An adequate answer must be filed in all cases. An adequate answer includes appropriate admissions, qualifications, and denials of each material fact alleged in the petition; presents all defenses available to the respondent; requests any affirmative relief to which the respondent is entitled; and alleges facts in sufficient detail to support any issue upon which the respondent has the burden of proof. An adequate answer may be one in which detailed facts are alleged, or one in which the minimum required facts are alleged, depending upon the facts and circumstances of each case. In determining the amount of detail to be alleged, consideration must be given to the result to be accomplished by such allegations and particularly whether the answer with minimum allegations can be defended as adequate under the court's rules if petitioner files a motion with respect thereto. These are general guidelines on the overall policy of the Office of Chief Counsel with respect to answers. Particular points and problems to consider in answering a case are discussed in subsequent sections.

In those cases in which the statutory notice refers to other documents, such as the 30−day letter, or the explanation and basis for the adjustment is not adequately set forth in the statement accompanying the notice, the answer should allege the nature and basis for the adjustments in controversy. Affirmative allegations as to the basis of the adjustments are necessary to inform the court and the petitioner of the adjustments in controversy and the position of the respondent thereon.

In answering petitions, Counsel personnel generally must rely on the information contained in the administrative file. In certain cases, however, an answer can be filed without the administrative file if there is sufficient information to answer the case (e.g., information is secured from the notice or from the petitioner). When an answer is filed in such a case, the file should document the steps taken to secure the administrative file and the source of the information.

Further, a case may be answered without the administrative file if the attorney and manager have determined that affirmative allegations in the answer are not required or a review of the petition and other information in Counsel’s possession indicate that there are no issues raised in the petition that requires a review of the administrative file in order to properly answer the case. The answer should be amended once the administrative file is received if necessary or appropriate under the circumstances. When it is determined that review of the administrative file is necessary in order to properly answer the case, a Motion to Extend the Time In Which to Answer should be filed. SeeCCDM 35.2.2.2.8(3)-(5).

T.C. Rule 33(b) imposes upon counsel (as well as pro se petitioners) the duty to make reasonable inquiry as to both the facts and the law prior to the filing of any pleading. The signature of counsel constitutes a certification that counsel has read the pleading and, that after reasonable inquiry, has determined that it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law. If the court determines that a pleading has been filed in violation of this rule, sanctions may be imposed. See CCDM 35.10.2.2, Miscellaneous Sanctions and Costs Provisions.

Fed. R. Civ. P. 11, upon which T.C. Rule 33(b) is based, expands the inherent powers of United States District Courts to award expenses, including reasonable attorney’s fees, to a litigant whose opponent acts in bad faith in instituting and conducting litigation. This rule stresses the need for some prefiling inquiry into both the facts and law to satisfy the affirmative duty imposed by the rule. The objective standard is reasonableness under the circumstances, which is a more stringent standard than one of good faith. Fed. R. Civ. P. 11, Advisory Committee’s Note.

It is clear that T.C. Rule 33(b) imposes an affirmative duty upon counsel to investigate the facts of the case and the relevant law prior to filing an answer or other pleading. A good faith belief that the case is well grounded in fact and law is not sufficient. Reasonable inquiry is a more stringent standard than good faith. What constitutes a reasonable inquiry may depend on such factors as:

As stated above, one of the factors the court will consider in determining whether the reasonable inquiry standard has been met is whether the attorney had to rely upon a client for information. The reasonable inquiry standard should be met in the first instance by the periodic attempts to obtain the administrative file. These periodic attempts to obtain the administrative file are necessary even in those offices where automatic or continuing requests for an administrative file are in place.

Tax Court Rule 173(b) as amended now requires answers to be filed in all "S" cases. The amendment is effective for all petitions filed after March 13, 2007. This change will assist petitioners and low−income taxpayer clinics in contacting the attorney assigned to the case and result in the earlier consideration of small tax cases. The principles and procedures described elsewhere in this section are equally applicable to the answers filed in small tax cases. Pursuant to Rule 173(c), no reply to an answer shall be filed unless otherwise directed by the court and any affirmative allegations contained therein shall be deemed denied. Should it be determined that a reply is necessary, a Motion to Require Petitioner to File Reply should be filed. The case is considered at issue upon the filing of the answer pursuant to Rule 38 unless a reply is directed to be filed by the court.

Upon receipt, each new small tax case petition should be reviewed to determine whether the small tax case election is allowable or otherwise appropriate, such as cases with potential precedential value or those presenting novel issues resulting from changes in the tax law. This consideration should also continue during the preparation of the case for trial or other disposition, to reduce the instances of dilatory procedural and jurisdictional motions that are sometimes filed in these cases.

T. C. Rule 36 requires the specific admission or denial of each material allegation in the petition. Therefore, the attorney, in the preparation of the answer, must ascertain what facts alleged in the petition are known by the respondent to be true. The attorney usually determines this from a complete examination of the administrative file. The attorney is normally not required to conduct further investigation to determine the accuracy of alleged facts prior to answering the petition. If an alleged fact would be stipulated on the basis of the investigative reports and other information contained in the respondent’s file, it should be admitted in the answer. The court’s rules do not require the admission of immaterial facts, facts colored by the petitioner’s pleading, allegations representing half-truths, arguments, or conclusions, but care should be exercised in denying facts not in dispute merely because of the manner in which they are alleged. For allegations of fact in the foregoing categories it may be advisable to deny the fact as alleged but follow it with a correct allegation of the fact.

Responses to factual allegations of the petition need not be restricted to simple admissions or denials. This is especially true in substance versus form situations, where a fact, while literally true, may be misleading. Qualified admissions or denials will permit the admission of those facts literally true while making clear at the same time respondent’s position as to substance. Such pleading also avoids the risk that an unduly restrictive attitude of the court toward the amendment of the answer or the admission of evidence may prevent respondent from making his full position clear on the record.

Facts which are known to be true should be admitted in the answer even though this would require the concession, in whole or in part, of an issue.

Pleadings should be completed as soon as possible. Every effort should be made in the preparation of the original answer to include all allegations which are necessary for the trial and disposition of the case. If facts become known which necessitate the filing of an amended answer, it should be done as soon as possible, and in any event in sufficient time to avoid a continuance of the trial. Amended answers raising affirmative issues, and particularly claims for increased deficiencies, should not be filed on the mere hope that evidence can be obtained to sustain the affirmative issues. SeeCCDM 35.2.2.4.9.

To the extent that respondent raises an issue which was not included in the original notice of deficiency or in the pleadings, and which either increases the amount of the original deficiency, requires the presentation of different evidence, or is inconsistent with the original deficiency notice, the court may consider the issue a new matter. The burden of proof with respect to new matters is placed on respondent in accordance with T.C. Rule 142(a). Before the respondent may obtain leave of the court to present a new matter, however, respondent may be required to satisfy the court that petitioner was given fair warning of the issue. Fair warning means that respondent’s failure to notify petitioner in the notice of deficiency or in the pleadings of the intention to rely on a particular theory did not prejudice petitioner’s ability to prepare for the case. Of key importance in evaluating the existence of prejudice is the degree of surprise and the need of the party opposed to the new position to obtain additional evidence. Pagel, Inc. v. Commissioner, 91 T.C. 200, 211–212 (1988). Once respondent realizes that a new matter must be raised, it is critical that the new matter be asserted as soon as possible. The closer in time to the scheduled trial date, the less likely the court is to allow the filing of an amended answer. While the petitioner should have to show that he or she has been prejudiced, the court, when faced with a motion for leave to file an amended answer close to the trial date, may simply make a conclusory finding that the petitioner has been prejudiced, although the court’s failure to articulate the basis of such a finding may constitute appealable error.

T.C. Rule 41(b)(1) generally provides that when issues not raised by the pleadings are tried by express or implied consent of the parties they shall be treated in all respects as though raised in the pleadings, and that failure to amend will not affect the result. T.C. Rule 41(b)(1) is silent as to whether petitioner’s failure to object to respondent’s evidence constitutes consent to the trial of the new issue. Accordingly, an amended answer should be filed to clearly state any new issue not previously raised. Respondent’s failure to object to petitioner’s submission of evidence might be deemed to constitute consent to the trial of a new issue. Respondent should make timely objections on the record to such evidence when appropriate, or move to restrict its use to the issues framed by the pleadings. If the court permits petitioner to amend, respondent should, if necessary, immediately request that the record be kept open to afford respondent adequate opportunity to investigate fully and to amend respondent’s pleadings to the extent necessary.

The form of an answer will follow the general form of all Tax Court documents, the rules prescribed in Tax Court Rule 23, Form and Style of Papers, and the requirements of the CCDM with respect to form, appearance, size, and style of Tax Court documents. The parts are the caption, the title, the body, the closing paragraph or prayer, the signature, and of Counsel. An answer, however, does not contain any endorsement of petitioner, or petitioner’s counsel. An endorsement of No Objection to respondent’s filing an amended answer is always made on the motion for leave to file the amended answer and not on the amended answer itself.

The body of an answer includes the introductory paragraph, the responsive paragraphs to petitioner’s pleading, a general denial, and affirmative allegations (when applicable). After the introductory paragraph, the responsive paragraphs in the body of the answer shall be numbered to correspond with those of the petition to which they relate. See T.C. Rule 36. Thus, if the petition uses Arabic numbers, such numbers will be used in the answer; if the petition uses Roman numerals in numbering the paragraphs, Roman numerals will be used in the answer. The type of numbering used in the responsive paragraphs will be carried through and used in sequence with respect to the general denial paragraph and the affirmative allegations. Unnumbered pleading paragraphs in the petition shall be specifically identified and an appropriate response made thereto. Unnumbered paragraphs should not be considered as part of a preceding or subsequent numbered paragraph. The prayer, however, is not an unnumbered paragraph.

The answer shall contain a heading or title indicating the type of answer being filed. Usually, the first answer filed in the case is titled Answer. Other headings which should be used, when appropriate, are: Answer to Petition, as Amended; Answer to Amended Petition; Amended Answer; Amendment to Answer; or Second Amended Answer; etc., or a combination of these types of answers, such as Amended Answer to Petition, as Amended.

If the petition is amended by the filing of an "amendment to the petition" prior to the filing of the original answer, the title of the document would be Answer to Petition, as Amended. The due date of this pleading is computed from the date the amendment to the petition is served. This title would be applicable unless a complete "amended petition" was filed. In such case the heading would be Answer to Amended Petition. Care must be exercised to title the document to specifically identify the particular petition, original or as amended, which is being answered. The Tax Court’s web site (www.ustaxcourt.gov) may be consulted to determine how the court has designated a particular pleading.

If, in fraud, transferee, or other cases in which the answer contains affirmative allegations, it is necessary to amend the answer, consideration should be given to whether an entire amended answer, or just an amendment to the answer, should be filed. If an amended answer is filed, the petitioner’s admissions or denials in the reply to the affirmative allegations in the original answer may be nullified. Thus, if similar allegations are used in an amended answer to those in the original answer, but the petitioner’s reply to such allegations in the amended answer is different than his reply to such allegations in the original answer, doubt will exist as to the facts established by the pleadings. Accordingly, judgment should be used in determining the type of amendment to be filed.

The introductory paragraph of an answer should be in the following form: "THE RESPONDENT, in answer to the petition filed in this case, admits and denies as follows:"

The introductory paragraph should be revised in accord with the type of answer being filed. Thus, it may be necessary to substitute for the words "in answer" in this paragraph the words for "amended answer," or for "amendment to the answer," etc. Also, for the word "petition" substitute the words "amended petition," or "amendment to the petition," etc., as applicable. Whenever there are affirmative allegations in the answer, the words "admits and denies" will be changed to read "admits, denies and alleges."

The responsive paragraphs of an answer contain the specific admissions and denials of each assignment of error and each material allegation of fact in the petition. The answer shall be drafted so that it will advise the petitioner and the court of the nature of the respondent’s defense and the facts on which it is founded. See T.C. Rule 36(b). Material allegations in the petition not expressly admitted or denied in the answer shall be deemed admitted. See T.C. Rule 36(c). Therefore, the attorney must be sure to respond to each assignment of error and each material allegation of fact in the petition. The admissions and denials must be drafted so that there is no ambiguity as to the scope of each admission or denial.

In instances in which the entire paragraph or subparagraph in the petition is to be admitted or denied, the responsive paragraph may be in the following language: "5(a). Admits (or denies)" as appropriate. See Exhibit 35.11.1-9, Answer — Petitioner’s Burden of Proof: Complete Admissions and Denials.

Exceptional care should be exercised by both the attorney and the reviewer with respect to partial admissions or partial denials. If the Service has no knowledge or information sufficient to form a belief as to the truth of an allegation, the answer must so state and the statement will have the effect of a denial. If the Service intends to qualify or to deny only a part of an allegation, he shall specify what is true and deny the remainder. See T.C. Rule 36(b). Any partial admission with denial of the remainder operates in itself as a qualification of the pleading.

Whenever it would appear to raise an ambiguity by making a partial admission or partial denial, it may be appropriate to allege lack of information or knowledge sufficient to form a belief as to the truth of an allegation in the petition. This choice of pleading may also be appropriate when the administrative file has not been received in sufficient time to prepare a fully responsive pleading. If the latter situation occurs, the answer should be amended, or a motion for leave to file an amendment or amended answer should be sent the court as expeditiously as possible upon receipt of the administrative file.

It is not necessary to be totally formal and legalistic when pleading partial admissions or denials. See Exhibit 35.11.1-10, Answer — Petitioner’s Burden of Proof: Qualified Admissions and Denials. If partial admissions and partial denials are used, the following samples are acceptable assuming specific admissions or denials correspond to the paragraph numbering in the petition:

If the petition contains both numbered and unnumbered paragraphs, the following samples are acceptable (see Exhibit 35.11.1-11, Answer — Petitioner’s Burden of Proof: Unnumbered and/or Unlettered Paragraphs):

The attorney or person signing the pleading should be aware of the responsibilities imposed by T.C. Rule 33(b). SeeCCDM 35.2.2.1.1.

Normally, affirmative allegations by the respondent in the nature of a defense to the petitioner’s allegations, or with respect to affirmative relief, or to sustain any issue with respect to which the respondent has the burden of proof, are made in the affirmative "further answering" portion of the answer after a response has been made to the allegations in the petition. There are instances, however, in which affirmative allegations are so closely tied to the allegations in the petition that it is appropriate to allege affirmative facts in the same paragraph in which a response is made to the petitioner’s allegations. This course of pleading is particularly applicable with respect to petitioner’s allegations as to party petitioners, tax, years, and amounts in controversy, filing of the return or returns involved or the lack of filing thereof, jurisdictional facts establishing the jurisdiction of the Tax Court, etc. For example, if the allegation in the petition sets forth the incorrect date of the issuance of the statutory notice or the incorrect amount or kind of tax or year involved in the case and these allegations are denied in the responsive paragraph of the answer, affirmative allegations should follow such denials setting forth the correct facts. This may be illustrated as follows:

Every answer must contain a general denial paragraph bearing the next number following the last numbered responsive paragraph of the petition. This general denial paragraph is an additional precaution to assure that each allegation contained in the petition is either admitted or denied, and to prevent any allegation in the petition from being deemed admitted under T.C. Rule 36(c). The usual form of the general denial paragraph is as follows: Denies generally each and every allegation of the petition (or amended petition, or petition, as amended, etc.) not herein before specifically admitted, qualified or denied.

The answer must contain affirmative allegations of any facts upon which the respondent relies for defense or for affirmative relief or to sustain any issue with respect to which the burden of proof is on the respondent. These allegations should follow immediately after the general denial paragraph and be numbered consecutively beginning with the number following that given to the general denial paragraph. The first paragraph of each statement of facts with respect to which respondent is required to plead affirmatively should be a short introductory paragraph to inform the court and the petitioner of the nature of the respondent’s defense or the form of relief requested or with respect to the issue of fraud or transferee liability, etc., which should be covered in the allegations to follow. Each further defense and the allegations with respect to each issue upon which the respondent has the burden of proof will be separately and consecutively numbered with the detailed allegations of supporting facts. See Exhibits 35.11.1-12 through 35.11.1-16.

It is generally advisable to avoid getting into the second and third alphabet in the lettering of subparagraphs of affirmative allegations. This may be avoided in a number of different ways. For example, if there are a number of years involved with respect to which allegations are made in support of the fraud penalty, the first of the lettered subparagraphs may allege facts which are applicable to all or most of the years involved, followed by lettered paragraphs containing separate allegations which pertain to the years individually.

If a case requires affirmative allegations by respondent or a review of the petition and other information indicates that a review of the administrative file is necessary to properly answer the case and the administrative file cannot be secured in time to answer, a Motion to Extend the Time In Which to Answer should be filed. The motion should explain the circumstances as to why the motion is necessary, ask for ample time to a date certain in which to file an answer, and should contain a statement pursuant to T.C. Rule 50(a) as to whether petitioners object to the granting of the motion.

Attempts to plead affirmative allegations and making uninformed responses without the benefit of the administrative file may result in sanctions under T.C. Rule 33(b), and may also raise pleading and proof problems. Affirmative allegations, for example, that are made without the benefit of the administrative file tend to be very general in nature and invite petitioners’ motion for judgment on the pleadings. These motions for judgment on the pleadings may be scheduled for hearing fairly quickly. The administrative file will be needed to respond to the motion.

In instances in which affirmative allegations are called for but the administrative file cannot be located after a reasonable number of requests, the attorney should inform the appropriate management officials in order to determine how next to proceed.

Each answer concludes with a prayer for relief. The standard form of the prayer is to be used in all cases in which there are no issues on which the respondent has the burden of proof. If the case contains issues as to which the respondent has the burden of proof (including increased deficiencies) or as to which respondent has taken alternative positions, the prayer should contain a request as to each such item. The answers in the exhibits set forth the types of prayers to be used in various circumstances.

In considering whether to admit or deny an allegation as to petitioner’s principal place of residence, the requirement that the statutory notice of deficiency must be mailed to the petitioner’s last known address should be considered and care must be taken to avoid an unintended admission on the allegation that might be incorrect and prejudicial. For venue purposes on appeal, petitioner’s legal residence as of the date the petition was filed with the Tax Court should be established in the case of a petitioner other than a corporation. In the case of a corporate petitioner, the location of its principal place of business or principal office or agency as of the date the petition was filed with the Tax Court should be established. Any allegation that venue on appeal would lie in a particular circuit should be denied as a conclusion of law.

It is important that the pleadings establish whether the copy of the statutory notice of deficiency which is attached to the petition is correct. If the statutory notice attached to the petition is correct in all respects except with respect to the date issued or other minor error that does not affect the court’s jurisdiction, such error may be corrected by a partial denial and an affirmative allegation in response to the petitioner’s allegation. If the petition alleges the attachment of the statutory notice and an incomplete copy of that document (usually only the face page) is attached, the answer should deny the allegation and allege affirmatively that a complete copy of the statutory notice is attached as an exhibit to the answer.

If the petitioner is a corporation that has no principal place of business or principal office or agency in any judicial district, the Area Director’s office where its tax return was filed determines venue on appeal. In such cases, the pleading should establish in which Area Director’s office or service center campus the return was filed. Reference is always made to the principal office of the Area Director and not a suboffice within the area even though the return may have been handled or mailed to a suboffice.

Before either admitting or alleging the filing of a return for the tax and period involved, the attorney should examine such return and determine whether it fulfills the statutory requirements of a return. A document on the appropriate return form which does not fulfill the statutory requirements, such as the statutory requirement for execution, is not a return, and any allegation in the petition that a return was filed should be denied. The filing of a statutory return is essential, not only to establish venue in certain instances, but also to determine whether any statutory deficiency exists, any overpayment of tax is barred by the statute of limitations, as well as whether the statute of limitations has started to run on the assessment and collection of the deficiency or liability. For statute of limitations purposes it is also essential that the filing date of a statutory return be established.

The attorney should also examine each return involved to determine that it was timely filed. See IRC §§ 6501(b) and 6513(a) for the presumptive date of the filing of returns. Ordinarily, calendar year income tax returns are not stamped with the received date if such returns are timely filed but are stamped if filed after the due date. To admit the filing date of the return or returns involved, as alleged by petitioner, the allegation as to such date must always be either the actual date of filing, if the return in fact bears the receipt date, or the presumptive date of filing, as applicable. If the petitioner’s allegation as to the date of filing is incorrect, such allegation must be denied and the correct date of filing alleged.

Since the date of filing a return is an essential element with respect to an issue raised by the petitioner on the timeliness of the issuance of the statutory notice, care must be exercised in the admission of this fact. The rule is that the filing date alleged in the petition, if correct, should be admitted, except for compelling reasons under the particular facts of the case.

Care should be taken in admitting the amount of taxes in controversy. The amount alleged in the petition should not be admitted unless it is clearly correct. As a general rule, the amount of taxes in dispute as alleged in the petition should be the amount of taxes of the kind and for the years determined in the statutory notice (and which are placed in controversy in the petition) plus any increased deficiency or liability claimed in the answer. If not all of the adjustments in the statutory notice are placed in controversy in the petition, it is advisable in the answer to show the court the amount of the deficiency and penalty as determined in the statutory notice, and the fact that not all of said deficiency and penalty are in dispute. This is necessary since the court’s decision must determine the full deficiency, or full liability in transferee cases, even though part of such deficiency is not contested. If the petitioner claims an overpayment of tax, an admission should be made that such claimed overpayment is in dispute, but the correctness of the amount claimed should be denied. The reason for this is that it is difficult to determine without a recomputation whether the amount claimed as an overpayment by the petitioner is correct even if the issue will be decided in petitioner’s favor.

The assignments of error in the petition should be compared with the adjustments shown in the statutory notice. If all of the adjustments are not covered by assignments, this is an indication that part of the tax asserted in the notice is admitted to be due. In this instance, the decision will need to be filed under T.C. Rule 155 if any of the assignments of error are decided favorably to the petitioner since some tax would still be due. If the assignments of error cover not only all adjustments in the statutory notice but also some other items, this is an indication that the petitioner is seeking an overpayment of tax even though not specifically stated in the petition. If any of the assignments of error do not pertain to adjustments for determining the correct tax liability, a motion to strike may be proper prior to the preparation of the answer. Such improper allegations of error in most instances, however, may be adequately handled by a denial without the filing of a motion to strike.

Some of the reasons for possible admissions of error are: the statutory notice when issued was contrary to the Service’s position; facts established after issuance of the notice may not support the factual or legal conclusion which was the basis for the statutory determination; changes in statutory law, regulations or rulings; change in Service position caused by announced acquiescence in a Tax Court case, acceptance of district court or appellate court case, or decision by the Supreme Court after the statutory notice; or an alternative determination to be alleged in the answer requires abandonment of the statutory notice position.

If an adjustment in the statutory notice to which an error is assigned is consistent with Service position but the attorney is of the opinion that the case should not be presented under the circumstances, no concession of such issue, in whole or in part, shall be made without first obtaining approval from the appropriate Division Counsel and Associate offices.

The petitioner’s allegations of fact should be with respect to the assignments of error. As such, the portion of the answer dealing therewith usually contains an admission or denial of the facts alleged in the petition. To correct or to complete the facts alleged in the petition, it may be necessary to allege affirmative facts in this portion of the answer. Respondent’s affirmative case, however, should not be alleged in the responsive paragraphs to petitioner’s allegations.

For a general discussion of claims for attorney’s fees, see CCDM 35.10.1, Awards of Litigation and Administration Costs and Fees.

When a petition, other than a petition for administrative costs pursuant to T.C. Rule 271, requests an award of litigation or administrative costs, the following procedure will be employed. A motion to strike under T.C. Rule 52 shall not be filed even though T.C. Rule 34 provides that a claim for reasonable litigation costs shall not be included in the petition. The answer should contain the following appropriate responses:

If the petition is filed under IRC § 7430(f)(2) as an appeal from an administrative denial (in whole or in part) of an award of administrative costs, an answer in conformity with T.C. Rule 272 must be filed. Such answers must be submitted to the Associate Chief Counsel (P&A), Branch 5, for review. see CCDM 35.10.1, Awards of Litigation and Administration Costs and Fees.

IRC § 7491(a) places the burden of proof on the Service in any court proceeding involving a factual issue if an eligible petitioner introduces credible evidence with respect to the factual issue relevant to ascertaining the petitioner’s tax liability and meets certain requirements. Allegations in the petition that the burden of proof is on the Service under IRC § 7491(a) are premature. Hence, attorneys need not respond to a IRC § 7491(a) pleading with affirmative allegations. The allegation may be denied if it is clear that the petitioner has failed to meet any requirement of the statute. Sample answer paragraphs are shown below. Attorneys should not file answers in "S" cases merely because the petition alleges that IRC § 7491(a) applies.

IRC § 7491(b) places the burden of proof on the Service in any court proceeding where the Service reconstructs a petitioner’s income solely through the use of statistical information of unrelated taxpayers. IRC § 7491(b) does not apply where Bureau of Labor Statistics or Consumer Price Index data merely supplements information regarding the petitioner’s income. If the administrative file shows that the determination of income was not based solely on statistics from third parties, the attorney should deny that the respondent has the burden of proof under IRC § 7491(b) in the answer.

IRC § 7491(c) provides that the Service shall have the burden of production in any court proceeding relating to the appropriateness of applying penalties, additions to tax and additional amounts imposed by the Code to the petitioner. Since IRC § 7491(c) does not place the burden of proof as to penalties on the respondent, no affirmative allegations are required in the answer. Note that IRC § 7491(c) by its terms applies only to an individual petitioner.

Set forth below are some sample answer paragraphs responding to IRC § 7491 allegations:

For docketed cases the term affirmative issue or new issue, as used herein, may be defined as an issue raised in the answer or amended answer which was not one of the adjustments in the statutory notice. An affirmative issue also includes all issues which result in increased deficiencies as well as alternative issues or positions conflicting with the adjustments set forth in the statutory notice. It does not include: affirmative pleadings required for issues upon which the burden of proof is placed by statute upon the Service; matters alleged for affirmative defense, such as exceptions to the statute of limitations, res judicata, and estoppel; or most matters of further defense such as additional grounds in support of the statutory adjustments, or further defense to positions, theories, or qualifications of fact alleged by the petitioner. See CCDM 35.4.1.2, Raising New Issues in Tax Court Cases, for a discussion of when it is appropriate to raise a new issue.

Section 6751(b)(1) requires personal, written supervisory approval of the initial determination "of [a penalty] assessment" for most Title 26 penalties (except for penalties under sections 6651, 6654, 6655, and 6662(b)(9), and penalties that are automatically calculated through electronic means). This includes a penalty the attorney intends to affirmatively plead in the answer that was not included in the statutory notice of deficiency. If a penalty was not included in a statutory notice of deficiency, an attorney may raise a penalty in the answer or amended answer. The determination of whether to raise the penalty in an answer or amended answer should be made on a case-by-case basis in consultation with the attorney’s immediate supervisor. If an attorney raises a penalty in an answer or amended answer, the attorney’s immediate supervisor must sign the answer or amended answer, and the answer or amended answer must identify the supervisor’s signature as the written supervisory approval of the attorney’s initial determination pursuant to section 6751(b)(1).

Upon review of the statutory notices, preparation of pleadings, and litigating positions of the office, the attorney has the responsibility to bring to the supervisor’s attention any affirmative issue necessary for a proper determination of the tax liability of the transactions involved in accord with the current Service position, whether or not such issue or position or theory was previously considered by the revenue agent or by Appeals.

Affirmative facts, particularly in fraud and transferee cases, must be alleged in a proper manner. Many facts in respondent’s case are susceptible of admission by the petitioner if properly alleged. Thus, as a general rule, each single fact should be alleged in a separate subparagraph in a concise and straightforward manner without coloring and without interpretation. This will permit the petitioner’s reply to admit such facts without committing the petitioner to the conclusion to be drawn therefrom. Ultimate facts, conclusions, and allegations of fraudulent elements of intent to evade tax must be set forth in separate paragraphs from allegations of facts upon which such conclusion is based. If multiple allegations of facts are combined in one paragraph, or are combined with allegations of fraud, intent to evade, ultimate facts, or conclusions, the reply most likely will deny such allegations due solely to the manner by which uncontested facts are alleged. In such instance, any motion contesting the adequacy of the reply will generally be ineffective.

The only facts established by the statutory notice of deficiency are the deficiency or liability determined and the basis upon which it was determined. Therefore, attaching a copy of the statutory notice does not relieve the respondent from pleading the required affirmative facts in the answer.

Exhibits attached to the answer, such as net worth schedules, may, if appropriately incorporated as part of the answer proper, be used in appropriate instances in lieu of separate allegations. If, however, there are particular items in the schedules to which a definite and specific reply is sought in the petitioner’s reply, it is the better practice to allege specifically in the answer proper the facts with respect to such item or items; otherwise, difficulties may be encountered in the filing of a motion directed to petitioner’s reply for a specific admission, qualification, or denial with respect to the alleged assets or liabilities involved. When schedules attached to the answer are to be used, in whole or in part, as allegations of specific assets or liabilities or other matters, care must be used in the wording in the answer proper with respect to such schedules. A common error is to allege that the schedule attached hereto as Exhibit A shows the net worth computation of the petitioner for the period [date] to [date2]. This is not an allegation that the petitioner did in fact have the assets and liabilities or other matters included on such schedule, but is simply an allegation as to the method of computation, and is not an allegation of the specific facts involved.

Affirmative pleadings with respect to the statute of limitations need not be included in the answer unless the petition raises the statute of limitations as a bar to the assessment and collection of the deficiency or liability. If the petition, directly or indirectly, raises the statute of limitations issue, the answer must contain affirmative allegations with respect thereto. See IRC §§ 6501 to 6504 for statutory limitations on assessment and collection.

The defense of the exception to the usual three-year statute of limitations may be based upon any or a combination of the following:

If more than one exception exists with respect to the running of the statute of limitations, all defenses should be pleaded and all facts necessary to sustain each exception relied upon must be fully pleaded. If fraud is an exception to be relied upon, facts evidencing fraud must be specifically pleaded in defense of the statute of limitations as well as to support the fraud penalty. The necessary detailed allegations required in this portion of the answer may be made by incorporating by reference the allegations with respect to the fraud penalty.

When petitioner raises a statute of limitations issue and respondent answers that no valid return was filed, respondent should obtain a Form 4340, Certificate of Assessments and Payments (transcript of account), and Certificate of Non-Filing to submit as evidence that respondent has no record of having received petitioner’s return. See Bruder v. Commissioner, T.C. Memo, 1989–328; see also Buttke v. United States, 13 Cl. Ct. 191 (1987). Note that additional proof may be required in jurisdictions which recognize the common law mailbox rule. In particular, the court may require a showing by respondent that the Service did not lose the return between the time of its receipt and the time it would have been recorded as received.

[Reserved]

In general, the case should be carefully evaluated to determine whether collateral estoppel may be pleaded as to any year pending in the Tax Court if for the same year a judgment of conviction for criminal tax evasion of the same tax has been entered against the petitioner, or the officers of a corporation for the criminal tax evasion of the same tax of a corporate petitioner.

Where there are two or more years before the Tax Court, petitioner’s allegations may shift income from one year to another year, or may claim a deduction in one year which has been allowed in another year. For example, a salary included in an earlier year in the statutory notice on a constructive receipt basis is claimed to be taxable in the later year of actual receipt.

In some instances the statutory notice is determined upon either a factual or legal basis which results in the greatest taxable income, but the government is also contending for a deficiency or liability upon alternative facts or upon an alternative legal basis. It is necessary in these instances to plead affirmatively the alternative positions of the respondent. This may be illustrated by a situation in which in the statutory notice of deficiency an item was capitalized and depreciation allowed thereon; in the petition this item is claimed as an expense deduction in full. Thus, there must be pleaded in the alternative that if the petitioner is correct and the item should be expensed, then the depreciation deduction allowed in the statutory notice should be disallowed.

In many instances the facts which formed the basis for the shifting of income or deductions or the shifting of the basis of a determination which results in the necessity for alternative pleadings, are not developed when the statutory notice is petitioned. Because of the relevance limitation in the Tax Court’s discovery rules, a petitioner may attempt to limit the possible alternative positions that the government might pursue through discovery that are not set forth in the pleadings. Therefore, the attorney should be alert to cases where there is the necessity of pleading in the alternative particularly where it is necessary to factually develop the issue through discovery.

Under IRC § 6662(b) (for years after 1989), the negligence penalty and other accuracy-related penalties may not be imposed on any portion of an underpayment to which the fraud penalty applies. Furthermore, no accuracy-related penalty or fraud penalty may be imposed where the taxpayer has not filed a return (other than the fraudulent failure to file penalty). IRC § 6664(b). For years after 1989, the delinquency penalty may be imposed in addition to the fraud or accuracy-related penalty if the taxpayer files his return late and on his late-filed return there is an underpayment attributable to fraud, negligence, or other penalized conduct. Also, if the taxpayer failed to file a tax return, the delinquency penalty may be asserted as an alternative to the IRC § 6651(f) fraudulent failure to file penalty. See Exhibit 35.11.1-21, Answer — Affirmative Allegations: Fraud — Alternative Negligence and Delinquency Penalties.

It is the general policy of the Office of Chief Counsel not to raise the delinquency penalty as a new issue after the case is pending in the Tax Court in instances in which the prescribed tax return form, accompanied by proper payment of tax, was timely filed, even though the return form does not legally constitute a return due to a failure to sign or properly execute the return form and the facts clearly negate either willful intent to disobey the statute or gross negligence. Raising a delinquency penalty as a new issue may be necessary, however, if the defect on the return is to be relied upon as a defense to the statute of limitations, for example, on the basis that the period of limitations did not begin because a valid return had not been filed.

Affirmative issues, other than those upon which the statutory burden of proof is upon the respondent, often involve an increased deficiency from that determined in the statutory notice. Increased deficiencies may also result from alternative pleadings. Thus, in any instance in which an increased deficiency is to be claimed, it must be specifically pleaded. See IRC § 6214(a). Generally, an increased deficiency should not be claimed in the original or amended answer unless the evidence supporting such claim is in the hands of the attorney or can be readily obtained.

In cases in which there are several grounds to support the determined deficiency, it is necessary for the respondent to allege affirmative facts to place before the court all issues not raised in the statutory notice, even though the burden of proof is not placed upon the respondent. The failure to do so may result in the case being decided for the petitioner due to the failure of the respondent to raise a good defense to the petitioner’s contention. This may be illustrated by the following example: In the statutory notice of deficiency a travel expense deduction was disallowed on the basis that the amount claimed was not substantiated; in the petition only the issue of substantiation was raised. If the attorney believes there is also an issue as to whether the petitioner was in travel status when the expenses were incurred, it would be necessary to allege affirmatively in the answer that the petitioner was not in travel status and, therefore, the expense, even if substantiated, is not allowable as a matter of law.

Any additional defense, in fact or in law, discovered after filing the answer, must be promptly pled by amendment to the answer, accompanied by a motion for leave to amend where the court’s permission is required under T.C. Rule 41(a).

If the statutory notice of deficiency is based upon a joint return of husband and wife and either spouse denies that a joint return was filed, the respondent should assert, in the alternative, a claim for an increased deficiency against the spouse who clearly filed the return. If the court should hold as to noncommunity income that a joint return was not in fact filed, the court should determine the entire deficiency against the party filing the return. A different problem exists with respect to community income since, if the court should hold that a joint return was not in fact filed, only half of the community income would be taxable to the spouse filing the return. In such instances a question may arise as to the validity of the statutory notice as to the spouse who was not a party to the return and whether under such circumstance a new statutory notice against such party may be issued. Thus, for protective purposes there should be alleged in the answer, in the alternative, that if the court should hold that joint returns were not in fact filed, separate deficiencies should be determined against each spouse, and a claim should be made, in the alternative, for a separate deficiency against the spouse who denies filing a joint return based on half of the community income. Care should be exercised in disposition of the case so that the court does not tax one spouse with only half of the community income and determines no deficiency as to the other spouse.

The IRC § 6673(a)(1) penalty should be claimed in all cases where the principal arguments being made by the petitioner are those already deemed frivolous and without merit by the courts, in certain cases where the petitioner (or a related party) has already litigated the same issue in an earlier case and lost, and in other cases where circumstances warrant. See CCDM 35.10.2, Penalties and Sanctions.

Although the penalty can be claimed at any time prior to entry of decision, as a rule, the claim should be affirmatively pled at the earliest possible time. The claim may be raised in the answer, by amendment to the answer or by oral or written dispositive motion, such as a motion for summary judgment or a motion to dismiss for failure to prosecute.

In every case, the factual basis upon which the penalty is claimed must be affirmatively pled. In a case where the penalty is claimed in the answer or amendment to the answer, the Service’s position is that T.C. Rule 37 requires the petitioner to file a reply. Where a reply is not filed by the petitioner, respondent should file a motion under T.C. Rule 37(c) requesting an order that the undenied affirmative allegations in the answer be deemed admitted.

For years prior to 1990 and for the fraud delinquency penalty after 1989, it is only necessary to establish that part of the underpayment of tax was due to fraud. If it is initially alleged that the entire deficiency is due to fraud and the petitioner files a motion for a better answer with respect thereto, it may not be possible to allege in an amended answer that only a part of the deficiency is due to fraud and thereby avoid alleging detailed facts as to all the adjustments giving rise to the asserted deficiency. Therefore, the ultimate allegation should always be phrased as all or part of the underpayment is due to fraud.

For years after 1989, the fraud penalty is only imposed on the portion of the underpayment attributable to fraud. If, however, the Service establishes that a portion of the underpayment is attributable to fraud, the entire underpayment will be presumed to be attributable to fraud, unless the taxpayer proves otherwise. Therefore, the ultimate allegation should still state that all or part of the underpayment is due to fraud, in cases involving tax years after 1989.

The initial answer should allege fraud only with respect to the particular adjustments which will be relied upon and proved at the trial to establish fraud. In cases having criminal aspects, the initial answer should be consistent with the allegations of fraud to be relied upon for criminal purposes in the absence of unusual circumstances. Generally, it should be easier to sustain the fraud or fraud delinquency penalty by applying the same theory as the criminal case, even though the theory of the criminal case may be inconsistent with the civil determination. This could occur in situations in which various civil items have been conceded for purposes of presenting the criminal case. If the case is one in which it is more desirable to employ the civil adjustments in support of a fraud or fraud delinquency penalty, the criminal theory could then be alleged as evidence of fraudulent intent.

IRC § 6663 (for years after 1989) provides for the fraud penalty if any part of any underpayment (as defined in subsection(c)) of tax required to be shown on a return is due to fraud. Once the respondent has established that a portion of the underpayment is due to fraud, the entire underpayment is presumed to be attributable to fraud unless the petitioner rebuts the presumption by presenting evidence that some part of the underpayment is not attributable to fraud. The elements necessary to establish the penalty are (1) an underpayment of tax, and (2) some part of the underpayment being due to fraud. Fraud has been defined as an intentional wrongdoing motivated by a specific purpose to evade tax known or believed to be owing. Stoltzfus v. United States, 398 F.2d 1002, 1004 (3d Cir. 1968), Hebrank v. Commissioner, 81 T.C. 640 (1983). These elements must be present within the allegations of the fraud answer. There is no specific format for the allegation of these elements that will suffice in all cases. The form and substance will, of necessity, depend upon the peculiar facts of each case.

Ordinarily, the determination of the correct taxable income is based upon the use of several methods of determining taxable income; i.e., specific items, bank deposit method, or the net worth and expenditures method. The specific items method is based upon direct evidence pertaining to specific items of omitted or incorrectly reported income or claimed deductions which are unallowable, in whole or in part. On the other hand, the bank deposit method or the net worth and expenditures method involves proof of the correct taxable income by indirect or circumstantial evidence which establishes, without reference to specific items of income or deductions, that the correct taxable income exceeds that reported. Whichever method is used, it has one purpose ( the determination of the correct taxable income. In appropriate cases two methods may be used in determining the correct taxable income; however, one method should be pleaded as the primary position of the respondent, and the other as the alternative. The alternative method will be reached by the court only in the event it fails to sustain the respondent on the primary method. In this event the court will decide which is the proper method of computation and determine the correct taxable income under that method. In cases in which indirect methods are used, however, specific items of income included in such computation may be pleaded in support of the fraud penalty to show the requisite fraudulent intent and a taxable source for the income.

Where a deficiency is determined from the omission of items of income, disallowed claimed expenses, or other specific adjustments, the answer should set forth allegations of fact which impute fraud to some portion of the specific adjustments. See Exhibit 35.11.1-20, Answer — Affirmative Allegations: Fraud — Specific Items Method. In many cases the specific adjustments in the statutory notice can be classified as fraudulent and nonfraudulent adjustments. It is inadvisable to impute fraud to a specific adjustment which is clearly not fraudulent.

The correct taxable income is frequently determined by resorting to one of the methods of circumstantial evidence when the taxpayer has concealed sources of income, or has no books or records, or where the books or records maintained by the taxpayer or made available to the examining agents are inadequate to permit adjustments to specific items of recorded or reported income or deductions. In these instances, it is preferable to plead and prove those facts which in the particular case warrant resort to a method of circumstantial evidence to establish correct taxable income. Direct proof of specific errors or omissions in the books or records is not a condition precedent to utilization of circumstantial evidence to establish correct taxable income; where direct evidence is unavailable, the circumstantial evidence, buttressed by other evidence of the taxpayer’s financial history, may itself independently demonstrate the inadequacy or inaccuracy of the books or records. Holland v. United States, 348 U.S. 121 (1954). Where correct income is determined under the bank deposit or net worth and expenditures method, it is necessary to adduce additional evidence to support the inference that the income thus established was derived from a taxable source and was currently taxable in the particular year involved, or to negate any inference that the income thus established was derived from nontaxable sources.

If a method of circumstantial evidence was used in the determination of the deficiency, but specific items of omitted income are also known to respondent, such specific items of omitted income should be specifically alleged in the answer to provide a basis for proof of source to establish the taxable character of the funds involved in the excess accretion of net worth or otherwise unexplained bank deposits.

The reconstruction of income under the bank deposit method requires analysis of all bank deposits and all expenditures, both by cash and by check. An analysis of deposits and comparison with the records and reported receipts may demonstrate that some of the taxable receipts have been deposited without being recorded on the taxpayer’s records or, where reported receipts are in agreement with the bank deposits, that some receipts have been withheld from deposit. The withheld deposits may be linked to assets purchased or disbursements made. Gross receipts under this method consist of bank deposits plus undeposited receipts. The gross bank deposits must be adjusted to eliminate deposits of a non-income nature, such as transfers, loans deposited, or other such items. Undeposited receipts usually are shown by cash expenditures or accumulations not traceable to withdrawals of deposited funds and not accounted for by undeposited nontaxable receipts. Taxable income is derived by subtracting from such gross receipts the deductible expenses determined from an analysis of cancelled checks and cash expenditures, including any noncash deduction, such as depreciation. The records and testimony of the taxpayer and third parties may establish the deductible expenses as well as establish receipts not recorded, deposited, or reported by the taxpayer.

The facts in each case must be analyzed, and the method or combination of methods used in the computation of taxable income must be followed in setting out the fraud allegations. In identifying the bank deposits the allegations should name the bank or banks and the amount or amounts of deposits representing receipts for the periods covered. The amounts of receipts which are alleged to have been withheld from deposit must be identified in some reasonable manner. Each factual element of the bank deposit reconstruction of correct taxable income must be alleged to show the court the facts upon which the respondent will rely to prove that the underpayment of tax is due, in whole or in part, to fraud. See Exhibit 35.11.1-18, Answer — Affirmative Allegations: Fraud — Bank Deposit Method.

The net worth and expenditures method of determining the correct taxable income requires proof of the assets and liabilities of the taxpayer as of the beginning and the end of each year during the period involved, from which there is established the annual increase or decrease in net worth for each year by comparison of the beginning net worth and the ending net worth. The taxpayer’s nondeductible expenditures during the year, including personal living expenses, federal income taxes paid, and other such items which are not reflected in the increase or decrease of net worth for such year are added to the net worth figure. There is then deducted from such total for each year the amount of any nontaxable items received during the year. The resultant figure is the corrected taxable income for such year. The reported taxable income is subtracted from such corrected taxable income and the excess, if any, is alleged as the unreported taxable income for the year.

The Tax Court requires the respondent’s answer to show in detail the assets and liabilities at the beginning and end of each taxable year, and to clearly identify each item on the net the worth schedule and in the adjustments thereto in determining the correct taxable income. For example, the details required with respect to categories of assets and liabilities include:

The net worth schedule may be either alleged in the answer proper, or attached to the answer as an exhibit, or both. See Exhibit 35.11.1-19, Answer — Affirmative Allegations: Fraud — Net Worth Method. If the net worth schedule is attached as an exhibit without the contents thereof being fully alleged in the answer proper, the body of the answer must contain specific allegations that the taxpayer did in fact have the assets, liabilities and other items as set forth on the attached schedule as of the date or dates shown thereon, and that the petitioner did make the nondeductible expenditures listed on the exhibit and added thereon to the increase in the net worth for each year. An allegation in the answer that the attached schedule merely shows the method of computation of taxable income is not an acceptable allegation; the facts as to specific expenditures and existence of specific assets and liabilities are required to be alleged.

A specific allegation should be included in the answer to the effect that the accretion in net worth, or the bank deposits in question, for the year or years involved did not include, or result from, any items of nontaxable income. If, however, a reduction was made for specifically identified nontaxable items in the computation of correct taxable income under the net worth or bank deposits method in the determination of the deficiency, such reduction shall be alleged and the further allegation made that no other nontaxable items were received during the pertinent year or years.

IRC § 6901 sets forth summary procedures under which the Service may assess and collect taxes, penalties, and interest owed by a transferor from the transferee, or from the transferee of a transferee. This statutory provision, however, does not create substantive transferee liability. The existence of, or the extent of, a transferee’s liability at law or in equity is to be determined by the applicable state or federal substantive law. Commissioner v. Stern, 357 U.S. 39 (1958). See IRC § 6324 for an example of federal substantive liability.

In proceedings before the Tax Court, the respondent has the burden of proof to show that the petitioner (transferee) is liable as a transferee of property of the petitioner (transferor) but not to show that the petitioner was liable for the tax. IRC § 6902(a). Thus, the respondent must plead and prove all the essential elements of transferee liability. See Exhibit 35.11.1-23, Answer — Affirmative Allegations: Transferee Liability.

A fiduciary liability case is a case involving the personal liability of the petitioner under the provisions of 31 U.S.C. § 3713 for income, estate, or gift taxes due from the estate of the petitioner, the decedent, or the donor, as the case may be. IRC § 6901(a)(1)(B) makes the summary procedures for the assessment and collection of such taxes from the fiduciary the same as in the transferee cases. The controlling substantive law with respect to fiduciary liability cases, however, is the federal body of substantive law and not the state substantive law, as in transferee cases.

In transferee and fiduciary liability cases, the terms used to designate the fiduciary capacity of the petitioner in the answer should be the same as in the statutory notice. For example, if the statutory notice uses the term transferee, transferee and trustee, fiduciary, executor, administrator, trustee, insurance beneficiary and trustee, donee, or transferee and donee, etc., the same terminology should be used in the pleadings, stipulation, and other documents filed with the court. In gift cases, the transferor is usually referred to as the donor but in some instances the statutory notice will use the term transferor or donor and transferor, in which event the same terminology will be used in documents to be filed with the court.

In the handling and processing of a transferee case the attorney must observe the distinction between a transferee case and a deficiency case. The various types of statutory notices that are issued by the Service and the statutory notice of liability are important not only in pleading but also in the disposition of the case by a settlement stipulation or a T.C. Rule 155 computation.

The items that generally make up the amount of the transferee liability are:

While it may be necessary to break down in the statutory notice of deficiency or in the answer the transferor’s liability for tax, penalty, and interest for the years involved, the amount of the transferee liability is always a single total amount. In setting forth the amount of the transferee liability it is generally advisable to set forth separately the deficiency in tax from the amount of the unpaid original tax, the total of which make up, in whole or in part, the transferee liability. Normally, the statutory notice does not include transferor interest as part of the transferee liability. Thus, in unlimited cases the single total amount of the transferee liability will be the total liability of the transferor for all taxes and all penalties for all years involved due from the transferor, together with the applicable interest thereon. In limited liability cases the single total transferee liability is the value of the assets transferred. In any case in which the transferee liability is incorrectly or improperly determined in the statutory notice, such determination must be modified in the answer and the total amount of the transferee liability correctly alleged.

For the purpose of pleading and trial, the transferee liability is a single amount, based upon the value of assets received by the transferee to be applied, in whole or in part, to the unpaid original tax, deficiency tax, penalty, and interest due from the transferor for all years before the court. The reason for this procedure is to avoid, particularly in limited liability cases, a reduction in the transferee liability below the value of the transferred assets due to the court’s holding that a part of the tax or penalties determined against the transferor is erroneous.

Interest is an essential element in every transferee case and must be pleaded in the answer, set forth in the settlement stipulation or Rule 155 computation, and a proper determination with respect thereto must be included in the Tax Court’s decision. Strictly speaking, there are two types of interest involved in every transferee case. "Transferor interest" is a part of the transferee liability, even if it is omitted from the statutory notice. "Transferee interest" is the interest due from the transferee on the amount of the transferee liability whether the case involves limited or unlimited transferee liability.

In every transferee answer, the specific amount of the transferee liability must be alleged, plus interest as provided by law. It is preferable that the answer allege specifically the date on which interest on the transferee liability begins to run. When this is not possible, the words "plus interest as provided by law" should follow the allegation of the amount of the transferee liability.

For cases in which the amount of the deficiency in tax due from the transferor is reduced by an operating loss or credit carryback or carryforward, either in the statutory notice or in the court’s redetermination of the amount of tax due from the transferor, care must be exercised in pleading or in determining the interest due from the transferor or the transferee on the deficiency in tax prior to such reduction.

In any case in which the fraud or fraud delinquency penalty is involved in determining the amount of the transferee liability, the burden of alleging and proving fraud of the transferor is upon the respondent to the same extent as it is in any other fraud case. Thus, in any transferee case in which the fraud or fraud delinquency penalty has been determined against the transferor, affirmative allegations showing fraud or fraudulent failure to file must be made in addition to the required affirmative allegations of transferee liability. Also, if there are matters of the statute of limitations, affirmative defense, alternative positions, etc., they must be affirmatively pleaded and proved to the same extent as in any other case.

The general elements which must be pleaded in every transferee case are set forth below. The particular elements will vary from case to case, and not all of these elements are involved in every transferee case. In addition there are generally specific and necessary elements under state law which must be pleaded and proved. These general elements are:

Particular care must be exercised in pleading with respect to cases in which the determination is made against the successor of merged corporations, or in other situations in which the petitioner is an assignee of property by operation of law. These are not true transferee cases; however, there may be situations in which as a result of an apparent merger a true transferee liability is involved. If the statutory notice was issued as a notice of transferee liability, even though incorrect, it is generally advisable to plead, process, and close the case as a transferee case. If the petitioner questions the transferee determination or there are other problems involved which necessitate a different treatment, appropriate action should be taken to protect the government’s interest in accord with the particular facts and circumstances.

31 U.S.C. § 3713, provides for the priority of debts due the United States and makes fiduciaries who distribute assets without paying a prior debt due the United States personally liable for the debt. Furthermore, this fiduciary liability is subject to the assessment and collection procedures of IRC § 6901(a)(1)(B). Unlike transferee liability cases under IRC § 6901, however, it is the Service’s position that in fiduciary liability cases, petitioners have the burden of proof except as may be otherwise provided under other statutory provisions, such as IRC § 7491. See Bank of the West v. Commissioner, 93 T.C. 462, 467 (1989); McCourt v. Commissioner, 15 T.C. 734, 737 (1950). Some of the essential elements of fiduciary liability are that the fiduciary had actual or constructive notice of the tax claims of the government prior to the distribution of the assets and that the estate or donor was insolvent or was made insolvent by such distribution. Thus, once the Service has made a prima facie showing of fiduciary liability, petitioners will generally seek to provide either that they had no knowledge of the government’s claim or that the estate or donor was not insolvent during the relevant time period.

IRC §§ 531 through 537 govern the imposition of an accumulated earnings tax on corporations deemed to have engaged in unreasonable (i.e., excessive) accumulations of earnings and profits for tax avoidance purposes, including the insulation of shareholders against income taxes which they would have had to pay if the corporations had paid out (more of) their incomes in dividends.

IRC § 534 provides that the burden of proof in the Tax Court with respect to an allegation that all or any part of earnings and profits have been permitted to accumulate beyond the reasonable needs of the business shall: If a notification with respect thereto has not been timely sent, be on the Service; or if a statement has been timely submitted by the petitioner in response to such notification, be on the Service with respect to those grounds set forth in such statement in accordance with the statutory provisions. Any determination imposing the accumulated earnings tax is necessarily based on some sort of allegation that earnings have been accumulated beyond the reasonable needs of the business inasmuch as the interrelationship of the accumulated earnings credit, including an allowance for current earnings retained for the reasonable needs of the business, would otherwise eliminate the accumulated taxable income. Therefore, placement of the burden of proof concerning reasonable business needs must be considered in every Tax Court case involving the accumulated earnings tax.

In defending accumulated earnings tax cases, the government is not under any requirement or duty to allege or prove the amount of tax saved by any stockholder in consequence of the purported unreasonable accumulation of corporate earnings. In any given case, however, the attorney may adopt that tactic to strengthen the government’s position. A stockholder’s return can be used as evidence. Even though disclosure of the returns is permissible for that purpose, it is preferable to limit disclosure as much as possible and proceed through stipulation whenever feasible.

In order to avoid or to limit the burden of proof with respect to the reasonable needs of the business, the Service must timely send by registered or certified mail a notification informing the petitioner that a proposed assertion of tax or addition to tax includes imposition of the accumulated earnings tax. To be timely, such notification must be sent prior to the issuance of the 90-day letter.

If a timely notification has been sent, the petitioner must timely submit a valid statement in response thereto in order to shift to the Service the burden of proof as to the grounds (supported by facts to show the basis thereof) set forth in such statement to establish that earnings were not accumulated beyond the reasonable needs of the business. To be timely, petitioner’s statement must be submitted within 60 days (with a 30-day extension available) after the mailing of the notification. To be properly submitted the statement must be sent to the Internal Revenue Service office which issued the notification of the proposed assertion of the accumulated earnings tax. In determining the acceptability of a statement the attorney must consider whether it was submitted to the proper Internal Revenue Service office within the time permitted.

If a notification has been timely sent and the petitioner has timely submitted an acceptable statement in response, the Service has a burden of proof, but only with respect to the ground or grounds which are:

The attorney should never voluntarily assume a greater burden than that imposed by statute. The burden of proof remains upon the petitioner with respect to any grounds set forth therein in an unacceptable manner (e.g., without supporting facts); or any grounds not included in petitioner’s statement, which it may nevertheless try to introduce. For example: If petitioner’s statement addresses itself exclusively to a need for a new factory building to justify accumulations, and in subsequent Tax Court proceedings the petitioner seeks to have the court consider the need for a source of funds for internal financing of credit sales, the petitioner has the burden to prove that the accumulations were made for, and justified by, a reasonable business need to finance credit sales. Similarly, if petitioner in its statement asserted that its business needs required the accumulation of $500,000 to acquire a new building, the petitioner must bear the burden of proof that any accumulations in excess of $500,000 were warranted by the need for the new building.

The form of the answer filed in an accumulated earnings tax case varies depending upon whether the Service and the petitioner followed the procedures outlined above. See Exhibit 35.11.1-24, Answer — Accumulated Earnings Tax: Inadequate Section 534(c) Statement, Exhibit 35.11.1-25, Answer — Accumulated Earnings Tax Answer: Petitioner Failed to Submit Section 534(c) Statement, and Exhibit 35.11.1-26, Answer — Accumulated Earnings Tax Answer: Section 534 Letter Sent But No Response.

Prior to preparing an answer in a declaratory judgment case, the attorney should ascertain that the Tax Court has jurisdiction. One of the most important jurisdictional prerequisites is the exhaustion of administrative remedies. See Thompson v. Commissioner, 71 T.C. 327 (1978).

In some cases a petition will be filed because the Service has failed to make a timely final determination. In these cases, coordination with the Division Counsel/Associate Chief Counsel (TEGE) will be necessary, so that all grounds supporting a determination adverse to the petitioner can be raised in the answer. If no determination has been requested, a motion to dismiss for lack of jurisdiction should be filed.

The answer in a declaratory judgment action will differ in one important respect from that filed in a deficiency case: it must contain a complete index to the administrative record as defined in T.C. Rule 210(b)(12). See Exhibit 35.11.1-27, Declaratory Judgment Case: Employee Plans (Stipulated Administrative Record). This index generally will not have been prepared during the administrative processing of the case and the attorney must personally prepare a complete and accurate index. The task of preparing or verifying the index may be time consuming and should be commenced at an early stage in the preparation of the answer. It should never be delegated to support staff. Particular care should be take to assure that the index contains only the material described in Rule 210(b)(12) does not include internal Service documents containing the mental impressions, conclusions, and reasoning of Service personnel.

Pursuant to T.C. Rule 212, in a revocation case there shall be filed with the answer a statement setting forth the date on which it is anticipated the case will be ready for submission to the court.

T.C. Rule 213(a)(2) permits facts, other than jurisdictional facts and facts involved in a revocation, to be admitted by respondent for purposes of the pending action for declaratory judgment only, and answers should be so drafted. This should be done in retirement plan declaratory judgment answers. The facts admitted should be limited to those contained in the administrative record. See Exhibit 35.11.1-27, Declaratory Judgment Case: Employee Plans (Stipulated Administrative Record), and Exhibit 35.11.1-28, Declaratory Judgment Case: Employee Plans (Administrative Record Submitted Unagreed). Where facts alleged in the petition were never presented to the Service in support of the request for the determination and are not, therefore, contained in the administrative record, the answer should be neither admits nor denies on the grounds that the allegations are not a part of the administrative record and thus not cognizable by the court. In some instances, consideration should be given to filing a motion to strike pursuant to T.C. Rule 52, although the better practice almost always is to answer rather than move with respect to the petition. If a petition alludes to material not part of the administrative record, the answer should state that respondent denies for lack of knowledge, and that the referenced material cannot be considered by the court because the material is not part of the administrative record. Under T.C. Rule 217(a), facts outside the administrative record will not be considered by the court except under limited and unusual circumstances. See Houston Lawyer Referral Service, Inc. v. Commissioner, 69 T.C. 570 (1978).

Declaratory judgment cases should be handled very carefully. Even though they are nondeficiency cases, they have wide-ranging application and in many instances, enormous economic impact for affected persons, organizations, and the U.S. Treasury. Field attorneys should not hesitate to seek assistance from the appropriate Associate office if they have questions not answered by this section.

It is essential that any additional grounds supporting the determination or revocation be raised in the answer. Immediately upon receipt of a declaratory judgment action, an examination of the case should be made to determine whether there are additional grounds supporting respondent’s determination to be raised in the answer. Assistance and advice from the Division Counsel/Associate Chief Counsel (TEGE) may be needed to determine the existence of any additional grounds. Many of these cases will involve unfamiliar, difficult and novel issues which will require substantial time to review. Some issues will require extensive coordination with the Labor Department through its national office. To facilitate this coordination, examination of the administrative file should not be put off until the end of the answer period. This is important because if new grounds are raised in the answer, respondent may assume the burden of proof for those grounds. This should pose no problem in the usual case, in which a new issue is purely legal and the relevant information is already in the administrative record. SeeBBS Associates, Inc v. Commissioner , 74 T.C. 1118, 1121–1122 (1980). As the court’s review of any determination letter case is limited to the existing administrative record, there must be existing factual support in the record for any new ground raised in the answer.

Under T.C. Rule 213(b), a reply is required in every declaratory judgment action and when a reply is not filed, affirmative allegations in the answer will be deemed admitted. As the administrative record is due 30 days after the answer and the mandatory reply is due 60 days after the answer, a motion to extend the time within which to file the administrative record may be appropriate.

For purposes of the declaratory judgment action, the Service will accept as true the facts presented by the organization during the administrative determination procedure. Generally, therefore, there will be no need for a stipulation conference to determine which documents are part of the administrative record. The administrative record is composed of items contained in the administrative file only, and only those items exchanged between the parties are to be included in the administrative record. Only documents that are a part of the record (and the facts derived from. those documents) are subject to stipulation. Objection should be made to the admission of any document which is not part of the administrative record and the finding of any fact which is not supported by that record. In those cases in which grounds supporting the Commissioners’ determination or revocation are alleged for the first time in the answer, petitioner will be permitted to introduce evidence not already in the record to supports its position that the Commissioner’s determination is in error. In most instances, it will be possible to stipulate to those additional documents.

Stipulation of the administrative record should occur within 30 days after service of the answer. See Exhibit 35.11.1-27, Declaratory Judgment Case: Employee Plans (Stipulated Administrative Record). If an agreement has been reached but the stipulation is not ready for filing within the 30-day period prescribed by T.C. Rule 217(b), a motion to extend the time for submission must be filed. See Exhibit 35.11.1-69, Declaratory Judgment Case: Motion to Extend Time Within Which to Stipulate as to Administrative Record. When the answer is filed, the attorney should consider forwarding a copy of a proposed stipulation to petitioner so that any disagreements can be worked out before the expiration of the 30-day period. If the parties are unable to file a stipulated administrative record, the Service must file the entire record with a Notice of Filing of the Administrative Record and a Commissioner’s Certificate as to the Genuineness of the Entire Administrative Record between 30 and 45 days after the service of the answer. Accordingly the entire administrative record must be segregated from the remainder of the administrative file and kept available for inspection (and copying if necessary). See CCDM 35.4.7.6(3), Effect of Stipulation, for guidance on preparing and assembling the administrative record.

The administrative record in both initial qualification and revocation cases is defined in T.C. Rule 210(b)(12) to comprise all documents submitted to the Service by petitioner in support of its request for determination, all written correspondence between the Service and petitioner, all pertinent returns and notices of determination. The administrative record closes at the moment the final adverse determination letter or revocation letter is mailed. Where a petition is filed by an employer, plan administrator, or interested party prior to the issuance of a final letter, the administrative record closes on the date the petition is filed.

If either the petitioner or the respondent moves for a stay before the answer is filed, the motion or response, as appropriate, should include a request that respondent be allowed a full 60 days following termination of the stay within which to file the answer.

When declaratory judgment petitions involving exempt status are served on the Chief Counsel, those cases in which determination or revocation letters have been issued will be assigned to the appropriate Counsel office. Those cases in which final adverse determination letters have been issued by the Commissioner (TEGE) will be assigned to the Division Counsel/Associate Chief Counsel (TEGE). See CCDM 35.2.1.1.15.2(3), (4), Initial Review of EO Declaratory Judgment Cases, The outside cover of the legal file jacket will contain the permanent stamped designation, Declaratory Judgment Case.

Immediately upon receipt of a declaratory judgment case, a request for the complete administrative file should be addressed to the office that issued the determination, revocation, or ruling letter. Upon receipt of the file, the attorney should immediately examine the petition and file to determine whether there are jurisdictional questions which should be raised by motion.

If the petition arises from a revocation for a year for which a deficiency could be assessed, the attorney should ensure that consents for extending the statute of limitations are obtained. The declaratory judgment is limited to the issue of qualification or classification. Tax liability will never be an issue in a declaratory judgment action. The three-year statute of limitation generally starts to run at the time an organization, believing in good faith that it is exempt, files a return or, if the return was filed before due, then the due date.

The petition must be filed before the 91st day after the date of certified mailing of the final adverse determination letter. IRC § 7428(b)(3). If the petition is untimely, a motion to dismiss for lack of jurisdiction should be filed. Pursuant to T.C. Rule 211(b), every petition shall be entitled Petition for Declaratory Judgment (Exempt Organization). The petition shall contain all of the items enumerated in T.C. Rule 211(g). If the petition does not contain a copy of the final adverse determination letter, respondent’s answer should contain an appropriate allegation and a copy of the letter should be attached. Similarly, where the petition does not allege exhaustion of administrative remedies, respondent’s answer should contain such an allegation, if appropriate.

It is essential that any additional grounds supporting the determination, revocation, or ruling be raised in the answer. Immediately upon receipt of a declaratory judgment action, an examination of the case should be made to determine whether there are additional grounds supporting respondent’s determination which should be raised in the answer. Assistance and advice from the Exempt Organizations Division of the Division Counsel/Associate Chief Counsel (TEGE) may be needed to determine the existence of any additional grounds. Many of these cases will involve unfamiliar, difficult, and novel issues which will require substantial time to review. To facilitate this coordination, examination of the file should not be put off until the end of the answer period. This is important because if new grounds are raised in the answer, respondent may assume the burden of proof as to those grounds. This should pose no problem in the usual case where the new issue is purely legal and the relevant factual data is already in the administrative record. Under T.C. Rule 213(b), a reply is required in every declaratory judgment action and, when a reply is not filed, affirmative allegations in the answer will be deemed admitted.

In some cases a petition will be filed because the Service has failed to reach a determination. In these cases, coordination with the Exempt Organizations Division of the Division Counsel/Associate Chief Counsel (TEGE) will be necessary so that all grounds supporting a determination adverse to the petitioner can be affirmatively raised in the answer. If no ruling has been requested, a motion to dismiss for lack of jurisdiction is proper.

Pursuant to T.C. Rule 212, in a revocation case there shall be filed with the answer a statement setting forth the date on which it is anticipated the case will be ready for submission to the Court.

In initial qualification or classification cases, frequently a petition will allege facts not contained in the administrative record or will attempt to argue the legal effect of facts whether or not contained in the administrative record. In such instances, a motion to strike the allegations on the ground of not being contained in the administrative record or as being argumentative in nature, as the case may be, may be considered. In most situations, however, and particularly where the organization is not represented by counsel, the better practice is for respondent to answer, rather than move, in the following manner as required by the allegations of the petition:

Other considerations include:

Declaratory judgment cases dealing with final adverse determination letters will normally be submitted fully stipulated under T.C. Rule 122. T.C. Rule 217(b) requires efforts by the parties to stipulate the pertinent portions if not all of the administrative record within 30 days after service of the answer. Accordingly, the entire administrative record should be segregated from the remainder of the administrative file and kept available for inspection (and copying if necessary) by the petitioner or petitioner’s counsel at reasonable times in the office that is handling the case.

At the time the answer is filed, a letter should be mailed to the petitioner or petitioner’s counsel proposing a conference for purposes of stipulating to the administrative record. A copy of the index as attached to the answer should be attached, with the statement that the index reflects respondent’s view of what should be considered as constituting the administrative record. The conference should be scheduled for a date not later than two weeks after the mailing of the answer. The letter should also state that the entire administrative record will be made available for inspection in the office prior to the proposed conference and will remain available throughout the 30-day period following the date of service of the answer. If distance makes a conference problematic, the proposed stipulation and proposed administrative record should be mailed to the petitioner or the petitioner’s counsel as an enclosure to the letter. The petitioner or petitioner’s counsel should be asked to sign the stipulation and return it or to contact the attorney if there are any problems with the materials. See Exhibit 35.11.1-27, Declaratory Judgment Case: Employee Plans (Stipulated Administrative Record).

If the parties agree on what documents constitute the administrative record, the parties can then stipulate to the entire administrative record. See T.C. Rule 210(b)(10) for a definition of what constitutes the administrative record. Parties may stipulate that some documents although part of the administrative record can be eliminated from the record because they are duplicates, e.g., the petitioner faxes in a document and then sends in the same document. If the parties agree upon what constitutes the administrative record, but not on the portions that are pertinent, the entire administrative record should be stipulated entitled Stipulation as to the Administrative Record since, in the absence of a stipulation, respondent is required to file with the court the entire administrative record, appropriately certified as to its genuineness. T.C. Rule 217(b)(1). See CCDM 35.2.2.9(8). T.C. Rule 210(b)(11) contemplates the filing of the original papers constituting the administrative record rather than copies thereof. If the parties are unable to agree upon what constitutes the administrative record, the respondent should submit the record with a Notice of Filing of the Administrative Record. File the original plus two copies of the Stipulation or Notice. See CCDM 35.4.7.6(3), Effect of Stipulation, for guidance on preparing, assembling and stipulating to the administrative record.

As soon as the case is at issue, that is, upon the filing of the reply or at the expiration of the time for doing so (T.C. Rule 214), a joint motion to submit the case under Rule 122 should be submitted to petitioner or petitioner’s counsel for execution, unless it appears that the issues cannot be resolved solely on the basis of the administrative record. Unless the case involves unusually difficult technical problems, the joint motion should request that briefing dates be fixed in accordance with Rule 151. Since the parties will usually be fully aware of each other’s positions on the issues, simultaneous briefs should ordinarily be requested.

If the petitioner refuses to stipulate to the administrative record or declines to submit the case under Rule 122, a Motion for Order to Show Cause Why Case Should Not Be Submitted on the Administrative Record as Provided in T.C. Rule 217 should be filed, but not until petitioner’s time to reply has expired. See Exhibit 35.11.1-70, Declaratory Judgment Case: Motion for Order to Show Cause Why Case Should Not Be Submitted on Administrative Record as Provided in T.C. Rule 217.

The preparation of respondent’s brief in a declaratory judgment case should ordinarily commence prior to the submission of the case. Since there will rarely be a trial, the relevant facts will be fixed and determinable at the time the petition is filed. An early start in the actual writing of the brief will facilitate the early detection of any problems which may require advice and will also assist the attorney in determining whether normal briefing times will be adequate by the time the joint motion for submission is prepared.

Pursuant to T. C. Rule 215(c), joinder of parties is not permitted in IRC § 7428 declaratory judgment actions. Consolidation under T.C. Rule 141 is not prohibited, however. Rule 141 permits the court to order a joint hearing of any common questions of law or fact; orders of this kind may be made by the court if they tend to prevent unnecessary costs, delays, or duplication. The decision whether respondent should move for consolidation in IRC § 7428 actions will have to be made on a case-by-case basis. It can be expected that consolidation requests in these cases will be rare.

Authority to issue final adverse determination letters regarding whether issues of governmental obligations will be described in IRC § 103(a) is vested in the Division Counsel/Associate Chief Counsel (TEGE).

When declaratory judgment petitions involving governmental obligations are served on the Chief Counsel, they will be assigned to the Division Counsel/Associate Chief Counsel (TEGE) office. The outside cover of the legal file jacket will contain the permanent stamped designation, Declaratory Judgment Case. Because cases arising under IRC § 103 arise infrequently and may have enormous economic impact for affected persons, the office that prepared the adverse ruling will have significant involvement in the litigation of the case.

Immediately upon receipt of a declaratory judgment case, the assigned attorney should request the complete administrative file from the office and/or attorney that prepared the adverse ruling. Upon receipt of the administrative files, the attorney should immediately examine the petition and file to determine whether there are jurisdictional questions which should be raised by motion. See T.C. Rules 210(c) and 211(e); see, e.g., Rev. Proc. 96-16, 1996-1 C.B. 630. T.C. Rule 213 allows 45 days from the date of service of the petition within which to file a motion with respect to the petition.

The petition must be filed before the 91st day after the date of mailing, by certified or registered mail, of the adverse determination letter. IRC § 7478(b)(3). Pursuant to T.C. Rule 211(b), each petition arising out of a ruling under IRC § 103 will be entitled Petition for Declaratory Judgment (Governmental Obligation). The attorney should verify that the petition contains all of the items enumerated in T.C. Rule 211(e). If the petition does not contain a copy of the final adverse determination letter, respondent’s answer should contain an appropriate allegation and a copy of the letter should be attached.

Under IRC § 7478(a), the threshhold requirement for the court to acquire jurisdiction is that the suit involves an actual controversy. To meet this requirement in part, the petition must allege that the prospective issuer of governmental obligations described in IRC § 103(a) has adopted an appropriate resolution in accordance with State or local law authorizing the issuance of such obligations. T.C. Rule 211(e)(3).

IRC § 7478(b)(2) requires that a petitioner exhaust its administrative remedies. A petitioner will not be deemed to have exhausted its administrative remedies regarding whether prospective obligations are described in IRC § 103(a) before the expiration of 180 days after the request for a determination was made and sufficient facts were provided for making such a determination. Note that the 180-day limit for making a determination regarding governmental obligations differs from the other ruling period limits discussed in this chapter. The exhaustion requirement ensures that the administrative record will be as nearly complete as possible. A motion to dismiss for failure to exhaust administrative remedies is proper in the event of the filing of a petition prior to the expiration of 180 days.

Joinder of parties in a governmental obligation action is not permitted. T.C. Rule 215(c).

As with other declaratory judgment cases, the answer in a governmental obligation must contain a complete index to the administrative record as defined in T.C. Rule 210(b)(12). See, e.g., Exhibit 35.11.1-27, Declaratory Judgment Case: Employee Plans (Stipulated Administrative Record). This index generally will not have been prepared during the administrative processing of the case and the attorney must personally prepare a complete and accurate index. The task of preparing or verifying the index may be time consuming and should be commenced at an early stage in the preparation of the answer. See CCDM 35.4.7.6(3), Effect of Stipulation, for guidance on preparing and assembling the administrative record.

Unlike some other declaratory judgment cases, T.C. Rule 213(a)(2) does not permit facts in a governmental obligation action to be admitted by respondent for purposes of the pending action for declaratory judgment only.

As with other declaratory judgment cases, stipulation of the administrative record should occur within 30 days after service of the answer. T.C. Rule 217(b)(1); see Exhibit 35.11.1-27, Declaratory Judgment Case: Employee Plans (Stipulated Administrative Record). If agreement has been reached but the stipulation is not ready for filing within the 30-day period prescribed by T.C. Rule 217(b), a motion to extend the time for submission must be filed. See Exhibit 35.11.1-69, Declaratory Judgment Case: Motion to Extend Time Within Which to Stipulate as to Administrative Record. When the answer is filed, the attorney should consider forwarding a copy of a proposed stipulation to petitioner so that any disagreements can be worked out before the expiration of the 30-day period. If the parties are unable to file a stipulated administrative record, the Service must file the entire record with a Notice of Filing of the Administrative Record and a Commissioner’s Certificate as to the Genuineness of the Entire Administrative Record between 30 and 45 days after the service of the answer. T.C. Rule 217(b)(1); see Exhibit 35.11.1-28, Declaratory Judgment Case: Employee Plans (Administrative Record Submitted Unagreed). See CCDM 35.4.7.6(3), Effect of Stipulation, for guidance on the preparation of and stipulation to the administrative record.

Respondent is required by T.C. Rule 212 to file a separate statement with the answer setting forth the date on which respondent expects the action will be ready for submission to the court and an estimate of the time required for trial. This requirement is unique to governmental obligation declaratory judgment actions. From experience, a minimum of four months will be required before a case can be prepared for submission. More complex cases may require the gathering of data to support some assertions made in the ruling letter and four months may be insufficient. No case to date has required trial, but this possibility exists more so with governmental obligation actions than with the other declaratory judgment actions. Therefore, a generous estimate of the length of trial is three days. It is permissible to advise the Tax Court by a Rule 122 motion that no trial is required and that the case is being submitted fully stipulated. See CCDM 35.4.7.6(3), Effect of Stipulation.

In a governmental obligation action, the administrative record may be augmented by additional evidence to the extent the court may direct. In addition, the court may, upon the basis of evidence presented, make findings of fact that differ from the administrative record. T.C. Rule 217(b).

The general instructions for answering deficiency cases in CCDM 35.2.2 apply in answering these cases. Unlike declaratory judgment cases, no administrative record is involved in these proceedings. See CCDM 35.2.1.1.15.4, Initial Review of Worker Classification Cases under Section 7436, for further information and assistance on the required statutory elements for a petition in this kind of proceeding.

IRC § 6015 provides three avenues of relief from joint and several liability under IRC § 6015(b), (c), and (f). IRC § 6015(b) allows taxpayers who have filed joint income tax returns relief from joint and several liability under certain circumstances. IRC § 6015(c) provides taxpayers who meet certain threshold marital requirements the opportunity to limit their liability by electing to allocate the deficiency. IRC § 6015(f) allows the Secretary to grant relief when, taking into account all of the facts and circumstances, it is inequitable to hold the individual liable and relief is unavailable under IRC § 6015(b) or (c). See also Rev. Proc. 2000-15, 2000-1 C.B. 447. IRC § 6015(e) confers jurisdiction upon the Tax Court to review the Secretary’s determinations under IRC § 6015. The Tax Court reviews the Secretary’s determinations under IRC § 6015(b) and (c) de novo and determinations under IRC § 6015(f) for an abuse of discretion.

General Requirements. In accordance with T.C. Rule 325, the attorney, on or before 60 days from the date of service of a petition raising relief from joint and several liability under IRC § 6015, must serve notice of the filing of the petition on the other individual filing the joint return (Notice of Filing of Petition and Right to Intervene). In addition, T.C. Rule 325 requires the attorney to simultaneously file with the court a copy of the notice with an attached certificate of service. As with all court filings, the attorney should also serve a copy of the Notice on the petitioner. The Notice shall advise the other individual of the right to intervene by filing a notice of intervention with the court not later than 60 days after the date of service on the other individual. The other individual may intervene to challenge or support the petitioning individual’s entitlement to relief. If a petitioner raises a claim for relief from joint and several liability after filing the petition from a notice of deficiency where the other individual is not a joint petitioner in the case, the attorney should send the Notice to the other individual as soon as possible so that the 60-day intervention period expires prior to calendar call. See Exhibit 35.11.1-29 ,Notice of Filing of Petition and Right to Intervene, and Exhibit 35.11.1-30, Notice of Filing of Petition and Right to Intervene (Deceased Nonpetitioning Spouse). If both individuals filing the joint return have filed a joint petition from a statutory notice of deficiency, no Notice of Filing of Petition and Right to Intervene is required.

Specific Instructions. In all cases (including "S" cases) the attorney should file and serve the Notice of Filing of Petition and Right to Intervene in the following manner:

Jurisdictional Defects. If the attorney determines that there is a jurisdictional defect in the case and files a Motion to Dismiss for Lack of Jurisdiction within 60 days of the date of service of the petition, the attorney may defer notification of the nonpetitioning spouse of the claim for relief from joint liability until the jurisdictional motion is filed and ruled upon by the court. The motion should contain a statement that the nonpetitioning spouse has not been notified of the claim for relief pending the court’s resolution of the jurisdictional motion. If the court denies the jurisdictional motion, the attorney should serve the Notice of Filing of Petition and Right to Intervene on the nonpetitioning spouse as soon as possible.

Defective Notification. If the notification to the nonpetitioning spouse is returned with a notation of undeliverable or incorrect address, the attorney should attempt to find a more recent/correct address and then resend the Notice. In many cases, the original notice may be resent, without restarting the 60-day intervention period or recertifying the notification to the Tax Court. In cases in which there are less than 30 days remaining in the intervention period, it is recommended that a second notice be sent with a new intervention period commencing on the date of the second notice. In determining whether to restart the 60-day intervention period, the facts and circumstances of the case should be considered, including, but not limited to, the following: whether the original notice was sent to the nonpetitioning spouse’s last known address, how many days remain in the intervention period, and how many days remain prior to the calendar call.

Deceased Nonpetitioning Spouse. In cases in which the nonpetitioning spouse is deceased, the attorney should serve the personal representative of the nonpetitioning spouse’s estate with the Notice of Filing of Petition and Right to Intervene. If an estate has not been probated or administered there will be no personal representative to serve the notice upon. Instead, a Notice of Filing of Petition And Right to Intervene stating the reasons why the nonpetitioning spouse was not notified should be filed with the court and served on the petitioner. See Exhibit 35.11.1-30, Notice of Filing of Petition and Right to Intervene (Deceased Nonpetitioning Spouse).

Motion to Continue and Shorten Time for Intervention. If the intervention period in the original notice or the subsequent notice expires after the calendar call, the attorney should file a Motion for Continuance and a Motion to Shorten the Time Period for Intervention. The Motion for Continuance should be filed concurrently with the Motion to Shorten the Time Period for Intervention. Each motion should cross-reference the other and state that they are in the alternative. Generally, the motions should be filed if the calendar call is more than 30 days, but less than 60 days, from the date the notice is sent to the nonpetitioning spouse. T.C. Rule 325(b) provides that the nonpetitioning spouse has 60 days to file a notice of intervention, unless the court directs otherwise. Thus, the Tax Court may direct that the intervention period be shortened, if necessary, to ensure that the case is resolved within the trial session, while allowing adequate time for the nonpetitioning spouse to intervene. If the case is calendared less than 30 days from the date the notice is sent to the nonpetitioning spouse, the attorney should contact the Associate Chief Counsel (P&A), Branches 1 or 2 for further guidance.

IRC § 7446 provides that the place of trial shall be fixed with as little inconvenience and expense to taxpayers as is practicable. The respondent must have a strong and convincing position to get a different location for the trial from that designated by the petitioner. In a case in which the burden of proof is on the respondent and the petitioner has not designated a place of trial, the attorney should designate as the place of trial the place or locality where the witnesses and books and records are located.

If the petitioner has not filed a designation of place of trial, respondent’s designation of place of trial will generally designate the place most convenient to the petitioner. In the event the parties fail to designate a place of trial, the court may designate a place of trial closest to petitioner’s residence. After such a designation by the Court, the place of trial can only be changed by motion.

In those cases where petitioner has designated a place of trial but it is obvious from the file that another city would be more appropriate because pertinent records and witnesses (e.g., bank records, brokerage records, third party witnesses) are located in the other city, an unagreed motion by respondent to change the place of trial filed shortly after the case is at issue generally will not be granted. The court will usually only grant such motions if respondent has reached an impasse in preparing a stipulation of facts with petitioner who refuses to stipulate to records and third party witnesses will have to travel to a distant city to give testimony to place the matters into evidence. Only at that point in the case development is there a realistic hope that a motion to change place of trial will be granted. The court has indicated that, in general, it will change the place of trial over petitioner’s objection only where it appears that the case will in fact have to be tried and that witnesses will necessarily be inconvenienced by having to travel to a distant place of trial.

Factors to be considered in deciding whether a motion to change the place of trial should be filed are:

The desirability for the transfer of cases from one office to another office may arise in the initial stages of handling the case, or may arise at a later date due to the action of the Tax Court in setting the location for trial. A transfer between offices prior to the case becoming at issue may only be made if there is sufficient time for the receiving office to obtain the files and take appropriate action with respect to a motion or answer on the petition. Because of time factors, except in unusual circumstances, (e.g., where affirmative allegations are required and it is in the best interest of the receiving office to answer the case), the case is to be answered before transferring it. On those rare occasions when a case is to be transferred prior to being answered, it must be with the prior approval of the receiving office. Additionally, the files must be sent so as to be received at least 30 days prior to the due date of the answer. Express mail service, or other commercial express delivery services should be used to ensure prompt delivery of the files. Further, the files should be flagged or marked in some manner so that the receiving office will be able to see immediately that time is critical.

Before transferring a case to another Field Counsel office, the proposed transfer should be discussed with Appeals to determine whether there are any nondocketed cases pending with Appeals or the local Area Director and whether Appeals objects to the transfer. The presence of any related nondocketed cases locally is a factor to consider when deciding whether to transfer the docketed case, as is Appeals’ willingness to transfer the administrative file to the other area.

When transferring a case, the attorney will transmit the legal file, the administrative file if in Counsel’s possession, and the miscellaneous law file to the other Field Counsel office. The legal, administrative and miscellaneous law files should be transmitted using TLCATS transmittal directly from one Field Counsel office to the other Field Counsel office.

For each case transferred, the attorney must forward a copy of the TLCATS transmittal to both the Appeals office that will transfer the case and to the Appeals office which will have administrative jurisdiction after the transfer. This notification will enable Appeals to transfer administrative jurisdiction to the receiving Appeals office simultaneously with Counsel’s transfer of the legal file.

If the case is transferred prior to answer, the TLCATS transmittal should contain the statement: This case has not been answered. The answer is due [date].

See CCDM 35.2.1.1(5), Analysis of New Tax Court Petitions, for guidelines on transfer or coordination of cases involving issues handled by the Division Counsel (TEGEDC) or the Associate Chief Counsel (EEE).