2021 Year in Review – Administrative Matters Part 1

The job of my dreams from 15 years ago has just come open.  The University of Florida, home to one of the best LLM programs in tax in the country, has decided to make it even better by starting a low income taxpayer clinic.  When I was preparing for retirement from Chief Counsel back in 2007, I looked around for a teaching position and especially wanted one in Florida or somewhere in the South if I could not find one in Virginia.  I applied for a couple of positions in Florida but the schools had no interest in me, which was fortunate because I ended up at Villanova where I could not have been happier except that the weather in PA could have been warmer.  Then I moved even further North, reversing the path of most elderly folks, but again was very fortunate to land at the Legal Services Center of Harvard Law School.  Some lucky person will now have the opportunity to teach and to help taxpayers from a nice warm location.  The announcement:

The University of Florida Levin College of Law seeks a non-tenure-track Legal Skills Professor to serve as the instructor and director for our newly funded Low Income Taxpayer Clinic (“LITC”). This is a wonderful opportunity for a licensed attorney with substantial experience representing clients in disputes with the IRS and a passion for clinical legal education. We welcome applications from licensed attorneys already working in legal academia as well as practicing lawyers seeking to transition to legal academia.

Here’s the link to the position: https://explore.jobs.ufl.edu/en-us/job/519429/lecturer-legal-skills

Lots of administrative matters this year as the IRS pushed out a third Economic Impact Payment (EIP) and pushed out the Advance Child Tax Credit payments.  Congress put a lot of burden on the IRS asking it to shoulder these tasks while the IRS sought to dig itself out from two difficult filing seasons with lots of backlogs.

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ID Verification

Among other things that made the last two filing seasons difficult was the high number of ID verification requests the IRS made to taxpayers.  These requests came at an unprecedented scale.  I had the opportunity to ask Wage & Investment Commissioner Ken Corbin about the volume of these requests in a panel I moderated at the annual conference for Low Income Taxpayer Clinics.  He explained why the volume increased so dramatically and why it would probably go down significantly in the future.  Perhaps the IRS has explained this in other settings, but I had not seen an explanation previously.  His explanation made perfect sense.  The EIPs caused a high number of individuals to file a return who had not previously filed a return or who had not filed a return in a long time.  The returns of taxpayers not in the system generate a much higher level of potential fraud, particularly when filed for the purpose of obtaining a refund in one of these payment programs.  Consequently, the IRS sought to verify the ID of many more taxpayers than normal.  Unfortunately, it was unprepared for the call volume.  Fortunately, it has now developed a system rolled out in late November 2021 that should make the process go much smoother.

Misdated Notices

The IRS regularly sends out mail on a date other than the date on the correspondence.  I don’t condone the practice, but it’s been going on for quite some time.  In 2020, however, the IRS sent out millions of letters with the wrong dates and the wrong instructions, creating more confusion than necessary.  You can find our posts on these notices here and here.  During the pandemic, the IRS held off on sending out some of the notices that would have gone out on a regular cycle.  It did so both because it wanted to give taxpayers a break during the pandemic and because it could not staff the phone lines for the calls that would have inevitably resulted from the notices.  The problem continued in 2021.  As she did in 2020, the NTA blogged on the problem, providing a window into IRS action not otherwise available.  The 2021 correspondence problem does not implicate statutory time frames the way the 2020 misdated notices did.  Instead, the new problem involved the IRS sending 109,000 taxpayers a notice with incorrect information.  The notice not only wrongly told taxpayers of action the IRS did not take but contains a typographical error that compounded confusion.  See our posts here and here.

Cases for the Taxpayer Advocate

The Taxpayer Advocate issued guidance regarding the cases it would accept.  It needed to limit the cases it would take both because of case inventories and because it could do nothing about one of the biggest issues facing taxpayers – finding out what had happened to their return.  Because of significant and continuing delays in processing returns due to the pandemic, an unprecedented number of returns sat at IRS Service Centers waiting for someone to process them.  The delays especially impacted taxpayers who filed paper returns, amended returns and late returns.  These taxpayers turned to TAS when calls to the IRS proved unavailing or went unanswered; however, TAS cannot locate unprocessed returns sitting on a trailer outside of a Service Center.  The inability to turn to TAS for assistance provided further frustration for taxpayers, but the decision not to accept these types of cases seemed only logical given the inability to do much with these cases. 

In TAS-13-0521-0005: Interim Guidance on Accepting Cases Under TAS Case Criteria 9, Public Policy (05/06/2021), the National Taxpayer Advocate (NTA) put out guidance on the public policy cases that the Taxpayer Advocate Service (TAS) will accept.  The guidance regarding case acceptance expires on May 5, 2023. Under Code Sec. 7803(c)(2)(C)(ii), Congress listed several types of cases in which TAS will assist taxpayers and gave the NTA the authority to determine additional matters in which TAS will assist taxpayers. We discussed the issue here.

Updates from Independent Office of Appeals

Good news – Appeals has a customer service number: 559-233-1267.

Bad news – Appeals does not call you back if the case is unassigned, which would be my main reason for calling the number.

The update occurred as part of an event put on by the IRS for its stakeholders.  The executives from Appeals had a brief slide presentation which showed staffing and case levels in Appeals as of January 2021.

ITIN Acquisition

There have been changes made to processes at the ITIN unit related to issuing ITINs to dependents in Canada and Mexico.  Since the TCJA passed, the ITIN unit has begun to require proof of U.S. residency for dependents outside the U.S. prior to issuing an ITIN. These policies are not required by the statute or regulations and have perhaps some unintended consequences for vulnerable communities, particularly as they relate to the calculation of family size for the numerous federal and state agencies that use the tax return for this purpose. These policies also contradict the Form 1040 instructions which instruct taxpayers to include dependents from Mexico and Canada on the return.

Unfortunately for ITIN applicants, there is no easy way to appeal a rejection of an ITIN application, making these changes especially burdensome. Requesting an abatement of the math error notice that is issued after an ITIN rejection may provide the only way to appeal a rejected ITIN application. However, sometimes the IRS denies ITINs in situations where the inclusion of the ITIN applicant on the return does not change the amount of tax due, and no math error notice will issue. Creative litigators will have to figure out what remedies are available for a wrongfully denied ITIN application under these circumstances.

Exercise of Discretion Not to Offset Recovery Rebate Credits

The offset statute gives the IRS discretion to decide when to offset.  For the first two stimulus payments, Congress directed that the only offset would be for past due child support; however, it did not limit the IRS’ ability to offset when it passed the final stimulus payment.

A post by the NTA sets out some of the history on what the IRS did as it moved into the 2020 filing season. 

Congress prohibited offset of the first two stimulus payments (EIP), except against past due child support, which were made in 2020.  In passing the third stimulus payment (RRC), Congress did not create the same offset restriction.  Nonetheless, the IRS decided to exercise its discretion under 6402(a) with respect to the offset of federal tax refunds to federal tax liabilities.  The IRS allowed refunds based on RRC to pass through to taxpayers without being offset to satisfy prior federal tax debts.  Great news for persons with only federal tax debts in their portfolio of debts subject to offset under the Treasury Offset Program (TOP), but less good news for taxpayers with other outstanding obligations.  For a detailed discussion of offset and an explanation of TOP, you can read an article by me forthcoming in the Florida Tax Review found here.

The NTA points out two problems with the otherwise good news regarding the IRS decision to forego offset of refunds based on RRC.  First, the decision happened in the middle of the filing season after many taxpayers had already filed and already had their refunds offset.  A similar offset decision occurred in 2020 when the Department of Education decided during the middle of the filing season not to exercise its right to offset federal tax refunds (and other federal payments) against outstanding student loan debts.  Individuals who filed early (i.e., those most likely to have substantial refunds) get treated differently than those who wait. 

A similar issue occurred during the 2021 filing season with unemployment benefits that Congress decided mid-filing season to exclude from income (although the IRS created a way to fix this for early filing taxpayers without the need for them to file a superseding or amended return).  So many problems are created for tax administrators when Congress makes changes during the filing season.  The IRS deserves much credit the past two years for adjustments it has had to make during the filing season while operating under pandemic restrictions.  These type of adjustments can contribute to the processing delays for which the IRS gets a black eye.

Innocent Spouse and the Administrative Record

We received correspondence from PT reader James Everett of DeFranceschi & Klemm, PC in Boston.  Mr. Everett represents the taxpayer in Sutherland v. Commissioner, which Christine blogged here and I blogged here in the 2020 year in review post because of the importance of this case.  For those who do not remember Sutherland, it involves the issue of IRC 6015(e)(7) which limits Tax Court review in innocent spouse cases to the administrative record, including cases pending at the time of enactment that had already gone through the administrative process prior to the legislation creating the limitation.  The case was rescheduled for trial in 2021.

The national office interjected itself into the case and the IRS objected to all documents the taxpayer wanted to include with the stipulation that weren’t part of the “administrative” record (i.e., documents not provided during the administrative stage).  Judge Lauber made it clear he was going to require the IRS to call the appeals officer as a witness at the trial to discuss the record.  A few days before the trial, the IRS dropped its administrative record objections.  Judge Lauber asked the respondent’s counsel if this reflected Service-wide policy (i.e., the IRS agreed that §6015(e)(7) didn’t apply to pending cases); respondent’s counsel candidly replied that this was above his paygrade to comment on – he could only speak to the case at hand.

The withdrawal of objection to the administrative record was great, but based on the record it is not possible to tell if this was specific to the case, a rethink of IRS position, or just a lack of desire to have the AO testify.  The administrative record rule presents significant problems for individuals who go through the administrative process pro se, since they often fail to develop the full record needed if litigation occurs.  We really appreciate the insights provided by Mr. Everett and encourage other readers to provide similar insights if their cases have a significant procedural development.

In Person Hearing Inconveniences Appeals Witness

As is often the case, commenter in chief, Bob Kamman, brought to my attention an order that prior to DAWSON would probably have received the designated order label.  DAWSON did away with designated orders, as we have discussed before, but did not stop the Tax Court from issuing important and interesting orders.  The lack of a place for Tax Court judges to park their interesting orders creates more difficulty in identifying the orders that might be of assistance to the broader community of practitioners who follow the Tax Court, but it doesn’t mean the orders are totally unavailable. 

The feature that existed prior to DAWSON that has still not returned and that provides a critical resource for researching orders is the search function.  It would be nice to know when that feature will return.  Searching orders by issue, by judge, or by key word cannot really be done anywhere else.

The order Bob found has a few interesting aspects.  First, the order signals the return of in person hearings in the Tax Court even before the announced return date.  Second, it provides a window into the IRS view of CDP and the perhaps slightly different view of what is needed in a CDP case from the Court’s perspective.  Lastly, it provides a lesson on how not to respond to a status report.

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The order at issue is not long.  I will copy it in full here in order to provide context and to let the Judge’s voice come through in full fashion:

Wendell C. Robinson & May T. Jung-Robinson  Docket No. 6446-19L

ORDER

Petitioners requested a Collection Due Process hearing on Form 12153 (Doc. 52 at 56), on which they gave their address in Washington, D.C. Thereafter paperwork from IRS Appeals was evidently generated by various personnel in Holtsville (Doc. 52 at 65, 139, 144) and Philadelphia (id. at 138; see also id. at 99, 187). See also id. at 85 (Austin). Appeals issued a notice of determination; petitioners commenced this case; and the case has been set for trial in Washington, D.C. In a telephone conference on November 9, 2021, petitioners expressed a preference for an in-person trial (rather than a remote trial via zoomgov.com), and the undersigned judge stated an intention to hold an in-person trial. On November 12, 2021, the Commissioner filed a status report that states: “Respondent’s Settlement Officer is unable to travel to Washington, DC in order to testify in person during the December 13, 2021, trial session. The Settlement Officer is available to testify remotely during such trial session.” It is

ORDERED that, as soon as possible, and in any event no later than November 19, 2021, the Commissioner shall file a supplement to his status report that shall :   (1) identify the (unnamed) Settlement Officer to whom the Commissioner refers,  (2) explain why that Settlement Officer (rather than another Settlement Officer) is needed as a witness, (3) give a summary of the testimony that the Commissioner expects to offer through this Settlement Officer, (4) explain the reasons that this testimony is important to the Commissioner’s case at trial, (5) explain the reason that the Settlement Officer is “unable to travel to Washington, DC”, though able to testify remotely, (6) explain why the IRS chose the Holtsville Appeals Office for the handling of petitioners’ request, rather than one closer to their residence, and (6) state whether, if the Court is unwilling to allow this Settlement Officer to testify remotely in an otherwise in-person trial, the Commissioner would prefer a general continuance rather than proceeding without this witness.

(Signed) David Gustafson

Judge

Served 11/12/2021

We posted the Tax Court’s announcement recently that it intends to begin holding in person trials again in January 2022 and traveling out to the 74 cities where it sits to hear cases around the country.  What’s mildly surprising about this order is that the Court is holding an in person trial in 2021 or at least attempting to do so.  This is the first in person trial since March 13, 2020 of which I am aware but, of course, there could be numerous in person trials happening that I would not know about.  I take the order to signal that the Court is serious about getting back into the real rather than virtual courtroom.  Another sign we are opening back up.

The second part of the order is the more interesting and amusing.  In this CDP case the IRS attorney wants the Settlement Officer to testify.  It’s not clear from the order why the IRS wants the SO to testify or why the SO cannot do so on that date.  It’s a bit unusual to have the Settlement Officer testify.  Nonetheless, the Settlement Officer is unavailable on December 13.  That trial date comes pretty close to the end of the government leave year.  Perhaps the SO has use or lose leave with plans not to be in the office for the last few weeks of the year.  Perhaps the IRS travel budget does not allow bringing in an SO remote to DC to make a minor point. 

The unavailability of the particular SO to attend leaves the Court asking why another person from Appeals could not testify.  This goes to why the IRS wants the SO to testify in the first place, but also to whether travel funds entered into the response.  If the purpose of the testimony is merely to establish matters almost any IRS could attest, why not have someone else come and testify who is available and local?  We can find out later this week when the IRS files its supplemental status report.

The lesson here may be principally about status reports and how much detail to include.  The IRS clearly did not include enough information in its status report and may have annoyed the Court by failing to do so.  Most, if not all, of the Tax Court judges monitor the cases in which they retain jurisdiction by requiring status reports of the parties.  As a government attorney, I knew I had to always file a status report by the date requested even though almost no pro se petitioners file the ordered reports and many represented parties fail to do so. 

Filing a helpful status report allows the judge handling the case to know what to expect and when.  It’s not a bad idea to anticipate what the judge needs and wants to know and include that in the status report even if it was not the precise information requested.  In pro se cases, the IRS regularly gets a public form of ex parte communication since the other side is usually silent.  Here, the government’s status report was too cryptic and seemed to assume that the Court would go along.  If the status report had reported why the specific witness could not attend on the scheduled day and why that witness brought important information to the CDP case, the judge could have made a decision about moving forward based on that information.  The incomplete information provided only led to a request for more information and put the government on its back foot.

Third Time is the Charm for CDP Case

In Dodd v. Commissioner, T.C. Memo 2021-118, the Tax Court decides the merits of petitioner’s case, having twice remanded the case previously.  In the end, Ms. Dodd lost the merits of her case and owes a large tax liability.  The case shows what happens when the IRS fails to properly conduct the Collection Due Process (CDP) hearing and then what happens when it does.  Ms. Dodd, although an administrative assistant at a law firm, went through CDP process for over four years pro se.  We discussed this case during its previous trip from Appeals to the Tax Court here.

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Starting in 2013, Ms. Dodd became an investor in Cadillac Investment Partners, LLC (Cadillac).  She was the managing member of this real estate partnership with a 35.5% share of its profit, loss, and capital account.  In 2013 Cadillac sold some property generating a large IRC 1231 gain.  She received a K-1 from the partnership and reported on her return $1,073,312 in 1231 gain, $1,909 in ordinary business income, ($100,739) net real estate income and $201,601 in distributions.  She reported all of these items from her K-1 on her 2013 return which showed a liability of $169,882, that she did not pay with her return.  This self-reported liability leads to the CDP hearing.  Because the amount at issue stems from a liability reported on her return, the CDP provision, as interpreted by the Tax Court, allows her to contest the correctness of her own return reporting.

While she was not a model CDP citizen, Appeals also had trouble dealing with her case.  As discussed in the previous post, it twice assigned the same settlement officer who did not seem well equipped to resolve the proper reporting of a partnership distribution.  On the third trip, referred to by the Tax Court as the second supplemental hearing, Appeals assigned a new settlement officer and paired the SO with an appeals officer who had experience dealing with partnership issues.  This team determined that Ms. Dodd correctly reported the liability on her return.  That determination ending remand number three brought the case back to the Tax Court where this time the court has the tools to make a decision.

In the Tax Court the parties agreed to the necessary facts and submitted the case fully stipulated.  Looking at the facts, the court concludes that she correctly reported the liability on her return.  Thus, no merits relief in CDP.  This merits decision occurred after a de novo review of the facts.

Next, the Tax Court looks at whether Appeals abused its discretion in denying her collection relief from the proposed levy.  It concludes that Appeals did not abuse its discretion based on the information Ms. Dodd provided – which was very sparse.  So, four years and three remands after she began her case, she ends up back where she started.  She now has a determination that her return correctly reported the partnership income and expenses.  The IRS has permission to levy upon her and she may need some relief from levy, but she failed to request that relief in a meaningful way during the CDP process.

Appeals correctly dealt with her merits issue on the third try.  I cannot guess what went wrong the first two times.  As discussed in the prior post, the SO initially assigned to the case moved it quickly both times but seemed incapable of addressing the correctness of the reporting of the partnership items.  That an SO would have difficulty determining the correctness of partnership items comes as no surprise, but the failure on the first two tries to line up someone to help with that aspect of these case seems like a failure of the system.  Perhaps the correct handling of the case on the third try signals a better understanding of the way to handle a merits claim or perhaps it just means that in this case Appeals’ eyes finally opened to the problem presented.

Appeals Finalizes Team Case Leader Initiative

The Sixth International Taxpayer Rights Conference kicked off today with a workshop on ombuds and advocates and continues through Friday. As Nina Olson mentioned last week in Taxpayer Rights as Human Rights: Registration is open for the 6th International Conference on Taxpayer Rights, the conference focuses on taxpayer rights as human rights. It provides the opportunity to learn from the way other countries administer their tax systems. If you have the time I strongly encourage you to attend this year’s conference, which is online only.

As part of the conference, I will be speaking Thursday morning on a panel that looks at how the right to administrative appeals promotes integrity and fairness in the tax system. I am joined by the Governor of the Greek Independent Revenue Authority and Professor Carika Fritz from the University of Witwatersrand in South Africa.

One of the topics I will discuss on the panel is the IRS’s Independent Office of Appeals recent decision concerning the Appeals Team Case Leader Conferencing Initiative. As readers may know, back in 2017 Appeals (as of the Taxpayer First Act the IRS Independent Office of Appeals) initiated a pilot program where IRS Large Business and International Exam teams and their Chief Counsel Attorneys meet with Appeals, taxpayers and their representatives at the commencement of the Appeals process. The goal was to narrow the scope of controversies and improve Appeals’ understanding of any differing takes on the law and facts. 

The pilot was limited to large complex cases that are led by seasoned Appeals employees known as Appeals Team Case Leaders. When Appeals announced the pilot, practitioners, the NTA and IRSAC weighed in (see the 2017 NTA comments here and IRSAC here), with some comments expressing deep reservations about the possible impact of Appeals’ engagement with Counsel and compliance employees on public confidence in Appeals’ impartiality and independence.

Last month Appeals announced that it has concluded the pilot and reached a decision on the process going forward. Appeals will not mandate joint case discussions in every case but will continue to operate under policies that allow it, in its discretion, to invite Counsel and Exam employees into the non-settlement portions of the Appeals process.

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It has been a while since I was practicing at large law firms and worked on LB&I Appeals so I cannot speak personally to the experiences of those practitioners who may have strong views on this. I was impressed, however, by the Appeals memo that accompanied the decision to continue the practice. The memo itself discusses the external comments, identifies some of the suggestions practitioners made, and flagged the reasons why Appeals decided to continue and formalize the practice.  As an example of the transparency reflected in the memo, while rejecting the recommendation, Appeals candidly discussed the suggestion that several commenters made to tether the process to taxpayer consent.

In reaching this conclusion, we carefully considered the suggestion by several commenters that taxpayer consent be required for Compliance to attend the non- settlement portion of Appeals conferences. While we agree that an ATCL should always consider the taxpayer’s (or their representative’s) views about Compliance attending an initial case discussion, we left the decision within the ATCL’s sole discretion for several reasons. First, the discretion to invite Compliance to conferences has been Appeals’ policy since at least 1967. During this time, Appeals technical employees have used this discretion sparingly and responsibly. More importantly, requiring taxpayer consent would effectively substitute the judgment of the taxpayer (or the taxpayer’s representative) for the judgment of the ATCL on the question of how best the ATCL can fully understand the merits of both parties’ positions and fairly assess the hazards of litigation in complex cases.

Taxpayers are entitled to negotiate settlements with Appeals without Compliance’s participation but allowing taxpayers to limit Appeals’ ability to understand a case would undermine fair tax administration. ATCLs are highly experienced and knowledgeable tax professionals with the ability to independently judge the facts, law and litigating hazards and propose fair and reasonable settlements. Appeals leadership trusts their judgment in determining when it would be helpful to invite Compliance to attend an initial case discussion with the taxpayer.

Going forward the memo notes that Appeals will focus on best practices and identifies the need to ensure public confidence in the integrity and independence of Appeals. To that end, it states that it will continue to reflect on additional feedback and adjust policies to preserve public confidence in the process. The transparency and willingness to solicit information seems like a strong recipe for tax administration. Even if one disagrees with the conclusion in the memo it is refreshing to see an open discussion of how and why Appeals decided to continue with its policy.

Is IRS Appeals Using the Taxpayer First Act to Restrict Taxpayer Access?

As the name and its suggests, the Taxpayer First Act (TFA) made numerous changes to the tax code with the general intent of improving taxpayer rights and interaction with the IRS. These changes ranged from the possibly consequential (Sec. 1101’s requirement that the IRS submit a comprehensive customer service strategy to Congress, found here) to the somewhat misguided (Sec. 1203’s “clarification” on Innocent Spouse as noted here), to the outright absurd (Sec. 1406 requiring the IRS to play helpful information on their phone line while placing taxpayers on hold. I’ll take the scratchy “muzak,” thank you very much. Keith anticipated the issue before TFA with his own suggestion here.)

One provision that went largely unheralded, as far as I can tell, was the requirement that most taxpayers be provided their case file prior to meeting with IRS Appeals (codified at IRC § 7803(e)(7)). Few taxpayers (or practitioners) would oppose greater access to case files, so this seems to be a straightforward win for taxpayer rights -most pertinently, the taxpayer “Right to be informed.” IRC § 7803(a)(3)(A).

And yet in my experience IRC § 7803(e)(7) may actually result in less access to information, rather than more. How is this possible? The devil is in the details…

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To be fair, as I will argue, the devil isn’t really in the “details” of the statute. Rather, the devil is in the implementation of the statute. But that lacks alliteration and “the impishness is in the implementation” is not a commonly used phrase. Still, it is more of an “impish” problem than a devilish one. That is to say, the problem is more of an impish gremlin than a glaring devil. It causes problems precisely by going unnoticed. Allow me to explain.

Typically, when IRS Appeals asks me for numerous documents to support my client’s case, I ask Appeals for numerous documents in return. Even prior to the TFA I would ask for the administrative case file. In the past some Appeals Officers (AOs) would be confused about what I was asking for, and some would be on top of things. Post-TFA there is much less initial confusion and clarification in response to these requests, because Appeals has specifically been instructed to provide taxpayer’s case files.

Great!

Or not. In my experience, AOs reply quickly to my request for the administrative case file because they interpret it as a “TFA Request” for the case file. Indeed, that is what the subject line has read on the faxed documents I have received from the IRS over the last year.

But who cares what the IRS calls it, so long as it is the case file, right?


Not so fast. A “TFA” case file does not contain all the same information that a non-TFA case file might: importantly, it contains less. Let’s look at the statutory language to see why:

“In any case in which a conference with the Internal Revenue Service Independent Office of Appeals has been scheduled upon request of a specified taxpayer, the Chief of Appeals shall ensure that such taxpayer is provided access to the nonprivileged portions of the case file on record regarding the disputed issues (other than documents provided by the taxpayer to the Internal Revenue Service) not later than 10 days before the date of such conference.”

IRC § 7803(e)(7)(A), emphasis provided.

That emphasized parenthetical makes all the difference. One of the main things I want from the IRS is a copy of correspondence from the taxpayer to the IRS. This is because (1) I want to know exactly what it is the taxpayer has so far argued or provided for consistency purposes, and (2) because of how many IRC § 6662 penalty cases I deal with, and specifically because of the holding of Walquist, (see my take here) it is critical to know if a taxpayer responded to an automated exam, period. (In my view, this is because it takes it from the realm of being “fully automated” if the taxpayer responds to the exam, and supervisory approval of penalties arguably should then ensue.)

Further, where you are working with Appeals on a Collection Due Process case having the full administrative file (including, per the Treasury Regulation, the documents sent by the taxpayer to the IRS -see Treas. Reg. § 301.6330-1(f)(2)(A-F4)) is critical because of record review issues (see posts here and here). But when the IRS responds to your request for the case file with a “TFA case file” you aren’t getting the full picture. This is a gremlin rather than a devil because you (the practitioner) might not immediately (or ever) notice it. In my experience IRS Appeals used to provide communications from the taxpayer to the IRS in a request for the administrative file because… well, it is part of the administrative file. An important part.

Practice Tips

This whole issue came to my attention precisely because I don’t ask for the generic “case file” when I’m working with Appeals. Rather, I ask for very specific things in addition to the full administrative file. I also usually ask for clarification on whether something isn’t included in the documents Appeals sends to me because (1) it doesn’t exist, or (2) the AO just doesn’t think they need to provide it. These specific requests make the gremlin of a perfunctory TFA case file pop out pretty quickly.

As a real-life example, I recently asked for a client’s administrative case file, as well as any call log notes from the IRS pertaining to the taxpayer, and any documents submitted by the taxpayer to the IRS. Because the issue of whether my client had contacted the IRS was critical, I specifically asked Appeals for clarity as to whether the IRS did not have records of any communication, or whether Appeals simply was not planning on providing them. Appeals replied with a fax that said “TFA Case File” and provided a copy of the tax return and some automated exam notices. That was it. I responded by saying “Thank you for the TFA Case File I didn’t ask for. When you get a chance, could you send the documents I actually did ask for?”

(Disclosure, especially for impressionable students: I didn’t actually respond that snarkily. That type of attitude doesn’t help your client and runs afoul of the general proposition that you shouldn’t be a jerk to the IRS. Or anyone, really.)

My take is that this is an issue of training. Appeals Officers are essentially told in their IRM that  “taxpayers have a right to x and y documents under the TFA, so when they ask for their case file you have to give them x and y documents.” This gets internalized on-the-fly as “these are the only documents you ever have to give taxpayers, and those are the only documents you need to give on any request for additional information.”

Post-TFA, is Appeals Right to Limit the Case File?

It is not yet clear to me that IRS Appeals is taking the legal position that the TFA actually intended to constrain taxpayer access by supplanting any previous, broader taxpayer right to see the documents or communications they’ve sent to the IRS. My bet is that some individual Appeals officers may take a harder line on what practitioners are entitled to than others. When people are time-crunched and emotions are running high, I worry that the TFA could lead to more Appeals Officers digging in and saying “look, this is all I have to give you so it is all that I am giving you.”

Nonetheless, it is clearly bad policy for Appeals to hold back non-privileged case file information. The mission of Appeals isn’t to play “gotcha!” It is to try to resolve, without litigation, controversies in a fair and impartial manner that will enhance voluntary compliance and public confidence in the Service. It would be a perversion of this mission if Appeals held back information directly relevant to the merits of the case on the grounds that it isn’t covered by the TFA, though specifically requested by the taxpayer.

But beyond cutting against their own policy, it would really just amount to a waste of time since a practitioner can eventually get it through either FOIA, Branerton, or discovery anyway (at least in docketed cases). Appeals should want to resolve cases, not kick the can down the road. I would encourage the IRS to look at the TFA as a floor, not a ceiling, in taxpayer rights and services. Where necessary, Appeals should do more than just provide the documents covered by IRC § 7803(e)(7)(A) if they are serious about their mission and taxpayer rights more broadly. When holding back information they have (and that has been asked for), perhaps Appeals should ask themselves “what do you think of someone that does the bare minimum?”

A Final Plea

I have mixed feelings on the TFA, writ large. I think it was enacted with the right intentions, but I think that it would have seriously benefited from more practitioner input at an earlier stage. Yes, Congress did ask for comments in this instance but they gave a turn-around time of about two weeks (actually less) to get them in. This was covered by Procedurally Taxing at the time (here), and it is hard to imagine that the few comments that did come in were given much weight that late in the game.

Yet we’ve already seen some of the unintended consequences of the legislative language play out with innocent spouse, and I worry that this “right to the case file” may carry similar baggage. Both are issues that I think the practitioner community would have seen from the outset.

So here’s the plea. As previously noted, the TFA required the IRS to come up with a comprehensive customer service strategy. That report came out fairly recently (January 2021). When it has been fully digested, let’s not only have the IRS make some internal changes, but even possibly bring Congress back to the table. Unlike most political issues (and especially “substantive” tax law changes), changes to tax administration garners broad bipartisan support. The TFA saw essentially unanimous support from Congress, signed into law by a president that was impeached (at the time) along party lines. Going back to (arguably) the most important change to tax administration prior to TFA, you have the IRS Restructuring and Reform Act of 1998… which saw essentially unanimous support from Congress, signed into law by a president that was impeached along party lines.

At the end of the day, real respect for taxpayer rights (putting “taxpayers first”) is going to require something of an attitude change with the IRS. To me, part of this means striving to help the taxpayer, rather than looking for ways to make things difficult in the hope of scoring a default “win.” As something of a coda to that point, I’ve recently had another adventure crop up with the TFA “case file” provision. Apparently, some Appeals Officers read the statute as requiring an Appeals conference to be scheduled within 10 days of receiving the TFA file… In other words, receipt of the TFA file starts a ticking clock for the taxpayer to act quickly or miss out on a conference.

This is not at all what the statute says. Granted, Congress used needlessly convoluted language: that the case file must be delivered to the taxpayer “not later than 10 days before” the conference.  But I truly believe that the misreading of the statute (somehow seeing it as constraining the taxpayer) is much easier to do when you come from an adversarial mindset. Let’s hope, as the IRS is pulled more and more into the realm of benefits delivery, that this mindset adapts.

Finality of a Tax Court Decision

The Sixth Annual Tax Controversy Institute will be held online on Friday, July 16th, 2021. The virtual institute is sponsored by the University of San Diego School of Law and the tax law firm RJS Law. The event will be free of charge and will allow practitioners to earn free education credits. Speakers will include IRS Commissioner Charles Rettig and Tax Court Judge Copeland. The Institute will also be presenting the Richard Carpenter Award for integrity, dedication and expertise in representing taxpayers to Nina Olson, former National Taxpayer Advocate and the Executive Director of the Center for Taxpayer Rights. For more information about the event and to register, click here.


Thanks to Carl Smith for bringing to my attention another interesting decision.  The recent case of Kirik v. Commissioner,—Fed. Appx.—(2nd Cir. 2021) in an unpublished opinion addresses the issue of when the Tax Court retains jurisdiction to modify its decision or order of dismissal after the 90 days to appeal has run, but no appeal has been taken.  The statute at issue is IRC § 7481(a) and the circuits have split on the issue. Section 7481(a) provides that a Tax Court decision becomes final upon the expiration of the time allowed for filing a notice of appeal (90 days under section 7483), where no notice of appeal has been filed within such time.

In a related but definitely distinct issue, in the case of Myers v. Commissioner Joseph DiRuzzo, representing petitioner Myers, asked the D.C. Circuit to hold that the 90-day period in IRC § 7483 to file a notice of appeal in the Tax Court is non-jurisdictional and subject to equitable tolling.  The D.C. Cir. had no precedent on the issue one way or another, but refused to decide the issue — instead holding that a motion for reconsideration tolled the appeal period under the FRCP, just like a motion to vacate explicitly would under the FRCP.  As we wrote after the Guralnik decision, it’s hard to see how an FRCP rule can extend a statutory deadline that is jurisdictional, but life has its mysteries.  The issue in Kirik involves a different code section but some of the same underlying principles are at play.

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The Second Circuit described the issue in Kirik as follows:

Although § 7481(a) is quite explicit as to when a decision of the Tax Court becomes final, circuit courts have split on whether, and under what circumstances, the Tax Court may vacate or revise one of its finalized decisions. The Sixth Circuit has concluded emphatically that “once a decision of the Tax Court becomes final, the Tax Court no longer has jurisdiction to consider a motion to vacate its decision.” Harbold v. Comm’r, 51 F.3d 618, 621 (6th Cir. 1995). Other circuits, and the Tax Court itself, have acknowledged a few narrow exceptions to this rule, including situations in which there has been a fraud on the court, where the Tax Court did not have jurisdiction in the first place, Davenport Recycling Assocs. v. Comm’r, 220 F.3d 1255, 1259 (11th Cir. 2000), and where the Tax Court discovers a clerical error after the decision became final, Stewart v. Comm’r, 127 T.C. 109, 112 n.3 (2006).

The Second Circuit has never definitively decided whether the finality rule is jurisdictional or merely a claim processing rule that is subject to judicially‐created exceptions.  In Cinema ’84, 412 F.3d at 371, it declined to expressly adopt any of the exceptions identified above. Assuming that the Tax Court’s finality rule is not strictly jurisdictional and the above‐referenced exceptions could be properly considered by the Tax Court, none would make the slightest difference in this case, since there is no possible argument that the Kiriks’ delay was caused by fraud, mutual mistake, clerical errors, or the Tax Court’s lack of jurisdiction to enter a decision in the first place. Indeed, the Kiriks do not argue otherwise.

The paragraph summarizing the law is a shortened version of what the 2d Cir. wrote in its 2005 opinion in Cinema ’84, except that Cinema ’84, being decided only shortly after the Supreme Court in Kontrick v. Ryan in 2004 for the first time distinguished “claim-processing rules” from jurisdictional rules, does not use those two terms.  Thus, in Kirik, the 2d Cir. seems to realize for the first time that it may, in an appropriate case, have to rule on the issue of whether the Tax Court loses the ability to modify its decision after 90 days as a jurisdictional matter or whether there might be exceptions because the 90-day rule is only a claim-processing rule.

The facts of Kirik were terrible.  The notice of deficiency had sought about $3 million in taxes and penalties alone.  The Kiriks did not seek to vacate the Tax Court’s order of dismissal for lack of prosecution until almost 9 months had elapsed (instead of the 30 days generally provided for in Tax Court rules).  Although the 2d Cir. in Kirik could have used the words and the tests for “equitable tolling”, it did not; instead, it discussed the taxpayers’ request for an excusable neglect exception.  It stated:

[t]he Kiriks essentially argue that we should create a new exception to the finality rule based on the concept of excusable neglect. But we need not decide whether we can, or even should, acknowledge such an exception because even the most charitable and expansive definition of excusable neglect could not salvage the Kiriks’ claims here.

Although excusable neglect provides a permissible basis for noncompliance with court rules in a variety of contexts, all applications of the doctrine require courts to consider “the reason for the delay, including whether it was within the reasonable control of the movant.” Silivanch v. Celebrity Cruises, Inc., 333 F.3d 355, 366 (2d Cir. 2003) (internal quotation marks omitted). “We have noted that the equities will rarely if ever favor a party who fails to follow the clear dictates of a court rule,” id. (internal quotation marks and alteration omitted), going so far as to observe that where the rule governing a filing deadline “is entirely clear . . . a party claiming excusable neglect will, in the ordinary course, lose,” Canfield v. Van Atta Buick/GMC Truck, Inc., 127 F.3d 248, 251 (2d Cir. 1997). 

Here, the Kiriks’ delay in filing their motion was entirely within their control. There is no dispute that the Kiriks fired their attorney, thus taking on the risks associated with navigating the Tax Court alone, notwithstanding their self-professed lack of sophistication and less-than-complete fluency in English. Inexplicably, they then failed to respond to multiple orders from the Tax Court, including the order dismissing their case for lack of prosecution. Several months later, the IRS sought to levy on the Kiriks’ assets, yet even then the Kiriks did not file a motion to vacate the order dismissing their case. It was not until July 2020 – almost nine months after the Tax Court issued its dismissal order – that the Kiriks finally got around to making their motion. Nothing in our case law suggests that the Kiriks’ neglect, which was considerable, was even remotely excusable. Consequently, we see no reason to second guess the Tax Court’s denial of the Kiriks’ motion to vacate the October 2019 order dismissing their case.

In its Cinema ’84 opinion, the 2d Cir. also dodged deciding the issue of whether the Tax Court retained jurisdiction to modify its decisions after 90 days.  Cinema ’84 was a TEFRA case.  Here are the sentences in which Cinema ’84 declined to consider that taxpayer’s argument for an exception:

However, we have not explicitly adopted any of the exceptions to the general rule, discussed supra. In any event, it is unnecessary for us to decide in the present case which, if any, of the exceptions this Court recognizes because regardless of how Reigler’s argument is characterized, vacatur was not warranted here, where the Tax Court was under no duty to appoint a TMP and its failure to do so did not deprive Reigler of due process.

So, while the Kirik case does not really add to the resolution of this issue, it points out the conflicting case law and once again highlights the existence of the issue.  Because the facts in the Kirik case do not favor relief, perhaps for those who want to reopen the door after the 90-day period has run, the failure of the 2nd Circuit to address this issue head-on provides a benefit.  Here, bad facts did not really influence the further development of the law.  Of course, no one should wait until after 90 days have passed before coming back to the Tax Court to seek a reversal of the decision.  Convincing the Court to reverse will be hard enough.  Adding onto that an uncertain test with a high bar makes it almost impossible.

News from the Independent Office of Appeals

Thanks to Christine who invited me at the suggestion of Richard Furlong, Senior Stakeholder Liaison at the IRS Communications & Liaison office in Philadelphia, I had the opportunity to attend a presentation and listening session by the Executives in Appeals on January 26, 2021. The executives had a brief slide presentation but primarily gave the relatively small audience the opportunity to ask questions and make comments. It’s hard to know in these types of events what the long-term impact of the discussion will be, but I appreciated the opportunity to hear from Appeals on its current thinking and to have the ability to make comments. I will discuss a few of the topics that arose during the call but mostly riff on the thoughts the discussion triggered for me.

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Appeals Customer Service

One thing I learned from this presentation is that Appeals has a customer service phone line. Here is information about the line from the presentation:

If you submitted a request for Appeals consideration on your case, contact the IRS office that offered the Appeals request for an update on the status. If the IRS office states that your request was sent to the Office of Appeals and you have not received anything from Appeals after 60 days after the government has reopened, call Appeals Customer Service at 559-233-1267.

https://www.irs.gov/newsroom/february-2019-appeals-resumption-faqs

Question: is this Appeals Customer Service helpful in checking on status of an Appeals protest assigned to an Appeals Officer?

Since I did not know Appeals had such a number, I obviously could not answer the question. Christine observed to the gathered Appeals executives that she had called the number and not received a response. In response to her observation she was told that a response is only given if a case is assigned to an Appeals Officer and perhaps in her case the matter had not been assigned. This practice obviously limits the effectiveness of the customer service line.

Certainly exceptions exist but my experience with individual Appeals Officers both inside and outside the government is quite positive. An area of disappointment with Appeals involves finding the Appeals Officer assigned to a case. This disappointment is especially present in Tax Court cases. After the answer is filed, cases are referred by Chief Counsel’s office to Appeals unless the case previously went through Appeals. In most cases there is a long dead time between the referral and the time the Appeals Officer alerts you to their existence.

This long delay creates several problems. For Counsel and Appeals this long dead zone is what caused the Tax Court to reimpose the requirement of an answer in small tax cases back in 2006, since taxpayers resorted to calling the Tax Court for information about their cases due to an inability to hear from the IRS for months on end. For the system, I think, without empirical evidence, that the long delay is a causative factor in the high number of defaulted Tax Court petitions. Unrepresented individuals who have enough interest in their cases to take the effort to file a petition go into a lengthy dead zone before they have the opportunity to move forward on their case. I think this causes some to simply lose interest. For practitioners the long delay can make it hard to keep the client engaged. At an academic clinic it almost always means that the student who is invested in the case and prepares the petition will not still be working in the clinic when the Appeals Officer reaches out. This means that documents collected to present the case languish in our files and then someone must relearn the case when it is assigned to an AO. In many of our cases we have the material to quickly resolve the matter but cannot do so without someone to engage with on the other side.

I would prefer a system in which the AO, or someone in Appeals, was assigned almost immediately after the submission of whatever document triggers the visit to Appeals. This would allow early engagement for those pro se individuals or practitioners interested in engagement but would not necessarily require the AO to push those not actively coming forward to provide information until the AO was ready. It would also allow AOs who were able to engage early to alert the taxpayer or practitioner about documents or testimony needed at a point when the case was not getting close to aging in the AO’s inventory. AOs, like many government employees, have internal time frames for working cases. Exceeding those time frames can require the AO to engage in internal reporting necessary if a case when past an internally created time period. This, in turn, can cause the AO to push to close a case. The closer to the internal reporting deadline the AO starts working on the case, the less time the taxpayer has to gather information before the AO feels the internal pressure. I know that my desire for early assignment of the AO, or Settlement Officer, faces practical issues that the Appeals executives would have to overcome.

In Tax Court cases, the Chief Counsel assigned attorney is known relatively quickly because of the time period built in by the answer, even though after the answer the attorney may put the case on the shelf in order to work on other more pressing cases. However, at least the taxpayer or the practitioner knows who has the case. Could Appeals build an assignment model similar to that of Chief Counsel?  In small tax cases the practical person assigned may be a paralegal but you have someone with whom to engage to keep the case moving.

I like the idea of a customer service number and am glad that I finally learned that it exists. If, however, the information I would usually want from the number, viz., the identity of the person assigned to my case, is something that the number would not provide, maybe I am unlikely to use it even though I now know it exists.

Impact of COVID on Appeals Workload

Slide 6 of the slides used during the meeting shows a year by year comparison of the Appeals inventory for the year prior to COVID and for last year. A fairly dramatic reduction occurs in 2020. This is not shocking but does provide a stark example of the impact of COVID on this function. Also interesting is that the mix of work remains constant in the various categories of Appeals inventory. The list also shows the impact of the shift of work over the past two decades since RRA 98 to collection. In the almost 100-year history of Appeals the last couple decades have dramatically altered its workload from the first 75 years of its existence.

Revision of Form 12153 and Triage of Cases

It was only a glancing part of the discussion but the effort by Appeals to redesign Form 12153 did receive some mention. In December I had the opportunity with several other low income tax clinicians to engage with members of Appeals who were redesigning this form. Form 12153 is used by taxpayers to request a CDP hear. I think it is one of the easier forms for taxpayers to use but applaud Appeals for working to make it better. They put a lot of thought into their new design and were very polite about listening to my suggestions.

The redesign may signal a willingness to rethink how CDP cases move through Appeals. Generally, CDP cases get worked on a first in, first out basis. This can create problems for taxpayers and for the IRS. For taxpayers requesting a hearing based on a lien filing, a quick hearing would help since they want to remove the lien. In cases in which the taxpayer was pyramiding taxes of some type, a quick hearing is needed by the IRS. CDP cases come in many shapes and sizes. Getting a handle on which ones might benefit from early intervention could provide for a better system.

Conclusion

The Appeals executives indicated that they intended to repeat this presentation in other areas of the country. If you want to engage with Appeals leadership you might reach out to your local IRS stakeholder liaison to see if the opportunity is available to you.

When to Waive CDP Rights

Professor Caleb Smith discusses Toney Jr. v. C.I.R., Dkt. # 25496-16SL, a designated order from a few weeks ago. Rather than embed the discussion in Caleb’s DO Post, we have split this off to discuss issues surrounding waiving CDP rights, with Caleb looking for input from readers who may have considered what is the best practice when reaching an agreement with a Settlement Officer in a CDP case . Les

The order in Toney v Commissioner actually deals with the oft questioned “prior chance to argue the underlying tax” blogged about hereand here among others. The case is a pretty clear loser on that point, since Mr. Toney had previously had Appeals conferences and argued the tax.  But it got me thinking about a different issue that I have had with the IRS: specifically, how to approach Form 12257 “Waiver of CDP Rights and Summary Notice of Determination” from both legal and tactical perspectives.

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In Toney, the taxpayer and the IRS settlement officer came to an agreement to full-pay the liability within 60 days. The settlement officer prepared the 60-day extension form and a Form 12257 “Summary Notice of Determination” and sent it to Mr. Toney. A Notice of Determination (and the judicial review it affords) seemed unwarranted, since both parties agreed on the proper outcome.

But for reasons unknown Mr. Toney did not full pay and did not sign the Form 12257. The IRS settlement officer got tired of waiting and sent a Notice of Determination sustaining the lien instead.

From the outset it is important to note that Form 12257 is likely NOT a determination for IRC 6330(d)(1)purposes, despite having the phrase “Summary Notice of Determination” as its header. It is really more of a contract, and in any case too contingent to be a “determination.” For one, the taxpayer has to sign it to give it force, and for two even if the taxpayer signs it, it still requires secondary approval by an IRS Appeals manager.  See Fine v. C.I.R., T.C. Memo. 2016-217. In any event, the IRS does not treat it as a Notice of Determination (and no Tax Court decision has either): if the taxpayer does not sign and return Form 12257, the IRS sends an actual Notice of Determination to the taxpayer later.

Because it is not a Notice of Determination, it neither starts the clock running on petitioning Tax Court nor gives the Tax Court jurisdiction on such a petition. In other words, nothing much happens until you sign and have the Form 12257 approved or the IRS gets tired of waiting and sends an actual Notice of Determination.

And that is where the question of tactics arises. After a CDP hearing in which there appears to be a meeting of the minds on the correct outcome, a friendly IRS Appeals/Settlement officer will often suggest signing a Form 12257 to “speed up the process.” For example, if both parties agree that the taxpayer should be eligible for a payment plan of $100/month, why even retain judicial review? Why not just enter into the plan and waive the right to review?

One might be concerned that after waiving the right to judicial review the IRS will take some action that seems inconsistent with (or just completely reneges on) the agreement the parties came to. Not to worry, the IRS Appeals/Settlement Officer may retort: the very terms of Form 12257 provide “I [the taxpayer] do not waive my right under Appeals’ retained jurisdiction to receive another hearing with Appeals if I disagree with the IRS over how it followed Appeals’ determination.”  In other words, Appeals still has your back if the IRS doesn’t follow through on its apparent promises.

Yet believe it or not, having Appeals retain jurisdiction but without Court review is likely cold comfort for many practitioners. Generally, I give fairly high marks to IRS Appeals… when it is localIRS Appeals. When the IRS Appeals/Settlement officer is at a “campus” (Fresno comes to mind) my experiences have been, shall we say, less encouraging. It is in precisely those situations that I am reluctant to sign away the right to judicial review.

Perhaps because of this the best practice is to insist on an ACTUAL Notice of Determination. On the downside, this slows things down and creates more work for the IRS which in turn might not make for the most collegial relationship with the Appeals/Settlement officer. On the plus side, you’re here to look out for your client’s interests not the workload of the IRS, and frankly because part of the problem stems from impersonal IRS campus officers, developing relationships with them might be close to impossible. I can think of exactly one campus AO that I’ve had twice, and I’m not positive she remembered me. Of course, some consideration hinges on just how valuable Tax Court review of a collection action is under the fairly permissive “abuse of discretion” standard of review.

But assuming (as I do) that having access to Tax Court review is better than not, a problem remains. In the hypothetical I’ve proposed, you have reached a meeting of the minds with the IRS after a CDP hearing. Say both parties agree to an Installment Agreement and that the IRS will release a lien after three monthly payments are made. You nonetheless insist on a Notice of Determination, since you’d rather have the option of court review than not: you trust the Appeals/Settlement Officer but want to be sure the IRS follows through.

What good is the Notice of Determination in that instance? If three months later the IRS does not withdraw the lien what judicial review do you have? Your ticket has expired by the time you have cause to use it. I suppose one could argue on some sort of contract theory ground that failure of the IRS to properly follow through with the Form 12257 terms should be litigable. But I’d rather not mess around with that, and I’m not sure that in any case the Tax Court (which, lest we forget, is of eminently limited jurisdiction) would be amenable to the argument.

And so I end with a humble question to the readers of PT on this conundrum: what are the best practices you’ve found for working with Form 12257? Has it been an issue? Have you had post-CDP actions taken by the IRS that have caught you off-guard (either from Form 12257 or a Notice of Determination)?