Designated Orders: 11/27/17 to 12/1/2017

Today we welcome back regular designated order blogger William Schmidt who writes about last week’s designated orders. As usual, some of the orders present interesting situations and some seem rather routine making us wonder why the court designated them. Keith

This week there were five orders. This post will not discuss an order for Petitioner to respond to the Respondent’s motion for summary judgment (Order Here). The discussion today starts with an unfortunate situation for a taxpayer receiving the premium tax credit who experiences a large income recognition event during the tax year which knocks them out of the income range for qualification for the credit. The second cases discussed involves the uncertainty created by a bankruptcy discharge and the taxpayer’s desire for a more definite statement concerning what she has received. The discussed of these two orders is followed by a comparison of two orders involving summary judgment in the CDP context. These cases do not present surprising results.


Affordable Care Act Overpayment Results in Liability

Docket # 14362-16, Juanita P. Morgan v. C.I.R. (Order Here).

This is a bench opinion, authorized under IRC section 7459(b). Tax Court practice is to read a bench opinion into the record, wait to receive the printed transcript weeks later, then issue an order serving the written copies of the transcripts to the parties.

Ms. Morgan received a notice that she did not have the minimum required health insurance for the Affordable Care Act. When she signed up for health insurance, she was eligible for an advance premium assistance credit (based on her household income) of $770 per month to be applied to her monthly health insurance premium. The credit was applied to the premiums from April 2014 to December 2014, totaling $6,930 for the year.

In order to help family members with financial assistance, Ms. Morgan took a withdrawal without penalty from a retirement account. The gross distributions totaled $36,408. When filing her tax return, Ms. Morgan reported adjusted gross income of $49,282. Because of the retirement account withdrawal, Ms. Morgan’s income exceeded the premium assistance credit eligibility threshold. Eventually, the IRS issued a Notice of Deficiency for the disallowed $6,930 credit and Ms. Morgan filed a timely petition with the Tax Court.

As Ms. Morgan’s household income was in excess of the threshold regarding the credit, she was not entitled to the credit she received. While the Tax Court stated sympathy for her situation, she was still liable for the $6,930 deficiency.

Takeaway: The statute is clear that income exceeding 400 percent of the federal poverty line is not eligible for the premium assistance credit eligibility threshold, meaning excess tax credit payments are treated as a tax increase, resulting in a tax liability equal to the original credit amount paid. Withdrawing funds from an IRA is one of several ways that low income taxpayers can fall into a trap when they have a large taxable event. Other ways include a lump sum distribution of social security benefits typical when someone obtains disability status after a two or three year delay in obtaining the award, cancellation of indebtedness income, or a judgment in a consumer lawsuit or other suit not stemming from personal injuries or compensation for lost property. Were Congress to amend the system to improve it, consideration of providing some type of income averaging for these situations where a lump sum taxable event that relates to events essentially beyond the taxpayer’s control could save individuals in this situation from owing a tax liability that many times is beyond their control.

Yes, Virginia, Tax Liability May Be Discharged in Bankruptcy Court

Docket # 3719-16, Marjorie E. Davis, Petitioner, and Lee A. Davis, Intervenor v. C.I.R. (Order of Dismissal Here).

Ms. Davis filed a petition with the Tax Court to review the IRS denial of innocent spouse relief for her regarding tax years 2001 and 2003-2010. The IRS filed a motion to dismiss on grounds of mootness.

Ms. Davis’s liability for the years at issue was previously discharged in the United States Bankruptcy Court for the Western District of North Carolina. Respondent asserts that the tax years have been adjusted to show that no tax, interest or penalties are due.

Petitioner and Intervenor did not object to the granting of the motion. However, Petitioner was unwilling to sign a decision document that did not expressly grant relief pursuant to IRC section 6015, innocent spouse relief. The Court granted the IRS motion. One problem for petitioners such as Ms. Davis stems from the way a bankruptcy discharge operates. It combines a written order granting the discharge which says nothing specific about exactly what the order accomplishes with the operation of law. Many individuals, and Ms. Davis seems to fit this characterization, want a discharge order that lists every debt discharged as a result of the order. Since the bankruptcy court does not provide such a document, they lack a statement that provides them with the comfort they seek. In bringing this Tax Court action requesting innocent spouse relief, at least she achieves a higher level of comfort because the Tax Court dismisses her case based on the impact of the bankruptcy discharge. Because she refused the sign the decision document, one suspects that she has still not reached her comfort level with the impact of the discharge. It is hard to know if the problem here is her fear of the unknown or her bankruptcy lawyer’s inability to properly explain the operation of law.

Takeaway: For those who don’t believe in Santa Claus or the ability to deal with tax liability in bankruptcy, we want you to know that at least one of those is real. While this blog post will not delve into the mechanics of the requirements for discharging tax liability in bankruptcy court, a bankruptcy discharge can relieve a taxpayer of many tax liabilities providing the individual with a nice seasonal present. 

Non-Compliance Leads to IRS Summary Judgments

Docket # 7428-17 L, Leslie D. Rasmussen v. C.I.R. (Order and Decision Here).

Ms. Rasmussen did not file her 2011 or 2012 tax returns. The IRS filed substitute returns and issued notices of deficiency to her. The IRS issued notices of intent to seize her assets on the liabilities for the two years, which aggregated close to $50,000. She timely submitted Form 12153, Request for a Collection Due Process or Equivalent Hearing, selecting the box for “I Cannot Pay Balance” and stating, “A levy would cause a severe financial hardship and the taxpayer would like to preserve her rights to tax court.”

The IRS settlement officer scheduled a telephone conference and submitted requests for a completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, with supporting documentation for income, assets and expenses within 14 days and proof of estimated tax payments paid for the prior year to be provided within 21 days.

Petitioner’s representative during the telephone conference inquired about a streamlined installment agreement and was informed it would be $669 per month with Petitioner making 2016 estimated tax payments. No documents were provided by the deadlines. The representative’s follow-up message stated that he had not received documents or talked to the Petitioner.

In her Tax Court petition, Ms. Rasmussen states her disagreement with the Notice of Determination issued: “Because I failed to submit documentation because of family matters. There wasn’t enough information to base decision on. Also, once I figure taxes for 2016, I anticipate a refund on loss of farming.”

The Court concluded that Petitioner did not provide the required documents, there was no issue of material fact, and granted the IRS motion for summary judgment.

Docket # 22154-16SL, Brenda Ann Dixon v. C.I.R. (Order and Decision Here).

Ms. Dixon received an IRS notice of intent to levy for tax years 2010, 2011, and 2013. She timely requested an appeal. With that, she requested an offer in compromise and stated her 2011 tax liability should be reduced since she filed an original tax return to replace the substitute return the IRS filed as her 2011 tax return. She did not dispute the 2010 and 2013 tax liabilities.

The appeals officer scheduled a telephone hearing and requested Ms. Dixon submit a completed Form 433-A within 14 days of the letter, a signed 2014 tax return within 21 days, and a completed Form 656, Offer in Compromise (with fees) within 14 days. The 2014 tax return was past due by more than one year. They held the telephone hearing but Ms. Dixon did not supply the requested documents. The Settlement Officer sustained the imposition of the levy.

In her Tax Court petition, Ms. Dixon states she “believe[s] that a fair determination could not be made within a telephone conversation,” and that she “want[s] to comply with tax requirements and [she has] fallen behind due to keeping up with [her] health and work.” She also stated that “[r]espondent has abused her discretion by not giving any weight to Petitioner’s illness and disability in the case.”

The Court’s findings include that taxpayers are not entitled to in-person hearings and that there was no abuse of discretion regarding Ms. Dixon’s illness and disability. The Court also found that Ms. Dixon did not provide the required documents, there was no issue of material fact, and granted the IRS motion for summary judgment.

Takeaway: The pattern here follows numerous other CDP cases. It is unclear why the Court included these cases as designated orders. Petitioners that have not provided requested documents to the IRS will not make it very far in the Tax Court. Prior to filing a CDP request or immediately thereafter, taxpayers need to become compliant by providing requested documents or filing tax returns. Otherwise, the Tax Court will grant summary judgment for the IRS absent some failure by the IRS in the verification process.


Borenstein Case Leaves Taxpayer Bare on Refund Claim

In Borenstein v. Commissioner, 149 T.C. No. 10 (2017), the Tax Court addressed an issue of first impression regarding the time for filing a refund claim after filing a request for extension. The decision came out at the end of August, just as the fall semester was starting. The Harvard tax clinic filed an amicus brief in this case in support of the petitioner. The filing of the amicus brief did not help the petitioner as the Tax Court determined that she filed her return too late to obtain a refund. Because my clinic filed the amicus brief and because the opinion came out at a busy time of year, I hoped that someone else might write the blog post to avoid having one that was too biased. No one else has stepped up and perhaps that is the result of the somewhat metaphysical statutory language and result. So, we are a little slow in reporting on this narrow but important issue. She has now filed an appeal. So, a circuit court will get the opportunity to review the decision.

The Borenstein case is in many ways a follow up to the Supreme Court’s decision in Commissioner v. Lundy, 116 S. Ct. 647 (1996), where the Court held that the Tax Court lacked jurisdiction to find that the taxpayer was entitled to a refund when the Service issued a stat notice, the taxpayer filed a delinquent return claiming a refund and then petitioned the Tax Court. After finding for the Service, Congress in 1997 attempted to “fix” the problem by essentially  by permitting taxpayers in the Tax Court to recover the overpaid tax deemed paid on the return due if the notice of deficiency was issued within three years. The 1997 legislative fix does not help taxpayers who have not filed returns when the notice of deficiency is issued more than three years from the due date of the return. Now following Borenstein, unless reversed, the legislative overrule of Lundy does apply for a non-filer when the notice of deficiency is issued during the second year after the due date (with extensions) but prior to the third year. I doubt Congress thought about this odd situation when overruling Lundy.


Ms. Borenstein made payments totaling $112,000 toward her 2012 tax liability. All of the payments were deemed made on April 15, 2013. Although she requested a six month extension to file her 2012 return, she did not file a return for 2012 by the extended due date of Oct. 15, 2013, or during the ensuing 22 months. On June 19, 2015, the IRS issued Ms. Borenstein a notice of deficiency for 2012.

On Aug. 29, 2015, shortly before filing her Tax Court petition, she filed a delinquent return for 2012, reporting a tax liability of $79,559 on which she sought a refund of $32,441. The IRS agreed that she was entitled to an overpayment of $32,441; however, the IRS took the position that she was not entitled to a refund under I.R.C. sec. 6511(a) and (b)(2)(B) because her tax payments were made outside the applicable “look back” period keyed to the date on which the notice of deficiency was mailed. Ms. Borenstein contended that she remained eligible for the three-year look back period specified in the final sentence of I.R.C. sec. 6512(b)(3) and to the refund she claimed.

Once again, in what is a theme that runs throughout the posts on our blog, the taxpayer faces dire consequences because of not filing the return on time. The IRS concedes her entitlement to the refund and contests only the timeliness of her request for the refund. While the Tax Court is normally associated with determining deficiencies, once it has jurisdiction because of the issuance of a notice of deficiency and the timely filing of a petition, the Tax Court has the ability to determine that a taxpayer has no deficiency and is instead due a refund. Section 6512(b)(1) provides in relevant part that:

“… if the Tax Court finds that there is no deficiency and further finds that the taxpayer has made an overpayment of income tax for the same taxable year, … in respect of which the Secretary determined the deficiency, or finds that there is a deficiency but that the taxpayer has made an overpayment of such tax, the Tax Court shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Tax Court has become final, be credited or refunded to the taxpayer…”

The parties agreed that the relevant limitation on the refund is the limitation in section 6512(b)(3)(B) which provides that :

(3) Limit on amount of credit or refund – No such credit or refund shall be allowed or made of any portion of the tax unless the Tax Court determines as part of its decision that such portion was paid—

(B) within the period which would be applicable under section 6511(b)(2), (c), or (d), if on the date of the mailing of the notice of deficiency a claim had been filed (whether or not filed) stating the grounds upon which the Tax Court finds that there is an overpayment

Because section 6512(b)(3)(B) refers back to specific provisions of section 6511, it then becomes necessary to follow the code there. The Supreme Court engaged in this exercise two decades ago in the case of Commissioner v. Lundy, 516 U.S. 235, 242 (1996). The parties agreed that the relevant time period for the look back described in section 6511 is found in section 6511(b)(2) and not in (c) or (d). Section 6511(b)(2) provides that:

(2) Limit on amount of credit or refund

(A) Limit where claim filed within 3-year period – If the claim was filed by the taxpayer during the 3-year period prescribed in subsection (a), the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return. If the tax was required to be paid by means of a stamp, the amount of the credit or refund shall not exceed the portion of the tax paid within the 3 years immediately preceding the filing of the claim.

Petitioner’s brief summed up the situation as follows:

“Under respondent’s proposed reading of the statute, if the deficiency notice had been issued on or before April 15, 2015 (two years from the April 15, 2013, return due date), then petitioner would get her refund. If the notice had been issued after October 15, 2015, but before April 16, 2016, then petitioner would get her refund. But because her deficiency notice was issued during the six-month period between April 16, 2015, and October 15, 2015, respondent argues that a two-year look-back rule applies. Respondent’s reading of the 1997 amendment would mean that petitioner would not get her refund, whereas a similarly situated taxpayer who had not secured an extension of time to file would get a refund—a result that betrays the plain meaning of the statute, and, if not absurd, certainly is unreasonable. Consistent with the unambiguous legislative intent, the final flush language of section 6512(b)(3) should be interpreted so as to not inject filing extensions into the look-back period mechanism.”

Petitioner’s brief also contains a helpful chart showing the situation and the positions of the parties.

The Tax Court found that the hypothetical refund claim was filed on June 19, 2015, the date of the mailing of the notice of deficiency for 2012 and not August 29, 2015, the date of the filing of the delinquent tax return. Because the refund claim was filed before the return, the claim was not filed within three years of the time the return was filed. The Tax Court points out that this happens frequently with non-filers who will experience the issuance of the notice of deficiency before filing their return. If the taxpayer cannot satisfy the look back period of section 6511(b)(2)(A), which the Tax Court finds that Ms. Borenstein did not do, then the statute provides a look back period in section 6511(b)(2)(B). That period limits the taxpayers to a refund of money paid within two years of the claim. Here, that is zero, as the money was deemed paid on the original due date of the return on April 15, 2013.

The IRS argued for a plain language interpretation of section 6512(b)(3) interpreting the phrase “with extensions” to modify due date. Because this was an issue of first impression in the Tax Court, it rendered a precedential T.C. opinion while citing to some non-precedential and precedential opinions that suggested the result reached in this case.

The taxpayer, and the tax clinic, argued that the plain language reading of the statute suggested by the IRS created a result that did not make sense. If the notice of deficiency were issued prior to April 15, 2015 or after October 15, 2015 (and before April 15, 2016), the Tax Court would have jurisdiction to determine the refund. It lost that jurisdiction, according to the “plain language” if the notice of deficiency was issued during the six month window of time more than two years after the due date of the return and less than two and one half years. How could Congress have intended such a result?

In arguing that the IRS reading of the statute produced an absurd result, petitioner pointed to the legislative history:

“Here, the legislative history is unambiguous and precise. Congress intended to legislatively reverse Lundy and provide for a three-year look-back period for all taxpayers, even if a notice of deficiency is issued within three years from the initial due date of a return. The relevant legislative record provides:

In Commissioner v. Lundy, 116 S. Ct. 647 (1996), the taxpayer had not filed a return, but received a notice of deficiency within 3 years after the date the return was due and challenged the proposed deficiency in Tax Court. The Supreme Court held that the taxpayer could not recover overpayments attributable to withholding during the tax year, because no return was filed and the 2-year “look back” rule applied. Since over withheld amounts are deemed paid as of the date the taxpayer’s return was first due (i.e., more than 2 years before the notice of deficiency was issued), such overpayments could not be recovered. By contrast, if the same taxpayer had filed a return on the date the notice of deficiency was issued, and then claimed a refund, the 3-year “look back” rule would apply, and the taxpayer could have obtained a refund of the overwithheld amounts.
* * *
The House bill permits taxpayers who initially fail to file a return, but who receive a notice of deficiency and file suit to contest it in Tax Court during the third year after the return due date, to obtain a refund of excessive amounts paid within the 3-year period prior to the date of the deficiency notice.
H. Conf. Rept. 105-220, at 701 (1997), 1997-4 C.B. (Vol. 2) 1456, 2171.

There is nothing vague or confusing about the legislative history. Congress intended to treat all nonfiling taxpayers the same during the three years after the initial due date of their tax returns (regardless of whether a Tax Court petition was filed).”

Congress, undoubtedly, did not expect this result; however, sometimes the statutory language it chooses produces unexpected results. Maybe the circuit court will read the language to produce a result that fits what Congress appears to have intended or perhaps Ms. Borenstein will be another taxpayer who has found a way, by filing her return late, to lose a refund to which she would have been entitled had she filed on time.







Tax Court Holds that Evidence of Internet Postage Purchase Constitutes Private Postmark for Timely Mailing Purposes

We welcome back frequent guest blogger Carl Smith who discusses another case dealing with the jurisdiction of the Tax Court. Here, the taxpayer’s issue concerns the postage which was purchased over the internet. Keith

In Pearson v. Commissioner, 149 T.C. No. 20 (Nov. 29, 2017), the Tax Court, sitting en banc, abandoned the holdings in its memorandum opinion in Tilden v. Commissioner, T.C. Memo. 2015-188, and adopted the holdings of the Seventh Circuit in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), that (1) postage bought over the internet that is affixed to an envelope creates a private postmark as of the date of purchase for purposes of the regulations under the timely-mailing-is-timely-filing provisions of section 7502 and (2) internal tracking data of the USPS is not treated as a USPS postmark for purposes of those regulations. Applying those holdings to the facts of Pearson (which were virtually identical to Tilden – even involving the same law firm), the Tax Court found that it had jurisdiction.

Pearson frees up the Tax Court to issue similar rulings in a number of cases where the Tax Court had stayed proceedings in anticipation of both the Seventh Circuit’s ruling in Tilden and the Tax Court’s response in Pearson. Indeed, on the same day that Pearson was issued, the Tax Court issued a similar jurisdictional ruling in Baham v. Commissioner, T.C. Summary Op. 2017-85 – a case also involving internet-purchased postage.


I have blogged five previous times on the Tilden case as it winded its way through the courts (see here, here, here, here, and here), so I will try to keep repetition in this post to a minimum.

Pearson Facts

To understand how the Pearson holdings occurred and were applied, I will summarize the facts (noting the trivial differences between Pearson and Tilden) and the relevant regulation provisions.

Pearson is a deficiency case where, on the 89th day after the notice was issued, an employee at a lawyer’s office in Salt Lake City (the same office as in Tilden) went to the internet website of and purchased a stamp for the appropriate postage amount. (In Tilden, the postage was purchased and the envelope was mailed on the 90th day.) After printing out the stamp, the employee affixed it to an envelope addressed to the Tax Court. The stamp had printed on it the date of purchase. The employee then filled out a certified mail receipt form (the white slip) and also attached it to the envelope. On the white slip, where there is space for the USPS to stamp a postmark, the employee wrote in by hand the date the stamp was purchased. Then, the employee walked the envelope over to the Post Office and mailed it, without getting a stamp from the USPS on the envelope or on the receipt. The employee kept the receipt.

The USPS never placed its own postmark on the envelope during its long journey to the Tax Court, but internal USPS tracking data showed the envelope first in the USPS system on the 91st day. (In Tilden, the tracking data indicated the 92nd day.) The tracking data for the initial entry was from a different Salt Lake City postal facility from the site of mailing, however.

On the 97th day, the envelope arrived at the Tax Court in Washington, D.C. – presumably after the now-common delay to irradiate the envelope to kill possible anthrax. (In Tilden, the envelope arrived on day 98.) The IRS concedes that if an envelope were mailed from Salt Lake City to the Tax Court on the 90th day, it would ordinarily be received in a range of days that included the 8th day after mailing.

Potentially Relevant Regulations 

Section 7502(b) states: “This section shall apply in the case of postmarks made other than the United States Postal Service only if and to the extent provided by regulations prescribed by the Secretary.”

Two regulations could have applied to determine whether the filing was timely.

A regulation involving a situation where there is a private postmark, but not a USPS postmark, Reg. section 301.7502-1(c)(1)(iii)(B)(1), reads:

(B) Postmark made by other than U.S. Postal Service.–(1) In general.–If the postmark on the envelope is made other than by the U.S. Postal Service–

(i) The postmark so made must bear a legible date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment; and

(ii) The document or payment must be received by the agency, officer, or office with which it is required to be filed not later than the time when a document or payment contained in an envelope that is properly addressed, mailed, and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the U.S. Postal Service on the last date, or the last day of the period, prescribed for filing the document or mailing the payment.

A regulation involving a situation where there is a USPS postmark and a private postmark, Reg. section 301.7502-1(c)(1)(iii)(B)(3), reads, in part:

(3) U.S. and non-U.S. postmarks.–If the envelope has a postmark made by the U.S. Postal Service in addition to a postmark not so made, the postmark that was not made by the U.S. Postal Service is disregarded . . . .

Tilden Tax Court Holding 

On these virtually identical facts in Tilden, the Tax Court had held that it lacked jurisdiction because the petition was untimely filed. In the opinion, the Tax Court always referred to the date stamp on the postage as a “postmark” – using quotes around postmark to apparently indicate that the court was dubious about calling a mere internet stamp purchase date a true postmark. However, even if it were a true private postmark, then the court held that USPS tracking data constitutes a USPS postmark, so that the second regulation quoted above governs and makes the USPS postmark determinative. The judge relied on the Tax Court’s earlier opinion in Boultbee v. Commissioner, T.C. Memo. 2011-11, where it had held that timely USPS tracking information could be used by a party as a timely USPS postmark in the case of an envelope lacking a true USPS postmark. (In Boultbee, the envelope was mailed from Canada through its own postal system and never got a USPS postmark after it crossed the border.)

Tilden Seventh Circuit Holding

The Seventh Circuit overruled the Tax Court in Tilden, noting that the initial USPS tracking information could occur at a time long after true mailing, so was not reliable evidence of the date of mailing. Thus, the Seventh Circuit refused to treat the tracking information as a USPS postmark. By contrast, the Seventh Circuit held that the date stamp on the postage affixed to the envelope constituted a private postmark for purposes of the first regulation quoted above. The court noted that, while it is true that there is no guarantee that the date of purchase is also the date that the envelope was mailed, that is also true in the situation (addressed by the regulations) where postage meters (such as by Pitney-Bowes) affix private postmarks with dates that can be manipulated by parties. Thus, since the envelope with this timely private postmark arrived within the ordinary period that a letter mailed from Salt Lake City on the 90th day would arrive, the petition was timely filed.

Pearson Holding

The Tax Court in Pearson completely accepted the Seventh Circuit’s analysis in its Tilden opinion, even though the Pearson case would be appealable to the Eighth Circuit. This now creates a nationwide rule that internet-purchased postage is a private postmark for purposes of the regulations and that USPS tracking data does not create a USPS postmark.

The Pearson majority opinion and the joint dissent of Judges Gustafson and Morrison sparred over the definition of “postmark” in the regulations – with the majority looking to a dictionary definition. The dissent did not think this envelope contained a private postmark. There are interesting discussions in both opinions of the origins of section 7502(b) – originally titled “Stamp Machine”, but now titled “Postmarks” – and the history of Pitney-Bowes-type machines. The majority wrote: “[A] postage label is the modern equivalent of the output of an old-fashioned postage meter. We find no plausible basis for making a legally significant distinction between these two means of affixing postage.”

The majority also gave Auer deference to the IRS’ current interpretation of the word “postmark” in its regulations to include dates shown on internet-purchased postage. (See Auer v. Robbins, 519 U.S. 452, 461 (1997).) The dissent did not think Auer deference should be accorded and pointed out the shaky continuing existence of the Auer deference line of cases in the Supreme Court.


Baham, issued the same date as Pearson, is a case where Judge Wherry, on his own, investigated the USPS tracking information and took judicial notice of it. In Baham, the envelope contained a petition that was signed on the 89th day and that was mailed to the Tax Court from “The UPS Store” in Acadia, California. The envelope bore a shipping label purchased from on the 90th day. The taxpayer also introduced a receipt from The UPS Store for mailing at 2:44 pm on the 90th day, but, of course, that evidence is not itself a postmark. Other evidence was later introduced that The UPS Store typically brought its mail over to the USPS at 5 pm on the date the mail was received. The envelope was sent by certified mail, but never acquired a USPS postmark. USPS certified mail tracking information showed the envelope first in the USPS system at 8:03 am on the 91st day. Judge Wherry held that the petition was mailed on the 90th day and so was timely.


Since the IRS agrees with the Tax Court in Pearson, it is doubtful that any party (the IRS or the taxpayer) will ever argue in the courts of appeals that a petition was late under facts similar to Pearson, Tilden, or Baham. Thus, I expect no further appellate court opinions on this issue.

However, given the widespread use of internet-purchased postage, I think it long overdue that the IRS update the regulations under section 7502 to bring them into the 21st Century. There should be no need for people to ever wonder about whether internet postage or USPS tracking information constitutes a postmark.


DOJ Argues that Small Tax Case Designations Can Only Be Removed for Exceeding the Jurisdictional Amount in Dispute Limit

We welcome back frequent guest blogger Carl Smith who writes about an interesting development regarding the government’s view of the effect of electing small case status in a Tax Court case. Keith

I write this post because I am sure that what the DOJ is arguing in the Tenth Circuit is, if accepted, going to be a shock to both the Tax Court and the IRS. I suspect that the latter has no idea that the DOJ is trying to take away a case management tool it has been using for almost 50 years. The DOJ is arguing that under section 7463(d), the sole circumstance in which the Tax Court may remove a small tax case designation is when it is belatedly discovered that the $50,000 amount in dispute limit for small tax cases has been exceeded. The DOJ argues that legislative history (relied on by the IRS and Tax Court over the years) that suggests other reasons for removing the small tax case designation (such as to create precedential rulings either in the Tax Court or the appellate courts) should be ignored, as the statute itself is clear.


Section 7463 gives taxpayers the option (concurred in by the Tax Court pre-trial) to designate a case as a small tax case. The scope of the authority to remove the small tax case designation is one thing at issue in the Tenth Circuit in an appeal of Vu v. Commissioner, T.C. Summary Op. 2016-75 – a case on which Les previously blogged here.

In Vu, the taxpayer filed a pro se innocent spouse petition under section 6015(e) too early (though she had no reason to think so). The IRS filed an answer that did not allege any premature filing. By the time that the IRS moved to dismiss her case for lack of jurisdiction as prematurely filed, she could no longer correct her error by timely filing another petition. Judge Ashford stated that she had to dismiss the petition for lack of jurisdiction because the filing deadlines in section 6015(e) are jurisdictional. Though, as she did so, Judge Ashford herself wrote that “this is an inequitable result”.

At that point, Keith and I stepped in to represent Ms. Vu pro bono and moved for reconsideration, to vacate, and to remove the small tax case designation.

In the motions for reconsideration and to vacate, we argued that (1) under current Supreme Court case law, the filing deadlines are not jurisdictional and (2) the IRS waited too long to raise – and so forfeited – what is really a non-jurisdictional statute of limitations defense. At the time we made those arguments, the Tax Court in Pollock v. Commissioner, 132 T.C. 21 (2009), had held the 90-day filing deadline in section 6015(e) to be jurisdictional – based, in part, on Supreme Court case law up to 2009. But, no court of appeals had ruled one way or the other on whether the filing deadlines in section 6015(e) are jurisdictional.

In our motion to remove the small tax case designation, we pointed out the novelty of the jurisdictional issue in the appellate courts, that Ms. Vu’s case (if the designation were removed) could be appealed to the Tenth Circuit, and that the issue of whether the section 6015(e) 90-day filing deadline is jurisdictional was presented in two then-pending Circuit courts in appeals that Keith and I had also brought.

Rather than ruling immediately, Judge Ashford waited until the Second and Third Circuits held the 90-day period in section 6015(e) jurisdictional in Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017), and Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017). Then, relying on Pollock, Rubel, and Matuszak, Judge Ashford denied the motions to reconsider and to vacate.

In the same order (on which Patrick Thomas blogged here in a designated order post), Judge Ashford also denied Ms. Vu’s motion to remove the small tax case designation. Judge Ashford noted that the amount in dispute in the case did not exceed $50,000. She also thought there was now enough precedent on the jurisdictional issue adverse to Ms. Vu so as not to justify removing the designation so that Ms. Vu could attempt to create Tenth Circuit precedent. The Judge also felt that, while technically timely (since the motion was made before the decision was final or any trial began), granting a motion to remove the small tax case designation after the judge had already issued an opinion “violates the spirit of the Court’s small tax case rules”.

Section 7463(b) states, in part: “A decision entered in any case in which the proceedings are conducted under this section shall not be reviewed . . . .”

Section 7463(d) states, in relevant part:

At any time before a decision entered in a case in which the proceedings are conducted under this section becomes final, the taxpayer or the Secretary may request that further proceedings under this section in such case be discontinued. The Tax Court, or the division thereof hearing such case, may, if it finds that (1) there are reasonable grounds for believing that the amount of the deficiency placed in dispute, or the amount of an overpayment, exceeds the applicable jurisdictional amount described in subsection (a), and (2) the amount of such excess is large enough to justify granting such request, discontinue further proceedings in such case under this section.

Legislative history states:

In view of the proposed increase in the small tax case jurisdictional amount to $5,000 it is contemplated that, the Tax Court will give careful consideration to a request by the Commissioner of Internal Revenue to remove a case from the small tax case procedures when the orderly conduct of the work of the Court or the administration of the tax laws would be better served by a regular trial of the case. . . . [R]emoval of the case from the small tax case category may be appropriate where a decision in the case will provide a precedent for the disposition of a substantial number of other cases or where an appellate court decision is needed on a significant issue.

  1. Rept. 95-1800 at 277-278.

Relying on this legislative history, the Tax Court, over the years, has taken the position (with which the IRS agreed) that it had the power to remove small tax case designations for pretty much any reason (if the taxpayer asked) and for the reasons stated in the legislative history (if the IRS asked or the court acted sua sponte). See, e.g., IRS Chief Counsel Memorandum 200115033, 2001 IRS CCA LEXIS 13 (Feb. 14, 2001) (“While the small tax case designation turns chiefly on the amount in dispute, the government has succeeded in having the small tax case designation removed in cases where a decision in the case will provide a precedent for the disposition of a substantial number of other cases or where an appellate court decision is needed on a significant issue.”) The Tax Court views the second sentence of section 7463(d) as providing merely an illustration of one of the grounds for removing small tax case designations, not the exclusive reason.

Despite our setback in not getting the Tax Court to remove the small tax case designation – which would have made an appeal easier – Keith and I appealed the Vu case to the Tenth Circuit (Docket No. 17-9007). That Circuit suspended briefing in the case and requested the parties to discuss its appellate jurisdiction in light of section 7463(b)’s prohibition on appeals from small tax cases.

On November 15, 2017, Keith and I filed a response to the Tenth Circuit arguing two grounds for appellate jurisdiction:

First, we contend that section 7463(b) does not preclude appellate review of certain procedural rulings of the Tax Court in small tax cases. This is a novel argument under section 7463(b). However, section 7429(f) precludes appellate review of district court or Tax Court determinations made in section 7429 jeopardy assessment proceedings, and the majority of courts of appeals to have considered the issue has held that review of section 7429 procedural rulings is not barred by the statute. See, e.g., Wapnick v. United States, 112 F.3d 74 (2d Cir. 1997) (“Following other circuits, we hold that this limitation applies only to decisions on the merits regarding the jeopardy assessment in question. A dismissal of a Section 7429 proceeding for lack of subject matter jurisdiction is, therefore, appealable.”; citations omitted). Keith and I argue that the limitation of appeal in small tax cases should similarly not preclude review of the Tax Court’s (in our view erroneous) dismissal of a small tax case for lack of jurisdiction.

Second, we take the position that a denial of a motion to remove a small tax case designation is itself appealable (also a novel issue on which there is no case law). We argue (1) that Judge Ashford abused her discretion in denying a taxpayer request that was technically timely, and (2) that the statute’s authorization of removal before a decision in a small tax case becomes final shows that Congress intended to have the Tax Court sometimes remove small tax case designations after the court had already ruled on an issue. Relying on the legislative history of section 7463(d) and long-standing Tax Court practice, we argue that Judge Ashford was wrong to deny Ms. Vu a chance to create Tenth Circuit precedent on a significant, novel legal issue in that Circuit.

In a response filed on November 30, 2017, the DOJ distinguished section 7429(f) precedent on the ground that the statute there precludes the review of “determination[s]”, not “decision[s]” (as in section 7463(b)). Most shockingly, though, the DOJ, while conceding that Ms. Vu timely filed her motion to remove the small tax designation, argues that section 7463(d) only allows the Tax Court to remove a small tax case designation where the court finds that the $50,000 jurisdictional amount in dispute limit is exceeded. The DOJ contends that the statute’s language plainly shows this, so the legislative history laying out other grounds for removing the small tax case designation should be disregarded.

On December 7, 2017, Keith and I filed a reply that showed the Tenth Circuit the long history of the Tax Court making determinations on motions to remove small tax case designations using the criteria set out in the legislative history (such as to create appellate precedent) – not just looking at whether the jurisdictional limit has been exceeded.


As a litigant in the Vu case, I don’t feel comfortable saying anything more than this: Whether the DOJ is right on the removal power’s scope, I am pretty certain that the DOJ did not consult with the IRS before making the argument that the only ground on which the Tax Court can remove a small tax case designation is that the jurisdictional limit has been exceeded. Indeed, it is ironic that Ms. Vu’s case is an innocent spouse case where an argument is untimely filing. It wasn’t too many years ago that the Tax Court in Lantz v. Commissioner, 132 T.C. 131 (2009), invalidated a 2-year limitation on requesting section 6015(f) equitable innocent spouse relief that was set out only in a regulation. In order to challenge this ruling in many Circuits, the IRS sought to remove small tax case designations in a number of pending Tax Court cases so that the IRS could create precedent in many Circuits (and hopefully generate a Circuit split). See Iljazi v. Commissioner, T.C. Summary Op. 2010-59 at p. *4 n.1, where I was counsel for the taxpayer and where Judge Panuthos denied the IRS motion – basically on the theory that taxpayer preferences to stay as small tax cases should generally be honored.




Designated Orders: 11/13 to 11/17/2017

We welcome back Patrick Thomas who directs the tax clinic at Notre Dame. Patrick had a busy week for orders as the Court cleared out cases in preparation for Thanksgiving week. All of the material is good but Patrick covers what happens from a collection perspective when you lose a Tax Court case and take an appeal. This is not a topic we have addressed previously. Keith

I’ve begun the last few posts noting that it was a “light week” for designated orders; I seem to have tempted the Designated Order gods, because this past week there were nine total orders, with three bench opinions by Judge Gustafson and other very meaty orders. They included Judge Gustafson’s request that parties file supplemental briefs regarding the whether a new matter existed under Rule 142(a) sufficient to shift the burden of proof to the IRS; Judge Panuthos’s dismissal of a CDP matter for mootness due to full payment of the liability; and Judge Holmes’s denial of a motion to for reconsideration. Finally, two of the bench opinions raise interesting substantive tax law issues: one opinion looks at the increase in a home’s basis due where the taxpayer engaged in both bank and bankruptcy fraud during the home’s sale. Another explores the blurry line between physical and emotional damages in section 104(a)(2), and is deserving of fuller discussion.


Dkt. # 22795-16L, Gardner v. C.I.R. (Order Here)

When an order begins with a teaser that the Court is assessing a section 6673 penalty for the maximum $25,000 amount, my interest is piqued. Upon researching the Gardner’s substantial history in the Tax Court, with the IRS, and even in the U.S. District Court, I can understand why. They appear to be incorrigible tax protestors, deserving perhaps of a far greater penalty than the $25,000 statutory maximum under section 6673. That is, the Service may want to start looking at sections 7201 et seq.

According to Judge Vasquez in a prior opinion, the Gardners have not filed a federal income tax return since 1993. At that time, the Gardners founded “Bethel Aram Ministries”, which served as vessel through which to promote their abusive tax shelter. The shelter’s design required income to be “donated” to corporations (called a “corporation sole”) that the taxpayer owned. The taxpayer would then deduct the “donation” as a charitable contribution. Further, any business income was to be routed through a trust which owned a majority interest in an LLC that operated the business. The trust would also donate its income to the corporation sole, which would pass tax-free to the taxpayer. The Gardners were enjoined from promoting this shelter and were subjected to a penalty under section 6700 of $47,000 for so doing.

The Gardners apparently made substantial income from promoting this shelter (approximately $250,000 in 2004; one wonders about the effectiveness of a $47,000 penalty), but didn’t report the income or pay any tax on it. The IRS assessed tax and additions to tax under section 6020(b) for 2002, 2003, and 2004, which were upheld by the Tax Court and the Ninth Circuit. The total owed across these three years was approximately $263,000.

The Gardners eventually challenged a CDP levy notice for 2004, which made its way to the Tax Court last year. Judge Lauber upheld the Notice of Determination, and also assessed a $10,000 section 6673 penalty because of the Gardners’ largely frivolous arguments (e.g., accusing the IRS of lying, defamation, and conspiring to deny their First Amendment rights to freedom of speech and religion), warning the petitioner “that she risks a much larger penalty if she engages in similar tactics in the future.”

The Gardners now challenge a CDP lien notice for 2002 and 2003, apparently using the same arguments in their challenge to 2004 (e.g., that they do not owe the tax assessed). The tax was determined in a deficiency proceeding in which the Gardners participated, so they certainly had no right to challenge the liability in either CDP hearing. Yet try again as they do (recycling the same frivolous arguments as before), Judge Halpern executes Judge Lauber’s warning, and assesses a $25,000 penalty under section 6673. Are nearly $400,000 in tax and penalties enough to stop the Gardner’s intransigence? Color me skeptical.

Judge Halpern spent some time going through the Gardners’ substantive arguments. Some of the arguments addressed strike me as those that the Tax Court routinely skips (e.g., that the failure to sign Form 1040 nullifies any assessment, or that the signatures on the Form 4340 summary records of assessment constitute perjury). One wonders where individual judges and the Tax Court as an institution do and should draw lines regarding such arguments.

One procedural item worth mentioning (as I don’t see that we’ve covered it before), is the propriety of an assessment while an appeal from the Tax Court is pending. Under section 7485, sections 6213(a) and 7481 bar assessment and collection during an appeal only if the taxpayer files a notice of appeal, along with a bond of up to twice the deficiency. Otherwise, the tax may be assessed once the Court enters its opinion.

Here, the Gardners argued that because the assessment occurred while their Ninth Circuit appeal was pending, section 6213 barred the assessment. However, the Gardners failed to either post a bond or ask the Tax Court for a bond in a lower amount. They complained that the Tax Court should have fixed a bond for them, and that the bond should have been waived given their lack of income. Judge Halpern dispenses with both arguments, as the Gardners did not comply with section 7485. There’s also nothing in the statute to suggest that the Tax Court must or may fix a bond amount sua sponte.

Judge Halpern’s opinion shows that litigants can either (1) pay the full statutory maximum of twice the deficiency, or (2) file a motion to fix a bond in a lesser amount. He further notes that the court does not have any statutory discretion to waive section 7485, even for cases of financial hardship. I wonder if any Clinics lucky enough to litigate an issue up to the Courts of Appeal have contended with section 7485. While Judge Halpern notes the statutory restriction that a bond of some kind must be set, could it perhaps be set at $1 in cases of financial hardship, accompanied by a substantial legal question?

Dkt. # 20104-14L, Bongam v. C.I.R. (Order Here)

One of Judge Gustafson’s three bench opinions explores a number of a procedural issues. Mr. Bongam (the litigant in the important case of Bongam v. Commissioner, 146 T.C. 52 (2016), which held that the 30 day period for petitioning the Tax Court begins when the notice of determination is mailed—not the date of the notice of determination) was involved with two companies—Dynamic Visions and One Stop Medical Supplies—that ultimately failed to properly withhold and pay over their employee’s taxes to the IRS. Accordingly, given Mr. Bongam’s involvement in both companies, the IRS assessed a Trust Fund Recovery Penalty against him. The IRS filed a Notice of Federal Tax Lien regarding the assessments, the IRS upheld the lien at a CDP hearing that Mr. Bongam timely requested, and Mr. Bongam petitioned the Tax Court.

In the CDP hearing and at trial, Mr. Bongam asserted that while he both possessed co-signature authority and was a shareholder and officer at One Stop, he had no operational authority in the business; that was reserved to the lone employee in the organization, a Mr. Forkwar. As such, he had no idea that the payroll taxes were going unpaid.

One can only challenge the underlying liability in a CDP case if the taxpayer didn’t have a prior opportunity to dispute that liability. For most TFRP cases, this opportunity generally presents itself in the right to request an administrative review from IRS Appeals, after the TFRP is proposed. While opportunity for judicial review exists as a matter of course for TFRPs, under current law, a chance to appeal administratively will constitute a prior opportunity.

But if the taxpayer doesn’t receive notice of that opportunity, it’s not really an opportunity at all. Here, Mr. Bongam didn’t receive the Letter 1153 assessing the TFRP for One Stop—though IRS Appeals initially believed he had. They relied on the Letter 1153 that assessed Dynamic’s TFRP, not One Stop’s. Further, a second Letter 1153 that assessed TFRPs for One Stop didn’t have a certified mail response card; so, the Court held, its delivery couldn’t be confirmed. As such, Judge Gustafson allows Mr. Bongam to challenge his TFRP for One Stop, and finds on the merits that Mr. Bongam was not a responsible person.

For Dynamic, there were no problems with delivery of the Letter 1153 according to the Court. While Mr. Bongam stated at trial that he didn’t receive the letter and that the signature on the certified mail receipt was not his, Judge Gustafson didn’t find that credible. The Court even compared that signature to those on Mr. Bongam’s pleadings, and found them to be similar. I’m not sure that’s a proper role for the Court, but the other evidence at hand safely shows that Mr. Bongam received the Letter 1153. And, in any case, Judge Gustafson notes the Mr. Bongam was a responsible person who willfully failed to withhold and pay over Dynamic’s payroll taxes.

While Mr. Bongam cannot challenge the liability, he may challenge whether that liability has been paid. Indeed, he raised such a claim, submitting various checks that were made payable to the IRS. Judge Gustafson views this challenge not as one to liability, but as one regarding either whether the tax is “unpaid” for purposes of section 6330(c), or an IRS verification failure under section 6330(c)(1).

Either way, for many of the checks, Mr. Bongam wasn’t able to show that they were made to satisfy the trust fund portion of the liabilities. This raises an incredibly important issue for anyone dealing with a TFRP case. From a potential responsible person’s perspective (at least, one who can control payment of payroll taxes by the employer), any voluntary payments from the employer towards the payroll tax liability ought to be designated to the trust fund portion of the liability; that is, the portion constituting income tax and the employee’s portion of FICA taxes. Otherwise, the payments will may be applied to the employer’s portion of FICA taxes—for which a responsible person is not liable under section 6672.

Dkt. # 18773-16W, Depadro v. C.I.R. (Order Here)

Finally, this is your periodic reminder that to claim a whistleblower award under section 7623, the IRS must both act upon the information provided through instituting an administrative or judicial action AND collect tax from the target of that action. The petitioners here alleged that the IRS was negligent in failing to do so, and on that basis, the petitioners should receive a monetary award. Judge Guy quickly dispenses with that argument (facially persuasive though it might sound to a wannabe whistleblower) and grants the Service’s motion to dismiss.


The Jarndyce Case, Judge Mark Holmes, and the Taxation Literary Tradition

We welcome back guest blogger Bob Kamman. Although Bob has practiced tax law in the Phoenix area for many years, he began his studies and his career as a journalist. Today, he draws from the Tax Court judge most likely to make literary references to provide us with a literary background on one of Judge Holmes’ opinions as well as some additional literary happenings at the Court. Because the supporting references needed for this post differ from those in most of our post, Bob has used footnotes which can be found, appropriately, at the end of the post. Keith

Lawyers and law students can be categorized as those who already recognize the name Jarndyce, and those who eventually will. Tax Court Judge Mark Holmes falls into the first category, as shown by his reference in his “undesignated” order of October 23, 2017, in an estate-tax case filed in 2005.

“This complex case,” Judge Holmes wrote, “was on the Court’s December 10, 2007 trial calendar for Miami, Florida, and stems from the death of Mr. Boulis back in 2001. Related cases sprawled over two continents and several different courts, but the last pieces were several peripheral issues in the probate proceeding that remained on appeal in the state-court system until last year. The final state-court issues are about fees appropriately charged to the estate during this Jarndyce v. Jarndyce – like litigation. The parties report mediation ongoing. If this mediation succeeds in producing a settlement, it remains likely that the liquidation of administrative expenses will be the last remaining chores in this long-running case.”


The reader will not find Jarndyce in any published case reports, nor with a Lexis search. Rather, its story is one of the related plots in the classic novel by Charles Dickens, “Bleak House.” To understand the English legal system of the 19th Century, much of which provided the framework for American procedure, one must read Dickens. He was not a lawyer, but as a young man he worked as a court reporter, as in both meanings: Shorthand transcription of court proceedings, and newspaper coverage of trials. The fictional Jarndyce case may be an exaggeration of how prolonged litigation can deplete an estate, but it was a familiar story to readers on both sides of the Atlantic in 1853.

I searched other Tax Court orders and decisions available at the Court’s website. Surprisingly, this is the only reference to Jarndyce. I searched for Dickens. There were petitioners named Dickens, and petitioners with an address on Dickens Street. But the only other Dickens reference came from an opinion by the same Judge Holmes.

That Summary Opinion was written in 2004, and gained some media attention at the time. The case involved a playwright who had not yet shown a profit. Judge Holmes wrote his 28-page opinion in two acts. Act 1 was “Background” and Act 2 was “Discussion.” Next time you research Section 183, this case would be a good starting point. But for everyone, Judge Holmes’ “Prologue” is like Dickens’ “Christmas Carol.” It can be read and enjoyed, one taxable year after another. Before the start of another busy filing season may be the best time to renew our appreciation:

* * *

“Taxation! Wherein? And what taxation?”

       Henry VIII act I, sc. 2 [Footnote *1]


It is a truth little remarked on by scholars that tax law has been a fount of literature for 5,000 years. The oldest literary work still extant–the Epic of Gilgamesh–is a long narrative of a friendship begun during a protest against government exactions.[*2] In more recent times, some of our language’s most notable authors have used fiction to delve into tax policy: consider Shakespeare’s criticism of the supply-side effects of a 16-percent tax rate; [*3] Swift’s precocious suggestion of a system of voluntary self-assessment; [*4] and Dickens’ trenchant observation on the problems of multijurisdictional taxing coordination:

[The town’s] people were poor, and many of them were sitting at their doors, shredding spare onions and the like for supper, while many were at the fountain, washing leaves, and grasses, and any such small yieldings of the earth that could be eaten. Expressive signs of what made them poor, were not wanting; the tax for the state, the tax for the church, the tax for the lord, tax local and tax general, were to be paid here and to be paid there, according to solemn inscription in the little village, until the wonder was, that there was any village left unswallowed. [*5]

Taxation has also sparked creativity in newer literary genres. See It’s a Privilege on Urinetown: The Musical (RCA Victor) (musical re excise tax); J. Kornbluth, Love and Taxes (staged monologue re income tax) (unpublished manuscript, 2003). Tax collecting jobs have helped finance the careers of such notable revenue agents as Chaucer,[*6] Paine,[*7] and Hawthorne.[*8] And tax records are a famously important source of information for scholars of both ancient civilizations [*9] and modern authors.[*10]

This case follows in that long, but little-noted, tradition. Petitioner, N. Joseph Calarco, is a respected professor of theater at Wayne State University in Detroit. He also writes plays. On his 1997 tax return, he deducted his playwriting expenses as a Schedule C business loss. Respondent disallowed both the loss and several itemized deductions that petitioner took on his Schedule A. These disallowances created a deficiency of $3,869 to which respondent added an accuracy related penalty of $774. Petitioner, following the lead of Henry VIII’s first Queen Katherine, [*11] filed a timely petition in this Court. . . .

* * *

Judge Holmes added an Epilogue to his opinion in the Boulis case. I had read it several times before I realized that “survive” rhymes with “155.”


Dramatists used to finish with some rhymes,

Mostly iambs with a pinch of dactyly,

But in these more prosaic times

Works usually end more matter-of-factily.

In our Court, though, the oldest ways seem somehow to survive–

A decision will be entered

under Rule 155.


1 This case was heard pursuant to the provisions of Internal Revenue Code section 7463. Section citations are all to that Code. This decision is not reviewable by any other court, nor should the opinion or its literary references be cited as precedent in future proceedings.

2 David Ferry, “Gilgamesh, A New Rendering In English Verse”, 14-15 (Farrar, Straus, and Giroux 1992).


3 Shakespeare, “Henry VIII”, act I, sc. ii. (“A sixt part of each? / A trembling contribution! Why, we take / From every tree, lap, bark and part o’ th’ timber; / And, though we leave it with a root, thus hack’d, / the air will drink the sap.”)

4 Jonathan Swift, Gulliver’s Travels, A Voyage to Laputa, Etc. 162 (W. W. Norton & Co., Inc., New York, 1964) (1726). (“The highest tax was upon men who are the greatest favourites of the other sex, and the assessment according to the number and natures of the favours they have received; for which they are allowed to be their own vouchers. . . . The women were proposed to be taxed according to their beauty, and skill in dressing; wherein they had the same privilege with the men, to be determined by their own judgment.”) See generally Levmore, “Self-Assessed Valuation Systems For Tort and Other Law”, 68 Va.L.Rev. 771, 779 (1982).

5 Charles Dickens, “A Tale of Two Cities” 119 (Everyman’s Library, Knopf, 2002) (1859).

6 While Controller of the Customs, “[t]here was great variety in what [Chaucer] had to do, and he came in contact with a variety of people. He must have seen infinite venality, witnessed colorful subterfuges, heard improbable and ridiculous dodges and lies and excuses.” Donald Howard, “Chaucer” 212 (1987).

7 “I act myself in the humble station of an officer of excise, though somewhat differently circumstanced to what many of them are, and have been a principal promoter of a plan for applying to Parliament this session for an increase in salary.” Letter of Thomas Paine to Oliver Goldsmith, December 21, 1772, Reprinted in George Hindmarch, “Thomas Paine: The Case of the King of England And His Officers of Excise”, Published by the Author in 1998, Surrey, England.

8 Indeed, it is reported that Hawthorne once contemplated writing sketches entitled “Romance of the Revenue Service” and “an ethical work in two volumes on the subject of Duties”, though sadly neither project was ever undertaken. Randall Stewart, “Nathaniel Hawthorne, A Biography” 53 (Archon Books, 1970).

9 See, e.g., Tonia Sharlach, “Provincial Taxation and the Ur III State” (2004).

10 See A. L. Rowse, “William Shakespeare, A Biography” 280-281 (1963) (use of obscure records to trace author’s movements); Vitale v. Commissioner, T.C. Memo. 1999-131 (use of obscene records to trace author’s movements).

11 “These exactions, whereof my sovereign would have note, they are most pestilent to the bearing; and, to bear’ em the back is sacrifice to the load.” “Henry VIII”, I. ii. 11. 47-50.



Designated Orders: 11/6/2017 – 11/10/2017

We welcome back regular guest blogger Caleb Smith, the director of the low income taxpayer clinic at the University of Minnesota. This week Caleb brings us news of a dismissal from the Tax Court in the case of a potentially sympathetic innocent spouse claimant as well as what seems like the latest version of the Amway scheme from years gone by. Like the petitioner Caleb describes below, in the 1980s there were a host of taxpayers who went to Amway conventions and were told that they could deduct just about everything in their life as long as they tried to push Amway products on the people they met. Caleb speculates on whether Judge Buch’s opinion will persuade the taxpayer of the error of the theory of deducting all of your personal expenses. I hope he does but can attest that it took many years and many opinions to stamp out this type of activity by individuals “selling” Amway products. Keith

There were quite a few designated orders last week (nine in total), but only a few of which that had much substance. Ones that won’t be discussed include two from Judge Jacobs (here and here), one from Special Trial Judge Carluzzo (here) and one from Judge Gustafson (here). Another designated order that we won’t presently discuss does bring up some very interesting issues about the timeliness of Collection Due Process request when mailed to the wrong IRS address (found here). More on that developing issue to come in the weeks ahead. For now, we’ll focus on slightly more settled “timeliness” issue…


Stop Me If You’ve Heard This One…

Goline v. Commisioner, Dkt. # 20756-16S (order here)

I sometimes tell my Federal Tax Procedure class that a pro se taxpayer could write their petition in crayon on a cocktail napkin and the court would probably find jurisdiction if it was mailed on time -but no matter what you send, if it is a day late you are out of luck. Such is the case in Goline: an all-too-common story where the taxpayer mailed their Innocent Spouse petition a day after the statutory deadline under IRC 6015(e); a statutory deadline that the Tax Court says they are helpless to extend.

The facts of this order paint a potentially sympathetic picture for the taxpayer. Consider the following:

(1) The taxpayer probably filed the petition within 90 days of being made aware of (or receiving) the IRS notice of determination: the notice of determination was properly sent to the last known address by certified mail, but went unclaimed and returned to the IRS. But the date the IRS mails (if to the proper address) is what begins the 90 day period.

(2) Presumably recognizing the tight timeline (it is unclear how the taxpayer became aware of the notice of determination since it went unclaimed), the taxpayer sent the petition by FedEx Express Overnight. But it was sent on the 91st day: thus no mailbox rule and no timeliness. The petition was actually received by the Tax Court on the 92nd day: it isn’t difficult to imagine a petition sent on the 89th day by standard mail and not being received until later than the 92nd day, but still preserving jurisdiction.

(3) The taxpayer apparently received inaccurate advice about the filing deadline from an IRS employee on a phone call.

Read in the light most favorable to the taxpayer you can imagine a taxpayer not receiving their mail, calling the IRS about a filing deadline, receiving erroneous advice about the actual deadline (for example, putting the deadline a day later than it is), and the taxpayer scrambling to meet that deadline… If these were the facts (admittedly, there is speculation on my part), you could envision a fairly strong case for a court to exercise its equitable powers. But these are powers we are told time and time again the Tax Court does not have when it comes to questions of jurisdictional filing deadlines. At least, that is the law as it presently stands. It is no secret that the authors of Procedurally Taxing are doing their best to see that this changes. See posts here, here, and here among others.


Battle-Axes as a Business Expense: Probably Not if it’s a Daycare 

Eotvos v. Commissioner, Dkt. # 21450-16S (order here)

There isn’t anything to this order and bench opinion that breaks new ground. However, because I actually watched this trial during calendar call in St. Paul, I have a little insight that goes beyond what is in the bench opinion that may be of interest. This was largely a case of a taxpayer being convinced (maybe without much convincing, because it saved them money to believe it) of something ridiculous in the tax code. It may well be a corollary effect of being told so many times that the tax code is overly-complicated: the belief in form over substance leading to legal (though unreasonable) outcomes. Essentially, the taxpayer was told (or sold) a tax scheme from a “professional” whereby they could deduct pretty much the entire cost of their home and everything in it, so long as it was used for a daycare. During the trial, the taxpayer repeatedly tried to bring up Rev. Procs., and other (I’m confident) dubious sources of law that confirmed this was the proper treatment –if I had to guess, these legal authorities were all prominently cited to by the mastermind that told the taxpayer of this brilliant idea that no one else had yet come across.
It was all a bit painful to watch, as Judge Buch continuously had to steer the taxpayer towards establishing a factual record needed to touch on the issues (largely substantiation and purpose of the expenses), whereas the pro se taxpayer almost always tried to make legal arguments. One very much sympathizes with Judge Buch on this case, and a lot of credit should be given to him: to the extent that facts were put on the record that the petitioner would need for the case, they were almost wholly elicited from the Judge.

Unfortunately, those facts were not good. Among the detailed expenses that the taxpayer claimed for his daycare were a collection of battle axes and swords. Outside of Game of Thrones, it is hard to imagine those items being suitable for children (disclaimer: I don’t actually watch Game of Thrones so I have no idea if that reference works nor do I have children so I may be unaware of the role battle axes play in raising them). Because the entire home (and garage, and sidewalk, apparently) was used for daycare everything in and around those areas should be deductible as business expenses, to the taxpayer’s mind.

To anyone that wasn’t sitting at petitioners table, there was no doubt how this case would turn out. Hopefully, the taxpayer will carefully read the decision as it does a very clear job of laying out when things that are generally considered personal property can be deducted. If this will be enough to convince him that his “expert” was wrong is anyone’s guess. 


A few of the orders that are worth mentioning, but not in great detail, are as follows:

Health Care and Tax Returns (Binyon v. Commissioner, Dkt. # 23656-16S)

It may come as a surprise to some, but even before the Affordable Care Act there was a (very small) interaction of refundable tax credits and health care: the “Health Care Tax Credit” (IRC 35).If you hadn’t heard of this credit, it is probably because its application is fairly limited. The only potential applicants are eligible trade adjustment allowance (TAA) recipients, eligible alternative TAA recipient, or eligible Pension Benefit Guarantee Corporation (PBGC) pension recipients. The petitioner claiming the credit in this case fell into none of those categories. Furthermore, it appears that the petitioner had her insurance premiums paid by her father. It isn’t clear how petitioner came to believe she should get the credit (it doesn’t exactly jump out on Form 1040), but it is clear she wasn’t entitled to it. And so the court easily found.

Limits of Cohan (Martinez v. Commissioner, Dkt. # 22818-16S)

The court also easily came to the conclusion that a self-employed taxpayer was not able to deduct the costs of goods sold and business expenses beyond what the IRS conceded when the taxpayer kept virtually no records. The taxpayer bought and sold automobile parts from junkyards to sell on Ebay. This allowed for a fair estimate of some expenses (shipping costs, commissions to Ebay, and other transactional costs). And the IRS accordingly conceded $15,900 of allowable expenses on $33,361 of proceeds. A taxpayer asking for more, when they keep virtually no records, is unlikely to find charity from the court if the problem is due to their own failures. Cohan, in this context, allows for some expenses (it is clear that the taxpayer had some), but don’t expect to push that number particularly high.










Sealing Cases or Documents in Tax Court

We welcome back guest blogger Bob Kamman. Bob practices in Phoenix. He writes today about sealing the record in the context of a whistleblower case. The Tax Court faces this request in other contexts as well and we have covered the issue before here and here. Bob also raises some general privacy issues at the end of his post that deserve attention. Keith

We know that sometimes the government will ask that a case it files be sealed until later developments make public disclosure appropriate. In Tax Court, the government never files the case, but there are circumstances when the petitioner can ask for privacy or secrecy.


In recent years, most of these sealed cases involve “Whistleblowers” who claim that they are owed an award under Section 7623 for helping the IRS collect from taxpayers who otherwise would have escaped detection. In a ruling last June, the Tax Court ruled that such whistleblowers are not always entitled to confidentiality. That case is still sealed, suggesting that it has been appealed. According to a footnote, “At least four United States Courts of Appeal have held that orders denying leave to proceed under a pseudonym are immediately appealable as collateral orders.”

Not every whistleblower is anonymous. However, even when the petitioner’s name is disclosed, the name of the taxpayer to whom the claim relates must be sealed. That was the point of this April 2017 order in the James Awad case.

Aside from whistleblower cases, when will the Tax Court consider sealing a case? That was reviewed in the Sport Card case (principal petitioners are the McWilliams), where the facts were:

Petitioner in No. 15049-12 filed his petition on June 12, 2012, to which was attached a notice of deficiency issued by the Internal Revenue Service (“IRS”) on March 15, 2012. Petitions in three related cases were filed later that same year, and the cases were consolidated in January 2014. The records in these cases were, as usual, open to the public pursuant to section 7461. Almost three years after the first petition was filed, petitioners first moved on June 5, 2015, for a protective order to seal the record in the consolidated cases, but they thereafter withdrew the motion. On January 27, 2017–four years and nine months after the first petition was filed (during which time the record has been open)–petitioners again moved for a protective order, again requesting that the Court seal the entire record in these consolidated cases, or, alternatively, that the Court seal the public electronic docket index available on the Tax Court website.

Judge Gustafson reviewed the applicable law:

Section 7458 provides that “[h]earings before the Tax Court and its divisions shall be open to the public”; and section 7461(a) provides that, “[e]xcept as provided in subsection (b), all reports ofthe Tax Court and all evidence received by the Tax Court and its divisions, including a transcript of the stenographic report of the hearings, shall be public records open to the inspection of the public.”

Section 7461(b) provides two exceptions. The latter (section 7461(b)(2)) may apply after the decision of the Tax Court has become final (which is not the case here.) The former, section 7461(b)(1), provides that “[t]he Tax Court may make any provision which is necessary to prevent the disclosure of trade secrets or other confidential information, including a provision that any document or information be placed under seal to be opened only as directed by the court.”

Tax Court Rule 103 (“Protective Orders”) provides in subsection (a) that, upon motion and for “good cause shown,” the Court may make any order which justice requires to protect a party or other person from annoyance, embarrassment, oppression, or undue burden or expense.

Common law, statutory law, and the United States Constitution generally support the proposition that official Tax Court records are open for public inspection. Willie Nelson Music Co., 85 T.C. at 917 (citing Nixon v. Warner Communications, Inc., 435 U.S. 589, 597 (1978)). “Nevertheless, the presumptive right to access may be rebutted by a showing that there are countervailing interests sufficient to outweigh the public interest in access.” 85 T.C. at 919.

And perhaps not surprisingly, Judge Gustafson then denied the motion to seal some or all of the case file:

Petitioners have failed to demonstrate such countervailing interests. While we assume correct the facts laid out in petitioners’ motion and supporting declaration, many of them took place years ago, and some of them apparently bear no possible relationship to this case or anything filed herein.

Two pending Tax Court cases where records are sealed illustrate these two branches of the exceptions to public access and disclosure.

The first branch is protection of trade secrets, which is the most likely reason that a major media organization, generally expected to be an advocate for open courts, has requested that the details of several related cases be sealed. The case, filed in February 2017, involves Bloomberg L.P., the financial news service whose majority owner is former New York City mayor Michael Bloomberg. (Bloomberg LP won a Freedom of Information Act case against the Federal Reserve Bank in 2010.)

In June 2017, IRS moved to unseal the petition and answer. That motion is still under consideration. Meanwhile, the petitioners have requested that the place of trial be changed from San Francisco, as it originally requested, to New York. The docket is here.

The second branch of Rule 103 is protection of “a party or other person from annoyance, embarrassment, oppression, or undue burden or expense.” That seems to apply in the case of a cable-television personality who filed his petition in July 2017, asking that the case be sealed.

The petitioner and his partner are surrogate parents of two children born in 2010 and 2011, the years involved in the Tax Court case, along with 2012. One might think that caused the privacy request, but those facts have been reported already, apparently with petitioner’s assistance, in People magazine and elsewhere.

The detail that caused the request for sealing is simply the petitioner’s home address, according to Judge Armen’s September 28, 2017 order.

Petitioner is represented by counsel, whose mailing address is part of the record. But as in all cases, the petitioner was required to attach a copy of the Notice of Deficiency to his petition, and presumably it shows his home address. Judge Armen explained:

Respondent contends in his aforementioned Response that the information petitioner seeks to keep confidential is “currently readily available to the public.” . . . In addition, the allegations made in the pending motion and the affidavit attached thereto may be described as general, non-specific, and conclusory in nature. On the other hand, a fair reading of petitioner’s motion indicates that the only matter that petitioner seeks to keep confidential is his street address, which is a matter that should have no bearing on the disposition of the substantive issues raised by respondent’s notice of deficiency and in the petition for redetermination.

So, Judge Armen approved a redacted petition, identical to the one filed under seal except for the home address, and ordered a redacted pleading from IRS that omits the address.

The exact location of the home might deserve greater protection because petitioner is an interior decorator and photos of his own home have been featured on the “Traditional Home” website.

Petitions and notices of deficiency are not accessible online, except by the parties themselves, but may be found by a visit to the Tax Court building in Washington, D.C. Petitioners are already instructed to expunge Social Security numbers from notices, returns and other evidence submitted to the Tax Court case file.   The SSN instead is listed on a separate filing that is not open for public inspection.

Is there some reason that one petitioner’s home address deserves protection, more so than another’s? Should counsel for Tax Court petitioners now ask their clients if they have a good reason to shield their address from the public? In some cases, the address is essential for a ruling on whether the Notice of Deficiency was mailed to the petitioner’s last-known address. But what would be the harm from adding home address to SSN on the separate filing that is not disclosed?