How Tax Regulations Are Made

Today’s post is by frequent guest poster Monte Jackel, Of Counsel at Leo Berwick. In today’s post, Monte discusses his reactions to an article written by Shu-Yi Oei of Boston College Law School and Leigh Osofsky of the University of North Carolina at Chapel Hill. A few years ago they wrote an insightful article on the process that led to the 199A regs; Keith discussed their article in a 2019 post. In this post Monte draws on his decades both in and out of the government to suggest changes to the process of reg drafting. Les

A relatively recent article (Shu-Yi Dei and Leigh Osofsky, Legislation and Comment: The Making of the §199A Regulations-Article ) provides a useful discussion of how public commentary, both pre and post the issuance of proposed regulations, affects the ultimate content of final Treasury regulations. 

For me, having experienced this process firsthand, the following reforms should be seriously studied and if appropriate instituted:


1. The most important reform that could be instituted would require the Congress to amend the Freedom of Information (FOIA) part of the Administrative Procedure Act, 5 USC 552 (APA), to require disclosure by the tax agency holding the government record, the IRS and/or Office of Chief Counsel, to proactively disclose those records to the public (either through the Federal Register or the Internal Revenue Bulletin), instead of the current law which requires that the record relating to pre-proposed regulations comments be disclosed to the public  only upon a FOIA request (post-proposed regulations are generally required by law to be disclosed in the Federal Register as part of final regulations). What a reader of, for example, Tax Notes typically sees is that this tax publication was sent a separate copy of the comment letter or other government record so it could publish it in the public interest (which it often does). But the problem with waiting for a FOIA request to disclose government records is that often the requestor would need to know a record exists before requesting it. That is backwards. See references in the Internal Revenue Manual

2. Under 5 USC 552(f)(2), a “record” and any other term used in reference to information includes—(A) any information that would be an agency record subject to these requirements when maintained by an agency in any format, including an electronic format; and (B) any information described under subparagraph (A) that is maintained for an agency by an entity under Government contract, for the purposes of records management. The term “records” are defined in various statutes, including the Federal Records Act and the Freedom of Information Act.

Although there is a required collection of emails and such (and voice discussions should be documented as well) by the tax agency, all that is done at present, to my understanding, is to send the material (such as an email from an outside party on a substantive issue) to the Procedure and Administration units at IRS Chief Counsel to be available if and when there is a FOIA request. See IRM 30.11.1 FOIA Requests for Chief Counsel Records, and FOIA Guidelines.  This practice should be changed to make the disclosure of such records proactive without request to the agency. Appropriate FOIA protections would continue to apply.

3. There is a practice by some to take oral comments and not document them in writing or to return written materials to the presenter at a private meeting with outside parties and then take the position that FOIA is not required-ever. That practice should be negated via a change to the APA. 

4. Pre-proposed regulatory meetings and commentary should be discouraged unless immediate public disclosure also occurs. That is item 1 above. The argument against this is that no one will comment during that period if it became public but, assuming that is true, the question comes down to whether public disclosure is more important to the process than is feedback from outside technical experts and “those in the know”.  Those comments do add value but at what cost? 

5. The agency should have a duty to search for articles and similar commentary and take those comments and commentary into account in drafting proposed and final regulations. Due diligence is all this would require. Current law would allow articles to be ignored unless they are part of the proposed regulation comment process.

6. Most technical and substantive regulations have a very limited number of readers and there are few in number who will truly read and understand the regulations. In light of that reality, substantive regulations should, generally, be made more general principles oriented as compared to innumerable and detailed rules.

The Importance of Notice and Hearing Rights for the Advanced Child Tax Credit

Today we welcome first-time guest blogger Jennifer Burdick. Jen is an attorney with Community Legal Services of Philadelphia focusing on SSI benefits. In this post, she explains the notice and appeal rights that typically apply in public benefit programs, and why they are crucial to her clients’ accessing the benefits that they qualify for. She then addresses the promise and shortfalls of the American Rescue Plan’s child tax credit expansion. Christine

Notice and Hearing Rights in Public Benefits: an Example

Jacob is a five-year-old child who receives SSI, a modest Social Security income support for children with disabilities. His mother receives a notice that Jacob is no longer eligible for SSI because a data match shows that his mother has too much money in the bank. In fact, the Social Security Administration (SSA) is mistaken — that’s not her bank account.

The notice of the termination, which SSA must send mom prior to stopping Jacob’s benefits, provides instructions for how she can appeal by seeking reconsideration. 20 C.F.R. § 416.1336. She is given 60 days, plus five for mailing, to appeal the decision. Id. All she has to do to appeal is send in the provided form (or any writing) disagreeing with the termination. She does not have to write much – one or two sentences is sufficient, and she does not need to use any magic words like “appeal,” or even sign the form. POMS SI 04020.020. If she appeals within ten days, plus five for mailing, Jacob’s benefits will remain on during the appeal, until there is a reconsideration decision. 20 C.F.R. § 416.1336(b).

Once Jacob’s mother requests reconsideration, an SSA claims representative who was not involved in the initial termination decision must review the case and issue a new written determination. 20 C.F.R. §§ 416.1413 & 416.1422. As part of that review, Jacob’s mother can select if she wants SSA to do a case review, or if she wants to attend an informal conference; in certain circumstances a formal conference is also available. 20 C.F.R. § 416.1413a. In a case review, SSA will allow Jacob’s mother to review SSA’s evidence, and present additional oral or written evidence, but typically these cases are decided by re-reviewing the case file. 20 C.F.R. § 1413(a). At an informal conference, Jacob’s mother will attend, can testify, and can additionally present witnesses. Id.  SSA regulations indicate the reconsideration proceeding should be scheduled within fifteen days of her request at her local office, either by phone or in person based on Jacob’s mom’s preference. 20 C.F.R. § 416.1413c. Jacob’s mother can bring an attorney or representative to the meeting. A summary of the informal or formal conference will be included in the record. 20 C.F.R. § 416.1413.

If, after the reconsideration proceeding, the SSA claims representative reaffirms the termination of benefits, Jacob’s mother once again has 60 days, plus five days for mailing, to appeal the decision with the opportunity for benefit continuation pending appeal. This time, the Social Security Act entitles her a hearing before a qualified administrative law judge within 90 days. She’s entitled to bring an attorney or other representative to the hearing.

Importantly, throughout this process SSA shares with Jacob’s mother the duty to develop the record in her case. 42 U.S.C. § 423(d)(5)(B). So as long as Jacob’s mother tells SSA about evidence that might support her claim for benefits, SSA has to help her get it if she cannot. Regulations governing SSA proceedings provide they are inquisitorial rather than adversarial. Carr v. Saul, 19-1442, 593 U.S. (2021). The shared duty to develop the evidence and the inquisitorial nature of the proceedings is critical because many claimants appear without the assistance of counsel, although legal services programs do represent claimants as resources allow. Following the hearing, she receives a written decision with further appeal rights if she loses.

Fortunately, though, she doesn’t need to appeal: the judge agrees that she does not have too much money in the bank, and Jacob’s disability income remains intact.

Implications for the Advanced Child Tax Credit

Among Social Security applicants and recipients, Jacob and his mother’s experiences are utterly commonplace, enshrined in decades of constitutional and statutory law that guarantee basic due process rights. Yet with the tax system, which is increasingly administering the American safety net, there is no similar inquisitorial process.  Instead, people with similar issues related to their tax payments and refund face adversarial process. But Congress can fix this. In the coming weeks, it should draft legislation providing notice and hearing rights to taxpayers seeking the refundable advanced Child Tax Credit (AdvCTC), as expanded in the American Rescue Plan (ARP).


The expansion of the Child Tax Credit (CTC), coupled with making it fully refundable and available monthly to sync its availability to need, has the potential to revolutionize the social safety net. If this advanced tax credit is successfully distributed to those eligible, including Jacob and his mother, it will be literally life changing. Millions of families will rely on this benefit to help them pay for life’s necessities. My clients, low-income families where either a caregiver or child has a severe disability qualifying them for SSI, are excited because monthly payments bring the promise of helping them cover recurring expenses including the rent and utility expenses. One of my clients, Mr. McGruder hopes it will allow him to get his grandsons a cable subscription.

The problem is that ARP does not provides for necessary procedural protections in the event someone seeking to claim the advanced CTC credit is denied, or has their advanced payment reduced or ceased. The only legally required notice provided to families under the ARP is one letter, to be provided in January 2022 (after the receipt of any AdvCTC payments), which will list the total amount of advanced CTC the taxpayer received in 2021. IRC Sec. 7527A(b)(3). To be fair, IRS has elected to provide additional notice to families, sending letters to 36 million families who may qualify for AdvCTC payments, and announcing their intention to send a second personalized letter listing an estimate of their monthly payment. However, there is no provision in ARP, and the IRS has not committed, to send written notices at other key moments:

  1. if a family seeks advanced payments and is determined eligible for less than the full amount;
  2. if a family is determined completely ineligible; or
  3. if IRS will use their unilateral power to reduce or stop AdvCTC that the family has been receiving.

As a result, if a taxpayer is denied access to complete AdvCTC payments, or the Secretary uses the modification powers outlined in the ARP to modify or stop the advanced payment (IRC Sec. 7527A(b)(3)), a taxpayer may experience unexpected interruptions in those payments without any sort of advanced warning that the payment isn’t coming, or any information about an opportunity to appeal. In that event, the taxpayer won’t be able to easily contact IRS customer service, as IRS staff are already struggling to answer the current call volume and IRS directs that people not call in with CTC questions.

Can you imagine anything more frustrating? Imagine if Jacob’s mother, based on the promise of the AdvCTC’s additional $250 a month, secures a larger apartment so she and Jacob can have separate bedrooms, affording him the personal space that is recommended by this therapist. After relying on these payments to offset the additional rent, without receiving any notice, the payment does not come in September due to an internal IRS decision. She will no doubt try to call the IRS, but even the IRS website instructs people not to call for assistance.  If she does call and connect to a human, there is a decent chance she will be connected to a contractor who is unable to give her specific information about her tax case.  She will reach out to me, a legal aid lawyer, who will have to inform her that there is no clear avenue for appeal. Hopefully this will not result in their eviction and all the adverse consequences that follow.

There should be legislation, not litigation, creating detailed notice and hearings rights. In the public benefits context, the Fifth Amendment to the U.S. Constitution’s promise that “[n]o person shall be deprived of life, liberty, or property without due process of law” has been interpreted to convey both applicants and recipients a property interest in government benefits, including cash payments like the AdvCTC. U.S. Const. amend V. Because of this property interest, applicants and recipients are entitled to notice and an opportunity to appeal a denial, reduction, or termination of benefits, in many cases before the reduction or termination takes place. U.S. Const. amend V.; Goldberg v. Kelly, 397 U.S. 254 (1970).

Many poverty advocates, public benefits lawyers, and policy analysts have been surprised to learn that the Supreme Court does not necessarily believe that Fifth Amendment’s promise of pre-deprivation due process applies with the same force to tax refunds and credits. See Leslie Book, The IRS’s EITC Compliance Regime: Taxpayers Caught in the Net, 81 Or. L. Rev. 351, n.9 (2002), (reviewing relevant due process and tax cases, and finding that “the Supreme Court has long held that the collection of tax is so essential to the nation’s lifeline that IRS adjudicative actions should remain largely untouched by procedural protections inherent in the Fifth Amendment Due Process Clause”); Nina Olson, Erwin N. Griswald Lecture Before the American College of Tax Counsel: Taking the Bull by its Horns: Some Thoughts on Constitutional Due Process in Tax Collection, Tax Lawyer Vol 63, No. 3, 2010, at  n. 24.

Although there is some legal basis to support a finding that there is a protectable property interest that would confer due process rights on tax benefits that target alleviating poverty like the AdvCTC, the jurisprudence in this area is murky. Compare, e.g., In re Hardy, 787 F.3d 1189, 1190-91 (8th Cir. 2015) (holding child tax credit qualified as a “public assistance benefit”); Flanery v. Mathison, 289 B.R. 624, 628 (W.D. Ky. 2003) (recognizing trend that refundable tax credits fall within the classification of public assistance designed to combat poverty and are not merely tax refunds); In re Vazquez, 516 B.R. 523, 526 (Bankr. N.D. Ill. 2014) (holding child tax credits can be claimed as exempt public assistance benefits); with, Phillips v. Comm’r, 283 U.S. 589, 596-97 (1931).

Because of the complex legal ground in this area, it would be helpful if Congress would legislate a notice and hearing process. This process must include the following elements:

  1. Plain language notice of approval, denial, termination, or reduction of advance CTC payments, with the reason for the approval, denial, termination, or reduction of the payment;
  2. A clear deadline to protest (or appeal) an adverse action (denial, reduction, or termination), with an additional explanation that if the taxpayer disagrees they can still file a tax return claiming the CTC, which would then be subject to deficiency procedures;
  3. With each notice of payment denial, reduction or termination, a plain language worksheet and sample affidavits to allow claimants to easily file a written protest, with no requirements that people use *magic words* to appeal;
  4. An appeals conference (in person, or over the phone) with an impartial officer must be scheduled promptly after receipt of a protest;
  5. A plain language notice to appellants with the conference information, including its time and date, information about what to have on hand, what to expect, and how to reschedule;
  6. The ability to attend the conference virtually or by phone, plus an in-person option if public health measures allow;
  7. Information to appellants detailing their right to an authorized representative of their choice (including an LITC representative) via phone or video conferencing;
  8. Written procedures for conduct of the conference, including use of interpreters and assistive technology;
  9. Appeals to issue a decision within 30 days of the conference, as well as notification making it clear that the denial does not mean the underlying CTC is decided, and does not prevent the taxpayer from seeking it through a subsequent tax return.

The creation of an accessible appeal conference is critical. Some of the disputes about the ability to claim the AdvCTC will revolve around which caregiver a child lives with, and from whom the child gets more support. These may seem like a straightforward questions, but many families are complex. Real disputes may exist: for example, do you know where a child’s official residence is if she has a bedroom at her mother’s house, but usually sleeps at her grandmother’s house because her mother works overnight shifts? These sorts of questions will not likely be resolvable with dueling pieces of paper, but will require testimony and possibly witnesses. Absent the creation of notice and hearing rights, many children who most need the support the AdvCTC promises may be unable to benefit.

Significant Changes in New Draft Form 8857

We welcome as her second visit to the blog my colleague in the tax clinic at the Legal Services Center of Harvard Law School, Audrey Patten.  Audrey has developed a significant docket of innocent spouse cases and is currently working with Christine to write the third edition of A Practitioner’s Guide to Innocent Spouse Relief.  Look for their book in the coming year.  She also worked with clinic student Madeleine DeMeules on the oral and written comments to Form 8857 discussed here. As Audrey discusses below, their comments led to some changes to the newly revised form.  With the new emphasis on the administrative record, the request for relief from joint liability takes on a high level of importance from the first submission.  Keith

Submitting Internal Revenue Form 8857 to the IRS is the starting point for seeking administrative relief from joint and several liability under IRC §6015, generally called “innocent spouse relief.” The current version of Form 8857 dates to 2014 and has come under scrutiny for being difficult to understand, especially for pro se taxpayers, and unclear as to what relevant information and documentation a taxpayer should submit. With the Taxpayer First Act’s new requirement in IRC §6015(e)(7) that the Tax Court must limit its review of innocent spouse cases to the administrative record, Form 8857, and its use in eliciting relevant taxpayer information, is now crucial to setting up a strong Tax Court case.

The IRS has released a draft update to Form 8857, with a revision date of June 2021. The new form has several improvements. These include various changes that the Low Income Taxpayer Clinic at Harvard suggested in a written comments submitted to the IRS last year and that have been advocated by other LITCs and the ABA. The draft form’s layout and presentation, however, will still be challenging to many taxpayers, especially those with limited resources, education, or writing skills. Practitioners must therefore continue to be mindful about preparing well-crafted narrative statements for clients that track the equitable relief factors in Rev. Proc. 2013-34 and that synthesize relevant facts and documentation to ensure a complete administrative record.


Use of Form 8857

For those unfamiliar with innocent spouse practice, the most common pathway to relief begins by sending Form 8857 directly to the IRS unit dedicated to §6015 relief in Covington, KY. The unit consists of examiners and appeals officers trained in handling innocent spouse cases. While there are three types of innocent spouse relief available to taxpayers (located in IRC §6015(b), (c), and (f)) the taxpayer only submits one copy of Form 8857. Form 8857 does not ask taxpayers what type of §6015 relief they are seeking. Rather the IRS uses that one form to automatically review the application for all three types of relief. It is therefore important that taxpayers are able to present a full picture of their circumstances. The best practice is to ensure that the information on the form and accompanying attachments can support the factors used to weigh “equitable relief” under §6015(f) so that the provision can be properly evaluated if the taxpayer is denied (b) or (c) relief. These factors are found in Rev. Proc. 2013-34 §4.03 and allow for the most comprehensive evaluation of the taxpayer’s circumstances.

Major Changes on the June 2021 Draft Form 8857

1. The “Important Things You Should Know” box at the top of the form has added key important provisions to its bullet point list:

           i. It now directs taxpayers to consult Publication 971 “for help in completing this form and for a description of the factors the IRS takes into account in deciding whether to grant innocent spouse relief.” That citation was a specific recommendation the Harvard clinic included in our comments because, without such a reference, Form 8857 leaves taxpayers completely in the dark as to whether a balancing test of factors even exists. Taxpayers unfamiliar with Rev. Proc. 2013-34 may not understand why certain information is being requested on the form and therefore have a harder time interpreting the questions. That being said this addition has its limitations. Publication 971 lists out the equitable relief factors in a section entitled “Equitable Relief,” (in reference to §6015(f) relief) which is separate from the Publication 971 section called “Innocent Spouse Relief” (in reference to §6015(b) relief). Someone unaware that equitable relief is indeed a form of innocent spouse relief to be considered on Form 8857 might be quite confused and potentially skip that section of the Publication 971 altogether.

            ii. Another bullet point is added that notes the new administrative record rule, warning that the Tax Court may only be able to review information the taxpayer, or their spouse, submits or that is in the IRS file. This is also reinforced by yet another new bullet point asking the taxpayer to attach documentation to Form 8857 and by more frequent reminders throughout the form that additional pages can be attached to lengthen written answers.

2. The draft form adopts another of our clinic recommendations by asking the taxpayer to indicate if English is their primary or preferred language. This is a welcome question because, not only does it assist in picturing the overall life situation of the individual tax payer, it also allows for the collection of aggregate data on the languages needs of potential innocent spouses. This will in turn open the possibility to direct resources to identify language groups that may be considered frequently encountered and help develop language access resources for the innocent spouse unit at the IRS.

3. The draft form includes a new check box asking if the taxpayer consents to receiving voicemails from the examiner. This addition will be of great benefit to those taxpayers who may work jobs that do not allow them to readily answer the phone during business hours. Strict adherence to working hours and restrictions on calls are disproportionately a feature of many service industry, manufacturing, caretaker, and manual labor jobs that are held by lower income taxpayers. By allowing flexibility in communications, it is more likely that taxpayers using Form 8857 may be able to stay in contact with the IRS examiner and lead to a successful resolution of their case.

4. The draft form also adopts a change the ABA has suggested for many years. That is the adjustment to ask whether the taxpayer intended to file a joint return as opposed to whether they did sign a joint return. This language adjustment can account for scenarios where someone signed under duress. Conversely, it also covers taxpayers who did not physically sign or file the return but did expect a joint return would be filed.

5. Part III of the Form 8857 deals with taxpayer’s involvement with the couples’ finances. Under the current version, the questions are structured with mandatory check box answer lists for taxpayers to rate their level of knowledge for each question followed by an open-ended direction to explain the checked answer in more detail. This format raised concerns in the past that taxpayers were being required, under pains and penalties of perjury, to check off a rating of knowledge that could not capture any nuance. The new draft form eliminates those check boxes and replaces them with a series of open ended questions. It should be noted however that the new questions are almost paragraph length and the sheer volume of words in the questions may drive away some taxpayers with limited education or writing skills.

Areas of Continued Concern

Like the existing version, the new draft form does not explicitly guide taxpayers through the potential factors that the IRS will consider. It also does not give equal weight to the information it collects. For example, there is only one question devoted to mental or physical health (Question 9). Meanwhile, the draft form devotes at least 8 separate open-ended questions that appear directed at the knowledge factor (Questions 12-19). The unwary taxpayer, who may not realize that all factors are subject to a balancing test, with no one factor automatically weighing more than the others, may be under the impression that the mental or physical health question is of comparatively minimal importance and not devote enough time to thoroughly answering it.

Another example is the one question on the form that seems to speak to the significant benefit factor as well as the knowledge factor (Question 18). Question 18 asks if, during the year at issue, the taxpayer or the non-requesting spouse “incur[red] any large purchases or expenses?” It is followed by Question 19 which asks about transferred assets. But neither of these questions asks the taxpayer to describe whether they actually were able to use, enjoy, or benefit from such purchases, expense, or assets. Practitioners should advise their clients that affirmative answers to those questions can be supplemented with a statement describing whether they actually received a significant benefit.

Part V of the draft form is the section asking about domestic violence and abuse. It has been revised to remove the 10 check boxes that described potential types of abuse and leaves the original open ended question (Question 23b) asking the taxpayer to describe the abuse they experienced. While check boxes to evaluate abuse may seem inappropriate, they do serve an important function on the existing form in that they flag types of behavior that count as abuse, including things that may not seem obvious to a taxpayer unfamiliar with the broad definition of abuse found in Rev. Proc 2013-34. For example, the list includes asking whether the non-requesting spouse did things like “withholding money for food, clothing, or other basic needs,” “criticize, insult or frequently put you down,” or “Abuse alcohol or drugs.”

These descriptive examples of different kinds of abuse are useful because the IRS’ definitions of abuse in Rev. Proc 2013-34 is far more expansive than many state law definitions of abuse that a taxpayer may be more familiar with. The IRS definition is not limited to physical abuse and includes emotional abuse, financial control, and substance abuse. The ten examples in the current version can guide taxpayers as they prepare their open ended answer. The new draft form, however, provides no examples before that question as to what types of scenarios can be considered abuse. Moreover, the open ended question is immediately followed by an invitation to attach documents normally related to physical abuse, such as court documents, medical records, police reports, and injury photos. This set-up easily leaves the impression that only physical abuse is truly relevant. Question 23a, which asks if abuse was present, does have a note in parenthesis that says abuse may be “physical, psychological, sexual, emotion, or financial abuse, and can include the abuser making you afraid to disagree with him or her or causing you to fear for your safety.” However, the note is easily missed. It also leaves out substance abuse. Removing the requirement to check the ten boxes but, still leaving the list of behaviors in place as illustrative examples, would be a better approach.

In sum, while there have been some welcome adjustments to Form 8857, the new draft version will still be quite challenging for the average pro se taxpayer unfamiliar with the factors the IRS weighs in these cases and with the types of documentation needed to bolster their case. Although IRS employees in the innocent spouse unit are able to elicit more information based on answers to the form if they call the taxpayer, that is not a reliable fallback. The new administrative record rule means that if the taxpayer ends up taking the case to Tax Court, it will be their loss if facts did not make it on the record. Practitioners will therefore need to be vigilant about ensuring that narratives are able to track the factors in Rev. Proc. 2013-34 and are supported with clearly labeled documentation. Failure to do so will result in limitations in the ability to present the case in the Tax Court should the IRS not grant administrative relief.

Getting Perspective on DAWSON

Today guest blogger James Creech brings a series of articles to our attention which illuminate the Tax Court’s case management transition from a different point of view. Whatever your thoughts about DAWSON, considering the transition from an internal point of view is a good exercise. Previous PT coverage of DAWSON can be found here, and the Court’s DAWSON User Training Guides are here.

One of the practitioner challenges of the transition has been learning about new features. The Court maintains a page on its website with DAWSON release notes, which indicates that improvements were deployed just two days ago. Perhaps the Court could consider an announcement system that would alert users to upcoming features as well as new features. Of course, the Court must manage staff workload and it may have bigger fish to fry. Christine

Much has been written about the Tax Court’s new case management system from the practitioner’s point of view. While most of the articles focus on the shortfalls of the new system, such as a search function that has been “coming soon” for months on end, and the change in the way orders are published, not much has been published about how DAWSON was created from a technical point or internal Tax Court staff point of view.

A recently published set of blog posts from 18F changes that. 18F is an internal US Government technology and design consultancy group that worked on developing and implementing DAWSON. As part of 18F’s outreach they have published a three part series on the Tax Court’s case management modernization project. The first article is more of an overview of the Tax Court and the shift from the old case management system to DAWSON and the second and third articles are interviews with Jessica Marine, the Deputy Clerk of Court who oversaw the project, and Mike Marcotte the technical lead.

The articles are technology focused and at times paint an overly rosy picture of DAWSON’s success. Being technical there are numerous references to bugs and minimal viable products (MVP) but not a single reference to the Internal Revenue Code. Despite this, there are still several items of interest to those of us who regularly use DAWSON. Some tidbits include that more than 1 million cases containing more than 1 terabyte of data have been transferred over to the new system, DAWSON is built on an open source framework (which is considered more secure), and at least according to Mike Marcotte there is some internal optimism that the initial problems with the launch have been resolved and that new features can be confidently deployed.

These articles are also a good reminder of all the hard work that went into creating DAWSON. Migrating 30 years of legacy computer systems and 70 years of Tax Court cases does not happen without significant planning, technical skill, and bug fixes. Getting a glimpse into these issues, including one ruined Thanksgiving, is a reminder that building and deploying software is difficult.

Juneteenth And Section 7503: A New Federal Holiday Give a New “Last Chance” For Some

Today guest blogger Bryan Camp discuses the implications for tax procedure of the new federal holiday celebrating Juneteenth. National recognition of Juneteenth resulted from a years-long campaign by many including the incredible 94-year old activist and survivor of white supremacist violence Opal Lee. Christine

Yesterday, President Biden signed legislation that made June 19th a federal holiday. It’s the first new federal holiday since President Reagan signed on to the creation of Martin Luther King Day back in 1983.

The new holiday means paid time off for some. Certainly all federal workers will get it, and other workers, too, to the extent one’s employer automatically pegs paid holidays to the federal calendar.

But the first thought for tax procedure nerds is, of course, IRC §7503. That statute provides that when any deadline for performing “any act” required under “this title” falls on Saturday, Sunday, or a “legal holiday,” why then “the performance of such act shall be considered timely if it is performed on the next succeeding day which is not a Saturday, Sunday, or a legal holiday.” The Tax Court piggybacks off of this rule, saying that §7503 also applies to deadlines for Tax Court petitions. TC Rule 22.


Section 7503 will apply to the new holiday just like it applies to others. This year, for example, June 19th falls on a Saturday. The enacting legislation says that when that happens, the holiday will be celebrated on the preceding Friday, June 18th. And THAT means that June 18th is now a legal holiday, so §7503 acts to defer any act due today until Monday, June 21st. I have not read the legislation, but I am guessing that when June 19th falls on a Sunday, the holiday will be celebrated on the next day, Monday. After all, we cannot let holidays go to waste.

Let’s call that the 3-day weekend rule!

This is also a good moment to review a couple of other quirks about §7503 associated with the statute’s definition of “legal holiday.” Surprisingly, the term is not defined to mean a federal holiday, at least not directly. Let me explain.

The term encompasses two types of holidays. First, the term means any federal holiday. Technically, the statute actually says that the term just refers to “a legal holiday in the District of Columbia.” However, since DC is currently under federal jurisdiction that statutory definition means that any federal holiday is a “legal holiday.”

One quirk involving this definition is that DC celebrates a holiday called “Emancipation Day.” That day is supposed to fall on April 16th but the enacting legislation also contains a 3-day weekend rule. The result is that when April 15th falls on a Saturday, that means that Monday April 17th is a legal holiday in DC, which means that §7503 kicks in and pushes the April 15th filing date to April 18th. That is what happened in 2017 for tax year 2016 returns.

The second type of holiday that triggers operation of §7503 is trickier to figure out. It provides that when any act is required “to be performed, at any office of the Secretary or at any other office of the United States or any agency thereof, located outside the District of Columbia but within an internal revenue district” then the term “legal holiday” also means “a Statewide legal holiday in the State where such office is located.”

One example of a statewide legal holiday that sometimes affects the April 15th filing deadline is the Patriots Day holiday. No, it’s not about the sports team. It is designated to be celebrated on the third Monday in April (so no need for a 3-day weekend rule). Several states have that day as a statewide holiday.

So what happens when the third Monday in April is the 15th, 16th, or 17th (do you see why it matters that it falls on the 16th or 17th?). So far, the IRS has taken the position that only those taxpayers who live in the states that celebrate the holiday can use §7503, to push their filing deadline to Tuesday, even if they are required to file in an IRS Campus that is not in a state celebrating that holiday. See IRS Notice 2006-23. That does not make much sense to me. The statutory language would appear to key the effect of a statewide holiday to whether the IRS office where a document must be filed is in the state, not where the taxpayer required to file happens to live. Thus, because there is a a returns processing center in Andover Massachusetts, a state that observes Patriots Day, then §7503 should apply to all taxpayers required to file in Andover.

Section 7503 is woefully outdated. The reason for the two separate definitions was that in the old days, taxpayers filed their returns in local offices but much of the processing and assessment work was done in Washington D.C. And when I say “the old days” folks, I mean the really old days, before the introduction of the Computing Centers and centralized returns processing in the early 1960’s! That’s how outdated the language is.

Further, alert readers will also notice that the statute refers to “internal revenue districts.” They no longer exist. They were abolished by the 1998 IRS Restructuring and Reform Act. But did Congress think to change the language in §7503? Noooooo. So we just stumble along, applying outdated statutory language to new situations as best we can. Thankfully, the creation of a new federal holiday fits very nicely within the definition of “legal holiday” contained in §7503. ….until D.C. achieves statehood.

Things That Make You Say Hmmm

We welcome back guest blogger and commenter in chief, Bob Kamman.  As usual, Bob has found things that the rest of us overlook. 

In addition to the interesting twists on the way things work that Bob discusses below, I received a message from Carl Smith who, though retired, still takes some interest in what is happening in the world of tax procedure.  Carl provides some data on the Tax Court that might be of interest to court watchers.  After checking DAWSON, Carl sent the following message:

The last docket number for 2020 was 15,351.  Since the court doesn’t give out the first 100 docket numbers (i.e., the court starts at docket no. 101), that means filings in 2020 totaled 15,251, which is the lowest in two decades.  (The 1998 Act so froze the IRS that, according to Dubroff and Hellwig (Appendix B), only roughly 14,000 petitions were filed in 1999 and 15,000 petitions were filed in 2000.)  The last docket number in 2019 was 23,105, so filings in 2020 fell off about a third from 2019 to 2020.

As of right now, May 27, before the court’s Clerk’s Office opens, the last docket number is 8856-21 — only slightly ahead of the pace for 2020, though I would note that the first 10 weeks of 2020 were not impacted by the virus at all.

Oddly, the Tax Court is still very backlogged in serving petitions on the IRS.  Docket 8856-21 was filed on 3/15, but says it was served 5/27 — i.e., it will be later today.  That time gap of two and a half months to serve the petition is typical right now. Looking to the last few dockets of 2019, it typically took only 14 days to serve a petition filed on Dec. 31, 2019.


I thought I knew at least the basics of tax procedure, but lately I am starting to wonder if they changed the rules while I was slipping into old age.


For example, there is the statute of limitations for refunds of individual income tax.  From a Notice CP81 mailed from IRS in Austin and dated May 24, 2021: “We haven’t received your tax return for the year shown above.  The statue [yes, that’s what it says, not statute] of limitations for claiming a refund for the tax year shown above is set to expire.  As a result, you are at risk of losing the right to a potential refund of your credits and/or payments shown above.”

The credit on the account is $145. The tax year is 2017.

No, the taxpayer does not live in Texas or other disaster area.  I should say, did not live there.  He died in July 2020. 

Of course it’s possible that the credit came from a timely-filed extension request in April 2018.  No one alive now, has any records of what he did back then.  We do know that IRS paid him refunds on 2018 and 2019 returns, without any reminders or requests about 2017.  Requesting an account transcript for a decedent would take some time, to find out. 

And another thing.  I thought I knew the rules about when IRS would pay interest on refunds, and when it would not.

Then another tax practitioner reported that a Form 1040 that was e-filed on April 15 resulted in a refund deposited on April 23, with several dollars of interest added.  The refund was in the $10,000 range.  I had my doubts about this, until something similar happened with one of my clients.

They had filed their return in March, but claimed a “Recovery Rebate Credit” for a payment they had not received.  IRS is verifying all of these, so the refund was not approved and deposited to their bank account until April 28.  It included $1.31 in interest. 

I had always thought that IRS has 45 days from the date the return is due, or when received if later, to pay the refund without interest.  The IRS website states, “We have administrative time (typically 45 days) to issue your refund without paying interest on it.”

So I did some research, and this is what I found.  But I may not have gone far enough.

Code Section 7508A deals with disaster areas and allowed IRS to permit last year’s 3-month extension and this year’s 1-month extension.  It provides:

( c)        Special rules for overpayments
The rules of section 7508(b) shall apply for purposes of this section.

And Section 7508(b) says

(b)         Special rule for overpayments
(1)         In general
Subsection (a) shall not apply for purposes of determining the amount of interest on any overpayment of tax.
(2)         Special rules
If an individual is entitled to the benefits of subsection (a) with respect to any return and such return is timely filed (determined after the application of such subsection), subsections (b)(3) and (e) of section 6611 shall not apply.

So what are these two parts of Section 6611 that should be disregarded?

The second one mentioned, 6611(e) has the 45-day rule. So IRS can’t rely on that.

But the first one, 6611(b)(3), deals only with “late returns”. That still leaves Section 6611(b)(2), which gives IRS 30 days to issue a refund with no interest:

(b)         Period
Such interest shall be allowed and paid as follows: . . .
(2)         Refunds
In the case of a refund, from the date of the overpayment to a date (to be determined by the Secretary) preceding the date of the refund check by not more than 30 days, whether or not such refund check is accepted by the taxpayer after tender of such check to the taxpayer. 

So the 45-day rule is out, but shouldn’t the 30-day rule still be followed? At least, that’s the way I followed the trail.  But I could be wrong. I’m expecting a TIGTA or GAO report later this year, telling me why IRS did it right.  But I also expect some members of Congress to lament the interest expenditures.

Then there came along the repeal of the tax on ACA premium underpayments in 2020.  If taxpayers paid less for health insurance last year because they underestimated their income and received too much premium tax credit, they would have to make up the difference – until that requirement was repealed by the American Rescue Plan (ARP) in mid-March.  So now IRS has started issuing refunds to those who had already paid this tax. 

According to other practitioners, these refunds have included interest, even when paid before May 15.

IRS is about to start paying refunds to taxpayers who included unemployment compensation in income, before it was excluded for most returns by ARP.  Should these refunds include interest, even if paid within 45 days of April 15?  I suppose so.  These are, after all, not normal times.

The Fourth Circuit and the Primacy of Refund Offsets in Bankruptcy

We welcome guest blogger Michelle Drumbl. Professor Drumbl runs the tax clinic at Washington & Lee Law School and teaches tax there as well. She started as a clinician at almost the same time I did, and it has been a pleasure to work with her over the years. Starting later this summer she will take on the role of acting dean at the law school which is quite a testament to her abilities. She is also the author of a relatively recently published book, Tax Credits for the Working Poor – A Call for Reform, quite a timely book given the recent boost in refundable tax credits authorized by Congress. She is also the co-author of the Examinations chapter of the 8th Edition of Effectively Representing Your Client Before the IRS. Today she writes on a recent 4th Circuit decision at the intersection of tax and bankruptcy and brings to our attention a forthcoming article she has written on the same intersection triggered by another 4th Circuit decision that came out last year. If you want a more in depth discussion of offset you can look at the article written by Michael Waalkes and me which will be published later this year in the Florida Tax Review. Keith

Income tax refund offsets have been a hot topic on Procedurally Taxing, especially of late. While there has been interest in offset bypass refunds and injured spouse relief since long before the pandemic, the CARES Act added some new wrinkles. As has been well documented on this blog, Economic Impact Payments generally were not subject to offset, with some limited exceptions such as past due child support. Offset questions came up again in the context of the Recovery Rebate Credit.


As we followed the legislative and administrative changes and implementation, it sparked conversations about how and when the IRS should exercise its discretionary refund offset authority under section 6402. Nina Olson revitalized a proposal that she had made prior to the pandemic, urging the IRS to be more proactive in granting offset relief in cases of economic hardship. Along similar lines, the ABA Section of Taxation recommended that the IRS implement systemic offset bypass relief for three categories of taxpayers during the pandemic.

Meanwhile, the Fourth Circuit has also had occasion to think about section 6402 in the last year, not in the context of COVID or offset bypass refunds, but in the context of bankruptcy. Two recent decisions from the circuit underscore how powerful a collection tool section 6402 remains for the IRS, leaving no ambiguity as to where the circuit stands on a question that has divided lower courts.

Keith blogged about the first decision, Copley v. United States, 959 F.3d 118 (4th Cir. 2020). Anticipating an income tax refund for tax year 2013, the Copleys listed the refund as a homestead exemption on their bankruptcy schedule prior to filing their income tax return. The Copleys had outstanding federal income tax liabilities for tax years 2008, 2009, and 2010; the tax debt for 2008 and 2009 was dischargeable in bankruptcy, while the debt for 2010 was nondischargeable. Despite the Copleys’ exemption claim, the IRS used its discretionary authority under IRC 6402(a) to offset the refund, applying it to tax years 2008 and 2009. Of course, applying it to the dischargeable tax debt was in the best interest of the IRS while also the worst possible economic outcome for the Copleys: if the homestead exemption did not entitle them to keep the refund for their fresh start, presumably they would prefer that it be applied to reduce the nondischargeable tax debt.

The Copleys brought an adversary proceeding in bankruptcy court seeking turnover of their tax refund, asserting that they had properly claimed it as exempt under Virginia’s homestead exemption provision as allowed by BC 522. Ultimately the matter was decided by the Fourth Circuit, which held that the refund became part of the Copleys’ bankruptcy estate, but that BC 553(a) preserves the IRS’s right of offset notwithstanding the Copleys’ exemption rights under BC 522(c). I wrote a forthcoming article about Copley in which I traced the case law split on this issue and discussed the significance of the Fourth Circuit’s holding.

The lower court case law is mixed and at times confusing, in part because it includes cases in which the IRS offset tax refunds to tax debt and also cases in which the Treasury made TOP offsets to nontax debt. The Bankruptcy Code’s automatic stay rule generally prohibits offset against prepetition debts; however, in 2005, Congress enacted BC 362(b)(26),  an exception that allows the IRS to offset a prepetition income tax refund against a prepetition income tax liability. As Keith has discussed, this exception does not extend to TOP offsets – the automatic stay limits the government’s right to offset a tax refund against a nontax debt.

Copley is the first circuit court opinion to resolve the tension between BC 522 and 553 while also finding the tax refund was part of the bankruptcy estate. In the conclusion of my article, I queried whether courts might limit the Copley holding to offsets of tax refunds against tax debts, as distinguished from offsets of tax refunds against nontax debts. Last month, while the article was still in the editing stages with the South Carolina Law Review, the Fourth Circuit provided an answer.

In Wood v. U.S. Department of Housing &  Urban Development, 993 F. 3d 245 (4th Cir. 2021), the Fourth Circuit followed Copley, holding that the government’s right under IRC 6402 to offset a tax refund against a preexisting nontax debt prevails over the debtors’ right under BC 522(c) to claim an exemption in their tax refund.

The Woods defaulted on a HUD-backed loan, which was subject to the Treasury Offset Program. The Woods filed bankruptcy in March 2018 and a week later filed their 2017 income tax return. Pursuant to IRC 6402(d), the government offset the federal income tax refund against the outstanding debt to HUD. The Woods brought an adversary proceeding in bankruptcy court, asserting that the tax refund was part of their bankruptcy estate, was protected by the automatic stay, and was protected by exemption under BC 522. The government argued that the tax overpayment was not considered a tax refund under IRC 6402, was thus not part of the bankruptcy estate, and therefore was not subject to exemption and not protected by the automatic stay. At the time of the adversary proceeding, the Fourth Circuit had not decided Copley.

Keith blogged about Wood last year when the district court affirmed the bankruptcy court’s  finding that the exemption provision of BC 522 disallowed a setoff under BC 553. While acknowledging a split on the issue, the district court found that the tax refund was part of the bankruptcy estate; it then followed other bankruptcy courts within the Fourth Circuit in finding that “a properly-claimed exemption trumps a creditor’s right to offset mutual prepetition debts and liabilities.” However, as Judge Wilkinson noted in Wood, “those courts lacked the guidance of [the Fourth Circuit’s decision in] Copley.” Judge Wilkinson’s Wood decision refers to IRC 6402(a) (offset against tax debts) and 6402(d) (offset against TOP debts) as “sister provision[s].” Importantly, the Wood decision notes that an offset under section 6402(a)  is discretionary while an offset under 6402(d) is mandatory, with the result that “the case for a statutory setoff right is even stronger [in Wood] for § 6402(d) than it was in Copley for § 6402(a).”

But as the opinion notes, that “is not the end of the matter” because unlike in Copley, the Wood court still had to had to address the applicability of the automatic stay. The district court in Wood noted that BC 362(b)(26)’s automatic stay exception does not apply to a TOP offset, with the result that the Woods’ tax refund was protected by the automatic stay. The district court rejected the government’s argument for retroactive annulment of the stay. In his blog post, Keith expressed surprise that the DOJ lawyer representing HUD would argue that the United States had the right to seek a retroactive annulment of the automatic stay to allow the offset. Keith noted that other federal agencies would need to go to Congress and have 362(b)(26) expanded if they wanted to use TOP while an individual was in bankruptcy.

The Fourth Circuit in Wood did not find this problematic, however. While acknowledging that 362(b)(26) does not apply to an offset against a HUD liability, and that the government’s actions violated the automatic stay, the court also noted that the government can seek relief from the stay and that “barring exceptional circumstances, the government’s motion for relief from the automatic stay in cases of this kind should ordinarily be granted” (citing Cumberland Glass Mfg. Co. v. De Witt on this point).  In remanding Wood to the lower court to consider that question, the Fourth Circuit emphasized the Copley precedent and its finding that “the government’s statutory setoff rights under § 6402 trump the Woods’ right to exempt their overpayment.”

It remains to be seen whether other circuits will follow the Fourth Circuit’s holdings in Copley and Wood as to the primacy of IRC 6402. In the meantime, debtors and bankruptcy attorneys should take note. In my article I outline a few takeaways, each of which highlight the need for careful planning when a bankruptcy debtor has outstanding tax debt. While Keith and Nancy Ryan come to my mind as notable exceptions, it is my observation that tax lawyers are not typically also bankruptcy experts and bankruptcy lawyers are not typically also tax experts. These two Fourth Circuit cases, however, are a reminder that both types of lawyers must be cognizant of the ways in which the statutory worlds of bankruptcy and tax collide.

Supreme Court Reverses the Sixth Circuit in CIC Services – Viewpoint

Today, the Supreme Court handed down a unanimous opinion in CIC Services.  The Court holds that the Anti-Injunction Act does not bar a suit challenging a IRS notice that requires a non-taxpayer to provide information even though the failure to provide the information could result in a penalty.  Today, we bring an observation about the case from Professor Bryan Camp who has blogged with us several times before.  Professor Camp filed an amicus brief with the Supreme Court in support of the government’s position that the AIA did bar this action.  Soon, depending on how grading exams goes, we will publish a counterpoint to Professor Camp’s post by Les.  Les joined the tax clinic at Harvard Law School in filing an amicus brief on behalf of the Center for Taxpayer Rights supporting the plaintiff in this case.  Here is a copy of the amicus brief filed by Professor Camp and here is a copy of the amicus brief filed by the Center for Taxpayer Rights.  We have previously blogged this case many times.  A sample of prior posts can be found here (in a post by authors of another amicus brief in support of the government whom we hope might have more to say here in coming days), here and here.


Here’s what it got wrong.  Justice Kagan rests her opinion on a distinction between “information gathering” on the one hand and “assessment/collection” on the other hand.  The Anti Injunction Act, 26 USC §7421, prohibits suits to restrain the latter, she says, not the former.  All CIC Services was doing was seeking to restrain the IRS from collecting information from it.  

Here’s why that’s wrong.  Assessment is a process, not an event.  And the process starts with reporting information to the IRS!  Heck, lots of folks are doing that today.  The wrinkle in this case is that it was not a taxpayer reporting information to the IRS; it was a third party (CIC Services).  So the Court says hey, information reporting by taxpayers may be part of assessment (because the IRS, after all, assesses tax in large part based on the information taxpayers self-report).   You see this most explicitly in Justice Sotomayor’s concurrence.   But information reporting by third parties, says the Court, is not part of assessment or collection tax.

The heck it isn’t!  

Saying that information reporting by third parties is different than information reporting by taxpayers reflects a deep confusion about tax administration.  Congress created third-party information reporting requirements in the first place as an integral part of the tax assessment and collection process.  When Congress re-started the income tax in 1913 it experimented with what we are now very used to: third party withholding of taxes.  That’s what employers now routinely do for employees.  But Congress got lots of blow-back for that.  So it quickly abandoned the requirement for third parties to withhold actual dollars.  Instead, Congress substituted third-party information reporting for withholding.  This was in the War Revenue Act of 1917, 40 Stat. 300.  The Senate Finance Committee explained that third-party information reporting was a “substitute for the previous collection strategy of tax withholding.”  It was “conducive to a more effective administration of the law in that it will enable the Government to locate more effectively all individuals subject to the income tax and to determine more accurately their tax liability. This is of prime importance from a viewpoint of collections.” Sen. Rpt. 65-103 (August 6, 1917) at 20 (emphasis added).  

Since 1917 Congress has added dozens and dozens of third-party information reporting requirements to the Tax Code.  And always for the same reason: such reporting is integral, is vital, to the proper assessment and collection of tax.  When the IRS did its tax gap studies it found that taxpayers are far more likely to properly self-report transactions (and the income from such transactions) when they know a third party is reporting as well.  No duh!  So that is why a suit attempting to restrain a third-party information reporting requirement is well within the scope of the Anti-Injunction Act’s prohibition against suits to restrain the “assessment or collection” of “any tax” regardless of whether the person suing “is the person against whom such tax was assessed.”  That’s the language in §7421.

Here’s what getting it wrong means.  As Justice Kavanaugh pointed out, this decision creates a new exception to the Anti Injunction Act.  It will require litigation for courts to figure out just how big or small that exception is.  For example, when Justice Kavanaugh was on the D.C. Circuit he authored an opinion in Florida Bankers Association holding for the IRS on a very, very, very similar issue.  This CIC Services opinion nukes Florida Bankers.  …or DOES it??  Hello litigation!  

The bigger picture here is the Court is revisiting what it thinks should be the proper relationship of courts and the IRS.  This decision allows courts to give greater and closer supervision of how the IRS administers the tax system.  It has the potential to greatly slow down the IRS’s ability to detect tax cheats, such as the micro-captive insurance arrangements that CIC was promoting.  That will lead to significant losses in tax revenue while companies like CIC will continue to be able to create and promote new ways for wealthy taxpayers to avoid paying taxes.  

But there are two silver linings.  First, the decision might spur Congress to actually revise the Anti-Injunction Act to bring it into the 21st Century.  Congress wrote the AIA in 1867, after all and the basic operative language is unchanged.  For example, there was no third party reporting in 1867 the way there is now.   Second, even without the AIA, this ruling does not mean that courts will suddenly stop all third-party information reporting.  A court will not enjoin the IRS from enforcing a contested reporting requirement unless the party seeking the injunction can meet the traditional requirements to obtain an injunction: (1) the party is likely to win on the merits; and (2) the party will suffer irreparable harm if the court does not enjoin.