Form 2848

January 2022 Digest

February 1, 2022 by Samantha Galvin 2 Comments

A lot has happened in the tax world since the year began, then filing season began last week, and the ABA Tax Section 2022 Virtual Midyear Meeting began yesterday. There are no signs that things will slow down soon, except for (maybe) IRS notices.

Procedurally Taxing will continually provide comprehensive updates and information, but if you fall behind with your reading or struggle to keep up- I’ll be digesting each month’s posts from here on out.

January’s posts highlighted the NTA’s Report, the ongoing impact of the pandemic, and recent Circuit splits.

National Taxpayer Advocate’s Report

NTA Report Released: Essential Reading: The Report is available and contains new features, including an enhanced summary of the Ten Most Serious Problems and a change in the methodology used to determine the Most Litigated Issues.

What are the Most Litigated Issues and What’s Happening in Collection?: A closer look at the Most Litigated Issues. EITC issues are often petitioned but rarely result in an opinion, suggesting that most are settled before trial. In Collection, lien cases referred to the DOJ have declined substantially over the years corresponding with the decline in Revenue Officers and resources.

Who Settles Cases – Appeals or Counsel (and Why?): An analysis of data on the number of Tax Court cases settled by Appeals or Counsel. An increasing percentage of settlements are handled by Counsel, but why? Possible reasons and possible solutions are considered.

The Tacit Consent Doctrine May Extend Far Beyond Signing a Joint Return

January 10, 2022 by Guest Blogger 3 Comments

We welcome back my colleague, Audrey Patten for a discussion of a recent case providing an expansive view of the tacit consent doctrine. Audrey has developed a significant docket of innocent spouse cases and is currently working with Christine to write the third edition of A Practitioner’s Guide to Innocent Spouse Relief. Look for their book coming out later this year. Keith

For those of us with many innocent spouse cases, it is common for clients to point out that they may not have actually signed a joint return. Such clients’ position is that they should therefore be absolved of any joint liability derived from the return. It is well established case law, however, that a missing spousal signature does not automatically negate the validity of a joint return. While the burden will be on the IRS to prove a return with a missing signature is valid, the doctrine of tacit consent holds that if the facts and circumstances show that a non-signing spouse intended to file a joint return, a return the taxpayer did not actually sign can still meet the criteria for a valid joint return. But how far can the doctrine of tacit consent go? On December 1, 2021, the Tax Court issued a memorandum opinion in Soni v. Commissioner that extends the tacit consent doctrine beyond the joint tax return context to encompass tax matters handled by the other spouse, including powers of attorney and extensions of the statute of limitations. The application of tacit consent in areas beyond the validity of a joint return is what makes the Soni case significant.

Soni is not an innocent spouse case. Rather, Om Soni and his wife, Anjali Soni, filed a tax court petition that challenged the validity of a Notice of Deficiency issued on a joint return they filed for tax year 2004 (for clarity, the parties’ first names will be used throughout). Two questions presented in the case were whether the joint return was valid and whether the limitations period for assessment of tax had expired before the notice issued. (The other two questions were challenges to the imposition of penalties under I.R.C. §6501 and §6651 and are beyond the scope of this discussion). The Court found that tacit consent on the part of Anjali was dispositive of both issues.

Om was a businessman who engaged in a variety of ventures. Anjali was a homemaker and, aside from some marginal passive income, did not make any money. By her own testimony, the marriage was very traditional and she expected her husband to handle all financial matters, including the couple’s taxes. She lived an affluent lifestyle. There were no allegations of any domestic abuse. Om for his part, often delegated personal business, including handling IRS related mail, to his employees. The couple also had a grown son who would discuss his parents’ tax matters with his father and assist with preparing documents. Anjali, again by her own testimony, never reviewed any tax returns because such documents made her nervous. She also never signed any returns herself. She even testified that she left documents “for days and days. Because I don’t feel like reading papers like this.” She also testified, regarding her husband, that “I trust him with everything…whatever he does, I do trust him. I never discuss his business with him.” Anjali would sometimes collect mail left at the house, but only sort out her magazines. Any IRS correspondence she would immediately pass to Om or her son without opening it.

For the 1999 through 2004 tax years, an accounting firm prepared all of the couple’s joint income tax returns. Om would review the returns, but not Anjali. For the 2004 return, the couple’s son physically signed his mother’s name onto the return, without first showing her the return.

Om’s businesses suffered losses during 2004. In 2006, the IRS began auditing the 2004 return. In 2008, the IRS received a Form 2848, authorizing a representative named Mr. Grossman to act on behalf of the Sonis. The signatures on the form were dated in 2006. Anjali did not sign the Form 2848 authorizing Mr. Grossman to represent her, but her signature was present. It later turned out that Mr. Grossman was in the habit of signing his clients’ names onto Forms 2848 for them. In 2015, the IRS received a set of two Forms 2848, authorizing the couple’s son to represent Om and Anjali. Om signed his Form 2848. Anjali did not personally sign her Form 2848.

Over the next several years, a total of eight Forms 872 (including one Form 872-I), “Consent to Extend Time to Assess Tax,” were filed with the IRS. The first two were signed by Mr. Grossman as the representative. The remaining six were signed by Om for himself and by the son on behalf of Anjali. Neither Om nor his son ever discussed Form 872 or 872-I with Anjali. The extensions ultimately extended the period of limitations for assessment of tax to December 31, 2015. As a result of the extensions, the IRS argued it was still within its limitations period when in March 2015 it mailed a Notice of Deficiency of $642,629 for tax year 2004.

The first argument raised by the Sonis was that the 2004 tax return itself was invalid as a joint return because, not only did Anjali not sign the return, but her signature was placed on the return by her son. The Court provides a useful review of the rules for establishing the validity of a joint return. First, it points out that if a spouse does not sign a return, the burden is on the IRS to prove it was valid. However, the lack of signature can be overcome by showing that the parties intended to sign a joint return. Even if the non-signing spouse did not explicitly state that she wanted to file a joint return, the facts and circumstances can lead to a finding of validity under the tacit consent doctrine. Since tacit consent is a facts and circumstances analysis, the fact that the signature was written by the son also does not, by itself, negate the validity of the return. Common factors in the tacit consent doctrine include whether the non-signing spouse had filed a separate return, whether there was a prior history of filing joint returns, whether the non-signing spouse had objected to the return after it was filed, and whether there was a pattern of one spouse handling the financial matters.

All of these factors weighed in favor of tacit consent in this case. Anjali repeatedly testified that she did not review the returns by choice because she expected her husband to handle them. She did not file any returns on her own and there is no record of her contacting the IRS to object to the joint filing. The couple had also been consistently filing joint returns for the prior five years. These facts were supplemented by Anjali’s admissions that she chose not to review the returns. The Court was able to confidently find that the 2004 joint return was valid via the tacit consent doctrine.

However, the opinion moves into more complicated territory when determining whether the extended time periods for the IRS to assess the return were valid. To do this, the Court first reviews whether the Form 2848 appointing Mr. Grossman as a representative was valid as to each of the Sonis and then it discusses whether the eight Forms 872 were also valid as to each spouse. As the Court acknowledges, “[t]he Code treats married taxpayers who file jointly as one taxable unit; however, it does not convert two spouses into one single taxpayer. Spouses filing a joint return are separate taxpayers, and each spouse has an absolute right to extend or not extend the time within which to assess…A waiver to extend the period to assess a deficiency is valid only as to the spouse who signs the waiver.”

The Court first finds that Om’s signature on the Form 2848 was valid. It then uses common law agency principles to find that, as to the first two extensions signed by Mr. Grossman, Om had delegated that authority because he treated Mr. Grossman as his representative throughout the time period in question.

But how does this extend to Anjali? Common law agency principles would not work here because there is no evidence of Anjali directing Mr. Grossman to act as her representative. Instead, the Court states, because Anjali gave Om “tacit consent to handle tax matters…we might be able to rely on that authority to conclude Om authorized Mr. Grossman’s representation of Anjali.” The only further analysis the Court makes on this point is to note that Anjali remained silent as to the representation, thus allowing the IRS the impression that Mr. Grossman represented both parties, and therefore making his signatures on the first two Forms 872 valid. The Court’s conclusion is that “[b]ecause Om authorized Mr. Grossman’s representation, Anjali also tacitly consented, through Om’s agency.”

The Court takes this position a step further by then finding that the next six Forms 872 signed by Om and by his son signing on behalf of Anjali, without her direct knowledge, were also valid on the basis that Anjali had tacitly consented to letting Om handle all financial matters and that she never showed any due diligence in becoming involved in resolving the couple’s tax matters. The Court found that “[w]hile Anjali may not have expressly given her husband authority to sign specific forms, it was well understood that Anjali gave him implied authority to act on her behalf.”

The specific facts in this case, particularly Anjali’s own testimony that she did not want to deal with any tax matters and trusted her husband to handle them, convinced the Court that she had given Om a blank check for any decisions made regarding taxes. In doing so, however, the Court took the specific doctrine of tacit consent as applied to confirming the validity of joint returns and converted it into a general concept of “tacit consent to handle tax matters,” with only limited further analysis. This expansion of the doctrine raises concerns, especially as to cases that may not have such clear spousal testimony as to the consent. If a spouse has indeed given tacit consent to a joint return, it does not automatically follow that they have tacitly consented to each and every decision the other spouse later makes regarding that return. The consequences of a broad reading of the tacit consent doctrine could be quite severe to a taxpayer’s individual rights and rigorous analysis should be required to justify such conclusions.

A reason that does support this decision concerns the impact of the documents on the IRS. The IRS relied on the signed document to extend the statute and, in the case of the return, to assess the liability. If one taxpayer can come back later after the statute has expired and say I did not sign this and did not consent to filing this, then the IRS is put in a bad position. Here, the Court seemed to find that the burden to undo the potential harm of having the statute extended should fall on Anjali. That does not necessarily seem wrong on the facts in the Soni case, but this presents a difficult situation that can also come up in other contexts, such as the filing of joint Tax Court petitions in situations where one spouse is claiming they have the other spouse’s authority to file a joint petition.

It thus remains an open question as to how far the tacit consent doctrine can be expanded in future cases. Specifically, if one party is passive in the circumstances surrounding a tax liability, how far should the IRS or the Tax Court go to make sure that the other party is on board? In the interim, the major takeaway from this case is that spouses will not get very far in arguing that they are absolved by having taken a head in the sand approach to joint tax matters.

Filed Under: Assessment, Form 2848, Statutes of Limitation, Tacit Consent

2021 Year in Review – Cases

December 28, 2021 by Keith Fogg Leave a Comment

Despite the ability to access most courts only remotely for much if not all of the year, 2021 still produced a number of important tax procedure decisions. Perhaps judges could produce more opinions because they did not need to travel or to hold lengthy in-person trials. This post shows that not all cases are Graev cases.

Supreme Court matters

The Supreme Court handed down a unanimous opinion in CIC Services. The Court holds that the Anti-Injunction Act does not bar a suit challenging an IRS notice that requires a non-taxpayer to provide information even though the failure to provide the information could result in a penalty. Posts can be found here, here, here and here.

The Supreme Court rejected the request for certiorari in Organic Cannabis v. Commissioner seeking a determination that the time period for filing a petition in Tax Court in a deficiency case is a claims processing period rather than a jurisdictional one but granted certiorari in Boechler v. Commissioner regarding the same issue but in the collection due process context. The Boechler case will be argued before the Supreme Court on January 12, 2022.

Circuit Court matters

Coffey v. Commissioner, –F.3d – (8^th Cir. 2021) – in a case that fractured the Tax Court about as badly as it can be fractured, the Eighth Circuit, after initially projecting harmony and uniformity in its decision, fractured as well, reversing its initial decision which overturned the Tax Court’s fully reviewed opinion. This action briefly reopened the door on the question of adequate filing of a return for purposes of triggering the statute of limitations, before reinstating the original holding through a new opinion by the panel. That new panel opinion can be found here.

Taxpayers claimed that they were residents of the US Virgin Islands in 2003 and 2004 and filed returns with the Virgin Islands tax authority. That taxing authority has a symbiotic relationship with the IRS and sent to the IRS some of the documents it received. The IRS took the documents it received and concluded that M/M Coffey should have filed a US tax return. Based on that conclusion, it sent the Coffeys a notice of deficiency. The Coffeys argued that the notice of deficiency was sent beyond the statute of limitations on assessment since their filing with the US Virgin Islands tax authority also served as a filing with the IRS, starting the normal assessment statute. The government argued that because the Coffeys did not file a return with the US, no statute of limitations on assessment existed. After only eight years, the Tax Court sided with the Coffeys. A mere three years later, the Eighth Circuit reversed in a unanimous three judge panel.

On February 10, 2021, the Eighth Circuit granted a panel rehearing but denied a rehearing en banc. Disagreements with the outcome of a circuit court usually result in a request for a rehearing en banc rather than a rehearing with the very panel that entered the decision. So, this is a bit of an unusual twist in a case with many twists. After the vacating of the original opinion, the same panel issued a new opinion with some minor differences.

The result of the Eighth Circuit’s decision allows the IRS to come in many years later to challenge residence of individuals claiming Virgin Islands residence. If the Coffeys had succeeded in this case, the procedural issue would have turned into a substantive victory, since the IRS would not have been able to make an assessment against them for the years at issue.

Gregory v. Commissioner, — F.3d – (3^rd Cir. 2020) – This case was decided at the very end of 2020 so it is included here as it came out during last year’s end of year review and also because it is a case argued on appeal by the Tax Clinic at Harvard so including it provides another opportunity to showcase the work of the students. The issue before the Third Circuit was whether the taxpayers’ use of Forms 2848 Power of Attorney and 4868 Request for Extension of Time constituted “clear and concise notice” of a change of address to the IRS pursuant to Treasury Regulation §301.6212-2. Although filed as a non-precedential opinion, the outcome is a clear example of how the IRS cannot simply ignore the actual knowledge it has of a taxpayer’s address when issuing a Statutory Notice of Deficiency pursuant to I.R.C. §6212(b)(1), even if that taxpayer failed to follow the IRS’ prescribed procedures for changing their address.

An odd ending to this case occurred when the Third Circuit returned it to the Tax Court. Rather than simply entering an opinion for the taxpayers, the Court issued an order restoring the case to the general docket. That order made no sense because the Gregorys unquestionably filed their Tax Court petition late. This required the filing of a motion to have the court make a determination that the notice of deficiency was invalid, which it eventually did with no opposition from an equally confused government counsel.

In Patrick’s Payroll Services, Inc., v. Commissioner, No. 20-1772 (6^th Cir. 2021), the Sixth Circuit upheld the decision of the Tax Court denying the taxpayer the opportunity to litigate the merits of the underlying tax because of a prior opportunity to discuss settlement with Appeals. Guest blogger Chaim Gordon wrote about this case after the Tax Court’s decision and while the case was pending before the Sixth Circuit. Chaim pointed out some of the novel arguments the taxpayer was making. Unfortunately for the taxpayer, the Sixth Circuit was not buying what they were selling.

The 11^th Circuit upheld the decision of the Tax Court in Sleeth v. Commissioner, — F.3d — 2021 WL 1049815 (11^th Cir. 2021), holding that Ms. Sleeth was not an innocent spouse. The Sleeth case continues the run of unsuccessful taxpayer appeals of innocent spouse cases following the major structural changes to the law in 1998. The Tax Court found three positive factors and only one negative factor applying the tests of Rev. Proc. 2013-34. Yet, despite the multitude of factors favoring relief in each case, the Tax Court found that the negative knowledge factor required denial of relief. This case follows the decision in the Jacobsen case from 2020 in which the Tax Court denied relief to someone with four positive factors for relief and only knowledge as a negative factor. The pattern developing in these cases suggests that the Tax Court views the knowledge factor as a super factor, despite changes in IRS guidance no longer describing it as such. Only economic hardship seems capable of overcoming a negative determination on knowledge. In this post, Carl Smith discussed the Seventh Circuit’s decision in the Jacobsen case. Both cases were argued on appeal by the Tax Clinic at Harvard. The clinic also filed an amicus brief in the case of Jones v. Commissioner, TC Memo 2019-139, set to be argued soon before the 9^th Circuit.

Lindsay v. U.S. is the latest case to apply the principle that United States v. Boyle essentially stands for the position that taxpayers have a nondelegable duty to be aware of tax deadlines. An agent’s incompetence or willful misconduct will not excuse the taxpayer from delinquency penalties. Lindsay was incarcerated and executed a POA to Bertelson, an attorney, to manage his affairs, including filing his tax returns. The attorney assured Lindsay he was doing so for the years 2012-15; instead he failed to file the returns and for good measure embezzled hundreds of thousands of dollars. The actions resulted in Lindsay receiving $705,414.61 in actual damages and $1 million in punitive damages. Lindsay eventually filed his tax returns and paid over $425,000 in delinquency penalties. He filed a claim for refund; IRS rejected and he filed a suit in district court. The district court, contrary to the magistrate’s recommendation, granted the government’s motion to dismiss, citing Boyle as precluding a claim for relief. Following a timely appeal, the Fifth Circuit affirmed. In so doing, it applied Boyle to Lindsay’s somewhat sympathetic circumstances.

Tax Court

In Ramey v Commissioner, 156 T.C. No. 1 (2021), the Tax Court determined in a precedential opinion that when the IRS issues a notice of decision rather than a notice of determination and the taxpayer has filed the collection due process (CDP) request late, the Court lacks jurisdiction to hear the case. The taxpayer, a lawyer, represented himself and pegged his arguments to last known address rather than jurisdiction. Nonetheless, the decision expands the Court’s narrow view of jurisdiction to another setting without addressing the Supreme Court precedent on jurisdiction and its impact on the timing of the filing of documents.

Galloway v Commissioner, TC Memo 2021-24: This case holds that a taxpayer cannot use the CDP process to rehash a previously rejected offer in compromise (OIC). Mr. Galloway actually submitted two OICs that the IRS rejected. As an aside, from the description of the OICs in the Court’s opinion, the rejections seemed appropriate strictly from an asset perspective, since he did not want to include the value of a car he owned but allowed his daughter to use.

The case of Mason v. Commissioner, T.C.M. 2021-64 shows at least one benefit of submitting an offer in compromise (OIC) through a request for a collection due process (CDP) hearing. As part of his lessons from the Tax Court series, Bryan Camp has written an excellent post both on the case and the history of offers.

Friendship Creative Printers v. Commissioner, TC Memo 2021-19: This case holds that the taxpayer could raise the merits of delinquency penalties by the backhanded method of challenging the application of payments. Taxpayer failed to pay employment taxes over an extended period of time and failed to file the necessary returns but at some point made payments on the earliest periods. In the CDP hearing, taxpayer argued satisfaction of the earliest periods and eventually provided an analysis showing payments equal to the tax paid.

The Court treated this as a challenge to the merits of the delinquency penalties imposed. Unfortunately, the taxpayer did not designate its payments, which meant that the payments it made were not applied in the manner it expected and argued in the CDP hearing. Taxpayer also looked at the transcripts without appreciating the impact of accruals not reflected in the assessed portion of the transcript but accruing nonetheless.

Reynolds v. Commissioner, TC Memo 2021-10: This case holds that the IRS can collect on restitution based assessments even when the taxpayer has an agreement with the Department of Justice to make payments on the restitution award. Taxpayer’s prosecution resulted in a significant restitution order. He agreed to pay DOJ $100 a month or 10% of his income. At the time of the CDP case he was not working and did not appear to have many prospects for future employment. Citing Carpenter v. Commissioner, 152 T.C. 202 (2019), the Tax Court said that the IRS did have the right to pursue collection from him. Obviously that right, at least with respect to levy, is tempered by the requirement in IRC 6343 not to levy when it would place someone in financial hardship, but no blanket prohibition existed to stop the IRS from collecting and therefore to stop it from making a CDP determination in support of lien or levy. The case is a good one to read for anyone dealing with a restitution based assessment to show the interplay between DOJ and IRS in the collection of this type of assessment, as well as to show the limitations of restitution based assessments compared to “regular” assessments.

BM Construction v. Commissioner, TC Memo 2021-13: This case involves, inter alia, a business owned by a single individual and the mailing of the CDP notice to the business owner rather than the business. The Tax Court finds that sending the CDP notice to the individual rather than the business does not create a problem here, since the sole owner of the business would receive the notice were it addressed to the business rather than to him personally.

Shitrit v. Commissioner, T.C. Memo 2021-63, points out the limitations on raising issues other than the revocation of the passport when coming into the Tax Court under the jurisdiction of the passport provision. Petitioner here tries to persuade the Tax Court to order the issuance of a refund but gets rebuffed due to the Court’s view of the scope of its jurisdiction in this type of case.

The case of Garcia v. Commissioner, 157 T.C. No. 1 (2021) provides clarity and guidance on the Tax Court’s jurisdiction in passport cases as the Court issues a precedential opinion to make clear some of the things that can and cannot happen in a contest regarding the certification of passport revocation. I did not find the decision surprising. The Court’s passport jurisdiction is quite limited. Petitioners will generally be disappointed in the scope of relief available through this new type of Tax Court jurisdiction.

Other Courts

In Mendu v. United States, No. 1:17-cv-00738 (Ct. Fd. Claims April 7, 2021) the Court of Federal Claims held that FBAR penalties are not taxes for purposes of applying the Flora rule. In arguing for the imposition of the Flora rule, the taxpayer, in a twist of sides, sought to have the court require that the individual against whom the penalties were imposed fully pay the penalties before being allowed to challenge the penalties in court. The FBAR penalties are not imposed under title 26 of the United States Code, which most of us shorthand into the Internal Revenue Code, but rather are imposed under Title 31 as part of the Bank Secrecy Act.

The case of In re Bowman, No. 20-11512 (E.D. La. 2021) denies debtor’s motion for summary judgment that Ms. Bowman deserves innocent spouse relief. On its own, the court reviews the issue of its jurisdiction to hear an innocent spouse issue as part of her chapter 13 bankruptcy case and decides that it has jurisdiction to make such a decision. The parties did not raise the jurisdiction issue, which is not surprising from the perspective of the plaintiff, but may signal a shift in the government’s position since it had previously opposed the jurisdiction of courts other than the Tax Court to hear innocent spouse cases.

Filed Under: Bank Secrecy Act, Bankruptcy, Collection Due Process, Designation of Payment, Employment Taxes, FBAR, Federal Courts - Jurisdiction, Form 2848, Innocent Spouse, Last Known Address, Offer in Compromise, Passport revocation, Penalty Application, Restitution, Statutes of Limitation, Tax Court

Summary Opinions for October 19th through the 30th

November 23, 2015 by Stephen Olsen Leave a Comment

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 #onholdwith.com/irs 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.

Article on who has authority to sign various IRS documents, including returns. Much of the article is based on CCM 20152301F, which we covered in SumOp in July, albeit a bit more briefly.

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.

Filed Under: Bankruptcy, Disclosure, Form 2848, miscellaneous, Power of Attorney, Sham Transaction, Statutes of Limitation, Substitute for return, TFRP

Summary Opinions for 3/14/14

March 18, 2014 by Stephen Olsen 2 Comments

Happy 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.

To recap last weeks’ posts, Keith had two related posts on liens and levies, which covered the Steward case and the Austin and Laurato case. Keith rounded out lien and levy week with a discussion of the 911 Management LLC case and the 50% penalty under Section 6332(d)(2) for failure to honor a levy.

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.

IRS expands use of electronic signatures. Freaks me out. I need to get with the now.

Second annual LITC report from TAS.

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.

Filed Under: Bankruptcy, Civil Penalties, Closing Agreements, Form 2848, Golsen, Levy, Lien, Reasonable Cause

Representing Clients in Tax Court

October 1, 2013 by Keith Fogg 5 Comments

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.