Designated Orders 5-7-18 to 5-11-18

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We welcome Professor Samatha Galvin from Denver Law School for her turn at discussing the designated orders. She discusses the obligatory 6751 cases towards the end of the post after opening with a discussion of a post concerning the attempt by a taxpayer to get some credit for refunds lost to the statute of limitations. For an excellent discussion of the contrasting application of 6751 by the Tax Court at this point, see the recent post by Professor Bryan Camp over on the TaxProf blog. 

While the taxpayer in the case discussed below by Professor Galvin does not get credit for her lost refunds in the context discussed below (and I expect will almost never get credit in a court case), Dale Kensinger who volunteers with my clinic, did recently have some success with this argument in an ETA offer in compromise. It is hard to say whether Dale just had a very sympathetic offer examiner or if the resolution reflects a general policy but Dale’s arguments that the taxpayer should get some finger on the scale in the ETA context for lost refunds, which refunds would have fully satisfied the outstanding liability, resulted in an offer acceptance with less than full payment.

We are behind in our designated order posts and will publish two today in order to catch up.  Keith

For anyone considering the creation of a low income taxpayer clinic, we offer the following public service announcement:

The IRS has announced the application period for Low Income Taxpayer Clinic (LITC) grants for calendar year 2019 is now open and will run through June 27, 2018. A listing of the 2018 LITC grant recipients is available on IRS.gov

The mission of LITCs is to ensure the fairness and integrity of the tax system for taxpayers who are low income or speak English as a second language:

  • By providing pro bono representation on their behalf in tax disputes with the IRS;
  • By educating them about their rights and responsibilities as taxpayers; and
  • By identifying and advocating for issues that impact low income taxpayers.

The IRS welcomes all applications and will ensure that each application receives full consideration. The IRS is committed to achieving maximum access to representation for low income taxpayers under the terms of the LITC program. Thus, in awarding LITC grants for calendar year 2019, the IRS will continue to work toward the following program goals:

  • Obtaining coverage for the states of Hawaii, North Dakota, and the territory of Puerto Rico to ensure that each state (plus the District of Columbia and Puerto Rico) has at least one clinic;
  • Expanding coverage to counties in the following areas that are currently not being served by an LITC:  mid-Florida, northeast Arizona, northern Pennsylvania, and southeast New York (not including boroughs of New York City); and
  • Ensuring that grant recipients demonstrate they are serving geographic areas that have sizable populations eligible for and requiring LITC services.

The complete program requirements and application instructions can be found in Publication 3319 on www.irs.gov.

There were five designated orders the week of May 7, 2018 and four are discussed below. The only order not discussed ruled on the admittance of probative exhibits in an S case (here).

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Ignorance is Costly

Docket No. 23103-17S L, Bernadine Mary Hansen & Robert Joseph Hansen v. C.I.R. (Order here)

Prospective clients occasionally come to our clinic with the mistaken belief that their old, unclaimed refunds should offset any future tax that they owe. Unfortunately, that is not the way the refund statute works and there is no room for negotiating a “call it even” arrangement with the government in this context. The petitioners in this case were a bit more reasonable and only requested that their current penalties be abated because they did not claim old refunds.

The designated order grants respondent’s motion for summary judgment after the petitioners failed to respond, but the Court goes on to evaluate the arguments made by petitioners in their Form 12153 and related correspondence.

The form and correspondence state that petitioners do not think they should be responsible for penalties, because it was their understanding that if they were due refunds they could file a return at any time. They acknowledge that it would not have been possible for the IRS to know that they were due refunds, but they assumed that since they had consistently overpaid their tax liability in the past the trend would continue indefinitely.

Petitioners go on to compare the refunds they would have had of $24,194.44 to the amount they owe of $6,541.58 – and argue that because the IRS has “kept” $17,652 of their refund money they should not be penalized for their failure to file and failure to pay for the years in which there is a balance due. They also state that they still hope to receive some of the foregone refund money.

Additionally, petitioners represented to their settlement officer that a revenue officer had agreed to abate the failure to file and failure to pay penalties for 2008 and 2009, however, the settlement officer determined that only the 2009 abatement had processed because only one tax period (typically, the earliest period) can be eligible for first time abatement.

Ignorance of the law is not a reasonable cause defense, so the Court does not abate petitioners’ penalties and sustains the proposed levy.

No Judicial Notice

Docket No. 4901-16, 130 Ionia, LLC, Andrew T. Winkel Trust U/A/D January 30, 2008, Tax Matters Partner v. C.I.R. (Order here)

This order addresses a dispute over a conservation easement deduction. Respondent argues that the property subject to the deduction is not a historical building or structure listed in the National Register as required by section 170(h)(4)(C)(i). Whereas petitioner argues that the building is listed in the National Register. Despite their contradictory assertions, neither respondent nor petitioner submit evidence that could answer the question of whether the property is listed in the National Register.

The Court does not find the answer simple enough to take judicial notice of it and suggests that an expert opinion may be necessary, so it denies respondent’s motion for summary judgment because the case still involves a genuine dispute between parties as to a material fact.

Recent Section 6751(b)(1) News

Two of the week’s designated orders involve section 6751(b)(1) which has been covered substantially in other posts, so rather than go into too many details I briefly highlight the issues here.

1) Docket No. 20412-14, Triumph Mixed Use Investments III, LLC, Fox Ridge Investments, LLC, Tax Matters Partner v. C.I.R. (Order here)

Respondent moves to reopen the record to address the supervisory approval requirement of section 6751(b) in a notice of final partnership administrative adjustment (FPAA) case after the Court allowed the parties to file motions addressing the application of section 6751(b) in the aftermath of Graev III.

Even though respondent moves to reopen the case, he also argues that he does not bear the burden of production with respect to the penalties in the proceeding because of the decision in Dynamo v. Commissioner. In Dynamo, the Tax Court held that the IRS does not bear the burden of production in a partnership-level proceeding, because it is not a proceeding with respect to the liability of an individual as section 7491(c) requires.

The Court states there is no need to reopen the record to permit the Commissioner to meet a burden that does not fall on him. Additionally, petitioner has not raised the issue of whether there was supervisory approval, so the case need not be reopened since doing so would not affect its outcome. As a result, the Court denies respondent’s motion to reopen the record.

2) Docket No. 18254-17 L, Gwendolyn L. Kestin v. C.I.R. (Order here)

This designated order involves section 6751(b)(1) as it relates to section 6702. This case is very similar to case highlighted in recent posts by Patrick Thomas here and Keith here.

The taxpayer and her husband submitted what appeared to be a normal 2014 tax return reflecting wages and a tax liability. Subsequently, the taxpayers amended the return reporting zero tax liability and a statement of the tax protestor variety.

The IRS responds by sending a Letter 3176C advising the taxpayers that the position reflected on their return is frivolous and they intend to assert a $5,000 penalty under section 6702 as a result. The IRS ultimately asserts seven section 6702 penalties for a total of $35,000. Although this is a CDP case, petitioner has not had the prior opportunity to challenge the underlying assessment and the Court cannot determine if petitioner should be liable for more than one penalty. It appears that most of the penalties were assessed on copies of the amended return that were sent along with correspondence from petitioner about the amended return, so the Court asks whether a copy constitutes a filing as required by section 6702.

The Court also want to ensure that the IRS complied with supervisory approval requirements of section 6751(b)(1). The approval is shown by the obscured and illegible signatures of a manager, but the Court does not know if that person was the immediate supervisor of the originator of the form as required by 6751(b)(1). The Court grants respondent’s motion for summary judgment in part (finding the amended return was frivolous) and denies it in part allowing the case to continue to trial.

 

Comments

  1. Don’t you just love a story about facade easements? No? Well, neither do I, but I like a good mystery, and that’s what is involved when IRS and a business taxpayer can’t agree on whether a building is historic. That’s the plot line in the 130 Ionia LLC case. For added interest there is a connection to Education Secretary Betsy DeVos.

    The building is in the Heartside Historic District of Grand Rapids, Michigan. There is a map of this area, which covers about 20 blocks, on page 14 of a pdf that can be found at

    https://www.grandrapidsmi.gov/Government/Boards-and-Commissions/Historic-Preservation-Commission?BestBetMatch=historic%20district%20maps|d13b95b2-5146-4b00-9e3e-a80c73739a64|4f05f368-ecaa-4a93-b749-7ad6c4867c1f|en-US

    (Scroll down to the link for “Historic Districts and Guidelines” and open the one for Maps.) On page 15 we find that all buildings on Ionia Avenue SW in the address range of 1 to 350 are in the district.

    There is also a link that will eventually lead to a National Park Service publication on conservation easements, telling us that:

    “A property is considered a certified historic structure if it is a building, structure, or land area individually listed in the National Register of Historic Places, or if it is a building located in a registered historic district and is certified by the National Park Service as contributing to the historic significance of that district. A registered historic district includes any district listed in the National Register of Historic Places. A State or local historic district may also qualify as a registered historic district, provided the district and the enabling statute are certified by the National Park Service.

    “In the case of a building in a registered historic district, to apply for a certification of significance (a determination by the National Park Service as to whether a building is a certified historic structure), a prospective easement donor contacts the State Historic Preservation Office (SHPO) to request a Historic Preservation Certification Application or downloads the application from the National Park Service website http://www.nps.gov/history/hps/tps. The property owner then completes Part 1 of the application and returns it to the SHPO. The SHPO then forwards the application, along with a recommendation, to the National Park Service, which makes the certification decision. The property must be certified by the National Park Service either by the time of the transfer of the easement or the due date (including extensions) for filing the Federal income tax return for the taxable year of the easement transfer.”

    There is a list of some of the buildings in the district at a non-governmental website.

    https://localwiki.org/gr/Heartside-Downtown

    It includes the Amway Grand Plaza Hotel. (Amway, aside from being the cause of many Schedule C audits, is the source of the DeVos family fortune.) One of the highlights of the Heartside Historic District is the Furniture City Mural, a project funded in part by the Dick and Betsy DeVos Foundation.

    Finally, we find a photo of the building on Google Maps. Its current occupant is Peppino’s, a “grill and pizzeria.”

    https://www.google.com/maps/place/130+Ionia+Ave+SW,+Grand+Rapids,+MI+49503/@42.9600011,-85.6701644,3a,75y,89.42h,89.87t/data=!3m6!1e1!3m4!1scO-7BmXKIpkvlqR3dYyuog!2e0!7i13312!8i6656!4m5!3m4!1s0x8819adc3ce446905:0x6aace588332c3894!8m2!3d42.9600364!4d-85.6698948

    So we know that the building is in a historic district. But what additional steps were taken, and were they enough, to qualify the building for a facade easement donation? We may never know, if IRS and the petitioners get together and agree to a stipulated settlement.

    Meanwhile, if you have never been to Grand Rapids, don’t miss the Gerald Ford Museum, which is part of the Presidential libraries system of the National Archives and Records Administration, a Federal agency. (The Gerald Ford Library, however, is located elsewhere in Michigan.) You will relive the 60s and 70s in print, sound and video; and see a full-scale replica of the Oval Office.

  2. Norman Diamond says:

    “Obtaining coverage for the states of Hawaii, North Dakota, and the territory of Puerto Rico to ensure that each state (plus the District of Columbia and Puerto Rico) has at least one clinic;”

    Again it looks like the IRS is working to overturn Cook v. Tait. Let’s hope they succeed.

    ‘Prospective clients occasionally come to our clinic with the mistaken belief that their old, unclaimed refunds should offset any future tax that they owe. Unfortunately, that is not the way the refund statute works and there is no room for negotiating a “call it even” arrangement with the government in this context.’

    Section 1462 doesn’t set time limit on the credit, even if the credit can’t change into a refund.

    (Had the original claim occurred within the applicable period of limitations, section 6402 is worded weirdly in that credit is optional at the whim of the Secretary but refund is mandatory.)

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