Reaffirming the Five-Factor Colon Test – Khan v. Commissioner and the Tax Court’s Discretion to Dismiss for Failure to Prosecute

Introduction

Parties & Forum. Pro-se taxpayers Atif A. Khan and Huma A. Khan (“the Khans”) appealed a dismissal issued by the United States Tax Court (Judge Jones) to the United States Court of Appeals for the Second Circuit.

Background. After receiving a notice of deficiency for tax year 2018, the Khans petitioned the Tax Court in May 2021. Nine continuance requests, a tentative settlement that the Khans refused to sign, and four trial dates later, the Tax Court dismissed the case under Rule 123(b) for “failure to prosecute.” The Khans challenged that dismissal, alleging among other things court bias and misconduct by IRS counsel.

Key Issue on Appeal. Whether the Tax Court abused its discretion when, applying Rule 123(b), it dismissed the Khans’ petition after repeated non-compliance with court orders and deadlines.

Summary of the Judgment

In a non-precedential “Summary Order,” the Second Circuit affirmed the Tax Court’s dismissal. Using the five-factor framework articulated in Colon v. Commissioner, 252 F.3d 662 (2d Cir. 2001), the panel concluded that each factor favored dismissal:

Duration of non-compliance: Three years of dilatory conduct and four vacated trial dates.
Notice of potential dismissal: Multiple explicit warnings in standing pre-trial orders and scheduling orders.
Prejudice to the Commissioner: Preparations for two trials and squandered settlement efforts.
Docket management vs. opportunity to be heard: The court provided numerous continuances, extensions, and medical accommodations.
Alternative sanctions: The history demonstrated lesser sanctions would be futile.

Allegations of bias and misconduct were rejected as unsupported. Consequently, the dismissal for failure to prosecute was upheld.

Analysis

A. Precedents Cited and Their Influence

Colon v. Commissioner, 252 F.3d 662 (2d Cir. 2001) – Provides the controlling five-factor test to review dismissals for failure to prosecute. The panel expressly applied Colon, reinforcing its continued vitality.
United States ex rel. Drake v. Norden Sys., Inc., 375 F.3d 248 (2d Cir. 2004) – Emphasizes that no single factor is dispositive and the reviewing court must consider the record as a whole; cited to show holistic review.
Douge v. Commissioner, 899 F.2d 164 (2d Cir. 1990) – Earlier Second Circuit case approving Tax Court dismissal when taxpayers repeatedly failed to cooperate; used to analogize prolonged delay.
Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 222 F.3d 52 (2d Cir. 2000) – Source of the five factors later applied in Colon; the court quotes Baffa for factor definitions.

By weaving these authorities, the Court signaled that even non-precedential dispositions must align with established appellate standards, and reaffirmed that Colon remains the principal lens through which Rule 123(b) dismissals are assessed.

B. Legal Reasoning

1. Standard of Review. Dismissal for failure to prosecute is reviewed for abuse of discretion. The panel accepted that standard without reservation. Abuse exists only when the lower court’s decision lies outside the range of permissible options or rests on an error of law or clearly erroneous fact-finding.

2. Application of Rule 123(b). Rule 123(b) mirrors Fed. R. Civ. P. 41(b) and authorizes dismissal “[w]hen a petitioner fails properly to prosecute.” The Tax Court exercised that discretion after finding: (i) serial non-compliance, (ii) evasiveness regarding settlement, and (iii) refusal even to conduct a partial trial.

3. Iterative Warnings. Repeated written warnings preserved due-process safeguards and satisfied the notice factor.

4. Balancing Test. On the fourth trial date, the court offered to accept stipulations piecemeal, arrange remote testimony, or hold a bifurcated proceeding—demonstrating thoughtful balancing before resorting to dismissal.

C. Impact on Future Litigation

Strengthens Rule 123(b) Enforcement. The order emphasizes that the Tax Court need not indulge indefinite continuances—particularly when petitioners have been repeatedly warned.
Clarifies Medical Accommodation Expectations. Courts will explore reasonable accommodations but may still dismiss if parties refuse to proceed.
Encourages Early Cooperation. Taxpayers contemplating settlement must either consummate agreements or prepare for trial; indefinite “talks” will not forestall dismissal.
Guidance for Pro-Se Litigants. Although pro se status warrants some leniency, it does not immunize parties from procedural rules.
Appellate Review Consistency. Reinforces that Rule 123(b) dismissals are evaluated under the same factors governing Fed. R. Civ. P. 41(b) dismissals in district courts.

Complex Concepts Simplified

Rule 123(b) (Tax Court): The Tax Court’s analog to “failure to prosecute” rules in other courts. If a petitioner fails to move the case forward or obey orders, the court can end the case and enter judgment against the petitioner.
Abuse of Discretion: A deferential appellate standard. The decision below stands unless it was based on an error of law, a clearly erroneous view of the facts, or lies outside the permissible range of options.
Summary Order (Second Circuit): A non-precedential disposition used for cases where a full published opinion is unnecessary. It can be cited per Fed. R. App. P. 32.1 but is not binding precedent.
Continuance: A postponement of a scheduled court event. Courts grant continuances for good cause but may deny them if they unduly delay the case.
Partial Trial / Bifurcation: Trying some issues (e.g., liability) while deferring others (e.g., damages) to streamline proceedings.

Conclusion

Khan v. Commissioner signals that the Second Circuit remains steadfast in requiring diligent prosecution of Tax Court cases. Applying the familiar five-factor Colon test, the Court found no abuse of discretion in dismissing a three-year-old case that had already consumed substantial judicial resources. Though issued as a non-precedential summary order, the case is a powerful reminder that:

Repeated continuances and unexcused procedural default will trigger dismissal, even for pro-se taxpayers.
Explicit warnings and reasonable accommodations meet due-process obligations; parties who decline them risk losing their day in court.
Colon continues to govern appellate review of Rule 123(b) dismissals, anchoring Tax Court practice to broader federal procedural norms.

Ultimately, the ruling underscores a practical lesson: taxpayers must either settle expeditiously or prepare to litigate on the merits—stalling is not a viable litigation strategy.