A Checklist for Approval of Stipulated Decisions

We welcome back Commenter in Chief Bob Kamman who has been looking at Tax Court orders returning (bouncing) decision documents to the parties. Today, Bob looks at orders from eight days in November.  I will follow up in the coming days with a more detailed discussion of some of the orders.  You will be struck by how many mistakes the parties make in submitting decision documents.  Because these documents are generally prepared by Chief Counsel attorneys and because so many taxpayers are pro se, the post suggests additional training is needed for the Chief Counsel attorneys.

This post addresses orders regarding stipulated decisions, but we want to note that this morning the Tax Court has already begun issuing what will be a deluge of orders dismissing the approximately 400 cases being held in abeyance pending the outcome in the Hallmark case decided yesterday.  A team will be carefully reviewing each order and taking steps to protect the interest of petitioners with viable equitable tolling arguments.  Keith

You have avoided the hazards of further litigation by agreeing to a settlement with IRS in a Tax Court case. Now comes the final step of what should be easy but seems difficult: getting the stipulated decision past the eagle eyes of the judge who must sign it. Have rejections of these become more frequent this year? Has the quality of Chief Counsel paperwork diminished? Does this have something to do with the Tax Court changing the top line on its orders from 12-point Times New Roman to 20-point Gothic-style Archive Black Title, similar to the mastheads of the Washington Post and New York Times?

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My guess is that the judges have a checklist, but Chief Counsel does not. Petitioners, represented or not, can assist the Court by learning from the mistakes of others. The following are from orders issued in the eight business days between November 14 and November 23, 2022. Petitioner surname and docket number are shown. All of them order that “the Proposed Stipulated Decision is hereby deemed stricken from the Court’s record in this case.” Unless otherwise indicated, the order came from Chief Judge Kerrigan.

Gaddie, Docket No. 12604-22: On November 21, 2022, the parties filed a Proposed Stipulated Decision for the Court’s consideration. However the deficiency proposed therein for the 2018 taxable year, $5,173.00, is more than the deficiency determined for that year in the Notice of Deficiency, $3,449.00. Respondent did not assert an increased deficiency in the Answer and nothing below the line in the Proposed Stipulated Decision accounts for the increase. Accordingly, the Court is unable to process the parties’ Proposed Stipulated Decision.

Shoemaker, 1793-22: On November 22, 2022, the Court received from the parties in the above docketed matter a Proposed Stipulated Decision resolving this litigation. That decision was premised on a Settlement Stipulation filed the same date purportedly establishing an overpayment for the underlying 2020 taxable year. However, review shows that the Settlement Stipulation fails to attach the Statement of Account referenced therein reflecting such overpayment. (Similarly, Dudeck in 29676-21S, noting that this is Form 3623; and Lockwood, 2379-22S, both Judge Leyden. )

Sletten, 29431-21 (Judge Copeland): On November 9, 2022, the parties filed with the Court a Proposed Stipulated Decision (Index No. 9). Upon review of the Proposed Stipulated Decision, it was discovered that there was an incorrect docket number listed on the signature page. On November 18, 2022, the parties filed with the Court a corrected Proposed Stipulated Decision (Index No. 10).

Henderson, 35625-21S (Judge Landy): This case is scheduled for trial at the session of the Court to commence at Dallas, Texas on December 5, 2022. On November 16, 2022, the parties filed a Proposed Stipulated Decision (Doc. 11) which contained extraneous documents. The Court is therefore unable to process the parties’ Proposed Stipulated Decision.

Ordonez-Haggard, 1088-22S (Judge Choi): On November 18, 2022, the parties filed a Proposed Stipulated Decision document (index # 7). Upon review it was seen that on in [sic] the second paragraph indicating there is a penalty due from petitioner, the taxable year listed is 2018 instead of the taxable year at issue, 2019. Therefore, the Proposed Stipulated Decision document is erroneous, and we will strike it and instruct the parties to file a corrected one.

Kostelac, 9711-15 (Judge Paris): On October 28, 2022, docket entry 82, the parties filed a Proposed Stipulated Decision. The document had several inconsistencies, making the Stipulated Decision incorrect. Therefore, the Court will strike this document. On November 16, 2022, docket entry 83, the parties again filed a Stipulated Decision. This decision document appears to be correct, and the Court will accept and enter this Decision. On November 18, 2022, docket entry 84, due to an inadvertent clerical, the Court issued an Order to strike the Proposed Stipulated Decision document, filed October 28, 2022, docket entry 83. The Order which was intended for the case at Docket No. 9710-15, but instead was inadvertently filed in this Docket No., 9711-15. Therefore, the Court will strike the November 18, 2022, Order from the Court’s record for the case at Docket No. 9711-15.

Strickland, 19121-21S (Judge Landy): On November 18, 2022, the parties filed a Proposed Stipulated Decision (Doc. 17) which did not address the accuracy-related penalty pursuant to I.R.C. § 6662(a). The Court is therefore unable to process the parties’ Proposed Stipulated Decision.

Niedermayer,36207-21S (Judge Leyden): On November 18, 2022, the parties filed a Proposed Stipulated Decision. Upon review, it appears that the parties attached both the decision and the settlement stipulation in one document. Thus, it is an improper filing because the Settlement Stipulation and the Proposed Stipulated Decision shall be filed separately.

Rios, 8775-22S (Judge Landy): This case is calendared for trial at the Court’s Miami, Florida Trial Session, scheduled to commence on February 27, 2023. On November 10, 2022, the parties filed a Proposed Stipulated Decision (Doc. 8) which does not address the addition to tax pursuant to I.R.C. § 6651(a)(3). The Court is therefore unable to process the parties’ Proposed Stipulated Decision.

Yoozbashizadeh, 25837-21S (Judge Choi): This case was calendared for trial at the Court’s Los Angeles, California trial session, which was scheduled to begin November 14, 2022. On November 14, 2022, this case was called. There was no appearance by nor anyone on behalf of petitioner. Respondent’s Counsel appeared and was heard. At that time respondent informed the Court that on November 10, 2022, a Proposed Stipulated Decision (index #14) had been electronically filed with the Court. The Court then informed respondent that petitioner’s signature was typed and that an original signature was needed. Respondent agreed, therefore the Proposed Stipulated Decision filed by the parties on November 10, 2022, (index #14) is erroneous and we will strike it.

Stuhlman, 6504-20S (Judge Nega): This case was calendared for trial at the session of the Court conducted in person on Tuesday, September 6, 2022, in Fresno, California. On July 10, 2020, petitioner filed the petition commencing this case. In that petition, petitioner requested that the Court proceed with this case under the Court’s small tax case procedures. On November 16, 2022, the parties filed a Proposed Stipulated Decision. The caption of that decision reflects the correct docket number associated with this case but failed to include the “S” designation. (Similarly, Burke, 31804-21S, Judge Leyden.)

McBride, 34784-21S (Judge Copeland): On August 31, 2022, the parties filed with the Court a Proposed Stipulated Decision (Index No. 10). Upon the Court’s review, an error was noticed. The Proposed Stipulated Decision stated that there was no penalty for taxable year 2018 under I.R.C. Section 6651(a)(2) and should have stated that there was no penalty for taxable year 2018 under I.R.C. Section 6651(a)(1). On November 16, 2022, the parties filed with the Court a corrected Proposed Stipulated Decision (Index No. 13).

Martin,7427-22: By Order served August 26, 2022, the Court directed petitioner to pay the Court’s $60.00 filing fee on or before September 23, 2022. To date, the Court’s filing fee in this case remains unpaid. Upon due consideration and for cause, it is ORDERED that the parties’ Proposed Stipulated Decision, filed August 25, 2022, is hereby deemed stricken from the Court’s record in this case.

Loper, 2492-22: On November 16, 2022, the parties filed a Joint Proposed Stipulated Decision. Upon review of the proposed decision, the Court notes that petitioners signed the proposed decision using a cursive font. The Court does not accept for electronic filing a stipulated decision that contains a stylized signature such as one using a cursive font. See Rules 23(a)(3); Frequently Asked Questions About DAWSON.

Leo, 32671-21S (Judge Landy): On October 26, 2022, the parties filed a settlement stipulation and proposed stipulated decision at Doc. 8 and 9. Upon review of the settlement stipulation and proposed stipulated decision, the Court was concerned whether the notice of deficiency (notice) for the taxable year at issue underlying this proceeding was valid. The settlement stipulation suggested that the deficiency was paid prior to the issuance of the notice. By Order served October 27, 2022, the Court directed respondent to file either: (1) a report addressing and establishing the validity of the notice of deficiency for 2019, or (2) an appropriate jurisdictional motion. Respondent filed a response on November 9, 2022, attaching a complete copy of the notice. On November 14, 2022, respondent filed a Motion to Dismiss for Lack of Jurisdiction on the ground that the deficiency was paid prior to the issuance of the notice. Respondent’s motion stated that petitioners do not object to the Court granting this motion, and petitioners confirmed this statement on November 14 and 17, 2022.

Deverter, 8675-22: On November 10, 2022, the parties filed a proposed stipulated decision for the Court’s consideration. A review of that document discloses that it does not address a penalty under I.R.C. section 6662(a) that is set forth in the notice of deficiency on which this case is based and includes additions to tax under I.R.C. sections 6651(a)(1) and (a)(2) that do not appear to have been set forth in the notice of deficiency.

Wong, 20602-21 (Judge Foley): Upon review of the record, there are several typographical errors on the Proposed Stipulated Decision, filed November 10, 2022. Further, discrepancies exist between the Stipulation of Settlement, filed November 10, 2022, and the Proposed Stipulated Decision.

Conrad, 17750-21: On November 10, 2022, the Court received from the parties in the above docketed matter a Proposed Stipulated Decision purporting to resolve this litigation. However, review reveals multiple shortcomings. First, there is a typographical error in one of the references to the 2018 taxable year. Second, the decision appears to deal with a penalty under section 6662(b)(1) of the Internal Revenue Code, whereas the underlying notice of deficiency involves section 6662(b)(2), I.R.C. Third, the signature block does not reflect the current address of record for petitioner.

Brevil, 29919-22: On November 3, 2022, the parties filed for the Court’s consideration a proposed stipulated decision. By Order served November 7, 2022, the Court removed the small tax case designation and amended the docket number by deleting the “S”. On November 10, 2022, the parties filed a revised proposed stipulated decision.

Gallegos, 1177-22S: On November 15, 2022, the parties electronically filed a Joint Proposed Stipulated Decision and a Joint Settlement Stipulation. Upon review of the proposed stipulated decision, the Court notes that the overpayment amount is incorrect.

Ritchings, 4261-22S: On November 9, 2022, the parties filed a Proposed Stipulated Decision (Doc. 15) which states a deficiency for taxable year 2018, not 2019, and the decision does not address the accuracy-related penalty, pursuant to I.R.C. § 6662.

Licorish, 3524-22S: On November 10, 2022, the parties filed a Settlement Stipulation and a revised Proposed Stipulated Decision. However, upon review of the former, the Court notes that the Settlement Stipulation appears to be a duplicate of the Settlement Stipulation filed October 11, 2022, at Docket Index No. 5. Upon review of the latter, the Court notes that the proposed decision document references an I.R.C. section 6662(a) penalty. Conversely, the underlying Notice of Deficiency upon which this case is based does not. Moreover, the Court notes that the proposed decision document does not address petitioner’s liability, if any, for the I.R.C. section 6676 penalty determined in the Notice of Deficiency.

Vailes, 27998-21 (Judge Ashford): On November 10, 2022, the parties filed a Proposed Stipulated Decision. However, on the same day, the Court entered and served on the parties an Order and Decision that resolved all issues in this case (reflecting the same terms as the Proposed Stipulated Decision) and this case was closed.

And so forth. These errors should be caught by attorneys or paralegals before documents are filed. I assume that Tax Court judges have clerks or administrative staff to review filings for obvious mistakes, but it wastes judicial resources when rejections must be signed by a Presidential appointee whose confirmation by the Senate was not based on proofreading skills.

I looked at a similar period during 2021. There were about as many “bounced” stipulated decisions, but often the reasons were different. Then-Chief Judge Foley caught cases, for example, where the stipulation and the decision were the same document, rather than separate ones as required. Or the “S” designation was missing from captions. Or the Notice of Deficiency was not filed, or its contents varied from the stipulation.

In the military, troops are sometimes ordered to “stand down,” taking a break from regular duties to address major operational concerns. Perhaps it is time for Chief Counsel to order a “stand down” for all personnel to review document preparation after a Tax Court case has settled.

Congress Should Make 2022 Donations to Ukraine Relief Deductible in 2021

We welcome back commenter in chief Bob Kamman with a suggestion to Congress regarding how it could help further to provide relief for the individuals impacted by the crisis in Ukraine.  Keith

Ukraine President Volodymyr Zelensky addressed the United States Senate on March 5, 2022, by video connection.  President Zelensky is a law-school graduate, although he chose to follow what some consider the more respectable profession of acting until called to politics.  But he is probably not familiar with American tax law and specifically the enactment 17 years ago of the Indian Ocean Tsunami Relief Act.

That law allowed Americans to deduct on their 2004 federal income tax return, any contributions made in January 2005 for relief of tsunami victims.   The tsunami occurred on December 26, 2004, with an epicenter near Sumatra, Indonesia.

Generally, retroactive legislation early in the following year has been more of a disaster than the one it is trying to ameliorate.  But come on, guys, as our President might say.  This is a war on a European country of more than 40 million people.  The refugee count is already in the millions. 

So, announce it now.  Donations made to qualified organizations by April 18 may be claimed on either a 2021 or 2022 return.  Yes, many people have already filed, but those with deeper pockets are more likely to file closer to the deadline or to request an extension.

The legislation doesn’t have to be passed tomorrow.  Just introduce it with enough bipartisan sponsors that the effective date is certain. 

And maybe this would be more symbolic than productive in net donations for the year.  But when was a better time for symbolism?

There are many charities that qualify for a tax deduction under Sec. 501(c)(3) The Philadelphia Inquirer put together a list of some organizations last week.  I am sure there are others, and publicity about a new option on year of deduction will spur efforts to put out the word on them.

Memoirs of the Last Century: Some Notes on Economic Reality and Section 7602(e)

We welcome back Bob Kamman who writes today about the past and how it matters in having a full understanding of the current debate forbidding the use of financial status or economic reality examination techniques.  Like Bob, I remember when the IRS rolled out economic audits.  His remembrances and insights help inform the current debate.

Les and I will be working with the Pittsburgh Tax Review to create a special edition on RRA 98 for its 25th birthday.  Maybe this will become one of the resources Bob seeks for Caleb’s students.  We welcome stories and comments from others who remember the lead up to that memorable tax procedure legislation.  Keith

In two recent posts available here and here, Professor Caleb Smith has discussed the current status and future implications of Code Section 7602(e), which forbids the use of “financial status or economic reality examination techniques” unless there is a “reasonable indication that there is a likelihood of unreported income.” 

Whatever that means.

The prohibition was part of the IRS Restructuring and Reform Act of 1998, and therefore has been law during all of Professor Smith’s professional career.  I am sure he knows much of the history behind RRA98, but are there resources for explaining its meaning to his students?

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Allow me to reminisce about the events of 27 years ago, because a page of history may be worth a volume of statutory analysis.  I was there.  In fact, I was among the first to see it coming.

The first mention I encountered of “lifestyle audits” was at a regional gathering of 400 tax practitioners in Ogden, Utah in September, 1994.  We had been invited to seminars and a rare tour of the Service Center by former IRS Assistant Commissioner Robert Terry, who had stepped down from his position in Washington to become Director of that facility in his home state. Commissioner Margaret Milner Richardson was a keynote speaker.  (I asked her when IRS would implement the long-promised program of providing a PTIN so that preparers would not have to enter their SSN on every return they prepared.  She had no idea what I was talking about.)

The details on “Economic Reality” audits, meanwhile, came from John Monaco, the IRS Assistant Commissioner for Examination.  I wrote about it in an article for the November 1994 edition of “Tax Savings Report.”  From that article:

Every IRS auditor is going back to school for a week this Fall to learn a radical new approach to the job.

For years, IRS auditors have focused on paper and numbers – tax returns and the entries on them.  Now, auditors are being told to take a closer look at individual taxpayers using the increased capacity of computer matching.  When they see the whole picture, they ask, “What’s wrong with it?”

In an Economic Reality audit, inquiring minds at the IRS want to know:

– Your net worth.  Has it grown over a period of years due to hidden income?

– Your lifestyle, and especially your personal living expenses.  Do you indulge champagne tastes, when your Form 1040 shows a beer budget?

– How you make a living.  The IRS will pay attention to typical ways it has caught others in the same business who understate income or exaggerate deductions.

Auditors will go into an Economic Reality examination armed with data assembled through improved computer technology. [They] will already know whether you live in an affluent neighborhood and how much your car is worth.

Will the public approve of this increased interest by the federal government in private financial affairs?  Privacy concerns have to be addressed, acknowledged [Monaco], in a recent presentation to tax preparers on Economic Reality.

“You don’t get into these questions until there is an indication of unreported cash.  Most of the public demands that we do it,” Monaco said. “What else do you do when you see someone buy a $100,000 boat, and support a family of four in a wealthy neighborhood, on a reported income of $20,000 for each of the last three years?”

In IRS field tests, Monaco said, Economic Reality has succeeded.  When confronted with questions concerning their lifestyle and net worth, taxpayers readily signed agreements to pay more tax.  “Our problem is deciding how many to refer for criminal investigation, and how many stay as civil matters only,” Monaco said.

And one local audit manager pointed out that Economic Reality can occasionally benefit a taxpayer, too.  One planned audit was canceled when a three-year review of a computer business showed that, after early profits from a software product, it became obsolete, and the taxpayer lived on savings and pursued unprofitable ventures.

To refine safeguards against auditors being too aggressive, the IRS has also scheduled them for follow-up training sessions, of two to four hours, every two weeks after the basic Economic Reality boot camp.

“If we’re not careful how we do it,” Monaco said, “we won’t be doing it for very long.  That’s when Congress will add provisions to the Taxpayer Bill of Rights.”

Four years before RRA98, he was certainly prophetic.

The newsletter editor Ellen M. Katz wanted to make sure that I had this scoop right, so she did some fact checking herself.

We asked IRS spokesman Wilson Fadely to describe the new “Economic Reality” audit program.  His reply:

“An auditor will no longer just say ‘let me see your canceled checks or cash journal.’ We’ll be looking at it a different way, by examining whether the tax return fits the economic situation.  Now, we’ll ask questions, like: ‘Are there very large interest payments or large mortgage payments and not much income?  If so, something is not right.  A lot of agents have been doing this for years.  But now the practice will be institutionalized and put in the training program for auditors to follow.”

In June 1995, I followed up with a newsletter article after trying to get more information on the program.  The IRS was beginning to sense the public was uncomfortable.  So I wrote:

When IRS Commissioner Margaret Milner Richardson was asked recently about the new audit methods that investigate taxpayer lifestyles, she shrugged off the major policy change as nothing innovative. 

“It’s the same technique we used on Al Capone” she said in a PBS interview.  So now, with the help of the auditing technique called “Economic Reality,” American citizens in the 1990s can be treated like Chicago mobsters of the 1930s.

But today, it only takes a few strokes of a computer keyboard for IRS to yield vast amounts of personal financial data on a targeted taxpayer.  “The IRS ‘culture’ as to how audits are done is changing and the ‘culture’ of our clients is also changing,” according to the training material the IRS uses to teach auditors about the new program.  The materials were released by the tax agency under a Freedom of Information Act request, but they were not obtained easily. 

In September, a FOIA request was submitted for Tax Savings Report.  Such requests are supposed to be filled in thirty days, and often are.  Five months later, after repeated letters and phone calls, IRS finally sent part of the materials.

IRS auditors learning how to conduct “Economic Reality” audits are told that “to be effective, we need to adapt” to the changing culture.  They are told to discuss various topics, including the following subjects, but the training materials do not elaborate on what should be said:

– Diversity

– Respect for Government Authority

– Influx of Immigrants

– Emphasis on Expeditious Closing (how quickly an audit is completed)

– Aggressive vs. Kinder/Gentler (approach toward taxpayers).

Auditors learn that Economic Reality “finds meaning through a process of gathering information about a taxpayer,” and “is built upon a universe of financial information about the taxpayer and their lifestyle.”  In a later session, auditors learn “to develop a picture, or profile of the taxpayer’s lifestyle and its cost.  The process is designed to compare lifestyle cost with available resources and to alert you to inconsistencies.”

Shortly after my first article was published in November 1994, the Washington Post picked up on the story.  Noted Washington Post financial writer Albert Crenshaw, in a story syndicated to other newspapers, wrote:

After years of checking W-2s and 1099s and making sure that taxpayers have receipts for their deductions, the Internal Revenue Service is adding a new weapon to its audit arsenal.  It’s called “economic reality,” and it means that IRS agents are going to start looking beyond the numbers of the return to make sure the report jibes with the taxpayer’s assets and lifestyle.” …. The agency already has begun training auditors in “economic reality” techniques, and agents will be expected to implement them as soon as they complete the course. 

IRS officials say the training includes a heavy emphasis on privacy and ethics, designed to make sure taxpayers’ rights are protected.  Nonetheless, some experts and a number of the agency’s regular critics are voicing concern.

Crenshaw’s article finished with a quote.  “This represents a fundamental shift in the philosophy behind audits,” said Pete Sepp of the National Taxpayers Union.  NTU was the publisher of the Tax Savings Report newsletter.

Later that month, financial columnist Kathy Kristof of the Los Angeles Times also reported the latest news about tax audits:

…[IRS] just launched an auditing initiative called economic reality, an expanded and improved method of nabbing people who understate their incomes.

…When these folks get audited, they’ll also find that the IRS is not focusing completely on their tax returns.  Through the wonders of computer matching, IRS agents can find out if you own a boat, a plane or a luxury car.  They can determine the size of your mortgage.  And they can subpoena your bank records to find out just how much money is going in and out of your accounts, says Bob Kamman, a Phoenix tax accountant.

(Journalists sometimes have a problem with identifying me as a lawyer.)

It wasn’t until July 28, 1996 that the New York Times discovered the issue. The story by Barbara Whitaker led with an anecdote:

When an Internal Revenue Service agent said she wanted to audit Dave and Lucille Miller’s 1993 and 1994 tax returns, the couple thought it sounded like a simple thing.

“She called my wife, asked her a few questions and said, ‘Well, you seem to be pretty well in the know of what’s going on,’ ” said Mr. Miller, an auto salvage dealer in Clearwater, Minn. ” ‘Maybe we’ll just sit down at the kitchen table and hash this out.’ “

They hashed it out for a month and never once made it into the kitchen. The meetings, at Mr. Miller’s salvage yard and at his accountant’s office, were a free‑for‑all of questions about expenditures on everything from the most mundane items, like groceries and clothing, to past vacations.

“Can you tell me just off the top of your head how many groceries you bought two years ago?” Mr. Miller asked rhetorically. “How many vacations did you take? Well, what do you call a vacation? If you went away for the weekend?”

At the heart of Mr. Miller’s frustration is what the I.R.S. calls its “financial status auditing technique,” more commonly known as an “economic reality” or “life style” audit. The principle is simple. Rather than just examine a tax return to see that all the items add up, as in a regular audit, revenue agents look at whether the figures mesh with how the person lives. If the taxpayer has a new Mercedes in the garage and declares only $20,000 in income, the I.R.S. would likely raise an eyebrow.

…Anita L. Horn, a spokeswoman for the American Institute of Certified Public Accountants, said her organization had received more than 100 complaints about life‑style audits since September, when the group started keeping track. She said there were complaints about the nature of the questions and about agent demands to interview taxpayers rather than deal with their representatives. The group said the technique often led to drawn‑out audits.

Looking over some of the complaints, Ms. Horn cited a case in which an agent asked what a woman kept in her bedroom drawers. Another taxpayer was asked how much cash was buried in the backyard, and a California couple had to meet with an agent in their home when the woman was on bed rest, eight months pregnant with triplets.

As Professor Smith points out, “financial status or economic reality” audits are not defined by Code Section 7602(e).  Students of tax history, though, should realize that both Congress and IRS knew in 1998 exactly what they were talking about.

The Law Does Not Forbid a Helpful Internal Revenue Policy

Commenter in chief Bob Kamman returns with a colorful story following up on yesterday’s topic of jeopardy assessment.

The Fumo case, of course, is small potatoes.  If you want a real jeopardy assessment involving a real politician, you have to go back to March 13, 1925, when Internal Revenue assessed James Couzens, United States Senator from Michigan, $10.9 million in tax based on his sale in 1919 of Ford Motor Company stock to Henry and Edsel Ford.  Until 1915, Couzens had been vice president and treasurer of Ford Motor.

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The assessment was announced on the Senate floor by Couzens himself, who accused Treasury Secretary Andrew Mellon of initiating the audit to discipline Couzens for his investigation of the Bureau of Internal Revenue.  Couzens was a former mayor of Detroit who had been appointed to a vacant Senate seat in 1922 and then elected for a full term, starting nine days before the jeopardy assessment. 

Couzens (pronounced “cousins”) was one of several minority shareholders in Ford who complained that Ford was not paying dividends even though its profits could support them.  A state court agreed, so the Ford family agreed to buy them out.  The shareholders were reluctant to sell without knowing how much they would owe in income taxes, which were at a post-war high of 73% (with no break for capital gains).

And the shareholders did not know their cost basis because it depended on the value of the stock on March 1, 1913, when the income tax went into effect.  Ford was not publicly traded.  At the time, Internal Revenue would audit a company to determine this amount.  Henry Ford asked for an audit, and the Commissioner authorized it.

That “courtesy audit” placed the value at  $9,489 per share.  Couzens, who sold 2,180 shares for $29.3 million, used this audit result when he filed his 1919 return.  But then, under a later Commissioner, his return was audited under a new Commissioner.  (His return had also been audited in 1920, but for a different issue.)  And this time, the valuation was reduced to $2,634 per share.  A jeopardy assessment was required because the statute of limitations was about to expire on March 15, 1925, five years after the due date of the original return.  

Couzens and the other shareholders negotiated in secret with Internal Revenue lawyers until their lawsuit was filed in December 1925.  When it went to trial in January 1927 before the Federal Board of Tax Appeals (predecessor to the Tax Court), it was the largest income tax case in U.S. history. Government lawyers had reduced the claim by $1.5 million, allowing a value of  $3,548 per share, so only $9.4 million was at stake.

The petitioners argued estoppel required use of the higher valuation, but the BTA disagreed, and explained in terms that might be useful today:

The evidence shows that at the time of the valuation there was in the Bureau of Internal Revenue a policy of being helpful to taxpayers in adjusting them to the new tax law, but that this policy interfered with the administration of the assessment and collection of taxes and was soon restricted. . . .It should not be understood that the law forbids a helpful policy.  There is a public interest in the cooperation by the Bureau of Internal Revenue, and it should be given as freely as efficiency and good administration permit.  But it cannot go so far as to fix a responsibility beyond that contemplated by the statute, and it would be unjustified to stifle a spirit of helpfulness with a caution against binding and irrevocable action.

In May 1928, the three participating judges of the Board decided  the stock was worth $10,000 per share.  Couzens owed nothing, and could collect a refund of the $92,000 in taxes he had paid in 1924, having filed a timely claim, because of the earlier audit on an unrelated issue.  

Two other Ford shareholders involved in the case were the estates of John and Horace Dodge, also well known in the automobile industry. Another of the shareholders, John W. Anderson, was represented by E. Barrett Prettyman, who later became an Appeals Court judge and had a D.C. courthouse named after him.

Things That Make You Say Hmmm

We welcome back guest blogger and commenter in chief, Bob Kamman.  As usual, Bob has found things that the rest of us overlook. 

In addition to the interesting twists on the way things work that Bob discusses below, I received a message from Carl Smith who, though retired, still takes some interest in what is happening in the world of tax procedure.  Carl provides some data on the Tax Court that might be of interest to court watchers.  After checking DAWSON, Carl sent the following message:

The last docket number for 2020 was 15,351.  Since the court doesn’t give out the first 100 docket numbers (i.e., the court starts at docket no. 101), that means filings in 2020 totaled 15,251, which is the lowest in two decades.  (The 1998 Act so froze the IRS that, according to Dubroff and Hellwig (Appendix B), only roughly 14,000 petitions were filed in 1999 and 15,000 petitions were filed in 2000.)  The last docket number in 2019 was 23,105, so filings in 2020 fell off about a third from 2019 to 2020.

As of right now, May 27, before the court’s Clerk’s Office opens, the last docket number is 8856-21 — only slightly ahead of the pace for 2020, though I would note that the first 10 weeks of 2020 were not impacted by the virus at all.

Oddly, the Tax Court is still very backlogged in serving petitions on the IRS.  Docket 8856-21 was filed on 3/15, but says it was served 5/27 — i.e., it will be later today.  That time gap of two and a half months to serve the petition is typical right now. Looking to the last few dockets of 2019, it typically took only 14 days to serve a petition filed on Dec. 31, 2019.

Keith

I thought I knew at least the basics of tax procedure, but lately I am starting to wonder if they changed the rules while I was slipping into old age.

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For example, there is the statute of limitations for refunds of individual income tax.  From a Notice CP81 mailed from IRS in Austin and dated May 24, 2021: “We haven’t received your tax return for the year shown above.  The statue [yes, that’s what it says, not statute] of limitations for claiming a refund for the tax year shown above is set to expire.  As a result, you are at risk of losing the right to a potential refund of your credits and/or payments shown above.”

The credit on the account is $145. The tax year is 2017.

No, the taxpayer does not live in Texas or other disaster area.  I should say, did not live there.  He died in July 2020. 

Of course it’s possible that the credit came from a timely-filed extension request in April 2018.  No one alive now, has any records of what he did back then.  We do know that IRS paid him refunds on 2018 and 2019 returns, without any reminders or requests about 2017.  Requesting an account transcript for a decedent would take some time, to find out. 

And another thing.  I thought I knew the rules about when IRS would pay interest on refunds, and when it would not.

Then another tax practitioner reported that a Form 1040 that was e-filed on April 15 resulted in a refund deposited on April 23, with several dollars of interest added.  The refund was in the $10,000 range.  I had my doubts about this, until something similar happened with one of my clients.

They had filed their return in March, but claimed a “Recovery Rebate Credit” for a payment they had not received.  IRS is verifying all of these, so the refund was not approved and deposited to their bank account until April 28.  It included $1.31 in interest. 

I had always thought that IRS has 45 days from the date the return is due, or when received if later, to pay the refund without interest.  The IRS website states, “We have administrative time (typically 45 days) to issue your refund without paying interest on it.”

So I did some research, and this is what I found.  But I may not have gone far enough.

Code Section 7508A deals with disaster areas and allowed IRS to permit last year’s 3-month extension and this year’s 1-month extension.  It provides:

( c)        Special rules for overpayments
The rules of section 7508(b) shall apply for purposes of this section.

And Section 7508(b) says

(b)         Special rule for overpayments
(1)         In general
Subsection (a) shall not apply for purposes of determining the amount of interest on any overpayment of tax.
(2)         Special rules
If an individual is entitled to the benefits of subsection (a) with respect to any return and such return is timely filed (determined after the application of such subsection), subsections (b)(3) and (e) of section 6611 shall not apply.

So what are these two parts of Section 6611 that should be disregarded?

The second one mentioned, 6611(e) has the 45-day rule. So IRS can’t rely on that.

But the first one, 6611(b)(3), deals only with “late returns”. That still leaves Section 6611(b)(2), which gives IRS 30 days to issue a refund with no interest:

(b)         Period
Such interest shall be allowed and paid as follows: . . .
(2)         Refunds
In the case of a refund, from the date of the overpayment to a date (to be determined by the Secretary) preceding the date of the refund check by not more than 30 days, whether or not such refund check is accepted by the taxpayer after tender of such check to the taxpayer. 

So the 45-day rule is out, but shouldn’t the 30-day rule still be followed? At least, that’s the way I followed the trail.  But I could be wrong. I’m expecting a TIGTA or GAO report later this year, telling me why IRS did it right.  But I also expect some members of Congress to lament the interest expenditures.

Then there came along the repeal of the tax on ACA premium underpayments in 2020.  If taxpayers paid less for health insurance last year because they underestimated their income and received too much premium tax credit, they would have to make up the difference – until that requirement was repealed by the American Rescue Plan (ARP) in mid-March.  So now IRS has started issuing refunds to those who had already paid this tax. 

According to other practitioners, these refunds have included interest, even when paid before May 15.

IRS is about to start paying refunds to taxpayers who included unemployment compensation in income, before it was excluded for most returns by ARP.  Should these refunds include interest, even if paid within 45 days of April 15?  I suppose so.  These are, after all, not normal times.

Congress Enacts Law of Unintended Tax Consequences

We welcome back occasional guest blogger and frequent commenter, Bob Kamman.  Bob has a practice in Phoenix that provides both representation and return preparation.  Today, he comes to the rescue of the PT team that has struggled to produce content this past week due to other obligations and provides us with insights on some of the quirks created by the legislation designed to provide relief for taxpayers impacted by the pandemic.  Keith

As the latest Covid-relief legislation makes its way through the Congressional meat grinder, a couple of tax inequities continue to be overlooked. Maybe it’s not too late to correct them.

One is mostly of interest to college students and the low-income taxpayer clinics where they may seek help. The other might interest college professors considering a sabbatical year abroad.

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I) The Unemployment Trap

Many people who lost their jobs in 2020 qualified for federally-funded unemployment benefits that were more generous than those allowed by state programs. Recipients were paid $600 a week for up to 17 weeks, in addition to normal state benefits. Even college students with part-time jobs qualified, in many cases. It didn’t matter if they were under 24 years old, and still being claimed as dependents by their parents.

The $600 weekly checks ended on July 31, 2020, and would not resume until this year. Meanwhile, some people had continued eligibility for state benefits, and for other Covid-related compensation.

Enter the dreaded Kiddie Tax.

Since 1986, children with unearned income of more than a certain amount have been taxed on it at the same marginal rate as their parent(s). This prevented high-bracket adults from shifting investment income to their low-bracket kids. But back then, it only applied to children under age 14.

Congress eventually applied the law to older “children,” including full-time students up to age 23 who were not providing at least half of their support with their own earned income. Their earnings are taxed at the usual rates, but their unearned income is taxed at the higher parental rate. And unemployment is considered unearned income.

Tax practitioners this filing season are finding it not unusual for young unemployed college students to bring in Forms 1099-G showing five-figure amounts for unemployment compensation. If federal tax was withheld at all, it was mostly at a 10% rate. If $10,000 was received, $1,000 was withheld. But if the student must use the higher tax rate of, for example, 24%, the tax could approach $2,400 and the balance due IRS even after withholding, nearly $1,400.

If earned at a job and reported on a Form W-2, none of the $10,000 in wages would be taxed because of the $12,400 standard deduction.

Is this what Congress intended? Probably not.

Will it be fixed by pending legislation? Predictions are welcome in the Comments section below.

II. Welfare for Expatriates

If our unemployed students in the example above must pay IRS another $1,400 on their “unearned” unemployment compensation, what will the federal government do with it? Maybe, send it to one of their instructors.

Suppose you have a job offer from the Sorbonne to teach in Paris for a year at a salary of $180,000. Would it help, if the Treasury added another $1,400 tax-free? And that much for your spouse, also. That’s how the “Economic Impact Payments” have worked in the last two rounds.

They are based on AGI, after the exclusion for income earned abroad. That amount in 2021 is a maximum of $107,600. Then the $1,200 and $600 payments were not reduced unless this post-exclusion AGI exceeded $75,000 – or $150,000 on a joint return. All you must do to claim the exclusion is meet the “physical presence test:” stay overseas more than 330 days out of any 12-month period. (You also have to show that you have not kept your “tax home” in the United States, but for many academics those rules are not onerous.)

Paris is too expensive on $180,000 a year? Try Auckland. Cost of living in New Zealand is lower, and there is less virus around once they let you in.

Of course, educators are just a small minority of the Americans who benefit from this loophole. Half a million taxpayers claim the Section 911 exclusion each year, according to IRS estimates based on 2016 returns.

Are Covid disaster-relief payments for well-paid Americans living abroad what Congress intended? Probably not. A bipartisan group of 16 senators in early February sponsored a budget resolution amendment that promised to target stimulus checks to low- and middle-income families. It passed 99-1.

How simple would this be to fix, with a sentence that defines AGI as the amount before the foreign earned-income exclusion? Very.

Will that happen? Again, your predictions are welcome.

For 2020, IRS Offers Spanish Speakers a “Diez Cuarenta”

We welcome back frequent commenter and occasional guest blogger Bob Kamman with a glimpse of a new Spanish language version of Form 1040 the IRS has tested before as Bob tells us from his research into the history of the form.  He also refers to the music the IRS might add to its call line and that reminded me of a post I wrote in the second year of the blog.  Keith

The idea was rejected by IRS in 1971 and tested with little success in 1994.  But IRS has announced an “aggressive step” that for the next tax season, Form 1040 will be available in Spanish.   According to the IRS press release:

“As part of a larger effort to reach underserved communities, the Internal Revenue Service is taking a number of aggressive steps to expand information and assistance available to taxpayers in additional languages, including providing the Form 1040 in Spanish for the first time.”

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Will the numerous schedules and forms that must be attached to some Ten Forty (Diez Cuarenta) returns also be available in Spanish?  How about the 1040 instructions?  IRS does not tell us.  But the press release notes:

“Other changes include Publication 1, Your Rights as a Taxpayer, is now available in 20 languages. The 2020 version of Publication 17, Your Federal Income Tax, will be available early next year in seven languages – English, Spanish, Vietnamese, Russian, Korean and Chinese (Simplified and Traditional).”

It’s accurate for IRS to claim that this is the first time for Form 1040 to have an official translation, although the Form 1040-PR is in Spanish.  (That form is used by some residents of Puerto Rico to report self-employment income and to claim the additional child tax credit.)

However, in 1994 IRS tested Spanish versions of Form 1040A in Southern California and Florida.  That “simplified” IRS form no longer exists.   The purpose was described then as “aimed at increasing tax revenue.”

An IRS spokesperson in California told the Los Angeles Times, in an article published January 28, 1994:

“Most people want to comply but they don’t know how to and can’t understand the forms.  The IRS isn’t concerned about [which language a person speaks or] legal or illegal status . . . We just want the taxes.”

A spokesperson for the Mexican American Legal Defense and Education Fund (MALDEF) of Orange County, California, saw the Spanish forms as a way to decrease tax-preparer fraud.  “It may minimize the exploitation of the immigrant community by those who file their taxes,” he said.  The Times article reported that “it will also give immigrants, who are often accused of feeding off the public welfare system, a chance to ‘pay their fair share of taxes,’ [the MALDEF spokesperson] said.”

Two members of Congress from Orange County objected, however. Representative Ron Packard, who served from 1983 to 2001, criticized the $100,000 cost of the test, claiming the forms were a waste of money that would just make tax collection more confusing.  “Will the United States government print forms . . . for all of the thousands of different languages spoken and written by people in this country?” he asked.  “At a time when the federal government faces unprecedented fiscal constraints, this does not represent a prudent use of taxpayer funds.” 

Meanwhile, a spokesperson for Representative Dana Rohrabacher, who retired in 2019 after 20 years,  said the Congressman  believed   all government business should be conducted in English and all forms should be printed in English.

What conclusions did IRS draw from the 1994 trial of Spanish tax returns?  A July 27, 1994 article in the South Florida (Fort Lauderdale) Sun Sentinel reported that the program cost taxpayers about $157 per completed return:

“The IRS printed about 500,000 Spanish-language 1040A forms and distributed them in districts in South Florida and the Los Angeles area.  The translation, printing and distribution of the forms cost about $113,000.  As of the middle of May, a total of 718 Americans had filed their tax returns on the forms, called 1040A Espanol, the IRS said.”

Well, at least they tried.  In 1971, Representative Henry B. Gonzalez of Texas, ten years into his 38-year career in Congress, asked IRS to provide a Spanish translation of Form 1040.  IRS wrote him back that “practical difficulties” prevented this.  James N. Kinsel, described as “IRS tax forms chairman,” wrote that “one of these difficulties is the number of different languages which might have to be given this treatment.  Another difficulty stems from our processing and audit activities, and the possible need to employ large numbers of bilingual technicians.” 

Instead, Rep. Gonzalez was told that IRS puts Spanish-speaking workers in income tax assistance offices in areas of the country with high Mexican-American population, and was working on a Spanish-language pamphlet concerning income tax.

Of course, in the Internet era, most of the printing and distribution costs of translated forms are gone.  But as IRS becomes increasingly dependent on private enterprise, will software providers like TurboTax and the coalition that sponsors Free File make it easier for taxpayers to prepare returns in a language other than English?  And how many states will translate their income tax forms and instructions?

Optimistically, IRS tells us that it will allow taxpayers to indicate their choice of language when IRS contacts them.  As the press release notes:

“In addition to being available in English and Spanish, the 2020 Form 1040 will also give taxpayers the opportunity to indicate whether they wish to be contacted in a language other than English. This is a new feature available for the first time this coming filing season.”

It might be more useful if taxpayers were given a choice of music for listening on hold.  Mariachi, Salsa or K-pop?

By the way, the Taxpayer Advocate is called the “Defensor” in Spanish, which translates to “Defender.”  This may remind some of the 1961-65 television series starring E.G. Marshall and Robert Reed, and others of the recent Netflix series starring the Marvel Comics heroes Daredevil, Jessica Jones, Luke Cage, and Iron Fist.

Welcome To Tax Court, Now Go Home (Unless a Lawyer Volunteers)

We welcome back commenter in chief and occasional blogger Bob Kamman for another post with insights on matters otherwise missed.  Today, Bob’s post discusses interesting case outcomes but also the people who made it possible – the amazing volunteers at the calendar calls in New York City.  Frank Agostino has organized the local tax bar at calendar calls in NYC for many years and helped many taxpayers who had no expectation of such assistance when they showed up in court.  For his efforts at the NYC calendar calls and other pro bono work he does, the ABA recognized Frank with the Janet Spragens award in 2012.  Keith

If you’re looking for trouble, consider showing up at Tax Court trial sessions in Manhattan once they resume.  Just ask New Jersey tax attorney Frank Agostino, who keeps going back for more – and that’s a good thing.  His recent examples are cases decided the week of May 18, 2020: Peacock and Pope.  In Peacock, Judge Vasquez notes:

When this case was called from the calendar, Mr. Agostino and Mr. Colasanto were present in the courtroom as volunteer lawyers. They entered appearances on behalf of petitioner husband for purposes of arguing the motion before us, and we are thankful for their pro bono service.

(Phillip Colasanto is an associate in Mr. Agostino’s firm.  Brooklyn lawyer Alec B. Schwartz also appeared, later.)

What is most remarkable about these two cases, aside from the question of what would have happened without last-minute volunteer legal help, is that both involve an IRS notice of deficiency followed by a delayed IRS defense that the Tax Court lacks jurisdiction to review it.  If the notice is the ticket to Tax Court, Chief Counsel is the bouncer who shows up much later to deny petitioner’s entry.

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Peacock Case: Timeline and Result

March 11, 2016:  IRS revenue agent issues a 30-day letter proposing full disallowance of $52,376 in expenses.

April 7, 2016: Taxpayer meets with revenue agent, who issues a “corrected report” disallowing all expenses but removing the accuracy-related penalty. Bottom line is $6,761 tax and $431 interest.

April 8, 2016: Taxpayer hands revenue agent a check for $7,192 with a four-page cover letter.  The last page states,

Because our meeting yesterday was cut short due to time constraints, I request a follow-up meeting to discuss how I may amend my 2013 US Tax Return to better and more accurately reflect the . . . expenses that I claimed on Schedule C.  In the meantime, please find enclosed check no. 5324 dated today, April 8, 2016, in the amount reflected in your revised Form 4549-A. . . .I do, however, respectfully disagree completely with your determination.   I am working on completing IRS Form 12203 – Request for Appeals Review, and will submit it to you under separate cover.

April 8, 2016:  An IRS transcript shows that this payment is recorded with a transaction code 640 as an “advance payment of tax owed.”  With no corresponding assessment, the account will continue to show a credit balance in the same amount. 

October 16, 2016:  Taxpayer, having submitted the form six months earlier, writes to the Appeals office:

I have yet to hear from the IRS regarding my request for Appeals Review.  On April 8, 2016, I hand delivered . . .check number 5324 in the amount of $7,192 along with my letter dated April 8, 2016.  In that letter, I made it crystal clear that this payment was made in protest, and that I completely disagreed with the IRS determination.

March 27, 2017:  Appeals issues a notice of deficiency for $6,544, slightly less than the $6,761 proposed in the revenue agent report.

May 24, 2017:  Petition is filed with Tax Court. IRS answers June 23, 2017.

November 16, 2017:  Trial is set for April 9, 2018.

March 15, 2018: Less than four weeks before trial, IRS files a motion to dismiss for lack of jurisdiction.  It contends that the April 2016 payment extinguished the deficiency before the notice was issued.

March 28, 2018:  Taxpayer responds that the remittance was not a payment but a deposit, preserving his right to petition.

April 9, 2018, continued to April 13, 2018:  At Tax Court hearing, Frank Agostino enters his appearance for taxpayer.  Simultaneous opening briefs ordered for June 27, 2018.  These are filed, and simultaneous answering briefs are filed August 13, 2018.

Twenty-one months later, the 17-page Tax Court opinion by Judge Vasquez walks the parties through:

  • Code Section 6211 and cases decided under it, holding that if a deficiency is paid before a notice of deficiency is issued, then there is no deficiency and the Tax Court has no jurisdiction.
  • Code Section 6603, which nevertheless allows a taxpayer to make a cash deposit to pay any tax not yet assessed.  IRS guidance on how to do this is provided in Rev. Proc. 2005-18. Such a payment stops interest from accruing but preserves the right to petition Tax Court.

According to a footnote, IRS does not contend that the taxpayer’s letter with his April 2016 check fails to satisfy the Rev. Proc. 2005-18 requirements.

The Court then cites in detail various provisions of the Internal Revenue Manual regarding such deposits.  The opinion reminds us (citations omitted),

To be sure, the IRM does not have the force of law . . . Nevertheless, the IRM can be persuasive authority . . . and a review of relevant IRM provisions is instructive in ascertaining the procedures the IRS expects its employees to follow . . .

The April 2016 check, on its memo line, contained the taxpayer’s SSN and the words “payment 2013 Federal Income Tax.” IRS contends that the word “payment” was enough to remove it from the category of “deposit.”  Also, it claims he loses because he used the word “payment” in his October 2016 letter to Appeals.

Five pages later, after further references to the Internal Revenue Manual, the Regulations under Section 6213, and Rev. Proc. 2005-18, the Court finds “Petitioner husband properly designated the remittance as a deposit, respondent treated it as such, and the deficiency was never extinguished by a payment.”

The taxpayer may eventually lose his case, but he has won the right to keep it in Tax Court.  Inoculated against attempts by IRS to deny him a trial less than a month before its first scheduled date, he may have a decision by 2021, regarding how much tax he owes for 2013.

 Pope Case:  Timeline and Result

2018:  Petitioner files a timely Form 1040 return reporting $42,163 in wages and $8,929 in federal income tax withheld. After child tax credit and child care credit, his tax is zero.

October 10, 2018:  IRS sends petitioner a “Letter 4800C, Questionable Credit 30 Day Contact Letter,” informing him that $7,856 of his withholding had been disallowed.  IRS has records of only $2,448 in wages received, and $1,073 in tax withheld. 

November 20, 2018:  After no response, IRS sends a notice of deficiency, which the Court describes:

 …explaining that it had been unable to verify his reported wages and withholding.  The first page of the notice stated that his deficiency for 2017 was “$.00,” . . .The “tax deficiency computation” at the end of the letter shows the “change in tax shown on return” as zero, the “decrease to refundable credits” as zero, and the “tax deficiency” as zero.  The only adjustments appearing in this computation are a $26,407 downward adjustment to petitioner’s AGI and a $7,856 reduction in withholding credits.

February 13, 2019:  Tax Court petition filed.  IRS answers on April 29 (more than 60 days, but the government had been closed for 35 days, ending January 25). 

March 15, 2019:  IRS issues a refund for $1,273: Tax withholding of $1,073; $142 refundable child tax credit; and $58 interest.

August 27, 2019:  Trial set for January 13, 2020.

January 3, 2020:  IRS files a motion to dismiss for failure to properly prosecute.

January 13, 2020:  Petitioner appears for trial.  IRS withdraws its motion to dismiss for failure to prosecute, then moves to dismiss for lack of jurisdiction.  Frank Agostino and Phillip Colasanto enter appearances.  Petitioner is ordered to respond to IRS motion by February 12, 2020.

February 12, 2020:  Petitioner’s response is filed.  A footnote to the decision tells us he attached “a pay stub and a pair of Forms W-2, Wage and Tax Statement, that purport to show tax withholding in excess of the amounts that the IRS verified through third-party reporting.”

Unfortunately, those exhibits don’t matter.  Judge Lauber explains why Sections 6201 and 6211 do not grant Tax Court jurisdiction in cases where the only dispute concerns the credit for income tax withheld.  “Because we lack jurisdiction to redetermine the adjustments to petitioners’ 2017 liability, we do not consider these documents or his assertion that he did not actually overstate his withholding credits.”

What may have happened here is that the taxpayer’s withholding seemed to IRS algorithms far higher than needed for a single parent.  The withholding he claimed was 21% of wages.  Nevertheless, what IRS verified as withholding was 44% of wages.  Employers can make mistakes, and it may take years for them to file corrected W-2 forms.  IRS assumes the employer is correct, and expects the employee to promptly prove otherwise.  The taxpayer may have been using tax withholding as a savings account.  Or, he might have expected his annual income to be four times as great, but then was not employed for nine months. 

The Tax Court might at least have suggested that IRS allow an audit reconsideration.  That could avoid a District Court refund suit.  Pro bono can do only so much.  If Congress intended to remove withholding disputes from Tax Court jurisdiction, it could at least allow them when the issue is not raised by IRS until the day of trial. 

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While cases that result in Tax Court opinions contribute to a practitioner’s highlight reel, those that are settled with no fanfare deserve some attention also.  So we should note the case of Marie Lucien, whose trial in a small-tax case before Judge Guy was set for December 9, 2019.  Mr. Agostino entered a limited appearance and made an oral motion for continuance.  IRS Counsel agreed. Less than three months later and just weeks before the Court closed its doors, a stipulated decision was entered for petitioner, agreeing that she owed no tax for 2016.  Two other lawyers were also there to help out: Jonathan A. Zandi of New York, and Bimal K. Gupta of Parsipanny, N.J.