Designated Orders: 2/19/18 to 2/23/18

This week’s designated order post was prepared by William Schmidt of Kansas Legal Aid Services. Of course, one of the designated orders addresses an issue of interpretation of the Graev case. This week the Court struggles with the concession of the fraud penalty for lack of proper approval and the impact of that concession on the statute of limitations. If the IRS does not obtain the proper approval for imposition of the fraud penalty and if the statute of limitations expires but for the exception provided by proof of fraud, there can be situations in which the IRS must prove fraud for purposes of holding open the statute but not be allowed to impose the fraud penalty for lack of approval.

The second case discussed by William concerns a bankruptcy issue I have never seen litigated and one it appears the IRS did not appreciate the Court was asking about. The issue concerns the scope of the automatic stay. Section 362(a)(8) of the Bankruptcy Code imposes a stay “on the commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability of a debtor … who is an individual for a taxable period ending before the date of the order for relief under this title.” The IRS and the taxpayer negotiated a settlement with the debtor during a period in which the stay was in effect. They submitted a decision document to the Court which was signed by the Court and then set aside when the existence of the stay became known to the IRS and the Court. After the lifting of the stay, the IRS resubmitted the decision document. The Court questions the binding effect of a settlement negotiated during the stay and finds a work around. Keith

One pattern for Tax Court is that holiday weeks are light weeks for designated orders. There were 3 designated orders this particular week.

The first, Renee Vento, et al., v. Commissioner (3 consolidated cases), finds the petitioners trying to claim deductions for payments made to the Virgin Islands Bureau of Internal Revenue (VIBIR). They now concede they are cash method taxpayers so would not be eligible to claim deductions on 2001 U.S. tax liability for 2002 payments made to the VIBIR.

Followup on Mr. Kyei

The second order, Cecil K. Kyei v. Commissioner, updates a previous designated order report here. To summarize, Mr. Kyei has filed for bankruptcy previously and those time periods have overlapped with his Tax Court cases. Specifically, a previous settlement agreement with the IRS looks to be void because it was during the time period of an automatic stay based on a bankruptcy filing. The parties were to file their recommendations before February 16.

Mr. Kyei has been nonresponsive and the IRS is unable to contact him. The IRS filed their recommendation to proceed with the notices of deficiency for 2008 and 2010, but accept a lower amount for 2009.

The Court’s decision is that the June 2015 agreement is not enforceable because of the automatic stay. The Court denied the IRS motion for entry of decision based on the agreement. The Court is treating the IRS motion, while not styled as a motion for dismissal, as a motion to dismiss for lack of prosecution.

The IRS did not address the 2010 penalty of $2,614.80 so they are ordered to file a supplement to their motion addressing the burden of production for the 2010 penalty no later than March 9, 2018. Mr. Kyei shall file his response to the motion as supplemented no later than March 23, 2018.

Takeaway: Potentially Mr. Kyei had a good settlement agreement in place with the IRS in June 2015. The bankruptcy affecting that time period means that the automatic stay interfered with those settlement negotiations and they are no longer enforceable. Now that the IRS is unable to contact him, Mr. Kyei is likely going to owe once again the original notice of deficiency amounts (with a lower amount in 2009), making part of his actions in vain.

Further Graev Fallout

The third order, Johannes Lamprecht & Linda Lamprecht v. Commissioner, further deals with Graev penalties. On February 20, 2018, the IRS filed a status report conceding the requirements of 6751(b)(1) were not met regarding the 6663 fraud penalty for 2006 and 2007. They indicate they are prepared to introduce evidence on compliance with 6751(b)(1) in connection with the 6662 accuracy-related penalty but trial is no longer required as to the fraud penalty. The status report does not comment on the issue of fraud as it relates to the statute of limitations.

The Court’s order is to strike the case from the March 8, 2018, Washington, D.C. Special Session calendar. No later than March 9, 2018, the IRS shall file a status report regarding their position as to the statute of limitations and the arguments relied on to show the statute of limitations does not bar the assessment of the accuracy-related penalty still at issue. The report should explain whether intending to argue fraud for the purpose of 6501(c)(1). If the concession affects the relevance of the information sought in the motions to compel, then that date is a deadline for amended motions to bring the previous motions into conformity with their current position. It is further ordered that the parties shall file a status report no later than March 23, 2018, (or separate reports, if necessary) with their recommendations as to further case proceedings (including a deadline for petitioners’ response to the motions to compel).

Takeaway Summary: There looks to be some IRS give-and-take regarding the 6751(b)(1) penalty in this case regarding Graev fallout. While conceding the 6663 fraud penalty, the IRS has not given up on the 6662 accuracy-related penalty and the Court wants explanation of how the statute of limitations allows them to proceed on that accuracy-related penalty. It is curious how each case develops regarding 6751(b)(1) penalties.


Designated (and other) Orders from January 15 through January 26

The past two weeks of designated orders have been light which allows us to combine two weeks of orders and get back on schedule. Samantha wrote up the first set of orders and William wrote up the second set. They continue to do a great job combing through Tax Court orders to allow us to see what the Tax Court thinks is important and to provide a discussion of cases that generally go unobserved in the tax press. Included in the designated orders is more fall out from Graev. Keith

Designated Orders 1/15 – 1/19

In stark contrast to my pre-holiday week post, during the week of January 15 the Tax Court only found four orders worthy of “designated” status and three of the four were very brief. I discuss two below, the other two were: 1) another motion for summary judgment is scheduled for a hearing so respondent can address how the Graev III decision may impact the motion and the case (here); and 2) an order granting a hearing on a motion to dismiss for lack of prosecution (here).


Disallowing Extension is Not Abuse of Discretion

Docket No. 16456-17 L, John Lucian v. C.I.R. (Order here)

This designated order was the lengthiest of the group and is somewhat unique because the petitioner is represented by counsel, however, the mistake made by petitioner’s counsel is one pro se petitioners frequently make. Petitioner’s counsel did not provide the IRS with a financial statement, and thus, foreclosed the possibility of a collection alternative in a CDP hearing.

This order decides respondent’s motion for summary judgment to which petitioner’s counsel had an opportunity to respond, but did not.

Petitioner had requested an extension to file the tax returns for the years at issue, but never actually filed so the IRS prepared substitute for returns and assessed the balances, interest and penalties. The petitioner did not make any payments and eventually received a notice of intent to levy. Petitioner’s counsel requested a CDP hearing stating that petitioner could not pay the balance and that health issues had caused the petitioner to cash out his savings and retirement.

As usual in these types of cases, the settlement officer requested a collection financial statement. The settlement officer also requested a 2015 tax return and proof that petitioner had made estimated tax payments for the current year. Petitioner’s counsel filed the 2015 return but did not have a financial statement completed by the hearing date and requested more time which the settlement officer granted. The extended deadline date came, and petitioner’s counsel still did not have the financial statement completed, so he requested yet another extension. The settlement officer denied the request for a second extension and instead directed petitioner’s counsel to contact the collection unit once he had the information. Then the settlement officer issued a notice of determination sustaining the proposed levy.

It is not clear if the reason petitioner’s counsel was unable to comply with deadlines was due to the petitioner not supplying counsel with information in a timely manner, however, the Court reprimanded petitioner’s counsel by stating, “[Petitioner’s counsel], as an attorney, understands the importance of filing due dates and has a professional responsibility to exercise due diligence.”

The Court also pointed out that the Appeals Office will attempt to conduct a CDP hearing “as expeditiously as possible under the circumstances” but there is no time frame mandating when the Appeals Office must issue a notice of determination nor is there a time frame for when they must keep a case open despite not receiving requested information.

The Court finds the settlement officer did not abuse her discretion by not allowing a second extension for the financial statement, because she is not required to give extensions. The settlement officer was ultimately unable to determine an appropriate collection alternative due to the lack of information, which is also not an abuse of discretion, so the Court grants respondent’s motion for summary judgment.

No Jurisdiction Over Petitioner’s Requests

Docket No. 9661-16, Pankaj Mercia v. C.I.R. (Order here)

In this designated order the Court has already entered a stipulated decision, but the petitioner files a motion which the Court treats as a motion to revise pursuant to rule 162.

The Court denies the petitioner’s motion to revise. The case is a deficiency case concerning 2009, 2010, and 2011, but the petitioner’s motion requests relief for earlier years, later years and for collection-related issues. The petitioner also requested relief from credit reporting agencies. The Court does not have the authority to assist the petitioner with nearly all the issues he raised.

The one issue the Court may be able to address is petitioner’s allegation that the IRS assessed more tax than what the Court had determined he owed at the end of his Tax Court case. The Court can review claims of excessive interest, but that type of claim is not raised by the petitioner. The Court amount assessed is correct and consists of the amount decided in Tax Court plus the amount petitioner self-reported when he filed his tax return.

This is another good example of the Court trying to understand a pro se petitioner’s arguments and assist him through the process, while also being bound by subject matter jurisdiction.

Designated Orders: 1/22/18 to 1/26/18 by William Schmidt

In continuing the theme of light weeks for designated orders from the Tax Court, there were 2 orders this week.

The first, Charles Asong-Morfaw v. Commissioner, is a denial of petitioner’s motion for reconsideration of a denial of deductions for his vehicle. Since the Court did not believe he used it exclusively for business, he was only allowed to deduct mileage.

The second order, Cecil K. Kyei v. Commissioner, is from a Tax Court case filed in 2012 that has been delayed due to multiple stays from the petitioner’s bankruptcy proceedings. The parties came to a settlement, prompting the Court to enter a decision. After entry of the decision, the Court learned that the automatic stay of B.C. 362(a)(8) deprived the Court of jurisdiction. The existence of the automatic stay required the Court to vacate that decision. This situation happens occasionally when a taxpayer files a petition while the automatic stay is still in existence (which deprives the Tax Court of jurisdiction over the case) or, as here, files a bankruptcy case while the Tax Court case was pending (which stops the Tax Court from taking any action on the case until the stay is lifted.) Once the stay was lifted, the IRS filed a motion for entry of decision on January 12, 2018, but based it on that previously vacated decision. The judge did not realize the motion was based on the vacated decision and had ordered that arguments on the motion would be heard on January 22, 2018. The petitioner did not appear and respondent renewed his motion for entry of decision, with the judge stating he expected to grant the motion.

At the time of this current order, the judge noted the omission and the motion’s reliance on the alleged agreement entered into during the automatic stay. The judge then ordered that the motion is denied without prejudice unless there is a complete motion that addresses how the agreement was not void by virtue of the automatic stay. Each of the parties are to make a filing as to their recommendation for further proceedings no later than February 16.

Non-Designated Orders

Since there is a low showing of designated orders, I am going to turn to two non-designated orders brought to the attention of the Procedurally Taxing brain trust by Bob Kamman (the titles are his also).

  • Don’t Show Up For Trial; Win Graev Penalty Issue Anyway

Docket # 6993-17S, Clay Robert Kugler v. Commissioner (Order of Dismissal and Decision Here).

Petitioner did not appear for trial in Fresno on December 11, 2017. The Court directed the IRS to file a supplement to their motion to dismiss, showing that it is appropriate to impose a penalty under IRC section 6662(a) in that case. On January 18, 2018, the IRS filed their supplement, stating they concede the petitioner is not liable for the penalty. Petitioner failed to respond to respondent’s motion. The order decides that petitioner is not liable for the accuracy related penalty under IRC section 6662(a) for tax year 2014.

Despite the fact that the petitioner did not show up for trial and did not respond to respondent’s motion, the Tax Court’s focus on Graev led to the removal of a 6662(a) accuracy related penalty!

  • Oops!

Docket # [Redacted for Reasons Cited Below].

One Tax Court order last week had an attached copy of the petition, with the statement of taxpayer identification number included, potentially revealing social security numbers for the petitioners to others in the world with internet access. The Court immediately corrected the order when the problem was brought to their attention. Just like all of us the Court occasionally makes mistakes. Sometimes it is worth double checking the electronic footprint of your case to make sure what goes up is what you intended to go up. We mention this case to set the scene for the following practitioner’s tips.


  • The statement of taxpayer identification number is regularly used by the Tax Court to keep a record of the social security number of the petitioner(s). It is not scanned and uploaded as part of the public file accessible by others. Quickly alert the Court in the unusual event this document is mistakenly scanned and made a part of the public record.
  • Before sending documents to the Court make sure to review the every document submitted to the Tax Court as part of the petition package. Carefully review the notice of deficiency or other IRS documents in order to redact the social security number of the petitioner(s).
  • Check all of the numbers on the IRS correspondence thoroughly before sending to Tax Court. Innocent-looking barcodes that have a sequence of numbers beneath them can contain a petitioner’s social security number. It is worth comparing the social security numbers of the petitioners to all of the number sequences in order to make sure the redacting is complete.
  • If your client files a bankruptcy petition while a Tax Court case is pending, alert the Court immediately. The Court will then issue an order placing the case in suspense and order the parties to file periodic status reports alerting the Court to the lifting of the stay so that the case could once again move forward.



Designated Orders: 12/25/17 to 12/29/2017

The Court was busy during the holiday issuing more designated orders than might be expected and perhaps bringing back to work some Chief Counsel employees who thought they were off until the new government leave year. This week’s designated orders post was prepared by William Schmidt. He focuses on an order regarding Railroad Retirement Income. This type of income gets special play in the tax code but does not create many cases. Keith

On this holiday week, the designated orders could be divided into the Graev III camp and the non-Graev III camp. Two orders not discussed include an order denying a husband’s motion to be recognized as his wife’s “next friend” (Order Here) and the granting of an IRS motion for summary judgment when petitioner did not provide documents for collection alternatives (but submitted an offer in compromise two weeks after filing the petition) (Order and Decision Here).


Judge Ashford’s Graev III Orders

One example: Docket # 10691-14S, Christopher John Totten v. C.I.R. (Order Here).

Keith Fogg previously discussed fallout for Graev III in this post and Bob Kamman made note of Judge Ashford’s December 26 orders specifically in the comments for that post so this is a bit of a repeat, though it receives some focus in the context of this week’s designated orders.

On December 26, Judge Ashford issued 18 designated orders (14 solitary and 2 each of 2 consolidated dockets) that followed Judge Buch’s template of providing history and a timeline regarding Graev III and other connected cases dealing with Internal Revenue Code section 6751(b).

In Judge Ashford’s orders, the IRS is to respond to the orders on or before January 9 and the petitioners are to respond on or before January 16. Any motions addressing the application of section 6751(b) are to be filed on or before January 23.

This series of orders added to the already interesting history of section 6751(b), Chai, and Graev III.

Taxation of Railroad Retirement Income

Docket # 14521-16, Mell Woods & Gloria Woods v. C.I.R. (Order and Decision Here).

Petitioner Mell Woods received $8,769 of railroad retirement income (“RRI”) in 2013. On their joint tax return for 2013, the petitioners reported $59,047 of adjusted gross income, which did not include the railroad retirement income. The petitioners elected to have the IRS compute their tax liability, which the IRS computed and assessed based on the income reported (which still did not factor in the RRI). The liability is the amount petitioners paid the IRS.

The IRS received the Form SSA-1099 from the Railroad Retirement Board that reported the RRI. Based on that reported income, the IRS underreporting department issued a notice of deficiency from an increased taxable income that includes 85% of the RRI ($7,454) with a resulting deficiency in income tax of $1,125.

After the petitioners filed a timely petition to the Tax Court, the IRS proposed stipulations of fact. On July 27, 2017, the Tax Court issued an order that the petitioners show cause why the proposed stipulations should not be deemed stipulated. After receiving a deficient response from the petitioners, the Court made absolute that order to show cause by its order on August 17, 2017, and deemed stipulated the proposed facts with one exception (the phrase “of which $7,454.00 (85%) was taxable income” – at issue in the Tax Court case).

The IRS next filed a motion for summary judgment with 8 numbered paragraphs supported by 4 documents. Two of the documents are authenticated by IRS counsel Olivia Rembach and the other two are self-authenticating.

Petitioners filed a response denying 5 of the 8 factual paragraphs in the IRS motion. Their denials follow the lines of “Paragraph 3 is denied; paragraph 5 is denied; paragraph 6 is denied”, et cetera. Mr. Woods also included a declaration with statements that the information supplied to the Court is not totally correct: “some of the information does not match the records of the petitioners; other information has been redacted, or covered up, and is not the same as the information supplied to the IRS by the petitioners”. With regard to the RRI, he stated that the information supplied by the U.S. Railroad Retirement Board is incorrect. On the IRS computation of the income tax, “[they] are now complaining about their own figures” because the petitioners “paid the exact amounts as computed by the IRS” and “do not owe additional taxes for the year in question.” He also states that Ms. Rembach does not have personal knowledge of the information and concludes she is not a competent witness.

The Court reviewed the response and determined that the petitioners made blanket denials and did not set forth specific facts showing a genuine dispute for trial, especially regarding the issue of whether the railroad retirement income Mr. Woods received is taxable income. The Court granted the IRS motion for summary judgment and decided the petitioners owed the income tax deficiency of $1,125.


  • Responses to motions or orders should ideally explain why the parties disagree by stating specific facts and providing supporting documentation. Here, the petitioners gave blanket denials regarding IRS statements that might have gained traction if they said something beyond “paragraph 3 is denied.”
  • When the IRS underreporting department is contacting about income reported to them, it is worthwhile to review the entire notice to see if you agree with their calculations. The IRS might deny credits that should be allowed so it may be necessary to respond to the notice. Overall, you will need to have solid reasons to dispute why the income should not be included with that year’s taxable income (identity theft is a good example).
  • In this case, the main issue was the taxability of railroad retirement income. Since the petitioners submitted their tax return to the IRS for computation of the income tax owed, it may be that they did not understand how to determine the taxable portion of RRI. The order illustrates that Tier 1 railroad retirement benefits are included in income as “social security benefits” under IRC section 86. Tier 1 RRI benefits are taxable under a formula that includes 85% of the RRI in income if the taxpayers’ modified AGI (excluding the RRI) exceeds $44,000. Since the petitioners had modified AGI of $59,047, that was well over the threshold and 85% of the RRI was taxable (85% of the $8,769 was includible income so $7,454 was added to the taxable income). The increase in their income added to their tax $1,125, resulting in a deficiency. Because the petitioners did not argue there was a computational error, the Court ruled for the IRS.



Designated Orders: 11/27/17 to 12/1/2017

Today we welcome back regular designated order blogger William Schmidt who writes about last week’s designated orders. As usual, some of the orders present interesting situations and some seem rather routine making us wonder why the court designated them. Keith

This week there were five orders. This post will not discuss an order for Petitioner to respond to the Respondent’s motion for summary judgment (Order Here). The discussion today starts with an unfortunate situation for a taxpayer receiving the premium tax credit who experiences a large income recognition event during the tax year which knocks them out of the income range for qualification for the credit. The second cases discussed involves the uncertainty created by a bankruptcy discharge and the taxpayer’s desire for a more definite statement concerning what she has received. The discussed of these two orders is followed by a comparison of two orders involving summary judgment in the CDP context. These cases do not present surprising results.


Affordable Care Act Overpayment Results in Liability

Docket # 14362-16, Juanita P. Morgan v. C.I.R. (Order Here).

This is a bench opinion, authorized under IRC section 7459(b). Tax Court practice is to read a bench opinion into the record, wait to receive the printed transcript weeks later, then issue an order serving the written copies of the transcripts to the parties.

Ms. Morgan received a notice that she did not have the minimum required health insurance for the Affordable Care Act. When she signed up for health insurance, she was eligible for an advance premium assistance credit (based on her household income) of $770 per month to be applied to her monthly health insurance premium. The credit was applied to the premiums from April 2014 to December 2014, totaling $6,930 for the year.

In order to help family members with financial assistance, Ms. Morgan took a withdrawal without penalty from a retirement account. The gross distributions totaled $36,408. When filing her tax return, Ms. Morgan reported adjusted gross income of $49,282. Because of the retirement account withdrawal, Ms. Morgan’s income exceeded the premium assistance credit eligibility threshold. Eventually, the IRS issued a Notice of Deficiency for the disallowed $6,930 credit and Ms. Morgan filed a timely petition with the Tax Court.

As Ms. Morgan’s household income was in excess of the threshold regarding the credit, she was not entitled to the credit she received. While the Tax Court stated sympathy for her situation, she was still liable for the $6,930 deficiency.

Takeaway: The statute is clear that income exceeding 400 percent of the federal poverty line is not eligible for the premium assistance credit eligibility threshold, meaning excess tax credit payments are treated as a tax increase, resulting in a tax liability equal to the original credit amount paid. Withdrawing funds from an IRA is one of several ways that low income taxpayers can fall into a trap when they have a large taxable event. Other ways include a lump sum distribution of social security benefits typical when someone obtains disability status after a two or three year delay in obtaining the award, cancellation of indebtedness income, or a judgment in a consumer lawsuit or other suit not stemming from personal injuries or compensation for lost property. Were Congress to amend the system to improve it, consideration of providing some type of income averaging for these situations where a lump sum taxable event that relates to events essentially beyond the taxpayer’s control could save individuals in this situation from owing a tax liability that many times is beyond their control.

Yes, Virginia, Tax Liability May Be Discharged in Bankruptcy Court

Docket # 3719-16, Marjorie E. Davis, Petitioner, and Lee A. Davis, Intervenor v. C.I.R. (Order of Dismissal Here).

Ms. Davis filed a petition with the Tax Court to review the IRS denial of innocent spouse relief for her regarding tax years 2001 and 2003-2010. The IRS filed a motion to dismiss on grounds of mootness.

Ms. Davis’s liability for the years at issue was previously discharged in the United States Bankruptcy Court for the Western District of North Carolina. Respondent asserts that the tax years have been adjusted to show that no tax, interest or penalties are due.

Petitioner and Intervenor did not object to the granting of the motion. However, Petitioner was unwilling to sign a decision document that did not expressly grant relief pursuant to IRC section 6015, innocent spouse relief. The Court granted the IRS motion. One problem for petitioners such as Ms. Davis stems from the way a bankruptcy discharge operates. It combines a written order granting the discharge which says nothing specific about exactly what the order accomplishes with the operation of law. Many individuals, and Ms. Davis seems to fit this characterization, want a discharge order that lists every debt discharged as a result of the order. Since the bankruptcy court does not provide such a document, they lack a statement that provides them with the comfort they seek. In bringing this Tax Court action requesting innocent spouse relief, at least she achieves a higher level of comfort because the Tax Court dismisses her case based on the impact of the bankruptcy discharge. Because she refused the sign the decision document, one suspects that she has still not reached her comfort level with the impact of the discharge. It is hard to know if the problem here is her fear of the unknown or her bankruptcy lawyer’s inability to properly explain the operation of law.

Takeaway: For those who don’t believe in Santa Claus or the ability to deal with tax liability in bankruptcy, we want you to know that at least one of those is real. While this blog post will not delve into the mechanics of the requirements for discharging tax liability in bankruptcy court, a bankruptcy discharge can relieve a taxpayer of many tax liabilities providing the individual with a nice seasonal present. 

Non-Compliance Leads to IRS Summary Judgments

Docket # 7428-17 L, Leslie D. Rasmussen v. C.I.R. (Order and Decision Here).

Ms. Rasmussen did not file her 2011 or 2012 tax returns. The IRS filed substitute returns and issued notices of deficiency to her. The IRS issued notices of intent to seize her assets on the liabilities for the two years, which aggregated close to $50,000. She timely submitted Form 12153, Request for a Collection Due Process or Equivalent Hearing, selecting the box for “I Cannot Pay Balance” and stating, “A levy would cause a severe financial hardship and the taxpayer would like to preserve her rights to tax court.”

The IRS settlement officer scheduled a telephone conference and submitted requests for a completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, with supporting documentation for income, assets and expenses within 14 days and proof of estimated tax payments paid for the prior year to be provided within 21 days.

Petitioner’s representative during the telephone conference inquired about a streamlined installment agreement and was informed it would be $669 per month with Petitioner making 2016 estimated tax payments. No documents were provided by the deadlines. The representative’s follow-up message stated that he had not received documents or talked to the Petitioner.

In her Tax Court petition, Ms. Rasmussen states her disagreement with the Notice of Determination issued: “Because I failed to submit documentation because of family matters. There wasn’t enough information to base decision on. Also, once I figure taxes for 2016, I anticipate a refund on loss of farming.”

The Court concluded that Petitioner did not provide the required documents, there was no issue of material fact, and granted the IRS motion for summary judgment.

Docket # 22154-16SL, Brenda Ann Dixon v. C.I.R. (Order and Decision Here).

Ms. Dixon received an IRS notice of intent to levy for tax years 2010, 2011, and 2013. She timely requested an appeal. With that, she requested an offer in compromise and stated her 2011 tax liability should be reduced since she filed an original tax return to replace the substitute return the IRS filed as her 2011 tax return. She did not dispute the 2010 and 2013 tax liabilities.

The appeals officer scheduled a telephone hearing and requested Ms. Dixon submit a completed Form 433-A within 14 days of the letter, a signed 2014 tax return within 21 days, and a completed Form 656, Offer in Compromise (with fees) within 14 days. The 2014 tax return was past due by more than one year. They held the telephone hearing but Ms. Dixon did not supply the requested documents. The Settlement Officer sustained the imposition of the levy.

In her Tax Court petition, Ms. Dixon states she “believe[s] that a fair determination could not be made within a telephone conversation,” and that she “want[s] to comply with tax requirements and [she has] fallen behind due to keeping up with [her] health and work.” She also stated that “[r]espondent has abused her discretion by not giving any weight to Petitioner’s illness and disability in the case.”

The Court’s findings include that taxpayers are not entitled to in-person hearings and that there was no abuse of discretion regarding Ms. Dixon’s illness and disability. The Court also found that Ms. Dixon did not provide the required documents, there was no issue of material fact, and granted the IRS motion for summary judgment.

Takeaway: The pattern here follows numerous other CDP cases. It is unclear why the Court included these cases as designated orders. Petitioners that have not provided requested documents to the IRS will not make it very far in the Tax Court. Prior to filing a CDP request or immediately thereafter, taxpayers need to become compliant by providing requested documents or filing tax returns. Otherwise, the Tax Court will grant summary judgment for the IRS absent some failure by the IRS in the verification process.


Designated Orders: 10/30/17 to 11/3/2017

Kansas Legal Services Direcor William Schmidt summarizes the Tax Court’s designated orders for the week ending November 3. The meatiest of the orders considers the limits of Tax Court jurisdiction in cases that involve reasonable compensation audits of S Corporations, an issue that is getting a significant amount of Service attention. Les

In this light week of designated orders from the Tax Court, we have Respondent’s motion granted regarding their stipulation of facts pursuant to Rule 91(f) (Order Here) and a duplicative pretrial memorandum stricken from the record (Order Here). Two other orders have further analysis below.


Continuance and a Remand

Docket # 16277-16 L, Kevin J. Mirch & Marie C. Mirch v. C.I.R. (Order Here).

This collection due process case was calendered for trial on November 13 in San Diego, California. Respondent filed both a motion for continuance and a motion for remand on October 26. The Court granted both motions.

In granting the first motion, the case was stricken from trial on the November 13 docket. In granting the second motion, the case is remanded to the IRS Office of Appeals for further consideration. The IRS is further ordered to offer Petitioner an administrative hearing at the Appeals Office located closest to Petitioner’s residence (or a mutually agreed location) at a mutually agreed date and time no later than January 30, 2018. It is further ordered that the parties shall file status reports no later than March 5, 2018.

I would speculate if there was cause for concern by the IRS to remand this collection due process case rather than go forward with litigation before the Tax Court.

No Determination – No Jurisdiction

Docket # 12528-17S, Mas Construction Service LLC v. C.I.R. (Order of Dismissal for Lack of Jurisdiction Here).

During tax years 2012 and 2013, the Petitioner was an S corporation operating as a construction company. Mark A. Sauerhoefer was the sole owner and sole officer of the S corporation. His treatment under the S corporation was as an employee with $4,500 as W-2 wages in 2012 and $8,550 in 2013. On December 22, 2014, Respondent sent Petitioner a letter informing it that the Employer’s Quarterly Federal Tax Return (Form 941) and Employer’s Annual Federal Unemployment Tax Return (Form 940 – FUTA) were selected for examination for the tax years in question. On May 22, 2015, Respondent sent initial examination results to Petitioner, focused on Mr. Sauerhoefer’s amount of reasonable wages. Petitioner responded with a letter contesting those findings. On July 2, 2015, Respondent sent a letter to Petitioner explaining the findings with an included Form 4668, Employment Tax Examination Changes Report. The report concluded Petitioner failed to report reasonable wage compensation for Mr. Sauerhoefer for the tax years at issue, proposed he should have reported $40,000 in annual wages during those years, and concluded that Petitioner was liable for proposed employment tax increases, additions to tax under IRC sections 6651(a)(1) and (2) and penalties under section 6656. In response, Petitioner sent several emails and a letter contesting the amount of reasonable compensation. On May 11, 2016, an informal Appeals hearing was held where Petitioner continued to raise the reasonable compensation issue. On February 8, 2017, the Appeals Office sent a settlement offer letter to Petitioner that Petitioner did not accept. Respondent did not issue to Petitioner a notice of determination of worker classification for the tax years. On June 5, 2017, Petitioner filed a petition with the Tax Court, stating the “taxpayer disagrees with wages determined for 2012-2013 by the IRS and employment taxes assessed.”

On September 15, 2017, Respondent filed a motion to dismiss for lack of jurisdiction on two grounds. The first count is that no notice of determination of worker classification, as authorized by IRC section 7436 to form the basis for a Tax Court petition, was sent to Petitioner. The other count is that no other determination was sent from the Respondent to Petitioner that would grant Tax Court jurisdiction. On October 6, 2017, Petitioner filed a notice of objection to the Petitioner’s motion.

In the discussion of this case, Judge Armen states that Petitioner consistently treated Mr. Sauerhoefer as an employee during the tax years at issue. As a result, Respondent did not make a determination that he was an employee, but rather concluded that Petitioner failed to report reasonable wage compensation. As IRC section 7436(a)(1) confers jurisdiction on the Court to determine the “correct and proper amount of employment tax” when making a worker classification determination, not when concluding that Petitioner underreported reasonable wage compensation as occurred. Footnotes 3 and 4 discussed 7436(a) and 7436(a)(2), respectively, and help bring Judge Armen to the conclusion that Respondent did not make any determinations under 7436(a)(1) or (2). The Court granted the motion to dismiss because the Tax Court lacked jurisdiction over the case as Respondent never made any determination of worker classification and did not make a determination regarding relief under section 530 of the Revenue Act of 1978.

Footnote 5, however, notes that this is not the end of the story. Mr. Sauerhoefer is also an individual petitioner of the Tax Court with docket number 12527-17S, on the Tax Court calendar for the Atlanta, Georgia trial session that begins February 26, 2018. The notice of deficiency attached to the petition in that case states Respondent “determined that your compensation from Mas Construction is $40,000 per year rather than the $4,500 and $8,500 as reported on your returns for the taxable years ending December 31, 2012 and December 31, 2013, respectively”. Mr. Sauerhoefer is thus able to make his arguments to the Tax Court in February 2018 about how reasonable the compensation truly was.

Takeaway: While the S corporation did not have a notice of determination, Mr. Sauerhoefer had a notice of deficiency. Since the notice is necessary for Tax Court to have jurisdiction under the petition, one case survives by having that essential element.

Designated Orders: 10/2/17 to 10/6/2017

LITC Director for Kansas Legal Services William Schmidt reviews interesting procedural issues in this week’s edition of designated orders. Two of the cases he discusses involve bench opinions which we have written about previously here and here. We got a little bit behind in publishing our weekly review of designated orders making this the second post of the week on such orders.  We hope to go back to our “normal” pattern of posting each Friday.  Keith

Out of 8 designated orders last week, I am focusing on two cases that relate to the last known address of the Petitioner (reinforcing the necessity of communicating address changes to the IRS) and one case where Petitioner needed to provide more evidence to support his claims.

The first two cases cited are bench opinions, authorized under IRC section 7459(b). Tax Court practice is to read a bench opinion into the record, wait to receive the printed transcript weeks later, then issue an order serving the written copies of the transcripts to the parties (who may or may not have paid the court reporter for those transcripts). Bench opinions are just as subject to appeal as other cases, so long as the case involved has not been designated a small tax case under 7463.  The written version of the bench opinion is useful for the appellate court.

Last Known Address Case 1

Docket # 22293-16, Nathanael L. Kenan v. C.I.R. (Order Here).

Mr. Kenan filed his 2011 tax return from his address on Ivanhoe Lane in Southfield, Michigan. Mr. Kenan alleges that he moved to a new address, Franklin Hills Drive, in Southfield prior to February 2013 and notified the U.S. Postal Service regarding his change of address. The IRS mailed a statutory notice of deficiency (“SNOD”) to the original address on February 19, 2013.   Mr. Kenan filed his 2012 tax return from the second address. Once Petitioner verified the SNOD, he filed a petition with the Tax Court with the argument that no SNOD was ever mailed out.


I previously reported on this case in this blog posting regarding The Court’s denial of Respondent’s motion to dismiss for lack of jurisdiction. Within that post, I noted that the IRS is required to update their addresses based on U.S. Postal Service (“USPS”) Change of Address notifications and those notifications are influential to determine jurisdiction for Tax Court.

The Court held an evidentiary hearing in Detroit, Michigan, on September 18, 2017. Petitioner bore the burden of proof regarding his change of address with the USPS. Petitioner gave oral testimony that he submitted his change of address notification to the USPS after he moved in June 2012 and before the IRS issued the SNOD in February 2013. Petitioner was to give specific details of when he gave notice and what he stated on the form. He did not provide any further specifics or provide documents in support of his statements.

The Court did not have evidence of what Petitioner submitted to the USPS so could not compare the USPS or IRS data (for example, if a name or address submitted to the USPS was misspelled). Based on that lack of evidence, the conclusion was that the IRS acted on the last known address they had for the Petitioner. The Court dismissed Petitioner’s petition for lack of jurisdiction as being untimely filed.

Last Known Address Case 2

Docket # 9469-16 L, Mark Marineau v. C.I.R. (Order Here).

Patrick Thomas previously reported on this case in this blog posting. At last report, the question was why the IRS sent a SNOD to the Petitioner in Michigan if Petitioner lives in Florida.

Here is the procedural background – Following Petitioner’s Tax Court petition, Respondent filed a motion for summary judgment, supported by a declaration from the settlement officer. The Court directed by order on July 5, 2016, for Petitioner to file a response, but he filed his own motion for summary judgment instead where he objected to Respondent’s motion (filed October 19). Respondent filed a response January 23, 2017, objecting to Petitioner’s motion. Petitioner filed a reply to Respondent’s response on March 24, 2017. The Court ordered Respondent to explain the disparity between the address listed on the Form 3877, the notice of deficiency address and the address where the notice of deficiency was sent. On July 28, Respondent filed a First Supplement to Motion for Summary Judgment, supported by a declaration supported by Respondent’s counsel. Petitioner was ordered to file a response on or before September 14 but did not.

This began when the IRS prepared a substitute return for Petitioner for 2012 because Petitioner failed to file his tax return. On June 8, 2015, Petitioner mailed a letter to IRS headquarters that told of his change of address to a post office box in Fraser, Michigan, stating that it was an official notification and requesting that they update their records. On June 18, 2015, the IRS mailed the notice of deficiency to Petitioner at a Pensacola, Florida, address. Even though the notice was mailed to Florida, the USPS attempted delivery to a Roseville, Michigan, address. The IRS has not explained why it was sent to that Roseville address even though it was addressed to the Pensacola address. The notice went unclaimed and the USPS returned it back to the IRS on July 21, 2015.

Petitioner did not file a petition for redetermination of the notice of deficiency for 2012. The IRS sent demand for payment regarding the full 2012 tax liabilities that Petitioner did not pay.

Following this, the IRS and Petitioner corresponded based off his Pensacola address. First, the IRS mailed a notice of intent to levy and Petitioner filed a Form 12153, Request for Collection Due Process or Equivalent Hearing. Petitioner said he would like to have a face-to-face hearing. He did not check any box to propose a collection alternative but wrote in his statement that he would like to discuss collection options if it is proven he owes the tax. The settlement officer’s response was that in order to have a face-to-face hearing, Petitioner needs to complete Form 433-A and submit a tax return for 2012, plus returns for 2013 and 2014 (or explain why he was not required to file a return for that year/years). Petitioner again requested the meeting but did not supply any of the requested documents so the settlement officer followed up with a reminder letter and second copy of the original letter. Petitioner did not call for the March 1, 2016, hearing date and did not supply the documents. The Appeals Office sent a notice of determination March 17, 2016, to his Pensacola address. Petitioner again responded to request a face-to-face hearing without providing any documents. Petitioner timely filed a petition with the Tax Court and listed his Pensacola address as his mailing address.

The Court concluded there is still an issue of material fact regarding whether the June 8, 2015 notice of deficiency was mailed to Petitioner’s last known address. One issue is while Petitioner’s method of notification to the IRS was unorthodox, Petitioner argues it was a “clear and concise notification” of his change of address. The Court denied both the Petitioner’s motion for summary judgment and the Respondent’s motion for summary judgment.

Evidence Presented at Trial

Docket # 23891-15, Abdul M. Muhammad v. C.I.R. (Order Here).

This case concerns a SNOD sent to Petitioner regarding tax years 2012 and 2013. At issue were $15 in taxable interest unreported in 2013, one dependent exemption in 2012 and two exemptions in 2013, head of household status for both years, American Opportunity Credit or other education credits for both years, a deduction for $7,743 for charitable contributions in 2013, ability to deduct Schedule C business expenses in 2013, penalty for failure to timely file a tax return in 2012, and accuracy related penalty under IRC section 6662(a) in both years.

At trial September 18, 2017, in Detroit, Michigan, Petitioner represented himself and had the burden of proof requirement regarding these noted issues below.

  • Interest Income: Petitioner presented no evidence to dispute that the $15 was taxable interest income.
  • Qualifying Children: Petitioner presented no records (school, medical or otherwise) to show that the children lived with him for more than half the year.
  • Education: Petitioner was enrolled in online courses at the University of Phoenix and had expenses of $4,178 in 2012 and $3,977 in 2013.
  • Charitable Contributions: Petitioner did not have documentary evidence to show charitable contributions he made to his mosque.
  • Business Expenses: Petitioner did not offer documentary evidence to support his claim of $10,299 in expenses as a roofer in 2013.
  • Accuracy Related Penalty: No reasonable cause was provided to dispute the burden in 6662(a) or (b)(1) for a taxpayer’s negligence or disregard of rules and regulations.

As a result, the IRS adjustments were sustained regarding the interest income, dependency exemptions, head of household filing status, business expenses and accuracy related penalties.

However, the IRS did not provide convincing proof regarding Petitioner’s late filing of his 2012 tax return (their documents provided contradictory dates so did not meet the burden of proof). Also, Petitioner claimed $4,377 in charitable contributions but the deficiency stated $7,743 (a difference of $3,366) so the deficiency needed to be recomputed. He was also entitled to the education credits for both years.

Takeaway: Providing evidence at Tax Court, especially documentary evidence, is necessary to win on issues at trial. When the Petitioner only provides oral evidence restating a position on the issue, it is unlikely that will be a successful tactic.


Designated Orders: 9/4/17 to 9/8/2017

LITC Director for Kansas Legal Services William Schmidt reviews interesting procedural issues in this week’s edition of designated orders, including whether an issue flagged in an IDR is considered a new issue at trial, whether Coca Cola’s closing agreement in a transfer pricing dispute is relevant in a dispute covering years not covered in the agreement and the importance of letting the court know if there is a change in address. Les

Out of 11 designated orders this week, roughly half were in the same case so that case is a main focus in this blog post. Additionally, Coca-Cola’s calculation methodology is relevant to their case and it’s always good to update your address with the Tax Court.


Multiple Motions Lead to Multiple Orders

Docket # 21255-13, 27239-13, Duane Pankratz, et al., v. C.I.R.

These cases were set on the St. Paul, Minnesota, trial calendar for June 15, 2015 based on 2008 and 2009 tax years. The cases were continued based on Petitioner’s motion because there are a large number of issues. The parties proposed to corral the relatively noncontroversial issues and try the remaining issues the parties thought reasonably needed to be tried. The Court’s pretrial order was extended as no St. Paul calendar was docketed until September 2017, when they are set for trial.

  • Order 1 Here – After the parties had narrowed issues and stipulated facts, settlement talks broke down. The Court spoke with the parties on July 21, 2017, and learned the parties disagreed on what documents were exchanged, issues raised in the notice of deficiency and pleadings, and whether to set deadlines differing from the pretrial order deadlines for expert-witness reports or pretrial memos.       On August 3, 2017, Petitioner moved to compel production of documents from his requests 1-11 and 13.       These first 11 requests are broad, but the instructions narrow them to tax years 2008-2009. The Court found Petitioner’s request 13 to be overbroad. The Court granted the motion to compel for requests 1-11 to the extent of documents not already in Petitioner’s possession that Respondent intends to introduce at trial. If Respondent claims privilege for any of those documents, he must produce a privilege log.
  • Order 2 Here – On July 3, 2017, Respondent moved for summary judgment on three issues, noncash charitable deductions subject to enhanced substantiation requirements. As one issue was settled, the other two issues are deductions for a donation of four oil-and-natural-gas fields and a donation of a conference center in South Dakota. Respondent argues qualified appraisals are required to substantiate those donations. Petitioner argues that Respondent’s authority predates 2004, when I.R.C. Section 170(f)(11)(A)(ii)(II) allows for a reasonable cause exception to those requirements. Since Petitioner asserts he can meet the reasonable cause requirements and will testify in support, Respondent’s motion for partial summary judgment was denied.
  • Order 3 Here – Petitioner moved in limine on August 4, 2017, to preclude new matters from being tried, listing three issues in the motion. The issues were not listed in the notices of deficiency, answer, or amended answers. Respondent argues that the issues were raised in an information document request and a letter in September 2015. The Court notes that information document requests and letters from counsel are not pleadings. Respondent also argued Rule 41(b)(1) that when parties expressly or impliedly try an issue by consent, it is treated as if it were in the pleadings. The Court cites Rule 70(a)(2) and states that discovery is not trial. The motion in limine was granted for Petitioner and Respondent was precluded from offering evidence on the three issues.
  • Order 4 Here – Here is an order on another one of Petitioner’s motions in limine regarding a new issue from Respondent. This motion was filed September 1, 2017, regarding a disallowance of Petitioner’s Schedule E losses in 2009 for lack of basis. As the issue did not arise until August 2017 in an email chain, the Court precluded Respondent from offering evidence at trial on that issue.
  • Order 5 Here – There is also an August 3, 2017, motion by Petitioner for the Court to review Respondent’s responses to requests for admissions 18-36.       The Court illustrates Petitioner’s lateness on some requests for admissions and how his responses are a potential backdoor way to get in evidence subject to a preclusion order from the Court. The Court denied Petitioner’s motion to review the sufficiency of answers or objections to request for admissions.

Some takeaways: Information document requests, letters from counsel, and email chains are not ways to introduce new issues for Tax Court. To do so, the issues must be introduced in the pleadings (such as answers or amended answers). One exception is Rule 41(b)(1), where the parties consent to trying an issue. Discovery does not equal trial so an issue sought during discovery does not necessarily make it a triable issue in Tax Court and a motion in limine is a way to prevent that.

It is always worth reviewing discovery requests to ensure they are not overbroad in scope. Keeping the request reasonable and not overly burdensome may make the difference in getting a useful discovery response.

Coca-Cola Court

Docket # 31183-15, The Coca-Cola Company and Subsidiaries v. C.I.R. (Order Here)

This case is based on a Notice of Deficiency issued to Petitioner for transfer-pricing adjustments under I.R.C. Section 482 resulting in deficiencies over $3.3 billion for tax years 2007-2009. The IRS asked the Court to render judgment as a matter of law that a closing agreement in 1996 has no relevance to any issue arising in the case.

After an examination of the Petitioner’s 1987-1989 federal income tax returns, the parties executed a closing agreement covering tax years up to and including 1995. In that agreement, the parties agreed to a methodology (the “10-50-50 method”) to calculate the product royalties payable to the Coca-Cola foreign affiliates (supply points). With this method, the supply point retains 10% of gross revenues as a routine return while the adjusted residual operating income is split 50-50 between the supply point and Petitioner. The closing agreement provided penalty protection for Petitioner during the agreement term and in tax years after 1995. For those tax years after 1995, supply point royalties calculated using the 10-50-50 method or another subsequent agreed-upon method would meet the “reasonable cause and good faith” exception to the penalties in I.R.C. Sections 6662(e)(3)(D) and 6664(c).

For tax years 1996-2006, Respondent accepted the application of the 10-50-50 method and made no I.R.C. Section 482 adjustments (with one exception). However, for tax years 2007-2009, the IRS determined the 10-50-50 method calculations were not arm’s-length, leading into the Notice of Deficiency and the case at issue.

Because the closing agreement sets the narrative for the 2007-2009 audit, the Court stated that is the beginning of its relevance. Next, the Court states the penalty protection provision has obvious relevance for the closing agreement. Additionally, Petitioner claimed foreign tax credits for Mexican income tax paid by its Mexican branch for tax years 2007-2009. The Notice of Deficiency includes $254 million of disallowed foreign tax credits on the grounds that the Mexican taxes were not compulsory levies. At issue is whether the Mexican taxes were compulsory or not, with the Coca-Cola argument that the Mexican taxing authority effectively adopting the 10-50-50 method from the 1996 closing agreement. Based on those relevancy reasons, the Court denied the Respondent’s Motion for Partial Summary Judgment.

Rule 24(b) for an Updated Address

Docket # 22387-16S, Eric Scott Hanson v. C.I.R. (Order Here)

On August 30, 2017, the Court granted Respondent’s motion for summary judgment to dismiss this case by order and decision. The Court cancelled the September 11 trial session in Columbia, South Carolina, because Hurricane Irma was anticipated to arrive that date.

However, the Chambers Administrator for Judge Gustafson learned on September 7 that Mr. Hanson had a new address and had not received recent orders in this case. Rule 24(b) states that a party self-representing in Tax Court must promptly notify the Court in writing of a change of address (so not receiving copies of Court filings is his fault). Any motion Mr. Hansen makes to vacate the decision is due no later than September 29, 2017.

Takeaway: Parties must notify the Tax Court of a change of address. If they do not notify the Court, it is their fault for not receiving Court filings.

Designated Orders: 8/7/17 to 8/11/2017 and Update on Yesterday’s Post

This week’s post on designated orders was written by William Schmidt the LITC Director for Kansas Legal Services. 

Before I turn you over to this week’s orders, for the second day in a row I want to pass out additional information about the prior day’s post.  As with the additional information yesterday, an alert reader found pertinent information that will add to your understanding of the case.  As we were filing the blog post yesterday, the debtor’s attorney was filing a joint stipulation of dismissal of the Pendergraft 505(a) litigation.  If you remember the case, the debtor sought to litigate her status as an innocent spouse in bankruptcy court.  The IRS objected and the bankruptcy court essentially said that it could hear the case but first she needed to make an administrative request to the IRS asking that it grant her innocent spouse status.  She did what the court requested, almost always a good idea, and the IRS has given her a preliminary indication that it intends to deny her request.  I believe her attorney is concerned that if he passes on the chance to litigate the innocent spouse issue in Tax Court, the IRS may appeal the decision of the bankruptcy judge and he could lose the opportunity in both venues.  So, he is taking the safe route but also a route that will keep us from learning how higher courts would view this jurisdictional issue.  Keith

There were 5 designated orders this week and they made up a mixed bag.  The group includes a woman trying to convince the Court she was not part of a partnership despite prior history of stating otherwise, a man whose mail history will decide his tax liability, assistance for a petitioner regarding discovery, and summary judgments in Collection Due Process (“CDP”) cases.

Is She a Partner or Not?

Docket # 20872-07 & 6268-08, Derringer Trading, LLC, Jetstream Limited, Tax Matters Partner, et al, v. C.I.R. (Order Here)

For a Chicago trial set this month, the subject matter is a partnership-level proceeding under the TEFRA unified audit and litigation procedures.  The partnership and the years in question is Derringer Trading, LLC, for 2003 and 2004.  Leila Verde, LLC, was a partner of Derringer during those years.  The parties disagreed whether Susan Hartigan was a member of Leila Verde.  Michael Hartigan (Susan’s estranged husband) represented her as the ultimate owner of Leila Verde, the IRS position was that she was the 99% owner of Lelia Verde during 2003 and 2004 while Mrs. Hartigan filed a memo supporting her position that she was not a partner of Leila Verde at all.  The Court held an evidentiary hearing on Mrs. Hartigan’s status.

Following a recounting of the evidence regarding the financial history of the Hartigans, the Court looked at three doctrines and concluded that Mrs. Hartigan is a partner of Leila Verde.  Under the duty of consistency, Mrs. Hartigan previously asserted she was a partner of Leila Verde in prior courts, a joint tax return and in a bankruptcy case.  Using analysis from the tax benefit rule, changing her status would provide a windfall to Mrs. Hartigan, which the rule was designed to prevent.  Under judicial estoppel, Mrs. Hartigan took the position in prior courts that she was a partner of Leila Verde in an affidavit and other assertions, which she would now be estopped from asserting an opposite position against her prior judicial benefit.  Her statute of frauds argument that the Leila Verde Purchase Agreement was invalid was misplaced for the TEFRA proceeding.

The Court notes that Mrs. Hartigan’s allegations of Mr. Hartigan forcing her to make the Leila Verde purchase through “deception, abuse, manipulation, exploitation and domination” would be better suited for an innocent spouse partner-level proceeding after the TEFRA proceeding.

Takeaway:  Be consistent in your court testimony!

What Is His Last Known Address?

Docket # 22293-16, Nathanael L. Kenan v. C.I.R. (Order Here)

Mr. Kenan filed his 2011 tax return from his address on Ivanhoe Lane in Southfield, Michigan.  Mr. Kenan alleges that he moved to a new address, Franklin Hills Drive, in Southfield prior to February 2013 and notified the U.S. Postal Service regarding his change of address.  The IRS mailed a statutory notice of deficiency (“SNOD”) to the original address on February 19, 2013.    Mr. Kenan filed his 2012 tax return from the second address and does not allege he gave the IRS a change of address between filing his tax returns.

Since Mr. Kenan did not file a Tax Court petition to respond to the SNOD, the IRS garnished his wages, levied his bank account, and applied his 2012 refund to his 2011 liability.  The activity prompted him to contact the National Taxpayer Advocate, who Mr. Kenan alleges advised him to file a Tax Court petition.  The petition states he did not receive the SNOD, having moved with no SNOD being forwarded to the new address so he argues no SNOD was ever mailed at all.

Should the SNOD have been mailed correctly, the Tax Court would dismiss Mr. Kenan’s petition for lack of jurisdiction for timeliness.  If the SNOD was not correctly mailed, the dismissal would be based on an invalid tax assessment.  The Court denied the IRS motion to dismiss for lack of jurisdiction in order to proceed to trial, where Mr. Kenan has the burden of proof regarding his timeline of the facts.

Takeaway:  The IRS is required to update their addresses based on U.S. Postal Service Change of Address notifications.  The address the IRS uses to mail their notifications is influential to determine jurisdiction for Tax Court.

Odds and Ends

Docket # 30295-15, Joseph H. Hunt v. C.I.R. (Order Here)

  • Judge Cohen provides some relief regarding discovery for Mr. Hunt:  “It appears to the Court that the interrogatories, with multiple pages of convoluted instructions and definitions served on an unrepresented taxpayer, are excessive under Rule 71(a) and should be limited under Rule 70(c), Tax Court Rules of Practice and Procedure.”

Docket # 21360-16L, Mushfaquzzaman Khan & Bushra Khan v. C.I.R. (Order & Decision Here)

  • Petitioners failed to respond to an IRS motion for summary judgment regarding a lien collecting on a 2014 tax liability and the Court granted the IRS motion.  Takeaway:  The Tax Court is not authorized to review a taxpayer’s underlying liability when that issue is raised for the first time on appeal of a notice of determination.

Docket # 13479-15L, Michael Horwitz & Judith A. Horwitz v. C.I.R. (Order & Decision Here)

  • In another CDP hearing, the petitioners did respond to the IRS motion for summary judgment, but the motion was still granted in favor of the IRS.  Petitioners previously did not file requested tax returns or the Form 433-A financial statement and did not receive an installment agreement.  Takeaway:  It is necessary to respond to IRS requests in a timely fashion.  Failure to provide the 433-A means no installment agreement with the IRS.