Effect of General Power of Attorney On Reasonable Cause Exception to Penalties

Chief Counsel Advice memorandums are great sources of statements on IRS policy and the thought process of the Service on various issues.  They often are not long, which can make them difficult to turn into standalone blog posts.  I found one from September fairly interesting though, which discusses penalty abatement for the delinquency penalties when someone is incapacitated.  The CCA touches on two issues, the first time abatement provisions and the impact of a power of attorney on the reasonable cause exception to the delinquency penalties. The power of attorney aspect is fairly interesting, especially in considering the related issue regarding refund limitations periods being tolled by financial disability.

In CCA 201637012, the Service requested guidance on whether a potentially incapacitated person who suffered from dementia could have delinquency penalties abated for reasonable cause.  I found the CCA interesting because it highlighted the fact that the taxpayer had a valid power of attorney in place, and sought guidance on how that impacted the reasonable cause determination.

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The facts indicating that the taxpayer appointed an agent under a durable power of attorney (one that remains operative after someone is incapacitated) prior to becoming incapacitated.  Under the POA, the agent was authorized to file tax returns and handle other tax aspects for the taxpayer.  The agent knew of the POA.  In a later year,  the taxpayer filed untimely returns, and the Service assessed delinquency penalties under Section 6651(a)(1) (failure to file) and Section 6651(a)(2) (failure to pay).

At some point after the filing of the return, the agent under the POA petitioned the state court for an emergency guardian and conservator for the taxpayer.  Usually, when there is a POA in place, we try not to seek guardianship because an agent should have most of the same powers, so I’m curious as to why this was requested.  It is possible the taxpayer was fighting the agent, or power outside of the POA was needed.   The court did appoint the agent as guardian and used the term “incapacitated” in the order.  This was after the late filing, but the CCA seems to indicate it was close enough in proximity to evidence that the taxpayer was incapacitated when the return was not filed.

The two questions presented to Chief Counsel were:

  1. Whether the Service should abate the penalties because of the alleged incapacity.
  2. Whether the Service should deny the request to abate because the POA failed to fulfill the taxpayer’s obligation to timely file and pay tax on behalf of the taxpayer.

Chief Counsel first noted that Appeals should determine if the taxpayer qualifies for First Time Abatement under IRM 20.1.1.3.6.1.  We have discussed FTA on this blog in the past, which can be found here and here.  All tax practitioners should be very familiar with these provisions, as they provide a simple mechanism for eliminating penalties in many cases.  I have used these procedures in various cases, including some very large dollar cases, and have had no issue obtaining waivers when we fit within the framework.

The remainder of the CCA was the portion that I found more interesting.  The CCA went on to discuss reasonable cause for a person suffering from dementia.  As stated above, the taxpayer had a valid power of attorney in place the year in which she failed to file the tax return.  It is alleged that the taxpayer was incapacitated.  Chief Counsel did indicate that it lacked sufficient facts to determine the taxpayer was incapacitated at the time of filing, but seemed to indicate it was possible, and, for purposes of the analysis, assumed that was the case.

The taxpayer requested abatement of the penalties pursuant to Treas. Reg. Section 301.6651-1(c)(1), which provides for abatement due to reasonable cause.  Serious illness of the taxpayer or a family member can be sufficient to show reasonable cause (but not when your preparer is ill).  See IRM 1.2.12.1.2, Policy Statement 3-2.  The CCA indicated that if it could be shown that the taxpayer was demented during the year in question, and was unable to handle her own financial affairs, it could support a finding of reasonable cause.

What I found slightly more interesting was the discussion about the power of attorney.  In the CCA, Counsel states that the POA does not impact the conclusion.  Counsel essentially stated that if the guardian had been appointed during the year in question, reasonable cause would likely not apply.  This was because the guardian would have a duty to handle the finances, and therefore returns, of the ward.  See Bassett v. Comm’r, 67 F3d 29 (2d Cir. 1995) (taxpayer suffered from incapacity due to being a minor, and legal guardian had duty to file returns).  With a POA, however, there may be authorization to take actions regarding returns, but there is no affirmative legal duty to prepare and file returns on behalf of the taxpayer.  Looking to Boyle, Counsel said the duty to file the tax return is on the taxpayer, and not his agent or employee.

I think this is the correct result, but I found it interesting for two reasons.  First, that statement from Boyle is usually used to preclude reasonable cause defenses when a taxpayer fails to file due to the mistake belief that the taxpayer’s accountant, attorney, or other preparer is properly handling the return.  So, for once, I wasn’t muttering frustration about that case.

Second, this position is different than that applicable to seeking a refund due to financial disability.  In general, a refund must be timely made, and that time frame is normally three years from the date the return is filed or two years from the date the tax was paid, whichever expires later.  This statute can be tolled if the taxpayer is “financially disabled.”   Under Section 6511(h), the statute will not expire if the individual is unable to manage his financial affairs because he has a medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than twelve months.  The general IRS requirements for this are found in Rev. Proc. 99-21.  Most focus on this Rev. Proc. is on the required doctor’s certification.  But, the procedure also requires the person signing the claim to certify that no person was authorized to act on behalf of the taxpayer in financial matters during the period of impairment.

The implication is that having a power of attorney in place could preclude the tolling of the statute, because the agent could/should have been acting.  Seeking to recoup improperly paid funds is slightly different that having penalties abated, but the situations are sufficiently similar that it is interesting that the Service has different positions.

Form 2848: The First Hurdle

Today we welcome back guest blogger Caleb Smith.  Caleb is a fellow this year in the Harvard Federal Tax Clinic.  We have seen some interesting power of attorney issues in our clinic recently and Caleb provides some insight on problems that arise in this area.  Keith

The IRS is planning to implement new security measures (originally set for October 24 target date, but since pushed back) for its online services. In anticipation of these changes (and potential complications) it seems timely to devote some thought to one particularly important gateway for information gathering activities with the IRS: the Form 2848.

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Sometimes you just can’t avoid calling a general number of the IRS, especially if the 2848 hasn’t been processed by CAF yet or when there is an ID Theft Indicator on the account. When contacting such a call center, one of the first questions asked is whether you have POA on file for the entity you are calling about. The IRS employee will usually offer a personal fax number for you to send the 2848 (if you have one) so that they can continue to assist you. Once the 2848 is received what happens next can be downright Kafka-esque depending on the reticence and training of the IRS employee on the other line.

Recent calls to the IPSU unit of the IRS have yielded these Halloween-worthy responses:

1). We can’t speak to you because there is no signature from the taxpayer on your 2848. The signature you have is from the previous attorney [that was granted the power to substitute or add-in new representatives]

My charitable take on this is that the IRS employee was misunderstanding the core concept of the taxpayer granting their representative the power to substitute other attorneys. Who can sign a 2848 has been dealt with here before. The continued misunderstanding of certain IRS employees, unfortunately, is not an unusual occurrence for me. The idea that someone the taxpayer specifically said could substitute attorneys for them is now substituting an attorney for them somehow smacks of foul-play. In one instance, I directed an IRS employee to the 2848 instructions specifically stating that the taxpayer doesn’t need to sign the 2848 for a subbed-in representative. The IRS employee referred to that as a “loophole.” Further attempts to explain that requiring the taxpayer to sign my 2848 would obviate the whole point of granting representatives authority to substitute attorneys were fruitless. Perhaps I should have referred the employee to IRM 21.3.7.5.4, which reads in relevant part “Only the taxpayer can grant a recognized representative the additional authority to substitute or delegate authority. The notice of substitution or delegation must be signed by the representative appointed on the power of attorney.”

2). We can’t speak to you because a 2848 automatically expires after 45 days(!)

My charitable take on this is that the IRS employee was misunderstanding the rule that a 2848 is invalid if the taxpayer signature is dated more than 45 days before the representative’s (See IRM 21.3.7.5.1.4). As that wasn’t the case, my less charitable take is that the IRS employee just wanted to cut the call short. I am inclined to this less charitable take in part because the employee only brought up the 2848 issue after already speaking to me for several minutes about the client in a case where the IRS behavior looked somewhat bad.

 

All of this is to say that if an IRS employee wants to challenge your Power of Attorney they can put up a pretty big and pretty immediate roadblock. Yes, you can call back and almost certainly get a different person on the phone, but wait-times often make that impractical. During a recent visit from our local taxpayer advocate, our clinic (Harvard Legal Services Center) voiced concern about IRS employees that didn’t seem to understand how Form 2848 works and the barrier this caused for providing services. When such problems arise we were advised to request to be escalated to the employee’s manager, and that TAS would look into making sure that employees were well trained on 2848 issues. This is about as good as can be hoped for, but I’m not sure it is enough to provide a whole lot of relief. (A few weeks after that advice I attempted to put it into action and asked to be escalated to the manager on two separate occasions. On the first one, I was cut off after being put on hold. On the second, I was told (after being put on hold) that the manager wasn’t available.)

Of course, much of this can be avoided if your 2848 is on file with CAF, in which case, the main hurdle is submitting a 2848 that will be accepted and processed in the first place. Though this seems like it should be a fairly easy task (and generally it is), complications do arise.

Most recently, I’ve seen 2848s rejected for:

  1. Appearing to have a “stamp or electronic” signature of the representative (it wasn’t: it just looked that way because the form had been faxed so many times). See IRM 21.3.7.5.1.4.
  2. Having the taxpayer signature dated more than 45 days before the representative’s (it was, but only because the client signed with the wrong year) IRM 21.3.7.5.1.4 again. Note that the problem doesn’t arise if the taxpayer’s signature is more current than the representative’s.
  3. Form was illegible (a product of the Form 2848 being faxed multiple times, and perhaps my poor penmanship)
  4. Student Authorization Form missing for LITC Student Attorney (These generally result only in the student being unable to call the IRS: as an attorney, my authorization has generally still been processed.)

The first time I ever submitted a Form 2848 I was under the impression that the CAF fax basically fed into an enormous scan-tron type machine that checked for initial processing requirements. My belief in that was based (1) on the sheer volume of 2848s that must be sent and (2) the fact that the Treasury Regulations provide that a substitute for Form 2848 can be used (problem for the scan-tron theory), but an actual 2848 must be attached if submitted to CAF (see Treas. Reg. 601.503(b)(2)). In fact, actual humans do process and input the Form 2848, although the number of these dedicated souls may not be sufficient for the task (see TAS report here). Beyond just taking the IRS’s word on this, other evidence of a human touch can be found in the handwritten “OK” marked next to certain areas and practically undecipherable scribbles marked next to others on 2848s that have been sent back to me from CAF.

One problem is obviously the turn-around time for figuring out whether CAF is going to process the 2848 sent. Usually, the practitioner has no way of knowing the 2848 isn’t processed until either (1) weeks pass and they are still unable to access accounts via e-services, or (2) the taxpayer receives a letter from the IRS mentioning the unprocessed 2848 (a letter which also generally serves to freak out the taxpayer). Might this be an area for the IRS “Future State” (see post on Future State here) to bring in a greater degree of automation to speed up the process? On the one hand, the sensitive data at play may warrant keeping a greater human touch. On the other hand, I’m not really sure how humans do much of anything to prevent ID theft in this context: I am fairly confident that the person at CAF isn’t comparing signatures of the taxpayer and representative to a signature database.

Another problem has less to do with the time it takes to process the 2848, and more to do with the actual processing. I have seen numerous rejection notices for 2848s supposedly lacking the proper student authorization page, when it appears from the fax records that such authorization was in fact sent. Several comments on the ABA LITC listserv have also mentioned this issue. One commenter suggested creating a “2848 Sandwich” with the student authorization page placed between page 1 and 2 of the 2848, the rationale being that it is much harder to miss the authorization page in those circumstances. I have never tried this, and cannot vouch for its efficacy, but am always a fan of creative solutions.

One area that I HAVE had experience with and can vouch is in submitting Form 2848 as a substitute representative for the original attorney of the taxpayer. As mentioned above, a taxpayer may grant their attorney the power to substitute or add representatives (see line 5a of Form 2848). Doing so, obviously, gets rid of the need for the taxpayer to sign a new 2848 for the substituted representative. The instructions (and logic) make this clear: the new attorney “can send in a new Form 2848 with a copy of the Form 2848 you [the taxpayer] are now signing, and you do not need to sign the new Form 2848.” [emphasis added.] Reading the instructions literally, one might think that all the new attorney need do is fill out a new 2848 and include a copy of the old one with it. But IRM 21.3.7.5.4 requires a little more. For CAF to process the new 2848 you will need to send (1) the original 2848 signed by the taxpayer, and (2) a new 2848 signed by the original attorney. I usually have the original attorney sign on line 7 along with listing their CAF number. I have not found anywhere in the IRM that says this is the proper way to include the signature of the appointing attorney. But it has worked with CAF, and that is good enough for me.

When you need to speak with someone at the IRS about a client and the validity of your power of attorney is put at issue, you are essentially confronted with a brick wall. Systemic changes to how 2848s are processed by the IRS may be ideal, but in the absence of that practitioners are generally left with trading war-stories and tricks-of-the-trade. I invite anyone with such advice or stories to post below.

 

 

Informal IRS Advice Grab Bag: Abatements and Powers of Attorney

In this brief post I discuss informal advice relating to abatement requests and powers of attorney, and also flag the IRS’s release earlier this month of a new Form 2848 that reflects developments in light of Loving.

ABATEMENT REQUESTS

A recent IRS email advice discusses requests for abatement, a procedure that I found confusing when I first began working in a tax clinic many years ago. The confusion is because Section 6404(b)  states no claim for abatement shall be filed by a taxpayer for any income, estate, or gift tax assessment.  Despite that statutory limitation, the Internal Revenue Manual states that taxpayers can submit a request for an abatement for income, estate and gift tax assessments, and that the Service will consider those requests. To that end, see for example IRM 25.6.1.10.1(2) Requests for Abatement. One can use an amended return for these purposes.

What happens if the statute of limitations on assessment for the year has closed? There is no sol when it comes to abatement requests, (contrasted with the refund sol). In the email advice, the IRS states, however, that sol on assessment is not irrelevant, as the IRS is supposed to take “special care” on those abatement requests because if the IRS abates an assessment (or part thereof) and the sol on assessment has expired, then the IRS is out of luck because the tax cannot be reassessed.

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POA-CAN A REP HOLD ON TO A SIGNED POA?

A recent IRS memo considered another issue worthy of note, namely whether a representative can submit electronically a POA Form 2848 without a client’s signature. We recently discussed POAs in a post Who Can/Must Sign the POA Form by Keith regarding the ability of one rep to sign on behalf of another, where IRS said the reps must sign individually. Similarly, in this PMTA, the IRS said it must receive the POA that is signed by both the client and the rep in order for it to be effective. The rep had stated that it had the client’s signature on file, but wanted to submit the POA electronically and keep the signed POA in its records and submit to IRS upon request.  IRS’s Procedural Rule 601.504(c)(4) allows for IRS to receive a copy or a fax of the signed POA, but as per the PMTA the IRS will not allow the unsigned 2848, stating that such a procedure could facilitate identity theft and lead to unauthorized disclosures.

IRS RELEASES NEW POA

Earlier this month, IRS released a new version of the Power of Attorney, as well as instructions that highlight the differences between the new 2848 and the prior version. The main difference relates to the limited representation rights for unenrolled preparers and other post-Loving developments such as removing the designation “registered tax return preparer.”

Here is a bit more on the limited representation rights, as this I believe is a major change and reflects the IRS approach of offering a big carrot to those preparers who opt in to the voluntary testing and education program (IRS description of the Annual Filing Season Program is here). Prior to this filing season, all unenrolled preparers had limited representation rights before the IRS relating to an examination of the taxable period covered by the tax return they prepared and signed. As I discussed earlier this year in Some More Updates on IRS Annual Filing Season Program, effective for returns filed as of January 1, 2016, in order for an unenrolled preparer to have those limited representation rights, the PTIN-wielding unenrolled return preparer must also have (1) a valid Annual Filing Season Program Record of Completion for the calendar year in which the tax return or claim for refund was prepared and signed; and (2) a valid Annual Filing Season Program Record of Completion for the year or years in which the representation occurs. Absent the record of completions, the preparer wishing to get information (but not actually represent in an exam) will have to use a Form 8821 which will allow inspection and retrieval of information only.

I am not familiar with data on how often unenrolled preparers in the past had used these rights, but I suspect the ability to communicate and represent in the examination process would be a powerful benefit that an informed consumer would want in a preparer.

Who Can/Must Sign the Power of Attorney Form

On September 16, 2015, a Chief Counsel’s office produced a memorandum addressing “whether a Form 2848, Power of Attorney and Declaration of Representative, should be rejected as to a representative who did not personally sign the Declaration of Representative and should the Internal Revenue Service correct the Centralized Authorization File?”  The memo concludes that a person seeking to serve as a representative must personally sign the power of attorney (POA) form and that when someone else signs the form on their behalf, the signature does not authorize the non-signing individual to serve as a representative in the case.

Because we tend to pay little attention to the POA form, the advisory opinion serves as a reminder that completing the form properly has importance.  The signature section for the representatives requires that the representative sign under penalties of perjury.  The statement about penalties of perjury does not come immediately above the signature and can get lost in the shuffle but provides the foundation for the advice rendered in the opinion by Chief Counsel’s office.  While this post will focus on the advisory opinion and signatures on the form, the opinion serves as a reminder of the power available to representatives when operating with a properly executed power of attorney.  A panel in the Administrative Practice committee entitled “Back to Basics: Who Has Capacity to Sign on Behalf of the Taxpayer” at the most recent ABA Tax Section addressed these issues and another recent article provides background on these powers.  In the revised Saltzman Book “IRS Practice and Procedure” treatise, issues relating to who may practice before the IRS and the POA rules in particular (including who may execute a POA) are covered in Chapter 1.08.  One of the powers not always available with a power of attorney is the power to sign a tax return or other document that requires the taxpayer’s signature under penalties of perjury (See IRM 3.11.6.5.8).

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An undisclosed law firm apparently handles a high volume of research credit refund cases.  The names of three members of the firm appeared on the POA.  Two of the three individuals signed their own names.  Additionally, one of those two individuals signed their own name “on behalf of” the third individual who did not personally sign the POA form.  Apparently, in this practice the third individual was out of the office routinely and a regular practice of the other members of the firm involved signing POAs on behalf of the third individual.  The revenue agent handling the examination of the research credit issue in a case in which this POA was submitted requested advice concerning the validity of the POA.  Because of the disclosure provisions restricting IRS employees from giving taxpayer information to unauthorized parties, the issue of the validity of a POA has a direct impact on the employee.  A violation of the disclosure provisions can subject an IRS employee to severe sanctions.  Making certain the correctness of a POA and carefully checking POAs is something all IRS employees are taught to do (at least they were when the IRS had funds for training.)

The Centralized Authorization File (CAF) has responsibility for inputting POA on the IRS computer system so that any IRS employee can quickly determine whether an individual has the authority to speak on behalf of a taxpayer and receive taxpayer information.  In this case the CAF unit had accepted the POA signed by someone else on behalf of the unidentified third individual and by implication in all of the other cases in which POAs were submitted in which someone else signed the POA on behalf of the unidentified third individual at issue in this case.  Acceptance of the POA by the CAF unit would mean that the IRS computer would show all three individuals as authorized to give and receive information for the taxpayer; however, something caused the revenue agent handling the case to question the authority of the signature by another.  Here, the signature clearly showed that the third individual did not sign the POA.  The representatives made no attempt to hide the fact that the third individual did not actually sign the form.

With a few exceptions, the CAF unit is located in the Memphis Service Center for taxpayers east of the Mississippi and in the Ogden Service Center for those living west of the Mississippi.  The Philadelphia Service Center handles international forms. To learn more about how you got your CAF number and the functions of the CAF unit check out the Internal Revenue Manual provisions describing the function and its duties.   As POAs come into the CAF unit, it must review them and load them onto the computer system.  As it goes about the process of loading the POAs onto the IRS computer system, the employees at the CAF unit are charged with the responsibility of reviewing the POAs to insure that all of the necessary information is provided on the form.  The IRM directs the CAF unit to review the forms for five essential elements.

During the time I have been submitting POAs, I have observed that the CAF unit has slowed down a bit in the time it takes for it to input a POA.  Until it does so, it is not possible to pull up information on eServices.  I do not say that it has slowed down to be critical of the CAF unit because I suspect that the budget issues impacting the IRS have had their effect on the CAF unit as well but the advertised three day time frame for loading in a POA is a thing of the past.  The National Taxpayer Advocate has written about the CAF unit on several occasions because of its critical function as a focal point for representatives to get their names into the system and in 2012 made it one of the most serious problems. These behind the scenes operators, however, have an impact on the processing of the case because until they have time to load the POA forms you must wait to obtain information from the IRS or face the daunting task of calling.  In collection cases the failure to load the POA can cause the IRS to contact the taxpayer in violation of Fair Debt Collection Practices Act provisions of the Internal Revenue Code.

To answer the question of whether a third party can sign the POA for a representative, something the CAF unit and others at the IRS had apparently not asked in the decades of existence of this process, the author of the advisory opinion, Michael Hara, the keyboard player for the world-renowned Chief Counsel rock band The Traveling Helverings, looks to the procedural regulations governing the POA process.  (Their song list also does not yet include a title focused on POAs.  Perhaps their most appropriate title for this discussion is, A Government Job).  The code does not dictate the POA process or issues such as who can sign the form.

Statement of Procedural Rules at 26 CFR 601.502(b) provides that an individual seeking to represent a taxpayer enter an appearance before the IRS by filing:

  1. A power of attorney or tax information authorization permitting the holder to perform certain acts or to receive confidential tax information, and
  2. A practice declaration, which is a declaration that the person is recognized to practice before the Service.

Section 601.502(c) builds on this language and provides that the representative must attach the following statement to the power of attorney form:

  1. I am not currently under suspension or disbarment from practice before the Internal Revenue Service or other practice of my profession by any other authority;
  2. I am aware of the regulations contained in Treasury Department Circular No. 230 (31 C.F.R. part 10), concerning the practice of attorneys, certified public accountants, enrolled agents, enrolled actuaries and others);
  3. I am authorized to represent the taxpayer(s) identified in the power of attorney; and
  4. I am an individual described in 601.502(b)

The POA form itself contains a declaration that the representative must sign under penalties of perjury that tracks the language in the procedural regulation.  Nothing in the code or the regulations provides the authority for someone other than the representative to sign the declaration under penalties of perjury on behalf of the representative.  The advisory opinion notes that the rules protect the IRS.  Because the regulation states that the representative “must” sign the declaration and because no authority exists allowing someone else to do it, the advisory opinion concludes that the POA signed by someone other than the representative does not meet the requirements necessary to become a valid POA.

The result does not come as a surprise but may cause a change in the practice of executing the POA form by some practitioners. Because of the long wait times involved in getting to the IRS either in waiting for the CAF unit to load the POA or in waiting on the phone to talk to an individual, you do not want to endure the wait only to have the IRS reject the POA and send you scrambling back to your client to execute another form.  The practice of who signs the POA is just one of several items on that document that can trip up a practitioner who does not pay careful attention to the information requested on various lines and boxes.  This advisory opinion may cause the workers in the CAF unit and in other IRS posts of duty to pay more careful attention to POAs which could mean more trips back to the client to sign a second version.

Summary Opinions for October 19th through the 30th

Happy Thanksgiving Week! And thank you all for reading, commenting and guest posting!  SumOp this week is full of great tax procedure content that was released or published in the end of October, including updates to many items we previously covered in 2014 and 2015.  In addition, I am pretty confident that I solved all of your holiday shopping needs, so no reason to fight the Black Friday crowds.

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  • From Professor Bryan Camp, a review of Effectively Representing Your Client Before the IRS (which was edited by Keith) can be found here.  This article was originally published in Tax Notes.  I have not read the article, so I suppose he could be bashing the book; however, knowing Keith and the book, I’m pretty confident that isn’t the case (perfect holiday gift for that tax procedure nut in your life; you can pick it up here).  Completely unrelated, unless you are looking for holiday gift ideas for me, I’ve always wanted a Lubbock or Leave It t-shirt to go with my Ithaca is Gorges t-shirt.  At that point, it would become a bad pun t-shirt collection….How did I make this bad transition – Professor Camp teaches at Texas Tech, which is located in Lubbock, TX.
  • Keith forwarded this article to me from the AICPA newsletter regarding ten things to do while on hold with the IRS.  I say just sit back and enjoy the music…wait, we already discussed how that music seems to have been designed to slowly drive you insane (see Keith’s post, A Systemic Suggestion – Change the Music).  I sort of feel terrible admitting this, but I make my assistant sit on hold and then transfer the calls to me.   Wait times do not appear to be getting much better, but, since misery loves company, I would suggest checking #onholdwith.com/irs while waiting, or post your own.  Everyone loves complaining.
  • Kearney Partners Fund has generated a lot of tax procedure litigation over the last few years, which continues with the Eleventh Circuit affirming the GA District Court in Kearney Partners Fund, LLC v. United States.  At issue in this case was whether one particular participant was responsible for the accuracy related penalties.  The Eleventh Circuit agreed with the District Court that the transaction was in fact a tax shelter, but that the participant had disclosed the tax shelter in a voluntary disclosure program under Announcement 2002-2.  The Service argued that the participant only made disclosure in his individual capacity, not on behalf of the partnerships involved.  The Courts, relying on the doctrine of nolite jerkus, found it was disingenuous for the Service to attempt to collect the penalties on a shelter it was notified about through a disclosure program (I know that actually isn’t Latin, or a court doctrine).
  • In Notice 2015-73, the Service has identified additional transactions as “of interest” or as listed, including Basket Option Transactions.
  • In US v. Sabaratnam before the District Court for the Central District of California , a taxpayer lost his attempt to toss a Section 6672 TFRP assessment as untimely, which was made more than three years after the deemed filing date of the returns.  Although normally this would have not been timely as there is a three year statute for assessment, the taxpayer made a timely protest thereby tolling the time for assessment under Section 6672(b)(3).  The taxpayer actually argued his protest was not timely, thereby allowing the statute to run, and, in the alternative, that it wasn’t valid because it failed to contain the required information and because his representative did not tell him the letter was filed.  The Court disagreed, and found the filing was valid and timely.  Interestingly, in the letter, the representative stated that he did not “know personally whether the statements of fact…[were] true and correct. However…[he] believe[d] them to be true and correct,” which the taxpayer argued was damning because no one was attesting to the allegations.  The Court found that since the IRS instructions only required the representative to indicate if the facts were true, his statement was sufficient, as opposed to requiring that the representative actually state the facts were true.
  • The Senate is apparently checking up on Big IRS Brother.  In a hearing regarding the handling of the Tea Party applications, the Senate inquired about news that the Service would be using a high-tech gadget that could locate cell phones and collect certain data (couldn’t listen in on conversations though).  The Service indicated this was going to be used in criminal matters to help locate drug dealers and money launderers.  The Senate was nervous that Louis Lerner would target Republicans the Service would abuse this power (which twelve other agencies are currently using).  Don’t all drug dealers solely use burners?  And, aren’t the ones who don’t in jail already?  Looks like this will be moving forward, hopefully for tax crimes not thoughtcrimes.
  • In December, guest blogger Jeffrey Sklarz blogged about Rader v. Comm’r, a Tax Court case discussing substitutes for returns and when those have been validly issued under Section 6020(b).  In October, Mr. Rader was in court again, where the Tenth Circuit affirmed the Tax Court’s treatment of the SFRs and the imposition of sanctions by the Tax Court for frivolous arguments.
  • I’m in the process of working with Les on a rewrite of Chapter 5 of SaltzBook, which contains a discussion of the mitigation provisions for the statute of limitations.  One case dealing with those mitigation provisions that has been interesting to us over the last few years was Karagozian v. Commissioner, where the Tax Court and then Second Circuit held the mitigation provisions could not provide relief where a taxpayer overpaid employment taxes in one year, only to have income taxes imposed for that year after a worker reclassification.  SCOTUS did not find it as interesting as we did, and will not be granting cert.
  • From Jack Townsend’s incomparable Federal Tax Crimes Blog in early November was a post about nonresident aliens failing to pay US estate tax.   Jack offers some thoughts on how to start chipping away at that tax gap in his post.
  • The Eastern District of Pennsylvania in Giacchi v. United States decided another dischargeability of late returns case.   EDPA held in line with recent cases that the tax due on the late returns was not dischargeable.  Keith’s has written a fair amount on this topic, and I think the most recent was in June and can be found here.
  • Do you ever wonder if those companies claiming to give a % of their revenue to charity ever actually give the funds to charity?  I can proudly say PT will be donating 100% of its proceeds to charity, but deductibility and follow through won’t be an issue (it’s zero, we just do this for the love of the game; well maybe a hope that some publisher buys us out for millions).  Is there a watchdog group that tracks this?  Well, apparently some are actually donating the funds just out of charitable inclination, and the IRS has issued guidance on the deductibility of those payments.  In CCA 201543013, the advice concludes that the company taxpayer and not its customers are entitled to the deduction.  It also goes through the deductibility of payments to various types of entities, including exempt and non-exempt.

Summary Opinions for July

Here we go with some of the tax procedures from July that we didn’t otherwise cover.  This is fairly long, but a lot of important cases and other materials.  Definitely worth a review.

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  • Starting off with some internal guidance from the Service, it has held that the signature of the president of a corporation that subsequently merged into a new corporation was sufficient to make a power of attorney binding on the new corporation (the pres served in the same capacity in NewCo).  In CC Memo 20152301F, the Service determined it could rely on the agent’s agreement to extend the statute of limitations on assessment based on the power of attorney.  There is about 14 pages of redacted material, which makes for a fairly uninteresting read.  There was some federal law cited to allow for the Service reliance, but it also looked to IL law to determine if the POA was still valid. This would have a been a more interesting case had the president not remained president of the merged entity.
  • The Tax Court, in Obiakor v. Comm’r, has held that a taxpayer was entitled to a merits review by the Service and the court during a CDP case of the underlying liability for the TFRP where the Service properly sent the Letter 1153 to the taxpayer’s last known address, but the taxpayer failed to receive the letter.  The letter was returned to the Service as undeliverable, and the Service did not show an intent by the taxpayer to thwart receipt. This creates a parallel structure for TFRP cases with deficiency cases regarding the ability of the Tax Court to review the underlying liability when the taxpayer did not previously have an opportunity to do so based on failure to actually receive a notice mailed to their last known address.  Unfortunately for the taxpayer, in the Court’s de novo review, the Court also found the taxpayer failed to make any “cogent argument” showing he wasn’t liable.
  • In Devy v. Comm’r, the Tax Court had an interesting holding regarding a deficiency created by a taxpayer improperly claiming refundable credit.  The IRS allowed the credit requested on the return and then applied it against a child support obligation the taxpayer owed.  Subsequently, the IRS determined that he was not entitled to the credit and assessed a liability.  The Tax Court found it lacked the ability to review the Service’s application of the credit under Section 6402(g), which precludes any court in the US to review a reduction of a credit or refund for past due child support obligations under Section 6402(c), as well as other federal debts and state tax intercepts .  The taxpayer also argued that he should not have to repay the overpayment because the Service elected to apply it against the child support obligation, not pay it to him.  The Court stated that whether it is paid over to the taxpayer or intercepted, the deficiency was still owed by the taxpayer.  See Terry v. Comm’r, 91 TC 85 (1988).
  • With a lack of splits in the Circuits, SCOTUS has denied certiorari in Mallo v. IRS.  Mallo deals with the discharge of tax debts when the taxpayer files late tax returns.  Keith posted in early June on the Solicitor General’s position before SCOTUS, urging it to deny cert.  Keith’s post has a link to our prior coverage on this matter.
  • The DC Circuit had perhaps its final holding (probably not) in Tiger Eye Trading, LLC v. Comm’r, where it followed the recent SCOTUS holding in Woods, affirming the Tax Court’s holding that the gross valuation misstatement penalty applied to a tax shelter partnership, but the Court could not actually adjust the outside basis downward.  The actual adjustment had to be done in a partner level proceeding, but the Court did not have to work under the fiction that the partner had outside basis above zero in an entity that did not exist.  Taxpayers interested in this area should make sure to read our guest post by Professor Andy Grewal on the Petaluma decision by the DC Circuit that was decided on the same day, which can be found here.
  • In Shah v. Comm’r, the 7th Cir. reviewed the terms of a settlement agreement between a taxpayer and the Service which contained a stipulation of facts, but did not contain a calculation of the deficiency in any applicable year.  The Tax Court provided an extension to calculation the amount outstanding.  No agreement could be made, and the Service petitioned the Court to accept its calculation.  Various additional extension were obtained, and the taxpayers went radio silence (apparently for health issues and inability to understand the IRS calculations).  The Tax Court then ordered the taxpayers to show cause why the IRS calculations should not be accepted, instead of providing a trial date.  The taxpayer objected due to IRS mistakes, but the Court accepted the IRS calculations somewhat because the taxpayers had not been cooperative.  The Seventh Circuit reversed, and held that the Tax Court was mistaken in enforcing the settlement, because there was not a settlement agreement to enforce.  The Seventh Circuit indicated that informal agreements may be enforceable, but the court may “not force a settlement agreement on parties where no settlement was intended”. See Manko v. Comm’r, 69 TCM 1636 (1995).  The 7th Circuit further stated that it was clear the taxpayers never agreed to the calculations (which the IRS acknowledged).  At that point, the Service could have moved for summary judgement, or notified the Tax Court that a hearing was required, not petitioned to accept the calculations.  Keith should have a post in the near future on another 7th Circuit case dealing with what amounts to a settlement, where the agreement was enforced.  Should be a nice contrast to this case.
  • The Service has issued a PLR on a taxpayer’s criminal restitution being deductible as ordinary and necessary business expenses under Section 162(a).  In the PLR, the taxpayer was employed by a company that was in the business of selling “Z”.    That sounds like a cool designer drug rich people took in the 80’s, but for the PLR that was just the letter they assigned to the product/service.  Taxpayer and company were prosecuted for the horrible thing they did, and taxpayer entered into two agreements with the US.  In a separate plea agreement, he pled to two crimes, which resulted in incarceration, probation, a fine, and a special assessment, but no restitution.  In a settlement agreement, taxpayer agreed to restitution in an amount determine by the court.  Section 162(f) disallows a deduction for any fine or similar penalty paid to the government in violation of the law, but other payments to the USofA can be deductible under Section 162(a) as an ordinary and necessary business expense.  The PLR has a fairly lengthy discussion of when restitution could be deductible, and, in this case, determined that it was payable in the ordinary course of business, and not penalty or other punishment for the crime that would preclude it under Section 162(f), as those were decided under the separate settlement agreement.  The restitution was simply a repayment of government costs.
  • This kind of makes me sad.  The Tax Court has held that a guy who lived in Atlantic City casino hotels, had no other home, and gambled a lot was not a professional gambler.  See Boneparte v. Comm’r.  Nothing that procedurally interesting in this case, just a strange fact pattern.  Dude worked in NYC, and drove back and forth to Atlantic City every day to gamble between shifts at the Port Authority.  Every day.  The court went over the various factors in determining if the taxpayer is engaging in business, but the 11 years of losses seemed to make the Court feel he just liked gambling (addicted) and wasn’t really in it for the profits.
  • S-corporations are a strange tax intersection of normal corporations and partnerships (which are a strange tax intersection of entity taxation and individual taxation), but the Court of Federal Claims has held that s-corps are clearly corporations in determining interest on a taxpayer overpayments.  In Eaglehawk Carbon v. US, the Court held that the plain language of Section 6621(a) and (c)(3) were clear that corporations, including s-corporations, were owed interest at a reduced rate.
  • The Third Circuit in US v. Chabot  has joined all other Circuits (4th, 5th, 7th, & 11th – perhaps others)  that have reviewed this matter, holding that the required records doctrine compels bank records to be provided by a taxpayer even if the Fifth Amendment (self-incrimination) might apply.  We’ve covered this exception a couple times before, and you can find a little more analysis in a SumOp found here from January of 2014.  This is an important case and issue in general, and specifically in the offshore account area.  We will hopefully have more on this in the near future.
  • A Magistrate Judge for the District Court for the Southern District of Georgia has granted a taxpayer’s motion to keep its tax returns and records under seal, which the other party had filed as part of its pleadings.  The defendants in this case were The Consumer Law Group, PA and its owners, who apparently offered services in reducing consumer debt.  In 2012, the Florida AG’s office filed a complaint against them for unfair and deceptive trade practices, and for misrepresenting themselves as lawyers.   Two years prior it was charged in NC for the same thing.  One or more disgruntled customers filed suit against the defendants, and apparently attached various tax returns of the defendants to a pleading.    Presumably, these gents and their entity didn’t want folks to know how profitable their endeavor (scamming?) was, and moved to keep the records under seal.  The MJ balanced the presumption of openness against the defendants’ interest.  The request was not opposed, so the Court stated it was required to protect the public’s interest.  In the end, the Court found the defendant’s position credible, and found the confidential nature of returns under Section 6103 was sufficient to outweigh the public’s interest in the tax returns.

 

 

Godfrey v. Comm’r: Tax Court CDP Case Presenting Jurisdictional Issues Settles

We welcome back frequent guest blogger Carl Smith for a quick update on the Godfrey case which raised the issue of the effectiveness of a notice issued in a collection case only to the taxpayer when the taxpayer was a represented party. While the law on this is well settled in deficiency cases, collection cases may reach a different conclusion. Keith

This is to report the settlement of a Tax Court case on which Keith and I did three posts in April, Godfrey v. CommissionerGodfrey was a Collection Due Process (CDP) case that the Tax Court had dismissed for lack of jurisdiction on the grounds that the taxpayer filed her request for a CDP hearing at Appeals too late.  She had filed the request over a year after a notice of intention to levy (NOIL) was mailed to her at her last known address, though the statute gave her only 30 days to file a request.  The IRS had denied the hearing request in a letter, and the taxpayer appealed to the Tax Court within the 30-day period to file a Tax Court appeal of a notice of determination under section 6330(d).  The taxpayer argued that the letter should be treated as a notice of determination for this purpose.  But, the Tax Court held it lacked jurisdiction because the letter was not a notice of determination giving the Tax Court jurisdiction, since the taxpayer had not had and was not entitled to a CDP hearing at Appeals.  Within 30 days of the dismissal of her case, the taxpayer moved to vacate the order of dismissal, but the case settled, even before the IRS filed a response to the motion.

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In her motion, the taxpayer had made two arguments:

First, she argued that the IRS’ mailing of an NOIL to her was insufficient and in violation of section 6304(a)(2), which requires the IRS, with some exceptions, not to communicate with a represented taxpayer in connection with collection of unpaid tax.  She pointed out that she had been represented by counsel at the time the NOIL was issued, and argued that none of the exceptions to the prohibition applied.  In a post on April 9, Keith highlighted the reasons why the taxpayer might be right.  In a post on April 10, I argued that, if section 6304(a)(2) was violated, the correct remedy would be for the Tax Court to equitably toll the 30-day period to request a CDP hearing until at least the taxpayer’s counsel received a copy of the NOIL.  If that were done in this case, she would have been entitled to a CDP hearing, and the letter denying the CDP hearing could be treated, under prior Tax Court precedent, as a deemed notice of determination giving the Tax Court jurisdiction.

Second, in holding against the taxpayer, the Tax Court noted that she had not actually received the NOIL.  But, relying on a regulation under section 6330, the Tax Court held that the NOIL was valid to start the 30-day period running, even without the NOIL’s actual receipt.  In a post on April 13, I argued that the regulation (which the IRS had never cited in its motion to dismiss for lack of jurisdiction) was invalid and contrary to legislative history.  Legislative history suggests that, in a case where a taxpayer does not receive a properly-mailed NOIL, the taxpayer must belatedly be given a regular CDP hearing.

Neither the section 6304(a)(2) issue nor the validity of the regulation had been raised by the taxpayer’s counsel prior to the case first being dismissed, so there was some doubt that the Tax Court would address these issues posed in the motion to vacate.  The IRS was allowed several extensions of time to respond to the motion to vacate.  But, before it filed any response, the IRS counsel recommenced settlement discussions with the taxpayer.  Those discussions led to the IRS abating some of the unpaid liability and the taxpayer agreeing to pay the full remaining liability in a lump sum.  This made further litigation now moot, and the taxpayer withdrew the motion to vacate on July 15.  Case closed.

Godfrey presented two very serious issues of first impression for all lawyers representing taxpayers in CDP matters to be aware of.  However, those issues will have to await another case before they are addressed by any court opinion.

 

Godfrey v. Comm’r Part II: If the Failure to Serve a Notice of Intention to Levy on Taxpayer’s POA Violates Section 6304(a)(2), What Are the Possible Remedies?

We continue with our three part series on Godfrey. Parts II and III are written by frequent guest blogger Carl Smith.  Carl has updated his post to address some of the comments made on Part I.  I suggest going to the comments if you want to see the full discussion.  Keith

In a prior post on Godfrey v. Commissioner, Keith explained how the IRS’ actions in that case might have violated section 6304(a)(2). With only a few exceptions (none, I believe, relevant in Godfrey), section 6304(a)(2) prohibits the IRS from communicating directly with a taxpayer in connection with collection where the taxpayer is represented by a holder of a power of attorney on file with the IRS.  In Godfrey, the IRS sent a notice of intention to levy (“NOIL”) directly to the taxpayer at the taxpayer’s last known address, but she did not actually receive the NOIL.  The NOIL was returned unclaimed.  The IRS did not send a copy of the notice to the taxpayer’s POA holder.  By the time the taxpayer and her attorney realized that an NOIL had been issued, over a year had passed.  The next day, the POA filed with the IRS a Form 12153 requesting a CDP hearing. The IRS then sent a letter denying any CDP hearing because the Form 12153 was filed too late – beyond the 30-day period provided in section 6330(a)(2) and (3)(B) for requesting a hearing.  Within 30 days of that letter, the taxpayer petitioned the Tax Court.  Without discussing section 6304(a)(2) (which the taxpayer had not raised in the case), in its order, the Tax Court dismissed the case for lack of jurisdiction, in part, on the ground that no copy of the NOIL need have been sent to the POA to make the NOIL valid.  In making this holding, the court drew an analogy to well-settled case law holding that no copy of a notice of deficiency need be sent to a POA to make a notice of deficiency valid.

The taxpayer in Godfrey has moved to vacate the dismissal order, citing the violation of section 6304(a)(2) as one of two grounds.  Section 6304(a)(2) (which only applies to collection communications, not notices of deficiency) renders the court’s analogy inapt.  Leaving aside for the moment the problem of the section 6304(a)(2) argument being raised belatedly, what if a taxpayer who was in a similar situation (i.e., NOIL sent to last known address, NOIL not received, POA not served, so no Form 12153 filing in the 30-day period, and filing in the Tax Court within 30 days of IRS letter refusing to give a CDP hearing) had raised the section 6304(a)(2) violation in her petition, so the court would have to address it?  Assuming that the Tax Court found a violation of section 6304(a)(2), what remedy should be given?  This post explores the possible remedies.  Disclosure note:  Because I feel so strongly about the problem of lack of notice to counsel, in Godfrey I just entered a co-appearance with her current counsel, John Genova, Esq., and assisted in preparing and filing the motion.

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One remedy is obvious: Section 6304(c) states:  “For civil action for violation of this section, see section 7433.”  Section 7433 allows a suit in district court for actual damages sustained by a taxpayer for wrongful collection actions taken by IRS employees intentionally, recklessly, or negligetntly.  However, clearly, the Tax Court has no authority to issue damages judgments under section 7433. Further, there has never been a reported section 7433 district court suit involving an alleged violation of section 6304(a)(2), so we have no idea how actual damages would be calculated if such a suit were brought.

Frequent commentator Jason T. has posted a comment on the Godfrey I post taking issue with Keith and my belief that section 6304(a)(2) applies to an NOIL.  He cites three district court opinions or orders saying that section 7433, which applies “in connection with any collection of . . . tax”, cannot provide damages with respect to NOIL procedure violations, since an NOIL is not a collection action, but precedes collection.  By analogy, he thinks that section 6304(a)(2), which provides that the “Secretary may not communicate with a taxpayer in connection with the collection of any unpaid tax” should be read in pari materia with the somewhat similar language in section 7433 that these courts cited in holding that NOILs are not collection actions.  I am not sure I agree with the district courts about section 7433, and in none of the three cases had the IRS yet started collection, whereas in Ms. Godfrey’s case, the IRS eventually started levying (arguably as a result of the section 6304(a)(2) violation).  I also think that the better analogy to interpreting the words “the Secretary may not communicate with a taxpayer in connection with the collection of any unpaid tax” is to the words in the Fair Debt Collection Practices Act, 15 U.S.C. section 1692c(a)(2), that “a debt collector may not communicate with a consumer in connection with the collection of any debt” – the source of section 6304(a)(2)’s language. As noted by Keith there are court opinions saying notices, such as dunning letters, are communications in connection with the collection of any debt under that Act. For the purposes of the rest of this post, I ask the reader to just assume for now that the court would find a section 6304(a)(2) violation in a Godfrey-type case. The point of this post is only to explore what remedies there might be. Even if section 7433 might not be available, that is not the only possible remedy.

 

For example, does the Tax Court have any equitable remedies that it might apply that could put the taxpayer into the situation that she should have been in, but for the violation – i.e., having a CDP hearing?

 

There is actually precedent for the Tax Court to provide specific equitable remedies to violations of the Internal Revenue Code in CDP matters before the Court. In Zapara v. Commissioner, 124 T.C. 223 (2005), and 126 T.C. 215 (2006), aff’d 652 F.3d 1042 (9th Cir. 2011), in the course of a CDP hearing, the taxpayer asked that the Appeals Officer arrange for the sale of certain stock that had been subject to a jeopardy levy. Despite being obligated to honor the request within 60 days under section 6335(f), the IRS did not sell the stock, and the stock declined in value considerably.  In the CDP appeal in the Tax Court, the taxpayers successfully persuaded the court to direct the IRS to credit their account with the value of the stock on the date that the stock should have been sold under section 6335(f) (60 days after the request), and the court remanded the case to Appeals for a finding as to the appropriate credit.  124 T.C., at 238-243.  When the case returned from Appeals to the Tax Court, the IRS argued that the court had, in effect, granted damages to the taxpayers under section 7433 for unauthorized collection actions, even though the court lacked jurisdiction to make rulings under that section.  The court agreed with the IRS that it lacked jurisdiction to issue damages judgments under section 7433, but the court held that it possessed the inherent power to provide a specific equitable remedy to the taxpayer that would place the taxpayer back into the position the taxpayer would have been in, but for the violation.

If the Zapara holding were applied in the Godfrey-type situation, the IRS’ direct communication with the taxpayer without also communicating with counsel could be repaired by holding the period open to file a CDP hearing until counsel was served with the NOIL.  If that were to be done in the Godfrey-type case, the Form 12153 filing would have been timely.  If the letter denying the CDP hearing in response to the Form 12153 filed in Godfrey-type case were to be treated as a notice of determination, then the taxpayer in such a case – having filed in the Tax Court within 30 days of the letter’s issuance – should be entitled to Tax Court review of that failure to be given a CDP hearing.  Note that the Tax Court has held that the IRS’ erroneous letter treating an Appeals hearing as an “equivalent hearing”, when the Form 12153 had been timely filed to request a CDP hearing, should be treated as a notice of determination that can form the basis of Tax Court jurisdiction.  Craig v. Commissioner, 119 T.C. 252 (2002). And so the Tax Court, in the Godfrey-type situation, could remand the matter to Appeals to afford a CDP hearing, while retaining jurisdiction in the Tax Court to review any such “supplemental” notice of determination issued after the hearing.

This particular equitable remedy is similar to one that is afforded in New York state courts and administrative agencies. There, it is held that the time to file a petition in a court or agency is tolled until counsel is sent a notice by the agency where the agency had sent a notice directly to a person that the agency knew was represented by counsel, but had not at the same time sent the notice to the counsel.  Matter of Bianca v. Frank, 43 N.Y.2d 168 (1977) (30-day period with respect to notice proposing to dismiss police officer); Matter of Multi Trucking, Inc., TSB-D-88(8)C, 1988 N.Y. Tax LEXIS 331 (N.Y. Tax Appeals Tribunal 1988) (90-day period to contest franchise tax notices of deficiency); Matter of Hyatt Equities LLC, 2008 N.Y. Tax LEXIS 94 (N.Y. Tax Appeals Tribunal 2008) (90-day period to contest conciliation order denying sales tax refund claim).

The only issue I see about affording this specific equitable remedy (i.e., tolling the 30-day period to file for a CDP hearing until counsel is served with the NOIL) is whether the 30-day period is jurisdictional or otherwise not subject to equitable tolling. If the period is (1) jurisdictional or (2) non-jurisdictional, but otherwise not subject to equitable tolling, this remedy cannot be afforded.  This gets us into recent non-tax Supreme Court case law that I have discussed in posts within the last year on Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015), and Lippolis v. Commissioner, 143 T.C. No. 20 (Nov. 20, 2014).

Under current non-tax Supreme Court case law that was applied in those two lower-court tax opinions, time limits are quintessential “claims processing rules” that are no longer to be treated as jurisdictional, unless Congress provides a “clear indication” that it wants a time period to be jurisdictional. Henderson v. Shinseki, 131 S. Ct. 1197, 1203 (2011) (120-day period to file a petition in the Article I Court of Appeals for Veterans Claims held not jurisdictional). The separation of a time period from the actual jurisdictional grant, however slight, provides a strong indication that Congress did not want a time period to be jurisdictional. Id. at 1204-1205. See Gonzalez v. Thaler, 132 S. Ct. 641, 651 (2012) (“[m]ere proximity will not turn a rule that speaks in nonjurisdictional terms into a jurisdictional hurdle”); cf. Lippolis v. Commissioner, supra (holding that the $2 million disputed liability amount threshold at section 7623(b)(5)(B) in connection with a Tax Court whistleblower award suit under section 7623(b)(4) is not jurisdictional when the threshold is not contained within the jurisdictional grant paragraph – even though it is in the same subsection of the Code).

The provision giving Appeals jurisdiction to hold CDP hearings (even though the provision doesn’t use the word “jurisdiction”) is at section 6330(b)(1), which states: “If the person requests a hearing in writing under subsection (a)(3)(B) and states the ground for the requested hearing, such hearing shall be held by the Internal Revenue Service Office of Appeals.”  By contrast, the 30-day period to file for a CDP hearing is set out at section 6330(a)(2) and (3)(B) (twice), but that is in a different subsection from the jurisdictional grant.  Further, the jurisdictional grant does not contain any limiting language that the CDP hearing request be timely filed – something Congress could have included to give a “clear indication” that it intended the 30-day period to be jurisdictional. Compare Pollock v. Commissioner, 132 T.C. 21, 30 (2009) (holding 90-day period in which to file a stand-alone innocent spouse petition at section 6015(e)(1) is jurisdictional; “The most important point to notice is that the Code here actually uses the word ‘jurisdiction’ — giving us ‘jurisdiction’ if someone files her petition within the 90-day time limit. Statutes granting a court ‘jurisdiction’ if  [20] a case is filed by a stated deadline look more like jurisdictional time limits.”). So, it seems pretty clear that the 30-day period to request a CDP hearing is not jurisdictional.

It is also likely that the 30-day period is subject to equitable tolling. The 30-day period is much more like the simple one-year statute of limitations for filing for habeas relief in federal district court in death penalty cases discussed in Holland v. Florida, 560 U.S. 631 (2010) (Court found the one-year period subject to equitable tolling), than the complex periods under section 6511 to file a tax refund claim (already containing other numerous exceptions, including one, unusually, limiting the amount of the claim) that the Court held was not subject to equitable tolling in United States v. Brockamp, 519 U.S. 347 (1997). See Volpicelli v. United States, supra (relying on Holland and distinguishing Brockamp in finding that the simple 9-month period in which to file a wrongful levy suit is subject to equitable tolling).

Further, as will be discussed in the final post on Godfrey, there is legislative history that seems to provide that an NOIL that is not received in the 30-day time period can still belatedly give rise to a CDP hearing, even when the request is made outside the 30-day period. This is even broader than equitable tolling – strongly suggesting that Congress would have wanted the 30-day period to be subject to equitable tolling generally.

In sum, I see no reason why the Tax Court could not give the specific, tailored equitable relief for a section 6304(a)(2) violation that I noted above.

The third and final post on Godfrey will discuss whether an NOIL that is properly mailed to the taxpayer’s last known address, but that is not actually received by the taxpayer, can give rise to a CDP hearing when the request for such hearing is filed late. A regulation on which the Godfrey court relies says “no”, but I think that regulation is invalid. This is another argument that was belatedly made in the motion to vacate in the Godfrey case.