ALI-CLE-2013-Tax-Court-Procedures_-Trial

Report
Dentons US LLP
Tax Court Procedures: Trial
ALI CLE
Handling a Tax Controversy: Audits,
Appeals, Litigation, and Collections
Washington, DC
October 18, 2013
Locations
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October 18, 2013
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Tax Court Procedures: Trial
PANELISTS
• Chief Special Trial Judge Peter J. Panuthos,
U.S. Tax Court
• Peter K. Reilly, Office of Chief Counsel,
Internal Revenue Service
• M. Todd Welty, Head of Tax Controversy and Litigation,
Dentons US LLP
MODERATOR
• Miriam L. Fisher, Co-Chair of Global Tax Controversy,
Latham & Watkins LLP*
*These materials were prepared by Ms. Fisher with the helpful assistance of
October 18, 2013
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Denise Mudigere of Dentons US LLP
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Tax Court Procedures: Trial
• Trial or No Trial?
• Planning Trial Logistics
• Burden of Proof
• Developing and Presenting the Trial Narrative
• Making the Trial Record
• Settlement: Still an Option
• A Note About Courtroom Conduct
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Trial or No Trial?
When is a decision without a trial possible?
• Summary Judgment – TC Rule 121
Either party may move, with or without supporting affidavits or declarations, for a summary
adjudication in the moving party’s favor upon all or any part of the legal issues in
controversy. Such motion may be made at any time commencing 30 days after the
pleadings are closed but within such time as not to delay the trial, and in any event no later
than 60 days before the first day of the Court’s session at which the case is calendared for
trial, unless otherwise permitted by the Court.
• Submission Without Trial – TC Rule 122
Any case not requiring a trial for the submission of evidence (as, for example, where
sufficient facts have been admitted, stipulated, established by deposition, or included in the
record in some other way) may be submitted at any time after joinder of issue by motion of
the parties filed with the Court. The parties need not wait for the case to be calendared for
trial and need not appear in Court.
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Trial or No Trial?
Also…
• Alternative Dispute Resolution – TC Rule 124
Voluntary binding arbitration, non-binding mediation or other ADR
• Judgment on the Pleadings – TC Rule 120
By motion; treated as summary judgment if matters outside the pleadings are
presented
• Default and Dismissal – TC Rule 123
Default: failure to plead or prosecute
Dismissal: failure to prosecute, comply with Rules or Orders or other cause
the Court deems sufficient
Query: When might decision without trial be a good strategic option?
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Planning Trial Logistics
• Place of Trial – TC Rule 140
Petitioner’s “home field advantage” -- Consider:
• Cost concerns
• Location of witnesses
• (In)Convenience of trial counsel
• Convenience of the Judge
• Courtroom Dynamics
• Learn the Judge’s preferences in advance
• Discuss with Court in advance anticipated schedule, opening/closing/direct exam of expert
practices, courthouse/courtroom access, anticipated evidentiary or scheduling issues, presentation
of remote testimony, etc.
• Exclusion of witnesses upon party request – TC Rule 145
• Parties and experts generally not excluded
• Organization: witness and document “readiness”
• Use of courtroom technology
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Burden of Proof
• General Rule -- TC Rule 142(a)
• The burden of proof -- to establish the party’s claim by a preponderance of the evidence
(or other applicable standard) -- generally shall be upon the petitioner, except as
otherwise provided by statute or determined by the Court
• Shifting the Burden to the Commissioner – IRC sec. 7491
• Assuming no Code provision provides for a specific burden of proof, where petitioner
introduces credible evidence with respect to any factual issue, the burden of proof shifts
to the Commissioner, if
• the petitioner has complied with applicable substantiation requirements,
• the petitioner has maintained all required records,
• the petitioner has cooperated with the IRS’s reasonable requests for witnesses, information,
documents, meetings and interviews, and
• the petitioner, if not an individual, satisfies the net worth requirements of IRC sec. 7430(c)(4)(A) (ii)
(see 28 USC sec. 2412(d)(2)(B))
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Burden of Proof
• Specific Exceptions to General Rule – TC Rule 142 (b)–(e): The burden of proof
shall be upon the Commissioner with respect to:
• Any new matter asserted by the Commissioner, increases in deficiency, or affirmative
defenses included in the Answer (see TC Rule 39)
• Fraud with the intent to evade tax (by clear and convincing evidence) – IRC sec. 7454(a)
• Transferee liability and other limited exceptions – IRC sec. 7454(b)-(c); IRC sec. 6201(d)
Query: For practical purposes, what role does the burden of proof play?
• At trial
• As a tool for settlement
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Developing and Presenting the Trial Narrative
• Pleadings and Motions
• Is there an early opportunity to begin to establish your themes?
• Pretrial Memorandum
• Excellent format for setting out your “trial story”
• Opening Statement
• Usually allowed, concise summary of the issues and evidence
• Opportunity to establish a relationship with trier of fact, set tone
• Address the other side’s story
• Order of Proof
• Important strategic opportunities
• Closing Argument (if allowed – always ask)
• Post-Trial Briefs
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Making the Trial Record
Practical Strategic Considerations in Tax Court Trial Practice
• Thorough Stipulations of Fact, including as to exhibits, require advance planning
of proof, save trial time, telegraph your trial story and help educate the Court
• Expert Reports, submitted in advance, are direct testimony -- TC Rule 143(g)
• Pre-trial Depositions can only be used at trial if received as evidence -- TC Rules
81(i), 143(d)
• Consider the Transcript!
• Communicate clearly and elicit clear testimony; refer to exhibits by correct number, signal
topics and transitions; clarify any confusion in the record
• Consider impact of long delay before Judge and clerk will review the record
• Double check before the record is closed as to admission of exhibits and ruling on
objections
• Post-Trial: any need for leave to supplement the record?
• Briefs: advance planning to address all elements of the case -- how will the
record translate into proposed findings of fact?
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Making the Trial Record
Evidence
• Rules of Evidence – TC Rule 143(a); IRC sec. 7453
Trials before the Court will be conducted in accordance with the rules of
evidence applicable in trials without a jury in the United States District Court
for the District of Columbia. To the extent applicable to such trials, those rules
include the rules of evidence in the Federal Rules of Civil Procedure and any
rules of evidence generally applicable in the Federal courts.
• The “for what it’s worth” Rule of Evidence
While the formal rules of evidence are certainly applied in the Tax Court, there
is considerable flexibility, particularly as to issues of relevance and materiality,
where the Judge is the sole trier of fact
• Evidence does not include ex parte affidavits, statements in briefs or unadmitted
allegations in pleadings – TC Rule 143(c)
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Making the Trial Record
Documentary Evidence
• Stipulations include all documents – TC Rule 91(a)
• Be as comprehensive as possible
• Get to the Judge as early as possible
• Preserve objections and get them addressed at trial
• Exhibits
• Preparation: sufficient copies and readiness for use
• Scope: have you omitted, or failed to explain on the record, something you will need
when briefing?
• Demonstratives (to make the Judge’s job easier)
• Summarize and help tell the trial story
• e.g., transaction diagrams, timelines, list of code names, abbreviations and acronyms
• Share in advance; deal with any objections; seek admission as trial exhibits
• Provide ready reference and refresher for Judge and clerk months after trial
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Making the Trial Record
Testimonial Evidence
• Trial Subpoenas to compel witness attendance and for production of
documents – TC Rules 147, 148; IRC sec. 7456(a)
• Witness Preparation
• Credible, with knowledge of subject matter, familiarity with exhibits
• Demeanor, comfort level in courtroom
• Anticipation of cross-examination, objections, potential treatment as hostile witness,
potential for impeachment, possible questions from the Judge
• Presentation of Testimony
• Strategic order of witnesses
• Flow, signaling topics and transitions, clarity of record
• Rapport, communicating with the fact-finder
• Contemporaneous remote transmission possible upon a showing of good cause and with
appropriate safeguards -- TC Rule 143(b)
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Making the Trial Record
Expert Witnesses
• Expert Reports – TC Rule 143(g)
• Submitted after trial is calendared or Judge assigned and typically no later than 30 days
before trial; intended to facilitate settlement
• Expert must be qualified to give opinion
• New Rule 143(g)(1) adds to required content of expert report, to include –
•
•
•
•
•
•
all opinions and basis or reasons
supporting facts and data considered
any exhibits to summarize or support opinions
qualifications, including all publications in last 10 years
cases in which expert has testified in last 4 years
compensation for the study or testimony
• Rebuttal reports may be required
• Discovery of drafts and communications to prepare report (except as to compensation
arrangements, facts and assumptions relied on) generally not permitted – TC Rule
70(c)(3) and (4)
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Making the Trial Record
Expert Witnesses
• Court may allow limited instances of expert testimony without a report upon
timely request – TC Rule 143(g) (3) and (4)
• e.g., as to industry practice, mere rebuttal or under exceptional circumstances by
deposition transcript (see TC Rule 74(d))
• Expert Testimony at Trial
• Report constitutes expert’s direct testimony (TC Rule 143(g)(2)), although limited direct
may be permitted at trial at the Court’s discretion
• Be prepared to present and defend any rebuttal testimony
• If permitted, consider use of summary demonstratives at trial in support of expert
testimony
• Court will determine weight to be afforded expert opinion and may disregard all or part of
an expert’s testimony
• Attention to objectivity/potential bias or conflicts, argumentative tone, reliability of
methodology, compliance with any special statutory or regulatory requirements or
applicable industry standards, exceeding scope of expertise, disclosure of all sources
and data relied upon, reliance on other’s opinions
• Court-appointed experts; concurrent testimony option
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Settlement: Still an Option
Settlement
• Keep in mind that settlement discussions are encouraged and can take place at
any stage of a Tax Court proceeding, including from “the courthouse steps” to
post-trial to post-decision
• Consider scheduling a settlement conference in the 45 days before trial, even if
settlement seems unlikely; do not expect the Judge to postpone a trial at the last minute
• The Judge may urge the parties to discuss settlement before, during or after trial
• Mid-trial settlements are possible and post-trial settlements are not uncommon; consider
whether hazards on appeal or the potential for resolution of other audit cycles may
influence the parties to find an agreed resolution
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A Note about Courtroom Conduct
Courtroom Decorum
• It goes without saying that it is a privilege to practice in the Tax Court and that all
parties in attendance should conduct themselves at all times in a respectful
fashion vis à vis the Court and its staff, opposing counsel and parties, and all
others present.
• Practitioners before the Court must conduct themselves in accordance with the
letter and spirit of the ABA Model Rules of Professional Conduct – TC Rule 201.
The Court has disciplinary authority over the conduct of members of the Court’s
Bar – TC Rule 202, IRC sec. 7456(c).
• In addition to the usual ethical restrictions, the Judges may have their own
protocols for courtroom decorum, including, generally, orderly conduct, use of the
podium, rising when instructed, addressing the Court rather than opposing
counsel, not interrupting, etc. See, e.g., Rules Governing Conduct During
Proceedings of the U.S. Tax Court (April 15, 1986) (including prohibiting
photographs, recording or broadcasting and possession of weapons).
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Thank you
Dentons US LLP
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Suite 1900
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