Mac Norman and Daniel Wharton co-authored an article for the Journal of Tax Practice & Procedure titled "The Tax Court's Line in the Sand on Motions for Summary Judgment," in which they examine the U.S. Tax Court’s recent rulings on when and why it might entertain motions for summary judgment in tax cases.
Tax Court Rule 121(a)(2) states that the Court “shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Mac and Daniel note that, in general, the Tax Court has declined to grant summary judgment on issues that “might not need to be decided at all,” depending on trial outcomes. However, recently, the court granted an IRS motion for partial summary judgment “ on the narrow question of supervisory approval of penalties.”
Mac and Daniel primarily examine two recent cases involving motions for summary judgment: David & Barbara Green 1993 Dynasty Trust, et al. (Green Trust) and Nevils Bluff Property LLC, both of which relate to the application of tax penalties.
In Green Trust, the IRS moved for summary judgment, alleging that the taxpayers did not properly substantiate their charitable contributions. The taxpayers filed their own motions for summary judgment on the substantiation issue, seeking to invoke the reasonable cause defense. The court issued a reviewed opinion joined by 13 judges denying all motions for summary judgment, because “[a]s the Court explained, the application of [the reasonable cause] defense is a fact-intensive analysis, and one that generally requires a trial for its proper resolution.”
Importantly, the Tax Court decision in Green Trust noted, “because trial will be required on this issue … we decline to decide summarily on the remaining substantiation issues, which (depending on the outcome of trial) might not need to be decided at all.”
Practitioners took this decision to mean that the court had drawn a line in the sand about how it would consider future motions for summary judgment.
But in Nevils Bluff Property LLC, “the Tax Court found a case that fell on the other side of the line in the sand,” Mac and Daniel write. In that case, the IRS moved for partial summary judgment on a question of supervisory approval of penalties under Code Sec. 6751(b). Defendants opposed the motion, in part, using the Green Trust rationale that such a question should be decided at trial.
But the Tax Court granted the IRS’s motion for partial summary judgment, because Nevils Bluff Property LLC differed from Green Trust in that it involved issues with “no genuine dispute as to any material facts about supervisory approval.” Because of that, Mac and Daniel reason, the Tax Court “was not obligated to defer ruling merely because other issues remained for trial.”
Overall, recent decisions by the Tax Court seem to discourage motions for summary judgment “for all but the clearest of issues — those where both the facts and the law point unambiguously in one direction,” Mac and Daniel note.
They conclude by stating that the court’s “line in the sand” has left practitioners in “an evolving and uncertain landscape that has implications for how taxpayers prepare for trial.”
Subscribers to the Journal of Tax Practice & Procedure can access the article here.
About Mac
Mac focuses his practice on U.S. tax litigation matters and has broad experience in transactional work and international tax planning.
About Daniel
Dan is of Counsel at Kostelanetz LLP. He focuses his practice on federal tax litigation matters.
