About Christine Speidel

Christine Speidel is Assistant Professor and Director of the Federal Tax Clinic at Villanova University Charles Widger School of Law. Prior to her appointment at Villanova she practiced law at Vermont Legal Aid, Inc. At Vermont Legal Aid Christine directed the Vermont Low-Income Taxpayer Clinic and was a staff attorney for Vermont Legal Aid's Office of the Health Care Advocate.

Navigating Remote Calendar Calls

Two months in to the Tax Court’s new remote practice procedures (blogged by Keith here), there have been by my rough count about 28 calendar calls in 19 cities. Recently I received notices setting cases for trial by Zoom in February, indicating that remote trial sessions will continue for the winter session. This post will describe the new remote calendar call experience and provide some practitioner tips. We welcome others to share their experiences in the comments.

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Accessibility of Remote Proceedings

A recent question from the ABA Tax Section’s LITC listserv is a good place to start:

Our clinic has helped and continues to help a large number of individuals who have no internet access apply for the EIP using the non-filer portal. We are acutely aware of the staggering number of people especially in remote areas who simply have no internet. As we head into our first remote US Tax Court session, I am wondering what people do who either have no internet access or insufficient equipment to access the internet.

What has been the protocol to help those who lack any meaningful access to court because they have no internet access? Is there a protocol that clinics have used?  Is there a protocol that US Tax Court has in place…?

The Tax Court has been sensitive to this issue, but petitioners may not realize this if they only look at their Notice of Trial. The new Standing Pretrial Order says “If you have any concerns about your ability to fully participate in a remote Court proceeding, you should immediately let the Judge know.”

What happens if you let the judge know? It depends somewhat on the judge. Many judges will hold an informal conference call with the parties to discuss technology issues and how the case should go forward. Other judges may issue an order asking for the parties’ written responses. Depending on the circumstances, the case could be continued, or tried by phone, or submitted for decision without trial under rule 122. The court will listen to both parties’ concerns before deciding.

This system does place the onus on the petitioner to reach out to the Court, or at least to Chief Counsel, with any concerns. LITCs can help get the word out that it’s ok for petitioners to ask for accommodations.

What happens if the petitioner does not contact the court ahead of time with technology concerns? Some judges schedule conference calls as a matter of course if a case approaching trial remains unresolved and the petitioner is unrepresented. But some do not, and so the best practice is for petitioners to proactively share their concerns with the court and IRS counsel.

Calendar Call Administrators; Consultation Mechanics

Procedurally, a new feature of remote calendar call is the designation of LITC (or pro bono) calendar call administrators (also called supervisors). Each calendar call now has a designated administrator from the clinic or pro bono contingent as well as from IRS Chief Counsel. The Court shares remote proceeding instructions with the LITCs, which largely summarize the procedures shown in the calendar call videos on the Court’s website and expand on the role of the LITC administrator/supervisor.

The administrators play a “traffic cop” role at the calendar call, remaining in the main courtroom with their videos on to greet new arrivals. If a petitioner wishes to speak to a volunteer, the LITC administrator figures out which volunteers are available, and can escort the petitioner into a breakout room for the meeting. Likewise, if a petitioner wishes to speak with Chief Counsel, the Chief Counsel administrator figures out which attorney is assigned to the case, and can escort the petitioner into a breakout room with that attorney.

It is important that the clinicians and volunteers communicate ahead of time so that the clinic administrator knows about any eligibility or capacity limits. These should include any geographic limitations. At the Philadelphia calendar call on October 5, Judge Leyden had included several cases from her spring 2020 Detroit calendar which had been cancelled. One of those petitioners wanted to speak to a volunteer attorney, and none of the volunteers were from Detroit. Generally speaking, academic clinics do not have strict geographic limitations, whereas nonprofit legal services organizations may have requirements imposed by their grant funding.

The court’s videos and instructions state that volunteers will wait in a breakout room for any petitioners that wish to consult. Some judges have a different practice, however, one that I hope will catch on. At some sessions, students and volunteers have been permitted to remain in the main courtroom instead of waiting in a breakout room. Everyone except the two administrators and the clerk were instructed to keep their cameras off and microphones muted. This worked very well in Philadelphia. I appreciated that it allowed students to observe the interactions between the clerk and administrators and each petitioner who arrived. This also meant that volunteers did not have to keep a separate device connected to the public audio stream, in order to hear what might be going on in the courtroom.

Calendar Call Observations: Everything’s Up to Date in Kansas City

William Schmidt shared this account of the October 5 calendar call in Kansas City:

        As the October 5 virtual calendar call drew closer for Tax Court to hold session in Kansas City, I reached out to Judge Paris’s clerk for a practice session regarding Zoomgov. It turned out to be useful for us to chat about expectations regarding petitioners that were good candidates for advice from the 3 local Low Income Taxpayer Clinics (LITCs). There were 4 cases that she had identified as ones potentially needing assistance from the LITCs.

       To facilitate confidential discussions between such petitioners and LITC personnel, the Tax Court has virtual breakout rooms available. The clerk did a practice session for me regarding the breakout rooms to show me what it would be like to be placed and removed from such a room during the live session.

       When October 5 arrived, the 3 clinics met with the clerk at 9 a.m. This was to facilitate an extra hour for the unrepresented petitioners to talk to the clinicians before the calendar call started at 10 a.m. Central time. However, no petitioners showed up and we made small talk such as reviewing what to expect from the cases at calendar call.

       Once the calendar call started, the petitioners began to appear. I think there was a variety of people appearing electronically by using computer cameras, cell phones, or iPads. There were some delays as the clerk had to identify everyone. She would label the person on the Zoomgov call so you could identify the person’s role (petitioner, LITC, respondent’s counsel, etc.). There were some pauses at that point and later for appearances on the cases as the petitioners had to state their names over the audio. A couple petitioners with iPads had to phone in separately to make appearances. Overall, the technology made things a bit awkward but they eventually worked out.

       One unrepresented person (the intervenor in an innocent spouse case) eventually asked for assistance. Since that individual was a Missouri resident, the director at the University of Missouri-Kansas City LITC met with him in a breakout room and eventually entered an appearance on the case.

       There were 6 cases at calendar call. One was dismissed for lack of prosecution, one was settled (IRS Counsel read the settlement into the record and the parties verbally agreed to the settlement), and the other four cases were continued with joint status reports due in 30 days (innocent spouse, accuracy-related penalties, and substantiation of contract labor and advertising expenses were some of the issues mentioned).

       There was a trial scheduled for October 6 and 7, but the parties filed a stipulation of settled issues and a joint status report. The trial was stricken from the remote trial session and continued. The parties are to file a joint status report or decision by November 6.

Communication, Privacy, and Document Exchange

William provided this tip for communication:

it is best for LITCs or other pro bono attorneys meeting with an unrepresented petitioner in a breakout room should get the phone number of the petitioner in case there is a technical issue that causes someone to be kicked out of the Zoom session.

This is good advice. The Clerk in Philadelphia warned all participants that some people have been kicked out of the session when they’ve attempted to move between the main room and a breakout room.

Privacy has also been raised as a concern for remote proceedings, given the public audio stream on YouTube. The Clerk at the Philadelphia calendar noted that he had the power to mute the public audio stream, and he invited folks to let him know if they needed to share confidential information as part of their case presentation. This seems like a reasonable approach to the problem.

Document review and exchange during calendar call is another concern that has been raised. One of our most useful functions at a calendar call is to quickly review documents from both sides and give an assessment to the petitioner. To state the obvious, this is more difficult over Zoom. At the Philadelphia calendar call on October 5, the chat function in Zoom was disabled, so we could not use that to communicate “on the side” during the calendar call. This is an understandable move by the Court, but it does make document exchange between Chief Counsel and a volunteer more difficult. In the virtual settlement day meetings I attended, the chat function was very useful for sharing documents. At least on Zoomgov, sharing documents through the chat seems much more secure than email, and easier for IRS Chief Counsel attorneys.

Obtaining documents from a petitioner can be much more difficult than obtaining them from IRS Counsel. At the Philadelphia calendar call, one case where the petitioner still needed to provide documents was continued, and I expect this is not unusual. Judge Leyden commended after the session that the hardest part about remote trial sessions is the exchange of documents and submission of last-minute exhibits. Even if the trial is scheduled for several days after the calendar call, it is not easy in many cases for petitioners to provide legible copies of their documents. I have had limited success asking clients to send photographs of their documents – at least half the time they arrive blurry or cropped, and are not usable. Volunteers and clinicians should be prepared to brainstorm creative ways to obtain documents quickly, or to counsel petitioner how to make a reasonable request for additional time. Many judges will continue a case but retain jurisdiction in order to set status report deadlines and keep the case moving forward. This was Judge Leyden’s approach on Oct. 5, and is consistent with how many judges are taking a more active role in their docket this fall, setting frequent status report deadlines even in cases that are not set for trial.

Conclusion

The Tax Court is keeping its docket moving while attempting to ensure that both sides have the opportunity to put on their best case. This is not an easy task. Reaching unrepresented petitioners continues to be a challenge. Both the Kansas City and the Philadelphia calendar calls had several cases dismissed for lack of prosecution. It does not appear to me that more cases were dismissed than last fall, rather it seems to be a continuation of the existing problem.

The Court welcomes feedback on its remote operations. From the Zoomgov Proceedings page:

Recently had a Zoomgov proceeding before the Tax Court? Please share your thoughts on the experience by completing the Zoomgov Proceeding Feedback form.  

I encourage readers to submit their comments below and to the Court as well.

 

Only Tax Court Petitions Filed After July 1, 2019 Are Subject to TFA’s Restricted Scope of Review

In the en banc opinion Sutherland v. Commissioner, the Tax Court held that spousal relief cases petitioned before 7/1/19 are not subject to the Taxpayer First Act’s narrowed scope of review under new subparagraph 6015(e)(7). At this conclusion many practitioners with pending cases breathed a sigh of relief. However, the thorny issues raised by 6015(e)(7) remain to be litigated another day. We have written about these issues on PT several times, both as the Taxpayer First Act (TFA) was pending (here and here), and after it became law (here, here, here, and here).

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It’s worth noting the procedural posture of the Sutherland case, as it involves one of those thorny to-be-litigated issues. Last year Carl Smith wrote a post arguing that, in light of the new subparagraph (e)(7), the Tax Court should revisit its holding in Friday v. Commissioner that it lacks the power to remand standalone 6015(e) cases. In an email to the PT team, Carl explains that in his October 2019 post

I suggested that someone move for remand in a 6015 case.  Only weeks later, on Nov. 11 (three weeks  before a trial set for Boston), the taxpayer’s lawyers in Sutherland moved to remand the case, apparently arguing that Friday needed to be revisited — at least in a case like Sutherland, where the lawyers were counting on a de novo standard of review and standard for introducing evidence in the Tax Court.  The motion was argued at the calendar call, where Judge Lauber struck the case from the calendar and retained jurisdiction to rule on the motion.  Today’s unanimous opinion holds that the effective date of 6015(e)(7) is ambiguous, and the best construction is that it does not apply to this case. 

The Effective Date of TFA § 1203

For a review of the changes made by TFA section 1203 to IRC section 6015(e), see Steve Milgrom’s post from July 9, 2019. Relevant to the Sutherland case, the TFA appears to restrict the Tax Court’s scope of review in standalone spousal relief cases, so that it is now based primarily on the administrative record. In previous posts we have mused about what exactly that might mean.

Starting in July 2019, several judges began to issue orders asking the parties to address the impact of section 6015(e)(7) generally. Later in the fall, other judges issued orders specifically asking the parties to identify the administrative record, any disputes as to its contents, and state whether any newly discovered or previously unavailable evidence would be offered at trial.

In Sutherland, the court takes a step back and considers what the effective date provision really means, rendering many of those pretrial orders moot.

Donna Sutherland’s case is an example of previously sound strategy that no longer works under the Taxpayer First Act. Unlike most spouses requesting relief, Ms. Sutherland was represented in the administrative proceedings. Her counsel thought that the IRS Appeals Officer was misapplying the equitable relief factors and that further submissions would not be productive. So, counsel made a tactical decision to stop trying to persuade the AO and instead move the case to Tax Court. The petition was filed in February 2018.

When the statute changed over a year later, shifting the Tax Court from a de novo scope of review to the administrative record, Ms. Sutherland was left in an unhappy situation. At the time she filed her petition, she had no reason to suspect that her case would not receive a full trial de novo under the Court’s holding in Porter v. Comm’r, 132 T.C. 203 (2009).

Ms. Sutherland’s counsel filed a motion asking the court to remand the case to the IRS for fuller development of the administrative record. But rather than reconsider its ability to remand standalone innocent spouse cases, the court instead scrutinized the effective date provision in the Taxpayer First Act.

Taxpayer First Act section 1203(b) reads:

Effective Date. The amendments made by this section shall apply to petitions or requests filed or pending on or after the date of the enactment of this Act.

The structure of this sentence renders the provision ambiguous from the outset. The Court explains,

“[P]etitions or requests filed or pending” could mean “petitions filed or pending, or requests filed or pending.” Alternatively, it could mean “petitions filed or requests pending.” If the former reading is adopted, so that “pending” modifies both “petitions” and “requests,” subsection (e)(7) likely would apply here because this case was pending in this Court when the amendment was enacted. If the latter meaning is adopted, so that “pending” modifies only “requests” and “filed” modifies only “petitions,” subsection (e)(7) would not apply. Petitioner’s request for innocent spouse relief had been resolved by the IRS, and hence was not “pending,” on or after July 1, 2019. And her petition to this Court was filed before that date.

Judge Lauber gives two hypotheticals illustrating how such compound sentences can be interpreted:

For example, assume a municipal ordinance that is effective for “cars or boats parked or docked” at a city marina after a specified date. This provision would logically be interpreted to refer to “cars parked or boats docked.” That is because each adjective comfortably modifies only one noun.

On the other hand, assume a sales tax that is effective for “cars or trucks sold or leased” after a specified date. Unless the context suggested otherwise, this provision would likely be interpreted to refer to “cars sold or leased, or trucks sold or leased.” Both adjectives comfortably modify both nouns, and it would be odd to have different tax treatment for similar transactions involving similar vehicles.

Looking to the language of the Code, the Court concludes that TFA

sec. 1203(b) more closely resembles the first example above. We have discovered no instance in which Congress, either in the Code or in an uncodified effective date provision, has used the phrase “petition(s) pending” when referring to ongoing matters in our Court. And interpreting Act sec. 1203(b) to refer to “petitions filed [in this Court] or requests pending [with the IRS]” on or after the effective date makes logical sense in light of the statutory context.

The Court finds additional support for this conclusion in the structure of TFA section 1203 and the cannon against superfluity. Finally, the Court notes that this interpretation

also has the merit of preventing inequitable results that Congress presumably would have wished to avoid when prescribing the transition to the amended scope of review ordained by subsection (e)(7).

…[I]f subsection (e)(7) were to apply to cases such as this–where the conclusion of the administrative process and the filing of the petition both preceded July 1, 2019, but the case remained pending in this Court thereafter–a sort of “gotcha” could occur. The taxpayer would have gone through the administrative process believing that the scope of review in this Court was de novo. But she would then learn, once the time came for trial, that the scope of review was not de novo and that she could be prejudiced for not having made a more complete administrative record.

Because the Court finds that subsection 6015(e)(7) does not apply to this case, Ms. Sutherland will be free to introduce new evidence at trial.

The Remand Question Remains

In his email, Carl points out that the Sutherland opinion “goes out of its way to note the issue of Friday”:

Because we hold that section 6015(e)(7) does not apply, the scope and standard of review in this case will remain de novo, consistently with our case law predating the amendment. See Porter, 132 T.C. at 210. Petitioner will thus be free to introduce at trial any competent evidence that she desires. Because the premise for her motion to remand thus disappears, a remand (if we could order one) would serve no useful purpose. We will accordingly deny her motion for that reason. Cf. Burke v. Commissioner, 124 T.C. 189, 194 n.5 (2005) (declining to remand a collection due process case because a remand would not be productive); Whistleblower 23711-15W v. Commissioner, T.C. Memo. 2018-34, 115 T.C.M. (CCH) 1154, 1156 n.7 (declining to remand a whistleblower case because a remand would serve no useful purpose). That being so, we have no need to address her request that we reconsider our holding in Friday as applied to cases that are governed by the amended statute. 

It may not be long before another case squarely presents this issue and asks the Court to consider a remand. The opinion itself concedes, “[s]ome taxpayers might have received a determination letter shortly before July 1, 2019, with their petition to this Court due to be filed thereafter.” Under Sunderland’s interpretation of the TFA, such cases would be subject to the administrative record provision. (Note this is the result even if the requesting spouse had made the exact same strategic gambit as Ms. Sutherland. The Court’s analysis is grounded in textual interpretation, not equity.) In this situation the Court suggests that the requesting spouse could contact the AO and ask to re-open the administrative record. However, if the IRS declined to do so it is unclear what remedy a taxpayer would have, besides requesting a remand from the Court.

The broader concerns raised by Steve Milgrom and Carl Smith also apply to cases pending with the IRS as of July 1, 2019 (and for that matter new requests for relief), particularly when it comes to unrepresented individuals and victims of domestic violence. There will certainly be cases subject to the TFA in which a poor administrative record exists, even if the taxpayer technically had the opportunity to create a full record after July 1, 2019.

As pro se petitioners and practitioners in such cases consider their options, it’s helpful to remember the Tax Court’s May 29 press release which Keith described as a “significant and welcome change in the price structure of documents ordered from the Court.” As a result of that change, anyone interested in obtaining a copy of the motion to remand, response, and reply in Sutherland may obtain them by email for no more than $3 per document. The Court’s pricing change will make it feasible for those without deep pockets to closely follow this litigation and to make well-developed legal arguments in other TFA cases.

Questioning the Portal: Why the Beard Test Matters

A few months ago, Nina Olson wrote What is this thing called portal?, in which she analyzed the IRS non-filer portal under the Beard test for determining when a submission to the IRS is considered a tax return.

After that post was published, the IRS confirmed what the screenshots in Nina’s post show – that functionally, the portal e-files a 2019 federal income tax return reporting $1 of interest income. Because many people who used the portal actually should have filed a full tax return instead, the IRS created a process for people to file their real 2019 tax return and signal to the IRS that they had mistakenly used the portal, via a submission which the IRS calls an “Amended EIP Return”. The IRS website states:

Tax Professionals please note that returns labeled “Amended EIP Return” will be processed as superseding returns if submitted before July 15 or, with a valid extension, before Oct. 15.

So we know that practically, the IRS computer system is treating a portal submission as a 2019 tax return. But is the legal question settled? A recent post by Gina Ahn on the ABA Tax Section’s listserv for the Pro Bono & Tax Clinics community highlights one taxpayer’s predicament and reminds us why the legal question matters.

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The facts presented are roughly as follows:

A domestic violence survivor fled her husband to live in a shelter, where among other services she connected with an LITC with the goal of seeking innocent spouse relief for her 2018 joint tax debt. The client’s husband runs a sole proprietorship and the 2018 joint liability consists of his unpaid self-employment taxes.

The husband and wife are both in touch with the tax professional who prepared their past joint tax returns and had been hired to prepare their 2019 tax returns. The spouses had arranged with the preparer to file Married Filing Separate returns for both of them for 2019.

At some point after the CARES Act passed, the tax preparer told the spouses that he could use the nonfiler portal for them to “get the stimulus checks faster,” and they all agreed he should do this.

The preparer later tried to e-file the wife’s MFS tax return for 2019, but the IRS rejected the e-file submission as a duplicate, due to the previous nonfiler portal submission.

The LITC attorney learns these facts in August. 

What advice would you give?

Before we go further, remember that Treasury Regulation § 1.6013-1(a)(1) provides:

For any taxable year with respect to which a joint return has been filed, separate returns shall not be made by the spouses after the time for filing the return of either has expired.

The IRS interprets “the time for filing the return” to mean the due date of the return without regard to any extension of time to file. (See e.g. PMTA 2020-17.) So, although we do not know if an extension was filed for either spouse, it probably does not matter.

If a valid joint return was filed before July 15, the spouses in our scenario are stuck with a joint tax return for 2019. They would need to file an amended return if they wanted to report their actual 2019 income and tax liability. This likely means that at some point down the road, the wife will be requesting innocent spouse relief from the husband’s 2019 self-employment tax liability.

However, if the portal submission was not a joint return, then the spouses are free to file separate returns for 2019 as they had originally planned. These would need to be submitted on paper, but they would be legally valid separate returns.

Was the Portal Filing a Valid Joint Return?

As Nina explained, “In Beard v. Commissioner, the Tax Court outlined the basic requirements of what constitutes a valid return for statute of limitations purposes:

First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury.”

Nina then applied the Beard test to the portal, and concluded that the test is probably met. “If it walks like a duck, and quacks like a duck, maybe it actually is a duck.” I recommend viewing the screenshots in her post to see what she means.

If the nonfiler portal could be a return when completed by the taxpayer, does it still qualify as a return given that the taxpayers here never laid eyes on the portal or their purported joint return?

It’s worth mentioning that the nonfiler portal is not set up for tax preparers or any other assister to use on behalf of an individual. There is no option to enter your PTIN. In fact, the Form 1040 generated by the portal specifically says “Not for use by paid preparer” and “self-prepared” on the second page.

It seems to me that the analysis should come out differently in this case, than in Nina’s hypothetical case of a taxpayer using the portal for himself. The wife (and maybe also the husband) in our scenario always intended to file a separate tax return for 2019. She did not know that allowing the tax preparer to use the portal meant that, practically speaking in the e-filing system of the IRS, she was filing a joint 2019 tax return. She did not use the portal herself, see the jurat or the final 1040 that the portal generated, or have any basis to question whether the preparer’s suggestion was appropriate.

A tax administrator might not like that subjective analysis, but it’s not too far off from the analysis employed when one spouse contests the joint status of a return filed by the other. For example, in a 2017 summary opinion Judge Wherry explained:

Whether an income tax return is a joint return or a separate return of the other spouse is a question of fact. Harrington v. Commissioner, at *8 (citing Heim v. Commissioner, 27 T.C. 270 (1956), aff’d, 251 F.2d 44 (8th Cir. 1958)). The focus of our inquiry is whether [the nonsigning spouse] intended to file and be bound by the return in question. See Shea v. Commissioner, 780 F.2d 561 (6th Cir. 1986), aff’g in part, rev’g in part T.C. Memo. 1984-310.

The courts have considered various factors in determining whether a nonsigning spouse intended to file a joint return, including (1) whether the returns were prepared pursuant to an established practice of preparing and filing a joint return, (2) whether the nonsigning spouse failed to object to the filing of a joint return, (3) whether an affirmative act was taken indicating an intention to file other than jointly, (4) whether one spouse entirely relied on the other spouse to file returns, (5) whether the spouse examined returns presented for a signature, (6) whether separate returns were filed, (7) whether the returns included the income and deductions of the nonsigning spouse, and (8) and whether the nonsigning spouse was aware of the contents of the purported returns. See, e.g., Estate of Campbell v. Commissioner, 56 T.C. at 12-13; Howell v. Commissioner, 10 T.C. 859 (1948), aff’d per curiam, 175 F.2d 240 (6th Cir. 1949); Boyle v. Commissioner, T.C. Memo. 1994-294; Evans v. Commissioner, T.C. Memo. 1982- 700; Crew v. Commissioner, T.C. Memo. 1982-535.

Here, the tax preparer essentially played the role of the signing spouse. The tax preparer in this case should have known better than to use the portal for taxpayers who had 2019 filing requirements. We do not have enough facts to understand why the preparer thought this would cause the EIP to arrive sooner.

This case also highlights another pitfall of the nonfiler portal – the only filing statuses allowed are Single and Married Filing Jointly. If Married Filing Separately had been available, this taxpayer’s dilemma might have been avoided.

Treasury Response to Congress Further Increases Confusion Regarding Missing Stimulus Payments

Congress continues to negotiate another stimulus package. Meanwhile, although the IRS accomplished a Herculean task in delivering stimulus payments to millions of Americans in April and May, uncertainties and problems stubbornly linger for some people. Most recently, Nina Olson and Caleb Smith highlighted some of these issues here, here, and here.

The U.S. House of Representatives Select Subcommittee on the Coronavirus Crisis recently published a July 22 letter from the Treasury Department responding to its requests sent on July 8, 2020. The Treasury response was puzzling to me in a few respects.

This blog post also discusses recent IRS website updates, which I noticed after William Hoffman of Tax Notes asked whether the IRS is changing its tune on non-filer federal beneficiaries who missed the deadline to claim an EIP for their dependents. Bottom line – it’s too soon to tell, but it can’t hurt to complete the non-filer portal.

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Treasury Correspondence with the House Select Subcommittee on the Coronavirus Crisis

Nearly a month ago, on July 8, Representative James E. Clyburn, as Chairman of the House of Representatives Select Subcommittee on the Coronavirus Crisis, wrote to Secretary Mnuchin and Commissioner Rettig asking detailed questions regarding the Economic Impact Payments (EIPs) authorized by the CARES Act. Representative Clyburn emphasized that “the intent of these payments was to swiftly put money in the pockets of struggling Americans to help them meet their essential needs while supporting the nation’s economy” and expressed concern that “the eligible recipients still awaiting these payments are disproportionately low-income.” Among other questions, the letter asks Treasury, “What is your anticipated schedule to complete payment of EIPs to all eligible recipients?”

Perhaps due to the fairly short response timeframe, the Treasury Department’s response is a bit less detailed. The letter rightly touts the speed of the government’s response, compared to the 2008 stimulus payments. But it paints a pretty rosy picture that leaves out important details. For example, the Treasury letter states:

At this time, EIPs have been distributed to all eligible Americans for whom the IRS has sufficient information to make a payment. The CARES Act allows the IRS to issue EIPs through December 31, 2020. The IRS will continue to issue EIPs to eligible individuals through that date so long as it receives sufficient payment information in time to compute the EIP and certify it to Fiscal Service for issuance.

… The IRS encourages taxpayers who have not received their EIP and are not required to file a tax return to input their payment information into the “Non-Filers: Enter Payment Info Here” tool. To date, 6.8 million people have used this tool, which is still available.

But…  what about the federal disability and retirement beneficiaries who were cut off from the nonfiler portal, who the IRS said had only until April 22 or May 5th to use the tool? The July 22 Treasury letter to Rep. Clyburn was called to my attention on August 3. As of that morning, the Non-Filer Tool website still contained this warning:

Reminder for SSA, VA, SSI and RRB Benefit Recipients with Dependents

The IRS has already scheduled payments to taxpayers based on Social Security retirement, disability (SSDI), or survivor benefits, Railroad Retirement benefits. Supplemental Security Income (SSI) and Veterans Affairs (C&P) benefit payments will be scheduled shortly for payment in mid-May. However, the window has closed to use this tool for these recipients who have a child and don’t normally file a tax return. These recipients who do not receive a payment that includes up to $500 for any qualifying children can file a tax return next year to determine their payment based on 2020 and claim any additional amount they weren’t paid this year.

This “reminder” had been posted on the non-filer tool since the deadlines passed May 5. Understandably, many non-filing federal beneficiaries did not use the tool if they found out about it after the deadlines – they understood from the IRS that it was closed to them. Some representatives assisted their federal beneficiary clients with the non-filer portal after that deadline, but I have not heard that any of those individuals received their full EIP for their dependents.  This is a group of eligible Americans for whom the IRS has, or could easily have, information upon which to base a payment.  Yet, contrary to the language in the Treasury letter stating that all have been paid, the IRS, presumably with the knowledge of the Treasury Department, has explicitly declined to pay these individuals.

One other point in the July 22 Treasury letter stood out to me. As to individuals without internet access, the letter says,

As an alternative to using [the non-filer] internet-based tool, the IRS has also provided a streamlined paper-filing procedure for individuals who have no requirement to file a 2019 return to submit information to the IRS in order to receive their EIP.

What is this? Has the IRS created a new form? No, sadly. There is no separate “simple” EIP form; it’s just a regular paper 2019 tax return, Form 1040 or 1040-SR, with “EIP2020” written on the top. Rev. Proc. 2020-28 (section 3, starting on page 6). The IRS has never said that federal beneficiaries can paper file to get their $500/child EIP. There is no fax number or special address to send the EIP return; it gets mailed to the regular address for filing the tax return.  That paper return will join the pile of other paper returns waiting to be processed.

The Rev. Proc. also assumes that anyone who qualifies to use the “simple” return under section 3 could use the nonfiler portal instead, and pushes that option.

The allegation that IRS developed a “simple form” is undercut by the total lack of taxpayer-facing publicity for that option. No social services provider or SS/SSI beneficiary will know about the revenue procedure. The taxpayer-facing messaging is about using the nonfiler tool (if you qualify) or filing a 2019 tax return. That’s because the “simplified paper procedure” is not really any faster or simpler than filing a 2019 tax return. It’s not even mentioned as an option in the extensive EIP FAQ.

So, this part of the Treasury letter to Rep. Clyburn is misleading. To be sure, the letter does offer some important information, including an enclosure with some data on payments, which has the following chart showing payments as of July 17, 2020:

IRS EIP Website Updates

This brings me to the IRS website updates. On August 5, Tax Notes reporter William Hoffman alerted me to a change in EIP FAQ # 53, and asked what it meant for non-filer federal beneficiaries. The updated FAQ reads, in part

The IRS will automatically issue the additional $500 EIP per qualifying child to affected individuals in early August for those who used the Non-Filers tool before May 17, 2020.   Direct deposit payments are scheduled for August 5, 2020, and paper checks or debit cards are scheduled to be mailed August 7, 2020. … If you used the Non-Filers tool on or after May 17, 2020, your EIP included $500 per qualifying child.

The immediate question in my mind was, does this FAQ even apply to federal beneficiaries? While IRS confirmation would be helpful, my impression is that this does not change anything for retirees and disabled individuals receiving SS, SSI, or VA benefits. The very next EIP FAQ, # 54, continues to read

You should not use the Non-Filers: Enter Payment Info Here tool if any of the following apply: …

● You are not required to file a return and already received your Payment based on your 2019 Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits, Supplemental Security Income (SSI) and Veterans Affairs benefits even if you think you did not receive the full amount.

FAQ #56 also has not changed.

However, Mr. Hoffman’s inquiry also led me to check the non-filer portal website. Lo and behold, the IRS has removed the “reminder” that the portal is “closed” to federal beneficiaries. The portal page also contains the updated FAQ 53 language referencing the May 17 date.

At this time it is unclear whether this signals any real change in the IRS policy towards the SSA/SSI/VA beneficiary population. The IRS has not said that it would actually process dependent EIP claims received through the portal from federal beneficiaries who received a payment for themselves automatically.  In fact, FAQ #54  continues to say the opposite. It’s possible that the IRS removed the “reminder” language simply to prepare for the next round of stimulus payments. FAQ #54 clearly states retired and disabled federal beneficiaries who have income below the filing threshold and have already received their EIPs should not use the non-filer portal to claim additional benefits, e.g., for dependents.  Even if federal beneficiaries are no longer prohibited from using the non-filer portal, as long as the IRS refuses to process dependent EIP claims, disabled federal beneficiaries are functionally stuck in the same situation as in May, when the IRS announced that their window to use the portal had closed. By removing the language prohibiting use of the portal, the IRS is giving these low income persons false hope.  In the context of the pandemic, that is just cruel and contrary to Congress’ intent to deliver the EIP rapidly into the hands of those that need the funds.

Coronavirus Cancels March Tax Court Sessions; New IRS Coronavirus Webpage

COVID-19 has hit the United States and developments are coming fast and furious. As the federal government seeks to reach a deal on a coronavirus aid package today, the IRS has created a webpage for coronavirus announcements and guidance, barred employees’ nonessential travel, federal tax filing deadlines might be extended, and much more. Bloomberg Tax reported today that the National Treasury Employees Union is concerned for employees and seeking to limit in-person help at Taxpayer Assistance Centers (link requires subscription). Meanwhile, tax professionals are struggling to find safe and effective ways to serve their clients who face serious hardships, or whose cases have deadlines that cannot be tolled or that have not yet been extended. Some VITA clinics have closed, and many firms and academic tax clinics have moved work online.

State and federal courts are taking measures as well, but policies vary widely from asking sick folks to stay home, to canceling all in-person court appearances. The U.S. Tax Court canceled its remaining March trial sessions, but so far April and May sessions remain scheduled. And, as long as the court is open for business, filing deadlines remain in force.

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Many of the tax administration and procedure problems we saw during the 2019 shutdown (discussed in many posts here) could be relevant again very soon. Last summer Keith reviewed the law on Tax Court filing deadlines looking back at the shutdown, linking to several excellent posts by Bryan Camp and others. We have also covered cases pushing (generally unsuccessfully) to expand equitable tolling in tax cases, in myriad situations.

Since the Tax Court process already takes a long time, and the cumulative effects of cancelling trial sessions are substantial, it would make sense for the Court to follow the lead of universities and law firms and conduct as much business remotely as possible during the COVID-19 epidemic.

The Tax Court is in a difficult situation, because the vast majority of its hearings and trials are held in person. Unlike some other courts, the Tax Court does not routinely hear testimony by telephone or other means. However, the Tax Court could expand this practice under Rule 143:

(b) Testimony: The testimony of a witness generally must be taken in open court except as otherwise provided by the Court or these Rules. For good cause in compelling circumstances and with appropriate safeguards, the Court may permit testimony in open court by contemporaneous transmission from a different location.

This rule seems perfectly reasonable, but it is quite broad and open to very different interpretations. Is the standard to be applied individually, based on one’s fear of the coronavirus or vulnerability to it? Or, can the court take a public health approach and determine that flattening the curve is good cause and a compelling reason to permit remote testimony no matter how young or healthy the litigant? Surely the court could take that position.

The next question is what appropriate safeguards should exist. Several years ago I was on a rules committee of the Vermont Supreme Court while the committee debated, drafted, and ultimately recommended a rule for telephone testimony in family court, which the Supreme Court adopted. (I looked up the date and was surprised to see that the rule was adopted in 2009 – time flies.) We were concerned about verifying the identity of the witness and about getting clear testimony from the witness for the record. There was no technology for video appearance so it was all done by speaker phone, on sometimes very patchy connections. (Vermont has notoriously spotty cell phone service, even on interstate freeways.) Despite some frustrating situations involving poor phone service, the rule worked fairly well and it allowed time-sensitive matters to go forward when witnesses had trouble getting to court. Last year the Vermont Supreme Court adopted a uniform rule on remote appearances in civil actions, including family court. Vermont’s procedures and standards are quite detailed and provide significant guidance to attorneys, litigants, and judges.

Several other courts allow remote appearances under various conditions. The Self-Represented Litigation Network issued a report on remote appearances in 2017, which

presents the author’s conclusions about the current state of remote appearances in the United States based on his review of existing state statutes and federal, state and local court rules on the topic and discussions with knowledgeable persons throughout the country. The report has two appendices – a compendium of all the statutes and rules …, and a technology assessment …

The Federal Judicial Center likewise issued a 2017 report on Remote Participation in Bankruptcy Proceedings. Perhaps the issue will gather additional interest and we will see updated reports on remote access to justice.

Erin M. Collins Appointed National Taxpayer Advocate

The Treasury Department and the IRS announced today that Attorney Erin M. Collins has been appointed to serve as the National Taxpayer Advocate.

Ms. Collins’ extensive background in the tax community includes twenty years as a Managing Director of KPMG’s Tax Controversy Services practice for the Western Area.  Prior to that, she was an attorney in the Office of Chief Counsel for the IRS for 15 years.  Throughout her career, she represented individuals, partnerships and corporate taxpayers on technical and procedural tax matters, and has also provided pro bono services to taxpayers to resolve disputes with the IRS.

For the past decade, Ms. Collins has dedicated significant time and energy to inspire professional women to work with teen girls from under resourced communities through after-school and weekend mentorship programs.  The programs focus on helping the girls fulfill their potential by empowering them to build confidence to pursue higher education and professional careers.  She also donated her time to non-profit boards focusing on underserved communities where English is typically the second language spoken at home. 

The full announcement is here.

Taxpayer Wins Rare Reversal in CDP Lien Appeal

Last week we covered Collection Due Process in the Federal Tax Clinic seminar at Villanova. Each student had to find a CDP opinion authored by a judge coming to Philadelphia this spring, and present the opinion to the class. I like this exercise, but it is somewhat discouraging. In all the cases presented this semester (and most semesters), the taxpayers were self-represented, and they all lost their appeals. As one student after another explains why the IRS did not abuse its discretion in their case, the exercise shows the wide discretion that the IRS enjoys in the collection domain, and the Tax Court’s deferential standard of review.

Collection Due Process is not always a futile exercise, however. Carl Smith alerted the PT team to an interesting bench opinion posted in December 2019, Cue v. Comm’r, where the Tax Court flatly rejected the IRS’s lien determination. The Cue opinion is unusual not just because the Court found abuse of discretion on a lien determination, but also because the Court did not remand the case to Appeals.

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The Secret Lien, the NFTL, and Collection Due Process

Before we get to the Cue case, a brief reminder of the lay of the land. The Notice of Federal Tax Lien is a powerful compliance tool. While a “secret lien” in favor of the government arises by operation of law, the Notice of Federal Tax Lien (NFTL) perfects this lien and alerts the world (and the taxpayer’s other creditors) to the government’s claim on the taxpayer’s property. The unperfected “secret” lien can be defeated by creditors who would have to fall in line behind a perfected lien.

So when a taxpayer fails to pay the government, it makes sense that the government would protect its priority against other creditors by filing an NFTL. However, this can cause a hardship for taxpayers, as prospective landlords, lenders, suppliers, and customers may see the lien and decline to do business with the taxpayer. Taxpayers without stable housing are particularly vulnerable. The NFTL also seems excessively punitive where the taxpayer has no significant assets and no realistic chance of acquiring any. NFTLs are filed against taxpayers, not against particular pieces of property, and there is no requirement that a taxpayer own real estate or significant assets before the government can perfect its lien. Keith wrote about the problems caused by systematic lien filings in low-dollar cases here. Since Keith’s article was published, the IRS Fresh Start Initiative raised the filing threshold from $5,000 to $10,000. Still, NFTL filing remains a concern for low-income taxpayers, and it is still a tool wielded systemically by the IRS’s automated collection system.

Collection Due Process acts as a check on the juggernaut of automated collections by requiring Appeals to engage in a balancing test, finding that the IRS’s proposed collection action “balances the need for efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.” IRC 6330(c)(2)(A).

One might think, at least for taxpayers who own little to no property, that the balancing test would favor restraint. But where IRS policy requires a lien determination, the taxpayer faces an uphill battle to prove that the NFTL will cause a specific serious hardship or impair their ability to pay the tax debt. And the Tax Court reviews the IRS’s determination for abuse of discretion. This leads to cases like Richards v. Commissioner, T.C. Memo. 2019-89, in which Judge Vasquez held that it was not abuse of discretion for Appeals to sustain an NFTL filing against taxpayers in Currently Not Collectible status whose only income was from Social Security.

Mr. Richards pointed out that the NFTL was doing the government no good, whereas on his side of the balancing test it hurt his credit rating and he feared it would hurt his chances of getting a car loan. Unfortunately, the Court found this “bare assertion is insufficient to establish that lien withdrawal would facilitate collection or would be in the United States’ best interests.” Regarding the balancing test, the Court noted,

petitioners do not contend that [Settlement Officer] Piro misinterpreted the IRM in making her determination. Nor did petitioners present any concrete evidence during the CDP hearing to demonstrate how the NFTL would negatively affect their financial circumstances and credit standing.

…SO Piro actually considered Mr. Richards’ argument about petitioners’ credit standing and pursued a followup inquiry. Specifically, SO Piro asked whether the NFTL would affect petitioners’ ability to earn income. After learning from Mr. Richards that their only income source was Social Security, SO Piro determined that the NFTL was not overly intrusive and was necessary to protect the Government’s interest. This determination was well within her discretion.

So the first hurdle a taxpayer faces in fighting a NFTL determination is proving that there is a specific harm caused by the public lien filing, and this should be a harm which impedes collectability of the tax debt. Carl Smith gave a good example in an email:

At Cardozo, I once got a lien withdrawn at a CDP hearing for a person who had virtually no money, but had been working on a screenplay with a big Hollywood producer. I got a letter from the producer saying that he could not have my taxpayer listed among the creative team (or paid) if he was going to seek financing for the film, since investors do tax lien searches on creative teams before investing money. In order to help her possibly earn money from her screenplay work, the SO agreed to remove the filed lien (she had no other property the lien would secure) and leave her in CNC. But, I almost never hear of anyone else successfully getting a lien withdrawn.

Eberto Cue v. Commissioner

Finally we get to today’s case and taxpayer Eberto Cue. Carl Smith described the case:

There was a pro se CDP case on Judge Goeke’s Nov. 12 calendar involving a banker who owed money for taxes reported on two older returns.  The debt had gone into CNC.  Then, the IRS filed a tax lien.  (He owns a condo.)  It appears he had recently gotten a job as a banker that, like many in the financial industry, prohibits his having a notice of federal tax lien filed against him.  In his Form 12153, he asked for the lien filing to be withdrawn, explaining that he would lose his license and his job if the lien notice were not withdrawn. 

Mr. Cue did not propose any collection alternatives. The Appeals settlement officer (SO) offered him three options under which she would withdraw the NFTL:

  1. a direct debit installment agreement under which the total liability would be paid off within 60 months;
  2. immediate full payment; or
  3. documentation that Mr. Cue would lose his job if the notice was not withdrawn.

Not surprisingly, Mr. Cue chose Option 3. On 8/14/18 Mr. Cue sent the SO a letter with information about his banking license. This showed that federal tax liens “would be noted by the licensing officials adversely to his request to renew his license, which he had to renew every year…”

The SO then essentially reneged on her offer. She found that Mr. Cue “was already in breach of the licensing requirements, apart from the Notice of Federal Tax Lien filing,” because he “owed the federal government, and [his] home was foreclosed.” Therefore, she disregarded his documentation and his argument. In a Notice of Determination dated 9/26/18, the SO determined that the account would remain in CNC status, but the lien filing was sustained. Mr. Cue filed a timely petition to the Tax Court.

The Court’s opinion notes that during the CDP appeal, Mr. Cue discussed the NFTL with his employer as required by his banking license. On 8/19/18 he was advised, “You are ineligible to remain in your current position due to your outstanding tax lien.” It is unclear from the opinion whether the SO had this evidence to consider before the Notice of Determination.

Carl Smith:

…the SO did not withdraw the lien notice, and the taxpayer thereafter lost both the job he had at the bank requiring the license and any other job at the bank.  He has been unemployed ever since, relying on being supported by his wife.  So, ultimately, the IRS got nothing by its collection efforts (except possibly priority if the condo gets sold, assuming there is any equity in it).

The IRS had moved for summary judgment exactly 60 days before the calendar call.  Judge Goeke set the motion to be argued at the calendar call. 

At the calendar call on November 12, Attorney Karen Lapekas entered a limited entry of appearance for Mr. Cue. Judge Goeke denied the IRS’s motion for summary judgment and held the trial that same day.

If one goal of CDP is to find an appropriate collection alternative benefiting both the taxpayer and the Treasury, it seems odd that neither petitioner nor the SO in this case proposed an affordable monthly payment as a way to avoid a NFTL. To Judge Goeke, the SO’s reasoning (Mr. Cue was already exposed to losing his license, so the NFTL would not matter) “overlooked the fact that the petitioner had been employed for some time, and was in a position to generate income…”

…it was unreasonable for the settlement officer to overlook the impact of the lien and its public filing on the petitioner’s employment. Her failure to seriously consider the petitioner’s assertions that he would lose his position demonstrates that the settlement officer did not seriously intend to act on the third condition that she provided the petitioner in the telephonic hearing. …the fact that the settlement officer did not seek a reasonable payment from the petition[er] demonstrates that the settlement officer was not actually interested in generating collection from the petitioner, but merely wished to sustain the Notice of Federal Tax Lien.

The Court went on to hold

Given these circumstances, we believe the settlement officer’s actions were arbitrary and capricious, and we sustain the petitioner’s argument that the Notice of Federal Tax Lien should be withdrawn. … We do not look at his current situation [and re-weigh the balancing test]. Rather, we look at the actual analysis of the settlement officer, contemporaneous with the determination, … [and] that analysis we find to be arbitrary and capricious.

Reverse or Remand?

Generally, where abuse of discretion is found the Court will remand the case to Appeals for a supplemental hearing. The lien determination cases of Budish v. Comm’r and Loveland v. Comm’r (blogged by Keith here) and the levy case Dang v. Commissioner (blogged by Keith here) are all good examples of this practice. Keith wrote about the frustration that can result from repeated remands in CDP cases here.

In Mr. Cue’s case however, Judge Goeke simply reversed the Settlement Officer and declined to sustain the Notice of Determination. Under the circumstances, this seems appropriate. The NFTL clearly had cost Mr. Cue his ability to work in banking and had destroyed his ability to make payments towards his tax debts. Under these facts, no reasonable settlement officer could sustain the notice of federal tax lien.

 

Taxpayer First Act Update: Innocent Spouse Tangles Begin

Last week many of the PT bloggers spoke at the ABA Tax Section Fall Meeting. One of sessions discussed recent developments relating to innocent spouse relief. This post provides a brief update on how the IRS and the Tax Court are grappling with the Taxpayer First Act’s changes to the innocent spouse provisions.

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We have blogged before about the Taxpayer First Act’s changes to the innocent spouse provisions. After the TFA was enacted on July 1, 2019, Steve Milgrom and Carl Smith flagged many questions raised by the legislation. Carl Smith discussed his concerns about the proposed innocent spouse legislation in the Taxpayer First Act here and here back in April before it became law. 

The changes discussed at the ABA meeting affect how the Tax Court reviews IRS decisions on innocent spouse relief. Steve Milgrom explained:

On July 1, 2019 President Trump signed the Taxpayer First Act  (TFA) into law. One provision of the TFA, section 1203, makes procedural amendments to the innocent spouse rules …. The new provision defines the scope and standard of review that govern the Tax Court’s review of an IRS determination. Basically, “scope of review” deals with what the court will consider in making its decision, what evidence it will look at. A court’s “standard of review” defines how much deference to give to the decision (determination) made by, in tax cases, the Commissioner.

The Taxpayer First Act added a new paragraph to section 6015(e):

(7) STANDARD AND SCOPE OF REVIEW. — Any review of a determination made under this section shall be reviewed de novo by the Tax Court and shall be based upon —
(A) the administrative record established at the time of the determination, and
(B) any additional newly discovered or previously unavailable evidence.

This new standard applies “to petitions or requests filed or pending on or after the date of the enactment” of the Act, which was July 1, 2019. At the ABA meeting, IRS speaker Julie Payne reported that between 300 and 350 standalone innocent spouse cases are generally pending in U.S. Tax Court at any given moment. All of those cases are now subject to the new standard. The question of how the new language applies is an immediate one for the Court and the Service. The Tax Court must decide not only how it will conduct trials, but how to address cases that have already been tried but are pending the court’s decision.

I will not repeat the points made and questions identified by Carl and Steve but I encourage readers to review the PT post of July 9 and the comments on that post for an understanding of the many ways in which the new statutory language is problematic.

Several Tax Court judges have responded to the Taxpayer First Act by issuing orders to the parties, asking the parties to address the effect of the Act on their case. William Schmidt links to one of these orders by Judge Copeland in a recent Designated Order post. Similar orders were issued by Special Trial Judge Leyden and by Judge Thornton, and there are likely others by now.

Judge Leyden issued the first of these orders on July 24 in Grady v. Commissioner, Docket No. 016411-17S, and the first IRS response was filed in that case on September 23. (Ms. Grady is self-represented.) Additional filings were due in other cases on October 4 and October 10. I do not have copies of those submissions but would welcome them if any enterprising readers would like to order them from the Tax Court. Thanks to Sheri Dillon and Francesca Robbins of Morgan Lewis for obtaining the Grady filing at short notice last week, in time for discussion at the Tax Section Meeting. The other cases are:

  • Rubin v. Comm’r, Docket No. 26604-14 (J. Thornton) – response due 10/4.
  • Bargeron v. Comm’r, Docket No. 019828-17 (J. Thornton) – response due 10/4.
  • Robinson v. Comm’r, Docket No. 12498-16, (J. Copeland) – response due 10/4.
  • Morales v. Comm’r, Docket No. 25380-18S (J. Leyden) – response due 10/10.

The IRS speakers at the Tax Section meeting did not discuss the Taxpayer First Act submissions, as the matter is the subject of ongoing litigation, and the Service has not formalized its position. However, Respondent’s submission in Grady is instructive of the Service’s current litigating position. I recommend reading the full response, but are the highlights.

Respondent’s Position in Grady

On the standard of review, Respondent agrees that the Taxpayer First Act is clear: the standard of review is de novo in all cases brought under 6015(e). The Tax Court does not review the IRS’s determination for abuse of discretion but instead reaches its own determination of the appropriate relief. This applies to all avenues for relief under 6015, including traditional innocent spouse relief under 6015(b), separation of liability under 6015(c), and equitable relief under 6015(f).

The scope of review is the tricky part. Even though the Tax Court is to come to its own conclusions, the new statutory language appears to limit the evidence that the Tax Court can consider in making its determination. New 6015(e)(7) says the Tax Court’s de novo review “shall be based upon (A) the administrative record established at the time of the determination, and (B) any additional newly discovered or previously unavailable evidence.” Respondent’s filing takes each in turn.

The administrative record

Congress did not define what it means by the administrative record here. In Grady, Respondent submits that the term should have essentially the same meaning as it does in Collection Due Process cases. The Treasury regulations at section 301.6330-1(f)(2) Q&A-F4 define administrative record as

The case file, including the taxpayer’s request for hearing, any other written communications and information from the taxpayer or the taxpayer’s authorized representative submitted in connection with the CDP hearing, notes made by an Appeals officer or employee of any oral communications with the taxpayer or the taxpayer’s authorized representative, memoranda created by the Appeals officer or employee in connection with the CDP hearing, and any other documents or materials relied upon by the Appeals officer or employee in making the determination under section 6330(c)(3) …

In applying this definition to the innocent spouse context, Respondent notes

Obvious changes might include substituting “IRS or IRS employee” for “Appeals Officer or employee” and removing references to section 6330, as appropriate. Relevant documents could include: tax returns; notice of deficiency; documents where petitioner acknowledges deficiency (e.g., form 4549, statement of income tax changes); account transcripts; Form 8857 and any attachments; any documents submitted by petitioner; any documents submitted by [the] non-requesting spouse; CCISO’s or Appeal’s final determination; allocation/attribution worksheets; any statement of disagreement by petitioner and/or non-requesting spouse; CCISO’s or Appeal’s workpapers; Integrated Collection System (ICS) history, or financial information.

Newly discovered or previously unavailable evidence

Respondent turns to the dictionary to interpret the terms “additional” “newly discovered” and “previously unavailable.”

Combining these various dictionary definitions suggests the scope of review should encompass supplementary evidence of which a party was recently made aware, but could not get or use before. Applied specifically to innocent spouse claims, the plain meaning suggests that the scope of review is limited to evidence not already provided or existing in the administrative record, of which the party introducing the evidence became aware since the administrative determination, and which the party introducing the evidence could not have obtained and provided before the administrative determination.

In a footnote, Respondent further suggests

As to words of the statute that denote timing, i.e. “newly” and “previously,” (e)(7)(B), these are perhaps best understood with reference to the administrative determination. Accordingly, “newly” would cover the period of time after the administrative determination, whereas “previously” would encompass the time period before the determination.

Next steps

What does all this mean for Ms. Grady, in Respondent’s view?

As to the specific case in issue here, as a result of the amendment, it may be necessary for the parties to either agree what constitutes the administrative file and whether other evidence presented at trial was newly discovered or previously unavailable, or if the parties cannot agree, to hold a supplementary hearing to determine whether the Court is in full possession of the administrative record, and whether any evidence presented to the Court was not newly discovered or previously unavailable under section 6015(e)(7)(B).

This will not be welcome news to Ms. Grady.

Initial Thoughts

As others have commented, limiting the Court’s scope of review while setting a de novo standard of review makes very little sense, particularly in equitable relief cases and cases in which abuse is a factor. Unfortunately, taxpayers seeking relief will be caught up in delays and litigation over these provisions.

At the Tax Section meeting, attendees suggested that the parties simply waive any evidentiary objections under the Taxpayer First Act, at least as to cases that have already been tried. The Robinson trial took place over a year and a half ago, in February 2018. The Grady case was tried a year ago. In the interests of the efficient resolution of cases, and in fairness to the self-represented petitioners for whom further proceedings could pose a hardship, the parties could agree to have the Court decide the case based on the evidence submitted.

The administrative record was another topic of discussion. In many cases, the administrative record is simply poor, and it is not possible for the court to reach a de novo determination without fleshing out what happened in the administrative proceedings. Innocent spouse cases are fact-intensive and involve taxpayers telling nearly their entire life story to the examiner. Unfortunately, phone calls between the spouses and IRS and Appeals employees are not recorded and there is no reliable transcript of what was said. IRS employees’ case notes vary in quality, and taxpayers are not allowed to record these calls themselves.

Les recently noted that “last year’s Tax Court’s discussion of exceptions to the record rule in Kasper (the whistleblower case) will be even more important” in the context of the Taxpayer First Act. In a post on Kasper last year, he discusses the issue in the context of general administrative law principles. Les noted:

What makes Kasper one of the most significant tax procedure cases of the new year is that in reaching those conclusions it walks us through and synthesizes scope and standard of review and Chenery principles in other areas, such as spousal relief under Section 6015 and CDP cases under Section 6220 and 6330.

In what I believe is potentially even more significant is its discussion of exceptions within the record rule that allow parties to supplement the record at trial. To that end the opinion lists DC Circuit (which it notes in an early footnote would likely be the venue for an appeal even though the whistleblower lived in AZ ) summary of those exceptions:

• when agency action is not adequately explained in the record;
• when the agency failed to consider relevant factors;
• when the agency considered evidence which it failed to include in the record;
• when a case is so complex that a court needs more evidence to enable it to understand the issues clearly;
• where there is evidence that arose after the agency action showing whether the decision was correct or not; and
• where the agency’s failure to take action is under review

Established exceptions to the record rule in other contexts may provide some relief in cases where the administrative record falls short of what is reasonably necessary for a de novo determination. For example, where it is clear from the record that a specific contention was made during the administrative process, but the IRS case notes do not adequately describe the testimony given, the Tax Court may be able to take testimony on that specific point.

This post has barely scratched the surface of the Taxpayer First Act issues the Tax Court will grapple with in pending innocent spouse cases. We will continue to blog about developments in this area as they unfold.