Consistency and Other Hobgoblins of the Tax Code: Designated Orders March 25 – 29, 2019

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Consistency, Congress, and the Taxpayer. Wheeler & Colerico v. C.I.R., Dkt. # 6104-17S (order here)

This case largely circles around the duty of individual consistency -specifically whether you can be “temporarily away from home” for one tax purpose (IRC 162(a)(2)) while simultaneously being there “on a permanent or indefinite […] as distinguished from temporary basis” for another tax purpose (IRC 217 as interpreted by Schweighardt v. C.I.R., 54 T.C. 1273 (1970)). In this case the taxpayer wants to have their cake and eat it too: yes, I was temporarily away from home, but also my temporary absence established a new permanent place of employment.


The taxpayer needs these two (almost) contradictory facts to be found because he received and treated as non-taxable roughly $70,000 worth of per diem payments for the tax years at issue -payments that could only be tax free if he was temporarily away from home under IRC 162. Meanwhile, he also deducted $22,782 in moving expenses -expenses which can only be deducted if he is moving to a new principal place of work (i.e. no longer away from his tax home) under IRC 217.

Unfortunately for whatever clever arguments the taxpayer came up with, the precedential Schweighardt decision means that the legal outcome is basically a foregone conclusion. That decision addressed the interplay of exactly these same code provisions, and their appearance of inconsistency. As Judge Gustafson writes,

It is this whipsaw that informed the Tax Court’s construction in Schweighardt of the term “new principal place of work” in section 217(a): “[A] place of work is not to be considered a taxpayer’s principal place of work under section 217 if a deduction is allowable for traveling expenses while away from home under section 162.

In other words, you can only have one or the other benefit.

Frankly, that one sentence of Schweigardt should be enough on its own to put this case away (there are other damning facts, including that the work contracts explicitly say they are “temporary” and list his tax home at all times as being in Massachusetts). But there is another inconsistency that I think bears mention, and it is one of Congress’s and not the taxpayer’s making.

Imagine that Mr. Wheeler did not get a per diem while “away from home,” but instead paid for these expenses himself. Recall that, since the 2017 tax reform, unreimbursed employee expenses are no longer allowable itemized deductions. See IRC 67(a), (b) and (g). Accordingly, Mr. Wheeler would not be able to deduct those expenses in 2018 and moving forward. But what if he continued to receive a per diem, rather than deducting expenses he paid? In that instance, he would still get the tax benefit of not treating the per diem (or reimbursement) as taxable income (actually, it is better treatment than miscellaneous itemized deductions under pre-2017 law since it isn’t limited by 2% AGI). Why is this? Because those employer payments are still (probably) excludible under IRC 132(d), which was not repealed. One may question whether this is true, since IRC 132(d) refers to payments where a deduction would be “allowable” under IRC 162 or 167, but from what I can tell it appears to be the IRS’s position that they are still not includible in income (see IRS letter here). Note also that in the context of dependents, where post-2017 law reduces the exemption amount to $0, the deduction is still considered “allowable.” See IRC 151(d)(5) and IRS Notice 2018-70.

All of this is to say, those receiving money from their employer for job expenses get much better tax treatment than those that don’t. The clients I have with substantial unreimbursed employee expenses generally aren’t in a position to negotiate for a per diem, and generally aren’t well paid to begin with. One may question the propriety of this “inconsistency,” since it is likely to end up padding the pockets of people in a better position to pay the tax in the first place (which is generally a consideration of an equitable tax code).

Consistency in Giving Notice to the IRS of a Change in Address. Arnold v. C.I.R., Dkt. # 25750-17S (order here)

I always try to impart upon my students how important proper mailing is, and how frequently it is put at issue in tax cases. Certain statutorily required letters are particularly important to the assessment and collection procedures (e.g. the Notice of Deficiency and Collection Due Process letter). You won’t frequently win on challenges to the validity of the letter based on its content (see Keith’s post here) but you may win based on where it was actually mailed to. Specifically, the letter may be invalid if it was not mailed to the “last known address.”

As Keith detailed in a previous post the Tax Court has recently added some clarity to the last known address issue, in Gregory v. Commissioner. The above order represents a taxpayer casualty from that recent court decision. Because Ms. Arnold filed her Tax Court petition late, the Court must dismiss for lack of jurisdiction because of one of two defects with her “ticket”: (1) the ticket expired (IRS win) or (2) the ticket was invalid (taxpayer wins). Ms. Arnold’s only hope for the latter outcome is if the IRS sent the Notice of Deficiency to the wrong address. The address the letter was actually sent to was her old home, listed on her most recent tax return. Ms. Arnold wanted to argue that the correct address was the one listed on a Form 2848. And for a while, the Tax Court was sympathetic to that argument (see Patrick Thomas’s post here, listing out some of the previous cases where the Court addressed the issue).

Since Gregory is precedential, however, the 2848 change-of-address argument is no longer available – at least in Tax Court. I am unaware of any Circuit courts having ruled on the issue since the Treasury promulgated the regulation, so there may still be the potential for win on appeal.

But what is perhaps more interesting than the foregone legal conclusion in this case comes about from some sleuthing of frequent guest poster Bob Kamman.

Despite finding for the IRS in this order (again, a largely foregone conclusion), Judge Buch begins the order by chastising IRS counsel for filing a previous motion to dismiss that was “riddled with errors,” and failing to correct “some of the very same errors we explicitly noted[.]” Somewhat strangely, the case is being handled by the IRS’s L.A. office despite the trial and hearings being set in Michigan. Even more odd, it appears that IRS Counsel in Detroit would already be familiar with Ms. Arnold: she appears to have filed a case in US Tax Court (with her husband) for tax year 2013 (docket here). Ms. Arnold (assuming it is the same petitioner) filed that petition on 8/12/2016 –before the Notice of Deficiencies were issued in this matter. Again, this is pure conjecture, but one wonders if the address used in Tax Court, and directly with an IRS attorney, would be “clear and concise notice” of a change in address. As Judge Holmes puts it in a previous 2848 case (quoting a Bankruptcy court decision), the IRS “should not ignore what it obviously knows.” Alternatively, one could look at is as another example of the difficulties of providing agency-wide “clear and concise notice” of address change with an entity as vast as the IRS, and why it makes administrative sense for the IRS to want to limit the methods of notice that are valid.

Orders of the Rich and Famous. Ashkouri & Draper v. C.I.R., Dkt. # 17514-15 (order here)

The last order won’t be discussed in detail, since it involves “Graev” issues that have been dealt with extensively elsewhere. However, perhaps more interesting than the legal issues are the petitioners themselves – one in particular who is at least famous enough to have his own Wikipedia page (another hat-tip on that point to Bob Kamman). There isn’t much more I have to say on this case except that in tying in the theme of “consistency” I will note that low-income taxpayers may appear to get the short-end of the stick.

Most of the taxpayers I work with are subject to either Automated Under Reporter (AUR) or Automated Correspondence Exams (ACE). “Live human” (or field/office) exams are generally reserved for wealthier taxpayers (and likely those with a Wikipedia page). The inconsistency is that, under the recent decision of Walquist v. C.I.R., IRC 6662(b)(2) penalties arising from AUR/ACE do not require supervisory approval, whereas those same penalties would if the exam was initiated by a human. See IRC 6751(b)(2)(B). The mind fairly boggles.

Caleb Smith About Caleb Smith

Caleb Smith is Associate Clinical Professor and the Director of the Ronald M. Mankoff Tax Clinic at the University of Minnesota Law School. Caleb has worked at Low-Income Taxpayer Clinics on both coasts and the Midwest, most recently completing a fellowship at Harvard Law School's Federal Tax Clinic. Prior to law school Caleb was the Tax Program Manager at Minnesota's largest Volunteer Income Tax Assistance organization, where he continues to remain engaged as an instructor and volunteer today.


  1. Kenneth H. Ryesky says

    During my IRS days, I had cognizance over some instances (plural) where traceable proof of mailing/delivery resolved all timeliness arguments in the taxpayer’s favor; I now insist that any filings s with the IRS be done via traceable means (Express Mail, FedEx, etc.).

    My wife and I currently reside overseas. When we relocated to new living quarters a few blocks away this past summer, we filed the Form 8822 Address Change with the IRS; it was received on 3 July 2019.

    Per Hull v. United States, 146 F.3d 235, 239 – 240 (4th Cir., 1998), filing occurs upon receipt by the IRS, even if the mailpiece hits the desk of the relevant bureaucrat on a later date.

    This year, we filed our respective Forms 14039 Identity Theft Affidavits (both in same mailpiece) with the IRS Fresno facility, which received the mailpiece on 14 February 2019. As in years past, we received our respective Letters 2645C acknowledging receipt of our 14039’s and informing us that the IRS needed an additional 60 days to review and investigate. The 2645C letters were each dated 25 March 2019, each mailed from a European Union location (apparently through some sort of contract mailer; other Americans in my professional and social circles report having experienced similar). My wife’s 2645C Letter was received on 6 May 2019 at and addressed to our new address; my 2645C Letter was received on 8 May 2019 at our new address but addressed to our old address (we have an active forwarding order with our local post office.

    This raises serious questions as to whether the IRS promptly and correctly processes its 8822’s. But at least my wife and I are postured quite well to prove what our last known address should be, and when the IRS should have known it.

    {Nina, are you listening?}

    • Norman Diamond says

      I think some countries that the IRS mails letters from aren’t in the European Union though they’re nearby. You surely noticed that there’s no date in the postal meter. If a timeliness depends on the date the IRS mailed such a letter, guess who can’t meet the burden of proof.

      The IRS’s disregard for Form 8822 is old news.

  2. Norman Diamond says

    A Tax Court judge can contradict himself within a single order. For example H and W are joint filers and petitioners, but the IRS issued a notice only to H, Tax Court rules that it lacks jurisdiction over W because W isn’t bound by the IRS notice, but Tax Court expects W to be bound by the Tax Court order even though Tax Court also only issues its notice only to H.

    A District Court judge can contradict herself within a single ruling. For example when a Tax Court case considered two issues A and B, the District Court asserts jurisdiction to issue an order contradictory to the Tax Court’s order on A but claims to lack jurisdiction on B. (The Tax Court case was not a deficiency case so statutes don’t diminish District Court jurisdiction at all.)

    Also see Tax Court rule 31(c).

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