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Designated Orders, October 5 – 9, 2020

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Months ago, I heard an interview with the NYU Professor Scott Galloway about what the world may look like post-Covid. One of the main takeaways was to think of the pandemic not as a “change agent,” but rather as “accelerant” of trends that were already underway. I’d say this holds true with the government embrace of technology in tax controversy: from the momentous leap of fax to email, to the ability to sign documents electronically (see posts here and here).

While many of these changes were long overdue and will likely remain post-Covid, not all of these changes are here to stay. Or at least not in their current form. Virtual Tax Court trials are a good example of one such change that will almost certainly not remain as the default but may well continue in some form or another. The ease of access for virtual trials (and thus its ability to efficiently resolve cases) may be too attractive to the Tax Court to abolish it altogether.

One question is how or if such changes may affect motions for continuance. To get a sense of what may happen in the future, let’s take a look at the past. Specifically, two designated orders denying such motions in calendared virtual trials.

Tax Court Rule 133 provides that continuances are “granted only in exceptional circumstances.” While this may make it seem that continuances are extraordinarily rare, in my experience the Tax Court is generally amenable to them so long as either (1) there is a serious prospect the case will resolve without trial, or (2) the parties can demonstrate they are making progress on the case, which would make for a more resolution (be it by trial or otherwise). When I draft continuance motions, I generally try to hit on those two points, demonstrating why it is in the Tax Court’s interest (ultimately, as a matter of efficiency) to grant the continuance.

If you cannot show that you are actively engaged in the case and making a good faith effort to move things forwards the Tax Court is unlikely to grant a continuance motion. Call me a cynic, but I’d venture there are some petitioners out there that would rather have their case languish than hear what the court has to say about their case.

But perhaps the reason things have stalled are out of your control. In my experience, this sometimes arises from logistical issues in receiving the administrative file from the IRS. As I’ve detailed before, the contents of the administrative file can be a sticky issue, and also directly informs many arguments you may want to raise. (The ABA Tax Section also recently held a free webinar on the topic, which I’d highly recommend.)

Bringing things back to virtual trials, petitioners may be inclined to argue for continuances based on technological issues beyond their control. Though it is generally difficult to argue, ahead of the calendar, that you “anticipate” technological trouble that would preclude attending virtual trials, some of these may be legitimate. Where the parties have time-and-time again failed to engage or exhibit other delay tactics, however, the Tax Court is sure to look with a critical eye on these sorts of arguments. The two designated orders give, I believe, excellent examples of the limits of Tax Court patience in granting continuances.

Let’s start with Griggs v. C.I.R., Dkt. # 18035-16 (order here). First off, glancing at the docket number informs us that this case has been circulating since 2016. For context, at that time very few people on earth knew what a “coronavirus” was, and Barack Obama was handing over the keys to the White House to Donald Trump. Suffice it to say, 2016 was a while ago.

Flash forward to October, 2020 and Mr. Griggs still wants more time to get things in order. And for a while, where it seemed the case may be moving forwards, the Tax Court obliged. A continuance was granted in January 2018 after a motion for partial summary judgment by petitioners was denied. Then another continuance was granted in November 2018. Then partial summary judgment granted to the IRS…

After that, Mr. Griggs seemed less inclined to move things towards a final resolution. First, he makes numerous requests for additional time (not to be confused with continuances: see Rule 25(c)) on filing status reports. Then, almost exactly one month before the case is set for trial, Mr. Griggs moves again for a continuance. His reasons fall within the “circumstances outside my control” category: (1) the law libraries in Oregon are closed because of the pandemic, and (2) the forest fires will (somehow) keep him from attending the trial.

The Tax Court isn’t having it. The first reason is unpersuasive because it is apparently a pure substantiation case, where legal research isn’t really in play. The second reason is unpersuasive because… well, you have to actually explain why all the bad-things happening in the world specifically effect you, rather than just listing off Billy Joel style those bad things in the abstract. Mr. Griggs does not do so.

The motion is denied. Maybe our second petitioner (Ononuju v. C.I.R., Dkt. # 22414-18 (here) has better luck?

From the outset it may appear that Mr. Ononuju has a compelling case for continuance. He lives in Nigeria and, because of the pandemic cannot get a flight into the United States. Of course, since this trial is going to be virtual it doesn’t much matter where he physically is, so long as he has phone or internet access. But perhaps such access is lacking in Nigeria?

Not so, the Tax Court finds -or at least not in Mr. Ononuju’s instance. Some reasons why “I’m in Nigeria” is not sufficient, on its own, to show lack of remote access include (1) he lives in the capital city, which certainly has phone access, and (2) he was able to communicate with the IRS by phone and email while in Nigeria (where he has lived since 2017) up to then. The Tax Court is not swayed and is particularly dismayed that Mr. Ononuju didn’t even try to show up to trial and express his concerns with phone or email access so that arrangements could be made.

In my experience, the Tax Court is very understanding when these issues are expressed in good faith. And reading between the lines, the “good-faith” of Mr. Ononuju seems to be called into question here. Although Mr. Ononuju doesn’t show up for trial, his wife does and testifies that he was presently providing medical care in rural areas to people in need.

How noble! Only the Tax Court doesn’t find her testimony credible, so maybe not. A very brief look at taxes at issue might give some hints as to the credibility gaps.

Mr. Ononuju founded and was president of the non-profit “American Medical Missionary Care, Inc.” Again, how noble! Except, at least according to the IRS, Mr. Ononuju engaged in “excess benefit transactions” under IRC § 4958. I don’t work with non-profit tax issues, but under IRC § 4958(c), these appear to be transactions where someone with control over the non-profit uses the non-profit for undue personal gain. The penalties are stiff: a 25 percent excise tax on the prohibited transaction under the “first-tier,” and a 200 percent(!) second tier excise tax if you don’t correct the excess benefit transaction -which apparently Mr. Ononuju never did. I have no insight on whether these taxes were appropriate, or the merits of the case generally, but things seem to have been unraveling for Mr. Onounju: Michigan revoked his medical license at about the same time the IRS examination appeared to be going on.

The IRS asserted a deficiency of over $1.5 million for 2014. Usually that’s a large enough number to keep people engaged. And though Mr. Ononuju was for a time, that appears to have stopped right when the parties got to fact stipulation. After that, radio silence…

Much of Tax Court litigation occurs without the active involvement of the Tax Court itself. Unlike in federal district court, the parties are mostly entrusted to work out the facts between themselves without formal discovery -or at least try to, before getting the court involved. Trial can then largely be reserved to those factual issues the parties could not (reasonably) agree on. But woe onto those who do not engage in the stipulation process, and then ask the Tax Court to postpone the trial. That the (eventual) trial will be virtual doesn’t really play into that equation.

And so we have yet another denied motion for continuance.

To me, virtual trials will just be an extra tool in the Tax Court toolbox: one that could especially benefit places like Minnesota, where the trials are infrequent. As the Tax Court shifts back to on-site calendars, however, I think the possibility of virtual trials could be reason for the Tax Court to be more comfortable in granting continuances -so long as the petitioner is engaged in the process. Imagine the petitioner shows up to calendar after largely being uncommunicative and makes a motion for continuance that very day. Maybe they have a lot of really good reasons for being uncommunicative, and maybe it seems like their case has some merit. In places like Minnesota, Tax Court judges are in a bit of a bind in those instances. If they grant the motion to continue it might not be set for trial for another 6 months to a year. Usually, the Tax Court puts the case on “status report” track to try and keep the parties engaged in the interim.

Virtual trials could go one step further, particularly for those parties that are actually engaged in the process, and perhaps even more so for those that are linked with pro bono counsel at calendar call. Now, instead of scrambling to put together a case that day or week, theoretically pro bono counsel could make a motion for continuance with the understanding that a virtual trial will be held in two or three months -usually enough time to actually sort things out, without being so far in the distance that one of the parties disappears.

For petitioners like Mr. Griggs and Mr. Ononju where continuances may just be a tactic of indefinite delay, they can and should be denied -virtual trial or not. But for engaged petitioners that just need some more time (or assistance from free counsel), the availability of virtual trials may actually provide more cushion for continuances to be granted -at least from the perspective of efficiently resolving cases.

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