Nominal Refund Claims

Chief Counsel’s office issued Program Manger Technical Assistance (PMTA) 2023-001 to address the issue of a $1 claim filed in order to try to protect the statute of limitations for filing claims.  The advice concludes that the $1 or any nominal claim will not protect the taxpayer but it also distinguishes nominal claims from protective claims.  The distinction can be quite important.

The PMTA comes from an expert in Chief Counsel’s National Office and is written to the Director (Examination – Specialty Policy) person in the headquarters office of the IRS.  In this case the author (aka the expert) has a narrow practice within the Procedure and Administration Division of Chief Counsel.  The author will generally field all questions and appeal decisions within the narrow scope of their duties.  So, the person brings significant knowledge to the question.  Chief Counsel’s Office has made this type of advice public for about 25 years.  Because it does not receive a high level of review, this advice does not bind the IRS.  Still, it provides excellent insight into the thinking of the IRS on the specific issue addressed and the likely litigating position should the issue move forward.

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The question coming from the IRS to Chief Counsel is:

whether the Service may allow and make a refund of an overpayment of excise taxes requested on a claim for refund that is filed after the section 6511(a) claim-filing period if, shortly before the period elapsed, the taxpayer had filed an identical request for only $1 or for some other nominal amount.

The advice notes that the IRS cannot make an administrative refund nor may the taxpayer successfully bring a suit to recover a refund if the claim filing period has lapsed before the taxpayer files the claim.  Citing a 90-year-old case, the opinion states that a claim that calculates the amount of the overpayment claimed by the taxpayer for the first time that is filed after the time for filing a claim would not be considered.

A taxpayer filing before the deadline with a less than fulsome claim wants the ability to supplement the timely filed document after the deadline for filing a claim.  The advice provides that:

A late-filed claim will not be treated as an amendment or “supplement” to an original claim if it would require the investigation of new matters that would not have been disclosed by the investigation of the original claim.

Providing further explanation of this statement, the PMTA states that:

a late-filed claim that alleges a large increase from an earlier mere nominal request would represent the first formal indication of the ballpark in which the controversy lies. Such a nominal request, therefore, would not provide the Service the opportunity to make an informed decision regarding where to invest its examination resources (e.g., into examining the support for the amount of the alleged overpayment, as opposed to the merits of a legal assertion or argument). And the Service cannot be said to be on notice with respect to a claim for refund or credit until it is in a position to make such an informed decision.

Essentially, the PMTA takes the position that putting down a nominal amount does not create the type of informal claim a taxpayer can later fix.  The timely claim must give the IRS a fair change to know the problem for which the taxpayer seeks a refund.  The PMTA cites to the “substantial variance” rule as a reason for its position.  Variance in the refund setting is all about providing the IRS with the opportunity to administratively determine the correctness of a claim – an exhaustion of administrative remedies doctrine issue.

Having laid down the strict rule, the PMTA then, however, begins to offer hope in certain situations.  In this section of hope, it first describes a situation in which and incomplete or nominal claim might start a conversation:

For example, if the calculation of an overpayment is burdensome or expensive, the Service may allow a taxpayer initially to file a request that might not otherwise be treated as a complete claim.3 But any consideration of the request would be at the discretion of the Service and the Service may reject such a request as being unprocessible as a claim. Such a request will not preserve the taxpayer’s right to sue for refund if the matter becomes controversial or otherwise remains unresolved. To the extent the Service does not both allow and make a refund before the section 6511(a) claim-filing period elapses, the above-referenced statutes prohibit the Service from doing so afterwards and prohibit the controversy from proceeding to suit (except, perhaps, merely to the extent of the nominally claimed amount). This is true regardless of whether the denial or mere Service inaction is because the Service disagrees with the position, an interpretation of law, or with the alleged facts. It also would be true when a denial has nothing to do with the merits of the claim, but instead is issued solely because the Service treats the request as being a defective and non-processible claim. It is not the case that a taxpayer has the absolute right to file a $1 claim, or a “$1-plus” claim, and simply refrain from calculating the correct amount of an alleged overpayment, to then later be afforded administrative or litigation refund rights.

The PMTA then discusses those situations in which the claimed overpayment cannot be currently calculated.  It describes this situation as one involving protective claims.

The concept of a “protective” claim being sufficient to satisfy the section 6511(a) claim-filing period, to allow for a complete and formal claim at the end of some existing, known, and identified contingency, is established by case law. See United States v. Kales, 314 U.S. 186 (1941).

Protective claims resulted from judicial doctrine created by the courts to avoid situations in which taxpayers faced an almost impossible situation in trying to timely submit a meaningful claim.  According to the PMTA the protective claim doctrine helps courts in interpreting the meaning of the term “claim” in certain situations.

the satisfaction of the contingency after the section 6511(a) claim-filing period elapses is necessary to enable this later-in-time-determination of what the overpayment had been as of the close of the tax period at issue. Accordingly, in a situation in which the exact amount of an alleged overpayment is not subject to precise determination, a taxpayer may both satisfy the section 7422 “duly-filed” requirement, and also avoid any section 6514 considerations, by timely-filing a “protective” claim.

A protective claim should satisfy four elements:

(1) must have a written component; (2) must identify and describe the contingencies affecting the claim; (3) must be sufficiently clear and definite to alert the Service as to the essential nature of the claim; and (4) must identify a specific year or years for which a refund is sought.

In filing a protective claim, the taxpayer should describe the right to the overpayment clearly and explain the contingency that exists which makes the determination of the precise amount impossible.

So, timely filed claims with a nominal dollar amount can be amended after the expiration of the statute of limitations if the taxpayer can demonstrate why the amount cannot be calculated at the time of the submission of the claim.  If the taxpayer cannot demonstrate why the amount cannot be calculated, the taxpayer had better do their best to timely file a claim and put in an amount that as closely as possible calculates the claimed overpayment.  The PMTA sheds light on the times when a nominal claim will work and when it will not but the line between the two situations will not always be a clear line.

Jurisdiction of District Court in Innocent Spouse Case

On March 22, 2023, in the case of Viktoriya Korleshchuk-Petrie v. United States, Dk. No. 21-cv-40125-DHH (D. Mass.), the court denied the Department of Justice (DOJ) Tax Division trial section’s dual motions to dismiss the case for LOJ under FRCP 12(b)(1) and for failure to state a claim under FRCP 12(b)(6). The court found her complaint contained sufficient allegations to survive a motion to dismiss for failure to state a claim. In its 12(b)(1) motion, the DOJ argued that the district court lacked jurisdiction to hear a refund suit filed in an innocent spouse case brought seeking relief pursuant to IRC 6015(f). Almost four years ago, the U.S. District Court for the District of Oregon rejected the same DOJ jurisdictional argument. The court’s decision agrees with Hockin v. U.S., 400 F. Supp. 3d 1085 (D. Or. 2019), but conflicts with Chandler v. U.S., 338 F. Supp. 3d 592 (N.D. Tex. 2018). Right now, there is no controlling appellate authority on this issue, but there is some dicta. I mention that this matter was brought by the trial section of DOJ since that group of DOJ Tax Section has not aligned with the Appellate Section in the arguments it has made on this issue. See discussion here.

DOJ Tax Division trial section now takes the position in this case that a person seeking a refund based on innocent spouse relief could bring a refund suit if the relief was based on 6015(b) or (c) but not on (f).  This seems to be a refinement of the trial section’s prior position.  The DOJ brief is here.

 Ms. Korleshchuk-Petrie was represented by Audrey Patten, the director of the Tax Clinic at the Legal Services Center of Harvard Law School, and Fritz Schemel a 2L.  Their brief can be found here

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Ms. Korleshchuk-Petrie moved to the US in 2007 and married Mr. Petrie.  They had two children.  He had numerous problems as a husband as well as legal problems that landed him in prison for selling controlled substances.  She obtained a restraining order against him and eventually a divorce.  The IRS made changes to their 2007 joint return.  She filed for innocent spouse relief in the past and did not file a Tax Court petition when the IRS denied her relief.  The IRS offset her refunds which fully paid the liability.  She timely filed a claim for refund.  The IRS did not respond.  She timely filed suit for refund after waiting six months from the time of her claim.

DOJ seeks to dismiss her case based on lack of jurisdiction because of a lack of waiver of sovereign immunity for a suit seeking a refund pursuant to innocent spouse relief based on 6015(f).  It argues that unlike 6015(b) and (c) which provide mandatory relief if the statutory provisions are met, the relief under 6015(f) is discretionary and therefore the exercise of discretion by the IRS in denying relief is not subject to judicial review by the district court but only by the Tax Court.

The fight initially centers on 28 USC 1346(a)(1) which provides:

The district courts shall have original jurisdiction, concurrent with the United States Court of Federal Claims, of: (1) Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws.

The court states that the statute has three requirements.  First, the taxpayer must file a claim.  Second, the taxpayer must fully pay the tax and meet the Flora rule (even though Flora was a case involving deficiency proceedings having nothing to do with innocent spouse claims.)  Third, the claim must be timely.  The court finds there is no dispute that the three pre-conditions for bringing suit in district court were met.  So, it finds that she meets the plain language requirements for relief in the district court.  It states:

The Williams Court [United States v. Williams, 514 U.S. 527 (1995)] characterized 28 U.S.C. § 1346(a)(1) as “waiv[ing] the Government’s sovereign immunity from suit by authorizing federal courts to adjudicate ‘[any] civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected.’” Id. at 530. Indeed, after listing the categories of alleged bases for seeking a refund in district court, Congress added a basis for seeking a refund for a tax “in any manner wrongfully collected.” In sum, Congress appears to have captured virtually every permutation of a claim for a refund and, introducing its scope with the word, “any,” certainly excludes no particular class of refund claims.

The court then states:

I find that § 6015(f) fits comfortably within the plain meaning of 28 U.S.C. § 1346(a)(1), and hence that Congress has waived sovereign immunity for refund claims predicated on § 6015(f).

After finding that the plain meaning of the relevant statute supports allowing a person seeking a refund based on innocent spouse relief, the court then addresses the specific argument that court review is not allowed because relief under 6015(f) is discretionary. Here it says:

The Government’s argument that discretionary relief determinations are insulated from “wrongfulness” under 28 U.S.C. § 1346(a)(1) is further undermined by its concession that § 6015(e) provides for review of § 6015(f) determinations in the Tax Court. Certainly, the language of § 6015(e) supports the Government’s position that the Tax Court can review § 6015(f) determinations. However, the fact of a route to review of a § 6015(f) relief denial in any forum necessarily contemplates that the Secretary’s equitable determination may not be correct.

So, the court finds that district court’s have jurisdiction to hear refund suits for innocent spouse relief even if the basis for the requested relief is 6015(f). 

The arguments against jurisdiction by DOJ Tax Division trial section do not stop there.  It next argues that Congress granted the Tax Court exclusive jurisdiction in 6015(f) cases citing to 6015(e).  The court rejects this argument as well finding that 6015(e) pertains only to the Tax Court jurisdiction over 6015 claims but does not indicate that the Tax Court’s jurisdiction is exclusive.

to the precise contrary, § 6015(e)(1)(A) provides that, “[i]n addition to any other remedy provided by law, the individual may petition the Tax Court … to determine the appropriate [innocent spouse] relief available[.]”

Again, the DOJ Tax Division trial section makes a very nuanced argument concerning jurisdiction in 6015(f) cases:

The Government argues that under the plain terms of § 6015(e), refund claims cannot be premised on § 6015(f) where, as here, the IRS collects a tax deficiency “after denial of relief that is not appealed to the Tax Court[.]” [Dkt. No. 18, p. 8]. The Government suggests that under § 6015(e)(3), the one “discrete instance” in which a district court has jurisdiction to adjudicate a refund claim premised on § 6015(f) relief is when “either spouse commences a refund suit [in a district court] implicating the same years involved in the innocent-spouse petition” appealed to the Tax Court. [Id. at p. 13]. In that specific instance alone, the “Tax Court shall yield jurisdiction over a timely filed petition for review of an IRS innocent-spouse relief determination to a district court.” [Id.].

The court rejects this argument finding that the statute does not state the Tax Court’s jurisdiction is exclusive and it cites to the Tax Court’s decision in the case of Coggin v. Commissioner, 157 T.C. 144, 151-53 (2021) which interpreted the meaning of 6015(e) and stated:

The text [of § 6015(e)(3)] is not explicit about the timing or sequence requirement (if any) as to a refund suit and filing of an innocent spouse relief claim in the Tax Court. Section 6015(e)(3) could be read to mean that this Court’s jurisdictional limitation applies only where a petition is filed before a refund claim. However, we do not interpret the statute as having such a requirement or as compelling us to give any weight to the sequence of Ms. Coggin’s actions with respect to her claims.

The DOJ Tax Division trial section then made a legislative history argument which the court also rejected but to which it devotes a fair amount of discussion.  The final argument centered on interest abatement cases where the Supreme Court, in Hinck v. United States, 550 U.S. 501 (2007) has held that the Tax Court has sole jurisdiction to hear these cases.  Because the IRS has discretion to abate interest, the argument sought to tie the discretionary relief in 6015(f) to the same result.  The court rejected this argument as well finding that the two provisions were distinct.

So, the case moves forward.  The innocent spouse claim under 6015(f) must still be won.  It would be interesting to be in the Room of Lies when/if the trial section seeks to convince the Appellate Section to appeal its position in a setting in which the Appellate Section tells circuit courts that taxpayers seeking innocent spouse relief can full pay and bring a refund suit.

Seeking a Discharge of the Federal Tax Lien

The case of Long v. United States, Dk. No. 2:22-cv-00176 (D. Utah 2023) examines the request for a discharge of the federal tax lien and declines to provide the relief requested. The factual background for the request for relief does not arise with great frequency but comes up often enough and always makes me feel bad for the spouse stuck with the tax liability of their ex-spouse because ex-spouse’s unpaid taxes have caused a lien to arise and attach to property now owned by the non-liable spouse who thought they had extricated themselves from their former partner’s financial shortcomings.

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Ms. Long filed married filing separate returns while she was married.  That suggests she had some insight into her former husband’s finances.  She paid her taxes and he did not.  They owned some real estate jointly.  The IRS filed a notice of federal tax lien (NFTL) against Mr. Long in the county where the property was located.  The filing of the NFTL perfected the lien interest of the IRS.

Mr. and Mrs. Long divorced at some point after the filing of the NFTL and she was awarded the property through a divorce decree.  The opinion does not say what she knew or did not know about the NFTL at the time of the award.  I hope that her divorce attorney, if she had one, would have helped her to understand the impact of the NFTL on the value of the property she received but that’s not clear.

After receiving the property, she requested a discharge of the lien; the IRS turned her down and she brought suit.

It’s worth taking a moment to digress from the case to discuss discharge in order to understand what she requested of the IRS.  Many practitioners mix the concept of release and discharge when thinking about liens.  In the context of the federal tax liens the two terms have distinct meaning.  A release of the federal tax lien signifies satisfaction of the liability or unenforceability of the liability usually because of the expiration of the statute of limitations.  Section 6325(a) governs release.  Ms. Long did not seek a release and she made the right choice of remedies in requesting a discharge.

A person seeking a discharge of a federal tax lien does not need to show that the taxpayer satisfied the tax liability giving rise to the lien or that the tax liability has become unenforceable. The IRS grants a discharge when it has a lien against all of taxpayer’s property but the taxpayer, or a third party, seeks to move the lien from a specific piece of the property encumbered by the lien.  Here, Ms. Long sought to remove, or discharge, the federal tax lien from the property she received as part of the divorce; however, granting her a discharge with respect to that property would not remove, or release, the federal tax lien from all of Mr. Long’s property.

In deciding whether to grant a discharge the IRS looks to IRC 6325(b).  That section provides a few paths to discharge.  The most common path to discharge results when the applicant fully pays the IRS its lien interest in the property or shows that the IRS has no lien interest.  This path to relief is set out in IRC 6325(b)(2)(A) [paying the IRS its interest in the property] and (B) [showing the IRS it has no lien interest in the property] and happens routinely in the sale of real estate.  When someone whose property is encumbered by the federal tax lien which has been perfected by an NFTL seeks to sell, the seller requests a discharge so that the purchaser can obtain a clean title.  At closing, the closing agent calculates the value of the tax lien in the property, pays the IRS and the IRS issues a discharge.  This happens multiple times every day.

Ms. Long chose a harder path to discharge since she did not offer to pay the IRS the value of its lien interest in the property.  She asked the IRS to remove the lien because the property she received in the divorce did not have value for the IRS.  The opinion does not talk about the value of the IRS lien interest in the property.  I strongly suspect the property had some equity to which the tax lien attached.  If it did the IRS would turn down a discharge request submitted without payment of that value.  She looked to the language of the statute that said the IRS “may” issue a discharge, but it doesn’t issue a discharge where value exists unless the party requesting the discharge remits an amount equal to that value.

Another possible path to discharge exists which Ms. Long did not pursue.  Under IRC 6323(b)(1) the IRS may discharge property if the taxpayer’s remaining property has at least double the value of the outstanding liability.  She didn’t choose this path because, I suspect, Mr. Long’s remaining property did not provide the IRS with the cushion required by the statute.

Having failed to convince the IRS to administratively discharge the lien from her property and no doubt being quite displeased with owning property encumbered by a lien for her ex spouse’s tax liability which she probably suspected he would not pay, she brought suit against the IRS seeking a court to order the IRS to discharge the lien.  This suit seems like a bad idea to me, and it did to the court as well.  I feel sorry for Ms. Long because she did not receive what she hoped for out of the divorce settlement; however, a transfer of this type simply doesn’t remove the lien.

She initially brought a quiet title action under 28 USC 2410 in which she also sought damages from the IRS under IRC 7432 for refusing to discharge the lien administratively.  The IRS moved to dismiss her claim.  The court agreed with the IRS since the federal tax lien attached to the property and nothing in IRC 6325(b) required the IRS to issue a discharge.  With respect to the claim for damages, the court said she could not show the refusal was unlawful.  Aside from the fact that the IRS refusal to discharge the lien appears correct on these facts, IRC 7432 does not apply in this situation.  It provides a basis for seeking damages if the IRS fails to release a lien.  It provides no relief for failure to discharge a lien.

After that loss she decided to back up and try again.  She filed a motion to amend her complaint and seek a declaratory judgment.  She wanted the court to order that the liens had no value.  The IRS objected to the amendment because the court lacked subject matter jurisdiction and because she failed to state a claim on which relief could be granted.  The court denied her request to amend as futile explaining that it lacked subject matter jurisdiction over her request.

The case demonstrates the need to understand the true value of property you receive in divorce.  It also shows the near impossibility of trying to force the IRS to discharge a lien under the no value provision of 6325(b) if value exists or if the IRS perceives that value exists.  Ms. Long doesn’t have any good options here.  She can wait out the statute of limitations on collection.  If the real property at issue is her home, a good chance exists that the IRS will not foreclose its lien interest in the property.  If she needs to sell the property before the expiration of the collection statute, the discharge provisions will come back into play since the purchaser will want clear title.  She will receive from the sale the equity in the property after payment of the value of the IRS lien interest.

Tax Court Rule Changes

On March 20, 2023, about a year after it published proposed changes to its Rules, the Tax Court published changes to its Rules and much more.  In addition to publishing the updated Rules, it published a discussion of the comments it received in a similar style to publishing comments to a proposed regulation.  This discussion allows commentors, and other interested parties, to better understand the Court’s thinking about the comments and how they influenced, or failed to influence, the changes to the Rules.  On the same web page, it also published complete versions of the eight submitted comments to this Rule change proposal as well as comments submitted in response to proposed Rule changes going back to 2015. 

The collection of past comments as well as the Court’s discussion of the impact of comments should aid future parties seeking to provide meaningful comments to the Court.  The Court also provided a Guide to Rules Amendments and Notes for persons interested in looking at changes to the Rules over time.

All in all, the package of information accompanying the new Rules does an excellent job setting out the Court’s thinking as well as providing resources to parties interested in understanding how the Court reached its conclusions.  You can find the updated version of the Rules here.  Each Rule is available on that page as a separate PDF.  In this post I will discuss some of the new Rules and some of the comments the Court had about its thinking in adopting the new Rules. 

The post is long and the discussion only highlights three of the proposed changes that interested me the most.  The main take away from this post is that the new rules now exist and the Court’s thinking about the rules as well as the commentors suggestions regarding the changes are available through the links above.  The first of the three rules I discuss raises interesting questions resulting from electronic filing, the second continues my long standing complaint about access to the Court’s records and the third addresses the new amicus provisions.

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The first of the revised rules I will discuss is Rule 25.  This rule addresses the computation of time for filing a document with the Court including a petition.  The pertinent part of the rule I will discuss provides:

RULE 25. COMPUTATION OF TIME

(a) Computing Time: The following Rules apply in computing any time period specified in these rules, in any Court order, or in any statute that does not specify a method of computing time.
(1) Period Stated in Days: If a period is stated in days or a longer unit of time:
(A) exclude the day of the event that triggers the period;
(B) count every day, including intermediate Saturdays, Sundays, and legal holidays; and
(C) include the last day of the period, but if the last day is a Saturday, Sunday, or legal holiday, the period continues to run until the end of the next day that is not a Saturday, Sunday, or legal holiday.
(2) Inaccessibility of the Clerk’s Office: Unless the Court orders otherwise, if the Clerk’s Office is inaccessible on the last day of a filing period, the time for filing any paper other than a petition is
extended to the first accessible day that is not a Saturday, Sunday, or legal holiday. For the circumstances under which the period for filing a petition is tolled when a filing location is inaccessible, see Code section 7451(b).

The Tax Clinic at the Legal Services Center of Harvard commented on this rule expressing a desire for it to discuss what happens if/when the electronic filing system of the Court became unavailable.  It commented:

The Clinic has concerns about the operation of this rule if one or both of the methods of filing a petition become inaccessible.

How does the ability to electronically file petitions interact with physical accessibility to the Clerk’s office? What if a petitioner seeks to file their petition by an unauthorized delivery service or the person sends the petition by courier and the Court is closed due to snow requiring delay of delivery until after the last date to file. Does the fact that the petitioner could have filed electronically mean that the petition is filed late? Does accessibility now turn solely on electronic access?

What if the Court’s electronic access goes down for a portion of a day? How does lost access for a portion of a day impact the determination of accessibility? Does it only matter if the electronic access becomes unavailable at the end of the day leading up to and including 11:59 p.m. Eastern Time

Perhaps these comments provide only hypothetical problems discussed at a law school, but the introduction of electronic filing theoretically available to everyone all the time changes the nature of the timely filing discussion.

The Court’s response to the comments received regarding this change are:

As previously noted, in response to comments, the Court amended paragraph (d) of Rule 10 to include a cross-reference to the definition of “legal holiday” set forth in paragraph (a)(5) of Rule 25.

The Court received a comment inquiring whether and how the availability of and access to the Court’s electronic filing and case management system might impact questions regarding the physical inaccessibility of the Clerk’s Office on the last day of a filing period. The Court’s Rules of Practice and Procedure are not designed or intended to address every possible scenario. The Court will address any issues and disputes that might arise in connection with the application of new paragraph (a)(2) of Rule 25 through case law and similar guidance.

The Court adopted the amendments to Rule 25 as published.

Two recent cases regarding electronic filing and the timeliness of submissions highlight some of the issues that can arise in an electronic filing environment.  These two cases do not involve the electronic filing system “going down” but do point out some issues that arise as petitioners use that system to timely file their petitions.  The first case blogged here involved a California petitioner whose electronically filed petition arrived at the Tax Court two minutes past the Court’s 11:59 PM ET deadline.  The second case is just starting to get going in earnest.  On March 21, 2023 — for the third time in the last year in a Tax Court case — Judge Buch invited an amicus brief (more on that below) in the pro se case of Antwan Sanders, Dk. No. 25868-22.  (The order also, sua sponte, removed the “S” election from the case.)  In his order he attached the Court’s internal electronic file showing the petitioner’s attempt to file electronically and final success immediately after the deadline.  Thus begins the case specific application of the rules regarding electronic filing.  This will be an interesting case to watch.  It raises elements of equitable tolling which will come into play as the post-Hallmark/Boechler cases make their way through litigation but also raises stand alone issues of timeliness of electronically filed petitions.

RULE 27. PRIVACY PROTECTION FOR FILINGS MADE WITH THE COURT

The second of the revised rules I will discuss is Rule 27 regarding electronic access to Tax Court documents. The Court continues its practice of making it difficult to access public records.  Revised Rule 27 is available here.

The Tax Clinic at the Legal Services Center of Harvard commented:

The Clinic believes that the Court practice unnecessarily restricts access to public documents.

The rule continues a practice that makes it unnecessarily difficulty to access public information. Documents should be available electronically absent a good reason for preventing electronic access. The Court should provide a statement of its policy reasons for preventing the public access to public documents in a reasonable manner.

Rule 27(b)(2) describes public access at the courthouse. This access has been essentially unavailable for over two years but even when available is not something available to 99% of the populace. The rule does not explain the alternate method for obtaining records by calling the Court and ordering documents from the clerk’s office leaving anyone who reads the rule to think that the only way to obtain documents is by a personal visit which, at this time, is impossible.

The Court could adopt practices that would open most of its documents to easy public access over the internet. The Court’s failure to open most documents to access over the internet is difficult to explain solely based on privacy concerns as long as it declines to allow electronic access to entity documents which do not implicate privacy concerns. For a further discussion of concerns on this topic please see https://procedurallytaxing.com/what-information-should-the-tax-court-make-available-electronically-to-non-parties/ and the article cited therein entitled “Nonparty Remote Electronic Access to Tax Court Records.”

The pandemic has changed the way even persons in DC can access Tax Court records. The current system for calling and obtaining records contains some improvements over the prior system but is still somewhat clunky. In addition to making more documents electronically available, the Court might consider allowing requesters to fax in the request. That would avoid calling and leaving a VM message only to have someone from the clerk’s office respond to the call and leave a VM message with the requester and so on. A dedicated fax line or email address could make the intake process go smoother and avoid he problems inherent in relying on phones for communication.

The Court responded:

The Court received comments suggesting that the Court should expand remote electronic access to its docket records, including those of entities, which may implicate privacy concerns different from records of individual taxpayers. Although the Court continues to evaluate options for increased remote access to its docket records, Rule 27 reflects the Court’s current policy balancing the interest in protecting sensitive personal information against the public’s interest in access to the Court’s records.

Despite the Court’s efforts directing parties to protect sensitive personal information, in practice that type of information is routinely embedded in papers filed with the Court. This is true not only in cases involving self-represented parties, but also in cases involving parties represented by counsel. A survey of over 3,000 cases conducted by the Court in 2020 showed the problem to be widespread, affecting over 90 percent of the cases sampled.

The Court believes that additional steps to expand remote electronic access to the Court’s docket records should be measured and take into account the types of personal sensitive information frequently present in those records. The Court’s practice of limiting remote access to electronic files is similar to the treatment of Social-Security appeals and immigration cases under Rule 5.2(c) of the Federal Rules of Civil Procedure and is consistent with the protection of tax information filed with Federal Bankruptcy courts. For additional background on the Court’s policies regarding remote electronic access to its docket records, see Note, 130 T.C. 395-401. The Court adopted the amendments to Rule 27 as published, with additional stylistic amendments to paragraphs (a)(1), (b), and (d).

The Court acknowledged in the first sentence that the privacy concerns of entities differ from those of individuals but fell back on a discussion of Social Security cases which do not involve entities.  It is difficult to imagine the privacy concerns of entities aside from those covered by sealing the record pursuant to the appropriate motion.  Some discussion of the differences between individuals and entities and why the Court protects both equally would go beyond the mere acknowledgement that differences exist.  The Court correctly points out that few pro se petitioners who make up 75% of its docket appropriately redact private information from their submissions and only a small percentage of representatives properly redact.  It is right to seek to protect petitioners but goes too far in doing so.  There are ways to make much of the docket public while still protecting privacy interest. 

RULE 151.1. BRIEF OF AN AMICUS CURIAE

The third of the revised rules I will discuss is proposed Rule 152 which changed into Rule 151.1 as a result of suggestions regarding the numbering of the Rules.  This rule is new and not a revision of an existing rule.  It governs the filing of amicus briefs and fills a gap in the Court’s rules.  The new rule can be found here.

Several commenters wrote about the benefits of having amicus appointed in cases in which the Court sought to issue precedential opinions in which the taxpayer was unrepresented.  Caitlin Hird and I made proposals in this regard in an article recently published in the Houston Business and Tax Law Journal.  The Court commented as follows:

Court proposed numbering the new rule governing briefs of amicus curiae as Rule 152, and renumbering existing Rule 152, Oral Findings of Fact or Opinion, as Rule 153. In accordance with comments, and to avoid confusion that might arise in connection with renumbering the Rules, the Court has instead adopted the new rule governing briefs of amicus curiae as Rule 151.1. (All references to comments regarding Rule 151.1 are to comments submitted in response to proposed Rule 152.)

Several commenters suggested that the Court should adopt procedures for requesting an amicus or appointing an amicus or pro bono counsel. The Court appreciates that such procedures could be useful in cases brought by self-represented petitioners presenting unique or novel issues. The suggestion merits further study and potential development.

The Court received a comment suggesting that the Court should provide guidance regarding a request to enlarge the 25-page limit for amicus curiae briefs. The Court has adopted changes to paragraph (d) of Rule 151.1 to address the comment.

Another commenter suggested that the Court should amend Rule 151.1(e) to state that motions for extension of time to file an amicus brief will be freely given. The Court believes that the filing periods set forth in Rule 151.1(e) are adequate and, in any event, Rule 151.1(e) does not preclude an amicus curiae from seeking leave of the Court to file an amicus brief out of time.

The Court received a comment suggesting that Rule 151.1 should be amended to provide that an amicus curiae need not file a motion for leave to file a brief if all the parties to the case consent to the filing of the amicus brief. The Court modeled Rule 151.1 partly on procedures set forth in Rule 29 of the Federal Rules of Appellate Procedure. Until the Court has gained practical experience under new Rule 151.1, and absent a compelling argument for doing so, the Court is not inclined to alter the requirement that an amicus curiae file a motion for leave to file a brief.

Another commenter suggested that Rule 151.1(g) should be amended to require a party filing an objection to a motion for leave to file an amicus brief to specify why the party believes the administration of tax laws would be hindered by allowing the filing of an amicus brief. The Court is satisfied that the requirement that an objection must “concisely state the reasons for such opposition” will suffice to fully inform the Court, the opposing party, and the amicus curiae of the nature of the objection.

Another commenter suggested that Rule 151.1 should be amended to establish a rebuttable presumption that amicus briefs filed on behalf of pro se petitioners are justified. Although such a rebuttable presumption offers some facial appeal, the Court believes it is best to gain practical experience with amicus curiae filings under the new procedures set forth in Rule 151.1 before considering alternatives to those procedures.

The Court otherwise adopted new Rule 151.1 as published with additional stylistic amendments to paragraphs (c)(1) and (e).

As mentioned above, the Court, for the third time in the last 12 months, recently issued an order soliciting amicus briefs.  In addition to the order entered in the Sanders case by Judge Buch, Judge Jones issued an order on March 16, 2023, in the case of Tooke v. Commissioner, Dk. No. 398-21L.  Mr. Tooke is represented by Joe DiRuzzo III who challenges the appointment of Appeals Officers.  I know that the American College of Tax Counsel’s Amicus Committee is considering an amicus here in response to Judge Jones’ request and perhaps others as well.  While this case involves a well represented rather than a pro se litigant, it shows the flexibility of the rule to allow or promote the Tax Court judges to seek a broad range of legal briefs on cases raising certain types of issues.  The third case in the past year in which Judge Buch issued an order calling for amicus briefs is the case of Frutiger v. Commissioner, Dk. No. 31153-21.  The Frutiger case raises the issue of whether the time for filing a petition in the Tax Court in an innocent spouse case is a jurisdictional time period.  Similar to its review of deficiency jurisdiction in the Hallmark case after Boechler, the Court seeks to review its jurisdiction in IRC 6015 cases after the Boechler decision.  The Tax Clinic at the Legal Services Center of Harvard Law School filed an amicus brief on behalf of the Center for Taxpayer Rights in this case in response to the Court’s invitation.

Joint Committee Review of Refund Cases

The Joint Committee on Taxation (JCT) recently issued a report providing statistics on its work in reviewing cases in which the taxpayer seeks a refund large enough for Congress to want its staff to lay eyeballs on it before it goes out.  Unlike most refund claims which are reviewed by the IRS, or maybe not reviewed, before a check is sent, if the taxpayer claims a refund of more than $2,000,000, IRC 6405(a) provides that the refund cannot be paid until 30 days after it submits a report to the JCT for review.

The JCT is a standing committee of the tax writing committees in the Senate, the Finance Committee, and the House, the Ways and Means Committee.  It has a decent size staff of lawyers who not only assist with reviewing and writing legislation but also review these large refunds.  For an overview of the refund review process performed by the staff members see, Joint Committee on Taxation, Tax Refund Claims: An Overview of the Joint Committee on Taxation’s Review Process, January 2019, available at www.jct.gov.

The recent report provides a peek at the number and size of the refund claims the committee reviews. I know from personal experience that it gives the claims a very close look.  The Review Section of the Department of Justice Tax Division also gives a close look at settlements in refund suits.  The government tries hard not to send out too much refund in these high profile cases.

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For cases with a sufficiently high refund claim the part of the IRS handling the case sends a report to the JCT.  The Examination Division, referred to as Compliance by JCT, sends the greatest number of these cases, but some are sent by Chief Counsel attorneys, Appeals Officers and even Department of Justice Tax Division attorneys.  In the fiscal year (FY) 2021, 361 cases were sent to JCT for review.  The amount of the refunds claimed in the cases totaled $11,886,010,002.  Here is a breakdown of the types of cases and the sources of the referrals:

If the JCT finds a problem with the proposed refund, it writes a Staff Review Memorandum (SRM) setting out its concerns.  The report indicates that in 2021 the JCT wrote 17 SRM all but one of which were written on cases referred by the Examination Division.  Those reports resulted in a net refund reduction of $24,046,948.  The report doesn’t say how many staff hours it took to produce those reports.  My guess is that the government got a pretty high rate of return on the dollars it spent to look over the refund claims.

In FY 2022 the JCT was even busier reviewing 423 cases with $12,279,339,294 claimed.  Here is a breakdown of the types of cases and the sources of referrals which fairly closely parallels FY 21:

The JCT only wrote 11 reports in FY 22 but produced a net reduction in refunds of $75,732,351.

The report gives data showing the work of the JCT going back over the past decade.  One table shows the source of the referrals coming from the IRS:

A second table shows the type of taxpayer seeking the refund that the JCT reviewed:

A third table shows the dollars at issue in the refunds and in the adjustments by the JCT:

I found the report an informative look at this aspect of the work of the JCT.  For those representing large taxpayers claiming the types of refunds that the JCT reviews, it’s important to understand the process so you can make sure that your request for a refund of over $2 million contains all of the information and support necessary to get past this additional review process.  Of course, the additional review also adds to the time it takes to get approval for the refund not only while the claim sits with the JCT but also because the person at the IRS handling the case must spend time getting the case ready for the JCT.

What Does It Mean When Former Judge Kroupa Shows Up as Senior Judge Kroupa in the Tax Court’s Report to Congress

The Tax Court posted its annual Congressional Budget Justification on February 1, 2023.  One item I perhaps should have noticed before in prior annual reports is that is appears that former/senior Judge Kroupa is listed in the report as a senior judge.  This surprised me.

Les and I wrote several blog posts about former/senior Judge Kroupa during her prosecution and leading up to her plea for tax evasion.  You can find the posts here, here, here and here.  The press release from the US Attorney’s office in Minnesota lays out the details of her “deliberate and brazen tax fraud scheme” in detail.  It explains that her conspiracy to “obstruct the IRS from accurately determining their [she filed a joint return with her then husband] joint income taxes” from 2002 to 2012.

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There are some relevant dates to keep in mind for later in the post as you can help me understand former/senior Judge Kroupa’s status.  She was appointed to the Tax Court on June 13, 2003, for a term of 15 years – the normal term for a Tax Court judge.  Note that at the time she began serving as a Tax Court judge her conspiracy had already begun.  A Department of Justice press release states that she was indicted on April 4, 2016, which is slightly more than two years before her 15 year term ended and almost two years after she retired (see below for information about the retirement.)  At the time of her indictment the DOJ press release states that she was 60 years old.  Because she was born on October 12, 1955, she was 58 at the time of retirement. 

Former/senior Judge Kroupa’s Wikipedia page indicates her last day as a judge was June 14, 2014.  It also states without any support:

Although under the Internal Revenue Code section 7447 Kroupa didn’t serve the sufficient amount of time (15 years) and was under 65 (minimum retirement age) she retired rather than resigned from the Tax Court on June 16, 2014. If she had resigned she would not be entitled to collect her salary for life. Retired judges collect full salary for life.

Wikipedia also states that she worked for Chief Counsel, IRS and as an attorney/advisor to Judge Joel Gerber prior to her appointment as a Tax Court judge.  It’s unclear to me if this prior service matters.  At the time of her retirement, she had 11 years of service as a judge.  Notice that her retirement came one day after she reached the 11-year anniversary.

There were six counts in her indictment including one conspiracy count, two tax evasion counts, two false return counts and one count for obstructing the IRS audit.  She pled guilty to count one as part of a plea agreement.  During the plea hearing the judge read to her the six counts.  The quote below is from the conspiracy count to which she pled guilty:

Count 1 of the indictment charges you with conspiracy to defraud the United States in violation of Title 18, United States Code, Section 371. Under this provision it is a crime for two or more people to commit a crime. For you to be convicted of this charge — I’m sorry. It’s a crime for two or more people to agree to commit a crime. So, the agreement is the material piece.

For you to be convicted of this charge the government would have to prove beyond a reasonable doubt four elements: First, that beginning on or before 2004 and continuing at least until in or before 2012, in the state and district of Minnesota, you and Robert Fackler reached an agreement to commit the crime of evading the ascertainment and computation of your joint income taxes as alleged in the indictment; second, that you voluntarily and intentionally joined in the agreement either at the time the agreement was reached or at some later time while the agreement was still in effect; third, that at the time you joined in the agreement you knew the purpose of the agreement; and fourth, while the government was — while the agreement was in effect, a person who had joined the agreement knowingly did one or more acts for the purpose of carrying out or carrying forward the agreement.

Former/senior Judge Kroupa was sentenced to 34 months in prison which began in the summer of 2017.  I have not followed what happened after the sentencing, but she should have been released from the federal penitentiary no later than 2020.

In the Court’s Congressional Budget Justification, it explains why it needs the money it requests.  It states, at page 8 that:

The Court’s FY 2024 budget request includes a total of 46 presidentially appointed judges (a full complement of the statutory 19 presidentially appointed judges, 16 senior judges on recall, and 5 senior judges not recalled) and 6 special trial judges, reflecting an increase of 1 judge from the Court’s FY 2023 planned.

If you go to page 25 of the report, it lists the judges:

If you look at the lists for senior judges, former/senior Judge Kroupa is listed.  If you count the number of senior judges with no asterisk by their name – the judges not serving on recall or subject to recall – there are five judges: Jacobs, Parr, Wells, Chiechi and Kroupa.  These five judges appear to be the five judges mentioned in the quote above and included in the 46 presidentially appointed judges for whom the Court seeks funds for its budget. 

Former/senior Judge Kroupa receives a pension despite her conviction for a tax crime in one of the most sensational acts committed by a Tax Court judge during its 99-year history.  I have to say I am surprised that she is still listed as a senior judge, but I suspect that Tax Court lists her because that’s the appropriate designation and not out a sense of comradery.  It’s not uncommon for retirement eligible federal employees to retire in the face of a potential personnel action that could jeopardize their career and, I suspect, the same is true of private employees.  The statute governing the retirement of Tax Court judges makes no mention of forfeiture of pension because of federal tax or other crimes.

Because I didn’t know why former/senior Judge Kroupa was listed as a senior judge and did not know what that might mean with respect to her future service on the Court, I sent a draft of my somewhat confused and rambling post to the court seeking clarification.  Since the inquiry involved a personnel matter, I didn’t expect too much but had some hope for clarification.  Very quickly I was asked to instead submit questions which I did.  Here are the questions I asked:

Did Judge Kroupa resign?

Was Judge Kroupa removed from office by the president pursuant to IRC 7443(f)?

Looking at the list of senior judges on page 25 of the recent budget submission to Congress:

What causes a judge to be listed as a senior judge serving on recall?

What causes a judge to be listed as a senior judge subject to recall?

What cases a judge to be listed as a senior judge neither serving nor subject to recall?

Under what circumstances does a still living Presidentially appointed judge get totally removed from the list of senior judges?  For example, B. John Williams resigned from the Court in 1990 and is still alive but is not listed as a senior judge.

Do the senior judges serving on recall receive a salary for doing so or a pension or both?

Do the senior judges subject to recall receive a salary for being subject to recall or a pension or both?

Do the senior judges neither serving on recall nor subject to recall receive a salary or a pension?

If a judge resigned from the Court would that judge be listed as a senior judge?  Does it depend on the type of resignation?  If so, what are the different ways a judge can resign and the designations that flow from those different types of resignations?

If the President removed a Tax Court judge pursuant to IRC 7443(f) would the judge appear as a senior judge on the Court’s list of senior judges?

If a judge comes to the end of their 15-year term and does not get reappointed, what must the judge do to be listed as serving on recall or subject to recall?

If a judge comes to the end of their 15-year term or if a judge reaches the age 70, what does the judge do to be listed as a senior judge not serving on recall or subject to recall?

Can a senior judge not currently serving on recall of subject to recall switch their designation by making an election with the Court to start serving on recall or start being subject to recall?  Has a judge ever done that?

The Court responded by telling me to look at IRC 7447. 

Looking at that provision section 7447(a) provides definitions about the court and the term judge that don’t create any controversy. 

Section 7447(b)(1) provides that a judge shall retire at age 70.  A number of Tax Court judges have retired at this age in the past few years.  This provision is not applicable to this situation.  Section (b)(2) provides for age and service time periods for retirement.  A judge can retire with 11 years of service at the age of 69.  This provision does not seem to apply because of former/senior Judge Kroupa’s age at the time of retirement.  Section (b)(3) allows a judge to retire at any age upon completion of their 15 year term if the judge advises the President in writing during a specific window of time of their willingness to be reappointed.  This provision does not apply since former/senior Judge Kroupa did not complete a 15-year term.  Section (b)(4) provides for retirement for any Tax Court judge who becomes permanently disabled.  This section may apply though I cannot say with certainty that it does not.

None of the sections regarding retirement seem to apply with the possible exception of disability.  In the PT blog posts linked above, there is mention in the workup for her sentencing hearing of significant health issues.  Perhaps, those health issues would cause her to qualify for the disability provision in (b)(4).

Section 7447(c) provides for the recalling of Senior Judges stating that individuals who have elected to receive retired pay “may be called upon by the chief judge of the Tax Court to perform such judicial duties with the Tax Court as may be requested….”  I interpret this to mean that a Chief Judge could call upon former/senior Judge Kroupa to perform judicial duties.  That is not at all to suggest that a Chief Judge would call upon her for such duties but merely that she appears to be eligible to be called upon.

Section 7447(d) explains the pay a retired judge will receive.  If I read it correctly, a retired judge who served 10 years or more receives their full salary and

Such retired pay shall begin to accrue on the day following the day on which his salary as judge ceases to accrue, and shall continue to accrue during the remainder of his life.

Section 7447(e) tells a judge how to elect retirement.

Section 7447(f) describes things that can impact retirement pay.  Subsection (f)(1) calls for a forfeiture of one years retirement pay if a recalled judge pursuant to section (c) fails to perform the judicial duties required of them.  Subsection (f)(2) calls for a permanent forfeiture if the judge goes into the private practice of law or accounting in the field of taxation.  Subsection (f)(3) suspends the retirement pay if the judge enters federal service for pay during the time of that paid federal service.  Subsection (f)(4) provides judges with the opportunity to make an election that can allow them to continue to receive a pension when subparagraphs (f)(1) and (2) might otherwise cut it off.

Section 7447(g) coordinates a Tax Court judges retirement as a judge with civil service retirement benefits and generally seems to supplant the civil service benefits with the judicial benefits.

Section 7447(h) describes judges who retire based on permanent disability or who are declared by the President to be retired based on disability. 

Section 7447(i) provides a way for a Tax Court judge to revoke their election to receive retired pay.

Section 7447(j) deals with the Thrift Savings Plan.

After going through the statute as suggested by the Court, I confess I am still confused how former/senior Judge Kroupa retired unless she was disabled.  Nonetheless, she did retire and is treated as a Senior Judge for purposes of reporting her retirement to Congress in the Court’s budget request.  You do not see her listed as a Senior Judge on the Court’s website listing its Senior Judges as the only judges listed there are the ones on recall.  The statute suggests to me that she could be recalled although she is one of several judges who seem to be off of the recall list.

Maybe I am none the wiser having wondered why I was seeing former/senior Judge Kroupa listed in the Tax Court’s report to Congress as a Senior Judge and embarking on a review of a statute that means little to me.  Without detracting from former/senior Judge Kroupa’s ability to receive a federal pension to which she is entitled, it does seem a little odd to see her name in the court’s list of judges given the crime she committed but that seems just to be a quirk of the way the retirement works and the budget requests are made.  I suspect her name will appear for many years to come.  Perhaps it serves as an annual reminder to all tax practitioners to properly report their income and not to serve as the example that she became.

Federal Employee Tax Compliance

The Treasury Inspector General for Tax Administration (TIGTA) just published an interesting report on tax compliance by federal employees outside the IRS.  I read it with interest because I have an article coming out in the forthcoming Pittsburgh Tax Review on Section 1203 of the Restructuring and Reform Act of 1998.  The Pittsburg Tax Review edition focuses on RRA 98 looking back on it from the perspective of a quarter century of living with the greatest procedural changes made to the tax code in one piece of legislation.  We will have several posts in the next few months to highlight the articles in this edition of the Pittsburgh Tax Review.  You can see my article on Section 1203 here.

I chose to write about Section 1203 because I find it to be a misguided piece of legislation that inappropriately targeted IRS employees.  This off Code provision creates 10 deadly sins that cause termination of an IRS employee with the only possible reprieve coming from the Commissioner.  My concern was not necessarily that IRS employees should not be terminated for committing one of the identified acts but that targeting IRS employees alone served a political rather than logical purpose.  The TIGTA report highlights why the narrow scope of Section 1203 misses the mark.  My position is that placing the burden of commuting dismissals at the Commissioner level unduly burdens the Commissioner and focusing only on IRS employees too narrowly imposes the basic tax compliance requirements that should exist across federal employment.

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One thing that struck me about the TIGTA report was the number of high-level employees at federal agencies who were non-compliant.  One of my biggest criticisms of Section 1203 is that it primarily targets low level IRS employees.  If you look at the data displayed in my article (which primarily comes from annual TIGTA reports and one Government Accountability Office report) regarding the IRS employees terminated as a result of Section 1203 you see that failing to timely file a return leads all other categories by a significant margin and that the only other category producing any significant volume of terminations is fraudulent returns. 

The terminated IRS employees fall heavily into the lowest grades on the GS scale meaning that these employees generally work at the Service Centers, do not engage with the public and do not do technical tasks involving taxes.  These employees should still file their tax returns on time but targeting and terminating employees at this level doesn’t really protect the integrity of the tax system.  Section 1203 does not apply to Chief Counsel attorneys; to Treasury Department employees outside the IRS including the Treasury employees who work on tax policy; to Department of Justice attorneys in the Tax Division; to attorneys working on the Joint Committee; or to anyone working in the federal government other than those working for the IRS.    

The TIGTA report shows that in other federal agencies employees at high levels on the GS scale are well represented among the non-compliant:

The chart does not display employees in the executive level of service at these agencies.  I would like to think it does not display them because they are all compliant, but I doubt there is 100% compliance at that level.

The TIGTA report showed that the IRS was not doing a great job of collecting from federal employees who should be very easy targets for collection:

Further analysis of the status of the more than 61,000 TDI modules, as of May 2021, showed that taxpayers had filed their delinquent returns in approximately 29 percent of these modules and had fully paid balances or had balances that were in the process of being collected by the ACS.38 Another 41 percent of these modules were closed as either unable to locate, not liable, or shelved; were being reviewed in Examination or CI; or were waiting for another tax period to post to the Master File.39 However, about 30 percent (over 18,000) of the 61,000 modules were still in unresolved TDI status. 

The TIGTA report also showed that the number of federal employee delinquencies and the amount of dollars was going up rather sharply over the past several years:

Almost 20% of the non-compliant federal employees had income over $100,000:

Federal employees engaged in delivering the mail or in the military or veterans affairs seemed to have the most difficulty complying with their federal tax obligations:

The TIGTA report focuses on what the IRS should do to address the non-compliance of federal employees.  Certainly, the IRS could use some of its $80 billion to increase compliance in this easy to target sector, but Congress should rethink section 1203 to broaden it to federal employees generally with respect to the two provisions regarding timely filing and non-fraudulent filing.  Tax non-compliance by federal employees should be a basis for removal bypassing normal civil service protections.  IRS employees are not the only ones who create a black eye regarding tax compliance when they fail to follow the rules.  All federal employees should be fully compliant or face consequences.  The IRS should not bear the sole burden to track down these non-compliant federal employees.  Other agencies should be helping the IRS by removing them or taking personnel actions that dictate and promote compliance.

Equitable Tolling Case Moving Forward in Tax Court

The case of Amanasu Environment Corp. v. Commissioner, Dk. No. 5192-20L is moving forward towards a determination of equitable tolling.  This is a Collection Due Process (CDP) case involving a Canadian Corporation that received its CDP determination letter seven days after the 30 day window to file the petition.  Carl reported on it in a post here after Judge Carluzzo invoked the Boechler decision and refused to dismiss the case as untimely filed.  The facts basically mirror those in Atuke v. Commissioner discussed here.  The difference between the treatment of the two cases is Boechler.

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After Judge Carluzzo refused to dismiss Amanasu, the IRS filed an answer in the case and then it filed a motion for summary judgement in December.  The most recent order, issued by Judge Marvel, denies the motion for summary judgment and sets the case up for a hearing on the facts necessary to prove equitable tolling.  Describing the motion the court states:

Respondent argues that he is entitled to summary judgment because petitioner failed timely to file a petition in this case as required by sections 6320(c) and 6330(d) and failed to plead facts sufficient to demonstrate entitlement to equitable tolling that would overcome petitioner’s untimely filing. See Boechler, P.C. v. Commissioner, 142 S. Ct. 1493, 1500-01 (2022). Petitioner makes a number of arguments in response, but we need only address two of them here.

There was a small, but potentially significant error in the typing of petitioner’s address on the notice of determination:

Respondent does not argue that the address to which the Notice of Determination was mailed, 4503 Bellevue Drive, Vanclover BC V6R1E4, Canada (emphasis added), is the same as petitioner’s last known address, 4503 Bellevue Drive, Vancouver BC V6R1E4, Canada. Instead, respondent argues that “the minor typographical error did not stop (or even appear to impede) delivery of the Notice of Determination, as delivery of the Notice of Determination to Petitioner’s last known address was attempted on January 8, 2020, and was successfully completed on January 18, 2020.” Nonetheless, viewed in the light most favorable to petitioner, the fact that the Notice of Determination appears to have taken over a month to be delivered to petitioner supports an inference that the error impeded delivery of the notice and that the notice may have been invalid.

The court then discussed its case law on notices delivered where there was some problem with the address.  It went on to point out that the mistake with the address was not the only problem here:

We could also construe respondent’s argument as one that petitioner actually received the Notice of Determination and that the notice is therefore valid notwithstanding whether it was properly sent to petitioner’s last known address. See Bongam v. Commissioner, 146 T.C. 52, 57 (2016) (“[A] notice . . . need not be sent to the taxpayer’s last known address in order to be valid. Rather, the notice will be valid if it is actually received by the taxpayer ‘without prejudicial delay,’ that is, generally in time to file a timely petition in this Court.”). However, our cases only support deeming a notice to be properly addressed upon actual receipt of the notice if the taxpayer has sufficient time to file a petition with this Court. See id. Here, the record discloses facts indicating that petitioner actually received the Notice of Determination after the 30-day statutory deadline to file a petition with this Court had already passed. Even assuming for the sake of argument that attempted delivery was properly made to petitioner’s correct address on January 8, 2020, this attempt was made a mere five days before the statutory deadline for filing a petition with this Court on January 13, 2020, and without any indication in the record that petitioner could have retrieved it from the carrier after the failed delivery.

If the CDP notice of determination (NOD) wasn’t sent to the taxpayer’s last known address, then it is invalid, the case should be dismissed for lack of jurisdiction, and the IRS should have to send a new NOD, allowing the taxpayer to file a new Tax Court petition.  On the other hand, if the court finds that the NOD was mailed to the last known address, then the Tax Court keeps jurisdiction and considers the merits issue of whether equitable tolling should forgive the late filing.

The two problems give rise to two issues that doom the granting of the IRS summary judgment motion.  The first problem is one that played out before the Boechler decision and the second involves equitable tolling which is now at play in CDP cases.  With respect to the first problem the court states:

“Whether a taxpayer has been prejudiced by an improperly addressed notice is a question of fact.” McKay v. Commissioner, 89 T.C. 1063, 1068 (1987), aff’d, 886 F.2d 1237 (9th Cir. 1989). Viewed in the light most favorable to petitioner, the short period between attempted delivery and the statutory deadline gives rise to an inference that there was insufficient time for petitioner to file a petition in this Court, even if the attempted delivery was properly made.

With respect to equitable tolling, the court states:

viewing the facts and inferences therefrom in the light most favorable to petitioner, we find that there is a genuine issue of material fact concerning whether or how equitable tolling may be applied. We agree with respondent that the undisputed facts in the record show that petitioner filed its Petition in this case after the 30-day deadline imposed by sections 6320(c) and 6330(d), assuming that the deadline is not equitably tolled. We also agree that the Petition did not set forth any facts concerning whether equitable tolling is warranted, which raises the question of whether the issue of equitable tolling should be deemed conceded. See Rule 331(b)(4). However, concurrently with this Order, we have granted petitioner’s Motion for Leave to File Amended Petition. The Amended Petition pleads facts that, if proven, might entitle petitioner to equitable tolling depending on the entirety of the record developed at trial, so the issue of equitable tolling is not deemed conceded. Petitioner has also submitted a Declaration of Lina Lei in Support of Objection to Motion for Summary Judgment containing facts that, viewed in the light most favorable to petitioner, could support the application of equitable tolling. Therefore, respondent is not entitled to judgment as a matter of law on the issue of equitable tolling.

Because of the factual disputes, the court denies the motion for summary judgment.  I am a bit surprised that a petitioner would be required to set forth facts in a petition concerning equitable tolling.  I would expect the IRS to have the burden to raise the issue of late filing in its answer as affirmative allegations and then the petitioner to file a response explaining its reason(s) for filing late and how those reasons support a finding of equitable tolling.

Judge Marvel seems to suggest that non-receipt might be a good ground for equitable tolling in the Tax Court.  This shows the impact of Boechler. No Tax Court opinion yet so holds, and the Tax Court, pre-Boechler, had said that if a taxpayer is sent an NOD to the last known address, but the taxpayer doesn’t get the notice until after the filing deadline expires, so files late, too bad, no jurisdiction.  Weber v. Commissioner, 122 T.C. 258, 261-262 (2004) and Atuke linked above and several other decisions.  In Castillo the tax clinic at Harvard filed an amicus brief in which it argued that the pre-Boechler precedent on non-receipt of NODs is no longer good law.  Maybe we have reached the point where the Tax Court agrees with that argument.

The Castillo case we have discussed previously where the petitioner did not receive her CDP notice until after the 30 day period for filing a Tax Court petition ended with a concession by the IRS.  Where taxpayers can show non-receipt due to no fault of their own until some point past the due date of the petition, it’s hard to believe that equitable tolling would not open the court’s doors.  Events beyond the taxpayer’s control is one of the three bases for equitable set out in Mannella v. Commissioner, 631 F.3d 115, 125 (3d Cir. 2011) and discussed here, would seem to apply where the facts support it.

The Court has remanded the case to Appeals at least for now to consider some of the merits issues raised by Amanasu.  The remand may turn out to be unnecessary to the resolution of this case if the Tax Court will end up lacking jurisdiction because the NOD wasn’t mailed to the taxpayer’s last known address; however, it might help with the overall resolution of the case.

We are young yet in how equitable tolling will play out in Tax Court cases.  I was also a bit surprised given the factual issues the court discusses that the IRS would seek summary judgement in this case but again this is something that will shake out as more of these cases move forward.  This is a case to watch as it may be the first or one of the first to provide insight into the Tax Court’s take on equitable tolling.