Summary Opinions for 10/31/14

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The first week of November had two great guest posts.  The first post, which can be read here, was by attorney Michelle Feit, who discussed the extended statute of limitations found under Section 6501(c)(8).  The second, found here, was by Robert Everett Johnson, an attorney with the Institute for Justice, who discussed two recent cases where the IRS was found to have improperly seized assets using the Anti-Structuring Laws. I would suggest our readers review the comments to that post, found here, which were very strong. I would also commend to our readers the comments to Keith’s post on the suspension of the statute of limitations due to continuous absence from the US.  Lots of good information.

To the other procedure:

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  • The Fifth Circuit, in Hoeffner v. Comm’r, reviewed a collection case, and found no reasonable cause for failure to file and pay, although the taxpayer did have obstacles in obtaining information to file.  Mr. Hoeffner was a prominent attorney in Houston.  In 2007, he was indicted on fraud, conspiracy, and money laundering, where he allegedly bribed adjusters at The Hartford Financial Services group with luxury cars, trips, night life and cash.  It seemed as though this counselor was headed to be a jailhouse lawyer, but the case resulted in a mistrial. He later paid costs related other criminal charges, which were then dropped.   Mr. Hoeffner then sued the Hartford and its general counsel (who was then the US Deputy Treasury Secretary) for negligently causing the bribery charges to be brought against him, and for a related cover-up for what he claimed was the extortion of him for the “bribes” to have cases settled.  Much of this summary is taken from a Bloomberg article found here.  In 2012, that case was settled.  Here is an article, including an interview with Mr. Hoeffner, from after the settlement.  So, Mr. Hoeffner lost his law license for a few years, and a couple million bucks, but somewhat cleared his name.

The tax case revolves around whether or not Mr. Hoeffner had reasonable cause for failing to timely file his 2008 tax return and timely paying his tax liability.  Mr. Hoeffner argued that a pre-trial order in his criminal case barred him from contacting his accountant, who had his tax records.  The Court held that neither unavailability of records, nor involvement in litigation, was reasonable cause, and he could not rely on his criminal defense lawyer’s advice to not file the incomplete or incorrect return.   The accountant did testify, and said it would have been impossible for another preparer to figure out the returns without his papers, but the Court still imposed the penalties.  Peter Reilly has additional coverage over at Forbes.

  • The Feds have removed and withdrawn regulations relating to the qualified payment card agent program.  The Service indicated that the program is now obsolete because of the reporting obligations found under Section 6050W.
  • As mentioned in the intro, we were fortunate to have Mr. Johnson from the Institute for Justice posting this week on the government seizing assets using the Anti-Structuring Laws.  Jack Townsend shared his initial thoughts on the NYT article last week, which can be found here.  Like all of Jack’s content, this is well worth your time.
  • Taxpayer who prevailed on about ¼ of Section 7431 wrongful disclosure case that was settled in part and dismissed in part was not entitled to attorney’s fees under Section 7430, as it did not “substantially prevail” in the amount or the most significant issue.  In The National Organization for Marriage (NOM) v. US, NOM and the Service disagreed on the amounts in question, and the Court held for the government.  I can say with certainty NOM will not be on my giving Tuesday list, but I am not sure how I feel about this holding.  I think it is correct, but have concern about how the holding could be expanded…but perhaps unfounded concern.  My concerns pertain to the Court’s determination of the amount in question, and as to what the “most significant issue” was in the case.

As to the most significant issue, the Court highlighted that the IRS conceded the wrongful disclosure claim in the answer to the complaint.  The complaint apparently had a bunch of other trumped up First Amendment/government conspiracy claims by NOM that the disclosure was related to.  These were dismissed, leaving only the amount of the damages to be determined.  The Court found that the other B.S. claims were the real reason for the suit, which was evidenced by the suit moving forward even though the government admitted to the disclosure.  The Court also noted that the government was substantially justified, which also precluded the award, which I did not take issue with.  The parties settled for $50k on the improper disclosure.  I suspect NOM did protract litigation on potentially bogus claims, but the underlying, primary claim was wrongful disclosure, which the IRS did.

I also was slightly uncomfortable with the “amount in question” conclusion.  NOM’s position was that the amount in question was either $60, 500 or $58,586, which were the specified damages in the complaint.  The government said that amount should have been $117,586, plus the pled (or pleaded) unspecified punitive damages.  The Service’s $117k number was based on the fact that NOM amended its claims, withdrawing a portion of around $50k, and then adding back in a similar amount for a different claim.  The Service added both together.   The Court accepted the $117k base number, and then went through a rational and lengthy discussion about including punitive damages.  The Court eventually concluded it needed to calculate a number and add it to the other damages, which it did, ending with a substantially higher number.  Had the Court accepted the government’s stated number, the recovery would have been a little under 50%.  Whereas with the punitive damages it is around 25% recovered.  Only recovering 45% is not sufficient, but in a different circumstance, the punitive damages number could have been the difference.

This is something to think about when throwing in “plus punitive damages”, and when including ancillary arguments in your complaint beyond your primary issue.

  • In US v. Briggs (couldn’t find a free link, sorry), the US District Court for the Eastern District of North Carolina denied a trustee’s motion to dismiss the government’s claim to foreclose a lien against the trust’s interest in an LLC.  The Court indicated state law stated the interest in the LLC was a property right, which then in turn allowed the government to lien the property under Section 7403, and levy the same.  I do not know N.C. law on this matter, but I wonder if it restricts collection against LLC interests to charging orders.  I also wonder how those laws interact with the government’s collection powers.
  • The Information Reporting Program Advisory Committee issued its annual report.  The report suggests an increased use of TIN matching to increase accuracy and compliance, a minimum threshold for 1099 corrections, and various other suggestions to increase compliance while making said compliance easier for taxpayers and information reporters.
  • Tax Court dismissed a petition for failure to timely file the same when the taxpayer attempted to use Stamps.com.  The Stamps.com postmark was clearly on the last permitted filing day, and there was evidence that the 3rd party who mailed the petition did so at the post office on the last day for filing; however, the envelope also contained a postmark from the USPS the following day.  See Sanchez v. Comm’r, TC Memo 2014-223.  Another unfortunate result due to using the wrong mailing service.
  • SCOTUS granted certiorari in King v. Burwell, one of the ACA cases dealing with whether the tax credits are available for insurance purchased on a non-state exchange.  We have prior coverage here.
About Stephen Olsen

Stephen J. Olsen’s practice includes tax planning and controversy matters for individuals, businesses and exempt entities for the law firm Gawthrop Greenwood, PC.

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