In the last two weeks of 2019 we are running material which we have primarily covered during the year but which discusses the important developments during this year. As we reflect on what has transpired during the year, let’s also think about how we can improve the tax procedure process going forward.
Penalty Approval by Manager
The impact of Graev v. Commissioner, a 2017 Tax Court decision, has been felt throughout the world of tax procedure over the last two years. In Graev, the Tax Court adopted the 2nd Circuit’s holding in Chai v. Commissioner and ruled that in order to assess a penalty, the IRS generally has the burden under IRC 6751 of showing that written approval from a supervisor occurred before a Tax Court proceeding was initiated. Automatically-imposed penalties are an exception to the written approval rule. In recent affected Tax Court cases, the IRS has sought to reopen the record in order to submit additional evidence of supervisory approval, as otherwise Graev would preclude the court sustaining a penalty assessment. This is a complicated issue which will continue to drive further litigation in the near-future.
See William Schmidt, Designated Orders: Another Graev Issue and More Petitioners Refusing to Sign a Decision (5/13/19 to 5/17/19), Procedurally Taxing (July 10, 2019), https://procedurallytaxing.com/designated-orders-another-graev-issue-and-more-petitioners-refusing-to-sign-a-decision-5-13-19-to-5-17-19/
Keith Fogg, Prior Supervisory Approval Not Necessary for Late Filing Penalty Imposed Under IRC 6699, Procedurally Taxing (June 18, 2019), https://procedurallytaxing.com/prior-supervisory-approval-not-necessary-for-late-filing-penalty-imposed-under-irc-6699/
Keith Fogg, An IRC 6751 Decision Regarding the Initial Penalty Determination, Procedurally Taxing (June 10, 2019), https://procedurallytaxing.com/an-irc-6751-decision-regarding-the-initial-penalty-determination/
Keith Fogg, Automatically Generated Penalties Do not Require Managerial Approval, Procedurally Taxing (June 6, 2019), https://procedurallytaxing.com/automatically-generated-penalties-do-not-require-managerial-approval/
Keith Fogg, Tenth Circuit Agrees with Graev II – IRS Attorney Can Impose Penalties, Procedurally Taxing (May 20, 2019), https://procedurallytaxing.com/tenth-circuit-agrees-with-graev-ii-irs-attorney-can-impose-penalties/
Keith Fogg, Variance Doctrine Trumps IRS Failure to Obtain Administrative Approval of Penalty, Procedurally Taxing (May 6, 2019), https://procedurallytaxing.com/variance-doctrine-trumps-irs-failure-to-obtain-administrative-approval-of-penalty/
Government Closure
Jurisdiction of Tax Court
Government shutdowns continue to pose problems for tax procedure, and particularly for taxpayers attempting to file petitions with the Tax Court. In 2016, in Guralnik v. Commissioner, the Tax Court held that a day on which the Tax Court was closed due to a snowstorm did not hold open IRC 6330(d)’s statutory deadline based on IRC 7503 – the Saturday, Sunday and holiday rule; that the 30-day time period in IRC 6330 was a jurisdictional time period not subject to equitable tolling; and that taxpayer’s use of a better private mailing service than was included on the approved IRS list did not meeting the timely mailing rule of IRC 7502. However, the Tax Court allowed the taxpayer into the court based on a determination that no Tax Court rule governed the circumstance when the court closed for a reason other than a Saturday, Sunday or holiday and in the absence of a rule it could keep the time period open using Federal Rule of Civil Procedure 6. That holding greatly informed the Tax Court’s treatment of petitions filed during the lengthy government shutdown of 2018-2019. Petitions due during the period of the shutdown were facially untimely, and thus the IRS sought to dismiss the resulting cases. In response, the Tax Court adopted a standard policy of issuing a generic order, requiring that the IRS supplement its motion to dismiss to address the applicability of Guralnik. In the majority of the cases, the IRS then conceded the issue and the Tax Court denied the pending motions to dismiss. Thus, in effect, Guralnik appears to govern in government shutdowns, and thus taxpayers can have their petitions treated as timely filed when delivered to the court upon the conclusion of a shutdown.
See Keith Fogg, The Broad Impact of Guralnik, Procedurally Taxing (Aug. 16, 2019), https://procedurallytaxing.com/the-broad-impact-of-guralnik/
Keith Fogg, How the Government Shutdown Impacted the Tax Court Filing Deadline, Procedurally Taxing (July 12, 2019), https://procedurallytaxing.com/how-the-government-shutdown-impacted-the-tax-court-filing-deadline/
Keith Fogg, Fallout from the Shutdown – The Odyssey of a Tax Court Petition, Procedurally Taxing (May 28, 2019), https://procedurallytaxing.com/fallout-from-the-shutdown-the-odyssey-of-a-tax-court-petition/
Jurisdiction and Equitable Tolling
Myers v. Commissioner, a case decided this summer in the D.C. Circuit, is the first time that an appellate court has found a Tax Court statutory deadline to be nonjurisdictional. Myers concerned IRC 7623(b)(4), which sets forth the deadline for filing a whistleblower award petition in Tax Court. More importantly, the language of section 7623(b)(4) is a near-exact mirror of the deadline language found in the CDP deadline statute, 6330(d)(1) – which the 9th Circuit found was jurisdictional in Duggan v. Commissioner. Accordingly, the ruling for the petitioner in Myers creates a circuit split, which could very well generate a future hearing of the issue by the Supreme Court – which has consistently found statutory deadlines to be nonjurisdictional in recent years. The D.C. Circuit has denied an en banc hear, the government has asked for an extended time within which to decide whether to make a cert petition because of the perceived circuit split. The issue has far reaching implications for tax litigation deadlines and the ability of taxpayers with strong excuses for filing late to have their day in court.
The implication of a nonjurisdictional finding is that it allows the Tax Court to hear cases when a petition is not timely filed, if doing so would be fair under the doctrine of equitable tolling. Currently, if a taxpayer fails to timely their petition, then the Tax Court is unable to hear their case, regardless of the circumstances. The tax clinic at the Legal Services Center of Harvard Law School filed an amicus brief in this case on behalf of Mr. Myers as it had done for Mr. Duggan.
See Carlton Smith, D.C. Circuit Denies DOJ En Banc Rehearing Petition in Myers Whistleblower Case, Procedurally Taxing (Oct. 9, 2019) https://procedurallytaxing.com/d-c-circuit-denies-doj-en-banc-rehearing-petition-in-myers-whistleblower-case/
Carlton Smith, D.C. Circuit Holds Tax Court Whistleblower Award Filing Deadline Not Jurisdictional and Subject to Equitable Tolling, Procedurally Taxing (July 3, 2019), https://procedurallytaxing.com/d-c-circuit-holds-tax-court-whistleblower-award-filing-deadline-not-jurisdictional-and-subject-to-equitable-tolling/
Gov’t Jurisdiction & closure
This past year’s federal government shutdown was the longest in U.S. history and as a result, posed many unique and challenging issues for taxpayers and practitioners. For one, as discussed at length above, it was unclear for much of the year whether the Tax Court would apply Guralnik to allow petitions due during the shutdown to be deemed timely. Perhaps more obviously, the shutdown was deeply disruptive for taxpayers engaged in collection matters with the IRS, who were unable to communicate with furloughed IRS employees. The recently-departed former National Taxpayer Advocate, Nina Olson, has in the past proposed that the IRS apply an emergency exception to the Anti-Deficiency Act to allow TAS employees to continue to work during a shutdown to assist taxpayers experiencing economic hardship. As future government shutdowns are unfortunately likely, hopefully the IRS will continue to implement reforms that will mitigate the impact of shutdowns on taxpayers.
See Bryan Camp, After The Shutdown: Dealing with Time Limitations, Part IV — Equity, Procedurally Taxing (Jan. 31, 2019), https://procedurallytaxing.com/after-the-shutdown-dealing-with-time-limitations-part-iv-equity/
Bryan Camp, After The Shutdown: Dealing with Time Limitations, Part III, Procedurally Taxing (Jan. 28, 2019), https://procedurallytaxing.com/after-the-shutdown-dealing-with-time-limitations-part-iii/
Leslie Book, Finding Guidance on the Effects of the Shutdown, Procedurally Taxing (Jan. 27, 2019), https://procedurallytaxing.com/finding-guidance-on-the-effects-of-the-shutdown/
Christine Speidel, The Taxpayer Advocate Service’s Role During an IRS Shutdown, Procedurally Taxing (Jan. 25, 2019), https://procedurallytaxing.com/the-taxpayer-advocate-services-role-during-an-irs-shutdown/
Bryan Camp, After The Shutdown: Dealing with Time Limitations, Part II, Procedurally Taxing (Jan. 23, 2019), https://procedurallytaxing.com/after-the-shutdown-dealing-with-time-limitations-part-ii/
Bryan Camp, After The Shutdown: Dealing with Time Limitations, Part I, Procedurally Taxing (Jan. 22, 2019), https://procedurallytaxing.com/after-the-shutdown-dealing-with-time-limitations-part-i/
Financial Disability
Stauffer and others
Recent litigation has clarified the narrow scope of the financial disability exception of IRC 6511, which suspends the statute of limitations (“SOL”) for a refund claim if an individual is “financially disabled”. In Stauffer v. Internal Revenue Service, the 1st Circuit recently ruled against the estate of the taxpayer, finding that because the taxpayer’s son held a durable POA during the period in question, the estate is not entitled to file a refund claim outside of the SOL. Similarly, in Carter v. United States, a district court recently found that an estate executor’s disability was irrelevant to the SOL consideration, because the estate was the actual taxpayer in question. Finally, in Thorpe v. Department of Treasury, another district court held against the taxpayers who tried to make a disability argument but failed to comply with any of the enumerated requirements of Rev. Proc. 99-21.
See Keith Fogg, First Circuit Sustains Denial of Financial Disability Claim, Procedurally Taxing (Oct. 21, 2019), https://procedurallytaxing.com/first-circuit-sustains-denial-of-financial-disability-claim/
Keith Fogg, An Estate Cannot Use the Financial Disability Provisions to Toll the Statute of Limitations for Filing a Refund Claim, Procedurally Taxing (Sep. 12, 2019), https://procedurallytaxing.com/an-estate-cannot-use-the-financial-disability-provisions-to-toll-the-statute-of-limitations-for-filing-a-refund-claim
Keith Fogg, Financial Disability Argument Loses Because Taxpayer Husband Did not even Allege Disability, Procedurally Taxing (Mar. 25, 2019), https://procedurallytaxing.com/financial-disability-argument-loses-because-taxpayer-husband-did-not-even-allege-disability/
CDP
Summit
The new CDP Summit initiative seeks to improve the CDP process with input from taxpayers, practitioners and IRS staff. Many ideas are on the table as potential ideas for reform. A recent case, Webber v. Commissioner illustrates the need for improvements to the actual physical CDP notices themselves. In Webber, the taxpayer was misled by the multiple IRS mailing addresses on the received CDP notice (one for the CDP appeal and one for remittance of payment) and timely filed his CDP appeal with the incorrect address – thus missing the statutory deadline. Upon later appeal to the Tax Court, the IRS initially filed a motion to dismiss but then quickly withdrew the motion, perhaps recognizing the unfair result and the potential for the Tax Court to reach the issue of the jurisdictional nature of the deadline. The CDP Summit initiative seeks to make improvements to protect such taxpayers from unfair results, which defeat the purpose of CDP as a tool for taxpayers to quickly and effectively settle disputes with the IRS.
Carolyn Lee, Two tickets to Tax Court, by way of § 6015 and Collection Due Process, Procedurally Taxing (Aug. 28, 2019), https://procedurallytaxing.com/two-tickets-to-tax-court-by-way-of-%c2%a7-6015-and-collection-due-process/
William Schmidt, Collection Due Process and Webber v. C.I.R., Procedurally Taxing (July 24, 2019), https://procedurallytaxing.com/collection-due-process-and-webber-v-c-i-r/
Carolyn Lee, Collection Due Process Summit Initiative, Procedurally Taxing (July 18, 2019), https://procedurallytaxing.com/collection-due-process-summit-initiative/
Litigating merits
Under IRC 6330(c)(2)(B), taxpayers are able to contest the merits of their underlying liability in CDP proceedings only if they had (1) not previously received a statutory notice of deficiency for the liability or (2) not had a “prior opportunity” to dispute the liability. While the first element of this provision is relatively clear, the question of what constitutes a prior opportunity has been a topic of recent discussion for practitioners. In a series of recent cases, several circuits agreed with the IRS that a taxpayer is precluded from litigating the merits in CDP hearing if they previously had the ability to request a pre-assessment hearing. The IRS has also apparently taken the position that failure to receive a SNOD is not sufficient for a taxpayer to dispute liability on the merits if the taxpayer later files an audit reconsideration request and receives an opportunity for an appeals hearing in the process. The opinion appeared to ignore the “or” language in the statute. And in a recent Tax Court proposed opinion in Lander v. Commissioner, a Special Trial Judge has accepted this argument. The proposed opinion in Lander is interesting, as the taxpayer did not receive a SNOD but, per the opinion, was still precluded from challenging on the merits because a pre-assessment hearing had already been offered. However, the case was recently submitted to Judge Goeke on November 13th, so the final disposition of the case may change.
See Keith Fogg, More on the Muddle of CDP, Procedurally Taxing (Sep. 9, 2019), https://procedurallytaxing.com/more-on-the-muddle-of-cdp/
Keith Fogg, The Muddle of Seeking to Litigate the Merits of a Tax Liability in Collection Due Process Cases, Procedurally Taxing (Aug. 6, 2019), https://procedurallytaxing.com/the-muddle-of-seeking-to-litigate-the-merits-of-a-tax-liability-in-collection-due-process-cases/
POA
Scope
A recent case in the Court of Federal Claims provides guidance on the scope of authority conveyed by a Power of Attorney Form 2848. In Wilson v. United States, the taxpayer’s 2848 representative, upon the taxpayer’s instructions, prepared a claim for refund and signed on the paid preparer line, but did not get the taxpayer’s signature before filing. In the subsequent suit, the government filed a motion to dismiss for lack of subject matter jurisdiction, asserting that the claim had not been “duly filed” under IRC 7422. The government argued that the 2848 did not provide the taxpayer’s representative with the authority to sign and file refund claim on the taxpayer’s behalf. The court looked to the instructions on the 2848 and found significance in the form’s express inclusion of a check box for taxpayers to authorize representatives to sign returns on their behalf. The court thus found that the plaintiff had not explained why the 2848 requires express authorization for signing one form under penalty of perjury but not for another. Accordingly, the court ruled for the government, finding that the plaintiff’s representative did not have broad authority under the 2848 to sign the claim for refund.
See Tameka Lester, The Scope of a Power of Attorney: When Can a Representative Sign a Refund Claim?, Procedurally Taxing (Aug. 13, 2019), https://procedurallytaxing.com/the-scope-of-a-power-of-attorney-when-can-a-representative-sign-a-refund-claim/