Refund Suits, Divisible Taxes and Flora: When is a representative payment representative enough? Part 2

This is the second post by guest blogger Rachael Rubenstein.  Today’s post is co-authored with clinic student, Andre Anziani, regarding the clinic’s significant victory in the Kaplan case.  In this segment, they specifically discusses the amount of the refund necessary to satisfy the Flora test in a Trust Fund Recovery Penalty (TFRP) case.  Refer here to her prior post on Kaplan.

Before we turn back to the specifics of the jurisdictional challenge in the case, a bit of background on section 6672 and the development of the Flora divisible tax exception are helpful.  Congress designed section 6672 to impose civil penalties against persons whom the Service determines have failed as employers to perform their employment tax (FICA and Federal income tax) withholding and/or remitting obligations.  Section 6672 allows the Service to pierce through the entity veil and asses the tax penalty directly against individuals responsible for the entity’s failure to pay.  The amount is equal to one hundred percent of all employee portions of unpaid FICA and Federal income taxes not provided to the government as required by I.R.C. §§ 3102, 3402(a).  In order to be found personally liable for a company’s failure to pay employment taxes under section 6672, a party must be found 1) responsible, and 2) willful.  Questions of responsibility and willfulness are fact intensive investigations with many factors developed through decades of case law to consider, such as: day-to-day management authority, check signing authority, and responsibility for hiring employees, and control over disbursement of payroll.  Many taxpayers and their representatives believe that section 6672 penalties are over assessed at the agency level because examiners don’t have adequate time and training to really conduct an intensive fact and law analysis of a potentially liable taxpayer.  Additionally, courts vary a great deal in their interpretations of how the factors apply to any given set of facts in the cases before them.  Arguably, recognition of the complexity involved in assessing and challenging section 6672 penalties played a role in shaping the exception to the Flora full payment rule, along with the uniform characterization of section 6672 assessments as divisible taxes.

In the past several decades, the government seldom contested modest representative payments, such as Kaplan’s, because of the development of the divisible tax exception in tax refund suits.  The first major cases that carved out this exception to Flora were Steele v. United States and Boynton v. United States.  Steele, a case from the Eighth Circuit, was decided in 1960, the same year as Flora; it held that “the full-payment rule is not applicable to an assessment of divisible taxes.”  Steele, 280 F.2d at 90.  The court determined that the plaintiff was entitled to make a payment applicable to the withholding of any individual employee to make a claim for a refund.  Id. at 90.  In 1977, the Ninth Circuit ruled in Boynton that a taxpayer’s refund suit is proper when the plaintiff pays the assessment fully or pays a properly divisible portion of the assessment.  Boynton, 566 F.2d at 56-57.  The Boynton court reasoned that a section 6672 assessment represents a cumulation of separate employee assessments.  Thus, a plaintiff may pay a portion of the withholding taxes attributed to a single employee to form the basis of a refund suit.  Id. at 52.  Since these cases, the majority of appellate circuits have followed suit.  Indeed, a shorthand practice of paying a representative figure such as $100–$200 towards the penalty assessment along with an administrative claim for refund developed as a means to get taxpayers into court expeditiously in order to challenge their liability under section 6672.

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Kaplan was assessed the penalties due to his involvement in a San Antonio, Texas restaurant.  The restaurant opened in 2007, just as the great recession hit.  Needless to say, the IRS never received any employment tax payments.  Kaplan was an investor in the restaurant and owned a minority ownership interest in the entity that operated the restaurant.  As such, he did not have access to employee records, except for one wage report from the state that detailed each restaurant employee’s cumulative wages for the last quarter in 2008; a quarter which was not part of his assessment.  In order to contest his ultimate liability for the penalties, he decided to utilize the common practice of paying a modest representative amount along with an administrative claim for refund.  Based on the records he had, and his knowledge of the generally low wages paid in the industry, $100 payments seemed reasonable and appropriate to cover the withholding taxes for, at least, one employee for each of the three quarters.  Nonetheless, Kaplan and counsel diligently tried to obtain additional employee records, even after filing the suit for refund. These attempts yielded very little new evidence, except payroll records for one week in the third quarter of 2008.

Over a year after Kaplan’s complaint was brought, and less than two months before trial was set, the government challenged the sufficiency of the payments in a motion to dismiss for lack of subject matter jurisdiction.  This motion was initially successful.  Judge Wheeler’s first opinion in the case, on October 9, 2013, dismissed Kaplan’s case for lack of jurisdiction; ruling that he could not carry his burden of showing , by a preponderance of the evidence, that his payments equaled a sufficient amount of divisible tax attributable to one employee for each of the assessed quarters.  Kaplan filed a motion for reconsideration, which was granted.  The court vacated its first opinion and held that denial of jurisdiction in the case was manifestly unjust.

The reason for the change lies in the “competing evidentiary burdens imposed by the jurisdictional and liability standards in this type of divisible tax refund suit.”  Kaplan, like most plaintiffs in 6672 cases, contests the Service’s determination that he was a “responsible person” who had a legal duty to withhold/remit employee payroll taxes for the company.  However, in order to establish subject matter jurisdiction for the refund suit, Kaplan must prove by a preponderance of the evidence that he has paid the assessed tax for at least one employee.  Kaplan’s central argument in his motion for reconsideration was that the court’s dismissal of his case effectively concluded that he was a “responsible person” with a duty to maintain employee tax records before he had the opportunity to present the merits of his case. In granting the motion, the court acknowledged the “evidentiary Catch-22” Kaplan was caught in, assuming he was truly not responsible under section 6672.

In his motion for reconsideration, Kaplan offered further support for the sufficiency of his $100 payments by citing IRM section 8.25.1.7.4.2, which states that “[i]f the amount required cannot be accurately determined, the Service may accept a representative amount.”  The last paragraph of the court’s revised opinion concluded, “[i]n the end, the merits of this case will turn on whether Mr. Kaplan is liable for the full [amount of the assessed] penalt[ies], and the divisible amount at issue is merely representative of that full amount . . . Under the circumstances of this case, the Court is not inclined to prevent Mr. Kaplan from challenging that full assessment in this forum simply because the representative amount he paid might not be representative enough.”  We gratefully acknowledge Larry Jones and Jack Townsend for pointing out this IRM citation, which we read on Townsend’s Federal Tax Procedure blog while researching the motion.

Rather than eagerly announce that there is now a new jurisdictional rule in section 6672 cases, we think it’s important to note that there were some unique circumstances in this case that, perhaps, prevent broad application of the decision.  First, we were able to recount for the court in detail (along with evidentiary exhibits), the diligent (but futile) search made for employee records.  Second, the government was unable to produce any records to show what minimum payments would be sufficient.  Third, the government had already tried, unsuccessfully, to deprive Kaplan of his choice of forum by filing its own suit in the Western District of Texas to litigate the issue of liability under section 6672.

That said, we do believe this case is important because, as Professor Townsend observed, “it is a further holding in a line of cases [involving the question of section 6672] responsibly, [which] mitigate[s] the full bore and inequitable application of the Flora rule.”  After all, the Tax Court does not have jurisdiction over these types of assessments, so the deficiency procedures that allow taxpayers to challenge first and pay later are unavailable.  Thus, the real purpose of the refund suit in section 6672 cases isn’t for taxpayers to get back their divisible tax payment(s), but rather to permit them a “day in court” to challenge their underlying liability for the Trust Fund Recover Penalty assessments.  When viewed in this context, Judge Wheeler’s decision is a huge victory, not only for Mr. Kaplan, but also other taxpayers who may lack employee records but still want the opportunity to contest the penalty assessments without the harshness of the Flora rule standing in their way.

We would like to further acknowledge and thank the tax pros who offered their support, and technical expertise to the tax clinic program at different stages of the case: Farley Katz and Elizabeth Copeland from Strasburger & Price, LLP; as well as Charles Ruchelman, Peter Lowry, and Travis Greaves from Caplin & Drysdale.

 

Refund Suits, Divisible Taxes and Flora: When is a representative payment representative enough? Part 1

Today we hear from Guest Blogger Rachael Rubenstein, and her former student, Paul Downey.  Paul is completing his Tax LLM at Southern Methodist University.  Rachael supervises the low income taxpayer clinic at St. Mary’s University School of Law in San Antonio, Texas.  She, along with clinic students, litigated a trust fund recovery case that captured much attention last fall (see our coverage of Kaplan and Jack Townsend’s blog post about the case) when the Court of Federal Claims dismissed the case for lack of jurisdiction after the clinic followed what was previously assumed to be a well-worn path to jurisdiction in such cases.  They write here about the reversal of last year’s decision and the importance of the reversal.  The case has two distinct and important aspects.  Because of that, we are breaking her post into two segments.  Today’s segment will address the IRC 6331(i) issue.  This Code provision generally prohibits the government from filing suit against a taxpayer for unpaid divisible taxes (assessed under IRC 6672) when the taxpayer first files a refund suit for recovery of any portion of the taxes paid.  The statute permits injunctive relief for taxpayers against these collection activities, but it also identifies exceptions to the prohibition against later filed suits.  Although the IRC 6331(i) dispute and result in Kaplan are not ground breaking, it is an important procedural issue we have not previously discussed.  In the second post, coming out tomorrow, Rachael will address the amount an alleged responsible officer must pay to litigate the correctness of that determination.  In addition to supervising the low income tax clinic program at St. Mary’s, Rachael has agreed to co-author the chapter on Identity Theft coming out in the next edition of Effectively Representing Your Client before the IRS.  My comments are in italics.

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On January 27, 2014, in Kaplan v. United States, Judge Wheeler of the United States Court of Federal Claims made a significant jurisdictional decision in favor of a plaintiff taxpayer in a refund suit.  The issue decided was whether Mr. Kaplan’s three $100 payments towards the Trust Fund Recovery Penalties (TFRPs) assessed against him under section 6672 were sufficient amounts to confer jurisdiction on the court to determine Kaplan’s ultimate liability for the penalties.  The court ultimately accepted the three $100 payments as sufficient to establish subject matter jurisdiction but the decision did not come easy.  In August of 2013, the government filed a motion to dismiss Mr. Kaplan’s complaint, arguing that his $100 payments did not satisfy the jurisdictional requirement that he “pay the entire assessment for at least one employee per quarter.”   The government cited to Flora as authority while also acknowledging that “a number of courts have held that the full-payment rule is a divisible tax, and requires a taxpayer to pay only the amount of the penalty attributable to one employee before bringing a refund suit.” 

This attempt to deprive plaintiff of his choice of forum using Flora as authority was unusual and probably stemmed from the government’s earlier failure to get rid of Kaplan’s case in the Court of Federal Claims.  Before the government filed an answer, to Kaplan’s complaint, it moved to suspend the proceedings and simultaneously filed a separate lawsuit against Kaplan and another defendant in the Western District of Texas to reduce their TFRP assessments to judgments.  Kaplan sought an injunction against the government’s suit in Texas under section 6331(i).  For strategic reasons involving precedent, Kaplan purposefully exercised his right to file suit in the Court of Federal Claims, not the Western District of Texas.  The government was clearly not happy with plaintiff’s “forum shopping.”  Regardless, Kaplan argued that taxpayers have every right to exercise their choice of forum for refund suit litigation.  Moreover in the past few years, several trial courts, including the Court of Federal Claims, held that section 6631(i) prohibits these later filed government suits for the same taxes at issue; although no appellate circuit has yet ruled on the issue.  This venue dispute was briefed extensively and the case was temporarily stayed in both federal courts pending the outcome of Beard v. United States— a 6331(i) case that the government appealed to the Federal Circuit  after the Court of Federal Claims enjoined the government from maintaining its later filed suit.  The Federal Circuit never ruled on the 6331(i) issue because the Beard case settled after oral argument but before a decision was rendered.  In Kaplan the government ultimately conceded the issue and agreed to dismiss the case in Taxas and permit the Court of Federal Claims suit to move forward. While no longer an issue in Kaplan, section 6331(i) is likely to resurface in future cases.  I am working on a journal article with a colleague, Paul Downey, that explores the purpose of Congress’ addition of 6331(i) in the IRS Restructuring and Reform Act of 1998, and the tricky issues surrounding this powerful code provision.

[Keith comment’s]  The 6331(i) argument fascinated me because Chris Sterner and I made the suggestion that led to this provision in RRA 98.  In 1997 I was asked by the National Office to suggest changes to the Code that the IRS could offer in the collection area to benefit taxpayers.  I enlisted Chris, who also worked in the Richmond office at that time, to assist in the project because of his knowledge.  We looked for things similar to the provisions in Taxpayer Bill of Rights I and II that codified IRS practices beneficial to taxpayers.  The practice of the IRS was to hold off on collection of trust fund recovery penalty if a taxpayer sought to dispute the liability in court.  Because of that practice and the parallel between that practice and the deficiency procedures, we proposed codifying the practice of holding off in collection in trust fund recovery penalty cases along with over 20 other changes.  Several of our suggestions made it into the statue in some form.  Because I do almost no trust fund recovery penalty work in the low income taxpayer clinic, I had not followed this issue prior to reading Rachael’s submission.

The complete language of the statute can be reached through the link above.  The critical language of the statute for this discussion is in IRC 6331(4)(A) which provides that “No proceeding in court for the collection of any unpaid tax to which paragraph (1) applies shall be begun by the Secretary during the pendency of a proceeding under such paragraph.”  The goal of IRC 6331(i) was to keep the IRS from collecting while the TFRP case moved forward.  Taxpayers challenging this assessment have the possibility of winning their case and eliminating the need for collection action.  Collection action while the litigation ensues could significantly damage the taxpayer in a way that the subsequent return of the funds would not set straight.  The Kaplan case, like others before it, involved an indirect attempt to pursue collection.  The IRS did not seek to collect money from him but rather brought a suit to reduce the assessment to judgment.  The question presented is whether such a suit violates the language of the statute – which it clearly seems to do – and the purpose of the statute – which it does not so clearly do.  The IRS argued that the suit did not seek to actually collect anything and, therefore, should not be enjoined. 

The IRC 6331(i) issue arises here, in part, because of the rules of the Court of Federal Claims that do not allow the IRS to bring third parties into the litigation.  In district court cases involving the trust fund recovery penalty, the IRS counterclaims against the taxpayer bring the suit for any unpaid balance on the penalty and brings third party complaints against all of the other individuals or entities assessed the penalty for the same period(s).  Since the IRS could not bring third party complaints in the Court of Federal Claims, it sought to bring the litigation against all responsible parties in the district court in the Western District of Texas.  In such a suit the IRS could join all potentially responsible persons in the same case and sit back and watch them point fingers at each other.  In the Court of Federal Claims the case would just be the IRS against one of the potentially responsible persons.  Other reasons for choosing the Court of Federal Claims over the local district court may also have existed for Rachael’s taxpayer and other reasons have motivated the Government to try this same forum shopping technique in courts other than the Court of Federal Claims.  The benefits sufficiently concerned the Department of Justice that it went and filed affirmative litigation in the Western District of Texas seeking to effectively move the litigation of this issue from Washington, D.C. to Texas.

In the Beard case the Court of Federal Claims addressed the same tactic involving the same district.  The proposed responsible officer in Beard filed suit in the Court of Federal Claims on August 25, 2010.  After answering the case on December 27, 2010, and filing a counterclaim for the unpaid balance, the Government filed a suit to reduce the assessment to judgment in the Western District of Texas on January 11, 2011.  The Department of Justice filed a motion to suspend the Court of Claims case pending the outcome of the proceeding in Texas and the Beards opposed the motion seeking an injunction against the Texas litigation pursuant to IRC 6331(i)(4)(A)&(B).  The Court of Federal Claims enjoined the Texas litigation after carefully analyzing the language of the statute.  An effort to seek an interlocutory appeal of this issue failed.  101 Fed. Cl. 100 (Sept. 7, 2011), aff’d, 451 Fed. Appx. 920 (Nov. 3, 2011).

The result in Beard was duplicated in Kaplan.  Several other cases deciding this issue are captured in language from Thomas v. United States, 2012 WL 10235746 (W.D. Wis. 2012):

“More recently, however, courts routinely have denied motions to stay and enjoined later-filed collection actions pursuant to 26 U.S.C. § 6331(i). See, e.g., Beard v. United States, 99 Fed. Cl. 147 (Fed.Cl.2011) (providing extensive discussion of the statutory language and legislative history in finding that the government’s later-filed action to determine TFRP liability was a “collection action” under 26 U.S.C. § 6331(i) and enjoining the government’s action); Nickell v. United States,  No. 4:08CV319, 2009 WL 2031915 (E.D.Tex. Apr. 2, 2009); Conway v. United States, No. 4:04CV201, 2009 WL 2031856 (E.D.Tex. Mar. 26, 2009); Rineer v. United States,  79 Fed. Cl. 765 (Fed.Cl.2007); Swinford v. United States,  No. 5:05CV–234–R, 2007 WL 496376 (W.D.Ky. Feb. 9, 2007), vacated on other grounds, 2008 WL 4682273 (W.D.Ky. Jun. 20, 2008); cf. Kennedy v. United States,  95 Fed. Cl. 197, 206–07 (Fed.Cl.2010) (declining to enjoin collection action as to one tax period where that action covered seventeen tax periods and was already underway).”

While the 6331(i) decision in Kaplan is not novel and it was conceded by the Government, it is an important issue to follow if the IRS continues the practice of seeking to move venue in trust fund litigation by seeking to bring suits to reduce the liability to judgment in a venue viewed by it as more favorable than the forum choice made by the taxpayer. If the concession here means the IRS has dropped the effort to seek an alternate forum in cases of this type, it is also important to know that the issue will no longer exist.  Stay tuned for Rachael and Paul’s article on this subject.

Summary Opinions for 1/31/2014

It is a bit light this week (and not as entertaining, but very informative).  Here is this week’s summary of procedure items we found interesting.

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  • In unsurprising news of the week, the Service has reported that non-taxable gifts in 2012 quadrupled compared to 2010 and 2011.  Those were the three years where the gift tax exemption amount was over $5MM, and there was the potential for it to fall back to $1MM in 2013.  I wonder what the difference was from 2008 or 2009 to 2012.  I would guess a bit over a four times multiplier.
  • Jack Townsend’s Federal Tax Procedure blog has good coverage of a revised opinion in Kaplan v. United States.  In the initial opinion, the Court dismissed the claim for lack of jurisdiction, holding that there was not proof of full payment of one employee’s employment taxes, which was required under Flora.  The employer had estimated that $100 was sufficient for one employee for one quarter.  There was a bit of a hubbub surrounding the decision, as it did not seem fair.  Jack’s post reprints a portion of the revised opinion, which lays out the issue well.  This seems like a better result.  There is a chance that we will provide a larger post on this, more fully discussing the issue and the implications later this week.
  • Sticking with Mr. Townsend, but this time from his Federal Tax Crimes blog, a post on the IRS documents calculating the statute of limitations for U.S. taxpayers within the scope of the IRS John Doe Summons for UBS records.  The IRS documents look to Section 7609(e)(2) for the suspension.  Jack highlights that this applies to both civil and criminal proceedings.
  • Newsweek is in on coverage regarding tax whistleblowers; mostly a news article with a few interesting statistics.  If this is a topic you are interested in, you should listen to panel one of the Villanova Shachovy symposium, which can be found here.  Great panel, especially Dean Zerbe, who is a practitioner in this area.  He gave great insight, and was very entertaining. Some of his strategic pointers in handling a case would apply to other whistleblower programs, and we’ve incorporated a few of his minor comments into other (non-IRS) whistleblower cases we are handling.
  • I found U.S. v. Evseroff, 00-cv-06029, out of the Southern District of NY interesting.  This case has been kicking around for a long time, but of interest was that the Service erroneously removed its liens on Mr. Evseroff’s property, and told his accountant the liens were removed.  The Service realized its error, and reinstated its liens.  Mr. Evseroff argued that the Service had not properly reinstated the liens, and was not entitled to collect from him.  The Court found that Section 6325(f) allows the Service to reinstate its lien if the Secretary determines the release “was issued erroneously or improvidently” (that is the only use of the term “improvidently” I could find in the Code).  The Court also held that the reinstated lien has the “same effect” as the original lien.  This was a quote from a prior case, which I did not read, but I found that language somewhat confusing, as “same effect” initially made me think same priority.  Had the collection period run, this would have been a more interesting case, because the Service may have been precluded from rerecording.  It also would have been more interesting if Mr. Evseroff had secured other debt with the property prior to the IRS reinstating its lien, or prior to the lien being released.
  • Rev. Proc. 2014-15 was issued updating the circumstances in which adequate disclosure has occurred on a return.  The IRS link to the Rev. Proc. is not working, but this link to KPMG has a link to the IRB page.  The changes are fairly minor. Rev. Proc. 2012-51 is still the main guidance on adequate disclosure for Section 6662(d), the substantial understatement accuracy related penalty.
  • Bergmann v. Comm’r involved an appeal of a decision by the Tax Court holding that a taxpayers’  amended return for 2001 was not a qualified amended return (QAR) under Treasury Regulation § 1.6664-2(c)(3)(ii). Those rules allow a return that qualifies as a QAR to be the relevant return in determining whether accuracy related penalties apply. The taxpayers had timely filed their original tax return, claiming ordinary and long-term capital losses for two loss generating shelter transactions. After the original return was filed, IRS served two summonses on KPMG for its role in promoting loss-generating shelter transactions reported on the original return. After KPMG gave the IRS a list of shelter participants (including the taxpayer Bergmanns), the taxpayers filed an amended return for 2001 removing all the previously-claimed losses and reporting and paying over $200,000 in taxes. The 9th Circuit affirmed the Tax Court and held that under Regulation § 1.6664-2(c)(3)(ii) the IRS summonses to KPMG prior to the filing of an amended return was an event terminating the Bergmanns’ ability to file a QAR.  The Miller & Chevalier Tax Appellate Blog has more on this case.

 

 

Summary Opinions for 01/17/2014

Summary Opinions is very late this week due to my various day jobs and the shoveling of snow.  We covered a few big items last week, and here are a few others that we thought deserved a few words.

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  • First, United States v. Clarke was granted cert by SCOTUS to  determine if taxpayers have a right to a hearing when a taxpayer alleges a summons was issued for an improper purpose.  We’ve mentioned this case a few times, and are glad this will be reviewed.  The incomparable Jack Townsend covered this issue very well on his Federal Tax Procedure Blog back in December.
  • Jack Townsend also covered another Clark case this week, where the Court of Federal Claims held the taxpayer failed to show full payment under Flora, so it lacked jurisdiction.  What makes it interesting is that the Court transferred the case to the Tax Court for prepayment review, because the taxpayer had filed within the ninety days allowing for Tax Court review.  Not something you see every day.
  • The Tax Court had a holding regarding captive insurance companies – something that is actively discussed a lot lately by planners and I had heard was under heavier audit review lately.  In Rent A Center, Inc. v. Comm’r, the Tax Court held that the wholly owned captive life insurance company of the parent, Rent A Center, was not a sham and was created for non-tax reasons.  There are lengthy discussions regarding the funding levels and the insurable risks in the case.
  • I found this link through Joe Kristan’s Roth & Co. blog, which is the Tax Foundations advice to same sex couples this tax filing season.  The post includes a link to how each state is handling the issue.
  • Mr. Beanie Baby gets probation.  Damn.   Money can’t buy you happiness…but he is probably happy all that money bought his way out of jail time for that $100 million plus hidden offshore account.  Last fall, Villanova hosted the 2013 Norman J. Shachovy Symposium, reviewing pressing issues in US Tax Administration.  The third panel that day discussed criminal sentencing guidelines, specifically the fairness of them and the deterrent value.  You can hear the panel discussion at the above link, where the panel does somewhat discuss how wealth can impact sentencing.  I suspect a future panel on this topic would include this case.
  • Here is a brief article from Bryan Cave, LLP about the United States v. Doe holding from the Fifth Amendment that we touched on before in SumOp.  Doe dealt with a taxpayer claiming Fifth Amendment privilege on a subpoena for foreign bank records, with the Court holding the required records doctrine trumped the privilege.
  • Here is a post from IRS Medic discussing the IRS Offer in Compromise Pre-Qualifier calculator. As Anthony Parent points out, the calculator can have interesting (taxpayer friendly) results, but that is not binding on the Service.  Mr. Parent doesn’t seem to like the calculator much (“the IRS Offer in Compromise Pre-Qualifier is a dumb calculator”).  I like the idea behind the calculator, but haven’t used it yet, so cannot offer my own thoughts.
  • Here is a post about whether or not you have to pay your employees on snow days.  Not exactly tax procedure related (there would be withholdings), but the snow is horizontal out my window, and I think the post was written by another Villanova alum.  Villanova needs some good press after the blowout loss to Creighton last night.  Thankfully, Procedurally Taxing covers tax procedure significantly better than Villanova’s basketball team covers the three.

Procedure Roundup for 10/11/2013

Excluding all the horror stories about the Service not being available, and the Federal Courts bracing for shutting down, things seemed a little slow.

Here is this week’s slimmed down roundup:

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  • Jack Townsend on his criminal tax blog summarized the Service informational web page about procedure during the shutdown.  We stated before, and Jack highlights, the fact that the Service has indicated refunds are not being processed.  Interestingly, I received a sizable refund check today (it is Thursday, 10/10/13 as I write this) from the Service that was dated October 8, 2013.  I guess some refunds that were already somewhat processed are still cut by the Treasury.
  • SCOTUS has declined to review Schoppe v. Commissioner, which was decided by the Tenth Circuit, and highlighted a longstanding split regarding whether or not a taxpayer’s filing of a bankruptcy petition operates as a stay to debtor’s appeal of his adverse tax decision to the Tax Court under 362(a)(1) of the Bankruptcy Code.    The Tenth Circuit’s opinion can be found here.  The majority of Circuits, including the Tenth, who have considered this issue have held that the debtor’s proceeding in the Tax Court is not a continuation of the IRS assessment and proceedings.  The Ninth Circuit has held otherwise.
  • The Ninth Circuit in United States v. Pike held that a taxpayer who had forward dated a stock purchase agreement committed an affirmative act of tax evasion; although the forward dating of the documents did not reduce his stated tax liability, the Ninth Circuit concluded you could infer from the act an affirmative willful attempt to evade because its likely effect was to mislead or conceal some aspect of tax fraud.  Forward dating the agreement could have made it seem like the shares were received in the year following the actual year of receipt.
  • Fed Courts will remain open until October 17, except the Tax Court which is already shutdown.
  • IRS released some PTIN stats, which can be found here.  Of the 690,000 plus people with PTINs, about 32,000 are lawyers (one of those is mine), just over 214,000 are accountants, and 46,795 are enrolled agents.  That is a lot of PTINs.
  • Patrick J. Smith, a lawyer at Ivins, Phillips in DC, and someone who has written a bunch of great articles on regulations and the APA, wrote a response to the Harvard Law case comment on Dominion Resources which can be found here.  Mr. Smith’s bio is here, and you can find his past articles there.  The Harvard case note argued that regulations invalidated under the arbitrary and capricious standard of the APA would likely be remanded to the regulatory agency for corrective action without vacating.  Mr. Smith’s article takes the opposite position arguing Treasury Regulation are likely to be vacated, specifically because the Anti-Injunction Act forces litigation over Treasury Regulations to occur far after it would in most other regulatory regimes.
  • TaxProfBlog has the abstract of Professor Diana Leyden’s article, “Section 7433’s Statute of Limitations:  How Courts Have Wrongly Turned a Taxpayer’s Exclusive Sword into the IRS’s Shield Against Damages.”  Professor Leyden’s comment argues that courts are undermining the unauthorized collection statute by setting the start of the statute of limitations unreasonably early, at the time of the initial contact regarding collection, and not tolling the limitations period while collection actions continue. This issue connects with Keith’s post a couple of weeks ago where he argued forcefully for a reconsideration as to when collection activity should commence for purposes of bringing a request for relief from joint and several liability.
  • This isn’t really important, but I will cover the (Tax) Miseducation of Lauryn Hill, because it’s a slow week.  Ms. Hill was recently released early from jail, where she was doin’ time for tax evasion.  She claimed to have been thrust into a situation that she didn’t really understand, but that wasn’t found to be a valid reason for failing to file taxes for five (or more) years. This Refugee Allstar, the proverbial caged bird, dropped a single the day of her release.  I don’t know the reason she sings, but it may now be for restitution. Our colleague in the blogosphere, Kelly Phillips Erb, taxgirl, has a nice piece summarizing Ms. Hill’s busy 24 hours
  • Accounting Today has an interesting summary of an article regarding tax avoidance and the negative impact on human rights in developing countries, which is found here.
  • Here is a student paper arguing the acceptance of the “Turbo Tax” defense by the Tax Court in Olsen v. Commissioner was improper, and there were other, more appropriate, reasons to waive penalties.  This paper has a good summary of the history of the Turbo Tax defense, but I highlight it more so because the petitioner’s name was Kurt Olsen.  My father is also named Kurt Olsen; I’m pretty sure this wasn’t my father, though.  I think he probably would have brought up going to the Tax Court.
  • On Jack Townsend’s tax procedure blog, he has a write up of the recent Kaplan case, which can be found here.  This was a FICA/divisible tax refund case, where the Court dismissed the case for lack of jurisdiction because the Court felt the taxpayer failed to prove the $100/quarter paid under Flora was sufficient to pay the outstanding tax for any one employee.  Mr. Townsend provides a very nice summary of Flora in the blog before jumping to the case.
  • This week on Procedurally Taxing we covered the travails of a local convicted political felon whose story will open up a world of tax procedure discussion, including jeopardy assessments and the 2010 legislation allowing for assessment of restitution; a discussion of the potential to use license revocation as a means to encourage tax compliance; and a write up of the Woods Supreme Court oral argument which drew the Supremes to the fun world of TEFRA.
  • For those who cannot get enough TEFRA, others have also touched on the Supreme Court oral argument this week in Woods; including Reuters and the Miller Chevalier appellate tax blog.