Designated Orders: 10/2/17 to 10/6/2017

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LITC Director for Kansas Legal Services William Schmidt reviews interesting procedural issues in this week’s edition of designated orders. Two of the cases he discusses involve bench opinions which we have written about previously here and here. We got a little bit behind in publishing our weekly review of designated orders making this the second post of the week on such orders.  We hope to go back to our “normal” pattern of posting each Friday.  Keith

Out of 8 designated orders last week, I am focusing on two cases that relate to the last known address of the Petitioner (reinforcing the necessity of communicating address changes to the IRS) and one case where Petitioner needed to provide more evidence to support his claims.

The first two cases cited are bench opinions, 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 (who may or may not have paid the court reporter for those transcripts). Bench opinions are just as subject to appeal as other cases, so long as the case involved has not been designated a small tax case under 7463.  The written version of the bench opinion is useful for the appellate court.

Last Known Address Case 1

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. Once Petitioner verified the SNOD, he filed a petition with the Tax Court with the argument that no SNOD was ever mailed out.

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I previously reported on this case in this blog posting regarding The Court’s denial of Respondent’s motion to dismiss for lack of jurisdiction. Within that post, I noted that the IRS is required to update their addresses based on U.S. Postal Service (“USPS”) Change of Address notifications and those notifications are influential to determine jurisdiction for Tax Court.

The Court held an evidentiary hearing in Detroit, Michigan, on September 18, 2017. Petitioner bore the burden of proof regarding his change of address with the USPS. Petitioner gave oral testimony that he submitted his change of address notification to the USPS after he moved in June 2012 and before the IRS issued the SNOD in February 2013. Petitioner was to give specific details of when he gave notice and what he stated on the form. He did not provide any further specifics or provide documents in support of his statements.

The Court did not have evidence of what Petitioner submitted to the USPS so could not compare the USPS or IRS data (for example, if a name or address submitted to the USPS was misspelled). Based on that lack of evidence, the conclusion was that the IRS acted on the last known address they had for the Petitioner. The Court dismissed Petitioner’s petition for lack of jurisdiction as being untimely filed.

Last Known Address Case 2

Docket # 9469-16 L, Mark Marineau v. C.I.R. (Order Here).

Patrick Thomas previously reported on this case in this blog posting. At last report, the question was why the IRS sent a SNOD to the Petitioner in Michigan if Petitioner lives in Florida.

Here is the procedural background – Following Petitioner’s Tax Court petition, Respondent filed a motion for summary judgment, supported by a declaration from the settlement officer. The Court directed by order on July 5, 2016, for Petitioner to file a response, but he filed his own motion for summary judgment instead where he objected to Respondent’s motion (filed October 19). Respondent filed a response January 23, 2017, objecting to Petitioner’s motion. Petitioner filed a reply to Respondent’s response on March 24, 2017. The Court ordered Respondent to explain the disparity between the address listed on the Form 3877, the notice of deficiency address and the address where the notice of deficiency was sent. On July 28, Respondent filed a First Supplement to Motion for Summary Judgment, supported by a declaration supported by Respondent’s counsel. Petitioner was ordered to file a response on or before September 14 but did not.

This began when the IRS prepared a substitute return for Petitioner for 2012 because Petitioner failed to file his tax return. On June 8, 2015, Petitioner mailed a letter to IRS headquarters that told of his change of address to a post office box in Fraser, Michigan, stating that it was an official notification and requesting that they update their records. On June 18, 2015, the IRS mailed the notice of deficiency to Petitioner at a Pensacola, Florida, address. Even though the notice was mailed to Florida, the USPS attempted delivery to a Roseville, Michigan, address. The IRS has not explained why it was sent to that Roseville address even though it was addressed to the Pensacola address. The notice went unclaimed and the USPS returned it back to the IRS on July 21, 2015.

Petitioner did not file a petition for redetermination of the notice of deficiency for 2012. The IRS sent demand for payment regarding the full 2012 tax liabilities that Petitioner did not pay.

Following this, the IRS and Petitioner corresponded based off his Pensacola address. First, the IRS mailed a notice of intent to levy and Petitioner filed a Form 12153, Request for Collection Due Process or Equivalent Hearing. Petitioner said he would like to have a face-to-face hearing. He did not check any box to propose a collection alternative but wrote in his statement that he would like to discuss collection options if it is proven he owes the tax. The settlement officer’s response was that in order to have a face-to-face hearing, Petitioner needs to complete Form 433-A and submit a tax return for 2012, plus returns for 2013 and 2014 (or explain why he was not required to file a return for that year/years). Petitioner again requested the meeting but did not supply any of the requested documents so the settlement officer followed up with a reminder letter and second copy of the original letter. Petitioner did not call for the March 1, 2016, hearing date and did not supply the documents. The Appeals Office sent a notice of determination March 17, 2016, to his Pensacola address. Petitioner again responded to request a face-to-face hearing without providing any documents. Petitioner timely filed a petition with the Tax Court and listed his Pensacola address as his mailing address.

The Court concluded there is still an issue of material fact regarding whether the June 8, 2015 notice of deficiency was mailed to Petitioner’s last known address. One issue is while Petitioner’s method of notification to the IRS was unorthodox, Petitioner argues it was a “clear and concise notification” of his change of address. The Court denied both the Petitioner’s motion for summary judgment and the Respondent’s motion for summary judgment.

Evidence Presented at Trial

Docket # 23891-15, Abdul M. Muhammad v. C.I.R. (Order Here).

This case concerns a SNOD sent to Petitioner regarding tax years 2012 and 2013. At issue were $15 in taxable interest unreported in 2013, one dependent exemption in 2012 and two exemptions in 2013, head of household status for both years, American Opportunity Credit or other education credits for both years, a deduction for $7,743 for charitable contributions in 2013, ability to deduct Schedule C business expenses in 2013, penalty for failure to timely file a tax return in 2012, and accuracy related penalty under IRC section 6662(a) in both years.

At trial September 18, 2017, in Detroit, Michigan, Petitioner represented himself and had the burden of proof requirement regarding these noted issues below.

  • Interest Income: Petitioner presented no evidence to dispute that the $15 was taxable interest income.
  • Qualifying Children: Petitioner presented no records (school, medical or otherwise) to show that the children lived with him for more than half the year.
  • Education: Petitioner was enrolled in online courses at the University of Phoenix and had expenses of $4,178 in 2012 and $3,977 in 2013.
  • Charitable Contributions: Petitioner did not have documentary evidence to show charitable contributions he made to his mosque.
  • Business Expenses: Petitioner did not offer documentary evidence to support his claim of $10,299 in expenses as a roofer in 2013.
  • Accuracy Related Penalty: No reasonable cause was provided to dispute the burden in 6662(a) or (b)(1) for a taxpayer’s negligence or disregard of rules and regulations.

As a result, the IRS adjustments were sustained regarding the interest income, dependency exemptions, head of household filing status, business expenses and accuracy related penalties.

However, the IRS did not provide convincing proof regarding Petitioner’s late filing of his 2012 tax return (their documents provided contradictory dates so did not meet the burden of proof). Also, Petitioner claimed $4,377 in charitable contributions but the deficiency stated $7,743 (a difference of $3,366) so the deficiency needed to be recomputed. He was also entitled to the education credits for both years.

Takeaway: Providing evidence at Tax Court, especially documentary evidence, is necessary to win on issues at trial. When the Petitioner only provides oral evidence restating a position on the issue, it is unlikely that will be a successful tactic.

 

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