FOIA Appeals and Exception 21

We welcome guest blogger Daniel N. Price. Dan is in the process of opening his own law offices in San Antonio, Texas as he completes a year of pro bono work as in-house counsel with a nonprofit. Before his recent pro bono stint, he served as an attorney for the Office of Chief Counsel of the Internal Revenue Service for over 19 years. Dan’s prior government service included extensive work in the arena of international enforcement and included assisting the IRS in completely revising the Voluntary Disclosure Practice. Dan’s government experience also extended to the OVDPs, the Streamlined Filing Compliance Procedures, foreign bank account reporting, Bank Secrecy Act investigations, various LB&I compliance campaigns, expatriation issues, international collection of taxes, and much more. Today, Dan discusses the role of Appeals in FOIA disputes and exception 21 of the proposed regulations, which he writes provide far too much deference to the Office of Chief Counsel.

On September 13, 2022, the Department of the Treasury and the IRS requested public comments on proposed regulations relating to the Independent Office of Appeals’ resolution of Federal tax controversies. The comment public comment period expired November 14, 2022. Only twelve comments in response to the request for public comments have been posted to I’m surprised by the low number of public comments that are available on Perhaps some practitioners did not upload their comments to and simply mailed comments to the IRS. Uploading comments to certainly makes it easier for the tax press and general public to access and creates a nice public record that the agency cannot ignore.

Tax Notes and other media have extensively written on many of the comments already. Rather than rehash other coverage, this blog briefly discusses comments by the National Federation of Independent Businesses’ (NFIB) about Appeals role in FOIA disputes and an overlooked subset of comments focusing on exception 21 and the role of Rev. Proc. 2016-22.

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NFIB Comments

The NFIB comments focus on the role of Appeals in FOIA disputes. NIFB proposes carving out FOIA disputes from Appeals’ jurisdiction to save resources. I disagree with that suggestion because without having Appeals consider FOIA matters, practitioners will be left in the lurch without FOIA review. Although Appeals perhaps is not the most well equipped body within the IRS to handle FOIA disputes, there is no other competent part of the IRS to handle the work. Appeals certainly can improve in its handling of FOIA disputes because at times Appeals simply rubberstamps IRS FOIA determinations.

For example, in the high profile pending criminal case involving Mark Gyetvay, his attorneys made FOIA requests and appealed the IRS production to Appeals on May 24, 2022. Appeals acknowledged the appeal on June 2, 2022, and on June 14, 2022 Appeals sustained the IRS FOIA production. The FOIA complaint in the matter alleged: “[T]he June 14, 2022 decision of IRS Appeals similarly failed to respond to the requests in any meaningful way, and again failed to describe the nature of the withheld responsive records or identify which FOIA exemptions or exceptions applied to specific documents withheld from Mr. Gyetvay.” ¶ 21.

About the same time as the events outlined in the Gyetvay FOIA case, I experienced similar rubberstamping by Appeals of a FOIA matter. I submitted my FOIA appeal letter to Appeals on May 18, 2022 and quickly received a final determination dated June 8, 2022 rubberstamping the IRS’ FOIA production. After I received the June 8, 2022 letter from Appeals, I called and begged the Appeals Team Manager (ATM) for an opportunity to discuss Appeals’ FOIA determinations. But the ATM refused to even entertain a ten-minute phone call with the Appeals Officer who “handled” the case.

Even though Appeals may at times struggle with conducting meaningful FOIA review, the simple fact remains that no other alternative exists for FOIA review within the IRS. Some may assert that the Office of Government Information Services (OGIS) could fulfill Appeals’ role since OGIS’ “mission also includes resolving FOIA disputes between Federal agencies and requesters.” From my personal experience with OGIS’ in attempting to mediate a FOIA dispute with the IRS, mediation with OGIS is a complete waste of time.

FOIA is an integral part of tax controversy work. If there is no review process for the IRS’ often inadequate and ill-informed FOIA determinations, taxpayers will ultimately be burdened with even more costly district court litigation. From my perspective in the tax controversy trenches relying on FOIA to piece together IRS actions, the NFIB suggestion to eliminate Appeals from FOIA matters doesn’t help taxpayers at all. Appeals, notwithstanding its occasional struggles with FOIA matters, is still best suited to handle FOIA appeals because of Appeals’ independence and structure within the agency.

Exception 21

Exception 21 of the proposed regs provides far too much deference to Chief Counsel in depriving taxpayers of their right to present their tax controversies to Appeals. If Appeals is truly independent and Congress intended for the TFA to expand taxpayer access to Appeals, then proposed exception 21 in the draft regulations must be amended. Specifically, only cases designated for litigation should be included in exception 21.

Exception 21 reads as follows:

Any case or issue designated for litigation, or withheld from Appeals in accordance with guidance regarding designating or withholding a case or issue. For purposes of this section, designation for litigation means that the Federal tax controversy, comprising an issue or issues in a case, will not be resolved without a full concession by the taxpayer or by decision of the court.

At first blush, exception 21 seems narrowly tailored and focuses on cases designated for litigation. Designating a case for litigation is a very formal process that culminates in the Chief Counsel making that decision. See generally CCDM 33.3.6. The formal process has various levels of review and because the process must be approved by the Chief Counsel, that ensures that only the most serious issues are actually designated for litigation. But another clause of exception 21 builds on authorization by lower level Chief Counsel personnel to deprive taxpayers of their statutory right to Appeals.

The following portion of exception 21 must be deleted to protect taxpayer rights: “or withheld from Appeals consideration in a Tax Court case in accordance with guidance regarding designating or withholding a case or issue.” The portion of this phrase – “in accordance with guidance regarding designating or withholding a case or issue” relates to the long-standing deference to Chief Counsel to withhold cases from Appeals consideration based on procedures in Rev. Proc. 2016-22.

Put simply, Rev. Proc. 2016-22 provides too many opportunities for Chief Counsel to withhold cases (or materially delay cases) from Appeals. Rev. Proc. 2016-22 sec. 3.03 provides an exception to Appeals’ consideration for cases not designated for litigation where “Division Counsel or a higher level Counsel official determines that referral is not in the interest of sound tax administration.” This exception too easily allows Division Counsels to withhold access to Appeals. Division Counsels generally defer to the judgment of their lower level attorney managers and the line attorneys making the recommendations.

Further, Rev. Proc. 2016-22 sec. 3.04 grants significant discretion to materially delay providing access to Appeals under the guise of trial preparation or filing dispositive motions (most commonly motions for partial summary judgment). Delay in this context is tantamount to denying access to Appeals. Delaying access to Appeals while Chief Counsel pursues dispositive motions can be used to improperly force taxpayers into settlements based on cost-benefit analysis of the attorney’s fees required for early motions practice. That tactic is inappropriate and degrades taxpayer rights under the TFA.

Chief Counsel has exercised its ability to restrict access to Appeals in cases large and small for decades. Recently in a small dollar pro bono case I handled in Tax Court involving a withheld refundable credit, the Chief Counsel attorney and his manager (an associate area counsel) refused to send the case to Appeals and refused to put their reasons in writing. The Chief Counsel attorney and manager are both in the Boston office. The case did not involve any frivolous legal arguments or otherwise meet any known criteria which would prohibit consideration by Appeals. I cited the TFA and requested a written position from them for their refusal to promptly send the case to Appeals after Chief Counsel filed its answer. But the Chief Counsel attorney and his manager refused to provide any written position. The attorney simply stated orally over the phone that he was planning on filing a dispositive motion and would only send the case to Appeals if he lost the motion. This type of conduct by Chief Counsel in withholding a small, non-frivolous case from Appeals is a type of situation the TFA was passed to stop. And from my nearly two decades as an attorney and manager in Chief Counsel, I observed other times where Chief Counsel attorneys refused to forward cases to Appeals where they saw opportunities to pursue motions for summary judgment (or partial summary judgment) or they justified not sending cases to Appeals on other grounds.

Although Chief Counsel attorneys generally don’t rely on Rev. Proc. 2016-22 sec. 3.04 to withhold Tax Court cases from Appeals based on trial preparation or filing dispositive motions, the fact remains they have discretion to do so under Rev. Proc. 2016-22. The status quo of Rev. Proc. 2016-22 is not sufficient to implement Congress’ desire to expand access to Appeals under the TFA. If the legislative history and purpose of the TFA have any meaning whatsoever, then the discretion provided to Chief Counsel in Rev. Proc. 2016-22 must be curtailed, and exception 21 in the proposed regulations must be redrafted.  Let’s see if Chief Counsel and Treasury listen to the written comments submitted on this point.

Getting to Appeals

Several years ago Les wrote a series of posts, here, here and here, about Facebook’s attempt to use the Taxpayer Bill of Rights (TBOR) to get to Appeals.  I discussed the Facebook case and others raising TBOR arguments in a law review article here.  Les wrote a post in September about proposed regulations addressing access to Appeals and he recently wrote a pair of posts, here and here, on the subject based on a panel discussion at the ABA Tax Section meeting.

This brings us to litigation recently brought in the 11th Circuit regarding the right of a taxpayer contesting a conservation easement case to go to Appeals.  In Rocky Branch Timberlands LLC v. United States, No. 22-12646 the taxpayer wanted to discuss a proposed assessment based on disallowing a conservation easement charitable contribution.  The IRS refused to refer the case to Appeals.  The taxpayer brought suit in district court.  After dismissal taxpayer brought the current appeal. 

After I wrote this post but before we published it, the 11th Circuit dismissed the appeal pursuant to 11th Circuit Rule 42-1(b) because the appellants failed to file a Civil Appeal Statement form with the required time frame.  As discussed below, this case may not have been headed to a successful conclusion for the taxpayers had they gotten a merits decision but this outcome points to the care litigants need to take in understanding and following the rules of the court in which they are practicing.   


Taxpayer relies on TBOR similar to Facebook but with a twist based on the Taxpayer First Act of 2019. Here is a copy of the complaint.  In the Summary of the Claim section of the complaint, taxpayer lays out the general basis for its case:

1. Plaintiffs bring this suit to challenge Defendants’ denial of Plaintiffs’ right to administrative review and to ask the Court to require Defendants to comply with the Congressionally mandated procedures enacted to safeguard all taxpayers’ rights. The primary question presented here is whether Defendants must comply with the laws as enacted by Congress, or whether the scope of Defendants’ authority to enforce the provisions of the Internal Revenue Code (“Code”) is so broad that it exceeds the statutorily created mandates imposed by Congress and the constitutional norms of due process. More specifically, the question is whether Defendants can ignore Code § 7803(e) and unilaterally deny Plaintiffs the right to independent appeal of Defendants’ proposed determinations.

2. In enacting Code § 7803(e) as part of the Taxpayer First Act of 2019 (“Taxpayer First Act”), Congress established an “Internal Revenue Service Independent Office of Appeals” (“Independent Appeals Office”). Taxpayer First Act of 2019, Pub. L. No. 116-25. Code § 7803(e) states that the Independent Appeals Office is to provide a process for resolving tax controversies without litigation on a fair and impartial basis that promotes a consistent application and interpretation of the Federal tax laws and enhances public confidence in the integrity and efficiency of the IRS.

3. Code § 7803(e), aptly titled “Right of Appeal,” requires the IRS to make the Independent Appeals Office resolution process “generally available to all taxpayers” and further requires the IRS to “prescribe procedures for protesting to the Commissioner of Internal Revenue a denial of a request [for a referral to the Independent Appeals Office].”

The case bears another similarity to Facebook in that the IRS requested an extension of the statute of limitations on assessment and Rocky Branch initially declined to give but later expressed willingness to provide. In Facebook, the taxpayer had granted several extensions but eventually grew tired of doing so.  In both cases the IRS relied on the lack of cooperation in extending the statute to deny the request to go to Appeals. 

The IRS moved to dismiss the case for lack of jurisdiction because the issuance of the FPAA and the filing of a Tax Court petition by Rocky Branch mooted the request to go to Appeals.  Additionally, it argued that the government had not waived sovereign immunity.   In denying the request that the IRS be ordered to send the case to Appeals, the district court first states that it cannot enjoin the IRS from issuing the FPAA because it had already done so.  Then, it addressed the request to order the rescinding of the FPAA.  It declined this request stating it had no authority to rescind the FPAA and doing so would violate the Anti-Injunction Act (AIA).  The court also denied the request to order the IRS to sign the statute of limitations extension.  With request that it compel the IRS to provide it with a review by Appeals, the court found the request moot and found sovereign immunity prevented it from issuing such an order.

Rocky Branch filed its brief with the 11th Circuit on October 19, 2022.  Here is a copy of the brief.  The brief very much frames the issues as ones of taxpayer rights:

1. Whether the IRS is subject to the laws created to address taxpayer abuses identified by Congress;

2. Whether the courts have the authority to enforce laws creating a taxpayer right to due process or whether the Anti-Injunction Act (“AIA”) bars a suit seeking to compel the IRS to comply with the law; and

3. Whether the IRS’s violation of the law and denial of statutorily created due process rights can be reviewed under the Administrative Procedures Act (“APA”). 

It is unclear if the case will make it to the stage of having the circuit court issue an opinion on the merits.  The Tax Section of the Department of Justice has filed a motion for summary affirmance citing to an order issued this summer affirming the dismissal of a case DOJ says is materially indistinguishable.  If the 11th Circuit agrees with DOJ on this, it can end the case without further action. 

Detour to discuss motion for summary affirmance (and Tax Court jurisdiction cases)

I was unfamiliar with motions for summary affirmance in appellate cases until one was filed in the case of Culp v. Commissioner earlier this summer seeking to knock out the Culps dismissal from Tax Court for filling a late Tax Court petition in a deficiency case.  I was stunned in that motion that the Appellate Section did not cite to the Boechler opinion.  The Third Circuit denied the motion quickly as discussed by Carl in a post here.  The Appellate Section filed a similar motion in the case of Allen v. Commissioner currently pending in the 11th Circuit with the same issue as in the Culp case.  This time a mention was made of Boechler in a footnote as the government explained it had no value or impact on deficiency jurisdiction in the Tax Court.  The court’s decision on that motion is still pending. 

The arguments in Culp and Allen and more recently in Frutiger, a Tax Court case involving whether the innocent spouse statute creates a jurisdictional time frame, indicate that the government believes the only path for a determination of jurisdiction in the Tax Court is through the Supreme Court.  The government sees no impact on jurisdiction even where the opinion in Boechler knocked out most of the arguments it makes in other areas.


Because I had never seen this motion before, I do not know how often it is made as a way to quickly dispose of an appeal.  I suspect that Rocky Branch may get knocked out quickly if it is indeed a carbon copy of the case the 11th Circuit dismissed this summer.  If it does not get knocked out through the motion, it faces an uphill battle as neither TBOR nor the Taxpayer First Act explicitly provides a path to the type of relief sought.  The fact that well represented and well-heeled taxpayers continue to make these arguments does suggest the quest to use TBOR for substantive relief continues to resonate.  Maybe one day it will land on a winning argument.

Appeals Removes Challenges to Validity To Regs or IRB Guidance From Hazards of Litigation Analysis

On Wednesday, November 16, 2022 from noon to 1:15 the Tax Court will hold a webinar panel discussion moderated by Chief Judge Kerrigan highlighting changes to Tax Court practice made in response to the pandemic.  Christine Speidel will be among the panelist.  Registration is required.  Information about registration is available on the QR code in this document announcing the program

The other day I discussed a recent ABA Tax Section panel that addressed the growing number of procedural challenges to both regulations and guidance that the IRS issues in the Internal Revenue Bulletin. The challenges focus on whether the IRS failed to use the APA’s notice and comment procedures, or even if it did use those procedures, whether the IRS failed to do what was required under those procedures, such as responding to significant comments.

While the courts tackle these issues, IRS recently announced in both proposed regulations and interim guidance that the IRS Independent Office of Appeals is not to take into account the validity of regulations or IRB guidance in applying the hazards of litigation for possible settlement.


To be sure, the regulations provide an exception if “there is an unreviewable decision from a Federal court” that  accepts the taxpayer’s position on the validity of the regulation or IRB guidance. But this rule limits Appeals’ discretion to resolve matters that may present significant litigation risks for the government.

Why take this off the table? The preamble explains that while Appeals is independent it is “an office within the Treasury Department and the IRS,” and is bound to follow the decisions of senior-level Treasury and IRS officials. In the interim guidance, IRS distinguishes challenges that implicate other substantive issues and states that “the judicial process is the appropriate forum for addressing taxpayer challenges regarding the validity of Treasury regulations or procedural validity of IRB notices and revenue procedures in the first instance.”

While I briefly discussed the proposed regulations when they came out, since then there has been some immediate reaction from some practitioners. In an excellent article in Tax Notes [$ paywall], Jeffrey Luechtefeld of Chamberlain Hrdlicka argues that the policy will curtail Appeals’ ability to resolve cases without litigation and have a longer term negative impact on tax administration:

The proposed regulations do not discuss or even acknowledge the potential negative effect on tax administration that will likely result from this invasion of Appeals’ independence. Taxpayers may well question whether a restrained Appeals function is capable of fairly resolving their case if one of these issues is present.

On Twitter, Professor Kristin Hickman, one of my co panelists on the ABA panel and a leading critic of the IRS for failing to comply with the APA, states that “Treasury and IRS have an established history of APA noncompliance, and it places a heavy burden on individual taxpayers to bear the litigation costs of taking these challenges to court when they could be settled as part of the IRS Appeals process.”

On the other hand, Professor Hickman also tweeted that “forcing these challenges into federal court is more transparent and long term will likely lead Treasury & IRS to better APA compliance. And my sense is lots of agency adjudicators are required to assume the validity of agency rules.” 


The proposed regulations comment period is open until November 14, and I suspect that the comments will largely be critical of the IRS position.

For what it is worth, I come down on the side of the IRS’s proposed position. To be sure, it does place an additional burden on taxpayers who may have good faith and reasonable disputes about the validity of guidance. Yet in my view the courts are in the best position to address these complex issues. The circuit split in Hewitt and Oakbrook Land Holdings, and the differing approaches that leading commentators have taken concerning whether guidance is indeed required to be issued under notice and comment, suggest a need for either a legislative fix or for the Supreme Court to clarify these challenging administrative law issues. While the proposed regulations and interim guidance limit Appeals’ independence, I wonder whether Appeals has previously factored the validity of regulations or other guidance into its settlement considerations.  If it did not, at least this puts parties on notice and can help focus litigation strategy. If it did, my sense is that Appeals would likely have a different perspective on the risks that a court would invalidate the rule in question.

Proposed Regs Address Access To Appeals

Last week the IRS released proposed regulations relating to the right to access the IRS Independent Office of Appeals. This comes in light of the Taxpayer First Act (TFA), which formally established the IRS Independent Office of Appeals “to codify the role of the independent administrative appeals function within the IRS.” 


In addition to codifying Appeals and its mission statement, the TFA also added Section 7803(e)(4), which provides that “the resolution process [to resolve Federal tax controversies] shall be generally available to all taxpayers.” 

Access to Appeals, and when the IRS can cut off the general right to Appeals, has generated litigation, some of which we have discussed, such as last month’s 11th Circuit Affirms That Anti-Injunction Act Prevents Taxpayer Seeking Access to Appeals and in pre TFA times, such as Facebook Loses Challenge in District Court.

These proposed regulations address many of the issues that taxpayers have raised when seeking access to Appeals that for a variety of reasons IRS has not granted. On top of the statute noting that the right to Appeals is “generally” available, the preamble discusses the TFA legislative history showing that Congress was aware that IRS would be entitled to limit access to Appeals in certain circumstances.  One way that the proposed regs carve out some types of matters for Appeals consideration is by pegging access to Appeals only to a defined term, “federal tax controversies;” matters that do not implicate federal tax controversies do not trigger Appeals rights under the proposal.

The regulations specifically identify 24 categories of cases that do not trigger Appeals rights. Some of the major exceptions are listed below:

1. Frivolous Positions

2. Penalties Related to Frivolous Positions and False Information

3. Whistleblower Awards

4. Requests for a Taxpayer Assistance Order

5. Rejection of a Taxpayer’s OIC Submitted Under Section 7122 as Nonprocessable or No Longer Processable and Taxpayer Requests Appeals Consideration on the Basis that the OIC Should Be Deemed Accepted

6. Criminal Prosecution is Pending Against Taxpayer

7. IRS’s Automated Process of Certifying a Seriously Delinquent Tax Debt (passport revocation matters)

8.  Issues Barred from Consideration in CDP Cases

9. Authority Over the Matter Rests with Another Office (like Treaty competent authority cases)

10. Challenges Alleging that a Treasury Regulation is Invalid

11. Challenges Alleging that a Notice or Revenue Procedure is Invalid

12. Case or Issue Designated for Litigation or Withheld from Appeals

13. Appeals Issued the Determination that is the Basis of the Tax Court’s Jurisdiction

14. Challenges Alleging that a Statute is Unconstitutional

In addition to requesting comments on the scope and rationale for the newly proposed regulatory exceptions, IRS asks for comments on certain exclusions from Appeals review that are currently part of the IRM but not included in the proposed regs, including

  1. Denials of 9100 relief requests for an extension of time for making an election or other application for relief where the decision is reviewable by a court under an abuse of discretion standard and
  2. Denials of requests to change a taxpayer’s accounting method

The regulations identify other important issues, including requiring that the originating branch complete its action and reach a determination prior to a taxpayer’s access to Appeals; procedural and timing requirements that a taxpayer must meet before Appeals may consider the taxpayer’s Federal tax controversy; and a requirement that there is only one opportunity for Appeals consideration.

With respect to the originating part of IRS completing its actions, the proposed regs and preamble discuss a number of examples where access to Appeals is premature, including a deficiency case where the taxpayer for the first time requests relief from joint liability (query whether in that situation a remand to the centralized review unit should be appropriate, as Carl Smith discussed in Should the Tax Court Allow Remands in Light of the Taxpayer First Act Innocent Spouse Provisions? )

With respect to other timing requirements, the regs provide that the request must, as the preamble notes, be “submitted in the time and manner prescribed in applicable forms, instructions, or other administrative guidance and that all procedural requirements must be complied with for Appeals to consider a Federal tax controversy.” In addition, the regs note that there must be “sufficient time remaining on the appropriate limitations period for Appeals to consider the matter.” This is consistent with current IRM guidance, and proposes to elevate that guidance into regulatory rules.

With respect to the one opportunity/bite at Appeals rule, the preamble notes that “if a Federal tax controversy is eligible for consideration by Appeals and the procedural and timing requirements are followed, a taxpayer generally has one opportunity for Appeals to consider such matter or issue in the same case for the same period or in any type of future case for the same period.” The carve out also applies to taxpayers who failed to respond to an Appeals opportunity. There are important exceptions, including for CDP remands, taxpayers who participated in a variety of Appeals settlement programs like early referral and fast track settlement, and for taxpayers “who provide new information to the IRS and who meet the conditions and requirements for audit reconsideration or for reconsideration of liability issues previously considered by Appeals.”


I anticipate that the IRS will receive comments that will inform the reg drafters. Many issues lurk in the details, including nuances on the listed exceptions and other issues, including whether requests for Appeals access outside time provided in forms or other guidance should be subject to a form of administrative tolling. Comments on the proposed regulations are due by November 14; IRS has scheduled a public hearing on the regulations for November 29. Comments can be submitted via the Federal eRulemaking Portal at (indicate IRS and REG-125693-19). Old fashioned paper submissions are to be directed to CC:PA:LPD:PR (REG-125693-19), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, D.C. 20044.

Tax Court Refuses to Allow Petitioner to Amend the Petition

Yesterday, I wrote about a case in which the IRS was stuck with a concession even though its proof showed that the concession allowed a deduction it should not have allowed.  In the discussion of the Demuth case in that post I wrote about other times in which the Court did or did not allow changes.  In TBL Licensing v. Commissioner, TC Memo 2022-71 the court refuses to allow a petitioner to amend the petition six and one half years after the filing of the petition and after, in February of this year, it had rendered a precedential decision in the case, 158 T.C. No. 1 (2022).

One could ask why a case was still pending in the Tax Court six and one half years after the filing of the petition.  I have pointed out in enough previous blog posts how slow the Tax Court can be in rendering opinions.  I looked at the docket sheet here to obtain a sense of the case.  The parties have been active as has the court.  Based on an earlier opinion of the court, the case involves over $500 million in tax.  With that amount at issue, it is not surprising to see a long docket sheet with lots of activity.  The case involves an issue of corporate reorganization and resulted in a precedential opinion issued in November 2021, withdrawn shortly thereafter and reissued in February 2022. 

A couple things struck me as unusual from the docket sheet.  Petitioners sent the IRS five separate requests for admission.  That doesn’t happen very often.  The second thing is after the precedential opinion, petitioner moves to amend its petition for the second time in the case.  Why would you amend you petition after losing the case?  Generally, a party would do that after an opinion where the opinion did not cover all of the issues in the case but to find out exactly when, it’s necessary to read the memo opinion.


In the summary of the case, the court quickly answers my question regarding why petitioner would move the amend the petition after losing the case.  My original guess was wrong.  The precedential opinion did fully resolve the case; however, petitioner had by this point found another issue which might reduce its liability.  Here’s how the court describes it:

P and R each moved for summary judgment on issues regarding the application of I.R.C. § 367(d), which they presented as the sole issues in the case requiring resolution. The Court resolved those issues in TBL Licensing LLC & Subs. v. Commissioner, No. 21146-15, 158 T.C. (Jan. 31, 2022). In March 2022, more than 6½ years after filing its Petition, P moved for leave to amend its Petition to assert a claim for a research credit under I.R.C. § 41. R opposes P’s Motion.

Keep in mind that when you try a Tax Court case the resolution of the case ends the tax year.  After the case neither party can go back and try to change the tax result for the year(s) before the court.  The decision acts as a form of closing agreement ending any further consideration of the year. 

To its credit, petitioner here comes in quickly after losing the case and does not try to obtain a result in a separate proceeding; however, the timing is terrible in general since the case has by this time been pending for over six years with lots of activity and many attorneys representing petitioner.  The memo opinion lists seven attorneys of record for petitioner at the time of its issuance.  So, this is not a case in which an attorney suddenly comes into the picture to assist a previously unrepresented taxpayer.  This is a case with numerous attorneys on both sides and lots of time to uncover issues relating to the 2011 fiscal year.

There was other post-decision action occurring into which petitioner’s motion to amend its petition fits:

On March 4, 2022, respondent filed a Motion asking us to vacate the February 9th Order and Decision and replace it with one that states the amount of the upheld deficiency (rather than simply cross-referencing the notice of deficiency). Petitioner opposed respondent’s Motion to Vacate, alleging that the deficiency should be reduced by a research credit petitioner claimed under section 41 in an amended return petitioner apparently filed in June 2015, after respondent had issued the notice of deficiency but before petitioner had petitioned this Court for redetermination of the deficiency. Petitioner had not made any claim to a research credit for the taxable year in issue in its Petition
or at any other time before March 8, 2022, when petitioner responded to respondent’s Motion to Vacate.

So, not only were lots of attorneys involved for petitioner but the research credit it now wants to add to the case by amending the petition was known to petitioner since before the filing of its initial petition yet it had never raised this issue in its pleadings.

The court granted the IRS motion but held off issuing a new order in order to give petitioner the opportunity to make an appropriate motion.  It did by filing a motion for leave to amend.  In deciding whether to allow the requested amendment the court said:

“[D]etermining the justice of a proposed amendment” requires an “examin[ation of] the particular circumstances in the case.” Estate of Quick v. Commissioner, 110 T.C. 172, 178 (1998), supplemented by 110 T.C. 440 (1998). Among the circumstances considered are “whether an excuse for the delay [in raising the issue] exists and whether the opposing party would suffer unfair surprise, disadvantage, or prejudice if the motion to amend were granted.” Id. We also take into account whether the issue sought to be raised would require the consideration of “stale evidence,” the availability of relevant witnesses or documents, the time passed since the party’s initial pleading, the “remoteness in time of
[the] taxable years involved in the underlying dispute, or [the] completion of discovery and/or trial.” Scar v. Commissioner, 81 T.C. 855, 867 (1983) (Swift, J., concurring), rev’d on other grounds, 814 F.2d 1363 (9th Cir. 1987).

Petitioner argued that the court must allow it to amend the pleadings unless the amendment would prejudice the IRS.  Here, it alleged that no prejudice would exist and justice would best be served by allowing the amendment.  Petitioner argues that the IRS would not be surprised because it knew about the credit argument for seven years since the filing of the amended return.  The IRS has apparently allowed the same credit in other years.

The IRS objected to the amendment pointing out that petitioner offered no explanation for its failure to place this issue before the court at an earlier and more appropriate time.  It says petitioner abandoned the issue by its inaction.  The IRS also pointed to a conversation between counsel in 2015 in which petitioner’s counsel advised the IRS counsel that it had no plans to amend its petition to add this issue.  The IRS did not explain how raising the issue at this point would make it more difficult that if petitioner had raised the issue at the outset.

The court looks at an earlier opinion in which it said that a motion for leave to amend can be denied when absence of excuse and prejudice exists.  But the court distinguished that opinion and held the either the absence of excuse or the existence of prejudice, alone, can justify denial of a motion to amend the pleadings.  Here, the additional factor hurting petitioner is its apparent statement early in the case that it did not intend to raise this issue:

Petitioner’s efforts to elevate prejudice or substantial inconvenience as the sole dispositive factor, coupled with its repeated failures to provide any explanation for its delay in raising before the
Court its claim to a research credit for 2011, convince us that petitioner has no good excuse for its delay. In respondent’s unrefuted telling of the procedural history, petitioner’s failure to have raised the research credit issue reflects a conscious decision not to pursue the issue.

Similar to the Demuth case the denial here of the amendment to the petition probably leaves the petitioner paying more tax than it should.  In Demuth the court stated flatly that the concession gave petitioners a windfall.  A similar statement was not made in TBL Licensing but the implication of the treatment of the credit in earlier years leaves the impression that if timely raised the credit would have been allowed here.  In both cases the court goes for finality over finding the precise right answer.

The Court injected a new consideration into the equation – the impact of the motion on the Court: “Consideration of petitioner’s claim could impose a significant burden on both the Court and respondent.” (emphasis added) The Court explains in some detail the burdens reopening the case would place on the IRS.  It does not explain the burden it would place on the Court but does reference judicial economy and the burden that will be placed on the Court – “a burden likely to be greater than it would have been had petitioner raised the issue in the petition it filed more than 6½ years ago.”  The addition of the burden to the Court, while certainly present in any case in which a party seeks to have a second bite at the apple, has not regularly been a basis for denial of a motion such as this.

I am not troubled by the need for finality and allowing that need to overcome arguments that might get to a more perfect tax answer.  Both parties have a need to bring the issues to the court in a timely fashion.  The failure to do so has consequences as both cases point out.

Information on Appeals Presented at ABA Tax Section Meeting

During the Administrative Practice Committee meeting a panel occurred regarding Appeals and the impact of COVID.  The panel offered a couple slides about Appeals inventory that might be of value to readers interested in what’s happening in Appeals.  The panel also discussed some issues regarding Appeals inventory and case handling.


The first slide presented shows the cases coming into Appeals over the past three years.  The slide shows a sharp dip as a result of the pandemic.  Exam cases accounted for two thirds of the drop in case receipts between FY 2019 and FY 2020.  It’s not surprising given the sharp drop off in exam activity.  Because exam cases constitute such a large percentage of Appeals receipts, this area of drop has a bigger impact even though almost all types of receipts dropped.

The second slide shows staffing as well as receipts and closures over the last three years.  Here, cycle time provides the most eye-catching number.  Cycle time on cases more than doubled between FY 2018 and FY 2021.  This gives a real view of the impact of the pandemic on operations.

The panel talked about the challenges of working from home.  Many Appeals employees were working from home before the pandemic and had the capability to do so, unlike employees in many IRS functions, but the pandemic broke information supply chains making case processing much more difficult in some instances.

Appeals expects video conferences to continue but like other parts of the IRS will move from Zoom to Microsoft Teams.  Maybe I am the only one who prefers Zoom, but I do not view this as an upgrade.

The panel discussed Automated Underreporter Program (AUR) cases.  The AUR program often drives cases into the Tax Court with no development by the IRS.  The computer spits out a notice when it perceives a mismatch between an item reported on the taxpayer’s return and an item reported on a third party information return.  Because reaching someone at the IRS to discuss the AUR notice during the pandemic was “virtually” impossible, taxpayers moved up the chain into Tax Court by necessity and landed in Appeals inventory.  The panel discussed finding ways of addressing these cases without forcing taxpayers to go to Tax Court. 

Appeals issued a memo to all of its employees on April 19, 2022, regarding the backlog in Tax Court cases in its inventory.  A copy of that memo is attached here.  The memo seems to acknowledge that the examination division practice of having computers generate letters based on third party information returns that the examination division does nothing to verify is having a negative impact on Appeals inventory. Higher graded Appeals employees have to figure out whether the taxpayers really had additional income since the examination division essentially declines to do so and instead relies on computers to generate statistics showing the number of cases examined.

The panel also discussed the impact of Chief Counsel Advisory (CCA) opinions on Appeals.  CCAs generally have limited, if any, input from taxpayers.  They can tie the hands of Appeals and force cases into Tax Court.  The panel discussed the dilemma that CCAs sometimes place on Appeals as it seeks to find a resolution to a case or an issue.

The Ongoing Effort to Properly Situate the Tax Court

What is the Tax Court?  Does it reside in the judicial branch?  Might it qualify as an executive agency?  Isn’t this issue resolved?

The issue of the proper locus of the Tax Court has rattled around for a few decades now.  The most recent case making a serious effort to resolve the issue was Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), where the D.C. Circuit had held that the President’s power to remove Tax Court judges at section 7443(f) did not violate the separation of powers.  Carl wrote a post when the Supreme Court declined cert.  Bryan Camp wrote a post reacting to the initial legislation proposed after the decision in Kuretski.  As Bryan pointed out the D.C. Circuit decided in Kuretski that the Tax Court “had to be “located” within the Executive branch.”  Almost three decades ago, the Supreme Court in Freytag held that the Tax Court performs a judicial function.

While the uncertainty of the nature of the Tax Court within our constitutional system of three branches of government may leave academics uncomfortable, for most people life goes on and the Tax Court continues to adjudicate tax disputes between taxpayers and the IRS.  It seemed the debate over the status of the Tax Court, which you can read about in more detail in the posts linked here, had fizzled; however, embers from the debate still glow.


Kuretski was a Collection Due Process case where Frank Agostino was pro bono counsel.  Kuretski is one of many interesting cases Frank has picked up at a New York calendar call over the years.  Eventually, Tuan Samahon, my then colleague at Villanova Law School and constitutional law scholar, and Carl Smith entered appearances in the Tax Court case and argued that the President’s removal power over Tax Court judges at section 7433(f) violates the separation of powers and so should be stricken. 

Even though the Kuretskis lived in Staten Island, an appeal of the Tax Court’s adverse decision on separation of powers issue was taken to the D.C. Circuit.  At the time, section 7482(b)(1) provided no specific venue rule for CDP cases.  This allowed an appeal in Kuretski to the D.C. Circuit under the default language at the end of that paragraph.  Ultimately, the D.C. Circuit held that there was no interbranch removal power problem because the Tax Court (supposedly per Freytag) is an Executive Agency.  As an executive agency, the President should have the constitutional power to remove Tax Court judges.  While that decision satisfied constitutional muster in preserving the Presidential removal power of IRC 7433(f), the Tax Court judges may not have appreciated finding that they were an executive agency rather than a court.  The Supreme Court in Freytag gave them a more comfortable landing place (but for the issue of separation of powers).

Two legislative developments happened as a result of Kuretski:  First, Congress amended section 7441 (effective Dec. 18, 2015) to add the following sentence to section 7441:  “The Tax Court is not an agency of, and shall be independent of the executive branch of the Government.”  Second, Congress amended section 7482(b)(1) to add a new subparagraph (G) that directed appeals in all CDP cases to the Circuit of residence.  This new venue rule applied to all Tax Court CDP petitions filed after Dec. 31, 2017.  So, even though the statutory challenge in Kuretski may have seemed like one that only academics would follow, it had real consequences.

It seemed that the legislation and the Kuretski decision may have provided the end of the story, but it has not.  Enter Florida attorney Joe DiRuzzo who had a number of Tax Court cases in which he wished to get rulings to overturn Kuretski. 

He moved to recuse the judges in all Tax Court cases because of the constitutional issue.  In Battat v. Commissioner, 148 T.C. 32  (one of Joe’s cases), the Tax Court issued an opinion holding that, despite the amendment to section 7441, there was no constitutional problem in the removal power.  The case goes into the history of the Tax Court and the factors necessary for removal of a Tax Court judge from a case.  For that reason alone, the decision provides an interesting read.  You can find our prior posts on Battat here.

However, in Battat, the Tax Court also held that it was not an executive agency — disagreeing with the D.C. Circuit in Kuretski.  The Tax Court refused to state in which branch of government it lay.  The removal argument actually does not depend on whether the Tax Court is in any particular branch, since, in Freytag, the Supreme Court held that the Tax Court exercises a portion of the judicial power.  The real problem is interpower removal, not interbranch removal.

Joe tried to appeal the holding of Battat to an appellate court, but the appellate court wouldn’t hear the case yet because the appeal was interlocutory.  No final decision had been entered by the Tax Court in the case.  Joe got similar rulings from the Tax Court in unpublished orders in several other cases of his, which he also tried to appeal to other Circuits.  However, every Circuit refused to hear the issue on an interlocutory basis.  One of the cases in which Joe tried an appeal was Crim (Tax Court docket no. 1638-15).  This Crim case was a CDP case that the Tax Court had actually dismissed for lack of jurisdiction — a final ruling.  Joe appealed this Crim ruling to the 9th Cir. It affirmed that the Tax Court lacked jurisdiction, so it declined to rule on the recusal issue.  See this ruling in Crim here.

There was a second Crim Tax Court CDP case in which Joe had also made a recusal motion.  The case was filed in the Tax Court in 2017 (Docket No. 16574-17L).  So, Joe could appeal it to D.C., which he did.  On April 21, 2022, in the D.C. Cir. Joe filed his opening brief and the joint appendix (copies attached here and here).  Joe is making the removal power argument, asking for the D.C. Circuit to overrule its Kuretski holding.

Maybe no one cares or maybe this will lead to more interesting discussions about the Tax Court or other matters.  As Carl mentioned in his post about the many people who made a difference leading up to the Boechler decision, it was Joe who took on the appeal of the Myers whistleblower case pro bono which created the conflict that was instrumental in persuading the Supreme Court to accept the Boechler case.  Who knows where Joe’s appeal of Crim may lead?

January 2022 Digest

A lot has happened in the tax world since the year began, then filing season began last week, and the ABA Tax Section 2022 Virtual Midyear Meeting began yesterday. There are no signs that things will slow down soon, except for (maybe) IRS notices.

Procedurally Taxing will continually provide comprehensive updates and information, but if you fall behind with your reading or struggle to keep up- I’ll be digesting each month’s posts from here on out.

January’s posts highlighted the NTA’s Report, the ongoing impact of the pandemic, and recent Circuit splits.

National Taxpayer Advocate’s Report

NTA Report Released: Essential Reading: The Report is available and contains new features, including an enhanced summary of the Ten Most Serious Problems and a change in the methodology used to determine the Most Litigated Issues.

What are the Most Litigated Issues and What’s Happening in Collection?: A closer look at the Most Litigated Issues. EITC issues are often petitioned but rarely result in an opinion, suggesting that most are settled before trial. In Collection, lien cases referred to the DOJ have declined substantially over the years corresponding with the decline in Revenue Officers and resources.

Who Settles Cases – Appeals or Counsel (and Why?): An analysis of data on the number of Tax Court cases settled by Appeals or Counsel. An increasing percentage of settlements are handled by Counsel, but why? Possible reasons and possible solutions are considered.

read more…

Where Have Tax Court Deficiency Cases Come from in the Past Decade?: Most deficiency cases have come from correspondence exams of low- and middle-income pro se taxpayers. The focus of IRS examinations over the past decade has influenced the cases that end up in Tax Court. A shift in focus may be coming as IRS seeks to hire attorneys to specifically combat syndicated conservation easements, abusive micro-captive insurance arrangements and other tax schemes.

The Melt – Cases That Drop Away in Tax Court: Around 20% of Tax Court cases get dismissed each year- likely due, in part, to untimely filed petitions. Also due to a failure to prosecute, that is the petitioner abandoned the process somewhere along the way. Ways to address this issue are worth exploring, such as increasing access to representation and implementing a model utilized by the Veterans Court of Appeals.

Supreme Court Updates and Information

Who Qualifies as Press and the Boechler Supreme Court Argument Today: Being consider a member of the press comes with benefits, including the option to attend Supreme Court arguments with a press day pass when Covid-restrictions end. In lieu of being there in person, real-time broadcast links of Oral Arguments are made available on the Supreme Court website.

Transcript of Boechler Oral Argument: A link to the transcript of the Boechler Oral Argument is provided and Keith shares his in-person experiences observing the Supreme Court and the options available to others who are interested in doing so when Covid-restrictions end.

Pandemic-Related Considerations

Refund Claims and Section 7508A: A well-informed analysis of the disaster area suspensions under section 7508A and the refund lookback limits. Does the language in section 7508A allow for an extended lookback period? The IRS Office of Chief Counsel doesn’t think so, but TAS has recommended that Congress amend section 6511(b)(2)(A) for that purpose, and there is an argument that a regulatory solution is already available.

 Making Additional Work for Yourself and Others: The IRS has been cashing taxpayer payments without acknowledging receipt of the associated return. This improper recordkeeping resulted in the IRS sending CP80 notices to taxpayers requesting duplicate returns. This created more work for the IRS, practitioners, and clients. The IRS, however, recently announced it would stop doing this, as summarized directly below.

IRS Announces Stoppage of Notice to Paper Filers Who Remitted Payment and Tax Court Announces Continued Zooming: The IRS will stop requesting duplicate returns from paper filers who remitted payments with their original returns. Members of Congress also made specific requests to the IRS with the goal of providing relief to taxpayers until the IRS backlog is resolved, including temporarily halting automated collections, among other things. The Tax Court announced all February trial sessions will be by Zoom.

Practice and Procedure Considerations

“But I’ve Always Done It That Way!” Practitioner Considerations on Subsequent Year Exams: A TIGTA recommended change to IRS procedure may increase the audit risk for taxpayers who do not respond to audit notices. There is no blanket prohibition on telling clients about audit rates and general likelihoods of audit, so practitioners should be able to advise their clients of this potentially emerging risk and ways to avoid it.

New Rules in Effect for Refund Claims For Section 41 Research Credits Raise A Number of Procedural Issues: New rules for research credit refund claims require extensive documentation which increases costs and the risk of a deficient claim determination. Procedures for determinations were issued at the beginning of the month and have generated concern among practitioners because a determination cannot be challenged with a traditional refund suit and because the IRS modified regulatory requirements without utilizing formal notice and comment procedures.

Tax Court News

Tax Court Going Remote for the Remainder of January[and February]: January calendars (and now February, as mentioned above) scheduled in-person sessions have switched to remote sessions due to ongoing Covid-concerns.

Tax Court Orders and Decisions

The Tacit Consent Doctrine May Extend Far Beyond Signing a Joint Return: The Court in Soni v. Commissioner, allowed the tacit consent doctrine (where facts and circumstances led to finding of consent on the part of a non-signing spouse) to apply to returns, power of attorney authorizations and forms 872. The doctrine could be expanded in future cases, so it should be kept in mind when representing innocent spouses.

Timely TFRP Appeal?: The administrative 60-day deadline to respond to TFRP notices is discussed in an order requesting that the IRS supplement its motion for summary judgment. The origin of a deadline is important. Jurisdictional deadlines are different from administrative deadlines, and cases involving administrative deadlines can be reviewed for abuse of discretion.

Circuit Court Decisions

Eleventh Circuit finds Regulation Invalid under APA: The Eleventh Circuit, in Hewitt, calls into question who has the burden to show that a comment made during a notice and comment period: 1) was significant, and 2) consideration of it was adequate. The Tax Courts says it’s the taxpayer, the Eleventh Circuit says it’s the IRS, but what does this mean for everyone else?

The Fifth Circuit Parts Ways with the Ninth Circuit Regarding the Non-Willful FBAR Penalty: A difference in statutory interpretation results in a recent split between the Ninth and Fifth Circuits over whether the non-willful penalty under section 5321(a)(5)(A) should be assessed on a per-form or per-account basis. The Ninth Circuit held that legislative history, purpose, and fairness support a per-form penalty, but the Fifth Circuit held that Congress’ intent and the objective of the penalty support a finding that it’s per-account.

Goldring is Back with a Circuit Split: The Fifth Circuit addresses how underpayment interest should be computed on a later assessed deficiency when a taxpayer elects to credit forward an overpayment from an earlier filed return. It held “a taxpayer is liable for interest only when the Government does not have the use of money it is lawfully due.” This contrasts with other Circuits which have decided that the law allows the IRS to begin computing interest when an amount is “due and unpaid.”

Polselli v US: Circuit Split on Notice Rules for Summonses to Aid Collection: A recent Sixth Circuit decision continues a circuit split on a fundamental issue in IRS summons practice: does the IRS have to give notice when it issues a summons on accounts owned by third parties in the aid of collecting an assessed tax? The Sixth, Seventh and Tenth Circuits read section 7609 notice requirements and its exclusion without limitations, which contrasts with the Ninth Circuit’s more narrow interpretation.

D.C. Circuit Narrows Tax Court Whistleblower Award Jurisdiction: The D.C. Circuit overturns Tax Court precedent by holding that the Tax Court lacks jurisdiction over appeals of threshold rejections of whistleblower requests. Since all appeals of whistleblower cases go to the D.C. Circuit, the Tax Court is bound by the decision unless the Supreme Court takes up the issue. 

Liens and Judgments

Local Taxes and the Federal Tax Lien: The effect of the Tax Lien Act of 1966 was reiterated in United States v. Tilley.  Section 6323(a) sets up the first in time rule of law, but 6323(b) provides ten exceptions, including one for local property taxes, which allows a local lien to defeat a federal tax lien even when the local lien comes later in time.

Tax Judgments and Quiet Titles: Tax judgments can benefit the IRS beyond the 10-year federal collection statute of limitations. Boykin v. United States, like Tilley, involves real property held by nominal owners. The taxpayer brought suit to quiet title, the IRS counterclaimed that the money used to purchase the property was fraudulently transferred, and the taxpayer argued that a state statute of limitations prevented the IRS’s argument. The Boykin Court disagreed with the taxpayer relying upon Supreme Court precedent that state statutes do not override controlling federal statutes.

Bankruptcy and Taxes

Diving Beneath the Surface of In re Webb: An in-depth analysis of a technical bankruptcy issue that can impact taxes involving an election under section 1305, which allows postpetition tax claims to be deemed prepetition claims. The classification of the claims impacts whether a subsequent IRS refund offset violates a debtor’s rights.