From 7 designated orders last week, this post focuses on 3 orders of interest. One may need to address a split of authority, one may need jurisdiction to revise a decision for an agreement between the parties, and a third deals with the death of a nonrequesting spouse in an Innocent Spouse case.
A Jackson Split?
Docket # 17152-13, Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor v. C.I.R. (Order Here)
Slotted in the middle of a designated order that also deals with a joint stipulation of facts and whether specific information or exhibits needs to be sealed is an issue that could have greater implications. In the case dealing with the tax liability of Michael Jackson’s estate, the Tax Court addressed implications of the recent Second Circuit opinion of Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017).
To summarize, there are disputes about the fallout from the Second Court opinion in Chai and whether that will triumph over the Tax Court opinion in Graev v. Commissioner, 147 T.C._ (Nov. 30, 2016). The designated order in Estate of Michael R. Jackson cites the two cases concerning a difference of opinion regarding whether certain requirements are imposed on the IRS under IRC 6751.
The Graev conclusion was “that the statute [IRC 6751] imposes no particular deadline for the IRS to secure the required written approval before a penalty is assessed.”
In preparing for the trial in the Estate of Michael R. Jackson case, the Commissioner potentially provided a copy of the administrative approval of valuation penalties to the Petitioners. However, no copy of the form made it into the record at trial.
read more... Following trial, the Second Circuit rejected the conclusion in Graev. They replaced it in Chai with a holding that “compliance with IRC 6751(b) is part of the Commissioner’s burden of production and proof in a deficiency case in which a penalty is asserted.” At this point in the Jackson case, the Commissioner certainly wants the approval form in the record and the P objects. Unless the parties agree before the time the third stipulation is due (on or before 6/30/17), a motion would be necessary to reopen the record. The Court will want the motion briefed and it would likely lead to an opinion. The Court ordered that on or before 7/13/17 the Commissioner shall file any motion to reopen the record to include evidence relevant to their compliance with IRC 6751. Petitioners shall file a response to that motion on or before 8/3/17. Then, the Commissioner shall file a reply to that response on or before 8/17/17. It thus looks like Michael Jackson’s estate may lead to something more than celebrity gossip. The Tax Court case may be the next judicial step regarding a split of opinion regarding the burden of proof on the IRS under IRC 6751. Jurisdiction Needed? Just Add Rogers Docket # 7390-10, John E. Rogers & Frances L. Rogers v. C.I.R. (Order Here) While a decision in Rogers was finalized on April 3, 2017, that decision may not be so final. The IRS brief to the Court of Appeals stated that computational errors resulted in a $134,000 overstatement of Rogers’s taxable income, deficiency and penalties. While the IRS recommended remanding the case to correct that overstatement, the Court of Appeals affirmed instead of remanding. The Tax Court ordered the parties submit a joint status report regarding further proceedings. In their 2/15/17 joint status report, it states that the IRS is recomputing the deficiency and that the Rogers spouses will review the computations. A joint status report filed on 6/13/17 stated that the IRS recomputed the deficiency and the petitioners agreed with the new computations. However, no motion to vacate or revise the decision was filed under Rule 162 by 4/3/17. Since the decision became final on 4/3/17, it is unclear to the Tax Court what their jurisdiction is for revising the decision. Since the IRS will process the credits to the account for the petitioners for tax year 2004 in order to effectuate the corrections, that potentially makes the jurisdictional issue moot. The Tax Court ordered that if either party wishes to file a Rule 162 motion to vacate or revise the decision, that the party should do so (with a motion for leave to file out of time) no later than July 14, 2017. The motion for leave should explain how the Tax Court has jurisdiction to revise the decision. If neither party files such a motion, the case will remain closed. While the parties are in agreement, the Tax Court finds that their hands may be tied. While they want the record to reflect the agreement of the parties, it is interesting that the Tax Court looks to the parties for jurisdictional help on how to revise their decision since time likely ran out. Don’t Forget the Heirs and Beneficiaries Docket # 19277-16, Alison Turen v. C.I.R. (Order Here) Normally in an Innocent Spouse case, the IRS files a copy of the notice of the filing of the petition that they served on the other individual that the Petitioner filed joint returns with for the tax years before the Tax Court. In other words, the Petitioner files a petition with Tax Court regarding an Innocent Spouse case and the IRS is to send a copy of the notice of the filing of the petition with the other spouse from the joint tax returns in order to give that spouse the right to intervene in the Tax Court case. What happens then when the other spouse has died? In the Turen case, the IRS did not file the notice since the petition states that the other spouse is deceased. The Tax Court stated in their designated order that the death of that spouse does not relieve the IRS of their responsibility for providing notice. Fain v. Commissioner, 129 T.C. 89 (2007) provides that the right of intervention belongs to the decedent’s heirs or beneficiaries, based on procedures outlined in Nordstrom v. Commissioner, 50 T.C. 30, 32 (1968) to ascertain the heirs at law of a deceased non-petitioning spouse. The Tax Court order was that the parties are to identify on or before June 30, 2017 the heirs at law of the decedent nonrequesting spouse and on the same day to provide a joint status report to the Court of the heirs at law identified. They are also ordered that on or before July 14, 2017, the IRS shall submit a Notice of Filing of Petition and Right to Intervene served on the heirs at law or file a response stating the reasons for not doing so.
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