While Steve is enjoying some well-deserved time away in the sun and surf, he still found time to put together a summary opinion. Here is this week’s addition, covering some developments from last week. Les
read more...- The Service has issued final regulations under Section 6707 for the penalty on material advisors who fail to timely file returns disclosing reportable transactions. Under Section 6707, a penalty is imposed on “material advisors” who fail to file information returns on reportable transactions, which is imposed in an amount of the greater of $50k (or $200k for a listed transaction) or 50% of the amount of gross income derived. The regulations largely follow the proposed regulations, and includes an explanation of the imposition of the penalty, factors to consider in rescission, and what is incomplete or false information.
- The IRS has released Chief Counsel Advice regarding the amount of refund under Section 6511(b)(2) under the language “portion of tax paid within period,” and the Service has concluded it includes any interest and penalties. The term “tax” is defined under Section 6665 and Section 6601(e)(1) to include both interest and penalties, generally, which applied to Section 6511. Nothing earthshattering, but interesting that someone in the Service was wondering about the topic.
- The Tax Trials blog has a nice and brief write up of the Palmer Ranch case, where the Tax Court found it had jurisdiction to review the Section 6662 penalties (a la Woods), and found the taxpayer had overstated the value of a conservation easement; however, no penalties were imposed because the taxpayer had retained a tax attorney and licensed appraiser to assist, and both were disinterested and credible.
- In Lamb v. United States, the District Court for New Jersey found it lacked jurisdiction to hear a refund matter because the taxpayer failed to make a refund claim before the Service, and the Service had not assessed tax beyond the self-reported amount making any challenge to the IRS audit determination was barred by the AIA. I flagged the case, because the District Court also denied the taxpayer’s request to transfer the case to the Tax Court. This is not novel, but we have seen it come up a few times in cases over the last year, so it seemed worth mentioning. Under 28 USC 1631, courts can transfer a case “if it is in the interest of justice” and can transfer it “to such court in which the action or appeal could have been brought.” I’m not sure if the Lamb’s had a legitimate claim that could have been brought before the Tax Court, but that doesn’t matter in this instance, since the allowable courts are listed under 28 USC 610, and the Tax Court is not listed.
- Tax Prof. Timothy Todd has a write up of the Crawford Tax Court case, which shows the difficulty in substantiating certain deductions, and provides direction to students and lawyers about how not to evidence those items.
- In Shiner v. Turnoy, the Court for the Northern District of Illinois found that a taxpayer had willfully filed a fraudulent form 1099 and was liable for the penalty under Section 7434. Peter Reilly has a nice write up over at Forbes of the case. The Court found the information return was bunk because the issuer had sent a check with a restrictive covenant on it saying the check satisfied a debt. The other taxpayer disputed it was in full payment, never cashed the check, and threatened legal action. The issuer then sent a Form 1099, and presumably took a deduction. Turns out, that doesn’t make the check binding or settle the underlying dispute.
- In Free-Pacheco v US, the Court of Federal Claims has a longwinded but interesting discussion of the variance doctrine and how a taxpayer may not argue a legal theory in a suit if it was not raised below in a refund claim. The opinion painstakingly goes through many of the main cases in the area and the challenge of determining if an argument is subsidiary to one that was in a claim or different enough to warrant a jurisdictional bounce. The issue arose in the context of a refund suit relating to gambling losses from slots; taxpayer argued for the first time in court the losses should be on a per session approach along the lines of a DC circuit court case (Park v US) that was issued after this refund claim was before the IRS. The court bounced the per-session loss argument, as in theory taxpayer could “have brought up the per-session taxation theory approved by the United States Court of Appeals for the District of Columbia Circuit in Park in front of the IRS, yet did not.” Three lemons for Free-Pacheco.
- In Eichler v Commissioner, the Tax Court held that IRS could issue a notice of intent to levy when a taxpayer submitted a request for an installment agreement, notwithstanding Section 6331(k)(2), which generally precludes levy when an installment agreement request is pending. The case was a regular Tax Court opinion; I suspect as much because in Eichler the court notes that in the 2011 Tax Court case Tucker v Commissioner the Tax Court in dicta said otherwise and suggested that 6331 precluded the notice of intent to levy. Looks like the court got it right this time.
About Leslie Book
As the attorney for the taxpayer in Tucker, I wanted to clear up something. The comment in the Tucker opinion was an observation that the IRS improperly issued a notice of intent to levy while an OIC (not an installment agreement) was pending. In Tucker, in mid-2004, the IRS issued a notice of tax lien filing to Tucker for the three years 2000-2002, and he requested a CDP hearing in which to discuss an OIC that he had mailed to the IRS and that had crossed in the mail with the lien notice. The OIC covered five years from 1999-2003. A few months later, while the OIC was pending, the IRS issued a NOIL for the year 2003. Two months later, the IRS issued a notice saying it was withdrawing the NOIL for 2003 because it had improperly issued it while the OIC was pending. In dicta, in Tucker (which involved the 2000-2002 years), Judge Gustafson observed that the 2003 NOIL was improperly issued while the OIC was pending. Thus, what Judge Gustafson observed in Tucker was what the IRS apparently thought the law was in 2004. The recent Tax Court opinion says that a pending installment agreement does not bar the IRS from issuing a NOIL, though it does preclude an actually levy. So, it countermands that dicta.
Thanks for the clarification Carl; I filled in the details on the Eichler development and I should have noted that Tucker involved 6331(k)(1), dealing with the restriction on levy while an OIC is pending, rather than 6331(k)(2), dealing with installment agreements. I believe, however, that the analysis as to whether 6331(k) precludes a notice of intent to levy in addition to the levy itself should not depend upon whether the pending collection alternative is an OIC or IA. For those with a keen interest in the Tax Court’s current countermanding of the Tucker dicta, see Eichler at note 6.