                             T.C. Memo. 2016-32



                       UNITED STATES TAX COURT



         LEONARD L. BEST AND EVELYN R. BEST, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 26662-10L.                       Filed February 29, 2016.



            Held: Order to show cause why Ps' counsel should not pay
     excessive costs pursuant to I.R.C. sec. 6673(a)(2) or be sanctioned
     pursuant to Rule 33(b), Tax Court Rules of Practice and Procedure,
     will be made absolute and excessive costs imposed on counsel.



     Donald W. MacPherson, for petitioners.

     Chris J. Sheldon, Doreen M. Susi, and Brandon A. Keim, for respondent.




     *
      This opinion supplements our previously filed Memorandum Opinion Best
v. Commissioner, T.C. Memo. 2014-72.
                                        -2-

[*2]             SUPPLEMENTAL MEMORANDUM OPINION


       HALPERN, Judge: Donald W. MacPherson is petitioners' counsel in this

case. In a prior report, Best v. Commissioner, T.C. Memo. 2014-72, we held that

respondent may proceed with collection of petitioners' unpaid 1993 and 1994

Federal income tax, determined that petitioners must pay a penalty of $5,000

pursuant to section 6673(a)(1), and contemplated sanctioning Mr. MacPherson for

unnecessarily bringing and prolonging these proceedings.1 By order dated April

28, 2014, we ordered Mr. MacPherson to show cause why we should not require

him to pay respondent's excessive costs pursuant to section 6673(a)(2) or sanction

him pursuant to Rule 33(b) (order to show cause). We also ordered respondent to

express his view on whether the Court should sanction Mr. MacPherson and, if so,

to provide a computation of the excess costs respondent incurred. Mr.

MacPherson and respondent have complied with our order, and we have

considered their responses. Although Mr. MacPherson initially asked for a

hearing, he has withdrawn that request. For the reasons stated, we will make the

order to show cause absolute and award to the United States $19,837.50. Because,


       1
       Unless otherwise stated, all section references are to the Internal Revenue
Code of 1986, as amended and in effect at all relevant times, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
                                          -3-

[*3] in his response, Mr. MacPherson also addressed the penalty that we

determined to impose on petitioners, we will briefly elaborate on our grounds for

imposing that penalty.

                                     Background

      This proceeding to review respondent's determination to proceed with

collection of petitioners' unpaid 1993 and 1994 Federal income taxes is not the

first proceeding in this Court addressing those taxes. Previously, petitioners

challenged respondent's determination of deficiencies in, and additions to,

petitioners' 1993 and 1994 income tax liabilities. That proceeding, Best v.

Commissioner, T.C. Dkt. No. 22241-07 (Jan. 2, 2009) (stipulated decision), was

ended by agreement of the parties. We entered a stipulated decision sustaining

substantial portions of the deficiencies in tax along with additions to tax for both

failure to file a return and failure to pay tax timely and also for failure to pay

estimated tax (all amounts, without distinction, taxes). Mr. MacPherson

represented petitioners in that proceeding. Respondent assessed the resulting

taxes. Petitioners failed to pay the assessed amounts, and respondent issued to

them a Final Notice of Intent to Levy and Notice of Your Right to a Hearing.

      Petitioners requested a section 6330 hearing, stating that they wished to

pursue collection alternatives and penalty abatement. Mr. MacPherson
                                        -4-

[*4] represented them at the hearing. Settlement Officer Irma Hernandez of the

Internal Revenue Service Appeals Office (Appeals) reviewed various computer

transcripts of petitioners' accounts for 1993 and 1994 and concluded that proper

assessments had been made and that collection of the unpaid taxes could proceed.

Mr. MacPherson requested account transcripts for both years, which Ms.

Hernandez provided to him. The transcripts identified petitioners and the year and

type of tax reported and showed the amounts and dates of assessments. During a

telephone conference with Ms. Hernandez, Mr. MacPherson told her that

petitioners had changed their minds about desiring a collection alternative and

were withdrawing their request for such. He conceded that petitioners had

stipulated a decision entered by the Tax Court and were not disputing the

underlying liabilities. He stated that he was disputing the postdecision procedural

steps. Although he claimed that the assessments were neither timely nor proper,

he gave no specifics. He reiterated his earlier request that Ms. Hernandez "provide

a 'summary record of assessment', Form 23C and a Form 4340, plus a copy of the

actual document signed by the officer delegated authority to assess in this case, his

name, and the delegation order showing his authorization to assess in this case."

In making that request, Mr. MacPherson had communicated to Ms. Hernandez:

"Clients are doubting liability/contesting timely & proper assessment & delegated
                                        -5-

[*5] authority of assessment officer." Ms. Hernandez refused his request for those

documents. She explained that there was no requirement in the Internal Revenue

Code or the regulations that Appeals provide the taxpayer with any documents

during the hearing process. She stated that, as a matter of practice, petitioners had

been furnished the account transcripts, which "identify the taxpayers, the character

of the liability assessed, the taxable period and the amount of the assessment".

Ms. Hernandez informed Mr. MacPherson that Appeals would issue a

determination sustaining the levy. On November 1, 2010, Appeals sent to

petitioners a Notice of Determination Concerning Collection Actions(s) Under

Section 6320 and/or 6330, informing them that the notice of intent to levy was

correct and that respondent would proceed with collection.

      On December 1, 2010, in response to the notice, petitioners filed the

petition, which Mr. MacPherson signed on their behalf. By the petition,

petitioners prayed that, "for lack of proper assessment", we determine that they

have no tax liabilities for the years in issue. They averred that Ms. Hernandez

abused her discretion by failing to give them copies of Form 4340, Form 23C,

RACS 006, or a delegation order for the assessment officer who signed petitioners'
                                        -6-

[*6] assessment.2 Respondent answered the petition and, eventually, the case was

set for trial in June 2012, in Phoenix, Arizona.

      In early February 2012, respondent's counsel contacted Mr. MacPherson to

discuss the case. Among other things, he warned Mr. MacPherson that the issues

petitioners had raised during their section 6330 hearing and had alleged in the

petition were listed in respondent's frivolous position notice and were contrary to

established law. At Mr. MacPherson's request, respondent's counsel provided him

with copies of Notice 2010-33, 2010-17 I.R.B. 609, and Rev. Rul. 2007-21, 2007-

14 I.R.B. 865, and he directed him to Craig v. Commissioner, 119 T.C. 252, 262

(2002) ("Nor does * * * [section 6330(c)(1)] mandate that the Appeals officer

actually give a taxpayer a copy of the verification upon which the Appeals officer

relied."), and Nestor v. Commissioner, 118 T.C. 162, 166 (2002) ("Section

6330(c)(1) does not require the Appeals officer to give the taxpayer a copy of the

verification that the requirements of any applicable law or administrative

procedure have been met."). Respondent's counsel warned Mr. MacPherson that,

if petitioners proceeded, respondent would request the Court to impose a section

      2
       Form 4340 is a "Certificate of Assessments, Payments, and Other Specified
Matters". Form 23C is an "Assessment Certificate--Summary Record of
Assessments". RACS 006 is an "Revenue Accounting Control System Report
006", a computer-generated equivalent of Form 23C. They all evidence
assessment. For clarity, we do not include the form names in the text.
                                          -7-

[*7] 6673(a)(1) penalty against them. Sometime after they filed the petition,

respondent provided to petitioners Certificates of Official Records attesting that

the annexed Forms 4340 were true Forms 4340 for petitioners' 1993 and 1994 tax

years.

         On April 4, 2012, respondent filed a motion for summary judgment and for

a continuance (to give the Court time to consider the motion for summary

judgment). On April 11, 2012, in a conference call with the parties, we stated our

reluctance to continue the case if there was a genuine dispute as to a material fact.

Mr. MacPherson was unwilling to state that there was no such dispute. As a

result, we denied the motions. Five days later, Mr. MacPherson contacted

respondent's counsel to suggest that the parties submit the case to the Court fully

stipulated under Rule 122 or that the parties make cross-motions for summary

judgment. The time for making summary judgment motions having expired, the

parties agreed to proceed with a fully stipulated case. They submitted a stipulation

of facts and a Rule 122 motion, which we granted. They filed briefs.

         In our prior report, we stated that we discerned from the petition two

grounds underlying petitioners' assignments of error. Best v. Commissioner, T.C.

Memo. 2014-72, at *9. One, collection could not proceed because Ms. Hernandez

had abused her discretion in relying on transcripts to verify that their unpaid tax
                                        -8-

[*8] had been properly assessed. Two, collection could not proceed because

neither the account transcripts nor the Forms 4340 provided to petitioners during

pendency of this case meet respondent's duty imposed by section 6203 to furnish

them with copies of the Commissioner's records of assessment for the unpaid tax

in issue. We treated petitioners' grounds as raising questions of law.

      We found substantial authority rebutting petitioners' claim that Ms.

Hernandez could not rely on computer transcripts to verify that their unpaid tax

had been properly assessed. We stated: "Nothing in evidence indicates any

irregularity in the assessment procedure that would raise a question that the

assessments were not validly made in accordance with the requirements of section

301.6203-1, Proced. & Admin. Regs." Id. at *14.

      We likewise found substantial authority that respondent had satisfied his

obligation under section 6203 to furnish petitioners with the records of

assessments of their unpaid tax. We stated that the information in the account

transcripts furnished to petitioners by Ms. Hernandez "constitutes all of 'the

pertinent parts of the assessment', which, pursuant to section 301.6203-1, Proced.

& Admin. Regs., on their request, respondent must furnish to them." Id. at *15.

We cited both cases of this Court and of the Court of Appeals for the Ninth Circuit

for the proposition that "[The Commissioner] may choose among documents so
                                         -9-

[*9] long as the form used identifies the taxpayer, states the character of the

liabilities assessed, the tax period giving rise to the assessment, the amount of the

assessment, and the date of assessment." Best v. Commissioner, at *16 (alteration

in original) (quoting Battle v. Commissioner, T.C. Memo. 2009-171, 2009 WL

2151786, at *5). The Forms 4340 furnished to petitioners after this case

commenced contained information much the same as that contained in the account

transcripts. Id. at *16-*17.

      We imposed a section 6673(a)(1) penalty on petitioners because their two

grounds lacked merit and were contrary to established law. We found that their

arguments were frivolous; that nothing supported their assignments of error, which

caused us to further conclude that their claims were groundless; and, finally, that

they maintained the proceedings primarily for delay. We rejected their reliance-

on-counsel defense.

      We contemplated levying excess costs on Mr. MacPherson for unreasonably

and unnecessarily bringing and prolonging the proceedings. We said that we

would accord him the opportunity to respond to that charge.
                                        - 10 -

[*10]                                 Discussion

I.      Requirements for an Award of Excess Costs

        A.    Introduction

        Section 6673(a)(2) plainly imposes three prerequisites to an award of excess

costs. First, the attorney or other practitioner (without distinction, attorney) must

engage in "unreasonable and vexatious" conduct. Second, that "unreasonable and

vexatious" conduct must be conduct that "multiplies the proceedings." Finally, the

dollar amount of the sanction must bear a financial nexus to the excess

proceedings; i.e., the sanction may not exceed the costs, expenses, and attorneys'

fees reasonably incurred because of such conduct. See Gillespie v. Commissioner,

T.C. Memo. 2007-202, 2007 WL 2120069, at *10, aff'd, 292 F. App'x 517 (7th

Cir. 2008).

        B.    Unreasonable and Vexatious Conduct

        The purpose of section 6673(a)(2) is to penalize an attorney for his

misconduct in unreasonably and vexatiously multiplying the proceedings.

Congress has not, however, specified the degree of culpability that an attorney

must exhibit before we may conclude that his conduct in multiplying the

proceedings is unreasonable and vexatious. We have previously relied on

interpretations of 28 U.S.C. sec. 1927 (2012) to ascertain misconduct justifying
                                       - 11 -

[*11] sanctions under section 6673(a)(2) because both serve the same purpose and

have substantially identical language. See, e.g., Takaba v. Commissioner, 119

T.C. 285, 296-297 (2002); Gillespie v. Commissioner, 2007 WL 2120069, at *10.

The Courts of Appeals are not uniform on the level of misconduct required for

sanctions. Moreover, appellate venue regarding section 6673(a)(2) is uncertain.

Venue for appeal of Tax Court decisions is governed by section 7482(b). The

venue for appeal is likely either the Court of Appeals for the Ninth Circuit

(because of the legal residence of petitioners), see sec. 7482(b)(1)(A), or the Court

of Appeals for the District of Columbia Circuit, see sec. 7482(b)(1) (flush

language). The Court of Appeals for the Ninth Circuit is among the majority of

the Courts of Appeals requiring a showing of bad faith. See Moore v. Keegan

Mgt. Co. (In re Keegan Mgmt. Co. Sec. Litig.), 78 F.3d 431, 436 (9th Cir. 1996)

(stating that 28 U.S.C. sec. 1927 sanctions must be supported by a finding of

subjective bad faith). But it has held that bad faith is shown when an attorney

"knowingly or recklessly" raises a frivolous argument. Id. The Court of Appeals

for the District of Columbia Circuit may require only a showing of recklessness.

See LaPrade v. Kidder Peabody & Co., 146 F.3d 899, 905 (D.C. Cir. 1998) ("This

court has not yet established whether the standard for imposition of sanctions

under 28 U.S.C. § 1927 should be 'recklessness' or the more stringent 'bad faith.'");
                                         - 12 -

[*12] Dover v. Medstar Wash. Hosp. Ctr., Inc., 989 F. Supp. 2d 57, 63 (D.D.C.

2013) (repeating Court of Appeals' admonition). Because we are unsure of

appellate venue, and because we find that Mr. MacPherson's conduct would

constitute bad faith under the Court of Appeals for the Ninth Circuit's test for bad

faith, we will for purposes of this case (and without deciding the standard in this

Court), adopt that standard. See Takaba v. Commissioner, 119 T.C. at 298.

      We have already found that petitioners' assignments of error are frivolous

and groundless and were raised primarily for delay. See Best v. Commissioner, at

*21. We believe that Mr. MacPherson intentionally abused the judicial process by

bringing and continuing this case on behalf of petitioners knowing their claims to

be without merit. Indeed, by his own declaration submitted in support of

petitioners' response to respondent's motion to impose sanctions on petitioners,

Mr. MacPherson appears to concede that at least one of petitioners' assignments

was frivolous. Id. at *23. He states that he "concluded many years ago that the

'23C issue' was a 'dead letter' in so far as obtaining the 23C," id., and yet, as

described supra, he assigned error related to Form 23C. Despite Mr.

MacPherson's now arguing that it was not a concession, his statement, along with

cases cited in the petition, demonstrates an awareness on his part that petitioners

are not legally entitled to any particular document for section 6203 purposes. Mr.
                                       - 13 -

[*13] MacPherson knowingly raised a frivolous argument by arguing otherwise,

and so he acted in bad faith. See Keegan Mgmt. Co., 78 F.3d at 436.

      Moreover, as to petitioners' remaining assignments of error, months before

respondent made his motion for summary judgment respondent's counsel put Mr.

MacPherson on notice that respondent considered those arguments frivolous and

contrary to established law. At Mr. MacPherson's request, respondent's counsel

provided to him the authority on which counsel relied. And so Mr. MacPherson

had further knowledge that his claims were without merit.

      C.     Multiplication of the Proceedings

      In the face of both the authority Mr. MacPherson knew at the time the

petition was filed and the authority provided by respondent's counsel, Mr.

MacPherson persisted.3 At no point did he concede any of his assignments of


      3
         One of the authorities respondent's counsel brought to his attention was
Nestor v. Commissioner, 118 T.C. 162, 166 (2002) ("Section 6330(c)(1) does not
require the Appeals officer to give the taxpayer a copy of the verification that the
requirements of any applicable law or administrative procedure have been met.").
Mr. MacPherson points to Judge Foley's dissenting opinion, id. at 179-180, in
which he opined that the Appeals Officer's verification was erroneous because he
had not complied with the requirement of sec. 6203 that, upon his request, "the
Secretary shall furnish the taxpayer a copy of the record of the assessment." The
facts here are distinguishable, because Ms. Hernandez provided petitioners with
account transcripts containing the "pertinent parts of the assessment", which is all
that is required by sec. 301.6203-1, Proced. & Admin. Regs. In any case, the
dissenting opinion was not that adopted by the Court.
                                         - 14 -

[*14] error. It was reckless and unreasonable of Mr. MacPherson to disregard the

authority respondent's counsel brought to his attention and to continue prosecution

of petitioners' meritless claims.

        Mr. MacPherson further multiplied the proceedings and vexatiously

impeded the resolution of this case by objecting to respondent's motion for

summary judgment on the grounds that there was a genuine dispute as to material

facts and then, in less than a week, reversing course and suggesting that the parties

submit the case to the Court fully stipulated under Rule 122 or make cross-

motions for summary judgment. In response to the order to show cause, he states

that his reason for wanting a trial was to allow petitioners to testify in defense to

the section 6673(a)(1) penalty. He never made that clear to the Court in his

objection and has not offered an explanation for his almost immediate change of

mind.

        Finally, we find Mr. MacPherson to have multiplied proceedings in his

response to our order to show cause. He submitted over 400 pages purporting to

support his claim that sanctions are not appropriate, but much of it consists of Mr.

MacPherson's persistence with arguments we have already told him are frivolous.4

        4
      Despite Mr. MacPherson's inappropriate persistence with frivolous
arguments, respondent has not asked and we will not impose on Mr. MacPherson
                                                                   (continued...)
                                       - 15 -

[*15] D.     Financial Nexus to Excess Proceedings

      These proceedings never should have been brought. All of respondent's

costs are, thus, in a sense, excessive. There is, however, some disagreement

among the Courts of Appeals in interpreting 28 U.S.C. sec. 1927 as to whether it is

only possible to multiply, or prolong, the proceedings after a case has been

initiated; presumably because an attorney cannot begin to multiply the proceedings

until some proceeding has come into existence for the attorney to multiply.

Compare Keegan Mgmt. Co., 78 F.3d at 435 (stating that 28 U.S.C. sec. 1927

"applies only to unnecessary filings and tactics once a lawsuit has begun"), with In

re TCI Ltd., 769 F.2d 441, 448 (7th Cir. 1985) (stating that, under 28 U.S.C. sec.

1927, trial judge "had the authority to award the fees incurred right from the

beginning"). We have not addressed the analogous issue under section 6673(a)(2),

and we are not compelled to do so today both because respondent has asked only

for excessive costs associated with the work beginning more than a year after

respondent answered the petition and because, as discussed infra, we find Mr.

MacPherson independently sanctionable under Rule 33(b).




      4
       (...continued)
excess costs for time spent reading and responding to his over 400 pages of
submissions.
                                        - 16 -

[*16] II.    Violation of Rule 33(b)

      Mr. MacPherson has also violated Rule 33(b) and the ABA Model Rules of

Professional Conduct (Model Rules), which, by Rule 201(a), govern his practice

before this Court.

      In pertinent part, Rule 33(b) provides:

             (b) Effect of Signature. The signature of counsel * * *
      constitutes a certificate by the signer that the signer has read the
      pleading; that, to the best of the signer's knowledge, information, and
      belief formed after reasonable inquiry, 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; and that it is not
      interposed for any improper purpose, such as to harass or to cause
      unnecessary delay or needless increase in the cost of litigation. * * *
      If a pleading is signed in violation of this Rule, the Court, upon
      motion or upon its own initiative, may impose upon the person who
      signed it, a represented party, or both, an appropriate sanction, which
      may include an order to pay to the other party or parties the amount of
      the reasonable expenses incurred because of the filing of the
      pleading, including reasonable counsel's fees.

      In pertinent part, Model Rule 3.1 states: "A lawyer shall not bring or defend

a proceeding, or assert or controvert an issue therein, unless there is a basis in law

and fact for doing so that is not frivolous, which includes a good faith argument

for an extension, modification or reversal of existing law." As we have already

stated, petitioners' arguments were frivolous. We further find that arguments to

modify or reverse existing law were not made in good faith.
                                        - 17 -

[*17] Petitioners argued that section 301.6203-1, Proced. & Admin. Regs., is

invalid and a denial of due process because, in response to a taxpayer's request for

a copy of the record of the assessment, see sec. 6203, the regulation requires only

that the Secretary provide "the pertinent parts of the assessment", which do not

include the assessment source document (Form 23C or RACS 006), including the

name and signature of the assessment officer and the date of assessment.5 In

response, respondent argued that petitioners were barred from arguing the

invalidity of the regulation because they had not raised the issue during their

section 6330 hearing and the issue played no role in Appeals' determination to

proceed with collection. It is true that with rare exception we do not have

authority to consider issues that were not raised before Appeals. See, e.g.,

Giamelli v. Commissioner, 129 T.C. 107, 115 (2007) (underlying liability);

Magana v. Commissioner, 118 T.C. 488, 493-494 (2002) (abuse of discretion);

secs. 301.6320-1(f)(2), Q&A-F3, 301.6330-1(f)(2), Q&A-F3, Proced. & Admin.

Regs. Principally for that reason, we did not discuss the validity of the regulation

in our prior report.

      5
       In pertinent part, sec. 301.6203-1, Proced. & Admin. Regs., provides: "If
the taxpayer requests a copy of the record of assessment, he shall be furnished a
copy of the pertinent parts of the assessment which set forth the name of the
taxpayer, the date of assessment, the character of the liability assessed, the taxable
period, if applicable, and the amounts assessed."
                                        - 18 -

[*18] In any event, even if the validity of section 301.6203-1, Proced. & Admin.

Regs., were properly before us, petitioners have made no plausible argument for

its invalidity. The pertinent sentence of the regulation, providing that the

Secretary fulfills his duty to a taxpayer requesting a copy of the record of

assessment by furnishing him a copy of the pertinent parts of the assessment, has

been a part of the regulation since its promulgation in 1954. See T.D. 6119, 1955-

1 C.B. 145, 149-150. The Court of Appeals for the Ninth Circuit has stated with

respect to that sentence: "This represents a permissible interpretation of section

6203, and we are therefore bound to give it deference." Koff v. United States,

3 F.3d 1297, 1298 (9th Cir. 1993). Also, numerous cases hold that, to satisfy a

taxpayer's section 6203 request for the record of the assessment, the Secretary

need not provide original documents, such as a Form 23C, RACS 006, or the name

and signature of the assessment officer. E.g., Goodman v. United States, 185 F.

App'x 725, 728 (10th Cir. 2006) ("No particular form or document is needed to

satisfy the requirements of I.R.C. § 6203 and Treasury Regulation § 301.6203-1.

Instead, an assessment record is sufficient if it provides the taxpayer with the

required information.); Niemela v. United States, 995 F.2d 1061 (1st Cir. 1993)

(unpublished table decision) (citing Gentry); Gentry v. United States, 962 F.2d

555, 558 (6th Cir. 1992) ("The Treasury Regulations specify that the taxpayer is
                                        - 19 -

[*19] entitled to a copy of the pertinent parts of the assessment documents * * *

[and] [n]either the Tax Code nor the Treasury Regulations require those pertinent

parts to be original documents[.]"); United States v. Hart, 917 F.2d 26 (7th Cir.

1990) (unpublished table decision) (stating that the law is settled that the

Government does not have to produce original documents to comply with section

6203 and section 301.6203-1, Proced. & Admin. Regs.); Battle v. Commissioner,

2009 WL 2151786, at *5. The long existence of section 301.6203-1, Proced. &

Admin. Regs., and the weight of authority contrary to petitioners' argument that

the regulation is invalid lead us to conclude that petitioners did not make their

contrary argument in good faith.

      While Mr. MacPherson may be dissatisfied that Congress has not given

taxpayers carte blanche to search the Commissioner's records when the

Commissioner must take action to collect unpaid taxes,6 petitioners have no legal

      6
        In his declaration submitted in support of petitioners' response to
respondent's motion to impose sanctions on petitioners, Mr. MacPherson states
that, since petitioners "had a major collection problem * * * [he] decided to try the
assessment issue believing there is some chance of lack of proper assessment
which will result in voiding the assessment and causing * * * [petitioners] to be
free of the debt as a result of the statute of limitations". See Best v.
Commissioner, T.C. Memo. 2014-72, at *23. We do not directly address whether
the assessment was proper but, rather, whether Ms. Hernandez complied with sec.
6330(c)(1) and (3)(A) and whether petitioners received "a copy of the pertinent

                                                                        (continued...)
                                        - 20 -

[*20] grounds to complain about Ms. Hernandez's treatment of them or Appeals'

resulting determination to proceed with collection. Mr. MacPherson had no basis

in fact and in law for bringing this proceeding and signing the petition.

      "Rule 33(b) clearly imposes an affirmative duty on each attorney to conduct

a reasonable inquiry into the viability of a pleading before it is signed. " Versteeg

v. Commissioner, 91 T.C. 339, 343 (1988). Mr. MacPherson has signed pleadings

and other papers to bring and defend these proceedings knowing petitioners'

claims to be meritless.7 He has done so in violation of our Rules and the Model

Rules and, thus, has intentionally abused the judicial process. We may sanction

him for that conduct.

      Accordingly, sanctions should be imposed on Mr. MacPherson under both

section 6673(a)(2) and Rule 33(b) for filing the petition and multiplying the

proceedings unreasonably and vexatiously. Because only frivolous issues were

raised, the bringing of this case in and of itself was nothing more than a meritless


      6
       (...continued)
parts of the assessment", which is all that they were entitled to under sec.
301.6203-1, Proced. & Admin. Regs.
      7
        The pleadings and papers we have in mind are the petition, petitioners'
brief, petitioners' reply brief, petitioners' response to respondent's motion to
impose a penalty, supplement to petitioners' response to respondent's motion to
impose a penalty, petitioners' motion for reconsideration, and petitioners' notice of
relevant judicial decisions.
                                        - 21 -

[*21] tactic requiring the use of Government and Court resources that could

otherwise have been applied to hear legitimate taxpayer concerns. Respondent is

entitled to his attorney's fees incurred in defending this case. The tactics Mr.

MacPherson employed in this case were designed to impede respondent's

legitimate efforts to collect petitioners' unpaid 1993 and 1994 taxes.

III.   Amount of Sanctions

       One option for determining the amount of sanctions to impose on Mr.

MacPherson is to follow what we said in Harper v. Commissioner, 99 T.C. 533,

549 (1992): "Attorney's fees awarded under section 6673(a)(2) are to be

computed by multiplying the number of excess hours reasonably expended on the

litigation by a reasonable hourly rate. The product is known as the 'lodestar'

amount." We ordered respondent to provide us with a computation of costs to

assist us in computing a lodestar amount. In that regard, respondent has provided

us with declarations of Attorneys Brandon A. Keim and Doreen M. Susi. Attached

to both declarations are copies of respondent's internal timekeeping records,

showing the time expended on this case by, among others, Mr. Keim and Ms. Susi.

       Respondent submits for reimbursement 115.25 hours of Mr. Keim's time at

$150 an hour. Mr. Keim is the attorney with day-to-day responsibility for this

case. He is employed in the Office of Chief Counsel in Phoenix, Arizona. He has
                                       - 22 -

[*22] been admitted to practice law in Arizona since 2011. He has detailed time

spent on this case since January 28, 2012, which involves time spent on research,

drafting, telephone calls, and review of submissions to the Court. Respondent also

submits for reimbursement 12.75 hours of Ms. Susi's time at $200 an hour. Ms.

Susi is Mr. Keim's supervisor. She is an Associate Area Counsel in the Office of

Chief Counsel in Phoenix, Arizona. She has been employed by that office since

1983. She has detailed time spent on this case since April 7, 2012, which

principally involves review of various submissions to the Court.

      Mr. MacPherson does not challenge the reasonableness of either Mr. Keim's

or Ms. Susi's hourly rates. For the most part, he also does not challenge the time

spent by either Mr. Keim or Ms. Susi. He claims that respondent did not provide

time sheets/records showing time expended. That claim is untrue. Respondent's

internal timekeeping records were attached to both Mr. Keim's and Ms. Susi's

declarations. He also argues that Mr. Keim's expenditure of 27 hours to prepare a

motion for summary judgment and motion for continuance, and Ms. Susi's

expenditure of 2.25 hours to review those motions were not reasonable or

necessary: "No award should be provided for time expended re the useless MSJ".

      We do not find 27 hours expended to prepare a motion for summary

judgment and a motion for continuance to be unreasonable. And the only reason
                                       - 23 -

[*23] that motion was "useless" was that Mr. MacPherson represented to

respondent and the Court that trial was necessary as there were genuine issues of

fact to be tried. As we have already stated, that representation was quickly refuted

when, five days later and after we denied the motions, Mr. MacPherson suggested

that the parties submit the case to the Court fully stipulated under Rule 122. If Mr.

MacPherson had not made his initial representation, we could have fully resolved

the case through respondent's motion for summary judgment. And so Mr.

MacPherson prolonged these proceedings even further. We also find 2.25 hours

expended to review a motion for summary judgment and motion for continuance

to be reasonable.

      Mr. MacPherson knew or should have known that this case should never

have been commenced. And for that reason, we are inclined to hold that Mr.

MacPherson is liable for all of the time spent by respondent, not to mention time

expended by the Court in processing and reviewing all of Mr. MacPherson's

submissions. We will limit our sanctions, however, to the lodestar amount

submitted by respondent: 115.25 hours of Mr. Keim's time at $150/hour and 12.75

hours of Ms. Susi's time at $200/hour equals $19,837.50. We will sanction Mr.

MacPherson and require him to pay that amount.
                                        - 24 -

[*24] IV.    Section 6673(a)(1)(B) Penalty Imposed on Petitioners

      In Mr. MacPherson's response to the order to show cause, he continues to

address the section 6673(a)(1) penalty that we determined to impose on

petitioners. See Best v. Commissioner, at *22. We will briefly expand on our

reasons for imposing the penalty.

      Section 6673(a)(1)(B) allows the Tax Court to sanction taxpayers for

advancing frivolous or groundless positions. In our prior report, we stated that

reliance on the advice of counsel is not a defense to the imposition of a section

6673(a)(1)(B) penalty. Best v. Commissioner, at *22. Mr. MacPherson points out

that in Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 103 (2000),

aff'd, 299 F.3d 221 (3d Cir. 2002), we allowed just such a defense. That is true.

In that case, the Commissioner moved for the sanction, on the basis in part of the

taxpayers' counsel's litigation conduct, i.e., "contest[ing] unreasonably the

admissibility of documents", "fail[ing] to comply fully with discovery requests,"

unreasonably calling certain witnesses, and "unreasonabl[y] * * * defend[ing]

against (1) respondent's motion to compel documents * * * and (2) respondent's

offer of evidence as to certain marketing materials and other evidence." Id. at 102.

With respect to those grounds, we said:
                                         - 25 -

[*25] Petitioners are not directly responsible for most of the actions listed
      by respondent in support of his motion to impose penalties. Those
      actions are best traced to petitioners' counsel, and, given the facts of
      this case, we decline to impute the actions of petitioners' counsel to
      petitioners themselves for the purposes of imposing a penalty under
      section 6673(a)(1)(B). Petitioners have reasonably relied on the
      advice of their trial counsel that their litigating positions had merit.
      * * * [Id. at 103.]

      The facts that were before us in Neonatology Assocs. are distinguishable

from the facts here before us. We are not here dealing with taxpayers relying on

counsel for how to conduct litigation. We are dealing with petitioners' decisions

to bring this case in the first place and then to maintain it. Their declarations, set

forth in part in Best v. Commissioner, at *21-*22, make it clear that it was not

their idea to raise before Appeals and in this Court the issues with respect to which

they assigned error. Each declares: "I have relied totally on the tax advice of

MACPHERSON concerning my Collection Due Process Hearing * * * request,

petition to the Tax Court, and Tax Court litigation." Id. (alteration in original).

Petitioners' assignments of error challenge established law. Neither declares that

he (or she) either read the petition or asked Mr. MacPherson about its content. As

we said, id. at *22, "[we] need * * * [not] excuse a taxpayer's failure to review

pleadings and other documents filed on his behalf." Also: "The purpose of

section 6673 is to compel taxpayers to think and to conform their conduct to
                                        - 26 -

[*26] settled principles before they file returns and litigate." Id. We have no

evidence that petitioners fulfilled those obligations. Petitioners may not blindly

rely on counsel to advance arguments and use ignorance as a shield to avoid a

section 6673(a)(1)(B) penalty. We continue to believe that petitioners should pay

a section 6673(a)(1) penalty of $5,000 to the United States in this case.8

V.    Conclusion

      We will make absolute the order to show cause in that we will award the

United States $19,837.50 as a penalty imposed against Mr. MacPherson under

section 6673(a)(2).


                                                 The order to show cause will be made

                                       absolute.




      8
        Respondent informed Mr. MacPherson that petitioners' position was
frivolous, and Mr. MacPherson had a duty to inform petitioners of respondent's
position. See Rule 201(a); Model Rules of Prof'l Conduct r. 1.4. It should have
been petitioners' decision as to whether they wanted to proceed with arguments
that respondent regarded as frivolous. See Model Rules of Prof'l Conduct r.
1.2(a), 1.4. If Mr. MacPherson did not communicate such important information
to petitioners, that may resolve a matter between them, but it does not discharge
petitioners' obligations before this Court. See United States v. Boyle, 469 U.S.
241, 250 (1985).
