Happy Birthday I.R.S.!! The photo is from yesterday’s annual Villanova Law School’s Tax Law Society sponsored IRS birthday bash (which perhaps coincidentally coincides with St. Patrick’s Day), where things got just as crazy as you are imagining. The last year wasn’t a banner year for the Service; hopefully, next year will be a bit better. As always, a thank you here is appropriate to Mr. Carlton Smith, for his guest post this week on some intricacies of the Golsen rule and the recent Dalla case. To the tax procedure.
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- To recap last weeks’ posts, Keith had two related posts on liens and levies, which covered the Steward case and the Austin and Laurato case. Keith rounded out lien and levy week with a discussion of the 911 Management LLC case and the 50% penalty under Section 6332(d)(2) for failure to honor a levy.
- Last week, the Tenth Circuit decided US v. ConocoPhillips, which looked to the federal common law to determine the validity and effect of a closing agreement. The Court reviewed the opening paragraph, recital clauses, and signature page as evidence of the parties’ intent to create a closing document and did a textual, purpose-based analysis of the document to determine the meaning of a disputed undefined term of “successors in interest”. We have not discussed closing agreements in the blog; look for a future post that goes into them and returns to this interesting case that relates to hudndreds of millions of dollars in costs attributable to the eventual removal of the Alaskan oil pipeline.
- Accounting Today has a good refresher on what a third party designation authorizing the preparer to speak to the Service actually does.
- In a somewhat run of the mill penalty and reasonable cause case, the Tax Court in The Estate of Richmond held a valuation obtained by the estate’s accountant that was in draft form and not signed could not be relied upon for reasonable cause for the accuracy related penalties. The Court noted the accountant did have appraisal experience, but it found that a case of this size and magnitude required a more formal appraisal, most likely from a certified appraiser.
- From Accounting Today a review of a recent TIGTA report on IRS collection actions with taxpayers who were in bankruptcy showed that the IRS specialists did not always follow the appropriate procedures. The report, however, did not find any specific abuse of taxpayer rights, nor did it find that the government’s interests were not properly protected, but it did note that failure to follow the procedures could increase the risk of such things happening.
- The audit dirty dozen from the WSJ via TaxProfBlog. Twelve items that are sure to attract IRS attention.
- IRS expands use of electronic signatures. Freaks me out. I need to get with the now.
- Second annual LITC report from TAS.
- You know what sucks about being poor…most things…but also not living as long as the wealthy. The NYT has an article on income inequality, and the effects on life expectancy.
About Stephen Olsen
Of course the most important procedural development from last week was the Tax Court decision in the case of tax protester Judy Macdonald (T.C. Memo. 2014-42).
“What makes this case unusual,” Judge Holmes wrote, “Is that the Appeals officer determined–at the CDP hearing that Macdonald skipped–several points in her favor. He then issued a notice of determination that concluded that tax assessments for six of the years were invalid. The Commissioner objected to this conclusion, and the Appeals officer then testified at an abbreviated trial. He said he was well and truly mistaken, and he even joined in the Commissioner’s request that he be found to have abused his discretion in ruling, even in part, in favor of the absent nontaxpayer.”
There are those who describe IRS error in many cases as “bone-headed mistakes,” and then there are those who see darker conspiracies. Perhaps the Macdonald case will help form conclusions, one way or the other.
The court explained that “Macdonald didn’t cooperate in discovery, agree to a stipulation of facts, or appear at calendar call. The usual rule here is to dismiss for default or failure to properly prosecute. Rule 123. But in this case, the Commissioner himself challenged the determination not to proceed with collection of Macdonald’s 1998-2003 taxes, and during a brief trial asked us to let him amend the supplemental notice of determination.
“The Commissioner’s argument was simple: The Appeals officer had abused his discretion by applying the wrong rule of law when he mistakenly reasoned that he had to verify whether Macdonald had received the notices of deficiency sent to her for those tax years, and not simply whether the IRS had sent them to her last known address.”
There are those who are concerned that the IRS and Tax Court budget do not provide sufficient resources for thoughtful due process. But Congress may be assured that there are adequate appropriations for careful consideration of important questions:
“. . .the unusual position that the Commissioner finds himself in raises several intricate questions:
o What allows us to broaden the subject matter of our review from the portions of the determination that a petitioner challenges to portions that the Commissioner disagrees with?
o Does such a challenge by the Commissioner involve a jurisdictional problem of standing?–after all, the Code gives standing to appeal only to the taxpayer, not to ‘any aggrieved person’ or similarly broader class.
o Would it matter that the Commissioner could not himself petition to challenge the determination?”
These issues are not easily and quickly decided, so the court took the cautious approach. “We think it best in such an uncertain situation to remand the case a second time: . . .And that is what we’ll do here.”
Speaking of remands, I hope everyone noted Judge Kroupa’s opinion today in Bogart, T.C. Memo. 2014-46, where she remanded a CDP case to Appeals because the Settlement Officer hadn’t really considered the effective tax administration arguments raised by the taxpayers to get an OIC. The SO only considered lack of hardship, but the taxpayers argued that it was that the income that they were being forced to pay tax on had been embezzled from them.
Judge Kroupa also wrote: “In the view of the taxpayer advocate, the Commissioner uses OICs under public policy or equity reasons too infrequently when the deficiency stems from third-party failures. Nina E. Olson, National Taxpayer Advocate, 2012 Annual Report to Congress, 426 (2012). The Commissioner must consider and address collection alternatives a taxpayer raises. The fact that the examples in the regulations differ from petitioners’ circumstances does not relieve respondent of that requirement.”
Kudos to the U. Wash. Tax Clinic and Scott Schumacher, et al. for bringing this case.