“With every move he makes, another chance he takes”

Today we have the pleasure of looking at an IRC 6751(b) opinion written by Judge Holmes.  For long time readers of this blog, the link between Judge Holmes and Graev consequences of not following the statutory language requiring approval of the immediate supervisor are well known.  His warning of Chai ghouls continues to haunt the IRS as different scenarios regarding the imposition of various penalties arise.  In CFM Insurance, Inc. v. Commissioner, Dk. No. 10703-19 (Order entered June 16, 2021), a case involving a microcaptive insurance company the IRS has targeted as abusive, he issues an order denying the IRS motion seeking summary judgment on the issue of penalty approval.  As with many of the cases seeking to interpret IRC 6751, the facts in CFM do not follow a straight line.  The title of the blog comes from a line in the footnote by Judge Holmes citing to the famous, for those of us of a certain age, recording by Johnny Rivers entitled “Secret Agent Man”.  Use the link to listen to the song if you are not familiar with it or if you have curiosity about vintage recordings.


So, from the many prior rulings on the issue of proper imposition of a penalty we have learned that the IRS needs the immediate supervisor of the agent imposing the penalty to personally approve in writing the penalty before the IRS first formally notifies the taxpayer of a proposed penalty.  If the IRS fails to obtain the written approval in time, then it loses the right to impose the penalty, as has occurred in many cases.  That’s why the IRS files a motion for summary judgement on this issue before trial in order to lock down the fact that it has followed the correct procedural steps before it gets to the merits of the penalty.  In some ways, this motion for summary judgment seems like a motion in limine.

Here, the IRS asserts in the Tax Court case that CFM owes a 20% accuracy related penalty created in IRC 6662(a) for negligence.  The Court looks to see when it notified CFM of this penalty and what steps the IRS had taken before notification.  The first issue the Court addresses concerns the notification.  It notes that a couple possibilities exist for when this occurred.  The IRS sent a 30-day letter which in prior cases the Court has treated as the official notification.  This letter tells the taxpayer of the examination division’s position and offers the taxpayer a chance to file a protest and go to the Independent Office of Appeals to discuss the matter.  The 30-day letter was signed by the revenue agent’s immediate supervisor which would seem to end the inquiry on the point of notification, except for one small problem.  The 30-day letter proposes the imposition of a 40% penalty, not the 20% penalty included in the notice of deficiency.  So, correct notification form but a shift in penalty before issuance of the notice of deficiency.  How does that impact satisfaction of the statutory requirement?

The Court looks for approval of the 20% penalty as well as prior case law in situations in which the penalty shifted.  The Court describes its inquiry:

Our caselaw tells us to focus on the formal notice that a taxpayer gets. Did any of these documents give formal notice to CFM of the 20% penalty? Ordinarily, an Examination Report and 30-day letter is sufficient to clear the 6751(b)(1) hurdle. See, e.g., Thoma v. Commissioner, 119 T.C.M. (CCH) 1447, 1472 n.34 (2020). But in this case, there was no mention of a 20% penalty’s being asserted in the 30-day letter or any of the documents listed as enclosures; the Examination Report and Agreement Form both mention 40% penalties for each year pursuant to section 6662, but section 6662 allows for 40% penalties in only three instances: when an underpayment is due to a “gross misvaluation misstatement,” § 6662(h), a “nondisclosed noneconomic substance transaction,” § 6662(i), or an “undisclosed foreign financial asset understatement,” § 6662(j). The 20% penalties under section 6662(b)(1) for negligence or disregard of rules or regulations (or substantial understatement) are distinct from each of these 40% penalties and must receive separate supervisory approval to cross over the section 6751(b) threshold. See Sells v. Commissioner, 121 T.C.M. (CCH) 1072 (2021), T.C. Memo. 2021-12, at *11. “Formal notice” requires that the penalty be described with sufficient particularity so a taxpayer knows what he is accused of. See Legg v. Commissioner, 145 T.C. 344, 350 (2015) (“Congress enacted section 6751(b) to ensure that taxpayers understood the penalties that the IRS imposed upon them”). An Examination Report and 30-day letter that mention only a 40% penalty do not provide notice of a 20% penalty. See Oropeza v. Commissioner, 120 T.C.M. (CCH) 71, 72 (2020). As a matter of law, then, neither the 30-day letter nor any of the documents listed as enclosures provided CFM with formal notice of the 20% penalties under section 6662(b)(1).

The Court notes that at this point the outcome looks bad for the IRS but goes on to discuss a stuffer in the envelope transmitting the 30-day letter.  The stuffer, Form 886-A does mention a 20% penalty; however, the stuffer has problems:

That document correctly identifies the reasons for and subsections under which the penalties were being asserted, but incorrectly identifies the amount. And that’s not the only irregularity. An initial glance reveals that the text of the Form is shrunk so that each page only takes up about half the area of the paper it’s printed on. Closer inspection shows that it includes errors (e.g., the phrase “Error! Bookmark not defined” appears several times in the Form’s table of contents) and what appear to be highlights and comments made by someone reviewing the report using a “track changes” function. So, is this “formal notice?”

The Court finds that the Form 886-A was incomplete and that the record is incomplete whether or not the supervisor of the agent approved stuffing this form in the letter with the 30-day letter.  Among other things, the supervisor at the time of sending the letter is unknown, and the signature of that supervisor is not clearly identified in the material before the Court, causing the reference to the “Secret Agent Man.”  In the end, the Court denies the motion for summary judgment but does not toss out the penalty.  The IRS has a roadmap for what it needs to prove and it remains to be seen if it can prove it.

Another Chai ghoul appears as the stuffer saves the IRS to fight another day but does not insure that it will win the fight.  This case was docketed in 2019.  By that time, the Tax Court had provided the IRS with notice of the importance of IRC 6751(b).  This is not a case like some described in earlier posts where the case sat so long in the Tax Court that the knowledge and interpretation of the law shifted dramatically between the time of the penalty imposition and the decision.

Can the Taxpayer Bill of Rights Assist in Overturning a Criminal Conviction?


That’s the short answer.  We have written before about ability, or lack of ability, of the Taxpayer Bill of Rights (TBOR) to protect someone from IRS action or inaction that the taxpayer views as a violation of TBOR here, here and here.  I wrote a law review article on this subject you can read here.  It was part of a symposium at Temple a couple years ago that looked at TBOR broadly.

In the case of United States v. James D. Pieron Jr., No. 1:18-cr-20489 (E.D.  Mich. 2021), the taxpayer sought to raise TBOR to overturn his conviction.  In a result that seems rather predictable, the court denied his motion.  While the result provides no surprises, this is the first case I have noticed where a taxpayer sought to use TBOR to find protection from criminal prosecution or conviction and deserves some mention because of that.  While Mr. Pieron’s lawyers, who seemed to be a bit of a revolving door, score points for inventiveness, the court did not spend too much time disposing of this argument.


Mr. Pieron was convicted of tax evasion related to the sale of a business and his failure to pay the tax on the significant gain resulting from the sale.  During the trial he put into evidence, over the objection of the IRS, the TBOR list.  I have not read the pleadings but from the statements by the court, I believe that the core of his argument relates to the failure of the IRS to provide him with information.  I am guessing, but he may have been frustrated during the criminal investigation that the rest of the IRS would not talk to him and would not provide him with information.  This is normal IRS practice.  If a revenue agent is auditing a taxpayer and reaches the point of deciding that criminal prosecution is warranted, the agent will go silent, not wanting to use the civil process to build a criminal case.  At some point out of the silence will emerge the special agent whose only focus is determining if a criminal case exists.  Only at the end of the criminal case does the revenue agent return to the scene.  A frustrated taxpayer seeking information when the revenue agent goes silent but before the special agent appears may feel that a violation of the right to know has occurred.  It’s possible that the taxpayer alleged other violations of TBOR but this is the one that appeared to be the core of the concern.

The district court did not find this to be a concern that should cause the overturning of the conviction.  It stated:

Defendant has, throughout these proceedings, attempted to portray his prosecution as the undue product of an unresponsive bureaucratic machine that has refused to engage with him in any reasonable way. During the cross-examination of IRS Revenue Agent Robert Miller, defense counsel introduced the Taxpayer Bill of Rights and attempted to elicit testimony regarding its application. See ECF No. 51 at PageID.423–26. Defendant’s primary contention seemed to be that the IRS had wrongfully entered a “freeze code” in his case that prevented any communication between him and the IRS once the criminal investigation was pending. Id. at PageID.422–23. Over the objection of the Government, the Taxpayer Bill of Rights was admitted into evidence. Id. at PageID.425. Defense counsel later referenced the Taxpayer Bill of Rights in closing argument while discussing Defendant’s alleged mistreatment. Defendant’s briefing is likewise replete with alleged instances of IRS misconduct, including the Service’s apparent failure to provide him with notice of his tax deficiency or meet with him and his accountant to resolve his tax liabilities.

In some ways, the taxpayer wants to be relieved of his conviction because the IRS followed the rules laid down in prior criminal cases that require it to stop its civil activities once it reaches the point of believing a crime might have occurred.  He seeks to pit TBOR against the rules designed to protect taxpayers from an end run around criminal notification.  Alternatively, he argues that the IRS should continue its civil investigation parallel with the criminal one.  The court does not frame this clash of policies the same way that I have, perhaps because it simply does not believe that TBOR plays a role here.  In its conclusion on this issue it says:

Defendant has identified no authority supporting his theory that a violation of the Taxpayer Bill of Rights offends the Fifth Amendment. Defendant correctly notes that, in some instances, an “agency’s failure to follow its own regulations . . . may result in a denial of due process.” ECF No. 177 at PageID.4007 (citing Wilson v. Comm’r of Soc. Sec., 378 F.3d 541, 545 (6th Cir. 2004)). But no court in this circuit or any other circuit has ever held that the Service’s failure to comply with the Taxpayer Bill of Rights violates due process or otherwise warrants dismissal of the indictment. Indeed, the remedy that the Internal Revenue Code provides for violations of the Code and Treasury Regulation is a civil action for damages. See 26 U.S.C. § 7433(a). With similar reasoning, the Ninth Circuit previously declined to vacate a criminal conviction based on the Service’s violation of the Taxpayer Bill of Rights. See United States v. Bridges, 344 F.3d 1010, 1020 (9th Cir. 2003) (noting that the “Taxpayer Bill of Rights [does not] authorize the suppression of evidence or the reversal of a criminal conviction.”); accord United States v. Tabares, No. 115CR00277SCJJFK, 2016 WL 11258758, at *8 (N.D. Ga. June 3, 2016), report and recommendation adopted, No. 1:15-CR-0277-SCJ-JFK, 2017 WL 1944199 (N.D. Ga. May 10, 2017).

As you know from our prior discussions, TBOR has not been successfully used to make a dent in civil cases as of yet.  It would be quite surprising if it plays much of a role in criminal cases but the failure here does not mean that the next defendant cannot find a different way to try to interject TBOR into the outcome of a criminal prosecution.

Finality of a Tax Court Decision

The Sixth Annual Tax Controversy Institute will be held online on Friday, July 16th, 2021. The virtual institute is sponsored by the University of San Diego School of Law and the tax law firm RJS Law. The event will be free of charge and will allow practitioners to earn free education credits. Speakers will include IRS Commissioner Charles Rettig and Tax Court Judge Copeland. The Institute will also be presenting the Richard Carpenter Award for integrity, dedication and expertise in representing taxpayers to Nina Olson, former National Taxpayer Advocate and the Executive Director of the Center for Taxpayer Rights. For more information about the event and to register, click here.

Thanks to Carl Smith for bringing to my attention another interesting decision.  The recent case of Kirik v. Commissioner,—Fed. Appx.—(2nd Cir. 2021) in an unpublished opinion addresses the issue of when the Tax Court retains jurisdiction to modify its decision or order of dismissal after the 90 days to appeal has run, but no appeal has been taken.  The statute at issue is IRC § 7481(a) and the circuits have split on the issue. Section 7481(a) provides that a Tax Court decision becomes final upon the expiration of the time allowed for filing a notice of appeal (90 days under section 7483), where no notice of appeal has been filed within such time.

In a related but definitely distinct issue, in the case of Myers v. Commissioner Joseph DiRuzzo, representing petitioner Myers, asked the D.C. Circuit to hold that the 90-day period in IRC § 7483 to file a notice of appeal in the Tax Court is non-jurisdictional and subject to equitable tolling.  The D.C. Cir. had no precedent on the issue one way or another, but refused to decide the issue — instead holding that a motion for reconsideration tolled the appeal period under the FRCP, just like a motion to vacate explicitly would under the FRCP.  As we wrote after the Guralnik decision, it’s hard to see how an FRCP rule can extend a statutory deadline that is jurisdictional, but life has its mysteries.  The issue in Kirik involves a different code section but some of the same underlying principles are at play.


The Second Circuit described the issue in Kirik as follows:

Although § 7481(a) is quite explicit as to when a decision of the Tax Court becomes final, circuit courts have split on whether, and under what circumstances, the Tax Court may vacate or revise one of its finalized decisions. The Sixth Circuit has concluded emphatically that “once a decision of the Tax Court becomes final, the Tax Court no longer has jurisdiction to consider a motion to vacate its decision.” Harbold v. Comm’r, 51 F.3d 618, 621 (6th Cir. 1995). Other circuits, and the Tax Court itself, have acknowledged a few narrow exceptions to this rule, including situations in which there has been a fraud on the court, where the Tax Court did not have jurisdiction in the first place, Davenport Recycling Assocs. v. Comm’r, 220 F.3d 1255, 1259 (11th Cir. 2000), and where the Tax Court discovers a clerical error after the decision became final, Stewart v. Comm’r, 127 T.C. 109, 112 n.3 (2006).

The Second Circuit has never definitively decided whether the finality rule is jurisdictional or merely a claim processing rule that is subject to judicially‐created exceptions.  In Cinema ’84, 412 F.3d at 371, it declined to expressly adopt any of the exceptions identified above. Assuming that the Tax Court’s finality rule is not strictly jurisdictional and the above‐referenced exceptions could be properly considered by the Tax Court, none would make the slightest difference in this case, since there is no possible argument that the Kiriks’ delay was caused by fraud, mutual mistake, clerical errors, or the Tax Court’s lack of jurisdiction to enter a decision in the first place. Indeed, the Kiriks do not argue otherwise.

The paragraph summarizing the law is a shortened version of what the 2d Cir. wrote in its 2005 opinion in Cinema ’84, except that Cinema ’84, being decided only shortly after the Supreme Court in Kontrick v. Ryan in 2004 for the first time distinguished “claim-processing rules” from jurisdictional rules, does not use those two terms.  Thus, in Kirik, the 2d Cir. seems to realize for the first time that it may, in an appropriate case, have to rule on the issue of whether the Tax Court loses the ability to modify its decision after 90 days as a jurisdictional matter or whether there might be exceptions because the 90-day rule is only a claim-processing rule.

The facts of Kirik were terrible.  The notice of deficiency had sought about $3 million in taxes and penalties alone.  The Kiriks did not seek to vacate the Tax Court’s order of dismissal for lack of prosecution until almost 9 months had elapsed (instead of the 30 days generally provided for in Tax Court rules).  Although the 2d Cir. in Kirik could have used the words and the tests for “equitable tolling”, it did not; instead, it discussed the taxpayers’ request for an excusable neglect exception.  It stated:

[t]he Kiriks essentially argue that we should create a new exception to the finality rule based on the concept of excusable neglect. But we need not decide whether we can, or even should, acknowledge such an exception because even the most charitable and expansive definition of excusable neglect could not salvage the Kiriks’ claims here.

Although excusable neglect provides a permissible basis for noncompliance with court rules in a variety of contexts, all applications of the doctrine require courts to consider “the reason for the delay, including whether it was within the reasonable control of the movant.” Silivanch v. Celebrity Cruises, Inc., 333 F.3d 355, 366 (2d Cir. 2003) (internal quotation marks omitted). “We have noted that the equities will rarely if ever favor a party who fails to follow the clear dictates of a court rule,” id. (internal quotation marks and alteration omitted), going so far as to observe that where the rule governing a filing deadline “is entirely clear . . . a party claiming excusable neglect will, in the ordinary course, lose,” Canfield v. Van Atta Buick/GMC Truck, Inc., 127 F.3d 248, 251 (2d Cir. 1997). 

Here, the Kiriks’ delay in filing their motion was entirely within their control. There is no dispute that the Kiriks fired their attorney, thus taking on the risks associated with navigating the Tax Court alone, notwithstanding their self-professed lack of sophistication and less-than-complete fluency in English. Inexplicably, they then failed to respond to multiple orders from the Tax Court, including the order dismissing their case for lack of prosecution. Several months later, the IRS sought to levy on the Kiriks’ assets, yet even then the Kiriks did not file a motion to vacate the order dismissing their case. It was not until July 2020 – almost nine months after the Tax Court issued its dismissal order – that the Kiriks finally got around to making their motion. Nothing in our case law suggests that the Kiriks’ neglect, which was considerable, was even remotely excusable. Consequently, we see no reason to second guess the Tax Court’s denial of the Kiriks’ motion to vacate the October 2019 order dismissing their case.

In its Cinema ’84 opinion, the 2d Cir. also dodged deciding the issue of whether the Tax Court retained jurisdiction to modify its decisions after 90 days.  Cinema ’84 was a TEFRA case.  Here are the sentences in which Cinema ’84 declined to consider that taxpayer’s argument for an exception:

However, we have not explicitly adopted any of the exceptions to the general rule, discussed supra. In any event, it is unnecessary for us to decide in the present case which, if any, of the exceptions this Court recognizes because regardless of how Reigler’s argument is characterized, vacatur was not warranted here, where the Tax Court was under no duty to appoint a TMP and its failure to do so did not deprive Reigler of due process.

So, while the Kirik case does not really add to the resolution of this issue, it points out the conflicting case law and once again highlights the existence of the issue.  Because the facts in the Kirik case do not favor relief, perhaps for those who want to reopen the door after the 90-day period has run, the failure of the 2nd Circuit to address this issue head-on provides a benefit.  Here, bad facts did not really influence the further development of the law.  Of course, no one should wait until after 90 days have passed before coming back to the Tax Court to seek a reversal of the decision.  Convincing the Court to reverse will be hard enough.  Adding onto that an uncertain test with a high bar makes it almost impossible.

Bouncing Documents at the Tax Court

I wrote about documents bouncing back from the Tax Court last month in connection with the Tax Court policing the timely filing of petitions.  The post caused commenter in chief Bob Kamman to pay careful attention to the orders coming out of the Tax Court and he noticed a particularly bad day for Chief Counsel’s office on June 9, 2021.  Because we do not routinely track all of the Court’s orders each day, it’s a bit hard to say when one day is worse than another.  We can look at each order to try to better understand practice before the Court.


The Tax Court has always been more likely, at least in my view, to return documents to the IRS rather than to petitioners.  This makes sense from the perspective that the IRS participates in every case.  It generally has the resources and the knowledge to correct mistakes that many petitioners do not.  When the Court sees something in a filing that is wrong or that it just does not like, it can return, or bounce, the document and tell the party, or parties, to start over.  Usually, when it does so, it provides in an order a brief explanation of the problem and how to fix it.  If a Chief Counsel office routinely receives a high volume of bounces, it is an indication that something is wrong at the office.  This can cause phone calls from the attorneys in the national office who monitor the bounces as well as calls from the area office about the problem. 

No office wants this attention.  In addition to those less than pleasant contacts, at gatherings of Chief Counsel attorneys, the national office attorneys in charge of monitoring relations with the Tax Court would occasionally read select documents to the collected group.  These documents would demonstrate serious bloopers in an effort to spur greater attention to detail.  Since Bob has identified the cases, we have the opportunity to look at a form of Tax Court bounce sheet.

Bounce #1

This case presents the same issue discussed in the Villavicencio case blogged on June 3, 2021, and discussed in a brief filed by the Tax Clinic at Harvard with the Supreme Court.  Even though the parties agreed to the outcome of the case, the Tax Court bounces back that agreement saying that it is unconvinced that it has jurisdiction.  It invites the parties to address the jurisdictional issue:

Bounce #2

The notice of deficiency included a penalty under IRC 6662; however, the decision document filed by the parties does not mention the penalty.  The Tax Court sends the document bouncing back for the parties to address all of the issues in the notice of deficiency.  Remember that when you go to Tax Court, the outcome closes out the tax year.  So, the Court wants to make sure that everything gets addressed as it signs the document closing the case.

Bounce #3

This is the kind of bounce you really hate to receive.  Here, a stipulated decision document gets bounced because it describes the IRC 6651 addition to tax as a penalty.  Many of you might think and regularly speak of the liability imposed by 6651 as a penalty.

Bounce #4 (not really a bounce)

This order shows a few things but does not really qualify as a bounce.  An order of dismissal and decision was entered in this case in September 2020, but in October 2020 the IRS moved to vacate the order.  The Court would have written to petitioner to respond to the IRS motion.  Not having received a response from the petitioner, the Court grants the order.  We don’t know why the IRS wanted to vacate the order and finding out the answer to that question would involve ordering the motion from the Court since it is not publicly available otherwise.  We don’t know whether the issue raised in the motion was difficult, causing the Court to pause for almost six months after the stated response date set for the petitioner, or whether this order was just backlogged along with other matters at the court.

Looking at these routine orders provides a glimpse of the day to day action taking place at the Court.  The majority of cases get decided with stipulated decision documents and with orders.  Decisions continue to be a small minority of case dispositions.

Limitation on Issues Taxpayer Can Raise in Passport Case

The case of Shitrit v. Commissioner, T.C. Memo 2021-63, points out the limitations on raising issues other than the revocation of the passport when coming into the Tax Court under the jurisdiction of the passport provision.  Petitioner here tries to persuade the Tax Court to order the issuance of a refund but gets rebuffed due to the Court’s view of the scope of its jurisdiction in this type of case.


Petitioner filed his case in Tax Court seeking to reverse certification, to determine he is not liable for any taxes for 2006, and to obtain a $3,000 refund.  While the case was pending, the IRS sent to the Secretary of State a reversal of the certification of petitioner as a seriously delinquent taxpayer.  After sending the letter reversing certification, the IRS moved to dismiss the Tax Court case as moot. 

This motion was consistent with prior Tax Court precedent established in the case of Ruesch v. Commissioner, 154 T.C. 280 (2020). In the Ruesch case, petitioner came into the Tax Court under the jurisdiction of the passport provision and asked the Court to determine whether the IRS had erred in certifying her as a person owing a seriously delinquent tax debt. Petitioner also asked the Court to issue a ruling to determine her underlying tax liability. The IRS had since reversed its classification of petitioner as seriously delinquent, informed the Secretary of State, and moved to dismiss the case as moot. The Court agreed with the IRS and dismissed petitioner’s case, holding that it lacked jurisdiction under IRC 7345 to determine petitioner’s underlying tax liability. The dispute did not, in the Court’s view, give rise to a justiciable controversy because no relief, other than reversal of the erroneous classification (which had already been granted by the IRS), could be granted by the court.

Based on the position of the Tax Court staked out in the Ruesch case, the Court granted the motion of the IRS but gave background on petitioner’s case nonetheless. Petitioner lives in Israel and is a dual citizen of Israel and the US. He did not file a 2006 US federal tax return. The IRS, however, had received third party information returns from three separate parties indicating that he had US income. For his convenience, the IRS prepared an IRC 6020(b) tax return for him.

I am sure that this happened after the IRS mailed him correspondence and probably several pieces of correspondence. Because of where he lived, it is likely he did not receive this correspondence. After sending a notice of deficiency, the IRS assessed the liability it had calculated and eventually the liability, because of the high dollar amount, was assigned to a revenue officer for collection. The IRS sent him a CDP notice which he did not claim.

In 2017, Mr. Shitrit filed US federal income tax returns for 2014, 2015, and 2016 showing his address in Israel. It is worth notice here that being outside of the US for more than six months triggers one of the provisions in IRC 6503 suspending the statute of limitations on collection. The IRS does not always know if a taxpayer is out of the country for more than six months but when it knows this it will input the information so that the collection statute is suspended. The IRS needs this suspension because of the difficulty it has in collecting taxes from taxpayers residing outside of the country. As we have discussed before, the IRS has only built collection language into five of the treaties it has with other countries. In countries with whom it lacks a collection treaty, the IRS can only collect if it can find assets of the taxpayer in the US. One of the benefits to the IRS of the passport provision is that it gives the IRS leverage over individuals in a situation in which it may have almost no leverage in its effort to collect delinquent taxes.

In this case, Mr. Shitrit did not owe the taxes, so the IRS did not need leverage, but the passport provision did cause him to become aware of the problem and to address it. It is unfortunate that the assessment existed since it did not exist through the fault of either the taxpayer or the IRS, but rather through the fault of a third party who stole his identity, triggering the information returns that were sent to the IRS, implicating Mr. Shitrit as someone who earned money and failed to file a return. Everything came to a head when the returns were filed in 2017 because he claimed a $3,000 refund. No surprise that the IRS offset the refund against the outstanding liability created for 2006 with the substitute for return.

Now that it had his correct address, the IRS sent him the seriously delinquent passport notice. He filed the Tax Court petition to address this notice. He retained the law firm of Frank Agostino and, although the opinion does not make this clear, I surmise that Frank’s firm figured out what happened to create the liability and took the steps to unwind the assessment, convincing the IRS that it was not Mr. Shitrit’s income. That worked well for ending the primary problem presented with passport revocation, but the small matter of the $3,000 refund still existed, and Mr. Shitrit sought to have the Tax Court make a determination that he was entitled to that refund.

The Court says that nothing in IRC 7345 establishing jurisdiction for passport revocation cases authorizes the court to redetermine a liability or to determine an overpayment. Among the other cases it cites following this statement, the Court cites to a Collection Due Process case, Greene-Thapedi v. Commissioner, 126 T.C. 1 (2006), which this blog has often criticized. See prior discussions of this issue in the CDP context here and here. There are significant differences between the passport statute and the CDP statute, making some of the criticisms of the decision in Greene-Thapedi not as applicable in this context.

Mr. Shitrit argues that despite prior decisions, IRC 6512 grants the Tax Court jurisdiction to determine an overpayment and IRC 6402 gives the Court the power to order the overpayment. The Court disagrees. Arguments regarding mootness and voluntary cessation follow, with the IRS arguing the decertification has mooted the case and petitioner arguing that voluntary cessation by one party does not necessarily moot a case.

I expect that the IRS will refund the overpayment to Mr. Shitrit as it abates the 2006 liability, since an overpayment will be sitting on that account and the taxpayer has requested the money within the applicable refund period. If it does not, then Mr. Shitrit must incur the time and expense to go back into a different court to seek an order granting him the refund. It’s unfortunate that he could not wrap everything up in one proceeding.

IRC 7459(d) and the Impact of Dismissal

On May 20, 2021, the Court of Federal Claims decided the case of Jolly v. United States, Dk. No. 20-412.  Ms. Jolly pursued the case pro se.  The court lists the opinion as not for publication. The case involves a refund suit covering four tax years.  The court decided not to dismiss her complaint rejecting the government’s motion.  Carl Smith noticed this decision and in his email forwarding the opinion he provided much of the substance of this post. 

In amicus briefs filed by the tax clinic at Harvard in the cases of Organic Cannabis and Northern California, the clinic argued that the court should not be concerned about turning late filing of a deficiency petition into a merits issue, rather than a jurisdictional one.  The counter-argument (which the 9th Cir. accepted in Organic Cannabis) was that, if a deficiency petition is dismissed for late filing and that is a merits dismissal, then it upholds the deficiency under 7459(d), and so the Tax Court decision could present a res judicata bar to a person seeking to litigate the deficiency later by paying and suing for a refund.  In our cert. amicus brief in Northern California, we acknowledged that that was a theoretical possibility.  We noted in our brief that neither Carl Smith nor I could recall any case where a person who was dismissed from the Tax Court for late filing later full-paid the deficiency and sued for refund.  We acknowledged that it is possible such rare cases existed, but said they must be a very few since it could arise in the traditional refund context or when there is no balance due but a disallowed refundable credit and a late filed petition. 

Because of the possibility, Nina Olson, when she was the National Taxpayer Advocate made a legislative proposal to fix the jurisdiction issue, and it contains a modification to 7459(d) that would except untimely filed petition dismissals from the rule upholding the deficiency. 

The Jolly case presents the fact pattern we said we did not recall ever seeing. 


In Jolly, for the 2016 year, the IRS issued a notice of deficiency.  Jolly, pro se, late-filed a Tax Court petition, which was dismissed for lack of jurisdiction.  The IRS applied overpayments from 2018 and 2019 that were shown on the returns to the 2017 deficiency, still leaving a partial balance due for 2017.  The IRS did not apply any of the overpayments to 2016.  This is unusual because normal procedure at the IRS applies payments to the earliest period to tax, then penalty and then interest.  It is unclear why the payments were posted in this manner in the Jolly case. 

Jolly, again pro se, then filed suit in the Court of Federal Claims seeking a refund for each of the years 2016 through 2019.  The DOJ moved to dismiss all four years, though on different grounds.  It wanted the court to dismiss 2016 and 2017 for failure to full pay and wait 6 months after a refund claim to bring suit – i.e., lack of jurisdiction.  It wanted the court to dismiss 2018 and 2019 because the overpayments from those years had been applied to 2017 – i.e., failure to state a claim since she received the refund she requested on her returns for those years.  Pro se taxpayers commonly misunderstand what it means when the IRS offsets a liability.  Clinic clients regular arrive at the door complaining of one year when the IRS has granted the requested refund for the year identified by the taxpayer but taken the refund to an earlier year where the problem exists.  In somewhat confusing rulings, the court denied  the government’s motions for all years.

For 2016 and 2017, the court thinks it is important to decide whether notices of deficiency were issued for each year.  It’s not clear why it feels this way.  The court finds that a notice of deficiency was issued for 2016, but not 2017.  The court notes the IRS has lost the 2017 administrative file, and the court won’t accept at this time only circumstantial evidence of mailing.  The court says that the credits from 2018 and 2019 might have full-paid the 2016 liability and part-paid the 2017 alleged liability based on the evidence in the record at this time.  This approach seems confused.  It is implicit in the court’s ruling that if a notice of deficiency was not sent for 2017, the Flora rule doesn’t apply to the erroneous assessment of the deficiency and the credits from 2018 and 2019 can be moved from the 2017 year to the 2016 year to meet Flora.  I would have thought Flora requires full payment of an assessment, even if the assessment was not made correctly procedurally, though I have never researched case law on that issue, if any. 

In addition to this argument, what about the government argument that the taxpayer had to file a refund claim and wait six months?  Clearly, a 2019 overpayment used to finish paying the 2016 year could only have been applied as a credit in 2020, and suit here was brought in 2020.  It is very unlikely that the taxpayer filed a refund claim for 2017 between the time that the 2019 credit was posted to 2017 and then waited six months to bring suit.  In denying the motion, the court doesn’t discuss this issue.  Here’s the last paragraph of the opinion as relates to the motion for 2016 and 2017:

If Ms. Jolly’s 2017 deficiency of $6,371.76 does not exist, the math follows: applying Ms. Jolly’s 2018 and 2019 tax refund ($1,947.00 and $1,255.00, respectively) to only her 2016 assessment of $2184.81 results in a residual amount of around $1017.19.2 As there is a factual dispute underlying the jurisdictional allegation in the government’s Rule 12(b)(1) motion, the Court “weigh[s] evidence” and “find[s] facts” while “constru[ing] all factual disputes in favor of [Ms. Jolly].” Knight, 65 Fed. Appx. at 289; see also Cedars-Sinai Medical Center, 11 F.3d at 1583–84, James, 887 F.3d at 1373. Accordingly, based on the record before the Court, specifically the government’s failure to locate Ms. Jolly’s 2017 IRS administrative file, the Court finds Ms. Jolly may have paid her full tax liability before filing this lawsuit, and thus the Court has subject matter jurisdiction over her 2016 and 2017 tax refund claims. See Flora, 362 U.S. at 150.

It is also unclear why the court did not dismiss the 2018 and 2019 years for failure to state a claim.  The government argued that the claims (shown on original returns) had been paid by application of the overpayments to 2017.  A taxpayer should not be able to bring a refund suit for the year in which overpayments occurred that were used as credits against earlier-year balances due.  Such a suit could only be brought for the earlier years to which the credits had been applied.  The court seems to think that because it determines that the 2017 assessment was improper, the IRS must be deemed not to have made the credits of the refund claims shown on the 2018 and 2019 returns.  But, even if so, why didn’t the court say that the 2018 overpayment should be deemed to partly pay the 2016 deficiency, so at least there can be no overpayment suit relating to 2018?  Here’s the entire discussion of why the court denies the DOJ 21(b)(6) motion for 2018 and 2019:

The government further contends Ms. Jolly is not entitled to any recovery for 2018 and 2019 since Ms. Jolly received her 2018 and 2019 refunds as payments towards her 2017 balance. Gov’t MTD at 9–10. As discussed supra, the absence of a notice of deficiency bars the IRS from assessing a tax deficiency against Ms. Jolly in 2017, thus, the record before the Court compels a finding that the IRS possibly owes Ms. Jolly a residual amount after applying her 2018 and 2019 tax credit towards her 2016 balance. Accordingly, “accept[ing] well-pleaded factual allegations as true and . . . draw[ing] all reasonable inferences in favor of [Ms. Jolly],” the Court finds Ms. Jolly alleges “enough facts to state a claim to relief [regarding her tax refund of 2018 and 2019] that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Athey v. U.S., 908 F.3d 696, 705 (Fed. Cir. 2018) (quoting Call Henry, Inc. v. U.S., 855 F.3d 1348, 1354 (Fed. Cir. 2017)) (When deciding a Rule 12(b)(6) motion to dismiss, the Court “must accept well-pleaded factual allegations as true and must draw all reasonable inferences in favor of the claimant.”).

Jolly will struggle to win this case, but perhaps the court’s ruling will allow her to prove to the Tax Division attorney handling the case that she should not have been assessed in 2016 and that she is entitled to a refund, even if she is not entitled to bring a refund suit for four years.  Since much confusion seems to surround the 2017 year and how the assessment came to exist for that year and why the IRS offset the later refunds to 2017 instead of 2016 perhaps this pause will allow time for clearing up that issue as well. The judge seems to misunderstand the basis for refund litigation but that will no doubt be worked out over time.  The case is most notable because it represents an example of someone who missed their chance to go to Tax Court but followed through in seeking a return of the tax through the filing of a refund suit.  Although Carl and I said we did not know of a case with those facts, perhaps we should have remembered the case of Flora which had those very facts and raised the question of what happens when you miss your chance to go to Tax Court.  In the Flora case we know that the Supreme Court held, in the fact of an unclear statute and contradictory prior case law, that the taxpayer can only bring the refund suit by first fully paying the tax, making a timely refund claim, waiting for the claim disallowance letter (or the passage of six months) and then coming to court.  If you want to read more about Flora and the parallels with the Jolly case, here is an article I wrote about Flora.

DAWSON Update and Example of Tax Court Policing

Carl Smith continues to probe the Tax Court docket sheet as he has done for many years but in his retired retirement, he finds working his way through DAWSON interesting as new features arrive unexpectedly to be discovered.  The latest new feature Carl has found is one about which those of us who use the system regularly have been complaining since its inception – the inability to see the representatives.  Now, it’s possible to see who is representing each party, but you must take a step to find out.

When you arrive on the docket sheet of a case, you will not see the persons representing the parties as you did prior to the change to DAWSON; however, if you click on the “Printable Docket Record” box on the right-hand side of the page near the top of the docket sheet, you will go to a sheet that displays the representatives.  This is another step forward as the Tax Court continues to build out DAWSON.


You can test out this feature by going to this link.  The link hopefully (I use this qualifier because all of the pre-DAWSON links in our blog to Tax Court orders were broken when DAWSON came into existence.  We do not have the time and energy to fix all of the broken links and apologize for this problem.  If you know someone willing to sponsor us to hire an energetic student to work on our links, we would welcome the sponsorship and the opportunity to update the old posts on the blog.  It is also possible that we might have an energetic reader with time on their hands willing to make an in-kind donation to this free blog site and do the work necessary to update our links) takes you to the case of Villavicencio v. Commissioner. 

While Carl brought to my attention the new DAWSON feature, Bob Kamman brought the Villavicencio case to my attention.  The case makes a point that I made in a recent post in which I quoted extensively from the brief the tax clinic at Harvard filed with the Supreme Court in Boechler – the Tax Court polices the timely filing of petitions even when the IRS does not and the Tax Court will dismiss a case even when the parties are in the process of settling it.  The case also highlights the dangers of using the wrong private delivery service, highlighted most often in this blog by reference to the Guralnik case.  The case also points out a problem created by COVID and the shutdown of the Tax Court.  Although it probably does not matter here for reasons discussed below, petitioner has not yet made jurisdictional arguments of the type frequently discussed in this blog.

Three weeks before trial, Judge Greaves raised the question of whether he had jurisdiction, because the notice of deficiency was issued on March 16, 2020, and the petition was not received until July 16, 2020.  It was sent by UPS, but not by one of their acceptable methods.  See Judge Greaves’ one-page order attached.  Late deficiency petitions raise jurisdictional issues in the eyes of the Tax Court even if the IRS doesn’t file a motion to dismiss for lack of jurisdiction. 

The IRS didn’t file an answer until October 27, 2020, more than three months after the petition was filed, but this is one of those cases about which we recently wrote where service of the petition on Chief Counsel, IRS did not occur for over two months after the petition was received.  So, the answer here was timely, but if it had not been timely filed, late answers are forgivable from the Tax Court’s perspective.   

I could digress and discuss the “strike fear” memo written by Chief Counsel Meade Whitaker in the mid-1970s threatening to fire any Chief Counsel attorney who did not file their answer on time, or I could digress further and talk about the time the Richmond office which I was heading filed seven answers late at once because of a snafu, but I will not.  Instead, I will simply say that the Office of Chief Counsel generally does not like it when an answer is filed late and neither does the Tax Court, but the Tax Court does not usually punish the IRS in any way for a late answer.  To my knowledge, the Office of Chief Counsel has not fired anyone for filing a late answer.

The case is calendared for a remote trial session in New York City on June 14, but the parties lodged a proposed stipulated decision on May 13.  So, the parties are ready to settle, the Tax Court is ready to toss the case, and the taxpayer is wishing that the petition had been timely filed.  If the Tax Court decides to dismiss the case for failure to timely file the petition, my expectation is that the IRS will honor the settlement and only assess the amount of tax, if any, agreed to by the parties.  It is not my experience that the IRS would use the dismissal as a basis for assessing the entire liability and force the taxpayer in this S case to come up with full payment and file a suit in district court. 

So, even though the petition was filed late, the petition was served late, and the Court caught the problem late in the process, all should end well for the parties, but before it ends well, they must spend time responding to the order that requires them to address the timeliness of the petition.  The parties may not care about the timeliness of the petition anymore because they have figured out the right answer to the tax problem.  That does not matter because the Tax Court cares.  Should it, or should we have a system where the filing of the petition is not jurisdictional, but a claim processing issue which, if not raised by the IRS, does not bar the parties from moving forward with the case?  If the Supreme Court does not change the Tax Court’s interpretation of the statutes granting it jurisdiction, perhaps Congress could step in and fix this problem so that all bases for jurisdiction in the Tax Court are considered non-jurisdictional and not just whistleblower cases, passport revocation cases and CDP cases filed by DC residents.

Category 9 Cases the Taxpayer Advocate Service Will Accept

In TAS-13-0521-0005: Interim Guidance on Accepting Cases Under TAS Case Criteria 9, Public Policy (05/06/2021) the National Taxpayer Advocate (NTA) put out guidance on the public policy cases Taxpayer Advocate Service (TAS) will accept.  The guidance regarding case acceptance expires on May 5, 2023. Under Code Sec. 7803(c)(2)(C)(ii), Congress listed several types of cases in which TAS will assist taxpayer and gave the NTA the authority to determine additional matters in which TAS will assist taxpayers.

TAS wants to assist taxpayers in situations in which it can provide meaningful assistance but does not want to waste time where it cannot help.  A good example of a place where it cannot help has occurred because of the pandemic.  Many taxpayers want to know what has happened to their refund or other correspondence.  TAS cannot provide much assistance because in a high percentage of these cases the correspondence sits in a tractor trailer waiting for someone at the IRS to process the mail.  Until the case gets into the IRS system in a meaningful way, the situation ties the hands of TAS, making those missing or delayed correspondence cases ones where TAS cannot really provide assistance. TAS divides the criteria it uses to decide when it will assist taxpayers (“case acceptance criteria”) into nine categories. (Internal Revenue Manual (IRM)


Category 9, sometimes known as the public policy assistance category, provides that TAS will assist taxpayers with cases that: 

  1. The NTA determines warrant TAS assistance due to a compelling public policy, and 
  2. Don’t meet the case acceptance criteria for any of the other eight case acceptance categories. (IRM

In the recent memo the NTA shares her determination that the TAS will accept the following four issues in its public policy category.  Some of these carry over from prior determinations: 

  1. Cases involving the automatic revocation of an organization’s tax-exempt status for failure to file an annual return or notice for three consecutive years.  This one goes back for several years when the IRS first came out with his plan for purging exempt organizations that seemed to no longer exist or, at least, no longer communicate with the IRS; 
  2. Cases involving any tax account-related issue referred to TAS from a Congressional office.  Going to a Congressional office as your entrée into the IRS generally greases the skids.  TAS is especially responsive to Congressional correspondence and makes regular visits to local and national Congressional offices.  Note that even though TAS wants to do everything it can to please the Congressional offices, it creates exceptions here to reflect its utter inability to accomplish certain tasks where the IRS has not processed correspondence: 
    1. Cases involving Economic Impact Payment (EIP) issues, and 
    2. Cases involving the exclusion from income of unemployment compensation received during tax year 2020 under Section 9042 of the American Rescue Plan Act of 2021 (ARPA, ARP Act; PL 117-2), where the taxpayer who filed their tax year 2020 return before ARPA was enacted; 
  3. Cases involving revocation, limitation, or denial of a passport because, under Code Sec. 7345, the taxpayer has a seriously delinquent tax liability (i.e. a tax liability of more than $50,000, adjusted for inflation).  It added this one when the legislation because effective.  You can find blog posts by the NTA through this link even though the title of our post indicates a discussion of private debt collection.  It can make a big difference to have TAS advocating for you on this issue if you need a fix in a hurry.  Keep in mind that TAS cannot perform magic here.  The taxpayer needs to be able to show that a seriously delinquent tax liability does not exist or that the taxpayer has made the necessary payment to resolve the liability; and 
  4. Cases that have been referred to a Private Collection Agency for collection of a federal tax debt under Code Sec. 6306.  This one has been around since private debt collection returned.  Nina Olson did not like private debt collection.  She is not alone.  See here and here.  She pushed to eliminate it the first time it came into existence.  She created this exception when Congress resurrected private debt collection and it has remained on the list.

The changes to the list are really changes to criteria 2. to reflect TAS’ inability to fix something.  Keeping up with the public policy list allows you to know when you can successfully obtain the assistance of TAS to advocate for a position within the IRS.  Of course, knowing the criteria other than Number 9 can also be quite helpful.  For those needing a reminder, here is a list of the other bases for seeking TAS assistance:

Economic Burden. Economic burden cases are those involving a financial difficulty to the taxpayer: an IRS action or inaction has caused or will cause negative financial consequences or have a long-term adverse impact on the taxpayer. 

  • Criteria 1: The taxpayer is experiencing economic harm or is about to suffer economic harm.
  • Criteria 2: The taxpayer is facing an immediate threat of adverse action.
  • Criteria 3: The taxpayer will incur significant costs if relief is not granted (including fees for professional representation).
  • Criteria 4: The taxpayer will suffer irreparable injury or long-term adverse impact if relief is not granted.

Systemic Burden. Systemic burden cases are those in which an IRS process, system, or procedure has failed to operate as intended, and as a result the IRS has failed to timely respond to or resolve a taxpayer issue.

  • Criteria 5: The taxpayer has experienced a delay of more than 30 days to resolve a tax account problem.
  • Criteria 6: The taxpayer has not received a response or resolution to the problem or inquiry by the date promised.
  • Criteria 7: A system or procedure has either failed to operate as intended, or failed to resolve the taxpayer’s problem or dispute within the IRS.

Best Interest of the Taxpayer. TAS acceptance of these cases will help ensure that taxpayers receive fair and equitable treatment and that their rights as taxpayers are protected.

  • Criteria 8: The manner in which the tax laws are being administered raises considerations of equity, or has impaired or will impair the taxpayer’s rights.