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May 02, 2008

Occasionally tax issues arise that affect many taxpayers. Tax shelters, for example, can be sold to hundreds of individuals. It doesn't make sense to issue hundreds of identical decisions. To avoid results like the 90 virtually identical Antarctica foreign earned income exclusion decisions that have been issued in the last couple of years, the IRS and taxpayers agreed to resolve a set of cases involving the "Kersting" tax shelters. After test cases were tried, the parties agreed to "stipulate" the remaining cases based on the result of the test cases.

Then the IRS attorneys decided to stack the deck. They worked out a favorable secret settlement with the taxpayers in the test case. Perhaps not coincidentally, the taxpayers then didn't defend the shelter successfully.

The Tax Court had resisted applying the secret settlement to all similar taxpayers, but following a reversal by the Ninth Circuit, they changed their mind. The Hartman decision issued yesterday ordered the IRS to apply this secret settlement to all of the taxpayers involved in the shelter to correct "a fraud on the Court." It is no small group; according to the tax court's decision yesterday: "As of Mar. 13, 2008, 1,173 Kersting project cases remained on the Court's inventory of docketed cases in which decisions have never been entered."

The court ordered the IRS to administratively adjust the accounts of all of the Kersting project taxpayers.

Unusually, the decision had appended to it statements by IRS personnel apologizing for the secret settlements, including this from former IRS Chief Counsel B. John Williams:

The recent reversal makes clear that fraud on the court is never harmless; the Ninth Circuit decided that the appropriate remedy was to give to all of the affected taxpayers the same settlement that the IRS lawyers had granted to the lead test case. I want you to know that I fully concur with both the Ninth Circuit's outrage over the fraud and its mandate. Is there any taxpayer who could believe that he or she would receive a fair trial of their cause if IRS lawyers could secretly offer a deal in the lead test case and then offer tainted testimony to convince a court that the transaction at issue was unsound? Fraud on any court is, in my view, not only pernicious to the fair resolution of the particular case, but also threatening to fundamental democratic principles.

This seems like the correct result. If the IRS can't be trusted on this sort of thing, attorneys will insist that each case be resolved individually like the Antarctica cases, with dozens (hundreds) of identical opinions taking up court resources.

Cite: Hartman, T.C. Memo 2008-124

UPDATE: The TaxProf has more.

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The court doth protest too much.

They shame the IRS counsel for deceit, but fail to look at their own disgrace to justice.

In tax cases they have invented an irrebutable presumption that a declaration of "frivolous" by any magistrate or judge on the bench, then excuses application of any jurisprudence, let alone ethical jurisprudence, to the facts and issues at bar. As if the word "frivolous" excuses sound adjudication of the issues presented by both parties. As if the public will never take notice of the trial fixing orchestrated by the judiciary in tax cases.

To talk about shame, one need look no further than Wickard v. Filburn, or more recently read the pretrial motions in the Tommy Cryer case in Louisiana, or any number of tax prosecutions and compare those motions to the outcome. In case after case we see the judiciary abandoning even all impartiality and actively subverting the laws of evidence and maxims of burdens of proof. They exclude the law from the ears of the jury; they dictate to the jury their opinion of the law without letting the jury hear or see the law; they refuse to adjudicate or allow entry of evidence relevant to the issue of which precise tax is alleged to be violated, as an element of the crime; and they intentionally restrict introduction of relevant exculpatory evidence related to the state of mind of the accused, in tax evasion and willful failure to file cases. By these tricks and deceit of the judiciary the crime is sanctioned.

The IRS and the FTB brag that the courts have "rejected" this argument or that argument related to taxation. The word "rejected" conjures in the public mind the notion of "considered and rejected." Whereas, the truth is that "rejected" means that the court refused to adjudicate the issues presented and in "rejecting" the argument presented, refused to perform its lawful function of impartially adjudicating cases and controversy. Such actions, predictably, result in convictions, incarceration, and penalties against citizens that had committed no crime, since about 1948. This the courts do knowingly.

The corruption of the other two branches of government stems directly from the corruption of the courts. If the courts were the guardians of law and individual liberty, then we would have few, if any of the problems we face in government. Our country wouldn't be up for sale by pork politicians to the highest bidder.

I think that before gloating over the finally exposed criminality of the DoJ and IRS counsels, the sanctimonious black robed should do some introspection.

Anyone who has dealt with the US government cannot be surprised by this. The simple truth is that they fight dirty. Really dirty. Further, if you think this was dirty, you should remember that this was the civil side of tax enforcement. The IRS Chief Counsel attorneys who try tax court cases have nothing on the US Attorneys when it comes to fighting dirty.

I am still waiting to hear about indictments for the IRS Chief Counsel lawyers who are responsible and terminations for their bosses. Had it been the taxpayers' counsel that engaged in this chicanery you can bet your bottom dollar they would be pursued aggressively by the US Attorney. "He can't do that!! Only WE get to do that!!!"

We were supposed to be a country of Laws, not a country of men pretending to be the law. All the tax cases should be retried and the courts who mistried them, in the past, tried for their criminal action. Misbehaving judges should have to serve their time with the criminals they sent to jail. A couple of times and the news coming from prison, when they had to serve as someones girl friend, just as the criminals they sent there had, we'd see a different take on justice.
Ben Franklin said, we have a republic, if you can keep it.
I am afraid we've lost it or almost, at best.

I was one of the pilots... Henry Kersting was a good guy... RIP

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