More Legal Advice by David Berman

On David Berman and His U.S. Tax Court Views
More Idiocy on Parade

I see that David Berman does not yield easily on the question of whether or not the association might be called upon to initiate litigation in response to a tax deficiency claim should the matter be appealed to the United States Tax Court.

All of those hundreds of thousands of tax court litigation attorneys are in for a surprise to learn that what they practice is something other than litigation if they practice law before the U.S. Tax Court. Perhaps they are unaware that what they advertise they do, like “Tax Court Litigation,” is not really litigation—according to our resident legal expert. David apparently knows what they do and he is of the opinion that what they do is not litigation. If only David would agree that private legal counsel hired to defend their client before the U.S. Tax Court is engage in litigation, then the prohibition against initiating such action that is contained in NRS 116.31088 without securing prior unit owner approval would apply.

But David has two even greater problems to overcome if he is to prevail on this issue. His first problem is the language contained in our own CC&Rs. In his most recent response attacking my credibility, "Idiocy on Parade," David chose to ignore the pertinent language I had addressed on specific limitations on association litigation contained in our CC&Rs. That language differs significantly from the language in NRS 116 in a number of critical respects as discussed later down the page.

David’s greatest problem, however, lays with the agency whose rules of practice one is obligated to follow, the IRS. When a taxpayer challenges a claimed deficiency determination before the U.S. Tax Court, the IRS writes that the activity engaged in by the taxpayer, who is typically represented by an attorney, is "litigation" in numerous manual reference, not something else as Mr. Berman alleges. While David dabbles in the process that leads to such activity, there should be no doubt that the taxpayer had to initiate litigation in order to go before the U.S. Tax Court. This is true whether as the "petitioner" in matters where the taxpayer has not yet paid a tax deficiency or as the "plaintiff" in U.S. District Court in matters where the taxpayer has already paid a disputed tax liability.

To reinforce the argument that “litigation” is the proper term to describe what goes on before the U.S. Tax Court, all one has to do is to refer to the IRS Revenue Manual, which is online for all to read. Of the three Parts of the manual that deal with "litigation," one Part in particular is devoted exclusively to “TAX COURT LITIGATION,” that is, Part 35. Part 35 has 11 Chapters, including one devoted to a listing of over 200 exhibits that may be used in litigation proceedings by petitioners seeking to challenge IRS determinations. Part 35 exists for the benefit of the Court and the petitioner who is litigating the matter before the Tax Court. For their own internal use in litigating Tax Court cases, the IRS has a separate manual titled, TAX LITIGATION GUIDEBOOK, which is for internal use by IRS personnel.

While Mr. Berman comments are welcome, he chose to ignore how litigation is treated in our own CC&Rs. Why would he do that? Most likely he chose to ignore how litigation is treated in our CC&Rs because his opinion does not really apply to or address correctly how our CC&Rs treat association litigation. Said differently, why address our CC&R limitations on such similar litigation if one has nothing to contribute to the issue. Some may view David’s failure to address this CC&R matter as his way of admitting that his opinion does not hold water and lacks any relevance to the association litigation issue. How come?

It will be helpful if we restate what our CC&Rs have to say about what the board can and cannot do insofar as taking legal action is concerned. In contrast to NRS 116.31088 where a “civil action” is the apparent test to invoke the requirements of the Nevada statue, our own CC&Rs would appear to go far beyond what some would assume constitutes a “civil action” in defining the scope of proceedings that are covered by the state’s prohibition against litigation without first seeking homeowner approval. In strike contrast to the statute, Sun City’s CC&Rs state that the association may not commence “a judicial or administrative proceeding” without first obtaining the vote of owners of 75% of the total number of lots in the association.

What exactly is a judicial proceeding? It’s a procedure or hearing before a court, or a tribunal or administrative board that performs a judicial function. It would be tough to argue that the U.S. Tax Court does not serve or operate as a tribunal performing a judicial function. While there are a number of similar definitions for a “judicial proceeding,” it would be exceedingly difficult if not impossible for any reasonable person to conclude that proceedings before the U.S. Tax Court are not some type of judicial proceeding. As a result and under our CC&Rs, substantial homeowner approval (75%) is required prior to any association litigation of the type practiced before the U.S. TAx Court.

According to the website of the Tax Court, the Tax Court is a court of record established by Congress under Article 1 of the Constitution. Under Article 1, Section 8, power No. 9, the Congress has the power “to constitute Tribunals inferior to the supreme Court.”

Even if David should manage to successfully argue that what happens before the U.S. Tax Court is not happening at “a judicial proceeding,” then just what’s going on in the Tax Court? If it’s not a “judicial” proceeding, which I believe it clearly is, is it something less than a judicial proceeding, such as an “administrative” proceeding? However, litigation before an “administrative proceeding” is also prohibited without first securing substantial homeowner approval.

Of course, we have come to learn that attorneys, even association legal counsels, are occasionally paid to give advice that supports the client’s position, even if that means ignoring the law, common sense, conflicting or contrary evidence, or providing questionable legal advice. Is that the prospect Sun City Anthem homeowners will face in the event the board decides without homeowner consent to litigate in lieu of paying the alleged tax deficiency or reaching a settlement agreement? In that event, those who thought we were over such shenanigans with the election of four new board members will be greatly disappointed.

Ron Johnson, 25 June 2011