Designated Orders:  7/10/2017 – 7/14/2017

Today we welcome back William Schmidt  the LITC Director for Kansas Legal Services for our “Top of the Order”, designated order post for the week of 7/10 to 7/14.  Steve.

There were 5 designated orders this week and all were on motions for summary judgment.  The majority of the rulings followed a pattern of the IRS filing a motion for summary judgment, the Petitioner had or continued to have a degree of nonresponsiveness, and the Tax Court granted summary judgment for the IRS.  Except for one this week, summary judgment was in favor of the IRS.

Unsuccessful Whistleblowers

Docket # 4569-16W, Thomas H. Carroll, Jr. and David E. Stone v. C.I.R. (Order and Decision Here)

Petitioners submitted to the IRS Whistleblower Office a joint form 211, Application for Award for Original Information, with information about numerous taxpayers who allegedly improperly filed their tax returns.  The claims were referred to the IRS Large Business and International Division and one of the taxpayers was selected, with the matter referred to IRS examiners who had already audited that taxpayer.  The IRS decided to take no action against that taxpayer or any of the others submitted by Petitioners and no proceeds were collected to justify a whistleblower award.

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The Petitioners filed a petition with Tax Court.  In summarizing the petition, this order states that during the IRS review of the whistleblower claims, “the IRS had engaged in negligent conduct, misfeasance, malfeasance, and/or nonfeasance, and discriminative audit policies.  They further alleged that the IRS had permitted flawed tax returns to go unaudited, ignored evidence of systemic prohibited transactions, and wrongfully disallowed petitioners’ claims.  Petitioners requested that the Court conclude that the IRS acted arbitrarily, declare that an implied contract was created between the parties, direct the IRS to enforce Federal income tax laws, and determine that they are entitled to damages equal to the fair market value of their services.”  In their motions for partial summary judgment, the petitioners also accuse the IRS of unreasonable delay, misuse and mismanagement of government resources and administrative delay leading to abuse of discretion.

The Court granted the IRS motion for summary judgment since there was no genuine dispute as to any material fact (the standard for granting summary judgment).  No tax proceeds were collected from a taxpayer to grant a whistleblower award, plus the claims and relief sought by the petitioners were not cognizable by the Court.

My main take on the situation was that being disrespectful to the IRS did not garner the Petitioners any favor with the Tax Court.

Some Quick Takes on Summary Judgments

Docket # 14345-16 L, Russell T. Burkhalter v. C.I.R. (Order Here)

Docket # 12320-16SL, Heath Davis v. C.I.R. (Order and Decision Here)

  • In both the Davis and Burkhalter cases, Judge Armen states that to assist petitioners in preparing a response to the IRS motion for summary judgment, the Court encloses with its Order (for petitioner to file a response to the motion) a copy of Q&A’s the Court prepared on the subject “What is a motion for summary judgment?”
  • In Burkhalter, the petitioner did not dispute the underlying tax liability for 2010, 2011 and 2013 when using Form 12153, Request for a Collection Due Process or Equivalent Hearing.  However, petitioner did dispute the liability for those years when filing a petition with the Tax Court.  The Court granted summary judgment for the IRS, citing a regulation that states:  “Where the taxpayer previously received a CDP Notice under section 6320 with respect to the same tax and tax period and did not request a CDP hearing with respect to that earlier CDP Notice, the taxpayer already had an opportunity to dispute the existence or amount of the underlying tax liability.”
  • In Davis, there is a theme of the petitioner citing hardship but not being responsive to IRS requests.  In response to a notice of intent to levy, Mr. Davis said he was going through hardship and had expenses exceeding income when filing his own Form 12153.  The settlement officer requested Mr. Davis fill out a Form 433-A financial statement and show proof of estimated tax payments.  On Mr. Davis’s 433-A, he showed income of $2,100 with greater expenses while the settlement officer calculated income of $2,994 with expenses of $2,473, leaving $521 to potentially pay the IRS each month.  Mr. Davis was unresponsive to later requests.  Based on a Notice of Determination, Mr. Davis petitioned the Tax Court.  In the petition and amended petition, Mr. Davis requested payment arrangements, potentially of $50 monthly.  The Court granted summary judgment to the IRS based on Mr. Davis’s nonresponsiveness, citing that it is the obligation of the taxpayer and not the reviewing officer to propose collection alternatives.  My take on the situation is that while those conclusions may be procedurally correct, it sounds like Mr. Davis needed some form of assistance and then both parties would have had a better result.

Docket # 26557-15 L, Michael Timothy Bushey v. C.I.R. (Order and Decision Here)

There are two main issues in this case, whether there was abuse of discretion by the settlement officer and the underlying tax liability for the petitioner.

  • Petitioner filed a Form 12153 and the IRS acknowledged receipt by letter dated May 21, 2015.  The settlement officer sent a response on May 28 scheduling a phone conference for July 17, requesting information and stating that the petitioner could contact her to reschedule or set an in-person conference.  The officer was sick on July 17 so sent a letter July 20 rescheduling the phone hearing for August 4, also stating no documents had been received.  On August 4, she received a phone message from Petitioner stating that he would be unavailable for a hearing that day but would be available the first or second week of September.  She sent a letter scheduling the hearing for September 2.  On September 2, she was unable to reach the Petitioner but received a letter the next day acknowledging receipt of the August 5 letter stating he did not request a phone conference and that “by law” he was entitled to a “due process hearing.”  At each point, the petitioner did not send any of the requested supporting documents.  On September 22, Appeals sent Petitioner a Notice of Determination letter.  A lengthy summary was attached to the letter and was also quoted at length in the order currently being discussed.  The Court granted the IRS summary judgment, stating there had been no abuse of discretion in their collection actions.  It also was not an abuse of discretion since there was no in-person meeting between the settlement officer and the Petitioner.  I would state there was quite the opposite of an abuse of discretion since the settlement officer made several attempts to get information from the Petitioner.
  • Regarding the tax liability itself, in the Petitioner’s Form 12153 for 2008, he checked the box for an Offer in Compromise and stated, “I do not owe this money.  It was a tax credit, not a tax owed.  It was a first time home buyers credit and it was based on the first & only house I have ever purchased.”  The settlement officer had requested he submit to her a Form 656, Offer in Compromise, but that did not happen.  In his petition based on the Notice of Determination, Petitioner said, “The amount in dispute was not back taxes or unpaid taxes, but a tax credit (a.k.a. loan).  The amount was discharged under bankruptcy chapter 7 action.”  He said area counsel recommended he file an Offer in Compromise that had been rejected “over and over.”  In court on November 28, 2016, Petitioner stated he already submitted an Offer in Compromise to the IRS with all requested financial information and would be willing to submit another.  The record reflected the parties entered a stipulated decision and following that, the Petitioner submitted and the IRS rejected an Offer in Compromise regarding 2008.  The Court had recommended that Petitioner file an Offer in Compromise with the assistance of Pine Tree Legal Assistance, Inc.  The Court then stated it hoped the IRS will “hold off on proceeding with the proposed collection action to give petitioner an opportunity…to submit an offer in compromise,” perhaps with the above-mentioned low income taxpayer clinic’s assistance.
  • With regard to an Offer in Compromise on a 2008 first-time homebuyer credit (which I agree was basically an interest-free loan, depending on the timing of the credit), it is my understanding that the full amount of the credit owed must be a liability assessed by the IRS before it can be addressed in an Offer in Compromise.  In order to do so, it may be necessary to amend a tax return to state that the taxpayer owes the entirety of the credit as of that tax year.  Once that full credit is a liability owed to the IRS, the credit can then be negotiated through the Offer in Compromise program.  Hopefully Mr. Bushey uses that procedure to address the amount owed through the credit in his Offer in Compromise.

Designated Orders: 6/12/2017 – 6/16/2017

From 7 designated orders last week, this post focuses on 3 orders of interest.  One may need to address a split of authority, one may need jurisdiction to revise a decision for an agreement between the parties, and a third deals with the death of a nonrequesting spouse in an Innocent Spouse case.

A Jackson Split?

Docket # 17152-13, Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor v. C.I.R. (Order Here)

Slotted in the middle of a designated order that also deals with a joint stipulation of facts and whether specific information or exhibits needs to be sealed is an issue that could have greater implications.  In the case dealing with the tax liability of Michael Jackson’s estate, the Tax Court addressed implications of the recent Second Circuit opinion of Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017).

To summarize, there are disputes about the fallout from the Second Court opinion in Chai and whether that will triumph over the Tax Court opinion in Graev v. Commissioner, 147 T.C._ (Nov. 30, 2016).  The designated order in Estate of Michael R. Jackson cites the two cases concerning a difference of opinion regarding whether certain requirements are imposed on the IRS under IRC 6751.

The Graev conclusion was “that the statute [IRC 6751] imposes no particular deadline for the IRS to secure the required written approval before a penalty is assessed.”

In preparing for the trial in the Estate of Michael R. Jackson case, the Commissioner potentially provided a copy of the administrative approval of valuation penalties to the Petitioners.  However, no copy of the form made it into the record at trial.

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Following trial, the Second Circuit rejected the conclusion in Graev.  They replaced it in Chai with a holding that “compliance with IRC 6751(b) is part of the Commissioner’s burden of production and proof in a deficiency case in which a penalty is asserted.”

At this point in the Jackson case, the Commissioner certainly wants the approval form in the record and the P objects.  Unless the parties agree before the time the third stipulation is due (on or before 6/30/17), a motion would be necessary to reopen the record.  The Court will want the motion briefed and it would likely lead to an opinion.

The Court ordered that on or before 7/13/17 the Commissioner shall file any motion to reopen the record to include evidence relevant to their compliance with IRC 6751.  Petitioners shall file a response to that motion on or before 8/3/17.  Then, the Commissioner shall file a reply to that response on or before 8/17/17.

It thus looks like Michael Jackson’s estate may lead to something more than celebrity gossip.  The Tax Court case may be the next judicial step regarding a split of opinion regarding the burden of proof on the IRS under IRC 6751.

Jurisdiction Needed?  Just Add Rogers

Docket # 7390-10, John E. Rogers & Frances L. Rogers v. C.I.R. (Order Here)

While a decision in Rogers was finalized on April 3, 2017, that decision may not be so final.

The IRS brief to the Court of Appeals stated that computational errors resulted in a $134,000 overstatement of Rogers’s taxable income, deficiency and penalties.  While the IRS recommended remanding the case to correct that overstatement, the Court of Appeals affirmed instead of remanding.

The Tax Court ordered the parties submit a joint status report regarding further proceedings.  In their 2/15/17 joint status report, it states that the IRS is recomputing the deficiency and that the Rogers spouses will review the computations.  A joint status report filed on 6/13/17 stated that the IRS recomputed the deficiency and the petitioners agreed with the new computations.

However, no motion to vacate or revise the decision was filed under Rule 162 by 4/3/17.  Since the decision became final on 4/3/17, it is unclear to the Tax Court what their jurisdiction is for revising the decision.

Since the IRS will process the credits to the account for the petitioners for tax year 2004 in order to effectuate the corrections, that potentially makes the jurisdictional issue moot.

The Tax Court ordered that if either party wishes to file a Rule 162 motion to vacate or revise the decision, that the party should do so (with a motion for leave to file out of time) no later than July 14, 2017.  The motion for leave should explain how the Tax Court has jurisdiction to revise the decision.  If neither party files such a motion, the case will remain closed.

While the parties are in agreement, the Tax Court finds that their hands may be tied.  While they want the record to reflect the agreement of the parties, it is interesting that the Tax Court looks to the parties for jurisdictional help on how to revise their decision since time likely ran out.

Don’t Forget the Heirs and Beneficiaries

Docket # 19277-16, Alison Turen v. C.I.R. (Order Here)

Normally in an Innocent Spouse case, the IRS files a copy of the notice of the filing of the petition that they served on the other individual that the Petitioner filed joint returns with for the tax years before the Tax Court.  In other words, the Petitioner files a petition with Tax Court regarding an Innocent Spouse case and the IRS is to send a copy of the notice of the filing of the petition with the other spouse from the joint tax returns in order to give that spouse the right to intervene in the Tax Court case.  What happens then when the other spouse has died?

In the Turen case, the IRS did not file the notice since the petition states that the other spouse is deceased.  The Tax Court stated in their designated order that the death of that spouse does not relieve the IRS of their responsibility for providing notice.  Fain v. Commissioner, 129 T.C. 89 (2007) provides that the right of intervention belongs to the decedent’s heirs or beneficiaries, based on procedures outlined in Nordstrom v. Commissioner, 50 T.C. 30, 32 (1968) to ascertain the heirs at law of a deceased non-petitioning spouse.

The Tax Court order was that the parties are to identify on or before June 30, 2017 the heirs at law of the decedent nonrequesting spouse and on the same day to provide a joint status report to the Court of the heirs at law identified.  They are also ordered that on or before July 14, 2017, the IRS shall submit a Notice of Filing of Petition and Right to Intervene served on the heirs at law or file a response stating the reasons for not doing so.