Reinhart Part II – Extending the Statute of Limitations on Collection by Virtue of Being Out of Country

0 Flares 0 Flares ×

In the first post on this case I discussed the CDP and lien issues presented.  Many of those issues seemed unusual or wrong in some way.  The meat of this case, however, lies in the application of the facts to the statutory suspension available where a taxpayer removes themselves from the country for six months.  This statute extension provision presents legal issues and Ms. Reinhart’s counsel challenged the regulation interpreting what it means to remove oneself from the country.  The case also presents factual issues.  In the end the Court decided the case on the facts without resorting to an analysis of the correctness of the regulation.  In this post I will examine the law, the facts, and the burden of proof.


The burden of proof issue adds a wrinkle to the case because of the procedural setting. The question raised by Reinhart concerns how, if at all, the burden of proof on a statute of limitations issue changes when a statute of limitations issue presents itself in the CDP context.  The IRS argued that the determination letter issued by Appeals in response to Reinhart’s CDP request was subject to an abuse of discretion review.  If correct, that would change the burden of production for the statute of limitations argument.  Reinhart argued that the burden of proof/burden of production issue, like an issue where petitioner contests the underlying tax, would have a de novo review.  The Tax Court agreed with Reinhart.

CCA 2014-002 states that “Counsel attorneys should argue in Tax Court CDP cases that a determination by Appeals about the validity of an assessment, the expiration of the assessment or collection statute of limitation, or other procedural requirements for administrative collection are determinations under sections 6320(c) and 6330(c)(1) reviewable for abuse of discretion.”  The notice acknowledges that some Tax Court opinions have decided that the phrase “existence or amount of the underlying tax liability” in the CDP provisions includes arguments regarding the statute of limitations and cites to five cases.  Then the Notice lists another five cases reaching the opposite conclusion.  Because Appeals must verify the statute of limitations has not yet expired as part of statutory charge, Counsel views the statute of limitations issue as one falling under the abuse of discretion standard.

In Reinhart, the IRS could hardly have chosen a worse case to test the position taken in the notice. The normal statute of limitation had long expired before the IRS decided to reopen this case.  The statute of limitations issue presented here is not only rare but particularly fact driven.  For the Tax Court to decide that the IRS could get past a difficult statute of limitation issue because the case came to it through the CDP door seems a stretch.  In some ways the IRS position here reminds me of the position it battled in bankruptcy court for two decades.  In bankruptcy cases, debtors argued that instead of the normal burden of proof in a tax case where the taxpayer has the burden that if a tax merits argument came up in a bankruptcy case the appropriate burden applicable was not the one used for tax merits litigation but rather the one used for objections to bankruptcy claims.  The Supreme Court rejected that argument in Raleigh v. Illinois Department of Revenue, 530 U.S. 15 (2000), holding that the nature of the issue before the court, rather than the particular forum, dictated the burden of proof.

Just as in Raleigh, the important issue in Reinhart is the nature of the issue before the court.  It should not matter that the statute of limitations issue has come to the court through the lense of a CDP case.  It should not matter that an IRS Appeals employee, in addition to the IRS employee in collection, decided that the statute of limitations on collection had not expired.  What matters is that the statute of limitations issue requires the party asserting an exception to the statute of limitations must prove the exception applies to the circumstances of the case.  Letting the IRS avoid the need to prove that simply because a second IRS employee, the Settlement Officer in Appeals, agreed with the first should not control this issue.

The Tax Court laid it out in simple, direct terms. The party raising the statute of limitations has an affirmative defense but must establish a prima facie case the collection period has expired.  Once the party, here the taxpayer, establishes a prima facie case, the burden of production then “shifts to the Commissioner to prove that an exception to the period of limitations applies.”  The IRS must prove that exception and not hide behind a determination of one of its employees.  The Tax Court held that a statute of limitations argument challenges the underlying liability and therefore give a de novo rather than abuse of discretion review to this issue.

After resolving the burden issue, the Court moved on to the real issue – did petitioner extend the statute of limitations by her actions? Section 6503(c) provides that “[t]he running of the period of limitations on collection after assessment prescribed in section 6502 shall be suspended for the period during which the taxpayer is outside the United States if such period of absence is for a continuous period of at least 6 months.”  Treasury regulation 301.6503(c)-1(b) explains what the statute means by providing, “The taxpayer will be deemed to be absent from the United States for purposes of this section if he is generally and substantially absent from the United States, even though he makes casual temporary visits during the period.”

“Generally and substantially absent” does not seem quite the same as continuously absent – at least not to Ms. Reinhart. She argued that the statute was not ambiguous and should be applied based on its plain meaning which is always out of the country for a period of six straight months.  The IRS argued that “continuous” does not necessarily mean “uninterrupted.”  Both positions leave open the question of when the suspension stops.  If Ms. Reinhart did spend six straight months out of the United States after the assessment and before the running of 10 years, when would the suspension stop?   How much U.S. presence would trigger an end to the suspension?  That would have been an interesting question on the facts of this case but the Court did not get there because it interpreted that she did not meet the initial test to create a suspension.

The opinion contains seven pages (at least in my printed version) displaying Ms. Reinhart’s arrival and departure records maintained by the Department of Homeland Security. That’s a lot of trips.  The records start on January 16, 2001.  From that point until they stop on July 10, 2010, she was constantly going in and out of the country.  The IRS could have collected the liability just from the cost of the airplane tickets.  The amount of travel displayed in the opinion is impressive.  So, the issue of continuously versus generally and substantially is clearly presented by the facts of this case.

Aside from the airplane records which create significant doubt about the continuous nature of her absence overseas, the IRS had two rather significant pieces of evidence in its favor. First, Ms. Reinhart’s 2001 through 2004 joint tax returns listed a Bahamian mailing address.  Second, on August 6, 2006, “petitioner signed a declaration submitted to the U.S. District Court for the Southern District of Florida stating that petitioner and her husband lived in Nassau, Bahamas, and that the Vero Beach, Florida, residence never was intended to be their residence.”  These two pieces of evidence impressed me but did not create the same impression on the Court.

Petitioner testified that she lived in Florida throughout, reciting a fairly long list of different addresses in Florida. She said that her husband rented a furnished one-bedroom apartment in Nassau, Bahamas from September 2002 until February 2012 but she always considered herself to reside in the U.S. (except perhaps when she signed the declaration).  She explained away the use of the Nassau address as resulting from a misunderstanding of the question and that she did live in Nassau when she was with her husband and she was not asked whether she lived continuously in the Bahamas or whether she had other residences.  The Court found her testimony credible even if I am having trouble with some of it.  It found that she lived in the U.S. and her husband lived in the Bahamas.

The burden of proof aspect of the case is legally the most significant; however, the lengthy litany of facts about her obvious constant movement back and forth between the Bahamas and the U.S. makes it a difficult case from a factual perspective. As a long time government lawyer, I am troubled when people explain away statements they make under penalties of perjury when the answer does not have significance.  I understand why the Court wanted to get to a factual rather than legal result here but I find her testimony too convenient for my liking.  Had the Court gotten to the merits of the statutory language, I think she was not continuously out of the United States.  By deciding the case on a factual basis, it gets to what seems to be the right result in a way that does not require it to strike down a regulation and cause an automatic appeal.

I take away from the case that a taxpayer traveling back and forth all the time as Ms. Reinhart did will have a decent case to keep the statute of limitations from getting suspended. Even if the Court had made its decision based on her residence moving to the Bahamas and applying the language of the regulation, it might still have found that she was not generally and substantially absent.  This is a hard case to know who to root for.  The IRS appears to have done nothing for a decade with respect to a taxpayer who it knew was not a good taxpayer.  Then it makes very technical argument based on a regulation that appears suspect.  On the other hand neither Ms. Reinhart’s tax activities nor her testimony left me with a favorable impression.  Losing this liability may mean nothing if it gets a subsequent liability against her and the new liability exceeds her ability to pay or the IRS’s ability to pursue collection.  If nothing else, the case highlights a little used provision of the code for extending the statute of limitations and tees up an attack on the regulation for the next taxpayer to come along.


Comment Policy: While we all have years of experience as practitioners and attorneys, and while Keith and Les have taught for many years, we think our work is better when we generate input from others. That is one of the reasons we solicit guest posts (and also because of the time it takes to write what we think are high quality posts). Involvement from others makes our site better. That is why we have kept our site open to comments.

If you want to make a public comment, you must identify yourself (using your first and last name) and register by including your email. If you do not, we will remove your comment. In a comment, if you disagree with or intend to criticize someone (such as the poster, another commenter, a party or counsel in a case), you must do so in a respectful manner. We reserve the right to delete comments. If your comment is obnoxious, mean-spirited or violates our sense of decency we will remove the comment. While you have the right to say what you want, you do not have the right to say what you want on our blog.

Speak Your Mind