February 2022 Digest

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Hot topics covered by Procedurally Taxing in February included recommendations about how IRS can best move forward, changes the IRS is already implementing, and court decisions that reflect shifting views about a court’s jurisdiction when an informal refund claim is defective or absent.

Recommendations to the IRS

How Did We Get Here? A New Series …: A new series plans to explore the root causes of current IRS problems and envision what the future of our tax system could look like. This introductory post hints that the series will include recommendations for ways the IRS can better utilize the resources it already has, instead of continuing to use a lack of resources as justification for poor organizational performance.

How Did We Get Here? 2-D Barcoding and the Paper Return Backlog – A Missed Opportunity: The NTA began recommending that the IRS use 2-D barcoding as a means of increasing efficiency in the processing of paper returns as early as 2004. If this recommendation had been implemented at any time prior to the pandemic, it would have significantly reduced much of the IRS’s current backlog. The IRS has finally expressed interest in the idea, but issues still loom as Chief Counsel recently concluded the IRS cannot require tax software developers to include barcodes on computer-prepared returns.

Washington Post Editorial With Suggestions for Immediate Ways to Help IRS: This post links to a Washington Post Editorial by Nina titled, “Five Ways to Fix the IRS, Starting with a Halt to Most Audits.”

Current and Future Changes for the IRS

“Empowering” Taxpayers: Reflections on the IRS Strategic Plan Annual Review: The “Putting Taxpayers First” report focuses on the IRS’s larger goals and its strategic plan for accomplishing them. This post looks at the IRS’s wins, losses and ambiguities in accomplishing the first of ten goals, which is “to empower and enable all taxpayers to meet their tax obligations.”

Facial Recognition Is No Longer Coming: Due to privacy and civil rights concerns, the IRS is abandoning its plans to require facial recognition to verify taxpayer accounts and access tax information online.

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Causing Less Work for Themselves and Others: In order to focus efforts on digging out of the pandemic backlog, the IRS has decided to suspend notices in the collection notice stream, including the section 6331(d) notice of intent to levy, among others. This has the effect of delaying collections and potentially creates some opportunities for improvement.

The Taxpayer First Act’s Legacy: What Comes Next: The Taxpayer First Act requires the IRS to provide a Comprehensive Customer Service Strategy, which includes a Taxpayer Experience Strategy. The IRS plans to utilize technology to create a fully digital CAF, improve phone service, and use artificial intelligence to enhance the taxpayer experience.

Making Offers in Compromise Public: TIGTA has suggested that the IRS should make accepted offers available online to provide a meaningful method for public inspection as required by section 6103(k)(1), but unless and until that happens, this post examines the other ways available to inspect offers. In Epic v. IRS a non-profit organization succeeded in having the district court order the IRS to disclose information about all accepted offers relating to the past or present tax liability of Donald Trump pursuant to a FOIA request.

Tax Court Recommendations

DAWSON Continues to Evolve: New features are being added to DAWSON, but the Tax Court disappointingly continues its practice of only making documents generated by the Court (such as, orders and opinions) available online.

Pro Se Petitions in Tax Court: According to the NTA Report, last year 86% of Tax Court petitioners were pro se. This post looks more closely at recent pro se precedential opinions. It also requests that the Court actively seek amicus briefs when it encounters precedential cases brought by pro se petitioners. Doing so would allow the Court to consider meaningful legal arguments from both sides before establishing precedent.

Practitioner and Taxpayer Considerations

Attorneys Behaving Badly: The Tax Court’s press release about suspensions and disbarments was published shortly after the 9th Circuit decided a case involving a former IRS Counsel attorney who committed tax evasion. In United States v. Orrock the statute of limitations to bring criminal prosecution was at issue. Unlike the unlimited assessment statute in the civil context, a limited criminal prosecution statute begins to run on the date of the filing but also begins to run again on the date of each additional affirmative act of evasion.

No Reasonable Cause When Tax Return Preparer Fails to E-file Extension: In Oosterwijk v. United States, the petitioners were not entitled to reasonable cause penalty relief for filing late when their preparer first failed to request a timely extension and later provided them with incorrect advice. The post highlights interesting reasonable cause issues, the divisibility of penalties, the limits of the IRS’s First Time Penalty Abatement policy, and more.

Honest Mistakes Happen, But a Two Million Dollar Difference in Mortgage Interest Will Likely Trigger An Accuracy-Related Penalty: In Busch v. Commissioner, the petitioners were not entitled to reasonable cause penalty relief for an accuracy-related penalty when the tax software they used allegedly converted a number from thousands to millions. The Court finds their mistake was not caused by the tax software, but rather by their failure to carefully review the return. The post further explores whether reliance on tax software could ever insulate a taxpayer from penalties.

Circuit Court Decisions

Two Recent Circuit Level Decisions Appear to Dispute View That the Refund Claim Filing Requirement is Jurisdictional (Part 1): In Morton v. United States,the petitioner appealed the district court’s finding that it lacked jurisdiction because the petitioner had not filed a return before suing. The Third Circuit held that the district court had jurisdiction because the section 7422(a) requirement to file a predicate administrative refund claim is not jurisdictional.

Two Recent Circuit Level Decisions Appear to Dispute View That the Refund Claim Filing Requirement is Jurisdictional (Part 2): The Supreme Court’s decision in Lexmark Int’l, Inc. v. Static Control Components, Inc. clarified that statutory standing defects do not implicate a court’s jurisdiction. This has caused other courts to reexamine their precedent in this area. In Brown v. United States, the Federal Circuit held that the duly filed requirement in section 7422 serves a claim processing rule rather than a jurisdictional requirement. Other relevant cases are also discussed in this post.

Two Circuits Sustain Tax Court’s Inability to Grant Requested Relief: In the Second Circuit case of Ruesch v. Commissioner, the Court sustained the Tax Court’s finding that it did not have jurisdiction to determine an underlying tax liability in a passport revocation case. In the Fourth Circuit case of McLane v. Commissioner, the Court sustained the Tax Court’s finding that it did not have jurisdiction to order an overpayment refund in a Collection Due Process case when the IRS withdrew its notice of federal tax lien. Both cases, however, left open questions about the limits of the Court’s authority which are further considered in this post.

11th Circuit Remands Willful FBAR Penalty Case Back to IRS Due to APA Violation: The role of the Administrative Procedure Act (APA) in FBAR penalty cases is discussed and highlighted in this post about the decision in United States v. Schwarzbaum. In his appeal, the petitioner argued that the IRS’s actions in calculating the penalty were not in accordance with the law.The APA empowers the 11th Circuit to examine whether the IRS’s calculations should be sustained because the FBAR penalty falls under Title 31. This is different from Title 26 penalty cases where the APA does not provide a means for the Court to examine IRS conduct in the same way.

District Court and Claims Court Decisions

District Court in Rewwer Holds Improperly-Signed Timely Forms 843 Can be Informal Refund Claims: This post examines five opposite or contradictory recent decisions involving informal claims that were not properly filed, including the decision in Rewwer v. United States. Rewwer involved a misfiled (on the wrong form with the wrong person signing and verifying) refund claim that was later corrected and held by the district court to be an informal refund claim. The petitioners in the other cases did not get as far.

CFC in Dixon Holds Improperly-Signed Timely Forms 1040-X Cannot Be Informal Refund Claims: The Claims Court in Dixon v. United States helds that the Court lacks jurisdiction in a case involving a defective informal refund claim. This post more closely analyzes the inconsistency of this holding in light of the Federal Circuit decision in the Brown (discussed above).

Low Income Taxpayer Clinics

How a Low Income Tax Clinic Can Help You and Vice Versa: This posts educates readers about Low Income Taxpayer Clinics and encourages practitioners to refer clients and volunteer. The LITC Support Center and LITC Connect are new resources developed by the Center for Taxpayer Rights to help connect LITCs with tax practitioners interested in volunteering.

Bankruptcy and Taxes

The Train Tracks: This post highlights the importance of considering the benefits of certain tax attributes before filing for bankruptcy. In Chow v. Lee a married debtor’s decision to individually file for bankruptcy resulted being required to forgo net operating losses on his joint returns. The post contemplates possible options available to the parties and goes on to separately discuss another aspect of the Court’s analysis of circumstances that are common among modern families.

Discharging Student Loan Debt: In Wheat v. Great Lakes Higher Education Corp the Department of Education lost its motion for reconsideration and the Court highlighted exactly what is required in order to have student loans discharged in bankruptcy.

A New Twist on What Constitutes a Tax Return: The debtor in Sienega v. Cal. Franchise Tax Bd. argued that the bankruptcy court should treat his audit report from the IRS, which he faxed to the California Franchise Tax Board, as his state tax return to allow him to discharge his state tax liabilities. He never filed an actual state return and the Ninth Circuit concludes that the audit report is not a return under the Beard test. The debtor had a decent point in that the audit report allowed the state to assess the tax and gave it adequate time to collect before the bankruptcy was filed, but the state tax debt could not be discharged.

Career Opportunities

Villanova Graduate Tax Program Looking To Hire A Professor of Practice/Faculty Director: Villanova has launched a national search for a new Faculty Director for its Graduate Tax Program. The position is posted here.

About Samantha Galvin

Samantha Galvin is an Associate Professor of the Practice of Taxation and the Director of the Low Income Taxpayer Clinic (LITC) at the University of Denver. Professor Galvin has been teaching full-time at the University of Denver since October of 2013 and teaches courses in tax controversy representation, individual income tax, and tax research and writing. In the LITC, she teaches, supervises and assists students representing low income taxpayers with controversy and collection issues.

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