Trust Fund Recovery Penalty Case Raising Issues Regarding Deposit and Last Known Address

April 19, 2023 by Leave a Comment

In Ahmed v. Commissioner, No. 22-10191 (3rd Cir. 2023) the taxpayer appeals from a decision of the Tax Court that an attempted deposit of the amount of his liability was properly categorized as a payment ended his Collection Due Process (CDP) case due to mootness.  On appeal, Mr. Ahmed gets another chance to prove the money he paid to the IRS should not moot his CDP case.

Along the way to its decision, the Third Circuit provide good background on the Trust Fund Recovery Penalty (TFRP), proper addressing of notices, deposit vs. payment and mootness.  Because it has so many procedural issues packed into one case, it provides a good case for a multifaceted procedural discussion.

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Mr. Ahmed ran a business which failed to pay over the withheld income and social security taxes from its employees.  The IRS determined that he was a responsible officer who willfully failed to pay over the money the corporation held in trust for the IRS.  It sent Mr. Ahmed a notice setting out his liability and giving him the right to discuss the proposed assessment with Appeals.  He says that he never received the notice.  The court states that the envelope shows the street address as 5B but his CDP request form indicated that he lived at 58.  The court noted other possible problems with the address.

Because he did not receive the notice giving him the right to go to Appeals as part of the TFRP determination process, his case went into the collection stream and eventually led to a CDP notice of federal tax lien filing (NFTL).  When he received his CDP notice, he timely filed.  Appeals sustained the filing of the NFTL resulting in a determination letter from which he filed a Tax Court petition.  The Tax Court partially granted summary judgement to the IRS but remanded the case to Appeals for verification of the mailing of the TFRP notice to his last known address.

While Appeals began its reconsideration of the case, Mr. Ahmed remitted $625,000 to the IRS with the statement “Deposit in the Nature of a Cash Bond Under IRC 6603.”  The accompanying letter also instructed the IRS to treat the remittance as a deposit.  The IRS, however, determined he was ineligible for treatment of the payment as a deposit because a liability under 6672 does not fall within the sections covered by 6603 deposit procedures.  So, the IRS treated the remittance as a payment and the payment mooted the CDP proceeding by satisfying his liability.  It moved for dismissal of the CDP case as moot, the Tax Court dismissed the case for lack of jurisdiction and Mr. Ahmed appealed.

The Third Circuit states that the threshold question it must answer is whether the payment qualifies as a deposit.  It then provides historical background on this issue pointing out that common law initially served as the basis for making this determination.  The Supreme Court recognized tax deposits in Rosenman v. United States, 323 U.S. 658, 662-662 (1945).  At the time of the Rosenman decision the IRC contained no provision regarding deposits versus payment.  Following the Rosenman decision courts began using a facts and circumstances test which the court illustrates through a string citation of six cases decided between 1965 and 2013.  Congress entered this area of the law in 2004 when it enacted 6603.

The court notes, as the IRS had determined, that 6603 does not apply to money remitted to the IRS with respect to a 6672 liability.  Although 6603 does not apply to allow a deposit in this situation, 6672 has its own deposit provision in 6672(c) which allows a taxpayer to post a bond.  Here, Mr. Ahmed was arguably prevented from using the specific provision due to the lack of receipt of the 6672 notice because the IRS mailed it to someplace other than his last known address.  So, the issue turns back to whether the IRS sent a valid notice.  Because the issue of the validity of the notice required by 6672(b) remains unresolved, the court notes that his remittance may have occurred prior to an appropriate assessment in which case the facts and circumstances test could render the remittance a deposit rather than a payment.

The court then notes that if the 6672 notice was sent to his last known address, then he should have used the bond provision of 6672(c) rather than seeking to make a deposit under 6603.  If a valid notice was sent, the Tax Court’s decision was correct, and the payment mooted the CDP case with one possible exception.  The court finds that he may be entitled to request interest abatement under 6404(h).  The court explains the ability of the Tax Court to view his CDP request as also encompassing an interest abatement request and leaves it to the Tax Court to determine whether the request could be construed to cover interest abatement once the remittance issue is resolved.

The court also drops a footnote swatting away Mr. Ahmed’s effort to argue for a refund citing to McLane v. Commissioner, 24 F.4th 316 (2022) and Greene-Thapedi v. Commissioner, 126 T.C. 1 (2006).  In the same footnote it also notes the CDP case involving the NFTL is moot because the IRS released the liens after treating the remittance as a payment.

So, Mr. Ahmed gets a trip back to Appeals where he will argue that the 6672 notice was improperly addressed.  If he fails to convince Appeals, he can make the argument to the Tax Court and if he fails there head back to the Third Circuit.  If he wins on the address issue, the remittance will be changed to a deposit, the IRS will send a new notice if it is still within the assessment period or he will have a complete victory if the statute has run.  In the end the deposit issue is really a sidelight to the issue of proper notice.  Based on the facts presented in the opinion the notice issue will be close if it is based on a typo of “5B” versus “58.” 

Filed Under: Civil Penalties, Deposits, Last Known Address

Commenting on Forms

August 18, 2022 by 3 Comments

One of the most important services low income taxpayer clinics (LITCs) can provide to their client base is making comments when offered the opportunity and sometimes when not offered the opportunity.  Because low income taxpayers have generally had no voice when the IRS, the Tax Court or other institutions impacting their tax circumstances have called for comments, LITCs serve their clients when using the knowledge gained from individual representation to respond to requests for comments.  We wrote about comments to the Innocent Spouse form that led to a conversation with the form drafters and a real voice in the process here and here.  The comments to the form did not lead to everything requested but did foster improvement.  Perhaps, they also let the form writers know that there are real people who care very much about form design because it has such an impact.

Recently, comments were submitted on two forms – the form for changing an address and the form used for intake of individuals seeking assistance with return preparation at volunteer sites.  The forms are very different and will be discussed separately below.  The goal of the comments, one from an individual LITC and the other from the Center for Taxpayer Rights on behalf of a collection of LITCs, is to let the IRS know what practitioners are thinking and what the IRS should consider in revising the forms.

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Change of Address Form

The Tax Clinic at the Legal Services Center of Harvard Law School sent in a comment regarding the proposed change of address form revision.  The principal author, Ben Chanenson, worked in the clinic this summer as an intern and will enter the University of Chicago Law School as a 1L student in the coming days.  Here is the comment submitted.

Form 8822 exists to allow taxpayers to notify the IRS that they have changed their home address. It is important for a taxpayer to notify the IRS when they move so that they can receive notices and other communications from the IRS. If a taxpayer notifies the IRS of a change in address and the IRS sends mail to the wrong address then under IRM 4.8.9.11.4 a notice may be invalid because the IRS has a statutory requirement to address mail to a taxpayer’s last known address. We have discussed litigation related last known address on this blog before and two years ago the Tax Clinic secured a victory in the Third Circuit over this issue.  

The Tax Clinic offered five recommendations in its letter. These recommendations included ways to simplify the form (by removing unnecessary boxes), use more accessible language (which would allow the form to adhere to the Plain Writing Act of 2010), and better explain the importance of notifying the IRS of a change of address.  The Tax Clinic also suggested that the IRS provide information on alternative ways that the IRS can learn that a taxpayer moves. Form 8822 is not the only option for taxpayers. Writing down a new address on a form 1040 serves to notify the IRS of a change in address. However, it takes considerable time for the IRS to process form 1040 and form 8822. In contrast, if a taxpayer notifies USPS of a change in address then the IRS can access the USPS’s National Change of Address database and update the taxpayer’s address more quickly. Critically, USPS allows people to change their address through an online form while the IRS requires snail mail. The Tax Clinic advocated for making form 8822 into an online form that taxpayers could submit without ever leaving the IRS website. This echoes PT’s Nina Olson’s first wish in her IRS Wishlist for 2021.  

Intake Form

The Center for Taxpayer Rights holds weekly online meetings of clinicians to discuss issues of general interest to the LITC community and to assist in formulating litigation and other strategies for better representation of their clients.  One of the long standing concerns of the LITC community is making connections with taxpayers in need of assistance.  Each LITC engages in outreach efforts in their respective communities in order to make sure that members of their community know about the existence and the purpose of the clinic.  While the Tax Court does a good job of notifying petitioners to its Court of the existence of LITCs and the possibility of representation, many low income taxpayers need assistance during the administrative process of their case and often remain unaware of the possibility of assistance.  The free tax return preparation efforts reach large numbers of community members who may need assistance regarding a prior year’s return.  Despite the fact that Congress has created grant programs for both LITCs and Volunteer Income Tax Assistance (VITA) administered by the IRS, the coordination between VITA programs and LITCs has not fully developed.  The Center’s comments on the intake form seek to foster better coordination so that individuals seeking return preparation assistance know of the ability to obtain controversy assistance if needed.

The Center’s comments on the intake form are here; you can see Form 13614-C, Intake/Interview & Quality Review Sheets, here.  In its comments, the Center suggests ways the form can be revised to more effectively prompt a VITA intake interviewer or preparer to identify a client who may have a tax matter or controversy that would warrant a referral to a LITC.  The first comment focused on the line that reads, “Last Year, Did You (or Your Spouse) … Have Earned Income Credit, Child Tax Credit or American Opportunity Credit disallowed in a prior year?”  Noting that many low income taxpayers do not necessarily know what, specifically, the IRS has changed on their prior year returns, the Center recommended the question be rephrased as, “Did you not receive your refund or have the amount of your refund changed in a prior year?”  If the answer to that question is yes, training and job aids for this line should direct the VITA/TCE volunteer to make a referral to an LITC.  The Center also suggested that an additional line be added to the form where the taxpayer has a balance due on the return, asking whether the taxpayer has the ability to pay the balance.  If the answer is no, then the VITA volunteer should make a referral to an LITC.  Similarly, where the form asks, “Did you, or your spouse if filing jointly, receive a letter from the IRS?,” if the taxpayers answers yes, the training materials should make clear a LITC referral is in order.

The final recommendation addressed the section of the form where demographic data is gathered, including race and ethnicity.  Although the form notes that the VITA sites may need this information in order to receive grant money or federal funding, the clinics on the Center’s weekly calls felt that the form should more clearly state that this information is “for official use only” by the VITA sites alone and will not be recorded by the IRS for other than statistical purposes.

Poorly designed forms can create administrative burden or confusion and fail to elicit the appropriate responses.  A well designed form, on the other hand, can alert the user to important issues and direct to the next steps, including, in the case of the VITA intake form, to where the user can obtain free representation in resolving a tax dispute.  Both IRS and taxpayers will benefit from members of the tax community sharing their expertise by commenting on forms.

Filed Under: Center For Taxpayer Rights, Last Known Address

2021 Year in Review – Cases

December 28, 2021 by Leave a Comment

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

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Supreme Court matters

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

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

Circuit Court matters

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

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

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

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

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

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

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

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

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

Tax Court

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

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

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

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

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

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

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

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

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

Other Courts

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

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

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

Nuance in Determining the Taxpayers Last Known Address – Designated Orders, November 2, 2020

June 17, 2021 by 3 Comments

There was only one designated order for the week of November 2, 2020 (Reddix-Smalls v. C.I.R., Dkt. # 17975-18L (docket with link here)). In it, Judge Gustafson ruled on whether a petitioner (allegedly) telling an Appeals Officer (AO) of a new address during a telephonic Collection Due Process hearing would legally change the individuals “last known address.”

Spoiler: it did not.

Second Spoiler: I’m still going to write about it, because there are a lot of interesting lessons to take from the order. The designated order provides a great opportunity to walk-through the statutory, regulatory and sub-regulatory guidance on point. It also gives us a chance to reflect on some of the recent legal developments in that area.

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The Importance of the “Last Known Address” I teach my students that many of the important “milestones” in federal tax procedure are hit by the IRS mailing a letter. This is seen with the Notice of Deficiency -the letter which generally makes assessment possible for the IRS in deficiency cases. IRC § 6212(b) lays out where a Notice of Deficiency should be mailed to, noting that the taxpayer’s “last known address” is sufficient. The statute says effectively nothing about what someone’s last known address should be, so the Treasury Regulations and other guidance pick up the slack. The stakes are high (potentially invalidating the deficiency assessment), so determining exactly what the last known address is can be a very contentious issue.

So it is in the case of Reddix-Smalls, though not with regards to a Notice of Deficiency. In this instance Ms. Reddix-Smalls needs to show that a Collection Due Process “Notice of Determination” was not sent to her last known address. If it was sent to her last known address she arguably failed to clear the second “timeliness hurdle” (see post here) for petitioning the Tax Court, ruining jurisdiction and dismissing her case.

Dismissal would effectively result in the IRS Notice of Determination being upheld -in this, case the determination to levy. It isn’t clear that Ms. Reddix-Smalls has any great arguments as to why levy is inappropriate, but I’d note that all of the important events (CDP hearing, determination, petition) in this instance took place in 2018… and this order for dismissal came in November 2020. It is fair to say that a lot may have changed for Ms. Reddix-Smalls in those tumultuous intervening two years -perhaps even a change in circumstance that would warrant a remand for a supplemental CDP hearing.

Alas, the Tax Court cannot order a remand for a supplemental CDP hearing without jurisdiction over the matter to begin with. And the first order of business, in essentially any case, is determining if the court has the power to hear the case at all.

(As an aside, query whether Ms. Reddix-Smalls could get a supplemental hearing even without the Tax Court under IRS Appeals “retained jurisdiction.” See IRC § 6330(d)(3). I’ve written previously about the nuance of Appeals retained jurisdiction and when it can be invoked, but I’ve never tried it myself.)

Determining the Last Known Address

Usually, determining the taxpayer’s last known address is pretty straightforward: the “general rule” that the last known address is whatever was on the most recently processed tax return covers the majority of taxpayers. See Treas. Reg. § 301.6212-2(a).   On occasion the facts can get convoluted, particularly when the taxpayer has hinted to the IRS that a different address might be best. Are these hints enough to be “clear and concise notification” as required by the regulation? That can be a highly factual inquiry, and the exact contours are still being determined. For a while, filing Form 2848 with the IRS listing a different address for the taxpayer appeared to be sufficient. Then the Tax Court said “no” in Gregory v. Commissioner, 152 T.C. No. 7 (2019). Then the 3rd Circuit said “maybe” and reversed the Tax Court in Gregory (as covered here). I’d say the present state of affairs on the issue is a bit unsettled.

Obviously, the designated order in Reddix-Smalls is not precedential (neither was the 3rd Circuit decision reversing Gregory). But since we are living in an uncertain world where we must weigh specific facts and circumstances to see if they may be enough to qualify as “clear and concise” notification to the IRS, orders like Reddix-Smalls are still helpful in gauging how Tax Court judges are likely to rule.

There appear to be two potential “last-known” addresses for Ms. Reddix-Smalls. One in North Carolina (NC) and one in South Carolina (SC). Timelines matter in these inquiries, and here the timeline is as follows: in 2017 Ms. Reddix-Smalls filed a change of address with the U.S. Postal Service listing the NC address. In April 2018, however, Ms. Reddix-Smalls filed a joint tax return listing the SC address. In August 2018 the IRS sent the Notice of Determination to that SC address…

If those were the only facts here it would be an easy case: the “last known” address was the SC address, since it was most recent update with the IRS at the time of the Notice of Determination. But there is an additional wrinkle: Ms. Reddix-Smalls insists that she specifically told the AO that she changed her address to NC during her Collection Due Process hearing.

Assuming that’s true, wouldn’t that be “clear and concise” notification?

Maybe not. Though the parties dispute that fact, Judge Gustafson determines that even if Ms. Reddix-Smalls did tell the AO of the changed address that would not be sufficient.

Can that really be so? Literally telling the person at the IRS sending the letter “my address has changed” is not “clear and concise” notification of a change in address? Judge Gustafson asks the parties to explain their thoughts on this before he rules on the matter.

The IRS argument largely hinges on the fact that the AO doesn’t have access to the “Service Master File,” and therefore can’t change the address on file for the agency. Remember, the IRS is a pretty big bureaucracy: perhaps it would be unfair to impute the knowledge of a different address from one individual to the entire agency. There is a way for the AO to request that the IRS change the address agency-wide (apparently by sending “Form 2363” to Account and processing Support). But the AO didn’t fill out or send that form anywhere, so the address didn’t change -or more accurately, under IRS processes the address shouldn’t change.

This might seem a bit ridiculous to the general public: if I told an Appeals Officer at the IRS my address changed but they didn’t take any steps to affect that change in their database I’m out of luck? But the IRS argument is backed up by… IRS guidance. Specifically, Rev. Proc. 2010-06 which provides that telephonic changes of address (1) need to be done with employees that have access to the Service Master File, and (2) must include a fair amount of information about the new address and their identification. (Lingering in the background of this order are questions of whether Ms. Reddix-Smalls actually gave the IRS any address at all during the CDP hearing.)

And so, as Judge Gustafson rules, it doesn’t actually matter if Ms. Reddix-Smalls told the AO of her new address, because the AO (1) didn’t have access to the Service Master File, and (2) took no steps to get that information to IRS employees that do have such access. The Notice of Determination was sent to the proper last known address on file and was therefore effective. The petition was late based on the 30 days running from the (effective) mailing. Case dismissed.

What are some things we can glean from this ordeal?

One is a reminder of the lesson that it’s always wise to thoroughly document and memorialize (with a letter or fax) the conversations you have with the IRS. I’ve written about the importance of the administrative record in Collection Due Process before. Here, the issue arguably isn’t the Tax Court’s scope of review and whether it is limited to the administrative record, because the issue isn’t a review of the hearing, but of jurisdiction: was the Notice of Determination sent to the last known address? Yet the lesson of documenting everything holds just as true. The case would be bolstered immensely (possibly on appeal, as was done in the aforementioned Gregory v. C.I.R. decision) if there were a paper trail. A fax to the AO showing that Ms. Reddix-Smalls insisted that her address is somewhere else (and actually listing it) is simply a stronger form of “clear and concise notification” than a he-said-she-said phone call log (from the IRS AO, no less). Particularly if it was the AO that prepared and mailed the Notice of Determination (and not some other function of the IRS), one might ask why clear and concise notification to that employee shouldn’t suffice.

Relatedly, this order may serve to remind us that the IRS is a massive agency which makes it extremely cumbersome to (1) impute knowledge from one employee to the agency as a whole, and (2) get a firm grasp on exactly what authorizations any given employee has. The latter point is sometimes demonstrated in issues with settlement authority (see Keith’s post here as but one example). Here it is demonstrated in issues with changing your address on file… and the consequences that emanate therefrom.

Filed Under: Designated Orders, Last Known Address

Third Circuit Weighs Individual Facts and Circumstances in Ruling that Taxpayers Had Given the IRS Clear and Concise Notice of a Change of Address

February 2, 2021 by 1 Comment

We welcome as a first time blogger my colleague in the tax clinic at the Legal Services Center of Harvard Law School, Audrey Patten.  Audrey was the principle drafter of the brief in the Gregory case.  See my brief prior post on the case here.  Audrey is in her fourth year of working in the tax clinic after previously working in the Predatory Lending Clinic at the Legal Services Center.  She is currently working with Christine to write the third edition of A Practitioner’s Guide to Innocent Spouse Relief.  Look for their book in the coming year.  Keith

On December 30, 2020, the United States Court of Appeals for the Third Circuit ruled in favor of the taxpayers in the case Gregory vs Commissioner (Docket No. 19-2229).  The issue before the Third Circuit was whether the taxpayers’ use of Forms 2848 Power of Attorney and 4868 Request for Extension of Time constituted “clear and concise notice” of a change of address to the IRS pursuant to Treasury Regulation §301.6212-2.  Although filed as a non precedential opinion, the outcome is a clear example of how the IRS cannot simply ignore the actual knowledge it has of a taxpayer’s address when issuing a Statutory Notice of Deficiency pursuant to I.R.C.§6212(b)(1), even if that taxpayer failed to follow the IRS’ prescribed procedures for changing their address.  It also stands for the concept that analysis of what constitutes “clear and concise notice” of a last known address remains a fact specific inquiry in line with prior tax court and circuit court case law on the issue.  From a practitioner’s point of view, the case also serves as a lesson in carefully examining the lower court record for facts that may turn a case, even if those facts were not fleshed out in the lower court opinion.

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The facts of the case are as follow.  Mr. and Mrs. Gregory filed their 2013 income tax return using an address in Jersey City, NJ.   In June 2015, the Gregorys moved to an address in Rutherford, NJ.  They did not fill out a Form 8822 Change of Address nor did they otherwise inform the IRS of their move at that time.  On October 15, 2015, their CPA filed their 2014 return.  The CPA mistakenly put the Jersey City address on the return, even though the couple had moved to Rutherford in June. 

Meanwhile, the IRS began an audit of the 2013 return and in November 2015 the CPA faxed two Forms 2848 Power of Attorney, one for each spouse, to a revenue agent assigned to the Gregorys’ case.  The Forms 2848 both had the correct Rutherford address listed for each taxpayer.  The forms were presumably processed because the revenue agent began communicating about the account with the CPA.   The CPA also testified in the Tax Court that he had verbally communicated to the revenue agent that his clients’ address had changed. Furthermore, in April 2016, the CPA filed a Form 4868 Request for Extension of Time for the Gregorys’ 2015 income tax return.  That form also had the correct Rutherford address and was also presumably processed because the Gregorys were granted their request.  The CPA continued to correspond with the revenue agent about the 2013, and later 2014, audits throughout the spring of 2016.  However, in October 2016, the IRS mailed a Statutory Notice of Deficiency for 2013 and for 2014 to the Gregorys’ old, invalid address in Jersey City. The post office marked the notice “undeliverable” and returned it to the IRS.  The CPA learned of the notice in January 2017 through a call to the Practitioners’ Priority Line and immediately filed a Tax Court petition, which turned out to be several days past the 90 day deadline in the notice of deficiency.

Both the Gregorys and the IRS filed cross motions to dismiss in the Tax Court.  The Gregorys argued that they had never received a valid notice of deficiency to their last known address, as required by I.R.C. §6212.  Meanwhile the IRS claimed that the last known address was in fact the Jersey City address that was written on their 2014 return, making the notice, and its deadline, valid and thus time-barring the Gregorys’ petition.  Under the statute, a notice of deficiency must be sent to the last known address. The term is not further elaborated in the statute, but Treasury Regulation §301.6212(a) defines last known address as the address on the last filed income tax return unless the taxpayer has provided “clear and concise” notice of a change of address. The regulation directs to an open ended line of procedures “subsequently prescribed by the Commissioner” to learn the meaning of clear and concise notice.  The most recent of these revenue procedures, and the one in effect when the Gregorys sent in their Forms 2848 and 4868, was Rev. Proc. 2010-16, which explicitly excludes Forms 2848 and 4868 from acceptable methods of “clear and concise” notice. 

The IRS, in its trial briefing, argued that the treasury regulation, and by extension Rev. Proc. 2010-16, should be given judicial deference and disqualify the Gregorys’ use of these forms to give clear and concise notice.  While declining to state that it was bound by Rev. Proc. 2010-16, the Tax Court found that the instructions to Forms 2848 and 4868, which state that those forms shall not be used for change of address purposes, made it reasonable for the IRS to assume that the Gregorys’ last known address was the one present on their last filed tax return.  The Court made no mention of the CPA’s testimony that he had also directly told the revenue agent by phone that the Gregorys had moved.

In their appeal, the Gregorys first argued that, because Forms 2848 and 4868 ask for a taxpayer’s address, it is reasonable to assume the IRS will process that information, especially given the government’s integrated computing systems.  However, even if the Court were to find that those forms were not clear and concise notice as a matter of law, the Gregorys argued that it should analyze the specific facts and circumstances of their case to evaluate whether the IRS actually had notice of the Gregorys’ address and not give any deference to the strict rules of either the form instructions or the revenue procedure.  Their briefs argued that the clear trajectory of both tax court and circuit court case law favored an expansive reading of last known address. This is because of the serious consequences to the taxpayer should they not receive their notice of deficiency and thus lose their chance to enter the Tax Court.

The Third Circuit has followed this expansive reading.  While declining to rule that Forms 2848 and 4868 are clear and concise notice of a change of address as a matter of law, it did find that the proper inquiry into clear and concise notice was what the IRS knew, or should have known, at the time it sent out the notice of deficiency.  Per the opinion:

“…courts have required the IRS to use “reasonable diligence” to determine a taxpayer’s last known address.  This reasonable diligence requirement “is rooted in equity.”   Reasonable diligence is measured by what “the IRS knew or should have known at the time it sent the [n]otice” of deficiency, including information it should know “through the use of its computer system.””

In the case of the Gregorys, not only had they sent in the new address on Forms 2848 and 4868, but their CPA was in direct contact with an individual revenue agent once the two Forms 2848 were successfully processed.  The Third Circuit also found it relevant that the CPA told the revenue agent about the new address, a fact omitted by the Tax Court.  By weighing these circumstances, the Third Circuit affirmed the principle that the IRS cannot simply ignore what it knows.  Actual knowledge counts and while taxpayers would be wise to follow IRS procedures for a change of address, practitioners should not shy away from pushing forward cases where circumstances may present a valid argument that the IRS failed to act on a known change of address. 

Filed Under: Last Known Address Tagged With:

My IRS Wishlist for 2021 – Part 1: The mail and return processing backlog

January 4, 2021 by 9 Comments

We begin a new year with the IRS pulling off another near-miraculous feat of issuing the second round of COVID-relief stimulus payments almost simultaneously with the President’s signing of the authorizing legislation.  I thought it might be a good time to make up a list of wishes I have regarding tax administration for 2021.  My list has a heavy emphasis on the role the IRS plays in the economic health of our nation; that it is a very major role should be clear to everyone who hasn’t lived under a rock this past year.

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But before I launch into my list, let me do some level setting.  Deep in irs.gov is an interesting webpage IRS Operations during COVID-19: Mission-critical functions continue.  This page is updated periodically with information about the status of return processing, check payment processing, mailing of notices, Power of Attorney processing, and many other items.  Everyone practicing in the field of tax should bookmark this page.

On this page, the IRS informs us that as of November 24, 2020, it had 7.1 million unprocessed individual tax returns and 2.3 million unprocessed business returns in its backlogged mail.  This is an unprecedented number of 2019 returns that have not been processed by the end of the year, and the situation appears to have gotten worse, rather than better, as the year went on.  According to the National Taxpayer Advocate, as of September 19, 2020, the IRS backlog was about 5.8 million pieces of mail, including 2.8 million tax returns.  The IRS says it “expects to issue all refunds for 2019 individual tax returns in 2020 where there are no issues with the return.  For refunds that cannot be issued in 2020 because the tax return is being corrected, reviewed or awaiting correspondence from a taxpayer, the refund will be issued as a paper check in 2021 per our normal processes.”  [Emphasis added.]

Now it is not clear to me why, in the 21st century, the IRS can’t make direct deposits of tax refunds after the filing season for that tax year has passed, e.g., for amended returns that result in a refund.  Maybe it is some programming rule in the submission processing pipeline, or maybe it isn’t the IRS’s problem but some issue with the Bureau of Fiscal Services.  But the problem in the COVID-economy is that many of these taxpayers who filed a 2019 return that has not been processed in 2020 will have moved – even if they aren’t evicted, they may move to less expensive housing, or they may move in with relatives, or they may have become homeless.  So not only will these taxpayers not get a direct deposit, but the paper check, once mailed, will be returned to the IRS.  Taxpayers won’t know anything about this unless they keep checking the “Where’s my refund?” website – the IRS says if a refund check is returned, an option will pop up on that website that allows the taxpayer to enter a change of address.  But even after you enter your address, the check will be mailed yet again, with all the attendant postal service delays. 

So here’s my first wish for 2021: 

The IRS should create a mobile-friendly, multi-lingual digital application for taxpayers to change their address; this application should require only two-factor authentication.

I will save for another day my tirade about the archaic revenue procedure that governs when the IRS is considered to be notified of the taxpayer’s last known address.  I note Keith’s PT post about the Gregory case, in which Keith and his students prevailed against the government on this issue.  It is unconscionable in the 21st century that the IRS should be routinely given 45 days from the date of posting a return to be considered notified of an address change.  Here’s what Rev. Proc. 2010-16 says:

Returns that are not filed in a processible form may require additional processing time.  If additional processing time is required, the 45-day processing period for address changes will begin the day after the error that caused the return to be unprocessible is corrected.

The 2019 return processing delays make glaringly clear the harmful impact of provision and the lack of a quick digital means to update one’s address.  And yes, I know there are legitimate concerns about fraudulent address changes; that is an issue that can be addressed as part of the programming.  But such concerns should not be an obstacle to creating an application that would be available to most, if not all, taxpayers.

Mail delays and my second wish

Now let’s get back to this mail backlog.  The IRS webpage references 2019 returns that have been flagged for further correction, review or taxpayer correspondence (by mail?????).  It states that “[i]f we need more information or need you to verify that it was you who sent the tax return, we will write you a letter.  The resolution of these issues depends on how quickly and accurately you respond, and the IRS staff trained and working under social distancing requirements to complete the processing of your return.”  Now of course, if the taxpayer responds quickly and accurately via the U.S. Postal Service, that response will be sitting in a pile along with the millions of other documents not processed.  The IRS COVID operations website says the IRS is opening mail within 40 days of arrival and is taking 60 days to process (on a first-come, first-served basis).

The Taxpayer Advocate Service has reported that even in “normal” times, the IRS non-identity theft refund fraud filters result in high false positive rates (i.e., the frozen return/refund was actually legitimate) of 81 percent for the period from January 1 to October 3, 2018, and 71 percent from January 1, to October 2, 2019.  [See 2019 NTA Annual Report to Congress, p. 39.]  TAS analysis found that over 75 percent of their cases involving wage verification received in the last week of August, 2019, “waited an average of 141 days from the return filing date for the IRS to screen and determine that it could not verify the information on the returns.  As of October 1, 2019, the IRS had only assigned 36% of those returns to a particular treatment stream for resolution.”  [2019 NTA Annual Report to Congress,  p. 40]

Thus, even before the pandemic, for many taxpayers, the IRS refund resolution processes were overwhelmed and not working.  Can we only imagine what is happening today?  We have not seen the numbers for these returns for the period from January 1 to October 1, 2020 (or December 31, for that matter), but I am willing to bet the backlog is … huge.

Now, what is going to happen to all these taxpayers whose 2019 returns are unprocessed?  First of all, they won’t receive the $600 COVID-relief payments.  Second, when they file their 2020 returns, it is very likely that these returns, too, will be flagged because their 2019 returns have unresolved issues.  This means that two years of refunds, and two rounds of stimulus payments will be frozen.  In. The. Midst. Of. A. Pandemic.

I know the IRS has been working full-tilt trying to get through this nightmare.  But the taxpayers of the United States deserve much more transparency and better information than we are receiving.  We need to know whether the employees who are working in the questionable refund programs are actually working – that is, have they received laptops so they can telework?  Or are there parts of their jobs that require them to be physically present in IRS offices, as the submission processing employees must be?

Which leads me to my second wish for the IRS in 2021:

The Federal government should classify IRS workers whose jobs are related to return and correspondence processing as essential workers and arrange for them to receive the COVID-19 vaccine with the same priority as front-line workers (i.e., after health care workers and nursing homes).

The government can do this – and it should.  I am sure there are many other federal employees in other government agencies who should also be prioritized in this way (umm … meat inspectors in meat processing plants?).  They, too, should be prioritized to receive the vaccine.  But as I said earlier, the IRS’s issuance of tax refunds and stimulus payments in 2020 and refunds and the recovery rebate credits in the 2021 filing season are vital to the economic recovery of hundreds of millions of taxpayers throughout the United States.  To assist that recovery, we need an IRS workforce that is able to do its job.  For it to do its job with the speed and urgency this crisis requires, IRS employees involved in return and correspondence processing and resolution should be prioritized for vaccination.  I hope the incoming Administration makes this a priority.  The taxpayers of the United States will be grateful.

Filed Under: Disaster, Last Known Address

Last Known Address Taxpayer Victory

December 31, 2020 by 2 Comments

Yesterday, the Third Circuit reversed the Tax Court precedential opinion in Gregory v. Commissioner, 152 T.C. No. 7 (2019).  The decision provides a complete victory for the Gregorys but a less complete victory for all taxpayers.  The Third Circuit’s seven- page opinion is not precedential and relies heavily on the specific facts present in the Gregory case.  Still, in overturning the Tax Court’s precedential opinion the decision calls into question the IRS effort to change long-standing case law and its own practice via a revenue procedure.  The decision offers the IRS the chance to rethink its administrative practice.  It might cause the Tax Court to rethink its precedential opinion should another last known address case make its way to the Court. 

We have previously written about this case here and here.  You can read the prior post or the opinion to get the facts.  The Tax Clinic at the Legal Services Center of Harvard argued this case on appeal.  The briefs are here, here and here.  We are excited for our clients.  Oliver Roberts, the student who argued the case, did a fantastic job.  You can hear the argument here and Oliver’s recap here.  We will have a longer post on the case later.

Filed Under: Last Known Address

Assessment Statute Extension under 6501(c)(8); Changes of Address; and Lessons for Counsel – Designated Orders: December 9 – 13, 2019

February 18, 2020 by Leave a Comment

My apologies for this delayed post; I had my head so buried in the Designated Orders statistics from our panel at the ABA Tax Section’s Midyear Meeting that I neglected the substantive orders from December. Worry no longer: here are the orders from December 9 – 13. Not discussed in depth is an order from Judge Guy granting Respondent’s motion for summary judgment in a routine CDP case, along with an order from Judge Gustafson sorting out various discovery disputes in Lamprecht, Docket No. 14410-15, which has appeared in designated orders now for the seventh time. Bill and Caleb covered earlier orders here and here.

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As I mentioned during the panel, Designated Orders often resolve difficult, substantive issues on the merits. These orders are no exception. There were two cases that dealt with the deductibility of conservation easements. (Really, there were four dockets resulting in an order disposing of petitioner’s motion for summary judgment from Judge Buch, and one case resulting in a bench opinion from Judge Gustafson.) I’m not going to get into the substance of conservation easements, as clients in a low income taxpayer clinic seldom run afoul of these rules. Interestingly, this is also the first time we’ve seen a bench opinion in a TEFRA case—at least one that was also a designated order.

I must wonder, however, whether the Court strikes the appropriate balance in resolving substantively complex cases, on the merits, in either manner. While neither Judge Buch’s order nor Judge Gustafson’s bench opinion could have been entered as a Tax Court division opinion—as far as I can tell, they do not break any new ground—they could both easily qualify as memorandum opinions. As a practitioner, I find value in the ability to research cases that appear in reporters—precedential or otherwise. Relegating these cases to the relatively unsophisticated search functions found on the Tax Court’s website often makes it quite difficult to efficiently conduct case research.

Perhaps the Court’s new electronic system in July will remedy some of these issues. Nevertheless, any solution that doesn’t integrate with the systems that practitioners utilize to conduct case research—namely, reporters and the third-party services that catalogue and analyze the cases issued in those reporters—strikes me as inferior.

I fully understand and appreciate the value that the Court and individual judges place on efficiently resolving cases; that is no minor concern. I’ve been informed that issuing a memorandum opinion, as opposed to resolving a case through an order or bench opinion, can tack on months to the case.

But individual judges and the Court as an institution ought to carefully consider (1) whether the Court suffers from systemic problems in efficiently issuing memorandum opinions (and whether anything can be done to remedy these problems) and (2) whether the efficiency concern outweighs practitioners’ and the public’s interest in effective access to the Court’s opinions. 

More to come on this point in future posts. But for now, let’s turn to this week’s orders.

Docket No. 13400-18, Fairbank v. C.I.R. (Order Here)

First, a foray into the world of foreign account reporting responsibilities, which Megan Brackney ably covered in this three part series in January. Here, the focus lies not on the penalties themselves, but on another consequence of failing to comply with foreign account reporting requirements: the extension to the assessment statute of limitations under section 6501(c)(8).

Petitioner filed a motion for summary judgment in this deficiency case, on the grounds that the statute of limitations on assessment had long since passed. Petitioners timely filed returns for all of the tax years at issue, but the Service issued a Notice of Deficiency for tax years 2003 to 2011 on April 12, 2018—long after the usual 3 year statute of limitations under section 6501(a).

But this case involves allegations that the Petitioners hid their income in unreported foreign bank accounts. And section 6501(c)(8) provides an exception to the general assessment statute where a taxpayer must report information to the IRS under a litany of sections relating to foreign assets, income, or transfers. If applicable, the assessment statute will not expire until 3 years after the taxpayer properly reports such information to the IRS.

The statute applies to “any tax imposed by this title with respect to any tax return, event, or period to which such information relates . . . .” This appears to be the same sort of broad authority in the 6 year statute of limitations (“the tax may be assessed . . . .”) that the Tax Court found to allow the Service to assess additional tax for the year in question, even if it didn’t relate to the underlying item that caused the statute extension. See Colestock v. Commissioner, 102 T.C. 380 (1994). While the Tax Court hasn’t explicitly ruled on this question, it is likely that it would reach a similar conclusion for this statute.  

Respondent claimed that Ms. Fairbank was a beneficial owner of a foreign trust, Xavana Establishment, from 2003 to 2009, and thus had a reporting requirement under section 6048—one of the operative sections to which 6501(c)(8) applies. Further, for 2009 and 2011, Respondent claimed that Ms. Fairbank was a shareholder of a foreign corporation, Xong Services, Inc.—again triggering a reporting requirement under section 6038 and a potential statute extension under 6501(c)(8). Respondent finally claimed that Ms. Fairbank didn’t satisfy these reporting requirements for Xong Services until June 18, 2015—thus the April 12, 2018 notice would have been timely. Moreover, Respondent claimed, Ms. Fairbank hadn’t satisfied the reporting requirements for Xavana Establishment at all.

It’s important to pause here to note that the reporting requirements under sections 6048 and 6038 are separate from the FBAR reports required under Title 31. While the Petitioners filed an FBAR report for Xong Services, they seem to argue that this filing alone satisfies their general reporting requirements for this interest. That’s just not true; foreign trusts and foreign corporations have independent reporting requirements under the Code, under sections 6048 and 6038, respectively. Specifically, Petitioners needed to file Form 3520 or 3520-A for their foreign trust; they needed to file Form 5471 for their interest in a foreign corporation. And it is failure to comply with these reporting requirements that triggers the assessment statute extension under section 6501(c)(8)—not the failure to file an FBAR (which, of course, would have its own consequences). 

Petitioners claimed that they had, in fact, satisfied all reporting requirements for Xavana Establishment at a meeting with a Revenue Agent on July 18, 2012. But it seems that the Petitioner’s didn’t submit any documentation, such as a submitted Form 3520, to substantiate this. As noted above, they further claim the FBAR filed for Xong Services in 2014 satisfied their reporting requirements. Respondent disagreed, but did allow that the reporting requirements were satisfied later in 2015 when Petitioners filed the Form 5471. 

Because Petitioner couldn’t show that they had complied with the 6038 and 6048 reporting requirements quickly enough to cause the assessment statute to expire, they likewise couldn’t show on summary judgment that the undisputed material facts entitled them to judgment as a matter of law. Indeed, many of the operative facts here remain disputed. Thus, Judge Buch denies summary judgment for the Fairbanks, and the case will proceed towards trial.

Docket No. 9469-16L, Marineau v. C.I.R. (Order Here)

This case is a blast from the past, hailing from the early days of our Designated Orders project in 2017. Both Bill Schmidt and I covered this case previously (here and here). Presently, this CDP case was submitted to Judge Buch on cross motions for summary judgment. Ultimately, Judge Buch rules for Respondent and allows the Service to proceed with collection of this 2012 income tax liability. 

They say that 80% of life is simply showing up. Petitioner had many chances to show up, but failed to take advantage of them here. Petitioner didn’t file a return for 2012; the Service sent him a notice of deficiency. While Petitioner stated in Tax Court that he didn’t receive the notice, he didn’t raise this issue (or any issue) at his first CDP hearing.

Nonetheless, the Tax Court remanded the case so he could raise underlying liability, on the theory that he didn’t receive the notice of deficiency and could therefore raise the underlying liability under IRC § 6330(c)(2)(B)—but Petitioner didn’t participate in that supplemental hearing either!

Back at the Tax Court again, Petitioner argued that not only did he not receive the notice of deficiency, but that it was not sent to his last known address. This would invalidate the notice and Respondent’s assessment. The validity of the notice also isn’t an issue relating to the underlying liability; rather, this is a verification requirement under IRC § 6330(c)(1). So, if the Settlement Officer failed to verify this fact, the Tax Court can step in and fix this mistake under its abuse of discretion standard of review.

Petitioner changed his address via a Form 8822 in 2014 to his address in Pensacola. On June 8, 2015, he submitted a letter to the IRS national office in Washington, D.C., which purported to change his address to Fraser, Michigan. The letter contained his old address, new address, his name, and his signature—but did not include his middle name or taxpayer identification number. The IRS received that letter on June 15.

The Tax Court recently issued Judge Buch’s opinion in Gregory v. Commissioner, which held that neither an IRS power of attorney (Form 2848) nor an automatic extension of time to file (Form 4868) were effective to change a taxpayer’s last known address. We covered Gregory here. (Keith notes that the Harvard clinic has taken the Gregory case on appeal.  The briefing is now done and the case will be argued in the 3rd Circuit the week of April 14 by one of the Harvard clinic’s students.) Similarly, Judge Buch deals in this order with what constitutes “clear and concise” notification to the Service of a taxpayer’s change of address.

Judge Buch held that Petitioner didn’t effectively change his address. Under Revenue Procedure 2010-16, a taxpayer must list their full name, old address, new address, and taxpayer identification number on a signed request to change address. Taxpayers do not have to use Form 8822 in order to change their address, but this form contains all the required information to do so under the Rev. Proc. Because Petitioner failed to include his middle name and taxpayer identification number, the letter was ineffective.

Judge Buch ultimately holds that the letter was ineffective because the IRS received the letter on June 15—three days before the NOD was issued. The Rev. Proc. provides that a taxpayer’s address only changes 45 days after the proper IRS offices receives a proper change of address request. The national office is not the proper office; even if it was, the IRS only had three days to process the request prior to sending out the NOD. The lesson here is that if you know a NOD is coming, you can’t quickly trick the IRS into sending it to the wrong

If that wasn’t enough, Petitioner argued that because the USPS rerouted the NOD to a forwarding address in Roseville, Michigan, the NOD should be invalidated. However, the NOD was valid because Respondent send it, in the first instance, to Petitioner’s last known address prior to any subsequent rerouting.

There being no issue with the NOD’s validity—and because Petitioner didn’t participate in the supplemental hearing—Judge Buch granted Respondent’s motion and allowed the Service to proceed with collections.

Docket Nos. 12357-16, 16168-17, Provitola v. C.I.R. (Orders Here & Here)

The Court seems a little frustrated with Respondent’s counsel in this case. These orders highlight a few foot-faults that counsel—whether for Respondent or Petitioner—ought to be careful not to make.

This case is also a repeat player in designated orders; previous order include Petitioners’ motion for summary judgment from Judge Leyden here and Petitioners’ motion for a protective order here, which I made passing mention of in a prior designated order post.

Regarding the present orders, the first order addresses Respondent’s motion in limine, which asked that the Court “exclude all facts, evidence, and testimony not related to the circular flow of funds between petitioners, their Schedule C entity, and petitioner Anthony I. Provitola’s law practice.” Judge Buch characterizes this as a motion to preclude evidence inconsistent with Respondent’s theory of the case—i.e., that the Schedule C entity constituted a legitimate, for profit business. That doesn’t fly for Judge Buch, and he accordingly denies the motion.

He then takes Respondent to task for suggesting that “The Court ordinarily declines to consider and rely on self-serving testimony.” I’m just going to quote Judge Buch in full, as his response speaks for itself:

The canard that Courts disregard self-serving testimony is simply false. We disregard self-serving testimony when there is some demonstrable flaw or when the witness does not appear credible. If we were to disregard testimony merely because it is self-serving, we would disregard the testimony of every petitioner who testifies in furtherance of their own case and of all the revenue agents or collections officers who testify that they do their jobs properly, because that testimony would also be self-serving.

Ouch. In general though, I appreciate Judge Buch’s statement.  I recall being mildly annoyed reading court opinions that disregard a witness’s testimony because it was “self-serving.” For all the reasons Judge Buch notes, quite a lot of testimony will be self-serving. That’s not, without more, a reason to diminish the value of the testimony. It’s certainly not a reason to prohibit the testimony through a motion in limine. 

The second motion was entitled Respondent’s “unopposed motion to use electronic equipment in the courtroom.” (emphasis added). Apparently, the courthouse in Jacksonville has some systemic issues in allowing courts and counsel access to electronic equipment. Of what kind, the order does not make clear, though many district courts or courts of appeals where the Tax Court sits limit electronic equipment such as cell phones, tape recorders, and other devices that litigants may wish to bring as evidence to court. IRS counsel is likely the best source of knowledge on such restrictions; here, Judge Buch notes that the Court’s already taken care of these matters on a systemic basis for the upcoming trial session.

But Respondent’s counsel again makes a foot-fault here that draws an avoidable rebuke from Judge Buch. Respondent noted in his motion that he “called petitioners to determine their views on this motion, and left a voicemail message. Petitioners did not return this call as of the date of the motion, and as a result, petitioners’ views on this motion are unknown.” 

That’s not an unopposed motion! In Judge Buch’s words again, “The title of the motion (characterizing [it] as “unopposed”) is either misleading or false. . . . Consistent with Rule 50(a), we will treat the motion as opposed.”

Of course, because the Court had already resolved the issue with electronic equipment, Judge Buch denies the motion as moot.

Trial was held on 12/16 and 12/17. Judge Buch issued a bench opinion that held for Respondent, and designated the order transmitting the bench opinion on January 27. That’s Caleb’s week, so I’ll leave it to him to cover the underlying opinion.

Filed Under: Designated Orders, Last Known Address, Statutes of Limitation
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