October 2022 Digest

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October’s posts highlighted information shared at the Tax Section’s fall meeting. Additionally, many posts sought or identified solutions to current and longstanding problems, such as lengthy IRS hold times, lengthy Tax Court dispositions, the perpetuation of false narratives and concerns about state-based tax administration.

“The Dark Net? We OWN the Dark Net.” -Charles Rettig, IRS Commissioner, ABA Tax Section Meeting: During Commissioner Rettig’s speech at the fall meeting, he provided examples of the work the IRS does to protect and serve Americans by fighting fraud, terrorism, exploitation, and trafficking. He also called out tax practitioners for failing to defend the IRS from false narratives. His speech inspired the author of this post to conclude that it’s in everyone’s best interest to support, fund, and work to improve the IRS.

Updates from the ABA Tax Section 2022 Fall Meeting: Court Procedure & Practice: The Court Procedure & Practice Committee discussed recent Court developments during one of its panels. The Court continues to receive a high volume of petitions but is closing more cases than it’s opening; it will no longer scrutinize late filed CDP petitions after Boechler; and trial sessions are mostly back in person but can be remote at a Judge’s discretion or by order of the Chief Judge.

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APA Developments

Harper v Rettig Update: Government Petitions For Rehearing: The government filed a petition for rehearing in Harper v. Rettig. At issue is the relationship between the APA, Section 7609, and challenges to the IRS’s summons power. The government argues that Section 7609 is the exclusive means to challenge the summons power and the lower court should consider whether that creates alternative grounds to dismiss the case for lack of subject-matter jurisdiction.

Taxpayer Seeks Supreme Court Review in Oakbrook Land Holdings v Commissioner: The Supreme Court may choose to expand upon when and how extensively an agency must respond in the comment process. This post reviews the APA notice and comment issues relevant to the circuit split in Oakbrook and Hewitt and touches on APA challenges arising in other areas.

Appeals Removes Challenges to Validity To Regs or IRB Guidance From Hazards of Litigation Analysis: In response to an increasing number of APA-related challenges, the IRS announced that Appeals is not to take into account the validity of regulations or IRB guidance when assessing the hazards of litigation. Practitioners and academics are concerned about the negative effect this constraint on Appeals’ independence may have on tax administration, but on the other hand, Courts may be the most appropriate venues for these complex questions.

Issues Related to Return Filing

The Stain of Fraud and Amended Returns: Gaskin involves a fraud penalty for a taxpayer who filed an amended return to report the income he omitted on his original return. The taxpayer argues that the fraud penalty is not justified because his amended returns were not fraudulent. The Court held the subsequent filing of an amended return after an audit begin does not purge the original fraudulent filing or the taxpayer’s fraudulent intent.

Lesson From The Tax Court: Don’t Confuse Dummy Returns With Substitutes For Returns: In the case of a non-filer, the IRS can issue a Notice of Deficiency or prepare a Substitute for Return. Each process has its own consequences, including that a failure to pay penalty can only be assessed on an SFR. The history, law, and rules of each process are discussed in this post along with a recent and relevant Tax Court decision.

Supreme Court Updates

Supreme Court Update for Taxes and the October 2022 Term: The Supreme Court will hear five tax-related cases during the term that began earlier this month. Three of the cases relate to issue of jurisdiction and equitable tolling and one relates to the calculation of the FBAR penalty.

Another Tax Case Headed for a Supreme Court Decision: The fifth tax-related case the Supreme Court will consider involves the question about the types of information that can be shielded when there is a combination of privileged (attorney work product) and non-privileged (tax return preparation) documents.  

Circuit Court Updates and Decisions

Anti-Injunction Act Does Not Bar Defendant Taxpayer’s Motion to Prevent Government From Using Discovery Admissions In Later IRS Proceedings: In U.S. v. Myer the 11th Circuit considered whether the AIA prevents a defendant from moving for a protective order to restrain the government from using discovery admissions when assessing a tax penalty in a separate proceeding. Finding for the defendant, the Court reversed the district court and found that the AIA did not apply because “moving for a protective order in an action filed by the government does not amount to maintenance of a ‘suit.’”

Federal Rule of Appellate Procedure 28(j): The IRS requested that the 9th Circuit reconsidered its decision in Seaview due to an order issued in Dollarhide. It used an Appellate Rule 28(j) letter to bring the Court’s attention to the order. The order involved the question of whether a tax return provided to a revenue agent constitutes a filing, but Seaview argues there’s a distinction between the filing options available for timely versus untimely filed returns.

Second Appellate Case on Whether IRC 6213(a)’s Deadline is Still Jurisdictional and First Tax Court Case Involving IRC 6015(e)(1)(A): Carl provides an update on equitable tolling litigation in this post. In addition to Hallmark and Culp, a new appellate case involving a deficiency petition has emerged and the taxpayer has a COVID-related basis for missing the filing deadline. Meanwhile, the Tax Court is deciding a case about whether the deadline to file a stand-alone innocent spouse petition is jurisdictional and has invited amicus briefs on the issue.

Getting to Appeals: In Rocky Branch Timberlands LLC the right to go to Appeals in a conservation easement case was brought before the 11th Circuit. The IRS denied petitioners the right to go to Appeals because petitioners were initially not cooperative in agreeing to extend the assessment statute. The 11th Circuit dismissed the appeal because the appellants failed to file a Civil Appeal Statement form within the required time frame. Still the petitioners may not have been successful on the merits due to a similar case in the 11th Circuit that was recently dismissed.

Tax Court Decisions

Immunity: The Petitioner filed a motion for immunity on behalf of expert witnesses in Oconee Landing Property LLC. The petitioner wants to admit the testimony of the experts who appraised the easements in the case while protecting them from self-incrimination. The Court denied the request holding that it lacks jurisdiction to grant criminal immunity as the power resides solely with U.S. District Courts upon the request of the applicable U.S. Attorney.

What Happens When the Tax Court Petitioner Dies: The daughter of the deceased taxpayer in Sander petitioned the Court on her mother’s behalf when a notice of deficiency was issued after her mother’s death. The Court finds she does not have the authority to act on behalf of her mother’s estate but allows the opportunity for a probate action to be commenced. When a death occurs after a petition is already filed, the Court allows for a substitution of parties.

Miscellaneous Updates and Information

State Taxpayer Rights Protections – Some Highlights & a Free Online Workshop Series: The preliminary results of a state-based survey conducted by the Center for Taxpayer Rights has revealed encouraging statistics and some concerning trends. The Center has used the data to begin to identify best practices and areas that would benefit from advocacy. More will be discussed during the Center’s Reimagining Tax Administration: State Tax Practices & Taxpayer Rights series which began in October. 

Debts Owed by Insolvent Taxpayers to the IRS: The Federal Priority Statute provides that when a person indebted to the United States is insolvent and engages in some action that threatens the government’s ability to collect its debt, or when a deceased debtor dies and the property of the estate is insufficient to pay all their debts, the claim of the United States is to be paid first. There are circumstances in which a fiduciary can be held personally liable for failing to pay the U.S. in full. There are also protections when the debt is tax debt and judicially created exceptions in other circumstances. There are many rules in this area and professionals dealing with insolvent debtors or estates should be familiar with them.

Inflation and Tax Procedure: The IRS recently issued Rev. Proc. 2022-38 to advise the public of the inflation adjusted applicable numbers starting in 2023. The dollar amounts of property exempt from levy, seriously delinquent tax debts, and the hourly limitation for attorney’s fees have all increased.

The IRS Strikes Back Against Robocalls: The IRS has rolled out a pilot program for the Practitioner Priority Line that uses artificial intelligence to prevent phone line cutting services to combat lengthy hold times. If the IRS is successful, the pilot will be expanded and will benefit individual taxpayers as well as practitioners without enough money to pay for the robocall service.  

It is Time To Take Remedial Steps To Improve The Timeliness of Tax Court Dispositions: This editorial post calls out the significant delays for some Tax Court dispositions and asks the Court to correct the problem. It identifies ways that Court can consider remedying the issue, including tracking data, hiring more judges, or better managing existing judges. It also suggests that Congress can act to require the Court to publicly disclose certain information to put some pressure on the Judges who take longer amounts of time.

Samantha Galvin 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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