“Can’t anyone here play this game?”

Commenter in chief, Bob Kamman sent another order stricken by the Tax Court offering another chance for a lesson in what not to do.  He also offered the title of today’s post as he quoted from a beloved baseball manager of yesteryear, Casey Stengel.  The Tax Court had calendared the case of Sneider-Pedon v. Commissioner, Dk. No. 33172-21 resulting in an order from the assigned trial judge rather than the Chief Judge.

Petitioner here sought relief from the denial of innocent spouse relief but as the order indicates, she attached a notice of determination for only one of the years she mentions in her petition.  This causes problems at the case resolution stage and points out again that the Court pays careful attention to the documents giving the Court jurisdiction and the document resolving the case.


In response to a proposed decision document, the Court entered the following order:


Docket No. 33172-21. 

ORDER This case was called from the calendar for the Trial Session of the Court at Cleveland, Ohio on November 7, 2022. In the Petition, filed October 18, 2021, petitioner disputed respondent’s denial of relief from joint and several liability under section 6015 for tax years 2012 and 2013. However, petitioner attached the Notice of Determination only for tax year 2013, not for tax year 2012. Neither party has since remedied this omission, so we remain unsure whether petitioner’s claims regarding tax year 2012 are validly at issue in this case. On November 4, 2022, respondent filed a Status Report to inform the Court that a basis for settlement had been reached. On November 7, 2022, the parties filed a Settlement Stipulation and a Proposed Stipulated Decision. The Settlement Stipulation contains petitioner’s Statement of Account (Form 3623) for tax years 2012 and 2013, prior to any relief that she may be granted under section 6015. The Proposed Stipulated Decision proposes to remove petitioner’s “deficiency” for tax years 2012 and 2013 and to find an overpayment for tax year 2012. The Petition requests declaratory relief under section 6015, not a redetermination of deficiency. Indeed, there is no notice of deficiency before us in this case. Therefore, any proposed stipulated decision must refer to “relief from liability,” not to a reduction of deficiency. 

Accordingly, we will strike the Proposed Stipulated Decision and give the parties 30 days to file a corrected proposed stipulated decision that conforms to the relief requested in the Petition. Upon due consideration, and for cause, it is 

ORDERED that this case is continued and that jurisdiction is retained by this Division of the Court. It is further  

ORDERED that the parties file a status report by December 19, 2022, containing petitioner’s Notice of Determination for tax year 2012. It is further 

ORDERED that the parties’ Proposed Stipulated Decision, filed on November 7, 2022, is hereby stricken from the record. It is further 

ORDERED that by December 19, 2022, the parties file a corrected proposed stipulated decision that conforms to the relief requested in the Petition. 

Petitioner in this case filed her petition pro se.  That almost always means that the Chief Counsel attorney prepared the decision document.  Here, the decision document includes a year for which the Court cannot be certain that it has the ability to render a decision.  Without the ticket to Tax Court, here a notice of determination, the Court lacks the ability to confirm that petitioner has properly invoked its jurisdiction. 

It’s not unusual for a petitioner to fail to attach the document serving as the ticket to Tax Court.  If petitioner fails to attach that document, it falls to Chief Counsel attorney to file the document or move to dismiss.  Here, petitioner included an appropriate determination for one year but not the other.  No one raised an issue concerning the dissonance between the years listed in the petition and the year reflected on the decision document until the Court challenged the document.  Overlooking this dissonance is fairly easy but should be on a checklist the Chief Counsel attorney would have in preparing the answer and the reviewer should have in reviewing the answer.  So, something fell down in the Chief Counsel office.

The second mistake reflects a deeper problem because it suggests that the Chief Counsel attorney did not understand the nature of the case.  Because petitioner pursued the case pro se, she would not be expected to understand the difference between a deficiency and a determination.  The same cannot be said for the attorneys in Chief Counsel’s office.  The document presented to the Court would have been prepared by Chief Counsel’s office which has access to templates covering this situation.  Perhaps the language of deficiency versus relief from liability merely reflects a failure to select the proper template for use in preparing the document but it also reflects either a more fundamental misunderstanding of the different types of innocent spouse cases or the nature of innocent spouse cases.  Some type of additional training seems in order but perhaps that training has come in the form of a public rebuke from the Court in rejecting the proposed document.

Chief Counsel has been hiring lots of new attorneys.  It takes some time to understand the nuances of the practice which is why every document that goes out the door gets reviewed by a manager in that office.  Here, the failed document appears to result from a docket attorney that may not have understood exactly what was at issue and a review that did not take the time to check the determination passing that task along to the judge who had to provide feedback in a public manner.

The posts on bloopers results not from any empirical study suggesting that Chief Counsel’s office makes more mistakes now than in the past.  I can attest that it made plenty of these kinds of mistakes when I worked there both as an attorney and as a manager.  Hopefully, we can continue to learn from them.  As I have written in prior posts I had my fair share of painful bloopers over the years.

Deemed Stricken

Commenter in chief, Bob Kamman, recently alerted us again to orders from the Tax Court in which the Court rejects the filings by the parties because of mistakes in the filings.  This is not the first time he has noticed mistakes in filing documents at the Tax Court.  I wrote a pair of posts, here and here, about mistakes Bob identified last year.

As I mentioned in one of the prior posts, at Chief Counsel’s office the Procedure and Administration Division of the National Office, and its predecessor the Tax Court Division, kept track of Tax Court bounces when I worked there.  Bounces were not a good thing since they signified that the local office had made a mistake in filing a document with the Court.  Not only did the national office let you know when a bounce occurred, but whenever there were intra-Chief Counsel office CLE programs, the speaker from the national office would present a 10-15 minute monologue describing the bloopers produced by the field offices over the past year or so.

The mistaken filings often involve matters filed by both the Chief Counsel’s office and the petitioner (or petitioner’s counsel).  It’s possible to see some of these bloopers by following the Court orders.  Bob found them using a search in the orders for “deemed stricken.”  I will talk about one order in this post and occasionally come back to these types of orders as we identify them.  These orders usually provide a lesson on what not to do in a case.  Those lessons, while generally painful, can be useful.


The case I will discuss today involves a proposed decision document.  The Court rejects the document.  In this blog we sometimes criticize the Court for the slowness with which it delivers opinions, but it’s easy to forget that the judges have many tasks which they must perform with care.  While they rely on the litigants to assist them, they must constantly check behind the litigants to make sure that even where the litigants agree, the matter presented is correct.  Chief Judge Kerrigan found that the agreed decision document the parties requested she sign did not reach her desk with the appropriate background.  Here is the order:




Docket No. 12604-22 


On November 21, 2022, the parties filed a Proposed Stipulated Decision for the Court’s consideration. However the deficiency proposed therein for the 2018 taxable year, $5,173.00, is more than the deficiency determined for that year in the Notice of Deficiency, $3,449.00. Respondent did not assert an increased deficiency in the Answer and nothing below the line in the Proposed Stipulated Decision accounts for the increase. Accordingly, the Court is unable to process the parties’ Proposed Stipulated Decision.

For cause, it is

ORDERED that the Proposed Stipulated Decision, filed November 21, 2022, is hereby deemed stricken from the Court’s record in this case. It is further

ORDERED that the parties shall, on or before December 20, 2022, file a revised Proposed Stipulated Decision.

The Gaddie case, like 75% of the Tax Court’s cases, was filed pro se.  She filed her petition on June 6, 2022 and the Chief Counsel attorney filed an answer on June 23, 2022.  That is amazingly quick for an answer reflecting that the Tax Court had solved it delays in providing petitions to the IRS and that the attorney or paralegal in the Dallas office of Chief Counsel assigned to the case was on top of their docket.  The next entry in the case is the proposed stipulated decision.  The docket sheet indicates that the proposed stipulated decision was filed on November 21, 2022 as stated in the order copied above. 

The order striking the document from the record was entered just two days later which means the order received a very quick review.  Since the case had not yet appeared on a calendar, I would have expected the case to be in the general docket of the Court unassigned to a specific judge; however, the order here was entered by Chief Judge Kerrigan as mentioned above.  Perhaps decision documents get assigned out of the general docket.  I do not know whether the mistake here was detected by someone in the records section of the Court, the Chief Judge’s staff, or the judge.  Someone, however, paid close attention to the document filed and the notice of deficiency.

The order points out that the IRS seeks to obtain a larger assessment against Ms. Gaddie than the IRS put into the notice of deficiency.  One of the dangers of filing a Tax Court petition is that the filing places the case in the hands of a Chief Counsel attorney who may notice mistakes on the return that the auditors did not notice.  While the Independent Office of Appeals has a policy of not raising new issues which would increase the amount of the deficiency, the Office of Chief Counsel does not have such a policy and regularly seeks increased deficiencies if it identifies a mistake.  In the Tax Court case the IRS can seek an increased deficiency.  For this reason, before filing a petition you must think about the possible downsides as well as the upsides. 

While the proposed stipulated decision would not typically discuss the reason for an increased deficiency, this proposed stipulated decision clearly creates an increased deficiency.  The Court notes the increase but strikes the document because the IRS never asked for the increase.  The IRS needed to ask for the increase in the answer or in an amendment to the answer if it wanted to recover an amount in excess of the deficiency listed in the notice of deficiency.  I cannot see the answer without taking steps I am unwilling to do for purposes of this post, but I can see from the docket sheet that the IRS did not file an amendment to the answer.  I assume that in the answer it so quickly filed in this case it did not seek to recover additional amounts of tax above the amounts listed in the notice of deficiency.

The Court also knows that because Ms. Gaddie is pro se she may not have an appreciation for what the IRS should do if it wants to obtain an increase in the deficiency it set forth in the notice of deficiency.  Striking the proposed stipulated decision now places the IRS in a position of filing a new document seeking a decision in an amount equal to or less than the amount in the notice of deficiency or filing a motion seeking permission to amend its answer.  In the motion it will need to explain the reason for the increased deficiency and Ms. Gaddie will have the opportunity to agree or oppose the motion.  The Court will have the opportunity to know that Ms. Gaddie understands the increased amount and the Court will have the ability to satisfy itself that the amount listed in the proposed stipulated decision is not a typo or mistake of another kind.

It’s great that the Court looks out for these types of mistakes.  The order here provides a lesson to the Chief Counsel docket attorney on how to obtain an increased deficiency and the care with which a stipulated decision must be drafted.  We get the opportunity to observe what appears to be a blooper and to be thankful for the care and time the Court devotes to making sure that cases before it end correctly.

A Checklist for Approval of Stipulated Decisions

We welcome back Commenter in Chief Bob Kamman who has been looking at Tax Court orders returning (bouncing) decision documents to the parties. Today, Bob looks at orders from eight days in November.  I will follow up in the coming days with a more detailed discussion of some of the orders.  You will be struck by how many mistakes the parties make in submitting decision documents.  Because these documents are generally prepared by Chief Counsel attorneys and because so many taxpayers are pro se, the post suggests additional training is needed for the Chief Counsel attorneys.

This post addresses orders regarding stipulated decisions, but we want to note that this morning the Tax Court has already begun issuing what will be a deluge of orders dismissing the approximately 400 cases being held in abeyance pending the outcome in the Hallmark case decided yesterday.  A team will be carefully reviewing each order and taking steps to protect the interest of petitioners with viable equitable tolling arguments.  Keith

You have avoided the hazards of further litigation by agreeing to a settlement with IRS in a Tax Court case. Now comes the final step of what should be easy but seems difficult: getting the stipulated decision past the eagle eyes of the judge who must sign it. Have rejections of these become more frequent this year? Has the quality of Chief Counsel paperwork diminished? Does this have something to do with the Tax Court changing the top line on its orders from 12-point Times New Roman to 20-point Gothic-style Archive Black Title, similar to the mastheads of the Washington Post and New York Times?


My guess is that the judges have a checklist, but Chief Counsel does not. Petitioners, represented or not, can assist the Court by learning from the mistakes of others. The following are from orders issued in the eight business days between November 14 and November 23, 2022. Petitioner surname and docket number are shown. All of them order that “the Proposed Stipulated Decision is hereby deemed stricken from the Court’s record in this case.” Unless otherwise indicated, the order came from Chief Judge Kerrigan.

Gaddie, Docket No. 12604-22: On November 21, 2022, the parties filed a Proposed Stipulated Decision for the Court’s consideration. However the deficiency proposed therein for the 2018 taxable year, $5,173.00, is more than the deficiency determined for that year in the Notice of Deficiency, $3,449.00. Respondent did not assert an increased deficiency in the Answer and nothing below the line in the Proposed Stipulated Decision accounts for the increase. Accordingly, the Court is unable to process the parties’ Proposed Stipulated Decision.

Shoemaker, 1793-22: On November 22, 2022, the Court received from the parties in the above docketed matter a Proposed Stipulated Decision resolving this litigation. That decision was premised on a Settlement Stipulation filed the same date purportedly establishing an overpayment for the underlying 2020 taxable year. However, review shows that the Settlement Stipulation fails to attach the Statement of Account referenced therein reflecting such overpayment. (Similarly, Dudeck in 29676-21S, noting that this is Form 3623; and Lockwood, 2379-22S, both Judge Leyden. )

Sletten, 29431-21 (Judge Copeland): On November 9, 2022, the parties filed with the Court a Proposed Stipulated Decision (Index No. 9). Upon review of the Proposed Stipulated Decision, it was discovered that there was an incorrect docket number listed on the signature page. On November 18, 2022, the parties filed with the Court a corrected Proposed Stipulated Decision (Index No. 10).

Henderson, 35625-21S (Judge Landy): This case is scheduled for trial at the session of the Court to commence at Dallas, Texas on December 5, 2022. On November 16, 2022, the parties filed a Proposed Stipulated Decision (Doc. 11) which contained extraneous documents. The Court is therefore unable to process the parties’ Proposed Stipulated Decision.

Ordonez-Haggard, 1088-22S (Judge Choi): On November 18, 2022, the parties filed a Proposed Stipulated Decision document (index # 7). Upon review it was seen that on in [sic] the second paragraph indicating there is a penalty due from petitioner, the taxable year listed is 2018 instead of the taxable year at issue, 2019. Therefore, the Proposed Stipulated Decision document is erroneous, and we will strike it and instruct the parties to file a corrected one.

Kostelac, 9711-15 (Judge Paris): On October 28, 2022, docket entry 82, the parties filed a Proposed Stipulated Decision. The document had several inconsistencies, making the Stipulated Decision incorrect. Therefore, the Court will strike this document. On November 16, 2022, docket entry 83, the parties again filed a Stipulated Decision. This decision document appears to be correct, and the Court will accept and enter this Decision. On November 18, 2022, docket entry 84, due to an inadvertent clerical, the Court issued an Order to strike the Proposed Stipulated Decision document, filed October 28, 2022, docket entry 83. The Order which was intended for the case at Docket No. 9710-15, but instead was inadvertently filed in this Docket No., 9711-15. Therefore, the Court will strike the November 18, 2022, Order from the Court’s record for the case at Docket No. 9711-15.

Strickland, 19121-21S (Judge Landy): On November 18, 2022, the parties filed a Proposed Stipulated Decision (Doc. 17) which did not address the accuracy-related penalty pursuant to I.R.C. § 6662(a). The Court is therefore unable to process the parties’ Proposed Stipulated Decision.

Niedermayer,36207-21S (Judge Leyden): On November 18, 2022, the parties filed a Proposed Stipulated Decision. Upon review, it appears that the parties attached both the decision and the settlement stipulation in one document. Thus, it is an improper filing because the Settlement Stipulation and the Proposed Stipulated Decision shall be filed separately.

Rios, 8775-22S (Judge Landy): This case is calendared for trial at the Court’s Miami, Florida Trial Session, scheduled to commence on February 27, 2023. On November 10, 2022, the parties filed a Proposed Stipulated Decision (Doc. 8) which does not address the addition to tax pursuant to I.R.C. § 6651(a)(3). The Court is therefore unable to process the parties’ Proposed Stipulated Decision.

Yoozbashizadeh, 25837-21S (Judge Choi): This case was calendared for trial at the Court’s Los Angeles, California trial session, which was scheduled to begin November 14, 2022. On November 14, 2022, this case was called. There was no appearance by nor anyone on behalf of petitioner. Respondent’s Counsel appeared and was heard. At that time respondent informed the Court that on November 10, 2022, a Proposed Stipulated Decision (index #14) had been electronically filed with the Court. The Court then informed respondent that petitioner’s signature was typed and that an original signature was needed. Respondent agreed, therefore the Proposed Stipulated Decision filed by the parties on November 10, 2022, (index #14) is erroneous and we will strike it.

Stuhlman, 6504-20S (Judge Nega): This case was calendared for trial at the session of the Court conducted in person on Tuesday, September 6, 2022, in Fresno, California. On July 10, 2020, petitioner filed the petition commencing this case. In that petition, petitioner requested that the Court proceed with this case under the Court’s small tax case procedures. On November 16, 2022, the parties filed a Proposed Stipulated Decision. The caption of that decision reflects the correct docket number associated with this case but failed to include the “S” designation. (Similarly, Burke, 31804-21S, Judge Leyden.)

McBride, 34784-21S (Judge Copeland): On August 31, 2022, the parties filed with the Court a Proposed Stipulated Decision (Index No. 10). Upon the Court’s review, an error was noticed. The Proposed Stipulated Decision stated that there was no penalty for taxable year 2018 under I.R.C. Section 6651(a)(2) and should have stated that there was no penalty for taxable year 2018 under I.R.C. Section 6651(a)(1). On November 16, 2022, the parties filed with the Court a corrected Proposed Stipulated Decision (Index No. 13).

Martin,7427-22: By Order served August 26, 2022, the Court directed petitioner to pay the Court’s $60.00 filing fee on or before September 23, 2022. To date, the Court’s filing fee in this case remains unpaid. Upon due consideration and for cause, it is ORDERED that the parties’ Proposed Stipulated Decision, filed August 25, 2022, is hereby deemed stricken from the Court’s record in this case.

Loper, 2492-22: On November 16, 2022, the parties filed a Joint Proposed Stipulated Decision. Upon review of the proposed decision, the Court notes that petitioners signed the proposed decision using a cursive font. The Court does not accept for electronic filing a stipulated decision that contains a stylized signature such as one using a cursive font. See Rules 23(a)(3); Frequently Asked Questions About DAWSON.

Leo, 32671-21S (Judge Landy): On October 26, 2022, the parties filed a settlement stipulation and proposed stipulated decision at Doc. 8 and 9. Upon review of the settlement stipulation and proposed stipulated decision, the Court was concerned whether the notice of deficiency (notice) for the taxable year at issue underlying this proceeding was valid. The settlement stipulation suggested that the deficiency was paid prior to the issuance of the notice. By Order served October 27, 2022, the Court directed respondent to file either: (1) a report addressing and establishing the validity of the notice of deficiency for 2019, or (2) an appropriate jurisdictional motion. Respondent filed a response on November 9, 2022, attaching a complete copy of the notice. On November 14, 2022, respondent filed a Motion to Dismiss for Lack of Jurisdiction on the ground that the deficiency was paid prior to the issuance of the notice. Respondent’s motion stated that petitioners do not object to the Court granting this motion, and petitioners confirmed this statement on November 14 and 17, 2022.

Deverter, 8675-22: On November 10, 2022, the parties filed a proposed stipulated decision for the Court’s consideration. A review of that document discloses that it does not address a penalty under I.R.C. section 6662(a) that is set forth in the notice of deficiency on which this case is based and includes additions to tax under I.R.C. sections 6651(a)(1) and (a)(2) that do not appear to have been set forth in the notice of deficiency.

Wong, 20602-21 (Judge Foley): Upon review of the record, there are several typographical errors on the Proposed Stipulated Decision, filed November 10, 2022. Further, discrepancies exist between the Stipulation of Settlement, filed November 10, 2022, and the Proposed Stipulated Decision.

Conrad, 17750-21: On November 10, 2022, the Court received from the parties in the above docketed matter a Proposed Stipulated Decision purporting to resolve this litigation. However, review reveals multiple shortcomings. First, there is a typographical error in one of the references to the 2018 taxable year. Second, the decision appears to deal with a penalty under section 6662(b)(1) of the Internal Revenue Code, whereas the underlying notice of deficiency involves section 6662(b)(2), I.R.C. Third, the signature block does not reflect the current address of record for petitioner.

Brevil, 29919-22: On November 3, 2022, the parties filed for the Court’s consideration a proposed stipulated decision. By Order served November 7, 2022, the Court removed the small tax case designation and amended the docket number by deleting the “S”. On November 10, 2022, the parties filed a revised proposed stipulated decision.

Gallegos, 1177-22S: On November 15, 2022, the parties electronically filed a Joint Proposed Stipulated Decision and a Joint Settlement Stipulation. Upon review of the proposed stipulated decision, the Court notes that the overpayment amount is incorrect.

Ritchings, 4261-22S: On November 9, 2022, the parties filed a Proposed Stipulated Decision (Doc. 15) which states a deficiency for taxable year 2018, not 2019, and the decision does not address the accuracy-related penalty, pursuant to I.R.C. § 6662.

Licorish, 3524-22S: On November 10, 2022, the parties filed a Settlement Stipulation and a revised Proposed Stipulated Decision. However, upon review of the former, the Court notes that the Settlement Stipulation appears to be a duplicate of the Settlement Stipulation filed October 11, 2022, at Docket Index No. 5. Upon review of the latter, the Court notes that the proposed decision document references an I.R.C. section 6662(a) penalty. Conversely, the underlying Notice of Deficiency upon which this case is based does not. Moreover, the Court notes that the proposed decision document does not address petitioner’s liability, if any, for the I.R.C. section 6676 penalty determined in the Notice of Deficiency.

Vailes, 27998-21 (Judge Ashford): On November 10, 2022, the parties filed a Proposed Stipulated Decision. However, on the same day, the Court entered and served on the parties an Order and Decision that resolved all issues in this case (reflecting the same terms as the Proposed Stipulated Decision) and this case was closed.

And so forth. These errors should be caught by attorneys or paralegals before documents are filed. I assume that Tax Court judges have clerks or administrative staff to review filings for obvious mistakes, but it wastes judicial resources when rejections must be signed by a Presidential appointee whose confirmation by the Senate was not based on proofreading skills.

I looked at a similar period during 2021. There were about as many “bounced” stipulated decisions, but often the reasons were different. Then-Chief Judge Foley caught cases, for example, where the stipulation and the decision were the same document, rather than separate ones as required. Or the “S” designation was missing from captions. Or the Notice of Deficiency was not filed, or its contents varied from the stipulation.

In the military, troops are sometimes ordered to “stand down,” taking a break from regular duties to address major operational concerns. Perhaps it is time for Chief Counsel to order a “stand down” for all personnel to review document preparation after a Tax Court case has settled.

Tax Court Issues Another 17-0 Ruling Regarding The Jurisdictional Nature Of Filing A Tax Court Petition

Today the Tax Court ruled in Hallmark v. Commissioner, 159 T.C. No. 6 (2022) that the time period for filing a petition in a deficiency case is jurisdictional.  The Court relies heavily on history and on 7459.  We will write more as we digest the full opinion but once again the Court does not find Supreme Court case law regarding jurisdiction, including the recent decision in Boechler, to deter it from the conclusion that the time period for filing a petition is jurisdictional.  The decision will no doubt set off litigation in the circuit courts around the country and may lead again to a decision by the Supreme Court which last time reversed the 17-0 decision of the Tax Court in Guralnik v. Commissioner with a 9-0 decision in Boechler.

This Giving Tuesday, Please Support The Work Of The LITC Support Center

Today Nina follows up on yesterday’s post discussing the work of the Center For Taxpayer Rights and the considerable accomplishments of the past three years. Today’s post highlights an exciting project, the LITC Support Center. The LITC Support Center fills a needed gap that will ensure greater access to justice for all taxpayers.  Please join me and my fellow board members Keith Fogg, Liz Atkinson, and Alice Abreu in supporting this project and become a charter sponsor. As Nina notes, the board will match up to $8,000 of donations received during the rest of 2022.  Les

As I discussed in yesterday’s post, 2022 was a banner year for the Center for Taxpayer Rights (CTR).  We received operational support from the Rockefeller and Schusterman Family Foundations and a significant grant from the Robert Woods Johnson Foundation to conduct a fascinating two-year study on Improving the IRS’s administration of refundable tax credits and other tax-code benefits for economically excluded populations (more about that in a later post).  Our amicus briefs have been influential in several truly significant decisions, including in Bittner v. U.S., where it was mentioned twice during oral arguments.  The International Conference on Taxpayer Rights continues to bring together administrators, professionals, and academics from around the world to discuss important issues affecting taxpayer rights.  The Reimagining Tax Administration workshops (here and here) have moved into the arena of state taxpayer rights, and we have launched a new Tax Chat! series on the Inflation Reduction Act and Transforming the IRS.  In a later post I will be sharing our plans for 2023, but with this post we are announcing a major fundraising campaign for the LITC Support Center, a project of the Center for Taxpayer Rights that is dedicated to supporting Low Income Taxpayer Clinics and increasing access to justice for low income taxpayers by connecting volunteers with Clinics and providing resources to Clinics.  You can give to the Support Center via CTR’s website here.


The LITC Support Center’s mission and activities

The LITC Support Center is designed to function as the national center for tax clinics and volunteers.  The Support Center’s role is similar to organizations such as the National Consumer Law Center.  That is, the Support Center provides technical support, training, and litigation strategy to Low Income Taxpayer Clinic personnel and volunteers.  The Support Center has developed and maintains LITC Connect, the “dating app” whereby LITCs and tax professionals nationwide who are willing to volunteer can be matched to provide needed assistance to low income taxpayers and LITCs.  The Support Center also focuses on impact litigation and contributes to CTR’s amicus curiae briefs in cases with broad impact for low income taxpayers or taxpayer rights in general. 

Anna Gooch, the ABA Tax Section Public Interest Fellow, is at the heart of the Support Center’s activities.  Anna developed and coordinated our survey of state tax practices and taxpayer rights and helped plan our Reimagining Tax Administration series on that topic; in 2023, she will be writing a final report with recommendations for best practices.   Anna also works on amicus briefs, drafts comments (see our recent comments on the Arkansas’ new Tax Appeals Commission), works with the ABA Tax Section on Tax Court Settlement Days (volunteers who sign up for LITC Connect will be covered by CTR’s professional liability policy), and identifies and develops training programs for clinicians and volunteers.  Anna recently coordinated the writing, preparation, and submission of CTR’s amicus brief in Thomas v. Commissioner, dealing with the administrative record rule of IRC § 6015(e)(7).

LITC Connect: the “dating app” for clinics and tax professional volunteers

The LITC Support Center is the home of LITC Connect, which CTR developed and beta-launched in 2022.  We really were in test mode, and this fall we started on the second phase of development, in which we are making improvements to the user features of the app as well as creating profiles for Volunteer Income Tax Assistance (VITA) sites and nonprofits in areas underserved (or unserved) by LITCs.  By getting referrals from VITA sites and entities such as tribal governments, we can expand access to representation for many low income taxpayers.  We’ll be launching this referral component in pilot mode during the 2023 filing season; if things go well, we will expand participation later in 2023.

In 2022, the Center hired Dulce Mascorro as our bilingual pro bono/training coordinator.  Among many other things, Dulce’s duties include recruiting volunteers nationwide to sign up for LITC Connect, as well as getting all of the federally-funded LITCs signed up to participate in LITC Connect.  In addition, after we made a FOIA request for the contact information for clinic directors and qualified tax experts, Dulce has been personally reaching out to the clinicians and encouraging them join our weekly Litigation Strategy calls.  As a result, we’ve added 36 clinicians to our weekly calls.  Dulce also signed up 36 additional LITCs to receive the in-kind donation of a Tax Notes subscription, bringing the total to 100 LITCs receiving this donation, amounting to over $200,000 annually in total matching funds for the LITCs.  (Thank you, Tax Analysts!!!) Not to rest on these successes, Dulce created a master list of 951 state, local, and law school bar associations, and 468 CPA and Enrolled Agent groups.  She has been working her way through the list, emailing them all and asking to speak with them about LITC Connect, offering to submit newsletter articles, etc.

Why the fundraising campaign for the LITC Support Center?

For next year, we need to raise $100,000 toward an additional staff attorney salary and further development of LITC Connect, to create an online repository of training programs and materials for clinicians and volunteers representing low income taxpayers.  The Support Center fills a unique role – it is independent of the LITC federal funding program.  The Support Center’s mission is to advocate on behalf of the clinics as well as low income taxpayers; we further access to representation of low income taxpayers by increasing pro bono opportunities nationwide.  Coordination of litigation strategy, development of training, undertaking amicus briefs, and high impact litigation are profoundly important and necessary activities, but they are difficult if not impossible for individual LITCs to undertake, given the press of day-to-day casework.  That is where the LITC Support Center fills the void.

The Board is challenging tax professionals and their firms to become charter sponsors in this effort.  The Board has pledged matching funds up to $8,000, and with the support of you and your firms, we can make the necessary software improvements to LITC Connect and support our small but powerful staff in 2023.  Your support also enables us to develop training materials and coordinate national litigation strategy at a time when case law in the area of taxpayer rights is developing rapidly.

We need tax professionals and tax firms to help us in this important work.  Won’t you please give today?  And if your firm is interested in becoming a charter sponsor of the LITC Support Center, please contact me or Dulce and we will be happy to give you more information.  And on behalf of CTR’s board of directors, to those of you who have given in the past, we are so grateful for your generous support.

The Facebook Pixel and Unauthorized Use and Disclosure of Tax Return and Tax Return Information

The Facebook Pixel and Unauthorized Use and Disclosure of Tax Return and Tax Return Information

Last week The Markup, an online investigative journalism site, published a report about the presence of a Facebook (or Meta) pixel on various tax software websites that discloses taxpayer identity and financial information, gathered in the course of preparing and filing tax returns online, to Facebook.  The data includes “not only information like names and email addresses but often even more detailed information, including data on users’ income, filing status, refund amounts, and dependents’ college scholarship amounts.” For example, “[o]nce a tax return was filled out on taxact.com, information including an individual’s adjusted gross income, federal refund amount, and number of dependents was sent to Meta via the Meta Pixel.”  According to The Markup, the H&R Block program sent data regarding health savings account and dependent college tuition grants and expenses.

I note at the outset that the implications of this investigative report are far-reaching.  Not only do tens of millions of US taxpayers use online tax preparation software each year to file their returns, but the IRS itself directs taxpayers, via Free File, to online software products implicated in the investigation.  Further, the IRS provides Tax Slayer, one of the software packages embedding the pixel, to Volunteer Income Tax Assistance (VITA) sites.  These latter two tax preparation services – Free File and VITA – are directed toward low income, elderly, and disabled taxpayers.

According to The Markup,

When a website uses the code, data on the visitor is sent back to Facebook and can be used by the business or organization to find an audience for its ads. Facebook also retains that data and can use it for its own advertising purposes—although it’s not always clear what those purposes are. 

So now we have a new investigation that shows the Meta Pixel embedded in tax software, with evidence that return and return information has been disclosed to Facebook and can be used by the companies and Facebook for …. what and under what authorization?  The words “return,” “return information,” “use,” “disclosure,” and “unauthorized” all implicate Internal Revenue Code sections 6103(c), 7216, 6713, and 7431(b).  Let’s try to work through this – stick with me, it is labyrinthine.

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Section 6103 and confidentiality of tax returns and return information

As anyone who works in tax should know, IRC § 6103 provides that tax returns and return information shall be confidential, and shall not be disclosed except as authorized by Title 26 (i.e., the Internal Revenue Code).  “Return” and “return information” are defined very broadly, with the latter term including the taxpayer’s identity.  One of the exceptions for disclosure is contained in § 6103(c), which authorizes the Secretary to prescribe regulations to allow a taxpayer to designate a third party to receive return or return information.  The IRS has established fairly restrictive procedures for taxpayer consent, especially after Congress stepped in with the Taxpayer First Act and required even more protection.  (You can read my legislative recommendation which was largely adopted by Congress here at page 554.)  Section 2202(a) of the Taxpayer First Act amended § 6103(c) by adding the following sentence:

Persons designated by the taxpayer under this subsection to receive return information shall not use the information for any purpose other than the express purpose for which consent was granted and shall not disclose return information to any other person without the express permission of, or request by, the taxpayer.

Unauthorized use or disclosure of tax return or return information by a tax return preparer

Persons, including software packages, that assist in preparing federal tax returns receive some of the most sensitive financial information a taxpayer possesses.  So what happens if a tax return preparer uses or discloses return or return information without the consent of the taxpayer?  One place we can turn to is IRC § 7216, a criminal statute that demonstrates Congress’ clear concern about the potential for misuse and abuse of taxpayers’ sensitive financial information by return preparers.  Section 7216 applies to

“[a]ny person who is engaged in the business of preparing, or providing services in connection with the preparation of, returns of the tax imposed by chapter 1, or any person who for compensation prepares any such return for any other person, and who knowingly or recklessly—

(1) discloses any information furnished to him for, or in connection with, the preparation of any such return, or

(2) uses any such information for any purpose other than to prepare, or assist in preparing, any such return

Section 7216 carves out some limited exceptions to this broad protection and also authorizes the Secretary to create more exceptions via regulation.  Section 6713 is a parallel civil penalty, however the regulatory authority arises in the criminal statute.  (In 2007, I made a legislative recommendation to Congress to move the regulatory authority into the civil section (see page 547 here), a recommendation that remains in the National Taxpayer Advocate’s Purple Book today.)

In 2005 and 2006, as National Taxpayer Advocate, I and TAS attorney-advisors worked closely with Treasury and Chief Counsel in drafting and promulgating regulations implementing § 7216.  We all met with many groups representing those “engaged in the business of preparing” etc. tax returns. The final regulations were carefully crafted to ensure the greatest protection of tax return and return information while not hamstringing legitimate business practices of return preparers.  We were concerned about the use of taxpayer information to sell taxpayers mortgage refinancing or various other services or products not related to tax return preparation.  And what with the rise of identity theft and international hacking, we were also concerned about the increasing use of offshore preparers and the transfer of sensitive taxpayer data like social security numbers offshore.  You see all of these concerns directly addressed in the final regulations.

Treasury Regulations promulgated under IRC § 7216

Treasury Regulation 301.7216-1 broadly defines a tax return preparer to include “[a]ny person who is engaged in the business of providing auxiliary services in connection with the preparation of tax returns, including a person who develops software that is used to prepare or file a tax return and any Authorized IRS e-file Provider…” [Emphasis added.]

The term “tax return information” is also defined broadly in the regulation to provide the taxpayer maximum protection.  Example 1 of 301.7216-1 demonstrates the broad scope protection granted in the interaction between the return preparer and tax return information definitions.  Note that under the regulation, information provided in the course of registering of one’s purchase of tax preparation software is tax return information.

Example 1.

Taxpayer A purchases computer software designed to assist with the preparation and filing of her income tax return. When A loads the software onto her computer, it prompts her to register her purchase of the software. In this situation, the software provider is a tax return preparer under paragraph (b)(2)(i)(B) of this section and the information that A provides to register her purchase is tax return information because she is providing it in connection with the preparation of a tax return.

Further key to our analysis of this situation is the regulation’s definition of “disclosure:”

Disclosure. The term disclosure means the act of making tax return information known to any person in any manner whatever. To the extent that a taxpayer’s use of a hyperlink results in the transmission of tax return information, this transmission of tax return information is a disclosure by the tax return preparer  subject to penalty under section 7216 if not authorized by regulation.

When would a disclosure by a tax return preparer be authorized by regulation and thus not subject to criminal penalty under IRC § 7216?  Regulation 301-7216-2 sets forth the instances where disclosure or use can be made by a return preparer in the course of preparing a tax return without the consent of the taxpayer.  And Regulation 301-7216-3 describes when disclosure or use is permitted only with the taxpayer’s consent.

Specifically, such use or disclosure may occur only when the taxpayer has provided written consent that is knowing and voluntary.  “[C]onditioning the provision of any services on the taxpayer’s furnishing consent will make the consent involuntary, and the consent will not satisfy the requirements of this section.”   (There’s an exception to this rule where the preparer wants to share with another preparer for purposes of preparing the return or for ancillary services.  This exception again demonstrates the effort in the regulation to allow for legitimate and reasonable tax preparation practices.)

§301.7216-3(a)(3) lays out the requirements that must be satisfied for a consent to be valid, including:

  • The consent must specify the tax return information to be disclosed or used;
  • The consent must identify the specific recipient or recipients to which the information will be disclosed;
  • The consent must identify the particular use authorized;
  • The consent must be signed and dated; and
  • The consent may specify a duration but if no duration is specified, the consent is limited to one year from the date of signing.

The regulation also requires one consent document for uses, and a separate consent document for disclosure.  Where such documents seek consent for multiple uses or multiple disclosures, they must list each such use or consent specifically.

With respect to the Form 1040 series of tax returns, the regulation authorizes the Secretary to issue additional guidance regarding the form of consent, which has been done in Revenue Procedure 2013-14.  This notice prescribes the exact look of the consent – the format, type size, etc. both on paper and in the virtual (software) environment, requiring a single page or separate window, and requiring specific language to alert the taxpayer about the risks of consent to use and disclosure, the voluntary nature of the consent, and the duration of the consent.  Further, for virtual consents, “[a]ll of the text placed by the preparer on each screen must pertain solely to the disclosure or use of tax return information authorized by the consent, except for computer navigation tools.”  Finally, the Revenue Procedure requires all consents to include information about contacting the Treasury Inspector General for Tax Administration (TIGTA).

Where does the Meta Pixel fit into all this?

Given this review of the requirements of § 7216 for use and disclosure of tax return/information by tax return preparers, including tax software companies, where does the Meta pixel come in? 

First of all, we know that § 7216 applies from the moment the taxpayer enters their name in to register the software – that is tax return and tax return information.  Hypothetically, it seems to me an alleged § 7216 violation occurs if the Meta Pixel captures that data and sends it to Facebook before a separate pop-up screen appears requesting the taxpayer’s consent to send covered data to Facebook (the disclosure consent).  A second violation allegedly occurs if the data is sent without a separate pop-up outlining how, specifically, Facebook and the tax software propose to use the data disclosed (the use consent).  A further violation allegedly occurs if those consents don’t include the mandatory language.  Under the regulations, none of these alleged violations can be cured by getting a consent after the disclosure or use, or adding the mandatory language later. 

Tax Software companies know about § 7216 because they commented on and participated in discussions about the regulations.  They have developed pop-ups to obtain taxpayer consent for various uses or disclosures, and their legal departments most assuredly have reviewed them for compliance with § 7216.  But do the legal departments even know about the embedding of the Mega Pixel?  The Department of Education did not know it was embedded in the FAFSA.

As noted earlier, the IRS makes Tax Slayer, one of the tax software programs implicated in The Markup’s investigation, available for free to Volunteer Income Tax Assistance sites.  I think it would be really interesting to see if the IRS-provided software has the Mega pixel embedded in it, or if the pixel must be activated by each VITA site.  I’ve asked folks to check with any VITA sites they work with.  In fact, the privacy statement on taxslayerpro.com says:

Similarly, our website (www.taxslayerpro.com) may include social media features such as the Facebook Like button (and widgets such as the Share button or interactive miniprograms that run on our site). These social media features may collect your IP address and which page you are visiting on our site, and may set a cookie to enable the feature to function properly. Social media features and widgets are either hosted directly on our site or by a third party. Your interactions with a feature or widget is governed by the privacy policy of the company providing it. For more information about cookies and to opt out, click here.

It is interesting that TaxSlayer seems to indicate that folks have to opt in to the Facebook information sharing on their privacy page.   https://www.taxslayerpro.com/company/privacy.  Although opting in could be consent for privacy purposes, for 7216 purposes the consent (“share-button or interactive miniprograms”) would have to meet the requirements of 7216, be on a separate screen, and have the mandatory revenue procedure language.  You can’t bury the information in a privacy statement.

So, if there is a violation of Section 7216, and tax return information has been disclosed or used by a return preparer without the taxpayer’s consent, what avenue does the taxpayer have for relief other than waiting for the Department of Justice to bring an action against the software company?  Well, there is always IRC § 7431(a)(2), which authorizes a civil action for damages in the US District Court against “any person” who knowingly or by reason of negligence inspects or discloses any return or return information with respect to that taxpayer in violation of IRC § 6103.

Unfortunately, it appears that all of the software products involved have mandatory arbitration clauses in the “terms of use” boilerplate language that has to be agreed to before the taxpayer can begin to use the product.  Thus, as a condition of using the product, the software companies are requiring taxpayers to give up the very means Congress granted them to protect their sensitive tax returns and return information from unlawful use and disclosure.  

Congress and the IRS need to act on this matter.  At the very least, the IRS should prohibit all who are considered a “tax return preparer” under IRC § 7216 from requiring mandatory arbitration with respect to any claim that may be brought pursuant to IRC § 7431(a)(2).  Taxpayers should not be forced to give up important taxpayer rights protections and remedies just for the privilege of preparing and filing their taxes.

And certainly TIGTA and the Department of Justice should be investigating what happened here, including the IRS’s apparently lax oversight of tax preparation software companies’ use of the pixel.

Stay tuned.  This is clearly a developing story.  We at PT will be following it closely.

A Successful Year For The Center for Taxpayer Rights In Our Work To Protect Taxpayer Rights

Today, Nina Olson brings us an update on the activities of the Center for Taxpayer Rights over the past year.  As the President of the board, I could not be prouder of the accomplishments of the Center in its first three years of operation.  I hope that after reading about the actions the Center has taken and plans to take, you will join board members Alice Abreu, Liz Atkinson, Les Book and me in supporting the work of the center in support of taxpayer rights in the United States and beyond.  Keith

It is hard to believe the Center for Taxpayer Rights (CTR) has only been in existence for a little over three years.  So much has happened since August 1, 2019, when CTR began operations.  The pandemic demonstrated the importance of the tax code and the Internal Revenue Service as a vehicle for ensuring the welfare and health of the nation’s residents, in case folks had missed that point in the preceding three decades.  It also showed how important Low Income Taxpayer Clinics (LITCs) are for ensuring that those with the least means can receive the benefits to which they are entitled and enjoy taxpayer rights protections.  The pandemic also helped CTR achieve a personal goal I set in founding the nonprofit – that we would expand the base of funding for advocacy on low income taxpayer issues beyond the legal/tax community.

Today, the Center is honored to receive operational funding from the Rockefeller Foundation and the Schusterman Family Foundation, as well as dedicated project funding from the ABA Tax Section and the Robert Woods Johnson Foundation (more on this in future posts).  This funding has enabled us to expand our staff to include our Tax Section Public Service Fellow, Anna Gooch, and our bilingual Pro Bono/Training Coordinator, Dulce Mascorro.  

To build on this success, on Giving Tuesday, and into 2023, CTR’s board of directors is launching a campaign to raise funds specifically for the LITC Support Center, a project of CTR.  You can give to the Support Center here.  In tomorrow’s post I will describe the work of the Support Center and explain why we are launching this campaign, but for now I’d like to share with you some of CTR’s accomplishments over the last year.

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Amicus Briefs

In 2021, on behalf of CTR, the Harvard Federal Tax Clinic filed an amicus brief inBoechler v. Commissioner, which PT has covered extensively.  On April 21, 2022, the US Supreme Court unanimously ruled in favor of the taxpayer, turning traditional “wisdom” about Tax Court filing deadlines on its proverbial head.  Since that time, the Harvard clinic and CTR have filed amicus briefs in Boechler progeny cases, notably Culp v. Commissioner and Frutiger v. Commissioner, arguing that Boechler’s reasoning should apply to deficiency and innocent spouse cases.

In 2022, CTR, represented pro bono by the Moore Law Firm, filed an amicus in Bittner v. United States, which is also before the US Supreme Court. (As noted in the brief, I am recused from participating in this case, so CTR board members Alice Abreu and Liz Atkinson assisted in the brief.)  During oral arguments, CTR’s brief was cited twice in support of the petitioner, which made us all very proud.

Also in 2022, CTR and a number of other clinics filed an amicus with the Tax Court in Thomas v. Commissioner, which focuses on the interpretation of the “administrative record” rule of IRC  6015(e)(7), enacted in the Taxpayer First Act.

Reimagining Tax Administration: State Tax Practices & Taxpayer Rights 

For the last year, with funding from Rockefeller and the ABA Tax Section fellowship, CTR has been conducting a nationwide survey of state tax practices and taxpayer rights.  Volunteers from the ABA Tax Section and LITCs, among others, have answered over 200 questions about state tax practices dealing with filing, tax credits, audits, appeals, adjudication, collection enforcement and alternatives, and taxpayer advocates and state funding of LITCs.  The project ultimately will result in a report with recommendations of best practices.

While the survey work is ongoing, this fall we held a series of four workshops highlighting the practices and challenges we have identified so far.  You can access the workshop videos and materials here – they really are fascinating, and we have a great line up of panelists.  When it comes to the protection of taxpayer rights, the diversity of practices among the states is really something we should all be concerned about.

International Conference on Taxpayer Rights: 

In May 2022, over three days, we held our 7th International Conference on Taxpayer Rights, as a virtual program.  The theme of the conference was Tax Collection & Taxpayer Rights in the Post-COVID World.  For 2023, we are planning the 8th ICTR, which will be in Santiago, Chile and also livestreamed.  The upcoming conference’s theme is Access to Justice: Judicial Review & Alternative Dispute Resolution.  The conference will be held on 24 to 26 May, 2023; registration will open in late January.

Tax Chat! 

In November, we brought back our popular Tax Chats!, which are free online conversations with interesting people from around the world who are working in the field of taxation.  The Tax Chat! on November 14th covered the Inflation Reduction Act’s appropriation of $15 million for the IRS to study a direct tax preparation and e-filing application.  (You can watch past Tax Chats! here; the E-filing video will be posted shortly.)

The Direct E-filing video is the inaugural program in a Tax Chat! series we will continue into 2023 about the Inflation Reduction Act and the IRS appropriation of $80 billion over the next ten years.  We plan to explore how the IRS could transform itself with that funding, hearing from tax administrators, tax and other professionals, and researchers from US and international tax systems as well as the private and public sectors.  Stay tuned – we think this will be a fascinating series.

In December I will post a blog with all we have planned for 2023 – I’ve previewed some highlights in this post regarding LITC Connect, the Tax Chat! series, and the International Conference on Taxpayer Rights. We also have planned a new Reimagining Tax Administration workshop series, two really exciting research studies, a tax education project in North Carolina public schools, and more.

But for now, we need your support for the LITC Support Center.  Won’t you please give today?  And if your firm is interested in becoming a charter sponsoring member, please contact me or Dulce Mascorro and we will be happy to give you more information.  And to those of you who have given in the past, we are so grateful for your generous support.

Tax Court To Consider IRS Procedure For Imposing Information Reporting Penalties

In Information Return Penalty Assessment Fight Coming to a Head [$] Andrew Velarde highlights a major tax procedure issue before the Tax Court. It concerns allegedly improper IRS procedures with respect to the assessment of penalties associated with the delinquent or erroneous filing of information returns. As Velarde notes, in Farhy v Commissioner, the IRS assessed significant penalties under Section 6038 stemming from the taxpayer’s failure to File 5471 “Information Return of U.S. Persons With Respect to Certain Foreign Corporations,” for his Belize foreign corporations. The stakes of the case are high, with the potential for upending the IRS’s longstanding practice for imposing civil penalties for the failure to file certain information based returns.

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Farhy, a CDP case, squarely focuses on whether the IRS was entitled to use its summary assessment procedures with respect to the taxpayer’s failure to file the required Form 5471 for a number of years. A side question in the case is whether in a CDP case the IRS’s assessment authority with respect to the penalty is part of the requirement that the court verify that the IRS followed all applicable laws or a challenge to the underlying liability. Liability challenges are not properly before the court if the taxpayer has had a prior opportunity to challenge the determination. The government in Farhy has conceded that the taxpayer did not have a prior opportunity to dispute the penalty so that allows the Tax Court to proceed to the substantive legal issue.

Back to the heart of the matter, and some context, simplified for purposes of this blog. The IRC provides that some tax penalties are subject to the deficiency procedures, requiring that the IRS assert the penalties in a stat notice or in pleadings in Tax Court for a case that is otherwise before the Tax Court. Other civil penalties are explicitly identified in the Code as “assessable penalties” provided in Subtitle F, Chapter 68, Subchapter B. These are found within §§ 6671-6725 and are not subject to the Code’s deficiency regime.  IRC 6665(a) provides a similar statutory hook for penalties found within Subchapter A of Chapter 68.

For penalties in Chapter 68 the IRS is entitled to use its summary assessment powers, meaning that the IRS can assess those penalties immediately upon receipt of the taxpayer’s return.

What makes this case interesting and important is that the Section 6038 penalty is not found within Chapter 68 and is also not (at least explicitly) subject to the deficiency procedures.

The taxpayer in Farhy asserts in its opening brief that for decades the IRS has been acting ultra vires by using its summary assessment powers when the proper course is to refer the 6038 penalties to the Department of Justice “for collection like other tax judgments.”  While Farhy involves an assessment with respect to Section 6038 and the failure to file Form 5471, as the brief notes the same issue presents itself with other penalties that are located outside Chapter 68, including:

  • Section 6038A: Information returns required for certain foreign-owned U.S. corporations (Form 5472); the associated penalty is in the text of section 6038A all in Chapter 61 all in Chapter 61 (Information and Returns (§§ 6001 to 6117);
  • Section 6038B: information returns required for certain transfers to foreign persons (Forms 926 and 8865); the associated penalty is in the text of section 6038B all in Chapter 61 (Information and Returns (§§ 6001 to 6117);
  • Section 6038C: Information returns required for certain foreign corporations engaged in U.S. business (Form 5472); the associated penalty is in the text of sections 6038C all in Chapter 61 (Information and Returns (§§ 6001 to 6117);
  • Section 6038D: Information returns regarding foreign financial assets (Form 8938); the associated penalty is in the text of section 6038D all in Chapter 61 (Information and Returns (§§ 6001 to 6117);

Prior to this case, a number of commentators and practitioners have written that collection of the Section 6038 penalty and similar non Chapter 68 penalties can only be accomplished via referral to the Justice Department and litigation. See for example Robert Horwitz, Can the IRS Assess or Collect Foreign Information Reporting Penalties? TAX NOTES TODAY (Jan. 31, 2019) 301-305. Others, including Frank Agostino and co-authors Phil Colasanto and Inhyuk Yoo, have concluded that the assessments are improper and have claimed that the Section 6038 penalty should be considered an “additional amount” under Section 6214(a) and subject to deficiency procedures. A nice summary of the critical commentary can be found on pages 123 and 124 of the 2020 NTA Annual Report to Congress; NTA Erin Collins, prior to her appointment, was one of the first to highlight the issue in a 2018 Tax Notes article she wrote with Garrett Hahn.

The argument that the collection of penalties is required to be accomplished via DOJ referral turns in large part on the placement of the information reporting penalties outside Chapter 68 of the Code. It seems that the key assumption for that argument is that immediately assessable penalties are limited to those explicitly identified in Chapter 68.

I confess to not having given the issue my full attention, in part because my assumption has been that absent a specific Congressional requirement the IRS has discretion to summarily assess and in effect use whatever process it chooses, subject to very weak procedural due process limitations that would allow for a taxpayer, following full payment, to bring a post payment refund suit. (As an aside: the procedural due process treatment of taxpayers is a separate issue and one which I have written about and discussed most recently here, where I presented on the issue at the 2021 Center for Taxpayer Rights International Conference on Taxpayer Rights; Keith has also discussed the procedural due process issue in tax penalties in Assessable Penalties Do Not Violate Due Process).

My prior statutory take on this issue is that the default, absent special Congressional direction, is the summary assessment procedure that IRS has been using. To be sure, Congress has occasionally spoken and required additional process prior to assessment. For example a century ago Congress injected the deficiency notice and pre-assessment review procedures, and in 1998 Congress (albeit sloppily) provided that no assessment for some Title 26 penalties is valid unless there was adequate written supervisory approval.

All of this focuses attention on Section 6201, which provides the IRS broad authority to assess taxes, providing that the IRS via delegation “is authorized and required to make the inquiries, determinations, and assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title…”

As Professor Bryan Camp shared with me via email, the wording of Section 6201 supports the Service view that it can use its summary assessment power with respect to the non-Chapter 68 information reporting penalties:

In looking at 6201, the word “including” is the important word to the analysis.  The parenthetical instructs us that the word “taxes” is to be broadly construed to mean liabilities other than taxes.  Examples of such liabilities are given in the parenthetical, but the word “including” tells us that what is listed in the parenthetical is not to be read as the exclusive set of liabilities that count as “taxes” within the scope of 6201. 

In its opening brief the government makes a similar argument:

The parenthetical reference in section 6201(a) to taxes “including . . . assessable penalties” includes the section 6038(b) penalty. As recently recognized by this Court, whether a penalty falls within the meaning of the term “taxes” as used in section 6201(a) is dependent on context. Grajales v. Commissioner, 156 T.C. 55, 61 (2021). Rather than limit the definition of “taxes,” the parenthetical reference in section 6201(a) includes “interest, additional amounts, additions to the tax, and assessable penalties,” which demonstrates that Congress intended to use “taxes” in an expansive sense rather than a narrow one. The modifier “all” preceding “taxes” also reflects that Congress intended to define the “taxes” to be interpreted under the broadest construction. The only limitation to respondent’s broad assessment authority under section 6201(a) is to limit that authority to assessments imposed under Title 26.

The dispute at issue highlights the labyrinth of the statutory authority to assess taxes and penalties. For example, Section 6202 addresses the process “mode or time for the assessment of any internal revenue tax (including interest, additional amounts, additions to the tax, and assessable penalties).” 6202 notes that the IRS “may” (but is not required) to establish a process for assessment if it is not otherwise mandated.

So IRS and Treasury could and should mandate additional procedural protections in connection with Section 6038 and similar penalties. Practitioners and the NTA have flagged the difficulties with the information penalty process, including what appears to be the IRS’s disregarding of apparent claims of reasonable cause and a high abatement rate for the penalties. These are serious problems that impinge on taxpayer rights and merit legislative attention. In fact the NTA has recommended that Congress extend deficiency procedures for these penalties, and others (including Keith), have highlighted how Congress needs to modify the Flora rule, which effectively keeps some taxpayers from ever getting the chance to get court review of potentially crippling penalties.

In any event, now that this issue is teed up in a case, we can expect to see the Tax Court’s take on what is looming to be one of the biggest issues in tax procedure and tax administration in 2023.

For those who want to dig deeper, the government and taxpayer opening briefs can be found here and here, and the response briefs can be found here and here [$$$$].