Taxpayer Wins Merits Challenge in CDP Case

There are several CLE programs happening if you are looking for training.  The ABA Tax Section has started the online programing based on the sessions that would have been held at its May meeting.  You can see the upcoming programming and sign up for that training here

The Annual NYU Tax Controversy Forum starts this afternoon and features basically everyone in the top brass at the IRS whose work involves tax controversy, aka procedure.  You can sign up for it here

On Monday, June 22 at 1:00 ET the Pro Bono and Tax Clinics committee of the ABA is putting on another one of its COVID-19 seminars.  This one is entitled EIPs, Tax Returns, and Judicial Orders in the context of Domestic Violence during the COVID-19 Era.  It is cosponsored with the ABA’s Commission on Domestic & Sexual Violence.  It’s free for members and you can register for it here.  If you read the outstanding post by Nancy Rossner, here, you know it’s a hot topic.  Nancy is on the panel along with several other experts.

We have blogged on several occasions about the Tax Court’s narrow view of the circumstances in which it can engage in merits litigation in the Collection Due Process context.  In Amanda Iris Gluck Irrevocable Trust v. Commissioner, 154 T.C. No. 11 (2020) the Tax Court allows merits litigation in a situation in which it would not allow the litigation of the item in a deficiency case.  The taxpayer does not win everything sought in the litigation but does break new ground.

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The IRS made computation adjustments to the Trust’s returns for 2012 through 2015 based on IRC 6231(a)(6) eliminating the NOL the Trust claimed for 2012 and disallowing the claimed carryforwards for 2013-2015, resulting in balance due amounts for those years.  Pursuant to the statute, the IRS immediately assessed the resulting tax without issuing a statutory notice of deficiency.  After the assessment, the IRS sent out collection notices including the notice of intent to levy.  The trust requested a Collection Due Process (CDP) hearing for 2012 through 2016 which led to the Tax Court case.  

The Tax Court found that it lacked jurisdiction for the 2012 year because no collection action existed for that year.  Although that year marked the root of the adjustments, the adjustments did not result in any liability on which the CDP request could be based.  For the 2013 year the payment of the liability mooted the CDP hearing.  This left 2014-15 where outstanding liabilities remained.  The IRS moved for summary judgment on those years, but the Court denies the motion, finding that for those years the taxpayers can challenge the merits of the underlying liability and the computational adjustment that resulted in the change to the 2012 net operating loss.

A partnership called Promote had some allocated gain it failed to report and it also, along with its partners, failed to file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, with respect to the gain.  On its 2012 return the Trust did not report its distributive share of the gain from the partnership and did not notify the IRS of the apparent inconsistency, which allowed the IRS to make a computation adjustment without giving the Trust a pre-assessment challenge.

The Settlement Officer in Appeals determined that the Trust, although it did not receive a statutory notice of deficiency, had a prior opportunity because it could have paid the tax and filed a claim for refund.  In the Tax Court case the IRS wisely conceded the incorrectness of the SO’s determination on this point.

The Court holds that since the Trust did not have a prior opportunity to contest the liability without full payment and a claim for refund, it did not have a prior opportunity within the meaning of the statute.  The Court does not state that the failure to receive a statutory notice of deficiency, by itself, is a basis for CDP merits litigation.

The Court states:

In CDP cases involving assessable penalties (viz., penalties not subject to deficiency procedures), we have jurisdiction to review a taxpayer’s underlying liability for the penalty provided that he raised during the CDP hearing a proper challenge thereto. See Yari v. Commissioner, 143 T.C. 157, 162 (2014) (ruling that section 6330(d)(1) “expanded the Court’s review of collection actions * * * where the underlying tax liability consists of penalties not reviewable in a deficiency action”), aff’d, 669 F. App’x 489 (9th Cir. 2016); Callahan v. Commissioner, 130 T.C. 44, 49 (2008). Applying the same reasoning we have held that we may, in a CDP case, review underlying liabilities arising from adjustments to partnership items of TEFRA partnerships, even though such items would not have been subject to our review in a deficiency setting. See McNeill v. Commissioner, 148 T.C. 481, 489 (2017).

It does not always work that assessable penalty cases result in the ability to challenge the merits, even if the taxpayer raises the issue during the CDP process. Lavar Taylor made three failed attempts in the circuit courts to challenge the merits of assessable penalties in CDP cases discussed here, here and here. Because of the Court’s view on prior opportunity, no simple explanation seems to work.

In addition to seeking to the SO’s determination on the prior opportunity issue, the IRS also argued before the court the failure of the Trust to properly raise 2014 and 2015 before the SO. In CDP cases the failure to raise an issue at the administrative stage can preclude the taxpayer from raising it once in the Tax Court. The IRS argued that the Trust focused its attention on 2012; however, the Tax Court rejects this argument stating:

Although petitioner might have articulated its position a bit more clearly, its basic contention was not that it had a credit from 2012 sufficient to eliminate its liabilities for subsequent years. Rather, it was contending that the IRS erred in disallowing the NOL carryforward deductions that it had claimed for 2014 and 2015. The situation is no different in principle from one in which the IRS has disallowed (say) business expense deductions for the CDP year. In both scenarios the taxpayer is challenging his underlying tax liability for the CDP year by disputing the disallowance of deductions he had claimed for that year.

Because the source of the problem was the disallowance of NOLs in 2012, it made sense for the Trust to argue about what happened in 2012. The Trust could not have effectively argued about 2014 and 2015 without addressing the year in which the NOLs were disallowed. Even though the Trust could have more clearly laid out its argument, it did enough to preserve the argument for the years impacted by the disallowance of the NOL.

The ruling here does not mean the Trust wins but merely that it will get its chance to show that the computational adjustment made in 2012 did not correctly adjust that return. Because the Code allows a no pre-assessment contest of this type of adjustment, the Tax Court would not routinely have the opportunity to review an adjustment of this type. Here, it has the opportunity to exercise its jurisdiction over something it would not otherwise see because of the CDP merits process.

Restitution Based Assessment Upheld

In Engle v. Commissioner, T.C. Memo 2020-69 the Tax Court faced question of timing regarding the restitution ordered with respect to Mr. Engle.  We have written before about restitution based assessments (RBAs) including a post last month that collected earlier posts on the subject.   RBAs arrived on the scene a decade ago as part of the Firearms Excise Tax Improvement Act of 2010 (FETIA).  The Court indicates that the government made some concessions on interest and penalties based on its decision in Klein v. Commissioner, 149 T.C. 341 (2017) and, probably, on the IRS notice on this subject discussed in this post.

Having cleared out the interest and penalty issues, the parties were able to submit the case fully stipulated since the dispute in the case involved a purely legal issue.  Petitioner brought a CDP case because the IRS filed a notice of federal tax lien.  Since the assessment occurred without the taxpayer having the opportunity to contest the liability, he is able to obtain a hearing in the Tax Court on the merits of his claim. 

In 2004 Mr. Engle pled guilty to tax evasion under IRC 7201 for the year 1998.  The information brought by the U.S. Attorney’s office alleged that he evaded his taxes for 16 years between 1984 and 2002.  I must say that at this point in reading the opinion I was totally confused, because RBA only applies to restitution orders issued after the passage of FETIA, and it was not passed until six years after his guilty plea.  So, I read on hoping for enlightenment and I found it.

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For reasons not explained in the opinion it took two years before the sentencing hearing.  Maybe this should not surprise me having seen lots of news lately about the amount of time between the guilty plea of General Flynn and his sentencing but still the sentencing in most tax cases moves much quicker than this.  When the court sentenced Mr. Engle, it gave him four years of probation, including 18 months of home detention.  The court did not make a finding regarding the exact amount of tax loss the case involved.  It ordered that the exact amount of restitution would be determined by the IRS.  It ordered him to pay the IRS $25,000 immediately and $100,000 within 90 days.

The Government appealed the sentencing and on January 13, 2010, the 4th Circuit vacated the entire sentence and remanded the case for resentencing stating:

Under these circumstances, we cannot determine whether the sentence is reasonable without a fuller explanation of the reasoning behind the district court’s view that a term of imprisonment as recommended by the Guidelines was not warranted and why restitution alone would provide adequate deterrence in this case.  Because the district court’s explanation of its decision to vary significantly from the Guidelines’ sentencing recommendation is insufficient to permit meaningful appellate review, we must vacate the sentence and remand for new sentencing further proceedings.

The 4th Circuit also pointed to Mr. Engle’s failure to make any significant payment on his taxes during the four-year period before he was sentenced and advised the district court to reconsider the issue of restitution should it again conclude that restitution was not required.

In May, 2011 the district court held a hearing to resentence Mr. Engle.  Out of an abundance of caution to avoid getting reversed again, the court sentenced him to 60 months of incarceration with 14 months of supervised release thereafter.  While the original sentence seems out of line on the light side, this one seems to go a bit overboard but I don’t know all of the facts.  It also ordered him to pay restitution in the amount of $620,549.  No one appealed this amended judgment.

Now, a restitution order after the passage of FETIA exists, and the IRS made a RBA for most of the years between 1984 and 2001 totaling the exact amount of the restitution order.  In 2016 the IRS filed a notice of federal tax lien, which led to this CDP case in Tax Court.

In order to avoid the RBA Mr. Engle argued that the 2008 restitution order was not vacated or voided by the 4th Circuit’s decision, and the circuit court decision focused on the amount of time he was sentenced and not restitution.  Therefore, the IRS should not have made an RBA because the 2008 restitution order predates the passage of FETIA.  The Tax Court looks at the 4th Circuit’s decision and decides that it included a reversal of the restitution order as well as the sentencing order.  It pointed to the language in a footnote of the opinion discussed above in support of its conclusion.  Therefore, it concluded that the IRS appropriately made RBA based on the 2011 order.  The outcome here is not surprising even if the facts show a surprisingly slow imposition of sentencing.

Probably not too many cases still exist with this fact pattern. where the original restitution order predated FETIA and gets overturned on appeal and reentered after the passage of FETIA.  Here, the government succeeded in overturning the original order.  Much more common would be the taxpayer appealing the original order.  It’s possible a taxpayer could win their appeal only to have a new restitution order entered after the passage of FETIA, allowing the IRS to make an RBA.  Of course, the making of the RBA works well for the IRS, but the IRS can still use its normal assessment means if it cannot make an RBA and regularly does so if the restitution order does not equal the amount the IRS believes the taxpayer owes.

We are still relatively early in the life of RBAs.  Many original fact patterns will emerge.  RBAs allow the IRS to assess and start collecting on a liability much earlier than it could otherwise do.  The ability to collect early could make a significant difference in the collection outcome or could make no difference at all.  I have not seen a study on the effectiveness of RBAs in bringing into the treasury more money than the IRS collected under the system that existed prior to RBAs.  Such a study would allow us to really gage the effectiveness of this relatively new assessment tool.

Premature Assessments

In this time of pandemic, both the IRS and the Tax Court have curtailed their access to mail. While this may be a relief to some taxpayers, it can have grave consequences for others. Where a taxpayer mails a petition to the Tax Court and the IRS doesn’t notate the taxpayer’s account, the tax may automatically assess. The result is a premature assessment. The IRS may start collecting the tax it perceives to be assessed, including offsetting refunds the taxpayer may especially need now. Up until I read recent postings on the ABA’s Pro Bono & Tax Clinics listserv about this issue, I had not considered this consequence of the Tax Court’s closing. Of course, this is not novel to this virus, but the virus reminds us of the consequences of premature assessment. I write to explain what happens to cause premature assessments and how to resolve them.

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In tax procedure 101 you learn that defaulting on a notice of deficiency serves as one of the ways the IRS can make an assessment against a taxpayer. Most people who receive a notice of deficiency do not file a Tax Court petition, whether because they default on the notice, don’t understand the notice, or may not have received the notice. Only about 3% of the taxpayers to whom the IRS sends the notice of deficiency petition the Tax Court. I do not know why the percentage hovers at such a low number, but the default rate on the notice has existed at a high rate for many years.

Making an assessment after the default on the notice requires careful timing at the IRS because of the statute of limitations and because of the injunction against assessment if the taxpayer files a Tax Court petition.  On the one hand, the IRS does not want to wait too long after default, because the suspension of the statute of limitations on assessment triggered by the sending of the notice of deficiency comes to an end 60 days after the 90 period within which the taxpayer must petition the Tax Court.  To explain it another way, the IRS generally has three years from the due date of a taxpayer’s return within which it must make an additional assessment.  If the IRS sends a notice of deficiency, that three-year period gets suspended for the 90 period during which the taxpayer can petition the Tax Court plus an additional 60 days pursuant to IRC 6213 and 6503.  Sometimes, the IRS sends the notice of deficiency close to the end of the three-year statute of limitations on assessment, so it must stand ready to make an assessment quickly after the 90 period ends.

On the other hand, IRC 6213 enjoins the IRS from making an assessment during the 90 period and during the time a Tax Court case exists.  So, for the 97% of cases in which the taxpayer does not file a petition with the Tax Court, the IRS must wait until the 90 period runs until it makes the assessment.  On the 91st day, the IRS does not receive a formal notification from the Tax Court that the taxpayer did not file a petition.  The Tax Court could not send such a notification even if it wanted to do so because timely petitions need only be timely mailed.  The Tax Court may not know for several days after the 90th day whether a taxpayer has filed a petition because of the mail times involved.

The Tax Court does notify IRS Chief Counsel’s office when it receives a new petition.  IRS Chief Counsel’s office almost immediately thereafter notifies the IRS of the existence of a petition and the IRS, upon the receipt of this notice, puts an indicator on the taxpayer’s file not to assess the tax until the end of the Tax Court case.  To accommodate the lag in time for petitions to arrive at the Tax Court, to move from the Tax Court to Chief Counsel’s office and from Chief Counsel’s office to the IRS office that inputs the code stopping the assessment, the IRS must build in an additional period of time beyond 90 days before it makes an assessment on the 97% of the cases that do not respond to the notice.  If it chooses a period that is too long, it begins to sweat about making a timely assessment.  If it chooses a period that’s short, it makes an assessment prematurely in violation of the injunction against assessments during the 90-day period and the pendency of the Tax Court case. 

So, like Goldilocks, the IRS must pick a period that’s just right for the vast majority of the cases.  In the last couple of decades, the IRS has sent out about one million notice of deficiency a year and about 30,000 people have petitioned the Tax Court year.  Here are some statistics on premature assessments from the years 2012-2014:

This system works well when the Tax Court clerk’s office and the IRS offices handle cases efficiently.  It can break down when inefficiencies occur.  During an ordinary year, the most inefficient time occurs at year’s end when many employees at both the Court and the IRS take leave for the holidays and also take leave because of the end of the federal leave year which sometimes extends into the second week of January.  As a result, my experience of many years was that most premature assessments occurred during this period because of the time frame set for holding off on the assessment after the end of the 90 days and the absence of enough employees to cause the machinery to run smoothly.

Several years ago a group of Taxpayer Advocate Service employees and Appeals employees studied this. The group found there were several reasons for premature assessments:

  • Non-compliance with established procedures
  • Lack of understanding of premature assessments
  • Assessments made early in the default assessment period before a case appears on a docket list
  • Late docket lists due to unforeseen circumstances

The group also made several suggestions for fixing the problem:

The closure of the Tax Court clerk’s office for months adds a whole new dimension to the problem.  Taxpayers whose petitions arrived in the Tax Court starting about March 9 did not have their petition processed until a couple of weeks ago.  Taxpayers whose petitions would have arrived at the Tax Court after the Clerk’s office closed still await processing.  Obviously, though due to no fault of the Tax Court or the IRS, this blows a hole in the system.  The IRS would have no idea who has filed a petition and, if it has its normal filters in operation, will have made assessments against many who may have petitioned.

What should petitioners do to resolve a problem of a premature assessment?  Keeping in mind that 70% of the people who petition the Tax Court do so pro se, the problem here really involves getting out information to people rather than the actual fix.  Chief Counsel attorneys do a great job of fixing premature assessments.  They have a process for notifying the IRS and causing the IRS to reverse the assessment, refund any money collected and put the case in the posture that should have existed prior to the premature assessment.  Representatives should know or can easily find out how to pull the correct levers in order to reach the right attorney in Chief Counsel’s office and fix the premature assessment.

Pro se taxpayers will need help.  Maybe that help can come in part from the Court and postings on its website.  Maybe that help can come from Chief Counsel attorneys affirmatively looking for premature assessments rather than waiting for the taxpayer to raise their hand.  Maybe that help can come from clinics telling their clients why a premature assessment was made and seeking to reverse the process.  Everyone in the system wants the system to work.  If we find a way to identify the people against whom a premature assessment was made (and this could be someone who received a notice of deficiency in mid-January who has not yet filed a Tax Court petition) then the fix is the easy part.

Lost or Destroyed EIP Debit Card

In making the Economic Impact Payments (EIP) the IRS has directly deposited some payments into taxpayers’ bank accounts, has sent checks to some taxpayers and sent debit cards to other taxpayers.  While undoubtedly some problems have occurred in the transmission of direct deposits and checks, the payment method receiving the greatest attention is the debit card payment method.  According to press reports, here and here, some individuals receiving those cards mistook the cards for some type of scam and destroyed the cards as they might destroy other unwanted correspondence that arrives daily.

After destroying the cards, some of these individuals came to understand that perhaps they destroyed the stimulus payment from the IRS.  Some individuals may still not realize what they have done.

The IRS has now published a phone number for individuals who lost or destroyed their debt card.  Individuals in this situation should call 800-240-8100 and then select option 2. The IRS has indicated that the private vendor issuing the cards will waive the fee for the first reissuance of a card and will reverse any earlier-charged initial reissuance fees. See Q48 of the IRS FAQ here.

When the only mail you receive from the US Postal Service is junk mail, it’s easy to understand why individuals who were not expecting to receive the EIP via debt card should make this mistake.  I hope that contacting the IRS at this number will result in recovery of the EIP without too much difficulty.  We welcome comments from anyone who has experience with the process.

Update (06/06/2020): As pointed out below in the comments by Bob Kamman, the IRS has now released a new Q46 of the FAQs. The answer indicates that the amount limit on making ACH transfers from an EIP card to a bank account has been raised to $2,500 (the previous limit was $1,000).

What Information Should the Tax Court Make Available Electronically to Non-Parties

We have had a few prior posts, here and here, commenting on the Tax Court’s very limited electronic access to information.  Since the closing of the Tax Court clerk’s office in March, the ability to access documents at the Tax Court was zero until June 1.  On Friday, May 29, the Tax Court issued a press release alerting interested individuals that obtaining copies was once again possible.  It not only reopened the ability to obtain copies but it put a cap on the cost per document at $3.00.  This is a significant and welcome change in the price structure of documents order from the Court.  Additionally, the Court will send the document via email, making receipt of the document much quicker.  Both are excellent changes but the most important part of the announcement was the ability of the public once again to see what’s happening in cases.  We posted on May 27 that the clerk’s office seemed to be moving cases again.  I hope that requests for documents will not overwhelm that office as it digs out from the lengthy closure. 

Last fall one of my clinic students, Maggie Goff, asked if I would supervise a writing project for her for her January term project.  I agreed and she asked if I had any ideas.  I did.  There is litigation occurring regarding PACER (Public Access to Court’s Electronic Records) and I was curious how that litigation might impact the Tax Court system of making documents electronically available though I knew that the Tax Court was not part of the PACER system.  If you are interested, there are a couple of articles you can read, here and  here, about the PACER litigation which is pending in the Federal Circuit.

Maggie finished her research and did a great job.  I suggested that she turn it into a paper and worked with her to build out her research.  She and I published an article in Tax Notes on May 4 entitled “Nonparty Remote Electronic Access to Tax Court Records.”  The article suggests that the Tax Court make its records more electronically accessible while still protecting the privacy of individuals in an appropriate manner.  We were very fortunate that Judge Buch gave an excellent presentation on compliance with the Tax Court rule regarding redaction of personal information at the ABA Tax Section 2020 mid-year meeting, shared with us the slides he produced and allowed us to publish them.  So, in addition to the research Maggie performed, the article also contains Judge Buch’s research showing the current state of compliance (or non-compliance) with the Court’s redaction rules.

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You can read the article to come to a better understanding of what’s happening in the PACER litigation and how that impacts the Tax Court – not much at all.  You can also read the article to learn about the reasons the Tax Court justifies its extremely limited availability of electronic documents, including not publishing documents of the entities litigating before the Tax Court who would not seem to need protection of personal information (to the extent not protected by sealing orders.)   As mentioned above, you can read the article to see Judge Buch’s findings regarding compliance with Tax Court Rule 27(a) regarding redaction.  He created easy to follow charts.

The suggestions we had regarding what the Court might do to make itself more like the other courts that handle federal tax matters — the district courts, the bankruptcy courts and the Court of Federal Claims — centered on leaving off attachments and making electronically available the documents filed by the parties.  While the failure to comply with Rule 27(a) occurs on documents filed with the Court as well as in attachments, the most harmful personal information generally exists in the attachments and not in the pleadings, motions, briefs, etc. filed by the parties. 

In trying to strike a balance between protecting the privacy interest of the parties, including the almost 70% pro se litigants in the Tax Court, with the public’s ability to know what happens in Tax Court cases, we suggested that making public a group of documents that generally do not contain taxpayers identifying numbers or account information strikes the right balance.  We also discussed policy reasons for making the information public and for having electronic access across the tax litigation judicial forums that, if not identical, is at least not so starkly different.  Why should someone’s information in the federal system be so different depending on the federal court in which they litigate?  The points we made regarding policy mirrored to some extent the points made by federal judges who filed an amicus brief in the PACER litigation.

Similar to the situation that existed before the IRS made public letter rulings public or before the Tax Court made summary opinions and orders public, Rule 27(b) appears to give the IRS Office of Chief Counsel an informational advantage over private citizens.  While the specific attorney working in Chief Counsel’s office only has access to the full electronic docket in cases in which they have entered an appearance, as a whole, Chief Counsel’s office can see everything produced by the Tax Court, yet the bar and the citizens cannot.  As an institutional litigant, the IRS collectively benefits from its position as a repeat player. While it may

be difficult to quantify, there is an advantage to having more information about all the decisions being made by the IRS or the Tax Court. Making more documents electronically available has parallels with making private letter rulings and summary opinions publicly available: it evens out the system for everyone.  Very few people would argue that the system of hiding public letter ruling worked better than the current system of making them public, even though some public letter rulings contain information that makes the applicant transparent.

Wealth should not control access to justice.  Pro se litigants and low income taxpayer clinics lack the resources to go to DC and sit in the Tax Court’s clerk’s office to look at documents and generally lack the ability to pay $.50 per page to obtain briefs and other documents that might assist in their cases.  Big firms do not face the financial barriers and the IRS has access to everything as an institutional player.  The new cost structure announced in the press release discussed above will go a long way toward breaking down the barrier created by wealth and, because of email delivery, helps to break down a timing barrier as well.

In the PACER litigation, the federal judges argued that allowing nonparties to access court documents remotely actually helps pro se litigants.  Lawyers and judges know that the most effective way to write a brief is to work from an example. The judges wrote that “access to someone else’s successful petition is more valuable than the order or opinion granting it.” If the Tax Court allowed pro se petitioners to view filings remotely in cases in which they are not parties, these petitioners who are doing their best to produce a petition in the dark would be better equipped to follow Tax Court rules and make relevant arguments.  Of course, not every pro se petitioner would take time to avail themselves of the wealth of resources available through an electronic system, but enough might to so to make a difference both for themselves and for the system.

It does not do so as a routine matter but it does happen that the government takes inconsistent positions.  Without the ability to easily see the briefs the government files in other similar cases, it is essentially impossible for litigants to spot such inconsistencies and bring them to the Court’s attention.  We have written before about inconsistent arguments the government has taken in the innocent spouse area regarding jurisdiction here and here.  Other examples of inconsistent positions exist, such as the Flora rule, where the government argues one position to the Supreme Court in an attempt to benefit itself before shifting 180 degrees to argue against taxpayers’ ability to get into court.  Allowing all parties to see the publicly filed briefs in other cases would cause parties to benefit by finding situations of inconsistency as well as situations where a similarly situated taxpayer makes good arguments.

With respect to specific documents, here is a chart of our recommendations:

  ProtectMake Electronically Available
imperfect petitions;all court orders and opinions;
new petition signature page;petition (minus phone/ address information and attachments);
fee waiver requests;entry of appearance;
statement of TIN;answer (minus attachments);
attachments to the petition;motions (minus attachments);
new signature page of notice of intervention;notice of trial (all court- generated notices);
attachments to the answer;standing pretrial order;
substitution of counsel;pretrial memorandum;
documents attached to motions and briefs;briefs; and
trial exhibits and stipulations; andnotice of appeal.
ownership declaration statement. 

Details about the reasoning of many of the decisions exist in the article. 

The article also discusses the Tax Court’s fee structure for making copies and fees it might charge for electronic access.  Currently, the Court makes available for free the documents it does allow the public to see.  Whether it would need to go to a PACER like system of charging per page for electronic access or find another way to pay for the suggestions we made regarding access was beyond the scope of our article.  We do explain the history behind the current $.50 per page charge which has been in place for decades.  As mentioned above, the changes announced in the May 29 press release provide a significant improvement to the prior fee structure.

The Congressional directive to the Tax Court regarding how and what the Tax Court makes public have not been changed in decades.  The Tax Court operates outside the PACER system and the Administrative Office of the Courts.  In selecting its current policy within the relatively unrestrictive language of the controlling legislation, it looked prominently to Social Security cases and administrative law proceedings rather than to an Article I court like the Veteran’s Court or other courts litigating federal tax matters.  With so many pro se litigants, the Tax Court is right to want to protect their privacy to the extent it can while still making documents reasonable available to the public.  We suggest making more documents publicly available but keeping off of the electronically accessible list documents with a high probability of containing sensitive personal information of individual petitioners.  We find inexplicable the decision to withhold electronic access to the information regarding petitioners who are entities.

Uplifting Letter from My State Bar

When I moved to Harvard a few years ago, I waived into the Massachusetts Bar.  This is the third bar to which I have belonged, having started in the Virginia Bar in 1977 where I remain a member though inactive.  When I joined the Villanova faculty, I became a member of the Pennsylvania Bar.  To join that bar I had to take the ethics exam.  That exam which is now standard for every state did not exist in the 1970s.  My effort to convince the Pennsylvania Bar that I should be grandfathered into not having to take that test probably still causes them to chuckle.  I studied for that exam because I did not want the first thing my new employer knew about me was my failure to pass the ethics exam.  When I took the exam in a room filled with 25 year olds, I saw them looking at me as someone who must have done something really bad to have to take the ethics exam at my age.  Fortunately, even though it had been 30 years since my previous multiple choice standardized test, I did manage to pass.

If only I moved to Kentucky and joined the bar of that state, I could claim the distinction of belonging to the state bar of every Commonwealth.  It will not happen.

The Massachusetts bar has very favorably impressed me.  It has much tradition of which it is proud, but so do Virginia and Pennsylvania.  Massachusetts also displays a lot of common sense and good communication skills.  I had the opportunity to sit on a jury for a criminal trial in Boston last December.  The judge and the other judicial officers did a great job of running the trial, using the jury’s time wisely and protecting the interests of the parties.

Things have not been going so well lately.  Times are difficult for courts as well as for everyone else.  A few weeks ago the judges who head the Massachusetts courts took the time to write and send out the letter below.  It does a good job of informing members of the bar, inspiring them and thanking them.  I have not seen this type of letter from a court to its members and thought it was worth sharing.  Thanks to Rochelle Hodes and Les Book for inspiring me to write this short post sharing the letter.  Perhaps we can all work together to create a better tax world and, in turn, a better spinning wheel on which to spin out justice.

Stalled Settlement in Innocent Spouse Case – Why Jurisdiction Matters

We have written many posts on jurisdictional issues in Tax Court and other courts.  I will not link to them here but wanted to write a short post demonstrating one of the ways jurisdiction matters.  Thanks to Carl Smith for bringing this case to my attention.

In the case of Carandang v. Commissioner, Dk. No. 19224-19S the petitioner filed a petition seeking innocent spouse relief.  She reached an agreement with the IRS in the Tax Court case conceding the case and the parties filed a joint proposed stipulated decision.  Having reached an agreement in the case, the parties filed with the Tax Court a Joint Proposed Stipulated Decision on May 18, 2020.  You might expect that where the parties have reached an agreement in a case the Tax Court would sign and file the agreement.

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Instead of accepting the agreement, the Tax Court issued a show cause order on May 19, 2020 asking the parties to explain why the Court has jurisdiction.  The lawyers reviewing the case for the Chief Judge, who would sign the stipulated decision of a case not on an active calendar, found that the petition appears to have been filed a day late.  On May 20, 2020, the IRS responded and provided an explanation of the Court’s basis for jurisdiction.  On May 21, 2020, the Tax Court dismissed its order to show cause since the IRS now admits that it failed to send the notice of determination by certified mail. On May 22, the Tax Court entered the Stipulated Decision in the case it had first decline to enter.  Very interesting to see docket entries five days in a row and the resolution of an issue so quickly.  I don’t know if this efficiency results from the pandemic or just happenstance.

The Tax Court takes the position, upheld by at least three circuit courts the tax clinic at Harvard has visited, that it has jurisdiction of innocent spouse cases only when the petitioner timely files a Tax Court petition.  On the face of this case, it appears that the petitioner may have filed the petition late.  The Tax Court correctly seeks to make itself certain that it has jurisdiction over the case prior to signing off on the document that will resolve the case.  While correct, the raising of the jurisdictional issue by the Court at this stage has the likely effect of dismissing the Tax Court case and moving the parties back into an administrative posture. If the outcome were favorable to the taxpayer in a situation like this, the IRS will almost certainly give the taxpayer the benefit of whatever agreement was reached in the case.  Ultimately, the taxpayer and the IRS will end up in the same place although the taxpayer will not have the benefit of a court order approving the agreement.  Both the IRS and the Court will spend time and effort finding evidence of the date of mailing of the notice and reviewing the notice before the Court finds the answer to the question of jurisdiction.

Based on reviewing court orders for several years and watching the dismissal of cases, Carl Smith estimates that once or twice each month it happens that a case reaches the stage of settlement and the court raises a jurisdictional issue not previously seen by Chief Counsel’s office or the court.  Because the IRS will almost always honor these settlements administratively, the taxpayer receives the benefit of having an attorney for the government work on their case in order to reach a settlement.  Perhaps, I should accept that as a good thing and move on; however, it seems like a waste of resources to stop the judicial process and restart the administrative one in cases where the outcome is not a full concession.  If the timing of the petition were not considered jurisdictional, Ms. Carandang and the IRS would have the stipulated decision signed by the court and would move on to other affairs of life without having to do a two-step to get there.  This provides another policy reason for Congress not to treat the time period as jurisdictional and a reason the Supreme Court has made the determination that time periods for filing in court are only jurisdictional when Congress makes a clear expression it intends the time period to be jurisdictional.

For a case stopped by this process, look at the 2018 order to show cause and the dismissal order in Williams, Docket No.  24954-17.  In that case, of course, we can’t see a copy of the proposed decision because the court never entered it.  The parties simply had to return to the administrative process to work out the details of the case they had settled through the Tax Court process without knowing the court lacked jurisdiction over the case until they had resolved it.

Special Note about Clerk’s Office at the Tax Court

On May 21, 2020 the Tax Clinic at Harvard received notice that the Tax Court had processed a petition dated March 16, 2020.  Earlier indications were that the Court had stopped processing cases about March 9.  The receipt of this notice indicates that someone is again working in the clerk’s office.  Because of the date of the petition, it would have arrived at the Tax Court before the Court closed the clerk’s office.  Unclear if the action on this case just means that a small group is working in the clerk’s office to clean up the 10 days or so of cases received but not processed before the closure of the clerk’s office or if this signals the clerk’s office is about to reopen and the suspension of time to file a petition under Guralnik is about to come to an end.

Additional Resource Regarding the Jurisdictional Issue

If you want more background on the general issue of jurisdiction and the Tax Court just type jurisdiction into the search box on the blog or read the excellent law review article by Bryan Camp “New Thinking About Jurisdictional Time Periods in the Tax Code,” 77 Tax Lawyer 1 (2019).

EIP CLE from ABA Tax Section’s Pro Bono and Tax Clinics Committee

The Pro Bono and Tax Clinics Committee of the ABA Tax Section will host another program in its series of programs to help practitioners understand the tax issues enmeshed in the CARES Act.  Scheduled for Thursday, May 28 from 1:00 to 2:30 PM ET, , this program, “Delivering Economic Impact Payments: More Challenges and Quandaries in the COVID-19 Era,” will compare and contrast the IRS’s 2008 stimulus experience with the 2020 experience, and will also discuss issues associated with superseding returns, EIP offsets, and particular issues linked to spousal abuse, identity theft, non-identity theft related tax fraud, return preparer misconduct, and strategies for dealing with the IRS when encountering these problems.

You can register for the program here.  Free registration and CLE credits are available for ABA Members, LITC attorneys, and government employees. The program will be recorded for later listening, but that recording will not offer CLE credit.

Nina Olson from the Center for Taxpayer Rights is moderating the panel.  Panelists include Caleb Smith from the University of Minnesota (a PT designated order blogger), Nancy Rossner from the Community Tax Law Project (a PT guest blogger), Josh Beck from the Taxpayer Advocate Service’s Attorney Advisor Group, and me.

This is the third program on COVID-19 issues hosted by the Pro Bono and Tax Clinics Committee.  Two of the earlier programs, “The Agony of a Missed Deadline or Was That Deadline Really Missed” and “Tax Implications of COVID-19 – Tax Collection in the Time of COVID-19,” are available at the links provided.  While viewing the programs on these videos does not offer CLE credits, they nevertheless provide the opportunity for understanding some of the urgent tax issues presented by the pandemic. These are three of the several programs the Tax Section has hosted on COVID-19 issues all of which can be found by visiting the COVID-19 Information and Tax News page of the Tax Section’s web site.