IRS, we applaud your work and we feel your pain, but we need you to do more to get dollars out to vulnerable taxpayers

As Congress and the Administration debate the shape and scope of the next coronavirus relief package and unemployment benefits end or are delayed, the Internal Revenue Code already provides another way to get dollars into low income workers’ pockets – the childless worker Earned Income Tax Credit (EITC).  The IRS can and should pay out this credit to every taxpayer who appears eligible for it based on 2019 return filings, including through the non-filer portal.

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Before I launch into a discussion of how this could be done, and because the IRS seems particularly sensitive right now about any criticism of its performance in implementing CARES Act and other economic stimulus provisions, I want to stipulate the IRS accomplished a near-miracle in getting over 160 million payments out to needy households, and it should be congratulated on that act.  We all recognize the challenges the IRS faced, and still faces, with its workforce hobbled by the pandemic closures of offices, and the precautions necessary as it tries to get back to some semblance of normal work.  And we applaud the sacrifices IRS employees made to program IRS systems and develop new applications and issue guidance.

However, because these are extraordinary times, more is being asked of the IRS.  Those asking for more are not being mean-spirited or ungrateful or even ungracious.  They are advocating for various populations who have been left out in the cold. 

For example, while it is understandable and even commendable the IRS wanted to get automated Economic Impact Payments (EIPs) out to elderly and disabled Social Security beneficiaries very quickly and thus set a 40-hour deadline for these individuals to enter their dependents into the nonfiler portal, it is inexcusable for the IRS not to provide an ongoing option for those individuals who missed the short deadline to be able to obtain the EIP for their dependents now, not in 2021.  We are in the midst of a pandemic and an unprecedented economic turndown, for heaven’s sake, and 2021 is just too far away.  These payments are a lifeline for many of the most vulnerable members of our society and they cannot wait. 

In fact, in a recent communication to its employees, and as the National Taxpayer Advocate (NTA) confirmed in a recent blog, the IRS advised that the programming will be completed by August 13, 2020, that will enable it to issue dependent payments for those who actually entered their information into the nonfiler portal but failed to receive the payments due to a programming bug.  If the IRS is able to “perform automated recovery” procedures for these payments, it can surely allow those who missed the April 22 deadline to now enter their dependent information into the nonfiler portal and apply the “automated recovery” procedures here, too.  Since it has already developed the programming, it cannot claim it does not have the resources.

The IRS has sufficient information to pay out the childless worker EITC automatically

The idea of automating the childless worker EITC has bounced around for years.  As the NTA, I recommended it in my 2016 Annual Report to Congress, here.  The Treasury Inspector General for Tax Administration (TIGTA) recommended it in April, 2018, here.  TIGTA’s report, The Internal Revenue Service Should Consider Modifying the Form 1040 to Increase Earned Income Tax Credit Participation by Eligible Filers, notes that for Tax Year 2014, the IRS estimated 5 million households were potentially eligible for the EITC, leaving $7.3 billion unclaimed.  Of those 5 million taxpayers, 1.7 million actually filed returns and did not claim the EITC.  In recommending that the IRS modify the Form 1040 to capture information that would allow it to automatically issue the EITC to taxpayers who failed to claim it, TIGTA noted the IRS annually spends $2 million issuing notices to potentially eligible taxpayers, but the notices were sent to only 361,000 of the 1.7 million filers (and none to the non-filers), and only 28 percent of the eligible-with-children responded and 57 percent of the eligible-without-children responded.  TIGTA even provided a nifty mock-up of how the 1040 could be modified.

On January 31, 2020, Senators Sherrod Brown and Catherine Cortez Masto wrote Commissioner Rettig asking why the childless worker EITC could not be paid out automatically based on available wage and other income data.  In the letter, here, the Senators cited the TIGTA report discussed above and asked whether the IRS had studied TIGTA’s recommendation and if so, why it had not implemented the recommendation.

In his response to the Senators, the Commissioner stated that

 [i]n 2018, the IRS and Treasury began developing a shorter, streamlined Form 1040 with the goal of simplifying the experience for taxpayers and partners in the tax industry.  Adding additional information to the Form 1040 for EITC purposes would not align with the new simplified Form 1040 strategic approach. 

The Commissioner then cited this very absence of such information, and the consequent risk of improper payments, as the reasons IRS could not automatically issue EITC refunds to childless workers: 

For example, based on the information on the Form 1040, the IRS cannot determine if a taxpayer can be claimed as a dependent on another return or if the taxpayer lived in the United States for more than six months.

Before we explore the IRS’s position a little more closely, a little bit of background is helpful.  The childless worker EITC is available to taxpayers who are at least 25 years of age and under 65 years of age.  For Tax Year 2019, eligible taxpayers filing as single or head of household must have less than $15,570 adjusted gross income (AGI); married-filing jointly taxpayers must have AGI below $21,370.  (Married-filing-separately taxpayers are not eligible for the credit.)  Both the childless and child-based EITC require earned income, which means that income will be reported and on file with the IRS on Forms W-2 or Forms 1099-MISC.  The IRS has announced that for 2021 filing season, a new Form 1099-NEC will be required, which should make it even easier to identify non-employee compensation.  IRC § 6071 requires both of these forms to be filed by January 31 of each year.  By now, pandemic notwithstanding, the IRS should have this earned income information for Tax Year 2019 for almost every single worker in the United States.

Other than earned income, the requirements for the childless worker EITC are that the person claiming the credit (1) not be claimed as a “qualifying child” of another person; (2) not be claimed as a dependent on someone else’s tax return; (3) have the principal residence in the United States for more than half the year; (4) have the appropriate Social Security Number (SSN); and (5) have less than $3,600 in investment income.  The IRS can check all of these requirements against its internal databases, except for the principal residence test.

In fact, taxpayers who file a Form 1040 must check a box on the front of that form declaring that they cannot be claimed as a dependent on someone else’s tax return.   Similarly, one of the questions taxpayers must answer when they complete the IRS’s nonfiler portal is whether you can be claimed as a dependent on someone else’s tax return.  So the IRS has affirmations of this status requirement for hundreds of millions of taxpayers, made under penalties of perjury.  (As I noted in an earlier post here, the nonfiler portal requires the submitter to affirm the jurat.)

What’s more, any return filed claiming a refund passes through innumerable filters and databases designed to identify questionable and fraudulent claims, including duplicate claims of qualifying children (one of the Commissioner’s concerns in his letter to the Senators).  It has Social Security databases matching name, age, and parentage of social security number holders, among other information.  Regardless of what people claim on their returns, the IRS checks those claims against its databases.  It is doing that even as I write this.  Thus, the IRS has internal processes in place to prevent improper automated payments of the childless worker EITC.

Okay.  So, as of today, the IRS has earned income and other income information necessary for computing EITC eligibility for most taxpayers.  It also has a sworn statement from the vast majority of taxpayers as to their status of being claimed as a dependent on another’s return.  And the IRS has internal databases that can check the taxpayer’s SSN, age, and status as dependent/qualifying child on another’s return.  All that is left to verify is the “more than 6 months U.S. residence” status.

I propose a two-prong approach for this last test.  I’ll discuss how to handle this for Tax Year 2020 returns later in this blog, but for 2019 returns, filed in 2020, the IRS could administratively deem this requirement to be met unless the IRS has clear and convincing evidence to the contrary.  The IRS uses “tolerances” all the time in letting errors go unchallenged, and if there were ever a time to use tolerance, today is the time.  Thus, by administratively deeming taxpayers with a US address on their returns to have lived in the US for more than 6 months of the tax year, the IRS can create an “automated recovery” algorithm that computes and pays out the childless worker EITC to taxpayers who filed returns (including the nonfiler portal) without requiring an amended return.  This approach saves the IRS resources dedicated to processing amended (paper) returns as well as the letters it sends out to potentially eligible childless workers.

If IRS is nervous exercising its administrative discretion in this way, let me point out that nowhere on the Form 1040 or any of its schedules does the IRS require the taxpayer to aver its principal residence was in the US for more than six months of the year, and yet it stills pays out the childless worker EIC to people who claim it on the return.  To claim the childless worker EITC, you do not attach any schedule whatsoever, you simply write in the amount, per a look-up chart, on line 18a of the Form 1040.  Buried in the 17 page EITC section of the Form 1040, Step 4, Question 3 asks: “Was your main home, and your spouse’s if filing a joint return, in the United States for more than half of 2019?”  If the answer is “no,” you can’t take the credit.  In fact, the IRS instructs you to write “no” next to line 18a, presumably because it does use data on returns to identify potentially eligible EITC recipients that it can contact, via Letter CP-27!  Since the IRS is already using return data to identify some eligible taxpayers and send them CP-27 letters, it can use the same algorithm to identify, calculate, and pay out the childless worker EITC.

The maximum amount of the 2019 childless worker EITC, for earned income between $6,950 and $8,649, is $529, nothing to sneeze at in the midst of the pandemic.  As anyone who has practiced in the field of poverty law can tell you, to truly understand the impact of money to a low income person, add a zero.  $529 to them is as $5,290 to more affluent persons.

The Nonfiler Portal Created a “Filing Trap” for Households with Income Below the Filing Threshold

The IRS actually inadvertently exacerbated EITC underclaims via its nonfiler portal.  Again, this observation is not meant to be piling on to the IRS (I will say this over and over and over …).  It created the portal in record time, and it has been a useful tool.  But the nonfiler portal created what Gabriel Zucker of New America has called the “filing trap.”  People who used the portal were not given the option to compute the EITC – either the childless EITC or the child-based EITC.  For a family of four – two parents and two qualifying children – with income between $23,950 and $23,999, entering their dependents into the non-filer portal meant they lost out on $4,787 of EITC (they would lose $2,736 for 1 child, and $5,515 for 3 children).  Similarly, childless workers with income of $11,999 and filing through the nonfiler portal did not have the option to request $275 of EITC benefits.  To receive it now, they will have to file a paper amended 2019 Form 1040.   Good luck getting that processed.  And does the IRS really want to receive all those paper Forms 1040X?  (The IRS has announced that electronic filing for those forms is coming, but it’s not here yet, so that’s not much help for folks who need their EITC now.)

There is a better way.  As discussed above, for the childless worker filers, whether on a Form 1040 or through the nonfiler portal, the IRS can automatically calculate the childless worker EITC from information it has available to it in-house.  For the child-based EITC, it can use its internal data and the information about dependents provided on the non-filer portal to compute the appropriate amount of EITC.  For this extraordinary filing season, for once the IRS can use its internal data and filters for the good of these vulnerable taxpayers.  It can identify duplicate claims, etc., but it can also compute the EITC for taxpayers who appear eligible and which the IRS’s own system, which it encouraged taxpayers to use, blocked them from claiming.

Going Forward – Filing Season 2021 and Beyond

The proposals outlined above don’t solve all the problems with unclaimed EITC or missed EIPs.  They address emergency situations and provide a way to get much needed dollars out to the most vulnerable populations in our society, populations that are most impacted by the coronavirus and pandemic-related job loss.  For 2021 and beyond, the IRS can build on what it has created this year to increase the EITC participation rate while minimizing taxpayer burden.  In my next blog post, I’ll explore how the IRS can keep the non-filer portal and expand its utility, as well as how it could improve the use of CP-09 and CP-27 letters.  Oddly enough, the pandemic opens the door for the IRS to embrace its role in delivering social benefits.  It would be more than a shame if it did not seize that opportunity.

A Webber Update, Possible Pandemic Changes, and Conservation Easements: Designated Orders 5/11/20 to 5/15/20 and 6/8/20 to 6/12/20

There were 7 designated orders during the week I monitored in May and 1 designated order for the week I monitored in June (Mark Alan Staples order), covering a variety of topics.  We start with an order updating the Webber case and its Collection Due Process issues.  Next, is there a change in the Tax Court treatment of motions to dismiss during the COVID-19 pandemic?  Following that, there are conservation easement, innocent spouse and other cases to review.

A Webber Update

Docket No. 14307-18 L, Scott Allan Webber v. C.I.R., Order available here.

Previously in Procedurally Taxing, the Webber case prompted discussion and change regarding Collection Due Process (CDP) and jurisdiction in Tax Court.  I wrote here regarding the case and Judge Gustafson’s taking issue with a prior IRS motion to dismiss.  The motion to dismiss was based on an IRS notice concerning CDP rights that had 2 addresses listed, one to request a CDP hearing and the other to make payment to the IRS on the listed amount due.  Mr. Webber had attempted to submit his CDP hearing request, but wound up mailing it to the payment address by mistake.  Based on the request’s movement through the IRS bureaucracy, it arrived at the correct location but late enough to only allow Mr. Webber an equivalent hearing (limiting his access to Tax Court review).  After Judge Gustafson took the IRS to task on the motion to dismiss as being a harsh result for such a simple taxpayer mistake, the IRS withdrew their motion to dismiss.  Things were not done regarding CDP, though, as there was a CDP Summit Initiative Workshop where these types of issues with CDP notices were discussed (also here).  Keith wrote here that a result of this discussion led to a program manager technical assistant (PMTA) memo setting new IRS policy to determine timeliness of a CDP hearing request.  The new policy is based on the type of situation above – receipt of a CDP hearing request at an incorrect office when it was mailed to the incorrect office because of being an office listed on the notice. 

I would like to also announce that the IRS is making a revision to the Internal Revenue Manual at IRM 8.22.5.3 to reflect that PMTA memo.  The revision will be effective beginning July 6 and will be incorporated into the IRM within 2 years of the date of this memorandum, reflected here (this links to a Tax Notes article available only to subscribers). 

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Got that?  Because the current designated order has a change of topic.  This designated order’s topic is shift from jurisdiction to the topic of credit elects.

In fact, Mr. Webber is dealing with a credit elect dating back to 2003 (when it was $71,012).  Over the years, that credit elect was applied to each tax year until we are dealing with the tax year at issue and the question of whether a credit elect of $77,782 from 2012 applies to his 2013 tax return.  If so, it reduces his 2013 total tax of $5,690 so that there is a credit elect of $72,092 that would carry to the 2014 tax return.

The problem is that Mr. Webber has received conflicting messages from the IRS regarding allowance of the credit elect over the years.  Certainly, removing an earlier link in the chain of credit elects would affect the 2013 tax year.  Part of the problem is that the review by Appeals during his CDP hearing was not honoring a prior IRS letter allowing the credit elect for tax years 2004 and 2005.

This order deals with both an IRS motion for summary judgment and Mr. Webber’s response, which contains a motion to dismiss and a motion to remand.

Mr. Webber presents the issue raised, the availability of the credit elect for tax year 2013, as a challenge to the existence of an underlying liability.  He contends that no valid CDP hearing was conducted asking to dismiss for lack of jurisdiction, but also asking for a remand back to Appeals for them to take appropriate action.  The judge finds dismissal for lack of jurisdiction to be unwarranted.  Regarding remand, Judge Gustafson says it may or may not be necessary based on the IRS argument concerning the credit elect issue in the CDP hearing so no remand at this time.  Both motions are denied (the motion to remand denied without prejudice).

While the Court is not adjudicating Mr. Webber’s entitlement to the overpayment underlying the credit elect in 2013, the Court does have the responsibility to determine if the IRS allowed the overpayment but failed to credit it.  The Court states that is a genuine dispute of material fact since Appeals gave a statement in 2012 that they are allowing the full amount of the claimed credit elect for 2004 and 2005.  Appeals stated in the more recent CDP hearing that the question needed to be resolved outside Appeals so the Court reviews possible reasoning (statute of limitations, non-determination years, or refunds received).  None of that is conclusive so there is a genuine dispute of fact, leading to denial of the motion for summary judgment.  The parties are currently filing joint status reports to the Court.

Bob Kamman wanted to let us know about some coincidences – there is a citation in this order to a published Tax Court opinion from 2012 that also involves a credit-elect dispute in a CDP context.  The taxpayer is named Hershal Weber and the opinion was written by Judge Gustafson.  The more things change, the more they stay the same?

Stance on Motions to Dismiss During Pandemic?

Docket No. 10386-19S, Salvador Vazquez, v. C.I.R., Order available here.

This order is rather short, but notable.  The order begins by stating this case was scheduled for the Los Angeles trial session beginning June 1 before COVID-19 disrupted the Tax Court calendars.  The IRS filed a motion to dismiss for failure to properly prosecute on May 6, stating that the petitioner failed to respond to numerous attempts by the IRS to make contact.

Judge Carluzzo states:  “Under the circumstances and at this stage of the proceedings, we are reluctant to impose the harsh sanction that respondent requests. Our reluctance, however, to impose the sanction at this time in this case should not in any way be taken as a suggestion that a party’s behavior, as petitioner’s behavior is described in respondent’s motion, could not support such a sanction under appropriate circumstances.”

It is too soon to tell if this is any type of new position for the Tax Court regarding motions to dismiss during these pandemic times.  Since then, the judge ordered the parties to, separately or together, submit reports by August 24.

Conservation Easements

In recent years, the IRS has been taking a harder stance against several organizations that have claimed deductions for the donations of conservation easements.  For those looking to learn more about the issues, I recommend listening to two of the June 2020 podcast episodes from Tax Notes Talk.  A problem I have noticed is that both the bad apples and the good ones have been swept up in the IRS enforcement efforts.  For example, a request I have seen from the good apples is that they would like to get sample language from the IRS on how to draft documents relating to the conservation easement donation that will be satisfactory to the IRS.

One current development regarding conservation easement cases is that the IRS announced in IR-2020-130 that certain taxpayers with syndicated conservation easement issues will receive letters regarding time-limited settlement offers in docketed Tax Court cases.  Perhaps that will help reduce the conservation easement cases on Tax Court dockets.

  • Docket No. 5444-13, Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner v. C.I.R., Order available here.

Oakbrook Land Holdings would like to reopen the record to add four deeds from the Nature Conservancy that have language to support the argument that Oakbrook’s deed doesn’t violate the regulation regarding their conservation easement donation.  The Court ruled the evidence is merely cumulative.  Also, the Conservancy’s comments, not practices, are what is discussed so the proffered deeds won’t change the outcome of the case.  The motion to supplement the record is denied.

  • Docket No. 10896-17, Highpoint Holdings, LLC, High Point Land Manager, LLC, Tax Matters Partner, v. C.I.R., Order available here.

This case required a look to state law in Tennessee regarding interpretation of the deed at issue and that does not help Highpoint Holdings.  The IRS motion for partial summary judgment is granted and the parties are to submit their status reports on how to proceed in the case.

Innocent Spouse

Docket No. 4899-18, Doris Ann Whitaker v. C.I.R., Order available here.

This is an innocent spouse case that came to Tax Court as Ms. Whitaker is seeking relief from joint liability for 2005 income tax, pursuant to IRC 6015(f).  Ms. Whitaker has not completed high school and is employed as a nurse’s aide.  When filing the 2005 tax return, income attributable to her then-disabled and drug-addicted husband was not reported on the return.  Ms. Whitaker did not report his income as she incorrectly understood “married filing jointly” to mean “married filing separately”.  Basically, she thought filing the joint return took care of her obligations and her husband was required to file his own separate return.

The IRS filed their motion for summary judgment, arguing “there remains no genuine issue of material fact for trial”.  The Court, when reviewing the facts and circumstances, takes Ms. Whitaker’s education and resources into account and finds this factor is sufficient to prompt a holding that there is a genuine issue of material fact to prompt denial of the motion without prejudice.

However, what to make of the recent amendment to IRC 6015(e)(7)?  The amendment requires the Tax Court to review applicable innocent spouse cases based on (A) the administrative record established at the time of the determination, and (B) any additional newly discovered or previously unavailable evidence.  What should be done with motions for summary judgment in conjunction with these evidentiary requirements?  In this case, only the IRS motion is on hand.  The Court has the discretion to construe an opposition to a summary judgment motion as a cross-motion for summary judgment but only where the parties have adequate notice and adequate opportunity to respond.  There was no such notice to treat Ms. Whitaker’s opposition as a cross-motion.  The Court orders the parties to communicate toward settlement.  The next order is for the IRS to file a certified administrative record and motion for summary judgment based on that record.  Ms. Whitaker is ordered to file any objections she would have about the administrative record, a response to the motion and a cross-motion for summary judgment.  The Clerk of the Court is also ordered to serve on Ms. Whitaker a copy of the information letter regarding the local Low Income Taxpayer Clinics potentially providing assistance to her (this case is being worked by Winston-Salem IRS Counsel so presumably this would be the 2 North Carolina clinics).

There have been subsequent orders filed in this case.  The first order relays that in a telephone conference between the parties that the IRS is conceding the IRC 6015 issue in the case so the parties are ordered to file a proposed stipulated decision or joint status report no later than July 17.  The second order relays that the IRS filed a motion for entry of decision on June 24, proposing a zero deficiency and no penalty due for the 2005 tax year, after applying IRC section 6015(b), and there is no overpayment in income tax due to petitioner for the 2005 tax year.  However, the motion states that the petitioner objects so Ms. Whitaker is to file no later than July 24 a response to the motion explaining why it should not be granted and a decision should be entered in this case.

Unless there is a procedural issue in her case I am overlooking, I find this to be a win for Ms. Whitaker and think she should not file a response to the motion.

Short Takes on Issues

  • Docket No. 6946-19SL, Soccer Garage, Inc., v. C.I.R., Order available here.

This case concerns Collection Due Process regarding a levy and penalties for failure to file.  The IRS argues there was an intentional disregard of the filing requirement.  There are not enough facts provided regarding the petitioner’s intent so the Court denied the IRS motion for summary judgment.

  • Docket No. 10662-19W, Wade H. Horsey v. C.I.R., Order available here.

Mr. Hosey requested the reconsideration of the determination of a whistleblower claim and his motion was denied.

  • Docket No. 6560-18, Mark Alan Staples v. C.I.R., Order and Decision available here.

Mr. Staples filed a motion for new trial that the Court had to recharacterize as a motion for reconsideration of findings or opinion.  Mr. Staples made arguments about the characterization of his retirement benefits, Constitutional arguments, and generally argued about his computation regarding tax year 2015.  The Court denied the motion as the IRS computations were in line with the Court’s memorandum findings of fact and opinion.  On this case, I am generally confused by the petitioner’s actions – was he a tax protestor or just ignorant of tax procedure?  Either way, his motion was filed in vain.

 

When Do We Have to File and Pay Our Federal Taxes This Year?

Today we welcome back guest poster Tom Greenaway. Tom is a principal in KPMG’s Tax Controversy Services practice. He discusses the issue of 7508A and this year’s tax deadlines.

Most years, the due dates for federal tax filings and payments are obvious. This year, the answers are not so clear, especially as disruption caused by the COVID-19 pandemic continues to spread through the summer.

As some practitioners noted early this spring, this year is different for two reasons: COVID-19 and Congress. COVID-19 has created, among other things, an ongoing nationwide disaster. And Congress, late last year, passed a law shielding qualified taxpayers against tax deadlines until 60 days after the last incident in a presidentially-declared disaster area

In this post, we focus again on the potential technical “60-day rolling shield” defense to tax deadlines provided by section 7508A(d) of the Internal Revenue Code. As applied to the pandemic, this position has been embraced by the American Bar Association Tax Section and the IRS National Taxpayer Advocate. Taxpayers facing significant financial hardships—and their advisors—should consider the merits of this position before reaching for their checkbooks on July 15, the extended due date set by IRS. The ability to use the funds for other purposes, delinquency penalties, and interest hang in the balance.

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Background: How Hard Can It Be To Figure Out Tax Deadlines?

IRS computers automatically assess delinquency penalties on late-filed returns and late-paid taxes. These penalties can be substantial. They are, however, subject to reasonable cause relief for taxpayers who exercise ordinary business care and prudence. Outside the context of IRS administrative waiver provisions (like first-time abate), it is hard to obtain reasonable cause relief for delinquency penalties, especially when claiming reasonable reliance on professional advice.

As the Supreme Court noted in the 1985 Boyle case: “The Government has millions of taxpayers to monitor, and our system of self-assessment in the initial calculation of a tax simply cannot work on any basis other than one of strict filing standards. Any less rigid standard would risk encouraging a lax attitude toward filing dates. Prompt payment of taxes is imperative to the Government, which should not have to assume the burden of unnecessary ad hoc determinations.” All well and good.

Here’s the punchline from Boyle: “It requires no special training or effort to ascertain a deadline and make sure that it is met.” In Boyle, the Court rejected an executor’s claimed reliance on an attorney to prepare and timely file an estate tax return to avoid delinquency penalties. The Court established a bright-line general rule, holding that that the failure to timely file could not be excused by the taxpayer’s reliance on an agent to establish reasonable cause for a late filing. The Court allowed, however, that this general rule would not apply in “a very narrow range of situations.”

In particular, Boyle explicitly declined to resolve the circuit split as to whether a taxpayer demonstrates reasonable cause sufficient to avoid delinquency penalties when, in reliance on the advice of an accountant or attorney, the taxpayer files a return after the actual due date but within the time the advisor erroneously thought was available. Before and after Boyle, the Tax Court and some circuit courts consistently have held that erroneous professional advice with respect to a tax deadline constitutes reasonable cause if such reliance was reasonable under the circumstances.

This Year: Pretty Hard

This year, there is a legitimate question about when federal tax returns must be filed and federal tax liabilities paid. In short, this year we may have fallen into one of those narrow situations anticipated by—and expressly reserved in—the Supreme Court’s Boyle opinion.

As noted above, in late 2019 Congress amended the Internal Revenue Code section that gives Treasury authority to postpone tax deadlines by reason of presidentially declared disasters. In a nutshell, new section 7508A(d) extends the postponement period for any qualified taxpayer 60 days after the “latest incident date” specified in the presidentially declared disaster declaration, “in the same manner as a period specified under subsection (a).” Section (d) applies in addition to any other postponement period provided by IRS and Treasury under subsection (a).

Every FEMA Major Disaster Declaration with respect to COVID-19 lists January 20, 2020 as the start date of the “Incident Period.” On March 13, 2020, the President issued an emergency declaration under the Stafford Act in response to COVID-19. The Emergency Declaration instructed the Secretary of the Treasury “to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, as appropriate, pursuant to 26 U.S.C. 7508A(a).” IRS and Treasury invoked section 7508A(a) by issuing Notice 2020-23 and other guidance postponing tax filing and payment deadlines until July 15 for all affected taxpayers. Neither the President nor IRS mentioned section 7508A(d) in the declaration or guidance, and IRS didn’t say on which day the Incident Period started: January 20, March 13, or some other date.

While some may argue that Congress did not contemplate ongoing disasters (such as the COVID-19 outbreak) when enacting subsection (d), the provision by its terms is not limited to time-limited disasters such as tornados, hurricanes, or floods.

In March, the IRS issued a tolerably terse statement for use in a Wall Street Journal article: “The President’s March 13 Stafford Act declaration didn’t automatically trigger the full range of filing relief.” Since then, IRS and Treasury have gone mute on the question as to why, in their view, section 7508A(d) does not add a rolling 60-day tail onto the end of the relief Treasury provided under section 7508A(a).

Interested groups have asked IRS for more time, but last week the IRS Commissioner testified to the Senate Finance Committee that IRS anticipates no shift from its current position that July 15 is the final payment deadline for postponed payments. “Protecting the revenue” is always a dubious rationale for IRS enforcement priorities, see Rev. Proc. 64-22, and it seems even more so in the current environment. To be clear, the Commissioner assured the Senate Finance Committee that IRS will “exercise discretion on the back end,” but it is better to build a technical basis before taking a tax position rather than depend on the discretion of the IRS afterwards.

Conclusion

Practitioners and academics continue to discuss the merits of the 60-day rolling shield position. Most taxpayers with no liquidity issues or appetite for picking a fight with IRS will pay their outstanding taxes on or before July 15. And IRS offers many payment plans and alternative arrangements to qualifying taxpayers.

Most taxpayers do not plan into fights with the IRS, and taxpayers and practitioners should not take the 60-day rolling shield position as an opportunistic way to circumvent the postponed due dates. Nevertheless, the position might be proven correct in time.

Taxpayers in dire straits may want to work with their professional tax advisor to consider whether they may further postpone their tax filing and tax payment obligations this year. The first building blocks in any such position would rely on more well-established grounds for reasonable cause relief, such as “undue hardship.”  But the 60-day rolling shield position deserves serious consideration as well. Even if the 60-day rolling shield position is not sustained, obtaining competent professional advice before July 15 may mitigate the downside risk of delinquency penalties for taxpayers who rely on that advice in good faith.

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax advisor. This article represents the views of the author(s) only, and does not necessarily represent the views or professional advice of KPMG LLP.

Due Process Requires the IRS Make Supplemental Advance Economic Impact Payments for Eligible Children of Recipients of Federal Benefits

Last week GAO released a 400 page report entitled COVID-19: Opportunities to Improve Federal Response and Recovery Efforts.  Right on the first page of the report (the Highlights page), GAO notes that it was unable to obtain total federal spending data because of an Office of Management Budget directive that agencies don’t have to report COVID-19 obligations and expenditures until July 2020.  GAO states “[i]t is unfortunate that the public will have waited more than 4 months since the enactment of the CARES Act for access to comprehensive obligation and expenditure information about the programs funded through these relief laws.”  For government auditors, these are strong words, indeed! 

Nevertheless, the report is chock-full of information about the four COVID-19 relief laws enacted to date, reviewing the actions of every relevant agency, including nine pages dedicated to the Economic Impact Payments (EIPs) (see pages 25 to 28 and pages 217 to 224).  Among other things, GAO reported that despite entering their eligible children on the nonfiler portal established by the IRS, between April 10 and May 17, up to 450,000 recipients of Social Security, Veterans, and Railroad Retirement benefits did not receive the per-child EIP.  Instead, they received EIPs for themselves only.  (See GAO report at page 220.)

Any discussion of the IRS’s implementation of the EIP must begin with the now-standard disclaimer that the IRS overall has done an amazing job issuing EIPs.   According to GAO, from mid-April through May 31, 2020, IRS and Treasury had issued 160.4 million payments totaling $269.3 billion, through a combination of electronic transfers to bank account, paper checks, and prepaid debit cards.  (See GAO report at page 25.)  This accomplishment is even more impressive when one considers the IRS has had to operate under pandemic conditions as well.  The IRS is also making efforts to reach the large nonfiling population of individuals who are eligible for EIPs and either have not or are not required to file a return.  But – and you knew this was coming – the IRS has made some administrative decisions with respect to EIPs that are very troubling.

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Recall that the IRS got off to an initial rocky start, when it informed Social Security retirement and disability benefits recipients and Railroad Retirement benefits recipients that they would have to file returns to obtain their EIPs.  (For the purpose of this blog, I will call these folks “SSA/SSDI/RRB” beneficiaries.)  This approach was completely contrary to IRC § 6428(f)(5)(B), which directs the IRS to calculate the advance EIP by using information in the 2019 Form SSA-1099 (Social Security Benefit Statement) or Form RRB-1099 (Social Security Equivalent Benefit Statement) if there is no 2019 or 2018 return on file for an individual.  After much uproar, Treasury and IRS quickly did an about-face and issued a statement that – good news! – these individuals would not have to file a return after all in order to receive their EIPs.  Instead, they would be paid out automatically to the accounts used to receive the benefits payments.  The IRS later announced that below-filing-threshold recipients of Supplemental Security Income (SSI) and certain Veterans’ benefits would not have to file returns either in order to receive EIPs directly deposited into their benefits accounts.

On the afternoon of Monday, April 20, 2020, the IRS issued a press release informing SSA and RRB recipients that although they would get their own EIP automatically, if they wanted to receive the up to $500 EIP for each of their eligible children, they would have to provide information on the non-filer portal by Wednesday, April 22, 2020.  That is, elderly and disabled individuals were given less than 48 hours notice – delivered electronically via a press release – to submit their children’s information – digitally – or else wait until 2021 to get the child-EIP.  Never mind that TCE was shut down and VITA was pretty much inoperable, so there was little or no filing assistance available to them.  Never mind that TAS research studies showed that 41 million US taxpayers did not have broadband access in their homes, and 14 million had no internet access.  The study found that vulnerable groups – the low income, disabled, and elderly – were more likely to access the internet infrequently (less than once a week) and feel less skilled doing internet research than non-low income taxpayers.  And never mind that in 2019 the average annual SSA benefit for retirees was $17,652, and for disabled persons $14,832, so they very much needed the additional EIP now, not later.

To compound matters, on the May 1, 2020, the IRS issued yet another press release giving Veterans and SSI benefits recipients a full four days in which to enter their eligible children’s info into the portal; failing that, they would have to wait until 2021 to get the child-EIP.

Making automatic payments to SSA/SSDI/RRB/VA/SSI benefit recipients requires a lot of coordination between the IRS, Social Security, Veterans’ Administration, and the Bureau of Fiscal Services.  Faced with the daunting task of issuing these payments in the middle of a pandemic, with a filing season still underway, I can understand why the IRS would want to find ways to make things easy on itself, and even rely on processes already in place.  That tendency helps explain (partially) why the IRS initially ignored the requirement to make automatic payments to SSA/SSDI/RRB beneficiaries by trying to take the same approach to these populations it did in 2008 with the Economic Stimulus Payment (ESP), which I discuss here.

The IRS also had the statutory mandate to get these advance payments out “as rapidly as possible.”  IRC § 6428(f)(3)(A).   Understandably, it wanted to issue them in batches, and set internal deadlines for when it would release data to the Bureau of Fiscal Services (BFS) to make EIPs with respect to different groups of taxpayers.  GAO reports the IRS and BFS issued more than 81 million payments, totaling more than $147 million, on April 10, a mere two weeks after the law’s enactment.  It began sending paper checks out on April 17, with the first batch going to 7 million individuals.  Because BFS can only issue 5 to 7 million checks a week, commendably the IRS prioritized mailing checks first to those with the lowest adjusted gross income.  The IRS established April 24 as the date on which automatic payments would be issued to nonfiling SSA/SSDI/RRB benefits recipients, and May 5 as the date for issuance of payments to nonfiling SSI/VA recipients. The IRS also appears to have made the internal decision that once an eligible individual receives an EIP, there will be no supplemental EIPs made in 2020.  Instead, eligible individuals can file a 2020 tax return in 2021 and obtain the additional EIP on that return. 

GAO reports the IRS has stated it will find a way to issue supplemental EIPs to those eligible individuals who entered their children’s information on the nonfiler portal before the IRS’s “deadlines”.  IRS should expand that approach and commit to issuing supplemental payments to SSA/SSDI/RRB/VA/SSI nonfilers who missed the deadlines.  As near as I can tell, because the recipients of automatic EIPs don’t have a 2019 return on file (this has been confirmed by Philadelphia Legal Assistance Tax Clinic Supervising Attorney Lazlo Beh, who obtained transcripts for automatic EIP recipients – thank you, Lazlo!), there is no reason why these individuals can’t file a 2019 return via the nonfiler portal.  Once the IRS has this information, it can issue supplemental EIPs to these persons.

I can hear the voices saying, but the IRS doesn’t have the resources to do this in the midst of a pandemic.  Actually, what I am proposing doesn’t require significant additional resources.  The IRS has already committed to GAO that it will create a mechanism to match the returns coming through the nonfiler portal with the database of automatic EIP recipients, so it can create a file for BFS to issue 450,000 supplemental payments.  Once it has that mechanism or algorithm in place, it can run it each week to capture the new nonfiler portal filings and continue to issue supplemental payments through the end of the year. It is even more imperative to do this in 2020 because some of the children eligible in 2019 will have “aged out” and not qualify for a dependent EIP on the 2020 return.

Which brings me to the procedural due process aspects of this whole mess. In Weinstein v. Albright, a case involving passport denial and revocation because of child support arrearages in excess of $5,000, the Second Circuit stated

Pursuant to the due process clauses of the Fifth and Fourteenth Amendments, neither the states nor the federal government may deprive an individual of property or liberty without due process.  In order to prevail on a due process claim, a claimant must identify a constitutionally protected property or liberty interest and demonstrate that the government has deprived that party of the interest without due process of law.”

The court, quoting Mullane v. Central Hanover Bank & Trust Co., noted that due process at a minimum requires the government give “notice reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.”  (Emphasis added.)

Let’s apply the above analysis to the situation at hand.  The class of persons affected – SSA/SSDI/RRB/SSI/VA benefits recipients – clearly have a property interest in the EIP.  To that end, consider RV v Mnuchin, a recent case filed in federal district court in Maryland. In RV v Mnuchin, the plaintiff alleges that the CARES Act violates the equal protection principles of the Fifth Amendment by prohibiting the EIP for US citizen children in a family where one or both parents have an ITIN and are undocumented immigrants. The plaintiffs in that case argued that the federal district court has jurisdiction under the Little Tucker Act, which is a jurisdictional statute that waives sovereign immunity protection and authorizes monetary claims founded upon the Constitution or any Act of Congress. In finding that the plaintiffs had jurisdiction and did not have to wait until filing a refund claim in 2021 to have the case heard the district court emphasized that CARES creates a statutory mandate for the receipt of the EIP:

The CARES Act provides for economic impact payments by creating a legal fiction that qualified individuals “overpaid” on previously filed taxes. The Act states “there shall be allowed a credit” of $1,200 for eligible individuals and $500 for qualifying children for this overpayment and that “[t]he Secretary shall, subject to the provisions of this title, refund or credit any overpayment attributable to this section as rapidly as possible.” 26 U.S. Code §§ 6428(a), (f)(3)(a) (emphasis added). The Act therefore requires the government to pay the fictional overpayment, and be quick about it. This indicates that 26 U.S. Code § 6428 is a money-mandating statute.

In fact, given the current circumstances – a global pandemic and resulting recession – they have a property interest in obtaining the advance EIP “as rapidly as possible”, as the law requires.  We must then turn our attention to whether the IRS’s notice of the deadline to receive the advance EIP for eligible children in 2020 was “notice reasonably calculated, under all circumstances” to give this population time to take action or raise objections before being deprived of their property interest.  The circumstances here include the target populations of the notice – the elderly and disabled, and the lowest income persons in the United States.  These populations are among those most likely not to have access to the internet, most likely to be isolated, and for whom the normal support systems (VITA and TCE) were literally inoperable. 

Under these circumstances, a 48 hour or four day digital notice does not meet minimum due process safeguards.  The IRS did not give these individuals adequate due process before it deprived them of their property interest in receiving the advance EIP for their children in 2020.  In fact, the government’s failure to provide adequate notice will permanently deprive some of these individuals of their property interest in the EIP because they will be ineligible to claim it on their 2020 returns.  Therefore, the IRS must take steps now to remedy that violation, before December 31, 2020.

Others have written posts about EIP issues pertaining to injured spouses and victims of domestic violence.  In 2008, according to TIGTA, the IRS processed 3.5 million Forms 1040X amended returns that were solely related to the ESP and also processed 316,000 injured spouse claims.  It is not clear why the IRS cannot address these taxpayers’ claims before December 31, 2020, and issue supplemental EIPs.  It was done in 2008, and it is even more urgent to get these funds out in 2020.  Yes, I know these are difficult times for the IRS, but they are also difficult times for taxpayers.  Unlike IRS employees, who are being paid even as they are unable to work, the people included in the supplemental payment population are among the most economically vulnerable in the United States.  So, on top of all the extraordinary measures the IRS has taken to date to deal with COVID-19, the people of the United States need it to undertake one more extraordinary measure and issue supplemental and replacement EIPs to automatic EIP recipients with children, injured spouses, and innocent spouses.    

Tax Court Announces It Will Start Receiving Mail

In an announcement on Friday, June 19 the Tax Court stated that it will start receiving mail on July 10.  The announcement indicates that approximately four months of mail will be delivered to the Court that day.  I wonder how the members of the clerk’s office will feel when facing a mountain of mail.  Maybe not as bad as the people coming back to work at the IRS Service Centers but still bad.

So, what does this mean regarding the postponement of the time to file a Tax Court petition.  The announcement says that the Tax Court building will still be closed.  It does not say that the clerk’s office is open but one assumes that it will be members of the clerk’s office and not the judiciary who will be processing the avalanche of mail.  FRCP 6 (which the Tax Court adopted in Guralnik) extends the last date to file when the Clerk’s Office is “inaccessible”.  Query whether the Clerk’s Office is still inaccessible, even though employees within it are opening mail? Does the announcement mean that the period of time to file a petition remains open under the precedent created by Guralnik or does this signal the end of the suspension at least under Guralnik. 

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The IRC 7508A suspension will last a few days longer until July 15 but if the clerk’s office is inaccessable maybe the Guralnik precedent is still in play.  The Notice also indicates you can contact the records department, which always seemed to be the same people as the clerk’s office, remotely to obtain records.  Does opening mail in a closed building and responding to requests for records made remotely equate to something other than inaccessible?

Remember that when the Tax Court shut down in March it sent out two notices in quick succession.  First, it closed the building with this announcement.  Then, it made the closure more permanent with this announcement a few days later.  Both stressed the need to timely file petitions and neither notice, like the one on June 19 mentioned Guralnik.

I imagine that prudent taxpayers will not test the waters to find out what the announcement means but will file their petitions by July 15 or within 90 days of the notice of deficiency if the 90-day period is later.  Still, there will undoubtedly be some taxpayers who need extra time and who will test the meaning of this announcement arguing that it does not signal the extension to file provided in Guralnik. 

All three notices mentioned above contain a helpful phone number to call for those who want to ask the Tax Court about the meaning of the notice.  I did not try the number and am not sure that when the notice offers that you can call this number if you have questions it means that you can call the number if you have this question.

For anyone not up to speed on this issue, please refer to our earlier posts here and here discussing the extensions of time caused by the pandemic.

Injured Spouse and EIP: Continued and Increasingly Troublesome Issues

When the CARES Act was first passed there was a flurry of activity in the tax practitioner community focusing on what potential issues might arise in the IRS’s administration of the Economic Impact Payment (EIP) and the authorizing statute itself. As the EIPs have been disbursed, the focus has shifted from “potential” to “actual” issues. To date, the biggest actual issue I’ve seen has been the offset of EIP to child support where one spouse is not liable for that child support. It is the prototypical “injured spouse” case, but where that remedy has been unavailing.

The magnitude of that issue (in terms of how many people it has negatively affected) has put it on the IRS’s radar. The IRS specifically acknowledges that issue in their FAQs, as covered by Keith here. That post, as well as my own previous post on the issue now have accumulated over 200 comments. If you have not had a client with this problem or otherwise known someone who experienced this problem, you might take a moment to read a few of the many comments in order to obtain the human perspective of the impact of this injured spouse issue. From what I can tell, the IRS has not yet fixed the problem for those it is trying to. Furthermore, the fix proposed wouldn’t help a huge class of taxpayers -those that didn’t file Form 8379 with their 2018/19 return. There is a serious concern that injured spouses may end up with fewer actual dollars in their pockets if the IRS delays too long.

Action is needed, and quick (at the absolute latest before December 31, 2020). This post outlines why I think this sense of urgency is required from a legal, if not humanitarian, sense.

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Something law students learn in Federal Tax I is the concept of “time-value” of money. $1 today is worth more than $1 a year from now. In real life, this truth takes on less-than-trivial meaning mostly when the $1 has a bunch of zeros added behind it. For EIPs there are not enough zeros behind the $1 for time-value to be a huge concern. And so, when I speak of the fewer actual dollars going to injured spouses that have to wait until filing 2020 returns, I am not speaking from a time-value perspective.

Similarly, though more pressing, I am also not speaking of the very real “opportunity costs” of delayed receipt. People that need the money now may have to choose between foregoing necessary purchases or going into debt to fund them. For the clients I work with it is almost always these concerns that are what really matter -not the amount of interest you could earn if you had the money now, but the amount of interest you may have to pay without it.

But since I am not an economist and this is a tax procedure blog, it is the procedural issues that I will focus on. And from a tax procedure perspective I believe there is a real concern that the “advanced” EIP may be worth more to many injured spouses than the EIP claimed on a 2020 return in terms of actual dollars in the taxpayer’s pocket.

Imagine essentially identical individuals, each entitled to a $1,200 credit. One gets their $1,200 EIP this July. The other has their $1,200 credit intercepted to go towards their spouse’s child support obligation. This latter individual (the prototypical “injured spouse”) has to wait until filing their 2020 return (with Form 8379) to hope to receive the money in their pocket. Apart from the wait, this injured spouse may end up with fewer actual dollars sent to them. Why might this be?

Put simply, it might be the case if the injured spouse has a tax liability on their 2020 return that eats into the EIP (obviously they had no such 2020 tax liability when receiving the advanced EIP before the close of the taxable year). Arguably (though I think likely), the EIP is not “protected” against tax as shown on the return claiming it. IRC 6428(b) describes the “treatment” of the credit. The cross-cites of that statute boil down to “treat this like any other refundable credit.” In a nutshell, the way a refundable credit works is to first reduce tax, and then pay out (“refund”) whatever is left over. The critical part is that a refundable credit first goes towards reducing the tax on the return. If there is more refundable credit than tax, there is an “overpayment” (see IRC 6401) that the Treasury issues as a refund… (generally) subject to offset against certain other debts (see IRC 6402).

So if I’m due an EIP of $1200 on my 2020 tax return because I didn’t receive any “advanced portion,” but I have tax of $1000 on that return, I will get a check for $200 -subject (potentially) to offset. Yes, I got the full “value” of the $1200 EIP, but I didn’t get all $1200 in my pocket the same way I would have if I received the “advanced” credit.

(Note that if the EIP were not applied to tax as shown on a return the IRS would be in the extremely awkward position of issuing a refund (the EIP) to 2020 filers that actually owe on the return. I don’t think this is required by statute, though I do think Sec. 2201(d) will create a whole other set of headaches for the IRS in the 2021 filing season pertaining to offsets… more on that later.)

Problems With My Reasoning

But wait! Why does the injured spouse in this example need to wait until filing their 2020 return to get the credit? Why can’t they file Form 8379 as a standalone now? In fact, perhaps it would be completely incorrect to file Form 8379 with the 2020 return because their 2020 return would show an EIP due of $0 -they (arguably) “received” their full credit, which would then reduce it to $0 on the return (see IRC 6428(e)(1)).

That may be correct. But, at present, it might not resolve the issue for two reasons: one legal, one administrative. Let’s begin with rehashing the administrative issue, which will play into the legal issue.

The administrative issue is that unless it was submitted with your 2018 or 2019 e-filed return, you cannot submit a standalone Form 8379 electronically to the IRS. And right now paper is piling up at the IRS processing centers. Further, there are serious questions about how to even properly fill out Form 8379 for your advanced EIP. If you were to file your 2019 return electronically, can you include Form 8379 with it for a credit that doesn’t exist on a 2019 return?

Right now the IRS appears to be using the fact that a Form 8379 was filed at all on a 2018/19 return as a “marker” for assisting these injured spouses with their advanced EIPs. As mentioned previously, progress on that front appears to be slow. But even assuming the IRS fixes that issue soon, the problem remains for any of the following: (1) those that already filed 2018/19 taxes without Form 8379, and (2) those that haven’t filed 2018/19 taxes yet, but that would only be eligible for Form 8379 based on the advanced EIP. For example, if you owe on your 2018/19 return, or if all credits/refund is attributable to the liable spouse, will the IRS system (or tax preparation software) process or even allow you to file Form 8379 electronically? I haven’t tried, but I have my doubts that a 2019 return showing a balance due could electronically submit Form 8379 for the advanced EIP that (apparently) goes nowhere on the 2019 return itself.  

(As an aside, I am also of the opinion that the “advanced” EIP should be treated as a 2018 or 2019 credit based on the clear language of IRC 6428(f)(1) and (2). That would arguably allow a 2018 or 2019 return to include the credit on Form 8379, but creates a whole other set of problems as discussed by Bob Probasco here. Nevertheless, I recognize that I remain in the minority on that view.)

In any event, administratively, I have serious doubts that either standalone Form 8379s or those filed with 2018/19 returns will be processed or otherwise resolved any time soon. And that leads to the legal issue. Because of the statutory language failing to issue the “advanced” EIP by 12/31/2020 may carry legal consequences.

IRC 6428(f)(3)(B) specifically provides that “No refund or credit shall be made or allowed under this subsection [i.e. the advanced credit] after December 31, 2020.” Perhaps there is a workaround to this. One may argue the refund/credit for injured spouses already was made or allowed prior to 12/31/2020. Now, with the injured spouse request, the IRS is simply trying to route the EIP to the right location, which doesn’t run afoul of the 12/31/2020 prohibition. As straightforward as that interpretation may be, it isn’t a slam dunk, and history gives some reason to be wary. In 2008 the IRS scrambled to process injured spouse forms before December from concerns that they were legally barred from issuing the credit after 12/31/2008 based on essentially identical limiting statutory language. The TIGTA report here is instructive, particularly at page 3.

I hope the interpretation that advanced EIPs were already issued and can now be re-routed without issue prevails. Because if it doesn’t then any payment made after 2020 must, by necessity, be the “regular” EIP running headlong into the issues I’ve already outlined (i.e. being reduced by tax shown on the 2020 return, to say nothing of being reduced by the amount of advanced EIP already issued).

The long and short of this is that injured spouse processing is a morass that needs heightened IRS attention. This is true with even greater force if 12/31/2020 becomes a magical “cut-off” point where any movement of money attributable to “advanced” EIP morphs into “regular” EIP, not unlike Cinderella’s stagecoach into a pumpkin.

I have serious concerns that go beyond just the injured spouse issue, and to whether EIPs claimed on 2020 tax returns should be given other “special” status because of the broad language of Sec. 2201(d). But that is a bridge we can cross closer to the 2021 filing season. For now, we know that the injured spouse issue exists and needs attention. I don’t envy the IRS’s predicament in administering this code provision, especially in the midst of a pandemic, “TCJA” changes, and the Taxpayer First Act. But this is real money to real people in real need. It deserves attention.

Lost or Destroyed EIP Debit Card

In making the Economic Impact Payments (EIP) the IRS has directly deposited some payments into taxpayers’ bank accounts, has sent checks to some taxpayers and sent debit cards to other taxpayers.  While undoubtedly some problems have occurred in the transmission of direct deposits and checks, the payment method receiving the greatest attention is the debit card payment method.  According to press reports, here and here, some individuals receiving those cards mistook the cards for some type of scam and destroyed the cards as they might destroy other unwanted correspondence that arrives daily.

After destroying the cards, some of these individuals came to understand that perhaps they destroyed the stimulus payment from the IRS.  Some individuals may still not realize what they have done.

The IRS has now published a phone number for individuals who lost or destroyed their debt card.  Individuals in this situation should call 800-240-8100 and then select option 2. The IRS has indicated that the private vendor issuing the cards will waive the fee for the first reissuance of a card and will reverse any earlier-charged initial reissuance fees. See Q48 of the IRS FAQ here.

When the only mail you receive from the US Postal Service is junk mail, it’s easy to understand why individuals who were not expecting to receive the EIP via debt card should make this mistake.  I hope that contacting the IRS at this number will result in recovery of the EIP without too much difficulty.  We welcome comments from anyone who has experience with the process.

Update (06/06/2020): As pointed out below in the comments by Bob Kamman, the IRS has now released a new Q46 of the FAQs. The answer indicates that the amount limit on making ACH transfers from an EIP card to a bank account has been raised to $2,500 (the previous limit was $1,000).

Significant Changes For Tax Litigation

We welcome back frequent guest blogger Bob Probasco who writes about an announcement on Friday by the Tax Court setting forth the way forward in Tax Court cases.  The announcement does not tell us when the court will start holding trials again but now we have a process.  There is still much to unpack but Bob does a good job getting us started.  My first reaction is that the Court has produced a thoughtful way forward.  My one small disappointment in the path concerns the checklist “Getting Ready for Trial Checklist.”  I would have preferred the checklist include a line that pro se litigants should reach out to Low Income Taxpayer Clinics (LITCs) early to obtain assistance, but I suspect there may be more pre-trial conferences moving forward and that in those pre-trial conferences judges may make reference to the assistance taxpayers might receive from LITCs.  Keith

On Sunday, I was reviewing the Tax Court’s website and happened to notice a new press release that came out on Friday.  We’ve all seen previous changes to Tax Court operations as a result of COVID-19.  The court cancelled trial sessions, the clerk’s office closed, and the judges were working remotely, while encouraging the parties to continue trying to resolve cases.  Now the court is moving on to the next stage of adapting to the pandemic, as have other courts: remote trial sessions.

The press release itself was brief, just announcing the change and the issuance of orders with details:

The COVID-19 pandemic continues to present public health risks and challenges, particularly where multiple individuals come together in a courtroom. In response, and until further notice, Court proceedings will be conducted remotely. See Administrative Order 2020-02 regarding remote proceedings and Administrative Order 2020-03 regarding Limited Entries of Appearance. If you have any questions, contact the Public Affairs Office at (202) 521-3355.

Another press release the same day informed us that on June 1st the court will resume accepting requests for copies of documents from non-parties.  But the process will be more flexible than before; requests can be made by phone and received by email.  You won’t have to – because you can’t – visit the court building in person.

So, what all is changing and what is still unclear?  This is a preliminary, incomplete assessment – what stood out to me, based on a quick review.

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What we know so far

The decision to go to remote trial sessions is not surprising.  Most other courts are pursuing this as well, if they haven’t implemented yet.  The basic structure of remote trial sessions also will probably not be tremendously surprising if you’ve devoted much thought to it.  The court operated the way it did pre-COVID for (mostly) good reasons and those reasons would drive the design of remote sessions in a (mostly) foreseeable fashion.

Administrative Order 2020-02 moves the trial sessions to Zoom.  Parties scheduled for a particular trial session will receive, in the notice setting the case for trial, a meeting id and password.  Litigants will be able to access the trial session by computer without having a Zoom account; if they don’t have access to a computer, they apparently will be able to dial in by phone.  Just as non-parties are free to attend an in-person trial session, public access will be offered in the new regime.  That will be available by real-time audio; the court website will post dial-in information for each session.  (Presumably, the public access dial-in will only allow non-parties to listen, not to speak and participate.)

Some of the changes may have been harder to anticipate but will have significant effect on litigants.  The standing pretrial order (SPO) addresses these items, among others, specifically:

  1. Motions for summary judgment – no later than 60 days before the first day of the trial session.  This was not specified in the previous SPO, but is consistent with Rule 121.
  2. Motions related to discovery or stipulations – no later than 45 days before the first day of the trial session.  This was not specified in the previous SPO, but is consistent with Rule 70.
  3. Motions for Leave to File an Expert Report – no later than 30 days before the first day of the trial session.  This was not specified in the previous SPO, but is consistent with Rule 143(g).
  4. Motions for continuance – no later than 31 days before the first day of the trial session.  This was not specified in the previous SPO.  This seems stricter than Rule 133, which establishes only a presumption that a later motion would be deemed dilatory and denied.  Now parties would have to request an extension.
  5. Preparation for trial – the parties shall file either a Proposed Stipulated Decision, a Pretrial Memorandum, a Motion to Dismiss for Lack of Prosecution, or a Status Report, no later than 21 days before the first day of the trial session.  The Status Report appears designed only to report that the parties have settled but a Proposed Stipulated Decision could not be filed timely.  The previous SPO mentioned only a Pretrial Memorandum, if a basis for settlement had not been reached, no later than 14 days before the first day of the trial session.
  6. Stipulation of Facts – the parties shall file such no later than 14 days before the first day of the trial session.
  7. Proposed Trial Exhibits (not encompassed in the Stipulation of Facts) – may not be allowed into evidence unless filed not later than 14 days before the first day of the trial session.  This is consistent with the language in pre-trial orders for many years; however, the enforcement of this provision of the pre-trial order may become much more vigorous.

These requirements fall into three broad categories, all of which seemed designed to facilitate a quick, efficient calendar call.  There is only so much time you can spend in a Zoom meeting before your attention starts to flag.  First, simply making explicit in the SPO what was already in the Rules (items 1-3).  That seems to be the court trying to communicate those requirements to those who aren’t already familiar with the deadlines, hopefully only unrepresented taxpayers and not members of the tax bar.  Second, accelerating communications with the court from current timelines – the change from 14 days to 21 days before the trial session in item 5, and the stricter deadline in item 4. 

The third category establishes new deadlines for documents that sometimes were presented only at the calendar call itself: Motion to Dismiss for Lack of Prosecution (item 5), Stipulation of Facts (item 6), and unagreed trial exhibits (item 7).  Effectively, all documents will need to be filed in advance; handing the document to the trial clerk is no longer a simple process.  Along the same lines, Administrative Order 2020-03 requires representatives entering a limited appearance to file it electronically, unless exempt from e-filing requirements.  (There are also several other changes involving limited appearances from Administrative Order 2019-01, but that’s a topic for another day.)

The accelerated or new deadlines will take some getting used to for tax practitioners.  It may be significantly more difficult for petitioners, especially since the new Standing Pretrial Order for Small Tax Cases has similar requirements and deadlines.  The old Standing Pretrial Notice didn’t specify a deadline for the stipulation of facts and specified a Pretrial Memorandum only had to be submitted 7 days before the trial session.  And as we all know, very few unrepresented taxpayers filed a Pretrial Memorandum.

What don’t we know yet?

Probably a lot of things.  There are always a lot of problems that are not identified until after implementation of a new program and these changes certainly will encounter that.  The Tax Court judges put a lot of thought into these changes but it’s impossible to anticipate everything.  All you can do is prepare as best you can, implement, and then adapt when problems crop up.

But one “known unknown” did stand out to me on first reading Administrative Order 2020-02.  What do these changes mean for pro bono volunteers who attended in-person trial sessions to assist unrepresented taxpayers?

Pro bono volunteers don’t receive copies of the notice setting cases for trial unless they happen to already have a client scheduled for that trial session.  Will there be some process to disseminate the meeting id and password to them ahead of time?  Will they instead have to merely listen in through public access?  If so, how will they communicate to the judge or petitioners that they are present and available to assist?

Will separate Zoom meetings be set up, on the fly, to allow pro bono volunteers and petitioners to meet privately?  If so, who will match up this petitioner to that volunteer?  How will the meeting ids and passwords be communicated to them without allowing those listening in through public access to here and join the meeting?  How would the pro bono volunteer and petitioner invite Counsel into that private meeting in order to discuss possible settlement?

I assume the pro bono volunteers could, at the beginning of a private meeting, quickly e-file a limited entry of appearance and then gain access to documents filed in that case.  That would alleviate some of the problems associated with transferring documents between petitioner and volunteer.  Presumably that is one reason Administrative Order 2020-02 was issued concurrently with Administrative Order 2020-03.  Will someone e-filing a limited entry of appearance have immediate access to all documents on the docket?

This seems to have the potential to be a complicated, difficult process.  The court may have worked out these details already and we may hear more soon.  I’m currently part of groups working with IRS Counsel for two different Virtual Settlement Days, one for Dallas cases and the other for San Antonio and El Paso cases.  (Here is the Virtual Settlement Days Best Practices Guide, for those interested.)  Perhaps the process for those events can be adapted to the remote trial sessions. 

Or will the Virtual Settlement Days ultimately replace pro bono assistance at the trial sessions?  Particularly with the requirements in the new Standing Pretrial Orders, there will be an increasing need for assistance well in advance of the trial session.  That will be difficult to achieve; not all petitioners will independently contact a clinic based on the “stuffer notice” or request an appointment at a Virtual Settlement Day, even with the scarier Standing Pretrial Order.  But without early assistance, the Tax Court’s remote trial sessions will not work as effectively and low income, unrepresented taxpayers will be worse off.

Those are my observations and questions about the new regime.  What are yours?