Happy belated Halloween. This week’s Summary Opinions is light on the tawdry content (one drug reference), but you can go to @Lovewastefully for a pretty good (bad) Debt Ceiling costume. Below are some of the tax procedure treats that we enjoyed last week:
read more...- I am sure this was a scary thing to hear on Halloween for Mr. Daugerdas, the disgraced Jenkens & Gilchrist lawyer found guilty (again) of tax fraud. Mr. Jack Townsend’s Federal Tax Crimes blog has coverage here. Although I would love to make $95MM for my tax guidance, I am pretty glad I don’t have to worry about what sentence comes along with $7 Billion in fraudulent deductions.
- Keith was two timing Procedurally Taxing, and had a nice article in the ABA Section of Taxation’s News Quarterly about a recent meeting between the Section’s Pro Bono and Tax Clinics Committee, and the Tax Court judges, NTA, Office of Chief Counsel and the IRS to discuss processing pro se and low income taxpayers’ cases. The meeting has led to specific changes which will hopefully benefit these groups. The changes are discussed in the article.
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Last week Tax Notes published a brief article (subscription required) describing the fears surrounding LB&I’s upcoming new IDR process. The new process is meant to increase transparency and improve the speed of audits, but it has raised concerns because the Service plans to issue delinquency notices with firm deadlines and issue pre-summons letters addressed not to tax directors but other managers. It is anticipated that the new procedures will significantly curtail or remove discretion from LB&I employees after an IDR has been issued.
- Here is a short article from the People for the American Way regarding the number of Judges in the DC Circuit Court of Appeals. Here are some other opinions on this matter in the WSJ and the National Review. And, this sort of ties into Carlton Smith’s excellent guest post on Procedurally Taxing regarding the Byers’ case found here, in that moving CDP jurisdiction to the DC Circuit would increase the caseload (although arguably not that much). This Court is often the center of some of the most important tax law holdings, so it will be interesting to see where this debate shakes out.
- TIGTA is at it again, issuing the report on the EITC, which Les covered earlier this week here. I also found this TIGTA report interesting, which discusses the failures of the correspondence audit systems, and the failure of the system put in place to monitor the correspondence audit system. Lots of failures. The downside to this report was that TIGTA found the auditors routinely failed to specify when penalties were not being imposed. It is not hard to jump to the conclusion that the Service may be directing correspondence auditors to take a harder look at penalties, and specify the basis for not imposing the penalties. First time abate!
- “He did it for the crack cocaine.” You know it is going to be a good story, and the “it” is not volunteered at the SPCA or helped at Habitat for Humanity. The line really did keep me reading the rest of Tax Girl’s post on increased criminal investigation by the Service to decrease identity theft.
- This post on TaxProfBlog is about Leigh Osofsky summary of Kathleen DeLaney Thomas’, “Presumptive Collection: A Prospective Theory Approach to Increasing Small Business Tax Compliance.” Withholding and behavioral economics has been a common thread for Summary Opinions lately (see our coverage of the NYT article on withholding hitting 70, and Peter Reilly’s Forbes blog post). Ms. Thomas’ article suggests the use of withholding to decrease small business tax evasion. Not an opinion everyone will agree with. Keith has also written about ways to tackle the small business underpayment issue. Keith’s article, “Transparency in Private Collection of Federal Tax” suggests that third party returns reporting funds collected for the United States should be disclosed to the public as a method of increasing compliance. “In Whom we Trust” suggests a variety of methods of handling this tax gap.
- From the NYT Economix blog, an article by Nancy Folbre about effective marginal rate of low income households as they phase out of certain government benefits. The notion is that as families lose means-tested benefits such as food stamps due to having greater means, there is an implicit tax in the form of the lost benefit. Interesting article that starts a discussion about how that high effective tax rates impacts a variety of things. She will be posting follow up content, and I think some of her colleagues on the blog with different ideological views will be posting in response.
- We can all renew our PTINs now.
- The Service has issued long awaited guidance to foreign financial institutions entering into agreements with the Service to be treated as participating FFIs in Notice 2013-69. There appears to be a good background summary, along with FFIs responsibilities and procedures, and finally the model agreement.
- On to something far more exciting, lien priority in bankruptcy. The Bankruptcy Court for Middle District of Georgia held in In Re: Alpha Protective Services that a bank’s security interest in a debtor’s accounts receivable held priority over the IRS lien when the debtor acquired those receivables more than 45 days after the filing of the notice of tax lien. The bank argued that it had acquired “contract rights” under its lending contract with the debtor that were perfected prior to the filing of the lien and the actual receivables being generated. The Service argued the debtor had no rights in the receivables until they were earned by the debtor, so no security interest could be given. The Court sided with the bank, and stated that contract rights in future receivables could be given, and the secured interest was protected under Section 6323(c).
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And then this week we had the Tax Court case of Alvin Craighead (TCM 2013-246). This case illustrates that if there is a de minimis exception for IRS litigation, it is not used by Appeals and Chief Counsel managers with six-figure incomes, who assign staff to pursue two-figure assessments before Presidentially-appointed judges.
Mr. Whitehead, pro se, an Oklahoman past age 65, had the typical VITA return in 2009: Social Security, $7,571 wages and $9,450 unemployment compensation, the first $2,400 of which was nontaxable. There were also a couple 1099’s for a $360 annuity payment and $354 in mineral royalties – income he didn’t recall receiving, but agreed might have been paid to him. He didn’t think it was enough to require a tax return. But his AGI, as calculated by Judge Elizabeth Paris (also an Oklahoman) in a 12-page opinion, was $15,335. After the $400 “Making Work Pay” credit, this resulted in a tax liability of $58.
It’s likely that Mr. Craighead never met with the Appeals officer assigned to his case but located at an IRS “campus” hundreds of miles away. If he met with an IRS lawyer, it was probably not until a few weeks before his Tax Court trial. Those of us who worked there know that the career objective for some IRS supervisors is “empire building” – the more work you have, the more people you need, the higher your pay grade. There is no career benefit from closing cases early, even when they are obviously going to result in a waste of resources.
Meanwhile, no one in the system suggested to the petitioner that he check the missingmoney.com website to locate the unreported income that he was unsure he received, and that resulted in the $58 tax liability. That’s not in their job description. If he does so, he will find some cash being held for him by the Commonwealth of Virginia. Maybe it’s for another Alvin Craighead. Virginia is also holding some property for a Keith Fogg, of Richmond. Of course, that’s also a common name. Then there’s Leslie M. Book, in Pennsylvania. Can uncashed Blue Cross checks be claimed as a medical expense? Are Disney dividends taxable when paid, or when collected?
Apart from the creepiness of that info out there on missinginfo.com, (and you taking the time to look me up!) this post reminded me of another development from a week or so ago. Out of Australia there is word of a more robust push tax return system where the government is proposing to prelodge the simplest individual returns, giving taxpayers the option of modifying but also allowing the prefiled return to stand. http://www.businessinsider.com.au/the-australian-tax-office-plans-to-introduce-one-tick-tax-returns-next-year-2013-10
I am aware of the controversy surrounding ready return of proposals in the US, but it strikes me that a future tax system will better use and make available third party information. Perhaps that could have helped Mr. Craighead.
As for me, well I suspect I need to keep better track of those 58 cent checks.