Using an Affidavit to Avoid Summary Judgment

We have been requested to notify you that the USD School of Law-RJS Law Tax Controversy Institute will take place this summer on July 20, 2018 at the University of San Diego School of Law Campus. Some PT guest bloggers will be speaking as will Chief Judge Paige Marvel of the Tax Court. For more information about the conference go here.  It is nice to have a conference that focuses on the issues discussed in this blog.

In United States v. Stein, the 11th Circuit reverses longstanding precedent in that circuit and allows a taxpayer to get past a summary judgment motion filed by the IRS and reach the jury. The decision may not result in a victory for Mrs. Stein in the long run but it allows her, and other similarly situated taxpayers (as well as litigants in non-tax cases), to put on their case.

As I will discuss further below, the concurring opinion of Judge Pryor in this en banc opinion provides a history lesson supporting the reasoning of the Court’s opinion and gives interesting insight into the relationship between the dreaded Stamp Act and Mrs. Stein’s ability to move past summary judgment.


The IRS brings relatively few affirmative suits to collect. It does so when the amounts justify the expenditure of effort, the potential to actually collect exists, and, usually, the taxpayer’s cooperation with administrative collection efforts has been less than robust. In this case, the IRS sues Mrs. Stein seeking to reduce its assessment of approximately $220,000 to judgment. It alleged that she had unpaid taxes for 1996 and 1999-2002.

As is normal in these cases, the IRS submitted account transcripts showing her outstanding liabilities and an affidavit from an IRS officer supporting and explaining the transcripts. It moved early in the case for summary judgment based on this information. Mrs. Stein, in response, filed an affidavit in which she stated that to the best of her recollection she paid the taxes at issue. Her affidavit addressed each year in turn with such a statement; however, it did not contain any corroborating evidence of payment.

The district court granted the IRS summary judgment concluding that the evidence presented by the IRS created a presumption that the assessments were correct and that Mrs. Stein “did not produce any evidence documenting said payments.” Her lack of documentation did not allow her to overcome the presumption of correctness. So, the district court determined there was no genuine dispute as to any material fact making the IRS entitled to summary judgment as a matter of law.

She appealed the district court’s decision to the 11th Circuit but lost her appeal. She requested en banc review of the decision. The en banc review resulted in a reversal of the prior decisions in her case and a reversal of Mays v. United States, 763 F.2d 1295 (11th Cir. 1985). In reversing, the panel examined FRCP 56 which governs summary judgment and determined that “nothing in Rule 56 prohibits an otherwise admissible affidavit from being self-serving. And, if there is a corroboration requirement for an affidavit, it must come from a source other than Rule 56.”

The panel states that it makes no difference that this is a tax case. The same summary judgment standard applies in tax cases as in other areas of the law. Doubling back to its earlier statement on corroborating, the panel says Rule 56 simply has no such requirement and that “a non-conclusory affidavit that complies with Rule 56 can create a genuine dispute concerning an issue of material fact, even if it is self-serving and/or uncorroborated.” Of course, this does not mean Mrs. Stein will win her case – far from it. Unless she obtains some proof of her payment of the liabilities or finds a basis for attacking the assessments beyond the statements in her affidavit, I expect she will lose in the end.

Getting past summary judgment is still a big deal. It allows her to gather evidence in support of her payments she may not have done before and it allows her to tell her story to a jury which is where Judge Pryor’s concurrence comes into play.

Judge Pryor states that he writes “to highlight the irony of our earlier precedent when viewed in the light of the history of the Seventh Amendment.” He explains that in the decades before the American Revolution, parliament grew tired of American juries which held for American interests in tax case. So, it expanded the jurisdiction of the Admiralty Courts, which sat without juries, to include trade cases even though those cases would have resulted in jury trials in England. It later expanded the jurisdiction of Admiralty Courts in America to cover matters involving the Sugar Act and the Stamp Act, seeking to avoid “friendly” juries in America.

The colonies strenuously objected to these measures and the right to a jury trial became one of the chief complaints leading up to the revolution. It became an issue in the Constitutional Convention as well and Alexander Hamilton wrote about it in the Federalist Papers. He equated the granting of summary judgment in these circumstances to the type of behavior that our forefathers sought to avoid in overthrowing the yoke of British rule. Judge Pryor’s concurring opinion is a good read for history buffs and perhaps for any lawyer wanting to know more about the origins of American law and how to craft an argument.

By seeking en banc review, Mrs. Stein not only overturned three decades of 11th Circuit precedent but got us a history lesson as well. I wish her the best in finding proof that she did pay the taxes so that her story has a happy ending.  Perhaps, if victorious, she will celebrate by drinking some tea and reflecting fondly on our forefathers.  I would like to expand Judge Pryor’s logic to beat back the government’s current view of the Flora rule where taxpayers such as Mr. Larson are denied an opportunity to even step into court to dispute their tax liability without shelling over millions and millions of dollars.


2018 Tax Law Changes: IRS Releases Withholding Calculator

The changes to the individual income tax effective for 2018 will be fully felt next filing season. As paychecks start rolling in for employees, IRS has released an online withholding calculator that will allow people to adjust withholdings to reflect the changes.   The old withholding system was based largely on personal exemptions. The new law, ostensibly at least for the next eight years, eliminates the deduction for personal exemptions and dependents.

In its place, among other changes, the new law doubles the standard deduction, boosts the child tax credit and lowers the tax rates.

These changes will for most taxpayers lower federal income taxes; to adjust withholding to minimize serving up an even larger interest free loan to Uncle Sam taxpayers should submit a new Form W 4 with their employers.

The online calculator will allow people to enter information, including projected income and eligibility for credits like the CTC and EITC, to see if they should prepare a new W4. Of course, if taxpayers do nothing, and the law reduces taxes, the effect will be just a greater refund next year. Yet, as some have noted, not everyone wins under the new law. An article in the WSJ from earlier this year points out for families who have older kids that have aged out of CTC eligibility but who would have qualified as dependents, the new law may in fact increase taxes and a failure to adjust withholdings may leave those taxpayers short and potentially subject to penalties. Our blogging friends at Surly Subgroup in a post by Sam Brunson made a similar point.

The loss of the dependency exemption will also impact individuals who do not have social security numbers since they can no longer claim the child tax credit and it will impact and taxpayers who previously claimed dependents who were qualified relatives since these dependents do not create a child tax credit to offset the loss of the exemption.  Taxpayers with dependents that will not generate the child tax credit need to carefully consider the withholding tables and the tax impact of the changes on their 2018 return.  Because this aspect of the new law does not receive as much attention as the tax cuts, an unpleasant surprise could be waiting for many taxpayers next filing season and for the IRS.  If even a small percentage of taxpayers under withhold that previously over withheld, the IRS could find many more accounts in the collection stream with all of the additional work that entails.  Getting the withholding amount correct seems like a small thing but it can have significant downstream consequences for taxpayers and the IRS.

I do not have much else to add other than to note that the online calculator does not require individuals to add identifying information that would potentially allow IRS to associate a taxpayer’s entered (or deleted) information with the taxpayer. That is key for privacy. I get a little antsy when I get a reminder email from an airline or retailer when I have not followed through with a purchase after submitting some information (e.g., an email from Southwest reminding me that flights were still available to West Palm Beach as I had explored fares to escape the endless winter here in Philadelphia). I suspect the government could have a keen interest in taxpayers who fiddle around with a withholding calculator, just as IRS would have interest in taxpayers and preparers changing information when preparing returns on tax software, especially for items that are not subject to information reporting or withholding.



The Perils of a Discredited Appraisal: Critical Insights on Kollsman v. Commissioner

We welcome guest blogger Cindy Charleston-Rosenberg, ISA CAPP. Cindy is a past President and Certified Member of the International Society of Appraisers (ISA), the largest professional organization of qualified appraisers in the United States and Canada.   She is an experienced expert witness and writes and presents widely on advanced appraisal methodology issues. Cindy is active in industry activities to raise awareness of the critical importance of meaningful appraiser qualification standards. She provides insight on things we should consider in hiring an expert witness in order to avoid problems of qualification or bias. Keith 

A US Tax Court ruling has brought the perils of a discredited art appraisal into sharp focus. In the Estate of Kollsman v. Commissioner, the court rejected a premiere auction house appraisal for bias and absence of objective support. Relying almost exclusively on the IRS expert, the court concluded a $2,400,000 value for the disputed artwork. (The estate had valued the artwork at $600,000, the IRS at $2,600,000). Kollsman illustrates that preeminence in the auction business, or in another art-related profession, is not adequate assurance of appraisal expertise or competency. As Keith Fogg thoughtfully covered in a previous Procedurally Taxing blog post, an expert who has or is seeking any involvement in the sale or purchase of the subject of an appraisal can signal an obvious and avoidable conflict of interest.

Beyond bias, this post explores exposure in failing to select a relevantly credentialed expert, who will submit fully supported, impartial testimony and reports, allowing their opinions to be confidently embraced by the IRS and the courts. Those who practice tax law where the value of art is at issue may be held liable for failing to secure a qualified expert who can competently support contested value. Therefore, lawyers offering estate planning services should be familiar with established, meaningful, credible and defined appraiser qualification criteria when vetting personal property appraisal experts.


In contrast to the disregarded expert witness offered by the estate in Kollsman, the IRS expert whose opinion prevailed and was found qualified, was a properly credentialed appraiser. Credentialed appraisers are trained and tested in appraisal standards, ethics and methodology, have had sample reports vetted through peer review, and are more likely to submit a full and impartial expert analysis.

In rejecting the appraisal offered by the estate in Kollsman as “unreliable and unpersuasive”, the court found profound deficiencies in competency as well as independence:

  • Absence of comparable market data: The court found it “remarkable” that the opinion was not supported by the comparable sales price data consistently found to be significant in prior cases, or that “any objective support” was offered to support the valuation figures. “He effectively urges the Court to accept them on the basis of his experience and expertise. We have no basis for doing so”.
  • Exaggerated discount for condition. In rejecting the wholly unsupported opinion of diminution of value based on condition, the court believed any reasonable investigation of condition impacts on value would, at a minimum, include an opinion from a qualified conservator.
  • Direct conflict of interest: The expert provided his fair market value estimates simultaneously with a solicitation for exclusive rights to auction the paintings if they were to be sold. The court found this to be a “significant conflict of interest that could cause a reasonable person to question his objectivity”.
  • Direct financial incentive: The court believed the expert was acting with incentive to undervalue estate tax liability in exchange for an agreement to benefit from selling the property. Judge Gale’s language was strong on this point, finding: “a direct financial incentive to curry favor” by providing “lowball estimates that would lessen the Federal estate tax burden borne by the estate”.

The Appraisal Foundation’s 2018 Personal Property Appraiser Qualification Criteria

The appraisal of art is a recognized professional discipline, distinct from other types of art market expertise, with clearly defined credentialing standards. When engaging an art appraisal expert it’s critical to assert the same diligence employed in engaging any other expert witness, which includes understanding the professional criteria specific to the discipline of appraising.

In the United the States, The Appraisal Foundation (TAF) is the foremost authority on the valuation profession. Under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), Congress authorized The Appraisal Foundation as the source of appraisal standards and qualifications.  TAF’s Appraiser Qualifications Board (AQB) is responsible for developing appraiser qualification standards for the real estate and personal property professions. TAF’s Appraisal Standards Board (ASB) issues and updates The Professional Standards of Professional Appraisal Practice (USPAP). Together these standards help ensure a trustworthy level of professional competency. After five years of research and analysis, including input from the credentialing sponsoring organizations, TAF issued an updated and more stringent Personal Property Appraiser Qualification Criteria, which is in effect as of January 1, 2018.

TAF sponsoring professional personal property organizations are required to adhere to these criteria when credentialing members. The International Society of Appraisers, The Appraisers Association of America, and The American Society of Appraisers maintain public online registries where the expert’s specialization, level of credentialing and current USPAP compliance may be accessed and confirmed.

Suggested Standards of Professional Responsibility in Vetting Appraisers and Expert Reports

  1. Require a current credential issued by one of the three TAF sponsoring personal property appraisal organizations. Members of the qualifying organizations earn their credentials through a rigorous admissions, training and testing process. They are required to comply with IRS and AQB guidelines, adhere to a code of ethics, are subject to oversight, and continuing education requirements. Before attaining Accredited or Certified status, members must submit appraisal reports to a stringent peer review process. These qualifications support competency, accountability and a commitment to professionalism. Consult the public registries of the qualifying organizations to ensure current credentialing. The International Society of Appraisers, the Appraisers Association of America, and The American Society of Appraisers.


  1. Appraisal reports should be well-supported. Every appraisal submitted to assist in determining tax liability has the potential to become the subject of litigation. The IRS Art Appraisal Services (AAS) is staffed by experienced appraisers, tasked with protecting the public from abuse in valuation resulting from inadequately supported appraisal reports. The IRS Art Appraisal Services is part of the IRS Office of Appeals. All AAS reviewers have been trained in appraisal methodology by one of the three TAF Sponsoring organizations and comply with USPAP continuing education requirements. The AAS is distinct from the IRS Art Advisory Panel. The members of the Art Advisory Panel are renown art experts, scholars and gallerists who serve without compensation.

Reports for objects of significant value should be supported by comparable sales data, relevant expert opinions, and a well-reasoned objective justification for each value conclusion. In response to IRS guidance, this is a required reporting component of all three TAF qualifying organizations for any object valued above $50,000. At a minimum, all appraisal reports should also disclose the approach to valuation and methodology employed, intended use, definition of value, markets explored, any conditions limiting assignment results, extraordinary assumptions, and scope of work.

  1. Appraisal reports should be comprehensive. IRS Publication 561, Determining the Value of Donated Property, outlines a Preferred Object Identification Format for Art Valued over $50,000. The suggested appraisal format includes a complete physical description of the object, including size, materials or medium, subject matter, name, nationality and life dates of the artist, signatures or other identifying inscriptions or markings, date of creation, provenance (history of ownership), condition, literature references and exhibition history. The IRS also recommends the appraiser exercise due diligence in confirming authenticity. The appraisal must include professional quality photographs of the subject properties. The IRS Preferred Object Identification Format for Art Valued over $50,00 defines “Art” as including paintings, sculptures, watercolors, prints, drawings, ceramics, antiques, decorative arts, textiles, carpets, silver, rare manuscripts, historical memorabilia, and other similar objects. This format essentially applies to all personal property.
  1. Appraisals submitted to the IRS should address how the appraiser meets the IRS Appraiser Qualification Criteria, and acknowledge civil liabilities associated with a grossly inaccurate valuation. The Pension Protection Act of 2006 ((PPA), P.L. 109-280, at §170(f)(11)(E)), codified the definition of a qualified appraiser and qualified appraisal report. The PPA strengthened the professional requirements a qualified appraiser must meet, specifically identifying organizational credentials, experience, and professional-level coursework. All IRS appraisals are required to include a statement of how the appraiser meets the IRS qualification criteria.
  1. Appraisals should include a signed and dated certificate of compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). This certification must confirm that the assignment was not predicated on a pre-determined result. The certification should include a statement that the appraiser is compliant with the current version of USPAP (2018-19)
  1. The Uniform Standards of Professional Appraisal Practice (USPAP) is not a credential. USPAP sets critical ethics and reporting standards, but it is not a credential. An individual who promotes as “USPAP Certified” displays a superficial understanding of the standards of their own profession, because USPAP does not certify. The qualifying personal property organizations issue credentials. USPAP training and compliance is a 15-hour foundational course with a 7-hour bi-annual continuing education requirement. It is a required, but rudimentary component in achieving and maintaining an AQB compliant credential.
  1. Experts should be objective and disinterested. The PPA specifically disqualifies individuals who would have a conflict of interest in the outcome of the appraisal. An expert should do nothing that would cast doubt on the impartiality of their opinion.
  2. Contingent fees are prohibited by USPAP. The Ethics Rule of USPAP prohibits contingent fees without exception. An appraiser must not accept an assignment, or have a compensation arrangement for an assignment, that is contingent on a predetermined value result, based on a percentage of value, or attainment of any advantage (e.g., the appraiser will broker or sell the subject property).

In summary, preeminence in art sales or other art-related professions is not assurance of appraisal expertise or competency. In fact, an expert’s involvement in the sale and purchase of the subject artwork can undermine the perception of objectivity. Further, to manage the risk of a disqualified expert, appraisers should meet recognized professional standards for qualification and competency, including active credentialed membership in one of the three TAF qualifying organizations. In Kollsman, the appraisal credential of the IRS expert was referenced in the opinion.

Professional Qualification Criteria for Personal Property Appraisers are developed by The Appraiser Qualifications Board of The Appraisal Foundation. The standard is rigorous, meaningful, easily accessible to opposing parties, and is clearly defined. Qualification to AQB standards is the accepted minimum professional standard.

The three major appraisal organizations (TAF Sponsors) have united in a collaborative effort to inform the public of meaningful qualification standards. The Appraisal Foundation is in the process of developing a public campaign to promote these standards. Increasingly, it will be difficult for allied professionals to credibly overlook the qualifying standard of experts they customarily engage.

In the wake of Kollsman, it is critical for tax attorneys and tax and estate advisors who rely on expert appraisals to be familiar with appraiser qualification and reporting standards. Assertively vetting experts illustrates an advanced level of diligence, providing a critical, and often overlooked layer of protection for the clients we mutually serve.






Harry Potter and the Nominee for Commissioner

We occasionally write reminders that the comments to our posts provide a rich source of additional information. This is especially true when frequent commenter Bob Kamman takes hold of a topic and does the background research that we do not do. Bob has two comments on the post about Chuck Rettig, the President’s nominee for IRS Commissioner, that we are elevating to a post in order to make sure that a broader audience benefits from his work. It seems that, if confirmed, Mr. Rettig could indeed perform magic at the IRS as you will learn in reading Bob’s research.

In addition to the comments Bob made, we are receiving a lot of comments this month from individuals hurt by the way we carry out offsets under the current system. I wrote a post in December of 2015 on the topic of refund offset bypass that is our all-time most viewed post. Each year at this time, we get hundreds of hits every day from individuals searching the internet to try to understand why they are not receiving their refund or who seek to understand and use the bypass procedure in order to avoid the offset. Most often, the failure to receive the refund results from the offset of the refund to another federal or state obligation. This year we have received a number of comments from these individuals showing the harshness of the procedure because it frequently captures the earned income credit designed to provide a benefit to lift individuals, usually with qualifying children, out of the depths of poverty. Refunds of the earned income credit get offset just like “regular” tax refunds even though the purpose of these refunds differs significantly from the return of money paid into the system. The comments point to the need to rethink this system. Keith

As noted, some IRS observers believe the best choice for Commissioner of Internal Revenue is an experienced executive with public and private experience, while others believe the best choice is a lawyer with tax expertise and experience dealing with IRS from outside the system.

Both groups are wrong, of course. But until a tax law professor is nominated and confirmed, it might be best to alternate between the two types, as will happen when Charles Rettig earns Senate approval.


Most tax professionals will consider it in his favor, that he has sat at his Beverly Hills desk or conference table to advise clients on litigation when they disagree with IRS. They may not have the same issues as those of us who deal with middle-class or low-income taxpayers, but the procedures and judges are the same.

I came across four Tax Court cases in which Mr. Rettig appeared. There is a win, a loss, and a draw. He even inspired some wordplay in an opinion by Judge Mark Holmes.

Here are the cases:

In Corbalis, 142 TC 2 (2014) blogged by Leslie Book at Mr. Rettig was one of four lawyers with whom the Tax Court agreed, ruling on a motion for summary judgment, that Tax Court review provisions of section 6404(h) apply to denials of interest suspension under section 6404(g). IRS had taken the position that the court review provisions of 6404(h) applied only to final determinations relating to 6404(e), dealing with abatement claims running from IRS ministerial or managerial mistakes. The Tax Court held that it does have jurisdiction to review an IRS determination that the suspension period does not apply.

This case illustrates that the wheels of justice often grind slowly. The case is still on the Tax Court docket. After the Court decided it has jurisdiction, the last filing is an October 26, 2016 status report filed by the petitioners. There are two related cases involving the same petitioners. In Docket No. 008220-13, the last filing is apparently the same status report. In Docket No. 027306-14, the petitioners filed a status report on September 1, 2017.

In Canterbury Holdings, TC Memo 2009-175 Mr. Rettig’s clients lost on the issue of whether $987,040 in LLC “management fees” were deductible, but won their argument that Section 6662 accuracy-related penalties should not be assessed. (Mr. Rettig was not involved in the preparation of the return. It was done by a KPMG partner who was a CPA and lawyer with more than 40 years of experience.)

Judge Holmes in a footnote gave some history of “limited liability companies,” even in 2009 a somewhat novel creature in tax litigation. But that was not until he used some equine references that frankly went over my head. It might be because “Canterbury” is the name of a horse racing track in Minnesota — not one with which I was familiar during my college days when I worked on a Chicago newspaper’s horse-racing results desk. Judge Holmes wrote:

“Christopher Woodward, David Teece, and Kenneth Klopp were partners in Canterbury Holdings, LLC. Canterbury mounted a takeover of an old New Zealand clothing company in 1999. Its ride turned rough, and the shell company that Canterbury was using had to pony up more money in 2000 and 2001 to make the deal go through. That money actually came from Canterbury itself, but Canterbury argues that these payments are deductible nonetheless. The Commissioner disagrees, and would also saddle Canterbury’s partners with an accuracy-related penalty.”

Then there are two estate-tax cases in which Mr. Rettig represented executors. The first, Estate of Trompeter, TC Memo 1998-35 contains many useful facts about the valuation of large coin collections, if you want to wade through its 68 pages. However, the petitioners lose on most, if not all points, and are assessed a penalty:

“After our detailed review of the facts and circumstances of this case, in conjunction with our analysis of the factors mentioned above, we conclude that respondent has clearly and convincingly proven that the coexecutors filed the decedent’s estate tax return intending to conceal, mislead, or otherwise prevent the collection of tax. We also conclude that section 6664(c) does not insulate the estate from this penalty; we find no reasonable cause for the underpayment, nor that the estate acted in good faith with respect to the underpayment. We sustain respondent’s determination of fraud.”

Keep in mind that even serial killers are entitled to competent representation.

The other estate-tax case is Estate of Gimbel, TC Memo 2006-270. In a 28-page opinion, Judge Swift listened carefully to the arguments of both sides concerning the valuation of a large block of publicly-traded Reliance Steel and Aluminum Company. The estate suggested a 20.72% discount, and IRS recommended only 8%. The Court’s solution was 14.2%. No doubt it was just coincidence that this was almost exactly halfway between the two positions.

Commissioner-designate Rettig should also be applauded for his history of media availability. Many tax practitioners are reluctant to speak to journalists about tax issues. Between 2000 and 2004, he was the go-to guy for columnists Kathy Kristof and Liz Pulliam Weston of the Los Angeles Times, whose financial-advice columns were widely syndicated to other newspapers.

In May 2004, for example, Ms. Kristof quoted him in a column about IRS efforts to settle “Son of Boss” cases by waiving penalties for those who voluntarily settled. Mr. Rettig told her, “If you look at the effort of trying to chase those people versus opening the door and letting them come in, this makes a lot of sense.” Commenting on other amnesty programs, he added “there are a lot of wannabe taxpayers who just don’t know how to get back into the system. When you provide some incentive for people to come forward, you find a tremendous number of folks step up to the plate.”

In August 2000, he had offered Ms. Weston some rather colorful advice: “If the taxpayer buries his head in the sand and ignores the liabilities, as the saying goes, the only place left in the air to kick is going to [get] hurt. No one should wait for the IRS to knock on their door before attempting to rectify the situation.”

In May 2008, Mr. Rettig was quoted by Tom Herman of the Wall Street Journal in an article headlined “Offshore-account holders bite their nails.”

“People are having trouble sleeping at night. They don’t want to go to prison.” . . . If you have an offshore account with unreported income, you “should definitely be worried,” says Mr. Rettig, who represents a number of clients with such accounts. And if you have an account in Liechtenstein, you should “lawyer up immediately.”

A final note: in December 1997, Charles and Susan Rettig of California, pro se, filed a Tax Court petition at Docket No. 023484-97. The case was closed with a stipulated decision in December 1998. Visitors to the Tax Court archives in Washington may be able to determine whether these Rettigs are related to the current nominee.

* * *

More about Charles Rettig, including his membership in the Academy of Magical Arts, here and his history of political contributions, here.


The Newly Nominated Commissioner

The press reports that President Trump would nominate Chuck Rettig as the new IRS Commissioner were followed with a formal announcement. Assuming he is confirmed, Mr. Rettig will serve as the first tax lawyer in this position in the new millennium. I applaud the return to having someone run the IRS who has a deep understanding of tax law but perhaps this shows my age rather than my management acumen. In addition to applauding the return to the position of commissioner someone who has a career in tax law, I also applaud the selection of Mr. Rettig who will perform ably in this position based on his experience and demeanor.

For those interested in tax procedure and tax controversy, it is especially notable that the President has nominated Mr. Rettig. Even in the bygone era of tax lawyers as commissioners, it was not necessarily the norm to appoint a tax lawyer who specialized in controversy rather than tax planning. This is an important opportunity for the shaping of tax administration by someone very familiar with tax procedure and the issues created when taxpayers have a problem with the IRS. One earlier commissioner with a litigation background (having taken Flora v. United States to the Supreme Court twice) who served with distinction and stood up to President Nixon when he sought to use the IRS to torment his “enemies” was Randolph Thrower. It is a proud tradition to uphold.


Since the appointment of Charles Rossotti in 1999, Presidents have appointed a series of individuals with management experience but not tax experience. Mark Everson became commissioner in 2003 with a fair amount of government management experience, Douglas Shulman in 2008 with public and private management experience, and John Koskinen in 2013 with significant public and private management experience. Each of the “management” commissioners over the past two decades had the type of experience necessary to run a large organization, but a steep learning curve on the culture of the IRS and the tax laws it administers. With the exception of Commissioner Everson, I met each of the others briefly and formed favorable impressions. Commissioner Koskinen seemed terrific but could not shake the real or apparent hatred of several vocal members of Congress.

From the time I started working at the IRS and for several decades before, the traditional appointee to the position of Commissioner was a tax lawyer. Usually someone from a big firm and someone with decades of tax experience. Even a lawyer at a big firm, however, has no experience managing a large organization like the IRS with many components. As the information technology component of the administration of the IRS became more and more important, the desire for a tax lawyer became less and less. So, for the past two decades we have had a commissioner who was a management specialist rather than a tax specialist who might surround themselves with others with strong management experience. It’s past time to try a tax lawyer again.

So, who are getting? I had the pleasure to serve with Mr. Rettig on the ABA Tax Section governing council first as co-fellows at large and then with Mr. Rettig elevated to the executive leadership of the section in charge of the finances. He took on the leadership position at a time of challenging finances for the section and he immediately took on the hard task of finding places to cut the budget and seeking new sources of revenue. He has done an excellent job in this position. He has management experience as the managing partner of his firm. He has quite a resume of service to the profession and to the government on advisory boards. He has also been one of the creative forces and leaders behind a very successful ABA conference on offshore issues.

Much of Mr. Rettig’s practice in the past several years has centered on representing individuals with assets offshore who needed to reach an agreement with the IRS. In this type of practice he must learn criminal tax law, civil tax procedure, tax litigation, and a lot of client management. My friend John McDougal who spearheaded the IRS efforts in offshore identification and compliance prior to his retirement has nothing but good things to say about Mr. Rettig as a practitioner having worked with him closely on a number of matters. Praise from John is not easy to come by. I have heard praise for Mr. Rettig from those who work closely with him on many occasions.

Mr. Rettig has a great personality and the kind of personality that will allow him to build the kind of rapport with Congress that the IRS desperately needs in order to get back to proper funding levels. I do not mean to suggest that I think he can charm his way to greater budgets, but I think he will figure out how to work with the appropriate people to make it possible to make a winning pitch for the type of support and the amount of funding that the IRS needs to properly do its job.

The non-tax background commissioners of the past two decades have been smart people with lots of relevant experience in running an organization but it will be refreshing to have a leader of the IRS who knows the tax system from the trenches. He is someone who can quickly size up the proposals being made to him from the compliance and taxpayer assistance functions. Having worked with many clients seeking to hide their money offshore and seeking to fix a problem of having an offshore account created by someone else, he will be able to size up the types of strategies that will allow the IRS to put resources into the proper place to promote compliance based not just on reports from various IRS functions but from decades of working with taxpayers seeking to comply (or not) with the tax laws.

The President has made a great choice. I hope Congress will quickly confirm the choice so that the IRS does not go too long without leadership.

The Next Government Shutdown: A Legal Perspective

We welcome back guest blogger Stuart J. Bassin who writes about a topic recently on everyone’s mind, the government shutdown. Whether you are a government employee who must spend endless hours at the water cooler discussing whether you will come to work or someone impacted by the shutdown or threat of a shutdown because of your work or your vacation or other activity, lots of time gets wasted over something that should never happen in the first place. We have written about different aspects of the government shutdown before, focusing on the Tax Court here and here, and on the special circumstance of the National Taxpayer Advocate here when she sued the government because the Commissioner deemed her non-essential. The NTA lost her legal battle over the authority to declare her non-essential but may have won the war. In the most recent shutdown, Local Taxpayer Advocates were deemed at least partially essential and directed to work parts of the shutdown days checking and processing the mail, and particularly any payments, coming into their office. While we all enjoy talking about how dysfunctional the federal government is and how appreciative we are that the Newt Gingrich strategy to use what was previously the routine vote to increase the debt ceiling to force votes on other issues, a greater understanding of the process and the consequences can help. Stuart seeks to help us understand the consequences of a shutdown. The consequences can be scary. Keith

Many years ago, I was working as a Justice Department attorney during one of the longer Government shutdowns. Having been designated “essential” during the shutdown (but only on some days), I was supposed to continue representing the United States in ongoing civil litigation. During those happy days, I started wondering about the actual law underlying my activities and the shutdown.   Here is what I learned and some speculation about what that means for our near future.


The Shutdown is Mandated by the Constitution and Statutory Law.

English law has limited the authority of the executive to spend money without the consent of the legislature ever since the Middle Ages. By taking the unregulated “power of the purse” from the monarchy, the English required the executive and legislative branches to come to agreement on taxation and spending, thereby providing the foundation for a parliamentary or representative form of government (as opposed to a monarchy or autocracy). Absent agreement, the system would grind to a halt.

The English tradition is carried forward by the “separation of powers” principles embodied in the United States Constitution. Spending and taxation authority reside in Congress under Article I, Section 8 of the Constitution; the Executive has no independent taxation or spending power. Separately, Article I Section 9 prevents unauthorized spending, providing that “No Money shall be drawn from the Treasury, but in consequence of appropriations made by law.” When a lapse in appropriations occurs, the government necessarily shuts down. Neither the President nor Congress decides to shut down the Government; it happens automatically under the Constitution.

Statutory law develops the constitutional prohibitions and invokes the criminal law to enforce the prohibition. Under Section 1341(a) to Title 31 of the U.S., federal employees “may not make or authorize an expenditure or obligation” or involve the “government in a contract or obligation” absent a lawful appropriation. Similarly, under Section 1342, federal employees “may not accept voluntary services for the government … except for emergencies involving the safety of human life or the protection of property.”   The “emergency” exception is narrowly defined to exclude “ongoing, regular functions of government the suspension of which would not imminently threaten the safety of human life or the protection of property.” Section 1350 makes a knowing violation of either provision a felony punishable by up to two years in prison.

Setting aside some nuances, four basic prohibitions emerge. Absent an appropriation, Federal employees can go to jail if they—

–                 obligate the government to pay for goods or services,

–                 require another government employee to perform his or her job with or without pay,

–                 allow their subordinates to perform their duties as “volunteers” with an understanding that the employees will be paid after the shutdown, or

–                 allow their subordinates to perform their duties as true volunteers if their duties are not required to prevent an imminent threat to the safety of human life.

Even if Congress and the President informally agree that some governmental function is “essential” and should continue absent an appropriation, designation of an employee or their functions as “essential” makes no difference under the statutes; that vague terminology has no basis in the Constitution or the statutory law.

Government operations during the coming shutdown.

There are some special situations involving expenditures from government trust funds and multi-year appropriations which allow certain spending when other appropriations have lapsed.   However, setting aside those exceptions, we should consider how the plain statutory language and the Constitution apply in some commonplace situations—

Can the military pay soldiers to man the borders?   National defense surely involves situations which present an imminent threat to human life. But, that is not enough to allow military commanders to pay soldiers’ salaries. The imminent threat to human life exception would not authorize salary payments to anyone; it only applies where the soldiers “volunteer” to work without pay or promises of future pay. We can all hope that they will volunteer.

Can Veterans Affairs employees pay health care benefits to veterans? In general, government employees cannot issue checks when there is no appropriation. Even if money for the payments was available from some trust fund or unexpired appropriation, the Government cannot pay the employees responsible for issuing the checks. Indeed, even if those employees volunteer to work without pay or any expectation of future payment, their supervisors likely could not allow them to volunteer because issuing payments for veterans’ health care benefits is not required to prevent an imminent threat to the safety of human life.

Can IRS employees receive and deposit checks in the Treasury? Probably no. Even if the employees were volunteers, depositing checks is not required to prevent an imminent threat to the safety of human life.

Can the courts operate?   For civil matters, almost surely no. Even if all involved were volunteers, the conduct of virtually all civil litigation does not implicate any imminent threat to the safety of human life.   Volunteers (and only volunteers) might be able to conduct criminal litigation involving an imminent threat to the safety of human life.

Perhaps some agencies have squirreled away some portion of a prior appropriation to support their activities for a couple days. But, absent an appropriation, these functions of government cannot continue for long absent a new appropriation.

The National Train-Wreck Scenario

Of course, the scenario described above would quickly degenerate into a national train-wreck. And, no one would argue that it is good policy to leave the borders unmanned, veterans unpaid, government funds undeposited, or the courts largely closed. However, the current jury-rigged system where government operations continue (or not) based upon some vague notion of what is essential (probably protecting those functions which would trigger a public outcry) surely is not what the Constitution and the law mandate.

Perhaps the Constitutional fathers had it right. A lapse in appropriations (and a legal government shutdown) should be extremely painful for all involved. The prospect of a true government shutdown ought to hang like a Sword of Damocles over the heads of our elected officials. Regardless of party or ideology, a national train-wreck would produce enough blame to pass amongst all involved and one would hope that none of those involved would survive politically.   One thing for sure; the threat of such a train-wreck ought to focus everyone’s attention.

NTA Issues 2017 Annual Report to Congress

Earlier today, the NTA released the 2017 Annual Report to Congress. In addition to its sections on most serious problems, legislative recommendations, ten most litigated issues and a dedicated volume on research studies, this year the report contains a Purple Book, which is a new feature and is described as a “concise summary of 50 legislative recommendations that she believes will strengthen taxpayer rights and improve tax administration.”

In the next few days, we will be reviewing the report, and will flag areas of interest for our readers. I am especially interested in the Purple Book, and think setting off recommendations relating to taxpayer rights in a separate volume is an excellent way to highlight the importance of taxpayer rights and help ensure that the IRS embraces taxpayer rights as a guiding principle of tax administration.

A good place to start is the preface, where the NTA discusses the funding challenges that IRS has faced and continues to face. While noting that a lack of funding is a major challenge, she notes that should not be the end of the conversation:

At the same time, limited resources cannot be used as an all-purpose excuse for mediocrity. There is not a day that goes by inside the agency when someone proposes a good idea only to be told, “We don’t have the resources.” In the private and nonprofit sectors, saying “we don’t have the resources” is the beginning of the discussion, not the end. Yet with the IRS, lack of resources often has become a reflexive excuse for not doing something, or worse, for doing things “to save resources” that harm taxpayers, foster noncompliance, and undermine taxpayer and employee morale.

The consequences of poor taxpayer service and a defeatist attitude toward tax administration are far reaching. The preface emphasizes that the IRS can do a “better job of using creativity and innovation to provide taxpayer service, encourage compliance, and address noncompliance.”

I look forward to reading the report.

Some Tax History: Whatever Happened to the W-1?

We welcome back guest blogger Bob Kamman who, as usual, causes us to think about something that we would easily pass by without further thought.  While it is wonderful that Bob is writing guest blogs, he continues to write comments that deserve careful reading as well.  If you have not already looked at his comment on my post regarding the link between social security benefits and filing tax returns, you should do so.  Similarly, if you were at all interested in my post last week on worker classification, you need to read his comment there.  I wrote the post before the Court entered the order in the case.  Bob picks up the link to the order that came out last week.  It is a fascinating order and those with worker classification issues might want to see the orders entered in those types of cases. Keith

Here is a word-association question. What is your first thought when you hear “January 31”?

I polled some family members and most remembered it’s my birthday. But for millions of Americans, and especially tax practitioners, the likely answer is “W-2 Form.” January 31 is the deadline for employers to distribute these “Wage and Tax Statements” to employees.

Like most taxpayers, you know about Form W-2, but did you ever wonder what happened to Form W-1? I did, and I researched it so now you won’t have to. Along the way, I came across a novel tax administration idea: What if taxpayers whose only income is shown on W-2 forms could just fill out the back of the form with the names of their dependents; add a small amount of other income, if any; sign it; and send it to IRS?


My search for Form W-1 led me to the Code of Federal Regulations edition of 1949 (another significant date in my life) and specifically to Section 405.601, “Return and payment of income tax withheld on wages.” It provided:

“(a) Every person required, under the provisions of section 1622, I.R.C., to deduct and withhold the tax on wages shall make a return and pay such tax on or before the last day of the month following the close of each of the quarters ending March 31, June 30, September 30, and December 31. Such return is to be made on Form W-1, Return of Income Tax Withheld on Wages, and must be filed with the collector of internal revenue for the district in which is located the principal place of business or office of the employer . . .There shall be included with the return filed for the fourth quarter of the calendar year or with the employer’s final return, if filed at an earlier date, the triplicate of each withholding tax receipt (Form W-2a) furnished employees.”

So there you have it. Before there was a Form 941, Employer’s Quarterly Federal Tax Return, there was a Form W-1 filed quarterly with the Bureau of Internal Revenue. The Form W-2 dates back to those early days, as does Form W-3. Here is employment tax procedure from the same Regulations:

“(b) The triplicate Forms W-2a, when filed with the collector, must be accompanied by Form W-3 and a list (preferably in the form of an adding machine tape) of the amount shown on Form W-2. If an employer’s total payroll consists of a number of separate units or establishments, the triplicate Forms W-2a may be assembled accordingly and a separate list of tape submitted for each unit. In such case, a summary list or tape should be submitted, the total of which will agree with the corresponding entry to be made on Form W-3. Where the number of triplicate receipts is large, they may be forwarded in packages of convenient size. When this is done, the packages should be identified with the name of the employer and consecutively numbered and Form W-3 should be place in package No. 1. The number of packages should be indicated immediately after the employer’s name on Form W-3. The tax return, Form W-1, and remittance in cases of this kind should be filed in the usual manner, accompanied by a brief statement that Forms W-2a and W-3 are in separate packages.”

The word “triplicate” might bring memories of carbon paper. Anyone under 30, though, might ask “what is carbon paper?”

But these regulations for Form W-1 mention nothing about Social Security tax withholding, which nowadays is also reported on the quarterly Form 941. How did employers deal with that, in times past?

The answer is in Regulations Section 601.43, “Forms.”

“(a) Description. The forms specially applicable in connection with the employment taxes, copies of which may be secured from collectors of internal revenue, are as follows:

There was also a Form SS-9 available to employees who had paid more than the maximum FICA tax because they earned more than $3,000 combined from more than one employer. They had to claim this refund with a Form 843, filed no more than two years after the year the excess FICA was paid.

It was not until 1950 that the separate Forms W-1 and SS-1a were combined into the single Form 941. At the same time, employers with a combined payroll tax liability of more than $100 each month were required to pay taxes at a member bank of the Federal Reserve system with a “Federal Depositary Receipt.”

And it was not until 1978 that quarterly lists of employees and their wages were not required by Social Security. Today, benefits are still based on “quarters” of coverage, but a quarter is determined by income received at any time during the year. For 2018, every $1,320 of earnings results in a quarter of coverage, up to four a year.

I mentioned above the innovative proposal of using the reverse side of Form W-2 as a tax return — perhaps, the next best thing to a postcard. Suppose your only income is from wages, a situation in which millions of Americans find themselves. Why not just sign the form, mail it to IRS, and let them figure the tax?

Well, actually, that’s the way it could be done until 1948. The back of the W-2 had lines to list exemptions. If more than one W-2 was received, there was a box to show how many others were attached. If the spouse had more than $500 income, that W-2 could be attached also. Another line allowed reporting of interest, dividends, and other income if those sources added up to less than $100. The taxpayer signed the back — there was also a signature line for a spouse with income — and the return was mailed to Internal Revenue, which would compute and assess the tax, with refund or balance due. A Tax Table was published for those curious to know what those amounts would be, or to check the collector’s math.

A page of history is worth a volume of logic, as Justice Oliver Wendell Holmes Jr. noted in New York Trust Co. v. Eisner, 256 U.S. 345, 349 (1921). Those seeking a logical reason for the current lack of a Form W-1 may find this page of history helpful.