Summary Opinions for 10/03/14

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Happy Columbus Day.  I am not sure if we are celebrating the beginning of his journey, the ending, his birthday, or something else, but I am certain I’m jealous that many of our government readers have off today.   Here are the procedure items from last week that we didn’t otherwise cover:

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  • Buczek v. Comm’r , a decision from the Tax Court last week, is getting a lot of press.  Law professor Tim Todd has a great summary on his Tax Litigation Survey found here.  I’ve stolen Tim’s first few lines, which do a good job of outlining the buzz-worthy aspect of the case: “Judge Dawson held, in a division opinion, that the Tax Court has jurisdiction under IRC § 6330(d)(1) to review the IRS’s determination of whether a CDP request contains frivolous grounds and thus refused the IRS’s invitation to overturn Thornberry v. Commissioner, 136 T.C. 356 (2011).”  Prof. Todd asked for our thoughts on the matter via Twitter, in particular the Thornberry punt, and Les was kind enough to provide the following comment:

 The Buczek case involves a [tax] protestor submitting a [garbage Form] 12153. Thornberry gave the Tax Court jurisdiction when a taxpayer submitted some legitimate issues with the 12153, which also had protestor gibberish. In Buczek the request was all b#^& $#%/ and raised no legitimate CDP issues. The key point from the opinion is the first sentence below:

In Thornberry, the taxpayers’ hearing request, on its face, clearly raised proper issues set forth in section 6330(c)(2)(A) and (B), and the taxpayers raised those issues in the petition they filed in this Court appealing the disregard letter sent by the Appeals Office. By contrast, petitioner’s hearing request, which included Form 12153 and the pages attached thereto, does not challenge the appropriateness of the collection action, offer or request any collection alternatives, challenge the existence or amount of the underlying tax liability, or raise any spousal defenses….

Because petitioner [Buczek] did not raise in his hearing request any issues that may be considered in the administrative hearing, there are no issues that are deemed to be excluded from any portions of his request that the Appeals Office determined were frivolous. In accordance with section 6330(g), we make no review of the portions of a request for an administrative hearing that the Appeals Office has determined are frivolous. Moreover, because respondent’s determination that the IRS Collection Division could proceed with collecting petitioner’s unpaid tax liability for 2009 was not made in response to a proper request for a hearing, i.e., the entire request was properly treated as if it had never been submitted, this Court lacks jurisdiction to review respondent’s determination that collection may proceed, and therefore respondent’s motion to dismiss for lack of jurisdiction will be granted.

These are my parting thoughts.  In addition to Prof. Todd’s post, I would also suggest readers check out Lew Taishoff’s blog post on the subject found here.  Attorney Taishoff points out that Judges do not often overturn their own decisions (Judge Dawson wrote both opinions).  Moving forward, the Court will continue to review Appeals determinations that a position is frivolous (which the IRS is not fond of), and the IRS will probably continue to try to find another Judge to read Section 6330(g) more broadly to cover the determination.

  • In Law Office of John Eggersten v. Comm’r, the Tax Court vacated its prior holding (found here), which stated the IRS was time-barred from assessing ESOP excise tax by the statute of limitations under Section 4979A(e)(2)(D) even though the Form 5330, or something else constituting a return, had never been filed.  In the new opinion, the Tax Court held that the applicable statute was the general statute of limitations found under Section 6501, which was unlimited because no return was filed.  The IRS argued on reconsideration that Section 4979A(e)(2)(D) “supplements but does not replace” the general statute, which the Tax Court determined was a substantial error in the first holding, allowing the opinion to be vacated.
  • An interesting interest case from the Eastern District of NY in Maimonides Medical Ctr. v. United States (couldn’t find it free yet), where a 501(c)(3) entity sought a refund of FICA taxes paid, and argued it was not a corporation for purposes of the overpayment interest rate under Section 6621.  The 501(c)(3) argued that the Service IRM indicates that “corporations” are defined by the return they file, which does not include not-for-profits, and the Service has previously issued refunds using the non-corporate rate.  The Court stated the IRM cannot be used as precedent, or trump other regulations that would indicate the contrary.   The 501(c)(3) also argued that the check-the-box regulations were not clear on the classification of it as a corporation, so it should be afforded “special treatment”, which is allowed in limited circumstances. The Court did not find this persuasive, and held it was a business entity, the default treatment of which was a corporation.
  • More on Perez v. Mortgage Bankers Association from the Yale Journal on Regulation’s blog, Notice and Comment (our third reference to this new blog over the last two weeks).  We had an excellent guest post from Patrick Smith on the case this week, which can be found here.
  • From Jack Townsend’s Federal Tax Procedure Blog, a review of Cavallaro v. Comm’r, where the Tax Court found for the IRS in a valuation dispute on a transfer resulting in an imputed gift.  The Court held the taxpayer had the burden, even though the IRS had substantially reduced the value.  The Court found the taxpayer’s expert relied upon an incorrect assumption from the taxpayer regarding the ownership of certain technology.  This resulted in the Court disregarding the opinion completely, and the Service carrying the day.  Jack’s write up has some great commentary on the burden of proof matter.
  • Also from Jack Townsend, but this time from his Federal Tax Crimes Blog, you can find the IRS Information Letter regarding the tax regime for “green card” holders.  This ties into last week’s SumOp pretty well, where we discussed the Topsnik case, where a foreign individual tried to informally abandon his residency.
  • More statute of limitation issues, with the Service releasing CCA 201438021, which outlines the Service position on when third-party filed employment returns for common law employers will start the running of the statute of limitations.
  • The GAO has issued a report on recommendations to improve efficiency and effectiveness of large partnership audits, found here.  Thompson and Knight’s tax blog, TK Tax Knowledge has a short summery.
  • Bob McKenzie, writing at Forbes, has an article on the new OIC guidance issued by the Service, and the likely increase in acceptance rates resulting in the new rules, combined with the 2012 changes.
  • In US v. Wommer, the Ninth Circuit has affirmed an attorney/taxpayer’s conviction for subscribing false returns, currency offenses and evading tax, hold the taxpayer’s argument that interest and penalties were not “taxes” for purposes of tax evasion under Section 7201.  The taxpayer was able to advance case law regarding sentencing that advanced his position, but the facts were distinguishable and the Court held the statements were dicta.
  • From the US Bankruptcy Court in the Southern District of Texas comes In Re: Kemendo, where the taxpayer was able to discharge tax liabilities for years in which the Service prepared substitutes returns…which is generally not the rule under Bankruptcy Code Section 523(a)(1)(B).  In this case, Mr. Kemendo cooperated with the IRS in the preparation of those returns, taking them out of the exception for non-dischargeability.  Kieth noted that the Court placed the burden on the Service to prove the returns were not done with Mr. Kemendo’s cooperation, as he had alleged, which Keith found unusual.  Unfortunately for the Service, the returns had been prepared years before, and the Service did not have any records regarding that aspect of the case.

 

 

Stephen Olsen About Stephen Olsen

Stephen J. Olsen’s practice includes tax planning and controversy matters for individuals, businesses and exempt entities for the law firm Gawthrop Greenwood, PC.

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Comments

  1. The Tax Court’s Buczek CDP hearing case was good law in implementing a bad law. I was disappointed when the anti-CDP cranks pushed through 6330(g).

    I certainly understand the desire to preempt tax defiers. Yet, Collection Due Process is more than just about the issues taxpayers raise. It is also about verification that the IRS followed any applicable legal and administrative procedures. It is also about balancing the tax collection interests of the government with those of the person. Yet 6330(g) unfairly strips these due process protections from the tax defiers, which simply gives them a compelling recruiting tool.

    Any government should ensure that its tax collection methods are actually and perceptually fair. By comment consent, however, the Internal Revenue Code is neither. Why, then, further worsen the matter by allowing tax defiers to argue to the masses, viz. “The government knows the collection of the income tax is illegal. In fact, if you tell it so, it will deny you an important legal right. In other words, the government will let you exercise that right only if you keep quiet about what you know!”

    Given this argument type, which tax defier promoters make across the country, 6330(g) is a law that is most unwise.

  2. Bob Kamman says:

    So in the most momentous week of the century in federal court history, we should consider the statute of limitations for excise taxes under Section 4979A(e)(2)(D).

    Let’s mark the occasion at least with a few observations. First, when was the last time you saw a CDP case in Tax Court involving a joint return? Unpaid tax debts seem to be largely a problem for single people. Therefore, one might conclude, marriage is good. More marriages may decrease tax delinquency. Of course, the price for that is that many new couples will pay a marriage penalty, while many others will reap the benefits of income splitting; higher thresholds for certain credits and deductions; and stepped-up basis in community property states.

    Keep in mind that the high water mark of “voluntary compliance” is that there is no way, without great investigative effort, for government authorities to determine someone’s marital status. Those records are held in 3,086 county, parish or borough databases across the country, and thousands more around the world. We are taxed based on the marital status we choose to report. Marriage is easy while divorce is costly, so the incidence of bigamy among lower-income citizens is no doubt higher than anyone cares to study or admit. (Look at some Social Security survivor-benefit claims, for insight into how this works in the real world.)

    Most of the federal tax procedural issues related to recognition of same-sex marriages were settled last year, after the Windsor decision. Amended returns were permitted, but not required. The playing field now moves to state tax procedure. No doubt there were many state tax returns ready to be mailed on October 15 that are now receiving a hurried second look.

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