We welcome back guest blogger Caleb Smith who brings us the designated orders from the first week of December. Both orders he writes about this week were issued by Judge Gustafson and both have the issue of summary judgment present. As Caleb mentions, Chief Counsel attorneys must draft their summary judgment motions with care when submitting them to Judge Gustafson. Keith
Last week the Tax Court issued five designated orders. Two will not be discussed in any detail (order granting summary judgment against taxpayer that failed to respond here; order dismissing case of tax protester (arguing, among other things, that the income tax was repealed in 1939 and never reenacted, here). The remaining three orders, however, provide some interesting insights.
read more...Different Penalty, Same IRC 6751 Issue
ATL & Sons Holdings Inc. v. C.I.R., Dk. # 16288-16L (order here)
Practitioners that have been holding their breath for updates on how the Tax Court treats IRC 6751 issues can exhale… Although most of the cases we have covered deal with accuracy penalties under IRC 6662, the breadth of penalties to which IRC 6751 applies means that need not always be the case.
ATL and Sons involves a penalty under IRC 6699 (failure to file an S-Corporation Return). Note first that if this were a failure to file penalty for individual income tax return IRC 6751 would not apply. “For all we can tell” (Court’s words), “the section 6699 penalty is subject to supervisory approval under IRC 6751(b)(1).” But what is more interesting than the nuance that the supervisory approval applies on a late filed S-Corp return but not individual income tax return is the burden shifting and level of proof that applies thereafter.
The IRS has something of an up-hill battle on (quickly) winning this case because of the context in which it arises. Judge Gustafson details each issue that the IRS will need to contend with. First of all, the matter at hand is a penalty: thus the burden of production is instantly shifted to the IRS via IRC 7491(c). Second, it arises in a CDP hearing, where the IRS is statutorily directed to verify “that the requirements of any applicable law or administrative procedure have been met.” IRC 6330(c)(1). Third, the order arises from an IRS motion for summary judgment. As detailed before (here), the IRS doesn’t have the greatest track record with Judge Gustafson on summary judgment motions. So how does the IRS do this time? Not much better.
The Notice of Determination issued by the IRS includes the perfunctory language that “The Service met the requirements of all applicable laws, regulations…” etc. meant to show compliance with IRC 6330(c)(1). But it provides no further insight on how that (conclusory) statement was reached… for example, if there was a verification of supervisory approval of the penalty under IRC 6751. The Notice of Determination boilerplate language, on its own, is not enough to carry the day. The interplay of the burden of production for penalties under 7491, the supervisory approval requirement of 6751, AND the verification requirement of IRC 6330(c)(1) mean that a motion for summary judgment by the IRS is going to get a hard look by the Court.
I’d note that it appears unclear if IRC 7491 plus IRC 6751 alone would do the trick, or if the 6330(c)(1) verification requirement is the secret sauce that forces the issue of verification on the IRS… The court has not been entirely of one mind on that issue. Judge Lauber, for instance, has required that the taxpayer affirmatively raise the issue, even in a CDP hearing. See Lloyd v. C.I.R, T.C. Memo. 2017-60 (here). Special Trial Judge Leyden, on the other hand, appears to follow the Gustafson route: see denying IRS summary judgment here.
Similarly, it is not immediately clear whether the taxpayer specifically raised the issue of supervisory approval (kudos to the taxpayer, appearing pro se, if he did). The taxpayer did, at the very least, reply to the IRS motion.
In any event, the Tax Court appears to continue its streak of taking rather seriously the IRS responsibility to make sure it actually has its records straight on CDP review. “Trust us” will not work.
Odds and Ends: Possible EIC Win for Pro Se Taxpayer?
Lamantia v. C.I.R., Dkt. # 17994-17S (order here)
For purposes of determining “earned income” eligible for the earned income tax credit, amounts received while the individual is an inmate are not taken into allowed. IRC 32(c)(2)(B)(iv). We have previously seen a valiant but ultimately unsuccessful attempt by a taxpayer to argue that they were not an inmate while they were confined at a hospital under the custody of the correctional institution. Here, we see a more likely winner: that the individual was not an inmate at a penal institution while on parole.
It appears that the sole issue in this case is whether Ms. Lamantia had eligible income for the EIC, or whether it was disallowed on the “penal institution” rule. It also appears that Ms. Lamantia has produced very credible evidence (a letter from the South Carolina Department of Corrections) that shows she was in the community, on parole, for the tax year in dispute. If that is the case, I would imagine a concession from the IRS rather than a push on the legal issue: it would appear to take a pretty strained reading of IRC 32(c)(2)(B)(iv) to say that someone released in the community is an “inmate,” but I am no expert on the legal nuances of parole.
Lastly, to give credit where credit is due, the Tax Court (this time through Judge Gustafson) has continued to show its touch with pro se taxpayers. Here, the pro se taxpayer appears to have sent the Court a “motion to dismiss” with two exhibits (one being the aforementioned letter from the Department of Corrections, the other being eligible). The Court reviewed the letter, tried to ascertain the purpose Ms. Lamantia had for filing it, and re-characterized the filing accordingly –in this case, as a motion for summary judgment. Kudos to the Court for assisting the pro se taxpayer in a confusing process.
About Caleb Smith
‘First of all, the matter at hand is a penalty: thus the burden of production is instantly shifted to the IRS via IRC 7491(c). Second, it arises in a CDP hearing, where the IRS is statutorily directed to verify “that the requirements of any applicable law or administrative procedure have been met.” IRC 6330(c)(1).’
Close but not quite. Here’s what the statute says:
“The appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.”
When the requirements of applicable laws or administrative procedures have not been met, but IRS records assert that the requirements have been met, the settlement officer has done this part of her duty.
For a pro se it takes years to learn how much falsification there is in IRS records, and due process did not exist in the CDP hearing, but this particular statute seems to have been obeyed. Section 7433 doesn’t even provide any remedy when the settlement officer refuses to provide due process.
‘Judge Lauber, for instance, has required that the taxpayer affirmatively raise the issue, even in a CDP hearing.’
Again there is no due process. How would the taxpayer even know about the issue during the CDP hearing, when the IRS doesn’t reveal administrative records until it files a summary judgement motion?