Immediate Help Needed to File Refund Claims for Individuals Wrongfully Convicted

I received a request for assistance from tax practitioners from the Exonerees Tax Assistance Network.  The individuals in charge of this network are trying to assist individuals who have received money in connection with a wrongful conviction.  Most of the individuals receiving payment for their wrongful conviction reported it on their individual income tax returns.  Last year, Congress passed a law prohibiting the federal government from taxing this compensation; however the last day to file a claim to obtain a refund of taxes paid for a prior year is December 19.  So, you can see why they are scrambling to find tax professionals to assist.  If you are interested in assisting, please read below their announcement of the project and contact the individuals running the project.  Keith 


Background The Wrongful Conviction Tax Relief Act, signed into law in 2015 by President Barack Obama, prohibits the federal government from taxing compensation paid to the wrongfully convicted. Retroactively, it opened the door for all exonerees, no matter the year they were compensated, to request an IRS refund of any tax, interest and penalties paid on that money. Unfortunately, efforts to pass an extender on the amount of time for exonerees to file refund claims failed to pass before the Senate adjourned last Friday (extender legislation did pass in the House). Therefore, all claims for refund must be filed with the Internal Revenue Service by Monday, December 19, 2016. 

What We Need We are seeking tax attorneys, accountants, and enrolled agents who are able to provide pro bono assistance to exonerees determine if they have a claim for refund and, where such claim might exist, to help exonerees prepare claims for refund for filing by December 19, 2016.

If you are able to help, please contact Kelley Miller

( of Reed Smith LLP or Larry Sannicandro

( of Agostino and Associates.

Kelley or Larry will connect you to Jon Eldan at After Innocence

who is working to identify those exonerees who may be impacted by

Section 139F. 


Exonerees Tax Assistance Network ETAN 

The goal of the ETAN is to promote awareness of IRC Section 139F, to help—where and if possible—with referrals to capable tax and accounting professionals willing to help exonerated persons with assistance involving federal and/or state tax-related matters, and to support and encourage extender legislation to allow exonerees time past December 19, 2016 to file amended returns in order to claim refunds for past tax periods where tax was withheld from or paid on settlement amounts received by them. Working with Jon Eldan of After Innocence, members of the Network will help—where and if possible—to provide legal and accounting assistance, or a referral to such resources, for exonerees served by After  Innocence

ABA Names Procedurally Taxing to its List of 100 Favorite Legal Blogs

ABA Top 100 BlawgYou might notice a new logo on our home page.  Last week, Procedurally Taxing was chosen as a top 100 legal blog in the 10th edition of the ABA Law Journal’s survey of legal blogs.  Needless to say we were excited by the recognition.


We want to take a moment at the time of receiving this recognition to thank our readers and our contributors and to reflect briefly about the blog.  The idea for the blog came from Les.  He talked about it for a couple of years before we launched.  Because of his work succeeding the late great Michael Saltzman as the co-author and lead editor of the seminal Thomson Reuters tax procedure treatise “IRS Practice and Procedure” Les saw the need to keep up on procedural issues and he wanted to assist the tax community in keeping up on and thinking about these issues. Prior to the blog, Steve worked with Les and Greg Armstrong on the monumental task of rewriting the treatise and updating it.  After many conversations, Les somehow convinced Steve and me to join him in creating the blog.  After we started the blog, I became, with Steve, one of the contributing authors of the treatise and took the lead in the now-completed task of rewriting the book’s collection chapters.

Convincing Steve to start the blog with us was particularly important because Steve’s law firm hosts the blog.  Without the good graces of Gawthrop Greenwood (where Steve is a partner heading up the firm’s small but excellent tax practice) and Steve’s technical abilities, the blog never would have gotten off the ground and would not have continued.  When we started this in July of 2013, we envisioned something where we would post the occasional thoughts on tax procedure issues and had no idea it would morph into an almost daily event.

One of our readers in those early months, Professor Andy Grewal, occasional guest poster and excellent blogger on his own in Yale’s Notice & Comment blog, suggested that Procedurally Taxing should have a post every day. We have tried to post on most business days, a task that is difficult because of the responsibilities we have beyond the blog. It is safe to say when we started the blog we had no idea of how it would grow nor how much work it would require us to do to keep what we think is a place to not only report or link to developments but generally to try to add value with context and analysis.

We can post regularly on a variety of topics because we have talented guests who bring a wealth of experience and insights.  Of course, our most amazing guest is frequent guest blogger Carl Smith.  While you see posts by Carl more often than any other guest and while Carl’s posts offer an unmatched depth into tax procedure issues, what you may not know is that a high percentage of posts that Les, Steve and I write, result from suggestions by Carl as he reads Tax Court orders and opinions and points us toward cases and issues that would be missed by anyone else without his knowledge of tax procedure.  We have been unsuccessful in convincing Carl to officially join us as a PT blogger rather than a guest, but the blog would not be nearly as successful or provide nearly the coverage without his assistance.

In addition to Carl, however, we are fortunate to have attracted 75 others who have written a guest post for us.  I will not name everyone but you can go to the guest blogger link on our home page and review the list of individuals who have posted with PT.  Including in this list are many leading academic writers, many leading practitioners, several members of the low income taxpayer clinic community and even a few students.  We cannot promise that writing a guest post on PT will lead to a Tax Court judgeship but Judge Diana Leyden wrote for PT before ascending to the bench.  We encourage you to consider writing a guest blog post if you have something to say about tax procedure.

In addition to our guest bloggers, we also want to acknowledge the many readers who have written comments on our site.  If you are not reading the comments, you are missing some of the best procedural insights.  One long term and regular commenter, Bob Kamman, plays a similar role in our commenting section that Carl Smith does as a guest blogger.  He lets us know when we pontificate, stray too far from reality or misspell words.  One day I hope to actually, rather than virtually, meet Bob.  The commenters keep us on our toes, let us know that someone is actually reading what we say, offer insights that we miss and generally add great content that makes the blog a community of individuals interested in understanding and advancing tax procedure issues.

As academic writers Les and I know what it like to write the typical law review article.  It has a similar feel to that high school physics question about whether a tree falling in a forest with no one around actually makes a sound or whether for sound to be produced there must be someone to hear it.  Law review articles too often have the feel of trees falling in an empty forest.  Because of your engagement with the blog, we feel like our writing here has more meaning and impact.  That is not meant to denigrate legal scholarship which can play an important role in advancing issues but it is meant to say that the immediate acknowledgement of our writing and the feeling that our writing may have an actual impact propels us to continue the blog.

Thank you for your interest in our blog.  We look forward to the continued journey.


Retirement of a Friend and Driver Behind the IRS Offshore Program

Today, the IRS is honoring John McDougal, a special trial attorney based in Richmond, Virginia, with a retirement ceremony in the grand foyer of its national office at 1111 Constitution Avenue in Washington, D.C.  I cannot remember another person honored in this way who was not an executive in the organization.  I also cannot imagine a more deserving person for the IRS to honor.

In January, 1980, I moved into the office adjacent to John’s in the Richmond District Counsel Office of IRS.  How fortunate I was.  For almost 30 years I had John as my next door neighbor or nearby neighbor at work.  To have the opportunity to work next to the greatest attorney in all of Chief Counsel’s office certainly made me a better attorney.


Before recounting some of the amazing things John accomplished in his 43 years with Chief Counsel’s Office, I want to go back to the beginning of his tenure and talk about his sleep habits.  John is a night owl.  He does not stay up late to party but he has a bio rhythm that keeps him up into the wee hours of the morning and causes him to want to sleep into the later morning hours.  Today, many employers accommodate personal preferences and rhythms of this type but in the 1970s the world was a much more rigid place.

The official hours of the Richmond office were 8:30 AM to 5:00 PM.  In an effort to accommodate John’s schedule, the head of the Richmond office allowed employees to arrive by 9:00 AM before being charged with annual leave.  Each morning when they arrived for work, the office secretaries would begin calling John’s home in an effort to wake him up so that he could arrive by 9:00 AM.  On many days their efforts failed.  John would arrive at 9:05 AM or later and get charged one hour of annual leave.  He would then stay at the office and work each evening until 9, 10 or 11:00 PM; however, the office had no system of credit hours or comp time to accommodate this deviation from the official schedule and so John worked for several years with no ability to take a vacation because he used all of his leave time arriving late.

John, however, did not complain.  Finally, in the 1980s the office evolved into a form of work flexibility that accommodated John’s bio rhythms and allowed him to take vacations.  I tell this story in part because it is amazing in 2016 to imagine such a work world that would treat its most valued and hard- working employee in such a poor manner but also to make John human since John’s performance as an attorney and a colleague set such a high standard.

At his core, John is a great trial lawyer.  He loves to put a case together and to present it.  He has had many Tax Court trials over his career and taught trial practice skills at Chief Counsel and NITA programs.  He does not, however, love cases involving huge corporations that might take years to develop, teams of lawyers to assemble and lots of national office coordination.  He prefers fact intensive cases and especially fraud cases.  To my knowledge, he is the only special trial attorney in the SBSE stovepipe of Chief Counsel’s office because that designation was reserved for attorneys in the LB&I stovepipe until one Chief Counsel, who had litigated against John before becoming the Chief Counsel, reached out and gave John that designation in recognition of his ability.

In the 1980s John was assigned to a pilot program with the Department of Justice (DOJ) to handle criminal tax cases as a Special Assistant United States Attorney.  About eight attorneys from Chief Counsel offices around the country joined this program.  I believe that John was the only one who actually tried criminal cases.  During the 1980s and 1990s, he tried over 30 criminal cases while continuing to handle a heavy docket of Tax Court cases and advisory work in the office.  This was made possible by his skill, his organization and his hard work.

He went on a special assignment to the Virgin Island tax authority for several months, he went on assignment to the Senate’s Permanent Sub-Committee on Investigations for over a year and he was assigned to assist the Tax Court in handling a disciplinary hearing.

He traveled to the federal prison in Allenwood to try the Tax Court fraud case of master spy Aldrich Ames.  At the request of Washington District Counsel he tried the fraud case of Grossman v. Commissioner I discussed in a post recently.  He picked up a large fraud case on transfer from me where he tried it and won it and then convinced DOJ to have a receiver appointed in Florida to manage the assets of the taxpayer who had hidden them in many far flung ways, including offshore, and he worked with the receiver for over a decade to collect income from and sell the properties.  While working on that same case, he was stabbed and robbed late one night in Tampa but made it to work the following Monday where he showed his scar ala LBJ.  He created the theory that fraud on the tax return by anyone should hold open the statute of limitations and fought hard with the national office to convince it of the correctness of his theory which we have discussed here.

There are many other highlights of his career but I want to focus on his crowning achievement.  All of these special assignments together with his work in Tax Court and district court trials prepared him for his greatest assignment – working on the offshore credit card project and all that followed.

In 2000 when the IRS reorganized, all of the new divisions wanted John because of his reputation as a great attorney but he chose SBSE due to his desire for the types of cases it handled.  At almost that same time Revenue Agent Joe West in New Jersey had figured out how to find taxpayers hiding their assets offshore by obtaining credit card records in the United States.  John got paired to work with Joe and the world of taxpayers parking money offshore was turned upside down.  Though John was by no means the sole force behind the IRS efforts to break through the world of secrecy and offshore parking of assets to avoid taxes, John was a major force in this effort.  With the depth of knowledge he acquired earlier in his career and the penchant for hard work he always had, he played an important role for the past 16 years in changing the offshore landscape.  Through his efforts the IRS has collected billions of dollars.  It is hard to imagine an IRS attorney with greater impact over this time period than John.

As the IRS says farewell to a great attorney, I write to say thanks to a friend and colleague who taught me so much and who helped me in so many ways.

Conference Tomorrow on Improving the Tax System Through Technology and Social Knowledge

Tomorrow the American Tax Policy Institute is sponsoring a conference at the offices of Skadden Arps in Washington DC that will look at ways to improve the tax system using advances in technology. The conference will be streamed here (registration required).

The conference features panels on four themes:

  • how the tax system can use behavioral economics to help tax policy;
  • how social science can improve tax administration and promote compliance;
  • how artificial intelligence and big data can improve compliance; and
  • how the tax system is addressing issues of privacy, identity theft, and data security.

I will be hosting the panel on privacy, where I will be joined by Ken Corbin, Director of IRS’ Return Integrity and Compliance Services, Kathy Pickering and Brice Daise of H&R Block and Professor Michael Hatfield at University of Washington School of Law. IRS and the private sector have teamed up on many issues relating to identity theft and security, and Bruce, Kathy and Ken will explore the challenges and opportunities that spin off that public private partnership. Michael has written thoughtful papers on privacy and tax policy.


The other panels feature interesting researchers from government and the academy, including former guest PT posters Susan Morse and Kathleen DeLaney Thomas, and my former law school professor Joe Bankman, who has co-authored an important article on the use of smart tax returns and software as a way to nudge compliance.

In the waning days of the current administration, President Obama has pointed to technology and its impact on society with increasing frequency. In an interview in Wired last month, he lamented that government in general has not embraced technology in making experiences for people more user friendly, noting that filing taxes should be “at least as easy as ordering a pizza or an airline ticket.” This follows an executive order from 2015 addressing the use of behavioral economics in government, where the President essentially ordered government to embrace its insights into designing and operating federal programs.

We have discussed how the tax system is struggling with technology as it addresses IRS Future State and modifies its procedures in Appeals. I have also been deeply interested in how tax agencies around the world have employed social knowledge and research in areas like behavioral economics to improve tax compliance (see e.g., What Peeing in the Pool Can Teach Us About Tax Compliance and a post discussing research out of the UK called Can IRS Change Taxpayers from Procrastinators to Payors By Drafting Letters that Make Taxpayers Feel Bad?

There is no doubt that in the next administration IRS will be wrestling with how to manage technology and how to better leverage insights from research in many areas to more efficiently administer our complex tax system. Tomorrow’s ATPI conference will I think be an important forum for considering many of these issues.

IRS Art Advisory Panel

I saw a notice that “the IRS Art Advisory Panel plans to hold a closed meeting September 14 in Washington to review and evaluate the fair market value appraisals of works of art involved in federal income, estate, and gift tax returns.” While my low income clients have not in nine years raised any issues that cause me to have any concern about the Art Advisory Panel, I did have cases in which the panel was involved when I work for Chief Counsel. The panel is a rather unique part of the IRS. I thought I would write a post on it for those who have never had a case in which the panel is involved and may not know what it does.

Art is also just a fun topic to discuss. Les alerted me to a tax case involving art. The tax problem in that case is mostly a sales tax case related to state sales taxes and not valuation of art, but I think that art and taxes creates a combination that makes people sit up and listen a little closer. In the tax case in which I encountered the art advisory panel, there were a number of shenanigans going on related to the piece of art but not by the taxpayer. Art is so portable, so difficult to value, and so closely related to rich and famous that it creates its own interest.


The panel consists of up to 25 experts from America’s art world who serve on the panel for no compensation. Based on my observation, the IRS is very fortunate to attract to this panel some of the top experts from the art world. A list of the current panelist is at the back of the current annual report from the Art Advisory Panel. I do not know exactly how the IRS goes about recruiting the experts and convincing them to provide service by participating in this panel and I do not know who came up with the original idea of creating the panel. The goal of the panel is to provide assistance to the IRS in valuing works of art without requiring the IRS to hire experts for all of the cases it works where valuing art becomes important.

The report contains a good description of the way the panel operates and provides figures on the amount of art work the panel appraised last year and the differences between the values it determined and the values provided by taxpayers. While the panel found higher values, the percentage of cases with higher values and the amount of the higher values was lower than I expected. The existence of the panel may discourage taxpayers from low-balling and keep art values submitted to the IRS generally in line with market value. The report did not discuss the types of cases in which the panel provided an opinion. My guess is that estate tax, and perhaps the gift tax, returns brought in most of the work of the panel.

The art advisory panel, or rather its members, does not generally serve as an expert witness for the IRS if it goes to trial but rather it serves as an expert for revenue agents and Estate Tax Attorneys who encounter the artwork during the examination process. The last case I tried when I worked for the Office of Chief Counsel, IRS involved the valuation of a painting. There were many interesting aspects to the discovery of the painting and what happened to the painting after discovery, but the trial essentially involved just the valuation of the painting on the date of death in an estate tax case. During the examination, the art advisory panel had been asked to opine on the value of the painting. The opinions of the experts at trial diverged wildly; however, the value placed on the painting by the Art Advisory Panel seemed quite logical and supportable to me. I was impressed with their work and I felt the panel served as somewhat of a neutral arbiter of value. The panel has no charge but to provide its best opinion of the value of a painting. The report does not provide data on how influential the panel’s valuations are in causing a resolution of the valuation issue. I suspect the panel’s opinions play a large role in reaching resolution in valuation cases involving art.

The values it provides may not always hit the mark but that is true of most experts. I am sure that sometimes artwork does not fit within the scope of expertise of any panel members and then the value provided by the panel loses some of its authority. Generally, a panel member exists in many fields of art in order to provide coverage for all of the types of art it may appraise. The Internal Revenue Manual at 4.48.2 and requires that all cases selected for examination that include an art item with a claimed value of $50,000 or more must be referred to IRS office of Art Appraisal Services for possible review by the panel.

Rev. Proc. 96-15 provides a process for taxpayers to request a review of art valuations. Taxpayers can obtain a Statement of Value from the IRS for an advance review of art valuation claims before filing the return, which may then be used to complete the taxpayer’s return. The taxpayer can request this when the value of the art is $50,000 or more. Art is defined in Section 4.01 of the Rev. Proc. as:

.01 The term “art” includes paintings, sculpture, watercolors, prints, drawings, ceramics, antique furniture, decorative arts, textiles, carpets, silver, rare manuscripts, historical memorabilia, and other similar objects.

The Rev. Proc. details the method for making a request for an art appraisal prior to filing a return. The cost is $2,500.  If you get such an appraisal, you must attach a copy of the appraisal to the return even if you, the taxpayer, disagree with the appraisal.  I do not know how many people use this service.  As a litigator, I do not remember ever having a case in which someone used this service.  I do not know whether that is because almost no one uses it, those who use it do not have problems with valuation or a combination of both.

Bill Branch was the Chief of the Estate and Gift Branch when I was the District Counsel in Richmond. Bill is now retired and he works for McGuire Woods, a law firm in Richmond. I spoke with Bill about this post because I felt that Bill would have had a lot more experience than me dealing with the panel. He forwarded to me a fax and document he recently received from an E&G attorney listing out the items Bill needed to provide for the art advisory panel.   Bill also forwarded to me a short bio of Karen Carolan. Karen headed up the panel for the IRS for many years and was the person who assisted me in the case I had with the panel. Like many people I know from the IRS, she is also retired, but she would be the expert to contact if you had questions about the panel.

PBS must get decent viewer ratings for its antique roadshow program since it has lasted a long time. If they could produce a show based on the meetings of the art advisory panel, I suspect the ratings would be equally as good or better. The panel sees a lot of interesting stuff, it has top experts and mostly it operates under the radar.


Grab Bag: Posts and Articles of Note on EITC, Compliance, IRS Guidance, Alimony, Private Debt Collectors and Tax Return Simplification

Today’s extra post looks to some other blog posts and articles that may be of interest for people looking for some weekend reading.

EITC and Compliance

We have been reading and enjoying many of the posts on the Surly Subgroup Blog. Francine Lipman’s 2015 Poverty Measures Released: Antipoverty Relief Delivered through the IRC = EITC & CTC discusses the anti-poverty effects of refundable credits such as the Earned Income Tax Credit. While not a procedure post, the intersection of tax procedure and administration and refundable credits is a major issue. While I am plugging away on my article on EITC compliance (as Steve discussed last week) there are some really good articles on that topic that have come out in the last few months. Two of the articles that stand out are Steve Holt’s The Role of the IRS as a Social Benefits Administrator and Michelle Drumbl’s Beyond Polemics: Poverty, Taxes and Noncompliance.  For those interested in how recent trends in family life complicate tax administration, and administering refundable credits in particular, I recommend the Tax Policy Center’s report Increasing Family Complexity and Volatility: The Difficulty in Determining Child Tax Benefits. I will be appearing on a panel with Elaine Maag, one of the authors of the Family Complexity paper, at next week’s ABA Tax Section meeting, where we will discuss some of the report’s implications for tax administration as well as some of my research on EITC compliance.

Speaking of noncompliance and more from Surly Subgroup Blog, Shu-Yi Oei in Does Enforcement Reduce Compliance? discusses Leandra Lederman’s draft paper and presentation on that topic at the Boston College Law School Tax Colloquium. I look forward to reading that paper.


Alimony and Tax Compliance Again

Last week I discussed the procedural issues that spun out of Leslie v Commissioner in African Diamond Scam and Millions in Alimony: (and Some Reasonable Cause and Chenery). My Villanova colleague Jim Maule in Mauled Again discusses the alimony issue in his post on the case. As usual, Jim clearly describes the issue and offers some practical advice for practitioners. For good measure, and while relating back to compliance, I recommend Jim’s thought-provoking post from September 2 where he discusses a Washington Post op-ed piece by Catherine Rampell  that offered six reasons why cheating on taxes is likely to increase. Jim’s take, as with many of his posts, takes the reader outside the tax world:

It is the increase in self-focus, the increase in greed, and the increase in harsh economic conditions that coalesce to tempt people to cheat on their taxes. It is the weakening of concerns for integrity and responsibility that make it possible for increasing numbers of people to succumb to that temptation. These are problems that will not go away with a simplified tax law and adequate IRS funding, as Rampell advocates. Of course I support simplifying the tax law and adequate funding of the IRS, but I also support increased attention to tax education in middle and high schools, and a broader dissemination and explanation of what happens with tax revenue. And somehow, some way, the sense of integrity and responsibility that was once a core value of the culture needs to be reinvigorated. That, however, is more than just a tax compliance problem.

IRS Guidance

Former PT guest poster Andy Grewal has a post on Notice & Comment discussing a recent GAO report called Treasury and OMB Need to Reevaluate Long-standing Exemptions of Tax Regulations and Guidance. Andy hits some important points in his post, including his highlighting that “[t]he GAO recognizes that the IRS puts out many forms of guidance, but notes that the IRS’s procedures for choosing one method of guidance (e.g., regulations) as opposed to another (e.g., Revenue Rulings, Announcement, Procedures) is a bit of a mess.”

Litigants are likely to continue to press the adequacy of IRS guidance and the choice IRS makes in issuing that guidance. We discussed this briefly in our latest review of the AICPA litigation challenging the IRS’ voluntary testing and education program for tax return preparers (IRS Wins Latest Battle on Voluntary Return Preparer Testing and Education Though Other Battles Likely Remain). In that case, the district court opinion, while finding against AICPA, suggests that a different litigant could challenge the IRS’s use of a revenue procedure to create the voluntary program.

Private Debt Collectors

Keith has discussed private debt collection a few times, including his most recent this past February Private Debt Collection which noted problems with prior two versions and raised concerns with the new legislation mandating its use. The IRS asked for permission to push back the deadline on implementing the new debt collection program so it has not yet gone live. Last week Accounting Today ran a post Here Come the Private Tax Debt Collectors…Again by H&R Block’s Jim Buttonow, where he discusses how the IRS will select the collectors and the plan is set go live in 2017. In his post, he highlights seven things about the new program, including how IRS and the collectors themselves will be letting people know by snail mail if they have the golden ticket and private debt collectors will be working their accounts. No doubt we will be hearing more about the program in the months ahead.

Simplified Return Filing

Finally, ABA Tax Times this past August has a fascinating point /counterpoint with longtime tax return simplification protagonist (and my former law school professor) Joe Bankman discussing his views on how technology can make tax filing time less painful and my Villanova colleague Jim Maule offering thirteen reasons why he believes Professor Bankman’s proposals make for bad tax policy.

Happy reading and enjoy the weekend.




New Rev Proc Waives Drastic Effect Of 60-Day Retirement Account Rollover Failure

Today we welcome first time guest blogger Karla Hunter. Karla runs the tax controversy and resolution practice at Hopp Accounting & Tax Service PC in Elgin, Illinois.  Prior to joining Hopp Accounting she provided assistance to low-income taxpayers through an internship at Chicago Kent College of Law Low Income Tax Clinic followed by volunteering with and then serving as the Director of Tax Controversy for Administer Justice Low Income Tax Clinic.

She writes today about an innovative and taxpayer-beneficial procedure the IRS has recently adopted. Many taxpayers miss the window for rolling over their IRA.  Congress decided that the IRS could waive the failure to meet the statutory rollover period.  The Congressional grant here to the IRS is fairly unique.  Congress has not given the IRS the explicit authority to waive time periods that it sets in very many settings.  Another procedure where Congress has made this grant, the financial disability provision in IRC §6511(h) still suffers from heavy-handed administrative procedures. The procedure the IRS previously used for granting rollovers made it difficult for many taxpayers who did not have the money to pay for a private letter ruling.  After its recent rate hike for PLRs, the procedure for waiving roll overs was clearly broken.  The new waiver procedures Karla describes below represent a taxpayer-friendly way to make the waiver meaningful and better than it has ever been.  Kudos to those involved at the IRS.  Keith

On August 24, 2016 the IRS issued Rev Proc 2016-47 that fixed the problem of failed retirement account rollovers that missed the 60-day rollover window requirement for those taxpayers who meet one of eleven situations.  The procedure is easy and it’s free.  No IRS fees.  The IRS introduced a self-certification process (subject to audit) in the Rev Proc that allows you to declare your eligibility for a late rollover waiver.  The IRS even included a certification letter with the eleven allowed possible reasons listed under which the late rollover is allowed.  If your situation falls within one of those eleven reasons, you just check the box corresponding to the reason.  The Plan Administrator or IRA trustee can rely on the self-certification, unless they have actual knowledge that is contrary to the self-certification.



Under 26 USC §402(c)(3) and §408(d)(3) taxpayers have 60 days to rollover their tax-deferred retirement accounts to a new qualified retirement account.  After 60 days, the money from the retirement account is considered to have been distributed to the taxpayer as income and they owe tax on the entire account balance plus penalties.  Until February 1 of this year, when taxpayers missed the 60-day window rollover, they could apply for an IRS Private Letter Ruling (PLR) to waive the 60-day requirement.  The cost to request a PLR depended on the balance of the retirement of the account and the cost was from $500 – $3,000.  However, on February 1, 2016 the cost of a PLR soared to $10,000 for all 60-day waiver requests under Rev Proc 2016-8 user fee schedule changes, halting the use of the PLR process to obtain a waiver for most taxpayers.


You may be wondering why rolling over retirement accounts is a big problem. However, a quick review of the IRS PLR decisions shows that a fair number are related to individuals moving their retirement accounts for many reasons, such as changing jobs, putting accounts together or separating them, moving 401(K)s to IRAs, changing financial advisors, or wanting different investment options.  Each year, many deferred retirement account rollovers fail to meet the IRS 60-day maximum rollover time requirement, leaving the account owner liable for tax on the total retirement account balance unless the IRS waives the 60-day requirement.

Recently, one of our clients faced the $10,000 problem when he changed jobs and his 401(k) rollover was erroneously put into a non-IRA account. The taxpayer did not withdraw or add to the account and, for all practical purposes, treated the account as if it were an IRA account.  Because the account had been active for more than one year and the bank would not admit fault, the taxpayer’s only choices were to apply for a private letter ruling at the cost of $10,000, wait to see if the Statute of Limitations would run,  if the IRS would audit (of course leading to a tax court case to request the waiver because audit did not have the power to waive the 60-day rollover prior to this Rev Proc), or amend his tax return and declare the 401(k) account as income.  In his case, the account that was transferred was worth less than $70,000.  He felt it was too big of price to pay the $10,000 for a chance that the IRS would waive the 60-day requirement.

Another client wanted to move the retirement funds to a self-directed IRA account, feeling this would give him more choices and control over his retirement account. The client missed the 60-day deadline to set up the new IRA account and get the funds in the account.  In this case, he misplaced the check and had not cashed it.  Prior to the new Rev Proc 2016-47, if the taxpayer did not get permission to waive the 60-day rollover, he would have owed tax on the entire retirement account balance plus, if he has not yet reached 59 and ½ or meet one of the exceptions in IRC §72(t), he would owe a 10% excise tax.  Many taxpayers have found themselves owing a tax liability exceeding six figures.

Regular readers of Tax Notes or other sources that provide information on PLR requests issued by the IRS can find the listing of rulings each week. Perusing this list of rulings provides many stories of how taxpayers, their financial advisors, their financial institutions, and others manage not to manage their IRA rollover responsibilities.  No doubt Congressional offices were motivated to create the grant of authority to the IRS to provide relief here because of the host of sad stories provided by the regularly occurring failure to timely roll over the money into another qualifying account.


To qualify for the self-certification process waiving the 60-day rollover requirement, the failed rollover must be for one of the following eleven reasons:

1.) An error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates.

2.) The distribution, having been made in the form of a check, was misplaced and never cashed.

3.) The distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan.

4.) The taxpayer’s principal residence was severely damaged.

5.) A member of the taxpayer’s family died.

6.) The taxpayer or a member of the taxpayer’s family was seriously ill.

7.) The taxpayer was incarcerated.

8.) Restrictions were imposed by a foreign country.

9.) A postal error occurred.

10.) The distribution was made on account of a levy under §6331 and the proceeds of the levy have been returned to the taxpayer.

11.) The party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer’s reasonable efforts to obtain the information.

If the taxpayer’s situation meets one or more of the above reasons and the IRS has not previously denied the waiver, then the taxpayer can self-certify. The IRS will be notified of a late rollover.  Under the Rev Proc, the IRA trustee is required to file form 5498 with the IRS and to check a new box on the form that states that the rollover contribution was accepted after the 60-day timeframe.  The taxpayer can still be audited on the facts and circumstances of the failed 60-day rollover.  The taxpayer is not in the clear until the statute of limitations on assessment expires.  The Rev Proc does not provide any special overriding rules for the statute of limitations on assessment for the self-certification process.  §6501(a) states that the commissioner generally must assess tax within three years after the return is filed and §6501(e)(1) allows an extension to six years if the taxpayer fails to report gross income in excess of 25% of the amount of gross income reported on the tax return.  While there is no case law on this specific scenario using the self-certification, the Tax Court found these assessment periods applied in a decision on March 29, 2016, in James E. Thiessen and Judith T. Thiessen v Commissioner, U.S. Tax Court, Dkt. No. 11965-10.  In that case, the taxpayers’ entire IRA was deemed to have been distributed because of a prohibited transaction.  The Tax Court determined that the statute of limitations on assessing tax for the resulting involuntary distribution of their retirement account was 6 years, under §6501(e)(1), from the date when their tax return was due that the distribution should have been included in gross income.

Additionally, Rev Proc 2003-16 Section 3 is amended to allow a waiver to be granted during an exam for the 60-day rollover requirement.

Another nice feature of self-certification is that it allows the financial institution into which the funds are being rolled to accept the money without waiting for the IRS to issue a PLR. Taxpayers caught in this situation sometimes wanted to put money back into an IRA account but were prevented from doing so because the financial institution managing the account had concerns about the ability of the taxpayer to do this after the passage of the 60-day period.  The financial institution now has something, the self-certification, on which it can hang its hat in accepting the contribution.

IRS Master File and Non-Master File Accounts

Today, guest blogger Marilyn Ames provides a brief description of the IRS master file in order to provide context for some of the discussions we have had about taxpayer accounts.  Understanding the way the IRS keeps its books on taxpayer accounts can make a difference.  When an account moves from the master file to non-master file, the transcript, at first glance, can give the impression that the taxpayer owes nothing.  Without an understanding of the different accounts, it is easy to become confused. 

The National Taxpayer Advocate did a study on the problems created by conversion from master file to non-master file and reported on it in her 2009 annual report.  The issue is further complicated by the timing of when the IRS will or should convert a case from mater file to non-master file and that can depend on the type of case involved.  One trigger causing an account to move to non-master file status  is a request for innocent spouse status. Other triggers include the filing of bankruptcy by one spouse or the filing of an offer in compromise by one spouse.  It should occur whenever the collection on the formerly joint account moves in two directions because the actions of one spouse no longer move in sync with the other.  Consult the IRM on when the split should occur but be aware that the IRS does not always move the account to non-master file status when it should and the failure to do so can cause havoc.  Keith

According to the Internal Revenue Manual, the master file is “the official repository of all taxpayer data extracted from magnetic tape records, paper and electronic tax returns, payments, and related documents….” (IRM, Master File (Oct. 1, 2011).  This statement, which appears to include all of a taxpayer’s tax accounts, is not quite correct.  Because of the limitations to the technology behind the master file, the Internal Revenue Service has a Plan B.  That Plan B is known as the non-master file, and as some taxpayers have found to their dismay, it includes liabilities not reflected in the taxpayer’s master file.


The non-master file system exists for the sole purpose of providing a means to assess and collect liabilities that cannot be handled by the master file. The non-master file was initially a manual system that consisted of index cards maintained in alphabetical order.  Since those not-so-long-ago days, non-master files are now kept electronically, but in a system totally separate from the master file system known as the Automated Non-Master File, or ANMF.  Unfortunately, the ANMF cannot be accessed by the Integrated Data Retrieval System of the IRS, which is how Service employees generally obtain information about taxpayers’ accounts, and from which tax transcripts are usually printed.  If a Service employee does not recognize the existence of a liability on a non-master file, or the taxpayer only receives transcripts printed from the master file system, a taxpayer or an unknowing representative may be left with the impression that there is no outstanding tax liability, while assessments are still lurking on the ANMF.

So what kinds of liabilities are contained on the non-master file?  Generally, cases involving transferor/transferee liability, termination or jeopardy assessments, cases involving lookback interest, and individual returns on which the secondary taxpayer is deceased will be assessed on non-master file.  If the Service is collecting child support obligations, these liabilities will be shown on a non-master file account. Beyond these types of cases, there are other assessments that are also made on the non-master file.  If the Internal Revenue Service needs to make an assessment within a matter of hours, the assessment will be made on non-master file, as it can be posted within 24 to 36 hours, rather than the four to six weeks for an assessment to be made on the master file.  If Congress passes new tax laws that need to be implemented quickly, the returns reflecting those changes will be assessed on non-master file until the master file system can be updated.  Certain other assessments, such as penalty assessments made under IRC §§ 6692, 6652(e), and 6652(d)(1) or (2), are also made on non-master file. A reversal of an erroneous abatement after the statute of limitations on assessment has expired will also occur on non-master file.  And, my personal favorite, some tax liability is simply too big for the master file system and must be assessed on non-master file.  If an individual taxpayer files a return showing a tax liability of $1 billion or more, the record will be maintained on the non-master file.  (Interestingly, the Internal Revenue Service also maintains a spreadsheet of the taxpayers who regularly file such returns, and tracks these returns.  Finally, an IRS list I wouldn’t mind being on.)

Some liabilities may start out on master file, and then be switched to non-master file.  The master file system can only handle a certain number of transactions for any particular tax account.  When the limit is reached, the account is systemically transferred to non-master file.  A transaction code 130 and a freeze will be made on the master file account to warn IRS personnel that this transfer has been made, but the master file account will also have the outstanding liability zeroed out by the addition of an equal credit.  This can make a taxpayer very happy if the Service employee fails to note and tell the taxpayer about the existence of the new non-master file account.  There is also a delay between the movement of a transaction from master file to the new non-master account, and it can be up to 45 days before the new file is posted in the ANMF system.

And if this wasn’t complicated enough, there may also be more than one non-master file account for the same tax period.  If an additional assessment is made for an account on the ANMF system, the additional assessment is not just added to the account as it would be on master file, a new separate non-master file account is established.

The ANMF system also issues different collection notices from those issued by master file.  A taxpayer whose liability is assessed on non-master file will only receive two initial collection notices – those that would be the first and the fourth notices sent for a master file account.  However, the taxpayer will still receive an annual reminder notice for the non-master file account of the outstanding balance, just as a taxpayer does for a liability assessed on master file.

So how does a taxpayer know that the notices being received are for a liability assessed on ANMF?  This is easy – there will be an “N” after the taxpayer identification number.  If there is a reference to a document locator number in a tax transcript, the third digit in the number will be a 6 if the document is on non-master file.  Because the processing involved with non-master file can be extremely specialized, most non-master file accounts are handled at just two Service campuses, Cincinnati and Philadelphia.  If a taxpayer appears to have a non-master file issue, the taxpayer or the representative should send a copy of the notice, letter or other document along with any correspondence discussing the problem so the issue is routed to the right office for handling.

Non-master file assessments are not as common as they were in the past, because one large area of non-master file cases is now handled by the master file system.  In the past, when individual taxpayers filed a joint return and some action occurred that affected only one spouse, the accounts would be split between the two spouses on non-master file.  This could have occurred because of a bankruptcy filing by only one spouse, one spouse being granted innocent spouse relief, or one spouse entering into an offer-in-compromise.  Split assessment accounts can now be created on master file, in what is referred to as MFT 31.  The creation of MFT 31 accounts causes each spouse’s liability and any transactions with respect to that liability to be tracked separately.  The National Taxpayer Advocate has expressed concerns about the MFT 31 accounts.  While report in which these concerns were expressed is now several years old, the issues raised in the report may still have some currency.  Taxpayers and their representatives still need to remain aware, however, because the liability remaining at the time the split assessment accounts are created will still be zeroed out on the original master file account.  As with a transfer to non-master file, if the liability has not been paid off, it may still remain and be lurking in the new MFT 31 account like a monster under the bed.  If the tax transcript shows a transaction code 400, the representative needs to press further to find the transcript for the new split assessment.