IRS Updates Guidance on How to Handle Premature Petitions

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The work that the IRS must perform at the beginning of a Tax Court case requires more effort than readily meets the eye and results in issues easily overlooked. Bob Kamman wrote earlier this year about the answers the IRS files in Tax Court cases in which the taxpayer has yet to pay the filing fee (and in some cases never does so.) That discussion raises questions concerning the filing of an answer before a case has properly come before the court.

In another issue involving answers in Tax Court case, the IRS has been trying for over a decade to reverse a 2007 decision of the Tax Court to require answers in small tax cases. Since approximately 50% of the petitions filed in the Tax Court request small case status, this issue has a huge impact on the effort the IRS must expend at the beginning of the case. The attachment to the IRS submission on the issue, attached to our post, discusses that impact on the IRS. I see no change coming on that front in the near future. The IRS will continue to file answers in small tax cases. The answers will continue to provide almost no useful information since the IRS denies everything in the vast majority of cases including matters it could admit if it took the time to look in its file. The answers will confuse pro se taxpayers. The answers will provide the taxpayer with the name of the IRS attorney and that, at least, will keep, or at least reduce the numbers, taxpayers from contacting the Tax Court to find out the status of their case. Filing the answer also should cause the IRS attorney to pay attention to jurisdictional issues at the outset of the case although that does not always happen.

Today’s post discusses another issue that the IRS faces at the outset of the Tax Court case – identifying and addressing petitions filed prior to the time the taxpayer receives the notice of deficiency. (The issue can arise in other types of Tax Court jurisdiction such as notices of determination in CDP and innocent spouse cases or whistleblower cases but the Chief Counsel notice discussed today focuses on deficiency cases.) It is important that the IRS identify cases filed prematurely since the filing can have an impact on the statute of limitations on assessment and collection.

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Notice CC-2018-008, issued on July 6, 2018, alerts Chief Counsel attorneys to revisions in their manual regarding Tax Court petitions filed prior to the issuance of the notice giving the taxpayer the right to petition. The Notice makes clear that the suspension of the statute of limitations on assessment provided by IRC 6503 does not apply when someone petitions the Tax Court in a situation in which the IRS did not issue a notice of deficiency. Of course, Chief Counsel attorneys are not the only part of the IRS that play a role in these cases. They must coordinate with exam and with appeals as they tie down the facts to show that no notice of deficiency was sent. The information regarding the absence of a notice of deficiency needs to be gathered quickly so that the Chief Counsel attorney handling the case can notify the Tax Court before the case gets too far along and so that it does not impair the examination division in its review of the case.

Although the Tax Court rules and the instructions printed on the form petition require that the taxpayer attach a copy of the notice of deficiency to the petition, many petitioners do not attach the notice.   If the taxpayer attaches a valid notice of deficiency, the case becomes easy to work. Once the IRS attorney receives the administrative file, the IRS can file an answer or file any other appropriate responsive pleading. In the relatively high percentage of cases in which a notice of deficiency is not attached to the petition, then the Service must run down the notice of deficiency before it knows what to do. While it may seem like a simple task to run down a notice of deficiency, the IRS sometimes has problems finding the administrative file. The task becomes more difficult if the IRS has not recently been handling the case. Some taxpayers file petitions based on almost any document they receive from the IRS and some do not mention the year(s) at issue. Determining the reason for the petition can involve a fair amount of detective work in some cases.

The notice informs Chief Counsel attorneys that internal guidance is changing regarding the handling of these cases and that their manual will soon change. One change provides that:

If no notice of deficiency is attached to the petition, the attorney should determine whether a notice of deficiency has in fact been issued. If a notice of deficiency has not been issued because the tax year is still under examination, the petition is premature…. For any such year, the attorney should file a motion to dismiss for lack of jurisdiction… also remind Examination personnel that the statute of limitations on assessment is not tolled by premature petition and the ASED must be protected by extending the statute of limitations with Form 872….

Further in the Notice Chief Counsel attorneys are advised that:

If the petition is premature, attorneys should move to dismiss the case for lack of jurisdiction. In this instance, the motion should make out a prima facie case that the petition is based upon a 30-day letter, notice of rejection of a claim for refund, or other similar notice, or not based on any communication from the Service at all… If Field counsel does not receive a Form 15022 (a form the IRS has devised to certify to the attorneys that a notice of deficiency was NOT issued), Field Counsel must conduct a search to verify that a notice of deficiency or other determination letter that would confer jurisdiction on the Tax Court has not been issued to the taxpayer for the tax/period at issue….

I do not know what prompted the Notice. It’s possible that the IRS blew the statute of limitations on assessment in one or more case because it failed to pay careful attention to the running of the statute while it sorted out a prematurely or improperly filed petition. In any event, the IRS seems to seek to catch these issues with renewed vigor. Because of the high volume of cases handled by correspondence examination providing low income taxpayers with no person to really talk to about their case, it’s not surprising that many taxpayers get confused about when to file their Tax Court petitions. The fact that the IRS publishes this Notice suggests that representatives should look closely at the statute of limitations on assessment for clients they represent who may have prematurely petitioned the Tax Court so that a decision can occur regarding the timeliness of the proposed assessment.

 

Comments

  1. Chief Counsel can set multiple wheels in motion at multiple locations, trying to find something that may not exist. Or Chief Counsel, in the interest of effective management and conservation of resources, can ask the paralegal to print out a “Motion for More Definite Statement,” as permitted by Rule 51, and lob the ball back to the petitioner who failed to attach the Notice of Deficiency.

    RULE 51. MOTION FOR MORE DEFINITE STATEMENT

    (a) General: If a pleading to which a responsive pleading is permitted or required is so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading, then the party may move for a more definite statement before interposing a responsive pleading. The motion shall point out the defects complained of and the details desired. See Rules 70 and 90 for procedures available to narrow the issues or to elicit further information as to the facts involved or the positions of the parties.
    (b) Penalty for Failure of Response: The Court may strike the pleading to which the motion is directed or may make such other order as it deems just, if the required response is not made within such period as the Court may direct.

  2. Norman Diamond says:

    It is still impossible for a recipient of a letter from the IRS to figure out if the letter is something that starts a deadline rolling where the recipient has to petition Tax Court or if the letter is not something that allows the recipient to petition Tax Court. If the title doesn’t say Notice of [something], Tax Court sometimes does and sometimes doesn’t say that the court acquires jurisdiction on the basis of underlying statutes and regulations which compel the IRS to issue a Notice of [something] even though the IRS didn’t comply.

    Furthermore if a person waits to receive an IRS letter titled Notice of [something], it’s already too late, cf. Atsuke v. CIR, docket 31680-15SL. A person who expects a notice has to petition Tax Court every 30 days without knowing if the IRS has actually mailed a notice or not.

    A real solution would be to accept the premature petition and put a stay on it until the IRS issues the kind of notice it’s required to issue.

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