There are several CLE programs happening if you are looking for training. The ABA Tax Section has started the online programing based on the sessions that would have been held at its May meeting. You can see the upcoming programming and sign up for that training here.
The Annual NYU Tax Controversy Forum starts this afternoon and features basically everyone in the top brass at the IRS whose work involves tax controversy, aka procedure. You can sign up for it here.
On Monday, June 22 at 1:00 ET the Pro Bono and Tax Clinics committee of the ABA is putting on another one of its COVID-19 seminars. This one is entitled EIPs, Tax Returns, and Judicial Orders in the context of Domestic Violence during the COVID-19 Era. It is cosponsored with the ABA’s Commission on Domestic & Sexual Violence. It’s free for members and you can register for it here. If you read the outstanding post by Nancy Rossner, here, you know it’s a hot topic. Nancy is on the panel along with several other experts.
We have blogged on several occasions about the Tax Court’s narrow view of the circumstances in which it can engage in merits litigation in the Collection Due Process context. In Amanda Iris Gluck Irrevocable Trust v. Commissioner, 154 T.C. No. 11 (2020) the Tax Court allows merits litigation in a situation in which it would not allow the litigation of the item in a deficiency case. The taxpayer does not win everything sought in the litigation but does break new ground.
The IRS made computation adjustments to the Trust’s returns for 2012 through 2015 based on IRC 6231(a)(6) eliminating the NOL the Trust claimed for 2012 and disallowing the claimed carryforwards for 2013-2015, resulting in balance due amounts for those years. Pursuant to the statute, the IRS immediately assessed the resulting tax without issuing a statutory notice of deficiency. After the assessment, the IRS sent out collection notices including the notice of intent to levy. The trust requested a Collection Due Process (CDP) hearing for 2012 through 2016 which led to the Tax Court case.
The Tax Court found that it lacked jurisdiction for the 2012 year because no collection action existed for that year. Although that year marked the root of the adjustments, the adjustments did not result in any liability on which the CDP request could be based. For the 2013 year the payment of the liability mooted the CDP hearing. This left 2014-15 where outstanding liabilities remained. The IRS moved for summary judgment on those years, but the Court denies the motion, finding that for those years the taxpayers can challenge the merits of the underlying liability and the computational adjustment that resulted in the change to the 2012 net operating loss.
A partnership called Promote had some allocated gain it failed to report and it also, along with its partners, failed to file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, with respect to the gain. On its 2012 return the Trust did not report its distributive share of the gain from the partnership and did not notify the IRS of the apparent inconsistency, which allowed the IRS to make a computation adjustment without giving the Trust a pre-assessment challenge.
The Settlement Officer in Appeals determined that the Trust, although it did not receive a statutory notice of deficiency, had a prior opportunity because it could have paid the tax and filed a claim for refund. In the Tax Court case the IRS wisely conceded the incorrectness of the SO’s determination on this point.
The Court holds that since the Trust did not have a prior opportunity to contest the liability without full payment and a claim for refund, it did not have a prior opportunity within the meaning of the statute. The Court does not state that the failure to receive a statutory notice of deficiency, by itself, is a basis for CDP merits litigation.
The Court states:
In CDP cases involving assessable penalties (viz., penalties not subject to deficiency procedures), we have jurisdiction to review a taxpayer’s underlying liability for the penalty provided that he raised during the CDP hearing a proper challenge thereto. See Yari v. Commissioner, 143 T.C. 157, 162 (2014) (ruling that section 6330(d)(1) “expanded the Court’s review of collection actions * * * where the underlying tax liability consists of penalties not reviewable in a deficiency action”), aff’d, 669 F. App’x 489 (9th Cir. 2016); Callahan v. Commissioner, 130 T.C. 44, 49 (2008). Applying the same reasoning we have held that we may, in a CDP case, review underlying liabilities arising from adjustments to partnership items of TEFRA partnerships, even though such items would not have been subject to our review in a deficiency setting. See McNeill v. Commissioner, 148 T.C. 481, 489 (2017).
It does not always work that assessable penalty cases result in the ability to challenge the merits, even if the taxpayer raises the issue during the CDP process. Lavar Taylor made three failed attempts in the circuit courts to challenge the merits of assessable penalties in CDP cases discussed here, here and here. Because of the Court’s view on prior opportunity, no simple explanation seems to work.
In addition to seeking to the SO’s determination on the prior opportunity issue, the IRS also argued before the court the failure of the Trust to properly raise 2014 and 2015 before the SO. In CDP cases the failure to raise an issue at the administrative stage can preclude the taxpayer from raising it once in the Tax Court. The IRS argued that the Trust focused its attention on 2012; however, the Tax Court rejects this argument stating:
Although petitioner might have articulated its position a bit more clearly, its basic contention was not that it had a credit from 2012 sufficient to eliminate its liabilities for subsequent years. Rather, it was contending that the IRS erred in disallowing the NOL carryforward deductions that it had claimed for 2014 and 2015. The situation is no different in principle from one in which the IRS has disallowed (say) business expense deductions for the CDP year. In both scenarios the taxpayer is challenging his underlying tax liability for the CDP year by disputing the disallowance of deductions he had claimed for that year.
Because the source of the problem was the disallowance of NOLs in 2012, it made sense for the Trust to argue about what happened in 2012. The Trust could not have effectively argued about 2014 and 2015 without addressing the year in which the NOLs were disallowed. Even though the Trust could have more clearly laid out its argument, it did enough to preserve the argument for the years impacted by the disallowance of the NOL.
The ruling here does not mean the Trust wins but merely that it will get its chance to show that the computational adjustment made in 2012 did not correctly adjust that return. Because the Code allows a no pre-assessment contest of this type of adjustment, the Tax Court would not routinely have the opportunity to review an adjustment of this type. Here, it has the opportunity to exercise its jurisdiction over something it would not otherwise see because of the CDP merits process.