“With every move he makes, another chance he takes”

Today we have the pleasure of looking at an IRC 6751(b) opinion written by Judge Holmes.  For long time readers of this blog, the link between Judge Holmes and Graev consequences of not following the statutory language requiring approval of the immediate supervisor are well known.  His warning of Chai ghouls continues to haunt the IRS as different scenarios regarding the imposition of various penalties arise.  In CFM Insurance, Inc. v. Commissioner, Dk. No. 10703-19 (Order entered June 16, 2021), a case involving a microcaptive insurance company the IRS has targeted as abusive, he issues an order denying the IRS motion seeking summary judgment on the issue of penalty approval.  As with many of the cases seeking to interpret IRC 6751, the facts in CFM do not follow a straight line.  The title of the blog comes from a line in the footnote by Judge Holmes citing to the famous, for those of us of a certain age, recording by Johnny Rivers entitled “Secret Agent Man”.  Use the link to listen to the song if you are not familiar with it or if you have curiosity about vintage recordings.


So, from the many prior rulings on the issue of proper imposition of a penalty we have learned that the IRS needs the immediate supervisor of the agent imposing the penalty to personally approve in writing the penalty before the IRS first formally notifies the taxpayer of a proposed penalty.  If the IRS fails to obtain the written approval in time, then it loses the right to impose the penalty, as has occurred in many cases.  That’s why the IRS files a motion for summary judgement on this issue before trial in order to lock down the fact that it has followed the correct procedural steps before it gets to the merits of the penalty.  In some ways, this motion for summary judgment seems like a motion in limine.

Here, the IRS asserts in the Tax Court case that CFM owes a 20% accuracy related penalty created in IRC 6662(a) for negligence.  The Court looks to see when it notified CFM of this penalty and what steps the IRS had taken before notification.  The first issue the Court addresses concerns the notification.  It notes that a couple possibilities exist for when this occurred.  The IRS sent a 30-day letter which in prior cases the Court has treated as the official notification.  This letter tells the taxpayer of the examination division’s position and offers the taxpayer a chance to file a protest and go to the Independent Office of Appeals to discuss the matter.  The 30-day letter was signed by the revenue agent’s immediate supervisor which would seem to end the inquiry on the point of notification, except for one small problem.  The 30-day letter proposes the imposition of a 40% penalty, not the 20% penalty included in the notice of deficiency.  So, correct notification form but a shift in penalty before issuance of the notice of deficiency.  How does that impact satisfaction of the statutory requirement?

The Court looks for approval of the 20% penalty as well as prior case law in situations in which the penalty shifted.  The Court describes its inquiry:

Our caselaw tells us to focus on the formal notice that a taxpayer gets. Did any of these documents give formal notice to CFM of the 20% penalty? Ordinarily, an Examination Report and 30-day letter is sufficient to clear the 6751(b)(1) hurdle. See, e.g., Thoma v. Commissioner, 119 T.C.M. (CCH) 1447, 1472 n.34 (2020). But in this case, there was no mention of a 20% penalty’s being asserted in the 30-day letter or any of the documents listed as enclosures; the Examination Report and Agreement Form both mention 40% penalties for each year pursuant to section 6662, but section 6662 allows for 40% penalties in only three instances: when an underpayment is due to a “gross misvaluation misstatement,” § 6662(h), a “nondisclosed noneconomic substance transaction,” § 6662(i), or an “undisclosed foreign financial asset understatement,” § 6662(j). The 20% penalties under section 6662(b)(1) for negligence or disregard of rules or regulations (or substantial understatement) are distinct from each of these 40% penalties and must receive separate supervisory approval to cross over the section 6751(b) threshold. See Sells v. Commissioner, 121 T.C.M. (CCH) 1072 (2021), T.C. Memo. 2021-12, at *11. “Formal notice” requires that the penalty be described with sufficient particularity so a taxpayer knows what he is accused of. See Legg v. Commissioner, 145 T.C. 344, 350 (2015) (“Congress enacted section 6751(b) to ensure that taxpayers understood the penalties that the IRS imposed upon them”). An Examination Report and 30-day letter that mention only a 40% penalty do not provide notice of a 20% penalty. See Oropeza v. Commissioner, 120 T.C.M. (CCH) 71, 72 (2020). As a matter of law, then, neither the 30-day letter nor any of the documents listed as enclosures provided CFM with formal notice of the 20% penalties under section 6662(b)(1).

The Court notes that at this point the outcome looks bad for the IRS but goes on to discuss a stuffer in the envelope transmitting the 30-day letter.  The stuffer, Form 886-A does mention a 20% penalty; however, the stuffer has problems:

That document correctly identifies the reasons for and subsections under which the penalties were being asserted, but incorrectly identifies the amount. And that’s not the only irregularity. An initial glance reveals that the text of the Form is shrunk so that each page only takes up about half the area of the paper it’s printed on. Closer inspection shows that it includes errors (e.g., the phrase “Error! Bookmark not defined” appears several times in the Form’s table of contents) and what appear to be highlights and comments made by someone reviewing the report using a “track changes” function. So, is this “formal notice?”

The Court finds that the Form 886-A was incomplete and that the record is incomplete whether or not the supervisor of the agent approved stuffing this form in the letter with the 30-day letter.  Among other things, the supervisor at the time of sending the letter is unknown, and the signature of that supervisor is not clearly identified in the material before the Court, causing the reference to the “Secret Agent Man.”  In the end, the Court denies the motion for summary judgment but does not toss out the penalty.  The IRS has a roadmap for what it needs to prove and it remains to be seen if it can prove it.

Another Chai ghoul appears as the stuffer saves the IRS to fight another day but does not insure that it will win the fight.  This case was docketed in 2019.  By that time, the Tax Court had provided the IRS with notice of the importance of IRC 6751(b).  This is not a case like some described in earlier posts where the case sat so long in the Tax Court that the knowledge and interpretation of the law shifted dramatically between the time of the penalty imposition and the decision.

Getting Perspective on DAWSON

Today guest blogger James Creech brings a series of articles to our attention which illuminate the Tax Court’s case management transition from a different point of view. Whatever your thoughts about DAWSON, considering the transition from an internal point of view is a good exercise. Previous PT coverage of DAWSON can be found here, and the Court’s DAWSON User Training Guides are here.

One of the practitioner challenges of the transition has been learning about new features. The Court maintains a page on its website with DAWSON release notes, which indicates that improvements were deployed just two days ago. Perhaps the Court could consider an announcement system that would alert users to upcoming features as well as new features. Of course, the Court must manage staff workload and it may have bigger fish to fry. Christine

Much has been written about the Tax Court’s new case management system from the practitioner’s point of view. While most of the articles focus on the shortfalls of the new system, such as a search function that has been “coming soon” for months on end, and the change in the way orders are published, not much has been published about how DAWSON was created from a technical point or internal Tax Court staff point of view.

A recently published set of blog posts from 18F changes that. 18F is an internal US Government technology and design consultancy group that worked on developing and implementing DAWSON. As part of 18F’s outreach they have published a three part series on the Tax Court’s case management modernization project. The first article is more of an overview of the Tax Court and the shift from the old case management system to DAWSON and the second and third articles are interviews with Jessica Marine, the Deputy Clerk of Court who oversaw the project, and Mike Marcotte the technical lead.

The articles are technology focused and at times paint an overly rosy picture of DAWSON’s success. Being technical there are numerous references to bugs and minimal viable products (MVP) but not a single reference to the Internal Revenue Code. Despite this, there are still several items of interest to those of us who regularly use DAWSON. Some tidbits include that more than 1 million cases containing more than 1 terabyte of data have been transferred over to the new system, DAWSON is built on an open source framework (which is considered more secure), and at least according to Mike Marcotte there is some internal optimism that the initial problems with the launch have been resolved and that new features can be confidently deployed.

These articles are also a good reminder of all the hard work that went into creating DAWSON. Migrating 30 years of legacy computer systems and 70 years of Tax Court cases does not happen without significant planning, technical skill, and bug fixes. Getting a glimpse into these issues, including one ruined Thanksgiving, is a reminder that building and deploying software is difficult.

Finality of a Tax Court Decision

The Sixth Annual Tax Controversy Institute will be held online on Friday, July 16th, 2021. The virtual institute is sponsored by the University of San Diego School of Law and the tax law firm RJS Law. The event will be free of charge and will allow practitioners to earn free education credits. Speakers will include IRS Commissioner Charles Rettig and Tax Court Judge Copeland. The Institute will also be presenting the Richard Carpenter Award for integrity, dedication and expertise in representing taxpayers to Nina Olson, former National Taxpayer Advocate and the Executive Director of the Center for Taxpayer Rights. For more information about the event and to register, click here.

Thanks to Carl Smith for bringing to my attention another interesting decision.  The recent case of Kirik v. Commissioner,—Fed. Appx.—(2nd Cir. 2021) in an unpublished opinion addresses the issue of when the Tax Court retains jurisdiction to modify its decision or order of dismissal after the 90 days to appeal has run, but no appeal has been taken.  The statute at issue is IRC § 7481(a) and the circuits have split on the issue. Section 7481(a) provides that a Tax Court decision becomes final upon the expiration of the time allowed for filing a notice of appeal (90 days under section 7483), where no notice of appeal has been filed within such time.

In a related but definitely distinct issue, in the case of Myers v. Commissioner Joseph DiRuzzo, representing petitioner Myers, asked the D.C. Circuit to hold that the 90-day period in IRC § 7483 to file a notice of appeal in the Tax Court is non-jurisdictional and subject to equitable tolling.  The D.C. Cir. had no precedent on the issue one way or another, but refused to decide the issue — instead holding that a motion for reconsideration tolled the appeal period under the FRCP, just like a motion to vacate explicitly would under the FRCP.  As we wrote after the Guralnik decision, it’s hard to see how an FRCP rule can extend a statutory deadline that is jurisdictional, but life has its mysteries.  The issue in Kirik involves a different code section but some of the same underlying principles are at play.


The Second Circuit described the issue in Kirik as follows:

Although § 7481(a) is quite explicit as to when a decision of the Tax Court becomes final, circuit courts have split on whether, and under what circumstances, the Tax Court may vacate or revise one of its finalized decisions. The Sixth Circuit has concluded emphatically that “once a decision of the Tax Court becomes final, the Tax Court no longer has jurisdiction to consider a motion to vacate its decision.” Harbold v. Comm’r, 51 F.3d 618, 621 (6th Cir. 1995). Other circuits, and the Tax Court itself, have acknowledged a few narrow exceptions to this rule, including situations in which there has been a fraud on the court, where the Tax Court did not have jurisdiction in the first place, Davenport Recycling Assocs. v. Comm’r, 220 F.3d 1255, 1259 (11th Cir. 2000), and where the Tax Court discovers a clerical error after the decision became final, Stewart v. Comm’r, 127 T.C. 109, 112 n.3 (2006).

The Second Circuit has never definitively decided whether the finality rule is jurisdictional or merely a claim processing rule that is subject to judicially‐created exceptions.  In Cinema ’84, 412 F.3d at 371, it declined to expressly adopt any of the exceptions identified above. Assuming that the Tax Court’s finality rule is not strictly jurisdictional and the above‐referenced exceptions could be properly considered by the Tax Court, none would make the slightest difference in this case, since there is no possible argument that the Kiriks’ delay was caused by fraud, mutual mistake, clerical errors, or the Tax Court’s lack of jurisdiction to enter a decision in the first place. Indeed, the Kiriks do not argue otherwise.

The paragraph summarizing the law is a shortened version of what the 2d Cir. wrote in its 2005 opinion in Cinema ’84, except that Cinema ’84, being decided only shortly after the Supreme Court in Kontrick v. Ryan in 2004 for the first time distinguished “claim-processing rules” from jurisdictional rules, does not use those two terms.  Thus, in Kirik, the 2d Cir. seems to realize for the first time that it may, in an appropriate case, have to rule on the issue of whether the Tax Court loses the ability to modify its decision after 90 days as a jurisdictional matter or whether there might be exceptions because the 90-day rule is only a claim-processing rule.

The facts of Kirik were terrible.  The notice of deficiency had sought about $3 million in taxes and penalties alone.  The Kiriks did not seek to vacate the Tax Court’s order of dismissal for lack of prosecution until almost 9 months had elapsed (instead of the 30 days generally provided for in Tax Court rules).  Although the 2d Cir. in Kirik could have used the words and the tests for “equitable tolling”, it did not; instead, it discussed the taxpayers’ request for an excusable neglect exception.  It stated:

[t]he Kiriks essentially argue that we should create a new exception to the finality rule based on the concept of excusable neglect. But we need not decide whether we can, or even should, acknowledge such an exception because even the most charitable and expansive definition of excusable neglect could not salvage the Kiriks’ claims here.

Although excusable neglect provides a permissible basis for noncompliance with court rules in a variety of contexts, all applications of the doctrine require courts to consider “the reason for the delay, including whether it was within the reasonable control of the movant.” Silivanch v. Celebrity Cruises, Inc., 333 F.3d 355, 366 (2d Cir. 2003) (internal quotation marks omitted). “We have noted that the equities will rarely if ever favor a party who fails to follow the clear dictates of a court rule,” id. (internal quotation marks and alteration omitted), going so far as to observe that where the rule governing a filing deadline “is entirely clear . . . a party claiming excusable neglect will, in the ordinary course, lose,” Canfield v. Van Atta Buick/GMC Truck, Inc., 127 F.3d 248, 251 (2d Cir. 1997). 

Here, the Kiriks’ delay in filing their motion was entirely within their control. There is no dispute that the Kiriks fired their attorney, thus taking on the risks associated with navigating the Tax Court alone, notwithstanding their self-professed lack of sophistication and less-than-complete fluency in English. Inexplicably, they then failed to respond to multiple orders from the Tax Court, including the order dismissing their case for lack of prosecution. Several months later, the IRS sought to levy on the Kiriks’ assets, yet even then the Kiriks did not file a motion to vacate the order dismissing their case. It was not until July 2020 – almost nine months after the Tax Court issued its dismissal order – that the Kiriks finally got around to making their motion. Nothing in our case law suggests that the Kiriks’ neglect, which was considerable, was even remotely excusable. Consequently, we see no reason to second guess the Tax Court’s denial of the Kiriks’ motion to vacate the October 2019 order dismissing their case.

In its Cinema ’84 opinion, the 2d Cir. also dodged deciding the issue of whether the Tax Court retained jurisdiction to modify its decisions after 90 days.  Cinema ’84 was a TEFRA case.  Here are the sentences in which Cinema ’84 declined to consider that taxpayer’s argument for an exception:

However, we have not explicitly adopted any of the exceptions to the general rule, discussed supra. In any event, it is unnecessary for us to decide in the present case which, if any, of the exceptions this Court recognizes because regardless of how Reigler’s argument is characterized, vacatur was not warranted here, where the Tax Court was under no duty to appoint a TMP and its failure to do so did not deprive Reigler of due process.

So, while the Kirik case does not really add to the resolution of this issue, it points out the conflicting case law and once again highlights the existence of the issue.  Because the facts in the Kirik case do not favor relief, perhaps for those who want to reopen the door after the 90-day period has run, the failure of the 2nd Circuit to address this issue head-on provides a benefit.  Here, bad facts did not really influence the further development of the law.  Of course, no one should wait until after 90 days have passed before coming back to the Tax Court to seek a reversal of the decision.  Convincing the Court to reverse will be hard enough.  Adding onto that an uncertain test with a high bar makes it almost impossible.

Bouncing Documents at the Tax Court

I wrote about documents bouncing back from the Tax Court last month in connection with the Tax Court policing the timely filing of petitions.  The post caused commenter in chief Bob Kamman to pay careful attention to the orders coming out of the Tax Court and he noticed a particularly bad day for Chief Counsel’s office on June 9, 2021.  Because we do not routinely track all of the Court’s orders each day, it’s a bit hard to say when one day is worse than another.  We can look at each order to try to better understand practice before the Court.


The Tax Court has always been more likely, at least in my view, to return documents to the IRS rather than to petitioners.  This makes sense from the perspective that the IRS participates in every case.  It generally has the resources and the knowledge to correct mistakes that many petitioners do not.  When the Court sees something in a filing that is wrong or that it just does not like, it can return, or bounce, the document and tell the party, or parties, to start over.  Usually, when it does so, it provides in an order a brief explanation of the problem and how to fix it.  If a Chief Counsel office routinely receives a high volume of bounces, it is an indication that something is wrong at the office.  This can cause phone calls from the attorneys in the national office who monitor the bounces as well as calls from the area office about the problem. 

No office wants this attention.  In addition to those less than pleasant contacts, at gatherings of Chief Counsel attorneys, the national office attorneys in charge of monitoring relations with the Tax Court would occasionally read select documents to the collected group.  These documents would demonstrate serious bloopers in an effort to spur greater attention to detail.  Since Bob has identified the cases, we have the opportunity to look at a form of Tax Court bounce sheet.

Bounce #1

This case presents the same issue discussed in the Villavicencio case blogged on June 3, 2021, and discussed in a brief filed by the Tax Clinic at Harvard with the Supreme Court.  Even though the parties agreed to the outcome of the case, the Tax Court bounces back that agreement saying that it is unconvinced that it has jurisdiction.  It invites the parties to address the jurisdictional issue:

Bounce #2

The notice of deficiency included a penalty under IRC 6662; however, the decision document filed by the parties does not mention the penalty.  The Tax Court sends the document bouncing back for the parties to address all of the issues in the notice of deficiency.  Remember that when you go to Tax Court, the outcome closes out the tax year.  So, the Court wants to make sure that everything gets addressed as it signs the document closing the case.

Bounce #3

This is the kind of bounce you really hate to receive.  Here, a stipulated decision document gets bounced because it describes the IRC 6651 addition to tax as a penalty.  Many of you might think and regularly speak of the liability imposed by 6651 as a penalty.

Bounce #4 (not really a bounce)

This order shows a few things but does not really qualify as a bounce.  An order of dismissal and decision was entered in this case in September 2020, but in October 2020 the IRS moved to vacate the order.  The Court would have written to petitioner to respond to the IRS motion.  Not having received a response from the petitioner, the Court grants the order.  We don’t know why the IRS wanted to vacate the order and finding out the answer to that question would involve ordering the motion from the Court since it is not publicly available otherwise.  We don’t know whether the issue raised in the motion was difficult, causing the Court to pause for almost six months after the stated response date set for the petitioner, or whether this order was just backlogged along with other matters at the court.

Looking at these routine orders provides a glimpse of the day to day action taking place at the Court.  The majority of cases get decided with stipulated decision documents and with orders.  Decisions continue to be a small minority of case dispositions.

Limitation on Issues Taxpayer Can Raise in Passport Case

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


Petitioner filed his case in Tax Court seeking to reverse certification, to determine he is not liable for any taxes for 2006, and to obtain a $3,000 refund.  While the case was pending, the IRS sent to the Secretary of State a reversal of the certification of petitioner as a seriously delinquent taxpayer.  After sending the letter reversing certification, the IRS moved to dismiss the Tax Court case as moot. 

This motion was consistent with prior Tax Court precedent established in the case of Ruesch v. Commissioner, 154 T.C. 280 (2020). In the Ruesch case, petitioner came into the Tax Court under the jurisdiction of the passport provision and asked the Court to determine whether the IRS had erred in certifying her as a person owing a seriously delinquent tax debt. Petitioner also asked the Court to issue a ruling to determine her underlying tax liability. The IRS had since reversed its classification of petitioner as seriously delinquent, informed the Secretary of State, and moved to dismiss the case as moot. The Court agreed with the IRS and dismissed petitioner’s case, holding that it lacked jurisdiction under IRC 7345 to determine petitioner’s underlying tax liability. The dispute did not, in the Court’s view, give rise to a justiciable controversy because no relief, other than reversal of the erroneous classification (which had already been granted by the IRS), could be granted by the court.

Based on the position of the Tax Court staked out in the Ruesch case, the Court granted the motion of the IRS but gave background on petitioner’s case nonetheless. Petitioner lives in Israel and is a dual citizen of Israel and the US. He did not file a 2006 US federal tax return. The IRS, however, had received third party information returns from three separate parties indicating that he had US income. For his convenience, the IRS prepared an IRC 6020(b) tax return for him.

I am sure that this happened after the IRS mailed him correspondence and probably several pieces of correspondence. Because of where he lived, it is likely he did not receive this correspondence. After sending a notice of deficiency, the IRS assessed the liability it had calculated and eventually the liability, because of the high dollar amount, was assigned to a revenue officer for collection. The IRS sent him a CDP notice which he did not claim.

In 2017, Mr. Shitrit filed US federal income tax returns for 2014, 2015, and 2016 showing his address in Israel. It is worth notice here that being outside of the US for more than six months triggers one of the provisions in IRC 6503 suspending the statute of limitations on collection. The IRS does not always know if a taxpayer is out of the country for more than six months but when it knows this it will input the information so that the collection statute is suspended. The IRS needs this suspension because of the difficulty it has in collecting taxes from taxpayers residing outside of the country. As we have discussed before, the IRS has only built collection language into five of the treaties it has with other countries. In countries with whom it lacks a collection treaty, the IRS can only collect if it can find assets of the taxpayer in the US. One of the benefits to the IRS of the passport provision is that it gives the IRS leverage over individuals in a situation in which it may have almost no leverage in its effort to collect delinquent taxes.

In this case, Mr. Shitrit did not owe the taxes, so the IRS did not need leverage, but the passport provision did cause him to become aware of the problem and to address it. It is unfortunate that the assessment existed since it did not exist through the fault of either the taxpayer or the IRS, but rather through the fault of a third party who stole his identity, triggering the information returns that were sent to the IRS, implicating Mr. Shitrit as someone who earned money and failed to file a return. Everything came to a head when the returns were filed in 2017 because he claimed a $3,000 refund. No surprise that the IRS offset the refund against the outstanding liability created for 2006 with the substitute for return.

Now that it had his correct address, the IRS sent him the seriously delinquent passport notice. He filed the Tax Court petition to address this notice. He retained the law firm of Frank Agostino and, although the opinion does not make this clear, I surmise that Frank’s firm figured out what happened to create the liability and took the steps to unwind the assessment, convincing the IRS that it was not Mr. Shitrit’s income. That worked well for ending the primary problem presented with passport revocation, but the small matter of the $3,000 refund still existed, and Mr. Shitrit sought to have the Tax Court make a determination that he was entitled to that refund.

The Court says that nothing in IRC 7345 establishing jurisdiction for passport revocation cases authorizes the court to redetermine a liability or to determine an overpayment. Among the other cases it cites following this statement, the Court cites to a Collection Due Process case, Greene-Thapedi v. Commissioner, 126 T.C. 1 (2006), which this blog has often criticized. See prior discussions of this issue in the CDP context here and here. There are significant differences between the passport statute and the CDP statute, making some of the criticisms of the decision in Greene-Thapedi not as applicable in this context.

Mr. Shitrit argues that despite prior decisions, IRC 6512 grants the Tax Court jurisdiction to determine an overpayment and IRC 6402 gives the Court the power to order the overpayment. The Court disagrees. Arguments regarding mootness and voluntary cessation follow, with the IRS arguing the decertification has mooted the case and petitioner arguing that voluntary cessation by one party does not necessarily moot a case.

I expect that the IRS will refund the overpayment to Mr. Shitrit as it abates the 2006 liability, since an overpayment will be sitting on that account and the taxpayer has requested the money within the applicable refund period. If it does not, then Mr. Shitrit must incur the time and expense to go back into a different court to seek an order granting him the refund. It’s unfortunate that he could not wrap everything up in one proceeding.

DAWSON Update and Example of Tax Court Policing

Carl Smith continues to probe the Tax Court docket sheet as he has done for many years but in his retired retirement, he finds working his way through DAWSON interesting as new features arrive unexpectedly to be discovered.  The latest new feature Carl has found is one about which those of us who use the system regularly have been complaining since its inception – the inability to see the representatives.  Now, it’s possible to see who is representing each party, but you must take a step to find out.

When you arrive on the docket sheet of a case, you will not see the persons representing the parties as you did prior to the change to DAWSON; however, if you click on the “Printable Docket Record” box on the right-hand side of the page near the top of the docket sheet, you will go to a sheet that displays the representatives.  This is another step forward as the Tax Court continues to build out DAWSON.


You can test out this feature by going to this link.  The link hopefully (I use this qualifier because all of the pre-DAWSON links in our blog to Tax Court orders were broken when DAWSON came into existence.  We do not have the time and energy to fix all of the broken links and apologize for this problem.  If you know someone willing to sponsor us to hire an energetic student to work on our links, we would welcome the sponsorship and the opportunity to update the old posts on the blog.  It is also possible that we might have an energetic reader with time on their hands willing to make an in-kind donation to this free blog site and do the work necessary to update our links) takes you to the case of Villavicencio v. Commissioner. 

While Carl brought to my attention the new DAWSON feature, Bob Kamman brought the Villavicencio case to my attention.  The case makes a point that I made in a recent post in which I quoted extensively from the brief the tax clinic at Harvard filed with the Supreme Court in Boechler – the Tax Court polices the timely filing of petitions even when the IRS does not and the Tax Court will dismiss a case even when the parties are in the process of settling it.  The case also highlights the dangers of using the wrong private delivery service, highlighted most often in this blog by reference to the Guralnik case.  The case also points out a problem created by COVID and the shutdown of the Tax Court.  Although it probably does not matter here for reasons discussed below, petitioner has not yet made jurisdictional arguments of the type frequently discussed in this blog.

Three weeks before trial, Judge Greaves raised the question of whether he had jurisdiction, because the notice of deficiency was issued on March 16, 2020, and the petition was not received until July 16, 2020.  It was sent by UPS, but not by one of their acceptable methods.  See Judge Greaves’ one-page order attached.  Late deficiency petitions raise jurisdictional issues in the eyes of the Tax Court even if the IRS doesn’t file a motion to dismiss for lack of jurisdiction. 

The IRS didn’t file an answer until October 27, 2020, more than three months after the petition was filed, but this is one of those cases about which we recently wrote where service of the petition on Chief Counsel, IRS did not occur for over two months after the petition was received.  So, the answer here was timely, but if it had not been timely filed, late answers are forgivable from the Tax Court’s perspective.   

I could digress and discuss the “strike fear” memo written by Chief Counsel Meade Whitaker in the mid-1970s threatening to fire any Chief Counsel attorney who did not file their answer on time, or I could digress further and talk about the time the Richmond office which I was heading filed seven answers late at once because of a snafu, but I will not.  Instead, I will simply say that the Office of Chief Counsel generally does not like it when an answer is filed late and neither does the Tax Court, but the Tax Court does not usually punish the IRS in any way for a late answer.  To my knowledge, the Office of Chief Counsel has not fired anyone for filing a late answer.

The case is calendared for a remote trial session in New York City on June 14, but the parties lodged a proposed stipulated decision on May 13.  So, the parties are ready to settle, the Tax Court is ready to toss the case, and the taxpayer is wishing that the petition had been timely filed.  If the Tax Court decides to dismiss the case for failure to timely file the petition, my expectation is that the IRS will honor the settlement and only assess the amount of tax, if any, agreed to by the parties.  It is not my experience that the IRS would use the dismissal as a basis for assessing the entire liability and force the taxpayer in this S case to come up with full payment and file a suit in district court. 

So, even though the petition was filed late, the petition was served late, and the Court caught the problem late in the process, all should end well for the parties, but before it ends well, they must spend time responding to the order that requires them to address the timeliness of the petition.  The parties may not care about the timeliness of the petition anymore because they have figured out the right answer to the tax problem.  That does not matter because the Tax Court cares.  Should it, or should we have a system where the filing of the petition is not jurisdictional, but a claim processing issue which, if not raised by the IRS, does not bar the parties from moving forward with the case?  If the Supreme Court does not change the Tax Court’s interpretation of the statutes granting it jurisdiction, perhaps Congress could step in and fix this problem so that all bases for jurisdiction in the Tax Court are considered non-jurisdictional and not just whistleblower cases, passport revocation cases and CDP cases filed by DC residents.

Follow Up Information on Tax Court Service of Petitions

Yesterday, we published some data from Carl Smith showing that the service of a new Tax Court petition on the office of Chief Counsel was taking about two months.  Following that observation, Carl did some additional digging and found the service time to vary considerably.  Below is a chart of his most recent findings.  Because of the significant variations in the timing of the service, it is difficult to know what is going on in the Tax Court Clerk’s Office to cause the swings in the timing. 


Here are some dockets showing wildly inconsistent dates of petition filing and petition service: 

Docket No.       Petition Filed       Petition Served

14000-20            11/17/20              2/22/21

15000-20            12/28/20              3/4/21

101-21                1/1/21                  1/6/21

1000-21              3/4/21                  3/5/21

2000-21              1/22/21                3/19/21

3000-21              4/2/21                  4/5/21

4000-21              2/5/21                  4/14/21

5000-21              2/1/21                  4/26/21

6000-21              1/4/21                  5/5/21

7000-21              2/25/21                5/13/21

8000-21              3/9/21                  5/20/21

Carl speculates that perhaps the Tax Court Clerk’s Office is, on some days, filing petitions and serving them as soon as they come in, but on slow days working through a pile of petitions building up from earlier days, when the office was hit with too many petitions to process?  In any event, a Tax Court petitioner at this point may or may not get a multi-month delay in the serving of her petition on the IRS.

The delay can have an impact on petitioners since it impacts when the answer is filed.  Petitioners who hear nothing for a long time wonder what has happened to their case.  Representatives accustomed to working with their local counsel office to obtain an early resolution of cases with clear cut facts can have trouble doing that quickly since Chief Counsel does not want to abate an assessment until they have been served with a petition.  Perhaps the biggest impact is on premature assessments.  If the Tax Court delays in sending the petition to the IRS, the IRS does not know that the taxpayer has petitioned and will assess the liability reflected in the notice of deficiency.  Unwinding the premature assessment takes time for the people at the IRS and can make taxpayers uncomfortable because they will receive at least the notice and demand letter at a time when they thought that they had forestalled the assessment by filing the petition.  We have written about premature assessments previously here. Both of these issues join together if there was a premature assessment but Chief Counsel does not want to abate pending receipt of the petition and a chance to compute its timeliness.

It’s also unclear if the new electronic filing of petitions is somehow impacting the timing of service.  The ability to electronically file a petition can give the petitioner certainty of receipt but may change the processing of petitions in a way not readily apparent.  Maybe the electronic petitions are the ones that get served on the IRS quickly.  The Court, and the Clerk’s office, is still absorbing the changes in the Court’s database system.  Perhaps something in the way DAWSON works is causing these issues.  We welcome comments from a more knowledgeable source since we are simply speculating based on data that seems at odds with past Tax Court practice and with ordinary case management.

Things That Make You Say Hmmm

We welcome back guest blogger and commenter in chief, Bob Kamman.  As usual, Bob has found things that the rest of us overlook. 

In addition to the interesting twists on the way things work that Bob discusses below, I received a message from Carl Smith who, though retired, still takes some interest in what is happening in the world of tax procedure.  Carl provides some data on the Tax Court that might be of interest to court watchers.  After checking DAWSON, Carl sent the following message:

The last docket number for 2020 was 15,351.  Since the court doesn’t give out the first 100 docket numbers (i.e., the court starts at docket no. 101), that means filings in 2020 totaled 15,251, which is the lowest in two decades.  (The 1998 Act so froze the IRS that, according to Dubroff and Hellwig (Appendix B), only roughly 14,000 petitions were filed in 1999 and 15,000 petitions were filed in 2000.)  The last docket number in 2019 was 23,105, so filings in 2020 fell off about a third from 2019 to 2020.

As of right now, May 27, before the court’s Clerk’s Office opens, the last docket number is 8856-21 — only slightly ahead of the pace for 2020, though I would note that the first 10 weeks of 2020 were not impacted by the virus at all.

Oddly, the Tax Court is still very backlogged in serving petitions on the IRS.  Docket 8856-21 was filed on 3/15, but says it was served 5/27 — i.e., it will be later today.  That time gap of two and a half months to serve the petition is typical right now. Looking to the last few dockets of 2019, it typically took only 14 days to serve a petition filed on Dec. 31, 2019.


I thought I knew at least the basics of tax procedure, but lately I am starting to wonder if they changed the rules while I was slipping into old age.


For example, there is the statute of limitations for refunds of individual income tax.  From a Notice CP81 mailed from IRS in Austin and dated May 24, 2021: “We haven’t received your tax return for the year shown above.  The statue [yes, that’s what it says, not statute] of limitations for claiming a refund for the tax year shown above is set to expire.  As a result, you are at risk of losing the right to a potential refund of your credits and/or payments shown above.”

The credit on the account is $145. The tax year is 2017.

No, the taxpayer does not live in Texas or other disaster area.  I should say, did not live there.  He died in July 2020. 

Of course it’s possible that the credit came from a timely-filed extension request in April 2018.  No one alive now, has any records of what he did back then.  We do know that IRS paid him refunds on 2018 and 2019 returns, without any reminders or requests about 2017.  Requesting an account transcript for a decedent would take some time, to find out. 

And another thing.  I thought I knew the rules about when IRS would pay interest on refunds, and when it would not.

Then another tax practitioner reported that a Form 1040 that was e-filed on April 15 resulted in a refund deposited on April 23, with several dollars of interest added.  The refund was in the $10,000 range.  I had my doubts about this, until something similar happened with one of my clients.

They had filed their return in March, but claimed a “Recovery Rebate Credit” for a payment they had not received.  IRS is verifying all of these, so the refund was not approved and deposited to their bank account until April 28.  It included $1.31 in interest. 

I had always thought that IRS has 45 days from the date the return is due, or when received if later, to pay the refund without interest.  The IRS website states, “We have administrative time (typically 45 days) to issue your refund without paying interest on it.”

So I did some research, and this is what I found.  But I may not have gone far enough.

Code Section 7508A deals with disaster areas and allowed IRS to permit last year’s 3-month extension and this year’s 1-month extension.  It provides:

( c)        Special rules for overpayments
The rules of section 7508(b) shall apply for purposes of this section.

And Section 7508(b) says

(b)         Special rule for overpayments
(1)         In general
Subsection (a) shall not apply for purposes of determining the amount of interest on any overpayment of tax.
(2)         Special rules
If an individual is entitled to the benefits of subsection (a) with respect to any return and such return is timely filed (determined after the application of such subsection), subsections (b)(3) and (e) of section 6611 shall not apply.

So what are these two parts of Section 6611 that should be disregarded?

The second one mentioned, 6611(e) has the 45-day rule. So IRS can’t rely on that.

But the first one, 6611(b)(3), deals only with “late returns”. That still leaves Section 6611(b)(2), which gives IRS 30 days to issue a refund with no interest:

(b)         Period
Such interest shall be allowed and paid as follows: . . .
(2)         Refunds
In the case of a refund, from the date of the overpayment to a date (to be determined by the Secretary) preceding the date of the refund check by not more than 30 days, whether or not such refund check is accepted by the taxpayer after tender of such check to the taxpayer. 

So the 45-day rule is out, but shouldn’t the 30-day rule still be followed? At least, that’s the way I followed the trail.  But I could be wrong. I’m expecting a TIGTA or GAO report later this year, telling me why IRS did it right.  But I also expect some members of Congress to lament the interest expenditures.

Then there came along the repeal of the tax on ACA premium underpayments in 2020.  If taxpayers paid less for health insurance last year because they underestimated their income and received too much premium tax credit, they would have to make up the difference – until that requirement was repealed by the American Rescue Plan (ARP) in mid-March.  So now IRS has started issuing refunds to those who had already paid this tax. 

According to other practitioners, these refunds have included interest, even when paid before May 15.

IRS is about to start paying refunds to taxpayers who included unemployment compensation in income, before it was excluded for most returns by ARP.  Should these refunds include interest, even if paid within 45 days of April 15?  I suppose so.  These are, after all, not normal times.