Short but sweet this week. Apparently, no one is bringing tax cases in federal court any more (we’ve got the stats), and including all the schedules on your tax form is important (Deutsche Bank lost some interest). Villanova’s LLM/MT has found the web. Also, a road map for transfer pricing audits, and a road map for getting drunk on the cheap. Finally, a summary of Patrick’s Smith’s Florida Bankers article from Tax Notes, and some FATCA regs. Special thanks to our guest posters from last week, Rachel Rubenstein and Andre Anziani with their first and second part of their Kaplan post, and Carlton Smith for his Howerter/Rev. Proc. 2013-34 post.
- Patrick Smith, of Ivins, Phillips & Barker, who we have discussed before, has published an article in Tax Notes, which is available here, discussing why in his view the DC District Court’s application of the APA’s arbitrary and capricious standard in Florida Bankers Association was wrong. Mr. Smith argues the Court incorrectly relied on the Service’s flawed reasoning for regulations requiring banks to report interest paid to nonresident aliens, and did not properly apply the State Farm arbitrary and capricious standard. In APA and Challenges to Agency Guidance, Les has previously covered a different aspect of Florida Bankers, namely whether the district court should have heard the case to begin with in light of the APA and Anti-Injunction Act. Mr. Smith’s article highlights the growing importance of traditional administrative law doctrines in examining the adequacy of IRS guidance, and explores in depth why under State Farm courts will be paying close attention to preambles to explore the adequacy of the IRS’s legal and factual assumptions in issuing the regulations.
- Interest (ing) case from the Federal Circuit in Deutsche Bank AG v. United States, where the Circuit Court ruled on when a return or other document was in “processible form” for starting interest. KPMG has a good summary. The vastly oversimplified version of this case is that the taxpayer submitted its Form 1120 on Date X but did not itemize the taxes and sources from which they were withheld, and some of the required forms were not included. The Service returned the Form 1120 and requested back up information and the additional forms. The taxpayer provided the additional information on Date B. On Date C, the taxpayer amended its return requesting a large refund, which the Service issued, along with interest back to Date B and not Date A. Taxpayer then requested interest back to Date A, and the Service stated the taxpayer’s first return was garbage, and not processible. Section 6611(g) requires the form to be processible before interest on overpayments will be issued, and the Federal Circuit agreed that without the other applicable forms, the return was not processible. It did note that if the information were otherwise available to the Service, the return may have been processible, but that was not the case. The concept of “processible” forms is important in other areas, and the loss of interest is unfortunate for the bank, but had a timely election been blown, or other information not properly reported, this could have been more costly. Remember to attach those schedules and forms as we approach April 15.
- Villanova announced this week that it is starting an online LLM and MT in Taxation program, and the press release can be found here. In my incredibly biased opinion, I think this is a wonderful addition, allowing significantly more people access to the superb instructors in graduate tax program at Villanova.
- Mr. Jack Townsend forwarded some interesting statistics to Les this week, which are from Syracuse University and track the tax court cases filed. The information can be found here. The stats show a 10% decline year over year, and a 30% decline over the last five years. The page also indicates where these cases are being brought, how often the Service is plaintiff, what the most frequent causes of action are, and has a list of many (all?) the docketed cases. These stats can be misleading regarding the decrease in litigation, as Tax Court cases are not included. Les pointed out there is a good chance that some or all of the decrease is due to CDP cases now having to be heard by the Tax Court.
- This is the new IRS transfer pricing audit roadmap. This seems fairly useful for those navigating this process.
- The Service has issued final and additional temporary FATCA regs, the press release can be found here. There is a link to the regulations on the press release. I am not going to provide any commentary on this, as I have not reviewed the regulations. My initial reaction is that there are many small but important changes made. The Service claims this is the last batch of guidance needed to implement; we shall see.
- The Tax Foundation has a tax map showing how much each state taxes booze. Good to be a drunk in Wyoming, not Washington.
About Stephen Olsen
Thanks for the interesting item. As to “processible returns:” In my capacity as a member of various IRS-practitioner liaison groups, I conducted a running battle with the IRS for over 10 years to get them to change their procedures for handling returns that they considered “non-processible” based on missing schedules, such as W-2s. They used to stamp the returns as received but would then send these returns back to the taxpayers without entering any data on the Master File that a return [or purported return] had been received. A form was attached to the original return indicated the flaw [missing schedule, lack of signature, etc.]. If the return was sent back with the requested information, the return would then be processed – possibly as of the original receipt date [at least if the flaw wasn’t lack of signature or other critical element under Beard].
The biggest technical problem with this procedure was that some of the flaws that made the returns non-processible didn’t prevent the returns from constituting “filed returns” for purposes of starting the statute of limitations and for purposes of representing timely returns for various elections that had to be filed on timely returns. If for any reason the return never got back to the IRS [whether by mis-delivery going out or coming back, non-responsiveness by the taxpayer, etc.], there was no record that what might have been a valid “return” had actually been timely filed. I actually received the return of such a return for an estate or trust of which I was a fiduciary – I don’t remember the “flaw”, but I’m pretty sure the return was sufficient to constitute a “filed return” under applicable law.
This issue was first raised at an IRS Northeast Region – Tax Lawyer Liaison Meeting in about 1996. The then Director of the Brookhaven Service center reported to the meeting that it wasn’t practicable for the IRS to correspond with taxpayers or even to record the receipt of such flawed returns, especially during filing season, when there was so much pressure on speedy processing [pre-efiling and scanning].
Nancy Romano – now Area Counsel for SB/SE in Philadelphia – was an analyst at the time with Chief Counsel’s office in DC – Procedure & Administration. She agreed with me that the procedures should be changed. [I learned that after meeting Nancy when she was posted to Philadelphia.] Eventually, within the past 5 years or so, I think there was a summit meeting between SB/SE & W&I at which is was agreed that the procedure should be changed. This resolution was published by the IRS – I think as IMRS Issue #6 [or 2006-006].
I haven’t read the opinion in the Deutsche Bank case, so I don’t know the precise facts as to whether or not the return there was sufficient to start the statute running. It isn’t clear to me whether every return that fails to meet the definition of “processible” in 6611(g) would also fail to constitute a “return” for statute of limitations and timely files election purposes.
Ron Wiener
267-765-0253rwiener@dscpas.com
Ron,
Thanks for the really great comment. I have not done any research on the difference between “processible” forms under Section 6611(g) compared to other sections. I probably will, however, look into this over the next week or so, and, if I find anything interesting, I’ll add it to the blog. Thanks again. This is really great background information.