In my last post, I ran through the arguments a taxpayer may have against interest accruing when the IRS is “dilatory” in assessing tax that was assessed through a Tax Court decision. It was a fun and exciting jaunt through IRC § 6404(e) marred by a rather unfulfilling conclusion: IRC § 6404(e) interest abatement for “dilatory” IRS assessment might not get you where you want to go if your client is poor.
That seems unfair. But as my parents undoubtedly told me when I was a child, life is unfair.
Still, as lawyers we like to believe that we can mitigate some of that cosmic unfairness. Or, failing that, we like to believe we are just cleverer than we really are. I’ll let you be the judge which of those two buckets my following argument falls into…
read more...Let’s get away from IRC § 6404 for a moment. As Professor Bryan Camp recently detailed, there are a lot of different ways to lose on IRC § 6404 arguments.
Instead of the rocky, uninviting terrain of IRC § 6404(e), let us turn to the lush paradise that is IRC § 6601. Specifically, let us gaze upon IRC § 6601(c).
The provisions of IRC § 6404(e) were full of mushy terms like “ministerial or managerial act,” and “dilatory performance.” IRC § 6601(c), however, gives us nice, bright lines to work with. If the taxpayer waives the restrictions to assessment under IRC § 6213(d), the interest on the deficiency is suspended when the IRS fails to send “Notice and Demand for payment” within 30 days of the waiver.
Note that this code section generally comes up in examination, and not in litigation. In fact, the waiver of interest is commonly referred to as an “870 Waiver” by those in the know (i.e., Bob Probasco, to whom I am indebted on all issues relating to interest), because it is traditionally done through Form 870.
But we’re dealing with people that have decisions entered in Tax Court, not administratively with the IRS. Is there any way to get to IRC § 6601(c) without Form 870?
Maybe. Bear with me on this one.
One of the standard, boilerplate (and IRS insisted upon) provisions on the stipulated Tax Court decisions I enter into reads as follows:
“It is stipulated that, effective upon the entry of this decision by the Court, petitioner waives the restrictions contained in IRC § 6213(a) prohibiting assessment and collection of the deficiency (plus statutory interest) until the decision of the Tax Court becomes final.”
In other words, my Tax Court decisions enter into a section 6213(a) waiver. Am I out of luck because IRC § 6601(c) requires a waiver “under section 6213(d)” and my waiver occurs a mere three sub-paragraphs above that?
We should probably look at IRC § 6213(d) to get an idea. It is a short and fairly straightforward code provision:
“The taxpayer shall at any time (whether or not a notice of deficiency has been issued) have the right, by a signed notice in writing filed with the Secretary, to waive the restrictions provided in subsection (a) on the assessment and collection of the whole or any part of the deficiency.”
Arguments For and Against Tax Court IRC 6213(a) Waiver as IRC 6213(d) Waiver
IRC § 6213(d) really just asks two things:
(1) did the taxpayer waive the restrictions on assessment and collection in IRC § 6213(a), and
(2) did the taxpayer sign and file that waiver with the IRS?
The answer to the first question is an unequivocal “yes” in my Tax Court decision documents. The answer to the second question is not so clear.
Any time I enter into a stipulated decision to some degree I “sign and file” a document with the IRS. I definitely “sign” the document. But I much-less-definitely “file it” with the IRS. As an agreement (a signed stipulation between the parties) it is always countersigned by the IRS. So, I always “send” it to the IRS for them to take further action. Nonetheless, it is debatable whether I’m “filing” it with the IRS. Some would say I am only “filing it” with the Tax Court. But that term is not particularly well defined.
One other wrinkle. I somewhat-subtly substituted “IRS” for the word “Secretary” in the statute (e.g., “file with the Secretary”). Does that matter?
Generally, “Secretary” means the actual secretary of the Treasury (presently Janet Yellen), or their “delegate.” A delegate, in turn, means “any officer, employee, or agency of the Treasury Department duly authorized by the Secretary of the Treasury directly, or indirectly by one or more redelegations of authority[.]” See IRC § 7701(a)(11)(B).
In other words, the word “Secretary” refers to a really broad group of people within the IRS. That’s good news for my argument.
Bad news for my argument (maybe) is the Treasury Regulation on point: Treas. Reg. § 301.6601-1(d). That regulation provides that the suspension occurs after a “district director” determines a deficiency and the taxpayer files an agreement “with such internal revenue officer.” Those may well be more restrictive terms. At the very least, they seem to imply that the waiver must be filed in the administrative proceeding, since it is requiring that I file “with such internal revenue officer” (i.e., those involved in determining a deficiency). IRS Counsel is definitely not involved in determining the deficiency for my taxpayers. They come into play only after I’ve filed a petition challenging that prior determination.
What is one to do when the statutory language and regulations leave wiggle room? Look to the case law.
While contemplating the merits of my argument, one case in particular caught my attention: Corson v. C.I.R., T.C. Memo. 2009-95. In Corson the taxpayer apparently executed a section 6213(d) waiver as part of a stipulated settlement in litigation. The Tax Court found that this waiver, which was part of a stipulated settlement, did indeed suspend interest when the IRS took half-a-year to get around to sending a Notice and Demand letter.
That seems pretty much on all-fours with my argument, right?
Maybe.
It isn’t immediately clear to me how the waiver was executed. Was it just in the stipulated decision document? Was it an added Form 870 filed with the decision documents? Does that matter? I’d say it is at least enough of an opening to make an argument. And that opening expands in reading other cases on the topic. For example, in a later case the Tax Court specifically references Corson for the proposition “[g]enerally, the waiver is executed by filing a designated form, but the restrictions on assessment may be waived in other ways.” Hull v. C.I.R., T.C. Memo. 2014-36. So maybe no “designated form” was filed in Corson. Maybe the generic (but explicit) waiver of restrictions in IRC § 6213(a) is enough…
The Takeaways
I referred to the IRC § 6213(a) waiver as “boilerplate” and, in the title of this post, alluded to them being something of an afterthought for most practitioners. But what does the waiver really do?
The most obvious consequence of the waiver is that it speeds up the process for the IRS to assess and collect, by speeding up the “finality” of the Tax Court decision. Usually, the decision is not final until appeal rights have passed or been exhausted. See IRC § 7481. Since I don’t plan on appealing stipulated settlements, I have no problem bumping up the “finality” date of a Tax Court decision by waiving IRC § 6213(a) restrictions.
But shouldn’t there be some trade-off for this waiver of restrictions? What does the taxpayer get by letting the IRS assess and collect more quickly? Conceptually, it seems to me like the IRC § 6213(a) waiver filed in Tax Court is doing basically the same thing the Form 870 waiver is doing in examinations: speeding things up for the IRS. And when the IRS doesn’t act in a (remotely) timely manner on that taxpayer concession, it seems to me that the consequence should mirror that of the Form 870 waiver: a suspension of the accrual of interest for the IRS’s dilatory behavior.
The beauty of the argument, as I see it, is that I no longer have to prove “causation” when I import IRC § 6601(c) as my means for interest abatement: if the IRS doesn’t send the Notice and Demand on time, interest should be suspended, full-stop. This helps low-income taxpayers that can’t afford to just send blind-interest payments to the IRS. Maybe it will also help the IRS in getting those payments more quickly, too.
About Caleb Smith
While the “boilerplate” is part of Chief Counsel’s document template, it is not mandatory. Where I have objected to this provision, Chief Counsel has deleted it. There may be circumstances where it is to a client’s benefit not to waive the time frames in the Code for assessment and collection of the deficiency. For instance, I believe this waiver results in an acceleration of the time that the lien for unpaid tax arises. When a settlement results in a deficiency, I like to explore payment options with my client. Elimination of this provision from the stipulated decision can play an important role in implementing the client’s post deficiency payment plans.
Steve-
In our Tax Court cases that we resolve via settlement where the client owes a meaningful amount of money that has not been “paid” through a deposit, we have a discussion with the client about whether to waive the restrictions on assessment as part of the decision document. As you note, there can be valid reasons to not waive the restrictions on assessment. Among those reasons is that, if the IRS assesses the deficiency more quickly if the restrictions on assessment are waived, the failure to pay penalty would start accruing more quickly and the collection process would start sooner. We explain the potential benefits and burdens of the two options. We have never treated the waiver language in the stipulated decision as “boilerplate.”
I have had IRS counsel in one office refuse to settle unless our client waived the restrictions on assessment. We were advised that it is their “office policy” to have taxpayers waive the restrictions. There were reasons I couldn’t challenge that “policy” in that particular case. But I think that such a policy is a very bad policy and won’t hesitate to push back if able to so in future cases. A taxpayer should always have the option to waive the restrictions, or not. They should not be compelled to waive them.
In my experience (albeit from a decade ago), the IRS never could act fast enough to assess a deficiency within 30 days of the Tax Court’s entering the decision. But, when the IRS eventually got around to assessing the deficiency and interest, it abided by the 6601(c) limit by posting an entry termed “restricted interest” — i.e., interest only up to 30 days after the decision was entered. I used to check the amount of interest imposed using a commercial program to make sure my client was not overcharged. I never found a problem.
Couldn’t the taxpayer wanting to make sure that the boilerplate waiver invokes 6213(d) just file a Form 870 with the proper IRS office (assuming there is one after the notice of deficiency is issued? That may be redundant
Following through on my earlier comment, I just noticed that Reg § 301.6213-1(d) on Waiver of Restrictions says: “The filing of such notice [of waiver of restrictions] with the Tax Court does not constitute filing with the district director within the meaning of the Code.”