[00:00:00] Speaker 02:
is 161313, Sandoval versus United States.

[00:00:39] Speaker 02:
Whenever you're ready, sir.

[00:01:03] Speaker 01:
Good afternoon, Your Honor.

[00:01:06] Speaker 01:
Plaintiffs argue that there was no contract.

[00:01:14] Speaker 01:
There was no acceptance of the waivers.

[00:01:17] Speaker 01:
And because the waivers were not accepted or performed, then the assessments themselves were invalid.

[00:01:24] Speaker 02:
I thought your position was that they withdrew their consent.

[00:01:28] Speaker 01:
Correct.

[00:01:29] Speaker 01:
There's actually several arguments.

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One is that the waivers are invalid.

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because the waivers were invalid because there was no acceptance.

[00:01:45] Speaker 01:
When you look at the letters 987, one indicates that we reviewed and we made no changes to the report, and then we look at the second, the revised form letter 987, that clearly indicates that the waivers were accepted, but in this case,

[00:02:05] Speaker 01:
The second, 987, which is the June 2007.

[00:02:08] Speaker 01:
That was my reason.

[00:02:09] Speaker 02:
You're going to have to give us a, can you give us an appendix site?

[00:02:13] Speaker 01:
Yes, Your Honor.

[00:02:17] Speaker 02:
Which was the, which?

[00:02:20] Speaker 01:
I would have to look through the file and provide the two letters.

[00:02:25] Speaker 01:
Okay, give us a date then at least.

[00:02:27] Speaker 01:
Yes, the letter of the 987, one is November 5th, 2007.

[00:02:35] Speaker 01:
The second one is November 7th of 2007, and that's the original letter that was sent to the taxpayers by PSP.

[00:02:45] Speaker 01:
PSP is the IRS Processing Unit.

[00:02:48] Speaker 01:
Now, the revised 97 letter, that was never issued to the plaintiffs, and it was through discovery that plaintiffs discovered that there was no acceptance.

[00:03:00] Speaker 01:
Now, the second component in terms of

[00:03:03] Speaker 01:
there was no waivers, is the waivers were withdrawn.

[00:03:08] Speaker 01:
The plaintiffs were informed that the agreements were accepted, actually that there was an agreement, the taxes were assessed, and the cases were closed from the group.

[00:03:23] Speaker 01:
And that is based on the fact of audit reconsideration.

[00:03:28] Speaker 01:
Audit reconsideration as set forth

[00:03:30] Speaker 02:
I don't know.

[00:03:31] Speaker 02:
I'm sorry.

[00:03:31] Speaker 02:
Can you just step back a minute?

[00:03:33] Speaker 02:
I'm trying to understand what the evidence that you presented was to support a finding that they withdrew their consent.

[00:03:41] Speaker 02:
So can you provide a point to anything in the record on that point?

[00:03:45] Speaker 01:
Yes.

[00:03:45] Speaker 01:
If we look at Exhibit 41P, which is Appendix 12, which sets out a letter which is dated November 2, 2007.

[00:03:57] Speaker 01:
Now, that letter

[00:04:00] Speaker 01:
makes indicates that Mr. Gannon, who was the revenue agent that audited the taxpayers... You're talking about A-12 in the appendix?

[00:04:09] Speaker 02:
Yes, A-12.

[00:04:10] Speaker 02:
Okay.

[00:04:11] Speaker 01:
Which indicates that Mr. Gannon informed the taxpayers that the cases were closed from the group.

[00:04:18] Speaker 01:
Now, with that letter, you have to go through several exhibits.

[00:04:22] Speaker 01:
If you go through to appendix and its defendant's exhibit 90, and that is

[00:04:29] Speaker 01:
a defendant's contact and activity sheets.

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And that sheet confirms that Mr. Gan is informing the plaintiffs that these cases were closed, that the taxes were assessed, and that they're requesting or directing the plaintiffs to proceed with audit reconsideration.

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Now, that evidence, when you look at the exhibit A-12,

[00:04:59] Speaker 01:
It would also go, it refers you to the transmittal report.

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And the transmittal report is Appendix A-1.

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And on that transmittal report, Mr. Gann is telling all the parties that one, there was an agreement, two, that after the taxpayers

[00:05:29] Speaker 01:
received representation that these, well, before they received, after the additional taxes were assessed, the plaintiffs received representation and the cases are closed.

[00:05:40] Speaker 01:
All those facts, as you defined, as stated out in the complaint, they set out what audit reconsideration meant.

[00:05:47] Speaker 01:
It means that there was a prior audit, there was an agreement, there was an assessment, and the case is closed.

[00:05:53] Speaker 01:
But if you look at the factual record from

[00:05:57] Speaker 01:
The letter that was issued to the defendant ties in to the contacts and activities report, which also ties in to the report transmittal, which is Appendix A1.

[00:06:12] Speaker 01:
And then we look at the... Council?

[00:06:20] Speaker 03:
Yes, Your Honor.

[00:06:22] Speaker 03:
Let me ask you a couple of housekeeping questions.

[00:06:23] Speaker 03:
Yes.

[00:06:24] Speaker 03:
I'm having real trouble with your record.

[00:06:27] Speaker 03:
You say on page 6, on page 8 of the brief, claims hereby incorporate by reference the following relevant documents.

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And then you list complaint, answer, and so on.

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What's your procedural basis for incorporating those by reference into an appellate brief?

[00:06:44] Speaker 01:
Well, in my reference is that they're part of, based on the, I believe, they're part of the case.

[00:06:54] Speaker 03:
Based on what?

[00:06:55] Speaker 03:
Were you going to say frat?

[00:06:57] Speaker 03:
Federal Rules of Appellate Procedure.

[00:06:58] Speaker 01:
Right, in that sense that... And what role is that?

[00:07:01] Speaker 01:
I would have to look at the rule itself, Your Honor, but it's my understanding... Well, if you do that, and you let me know.

[00:07:07] Speaker 03:
Okay.

[00:07:08] Speaker 03:
Okay, now let's turn to page 16, where you say, in another litany, Plaintiff White's wife stated, quote, when my attorney spoke with Mr. Gann on the phone,

[00:07:24] Speaker 03:
Mr. Gann indicated that the cases were closed.

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And they were also closed by the group manager, Ms.

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Michelle Pallas.

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And my note in here is, how exactly is this not hearsay?

[00:07:36] Speaker 01:
Your Honor, it's not hearsay in the sense that it is a state of mind issue.

[00:07:43] Speaker 01:
In a state of mind, it is not.

[00:07:45] Speaker 03:
So it's not asserted for the truth of the matter contained therein?

[00:07:48] Speaker 01:
It's set out to show what they believed at that time.

[00:07:54] Speaker 01:
So it is not non-hearsay.

[00:07:57] Speaker 01:
And when you look at these facts, Your Honor, and I think... So you don't expect us to believe that the attorney actually said that?

[00:08:08] Speaker 01:
Your Honor, these are agency, also agency statements.

[00:08:14] Speaker 01:
And the attorney and the client, they would be part of that person.

[00:08:20] Speaker 01:
So it would be

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a non-hearsay matter as well.

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The attorney is the agent of that taxpayer.

[00:08:32] Speaker 01:
But I think what has to be reviewed is that when you look at the facts and circumstances of the case from the A12, the Contacts and Activities Report, A122,

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We also look at A1, and we see a consistent pattern in which the information... Am I missing an appendix?

[00:09:01] Speaker 03:
I have a supplemental appendix, and I have your brief with appendix documents attached there, too.

[00:09:07] Speaker 03:
Is there something else that we didn't get?

[00:09:09] Speaker 01:
It's possible, Your Honor.

[00:09:11] Speaker 01:
I would have to look.

[00:09:12] Speaker 03:
Don't.

[00:09:14] Speaker 03:
Come on, Hanson.

[00:09:14] Speaker 03:
You're supposed to know your record to that extent.

[00:09:16] Speaker 03:
Did you submit an appendix other than what was attached?

[00:09:19] Speaker 01:
I did not submit a full appendix, but counsel did submit an appendix.

[00:09:24] Speaker 03:
So to what are you referencing when you say A-12?

[00:09:29] Speaker 01:
A-12, it would be a defendant's appendix, which is A-124.

[00:09:36] Speaker 03:
Okay, I'm at the end of your brief, where you sign your name on page 46,

[00:09:46] Speaker 03:
And then I have page 48, which is your declaration.

[00:09:49] Speaker 03:
And the next page is A156.

[00:09:51] Speaker 03:
So where is 12?

[00:09:54] Speaker 01:
Your Honor, it's in defendant's appendix.

[00:09:57] Speaker 02:
In the red appendix?

[00:09:59] Speaker 01:
It should be in the red appendix.

[00:10:00] Speaker 02:
So I've got SA124.

[00:10:04] Speaker 02:
What are you referring to?

[00:10:06] Speaker 02:
This is a worksheet for child tax credits.

[00:10:10] Speaker 01:
No, there should be in the appendix an exhibit 1P

[00:10:16] Speaker 01:
excuse me, exhibit 124.

[00:10:18] Speaker 01:
It should be part of that exhibit, Your Honor.

[00:10:22] Speaker 02:
We've gone through the appendix, but if you want us to rely on something and think about something, you have to give us a citation so we can refer to it.

[00:10:34] Speaker 01:
Your Honor, these exhibits are part of defendants' summary motion exhibits.

[00:10:44] Speaker 01:
And I'm referring to, and I believe

[00:10:46] Speaker 01:
The rules allow reference to those appendix.

[00:10:50] Speaker 03:
Sure they do.

[00:10:51] Speaker 03:
So you're referring to the supplemental appendix, SA rather than A. Is that right?

[00:10:56] Speaker 01:
Well, Your Honor, I am referring to the, I believe, defendant filed the supplemental.

[00:11:05] Speaker 03:
If you say A-12, I go looking in your appendix.

[00:11:09] Speaker 03:
If you say SA-12, I'll go looking theirs.

[00:11:12] Speaker 03:
But you have to help us.

[00:11:14] Speaker 01:
Your Honor, I believe the best is to look at the summary judgment motion and they would be... It would be 124.

[00:11:26] Speaker 02:
Of what?

[00:11:27] Speaker 01:
It would be of defendant's motion for summary judgment.

[00:11:31] Speaker 02:
No, but where is it in the appendix?

[00:11:33] Speaker 02:
Where can we find it?

[00:11:34] Speaker 01:
It's not in my appendix, Your Honor.

[00:11:36] Speaker 02:
And it's not in the government's appendix.

[00:11:39] Speaker 03:
It should be in defendant's... SA 124 is a document titled

[00:11:44] Speaker 03:
earned income work for child tax credit.

[00:11:49] Speaker 03:
You're not helping us.

[00:11:50] Speaker 01:
I do apologize, Your Honor.

[00:11:52] Speaker 02:
Have you gone through the supplemental appendix so that you're aware what's here and what's not?

[00:11:58] Speaker 01:
I have, Your Honor.

[00:11:59] Speaker 01:
I have.

[00:11:59] Speaker 01:
But it was my understanding that I could refer under the Federal Rules of Civil Procedure, based on the court rules, I can refer to the documents from the trial.

[00:12:11] Speaker 02:
Well, you can if they're contained in the appendix that you've submitted.

[00:12:22] Speaker 03:
You're telling us they're not?

[00:12:24] Speaker 01:
They're not part of the appendix that I submitted to the court, Your Honor.

[00:12:31] Speaker 02:
Well, that's a problem.

[00:12:32] Speaker 02:
And I don't know what rule you're referring to.

[00:12:34] Speaker 02:
But if your brief is citing and relying on for purposes of argument portions of the record,

[00:12:40] Speaker 02:
those portions of the record should be included in the appendix.

[00:12:44] Speaker 02:
I do apologize, Your Honor.

[00:12:46] Speaker 02:
Well, why don't we hear from the government and we'll retain the rest of your rebuttal.

[00:12:59] Speaker 00:
May it please the court, I'm Regina Moriarty on behalf of the United States.

[00:13:03] Speaker 02:
Can you just help us out for the beginning?

[00:13:05] Speaker 02:
I know it's not your job, but we really are obviously confused up here in terms of the record.

[00:13:10] Speaker 02:
So do you know whether we're missing something in the documents that your friend referred to?

[00:13:14] Speaker 02:
Are they anywhere in the appendix?

[00:13:17] Speaker 00:
Some of them will be in my supplemental appendix.

[00:13:20] Speaker 00:
A lot of them are not.

[00:13:23] Speaker 00:
The court rules, courts, as you know, the appellants to contact the appellee to jointly deal with the appendix.

[00:13:30] Speaker 00:
That never happened in this case.

[00:13:32] Speaker 00:
Your rules also allowed the government to submit their own supplemental appendix.

[00:13:36] Speaker 00:
So in this case,

[00:13:37] Speaker 00:
In my supplemental appendix, I put in everything that we thought was relevant to the government's argument in this case.

[00:13:44] Speaker 02:
And that you cite in your appeal.

[00:13:45] Speaker 00:
And that I cite in my appendix.

[00:13:46] Speaker 00:
The one exception, I think, is maybe a claim for refund that was sealed in this case.

[00:13:53] Speaker 00:
And I wasn't really sure how to deal with it.

[00:13:56] Speaker 00:
I didn't want to put a sealed document in.

[00:13:57] Speaker 00:
And I believe it was sealed because the Social Security numbers were redacted.

[00:14:01] Speaker 00:
And it really wasn't that important in our case.

[00:14:05] Speaker 00:
So I left that out.

[00:14:06] Speaker 00:
I think that all of his sites are probably or most of them are to federal court of claims documents that were filed in the original record, a lot of them.

[00:14:17] Speaker 02:
Well, do you have a view?

[00:14:18] Speaker 02:
I mean, you may know the record.

[00:14:19] Speaker 02:
You obviously know the record better than we do.

[00:14:22] Speaker 02:
So do you have a view on responding to the assertions he's made with respect to those documents?

[00:14:27] Speaker 02:
Are you able to do that?

[00:14:29] Speaker 00:
My first response is going to be that the courts have held that the form 4549 is not a contract.

[00:14:36] Speaker 00:
It's a unilateral waiver.

[00:14:39] Speaker 00:
It's an abandonment of a defense.

[00:14:43] Speaker 00:
It doesn't, in this case it is in fact signed by the revenue agent and in his testimony and his deposition when he explained that where it says is this form subject to review by the district director it's because they're looking for errors that he might have made and it's not like it's a contract that the taxpayer can come back and say well we both signed this document and I'm

[00:15:05] Speaker 00:
And that's the number we agreed to.

[00:15:07] Speaker 00:
So there's still some review.

[00:15:09] Speaker 00:
But all of the terms of a case being closed and audit reconsideration, those are all terms that are identified in the Internal Revenue Manual as guidance for the IRS employees when they're doing an audit.

[00:15:22] Speaker 00:
The statutes in this case never discuss those.

[00:15:25] Speaker 00:
And so when you look at 6213 and it talks about before

[00:15:34] Speaker 00:
a tax can be assessed, you have to have a notice of deficiency, but a taxpayer can waive that in writing.

[00:15:40] Speaker 00:
And then you turn to the regulations and it says that waiver can be withdrawn before assessment.

[00:15:46] Speaker 00:
So those are, the government's position is those are the critical things to look for, not whether a case has been closed, not whether a case is in audit reconsideration.

[00:15:55] Speaker 00:
The revenue agent explained here that he audited these taxpayers for over a year and he closed the case because

[00:16:03] Speaker 00:
It was his impression that there was nothing else more to be gained.

[00:16:07] Speaker 00:
He had dealt with them.

[00:16:09] Speaker 00:
He thought he had provided them all the information that they had.

[00:16:13] Speaker 00:
When my opposing counsel got involved and sent the letter, he indicated in that letter that there was, he was working with the taxpayers and in a couple of weeks he thought he would have more records available.

[00:16:25] Speaker 00:
And at that point, I think the IRS,

[00:16:30] Speaker 00:
very nicely went ahead and said, okay, let's reconsider this information.

[00:16:34] Speaker 00:
They worked with these taxpayers for quite a long time and they in fact... Substantially reduced it.

[00:16:40] Speaker 00:
Reduced it.

[00:16:42] Speaker 00:
And when you, the bottom line here is that they filed these amended returns and they may be a little quirky in some of the columns but column C of those amended returns which are signed under penalties of perjury which say everything in here is true to our belief

[00:17:00] Speaker 00:
that lists a tax, and with that return, that amended return, they submit checks.

[00:17:06] Speaker 00:
So if you fill out your tax return on April 15th and you send it in with a check, the IRS considers that a payment.

[00:17:14] Speaker 00:
That amount never has to be assessed.

[00:17:16] Speaker 00:
It's, I mean, they usually routinely are, but if it's not, that's a payment of tax.

[00:17:21] Speaker 00:
So when you submit a check of remittance

[00:17:24] Speaker 00:
Unless you identify it specifically as a deposit, which is what the new code section 6603 deals with, it's going to be considered a payment.

[00:17:33] Speaker 00:
So in this case, the remittances were sent in.

[00:17:35] Speaker 02:
And what is the consequence?

[00:17:37] Speaker 02:
What is the difference?

[00:17:37] Speaker 02:
Why are we arguing about payments and deposits?

[00:17:42] Speaker 00:
If it's a payment of tax, you can file a claim for refund within two years to get that back.

[00:17:48] Speaker 00:
If it's a deposit, there's no clock running for that.

[00:17:51] Speaker 00:
As is relevant in this case, if it's a payment of tax, the case law has said even if there's no assessment in this case, you cannot get that money back if it was a payment of tax unless you show that you have in fact overpaid your taxes.

[00:18:08] Speaker 00:
In this case, they've never claimed in their claim for refunds, even in their briefs here, they've never claimed we've paid more than were due.

[00:18:16] Speaker 00:
All of their arguments have been

[00:18:18] Speaker 00:
There was no valid assessment because I withdrew this waiver, which we don't believe they did, but even if it was withdrawn, as our brief explains, they haven't overpaid their taxes because what was assessed was the amounts that they listed on their amended return that their counsel said in the letter providing this to the IRS that we believe that these are substantially correct amounts.

[00:18:45] Speaker 00:
When you look at the deposition testimony of the wife in this case, she reiterated that.

[00:18:52] Speaker 00:
We submitted these amounts because we believe that was the amount of tax that we owed.

[00:18:58] Speaker 00:
Does the court have any questions?

[00:19:00] Speaker 01:
Thank you.

[00:19:05] Speaker 01:
Your Honor, in regards to my colleague's information, the 4549s are in fact... I'm sorry, can you speak up again?

[00:19:15] Speaker 01:
regarding my colleagues' representation, a 45-49 is a contract.

[00:19:21] Speaker 01:
And if you look at the holdings in, excuse me, the holdings in Stern, in Philadelphia Reading, in Yellow Cab, all of them indicate in essence that these, whether it's an 870 or 45-49, they are contracts.

[00:19:44] Speaker 01:
And because they are contracts, the terms of acceptance must be fully complied with.

[00:19:50] Speaker 01:
In this case, there was no acceptance.

[00:19:53] Speaker 01:
The form letter 987, which sets out, we have reviewed and accepted, the taxpayers never received.

[00:20:00] Speaker 01:
And because of that, based on Philadelphia and Reading Corp, which is significantly similar to our case, where the cases were in processing,

[00:20:14] Speaker 01:
The waivers were never accepted.

[00:20:18] Speaker 01:
The assessments were never made.

[00:20:21] Speaker 01:
And in essence, because there was no acceptance of those waivers, the waivers were invalid.

[00:20:27] Speaker 01:
And in theory, legal theory, they were entitled to a 90-day letter.

[00:20:33] Speaker 01:
And they never received a 90-day letter.

[00:20:35] Speaker 01:
And now going into the issue that you have indicated in terms of a payment versus deposit.

[00:20:41] Speaker 01:
In terms of a payment versus a deposit, if it's a deposit, then the taxpayers are entitled to all the money, whether it's tax or interest.

[00:20:51] Speaker 01:
The courts have held in New York Life, in Rosamond, and in various other cases that a deposit you cannot go to the merits of the assessment.

[00:21:05] Speaker 01:
You cannot

[00:21:06] Speaker 02:
Where did they indicate on the payment that it was a deposit not payment?

[00:21:10] Speaker 01:
Your Honor, if you review even the Revenue Procedure 2005-18, a deposit is not required, a statement of deposit isn't required on that form.

[00:21:21] Speaker 01:
It merely, it also classifies a payment where it doesn't state that it's a deposit as a deposit if the taxpayers did not remit full payment.

[00:21:35] Speaker 01:
by the fact that the taxpayers, when you look at these amended returns, they do not remit 100% of the tax.

[00:21:46] Speaker 01:
And the other part that has to be considered is that when my colleague makes reference to the amended returns that are dated June 25th.

[00:21:57] Speaker 03:
So you're saying they paid less than they owe?

[00:21:59] Speaker 01:
They paid less than they owe.

[00:22:01] Speaker 01:
And therefore, by definition, it's a deposit and not a payment?

[00:22:04] Speaker 01:
In that argument, it becomes a deposit just by reading... So you're conceding they owe more taxes?

[00:22:11] Speaker 01:
No, they don't owe any more taxes because there were some offsets.

[00:22:16] Speaker 01:
What the government did is in 2007, there were refunds.

[00:22:21] Speaker 01:
So the government took under section 6402, they took amounts of refunds from a prior year and offset them against the liabilities that were set out in 2003 and 2004.

[00:22:35] Speaker 01:
And by that, in essence, they levied their account to service a disputed liability.

[00:22:43] Speaker 01:
But as my counsel had argued that if it applies new law and if you apply 2005-18, that revenue procedure, if you follow those rules, it still comes out that it is a deposit.

[00:23:01] Speaker 01:
Because there was no full agreement,

[00:23:03] Speaker 01:
and these amended returns, they have to be taken in its true context because they're not amended returns.