On June 17, 2021, the Tax Court issued its opinion in Stein v. Commissioner (156 T.C. No. 11). The primary issue presented in Stein v. Commissioner was whether the Tax Court has discretion to grant the petitioners’ motion to dismiss a stand-alone petition for recovery of administrative costs when the petition did not invoke the Tax Court’s jurisdiction to redetermine a deficiency under IRC § 6213(a).
Factual Background in Stein v. Commissioner
The petitioners filed an application for the award of reasonable administrative costs under IRC § 7430(a)(1). After the IRS filed its answer to the petition, the petitioners filed a motion to voluntarily dismiss this case (motion), to which the IRS did not object. The Tax Court was faced with the question of whether it has the authority to grant the petitioners’ motion to dismiss the petitioner without entering a decision.
Legal Background
IRC § 7430(a)(1) provides that a taxpayer who prevails in an administrative proceeding before the IRS concerning “the determination, collection, or refund of any tax, interest, or penalty” may be entitled to an award of the reasonable costs incurred in connection with the administrative proceeding. The taxpayer may make a request for such an award by filing a written application with the IRS. See IRC § 7430(b)(4); Treas. Reg. § 301.7430-2(c). Pursuant to IRC § 7430(f)(2), this Court has jurisdiction to review the IRS’s decision granting or denying (in whole or in part) the taxpayer’s application for an award, provided that the taxpayer files a timely petition for review of the decision.
The timely filing of a petition invoking the Tax Court’s jurisdiction under IRC § 7430(f)(2) commences an independent (or stand-alone) action for the recovery of administrative costs. See Gustafson v. Commissioner, 97 T.C. 85, 88 (1991). That is, the Tax Court’s jurisdiction under IRC § 7430(f)(2) is distinct from the Tax Court’s jurisdiction under IRC § 6213(a) over petitions for redetermination of deficiencies. Deficiency cases under IRC § 6213(a) have historically made up the bulk of the cases before the Tax Court, see Davidson v. Commissioner, 144 T.C. 273, 274 (2015); IRC § 7459(d) provides that in such cases a decision of the Tax Court dismissing the proceeding shall be considered as its decision that the deficiency is the amount determined by the IRS. A taxpayer consequently may not avoid entry of a decision in a deficiency case by moving to withdraw the petition. Estate of Ming v. Commissioner, 62 T.C. 519, 522-523 (1974).
Tax Court Jurisdiction
In addition to our deficiency jurisdiction, however, Congress has granted the Tax Court jurisdiction to review various IRS administrative determinations, including determinations concerning collection actions under IRC § 6320 and IRC § 6330 (IRC § 6320(c), 6330(d)(1)), determinations concerning “innocent spouse” relief from joint and several liability (IRC 6015(e)(1)), determinations concerning whistleblower awards, see sec. 7623(b)(4), and determinations concerning interest abatement, (IRC § 6404(h)(1)).
The Tax Court has previously granted motions to voluntarily dismiss or withdraw petitions invoking the Tax Court’s jurisdiction to review each of those types of determinations. See Mainstay Bus. Sols. v. Commissioner, 156 T.C No. 7, slip op. at 3-5 (Mar. 4, 2021) (pursuant to IRC § 6404(h)(1)); Jacobson v. Commissioner, 148 T.C. 68, 70-71 (2017) (pursuant to IRC § 7623(b)(4)); Davidson, 144 T.C. at 278-279 (pursuant to IRC § 6015(e)(1)); and Wagner v. Commissioner, 118 T.C. 330, 332-334 (2002) (pursuant to IRC § 6320(c) and IRC § 6330(d)(1)). In those instances, the petitions did not implicate the Tax Court’s deficiency jurisdiction. As a consequence, IRC § 7459(d) did not mandate entry of decisions in the IRS’s favor upon the dismissals.
Looking to Federal Rules of Civil Procedure
Because there is no Tax Court Rule that governs motions for voluntary dismissal, the Tax Court must look to the Federal Rules of Civil Procedure to guide its consideration of such motions. See F.R.C.P 1(b), (d); Wagner, 118 T.C. at 332-33, n.6. Under F.R.C.P. 41(a)(1)(A), a plaintiff may voluntarily dismiss a civil action without a court order either by filing a notice of dismissal before the opposing party serves an answer or a motion for summary judgment or by filing a stipulation of dismissal signed by all parties who have appeared. Otherwise, a case may be dismissed at a plaintiff’s request only by court order. See Fed. R. Civ. P. 41(a)(2).
A court “enjoys broad discretion in determining whether to allow a voluntary dismissal” pursuant to F.R.C.P. 41(a)(2). See Pontenberg v. Bos. Sci. Corp., 252 F.3d 1253, 1255 (11th Cir. 2001). Therefore, such a dismissal should generally be granted “unless the defendant will suffer clear legal prejudice, other than the mere prospect of a subsequent lawsuit, as a result.” McCants v. Ford Motor Co., 781 F.2d 855, 856-857 (11th Cir. 1986). When a court issues an order granting a voluntary dismissal, the dismissal is deemed to be without prejudice and the lawsuit is treated as if it had never been filed. See Pontenberg, 252 F.3d at 1255; Wagner v. Commissioner, 118 T.C. at 333-334.
Analysis
In exercising its discretion, the Tax Court had to determine whether the defendant (here, the IRS) would lose any substantial right as a result of the dismissal. See Wagner, 118 T.C. at 333 (quoting Durham v. Fla. E. Coast Ry. Co., 385 F.2d 366, 368 (5th Cir. 1967)). To make that determination, it weighed the relevant equities and do justice between the parties in each case, imposing such costs and attaching such conditions to the dismissal as are deemed appropriate. Id. Because the IRS did not object to granting petitioners’ motion, the Tax Court concluded that the IRS will not be prejudiced by dismissal.
Holding
Because the petition in this case did not invoke the Tax Court’s deficiency jurisdiction, IRC § 7459(d) did not apply, and the Tax Court was not aware of any similar provision that would require it to enter a decision upon dismissal of a stand-alone petition for recovery of administrative costs. Accordingly, consistent with its holdings in Mainstay, Jacobson, Davidson, and Wagner, the Tax Court held that it had discretion to grant a motion for voluntary dismissal of a stand-alone petition invoking its jurisdiction under IRC § 7430(f)(2).
(156 T.C. No. 11) Stein v. Commissioner
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