George Hani comments on the ruling by the U.S. Court of Appeals for the Federal Circuit, sitting en banc, that IRS adjustments to a partner's tax liability were computational adjustments that did not require a notice of deficiency to be provided. This reverses an earlier decision by the court's original panel that was much derided by the tax bar for creating a "harmless error" rule that had no apparent place in the statutory construction of the tax code. Hani says he is glad that the en banc opinion "jettisoned the 'harmless error' approach, as I feared the mischief such a rule could cause our tax system."
Hani said it was inconceivable that the earlier decision concluded that a notice of deficiency was required but that the failure to provide one was harmless error. "The only way that could be harmless is if the taxpayer could otherwise find a way into Tax Court, but that too is inconceivable to me without a notice of deficiency. [Some rules] just have to be black and white, with no exceptions, for our system to function smoothly. This is one of them," he says. Although Judge Sharon Prost mentioned in her prior concurring opinion and again when writing for the majority in the new opinion that neither party had raised the harmless error idea, Hani said it shouldn't matter whether either party advanced the rationale that forms the basis for a court's conclusion. "Judges are free to decide cases for the right reasons, and the strength of the rationale should not depend upon whether the judge thought of it on his or her own or whether one of the parties briefed the issue. In this case, the harmless error approach was a bad idea, but not because neither of the parties raised it," he says.