New Tax Court Rules

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On March 28, 2016, the Tax Court promulgated  new interim and proposed rules in response to the legislation Congress passed at the end of 2015.  Congress had trained us that it did not really legislate anymore and suddenly it had a burst of activity passing the Bipartisan Budget Act of 2015, The Fixing America’s Surface Transportation Act and the Protecting Americans from Tax Hikes Act of 2015.  Embedded in each piece of legislation was something, or many things, that impacted the Tax Court.  The announcement from the Court included notification it was adopting certain interim rules without giving the opportunity for public comment because of the immediate need for rules while it also announced proposed amendments on which it invited comments.  This post will briefly touch on most of the rule changes and follow the order in which the changes appear in the rules.

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Rule 13 relating to the Court’s jurisdiction is changed to reflect the inclusion of innocent spouse and collection due process (CDP) cases in the types of cases impacted by the automatic stay in Bankruptcy Code 362(a)(8).  In 1978 when Congress created the current bankruptcy code it imposed the stay on Tax Court proceedings singling out the Tax Court among all courts for this treatment.  I covered this issue previously in discussing the legislation.  At that time Congress created BC 362(a)(8) the Tax Court did not have standalone innocent spouse jurisdiction and did not have CDP jurisdiction.  The reference in BC 362(a)(8) did not include these types of cases and the scope of the stay regarding these cases was unclear.  In the PATH legislation, Congress extended the stay to these types of cases and the Court rules now include this change.  So, starting on December 18, 2015, a taxpayer cannot bring a Tax Court proceeding to determine innocent spouse status or to challenge a CDP determination if the taxpayer is in a bankruptcy proceeding in this the automatic stay is in existence.  Similarly, if a Tax Court proceeding under the innocent spouse or CDP provisions is ongoing at the time the taxpayer files a bankruptcy petition and creates the automatic stay, the Tax Court proceeding will be suspended until the stay terminates by operation of law or by bankruptcy court order.  This change creates a parallel structure for different types of Tax Court proceedings stopping all of them when a bankruptcy occurs

Rule 143 changes as a result of a PATH act provision because Congress changed the applicable rules of evidence for Tax Court cases.  Guest Blogger Joni Larson discussed this change.  See her post here.

Rule 255.1-.6 address changes to partnership actions brought about by Bipartisan Budget Act.

Rule 280 changes to address the new path to Tax Court jurisdiction created by the PATH act.  Taxpayers seeking interest abatement now have an ability to get into Tax Court that follows the path some taxpayers take to District Court in refund suits.  Instead of waiting for a notice from the IRS as a ticket to Tax Court, the failure of the IRS to act on the interest abatement request within 180 days after the filing of the claim opens the doors of the Tax Court to judicial review of the issue.

Rule 281 sets out the information a petitioner seeking interest abatement should include in the petition

Rules 350 through 351 address the new Tax Court jurisdiction to rule on the revocation of passports.  See our post by guest blogger Ken Weil on this issue here.   We wait anxiously to see the first one of these petitions.  Because petitions to reverse the revocation of a passport present an entirely new basis for jurisdiction of the Tax Court, the procedures set out in the proposed rule change and the proceedings brought under the new code provision will create a whole new body of case law.  It may take the next couple of decades for this to fully play out just as the CDP legislation in 1998 is still creating new wrinkles for the Court to address.

Congress seems to want to load the Tax Court with more and more types of cases.  When will it decide that the Tax Court can handle refund cases?

 

Comments

  1. Norman Diamond says:

    “Congress had trained us that it did not really legislate anymore and suddenly it had a burst of activity passing the Bipartisan Budget Act of 2015, The Fixing America’s Surface Transportation Act and the Protecting Americans from Tax Hikes Act of 2015.”

    The Constitutional Convention intentionally set cumbersome rules so that Congress wouldn’t legislate too much. They thought that would make Congress concentrate on important issues … oh well, at least they tried.

    The FAST Act doesn’t really increase tax, it increases penalties. 99% of America’s diaspora owe $0.00 in US tax because earned income is less than the limit of Foreign Earned Income Exlusion, and if anything is left over (such as investment income) the ordinary amount of US tax is wiped out by foreign tax credits because countries where we live usually have higher tax rates than the US. The FAST Act increased enforcement of penalties for US persons who make the mistake of banking in the countries where they live, investing in mutual funds in countries where they live, having dependants who get disability benefits paid for by taxpayers in countries where they live, selling their home and discharging their mortgate in countries where they live, etc. If you’ve read about record numbers of renunciations of US citizenship, 99% of the record numbers are ordinary people getting screwed, while they get tarred by accusations that they’re the 1% who sometimes really are tax evaders or who might be honest successful entrepreneurs. No other country in the world hates its diaspora as much as the US does.

    “Congress seems to want to load the Tax Court with more and more types of cases. When will it decide that the Tax Court can handle refund cases?”

    Hear, hear. Tax Court agreed with the IRS that the only mistake I made was to write and sign honest declarations instead of committing perjury. I had already fixed my mistake when the IRS finally told me what my mistake was. The IRS didn’t tell other courts that I have to fabricate a social security number for my wife, etc. The DOJ persuaded other courts to make those rulings. In order to produce any semblance of consistency, Congress has to undo the damage found by Greene-Thapedi v. Commissioner.

  2. Jason T. says:

    Where has Congress “loaded” the Tax Court with “more and more types of cases?”

    More than 90% of the Tax Court’s cases remain deficiency cases. The three or four annual passport revocation cases the Tax Court will soon decide will hardly load that august tribunal with additional work.

    When will Congress allow the Tax Court to handle refund cases? How about never? We have ninety-four U.S. District Courts, and one U.S. Court of Federal Claims, to handle tax refund cases.

    By the way, are the Tax Court’s rules more akin to rules of law or to legislative regulations?

  3. Norman Diamond says:

    US Tax Court is moderately accessible to pro se filers who live in states that don’t have Low Income Tax Clinics, who can’t afford to hire US tax lawyers let alone lawyers trained in the complexities of multiple conflicting tax jurisdictions.

    US Court of Federal Claims has procedures that aren’t overly cumbersome to file in, but is incredibly biased against people who can’t afford to hire US tax lawyers.

    If you search US Courts’ web site to find which US District Court has jurisdiction the answer is none, and if you search Cornell’s web site for statutes on jurisdiction the answer still appears to be none, so in case someone finds this page in a Google search, let me post here that you can find an answer in Cornell’s web site in a statute on DEFINITIONS.
    https://www.law.cornell.edu/uscode/text/26/7701
    “Persons residing outside United States
    If any citizen or resident of the United States does not reside in (and is not found in) any United States judicial district, such citizen or resident shall be treated as residing in the District of Columbia for purposes of any provision of this title relating to-
    (A) jurisdiction of courts, or
    (B) enforcement of summons.”
    Filing in a US District Court preserves the right to a jury. However, the procedure is immensely complicated. You have to provide for postage from the US for the court to return a copy of a filing with their “Filed” stamp, and you have to get a third party to serve three destinations by registered mail with return receipts, and USPS often refuses to return completed return receipts. Also in my experience district courts are even more prejudiced than Tax Court.

    US Court of Federal Claims is easier to file in than US District Courts, you don’t have to go to the US or find a way to provide US postage or get a third party to do mailings or somehow find a way to get USPS to complete a registered mail return receipt. But Court of Federal Claims also is even more prejudiced than Tax Court.

    Plus of course there’s that Flora v. US case, which prevents courts other than Tax Court from taking jurisdiction when the IRS’s corruptly altered records don’t show that the amount of withholding already overpaid the amount that the IRS claimed in a lien or intent to levy.

    If a pro se person is already in Tax Court on a Notice of Deficiency, Tax Court has jurisdiction to find the overpayment and order a refund. If there was no Notice of Deficiency, if a pro se person is in Tax Court on a Notice of Determination (or other IRS notice of a variety for which Tax Court shouldn’t have taken jurisdiction), why shouldn’t the person get to have Tax Court find the overpayment? Why force the poor an middle class to make multiple filings in multiple courts?

    Greene-Thapedi v. US needs to be overturned by statute not by case law, and it sure does need to be overturned.

    By the way, again if anyone finds this page in a Google search, please let me mention that some CFRs appear relevant for people who have trouble with the IRS before it gets to the point where a court case is necessary (and also after, as far as I can tell).
    https://www.law.cornell.edu/cfr/text/26/601.101
    “The Director, Foreign Operations District, administers the internal revenue laws applicable to taxpayers residing or doing business abroad, foreign taxpayers deriving income from sources within the United States, and taxpayers who are required to withhold tax on certain payments to nonresident aliens and foreign corporations, provided the books and records of those taxpayers are located outside the United States.”
    https://www.law.cornell.edu/cfr/text/26/601.106
    “Unless they otherwise specify, taxpayers living outside the United States use the facilities of the Washington, DC, Appeals Office of the Mid-Atlantic Region.”
    There’s a way to force an appeals office to issue a Notice of Deficiency, upon which Tax Court will acquire jurisdiction over the refund owing. But I don’t know yet if I guessed the correct addresses of “The Director, Foreign Operations District” and “Washington, DC, Appeals Office of the Mid-Atlantic Region.”

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