April’s posts were an eclectic, important and entertaining mix of developments and outside the box thinking. PT covered timing rules for 2019 returns and the suspension of statutes in different scenarios; previewed articles from the Pittsburgh Tax Review and Tax Notes; and took a look at the tax advice on TikTok. In a series of posts, Caleb further examined whether the Tax Court has refund jurisdiction in CDP cases.
Noteworthy Considerations and Developments
Refund Claims and Section 7508A – Progress!: The IRS issued Notice 2023-21 which provides guidance on the timeframe in which 2019 and 2020 refunds can be claimed. It keeps the deadlines in section 7508A (which was used to suspend/postpone the filing due date for 2019 returns) and 6511(a) (which allows refunds to be claimed within three years of a return’s filing date) in sync for taxpayers who filed after April 15, 2020. Not all taxpayers have until July to claim the refund though, because the postponed deadline did not become the original deadline for purposes of determining when payments were made (and, thus, still eligible to be claimed) and the post goes on to provide easy-to-understand examples demonstrating this.
Timing Your Bankruptcy Petition to Obtain a Discharge of 2019 Taxes: Normally a taxpayer can wait three years from the due date of a timely filed return, or the extended due date for an extended filing, and the balance owed will become eligible for discharge in bankruptcy. For 2019 taxes, the automatic and global postponement of the filing deadline due to the pandemic raises questions as to when discharge eligibility occurs. The post concludes that it is likely that 2019 balances become dischargeable on April 16, 2023, but since the IRS has not issued guidance on this, taxpayers should wait until July 16, 2023 to be safe.
Thomas v. Commissioner: Some clarity on “newly discovered evidence” under IRC 6015(e)(7) that comes with a reality check: The opinion in Thomas provides more detail about when evidence is considered “newly discovered.” It holds that newly discovered means “recently obtained sight or knowledge of for the first time.” This definition provides clarity to taxpayers, practitioners, and the IRS. It was used by the Court to allow the IRS to admit evidence (i.e., petitioner’s blog posts) discovered after the administrative record was closed, even though the posts were in existence and could have been found by the IRS while the record was still open.
Ninth Circuit En Banc Panel Reverses Seaview Trading: The 9th Circuit reversed its original decision (that a return is filed when it is provided to a Revenue Officer who requests it) after en banc review in Seaview. The en banc decision found that IRS guidance relied upon by the taxpayer, does not override the regulation which states that a return must be filed with a service center. The taxpayer argues that the regulation only applies to timely filed returns. The dissent goes on to explain why the en banc reversal harms taxpayers and is inconsistent with the Code, regulations, and IRS internal guidance.
CDP Refund Jurisdiction
Does Boechler Change Tax Court Refund Jurisdiction in CDP?: Caleb is back to analyzing whether it is possible for the Court to order a refund in CDP cases by looking at the recent decision in Brown. On remand, the Tax Court said it cannot order a refund because the Court’s jurisdiction is limited. The 9th Circuit agreed and later denied a rehearingt request. Neither Court addressed the impact of Boechler despite it being raised by the taxpayer. This post analyzes the significance of Boechler to the Court’s perceived jurisdictional limitations and why Boechler should (and eventually will) be addressed.
How Much Does Brown Limit Tax Court Refund Jurisdiction in CDP?: Brown may help strengthen the theory that the Tax Court has jurisdiction to order money be returned to a taxpayer in a CDP case, in some circumstances. The Court analyzed the character of the TIPRA payment at issue in the case and concluded that it was not a deposit, which suggests that the Court thinks it may have jurisdiction to order the return of deposits.
Play It Again, Sam: The Perils of (Incorrectly) Established Court Analysis: The 9th Circuit relied on a precedential case, the statute and a relevant legislative Conference Report to support the conclusion that TIPRA payments are non-refundable payments of tax in Brown. This post takes a closer look at those sources and finds that they don’t quite say what the Court says they say.
Suspending and Tolling Statutes
Wartime Suspension of Limitations Act (“WSLA”): This repost from Jack Townsend’s blog discusses the application of the Wartime Statute of Limitations Act to two cases involving defraud conspiracy. The Act suspends certain criminal statutes of limitation while the U.S. is at war or Congress enacts a specific authorization for the use of armed forces, including statutes for crimes involving fraud or attempted fraud against the U.S. The question is whether the WSLA is applicable to defraud conspiracy, if defraud is broader than fraud.
Extending the Statute of Limitations on Collection: This post highlights two cases where taxpayers argued that the collection statute had expired so it was too late for IRS to sue to reduce the amounts to judgment. Sparkman involved a suspension during a 546-day period when an installment agreement was being negotiated. The taxpayer unsuccessfully argued that the installment agreement wasn’t pending the whole time, because there were times when the IRS said his proposal was not acceptable. Colasunno involved a suspension during bankruptcy and the Court held the bankruptcy suspended the collection statute even though the taxpayer could not remove his TFRP liability through the bankruptcy.
When Does a Pending Installment Agreement Exist: The title of this post is the question the Court in Taylor must decide before addressing the remedies the taxpayer requests. Section 6331(k) describes four periods when an IA exists for purposes of stopping a levy. The IRS doesn’t have to accept an IA if it determines it was submitted to delay or impede collection.
Equitable Tolling and Bankruptcy Time Periods: In Rader the bankruptcy court looked to the Supreme Court decision in Young to decide whether the IRS was entitled to equitable tolling with respect to the two-year bankruptcy timing rule. In both cases, the debtors filed for bankruptcy twice and tried to discharge tax debt during the second filing with the argument that the requisite amount of time had passed for the debt to be dischargeable. Finding for the IRS, the bankruptcy court held that the time on the two-year rule should be equitably tolled because the IRS was unable to collect from the taxpayer while he was in his first bankruptcy even though the statute doesn’t describe the effect of prior bankruptcies.
Pittsburgh Tax Review RRA 98 Symposium
Rooms Where it Happened: Keith shares his personal experience as an IRS Office of Chief Counsel attorney in the period immediately before and after the enactment of RRA 98 in an article for the Pittsburgh Tax Review and highlights and expands upon those experiences in this post. He recounts four episodes from that period that were particularly memorable, including drafting legislation, some of which was adopted, to improve the collection provisions of the code.
CDP At 25: My Contribution To The Pitt Tax Review Symposium on RRA 98: This post is a preview to Les’s contribution to the Pittsburgh Tax Review. It discusses how CDP and the right to judicial review of the IRS collection process has had an impact on the IRS becoming more like, and being held to the same standards as, other administrative agencies.
Circuit Court Decisions
Trust Fund Recovery Penalty Case Raising Issues Regarding Deposit and Last Known Address: The Ahmed case has been appealed up to the Third Circuit and remanded back to Appeals. The issues are layered in a way that make it challenging to summarize succinctly but they involve a TFRP assessment, a notice that may have been sent to an incorrect address, the ability to make a deposit on TFRP, and CDP mootness. As it stands Appeals is considering whether the notice was improperly addressed.
How the D.C. Circuit’s Upcoming Decision in Lissack Could Begin to Undo the IRS’s Nullifications of the Whistleblower Program: The author of this post identifies and analyzes evidence that the IRS has been working to nullify the whistleblower program. The post summarizes an upcoming article in Tax Notes that urges the D.C. Circuit Court to reach certain holdings in Lissack and overrule Li. Li allows the IRS to prevent Tax Court appeal by rejecting a claim without assigning it to an appropriate office and if Lissak is decided in the way that the IRS would like, it would allow the IRS to prevent Tax Court appeal by directing an Appeals Officer to deny a claim.
Tax Court and District Court Decisions
Court Finds Frivolous Return Penalty Applies To Trustee: Stanojevich involves frivolous tax returns filed for a grantor trust which itself has no separate tax liability. The Court considers whether the penalties apply when the return was signed and submitted by the fiduciary. It concludes that nothing in the frivolous penalty statute states the penalty only applies when someone files their personal tax return. Since the taxpayer (in his capacity as trustee) filed the return, he can be subject to the penalty.
Court Blesses The Appointment of A Receiver To Sell A Taxpayer’s Personal Residence: In US v Mikulin, the taxpayer used a TIGTA report to support his argument that the IRS violated his rights by pursuing his residence via judicial collection rather than by administrative seizure. The district court in Texas noted it was too late to make the argument, but also that the report carries no statutory or legal authority and is merely the report of an audit conducted by TIGTA. The post also notes that whether judicial collection is more harmful than administrative seizure is more nuanced than the opinion or taxpayer suggest.
Used Car Seller’s Bonus Payments Do Not Constitute A Separate Trade or Business: In addition to being paid to sell cars, the petitioner in Schmerling, was paid amounts later reported on a 1099 for: 1) travelling to auctions to purchase cars to be resold by the dealer, 2) exceeding performance goals, and 3) selling car warranties. He treated the 1099 payments as a separate business and reported the income on a Schedule C. The Court found the bonus and warranty sales income was “inextricably intertwined and connected with” his status as an employee of the dealership and as a result, he could take expenses related to those income as an employee (subject to the miscellaneous itemized deduction limitations and pre-TCJA).
Miscellaneous
Another Tax Chat! in the Transforming Tax Administration Series : This post previews the (now past) Tax Chat about the IRS budget which looked at budget categories influence on IRS behavior and more, with the President’s Budget-in-Brief for the IRS and the IRS Strategic Operating Plan as background. The post also provides information on upcoming future Tax Chats.
Neo-TikTok-Tology: This post looks at the levels of reliability in advice provided about tax issues on TikTok and whether the platform is evolving in such a way where relying upon the seemingly reliable advice could be a basis for reasonable cause for taxpayers, especially those who cannot afford professional and tailored tax advice. The posts shares links to some of the subject TikTok accounts, whether good or bad, and provides examples of the types of advice given before turning back to analyzing whether a reasonable cause argument exists under existing regulations and case law.
Frequently Asked Questions: This year’s April Fool’s Day post parodies IRS Frequently Asked Questions.