Reply Brief — Steven T. Waltner, et ux., Petitioners v. Commissioner of Internal Revenue

Supreme Court briefFeb 18, 2020

Ask Donna

What actually matters in this document.

Text

No. 19-488

In the

Supreme Court of the United States

Steven T. Waltner and Sarah V. Waltner,

Petitioners,

Commissioner of Internal Revenue,

Respondent.

On Petition for Writ of Certiorari to the United

States Court of Appeals for the Ninth Circuit

____________________________ ____________________________

♦

PETITIONERS’ REPLY TO BRIEF

IN OPPOSITION

____________________________ ____________________________

♦

DONALD W. WALLIS

Counsel of Record

UPCHURCH, BAILEY &

UPCHURCH, P.A.

780 N. Ponce de Leon Blvd.

Post Office Drawer 3007

St. Augustine, FL 32085

(904) 829-9066

dwallis@ubulaw.com

Counsel for Petitioners

TABLE OF CONTENTS

Page(s)

TABLE OF CONTENTS............................................... i

TABLE OF AUTHORITIES ....................................... iii

PETITIONERS’ REPLY TO BRIEF IN

OPPOSITION .............................................................. 1

ARGUMENT ................................................................ 1

IRS’s concession that the Regulation reflects

and enforces the agency’s preferred

construction of §7502 underscores the

Circuit conflict and the necessity for this

Court’s resolution of that conflict. ........................1

II. If Brand X is constitutionally sound, it

nevertheless cannot operate here to justify

the Ninth Circuit’s repudiation of Anderson. .......2

A. Under a proper application of Brand X

in this case, the Court of Appeals that

previously had interpreted the statute’s

clear meaning was not required to defer

to the Regulation.............................................3

B. The Ninth Circuit improperly applied a

canon of statutory construction that is

not relevant to the Regulation. ......................6

III. IRS again waives rebuttal of Petitioners’

constitutional and fraud issues. ...........................8

TABLE OF CONTENTS -- Continued

A. IRS

waives

the

constitutional

challenges. .......................................................8

B. IRS’s Statement invites the Court to

consider the underlying dispute, but the

merits of that dispute are relevant here

only with regard to the fraud

Respondent perpetrated on the Tax

Court. ...............................................................9

C. IRS fails to rebut the issue of fraud on

the court. .......................................................12

CONCLUSION .......................................................... 13

iii

TABLE OF AUTHORITIES

Page(s)

Cases

Anderson v. United States, 966 F.2d 487 (CA9

1992) ............................................................ passim

Andrus v. Glover Constr. Co., 446 U.S. 608

(1980) ..................................................................... 6

Baldwin v. U.S., 2017 WL 11129004 (C.D. Cal.

Jan. 24, 2017) ........................................................ 5

Baldwin v. United States, 921 F.3d 836 (CA9

2019), petition for cert. pending, No. 19-402

(filed Sept. 23, 2019).................................... passim

Boddie v. Connecticut, 401 U.S. 371 (1971) ................ 8

Bordenkircher v. Hayes, 434 U.S. 357 (1978) ........... 10

Chai v. Commissioner, 851 F.3d 190 (CA2 2017) ..... 11

Chevron U.S.A. v. NRDC, 467 U.S. 837 (1984)2, 4, 5, 6

Estate of Wood v. CIR, 909 F.2d 1155 (CA8

1990) ...................................................................... 5

Graev v. Commissioner, 149 TC 23 (2017) ................ 11

Hillman v. Maretta, 569 U.S. 483 (2013) ................... 6

Kestin v. Commissioner, 153 TC 2 (Aug. 29,

2019) .................................................................... 11

National Cable & Telecomms. Ass’n v. Brand X

Internet Servcs., 545 U.S. 967 (2005).......... passim

Syed v. M-I, LLC, 853 F.3d 492 (CA9 2017) ............... 7

U.S. v. Alonso, 48 F.3d 1536 (CA9 1995) .................... 8

TABLE OF AUTHORITIES -- Continued

United States v. Lombardo, 241 U.S. 73 (1916) ......... 7

Vigon v. Commissioner, 149 TC 4 (Dec. 23, 2016) .... 11

Constitutional Provisions

U.S. Constitution, Amendment I .............................. 10

U.S. Constitution, Amendment V ............................. 10

U.S. Constitution, Amendment VIII ......................... 10

Statutes

5 U.S.C. § 706(2) .......................................................... 8

26 U.S.C. § 6201(d) ...................................................... 9

26 U.S.C. § 6662(B)(ii)(II) ............................................ 9

26 U.S.C. § 6703......................................................... 11

26 U.S.C. § 7491(a)(1) .................................................. 9

26 U.S.C. § 7491(c) ..................................................... 11

26 U.S.C. § 7502................................................. passim

Regulations

Treas. Reg. §301.7502-1(e)(2) ............................ passim

PETITIONERS’ REPLY

TO BRIEF IN OPPOSITION

ARGUMENT

IRS’

IRS’s concession that the Regulation reflects and

enforces the agency’s preferred construction of

§7502 underscores

underscores the Circuit conflict and the

necessity for this Court’s resolution of that

conflict.

Respondent’s Brief in Opposition (“R.Br.”)

suggests that Petitioners failed to identify any

meaningful conflict among courts of appeals “about

the meaning or validity of the 2011 regulation” and,

therefore, that the case below “does not implicate the

conflict that petitioners identify.” R.Br. 8 IRS is

incorrect. And Petitioners do not “effectively concede

that the pre-regulation circuit conflict they identify is

not implicated by this case.” R Br. 10.

Treas. Reg. §301.7502-1(e)(2 (the “Regulation”)

has no meaning or validity apart from the statute

that it purports to “clarify.” R.Br. 5, 10. Central to

IRS’s opposition is its justification of the Regulation

as interpreting and reflecting §7502. R.Br. (I) (first

question), 4 (Regulation was implemented to provide

“certainty” in light of the Circuit conflict),

5 (Regulation clarifies what §7502 sets forth),

7-8 (both Regulation and statute specify “the

exclusive means to establish timely filing…”),

8 (Regulation makes explicit what “Section 7502

implies”),

and

(Regulation

reflects

“the

interpretation of Section 7502”).

As the Ninth Circuit pointed out in Baldwin,1 “In

August 2011, the Treasury Department sought to

resolve the split by promulgating an amended version

of Treasury Regulation § 301.7502-1(e).” By

Respondent’s own assertions, the Regulation rests on,

and embodies, one of those two conflicting

interpretations.

Then, by promulgating the

Regulation, IRS neither clarified nor resolved the

Circuit conflict–it merely picked sides in that

conflict. When Treasury takes it upon itself to

resolve a split among the Circuit Courts of Appeals,

this Court’s oversight is properly and necessarily

invoked.

II. If Brand X2 is constitutionally sound, it

nevertheless cannot operate here to justify the

Ninth Circuit’s repudiation of Anderson

Anderson.

son.3

Petitioners doubt that the executive branch is

constitutionally permitted to regulate the judiciary in

the way that Brand X appears to allow, because,

regardless of an agency’s authority to fill any gaps

that are left by Congress in a statutory scheme, it is

the exclusive purview of Congress, and not the

Treasury, to replace the common law with statutory

provisions. Nevertheless, it is Petitioners’ view that

the court below misapplied both Chevron U.S.A. v.

NRDC, 467 U.S. 837 (1984) and Brand X.

In deciding the case below, the Court of Appeals relied on

Baldwin v. United States, 921 F.3d 836 (CA9 2019), cert. pet.

pending, No. 19-402 (filed Sept. 23, 2019), decided two weeks

earlier.

National Cable & Telecomms. Ass’n v. Brand X Internet

Servcs., 545 U.S. 967 (2005).

Anderson v. United States, 966 F.2d 487 (CA9 1992).

A. Under a proper application of Brand X in this

case,

case, the Court of Appeals that previously

had interpreted the statute’s clear meaning

was not required to defer

defer to the Regulation.

Regulation.

In Brand X, this Court held that, when a court

determines “a statute’s clear meaning,” that court’s

interpretation “trumps an agency’s under the

doctrine of stare decisis.” Id. at 984 (emphasis the

Court’s; citations omitted). The Ninth Circuit, in

Anderson, had determined the statute’s clear

meaning. It described no provisions as ambiguous. It

found no “gaps” in the statutory scheme that needed

to be filled, and it refused to read into the statute the

exclusions and restrictions urged by IRS. Correctly

applying the canons of statutory construction to the

clear language of the statute, the Court of Appeals in

Anderson unequivocally rejected IRS’s restrictive

view at every turn:

[T]he language of section 7502 itself does not

indicate that subsection (c) is the only exception

to the statutory mailbox rule….the language of

section 7502 does not set forth an exclusive

limitation on admissible evidence to prove timely

mailing and does not preclude application of the

In the absence of such determination of a statute’s “clear

meaning,” the effect of judicial deference owed to agency

regulations on stare decisis doctrine is left unclear by this Court

in Brand X, which stated in confusing dicta, “the agency's

decision to construe that statute differently from a court does

not say that the court's holding was legally wrong. Instead, the

agency may, consistent with the court's holding, choose a

different construction….” Brand X, 545 U.S. at 983. Brand X

fails to explain how both interpretations can be “conflicting (yet

authoritative).” Id. at 984.

common law mailbox rule….By its own terms,

section 7502(c) applies only when the document is

sent by registered or certified mail….Neither the

language of the statute nor Ninth Circuit

precedent bars admission of extrinsic evidence to

prove timely delivery….The statute itself does not

reflect a clear intent by Congress to displace the

common law mailbox rule.

Id. at 489-491 (emphasis added) (applying the

presumption against change in the common law

unless congressional disposition is clear). However,

in 2019 in Baldwin, the Ninth Circuit Court of

Appeals reversed its position in Anderson and

validated the Regulation that enunciated the very

interpretation the court previously, and roundly, had

rejected.

The Ninth Circuit’s resort to Brand X for support

in abandoning both its analysis in Anderson and stare

decisis was misplaced and inappropriate, and its

rationale was flawed:

We did not hold in Anderson that our

interpretation of the statute was the only

reasonable interpretation. In fact, our analysis

made clear that our decision filled a statutory

gap.

Baldwin, 921 F.3d at 843 (emphasis the court’s).

It determined that step one of its cursory Chevron

analysis had been met by recharacterizing Congress’s

silence regarding the effect of §7502 on common-law

evidentiary presumptions as a statutory “gap” left for

Treasury to fill by regulation. Cf. Baldwin, supra, 921

F.3d at 842 (“[W]e conclude that…§7502 is silent as

to whether the statute displaces the common-law

mailbox rule….”) But, a statute’s silence about the

common law, under either Chevron or Brand X, is not

a “delegation[] of authority to the agency” to abolish

that law. See Brand X, 545 U.S. at 980. Rather, the

interpreting court must presume that Congress did

not intend to depart from the common law.

Respondent does not rebut Petitioners’ assertion

that the common-law mailbox rule and the statutory

postmark rule address unique and different

circumstances, and that they operate in harmony to

benefit filers of tax documents, as Congress intended.

When, as in §7502, there is no clear language

manifesting contrary Congressional intent, courts

must presume harmony with existing law. Estate of

Wood v. CIR, 909 F.2d 1155, 1160 (CA8 1990).

In step two of its Chevron analysis, the Ninth

Circuit found to be “reasonable” the Regulation’s

restrictive evidentiary provisions that directly

contradict Congress’s statutory language and intent.

Congress enacted §7502 as a safe harbor for filers of

tax documents (see Baldwin, 921 F.3d 841), but the

Regulation erects barricades to that harbor,

especially for indigents. And exclusionary provisions

in a regulation that are “manifestly contrary to the

statute” are invalid under Chevron, 467 U.S. at 843.

Treasury encroached far into judicial territory

when it promulgated rules that restricted both the

admission of evidence and the use of common-law

evidentiary presumptions. Baldwin v. U.S., 2017 WL

11129004 (C.D. Cal. Jan. 24, 2017). The agency’s

power is to administer a congressionally-created

program, to formulate policy and to make rules

specific to that program. Chevron, 467 U.S. at 843.

This includes “the making of rules to fill any gap

left….[i]f Congress has explicitly left a gap for the

agency to fill….” Id. (emphasis added). Because

§7502 does not explicitly leave a gap, there is no

statutory basis for the restrictive and exclusionary

rules in the Regulation.

Properly viewed, Chevron and Brand X require

that no deference be given to the Regulation because,

under stare decisis, the decision of the Ninth Circuit

in Anderson, which interpreted the clear language of

the statute, “trumped” the more restrictive agency

interpretation in this case.

B. The Ninth Circuit improperly applied a

canon of statutory construction that is not

relevant to the Regulation.

Regulation.

The Ninth Circuit in Baldwin found that IRS

interpretation of §7502 was reasonable in light of the

quote relied upon by the government, i.e., that “where

Congress explicitly enumerates certain exceptions to

a general prohibition, additional exceptions are not to

be implied, in the absence of evidence of a contrary

legislative intent.” R.Br. 9, quoting Hillman v.

Maretta, 569 U.S. 483, 496 (2013); Baldwin, supra,

921 F.3d at 843.

A simple reading of Hillman reveals that this

canon is inapplicable in both this case and in

Baldwin. Hillman and the cases cited therein

concerned statutes that, unlike §7502, actually

contained prohibitions. Hillman, supra, 133 S.Ct.

1953 (payment of insurance proceeds to anyone but

the named beneficiary prohibited, with express

exceptions); and Andrus v. Glover Constr. Co., 446

U.S. 608, 616 (1980) (contracts for construction or

repair of roads prohibited, with enumerated

exceptions). Baldwin also cited Syed v. M-I, LLC, 853

F.3d 492, 501 (CA9 2017) (prohibition of procurement

of consumer reports unless certain specified

procedures were followed, *497).

Section 7502 is not an exception to a prohibition,

but rather an addition to a common-law evidentiary

rule to further alleviate hardship in filing tax

documents. Therefore, §7502 must be interpreted by

presuming no congressional intent to disturb the

common-law mailbox rule.

It is curious that IRS and the Ninth Circuit–

abandoning Anderson to side with the Second and

Sixth Circuits–consider §7502 to have carved out

limited, exclusive exceptions to “the physical delivery

rule” (R.Br. 3, 8-9, 11), and yet fail to interpret the

statute as abrogating that rule. After all, the

“physical delivery rule” that courts attribute to this

Court’s decision in United States v. Lombardo, 241

U.S. 73 (1916)5 is a common-law rule that post-dated

the well-established common-law presumption of

delivery. This inconsistency undermines IRS’s assault

on the common-law mailbox rule.

The Ninth Circuit’s precedent in Anderson was

the law of the Circuit when Petitioners relied on it,

and Brand X did not require, or support, the Ninth

Circuit’s reversal of its position.

Like the two cases Respondent distinguishes in R.Br. fn.2,

Lombardo did not involve a tax document.

III. IRS again waives

waives rebuttal

constitutional

constitutional and fraud issues.

issues.

Petitioners’

A. IRS waives

waives the constitutional challenges

challenges.

In its response, as in his merits brief below, IRS

again fails to counter Petitioners’ argument that

indigent filers are deprived of due process when they

cannot avail themselves of the Regulation’s narrowed

mailing options. R.Br. 11. IRS suggests that

Petitioners’ rights were assured in light of “the

numerous other statutory exceptions to the physicaldelivery rule.” Id.

But these “numerous other

statutory exceptions” are precisely the Postal Service

products that were unavailable to the indigent

Petitioners when they needed them. Respondent’s

unsupported, ineffectual suggestion completely

avoids the question.

By upholding the Regulation which barred

Petitioners’ uncontested evidence of early mailing of

their notice of appeal, when they could not afford

more expensive mailing options, the Ninth Circuit

deprived Petitioners of their right to a “meaningful

opportunity to be heard.” Boddie v. Connecticut, 401

U.S. 371, 377 (1971). IRS fails to rebut, and therefore

waives, opposition to this issue. U.S. v. Alonso, 48

F.3d 1536, 1544 (CA9 1995) and cases cited therein.

IRS suggests that the mailbox-rule itself is not

“constitutionally required.” R.Br. 11. What is

constitutionally required, though, is fundamental

fairness. It is axiomatic that regulations must be

constitutional and reasonable, and not arbitrary and

oppressive.

See

U.S.C.

§706(2)(A) and (B).

Regulations must be administered uniformly so that

no group, such as indigent filers of tax documents, is

marginalized or deprived of rights afforded to other

groups. Further, no one should be required to

purchase products created (or favored) by the

government in order to benefit from the provisions of

any law or regulation.

IRS also does not rebut, and therefore waives

opposition to, Petitioners’ assertion (Petition, 33) that

the judgment of the Tax Court was reached without

due process of law.

B. IRS’s Statement invites the Court to consider

the underlying dispute, but the merits of that

dispute are relevant here only with regard to

the fraud Respondent perpetrated on the Tax

Court.

IRS’s characterization, in its “Statement,” (R.Br.

p. 5) of “the underlying dispute in this case” is

inaccurate and misleading. This Court should grant a

writ of certiorari regardless of the merits of the case

that is the subject of the appeal that the Ninth

Circuit denied to Petitioners. However, the nature of

the case, when viewed accurately, does reveal that

Petitioners’ constitutional rights were infringed when

officers of the court committed fraud on the U.S. Tax

Court. This fact illuminates Petitioners’ point that

any court therefore has the power to declare the

ensuing trial court judgment void.

Petitioners filed original and amended returns for

several years in which they disclosed to IRS a

reasonable dispute with respect to items of income

reported on certain information returns, specifically

challenging the amounts of Tax Code-defined wages

and other income. Their dispute was lawful. See, e.g.,

§§6201(d), 6662(B)(ii)(II), and 7491(a)(1) in which

Congress acknowledges such disputes, and in certain

circumstances permits the burdens of proof and

production to shift to the Secretary. Therefore, IRS

penalties against Petitioners under the frivolous

return statute, merely for disclosing their dispute on

their returns, was unauthorized, in violation of their

rights under the U.S. Constitution, Amendments I

(freedom of speech), V (due process) and, VIII

(excessive fines). As this Court has observed:

To punish a person because he has done what the

law plainly allows him to do is a due process

violation of the most basic sort, … and for an

agent of the State to pursue a course of action

whose objective is to penalize a person's reliance

on his legal rights is “patently unconstitutional.”

….

Bordenkircher v. Hayes, 434 U.S. 357, 363 (1978)

(citations omitted).

IRS has labeled the disclosure in a tax return of a

dispute regarding information returns “Argument

44,” a scam about which Petitioners briefed the courts

below in detail. C.A. Op.Br. 27-29. IRS incorrectly

suggests that it assessed penalties for filing frivolous

tax returns “[a]fter determining that those assertions

[that Petitioners owed no federal income tax for the

relevant years] lacked a legal basis.” R.Br. sec. 2, p.

5. In fact, however, IRS never made a legal-basis

determination either (a) that the act of amending the

returns was frivolous or (b) that the amounts

reported on the returns were incorrect. Instead,

government records reveal that all the fines that IRS

imposed against Petitioners were based upon

Petitioners’ lawful dispute of third-party information

returns–i.e., the artificial “Argument 44.” C.A.

ER395, 397, 399, 401, 403, 406, 410, 414, 418, 422,

440, 443, 445, 447, 530, 532, 535, 537, 537, 542.

Even if Petitioners’ dispute were constitutionally

included in the Secretary’s official list of frivolous

positions (but it is not), IRS would have had the duty

to come forward with evidence proving liability.

§6703, §7491(c). The law required IRS to prove,

among other elements, that each and every one of the

penalties (1) had been lawfully imposed against

something that purported to be returns (most of them

were not), and (2) had the prior written approval of

the immediate supervisor of the employee who

proposed the penalty. It is only recently that courts

have finally acknowledged these legal requirements

and have begun to hold the government to them.

Chai v. Commissioner, 851 F.3d 190, 203-210 (CA2

2017); Kestin v. Commissioner, 153 TC 2 (Aug. 29,

2019); and Graev v. Commissioner, 149 TC 23 (2017).

In their cases below, Petitioners challenged IRS’s

purported proof of both of these elements, among

others, and they demonstrated from the record

(1) that most of the penalties had been against faxes,

correspondence and courtesy copies of prior-filed

returns (C.A. Op.Br. 24-26, 43), (2) that some of the

penalties lacked the statutorily-required approvals

altogether (C.A. Op.Br. 12-13), (3) that all of the

submitted forms failed to show compliance with

§ 6751(b) (C.A. Op.Br. 41-42, 49, 56-57), and (4) that

none of the forms was in Petitioners’ administrative

files before IRS Office of Appeals (C.A. Op.Br. 55). In

fact, IRS forms exhibited all the same deficiencies as

those noted in Vigon v. Commissioner, 149 TC 4 (Dec.

23, 2016).

Further, Petitioners discovered, and verified with

a Certified Documents Examiner, that many of the

ostensible approval forms, submitted by IRS counsel

in response to a court order, had been faked. C.A.

Op.Br. 12, 24-26. It was the introduction of perjured

declarations and these forged approval forms that

corrupted the entire proceeding and, as Petitioners

argued, that rendered voidable the ensuing Tax

Court judgment.

C. IRS fails to rebut the issue of fraud on the

court.

IRS states that Petitioners’ “cursory and

unsubstantiated allegation of fraud [on the court] is

baseless.” R.Br. 12. Since IRS does not develop this

assertion further, it fails to rebut the issue. Alonso,

supra.

IRS also suggests that the cases cited by

Petitioners do not support their arguments that the

Ninth Circuit (i) had jurisdiction to determine its own

jurisdiction, and (ii) could declare the lower court

ruling void, when there is evidence in the record of a

fraud on the court. This suggestion appears to be that

no court can void a Tax Court judgment obtained by

fraud on the court if the Tax Court simply denies that

the notice of appeal of its judgment was received. The

suggestion is meritless. Petitioners do not “seek to

challenge” on appeal the merits of a void trial court

judgment. Rather, Petitioners argued that the Court

of Appeals at least had the power to examine the

fraud on the court issue as a jurisdictional

imperative.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted,