Designated Orders: 12/25/17 to 12/29/2017

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The Court was busy during the holiday issuing more designated orders than might be expected and perhaps bringing back to work some Chief Counsel employees who thought they were off until the new government leave year. This week’s designated orders post was prepared by William Schmidt. He focuses on an order regarding Railroad Retirement Income. This type of income gets special play in the tax code but does not create many cases. Keith

On this holiday week, the designated orders could be divided into the Graev III camp and the non-Graev III camp. Two orders not discussed include an order denying a husband’s motion to be recognized as his wife’s “next friend” (Order Here) and the granting of an IRS motion for summary judgment when petitioner did not provide documents for collection alternatives (but submitted an offer in compromise two weeks after filing the petition) (Order and Decision Here).


Judge Ashford’s Graev III Orders

One example: Docket # 10691-14S, Christopher John Totten v. C.I.R. (Order Here).

Keith Fogg previously discussed fallout for Graev III in this post and Bob Kamman made note of Judge Ashford’s December 26 orders specifically in the comments for that post so this is a bit of a repeat, though it receives some focus in the context of this week’s designated orders.

On December 26, Judge Ashford issued 18 designated orders (14 solitary and 2 each of 2 consolidated dockets) that followed Judge Buch’s template of providing history and a timeline regarding Graev III and other connected cases dealing with Internal Revenue Code section 6751(b).

In Judge Ashford’s orders, the IRS is to respond to the orders on or before January 9 and the petitioners are to respond on or before January 16. Any motions addressing the application of section 6751(b) are to be filed on or before January 23.

This series of orders added to the already interesting history of section 6751(b), Chai, and Graev III.

Taxation of Railroad Retirement Income

Docket # 14521-16, Mell Woods & Gloria Woods v. C.I.R. (Order and Decision Here).

Petitioner Mell Woods received $8,769 of railroad retirement income (“RRI”) in 2013. On their joint tax return for 2013, the petitioners reported $59,047 of adjusted gross income, which did not include the railroad retirement income. The petitioners elected to have the IRS compute their tax liability, which the IRS computed and assessed based on the income reported (which still did not factor in the RRI). The liability is the amount petitioners paid the IRS.

The IRS received the Form SSA-1099 from the Railroad Retirement Board that reported the RRI. Based on that reported income, the IRS underreporting department issued a notice of deficiency from an increased taxable income that includes 85% of the RRI ($7,454) with a resulting deficiency in income tax of $1,125.

After the petitioners filed a timely petition to the Tax Court, the IRS proposed stipulations of fact. On July 27, 2017, the Tax Court issued an order that the petitioners show cause why the proposed stipulations should not be deemed stipulated. After receiving a deficient response from the petitioners, the Court made absolute that order to show cause by its order on August 17, 2017, and deemed stipulated the proposed facts with one exception (the phrase “of which $7,454.00 (85%) was taxable income” – at issue in the Tax Court case).

The IRS next filed a motion for summary judgment with 8 numbered paragraphs supported by 4 documents. Two of the documents are authenticated by IRS counsel Olivia Rembach and the other two are self-authenticating.

Petitioners filed a response denying 5 of the 8 factual paragraphs in the IRS motion. Their denials follow the lines of “Paragraph 3 is denied; paragraph 5 is denied; paragraph 6 is denied”, et cetera. Mr. Woods also included a declaration with statements that the information supplied to the Court is not totally correct: “some of the information does not match the records of the petitioners; other information has been redacted, or covered up, and is not the same as the information supplied to the IRS by the petitioners”. With regard to the RRI, he stated that the information supplied by the U.S. Railroad Retirement Board is incorrect. On the IRS computation of the income tax, “[they] are now complaining about their own figures” because the petitioners “paid the exact amounts as computed by the IRS” and “do not owe additional taxes for the year in question.” He also states that Ms. Rembach does not have personal knowledge of the information and concludes she is not a competent witness.

The Court reviewed the response and determined that the petitioners made blanket denials and did not set forth specific facts showing a genuine dispute for trial, especially regarding the issue of whether the railroad retirement income Mr. Woods received is taxable income. The Court granted the IRS motion for summary judgment and decided the petitioners owed the income tax deficiency of $1,125.


  • Responses to motions or orders should ideally explain why the parties disagree by stating specific facts and providing supporting documentation. Here, the petitioners gave blanket denials regarding IRS statements that might have gained traction if they said something beyond “paragraph 3 is denied.”
  • When the IRS underreporting department is contacting about income reported to them, it is worthwhile to review the entire notice to see if you agree with their calculations. The IRS might deny credits that should be allowed so it may be necessary to respond to the notice. Overall, you will need to have solid reasons to dispute why the income should not be included with that year’s taxable income (identity theft is a good example).
  • In this case, the main issue was the taxability of railroad retirement income. Since the petitioners submitted their tax return to the IRS for computation of the income tax owed, it may be that they did not understand how to determine the taxable portion of RRI. The order illustrates that Tier 1 railroad retirement benefits are included in income as “social security benefits” under IRC section 86. Tier 1 RRI benefits are taxable under a formula that includes 85% of the RRI in income if the taxpayers’ modified AGI (excluding the RRI) exceeds $44,000. Since the petitioners had modified AGI of $59,047, that was well over the threshold and 85% of the RRI was taxable (85% of the $8,769 was includible income so $7,454 was added to the taxable income). The increase in their income added to their tax $1,125, resulting in a deficiency. Because the petitioners did not argue there was a computational error, the Court ruled for the IRS.



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