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Rowen v. Commissioner (156 T.C. No. 8)

On March 30, 2021, the Tax Court issued its opinion in Rowen v. Commissioner, 156 T.C. No. 8. The underlying issue presented in Rowen was whether the IRS’s certification of the petitioner’s tax debt as “seriously delinquent” violated the Fifth Amendment and his basic human rights, because it infringed on his right to international travel.

Background

For more than two decades the petitioner avoided paying his taxes.  The opinion notes that the petitioner “failed” to pay his Federal taxes, but I believe “avoid” is a bit more indicative of the petitioner’s success in not paying his taxes. In 2018, when the petitioner’s outstanding tax balance was close to $500,000, the IRS “turn to a new tool in its collection toolbox” – IRC § 7345, which permits the IRS to certify that an individual has a “seriously delinquent tax debt.” This certification is then sent to the Secretary of State, who then denies, revokes, or limits the passport of the delinquent taxpayer.

Although it is clear that the IRS sent the certification that the petitioner had a seriously delinquent tax debt, and such certification was forwarded to the Secretary of State, the petitioner’s passport was never actually revoked. So, for those of you keeping score at home, this petition concerned the constitutionality of a piece of paper (the certification) and not the actual act of revocation of a passport.

One wonders whether the petitioner was as capable of avoiding paying his attorney’s fees as he was his federal taxes. As a tax controversy attorney, this question hits a little close to home for me. When your clients are your clients because they don’t like paying what they owe, this presents a rather tricky collection issue. (And, yes, a number of my clients do not actually owe what the IRS thinks they owe, but there is a percentage—I won’t say how large or small—who just doesn’t want to ante up. The petitioner (definitely not my client) was one such taxpayer.

After receiving the notification of the IRS’s certification, the petitioner filed a petition in the Tax Court under IRC § 7345(e). Not to be outdone with himself, he then filed a motion for summary judgment asking the Tax Court to determine that the IRS’s certification was “erroneous.” First, he argues unconstitutionality, which, as we have seen, generally doesn’t pan out so well for the petulant petitioner’s, who so argue. Second, the petitioner argues that IRC §7345 violates his human rights under the Universal Declaration of Human Rights, which was passed by the United Nations in direct response to the Holocaust and the horrors of World War II.

So, to recap, the petitioner is equating a piece of paper that the IRS sent to the Secretary of the Treasury to send to the Secretary of State explaining the petitioner’s taxpaying malfeasance and politely asking the Secretary of State to consider limiting the petitioner’s right to celebrate his tax avoidance success in the Turks and Caicos, Monte Carlo, or Phuket (not sure how the petitioner rolls, here, so we’re just speculating here) with the systematic annihilation of millions of Jews, Gypsies, homosexuals, et al.

You can fault the petitioner for many things; however, you can’t fault the petitioner for his chutzpah.

Petitioner’s Impressive Record of Tax Avoidance

Between 1994 in 2009, the petitioner had great success. Not only was he a successful medical doctor in California, but, aside from one little hiccup in 1997 (where he was indicted on and pleaded guilty to one count of corruptly endeavoring to impede an IRS investigation of his activities), the petitioner successfully avoided paying his Federal tax liability to the tune of almost $500,000.

Judge Toro spends a fair amount of time recounting the petitioner’s record of avoidance, but I will spare the digital link here. Suffice it to say, the petitioner was a bad boy (from a tax perspective). I have to believe that Felicia was somehow involved with tax collection activities, because the IRS’s ineptitude at actually compelling the petitioner to pay through force collection activities was absolutely and unequivocally a failure.

The First Bite of a (Rotten) Apple

This is the first occasion on which the Tax Court considered the merits of a certification pursuant to section 7345. See Ruesch v. Commissioner, 154 T.C. 289 (2020) (considering IRC § 7345 but concluding that the taxpayer’s challenges to the merits of the certification were moot). So, in addition to being astute at avoiding his taxes, the petitioner is an evil visionary—years ahead of his peers.

The FAST Act

Congress enacted IRC § 7345 as part of FAST Act § 32101. FAST Act § 32101 included nine subsections, seven addressing operative rules and two addressing housekeeping matters. Of primary relevance here, the FAST Act § 32101(a) added IRC § 7345 as a new section of the Code.

IRC § 7345(b)(1) generally defines a “seriously delinquent tax debt” as an “unpaid, legally enforceable Federal tax liability” that “has been assessed,” “is greater than” $51,000, for which “a notice of lien has been filed pursuant to IRC § 6323 and the administrative rights under IRC § 6320…have been exhausted or have lapsed, or…levy is made pursuant to IRC § 6331.” IRC § 7345(b)(2) excludes from the definition of “seriously delinquent tax debt” any debt that is “being paid in a timely manner pursuant to an agreement…under IRC § 6159 or IRC § 7122” and any debt for which “collection is suspended…because a due process hearing under IRC § 6330 is requested or pending,” or because relief under IRC § 6015 has been requested.

The Secretary of State possesses the authority to suspend or revoke a passport pursuant to FAST Act § 32101(e). Once the Secretary of State receives notice of the certification, the Secretary of State is required (absent emergency or humanitarian considerations) to deny a passport (or renewal of a passport) to a seriously delinquent taxpayer and is permitted to revoke any passport previously issued to such person. See 84 Fed. Reg. 67184, 67184-67186 (Dec. 9, 2019) (to be codified at 22 C.F.R. pt. 51).

The Tax Court’s jurisdiction to consider the case is found in IRC § 7345(e). Once the Commissioner notifies a taxpayer that a certification under IRC § 7345(a) has been made, the taxpayer may challenge that certification in a civil action filed either in the Tax Court or in a Federal District Court. The court first acquiring jurisdiction over a certification challenge has sole jurisdiction over that action. See IRC § 7345(e)(1).

Erroneous on Both Counts

In general, an action is “erroneous” if it is “incorrect” or “inconsistent with the law or the facts.” Black’s Law Dictionary 659 (10th ed. 2014); see also Merriam-Webster’s Collegiate Dictionary 425 (11th ed. 2014) (defining “erroneous” as “containing or characterized by error: mistaken”); cf. Kasper v. Commissioner, 150 T.C. 8, 23 (examining whether an agency’s decision was “based on an erroneous view of the law or a clearly erroneous assessment of the facts” (quoting Fargo v. Commissioner, 447 F.3d 706, 709 (9th Cir. 2006), aff’g T.C. Memo. 2004-13)).

The petitioner argues (with a straight face) that IRC § 7345 is unconstitutional on its face because it prohibits international travel, which—wait for it—is “a fundamental right enshrined in the Fifth Amendment of the United States Constitution.”

Remember, however, the petitioner’s passport wasn’t revoked.  He’s not challenging the revocation of a passport or his inability to actually travel to Phuket. He’s challenging the IRS tattling to the Secretary of State that he’s been a bad, bad tax boy. As the Tax Court so accurately points out, the “plain language” of IRC § 7345 imposes no prohibition on international travel. Instead, IRC §7345 merely provides a process by which the IRS may certify the existence of a seriously delinquent tax debt, which the Sec. of the treasury in turn transmits to the Secretary of State.

This next bit is important.

IRC §7345 “expressly leaves all passport-related decisions” to be made by the Secretary of State. So, again, the petitioner is challenging a post-high school demerit, a mere chit, not his actual right to travel to Phuket.

Thus, the petitioner’s contention that IRC §7345 gives the IRS the “power to order the revocation or denial of the passport of a U.S. citizen and to prohibit U.S. nationals from leaving the country,” is not (I am citing actual, concrete reality here as authority) accurate or “correct” or bearing any “merit.”

As the Tax Court points out, “not only has the IRS (who has no such power) not revoked it, but even the Secretary of State (the relevant Government actor with authority to act with respect to the petitioner’s passport) has not taken any adverse action against the petitioner.”

To put this in another context, the petitioner got caught for chewing bubblegum in class and sticking it under his desk. His teacher gave him a detention slip. A copy of this detention slip was passed on to the principal who had the power to order the petitioner to sit out the game of flag football he was so looking forward to playing in during recess, but the principal being busy with administrative, procedural, disciplinary, and actual issues, failed to call out the petitioner’s name over the loudspeaker and order the petitioner to report to Room 22 at noon to serve out his sentence. The petitioner writes an editorial in the school paper decrying the manifest injustice of the whole detention procedure, ignoring the fact that he never, in fact, was so detained.

The Fundamental Issues

The petitioner makes a lot of hay out of the fact that the right to international travel is fundamental is subject to review under strict scrutiny. The Tax Court does not decide these issues because the statutory provision (IRC §7345) merely provides for the certification of tax -related facts and does not restrict “in any manner” the right to international travel.

To extend our metaphor a bit further, the certification, just like the detention slip, did not prevent the high school petitioner from failing to execute a well-planned out schoolyard Statue of Liberty play with seconds to go before the bell rang, and he had to get to algebra class. It was a piece of freaking paper.

No milk was billed, but tears were had.

The Human Rights Argument

“No.  Just…no.”  -Judge Toro

(156 T.C. No. 8) Rowen v. Commissioner

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