SCOTUS Reports

Tag: Motion to Strike

  • Ballantine v. Commissioner, 74 T.C. 516 (1980): Timely Filing of Motions and IRS Second Examination Notices

    Ballantine v. Commissioner, 74 T.C. 516 (1980)

    Mailing a motion to the Tax Court within the prescribed time limit constitutes timely filing, even if service on opposing counsel is slightly delayed; furthermore, a taxpayer’s demand for a second examination letter from the IRS is not a valid defense against a notice of deficiency when no second examination of taxpayer’s books occurred.

    Summary

    In this Tax Court case, petitioners challenged a motion to strike filed by the Commissioner, arguing it was untimely and that the Commissioner erred by not issuing a second examination letter before issuing a notice of deficiency. The court held that the Commissioner’s motion to strike was timely because it was mailed to the court within the 45-day limit, even though service on petitioners’ counsel was slightly delayed due to an incorrect address. The court also ruled that the Commissioner was not required to issue a second examination letter under Section 7605(b) because no second examination of the petitioners’ books actually took place. The court granted the Commissioner’s motion to strike a portion of the petition and denied the petitioners’ motion to dismiss.

    Facts

    The IRS served the petition on December 12, 1977. On January 26, 1978 (45 days later), the Commissioner mailed a motion to strike to the Tax Court. On the same day, a copy was mailed to petitioners’ counsel at a former address and was returned as undeliverable. Upon return, the Commissioner immediately re-mailed the motion copy to the correct address of petitioners’ counsel. Petitioners argued the motion to strike was untimely because service on their counsel was delayed. Petitioners also argued that the Commissioner erred by issuing a deficiency notice without issuing a second examination letter after petitioners refused to provide further access to their books without such a letter.

    Procedural History

    Petitioners filed a motion to dismiss the case or, alternatively, to dismiss the Commissioner’s motion to strike, arguing the motion to strike was untimely under Tax Court Rules. The Commissioner had filed a motion to strike paragraph 4(e) of the petition, arguing it failed to state a claim upon which relief could be granted. The Tax Court consolidated these motions for hearing and ruling.

    Issue(s)

    1. Whether the Commissioner’s motion to strike was timely filed with the Tax Court, considering a delay in serving petitioners’ counsel.
    2. Whether the Commissioner’s failure to issue a second examination letter under Section 7605(b) before issuing a notice of deficiency constitutes a valid claim upon which relief can be granted, when no second examination occurred.

    Holding

    1. Yes, because timely mailing the motion to the Tax Court constitutes timely filing under Section 7502 and Tax Court Rules, and the minor delay in service on petitioners’ counsel did not prejudice them or invalidate the timely filing.
    2. No, because Section 7605(b) is intended to protect taxpayers from unnecessary examinations, and since no second examination occurred, the failure to issue a second examination letter does not invalidate the notice of deficiency or provide grounds for relief.

    Court’s Reasoning

    The court reasoned that under Section 7502 and Tax Court Rules, timely mailing to the court is considered timely filing. The motion to strike was mailed to the Tax Court within the 45-day deadline. The delay in serving petitioners’ counsel was inconsequential and did not prevent timely filing with the court. The court emphasized its discretion to allow pleadings out of time in the interest of justice, although it found the motion was indeed timely. Regarding the second issue, the court distinguished cases where a second examination had occurred without proper notice. Here, no second examination took place; petitioners merely requested a second examination letter before allowing further access to their books, which the court found was not required for the deficiency notice to be valid. The court cited precedent like United States Holding Co. v. Commissioner and Rose v. Commissioner, which held that refusing access and issuing a deficiency notice based on existing information without a second examination does not violate Section 7605(b).

    Practical Implications

    Ballantine v. Commissioner clarifies the procedural aspects of timely filing motions in Tax Court, emphasizing that mailing to the court is the key action for timeliness, not necessarily immediate service on opposing counsel. It also reinforces the IRS’s ability to issue notices of deficiency based on available information without conducting a second examination if the taxpayer refuses to cooperate without a second examination letter. This case is important for understanding the limitations of taxpayer defenses based on Section 7605(b) when no actual second inspection of books has occurred. It highlights that Section 7605(b) is meant to prevent burdensome repeat examinations, not to impede the IRS from issuing deficiency notices based on existing records when taxpayers become uncooperative.

  • Allen v. Commissioner, 71 T.C. 577 (1979): When Fraud Allegations in Tax Cases Cannot Be Struck

    Allen v. Commissioner, 71 T. C. 577 (1979)

    Fraud allegations in tax deficiency cases cannot be struck from pleadings unless clearly immaterial, frivolous, or unsupported by law.

    Summary

    In Allen v. Commissioner, the U. S. Tax Court rejected Lewis H. Allen’s motion to strike fraud allegations from the Commissioner’s answer. Allen had refused to provide income information on his 1974 and 1975 tax returns, citing the Fifth Amendment. The Commissioner used the bank deposits method to determine a deficiency and alleged fraud. The court held that fraud allegations are permissible in tax deficiency cases and cannot be struck unless they are clearly immaterial or frivolous. The court emphasized that the sufficiency of fraud allegations is a matter for trial, not a motion to strike.

    Facts

    Lewis H. Allen filed his 1974 and 1975 federal income tax returns but refused to provide any information about his income, invoking his Fifth Amendment privilege against self-incrimination. He also made various constitutional arguments. The Commissioner of Internal Revenue used the bank deposits method to determine deficiencies for those years and alleged in the notice of deficiency that part of the underpayment was due to fraud. Allen denied the fraud allegations in his petition and moved to strike them from the Commissioner’s answer.

    Procedural History

    Allen filed his petition in the U. S. Tax Court on July 5, 1978, challenging the Commissioner’s deficiency determination. The Commissioner filed an answer on September 7, 1978, alleging fraud. Allen moved to strike the fraud allegations on October 10, 1978. The Tax Court heard oral arguments on December 4, 1978, and denied Allen’s motion on January 16, 1979.

    Issue(s)

    1. Whether the fraud allegations in the Commissioner’s answer should be struck as immaterial, frivolous, or unsupported by law.

    Holding

    1. No, because fraud allegations are permissible in tax deficiency cases and cannot be struck unless they are clearly immaterial, frivolous, or unsupported by law.

    Court’s Reasoning

    The court applied Rule 52 of the Tax Court Rules of Practice and Procedure, which allows striking pleadings only if they are insufficient or contain redundant, immaterial, impertinent, frivolous, or scandalous matter. The court noted that motions to strike are generally disfavored by federal courts unless the matter has no possible bearing on the litigation. The court emphasized that the Commissioner is permitted under section 6653(b) of the Internal Revenue Code to impose an addition to tax for fraud, and the Tax Court’s rules require the Commissioner to affirmatively plead fraud in the answer. The court rejected Allen’s argument that the fraud allegation was frivolous, stating that the sufficiency of the fraud claim is a factual issue to be determined at trial. The court noted that the Commissioner must prove fraud by clear and convincing evidence, and Allen would have the opportunity to present evidence at trial to rebut the fraud allegation.

    Practical Implications

    This decision clarifies that fraud allegations in tax deficiency cases cannot be easily dismissed through a motion to strike. Taxpayers and their attorneys should be prepared to challenge fraud allegations at trial rather than relying on pre-trial motions. The decision reinforces the principle that the sufficiency of fraud allegations is a factual issue that must be proven at trial. Practitioners should be aware that the Commissioner has a right to plead fraud in tax deficiency cases, and the burden of proof remains with the Commissioner to establish fraud by clear and convincing evidence. This case may be cited in future tax litigation to support the denial of motions to strike fraud allegations from pleadings.