Taxpayer Rights and Declining Budgets

Today marks the opening of the Second International Taxpayer Rights Conference. It is hosted by the Institute for Austrian and International Tax Law at WU (Vienna University of Economics and Business) in Vienna, Austria.

This conference connects government officials, scholars, and practitioners from around the world to explore how taxpayer rights globally serve as the foundation for effective tax administration.

For two days, the conference will consider a range of issues, including:

  • Taxpayer Rights in Multi-Jurisdictional Disputes
  • Privacy and Transparency in Tax Administration
  • Access to Taxpayer Rights: The Right to Quality Service in Today’s Environment
  • Transforming Cultures of Agencies and Taxpayers
  • Impact of Penalty Administration on Taxpayer Trust

There are some very interesting panelists and over 160 attendees representing 40 different countries.  Facebook live sessions of the conference can be found at www.facebook.com/TaxAnalysts.org/videos

I am appearing on a panel discussing taxpayer rights in era of reduced agency budgets. My talk is entitled Thoughts on Taxpayer Rights and an Uncertain Future, and an upcoming paper based on it will be published as part of the conference proceedings. A significant number of the panelists’ talks will result in published papers.

Part of my talk addresses how an agency can best juggle its multiple roles when faced with declining resources. This is an issue the IRS knows well. To be sure, there have been trends like e-filing that allow for a more efficient and lean tax agency, and many developed countries are squeezing efficiency gains out of tax administrators. Yet budget pressures on the IRS have been constant over the last five years, and it looks like more major cuts are coming. For example, the NY Times reported last week that a Trump budget would include a 14% funding cut for the IRS.

The issue of declining resources and a drop in IRS service is a good way to link last week’s hearings sponsored by the House Oversight Committee’s subcommittees on Government Operations and Health Care, Benefits and Administrative Rules that focused on the IRS “failure to efficiently direct available resources to customer service and what might be done to improve it.”

The hearings included an IRS executive discussing IRS performance in the last year or so, with a generally optimistic discussion of improvements (due in part to the FY 16 the first increase in six years to IRS funding) over the dreadful 2015 filing season when some measures of service like answering phone calls and responding to correspondence were weak by most every measure. Last week’s TIGTA testimony is a more measured assessment of IRS performance and lays out some of the specific 2017 filing season challenges and difficulties IRS has in staffing taxpayer assistance centers and performing

The GAO in its written testimony found an uptick in IRS’s service last filing season as compared to 2015, though still found considerable room for improvement:

In summary, we found that IRS provided better telephone service to callers during the 2016 filing season—generally between January and mid-April—compared to 2015. However, its performance during the full fiscal year remained low. Furthermore, IRS does not make this nor other types of customer service information easily available to taxpayers, such as in an online dashboard. Without easily accessible information, taxpayers are not well informed of what to expect when requesting services from IRS. We also found that IRS has improved aspects of service for victims of IDT refund fraud However, inefficiencies contribute to delays, and potentially weak internal controls may lead to the release of fraudulent refunds. In turn, this limits IRS’s ability to serve taxpayers and protect federal dollars.

The mainstream media has picked up on some of the implications of continued IRS budget cuts; see, e.g. Catherine Rampell at the Washington Post Trump’s gift to Americans: Making it easier to cheat on their taxes. Deep cuts in IRS budgets as may be on the horizon are likely to create continued complaints both about declining direct measures of compliance and on measures of IRS service like answering the phone and making employees available to meet in person with taxpayers. Budget cuts and drops in service tend to hit hardest on those with fewer resources. In addition, while IRS has now adopted a formal set of taxpayer rights, to ensure protection of those rights it often takes a committed agency both willing to identify problems its taxpayers experience and to ensure its procedures and practices respect and promote those rights. Whether IRS will be able to balance its many responsibilities while respecting the taxpayer rights it agrees to protect is something that is on uncertain ground in this uncertain time.

 

 

 

Tax Court Calendar Call Program

At the recent ABA Tax Section meeting in Orlando, the Pro Bono and Tax Clinic Committee had a panel on the Tax Court calendar call program to celebrate the 25th anniversary of the program.  The twenty five year celebration was a little squishy in terms of a precise time frame because of the informality with which the program began but it allowed the panelist to talk about an action begun by one person that has turned into an opportunity for pro se litigants that no other federal court offers.  The panel showcased again how pro se friendly the Tax Court is to the 70% of its petitioners who enter its doors with no representative but also how the Court, before embracing this program, took slow steps at first out of concerns for those taxpayers.

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Karen Hawkins, who is the chair elect of the Tax Section, got the calendar call program started in the early 1990s in San Francisco.  She had a tax controversy practice in that area that regularly brought her to Tax Court calendar calls.  At those calendar calls she observed that unrepresented taxpayers appeared who had no idea what to do.  So, she began trying to assist them by giving them advice on a quick, informal and pro bono basis.  The problem she observed in San Francisco was occurring throughout the United States.  I noted in a prior post that one Tax Court judge’s solution in a case in which the petitioners were particularly clueless was to have me as Government’s counsel waiting to try the next case sit with petitioners at their table and explain what was happening in the case.

Karen not only identified the problem faced by pro se petitioners at calendar call but she brought it to the attention of the Tax Section of the California Bar.  Representing the California Bar, she approached then Chief Judge Hamblin and asked him for permission to have the program of assisting pro se petitioners at calendar call recognized by the Tax Court.  He said no.   In the panel discussion Karen mentioned an incident that occurred before Judge Cohen in which an attorney came to a calendar call ostensibly to assist a pro se petitioner and ended up charging a fee.  This type of anecdotal experience would naturally have a dampening impact on the interest of the Court in such a program.

Chief Judge Hamblin’s concerns would have been similar to the concerns of the Tax Court judges when the first low income taxpayer clinics were established 15 years earlier.  I wrote about those concerns in an article on the history of the clinics.  The concerns arise from the cautious nature of a body like the Court and the need to protect the litigants before it as well as the institution of the Court itself.  Fortunately, Judge Swift, who came from California, stepped up and said that he would conduct a pilot to allow the Court to determine if providing some assistance to pro se petitioners at calendar call would benefit the petitioners and the proceeding.  For the first few calendar calls Karen was person who came and who met with taxpayers.  She did not have a group of volunteers with her.  She gave only her first name and did not give out a business card because one of the concerns centered on the possible use of the calendar call program as a business building exercise.  Pete Bakutes, the District Counsel for the IRS in San Francisco, was very supportive of the effort and that made a difference.  Before the Court arrived in San Francisco, Karen, Pete and Judge Swift had a conference call to discuss who the judge would announce the availability of Karen to unrepresented petitioners.

Judge Swift reported back to the Court that the assistance at calendar call was a success.  Not too long thereafter, Judge Nims visited San Francisco.  On his calendar was a taxpayer who, at that time, would have been called a tax protestor.  Having seen a few trials involving tax protestors, I am sure that Tax Court judges do not look forward to them.  One of the volunteer attorneys who came to that calendar convinced the tax protestor to concede (something I have had almost no success in doing in that same roll.)  The actions of that volunteer at the calendar call convinced Judge Nims on the benefits of the program, and he returned to DC to tell others on the Court.

Karen brought the idea of the calendar call program to the ABA Tax Section to try to get it to adopt the program as a section activity, but the Tax Section was not ready.  The program continued to evolve in San Francisco and in pockets around the country but did not have broad institutional support.  In Richmond in the mid-1990s Nina Olson participated in calendar call with the Community Tax Law Project.  She and I would call each judge coming for a calendar call in Richmond and most were receptive to announcing the presence of attorneys to assist pro se taxpayers.  Like the Court and the ABA Tax Section, Chief Counsel’s office did not wholeheartedly embrace the idea of the calendar call in the early years.  Part of the success of the program in San Francisco would have been due to the forward looking vision of Pete Bakutes who headed the Chief Counsel office there.  The struggle to get it going and accepted by the institutional players followed a similar path to the struggle to get the low income tax clinics going as discussed above.  Chief Special Trial Judge Panuthos was an early supporter on the Court for this and most programs to assist pro se petitioners.

The program got its institutional boost when Judge Colvin became the Chief Judge.  He saw, in many ways, the benefits to the Court and to the system of representation for the pro se petitioners.  He institutionalized the program at the Court in a way the Court had recently institutionalized its relationship with clinics.  At almost the same time that the Court embraced the calendar call program in a formal manner, the Tax Section of the Texas Bar stepped up and decided that it wanted to adopt this as a formal program of its Section.  Elizabeth Copeland was persuaded to spearhead that effort and she did a great job in organizing attorneys across a state that has the most Tax Court places of trial of any state.  During the panel discussion Elizabeth described all of the steps she took to get that program off of the ground which included attending all of the calendar calls held in the state for the first couple of years.  The organization and efficiency of the program in Texas remains a model for other programs.  The success of program in Texas and in New York City under the guidance of Frank Agostino spurred the creation of programs elsewhere.  The Low Income Taxpayer Committee of the Tax Section began to work with tax clinics and bar programs around the country to insure 100% coverage for Tax Court calendars.  Former committee chair Andy Roberson, who played a role in the effort to get 100% coverage even in cities with no local bar or LITC calendar call program, continues to update the coverage list for all 74 cities and the committee works to make sure that full participation exists.

Now that calendar call programs exist throughout the country in every Tax Court place of trial, and now that the Tax Court, the ABA Tax Section and Chief Counsel, IRS agree that the program provides a benefit to the petitioners and the system, the challenge centers on improving the program rather than building it.  Chief Judge Marvel spoke during the panel about a study conducted in the early 1980s which looked at why cases went to trial.  She spoke of ways the groups involved can continue to study the system looking for improvements.  Chief Special Trial Judge Panuthos, who was also on the panel, reminded the clinicians attending the program of their opportunity each year in their participation letters to provide ideas for improvement of the program.  Of course, the Tax Court does not limit its receipt of ideas and suggestions to that group or to that submission.

Bruce Meneely, who heads the Chief Counsel’s SBSE division, spoke on the panel about changes his office seeks to make in an effort to better engage with pro se taxpayers.  His office is going to call petitioners immediately after the filing of the petition to engage the petitioners.  His office is working with Appeals to determine why Counsel ends up settling some cases instead of Appeals and how the process could change to achieve settlement at an earlier stage.  Chief Counsel’s SBSE division just hired 30 paralegals to assist with small cases which he hopes will also lead to earlier resolution before the need to involve attorneys.  He solicited ideas on how to reach pro se petitioners prior to calendar call because everyone has an interest in resolving the cases as early in the process as possible.  He spoke of the possibility of a status conference with the Court prior to calendar call which some Tax Court judges have adopted as another way to foster resolution before calendar call.

Many tax lawyers around the country now attend calendar call when the Tax Court comes to their city.  The program does a good job of assisting those who come to Court unrepresented and still needing to resolve their case.  As the panel discussed, even better results for everyone can occur if pro se taxpayers can be linked to legal advice earlier in the process in a setting that does not put the pressure of an almost immediate trial on the parties.  As the Court, the bar and Chief Counsel’s office continue to evolve in their efforts to create a more perfect union of taxpayers and representatives, the calendar call program continues to stand out as a significant effort which distinguishes both the Tax Court and the members of its bar for their service to otherwise unrepresented individuals caught up in a process that can overwhelm those individuals.  It is interesting to see how the vision of Karen Hawkins in starting this program, like the vision of Stuart Filler who started the first low income taxpayer clinic at Hofstra Law School in 1974, has created a better environment for taxpayers trying to resolve a dispute with the IRS.

 

Shredding Documents and Proving You Paid a Tax: Lawyer Cannot Prove Payment

This week’s summary opinion in Paynter v Commissioner is a relatively straightforward case in many respects: a taxpayer habitually filed his income tax return with a balance due; IRS sent him some collection notices; and he claimed to have paid but had no proof. It is not surprising that the Settlement Officer and the Tax Court held that Paynter was still on the hook.

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Some aspects of the case that stand out. Paynter is a lawyer, and he justified his practice of not paying estimated taxes because, as he said at trial, “I never have and I don’t like the process.” Moreover, the year at issue was 2006; IRS sent a balance due notice in 2007 (about $16,000 in tax) but without any explanation did not send any other collection letters until 2014.

I guess it is not that surprising that some lawyers do not have stellar tax compliance practices and at times IRS seems to not engage in best collection practices. I also think it is not that surprising that “I don’t like the process” does not amount to reasonable cause as a defense to civil penalties.

Yet the case raises a bunch procedural issues. The taxpayer made an estoppel argument against the government based on the delay in seeking collection. The opinion notes that the delay caused the taxpayer hardship and that the IRS failed to explain why it sat on the assessment for close to 8 years. Yet, the opinion discusses the high bar that taxpayers must clear to win an estoppel argument:

  1.  the Government knew the facts of the taxpayer’s situation;
  2.  the Government intended that its conduct be acted on or acted so that the taxpayer had a right to believe it was so intended;
  3.  the taxpayer was ignorant of the facts; and
  4.  the taxpayer relied on the Government’s conduct to his injury.

On top of those requirements, in the Ninth Circuit (where an appeal would lie if it were not an S case) a party seeking to invoke estoppel must also prove the government’s affirmative misconduct, which requires misrepresentation or concealment of an affirmative fact. There was no evidence suggesting the IRS’s deliberately lied or made false promises, and the court, while not condoning the IRS’s delay, concluded that it did not preclude collection. While the case was old, it was still within the 10 year SOL on collection (the opinion did note, however, that the taxpayer did not raise a possible abatement of interest claim, which would have potentially led to some consequence for the delay).

Another interesting part of the opinion is its discussion of how long taxpayers should retain records. The court took judicial notice of the fact that the taxpayer’s bank was closed and the FDIC took over as receiver (discussing as well the standard under federal rules of evidence for it to do so). Due to the bank no longer being around and his 2013 shredding of his 2006 tax records, the taxpayer claimed he could not prove with documents that he paid the tax. He testified that he was certain that he did. He recalled that in either 2007 or 2008 he went in person to the Santa Rosa IRS office and paid in full his 2006 liability. Given the taxpayer’s practice of not paying estimated taxes, filing tax returns with no or little payment, and waiting for IRS bills before paying, the taxpayer also had a bunch of years when he paid following IRS sending a balance due letter. IRS had record of those other years’ payments but no record of the 2006 payment.

The taxpayer justified his absence of documentary proof in part on IRS standards for retaining records. The opinion notes that the IRS has general standards for record retention. IRS states on its web page that there is no hard and fast rule for record retention: “the length of time you should keep a document depends on the action, expense, or event which the document records.” The IRS generally ties the discussion to records relating to proving an item claimed on the return and the general 3-year SOL on assessment, rather than proving that a taxpayer has paid and the 10-year SOL on collection. Yet this case is a good reminder that it is on the taxpayer to prove payment, and testimony alone in the absence of proof is likely not enough if IRS records do not reflect payment.

Paynter also raises some old CDP issues we have previously discussed, including whether issues of payment amount to questions of liability or collection, an issue that the Tax Court has not resolved (see footnote 9) and is relevant because in some circuits in collection cases the Tax Court is bound to the record from Appeals. At the end of the day, the Tax Court concluded that Paynter failed to prove his case under any standard.

One question that the opinion does not directly address is the IRS’s failure to meet the RRA 98 requirement for IRS to send taxpayers an annual reminder of a balance due. There is no specific remedy if IRS fails to comply with that requirement, though I suspect it may have helped Paynter if he had sought interest abatement and this seems to be precisely the kind of case Congress had in mind when adding that requirement.

Finding the Right Appraiser and Writing the Report Correctly

The recent case of Estate of Kollsman v. Commissioner, T.C. Memo 2017-40 shows the perils to a taxpayer of a disregarded expert.  Judge Gale found petitioner’s expert unreliable for several reasons, not including his basic qualifications as an expert, and relied, essentially exclusively, on the expert testimony offered by the IRS.  Naturally, the estate did not benefit from this outcome.  Why did the Court reject the testimony of petitioner’s expert and how can you make sure that your expert will not suffer the same fate?  This post will focus on answering those questions.

I wrote a post recently on the IRS Art Advisory Panel.  That post focuses on some of the work the IRS does to determine value.  Today, the focus is on the taxpayer side although the same rules and concepts apply to respondent when hiring experts.

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The estate owned two paintings by “Old Masters” that became the subject of a valuation case in Tax Court.  The estate hired a very qualified expert who was a “vice president of Sotheby’s North America and South America and cochairman of Sotheby’s Old Master Paintings Worldwide.”  In addition, petitioner’s expert had known the decedent for many years and had periodically seen the paintings in decedent’s home for almost 25 years before her death.  On the date Ms. Kollsman died, the expert wrote a letter to the executor providing preliminary estimates of the paintings if they were sold that winter by his auction house.  The estate’s expert wrote two additional letters to the executor about four weeks after Ms. Kollsman died providing values for the paintings which the estate attached to its returns and providing an agreement for sale through his auction house.

The Court found the valuation letter and the agreement to use the auction house providing the appraisal too cozy.  After walking through the basis for his opinion in the report, the Court states:

“We find Mr. Wachter’s valuations unreliable and unpersuasive for several reasons.  First, he had a significant conflict of interest that could cause a reasonable person to questions his objectivity.  Mr. Wachter first gave his fair market value estimates for the paintings at the time of decedent’s death (in amounts that remained unchanged in his expert report prepared for trial).  His correspondence with Mr. Hyland [the executor] during that period demonstrates that the two had previously discussed the disposition of Maypole and Orpheus upon decedent’s death and that Mr. Hyland was considering selling the paintings.  Mr. Wachter provided his fair market value estimates at the same time he was soliciting Mr. Hyland for the exclusive rights for five years to auction the paintings in the event they were sold….  Thus, Mr. Wachter, on behalf of his firm, had a direct financial incentive to curry favor with Mr. Hyland by providing fair market value estimates that benefited his interests as the estate’s residual beneficiary – that is to say, ‘lowball’ estimates that would lessen the Federal estate tax burden borne by the estate…. The fact that Mr. Wachter simultaneously presented Mr. Hyland with these fair market value estimates and his pitch for exclusive auction rights for Sotheby’s gives rise to an inference that the latter affected the former.”

Strong stuff, and Judge Gale did not stop there.  He then pointed out problems with the valuation itself including an overstatement of the dirtiness of the paintings and the problems cleaning them might cause plus his failure to provide comparable sales supporting his valuations.  Judge Gale points out that “we have repeatedly found sale prices for comparable works quite important to determining the value of art.”

With respect to the simultaneous valuation and business solicitation, the lesson from the Kollsman case is easy to draw.  Do not use as your valuation expert someone who seeks to benefit from the relationship in ways that extend beyond compensation for services as an expert witness.  The opponent in a valuation case always looks for ways to show that the expert is biased.  Here, petitioners served up that basis on a silver platter.  It is fine to use someone like Mr. Wachter to get an idea of the value of the paintings and fine to use him to assist in finding an expert.  It might even be fine to use someone like Mr. Wachter to value the property on the return though I would not recommend it, but it was not fine not to use him as the expert at trial.  For trial, the estate needed an expert whose testimony could not be impeached on the basis of a simultaneous business transaction.

Judge Gale’s concern that Mr. Wachter’s overstated the devaluation of the paintings based on their dirtiness is no doubt real but it serves, for me at least, to provide more support for the Court’s conclusion and not enough of a basis from which to draw general conclusions about experts.  On the other hand, the judge’s observation about the absence of comparable sales in the expert report deserves attention.

Tax Court Rule 143 sets out the way expert testimony comes into evidence in Tax Court cases.  The rule provides that the report of the expert serves as the expert’s direct testimony.  For this reason, it is imperative that the expert write a comprehensive report that sets out the basis for the appraisal included comparable sales.  While the attorney hiring the expert must be careful not to dictate the report, the attorney must also be careful to impress upon the expert the need for a full and complete report that documents the basis for the findings in the report.  The Tax Court came to this approach after tiring of experts who played hide the ball with their reports and then came to Court and testified about many things on direct including the underlying basis for their conclusions.

I have not seen the report submitted by the estate in this case but the description by Judge Gale makes me believe that the report was short and conclusory.  A person like Mr. Wachter with clear expertise concerning the subject matter but who may not serve often as an expert may have expected his clear expertise to carry the day in convincing the Court.  While the depth of his expertise clearly matters, so does his report.  Here, the description makes it sound as though the report lacked a major element and the Tax Court rules would prevent Mr. Wachter from fixing this mistake with his testimony.

After dismissing petitioner’s expert, the Court essentially embraces the report of the expert hired by the IRS.  This result does not necessarily follow.  There are times when the Court dismisses or heavily discounts the experts of both sides, but here the IRS expert proved persuasive.  The Court discounts his opinions based on certain factors but uses the IRS expert report as the basis from which to build its determination.

It is worth noting that the IRS valuation report exceeded the amount determined as the value of the paintings in the notice of deficiency.  This happens regularly because the IRS will rely on the Art Advisory Panel or other in house experts during the examination phase and not hire an expert until the case goes to court.  The hired expert determined higher values that the IRS determined in the notice which would have caused the IRS to amend it answer to the petition in order to assert a higher deficiency and to take on the burden of proof with respect to the additional amounts.  Of course, the additional burden does not mean much in a valuation case of this type.   Here, the IRS made its motion on March 11, 2011, about two months before the trial.

Notice that it took the Court about five and one-half years after the trial in order to render the opinion in this case.  While I do not think that is a record, it is certainly a long time to wait for an opinion.  I have written before about the language in IRC 7459 which talks about the Tax Court deciding cases as quickly as practicable.

Conclusion

Practitioners headed into litigation need to vet the expert to make sure that nothing prevents the expert from rendering an impartial opinion.  The petitioner is already paying for the opinion and an expert worth hiring will know what outcome the petitioner would like.  No further incentive for the expert to reach a beneficial result for the petitioner should exist.  Additionally, petitioners need to impress upon the expert what the report must contain and how the report will serve as the direct testimony of the expert in a Tax Court trial.  Here, an individual with great qualifications as an expert in the field of art relating to the specific paintings at issue got disqualified for avoidable reasons.

One Hake of a Taxpayer Friendly Reasonable Cause Holding

And, could this be heading to SCOTUS?

The District Court for the Middle District of Pennsylvania just issued a holding in Hake v. United States regarding the reasonable cause exception for the failure to file penalties for executors who failed to file due to bad advice from their lawyer.  This was a fairly taxpayer friendly opinion, following somewhat closely on the heels of the Thouron case in the Third Circuit, which we covered heavily here.  While Thouron could have been limited, somewhat, to its facts, the Hake opinion applied the case broadly, allowing taxpayer reliance on an advisor to eliminate penalties.  Longtime PT readers will know that I dislike the framework from Boyle regarding reasonable cause for reliance on an expert in this area (but other practitioners disagree, including other PT authors).  Our readers will also likely recall that I was fairly heated in my harsh words against the Eastern District’s decision in Thouron before it was reversed by the Third Circuit.  Although I think allowing reasonable cause is the right thing to do for the Hakes, the case isn’t nearly as strong for reasonable cause as Thouron was, at least in my mind.  So, why do I think the Hakes got lucky (or more specifically their lawyer)?

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Mrs. Hake died in October of 2011 after a period of incapacitation, holding substantial assets including a closely held grocery store chain.  Her five children apparently did not agree on much, and that included the administration of her estate and the value of the assets.  Two of her five children, Ricky and Randy, were named executors, and hired the family lawyer to act as estate and tax counsel.  Normally, the estate tax return, Form 706, would have been due nine months following the date of death, in July of 2012. See Section 6075(a).  Due to the disagreements between the family, it was believed that they would not know the actual values of the estate assets at the filing deadline.

The attorney suggested filing a Form 4768 to obtain an extension of time to file the return and pay the tax due.  In June of 2012, the request for extension was filed.  An associate in the office was tasked with determining the extension, and informed the primary attorney, who in turn informed the client, that the filing deadline and the payment deadline had both been extended by a year.

But, that isn’t really a thing.  The estate had received a six month automatic filing extension, and a one year discretionary extension for payment.  This fact didn’t make it to the executors, who thought they were doing substantial good by prepaying the tax in February of 2013 ( about a month after the return was due) and in July the return was filed.  In August of 2013, the Service notified the estate that about $198k of penalties were due for failure to file a timely return under Section 6651, along with $17k in interest.  The estate took administrative steps to seek abatement, but eventually had to pay the tax due.  It then filed a refund suit in the District Court.

As the court stated, the issue was narrowly defined:

When an executor relies upon inaccurate advice from legal and tax counsel regarding the extended deadline for filing an estate tax return, in a factual context where determination of filing and payment deadlines are governed by a series of mandatory and discretionary rules which may vary depending upon the residence status of the taxpayer, does that reliance upon professional advice constitute reasonable cause to avoid the assessment of late filing penalties and interest?

The Court found that yes, it did constitute reasonable cause, which I applaud, and, as I have said repeatedly in the past, in this particular situation I do not think penalties should be imposed on the estate.  However, this is not in line with most of the case law.  The holding does follow the Third Circuit opinion in Thouron, as discussed below, but this fact pattern pushes the boundaries of the Supreme Court’s holding in Boyle further than Thouron did.

To begin the legal analysis, the court covered the general law, including that a six month extension is allowed under Reg. 20.6075-1 for filing, and that an extension to pay is allowed for up to a year under Reg. 20.6081-1(b).  Pursuant to Section 6081(a), however, the IRS is limited in allowing extensions beyond six months for failure to file (unless the taxpayer is outside of the country).

The Court characterizes this extension in an interesting way, stating:

 thus, with respect to payment and filing deadlines, the legal terrain requires subtle multi-faceted analysis. First, one must determine the initial filing and payment deadlines.  Next one must negotiate a series of deadline extensions rules.  Some of these extensions are automatic; others are discretionary.  Further, one must be alert to the fact that the application of these differing rules can lead to different deadlines for payment and filing.  Finally, one must remain mindful of the fact that the filing rules themselves change depending upon residency status of the executors.

The language is clearly framing this as a difficult issue that lay persons generally would not be capable of figuring out, which is not always how the discussions begin in cases following Boyle.    As our readers know, the failure to file penalty has an exception when such failure was due to reasonable cause and not willful neglect. Section 6651(a)(1).  SCOTUS outlined the general test for executors seeking to show reasonable cause in United States v. Boyle when relying on a tax professional.

The District Court discussed Boyle, but largely through the context of Thouron v. United States, the 2014 Third Circuit failure to pay case, which found the executor had reasonable cause for failing to timely pay estate tax because of his reliance on a tax professional regarding the extended deadline.

At the outset, it is important to note that most courts, practitioners, and commentators believe the failure to pay case law and the failure to file case law is largely interchangeable in this area, which I agree with.

The District Court noted the Third Circuit stated Boyle:

identified three distinct categories of late-filing cases. In the first category consists of cases that involve taxpayers who delegate the task of filing a return to an agent, only to have the agent file the return late or not at all…[SCOTUS] held…such…reliance…was not reasonable cause…The second category…is where a taxpayer, in reliance on the advice of an accountant or attorney, files a return after the actual due date, but within the time that the…lawyer or accountant advised the taxpayer was available.  Finally, in the third category are those cases where “an accountant or attorney advises a taxpayer on a matter of tax law.”

The District Court believed that Thouron had instructed it to construe Boyle narrowly, only clearly applying to the first set of failure above.  As to the second set, it believed Boyle did not hold on the issue leaving the lower courts to make their own determinations, and that under the third set of cases, Boyle would not apply.

The government’s contention is that the requirement for timely filing is non-delegable, and reasonable cause based on misunderstanding the deadline is never sufficient.  Such a failure is, in its mind (I am assuming), a malpractice claim between the taxpayer and its advisor.  The Service would never allow reasonable cause in the second set of cases, and would likely argue against it in most of the third set of cases.

The District Court in Hake, in the remainder of the opinion, somewhat appeared to begrudgingly agree with the Third Circuit’s analysis that reasonable cause could, and perhaps should, apply in all second and third category cases.  Towards the end, the Court stated the following not-so-ringing endorsement of its holding:

In reaching this conclusion, however, we wish to emphasize the very narrow scope of our ruling. We do not purport to stake out new or novel legal theories in this decision.  Rather, we attempt to simply and faithfully apply the law of this circuit to the facts of this case.  Moreover, our decision regarding the reasonableness of the executor’s reliance upon legal advice is strictly limited to, and bound up in the facts of this case.

The Court did then note, as a positive, the fact that the executors had overpaid the amount of tax due before the deadline for doing so (making the imposition of the penalty seem a little boorish on the part of the Service).  Finally, in foot note 6, the Court invited the government to consider taking this case up through various appeals to clarify the disparity in case law on this matter that is found in the other Circuits compared to the Third.

I have no specific knowledge of the case, but the opinion seemed to indicate that the district court judge in Hake 1)  doesn’t agree with Thouron completely, 2)  appreciated the fact that taxes were timely (over) paid, and 3)  didn’t want to be overruled on the opinion.

Thouron, however, in my mind left the door potentially open for the judge in Hake  to hold the other way, had it wanted to.  Hake doesn’t clearly state whether it falls within the second or third group of Boyle cases indicated above.  The language of the case would indicate the judge in Hake was analyzing the case under the second group, where the taxpayer files within the time frame erroneously indicated by a practitioner, not where there was clear reliance on legal advice (although the discussion of the complexity of the filing dates does drift into what I would view as a discussion more related to reliance on legal advice).

Thouron, likewise, didn’t specify whether it was a second or third group case.  It stated that Boyle only held on clerical oversight in an agent failing to file by the deadline.  “It did not rule on when taxpayers rely on the advice of an expert, whether that advice relates to a substantive question of tax law or identifying the correct deadline”.

Thouron certainly indicates a willingness of the Third Circuit to allow a reliance case in either a second (advice regarding deadline) or third (reliance on expert for tax law advice), but it does not flesh out the issue any further.

One key distinction between Thouron and Hake, in my opinion, is that Thouron seems more like reliance on an expert regarding tax advice, which happened to impact the filing deadline.  In Thouron, the estate failed to timely pay tax because the estate erroneously believed it qualified for deferral of payment under Section 6166.  That Section allows deferrals on certain closely held business interests, and is incredibly complicated, including substantial regulations, rulings, etc.  Section 6166 itself, which only deals with the extension to pay, is about 4,000 words long.  Determining whether or not an estate qualifies is clearly an expert’s job, and to attempt to penalize an estate for such reliance when the expert is wrong in the analysis is antithetical to the statutes and regulations regarding the reasonable cause exception.  Hake, instead, was just a normal extension request.

While I agree the automatic extension provisions and the discretionary extension for payment can be confusing, and arguably could be expert advice, I think the case is less clear that it would fall within group three.   Again, the holding in Thouron lumps groups two and three together, but it does not state whether Thouron was in one or both groups.  It also does not state that all cases involving an accountant or lawyer advice regarding a deadline would qualify under group two (for instance, it would be interesting to see a court have that type of holding with the same automatic extension to pay income taxes and an extension to pay income tax).  I suspect the Third Circuit would affirm Hake, and probably would have reversed it had the holding been for the government.  Its statements in Thouron were somewhat clear in stating it would find reasonable cause for reliance on determining an extension or on legal advice.

I do not believe Hake has been appealed to the Third Circuit yet, and may not be.  If it or other similar cases should continue to be affirmed by the Third Circuit, it would result in a sufficient split to allow SCOTUS to weigh in on how Boyle should be applied, or more accurately, how the underlying law should be applied in groups two and three.  I think cases in group three have to remain reasonable cause, but it would be really interesting to see what happens with group two.

Getting Suspended From a Practice That Did Not Exist

In the case of Bowman v. Iddon, No. 15-7118 (D.C. Cir. 2017), Mr. Bowman seeks to recover damages based on a wrongful suspension from practice in a situation in which he never had authority to engage in that practice before the suspension.  The D.C. Circuit decided that appellant was not entitled to damages for reasons that made good sense to me.  The case leaves you scratching your head at how it could come to exist.  The post will discuss Bivens actions against government employees, something I have posted on before, and the suspension from practice mechanism of the Office of Professional Responsibility (OPR).  Read this post for amusement and not enlightenment.

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The underlying suit seeks damages from five IRS employees who allegedly barred Mr. Bowman from representing taxpayers before the IRS without due process of law.  That premise for the suit and a several page opinion enticed me to read further.  The problem with Mr. Bowman’s theory of the case stems from the fact that before he was allegedly suspended from practice without due process he did not have the authority to engage in practice before the IRS anyway because he had never become an attorney, CPA or enrolled agent.  He was a return preparer.

It is easy to poke holes in Mr. Bowman’s theory of the case but it makes you wonder why the IRS, or at least 5 employees alleged to have taken this action, suspended him from a practice in which he was not authorized to engage.  It seems that while Mr. Bowman was working as a return preparer in 2005, he pled guilty to mail fraud, wire fraud and money laundering.  He received a sentence of 57 months and began to serve in August 2005.  I did not go and look for details of his criminal activity beyond those described in the opinion but his return prep business must have been an interesting one.

Shortly after Mr. Bowman went to the big house, Revenue Agent Iddon sent OPR a report of Mr. Bowman’s misconduct.  The form she used required her to check a box indicting that he was an attorney, CPA, enrolled agent or enrolled actuary.  She checked the box for enrolled agent citing personal knowledge as her basis for knowing this and attaching articles about his prosecution.  Unfortunately, or maybe fortunately for those of us who like to believe the 4th Estate is mostly trustworthy, the articles did not state that he was an enrolled agent and she never searched the IRS records to confirm his status.

After receipt of this report, OPR began disciplinary proceedings against Mr. Bowman to suspend him from practicing as an enrolled agent.  Apparently, part of the investigation did not involve double checking to make sure he was an enrolled agent.  Additionally, although it was clear from the newspaper articles attached to the initiating document that he now resided at the big house, apparently no one looked to correct his address from the business address he used as a return preparer.  This caused the correspondence about the proposed disciplinary action to go unanswered since it did not make its way to Mr. Bowman.

Because he did not answer the charges against him, OPR issued a decision by default suspending him from practicing as an enrolled agent and OPR published this decision in the quarterly bulletin identifying practitioners with disciplinary problems.  One of the defendants, an OPR manager, also emailed the announcement to 20 people asking them to further disseminate the information.

When Mr. Bowman left prison in 2011, he did what every prisoner does (?), he sent a FOIA request to the IRS and through that request learned for the first time that he was suspended from practice as an enrolled agent.  This is where the facts get a little crazy, because those of you who are tax history buffs will remember that shortly before Mr. Bowman’s release, the IRS had promulgated the rule extended Circular 230 to tax preparers.  So, now the mistaken suspension may have actually become a suspension that mattered to Mr. Bowman vis a vis his livelihood as a tax preparer.  So, in November of 2012, he filed a petition for reinstatement with OPR.

Fast forward a couple of years and the D.C. Circuit strikes down the rule extending Circular 230 coverage over return preparers.  After that decision, the IRS writes to Mr. Bowman recognizing that he was never an enrolled agent and informing him that he may not practice as an enrolled agent.  It also restored his “ability to engage in limited practice before the IRS, as defined in section 10.7 of Circular 230, by removing [his] name from the list of individuals currently barred from practice before the IRS.”  Just when it seemed normalcy might return to the practice world, Mr. Bowman decided to further complicate matters by suing the IRS officials he identified as causing his wrongful suspension.  The mechanism he chose for bringing the suit was a Bivens action.

He argued that the named IRS employees violated the 5th Amendment by “harming his reputation and business without due process.”  The defendants moved to dismiss the complaint and the District Court granted the motion concluding that the remedial scheme under Circular 230 precluded any Bivens remedy even though some mistakes occurred here.  Mr. Bowman brought the matter pro se.  On Appeal the court appointed an amicus to assist it in understanding the issues.

The D.C. Circuit decided that it did not need to reach the issue of whether a Bivens action could succeed under these circumstances because the complaint failed to state a claim on which relief could be granted.  It stated that accepting all of the factual statements as true he must lose because “he identifies no constitutionally protected interest lost through Defendants’ actions.”  Since he was never an enrolled agent the misguided actions of the IRS employees suspending him from a status he never held had no impact on his property rights.

Amicus brought up that although misguided in suspending him as an enrolled agent, the actions had an impact on him for the period of time the IRS sought to regulate mere preparers.  The Court pointed out that although this was possible, it was not what he alleged in his complaint.  Two judges wrote separately to explain that if he had alleged “that Defendants barred him from preparing taxes, I would have concluded that he was entitled to pursue his claim against Defendants.”  The concurring opinion concluded by saying that “had Bowman alleged that Defendants disciplined him without authority and barred him from preparing taxes, I would have concluded that Circular 230’s remedial scheme presents no bar to a Bivens claim in the narrow and unique circumstances of this case.”  So, it looks like the IRS employees dodged a bullet because Mr. Bowman did not plead correctly.

We do not often focus on pleadings but they do matter as this case points out.  I see it often in Tax Court cases because we regularly come into cases after the taxpayer has filed a pro se petition.  Taxpayers will fail to contest penalties or other matters in the notice of deficiency.  If we are actually going to take the case to trial, we must seek permission from the court and file amended pleadings alleging all of the matters in the notice of deficiency with which the taxpayer has a dispute.

Mr. Bowman’s case is unusual.  I suspect it has led to some procedural changes in OPR regarding double checks concerning the status of alleged wrongdoers and addresses of wrongdoers brought to its attention who are incarcerated.  If it has not brought about those changes, perhaps we will see a successful Bivens suit at some point in the future.

Sixth Circuit Holds Potential Misconduct in CDP Hearing Does Not Give Rise to Wrongful Collection Action

In Agility Network Services v US the Sixth Circuit held that a taxpayer who alleged that Appeals botched its collection due process hearing could not bring a wrongful collection action against the IRS because the hearing did not arise “in connection with any collection of Federal tax.”

In this post I will summarize the court’s reasoning and offer some observations on its approach.

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Agility Network Services involves a CDP case that did not go well. The owner of Agility Network Services (Agility Network) and her husband were employees of the company. Agility Network had overdue employment taxes; after the IRS filed a notice of federal tax lien, it requested a CDP hearing. After seven months (and according to the taxpayer only after it got Taxpayer Advocate involved because the Revenue Officer would not forward the case file), the hearing was scheduled for December 2012. Once the hearing was scheduled and held, the taxpayer did not like the manner in which it was conducted and the outcome:

[The Appeals Officer] refused to investigate the taxpayers’ assertion that they tried to make payments but that the IRS refused to accept them; [the Appeals Officer] misstated the tax code and Internal Revenue Manual while offering excuses for [the Revenue Officer’s] failure to process the taxpayers’ CDP request; Allen refused to discuss the taxpayers’ requested installment plan, reasoning that they did not make enough money to justify one; and Allen denied the taxpayers’ request to abate penalties. Furthermore, [the Appeals Officer] stated at the hearing “that she knew . . . [the Revenue Officer’s] actions were made with the genuine intent to help the taxpayers.” The taxpayers contend that this statement proves [the Appeals Officer] had an impermissible ex parte communication with [the Revenue Officer]. The hearing ended with the taxpayers having discussed only one issue of the many they had planned to raise.

In May of 2013 (about seven months after the first meeting and I think prior to the issue of a determination) Appeals scheduled a follow-up meeting. In July 2013, and pursuant to the taxpayer’s request, a new Appeals Officer met with the taxpayer. At the follow-up meeting, the taxpayer requested that IRS withdraw the NFTL and agree to a proposed installment plan. The new Appeals Officer rejected the request (and a request to record the meeting), though this Appeals Officer based his installment agreement rejection on the grounds that the taxpayer earned too much money rather than too little.

After the unsatisfactory second meeting, the taxpayer began a voluntary $5,000 month payment. It also brought an action in federal district court seeking a restraining order against the IRS to prevent enforced collection and sought damages under Section 7433 alleging that the Appeals conduct in both hearings amounted to wrongful collection action. The district court found that the Anti-Injunction Act prevented the restraining order and that the Appeals Officer’s conduct did not arise in connection with a “collection action.”

On appeal the Sixth Circuit quickly affirmed the lower court’s tossing of the restraining order request on the grounds that the Anti-Injunction Act prevented the request to restrain the government’s collection efforts.

The Sixth Circuit gave the Section 7433 issue some more attention. Section 7433 provides for damages for wrongful collection actions. As Appeals has become more involved with collection matters some taxpayers have unsuccessfully sought to use Section 7433 to recover damages for misconduct that arises in a collection case in Appeals. We have previously discussed this issue; see Keith’s post on the Antioco case Appeals Fumbles CDP Case and Resulting Resolution Demonstrates Power of Installment Agreement, which Stephen also discussed in a Summary Opinions post. In those prior posts, we noted that the district court in Antioco held that in a CDP case the Settlement Officer was not engaged in collection action but was rather reviewing the collection action. That review was not enough to bring Appeals’ alleged misconduct within the scope of a Section 7433 wrongful collection claim.

Agility Network likewise concludes that 7433 is not a remedy for alleged misconduct in a CDP hearing but has a more robust appellate court consideration of the issue. In deciding against the taxpayer, the Sixth Circuit explained that it its view Appeals’ conduct in the hearings relates to affirmative rights that a taxpayer has in the collection process, rather than the government’s collection of taxes:

The relevant question, then, is whether an IRS agent acts “in connection with any collection of Federal tax” when she conducts a CDP hearing. Under the most reasonable interpretation of the phrase, the answer is no. In common parlance, an IRS agent acting in connection with tax collection would be taking an affirmative step to recover money owed to the government. In contrast, a CDP hearing is a right bestowed upon a taxpayer, at the taxpayer’s request, to provide protection from abusive or unduly burdensome tax collection. The hearing does not help the IRS collect on a tax debt, but in fact impedes collection, at least temporarily, to the taxpayer’s benefit

To be sure the Sixth Circuit also acknowledged that it was possible to take a broader reading of the phrase “in connection with any collection of Federal tax” to include CDP proceedings:

Under this reading, any IRS agency action involving a person who owes a tax debt is “in connection with tax collection.” Under this interpretation, an IRS agent acts in connection with tax collection during a CDP hearing because, at that point, the IRS has already initiated the levy or lien process against the taxpayer.

It rejected that broader reading for two reasons: one, such an approach renders the language in the statute limiting the remedy to collection actions superfluous, essentially encompassing “almost everything IRS agents do. The agency exists to collect revenue, after all.”

Second, the Sixth Circuit cited the maxim that courts are to narrowly interpret exceptions to sovereign immunity, leading it to note that between two reasonable interpretations courts should opt for the one that leads to a narrower waiver.

Some Observations

I think this presents a closer case than perhaps the opinion reflects. The rationale the court uses to distinguish a CDP matter from collection action is a bit outdated. While a CDP hearing is certainly a taxpayer right that arises only if a taxpayer properly invokes the proceeding, it is a statutory right that all taxpayers enjoy in the collection process. Once invoked, Appeals has jurisdiction to compel IRS to refrain from collection and also to dictate the manner that the IRS collects an agreed and assessed liability. To argue that CDP is only an impediment to collection misstates the possible benefit that CDP is meant to provide to the government. It is not in the government’s interest to collect a tax when the IRS fails to ensure that it followed its statutory or administrative procedures.

Collection cases are the mainstay of the Appeals docket. Like it or not Appeals is part and parcel of the collection process. There is a functional partnership between Appeals and Collection. This is especially apparent in cases where the taxpayer requests a withdrawal of an NFTL, where it is in the taxpayer’s strong interest to get prompt review of the request.  It is clear in this case that Appeals’ delay in considering and deciding contributed to the taxpayer dissatisfaction.  Under CDP, Appeals is statutorily charged with ensuring that the collection action balances the need for efficient collection action with the taxpayer’s concern that the action be no more intrusive than necessary.  In a CDP hearing, especially in the context of considering the request to withdraw a notice of federal tax lien filing, Appeals’ responsibilities seem to directly relate to the IRS’s collection of taxes.

How Does the IRS Decide Which Amended Returns to Examine

A report of the Treasury Inspector General for Tax Administration (TIGTA) from May 16, 2016, entitled “Improvements are Necessary to Ensure That Individual Amended Returns with Claims for Refunds and Abatements of Taxes are Properly Reviewed” provides significant insight into the handling of refund claims by the IRS.  The report itself follows the typical TIGTA style of reviewing actions by the IRS and finding fault with those actions; however, in describing what the IRS does with amended returns, the reports offers a detailed view of what happens once the amended return arrives at the IRS.  For that reason, the report may interest readers who want to know more about that process.  In this post, I will talk about the process and also about why auditing amended returns may matter more than auditing original returns.

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Why the IRS Should Audit More Amended Returns

The report criticizes the IRS for accepting certain amended returns without auditing them or providing any explanation for making the decision not to audit.  The report acknowledges that some of the decisions may result from resource limitations but still decries the lack of documentation surrounding the decision.  It details the reasons for its concerns but does not discuss the collection criteria applicable to audits.  I see a link between this report and the report I discussed in a recent post concerning the requirement that the IRS make a collectability determination prior to starting an examination.

In the amended return context, the taxpayer has made the collectability determination for the IRS.  The IRS holds the taxpayer’s money, which the taxpayer wants back.  If the IRS audits this return and makes adjustments, the collection division never becomes involved.  For this reason alone, amended returns should receive more scrutiny in a world where collectability provides a finger on the decision making scale of which returns to examine.  The reasons for filing amended returns vary greatly and do not by any means involve bad motives.   I could even argue that because practitioners generally, and I think correctly, believe that filing an amended returns brings scrutiny to the return that filing an original return does not, that amended returns have a greater likelihood of accuracy than original returns.  Since I believe that the IRS should take collectability into account in making audit determinations, I think the IRS should audit a higher percentage of amended returns than original returns since the collectability factor will always support auditing the amended return, but, other factors matter as well and I am not arguing for the audit of all amended returns.

Other factors may override collectability but on that one factor, the decision is clear.  While not clearly articulated in the IRS guidance or in this report, this factor has always played a role in making the scrutiny of amended returns higher than that of original returns.  Just reading the process of review of amended returns, whether or not selected for audit, provides plenty of support for the conclusion that the IRS guards the money it already has more than it looks for money it might obtain through an audit.

The Process of Reviewing Amended Returns

The report gives a fairly detailed walk through of the procedures that the IRS uses to pipeline an amended return.  The report suggests that tax examiners manually review each claim.  That process obviously provides greater scrutiny than original returns receive.  Claims that the initial reviewers list as Category A go on to additional review and possible audit, while claims that avoid Category A in the initial screening apparently move forward for acceptance.  Figure 1 of the report provides a flow chart of the processing of amended returns that receive the Category A classification.  I.R.M. 4.4.4.5.3 provides guidance to the IRS employees processing amended returns.  The initial review also checks for timeliness of the claim which could result in a denial of the claim at the initial review if the claim is deemed untimely.

The report does not talk about how long after the filing of the amended return this initial screening takes place.  The IRS now has a handy track my amended return feature on its web site.  I have not yet used that feature to track a refund and do not have a sense of how quickly someone can obtain a refund.  The TIGTA report reads as though the refund could occur relatively quickly if the initial screeners do not put the amended return into Category A.

For amended returns falling into Category A, the IRS sends them to field or campus exam depending on the type of case.  The chart suggests that all Category A claims going to campus exam get audited, while cases going to field exam get another level of review once they reach the field.  The written report does not make this distinction.

For field exam cases, two additional levels of review occur after the initial screening has designated the case as Category A.  The case first goes through the Planning and Special Programs (PSP) office and then, potentially, to the field exam group.  PSP could survey the return if it determines that an audit of the amended return would not result in a material change.  In reviewing the amended return, PSP should also review the original return and other relevant case file material.  If PSP does not survey the case – survey meaning accept the amended return after the PSP review – then it goes to the group manager of the group assigned to the case.

The group manager gives the amended return another review, which includes the review done by PSP for risk analysis, but the group manager must also “plan, monitor, and direct the input of work to accomplish program priorities and effectively utilize resources….”  This means that the group manager’s decision to assign the amended return for examination not only includes a determination of the need for examination of the amended return, but balances that need against other workload priorities with the group.  The group manager could conclude that the risk analysis does support examination of the amended return but still survey the return because of other priority work within the group.

The report does not talk about time frames but they will enter into the equation.  The statute does not require the IRS to examine the amended return within any set time.  The IRS can simply sit on an amended return forever if it chooses to do so and need not act.  Of course, sitting on amended returns forever would be a bad practice for the IRS to adopt, but when a group manager considers priorities, the statute of limitations for making an assessment provides a bright line for decision making about auditing original returns, while the absence of such a bright line for amended returns slightly changes the equation.  The group manager will have internal guidance driving the decision but has a bit more leeway with amended returns.

The system established by the IRS provides three cut points for the amended return headed to field exam, i.e., those amended returns with larger and more complicated refund claims, to get sent for acceptance without an audit.  TIGTA’s concerns about the IRS process for surveying amended returns focuses on the cases getting sent for acceptance because the IRS did not adequately document that decision.  The further the case gets into the process, the greater the concern because the more likely that an audit of the amended return would result in adjustments.  Because the acceptance of an amended return means handing over money, TIGTA wants more documentation of the decision to accept the refund claim without an audit.

Timing of Refund and Choices between Original and Amended Returns

Of course, a very high percentage of original returns also involve handing over money, meaning that these returns are also refund claims, yet the system does not require the same type of review and documentation for handing over money as the result of an initial return.  When taxpayers file the initial return, the IRS, as with the amended return, has no statutory time pressure within which it must accept the return.  Mild pressure exists in both circumstances based on interest which will accrue.  Stronger pressure exists with original return based on social expectations that have developed over decades and systems the IRS has created to send back refunds as quickly as possible, but the statute does not require that the IRS race to refund money with original returns yet carefully scrutinize refund requests on amended returns.

With the PATH Act, Congress signaled that it wanted to slow down the payment of refunds on certain original returns and stop the race that happens at the opening of filing season.  The PATH Act concerns focus on refundable credits which cause the same concerns in many ways as amended returns.  Yet, the biggest part of the tax gap does not exist because of amended returns or refundable credits.  It exists with self-employed.  TIGTA’s concerns about documentation of amended returns being surveyed has a legitimate basis because of the likelihood that amended returns surveyed after making the cut to Category A probably contain mistakes.  It makes sense, if resources permit, for the IRS to internally explain why it allows the payment of a refund in those cases.  Except for the distinction concerning collection, it would also make sense to explain why the IRS does not examine original returns with an equal likelihood of adjustable mistakes, but the TIGTA report focuses only on amended returns and not original ones.