We welcome guest blogger William Schmidt, one of the four new low income tax clinicians working on our designated order project. William is Clinic Director of the LITC at Kansas Legal Services, a clinic begun in 2015 that is the only LITC for the state of Kansas. William also co-authored the chapter “Securing Information From the IRS by Taxpayers” with Megan Brackney for the upcoming 7th edition of Effectively Representing Your Client Before the IRS. Keith
In both designated orders last week, the Tax Court granted motions for the IRS. One was a motion to dismiss for lack of jurisdiction and the other was a motion for summary judgment. In each case, greater attention to detail from the petitioner(s) could have preserved their cases.
File Your Petition on Time
Docket # 23648-16, Franklin v. C.I.R. (Order and Decision Here)
Our first case involves the Franklins, a married couple, filing their Tax Court petition pro se. Their case will remind you of the mailbox rule from Contracts class as their delay in sending the petition led to dismissal of their case.
The IRS sent a statutory Notice of Deficiency (NOD) to the Franklins on July 25, 2016, by certified mail. The NOD gave a Tax Court petition deadline of October 24, 2016. The response envelope sent by the Franklins that included the petition had a postage meter date of October 19, 2016. The petition had signature dates of October 24, 2016. The United States Postal Service postmark was dated October 28, 2016. The Tax Court received the petition on November 2, 2016. The IRS filed a motion to dismiss for lack of jurisdiction on April 20, 2017, on the grounds that the Franklins did not timely file their petition.
The Court’s analysis takes note that the Franklins delayed several days in the time of signing the petition, metering the envelope and mailing the petition to the Tax Court. They state that the deadline will not be satisfied by printing off the postage before the deadline’s expiration date when they are going to hold on to the petition further before mailing. The rule for Tax Court petitions is that the United States Postal Service postmark date stamped on the envelope (or other delivery mechanism) will count as the date of delivery to the Tax Court.
Take-away points:
- A timely filed petition is necessary to continue in Tax Court or there will be a motion to dismiss for lack of jurisdiction in your future. Waiting until the final days of the Tax Court deadline means playing with the fire of a dismissed case.
- The United States Postal Service postmark stamp on the envelope delivered to the Tax Court will be what counts as the delivery date. The postage meter stamp and the signature dates on the petition do not count.
Not Enough Responsive Paperwork
Docket # 15186-16L, Shoreman v. C.I.R. (Order and Decision Here)
The other case was filed by Mr. Shoreman pro se in response to an IRS notice of federal tax lien for tax years 2003 and 2008 through 2012. The IRS issued a Notice of Determination on June 2, 2016. Following the petition filed July 5, 2016, the IRS filed a motion for summary judgment on April 11, 2017 and the Petitioner filed a response to the motion May 5, 2017.
Within Mr. Shoreman’s response, he refers to a letter from the settlement officer dated March 24, 2016. He also states, “…I do not believe that I was advised that any information beyond Forms 1040 for the years 2013, 2014 and 2015 was required to be submitted prior to the issuance of the Notice of Determination of June 2, 2016.”
Mr. Shoreman originally stated he was not liable for all or part of the tax liability. One instruction in the March 24 letter is that because his tax returns were self-assessed, any incorrect tax liability means he would need to amend for each tax year in question.
Another instruction in the March 24 letter is that collection alternatives such as an installment agreement or offer in compromise may be discussed. In order to discuss those alternatives, he would need to provide a completed Form 433-A (Collection Information Statement), proof that estimated tax payments are paid in full, and current documentation for the past 3 months. That documentation includes earning statements, pay stubs, other income statements, bank statements, and billing statements for utilities, rent, insurance, court orders, etc. As he stated he paid a portion of the taxes owed, there was also a request for both sides of cancelled checks to be provided.
Mr. Shoreman responded by providing a form 1040 for tax years 2013 and 2014. He did not include Schedule C even though business income was his only source of reported income.
In the Court’s analysis, the burden is generally on the taxpayer to provide requested financial information to the IRS to facilitate evaluation for any collection alternatives. For collection alternatives to be considered, the taxpayer must also be current on estimated tax payments.
Because Mr. Shoreman did not amend the tax returns in question or submit any other supporting documentation, he did not provide proof the existing liability was overstated. While the standard to remove the tax lien is discretionary rather than mandatory, Mr. Shoreman did not present anything to prove that withdrawal was appropriate.
The Court sustained the IRS determination that the filing of the tax lien was not an abuse of discretion. The next conclusion was that there were not genuine issues of material fact so the IRS was entitled to judgment as a matter of law. The motion for summary judgment was granted for the IRS and the Court decided the IRS could proceed with the lien filing with respect to the six tax years.
Take-away points:
- A self-assessed tax return is a tax return where the taxpayer is responsible for correctly reporting his or her liability to a revenue collection agency. In this instance, the advice to Mr. Shoreman was that an amended return may be necessary to address any of his liability issues. It should be noted that it may not be necessary in everyone’s circumstances to file an amended return. What the taxpayer must do is raise the issues (such as income, credits, or deductions) that give rise to increasing or decreasing the liability reported on the tax return during the Collection Due Process hearing. While an amended return may be helpful, it is not an absolute requirement.
- When the IRS provides a list of supporting documentation in order to discuss collection alternatives, it is best to provide those documents. While the list may be substantial, there needs to be a response that matches. Otherwise, it will likely not be abuse of discretion for a tax lien to be filed rather than to qualify for a collection alternative.
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