Designated Orders: 8/28/2017 – 9/1/2017

Professor Samantha Galvin of University of Denver Sturm College of Law brings us this week’s edition of Designated Orders. This week’s post looks at an order involving a Collection Due Process case and an order explaining the impact of sending a refund on the IRS’s subsequent ability to audit.  Keith

The Tax Court designated seven orders last week and three are discussed below. The designated orders not discussed are here, here, here and here.


Dictum in Greene-Thapedi Does Not Apply

Docket # 23295-14L, VK&S Industries v. C.I.R. (Order Here)

In this designated order the taxpayer petitioned the Tax Court on a notice of determination, however, the Court remanded the case to Appeals to review the liability pursuant to section 6330(c)(2)(B) which indicates that the petitioner did not have a prior opportunity to dispute the underlying liability for the tax year at issue. Following its review, Appeals issued a supplemented notice of determination which the Court also has the authority to review under section 6330(d)(1).

The Appeals’ review on remand resulted in adjustments which abated a portion of the tax due and generated a large refund that was then paid out to petitioner. As a result of there no longer being any tax amount due, the IRS (respondent) moved to dismiss the case on the ground of mootness relying upon Greene-Thapedi v. Commissioner, 126 T.C. 1.

The majority in Greene-Thapedi held that the Tax Court has no jurisdiction to determine an overpayment or order a refund in section 6330 cases, however, the Court stated (in dictum) that it might consider whether a taxpayer had paid more than what was owed in collection cases where the underlying liability was properly at issue pursuant to section 6330(c)(2)(B). Other cases citing Greene-Thapedi have been recently discussed by Procedurally Taxing here and here.

Petitioner objected to respondent’s motion on grounds that its case was distinguishable from the majority’s decision in Greene-Thapedi since it was not allowed to raise its underlying liability in its initial CDP hearing, even though it satisfied section 6330(c)(2)(B). This was because, even though petitioner’s liability was reviewed and abated in large part on remand, petitioner believed additional amounts should have been abated during Appeals’ review.

The Court granted respondent’s motion and dismissed the case, stating that since Appeals reviewed the underlying liability on remand and eliminated petitioner’s balance, the circumstances described in the dictum of Greene-Thapedi did not apply.

Take-away point:

  • The circumstances described in the Greene-Thapedi dictum could potentially apply in cases where a petitioner was not provided an opportunity to dispute the underlying liability but there is also still a balance due, however, this was not the position in which the petitioner in this case found itself.

Respondent’s Motion Given the Boot, Not Moot

Docket # 20779-16S, Brooks v. C.I.R. (Order Here)

Similar to the case discussed directly above, in this designated order respondent moved to dismiss the case, in part, on grounds of mootness because the taxpayer no longer owed a balance for 2003 which was one of two tax years at issue. This time, however, the balance was no longer owed because the collection statute had expired. The Court did not agree with respondent and denied the motion, because petitioner’s 2014 refund of $364 was applied to 2003 right before the collection statute expired. This meant it was possible that petitioner could still receive this refund because the issue before the Court was an innocent spouse determination, and the petitioner filed his petition within the requisite two-year period under section 6511(b)(2)(B). Whereas the Court in Greene-Thapedi held that it has no jurisdiction to find an overpayment (at least in some circumstances) under its CDP jurisdiction, the Court may determine an overpayment under its section 6015(e) stand-alone innocent spouse jurisdiction because that provision grants the Court jurisdiction “to determine the relief available to the individual under this section.”  Section 6015(g)(1) and (3) provide for the possibility of overpayments under subsections (b) or (f), but not under subsection (c).  See the recent opinion in Taft v. Commissioner, T.C. Memo. 2017-66 (finding an overpayment under subsection (b)), on which PT blogged on May 3, 2017 here.

The Court has jurisdiction to review innocent spouse relief claims de novo. During tax years 2003 and 2006, petitioner earned a larger portion of the income reported on the joint return he filed with his wife. Petitioner’s wife’s income was from a combination of social security benefits and income from other sources, however, she was relieved of all joint and several liability in a bankruptcy proceeding to which petitioner was not a party. As a result, petitioner was the only one still responsible for the entire balance. Over time, petitioner’s income decreased and he was diagnosed with serious health issues.

The Court analyzed whether or not petitioner was eligible for relief under section 6015(f), with the caveat that the facts assumed in the order were not findings for purposes of the trial and the facts were still petitioner’s burden to prove.

First, it stated that petitioner was not entitled to streamlined relief because he was still married to his wife. The Court then went on to look at the factors outlined in Revenue Procedure 2013-34 and suggested that three of the factors may weigh in favor of relief, namely: economic hardship, health problems and compliance with tax laws. It also stated that holding petitioner solely liable could create an inequitable result since petitioner’s wife discharged her joint and several liability in bankruptcy.

At the end of this designated order, Judge Gustafson said that the case would proceed to trial and requested that the parties show, at trial, what petitioner’s individual liability would have been had he filed separately from his wife.


  • In a subsequent, non-designated order issued on September 5, 2017 (here) the Court granted respondent’s motion to submit the case under rule 122 and the case was stricken for trial. In that non-designated order, petitioner stipulated to the amounts of his and his wife’s income in the years at issue. The Court ordered the parties to file a status report stating whether they wished to provide additional briefs, or rely solely on the information in the pretrial memoranda, prior to the Court making its decision.

Receiving a Refund Does Not Preclude a Deficiency

Docket # 26549-16S, Chambers v. C.I.R. (Order and Decision Here)

In this case the taxpayer petitioned the Court after she incorrectly claimed an excess net premium tax credit in tax year 2014.  The error arose because the taxpayer entered the annual totals listed on her Form 1095-A as monthly amounts into the tax software that she used to prepare her return. The IRS audited the return and later issued a notice of deficiency reflecting a $2,880 deficiency, which was the difference between the amount of net premium tax credit to which she was entitled of $120 and the net premium tax credit which she had mistakenly claimed of $3,000.

Petitioner did not make the argument that the deficiency amount was incorrect, but rather she argued that the IRS had “ample” time to correct any miscalculations prior to sending her a refund. As a result, she believed that the IRS should be precluded from determining a deficiency. She filed her return on March 9, 2015 and received the refund on April 13, 2015. She stated that in between this (very short by IRS standards) time her return was audited and that the IRS requested copies of the information she had entered, presumably her Form 1095-A.

The Court doesn’t comment on whether the IRS actually requested any information in between the date the return was filed and the date the refund was issued. Instead, the Court held that even if a return was audited before a refund was issued, it would not bind the IRS in the absence of a closing agreement, valid compromise or final adjudication.

Since the petitioner did not dispute the substantive determinations made in the notice of deficiency, respondent filed a motion for summary judgement under Rule 121.

The Court agreed there was no genuine dispute to material fact so it granted respondent’s motion for summary judgment and decided that the petitioner had a deficiency in income in the amount of the excess refund.

Take-away points:

  • We often have clients who desire to make similar arguments in the belief that the onus is on the IRS to determine that a refund is correct before it is issued. Unfortunately, these are not arguments that the IRS nor Court are willing to entertain. I presume this belief arises often among low-income clients since most refunds are spent immediately, and often on necessary living expenses, leaving the client in a very uncomfortable spot once the IRS demands that the amount be repaid.
  • In my experience, errors made by state healthcare exchanges have been the culprit of issues with premium tax credits, unfortunately in this case, the taxpayer was the one who got it wrong.



IRS Abandons Motion in Which It Asked the Tax Court to Elevate its Pleading Standard

We welcome back frequent guest blogger Carl Smith who is following up on his post from June about what must be said in a Tax Court pleading to get into the door of the Court.  Special thanks to Tax Notes for granting us permission to link to its article about the Spencer case.  We know that many of our readers do not have the ability to easily access Tax Notes and appreciate the willingness of Tax Notes to allow us to bring you its article on this topic.  Almost everything I write about starts by reading a case or link on Tax Notes.  It is an invaluable resource for me.

I encourage you again to look at the comments.  Frequent commenter, Bob Kamman, suggested that we adopt a weekly IRS Funny Papers post to complement our weekly designated orders post.  I responded to Bob when he suggested it that I was unsure if we would find enough material to make a weekly post.  He will soon show that my estimation of the number of goofs that qualify as funny paper material equals or exceeds enough for a weekly report.  The name for the column comes from the language used at the IRS in the 1970s, and beyond, to describe an action an employee might take with the regular injunction from the supervisor being “don’t do something that will get us in the funny papers.” Bob has posted, in the comments section of the blog, an interesting, if not amazing, piece of work at the IRS that definitely qualifies as funny paper material.  If you have seen or heard of funny paper material, please follow Bob’s lead.  We may add this as a weekly post. Keith

On August 24, in Spencer v. Commissioner, Tax Court Docket No. 8760-17W, the IRS, without explanation, asked the Tax Court to deny its own motion in a whistleblower case to dismiss the petition for failure to state a claim on which relief could be granted.  Spencer presents an interesting pleading quandary for whistleblowers – i.e., what to plead if one does not know if the IRS conducted an audit of the taxpayer based on the information the whistleblower supplied.  The motion to dismiss also asked the Tax Court to apply to the petition the higher pleading standard that has been adopted recently in the Supreme Court for suits brought in district court.  The motion did not acknowledge the potentially major shift in Tax Court pleading that it was, in effect, requesting. On August 25, acting on the IRS’ more recent request, the Tax Court denied the IRS’ motion to dismiss without issuing any order explaining its action.


In a recent post, I explained how the Tax Court has long applied the “notice pleading” rules of Conley v. Gibson, 335 U.S. 41 (1957).  Those rules allow a complaint (or, in the Tax Court’s case, a petition) to survive a motion to dismiss for failure to state a claim on which relief can be granted if the complaint contains a short and plain statement of the claim that will give the defendant fair notice of what the plaintiff’s claim is and the grounds upon which it rests “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief”. Id., at 45-47.  In my post, I pointed out that in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Supreme Court abandoned notice pleading for district court suits in favor of “plausibility pleading” – i.e., requiring the plaintiff to not merely plead legal conclusions, but to plead some plausible facts that might support the legal claim pleaded.  I also noted that the Tax Court has never issued any opinions citing Twombly or Iqbal, and that all but a handful of unpublished orders searchable on the court’s website seem to continue to apply notice pleading rules.  Only Judge Carluzzo has issued less than a handful of orders in which he has cited Twombly in deciding a motion to dismiss for failure to state a claim.  However, it is not clear from the citations that the judge was intending to change the pleading rules.  Rather, he seems to have cited Twombly merely for propositions that are compatible with Conley.  In my post, I also described what has been my seemingly one-man campaign to get the Tax Court to clearly state that it will not adopt the Twombly/Iqbal plausibility pleading rules – explaining both in an article and a letter to the Tax Court the many reasons for staying with notice pleading rules.

Spencer involves fairly simple facts:  A whistleblower supplied the IRS with information concerning unpaid tax and penalties totaling $7.3 million and sought a reward.  After two years, the IRS issued a letter to him saying that he was not entitled to an award because the IRS had taken no action based on the information provided.  Spencer then requested from the IRS certain information concerning his claim, including the ability to review his claim’s administrative file, but the IRS made no response.  Spencer then filed a Tax Court petition seeking review of the IRS denial, but he faced a quandary:  He had no idea whether or not the IRS had taken action against the taxpayer.

Tax Court Rule 33(b) provides that the signature of counsel or a party on pleadings constitutes a certification that, to the best of the signer’s knowledge, information, and belief, the pleading is well grounded in fact.  Spencer felt that he could not, in comporting with the rules, allege that the IRS took action against the taxpayer, so he pleaded a lack of knowledge on this issue, as follows:

Although the Commissioner’s denial letter states that the IRS took no action based on the information that Petitioner provided, Petitioner lacks sufficient information to confirm or disprove the accuracy of that assertion, and such information is in the exclusive possession of the Commissioner. . . .

Unless Petitioner is permitted to obtain discovery from the Commissioner, Petitioner has no means to obtain (within the time period when he may petition the Tax Court) information to confirm or disprove the IRS’ assertion that no action was taken based on Petitioner’s information.

Instead of filing an answer in the case, the IRS filed a motion to dismiss for failure to state a claim on which relief could be granted.  In the motion, the IRS argued that, without any allegation that it had taken administrative action against the taxpayer, the petition failed to state a claim.  The IRS also wrote:

In order to withstand a motion to dismiss for failure to state a claim, Petitioner must plead factual allegations sufficient to raise a right to relief above the speculative level. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (abrogating the Court’s plaintiff-deferential standard in Conley v. Gibson, 355 U.S. 41 (1957)). However, the Supreme Court has cautioned, it is not enough to make “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements…” Ashcroft v. Iqbal, 556 U.S. 662, 678 (citing Twombly at 555).

It is well settled that the elements of a whistleblower award under section 7623(b) require proof that respondent (1) initiated an administrative or judicial action against a taxpayer based on petitioner’s information and (2) collected tax proceeds from the target of that action based on such information. See Cooper v. Commissioner, 136 T.C. 597, 600 (2011) (Cooper II).

In a 25-page opposition to the motion, Spencer noted that the Tax Court had not yet adopted Twombly/Iqbal and cited both to my article on this subject and my letter to the Tax Court on this subject that I sent as a comment on the most recent proposed Tax Court rules changes.  Spencer made many of the arguments I had for the Tax Court’s not adopting Twombly/Iqbal.  (Spencer found these items of mine on his own.  I had no hand in drafting his response.)

More directly applicable to his case, Spencer noted the Tax Court’s opinion in Lippolis v. Commissioner, 143 T.C. 393 (2014), in which it held that the $2 million taxpayer amount in dispute limitation at section 7623(b)(5) was not a jurisdictional question, but an affirmative defense to be raised by the IRS, with the burden of proof being placed on the IRS, since it had the information, not the whistleblower.  Spencer wrote:  “Following the logic of Lippolis, the Court should determine that lack of IRS action and collected proceeds are affirmative defenses.  As such, Petitioner is not required to plead IRS action or collected proceeds in the Petition.”

Spencer also wrote:

Petitioner should not be required to rely on the IRS’ conclusory assertion that it, “took no action based on the information that you provided.” This assertion may simply be mistaken as to the facts. See Gonzalez v.  Comm’r, T.C. Memo. 2017-105, at 5 n.5 (“Contrary to the statement in the final determination, the record reflects that the IRS collected tax proceeds from taxpayer 1 as a result of the information that petitioner provided to the Whistleblower Office”).

Spencer asked for time to do a little discovery of the IRS on the administrative action issue.  Then, he would either concede the case, or, if (1) the IRS still maintained there was no administrative action, (2) Spencer disagreed, and (3) the IRS wanted to dispense with the case before a trial, then the IRS could move for summary judgment.

In filing short papers replying to Spencer’s opposition, the IRS chose not to argue any legal points.  It merely wrote:

5. Subsequent to the filing of the motion to dismiss and petitioner’s response, respondent has determined that petitioner has stated a justiciable claim consistent with the requirements of Tax Court Rule 341(b).

6. Accordingly, without conceding the correctness of the claim, petitioner has stated a claim upon which relief can be granted.


It appears that a whistleblower case may be the most likely one in which the Tax Court will wade into the issue of the proper pleading standard for a motion to dismiss for failure to state a claim – unless the Tax Court places on the IRS the burden of pleading and proving a number of requirements of section 7623(b).  It is too bad that Spencer will not be the test case for this issue.

For more observations on whistleblower cases (including, specifically, Spencer) and the pleading issue, you can read here Andrew Velarde’s excellent article “Tax Court Pleading Standard Suffers From Lack of Clarity”, Tax Notes, July 10, 2017, pp. 156-160, to which Tax Analysts, Inc. has graciously authorized PT to link.  Mr. Velarde makes many original observations besides quoting both me and Prof. Steve Johnson.



Designated Orders: August 14 – 18. On IRS Records and Liability Issues in a CDP Hearing

This week’s designated post was prepared by Caleb Smith, the director of the low income taxpayer clinic at the University of Minnesota.  Keith

There were five designated orders last week. Although none broke especially new ground, when looked at in conjunction three of them provide contours to important issues: namely, (1) when does an attack on the procedures of the underlying tax become an attack on the underlying liability itself in a CDP hearing? (IRC § 6030(c)(1) vs. IRC § 6030(c)(2)(B)) And (2) just how bad does the IRS record have to be before it is considered unreliable (e.g. for evidence of proper mailing)? We will take these issues in order.


Collection Due Process Hearings: Are You Arguing the Merits of the Liability or the Procedure Leading to It?

The simple answer would seem to be “if you are arguing merits, it is (c)(2)(B), if you are arguing procedure it is (c)(1).” Sometimes this is an easy decision for the Court: in one designated order last week (found here), Judge Carluzzo found an impermissible merits argument where the taxpayer was arguing that his amended return should be considered in the hearing.

Unfortunately, I’m not so sure the difference is always so easily delineated. For instance, what is a taxpayer arguing when they say “I don’t owe 2010 taxes?” It may be “I disagree with the IRS calculation for my 2010 liability” (merits) or it may be “I disagree with the IRS records of my owing 2010 taxes” (procedure). Context clearly matters.  In a previously discussed designated order a pro se taxpayer made essentially that argument (“I don’t owe”). The Tax Court found the IRS records so shoddy on that point as to be insufficient. That is all well, and seems to be a procedure issue… EXCEPT that the order compelled the IRS to explain the REASONS for the assessment, not if the proper assessment procedures were followed. This seems to be plainly a merits issue, unless the assessment is either so arbitrary as to offend the APA (which maybe applies?) or there was no “determination” in the SNOD per Scar.

So, to return to the question slightly altered, what is a taxpayer arguing when they say “I don’t owe because of procedural anomalies?” This, more or less, is a distillation of what the taxpayer was arguing in one of last week’s designated orders: Huminski v. C.I.R., docket no. 16614-16L (here). Sounds distinctly procedural (perhaps that is tipped by using the word “procedural”?) Yet the court finds this (in conjunction with numerous other tax-protestor type arguments) to be an argument on the merits (c)(2)(B) and therefore disallowed because the taxpayer clearly received the SNOD. In fact, Judge Armen mentions numerous times that he is somewhat surprised (or that it is “notable”) that the taxpayer does NOT raise arguments about the income resulting in the liability: see pgs 3, 7, and 10 of the order. Nonetheless, Judge Armen says that the taxpayer “couches his argument in terms of the invalidity of the assessment” (procedure) but really is attacking the liability (merits). Again, context matters in determining if it is a (c)(1) or (c)(2)(B) style argument. The thrust of the taxpayers argument -to the extent that a coherent one can be discerned- appears to be that an SFR is not a valid return (in fact, is fraud perpetrated by the IRS) since it lacks the taxpayer’s signature and consent. This, I think, is an excellent example of where merits and procedure blur: likely merits if it is whether SFRs are invalid per se, procedure if it is arguing that the particular SFR protocols were not followed.

In this case the outcome likely would be the same whether the Tax Court treats it as a (c)(1) or (c)(2)(B) attack… but that may not always be true. A taxpayer arguing that procedures weren’t followed puts those procedures squarely at issue, and appears to require a “harder look” from the Court. Conversely, one that (impermissibly) argues merits without raising the procedural issue will likely lose based on the boilerplate IRS settlement officer “verification that applicable law and procedure have been met” with a summarily produced Form 4340. In other words, a proper procedure argument may require something of a look behind the Form 4340, whereas a merits argument may not. And looking into the IRS records (or lack thereof) more and more appears to be a winning approach… See previous post here.

So how bad can the IRS records be to prove mailing? Bentley v. C.I.R., Docket # 20337-16S (found here).

Where the IRS fails to send mail certified, they put themselves in serious peril for proving delivery date. (See post here, finding jurisdiction for a CDP appeal because the timeliness could not be determined from the IRS records.) In Bentley, however, the IRS did use certified mail and it ended up making all the difference.

The facts are commonplace: the IRS sent duplicate SNODs to the taxpayer (including, it appears, to their last known address). The taxpayers filed a petition in tax court a few months after the filing deadline had passed, and the IRS moved to dismiss for lack of jurisdiction. Very straightforward. In addition to very clear loser-arguments (“the SNOD refers to Form 1040A rather than Form 1040”), the taxpayers argue that the SNOD was not mailed in accordance with the proper procedures -not, in fact, that it wasn’t mailed to last known address, but that per Knudsen v. C.I.R., the record wasn’t sufficient to show that the SNOD was properly mailed. In fact, the taxpayer’s have a decent argument that the IRS certified mail list is not sterling, and Judge Armen notes that it is “less than ideal” in that it: (1) doesn’t indicate that the items of mail were SNODs and (2) has mismatched years for the mailing: one list as 2015, and the other as 2016. Nevertheless, the IRS prevails. This is largely because of the USPS tracking information that corroborates the mailing of the SNODs. Thus, “even if [the IRS] failed to comply with certain provisions of the Internal Revenue Manual […] the defects asserted by petitioners are not so substantial” as to render the IRS certified mail list unreliable. That there doesn’t even appear to be an argument from petitioners that the SNOD was sent to the wrong last known address probably makes this an easier case. Nonetheless, it is yet another example of the anomalies that seem to surface whenever one puts IRS records at issue.

Remaining Designated Orders: ESOPs and Pro Se Appeals

I will not go into detail on an order granting summary judgment to the IRS on the question of whether a particular ESOP was a qualified plan under IRC § 401(a). Those interested in such subject matter can find the order here.

The last designated order (found here) that I will give only passing mention involves the Tax Court working with a Pro se taxpayer. It is interesting as a glimpse into the world of the Tax Court working with the unrepresented (in this case, construing a 10 page letter to the Tax Court as a notice of appeal). It is difficult to say from the record available whether this party would have benefitted from (or been receptive to) counsel: the bench opinion issued in November of 2016 indicates that the taxpayer believed he was “targeted” by the IRS and was unwilling to file delinquent tax returns. Read in context it may be seen as a testament to the professionalism and patience of many Tax Court judges, going the extra mile to be fair to those without legal training when they exercise their day in court.


Tax Court Exercises Equity to Allow Late Rollover of IRA

At procedurallytaxing we generally discuss things that happened a week or two or three ago.  Sometimes, we take even longer.  The case of Trimmer v. Commissioner, 148 T.C. No. 14 (April 20, 2017) came out four months ago.  It deserves attention if you have not yet seen it.

When the case came out, I was very excited not just for the Trimmers but because this case was tried by the Fordham Tax Clinic.  The students, Amanda Katlowitz, Ravi Patel, and Regina Yoon, together with their director, Elizabeth Maresca, did an outstanding job in winning an equitably compelling case but a difficult one which resulted in a precedential opinion from the Tax Court.  The Court declares by making the case precedential that it breaks new ground.  It provides good news for taxpayers who fail to timely roll over their IRAs and perhaps good news for taxpayers in other circumstances who have a good equitable argument.  Because of changes in the way that individuals who fail to timely roll over their IRA may remedy the problem as we discussed here, I hope that most of these cases get resolved administratively going forward, but that does not diminish the importance of this victory.


The IRS determined that the Trimmers had a deficiency of $37,918 in 2011 for pulling funds out of an IRA and failing to timely roll it over to another qualifying account.  Mrs. Trimmer is a school teacher and Mr. Trimmer, age 47, was a recently retired police officer.  They have two sons who were not too far from college.  A tax hit of this amount would have been devastating to their financial well-being.

When Mr. Trimmer retired from the New York police force he anticipated continuing to work and had lined up a job at the New York Stock Exchange as a security guard.  After he retired and just before he was to begin work, the NYSE job fell through.  The loss of this job and his inability to quickly find another one sent him into a tailspin and he “began experiencing symptoms of a major depressive disorder.”  The Court details other symptoms but the one that relates to this case involves the receipt of distributions from his New York City retirement accounts.  He received checks for $99,990 and $1,680 and these checks sat on his dresser for a month before he deposited them in the family joint bank account – but not a retirement account.  Mrs. Trimmer thought/hoped that Mr. Trimmer was properly dealing with the retirement funds.

Mr. Trimmer was also the person who normally took care of getting the family tax return prepared.  Unfortunately, his depression caused him to delay the task.  Eventually, he went to their preparer who took note of the 1099-R detailing the distribution and told him to put the money into an IRA.  Mr. Trimmer did so the following month but by that time more than 60 days had elapsed.  The funds simply sat on his dresser or in the joint bank account until moved to the IRA.  The preparer filled out the return as if a proper rollover had occurred and may not have known of the timing issues.  The IRS did notice the timing of the rollover eventually, however, and sent the Trimmers a notice of proposed changes.

Mr. Trimmer wrote to the IRS and explained what had happened and how his post NYPD depression had impacted the timing of the rollover.  The IRS summarily denied the request for relief and did not mention the ability of the IRS to grant hardship waivers.  A notice of deficiency and Tax Court petition followed.  The Trimmers argued that they qualified for a hardship waiver under IRC 402(c)(3)(B) because “his failure to make timely rollovers was caused by his major depressive disorder during the relevant period.”  The IRS argued that the Trimmers did not qualify because they failed to “apply for relief pursuant to the terms of Rev. Proc. 2003-16.”  The IRS next argued that “there has been no final administrative determination denying petitioners relief, and that even if there had been, it would not be subject to judicial review.”  The IRS also argued that its refusal to grant him relief during the audit process was not an abuse of discretion.

The Court pointed out that the IRS had supplemented Rev. Proc. 2003-16 with Rev. Proc. 2016-47 discussed in our prior blog post.  The 2016 Rev. Proc. provides that the IRS “may determine that the taxpayer qualifies for a waiver of the 60-day rollover requirement under section 402.”  The 2016 Rev. Proc. has an effective date of August 24, 2016.  The IRS argued that the 2016 Rev. Proc. was not issued when the IRS examined the Trimmers’ 2011 return and the examiners had no authority to make a determination.

The Court does not buy this argument pointing out that nothing in Rev. Proc. 2003-16 or IRC 402(c)(3)(B) limits or constrains an examiners ability to find hardship during an examination whereas IRM in effect during the examination of the Trimmers’ return stated: Examiners are given the authority to recommend the proper disposition of all identified issues, as well as an issues raised by the taxpayer.”  The Court found that the 2016 Rev. Proc. did not create new authority but made clear the existence of that authority.  The Court looked at the way the IRS behaved during the examination and found that it did not deny relief because it could not make a determination but rather denied relief summarily without pointing to the statute or the then applicable Rev. Proc.

The IRS pointed to several earlier memorandum decisions of the Tax Court declining to consider equitable relief.  The Court responds that these cases did not involve any administrative request for hardship waiver through a private letter ruling or during the examination.  Mr. Trimmer did request administrative relief during the examination.  So, the Court finds the IRS did have the authority to consider the hardship request made during the examination and made a final determination to deny relief.

Having made that determination, the Court then moved on to its own review of the denial.  The IRS argued that the Tax Court did not have the authority to review the waiver denial as a part of a deficiency case.  The Court finds that the claim for a waiver here goes to the heart of the proposed deficiency.  It points to the “strong presumption that an act of administrative discretion is subject to judicial review” and that “agency action is only exempt from judicial review where the governing statues expressly preclude review or where the action is committed to agency discretion by law.”  Nothing in the applicable statute expressly precludes judicial review and the procedures for judicial review logically apply here.  So, the Court finds that it has jurisdiction to review the denial of the hardship waiver.  The appropriate standard for review is abuse of discretion.

The Court next addressed the IRS motion in limine objecting to the expert witness offered by the Trimmers.  A motion in limine is usually filed by a party to obtain a ruling in advance of trial so that the party might know how to proceed during the trial.  Having the decision on the motion appear in the opinion limits some of its usefulness and makes the determination more like the ordinary determination of the value of an expert witnesses testimony.  Nonetheless, the IRS seeks here before, during or after the trial to limit the value of the Trimmers’ expert witness. In deciding what to do with this testimony, the Court goes through the usual rules applied to allowing expert testimony.  The Court finds the expert’s testimony relevant, that she is qualified as an expert and reliable.  On the issue of reliability, the IRS argued that she did not observe Mr. Trimmer while he was going through the period of alleged depression.  This issue of timing comes up regularly when parties seek an expert in IRC 6511(h) cases.  It would be convenient if people experience life problems would go to a qualified expert at the start of their problems but all too often the problems also prevent the person from seeking timely treatment.  Here, the Court became comfortable that the expert used the proper technique to put the pieces together after the fact and it found that her expert testimony was supported by the credible testimony of the other three family witnesses who, although not experts, observed and lived through Mr. Trimmer’s period of incapacity.

The IRS had other problems with the expert including her alleged violation of state law because of her licensure (she was not treating him), the late submission of the expert report 22 days before trial instead of 30 (the Court cut the academic clinic a break), the use of an assistant in preparing the report (permitted under Court rules),  the lack of a statement of compensation (she did it pro bono), the failure to list her publications (these were on an attached CV) and the failure to list other cases in which she testified as an expert (there were none to list.)  So, the Court denied the motion in limine and admitted the expert’s testimony leaving still the determination of whether the IRS abused its discretion in denying the waiver.

The Court carefully examined the phrase equity and good conscience.  It found that the applicable statute giving the IRS authority to grant a waiver where taxpayers had missed the statutory time period for rollovers reflected “a broad and flexible concept of fairness, by providing a non-exhaustive list of situations that might satisfy the general standard.”  The Court listed the four objective factors to be used in making this evaluation.  Looking at those factors it determined that the one did not apply (a failure by a financial institution which frequently occurs in rollover cases), two were favorable to the Trimmers (their lack of use of the funds and the prompt rollover after the return preparer pointed out the problem) which left the factor of the inability to complete the timely rollover.  On this point the Court found that Mr. Trimmer’s failure resulted from a disability which materially impacted his ability to function.  The Court noted that it reviewed a number of private letter rulings and determined that its decision here was consistent with the rulings made by the IRS.

The case represents a great victory for the Trimmers and others who might seek equity in the Tax Court.  I must confess I am jealous of the success of the Fordham clinic since my clinic’s efforts at equitable results have not met with the same success.  The case is cause for continuing to try as well as for celebrating a victory of justice.


Designated Orders: 8/7/17 to 8/11/2017 and Update on Yesterday’s Post

This week’s post on designated orders was written by William Schmidt the LITC Director for Kansas Legal Services. 

Before I turn you over to this week’s orders, for the second day in a row I want to pass out additional information about the prior day’s post.  As with the additional information yesterday, an alert reader found pertinent information that will add to your understanding of the case.  As we were filing the blog post yesterday, the debtor’s attorney was filing a joint stipulation of dismissal of the Pendergraft 505(a) litigation.  If you remember the case, the debtor sought to litigate her status as an innocent spouse in bankruptcy court.  The IRS objected and the bankruptcy court essentially said that it could hear the case but first she needed to make an administrative request to the IRS asking that it grant her innocent spouse status.  She did what the court requested, almost always a good idea, and the IRS has given her a preliminary indication that it intends to deny her request.  I believe her attorney is concerned that if he passes on the chance to litigate the innocent spouse issue in Tax Court, the IRS may appeal the decision of the bankruptcy judge and he could lose the opportunity in both venues.  So, he is taking the safe route but also a route that will keep us from learning how higher courts would view this jurisdictional issue.  Keith

There were 5 designated orders this week and they made up a mixed bag.  The group includes a woman trying to convince the Court she was not part of a partnership despite prior history of stating otherwise, a man whose mail history will decide his tax liability, assistance for a petitioner regarding discovery, and summary judgments in Collection Due Process (“CDP”) cases.

Is She a Partner or Not?

Docket # 20872-07 & 6268-08, Derringer Trading, LLC, Jetstream Limited, Tax Matters Partner, et al, v. C.I.R. (Order Here)

For a Chicago trial set this month, the subject matter is a partnership-level proceeding under the TEFRA unified audit and litigation procedures.  The partnership and the years in question is Derringer Trading, LLC, for 2003 and 2004.  Leila Verde, LLC, was a partner of Derringer during those years.  The parties disagreed whether Susan Hartigan was a member of Leila Verde.  Michael Hartigan (Susan’s estranged husband) represented her as the ultimate owner of Leila Verde, the IRS position was that she was the 99% owner of Lelia Verde during 2003 and 2004 while Mrs. Hartigan filed a memo supporting her position that she was not a partner of Leila Verde at all.  The Court held an evidentiary hearing on Mrs. Hartigan’s status.

Following a recounting of the evidence regarding the financial history of the Hartigans, the Court looked at three doctrines and concluded that Mrs. Hartigan is a partner of Leila Verde.  Under the duty of consistency, Mrs. Hartigan previously asserted she was a partner of Leila Verde in prior courts, a joint tax return and in a bankruptcy case.  Using analysis from the tax benefit rule, changing her status would provide a windfall to Mrs. Hartigan, which the rule was designed to prevent.  Under judicial estoppel, Mrs. Hartigan took the position in prior courts that she was a partner of Leila Verde in an affidavit and other assertions, which she would now be estopped from asserting an opposite position against her prior judicial benefit.  Her statute of frauds argument that the Leila Verde Purchase Agreement was invalid was misplaced for the TEFRA proceeding.

The Court notes that Mrs. Hartigan’s allegations of Mr. Hartigan forcing her to make the Leila Verde purchase through “deception, abuse, manipulation, exploitation and domination” would be better suited for an innocent spouse partner-level proceeding after the TEFRA proceeding.

Takeaway:  Be consistent in your court testimony!

What Is His Last Known Address?

Docket # 22293-16, Nathanael L. Kenan v. C.I.R. (Order Here)

Mr. Kenan filed his 2011 tax return from his address on Ivanhoe Lane in Southfield, Michigan.  Mr. Kenan alleges that he moved to a new address, Franklin Hills Drive, in Southfield prior to February 2013 and notified the U.S. Postal Service regarding his change of address.  The IRS mailed a statutory notice of deficiency (“SNOD”) to the original address on February 19, 2013.    Mr. Kenan filed his 2012 tax return from the second address and does not allege he gave the IRS a change of address between filing his tax returns.

Since Mr. Kenan did not file a Tax Court petition to respond to the SNOD, the IRS garnished his wages, levied his bank account, and applied his 2012 refund to his 2011 liability.  The activity prompted him to contact the National Taxpayer Advocate, who Mr. Kenan alleges advised him to file a Tax Court petition.  The petition states he did not receive the SNOD, having moved with no SNOD being forwarded to the new address so he argues no SNOD was ever mailed at all.

Should the SNOD have been mailed correctly, the Tax Court would dismiss Mr. Kenan’s petition for lack of jurisdiction for timeliness.  If the SNOD was not correctly mailed, the dismissal would be based on an invalid tax assessment.  The Court denied the IRS motion to dismiss for lack of jurisdiction in order to proceed to trial, where Mr. Kenan has the burden of proof regarding his timeline of the facts.

Takeaway:  The IRS is required to update their addresses based on U.S. Postal Service Change of Address notifications.  The address the IRS uses to mail their notifications is influential to determine jurisdiction for Tax Court.

Odds and Ends

Docket # 30295-15, Joseph H. Hunt v. C.I.R. (Order Here)

  • Judge Cohen provides some relief regarding discovery for Mr. Hunt:  “It appears to the Court that the interrogatories, with multiple pages of convoluted instructions and definitions served on an unrepresented taxpayer, are excessive under Rule 71(a) and should be limited under Rule 70(c), Tax Court Rules of Practice and Procedure.”

Docket # 21360-16L, Mushfaquzzaman Khan & Bushra Khan v. C.I.R. (Order & Decision Here)

  • Petitioners failed to respond to an IRS motion for summary judgment regarding a lien collecting on a 2014 tax liability and the Court granted the IRS motion.  Takeaway:  The Tax Court is not authorized to review a taxpayer’s underlying liability when that issue is raised for the first time on appeal of a notice of determination.

Docket # 13479-15L, Michael Horwitz & Judith A. Horwitz v. C.I.R. (Order & Decision Here)

  • In another CDP hearing, the petitioners did respond to the IRS motion for summary judgment, but the motion was still granted in favor of the IRS.  Petitioners previously did not file requested tax returns or the Form 433-A financial statement and did not receive an installment agreement.  Takeaway:  It is necessary to respond to IRS requests in a timely fashion.  Failure to provide the 433-A means no installment agreement with the IRS.


Designated Orders: July 17 – 21 or What’s Happening with 6751?

For those concerned that the summer doldrums are set to descend upon the United States Tax Court, take comfort in knowing that there were six designated orders issued last week. Nevertheless, this post will be fairly short: four of the designated orders will be given no scrutiny (caption change here, motion to withdraw here, correction of a division opinion typo here, and request for legal memorandum here). Only passing mention will be given to one other: the bulk will be devoted to one potentially consequential order dealing with supervisory approval of penalties post-Chai.


After beginning the post by saying that I will essentially ignore five of six designated orders last week, it may be appropriate to explain why designated orders remain an important source of information. To quote a designated order that was issued just last week (found here), it is wise to keep on top of the orders because even though they are not precedential they “may be helpful to the parties in showing the […] judge’s thinking[.]” I couldn’t help but feel validated by Judge Gustafson as he suggested that counsel review past orders on the subject at hand…

A Ripple in Chai… Can the IRS (Still) Just Go Through the Motions?Jaggers v. C.I.R., Dk. # 21873-16 L (found here)

This is a pro se case with what may well involve tax-protester type arguments (it arises from penalties pertaining to frivolous tax submissions). But if there is one thing I have seen again and again in the designated orders I’ve reviewed, it is that the IRS just “goes through the motions” (especially in a CDP context and especially on a motion for summary judgment) the Court is asking questions. The Court takes review of the record seriously: when the IRS says “trust us,” the Court responds “show me.” See, for example, last month’s post designated orders on prior mailing dates and assessment issues here. The following designated order follows this trend, but more importantly brings the requirements of supervisory approval of penalties post-Chai into focus.

Much has been said about how the Tax Court has responded to Chai (see here, here and here). Here, we have an order that provides yet another glimpse into how the emerging importance of IRC 6751 interfaces with somewhat perfunctory IRS procedures. After a CDP hearing, the IRS routinely issues a Notice of Determination containing the boilerplate that Appeals “has verified that the requirements of any applicable law or administrative procedure have been met.” Usually this “verification” statement isn’t different from a conclusory statement of law, and essentially tracks the statutory language verbatim (see IRC 6330(c)(1)). A question may arise as to whether that statement is good enough, or if something more (say, for instance, providing specific facts) that they took the necessary steps to verify needed? When IRC 6751 is at play, even without the petitioner challenging the statement the answer may be “we need more.”

Judge Gustafson notes that the IRS does not specifically mention or reference the supervisory approval needed under IRC 6751 for the penalties at hand anywhere in the Notice of Determination or the motion for summary judgment. This is troubling to Judge Gustafson, and he further notes that the IRS has the burden of production on penalties (IRC 7491(c)). Thus, Judge Gustafson orders that the IRS address that issue by either (1) remanding to Appeals to get verification needed on the approval of the penalties, (2) providing greater detail on why it doesn’t need to get verification to prevail with the facts it currently has, or (3) conceding the penalties. Since the order was issued, the IRS appears to have gone the route of trying to get verification of approval of the penalties: the case has been remanded to Appeals (order here).

As mentioned in the intro to this week’s post, designated orders (and orders in general) are important for providing a glimpse into the judge’s way of thinking. For an emerging issue like supervisory approval post-Chai, this is doubly important because different judges seem to have very different approaches. (A very grateful “tip of the hat” to frequent guest blogger Carl Smith for providing insight on this issue.) Some appear to have no problem with the IRS failing to verify the supervisory approval if the taxpayer did not specifically bring it up, as the issue is then deemed conceded. These judges would appear to include Panuthos (case here) and Lauber (case here). Others, however, put the onus on the IRS to show that IRC 6330(c)(3) was followed by showing supervisory approval (see order from Judge Leyden here). Note that Judge Lauber’s decision also arises in the CDP context such that IRC 6330(c)(3) would apply. There may well be another designated order issued just this week (to be blogged on next week) that could provide more insight on a developing split, if there is one…

Lastly, it is also important to note that this designated order is helpful for practitioners in that it references the governing IRM (IRM for frivolous submission penalties) and IRS form that supervisory approval should be found (i.e. Form 8278). Knowing the IRS Form that is at issue is extremely helpful when making both FOIA and informal requests for documents from the IRS.



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

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

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

Language Barrier Does Not Prevent NFTL Filing

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

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


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

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

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

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

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

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

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

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

Take-away points:

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

Pro Se Petitioner Attempts to Recover Costs

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

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

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

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

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

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

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

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

Take-away points:

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

Whistleblowers Should Act Early to Protect Anonymity

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

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

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

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

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

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

Take-away points and interesting information:

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


Designated Orders: 6/26 – 6/30/2017

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

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


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

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

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

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


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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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