Summary Opinions for 5/2/14

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Last week, after fixing our technical problems, I posted on the tax procedure implications of curmudgeon Don Rumsfeld’s letter to the IRS and Keith posted on the implications of bankruptcy and refunds and debtor and non-debtor spouses. We were fortunate to have Carlton Smith guest posting on equitable tolling cases under the Federal Tort Claims Act that may be considered by SCOTUS this term, and highlighting how those could impact tolling cases under the IRC.

To the other procedure items from last week:

  • This comment is largely from an email Les sent to me this week:

I was going to write up a summary and brief analysis of the Tenth Circuit case of Jewell v US, where the Tenth Circuit went against other circuits and invalidated a summons when the IRS failed to comply with the notice requirements that the taxpayer being investigated “shall be given” notice of the summons “within 3 days of the day on which such service is made, but no later than the 23rd day before the day fixed in the summons as the day upon which such records are to be examined.” However, Jack Townsend beat me to the punch in his post in the Criminal Tax Blog yesterday called What Does Shall Mean? Herein of Slippery Mandatory Language and Summons Enforcement. There are other excellent summaries of the case (such as the Journal of Accountancy here), and I try not to write on topics (even important ones) when I feel that I am not contributing much to the discussion.

What interested me about the case –in addition to the obvious point that the Tenth Circuit has created a split given that other circuits have essentially given the IRS a free pass when it blows the notice requirement- is that it raises questions about whether the IRS should be penalized when it misses a clear statutory command. In Jack’s post, he points to one of the Hom cases from last year; it is a case where IRS whiffed on Congress’ command to include information about TAS on the stat notice. Last year I wrote about Hom, in What Happens When the IRS Violates a Statutory Requirement relating to Notices of Deficiency?

As Hom indicates, courts have often taken a practical approach to the error and looked to see if there is any harm. I suspect that even in the summons cases that did not specifically take that approach the judges considered the relatively minor effect of the Service failing to comply with the directive.

It seems wrong to me to have Congress tell the IRS to do something and then allow IRS to avoid complying and face no consequence. While some aspects of harmless error and substantial compliance may provide a safety net, perhaps Congress should identify remedies for taxpayers when IRS fails to comply with statutory commands, rather than avoid the use of the term “shall”.   Leaving it to courts to wrestle with the consequences of IRS failing to comply seems like an abdication of Congressional responsibility.

Keith responded pointing out that the same issue presents itself with notice and demand,, where the statute requires that the IRS shall issue the notice and demand letter within 60 days.  The applicable regulations state, however, if the IRS fails to do so, the assessment is still good and the lien is good once the IRS gets around to issuing the notice and demand, though the IRS is precluded from using its administrative collection powers.  Keith has an article about notice and demand coming this week in the Journal of Tax Practice and Procedure, which we will post. It is our suspicion that there are various other similar situations under the Code. We would encourage our readers to post additional examples they can think of in the comments.

  • Late last week, Keith wrote about the amendment to Section 6201(c)(4) by the Firearms Excise Tax Improvement Act of 2010. This will potentially allow the IRS to collect restitution at an earlier point in a criminal case. The government hopes these nefarious characters will still have assets at that point. One case currently being considered on this point is US v. Crim. Jack Townsend covered the Third Circuit opinion in the case here, and highlights various other potential issues this provision presents. I commend to the readers the comments following the post between Jack and Joe DiRuzzo, the attorney currently representing Mr. Crim, which focused on the potential for Mr. Crim to prevail on his ex post facto claim. Mr. DiRuzzo has petitioned SCOTUS for a writ of certiorari, which the Court has not yet reviewed. A summary of the case and the petition can be found here. Although this is somewhat limited in its application, it does highlight one of the many cases Keith mentioned in his post that are working their way through the system.
  • You think IRS employees are bad at paying taxes, you should check out Hill staffers (or so the Commish says). A while back Keith wrote a post on the deadly sins. Keith notes that the current debate about IRS employees shows once again Congress is missing the opportunity to pick up low hanging fruit on the collection tree from all federal employees by focusing on the most compliant agency.  Of course, the IRS employees should pay their taxes but so should everyone employed by the United States.
  • In US v. Guerin, the ND of Cali held that an officer/founder/shareholder was liable for the TFRP, and did not agree with the individual’s position that all financial decisions were collaborative, and he could not have taken the actions resulting in the penalty on his own. The Court stated the test did not require the Service to show who the most responsible party was, just that the individual was a responsible person and took punishable actions. Matthew Lee, at Tax Controversy Watch, has extensive coverage here.
  • From the CD of Cali, the Court in US v. Baileys found the IRS collection action for estate taxes was untimely under Section 6502(a), which requires a ten year of statute of limitations for collection. The collection action occurred 10 years and 1,374 days after assessment in this case, and the taxpayer agreed that the statute had been tolled for 572 days for a collection due process hearing and under Sections 6161 (extension to pay) and 6503 (suspension when extension to pay). The Service claimed the statue had been further tolled by the taxpayer’s extension of time to pay taxes under Section 6166 (installment payments for closely held business interests). The Court found a protective election was made under Treas. Reg. 20-6166-1(d), but the estate never made any further election, including the required final notice of election. The Service argued the statute should have been equitably tolled while the protective election was made because the estate benefitted from not having the estate liquidated by the collections. The Court found this reading contrary to the statute. Couldn’t find a link to the holding yet.
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Stephen J. Olsen’s practice includes tax planning and controversy matters for individuals, businesses and exempt entities for the law firm Gawthrop Greenwood, PC.



  1. Carl Smith says

    Stephen, I went on PACER and read the Baileys case decision and the government’s filing on the defendants’ motion for summary judgment. I was interested to do so, since the DOJ is arguing in the 9th Cir. Volpicelli case (in the context of the wrongful levy statue of limitations at 6532(c)) that there is no equitable tolling of any tax deadline. While I agree with your post that, in effect, the government was arguing for equitable tolling in the Baileys case, I note that neither the government nor the judge used the words “equitable tolling”. Both just used the word “tolling”. Thus, neither the DOJ nor judge went on to cite any case law related to equitable tolling. I don’t know that the government was trying to be clever here. It may just be that the DOJ attorney did not know DOJ policy about equitable tolling of tax deadlines.

    • Thanks Carl, that was just sloppy drafting on my part. I had actually intended to rephrase the post to say the opinion made the position sound very similar to equitable tolling. The Court did not use the word “equitable” anywhere in the opinion.

      Unfortunately, I was doing ten things at once, and forgot to make the change, which made the post a little misleading. On the plus side, it resulted in your providing insight into my otherwise dull recap.

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