Will the US Tax Court Stay Proceedings If There Is a Potential Criminal Case Pending?

If there is a legitimate fear that a criminal case could be impacted by ongoing civil proceedings, many courts, including the United States Tax Court, may stay the civil case, at least temporarily.

“[A] court may decide in its discretion to stay civil proceedings … when the interests of justice seem[] to require such action.”  Keating v. Office of Thrift Supervision, 45 F.3d 322, 324 (9th Cir. 1995) (internal quotations removed).  The Ninth Circuit, to which appeal would lie for federal courts in California, in Keating v. Office of Thrift Supervision, 45 F.3d 322, 324-325 (9th Cir. 1995), has stated that a deciding court should consider the extent to which fifth amendment rights are implicated and the following factors:

(1) the interest of the other party in proceeding expeditiously with this litigation or any particular aspect of it, and the potential prejudice to the other party of a delay;

(2) the burden which any particular aspect of the proceedings may impose on the party requesting the stay;

(3) the convenience of the court in the management of its cases, and the efficient use of judicial resources;

(4) the interests of persons not parties to the civil litigation; and

(5) the interest of the public in the pending civil and criminal litigation.

The Tax Court may stay its proceedings where one of the principals of a company that has petitioned to Tax Court is potentially a target of a criminal investigation, even where the U.S. Attorney’s Office articulates it has no present intention of charges with respect to the particular transactions at issue in the Tax Court case.  In Ironbridge Corp. & Subsidiaries v. Commissioner, T.C. Memo. 2012-158, the Tax Court had continued the trial 18 months as a result of criminal proceedings, including a continuance after the U.S. Attorney’s Office issued a letter stating it had no present intention of seeking criminal charges against the principal or his companies for the tax shelter at issue in Tax Court.  The Tax Court in Ironbridge Corp. & Subsidiaries ultimately declined to grant a fourth stay, relying on the fact that the principal had “not been indicted during a lengthy investigative period,” which “makes it much less likely that the integrity of a criminal proceeding will be jeopardized.”  Id.

Obviously, the Tax Court has to weigh the individual circumstances of each case, including how remote the danger is and how related the cases are. Stays are not generously granted, but judges take the constitutional rights of parties in criminal cases seriously. An experienced attorney should be consulted before making in any major decision in a court case.

The author of this post, Daniel Layton, is a former IRS trial attorney and former federal prosecutor who is the principal of a tax litigation boutique in Newport Beach, California.

Posted on 07/25/2020 by Daniel Layton.