The S.O.P. category includes cases that involve commonplace issues of fact, legal issues of no great importance to the revenue, or the application of legal principles that have already been substantially resolved through prior litigation. The following principles will govern the classification of S.O.P. cases.

The amount in controversy will not be a substantial factor in classification of S.O.P. cases.

A case should not be excluded from the S.O.P. category merely because further factual investigation might be necessary in the preparation of the case for trial.

A case should not be excluded from the S.O.P. category on the ground that there appear to be jurisdictional defenses, unless there is a fatal jurisdictional defect. Cases with fatal jurisdictional defects should not be settled under any circumstances.

As with the case of apparent jurisdictional defects, the relative strength or weakness of a particular case is not controlling in determining whether it should be classified S.O.P. The S.O.P. classification permits defense or settlement. It is not a procedure whereby a case is referred to DJ for settlement on any basis obtainable. If a case is a particularly strong one, it is presumed that DJ will so view it and either force the case to trial or will settle, if desirable, only on a basis consistent with the strength of the Government’s position.

Those cases that should be classified Standard are, simply, those that do not fit into the S.O.P. classification. The following are guidelines for excluding cases from the S.O.P. classification.

The case contains an issue or issues of a continuing nature. Continuing issues should be distinguished from issues that may merely recur from year to year because of the nature of the taxpayer’s business or pattern of operation. A good example of a continuing issue is whether a certain expenditure must be capitalized or whether it may be depreciated or amortized. The resolution of the issue will affect all open and future years in which depreciation has been or will be claimed. In cases that merely recur from year to year, the resolution of any one year will not dispose of the issue for any other year. Cases containing recurring issues should not be classified Standard unless the factual variations from year to year are so slight that the disposition of one year would establish a compelling precedent for the disposition of the similar issues for years not in suit.

The case contains an issue that is identical to that pending administratively in the case of a related taxpayer.

The case contains an issue identical with or very similar to that pending before the Tax Court in the case of the same taxpayer or a related taxpayer.

An administrative refund is recommended.

The taxpayer involved (e.g., a public figure) makes the case sensitive in nature.

The case contains a clearly dispositive jurisdictional issue giving rise to an appropriate motion to dismiss.

The nature of the issue would make the case a significant test case. The issue involves an important legal question that needs to be litigated for administrative or other reasons.

The litigation or settlement of the issue may establish a pattern for an entire industry or a large group of taxpayers similarly situated.

The case involves an issue that is on the list of issues requiring Associate office review (Exhibit 35.11.1-1).

The case involves an injunction, summons or frivolous return.

Standard classification has been requested by the Service client.

The case classification generally determines whether DJ can settle the case without obtaining the views of the Associate Area Counsel.

If a case is classified Standard and contains an issue on the list of issues requiring Associate office review, the defense letter will be sent to the Technical Services Support Branch (TSS4510) for assignment to an Associate office for review prior to being forwarded to DJ. Field counsel offices may send S.O.P. defense letters (including abbreviated letters) and Standard defense letters that do not contain issues requiring Associate office review directly to the DJ.

If a case is classified Standard, DJ will refer all settlement offers to the Field Counsel office prior to acceptance of the offer. In some cases where the offer is deemed to be clearly inappropriate, DJ will reject it summarily and not refer the offer to Counsel. Normally, if a case is classified S.O.P. (including S.O.P. cases in which an abbreviated defense letter has been written), a settlement offer does not have to be referred to Counsel. However, if the settlement encompasses years or taxpayers not in suit, and requires the approval of the Field Counsel office with jurisdiction over the subject matter, it must be referred to Counsel regardless of classification.

Additionally, all cases requiring submission to the Joint Committee on Taxation (refunds in excess of $2,000,000 or $5,000,000 in the case of C corporations) must be referred to the Field Counsel office.

Finally, even where a case is classified S.O.P., DJ must seek the views of the Field Counsel office concerning a complete concession in a settlement proposal. A recommendation must be received from Counsel within 30 days from the date of the letter requesting the recommendation. If no such recommendation is received within that time, DJ may process the case on the assumption that Counsel has no objection to the concession. If the Field Counsel office agrees to the concession then a short concurring letter to DJ will be adequate.

Tax Data. In order to assist, an attorney should include the following information in the defense letter in a way that allows for easy identification of the data:

An attorney can include the tax data in narrative form in the fact section of the letter, in table form in an appendix enclosed with the letter (preferable) or by attaching a Form 4340. If an attorney uses a Form 4340, an attorney should include the accruals of interest and penalties as of a date as close as possible to the date when an attorney sends the defense letter to DJ.

Opening Statement. In the Opening Statement, an attorney should refer to the court in which the case was filed; the date of the complaint (or petition); the amount of tax, penalty and interest the plaintiff seeks to recover; the type of tax involved; and the years or periods in suit.

Statement of Issues. An attorney should state the specific issue or issues involved, citing the applicable Code section or Regulation to which it relates and consolidating issues where possible. An attorney can generally find the issues in the taxpayer’s complaint, the claim for refund, the revenue agent’s or appeals officer’s report, if any. An attorney should include any new issues raised by Field Counsel such as jurisdictional defenses and setoffs.

Operative Facts. Except for abbreviated defense letters, an attorney should always discuss the facts that are pertinent to the substantive issues in the case. If the case involves multiple issues but some facts relate to more than one issue, an attorney should first discuss general facts such as general information about a corporate or individual taxpayer, e.g., date and state of incorporation. An attorney should also include facts pertinent to the burden of proof issue under section 7491.

Discussion. An attorney should discuss the specific facts after discussing the general facts or, if there are no general facts, after stating the issue or issues. While discussing the facts pertinent to a particular issue, an attorney can incorporate by reference any documents in the file that contain a full recitation of the facts, such as an appeals officer’s report or earlier defense letter. If the administrative file contains an adequate description of the facts, an attorney only has to include a brief summary of these facts and cite the relevant document. An attorney should not postpone writing the defense letter if certain critical facts are missing or otherwise unavailable. He should note, however, the absence of such facts in the letter and recommend that DJ secure the missing facts through discovery or by requesting a supplemental investigation. SeeCCDM 34.7. If the issues in a suit are purely legal in nature, an attorney only has to minimally discuss the facts and can combine the factual and legal discussions. For example, if a taxpayer claims that he or she is not liable for income taxes because the Federal Reserve Notes that she received in salary did not constitute money, an attorney only has to include a minimal amount of facts.

Legal Analysis. An attorney should also include a legal analysis of the issues, except in abbreviated defense letters. This will include pertinent Code sections, regulations, rulings, and case law in conjunction with a discussion of the operative facts. An attorney should include the Service’s position as to the legal authorities and a conclusion as to the manner in which DJ should dispose of the issue (i.e., defend, concede or settle). An attorney should not write defense letters as if they were briefs and therefore should include the strengths and weaknesses of the Government’s case. If another defense letter contains an adequate legal discussion, an attorney may incorporate (i.e., cut and paste) the argument into the defense letter, or refer the DJ attorney to the DJ colleague who worked on a similar case. Attorneys must be mindful of including third party return information in defense letters only when the third party return information meets the item or transaction tests of section 6103(h)(2)(B) or (C).

Miscellaneous. Counterclaim and Third-Party Complaint Authorization. An attorney may include in the defense letter an authorization for a counterclaim or third-party complaint authorization. CCDM 34.5.1.1.2.6.

Conclusion and Recommendation. The final section of the defense letter is the conclusion and recommendation. Generally, an attorney who has comprehensively discussed the issue or issues will not have to summarize the conclusions or recommendations as to each issue. For example, if an attorney has discussed two issues and has concluded that DJ should defend both issues (or settle both issues), the conclusion can state: "In view of the foregoing discussion, we recommend that this case be defended/settled." An attorney who recommends settlement for each issue, however, can suggest an overall basis for settlement. For example, in some cases where the Service has fully developed the facts, an attorney can recommend that the Government concede Issue No. 1 if the taxpayer would concede Issue No. 2. This specific recommendation would be unusual at the defense letter stage since normally the Government would need to develop more facts. In multiple-issue cases where Counsel has recommended defense for some issues, settlement as to some issues, and concession as to others, an attorney should summarize these positions by issue number but does not have to repeat the reasons for such recommendations.

Since the Tax Division is responsible for analyzing jurisdiction in all cases, an attorney generally does not have to discuss jurisdictional facts in a defense letter. The Field Counsel attorney should determine whether there are obvious jurisdictional defects by carefully reading the complaint and other documents in the administrative file. An attorney should note any obvious jurisdictional defects or note that, after preliminary examination, an attorney has not discovered any obvious jurisdictional defects. If an attorney discovers a jurisdictional defect that will clearly dispose of the plaintiff’s claim, he should fully discuss the issue and generally need not discuss the substantive issues. For example, if the taxpayer did not bring suit within the applicable period of limitations, an attorney should generally discuss only this issue and recommend that DJ file a motion to dismiss. Similarly, the attorney may discover that the Service untimely assessed the tax. The attorney should recommend that DJ concede the case regardless of whether the taxpayer has properly raised this issue, or still has time within which to properly raise it.

An attorney does not have to discuss attorney’s fees if the taxpayer seeks attorney’s fees in the complaint or petition. In recommending defense of a case, or in authorizing a counterclaim or third-party complaint, attorneys should consider whether the Government’s position may lead to the award of attorney’s fees should the taxpayer prevail.

If a suit against the United States is brought in a state court, the attorney should make an initial determination concerning removal of the case to federal district court. SeeCCDM 34.5.6.6.

The attorney should discuss the scope of any litigation hold in the case with the Tax Division and issue any litigation hold prior to drafting the defense letter. The attorney should memorialize the scope of the litigation hold in the defense letter. SeeCCDM 34.7.1.1.4 for additional information regarding litigation holds.

The following are some of the defenses that an attorney may raise in the defense letter.

The due dates for refund defense letters are as follows:

If a defense letter and administrative file to DJ cannot be timely sent to DJ, the attorney should call or write his counterpart in DJ to provide estimates of when the attorney can complete the letter.

In the meantime, the Field Counsel attorney should offer to assist the DJ attorney in preparing an answer to the complaint. For example, the Field Counsel attorney can review the administrative file to verify dates and payments that the taxpayer alleged in the complaint, or can make copies of documents in the administrative file if DJ did not receive a complete duplicate file. If it is practical to do so, an attorney may give the DJ attorney access to the administrative files. An attorney should avoid sending DJ the original files and suspending work on the case until the files are returned. If DJ needs the original files, the attorney should retain an entire duplicate administrative file in order to complete the defense letter.

The due date of non-refund defense letters is based on coordination with DJ with respect to the answer due date.

Associate Chief Counsel offices must review all defense letters containing issues listed in Exhibit 35.11.1-1. Defense letters requiring review should be sent to the Technical Services Support Branch (TSS4510) for assignment to the appropriate Associate office. The Field Counsel attorney should, for information purposes, send a copy of all S.O.P. defense letters to the Associate office charged with the responsibility of the subject matter of the action involved.

The Associate office will ensure that the Field Counsel attorney’s position in a defense letter agrees with the Service’s position, or Chief Counsel’s interpretation of applicable statutes, regulations, rulings, and decided cases.

To the extent feasible and within the time limitations, the Associate office attorney will generally call the field office and discuss all substantial changes it proposes to make. Within guidelines established in each office, the Field Counsel attorney should inform the reviewer of all proposed changes. The Associate office attorney will advise the field by memorandum, as appropriate, of the basis for its substantial changes.

The Associate office attorney may also make minor changes in a defense letter such as citing additional case authority or eliminating cited cases; clarifying the factual or legal discussion; and correcting erroneous citations, misspelled words, or poor grammar. The Associate office attorney determines whether a change is substantial or minor, whether it is feasible to coordinate the proposed changes with Field Counsel and makes the final decision on all changes.

The Associate office attorney must do the following:

The reviewing attorney should not propose changes that merely reflect different writing styles. The reviewing attorney’s supervisor must approve all proposed changes.

Counterclaim. Under section 7401, the Secretary can authorize the filing of a counterclaim or third party complaint. Field Counsel should authorize counterclaims only under the following circumstances:

Compulsory Counterclaim. A compulsory counterclaim is defined in the Federal Rules as a claim that the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim. Fed. R. Civ. P. 13(a). The Claims Court Rules define a compulsory counterclaim as any claim, which at the time of serving the answer, the defendant has against any plaintiff, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction. But the answer need not state the claim if at the time the action was commenced the claim was the subject of another pending action. Cls. Ct. R. 13(a).

Third-Party Complaint. The Field Counsel attorney should review Federal Rule of Civil Procedure 14 for rules about third-party complaints. In most federal courts, the third-party complaint need not be limited to the relief sought by plaintiff, but may seek additional affirmative relief. Fed. R. Civ. P. 14. The Rules of the Claims Court permit third-party practice in tax cases. Cls. Ct. R. 14. Field Counsel should authorize third-party complaints only under the following circumstances:

Because counterclaims and third-party complaints are in the nature of collection actions, the general ten year period of limitations for bringing a collection action under section 6502(a) is applicable, absent a waiver or an exception to the general rule. The running of the ten year period is not suspended when the taxpayer files a complaint for refund. It is possible that the period of limitations for bringing a counterclaim or third-party complaint will expire before the Government is required to file its Answer in the refund suit. In these situations, attorneys should immediately authorize a counterclaim or third-party complaint, and alert DJ to the statute of limitations problem.

Section 6331(i), with certain exceptions, prohibits levy to collect the unpaid portion of a divisible tax that is the subject of a refund suit from the plaintiff or plaintiffs in that suit. The section also prohibits the commencement of a proceeding in court to collect the unpaid tax. Consequently, in refund litigation cases involving divisible taxes, the appropriate Area Director/Director of Field Operations must suspend collection unless jeopardy is found or another exception applies. The field attorney should contact the appropriate Area Director/Director of Field Operations to suspend collection. If jeopardy is identified, Field Counsel should be contacted prior to any collection action being taken to assure that section 6331(i) is not violated.

In cases involving counterclaims pursuant to section 7422(e), the Field Counsel attorney will generally ask the appropriate Area Director/Director of Field Operations to suspend collection if the interests of the Government are adequately protected and the revenue is not in jeopardy. Even though the Service has suspended collection activity, it would generally credit any overpayments due the taxpayer against unpaid liabilities pursuant to section 6402.

Field Counsel should authorize counterclaim and third-party complaints as expeditiously as possible and, under normal circumstances, at the same time the attorney writes the defense letter.

Field Counsel can authorize counterclaims and third-party complaints in the Conclusion portion of the defense letter or by a separate letter to DJ. Field Counsel can authorize both a counterclaim and one or more third-party complaints in the same defense letter. This authorization should include the following information:

Aside from the legal proceeding that Field Counsel is specifically authorizing, whether for a counterclaim or third-party complaint, Field Counsel should also authorize any other legal proceedings for the collection of the outstanding assessment. This authorization should include the following information:

Field Counsel should also do the following:

Generally, Field Counsel should contact Assistant Chief Counsel (APJP) and Area Counsel (TEGE) when working on any case involving taxation of an member of an Indian Tribal Government, in which the member of an Indian Tribal Government claims exemption on account of his status as a member of an Indian Tribal Government. An attorney should state in the defense letter that DJ should inform the Solicitor, Department of the Interior, about this case pursuant to the 1972 agreement between the Attorney General and the Secretary of the Interior.