Follow Up Information on Tax Court Service of Petitions

Yesterday, we published some data from Carl Smith showing that the service of a new Tax Court petition on the office of Chief Counsel was taking about two months.  Following that observation, Carl did some additional digging and found the service time to vary considerably.  Below is a chart of his most recent findings.  Because of the significant variations in the timing of the service, it is difficult to know what is going on in the Tax Court Clerk’s Office to cause the swings in the timing. 

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Here are some dockets showing wildly inconsistent dates of petition filing and petition service: 

Docket No.       Petition Filed       Petition Served

14000-20            11/17/20              2/22/21

15000-20            12/28/20              3/4/21

101-21                1/1/21                  1/6/21

1000-21              3/4/21                  3/5/21

2000-21              1/22/21                3/19/21

3000-21              4/2/21                  4/5/21

4000-21              2/5/21                  4/14/21

5000-21              2/1/21                  4/26/21

6000-21              1/4/21                  5/5/21

7000-21              2/25/21                5/13/21

8000-21              3/9/21                  5/20/21

Carl speculates that perhaps the Tax Court Clerk’s Office is, on some days, filing petitions and serving them as soon as they come in, but on slow days working through a pile of petitions building up from earlier days, when the office was hit with too many petitions to process?  In any event, a Tax Court petitioner at this point may or may not get a multi-month delay in the serving of her petition on the IRS.

The delay can have an impact on petitioners since it impacts when the answer is filed.  Petitioners who hear nothing for a long time wonder what has happened to their case.  Representatives accustomed to working with their local counsel office to obtain an early resolution of cases with clear cut facts can have trouble doing that quickly since Chief Counsel does not want to abate an assessment until they have been served with a petition.  Perhaps the biggest impact is on premature assessments.  If the Tax Court delays in sending the petition to the IRS, the IRS does not know that the taxpayer has petitioned and will assess the liability reflected in the notice of deficiency.  Unwinding the premature assessment takes time for the people at the IRS and can make taxpayers uncomfortable because they will receive at least the notice and demand letter at a time when they thought that they had forestalled the assessment by filing the petition.  We have written about premature assessments previously here. Both of these issues join together if there was a premature assessment but Chief Counsel does not want to abate pending receipt of the petition and a chance to compute its timeliness.

It’s also unclear if the new electronic filing of petitions is somehow impacting the timing of service.  The ability to electronically file a petition can give the petitioner certainty of receipt but may change the processing of petitions in a way not readily apparent.  Maybe the electronic petitions are the ones that get served on the IRS quickly.  The Court, and the Clerk’s office, is still absorbing the changes in the Court’s database system.  Perhaps something in the way DAWSON works is causing these issues.  We welcome comments from a more knowledgeable source since we are simply speculating based on data that seems at odds with past Tax Court practice and with ordinary case management.

Death and Taxes

On the substantive side of tax issues Congress is focusing on death and taxes as it studies and debates whether to eliminate the stepped up basis currently given to property upon the death of the owner.  This debate is not new.  When I was in law school in the mid-1970s taking a class in estate and gift taxes Congress was engaged in the same debate and decided to eliminate the stepped up basis in the middle of my semester.  The professor, a prominent local practitioner, deserved extra duty pay for trying to follow the twists and turns during the run up and passage of the repeal of the stepped up basis that semester.  Of course, the following year Congress repealed the repeal of the stepped up basis putting us back where we are today.  Because of my law school experience with this issue almost five decades ago and my personal experience as a beneficiary of the stepped up basis, I follow the debate with interest.

This blog focuses on procedure, however, and I wanted to bring to everyone’s attention to a death and taxes story playing out on the collection side of the house.  This story also has roots in the current pandemic and efforts for relief for those impacted by it.

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On April 30, 2021, the IRS issued SBSE-05-0421-0031 “Levy Actions Involving FEMA COVID-19 Funeral Assistance Funds.”  In this guidance the IRS instructs collection employees to release bank levies if the funds in the account include money received by the taxpayers as COVID-19 Funeral Assistance funds provided by the Federal Emergency management Agency (FEMA).

We have written before about tracing funds into a bank account and whether certain funds in a bank account that can be traced from sources on which the IRS could not levy at the time of payment should be protected from levy once placed in a bank account.  See the excellent post by Les on this subject here.  Generally, the IRS takes the position that money in a bank account is fair game for its levy no matter what source, protected from levy or not, generated the funds in the bank account.  In the case Les discusses in his post the 10th Circuit hinted that maybe veteran’s benefits exempted from levy in the list at IRC 6334(a)(10) could retain protection if properly traced.

Despite its normal view that funds going into a bank account become fair game, the kinder, gentler IRS carves out an exception here if the funds subject to the levy have arrived in order to pay the funeral expenses of a loved one.  It makes sense for the IRS to make this exception and avoid having to explain the taking of these funds but the decision raises again the issue of when the IRS should back away from funds in a bank account.

Backing away creates its own difficulties which drives the normal IRS position on this issue.  First, the IRS has no idea the source of the funds in a bank account and no realistic way to find out except from the taxpayer.  The notice contemplates that after a levy the taxpayer will tell the IRS that it has levied on the funeral funds.  That itself presents a couple of problems.  One concerns how many taxpayers will know that the IRS has created this exception.  The bank levy could easily be generated by an Automated Call Site (ACS) with little or no contact between the IRS and the taxpayer.  The taxpayer will learn from the bank, at some point, that the IRS has levied but is unlikely to be aware of this guidance and will only contact the IRS out of some sense of unfairness that it levied upon the funeral funds for a loved one, perhaps stopping the funeral.  That also raises the second problem of just getting through to the IRS to tell it about this issue even if you know about the policy.  Getting through is not easy and this will be a family in the midst of grieving.

Assuming the taxpayer knows about the policy or calls to complain generally and assuming the taxpayer gets through, then the IRS will request documentation to verify the funds came from FEMA, when they came, how much came, etc.  Once the taxpayer satisfies the verification procedure, the IRS will release the levy on the verified funds.

The IRS has created a similar but more taxpayer friendly procedure for accounts with PPP funds and Recovery Rebate stimulus payments requiring the IRS to check before making the levy.  As mentioned above, that can be difficult for the IRS.

The procedure for the FEMA funds tracks, in many ways, the procedure for levies where multiple parties own the bank account.  Following its narrow victory in United States v. National Bank of Commerce, 472 U.S. 713 (1985) a procedure developed providing bank notification of the owners and a 21 day opportunity for owners of the account to come in and show that the money in the account belonged to them rather than to the taxpayer who owed the tax causing the levy.  The taxpayer’s wife and mother jointly owned the account at issue in that case making for some interesting dinner table conversations.  The verification that the wife and mother would have provided to show the money belonged to one of them rather than the taxpayer would track the verification procedures developed for the FEMA payments.  The IRS and banks have used this system now for over 35 years and it seems to work.

What if all bank levies had a 21-day hold with the opportunity not only for co-owners to verify ownership but for the taxpayer to verify any funds that protected by IRC 6334 or by special designation such as the FEMA funds here? If such a system existed, taxpayers would not need to read SBSE memos to know when to raise their hand and they would have a process of talking to the IRS through the bank that might work better than trying to call a number where a low percentage of taxpayers get through.  Such a system would also eliminate the second hand taking of funds Congress sought to preserve for the taxpayer and would make it less necessary for taxpayers with outstanding liabilities to need to find alternatives to banking to preserve those special assets.

Calling the Number Provided in IRS Correspondence

This has been a tough year for the IRS.  For a variety of reasons not the least of which is the pandemic, it has faced numerous challenges.  My understanding is that its performance in answering the general phone line during the filing season ranged somewhere between 2-5% which is not good but it’s not zero. 

A couple years ago I wrote a complaining post about the offer in compromise unit in Brookhaven that gave out a phone number no one ever answered.  I know from personal experience with that number how frustrating it can be to try to reach a number, the only number you are given, and no one ever answers.  I likened the situation to the circumstances facing Joseph K in Franz Kafka’s classic novel, The Trial.  After I wrote that post, the phone problem with Brookhaven was fixed very quickly.  Inspired by that success, and discouraged my two specialty phone numbers that seem to be a dead letter box, I am writing another post about phone numbers the IRS provides but does not answer.  I am not sure how this happens but it should not.  I hope that someone can address the problem.

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The first phone number that no one answers is the phone number for people seeking to verify their ID.  I encountered this earlier this year when I had back to back offer in compromise cases the examiners expressed a readiness to accept but the taxpayers had an outstanding ID verification issue.  I obtained the phone number to verify their identity and gave it to the clients expressing to them the urgency with which they needed to address the verification issue.  Each client took me seriously and tried to verify their identity but could never get through.  The offer examiners give you a deadline to do the things they request of you.  I understand why they do this and do my best to meet their deadlines but here we could not meet the deadline since the clients could not get anyone to answer the phone.  I sent a message to my local taxpayer advocate asking if he could help.  He got each of the cases assigned to a case advocate.  The case advocate was able to make the ID verification happen, the clients got their offers accepted, all was well but this is an expensive way for the IRS to deal with a bad phone number.

This past week I received a phone call from the person who runs the After Innocence project.  He has created an organization to assist exonerees with all of the issues they face once released.  The tax clinic at Harvard does the tax work for the exonerees and it has been very rewarding work for the students over the past several years.  We have Kelley Miller to thank for getting us started and for jumping in to assist us occasionally.  The director of the project reached out to me because he now has 20 exonerees who need to verify their ID with the IRS in order to receive a refund or a stimulus payment; however, he cannot get anyone to answer the phone when he calls the number provided.  I was not surprised that he was having trouble with this since his difficulty mirrored the difficulty my clients had earlier this year.  Because going through the verification process serves as a gateway to other matters – getting an offer accepted or getting a refund – this is a critical number.  I solicit suggestions on how to get through to the number or to work around the problem created by the IRS not picking up the phone when the number provided in its correspondence is used.

A second phone number is not working according to readers of the blog.  I do not have personal experience with this number.  I wrote a post last June about lost or destroyed EIP cards.  We have received 27 comments on this post to date but I want to highlight some that focus on the phone issue and two which are very recent:

June 25, 2020 – Did you figure out how to get your replacement card cuz I have had no luck and when calling that number it told me the same thing I am stuck and need help

March 31, 2021 – There is no number that one they have 1800-240-8100 does not work

April 26, 2021 – The only recourse is to call an 800 customer service line, when you are prompted to press 2 for a lost card, it spews some rigamarole and disconnects you…I’ve tried several times to replace my lost card,
With the same result

May 13, 2021 – Same Results that Number does not Work. What can you do? It says press 2 , and then says check http://www.irs.gov/eip which leads back to that number which you can’t do anything. If you find any info which works let me know via email

The inability to get through to a specific phone number for resolving a problem creates more problems that the difficulty getting through with a general call.  Neither problem is good but if you need to get through to a number to receive a refund or a replacement stimulus card the inability to get through becomes magnified.  If/when Congress gives the IRS additional funding, I hope that some of it will be headed to fix these types of customer service issues.

Advanced Child Tax Credit

Congress has passed legislation creating a much expanded child tax credit (CTC) and requiring the IRS to make advance payments of the CTC during the 2021 tax year starting in July.  The expanded credit provides a $3,600 credit for every child under 6 and a $3,000 credit for every child under 17.  The expanded CTC does not require that taxpayers have earned income in order to qualify.  The credit will phase out for taxpayers earning more than X and completely vanish for taxpayers earning more than Y.  Currently, the expanded CTC only happens for the 2021 tax year though many efforts exist to expand it to a more permanent fixture.  Whether the expanded CTC has a life beyond 2021 could depend on the ability of the IRS to surmount the significant administrative hurdles to make it happen without drawing too many negative stories of parents unpaid or ineligible individuals paid.  The IRS faces a tough challenge.  

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At the ABA Tax Section meeting last week there was a couple programs on the CTC because this is such a big change and because the almost immediate implementation raises many questions as well as many challenges.  At the Individual and Family meeting on Friday panelist Margot Crandall-Hollick, Acting Section Research Manager, Congressional Research Service, created some excellent slides showing the history of the CTC and the way it will work for different families.  Recent studies indicate that nearly 1 in 7 US children live in poverty. Originally enacted in 1997, the child tax credit (CTC) is part of our nation’s patchwork efforts to address the high costs of raising children. The panel   focused on the underlying policy issues behind the adoption of the expanded CTC and administrative issues associated with the implementation. 

Ms. Crandall-Hollick has kindly allowed us to display those slides here:

In addition to the background information about CTC and the basics of the law, the panel included Ken Corbin, the Commissioner for Wage & Investment at the IRS who is tasked with making this work.  He provided some answers regarding where the IRS in its effort to ramp up for this and noted some areas where the IRS still seeks answers.  Mr. Corbin pointed to the experience of the IRS in issuing the stimulus payments as the starting point for its approach to delivering the advanced CTC payments.  He not only talked about lessons learned from this experience but the partnerships developed with the Social Security and Veterans Administrations as well as other partner within and without the government.  He sounded positive that the IRS can meet this challenge.  I certainly hope that it can, because the delivery of the advanced CTC payments represents a significant policy shift to insure that children will have a better chance.

One of the major problems with the Earned Income Tax Credit, the largest refundable credit the IRS has administered to this point, concerns payments to the wrong individual, which can occur for a wide variety of reasons.  The fluidity of many family situations often makes it difficult to correctly claim the credit, the complexity creates confusion and the refundable nature of the credit creates an incentive to wrongfully claim the credit that proves too tempting for some taxpayers and some preparers.  He spoke of a new authentication process the IRS has developed that will work on the phone or in person.  Perhaps this authentication process will eliminate some of the problems that have caused concern with the payments of the EITC refundable credit and perhaps the tool(s) developed for the expanded CTC will have some crossover benefits in boosting the accuracy of the EITC claims.  I am glad to hear that it has developed such a process.  I am a bit concerned that even if the process works perfectly, the IRS ability to answer the phone and to meet taxpayers in person may create a barrier to the success of the process. 

Mr. Corbin indicated that the IRS will potentially send out three letters to the intended recipients of the expanded CTC.  First, the individual will receive a notice alerting them to their potential eligibility.  I assume that this letter will provide some mechanism for the individual to opt out of the expanded CTC as opting out is one of the features of the program.  By opting out the individual identified by the IRS signals that someone else, usually the other parent, should receive the advance payment of the expanded CTC.  Second, the individual will receive a notice that the payment is coming.  I assume this notice will signal the amount of the payment.  He did not provide enough detail to make clear whether the first or the second notice would provide an opportunity for the taxpayer to notify the IRS that the number of eligible children in the IRS calculation is wrong perhaps because of a new birth or a child moving to live with a different family unit.  Third the individual who has received the payments will receive a reconciliation statement at the end of 2021 that will be used to file with their 2021 tax return.  The IRS may develop a system similar to the premium tax credit by which taxpayers will reconcile that the payments received were correct.

In response to questions Mr. Corbin indicated that the IRS was still working on the process for resolving disputes over who is entitled to the advanced CTC payment.  While the vast majority of cases will probably work smoothly, family dynamics dictate that situations will exist where more than one person claims the credit for a child.  Given the abbreviated time frames within which the payment determinations are being made the ability of the IRS to create a system for resolving disputes during the 2021 period will provide quite a challenge and could severely strain its resources.  On the other hand, if the IRS cannot find a reasonable way to handle disputes, it will receive much criticism.

Congress has once again tasked the IRS to perform a very difficult task in a short time period while its resources are already strained past the point of allowing it to provide the best service on the tasks already on its plate.  The IRS will once again try to pull a rabbit out of the hat as it did with the stimulus payments.  There will, no doubt, be problems.  Keeping the problems to a minimum and delivering the payments to families could impact the long term viability of a program that makes a lot of sense.

Observations from the ABA Tax Section Meeting

This week is the ABA Tax Section meeting.  Normally, this is the biggest meeting of the year because it takes place in DC and the Tax Section can attract all of the government speakers.  With everything happening in the tax world at the moment, there would be lots of important players to see in person.  Like almost all meetings, this one is virtual which in some ways makes it easier to attend but in others leaves an empty feeling.

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Even though the meeting is not physically in DC, there have been lots of government speakers and things to report from the meeting so far.  Judge Toro, representing the Tax Court, indicated that the Court is pleased with the results of some of the changes it has made to its procedures as a result of the pandemic.  To assist the remote trial process, some documents, such as the stipulation of facts, need to be filed before calendar call.  The Court is also holding many more pre-trial conferences and getting engaged with the parties earlier in the process and this is apparently leading to results that the Court finds pleasing.

While some judges routinely engaged with taxpayers prior to calendar call, for many Tax Court judges their first interaction with taxpayers occurred at calendar call unless the petitioner or the government sought a pre-trial conference.  It always seemed to me that the process would benefit from earlier engagement by the judge assigned to try the case and it does not surprise me that the Court is finding this helpful in moving the cases.  I hope that the practice takes hold and continues post-pandemic because it helps everyone.  

The Tax Court has a relatively high default rate of petitioners who file but get dismissed for failure to properly prosecute.  Certainly, the petitioner who files and does not engage bears some responsibility for their action, but the system seemed designed to promote disengagement.  With over 70% of the petitioners filing pro se, these petitioners receive an answer which in almost all cases denies everything they have alleged in their petition.  A surprising number of pro se petitioners believe that the answer means they have lost the case because they do not understand the role of pleadings.  Then, after the answer, nothing happens on their case for months in many cases because the attorney who answers the case ships it off to Appeals which takes a long time to engage with the taxpayer.

During this period the taxpayers, who were among the 3% of statutory notice recipients engaged enough to petition the Tax Court, lose their interest in the case and drop out ultimately resulting in a dismissal for failure to properly prosecute.  The Tax Court sends them a letter acknowledging their petition and providing some guidance on what will happen with their case but the letter does not really prepare them for the Answer and the long period of silence.  The more the Court engages with them the less taxpayers will drop out of the system and the better prepared they will be when it comes time to try their case or, even better, to resolve it by settlement.  Some of the actions the Court is taking during the pandemic have helped this situation.  It will be interesting to see if these actions statistically make a difference in the number of drop out cases over the long haul.

Earlier this week the Tax Section announced that Special Trial Judge Panuthos received this year’s Distinguished Service Award.  Judge Panuthos is a great selection and his selection provides recognition for the work he has done over decades to make the Tax Court a more inclusive place for the many pro se taxpayers who come there.  The Tax Court recognized Judge Panuthos for his work in 2012 by bestowing upon him the Murdock Award for distinguished service to the Tax Court.  The ABA recognition helps in continuing to highlight the importance of his work in making sure that underrepresented individuals receive proper treatment in the tax system.  

Yesterday, the Tax Section held an event with Judge Panuthos and this year’s Janet Spragens Pro Bono Award winner, Susan Morgenstern, to highlight their work on behalf of low income taxpayers.  Susan was one of the early entrants to the world of low income tax clinics at Legal Services organizations and promoted tax clinics to other Legal Services organizations.  Now, the tax clinics at these organizations represent the largest number of tax clinics.  Because Legal Services organizations serve low income individuals with a wide variety of civil legal problems, getting tax clinics into these organizations has been a vital benefit to providing them with necessary representation as the tax code became the source for more and more benefit programs.  Linking back to the earlier discussion about dismissals for failure to properly prosecute, Susan has pushed the Court for many years to provide stronger engagement to address that problem.

Another topic discussed yesterday at the ABA meeting by a Chief Counsel executive on an issue written about frequently in this blog concerns the timing of supervisory approval in penalty cases.  On May 11, 2021, another IRC 6751(b) case came out holding that the IRS did not approve the penalty in time, Battat v. Commissioner, T.C. Memo 2021-57.  Although arguably not breaking new ground, which is why it came out as a memo opinion, it tossed the penalty because the revenue agent put it in a report before getting approval.  Like many of these cases in the past year, this case goes back to action taken a decade ago.  The docket number in the case is 17784-12 which tells you that it was filed with the Tax Court nine years ago.  Nonetheless, the comments from Chief Counsel at the meeting essentially stated that as the Court pushes the timing of the approval back further and further in time it will force agents to get approval for penalties before they have properly developed the facts.  

I understand the concern but am not sure I agree with it.  Many of the cases coming out relate to a period before the IRS paid attention to the statute.  Now that it is paying attention to the statute, perhaps revenue agents will develop the facts before they issue their reports.  No doubt there will be cases where taxpayers do not work with the agents and the agent will issue a report uncertain about all of the facts.  I hope that the exercise causes agents to pay more attention to penalties rather than being casual about them and I suspect it already has.  The next fight in the circuit courts may occur over the automatic approval cases of 6751(b)(2)(B) and what constitutes, or should constitute, the waiver for penalties imposed  where the IRS seeks the exception from prior approval of “any other penalty automatically calculated through electronic means.”  I think we will hear from Caleb Smith on this issue in a couple of posts in the near future.

Restitution Based Assessments

We note that the Practical Tax Lawyer (“PTL”) is looking for authors.  PTL gives the general practice and small firm lawyer short, practical “how-to” or “intro to” sorts of articles on tax.  PTL especially welcome articles that help practitioners think about how to deal with recent changes in the law, regulations, or IRS litigating position that might affect a tax practice.  So any articles on navigating the various COVID issues would be terrific!  The articles might be on procedural issues dealing with the COVID-impaired IRS, such as filing, amending returns, dealing with multiple tax years or strange notices.  Or articles could be on substantive COVID provisions like the PPP loans, EIP payments, etc.  PTL articles tend to be short (1,800 to 5,000 words) but longer articles are welcome too.  This is a great opportunity for anyone who wants to dip their toes into writing, or perhaps expand a blog post into a short article that would reach a broader audience that loyal PT readers.  If interested, contact Bryan Camp at bryan.camp@ttu.edu who will then connect you to the PTL editor, Dara Lovitz.  There’s no money in it, unfortunately.  Just pride of authorship, and creation of reputation. 

We have written about restitution based assessments before on several occasions some of which are found, here, here and here.  Tax Notes recently published a series of internal Chief Counsel email advisory opinions on these assessments that collectively are worth mention.  The emails focus on a case, United States v. Westbrooks, 858 F.3d 317 (5th Cir. 2017) which we have not previously blogged.  I will spend some time on the case and then on the emails addressing issues raised by Westbrooks.

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Tammy Westbrooks had two tax preparation businesses, one in North Carolina and one in Texas.  She was indicted for overstating expenses of the businesses and convicted of corruptly endeavoring to obstruct the administration of the tax code in violation of IRC 7212(a) as well as three counts of filing false tax returns in violation of IRC 7206(1).  Upon conviction the court imposed a sentence of 40 months and it also ordered her to pay $273,460 in restitution to the IRS in quarterly installments of $25 or half of prison earnings, whichever is greater, while incarcerated, and in the monthly amount of $400 or ten percent of gross earnings, whichever is greater, during the year of supervised release that would follow her prison term.

She appealed the conviction on the obstruction count and the restitution order.  The Fifth Circuit upheld the conviction but modified the restitution order.  Most of the opinion concerns her arguments regarding the appropriateness of the conviction on obstruction, but I will only discuss the restitution aspect of the opinion.  With respect to the restitution order she argued:

the district court’s order of restitution was not authorized because: (1) the court imposed restitution as part of her sentence under a general restitution statute, which is not permitted for Title 26 offenses; and (2) even if the court imposed restitution as a condition of supervised release, which is permitted for Title 26 offenses, it was not authorized to do so because she did not agree to restitution in a plea bargain.

The Fifth Circuit found that 

Neither the Victim and Witness Protection Act, 18 U.S.C. § 3663, nor the Mandatory Victim Restitution Act, 18 U.S.C. § 3663A, allow restitution for a tax code offense under Title 26 (as opposed to offenses described in the general criminal code of Title 18). But several statutes, read together, allow district courts to order restitution for tax offenses as a condition of supervised release….  Courts’ broad authority to order restitution as a condition of supervised release in tax cases is recognized in the Sentencing Guidelines and generally in the federal courts. See U.S.S.G. § 5E1.1(a)(2) ; United States v. Batson, 608 F.3d 630, 635 (9th Cir. 2010)

The court concluded that the judgment wrongly required her to make restitution payments while still in prison.  It decided that the best means of fixing the error was to modify the judgment to only require restitution after her release. She argued that because this was a tax offense, the district court did not have authority to require restitution during supervised release but the Fifth Circuit disagreed.

Next, she argued that the amount of the restitution was too high and the tax loss calculation, which would impact her sentence under the guidelines, was improperly calculated.  The Fifth Circuit noted that restitution is limited to the loss caused by the conviction. It also noted that this issue is one where it reviewed the amount of the restitution order for abuse of discretion, putting a tall barrier to success before her.  The court looked at the trial court record and determined that the amount of the restitution award was not clearly erroneous.  For purposes of this discussion the main takeaway from this restitution issue is the high bar a defendant faces to reduce the decision of the trial court.  The more important restitution issue in the case is the limitation of the time during which the defendant must pay the restitution.

With this background, there was four advisory opinions recently published although issued over the course of the past year.

In CCA_2020090314343344 which was written on September 3, 2020, the advice provided was

The restitution in this case is assessable and is not subject to the Westbrooks limitations on assessment and collection. The judgment lists the restitution as a criminal monetary penalty as well as a condition of supervised release. Normally, where restitution is listed as a criminal monetary penalty, it is imposed as an independent part of the sentence. In addition, the plea agreement provides for the defendant to pay restitution.

In CCA_2020100911062544 which was written on October 9, 2020, the advice provided was

This is not a Westbrooks case. The activity for which the defendant was convicted under Title 18 (* * *) embraces conduct for all of the years for which restitution was ordered, and offense for which the defendant was convicted is described in 18 USC 3663A(c)(1). Restitution was therefore mandatory under the Mandatory Victims Restitution Act and the court thus had the power to impose it as an independent portion of the sentence. The court did so, as shown on p. * * * of the judgment.

In CCA_2020100914392144 which was also written on October 9, 2020, the advice provided was

This is not a Westbrooks case because restitution was imposed as an independent part of the sentence pursuant to a plea agreement. However, the government is only one of the victims of the crime in count * * *. Where there are victims other than the government, the government is only paid after the other victims have been paid. Accordingly, the government cannot collect on the restitution-based assessment until the non-government victims have been paid.

In CCA_2020111810055044 which was written on November 18, 2020, the advice provided was

The IRS is obliged only to assess and collect restitution during the period of supervised release. This is technically not a Westbrooks case because the district court had authority to impose restitution independently. However, the district court did not do so in this case. The judgment describes the restitution imposed solely as a condition of supervised release and not under the portion that describes the rest of the sentence. We also confirmed from the Department of Justice that the government’s understanding was that restitution was imposed solely as a condition of supervised release. Accordingly, for the reasons stated in PMTA 2018-19, the IRS is obliged to only assess and collect restitution during the period of supervised release.

The advisory opinions reflect that the IRS is paying careful attention to the restitution orders and its ability to pursue collection under those orders.  This suggests that if you are representing someone who has been the subject of a restitution based assessment you should also pay careful attention to the restitution order and how the timing of that order works.  As discussed in the prior posts there are limitations on restitution based assessments.  The provision allowing these assessments gives the IRS the opportunity to assess shortly after a criminal conviction or plea eliminating the need for the IRS to go through what could be a very lengthy deficiency assessment process prior to assessment.  The quickness provided by this assessment provides a significant benefit to the IRS and fills a gap in time created by the deficiency assessment process; however, the restitution assessment comes with some limitations on the IRS’s normal collection powers.

Policing the Settlement; Policing the Case

A recent order in the case of Englemann v. Commissioner, Dk. No. 10528-20 shows the role Tax Court judges play in reviewing settlements.  This case was brought to my attention by the ever observant Bob Kamman who laments the loss of the designated order practice of the Tax Court where we might have seen this order and might have gotten some further insight into what happened here.

The taxpayer and the IRS have reached a settlement regarding the amount of the deficiency.  Ordinarily when that happens a grateful Tax Court receives the decision document signed by the parties and the judge assigned to the case, or the Chief Judge if no specific judge is assigned, signs the decision document thus ending the case.  This seems like a routine way to resolve a case.  Everyone agrees and everyone goes home happy (well maybe not exactly happy but satisfied with the outcome’s correctness.)

Here, the Tax Court rejects the settlement between the parties.  The brief order from the Chief Judge states:

On April 27, 2021, the Court received from the parties in the above-docketed matter a Proposed Stipulated Decision purporting to resolve this litigation. However, review shows that the decision provides for a deficiency amount in excess of that set forth in the underlying notice of deficiency for the 2016 taxable year. Conversely, an increased deficiency does not appear to have been pled or otherwise stipulated in the record herein.

The premises considered, and for cause, it is

ORDERED that the Proposed Stipulated Decision, filed April 27, 2021, is hereby deemed stricken from the Court’s record in this case.

This may seem to the parties as a harsh rebuke but it is part of the Court’s role in a case.  I am unsure if the order here qualifies as a “bounce” but Chief Counsel’s Office used to keep records of the number of bounces an office received – bounces being documents rejected by the court because something was wrong.  Having a high bounce rate was not a good thing.

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We don’t know why the taxpayer has agreed to a deficiency in an amount greater than the liability listed in the notice of deficiency.  One assumes that the taxpayer could agree to a greater amount for many good reasons but the Tax Court will not allow this to happen until the parties, or presumably the IRS, files a formal motion with the Court seeking an increased deficiency in an amount equal to or greater than the amount in the stipulated decision and the Tax Court decides that it is okay for the IRS to seek an increased deficiency.  This seems like a bit of overkill given that the parties have already signaled their agreement to the amount but this is the way the Tax Court plays it.  Here, the Court appears to serve the role of officious policeman but most petitioners are pro se and perhaps the Court wants to make sure that the IRS is not taking petitioner for a ride and the action here keeps the signature of the judge in line with the governing statute.

The first sentence of section 6214(a) provides: 

Jurisdiction as to increase of deficiency, additional amounts, or additions to the tax

Except as provided by section 7463, the Tax Court shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the taxpayer, and to determine whether any additional amount, or any addition to the tax should be assessed, if claim therefor is asserted by the Secretary at or before the hearing or a rehearing.

While it may seem harsh to police the case in this way, the court is right in policing the settlement as a jurisdictional issue in the absence of a motion by the IRS to amend its answer and seek a larger deficiency.

The Tax Court has also policed a settlement where the court thought that the petition was filed late, but the IRS hadn’t mentioned the late filing.  One case where that happened was Williams v. Commissioner, Docket No. 24954-17 (dated Jan. 26, 2018)   In Williams, the IRS responded to the order by filing a motion to dismiss, which the Tax Court granted.

The Tax Court plays a similar role in many cases in which the IRS does not act but the Court decides on its own what must occur.  The most common occurrence of the Court acting in this manner exists in cases in which the Court polices its jurisdiction.  In briefs filed regarding the litigation over the jurisdictional nature of the statutes providing entry into the Tax Court, the Tax Clinic at the Legal Services Center at Harvard has commented on the role the Tax Court plays in deficiency cases and whether this is how we want to use judicial resources.  In the amicus brief supporting the recently failed cert petition in the case of Northern California Small Business Assistants, Inc. v. Commissioner, cert denied May 6, 2021, the clinic wrote:

The Tax Court Needlessly Expends Considerable Judicial Resources Each Month Incorrectly Policing the Filing Deadline as a Jurisdictional Issue.

Many taxpayers might be affected by a ruling that the Tax Court’s deficiency jurisdiction filing deadline is not jurisdictional (whether or not the filing deadline is also subject to equitable tolling). In the fiscal year ended September 30, 2018, taxpayers filed 24,463 Tax Court petitions. IRS Data Book, 2018 at 62 (Table 27), available at www.irs.gov. These petitions were under about 20 different jurisdictions of the Tax Court. The Tax Court’s position is that the filing deadline of any petition in the Tax Court, under any of its jurisdictions, is a jurisdictional issue for the court. Tax Court Rule 13(c) (“In all cases, the jurisdiction of the Court also depends on the timely filing of a petition.”). (Parenthetically, the D.C. Circuit, which hears all appeals of Tax Court whistleblower actions under § 7623(b)(4), has overruled the Tax Court and held that the filing deadline for such an action is not jurisdictional and is subject to equitable tolling under current Supreme Court authority. Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019).)

Three jurisdictions of the Tax Court comprise the vast bulk of its petitions (deficiency, CDP, and innocent spouse), but it has long been the case that deficiency petitions make up the overwhelming majority of all petitions filed. Harold Dubroff & Brant Hellwig, “The United States Tax Court: An Historical Analysis” (2d Ed. 2014) at 909 (Appendix B). The Dubroff & Hellwig book is the semi-official history of the Tax Court, available at a link on the “History” page of the court’s website. “Over 75 percent of the petitioners who file with the Court are self-represented (pro se).” U.S. Tax Court Congressional Budget Justification Fiscal Year 2021 (Feb. 10, 2020) at 22, also available at a link on that “History” page.

Because the Tax Court does not publish statistics breaking down filings under each of its jurisdictions, and because that court also does not separately identify in statistics cases dismissed for lack of jurisdiction, in order to get a sense of how many cases in the court each year might be affected by a ruling on whether the deficiency petition filing deadline is jurisdictional, the Center reviewed, using the Tax Court’s DAWSON online system (available on the Tax Court’s website), 1% of a randomly-chosen sample of dockets filed during the fiscal year ended September 30, 2018. The year ended September 30, 2018 was chosen simply to allow likely enough time for jurisdictional issues to be raised and disposed of in all cases. The 245 dockets reviewed were numbers 10001-18 through 10245-18 (as to which petitions were filed between May 21 and 24, 2018, inclusive). Of those 245 dockets, 24 were not deficiency cases.3 Of the remaining 221 dockets that comprised deficiency cases, 38 (17% – i.e., 38/221) were dismissed for lack of jurisdiction. However, there were multiple grounds for the 38 dismissals for lack of jurisdiction:

Number of CasesDismissal Reason
25Failure to pay filing fee
10Late filing
1Failure to file proper amended petition
1No original signature on petition
1Tax paid before notice of deficiency issued

In only one of the 10 dockets where the case was dismissed for late filing was there any suggestion of facts which might give rise to equitable tolling. In Lavery v. Commissioner, Docket No. 10026-18 (order dated Jul. 18, 2018), it appears that there may have been a timely filing in the wrong forum (i.e., a timely mailing to the IRS, instead of the Tax Court).

This review shows that floodgates would not open if equitable tolling were allowed to excuse the late filing of a modest number of deficiency petitions each year.

The greater practical effect of a ruling that the Tax Court’s deficiency suit filing deadline is not jurisdictional would be to benefit taxpayers where the IRS attorneys in the case either had omitted to notice the possible late filing of a petition or had deliberately decided not to argue that a petition was late and so forfeited or sought to waive the late filing argument. As this Court has noted, “[t]he expiration of a ‘jurisdictional’ deadline prevents the court from permitting or taking the action to which the statute attached the deadline. The prohibition is absolute. The parties cannot waive it, nor can a court extend that deadline for equitable reasons.” Dolan v. United States, 560 U.S. 605, 610 (2010) (citation omitted). In contrast, if a filing deadline is not jurisdictional, it is subject to forfeiture and waiver (whether or not it is subject to equitable tolling or estoppel).

Every month, the Tax Court dismisses multiple deficiency cases only because the filing deadline is currently treated as jurisdictional and so the Tax Court judges, sua sponte, police late filing. The court’s position that the filing deadline is jurisdictional necessitates that judges examine the files in every case for late filing – the judges not being able merely to rely on the IRS to raise all late filing issues. When a judge suspects that a petition in a particular case was filed late, but the IRS attorneys have made no argument to that effect, the judge issues an order to show cause why the case should not be dismissed for lack of jurisdiction. In November and December 2019 (typical recent pre-COVID-19 months), the Tax Court issued orders to show cause to dismiss deficiency petitions for untimely filing four and eight times, respectively.4 All 12 such taxpayers lost their chance to have their deficiencies litigated in the Tax Court only because the judges treated the filing deadline as jurisdictional. If, as the Center believes, the filing deadline is not jurisdictional, judges have been investing considerable resources over the years engaging in needless policing.

Judges do not merely police jurisdiction in the middle of a case, but also when a case settles. About once a month, some taxpayer and the IRS settle a case on the merits and submit to the Tax Court a proposed stipulated decision setting forth the amount of the deficiency, but the Tax Court judge refuses to sign the decision until the parties show cause why the case should not instead be dismissed for lack of jurisdiction on account of a late filing of the petition that the IRS had not noticed. (The decision in the Tax Court is analogous to the judgment in a district court case.) An example of a show cause order issued in this situation is that in Williams v. Commissioner, Docket No. 24954-17 (dated Jan. 26, 2018).

A further example of overuse of judicial resources is where the IRS agrees with the taxpayer that a petition was timely filed, but the Tax Court takes the time to conclude that the petition was not timely filed. For example, in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), rev’g T.C. Memo. 2015-188, the parties were initially in disagreement over whether a deficiency petition had been timely filed under the rules of § 7502. Section 7502 provides a timely-mailing-is-timely-filing rule applicable to Tax Court petitions. The initial dispute was about which provision of regulations under the Code section applied to the case. By the time the Tax Court wrote its opinion, however, the parties agreed that the petition was timely filed. However, the Tax Court disagreed and dismissed the petition for lack of jurisdiction as untimely. The Tax Court could not merely accept the IRS’ concession that the filing was timely because of the Tax Court’s position that the deficiency suit filing deadline is a jurisdictional issue.

In the Seventh Circuit, both parties again argued that the filing was timely. This led the judges at oral argument, sua sponte, to wonder whether they had to decide the § 7502 issue, since, if the filing deadline at § 6213(a) was not jurisdictional, the government was waiving any untimeliness argument, which was the government’s prerogative. The judges asked the attorneys for each side whether the filing deadline in § 6213(a) is jurisdictional under recent Supreme Court case law, but the attorneys did not know about such case law. Then, two of the judges gave their tentative views that the § 6213(a) filing deadline appeared not to be jurisdictional. See Marie Sapirie, “News Analysis: Will the Seventh Circuit Unsettle Tax Court Timing Rules?”, Tax Notes Today (Oct. 24, 2016) (“ ‘This appears to be a timing rule, but timing rules aren’t jurisdictional,’ [Judge] Easterbrook said. [Chief Judge] Wood observed that for at least the last decade, the Supreme Court has been telling courts not to ‘put everything in the jurisdictional box’ because many rules that may have previously been carelessly referred to as jurisdictional are really claims processing rules. ‘If it’s a claims processing rule, it’s just a fact. You can concede it. The world doesn’t come to an end, and the case goes on,’ Wood said.”). After the oral argument, the parties in Tilden submitted supplementary briefs on the issue of whether the § 6213(a) filing deadline is jurisdictional under current Supreme Court case law. The judges then changed their minds and, in their opinion, held the filing deadline jurisdictional and then proceeded to reverse the Tax Court on the § 7502 issue.

In sum, too much judicial time is being needlessly spent in policing late filing only because of the lower courts’ misunderstanding of how this Court’s presumption that filing deadlines are no longer jurisdictional applies to the deficiency filing deadline.

Of course, what the tax clinic describes as incorrect policing is not incorrect in the eyes of the Tax Court and other courts that have determined certain entry statutes to be jurisdictional in nature.  Whether correct or incorrect, the Tax Court does look at documents in several settings to make sure those documents do what the Court thinks is allowed.  When it views a document as going too far, it steps in even where the parties have not acted or have acted contrary to the “correct” action.

Another Case Denying Attorney’s Fees; TAS Tries to go to Appeals

The case of Jacobs v. Commissioner, T.C. Memo 2021-51 (see the 39th doc on the docket) demonstrates once again how difficult it is to obtain attorney’s fees in Tax Court cases.  Maria Dooner and Linda Galler, the authors of the excellent chapter on attorney’s fees in the 8th Edition of Effectively Representing Your Client Before the IRS coming out this month and available for order now, wrote a post for us earlier this year in which they displayed the results of a FOIA request showing how infrequently petitioners succeed in obtaining attorney’s fees from the Tax Court.  Their data suggests that out of the approximately 25,000 petitioners each year who file a petition in the Tax Court about 10 will receive attorney’s fees or about .004%. 

I was glad for their research because the other clinics at the Legal Services Center at Harvard routinely obtain attorney’s fees in their litigation with the government, but I have not obtained attorney’s fees since my arrival.  Even though I have explained to them the difficulty of obtaining attorney’s fees in Tax Court cases, my colleagues no doubt simply consider me a slacker.  Maria and Linda provided me with some empirical cover to avoid the slacker label.  This post will not get into the disparity in the ability to win attorney’s fees in Tax Court versus other venues, but it is something to think about.  It’s now been almost a quarter century since Congress last tweaked IRC 7430 adding, among other things, the qualified offer provisions in the Restructuring and Reform Act of 1998 yet petitioners in tax cases still get almost no traction in seeking attorney’s fees.  Is the IRS this good compared to other agencies?

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Professor Jacobs, a former Department of Justice attorney turned professor, author and private attorney, claimed a number of deductions for items related to his various professional pursuits.  The IRS audited his 2014 and 2015 returns via its wonderful correspondence exam process.  Unlike a high percentage of the individuals audited via correspondence, Mr. Jacobs responded and seems to have provided the IRS with quite a lot of documentation regarding his claimed expenses. 

In response, in December 2016, Mr. Jacobs submitted a letter of explanation with 28 pages of documentation…. 

In February 2017, the Memphis Correspondence Exam office informed Mr. Jacobs by letter that the information he had provided was insufficient to substantiate his expenses. On April 3, 2017, the Commissioner issued to Mr. Jacobs a notice of deficiency for the 2014 tax year, which disallowed all the deductions Mr. Jacobs had claimed on Schedule C. Both the letter and the notice were sent to the wrong address.

The April 3, 2017, notice was subsequently rescinded after the Taxpayer Advocate Service (“TAS”) opened a case on Mr. Jacobs’ behalf (and at his [*7] request). The TAS assisted Mr. Jacobs in arguing successfully that he had not been given the opportunity to present further substantiating documents.

Mr. Jacobs then made a new submission to the Memphis Correspondence Exam office. That submission included 24 pages of annotated monthly credit card statements. Most of these pages had been provided previously in Mr. Jacobs’ December 2016 submission, but the annotations were new and were intended to replace highlighting in the prior submission that had not been visible to the Memphis Correspondence Exam office because of the way the materials were submitted. The new submission also included several pages of credit card statements that were not part of the December 2016 submission. After reviewing the additional documents, the Memphis Correspondence Exam office determined once more that the information was insufficient to support Mr. Jacobs’ claimed deductions.

He was in California corresponding with an examiner in Memphis.  When the examiner denied the deductions despite his documentation and written explanations, he protested the denial and appears to have been assigned to the Appeals Office in Memphis.

It should be noted that Mr. Jacobs appears not to have been pleased with the customer service he received from the Memphis correspondence unit:

In January 2018, Mr. Jacobs filed a formal request with the U.S. Treasury Inspector General for Tax Administration (“TIGTA”) for an investigation into alleged misconduct by examiners in the Memphis Correspondence Exam office. The request alleged that the Memphis Correspondence Exam office had made unnecessary and “increasingly burdensome” requests for documentation, had threatened to issue an unwarranted deficiency notice, had summarily rejected Mr. Jacobs’ claimed deductions despite the documentation he had provided, and had “stonewalled” for five months Mr. Jacobs’ request for a managerial conference call. TIGTA opened an active investigation into the Memphis Correspondence Exam office and tracked the status of Mr. Jacobs’ case by initiating correspondence with upper-level management of that office.

Mr. Jacobs was perhaps frustrated with his pen pal relationship with the IRS and sought to meet with an actual person.  In a case with lots of documents this can be especially important as keeping a multitude of documents straight over the phone is challenging.

I digress here for a brief mention of my only encounter with the Memphis Appeals Office which occurred more than a decade ago and involved a Collection Due Process case rather than an examination issue.  The Settlement Officer set a time for the telephonic hearing.  The correspondence was a bit unclear because the conference was set at 10:00 CST for a hearing in June when daylight savings time was in effect but I assumed the SO meant 10:00 CDT and called at that time.  No one answered and I got a generic voice mail message saying that the SO was “away from her desk or on the phone.”  I left a detailed message about the hearing and waited for a call back which did not come.  I was covering for a student who could not attend the hearing due to a bar prep session.  She eventually got through to the SO and set up the hearing for the same time one week later.  I called again at 10:00 the following week, received the same generic voice mail message.  I waited a couple hours and did not receive a call back.  I found this very frustrating.  Even more frustrating is the fact that I had no idea who the person’s manager was or how to reach that unknown person.  I happened to know the director of Appeals from having worked together with her at the Chief Counsel’s office and sent her an email message describing my frustration.  That did cause the SO to reach out to me rather promptly, and we were able to conduct the CDP hearing.  I don’t know if Ms. Jacobs’ experience with the Appeals Office in Memphis mirrored mine but it seems he was frustrated with the remote hearing experience.

Meanwhile, the IRS decided to audit Mr. Jacobs for 2015 and this time did so using the correspondence examination unit in Brookhaven.  This exam started four months before he submitted his request to TIGTA regarding the 2014 exam.  It’s not clear why the IRS would audit the same person with essentially the same issues for the subsequent year at a different location but it did and the audit again resulted in him submitting lots of documentation and the correspondence examiner rejecting his explanation.  After some back and forth which no doubt involved detailed explanations from the correspondence exam unit regarding the legal and factual basis for its determination, he requested a hearing with Appeals regarding the 2015 year as well.

Mr. Jacobs succeeded in having his Appeals case assigned from Memphis to Los Angeles.  He provided the AO with a detailed memo and lots of exhibits.  The AO decided that, in keeping with the judicial role of Appeals, she should not evaluate the factual nature of the evidence but send it back to the correspondence examiners in Memphis.  How wonderful for Mr. Jacobs yet he seemed disappointed with this opportunity for more interaction with the correspondence examiners and requested Appeals assign a new AO or at least send his material to an examiner in LA.  Appeals denied his request.  His material went back to Memphis.  The correspondence unit there surprisingly upheld its earlier decision.  An in person meeting was finally set with the AO in LA who by now also had his 2015 year and lots more correspondence from Mr. Jacobs.

This part of the case is interesting because Mr. Jacobs sought to bring his case advocate from TAS to the Appeals conference.  Appeals said no.  The day before the scheduled in person conference with Appeals the case was reassigned to a new AO.  The Court provided this explanation of the discussion regarding TAS attending the conference:

On November 16, Appeals Officer Guerrero was instructed not to schedule a conference with Mr. Jacobs until after management at IRS Appeals had determined a course of action in response to demands from the TAS to be present at Mr. Jacobs’ conference. As best we can tell, this new course of action was attributable to a memorandum the TAS sent to IRS Appeals on November 7, 2018. That memorandum asked that IRS “Appeals should refrain from holding Mr. Jacobs’ hearing until Appeals’ policy is modified” to permit a TAS representative to attend. Discussions between IRS Appeals and the TAS on this topic ensued.

The case does not get any further into the topic of TAS attending the Appeals conference.  I have never thought of bringing someone from TAS into any conference with the IRS but now I am a little intrigued by what happened here and how the issue was resolved.  I would welcome any comments from readers who have brought TAS representatives to Appeals or to other conferences and what role TAS played in those conferences and whether the TAS presence was helpful.

Meanwhile, because the statute of limitations was drawing close, the new AO requested a waiver of the statute of limitations before he would schedule a hearing based on Appeals policy of not working case too close to the statute date.  It’s possible that Mr. Jacobs was frustrated at this point because he declined to extend the statute of limitations causing the issuance of a notice of deficiency, the filing of a Tax Court petition and the resending of his case to Appeals after the IRS answered.

The AO with whom Mr. Jacobs met after filing his Tax Court petition conceded most of the issues and the Chief Counsel attorney promptly conceded the rest.  So, he had a complete victory after a long an arduous process.  Mr. Jacobs then sought attorney’s fees which is all that this case and this blog post is really about.  The Tax Court said no.  He was not a prevailing party within the meaning of IRC 7430.  Why?  Because all of the problems he had prior to filing his petition really did not matter.  The IRS was still justified in not conceding before the petition because it had never met with him and received a detailed explanation of his justification for the positions he took and, therefore, the IRS was substantially justified in issuing the notice of deficiency.  After the filing of the petition, the IRS relatively promptly conceded the case.  The Court noted:

As the Supreme Court has observed, substantially justified means ‘more than merely undeserving of sanctions for frivolousness.’” United States v. Yochum (In re Yochum), 89 F.3d 661, 671 (9th Cir. 1996) (quoting Underwood, [*26] 487 U.S. at 566). The Commissioner’s position may be substantially justified even if incorrect “if a reasonable person could think it correct.” Maggie Mgmt. Co. v. Commissioner, 108 T.C. at 443 (quoting Underwood, 487 U.S. at 566 n.2). Courts have found that the Commissioner’s position was substantially justified in cases that involve primarily factual questions. See, e.g., Bale Chevrolet Co. v. United States, 620 F.3d 868 (8th Cir. 2010). The fact that the IRS loses a case or makes a concession “does not by itself establish that the position taken is unreasonable,” but is “a factor that may be considered.” Maggie Mgmt. Co. v. Commissioner, 108 T.C. at 443.

This case does not break new ground it simply demonstrates again why only .004% of petitioners obtain attorney’s fees in Tax Court cases.  One could argue that he should have made a qualified offer earlier in the case to knock out the substantial justification argument, but Mr. Jacobs seems to have responded at every turn with substantial evidence.  Does the fact that the IRS correspondence examiners were not equipped to process his arguments mean he should not be compensated for the many hours he spent trying to resolve his case. 

Maybe it’s time for a fresh look at the standards for obtaining attorney’s fees in Tax Court cases.