March 2022 Digest

Spring has arrived and the Tax Court has resumed in-person sessions for many locations. In Denver, we have our first in-person calendar call on Monday. I’m looking forward to it, but also need figure out if any of my suits still fit. PT’s March posts focused on issues with examinations, IRS answers, and more.

A Time Sensitive Opportunity

Loretta Collins Argrett Fellowship: The Loretta Collins Argrett Fellowship seeks to support the inclusiveness of the tax profession by encouraging underrepresented individuals to join and actively participate in the ABA Tax Section and Tax Section leadership by providing fellowship opportunities. More information about the fellowships and how to apply are in the post. Applications are due April 3.

Taxpayer Rights

The 7th International Conference on Taxpayer Rights: Tax Collection & Taxpayer Rights in the Post-COVID World: The virtual online conference is from May 18 – 20 and focuses on the actual collection of tax. The agenda and the link to register are in the post. Additionally, the Center for Taxpayer Rights is hosting a free workshop called The Role of Tax Clinics and Taxpayer Ombuds/Advocates in Protecting Taxpayer Rights in Collection Matters on May 16 and a link to register is also in the post.

How Did We Get Here? Correspondence Exams and the Erosion of Fundamental Taxpayer Rights – Part 1: Correspondence exams now account for 85% of all audits, up from about 80% in the previous two years. This post looks at data on correspondence audits and identifies a disproportionate emphasis on EITC audits which burden and harm low income taxpayers. 

How Did We Get Here? Correspondence Exams and the Erosion of Fundamental Taxpayer Rights – Part 2: This post considers the long-term goal of audits, along with recommendations for how the IRS can improve correspondence exams. Such recommendations include utilizing virtual office audits; using plain language, tailored, and helpful audit notices; and assigning the audit to one specific person at the IRS. Making correspondence audits more customer friendly could fall under the purview of the newly created IRS Customer Experience Office.

read more…

Opportunities for Improving Referrals by VITA Sites to LITCs: Taxpayer rights could be better protected if VITA sites better understood when a referral to an LITC may be necessary and how to make such a referral. This post explores opportunities to improve this process, including a training initiative begun by the Center for Taxpayer Rights.

Tax Court Updates and Information

Tax Court is on the Road Again: The Tax Court officially resumed in-person calendars on Monday, February 28, but select calendars are still being conducted remotely. Practitioners who have recently attended in-person calendars share more information about what it’s like to be back.

Ordering Documents from the Tax Court: A “how to” on ordering documents from the Court. Phone requests are currently the only way, but in-person requests may resume once the Court reopens to the public. Both options come with a per page or per document fee.

Tax Court Proposed Rule Changes: The Tax Court has proposed rule changes which are largely intended to clean up language or more closely conform the Tax Court rules to the Federal Rules of Civil Procedure. It invites public comments on the proposals by May 25, 2022.

Tax Court Decisions

Tax Court Takes Almost Five Years to Decide a Dependency Exemption Case: Hicks v. Commissioner highlights the procedures required to claim a qualified child as a dependent when the child does not reside with the taxpayer. The case is noteworthy for the length of time it took the Court to issue an opinion, especially because there were no continuances or other reasons for a delay.

Jeopardy Assessment Case Originating in the Tax Court: The opinion Yerushalmi v. Commissioner is rare because the Tax Court reviews whether jeopardy exists in the first instance, rather than following a district court decision. The post looks at the case, the standard of review, and the facts that can be relevant to the Tax Court when it must decide whether the IRS’s jeopardy assessment was reasonable.

Tax Court Answers

Tax Court Answers: There are issues caused by requiring the IRS to file answers in small tax cases. It delays a review of the case on its merits, the process is slow and impersonal, and there are risks that a taxpayer won’t understand what the answer says. The Court should consider conducting an empirical study, engaging with taxpayer representatives, or forming a judicial advisory committee to identify best practices.

Making the IRS Answer to Taxpayers…By Making the IRS Answer: In the first of a three-part series looking at issues with IRS Counsel answers, Caleb looks at the case of Vermouth v. Commissioner. The case emphasizes the importance of the administrative file during the pleading stages of litigation. Cases involving bad answers and their impact on the burden of proof and burden of production are also discussed.

Making the IRS Answer to Taxpayer Inquiries…By Making the IRS Reasonably Inquire: Tax Court Rule 33(b) requires a signer of a pleading to reasonably inquire into the truth of the facts stated therein. To what degree are IRS Counsel attorneys required to reasonably inquire when filing an answer? This post explores that question and sheds some light on the Court’s expectations.  

Making the IRS Answer to Taxpayer Inquiries…By Making the IRS Reasonably Inquire (Part Two): Continuing the discussion of the IRS’s responsibilities under Rule 33(b), this post looks closer at the consequences to the IRS when a bad answer is filed. Caleb examines the Court’s response in cases where an administrative file was excessively lengthy or not available quickly enough and shares the lessons to be learned.

Circuit Court Decisions

Naked Owners Lose Wrongful Levy Appeal: Goodrich et. al. v. United States demonstrates the interplay of state and federal law upon lien and levy law under the Internal Revenue Code. The 5th Circuit affirmed that a taxpayer’s children had a claim against their father’s property, but only as unsecured creditors according to state law. As a result, the children’s interests were not sufficient to sustain a wrongful levy claim.

Confusion Over Attorney’s Fees in Ninth Circuit Stems from Statute and Regulation…: In Dang v. Commissioner the parties debated the starting point in which reasonable administrative costs are incurred in the context of a CDP hearing. The IRS argued it’s after the notice of determination. Petitioners argued it’s after the 30-day notice which provides the right to request a CDP hearing. The Court decided no costs were incurred before the commencement date of the relevant proceeding without deciding when that date was. The case provides another reason why the statute and regulation involving the recovery of administrative costs from administrative proceedings should be changed.

Attorney’s Fees Cases in the Ninth Circuit and Requesting a Retirement Account Levy: The concurring judge in Dang demonstrates that he understands the entire argument and finds that the exclusion of collection action from the definition of administrative proceedings is contrary to the plain language of the statute. 

Oh Mann: The Sixth Circuit Holds IRS Notice Issued in Violation of the APA; District Court in CIC Services Finds Case is Binding Precedent: The decision Mann v. United States is binding on CIC Services and is examined more closely in this post. In Mann, the Sixth Circuit found that the IRS notice at issue was invalid because the public was not provided a notice and comment opportunity. The case is significant because it is another circuit court opinion that applies general administrative law principles to the IRS.

You Call That “Notice”? Seriously?:  General Mills, Inc. v. United States involves refund claims that were made within the two-year period under section 6511, but outside of the six-month period which starts when a notice of computational adjustment is issued to partners. The Court seemingly concluded that notices, unless misleading, need only to comport with statutory requirements regardless of due process considerations. The post also evaluates and discusses the adequacy of common notices in relation to the notice of computational adjustment.

No Rehearing En Banc for Goldring: Is Supreme Court Review Possible?: The issue in Goldring was how underpayment interest should be computed on a later assessed deficiency when a taxpayer elects to credit forward an overpayment from an earlier filed return. The government’s rehearing en banc petition was denied leaving in place the circuit split. IRS Counsel has advised that there are thousands of similar cases, which could result in refunds of multiple millions of dollars, so it is yet to been seen if the government will petition the Supreme Court.

Challenging Levy Compliance: In Nicholson v. Unify Financial Credit Union the Fourth Circuit affirmed the dismissal of a suit to stop a levy brought by a taxpayer against his credit union. The law requires a third party to turn over the property to the IRS and then allows the taxpayer whose property was wrongfully taken to seek the return of that property from the IRS, so suing the credit union is not an effective avenue.

Offers in Compromise

Suspension of Statute of Limitations Due to an Offer in Compromise: The statute of limitations on when the IRS can bring suit to reduce a liability to judgment is at issue in United States v. Park. An offer in compromise suspends the collection statute and can give the IRS more time than a taxpayer would expect. It’s good idea to consider the risks before submitting an offer.

Public Policy and Not in the Best Interest of the Government Offer in Compromise Rejections: Cases where the IRS rejects an offer in compromise based on public policy or for not being in the best interest of the government are reviewed to better understand the reasons for such rejections. The IRS may look at past and future voluntary compliance and criminal tax convictions. The IRS should make offer decisions easily reviewable to provide more transparency in this area.

Correction on Making Offers in Compromise Public: Keith has learned that the IRS has updated the way in which the public can inspect accepted offers. It is by requesting an Offer Acceptance Report by fax or mail. The report, however, only contains limited and targeted information, so FOIA is still the only way to receive broad and general information.

Bankruptcy and Taxes

General Discharge Denial in Chapter 7 Based on Taxes: In Kresock v. United States, a bankruptcy court’s denial of discharge was sustained by an appellate panel due tothe debtor’s bad behavior in connection with his tax debts. It is seemingly unusual for a general discharge denial to occur where the basis for denial is tax related.


The Passing of Michael Mulroney: Les and Keith share remembrances of Michael Mulroney, an emeritus professor at Villanova Law School.

Congress Should Make 2022 Donations to Ukraine Relief Deductible in 2021: In order to encourage taxpayers to make donations in support of Ukraine, this post recommends that Congress create a deduction similar to the one permitted for the Indian Ocean Tsunami Act, which allowed deductions made in the current tax year to be claimed on the prior year’s return.

Jeopardy Assessment Case Originating in the Tax Court

Jeopardy assessment cases can end up in the Tax Court.  I have written on the long running jeopardy case of former Pennsylvania Senator Fumo’s on numerous occasions that you can find here with links to other posts going back almost nine years to the beginning of this blog site.  That case, however, took the traditional route of jeopardy cases to the Tax Court by passing through the district court first.  Jeopardy cases are relatively rare, but jeopardy cases arising while a case is pending in Tax Court are very rare indeed.  Read this post by Bob Kamman for a very old and interesting jeopardy case. 

The case of Yerushalmi v. Commissioner, Dk. No. 5520-08 (docket entry 161 on December 28, 2021) has got to be one of the oldest cases still open in the Tax Court’s inventory.  It concerns liabilities from 1999 and 2000.  While I am prone to complain when I think the Tax Court has taken too long to get out an opinion, this case presents a situation in which the delays stem from matters outside of the Tax Court’s control.  While this 14-year old Tax Court case was pending, the IRS came across information that made it believe the collection of the liability was in jeopardy.  So, we get a rare opinion from the Tax Court on whether jeopardy exists rather than the more normal Tax Court opinion in a jeopardy case where it is following after the district court.  On top of that we get a case with interesting facts in an opinion written by Judge Holmes.  The opinion comes out in the form of an order.


The IRS read something in a stipulation in the divorce proceedings of petitioner and her ex-husband that made it think that petitioner

is or appears to be designing quickly to place her property beyond the reach of the Government either by removing it from the United States, by concealing it, by dissipating it, or by transferring it to other persons

Once the IRS makes the jeopardy assessment, the person against whom the IRS makes the assessment has 90 days to contest the assessment.  The court reviews the jeopardy determination de novo, looking at two issues as part of its scope of review:

(1) Is the jeopardy assessment “reasonable under the circumstances,” and (2) is the amount assessed “appropriate under the circumstances.”

The IRS has the burden to prove jeopardy. The Tax Court has the choice to agree  – allowing the assessment to stand; to order abatement of the tax in full causing the IRS to go through the deficiency process as in the Fumo case; to redetermine the amount of tax at jeopardy, letting the assessment stand on that amount; or to take other action it deems appropriate.  Whatever the Tax Court decides in a jeopardy case is final.  Neither party can appeal the jeopardy determination.  The Tax Court can base its determination on evidence that normally would not come into the record.  In short, jeopardy cases are the court equivalent of a Wild West proceeding but one normally followed by a deficiency proceeding which takes place either while the IRS is out collecting on the assets it feared it might lose or while the IRS stands around tapping its toe awaiting the deficiency determination, as it has been doing in the Fumo case now for almost nine years.

The Tax Court’s standard of review in a jeopardy case requires it to sustain the jeopardy determination if it was reasonable.  After setting the legal scene, the Court gets into the facts of the case which, as you might imagine, are interesting and unusual.

The happy couple got married in 1971.  He was a tax attorney and she, after 1983, did not work outside the home.  They bought their marital residence in Great Neck in 1983.  In 1989 he created the Yerushalmi Family Trust with his wife as the grantor and a friend as the trustee.  In 1995 he set up a qualified personal residence trust (QPRT) with his wife as the grantor.  They took large losses on their 1999 and 2000 returns that resulted in the Tax Court deficiency case.  In 2002 she sued for divorce.  In 2007 he filed bankruptcy for himself and his law firm starting with a chapter 11 case but converting to a chapter 7.  The divorce case lasted for 17 years which explains part of the delay in the Tax Court case. 

The trustee in the husband’s bankruptcy case tried to bring some of the value of the marital residence into the estate but the bankruptcy court ruled that the QPRT was valid, preventing the trustee from getting value from the house for general unsecured creditors.

I don’t know anything about QPRTs, but Judge Holmes cites to 26 C.F.R. § 25.2702-5(b)(1) in support of the view that they expire after a set term.  This one was set to expire in September of 2018, at which time the property was supposed to be transferred into the Yerushalmi Family Trust I, but nothing was recorded.  In 2019 they created the Yerushalmi Family Trust II for their children and grandchildren and a notice was issued to transfer the assets from I to II, listing someone as the trustee of I different from the person originally listed.

Meanwhile, the 17-year-old divorce proceeding was finalized in 2019 in which the parties stipulated that Mr. and Mrs. Yerushalmi owned the marital residence with no mention of trust I or II.

They also bought a condo in New York City in 1997 listing trust I as the owner but listing a third person as the trustee.  No record of the retirement of any previous trustees, just a new trustee each time.  In the divorce finalization, this property was also listed as owned by Mr. and Mrs. Yerushalmi.

These were not the only two properties they owned, but other properties also had issues with the title or with consideration.  He also filed a statement of net worth in the divorce proceeding listing the properties as owned by the QPRT or trust I.

Having analyzed the property transfers, titles, lack of recordation and shifting trustees, the Court finds that the IRS has made a “good case.”  Taxpayers’ actions here appear designed to conceal ownership of the property.  So, the motion to review the jeopardy assessment is denied.

Given the small number of jeopardy cases the Tax Court sees, I am a little surprised that the decision comes out in the form of an order.  The speed with which a jeopardy determination must occur may have played a role in issuing an order rather than a memorandum opinion. 

The facts here remind me in some ways of the Fumo case, where the bulk of the assets at issue were real property which was also being transferred about.  There the district court judge did not find jeopardy, in part, because of the nature of the assets.  Real property is not going anywhere but transfers can occur before the IRS gets to make an assessment following a Tax Court case and, of course, a sale of the property could occur, allowing the dissipation of proceeds.  In cases involving real property that the taxpayer is playing with as here and as in the Fumo case, I think that if the reviewing court is not going to let the jeopardy assessment stand, it should use its ability to “take other action it deems appropriate” to tie up the property even if it does not let the assessment stand.  It’s easier to think of jeopardy when a taxpayer has an airplane ticket and a bag full of cash or a history of transfers to a tax haven.  The situation here does put the IRS at jeopardy of getting paid once the Tax Court cases reaches its conclusion and jeopardy or some other action seems appropriate to keep the proceeds available.

The Law Does Not Forbid a Helpful Internal Revenue Policy

Commenter in chief Bob Kamman returns with a colorful story following up on yesterday’s topic of jeopardy assessment.

The Fumo case, of course, is small potatoes.  If you want a real jeopardy assessment involving a real politician, you have to go back to March 13, 1925, when Internal Revenue assessed James Couzens, United States Senator from Michigan, $10.9 million in tax based on his sale in 1919 of Ford Motor Company stock to Henry and Edsel Ford.  Until 1915, Couzens had been vice president and treasurer of Ford Motor.


The assessment was announced on the Senate floor by Couzens himself, who accused Treasury Secretary Andrew Mellon of initiating the audit to discipline Couzens for his investigation of the Bureau of Internal Revenue.  Couzens was a former mayor of Detroit who had been appointed to a vacant Senate seat in 1922 and then elected for a full term, starting nine days before the jeopardy assessment. 

Couzens (pronounced “cousins”) was one of several minority shareholders in Ford who complained that Ford was not paying dividends even though its profits could support them.  A state court agreed, so the Ford family agreed to buy them out.  The shareholders were reluctant to sell without knowing how much they would owe in income taxes, which were at a post-war high of 73% (with no break for capital gains).

And the shareholders did not know their cost basis because it depended on the value of the stock on March 1, 1913, when the income tax went into effect.  Ford was not publicly traded.  At the time, Internal Revenue would audit a company to determine this amount.  Henry Ford asked for an audit, and the Commissioner authorized it.

That “courtesy audit” placed the value at  $9,489 per share.  Couzens, who sold 2,180 shares for $29.3 million, used this audit result when he filed his 1919 return.  But then, under a later Commissioner, his return was audited under a new Commissioner.  (His return had also been audited in 1920, but for a different issue.)  And this time, the valuation was reduced to $2,634 per share.  A jeopardy assessment was required because the statute of limitations was about to expire on March 15, 1925, five years after the due date of the original return.  

Couzens and the other shareholders negotiated in secret with Internal Revenue lawyers until their lawsuit was filed in December 1925.  When it went to trial in January 1927 before the Federal Board of Tax Appeals (predecessor to the Tax Court), it was the largest income tax case in U.S. history. Government lawyers had reduced the claim by $1.5 million, allowing a value of  $3,548 per share, so only $9.4 million was at stake.

The petitioners argued estoppel required use of the higher valuation, but the BTA disagreed, and explained in terms that might be useful today:

The evidence shows that at the time of the valuation there was in the Bureau of Internal Revenue a policy of being helpful to taxpayers in adjusting them to the new tax law, but that this policy interfered with the administration of the assessment and collection of taxes and was soon restricted. . . .It should not be understood that the law forbids a helpful policy.  There is a public interest in the cooperation by the Bureau of Internal Revenue, and it should be given as freely as efficiency and good administration permit.  But it cannot go so far as to fix a responsibility beyond that contemplated by the statute, and it would be unjustified to stifle a spirit of helpfulness with a caution against binding and irrevocable action.

In May 1928, the three participating judges of the Board decided  the stock was worth $10,000 per share.  Couzens owed nothing, and could collect a refund of the $92,000 in taxes he had paid in 1924, having filed a timely claim, because of the earlier audit on an unrelated issue.  

Two other Ford shareholders involved in the case were the estates of John and Horace Dodge, also well known in the automobile industry. Another of the shareholders, John W. Anderson, was represented by E. Barrett Prettyman, who later became an Appeals Court judge and had a D.C. courthouse named after him.

Jeopardy Assessments

Jeopardy assessments are relatively unusual and have not been heavily covered on PT, with the exception of the District Court and Tax Court cases of former Pennsylvania state Senator Vincent J. Fumo. I first wrote about the government’s attempted jeopardy assessment against Mr. Fumo early in the life of this blog, here and here, with the second link containing links to even earlier discussions of the case and of jeopardy assessment.  Caleb Smith wrote a more recent post about the case.  Mr. Fumo is a former powerful state senator in Pennsylvania who was convicted of abusing his position and spent time in prison as a result.  His tax liability relates to his use and alleged abuse of a tax exempt organization for personal gain.  In May 2021, only eight years after the filing of the Tax Court petition following the denial of a jeopardy assessment against him, the Tax Court granted partial summary judgment to the IRS, leaving the balance of the issues to be decided after a trial to be held at a future date.  This is not the normal time trajectory for a jeopardy assessment case.  The blog posts above provide background regarding the denial of the jeopardy assessment. 

A recent jeopardy decision in the case of Kalkhoven v. United States, No. 2:21-cv-01440 provides a much more normal case for taking another look at jeopardy assessment for those readers who did not follow PT in 2013 when I provided an earlier explanation of the provision.


Jeopardy stands as an exception to the normal path of making an assessment. The IRS’s authority to make assessments is set out in the Code. In our income tax system, described as a self-assessment system, the vast majority of assessments made by the IRS result from the filing of a tax return on which the taxpayer tells the IRS the amount of tax owed and grants permission thereby for the IRS to make the assessment. IRC section 6201(a)(1).

In cases in which the IRS challenges the amount of tax reported on the return, the person auditing the return seeks the taxpayer’s permission to assess additional tax by asking the taxpayer to sign a form consenting to an additional assessment.  If the taxpayer does not consent to the additional assessment, the statute provides for the IRS to send a notice of deficiency giving the taxpayer the chance to contest the additional taxes prior to assessment, resulting in statutory permission for the IRS to make the additional assessment either because of default of the taxpayer in petitioning the Tax Court or a Tax Court decision document entered after settlement or judicial opinion.  (Math error assessments are another part of this path to assessment; they involve consent by default or the opportunity for a notice of deficiency.) See IRC sections 6212 and 6213.

Standing outside this normal path to assessment is jeopardy assessment.  Congress recognized that the ability of the IRS to assess additional taxes could take time.  It may not have envisioned the amount of time the Fumo case is taking, but it knew that the taxpayer could delay assessment by slowing down the audit and by going to Tax Court, and that the delay of assessment could create opportunities for dissipation of assets which would ultimately prevent the IRS from collecting the correct amount of tax.  So, in extraordinary circumstances, it permits the IRS to assess the additional income taxes (or other taxes subject to the deficiency procedure) first and only later give the taxpayer a chance to contest the correctness of the assessment. (See sections 6851, 6852, 6861, and 6862.) The IRS employed this procedure successfully in the Kalkhoven case.

Mr. Kalkhoven participated in tax shelters, held money in offshore accounts and controlled businesses that sold valuable real estate.  The IRS calculated he owed about $350 million in taxes, penalties, and interest.  As in the Fumo case, he brought suit in district court seeking a review of the jeopardy assessment.  This type of case is usually fast moving because the IRS has tied up the taxpayer’s assets without the normal formality of permission or a Tax Court case.

a taxpayer may seek judicial review of a jeopardy assessment. See id. § 7429(b)(1)(2) (“[T]he taxpayer may bring a civil action against the United States for a determination under this subsection — district courts of the United States shall have exclusive jurisdiction over any civil action for a determination under this subsection). The court’s review is de novo. Olbres, 837 F. Supp. at 21; Fumo v. United States, No. 13-3313, 2014 WL 2547797, at *16 (E.D. Pa. June 5, 2014) (“The district court’s review . . . gives the IRS’s administrative determination regarding the jeopardy assessment no deference whatsoever.”). The district court’s consideration is limited to determining only 1) whether the jeopardy assessment was reasonable under the circumstances, and 2) whether the amount assessed was appropriate. 26 U.S.C. § 7429(b)(3); Olbres, 837 F. Supp. at 21. The government bears the burden on the first issue, while the taxpayer bears the burden of proof on the second. 26 U.S.C. § 7429(g)(1)(2).

Mr. Kalkhoven did not challenge the amount of the assessment.  He only challenged the appropriateness of using the jeopardy process.  The court noted that the standard of reasonableness of the IRS actions requires it to show that collection might be jeopardized by a delay caused by using the normal procedures for assessment and collection and not that collection would actually be jeopardized.  It also noted that because of the nature of the proceeding it can hear information that might not come into evidence in a trial on the merits and that parties can present affidavits.  The object here is to have the court make a swift decision on the basic correctness of allowing the IRS to bypass the ordinary assessment and collection process.  (The taxpayer will still get the opportunity to go to Tax Court to contest the amount of the assessment, but the Tax Court’s review will be post-assessment and possibly post-collection.)  The district court must make this decision within 20 days after the suit contesting the jeopardy assessment is brought (unless the taxpayer requests an extension), and the decision of the district court, like the decision of the Tax Court in a small tax case proceeding, is final and not reviewable.

The court first addressed a jurisdictional issue raised by the IRS that Mr. Kalkhoven failed to exhaust administrative remedies prior to bringing the jeopardy action.  The IRS argued that he needed to make an administrative request to undo the jeopardy assessment before he could jump into court.  The court skirts the issue, finding that it has jurisdiction to decide if the jeopardy assessment was reasonable.  It points out that Mr. Kalkhoven did send correspondence to the IRS prior to bringing suit and did have a virtual conference with Appeals days before filing suit.  Perhaps the court did not want to fully address this issue because of the way it intended to rule in the case.  Holding against the taxpayer on this issue might allow an appeal and delay the process.  Courts have allowed an appeal of the denial of jurisdiction in this context.  The Tax Clinic at Harvard cited to the allowance of an appeal in this context, discussed here, in its failed attempt to appeal the denial of jurisdiction in the small tax case context.  The circumstances seem parallel.

In looking at the reasonableness of the IRS actions, the court noted that some disagreement among reviewing courts existed regarding reviewing for reasonableness or reviewing based on the preponderance of the evidence. It sided with the majority on this issue, reviewing for reasonableness.  Citing the Fumo decision at the district court, the court stated that it looks to see if one of three conditions exist:

(i) The taxpayer is or appears to be designing quickly to depart from the United States or to conceal himself or herself.

(ii) The taxpayer is or appears to be designing quickly to place his, her, or its property beyond the reach of the Government either by removing it from the United States, by concealing it, by dissipating it, or by transferring it to other persons.

(iii) The taxpayer’s financial solvency is or appears to be imperiled.

The court also noted that finding one of those three conditions does not serve as a precondition to sustaining the jeopardy assessment and that other actions by the taxpayer could also support a finding that the jeopardy assessment was reasonable:

“[p]ossession of, or dealing in, large amounts of cash,” “[p]ossession of . . . evidence of other illegal activities,” “[p]rior tax returns reporting little or no income despite the taxpayer’s possession of large amounts of cash,” “[d]issipation of assets through forfeiture, expenditures for attorneys’ fees, appearance bonds, and other expenses,” “[t]he lack of assets from which potential tax liability can be collected,” “[u]se of aliases,” “[f]ailure to supply appropriate financial information when requested,” and “[m]ultiple addresses”) (citations omitted)). Several courts have considered additional factors such as whether:

the taxpayer travels abroad frequently, . . . the taxpayer is leaving or may be expected to leave the country, . . . the taxpayer has recently conveyed real estate, . . . or discussed such conveyance, . . . the taxpayer controls bank accounts containing liquid funds, . . . the taxpayer has not supplied public agencies with appropriate forms or documents when requested to do so, . . . the taxpayer controls numerous business entities, . . . the taxpayer attempts to make sizable bank account withdrawals at the time of the assessment, . . . the taxpayer maintains foreign bank accounts, . . . the taxpayer takes large amounts of money offshore, . . . the taxpayer has many business entities which can be used to hide his assets.

Bean v. United States, 618 F. Supp. 652, 658 (N.D. Ga. 1985)

Here, the court finds that the IRS met the second test.  Mr. Kalkhoven argued that he was not removing his assets quickly.  I guess, without looking at his brief, that he argued he was doing so with all deliberate speed but not quickly.  The court found his actions to warrant concern by the IRS and support the reasonableness of its jeopardy assessment.  It then spent several paragraphs detailing his actions and how they appeared designed to place his assets beyond the reach of the IRS despite his large outstanding liability.  It contrasted Mr. Kalkhoven’s case with the Fumo case in a footnote:

Kalkhoven argues he disclosed the existence of all his assets on his tax returns and the fact of disclosure also renders the assessment unreasonable. However, it is unclear what underlying assets were disclosed. Gov. Suppl. Br at 4; compare Fumo, 2014 WL 2547797, at *21 (“Defendant knows the location and amount of the proceeds from [p]laintiff’s real estate sales. . . . Moreover, the IRS was able to trace the transfers using only public records, which does not tend to show an appearance of trying to hide assets from the government”). Although Kalkhoven may have disclosed the entities that hold certain assets “the mere disclosure of entity names does not negate the added complexity and collection difficulty that attends such schemes. To find otherwise would reward those who engage the most sophisticated advisors and encourage taxpayers to establish complex asset-holding schemes that they can disclose on the surface to escape potential jeopardy assessment or collection.”   

Certainly, the size of his liability also matters in a case like this, although the court does not expressly mention it.

In the Fumo case, the IRS lost the jeopardy hearing, throwing it into the “normal” deficiency process, though eight years into its Tax Court proceeding I am not sure that this would be called the normal process.  Whether normal or not, the deficiency process does not provide the IRS with the immediate opportunity to seize assets to satisfy a liability.  In essence, the district court in the Fumo case felt that the assets would still be around to satisfy the tax at the end of the deficiency process, where the district court in the Kalkhoven case was concerned that they would not.  This abbreviated proceeding takes on great significance when you contrast the difference in outcomes between the two cases and see the IRS standing on the sidelines unable to take any collection action against Mr. Fumo for almost a decade while it has immediately taken possession of Mr. Kalkhoven’s assets and has the green light to go after any others it can locate.

Why the District Court Found No Jeopardy in Former Senator Fumo’s Case, How the Statute Could Work Better and How Bankruptcy Might Impact These Liabilities

Yesterday, I started to explain the basis for the determination that jeopardy did not exist in former Senator Fumo’s case.  I primarily discussed the aspect of the case court found troubling.   and used that discussion to raise a systemic problem with IRS examinations, revenue agents pay no attention to what a taxpayer does with assets while they audit returns.  The troubling aspect of the case for the court and for me was the four year period of the audit – a remarkable pace.

The case involved more than simply a snail’s pace audit during which the IRS paid no attention to the transfer of almost all of the taxpayer’s assets.  In addition to transferring his cash assets and fully or partially transferring his real property assets, former Senator Fumo also made statements to his ex-wife that he intended to make himself judgment proof while still retaining control of his assets.  These statements generally do not lead to a good outcome for someone trying to fend off a jeopardy assessment.  However, they were not enough to carry the day for the IRS. .  So, how did the court find that the jeopardy assessment should be abated considering there was a transfer of a significant amount of assets coupled with damaging statements that seemed to cry out for a determination of jeopardy?

Certainly, the evidence presented played a critical role in the outcome.  As I will discuss below, two other issues present themselves here.  The first, and less important, concerns the Court’s possible misunderstanding of the case.  It made a couple of statements that left me thinking it did not quite understand enough about tax procedure to understand the result of its opinion.  It is also possible that I read more into those statements than I should.  The second issue concerns the structure of the jeopardy assessment statute and the problems that structure creates for the IRS in a case where the taxpayer has/had significant real property assets.


The Asset Transfers

The court looked closely at each of the transfers and at the statements in determining whether former Senator Fumo’s actions warranted a determination of jeopardy.  Just as the revenue agent did not move quickly to complete the audit of the income tax returns, the court did not race to its conclusions.  It wrote a lengthy opinion working carefully through the applicable regulations and the facts in the case.  The transferred assets fell broadly into two categories – cash and real property.  Former Senator Fumo transferred a significant amount of money to his son right about the time the prison sentence began.  Despite the fact that much of the money transferred from Senator Fumo’s bank accounts ended up in bank accounts owned solely in the name of the son, the court found that the money transfers were reasonable because the son took on the obligation of paying the bills while he father served time in prison.  The son showed a fair amount of the money was going to pay for the father’s bills.  I could not tell from the opinion that all of the money went for the father’s bills or that the son had returned the money now that the father could handle his own financial affairs again.  Perhaps my concerns about that aspect of the story seek a level of proof beyond the required showing of general use of the funds for the father’s affairs.  This part of the proof distinguished this case from others where courts upheld the jeopardy determination.

The court found the explanations about the real estate transfers reasonable as well.  The general explanation here involved estate planning.  The “Bush tax credits” were set to expire on December 31, 2011, former Senator Fumo’s accountant advised him to make gifts before they expired in order to do some estate planning.  The transfers, except for one, kept the property partially in the name of former Senator Fumo because he transferred his property from himself to himself and his son or himself and his girlfriend as joint tenants with rights of survivorship.  Steve may write a follow up post on whether the alleged estate planning aspect of these transfers had meaning.  I found myself much less convinced by the story about the transfer of the property in comparison to giving his son control of the bank account.  Making property transfers like this while an audit is underway, even a slow moving audit and even transfers with retention of a partial interest, seems inappropriate.  I think the court did not have the right statutory tools to deal with this behavior and I would change the statute as discussed below.

The Damaging Statements

After working through the transfers the court addressed the damning statements written to his former wife in which he states he wants to put his assets in someone else’s name while retaining control  and put the assets beyond the reach of the government.  The court found they “were written in the context of seeking her input and assistance regarding what he believed was a necessary renegotiation of the loan he had with a family trust account and more generally how to handle their daughter’s trust.”  Former Senator Fumo testified that the correspondence was not “about IRS concerns” but rather renegotiation of a loan with a family partnership.  The court found the explanations were convincing and found that the IRS did not find the existence of the correspondence until several months after the jeopardy assessment and therefore could not rely on the correspondence to show jeopardy.  I found the language about putting property beyond the government’s reach hard to reconcile with a family trust dispute but I did not read the transcript and perhaps a link exists that has passed me by.  I think the court simply did not find the words overcame the acts and the acts did not rise to the level of a jeopardy assessment.  The actions do matter much more.  Words like these can support a court’s decision or be brushed away when not supportive.  I do not fault the court for brushing them aside given its conclusion on the actions.

The Court’s Apparent Misunderstanding of Assessment and Federal Tax Liens

The court made two statements that make me think it does not quite understand what it has done.  First, it said “when Plaintiff was assessed with additional income taxes of approximately $2 million in October, 2012, the IRS did not believe a jeopardy assessment was necessary.”  This statement shows that the court does not understand the word assessment even though assessment is what the proceeding is all about.  The IRS did not make an assessment in October 2012 because it could not.  At that point it issued a notice of deficiency.  Had the IRS thought that jeopardy existed at that point, it would have made a jeopardy assessment.  The demonstrated lack of understanding of assessment leads to a lack of understanding of the lien which leads to a worry that the court may not understand what it has done here.

The second statement occurs later in the opinion.  In talking about the problem of the transferred properties the court says this is not a problem because the IRS knows the identities of the parties receiving the transferred interests – the son and the fiancée.  Knowing their identities is not the real problem.  Stopping them from further transferring or tying up the property is the problem and without an assessment the IRS cannot do anything about that, but sadly, the court seems to think that it can.  The court says “Defendant has already filed a nominee lien against Plaintiff’s fiancée.”  That statement suggests the court thinks the nominee lien will continue to exist after this opinion.  The opinion results in the abatement of the underlying assessment and will cause the IRS to release all of the liens it as filed including the nominee liens

The court’s misunderstanding of assessment and apparent misunderstanding of liens leaves me wondering if it thinks that the IRS is somehow protected from further transfer of the property.  It received an expert opinion report from a prominent local tax practitioner addressing  things the IRS can do to recover the property.  I found the conclusion of this report, that the IRS may be better off because of the transfers since it has the ability to sue more people to recover the proposed deficiencies, rather remarkable.  Sure, it can pursue claims against them but that does not guarantee recovery.  The better course is to tie up the property with nominee and “regular” tax liens. The IRS cannot do that now until the end of the Tax Court case which could be years away.  The IRS unsuccessfully objected to admission of the report.  I did not read the trial transcript.  The report seemed like a great opportunity to examine the expert and bring out all of the possibilities.

A Better Way

I would like the court to have upheld the jeopardy assessment for the purpose of allowing the IRS to file liens but not to levy.  Because of the amount and value of real property in this case, the filing of liens could serve to protect the interests of the IRS without creating a major cash flow problem for former Senator Fumo while he contests the correctness of the IRS determination of his liability.  While Congress has recognized the distinction between lien and levy in the Collection Due Process (CDP) context in a similar setting, it did not make a distinction between lien and levy in the jeopardy context.  The district court either had to give a thumb’s up or down on the assessment and the lien and levy rode together in that determination.  Other jeopardy cases exist like this one where what the IRS really needs to do is tie up property to keep it from dissipating during the sometimes lengthy path to normal assessment.  It should have a mechanism for doing so.  The jeopardy statute should allow the court to make a two part determination with respect to assessment and allow the IRS to make an assessment establishing the lien with a lesser showing while only allowing it to make a levy when a heavier showing is made.

The transfer of the cash and its use to pay bills during the period of incarceration rang true enough in the case to make the need for levy action a weak need in this setting.  The success on that story colored the court’s view of the need for jeopardy particularly if it held an erroneous view of the assessment and lien provisions.

Consequences of the Loss of the Lien if Bankruptcy Ensues

The loss of the lien also matters if former Senator Fumo decides to visit the bankruptcy court.  By chance, most of the liabilities the IRS says he owes are currently dischargeable.  The lien, or the absence of the lien or of the filed notice of federal tax lien, could play a big role if bankruptcy is in his future.   The IRS says he owes three types of taxes and sent him three notices of deficiency giving rise to three Tax Court cases.  Each of these liabilities has its own discharge rules although two overlap here.  First, the IRS says he owes income taxes.  The tax years of the income tax liabilities extend back for more than a decade.  These old taxes do not get priority treatment in the bankruptcy code because only the fraud penalty is keeping open the statute of limitations.  If the IRS can prove fraud, the income taxes are excepted from discharge (meaning he still will owe them after bankruptcy) by BC 523(a)(1)(C); however the fraud penalty equal to 75% of the tax liability would not survive bankruptcy because of the age of the tax years and the limitation of BC 523(a)(7) to penalties accruing within three years of the bankruptcy petition.  The only way the IRS would recover anything on the fraud penalty would be if it had a filed federal tax lien or if the estate had enough money to pay general unsecured claims.

The gift tax is an excise tax.  Excise taxes only retain their priority for three years from the due date of the return on the gift.  The IRS alleges that the gift took place in 2009 which is more than three years ago.  The IRS will have a general unsecured claim on the gift tax which would be discharged in bankruptcy the same way the fraud penalty would be discharged.  Without a lien, the IRS might recover little.  The third liability is an excise tax for wrongfully dealing with an exempt organization.  The wrongful acts occurred more than three years ago making this a general unsecured claim, it might also be an unsecured claim because the code section giving rise to the liability is treated as a penalty provision for bankruptcy purposes.  Either way, this debt gets discharged in bankruptcy similar to the gift tax and the fraud penalty.  Bankruptcy may not occur because former Senator Fumo has too many assets to make it worthwhile or he has concerns that fraudulent transfer actions against his son and fiancée might create too much trouble but depending on his finances moving forward, it remains a potentially attractive option for eliminating almost all of the liabilities in the absence of the lien.


This was a close case.  Former Senator Fumo’s counsel did an excellent job addressing the important issues and convincing the court that the actions supporting jeopardy really resulted from other issues.  The prompt payment of the sizeable restitution and fines no doubt also played a role in the decision.  If former Senator Fumo still has significant assets when the Tax Court case reaches its conclusion, this decision matters little to the IRS.  The jeopardy assessment seeks to protect it from financial loss.  It will lose nothing if it succeeds in establishing the liability and he promptly pays up.  Of course, if he wins in Tax Court, it also suffers no financial loss.  I am concerned about the property transfers and would like to have a system that prevents further transfers during the slow process of determining the liability.  Until Congress becomes concerned about this, my private concerns do not matter.

Jeopardy Assessment Abated in Former Senator Fumo’s Case

Last fall I wrote about former Senator Fumo here, here, and here as a way to introduce jeopardy assessment and jeopardy levy.  I noted at the time that the IRS took an amazingly long time to make a jeopardy assessment against him.  I stopped writing about the case in part because the slowness of the IRS in making the jeopardy assessment was matched by the slow movement of the jeopardy case in district court.  Watching a jeopardy case unfold in slow motion differs from the norm in these cases but perhaps brings its own lessons to situation.  The district court in Philadelphia has now decided that the IRS did not meet its burden with respect to jeopardy.  This means that the assessment the IRS has made in the case, the levies, the “regular” and nominee liens will all disappear with the possibility that at the end of the Tax Court case they will spring back.

The district court correctly criticized the IRS for the pace of the jeopardy case.  It also found that the explanation given by former Senator Fumo regarding the transfer of money from his bank accounts as well as the transfer of real property made business sense or made enough business sense to provide a basis for abating the jeopardy assessment.  I found myself agreeing with the court as to the cash but not agreeing as to the real estate and occasionally the court made statements that left me wondering if it understood what was going to happen as a result of this decision or what might happen.  In the end, the court seemed convinced that former Senator Fumo or his son or his fiancée still had enough assets to pay the taxes should the Tax Court permit assessment of the proposed deficiencies and that his prompt payment of the significant restitution amounts suggested he would promptly pay any tax liability the Tax Court might determine he owes.

In this post I primarily focus on the impact of the slow decision by the IRS to pursue jeopardy and how that timing seemed to impact the Court’s decision.  This is part of a two part post in which the second post will address the decision itself and how the statute might have led to this decision by failing to distinguish between the current need for a lien as opposed to a levy.


To reset the scene on this case, the IRS has proposed assessments against him for three different types of tax liabilities:  income tax for the years 2001-2005; excise taxes related to self dealing with an exempt organization he controlled for the years 2002-2004 and gift taxes for transfers in 2009.  On March 16, 2009, a jury found him guilty of 137 counts of conspiracy, fraud, obstruction of justice and aiding and abetting the filing of false tax returns of a tax-exempt organization.  His received a prison sentence of 61 months has paid over $4 million in fines, penalties and restitution in connection with the conviction.  The timing and length of the prison sentence matter with respect to the defense to the jeopardy and the timely payment of the fines, penalties and restitution also seemed to favorably influence the court.

As normally happens in criminal cases involving taxes, the IRS did nothing on the civil liabilities stemming from former Senator Fumo’s behavior until the conclusion of the criminal case.  Here, that decision may not have been routine since the tax charge played such a small role in the overall criminal case.  Nonetheless, shortly after the conviction the IRS assigned a revenue agent to examine former Senator Fumo’s income taxes.  The agent began his investigation in 2009 and concluded it in 2012.  I have been involved with or observed a lot of post conviction examinations but cannot remember one that went this long.  The agent explained in his affidavit that his examination was slowed by serious family issues.  This means that his manager decided that the case did not require expeditious handling and could wait for the agent’s return.  The manager may have had few options but that did not come out.  The fact that the statute of limitations on assessment had long since passed and fraud must keep it open took off some of the normal time pressure in an exam.  The court noted that the IRS could have reassigned the examination if it had significant concerns about its ability to collect the taxes.  Not only did the examination take four years but it resulted in a “regular” statutory notice of deficiency because no one at the IRS was paying any attention to the property transfers former Senator Fumo was making during this period.

I pause here to say this this demonstrates a serious flaw in the way the IRS does business.  It assigns cases to revenue agents who pay no attention to what the taxpayer does with assets during the months or years they engage in examination of the taxpayer.  Even where it has a taxpayer convicted of fraud, even where the proposed liability totals millions of dollars, and even when the case takes forever to come to completion, the IRS goes around with its head in the sand making no effort to determine if it should worry about collection.  Most of the transfers here took place in 2009.  Had former Senator Fumo wanted to hide assets, the IRS gave him three or four years, while it slowly examined him, to do so.  This business practice coupled with the amazing length of the examination convinced the district court that it should abate the jeopardy assessment even in a situation where doing so put the IRS collection at risk.  The IRS should consider assigning revenue officers to monitor taxpayers in high dollar, high risk, high profile cases so that it does not end up embarrassed like this.

Revenue agent’s jobs do not involve caring about collection.  So they do not.  They had so little concern they let the case languish in audit for four years while paying no attention to what former Senator Fumo did with his assets.  Only when the hometown newspaper ran a series of articles gathering information from public records did someone at the IRS, after the issuance of the statutory notice of deficiency, wake up to the fact that collection of the liability the IRS had invested many hours in developing may be at risk.  This business model, which pre-dates the changes to the IRS in 2000 deserves attention.  Slow moving audits producing high dollar deficiencies should not have only revenue agents who have no systemic reason to care about collection assigned to them.

The IRS spends a lot of potentially wasted resources on such audits because it does not keep its eyes on the assets.  Had it paid attention to the asset transfers and made the jeopardy assessment in 2009, I think this case has a different outcome but this is not the only high dollar case where no attention gets paid to the taxpayer’s assets until the slow moving revenue agents and potentially the slow moving Appeals Division and slow moving Tax Court finish their work.  The IRS does not have enough resources to have a revenue officer watch every case it audits, but it should have enough resources to have them watch cases like this one.  The business model needs tweaking and this case should serve as a wake-up call.

The relatively new restitution based assessment provisions may change this equation in cases in which the court orders restitution based on tax violations.  In those cases the IRS will have the opportunity to immediately assess following the restitution order and immediately begin collection.  Even in those cases, the IRS should consider assigning a revenue officer no later than the time at which the conviction occurs so that the revenue officer can begin gather information about the assets.  Cases involving criminal convictions where the taxpayer has significant assets deserve significant attention.  The IRS needs to devise a better strategy that includes collection at an early point.

I have swerved from discussing the court’s analysis to rant about slow audits and non-existent collection concerns.  In the next post concerning former Senator Fumo I will explain why I think the district court mostly got it right in deciding to abate the jeopardy assessment but seemed to fail to understand what abating the assessment will do to the protections the IRS has put in place following its wake call in this case.  Because the abatement of the assessment leaves the IRS with no protections from property transfers except to bring actions after the property sales and potentially after the dissipation of the proceeds of those sales, I have more concerns about the future collection of any liabilities determined assessable than the district court seemed to have.

Summary Opinions for 01/10/2014

Here is the Summary Opinion for last week.  Sorry it is so late, and sorry that many of the cases below do not have links.  I had a lot of trouble finding them on free webpages.  I’m happy to track down hard copies if you would like to see them.  Just let me know.


  • From the Mount Rushmore State (not a great nickname), we have a jeopardy levy case where the IRS essentially didn’t give the taxpayer reasons for its jeopardy assessment and levy, but the Court still upheld the levy because apparently the taxpayer was blatantly ignoring various laws he fully understood, and he already knew why the Service was coming after him.  In Picardi v. US, the District Court for South Dakota held that although the Service provided insufficient notice regarding the reason for the levy, the taxpayer was repeatedly uncooperative, filed false returns, and shifted assets overseas to evade tax. The Court also found he was aware of why the Service was trying to nail him, so therefore he was not prejudiced by the notice insufficiencies.  Here is the Rightsided news blog covering the related criminal case and posting a video from Mr. Picardi arguing his position.  I didn’t listen to the whole interview.
  • A bunch of interesting enforcement news over the last week.  Audits are apparently way down, with less than 1% of taxpayers being audited.  Around 10% for those making over $1MM.  But, identity theft investigations are way up, which is good news.  Accounting Today has a nice interview with Commissioner Koskinen, which outlines the challenges and goals he will be facing (we have a suggestion a few paragraphs down to assist with overcoming these challenges).  In the interview, the Commish indicates he would advocate for a voluntary tax preparer certification if the IRS fails to win its appeal over the return preparer regulations.  Not exactly a line in the sand on preparer regulation.
  • Professor Michael B. Lang of Chapman University School of Law has published an article about the Service’s ability to adequately regulate tax preparation and tax advice.  Abstract is as follows:
    • This article asks whether tax planning advice can ever be effectively regulated by the IRS. The article first explores whether tax advice differs in kind from other forms of legal advice. Secondly, it looks at the clear regulatory distinction between the treatment of return preparation advice and the treatment of tax planning advice, taking into account historical anomalies and asking if the difference in treatment is justified or misguided. The article then reviews and evaluates efforts to regulate planning advice directly, including earlier attempts to address tax shelter opinions in Circular 230, the current covered opinion rules and written advice rules, and the proposed changes in these sections of Circular 230, Less direct approaches such as flagging certain transactions (reportable transactions) with tax shelter potential for particular focus are noted along with their limitations as is the role of oral tax planning advice. Finally, the article discusses how combining more than one approach (such as retaining the accuracy standard of the covered opinion rules, UTP filing requirements, and competency testing) might be useful in regulating the quality of tax planning advice, but concludes that a magic IRS bullet for monitoring and regulating the quality of tax planning advice has yet to be invented. However, the article notes that reducing the ability of taxpayers to rely on the advice of tax advisors to avoid penalties might force taxpayers to hold their advisors to account through malpractice litigation to a degree that the Service will never be able to do.
  • Peter Reilly, who writes for Forbes (and I think is insightful and funny),  has a post on the creating reality TV based on the IRS –my wife’s eyes are already rolling.  Mr. Reilly’s idea was based on an internal IRS email that was released, where Counsel was opining on a taxpayer’s ability to videotape an IRS seizure.  Keith Fogg loved the idea and thought nothing would add credibility to our tax system like reality TV, but said the IRS only seizes sufficient (interesting) property per year to create two episodes.  On a directly related note, The Running Man took place in between 2017 and 2019 –not far off in the future– and I quote from that cinematic gem, “if you want to avoid tax revolts…you sure as hell are not going to do that with reruns of Gilligan’s Island.”  That type of game show could save the Service.
  • From Going Concern (so, some NSFW language and immature humor) some bad accounting pickup lines found on the world’s largest time-suck vortex, Reddit.
  • Sticking with the CPAs, Journal of Accountancy has an article regarding courts providing more protection for accountant-client communications.  The article provides some history of this privilege, and touches on the 2013 Wells Fargo case that we have discussed before, and held that some accountant created workpapers were protected in creating UTPs.
  • Les posted this week on the TAS annual report, and the SOI Bulletin for the fall was also published.  I really like statistics.
  • From the District Court for the Central District of California comes a case that I do not like very much, Aljundi v. United States, where the Court granted the government’s motion to dismiss for lack of jurisdiction.  The Court found it lacked jurisdiction because the taxpayers filed a refund claim after two years under Section 6532, which has a two year statute.  The decision was based on cases extending Brockamp to Section 6532, which the Court believed made the time limit  jurisdictional.  I respectfully disagree that Brockamp requires this to be jurisdictional (it may be a failure to state a claim, or the claim may have been garbage).  We have touched on this jurisdictional/look back point a lot, and we have some additional posts on it coming up soon.  I hope this gets appealed, as the appeal would go up to the 9th Circuit, which had held in Brockamp that equitable tolling did apply.  It would be interesting if the 9th Circuit found that Section 6532 has the same specificity and technical detail as Section 6511 that caused SCOTUS to feel there was no equitable tolling, of it if would read in an implied equitable tolling.   Also interesting to note that Section 6532 doesn’t have a financial disability provision, like Section 6511.
  • Two cases where taxpayers received attorney’s fees and costs!  In both Purciello v. United States, out of the District Court for New Jersey, and Dodson v. United States, out of the District Court for the Central District of Florida, the Courts found that the Service’s position was not substantially justified.  Dodson is interesting, in that the Magistrate goes into a fair amount of detail about each phase of the case, and whether or not costs are appropriate.  For a portion, the Magistrate recommended not providing costs and fees because the taxpayer failed to file the “fees application” under Section 7430(b)(4).  I won’t say much about Purciello now, as it may be the basis for a large post this week.

Summary Opinions for 12/20/2013

Happy Holidays!!  And, sorry for the lack of posts over the last week or two. This will likely be the last post until the week of December 30.  We will be taking a brief respite to enjoy family time and the holidays (Keith is a new grandpa; Les is a newlywed—Congrats Les!!!), but will be back in full force in 2014.  Until then, there are a few procedure items below.  Have a happy and safe new year!


  • Jack Townsend has been prolific over the last week on both his Federal Tax Procedure Blog and his Federal Tax Crimes Blog.  It is all worthwhile, but one item I found very interesting was his write up on his Federal Tax Crimes Blog on the Clarke case.  The post is regarding the government filing a cert petition with SCOTUS, which we had previously indicated was coming.  Jack’s post has the entire 11th Circuit holding, which is somewhat counter to other circuits’ view of the issue, and portion of the filings, including the questions presented.  It comes down to whether a taxpayer is entitled to an evidentiary hearing on a summons if the taxpayer alleges improper purpose.  In Clarke, the taxpayer alleged that summons was only being issued to extend the statute of limitations.  Jack also includes large portions of his book to explain the issue, which is very useful; Saltz Book hits the circuit split in the issue in the update coming out in the next month.  Great write up, and a case that we will be watching.
  • Earlier this week I wrote about a client of mine who was the target of an IRS scam.  Wandering Tax Pro this week posted a very similar story here.
  • The Supreme Court has denied cert in Stocker v. United States, where the taxpayer has requested SCOTUS review the Sixth Circuit’s jurisdictional dismissal of a refund suit based on the taxpayer’s failure to show he filed amended returns within the three year period under Section 6511(a).  In declining to review the case, SCOTUS failed to address a circuit split on taxpayers using methods other than those under the statute to establish presumption of delivery.  The underlying issue is interesting here, but so is the fact that the 6th Circuit referred to Section 6511(a) as jurisdictional.  The trend over the last few years in non tax areas and some tax deadlines (including the look back period under 6511) has been to hold that many statutory time limits are not jurisdictional.  A few weeks ago, SCOTUS declined to review Boeri; the underlying Court of Appeals for the Federal Circuit decision can be found here.  Boeri applied to Section 6511(b), and clearly states this is not jurisdictional, relying on SCOTUS language. I will hopefully have more on Boeri soon. Regarding the evidence rule, the Sixth Circuit held that Section 7502 provided the sole exceptions to the physical delivery rule, and it would not look at additional evidence.  The Tax Court and various other Circuit Courts have allowed other evidence to show the document was timely mailed.  Had the Sixth Circuit determined Section 6511 was not jurisdictional, the taxpayer may have had an easier time making equitable arguments regarding the evidence and the treatment of its mailing.
  • TaxProfBlog has a summary of an article written by Calvin Johnson, which argues that for the reasonable cause exception to penalties, taxpayers should not be able to rely on the opinions of their own accountants or lawyers due to the inherent conflict in the practitioner desiring to retain the business.  We have lamented the attack on advisor reliance as a defense here at Procedurally Taxing, but this article approaches the matter in different way.  This is somewhat an extension of the promoter rationale for disallowing the defense.  I understand the position, but think it would be unrealistic for most taxpayers to go to those lengths.  Perhaps over the holiday, I will read the entire article and see if this is addressed.
  • The Service has released PMTA 2013-15, which has a good question and answer summary of various potential late filing scenarios with partnerships and S-corps, and what, if any, penalties should be imposed.
  • The Northern District of Florida has granted the Service’s request to levy the homestead of taxpayers in In Re Sanders, finding there were no reasonable alternatives and the property was not exempt under the state homestead exemption.  Case can be found at 112 AFTR2d 2013-7021.  Docket number is 4:13-cv-00352.  I could not find a link to the order – Sorry about that.
  • In the wake of Woods, SCOTUS has declined cert in two additional valuation misstatement cases, Alpha, LP v. United States and Crispin v. Comm’r.
  • In Bibby v. Comm’r, a somewhat unusual CDP case arising under 6330(f), which gives the taxpayer the right to a hearing within a reasonable time after a jeopardy levy.  This case involved a jeopardy levy and refund scam involving inflated credits.  The Tax Court sustained the levy and Appeals’ rejection of taxpayer’s suggested installment agreement because the taxpayer did not cooperate or respond to information requests. The refund scam included $203,000 of overstated withholding credits, among other inaccuracies.  The taxpayer’s behavior prior to his appeal, combined with the lack of responsiveness and cooperation by the taxpayer (who was represented), persuaded the Court that there was no abuse of discretion by Appeals in sustaining the levy and denying the installment agreement.
  • So 2013 doesn’t seem like a great year for MC Hammer.  Jay-Z gives him a shot out in Holy Grail, which would seem cool, except it is highlighting how he lost everything in the late ‘90s.  “I’m the [man], caught up in all these lights and cameras, but look what that [stuff] did to Hammer…bright lights is enticing…but soon as all the money blows, all the pigeons take flight.”  Jay-Z does also give a shout out to the Service in the song, but the language is a little colorful for these pages.  Mr. Hammer also seems to have some trouble with the Service, with TMZ reporting the IRS dropped an $800,000 lien on him.  Best bad pun line from TMZ is that “He got to PAY just to make it today”.  Hammer apparently tweeted that he had paid this debt, and has a receipt “stamped by a US Federal Judge”.  Do judges take payment and give receipts?
  • I’ve noted my interest in both the estate tax and tax procedure before on the blog, so I’m of course thrilled to comment on the Service’s release of PMTA 2013-014, which provides the Service’s position on whether CDP rights arise for a transferee of property from an estate when there has been an estate tax lien under Section 6324(a)(1), or the “like lien” described in (a)(2).  Chief Counsel has taken the position that the transferee is not entitled to CDP rights, and the regulations only allow CDP notice and hearing for “taxpayers”.  Prior guidance indicated that CDP rights did arise with a “like lien”, so this is a change in policy.  Practitioners handling a “like lien” situation should review this and prior guidance, and may find that an argument can be made in favor of providing CDP rights.
  • The Service has issued updated guidance on authorizing agents to act under Section 3504 for FICA and employment taxes.