Quick Thoughts on Procedural Aspects of Camp’s Tax Code Overhaul Proposal and the Spate of Important Interest Cases

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Representative Camp’s Major Legislative Proposal 

There are over 979 pages of legislative text associated with just-released Ways & Means Chair Camp’s proposal to overhaul the tax code.  The proposal is far-reaching and has been getting lots of coverage, mostly looking at the major individual and business tax changes. On the individual side, some of those changes include ending the deduction for state and local sales taxes, and cut backs to some sacred cows of tax expenditures like home mortgage interest and the exclusion for employer provided health insurance.

Not getting nearly as much attention as other provisions in the plan are some of the procedural proposals. The Joint Committee has a separate summary of the procedural provisions—that link is here.

There are four main categories of procedural changes:

  1. Changes Relating to the IRS Scandal of the Past Year
  2. Taxpayer Protection and Service Reforms
  3. Tax Return Due Date Changes
  4. Compliance Reform
read more...

From a quick look, some in the first category are of the partisan variety, such as a provision specifically requiring a moratorium on IRS conferences.

However, there are many other serious and important proposals peppered throughout the procedural provisions, including some provisions floated previously, like changes to the due dates of some tax returns. Compliance reforms include a beefing up of penalties for failure to file returns and information returns.

In what looks like to be a nod to the tax software lobby, under the category of taxpayer protections the proposal specifically prohibits the IRS from sending prepopulated (or ready returns) except in limited circumstances.

And, what would legislation be without thinking of ways to penalize EITC claimants? The legislation provides for a legislative reversal of Rand and would treat disallowed EITC that is in excess of a tax liability as an underpayment for purposes of the accuracy-related penalties. For good measure, it also provides that the special 6676 penalty for improper refund claims is applicable to the EITC.

Proposed procedural tax legislation proposals are kind of like warts; they stick around, maybe disappear for a while, and then come back at you.  We too will come back to some of these proposals in later posts.

Interest

Steve and I are working on the rewrite of the interest chapter (Ch 6) in the Saltzman and Book IRS Practice and Procedure book. The updated chapter is coming out in a few months. I must confess that interest is one of the areas that I have not paid close attention to until this rewrite. We have, of course, updated the book to reflect developments, and over the last few months in the blog we have written about some major cases involving interest. For example, last month in Corbalis v Commissioner: Tax Court has Jurisdiction to Consider Interest Suspension Decisions, we discussed the Tax Court’s decision to essentially disregard an IRS revenue procedure that concluded that the Tax Court could not hear interest suspension disputes under Section 6404(g).

Late last year in Ford v US: Supreme Court Weighs in on Lower Court Jurisdiction in Interest Disputes we discussed the challenging statutory interpretation issues underlying the Supreme Court’s remand of a case to determine whether Court of Federal Claims rather than district courts should have jurisdiction to hear  overpayment interest disputes (the merits of that case revolve around when overpayment interest arises—Ford said it runs from the date of the deposit and IRS said it ran from when Ford requested that the deposits be treated as tax payments).

Just the other day in the weekly Summary Opinions Steve highlighted the Deutsche Bank case where the Court of Appeals for the Federal Circuit held that the taxpayer’s corporate return was not processible and thus would not trigger overpayment interest due to its failing to include forms that verified the bank’s withholding tax credits.

In researching for the rewrite, we came across an excellent summary of some of the major pending interest cases that Bob Probasco and Mary McNulty of Thompson and Knight have put together and posted here on the T and K Tax Knowledge Blog. Mary and Bob and a couple of others also wrote a good article back in 2005 considering some of the challenges associated with interest computations. A link to that article is here.

 

About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Comments

  1. There is also a provision in the bill to overrule Home Concrete — effective also for past years where the SOL under 6501 is still open.

    Frankly, I have called in writing for the prospective fix of the Rand issue, so I don’t object to the proposed addition by bill section 6306 to IRC section 6664(a) of the sentence: “A rule similar to the rule of section 6211(b)(4) shall apply for purposes of this subsection.” Section 6211(b)(4) adds the excess of refundable credits over the tax liability as a negative amount of tax in computing the section 6211(a) deficiency. But, I would take huge exception to the effective date for this change. The changer is to be effective for “(A) returns filed after February 26, 2014, and (B) returns filed on or before such date if the period specified in section 6501 of the Internal Revenue Code of 1986 for assessment of the taxes with respect to which such return relates has not expired as of such date.” I think that a retroactive expansion of the penalty base would violate Due Process. This is not merely a retroactive change in an income tax provision, which would probably be OK under current Supreme Court authority, such as the Carlton opinion. But, it would constitute an expansion of a penalty.

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