The Tax Court Has Updated Its Procedures for Non-Attorney Admission

I wrote a blog post a few years ago on non-attorney admission to the Tax Court that has become one of the most popular blog posts written on our site.  Because of the interest in the subject, I wanted to provide this short update because the Tax Court has recently updated its procedures.  You can find the updated procedures here.  The Tax Court admits non-attorneys for historical reasons.  You can read about the history behind this in the Court’s authorized and terrific biography, which was updated a few years ago by Dean Brant Hellwig of Washington and Lee Law School.  There are some non-attorney Tax Court practitioners in the Boston area I know who use it as an adjunct to their practice as enrolled agents.  If you are interested in taking the test, I suggest reading about the updated provisions.

Pursuing Donees for Unpaid Gift Taxes

We welcome first time guest blogger Brian Krastev, a 3L at Syracuse University College of Law and a student of past guest blogger Professor Robert Nassau. Christine

United States v. Estate of Sidney Elson, No. 2:18-cv-11325 (D. N.J. 2019) addresses the statute of limitations on collection of gift taxes from donees. The case involves a father who failed to pay the gift taxes on substantial gifts he made to his children (I hope my father knows that I’d gladly handle his gift tax return if he’d like to send me substantial gifts). The children acknowledge that their father did not pay the gift taxes but argue, inter alia, that the statute of limitations in IRC 6324(b) prevents the IRS from pursuing collection against them. The district court finds that, so long as the statute of limitations on collecting from the father has not expired, the IRS can still seek to obtain the taxes from the children. Unpaid gift taxes bear many similar traits to unpaid estate taxes. In both cases, when the donor or executor is unable to pay the tax, the donees or heirs are personally liable to the extent of the value of the property they were gifted or bequeathed.

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Sidney Elson gifted two individuals each about $500,000 worth of property in 2004. He died in 2006 never having filed a return for either gift. Sheila Strauss, one of the two gift recipients and executrix of his estate, filed a gift tax return on behalf of the estate in 2009. This return included the gifts made in 2004, but it only reported $80,000 of tax liability. The IRS sent the estate a notice of assessment in 2011 for $375,000 in additional gift taxes. Despite the estate making payments toward the liability, the IRS alleged that as of December 4, 2017, $685,000 remained outstanding. The IRS brought a suit in 2018 to collect the taxes from, among others, the aforementioned two donees.

The two defendants filed a motion to dismiss which, although procedurally improper, the court decided to consider as a motion for judgment on the pleadings. The motion is based primarily on two issues: (1) That the IRS suit is untimely because the ten-year period of limitations on a gift tax lien under IRC 6324(b) had expired; and (2) that the IRS failed to individually assess them pursuant to IRC 6901, and any such assessment would now be untimely.

§ 6324(b) provides:

[Sentence 1] Unless the gift tax imposed by chapter 12 is sooner paid in full or becomes unenforceable by reason of lapse of time, such tax shall be a lien upon all gifts made during the period for which the return was filed, for 10 years from the date the gifts are made. [Sentence 2] If the tax is not paid when due, the donee of any gift shall be personally liable for such tax to the extent of the value of such gift. [Sentence 3] Any part of the property comprised in the gift transferred by the donee (or by a transferee of the donee) to a purchaser or holder of a security interest shall be divested of the lien imposed by this subsection and such lien, to the extent of the value of such gift, shall attach to all the property (including after-acquired property) of the donee (or the transferee) except any part transferred to a purchaser or holder of a security interest.

§ 6901(a) provides, in pertinent part:

[Donee gift tax and certain other] liabilities shall…be assessed, paid, and collected in the same manner and subject to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred.

Section 6901 goes on to provide a statute of limitations on assessment, which is generally “within 1 year after the expiration of the period of limitation for assessment against the transferor.” IRC 6901(c).

The district court interprets IRC 6324(b) in accordance with U.S. v. Botefuhr, 309 F.3d 1263 (10th Cir. 2002), a practically identical case, which analyzes the “personal liability provision” (sentence 2) separately from and without reference to the “lien provision” (sentence 1). In doing so, the court determines that the 10-year period of limitations in sentence 1 does not apply to the personal liability provision of sentence 2. Instead, IRC 6501 (generally 3 years to assess after a return is filed) and IRC 6502 (generally 10 years to collect after assessment) provide the appropriate statutes of limitation. The court finds that the gift tax assessment against the estate, and the filing of this action against the estate and donees, were timely under sections 6501 and 6502.

This court also finds that a personal assessment under IRC 6901 is not a prerequisite to bringing an action against the donees under IRC 6324(b). It reaches this conclusion following U.S. v. Geniviva, 16 F.3d 522 (3d Cir. 1994), which held that a section 6901 assessment was not mandatory before the government could bring an action under IRC 6324(a)(2) (the estate tax sister to 6324(b)). The court notes that section 6901 was enacted after section 6324, and finds that in the later section Congress merely provided an additional tool for the government to collect against transferees. The court entirely rejects the donees’ view of section 6901 as a limitation on section 6324.

This court concludes that the action is timely against the donees because the statute of limitations under IRC 6502 on collection from the donor had not expired when the suit was filed. Additionally, the IRS was not required to personally assess the donees under 6901 to pursue collection from them in a suit under section 6324. Therefore, this court holds that the collection action against the defendants is timely and procedurally proper.

Something about this decision rubs me the wrong way. It seems unfair that donees—potentially oblivious to a donor’s neglect to pay taxes—can be on the hook for a tax liability many years down the line, a tax liability which has likely amassed penalties and interest far in excess of that originally due.

Specifically, in this decision I find troubling the following three points:

1. Botefuhr’s separate analysis of personal liability

The Tenth Circuit justified distinguishing sentence 1 and sentence 2 of IRC 6324(b) by referencing several cases dealing with collection of unpaid gift taxes from donees. However, the statute of limitations on collection was not at issue in these cases. In fact, the actions against the donees were all brought within 10 years from the date of the gifts at issue, while the “sentence 1 lien” was in effect. It seems more likely that the reason these cases independently addressed the personal liability sentence of IRC 6324 is because the donees disputed their personal liability altogether. For example, the court cites to the following:

  • La Fortune v. C.I.R., 263 F.2d 186 (10th Cir. 1958).
    • Primary issue is valuation of gifts. Secondary issue is whether the IRS can collect unpaid gift tax from donees where donor is solvent and where the gift tax liability arose from gifts made to other donees during the year.
  • Mississippi Valley Trust Co. v. C.I.R., 147 F.2d 186 (8th Cir. 1945).
    • Issue is whether the IRS can collect unpaid gift tax from donees where donor is solvent, failed to report taxable gifts, and was not assessed.
  • Baur v. C.I.R., 145 F.2d 338 (3d Cir. 1944).
    • Issues are whether the IRS can collect unpaid gift tax from donees where the the tax liability arose from gifts made to other, the statute of limitations on collection from the donor has expired, and the donor is solvent.
  • Tilton v. C.I.R., 88 T.C. 590 WL 39956 (1987).
    • Issue is whether the IRS can collect unpaid gift tax from donees in general.

2. Botefuhr’s application of IRC 6501 and 6502 to donee personal liability

The Tenth Circuit refused to apply the 10-year statute of limitations on the gift tax lien of sentence 1 to the personal liability of sentence 2 by referencing cases which found that IRC 6502 established the statute of limitations for collection from donees. However, would the court have done the same for the lien transfer of sentence 3? Sentence 3 directly refers to the gift tax lien created by sentence 1 and transfers it to all the donee’s property if the gift is transferred out of the donee’s possession. I speculate that the 10-year statute of limitations would surely carryover to sentence 3. In that case, it makes less sense to isolate the personal liability of sentence 2 and apply the donor’s statutes of limitations of IRC 6501 and 6502.

3. Geniviva’s treatment of IRC 6901 as an additional collection method

The Third Circuit in Geniviva found that an individual assessment under IRC 6901 was not required to collect unpaid estate taxes from donees. This decision was based on Leighton v. U.S., 289. U.S. 506 (1933), a case which dealt with personal liability of unpaid estate taxes in the context of corporate distributions. Additionally, the Supreme Court in Leighton was interpreting section 280(a) of the Revenue Act of 1926—the precursor to IRC 6901. The Third Circuit could have probably distinguished the case for these reasons.

In discussing these reasons with my tax professor, Professor Robert Nassau, he made a very compelling counterpoint which I initially overlooked. He raised the argument that the gift taxes in these cases are rightfully owed and it would be unfair to expect the IRS to track down every relevant donee whenever a gift tax deficiency is alleged. To hold otherwise might incentivize donors to gift all their assets, never pay the tax, and ignore the IRS in hopes that the statute of limitations expires on collection from the donees.

Ultimately, I think a more equitable approach would be to treat IRC 6324 as the additional method of collection, apply the 10-year statute of limitations of that section to the personal liability it imposes, and mandate assessment under IRC 6901. This would provide donees with the same procedural safeguards on assessment and collection available to taxpayers in every other instance. The IRS would still have ample time to collect from donees under IRC 6901—the downside being they would have to assess them much sooner.

Should Bankruptcy Trustee Be Paid When Taxes Exceed Assets in the Estate?

The case of In re: Patrick Hannon and Elizabeth Hannon; No. 12-13862 (Bankr. D. Mass. 2019) presents a situation in which the IRS argues that the bankruptcy trustee and law firm representing the trustee should not receive compensation from the estate assets, because the trustee should have abandoned the assets since the trustee could not bring value to the unsecured creditors of the estate.  The bankruptcy court rejected the argument of the IRS and allowed the trustee and the law firm to take their fees from assets that would otherwise go to satisfy outstanding debts due to the IRS.  The case brings to light the sometimes tricky determination regarding assets and lienholders in a bankruptcy case.

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The Hannons owed money to the IRS but at the outset of their bankruptcy case the amount owed to the IRS had yet to be conclusively determined.  The Hannons originally filed their bankruptcy case as a chapter 11 seeking to reorganize their debts, they converted the case to chapter 7 in 2013 recognizing that reorganization would not work and they needed to liquidate their assets.  In a chapter 11 case debtors generally control their assets without a trustee.  In a chapter 7 the bankruptcy court appoints a trustee to liquidate the assets.  When a case converts from chapter 11 to chapter 7 the fluidity of the financial situation can make it quite difficult for the incoming trustee to know exactly what the debtor owes and exactly what the estate owns (or the value of what it owns.) 

In this case it appears that both the amount of debt and the value of the assets were, at least somewhat, in question.  If the trustee could determine that the amount owed to lienholders would prevent any property from reaching general unsecured creditors, the trustee should have abandoned the assets of the estate so that the secured creditors could use their lien interests to dispose of the properties, while the estate became a no asset estate with nothing available to unsecured creditors.  Trustees serve unsecured creditors and secured creditors generally take care of their own interests.  If a trustee administers property encumbered by a lien, the trustee brings no value to the estate for the benefit of unsecured creditors, while potentially reducing the amount that the lienholder could otherwise obtain upon the sale of the liened property.  Essentially, the IRS argues here that the trustee should have known that the estate did not have any property available for unsecured creditors and should have turned over the property of the estate to the lienholders and quietly backed out of the case.  The bankruptcy court must decide if the trustee acted properly under the circumstances or acted in a manner that negatively and improperly harmed the interests of the secured creditor.

Although the bankruptcy court in Massachusetts handled the bankruptcy aspect of the case, the litigation between the Hannons and the IRS took place in Maine for reasons not explained in the opinion.  When the conversion from chapter 11 to chapter 7 occurred in January of 2013, the litigation between the Hannons and the IRS had not concluded.  So, the amount owed to the IRS in the case remained unknown.  The Hannons and the IRS reached an agreement in July of 2013 resulting in a final judgment entered in November of 2013.  At the time of the agreement, paragraph 8 of the document contained the following provision:

The Trustee shall continue to sell or otherwise liquidate the Estate’s personal and real property in the ordinary course.

Additionally, the bankruptcy court noted:

In December of 2013, the IRS assented to a motion filed by the trustee in the IRS Lien Avoidance Action to suspend all deadlines in the proceeding until the trustee completed his liquidation of the estate’s assets. The assented-to motion states: “[T]he parties have recently conferred regarding the within Adversary Proceeding and have agreed that it will be most cost-effective to allow the trustee to complete his liquidation of all Estate assets before expending additional resources in this matter.”

From the perspective of the IRS, having the trustee liquidate the estate assets can provide good value.  The trustee does the work of cleaning up title and selling the assets.  These acts can take considerable time and effort.  The IRS does not always do a good job of this and does not always bring the maximum value.  The trustee can sometimes handle estate assets much more efficiently and cost effectively.  So, agreements between the IRS and the trustee allowing the trustee to administer property that might be fully encumbered can make sense.  The assets also could be wasting assets where having the trustee administer them during a period of dispute concerning the scope of a lien makes additional sense.  On the other hand, if the assets of the estate are entirely encumbered with the federal tax lien, perhaps the IRS feels that it can obtain the best value without having someone in the middle.

Despite the language of the agreement, the IRS objected to the trustee’s fees and the attorney for the trustee’s fees.  The bankruptcy court denies the motion of the IRS to reduce or eliminate the fees allowing them to be paid by the estate, which means that less assets in the estate remain with which to satisfy the IRS debt.  The failure to pay the IRS debt in full or as fully as possible also has implications for the debtors if the tax debts were non-dischargeable.  The debtors would prefer to see the IRS paid and eliminate a debt the IRS will pursue after the bankruptcy estate.

Although the court allowed most of the trustee’s fees, it did trim them with respect to action taken after the extent of the debt due to the IRS and the value of the property became clear.  This caused a small reduction in the amount of the trustee’s fees and the legal award.  Without much more information about who knew what when, I have no basis to conclude that the decision incorrectly allowed the fees.  Twice the IRS agreed to allow the trustee to continue working with assets of the estate.  The IRS should have known when it made those agreements that the trustee deserved compensation for those efforts.  The question I would have concerns the reasonableness of those efforts under the circumstances but not whether the trustee should receive some compensation.  The case points out the difficulties all parties face when uncertainty exists concerning the amount owed and the value of assets and the need to immediately control the assets.  Both the IRS and the trustee in this situation need to carefully document their interactions if they want to show that action was properly taken or not taken.

District Court Gets Timely Mailing Is Timely Filing Rule of Section 7502 Wrong as Applied to Refund Claim Lookback Period of Section 6511(b)(2)(A)

I remember when I was a young associate at Roberts & Holland LLP in 1983 and marveled at how Sidney Roberts could remember developments in the tax law from as much as 40 years earlier.  Well, now I am approaching 40 years of doing tax procedure, and I marvel at long-ago fights that I still remember.  One of those fights just came up in a district court case in the Western District of Wisconsin, Harrison v. United States, No. 19-cv-00194 (W.D. Wis. Jan. 9, 2020), and, sadly, the court got the upshot wrong.  The exact issue in the case was definitively resolved the other way in regulations adopted in 2001 that followed a once-controversial Second Circuit opinion.  Neither the DOJ nor the district court in Harrison seems to be aware of the Second Circuit opinion or the relevant regulation.  Sad.

The issue is how the refund claim limitations at section 6511(a) and (b) and the timely mailing is timely filing rules of section 7502(a) interact when a late original return was filed seeking a refund, and the return was mailed out only a few days before the expiration of the period that is 3 years plus the amount of any extension to file after the return’s original due date, where the return/claim is received by the IRS and filed after that period.  The DOJ and the district court correctly recognized that the refund claim is timely under section 6511(a) because it was filed on the same date the return was filed – i.e., that a late return is still a return for purposes of section 6511(a).  See Rev. Rul. 76-511, 1976-2 C.B. 428 (itself trying to resolve a Circuit split on this issue that still continued for almost 30 years after its issuance).  But, then the DOJ argued (and the district court agreed) that the 3 year plus extension lookback period of section 6511(b)(2)(A) looks back from the date of IRS receipt, and since the taxes were deemed paid on the original due date of the return, the refund claim is limited to $0 because no taxes were paid or deemed paid in that lookback period.  It is this second holding that is manifestly incorrect.

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Harrison Facts

The Harrison facts are quite simple and typical:  All of the 2012 taxes at issue were withheld from wages or other income.  Thus, section 6513(b)(1) deems them paid as of April 15, 2013.  The taxpayers obtained a 6-month extension to file their return, but then did not mail an original return under that extension.  Rather, they filed a very late return in 2016.  It showed an overpayment of $7,386.48, which they asked to be refunded.  The return was sent by certified mail on October 11, 2016, and was received by the IRS on October 17, 2016.

The taxpayers argued that, under the timely mailing is timely filing rules of section 7502(a), the 3 years plus 6 month lookback period for taxes paid begins from the October 11, 2016 date of mailing (making the refund amount limit $7,386.48), while the DOJ argued that the 3 years plus 6 month lookback period for taxes paid begins from October 17, 2016 because section 7502(a) has no application in this case (making the refund amount $0).  The DOJ moved (1) to dismiss the case for failure to state a claim on which relief could be granted (i.e., under FRCP 12(b)(6)) – a merits dismissal – or (2), in the alternative, for summary judgment that the claim was limited to $0 (also a merits ruling).

Harrison Ruling

The district court correctly noted that there is no Seventh Circuit authority directly answering the question of the date from which the lookback is determined on these facts.  The district court then reasoned that October 15 or 17, 2016, was not the due date for the return – October 15, 2013 was (taking into account the 6-month extension).  The court concluded that section 7502(a) had no application here.  That statute only provides that if a return or claim is delivered to the IRS after the due date, then the date of the United States postmark is deemed the date of delivery.  However, this rule only applies if the postmark falls on or before the due date of the return or claim.  (For certified mail, used herein, the date on the certified mail receipt, not the postmark, is used.  Section 7502(c).)

What does the district court cite in support of its holding under section 6511(b)(2)(A)?  It cites (1) Pitre v. IRS, 938 F. Supp. 95 (D.N.H. 1996), an on point opinion decided before the Second Circuit’s opinion in Weisbart v. United States Dept. of Treasury, 222 F.3d 93 (2d Cir. 2000) (discussed below) and (2) two opinions reaching the right result (i.e., no refund) – Washington v. United States, 123 AFTR 2d 2019-1585 (S.D.N.Y. 2019), and Doyle v. United States, 88 Fed. Cl. 314 (2009) – but where the mailing date was after the 3 years plus any extension period, so the courts’ statements therein that the even-later received date governed under section 6511(b)(2)(A) were correct because section 7502(a)’s extension does not apply if the mailing is after such date. 

Weisbart and the Regulation

The district court in Harrison neither discussed the Weisbart opinion nor the regulations under section 7502.  Had the district court done so, I expect that it would have reached a different result. 

Weisbart is on all fours with Harrison as to its facts.  In Weisbart, to quote the court:

Emanuel Weisbart’s 1991 income tax return was due on April 15, 1992, but he obtained an automatic extension until August 17, 1992. Despite the extension, Weisbart did not file his return by the August 1992 deadline. Tarrying three years, he mailed his 1991 return to the IRS on August 17, 1995. The tax return was submitted on the customary Form 1040 and included a refund claim for $4,867 from the $12,477 in taxes that had been previously withheld from Weisbart’s 1991 wages. The IRS received the return on August 21, 1995.

222 F.3d at 94.

The Weisbart court, relying on regulations that have since been clarified and expanded, reasoned that the rules of section 7502 apply in this case to make the amount paid on the due date within the period provided by section 6511(b)(2)(A) – i.e. that the lookback date is the date of mailing, not the date the IRS received the refund claim.  The court wrote:

The Service argues, and the district court held, that the “prescribed” period applicable to Weisbart’s tax return should also apply to the refund claim. Applying this construction, Weisbart’s refund claim would not enjoy the benefit of the mailbox rule, and would therefore be barred. . . .

Taken together, these two Treasury Regulations provide that the applicability of the mailbox rule to the refund claim should be analyzed independently of the timeliness of the tax return itself, regardless of whether they are in the same document. As such, even though Weisbart’s tax return was untimely filed, his refund claim enjoys the benefit of the mailbox rule, and is deemed filed on August 17, 1995. Because that date is within 3 years of the date when Weisbart is deemed to have paid his withheld employment taxes, he may recover any overpayment included in those taxes under the look back provisions of section 6511(b)(2)(A).

222 F.3d at 97 (citation omitted).

The Treasury decided to accept the Weisbart holding, and so, in 2001, promulgated T.D. 8932, 66 FR 2257.  The Treasury decision stated:

[T]he IRS and the Treasury Department have determined that, in certain situations, a claim for credit or refund made on a late filed original income tax return should be treated under section 7502 as timely filed on the postmark date for purposes of section 6511(b)(2)(A). This is consistent with the opinion of the United States Court of Appeals for the Second Circuit in Weisbart v. United States Department of Treasury and Internal Revenue Service, 222 F.3d 93 (2d Cir. 2000), rev’g 99-1 USTC (CCH) P50,549 (E.D.N.Y. 1999), AOD-CC-2000-09 (Nov. 13, 2000).

66 FR at 2258.  The Treasury Decision added a new subsection (f) to Reg. section 301.7502-1.  I won’t quote the technical language of the regulation, but I will quote the one on point example at subsection (f)(3). It reads:

(i) Taxpayer A, an individual, mailed his 2001 Form 1040, “U.S. Individual Income Tax Return,” on April 15, 2005, claiming a refund of amounts paid through withholding during 2001. The date of the postmark on the envelope containing the return and claim for refund is April 15, 2005. The return and claim for refund are received by the Internal Revenue Service (IRS) on April 18, 2005. Amounts withheld in 2001 exceeded A’s tax liability for 2001 and are treated as paid on April 15, 2002, pursuant to section 6513.


(ii) Even though the date of the postmark on the envelope is after the due date of the return, the claim for refund and the late filed return are treated as filed on the postmark date for purposes of this paragraph (f). Accordingly, the return will be treated as filed on April 15, 2005. In addition, the claim for refund will be treated as timely filed on April 15, 2005. Further, the entire amount of the refund attributable to withholding is allowable as a refund under section 6511(b)(2)(A).

Emphasis added.

Observations

Before berating the district judge, who is no doubt not a tax procedure specialist, I would point out that the parties’ briefing on the motion did not mention either the Second Circuit’s opinion in Weisbart or the regulation under section 7502.  The brief accompanying the motion is here, the taxpayers’ brief is here, and the government’s reply brief is here.  I am quite dismayed, though, that the DOJ Trial Section attorney did not know of the relevant authority.  I have sent an e-mail to the Harrisons’ counsel suggesting a motion for reconsideration or an appeal to the Seventh Circuit.

The district court in Harrison did do something else right, though:  It did not treat compliance with the tax paid amounts rules of section 6511(b) as jurisdictional.  Rather, both the DOJ and the court (unlike many other courts) treated compliance with these rules as a merits issue.  The court granted the DOJ’s motion on the ground of summary judgment, not FRCP 12(b)(1) (lack of jurisdiction) or 12(b)(6) (failure to state a claim).  In not treating the rules of section 6511(b) as jurisdictional, the Harrison court followed Seventh Circuit precedent, stating:

In reviewing the caselaw, requiring administrative exhaustion of a refund claim may be a jurisdictional requirement. See Gillespie v. United States, 670 Fed. App’x 393 (7th Cir. 2016) (acknowledging that recent Supreme Court developments “may cast doubt on the line of cases suggesting that § 7422(a) is jurisdiction”). However, the Seventh Circuit has treated whether there are any tax payments within the “look back period” as an element of the claim. See Gessert v. United States, 703 F.3d 1028, 1036-37 (7th Cir. 2013) (holding that the claims do “not meet the [timing] requirements of the statute,” despite headnotes that describe it as a jurisdictional defect); Curry v. United States, 774 F.2d 852, 855 (7th Cir. 1985) (holding court lacks jurisdiction because plaintiffs failed to exhaust their claims, but even if they had exhausted, they would be barred from obtaining a refund because of the time requirements under § 6511). As such, the merits of plaintiffs’ claim appear to be properly before the court.

Footnote 2 (emphasis in original).

The Federal Circuit took a similar position (i.e., that compliance with the section 6511(b) tax payment rules is not jurisdictional) in Boeri v. United States, 724 F.3d 1367, 1369 (Fed. Cir. 2013), a case on which Stephen blogged here.  For a discussion of the Gillespie case cited by the Harrison court, see my prior post here.

Does Judge Toro Misunderstand Guralnik?

There’s a pro se deficiency case set for trial in San Francisco before Judge Toro in the week beginning February 3, 2020, Gebreyesus v. Commissioner, Docket No. 1883-19.  Although the IRS had not moved to dismiss the petition for lack of jurisdiction, Judge Toro, has essentially issued an order to show cause why he shouldn’t dismiss the case for lack of jurisdiction because of an untimely petition.  The Judge thinks the petition would be untimely if the notice of deficiency had been mailed to the taxpayer on the date shown on the notice of deficiency – October 22, 2018 – so the judge asks that proof of mailing be submitted to him by January 21, 2020.

This case gets into a particular issue of how the government shutdown interacts with (1) Guralnik v. Commissioner, 146 T.C. 230 (2016) (en banc), and (2) section 7502.  I think it pretty clear that the judge, who seems vaguely aware of Guralnik (but doesn’t cite the opinion), has the analysis wrong, and that there is no way this petition is untimely.  I hope the IRS lawyers in the case explain it to the judge, but just in case they don’t, I hope the judge gets to read this post before he rules.  No pro se taxpayer is likely to be able to explain about how Guralnik should work in this case.  Keith has blogged here, here, and here on the interaction of Guralnik and the recent government shutdown, but not on the facts of Gebreyesus.

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Gebreyesus Facts

Let’s assume that the IRS has documentary proof that it mailed the notice of deficiency on the date shown on the notice – October 22, 2018.  You would probably think the taxpayer has until January 20, 2019 (90 days) to file the petition in person, place it in the mails, or place it with a designated private delivery service.  But, January 20, 2019 was a Sunday, and the 21st was Martin Luther King Jr.’s Birthday – both of which under section 7503 can’t be the last date to file.  Interestingly, the notice of deficiency correctly stated that the last date to file was Tuesday, January 22, 2019.

But, then, the government (including the Tax Court) shut down in late December.  As a result, the Tax Court’s Clerk’s Office was not open again until Monday, January 28, 2019.

Judge Toro just noticed that on January 23, 2019, the petition was placed with a FedEx service that is a qualifying private delivery service under section 7502(f).  Had the government not shut down, the petition no doubt would have been delivered to the court overnight on Wednesday, January 24, 2019.  But, the petition arrived at the Tax Court instead on Monday, January 28, 2019 – the date the Clerk’s Office reopened – and was filed on that date.

Judge Toro’s Analysis

In his order, Judge Toro writes:

If the notice of deficiency was mailed on October 22, 2018 (that is, on the date shown on the notice of deficiency), then the 90-day period under section 6213(a) would have expired on January 22, 2019 (taking into account that January 20, 2019, was a Sunday and January 21, 2019, was a holiday in the District of Columbia).  Because the ship date reflected on the FedEx envelope – January 23, 2019 -is one day after January 22, 2019, the petition would be untimely under section 6213(a) and the rules of section 7502(a) and (f).
 
If, however, the notice was mailed after October 22, 2018, the 90-day period would have expired no earlier than January 23, 2019, and, since the petition was given to FedEx by January 23, 2019, under section 7502(a) and (f) the petition would be treated as having been timely filed. [footnote omitted]

What’s Wrong With This Analysis?

Section 7502 has no application unless the petition arrives after the last date to file.  But, that did not occur in this case.  Under Guralnik, if the Clerk’s Office is not open on what would ordinarily be the last date to file, then the last date to file becomes the date the Clerk’s office reopens – i.e., January 28, 2019 in this case. But, that’s the date the Tax Court physically received and filed the petition.  So, the petition did not arrive after the due date, taking into consideration Guralnik.  It arrived on the (revised) due date.  Effectively, the taxpayer here should be treated as if he personally walked into the Clerk’s Office on January 28, 2019 and handed in the petition for filing.  Clearly, that would be OK under Guralnik.  FedEx merely acted as the taxpayer’s agent in walking the petition in on that last date to file.

This result may strike some as odd – that the taxpayer could mail out the petition the day after the last date to file shown on the notice of deficiency, yet still get the benefit of filing a timely petition.  But, I don’t see how a court could rule any other way.

Offset of Tax Refund to Satisfy Unpaid Child Support

We are entering peak offset season as federal tax refunds serve to satisfy many state and federal obligations of individuals who anticipated a check from Uncle Sam.  The recent case of Blue v. United States Department of Treasury, No. 1:19-cv-01926 (N.D. Ohio 2019) serves as a reminder not only of the ability of the Treasury Department to take a federal tax refund and send it to a government creditor but of the inability to challenge the offset by suing Treasury.

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Mr. Blue brings his case against Treasury pro se in the state court.  In some ways this makes sense because he will ultimately need to bring an action in state court to obtain the relief he seeks but the defendant will differ.  The Department of Justice removes the case to federal court and then immediately files a motion to dismiss for lack of subject matter jurisdiction.  You might think it odd to remove a case only to dismiss it but doing so is normal and makes sense.  The government does not want to make the jurisdictional argument to a state court judge who might find jurisdiction exists.  Better to remove the case to federal court, which the government has the absolute right to do, and dispose of it there in a setting where the government has more comfort in the outcome.

The district court dismisses the case with a short order first discussing sovereign immunity and the failure of Congress to authorize a suit such as this and then citing to IRC 6502 and the specific prohibition against a suit such as this:

Congress has not waived sovereign immunity for this type of suit against the Treasury Department. In fact, Congress has explicitly barred such suits, stating, “No Court of the United States shall have jurisdiction to hear any action, whether legal or equitable, brought to restrain or review a reduction authorized by subsection (c), (d), (e), or (f).” 26 U.S.C.A. §6402(g). Subsection (c) cited above authorizes a reduction of an individual’s federal income tax refund for “any past-due [child] support . . . owed by that person.” 26 U.S.C. § 6402(c). Under the terms of the statute, this Court lacks jurisdiction over any claims against the Treasury Department pertaining to offsets of income tax refunds for child support arrearages.

If Mr. Blue wants to get his tax refund, he needs to go to the state court that issued the child support order and convince that court that no outstanding order existed that should have caused the Treasury Department to send his federal tax refund to the child support agency.  The system does not allow attacking the offset by suing Treasury.  His only remedy lies in getting the child support order declared incorrect or fully satisfied.  It’s not surprising that Mr. Blue thinks he should go after the Treasury Department and the offset program.  Many clients of the clinic come in with the same view – that they have a tax problem not a problem with whatever agency has used the Treasury Offset Program to grab the tax refund.  The Blue case shows the futility of suing Treasury.  Taxpayers seeking to obtain a refund must always go to the part of the state or federal government requesting the offset and work out the issue there.  Assuming that the state or federal agency properly certified a debt to Treasury, Treasury will always win with the defense that it simply offset as contemplated in the federal statutes.

Because he brought the suit against the wrong party, we do not know if he really owes the child support to which the refund was offset.  The court did not need to get into the merits of his liability in order to dismiss his case.  Assuming that he has a valid argument that he does not owe the child support, the dismissal here does not prevent Mr. Blue from making that argument in a case against the child support agency.

Because it is the season for offset, here are links to prior blog posts on the offset issue that might be of benefit if you are dealing with an offset issue:

Offset of an overpayment where taxpayer designated the payment

Defense to Payment as a basis for stopping offset of student loans

Offset to satisfy student loans and general discussion of offset program operation

When is an offset an offset

TIGTA report explaining offset program

Illegal exaction – offset against a criminal fine

Requesting a bypass of the offset against prior federal taxes

Man Bites Dog – Estate Wins Penalty Case Regarding Late Filed Return

In the case of Estate of Agnes R. Skeba v. United States; No. 3:17-cv-10231 (D. N.J. 2020), the court reconsidered and vacated an earlier opinion concerning the late filing penalty and determined both that the IRS wrongly interpreted the statute in imposing the penalty on these facts and that the estate had reasonable cause for filing the return late.  Several years ago I wrote that, when you see a citation to United States v. Boyle, 469 U.S. 241, 246 (1985) in an opinion, expect the worst if you are a taxpayer.  This case throws out that convention along with others.  I’m not sure that we have seen the last of this case, but I am sure that many taxpayers will start citing this opinion as they seek to avoid the late filing penalty.

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The facts of the case show an estate that was pretty diligent about trying to pay its taxes and, in fact, one that overpaid its taxes — which is why this case ends up in district court rather than the Tax Court.  The decedent had an estate valued at close to $15 million, much of which was farm land and equipment.  The estate had a liquidity problem with respect to the payment of taxes.  (This raises a question concerning IRC 6161 which is not answered by the opinion and which I cannot answer.)  The estate also had other problems because of will contests.  It used available funds to pay the inheritance taxes due in New Jersey and Pennsylvania and to partially pay the taxes due to the IRS.  It made an initial payment to the IRS of $725,000.  It knew that it was not paying enough to the IRS and was actively trying to borrow money to make the balance of the payment it calculated the estate would owe.  Closure on the loan was delayed, causing the estate to pay the balance of the anticipated liability, $2,745,000, a little more than nine months after the decedent’s date of death.

Because of uncertainty created by the litigation, the estate requested an extension of time to file the estate tax return.  The IRS granted the estate a six month extension; however, the estate did not file the return during the extension period and filed it almost nine months after the extended period had ended.  During this period there were delays in the state court litigation caused by the illness of the named executor and the attorney for the estate.  Once the estate filed the return, the IRS assessed the reported liability, which turned out to be about $900,000 less than the estate had paid in estimated payments.  This seems like a happy ending for the estate; however, the IRS imposed a late filing penalty on the estate arguing that the estate had not fully paid its liability at the time the return was due and that it did not timely file the return.  It calculated the penalty based on the difference between the timely payment of $725,000 and the estate tax liability of $2,528,838.  Because the return was filed more than five months late, the IRS multiplied 25% times the difference between the liability and the timely payment ($1,803,838) resulting in a penalty of $450,959.50 and a net “Overpayment” of $488,719.34 which it cheerfully refunded to the estate.  The estate, however, was not cheerful over this result.

The estate brought a refund suit seeking to recover the penalty amount.  The district court initially held for the estate; however, the IRS argued that the court applied the wrong standard in its initial opinion.  The IRS asserted that the de novo standard of review is appropriate for assessing the issue of whether the estate demonstrated reasonable cause and not willful neglect in failing to timely file its estate tax return; whereas the Court’s original memorandum used the arbitrary and capricious standard.  The Court vacates its prior memorandum and files this superseding memorandum in its place.

The court starts its analysis by giving a nod to Boyle:

[T]he law has evolved in estate tax matters to acknowledge that the estate bears the burden in proving that it has exercised ordinary business care and prudence in the event it filed a late return. United States v. Boyle, 469 U.S. 241, 246 (1985) (quoting 26 CFR § 301.6651(c)(1) (1984)).


In Boyle, Chief Justice Burger addressed “whether a taxpayer’s reliance on an attorney to prepare and file a tax return constitutes ‘reasonable cause’ under § 6651(a)(1) of the Internal Revenue Code, so as to defeat a statutory penalty incurred because of a late filing.” Id. at 242. According to 26 CFR § 301.6651-1(c)(1), a taxpayer filing a late return must show that he or she exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time. Id. at 243. Chief Justice Burger reasoned there was an administrative need for strict filing requirements.

Having given the obligatory nod to Boyle, the court then sets off on its own analysis of the statute and how, in the facts of this case the late filing of the return does not trigger the penalty:

In the Court’s view, the resolution of this matter hinges on an interpretation of a section of the IRS Code (26 C.F.R. § 6651) called “Failure to file tax return or to pay tax.” . . .

Generally, § 6651 addresses the assessment of penalties for late filing of a return, and late payment of taxes due. More specifically, the penalty under § 6651(a)(1) addresses the failure to file a timely return:

In case of failure (1) to file any return on the date prescribed therefor (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate. . . . 26 U.S.C. § 6651(a)(1). . . .

The calculation of the penalty imposed for failure to timely file a return (subsection (a)(1)) and failure to timely pay the tax (subsection (a)(2)) is clarified in § 6651(b). It declares:

(b) Penalty imposed on net amount due. For purposes of —

(1) subsection (a)(1), the amount of tax required to be shown on the return shall be reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax and by the amount of any credit against the tax which may be claimed on the return,
(2) subsection (a)(2), the amount of tax shown on the return shall, for purposes of computing the addition for any month, be reduced by the amount of any part of the tax which is paid on or before the beginning of such month and by the amount of any credit against the tax which may be claimed on the return[.]
§ 6651(b).

The parties disagree on how to construe these provisions. Plaintiff proffers two arguments in support of its position. First, Plaintiff argues that § 6651(a)(1) should be read together (in pari materia) with § 6651(b)(1). In reading these subsections together, Plaintiff concludes that the late filing penalty is calculated by using the formula set forth in subsection (a)(1), incorporating the “net amount due” on the “the date prescribed for payment” as set forth in subsection (b)(1). Since the estate tax was overpaid on March 18, 2014 and the extension ran until September 10, 2014, there was no net amount due on the September deadline; and hence, no penalty may be imposed.

Secondly, and in the alternative, Plaintiff argues that the phrase “such failure is due to reasonable cause not due to willful neglect” in subsection (a)(1) protects the taxpayer from a penalty if the return was filed late due to a reasonable cause.

The Government disagrees with the taxpayer’s arguments. The Government proffers that the requirements of § 6651(a)(1) and (b) must be construed with another statute (26 U.S.C. § 6151) entitled “Time and place for paying taxes shown on returns.” . . . More specifically, § 6151 reads in pertinent part:

(a) General rule. Except as otherwise provided in this subchapter [26 USCS § 6151 et seq.] when a return of tax is required under this title or regulations, the person required to make such return shall, without assessment or notice and demand from the Secretary, pay such tax to the internal revenue officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return (determined without regard to any extension of time for filing the return).
* * *
(c) Date fixed for payment of tax. In any case in which a tax is required to be paid on or before a certain date, or within a certain period, any reference in this title to the date fixed for payment of such tax shall be deemed a reference to the last day fixed for such payment (determined without regard to any extension of time for paying the tax).

Id. Based on § 6151, the Government cleverly reasons that the last day for payment was nine months after the death of Agnes Skeba — March 10, 2014; because no return was filed by that date a penalty may be assessed. Applying the rationale to the facts, the Government contends only $750,000 was paid on or before March 10, 2014, when $2,528,838 was due on that date. Referring back to § 6651(a)(1), a 25% penalty on the difference may therefore be assessed because it was not paid by March 10, 2014. As such, the full payment of the estate tax on March 18, 2014 is of no avail because the “last date fixed” was March 10, 2014. Accordingly, the Government argues that the imposition of a penalty in the amount of $450,959.00 is appropriate.

The IRS’s arguments miss the mark. First, both §§ 6651(a)(1) and (a)(2) designate the specific day on which penalties will be assessed for both late filing and payment of the estate tax return. Both paragraphs specify that the “date prescribed” is to “be determined with regard to any extension of time for filing.” The language of the statute in dispute is the one which is given precedence over a more generic statute like § 6151. See La Vallee Northside Civic Asso. v. V.I. Coastal Zone Mgmt. Com., 866 F.2d 616, 621 (3d Cir. 1989); see also Meyers v. Heffernan, No. 12-2434 (MLC), 2014 WL 3343803, at *8 (D.N.J. July 8, 2014).

After finding that the statutory language does not support the application of the penalty in this situation, the court goes on to find that the estate had reasonable cause for its late filing:

In this case, Mr. White [the estate’s attorney] submitted his August 17, 2015 letter explaining the rationale for not filing. For example, in Mr. White’s letter, he indicated that certain estate litigation was delayed due to health conditions suffered by the executor. Additionally, Mr. White refers to the Hoagland law firm and one of the attorneys assigned to the case as having been diagnosed with cancer. The Hoagland firm is a very prestigious and professional firm and based on same, Mr. White’s letter shows a reasonable cause for delay.

In addition, Mr. White’s prior letter of March 6, 2014 notes that there was difficulty in “securing all of the necessary valuations and appraisals . . . caused by the contested litigation.” Drawing from my professional experience, such appraisals often require months to prepare because a farm located in Monroe, New Jersey will often sit in residential, retail, and manufacturing zones. To appraise such a farm requires extensive knowledge of zoning considerations. Thus, this also constitutes a reasonable cause for delay.

Both aspects of the opinion will get cited by estates seeking to avoid the heavy hand of the late filing penalty when applied to significant estate tax liabilities.  As I mentioned above, I will be surprised if the IRS does not appeal this decision.  While I may have my doubts that the opinion will stand, it is one of many cases that points out the harshness of the application of Boyle.  The estate here made a significant effort to pay the tax.  The legal basis for the ruling could be a game changer for estates that make full payment before an extended due date.  I realize not every estate can meet that criteria.  Certainly, the case is worth following.

We need a permanent National Taxpayer Advocate, now.

Contributor Nina Olson returns with her thoughts on the importance of filling the vacancy at the head of the Taxpayer Advocate Service.

This week, the acting National Taxpayer Advocate released the 2019 Annual Report to Congress, on the heels of the IRS’s release of its own “annual report” about its performance. Reading the two documents together, one wonders whether they are reporting on the same agency. The NTA’s report focuses on the challenges the agency faces and makes concrete recommendations about how to address them; the IRS’s report celebrates the agency’s performance over the last year and how it is on track to fulfill the goals of its 2018 to 2022 strategic plan. One report is forward looking; the other is a status update.

I’ll be scouring the contents of both reports over the next month or so, but their arrival reminds me of the important and unique role the National Taxpayer Advocate (NTA) plays in U.S. tax administration today. The NTA is the protector of taxpayer rights and, according to the National Commission on Restructuring the IRS, serves as the “voice of the taxpayer” inside the agency. Each of the Most Serious Problems, Most Litigated Issues, and Legislative Recommendations in the NTA’s 2019 Annual Report to Congress is prefaced with the relevant rights enunciated in the Taxpayer Bill of Rights; they form the framework for analysis. On the other hand, the IRS annual report doesn’t get around to mentioning “taxpayer rights” until page 12. Tellingly, the words “taxpayer rights” do not appear in any of the strategic goals listed in the annual report, nor are they listed among the “core values” of the agency.

This contrast highlights why it is so important to have a permanent National Taxpayer Advocate in place, to hold the IRS’s feet to the fire about promotion and protection of taxpayer rights, especially as it hires more audit and collection employees and launches new compliance and enforcement initiatives. The NTA is the person at the table of the IRS senior leadership who is charged (by Congress) with reminding the IRS that its primary job is to promote voluntary compliance, that enforcement revenue only counts for about 2 percent of all revenue collected, that the vast majority of U.S. taxpayers are trying to comply with the mind-numbingly complex tax laws, and that personal assistance and education is a, if not the, most significant factor in enabling these taxpayers to meet their obligations.

That is why it is so disturbing that there is no permanent NTA appointed by the Secretary of the Treasury, a full nine months after I announced my retirement as the NTA. On March 1, 2019, I publicly informed Treasury, the IRS, and everyone else that I would be retiring on July 31, 2019. I announced my retirement that early, against the counsel of several of my closest advisors and friends who feared I might become a “lame duck,” because I believed it was important to have a successor named and ready to assume the duties immediately upon my retirement. I knew of several highly qualified people interested in the job, and indeed, the recruitment process identified several excellent candidates. At the time of my retirement, I knew of three excellent candidates who were on a very short list.

So what happened? Why is there no NTA? I have no clue. What I do know is that despite the excellent interim leadership of the Taxpayer Advocate Service, no acting NTA can do the job as Congress envisioned. Indeed, Bridget Roberts, the acting NTA, states in the 2019 Annual Report, “As in other organizations, acting leaders are caretakers — charged with keeping the trains running on time but lacking the authority to make significant changes and often not taken as seriously as permanent officials.”

Let’s take a step back and look at what Congress did in 1998 when it amended IRC 7803(c), the statute that lays out the requirements for and duties of the Office of the Taxpayer Advocate. Congress made changes to this statute after widespread dissatisfaction with the then-Taxpayer Advocate structure surfaced in the hearings before the National Commission on Restructuring the Internal Revenue Service. In the chapter titled “Taxpayer Rights,” the Commission outlined these concerns:

Currently, the national Taxpayer Advocate is not viewed as independent by many in Congress. This view is based in part on the placement of the Advocate within the IRS and the fact that only career employees have been chosen to fill the position. Because a candidate for the job is likely to have additional career ambitions at the IRS after performing the Advocate position, it is difficult to perceive the Advocate as independent when the position is regarded as just another assignment for an IRS executive, with the Commissioner viewing his or her performance as determining the next position. Additionally, while the Advocate has provided recommendations for improvements at the IRS, these recommendations merely tend to highlight ongoing IRS corrective efforts with little in the way of recommendations that focus attention on issues that the IRS either is doing nothing or its efforts are inadequate. Finally, what recommendations the Advocate has provided have limited value because they do not prescribe specific legislative or administrative corrections.

A Vision for a New IRS, Report of the National Commission on Restructuring the Internal Revenue Service, June 25, 1997, at 43.

Congress addressed these concerns in the Internal Revenue Service Restructuring and Reform Act of 1998. It sought to ensure the independence of the Advocate by radically transforming the Office of the Taxpayer Advocate into an independent organization within the IRS. IRC 7803(c) explicitly lays out the requirements for appointment of the NTA and the qualifications of the person who fills that position. (By the way, 7803(c) is longer than 7803(a) or (b) which govern the positions of Commissioner and Chief Counsel, respectively. 7803(a) was recently lengthened by the addition of 7803(a)(3), which requires the Commissioner to ensure that IRS employees “are familiar with and act in accord with taxpayer rights ….”)

  • First, the National Taxpayer Advocate “shall be appointed by the Secretary of the Treasury after consultation with Commissioner of Internal Revenue and the Oversight Board and without regard to the provisions of title 5, United States Code, relating to appointments in the competitive servicer or the Senior Executive Service.”
  • Second, the NTA cannot have worked for the IRS for 2 years immediately preceding the appointment or 5 years immediately after leaving the position (there is an exception for current employees of TAS).
  • Third, the NTA must have the following experience: “(I) a background in customer service as well as tax law; and (II) experience in representing individual taxpayers.” (7803(c)(1)(B)(iii))

Thus, according to the law, the Secretary can make this appointment without it being nominated by the President or confirmed by the Senate. The usual hiring processes for federal civil service or Senior Executive Service do not apply – the Secretary merely needs to make his or her decision, sign an appointment document, and that’s it. Obviously, there should be a background check, and ultimately a tax check and tax audit, but the appointment of the NTA is one of the least bureaucratic in the federal government. So bureaucratic hurdles are not an excuse for the delay in appointing the Advocate.

It is interesting to note that Congress sought to balance the voices that the Secretary listened to in making his or her appointment decision. Not only is that decision made in consultation with the Commissioner, but also the Oversight Board weighs in. When I was under consideration for the position in late 2000, I was interviewed by the Commissioner several times, and had a lengthy interview with a subpanel of the Oversight Board. The Commissioner produced a memo for the Secretary recommending my appointment, and the Oversight Board produced a 27-page report (if recollection serves) including observations about each of the candidates and ultimately recommending my appointment. Thus, the Secretary had ample information with which to make his decision.

Today, there is no functioning Oversight Board. The Secretary only has the consultation of the Commissioner. The Commissioner’s statutory duty is to “administer, manage, conduct, direct, and supervise the execution and application of the internal revenue laws…” One of the Oversight Board’s statutory responsibilities is “[t]o ensure the proper treatment of taxpayers by the employees of the Internal Revenue Service.” The Oversight Board brings this perspective to the selection process for the NTA. While the Commissioner may factor this in to his or her recommendation, the loss of the Oversight Board’s perspective means that the Secretary only has the IRS’s official perspective to rely on. The balance that RRA 98 brought to the selection process is missing.

Which brings me back to my original observation about the two reports released this week.

The NTA’s statutory duty is to assist taxpayers in resolving their problems with the IRS and to identify and make administrative and legislative recommendations to mitigate such problems. [7803(c)(2)(A)(i)-(iv)]. The National Taxpayer Advocate’s Annual Report to Congress is the key vehicle for fulfilling that duty. In the words of the Restructuring Commission, the NTA must “focus attention on issues that the IRS either is doing nothing or its efforts are inadequate.” In order to do this well, Congress has required that the NTA has experience in representing individual taxpayers. That is, the NTA must have sat across the table from the IRS and knows what it is like to be an individual taxpayer battling the IRS bureaucracy. The NTA must have experienced firsthand the pain of taxpayers. A successful NTA brings that knowledge and experience to every meeting with IRS officials and employees and never lets them forget it.

Today, no matter how articulate and talented TAS leadership is, that strong, independent, experienced voice, carrying with it the authority of the Secretary’s appointment, is missing as the IRS embarks on its enforcement “build” and drafts the numerous reports required by the Taxpayer First Act. This is something all of us who practice in and study the field of tax should care about.

We need a strong, qualified National Taxpayer Advocate. Now.