Arthur I. APPLETON, Jr. v. COMMISSIONER OF INTERNAL REVENUE.
No. 10-4522.
United States Court of Appeals, Third Circuit.
June 10, 2011.
135 (pagination)
Government of The United States Virgin Islands, Appellant. *(Pursuant to Rule 12(a), Fed. R.App. P). Argued April 27, 2011.
Randall P. Andreozzi, Esq., Teia M. Bui, Esq., Edward Doyle Fickess, Esq., Ryan M. Murphy, Esq., Andreozzi Fickess, Clarence, NY, for Appellee Arthur I. Appleton, Jr.
Justin L. Campоlieta, Esq., Internal Revenue Service, New York, NY, John DiCicco, Esq., Kenneth L. Greene, Esq., Jennifer M. Rubin, Esq., [Argued] U.S. Department of Justice Tax Division, William J. Wilkins, Esq., Internal Revenue Service, Washington, DC, for Appellee Commissioner of Internal Revenue.
Before: SCIRICA, RENDELL and AMBRO, Circuit Judges.
RENDELL, Circuit Judge.
The Government of the United States Virgin Islands (Government) brings this challenge to the United States Tax Courts denial of the Governments motion to intervene pursuant to Rule 1(b) of the Tax Court Rules of Practice and Procedure, and under Rule 24 of the Federal Rules of Civil Procedure. We have jurisdiction to review this matter pursuant to
On April 1, 2010, Appleton filed a timely Tax Court Petition to challenge as void the tax assessments leveled against him by the Internal Revenue Service (IRS) because, inter alia, the assessments were imposed after the expiration of the statute of limitations,
Appleton took advantage of the credits available through the EDP when calculating his income tax payable to the BIR for the tax years 2002-2004. On November 25, 2009, the IRS delivered a notice of deficiency to Appleton in relation to these tax years, despite the existence of § 6501(a), the three-year statute of limitations on assessments. The IRS has taken the position, pursuant to a Chief Counsel Advice memorandum, that the statute of limitations on assessment in section 6501(a) does not begin to run until a return is filed with the IRS, not the BIR. It is this position by the IRS, and the rеsulting assessments on Virgin Islands taxpayers, that caused the Government to file a motion, dated June 18, 2010, seeking to intervene for the purposes of the statute of limitations issue, either as of right pursuant to Rule 24(a)(2), or in the alternative, permissively, pursuant to Rule 24(b)(2). The Government argued that a ruling in favor of the IRS on the statute оf limitations issue would have a chilling effect on the EDP, as it leaves open to question and subject to audit the tax returns of those taking advantage of the program for an extended period of time. On November 1, 2010, the Tax Court denied the Governments motion by memorandum opinion and order. The Tax Court reasonеd that the Governments interest was insufficient to warrant intervention of right, and, because the statute of limitations issue is a cornerstone of Appletons defense, permitting the Government to intervene would be redundant and would risk delay. As alternative relief, the Tax Court did grant the Government the right to file an amicus brief. Desрite this, on November 23, 2010, the Government appealed to this Court.
We need not rule on the issue of intervention of right because we conclude that, at the very least, the Government should have been permitted to intervene under Rule 24(b)(2).
Under Rule 1(b) of the United States Tax Court Rules of Practice and Procedure, in thе absence of express rule, the Tax Court may proscribe the procedure, giving particular weight to the Federal Rules of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand. We can discern no reason why permissive intervention pursuant to Rule 24(b)(2) should not be аvailable to parties in the Tax Court. Sampson v. Commissioner, 710 F.2d 262, 264 (6th Cir. 1983); Estate of Dixon v. Commissioner, 666 F.2d 386, 388 (9th Cir.1982). Rule 24(b)(2) requires:
On timely motion, the court may permit a federal or state governmental officer or agency to intervene if a party‘s claim or defense is based on:
(A) a statute or executive order administered by the officer or agency; or
(B) any regulation, order, requirement, or agreement issued or made under the statute or executive order.
Additionally, the Tax Court is directed by Rule 24(b)(3) that, when exercising its discretion, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties’ rights. Thus, permissive intervention under Rule 24 requires (1) the motion to be timely, (2) the potential intervener be a federal or state governmental officer or agency, (3) the issue must be based on a statute, executive order, or regulation which is administered by the entity, and (4) the intervention may not
The first and second requirеments are easily satisfied here. The third requirement also appears to be satisfied, as Appletons tax assessments are based on an income calculation which takes into account credits created pursuant to
While any intervention could potentially cause delay, Rule 24(b) requires the court to cоnsider whether this intervention will cause undue delay, or prejudice the adjudication of the original parties rights. The redundancy noted by the Tax Court due to identity of interest should only be a bar to intervention when it has the adverse effect of undue delay or prejudice. See Hoots v. Commonwealth of Pa., 672 F.2d 1133, 1136 (3d Cir.1982) ([W]here ... the interests of the applicant in every manner match those of an existing party and the party‘s representation is deemed adequate, [a court] is well within its discretion in deciding that the applicant‘s contributions to the proceedings would be superfluous and that any resulting delay would be undue.). That is not the case here. There is no support for the notion that any delay here would be undue, or that the Governments arguments would prejudice either Appleton or the IRS. While the issue that concerns both the Government and Appleton is the same, namely, the statute of limitations, the Governments interest in the proceedings is certainly different from Appletons interest in dealing with this one-time tax adjustment. The fact that the Governments interest is somewhat different detracts from the argument that the proceedings will be redundant. To the contrary, they will be complementary and the Governments interest will bolster Appletons argument. As to the delay, any introduction of an intervener in a case will necessitate its being permitted to actively participate, which will inevitably cause some delay. Undue means not normal or appropriate. Webster‘s II New Riverside University Dictionary 1259 (1988). Here, there may be additional discovery needed due to the Governments being in the case, but it wоuld seem to be highly appropriate that time be allowed in order to consider the evidence it brings forth regarding this issue of importance not only to Appleton, but to others, including the Government.
While we do not decide the right of the Government to intervene, we cannot ignore its interest. The Governments interest is based on its desire to protect the Virgin Islands tax structure, or more accurately, the EDP. This interest was granted by Congress to give the Virgin Islands a mechanism to improve its economy. The Government urges that its interest, and the potential harm from the IRS‘s audits, is great, citing statistics that the EDP amounted to 20% of the Virgin Islands budget and 8% of its employment prior to the commencement of the delayed audits
Accordingly, it is clear to us that the Tax Court abused its discretion by not considering whether the Governments intervention would cause undue delay or prejudice. Additionally, as Congress thought it important enough to afford the Government this mechanism to improve its economy, and the Rule permits it to protect its interest through intervention, we will direct the Tax Cоurt to allow the Government of the Virgin Islands to intervene in Appletons proceedings pursuant to Rule 24(b)(2). Therefore, we will remand this matter to the Tax Court, and require that the Government of the Virgin Islands be permitted to intervene pursuant to
AMBRO, Circuit Judge, dissenting.
I agree with my colleagues conclusion that the Tax Court has the discretion tо allow permissive intervention pursuant to Rule 24(b)(2), but disagree that the Tax Court abused its discretion in denying permissive intervention here.
As the majority points out, permissive intervention under Rule 24 requires (1) a timely motion to intervene by (2) a federal or state governmental officer or agency (3) raising an issue that is based on a stаtute, executive order, or regulation that is administered by the entity; in addition, (4) intervention must not cause undue delay or prejudice to the initial parties’ rights. I agree that the first two requirements are easily satisfied here. Contrary to my colleagues’ view, the third requirement was contested by the Internal Revenue Service.1 However, I shall assume (as did the Tax Court) that the V.I. Government meets the third requirement, as my disagreement is with the majority‘s analysis of the fourth.
Although it did not use the precise phrases undue delay and prejudice, the Tax Court concluded that the V.I. Governments intervention would result in just that. Thus, a careful reading of the Tax Courts opiniоn refutes the majority‘s conclusion that [t]here is no support for the notion that any delay here would be ‘undue,’ or that the [V.I.] Government‘s arguments ... would prejudice ... the IRS. As the Tax Court reasoned,
[Appleton] has raised the period of limitations issue, and we presume the mat
ter will be fully vetted during the normal course of thеse proceedings. For [the V.I. Government] to participate in this case as a party solely to make an argument that [Appleton] has already identified as a matter central to his case would introduce a redundancy into the proceedings.... Were we to grant the motion to intervene, [the V.I. Gоvernment] would become a party to the proceeding in this Court and have the right to introduce documentary evidence, call its own witnesses, and cross-examine witnesses of the other parties. Such participation, as a practical matter, could result in trial complications as well as dеlay the resolution of this issue in which [the V.I. Government] asserts an interest.
A20-21. Because the Court found that the V.I. Governments interests would be well represented by Appleton, who has counsel and has made the expiration of the section 6501(a) period of limitations a cornerstone of his case, it concluded that the redundancy, complications, and delay arising from the V.I. Governments intervention would be undue, and would prejudice the IRS. Id. at 19. When viewed together with the fact that the Tax Court permitted the V.I. Government to file an amicus curiae brief, I do not believe this was an abuse of discretion.
My colleagues charaсterize the V.I. Governments interest in this case as a desire to protect legitimate, congressionally sanctioned use of its Economic Development Program (EDP). I am skeptical. They cite the V.I. Governments statistics that the EDP accounted for 20% of its budget and 8% of employment in the V.I. prior to the IRS’ delayed audits and assessments. But they fail to mention that the IRS only began audits after it discovered widespread abuse of the EDP. Thus, we cannot attribute a decline in participation to a fear of endless audits, as opposed to the IRS’ investigation of possible fraudulent use of the program.
My colleagues also fаil to mention that in 2006 the IRS promulgated a regulation that fixes the statute of limitations problem of which the V.I. Government complains. Under
It is true, аs the majority states, that Rule 24(b)(2) specifically provides for governments to protect their interests in matters in litigation.... However, by allowing the V.I. Government to submit an amicus curiae brief, I believe the Tax Court provided it sufficient opportunity to do so. In sum, because I disagree that the Tax Court failed to consider, оr erred by concluding, that the Governments intervention would cause undue delay, I respectfully dissent.