Justice Delayed Apparently Is Not Justice Denied

An IRS employee who was fired invoked arbitration but dragged her feet agreeing to a hearing date. She may receive back pay as the result of the appeals court decision.

The appeals court has handed IRS and an arbitrator, Louis M. Zigman, a drubbing on their handling of the removal and subsequent appeal by an employee. (Sihota v IRS (USCAFC No. 2017-2252, 3/13/18)

A 25-year Lead Customer Service Representative for the Internal Revenue Service was fired for underpaying her taxes for 2003. In 2011, an agency audit concluded Sihota misrepresented a business income loss on her 2003 return, meaning she underpaid her taxes to the tune of $5,341. According to the agency, the loss was not hers to claim because her son actually owned the company in question. The IRS and Sihota worked out a settlement in which she acknowledged she did not own the company and that she had “acted negligently in obtaining a refund….resulting in an underpayment of the tax required….in the amount of $5341.” (Opinion p. 2) 

At the same time, IRS removed Sihota effective May 2012, citing her violations of law and citing the IRS Restructuring and Reform Act of 1998 that “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.’ “ (section 1203)  Among the various charges sustained by the agency decision were willful understatement of tax liability, failure to accurately state tax liability, and failure to timely pay tax liability. (p. 2)

Here’s the interesting procedural history of her appeal. The union invoked arbitration and on November 26, 2012 requested a hearing before an arbitrator. The very same day the IRS asked the union for suggested dates. The next item in the record was the union’s request in June 2015 (three years after Sihota’s removal) for a hearing to be held some seven months later—in January 2016). The hearing eventually was held in July 2016. The union asserted Sihota had “acted negligently” in getting her refund for a business loss, but that does not amount to “acting willfully…” maintaining that the only issue before the arbitrator was whether what Sihota had acted willfully.” (p. 3)

At the hearing the parties agreed that this was indeed the only issue before the arbitrator. He ended up concluding that Sihota’s action was not willful. However the IRS had the right to take corrective action because of her negligence but this did not support her removal. He ordered her reinstated and imposed a ten day suspension. But he ruled that three years of back pay was not warranted because of “laches” (delay) in pursuing her arbitration appeal. The arbitrator agreed that under the circumstances IRS should not be liable for the three years that was attributed to her delay in scheduling the hearing. (p. 5)

The appeals court has concluded that the arbitrator had no authority to impose a 10-day suspension, buying Sihota’s argument that the ONLY charge before the arbitrator was the “willful” understatement charge. Since the arbitrator threw that charge out, there was no basis for a mitigation. Further, he improperly relied on laches to order the back pay reduced by three years. The court was clearly confused, stating,

“From this record, we cannot discern which charges were properly considered by the arbitrator or which charges support the ten-day suspension. Accordingly, we vacate and remand for further proceedings. On remand, the arbitrator must determine which charges were submitted for arbitration. If…the only charge at issue was under section 1203(b)(9), then the arbitrator must reinstate Ms. Sihota without imposing any penalty.” (p. 8)

The end result is the court tossed out the ten-day suspension, vacated the reduction in back pay, and ordered the arbitrator to figure out “which charges were submitted for arbitration and whether any charges support a ten-day suspension or reduction in back pay.” (p. 11)

In effect this 25-year employee of IRS apparently has now has the potential to become a 32+ year employee and is about to receive a pretty nice cash payout unless the arbitrator tries to sort all this out and determine if the remaining charges that were sustained but not challenged in the appeal support any discipline, ten days or otherwise.

Sihota v. IRS (2017-2252)

About the Author

Susan McGuire Smith spent most of her federal legal career with NASA, serving as Chief Counsel at Marshall Space Flight Center for 14 years. Her expertise is in government contracts, ethics, and personnel law.