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March 2023 Digest

Posted on Apr. 3, 2023

The upcoming 25th Anniversary of the passage of RRA ’98 was a focus of PT posts in March and provided for meaningful opportunities to reflect and make recommendations. A three-part series highlighted a problem that exists for many taxpayers whose returns contain duplicate tax identification numbers. There also were notable developments with respect to equitable tolling litigation, time-barred APA claims, and nominal refund claims; and we shared a thing or two about the benefits of being a Tax Court judge.

Reflections and Recommendations

Join the Center for Taxpayer Rights for a Tax Chat! with former IRS Commissioner Charles Rossotti on 23 March 2023: CTR’s virtual Tax Chats! titled Transforming Tax Administration Toward and Effecitve, Trusted, and Inclusive IRS launched in March. The Tax Chats! will continue over the spring and summer of 2023 and there will be in an in-person and virtual day-long conference in September. The first chat was with a Charles Rossotti, former IRS Commissioner, about his experience modernizing the IRS in the context of RRA 98.

Looking back and looking forward: The National Commission on Restructuring the IRS: Armando Gomez, former Chief Counsel to the National Commission on Restructuring the IRS, provides his perspective on the past and future of the IRS. He advised Co-Chairs of the Commission as they developed a bipartisan report 25 years ago which laid out a vision to transform the IRS into a responsive service organization. He emphasizes the importance of filling key (and currently unfilled) presidentially appointed tax positions. He notes that the tax world’s focus on the APA is a remarkable change. He suggests greater use of alternative dispute resolution and reporting requirements to hold the IRS to a higher standard. The illuminating and thought-provoking post goes on to provide many more reflections and recommendations.

Simplicity Lost: RRA 98 embraced tax simplification as a real possibility but this possibility faded over time. The legislation required the IRS to analyze the sources of complexity in federal tax law and annually report its analysis to Congress. The JCT was also tasked with providing regular reports on the state of the tax system and a tax complexity analysis for all proposed tax legislation. Congress was to seek information from IRS front-line technical experts during the tax legislative process. These requirements and obligations faded away with time and changing administrations but looking at the history of this may be instructive for future simplicity attempts.

Federal Employee Tax Compliance: A recent TIGTA report that revealed the IRS is lacking in its efforts to collect from non-IRS federal employees who should be easy targets. It also demonstrates a bigger issue that section 1203, which targets only IRS employees, is too narrow. The report focuses on what the IRS should do to address the non-compliance of federal employees, but Congress could also consider broadening section 1203 to apply to all federal employees with respect to its timely and non-fraudulent filing requirements.  

Procedural Problems

A three-part series by Justin Schwegel highlights the issues that the IRS’s duplicate taxpayer identification number (or “DUPTIN”) screening procedure can create. The IRS rejects and freezes the refund of an electronically filed return because it lists TINs (primary, secondary, or for dependents) that were already listed on earlier filed return for the same tax year. The purpose is to allow the IRS to prevent fraud and improper claims, but it can cause taxpayers to experience delay, confusion, and economic harm.

DUPTIN Part I shares hypothetical case studies that demonstrate examples of the harm, the knowledge hurdle, and subsequent procedural obstacles caused by the DUPTIN process.

DUPTIN Part II. further describes the process and highlights three exceptions that exist which prevent the IRS from automatically rejecting a return even though it contains a duplicate TIN.

DUPTIN Part III. looks at the real world impacts the process can have on taxpayer’s lives (especially victims of domestic violence) and the inequities caused by the process’s inability to discern proper claims from improper claims. It makes suggestions for how the process could be improved with an emphasis on fairness for all parties involved.

Equitable Tolling Developments

Oral Argument in Culp v. Commissioner: The livestream and recorded links to the oral argument in Culp are shared. As a quicker refresher: the case is in the Third Circuit Court of Appeals and involves an equitable tolling argument made for a deficiency deadline and the Center of Taxpayer Rights has filed an amicus brief.

DOJ and Another 3d Cir. Panel Muddy Waters as to Source of Tax Court’s Deficiency Jurisdiction: The Skolnick Court relied on a DOJ brief to conclude that section 6214(a) gave the Tax Court jurisdiction in a case not involving an increased deficiency. This contrary to the government’s position in Hallmark and Culp which is “that 6214(a) is only the source of the Tax Court’s jurisdiction to redetermine deficiencies in excess of those set out in the notice, while I.R.C. § 6213(a) is the source of the Tax Court’s jurisdiction to redetermine deficiencies to numbers equal to or below those set out in the notice.” This inconsistency may influence the judges in Culp, because “if the jurisdictional grant is held to be in I.R.C. § 6214(a), then Congress has separated the filing deadline from the jurisdictional grant – triggering the Supreme Court’s instruction to treat the filing deadline as not jurisdictional.”

Equitable Tolling Case Moving Forward in Tax Court: The Court denied the IRS’s motion for summary judgment in Amanasu Environment Corp. It is CDP case involving a Canadian Corporation that received its notice of determination seven days after the 30-day window to file a Tax Court petition potentially because Vancouver was spelled Vanclover on the letter. The Court made some interesting and telling conclusions that suggest what the future of equitable tolling cases, including this one, could look like.

Refund Claims

Joint Committee Review of Refund Cases: Section 6405(a) provides that the IRS cannot pay a refund of more than $2,000,000 until 30 days after it submits a report to the JCT for review. If the JCT finds a problem with the proposed refund, it outlines its concerns in a Staff Review Memorandum (SRM). The post goes on to share reports from 2021 and 2022 about these cases and a link to an overview from the JCT about the process. Understanding the process can ensure that any request for refund over $2 million includes all the necessary information and support.

Nominal Refund Claims: PMTA 2023-001 reveals the IRS’s non-binding perspective on filing of a $1 claim before the refund statute of limitations expires to protect the claim. The advice concludes that a nominal claim will not protect a taxpayer. It also distinguishes nominal claims from protective claims suggesting that a later filed claim will not be treated as an amendment or supplement to an original claim if it requires the IRS to investigate new matters not disclosed by the investigation of the original claim.

Husband Who Paid Wife’s Taxes Finds it’s Not Easy to Sue For a Tax Refund: In Roman v. United States, an ex-husband received the family home as part of divorce settlement and was required to pay any taxes associated with the sale of his ex-wife’s share to him. His ex-wife reported the proceeds without applying the exclusion available under section 121. After meeting with the IRS, the ex-husband paid and later sued for a refund in District Court arguing that due to the exclusion, the amount of tax he paid was not really owed. The CFC said it had jurisdiction over the third-party refund claim. The Court of Appeals reversed citing the Supreme Court in U.S. v. Williams, but instead held that the CFC had jurisdiction under the Tucker Act because the tax was paid under duress. This result raises some questions and future issues which are pondered by this post.

Tax Court Developments

Where is the Tax Court located?: Dueling concurring opinions in a recent Court of Appeals for Veterans Claims case, Prewitt v. McDonough, discussed how to property situate the Tax Court. This question has been raised in PT posts many times and existing case law has oscillated between the Tax Court being part of the judicial or executive branch. Some of those cases, namely Freytag, Kuretski, and Battat, are analyzed by the concurring opinions.

Tax Court Rule Changes: The Tax Court published changes to its rules, as well as a discussion of some of the comments it received about the proposed changes. The post closely examines the rules related to electronic filing, access to the Court’s records, and new amicus provisions, along with the discussion of comments made by Harvard and others about these rules.

What Does It Mean When Former Judge Kroupa Shows Up as Senior Judge Kroupa in the Tax Court’s Report to Congress: Criminally convicted and retired Judge Kroupa is listed as a senior judge in the Tax Court’s recent budget justification report. Keith investigates the reason why and his questions to the Tax Court about it leads him back to section 7447. The post provides an interesting look at the benefits of being a Tax Court judge.

Tax Court Decisions

Tax Court Denies Attorney’s Racing Car Costs Claimed To Be Advertising Expenses For Legal Practice: The Tax Court sustained a denial of over $300,000 of advertising expenses paid by a lawyer-taxpayer for race car activities during 2008–2013 in Avery. The case was in Court on a CDP petition, but the taxpayer was successful in demonstrating that he did not have a prior opportunity to dispute the liability. Even so he was unable to show that he actually generated business from race car driving and using it as a “conversation starter” with professional contacts was not enough to justify it as a business expense.

Precedential Passport Case: The Court in Adams readopts its position in Ruesch (a case vacated at the circuit level for reasons not related to its underlying analysis), which is that the Court lacks the ability to redetermine the amount of a taxpayer’s liability in a passport revocation case. The Court can only confirm that assessments existed at the time of the revocation referral, rather than determine their correctness. A taxpayer is not deprived of the right to international travel when the IRS sends the passport revocation letter, and the Tax Court lacks jurisdiction to review the State Department’s ultimate determination.

District Court Decisions

Out of Time: The Government (Mostly) Wins at the District Court in Govig: For the first time ever, the Court considered the six-year time bar for APA claims in a tax case and dismissed two of three claims. The case provides clarity on how to distinguish between earlier-accrual and later-accrual cases using the Wind River Doctrine. According to the doctrine, the right of action “accrues at the time of rulemaking for claims relating to procedure contemporaneous with rulemaking, but accrues later, at the time the rule is applied, for claims that the substance of agency rulemaking violates the Constitution or exceeds the bounds of the authorizing statute.” The case also analyzes the application of Mann Construction, the Anti-Injunction Act, and more as described in the post.

Jurisdiction of District Court in Innocent Spouse Case: The trial section of DOJ Tax Division sought to dismiss Viktoriya Korleshchuk-Petrie due to lack of jurisdiction under FRCP 12(b)(1) and failure to state a claim under FRCP 12(b)(6). The DOJ’s argument is that a refund based on 6015(f) relief is discretionary and so it is not subject to judicial review by the District Court, unlike (b) or (c) relief which provide for mandatory relief if the provisions are met. The case is represented by Harvard’s Tax Clinic. The post delves into the various arguments made by the DOJ and links provide even more details, but the Court’s ultimate response is that dismissal is not warranted, and the case will move forward.

Court Invokes Aesop’s Fables In Denying Government’s Request For Injunctive Relief: In U.S. v. Olson, the Court denied a request for injective relief with a reference to Aesop’s Fable implying that the IRS was greedy to seek such relief in addition to having the assessment reduced to judgment. The government often requests injunctive relief when a taxpayer, like Olson, has multiple quarters of unpaid employment taxes. The government sought enjoin the taxpayers to follow the law going forward, report their compliance to the IRS, and grant the IRS the right to periodically inspect their books and records.

Government Concedes in Polish Lottery Case : This is a follow-up post to a case that PT wrote about in September involving penalties imposed for late-reported foreign gifts received by the son of a Polish lottery winner. Appeals only abated about 80% of the penalties without a clear reason for not abating all. Last week DOJ filed a status report indicating that it has conceded all the penalties, and the taxpayer will be receiving a refund soon.

Seeking a Discharge of the Federal Tax Lien: In Long, a former non-liable spouse sought to discharge a lien on property received through her divorce. The IRS turned her down and she sued in District Court and she was ultimately unsuccessful in her multiple and varied arguments to have the lien discharged. The post looks at the difference between release and discharge and the paths available to discharge under section 6325(b).

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