This blog post covers the 3 designated orders that were released during the first full week of August. All of the petitioners were unrepresented and there are some basic mistakes they made. Since this blog post addresses some issues that have been analyzed before, it is my hope that providing this further analysis will assist some unrepresented taxpayers from avoiding these mistakes in the future. The topics include scattershot petitions and collection due process, with a specific focus on collection valuations.
Scattershot Petitions
These two cases I will discuss involve what I am terming “scattershot petitions.” These are petitions that were filed that cover a broad number of tax years. When the petitioners file these scattershot petitions, maybe there is a connective document like a notice of determination that would validly allow the petitioner to continue in Tax Court. Rather often, when there was a valid notice of determination, the ninety-day period for filing a petition based on that notice has already expired. In essence, we have a first-time hunter that runs into a field and fires a shotgun without applying the concept of aiming the shotgun. To change metaphors, it seems to be the “throw it at the wall and see what sticks” method of court filing.
read more...This then becomes a waste of resources because both the Tax Court and the IRS have to respond to the petition. First, the IRS has to research regarding all of the tax years. Was there a notice of deficiency filed for any of the years mentioned in the petition? If so, did the period for filing a petition based on the notice expire before the petition was filed? The IRS files regarding that information to the Tax Court and the judge writes a corresponding order. Going through this process takes time and resources that would not have been wasted if the petitioner better understood the process and filed a valid petition. This seems to happen often enough that they regularly appear in designated orders such as the two cases dealt with by Judge Buch here.
- Docket No. 6600-19, James Matthew Enright v. C.I.R., Order and Order of Dismissal available here.
In the first case, Mr. Enright filed a petition to place at issue tax years 2000 through 2019. He stated, “Never received the notice of Deficiency; [n]ever received the notice of Determination.” However, this is not the first time Mr. Enright filed such a broad petition. He had two prior Tax Court cases that attempted to place at issue tax years 1958 through 2017. There had been notices of deficiency issued for 2001, 2003, and 2004, but the petition was too late for those years. Both parties moved the Court to dismiss the case and the Court does so.
However, since Mr. Enright is a repeat customer, he gets a door prize. The Court may impose a penalty when a taxpayer position is frivolous or groundless under IRC 6673 up to $25,000 (for more on 6673 penalties, look here). As the judge notes the IRS had to review 20 years of records and had exhibits over 70 pages, he deems that a sanction is appropriate, ordering a $2,000 penalty (which I thought was only mildly harsher than a slap on the wrist).
- Docket No. 18571-19, Craig Douglas Hoglund & Christine Joan Hoglund v. C.I.R., Order available here.
The second case brings up different issues, partly because it is due to issues related to married couple tax filing.
The Hoglunds did not file a timely tax return for 2016. As of September 3, 2019, neither spouse had filed a 2016 tax return, but that is the date the IRS issued a notice of deficiency addressed solely to Mrs. Hoglund.
In response, the Hoglunds filed a joint petition with the Tax Court. With regard to the years of the notice, they listed “2006, 2007, 2008, 2009, 2010, 2013, 2014, 2016” and part of the reason in their narrative explanation of why they disagree, they wrote that they “always file jointly.”
The IRS filed a motion to dismiss for lack of jurisdiction with regard to Mr. Hoglund and to dismiss and strike for lack of jurisdiction with regard to Mrs. Hoglund concerning all tax years except for 2016. In the motion to dismiss, the IRS notes the Hoglunds have already had several Tax Court cases where they tried to place multiple tax years at issue. One example is docket number 7171-19L (also with Judge Buch), where the Hoglunds tried to place tax years 2006 through 2014 at issue, but the Court dismissed all years but 2008 through 2010 (the only years addressed in the notice).
The Hoglunds made two arguments in response to the IRS motion. The first argument is that their jointly filed tax returns throughout their marriage implies the IRS must send them a joint notice of deficiency. The second argument is that years not under consideration for a particular tax year’s hearing are considered in making a determination.
For the first argument, the Court points out that filing a joint tax return is an elective choice. At the time of the notice, the Hoglunds had not filed a joint tax return so it was proper for the IRS to issue the notice to Mrs. Hoglund solely.
Regarding the second argument, the Court notes that the Hoglunds are correct in that the Court can take into account tax years that are not under consideration regarding reviewing a particular tax year. That does not mean that gives the Court jurisdiction over those other tax years. IRC section 6213(a) only gives the Court jurisdiction to redetermine a deficiency as set forth in the notice of deficiency.
In summary, the Court in this case only has jurisdiction based on the notice of deficiency for tax year 2016 and taxpayer Mrs. Hoglund only. The Court may take into account other tax years relating to 2016, but that does not afford the Court jurisdiction over those years.
As a result, the arguments from the Hoglunds failed and the Court granted the IRS motion to dismiss regarding Mr. Hoglund and tax years for Mrs. Hoglund outside of 2016. The caption of the case is also amended so that Mrs. Hoglund is now the sole petitioner.
No mention of a 6673 penalty here, though I think it would have been warranted.
Valuing a Collection
Docket No. 10242-19, Craig A. Sopin & Ruth Sopin v. C.I.R., Order and Decision available here.
This case generally fits into a recurring theme regarding Collection Due Process (CDP) cases. To give the quick summary – petitioner had a lien or levy issue, did not provide all the documents requested by the IRS, files a petition with the Tax Court based on the determination, the Tax Court finds there was no abuse of discretion by the examiner so the petitioner loses upon review at Tax Court because the judge granted the IRS motion for summary judgment.
What is different with the Sopins? Let’s dig into the details. They filed a tax return for the 2016 tax year with a liability of $38,528. After that amount was unpaid, the IRS submitted both a notice of intent to levy and a notice of federal tax lien. The Sopins timely filed a Form 12153 to request a CDP hearing. For the CDP hearing, the IRS settlement officer requested that the Sopins submit their delinquent 2017 tax return, a Form 433-A (collection information statement), a Form 12277 (application for withdrawal of filed notice of federal tax lien), and proof of estimated tax payments for tax year 2018 to date.
The Sopins submitted their delinquent 2017 tax return, which had a balance due. The Sopins got a one-week extension in order to fill out Form 433-A, but they never submitted the forms 433-A or 12277. When they filed their 2018 tax return, also delinquent with a balance due, they had not made any quarterly estimated payments. The predictable results for the Sopins went as I detailed in the first paragraph – no relief under Collection Due Process leading to the Tax Court case where their noncompliance led to the Court granting the IRS motion for summary judgment.
What I found the most interesting was the sentence in the order – “Mr. Sopin advised that he was unable to complete a Form 433-A because it was too difficult to assess the value of the assets in his collection of memorabilia from the sinking of the RMS Titanic.” What’s this? He is a collector of memorabilia related to the Titanic? Nowhere else in the order does it mention any other items regarding Mr. Sopin’s collection, but I thought it was something worth examining.
Generally, I was a bit curious about how the IRS treats collections. I am one of those in the world with a hobby collection – in my case, comic books and other pop culture items. When turning to IRS Form 433-A, section 19 requires a taxpayer to give a value for personal assets. The section looks for amounts regarding “furniture, personal effects, artwork, jewelry, collections (coins, guns, etc.), antiques or other assets.” What should be done to respond to the IRS regarding the current fair market value of such a collection?
When I turned to the Internal Revenue Manual for assistance in valuing Mr. Sopin’s Titanic collection, I found Internal Revenue Manual section 5.8.5.4. It provides that the IRS can turn to “[h]omeowners or renters insurance policies and riders to identify high value personal items such as jewelry, antiques, or artwork.” With regard to other high value assets, the IRM suggests appraisals for the value of a business, vehicle, or real estate.
In section 5.8.5.11, it states, “The taxpayer’s declared value of household goods is usually acceptable unless there are articles of extraordinary value, such as antiques, artwork, jewelry, or collector’s items. Exercise discretion in determining whether the assets warrant personal inspection.”
Additionally, when looking at an Offer in Compromise, Section 3 is for Personal Asset Information. One part of the section is about other valuable items “(artwork, collections, jewelry, items of value in safe deposit boxes, interest in a company or business that is not publicly traded, etc.)”. When listing such an item, the calculation is to take the current market value, multiply it by .8 (this is to determine the quick sale value – a calculation of 80% of fair market value – see IRM 5.8.5.4.1), then subtract the loan balance to arrive at the value of the valuable item. After adding up the various valuable items, take the entire amount and subtract $9,690.
In other words, if you are dealing with a client with a collection that is considering an Offer in Compromise, that is not necessarily a deal-breaker. While we often value our possessions highly, it is worth remembering what amount we can get for them when sold. In IRM 5.8.5.13, they define the fair market value as “the price at which a willing seller will sell and a willing buyer will pay for the property, given time to obtain the best and highest possible price.” When it comes to personal property, the common thought is how much the item(s) would sell for at a garage sale or flea market setting. For a client who highly values a collection, often times it may not be worth $9,700 or more and essentially gets devalued in an Offer in Compromise.
Another consideration is that there are taxpayer protections resulting from the IRC 6343 levy exemptions that protect taxpayer assets such as personal property that also help to preserve items such as taxpayer collectibles or other valuable items.
I am not sure if Mr. Sopin had highly valuable personal items where he should have gotten an appraisal for his Titanic collection, but that might have been a possibility. Whatever method Mr. Sopin used, he should have found a value for the Titanic collection and submitted the Form 433-A (and other documents) to the IRS by the deadline.
And the moral of the story? Provide all of the requested documents to the IRS and meet the deadlines. It does not mean you automatically win your CDP case in Tax Court, but it likely prevents you from an automatic loss of the case if you do.
About William Schmidt
It always seems like the taxpayer is showing “bad faith.” What about the IRS which lost the following cases:
In the Estate of Michael Jackson 17152-13, U.S. Tax Court, the immediate supervisor did not sign off.
In Harrison v. United States, W.D. Wisconsin Docket-cv-No. 19 194
In its submission, defendant (plaintiff) represents that the IRS did not identify the Weisbart case, the Chief Counsel’s Notice or the regulations, but acknowledges that counsel for defendant did identify the Weisbart case in their own research, and chose not to disclose it in their briefing
In Frost v IRS (154 TC No 2 (2020) The IRS failed the burden of proof for 2010 and 2011 but did not for 2012.
In Laidlaw’s Harley Davidson Sales, Inc 154 TC No 4 (2020) the IRS failed the burden of proof.
In Tribune Media Co. TC Memo 2020-2 the Revenue Agent’s immediate supervisor did not approve the penalty–a higher up supervisor did.
In True the Vote v. IRS, No. 1:13-cv-00734 (D.D.C. 2020), the IRS intentionally denied tax exempt status by improperly characterizing the group as a political group.
When you toss out a challenge like that, I’ll catch it. I used the antitrust-accused search engine to look for “Sopin” with “Titanic,” and found several references that enlighten and inform.
A July 4, 2017 article from the Antiques Trade Gazette (U.K) reports on the auction of 5,500 Titanic artifacts by the bankrupt company that owned salvage rights. A quote:
“Philadelphia-based Craig Sopin, a lawyer and Titanic memorabilia collector, said: ‘There was a tremendous fear that these artefacts would be broken up and sold off at auction and spread around.’ ”
And in 2013, when the violin was auctioned that had been used by a member of the Titanic orchestra that played a hymn as the ship sank, USA Today interviewed him:
“ ‘The violin without a doubt is the most iconic piece that has been recovered (from the Titanic), including the crow’s nest bell,’ collector Craig Sopin told USA TODAY. ‘Almost every survivor talked about Wallace playing to the end. So here’s this violin that calmed passengers getting off the ship. But it’s also the very instrument they danced to earlier in the voyage. I truly don’t believe there would have been as many survivors without him.’ ”
In January 2017, the British magazine Homes and Antiques in a lengthy article reported:
“American attorney Craig Sopin has been collecting Titanic artefacts for over 20 years. ‘My interest is really secondary to my interest in the ship itself,’ he says. ‘There are so many intriguing angles, and by collecting you can get a little bit closer to the story. There’s nothing like being able to touch an artefact.’ Both Sopin and [auctioneer] Aldridge agree that Titanic artefacts are now selling for many multiples of what collectors paid for them 20 or 30 years ago.”
My own Titanic artifact hangs on an office wall, a reproduction of the front page of a Boston newspaper that reported the ship’s sinking. Why? It happened on April 15, the first of many disasters attributable to that date.
William,
Great post. And interesting add-on from Bob Kamman.
I suspect there is more going on with the scattershot petitions than “throw it at the wall and see what sticks.” This looks very much like an approach that popped up in, if I remember correctly, 2017 or 2018. Here’s a highly over-simplified version of how those earlier cases went.
First step, the taxpayer files a petition for a wide range of years (often 20+) in Tax Court. Often there was no notice of deficiency or notice of determination for most if not all of those years and the only tax liability ever assessed was from the original returns. Needless to say, the court dismisses the case for lack of jurisdiction.
Second step, the taxpayer files a refund suit in district court or the Court of Federal Claim. The taxpayer asserts several arguments that the court rejects as frivolous. One of the arguments is described in Leber v. United States, 146 Fed. Cl. 9 (2019), as follows:
“Plaintiff alleges that the IRS lacks jurisdiction to collect federal income tax and seeks a refund for taxes paid or withheld during tax years 2000-2017. . . . In support of his argument, Plaintiff states that ‘[t]he Commissioner of the IRS admitted that there is no assessment’ and relies on the filings in his prior Tax Court proceeding, specifically the IRS’s motion to dismiss for lack of jurisdiction.” Essentially: “the Tax Court has no jurisdiction” for the petition, because no taxes were assessed other than from the original return ==> “the IRS has no jurisdiction” to collect taxes or file tax liens. Needless to say, the court doesn’t buy that argument.
Footnote 2 in Leber mentions “a recent rise in similar actions” and cites some. An unpublished order in April in Madey v. United States, U.S. Court of Federal Claims, No. 19-01607 cited several others.
It’s not surprising that Judge Buch imposed a penalty. But someone somewhere is promoting this argument, so a penalty imposed by the judge against individual plaintiffs may not be enough to stop this problem.