May 2023 Digest

PT covered several important and long-awaited Court decisions in May, including Supreme Court decisions about the notice requirements for third-party summonses and state property tax strict foreclosures, an update in Mann Construction, and DC Circuit decisions about situs of the Tax Court and whistleblower jurisdiction and award limitations.

Important Case Updates

Supreme Court Finds For Government in Polselli Summons Litigation: The Supreme Court held that the IRS need not notify third parties when it issues a summons in the aid of collecting the tax liability of another person. Without notice, there is no clear path for district court review. The Court chose not to follow the 9th Circuit’s decision in Ip which said that notice is not required only when a liable taxpayer has legal interest in the accounts and records. Observations about the opinion, concurrence, and the impact the decision has on other areas are made in this post.

Property Tax Strict Foreclosure – A Final Update: The Supreme Court effectively ends the practice of strict foreclosure for unpaid property tax with its decision in Tyler. The Court determined the taxpayer had standing to bring the case and that the state violated the Fifth Amendment’s Takings Clause by engaging in the strict foreclosure practice.

The D.C. Circuit Strikes Back: The Court Affirms Its 2014 Holding That The Tax Court Is In The Executive Branch: In Crim, the DC Circuit followed its precedent in Kuretski to find that the Tax Court is an independent executive branch agency, but the majority and dissent’s analysis of the separation of powers issues raise new questions.

Latest Round of Litigation in Mann Construction Another Defeat For The Government: In the latest Mann Construction case, the Court denied the government’s motion to stay the Court’s earlier order which required the IRS to set aside the Notice at issue. The effect that a stay on one federal court has on other jurisdictions is a hot issue in this case and in administrative law generally.

DC Circuit Issues Awaited Whistleblower Opinion in Lissack v Commissioner: In Lissak, the DC Circuit clarifies that Whistleblower Office decisions are subject to court review when the IRS actually conducts an examination based on the submission, which distinguishes Lissak from Li. The Court also upholds the regulations’ approach to limiting awards to situations when information substantively connected to the eventual adjustment is provided, even if the IRS would not have otherwise examined the target. The post provides additional information about the case, outstanding issues, and current proposed whistleblower legislation.

DOJ Wins One Case and Loses Motions in Another Where POAs Signed First Refund Claims for Taxpayers, Part I & DOJ Wins One Case and Loses Motions in Another Where POAs Signed First Refund Claims for Taxpayers, Part II: This two-part post discusses cases that involve refund claims that were signed by POAs who didn’t check the box which would have authorized them to sign tax returns. The DOJ’s motion to dismiss was successful in Dixon and unsuccessful in Cooper. The posts analyze how cases with similar fact patterns resulted in different rulings, the role of the “duly filed” requirement, and the still unresolved tension between waiver cases and informal claim cases.

read more…

Taxpayer Rights and Insights

A Free Direct E-filing Tax Return System is a Fundamental Taxpayer Right: The Inflation Reduction Act directed the IRS to prepare a report about the costs associated developing and running with a free direct e-filing tax return system with a focus on multi-lingual and mobile-friendly features. In this post, Nina recounts the origins of the Free File Alliance which is the current free option that the IRS provides and makes a strong case for why a direct system is better.

Can a Taxpayer Successfully Sue When IRS Fails to Do What It Should Do: Two recent cases provide insight into whether judicial options are available when the IRS fails to do what it should do. In Kem, after the IRS ignored her math error abatement request, the taxpayer petitioned the Tax Court and made solid arguments about IRS’s obligations and the Court’s jurisdiction. The Court didn’t specifically address her arguments and the IRS didn’t acknowledge that it failed to follow math error procedures, but nonetheless issued her a refund. In Veg Invest Trust, the IRS ignored a CDP hearing request, so the taxpayer is suing for a refund in district court. The case has just begun so it’s one to watch for anyone whose correspondence, or client’s correspondence, has gone unopened, lost, or ignored.

Extension of Time for Payment of Tax Due to Undue Hardship: Part 1 and Extension of Time for Payment of Tax Due to Undue Hardship: Part 2: This two-part post shares a slightly modified version of an article that was originally published in the Journal of Tax Controversy. The article discusses the request for an extension to pay. Unless a deficiency is due to negligence, intent to disregard, or fraud, the IRS can extend the payment of a tax deficiency if the taxpayer would face undue hardship.

In The Room Where It Happens, It Doesn’t Always Happen Exactly Right and Back to the Room Where it Happens: Chris Rizek was in the room where the House and Senate’s competing provisions for innocent spouse reform were reconciled. Reflecting on the process, he finds it surprising that so much time has been devoted to analyzing the jurisdictional parentheticals and recalls that Congress’s overall goal was to expand, not limit, jurisdiction to review the IRS’s actions.

Tax Court Updates

Tax Court Expands Online Availability of Documents: During the ABA Tax Section Meeting, the Court announced that it will expand the online availability of Court documents. Beginning August 1, all newly filed posttrial briefs filed by practitioners admitted to practice before the Court and all newly filed amicus briefs filed pursuant to Rule 151.1 in non-sealed cases will be made available through DAWSON. This post delves into the details related to this and other changes.

Where Have All the Judges Gone (and Other Information from the ABA May Meeting) Part 1: The Court is currently operating with 16 Presidentially appointed judges out of a possible 19, with more vacancies upcoming, due to some judges awaiting reappointment and others being moved to senior status with no one in line to take their place. This post looks at the possible reasons for this, suggests increasing the number of special trial judges to process more cases, and looks at the history of special trial judges.

Serious Warnings for Frivolous Positions : The IRS issues the taxpayer a warning before making a section 6702 assessment even though it is not required by statute to do so. It is a step the IRS has imposed upon itself in the IRM and no cases have address whether failing to warn would provide a basis for setting aside the penalty. Similarly, the Tax Court gives the taxpayer a warning before issuing a section 6673 penalty, but does a taxpayer have a legal right to a that warning? This post explores why this question may become more important as time goes on.

Tax Court Decisions

Tax Court Says “Nutts” to Time Zone Filing Extension: Nutt is a precedential opinion in which the Tax Court (again) expressed its position that eastern time is the time zone which dictates the timeliness of a Tax Court petition. The issue has arisen in other cases, including Sanders where the petitioner who after multiple unsuccessful attempts, successfully filed less than a minute after the deadline. Under current law, the petition deadline cannot be equitably tolled, but Congress could amend section 7502 or allow time zone flexibility for matters where the amount is dispute is $50,000 or less per year.

Old Habits Die Hard: The Tax Court issued an order dismissing a late filed CDP petition for lack of jurisdiction in Floyd. The order was immediately rescinded by another order issued the same day. Boechler made such orders inapplicable since the deadline is no longer jurisdictional. Boechler also allows the Court to ignore CDP petition deadlines unless the IRS raises a concern, but it looks like it will take the Court some time to adjust.

Remand of a CDP Case: Whittaker was remanded back to Appeals after the Court found clear error in the rejection of the taxpayers’ offer in compromise. The taxpayers were close to retirement, so the IRM and Treasury Regulation allow their retirement account to be treated as income rather than an asset. They raised other valid arguments, but the record did not reflect that the arguments were taken into consideration. The case provides a glimpse into how the judicial process can shape the administrative process and demonstrates how important it is to have a judicial check on the IRS’s collection powers.

Trust and Bankruptcy Decisions

Uncertainty Over Bankruptcy Court Jurisdiction in Innocent Spouse Cases Seeking Equitable Relief: The Court in Geary held that bankruptcy courts do not have jurisdiction to determine whether a taxpayer qualifies section 6015(f) innocent spouse relief. Unlike (b) and (c) relief, the Court concludes that Congress unambiguously limited the authority to grant (f) relief to the IRS.

The Perils of Electing to Carry Forward a Tax Refund When Filing Bankruptcy: The taxpayers in Miller v. Wylie elected to apply their sizable 2018 federal and state refunds to their 2019 income tax liabilities five months before filing for bankruptcy. The bankruptcy trustee alleges that the carry forward election was a transfer which concealed property with the intent to hinder, delay, or defraud a creditor with the meaning of BC 727(a)(2)(A). The court disagreed and found that the election is a preference of the IRS over other creditors, which could cause the funds to be clawed back into the estate but would not rise to the level of denying a discharge.

IRS Loses Injunction Case Against Mother After Raising Its Eyebrow: In U.S v. DuBois the Court decided against enjoining a mother from using proceeds from a settlement. She and her tax-owing son were beneficiaries of a trust and sued the trustee for breach of fiduciary duty. While the suit was pending, the IRS brought suit against her son for failing to pay income taxes. The mother and son settled with the trustee and the son immediately assigned his rights to settlement to his mother for no consideration. The son argued that he had agreed to assign his interest earlier before becoming aware of the IRS’s suit. The argument raised some eyebrows but was ultimately successful since the IRS didn’t present evidence to refute it.

April 2023 Digest

April’s posts were an eclectic, important and entertaining mix of developments and outside the box thinking. PT covered timing rules for 2019 returns and the suspension of statutes in different scenarios; previewed articles from the Pittsburgh Tax Review and Tax Notes; and took a look at the tax advice on TikTok. In a series of posts, Caleb further examined whether the Tax Court has refund jurisdiction in CDP cases.

Noteworthy Considerations and Developments

Refund Claims and Section 7508A – Progress!: The IRS issued Notice 2023-21 which provides guidance on the timeframe in which 2019 and 2020 refunds can be claimed. It keeps the deadlines in section 7508A (which was used to suspend/postpone the filing due date for 2019 returns) and 6511(a) (which allows refunds to be claimed within three years of a return’s filing date) in sync for taxpayers who filed after April 15, 2020. Not all taxpayers have until July to claim the refund though, because the postponed deadline did not become the original deadline for purposes of determining when payments were made (and, thus, still eligible to be claimed) and the post goes on to provide easy-to-understand examples demonstrating this.

Timing Your Bankruptcy Petition to Obtain a Discharge of 2019 Taxes: Normally a taxpayer can wait three years from the due date of a timely filed return, or the extended due date for an extended filing, and the balance owed will become eligible for discharge in bankruptcy. For 2019 taxes, the automatic and global postponement of the filing deadline due to the pandemic raises questions as to when discharge eligibility occurs. The post concludes that it is likely that 2019 balances become dischargeable on April 16, 2023, but since the IRS has not issued guidance on this, taxpayers should wait until July 16, 2023 to be safe.

Thomas v. Commissioner: Some clarity on “newly discovered evidence” under IRC 6015(e)(7) that comes with a reality check: The opinion in Thomas provides more detail about when evidence is considered “newly discovered.” It holds that newly discovered means “recently obtained sight or knowledge of for the first time.” This definition provides clarity to taxpayers, practitioners, and the IRS. It was used by the Court to allow the IRS to admit evidence (i.e., petitioner’s blog posts) discovered after the administrative record was closed, even though the posts were in existence and could have been found by the IRS while the record was still open.

Ninth Circuit En Banc Panel Reverses Seaview Trading: The 9th Circuit reversed its original decision (that a return is filed when it is provided to a Revenue Officer who requests it) after en banc review in Seaview. The en banc decision found that IRS guidance relied upon by the taxpayer, does not override the regulation which states that a return must be filed with a service center. The taxpayer argues that the regulation only applies to timely filed returns. The dissent goes on to explain why the en banc reversal harms taxpayers and is inconsistent with the Code, regulations, and IRS internal guidance.

read more…

CDP Refund Jurisdiction

Does Boechler Change Tax Court Refund Jurisdiction in CDP?: Caleb is back to analyzing whether it is possible for the Court to order a refund in CDP cases by looking at the recent decision in Brown. On remand, the Tax Court said it cannot order a refund because the Court’s jurisdiction is limited. The 9th Circuit agreed and later denied a rehearingt request. Neither Court addressed the impact of Boechler despite it being raised by the taxpayer. This post analyzes the significance of Boechler to the Court’s perceived jurisdictional limitations and why Boechler should (and eventually will) be addressed.

How Much Does Brown Limit Tax Court Refund Jurisdiction in CDP?: Brown may help strengthen the theory that the Tax Court has jurisdiction to order money be returned to a taxpayer in a CDP case, in some circumstances. The Court analyzed the character of the TIPRA payment at issue in the case and concluded that it was not a deposit, which suggests that the Court thinks it may have jurisdiction to order the return of deposits.

Play It Again, Sam: The Perils of (Incorrectly) Established Court Analysis: The 9th Circuit relied on a precedential case, the statute and a relevant legislative Conference Report to support the conclusion that TIPRA payments are non-refundable payments of tax in Brown. This post takes a closer look at those sources and finds that they don’t quite say what the Court says they say.

Suspending and Tolling Statutes

Wartime Suspension of Limitations Act (“WSLA”): This repost from Jack Townsend’s blog discusses the application of the Wartime Statute of Limitations Act to two cases involving defraud conspiracy. The Act suspends certain criminal statutes of limitation while the U.S. is at war or Congress enacts a specific authorization for the use of armed forces, including statutes for crimes involving fraud or attempted fraud against the U.S. The question is whether the WSLA is applicable to defraud conspiracy, if defraud is broader than fraud.

Extending the Statute of Limitations on Collection: This post highlights two cases where taxpayers argued that the collection statute had expired so it was too late for IRS to sue to reduce the amounts to judgment. Sparkman involved a suspension during a 546-day period when an installment agreement was being negotiated. The taxpayer unsuccessfully argued that the installment agreement wasn’t pending the whole time, because there were times when the IRS said his proposal was not acceptable.  Colasunno involved a suspension during bankruptcy and the Court held the bankruptcy suspended the collection statute even though the taxpayer could not remove his TFRP liability through the bankruptcy.

When Does a Pending Installment Agreement Exist: The title of this post is the question the Court in Taylor must decide before addressing the remedies the taxpayer requests. Section 6331(k) describes four periods when an IA exists for purposes of stopping a levy. The IRS doesn’t have to accept an IA if it determines it was submitted to delay or impede collection.

Equitable Tolling and Bankruptcy Time Periods: In Rader the bankruptcy court looked to the Supreme Court decision in Young to decide whether the IRS was entitled to equitable tolling with respect to the two-year bankruptcy timing rule. In both cases, the debtors filed for bankruptcy twice and tried to discharge tax debt during the second filing with the argument that the requisite amount of time had passed for the debt to be dischargeable. Finding for the IRS, the bankruptcy court held that the time on the two-year rule should be equitably tolled because the IRS was unable to collect from the taxpayer while he was in his first bankruptcy even though the statute doesn’t describe the effect of prior bankruptcies.

Pittsburgh Tax Review RRA 98 Symposium

Rooms Where it Happened: Keith shares his personal experience as an IRS Office of Chief Counsel attorney in the period immediately before and after the enactment of RRA 98 in an article for the Pittsburgh Tax Review and highlights and expands upon those experiences in this post. He recounts four episodes from that period that were particularly memorable, including drafting legislation, some of which was adopted, to improve the collection provisions of the code.

CDP At 25: My Contribution To The Pitt Tax Review Symposium on RRA 98: This post is a preview to Les’s contribution to the Pittsburgh Tax Review. It discusses how CDP and the right to judicial review of the IRS collection process has had an impact on the IRS becoming more like, and being held to the same standards as, other administrative agencies. 

Circuit Court Decisions

Trust Fund Recovery Penalty Case Raising Issues Regarding Deposit and Last Known Address: The Ahmed case has been appealed up to the Third Circuit and remanded back to Appeals. The issues are layered in a way that make it challenging to summarize succinctly but they involve a TFRP assessment, a notice that may have been sent to an incorrect address, the ability to make a deposit on TFRP, and CDP mootness. As it stands Appeals is considering whether the notice was improperly addressed.

How the D.C. Circuit’s Upcoming Decision in Lissack Could Begin to Undo the IRS’s Nullifications of the Whistleblower Program: The author of this post identifies and analyzes evidence that the IRS has been working to nullify the whistleblower program. The post summarizes an upcoming article in Tax Notes that urges the D.C. Circuit Court to reach certain holdings in Lissack and overrule Li. Li allows the IRS to prevent Tax Court appeal by rejecting a claim without assigning it to an appropriate office and if Lissak is decided in the way that the IRS would like, it would allow the IRS to prevent Tax Court appeal by directing an Appeals Officer to deny a claim.

Tax Court and District Court Decisions

Court Finds Frivolous Return Penalty Applies To Trustee: Stanojevich involves frivolous tax returns filed for a grantor trust which itself has no separate tax liability. The Court considers whether the penalties apply when the return was signed and submitted by the fiduciary. It concludes that nothing in the frivolous penalty statute states the penalty only applies when someone files their personal tax return. Since the taxpayer (in his capacity as trustee) filed the return, he can be subject to the penalty.

Court Blesses The Appointment of A Receiver To Sell A Taxpayer’s Personal Residence: In US v Mikulin, the taxpayer used a TIGTA report to support his argument that the IRS violated his rights by pursuing his residence via judicial collection rather than by administrative seizure. The district court in Texas noted it was too late to make the argument, but also that the report carries no statutory or legal authority and is merely the report of an audit conducted by TIGTA. The post also notes that whether judicial collection is more harmful than administrative seizure is more nuanced than the opinion or taxpayer suggest.

Used Car Seller’s Bonus Payments Do Not Constitute A Separate Trade or Business: In addition to being paid to sell cars, the petitioner in Schmerling, was paid amounts later reported on a 1099 for: 1) travelling to auctions to purchase cars to be resold by the dealer, 2) exceeding performance goals, and 3) selling car warranties. He treated the 1099 payments as a separate business and reported the income on a Schedule C. The Court found the bonus and warranty sales income was “inextricably intertwined and connected with” his status as an employee of the dealership and as a result, he could take expenses related to those income as an employee (subject to the miscellaneous itemized deduction limitations and pre-TCJA).


Another Tax Chat! in the Transforming Tax Administration Series : This post previews the (now past) Tax Chat about the IRS budget which looked at budget categories influence on IRS behavior and more, with the President’s Budget-in-Brief for the IRS and the IRS Strategic Operating Plan as background. The post also provides information on upcoming future Tax Chats.

Neo-TikTok-Tology: This post looks at the levels of reliability in advice provided about tax issues on TikTok and whether the platform is evolving in such a way where relying upon the seemingly reliable advice could be a basis for reasonable cause for taxpayers, especially those who cannot afford professional and tailored tax advice. The posts shares links to some of the subject TikTok accounts, whether good or bad, and provides examples of the types of advice given before turning back to analyzing whether a reasonable cause argument exists under existing regulations and case law.

Frequently Asked Questions: This year’s April Fool’s Day post parodies IRS Frequently Asked Questions.

March 2023 Digest

The upcoming 25th Anniversary of the passage of RRA ’98 was a focus of PT posts in March and provided for meaningful opportunities to reflect and make recommendations. A three-part series highlighted a problem that exists for many taxpayers whose returns contain duplicate tax identification numbers. There also were notable developments with respect to equitable tolling litigation, time-barred APA claims, and nominal refund claims; and we shared a thing or two about the benefits of being a Tax Court judge.

Reflections and Recommendations

Join the Center for Taxpayer Rights for a Tax Chat! with former IRS Commissioner Charles Rossotti on 23 March 2023: CTR’s virtual Tax Chats! titled Transforming Tax Administration Toward and Effecitve, Trusted, and Inclusive IRS launched in March. The Tax Chats! will continue over the spring and summer of 2023 and there will be in an in-person and virtual day-long conference in September. The first chat was with a Charles Rossotti, former IRS Commissioner, about his experience modernizing the IRS in the context of RRA 98.

Looking back and looking forward: The National Commission on Restructuring the IRS: Armando Gomez, former Chief Counsel to the National Commission on Restructuring the IRS, provides his perspective on the past and future of the IRS. He advised Co-Chairs of the Commission as they developed a bipartisan report 25 years ago which laid out a vision to transform the IRS into a responsive service organization. He emphasizes the importance of filling key (and currently unfilled) presidentially appointed tax positions. He notes that the tax world’s focus on the APA is a remarkable change. He suggests greater use of alternative dispute resolution and reporting requirements to hold the IRS to a higher standard. The illuminating and thought-provoking post goes on to provide many more reflections and recommendations.

Simplicity Lost: RRA 98 embraced tax simplification as a real possibility but this possibility faded over time. The legislation required the IRS to analyze the sources of complexity in federal tax law and annually report its analysis to Congress. The JCT was also tasked with providing regular reports on the state of the tax system and a tax complexity analysis for all proposed tax legislation. Congress was to seek information from IRS front-line technical experts during the tax legislative process. These requirements and obligations faded away with time and changing administrations but looking at the history of this may be instructive for future simplicity attempts.

read more…

Federal Employee Tax Compliance: A recent TIGTA report that revealed the IRS is lacking in its efforts to collect from non-IRS federal employees who should be easy targets. It also demonstrates a bigger issue that section 1203, which targets only IRS employees, is too narrow. The report focuses on what the IRS should do to address the non-compliance of federal employees, but Congress could also consider broadening section 1203 to apply to all federal employees with respect to its timely and non-fraudulent filing requirements.   

Procedural Problems

A three-part series by Justin Schwegel highlights the issues that the IRS’s duplicate taxpayer identification number (or “DUPTIN”) screening procedure can create. The IRS rejects and freezes the refund of an electronically filed return because it lists TINs (primary, secondary, or for dependents) that were already listed on earlier filed return for the same tax year. The purpose is to allow the IRS to prevent fraud and improper claims, but it can cause taxpayers to experience delay, confusion, and economic harm.

DUPTIN Part I shares hypothetical case studies that demonstrate examples of the harm, the knowledge hurdle, and subsequent procedural obstacles caused by the DUPTIN process.  

DUPTIN Part II. further describes the process and highlights three exceptions that exist which prevent the IRS from automatically rejecting a return even though it contains a duplicate TIN. 

DUPTIN Part III. looks at the real world impacts the process can have on taxpayer’s lives (especially victims of domestic violence) and the inequities caused by the process’s inability to discern proper claims from improper claims. It makes suggestions for how the process could be improved with an emphasis on fairness for all parties involved.

Equitable Tolling Developments

Oral Argument in Culp v. Commissioner: The livestream and recorded links to the oral argument in Culp are shared. As a quicker refresher: the case is in the Third Circuit Court of Appeals and involves an equitable tolling argument made for a deficiency deadline and the Center of Taxpayer Rights has filed an amicus brief.

DOJ and Another 3d Cir. Panel Muddy Waters as to Source of Tax Court’s Deficiency Jurisdiction: The Skolnick Court relied on a DOJ brief to conclude that section 6214(a) gave the Tax Court jurisdiction in a case not involving an increased deficiency. This contrary to the government’s position in Hallmark and Culp which is “that 6214(a) is only the source of the Tax Court’s jurisdiction to redetermine deficiencies in excess of those set out in the notice, while I.R.C. § 6213(a) is the source of the Tax Court’s jurisdiction to redetermine deficiencies to numbers equal to or below those set out in the notice.” This inconsistency may influence the judges in Culp, because “if the jurisdictional grant is held to be in I.R.C. § 6214(a), then Congress has separated the filing deadline from the jurisdictional grant – triggering the Supreme Court’s instruction to treat the filing deadline as not jurisdictional.”

Equitable Tolling Case Moving Forward in Tax Court: The Court denied the IRS’s motion for summary judgment in Amanasu Environment Corp. It is CDP case involving a Canadian Corporation that received its notice of determination seven days after the 30-day window to file a Tax Court petition potentially because Vancouver was spelled Vanclover on the letter. The Court made some interesting and telling conclusions that suggest what the future of equitable tolling cases, including this one, could look like.

Refund Claims

Joint Committee Review of Refund Cases: Section 6405(a) provides that the IRS cannot pay a refund of more than $2,000,000 until 30 days after it submits a report to the JCT for review. If the JCT finds a problem with the proposed refund, it outlines its concerns in a Staff Review Memorandum (SRM). The post goes on to share reports from 2021 and 2022 about these cases and a link to an overview from the JCT about the process. Understanding the process can ensure that any request for refund over $2 million includes all the necessary information and support.

Nominal Refund Claims: PMTA 2023-001 reveals the IRS’s non-binding perspective on filing of a $1 claim before the refund statute of limitations expires to protect the claim.  The advice concludes that a nominal claim will not protect a taxpayer. It also distinguishes nominal claims from protective claims suggesting that a later filed claim will not be treated as an amendment or supplement to an original claim if it requires the IRS to investigate new matters not disclosed by the investigation of the original claim.

Husband Who Paid Wife’s Taxes Finds it’s Not Easy to Sue For a Tax Refund: In Roman v. United States, an ex-husband received the family home as part of divorce settlement and was required to pay any taxes associated with the sale of his ex-wife’s share to him. His ex-wife reported the proceeds without applying the exclusion available under section 121. After meeting with the IRS, the ex-husband paid and later sued for a refund in District Court arguing that due to the exclusion, the amount of tax he paid was not really owed. The CFC said it had jurisdiction over the third-party refund claim. The Court of Appeals reversed citing the Supreme Court in U.S. v. Williams, but instead held that the CFC had jurisdiction under the Tucker Act because the tax was paid under duress. This result raises some questions and future issues which are pondered by this post.

Tax Court Developments

Where is the Tax Court located? Dueling concurring opinions in a recent Court of Appeals for Veterans Claims case, Prewitt v. McDonough, discussed how to property situate the Tax Court. This question has been raised in PT posts many times and existing case law has oscillated between the Tax Court being part of the judicial or executive branch. Some of those cases, namely Freytag, Kuretski, and Battat, are analyzed by the concurring opinions.

Tax Court Rule Changes: The Tax Court published changes to its rules, as well as a discussion of some of the comments it received about the proposed changes. The post closely examines the rules related to electronic filing, access to the Court’s records, and new amicus provisions, along with the discussion of comments made by Harvard and others about these rules.

What Does It Mean When Former Judge Kroupa Shows Up as Senior Judge Kroupa in the Tax Court’s Report to Congress: Criminally convicted and retired Judge Kroupa is listed as a senior judge in the Tax Court’s recent budget justification report. Keith investigates the reason why and his questions to the Tax Court about it leads him back to section 7447. The post provides an interesting look at the benefits of being a Tax Court judge.

Tax Court Decisions

Tax Court Denies Attorney’s Racing Car Costs Claimed To Be Advertising Expenses For Legal Practice: The Tax Court sustained a denial of over $300,000 of advertising expenses paid by a lawyer-taxpayer for race car activities during 2008–2013 in Avery. The case was in Court on a CDP petition, but the taxpayer was successful in demonstrating that he did not have a prior opportunity to dispute the liability. Even so he was unable to show that he actually generated business from race car driving and using it as a “conversation starter” with professional contacts was not enough to justify it as a business expense.

Precedential Passport Case: The Court in Adams readopts its position in Ruesch (a case vacated at the circuit level for reasons not related to its underlying analysis), which is that the Court lacks the ability to redetermine the amount of a taxpayer’s liability in a passport revocation case. The Court can only confirm that assessments existed at the time of the revocation referral, rather than determine their correctness. A taxpayer is not deprived of the right to international travel when the IRS sends the passport revocation letter, and the Tax Court lacks jurisdiction to review the State Department’s ultimate determination.

District Court Decisions

Out of Time: The Government (Mostly) Wins at the District Court in Govig: For the first time ever, the Court considered the six-year time bar for APA claims in a tax case and dismissed two of three claims. The case provides clarity on how to distinguish between earlier-accrual and later-accrual cases using the Wind River Doctrine. According to the doctrine, the right of action “accrues at the time of rulemaking for claims relating to procedure contemporaneous with rulemaking, but accrues later, at the time the rule is applied, for claims that the substance of agency rulemaking violates the Constitution or exceeds the bounds of the authorizing statute.” The case also analyzes the application of Mann Construction, the Anti-Injunction Act, and more as described in the post.

Jurisdiction of District Court in Innocent Spouse Case: The trial section of DOJ Tax Division sought to dismiss Viktoriya Korleshchuk-Petrie due to lack of jurisdiction under FRCP 12(b)(1) and failure to state a claim under FRCP 12(b)(6). The DOJ’s argument is that a refund based on 6015(f) relief is discretionary and so it is not subject to judicial review by the District Court, unlike (b) or (c) relief which provide for mandatory relief if the provisions are met. The case is represented by Harvard’s Tax Clinic. The post delves into the various arguments made by the DOJ and links provide even more details, but the Court’s ultimate response is that dismissal is not warranted, and the case will move forward.

Court Invokes Aesop’s Fables In Denying Government’s Request For Injunctive Relief: In U.S. v. Olson, the Court denied a request for injective relief with a reference to Aesop’s Fable implying that the IRS was greedy to seek such relief in addition to having the assessment reduced to judgment. The government often requests injunctive relief when a taxpayer, like Olson, has multiple quarters of unpaid employment taxes. The government sought enjoin the taxpayers to follow the law going forward, report their compliance to the IRS, and grant the IRS the right to periodically inspect their books and records.

Government Concedes in Polish Lottery Case : This is a follow-up post to a case that PT wrote about in September involving penalties imposed for late-reported foreign gifts received by the son of a Polish lottery winner. Appeals only abated about 80% of the penalties without a clear reason for not abating all.  Last week DOJ filed a status report indicating that it has conceded all the penalties, and the taxpayer will be receiving a refund soon.

Seeking a Discharge of the Federal Tax Lien: In Long, a former non-liable spouse sought to discharge a lien on property received through her divorce. The IRS turned her down and she sued in District Court and she was ultimately unsuccessful in her multiple and varied arguments to have the lien discharged. The post looks at the difference between release and discharge and the paths available to discharge under section 6325(b).

February 2023 Digest

The filing season is in full swing, and we finally have some guidance from the IRS about the treatment of state relief payments. The Tax Section Midyear Meeting happened earlier this month in beautiful San Diego and PT posted about some of the information and updates shared there. There has been some traction in favor of taxpayers in cases involving listing notices. Other recent Tax Court decisions have reiterated the Court’s view that missing the filing deadline in 6213 cases is grounds for dismissal.  

Tax Treatment of State Payments

An Open Letter to the Last IRS Commissioner: Formatted as a letter to former Commissioner Rettig, this post addresses the issues caused by the lack of clarity around how state relief payments made in 2022 should be treated. The post specifically addresses the Middle Class Tax Relief payment in California but notes that these state relief payments occurred in many states and with different reasoning. California issued forms 1099 when the amounts paid were $600 or more. At the time of the post, California wasn’t sure what federal tax treatment would be and IRS wasn’t providing guidance either.

IRS Statement Regarding Payment of Special Tax Refunds by States: Following PT’s post, the IRS issued a statement about the treatment of state payments recommending that taxpayers wait until additional guidance is available or consult with a reputable tax professional.

IRS Acquiesces in Action on TurboTax Decision: The additional guidance arrived, in part, when the IRS announced it “will not challenge the taxability of payments related to general welfare and disaster relief” in Information Release 2023-23. The Information Release doesn’t address all types of payments though. More upfront guidance from the IRS could help resolve these types of issues in the future

Tax Section Midyear Meeting

read more…

Unscrupulous Return Preparers Draw Attention At The ABA Tax Section Midyear Meeting: The highlights from the Midyear Meeting panel on unscrupulous return prepares are shared in this post, including how state law causes of action can be used to go after such preparers and the results of a special research report included in the NTA’s Annual Report to Congress which explored dividing or separating the EITC into different components.

Tax Court Practice & Procedure Updates from the 2023 ABA Tax Midyear Meeting: Tax Court updates from the Court and Counsel’s Office from the Midyear Meeting are shared in this post. Notably, practitioners can now enter a limited appearance any time after a case is set for trial and before the trial session is adjourned; the Notice Setting Case for Trial invites interested parties to file a motion for a remote trial session; and the next quarterly Tax Court webinar will be about expert witnesses and held on March 16.  This post also contains lots of data on numbers of cases filed, types of cases, etc.

Taxpayer and Practitioner Rights

Property Tax Strict Foreclosure – A Follow Up: Anna Gooch follows up from an earlier post on states using strict foreclosure to collect property taxes. Since her initial post, additional cases with similar facts have been identified, including one that will be heard by the Supreme Court. Arguments in favor of petitioners, along with the Court’s opinion on them, are discussed, including arguments involving the Takings Clause or the Excessive Fines Clause.

A Pair of FOIA Cases on Similar Trajectories (or not): This is a tale of two FOIA cases. The first involves a request for information related to an OPR referral. The second involves an inquiry into what the IRS does with a practitioner’s information (SSN and birthday) when they call on behalf of a client. In both cases, the IRS used FOIA exceptions to argue that they didn’t have to disclose some of the information. In both cases, the district court agreed with the IRS. In both cases the party seeking the information appealed and the appellate court reversed and remanded the case for furth action.  In both cases the district courts essentially stood by their initial rulings denying the FOIA request.  In the first case, the petitioner was mostly successful on his second appeal to the D.C. Circuit. In the second case, an appeal back to the Eighth Circuit has not yet been filed.

Tax Court Updates

Tax Court’s 2024 Budget Justification : The Tax Court seeks more money for the coming year to cover increased salaries for existing judges and other Court needs, but also to hire at least one more special trial judge. The Court seeks to raise its filing fee from $60 to $100. Additional information and data about the Court’s operations from the Budget Report are shared in the post.

One Computer in Tax Court Record Room: Post-pandemic there is only computer in the Court’s record room instead of two. Keith has observed that other users of the computers are typically reporters in the tax press. The Court aspires to expand public access to information and downsizing the public access computers seems inconsistent with that. After this post, at the mid-year meeting, the Court explained it removed one of the computers was because it was rarely used. The Court’s data showed that, so far, two persons had not showed up at the same time to use the computer in the records room.

Tax Court Trial Procedures: Guidelines from Judge Jones: Judge Jones provided trial guidelines and a worksheet that can be used by taxpayers with business expense issues at a recent D.C. calendar call. Both documents are worth checking out. A link to the guidelines and the worksheet are shared in the post.

Tax Court Decisions

East Coast Bias: Tax Court petitions are required to be electronically filed by 11:59 EST on the day of the petition filing deadline. This can create a disadvantage for any taxpayer outside of the Eastern time zone. The issue was demonstrated in Park when the Court dismissed petitioners’ case because they filed it two minutes after the EST deadline even though it was filed on the last date for filing the petition when viewed from the perspective of California.

Alleged Monthlong Trip to Mexico To Celebrate Día De Los Muertos Not Enough To Get Extra Sixty Days To File A Petition: Shead was dismissed as untimely when the taxpayer failed to prove he was out of the country at the time the IRS mailed the notice of deficiency. The only evidence the taxpayer presented was his testimony and unstamped passport, but it’s very probable that he had other evidence of the trip which may form a basis for the Court to reconsider its dismissal. Testimony is evidence, but in the absence of confirming documentation, a judge may not find it sufficient.  

Tax Court Denies Reconsideration in Green Valley and More District Courts Invalidate Listing Notices: The IRS’s motion to reconsider the Green Valley decision has been denied. The Court stated it is under no obligation to address every argument raised. The existence of other listed-transaction notices did not influence the Court and they stated that they were not offering any opinion related to the other notices. A district court in Alabama was persuaded by the Tax Court’s reasoning in Green Valley and both it and another district court in Ohio invalidated the same notice while limiting the remedy to particular taxpayers.

Your Advice is Sought – A Threshold Inquiry for Penalty Abatement: Taxpayers may only be eligible for penalty relief when they rely on actual advice, rather than clerical work, from a tax advisor. In Patacsil, the court determined reporting business expenses on a Schedule C may not constitute tax advice because it involves transcribing figures rather than exercising judgment or performing analysis. Conversely, the Court granted accuracy related penalty relief for incorrectly carried forward NOL’s because rules around NOLs are “tax-law arcana.” Other cases have shown that failure to report income and inputting data into software is also not tax advice.

Failure to File Information Returns For Foreign Trust Keeps Statute Of Limitations Open For Individual’s Income Tax: The assessment statute does not begin to run until a taxpayer with a foreign trust and distributions furnishes information to the IRS about the trust investments according to 6501(c)(8). In Fairbank the petitioner first argued that her entity was a corporation rather than a trust and she had filed the necessary forms for a corporation after a JDS was issued. Then she argued that the information provided on the corporate forms effectively provided the IRS with the trust information. The Court disagreed citing the need for certainty in this area.

Court of Federal Claims and District Court Decisions

Circuit Precedent and Supreme Court Decisions: Vensure involved the question of whether a three-judge circuit panel has authority to overturn circuit precedent in light of undercutting (but not overturning) Supreme Court precedent. The DOJ argues the panel’s authority is very narrow, but the CFC disagrees. The case involves the jurisdiction of a refund claim, and the argument is one that the DOJ has raised in other jurisdiction cases. The post provides important information about the current litigation in this area.

District Court Rejects Claim That Government Must Choose Either Administrative or Judicial Collection Path To Collect An Assessed Tax: In U.S. v. Varner the taxpayer argued that the IRS can only collect administratively or judicially but not in both ways. More specifically, he argued that a prior levy precluded the IRS from now reducing the assessment to judgment. The Court explained that a taxpayer’s right to appeal collection actions administratively is separate from the government’s power to use judicial collection tools and the options are not mutually exclusive. 

January 2023 Digest

It’s hard to believe we’re already one month into the new year and tax filing season has begun. It feels like the IRS’s front-line operations are improving, but of course, there is always more work to do. The government, tax practitioners, and academics are starting the year off strong by focusing on the significance of racial disparities within our tax system in working papers and studies. There is a symposium on the topic next month and a CTR series planned for the fall.

Tax and Race

Next Month’s Symposium Highlighting Relationship Between Tax and Race: A symposium focusing on the relationship between tax and race will be held in-person and via Zoom on February 24, 2023. The symposium will cover existing and developing research in this area. In the same vein, the Treasury recently released a working paper that finds significant racial disparities in the tax system.

Racial Disparities in IRS Audits: A must-read study by the Stanford Institute for Economic Policy Research found that black taxpayers are audited significantly more often than non-black taxpayers. As stated in the post, “the study concludes that the objective of the predictive model underlying audit selection, along with operational considerations such as employee expertise, costs of audits, and congressional or other expectations, can be “critical drivers of disparity.””

Collection Due Process Considerations

Caleb’s thought-provoking three-part series contemplates the ways in which a taxpayer could possibly secure a refund in a CDP hearing and elaborates upon the ways a taxpayer is and isn’t limited by the Tax Court’s lack of refund jurisdiction.

read more…

“Refunds” and CDP Review: The first post dives into whether it’s possible to get improperly levied funds back from the IRS through a CDP hearing despite the Tax Court’s lack of refund jurisdiction. It includes a discussion of a recent case, Shwartz, which involved a credit-elect and demonstrates the ability of the Tax Court to resolve issues in CDP even if it cannot order specific relief.

Getting a Refund in CDP: Don’t Call it a (Rebate) Refund: The second post dives further into the argument that the Tax Court can order a refund in CDP, even if it can’t use those exact words. A footnote in Greene-Thapedi suggests that the Tax Court may consider overpayments when they are relevant to a proposed collection action. The significance of other cases where money has been returned are also discussed.

Getting Refunds in Collection Proceedings: Why CDP Matters: The third post looks at the people and processes that resolve most CDP controversies and emphasizes that there may be ways to get a refund in an administrative CDP hearing, even if it’s not possible in Tax Court.

Recommendations for Congress

Math Error and Limited Taxpayer Remedies: The remedies available to challenge incorrect math error adjustments are limited. The IRS can disregard an abatement request or fail to explain the reason for an assessment or fail to issue a notice of deficiency and leave taxpayers without much recourse. Congress could address the issue by expanding the Tax Court’s jurisdiction to allow it to enjoin the IRS or to review cases where a math error is not timely abated.

Exempting the Earned Income Tax Credit from the Bankruptcy Estate: Many states have exempted EITC refunds from a bankruptcy estate because the payments are considered welfare payments. This is not true for all states as the debtor from New Mexico in In re Medina discovered. Congress could address the issue by passing legislation that exempts federal anti-poverty payments for all states.

Recommendations for the Treasury and IRS

FOIA Appeals and Exception 21: Comments were requested on proposed regulations related to Appeals resolution of federal tax controversies. One comment recommended that FOIA disputes be removed from Appeals jurisdiction. This post argues that despite problems with Appeals in this realm, it is still best equipped to handle FOIA disputes. The post goes on to discuss exception 21 and why its current form allows Counsel’s Office too much deference to determine which cases can be withheld from Appeals.

IRS Requests Comments on Forms 3520 and 3520-A: The IRS is requesting comments on Form 3520 and 3520-A as part of a routine OMB review. This post provides some insight into the process, some tips for viewing the IRS’s written discussion of public comments online, and shares observations about the compliance burdens related to the forms.

GAO Report of Refunds and Customer Service:  Charts from the GAO report entitled: “2022 Tax Filing – Backlogs and Ongoing Hiring Challenges Led to Poor Customer Service and Refund Delays” are shared. The charts convey information about IRS hiring timelines, appropriations, correspondence inventory, tax return processing, telephone service, and taxpayer wait times.

Now is the Time for IRS to Enhance Digital Services: The IRS should act to immediately enhance digital services. This recommendation was emphasized by the NTA in her 2022 report, where she stated that creating robust online accounts should be the IRS’s highest priority and will prove to be the most transformational. TIGTA has found that the IRS has already made some missteps in this area.

Supreme Court Updates

Polselli Summons Case Heads To Supreme Court: The question the Supreme Court will seek to resolve is the IRS required to give notice when it issues a summons in aid of collecting an assessed tax? There is split between the Sixth and Ninth Circuits on this issue with the Sixth Circuit holding that answer is no, as long as the summons follows an assessment or judgment and was issued to aid tax collection. This interpretation places no limitations on the IRS and fails to protect private information from IRS overreach.

Circuit Court Opinions

Court Tosses Lawsuit Alleging Alleging Hollywood Foreign Press Association Bylaws Inconsistent With Its Tax Exempt Status: The petitioners in Flaa v Hollywood Foreign Press Association sought a declaratory judgment that the bylaws of the HFPA conflicted with its status as an IRC § 501(c)(6) trade organization, because they only benefit its members rather than the industry as a whole. The court dismissed the claim holding that the Declaratory Judgment Act limits courts’ jurisdiction to provide relief. There’s an exception to the DJA related to determining whether an organization is entitled to tax exempt status but only in actions brought by the organization itself.

Avoiding the Federal Tax Lien in Bankruptcy: In U.S. v. Warfield (In re Tillman) the Ninth Circuit determined that a chapter 7 trustee could not avoid the federal tax lien on the debtor’s homestead. The case involves an unpaid tax penalty, an NFTL for that amount, and property for which a homestead exemption was claimed.

Tax Court and District Court Opinions

Changing a Penalty – Graev Effect: The Petitioners in Castro argued that actions of a penalty-approving supervisor demonstrated he paid little or no attention when he signed the approval form, but that doesn’t matter to the Court. Signing the right form at the right time is all that matters. The decisionaffirms prior case law that the Court will not look behind a supervisor’s signature in the same way that it will not look behind a notice of deficiency.

Public Records Exception to IRC 6103: In McGowan the plaintiffs wanted to question the government’s expert about his experience in previous cases to see if it impacted his opinion in their case. The court cites to the general disclosure prohibition in 6103, but also to the exception for information that is part of the public domain. It finds the information was disclosed to the public in the prior Court Opinions and, as a result, it also finds that the protection of the information under §6103 is futile.

A Quick Hobby Loss Refresher: Why These Losses Are Useless (At Least Until 2026): In Gregory the TCJA’s disallowance of miscellaneous itemized deductions prevented the petitioner from claiming hobby expenses against hobby income. Petitioner argues that the hobby loss provision conflicts with section 67, and because section 183 is more specific it should preempt and allow for hobby expenses to be deducted above the line. The Tax Court disagreed, finding that the statutes were not in conflict. The Gregorys have appealed their case to the 11th Circuit.


The Low-Income Taxpayer and Form 1099-K: Most tax professionals have heard the news that the American Rescue Plan changed the amount required to be reported on forms 1099-K. Amounts more than $600 must be reported, regardless of the number of transactions. This change was supposed to go in effect this year but has been delayed until next. The public may not be as familiar with this change, so we, as practitioners, should seek to educate them about it.    

November 2022 Digest

November brought a significant life change for me as I left the University of Denver for Loyola Chicago’s School of Law. I grew up in Chicago, so it is good to be home. My news, however, pales in comparison to some of the shocking developments in the tax world the last couple of days: an investigative report found that tax return software disclosed sensitive taxpayer information to Facebook, and the Tax Court decided that the time frame to file a deficiency petition is jurisdictional.

Significant News

The Facebook Pixel and Unauthorized Use and Disclosure of Tax Return and Tax Return Information: An investigative report has revealed that taxpayer data input into online tax preparation software, including by companies that the IRS directs taxpayers to use, was sent to Meta (formerly known as Facebook). This post explores the impact of these egregious disclosure violations in light of sections 6103 and 7216.

Tax Court Issues Another 17-0 Ruling Regarding The Jurisdictional Nature Of Filing A Tax Court Petition: Looking to history and section 7459, the Tax Court decided that the time frame for filing a deficiency petition is jurisdictional in Hallmark despite the Boechler opinion. It’s possible that this issue will follow the same trajectory as Boechler and ultimately be considered by the Supreme Court.

Treasury and IRS Guidance Plan Highlights Some Key Procedural Issues: The Treasury and IRS released the 2022-23 Guidance Priority List. Topics relevant to PT readers include a revision of the Circular 230 rules addressing practice before the IRS, a project relating to supervisory approval under section 6751(b), the authority to postpone deadlines under section 7508A and more.

read more…

Conservation Easement Updates

Champions III: Conservation Easement and Golf: The valuation of a golf course adjacent conservation easement was at issue in Champions III. The 11th Circuit remanded the case back to the Tax Court finding its decision was inconsistent with the record. The regulations require a specific approach for valuation, and a credible record is necessary to support the findings of the Court, especially when there is competing expert testimony. 

Tax Court Hands IRS Major Defeat In Its Battle Against Conservation Easement Transactions: In Green Valley Investors, the Tax Court held the IRS violated the APA when it issued Notice 2017-10 without complying with the notice and comment provisions or establishing that it was not required to do so. The majority opinion defined a legislative rule as one that “impose[s] new rights or duties and change the legal status of regulated parties” which made it easy for the Notice at issue to be considered legislative, rather than interpretive.  

Boechler-Related Developments

Judge Goeke Asks: “After Boechler, Is the 30-Day Deadline to Request a CDP Hearing Subject to Equitable Tolling?”: Whether equitable tolling can apply to the “other” 30-day deadline in the CDP world, the deadline to file a Form 12153 to request a CDP hearing, is being examined in two Tax Court cases before Judge Goeke. The Judge has issued orders in both cases asking for further information about the application of Boechler to the form 12153 deadline.

Dismissal of Late Filed Petition in a Post-Boechler World: Caroll provides the first example of the process that will likely take place when there is a late filed CDP petition. The IRS filed an answer with affirmative allegations regarding the lateness of the petition. Then it followed up appropriately by moving to have its affirmative allegations deemed admitted under the Rule 37(c) process.  Caroll was ultimately dismissed because the petitioner failed to respond, even after the Court gave petitioner every opportunity to provide an explanation.

Circuit Court Decisions

The Solicitor General Embraces Phantom Tax Regulations: Phantom regulations were embraced by the Sixth Circuit in Whirpool when the court concluded that a statute that contemplated rules applying “under regulations” can operate regardless of whether regulations are actually issued. In her brief in opposition of certiorari the Solicitor General maintains this argument, even though it is inconsistent from the approach taken for other code sections. The Supreme Court has distributed the case for consideration.

Hall v. Meisner: An Overreach of State Tax Collection Activity: The Sixth Circuit held that a Michigan law that allows for strict foreclosure when a taxpayer has overdue property taxes is unconstitutional. This post explains how the law operated contrary to IRS practices and centuries of laws designed to protect property owners and their equitable interests. It also highlights the importance of protecting taxpayer rights at state and local levels.

Court Orders Enforcement Of A Summons Request From Abroad Allegedly To Harass Prominent Members Of Opposition Political Party: Other countries can make requests which result in the IRS issuing a third-party summons to obtain information about US-sourced investments. In the non-precedential case of Puri, the Ninth Circuit addressed allegations that an Indian tax authority sought investment information for the purpose of harassing members of an opposition political party. The Court ordered the summons to be enforced finding there was no showing that the foreign government was acting in bad faith, even though, according to a concurring opinion, inquiry into motive in these types of cases is categorically forbidden.

Suspending the CSED by Pursuing Litigation or Is This the Final Stop for the Weiss Case?: The Third Circuit extensively analyzed the impact that bringing litigation has on a collection statute in Weiss and affirmed the decision of the district court for the Eastern District of Pennsylvania that a cert request further extended the taxpayer’s collection statute. The taxpayer’s position was that his CDP hearing request should be treated as a request for an equivalent hearing, and then later that his request for cert did not extend the collection statute.

Tax Court Decisions

Innocent Spouse Bench Opinion – Part 1: The bench opinion in Bacigalupi addresses the new scope of review for innocent spouse cases. Judge Holmes, following the Fatty rule, decides that the petitioner’s testimony under oath is newly discovered evidence since she could not have given sworn testimony or be cross-examined earlier. The case goes on to demonstrate the role the economic hardship factor can play in allowing relief even when a petitioner fails the knowledge test, but this approach hasn’t been applied consistently.  

Innocent Spouse Bench Opinion – Part 2: The rules related to bench opinions are discussed in this post, along with the suggestion that the Court may want to consider increasing its use of bench opinions as a way to reduce the number of delayed case dispositions.

Chapter 11 Confirmation and Lifting of Automatic Stay: In Cochran, the Tax Court decided in a precedential opinion that confirmation of a chapter 11 plan of reorganization of an individual does not lift the automatic stay imposed by BC 362(a)(8).  The decision follows other Tax Court decisions strictly limiting its ability to move forward due to (a)(8) until a technical lifting of the stay occurs even if the stay does nothing to protect the debtor or the estate in the specific context of the case.

Seeking First Time Abatement Through Collection Due Process: In Kelly the petitioner sought to use Collection Due Process (CDP) to obtain first time abatement. A taxpayer typically has the right to go to Appeals if the IRS denies an abatement request which precludes arguments on the merits from being raised at CDP, but there was no discussion of a prior opportunity in the case. The petitioner ultimately did not prevail on his arguments, but the fact that the Court made a decision on the merits is a win for all taxpayers.

Tax Court To Consider IRS Procedure For Imposing Information Reporting Penalties: Improper IRS procedures with respect to the assessment of penalties associated with the delinquent or erroneous filing of information returns are at issue in Farhy. The taxpayer in Farhy asserts that the IRS has been acting ultra vires by using its summary assessment powers when the proper procedure is to refer 6038 penalties to the Department of Justice.

IRS Issues and Considerations

Consequences of the (Fake) Notice of Intent to Levy: The CP504 allows the IRS to levy certain property (i.e. often state tax refunds) prior to offering a CDP hearing and also increases failure to pay penalty from 0.5% per month to 1%, but what if it is defective? The significance of the notice, its effect, and its differences from the final notice of intent to levy for section 6330 purposes are examined in this post.

Robots Are Not the Only Problem and Disbarment News: It turns out robocalling services are not the only thing creating lengthy hold times at the IRS. This post shares a hilarious anecdote Barb Heggie posted on the LITC ListServe about the 26 times in a row she recently had to call the IRS.

A Checklist for Approval of Stipulated Decisions: The Tax Court files an order returning decision documents when it identifies mistakes. For at least eight days in November there were a lot of these orders filed. This post reviews the reason the decision documents were returned in each case, such as incorrect deficiency amounts, missing attachments, incorrect docket numbers, and incorrect tax years. The number of mistakes suggest that Chief Counsel attorneys may need additional training on decision document preparation.


Free Tax Court Lunchtime Webinar Starts Soon!: This post announced a Tax Court Webinar which discussed the changes to Tax Court practice in response to the pandemic.

A Successful Year For The Center for Taxpayer Rights In Our Work To Protect Taxpayer Rights: CTR’s accomplishments over the last year are shared in this post. The accomplishments include filing many influential amicus briefs in significant cases, the development and preliminary analysis of a survey about state tax administration, the International Conference on Taxpayer Rights, Tax Chats!, and the LITC Support Center.

This Giving Tuesday, Please Support The Work Of The LITC Support Center: Giving Tuesday has passed, but you can still support the work of CTR and the LITC Support Center at this link.

October 2022 Digest

October’s posts highlighted information shared at the Tax Section’s fall meeting. Additionally, many posts sought or identified solutions to current and longstanding problems, such as lengthy IRS hold times, lengthy Tax Court dispositions, the perpetuation of false narratives and concerns about state-based tax administration.

“The Dark Net? We OWN the Dark Net.” -Charles Rettig, IRS Commissioner, ABA Tax Section Meeting: During Commissioner Rettig’s speech at the fall meeting, he provided examples of the work the IRS does to protect and serve Americans by fighting fraud, terrorism, exploitation, and trafficking. He also called out tax practitioners for failing to defend the IRS from false narratives. His speech inspired the author of this post to conclude that it’s in everyone’s best interest to support, fund, and work to improve the IRS.

Updates from the ABA Tax Section 2022 Fall Meeting: Court Procedure & Practice: The Court Procedure & Practice Committee discussed recent Court developments during one of its panels. The Court continues to receive a high volume of petitions but is closing more cases than it’s opening; it will no longer scrutinize late filed CDP petitions after Boechler; and trial sessions are mostly back in person but can be remote at a Judge’s discretion or by order of the Chief Judge.

read more…

APA Developments

Harper v Rettig Update: Government Petitions For Rehearing: The government filed a petition for rehearing in Harper v. Rettig. At issue is the relationship between the APA, Section 7609, and challenges to the IRS’s summons power. The government argues that Section 7609 is the exclusive means to challenge the summons power and the lower court should consider whether that creates alternative grounds to dismiss the case for lack of subject-matter jurisdiction.

Taxpayer Seeks Supreme Court Review in Oakbrook Land Holdings v Commissioner: The Supreme Court may choose to expand upon when and how extensively an agency must respond in the comment process. This post reviews the APA notice and comment issues relevant to the circuit split in Oakbrook and Hewitt and touches on APA challenges arising in other areas.

Appeals Removes Challenges to Validity To Regs or IRB Guidance From Hazards of Litigation Analysis: In response to an increasing number of APA-related challenges, the IRS announced that Appeals is not to take into account the validity of regulations or IRB guidance when assessing the hazards of litigation. Practitioners and academics are concerned about the negative effect this constraint on Appeals’ independence may have on tax administration, but on the other hand, Courts may be the most appropriate venues for these complex questions.

Issues Related to Return Filing

The Stain of Fraud and Amended Returns: Gaskin involves a fraud penalty for a taxpayer who filed an amended return to report the income he omitted on his original return. The taxpayer argues that the fraud penalty is not justified because his amended returns were not fraudulent. The Court held the subsequent filing of an amended return after an audit begin does not purge the original fraudulent filing or the taxpayer’s fraudulent intent.

Lesson From The Tax Court: Don’t Confuse Dummy Returns With Substitutes For Returns: In the case of a non-filer, the IRS can issue a Notice of Deficiency or prepare a Substitute for Return. Each process has its own consequences, including that a failure to pay penalty can only be assessed on an SFR. The history, law, and rules of each process are discussed in this post along with a recent and relevant Tax Court decision.

Supreme Court Updates

Supreme Court Update for Taxes and the October 2022 Term: The Supreme Court will hear five tax-related cases during the term that began earlier this month. Three of the cases relate to issue of jurisdiction and equitable tolling and one relates to the calculation of the FBAR penalty.

Another Tax Case Headed for a Supreme Court Decision: The fifth tax-related case the Supreme Court will consider involves the question about the types of information that can be shielded when there is a combination of privileged (attorney work product) and non-privileged (tax return preparation) documents.  

Circuit Court Updates and Decisions

Anti-Injunction Act Does Not Bar Defendant Taxpayer’s Motion to Prevent Government From Using Discovery Admissions In Later IRS Proceedings: In U.S. v. Myer the 11th Circuit considered whether the AIA prevents a defendant from moving for a protective order to restrain the government from using discovery admissions when assessing a tax penalty in a separate proceeding. Finding for the defendant, the Court reversed the district court and found that the AIA did not apply because “moving for a protective order in an action filed by the government does not amount to maintenance of a ‘suit.’”

Federal Rule of Appellate Procedure 28(j): The IRS requested that the 9th Circuit reconsidered its decision in Seaview due to an order issued in Dollarhide. It used an Appellate Rule 28(j) letter to bring the Court’s attention to the order. The order involved the question of whether a tax return provided to a revenue agent constitutes a filing, but Seaview argues there’s a distinction between the filing options available for timely versus untimely filed returns.

Second Appellate Case on Whether IRC 6213(a)’s Deadline is Still Jurisdictional and First Tax Court Case Involving IRC 6015(e)(1)(A): Carl provides an update on equitable tolling litigation in this post. In addition to Hallmark and Culp, a new appellate case involving a deficiency petition has emerged and the taxpayer has a COVID-related basis for missing the filing deadline. Meanwhile, the Tax Court is deciding a case about whether the deadline to file a stand-alone innocent spouse petition is jurisdictional and has invited amicus briefs on the issue.

Getting to Appeals: In Rocky Branch Timberlands LLC the right to go to Appeals in a conservation easement case was brought before the 11th Circuit. The IRS denied petitioners the right to go to Appeals because petitioners were initially not cooperative in agreeing to extend the assessment statute. The 11th Circuit dismissed the appeal because the appellants failed to file a Civil Appeal Statement form within the required time frame. Still the petitioners may not have been successful on the merits due to a similar case in the 11th Circuit that was recently dismissed.

Tax Court Decisions

Immunity: The Petitioner filed a motion for immunity on behalf of expert witnesses in Oconee Landing Property LLC. The petitioner wants to admit the testimony of the experts who appraised the easements in the case while protecting them from self-incrimination. The Court denied the request holding that it lacks jurisdiction to grant criminal immunity as the power resides solely with U.S. District Courts upon the request of the applicable U.S. Attorney.

What Happens When the Tax Court Petitioner Dies: The daughter of the deceased taxpayer in Sander petitioned the Court on her mother’s behalf when a notice of deficiency was issued after her mother’s death. The Court finds she does not have the authority to act on behalf of her mother’s estate but allows the opportunity for a probate action to be commenced. When a death occurs after a petition is already filed, the Court allows for a substitution of parties.

Miscellaneous Updates and Information

State Taxpayer Rights Protections – Some Highlights & a Free Online Workshop Series: The preliminary results of a state-based survey conducted by the Center for Taxpayer Rights has revealed encouraging statistics and some concerning trends. The Center has used the data to begin to identify best practices and areas that would benefit from advocacy. More will be discussed during the Center’s Reimagining Tax Administration: State Tax Practices & Taxpayer Rights series which began in October. 

Debts Owed by Insolvent Taxpayers to the IRS: The Federal Priority Statute provides that when a person indebted to the United States is insolvent and engages in some action that threatens the government’s ability to collect its debt, or when a deceased debtor dies and the property of the estate is insufficient to pay all their debts, the claim of the United States is to be paid first. There are circumstances in which a fiduciary can be held personally liable for failing to pay the U.S. in full. There are also protections when the debt is tax debt and judicially created exceptions in other circumstances. There are many rules in this area and professionals dealing with insolvent debtors or estates should be familiar with them.

Inflation and Tax Procedure: The IRS recently issued Rev. Proc. 2022-38 to advise the public of the inflation adjusted applicable numbers starting in 2023. The dollar amounts of property exempt from levy, seriously delinquent tax debts, and the hourly limitation for attorney’s fees have all increased.

The IRS Strikes Back Against Robocalls: The IRS has rolled out a pilot program for the Practitioner Priority Line that uses artificial intelligence to prevent phone line cutting services to combat lengthy hold times. If the IRS is successful, the pilot will be expanded and will benefit individual taxpayers as well as practitioners without enough money to pay for the robocall service.  

It is Time To Take Remedial Steps To Improve The Timeliness of Tax Court Dispositions: This editorial post calls out the significant delays for some Tax Court dispositions and asks the Court to correct the problem. It identifies ways that Court can consider remedying the issue, including tracking data, hiring more judges, or better managing existing judges. It also suggests that Congress can act to require the Court to publicly disclose certain information to put some pressure on the Judges who take longer amounts of time.

September 2022 Digest

September covered a multitude of updates on hot issues and but none alone dominated PT’s coverage. There were posts about section 6751(b), whistleblower jurisdiction at the Supreme Court, Boechler’s impact, and administrative law considerations. Tax procedure continues to evolve on many fronts right before our eyes.

Section 6751(b) Decisions

Can the IRS Approve a Penalty Too Soon?: In Sparta Pink Property LLC petitioner argues IRS approved the penalty too soon thereby rendering the approval ineffective under section 6751(b). The penalty was approved before a relevant report was reviewed by the IRS supervisor in this conservation easement case. The Court reiterated its position that the penalty approval form does not need to demonstrate the depth or comprehensiveness of the supervisor’s review.

The “What” and “When” of IRC 6751(b): In Kroner the 11th Circuit reversed the Tax Court and chose to follow the 9th Circuit’s decision in Laidlaw, which held that the IRS satisfies section 6751(b) as long as a supervisor approves the penalties before they are assessed. The Court looked at the phrase “initial determination of such assessment” and decided it describes the formal process of calculating and recording an obligation on the IRS’s books, rather than the timing of when the IRS needs to communicate.

read more…

Graev’s Long Shadow: Section 6751(b) and Supervisory Approval of Penalties: Professor Monica Gianni shares and summarizes an article she wrote about section 6751(b) and the hundreds of cases that have inconsistently interpreted the statute. Her article aims to bring some order into the case law and concludes by recommending that the statute be repealed. 

Tax Court Orders and Decisions

Tax Court Vacates at Least 40 Dismissals of Whistleblower Cases: Under the assumption that the Supreme Court had denied the cert petition filed in Li, because the docket was belatedly created, the Tax Court dismissed for lack of jurisdiction pending whistleblower awards involving threshold rejections. Once the Li docket was created, the Tax Court vacated those dismissals. In her cert petition, the taxpayer argues that the Court has jurisdiction to review threshold rejections under the statute and the APA.

A Procedural Goldmine: Dollarhide Enterprises is a more than a decade old procedural goldmine and recent circuit splits have thrown some uncertainty in the mix. The case involves questions about the conditions under which parties can make a biding settlement of issues without agreeing on computations and what it means to file a return.

Boechler Works: The first order holding that the IRS waived the right to raise late filing as a defense and allowing the case to move forward happened in Ahmad. Prior to the Boechler decision, the Tax Court would affirmatively analyze the filing to determine timeliness rather than rely on the IRS to raise it. This order reflects the change in approach and demonstrates that Boechler works.

Lamprecht v Comm’r: Statute of Limitations, Qualified Amended Returns And The Issuance Of A John Doe Summons: This opinion is significant for practitioners with clients who have oversea accounts, unreported income, amended returns, and hefty penalties. Lamprecht involves the statute of limitations on assessment when a taxpayer files an amended return and the IRS uses a John Doe Summons to gather information. The taxpayers argued that the amended returns filed after the JDS were qualified amended returns and the SOL prevented the IRS from assessing penalties.

District Court Decisions

Polish Lottery Winner’s Son Sues Over Penalties For Failing To Report Foreign Gifts: The taxpayer in Wrezesinski received a foreign gifts from his mother after she won the Polish lottery. Relying upon an advisor he did not report the gifts, but once he realized he was given incorrect advice he quickly reported them. The IRS assessed penalties but agreed to abate only 80% of them in Appeals which is confusing and seems contrary to the purpose of penalties in this case. The taxpayer has now filed a refund suit in District Court for the remaining penalties.

Circuit Court Decisions

Fifth Circuit Upholds Constitutionality of Passport Revocation Statute: The Fifth Circuit held that there is a fundamental right to interstate travel, but not international travel in Franklin. As a result, the passport revocation statute is constitutional. The concern that taxpayer who owes substantial tax can travel internationally and hide assets is a constitutionally justifiable basis under rational basis or intermediate scrutiny.

Courtney v US Illustrates Limits of Taxpayer Challenges to Allegedly Improper IRS Collection: The Fifth Circuit affirmed the district court’s decision to dismiss petitioner’s case in Courtney. The taxpayer wasseeking damages under Section 7433 for allegedly improper collection and an injunction barring further collection actions against him, limited liability companies, and an irrevocable trust. The Court held that he needed to exhaust his administrative remedies first, the futility doctrine didn’t apply, and the AIA barred his demand and Enochs v. Williams Packing exception didn’t apply.

TIGTA Reports

Some Interesting Data from this Year’s TIGTA Federal Tax Lien Filing Review: This post shares data from TIGTA’s review of the IRS’s lien filing procedures, including the number of times the IRS failed to send a CDP lien notice to a correct address or to a representative, and also the number of times the IRS chose not to file a lien broken down by dollar amount.

TIGTA Report on Government Contractor Tax Delinquency: TIGTA reported that there are billions of dollars owed in delinquent taxes by federal contractors and grantees, contrary to the law and despite self-reporting requirements. Until recently, disclosure laws prevented the IRS from affirmatively discussing tax delinquencies of federal contractors with other government agencies, but Congress appropriated $30 million to the IRS to create an application through which entities could request a certification that the entity did or did not owe seriously delinquent taxes.

Bankruptcy and Taxes

Tracing Social Security Payments: In re Weber, The bankruptcy court determined that when a social security recipient uses a portion of that payment for tax withholding, the individual’s consent to the use of those funds extends only to the payment of tax liabilities and not to the payment of other claims. The court looked to Spolarich to find that protection for social security payments is exceptionally expansive and only subject to modification by express statute.

Updates and Ideas

Proposed Regs Address Access To Appeals: The IRS is soliciting comments by November 14 on proposed regulations regarding a taxpayer’s right to access Appeals.  The regulations allow access when a matter involves a federal tax controversy, but other types of matters do no trigger the same right. The regulations also require that the originating branch complete its action and make a determination before a taxpayer can access Appeals and that there is only one opportunity to go.

Out of Time? APA Challenges to Old Tax Guidance and the Six-Year Default Limitations Period: This post discusses the idea that some APA challenges to old tax guidance may be time barred due to 28 U.S.C. § 2401(a) which sets the default limitations period for suits against the federal government to six years “after the right of action first accrues.” The question becomes when has the right of action first accrued and more than half of Appeals Courts have accepted that it happens at the time the regulation or guidance is issued. The government can waive the limitations period defense but may be less likely to do so as an increasing number of APA challenges are brought.

Information from Administrative Practice Programming at the May ABA Tax Section Meeting: This post shares a summary of what was discussed during the Administrative Practice panel at the May Meeting. The panelists discussed Exam’s return to office, innovations and challenges encountered during COVID, and what Exam is currently focusing on. Some of the notable topics include: the IRS’s adoption of virtual reading rooms, video conferencing, and web-based upload tools; changes to the application procedure for CAP; and that the Fast Track Appeals Process is being reviewed. 

Failing to Respond to the IRS and the Tax Court: An attorney who did not respond to Court orders and had a history of other unresponsiveness was reprimanded in a Tax Court press release. This post suggest it would benefit the public if information about such matters was easier to find the Tax Court’s website.

When Regulatory and Sub-Regulatory Guidance Collides… (Part One): This two-part post looks at what happens when regulatory and sub-regulatory guidance contradict each other. The problem arises when the statutory language is unclear and there is at least some room for interpretation delegated to the agency. The first post looks at the contradictory information in an IRS regulation and an IRS notice about nature and refundability of the 20% offer payment when an offer is not accepted.

When Regulatory and Sub-Regulatory Guidance Collides… (Part Two): This post looks at the reasons why a notice that contradicts a regulation is unpersuasive and at risk of being challenged under administrative law principles. One such reason is that the Accardi Doctrine requires an agency to follow its own rules when individual rights would be affected if the agency deviates from those rules.