IRS Increases User Fee for Enrolled Agent Exam by 700 Percent

In today’s guest post Stu Bassin discusses the IRS’s recent decision to increase user fees on enrolled agents. Stu, a practitioner based in DC with an extensive controversy practice, recently took the lead on updating and revising the confidentiality and disclosure material in the Thomson Reuters Saltzman and Book IRS Practice & Procedure treatise that has just been released in print and on Checkpoint. Les

“Enrolled agents” are tax specialists authorized by the IRS to represent taxpayers in tax disputes in many of the same ways as tax attorneys and CPAs. To obtain an “enrolled agent” designation, an applicant must pass an IRS competency examination. Earlier this month, the IRS issued a regulation massively increasing the user fee applicants must pay to take the examination. Under the new regulation, applicants must pay two fees for each portion of the three-part examination–(1) an $81 fee imposed by the IRS for each portion of the examination, and (2) a $100+ fee for each portion imposed by the contractor retained by the IRS to administer the examination. Combined, applicants will now be required to pay fees of $243 (previous fee was $33) to the IRS and over $300 to the contractor to take the required exams.

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Not surprisingly, enrolled agents have opposed the proposed increase throughout the rulemaking process and must now decide whether to challenge the new regulation in the courts—the route successfully pursued by tax return preparers opposed to an IRS registration and licensing scheme. See Steele v. United States (discussed in PT here; note that this week the DOJ filed a motion for a stay of the court’s order that had enjoined IRS from charging any fee to issue or renew PTINs; the government’s memo in support of that motion is here) and Loving v. United States. A challenge by enrolled agents to the regulation could follow two primary paths. They can argue that the IRS does not have legal authority to license and regulate enrolled agents under 31 U.S.C. Sec. 330—an avenue that enrolled agents have not previously pursued. Alternatively, they can argue that the amount of the user fee imposed by the IRS upon applicants is unlawfully excessive.

The legality of a “user fee” like the IRS examination fee is governed by 31 U.S.C. Sec. 9701. That statute authorizes agencies to impose user fees to recover the cost of services they provide which confer special benefits on identifiable recipients which are not available to the general public. The case law authorizes agencies like the IRS to impose fees tied to the agency’s actual costs, but prohibits larger fees which can be used to fund other agency activity like public education or consumer protection. (The theory underlying these cases is that a larger fee employed to fund other agency activities would constitute a “tax” imposed by an agency—a violation of the constitutional limitation of the taxing power to Congress.) Were enrolled agents to pursue this avenue, the legal issue which would be presented is whether the IRS can demonstrate that its fee is not excessive.

During the rulemaking process, the IRS attempted to justify the fee increase by reference to its internal cost estimates for the enrolled agent examination. The IRS identified three principal components to the cost estimates—(1) an estimate of the IRS employee time which was devoted to the enrolled agent examination, (2) the direct cost of the employee labor, employee benefits, and a 68% overhead factor, and (3) the cost of conducting background checks on the contractor hired by IRS to administer the examination. The reasonableness of the IRS cost estimates, like most cost accounting estimates, can be debated. And, past experience leads this blogger to suspect that elements of these estimates could be inflated to include costs not directly related to the enrolled agent examination and that these estimates would provide fertile ground for judicial review of the new regulation.

The question is whether enrolled agents will pursue such a challenge.

Recent Tax Court Decisions Point Out ACA Pitfalls For Taxpayers

In today’s guest post we welcome back Christine Speidel. Ms. Speidel is an attorney with the Vermont Low Income Taxpayer Clinic and the Office of the Health Care Advocate, both at Vermont Legal Aid. She has a particular interest in health care reform as it affects low-income taxpayers. Christine is the author of the 2016 update of the Affordable Care Act chapter of “Effectively Representing Your Client before the IRS” and a nationally recognized expert on the intersection of tax law and health law. In today’s post, Christine discusses the Premium Tax Credit, and two situations where taxpayers were left with sizeable tax deficiencies after purchasing insurance.

An earlier version of this post appeared on the Forbes PT site on July 20, 2017.

The first round of deficiency cases involving the premium tax credit are still working their way through the Tax Court. So far, the decisions apply the law in a straightforward way, but they illuminate certain issues that may not be commonly known.

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Not all ACA-compliant insurance plans qualify a taxpayer for PTC

The first opinion I am aware of is Nelson v. Commissioner, from April 2017. The holding is based on a straightforward application of the Code, but it exposes a confusing feature of the ACA: tax credits are only available for plans purchased through an ACA exchange. I.R.C. § 36B(c)(2)(A)(i). Government communications to taxpayers use the term Marketplace, which the Nelsons claimed was confusing and caused them to think that their health insurance qualified them for a PTC.

In 2014 the Nelsons purchased health insurance from Kaiser Permanente, and they claimed a premium tax credit (PTC) on their income tax return based on that coverage. After all, they had purchased a plan on the insurance “market.” However, the Service disallowed the claim when it did not see a record of any exchange plan for the Nelsons. As required by section 36B, the Court upheld the deficiency.

On its face, the Nelsons’ contention is plausible. The record does not have any details of the insurance plan that the Nelsons purchased, but it could have been perfectly good coverage. (In Vermont, the exact same insurance plans are sold on and off the exchange.) It seems strange that ACA-compliant insurance (in terms of benefits and plan design) might not qualify for a PTC just because of where it was purchased.

There is a further wrinkle that is not discussed in the Nelson case. In many states a taxpayer actually can purchase a PTC-qualifying plan directly from an insurance company. This is called “direct enrollment in a manner considered to be through an exchange”, and it is arranged between the exchange and its participating insurance companies. See 45 C.F.R. § 156.1230. This hybrid enrollment affords the taxpayer the right to claim a PTC, and a Form 1095-A with which to claim it. The exchange issues a 1095-A for exchange “direct enrolled” plans, as it does with ordinary exchange enrollments. For 2018, CMS is making direct enrollment more streamlined and will not require the insurer’s website to redirect the taxpayer to the exchange site for an eligibility determination, as has been the case in prior years. It will be very important for companies to communicate clearly so that consumers know whether they are purchasing a PTC-eligible plan.

Any plan that qualifies for the PTC should generate a Form 1095-A to the taxpayer. This is of little comfort to those who were expecting a 1095-A but do not receive one.

Taxpayers pay for Exchange APTC errors

Recently the Tax Court issued its first opinion on reconciliation of advance PTC (APTC) payments. The result is quite harsh: a semi-retired couple owes nearly $13,000 in additional income tax because Covered California miscalculated their eligibility for the PTC. Walker v Comm’r, T.C. Summary Opinion 2017-50. There is no indication that the taxpayers misrepresented their income; rather, it appears that the exchange erred in finding the Walkers financially eligible.

This outcome is no surprise; it is a foreseeable consequence of the system’s design. During the annual open enrollment period, exchanges estimate applicants’ annual income for the upcoming tax year and authorize health insurance subsidies based on that estimate. See 45 C.F.R. § 155.305. (Exchange open enrollment for 2018 is November 1 through December 15, 2017.) Taxpayers calculate their actual PTC over a year later, on the income tax return for the tax year. If the exchange authorized too little PTC, the taxpayer receives the additional amount as a refundable credit. If the exchange authorized too much, the taxpayer owes the excess as an additional income tax liability. I.R.C. § 36B(f)(2). (Taxpayers can also pay full freight and claim their entire credit at tax time. Most taxpayers who are eligible for the PTC cannot afford to do this. Nationally, about 83% of 2017 healthcare.gov enrollees receive APTC.)

Unfortunately, it is not uncommon to see exchange errors in PTC determinations, particularly for 2014 when the system was brand new. For example, in early 2015 CMS acknowledged that healthcare.gov had been inflating taxpayers’ income by counting all Social Security payments received by children. Anecdotally, several Vermont tax preparers have reported that clients with investment income were only asked about wages and other very common sources of income when they applied over the phone. Thus the exchange undercounted their income for the PTC and caused them an additional income tax obligation.

Data matching and other systemic protections are supposed to ensure that APTC determinations are as accurate as possible. However, not all of these systems have been developed or implemented, and certainly many were not for 2014. Indeed, last week the GAO issued a blistering report on deficits in HHS and IRS controls against improper PTC payments. GAO-17-467. Thankfully APTC calculators are available to check eligibility for the current year, so consumers and their advisors can double-check eligibility determinations that seem off.

Taxpayers up to 400% of the federal poverty level (FPL) are somewhat protected from exchanges under-estimating their income, since their excess APTC repayment obligation is capped. I.R.C. § 36B(f)(2)(B). Once 400% FPL is reached, however, the taxpayer must repay all erroneous APTC. This is why the Walkers have such a large deficiency. The Walkers reported an adjusted gross income of just over $63,000. If the Walkers’ household income (or modified adjusted gross income, which includes the nontaxable Social Security) had been $62,000 (just under 400% FPL for purposes of the 2014 PTC), their repayment would have been capped at $2,500. I.R.C. § 36B(f)(2)(B)(i); see also 2014 Form 8962 instructions, Table 1-1 and Table 5. There is an enormous liability cliff for taxpayers who reach the 400% FPL income level. The National Taxpayer Advocate discussed the problem in her 2015 Annual Report to Congress and her 2017 Objectives Report to Congress, particularly with respect to taxpayers who unexpectedly receive lump sum Social Security payments. Under current law, the cliff applies to all taxpayers regardless of fault or foreseeability.

The magnitude of the Walkers’ debt underscores how expensive comprehensive coverage with a capped out-of-pocket exposure can be for older people, and accordingly how valuable the PTC is for them. (For a nice visual of how PTC is calculated, see Figure 1 in this PTC fact sheet by the Center on Budget and Policy Priorities.) It also explains why some health policy experts believe that the ACA set its individual shared responsibility payment (ISRP) too low. The Walkers told the Court that they would not have purchased insurance if they had known they were not eligible for subsidies. This is completely plausible. If they had gone without insurance, the Walkers’ ISRP for 2014 would have been $431 (assuming both spouses were under 65). (Both the Taxpayer Advocate Service and the Tax Policy Center have ISRP estimators online. For readers using the TAS ISRP estimator, note that nontaxable Social Security is not counted in household income for the ISRP.) The ISRP was gradually phased in, so 2014 amounts are particularly low. However, even under the fully-implemented ISRP for 2016, a married couple under 65 with household income of $63,417 would only pay a penalty of $1,390. Compared to $13,000 for the exchange plan the Walkers chose, it’s conceivable that healthy taxpayers would take the risk. Even a bronze-level plan would most likely cost more than the Walkers’ ISRP.

The Walkers’ situation raises complicated policy questions about how best to strengthen the individual insurance market and provide robust coverage to people of all income levels and health statuses. Suffice it to say that there is no agreement in Congress on how to solve the problem.

 

Designated Orders:  7/10/2017 – 7/14/2017

Today we welcome back William Schmidt  the LITC Director for Kansas Legal Services for our “Top of the Order”, designated order post for the week of 7/10 to 7/14.  Steve.

There were 5 designated orders this week and all were on motions for summary judgment.  The majority of the rulings followed a pattern of the IRS filing a motion for summary judgment, the Petitioner had or continued to have a degree of nonresponsiveness, and the Tax Court granted summary judgment for the IRS.  Except for one this week, summary judgment was in favor of the IRS.

Unsuccessful Whistleblowers

Docket # 4569-16W, Thomas H. Carroll, Jr. and David E. Stone v. C.I.R. (Order and Decision Here)

Petitioners submitted to the IRS Whistleblower Office a joint form 211, Application for Award for Original Information, with information about numerous taxpayers who allegedly improperly filed their tax returns.  The claims were referred to the IRS Large Business and International Division and one of the taxpayers was selected, with the matter referred to IRS examiners who had already audited that taxpayer.  The IRS decided to take no action against that taxpayer or any of the others submitted by Petitioners and no proceeds were collected to justify a whistleblower award.

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The Petitioners filed a petition with Tax Court.  In summarizing the petition, this order states that during the IRS review of the whistleblower claims, “the IRS had engaged in negligent conduct, misfeasance, malfeasance, and/or nonfeasance, and discriminative audit policies.  They further alleged that the IRS had permitted flawed tax returns to go unaudited, ignored evidence of systemic prohibited transactions, and wrongfully disallowed petitioners’ claims.  Petitioners requested that the Court conclude that the IRS acted arbitrarily, declare that an implied contract was created between the parties, direct the IRS to enforce Federal income tax laws, and determine that they are entitled to damages equal to the fair market value of their services.”  In their motions for partial summary judgment, the petitioners also accuse the IRS of unreasonable delay, misuse and mismanagement of government resources and administrative delay leading to abuse of discretion.

The Court granted the IRS motion for summary judgment since there was no genuine dispute as to any material fact (the standard for granting summary judgment).  No tax proceeds were collected from a taxpayer to grant a whistleblower award, plus the claims and relief sought by the petitioners were not cognizable by the Court.

My main take on the situation was that being disrespectful to the IRS did not garner the Petitioners any favor with the Tax Court.

Some Quick Takes on Summary Judgments

Docket # 14345-16 L, Russell T. Burkhalter v. C.I.R. (Order Here)

Docket # 12320-16SL, Heath Davis v. C.I.R. (Order and Decision Here)

  • In both the Davis and Burkhalter cases, Judge Armen states that to assist petitioners in preparing a response to the IRS motion for summary judgment, the Court encloses with its Order (for petitioner to file a response to the motion) a copy of Q&A’s the Court prepared on the subject “What is a motion for summary judgment?”
  • In Burkhalter, the petitioner did not dispute the underlying tax liability for 2010, 2011 and 2013 when using Form 12153, Request for a Collection Due Process or Equivalent Hearing.  However, petitioner did dispute the liability for those years when filing a petition with the Tax Court.  The Court granted summary judgment for the IRS, citing a regulation that states:  “Where the taxpayer previously received a CDP Notice under section 6320 with respect to the same tax and tax period and did not request a CDP hearing with respect to that earlier CDP Notice, the taxpayer already had an opportunity to dispute the existence or amount of the underlying tax liability.”
  • In Davis, there is a theme of the petitioner citing hardship but not being responsive to IRS requests.  In response to a notice of intent to levy, Mr. Davis said he was going through hardship and had expenses exceeding income when filing his own Form 12153.  The settlement officer requested Mr. Davis fill out a Form 433-A financial statement and show proof of estimated tax payments.  On Mr. Davis’s 433-A, he showed income of $2,100 with greater expenses while the settlement officer calculated income of $2,994 with expenses of $2,473, leaving $521 to potentially pay the IRS each month.  Mr. Davis was unresponsive to later requests.  Based on a Notice of Determination, Mr. Davis petitioned the Tax Court.  In the petition and amended petition, Mr. Davis requested payment arrangements, potentially of $50 monthly.  The Court granted summary judgment to the IRS based on Mr. Davis’s nonresponsiveness, citing that it is the obligation of the taxpayer and not the reviewing officer to propose collection alternatives.  My take on the situation is that while those conclusions may be procedurally correct, it sounds like Mr. Davis needed some form of assistance and then both parties would have had a better result.

Docket # 26557-15 L, Michael Timothy Bushey v. C.I.R. (Order and Decision Here)

There are two main issues in this case, whether there was abuse of discretion by the settlement officer and the underlying tax liability for the petitioner.

  • Petitioner filed a Form 12153 and the IRS acknowledged receipt by letter dated May 21, 2015.  The settlement officer sent a response on May 28 scheduling a phone conference for July 17, requesting information and stating that the petitioner could contact her to reschedule or set an in-person conference.  The officer was sick on July 17 so sent a letter July 20 rescheduling the phone hearing for August 4, also stating no documents had been received.  On August 4, she received a phone message from Petitioner stating that he would be unavailable for a hearing that day but would be available the first or second week of September.  She sent a letter scheduling the hearing for September 2.  On September 2, she was unable to reach the Petitioner but received a letter the next day acknowledging receipt of the August 5 letter stating he did not request a phone conference and that “by law” he was entitled to a “due process hearing.”  At each point, the petitioner did not send any of the requested supporting documents.  On September 22, Appeals sent Petitioner a Notice of Determination letter.  A lengthy summary was attached to the letter and was also quoted at length in the order currently being discussed.  The Court granted the IRS summary judgment, stating there had been no abuse of discretion in their collection actions.  It also was not an abuse of discretion since there was no in-person meeting between the settlement officer and the Petitioner.  I would state there was quite the opposite of an abuse of discretion since the settlement officer made several attempts to get information from the Petitioner.
  • Regarding the tax liability itself, in the Petitioner’s Form 12153 for 2008, he checked the box for an Offer in Compromise and stated, “I do not owe this money.  It was a tax credit, not a tax owed.  It was a first time home buyers credit and it was based on the first & only house I have ever purchased.”  The settlement officer had requested he submit to her a Form 656, Offer in Compromise, but that did not happen.  In his petition based on the Notice of Determination, Petitioner said, “The amount in dispute was not back taxes or unpaid taxes, but a tax credit (a.k.a. loan).  The amount was discharged under bankruptcy chapter 7 action.”  He said area counsel recommended he file an Offer in Compromise that had been rejected “over and over.”  In court on November 28, 2016, Petitioner stated he already submitted an Offer in Compromise to the IRS with all requested financial information and would be willing to submit another.  The record reflected the parties entered a stipulated decision and following that, the Petitioner submitted and the IRS rejected an Offer in Compromise regarding 2008.  The Court had recommended that Petitioner file an Offer in Compromise with the assistance of Pine Tree Legal Assistance, Inc.  The Court then stated it hoped the IRS will “hold off on proceeding with the proposed collection action to give petitioner an opportunity…to submit an offer in compromise,” perhaps with the above-mentioned low income taxpayer clinic’s assistance.
  • With regard to an Offer in Compromise on a 2008 first-time homebuyer credit (which I agree was basically an interest-free loan, depending on the timing of the credit), it is my understanding that the full amount of the credit owed must be a liability assessed by the IRS before it can be addressed in an Offer in Compromise.  In order to do so, it may be necessary to amend a tax return to state that the taxpayer owes the entirety of the credit as of that tax year.  Once that full credit is a liability owed to the IRS, the credit can then be negotiated through the Offer in Compromise program.  Hopefully Mr. Bushey uses that procedure to address the amount owed through the credit in his Offer in Compromise.

Designated Orders: 7/3/2017 – 7/7/2017

Today’s designated order post was written by Samatha Galvin from Denver Law School.  The orders continue to cover a variety of issues many of which we would not otherwise cover.  Keith

The Tax Court designated five orders last week and three are discussed below. The orders not discussed involved a TEFRA related issue (order here) and a motion to add small (S) case designation (order here).

Language Barrier Does Not Prevent NFTL Filing

Docket # 21856-16L, Carlos Barcelo & Vanessa Gonzalez-Rubio v. C.I.R. (Order and Decision Here)

In this designated order and decision, the Tax Court decided that the IRS Appeals Office did not abuse its discretion when it sustained a filing of a Notice of Federal Tax Lien (“NFTL”) for Spanish-speaking taxpayers, even though the taxpayers’ limited understanding of English may have created confusion about the administrative process and the IRS’s right to file an NFTL.

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The tax years involved were 2006 and 2007. The tax was self-reported and assessed after examination by the IRS for 2006, and only assessed after examination by the IRS for 2007.

Taxpayers set up a partial payment installment agreement but were informed that an NFTL would be filed to protect the government’s interest. Under section 6321, a lien is imposed whenever a taxpayer fails to pay any tax liability owed and this lien arises automatically at the time the tax is assessed. An NFTL is filed in certain circumstances to make this automatic lien valid against other creditors. Section 6320 requires the IRS to inform taxpayers of the NFTL and allow for an administrative review in the form of a collection due process (“CDP”) hearing.

Taxpayers timely requested a CDP hearing using the Spanish version of the Form 12153. In their request they asked for an installment agreement and asked that the NFTL be withdrawn. In an attachment they stated the NFTL would affect their credit and ability to find alternative employment. They also stated that their primary language was Spanish and they wanted assistance in Spanish.

The settlement officer assigned to the case sent taxpayers a letter, in English, scheduling a telephone conference for the hearing, but when the settlement officer called at the scheduled time and date the petitioners did not answer. The settlement officer made subsequent attempts to contact the taxpayers by mail and phone, including after the taxpayers had faxed her a letter, in English, requesting that the hearing be rescheduled. The record was not clear as to whether the settlement officer’s contact attempts were in English or Spanish.

After the unsuccessful attempts to hold a hearing with the taxpayers, the settlement officer determined that the requirements of applicable law and administrative procedures were met and that the filing of the NFTL balanced the need for efficient collection of taxes with petitioners’ concern regarding intrusiveness of the filing, as sections 6320(c) and 6330(c)(3) require.

Taxpayers (hereafter, petitioners) petitioned the Tax Court on the settlement officer’s notice of determination, and since their petition did not involve a challenge to liability the Court reviewed the case under an abuse of discretion standard.

At a hearing before the Court, petitioners with assistance from a Spanish language interpreter, argued that the NFTL should be withdrawn since they were in an installment agreement, but the Court held it was not an abuse of discretion for Appeals to sustain the filing of an NFTL because the partial pay installment agreement would not satisfy their liability in full. Petitioners also argued that the NFTL would affect their credit and their ability to find employment or housing if their circumstances changed, but did not offer any specific evidence to support the likelihood that their circumstances would change or that the NFTL would cause them hardship.

Respondent filed a motion for summary judgment which was supported by a declaration from the settlement officer involved in the case. Since petitioners’ did not submit any facts or offer any evidence that the determination to sustain the NFTL was arbitrary, capricious or without sound basis in fact or law, including any evidence that the language barrier may have been an issue, the Court granted respondent’s motion.

Take-away points:

  • Taxpayers often want to request a CDP hearing with respect to an NFTL filing whether or not there is a language barrier. Many taxpayers do not understand there are only a limited number of ways to have an NFTL withdrawn.
  • Although it may not have been an option for these taxpayers, the quickest way to have an NFTL withdrawn, without paying the liability in full, is to enter into a Direct Debit installment agreement. There are additional requirements, including that the liability must be $25,000 or less and paid in full after 60 months, but if the requirements are met, a taxpayer can request that the lien be withdrawn after payments are made for three months.

Pro Se Petitioner Attempts to Recover Costs

Docket # 12784-16, James J. Yedlick v. C.I.R (Order Here)

In this designated order, the parties appear to have reached a basis for settlement and the petitioner does not have a deficiency in income tax due for tax year 2013; however, petitioner indicated that he would like to recover his litigation costs (consisting of his Tax Court filing fee and then other costs, first of $60 and in a second request of $5,000).

Petitioner is representing himself pro se. On two separate occasions he submitted signed decision documents. The first time to the Court, bearing only his signature and not Respondent’s, with a letter asking the Court to “not close the case entirely” because he had planned to ask the Court about a secondary matter, but didn’t state what the matter involved.

Respondent filed a response to the letter stating that they had received a signed stipulated decision document with a written disclaimer from petitioner stating his signature was only agreeing with the decision, and he was requesting the case be ongoing, so respondent did not file them with the Court.

The Court informed petitioner that no stipulated decision had been submitted, and therefore, no decision had been entered and directed the parties to confer and file a status report regarding the present status of the case. In response to this, petitioner filed a motion to dismiss and requested litigation costs. The Court denied his motion because it is required to enter a decision, it also informed petitioner that if he wanted to recover his litigation costs he should agree to a stipulation of settled issues since doing so is required by Rule 231.

Under section 7430(a)(2), a prevailing party may be awarded the reasonable litigation costs that were incurred during a proceeding. The award of litigation costs is included in a single decision from the Tax Court, so petitioner’s attempt to agree to the decision and address the issue of costs later was not the correct way to do it.

If the signed decision documents were filed by the Court, petitioner would waive his right to recover such costs. Respondent planned to file a motion for entry of decision, and if the motion was granted, it would also prevent the petitioner from recovering litigation costs.

In order to allow the petitioner an opportunity to receive litigation costs, the Court explained the correct procedure for requesting such costs under Rule 231 and ordered petitioner to file a motion for an award of costs pursuant to the rule.

Take-away points:

  • If you wish to recover litigation costs, make sure to follow the procedures outlined in Rule 231.
  • This is a very good example of the Tax Court going above and beyond to help a pro se petitioner understand the Tax Court procedures and, hopefully, get the results he is after.

Whistleblowers Should Act Early to Protect Anonymity

Docket # 13513-16W, Loys Vallee v. C.I.R. (Order Here)

Earlier this week, we mentioned a designated order in a whistleblower case where Rule 345 was used to protect a petitioner’s identity. Here is another designated order involving a whistleblower who moved the Court to seal the case under Rule 345, but in this case the Tax Court denied petitioner’s motion on the grounds that he had already revealed his identity to the public when he filed his Tax Court petition, which also had the final determination letter from the IRS denying petitioner’s request for a whistleblower award attached to it. Section 7461 makes reports of the Tax Court and evidence received by the Tax Court a matter of public record.

The petitioner’s desire for anonymity, eleven months into the case, came about after respondent accidentally sent two informal discovery letters meant for petitioner to an incorrect address. The letters were subsequently forwarded to petitioner but had been opened and resealed with tape.

In petitioner’s motion, he stated that good cause existed to seal the case because of his general concerns that he would be harmed or suffer economic retaliation if his identity was not protected, but his motion did not provide any specific proof that he was at risk of actual harm or retaliation.

It is possible for a petitioner to proceed anonymously in a whistleblower case pursuant to the factors enumerated in Rule 345(a). One such factor is that the litigant’s identity has thus far been kept confidential. This factor was not met in petitioner’s case since his request for anonymity came eleven months after the case began. Another factor is that the petitioner must set forth a sufficient, fact-specific basis for anonymity showing that the harm to petitioner outweighs society’s interest in knowing the whistleblower’s identity. In this case, since petitioner’s concerns were general and not specific this factor was also not met.

The Court denied petitioner’s motion to seal the case and instructed respondent to take care in assuring that any mail sent to the petitioner is correctly addressed going forward.

Take-away points and interesting information:

  • If anonymity is desired in a whistleblower case it should be requested early on in the case.
  • The requirements of Rule 345 must be met before the Court will seal a case.

 

Second Circuit Agrees with Third That Time to File an Innocent Spouse Petition is Jurisdictional and Not Subject to Equitable Tolling

We welcome back frequent guest blogger Carl Smith who writes about a case he has assisted the Harvard Tax Clinic in litigating before the Second Circuit.  The court found the time for filing a Tax Court petition is jurisdictional meaning that our client’s reliance on the IRS statement regarding the last date to file her petition has landed her outside of the court without a judicial remedy for review of the innocent spouse determination unless she can come up with the money to fully pay the liability which she cannot.  Keith

This post updates a post on Rubel v. Commissioner, 856 F.3d 301 (3d Cir. May 9, 2017).  In Rubel, the IRS told the taxpayer the wrong date for the end of the 90-day period in section 6015(e)(1)(A) to file a Tax Court innocent spouse petition.  The taxpayer relied on that date – mailing the petition on the last date the IRS told her.  Then, the IRS moved to dismiss her case for lack of jurisdiction as untimely.  In response, the taxpayer argued that the IRS should be estopped from making an untimeliness argument, having caused the late filing.  But, the Tax Court and, later, the Third Circuit held that the filing period is jurisdictional.  Jurisdictional periods are never subject to equitable exceptions.

Keith and I litigated Rubel.  We also litigated a factually virtually-identical case in the Second Circuit named Matuszak v. Commissioner.  On July 5, the Second Circuit reached the identical conclusion as the Third Circuit.

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The reasoning of both opinions is almost the same:  Under recent Supreme Court case law, time periods to file are no longer jurisdictional.  But, there are two exceptions:

One is that if the Supreme Court has called a time period jurisdictional in multiple past opinions issued over decades, the time period is still jurisdictional under stare decisis.  This stare decisis exception can’t apply to the innocent spouse petition filing period because the Supreme Court has never called any time period to file in the Tax Court jurisdictional or not jurisdictional.

The other exception is the “rare” case where Congress makes a “clear statement” that it wants a time period to be jurisdictional, notwithstanding the ordinary rule.  Both Rubel and Matuszak rely on the language of section 6015(e)(1)(A) as providing such a clear statement through the words “and the Tax Court shall have jurisdiction . . . if” the petition is filed within 90 days of the notice of determination’s issuance.

Keith and I think this “clear statement” analysis is a bit too pat:  The words “and the Tax Court shall have jurisdiction” appear only in a parenthetical.  Further, the “if” clause does not immediately follow that parenthetical.  We think that, based on Supreme Court case law on this clear statement exception, one can fairly argue that the parenthetical only applies to the language immediately following it – i.e., “to determine the appropriate relief available to the individual under this section” – and which precedes the “if”.  In any case, if the language is not “clear”, then the time period should be held nonjurisdictional.

Both the Rubel and Matuszak opinion also pointed out the provision in section 6015(e)(1)(B)(ii) that gives the Tax Court jurisdiction to enjoin the IRS from collection of the disputed amount while the request for relief and all judicial appeals is pending.  There is a sentence in this provision that limits the Tax Court’s injunctive jurisdiction only to cases of the “timely” filing of a Tax Court petition under section 6015(e)(1)(A).  Keith and I don’t see the relevance of this injunctive provision to the clear statement exception, and we don’t see that “timely” means not considering any extensions provided under statutes (such as sections 7502 (tolling for timely mailing), 7508 (combat zone tolling), or 7508A (disaster zone tolling)) or judicial equitable exceptions.

And as to the context of the statute, remember both (1) that the statute explicitly invokes equity (in subsections (b) and (f)) and (2) that section 6015(e) was adopted joined in the same 1998 act to a legislative overruling of United States v. Brockamp, 519 U.S. 347 (1997).  In Brockamp, the Supreme Court held that, due to the high volume of administrative refund claims and the complexity of section 6511, the time periods therein were not subject to equitable tolling under the presumption in favor of equitable tolling against the government laid down in Irwin v. Department of Veterans Affairs, 498 U.S. 89 (1990).  Congress adopted section 6511(h) to provide what it called a legislative “equitable tolling” in cases of financial disability.  Does anyone think Congress’ desire to overrule the Supreme Court as to equitable tolling in section 6511 means that the same Congress did not want equitable tolling to apply in its new equitable innocent spouse provision?

In Rubel, the Third Circuit also cited Brockamp for the proposition that Congress in 1998 would have thought all time periods in the Internal Revenue Code jurisdictional.  Keith and I pointed out to both Circuits, however, that Brockamp doesn’t even contain the word “jurisdiction” or “jurisdictional”.  About the only significant difference between the opinions of the two Circuits is that the Second Circuit declines to include this questionable characterization of Brockamp.

No other Circuit has yet considered whether the time period in section 6015(e)(1)(A) is jurisdictional or not.  Keith and I are about to litigate the identical issue in the Fourth Circuit.  Clearly, the opinions in Rubel and Matuszak are not helping us.

Designated Orders: 6/26 – 6/30/2017

Professor Patrick Thomas of Notre Dame Law School writes about  last known address, discovery and whistleblower issues in this week’s edition of Designated Orders. Les

 Last week’s designated orders were quite the mixed bunch: a number of orders in whistleblower cases; a last known address issue; and a discovery order in a major transfer pricing dispute between Coca Cola and the federal government. Other designated orders included Judge Guy’s order granting an IRS motion for summary judgment as to a non-responsive CDP petitioner; Judge Holmes’s order on remand from the Ninth Circuit in a tax shelter TEFRA proceeding; and Judge Holmes’s order in a whistleblower proceeding subject to Rule 345’s privacy protections.

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Last Known Address: Dkt. # 23490-16, Garcia v. C.I.R. (Order Here)

In Garcia, Judge Armen addresses whether the Service sent the Notice of Deficiency to Petitioner’s last known address. As most readers know, deficiency jurisdiction in the Tax Court depends on (1) a valid Notice of Deficiency and (2) a timely filed Petition. Failing either, the Tax Court must dismiss the case for lack of jurisdiction. If the Petition is not timely filed in response to a validly mailed notice of deficiency, the taxpayer is out of luck; the Service’s deficiency determination will stick. The Service can also potentially deprive the Court of jurisdiction through failure to send the Notice of Deficiency to the taxpayer’s last known address by certified or registered mail under section 6212, though the Court will have jurisdiction if the taxpayer receives a Notice of Deficiency that is not properly sent to the last known address and timely petitions. While a petitioner could be personally served with a Notice of Deficiency, this rarely occurs.

Perhaps counterintuitively for new practitioners, the remedy for this latter failure is a motion to dismiss for lack of jurisdiction. Unlike a jurisdictional dismissal for an untimely petition, this motion can substantially benefit the taxpayer. A successful motion will require the Service to re-issue the Notice to the proper address—or else otherwise properly serve it on the taxpayer. If the Service fails to do so within the assessment statute of limitation under section 6501, no additional tax liability may be assessed. This motion is thus a very powerful tool for practitioners in the right circumstances.

Here, the Court dealt with two motions to dismiss for lack of jurisdiction: the Service’s based on an untimely petition, and Petitioner’s based on failure to send the Notice to the last known address. Petitioner had sent multiple documents to the Service, and the Service to the taxpayer, as follows:

 

Date Sender Document Address
February 25, 2015 Petitioner 2014 Tax Return Twin Leaf Drive
April 2015 Petitioner 2011 Amended Return Brownfield Drive
October 30, 2015 Petitioner Power of Attorney Twin Leaf Drive
November 10, 2015 IRS Letter 1912 re: 2014 Exam Brownfield Drive
February 12, 2016 Petitioner 2015 Tax Return Brownfield Drive
March 8, 2016 IRS 2014 Notice of Deficiency Brownfield Drive
October 17, 2016 IRS Collection Notice re: 2014 Brownfield Drive

 

Judge Armen held that the Service did send the Notice to the proper address, despite the ambiguities present here. Petitioner argued that because his attorney had filed a Form 2848 with the Twin Leaf Drive address after he filed his 2011 Amended Return, the Form 2848 changed the last known address to Twin Leaf. The Notice of Deficiency wasn’t sent to that address; ergo, no valid notice.

But Petitioner’s filed his 2015 return using the Brownfield Drive address, prior to issuance of the Notice of Deficiency. Petitioner argued that the regulations governing the last known address issue requires both (1) a filed and (2) properly processed return. Reg. § 301.6212-2(a). In turn, Rev. Proc. 2010-16 defines “properly processed” as 45 days after the receipt of the return. Because the Notice was issued before this “properly processed” date (March 28), the last known address, according to Petitioner, should have been the Twin Leaf Drive address as noted on the most recent document filed with the Service: the October 30, 2015 Form 2848.

Judge Armen chastises petitioner for “using Rev. Proc. 2010-16 as a sword and not recognizing that it represents a shield designed to give respondent reasonable time to process the tens of millions of returns that are received during filing season.” Further, Judge Armen assumes that the Service actually processed the return much quicker (“Here petitioner would penalize respondent for being efficient, i.e., processing petitioner’s 2015 return well before the 45-day processing period….”

I’m not sure that the facts from the order support that conclusion. There is no indication of when Petitioner’s 2015 return was processed by the Service such that they could use it to conclusively determine the last known address. Judge Armen seems to avoid this issue by assuming (perhaps correctly) that the return was processed before the Notice of Deficiency was issued. Unless certain facts are missing from the Order, this seems like an assumption alone.

If the Service did not have the 2015 return on file, or had sent the Notice prior to February 12, 2016, then they would have waded into murkier waters. As Judge Armen alludes to, the Service does not view a power of attorney as conclusively establishing a change of address. Rev. Proc. 2010-16, § 5.01(4). The Tax Court has disagreed with this position previously. See Hunter v. Comm’r, T.C. Memo. 2004-81; Downing v. Comm’r, T.C. Memo. 2007-291.

Discovery Dispute Regarding Production of Documents and Response to Interogatories: Dkt. # 31183-15, The Coca-Cola Company and Subsidiaries v. C.I.R. (Order Here)

Judge Lauber denied a portion of the Service’s request to compel the production of documents and responses to interrogatories in the ongoing litigation regarding Coca-Cola’s transfer pricing structure. I’d do our reader’s a disservice by touching transfer pricing with a ten-foot pole. Rather, I’ll focus on the discovery issue at play.

Regarding the motion to compel production of documents, the Service had sought “all documents and electronically stored information that petitioner may use to support any claim or defense regarding respondent’s determination.” The parties had previously agreed to exchange all documents by February 12, 2018. Coca Cola argued that by demanding all such documents presently, the Service was attempting to get around the pretrial order.

Judge Lauber agreed with Coca Cola, especially because certain claims of privilege were unresolved, and expert witness reports and workpapers had not yet been exchanged. In essence, Coca Cola was unable to provide “all documents” upon which they might rely at trial, as they were unable to even identify all of those documents presently due to these unresolved issues. Judge Lauber cautioned Coca Cola, however, to avoid an “inappropriate ‘document dump’” on February 12, by continuing to stipulate to facts and to exchange relevant documents in advance of this date.

The motion to compel response to interrogatories centered on private letter rulings that Coca Cola received under section 367 (which restricts nonrecognition of gain on property transfers to certain foreign corporations). The Service wanted Coca Cola to “explain how the [section 367 rulings] relate to the errors alleged with respect to Respondent’s income allocations” and “identify Supply Point(s) [Coca Cola’s controlled entities] and specify the amount of Respondent’s income allocation that is affected by the transactions subject to the [section 367 rulings]”. While Coca Cola had already identified the entities and transactions relevant to the section 367 rulings, and had provided a “clear and concise statement that places respondent on notice of how the section 367 rulings relate to the adjustments in dispute”, the Service apparently wanted more detail on how precisely the private letter rulings were relevant to Coca Cola’s legal argument.

Coca Cola, and Judge Lauber, viewed this request as premature. Nothing in the Tax Court’s discovery rules require disclosure of legal authorities. Moreover, Judge Lauber cited other non-Tax Court cases holding that such requests in discovery are impermissible. Any disclosure of an expert witness analysis was likewise premature, at least before the expert witness reports are exchanged.

Whistleblower Motions: Dkt. # 30393-15W Kirven v. C.I.R. (Orders Here and Here)

Two orders came out this week in this non-protected whistleblower case. Unlike Judge Holmes’s order mentioned briefly above, we can actually tell what’s going on in this case, as Petitioner has apparently not sought any protection under Rule 345. Chief Judge Marvel issued the first order, which responded to petitioner’s request for the Chief Judge to review a number of orders that Special Trial Judge Carluzzo had previously rendered. Specifically, Petitioner desired Chief Judge Marvel to review the denials of motions to disqualify counsel, to strike an unsworn declaration from the Service, and to compel interrogatories and sanctions.

While the Chief Judge has general supervisory authority over Special Trial Judges under in whistleblower actions under Rule 182(d), Chief Judge Marvel denied the motion, given that these motions were “non-dispositive”.

The second order by Judge Carluzzo did resolve a dispositive motion for summary judgment. Perhaps we shall see a renewal of a similar motion before Chief Judge Marvel in this matter.

The Service had initially denied the whistleblower claim due to speculative and non-credible information. Additionally, however, an award under the whistleblowing statute (section 7623(b)) requires that the Service initiated an administrative or judicial proceeding against the entity subject to a whistleblowing complaint. Further, the Service needs to have collected underpaid tax from that entity for an award, as the award is ordinarily limited to 15% of the amount collected. Neither of those occurred in this matter, and on that basis, Judge Carluzzo granted the motion for summary judgment, upholding the denial of the whistleblowing claim.

This case again reminds pro se petitioners to attend their Tax Court hearings and respond to the Service’s motions for summary judgment. The Petitioner did not attend the summary judgment hearing, because (according to her) the hearing regarded both the Service’s motion for summary judgment as well as her motion to compel discovery. Whatever her reason for not attending the hearing or responding to the motion, all facts provided by the Service were accepted, and the Court assumed there was no genuine dispute as to any material facts: a recipe for disaster for the non-movant in a summary judgment setting.

Designated Orders Post: Week of 6/19 – 6/23

There were four designated orders this week, but only two that will be discussed in any detail. For the incurably curious, the two designated orders that will not be discussed can be found here (order to respond to a motion for summary judgment) and here (order granting IRS motion for summary judgment). The two orders that will be focused on concern Collection Due Process (CDP) hearings, and somewhat bizarre administrative moves by the IRS.

Penny-Pinching or Oversight? IRS Failure to Send Letter by Certified Mail Dooms Summary Judgment Motion

Dkt. No. 15248-16L, Security Management and Integration Company v. C.I.R. (order here)

The IRS has been trying to get this case dismissed for lack of jurisdiction since August, 2016 –filling supplemental motions in January and March of this year. Alas, all of those hours spent appear to be for naught, largely on the basis of the IRS’s failure to send a critical letter by certified mail. Whether this is the embodiment of the adage “penny-wise, pound-foolish” or just a simple mistake with redounding consequences is not clear from the available documents, and left to the reader’s biases.

As is often the case, the IRS begins with a challenge to Tax Court jurisdiction due on timeliness grounds. There are essentially two “timeliness hurdles” for getting into tax court on a Collection Due Process (CDP) case. The first hurdle is requesting the administrative CDP hearing within 30 days of the notice of intent to levy or notice of federal tax lien (IRC 6330(a)(3)). The second hurdle is filing a petition with the tax court 30 days after receiving a “notice of determination” from the IRS following that hearing (IRC 6330(d)). The IRS tries to argue both of these hurdles apply… and likely could have won on the second, if not for their paltry record-keeping.

As to the first hurdle, the IRS proclaims that the taxpayer cannot get into court because they didn’t get a notice of determination (which only issues from a timely CDP request). The Tax Court makes short work of this argument. Under Craig (discussed previously here and here) if the taxpayer timely requested a CDP hearing (as the Court so finds) the “decision letter” is a notice of determination, despite whatever the IRS may call it.

First hurdle: cleared. As we’ll see, it may well be a hurdle that ends up biting the IRS.

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But at first blush the second hurdle appears daunting for the tax payer. The IRS “decision letter” was dated April 6, 2016. The petition to the Tax Court? Not filed until July 5, 2016… considerably more than 30 days.

The Court finds that at least one letter was sent to the correct address (hedging their bets, the IRS sent multiple), so it would seem extremely unlikely that the taxpayer could argue they timely filed a petition in response. Except that this is a summary judgment motion to dismiss for lack of jurisdiction, and the IRS record is not nearly what it needs to be.

In fact, all the IRS can rely on to show that the date the decision letter was sent is the date printed on the letter (apparently not the postmark). Not infrequently, I have had cases where the date printed on an IRS correspondence is questionable, and would appear to have been dated well before it was actually placed in the mail. It isn’t particularly difficult to imagine a letter being prepared (and dated) at one time, and then placed in a queue only to be mailed when some later event takes place. This happens all the time when a letter is prepared but needs approval before being sent. Such circumstances are ones that Judge Carluzzo can likely envision, yielding his reluctance “to find that [the notice of determination] was mailed as dated.” Without the date on the notice holding any water, the argument devolves into “he-said-she-said” between the IRS and the taxpayer. That isn’t enough to win on summary judgment, and it isn’t enough for the IRS to show that the petition was not timely.

If only the IRS had some other evidence to show the date the notice was mailed… like, say, a certified mailing list. And this is where we return to the initial problem: the IRS (apparently mistaken) belief that the first timeliness hurdle was never met. For a timely CDP request, the IRS will generally send a notice of determination by certified mail. See Treas. Reg. 301.6330-1(e)(3) Q&A-E8. I was able to find no such regulation or internal policy for the IRS with regards to decision letters. Because the IRS didn’t think the CDP request was timely, they may not have thought that there was a reason to care much about proving when the decision letter was sent: the taxpayer couldn’t get into court no matter how quickly they respond to a decision letter that fails the first timeliness hurdle. Internally, when the IRS believes it is conducting an “equivalent hearing” it is supposed to investigate and make a “separate timeliness determination” about the request. See IRM 8.22.4.3 and 8.22.5.9. It is obvious, however, that this safeguard isn’t foolproof. The IRS may do well to better recognize these shortcomings (especially that the notice dates on many of its letters are not that convincing) and adjust its procedures accordingly.

I have seen some lawyers (and students) that appear a bit trigger happy with certified mailing, desiring a paper trail where proof of a mailing date is somewhat irrelevant and the certification proves nothing of the contents of the parcel. I would say reasonable minds can differ on the virtue of certified mailing in many cases. But where statutory deadlines are (or may be) at play, it is unthinkable that one would forego a certified mailing paper-trail. This is, if nothing else, a reminder to the IRS (and practitioners) of the perils that may follow such oversight.

 

“Trust Us, He Owes” Not Good Enough for IRS Summary Judgment Motion in CDP

Dkt. No. 27754-15L Walker v. C.I.R. (order here)

In the previous order, we saw the problems of a paper trail the IRS created for itself by failing to use certified mail. Here, that record-keeping problem resurfaces: in this case, by an administrative record so paltry that -by the IRS own admission- it “remain[s] unclear” why additional tax was assessed.

This order deals with an IRS motion for summary judgment against a pro se taxpayer that appears to want to argue (1) I don’t owe the tax, and (2) I filed some of those tax returns the IRS is saying that I didn’t. Argument (2) is fairly factual, and not a great candidate for summary judgment where the IRS records aren’t up to par. In this case, they aren’t exactly sterling, or at least they are suspect enough to allow for a genuine issue of law or fact (and thus, not suitable for summary judgment). Issue (1) is usually a good candidate for summary judgment, since the ability of a taxpayer to argue the merits of “I don’t owe the tax” is frequently unavailing in a CDP hearing. If the taxpayer previously had an opportunity to so argue the tax or received an SNOD, summary judgment will (likely) ensue. But what if you are not arguing the merits of the tax, so much as the fact that the IRS records are so bad they can’t properly show that you should owe it? When a taxpayer says “I don’t owe the tax,” can that be construed as arguing the merits of the tax (forbidden), or the procedure of the assessment (allowed)? This order may slightly blur those lines.

I think this order can stand for two different takeaways, depending on your preferred viewpoint. The first focuses on statutory requirements of a CDP hearing. The IRS is required to review that “the requirements of applicable law or administrative procedure have been met.” IRC 6330(c)(1). Under this viewpoint, focused mostly on tax procedure, some indicia of why the IRS assessed the tax is a component of verifying that applicable law was followed. This order simply clarifies what goes into the statutory requirement of IRC 6330.

The second potential takeaway is that general APA considerations and case law are creeping more and more into the tax arena, and are particularly amenable to CDP hearings. This is a slight twist on the notion that the IRS simply failed in its statutory obligations. Consider the question this way: if, on remand, IRS Appeals sufficiently verified that the IRS followed the proper deficiency procedures in assessing the tax (issued an SNOD, etc.) would that be enough? Or, would the IRS need to look at the substance of the SNOD (beyond such things as proper address) as well? If the latter is required (and in this case IRS Appeals is specifically ordered to identify “the reasons for the assessment”) it seems to implicate the sort of judicial review of deficiency notices in CDP cases that the Tax Court has balked at in deficiency cases (most notably, in QinetiQ (discussed here and here among many other places)). At the collection stage, and even assuming the deficiency procedures were properly followed, the IRS can’t get by with a “trust us, they should owe” assessment. One imagines that there must be a record somewhere in the bowels of the IRS explaining why they believe the taxpayer owes an additional $24,562. Special Trial Judge Daniel Guy Jr. rightly requires the IRS to make such a showing.

Of course, CDP is a relatively new aspect of the tax code and role of judicial review within it is still being hammered out. On remand, is all that IRS Appeals required to do is show that there was some rationale for the assessment in the administrative record (“we thought he had more taxable income”)? Or could that rationale thereafter be challenged for being arbitrary and capricious (an abuse of discretion)? Questions to ponder this holiday weekend…

Designated Orders: 6/12/2017 – 6/16/2017

From 7 designated orders last week, this post focuses on 3 orders of interest.  One may need to address a split of authority, one may need jurisdiction to revise a decision for an agreement between the parties, and a third deals with the death of a nonrequesting spouse in an Innocent Spouse case.

A Jackson Split?

Docket # 17152-13, Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor v. C.I.R. (Order Here)

Slotted in the middle of a designated order that also deals with a joint stipulation of facts and whether specific information or exhibits needs to be sealed is an issue that could have greater implications.  In the case dealing with the tax liability of Michael Jackson’s estate, the Tax Court addressed implications of the recent Second Circuit opinion of Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017).

To summarize, there are disputes about the fallout from the Second Court opinion in Chai and whether that will triumph over the Tax Court opinion in Graev v. Commissioner, 147 T.C._ (Nov. 30, 2016).  The designated order in Estate of Michael R. Jackson cites the two cases concerning a difference of opinion regarding whether certain requirements are imposed on the IRS under IRC 6751.

The Graev conclusion was “that the statute [IRC 6751] imposes no particular deadline for the IRS to secure the required written approval before a penalty is assessed.”

In preparing for the trial in the Estate of Michael R. Jackson case, the Commissioner potentially provided a copy of the administrative approval of valuation penalties to the Petitioners.  However, no copy of the form made it into the record at trial.

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Following trial, the Second Circuit rejected the conclusion in Graev.  They replaced it in Chai with a holding that “compliance with IRC 6751(b) is part of the Commissioner’s burden of production and proof in a deficiency case in which a penalty is asserted.”

At this point in the Jackson case, the Commissioner certainly wants the approval form in the record and the P objects.  Unless the parties agree before the time the third stipulation is due (on or before 6/30/17), a motion would be necessary to reopen the record.  The Court will want the motion briefed and it would likely lead to an opinion.

The Court ordered that on or before 7/13/17 the Commissioner shall file any motion to reopen the record to include evidence relevant to their compliance with IRC 6751.  Petitioners shall file a response to that motion on or before 8/3/17.  Then, the Commissioner shall file a reply to that response on or before 8/17/17.

It thus looks like Michael Jackson’s estate may lead to something more than celebrity gossip.  The Tax Court case may be the next judicial step regarding a split of opinion regarding the burden of proof on the IRS under IRC 6751.

Jurisdiction Needed?  Just Add Rogers

Docket # 7390-10, John E. Rogers & Frances L. Rogers v. C.I.R. (Order Here)

While a decision in Rogers was finalized on April 3, 2017, that decision may not be so final.

The IRS brief to the Court of Appeals stated that computational errors resulted in a $134,000 overstatement of Rogers’s taxable income, deficiency and penalties.  While the IRS recommended remanding the case to correct that overstatement, the Court of Appeals affirmed instead of remanding.

The Tax Court ordered the parties submit a joint status report regarding further proceedings.  In their 2/15/17 joint status report, it states that the IRS is recomputing the deficiency and that the Rogers spouses will review the computations.  A joint status report filed on 6/13/17 stated that the IRS recomputed the deficiency and the petitioners agreed with the new computations.

However, no motion to vacate or revise the decision was filed under Rule 162 by 4/3/17.  Since the decision became final on 4/3/17, it is unclear to the Tax Court what their jurisdiction is for revising the decision.

Since the IRS will process the credits to the account for the petitioners for tax year 2004 in order to effectuate the corrections, that potentially makes the jurisdictional issue moot.

The Tax Court ordered that if either party wishes to file a Rule 162 motion to vacate or revise the decision, that the party should do so (with a motion for leave to file out of time) no later than July 14, 2017.  The motion for leave should explain how the Tax Court has jurisdiction to revise the decision.  If neither party files such a motion, the case will remain closed.

While the parties are in agreement, the Tax Court finds that their hands may be tied.  While they want the record to reflect the agreement of the parties, it is interesting that the Tax Court looks to the parties for jurisdictional help on how to revise their decision since time likely ran out.

Don’t Forget the Heirs and Beneficiaries

Docket # 19277-16, Alison Turen v. C.I.R. (Order Here)

Normally in an Innocent Spouse case, the IRS files a copy of the notice of the filing of the petition that they served on the other individual that the Petitioner filed joint returns with for the tax years before the Tax Court.  In other words, the Petitioner files a petition with Tax Court regarding an Innocent Spouse case and the IRS is to send a copy of the notice of the filing of the petition with the other spouse from the joint tax returns in order to give that spouse the right to intervene in the Tax Court case.  What happens then when the other spouse has died?

In the Turen case, the IRS did not file the notice since the petition states that the other spouse is deceased.  The Tax Court stated in their designated order that the death of that spouse does not relieve the IRS of their responsibility for providing notice.  Fain v. Commissioner, 129 T.C. 89 (2007) provides that the right of intervention belongs to the decedent’s heirs or beneficiaries, based on procedures outlined in Nordstrom v. Commissioner, 50 T.C. 30, 32 (1968) to ascertain the heirs at law of a deceased non-petitioning spouse.

The Tax Court order was that the parties are to identify on or before June 30, 2017 the heirs at law of the decedent nonrequesting spouse and on the same day to provide a joint status report to the Court of the heirs at law identified.  They are also ordered that on or before July 14, 2017, the IRS shall submit a Notice of Filing of Petition and Right to Intervene served on the heirs at law or file a response stating the reasons for not doing so.