Goose v. Gander

In response to my posting on the Barranco case, my friend John DeBruyn called my attention to the case of Dixon v. Commissioner. That case discusses the sanctions to be imposed on the IRS when their attorneys were found to have engaged in misconduct in the course of litigation. John’s comments were along the lines of "See, both sides do this stuff." I think that, unfortunately, both sides do make the sort of specious arguments that the taxpayer's attorney made in Barranco. (One day I'll prove it by doing a posting on ridiculous positions taken by attorneys for the State of Maryland in interpreting the recordation and transfer tax statutes.) However, Barranco differs from Dixon in one rather troubling respect.

The actions of the Service's attorneys in Dixon were, without any doubt, more egregious than were those of the taxpayer's attorneys in Barranco. Dixon revolves around a massive action involving about 1300 different investors in an allegedly sham tax shelter. Because of the impossibility of efficiently trying 1300 cases, the taxpayers and the Service agreed to an arrangement wherein the 1300 taxpayers agreed to be bound by a limited number of test cases. Implicit in this arrangement, of course, was the premise that the test cases were representative of the cases of the other taxpayers who had agreed not to litigate but to be nevertheless be bound by the results.

In fact, the Service had cut settlement deals with a number of the "representative" taxpayers involved. Those settlements required that the taxpayers remain as representative parties in the Tax Court proceedings. However, no one informed either the Tax Court or counsel for the other parties involved of the arrangement. Indeed, the attorneys for the Service actively concealed the arrangement. As the Ninth Circuit opinion pointed out, "The Tax Court believed it was hearing a legitimate adversarial dispute when, in fact, the proceeding was a charade fraught with concealed motives, hidden payments, and false testimony. What did occur was clearly designed to defile the court itself, and there is no question that it was carried out by an officer of the court."

Two points are worthy of note.

First, the attorneys involved have already been the subject of administrative sanctions. One of the footnotes in Dixon discloses that these attorneys also face formal grievance proceedings before their respective Bars. Their careers are at an end.

Second, it was senior personnel in the Service who discovered and then disclosed to the Court the scheme perpetrated by the attorneys involved. In other words, professionals representing the same party as the malefactors, came forward and disclosed the scheme.

If, as is clearly the case, the actions of the attorneys in Dixon were more worthy of serious sanction than those in Barranco, why am I more troubled by Barranco? It is this. The attorneys in Dixon knew that what they were doing was wrong and conducted themselves accordingly. That is, they carried out their fraud in secret. In Barranco, resources of the Tax Court and the Government were wasted on a case that was bereft of any intellectual substance. Yet, an attorney felt comfortable arguing this nonsense in full public view with a straight face. And, even though he lost the case, he faced no sanction for making a patently frivolous argument.

I am all too aware that lawyers are lawyers, hired to make their clients' cases, not judges, hired to decide those cases. Yet, there has to be some, if I might use the term, judgment exercised in the arguments one makes. Ultimately, the abandonment of standards debases both the courts and our profession. This corrosive effect is slower, perhaps, than if we allowed rampant fraud, a la Dixon, to continue unabated, but corrosive nevertheless.