Principal Residences as Collection Target: TIGTA Criticizes IRS Practice

In  The IRS Primarily Uses Lien Foreclosures When Pursuing Principal Residences, Which Do Not Provide the Same Legal Protections as the Seizure Process TIGTA released a report detailing how IRS uses judicial lien foreclosure suits rather than administrative collection tools when it targets a taxpayer’s principal residence to satisfy an assessed liability. The report is noteworthy for its highlighting the relatively rare times IRS chooses to pursue a taxpayer’s residence, and how in the times that it does do so, IRS tends to avoid the statutory requirement to obtain court approval for seizures of principal residence by bringing a suit seeking to foreclose on a lien. The report also suggests that when the IRS is pursuing a residence, the IRS decision to bring a foreclosure suit rather than a seizure may be related to statute of limitations issues arising from its having too many collection cases and not enough revenue officers to work cases.


Background on Differing Collection Paths

The report reviewed the relatively infrequent scenario when IRS sought to collect on an assessment by targeting a taxpayer’s principal residence. When seeking to collect on an assessed liability, IRS has a variety of tools at its disposal to attempt to collect, including administrative seizure or judicial actions, such as suits to foreclose on a lien.

Overall IRS chooses to pursue principal residences infrequently. As the below figure notes, in the one-year period ending June 30, 2020 there were only a total of 24 lien referrals to DOJ and seizures conducted.

There are differing procedures and statutory rules with respect to the administrative versus judicial collection path. For example, a noteworthy difference is that for administrative collection actions with respect to a principal residence, in addition to the general provisions relating notice and collection due process, under Section 6334(e)(1), the IRS must obtain written approval from a federal district court judge before conducting the seizure of a principal residence.

As TIGTA notes, when the government is required to get court approval and seeks to seize a principal residence, taxpayers have “the opportunity to bring additional arguments against the seizure of the principal residence, such as showing cause as to why the residence should not be seized and demonstrating that the underlying tax liability has been satisfied, that the taxpayer has other assets from which the liability can be satisfied, or that the IRS did not follow applicable laws or procedures.”

The process for IRS to get court approval for administrative seizure is not quick, and with backlogs TIGTA notes it may take a year to get the necessary judicial blessing. 

One other difference between administrative seizure and judicial foreclosure is, after seizure and sale, but not after a foreclosure sale, a taxpayer has the opportunity to redeem the property.

To be sure, IRS does have a number of procedural requirements associated with foreclosure suits. The report details the differing approach that IRS takes with taxpayers when it chooses to bring a foreclosure suit, and notes the following steps revenue officers are instructed to take when they are considering pursuing a residence via the judicial collection path:

  • Attempt to contact the taxpayer by either a telephone call or a field call and advise the taxpayer that seizure or lien foreclosure is the next planned action.
  • Give the taxpayer an opportunity to resolve the tax liability voluntarily and provide and explain Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process.
  • Advise the taxpayer about the Taxpayer Advocate and provide Form 911, Request for Taxpayer Advocate Service Assistance.
  • Provide the taxpayer with the name and location of the immediate supervisor if the taxpayer requests a managerial review.
  • Attempt to identify the occupants of the principal residence.

Why Would The Government Choose to Bring a Suit?

There may be important reasons to use a foreclosure suit rather than a levy, including situations where there is a question about the property’s legal title that necessitates a judge sorting out the property’s ownership and if there is not much time left on the SOL on collection.  As to SOL issues, that can be crucial, as the collection statute continues to run until a court approves the seizure and IRS serves Notice of Seizure to the taxpayer. When the government seeks to foreclose a lien it will simultaneously file suit to reduce tax liability claims to judgment, thus making the lawsuit path as in effect the main way to proceed if there is not much time left on the SOL.

The data reflect that the SOL issue is the principal driver behind the IRS decision to use the foreclosure path rather than its administrative collection powers. For example, almost 80% of the principal residence cases assigned to DOJ for a foreclosure suit had an imminent collection statute issue, and many of the cases had been reassigned to differing revenue officers or sat in the collection queue for years.

To address the differing protections associated with administrative versus judicial collection action, TIGTA recommended that the IRS should work with Treasury to propose a legislative amendment that would “amend the law (I.R.C. § 7403) so that taxpayers are afforded the same rights and protections whether the IRS is conducting a Federal tax lien foreclosure or a seizure on their property”. The current TIGTA recommendation echoes a 2012 the National Taxpayer Advocate legislative recommendation to Section 7403 that would require an IRS employee to determine that that the taxpayer has no other property sufficient to pay the amount due and ensure that the foreclosure sale would not create a hardship.

IRS opposed the TIGTA (and TAS) recommendation principally because it feels that current protections associated with judicial foreclosure suits were sufficient, and also because the number of taxpayers is relatively small:

Every collection device has its own advantages and disadvantages to tax administration, but each ensures that taxpayers’ rights are protected. While the mechanisms for ensuring that taxpayer rights are protected may be different, they are not less. In lien foreclosure cases, the IRS provides certain administrative protections, but Congress ensured that taxpayer rights are fully protected by empowering a neutral third party, a district court, and broad equitable powers to review the merits of all claims before it may order a sale. United States v. Rodgers, 461 US 677 (1983). Based on our data, such a legislative change potentially benefits only a small population of taxpayers.


As with my discussion last week in Partial Pay Installment Agreements In the Dark, today’s post signifies TIGTA attempting to take a taxpayer rights perspective to IRS collection action. In acknowledging IRS’s opposition to its recommendation, TIGTA refreshingly states that “even if this change may only benefit a small population of taxpayers, it is important that those taxpayer’s rights are protected.”  

Kudos to TIGTA for embracing taxpayer rights and considering IRS actions in light of the potential risk to rights Congress has identified as worthy of agency consideration.

Buying Property from the IRS

A short Chief Counsel Advisory opinion provides a cautionary tale for those purchasing property from the IRS.  CCA 2021021011190596 explains that if the buyer at an IRS sale does not follow through and make all of the payments necessary to complete the purchase, the IRS can declare the sale null and void.  When it does so, the purchaser forfeits all of the payments made to that point and the IRS can resell the property.


When the IRS seizes real or tangible property, IRC 6335 governs the sale.  Subsection (a) provides:

As soon as practicable after seizure of property, notice in writing shall be given by the Secretary to the owner of the property (or, in the case of personal property, the possessor thereof), or shall be left at his usual place of abode or business if he has such within the internal revenue district where the seizure is made. If the owner cannot be readily located, or has no dwelling or place of business within such district, the notice may be mailed to his last known address. Such notice shall specify the sum demanded and shall contain, in the case of personal property, an account of the property seized and, in the case of real property, a description with reasonable certainty of the property seized.

The IRS created a special unit within the collection division to deal with sales because the rules governing sales are specific, the number of sales is not that great, and the effort of revenue officers (ROs) to follow the technical rules created too many problems and took the ROs too much time.  So, once the IRS seizes property, the RO in charge of collecting from the taxpayer turns the property over to the PALS unit for it to conduct the actual sale.  If the sale results in full satisfaction of the tax liability, then the RO is finished with the case.  If the sale does not result in full satisfaction, which is probably the more likely outcome, then the RO continues to pursue collection.

Since RRA 98, the IRS has conducted relatively few seizures and therefore holds relatively few sales.  Because these events occur infrequently, no one at the IRS becomes familiar with the process as a routine.  I suspect that certain ROs conduct most of the seizures and some never do so.  Similar to the lack of deep knowledge on the IRS side because of the low number of seizures and sales is the lack of deep knowledge on the buyer side.  Buyers must understand what they are purchasing if they buy property from the IRS and the failure to understand the rules that govern purchases can lead to unhappy outcomes.  Purchasing property from the IRS at one of these sales will look like a real bargain and it could be.  It could also be a trap for the unwary.

IRC 6335(b) provides the rules regarding the notice of sale that the IRS must give:

The Secretary shall as soon as practicable after the seizure of the property give notice to the owner, in the manner prescribed in subsection (a), and shall cause a notification to be published in some newspaper published or generally circulated within the county wherein such seizure is made, or if there be no newspaper published or generally circulated in such county, shall post such notice at the post office nearest the place where the seizure is made, and in not less than two other public places. Such notice shall specify the property to be sold, and the time, place, manner, and conditions of the sale thereof. Whenever levy is made without regard to the 10-day period provided in section 6331(a), public notice of sale of the property seized shall not be made within such 10-day period unless section 6336 (relating to sale of perishable goods) is applicable.

IRC 6335(e) governs the manner of sale.  It is the rules set forth in this section that are the focus of the CCA.  The IRS should not seize and sell property that has no equity.  In order words, it cannot just seize property to cause the taxpayer an inconvenience.  It actually did that prior to 1980 as a way of disrupting businesses that were pyramiding their taxes.  Now, the RO needs to make a determination prior to seizure that the sale will bring positive dollars to the Treasury.  Instead of seizing property with no equity, the IRS now brings injunction action against taxpayers who pyramid and who it cannot shut down with administrative action as discussed here and here

Of course, the RO could make a mistake in determining value, but the RO cannot just seize property to thwart the taxpayer from conducting business.  One of the other reasons seizures are down since 1998 is that a willful failure by the RO in the seizure could trigger the application of sin number one of the 10 deadly sins resulting in possible termination of employment.  We have written about the 10 deadly sins here and here.  Some ROs do not want to take that risk, which means ROs will be, or certainly should be, very careful when deciding to seize property and following through.

The manner of sale rules under IRC 6335(e) provide:

(1) In general

(A) Determinations relating to minimum price.

Before the sale of property seized by levy, the Secretary shall determine—


a minimum price below which such property shall not be sold (taking into account the expense of making the levy and conducting the sale), and


whether, on the basis of criteria prescribed by the Secretary, the purchase of such property by the United States at such minimum price would be in the best interest of the United States.

(B) Sale to highest bidder at or above minimum price

If, at the sale, one or more persons offer to purchase such property for not less than the amount of the minimum price, the property shall be declared sold to the highest bidder.

(C) Property deemed sold to United States at minimum price in certain cases

If no person offers the amount of the minimum price for such property at the sale and the Secretary has determined that the purchase of such property by the United States would be in the best interest of the United States, the property shall be declared to be sold to the United States at such minimum price.

(D) Release to owner in other cases

If, at the sale, the property is not declared sold under subparagraph (B) or (C), the property shall be released to the owner thereof and the expense of the levy and sale shall be added to the amount of tax for the collection of which the levy was made. Any property released under this subparagraph shall remain subject to any lien imposed by subchapter C.

In the case on which the CCA focuses, an RO has seized property, turned it over to the PALS who have sold it with a provision that the purchaser will pay something down and something over time.  The purchaser has defaulted on one of the subsequent payments.  The CCA determines that the appropriate IRS official can declare the purchaser in default and the purchase null and void.  This will give the IRS the chance to resell the property while keeping the payments it received from the first purchaser.  The CCA does not talk about who will benefit from the defaulted proceeds – the taxpayer or the IRS.  That’s governed by another provision.

The CCA notes that:

Discretion to return to the purchaser any portion of the amount paid is not stated in or implied in the Code or the Treasury Regulations. Both provide that any amount paid by a defaulting bidder “shall be forfeited.” I.R.C. § 6335(e)(3); Treas. Reg. § 301.6335-1(c)(9). Similarly, there is nothing in the IRM that suggests any circumstances under which the Service would have the ability to return any portion of the amount forfeited under section 6335(e)(3). In fact, the IRM has special accounting procedures for how the Service is to handle forfeited bid-in amounts. See I.R.M. (cross-referencing I.R.M. 3.17.63).

The IRS will take the forfeited amounts and place them in the general treasury account, meaning that the taxpayer will not get the benefit of the forfeited payments, but instead, the general public gets those benefits.  The taxpayer may benefit if the next sale brings in more money or may lose if it does not.

Summary Opinions for the week of 05/01/15

Happy Memorial Day weekend!  We won’t be posting on Monday, but will probably be back in full force on Tuesday.  I know we have a handful of guest posts coming up on really interesting topics and I’m certain Keith and Les have some insightful things to add following ABA.

In the week of May the 1st, we welcomed first time guest poster, Marilyn Ames, who wrote on NorCal Tea Party Patriots v. IRS and disclosure of return information.

Here are the other procedure items from that week:


  • A recent Tax Court decision brought back the analysis used by the Supreme Court almost 20 years ago on a similar but slightly distinct fact pattern.  The situation can be tough to follow at first because it plays out at the intersection of Sections 6511 and 6512.  It also involves reliance on the earlier Supreme Court decision which caused a change to Section 6512 after it was decided.  In Butts v. Comm’r, the Tax Court denied taxpayers’ request for refund as being untimely.  The taxpayers failed to file in ’07 and ’08.  In 2011 (and 2012), SNODs were issued for 2007 and 2008, and later that year the taxpayer filed for review in the Tax Court.  In 2013, taxpayers filed joint returns, claiming overpayment due to employer withholdings.  The Court stated SCOTUS reviewed an almost identical case in Lundy v. Comm’r.   The issue in both cases was if the refund amount was allowed under Section 6512(b)(3), which allows refunds of any amount paid:

(A) after the mailing of the notice of deficiency;

(B) within the period which would be applicable under section 6511(b)(2), (c), or (d), if on the date of the mailing of the notice of deficiency a claim had been filed (whether or not filed) stating the grounds upon which the Tax Court finds that there is an overpayment; or

(C) within the period which would be applicable under section 6511(b)(2), (c), or (d), in respect of any claim for refund filed within the applicable period specified in section 6511 and before the date of the mailing of the notice of deficiency.

Based on the facts in Butts and Lundy, (A) and (C) do not apply.  In Lundy, SCOTUS stated it considered:

the look-back period for obtaining a refund of overpaid taxes in the…Tax Court under 26 USC 6512(b)(3)(B), and decide[d] whether the Tax Court can awarded a refund of taxes paid more than two years prior to the date on which the [IRS] mailed the taxpayer a notice of deficiency, when, on the date the notice of deficiency was mailed, the taxpayer had not yet filed a return.  We hold that in these circumstances the 2-year look-back period in 6513(b)(3)(B) applies, and the Tax Court lacks jurisdiction to award a refund.

One difference in Butts and Lundy is that in Lundy the taxpayer made its request within three years of the filing date, whereas in Butts the request was made more than three years after the filing date.  Based on a prior version of the statute, Lundy was precluded from obtaining a refund because it was outside of two years and there was not a reference to the three year statute applicable. Section 6512(b)(3) was modified in 1997 by Congress, and now the minimum statute of limitations would be the three years from the filing date.

In Butts, under Section 6512(b)(3)(B), the Court stated it must look to the mailing date of the SNOD as a hypothetical claim date and determine if a timely claim could have been made then based on Section 6511.  This requires a review of the two year statute from the date of taxes paid, and three years from the due date of the return.  The withholdings for 2007 were treated as having been paid on April 15, 2008, while the initial SNOD was issued in June of 2011.  Since both statutes had passed, no claim for refund could be allowed.  There was a similar issue with the 2008 return.

  • Peter Hardy and Carolyn Kendall, attorneys from Post & Schell, and prior guest bloggers here at PT, have posted on Jack Townsend’s Federal Tax Crimes blog (two-timers!) on the Microsoft appeal in In re Warrant to Search a Certain E-mail Account.  The guest post can be found here, and Jack’s summary of related materials on the Stored Communications Act can be found here.  Although the post deals with a drug case, the impact could be far reaching regarding subpoena power over electronic communications in the cloud (including datacenters outside of the US).  Peter and Carolyn tie in the Service’s review of foreign accounts nicely.
  • It’s like speed dating, but it might cost more and you only get lucky if you don’t get picked.  The NY Times has an op-ed on the IRS speed audit, with agency cut backs causing reduced response time for taxpayers, which if not promptly responded to could result in important collection due process rights being forfeited.  The op-ed indicates that the IRS may be sending out follow up letters the same day as the initial letter, which the author argues is in violation of the updated taxpayer bill of rights issued last year.  When you are on the op-ed, check out the comments the NY Times has picked as important.  Carl Smith was highlighted for indicating a few other ways the tax system is failing taxpayers.  This practice may save time for the Examination Division of the IRS but pushes more cases into the collection stream which also impacts the IRS resources.
  • On April 20th, the Tax Court issued a decision in Yuska v. Comm’r, holding the automatic stay invalidated a Notice of Determination Concerning Collection Actions regarding a tax lien that was issued after the bankruptcy petition.  Importantly, the Court declined to follow the IRS’s suggestion that the Court distinguish this case from Smith v. Comm’r, which had similar facts but pertained to a levy.  The timing of events were very important in following Smith, and the Service also argued that the Court should instead follow Prevo v. Comm’r, which was a lien case where the collection action occurred before the BR petition.  In Smith, the Serviced began collection actions, and then the taxpayer filed a bankruptcy petition, followed by the Service issuing a notice of determination concerning the levy, and then the taxpayer petitioning the Tax Court for review of the levy action.  The Court held the continuance of the collection action violated the stay under 11 USC 362(a)(1).  In Prevo, the sustaining of the lien occurred before the BR petition.  As to differentiating between a lien and levy case, the Court found the administrative review of a lien was clearly part of the administrative collection process and subject to the ruling in Smith, even if future administrative review was possible. Although the Court declined to differentiate between the two in this case, Keith noted that if the stay stopped the CDP case there can be important differences.  In a lien case, the NFTL remains valid (if not enforceable) until after the stay is lifted.  In a levy case, the stay prevents the IRS from moving forward with the levy completely.  Keith didn’t read the case, and still came up with something much more insightful and helpful to add.
  • This is becoming a little like an advertisement for Jack Townsend’s Criminal Tax Crimes Blog.  Jack posted on the recent 7th Circuit case, US v. Michaud, which reviewed whether or not the IRS had authority to issue a summons in a criminal matter prior to a DOJ referral.  The statute in question is Section 7602(b) & (d), which was modified after US v. LaSalle Nat’l Bank to make it clear the IRS did have this authority.  The 7th Circuit had some additional thoughts on when the IRS couldn’t issue the summons.  Check out the post for a discussion of that point, and Jack’s always helpful thoughts on the matter.
  • Context is always important.  For instance, being suspended can be very good (we took our daughters rock climbing this weekend, and being suspended by the rope was really helpful), but it can also be pretty bad in the school, professional or corporate context.  Such was the case in Leodis C. Matthews, APC, a CA Corp. v. Comm’r, where the Tax Court held that it lacked jurisdiction  over a deficiency petition brought be a corporation (law firm) that California had suspended its corporate privileges for due to failure to pay state taxes.  Interesting point of law.  Can someone bring the petition on behalf of the corporation so it does not lose its ability to contest the tax?  Timing is also interesting.   Corp is suspended May 1, 2013, and 90 day letter is issued June 30, 2014.  Taxpayer petitions court Oct. 1, 2014 (presumably timely), and had its corporation reinstated November 26, 2014.  You would guess he was trying to deal with his state tax issue during the 90 day period.  I also wonder if there is a way to get limited rights reinstated, so that the corporation could have petitioned the Tax Court.
  • We all hear the scare tactics on the radio about how if you owe more than $10,000, the IRS is going to come and take your assets, steal your children, put you in jail, shoot your dog, etc.  We are lucky enough to know this is BS, and an effort to garner business.  Sometimes, however, the IRS can show up at your premises (probably armed), and take your stuff.  You have to owe a bit more than $10k, and the Service has to jump through a lot of hoops.  In re: The Tax Indebtedness of Voulgarelis is one such writ of entry case.  In Voulgarelis, the taxpayer apparently owed around $300k, possibly more, and ignored six notices of intent to levy.  The Service sought an order authorizing it to enter the premises and levy the tangible property, which was granted in accordance with GM Leasing Corp. v. United States, 429 US 338 (1977).
  • The Service has updated its list of private delivery services that count for the timely mailing is timely filing rules under Section 7502.  The update can be found in Notice 2015-38.  As we’ve discussed before, failure to file these rules can result in harsh results.  These results can be seemingly arbitrary when a taxpayer selects a quicker FedEx/UPS delivery method that isn’t approved, and cannot rely on the rule.
  • In information notice 2015-74, the IRS has reminded businesses of the temporary pilot penalty relief program for small businesses that have failed to properly comply with administrative and reporting requirements for retirement plans.  That program ends June 2nd.


Taxpayer Rights: A Look Back to Congressional Testimony of Michael Saltzman and Nina Olson

An earlier version of this post appeared on the Forbes PT site on February 23, 2015.

In this post I will discuss Congressional testimony from over fifteen years ago from Michael Saltzman and Nina Olson. The testimony sheds light on some of the still-current issues that courts are confronting in collection due process (CDP) cases, a process that has its origins in some of the testimony that led up to the last comprehensive procedural reform legislation that dealt with the IRS. I will also offer some more personal thoughts on Michael, who was a huge figure in the field of tax procedure and someone who had a major impact on my life.


We are rewriting much of the treatise IRS Practice and Procedure, originally authored by the late great Michael Saltzman. With Steve and some others, I have been updating the book after Michael’s untimely passing. To help with the task, I have brought in some expert chapter authors; for example former DOJ Senior Litigation Counsel (and current editor of Tax Notes International) Stu Gibson and I co-wrote the new chapter on the IRS summons powers. Jack Townsend (who writes the premier criminal tax blog Federal Tax Crimes) took the lead on an amazing chapter on criminal tax that comes out next month. Steve took the lead on a new chapter on interest that came out last year.

Keith is taking on the lion’s share of the initial drafting in the collection chapters. Last year, we published an outstanding chapter on priority of tax claims; later this year, there will be new chapters detailing the general tax collection function, minimizing the effect of liens and levies, and a standalone chapter on CDP.

In working on the CDP chapter, it reminded me of the testimony on procedural reform that Michael Saltzman gave before the Senate Finance Committee in 1998, and I decided to go back and re-read that testimony. We have not written much about Michael in this blog, but he is a giant in the field of tax procedure. I appreciate that more and more as we wrestle with the breadth and depth of the book, and as we work to ensure that it meets the high standards that Michael himself had and demanded of others.

 Michael and Collection Rights

Allow me to say a few words about Michael. Circumstances drew me to Michael. Back in 1994, I was a student in NYU’s graduate tax program and attended his Tax Procedure class one night. I remember his talking about the Administrative Procedure Act and the IRS, and how general principles of administrative law were crucial to understanding the IRS’s adjudication and rulemaking functions. In his class, he often brought the perspective of other areas of the law in to tax procedure; he was an early advocate of moving away from a tax exceptionalism approach to tax procedure.

I had the nerve one night after class to talk with him about his lecture. In his lecture, he had talked passionately about the at the time recent Supreme Court decision in the US v James Daniel Good Real Property case. That case involves civil forfeiture and in particular whether the due process clause requires the government to provide pre-seizure notice and a meaningful opportunity to be heard. It was not a tax case, but the Supreme Court in James Daniel Good in finding that the due process clause does require pre-seizure notice and hearing rights looked to cases where the Supreme Court had moved away from defaulting to a blanket assertion of the primacy of the government’s interest. Instead, it looked to the more nuanced balancing test set forth in Matthews v Eldridge:

The Mathews analysis requires us to consider the private interest affected by the official action; the risk of an erroneous deprivation of that interest through the procedures used, as well as the probable value of additional safeguards; and the Government’s interest, including the administrative burden that additional procedural requirements would impose.

The balancing test allowed courts to consider the possibility that the government’s seizure might be wrong and also allowed a court to consider the individual’s potential interest in less invasive ways of satisfying a debt.

Michael felt that the growing trend of interposing procedural protections in the form of notice and hearing rights prior to seizure should likewise find its way into tax law. In fact, he was an early advocate of what would expand into the CDP provisions in his testimony before the Senate Finance Committee in the legislative run up to what would become the IRS Restructuring and Reform Act of 1998 (RRA 98):

Seizures of property, I know that this is an area of particular interest. I agree that high-level review of seizures will prevent abuse. I think any time you move up in the collection division, for example, that the level of abuse will decrease. But I also recommend another procedure for review of seizures. The Supreme Court has ruled that taxpayers are entitled to a pre-deprivation hearing or a prompt post-deprivation hearing as a matter of due process. This led in 1976 to the enactment of section 7429 of the code where jeopardy assessments are in fact reviewed in a probable cause type hearing. I recommend that that be done also for seizures. (page 128)

In written testimony he expanded a bit:

Accordingly, I respectfully recommend that a study be conducted with respect to the efficacy of pre-deprivation administrative review of significant seizures of tax- payer property. This could be accomplished by establishing field offices where administrative judges or U.S. Tax Court special trial judges could make determinations as to whether seizure of significant taxpayer property in any given situation is an appropriate remedy. In addition to this task, many other actions could be heard in these field offices, such as issues surrounding jeopardy assessments, John Doe summonses, and similar matters. This alternative will allow for the quick handling of these issues at a local level and at a considerably lesser expense than resort to the district courts. (page 374)

The legislative process that led to RRA has often been criticized as unfairly singling out phony IRS abuses. But in reading through some of the testimony in these hearings, I am struck by the amount of thoughtful commentary that rings as true today as it did over 15 years ago. More from Michael, this time about the importance of treating taxpayers fairly in the collection process:

In setting about reforming the operations of the Internal Revenue Service, it is worth keeping in mind, as one historian has observed, that taxes, including penalties, ‘‘must not merely be imposed; they must be justly imposed. Their efficient, comprehensive, and equitable collection is the foundation of a healthy and stable government.’’ P. Johnson, A History of the English People, p.47 (1989). It is not enough that taxpayers subject to various tax obligations, penalties, and interest, are also protected by a range of remedies in an effort to ensure that the IRS treats them fairly. Unless structural reforms and protections added to the Code result in taxpayers’ feeling that they have been treated fairly, popular attitudes toward the IRS will not change and statutory changes will do nothing more than add sterile complexity to an already complex law. I suggest that if the IRS shares the goal of fostering taxpayer trust that the IRS will treat them fairly, the need for structural reforms of the IRS will be reduced (page 368)

I smile at the thought of Michael injecting a reference from an historian into his testimony; he loved books and was a voracious reader, drawing on sources far and wide to animate his thinking on what might seem a technical procedural issue.

This broader point Michael made was echoed by testimony that current National Taxpayer Advocate Nina Olson made in the same hearings (at the time she was executive director of the Community Tax Law Project and Keith’s regular opponent in Tax Court as well as administrative cases). Nina’s testimony covers lots of ground but she started by talking about problems with the collection function and how taxpayers often felt they were getting treated unfairly:

Collections is the branch of the IRS with which low income taxpayers have the most contact. Many low income taxpayers attempt to bring up substantive issues in Collections because they have not understood their opportunities to dispute a proposed assessment at earlier stages of the examination process. Collections is, of course, a most inappropriate place to attempt to clear up matters of substantive tax law. My clients do not understand why the revenue officer is not willing to listen to their protestations that they do not owe the tax being collected. A recognition of this misconception is fundamental to an understanding of the problems low income taxpayers have with the collections branch and their resentment toward the Internal Revenue Service. This resentment goes beyond the general feeling of not wanting to pay over any of one’s hard-earned money; rather, it generates from the belief that no one is interested in learning whether the tax was correctly assessed. (page 330)

As we know, Congress in RRA 98 did quite a major overhaul of the tax collection laws. CDP in my view while far from perfect reflects Congressional recognition that the scales in collection cases had tipped too far in the government’s interest. Additional notice and hearing rights following the filing of a notice of federal tax lien and prior to levy reflected Congressional belief that taxpayers were entitled to protections similar to what other debtors enjoy. Fifteen years on and we are still struggling with calibrating the balance of these rights. In the second part of this post, I will discuss the case of Ding v Commissioner, a recent Tax Court case that brings us back to some of the points Nina and Michael raised in testimony before the Senate Finance Committee

Some Final Thoughts on Michael

What happened after I talked to Michael about the James Daniel Good case? It was late. As we were talking, I asked if we could continue the talk in a taxi home. The taxi ride changed my life. Michael took an interest in me. I had the nerve to ask if he was looking for an associate. He gave me the chance to interview at Baker and McKenzie, and I persuaded him and his partners to hire me. That began for me a three-year run learning as his associate, and getting the chance to work with him and his talented partner Barbara Kaplan on tax controversy matters. It led to me being hired as a director of a low-income taxpayer clinic and ultimately as successor author to Michael on the treatise IRS Practice and Procedure. So, thank you Michael, for your passion for the law and for your willingness to take a chance on me.

Summary Opinions 11/15/2013

I’ve been pressed into action on some other writing, so this week is a little light on content and commentary.  Feel free to comment on anything important that I may have missed.  I also wanted to thank you all for the comments, emails and other messages regarding the Tax Atturkey; Anna, my six year old, was very proud and happy to receive such kind words from such an esteemed group.  Here are a few things that were on our radar this week:


  • The Service has updated the IRM regarding FBAR appeals, and Jack Townsend’s Federal Tax Crimes Blog has the updated language.
  • We’ll stick with Mr. Townsend, but this time from his Tax Procedure Blog , a good discussion of Reifler v. Comm’r, where the Tax Court ruled on an equitable estoppel issue, but took a detour through a Beard discussion as to what is required for a valid tax return.  The taxpayer attempted to invoke the tacit consent rule regarding the spouse’s signature, which the Court denied.  Usually, the Service is making that argument.  Interesting case, and the post gives away an amazing amount of information.
  • Last week we highlighted the story of the Dehkos, who run a grocery store in Michigan, and had their checking account seized by the Service.  It looks like the Service has returned the funds; coverage by Tax Girl can be found here.
  • Musicians are making all kinds of tax news.  Tina “no tax” Turner relinquished her US citizenship.  And Ron Isley lost his Tax Court case and his offer in compromise.  Peter Reilly at Forbes has comprehensive coverage, as does Jack Townsend on his Federal Tax Crimes Blog.  Mr. Biggs is still in the clink, and now out a fairly good tax deal.
  • Tax News by Mr. Monte Jackel, has a summary of the recent Diebold Foundation case out of the Second Circuit, which deals with the standard of review in transferee liability cases and the application of the two part test under Section 6901.  The discussions of both holdings are interesting.  I will hold off on any other commentary, as we may have more to say on this case during the week.
  • From the Journal of Accountancy, a new story regarding an IRS email blast to practitioners (which I did not get or I deleted) indicating it will send letters in November and December to preparers it “suspected of filing inaccurate EITC claims.”  In addition to a thinly veiled threat, the letter appears to be a teaching opportunity, indicating issues commonly found on the returns.  I guess the Service has been listening to everyone gripe about the improper refunds based on the credits.
  • Christopher Bergin on the Tax Analysts Blog has a commentary on Nina Olson’s recent remarks regarding IRS funding and the taxpayer bill of rights. Congress is putting the Service in a bad position.
  • WSJ (subscription required) and Forbes have articles on the use of John Doe summonses to Citi, Chase, BoA, Mellon and HSBC to obtain information about offshore accounts held at related foreign banks. Thankfully, my wealth is all tied up in student loans (“it’s an investment in your future” – I should have gone into plastics).

Summary Opinions aka Procedure Roundup for 11/08/13

Busy day today.  In addition to writing up Summary Opinions, we will be raking leaves, starting holiday shopping, and working on some school projects in my household.  My daughters are also making paper turkey caricatures for each family member to decorate our house.  They have decided that mine will be a Tax Atturkey.  Not sure if the bad puns are a nature or nurture thing, but I’m sure it’s my fault.  On to the tax procedure:


  • TaxProfBlog has a summary of Patrick Smith’s recent article in the Virginia Tax Review, “Chevron’s Conflict with the Administrative Procedures Act.”  Mr. Smith writes in this area frequently.  This article specifically discusses the Chevron mandate on the court to defer to an agency’s interpretation, and the APA rule that the court shall interpret statutory provisions.  Although there is an apparent conflict, Mr. Smith notes that Chevron is likely here to stay.  The article advocates raising this issue with SCOTUS to draw attention to the matter, and perhaps obtain further Chevron guidance.
  • ITS Financial, LLC, and its owner Fesum Ogbazion, are on double not-so-secret probation.  Federal District Court slapped a permanent injunction prohibiting them from operating or being involved with any business relating to tax return preparation.  Journal of Accountancy has coverage here, including a huge list of transgressions.  This franchise was the real deal, in that it was filing over 100,000 returns a year, and over 150 franchisees.  Two related entities, Tax Tree and TCA Financial were also shuttered.  If the reports are true, I hope Mr. Ogbazion finds himself bunking with Freddie Mitchell.  Defrauding and stealing refunds from low income taxpayers isn’t terribly endearing.
  • Over at TaxControversyWatch (another Southeastern PA tax blogger) there is a summary of Johnson v. United States out of the Fourth Circuit.  The Court held that a wife was responsible for the responsible officer penalty under Section 6672 for her husband’s failure to pay employment taxes.  Tax bill was over $300k.  He may volunteer for being roomies with Freddie.  In all seriousness, it is an interesting case, where Mrs. Johnson was an officer, but appears to have had limited knowledge of her husband’s failure to pay the taxes.
  • Let’s head back towards unscrupulous tax advisors and the NFL. Gary J. Stern, a tax attorney, was permanently barred from promoting tax fraud schemes and preparing related returns.  Tax Update Blog has the story.  I took that language from the blog, and perhaps it is incorrect, because a court order permanently barring someone from promoting tax fraud seems silly. Apparently, one of the people who followed Mr. Stern’s terrible advice was NFL quarterback, Kyle Orton.  Kyle is holding a clipboard in Dallas now, along with stewing in anger and suing Mr. Stern for his bad tax advice.
  • Dan (the man) Alban of Loving oral argument fame tweeted this Institute for Justice article regarding the Eastern District of Michigan directing the Service to produce witnesses to testify about the handling of the seizure of the checking account of the owners of Schott’s Supermarket.  Apparently, on Sept. 25, the Service seized the account without warning, and little explanation has followed.  Hard to defend the Service if these facts are true.
  • From the Gawthrop Greenwood business blog, which I sometimes add content to, is an article regarding the IRS extending fast track settlement to smaller businesses.  There was also a second tax article posted regarding the expiration of the exclusion from gain on qualified small business stock, which can be found here.  Multiple tax posts…I’m going to have to start making them attend the tax department meetings.
  • At the, there was a post regarding whether or not IRS liens remain valid when someone changes his or her name.  I recently handled a name change as a favor for a friend, and almost changed his name to the wrong new name.  Long story, but the judge almost signed an order with a very different name that was the wrong gender.  To the post, which outlines the Service’s affirmative duty to amend its lien filing when it is notified regarding a name change in order for the IRS lien to apply and have priority to property purchased after the name change.  I’ve never researched this issue, and was slightly surprised.
  • To the Journal of Accountancy, with an article on the characterization of remittances as deposit or payment.  I am doing some extensive work with Les on Chapter 6 of Saltzman and Book, which covers this topic, so I was excited to see this analysis.  This article deals specifically with the Syring Estate case decided in August.  In Syring, the estate made a remittance that was characterized under Rev. Proc. 2005-18 as a payment.  The taxpayer requested a refund, attempting to characterize it as a deposit, but had not specified it was a deposit at the time of the remittance.  The request was outside the statute for refund on a payment, and the Court held for the Service.
  • The Tax Court recently decided John D. Moore v. Commissioner, which involved the reasonable cause exception to the delinquency penalties based on reliance on a tax advisor.  This case is not that notable, but it is a taxpayer win on reasonable cause.  Taxpayer was able to show that he engaged competent professionals who were fully apprised of the facts regarding the sale and basis in his S-corp.  The basis was overstated, resulting in an underpayment of tax, but the taxpayer was protected from the penalties by relying on tax advisors to explain and report the transaction. For more on this exception to the delinquency penalty, see part one of my two part series on this exception as applied to some recent estate tax cases.
  • The Eastern District of California last week decided motions for summary judgment in New Gaming Systems, Inc. v. United States in a refund action for penalties collected by the Service in 1999.  New Gaming is a video game company that makes electronic gambling machines for Indian Reservation casinos.  My gambling is limited to obscure Olympic sports and beauty pageants, so I was not familiar with the company name.  Issue stems from an estimated tax payment made in 1999 that was filed with the extension, but was substantially less than what was actually due.  The Court said game over to the government’s summary judgment request on the issue of whether the estimate was reasonable, which would have provided abatement from the penalty.  The Court found this matter involved a finding of fact, and was not undisputed as the Service stated.  The Court also gave New Gaming an extra life to argue reliance on its accountant as another reason the penalty should be abated, even though it had not previously been raised.  The Government argued variance, but the Court found that New Gaming’s refund request indicating the payment was reasonable put the Service on notice that reasonable cause based on preparer reliance might be raised.  The opinion on the variance issue is interesting, and seemed to work hard to allow the taxpayer to move forward.
  • Magistrate judge for the Western District of Michigan, Southern Division, recommended in Charles v. United States, that a preparer’s petition to quash a third party summons be denied.  This was accepted by the Court last week here.  Magistrate recommendation can be found here on Checkpoint, if you have a subscription.  The main argument was that the Service had previously issued “no notice” summonses that were impermissible.  The Service had argued that the summonses were issued under Section 7609(c)(2)(C), which allows a summons to be issued without notice if it is solely to determine the identity of any person having a numbered account with a bank.  This was found to be inapplicable, and the taxpayer argued the information gathered from those summonses was used to generate other summonses which should be quashed.  Sort of fruit from the tainted summons tree.  The Court held that the only remedy was found under the Right to Financial Privacy Act, and it did not provide for disallowing the second set of summonses.  I don’t know enough about this area of the law to have an opinion as to whether this was right or wrong, but it doesn’t seem favorable to taxpayers.
  • And of course, last but not least, on Procedurally Taxing (where we racked up our 100th email subscriber and 10,000th page visit), in addition to the post I wrote on Knappe and reasonable cause I mentioned above, Keith wrote a thought provoking (and slightly tongue in cheek) take on the Service’s new IDR process, and Les suggested that TIGTA and IRS’s focus on EITC error rates stems from deep feelings that are suggestive that errors from refunds are qualitatively different from underpayments