Can the IRS Ever Collect on Erroneous EIPs?

The IRS sent out a lot of EIPs this summer, and at a pretty quick clip. While there were certainly issues with people failing to receive the payments that should have (see posts on injured spouse issues here, domestic violence survivors here, and incarcerated individuals here), there were also undoubtedly people that received EIPs who shouldn’t have. The question this post sets out to answer is simply this: for those who shouldn’t have received an EIP what if anything can the IRS do to get the money back? No doubt taxpayers will want to know what to expect on these issues and will expect tax professionals to have a clear answer… you’ll have to read on to determine if there is one.

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If I were to survey the room, I’d bet most people have already made up their minds that there is an easy answer to the title question of this post: “No, the IRS cannot collect on erroneous EIP. Haven’t you read IRC § 6428(e)(1)? If you received too much EIP you just reduce the amount of credit on your 2020 return, but not below zero.”

My dear friends, I’m here to tell you that nothing in life is easy -least of all parsing the language of IRC § 6428. Further, I’m sorry to say, in my opinion IRC § 6428(e)(1) is actually irrelevant to the question of whether the IRS can collect on erroneous EIPs. Lastly, and again with sincere apologies, I regret to inform that if the EIP is a rebate (a big “if”) the IRS can collect on it through the deficiency procedures.

Gasps all around, I’m sure. Let me explain myself.

First off, it is critically important that we are clear what we’re talking about when we talk about EIPs. The term EIP (for our purposes) only refers to the “advanced” payments made in 2020 pursuant to IRC § 6428(f). The payments that people will be claiming on their 2020 returns are not “EIPs” but instead are Recovery Rebate Credits (“RRC”) under IRC § 6428(a). They are separate and distinct credits. Conceptually, you aren’t claiming the “remainder” of your EIP when you file your tax return: you are claiming an entirely different credit that is simply reduced by any EIP you received.

To me, that IRC § 6428 creates two separate credits (and not simply staggered payments of the “same” credit) is uncontroversial despite the unhelpful language on the IRS website. But because it is critical to my analysis I want to drive the point home. I also think it will help lay bare why the IRC § 6428(e)(1) provision has no relevancy to the IRS ability to collect on erroneous EIPs.

Two Credits, One Code Section

We can all agree (I hope) that eligibility for the EIP is based on your 2019 (or 18) information. IRC § 6428(f) makes that pretty explicit, and that is also how the IRS administered the payments. That is in part why people rushed to file 2019 tax returns.

Yet some analyze the EIP as if 2019/18 isn’t the determinant for eligibility, but rather some expedient way of delivering the EIP. In this mistaken conceptualization the IRS just administered a 2020 tax credit based on 2019/18 information because that’s all they had (2020 not being even half-way done when the CARES Act was passed). This mistaken view reads IRC § 6428(f) as paying out some sort of “tentative” credit that the taxpayer then has to reconcile on their 2020 tax return with the “true” credit, since 2020 is the information we really cared about all along. I believe this is why so many people read the “good news” in IRC § 6428(e)(1) to be that if we got too much “tentative” credit we don’t have to pay any back when we claim our “true” credit on the 2020 tax return.

But that’s not how the law is written, and not how the credits work. The EIP is a 2019/18 animal. That is the year it looks at. That is the year it applies to. Allow me to illustrate.

Imagine you weren’t making much money in 2019. Maybe most of the year you were in law school and only after passing the bar in September did you begin making big-law money. Your AGI for 2019 is only $65,000, but by March 2020 you are already way over the AGI threshold for IRC § 6428(a). Nevertheless, you get a full EIP of $1,200 in May 2020. Common wisdom says you “got too much” EIP and will need to reconcile on your 2020 return. You aren’t too worried though, because the reconciliation provision at IRC § 6428(e)(1) protects you from paying back this excess EIP. If not for IRC § 6428(e)(1) you’d be in a bind…

Ah, my dear friend, can’t you see that no reconciliation is even necessary? You received exactly the right amount of EIP (assuming your 2019/18 return was accurate… more on that later). You don’t need to do anything on your 2020 tax return, because the 2020 tax return is only for claiming a wholly different credit -the RCC. Note that the IRS worksheet for the RCC supports this: the moment you determine you are ineligible for the credit based on 2020 information, you stop and do nothing more. Your EIP simply doesn’t matter at that point. See IRS Form 1040 Instructions at page 59.

It might be instructive to compare this to another tax credit where reconciliation actually does occur: the “Premium Tax Credit” at IRC § 36B. Because health insurance premiums are incurred on a monthly basis, the Premium Tax Credit is paid “in advance” as each monthly payment is due. The Premium Tax Credit looks at only one year for eligibility determinations: the tax year you are receiving the payments. Obviously, you cannot know exactly what your AGI (or even filing status) will be at the beginning of 2020, so you provide an estimate and then “reconcile” with the year-end numbers. This is exactly what you would expect with a “tentative” credit that looks at the same tax year for eligibility and advance payments… and this is not at all what happens with IRC § 6428.

So we agree that the law student doesn’t owe any EIP back, not because of IRC § 6428(e)(1), but because you don’t owe money “back” when you get the right amount of it in the first place. But imagine the IRS screwed up and didn’t send this law student their EIP. Can they claim it on their 2020 return? Obviously not, because the 2020 return is (again) for a wholly separate credit (the RCC) that they are not eligible for. The RCC looks at 2020 for eligibility determinations whereas the EIP looks at 2019/18. IRC § 6428(e)(1) only functions to make sure you don’t double-up on the RCC credit if you received an EIP payment (the italicized words will matter more in a moment). The “not below zero” reduction language just makes sure that if your (correct) EIP payment is larger than your (correct) RRC credit you get the full value of the larger of the two.

The RCC is a 2020 tax credit and the EIP, to beat this dead horse, is not.

Great, so the EIP is a Different Credit: Why Does that Matter?

The RCC is a remarkably conventional refundable credit. The RCC can be offset -just like any other tax credit (see Les’ post here). It is subject to math error procedures for certain “math-like” mistakes -just like many other refundable credits listed at IRC § 6213(g)(2). And it is explicitly made part of the definition of a deficiency as a negative tax -just like other refundable credits (see IRC § 6211(b)(4)(A)). Oh, and just like most tax credits it is something you affirmatively claim on your return.

The EIP, on the other hand, is metaphysically a tax-chimera. I have spent many a sleepless night trying to pin down exactly what it is, because “what it is” will drive how or if it can be collected.

First off, it isn’t entirely clear that the EIP is a “refundable tax credit.” Yes, IRC § 6428(b) refers to the refundable credits portion of the Internal Revenue Code. But note that the language of IRC § 6428(b) refers to the credit “allowed by subsection (a).” It does not refer to the credit “allowed by subsection (f)” (the advanced credit) or more broadly the credit “allowed by this section.”

Things get more difficult. The RCC provision (IRC § 6428(a)) provides a “credit” against the tax of 2020. The EIP provision (IRC § 6428(f)) treats the taxpayer as if they made a “payment” against tax for 2019/18…

This tricky distinction between “credit” and “payment” could matter. A lot. It could be the determinant on if the EIP is a “rebate.” That distinction directly touches on the assessment and collection procedures the IRS will need to follow. I will go into it in more detail on a subsequent post. For now, let’s just pretend the EIP is a rebate and go into why that would matter.

Here’s the fun thing about rebates: erroneous ones can be collected through deficiency procedures. Don’t believe me? Look to the definition of “deficiency” for yourself -specifically IRC § 6211(a) and (b)(2). Have Kleenex handy for the tears that statutory language is sure to inspire. But the critical take-away is that you can have a tax return that doesn’t (necessarily) understate tax and still have a deficiency if the IRS were to issue a “rebate” they shouldn’t have. This could happen, for example, if the IRS give you an EITC that you never really claimed and weren’t actually entitled to. In fact, that is the exact example used by the IRM at (10-01-2020). If the IRS noticed the mistake in time they could issue a notice of deficiency… the rest is well-trodden tax history.

No one claimed the EIP on their 2019/18 return, and yet some may well have received the EIP when they shouldn’t have based on mistakes from their 2019/18 returns. But if EIPs are rebates (again, a big “if”) made by the IRS, the recognition of these mistakes is exactly how they could be subject to the deficiency procedures and assessed like any other tax. And with exactly the same administrative collection options thereafter.

Uh oh…

But maybe it isn’t that bad. Recall, to begin with, the only people to worry would be those that had inaccurate 2019/18 returns resulting in EIPs they shouldn’t have received. If you were eligible based on 2019/18 information you have nothing to worry about. Also, as I will discuss in detail in another post, there are arguments that in some instances the erroneous EIP is not a “rebate” at all, which seriously limits the IRS collection options. Lastly, and importantly, there is the very real possibility that the IRS will simply make the decision not to go after EIPs at all as an administrative matter.

Those are all questions I’ll explore in my follow up post. For now, I’ll be content if only I have convinced you that the answer “the IRS cannot collect EIP because you just reduce it on your tax return” is 100% wrong. I’m afraid nothing in life is that simple.

Some Quick Thoughts on a Key Difference Between the Advance Payment of an EIP and Claiming the 6428 and 6428A Credit on a 2020 Tax Return

We have previously discussed the mechanics of the advance credit, both in the original CARES legislation from last spring and also in the Tax Relief Act legislation from late last year.  For a really good primer on the mechanics of all of this, I recommend the recently retired sage of tax procedure, Carlton Smith So, How Will the “Recovery Rebate” Refunds Work This Time? Part 1 and Part 2.  In this post I will flag how things have changed a bit since Carl’s initial post, and also offer some brief observations on why the current status for individuals who are entitled to receive 6428/6428A credits when they file their 2020 tax returns puts people in a less favorable place than if they were fortunate enough to receive the advance payments.


As background, individuals who receive an advance payment or payments that exceed the amount of their eligible credit (as later calculated on the 2020 return) will not have to repay any of the payment. If the amount of the 6428 and 6428A credit as determined on the 2020 return exceeds the amount of the advance payment, taxpayers are entitled to claim the difference as a refundable tax credit on their 2020 returns.

There is an uneasy relationship between tax procedure and refundable credits. Typically (and I am simplifying here quite a bit) a refundable credit is treated as a payment for a particular tax year, and a taxpayer will have an overpayment if the sum of their payments and credits exceeds their tax liability for that year. Just because a taxpayer has an overpayment does not necessarily mean a taxpayer gets a refund, however. Section 6402(a) allows (but does not require) the IRS to offset any overpayment of one tax against any other federal tax debt; Section 6402(c), (d), (e) and (f) require IRS (through Treasury) to offset or apply the balance of any overpayment to certain defined other debts, including past due child support, and state income taxes and covered employment compensation debt.

In an off-Code part of the law, the original CARES legislation trumped the offset rules. CARES did not distinguish between advance payments and amounts that would be claimed later on 2020 tax returns. Essentially CARES said that IRS could not exercise its discretion under Section 6402(a) to offset the economic impact payments and amounts later claimed on 2020 returns against past due federal taxes, and also overrode the mandatory offset rules in Sections 6402(d)-(f), but preserved the mandatory offset for past due child support.

Fast forward to December and the Tax Relief Act. 

Sec. 273(b) of the Tax Relief Act retroactively changes the off Internal Revenue Code provision  found in CARES Act Sec. 2201(d). What are the changes? As I mentioned above the original CARES Act provided that BOTH the advanced credit that the IRS distributed in the spring (the original EIP) and any amount of the 6428 credit that was later claimed on the 2020 return was exempt from the IRS applying to past due federal income taxes or to all mandatory offsets (e.g., state tax debt, debt to other federal agencies), except for child support.

First the good news. The TRA provided some additional protection for the second round of EIP’s by providing protection from all offsets, including for past due child support. It also protected the second round of advance payments form bank garnishment or levy by private creditors and debt collectors.

That is the good, at least from the taxpayer perspective. What about the bad? The TRA now provides that the recovery rebate credit a taxpayer claims on a 2020 tax return (under both 6428 and 6428A) loses the protection from discretionary and mandatory offsets under Section 6402. It will also be applied to any unpaid current 2020 tax liability, a necessary step to determine if a taxpayer has an overpayment in the first instance. There is also no protection from garnishment or levy if a taxpayer is lucky enough to get a 6428/6428A fueled refund. So in sum, what IRS refers to as the  “Recovery Rebate Credit” (the amount that is claimed on the 2020 return, rather than the Economic Impact Payments paid out in advance), is subject to ALL offsets, just like any other credit claimed on a tax return that generates an overpayment. 


Congress’ decision to place these benefits in the tax code and also to attempt to ensure that the IRS deliver them to the majority of people before filing a 2020 tax return (or in some instances even in the absence of a return), raises a lot of procedural issues. In this brief post, I did not attempt to exhaustively discuss those issues, but to highlight some differences between the 6428 and 6428A mechanics and typical refundable credits, like the EITC and the Additional Child Tax Credit. The post suggests that there are significant substantive differences between the advance payment mechanism and the typical way that individuals receive benefits by claiming a refundable tax credit on a tax return. This brief discussion may also be of relevance as Congress considers the possibility of using the tax system in additional ways to deliver regular benefits in advance of (or even in the absence of) filing a tax return. How and whether benefits are offset ( and whether the IRS will facilitate or publicize the ability to request a bypass of offsets when taxpayers are experiencing hardship, a topic of recent comments submitted by the ABA Tax Section), as well as what happens when there may be changing circumstances when it is time to reconcile, are issues that will have a material impact on the effectiveness of any program that is tethered to the tax code.

For another day, and another post, are issues relating to how taxpayers prove eligibility for claimed refundable credits, especially given that eligibility proof for a benefit embedded in the tax code typically means a correspondence audit. As Congress possibly looks to the tax system to play a bigger role, how the IRS administers these provisions looms even larger in the welfare of some of the population’s most vulnerable.

My IRS Wishlist for 2021 – Part 1: The mail and return processing backlog

We begin a new year with the IRS pulling off another near-miraculous feat of issuing the second round of COVID-relief stimulus payments almost simultaneously with the President’s signing of the authorizing legislation.  I thought it might be a good time to make up a list of wishes I have regarding tax administration for 2021.  My list has a heavy emphasis on the role the IRS plays in the economic health of our nation; that it is a very major role should be clear to everyone who hasn’t lived under a rock this past year.


But before I launch into my list, let me do some level setting.  Deep in is an interesting webpage IRS Operations during COVID-19: Mission-critical functions continue.  This page is updated periodically with information about the status of return processing, check payment processing, mailing of notices, Power of Attorney processing, and many other items.  Everyone practicing in the field of tax should bookmark this page.

On this page, the IRS informs us that as of November 24, 2020, it had 7.1 million unprocessed individual tax returns and 2.3 million unprocessed business returns in its backlogged mail.  This is an unprecedented number of 2019 returns that have not been processed by the end of the year, and the situation appears to have gotten worse, rather than better, as the year went on.  According to the National Taxpayer Advocate, as of September 19, 2020, the IRS backlog was about 5.8 million pieces of mail, including 2.8 million tax returns.  The IRS says it “expects to issue all refunds for 2019 individual tax returns in 2020 where there are no issues with the return.  For refunds that cannot be issued in 2020 because the tax return is being corrected, reviewed or awaiting correspondence from a taxpayer, the refund will be issued as a paper check in 2021 per our normal processes.”  [Emphasis added.]

Now it is not clear to me why, in the 21st century, the IRS can’t make direct deposits of tax refunds after the filing season for that tax year has passed, e.g., for amended returns that result in a refund.  Maybe it is some programming rule in the submission processing pipeline, or maybe it isn’t the IRS’s problem but some issue with the Bureau of Fiscal Services.  But the problem in the COVID-economy is that many of these taxpayers who filed a 2019 return that has not been processed in 2020 will have moved – even if they aren’t evicted, they may move to less expensive housing, or they may move in with relatives, or they may have become homeless.  So not only will these taxpayers not get a direct deposit, but the paper check, once mailed, will be returned to the IRS.  Taxpayers won’t know anything about this unless they keep checking the “Where’s my refund?” website – the IRS says if a refund check is returned, an option will pop up on that website that allows the taxpayer to enter a change of address.  But even after you enter your address, the check will be mailed yet again, with all the attendant postal service delays. 

So here’s my first wish for 2021: 

The IRS should create a mobile-friendly, multi-lingual digital application for taxpayers to change their address; this application should require only two-factor authentication.

I will save for another day my tirade about the archaic revenue procedure that governs when the IRS is considered to be notified of the taxpayer’s last known address.  I note Keith’s PT post about the Gregory case, in which Keith and his students prevailed against the government on this issue.  It is unconscionable in the 21st century that the IRS should be routinely given 45 days from the date of posting a return to be considered notified of an address change.  Here’s what Rev. Proc. 2010-16 says:

Returns that are not filed in a processible form may require additional processing time.  If additional processing time is required, the 45-day processing period for address changes will begin the day after the error that caused the return to be unprocessible is corrected.

The 2019 return processing delays make glaringly clear the harmful impact of provision and the lack of a quick digital means to update one’s address.  And yes, I know there are legitimate concerns about fraudulent address changes; that is an issue that can be addressed as part of the programming.  But such concerns should not be an obstacle to creating an application that would be available to most, if not all, taxpayers.

Mail delays and my second wish

Now let’s get back to this mail backlog.  The IRS webpage references 2019 returns that have been flagged for further correction, review or taxpayer correspondence (by mail?????).  It states that “[i]f we need more information or need you to verify that it was you who sent the tax return, we will write you a letter.  The resolution of these issues depends on how quickly and accurately you respond, and the IRS staff trained and working under social distancing requirements to complete the processing of your return.”  Now of course, if the taxpayer responds quickly and accurately via the U.S. Postal Service, that response will be sitting in a pile along with the millions of other documents not processed.  The IRS COVID operations website says the IRS is opening mail within 40 days of arrival and is taking 60 days to process (on a first-come, first-served basis).

The Taxpayer Advocate Service has reported that even in “normal” times, the IRS non-identity theft refund fraud filters result in high false positive rates (i.e., the frozen return/refund was actually legitimate) of 81 percent for the period from January 1 to October 3, 2018, and 71 percent from January 1, to October 2, 2019.  [See 2019 NTA Annual Report to Congress, p. 39.]  TAS analysis found that over 75 percent of their cases involving wage verification received in the last week of August, 2019, “waited an average of 141 days from the return filing date for the IRS to screen and determine that it could not verify the information on the returns.  As of October 1, 2019, the IRS had only assigned 36% of those returns to a particular treatment stream for resolution.”  [2019 NTA Annual Report to Congress,  p. 40]

Thus, even before the pandemic, for many taxpayers, the IRS refund resolution processes were overwhelmed and not working.  Can we only imagine what is happening today?  We have not seen the numbers for these returns for the period from January 1 to October 1, 2020 (or December 31, for that matter), but I am willing to bet the backlog is … huge.

Now, what is going to happen to all these taxpayers whose 2019 returns are unprocessed?  First of all, they won’t receive the $600 COVID-relief payments.  Second, when they file their 2020 returns, it is very likely that these returns, too, will be flagged because their 2019 returns have unresolved issues.  This means that two years of refunds, and two rounds of stimulus payments will be frozen.  In. The. Midst. Of. A. Pandemic.

I know the IRS has been working full-tilt trying to get through this nightmare.  But the taxpayers of the United States deserve much more transparency and better information than we are receiving.  We need to know whether the employees who are working in the questionable refund programs are actually working – that is, have they received laptops so they can telework?  Or are there parts of their jobs that require them to be physically present in IRS offices, as the submission processing employees must be?

Which leads me to my second wish for the IRS in 2021:

The Federal government should classify IRS workers whose jobs are related to return and correspondence processing as essential workers and arrange for them to receive the COVID-19 vaccine with the same priority as front-line workers (i.e., after health care workers and nursing homes).

The government can do this – and it should.  I am sure there are many other federal employees in other government agencies who should also be prioritized in this way (umm … meat inspectors in meat processing plants?).  They, too, should be prioritized to receive the vaccine.  But as I said earlier, the IRS’s issuance of tax refunds and stimulus payments in 2020 and refunds and the recovery rebate credits in the 2021 filing season are vital to the economic recovery of hundreds of millions of taxpayers throughout the United States.  To assist that recovery, we need an IRS workforce that is able to do its job.  For it to do its job with the speed and urgency this crisis requires, IRS employees involved in return and correspondence processing and resolution should be prioritized for vaccination.  I hope the incoming Administration makes this a priority.  The taxpayers of the United States will be grateful.

Year in Review – Tax Court Administration

The Tax Court had to close its building in March and cancel the remaining Winter and Spring calendars because of the pandemic. While the judges continued to work, the cases awaiting trial stacked up. The Court also had to confront how it would operate once it began holding trials again. In addition to having to deal with all of the changes required by the pandemic, the Court had also planned to install a new website and system of administration of cases this year adding to the complexities it needed to manage. So, there is much to talk about in reviewing the administration of the Tax Court during 2020.


Building Closure and Calendar Cancellation

The building closed on March 19, 2020 as a result of the pandemic.  Then, it partially reopened enough to allow outsiders to walk down the hall from the entry point to deliver documents to the clerk’s office, and it closed again. Even though the building was closed for most of the year the judges continued to work and to produce opinions.

In addition to closing the Tax Court building in Washington, the pandemic caused the cancellation of all Tax Court calendars around the county for the remainder of the Winter and Spring trial sessions. When the Tax Court started holding trials again in the fall of 2020, it did so remotely.

The pandemic created an extension of time to file a Tax Court petition. In addition to the extension of the deadline for filing petitions brought on through the Guralnik case by the closure of the clerk’s office and through IRC 7508A though the IRS notice regarding the pandemic it is also possible that an extension of the time to file a petition has occurred through 7508A(d). We will find out the answer in the coming year(s).

Obtaining Documents from the Court

Because the Court building has been closed for most of the year, the ability to access documents filed in Tax Court cases by physically viewing them at the Court has been unavailable. Unlike the federal courts covered by the PACER system, the Tax Court does not make documents filed in its cases electronically available except that it makes electronically available the documents produced by the Tax Court. So, someone interested in seeing a document filed in the Tax Court must physically go to the Tax Court where they can look at one of the two computer terminals in the clerk’s office anteroom which displays all of the documents or request the physical file from one of the clerk’s office employees at the window of that office. Since the public could not access the clerk’s office, this left as the only option for obtaining documents the process of calling the clerk’s office and ordering the documents. For most of 2020 the first two options have been unavailable and from March to May the third one was unavailable as well.

None of these options for obtaining a document exist when the clerk’s office is closed. If the clerk’s office is closed and you wish to see a document filed by a party, you, if you are not a party, simply cannot do it.  While the Tax Court considered itself open and engaged in handling cases during the pandemic, it effectively denied anyone not connected with the Court or a specific case the right to see case documents during the period when its clerk’s office was closed. This creates a frustrating situation for anyone who would like to see case documents and who might be involved in filing briefs or preparing petitions or other documents necessary to move their case forward.

When the clerk’s office reopened after the pandemic created closure, the Court did, however, make it cheaper and quicker to obtain documents when the clerk’s office is open. This is a great first step. I hope the new DAWSON system and reflection on the lack of access to party documents during the clerk’s office closure may create other changes that will open access further. Maggie Goff and I published an article in Tax Notes on May 4, 2020 entitled “Nonparty Remote Electronic Access to Tax Court Records” discussing the legitimate privacy concerns that the Tax Court faces when considering access to the Tax Court records of individuals and suggesting ways to meet those concerns while making documents more available to the public.

In cases involving entities, however, we see no legitimate privacy concerns of general application with respect to the documents filed. Of course, entities can have secrets in need of protection through record sealing. The stated policy reasons for denying electronic access do not apply to cases involving entities. An easy second step to opening up electronic access, at least from a policy perspective though not necessarily an administrative one, would be to remove restrictions in the cases involving entities.

There is a project underway at the Administrative Conference of the United States (ACUS) that deserves some attention on this subject which we will build out to a separate post in the near future. ACUS has recommended that Agencies post their briefs and possibly other documents generated for courts in an easily accessible and cost free manner for all to access. That would close some of the access gap created by the current Tax Court electronic access rules. Follow that project here.

Changes to Admissions Procedures and Rules

The pandemic even changes the process of admission to practice before the Tax Court.

The Court adopted new rules including making permanent the limited entry of appearance rule. It’s not uncommon for the Court to adopt new rules in any year. These rules deal with general court procedures and demonstrate that even while it closed its building it was still working on refining the general rules of practice.

New judges arrived and guidance on remote practice came out.

Trying Cases Remotely

The handling of cases remotely has caused changes in many areas of Tax Court practice. It will be interesting to see how many of these changes have a long term impact and how many fade with the passing of the pandemic.

Subpoenas – New procedures for return of subpoenas discussed here.

Trials have been remote all fall. Most reports I have heard suggest that the trials have gone smoothly. Litigation without the ability to see witnesses in person and without the ability to hand a document to the clerk create some obvious difficulties but so far the Court seems to have surmounted these difficulties to keep the docket moving.


In July the Court adopted a new website.

In November it stopped electronic filing while it migrated to a new filing system named after one of the former judges, Howard Dawson. Every Tax Court practitioner received a new entry path and password to the new electronic filing portal as it reopened on December 28, 2020. Now we will find out how DAWSON works and how much better life is after the creation of the new system. I received my email from the Court on December 27 and filed a document I had been holding for a couple weeks. The filing went smoothly.

Year in Review – Legislation

This review of 2020 legislation is cribbed from a presentation given by LaKesha P. Thomas, Esq., Clinic Director at Three Rivers Legal Services (FL); William Schmidt, Clinic Director at Kansas Legal Services; and Caleb Smith, Associate Professor of Clinical Law at University of Minnesota Law School.

Of course, the major legislation in 2020 focuses on taxpayer relief from the economic pain caused by the pandemic.  That legislation, in many respects follows the pattern set in two other downturns of the 21st Century.  As the year ends another round of legislation to promote relief may be happening.


Paycheck Protection Program (PPP) Loan Forgiveness

This program was established by §1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which amended IRC §1102 and §7(a)(36) of the Small Business Act (15 U.S.C. 636(a)).  The basics of this program were detailed in Notice 2020-32 -PPP Loan Expenses.  This notice summarizes the PPP loan process and is further discussed here:

  • Loan amount is up to 250% of average monthly payroll expense, up to a $10 million maximum.
  • Loan forgiveness is equal to 8 weeks of payroll, mortgage interest, rent, and utility payments.
  • No more than 25% of the amount forgiven can be attributable to non-payroll costs.
  • PPP loan forgiveness is excluded from income under the CARES Act, and
  • There is no reduction of tax attributes required, unlike §108.
  • Sole proprietors with no employees are allowed to use their 2019 Schedule C net income as a payroll expense for PPP loan purposes.  For additional discussion see here and here.

Neither section 1106(i) of the CARES Act nor any other provision of the CARES Act addressed whether deductions otherwise allowable for payments of eligible section 1106 expenses would be allowed if the loan was subsequently forgiven.

Notice 2020-32: Clarifies Matter by providing that expenses that qualify a TP for PPP loan forgiveness are non-deductible under two legal theories:

  1. §265(a)(1); §1.265-1, which denies expenses related to tax-exempt income, and
  2. Deductions are not allowed for payments for which the TP receives reimbursement.

The notice cites Manocchio v. Comm., 78 T.C. 989 (1982).

CARES Act §2204 – Adds $300 Charitable Contribution:
  • §2204 adds IRC §62(a)(22) & §62(f) to allow for a maximum $300 deduction/adjustment to income for cash charitable contributions for those who take the standard deduction.
  • If you don’t itemize your deductions on Schedule A (Form 1040), you may qualify to take a deduction for charitable contributions of up to $300. See the instructions for line 10b (1040).
  • Applies to taxable years beginning after 12/31/2019.
  • Deduction allowed for organizations that are religious, charitable, educational, scientific, or literary in purpose.
  • Contributions to donor advised funds or supporting organizations cannot be used.
  • Above-the-line charitable contribution deduction
  • The maximum deduction is $300 per return regardless of filing status.
  • It is only applicable to tax year 2020.
  • Previously, charitable contributions could only be deducted if taxpayers itemized their deductions.

Economic Impact Payments, IRC 6428

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows a refundable credit for 2020 for eligible individuals to help with financial difficulties the COVID-19 pandemic caused.  EIP summary and EIP Eligibility, and Other IRS Frequently Asked Questions:

If the TP owes for IRS back tax liabilities will the Recovery Rebate Credit (RRC) be reduced by any outstanding tax debts?

Preliminary IRS Answer: Like EIPs, RRCs will only be offset to child support

  • •IRS is working out the procedures for RRCs
  • IRM 21.6.3 is in the process of being updated in relation to RRC procedures
  • •See section 2201(d) of the CARES Act, which appears as a note to IRC section 6428, stating:

(d) Exception from Reduction or Offset.

—Any credit or refund allowed under IRC 6428 shall not be —

(1) subject to reduction or offset pursuant to section 3716 [administrative offset by the head of an executive, judicial or legislative agency] or 3720A [by any Federal agency such as for an OASDI overpayment] of title 31, USC,

“(2) subject to reduction or offset pursuant to subsection (d) [debts owed to Federal agencies], (e) [State Income Tax Debts], or (f) [unemployment compensation debts]of IRC section 6402, or

“(3) reduced or offset by other assessed Federal taxes that would otherwise be subject to levy or collection.

Any overpayment resulting from the recovery rebate creditor from related payments to the U.S. territories is not subject to reduction or offset by other assessed Federal taxes that would otherwise be subject to levy or collection.

  • In addition, such overpayments are not subject to offset for other taxes or non-tax debts owed to the Federal government or State governments.
  • As an exception to the above rule, an overpayment resulting from the recovery rebate credit is subject to the offset against overpayments of the amount of any past-due support. [Sec. 6402(c).]
  • An overpayment resulting from the recovery rebate credit may be subject to claims by the taxpayer’s creditors under applicable State law or Federal bankruptcy law.
  • Economic Impact Payment (EIP) –Adjustments –Systemic refunds issued as a result of an adjustment to EIP will post with the Bypass Indicator 4. This ensures the EIP can only be offset to child support obligations. IRM

If the same qualifying child is properly claimed by two different taxpayers in different years may result in two credits for the same child as discussed here.

Generally, individual income tax credits for a given taxable year are based on a taxpayer’s situation and actions in that taxable year, so a 2020 credit would generally be based on a taxpayer’s 2020 factors.  Due to the lack of recapture, the 2020 recovery rebates could be considered imperfectly targeted as some taxpayers will receive a larger credit than their 2020 attributes would otherwise allow.

Example: The same qualifying child properly claimed by two different taxpayers in different years, one taxpayer in 2019 and another in 2020, may generate $500 of credit to the taxpayer claiming the child in 2020 and $500 of credit to the taxpayer claiming the child in 2019 for a total of $1,000.  [This] example illustrates some targeting and incentive effects resulting from the design of the 2020 recovery rebate, which allows advance rebate amounts to be calculated on prior-year return information without full recapture.  See also: EIP Information Center–Topic J –Reconciling on Your 2020 Tax Return -You will not be required to pay back the $500 even if the child’s other parent claims $500 for the same child on his or her 2020 tax return.

What About the Parent who also Properly Claims the Child on a 2020 Return?
  • The 2020 transcript will reflect the payment of an EIP and thus his/her claim for a RRC on the 2020 Form 1040 will likely be denied.
  • If the refund is disallowed, file an appeal to the disallowance –Argue:
  • the CARES Act specifically designates each eligible taxpayer as entitled to $1200 [IRC 6428(a), (d)]
  • IRM Economic Impact Payments -Manual Adjustments.

No manual adjustments to the Economic Impact Payment are allowed at this time. This section will be updated once approved.

•Reminder: Taxpayers who received less payment than entitled to in 2020 can claim the difference, as the recovery rebate credit, on their 2020 tax return. See also IRM

Parent’s Other Option:

Initiate a Civil Matter in Small Claims Court

Small Claims Action -Basic Steps:

  1. File small claims action
  2. Service by personal service on defendant
  3. Pretrial conference
  4. Mediation (possible)
  5. Trial
  6. Judgment or Dismissal
  7. If judgment, defendant must complete fact information sheet (financial affidavit more or less)
  8. Judgment creditor may use lawful collection methods (garnishment, levy, or attachment)
  9. If garnishment, ex parte motion for continuing writ of garnishment
  10. Facially sufficient? Court grants writ of garnishment and its’s sent to employer or bank
  11. Employer or bank withholds pay/money pending court order
  12. Debtor must be served with claim of exemption and assert any exemptions expeditiously
  13. If debtor files claim of exemption, hearing on exemptions
  14. If successful, garnishment limited or stopped, funds unfrozen by bank or employer and remitted to debtor
  15. If not, final judgment of garnishment entered; garnishment occurs
Dependent Now An Adult

Info. Letters, IRS INFO 2020-0015 (Sept. 25, 2020) Generally, an individual’s eligibility for an EIP depends on the information reported on the individual’s 2019 tax return, or the 2018 return if he or she did not file a 2019 return. Therefore, if a taxpayer claimed an individual as a dependent for 2019, the individual dependent will not qualify for an EIP. If that individual no longer qualifies as another taxpayer’s dependent for the 2020 tax year, the individual must file a return for 2020 and claim the credit, if otherwise eligible. Taxpayer was claimed on another return. Our records show that for tax year YYYY you were claimed as a dependent on another tax return. Dependents are not eligible for the Economic Impact Payment (EIP). You should refer to the Recovery Rebate Credit on the 2020 tax return to determine eligibility for any amounts not received under the EIP. IRM

ID Theft of EIP -The IRS Says Taxpayer Received the Stimulus Check, but Taxpayer Didn’t
  • If you are claiming ID theft of your Economic Impact Payment (EIP), file Form 14039 with ‘EIP’ or ‘Stolen EIP’ notated on the topof the form. The IRS will complete EIP refund trace process.
  • A low income taxpayer represented posted that the ID Theft Unit rep said that the ID Theft Unit doesn’t currently have authority to adjust accounts to issue the EIP after determining that someone claimed as a dependent was the victim of ID theft, but that this may change.
  • IRM -No manual adjustments to the Economic Impact Payment are allowed at this time. This section will be updated once approved.
  • See also IRM and IRM
How Do I Request a Payment Trace to Track My EIP
  • To start a Payment trace: Call the IRS at 800-919-9835 or Mail or fax a completed Form 3911, Write “EIP” (or Stolen EIP) on the top of the form; Enter “2020” as the Tax Period.
  • If you were expecting a check, didn’t get one and the IRS determines the check was not cashed, the IRS will send you a replacement check.
  • If the refund check was cashed, the Bureau of the Fiscal Service (BFS), part of the U.S. Treasury Department, will send you a claim package that includes a copy of the cashed check. Follow the instructions. BFS will review your claim and the signature on the canceled check before determining whether they can issue you a replacement check.
  • ID Theft –Requesting an Identity Protection Pin (IP-PIN)
  • The IPPIN indicator doesn’t come on until the ID theft complaint is processed.
  • If you’re a confirmed identity theft victim, we will mail you an IP PIN on a CP01A Notice if your case is resolved prior to the start of the next filing season.
  • Opt-In, Online Get an IP PIN Service is unavailable until mid-January 2021.
  • Starting in 2021, you may voluntarily opt into the IP PIN program as a proactive way to protect yourself from tax-related identity theft.
  • No Computer Access: If your income is $72,000 or less and you can’t use the online tool, file Form 15227, Application for an Identity Protection Personal Identification Number (Available mid-January 2021).
Injured Spouse Allocation/Stimulus Payment
  • Automatic Catch-Up Stimulus PaymentsIRS News Release IR-2020-192, August 25, 2020.  We have discussed this issue on many occasions.  View our most recent post here.
  • IRM MFJ accounts that included an Injured Spouse claim with the original return will reflect the transactions on both the primary and secondary tax year 2020 modules. Both taxpayers will be credited with half of the total EIP. See also IRM, Indented paragraph.
EIP and Domestic Violence
  • A roadmap to delivering Economic Impact Payments/Rebate Recovery Credit to Victims of Domestic Violence is here.   
  • IRC §6428(e)(2) provides that “with respect to a joint return, half of such refund or credit shall be treated as having been made or allowed to each individual filing such return,” thus creating an individual property interestof each joint filer in his or her share of the credit.
  • The CARES Act contemplates overpayments of the EIP. IRC §6428(e)(1) provides: “The amount of credit which would (but for this paragraph) be allowable under this section shall be reduced (but not below zero) by the aggregate refunds and credits made or allowed to the taxpayer under subsection (f).” The IRS can utilize erroneous refund procedures under IRC §7405 to recoup the refund from the other spouse, if it desires.
  • The taxpayer should be able to file an original MFS return (or Head of Household return, if eligible) and receive her or his own EIP or RRC. In some instances, DVAA victims may already have filed superseding returns claiming that status.
  • Allow the DVAA victim to submit a simple affidavit, modelled after the Form 8857, Part II, questions 8 and 10, and Part V

Revisiting the IRS’s Erroneous EIP Guidance for Nonresident Aliens

We welcome first-time guest blogger Justin Schwegel. Justin is a Sarasota, Florida-based attorney. His academic interests include international economic justice, agricultural policy, and government integrity. Today Justin offers thoughts regarding economic impact payments to nonresident aliens. This issue and related administrative law considerations will be addressed in more depth in an article to be published in the CUNY Law Review’s Footnote Forum. When the link becomes available it will be linked here. Christine

On March 27, in response to the economic crisis caused by Covid-19, Congress passed bipartisan stimulus legislation that included enhanced unemployment benefits, relief for small businesses, financial support for state, local, and tribal governments, and a one-time stimulus payment for eligible individuals. On May 6, the IRS issued guidance on its Economic Impact Payment Information Center website instructing incarcerated individuals, nonresident aliens (even if they were resident aliens in 2019), and the family members of the deceased taxpayers that they should return economic impact payments they received from the IRS. This guidance is wrong, and has the potential to harm vulnerable migrant workers, some of whom will see a tax residency status change as a result of the global pandemic.

Following the recent success of incarcerated individuals in getting a permanent injunction enjoining the IRS from withholding their CARES Act Economic Impact Payments, it is worth revisiting similar erroneous guidance the IRS provided to another class of individuals, nonresident aliens. Nina Olson has already explained why the guidance is wrong with respect to the families of deceased taxpayers, and Patrick Thomas explored this topic briefly in May, but the issue warrants a deeper dive.

Most nonresident aliens who received economic impact payments in 2020 did so because based on 2018 or 2019 tax filings they were resident aliens, and consequently, “eligible individuals.” H-2A (nonimmigrant agricultural guest workers) and H-2B (nonimmigrant unskilled guest workers) visa holders who returned to their country of origin could be particularly impacted by the guidance. In 2019, there were almost 258,000 H-2A workers, while the H-2B program is capped at 66,000 annually.

Many H-2A employees list their labor camp as their address on their tax filings, while many H-2B employees list the residence they have while working in the United States. Both visa categories have many people who are unbanked. Consequently, for many H-2A and H-2B workers who were resident aliens in 2019, but not in 2020, payments were likely sent in the form of physical checks to either labor camps where the workers no longer live or to other housing that is no longer current and would have been returned as undeliverable. Requesting a new physical check from an administrative agency that believes you are not entitled to a payment, and asking that it be delivered to a different address is probably an insurmountable barrier for most aliens who have undergone a tax residency change.

IRS Guidance

The IRS guidance is inconsistent with past guidance and inconsistent with the statutory language of the CARES Act. On April 17, the IRS issued several Q and A responses on its Economic Impact Payment Information Center. Most interesting for the purpose of this post:

Q17. I received an additional $500 payment in 2020 for my qualifying child.  However, he just turned 17.  Will I have to pay back the $500 next year when I file my 2020 tax return?

A17. No, there is no provision in the law requiring repayment of a Payment…

This guidance was renumbered several times, but remained largely unchanged until August. On May 6, the IRS published guidance stating that incarcerated individuals, nonresident aliens, and relatives of deceased taxpayers should make repayment of a payment. This means that for months, the IRS had guidance on its Economic Impact Payment Information Center stating both that there “is no provision in the law requiring repayment of a payment” and advising three different categories of individuals that they should repay a payment.

On August 3, the IRS issued new guidance on repaying economic impact payments.

Q J3. I received an Economic Impact Payment. Do I need to pay back all or some of the Payment if, based on the information reported on my 2020 tax return, I don’t qualify for the amount that I already received??

A J3. No, there is no provision in the law that would require individuals who qualify for a Payment based on their 2018 or 2019 tax returns, to pay back all or part of the payment, if based on the information reported on their 2020 tax returns, they no longer qualify for that amount or would qualify for a lesser amount…

This modification seems aimed at allowing the IRS to distinguish between an individual who changes from an “eligible individual” to an “ineligible individual” between 2019 and 2020 and a filer who remains an “eligible individual” but no longer qualifies for a payment. The eligibility criteria are written negatively such that any individual who is not 1) a nonresident alien, 2) an individual who could be claimed as a dependent by another taxpayer or 3) an estate or trust, is an eligible individual so long as they also provide the requisite Social Security Numbers on their taxes. One can shift from being an eligible individual because they have died, changed tax residency status, or become a dependent. Not all eligible individuals qualify for payment. If an eligible individual (filing single) has an AGI that exceeds $99,000, they are an eligible individual, but do not qualify for the payment. Likewise an individual who has a dependent who turns 17 in 2020 no longer qualifies for the additional $500 payment they received as an advance payment in 2020. Answer J3 is couched exclusively in terms of qualifying for payment rather than status as an eligible individual. The IRS assures these individuals who simply no longer qualify for a payment that they need not worry about making repayment.

The new guidance would allow the IRS to maintain consistency when it seeks to require repayment from the families of deceased taxpayers and 2019 resident aliens who undergo a tax residency status change in 2020. This distinction cannot be supported by statutory text that clearly delineates the time at which eligibility criteria must be met, i.e. in 2019.

The IRS has not sought repayment from all individuals who have changed from eligible to ineligible between 2019 and 2020. Specifically, individuals who filed taxes independently in 2019, but can be claimed as a dependent in 2020 have not been instructed to return the 2019 payments. This predominantly includes elderly individuals who were eligible individuals based on 2018 or 2019 tax filings, but who can now be claimed as a dependent by e.g. their child. It also includes children between the ages of 19 and 24 who return to school in 2020.

This seems conspicuous, because the IRS is aware of this situation and addresses some questions regarding newly dependent adults on its Economic Impact Information Center. If the IRS’s position is that individuals who received advance refunds because they were eligible in 2019 must return them if they become ineligible in 2020, for consistency it must require adults who become dependents in 2020 to do so as well. Perhaps the IRS overlooked this category of individuals in instructions to return economic impact payments. It seems more likely that the Trump Administration was aware that such a move would be politically toxic.

Statutory text

IRS guidance notwithstanding, the plain language of the CARES Act makes it clear that if a person was a resident alien in 2019, they need not return payment just because their tax residency status changed in 2020.

Section 2101 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) added a new section to the tax code at 26 U.S.C. 6428 governing EIPs. This section created a refundable tax credit for the 2020 tax year called a “recovery rebate” and defined the eligibility criteria. Eligibility criteria were defined negatively, i.e. all classes of ineligible individuals were listed. An ineligible individual is any individual who in 2020 is a nonresident alien, an individual who could be claimed as a dependent, and an estate or trust. Individuals must also file their taxes with a social security number, their spouse’s social security number if filing jointly, and their child’s social security number if claiming a dependent child.

26 U.S.C. 6428 also created an “advance refund” with eligibility criteria identical to the eligibility criteria for the 2020 recovery rebate in all ways except timing. If an individual was an eligible individual in 2019 the individual is eligible for an an advance refund so long as they are not excluded by the limitation based on adjusted gross income. Those who were eligible individuals in 2019 are treated as having made an income tax payment “in an amount equal to the advance refund amount for such taxable year.” Consequently, the advance refund functions as a refund of an overpayment of 2019 taxes. 26 U.S.C. 6428(e) coordinates the advance refund with the 2020 recovery rebate so that the 2020 rebate is reduced, but not below zero, by the amount of the advance refund.

Most H-2A and H-2B guest workers are required to file taxes as resident aliens under the arcane substantial presence test outlined in publication 519, though the terms of relevant bilateral tax treaties control and can be difficult for workers to navigate.  These workers are also eligible to receive social security numbers. These workers are eligible to receive social security numbers and many do have them. It is risible that the IRS asked 2019 resident aliens who received an economic impact payment to guess at the beginning of May, during an unprecedented global pandemic, whether over the next eight months they would meet the complicated substantial presence test, and return the payment if not.

With the exception of a few foreign nationals who filed their income taxes incorrectly, economic impact payments made to aliens were made because they were eligible based on 2018 or 2019 tax filings. There is no provision in the CARES Act that requires an individual to repay an economic impact payment made under the CARES Act. Indeed, the advance refunds function as a reimbursement of overpayment of 2019 taxes. It is bizarre that the IRS has asked individuals who, in effect, received a refund for overpayment of 2019 taxes to return the refund with no rational explanation why.

Conclusion and Beginning of EIP Litigation Regarding Incarcerated Individuals

We reported here, here and here on the swift and resounding victory for incarcerated individuals in the United States.  Though the reason the IRS reversed itself and took the position that incarcerated individuals were ineligible for the stimulus payments remains a mystery, the litigation regarding these individuals came to a quiet close on December 11, 2020, when the 9th Circuit filed the Government’s unopposed motion for voluntary dismissal of its appeal.  The docket text in the 9th Circuit states that “The appeal is dismissed with prejudice.  See Fed. R. App. P. 42(b).  This order served on the district court shall act as and for the mandate of this court.”  Thus closing the chapter on the ability of incarcerated individuals to receive the stimulus payments.  That does not mean that all has gone or will go smoothly regarding the delivery of those payments.  The passage of those payments through state and federal efforts by prison authorities to take them and use them before they reach the incarcerated individuals is a story still unfolding.

Meanwhile, the success of the Scholl case in the United States proper has generated litigation regarding the impact of this litigation on those incarcerated in territories.  Joe DiRizzo has taken up the mantle to pursue assistance for individuals incarcerated in the Virgin Islands.  His pleadings in the case are attached here, here, an here. See the government opposition here.

For those of us living in the United States proper it’s easy to forget the impact of our tax code on territories of the United States.  Reading through the pleadings provides a window into the mirror laws that exist and how tax changes impact the territories.  The story is only at its beginning for incarcerated individuals in the territories but perhaps the victory that started in San Francisco will play out in US territories across the world.

Another Look at 7508A(d) – Impact on Tax Court Jurisdiction

I wrote a post in April asking what does IRC 7508A(d) do. The section seeks to provide an automatic extension of the time to perform certain tax actions so that taxpayers did not have to wait and worry during the early days after a disaster. It was added to the code in late 2019 with little fanfare. When added to the code, no one considered a disaster such as the current pandemic. Based on the language of IRC 7508A(d) and the language of the potential triggering events, the possibility exists of an extension of time to perform certain tax actions not contemplated by the writers of the new provision and not yet acknowledged by the IRS. In April the post simply speculated on what IRC 7508A(d) might mean. A jurisdictional fight in the Tax Court will now test the section.


The IRS Pronouncement

On November 18, 2020, the IRS announced interim guidance acknowledging the passage of 7508A(d) almost a year earlier. The announcement indicates a goal to place guidance in the IRM within the next two years. While it recognizes that the new statutory provision creates a mandatory 60-day period for relief from certain actions, it does not get specific about the application of 7508A(d) to any particular disaster. It makes no mention of how 7508A(d) might apply to the pandemic. Rather than answering questions regarding the IRS views of the applicability of the legislation, the guidance provides a heads up to IRS employees and leadership that the legislation occurred and must be addressed at some point.

The Tax Court Petition

In contrast to the high level acknowledgment of the existence of 7508A(d) in the interim guidance memo, on November 19, 2020 taxpayers who filed their petition late, under the ordinary definition of late, have filed a brief seeking to have the Tax Court acknowledge that the application of 7508A(d) renders their petition timely because of the extension provided when disaster, in this case the pandemic, strikes.

In the case of Lowe v. Commissioner, Dk. No. 4629-20, the petition was filed on March 9, 2020, the week the US seemed to recognize the threat of the pandemic and life as we previously knew it changed dramatically. Petitioner received a notice of deficiency dated December 2, 2019. The notice removed her self-employment income and as a consequence disallowed part of her earned income tax credit. Because of the potential benefits of the earned income tax credit, the IRS sometimes finds itself in the seemingly odd position of taking the stance that a taxpayer has not received earned income reported on a return since reporting earned income in certain situations can provide a net benefit due to the interplay of the credit and the applicable taxes.

Having received the notice of deficiency on December 2, 2019, Ms. Lowe had 90 days to file a Tax Court petition, which would have been Sunday, March 1, and because the 90th day fell on a Sunday, she had until Monday, March 2, to mail or deliver the petition to the Tax Court. Unfortunate for her but fortunately for blog writers and other followers of tax procedure, she mailed her petition on March 3, one day too late for the timely mailing provisions to protect her filing. The IRS duly filed a motion to dismiss the case for lack of jurisdiction. In response to that motion, Ms. Lowe stated that with young children at home and with the pandemic she was hesitant to meet with her tax preparer and to enter the post office to mail her petition.

The case is assigned to Judge Marshall who is one of two new judges sworn in late this summer. While new to the bench, Judge Marshall has plenty of experience at the Tax Court having served as Counsel to the Chief Judge prior to her appointment.

Prior to the passage of 7508A(d) Ms. Lowe’s concerns about the pandemic would not have assisted her because of the timing of her filing of the petition vis a vis the timing of the closure of the Tax Court clerk’s office and the timing of the IRS shutdown and issuance of postponements by the IRS and Treasury. While we have written several posts on the impact of closures caused by the pandemic, two posts, here and here, most closely relate to Ms. Lowe’s situation. These posts discuss the extended time to file Tax Court petitions. In the spring of 2020, two separate provisions assisted taxpayers with petitions sue. First, the clerk’s office of the Tax Court closed on March 19. This triggered the application of Guralnik. Second, the IRS used its discretion under IRC 7508A(a) on April 9, 2020, when it issued Notice 2020-23 exercising that power and stating that any Tax Court petition due between April 1, 2020 and July 15 2020 was due on July 15, 2020. Of course, both the Tax Court closure triggering Guralnik and the IRS announcement exercising its power under 7508A(a) come just a little bit too late to help Ms. Lowe and that’s where 7508A(d) potentially fills the gap.

Congress added 7508A(d) at the end of 2019 by putting it onto an appropriations bill. As discussed in our prior post on this subsection, it went unnoticed. The Congressional intent in passing 7508A(d) was to create a time period at the beginning of a disaster when taxpayers would receive relief without having to wait for the IRS pronunciation, wondering when relief might start and which obligations might be extended. Under subsection (d) the triggering event occurs automatically on the earliest incident date specified in the Stafford Act disaster declaration.

Ms. Lowe lives in New Jersey. President Trump declared the State of New Jersey a disaster area “beginning on January 20, 2020.” According to Ms. Lowe, triggered by this declaration residents of New Jersey get a 60-day extension to perform certain actions, including filing a petition in Tax Court. If she is correct about the operation of 7508A(d) in her situation, Ms. Lowe’s petition to the Tax Court changes from untimely to timely.

In its motion to dismiss the IRS failed to mention 7508A and how it impacted the timeliness of the petition. Now that it has been brought to their attention, perhaps the IRS will withdraw its motion and agree with Ms. Lowe that the operation of 7508A(d) did extend her time to file her Tax Court petition. Of course, even if the IRS withdraws its motion in acknowledgment of the statute, the Tax Court will still want to make its own jurisdictional determination since the IRS cannot confer jurisdiction on the court by withdrawing its objection.

As discussed in our prior post, the situation presents an unusual application of the statute because no one anticipated a nationwide disaster at the time of writing the statute. The brief filed by the Villanova clinic does an excellent job of explaining the statute and why, in this circumstance, the Tax Court has jurisdiction over Ms. Lowe’s case. There is no room in this post to cover all of the arguments made in the brief explaining the operation of 7508A(d). I will briefly mention a few of the important concepts.

Disaster Area

In deciding the scope of relief the covered area presents the first issue. The brief describes the use of this term in the statute:

Subsection (d) references the term “disaster area” twice: in defining who qualifies for the mandatory postponement, and in defining the length of the postponement period. The term “disaster area” is itself defined by reference to section 165(i) (5). Under that provision, a disaster area is an area “determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.”

There are two types of Stafford Act declarations, which the statutory language does not appear to distinguish: emergency declarations under Title V of the Stafford Act, and major disaster declarations under Title IV. (The ABA Tax Section noted some concern about this ambiguity in an April 3, 2020 comment letter.)

Sometimes an emergency declaration and a disaster declaration will both be issued. The two declarations may have the same incident date (e.g. these Hurricane Sally emergency and disaster declarations), but the Stafford Act does not require it. In the case of the Covid-19 pandemic, there is a national emergency declaration which does not contain an incident date, and there are major disaster declarations for each state and territory which contain the beginning incident date of January 20.

While the statute does not distinguish between the two types of Stafford declarations, it is helpful that the Stafford Act is specified. Various other declarations and proclamations relating to the pandemic have been issued in addition to the Stafford Act declarations.

Postponement Period

Subsection 7508A(d) references a 60 day extension but the period can be long. Tom Greenaway discussed this aspect of the statute in an earlier post. The brief states:

The period to be disregarded begins “on the earliest incident date specified in the declaration to which the disaster area … relates” and ends on “the date which is 60 days after the latest incident date so specified.” Neither section 7508A nor section 165 provide a definition of “incident date” or “declaration”.

The period of postponement created by 7508A(d) is where the statute and the pandemic cause many to pause. While some disagreement might exist concerning the starting point for the extension period, the starting point is easy to identify compared to the end point in the case of a disaster such as a pandemic. FEMA often amends disaster declarations later to provide for a closing incident date. (E.g. see the first amendment to the disaster declaration for Hurricane Sally in Florida.) Currently, all of the covid-19 disaster declarations state that the disaster incident period is “beginning on January 20, 2020 and continuing.” Eventually these declarations will hopefully be amended to close the indecent period, but when this will happen is unknown. While we all hope that the coming vaccines will allow the pandemic to come to a relatively swift conclusion, not even Dr. Fauci knows exactly when the pandemic will end. By comparison a national emergency was declared on September 11, 2001 that is still in effect.

Qualified Taxpayers

Six ways exist for a taxpayer to qualify as having a connection with the disaster area including individuals whose principal residence is located in the disaster area. This is a relatively detailed and straightforward part of subsection (d) and it does not seem likely to be disputed in this case.

Mandatory Postponement for Qualified Taxpayers

This is another tricky spot. The statute provides that for qualified taxpayers the postponement period “shall be disregarded in the same manner as a period specified under 7508A(a)”; however, 7508A(d) does not otherwise specify which time sensitive acts are postponed (other than for pensions) nor does it provide any more detail on the triggering of the postponement period.

Ms. Lowe argues that subsection (d) automatically postpones her petition deadline because it automatically postpones all of the time-sensitive acts listed under subsection (a)(1)-(3). This is a broad list and the government may balk at the postponing of so many obligations for a currently unknown length of time. However, the statute provides no means for a Court to pick and choose between the acts listed in subsection (a). Despite its seemingly broad impact, Ms. Lowe argues that subsection (d) means what it says and that Congress meant business in providing mandatory and automatic relief to taxpayers in disaster areas.


The brief goes into much more detail that a blog post can. This case will be interesting to watch because of the significant implications it has for others who may have filed late during the period after the disaster began and because of other time periods that might be impacted by 7508A(d). I understand there is at least one other case making these arguments regarding a petition that was otherwise filed late in early March 2020. We welcome comments and information about further cases to which the suspension may apply.