On September 9, 2021, the Tax Court issued a Memorandum Opinion in the case of Kaebel v. Commissioner (T.C. Memo. 2021-109). The primary issues presented in Kaebel v. Commissioner were (a) whether the petitioner was precluded from arguing that the IRS did not send him deficiency notices; (b) whether the IRS erred in certifying that the petitioner had seriously delinquent tax debt; and (c) whether the petitioner should be sanctioned for advancing the groundless argument that the IRS had not sent him deficiency notices.
Summary of Kaebel v. Commissioner
The IRS certified the petitioner under IRC § 7345 as an individual having a seriously delinquent tax debt. The petitioner challenges the certification as erroneous, arguing that, because the IRS failed to send him statutory notices of deficiency in tax for five of the six tax years underlying the IRS’s certification, he owes no tax for those years and his remaining tax debt is not large enough to constitute a seriously delinquent tax debt.
He also argues that a right to international travel is a fundamental right and that the Tax Court should declare unconstitutional a statute that allows or requires the Secretary of State to deny or take away an individual’s passport for nonpayment of taxes. IRC § 7345(e) establishes the Tax Court’s jurisdiction to decide this case. The Tax Court sustained the certification.
The Lien Notice
IRC § 6321 establishes a lien for unpaid Federal taxes. IRC § 6323(a) provides that the lien shall not have priority against certain creditors until notice of the lien (notice of Federal tax lien (NFTL)) has been filed in a place specified in that section. Section 6320 provides that the Secretary shall notify the taxpayer in writing of the IRS’s filing of the NFTL and provide the taxpayer opportunity for a hearing (a “collection due process” (CDP) hearing).
In May 2013, the IRS filed an NFTL with respect to petitioner’s 2005 through 2009 tax liabilities, and in June 2013, the IRS sent petitioner notice of same and an explanation of petitioner’s right to a CDP hearing. In February 2014, respondent acted correspondingly with respect to petitioner’s 2010 tax liability. Petitioner did not request a CDP hearing in response to either notice.
The Levy Notice
IRC § 6331 provides that unpaid taxes may be collected by levy. IRC § 6330 provides for notice and the opportunity for a CDP hearing before levy. In November 2012, the IRS sent the petitioner a notice of intent to levy with respect to petitioner’s 2005 through 2009 tax liabilities. The petitioner did not request a CDP hearing with respect to that notice.
In February 2014, the IRS sent the petitioner a similar notice with respect to his 2010 liability. In response to that notice, petitioner did request a CDP hearing. Among his complaints was that, in pursuing collection of the tax, the IRS had not complied with all proper procedures as required by law.
Prior Tax Court Proceedings
In August 2014, the petitioner filed a petition challenging the IRS’s determination to proceed by levy to collect his unpaid 2010 tax. Following a trial, the Tax Court entered a decision sustaining the determination. See Kaebel v. Commissioner (Kaebel I), T.C. Memo. 2017-37. In 2018, the petitioner filed a petitioner challenging the deficiencies in all years.
By order dated July 26, 2018 (July 26 order), the TC denied the petitioner’s motion to strike the IRS’s motion to dismiss and granted the IRS’s motion to dismiss for lack of jurisdiction. See Kaebel v. Commissioner (Kaebel II), T.C. dkt. No. 916-18 (July 26, 2018), aff’d per curiam, 770 F. App’x 726 (5th Cir. 2019).
You can fault Mr. Kaebel for many, many things, but persistence is not among them.
Certification of Seriously Delinquent Tax Debt
IRC § 7345(a) provides that, if the Secretary of the Treasury receives certification by the IRS that a taxpayer has a “seriously delinquent tax debt,” the Secretary shall transmit such certification “to the Secretary of State for action with respect to denial, revocation, or limitation” of the taxpayer’s passport. A “seriously delinquent tax debt” is defined as a Federal tax liability that has been assessed, which exceeds $51,000, which is unpaid and legally enforceable, and against which a lien notice has been filed or a levy has been made. IRC § 7345(b)(1).
If a certification “is found to be erroneous or if the debt with respect to such certification is fully satisfied”, the Internal Revenue Service (IRS) must [*9] reverse its certification and notify the Secretary of State and the taxpayer. IRC § 7345(c)(1), (d).
A taxpayer who has been notified of the certification may bring a civil action in District Court or may petition the Tax Court “to determine whether the certification was erroneous or whether the IRS has failed to reverse the certification.” IRC § 7345(e)(1).
If The Tax Court determines that such certification was erroneous, then the Tax Court may order the Secretary of the Treasury to notify the Secretary of State that such certification was erroneous. IRC § 7345(e)(2). The statute specifies no other form of relief that the Tax Court may grant. Ruesch v. Commissioner, 154 T.C. 289, 294 (2020).
The Petitioner’s Unavailing Arguments
The petitioner argued that IRS never created, printed, or mailed him a lawful notice of deficiency, and the IRS, therefore, failed to comply with IRC § 6212(a). He also argued that a right to international travel is a fundamental right and that the Tax Court should declare unconstitutional a statute that allows or requires the Secretary of State to deny or take away an individual’s passport for nonpayment of taxes.
The trouble with the petitioner’s argument was that the Tax Court in Kaebel I and Kaebel II actually found that the IRS had mailed the notices of deficiency to the petitioner.
Collateral Estoppel
Collateral estoppel is an affirmative defense. See Tax Court Rule 39. Under the doctrine of collateral estoppel, or issue preclusion, once an issue of fact or law is “actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation.” Montana v. United States, 440 U.S. 147, 153 (1979).
Collateral estoppel is a judicially created equitable doctrine that protects parties from unnecessary and redundant litigation, conserves judicial resources, and fosters certainty in and reliance on judicial action. See, e.g., id. at 153-154; Hiramanek v. Commissioner, T.C. Memo. 2016-92, at *11, aff’d, 745 F. App’x 762 (9th Cir. 2018).
Collateral estoppel can be applied in the context of a factual dispute only when the following conditions are satisfied:
- the issue in the second suit must be identical in all respects with the one decided in the first suit;
- there must be a final judgment rendered by a court of competent jurisdiction;
- the party against whom collateral estoppel is asserted must have been a party to the first suit or a privy to a party;
- the parties must have actually litigated the issues and the resolution of these issues must have been essential to the prior decision; and
- the controlling facts and applicable legal rules must remain unchanged from those in the prior litigation. Peck v. Commissioner, 90 T.C. 162, 166-167 (1988), aff’d, 904 F.2d 525 (9th Cir. 1990).
Once again, the trouble with the petitioner’s arguments were that they, technically, lacked any basis in fact or law. In Kaebel I, the Tax Court relied in part on its finding that respondent had properly mailed the petitioner deficiency notices for all the delinquency years to conclude that the Tax Court lacked jurisdiction.
A dismissal for lack of jurisdiction precludes relitigation of issues essential in ruling on the jurisdictional question. See Nat’l Ass’n of Home Builders v. EPA, 786 F.3d 34, 41 (D.C. Cir. 2015) (“Issue preclusion applies to threshold jurisdictional issues like standing as well as issues going to a case’s merits.”); Waltner v. Commissioner, T.C. Memo. 2014-133, at *16-*17, aff’d in part, 748 F. App’x 162 (9th Cir. 2019).
No Fundamental Right to Travel
Unfortunately for the petitioner, the Tax Court decided this very issue earlier in 2021 in the case of Rowen v. Commissioner, 156 T.C. No. 8, slip op. at 16-17 (Mar. 30, 2021). Indeed, in Rowen, the Tax Court found meritless the taxpayer’s claim that IRC § 7345 is unconstitutional because it prohibits international travel, a fundamental right enshrined in the Fifth Amendment”. Id., slip op. at 18. Further, the Tax Court explained that IRC § 7345 simply does not authorize any passport-related decision and therefore does not prohibit international travel. Id., slip op. at 19.
The Tax Court added that a statutory provision (IRC § 7345), which merely provides for the certification of certain tax-related facts and does not restrict in any manner the right to international travel, cannot run afoul of the Fifth Amendment. Id., slip op. at 21. The Tax Court offered no opinion on the constitutionality of the authority granted to the Secretary of State by FAST Act, § 32101(e). Id., slip op. at 22.
Ultimately, the Tax Court held that it had no call even to consider whether, were such facts before it, the Tax Court’s jurisdiction under IRC § 7345(e) extends to considering any action by the Secretary of State.
IRC § 6673 Sanction
In pertinent part, IRC § 6673(a)(1) allows us to impose a penalty of up to $25,000 if (1) the taxpayer has instituted or maintained proceedings before the Tax Court primarily for delay or (2) the taxpayer’s position in the proceeding is frivolous or groundless. The Tax Court’s authority to impose a frivolousness penalty under IRC § 6673 is, in a word, broad. See Leyshon v. Commissioner, T.C. Memo. 2015-104, at *24, aff’d, 649 F. App’x 299 (4th Cir. 2016).
This is the third proceeding before the Tax Court and the fourth altogether, including the appeal, in which the petitioner has claimed that deficiency notices for one or all the delinquency years were not properly mailed. It should have become clear to petitioner, at least after the Court of Appeals in Kaebel II affirmed the Tax Court’s rejection of his claims, that such claims lacked merit. The Tax Court observed that Mr. Kaebel “has in this proceeding occupied the time of the IRS’s counsel and the Tax Court needlessly with his claims that deficiency notices for the delinquency years were not properly mailed.”
Ultimately, the Tax Court did not impose sanctions. Yet. Before entering a decision, the Tax Court ordered the petitioner to show cause why the Tax Court should not impose sanctions and include such sanctions for advancing a groundless position.
Something tells me that Judge Halpern is not going to have a hard time imposing sanctions. In fact, I think the only question is how hard (pecuniarily) she nails the petitioner.
(T.C. Memo. 2021-109) Kaebel v. Commissioner
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