Summary Opinions for 9/12/14

Sum Op for the week of the 12th is running a bit behind schedule because of a really wonderful two part guest post by A. Lavar Taylor on what constitutes an attempt to evade or defeat taxes for Section 523(a)(1)(c) of the Bankruptcy Code, which can be found here and here.  The post generated quite a few strong comments and responses, so I would encourage everyone interested in the topic to review those also.  Here are the other items we didn’t cover two weeks ago:

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  • The Tax Court in Duarte v. Comm’r has remanded an Appeals decision to reject an OIC and proceed with collection action against an immigrant who ran a roofing business.  The Court found it was unclear if the settlement officer abused his discretion in rejecting the OIC when a prior settlement officer had already approved the OIC, but then the Service failed to process the  offer for unexplained reasons for quite a while.  The opinion framed Mr. Duarte as working very hard to solve his tax issues, including making the payment associated with the agreed upon OIC.  The second settlement officer determined there was significantly more collection potential, but the record did not indicate as why various decisions were made, actions were taken or actions were not taken.  It did seem clear, however, that the Tax Court did not like the result, and wanted the Service to, at a minimum, fulfill its obligations fully before implementing such a result.
  •  As Big Dan Teague said, “Yes, the word of God…there’s damn good money during these times of woe and want,” even when you take a vow of poverty.  That can cause an issue when you want to keep that money, so sometimes you need to divert those dollars to a shell entity in order to keep your vow of poverty and minimize taxes…Wait, that seems really shady, which is what the Service thought about the scheme.  On the slightly positive side, the whole thing may have been a tax play, which seems less insulting to the congregation members.  In Cortes v. Comm’r, for 2007 to 2009, the taxpayer, Mr. Cortes, a pastor, signed a “vow of poverty”, and created “A Corporation Sole” that received bi-weekly checks from the church.  Mr. and Mrs. Cortes had unfettered access to the account held by the corporation.  Mr. Cortes argued that his vow of poverty was evidence that he did not have income in the years in question.  The Court found that the signed paper did not change the fact that Mr. Cortes was effectively paid a salary that Mr. Cortes had full control over and used for personal expenses.  Mr. Cortes did highlight a line of cases where someone took a vow of poverty, was paid an income stream, but assigned that stream to a tax exempt organization.  The Court found the cases inapplicable because…Mr. Cortes was just cheating on his taxes (Mr. Cortes alleges that any such failure to pay was inadvertent).   Tony Nitti over at Forbes has more coverage.  The Service, in 2012, flagged the Corporation Sole set up as questionable.
  • It seems so much less offensive when the fraud doesn’t involve a church.  Like in US v. Bennett, where employees of a logistics company fraudulently directed around $600,000 to shell companies for fake expenses to the detriment of their employer and the IRS.  The Service charged the co-conspirators and one of their wives with tax evasion, and all three were convicted.  One of the two employees, Mr. Hogeland, spent months faking an illness to get out of his criminal proceeding by injecting himself with potassium chloride causing his blood to have elevated potassium levels.  Mr. Hogeland’s lawyer claimed Mr. Hogeland’s wife may have been behind the elevated potassium levels to set Mr. Hogeland up because of some tension relating to her having an affair.  Hogeland did end up dying – so perhaps he was actually ill— and at the time both Hogeland and his co-defendant Bennett were both appealing the conviction.  Bennett modified his appeal to take into account Hogeland’s death, arguing that Hogeland’s death abated the entire criminal proceeding ab initio (this was true of Hogeland’s conviction).  The Court was not impressed, holding on the first point that the reasoning for Hogeland’s reversal was that a defendant should not be denied the right to appeal, even by death.  Further, the punitive purpose cannot be served by a dead guy.  Neither applies to Bennett, who was still free to appeal and go to jail.  Bennett did argue other reasons the death should spring him from the slammer, but the court was likewise unimpressed and held Hogeland’s misfortune would not benefit Bennett.
  • The Service has issued Chief Counsel Advice , which is not really procedure related but I found interesting, stating that a controlled foreign corporation that “holds” a debt obligation of its United States sole shareholder  gives rise to taxable interest on the accrued but unpaid interest amount, which is treated as US property under Section 956(c).  This in turn will likely increase the US shareholder’s taxable income under Section 956 relating to US property.  The regulations provide the CFC will “hold” a debt where the CFC is treated as the pledgor or guarantor on the shareholder’s loan from a third party, and the “obligation” amount in question becomes the unpaid principal and accrued but unpaid interest.  Following the mental leap, the interest is payable to the CFC holder of the debt, which then flows through to the US shareholder who owes the interest to a third party.  So, to simplify, I think the CCA states that if a US parent company borrows funds from an unrelated third party and the CFC is guarantor, the accrued but unpaid interest is taxable income to the CFC, which passes back through to the US parent.  I do not profess to be an expert in this area and read the CCA quickly, so I could be wrong, but this seems to be a bad result.
  • The DC Circuit has agreed to an en banc review of Halbig v. Burwell.  We had some prior coverage on the matter here.   As you can imagine, the decision has caused quite a bit of partisan debate.
  • So, SOCTUS is getting an education in hip hop.  This is not tax procedure related, but I thought it was interesting.  The article indicates that while SCOTUS will occasionally reference song lyrics, it has apparently never quoted rap lyrics.  It also implies the Justices don’t know anything about hip hop (and perhaps question the artistic value of rap lyrics).  Although it would have been fun to assist in the drafting of the amicus brief, it might be more efficient and entertaining to just enlist the Roots, Jimmy Fallon and JT  to show up and perform the various songs (there are two others if you are interested and somehow missed this—you should have no trouble finding them on the internet).  A sort of  pop-star chamber, except without the abuse of power.   If you’re looking for rap music about taxes, and who isn’t, check out Slim Thug’s “Still a Boss”, with a solid nod to claiming fake dependents.

Ct. of Fed. Claims Holds Merger Results in “Same Taxpayer” for Net Zero Interest Rate

Last month, the Court of Federal Claims decided Wells Fargo & Co. v. United States, which was a fairly important and taxpayer friendly holding regarding who qualifies as the “same taxpayer” for the net zero interest rate for overlapping periods of underpayments and overpayments under Section 6621(d).  We discuss this case, and the “same taxpayer” requirement in great depth in the revised Satlzman and Book IRS Practice and Procedure ¶6.08[1][b], which should be released this fall, but we also wanted to briefly flag the case to make sure our readers were aware of the development.  Below is a brief recitation of the facts, a quick discussion of the status of the law, and the holding.

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The Facts – Together we’ll go far…to get some tax benefits.

So, this case involves bank mergers that Wells Fargo has been involved with over the last 15 years; all of which were statutory mergers.  Following the actual mergers is a little confusing, and the specifics of those mergers are not that important to the holding.   What does matter is the issue, as stated by the Court, which was:

It concerns whether plaintiff…Wells Fargo…is entitled to net the interest paid on certain tax underpayments owed by Wells Fargo or its predecessor…First Union…, with the interest owed by the United States to Wells Fargo on overpayments made by First Union or other companies acquired by Wells Fargo through various corporate mergers.

Positions and the law.

Section 6621(d) was enacted in 1998 to allow overpayment and underpayment interest rates to be netted against each other at a zero percent interest rate when the same taxpayer has overpayments and underpayments of tax.  Corporate overpayments and underpayments, otherwise, would be at different rates.  The key issue before the court was the definition of “same taxpayer”.

Wells Fargo argued that the “same taxpayer” was both the predecessors and the surviving corporation of statutory mergers, so that the surviving entity could benefit from the tax attributes of all prior corporations.  The IRS argued for a more narrow view of “same taxpayer”, stating that a taxpayer is only the same if it has the same taxpayer identification number before and after the merger.

The Service had previously been successful with this position in Magma Power and Energy East, and had repeatedly taken this position in rulings and Counsel Advice.

And the Court of Federal Claims says…

The Court of Federal Claims took the taxpayer friendly, and I believe correct, approach to the issue, and held that a TIN is not fully determinative of legal status in the merger context.  The Court stated that because Energy East and Magma involved fully separate but affiliated corporations, they did not control the Wells Fargo case.  The Court further stated:

In a merger, the acquired and acquiring corporations have no post-merger existence beyond the surviving corporation; instead, they become one and the same by operation of law, and thereafter the surviving corporation is liable for the pre-merger tax payments of both the acquired and acquiring corporations.

Affiliated corporations are still probably out of luck in terms of being treated as the “same taxpayer”.  Wells Fargo, however, provides a holding on corporate mergers that should apply to various other situations the Service stated were not entitled to the “same taxpayer” treatment in various mergers and acquisitions.  Overall, this is a good result, and a very well written and thought out opinion.  It will be interesting to see the Service’s reaction to the holding.

Summary Opinions for 7/18/14

A quick thank you to Christine Speidel for her guest post last week on the unanswered questions regarding ACA and tax procedure.  If you have not yet reviewed, please take a look and check out the interesting comment from one of our readers.  Here are a few other items from last week that caught our eye:

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  • Good news for employers.  Y’all can’t be held responsible for the satanic requirement of requesting a Social Security Number from your prospective employees.  Congress and/or the IRS is the devil that makes you do that, and that evil likely won’t be excised any time soon.  See Yeager v. Firstenergy Generation Corp., where the district court tossed a religious discrimination suit brought by a prospective employee who was denied an internship because of he would not supply an SSN; he believed identification by any number, including an SSN, was the “mark of the beast”.   That’s got to be tough in the deli line.
  • The First Circuit has held that interest owed by a transferee under Section 6901 is not calculated under the Code, as it would be for the transferor, and instead is calculated under the applicable state law.  See Schussel v. Werfel.  I was surprised by the holding, and I have not fully digested it yet, as it is very long.  I won’t delve too deep into the analysis, but the Court relied on the 1958 Supreme Court case, Commissioner v. Stern, which held that “where…state fraudulent transfer law supplied the substantive rule, state law controlled the existence and extent of the [transferee] liability.”  The current statute still looks to state law to determine if there has been a transfer, so the 1st Circuit determined it must also dictate the actual amount owed, including the interest calculation.  This issue is covered in ¶ 17.05 of Saltzman and Book, including the related issues as to when interest actually starts to run, and other potential conflicts between state and federal law on related procedural matters.  All very interesting.
  • On July 2, 2014, a new AJAC memo was issued regarding the second phase of the implementation.  The memo, which is very long, can be found here.  We previously covered this about a year ago here.  We continue to applaud this effort, and look forward to the implementation.  We may also have some additional coverage regarding this memo in the future (once I find time to read all 62 pages).
  • A taxpayer was booted from court on her wrongful collection claim under Section 7433 in Antioco v. US because the Court found the inappropriate actions occurred during assessment and not collections.  I only looked at the holding, and the Appeals officer seemed rude and overzealous (but I have heard of worse).  What struck me was the characterization of this matter as assessment, and not collections.  Taxpayer received a notice of intent to levy for taxes she owed from two and three years before.  She requested a CDP hearing and asked for an installment agreement.  She had the CDP hearing, the IA was denied, and the levy sustained.  Tax Court sent it back to reconsider the IA.  This is when CDP hearing is terrible, and IA is rejected.  Goes back to Court, wins again, back to Appeals, and gets an IA.  The Court highlighted the various cases that indicated Section 7433 should be construed narrowly to only collection actions, and then stated:

 All of [taxpayer’s] alleged wrongdoing took pace prior, or in relation to, platinff’s CDP hearing.  They were, therefore, actions taken during the determination or assessment of plaintiff’s taxes, not during their collection….indeed, the government never collected taxes pursuant to [taxpayer’s] assessment; instead, plaintiff sought , and was granted, a second appeal which ultimately resulted in her successful application for an installment plan.

Hmmm. I’m not certain the Court was wrong in its holding, but the opinion does not clearly convince me that levy actions, liens, CDP hearings, and installment agreements (all of which would have been after assessment of the tax) are not collection actions, and are instead assessment actions.  This is especially true, because there was no mention in the opinion of the taxpayer questioning the underlying assessment of tax.  She was simply seeking collection alternatives.

Interest on Deposits May Prevent Taxpayers From Obtaining Costs and Fees from Service.

Today’s post deals with the intersection of the deposit procedures for suspending the running of overpayment interest and seeking administrative costs and fees.  Although not quite as sexy as Rihanna settling her tax case, it highlights a strange and potentially unfair requirement for obtaining interest on deposits, and shows the impact of the rule that may not have been considered by the drafters.  As discussed below, taxpayers seeking interest on their deposits in the event of their ultimate success must “endorse” the position of the IRS as reasonable at the same time they are attacking the position as incorrect.

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For years, taxpayers have been allowed to make advanced remittances in the nature of cash bonds to post against potential tax debts.  These remittances stop the running of underpayment interest on the potential debt and allow taxpayers still to seek prepayment review in the tax court, but historically also did not allow the taxpayer to receive overpayment interest on the amount remitted unless the taxpayer pays it after filing a Tax Court petition.  If the taxpayer elected to treat the advanced remittance as a payment, the taxpayer would be entitled to overpayment interest, but there are various reasons why a taxpayer would potentially not want the remittance treated as a payment (tax court review, refund procedures, statute of limitations).   As a side note, Les and I are currently finishing up the rewrite dealing with Chapter 6, in IRS Practice and Procedure by Saltzman and Book, which deals with interest.  Advanced remittances is an area that received a substantial rewrite.  The new version should be available by the fall!

In 2004, Congress amended Section 6603 to codify portions of the advanced remittance treatment that was in largely in place, but also added a provision under Section 6603(d) that offered taxpayers the ability to receive interest on some advanced remittances treated as bonds when there was a “disputable tax”.  Under the statute, interest will be paid on the advanced remittance if the disputable tax is identified at the time the remittance is made.  To identify the disputable tax the taxpayer must specify “at the time of the deposit…the taxpayer’s reasonable estimate of the maximum amount of any tax attributable to disputable items.”  The key issue is the definition of “disputable items”, which is “any item of income, gain, loss, deduction, or credit if the taxpayer has a reasonable basis for its treatment of such item and reasonably believes that the Secretary also has a reasonable basis for disallowing the taxpayer’s treatment of such item.”

This is a strange requirement, and I’m not sure its equivalent is found in any other provision of the Code.  I obviously take no issue with the taxpayer stating it has a reasonable basis for its position, but am perplexed by the requirement that the taxpayer reasonably believe the IRS had a reasonable basis for disallowing the treatment.   I believe the policy behind this provision was to ensure there were actual controversies, and taxpayers didn’t simply park their funds with the Service to generate interest on unnecessary deposits.  But, the statute frames this requirement in a manner requiring the taxpayer to opine on the reasonableness of the Service’s position.

With this requirement, the statute on its face prohibits interest from being paid if the IRS position lacks a reasonable basis (unless the Service is unreasonable, but the taxpayer reasonably believes the IRS is being reasonable).  It is unclear how this advances the tax system, or encourages taxpayers to make deposits.  In fact, by forcing the taxpayer to state the Service is being reasonable, the statute could thwart the overall intention of the statute in increasing deposits and providing interest on those deposits, as it limits the number of controversies covered and, as explained below, taxpayers may not be willing to state the Service has been reasonable.

It is also unclear, save an exception to be discussed below, how a taxpayer would know in all situations if the Service has a reasonable position, and to what extent the taxpayer must investigate this to actually show the taxpayer reasonably believes the Service was reasonable.  It would be entertaining if this caused the Service to make the perverse argument that it was unreasonable in an attempt to deny interest, but I assume any disagreement in this area would be based on whether or not the Service was taking the position claimed by the taxpayer.  Presumably, if the Service declined the taxpayer’s position for interest, there would be some type of appeal allowed.  Revenue Procedure 2005-18 does not specify the appeal procedure, and the statute does not specify what should occur during a disagreement.

As I mentioned above, there is an exception for the taxpayer having to determine what the Service’s position is for a disputable item, and if it is reasonable.  Section 6603(d)(2)(B) states that in the case of a taxpayer who has been issued a 30-day letter, the maximum amount of the disputable tax shall not be less than the amount of the proposed deficiency specified in the 30-day letter.  Taxpayers can, in fact, submit the 30-day letter in lieu of the other disputable tax notification pursuant to Rev. Proc. 2005-18.  Submitting the 30-day letter is an easy way to show the disputable tax, but the statute does not state submitting the 30-day letter will cause the underlying tax attributes to not be “disputable items”.  In submitting the 30-day letter, the taxpayer may still be treated as taking the position the Service was reasonable, although not required to state as much in its submission.  I would certainly argue otherwise, but there was no guidance on the matter.  This is an important point for the fees and costs discussion below.

Not allowing interest when the Service is acting unreasonable seems like a sufficient reason to revisit this statute, but taking the position that something is a “disputable tax” has at least one other presumably unintended consequence.  If a taxpayer subsequently desires to seek administrative or litigation costs and attorneys’ fees, acknowledging the Service position was reasonable would prevent the taxpayer for obtaining the costs under Section 7430.  Under Section 7430, the “prevailing party” is entitled to costs and fees in certain circumstances.  The statute, however, has an exception to treating a taxpayer as the prevailing party if the service is “substantially justified.”  This is shown, under the regulations, by the Service showing it had a reasonable basis in both fact and law.  If the taxpayer has already stated the Service had a reasonable basis for its position when the taxpayer was seeking interest on the deposit, the Service would seemingly have little trouble showing it was substantially justified for that particular tax item.

We’ve discussed before on Procedurally Taxing some of the potential benefits of qualified offers in attempting to receive fees and costs, and this is another potential benefit.  If a qualified offer is made, the Service is precluded from showing it was justified in its position, making the taxpayer’s statement regarding the Service’s position unimportant.  That does provide some relief, but taxpayers rarely use the qualified offer option.

Overall, requiring the taxpayer to endorse the Service’s position as reasonable, allowing no interest when the Service’s position is unreasonable does not advance tax administration and creates a policy for obtaining interest that could disallow fees and costs even if the Service unjustifiably protracts a matter.  There are certainly other ways for the Code to determine if there has been an actual controversy without requiring the taxpayer to state the Service is being reasonable.  For instance, the taxpayer could notify the Service he or she is taking the position that there is a disputable item, and the Service could have a set time period to respond or state it is not taking the alleged position.    There are probably even more efficient and clever ways of handling this that would benefit the Service by encouraging more deposits, and benefit taxpayers by providing interest on those deposits.

Quick Thoughts on Procedural Aspects of Camp’s Tax Code Overhaul Proposal and the Spate of Important Interest Cases

Representative Camp’s Major Legislative Proposal 

There are over 979 pages of legislative text associated with just-released Ways & Means Chair Camp’s proposal to overhaul the tax code.  The proposal is far-reaching and has been getting lots of coverage, mostly looking at the major individual and business tax changes. On the individual side, some of those changes include ending the deduction for state and local sales taxes, and cut backs to some sacred cows of tax expenditures like home mortgage interest and the exclusion for employer provided health insurance.

Not getting nearly as much attention as other provisions in the plan are some of the procedural proposals. The Joint Committee has a separate summary of the procedural provisions—that link is here.

There are four main categories of procedural changes:

  1. Changes Relating to the IRS Scandal of the Past Year
  2. Taxpayer Protection and Service Reforms
  3. Tax Return Due Date Changes
  4. Compliance Reform
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From a quick look, some in the first category are of the partisan variety, such as a provision specifically requiring a moratorium on IRS conferences.

However, there are many other serious and important proposals peppered throughout the procedural provisions, including some provisions floated previously, like changes to the due dates of some tax returns. Compliance reforms include a beefing up of penalties for failure to file returns and information returns.

In what looks like to be a nod to the tax software lobby, under the category of taxpayer protections the proposal specifically prohibits the IRS from sending prepopulated (or ready returns) except in limited circumstances.

And, what would legislation be without thinking of ways to penalize EITC claimants? The legislation provides for a legislative reversal of Rand and would treat disallowed EITC that is in excess of a tax liability as an underpayment for purposes of the accuracy-related penalties. For good measure, it also provides that the special 6676 penalty for improper refund claims is applicable to the EITC.

Proposed procedural tax legislation proposals are kind of like warts; they stick around, maybe disappear for a while, and then come back at you.  We too will come back to some of these proposals in later posts.

Interest

Steve and I are working on the rewrite of the interest chapter (Ch 6) in the Saltzman and Book IRS Practice and Procedure book. The updated chapter is coming out in a few months. I must confess that interest is one of the areas that I have not paid close attention to until this rewrite. We have, of course, updated the book to reflect developments, and over the last few months in the blog we have written about some major cases involving interest. For example, last month in Corbalis v Commissioner: Tax Court has Jurisdiction to Consider Interest Suspension Decisions, we discussed the Tax Court’s decision to essentially disregard an IRS revenue procedure that concluded that the Tax Court could not hear interest suspension disputes under Section 6404(g).

Late last year in Ford v US: Supreme Court Weighs in on Lower Court Jurisdiction in Interest Disputes we discussed the challenging statutory interpretation issues underlying the Supreme Court’s remand of a case to determine whether Court of Federal Claims rather than district courts should have jurisdiction to hear  overpayment interest disputes (the merits of that case revolve around when overpayment interest arises—Ford said it runs from the date of the deposit and IRS said it ran from when Ford requested that the deposits be treated as tax payments).

Just the other day in the weekly Summary Opinions Steve highlighted the Deutsche Bank case where the Court of Appeals for the Federal Circuit held that the taxpayer’s corporate return was not processible and thus would not trigger overpayment interest due to its failing to include forms that verified the bank’s withholding tax credits.

In researching for the rewrite, we came across an excellent summary of some of the major pending interest cases that Bob Probasco and Mary McNulty of Thompson and Knight have put together and posted here on the T and K Tax Knowledge Blog. Mary and Bob and a couple of others also wrote a good article back in 2005 considering some of the challenges associated with interest computations. A link to that article is here.

 

Corbalis v Commissioner: Tax Court Holds it Has Jurisdiction to Review Interest Suspension Decisions

The Tax Court decided a case of first impression, Corbalis v Comm’r, 142 TC No. 2. The main issue decided on summary judgment was whether the court review provisions of section 6404(h) apply to denials of interest suspension under section 6404(g). IRS had taken the position that the court review provisions of 6404(h) applied only to final determinations relating to 6404(e), dealing with abatement claims running from IRS ministerial or managerial mistakes. The Tax Court held that it does have jurisdiction to review an IRS determination that the suspension period does not apply. The case is also interesting procedurally because it makes the important point that IRS revenue procedures, especially when unaccompanied by persuasive reasoning, are entitled to no judicial deference.

I will provide some background for the dispute and summarize the main points.

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It is difficult to get IRS to abate interest. Section 6404(e) and (g) provide two avenues for taxpayers to argue interest should not apply. Section 6404(e) relates to delays stemming from ministerial or managerial acts. There are regulations applying Section 6404(e) and a number of Tax Court cases considering whether delays constitute managerial or ministerial acts.

Section 6404(g) is a less well-known provision. Part of RRA 98, it generally provides that interest does not run if the Service fails to contact the taxpayer within the close of the 36-month period beginning on the later of (i) the date on which the return is filed; or (ii) the due date of the return without regard to extensions. Originally, the provision had more bite because Congress provided for an 18-month period, but it is still on the books.

The Tax Court has exclusive jurisdiction under Section 6404(h) to review a claim that “failure to abate interest under this section was an abuse of discretion, and may order an abatement, if such action is brought within 180 days after the date of the mailing of the Secretary’s final determination not to abate such interest.”(emphasis added)

The case provides the background on Section 6404(h):

 When enacted in 1996 as part of the Taxpayer Bill of Rights 2 (TBOR 2), Pub. L. No. 104-168, sec. 302(a), 110 Stat. at 1457-1458 (1996) (as amended by TBOR 2 sec. 701(a) and (c)(3), 110 Stat. at 1463, 1464), then section 6404(g), now section 6404(h), for the first time gave this Court jurisdiction to review requests for abatement of interest in the case of proceedings commenced after July 30, 1996. Before the enactment of that provision, the Court generally lacked jurisdiction over issues involving interest.

IRS issued Rev. Proc. 2005-38. It provides generally that IRS views Tax Court review of interest determinations as limited to Section 6404(e) abatement claims, and not claims that interest should be suspended under Section 6404(g).

Though taxpayers made an argument that the procedure could be read differently to contemplate court review of suspension determinations, the court gave no deference to the procedure:

There is no reasoning in support of the conclusion stated in the revenue procedure, and we discern none for distinguishing between section 6404(e) requests and section 6404(g) requests. Thus, the revenue procedure is not entitled to deference. See Exxon Mobil Corp. v. Commissioner, 689 F.3d 191, 200 (2d Cir. 2012), aff’g 136 T.C. 99, 117 (2011). A procedural pronouncement cannot restrict or revise section 6404(h). See Commissioner v. Schleier, 515 U.S. 323, 336 n.8 (1995); Estate of Kunze v. Commissioner, 233 F.3d 948, 952 (7th Cir. 2000), aff’g T.C. Memo. 1999-344. The wording and context of the statute, supplemented by more general legal principles, control.

The court turned to the statute and its main reason for holding that the court had jurisdiction follows:

 First, we agree with petitioners that all of section 6404 deals with abatement, of which suspension is a category. A claim that interest should have been suspended for a period is the logical equivalent of a claim for abatement of interest that has been assessed for that period.

The court goes on to draw on general administrative law principles—increasingly important in tax cases—that provide that there is “a strong presumption that the actions of an administrative agency are subject to judicial review.” It noted that “the use of “shall” in a statute (as in 6404(g)) suggests agency actions are susceptible to court review. Citing to general administrative law doctrine, it notes that “[h]istorically, clear indications of congressional intent to subject discretionary administrative action to judicial review have been required. See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 410 (1971) (interpreting 5 U.S.C. sec. 701(a)(2), which exempts discretionary administrative action from judicial review).”

A final procedural point worth noting. IRS argued in the alternative that the administrative procedures were ongoing and that the letters it issued to the taxpayer were not a final determination. The opinion dismissed that argument, noting and referring to other authority that emphasizes the label of a document is not conclusive. The key is whether the letter embodies a determination in substance.

Parting Thoughts

I suspect that we will not see many cases involving suspension periods. The court in Corbalis itself reserved judgment on whether the suspension period provisions apply, noting that the record was incomplete on whether the suspension period is implicated in the circumstance in this case (loss carrybacks). The case is of broader significance. First, the Tax Court rightly gave the IRS revenue procedure purporting to define its jurisdiction no deference, especially when the procedure lacked a reasoned explanation. Second, advocates are well served to draw on general administrative law principles and caselaw, especially in cases that are not deficiency determinations.  In the last few decades Congress has increasingly expanded the Tax Court’s jurisdiction to matters beyond deficiency cases. This past decade has seen significant developments clarifying the importance of those administrative law doctrines. Just how far some of the general administrative law principles will disrupt established tax practice is an open and very current question.