The Broad Impact of Guralnik

On July 12, 2019, I wrote about one case in which the Tax Court applied the reasoning in Guralnik v. Commissioner to extend the time within which a taxpayer could file their Tax Court petition during the government shutdown. We picked up that case through the Tax Court’s designated order feature. As we have discussed before the order feature of the Tax Court’s web site allows users to perform word searches. Inspired by the first case and expecting there should be others, Carl Smith did such a search and found others to which he alerted me. I had my research assistant, Michael Waalkes, follow up on Carl’s research and this post will identify the cases we have found in which Guralnik has made a difference as well as a few where it did not. Leading into the shutdown, we reminded readers on December 31, 2018, not to forget Guralnik. It’s clear from these orders that the Tax Court did not forget it and that the earlier case we wrote about was part of a concerted effort on the part of the court to identify cases in which the court opened its doors to cases which would otherwise have been late but for the application of Guralnik to the situation.

In each of these cases the IRS moved to dismiss. At some point perhaps the IRS will accept Guralnik and no longer file a motion to dismiss or it will seek to litigate it in the circuits. At least for this round of government shutdown, the IRS seems content to raise the issue in every case but accept the outcome in every case without filing an appeal. Of course, if the IRS accepts Guralnik without filing a motion to dismiss, we would not find the case through an order search so it may have accepted many more cases than it contested. Perhaps the issue is a function of getting the word to the field offices. The possibility also exists that it wants to bring each situation to the court’s attention and have the court make the specific decision allowing the case to move forward.

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Per the search of the Tax Court orders: here are the cases involving Guralnik’s application to the government shutdown, in which the Court denied an IRS motion to dismiss for a petition due during the shutdown: Coleman v. Commissioner, Docket No. 1856-19; Baird v. Commissioner, Docket No. 1706-19; Meaut v. Commissioner, Docket No.: 1851-19; Crager v. Commissioner, Docket No. 2191-19; Vlach v. Commissioner, Docket No. 614-19S; Wilson v. Commissioner, Docket No. 0691-19S; Hamilton v. Commissioner, Docket No. 436-19S; Doherty v. Commissioner, Docket No. 101-19; Cajuste v. Commissioner, Docket No. 2190-19; Witt v. Commissioner, Docket No. 2071-19; Kendrick v. Commissioner, Docket No. 806-19S; Baird v. Commissioner, Docket No. 1706-19; Worku v. Commissioner, Docket No. 1864-19; Gettys v. Commissioner, Docket No.1686-19S; Hager v. Commissioner, Docket No. 1854-19.

The Tax Court appears to have adopted a standard policy in cases where the IRS files a Motion to Dismiss for Lack of Jurisdiction on timeliness for petitions due during the government shutdown. The Court first issues a generic order (sample linked here) citing Guralnik and requiring that the IRS supplement its motion, which leads to the IRS conceding timeliness in its supplement and the Court then denying the motion to dismiss. 

Despite the 14 cases listed above in which the Tax Court did open its doors, some petitioners still remained outside of the benefit created by the extra time resulting from the government shutdown. These cases deserve a closer look since they do not follow the cookie cutter results of the cases listed above. In Bancroft v. Commissioner, Docket No. 2063-19, the Tax Court issued its standard order for the IRS to file a supplement to its motion to dismiss, which the IRS did. The Tax Court then granted the motion to dismiss without issuing an order, so it’s unclear why the Court wasn’t convinced that the shutdown affected the timeliness of the petition filing. It would have been nice to have some reasoning here given the importance of the issue. We did not pay to obtain the response filed by the IRS which might have made it clear why the court granted the motion to dismiss in this case.

And in Barnhart v. Commissioner, Docket No. 5783-19S, in response to an IRS motion to dismiss for late-filing a petition that was due on December 24, 2018 (several days before December 28, 2018 when the Tax Court stopped operating), the petitioners argued that their efforts to administratively resolve their issue with the IRS had been hampered by the government shutdown, as the IRS began its furlough earlier on December 22, 2018, two days before the filing deadline. But Judge Foley granted the motion to dismiss and issued an order finding that a government shutdown at the administrative level was not sufficient to alter the filing deadline with the Tax Court, which at the time was still unaffected. This case demonstrates the confusion that some petitioners might have had between the shutdown of the IRS (and most of the government) and the shutdown of the Tax Court (and most of the courts). The non-budget funds available to the courts allowed them to remain open for a short period after the rest of the government shut its doors. Perhaps this confusion should not matter from a jurisdictional standpoint but the whole issue of shutdown must have caused confusion for some parties seeking a remedy.

Finally, in Janjic v. Commissioner, Docket No. 2003-19, the petitioner was a taxpayer who lived abroad and did not return to the U.S. until during the period of the IRS furlough. The petitioner argued that she was unaware that the Tax Court was still operational during this time and thus the Court should still consider the case. The Tax Court disagreed, and Judge Foley granted the IRS motion to dismiss, while noting his sympathy for the petitioner’s situation. The Janjic case most clearly raises the issue of confusion and provides a possible basis for equitable tolling should the time frame for filing a petition in a deficiency proceeding prove not to be jurisdictional.

The issue of jurisdictional nature of the timing of the filing of a deficiency case will be argued in the 9th Circuit in San Francisco on October 22, 2019, in the cases of Organic Cannabis Foundation LLC v. Commissioner, Ninth Circuit Docket No. 17-72874 and Northern California Small Business Assistants, Inc. v. Commissioner, Ninth Circuit Docket No. 17-72877.  We will be closely watching those cases as the decision there could impact other petitioners like Ms. Janjic who file their Tax Court petitions late but have a reason for doing so that would support a finding of equitable tolling. Although we have not written as standalone post on Organic Cannabis and Northern California Small Business Assistants, we did discuss them in the December 31, 2018 post linked above. Just as a reminder, here is what we wrote in that post:

There are currently before the Ninth Circuit two companion cases of petitions sent in around the same time as Guralnik, also by FedEx First Overnight, that arrived a day late. In these cases, Organic Cannabis Foundation LLC v. Commissioner, Ninth Cir. Docket No. 17-72874, and Northern California Small Business Assistants, Inc. v. Commissioner, Ninth Circuit Docket No. 17-72877, it is not clear why the petitions were filed late, but it appears that the Federal Express driver could not access the open Tax Court Clerk’s Office on the last day – either because of construction work, police activity, or some other reason – so the driver returned the following day (one day too late if section 7502 can’t be used). In unpublished orders issued on July 25, 2017 (here and here), the Tax Court declined to extend Guranik to cover situations where the Clerk’s Office was in fact open.

In the Ninth Circuit, the taxpayers not only seek to extend Guralnik, but also argue (as the tax clinic at Harvard did in Guralnik) that the deficiency petition filing deadline is not jurisdictional and is subject to equitable tolling. The DOJ relies on the holding in Guralnik, but argues that Guralnik cannot be stretched to cover the situation where the Clerk’s office is actually open. Since the parties cannot confer jurisdiction in a case merely by not making certain arguments, it would not be impossible for the Ninth Circuit to eventually rule both in these cases that the filing deadline is jurisdictional and that the Tax Court cannot import into its own rules any rule from the Federal Rules of Civil Procedure that extends the filing deadline when the Clerk’s Office is formally closed. That is, nothing stops the Ninth Circuit from rejecting the latter holding in Guralnik. Thus, until there are some court of appeals rulings on this fact pattern, it may be wise not to try to rely on the closure of the government as a reason for not mailing a Tax Court petition on time or attempting hand delivery to the court on the first date it reopens. The cases before the Ninth Circuit are fully briefed… Among the briefs there are amicus briefs from the Harvard tax clinic arguing that the filing deadline is not jurisdictional and is subject to equitable tolling.

Of course, we are closely following the jurisdictional nature of the timing of filing Tax Court petitions in several of the bases for jurisdiction. With respect to the recent decision of the D.C. Circuit that the time for filing a petition in a whistleblower case is not jurisdictional, blogged here, the Department of Justice has requested more time to decide whether to request an en banc review of the decision. As discussed in the blog post on the Myers case, because the language in the whistleblower statute essentially mirrors the language in the Collection Due Process statute passed several years earlier, the Myers decision essentially sets up a split between the D.C. Circuit and the 9th Circuit on this issue which creates at the least the possibility of a trip to the Supreme Court.

Shades of Graev and Whistleblower Awards: Designated Orders 6/10/19 to 6/14/19

While we come to another week for designated orders, this week only had a set of three released on the same day.  Two of the designated orders are based on bench opinions from Judge Carluzzo while another order comes from Judge Gustafson.  I will begin with Judge Carluzzo’s bench opinions, which touch on Graev regarding supervisor approval.  At the end, Judge Gustafson’s order delves into IRS approvals of a different sort, this time for whistleblower awards.

Taxpayer Substantations and Supervisor Approval for More Graev Considerations

Docket No. 13675-18S, Michael Hanna & Christina Hanna v. C.I.R., Order available here.

The first order does not stand out at the beginning as Mr. Hanna testified regarding his medical expenses and employee business expenses.  He provided no other proof regarding his medical expenses, vehicle expense deduction, or purchases of tools and supplies.  Since there was no substantiation, the judge sustained those denied deductions.

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Docket No. 11648-18S, David L. McCrea & Denise McCrea v. C.I.R., Order available here.

The second order also does not seem terribly noteworthy.  Ms. McCrea ran a business as a wholesale seller of herbal medical products.  At first, the McCreas disagreed with an IRS assessment of their beginning inventory and purchases, but came to accept the IRS adjustments. 

The McCreas still disagreed with the IRS regarding their ending inventory.  The McCreas want the value to be the amount on their Schedule C for 2014.  The IRS, however, provided a different exhibit received by the IRS revenue agent during the course of examination.  The document is a physical inventory, which the petitioners claim is taken at the end of each year.  The results are provided each year on a document to their return preparer, who claimed he used the document to prepare their tax return, but did not supply the document to the IRS.  In fact, it seems a mystery for the petitioners who provided the document to the IRS.  Even though the parties’ exhibits are similar, there are items omitted from the Schedule C document that are on the IRS exhibit.  The difference between the two values is $21,112.

Judge Carluzzo finds a compromise.  The ending value on the Schedule C shall be supplemented with the items on the IRS exhibit that are not shown on the Schedule C.  The result needs to be calculated and will either match the Schedule C or a lesser amount.

The likely reason both orders were designated by Judge Carluzzo comes from an examination in both cases of 6662(a) penalties.  The evidence in each case showed that a supervisor approved imposition of a penalty on a date that preceded the issuance of the notice of deficiency.  The petitioners for each case were first formally advised regarding the imposition of the penalty on a date that preceded issuance of the notes.  As a result, the IRS imposition of the section 6662(a) penalties were rejected.

Takeaway:  Judge Carluzzo is reviewing 6662(a) penalties and will reject those penalties if they do not line up correctly in the timeline.

Whistleblower Claim Remanded to Whistleblower Office for Further Consideration

Docket No. 13513-16W, Loys Vallee v. C.I.R., Order available here.

In a whistleblower case, one of the main questions under IRC section 7623(b) is “whether the IRS collected proceeds as the result of an administrative or judicial action using the whistleblower’s information.”

Petitioner Loys Vallee provided information to the Whistleblower Office, but he was denied a claim by the IRS for a whistleblower award.  At issue before the Tax Court is the completeness of the administrative record.  Mr. Vallee filed a motion to compel production of documents in 2017 that led to what the IRS contends is the complete administrative record in 2018.  The parties filed their responses concerning the completeness of the record and it is now before the judge to make a decision.

The debate concerns the number of individuals who received the information and whether they forwarded that information to other IRS employees.  Partially, this debate is supported by the fact that not all the declarations stated that they did not forward Mr. Vallee’s filed information to any other group or person than those stated in the declaration.  Mr. Vallee provides his own list of individuals who had access to the information he provided.

Mr. Vallee makes statements concerning Corporation D, Related A, and Related B in his submissions to the Court.  Corporate D and Related A consolidated and he argued the consolidation allowed Corporate D to use Related A’s accumulated tax credits to satisfy its own tax liability in a method known as refund netting.  The Tax Court notes that Mr. Vallee did not use the term refund netting in his Form 211 or the lengthy attachments so cannot advance a new claim or try to cure deficiencies in previous claims.

The Court reviews the information from the IRS and notes there is an issue with what they provided.  The IRS states that the four individuals they cite that received the information followed the protocol of the Internal Revenue Manual (IRM) and kept the petitioner’s information confidential.  They have provided a declaration for one individual named and state there was no need to follow up with the other three individuals since her form provides feedback about the division.  Judge Gustafson disagrees, stating that while the actions discussed indicate the individuals followed IRM provisions, the IRS needs to provide affidavits or declarations concerning the other three individuals.  The declaration in question provided cannot cover personal knowledge about the actions of the other three individuals.

The judge says that there are still two unanswered questions regarding Mr. Vallee’s entitlement to a whistleblower award.  Who received the Form 211 information and what did they do with it?  Was that information used in an examination that resulted in the collection of proceeds?  Even though Mr. Vallee argues against remand, the judge shows that it is proper in a whistleblower award determination for remand regarding an insufficient administrative record.

Ultimately, the case is remanded to the Whistleblower Office for further consideration of those two questions and development of the administrative record.  The Whistleblower Office is to issue a supplemental determination with an explanation of the determination regarding the two questions.  They are to certify additions to the administrative record and that what has been provided constitutes the entire administrative record.  The judge ends by requiring the parties to provide (joint or separate) timetables for further administrative proceedings.

Takeaway:  There have been several looks at whistleblower claims in designated order blog posts in Procedurally Taxing.  While I do not know how much the IRS approves whistleblower claims, we get to review the denials.  From this vantage point, it seems like the IRS will fight the claims as much as possible.  The IRS basically attacks the claims on either of two fronts: (1) no action was taken by the IRS against anyone mentioned in the information provided or (2) any actions taken by the IRS concerning the individuals or businesses mentioned in the information provided by the whistleblower was based on other information and not based on the information provided by the whistleblower.

Mr. Vallee is fighting in Tax Court concerning the completeness of the administrative record and Judge Gustafson supports that fight by requiring the IRS to update who received that information and what actions they took.  Ultimately, the answer to be settled is whether the IRS took action against the businesses in question based on Mr. Vallee’s submission, settling whether he truly has a whistleblower claim.

Statistics on Cases in Litigation from ABA Tax Section Meeting in May

In May, the ABA Tax Section held its annual meeting in DC. Because of the location, this meeting has more government attendees than the other two meetings during the year. Since the government attendees were unable to attend the previous ABA meeting due to the shutdown, there was a fair amount of information disseminated by them at this meeting. My comments come from the first session of the Court Procedure and Practice Committee. This committee opens with a panel which includes government representatives from different parts of the tax world. There is a representative from the Office of Chief Counsel, from the Tax Court (usually the Chief Judge) and from the Tax Division of the Department of Justice. Chief Judge Foley announced the Court’s decision to allow limited representation starting in September and focused his remarks on that coming change. I expect that we will be writing more about that in coming weeks.

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Rich Goldman from Procedure and Administration provided lots of statistical information in the form of slides. Because the slides were not made a part of the material available to attendees, I requested them informally. Because the slides were not made available to me based on the informal request, I obtained them through FOIA. For that reason it has taken a little time after the meeting to make these slides available. The slides cover a few different types of cases in litigation and provide different perspectives on the cases. The slides not only provide a perspective of what’s happening in tax litigation over the arc of the last decade but they can provide context in some types of litigation where letting the court know of the numbers of certain types of cases can be useful.

Inventory of Cases in Litigation

The first set of slides (slides 2 and 3) discusses the dollars in dispute pending in Tax Court, the Court of Federal Claims and the district courts filed in the last decade. As you will see in later slides the vast majority of tax litigation by number of cases occurs in the Tax Court. Because so many of the cases in Tax Court involve small dollar amounts the amount of money in dispute in the other two courts can make their dockets look bigger. Just focusing on dollars the Tax Court is the clear winner but the contrast gets much starker when looking at number of case filed which you can find in the following slides, 4 and 5.

The data then moves from graphs to pie charts to provide a greater breakdown of the Tax Court’s inventory (slide 6). The pie chart is followed by another graph showing dollars in dispute by type of Tax Court case. It comes as no surprise that a small percentage of Tax Court cases dominate the amount of dollars at issue (slide 7).

Tax Court Filings by Category

The next slide provides a 10-year arc of the filings in Tax Court by category (slide 8). This graph shows that the number of Tax Court cases have declined in recent years but the decline has not been as significant as I might have expected given the cut back in some of the audit activity by the IRS. These slides do not show the percentage of cases petitioned based on the number of statutory notices or determinations issued by the IRS. A long time ago the percentage of cases filed in the Tax Court by taxpayers receiving notices that provided a ticket to Tax Court was around 3%. If that percentage still holds or provides even a reasonably close approximation of the number of filings per notice, you can see that a drop off at the Tax Court of 1,000 cases reflects a much more significant drop off at the IRS of the number of cases in which it sends a notice.

Receipts and Closures at the Tax Court

A trio of slides shows the number of receipts and closures at the Tax Court (slides 10, 11, and 18). The Tax Court has been closing cases faster than it receives them for several years. I have not seen statistics on how this has impacted the length of time a case spends in the Tax Court. I expect that the length of time from filing to conclusion has decreased but that type of statistic was not included in the package of statistics provided at the ABA meeting. Another pair of slides shows the receipts and closures by case category type (slides 12 & 13).

Sources of Cases Petitioned to Tax Court

One slide shows the sources of case petitioned to the Tax Court. No big surprise that Service Center notices provide the vast majority of cases. I go to the Tax Court fairly regularly and sit in the docket room looking at cases on upcoming calendars in Boston. It’s interesting when you go through a calendar to see the types of case that make it to the Court. I have been struck in the last few years how few earned income tax credit cases appeared on the calendars. A large number of cases involved unreported income picked up by the automated underreporter unit which matches the information returns against the information reported on the return. Without these computer audits, the number of Tax Court cases would plummet.

Settlement

Two of the slides focus on settlements showing cases settled in Appeals and in Chief Counsel’s office (slides 15 & 16). The vast majority of cases do not go through Appeals on the way to Tax Court because the vast majority of cases involve pro se taxpayers who do not avail themselves of the opportunity to go through Appeals. It would be interesting to see what would happen to the Tax Court inventory if exhausting your remedies by going to Appeals was made mandatory instead of voluntary as a part of getting to Tax Court. All Collection Due Process (CDP) cases take the Appeals route prior to coming to court.

Pro Se Cases in Tax Court

One slide shows the number of cases filed by pro se petitioners in Tax Court and the dollars at issues in those cases. While many of the petitioners filing pro se meet the criteria as low-income taxpayers under IRC 7526 which pegs qualification at 250% of poverty, a large percentage of the petitioners in this group file pro se because the cost of representation exceeds the amount at issue. For many middle income or even high income taxpayers a dispute with the IRS that involves less than $15-20,000 may not justify the cost of obtaining representation. For individuals working calendar call, it is not unusual to encounter these petitioners. Of course, many of the more sophisticated pro se petitioners, whether low, middle or high income, can navigate the system and settle with Appeals or IRS Counsel. Still, some of the pro se individuals from each income level need assistance to effectively manage their case to the best result.

Refund Cases

There are five slides depicting various facets of refund litigation (slides 19-23). The striking aspect of refund litigation is how few cases end up in refund litigation anymore. The number of refund cases has historically been much less than the number of Tax Court cases but that trend has significantly accelerated in the past couple of decades. Some cases must go the refund route because the Tax Court route is unavailable, either because of the type of tax or the taxpayer’s initial decision to report the tax and allow the IRS to make an assessment. Larger corporations with sophisticated counsel tended to go the refund route if the forum shopping opportunity provided the best path to victory. The reduction in refund cases may reflect the significant decrease in audits of the types of taxpayers who made this type of choice in years past.

Collection Due Process

Four slides show the numbers of CDP cases in the Tax Court. The number of these cases is not as large as one might expect. It is unclear why so few taxpayer who elect CDP choose to go to Tax Court.

It’s worth noting that the Chief Counsel’s office did not display in any of the slides the number of cases in litigation in the bankruptcy courts. Section 505(a) of the bankruptcy code gives taxpayers going through bankruptcy the opportunity to litigate their liability in bankruptcy. No statistics were provided to show how many and what type of taxpayers avail themselves of this opportunity. Despite this absence, the group of slides provides a fairly detailed look at the tax litigation system and the cases going through it.

The Scope of a Power of Attorney: When Can a Representative Sign a Refund Claim?

Today we welcome guest blogger Tameka Lester from the Philip C. Cook Low-Income Taxpayer Clinic at Georgia State University College of Law. With Derek Wheeler of the Erie County Bar Association Volunteer Lawyers Project LITC, Tameka is creating a chapter on Power of Attorney issues for the next edition of Effectively Representing Your Client Before the IRS. In this post she looks at a case where a misunderstanding about the scope of authority under Form 2848 doomed a taxpayer’s refund claim. Christine

A power of attorney allows an authorized representative to step into the shoes of a taxpayer. Once there, the representative can execute many of the same acts normally done by that taxpayer. Form 2848 establishes this authority for purposes of dealing with tax related matters before the Internal Revenue Service (IRS). In addition to working directly with IRS personnel, the Form 2848 allows the representative to complete additional actions such as substituting or adding representatives and signing returns on behalf of the taxpayer. Many issues can arise when utilizing the power of attorney, including whether authority has in fact been conveyed to complete a particular action. This issue is examined in a refund suit before the U.S. Court of Federal Claims, Wilson v. United States (Feb. 27, 2019).

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This case was presented before the Court to review a penalty imposed against the plaintiff for the untimely reporting of his status in reference to a foreign trust. Plaintiff maintained the IRS applied the incorrect percentage of penalties prescribed by IRC 6677. Under this statute, the civil penalty for filing Form 3520 late is “the greater of $10,000 or 35% of the gross reported amount” unless the taxpayer filing the return is an owner/grantor of the foreign trust. Plaintiff maintained that he was the owner/grantor of the trust as opposed to the beneficiary (which would reduce his penalty from 35% to 5%), paid the penalty assessed in June 2017, and instructed his attorney-in-fact to file a claim for refund in August 2017. The attorney-in-fact, who was listed on the plaintiff’s Form 2848 power of attorney, prepared the claim for refund (IRS Form 843), signed on the line provided for the paid preparer, and filed it without the taxpayer’s signature. In response to the suit, the government filed a motion to dismiss for a lack of subject matter jurisdiction on the basis that a claim for refund was not “duly filed.” Their contention was the power of attorney issued by plaintiff did not provide the attorney-in-fact the authority to sign a claim for refund under penalty of perjury as required. The Court considered this a unique issue, as they had not previously encountered a situation where the person signing the return as the paid preparer was also the taxpayer’s attorney-in-fact under a power of attorney.

Upon review, the Court never gets to the merits of the case although the prevailing position is that the document should be signed under penalty of perjury. Instead, the court looks to determine if, by simply executing a general IRS Form 2848, the plaintiff conveyed the necessary authority for his attorney-in-fact to sign a refund claim on his behalf. After reviewing the instructions for the Form 2848, Form 843, and the requisite case law involving similar issues of powers of attorney, the Court granted the Government’s motion to dismiss for lack of subject matter jurisdiction.

The Court arrives at this conclusion by first reviewing the instructions provided for the Form 843. The instructions state that the authorized representative can file the form for the taxpayer as long as he includes a copy of the 2848 authorizing the representative to complete this particular request.

Under the Form 2848 instructions, some actions are considered general grants of authority while others must be specifically stated. The general actions include the authority “to receive and inspect [the taxpayer’s] confidential tax information and to perform acts that [the taxpayer] can perform with respect to the tax matters described below [on the power of attorney].” For purposes of the taxpayer in this case, these general actions included “income tax (Form 1040), civil penalties (From 3520 and 3520-A), and matters relating to foreign banks and financial account reports.” When the Centralized Authorization File system receives a power of attorney with general actions authorized, those authorizations are recorded on the IRS’s systems; however, for specific actions the instructions for Form 2848 provide that if the power of attorney is “a one-time or specific-issue grant of authority to a representative or is a POA that does not relate to a specific tax period…the IRS does not record [it] on the system. Claims for refund are considered a specific-use not recorded on the system.” Because the claim for refund requires a specific grant of authority and the claim must be “duly filed” in order to be considered by the Court, whether the authority was actually given goes to the heart of the issue of subject matter jurisdiction. 26 U.S.C. 7422(a). The burden of establishing jurisdiction falls on the plaintiff to prove it by a preponderance of the evidence. Reynolds v. Army & Air Force Exch. Serv., 846 F. 2d 746, 748 (Fed. Cir. 2008).

In an attempt to establish subject matter jurisdiction, plaintiff cited Aronsohn v. Commissioner. In Aronshohn, the Third Circuit explored the issue of whether a general power of attorney authorized the taxpayer’s authorized representative to sign a waiver (Form 870-
AD), which precludes the taxpayer from later filing a refund claim.   According to that court, “a more specific power of attorney” is not required before the authorized representative could give up the taxpayer’s potential future refund claim. The Government, however, argues that this is only one part of the requirement. It contends in addition to authorizing the representative to sign the claim for refund, the claim for refund must be signed under penalty of perjury like an actual return.

“The statement of the grounds and facts [of the claim] must be verified by a written declaration that it is made under penalties of perjury. A claim which does not comply with this paragraph will be not considered for any purpose for claim for refund or credit.” 26 C.F.R. 301.6402-2(b)(1).

Although plaintiff draws a distinction between returns and refunds that the Court recognizes, the Court follows the guidance provided in the regulations. The Court also reviews the Form 2848 requirements for giving a representative authority to sign a return. The form requires a taxpayer to check a box on line 5 allowing his representative to sign a return and to expressly state the representative is signing the return under penalty of perjury. No such requirement is specifically stated for Form 843; however, since the claim for refund must also be signed under penalty of perjury the Court was not convinced plaintiff provided a reason why an express statement should not also be required. Without the mandate that the claim is being signed under penalty of perjury, Form 2848’s general authority cannot authorize a representative to execute this action or create a “duly filed” claim for refund. As an ancillary matter, the Court noted that even if the POA provided the requisite authority necessary to file the claim for refund, there may be an issue with whether the representative’s signature on the preparer line was sufficient, or if the representative would also have been required to sign the plaintiff’s name on the signature line.

As an additional matter, the Court briefly reviewed the informal claim doctrine (which has been discussed in previous posts on Palomares v. CommissionerandVoulgaris v. United States) to determine whether it should be applied in this case to prevent plaintiff from having to refile the claim. The Court rejects the doctrine’s application and does not use it to remedy the jurisdiction issue, noting that plaintiff still has time to file a timely claim for refund. In fact, prior to the Court’s decision, plaintiff filed an amended claim for refund in January 2019, which he signed under penalty of perjury. Thus, plaintiff must allow the Service to make a determination on the amended claim. If that claim is rejected or not decided within 6 months, plaintiff will be permitted to file a new refund suit.

Status of Several Issues Pushed by TAS

As regular readers of the blog know, we published reflections on the tenure of Nina Olson throughout the month of July leading up to her retirement.  The reflections came from many different perspectives and offered a variety of thoughts on her tenure.  Thank you to everyone who wrote a reflection or commented on the site.  On her last day, Nina published a blog post providing an update on a number of issues she was working to resolve before she left.  If you have not read her final blog post as NTA, it’s worth reading to learn where the issues stand if you are following an issue about which she commented.  I will briefly recap them below to allow you to decide if she wrote on an issue close to your heart.

One of the issues Nina pushed during her time as NTA was taxpayer rights.  Paul Harrison, the director of the low income taxpayer clinic at Ladder Up in Chicago, wrote a reflection on Nina as a song focusing primarily on taxpayer rights.  The song is included in this post as well.

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Private Debt Collection

On this issue Congress stepped up and took care of a major concern raised by Nina.  It excluded from the list of accounts that the IRS should refer to the private debt collectors taxpayers falling below 200% of poverty.  It also excluded certain taxpayers receiving means tested income.  These changes definitely benefit the low income individuals who will no longer be receiving the multitude of contacts from the collectors.  I think they also benefit the PDCs and the IRS.  Chasing most of these individuals for payment is, more often than not, a losing proposition.

Training on Taxpayer Rights

I have written before about cases in which taxpayers have argued that TBOR has the “teeth” to stop the IRS from certain action or behavior.  In those cases the IRS argues that TBOR lacks teeth to allow the court to stop its action and the taxpayer argues that for TBOR to have meaning it must stop certain types of behavior.  If TBOR has any teeth, it certainly should have teeth regarding the training of IRS employees on the enumerated rights since that is discussed in the statute. Congress stepped in again here and ordered the IRS to develop a plan for training employees on taxpayer rights.

Exclusion of TAS Open Cases from Passport Certification

The IRS has administratively and temporarily pulled cases from the passport certification process if the taxpayer is working with TAS to resolve the issue.  This is a good result for taxpayers trying actively to work out their cases.  It will be interesting to watch and she if this becomes a permanent practice or just a temporary experiment.

Economic Hardship Indicator

Nina sought to have the IRS tag the accounts of qualifying taxpayers and to stop affirmative collection from people with the indicator.  She marks this as unfinished business since the IRS did not adopt her recommendation.

TAS Attorney Hiring Prohibition

Nina hired a number of attorneys to work with her within TAS.  Starting in 2015 Treasury basically stopped allowing her to hire attorneys to work directly under the NTA.  She did not succeed in changing the Treasury policy before she left.  This issue does not have a direct impact on practice before the IRS but, obviously, impacts the functioning of TAS.

Internal Revenue Manual Chapters on Taxpayer Assistance Orders and Taxpayer Advocate Directives

Nina has proposed some changes to the operation of TAOs which the IRS has not yet accepted.

Transparency of Chief Counsel Guidance

In 1998 Congress required many advisory opinions issued by Chief Counsel’s Office be made public.  Some advice is still not seeing the light of day.  Nina suggests that changes are forthcoming.

Conclusion

The details are in her blog post.  The purpose of this post is to alert you to the issues she discusses in case one or more of those issues is of interest to you.   

Now for the promised song about taxpayer rights:

(What’s so Funny ‘Bout) Asserting Taxpayer Rights?

(To the tune of (What’s so Funny ‘Bout) Peace, Love, and Understanding? By Nick Lowe. Famously covered by Elvis Costello & the Attractions of whom, I’ve been told on good authority, the erstwhile NTA was a fan.)

As I read through
The IRC
Searchin’ for fairness or a bit of integrity

I ask myself
Is all hope lost
Is there only debt, dis’lowance, and inequity?

And each time
I feel like this inside,
There’s only one thing I wanna know:

What’s so funny ‘bout asserting taxpayer ri-ights? Ohh!
What’s so funny ‘bout asserting taxpayer ri-ights?

And as I walked on
Through troubled seas
I’m so glad I found the LITC
‘Cause they the strong
And they are the trusted
And they are the LITC
Sweet LITC!

‘cause each time another notice arrives, just makes me wanna cry.
What’s so funny ‘bout asserting taxpayer ri-ights? Ohh!
What’s so funny ‘bout asserting taxpayer ri-ights?

‘Cause they the strong
And they are the trusted
And they are the LITC
Sweet LITC!

‘cause each time another notice arrives, just makes me wanna cry.
What’s so funny ‘bout asserting taxpayer ri-ights/ Ohh!
What’s so funny ‘bout asserting taxpayer ri-ights?

EITC Ban: NTA Report Recommends Changes and IRS Advises on its Application to Partial Disallowances

The following brief post discusses two recent developments relating to the EITC ban. The first is a report that the recently retired NTA submitted to Congress that contained administrative and legislative recommendations to improve the penalty. The second is informal IRS advice concerning its application to partial EITC disallowances.

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Report to Congress Proposes Changes to Ban Procedures

We have written frequently about problems with the authority that the IRS has to ban taxpayers from claiming the EITC (and now CTC and AOTC) following improper claims. Just last fall guest poster Bob Probasco in The EITC Ban—It’s Worse Than You Realizedaptly equated one of his client’s experiences in navigating the ban process to victims of 1970’s Hollywood disaster movies. I spent much of this past spring at IRS TAS as a Professor in Residence working on a report recommending improvements to the EITC that Nina Olson as NTA submitted in her final report to Congress.  The report, Making the EITC Work for Taxpayers and Government: Improving Administration and Protecting Taxpayer Rightsbecame Volume 3 of the FY 2020 Objectives Report to Congress. 

Part V of the report addresses the problematic ban provision. After detailing the process the IRS uses for imposing the ban we concluded on page 45 that the current system raises serious concerns and jeopardizes taxpayer rights: 

The processes described above are complicated for even seasoned tax lawyers much less unrepresented EITC recipients. The IRS path during the ban proposal and imposition period is marked by a series of notices with limited explanation. No rules or notices pertaining to the effect on a taxpayer who files jointly with a banned taxpayer exist, and there may be limited opportunities for audit reconsideration where a significant amount of time has passed since the ban was imposed. Adding to this confusion, there is some uncertainty as to whether, and when, the Tax Court has jurisdiction to consider the ban 

To address the risks to taxpayer rights, we provide two key recommendations. First, we recommend that the IRS develop a ban examination process that is separate from the audit process. That process should focus on whether the taxpayer’s conduct justifies the IRS to impose the ban. Second, we suggest that Congress clarify when the Tax Court has jurisdiction over the ban and require that the burden is on the IRS to prove that imposing the ban was appropriate.

While the IRS has imposed the ban relatively infrequently over the past few years, Congress recently expanded the opportunities for IRS to impose the ban by giving the IRS to exercise its authority for improper child tax credit and American Opportunity Tax Credit claims. Unfortunately Congress did so without addressing any of the issues we discuss in the report to Congress. This only exacerbates the problems Bob and others have identified when taxpayers are potentially subject to the ban. 

IRS Email Advice Discusses How Ban Can Apply to Partial Disallowances

A recent IRS informal opinionaddresses the possibility of the IRS imposing the ban when there is only a partial disallowance of the EITC:

[Taxpayer] claims 3 children, 1 child disallowed. TP continues to claim the 1 child for consecutive years when they know that they are not entitle[d] to claim the child. Can the TP be subject to the 2-year ban, even though they are entitled to the EIC for the other 2 kids? 

 The opinion concludes that the ban can apply in this situation:

Section 32(k)(1) states that no credit shall be allowed under § 32 for any taxable year during the disallowance periods, which are 2 years for reckless and intentional disregard and 10 years for fraud. Section 32(k)(1)(B)(ii), regarding the 2-year ban for reckless or intentional disregard of rules and regulations, does not prohibit imposition of the ban for partial disallowances. Accordingly, if any taxpayer’s claim for the EIC is partially disallowed because of reckless or intentional disregard of rules and regulations, the IRS may asset the 2-year ban under § 32(k)(1)(B)(ii) on the taxpayer claiming any EIC during the 2 years.

Technically, this conclusion makes sense yet I have concerns with the IRS’s ability to make fair and accurate determinations of taxpayers’ intentions. Family lives are complex. It is difficult for taxpayers to reach the IRS during the correspondence examination process. Getting through to IRS by phone requires persistence, patience and time. Many of the taxpayers who the IRS has imposed or asserted a ban used paid preparers, further complicating questions of intent.  

As we discuss in the report, the correspondence the IRS uses when it has imposed the ban does not adequately discuss how taxpayers can challenge the IRS ban determination. To be sure, improper claims are a problem with the EITC and other credits. Yet basic fairness suggests that before the IRS imposes the ban there is a straightforward and clear path to challenge the ban. 

Not All Who Wander Are Lost; But At What Cost? – Designated Orders: June 24 – 28, 2019

We have four designated orders this week covering a wide array of substantive and procedural issues. Highlights include a review of allowable expenses for over-the-road truckers; the continuing (and perhaps now ended?) saga of Bhramba v. Commissioner in our Designated Orders; and a couple of permutations on our old friend, section 6751(b).

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Docket No. 15601-17L, Horner v. C.I.R. (Order Here)

This order from Judge Armen grants Respondent’s motion for summary judgment. It’s fairly unremarkable—a nonresponsive Petitioner often loses on a motion for summary judgment in a CDP case. Here, however, the summary judgment motion followed a supplemental CDP hearing, which Respondent’s counsel requested to determine the merits of the underlying liability. Apparently, Counsel couldn’t find in its records that the Petitioner had received the Notice; so the underlying liability could be at issue.

One is left to wonder why Respondent’s counsel did that. Introducing the Notice of Deficiency into evidence creates a presumption that the taxpayer received the notice (so long as Respondent mailed it via certified mail). See Conn v. Commissioner, T.C. Memo. 2008-186.The taxpayer may, of course, rebut that presumption. But that’s hard to do when one doesn’t meaningfully participate in the administrative or judicial proceedings, as it seems Petitioner failed to do.

Alas, Petitioner also failed to meaningfully participate in the supplemental CDP hearing, making allegations that tended towards tax protesting. According to the settlement officer and Judge Armen, the underlying liability was originally assessed pursuant to a substitute-for-return, which in turn was based on three Forms 1099-MISC.  To hammer the point home that Petitioner was, in fact, in the moving business, Judge Armen quoted extensively from Petitioner’s website that advertised his business.

Docket  No. 5849-09, Davidson v. C.I.R. (Order Here)

Judge Leyden resolves this discovery dispute in a fair manner—at least, for the time being. Respondent sent Petitioner a request for admissions, to which Petitioner responded. Apparently, Respondent thought that the responses were inappropriate, and so filed a motion under Rule 90(e) to review the sufficiency of the answers and/or objections. Petitioner objected to the motion, noting that he is incarcerated until December 2019. As such, it’s difficult for him to accurately answer the questions that Respondent poses.

Judge Leyden agrees with Petitioner and orders instead that Petitioner serve an amended response on Respondent on January 22, 2020—30 days after his released from incarceration. This seems like a fair resolution—though we’ll need to set our Designated Order alarms to check in this January.

Docket No. 6174-18S, Gillespie v. C.I.R. (Order Here)

Judge Leyden provides another Designated Order through this bench opinion, which involves travel expenses deducted as unreimbursed employee expenses under section 162 and the accuracy penalty under section 6662(a).

This over-the-road trucker deducted $40,897 as unreimbursed employee expenses—including $16,001 of meals and entertainment expenses, calculated at 80% of the national per diem rate (transportation workers may deduct 80% of these costs, rather than the normal 50% of meal and entertainment costs for other taxpayers), and $24,896 for other travel expenses. These latter expenses included hotel costs and rental car expenses.  He primarily slept in his truck, but would rent a hotel when his truck had to undergo a repair overnight. During these times, he’d also rent a car to “see the sights” in whatever locale he happened to stop. Petitioner essentially lived in his truck year-round, though he rented a room near Salt Lake City for 26 days in the tax year. His employer didn’t reimburse their employees for any expenses, including hotels, meals, or other travel expenses.

Judge Leyden denies the deduction for all claimed expenses because Petitioner was never “away from home” such that he would qualify to claim any travel expenses—whether lodging, meals, or otherwise. See, e.g., Barone v. Commissioner, 85 T.C. 462, 465 (1985).The Tax Court has long held that to claim travel expenses, taxpayers must be “away from home” when they incur those expenses. And if a taxpayer doesn’t have a “home”, then as a logical consequence, they can never be “away from home.”

But where is a taxpayer’s “home”? It’s primarily a taxpayer’s principal place of business. Howard v. Commissioner, T.C. Memo. 2015-38. If the taxpayer doesn’t have a principal place of business, it’s their permanent place of residence—a useful fallback for the vast majority of taxpayers. Barone,85 T.C. at 465.

But to use this fallback, taxpayers must incur substantial continuing living expenses. James v. United States, 308 F.2d 204, 207-08 (9th Cir. 1962); Sapson v. Commissioner, 49 T.C. 636, 640 (1968). Petitioner’s 26 days in Salt Lake City were apparently not substantial and continuous enough to place his principal place of residence at the rented room. So on these issues, he’s out of luck.

For taxpayers who are truly transient, the Tax Court has long held that these taxpayers are never “away from home” and therefore cannot deduct any travel expenses whatsoever. And for taxpayers like Petitioner here, failure to establish a permanent place of residence (or principal place of business) translates to thousands of dollars in additional tax. The deficiency in this case is over $7,000; this doesn’t take any additional state tax into account. In some cases, it may be possible to incur housing costs that are substantially less than any additional tax amount caused by failure to establish a permanent place of residence.

It’s also important to note that this is a largely moot point for employee truck drivers during tax years 2018 to 2025, as miscellaneous itemized deductions, such as the deduction for unreimbursed employee expenses, are unavailable to claim because of the 2017 tax law.  Still, the implications here drastically affect self-employed over-the-road truck drivers, who may continue to deduct their operating expenses.

Petitioner also lost on his other claimed deductions: (1) for cell phone expenses for failure to their prove business use and to prove that his employer didn’t reimburse him; (2) truck repair expenses for failure to prove that his employer didn’t reimburse him; and (3) rental car expenses because they were personal expenses.

What about the accuracy penalty in this case? Judge Leyden quickly disposes of this issue—and this time in Petitioner’s favor. Fatal in this case were the timing issues with managerial approval of penalties under section 6751(b) that arose in Clay v. Commissioner, 152 T.C. No. 13 (2019). Samantha Galvin blogged about Clay last month.

To recap the issue, Respondent did introduce evidence of managerial approval, dated November 6, 2017. So what’s the problem? The statute requires that a manager approve in writing the initial determination of any asserted penalty. And Respondent also introduced evidence of a 30-day letter asserting the penalty, which was issued on October 2, 2017. No evidence of managerial approval prior thereto. So Judge Leyden quickly notes that Respondent failed to meet his burden of production, and finds no penalty for Petitioner.

Docket No. 1395-16L, Bhambra v. C.I.R. (Order Here)

Bhambra is now a familiar name in the Designated Orders series, though this may be his last appearance. I previously covered this case in a post from July 2018, where Judge Halpern granted Petitioner’s motion to remand the case to consider the underlying liability—here, a civil fraud penalty under section 6663. Bill Schmidt covered the case in a post from February 2019, carrying the apt subtitle, “How Not to Deal with Tax Fraud”. As one might expect from the title, the Tax Court entered a decision upholding the civil fraud penalty in March of this year.

Apparently Petitioner has read up on section 6751(b)’s recent legal development, and so he filed a motion to vacate the Tax Court’s decision, because—allegedly—the Tax Court didn’t require Respondent to comply with the supervisory approval requirements of section 6751(b). Respondent objected to the motion on the basis of timeliness, not on the merits. Petitioner, it seems, postmarked the motion one day after the 30-day deadline applicable to motions to vacate under Tax Court Rule 162. So, the Court denied the motion on that basis (and because Petitioner filed no motion for leave to file the motion to vacate out of time). Judge Halpern also noted that Respondent included a penalty approval form that demonstrates managerial approval regarding the penalties in question. This seems to leave the door open for Petitioner to file a motion for leave; are there perhaps Clay problems lurking here as well? I wouldn’t foreclose the prospect of further activity in this docket.  

The Muddle of Seeking to Litigate the Merits of a Tax Liability in Collection Due Process Cases

A recent proposed opinion in the Tax Court signals a trap for the unwary for those seeking to litigate the merits of the tax liability stemming from a notice of deficiency in a collection due process (CDP) case.

We have not written much about proposed opinions in the Tax Court. We wrote about the proposed opinion in the Guralnik case. Proposed opinions occur when a case is assigned to a Special Trial Judge who writes the opinion but the opinion waits for a presidentially appointed judge to adopt it as the opinion of the court. The most famous proposed opinion was written in by STJ Couvillion in the Ballard case. The taxpayer in Ballard sought to see the proposed opinion because Judge Dawson, the presidentially appointed Tax Court judge who “adopted” the opinion described the opinion as he wrote as one written by STJ Couvillion. The fight went up to the Supreme Court with the taxpayer ultimately able to show that the opinion of the Tax Court was not the original proposed opinion.

In the case of Lander v. Commissioner, Docket No. 25751-15L, STJ Guy wrote a proposed opinion on July 8, 2019, in which he determines that the Landers cannot litigate the merits of their tax liability in Tax Court in a CDP case because, even though they did not receive the statutory notice of deficiency in time to petition the Tax Court, they made an audit reconsideration request to the IRS after the default assessment of the liability and after the Examination Division of the IRS denied their audit reconsideration request, the Landers appealed the denial to the Appeals Office where they received partial relief. Judge Guy determines that their trip to Appeals as part of the audit reconsideration process provided them with a prior opportunity to have the merits of their case heard even though the audit reconsideration process does not lead to an opportunity to go to Tax Court to contest the determination by the IRS.

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IRC 6330(c)(2)(B) sets out the ability to litigate the merits of the underlying liability in a CDP case. It says:

The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability. (emphasis added)

Treasury Regulation 301.6330-1(e)(3), Q&A-E2, provides that “An opportunity to dispute the underlying liability includes a prior opportunity for a conference with Appeals that was offered either before or after the assessment of the liability” (emphasis added).

The regulation can be read so broadly that it would basically preclude anyone from litigating the merits of the liability since it’s possible to posit the opportunity to get to Appeals in almost all cases including the Landers’ case. The IRS regularly takes the position that an opportunity to go to Appeals prevents the Tax Court from hearing the merits. However, Judge Guy seems to find it important that the Landers availed themselves of the opportunity to go to Appeals. If that’s where his decision rests, and not upon the opportunity to go to Appeals which exists for everyone assessed in their position, then the case serves as a reminder of the trap a taxpayer can fall into if the taxpayer actually goes to Appeals during the audit reconsideration process.

Despite the broad language of the statute and regulation, the Tax Court has sometimes considered whether a taxpayer actually received Appeals review. A couple of earlier cases brought under the small Tax Court procedure did not deny the taxpayer the opportunity to litigate the merits of the liability during a CDP case following audit reconsideration. In Canaday v. Commissioner, T.C. Summary Opinion 2015-57 and Crouch v. Commissioner, T.C. Summary Opinion 2009-143, the IRS appears to have made a similar argument to the one in Landers. The taxpayers were audited and then requested audit reconsideration, which was disallowed, before later requesting a CDP hearing in response to a levy notice. In Canaday, Judge Gerber rejects the IRS argument of preclusion, because taxpayer’s previous contesting on the merits was not before Appeals. And in Crouch, Chief Special Trial Judge Panuthos relies on the audit reconsideration process being contained within the centralized reconsideration unit in Examinations and thus not being an independent review of the merits by Appeals. However, both taxpayers had an opportunity to go to Appeals following their audit reconsideration denial.

The Canday and Crouch cases are instructive because they deal with audit reconsideration, but I do not mean to suggest that the Tax Court ignores the prior opportunity language. In multiple other cases, the Court has quoted the stature or regulation and foreclosed merits review due to a prior opportunity for Appeals review.

Although the proposed opinion recounts the actual trip that the Landers made to the Appeals Office, it’s not an actual trip that always matters in prior opportunity cases. What matters, according to the IRS and numerous prior opinions, is the opportunity to go to Appeals to dispute the liability. The IRS could read the Landers’ case as signaling the end of merits litigation in deficiency cases since every taxpayer who does not actually receive the statutory notice of deficiency sent by the IRS and who, as a result of the failure to receive the notice fails to petition the Tax Court, will have an assessment made against them and will have the post assessment remedy of audit reconsideration including the right to visit Appeals. Since every taxpayer had a prior opportunity to go to Appeals, they do not, according to the broader view of the proposed opinion in Landers, have the opportunity to litigate the merits of their liability in a CDP case.

The broader view of the result here brings the taxpayer’s rights back to the same rights they had regarding the post assessment, pre-payment litigation of the merits of their liability to the time prior to July 21, 1998, when the Restructuring and Reform Act of 1998 added IRC 6320 and 6330. Could this be what Congress intended? The more narrow view brands the taxpayer as someone who made a bad mistake by pursuing an administrative remedy instead of waiting for CDP. The better place to land would be to allow taxpayers who did not have a prior opportunity to contest the merits of their liability in court to come on into Tax Court and contest it there. Getting to the better place would require revisiting earlier Tax Court precedent and challenging the regulation.

The IRS has written the CDP regulations and the Tax Court and some Circuit Courts have interpreted those regulations to restrict the taxpayer’s right to litigate the merits of the underlying liability that the taxpayer never had a right to litigate prior to assessment to the point that the right is almost gone if not gone. In 1998 Congress seemed concerned that a taxpayer could find themselves in a situation in which they owed tax yet never had an opportunity to contest the tax in court. We have now evolved to the situation where the taxpayer’s only right to contest the tax in many cases is to do so in an administrative hearing. Taxpayers had that right prior to the change in 1998. Why would Congress have gone to the trouble of putting in a provision giving taxpayer rights to contest the merits of a liability they never previously had the ability to contest in court if Congress intended us 20 years later to end up back in precisely the situation that existed prior to the legislation?

We have blogged before about Lavar Taylor’s attempts to fight this result in the penalty area. He lost. We have blogged about other cases in which taxpayers were denied the right to contest the merits when they previously had no opportunity to go to court prior to the assessment.

In IRM 5.20.8.8.4, in a provision regarding assessable penalties made under IRC 6700, 6701 and 6702, the IRS has even gone so far as to say that the taxpayer has no right to litigate the underlying merits of those penalties in a CDP case because the taxpayer could pay 15% and litigate the penalty. While some taxpayers would need to pay only a small amount, others with the fraud tag could have to pay large amounts making this result similar to the I rule which stands as a bar to litigation – the bar Congress seemed to want to get around with CDP.

The proposed opinion in the Lander case not only stops the Landers from litigating the merits of the liability assessed against them in which they did not have the opportunity to go to Tax Court prior to the assessment, it paves the way for the IRS and the Tax Court to stop any taxpayer from litigating the merits since they have the opportunity for an administrative appeal. Even if the Tax Court in Landers seeks to make a distinction between taxpayers who visited Appeals with no right to litigate an adverse determination there from those who chose not to visit Appeals, the language of the regulation still seeks to answer the question with opportunity and not action. It could be that only cases not involving a statutory notice of deficiency, such as the case of Hampton Software, and in which audit reconsideration does not apply will be the small subset of cases in which merits litigation in CDP case will continue to exist. Maybe the opinion signals that if a taxpayer does not go the audit reconsideration route and end up in an administrative hearing in Appeals, the taxpayer may still seek to litigate the merits in the Tax Court but that’s not the way the regulation reads nor, I suspect, the way the IRS will interpret and litigate the issue. Let’s strike down the regulation and interpret the language of the statute which says “did not otherwise have an opportunity to dispute such tax liability” to mean did not have a chance to dispute the liability in court. Once you carefully look at the administrative scheme following most assessments, the opportunity to dispute the liability in Appeals exists in most situations including the situation in Landers which seems to be exactly the situation that concerned Congress in the first place. If the Tax Court is interpreting the statute to mean those who availed themselves of the opportunity to go to Appeals, it is already narrowing the plain language of the statute. Why not go all the way. The middle ground is a trap for the unwary and a place that makes neither taxpayers nor the IRS happy. If the IRS and the courts do not change the current status, a legislative change would be appropriate.