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Sihota v. Internal Revenue Service

United States Court of Appeals, Federal Circuit

November 13, 2018

DALWINDER SIHOTA, Petitioner
v.
INTERNAL REVENUE SERVICE, Respondent

          Petition for review of an arbitrator's decision by Louis M. Zigman.

          Jessica Horne, National Treasury Employees Union, Washington, DC, argued for petitioner. Also represented by Larry Joseph Adkins, Gregory O'Duden.

          Alexander Orlando Canizares, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for respondent. Also represented by Robert Edward Kirschman, Jr., Loren Misha Preheim, Joseph H. Hunt.

          Before Wallach, Linn, and Hughes, Circuit Judges.

          Hughes, Circuit Judge.

         Dalwinder Sihota petitions for review of an arbitrator's decision that reinstated her employment with the Internal Revenue Service (IRS), but imposed a ten-day suspension and reduced her back pay. Based on the current record, we cannot discern what charges, if any, support the ten-day suspension and reduction in back pay. Therefore, we vacate the arbitrator's decision and remand for further proceedings.

         I

         Ms. Sihota was employed as a Lead Customer Service Representative for the IRS, where she worked for over 25 years. In 2011, an IRS audit determined Ms. Sihota filed her taxes improperly in 2003. Ms. Sihota reported a loss of income based on her purported ownership of NKRS Transport, a trucking company. The IRS audit, however, revealed NKRS Transport was actually owned by Ms. Sihota's son. The IRS determined Ms. Sihota underpaid $5, 341 in taxes.

         The IRS and Ms. Sihota agreed to a tax settlement agreement for Ms. Sihota's 2003 federal tax liability. In the agreement, Ms. Sihota acknowledged she was not the owner of NKRS Transport and had "acted negligently in obtaining a refund . . . resulting in an underpayment of the tax required to be shown on the income tax return in the amount of $5341.00." J.A. 9. Pursuant to this agreement, Ms. Sihota repaid the tax assessment and penalty.

         Because Ms. Sihota understated her tax liability, the IRS also terminated her employment with the agency. In September 2011, the IRS issued a notice of proposed adverse action. In the notice, the IRS proposed to terminate or otherwise discipline Ms. Sihota based on multiple allegations, including willful understatement of her tax liability, failure to accurately state tax liability, and failure to timely pay tax liability.

         The IRS removed Ms. Sihota in May 2012. The final removal letter states "[a]ll reasons and specifications [stated in the Notice of Proposed Adverse Action] are sustained." J.A. 83. The letter further notes Ms. Sihota was charged with "either violating Section 1203(b)(9) of the IRS Restructuring and Reform Act of 1998 . . . or provisions of other laws, rules or regulations, including Title 5 CFR Section 2635.809." Id. Section 1203(b)(9) requires the IRS to terminate any employee who willfully understates their federal tax liability, "unless such understatement is due to reasonable cause and not willful neglect." Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, § 1203, 112 Stat. 685, 721 (1998) (codified at 26 U.S.C. § 7804 note). And 5 C.F.R. § 2635.809 states "[e]mployees shall satisfy in good faith their obligations as citizens, including all just financial obligations, especially those such as Federal, State, or local taxes that are imposed by law."

         After Ms. Sihota was removed from the IRS, the National Treasury Employees Union (Union) invoked arbitration on her behalf. On November 26, 2012, the Union requested a hearing for Ms. Sihota's arbitration. That same day, counsel for IRS responded by asking "[w]hat dates are you looking at?" J.A. 39. The record, however, reflects no further communications regarding Ms. Sihota's hearing until June 2015, when the Union contacted the arbitrator and requested a hearing in January 2016. Id. at 41. The arbitration hearing was ultimately held in July 2016-nearly four years after the IRS contacted the Union about scheduling a hearing.

         During the July 2016 hearing, the Union conceded Ms. Sihota "acted negligently in obtaining a refund," but argued that "[a]cting negligently does not rise to the level of acting willfully." J.A. 162. The Union asserted the "only issue" before the arbitrator was "whether or not the action was willful." J.A. 188. According to the Union, the IRS "sustain[ed] the [section] 1203(b)(9) portion of the charge, but they d[id] not say that they [were] sustaining the secondary issue or the in-the-alternative issue that [Ms. Sihota] violated other laws, rules, or regulations." J.A. 188.

         At the hearing, the arbitrator and IRS agreed the only disputed issue was whether Ms. ...


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