Samantha Galvin

About Samantha Galvin

Samantha Galvin is an Associate Professor of the Practice of Taxation and the Director of the Low Income Taxpayer Clinic (LITC) at the University of Denver. Professor Galvin has been teaching full-time at the University of Denver since October of 2013 and teaches courses in tax controversy representation, individual income tax, and tax research and writing. In the LITC, she teaches, supervises and assists students representing low income taxpayers with controversy and collection issues.

October 2022 Digest

October’s posts highlighted information shared at the Tax Section’s fall meeting. Additionally, many posts sought or identified solutions to current and longstanding problems, such as lengthy IRS hold times, lengthy Tax Court dispositions, the perpetuation of false narratives and concerns about state-based tax administration.

“The Dark Net? We OWN the Dark Net.” -Charles Rettig, IRS Commissioner, ABA Tax Section Meeting: During Commissioner Rettig’s speech at the fall meeting, he provided examples of the work the IRS does to protect and serve Americans by fighting fraud, terrorism, exploitation, and trafficking. He also called out tax practitioners for failing to defend the IRS from false narratives. His speech inspired the author of this post to conclude that it’s in everyone’s best interest to support, fund, and work to improve the IRS.

Updates from the ABA Tax Section 2022 Fall Meeting: Court Procedure & Practice: The Court Procedure & Practice Committee discussed recent Court developments during one of its panels. The Court continues to receive a high volume of petitions but is closing more cases than it’s opening; it will no longer scrutinize late filed CDP petitions after Boechler; and trial sessions are mostly back in person but can be remote at a Judge’s discretion or by order of the Chief Judge.

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APA Developments

Harper v Rettig Update: Government Petitions For Rehearing: The government filed a petition for rehearing in Harper v. Rettig. At issue is the relationship between the APA, Section 7609, and challenges to the IRS’s summons power. The government argues that Section 7609 is the exclusive means to challenge the summons power and the lower court should consider whether that creates alternative grounds to dismiss the case for lack of subject-matter jurisdiction.

Taxpayer Seeks Supreme Court Review in Oakbrook Land Holdings v Commissioner: The Supreme Court may choose to expand upon when and how extensively an agency must respond in the comment process. This post reviews the APA notice and comment issues relevant to the circuit split in Oakbrook and Hewitt and touches on APA challenges arising in other areas.

Appeals Removes Challenges to Validity To Regs or IRB Guidance From Hazards of Litigation Analysis: In response to an increasing number of APA-related challenges, the IRS announced that Appeals is not to take into account the validity of regulations or IRB guidance when assessing the hazards of litigation. Practitioners and academics are concerned about the negative effect this constraint on Appeals’ independence may have on tax administration, but on the other hand, Courts may be the most appropriate venues for these complex questions.

Issues Related to Return Filing

The Stain of Fraud and Amended Returns: Gaskin involves a fraud penalty for a taxpayer who filed an amended return to report the income he omitted on his original return. The taxpayer argues that the fraud penalty is not justified because his amended returns were not fraudulent. The Court held the subsequent filing of an amended return after an audit begin does not purge the original fraudulent filing or the taxpayer’s fraudulent intent.

Lesson From The Tax Court: Don’t Confuse Dummy Returns With Substitutes For Returns: In the case of a non-filer, the IRS can issue a Notice of Deficiency or prepare a Substitute for Return. Each process has its own consequences, including that a failure to pay penalty can only be assessed on an SFR. The history, law, and rules of each process are discussed in this post along with a recent and relevant Tax Court decision.

Supreme Court Updates

Supreme Court Update for Taxes and the October 2022 Term: The Supreme Court will hear five tax-related cases during the term that began earlier this month. Three of the cases relate to issue of jurisdiction and equitable tolling and one relates to the calculation of the FBAR penalty.

Another Tax Case Headed for a Supreme Court Decision: The fifth tax-related case the Supreme Court will consider involves the question about the types of information that can be shielded when there is a combination of privileged (attorney work product) and non-privileged (tax return preparation) documents.  

Circuit Court Updates and Decisions

Anti-Injunction Act Does Not Bar Defendant Taxpayer’s Motion to Prevent Government From Using Discovery Admissions In Later IRS Proceedings: In U.S. v. Myer the 11th Circuit considered whether the AIA prevents a defendant from moving for a protective order to restrain the government from using discovery admissions when assessing a tax penalty in a separate proceeding. Finding for the defendant, the Court reversed the district court and found that the AIA did not apply because “moving for a protective order in an action filed by the government does not amount to maintenance of a ‘suit.’”

Federal Rule of Appellate Procedure 28(j): The IRS requested that the 9th Circuit reconsidered its decision in Seaview due to an order issued in Dollarhide. It used an Appellate Rule 28(j) letter to bring the Court’s attention to the order. The order involved the question of whether a tax return provided to a revenue agent constitutes a filing, but Seaview argues there’s a distinction between the filing options available for timely versus untimely filed returns.

Second Appellate Case on Whether IRC 6213(a)’s Deadline is Still Jurisdictional and First Tax Court Case Involving IRC 6015(e)(1)(A): Carl provides an update on equitable tolling litigation in this post. In addition to Hallmark and Culp, a new appellate case involving a deficiency petition has emerged and the taxpayer has a COVID-related basis for missing the filing deadline. Meanwhile, the Tax Court is deciding a case about whether the deadline to file a stand-alone innocent spouse petition is jurisdictional and has invited amicus briefs on the issue.

Getting to Appeals: In Rocky Branch Timberlands LLC the right to go to Appeals in a conservation easement case was brought before the 11th Circuit. The IRS denied petitioners the right to go to Appeals because petitioners were initially not cooperative in agreeing to extend the assessment statute. The 11th Circuit dismissed the appeal because the appellants failed to file a Civil Appeal Statement form within the required time frame. Still the petitioners may not have been successful on the merits due to a similar case in the 11th Circuit that was recently dismissed.

Tax Court Decisions

Immunity: The Petitioner filed a motion for immunity on behalf of expert witnesses in Oconee Landing Property LLC. The petitioner wants to admit the testimony of the experts who appraised the easements in the case while protecting them from self-incrimination. The Court denied the request holding that it lacks jurisdiction to grant criminal immunity as the power resides solely with U.S. District Courts upon the request of the applicable U.S. Attorney.

What Happens When the Tax Court Petitioner Dies: The daughter of the deceased taxpayer in Sander petitioned the Court on her mother’s behalf when a notice of deficiency was issued after her mother’s death. The Court finds she does not have the authority to act on behalf of her mother’s estate but allows the opportunity for a probate action to be commenced. When a death occurs after a petition is already filed, the Court allows for a substitution of parties.

Miscellaneous Updates and Information

State Taxpayer Rights Protections – Some Highlights & a Free Online Workshop Series: The preliminary results of a state-based survey conducted by the Center for Taxpayer Rights has revealed encouraging statistics and some concerning trends. The Center has used the data to begin to identify best practices and areas that would benefit from advocacy. More will be discussed during the Center’s Reimagining Tax Administration: State Tax Practices & Taxpayer Rights series which began in October. 

Debts Owed by Insolvent Taxpayers to the IRS: The Federal Priority Statute provides that when a person indebted to the United States is insolvent and engages in some action that threatens the government’s ability to collect its debt, or when a deceased debtor dies and the property of the estate is insufficient to pay all their debts, the claim of the United States is to be paid first. There are circumstances in which a fiduciary can be held personally liable for failing to pay the U.S. in full. There are also protections when the debt is tax debt and judicially created exceptions in other circumstances. There are many rules in this area and professionals dealing with insolvent debtors or estates should be familiar with them.

Inflation and Tax Procedure: The IRS recently issued Rev. Proc. 2022-38 to advise the public of the inflation adjusted applicable numbers starting in 2023. The dollar amounts of property exempt from levy, seriously delinquent tax debts, and the hourly limitation for attorney’s fees have all increased.

The IRS Strikes Back Against Robocalls: The IRS has rolled out a pilot program for the Practitioner Priority Line that uses artificial intelligence to prevent phone line cutting services to combat lengthy hold times. If the IRS is successful, the pilot will be expanded and will benefit individual taxpayers as well as practitioners without enough money to pay for the robocall service.  

It is Time To Take Remedial Steps To Improve The Timeliness of Tax Court Dispositions: This editorial post calls out the significant delays for some Tax Court dispositions and asks the Court to correct the problem. It identifies ways that Court can consider remedying the issue, including tracking data, hiring more judges, or better managing existing judges. It also suggests that Congress can act to require the Court to publicly disclose certain information to put some pressure on the Judges who take longer amounts of time.

September 2022 Digest

September covered a multitude of updates on hot issues and but none alone dominated PT’s coverage. There were posts about section 6751(b), whistleblower jurisdiction at the Supreme Court, Boechler’s impact, and administrative law considerations. Tax procedure continues to evolve on many fronts right before our eyes.

Section 6751(b) Decisions

Can the IRS Approve a Penalty Too Soon?: In Sparta Pink Property LLC petitioner argues IRS approved the penalty too soon thereby rendering the approval ineffective under section 6751(b). The penalty was approved before a relevant report was reviewed by the IRS supervisor in this conservation easement case. The Court reiterated its position that the penalty approval form does not need to demonstrate the depth or comprehensiveness of the supervisor’s review.

The “What” and “When” of IRC 6751(b): In Kroner the 11th Circuit reversed the Tax Court and chose to follow the 9th Circuit’s decision in Laidlaw, which held that the IRS satisfies section 6751(b) as long as a supervisor approves the penalties before they are assessed. The Court looked at the phrase “initial determination of such assessment” and decided it describes the formal process of calculating and recording an obligation on the IRS’s books, rather than the timing of when the IRS needs to communicate.

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Graev’s Long Shadow: Section 6751(b) and Supervisory Approval of Penalties: Professor Monica Gianni shares and summarizes an article she wrote about section 6751(b) and the hundreds of cases that have inconsistently interpreted the statute. Her article aims to bring some order into the case law and concludes by recommending that the statute be repealed. 

Tax Court Orders and Decisions

Tax Court Vacates at Least 40 Dismissals of Whistleblower Cases: Under the assumption that the Supreme Court had denied the cert petition filed in Li, because the docket was belatedly created, the Tax Court dismissed for lack of jurisdiction pending whistleblower awards involving threshold rejections. Once the Li docket was created, the Tax Court vacated those dismissals. In her cert petition, the taxpayer argues that the Court has jurisdiction to review threshold rejections under the statute and the APA.

A Procedural Goldmine: Dollarhide Enterprises is a more than a decade old procedural goldmine and recent circuit splits have thrown some uncertainty in the mix. The case involves questions about the conditions under which parties can make a biding settlement of issues without agreeing on computations and what it means to file a return.

Boechler Works: The first order holding that the IRS waived the right to raise late filing as a defense and allowing the case to move forward happened in Ahmad. Prior to the Boechler decision, the Tax Court would affirmatively analyze the filing to determine timeliness rather than rely on the IRS to raise it. This order reflects the change in approach and demonstrates that Boechler works.

Lamprecht v Comm’r: Statute of Limitations, Qualified Amended Returns And The Issuance Of A John Doe Summons: This opinion is significant for practitioners with clients who have oversea accounts, unreported income, amended returns, and hefty penalties. Lamprecht involves the statute of limitations on assessment when a taxpayer files an amended return and the IRS uses a John Doe Summons to gather information. The taxpayers argued that the amended returns filed after the JDS were qualified amended returns and the SOL prevented the IRS from assessing penalties.

District Court Decisions

Polish Lottery Winner’s Son Sues Over Penalties For Failing To Report Foreign Gifts: The taxpayer in Wrezesinski received a foreign gifts from his mother after she won the Polish lottery. Relying upon an advisor he did not report the gifts, but once he realized he was given incorrect advice he quickly reported them. The IRS assessed penalties but agreed to abate only 80% of them in Appeals which is confusing and seems contrary to the purpose of penalties in this case. The taxpayer has now filed a refund suit in District Court for the remaining penalties.

Circuit Court Decisions

Fifth Circuit Upholds Constitutionality of Passport Revocation Statute: The Fifth Circuit held that there is a fundamental right to interstate travel, but not international travel in Franklin. As a result, the passport revocation statute is constitutional. The concern that taxpayer who owes substantial tax can travel internationally and hide assets is a constitutionally justifiable basis under rational basis or intermediate scrutiny.

Courtney v US Illustrates Limits of Taxpayer Challenges to Allegedly Improper IRS Collection: The Fifth Circuit affirmed the district court’s decision to dismiss petitioner’s case in Courtney. The taxpayer wasseeking damages under Section 7433 for allegedly improper collection and an injunction barring further collection actions against him, limited liability companies, and an irrevocable trust. The Court held that he needed to exhaust his administrative remedies first, the futility doctrine didn’t apply, and the AIA barred his demand and Enochs v. Williams Packing exception didn’t apply.

TIGTA Reports

Some Interesting Data from this Year’s TIGTA Federal Tax Lien Filing Review: This post shares data from TIGTA’s review of the IRS’s lien filing procedures, including the number of times the IRS failed to send a CDP lien notice to a correct address or to a representative, and also the number of times the IRS chose not to file a lien broken down by dollar amount.

TIGTA Report on Government Contractor Tax Delinquency: TIGTA reported that there are billions of dollars owed in delinquent taxes by federal contractors and grantees, contrary to the law and despite self-reporting requirements. Until recently, disclosure laws prevented the IRS from affirmatively discussing tax delinquencies of federal contractors with other government agencies, but Congress appropriated $30 million to the IRS to create an application through which entities could request a certification that the entity did or did not owe seriously delinquent taxes.

Bankruptcy and Taxes

Tracing Social Security Payments: In re Weber, The bankruptcy court determined that when a social security recipient uses a portion of that payment for tax withholding, the individual’s consent to the use of those funds extends only to the payment of tax liabilities and not to the payment of other claims. The court looked to Spolarich to find that protection for social security payments is exceptionally expansive and only subject to modification by express statute.

Updates and Ideas

Proposed Regs Address Access To Appeals: The IRS is soliciting comments by November 14 on proposed regulations regarding a taxpayer’s right to access Appeals.  The regulations allow access when a matter involves a federal tax controversy, but other types of matters do no trigger the same right. The regulations also require that the originating branch complete its action and make a determination before a taxpayer can access Appeals and that there is only one opportunity to go.

Out of Time? APA Challenges to Old Tax Guidance and the Six-Year Default Limitations Period: This post discusses the idea that some APA challenges to old tax guidance may be time barred due to 28 U.S.C. § 2401(a) which sets the default limitations period for suits against the federal government to six years “after the right of action first accrues.” The question becomes when has the right of action first accrued and more than half of Appeals Courts have accepted that it happens at the time the regulation or guidance is issued. The government can waive the limitations period defense but may be less likely to do so as an increasing number of APA challenges are brought.

Information from Administrative Practice Programming at the May ABA Tax Section Meeting: This post shares a summary of what was discussed during the Administrative Practice panel at the May Meeting. The panelists discussed Exam’s return to office, innovations and challenges encountered during COVID, and what Exam is currently focusing on. Some of the notable topics include: the IRS’s adoption of virtual reading rooms, video conferencing, and web-based upload tools; changes to the application procedure for CAP; and that the Fast Track Appeals Process is being reviewed. 

Failing to Respond to the IRS and the Tax Court: An attorney who did not respond to Court orders and had a history of other unresponsiveness was reprimanded in a Tax Court press release. This post suggest it would benefit the public if information about such matters was easier to find the Tax Court’s website.

When Regulatory and Sub-Regulatory Guidance Collides… (Part One): This two-part post looks at what happens when regulatory and sub-regulatory guidance contradict each other. The problem arises when the statutory language is unclear and there is at least some room for interpretation delegated to the agency. The first post looks at the contradictory information in an IRS regulation and an IRS notice about nature and refundability of the 20% offer payment when an offer is not accepted.

When Regulatory and Sub-Regulatory Guidance Collides… (Part Two): This post looks at the reasons why a notice that contradicts a regulation is unpersuasive and at risk of being challenged under administrative law principles. One such reason is that the Accardi Doctrine requires an agency to follow its own rules when individual rights would be affected if the agency deviates from those rules.

August 2022 Digest

In August, some were stuck in the past while others focused on the future. The DOJ was living in the past when it misinformed the Court about rules related to section 6015(f). The Center for Taxpayer Rights is reimagining tax administration; the Tax Court may be heading in the direction of making more records publicly available; and we should have more clarity on the types of circumstances that allow for equitable tolling in the coming year.

Reimagining Tax Administration

Reimagining Tax Administration: Social Programs Through the Tax Code – Characteristics of the EITC/Advance CTC Population: This multi-post series highlights Center for Taxpayer Rights’ workshops, and a forthcoming report, that looks at benefits administered through the tax system while exploring and discussing alternative approaches. This first post looks at the individuals who receive government benefits, specifically the EITC and ACTC, and the advantages and disadvantages of the IRS administering benefit programs at a time when household compositions are evolving.

Reimagining Tax Administration: Social Programs Through the Tax Code – Workshop 3: Design Theory and Administrative Burden: This second post explores how program design and administrative burdens impact the ability of individuals to understand and navigate social programs, and how the current structure may deter the target population from receiving benefits.

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Reimagining Tax Administration: Social Programs Through the Tax Code – Workshop 4: Eligibility Rules for EITC/CTC and Other Family Benefit/Anti-Poverty Programs, Part I: This post closely examines the eligibility rules for tax benefits (and other benefits); and explores whether the rules fit the characteristics of the target population; whether otherwise eligible children may be missed due to the rules; and the nature, extent, and impact of EITC errors.

Reimagining Tax Administration: Social Programs Through the Tax Code – Workshop 4: Eligibility Rules for EITC/CTC and Other Family Benefit/Anti-Poverty Programs, Part 2: This post addresses the risks that might arise in using the tax system to deliver benefits, how other countries have tried to minimize the risk, and why the tax code is the place to house these programs despite the risks.

Tax Court Updates, Orders, and Decisions

Getting Into the Tax Court: The Tax Court set out the guidelines for entry to the courthouse in D.C. and other places where it sits. The guidelines require all entrants to answer self-certifying health screening questions. Trial participants, witnesses, and members of the public are also required to register their name, phone number, email address, place of trial and date of trial using a QR code before entering any courthouse.

When Will the Tax Court Redact?: A recent order from the Tax Court indicates the Court is willing to redact a petitioner’s unredacted sensitive information. This may suggest the Court is thinking about how to balance protecting petitioners’ information with the public’s right to access Court records, but it could also just be a new practice adopted only by certain judges.

Prior Opportunity and Receipt of the Notice of Deficiency: The tax lawyer petitioner in Chinweze argued he did not receive a notice of deficiency and therefore can raise his underlying liability in a CDP hearing. His facts were not very sympathetic, and the Court used the probative information gleaned from a form 3877 to conclude the notice was properly mailed. The case provides a good roadmap of the challenges petitioners may encounter when arguing non-receipt.   

District Court Decisions

Latest Round in PTIN Litigation With District Court Finding For Government In Steele v US: The Court allowed the government to assert the deliberative process privilege when plaintiffs tried to compel discovery about the creation and implementation of the original PTIN program. The Court also strongly disagreed with the plaintiffs claim that the government failed to assert the privilege with sufficient detail.

DOJ Misinfoms District Court on IRC 6015(f) Relief Filing Deadline: The DOJ misinformed the Court about the relevant case law and regulations and ignored the 2019 amendment to section 6015(f) in U.S. v. Weathers. How could the DOJ attorneys not know that the Lantz and Jones cases and the regulation were all legislatively overruled? They subsequently admit their error as discussed below.

The 6511(h) Conundrum: How to Remain in the Courthouse When the IRS Tries to Bar Your Entry?: Recent decisions involving section 6511(h) are summarized. The IRS has been successful in having most cases dismissed when the taxpayers failed to include documentary support with their administrative claims, but the plaintiffs in Subbiah are in the minority who have avoided dismissal. The post calls on the IRS to solicit comments on Rev. Proc. 99-21 and establish a unit to facilitate the claims of taxpayers who claim financial disability.

DOJ Apologizes for Misinforming District Court on IRC 6015(f) Deadline: The DOJ filed a notice admitting it was wrong about the filing deadline under section 6015(f), however, the Court still lacks subject matter jurisdiction since the District Court holds that only the Tax Court can consider innocent spouse relief.

Another Offer Denied, Another Reason for Submitting in Collection Due Process: The benefits and protections available when submitting an offer through a collection due process hearing are highlighted in this post. In Dillon the taxpayers tried to obtain district court review of their offer which was returned as non-processable because the IRS determined it was submitted to hinder or delay collections. The Court held that the suit was barred by the APA.

Circuit Court Decisions

DC Circuit Blesses IRS’ Glomar Defense In Long Running FOIA Dispute: The taxpayers in Montgomery submitted a FOIA request for documents related to whistleblower forms in an effort to determine how the IRS learned of its partnership transactions. The IRS refused to either confirm or deny the existence of such documents. This is a Glomar defense and can be used in cases where confirming or denying the existence of the records would reveal protected information.

First Circuit Finds Anti-Injunction Act Does Not Bar Challenge to IRS’s Use of John Doe Summons That Gathered Taxpayer’s Virtual Currency Transactions: The First Circuit in Harper v Rettig held that a constitutional challenge to the IRS using John Doe Summons authority to obtain information about virtual currency transactions is not barred by the Anti-Injunction Act (AIA). The Court remanded the case saying that the taxpayer is seeking relief from the legal wrong of acquisition and retention of financial records, rather than the assessment or collection of tax.

11th Circuit Affirms That Anti-Injunction Act Prevents Taxpayer Seeking Access to Appeals: In Hancock County Land Acquisitions the taxpayer alleged that the IRS’s failure to refer its case to the IRS’s Independent Office of Appeals violated the Taxpayer First Act’s mandate that Appeals be generally available to all taxpayers. The Eleventh Circuit’s unpublished opinion held that the AIA barred the lawsuit, which is difficult to harmonize with the Harper decision above.

Equitable Tolling Litigation Updates

Another Update on Boechler Follow-on Litigation – Part 1: This two-part post provides updates on equitable tolling litigation. The first part looks at the deficiency cases and provides updates on Hallmark and Culp. The parties have completed briefing in Hallmark. The petitioners in Culp have filed their opening brief after the Court denied the government’s motions for summary affirmance and to strike merits amicus brief filed by the Center for Taxpayer Rights. It will likely be next year when we have an opinion on both cases.

Another Update on Boechler Follow-on Litigation – Part 2: This post looks at the CDP equitable tolling cases. Boechler may never generate a ruling on whether its facts support equitable tolling because the parties may settle on the merits. Updates on Castillo, Amanasu, and Myers are provided, along with an analysis about what may happen in other cases. Amanasu or Myers are the ones to watch to be the first precedential opinions on the issue.

Comments, News, and Other Updates

Commenting on Forms: The Center for Taxpayer Rights and an LITC made comments on the change of address and VITA intake forms. The recommendations were that IRS simplify the form 8822, make it more accessible, better explain its importance, and allow it to be electronically submitted. With respect to the VITA intake form, it recommended changes that foster better coordination between VITA and LITCs so that individuals having their returns prepared know how to obtain controversy assistance when needed.

The Fear Over IRS Funding: Many practitioners have spoken out against the scare tactics being used by politicians over the IRS’s funding news. This post links to Les’s NBC Think Op-Ed on the issue.

TIGTA’s Annual Review of CDP Processing     : TIGTA’s review found that the IRS complied with the IRM in most cases, but the IRS is still making mistakes when it comes to calculating collection statute expiration dates.

Late Filing Penalty Relief for 2019 and 2020 Returns to Generate Automatic Refunds: The IRS is automatically abating penalties for late filed 2019 and 2020 returns. Returns must be filed by September 30 to qualify. The post contains a link to the NTA’s blog which provides more information.

IRS Criminal Investigation in the News: CI’s 2021 Annual report is discussed in order to help provide information about what CI actually does and why their work is not something most taxpayers should fear.

July 2022 Digest

PT regularly brings awareness to important issues and July was no different. One notable post joined hundreds of organizations and state and local leaders to ask that the ITIN request or renewal deadline be extended to allow otherwise eligible individuals to claim the 2021 child tax credit. Another highlight is Caleb’s thought-provoking series of posts which takes a deeper dive into the rules and guidance surrounding deemed offer acceptances.

Requests, Recommendations, and Updates

Will the Commissioner agree that a filing extension is necessary so that all eligible children can claim the enhanced Child Tax Credit?: A valid ITIN was needed to claim the 2021 enhanced child tax credit and ITIN requests and renewals were required to be filed by April 18, 2022. The authors of this post join others to request that the Commissioner use his authority and the COVID-19 emergency declaration to extend the ITIN filing deadline for taxpayers who would otherwise be eligible to claim to claim the credit.

Protecting Tax Court Litigants and Revealing Records: A Conundrum for the Tax Court with a Simple Solution.: The Court has almost fixed the DAWSON glitch that sealed all documents in cases where only one document was to be sealed. Some of the documents can already be viewed on kiosks in the courthouse. The post recommends that the Court create a process so that unrepresented taxpayers can easily request that their information or documents be sealed or otherwise kept private which would be especially helpful for survivors of domestic violence.

Proposed Firearm Safety Deduction Legislation:  At What Procedural Cost?: A procedural nightmare could ensue if the proposed firearm safety deduction is enacted in its current form. The legislation contains directives on how any information shared by taxpayers about firearm ownership must be destroyed and cannot be passed onto others. Notwithstanding the procedural burdens created by the directives, it’s possible that others could still discern gun ownership status from a tax return in other ways (for example, if the income is added back for state purposes).

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Letter to IRS from AICPA: The AICPA sent a letter to the IRS with recommendations and requests related to addressing the difficulties taxpayers and representatives currently face when interacting with the IRS. It recommends and requests that the IRS: 1) become more transparent about the status of operations, 2) continue to use surge teams to address high volume areas and to process tax returns, 3) continue to suspend certain automated compliance actions, and 4) create a streamlined provision for reasonable cause penalty requests until things are operating at a more normal pace.

Going Forward and Reflecting Back: Keith reflects on his last day as Harvard’s LITC director, provides updates on his plans for the future, and thanks the colleagues and volunteers who played a significant role in his LITC career.

Offers in Compromise & Deemed Acceptance

The Age of Offers: Pitfalls and Possibilities for “Aging Into” Offer Acceptance: Time is significant to section 7122(f), and in this first of four posts, Caleb examines what starts the clock. This requires a look at the different clocks at issue when an offer is submitted through the CDP process and the difference between when an offer is “pending” versus “submitted.”

Aging Offers into Acceptance: When Does the Clock Stop?: Following his look at when the clock starts, Caleb turns his focus on when the IRC 7122(f) clock “stops” in light of the decision in Brown. After looking at varying possibilities, he concludes that the Court’s decision is problematic.

Administrative Law in Practice: Deemed Offer Acceptance and IRS Notice 2006-68: Notice 2006-68 provides guidance on the meaning of the word “reject” in section 7122(f). Caleb looks at its authority, the level of deference it should receive, and its procedural and substantive defects.

Contract Law and Rejecting Offers in Compromise: In his final post on this topic (at least for July) Caleb envisions what he would have submitted as comments on Notice 2006-68.  He also reads the IRM to allow Appeals to make determinations about offers independently, rather than just review rejections, and believes it should do so as a matter of contract law.

A Real Case in Which an Offer Aged into Acceptance: A section 7122(f) offer acceptance has happened in real life! This post shares the letter the IRS sent when accepting the offer.

Tax Court Decisions

Creativity Is Not Always Rewarded: Chavis gave the Court its first opportunity to answer whether innocent spouse relief is available for the trust fund recovery penalty. Section 6015(f) does not explicitly answer the question, but the Court looks at the revenue procedure and regulations to find that relief is limited to income taxes. The post goes onto point out that the Taxpayer First Act has created a situation where different standards and scopes of review apply depending on whether an innocent spouse request originates from 6330 or 6015, which will likely create additional new questions for the Court in the future.  

Offer in Compromise Rejection Sustained by Tax Court: An ETA OIC rejection was sustained for a taxpayer who took a retirement distribution to purchase a house for his estranged wife and children in lieu of paying child support in Serna. The petitioner argued the house was essential for many reasons because his children have developmental disabilities, but he didn’t provide any evidence about the harm selling the house would cause. Court decisions related to ETA OIC offers are rare, so this case provides a glimpse into a lesser-known area of IRS administration.

No Reasonable Cause For Failing To Include $238,000 From Information Return Sent To Old Address: LaRochelle highlights what facts are relevant when arguing for reasonable cause penalty abatement and the potential dangers of a return preparer representing parties at trial. The petitioners didn’t report a large IRA distribution because the information return was sent to an old address. The amount of the distribution, the husband’s business proficiency, and reliance upon the preparer who wasn’t provided with complete information didn’t support reasonable cause.

IRS Stuck with Concession The IRS was bound by its decision to concede an issue after mistakenly misconstruing terminology in a Rule 122 case of the Estate of Demuth, Jr. The issue involved end-of-life gifts by checks that were not yet cashed at time of death. Because a stop payment order could have been placed on any of the checks, under state law, none of the checks represented completed gifts. The Court was concerned that allowing the IRS to withdraw the concession would disadvantage the petitioner who relied upon it while drafting its Rule 122 brief.

Tax Court Refuses to Allow Petitioner to Amend the Petition: The petitioner in TBL Licensing was not allowed to amend its petition 6 and ½ years after the initial filing and a few months after a precedential decision was issued. Petitioner moved for the amendment after the IRS filed a motion to vacate asking for the decision to explicitly state the amount of the deficiency. In its amendment, petitioner argued it should be able use a research credit to reduce its liability, despite knowing of the credit when the initial petition was filed. The Court finds petitioner had no good excuse for not raising the issue earlier and allowing it to do so now would burden the Court and IRS.

District Court and Court of Federal Claims Decisions

Power of Federal Tax Lien: The power of a tax lien over an interest held by a non-liable party was at issue in Sadig. A rule in the Northern District of Illinois required the IRS to explain the procedures of how to respond to the IRS’s motion for summary judgment to the pro se petitioner. The case involved transfers for no consideration after most of the tax years were assessed and liens were filed, so it was easy for the government to foreclose on the property. One assessment happened after the transfer, but the transfer occurred while the liability existed and met the requirements for constructive fraud.

Another IRC 6511(h) Loss: The Court grants petitioner’s motion for reconsideration on its lack of jurisdiction ruling, but then dismisses the case for failure to state a claim. In Ruebsamen petitioner’s section 6511(h) claim didn’t include evidence of his disability at the time it was filed with the IRS as required by Rev. Proc. 99-21. The Court initially dismissed the case for lack of jurisdiction under the duly filed requirement of 7422, but its views of jurisdiction in this area are changing in light of Brown

Another Tax Provision Found to Not Create a Jurisdictional Time Period for Filing: Courts continue to expansively apply Supreme Court precedent to questions of jurisdiction. In Clark, the Court held period for filing suit under for unlawful disclosure under section 7431 not jurisdictional. The resounding theme is that unless Congress has made a “clear statement,” a filing deadline is not jurisdictional.

Circuit Court Decisions

Circuit Court Holds That LLC Distinct From Its Agent For Purposes of Criminal Referral Exception To Summons Power: The 4th Circuit holds the IRS can summons a business entity related to, but not directly involved in, a criminal investigation. The case involves an LLC which was being examined about donating a conservation easement when criminal investigations of the LLC’s accountants, preparers and others simultaneously begun. An entity is a separate “person” from its owners, so because there was no DOJ referral specifically made for the LLC, the IRS is not prevented from summonsing it. 

Bankruptcy and Taxes

Filing a Notice of Federal Tax Lien For Personal Property: The IRS filed an NFTL in the wrong county, in In re: Vanessa Catherine Stephenson, so its claim was unsecured. Unlike an NOD, the IRS cannot use a taxpayer last known address to determine in which county to file an NFTL, instead it must determine the taxpayer’s residence at the time of filing. This is because the NFTL filing rule exists to protect other creditors and creditors do not have access to IRS records. If a national tax lien registry existed, like Keith has proposed, it would prevent this issue from occurring.

June 2022 Digest

Is it hot in here? A fiery debate dominated PT in June over the distinction (if any) between legislative and interpretative regulations. The issue is one that many practitioners may not spend a lot of time thinking about, but as Les points out, it is an issue that is relevant to recent cases where litigants are challenging the procedural validity of tax guidance. My summaries do not delve into all the nuances of each perspective nor discuss any of the comments made, so I encourage you to read the posts and the comments if the debate piques your interest.

The Debate

Update on CIC Services And More On The Legislative vs Interpretive Rule Difference: The Court granted the IRS’s motion for reconsideration in CIC Services and retracted its mandate that the IRS return documents and information it received from nonparties pursuant to the now invalid Notice. This is because the suit was not brought on behalf nonparties and was not a class action suit, but the Court notes the IRS’s unjust enrichment.

This post kicks off the debate by sharing the perspective of Jack Cummings who disagrees with the Sixth Circuit in Mann which held that a regulation or IRB guidance is deemed legislative and requires notice and comment proceduresifnot complying with it might lead to a penalty or higher taxes. For Cummings the distinction depends on the statute that underlies the regulation: if the statute asks the IRS to create a rule, the regulation is legislative; if the IRS is sharing its view on an aspect of a rule, the regulation is interpretative.

More On The Confusion Surrounding The Difference Between Legislative And Interpretive Rules: Jack Townsend shares his perspective and emphasizes that legislative and interpretative are APA concepts, which are not relevant to discussions of deference except for the question of whether the regulation is subject to reasonableness of interpretation testing. Although not required, an agency may utilize notice and comment for interpretative regulations and then the regulation can be tested for procedural regularity as the APA requires, but it does not make the interpretive regulation a legislative one. The APA’s procedural regularity (arbitrary and capricious) test is not the same as the judicial reasonableness of interpretation test.

It’s Time To Let Go:  Treasury Regulations Are Not Interpretative Rules: Kristin Hickman shares her perspective which challenges Jack’s. She asserts that the Supreme Court in Mayo “laid the jurisprudential groundwork” that all Treasury regulations are legally binding (or legislative) for APA purposes and thus subject to notice and comment procedures. She also finds that other courts have been consistently clear about this. She states that continuing to promote the idea that some Treasury regulations are interpretative is dangerous because it allows the IRS and Treasury to continue to not take APA requirements seriously, which undermines taxpayer confidence in the system.

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It’s Time To Get Real: Treasury Regulations Can Certainly Be Interpretive Rules: Bryan Camp chimes in with the first of a three-post series on his perspective, which is similar to Jack’s. His view is that Mayo says nothing about the distinction between interpretative and legislative rules and was only a decision that Treasury regulations should be treated the same as other agency regulations and receive Chevron deference. Despite Kristin’s view, he asserts that Mayo does not stand for the idea that all Treasury regulations are legislative for promulgation purposes. He goes on to consider “myths” that may have led Kristin to believe otherwise.

The APA Is Not A Hammer: Bryan thinks that Kristin views the APA as a hammer requiring all agencies to strictly conform to it, whereas he views it as a safety net allowing for agencies to obey its principals in differing ways. He looks to the history of Treasury regulations and the APA. Treasury regulations existed before the APA and while the APA initially hoped to be a set of uniform rules, it had to settle instead on being a prescribed balancing framework. Notice and comment procedures were intended for agencies who occupied a new space in the government after the New Deal, and Treasury Regulations were generally not subject to the procedures due to time constraints and their technical and legal nature.

The More Things Change The More They Remain The Same: Bryan disagrees with Kristin’s idea that the function of tax administration has transformed from revenue raising to social policy implementation and as a result should require more process. Bryan goes on to present three reasons to doubt claims that tax administration today involves social policies more than it has in the past. He also looks at Oakbrook and Rogerson to show that their decisions required the Court to interpret the statutes in the same way that interpretative regulations do.

Tax Court Updates and Ideas

2021 Tax Court Exam for Nonattorneys: The results of the 2021 Tax Court Exam for Nonattorneys have been released to the exam takers. The 2021 Exam was the first to be conducted in a remote format. This post contains interesting information about the history, format, and content of the exam; the reasons why it is so challenging; how it worked in the remote format; and what else is required for nonattorneys to be admitted to practice before the Court.

Tax Court Building Reopens: The Tax Court building reopened to the public on Monday, June 6, meaning that once again records can be reviewed and received immediately at no cost by anyone willing and able to go there in person. For those who still do not have the option of going to the Court in person, Harvard commented on the Court’s proposed rule changes and recommended ways in which remote viewing of records could be improved.

Speeding Up Settlement: Some ABA Conference Inspired Thoughts: This post shares thoughts on how the Tax Court could get involved to speed up the settlement process. One idea is that the Court be involved in the pretrial process, or parties could initiate pretrial conferences amongst themselves at an earlier stage. Another idea is that the Court require status reports at an earlier stage to engage the parties and encourage settlement efforts as early as possible.

COVID and DAWSON: In Foster Drive LLC a TEFRA related petition was filed twice due to the delay in the Court’s processing of petitions and uncertainty by the Tax Matters Partner about whether he filed correctly. The post makes two suggestions for the Court: 1) if prompt service is not an option, the Court should enable the Clerk to confirm receipt and correctness of electronically filed petitions, and 2) parties should be given the option to enter more than one email address to receive notifications, which is something that other Courts allow, to improve response times and decrease the risk of missed notifications.

Circuit Court Decision

IRC Levy Exemption for Disability Payments Ends Once Funds Hit Bank Account: In Charpia the IRS levied military disability payments after they were deposited into a bank account. Section 6334(a)(10) prevents levy on “any amount payable to an individual” relating to military disability payments, but the IRS has consistently held that once the money is in a bank account it can be levied. The Fifth Circuit found for the government by looking to other exemptions that extend more broadly to amounts “payable to or received by” an individual and to other Courts that applied of the plain meaning of the word payable. Even though the levy was permitted, the petitioner was able to use Consumer Credit Protection Act to limit how much the IRS could take, which is not an option is most cases.

Tax Court Decisions

Taxpayer Attending Rodeo Misses Receiving Collection Letter And Denied Chance to Challenge Liability in CDP Case: In Hammock, despite having sympathetic facts, the petitioner wasn’t allowed to challenge her liability in a CDP case. There is a presumption of receipt when the IRS mails a notice to a taxpayer’s last known address, but it can be overcome. Appeals also has discretion to consider the liability even in the absence of a statutory right. The Court didn’t inquire into why Appeals didn’t use its discretion to consider the liability, leaving open the question of whether it was an abuse of discretion to not exercise discretion in this case.

IRS Files Motion for Reconsideration in Precedential Tax Court Case: The depth of the IRS’s disagreement with the decision in Treece Financial Service Group was demonstrated when it filed a motion for reconsideration. The issue in the case was whether the Court has jurisdiction to review Voluntary Classification Settlement Program (VCSP) eligibility determinations. The Court thinks it does because the Program involves an act of administrative discretion, and the determination directly impacts the amount of tax the company will owe. The IRS’s position is that the VCSP is a settlement program and does not constitute an examination, the determination is not made in connection with an examination, and the amount of tax is not determined through the Program. The IRS’s motion strongly suggests an appeal of this case is coming.

Tax Court Inconsistent on Economic Hardship: In Pocock, the Court holds that payment of tax liability would create an economic hardship for a petitioner who has low income but equity in property. The decision is at odds with the case of Sleeth which Harvard has appealed to the 11th Circuit.  The liability at issue was incurred when petitioner’s (now ex) husband fraudulently overstated income and withholding to generate large refunds for 11 years. There were many interesting aspects of this case (petitioner and her ex-husband still lived together, there was estate theft and a transfer of property involved) and the IRS conceded that petitioner couldn’t sell her home and meet her reasonable living expenses which may be why the Court found economic hardship unlike in Sleeth.

Update on Litigation Over Whether the Deficiency Petition Filing Deadline is Still Jurisdictional: IRS has responded to the motion to vacate in Hallmark and a link is provided. Additional updates are given on the Tax Court’s pause on dismissing untimely filed deficiency cases; Culp, the Center for Taxpayer Rights amicus brief, and the DOJ’s response to the brief; and a new case brought by an LITC in Tax Court and appealable to the Eighth circuit involving this issue.

Precedential Opinion Regarding Deemed Offer Acceptance: In Brown, the petitioner argued that his offer submitted as part of a CDP hearing should be deemed accepted when it took more than two years for the settlement officer to issue a notice of determination. The Court says the finality of an offer for purposes of 7122(f) (the 24-month rule) and the finality of a CDP hearing for purposes of 6330 are two separate things. Petitioner’s offer was returned to him within seven months because he had other investigations pending. Section 7122(f) uses the term rejected, rather than returned, but the Court finds the regulations address the effect of a return and it results in the same outcome as a rejection: it terminates the 24-month period.

District Court Decisions

Unhappy Appraisers Suing the IRS: The appraisers of conservation easements tried to bring a suit alleging that the IRS is intimidating them and using penalties to prevent them from properly appraising properties. They wanted to bring a Bivens action and sue the individual IRS employees involved in pursuing conservation easements, but their suit couldn’t move forward because they failed to serve all the necessary parties. They also didn’t respond to the issues with service or argue good cause, so the Court was required to dismiss the case.

APA Provides No Basis To Compel IRS To Provide Access To Appeals: In Rocky Branch Timberlands taxpayers in a concluded TEFRA audit tried to invoke the APA to require the IRS to: rescind the FPPA, sign a form 872-P (extending the statute of limitations), and allow the taxpayers the option to go to Appeals pursuant to section 7803(e)(4). The Court found for the IRS based on the Anti-Injunction Act which prevents the Court from restraining assessment and because there was another remedy available (Tax Court), the decision to not sign the 872-P was not a final agency action and signing the 872-P or allowing the taxpayers to go to Appeals was within IRS’s discretion.

Bankruptcy and Taxes

Court Awards Damages When IRS Tried To Collect Following Discharge: Pandemic No Excuse: In McAuliffe, the Court awarded damages to taxpayers under section 7433(e) when the IRS mistakenly sent collection letters after their liability had been discharged in bankruptcy. The IRS tried to blame pandemic-related complications and delays for the mistake, but the Court’s decision reflects disapproval of that excuse and an expectation that the IRS should have done better.

Miscellaneous

Tax Compliance for Refugees: Free Training Aims to Fill Gap in Tax Assistance: A training was held on June 15 to prepare volunteers to assist refugees with their tax returns for the first year they are in the country. First year returns for refugees are uniquely complicated and cannot be prepared by using typical free preparation resources.

Offer Mills on the IRS Dirty Dozen: The IRS warns taxpayers against using offer mills. The risk of working with a mill are plenty: they prepare offers even for people who are not good candidates, they engage in false advertising, and don’t respond to follow up requests by the IRS. Offers are not easy and if the IRS wants taxpayers to engage in process without seeking assistance, it needs to build a system that is more helpful to taxpayers.

May 2022 Digest

Posts related to Boechler and its impact on pending and future cases continued to dominate PT’s coverage in May. The month’s coverage also included interesting and significant information from the ABA Tax Section Annual Meeting.

The Ongoing Impact of Boechler: Pending Cases and Other Updates

Boechler Challenge to Tax Court Position on IRC 6213: Hallmark Research Collective filed a motion to vacate an order that dismissed their case for lack of jurisdiction when their deficiency petition was filed one day late. This may end up being the first case where the issue of jurisdiction in a section 6213(a) case is before the Court after Boechler. The IRS has 30 days to respond to the motion [and the Tax Court has assigned it to Judge Gustafson, see directly below], so there should be an update soon.

Tax Court Temporarily Stops Issuing Dismissals for Lack of Jurisdiction of Late Deficiency Petitions: Judge Gustafson (rather than a special trial judge) was assigned to rule on Hallmark’s motion indicating that the Court is taking it very seriously. The Court has not issued any orders to dismiss for lack of jurisdiction in late-filed deficiency cases recently.  This prevents appeals from being made to the Circuit courts as test cases for the section 6213(a) issue, however, there is one case out there to watch in the Third Circuit: Culp.

What’s Happening in Myers and Whistleblower Cases After the Decision the Statute is a Claims Processing Rule Four post-Myers whistleblower cases shed light on what may happen in late filed CDP cases when the IRS doesn’t raise the issue of timing. Petitioners in the cases may have had equitable tolling arguments, but never needed to raise them. The Tax Court can no longer raise timeliness issues on its own, so it proceeded to consider the cases as though they were timely filed with respect to respondent’s motions for summary judgment.

The Mess Following IRS Mistakenly Sending Determination to Taxpayer’s Former Attorney: Missed Deadlines and Damages For Wrongful Disclosure In Castillo, the IRS sent a CDP notice of determination to an attorney who was no longer authorized to represent the taxpayer, resulting in a disclosure violation. This also resulted in the taxpayer’s failure to timely challenge the underlying liability in Tax Court, which led to a levy of the taxpayer’s bank accounts and created passport restrictions. The case is still in progress and the Second Circuit will remand it back to the Tax Court. It’s one to watch, because it may result in a decision about equitable tolling in CDP cases, as well as the amount and type of damages potentially available for unauthorized disclosures.

Important Issues to Watch and Announcements

What to Do After Receiving a Notice of Claim Disallowance: Section 6514(a)(2) bars a refund or credit if more than two years have passed from a notice of claim disallowance. Pandemic-related delays in working with the IRS have increased the likelihood that a resolution will not be reached before the two-year period expires. In order to preserve the right to obtain the refund or credit, the taxpayer must either file suit or ensure that they and an authorized IRS employee sign a Form 907.

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Momentum Possibly Building for IRS To Provide Online Filing Options For Taxpayers: This post looks at recent research in the tax return filing arena, including a report on the issues with Free File, an article on the benefits that would come from the IRS pre-populating tax returns, and ideas that have been proposed by the NTA and Senator Warren.

Join the Center for Taxpayer Rights for a Celebration of Keith Fogg’s Career on the Occasion of his Retirement: Keith’s retirement is announced and details for a (now passed) Zoom celebration are shared. Nina reflects on the beginning of her friendship with Keith and the ripple effect it has had on her life and career.

Information from the ABA Tax Section Meeting

Update on Premature Assessments: The days of frequent premature assessments are coming to an end. The Tax Court has caught up with its backlog and is winding down the system it had in place to avert premature assessments. Petitions are generally arriving at Chief Counsel now about 3-4 weeks after filing. For the time being, practitioners and petitioners should still check for any payments made on premature assessments before signing decision documents. The taxpayer can lose the right to the payment if the issue isn’t identified within 30 days from the decision being entered.

Information from Court Practice and Procedure Programming at ABA Tax Section Meeting Part 1: U.S. Tax Court Judge Toro and Claims Court Judge Wolski participated on a panel at the Meeting. Judge Toro shared information about electronic petitions, proposed rule changes, the status of the Court’s backlog, and new Dawson features. Judge Wolski shared information about rule changes and jurisdiction in Tucker Act and Little Tucker Act claims in light of Boechler. A link to the complete outline of cases and material discussed is available on the post.

Information from Court Practice and Procedure Programming at ABA Tax Section Meeting Part 2: Mark Cottrell from the Procedure and Administration Division of Chief Counsel also participated on a panel. He shared charts and information about the tax dollars in dispute and case inventory at the various trial Courts and the cases and settlements in the Tax Court as well as updates related to Tax Court Rule 36 and recent cases, and more.

Information on Appeals Presented at ABA Tax Section Meeting: COVID’s impact on Appeals was covered in a panel at the Meeting. This post shares slides and summarizes the topics discussed in the panel, including the inventory and handling of cases in Appeals, the challenges Appeals faced working from home, and the issues around the handling of docketed cases.

Circuit Court Decisions

Rare Discharge in Bankruptcy for Taxpayers with a Return Filed After an SFR Assessment: In Golden a married couple in the Ninth Circuit was successful in having their tax liability discharged even though they filed their return after an SFR assessment. The IRS argued that the tax on a return filed after an SFR assessment is per se nondischargable, which the Court rejected. The case is a rare example of a bankruptcy court using a subjective test analysis and looking to the totality of the circumstances to determine that the return was an honest and reasonable attempt to satisfy the tax law.

The 9th Circuit Reverses The Tax Court, Finding That The Taxpayer Had Filed A Return When It Provided A Copy To The IRS During Its Examination: Subregulatory guidance played a role in the Ninth Circuit finding that a signed copy of a return faxed to an IRS agent was a return for purposes of the assessment statute which barred a later FPAA adjustment in Seaview Trading, LLC.

IRS Not Giving Up on Thorny SOL Issues When Taxpayer Fails to Backup Withhold: The IRS issued an Action on Decision disagreeing with the Fifth Circuit’s decision in Quezada. The Fifth Circuit found that the taxpayer’s Form 1040 and his business’s Forms 1099 which omitted workers’ tax identification numbers provided enough information for an informal Form 945 and started the running of the statute of limitations for backup withholding The IRS’s position is that the forms do not provide enough information and an actual Form 945 is needed before the statute starts running.

The Ongoing Effort to Properly Situate the Tax Court: Believe it or not, the location of the Tax Court within our government is still uncertain. The answer is relevant to section 7443(f) which allows the President to remove a Tax Court judge. A 2014 decision inthe D.C. Circuit, Kuretski, found that Presidential removal was permissible because the Court was an executive agency. Section 7411 was subsequently enacted and clarified that the Court was not an agency of, and was independent from the executive branch, but this had no effect on the President’s removal power. An appeal has recently been filed in the D.C. Circuit in an effort to overturn Kuretski. This post provides more information on the case and its possible implications.

Tax Court, District Court, and Claims Court Decisions

What Happens to Employees When the Employer Fails to Pay Over to the Government Withheld Taxes: In Plazzi v. FedEx Groud Package System, Inc. employees sued their employer because their withheld wages were not paid over to the government, but such suits are barred by Section 3403. The post takes a closer look at the way the third-party intermediary system of tax payment operates and the importance of documenting withholding.

Default Judgment: Timeliness is important for both filing and responding to lawsuits. The district court denied a tax return preparer’s motion to set aside a default judgment injunction against him. The judgement was entered after the preparer failed to answer the IRS’s suit in a timely manner. He argued that his untimeliness did not result from culpable conduct, and he thought he had more time, but the facts in his case failed to support his argument.

Court Blesses Offset Before Pandemic When Later Filed Return Would Have Been Treated Differently: In Seto, the taxpayer’s position was had he waited to file 2019 his return until after the CARES Act was passed, his Investment Tax Credit refund would not have been offset and applied to his student loans. The CARES relief provisions, however, were directed at EIP-related refunds and not other types of refunds. The Claims Court did not focus on the different refund types, but rather found that the taxpayer was not entitled to the amount because the CARES Act didn’t apply retroactively.

Can Intentionally Filing an Improper Information Return Justify a Claim for Damages Under Section 7434?…Continued!: Whether worker misclassification can give rise to action under section 7434 is causing a debate in district courts. Recently in Austin v. Metro Dev. Grp. the Court interpreted the section to only apply to fraudulent payment amounts on information returns and not worker misclassification. The post takes a closer look at the language of the statute and finds that there is still an argument to be made that the section should apply to fraudulent misclassifications.

Things are Different at the Government: Attorneys in the Office of Chief Counsel and the DOJ Tax Division are in the driver’s seat in deciding when to settle. They are not required to bring a settlement offer to their clients (i.e. the IRS or DOJ), in the same way that private practice attorneys are under professional conduct rules. A recent example of this was in Delponte, where the innocent spouse unit determined that petitioner was entitled to relief. The IRS attorney was not bound by that determination, however, and decided to bring the innocent spouse issue to trial.

Consent to Extend the Statute of Limitations: In Evert, the petitioner argued that she only signed a Form 872 under duress by the Appeals Officer assigned to her case. It is the petitioner’s burden to show duress and she failed to meet it. This post discusses the importance of the Form 872 and cases in which the taxpayers were able to show they signed it under duress.

April 2022 Digest

It’s no surprise that the Supreme Court decision in Boechler was the highlight of PT posts in April. PT has been covering and standing steadfast behind the argument for many, many years and the case is a huge win for taxpayers, taxpayer representatives, and everyone who has helped inch this argument along.

Boechler: Announcement, Acknowledgments and Analysis

Supreme Court Decides Boechler Case: The Supreme Court held unanimously that the deadline to file a Tax Court petition in a Collection Due Process case is not jurisdictional and late filing is subject to equitable tolling. A link to the opinion is provided.

Winning Boechler Took a Village: Carl Smith was the leader of the village that it took to win Boechler. The village consisted of almost all pro bono attorneys and clinicians. Carl individually recognizes and thanks the people who played a significant role.

What Happens After Boechler – Part 1: The IRS Argues IRC 6330 is Unique: The first of a series of posts looking at the arguments the IRS may make to prevent Boechler from applying to section 6213(a), the deadline to file a Tax Court petition in a deficiency case. IRS will likely argue Congress intended for section 6330 to play a unique and highly protective role for taxpayers, but the legislative history of the deficiency deadline reveals that section was also intended to protect taxpayer rights.

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What Happens After Boechler – Part 2:  The IRS Argues the Floodgates Will Open if the Tax Court Follows Boechler in Interpreting IRC 6213(a): The next argument that the IRS may try to make is that if the deficiency deadline is not jurisdictional, it will release a floodgate of late filed cases onto the Court. There are substantially more deficiency cases than there are CDP cases, but that doesn’t mean that there are substantial numbers of late filed cases that have valid equitable tolling arguments. The floodgate argument is an exaggeration. A lot of the work is work that is already done, so this argument is less persuasive than the IRS may try to make it out to be.

What Happens After Boechler – Part 3:  The IRS Argues that IRC 7459 Requires that IRC 6213(a) Treat the Time for Filing a Tax Court Petition as Jurisdictional: Under Section 7459, a petitioner whose case is dismissed for lack of jurisdiction is not prevented from paying the liability and suing for a refund. This post looks at the arguments regarding section 6213(a)’s relationship to section 7459 and finds that it does not require the deficiency deadline to be a jurisdictional requirement. 

What Happens After Boechler – Part 4: The IRS Argues That Equitable Tolling Would Not Apply in Deficiency Cases: The fourth post in the series discusses the Supreme Court’s approach to the application of equitable tolling, what CDP petitioners must do to show that equitable tolling is warranted, and how equitable tolling could apply in deficiency proceedings. The Tax Court will need to look to the decisions of other courts to develop its approach in these cases.

Taxpayer Rights

State Level Taxpayer Rights: A Survey of State Tax Administration: Results of the State Tax Administration Survey slowly trickle in, but already allow for some interesting observations. Information about various state practices and procedures is being collected with the goal of being able to advocate more effectively for taxpayer rights at state levels.

Partial Pay Installment Agreements In the Dark: A TIGTA report has revealed PPIAs are not frequently used. There is a lack of outward guidance about them and the option is not even listed on the installment agreement request form. This jeopardizes taxpayer rights by interfering with a taxpayer’s right to be informed. The IRS will remedy this by adding information about PPIAs to its website and exploring ways to change the request form.

Principal Residences as Collection Target: TIGTA Criticizes IRS Practice: The TIGTA report also examined the IRS’s use of lien foreclosure suits when targeting a taxpayer’s principal residence. The process is quicker and offers less protections to taxpayers than the administrative seizure process which requires notice, due process rights, court approval and the right to redeem the property. TIGTA recommends the law be amended to provide taxpayers with the same rights and protections under both processes.

Recommendations to the IRS

Dial, redial, repeat: An entertaining, albeit frustrating portrayal of what a call to the IRS looks like these days. Robocalling services, staffing shortages, and technology issues have ushered in a new degree of a familiar frustration.

GAO Assesses IRS 2021 Filing Season Progress: The GAO issued a report evaluating the IRS’s performance with processing 2021 returns and providing customer service. The report includes unique recommendations, such as using the amount of interest paid on refunds as a measure of IRS performance. It also includes the run-of-the-mill recommendations that IRS modernize its technology and improve customer service on various fronts. PT will cover the report in more detail in a later post.

Interest and Accountability

Losing Interest: Delayed IRS Assessments: Inequity can occur between low income taxpayers who cannot afford to pay a deposit when their tax liability is in dispute and the middle- to high-income taxpayers who can. This post begins to examine possible arguments for an abatement of interest in situations where the IRS is delayed in making an assessment after a Tax Court decision has been entered.

Boilerplate Provisions in Stipulated Decisions May Have “Interesting” Consequences: Continuing to explore the arguments for interest abatement, this post specifically looks at section 6601(c) and whether a stipulated decision can have the same effect as a form 870 for purposes of suspending interest when the IRS takes too long.

Circuit Court Decisions

APA and FBAR Skirmishes Continue in Schwarzbaum v US: Schwarzbaum continues to shed light on the somewhat different ways the APA may be applied to the IRS’s conduct. The case was remanded back to the IRS to properly calculate the FBAR penalties, but now the parties disagree over whether the Court should retain jurisdiction over the case. The IRS speculates that petitioner will try to argue that the Government is time-barred from bringing a new suit to collect the recalculated penalties if the Court does not retain jurisdiction.

Ninth Circuit Reverses Tax Court Interpretation of IRC 6751(b): The Ninth Circuit reversed the Tax Court in Laidlaw’s Harley Davidson Sales and casts doubt on the approach the Tax Court has taken in section 6751(b) cases over the past several years. The Court held that penalty approval simply needs to occur before assessment, rather than before the initial determination. This case is a win for the IRS, but it is unlikely it will result in the Tax Court changing its approach for now.

Tax Court Decisions

The Limits of Community Property Relief When Spouses Split a Joint Business: Married couples who do not file jointly in community property states, generally, must report half of the total community income on their individual returns. Section 66(c) provides for relief, similar to innocent spouse relief, for these spouses when it is warranted. In Wheeler v. Commissioner, a requesting spouse failed to meet a requirement for relief when the income at issue was not attributable to the nonrequesting spouse. It was income from a jointly operated business and such income is treated as the gross income of each spouse on the basis of their individual shares.

Tax Court Answers

Eliminating Answers in Certain District Court Cases: In a follow up to other recent posts about Chief Counsel answers, this post looks at a new proposed rule change which seeks to simplify answers in cases that challenge social security determinations. The answer needs only to contain a copy of the record and set forth any affirmative defenses. This could be a model that the Tax Court considers adopting with some appropriate modifications.

Bankruptcy and Taxes

Can Bankruptcy Trustee Be Held Liable for Trust Fund Recovery Penalty of Responsible Officer?: In In re Big Apple Energy, LLC, a business owner sought to make the bankruptcy trustee personally liable for interest and penalties arising from the business’s failure to pay employee withholding to the IRS. The underlying tax amount was held in a segregated account and paid over as part of the bankruptcy estate. Interest and penalties accrued before the amount was paid to the IRS and state, but there was no claim filed against the estate for those amounts. As a result, the trustee could not be held liable for debts that occurred before he was involved and when he had fully paid the claims as filed.

Miscellaneous

Biden Administration Floats Refundable Pet Tax Credit Idea to Boost Child Tax Credit: As one of the most anticipated curators of April Fool’s jokes, PT has done it again- a great April Fool’s post from PT that I kind of wish was true.

A Beneficial Effect of Inflation: The IRS has updated the Collection Financial Standard amounts substantially this year. A new offer in compromise booklet has also been published and must be used for offers submitted after April 25.

A Beneficial Effect of Inflation

The IRS increased the Collection Financial Standards on April 25, 2022. The increases reflect that we have entered a period of inflation, as the amounts have not increased by this much in a very long time.

The percentage increases between 2021 and 2022 are significantly higher than they were between 2020 and 2021 for all categories, but the biggest percentage increases were in the “Out of Pocket Health Care” and “Public Transportation” categories. 

These standards can be used in IRS collection-related matters, such requesting currently non-collectable status or an offer in compromise. Important related note: The offer in compromise booklet was also updated this month. The IRS website states that the new forms must be used if you apply for an OIC on April 25, 2022 or later.

Some of the standards can be used with no questions asked, while others serve as a ceiling (i.e. the amount that can be used is the “lesser of” the standard or what the taxpayer actually spends). For certain (and arguably, all) categories, amounts in excess of the standards are allowed if the taxpayer provides a good reason and proof.

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All of the current standard amounts are available here: IRS Collection Financial Standards.

Here are is a sampling of the changes (based on a household of one):

“No questions asked” amounts:

  • Food, Clothing, Other Items: New standard is $785, which is a 9% increase from the 2021 amount of $723. Compared to a 1% increase between the 2020 amount of $715 and 2021.
  • Public Transportation: New standard is $242, which is a 12% increase from the 2021 amount of $217. Compared to a 3% decrease between the 2020 amount of $224 and 2021.

This decrease corresponds with a more substantial increase in vehicle operating costs during the same period, and likely relates to the decreased use of public transportation during the early days of the pandemic.

“No questions asked” or “higher allowed with proof” amounts:

  • Out of Pocket Health Care under 65: New standard is $75, which is a 34% increase from the 2021 amount of $56. Compared to a 0% increase between 2020 and 2021, and a 2% increase between the 2019 amount of $55 and 2021.
  • Out of pocket health care 65 and older: New standard is $153, which is a 22% increase from the 2021 amount of $125. Compared to a 0% increase between 2020 and 2021, and a 10% increase between the 2019 amount of $114 and 2021.

“Ceiling standard” amounts (though, worth arguing for more if circumstances warrant it):

  • Vehicle Ownership Costs: New standard is $588, which is a 10% increase from the 2021 amount of $533. Compared to a 2% increase between the 2020 amount of $521 and 2021.

Local Standards such as “Vehicle Operating Costs” and “Housing and Utilities” also saw increases, although the percentage increases varied based on locality. For example:

  • Housing and Utilities (for the top three largest counties):
    • Los Angeles County (California): New standard is $2,544, which is a 7% increase from the 2021 amount of $2,367. Compared to a 1% increase between the 2020 amount of $2,335 and 2021.
    • Cook County (Illinois): New standard is $2,036, which is an 8% increase from the 2021 amount of $1,882. Compared to a 1% increase between the 2020 amount of $1,858 and 2021.
    • Harris County (Texas): New standard is $1,774, which is a 9% increase from the 2021 amount of $1,633. Compared to a 1% increase between the 2020 amount of $1,610 and 2021.

The standards are derived from various sources, such as the Bureau of Labor Statistics Consumer Expenditure Survey, Medical Expenditure Panel Survey, U.S. Census Bureau, and American Community Survey. There are at least two oddities that carry over from the previous numbers, the amount for housekeeping supplies and personal care products are less for a household of three than they are for a household of two.

Finally, the federal poverty limit was also increased earlier this year: 250% of FPL for a household of one is now $33,975, which is a 5% increase from the 2021 amount of $32,200. Compared with a 1% increase between the 2020 amount of $31,900 and 2021.