Designated Orders: Week of 1/1/2018 – 1/5/2018 aka New Year, New Graev III(?)

This week’s designated orders come courtesy of Caleb Smith at University of Minnesota. It is not surprising that Graev III and other issues related to penalties continue to dominate the order pages at the Tax Court. As one might expect in reading Graev III and previous designated orders, Judge Holmes has problems with the way things are working. In two cases Caleb discusses, we find out about the problems and how to attack them. Keith

Estate of Michael Jackson v. C.I.R., dkt. # 17152-13 [here];

Oakbrook Land Holdings, LLC v. C.I.R., dkt. # 5444-13 [here]

2018 begins with Judge Holmes continuing the inquiry into the aftermath of Graev III, and raising some new issues. As Carl posted earlier [here], even if we now know that the IRC 6751(b)(1) argument can be raised in a deficiency case, there certainly remain questions to be answered about the contours of its applicability and interplay with IRC 7491(c) (the IRS burden of production on penalties).

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The main issue in Judge Holmes’s two orders is the interplay of these statutes with taxpayers that are not “individuals” as defined in the code. That is, how does the burden of production issue in 7491(c), which by its language applies to penalties against individuals come to effect partnerships and estates?

Consider the varying breadth of the primary statutes at play:

  • IRC 6751(b)(1): “No penalty under this title shall be assessed […]”

Thus, subject to the exceptions listed in IRC 6751(b)(2), the supervisory approval requirement appears quite broad. By its language, it appears to apply to all penalties found in the Internal Revenue Code.

OK, so we know that supervisory approval is broad. But when exactly does the IRS have the burden of production to show that it has complied? That seems a slightly narrower… As relevant here:

  • IRC 7491(c): the IRS “shall have the burden of production in any court proceeding with respect to any individual for any penalty […]”

So if the penalty is against an individual, the IRS bears the burden of production. That, of course, prompts the question: what is an “individual” for tax purposes? For guidance there, we look to the definitions section of the code. As relevant here:

  • IRC 7701(a)(1): “The term “person” shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.”

This definition clearly contemplates that not every entity is an “individual.” In fact, an individual is basically limited to a natural human. Putting these three statutes together, you seem to get (1) supervisory approval required for all penalties, but (2) burden of production for the IRS to show approval only when the penalty is against a natural human.

The question seems more complicated in the case of partnerships than estates (go figure). For one, in TEFRA cases the petitioner is the partner that files the petition: which may be an individual, but it may also be another partnership, association, etc. Another wrinkle: in the TEFRA/partnership context, the court is looking at the applicability of the penalty, not the liability. Does that change the analysis? 7491(c) explicitly deals with a court proceeding “with respect to the liability […] for any penalty[.]” Is determining applicability the same (or close enough) to being “with respect to” the liability of the penalty for IRC 7491(c) to apply in TEFRA? I would think yes, but I (blessedly) do not frequently work with partnership issues.

As far as I can tell the question of whether the IRS should have the burden of production on penalties (generally) against estates, partnerships, etc. is not much changed under Graev III. The only real difference now is that the IRS (may) have to wrap in supervisory approval as part of their burden of production. In reading Judge Holmes’s orders, I couldn’t help but get the sense that his questions have less to do with the outcome of Graev III and more to do with general problems in the law concerning penalties. In fact, it seemed to me that Graev III simply provided the Court an opportunity to review some issues that may have been lurking for some time.

In both orders, Judge Holmes lists multiple memorandum decisions that apply the burden of production against the IRS for penalties against estates and in the partnership context, respectively. However, Judge Holmes also notes that the cases either don’t really address the question (for applicability against estates), or are fairly unclear in their rationale (for applicability in the partnership context… again, go figure).

The court decision that explicitly does apply the burden of proof on the IRS in a partnership context appears particularly weak. That case is Seismic Support Services, LLC v. C.I.R., T.C. Memo. 2014-78. The issue is addressed in a footnote (11), where the Court actually notes that the language of IRC 7491(c) applies “on its face” to individuals and that numerous Tax Court decisions have refused to apply IRC 7491(c) against the IRS when the taxpayer isn’t an individual. In fact, a precedential decision explicitly says that 7491(c) doesn’t apply when the taxpayer is not an individual: see NT, Inc. v. C.I.R., 126 T.C. 191.

Case closed… right?

Well, no, because other memorandum decisions have applied IRC 7491(c) against the IRS when the taxpayer was a corporation. Why it is that Judge Kroupa in Seismic Support Services, LLC decides that she should follow the lead of the memorandum decisions is beyond me. Those decisions provide essentially no analysis as to whether IRC 7491(c) should apply against non-individuals, whereas NT, Inc. specifically states why it shouldn’t. I would not be surprised if the Court began a trend towards consistency in this matter, abandoning Judge Kroupa’s approach and opting for what appears to be the correct statutory reading: if it isn’t an “individual,” the burden of production for penalties does not apply to the IRS. Partnership issues may complicate that matter, but generally speaking (and especially for estates), it does not appear that IRC 7491(c) should apply.

Throughout all of this, one thing that surprised me was that the IRS has not raised the issue before. In fact, the case that explicitly holds that IRC 7491(c) does not apply in the case of corporate taxpayers (NT, Inc. v. C.I.R.), the IRS (by motion) stated that it did apply… and the Court had to say of its own volition “no, in fact it does not.” Little issue, I suppose, because the IRS won either way.

And that may be the ultimate lesson: if and when the burden of production will actually change the outcome. In essentially all of the cases cited by Judge Holmes (i.e. the cases I reviewed) it is likely the IRS didn’t much care about the burden of proof. They were arguing a “mechanical” applicability of a penalty (like substantial undervaluation) such that it really didn’t matter who had the burden of production, since the burden would be met (or not met) depending on how the Court valued the underlying property (in the estate cases).

But where the penalty requires something more (say, negligence) the IRC 7491(c) issue would definitely be important. Alternatively, if it becomes a requirement that the IRS affirmatively show compliance with IRC 6751 without the taxpayer raising that issue, it may also change the calculous. Like so many other penalty issues, we don’t yet have clarity on how that will turn out.

Remaining Orders:

There were three other designated orders that were issued last week. An order from Special Trial Judge Carluzzo granting summary judgment against an unresponsive pro se taxpayer can be found here, but will not be discussed. The two remaining orders don’t break new ground or merit nearly as much discussion, but provide some interesting tidbits:

A Judge Buch order in Collins v. C.I.R., (found here) may be of some use to attorneys that have some familiarity with federal court, but no familiarity with Tax Court. In Collins, the pro se taxpayer (apparently an attorney, but without admission to the Tax Court) attempts to compel discovery, and cites to the Federal Rules of Civil Procedure (FRCP) Rule 37 to do so. Among many other errors (ranging from spelling, to failing to redact private information), this maneuver fails. For one, it fails because Mr. Collins appears to seek information “looking behind” the Notice of Deficiency (i.e. to how or why the IRS conducted the examination) which older Tax Court decisions frown upon. (I would say that the outcome of Qinetiq (discussed here) generally reaffirms this approach.)

But the more imminent reason why Mr. Collins approach fails is that he doesn’t comply with the Tax Court Rules before looking to the FRCP as a stand-in. And those rules (at R. 70) plainly require attempting informal discovery before using more formal discovery procedures. All of which is to say, attorneys that are accustomed to litigating in other fora should understand that Tax Court is a different animal than they may be expecting.

Finally, An order from Judge Gustafson (found here) shows still more potential problems for the IRS on penalty issues, this time IRC 6707A concerning failure to disclose reportable transactions. The Court surmises (and orders clarification through a phone call) that the IRS may have lumped multiple years of penalties (some for time-barred periods) into one aggregate penalty for a non-time barred year. This is almost certainly a no-no, and if it turns out the IRS calculated the later (open) penalty in that way one would expect the phone call to involve some large dollar concessions from the IRS.

 

 

 

 

 

Designated Orders: 12/4/2017 – 12/8/2017

We welcome back guest blogger Caleb Smith who brings us the designated orders from the first week of December. Both orders he writes about this week were issued by Judge Gustafson and both have the issue of summary judgment present. As Caleb mentions, Chief Counsel attorneys must draft their summary judgment motions with care when submitting them to Judge Gustafson. Keith

Last week the Tax Court issued five designated orders. Two will not be discussed in any detail (order granting summary judgment against taxpayer that failed to respond here; order dismissing case of tax protester (arguing, among other things, that the income tax was repealed in 1939 and never reenacted, here). The remaining three orders, however, provide some interesting insights.

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Different Penalty, Same IRC 6751 Issue

ATL & Sons Holdings Inc. v. C.I.R., Dk. # 16288-16L (order here)

Practitioners that have been holding their breath for updates on how the Tax Court treats IRC 6751 issues can exhale… Although most of the cases we have covered deal with accuracy penalties under IRC 6662, the breadth of penalties to which IRC 6751 applies means that need not always be the case.

ATL and Sons involves a penalty under IRC 6699 (failure to file an S-Corporation Return). Note first that if this were a failure to file penalty for individual income tax return IRC 6751 would not apply. “For all we can tell” (Court’s words), “the section 6699 penalty is subject to supervisory approval under IRC 6751(b)(1).” But what is more interesting than the nuance that the supervisory approval applies on a late filed S-Corp return but not individual income tax return is the burden shifting and level of proof that applies thereafter.

The IRS has something of an up-hill battle on (quickly) winning this case because of the context in which it arises. Judge Gustafson details each issue that the IRS will need to contend with. First of all, the matter at hand is a penalty: thus the burden of production is instantly shifted to the IRS via IRC 7491(c). Second, it arises in a CDP hearing, where the IRS is statutorily directed to verify “that the requirements of any applicable law or administrative procedure have been met.” IRC 6330(c)(1). Third, the order arises from an IRS motion for summary judgment. As detailed before (here), the IRS doesn’t have the greatest track record with Judge Gustafson on summary judgment motions. So how does the IRS do this time? Not much better.

The Notice of Determination issued by the IRS includes the perfunctory language that “The Service met the requirements of all applicable laws, regulations…” etc. meant to show compliance with IRC 6330(c)(1). But it provides no further insight on how that (conclusory) statement was reached… for example, if there was a verification of supervisory approval of the penalty under IRC 6751. The Notice of Determination boilerplate language, on its own, is not enough to carry the day. The interplay of the burden of production for penalties under 7491, the supervisory approval requirement of 6751, AND the verification requirement of IRC 6330(c)(1) mean that a motion for summary judgment by the IRS is going to get a hard look by the Court.

I’d note that it appears unclear if IRC 7491 plus IRC 6751 alone would do the trick, or if the 6330(c)(1) verification requirement is the secret sauce that forces the issue of verification on the IRS… The court has not been entirely of one mind on that issue. Judge Lauber, for instance, has required that the taxpayer affirmatively raise the issue, even in a CDP hearing. See Lloyd v. C.I.R, T.C. Memo. 2017-60 (here). Special Trial Judge Leyden, on the other hand, appears to follow the Gustafson route: see denying IRS summary judgment here.

Similarly, it is not immediately clear whether the taxpayer specifically raised the issue of supervisory approval (kudos to the taxpayer, appearing pro se, if he did). The taxpayer did, at the very least, reply to the IRS motion.

In any event, the Tax Court appears to continue its streak of taking rather seriously the IRS responsibility to make sure it actually has its records straight on CDP review. “Trust us” will not work.

Odds and Ends: Possible EIC Win for Pro Se Taxpayer?

Lamantia v. C.I.R., Dkt. # 17994-17S (order here)

For purposes of determining “earned income” eligible for the earned income tax credit, amounts received while the individual is an inmate are not taken into allowed. IRC 32(c)(2)(B)(iv). We have previously seen a valiant but ultimately unsuccessful attempt by a taxpayer to argue that they were not an inmate while they were confined at a hospital under the custody of the correctional institution. Here, we see a more likely winner: that the individual was not an inmate at a penal institution while on parole.

It appears that the sole issue in this case is whether Ms. Lamantia had eligible income for the EIC, or whether it was disallowed on the “penal institution” rule. It also appears that Ms. Lamantia has produced very credible evidence (a letter from the South Carolina Department of Corrections) that shows she was in the community, on parole, for the tax year in dispute. If that is the case, I would imagine a concession from the IRS rather than a push on the legal issue: it would appear to take a pretty strained reading of IRC 32(c)(2)(B)(iv) to say that someone released in the community is an “inmate,” but I am no expert on the legal nuances of parole.

Lastly, to give credit where credit is due, the Tax Court (this time through Judge Gustafson) has continued to show its touch with pro se taxpayers. Here, the pro se taxpayer appears to have sent the Court a “motion to dismiss” with two exhibits (one being the aforementioned letter from the Department of Corrections, the other being eligible). The Court reviewed the letter, tried to ascertain the purpose Ms. Lamantia had for filing it, and re-characterized the filing accordingly –in this case, as a motion for summary judgment. Kudos to the Court for assisting the pro se taxpayer in a confusing process.

 

Judge Buch Offers a Primer on Stipulations

We welcome guest blogger Caleb Smith who directs the tax clinic at the University of Minnesota. Here he writes about one of the designated orders that came out during his week of writing up those orders. This one has enough meat to warrant a post of its own. Keith

The primer appears in a designated offer in the case of Siemer Milling Company v. C.I.R., Dk. # 21655-15 (order here)

There are many aspects that make litigation in Tax Court a different experience than other venues. One major difference is the focus (nay, command) that the parties stipulate to the fullest extent possible (see Tax Court Rule 91. As Judge Buch writes (quoting Branerton), “the stipulation process is the bedrock of Tax Court practice.” (Internal quotations omitted.) When that process breaks down, the Court is generally not very pleased with the offending party… or, in this case, parties. For, as Judge Buch notes, neither the government nor the taxpayer are without fault in the case before him.

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As this order details breakdowns in the process between these two parties, it also provides insight on how genuine disputes on stipulations may arise.

Clearly, the IRS and the taxpayer in this case are not in agreement on what proposed facts and evidence should be considered established… and that is likely true in a lot of cases. Sometimes a party is unreasonable in thinking that there is (or isn’t) a fair dispute of an item to be stipulated. IRS counsel will share horror stories of taxpayers that refuse to stipulate their address, or that they even filed the tax return (even when the issue of if they filed is not actually relevant to the case). On these more bright-line issues, a party can move under Rule 91(f) to compel stipulation, and the Court may so compel. That is what the taxpayer sought in Siemer Milling Company.

In this case it appears that the taxpayer was a little over-aggressive in what they wanted stipulated, and the IRS was equally heavy-handed in their reasons for objecting to the stipulations. The decision gives insight to how a practitioner may want to frame their objections when dealing with contentious stipulations, and what rationales to avoid.

The IRS listed out 10 separate bases for rejecting the stipulations. Judge Buch lumps the bases into those that don’t work, one that kind of works, and the remaining that do work (which are enough to carry the day for the IRS).

Most of the rationales that do not work are those that “object to the source of the fact.” They are overwhelmingly objections to the contents of source documents –for containing hearsay, subjective statements of intent, or being restatements of the taxpayer’s claims. The inquiry, Judge Buch reminds us, should be to the fact itself and not the source from which it is derived. This is not an immediately clear distinction to me (if you dispute the source, aren’t you almost always implicitly disputing the resulting fact it produces?). Luckily, Judge Buch lays out an example. With regards to an objection to stipulating based on hearsay, Judge Buch asks us to consider:

“In a case involving an accuracy-related penalty, would the Commissioner accept a stipulation that a return preparer told the taxpayer that the item of income should have been included in the return?”

Of course the Commissioner would so stipulate, Judge Buch asserts.

I don’t doubt for a second that the IRS generally would so stipulate, but I’m not sure if the example makes the point Judge Buch wishes to. And the reason I’m not sure, is that it isn’t clear to me that the example illustrates hearsay at all.

On the surface, the scenario seems to track the definition of hearsay well enough: it is obviously an out-of-court statement by the declarant (the tax return preparer). See FRE 801. But the second critical aspect –that it was introduced to prove the truth of the matter asserted, may be lacking. Of course, much depends on the context and purpose of the statement “told the taxpayer that the item of income should not have been included.” If you are bringing that statement into play simply to show that you were given legal advice (that you relied on) and therefore may have an IRC 6664 defense, I don’t believe it is hearsay. It isn’t being used to prove the truth of the matter asserted (i.e. that item doesn’t need to be included in the return). Rather, the statement is being used to show simply that it was said at all. You are trying to prove that tax advice was given, not to prove that what was said (i.e. the advice itself) is true.

The reason I found myself pondering whether this actually was hearsay is that it brings up a more fundamental point: how unfair it would seem to be to be forced to stipulate to something that couldn’t otherwise be brought into Court, and to which you truly doubt the veracity of. Tax Court Rule 91(a)(1) expressly provides that disputes of materiality or relevance aren’t grounds for failing to stipulate, but rather that the party should note their objection (on those grounds) in the stipulations themselves. Is this also the way to address hearsay?

At this point, it should be repeated that the IRS prevailed on its objection to stipulate in this case. Where hearsay is found in proposed stipulated facts, it may indicate that there are other (acceptable) grounds for objection lurking. In this case, such acceptable grounds for objection include (1) overly vague stipulations, (2) stipulations that are pure statements of law, (3) material misstatements of fact, and (4) most importantly, matters that are “fairly in dispute.”

To me, this is all to circle back to the initial inquiry: what is “fairly” in dispute? Objections to stipulations have to get at that inquiry, and not a dispute of how “strong” the stipulation should be. Judge Buch attempts to walk these two gridlocked parties through what constitutes a fair dispute and what doesn’t. In the end, one feels for Judge Buch and the extra work that will need to be done when the two parties can’t work between themselves. As Judge Buch says, “the Court is not in the business of rewriting stipulations,” and “there is little left the Court can do.”

 

 

Designated Orders: 11/6/2017 – 11/10/2017

We welcome back regular guest blogger Caleb Smith, the director of the low income taxpayer clinic at the University of Minnesota. This week Caleb brings us news of a dismissal from the Tax Court in the case of a potentially sympathetic innocent spouse claimant as well as what seems like the latest version of the Amway scheme from years gone by. Like the petitioner Caleb describes below, in the 1980s there were a host of taxpayers who went to Amway conventions and were told that they could deduct just about everything in their life as long as they tried to push Amway products on the people they met. Caleb speculates on whether Judge Buch’s opinion will persuade the taxpayer of the error of the theory of deducting all of your personal expenses. I hope he does but can attest that it took many years and many opinions to stamp out this type of activity by individuals “selling” Amway products. Keith

There were quite a few designated orders last week (nine in total), but only a few of which that had much substance. Ones that won’t be discussed include two from Judge Jacobs (here and here), one from Special Trial Judge Carluzzo (here) and one from Judge Gustafson (here). Another designated order that we won’t presently discuss does bring up some very interesting issues about the timeliness of Collection Due Process request when mailed to the wrong IRS address (found here). More on that developing issue to come in the weeks ahead. For now, we’ll focus on slightly more settled “timeliness” issue…

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Stop Me If You’ve Heard This One…

Goline v. Commisioner, Dkt. # 20756-16S (order here)

I sometimes tell my Federal Tax Procedure class that a pro se taxpayer could write their petition in crayon on a cocktail napkin and the court would probably find jurisdiction if it was mailed on time -but no matter what you send, if it is a day late you are out of luck. Such is the case in Goline: an all-too-common story where the taxpayer mailed their Innocent Spouse petition a day after the statutory deadline under IRC 6015(e); a statutory deadline that the Tax Court says they are helpless to extend.

The facts of this order paint a potentially sympathetic picture for the taxpayer. Consider the following:

(1) The taxpayer probably filed the petition within 90 days of being made aware of (or receiving) the IRS notice of determination: the notice of determination was properly sent to the last known address by certified mail, but went unclaimed and returned to the IRS. But the date the IRS mails (if to the proper address) is what begins the 90 day period.

(2) Presumably recognizing the tight timeline (it is unclear how the taxpayer became aware of the notice of determination since it went unclaimed), the taxpayer sent the petition by FedEx Express Overnight. But it was sent on the 91st day: thus no mailbox rule and no timeliness. The petition was actually received by the Tax Court on the 92nd day: it isn’t difficult to imagine a petition sent on the 89th day by standard mail and not being received until later than the 92nd day, but still preserving jurisdiction.

(3) The taxpayer apparently received inaccurate advice about the filing deadline from an IRS employee on a phone call.

Read in the light most favorable to the taxpayer you can imagine a taxpayer not receiving their mail, calling the IRS about a filing deadline, receiving erroneous advice about the actual deadline (for example, putting the deadline a day later than it is), and the taxpayer scrambling to meet that deadline… If these were the facts (admittedly, there is speculation on my part), you could envision a fairly strong case for a court to exercise its equitable powers. But these are powers we are told time and time again the Tax Court does not have when it comes to questions of jurisdictional filing deadlines. At least, that is the law as it presently stands. It is no secret that the authors of Procedurally Taxing are doing their best to see that this changes. See posts here, here, and here among others.

 

Battle-Axes as a Business Expense: Probably Not if it’s a Daycare 

Eotvos v. Commissioner, Dkt. # 21450-16S (order here)

There isn’t anything to this order and bench opinion that breaks new ground. However, because I actually watched this trial during calendar call in St. Paul, I have a little insight that goes beyond what is in the bench opinion that may be of interest. This was largely a case of a taxpayer being convinced (maybe without much convincing, because it saved them money to believe it) of something ridiculous in the tax code. It may well be a corollary effect of being told so many times that the tax code is overly-complicated: the belief in form over substance leading to legal (though unreasonable) outcomes. Essentially, the taxpayer was told (or sold) a tax scheme from a “professional” whereby they could deduct pretty much the entire cost of their home and everything in it, so long as it was used for a daycare. During the trial, the taxpayer repeatedly tried to bring up Rev. Procs., and other (I’m confident) dubious sources of law that confirmed this was the proper treatment –if I had to guess, these legal authorities were all prominently cited to by the mastermind that told the taxpayer of this brilliant idea that no one else had yet come across.
It was all a bit painful to watch, as Judge Buch continuously had to steer the taxpayer towards establishing a factual record needed to touch on the issues (largely substantiation and purpose of the expenses), whereas the pro se taxpayer almost always tried to make legal arguments. One very much sympathizes with Judge Buch on this case, and a lot of credit should be given to him: to the extent that facts were put on the record that the petitioner would need for the case, they were almost wholly elicited from the Judge.

Unfortunately, those facts were not good. Among the detailed expenses that the taxpayer claimed for his daycare were a collection of battle axes and swords. Outside of Game of Thrones, it is hard to imagine those items being suitable for children (disclaimer: I don’t actually watch Game of Thrones so I have no idea if that reference works nor do I have children so I may be unaware of the role battle axes play in raising them). Because the entire home (and garage, and sidewalk, apparently) was used for daycare everything in and around those areas should be deductible as business expenses, to the taxpayer’s mind.

To anyone that wasn’t sitting at petitioners table, there was no doubt how this case would turn out. Hopefully, the taxpayer will carefully read the decision as it does a very clear job of laying out when things that are generally considered personal property can be deducted. If this will be enough to convince him that his “expert” was wrong is anyone’s guess. 

Odds-and-Ends

A few of the orders that are worth mentioning, but not in great detail, are as follows:

Health Care and Tax Returns (Binyon v. Commissioner, Dkt. # 23656-16S)

It may come as a surprise to some, but even before the Affordable Care Act there was a (very small) interaction of refundable tax credits and health care: the “Health Care Tax Credit” (IRC 35).If you hadn’t heard of this credit, it is probably because its application is fairly limited. The only potential applicants are eligible trade adjustment allowance (TAA) recipients, eligible alternative TAA recipient, or eligible Pension Benefit Guarantee Corporation (PBGC) pension recipients. The petitioner claiming the credit in this case fell into none of those categories. Furthermore, it appears that the petitioner had her insurance premiums paid by her father. It isn’t clear how petitioner came to believe she should get the credit (it doesn’t exactly jump out on Form 1040), but it is clear she wasn’t entitled to it. And so the court easily found.

Limits of Cohan (Martinez v. Commissioner, Dkt. # 22818-16S)

The court also easily came to the conclusion that a self-employed taxpayer was not able to deduct the costs of goods sold and business expenses beyond what the IRS conceded when the taxpayer kept virtually no records. The taxpayer bought and sold automobile parts from junkyards to sell on Ebay. This allowed for a fair estimate of some expenses (shipping costs, commissions to Ebay, and other transactional costs). And the IRS accordingly conceded $15,900 of allowable expenses on $33,361 of proceeds. A taxpayer asking for more, when they keep virtually no records, is unlikely to find charity from the court if the problem is due to their own failures. Cohan, in this context, allows for some expenses (it is clear that the taxpayer had some), but don’t expect to push that number particularly high.

 

 

 

 

 

 

 

 

 

Designated Orders, 10/9 – 10/13

This week’s designated orders were written by Caleb Smith who directs the tax clinic at the University of Minnesota. Today the lessons from the orders concern the importance of the tax return itself. Keith

There were only four designated orders last week, three of which came from Judge Gustafson in Collection Due Process cases, and one from Judge Buch in a deficiency action. I won’t elaborate much on the Buch order, as it deals largely with tax protestor arguments. For those who remain interested, it does offer a look into “current trends” of tax protesting arguments (now apparently including Administrative Procedure Act claims). If nothing else, the sixth footnote of the order may also bring some levity to your day. The order can be found here.

The two Gustafson orders that I will focus on highlight, once more, the important lesson of getting your tax return right the first time. They also provide a look at what sorts of errors the IRS filters can and cannot easily pick up.

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Perils of Our Self-Reporting Tax System

Taylor v. C.I.R., Dk # 19243 -16L (order here)

The basics of Taylor are simple: taxpayer reported roughly $120,000 in tax liability with only about $8000 in withholding. No further payments were made, so the IRS began collection procedures. The gulf between the self-reported tax liability and withholding credits certainly catches the eye, and Judge Gustafson elucidates exactly what is at play. This is, quite frankly, a tax return that the taxpayer mangled almost beyond recognition, but not quite enough to keep from reporting a massive amount due.

Judge Gustafson does his best to get into both the mind of the taxpayer at the time of preparation, and what the real transactions seem to be. This is not an easy task. The basics are that the taxpayer prepared Form 1099-A (generally used for abandoned property transactions) listing himself as the lender and USAA Federal Savings Bank as the borrower on a note worth $358,031 with a balance of $190,403 remaining outstanding. If this is mistakenly based off of an actual transaction is anyone’s guess. How the taxpayer reported this (self-prepared) 1099-A on his tax return was to include the $358,031 as “other income,” thus generating a substantial liability. In a later, amended return the taxpayer continued to include the $358,031 as income, but also included the outstanding balance of $190,403 as a withholding credit. It appears that on the original return Mr. Taylor may have forgotten to include that withholding credit: in any event, the IRS did not allow it.

Who knows what motivated the taxpayer to report the transaction as he did, or if there even was a real transaction he was trying to faithfully report. It is hard to doubt that whatever transpired, it was reported incorrectly and very likely resulted in an incorrectly inflated tax liability. In any event, it is noteworthy that, but-for the case law holding that self-reported tax does not constitute “a prior opportunity to dispute” the liability under IRC § 6330(c)(2)(B), there would be effectively NO chance for judicial review when trying to fix these errors. Obviously there will be no notice of deficiency on self-reported tax, and paying the erroneous tax to sue for refund is almost certainly out of the question in most of these instances. I trust that 99% of the time working administratively with the IRS will resolve the problem when it is a clear typo. The bigger issue, to me, is the amount of time it may take for the IRS to resolve the problem (and the intervening events that can take place) when there is no judicial pressure. In the above case it was the taxpayer’s own fault for not meaningfully participating in the CDP hearing or the ensuing litigation to fix what was a clear mistake: the CDP procedures otherwise did what they are supposed to do.

Parikh v. C.I.R., Dk # 19875-16L (order here)

So we have seen that an error on income leading to an inflated, self-reported tax can be hard to unwind since it leads to immediate assessment. What about a typo on a social security number?

In Parikh, the taxpayer self-reported tax liabilities for 2009 – 2011. The IRS then increased those liabilities after disallowing a dependent exemption for each year, presumably after sending a notice to the taxpayer. The reason for the IRS disallowing the exemption is critically important: it isn’t that the IRS was auditing the return and concluding that the taxpayer didn’t meet the IRC § 152 tests. Rather, it was because the dependents Social Security number was incorrect. The first rationale would require a notice of deficiency; the latter may be a “math or clerical error” under IRC 6213(b), and accordingly does not require an NOD unless the taxpayer responds to the notice requesting abatement. If the taxpayer does not respond (as appears to be the case here), the IRS can assess the additional tax.

This is important because the lack of NOD issuance (may) open the door for the taxpayer to argue the underlying liability at a later CDP hearing under IRC § 6330(c)(2)(B) –the same provision that could have assisted Mr. Taylor in the first case had he properly engaged the process. Mr. Parikh, it seems, was slightly more involved and thus gets a slightly better outcome: he provided information for correcting the SSN of the dependent (that the IRS thereafter allowed, thus reducing his liability) but he did not provide financial information or other delinquent tax returns (thus tying the hands of the IRS for providing any variety of collection alternative).

If there is one lesson to be gleaned from the above orders, it’s that if you have a typo on your tax return make sure that it isn’t on an item of income. More specifically, make sure that it doesn’t inflate your actual income by an order of magnitude (say, by adding a couple extra zeros to your wages on line 7). While that isn’t exactly what happened in Taylor, it is the power of the of IRC § 6201(a)(1) that moves the problem forward. The IRS will take you at your word when you say you have a lot of income, even if third party sources don’t back up that claim. With an SSN typo you at least get a math error notice prior to assessment.

Short of a new, “friendly” version of the common CP 2000 notice (i.e. “Our computers think you may have over-reported income: can you explain the discrepancy between your return and our 3rd party sources?”) it is difficult to fault the IRS for treating the two typos differently. Over-reporting gross income is not a “math error,” and it is very difficult for the IRS to reasonably guess that the taxpayer DIDN’T have that income short of further examination. Further, if you are preparing your tax return with most commercial software there will be about a million blinking red lights before you file warning that you owe significant money… usually that is enough to have people take a second look before clicking “submit.” But if you file by PAPER and do not calculate the tax due there is no such warning. In fact, in some instances as a courtesy the IRS will figure the tax for you and either send a bill or refund thereafter (See Page 41, 2016 Form 1040 Instructions and Page 208, IRS Publication 17). It is unclear to me in the Taylor case whether the taxpayer listed an amount due (even by paper, handwriting a huge liability is a warning of its own), or whether the IRS “fixed” that missing information later. By whatever means the point remains: a self-reported liability is hard to erase.

Correct Liability, Incorrect Argument

Karim v. C.I.R., Dk # 17407-15L (order here)

The final Gustafson order also involves self-assessed liabilities, but with a twist: this time, it appears, the liability was correctly reported. Instead the case revolves around what remedy the taxpayer wants: either a double-check that he has had payments credited to the liability, or removal of the lien.

It is increasingly easy to be sympathetic to the taxpayer’s claim that the IRS has misapplied payments that should be credited to an outstanding liability (see posting here). In this case, the taxpayer didn’t really pursue the argument that there had been misapplied payments: the cursory IRS response “our records show” thus carried the day.

This case also provides an example of the difference in remedies when one is contesting a lien rather than a levy. Here the taxpayer was placed in CNC (usually, a good outcome for a levy action), but did not make a persuasive argument why the lien should be withdrawn.

Lastly, some may find the order interesting for the brief analysis of whether the administrative CDP request was on time. Here, the IRS apparently put a date on the Notice of Intent to Levy that did not match the reality of when the letter was actually sent: see previous orders calling into question the veracity of IRS notice dates here).

 

Designated Orders, 9/11 – 9/15

This week’s designated orders were written by Caleb Smith who directs the tax clinic at the University of Minnesota. With respect to the first order, you might think of other installment agreement problems we have highlighted in prior posts such as the difficulty of entering into an installment agreement, the difficulty of convincing the IRS to accept an installment agreement and the problems with loading an installment agreement. Keith

There were seven designated orders from the Tax Court from 9/11 – 9/15. Here is a look at the highlights:

Just Take My Money, Already”: Lingering Problems of Failing to File

Lewis v. C.I.R., Dk # 20410-16L (order here)

One would think that getting into an installment agreement (IA) would be an extremely easy route to take for resolving most collection controversies. At least, if the IA terms are such that the debt will be full paid within a fairly short period of time, it should be all-but-automatic. See IRC § 6159(c). In my experience (and apparently the experience of many others), that isn’t always the case. These administrative problems, as well as the frequency that taxpayers enter into IAs they can’t afford (see TAS blog here and report here), are problems that should be addressed by the IRS.

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In other circumstances, however, the IRS is well within its right to be skeptical (or at least more demanding) of taxpayers requesting an IA. Though the publicly available record is sparse, it is likely that the above designated order involves just such a case.

The facts presented in the designated order are simple. Through a Collection Due Process hearing, taxpayer requests an IA to settle his debts. The IRS, in turn, requires that taxpayer submit his missing tax returns and Form 433-A to confirm his ability to pay. Taxpayer provides neither. IRS denies the IA. Taxpayer petitions Tax Court, and Judge Gustafson has no difficulty in finding that the IRS did not abuse its discretion. About as routine as these things go, it would seem.

I don’t have access to, and Judge Gustafson does not discuss, any proposed IA terms that may have come about over the CDP process. It actually appears that the pro se taxpayer was waiting for the IRS to propose the terms of a monthly payment plan (“I am ready to start a monthly payment plan as soon as IRS can offer me such.” And “[…] all I have requested from the IRS is to establish a payment plan with me to pay the tax debt in question.”) Although the taxpayer frequently gives the appearance of wanting to pay the debt, it is not an abuse of discretion of the IRS to suggest levy under the circumstances. The taxpayer simply hasn’t given the IRS anything to work with.

Perhaps the IRS would have proposed IA terms if the taxpayer had just submitted Form 433A (the taxpayer would not because he found the form “invasive.”) To me, the real problem is that the taxpayer is a non-filer. If not for that fact, the taxpayer could (assuming his debt is less than $50K) apply for a payment plan online on his own without financial disclosures. Of course, this supposes that the payment plan system would work as it is advertised to, which the beginning paragraph of this article casts doubt on…

The takeaway point is that failing to file a tax return seriously ties your hands when working with the IRS (or asking the Court to review an IRS action. Another unsurprising order promptly denying relief for another non-filer in a CDP case can be found here. Even when the unfiled returns seem to be for years that shouldn’t matter, if you want the IRS to play ball on a collection issue compliance is key.

More Consequences of Failing to Take Action

Calica v. C.I.R., Dk. # 304-17 (order here)

As far as litigation goes, the Tax Court is one of the less “adversarial” venues a lawyer can find themselves in. From the requirement of attempting to use informal discovery, to the focus on stipulating as many facts as possible, the Tax Court is essentially set up to encourage the parties to work things out amongst themselves as much as possible before getting the court involved.

When one fails to work with the other party, however, the court does not take kindly to it. In Calica, the IRS “invited” the petitioner to conferences on two separate occasions to exchange documents. Both times the petitioner was a no-show. Because the IRS had earnestly tried and exhausted its attempts to get information through informal means, it was forced to rely on formal discovery with a motion to compel documents from the petitioner. This order grants that motion, and gives a warning in bold to the petitioner at the order’s end.

The order makes clear that a petitioner can’t just ignore the IRS, then hope to show up at trial and make their case. Judge Jacobs warns that if petitioner doesn’t respond the court may (1) treat the SNOD as accurate to the extent the IRS requested documents pertain to the items on the SNOD, and (2) strike the assignments of errors the petition alleges. Mathematically, “IRS SNOD is accurate + your assignments of error are stricken = complete IRS win.” If this was a particularly bad actor, the Court could even go further, treating failure to comply as contempt of court. It is highly doubtful the Tax Court would do so if the petitioner’s sin was merely failure to respond. Nonetheless, if petitioner has a substantive case, she will have to begin to make it now.

Loose Ends

The final three orders of the week will not be gone into detail. For those wanting to remind themselves of the horrors of TEFRA, an order from Judge Holmes briefly outlining how the Court treats partnership and non-partnership items in a deficiency proceeding can be found here. The order is also notable for its word-of-the-day quality, characterizing the usual TEFRA proceedings as “tohubohu.” The other two orders were notice of a case being calendared (here) and a whistleblower case set for trial largely to determine the administrative record (here).

Designated Orders Post: Week of 6/19 – 6/23

There were four designated orders this week, but only two that will be discussed in any detail. For the incurably curious, the two designated orders that will not be discussed can be found here (order to respond to a motion for summary judgment) and here (order granting IRS motion for summary judgment). The two orders that will be focused on concern Collection Due Process (CDP) hearings, and somewhat bizarre administrative moves by the IRS.

Penny-Pinching or Oversight? IRS Failure to Send Letter by Certified Mail Dooms Summary Judgment Motion

Dkt. No. 15248-16L, Security Management and Integration Company v. C.I.R. (order here)

The IRS has been trying to get this case dismissed for lack of jurisdiction since August, 2016 –filling supplemental motions in January and March of this year. Alas, all of those hours spent appear to be for naught, largely on the basis of the IRS’s failure to send a critical letter by certified mail. Whether this is the embodiment of the adage “penny-wise, pound-foolish” or just a simple mistake with redounding consequences is not clear from the available documents, and left to the reader’s biases.

As is often the case, the IRS begins with a challenge to Tax Court jurisdiction due on timeliness grounds. There are essentially two “timeliness hurdles” for getting into tax court on a Collection Due Process (CDP) case. The first hurdle is requesting the administrative CDP hearing within 30 days of the notice of intent to levy or notice of federal tax lien (IRC 6330(a)(3)). The second hurdle is filing a petition with the tax court 30 days after receiving a “notice of determination” from the IRS following that hearing (IRC 6330(d)). The IRS tries to argue both of these hurdles apply… and likely could have won on the second, if not for their paltry record-keeping.

As to the first hurdle, the IRS proclaims that the taxpayer cannot get into court because they didn’t get a notice of determination (which only issues from a timely CDP request). The Tax Court makes short work of this argument. Under Craig (discussed previously here and here) if the taxpayer timely requested a CDP hearing (as the Court so finds) the “decision letter” is a notice of determination, despite whatever the IRS may call it.

First hurdle: cleared. As we’ll see, it may well be a hurdle that ends up biting the IRS.

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But at first blush the second hurdle appears daunting for the tax payer. The IRS “decision letter” was dated April 6, 2016. The petition to the Tax Court? Not filed until July 5, 2016… considerably more than 30 days.

The Court finds that at least one letter was sent to the correct address (hedging their bets, the IRS sent multiple), so it would seem extremely unlikely that the taxpayer could argue they timely filed a petition in response. Except that this is a summary judgment motion to dismiss for lack of jurisdiction, and the IRS record is not nearly what it needs to be.

In fact, all the IRS can rely on to show that the date the decision letter was sent is the date printed on the letter (apparently not the postmark). Not infrequently, I have had cases where the date printed on an IRS correspondence is questionable, and would appear to have been dated well before it was actually placed in the mail. It isn’t particularly difficult to imagine a letter being prepared (and dated) at one time, and then placed in a queue only to be mailed when some later event takes place. This happens all the time when a letter is prepared but needs approval before being sent. Such circumstances are ones that Judge Carluzzo can likely envision, yielding his reluctance “to find that [the notice of determination] was mailed as dated.” Without the date on the notice holding any water, the argument devolves into “he-said-she-said” between the IRS and the taxpayer. That isn’t enough to win on summary judgment, and it isn’t enough for the IRS to show that the petition was not timely.

If only the IRS had some other evidence to show the date the notice was mailed… like, say, a certified mailing list. And this is where we return to the initial problem: the IRS (apparently mistaken) belief that the first timeliness hurdle was never met. For a timely CDP request, the IRS will generally send a notice of determination by certified mail. See Treas. Reg. 301.6330-1(e)(3) Q&A-E8. I was able to find no such regulation or internal policy for the IRS with regards to decision letters. Because the IRS didn’t think the CDP request was timely, they may not have thought that there was a reason to care much about proving when the decision letter was sent: the taxpayer couldn’t get into court no matter how quickly they respond to a decision letter that fails the first timeliness hurdle. Internally, when the IRS believes it is conducting an “equivalent hearing” it is supposed to investigate and make a “separate timeliness determination” about the request. See IRM 8.22.4.3 and 8.22.5.9. It is obvious, however, that this safeguard isn’t foolproof. The IRS may do well to better recognize these shortcomings (especially that the notice dates on many of its letters are not that convincing) and adjust its procedures accordingly.

I have seen some lawyers (and students) that appear a bit trigger happy with certified mailing, desiring a paper trail where proof of a mailing date is somewhat irrelevant and the certification proves nothing of the contents of the parcel. I would say reasonable minds can differ on the virtue of certified mailing in many cases. But where statutory deadlines are (or may be) at play, it is unthinkable that one would forego a certified mailing paper-trail. This is, if nothing else, a reminder to the IRS (and practitioners) of the perils that may follow such oversight.

 

“Trust Us, He Owes” Not Good Enough for IRS Summary Judgment Motion in CDP

Dkt. No. 27754-15L Walker v. C.I.R. (order here)

In the previous order, we saw the problems of a paper trail the IRS created for itself by failing to use certified mail. Here, that record-keeping problem resurfaces: in this case, by an administrative record so paltry that -by the IRS own admission- it “remain[s] unclear” why additional tax was assessed.

This order deals with an IRS motion for summary judgment against a pro se taxpayer that appears to want to argue (1) I don’t owe the tax, and (2) I filed some of those tax returns the IRS is saying that I didn’t. Argument (2) is fairly factual, and not a great candidate for summary judgment where the IRS records aren’t up to par. In this case, they aren’t exactly sterling, or at least they are suspect enough to allow for a genuine issue of law or fact (and thus, not suitable for summary judgment). Issue (1) is usually a good candidate for summary judgment, since the ability of a taxpayer to argue the merits of “I don’t owe the tax” is frequently unavailing in a CDP hearing. If the taxpayer previously had an opportunity to so argue the tax or received an SNOD, summary judgment will (likely) ensue. But what if you are not arguing the merits of the tax, so much as the fact that the IRS records are so bad they can’t properly show that you should owe it? When a taxpayer says “I don’t owe the tax,” can that be construed as arguing the merits of the tax (forbidden), or the procedure of the assessment (allowed)? This order may slightly blur those lines.

I think this order can stand for two different takeaways, depending on your preferred viewpoint. The first focuses on statutory requirements of a CDP hearing. The IRS is required to review that “the requirements of applicable law or administrative procedure have been met.” IRC 6330(c)(1). Under this viewpoint, focused mostly on tax procedure, some indicia of why the IRS assessed the tax is a component of verifying that applicable law was followed. This order simply clarifies what goes into the statutory requirement of IRC 6330.

The second potential takeaway is that general APA considerations and case law are creeping more and more into the tax arena, and are particularly amenable to CDP hearings. This is a slight twist on the notion that the IRS simply failed in its statutory obligations. Consider the question this way: if, on remand, IRS Appeals sufficiently verified that the IRS followed the proper deficiency procedures in assessing the tax (issued an SNOD, etc.) would that be enough? Or, would the IRS need to look at the substance of the SNOD (beyond such things as proper address) as well? If the latter is required (and in this case IRS Appeals is specifically ordered to identify “the reasons for the assessment”) it seems to implicate the sort of judicial review of deficiency notices in CDP cases that the Tax Court has balked at in deficiency cases (most notably, in QinetiQ (discussed here and here among many other places)). At the collection stage, and even assuming the deficiency procedures were properly followed, the IRS can’t get by with a “trust us, they should owe” assessment. One imagines that there must be a record somewhere in the bowels of the IRS explaining why they believe the taxpayer owes an additional $24,562. Special Trial Judge Daniel Guy Jr. rightly requires the IRS to make such a showing.

Of course, CDP is a relatively new aspect of the tax code and role of judicial review within it is still being hammered out. On remand, is all that IRS Appeals required to do is show that there was some rationale for the assessment in the administrative record (“we thought he had more taxable income”)? Or could that rationale thereafter be challenged for being arbitrary and capricious (an abuse of discretion)? Questions to ponder this holiday weekend…

Top of the Order – Tax Court Designated Orders

Top of the Order is a round-up of the Tax Court’s “designated orders” from the prior week. This feature is based on the premise that if a Tax Court Judge thinks something is important, you should probably pay attention to it. We generally won’t try to play the role of pop-psychologist in determining why the particular judge may have thought the order was important enough to “designate” it, but we will give a synopsis of the points and lessons that stood out to us. For those looking to gaze deeper into the crystal ball, links to each order is provided.

This post begins a new feature which will be written in rotation by four relatively new attorneys working in the low income taxpayer area:  Samatha Galvin of Denver University Law School; Caleb Smith; William Schmidt of Kansas Legal Services; and Patrick Thomas of Notre Dame Law School.  Today’s post is written by Caleb Smith.  Caleb is currently the clinic fellow in the Federal Tax Clinic at the Legal Services Center of Harvard Law School.  He will soon be leaving Harvard to become the director of the tax clinic at the University of Minnesota.  Caleb has written guest posts before and we welcome him back to kick off this new feature of PT.  We invite reader feedback on this feature and other possible features for the site.  Keith

Designated Orders: 4/24/2017 – 4/28/2017

S-Case Bumped Up to the Big Leagues: Precedential Decision Forthcoming

Docket # 015944-16, Skaggs v. C.I.R. (Order Here)

The decision to try a case as an “S” (or “Small”) case is sometimes a tactical choice. The relaxed evidentiary rules of an S-case mean that a client with a good story may find fewer hurdles or restrictions in presenting that story. See bottom paragraphs of Procedurally Taxing Post (Here). Also, because an S-Case cannot be appealed there may be a tactical opportunity for a quick win if the Tax Court has previously ruled on the issue but the circuit court that would have jurisdiction on appeal has not. Usually (at least in my experience) the taxpayer doesn’t much care that the S designation also means the decision cannot serve as precedent.

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Judges, however, do care about precedent. Thus we have the designated order from Judge Buch removing the S-designation because the case “presents an issue of first impression.” You’ll have to hold your breath on what that novel issue is. (Actually, you don’t. If you’re short of breath you can read the decision here. Spoiler: it involves what qualifies as “income received while an inmate” for purposes of the Earned Income Credit). But the designated order on its own is worth a review for those that routinely work with cases that qualify for S-treatment (Rules found here).

A couple take-away points:

(1) You can request the S-designation be removed (or changed from regular to S) really late in the process. In fact, the rules say that the request can be made “at any time after the petition is filed and before the trial commences.” This doesn’t mean, however, that the motion will be granted that late in the game. (Keith has a story of making the request to the judge when the case was called for trial and the judge asked if there were any preliminary matters on a case he picked up earlier in the day at calendar call.  He sought to change the case to S status on the basis that it was prior to trial. As may be expected, the motion was not granted.) Which leads to the second point:

(2) The IRS may oppose the S-designation, and the taxpayer may need to show why it should be a small case. Anecdotally, I have witnessed IRS recalcitrance on S-case designation at least once in the past where it was not entirely clear to me why they cared. The order provides a helpful review of what factors are in play when weighing the decision to remove an S-case designation by citing to the 1978 Congressional Conference report on point. Addressing these factors should help a taxpayer respond to a motion either in favor of S-case designation or removal of it.

Lawyer Behaving Badly

Docket # 005880-16 L, Baity v. C.I.R. (Order Here)

For those of you that routinely monitor designated orders, this one may seem like deja-vu. And that’s because it basically is. This is merely the latest in a line of designated orders pertaining to one lawyer trying seven different cases, all of which will be lost at the summary judgment stage.

In fact, the taxpayers already HAVE lost, but the Court is simply holding back from entering the decision so that the cases remain on calendar. Why? Solely so that the lawyer can show up and explain why there should not be sanctions and a referral to the ethics committee. Ouch.

At absolute best, it appears that the lawyer has been completely invisible as an advocate in the case, failing to respond to the IRS motion for summary judgment and Tax Court order that he so respond. The court cannot determine if counsel is “unaware of or is ignoring the Court’s orders.” At worst, the Court suggests that the lawyer may have knowingly brought merit-less claims using CDP judicial review inappropriately to evade collection, giving rise to sanctions under IRC § 6673.

A couple of observations:

  • Attorneys, remember FRCP Rule 11 when deciding to take a case and prepare a petition… And relatedly:
  • Attorneys: remember the difficulties of getting out of a case when you’ve entered an appearance. When you don’t yet have all the facts and a petition deadline is looming, the better option can be limited representation through Form 2848, written about here. But, no matter what you do, at the very least RESPOND to the Tax Court (and show up).

When the Court Bolds Instructions, You Should Probably Pay Attention to Them

Docket # 021815-15, Kanofsky v. C.I.R. (Order Here)

An uncharitable recap of this order would be as follows: Court orders a pro se petitioner to respond to the IRS’s motion for summary judgment. Pro se petitioner responds, but did not follow the instructions of the Court’s order close enough. Court grants motion for summary judgment.

Harsh result?

Not quite. In fact, there appears to be quite a lot of hand-holding from the Court leading up to this outcome. First, the Court denies the IRS motion for summary judgment because the motion would not be easy for the petitioner to respond to. (More on that below). Then, when the IRS makes a second, clearer motion, the Court specifically bolds what and how it wants the petitioner to respond. The Court even includes a Q&A printout on what a motion for summary judgment is and how to respond to it. The taxpayer appears to be familiar with (or at least make frequent use of) the court. (An earlier order from the court shows that the IRS has had previous run-ins with the taxpayer, and the taxpayer also appears to refer to himself as an accomplished whistleblower.) All things considered, this appears to be an instance of the Court doing what it can to help a pro se taxpayer help themselves.

If anything a take away from this case is a parable on “the value of specificity.” Number and separate your assertions so that the Court (and the opposing party) can respond to the discrete issues.

The first substantive order of the court was a denial of the IRS motion for summary judgment, without even directing the petitioner to respond. Why? Because the IRS motion was sloppily drafted: misusing terms of art, and bringing up facts that were irrelevant to the issues at hand. All the Court wants is a motion for summary judgment with assertions that can be responded to, by number, with reason and evidence for the disagreement. The original IRS motion for summary judgment is not congenial to such a response, so the Court (looking out for the pro se petitioner), says “try again.”

When the IRS did try again (this time adequately), the table was set. If the petitioner couldn’t comply with the order to respond with specificity, summary judgment would be warranted. And thus you have the designated order above.

Reminder: Timely CDP Requests Yield Notice of Determination, Not Decision Letter

Docket # 026578-16 L, Allen v. C.I.R. (Order Here)

This designated order from Special Trial Judge Armen looks at the jurisdiction of the Tax Court to review a CDP hearing that was timely requested with Appeals, but (for unknown reasons) a decision letter rather than a notice of determination was issued. A decision letter is typically what the IRS issues when the taxpayer has an “Equivalent” hearing rather than a full-fledged CDP hearing. (More on equivalent hearings can be found here.) Unlike CDP hearings, equivalent hearings cannot be reviewed by the Tax Court (thus the jurisdictional argument).

It is unclear from the available documents both why IRS counsel believes the Tax Court doesn’t have jurisdiction and why IRS Appeals issued a decision letter in the first place. If IRS counsel’s argument is that a (form-over-substance) “notice of determination” letter is required Special Judge Armen disposes of that with a reference to Craig v. Commissioner, standing for the proposition that a decision letter will be treated as a notice of determination if it was from a CDP hearing (and not an “equivalent” hearing).

Some thoughts and crystal ball gazing: This request was sent right at the buzzer, but ultimately was timely mailed (and received). What would the IRS have to do to show that the taxpayer WANTED an equivalent hearing even though the request would qualify for a full CDP?

As mentioned above, it is not immediately clear why the IRS thinks the Tax Court lacks jurisdiction. This may be a case where the IRS has created more work for itself by trying to dispose of something quickly, rather than correctly. The taxpayer is pro se and appears to want to argue tax years other than the one for which the proposed levy relates. The court quickly disposes of its jurisdiction to hear any of those other years. The taxpayer also appears to have checked pretty much every conceivable box for the court’s jurisdiction when filing her amended petition (e.g. Notice of Deficiency, Notice of Determination Concerning Collection Action, Notice of Determination Concerning Your Request for Relief From Joint and Several Liability, and Notice of Final Determination Not To Abate Interest (see order here)). It wouldn’t surprise me to see the Form 12153 CDP Request falling into a similar pattern…