Brooks v. Treasury

• Court: Court of Appeals for the Federal Circuit
• Decided: January 9, 2024
• Docket: 23-1788
• Status: Unpublished

Opinion

Case: 23-1788 Document: 27 Page: 1 Filed: 01/09/2024

NOTE: This disposition is nonprecedential.

United States Court of Appeals for the Federal Circuit ______________________

PAMELA BROOKS, Petitioner

v.

DEPARTMENT OF THE TREASURY, Respondent ______________________

2023-1788 ______________________

Petition for review of the Merit Systems Protection Board in No. SF-0752-16-0430-I-1. ______________________

Decided: January 9, 2024 ______________________

PAMELA BROOKS, Moreno Valley, CA, pro se.

BRYAN MICHAEL BYRD, Commercial Litigation Branch, Civil Division, United States Department of Justice, Wash- ington, DC, for respondent. Also represented by BRIAN M. BOYNTON, PATRICIA M. MCCARTHY, FRANKLIN E. WHITE, JR. ______________________

Before PROST, TARANTO, and HUGHES, Circuit Judges. PER CURIAM. Case: 23-1788 Document: 27 Page: 2 Filed: 01/09/2024

Pamela Brooks was removed from her position as a Tax Compliance Officer with the Department of the Treasury following the agency’s determination that she had willfully understated her federal tax liability for tax years 2005 through 2007. Ms. Brooks appealed the agency’s removal decision to the Merit Systems Protection Board. The as- signed administrative judge issued an initial decision sus- taining her removal, and the Board affirmed the initial decision. See Brooks v. Department of the Treasury, No. SF- 0752-16-0430-I-1, 2023 WL 2436649 (M.S.P.B. Mar. 9, 2023). We affirm. I Ms. Brooks began her employment as a Tax Compli- ance Officer with the Internal Revenue Service (IRS) within the Department of the Treasury in 2003. SAppx. 38. 1 Her duties included examining tax returns and deter- mining taxpayers’ eligibility for deductions and exemp- tions, such as casualty-loss deductions and dependency exemptions. SAppx. 4, 56, 155. In 2008, the IRS selected Ms. Brooks’s own 2006 fed- eral tax return for a tax audit. SAppx. 4. The audit was later expanded to cover her returns for 2005 and 2007. SAppx. 4. In 2011, the IRS determined that Ms. Brooks had underreported her income in 2005, 2006, and 2007 and assessed accuracy-related penalties. SAppx. 5–6, 52–53. Ms. Brooks petitioned the United States Tax Court for a redetermination of her tax liability for those years. In June 2013, the Tax Court ruled that the IRS had properly disallowed several of her claimed exemptions and deduc- tions and imposed penalties. SAppx. 52–95. The disal- lowed claimed deductions for 2005 included a $16,088

1 “SAppx.” refers to the supplemental appendix filed by

the Department of the Treasury in this court with its brief as respondent. Case: 23-1788 Document: 27 Page: 3 Filed: 01/09/2024

BROOKS v. TREASURY 3

casualty-loss deduction and a $3,500 charitable-contribu- tion deduction. SAppx. 5, 39, 73–82. The disallowed claimed exemptions and deductions for 2006 included a de- pendency exemption for her son M.B. and a $5,173 charita- ble-contribution deduction. SAppx. 5, 39, 53 n.2, 73–76. The disallowed claimed exemptions and deductions for 2007 included a dependency exemption for her son M.B., a $3,129 casualty-loss deduction, a $5,200 charitable-contri- bution deduction, and a $23,000 deduction for state and lo- cal taxes. SAppx. 5–6, 40, 53 n.2, 86–87. In March 2015, an official within a Field Examination Southwest Area unit of the IRS proposed to remove Ms. Brooks from her job based on two charges: (1) willful un- derstatement of tax liability for 2005, 2006, and 2007; and (2) failure to timely pay taxes. SAppx. 98–103. In Decem- ber 2015, the director of the IRS’s Field Examination Southwest Area unit determined that Ms. Brooks’s under- statement of her tax liability from 2005 to 2007 violated § 1203(b)(9) of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112 Stat. 685, 720 (codified at 26 U.S.C. § 7804 note). SAppx. 7, 104–05. Section 1203 of the 1998 Act mandates termination of any IRS employee who has made a “willful understatement of Federal tax liability, unless such understatement is due to reasonable cause and not to willful neglect.” IRS Restruc- turing and Reform Act §§ 1203(a), 1203(b)(9), 26 U.S.C. § 7804 note. A mandatory removal penalty applies unless the IRS Commissioner exercises discretion to mitigate the penalty. Id. § 1203(c). The December 2015 determination was forwarded to the Section 1203 Review Board to advise the IRS Commis- sioner whether to exercise discretion to mitigate the man- datory removal penalty. SAppx. 104. The Section 1203 Review Board decided that a recommendation of mitigation was not warranted. SAppx. 106. On March 23, 2016, the acting director of the IRS’s Field Examination Southwest Case: 23-1788 Document: 27 Page: 4 Filed: 01/09/2024

Area unit removed Ms. Brooks from her position for violat- ing § 1203(b)(9). SAppx. 107–12. In April 2016, Ms. Brooks appealed her removal to the Board. SAppx. 3, 42. On October 27, 2016, the assigned administrative judge issued an initial decision affirming the agency’s action and upholding Ms. Brooks’s termina- tion. SAppx. 3–35. The administrative judge determined that the agency had proven that Ms. Brooks had willfully understated her tax liability. SAppx. 9–28. In doing so, she relied on the full record before her, while also noting that findings by the Tax Court on issues actually litigated in that forum have issue-preclusive (collateral estoppel) ef- fect. SAppx. 6 n.1. The administrative judge’s finding on the agency’s first charge, i.e., willful understatement of tax liability, made it unnecessary to address the agency’s sec- ond charge, i.e., failure to timely pay taxes. SAppx. 28 n.7. Ms. Brooks petitioned the Board for review of the ini- tial decision, but the Board denied the petition and the ad- ministrative judge’s initial decision became the final decision of the Board on March 9, 2023. SAppx. 1–2. (We hereafter refer to the administrative judge’s decision as the Board’s decision.) Ms. Brooks timely filed her appeal on April 20, 2023, as permitted by 5 U.S.C. § 7703(b)(1)(A). Although Ms. Brooks had presented certain discrimination claims to the Board, she disclaimed further pursuit of those claims. We have jurisdiction under 28 U.S.C. § 1295(a)(9) and 5 U.S.C. § 7703(b)(1)(A). II We will affirm the Board’s decision unless it is “(1) ar- bitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (2) obtained without procedures re- quired by law, rule, or regulation having been followed; or (3) unsupported by substantial evidence.” 5 U.S.C. § 7703(c). Substantial evidence is “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” McLaughlin v. Office of Personnel Case: 23-1788 Document: 27 Page: 5 Filed: 01/09/2024

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Management, 353 F.3d 1363, 1369 (Fed. Cir. 2004) (quoting Matsushita Electric Industrial Co. v. United States, 750 F.2d 927, 933 (Fed. Cir. 1984)). “The petitioner bears the burden of establishing error in the Board’s decision.” Har- ris v. Department of Veterans Affairs, 142 F.3d 1463, 1467 (Fed. Cir. 1998). A Ms. Brooks first argues that the Board did not apply the proper legal standards under § 1203(b)(9), which generally requires the IRS to terminate an employee for “willful un- derstatement of Federal tax liability, unless such under- statement is due to reasonable cause and not to willful neglect.” IRS Restructuring and Reform Act § 1203(b)(9), 26 U.S.C. § 7804 note (emphases added). The Supreme Court has recognized, in other taxation contexts, that a “willful” violation is a “voluntary, intentional violation of a known legal duty.” United States v. Bishop, 412 U.S. 346, 360 (1973); United States v. Pomponio, 429 U.S. 10, 12 (1976); Cheek v. United States 498 U.S. 192, 201 (1991). It has also recognized, in a taxation context, that “willful ne- glect” in taxation statutes connotes “conscious, intentional failure or reckless indifference.” United States v. Boyle, 469 U.S. 241, 245–46 (1985). Here, the particular statute at issue, § 1203(b)(9), contains both terms, to be read to- gether and consistently. And the Board recited and applied both the just-quoted controlling legal standards. SAppx. 9– 10 (citing Pomponio, 429 U.S. at 12; Boyle, 469 U.S. at 245– 46). We understand Ms. Brooks to make two arguments that the Board nevertheless erred in the legal standards it ap- plied. First, she suggests that the Board applied a negli- gence standard. For support, she notes that the accuracy- related penalties upheld by the Tax Court were imposed under 26 U.S.C. § 6662, which can apply based on “[n]egli- gence or disregard of rules or regulations,” 26 U.S.C. § 6662(b)(1); see also 26 U.S.C. § 6662(c) (defining Case: 23-1788 Document: 27 Page: 6 Filed: 01/09/2024

“negligence”), and she adds that the Board “relied on the findings of the Tax Court that justified the imposition of the negligence penalty.” Pet’r Inf. Br. at 13. 2 But in re- viewing the Tax Court’s findings, the Board merely cred- ited the Tax Court’s reasonable-cause determinations underlying its decision to impose accuracy-related penal- ties. See, e.g., SAppx. 12–14, 21. It did not adopt the neg- ligence standard of 26 U.S.C. § 6662 when making its own finding about the willfulness required by § 1203(b)(9). Second, Ms. Brooks suggests that the Board must have applied an incorrect standard under § 1203(b)(9) because it said that it did “not believe that” Ms. Brooks “consciously assess[ed] that she was not entitled to claim any particular deduction and then affirmatively cho[]se to do so nonethe- less.” SAppx. 13. But we understand that one statement to make a limited point to the effect that the Board was not affirmatively finding a “nefarious” intent, which, the Board said, was not required. SAppx. 13; see Agbaniyaka v. De- partment of the Treasury, 484 F. App’x 545, 549 (Fed. Cir. 2012) (nonprecedential) (“The [Supreme] Court has re- jected the requirement that willfulness requires proof of ‘bad faith’ or ‘evil intent’ beyond showing a specific intent to violate the law.” (citing Pomponio, 429 U.S. at 12–13)). The Board’s opinion, in reviewing the specific tax-return deficiencies at issue and making certain findings adverse to Ms. Brooks, repeatedly makes those findings in terms of the above-quoted standards for willfulness and willful ne- glect. See, e.g., SAppx. 14, 16, 18, 19, 21, 25, 27, 28. B Ms. Brooks argues that the Board erroneously gave is- sue-preclusive (collateral estoppel) effect to the Tax Court’s

2 For all citations to the informal brief filed by Ms. Brooks in this court as petitioner, the referenced page num- bers are those provided by the electronic docketing system. Case: 23-1788 Document: 27 Page: 7 Filed: 01/09/2024

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findings. Like other tribunals, the Board may apply issue preclusion to a previous adjudication of an issue where “(i) the issue previously adjudicated is identical with that now presented, (ii) that issue was ‘actually litigated’ in the prior case, (iii) the previous determination of that issue was nec- essary to the end-decision then made, and (iv) the party precluded was fully represented in the prior action.” Thomas v. General Services Administration, 794 F.2d 661, 664 (Fed. Cir. 1986). We discern no reversible Board error regarding the application of this doctrine in the present case. Ms. Brooks observes that the ultimate legal issues be- fore the Tax Court (i.e., whether her tax-return understate- ments were due to negligence) and the Board (i.e., the willfulness of her understatements) are not identical. But issue preclusion is not limited to an ultimate issue. See Papst Licensing GMBH & Co. KG v. Samsung Electronics America, Inc., 924 F.3d 1243, 1250 (Fed. Cir. 2019). Sev- eral subsidiary issues decided by the Tax Court are directly relevant to whether removal under § 1203(b)(9) is appro- priate—specifically, whether Ms. Brooks understated her tax liability and whether any understatements were at- tributable to reasonable cause. The issues of understate- ments of tax liability and of reasonable cause are identical in both inquiries and are necessary to the outcome of both actions, as the existence of reasonable cause can negate li- ability for understatements of tax liability under both stat- utes. See IRS Restructuring and Reform Act § 1203(b)(9), 26 U.S.C. § 7804 note; 26 U.S.C. §§ 6662(a), 6664(c)(1). The Board applied issue preclusion only as to those issues. See SAppx. 6 n.1, 10, 13, 20, 21, 25. Ms. Brooks also argues that, in her pro se proceeding before the Tax Court, she did not have a full and fair op- portunity to litigate the issues decided by the Tax Court because she did not have adequate representation. To the extent that Ms. Brooks argues that her pro se status itself should preclude the application of issue preclusion, we see Case: 23-1788 Document: 27 Page: 8 Filed: 01/09/2024

no sound basis for a “pro se litigant” exception to issue pre- clusion. Other courts have rejected such an exception. See, e.g., DeGuelle v. Camilli, 724 F.3d 933, 938 (7th Cir. 2013); In re Tsamasfyros, 940 F.2d 605, 607 (10th Cir. 1991); Da- vis v. United States Steel Supply, 688 F.2d 166, 177 (3d Cir. 1982) (en banc). So has the Board. Noble v. United States Postal Service, 93 M.S.P.R. 693, 698 (2003). And in non- precedential decisions, we have explained that “pro se sta- tus does not prevent the application of collateral estoppel,” Flores v. Department of the Treasury, 25 F. App’x 868, 871 (Fed. Cir. 2001), and that petitioner’s having “proceeded pro se . . . does not mean he was not fully represented in that action,” Lundberg v. Merit Systems Protection Board, 665 F. App’x 870, 872 n.2 (Fed. Cir. 2016). Ms. Brooks further argues that her ability to litigate fully and fairly in the Tax Court was prejudiced by the fact that a certified public accountant she had retained to rep- resent her died four to five months before her Tax Court trial and, also, by the loss of “original records” in his pos- session. Pet’r Inf. Br. at 14–15. But Ms. Brooks did not raise this objection before the Board. She also describes how she was able to respond to discovery requests with re- constructed records, attend pre-trial meetings, and pro- duce testimony from three witnesses at the Tax Court trial. Without further specificity or evidence regarding how the loss of her accountant and of certain records prejudiced her, we are not persuaded that Ms. Brooks was not given a full and fair opportunity to litigate before the Tax Court. And in any event, Ms. Brooks does not assert that she lacked a full opportunity to present evidence on all the factual is- sues before the Board, and she has not shown that the Board’s result reasonably would have been different with- out any reliance on issue preclusion. C Ms. Brooks also challenges the factual findings under- pinning the Board’s willfulness determination, arguing Case: 23-1788 Document: 27 Page: 9 Filed: 01/09/2024

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that the Board “erroneously failed to take into account facts in the record that negate willfulness.” Pet’r Inf. Br. at 5–12. Under the proper willfulness standard articulated above, however, the Board’s determination that Ms. Brooks willfully understated her tax liability from 2005 to 2007 is supported by substantial evidence. 1 Three of Ms. Brooks’s charitable-contribution deduc- tions were disallowed, one in each tax year at issue. At the relevant time, taxpayers could claim such deductions but were required to verify all claimed charitable contributions using cancelled checks, receipts, or other written records. 26 C.F.R. § 1.170A-13(a); SAppx. 73–74, 131 ¶ 25. Addi- tionally, contributions of $250 or more were required to be substantiated with written acknowledgment from the do- nee organization. 26 C.F.R. § 1.170A-13(f); SAppx. 131 ¶ 27. In 2007, a new law also required taxpayers claiming a charitable contribution to provide a statement by the charitable entity showing total contributions for the year. SAppx. 131 ¶ 26. Ms. Brooks argues on appeal that she believed her own testimony, logs, and bank statements would suffice to pro- vide the required verifications and that she was unable to comply with the new requirements imposed in 2007 be- cause the donee organization would not provide the re- quired records. Pet’r Inf. Br. at 9–10. But the Board found it not credible, given Ms. Brooks’s work as a Tax Compli- ance Officer, that she failed to understand what documen- tation was required to substantiate her contributions. SAppx. 15–16, 24–25, 27–28. Substantial evidence sup- ports the administrative judge’s determination of willful- ness. See SAppx. 45, 125–27 ¶¶ 9–19, 135 ¶ 13. 2 Ms. Brooks’s dependency exemptions for her son, M.B., were disallowed in tax years 2006 and 2007. In the tax Case: 23-1788 Document: 27 Page: 10 Filed: 01/09/2024

years at issue, taxpayers could claim an exemption for a qualifying relative whose gross income fell below an ex- emption limit. SAppx. 130–31 ¶¶ 19–23. In both years, M.B.’s gross income exceeded that limit, but Ms. Brooks nonetheless claimed the dependency exemption without asking M.B. to verify his income. SAppx. 12, 20–21, 87 n.19. The Board, noting that Ms. Brooks had received spe- cific training on dependency exemptions but nonetheless intentionally elected not to ask M.B. about his income, found the improper claim of the dependency exemption to be willful. SAppx. 12–14, 20–21. For 2006, Ms. Brooks argues that, based on her review of her son’s Form W-2, she had no reason to know that her son’s income exceeded the limit. Pet’r Inf. Br. at 7. For both tax years at issue, she argues that she thought her son’s wages were further reduced by payments to his sister. Pet’r Inf. Br. at 7–8. But she concedes that the actual amount of such payments cannot be established. Pet’r Inf. Br. at 7. These arguments were considered by the Tax Court, see SAppx. 87 n.19, and Board, see SAppx. 12–13, 20–21, and it is not our role to reweigh the evidence on our own. See Bieber v. Department of the Army, 287 F.3d 1358, 1364 (Fed. Cir. 2002); Jones v. Department of Health & Hu- man Services, 834 F.3d 1361, 1369 (Fed. Cir. 2016). Sub- stantial evidence supports a finding of willfulness. See SAppx. 122 ¶ 8, 125 ¶ 9. 3 Ms. Brooks’s claimed casualty-loss deductions for 2005 and 2007 were also disallowed. The 2005 deduction was related to a 2004 fire that caused smoke damage to a prop- erty Ms. Brooks owned. See SAppx. 25–27, 46, 58–59. While Ms. Brooks’s insurance company was investigating her claim related to the fire, it discovered asbestos at the property and told Ms. Brooks that she must have the as- bestos removed to remedy the smoke damage. SAppx. 25– 26, 46, 58–59. Ms. Brooks elected not to make the repairs Case: 23-1788 Document: 27 Page: 11 Filed: 01/09/2024

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and instead sold the property in tax year 2004, lowering the home sale price because of the asbestos. SAppx. 26, 46, 59. She then claimed a casualty-loss deduction based on this loss in her home sale price in 2005. SAppx. 26. The Board determined that, as Ms. Brooks had “received train- ing about casualty loss,” the claimed deduction “reflect[ed] a conscious, intentional failure to correctly state her tax li- ability.” SAppx. 27. Ms. Brooks argues that (1) the issues involved in her claimed deduction were “more complex than a typical train- ing case,” (2) that the Board misstated the amount of the claimed loss, and (3) that the Board incorrectly understood the tax rules to preclude a preexisting condition from con- tributing to a casualty loss and to require a casualty loss to be claimed in the year it was sustained. Pet’r Inf. Br. at 12. These arguments are unavailing. As to her first argu- ment, Ms. Brooks fails to provide any explanation of why this claimed deduction was especially complex. At bottom, Ms. Brooks requests that this court simply reweigh the ev- idence, which we may not do. As there is evidence that Ms. Brooks was specifically trained on this deduction, see SAppx. 45, 125–26 ¶¶ 9, 18, we conclude that the Board’s willfulness determination is supported by substantial evi- dence. The record also indicates that the Board correctly understood that the claimed deduction was $16,088. SAppx. 25. Finally, the Board correctly understood and ap- plied the rules and regulations related to casualty-loss de- ductions. Under the applicable tax rules and regulations, taxpayers are precluded from claiming pre-existing condi- tions (such as asbestos) as a casualty loss, SAppx. 129–30 ¶¶ 12–14, and casualty losses must be claimed in the year the loss was sustained, 26 C.F.R. § 1.165-1(d)(1). The 2007 claimed casualty-loss deduction was related to a 2007 fire that damaged a home Ms. Brooks was rent- ing. Ms. Brooks asserts that she suffered harm to some personal property (e.g., furniture, linens), but she had no verification to support the value of her losses. The Board Case: 23-1788 Document: 27 Page: 12 Filed: 01/09/2024

determined that Ms. Brooks acted at least with “reckless indifference for her eligibility” in claiming this deduction, citing to rules providing that to file a claim on real prop- erty, the claimant must be the owner of the property. SAppx. 14. Ms. Brooks argues that the Board misunder- stood her claimed deduction to be a claim on real property, rather than personal property. Pet’r Inf. Br. at 10–11. But the record before us lacks evidence to clarify whether Ms. Brooks’s claimed deduction was in fact related to real prop- erty or her personal property. And in any event, any po- tential Board error related to the 2007 casualty-loss deduction would not affect the outcome of this appeal. “[W]here more than one event or factual specification is set out to support a single charge . . ., proof of one or more, but not all, of the supporting specifications is sufficient to sus- tain the charge.” Burroughs v. Department of the Army, 918 F.2d 170, 172 (Fed. Cir. 1990). 4 Ms. Brooks concedes that her 2007 deduction for $23,000 in state-and-local taxes was erroneous. SAppx. 16–17; Pet’r Inf. Br. at 11. On appeal, Ms. Brooks appears to argue that her testimony in the Tax Court established that she acted in good faith with respect to this deduction. Pet’r Inf. Br. at 11. But the Tax Court concluded the oppo- site: that her “review of her 2007 return should have alerted her” to the error and thus she has “not established that she acted with reasonable cause and in good faith.” SAppx. 93. The Board’s finding here that this deduction was, at a minimum, willful neglect is supported by sub- stantial evidence. See SAppx. 17–19, 46–47. D Ms. Brooks recites various grounds for relief that she alleges were improperly disregarded by the Board (e.g., lack of progressive discipline, mitigating circumstances, evidence of rehabilitation). While, under Douglas v. Veter- ans Administration, 5 M.S.P.B. 313 (1981), such factors are Case: 23-1788 Document: 27 Page: 13 Filed: 01/09/2024

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generally relevant in determining the appropriate discipli- nary sanction for employee misconduct, they are not appli- cable in this statutory context. We have explained in a nonprecedential opinion that, under § 1203(c)(1), “only the Commissioner of the IRS has authority to take ‘a personnel action other than termination’ against an employee who has violated section 1203(b)(9). Moreover, section 1203(c)(3) specifies that any determination that the Com- missioner makes ‘may not be appealed in any administra- tive or judicial proceeding.’” Agbaniyaka, 484 F. App’x at 547; IRS Restructuring and Reform Act § 1203(c), 26 U.S.C. § 7804 note. Having determined that Ms. Brooks willfully understated her tax liability without reasonable cause, the Board was not permitted to review or mitigate the imposed mandatory penalty. III We have considered Ms. Brooks’s remaining argu- ments and find them unpersuasive. For the foregoing rea- sons, the decision of the Merit Systems Protection Board is affirmed. The parties shall bear their own costs. AFFIRMED