Summary Opinions for October 19th through the 30th

Happy Thanksgiving Week! And thank you all for reading, commenting and guest posting!  SumOp this week is full of great tax procedure content that was released or published in the end of October, including updates to many items we previously covered in 2014 and 2015.  In addition, I am pretty confident that I solved all of your holiday shopping needs, so no reason to fight the Black Friday crowds.

  • From Professor Bryan Camp, a review of Effectively Representing Your Client Before the IRS (which was edited by Keith) can be found here.  This article was originally published in Tax Notes.  I have not read the article, so I suppose he could be bashing the book; however, knowing Keith and the book, I’m pretty confident that isn’t the case (perfect holiday gift for that tax procedure nut in your life; you can pick it up here).  Completely unrelated, unless you are looking for holiday gift ideas for me, I’ve always wanted a Lubbock or Leave It t-shirt to go with my Ithaca is Gorges t-shirt.  At that point, it would become a bad pun t-shirt collection….How did I make this bad transition – Professor Camp teaches at Texas Tech, which is located in Lubbock, TX.
  • Keith forwarded this article to me from the AICPA newsletter regarding ten things to do while on hold with the IRS.  I say just sit back and enjoy the music…wait, we already discussed how that music seems to have been designed to slowly drive you insane (see Keith’s post, A Systemic Suggestion – Change the Music).  I sort of feel terrible admitting this, but I make my assistant sit on hold and then transfer the calls to me.   Wait times do not appear to be getting much better, but, since misery loves company, I would suggest checking while waiting, or post your own.  Everyone loves complaining.
  • Kearney Partners Fund has generated a lot of tax procedure litigation over the last few years, which continues with the Eleventh Circuit affirming the GA District Court in Kearney Partners Fund, LLC v. United States.  At issue in this case was whether one particular participant was responsible for the accuracy related penalties.  The Eleventh Circuit agreed with the District Court that the transaction was in fact a tax shelter, but that the participant had disclosed the tax shelter in a voluntary disclosure program under Announcement 2002-2.  The Service argued that the participant only made disclosure in his individual capacity, not on behalf of the partnerships involved.  The Courts, relying on the doctrine of nolite jerkus, found it was disingenuous for the Service to attempt to collect the penalties on a shelter it was notified about through a disclosure program (I know that actually isn’t Latin, or a court doctrine).
  • In Notice 2015-73, the Service has identified additional transactions as “of interest” or as listed, including Basket Option Transactions.
  • In US v. Sabaratnam before the District Court for the Central District of California , a taxpayer lost his attempt to toss a Section 6672 TFRP assessment as untimely, which was made more than three years after the deemed filing date of the returns.  Although normally this would have not been timely as there is a three year statute for assessment, the taxpayer made a timely protest thereby tolling the time for assessment under Section 6672(b)(3).  The taxpayer actually argued his protest was not timely, thereby allowing the statute to run, and, in the alternative, that it wasn’t valid because it failed to contain the required information and because his representative did not tell him the letter was filed.  The Court disagreed, and found the filing was valid and timely.  Interestingly, in the letter, the representative stated that he did not “know personally whether the statements of fact…[were] true and correct. However…[he] believe[d] them to be true and correct,” which the taxpayer argued was damning because no one was attesting to the allegations.  The Court found that since the IRS instructions only required the representative to indicate if the facts were true, his statement was sufficient, as opposed to requiring that the representative actually state the facts were true.
  • The Senate is apparently checking up on Big IRS Brother.  In a hearing regarding the handling of the Tea Party applications, the Senate inquired about news that the Service would be using a high-tech gadget that could locate cell phones and collect certain data (couldn’t listen in on conversations though).  The Service indicated this was going to be used in criminal matters to help locate drug dealers and money launderers.  The Senate was nervous that Louis Lerner would target Republicans the Service would abuse this power (which twelve other agencies are currently using).  Don’t all drug dealers solely use burners?  And, aren’t the ones who don’t in jail already?  Looks like this will be moving forward, hopefully for tax crimes not thoughtcrimes.
  • In December, guest blogger Jeffrey Sklarz blogged about Rader v. Comm’r, a Tax Court case discussing substitutes for returns and when those have been validly issued under Section 6020(b).  In October, Mr. Rader was in court again, where the Tenth Circuit affirmed the Tax Court’s treatment of the SFRs and the imposition of sanctions by the Tax Court for frivolous arguments.
  • I’m in the process of working with Les on a rewrite of Chapter 5 of SaltzBook, which contains a discussion of the mitigation provisions for the statute of limitations.  One case dealing with those mitigation provisions that has been interesting to us over the last few years was Karagozian v. Commissioner, where the Tax Court and then Second Circuit held the mitigation provisions could not provide relief where a taxpayer overpaid employment taxes in one year, only to have income taxes imposed for that year after a worker reclassification.  SCOTUS did not find it as interesting as we did, and will not be granting cert.
  • From Jack Townsend’s incomparable Federal Tax Crimes Blog in early November was a post about nonresident aliens failing to pay US estate tax.   Jack offers some thoughts on how to start chipping away at that tax gap in his post.
  • The Eastern District of Pennsylvania in Giacchi v. United States decided another dischargeability of late returns case.   EDPA held in line with recent cases that the tax due on the late returns was not dischargeable.  Keith’s has written a fair amount on this topic, and I think the most recent was in June and can be found here.
  • Do you ever wonder if those companies claiming to give a % of their revenue to charity ever actually give the funds to charity?  I can proudly say PT will be donating 100% of its proceeds to charity, but deductibility and follow through won’t be an issue (it’s zero, we just do this for the love of the game; well maybe a hope that some publisher buys us out for millions).  Is there a watchdog group that tracks this?  Well, apparently some are actually donating the funds just out of charitable inclination, and the IRS has issued guidance on the deductibility of those payments.  In CCA 201543013, the advice concludes that the company taxpayer and not its customers are entitled to the deduction.  It also goes through the deductibility of payments to various types of entities, including exempt and non-exempt.

Summary Opinions for 3/14/14

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




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


Representing Clients in Tax Court

I mentioned in a recent post that I attended the Pro Bono and Tax Clinic Committee meeting program at the ABA Tax Section meeting on September 20, 2013.  At that meeting two new leaders in the Office of Chief Counsel, IRS came and spoke.  Drita Tonuzi now heads the Procedure and Administration Division of Chief Counsel’s Office.  This national office division gives advice on the procedural issues in the Internal Revenue Code and heavily influences the litigation positions taken by the Chief Counsel attorneys in the field.  Drita replaces Deborah Butler who retired last spring after a long career with Chief Counsel, and almost 15 years as head of Procedure and Administration.  Before assuming her current position, Drita served as the Deputy Division director of the Large Business and International Division of Chief Counsel’s office and before that she worked in the Manhattan field office.

Deborah Moe accompanied Drita to the meeting.  Deborah has recently moved to Washington to serve as the Deputy Division director of the Small Business/Self Employed Division of Chief Counsel’s office.  She came to this position from Denver where she was the Area Counsel for SBSE.  I knew her when she worked in the General Litigation Division of the National Office about 30 years ago giving advice to me on collection issues.


In the meeting they raised to the group the opportunity to comment on a Chief Counsel Notice issued on January 23, 2013.  See the Notice here. Both the issue in the notice and the process bear examination.  The issue concerns the form and manner in which a representative handles a case in Tax Court. See the ABA’s Model Rule 4.2 here and Pennsylvania cases applying the rule here, here, and here.  The process leading to the comments at the meeting demonstrates the importance of groups like the ABA and the willingness of Chief Counsel executives to listen to concerns that bubble up.

Input on guidance that agencies issue is a crucial aspect of ensuring that the agency gets the rules right in the first instance. Getting agency input has been challenging when it comes to issues that relate to the low-income community, where, but for the ABA, tax clinics and TAS, there is little formal or informal mechanism to generate input. My colleague Les wrote about this issue in his article, Increasing Participation in the Rulemaking Process. See his article here.

On May 16, 2012, Professor Barbara Lock, the director of the low income taxpayer clinic at the University of Idaho complained on the listserv hosted by the American Bar Association Tax Section for the low income taxpayer clinicians that her local Chief Counsel office refused to work with her in a Tax Court case in which she had a valid Power of Attorney (POA) because she had not entered an appearance in the Tax Court case.  That comment caught my interest because my clinic regularly uses a POA to represent clients in Tax Court cases.  We do not enter a formal appearance in Tax Court cases unless we file the petition or we get to a point in the case where we determine the formal appearance is necessary.  I knew that many other clinics used the same practice.  While I had not experienced difficulty with this practice in working with the Philadelphia office of Chief Counsel, concern existed that if one clinician was experiencing problems with this practice perhaps others were as well.

Low income clients present a number of challenges.  One of the biggest challenges is simply the ability to maintain contact over a period of time.  When a low income taxpayer comes to our clinic seeking assistance in a Tax Court case, we obtain a POA in order to obtain information from the IRS.  In many cases our perspective client does not really understand the issues in the case and only through obtaining information from the IRS can we piece together what has happened.  We do not want to enter an appearance until we can understand the case.  Even after understanding the case, we prefer to operate with a POA rather than an entry of appearance in many cases out of concern about our ability to maintain client contact.

Based on the issue raised in the listserv, the Pro Bono and Tax Clinic committee of the ABA Tax Section had a panel discussion of this issue at its meeting in the Fall of 2012.  Professor Scott Schumacher at the University of Washington moderated a panel of Chief Counsel and IRS executives in a discussion of the issue of client representation in Tax Court.  Nina Olson had a similar panel discussion in the annual meeting of Low Income Taxpayer clinicians held in December 2012.  Nina added to the panel she created Jim McCauley who is ethics counsel to the Virginia State Bar.  Chief Counsel’s office issued Notice CC-2013-005 on January 2013 seemingly as a reaction to the public discussions of the issue during the fall of 2012.

Jim McCauley raised the discussion to another level by bringing his expertise to bear on an issue that tax practitioners may view with blinders.  He reminded the audience of the requirements of rules of professional conduct with respect to contact with a party represented by counsel.  He explained why the Form 2848 causes the Tax Court petitioner to achieve the status of represented party and why the government’s lawyers then have a duty to recognize that status.  Notice CC-2013-005 improved the prior situation in some Chief Counsel field offices by making clear that the attorneys should work with attorneys who have a power of attorney rather than an entry of appearance but the Notice did not go as far as Mr. McCauley’s comments suggested it should.

At the recent Tax Section meeting Drita invited comments on Notice CC-2013-005 because she was aware that concerns still existed.  She received comments from the audience concerning the need for Chief Counsel attorneys to recognize representatives with POAs and the need to recognize representatives operating with POAs even when they have not entered an appearance in the Tax Court case.  The discussion also expressed concern about practices in Appeals where Appeals Officers appear to ignore, at times, the POA or the entry of appearance or both and speak directly to a represented taxpayer.

The discussion was very positive.  Notice CC-2013-005 moved the bar from the prior situation by directing Chief Counsel attorneys to recognize representatives operating with a POA rather than an entry of appearance.  Notice CC-2013-005 did not go far enough because it failed to fully recognize the state bar ethical issues present in this situation.  The fact that Drita raised the issue on her own and sought comments from the audience was a very positive development reflecting the relationship she seeks to develop between her office and practitioners.  I hope that in the near future the issue raised by one clinician in a post on a listserv will result in a Notice that recognizes the appropriate breadth of practice available to representatives operating in Tax Court with a POA.