.”
So the Tax Court took the number of hours worked by the two attorneys in the IRS Office of Chief Counsel by their hourly rates and came to $19,837.50. And he’s lucky with that number,
Mr. MacPherson knew or should have known that this case should never have been commenced. And for that reason, we are inclined to hold that Mr. MacPherson is liable for all of the time spent by respondent, not to mention time expended by the Court in processing and reviewing all of Mr. MacPherson’s submissions. [emphasis in original]
The only case I remember that an attorney committed alleged misconduct was where an attorney filed a probate action on his mother’s estate and then filed a Tax Court action on the same estate. He told the probate court he was waiting on the Tax Court; he told the Tax Court he was waiting on the probate court. He did this successfully for twelve years. The 13th time didn’t go so well.
The goal of Tax Court is to bring the two sides together. Sure, if the IRS has erred, and no satisfaction could be reached before Court, then Tax Court is absolutely appropriate. However, when an attorney brings a case with no legs to stand on and where he knows there are no legs to stand on the attorney has a problem.
Case: Best v. Commissioner, T.C. Memo 2016-32
