Designated Orders: 9/4/17 to 9/8/2017

LITC Director for Kansas Legal Services William Schmidt reviews interesting procedural issues in this week’s edition of designated orders, including whether an issue flagged in an IDR is considered a new issue at trial, whether Coca Cola’s closing agreement in a transfer pricing dispute is relevant in a dispute covering years not covered in the agreement and the importance of letting the court know if there is a change in address. Les

Out of 11 designated orders this week, roughly half were in the same case so that case is a main focus in this blog post. Additionally, Coca-Cola’s calculation methodology is relevant to their case and it’s always good to update your address with the Tax Court.


Multiple Motions Lead to Multiple Orders

Docket # 21255-13, 27239-13, Duane Pankratz, et al., v. C.I.R.

These cases were set on the St. Paul, Minnesota, trial calendar for June 15, 2015 based on 2008 and 2009 tax years. The cases were continued based on Petitioner’s motion because there are a large number of issues. The parties proposed to corral the relatively noncontroversial issues and try the remaining issues the parties thought reasonably needed to be tried. The Court’s pretrial order was extended as no St. Paul calendar was docketed until September 2017, when they are set for trial.

  • Order 1 Here – After the parties had narrowed issues and stipulated facts, settlement talks broke down. The Court spoke with the parties on July 21, 2017, and learned the parties disagreed on what documents were exchanged, issues raised in the notice of deficiency and pleadings, and whether to set deadlines differing from the pretrial order deadlines for expert-witness reports or pretrial memos.       On August 3, 2017, Petitioner moved to compel production of documents from his requests 1-11 and 13.       These first 11 requests are broad, but the instructions narrow them to tax years 2008-2009. The Court found Petitioner’s request 13 to be overbroad. The Court granted the motion to compel for requests 1-11 to the extent of documents not already in Petitioner’s possession that Respondent intends to introduce at trial. If Respondent claims privilege for any of those documents, he must produce a privilege log.
  • Order 2 Here – On July 3, 2017, Respondent moved for summary judgment on three issues, noncash charitable deductions subject to enhanced substantiation requirements. As one issue was settled, the other two issues are deductions for a donation of four oil-and-natural-gas fields and a donation of a conference center in South Dakota. Respondent argues qualified appraisals are required to substantiate those donations. Petitioner argues that Respondent’s authority predates 2004, when I.R.C. Section 170(f)(11)(A)(ii)(II) allows for a reasonable cause exception to those requirements. Since Petitioner asserts he can meet the reasonable cause requirements and will testify in support, Respondent’s motion for partial summary judgment was denied.
  • Order 3 Here – Petitioner moved in limine on August 4, 2017, to preclude new matters from being tried, listing three issues in the motion. The issues were not listed in the notices of deficiency, answer, or amended answers. Respondent argues that the issues were raised in an information document request and a letter in September 2015. The Court notes that information document requests and letters from counsel are not pleadings. Respondent also argued Rule 41(b)(1) that when parties expressly or impliedly try an issue by consent, it is treated as if it were in the pleadings. The Court cites Rule 70(a)(2) and states that discovery is not trial. The motion in limine was granted for Petitioner and Respondent was precluded from offering evidence on the three issues.
  • Order 4 Here – Here is an order on another one of Petitioner’s motions in limine regarding a new issue from Respondent. This motion was filed September 1, 2017, regarding a disallowance of Petitioner’s Schedule E losses in 2009 for lack of basis. As the issue did not arise until August 2017 in an email chain, the Court precluded Respondent from offering evidence at trial on that issue.
  • Order 5 Here – There is also an August 3, 2017, motion by Petitioner for the Court to review Respondent’s responses to requests for admissions 18-36.       The Court illustrates Petitioner’s lateness on some requests for admissions and how his responses are a potential backdoor way to get in evidence subject to a preclusion order from the Court. The Court denied Petitioner’s motion to review the sufficiency of answers or objections to request for admissions.

Some takeaways: Information document requests, letters from counsel, and email chains are not ways to introduce new issues for Tax Court. To do so, the issues must be introduced in the pleadings (such as answers or amended answers). One exception is Rule 41(b)(1), where the parties consent to trying an issue. Discovery does not equal trial so an issue sought during discovery does not necessarily make it a triable issue in Tax Court and a motion in limine is a way to prevent that.

It is always worth reviewing discovery requests to ensure they are not overbroad in scope. Keeping the request reasonable and not overly burdensome may make the difference in getting a useful discovery response.

Coca-Cola Court

Docket # 31183-15, The Coca-Cola Company and Subsidiaries v. C.I.R. (Order Here)

This case is based on a Notice of Deficiency issued to Petitioner for transfer-pricing adjustments under I.R.C. Section 482 resulting in deficiencies over $3.3 billion for tax years 2007-2009. The IRS asked the Court to render judgment as a matter of law that a closing agreement in 1996 has no relevance to any issue arising in the case.

After an examination of the Petitioner’s 1987-1989 federal income tax returns, the parties executed a closing agreement covering tax years up to and including 1995. In that agreement, the parties agreed to a methodology (the “10-50-50 method”) to calculate the product royalties payable to the Coca-Cola foreign affiliates (supply points). With this method, the supply point retains 10% of gross revenues as a routine return while the adjusted residual operating income is split 50-50 between the supply point and Petitioner. The closing agreement provided penalty protection for Petitioner during the agreement term and in tax years after 1995. For those tax years after 1995, supply point royalties calculated using the 10-50-50 method or another subsequent agreed-upon method would meet the “reasonable cause and good faith” exception to the penalties in I.R.C. Sections 6662(e)(3)(D) and 6664(c).

For tax years 1996-2006, Respondent accepted the application of the 10-50-50 method and made no I.R.C. Section 482 adjustments (with one exception). However, for tax years 2007-2009, the IRS determined the 10-50-50 method calculations were not arm’s-length, leading into the Notice of Deficiency and the case at issue.

Because the closing agreement sets the narrative for the 2007-2009 audit, the Court stated that is the beginning of its relevance. Next, the Court states the penalty protection provision has obvious relevance for the closing agreement. Additionally, Petitioner claimed foreign tax credits for Mexican income tax paid by its Mexican branch for tax years 2007-2009. The Notice of Deficiency includes $254 million of disallowed foreign tax credits on the grounds that the Mexican taxes were not compulsory levies. At issue is whether the Mexican taxes were compulsory or not, with the Coca-Cola argument that the Mexican taxing authority effectively adopting the 10-50-50 method from the 1996 closing agreement. Based on those relevancy reasons, the Court denied the Respondent’s Motion for Partial Summary Judgment.

Rule 24(b) for an Updated Address

Docket # 22387-16S, Eric Scott Hanson v. C.I.R. (Order Here)

On August 30, 2017, the Court granted Respondent’s motion for summary judgment to dismiss this case by order and decision. The Court cancelled the September 11 trial session in Columbia, South Carolina, because Hurricane Irma was anticipated to arrive that date.

However, the Chambers Administrator for Judge Gustafson learned on September 7 that Mr. Hanson had a new address and had not received recent orders in this case. Rule 24(b) states that a party self-representing in Tax Court must promptly notify the Court in writing of a change of address (so not receiving copies of Court filings is his fault). Any motion Mr. Hansen makes to vacate the decision is due no later than September 29, 2017.

Takeaway: Parties must notify the Tax Court of a change of address. If they do not notify the Court, it is their fault for not receiving Court filings.

Summary Opinions for June

Before covering the June tax procedure items we didn’t otherwise write on, I wanted to highlight that Keith was quoted in a Seattle Times’ article about the IRS/Microsoft litigation, where MS is questioning the length of its audit and the Service’s hiring of Quinn Emanuel to investigate its tax obligations.  Other tax procedure luminaries Stuart Bassin (who is working with Les on rewriting part of SaltzBook addressing disclosure litigation) and Professor Andy Grewal (a PT guest poster) were also quoted.   Keith’s last post on the topic can be found here, where he discusses Senator Hatch’s letter to the Commissioner questioning the use of an outside law firm on audits.

  • The 2015 IRS annual Whistleblower Report to Congress was released in June and can be found here.  In 2014, the Service paid out around $52MM in awards, representing about 17% of the tax it claims was collected due to WB’s information.  Submissions to the WB group were up in 2014, with over 14,000 claims being filed.  Of those, about 8,600 were opened.  The report paints a slightly rosier picture of the program than what may be practitioners’ perceptions of the program.  It does note issues with taxpayer confidentiality, and whistleblower protection. The report also provides a spreadsheet of the reasons for closing cases and the time most cases have been in the program (which tends to be fairly long).
  •  This Tax Court case has a fair amount of tax procedure packed into it.  In Webber v. Comm’r, the Court found a taxpayer had retained control and incidents of ownership over life insurance held in a trust, which caused some negative tax  consequences.  In coming to this determination, the Court found that the IRS Revenue Rulings dealing with the “investor control” doctrine were entitled to Skidmore deference under the “power to persuade” standard.  The Court also found reasonable cause due to the taxpayer’s reliance on his advisor.  In the case, the advisor was an expert and was paid hourly to review the transaction, and had the pertinent information.  We just wrote this case up for SaltzBook, so I won’t go into too much detail (don’t want to give all the milk away, as we definitely want to keep selling cows).
  • Agostino & Associates has published its July Monthly Journal of Tax Controversy.  Frank and his associate Brian Burton have a nice piece on the public policy of OICs.  As always, it is interesting and essentially a mini law review article.
  • BMC Software v. Comm’r is a Fifth Circuit case we (I) missed in March that was potentially significant in how closing agreements are interpreted.  Miller & Chevalier’s Tax Appellate Blog has coverage here.  The facts are fairly specific, and the applicable Code sections do not pertain to many taxpayers.  What is important is that the Fifth Circuit reversed the district court, and held that the boilerplate in the opening paragraph stating, “for income tax purposes” did not cause the agreed treatment of a tax item for one purpose as applying for all purposes under the Code.  The Court would not read that into the agreement of the two parties, who had meticulously spelled out the specific tax treatments for one purpose.
  • Another case with multiple interesting tax procedure items.  In Riggs v. Comm’r, the Tax Court ruled on 1) whether a bankruptcy stay for the taxpayer’s successor-in-interest applied to the taxpayer, and  2) whether the IRS had to follow the taxpayer’s instructions about which debts its payment should be applied to when the Bankruptcy Court directed the payment generally.  As to the first point, the court found there was not sufficient “identity between the debtor and the [taxpayer] that the debtor may be said to be the real party defendant”, so the stay did not apply.  As to the second point, the Court found the payments were not voluntary, and therefore it did not have to follow the taxpayer’s instructions under Rev. Proc. 2002-26.  I would assume the Court would have specifically directed the payment application in the order had it been requested.
  • Hard to talk to an accountant these days and not discuss the tangible personal property change of accounting method.  The Service has provided additional time to file Form 3115 and modified some procedures.  See Rev. Proc. 2015-33.
  • For those of you who do work with Section 6672 penalties, you know the definition of willfulness and actually running a business can be in conflict.  Often, a business that is light on cash has to make a decision about which bills to pay, and sometimes the business thinks that suppliers need payment to keep product flowing.  If a responsible person makes such a decision and knows the withholding taxes are delinquent, Section 6672 penalties will almost certainly apply.  See Phillips v. US, 73 F3d 939 (9th Cir. 1996).  The Court of Federal Claims had occasion to review one such case in Gann v. US, and dismissed the government’s motion for summary judgement.  It held that determining when and whether the responsible person had knowledge of the company’s failure to pay taxes was a disputed issue of fact.  The Court found that simply showing that cash inflows and outflows indicating someone wasn’t going to get paid weren’t enough for summary judgement, and some level of actual knowledge was needed by the responsible person.  There was also some question as to whether the person was a “responsible person”, which was covered by Professor Timothy Todd on Forbes and can be found here.
  • Another attorneys’ fees case that probably would have ended differently had the client made a qualified offer.  In Mylander v. Comm’r, the Tax Court found that the taxpayer prevailed in the amount in controversy and the most significant issue, but the Service’s position was substantially justified.  The reasoning for this was because the case was complex and the taxpayer didn’t share all relevant facts or the case law for their claims.  I’m not sure how I feel about the complexity aspect or the onus being on the taxpayer to provide the applicable law  to the Service.  If the taxpayer’s position was clear, and reasonable research could have turned up the correct law, it seems unfair to make the taxpayer outline all relevant cases.  I hope those were only considered in conjunction with the missing facts, and wouldn’t have been sufficient on their own.  The Court did also mention that the current case was arguably distinguishable from the applicable prior holdings, so the Service’s position could have been somewhat reasonable no matter what.  All of this probably wouldn’t have mattered if the taxpayer had taken advantage of the qualified offer provisions (although if you make an offer, and fail to provide the IRS with the facts and the law, can you still prevail?).
  • SCOTUS has denied cert for Ford in its interest payment case involving the treatment of an advanced remittance.  Les has blogged this case twice before, most recently here.  In addition to the interest question, there was also a jurisdictional issue about whether the district courts could hear an interest disagreement or if it had to be determined by the Court of Federal Claims.  Les’ post outlines the issue and eventual court holding.
  • In Slone v. Comm’r, The 9th Circuit has decided another case on the two prong test necessary to establish a transferee is liable for the predecessor’s tax liability.  The court remanded for the tax court to review the transaction as to the first prong on federal law, but also held that the Service had to show it was a fraudulent transaction under the federal law and also had to independently show that the transferee was liable under the applicable state law.  This holding is in line with the various other recent cases, including Stern, Salus Mundi, and Diablod, which we most recently covered here.
  • Would you like to know how to file delinquent FBARs and not pay a penalty (i.e. are you mega rich and hiding money in some country with shady banking laws)?  Well, this probably doesn’t apply to you because you likely did not pay the tax due on those assets.  For those folks who paid the tax, but inadvertently failed to file the FBAR the IRS has issued updated guidance on filing late without penalties.
  • A res judicata case, which should have a familiar name for tax procedure junkies.  In Batchelor-Robjohns v. US, the 11th Circuit held the feds were barred by res judicata from raising the dead taxpayer’s income tax issues in an income tax audit when the same issue was previously litigated in an estate tax refund relating to same issue.
  • Just about a year ago, we covered Heckman v. Comm’r, where the Tax Court found the six year statute of limitations under Section 6501(e)(1)(A) applied to ESOP distributions that were not properly disclosed.  The Eighth Circuit has affirmed that ruling.  This is the link to the prior SumOp where we discussed the case.  In Heckman, the courts (Tax Court & 8Th Cir.) declined to incorporate other related entity returns to show disclosure for the individual’s return of the ESOP distribution.  It is interesting to compare that language to CNT Investors, another recent Tax Court statute of limitations case, which seemed to indicate the tax court would consider all the filings of the taxpayer and his related entities.  Although the tones are different, I do not think the holdings are necessarily in conflict.  In Heckman, there was not much disclosed that would adequately apprise the Service of the connection.  In CNT, a few key items were left off, but overall the filings painted a fairly full picture.

“Do Overs” – The Binding Effect of an Offer in Compromise

Today we welcome first time guest blogger Marilyn Ames. Marilyn and I worked together at IRS Chief Counsel’s office for many years separated by about 1,500 miles.  She is retired now and living in Alaska but assisting me in rewriting the Saltzman and Book collection chapters.  We are working on the offer in compromise section of the book and by chance I received a question from another clinic about what to do when the IRS begins auditing your client for a period covered by the offer.  This past summer I had drawn a question from another clinic about what to do when your client discovers they should have received a large refund for a period covered by the offer.  As we looked at those situations, we decided that the effect of the offer was clear under the law but perhaps not clear to those entering into the offer.  That discussion led to this post and I thank Marilyn for her efforts.  Keith  

The IRS has had the authority to compromise with taxpayers since the first income tax code, and taxpayers and the IRS have been litigating over the effect of an accepted compromise almost as long.  Usually it has been the taxpayer who has requested what my children used to call a “do over” when they played games; as in “I don’t like what happened in the move I just completed and now I want to take that move back.”  Recently, however, it appears that the IRS has begun to ask for do overs in the area of offers in compromise.


Section 7122 and its predecessors give the IRS the authority to compromise any civil or criminal case arising under the internal revenue laws. In the first reported do over case involving an accepted offer in compromise, Ely & Walker Dry Goods Co. v. United States, 34 F.2d 429 (8th Cir. 1929), the taxpayer discovered after it entered into a compromise involving its income tax liability and the fraud penalty for its fiscal year ending in 1918, that its inventory was incorrectly computed.  The parties agreed that absent the compromise, the taxpayer would be entitled to a refund.  The taxpayer argued that the compromise was only of the fraud penalty, not the tax, so the compromise was not precluded by the acceptance of the offer in compromise.  The court rejected the taxpayer’s argument, holding that the income tax liability “constituted an entire, single liability, that this single liability, treated as such by the parties, was duly compromised, and that such compromise is a bar to this action.” 34 F.2d at 432. 

Since 1929, taxpayers have unsuccessfully attempted to get a do over by distinguishing the holding in Ely & Walker Dry Goods that a compromise of a tax liability closes that tax year, and the liability cannot be reopened.  The Internal Revenue Service has agreed with that holding, both in its litigation positions and in its publicly stated policy. Treas. Reg. § 301.7122-1(e)(5) expressly states that acceptance of an offer in compromise conclusively settles the liability of the taxpayer specified in the offer, and that neither the taxpayer nor the Government will be permitted to reopen the case after an offer has been accepted unless the taxpayer has committed fraud by supplying false information or documents, or by concealing assets or the ability to pay. The regulations further allow the liability included in an offer in compromise to be reopened in the event of a mutual mistake of material fact.  The court in Rosenberg v. United States, 313 F. Supp. 28 (N.D. 1970)upheld this regulation, stating that it had the force and effect of law as it was not clearly unreasonable.

Absent fraud or mutual mistake of fact, the courts have not allowed taxpayers the requested do over. One of the more recent attempts to avoid the binding effect of an offer in compromise was made by the taxpayer in Dutton v. Commissioner, 122 T.C. 133 (2004), in which the taxpayer tried persuade the Tax Court that his claim for innocent spouse relief should be granted and he should receive a refund. The Tax Court rejected his argument that there was a mutual mistake sufficient to have had a material effect on the agreed exchange of performances.

In Revenue Procedure 2003-71, written for the purpose of describing the process for submitting and resolving an offer in compromise, the IRS emphasizes in section 8.02 that “Acceptance of an offer in compromise will conclusively settle the liability of the taxpayer specified in the offer.”  In PLR 5807022300A, the IRS stated “So long as an offer in compromise is in effect, all rights to further adjustments for the year or periods involved are waived.  For a compromise is a binding contract, conclusive against both the Government and the taxpayer.”

Despite the long-settled legal position that an accepted offer in compromise closes out all tax periods and years included in the offer, the recent case arising in one clinic suggests that the IRS seeks to give itself a de facto do over. It contacted a taxpayer with an accepted offer seeking to audit years included in the compromise.  The contact came in the form of a CP 2000 notice.  These notices are issued by the Automated Under Reporter (AUR) Function when the information returns filed with the Service do not match the information reported on the taxpayer’s return.  Presumably this is not a compromise where the IRS has discovered that there was fraud or a mutual mistake of fact, as the taxpayer has not received the letter required for a rescission IRM, Rescission Procedures (September 23, 2008) of an accepted offer in compromise. Absent fraud, it is doubtful that the existence of this potential additional liability would constitute a mutual mistake of fact that would have kept the IRS from accepting the offer in compromise, and that the compromise could be rescinded.

Apparently this is a case of the right hand and the left hand of the IRS not knowing what the other is doing, although if the IRS computer systems can match income information with returns, it would seem that the system could also be programmed to recognize the existence of an accepted offer in compromise for this tax period. The possibility exists that the AUR Function did not pick up the computer code entered in the offer case or the timing of the underreporter case came just before the offer code appeared on the account.  Since these cases are worked basically by computers rather than individuals, the timing of the offer and the AUR notices may have been ships passing in the night that no one at the IRS observed.

The Internal Revenue Manual IRM, Pending Assessments (May 10, 2013)  contains clear instructions on how to handle audits that are open when an offer in compromise is submitted for the same year, but doesn’t appear to recognize that an audit could be opened after the offer is accepted.  While a taxpayer with an accepted offer who receives a CP 2000 notice may find someone at the IRS who understands the tax year is closed, or may have competent counsel who can make the argument, the possibility exists that many taxpayers in this situation would simply pay the additional liability.  Because this has happened in only one known case, it is unclear if a systemic issue is at play or an anomaly.

One final aspect of later discovered issues in offers bears mentioning.  If the IRS discovers a tax period that should have been included in an offer in compromise but was not, and both parties are in agreement, the procedure is simply to add the additional tax periods to the original offer.  The additional liability must have been assessed before the original offer in compromise was accepted.  IRM, Overlooked Periods (April 15, 2011).  While you want to put every period in which the taxpayer has an assessed liability into an offer and you want to resolve all periods for which the taxpayer is under audit at the time of the offer, sometimes a period gets overlooked.  This procedure can fix the problem if the assessment occurred before the offer acceptance.  This procedure cannot fix the problem if the audit did not result in an assessment.  It also cannot help the taxpayer who later “discovers” they were due a refund for a period covered by the offer.  Because of the binding nature of the offer, a complete review of taxpayer’s circumstances for all open years should take place in conjunction with the submission of the offer to avoid problems of the failure to cover periods or the failure to seek a refund before it’s too late.


Summary Opinions for 4/4/2014

Heavy on the case law this week.  Important holdings regarding closing agreements and the mitigation provisions, Tax Court jurisdiction in worker classification cases, lien priority, and fraudulent information returns.  Also, an interesting marketing concept for tax prep folks — drugs.   To the roundup:

  • Jack Townsend’s Federal Tax Procedure Blog has a great write up of an interesting case, El Paso CGP company, LLC v. US, which involves the mitigation Sections of the Code allowing the Service to open closed tax years and closing agreements.  Grossly oversimplified,  the taxpayer entered into a closing agreement with the Service for multiple years.  One year, the taxpayer was entitled to a refund, and in others it owed tax.  Following a closing agreement, the Service has one year to assess and collect, or refund the amount due under the mitigation provisions.  Section 1314(b).  The Service reduced the refund by the amount owed in other years, and refunded the rest.  The taxpayer argued that each year had to be either assessed or refunded separately.  The Court found that the mitigation provisions allowed the Service to offset the debts without following the normal assessment procedures because collection was not necessary.  I was slightly surprised at the holding, and it will be interesting to see if a similar matters goes before other courts.
  • The Tax Court in SECC Corp v. Comm’r found an IRS letter classifying workers was a sufficient determination to provide it with jurisdiction to review the classification under Section 7436, and a formal Letter 3523, Notice of Determination of Worker Classification, was not required.  I would highlight J. Halpern’s concurrence, where he mentions Notice 2002-5, which evidenced the Service’s position that only the formal letter provided jurisdiction.  J. Halpern emphasized that the Court owed no deference to the Service in determining its judicial bounds, and said it would be inappropriate to let the Service decide when a taxpayer could have access to the Court.    We will hopefully have a guest post from A. Lavar Taylor, one of the lawyers involved in this matter, later in the week or early next week.  Mr. Taylor should provide additional context, and also analysis of the result.
  • SCOTUS declined to review the 7th Circuit determination in Acute Care Specialist v. US that the statute of limitations which was extended by the TMP with the Service was a partnership item, and the other partners were therefore barred from questioning it under Section 7422.
  • Apparently, 420  Multi Services , a Bronx based tax preparation service, has expanded its business services to something more profitable…you guessed it, weed.  I wonder if they do refund loans to be used on the other offerings.  Probably more than one accountant out there this week who is considering this type of profession change.
  • The District Court for Massachusetts appears to have bailed out an attorney in Deutsche Bank National Trust Company v. United States, where the attorney failed to record the proper mortgage documents for a refinanced mortgage, and the Service subsequently filed tax liens.  The Court approved the Magistrate Judge’s recommendation that the Court find the bank had met the five equitable subrogation factors under Mass. law, and that the bank had the priority of the original mortgagor and priority over the Service.
  • Hell hath no fury like an accounting partner scorned!  The Southern District of Ohio presided over a portion (apparently there were various lawsuits, as the parties were “going to war” with one and other) of the breakup of Waldman, Pitcher and Co, an accounting firm. As part of the dissolution, the remaining partner was to pay portions of the AR to a new firm created by the departing partners.  Some funds were paid over to the new company, and at the end of the year the remaining partner issued personal 1099s to the leaving partners for the full amount due as non-employee compensation; however, the full amounts were not actually collected or paid over, and the payments were not to the individuals.  The Court found that the remaining partner did this intentionally to create tax problems for the leaving partners, and to give his firm a nice deduction.  The departing partners did not include the income on their personal returns, and contacted OPR claiming he was trying to “exact a revenge that he couldn’t otherwise exact during negotiations.”  There was then a handful of additional suits and IRS proceedings regarding the transaction, including defamation, breach of contract, excessive fees, a whistleblower claim, a restraining order, a criminal complaint, breach of confidentiality, and the claim in this case for willfully filing fraudulent information returns under Section 7434.  The case here hinged on whether the remaining partner “willfully” filed the fraudulent returns.  The Court found that based on the accountant’s education, experience, and the use of post-it notes on the 1099s saying the departing partners were “going to hell”, the remaining partner had willfully filed fraudulent returns.


Summary Opinions for 3/14/14

Nova IRS B day2Happy Birthday I.R.S.!!  The photo is from yesterday’s annual Villanova Law School’s Tax Law Society sponsored IRS birthday bash (which perhaps coincidentally coincides with St. Patrick’s Day), where things got just as crazy as you are imagining.  The last year wasn’t a banner year for the Service; hopefully, next year will be a bit better. As always, a thank you here is appropriate to Mr. Carlton Smith, for his guest post this week on some intricacies of the Golsen rule and the recent Dalla case.  To the tax procedure.




  • Last week, the Tenth Circuit decided US v. ConocoPhillips, which looked to the federal common law to determine the validity and effect of a closing agreement.  The Court reviewed the opening paragraph, recital clauses, and signature page as evidence of the parties’ intent to create a closing document and did a textual, purpose-based analysis of the document to determine the meaning of a disputed undefined term of “successors in interest”. We have not discussed closing agreements  in the blog; look for a future post that goes into them and returns to this interesting case that relates to hudndreds of millions of dollars in costs attributable to the eventual removal of the Alaskan oil pipeline.
  • Accounting Today has a good refresher on what a third party designation authorizing the preparer to speak to the Service actually does. 
  • In a somewhat run of the mill penalty and reasonable cause case, the Tax Court in The Estate of Richmond held a valuation obtained by the estate’s accountant that was in draft form and not signed could not be relied upon for reasonable cause for the accuracy related penalties.  The Court noted the accountant did have appraisal experience, but it found that a case of this size and magnitude required a more formal appraisal, most likely from a certified appraiser. 
  • From Accounting Today a review of a recent TIGTA report on IRS collection actions with taxpayers who were in bankruptcy showed that the IRS specialists did not always follow the appropriate procedures.  The report, however, did not find any specific abuse of taxpayer rights, nor did it find that the government’s interests were not properly protected, but it did note that failure to follow the procedures could increase the risk of such things happening. 
  • The audit dirty dozen from the WSJ via TaxProfBlog.  Twelve items that are sure to attract IRS attention. 
  • You know what sucks about being poor…most things…but also not living as long as the wealthy.  The NYT has an article on income inequality, and the effects on life expectancy.