Misdated Notices Continue

Last summer the National Taxpayer Advocate reported that the IRS was sending out millions of notices to taxpayers with dates that bore no relationship to the date of actual mailing.  I wrote a post about it here criticizing the decision to send out these notices, not only because they would confuse many recipients but also because the IRS database shows the date of the notice generation rather than the date of mailing.  I updated the information in an October post after gaining more information.  This type of broad based improper recordkeeping will have the effect of casting doubt on the accuracy of IRS records that could have lasting impact for the IRS when it tries to prove some event occurs and relies on a certified transcript.

In the last section of the post I will mention a disturbing recent interaction with the IRS regarding the collection statute of limitations and request anyone with a similar interaction to provide comments.


The original batch of wrongly dated notices resulted from the closure of the IRS Service Centers due to the pandemic.  As bad as sending out the wrongly dated notices is for taxpayers and for the IRS, at the time the story first broke it appeared to be a once and done as a result of the pandemic lockdown.  Last month, the National Taxpayer Advocate issued a second blog describing a second round of misdated or backdated notices the IRS starting sending out this fall and continuing into January.  The IRS announced this second round of back dated notices here.  So, now we learn that instead of sending out bad notices in one batch because of the shutdown, the problem continues and may occur again in the future creating ongoing confusion for taxpayers and an even greater threat to the integrity of the IRS database system.

Extended Dates to Respond to Misdated Notices

If you have not already read the NTA’s second post on this issue you should do so as the issues created by the second round of bad notices are still playing out.  The NTA notes that once again the IRS is placing into the envelope with the misdated notice a stuffer providing additional information and additional time.  Here are the three types of misdated notices in which a stuffer will be placed:

The notices scheduled to include the Notice 1052-D insert are:

  • IRC § 6303 Notice and Demands that informs taxpayers of tax due and demands payment;
  • IRC § 7524 Annual Reminder Notices that remind the taxpayer of an existing balance due; or
  • IRC § 6213(b) Math Error Notices that inform taxpayers of a change to their return.

The insert provides the taxpayer a new due date, January 29, 2021, to make a payment to avoid additional interest, and additional failure-to-pay penalties, if applicable. The insert also provides taxpayers with math error adjustments until March 9, 2021, to contact the IRS and request the math error be reversed.

The annual reminder notices, while required by statute, do not create the same type of issues as the notice and demand letter or the math error notices.  I discussed the consequences of delayed math error notices in my original post on this issue.  The stuffer provides the taxpayer with additional time to pay until January 29, 2021, which means that there is additional time before the federal tax lien comes into existence.  The stuffer provided in the math error notices give taxpayers until March 9, 2021, to object to the assessment based on math error and trigger the sending of a notice of deficiency (or convince the IRS the original return position was correct.)

The NTA post alerts taxpayers that the notices the IRS sends out in the collection stream may arrive out of order because of the failure to send out the notices timely during November.  For individual taxpayers this should not create a significant problem as the second notice in the collection stream is not statutorily required.  The result may be different for business taxpayers if they received the notice of intent to levy before receipt of notice and demand.

Prior Misdated Notices

The NTA circles back at the end of her post to talk about the prior round of misdated notices:

During the spring and summer of 2020, the IRS digitally created approximately 31.2 million notices that it was unable to mail on the dates planned. Of these, the IRS purged approximately 12.3 million notices as they were not statutorily required. Of the remaining late notices, only a small percentage included an insert notifying the taxpayer of additional time to act. Originally, the IRS identified 1.8 million notices requiring an insert providing an extension of time for the taxpayer to act. Unfortunately, some notices containing statutory deadlines didn’t include the necessary insert. Once identified, the IRS sent supplemental letters to taxpayers informing them of additional extensions. For example, taxpayers who originally did not receive an insert providing additional time to request a Collection Due Process hearing received another letter providing more time. Similarly, taxpayers receiving late-mailed notices of refund disallowance were subsequently sent a supplemental letter clarifying the two-year period to challenge the refund disallowance in court. Although the IRS made efforts to provide additional time for taxpayers to respond, it created much confusion for taxpayers and practitioners. After all of the challenges the IRS and taxpayers faced during the previous backlog, it is difficult to understand how the IRS finds itself in the same position. Let’s hope this backlog mailing goes more smoothly.

It is surprising that the NTA does not understand how the second round of misdated notices occurred.  TIGTA or GAO needs to take a hard look at what has happened here leading to the inability to send out notices on dates that match the date on the statutorily required notice and the decision making for knowingly sending out these notices rather than stopping the process and getting it right.  Someone at the IRS should be able to explain why this has happened again; how many more time we might expect it to happen; and when the system might be fixed to prevent it from happening.

At the Mid-Winter ABA Tax Section meeting there will be a panel discussing the late issued notices on Thursday January 28 from 3-4:00 ET.

Refund Offset versus Bankruptcy Exempt Property Claim

An important bankruptcy case was decided by the Fourth Circuit last spring that I missed, perhaps due to the pandemic – at least that’s my excuse because both Carl Smith and Nancy Ryan brought it to my attention at the time.  It came to my attention again last month thanks to Michelle Drumbl who directs the tax clinic at Washington and Lee and who will serve as interim dean there in the coming academic year.  This past semester Michelle was on sabbatical in Northern Ireland with her family but, as with most sabbaticals, she was writing during her time away from school producing at least one article on the cross over topic of bankruptcy and taxes.  Fortunately for me, she asked that I take a look at her draft of the article which caused me to finally pay attention to an interesting case that I ignored when Nancy and Carl brought it to my attention.  Michelle’s forthcoming article focuses on the case of Copley v. United States, 125 AFTR 2d 2020-XXXX (4th Cir. 2020) involving the issue of the interplay of IRC 6402, BC 362(b)(26), BC 522, BC 541 and BC 553

In prose the case concerns whether the IRS can offset a pre-petition income tax refund that the taxpayer claimed as exempt in his bankruptcy case against a pre-petition income tax debt.  The debtor argues that when the refund became exempt property it received a type of protection from the IRS offset not otherwise available, while the IRS argues the opposite.  The Fourth Circuit holds that exempting the refund does not protect it from offset.  I found this outcome totally unsurprising; however, the fact that the Fourth Circuit decision reversed the decisions of the two lower court judges in Richmond I happen to know as well as the absence of authority on this point did surprise me.  See the bankruptcy court’s opinion here and the district court’s opinion here.


The Copleys filed a chapter 7 bankruptcy in May 29, 2014 listing the IRS as a priority creditor for over $13,000 claiming as exempt their 2013 tax refund of $3,208.  Virginia provides debtors a fairly stingy exempt property option, as do many former English colonies along the East Coast.  It allows the debtor to protect “money and debts due the householder not exceeding $5,000 in value.”  The Copleys used the exemption to elect to protect their 2013 refund and neither the IRS nor anyone else objected.  After making their exemption election, the Copleys filed their 2013 tax return on June 6, 2014, and the IRS offset the refund pursuant to IRC 6402 and BC 362(b)(26) which came into existence in the 2005 bankruptcy refund legislation and permits the IRS to exercise its offset rights despite the automatic stay prohibition against offset in BC 362(a)(7).  The automatic stay exception limits the IRS to offsetting pre-petition refunds against pre-petition debts of the same type of tax.  Here, the debt and the refund both satisfied the conditions of type and time.  No one objected to the offset based on a stay violation of BC 362(a)(7) rather the fight turns on the power of the exemption versus the power of the right to offset.

In appealing the case the IRS made two arguments.  First, it argued that the 2013 refund never became part of the Copleys’ bankruptcy estate.  Second, it argued that their right to exempt the property does not supersede the IRS right to offset.

The property of the estate argument raises the question of whether the Copleys even had the right to exempt the refund since they could only exempt property of the estate.  The IRS argued that:

A taxpayer can only have a property interest in a tax refund, not a tax overpayment, and the taxpayer can only have an interest in a refund if the overpayment exceeds preexisting tax liabilities.  Because the Copleys’ overpayment did not exceed their preexisting tax liabilities, the government asserts that their interest in the refund was valueless and, therefore, did not become part of the bankruptcy estate. (emphasis in original)

The Fourth Circuit did not buy this argument and that did not surprise me.  It pointed to the expansive nature of the concept of property of the estate, citing prior Fourth Circuit law as well as Supreme Court law.  The Court did note in footnote 3 that offset under IRC 6402 is discretionary which is inconsistent with the government’s position.  Two prior Fourth Circuit cases went to the Supreme Court that dealt with property of the estate.  I suspect this circuit may be more sensitive to this issue that almost any other circuit given that history.  Here, it cited to one of those prior cases that dealt explicitly with offset, Citizens Bank of Md. v. Strumpf, 516 U.S. 16 (1995) in pointing out that three things had to happen before offset could take place and none of those things had happened at the time of the bankruptcy petition.  In the IRS’s defense Strumpf and the other case, Patterson v. Shumate, 540 U.S. 753 (1992) pre-dated the 2005 amendment to IRC 362 excepting certain offsets from the automatic stay; however, that change did not remove the property from the estate under BC 541.  Rather than spending much of its time focusing on whether the Copleys’ refund became property of the bankruptcy estate, quickly concluding that it did, the Fourth Circuit moves on to describing the primary issue as one of the preservation of the right of offset despite the fact that the refund became part of the bankruptcy estate.

The IRS relied on the case of IRS v. Luongo, 259 F.3d 323 (5th Cir. 2001) where the debtor did not claim the refund as exempt until after the offset occurred.  The facts in Luongo were:

On May 19, 1998, Appellant Luongo filed for relief under Chapter 7 of the Bankruptcy Code. At the time of her filing she owed the IRS $3,800 in unpaid taxes from her 1993 tax year. On August 15, 1998, Appellant filed her 1997 income tax return showing an overpayment of $1,395.94. The bankruptcy court entered an order on September 10, 1998 discharging Appellant’s personal liability for her 1993 income tax deficiency. Subsequently, in November 1998, the IRS executed its claim to setoff and applied all of Appellant’s 1997 tax overpayment to her unpaid 1993 tax liability. 

Only after discharge and after offset did the debtors in Luongo seek to reopen their bankruptcy case and claim the refund as exempt.

Luongo involved a number of arguments not present in Copley but one of the argument the IRS won and on which it relied here was that the refund was not part of the estate.  The Fourth Circuit in Copley says that it does not dispute that conclusion of the Luongo decision.  I cannot reconcile the Copley decision and the reason for the Copley decision with that statement but, in the end, it does not matter whether the refund comes into the estate or not because of the decision of the Fourth Circuit on the second issue.

The second issue pits BC 553 preserving a creditor’s right to offset against BC 522 and the debtor’s right to exempt property.  The court acknowledges a conflict between BC 522 which protects exempt property against “any” prepetition debts and IRC 6402 which permits the IRS to offset “any overpayment” against preexisting liabilities.  It finds that BC 553 resolves the apparent conflict.

The critical language of BC 553 states “this title does not affect any right of a creditor to offset a mutual debt.”  That broad language, which caused me not to think that this case presented much of an issue, persuades the Fourth Circuit that the IRS can still make the offset even through the Copleys exempted the property.  It views acceptance of the Copleys’ argument as one which would violate the statutory directive of BC 553.  The court notes that BC 553 does not create the right of offset but only preserves an existing right.  Since IRC 6402 created a clear existing right, BC 553 steps in to preserve that right.

The court then addressed the Copleys’ arguments and knocked them down.  The one that most interested me was the argument that bankruptcy courts had the discretion to decide if BC 553 would apply.  The Fourth Circuit found that while bankruptcy courts could strike down a creditor’s attempt to offset, the basis for doing so derived from the questioning of the validity of the right of offset and not from some equitable discretionary ability to do so.

I think the Fourth Circuit got it right on both counts.  The refund comes into the estate but the IRS, or any other creditor with a valid right of offset, can exercise that right with the proper permission of the statute or the bankruptcy court.  Despite what I think, the lower courts here found the IRS could not offset.  This issue does not have much case law even though the bankruptcy code is well into middle age.  Perhaps, other debtors in other circuits will make this argument to see where it leads.

DAWSON Updates

As we discussed here, the Tax Court rolled out its new case management system on December 28, 2020.  The rollout is the beginning of a process and not the end.  Today, the Court announced the first of what will probably be several announcements as new features come online.  This announcement provides information about the release of orders to the public.  Tax Court orders have long been a under observed aspect of the decision making of the Court.  Starting almost 10 years ago, the Court made these orders public and searchable.  The search feature is important for those wanting to track a specific issue or follow orders of a specific judge.  While orders do not create precedent, we found them sufficiently important to start the designated order feature here a few years back.  We look forward to the ability to track orders going forward in the same easy to search and free to all aspect of the Court’s online presence that greatly outperforms PACER.

Year in Review – Court Cases

This review of 2020 Tax Court cases is partially cribbed from a presentation given by LaKesha P. Thomas, Esq., Clinic Director at Three Rivers Legal Services (FL); William Schmidt, Clinic Director at Kansas Legal Services; and Caleb Smith, Associate Professor of Clinical Law at University of Minnesota Law School.

In this post several of the cases of particular importance this year are highlighted.  Litigation during 2020 seemed to take a back seat to general tax administration which the pandemic through into thorough disarray.  Nonetheless, the EIP cases offered some interesting crossover litigation and other cases explored important areas of tax procedure as well.

Note that some of the Tax Court cases discussed below are not linked, as online opinions are currently unavailable through the Tax Court site due to the ongoing implementation of the DAWSON system.


EIP Litigation:

Scholl v. Mnuchin, Dk. No. 20-cv-05309-PJH discussed here, here, here and here.

  • IRS withholding EIPs to incarcerated individuals and encouraging those that received them to pay them back.
  • Statute does not include incarceration as disqualifying otherwise eligible individuals. Only legal authority is IRS online FAQs.
  • Class Action Suit: Victory for Incarcerated Individuals
  • Importance for Practitioners:
  • Using admin law as your way into Court
  • Increasing reliance by IRS on FAQs and sub-regulatory guidance in fast-changing circumstances

Amador v. Mnuchin, Dk. No. 20-cv-01102-TDC (D. Md.) discussed here.

  • IRS denying EIPs to U.S. citizens who filed joint returns with a non-citizen spouse (filed as a class action).
  • Court denied gov’t motion to dismiss on sovereign immunity, standing, and 12(b)(6) grounds.
  • Related case: Doe v. Trump, Dk. No. 20-cv-00858 (C.D. Cal.) (granting government motion to dismiss and sustaining CARES Act spousal exclusion under rational basis review), appeal pending, Dk. No. 20-56019 (9th Cir.)

R.V. v. Mnuchin, Dk. No. 20-cv-01148-PWG (D. Md.)

  • IRS denying EIPs to U.S. citizens who are the underage children of undocumented immigrants.
  • Court denied gov’t motion to dismiss on standing and 12(b)(6).

What is a return:

Fowler v. C.I.R., 155 T.C. No. 7 (2020) discussed here and here.

  • Individual attempted to e-file return multiple times but was rejected for lacking “IP PIN.” Later mailed in return.
  • IRS began deficiency procedures within 3 years of later mailed return, but not within 3 years of e-filed attempts. If those (rejected) e-filed returns were valid, IRS deficiency untimely. Which is what Court held.
  • E-filed returns are rejected all the time when they otherwise would be valid
  • ASED date arguments (and by consequence, CSED)
  • Late filing penalty arguments

Quezada v. IRS, No. 19-51000 (5th Cir., Dec. 11, 2020) see discussion of Fifth Circuit’s opinion here and prior opinions here and here

  • Taxpayer failed to file Form 945 for backup withholding.
  • In bankruptcy, IRS sought to collect assessed tax, penalties & interest; taxpayer argued that the 3-year statute of limitation had expired, because his filed 1040 & 1099 were a “return” that triggered the SOL.
  • Fifth Circuit found the 1040 & 1099 combination sufficient to constitute a “return” and reversed bankruptcy court and district court, which had both agreed with the IRS.

Coffey v. Commissioner, No. 18-3256 (8th Cir., Dec. 15, 2020), rev’g, 150 T.C. 60 (2018) (fully reviewed and very fractured Tax Court opinion), see discussion of Eighth Circuit’s opinion here and previous discussions here, here and here

  • Taxpayers claimed to be residents of Virgin Islands.
  • Taxpayers filed returns with Virgin Islands and gave copy of portion of returns to IRS
  • Tax Court found submissions triggered running of statute of limitations and 8th Circuit reversed

Innocent Spouse Cases

Sutherland v. C.I.R., 155 T.C. No. 6 (2020) discussed here, here, here and here.

  • Taxpayer First Act (TFA) changed scope of review of Tax Court in Innocent Spouse (I/S) cases mostly to admin record at time of IRS determination (IRC 6015(e)(7))
  • Problem is taxpayers can get into Tax Court before (or without) IRS making a determination in I/S (IRC 6015(e)(1)(A)). What does Tax Court Review? Sutherland kicks the can… TFA provision only applies for petitions filed after 7/1/2019

Jacobsen v. C.I.R., 2020 U.S. App. LEXIS 4544 (7th Cir. 2020) discussed here and here.

  • Tax Court and 7th Circuit determining how to weigh factors in Innocent Spouse relief where taxpayer has “actual knowledge” of items leading to understatement
  • Taxpayer seeking equitable relief under IRC 6015(f) with all positive factors except knowledge… both courts say, “no dice.”
  • Highlights the need to argue no actual knowledge!!! (If at all possible)
  • Recognize extreme uphill battle of getting reversal on Appeal for I/S

CDP Cases

Lander v. C.I.R., 154 T.C. No. 7 (2020) discussed here, here, here and here.

  • Collection Due Process Issue: When is a taxpayer precluded from raising the underlying tax because they had a “prior opportunity” to dispute? (IRC 6330(c)(2)(B))
  • Tax Court held that taxpayer request for audit reconsideration (with Appeals) was “prior opportunity” precluding right to raise underlying liability
  • Importance for Practitioners:
    • Don’t request audit reconsideration (i.e. wait until CDP to raise the issue)?
    • Take it to appellate court? Don’t use S-Case designation…

Patrick’s Payroll Services v. Comm’r, No. 20-1772 (6th Cir.) discussed here

  • Taxpayer arguing that 6330(c)(2)(B) imposes a disjunctive test (i.e. non-receipt of notice of deficiency or no prior opportunity) that allows a taxpayer to contest their underlying liability if one of the conditions is satisfied

Amanda Iris Gluck Irrevocable Trust v. Comm’r, 154 T.C. No. 11 (2020), discussed here.

  • Taxpayer sought to challenge underlying liability resulting from IRS computational adjustments.
  • Judge Lauber found that the taxpayer did not have a prior opportunity and that Court had jurisdiction to review a computational adjustment in CDP cases.

Cue v. Comm’r, No. 21404-18SL (T.C. 2019), discussed here.

  • Taxpayer challenged filing of federal tax lien on basis that a FTL would prevent him from keeping his job as a banker. At Appeals, the settlement officer declined to withdraw the lien and the taxpayer lost his job.
  • In a bench opinion, Judge Goeke found that the SO abused her discretion by failing to consider that the taxpayer would lose his job if she failed to withdraw the lien. Judge Goeke reversed and declined to sustain the notice of determination.

Barnhill v. Comm’r, 155 T.C. 1 (2020), discussed here.

  • Taxpayer did not receive a letter from the IRS scheduling an Appeals conference to dispute assessment of a Trust Fund Recovery Penalty (TFRP).
  • Judge Gustafson held that the taxpayer did not have a prior opportunity to dispute and thus was able to challenge the filing of a federal tax lien on the merits.

Timely Filing as Jurisdiction or Claims Processing Rule

Organic Cannabis Foundation v. Comm’r, No. 17-72874 (9th Cir.)

  • 9th Cir. panel affirmed Tax Court and held that IRC 6213(a)’s time limit is jurisdictional

Boechler, P.C. v. Comm’r, No. 19-2003 (8th Cir.) discussed here

  • 8th Cir. panel affirmed district court and held that IRC 6330(d)(1)’s 30-day CDP time limit is jurisdictional.

Castillo v. Comm’r, No. 20-1635 (2d Cir.)

  • Briefs submitted – arguments by taxpayer and amici for non-jurisdictional nature of CDP filing deadline & that IRC 6330(d)(1) should be interpreted to allow jurisdiction on late-filing when CDP notice was not received by petitioner within 30-day period

Year in Review – Tax Court Administration

The Tax Court had to close its building in March and cancel the remaining Winter and Spring calendars because of the pandemic. While the judges continued to work, the cases awaiting trial stacked up. The Court also had to confront how it would operate once it began holding trials again. In addition to having to deal with all of the changes required by the pandemic, the Court had also planned to install a new website and system of administration of cases this year adding to the complexities it needed to manage. So, there is much to talk about in reviewing the administration of the Tax Court during 2020.


Building Closure and Calendar Cancellation

The building closed on March 19, 2020 as a result of the pandemic.  Then, it partially reopened enough to allow outsiders to walk down the hall from the entry point to deliver documents to the clerk’s office, and it closed again. Even though the building was closed for most of the year the judges continued to work and to produce opinions.

In addition to closing the Tax Court building in Washington, the pandemic caused the cancellation of all Tax Court calendars around the county for the remainder of the Winter and Spring trial sessions. When the Tax Court started holding trials again in the fall of 2020, it did so remotely.

The pandemic created an extension of time to file a Tax Court petition. In addition to the extension of the deadline for filing petitions brought on through the Guralnik case by the closure of the clerk’s office and through IRC 7508A though the IRS notice regarding the pandemic it is also possible that an extension of the time to file a petition has occurred through 7508A(d). We will find out the answer in the coming year(s).

Obtaining Documents from the Court

Because the Court building has been closed for most of the year, the ability to access documents filed in Tax Court cases by physically viewing them at the Court has been unavailable. Unlike the federal courts covered by the PACER system, the Tax Court does not make documents filed in its cases electronically available except that it makes electronically available the documents produced by the Tax Court. So, someone interested in seeing a document filed in the Tax Court must physically go to the Tax Court where they can look at one of the two computer terminals in the clerk’s office anteroom which displays all of the documents or request the physical file from one of the clerk’s office employees at the window of that office. Since the public could not access the clerk’s office, this left as the only option for obtaining documents the process of calling the clerk’s office and ordering the documents. For most of 2020 the first two options have been unavailable and from March to May the third one was unavailable as well.

None of these options for obtaining a document exist when the clerk’s office is closed. If the clerk’s office is closed and you wish to see a document filed by a party, you, if you are not a party, simply cannot do it.  While the Tax Court considered itself open and engaged in handling cases during the pandemic, it effectively denied anyone not connected with the Court or a specific case the right to see case documents during the period when its clerk’s office was closed. This creates a frustrating situation for anyone who would like to see case documents and who might be involved in filing briefs or preparing petitions or other documents necessary to move their case forward.

When the clerk’s office reopened after the pandemic created closure, the Court did, however, make it cheaper and quicker to obtain documents when the clerk’s office is open. This is a great first step. I hope the new DAWSON system and reflection on the lack of access to party documents during the clerk’s office closure may create other changes that will open access further. Maggie Goff and I published an article in Tax Notes on May 4, 2020 entitled “Nonparty Remote Electronic Access to Tax Court Records” discussing the legitimate privacy concerns that the Tax Court faces when considering access to the Tax Court records of individuals and suggesting ways to meet those concerns while making documents more available to the public.

In cases involving entities, however, we see no legitimate privacy concerns of general application with respect to the documents filed. Of course, entities can have secrets in need of protection through record sealing. The stated policy reasons for denying electronic access do not apply to cases involving entities. An easy second step to opening up electronic access, at least from a policy perspective though not necessarily an administrative one, would be to remove restrictions in the cases involving entities.

There is a project underway at the Administrative Conference of the United States (ACUS) that deserves some attention on this subject which we will build out to a separate post in the near future. ACUS has recommended that Agencies post their briefs and possibly other documents generated for courts in an easily accessible and cost free manner for all to access. That would close some of the access gap created by the current Tax Court electronic access rules. Follow that project here.

Changes to Admissions Procedures and Rules

The pandemic even changes the process of admission to practice before the Tax Court.

The Court adopted new rules including making permanent the limited entry of appearance rule. It’s not uncommon for the Court to adopt new rules in any year. These rules deal with general court procedures and demonstrate that even while it closed its building it was still working on refining the general rules of practice.

New judges arrived and guidance on remote practice came out.

Trying Cases Remotely

The handling of cases remotely has caused changes in many areas of Tax Court practice. It will be interesting to see how many of these changes have a long term impact and how many fade with the passing of the pandemic.

Subpoenas – New procedures for return of subpoenas discussed here.

Trials have been remote all fall. Most reports I have heard suggest that the trials have gone smoothly. Litigation without the ability to see witnesses in person and without the ability to hand a document to the clerk create some obvious difficulties but so far the Court seems to have surmounted these difficulties to keep the docket moving.


In July the Court adopted a new website.

In November it stopped electronic filing while it migrated to a new filing system named after one of the former judges, Howard Dawson. Every Tax Court practitioner received a new entry path and password to the new electronic filing portal as it reopened on December 28, 2020. Now we will find out how DAWSON works and how much better life is after the creation of the new system. I received my email from the Court on December 27 and filed a document I had been holding for a couple weeks. The filing went smoothly.

Last Known Address Taxpayer Victory

Yesterday, the Third Circuit reversed the Tax Court precedential opinion in Gregory v. Commissioner, 152 T.C. No. 7 (2019).  The decision provides a complete victory for the Gregorys but a less complete victory for all taxpayers.  The Third Circuit’s seven- page opinion is not precedential and relies heavily on the specific facts present in the Gregory case.  Still, in overturning the Tax Court’s precedential opinion the decision calls into question the IRS effort to change long-standing case law and its own practice via a revenue procedure.  The decision offers the IRS the chance to rethink its administrative practice.  It might cause the Tax Court to rethink its precedential opinion should another last known address case make its way to the Court. 

We have previously written about this case here and here.  You can read the prior post or the opinion to get the facts.  The Tax Clinic at the Legal Services Center of Harvard argued this case on appeal.  The briefs are here, here and here.  We are excited for our clients.  Oliver Roberts, the student who argued the case, did a fantastic job.  You can hear the argument here and Oliver’s recap here.  We will have a longer post on the case later.

Year in Review – Administration

This review of 2020 legislation is cribbed from a presentation given by LaKesha P. Thomas, Esq., Clinic Director at Three Rivers Legal Services (FL); William Schmidt, Clinic Director at Kansas Legal Services; and Caleb Smith, Associate Professor of Clinical Law at University of Minnesota Law School.

The biggest administrative action taken by the IRS in 2020 derived from its power under 7508A which gives the IRS the power to waive many requirements when a declared disaster occurs.  We discussed 7508A and the power it grants to the IRS as well as the power the IRS exercised in numerous posts over the year.  You can find them here, here, here, here and here.  In addition to the “normal” powers granted to the IRS under 7508A, 2020 also brought the possibility of new power and postponement created by 7508A(d) passed just before the pandemic arrived in the United States but without thought of how it would operate in the setting of a global pandemic.  Figuring out exactly what 7508A(d) means is something still underway as we discussed here.  In general, the IRS exercised its power to postpone in a broad manner through Notice 2020-23 and other notices exercising the power granted in IRC 7508A.


Notice 2020-23: Tax Action Relief

Taxpayers have until 7/15/2020 to perform the following time-sensitive tax actions if normally due on or after 4/1/2020 and before 7/15/2020:

  • File U.S. Tax Court petition
  • Filing a claim for refund or credit
  • Filing a suit for a claim for refund or credit
  • All actions listed in Rev. Proc. 2018-58
  • 180-day qualified opportunity zone investment period
  • Related Tax Changes IR-2020-59 -Installment Agreements:
  • Payments between 4/1/2020 and 7/15/2020 are suspended.
  • The IRS will not default IAs during this period.

Notice 2020-18

Pursuant to this notice certain federal income tax payments and income tax returns due on 4/15/2020 were postponed until 7/15/2020 creating perhaps the longest filing season ever.This relief applied to:

  • Individuals filing the Form 1040 series
  • Trusts and estates filing a Form 1041
  • Partnerships filing Form 1065
  • Corporations filing the Form 1120 series
  • 2019 federal income tax payments, and •2020 federal estimated income tax payments. The relief does not apply to: •Federal payroll taxes, and Federal information returns.
  • If the TP needed beyond 7/15/2020 to complete a postponed tax returnthe taxpayer could file Form 4868 or Form 7004 by 7/15/2020 extending the due date until 10/15/2020

-Under IRS FAQs, the following were permitted until 7/15/2020:

2019 IRA and HSA contributions, and 2019 employer contributions to qualified retirement plans.

-Interest, penalties, and additions to tax for failure to pay began to accrue on 7/16/2020 for all federal income tax payments subject to postponement.

There was no stated relief from 2020 estimated tax underpayment penalties.

Taxpayer First Act –

Expands/Strengthens Taxpayer Rights and Reforms the IRS

List of different IRS actions here.  The IRS issued several News Releases:

  • IR-2020-206, IRS adds six more forms to list that can be signed digitally; 16 now available
  • IR-2020-188, IRS updates procedures for designating taxpayer disputes for litigation, implementing provisions of Taxpayer First Act
  • IR-2020-55, IRS announces waivers for Offer in Compromise applications
  • IR-2020-27, IRS launches Identity Theft Central
  • IR-2019-206, IRS: Recent legislation requires tax exempt organizations to e-file forms

Suspension of various IRS activities from April 1 to July 15 (installment agreement payments suspended, initiating new liens and levies suspended, etc.)

List of changes here.

COVID-related collection procedures – Taxpayers owing less than $250,000 wanting an installment agreement may not need to submit a financial statement may not have a notice of federal tax lien filed in their case.  List of changes here.

Current E-Signature and e-communication procedure –electronic signatures and e-mailing more accepted by IRS

The IRS announced that next year it will introduce a secure portal to submit Forms  2848 and 8821 and a Tax Pro Account for e-signing 3-party authorizations.  The disruption caused by the shut-down of the IRS for several months left practitioners unable to access eServices and ascertain information about their client’s accounts in addition to being unable to call the IRS to learn about the accounts.  Creating a secure electronic system that allows practitioners to have access to this information has become more critical.  Even after the IRS employees began returning to work the low staffing of the CAF units left practitioners without an effective means of using eServices.

Even as the IRS returned to work in the summer it acknowledged that taxpayers continued to need relief and that it had to temper its collection activities until it could work through the huge backlog of mail awaiting its staff as they returned to work.  It created the Taxpayer Relief Initiative:

Under the new IRS Taxpayer Relief Initiative, changes to collection procedures are as follows:

  • Payment plan extensions. “Taxpayers who qualify for a short-term payment plan option may now have up to 180 days to resolve their tax liabilities instead of 120 days,” the IRS said.
  • Less documentation required. Certain qualified individual taxpayers who owe less than $250,000 may set up installment agreements without providing a financial statement or substantiation if their monthly payment proposal is sufficient. 
  • Tax liabilities automatically added. The IRS will automatically add certain new tax balances to existing installment agreements. The agency says this new “taxpayer-friendly approach” will help some taxpayers avoid defaulting the agreement.
  • More flexibility. In cases where taxpayers are temporarily unable to meet the payment terms of an accepted Offer in Compromise, the IRS says it will be “offering additional flexibility.” 
  • Option to make changes online. Instead of having to talk to the IRS about having changes made to an existing installment agreement, qualified taxpayers with installment agreements paid by direct debit will now be able to make changes online. The IRS said, for example, that taxpayers could “propose lower monthly payment amounts and change their payment due dates.”

It allowed individuals entering into an installment agreement for 2019 taxes to have no notice of federal tax lien filed for tax liabilities up to $250,000.  It will be interesting to see what long term changes to IRS collection practices may result from the pandemic both in the way taxpayers and practitioners contact the IRS and in the decisions the IRS makes regarding collection from outstanding accounts.

Year in Review – Legislation

This review of 2020 legislation is cribbed from a presentation given by LaKesha P. Thomas, Esq., Clinic Director at Three Rivers Legal Services (FL); William Schmidt, Clinic Director at Kansas Legal Services; and Caleb Smith, Associate Professor of Clinical Law at University of Minnesota Law School.

Of course, the major legislation in 2020 focuses on taxpayer relief from the economic pain caused by the pandemic.  That legislation, in many respects follows the pattern set in two other downturns of the 21st Century.  As the year ends another round of legislation to promote relief may be happening.


Paycheck Protection Program (PPP) Loan Forgiveness

This program was established by §1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which amended IRC §1102 and §7(a)(36) of the Small Business Act (15 U.S.C. 636(a)).  The basics of this program were detailed in Notice 2020-32 -PPP Loan Expenses.  This notice summarizes the PPP loan process and is further discussed here:

  • Loan amount is up to 250% of average monthly payroll expense, up to a $10 million maximum.
  • Loan forgiveness is equal to 8 weeks of payroll, mortgage interest, rent, and utility payments.
  • No more than 25% of the amount forgiven can be attributable to non-payroll costs.
  • PPP loan forgiveness is excluded from income under the CARES Act, and
  • There is no reduction of tax attributes required, unlike §108.
  • Sole proprietors with no employees are allowed to use their 2019 Schedule C net income as a payroll expense for PPP loan purposes.  For additional discussion see here and here.

Neither section 1106(i) of the CARES Act nor any other provision of the CARES Act addressed whether deductions otherwise allowable for payments of eligible section 1106 expenses would be allowed if the loan was subsequently forgiven.

Notice 2020-32: Clarifies Matter by providing that expenses that qualify a TP for PPP loan forgiveness are non-deductible under two legal theories:

  1. §265(a)(1); §1.265-1, which denies expenses related to tax-exempt income, and
  2. Deductions are not allowed for payments for which the TP receives reimbursement.

The notice cites Manocchio v. Comm., 78 T.C. 989 (1982).

CARES Act §2204 – Adds $300 Charitable Contribution:
  • §2204 adds IRC §62(a)(22) & §62(f) to allow for a maximum $300 deduction/adjustment to income for cash charitable contributions for those who take the standard deduction.
  • If you don’t itemize your deductions on Schedule A (Form 1040), you may qualify to take a deduction for charitable contributions of up to $300. See the instructions for line 10b (1040).
  • Applies to taxable years beginning after 12/31/2019.
  • Deduction allowed for organizations that are religious, charitable, educational, scientific, or literary in purpose.
  • Contributions to donor advised funds or supporting organizations cannot be used.
  • Above-the-line charitable contribution deduction
  • The maximum deduction is $300 per return regardless of filing status.
  • It is only applicable to tax year 2020.
  • Previously, charitable contributions could only be deducted if taxpayers itemized their deductions.

Economic Impact Payments, IRC 6428

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows a refundable credit for 2020 for eligible individuals to help with financial difficulties the COVID-19 pandemic caused.  EIP summary and EIP Eligibility, and Other IRS Frequently Asked Questions:

If the TP owes for IRS back tax liabilities will the Recovery Rebate Credit (RRC) be reduced by any outstanding tax debts?

Preliminary IRS Answer: Like EIPs, RRCs will only be offset to child support

  • •IRS is working out the procedures for RRCs
  • IRM 21.6.3 is in the process of being updated in relation to RRC procedures
  • •See section 2201(d) of the CARES Act, which appears as a note to IRC section 6428, stating:

(d) Exception from Reduction or Offset.

—Any credit or refund allowed under IRC 6428 shall not be —

(1) subject to reduction or offset pursuant to section 3716 [administrative offset by the head of an executive, judicial or legislative agency] or 3720A [by any Federal agency such as for an OASDI overpayment] of title 31, USC,

“(2) subject to reduction or offset pursuant to subsection (d) [debts owed to Federal agencies], (e) [State Income Tax Debts], or (f) [unemployment compensation debts]of IRC section 6402, or

“(3) reduced or offset by other assessed Federal taxes that would otherwise be subject to levy or collection.

Any overpayment resulting from the recovery rebate creditor from related payments to the U.S. territories is not subject to reduction or offset by other assessed Federal taxes that would otherwise be subject to levy or collection.

  • In addition, such overpayments are not subject to offset for other taxes or non-tax debts owed to the Federal government or State governments.
  • As an exception to the above rule, an overpayment resulting from the recovery rebate credit is subject to the offset against overpayments of the amount of any past-due support. [Sec. 6402(c).]
  • An overpayment resulting from the recovery rebate credit may be subject to claims by the taxpayer’s creditors under applicable State law or Federal bankruptcy law.
  • Economic Impact Payment (EIP) –Adjustments –Systemic refunds issued as a result of an adjustment to EIP will post with the Bypass Indicator 4. This ensures the EIP can only be offset to child support obligations. IRM

If the same qualifying child is properly claimed by two different taxpayers in different years may result in two credits for the same child as discussed here.

Generally, individual income tax credits for a given taxable year are based on a taxpayer’s situation and actions in that taxable year, so a 2020 credit would generally be based on a taxpayer’s 2020 factors.  Due to the lack of recapture, the 2020 recovery rebates could be considered imperfectly targeted as some taxpayers will receive a larger credit than their 2020 attributes would otherwise allow.

Example: The same qualifying child properly claimed by two different taxpayers in different years, one taxpayer in 2019 and another in 2020, may generate $500 of credit to the taxpayer claiming the child in 2020 and $500 of credit to the taxpayer claiming the child in 2019 for a total of $1,000.  [This] example illustrates some targeting and incentive effects resulting from the design of the 2020 recovery rebate, which allows advance rebate amounts to be calculated on prior-year return information without full recapture.  See also: EIP Information Center–Topic J –Reconciling on Your 2020 Tax Return -You will not be required to pay back the $500 even if the child’s other parent claims $500 for the same child on his or her 2020 tax return.

What About the Parent who also Properly Claims the Child on a 2020 Return?
  • The 2020 transcript will reflect the payment of an EIP and thus his/her claim for a RRC on the 2020 Form 1040 will likely be denied.
  • If the refund is disallowed, file an appeal to the disallowance –Argue:
  • the CARES Act specifically designates each eligible taxpayer as entitled to $1200 [IRC 6428(a), (d)]
  • IRM Economic Impact Payments -Manual Adjustments.

No manual adjustments to the Economic Impact Payment are allowed at this time. This section will be updated once approved.

•Reminder: Taxpayers who received less payment than entitled to in 2020 can claim the difference, as the recovery rebate credit, on their 2020 tax return. See also IRM

Parent’s Other Option:

Initiate a Civil Matter in Small Claims Court

Small Claims Action -Basic Steps:

  1. File small claims action
  2. Service by personal service on defendant
  3. Pretrial conference
  4. Mediation (possible)
  5. Trial
  6. Judgment or Dismissal
  7. If judgment, defendant must complete fact information sheet (financial affidavit more or less)
  8. Judgment creditor may use lawful collection methods (garnishment, levy, or attachment)
  9. If garnishment, ex parte motion for continuing writ of garnishment
  10. Facially sufficient? Court grants writ of garnishment and its’s sent to employer or bank
  11. Employer or bank withholds pay/money pending court order
  12. Debtor must be served with claim of exemption and assert any exemptions expeditiously
  13. If debtor files claim of exemption, hearing on exemptions
  14. If successful, garnishment limited or stopped, funds unfrozen by bank or employer and remitted to debtor
  15. If not, final judgment of garnishment entered; garnishment occurs
Dependent Now An Adult

Info. Letters, IRS INFO 2020-0015 (Sept. 25, 2020) Generally, an individual’s eligibility for an EIP depends on the information reported on the individual’s 2019 tax return, or the 2018 return if he or she did not file a 2019 return. Therefore, if a taxpayer claimed an individual as a dependent for 2019, the individual dependent will not qualify for an EIP. If that individual no longer qualifies as another taxpayer’s dependent for the 2020 tax year, the individual must file a return for 2020 and claim the credit, if otherwise eligible. Taxpayer was claimed on another return. Our records show that for tax year YYYY you were claimed as a dependent on another tax return. Dependents are not eligible for the Economic Impact Payment (EIP). You should refer to the Recovery Rebate Credit on the 2020 tax return to determine eligibility for any amounts not received under the EIP. IRM

ID Theft of EIP -The IRS Says Taxpayer Received the Stimulus Check, but Taxpayer Didn’t
  • If you are claiming ID theft of your Economic Impact Payment (EIP), file Form 14039 with ‘EIP’ or ‘Stolen EIP’ notated on the topof the form. The IRS will complete EIP refund trace process.
  • A low income taxpayer represented posted that the ID Theft Unit rep said that the ID Theft Unit doesn’t currently have authority to adjust accounts to issue the EIP after determining that someone claimed as a dependent was the victim of ID theft, but that this may change.
  • IRM -No manual adjustments to the Economic Impact Payment are allowed at this time. This section will be updated once approved.
  • See also IRM and IRM
How Do I Request a Payment Trace to Track My EIP
  • To start a Payment trace: Call the IRS at 800-919-9835 or Mail or fax a completed Form 3911, Write “EIP” (or Stolen EIP) on the top of the form; Enter “2020” as the Tax Period.
  • If you were expecting a check, didn’t get one and the IRS determines the check was not cashed, the IRS will send you a replacement check.
  • If the refund check was cashed, the Bureau of the Fiscal Service (BFS), part of the U.S. Treasury Department, will send you a claim package that includes a copy of the cashed check. Follow the instructions. BFS will review your claim and the signature on the canceled check before determining whether they can issue you a replacement check.
  • ID Theft –Requesting an Identity Protection Pin (IP-PIN)
  • The IPPIN indicator doesn’t come on until the ID theft complaint is processed.
  • If you’re a confirmed identity theft victim, we will mail you an IP PIN on a CP01A Notice if your case is resolved prior to the start of the next filing season.
  • Opt-In, Online Get an IP PIN Service is unavailable until mid-January 2021.
  • Starting in 2021, you may voluntarily opt into the IP PIN program as a proactive way to protect yourself from tax-related identity theft.
  • No Computer Access: If your income is $72,000 or less and you can’t use the online tool, file Form 15227, Application for an Identity Protection Personal Identification Number (Available mid-January 2021).
Injured Spouse Allocation/Stimulus Payment
  • Automatic Catch-Up Stimulus PaymentsIRS News Release IR-2020-192, August 25, 2020.  We have discussed this issue on many occasions.  View our most recent post here.
  • IRM MFJ accounts that included an Injured Spouse claim with the original return will reflect the transactions on both the primary and secondary tax year 2020 modules. Both taxpayers will be credited with half of the total EIP. See also IRM, Indented paragraph.
EIP and Domestic Violence
  • A roadmap to delivering Economic Impact Payments/Rebate Recovery Credit to Victims of Domestic Violence is here.   
  • IRC §6428(e)(2) provides that “with respect to a joint return, half of such refund or credit shall be treated as having been made or allowed to each individual filing such return,” thus creating an individual property interestof each joint filer in his or her share of the credit.
  • The CARES Act contemplates overpayments of the EIP. IRC §6428(e)(1) provides: “The amount of credit which would (but for this paragraph) be allowable under this section shall be reduced (but not below zero) by the aggregate refunds and credits made or allowed to the taxpayer under subsection (f).” The IRS can utilize erroneous refund procedures under IRC §7405 to recoup the refund from the other spouse, if it desires.
  • The taxpayer should be able to file an original MFS return (or Head of Household return, if eligible) and receive her or his own EIP or RRC. In some instances, DVAA victims may already have filed superseding returns claiming that status.
  • Allow the DVAA victim to submit a simple affidavit, modelled after the Form 8857, Part II, questions 8 and 10, and Part V