About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Boyle Strikes Again: Incarcerated Individual Subject to Delinquency Penalties Even Though Attorney Embezzled Funds and Failed To File His Tax Returns

We have often discussed the reach of the 1985 Supreme Court case United States v. Boyle. Section 6651(a)(1) and (2) impose delinquency penalties for failing to file a tax return or pay a tax unless the taxpayer can establish that the failure was due to reasonable cause and not willful neglect.  Boyle essentially stands for the position that taxpayers have a nondelegable duty to be aware of tax deadlines. An agent’s incompetence or willful misconduct will not excuse the taxpayer from delinquency penalties.

Lindsay v US is the latest case to apply the principle.


Lindsay was incarcerated and executed a POA to Bertelson, an attorney, to manage his affairs, including filing his tax returns.  The attorney assured Lindsay he was doing so for the years 2012-15; instead he failed to file the returns and for good measure embezzled hundreds of thousands of dollars. The actions resulted in Lindsay receiving $705,414.61 in actual damages and $1 million in punitive damages.

Lindsay eventually filed his tax returns and paid over $425,000 in delinquency penalties. He filed a claim for refund; IRS rejected and he filed a suit in district court. The district court, contrary to the magistrate’s recommendation, granted the government’s motion to dismiss, citing Boyle as precluding a claim for relief. Following a timely appeal, the Fifth Circuit affirmed. In so doing it applied Boyle to Lindsay’s somewhat sympathetic circumstances:

Lindsay claims that he exercised ordinary business care and diligence by giving Bertelson his power of attorney and by directing Bertelson to file his income tax returns and to pay his taxes. Lindsay routinely asked Bertelson whether he was handling Lindsay’s tax obligations, and Bertelson said that he was. In Lindsay’s view, he has a reasonable cause for late filings and delayed payments because he used ordinary business care and prudence but was nevertheless unable to file his returns and pay his income taxes due to circumstances beyond his control, i.e., Bertelson’s malfeasance.

Lindsay’s position was rejected in BoyleBoyle established that taxpayers have a non-delegable duty to promptly file and pay their taxes. 469 U.S. at 249–50. Unlike cases where taxpayers seek and detrimentally rely on tax advice from experts, “one does not have to be a tax expert to know that tax returns have fixed filing dates and that taxes must be paid when they are due.” Id. at 251. Lindsay’s argument fails.

The opinion disposed of a couple of other of Lindsay’s arguments. He also raised the IRS’s own definition of unavoidable absence as excusing delinquency. Citing George v Comm’r, a 2019 TC Memo opinion that collects cases on the point, the Fifth Circuit panel emphasized that the mere fact of incarceration itself does not mean there was reasonable cause to miss deadlines.

Lindsay’s final argument was that  Boyle does not control in cases where a taxpayer is not “physically and mentally capable of knowing, remembering, and complying with a filing deadline.” The opinion stated that even if Boyle created an incapability exception he could have done more, “much like he conducted business and employed a CPA while incarcerated.” 


Lindsay, like many other taxpayers, is out of luck when it comes to trying to recover delinquency penalties that can be directly linked to an agent’s misconduct or incompetence. He did have some recourse, however, as he was awarded significant compensatory and punitive damages from his embezzling attorney. 

Levy on Social Security Benefits: IRS Taking Payments Beyond Ten Years of Assessment Still Timely

Dean v US involves a motion to dismiss a taxpayer’s suit alleging that the IRS recklessly disregarded the law by continuing to levy on a taxpayer’s Social Security payments beyond the ten year SOL on collections.  The magistrate concluded that the IRS’s actions were not improper and recommended that the case be dismissed. The district court approved the recommendation and Dean timely appealed to the 11th Circuit, which affirmed the district court.  The case nicely illustrates how the ten-year collection period does not prevent collection beyond the ten-year period when there is a timely levy relating to a fixed and determinable income stream.


Dean owed over two million dollars for tax years 1997-2005. IRS assessed the liabilities in 2007; IRS recorded a notice of federal tax lien shortly thereafter. In 2013, IRS served a levy on Dean and the SSA for the unpaid tax. Following the levy, SSA began paying over all of the benefits slated for Dean to the IRS. I here note as a tangent that this differs from the federal payment levy program under 6331(h), which authorizes an automatic 15% levy on certain federal benefits, including social security. IRS is not precluded from issuing continuous manual levies, as it did here, where it could take all of the benefits, subject to exemptions that the taxpayer establishes as per 6334(a)(9).

In 2017, with the CSED expiring, IRS filed a certificate of release of federal tax lien stating that Dean had “satisfied the taxes,” that the lien was “released,” and authorized the proper IRS officer to “note the books to show the release of this lien.” IRS also abated the assessments.

Dean at this point believed that the levy on his social security benefits should have stopped. When it did not, he filed a complaint in federal court alleging that the levy was an unauthorized collection action and he sought over $64,000 in damages.

Unfortunately for Mr. Dean, as the magistrate noted, the argument does not “hold water” (allowing me gleefully to link to the great Joe Pesci and Marisa Tomei scene in My Cousin Vinny).

The regs under Section 6331 describe the relationship between a levy and fixed and determinable payments: “[A] levy extends only to property possessed and obligations which exist at the time of the levy.” 26 C.F.R. § 301.6331–1(a). “Obligations exist when the liability of the obligor is fixed and determinable although the right to receive payment thereof may be deferred until a later date.” Id. 

An obligation is fixed and determinable “[a]s long as the events which gave rise to the obligation have occurred and the amount of the obligation is capable of being determined in the future …. It is not necessary that the amount of the obligation be beyond dispute.” United States v. Antonio. 71A AFTR 2d 93-4578], *6 n. 2 (D. Haw. Sept. 24, 1991). Numerous cases establish that Social Security benefits are a fixed and determinable obligation of the SSA and are subject to one-time levies. 

As the lower court opinion discusses, the 2013 levy created a custodial relationship between IRS and the SSA and as such the benefits came into constructive possession of the IRS. The regs under Section 6343 also provide that “a levy on a fixed and determinable right to payment which right includes payments to be made after the period of limitations expires does not become unenforceable upon the expiration of the period of limitations and will not be released under this condition unless the liability is satisfied .” 26 C.F.R. § 301.6343-1(b)(1)(ii).

The Eleventh Circuit also helpfully explains the relationship between the levy and the benefits, directly refuting the claim that the collection occurred after the expiration of the SOL:

Instead, the IRS seized his entire Social Security benefit—that is, his “fixed and determinable right to payment” of his Social Security benefit in monthly installments—immediately upon issuing the notice of levy in June 2013. 26 C.F.R. § 301.6343-1(b)(1)(ii); see Phelps, 421 U.S. at 337. Having seized his entire benefit before the expiration of the collection limitations period, the IRS was not required to relinquish it after the period expired. See 26 C.F.R. § 301.6343-1(b)(1)(ii).

The lower court opinion also nicely discusses the lack of legal significance of the IRS’s abatement of the assessment and issuance of the release of federal tax lien. Both events did not change that Dean owed an underlying tax.  As to the abatement, taxpayers are liable for the tax regardless of whether there has been an assessment. While the release of the federal tax lien affects the IRS’s security interest, it did not release the levy and had no bearing on the underlying tax debt.

CIC Fallout: Anti Injunction Act Bars Motion for Protective Order

US v Meyer presents a somewhat unusual context for a court’s application of the Anti Injunction Act. Meyer stems from an injunction action due to allegations that Meyer promoted “an abusive tax scheme that result[ed] in scheme participants claiming unwarranted federal income tax deductions for bogus charitable contributions.” In 2018, the parties settled that suit and filed a joint motion for permanent injunction. The settlement expressly did not preclude the US from “pursuing other current or future civil or criminal matters or proceedings,” or preclude Defendant from “contesting his liability in any matter or proceeding.”


Following the settlement, the IRS began a civil investigation and proposed approximately $7 million in Section 6700 civil penalties. Following the proposed assessment, Meyer sought a protective order from the federal district court that had previously been the forum for the injunction proceeding. In particular, Meyer alleged that the IRS’s computation of the proposed 6700 penalty improperly relied on admissions he had made in the injunction proceeding, in violation of Federal Rule of Civil Procedure 36(b). FRCP 36(b) provides that “an admission under [Rule 36] is not an admission for any other purpose and cannot be used against the party in any other proceeding.”

The request for a protective order was initially heard by a magistrate judge.  In April, that judge issued a report and recommendation concluding that Meyer’s request for relief was barred under the AIA. In so doing, the magistrate judge held that the AIA applied even though Meyer did not bring the suit but instead sought a protective order in a suit that the US had brought (recall that the AIA provides that  “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person….”). Meyer had sought relief based upon a federal district court’s broad power under Fed Rule Civ Procedure 26 which upon a showing of “good cause,” provides that a court may issue a protective order providing a variety of remedies, such as precluding discovery altogether or “specifying terms … for the disclosure or discovery.”

In finding that the AIA barred the request for a protective order stemming from an alleged violation of Fed Rule Civ Procedure 36 from a government-brought injunction case, the magistrate noted that there was no case law squarely on point but looked to analogous cases applying the AIA where taxpayers sought to limit information that the IRS could use in civil proceedings. According to the magistrate, Meyer’s relief request was essentially requiring the IRS to recalculate the penalty and “preclude the IRS from using certain information to assess a tax penalty and is, therefore, impermissible under [the AIA].”

In finding that the AIA did not allow the court to issue a protective order, the magistrate punted on the issue as to whether Rule 36 had any impact on the IRS’s proposed penalty assessment, and whether a “proceeding” for Rule 36 purposes also included an IRS civil penalty examination.  The magistrate noted that the substantive issue could be teed up in a refund proceeding.

Following the magistrate’s report, Meyer timely appealed the recommendation, with the district court then as per Fed Rule Civ Procedure 72 reviewing the matter on a de novo basis. The federal district court judge affirmed and adopted the magistrate’s order, though the opinion is somewhat noteworthy because it addresses Meyer’s additional filings with the court briefly dismissing Meyer’s argument that CIC Services supported finding that the AIA did not apply:

In the present case, the relief Defendant seeks falls squarely within the contours of the Anti-Injunction Act—namely, to limit the information the IRS may consider in its assessment of $7,066,039.00 in tax penalties under  § 6700. See ECF No. [98] at 5 (requesting that the Court “issue an order preventing the Government and its client, the IRS, from using [Defendant’s] Rule 36 Admissions to support factual conclusions in the IRS’s Section 6700 Penalty examination.”); ECF No. [105] at 10 (“request[ing] that this Court enter an order directing the Government that it may not use the Defendant’s RFA Responses for any purpose other than as admissions in this proceeding.”) (emphasis in original); see also CIC Serv., 141 S. Ct. at 1593 (“suits sought to prevent the levying of taxes … [cannot] go forward.”). Thus, the Court agrees with [the magistrate judge’s] conclusion that Defendant’s Motion is barred under the Anti-Injunction Act.


As did the magistrate judge’s, the district court’s order ended with a statement that Meyer was not without recourse as he could bring a refund proceeding and thus get a court to address the merits of Meyer’s claim that Federal Rule of Civil Procedure 36(b) should bar the IRS from using admissions from a separate injunction in calculating a 6700 penalty in a civil exam. Of course, a refund suit is predicated on Meyer satisfying Flora, though the 6700 penalty has special statutory rules allowing for partial payment to secure court review.

Pro Publica Tax Dump

Our post today features an Op Ed that Les wrote reacting to the Pro Publica release of information.  Because Les is on vacation, I have the opportunity to introduce his post which he asked me to do because I was making comments on the release as well.  My first comment goes not to the significant disclosure violation that appears to underlay the information provided in the article but to whether we should adjust our disclosure laws so we are not shocked by the revelations in the article.  My second comment relates to the IRS and its protection of information.

I wonder if the publication of this information should cause us to rethink the disclosure laws.  These returns would have been disclosed in the 1860s when the first income taxes were imposed.  They would have been disclosed, at least in part, on returns filed after the passage of the 16th amendment.  But for the kidnapping of Lindbergh’s baby, maybe they would still be partially disclosed.  There was a vigorous debate surrounding disclosure back when the income tax was only imposed on the wealthy.  Should part of the wealth tax discussion be disclosure of their returns or parts of their returns such as the bottom line of tax paid.

It also seems that we have quickly forgotten that the IRS kept, and continues to keep, Mr. Trump’s returns from disclosure when there was intense interest.  With the filters the IRS has on access and the breadth of individuals in this disclosure, it’s difficult for me to imagine it came from an IRS source.  Nonetheless, a thorough investigation is needed to make sure the IRS filters capture access to this information on its system and to make sure that the leak did not come from the IRS.  Keith

Last week Pro Publica released the first report of a series that will focus on the financial lives of our nation’s richest people and will “explore in detail how the ultrawealthy avoid taxes, exploit loopholes and escape scrutiny from federal auditors.”

Released close in time to the 50th Anniversary of the publication of the Pentagon Papers, the report is based on extensive confidential data.  Longtime tax reporter David Cay Johnston, in noting how the report detailed in a granular way how little income taxes some of our richest have paid over the past decade or so hailed the Pro Publica release as the “biggest and most important” tax story in his 55-year career.

Over the weekend, I wrote an opinion piece on the Pro Publica report for NBC News’ Think series.

The culture of respecting taxpayer confidentiality is deeply engrained in the IRS and is punishable by civil and criminal penalties.  While Pro Publica did not reveal who released the information (and states it did not know the source), it is not clear whether the perception that the IRS cannot be trusted with confidential information may have an impact on some of the major procedural/tax administration proposals in the Biden Made in America Tax Plan.

More On The Implications of CIC Services

We are starting to see some fallout from last month’s CIC Services opinion. For example, Tax Notes’ Kristen Parillo discusses[$] Hancock Land Acquisitions v US , another microcaptive case. Parillo’s article explores the parties’ post CIC Services supplemental filings in a case where the taxpayer brought an action alleging that the IRS’s failure to refer its case to Appeals violated the Taxpayer First Act’s addition of Section 7803(e)(4) and its mandate that Appeals’ “shall be generally available to all taxpayers.” Immediately following the Supreme Court opinion, the government filed a supplemental brief claiming that CIC does not alter that the challenge is barred by the AIA, emphasizing that the partnership was not challenging a reporting obligation and that the relief requested was close to an assessment on the partners.

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The partnership responded, claiming that its challenge squarely fits in with the three CIC factors that led the Court to conclude that the challenge was not to a tax, including that its relief looks to a remedy for alleged violations of their procedural rights and that any impact on assessment or collection is just a downstream consequence.  

Earlier this week there was also a very interesting blog post on CIC Services in Notice & Comment, the administrative law blog. The post, Do you C what I C? – CIC Services v. IRS and Remedies Under the APA, from Professor Mila Sohoni, explores what CIC Services offers more broadly for admin law purposes: 

The Court’s opinion in CIC Services throws some much-needed light on two important points of contention within that debate: what do litigants mean when they ask a court to “enjoin” a rule or “declare” a rule “unlawful” in an APA action, and what does the APA mean when it says that a court may “hold unlawful and set aside” a rule?

For readers interested in those issues I suggest reading the brief but powerful post.  The post focuses mostly on APA 706 and whether APA violations can lead to vacating regs/rules in their entirety or rather a more narrow focus on the individual plaintiff. The takeaway from the post is that there has been some uncertainty in admin law circles on the scope of a federal court’s powers when in a preenforcement action it finds that an agency (not just the IRS) violates the APA. As Sohoni discusses the Sessions led DOJ in the Trump Administration issued litigation guidelines that adopted the narrow view. Others have argued that the courts have much broader powers to enjoin agency action. Sohoni argues forcefully that CIC Services provides support for the latter view:

The opinion in CIC Services shows that the Court does not hold this [the narrow] view of the meaning of “set aside.” Throughout its opinion, the Court treats “set aside” as a type of relief. (See, e.g., CIC Servs., slip op. at 4-5 (“So the complaint asks the court to ‘set[] aside IRS Notice 2016-66 …’”); id. at 11 (“the existence of criminal penalties explains why an entity like CIC must bring an action in just this form, framing its requested relief in just this way”). Moreover, the Court not only treats “set aside” as a kind of relief, but the Court also necessarily is using the term “set aside” in its conventional sense: to mean “invalidate,” not merely to “ignore.” 

These developments are just the opening rounds on the impact of CIC Services. Stay tuned.

In Gilbert v US Ninth Circuit Weighs in on The Declaratory Judgment Act

With my colleague Marilyn Ames we are revising our subchapter on the Anti-Injunction Act in Chapter 1 of Saltzman and Book IRS Practice and Procedure to take into account last month’s CIC Services decision. Embedded in our discussion of the AIA is a discussion of its cousin, the Declaratory Judgment Act. Under the Declaratory Judgment Act, a federal court may issue a declaration resolving the parties’ competing legal rights “[i]n a case of actual controversy within its jurisdiction, except with respect to Federal taxes.

Gilbert v US is a recent Ninth Circuit opinion that discusses and applies the DJA in the context of a contract dispute between a foreign entity that owned Arizona property and the Gilberts, US citizens that bought the property. In this post I will discuss the case and the somewhat unusual path that led to the court’s finding that the DJA prevented the court from reaching the merits of the dispute.

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The Gilberts entered into a contract to buy residential property in Arizona. The contract called for a $1.2 million purchase price to be paid over the course of about five years. A few years into the contract and the Gilberts informed the seller that future payments were subject to withholding under the Foreign Investment in Real Property Tax Act (FIRPTA) and the Fixed, Determinable, Annual, or Periodical income (FDAP) rules. The sellers disagreed, informing the Gilberts that they were exempt nonresidents. The Gilberts sought a declaratory judgment from a federal district court that would establish that withholding money from their agreed purchase price to pay the federal taxes required under FIRPTA and the FDAP rules was not a breach of their real estate contract.

The district court dismissed the case and the Ninth Circuit affirmed. In dismissing the case, the Ninth Circuit summarized US withholding rules. FIRPTA applies to non US sellers of US real estate and triggers a withholding requirement on a purchaser to ensure that funds to pay the required taxes are collected under FDAP rules.

The Gilberts argued that the DJA did not apply because they were seeking an order with respect to their obligations to withhold on behalf of another’s liability. Moreover, according to the Gilberts, since there had yet to be an assessment or collection of taxes, the order would not restrain assessment or collection.

The Ninth Circuit disagreed. In doing so, it noted that while the DJA’s language sweeps more broadly than the AIA (it covers all actions “with respect to taxes” rather than the AIA’s “for the purpose of restraining the assessment or collection of any tax”) courts have applied the statutes coextensively. Looking to AIA cases, the court noted that the cases do not require assessment to apply. Here, as the Ninth Circuit noted and citing the 4th Circuit case International Lotto Fund case, withholding is a method of tax collection, and there is no “justification for treating withholding from a foreign corporation as anything other than the collection of a tax.”

The opinion also acknowledges that the Gilberts were not seeking to stop the government from collecting taxes but instead “seek to comply with their asserted FIRPTA and FDAP obligations but in a way that avoids any adverse contractual consequences.” Despite that intent, the opinion concludes that the action is barred, emphasizing that a prepayment determination on FIRPTA and FDAP would be binding and undermine the standard refund procedures:

The Supreme Court has recognized that the government’s vital interest in securing tax revenues justifies a “pay-first, litigate-later” system of judicial review. See Flora, 362 U.S. at 164 & n.29. The Gilberts’ attempt to litigate the existence, or extent, of their withholding obligation before paying withheld funds to the government departs from this longstanding principle. There can be no dispute that the ultimate issue in this case is the parties’ tax obligations flowing from their real estate transaction. And even though the Gilberts are not seeking to avoid tax liability, Congress has made clear that the court lacks jurisdiction over their request for declaratory relief. 28 U.S.C. § 2201(a). 

CIC Services came out a few days before Gilbert but the Ninth Circuit does not cite it or address its impact. While withholding and information reporting are closely connected tools to address the tax gap, actions like this that have a direct impact on tax collection differ from challenges to reporting regimes. While CIC Services suggests a focus away from the downstream circumstances withholding is a method of tax collection rather than a regulatory mandate. The DJA and AIA are still formidable hurdles to consideration of disputes that relate, even indirectly, to tax liability.

TIGTA Releases Report on Improper Payment Rate For Refundable Credits

Last month TIGTA released its annual review of the IRS’s improper payment reporting requirements under the Payment Integrity Information Act  (PIIA). The focus in this TIGTA report is the IRS’s administration of refundable credits. In the pre-COVID time frame (FY 20), OMB determined that the Earned Income Tax Credit (EITC), Additional Child Tax Credit (ACTC), and American Opportunity Tax Credit (AOTC) are high-priority programs that are susceptible to significant improper payments.  

Under applicable executive orders, for any program identified as “susceptible to significant improper payments” the IRS is required to provide the following information for the Treasury Department’s financial report:

  • The rate and amount of improper payments. 
  • The root causes of the improper payments. 
  • The actions taken to address the root causes. 
  • The annual improper payment reduction targets. 
  • A discussion of any limitations to the IRS’s ability to reduce improper payments. 

Rather than focus on the data that the report reveals (as I have done in the few times I have reviewed these reports), in this brief post I will focus on two somewhat surprising developments discussed in the TIGTA report: 1) that the IRS has formally requested that OMB excuse it from reporting erroneous refundable tax credit claims under the PIIA and 2) that the IRS is systemically imposing a two-year ban for ACTC claimants.  The first of these developments is encouraging and the second is alarming. I will briefly discuss each below.


Possible IRS Carve Out From PIIA

On pages 2 and 3 of the report TIGTA discusses how last fall Treasury and the IRS formally requested that the OMB allow IRS to be excused from meeting the requirements under the PIIA. As TIGTA discusses, Treasury and IRS stated that the tax system is “primarily” a collection system and not a payment program. More substantively the request centered on how IRS directly addresses similar concerns as part of its comprehensive tax gap strategy. As part of its pitch, and as TIGTA summarized, the argument centered on the following points:

  • The refundable portion of tax credits, or outlays, should not be considered separately from the rest of the credit because the IRS and Treasury Department need to view any errors to address them effectively. 
  • Tax credits are embedded into and affected by other provisions of the Federal tax system. Tax Gap estimates and other comprehensive compliance analyses are more effective in helping the IRS identify noncompliance and allocate limited resources effectively.
  • Tax Gap estimates already effectively monitor changes in refundable tax credit errors over time. 
  • Improper payment estimates under the PIIA provide no additional information to the IRS as it administers tax credits and addresses noncompliance. 
  • Refundable tax credit overclaims are largely due to the credits’ statutory design and the complexity taxpayers face when self-certifying eligibility for the refundable tax credits, not internal control weaknesses, financial management deficiencies, or reporting failures. 
  • Tax credits are part of an interrelated tax administration portfolio that the IRS addresses through a comprehensive enterprise risk management program. 

Given that refundable credits comprise a relatively small amount of the overall tax gap, and that special focus on this one small aspect of the gap seems to contribute to additional pressure on IRS to single out relatively low income and low payoff audits, the Treasury and IRS request seems sound. Does this mean that if the request is granted the number of EITC audits will decrease? I am not certain, though I suspect that with additional pressure on IRS to step up audits of higher income taxpayers and lighten the touch on others it would likely give the IRS more flexibility to shift resources and contribute to a relative rebalancing of individual audit coverage.

The other side of the coin is that Congress seems intent on using the tax system to deliver all sorts of benefits, and as the IRS itself more directly acknowledges its role as a benefit administrator, the reasons for exceptional treatment may not be as compelling. According to TIGTA, earlier this year OMB advised Treasury and IRS that it is considering IRS’s request and will respond after the new management team at OMB is in place. It is unclear if the last year’s expanded use of IRS to deliver benefits that seem less tethered to tax collection will have an impact on the OMB decision. Perhaps OMB might press IRS to focus more on certain payments, like the advanced component of the CTC if that is made permanent.   

Systemic Ban and Child Tax Credit

One aspect of the TIGTA report is to evaluate whether IRS is using its existing powers to adequately address refundable credit errors (this is a common refrain; see my post Is IRS Too Soft on People Claiming EITC? Treasury Says Yes and Also Suggests No). One part of the IRS tool kit is the extraordinary power IRS has to impose a two or ten-year ban following a determination that an individual has disregarded credit eligibility rules. TIGTA observes that in its view IRS has failed to effectively use bans, looking at 1.9 million taxpayers from FY 17 and over 3900 of them who were allowed to claim credits despite having some or all of the credits disallowed in the two prior years. Given audit costs (even correspondence audits) TIGTA’s “solution” is for IRS to systemically impose a ban when individuals have had two successive years of disallowed credits.

The report is a little foggy on the details but it appears that IRS pushed back on the TIGTA recommendation. On page 8 the IRS stated that it did not agree to  “modify systemic processes to apply the two-year ban after two audits result in the disallowance of a refundable tax credit “ On the other hand, earlier on the same page the report states that starting in “Processing Year 2021, systemic processes will assess the two-year ban for the ACTC.” 

I read this to mean that for some refundable credits (ACTC and I suspect EITC) IRS will be using a systemic ban following prior disallowances. There are a number of problems with this solution, as the NTA’s 2019 special report on refundable credits highlighted. With Congress at least temporarily buttressing the CTC, and the influx of claims to hit IRS from nontraditional taxpayers, any IRS decision to systemically impose a ban is fraught with risks to taxpayer rights. It seems hard to square bootstrapping a failure to respond with the mental state needed to justify a ban determination.  While I would like to know more about the systemic banning IRS will be imposing I suspect that this means IRS can make a determination that an individual has acted recklessly or intentionally in the absence of any hearing or even direct taxpayer communication. Given that there is no published guidance on the meaning of reckless or intentional disregard for these purposes, and no outward facing guidance on exactly how IRS makes its determinations, this is a relatively obscure but potentially significant part of the IRS’s job in administering benefits.

As I and others have written before (see for example Bob Probasco’s The EITC Ban-Further Thoughts Part 1Part 2 and Part 3) the absence of clear notice and a defined path to administrative and judicial review of a ban determination is inconsistent with taxpayer rights, including the right to be informed, the right to a fair and just tax system, and the right to appeal. As Congress leans on IRS to deliver more benefits, the absence of clarity around these potentially catastrophic ban determinations is likely to generate close judicial scrutiny and highlight how IRS practice is inconsistent with due process protections that surround other nontax based programs. Given the temporary and likely permanent expansion and advanced payment of the ACTC, the stakes are even higher than in past years. 

Further Initial Thoughts on CIC Services

In this brief post and following on Professor Bryan Camp’s discussion, I offer some initial observations on the Supreme Court’s CIC Services opinion.  As Keith noted in his introduction to Bryan’s post, I am not disinterested in this issue-with the Harvard Clinic and on behalf of the Center for Taxpayer Rights I helped write an amicus brief seeking cert and another in support of the plaintiffs at the Supreme Court.


I also come at the issue not as someone who reflexively believes that IRS action is improper, or that IRS systemically runs roughshod over the APA. I do think, however, that tax administration would benefit from a defined and prompt path for litigants to challenge IRS rulemaking apart from traditional enforcement proceedings.  Pre-enforcement challenges to agency rulemaking are the norm outside tax law. The CIC Services decision does not change the norm in tax administration, with the exception of some (or maybe all) challenges relating to information reporting rules. (Justice Kavanaugh’s concurrence offers a broader take on the opinion as he believes the opinion’s focus on the object of the suit rather than the downstream effect as the Court previously held in Americans United and Bob Jones blesses pre-enforcement suits challenging a regulation backed by a tax penalty; I will need to think further on this).

Why do I hedge though about challenges to information reporting? The opinion seems to offer wide berth to challenges to all information reporting regimes. To that end, see page 6 of the slip opinion, where the majority states that a “reporting requirement is not a tax; and a suit brought to set aside such a rule is not one to enjoin a tax’s assessment or collection.”

Later though it does leave the door ajar to distinctions when at page 9 it sets out a three part test to evaluate whether the action is a “tax action in disguise.” The three-part test is that 1) the regime imposes affirmative costs other than the underlying tax, 2) there are several steps between the reporting and any penalty that the IRS would impose on a party failing to report and 3)  there are potential criminal penalties for noncompliance.  For now I will focus on part two, that the reporting rule “and the statutory tax penalty are several steps removed from each other. “

The opinion notes that for CIC Services before any penalty could arise a number of steps must occur, including that CIC fails to provide the required information about the micro captive transactions, the IRS must determine that there has been a violation of the Notice, and then IRS must exercise its discretion to impose the penalty.  One question that lower courts will likely explore is whether the steps between not complying and possible penalty imposition are similar enough in other information reporting regimes to lead to a conclusion that a challenge to a different information reporting is to the reporting rather than a tax penalty.  That the CIC opinion did not explicitly address how its approach would affect for example the interest reporting regime that bankers challenged in the Florida Bankers case suggests perhaps some wiggle room, though on balance I think a better reading of the majority opinion is that there is little basis to offer a distinction with a difference. In my view, under the CIC approach, Florida Bankers comes out differently.

Similarly while Justice Sotomayor in her concurrence suggests perhaps a different outcome if the challenge related to a taxpayer’s own reporting (a distinction not made in the opinion), I think most of the likely challenges that will come from third parties anyway. No doubt that as Congress considers new statutory reporting rules on banks as part of its efforts to clamp down on the tax gap, I suspect we may soon see some opportunity to see bankers and other financial institutions mount fresh challenges.

While Bryan and I differ in our takes on the case, like Bryan I also think a fitting outcome would be for Congress to take a fresh look at the AIA and perhaps allow parties the opportunity to challenge tax rules or regulations in preenforcement proceedings (to that end see my post Is It Time To Reconsider When IRS Guidance Is Subject to Court Review? ) That post discusses such a proposal by Professor Kristin Hickman and Gerald Kerska as well as a separate proposal from Stephanie Hunter McMahon.