Professor Samantha Galvin of University of Denver Sturm College of Law brings us this week’s edition of Designated Orders. This week’s post looks at an order involving a Collection Due Process case and an order explaining the impact of sending a refund on the IRS’s subsequent ability to audit. Keith
Dictum in Greene-Thapedi Does Not Apply
Docket # 23295-14L, VK&S Industries v. C.I.R. (Order Here)
In this designated order the taxpayer petitioned the Tax Court on a notice of determination, however, the Court remanded the case to Appeals to review the liability pursuant to section 6330(c)(2)(B) which indicates that the petitioner did not have a prior opportunity to dispute the underlying liability for the tax year at issue. Following its review, Appeals issued a supplemented notice of determination which the Court also has the authority to review under section 6330(d)(1).
The Appeals’ review on remand resulted in adjustments which abated a portion of the tax due and generated a large refund that was then paid out to petitioner. As a result of there no longer being any tax amount due, the IRS (respondent) moved to dismiss the case on the ground of mootness relying upon Greene-Thapedi v. Commissioner, 126 T.C. 1.
The majority in Greene-Thapedi held that the Tax Court has no jurisdiction to determine an overpayment or order a refund in section 6330 cases, however, the Court stated (in dictum) that it might consider whether a taxpayer had paid more than what was owed in collection cases where the underlying liability was properly at issue pursuant to section 6330(c)(2)(B). Other cases citing Greene-Thapedi have been recently discussed by Procedurally Taxing here and here.
Petitioner objected to respondent’s motion on grounds that its case was distinguishable from the majority’s decision in Greene-Thapedi since it was not allowed to raise its underlying liability in its initial CDP hearing, even though it satisfied section 6330(c)(2)(B). This was because, even though petitioner’s liability was reviewed and abated in large part on remand, petitioner believed additional amounts should have been abated during Appeals’ review.
The Court granted respondent’s motion and dismissed the case, stating that since Appeals reviewed the underlying liability on remand and eliminated petitioner’s balance, the circumstances described in the dictum of Greene-Thapedi did not apply.
- The circumstances described in the Greene-Thapedi dictum could potentially apply in cases where a petitioner was not provided an opportunity to dispute the underlying liability but there is also still a balance due, however, this was not the position in which the petitioner in this case found itself.
Respondent’s Motion Given the Boot, Not Moot
Docket # 20779-16S, Brooks v. C.I.R. (Order Here)
Similar to the case discussed directly above, in this designated order respondent moved to dismiss the case, in part, on grounds of mootness because the taxpayer no longer owed a balance for 2003 which was one of two tax years at issue. This time, however, the balance was no longer owed because the collection statute had expired. The Court did not agree with respondent and denied the motion, because petitioner’s 2014 refund of $364 was applied to 2003 right before the collection statute expired. This meant it was possible that petitioner could still receive this refund because the issue before the Court was an innocent spouse determination, and the petitioner filed his petition within the requisite two-year period under section 6511(b)(2)(B). Whereas the Court in Greene-Thapedi held that it has no jurisdiction to find an overpayment (at least in some circumstances) under its CDP jurisdiction, the Court may determine an overpayment under its section 6015(e) stand-alone innocent spouse jurisdiction because that provision grants the Court jurisdiction “to determine the relief available to the individual under this section.” Section 6015(g)(1) and (3) provide for the possibility of overpayments under subsections (b) or (f), but not under subsection (c). See the recent opinion in Taft v. Commissioner, T.C. Memo. 2017-66 (finding an overpayment under subsection (b)), on which PT blogged on May 3, 2017 here.
The Court has jurisdiction to review innocent spouse relief claims de novo. During tax years 2003 and 2006, petitioner earned a larger portion of the income reported on the joint return he filed with his wife. Petitioner’s wife’s income was from a combination of social security benefits and income from other sources, however, she was relieved of all joint and several liability in a bankruptcy proceeding to which petitioner was not a party. As a result, petitioner was the only one still responsible for the entire balance. Over time, petitioner’s income decreased and he was diagnosed with serious health issues.
The Court analyzed whether or not petitioner was eligible for relief under section 6015(f), with the caveat that the facts assumed in the order were not findings for purposes of the trial and the facts were still petitioner’s burden to prove.
First, it stated that petitioner was not entitled to streamlined relief because he was still married to his wife. The Court then went on to look at the factors outlined in Revenue Procedure 2013-34 and suggested that three of the factors may weigh in favor of relief, namely: economic hardship, health problems and compliance with tax laws. It also stated that holding petitioner solely liable could create an inequitable result since petitioner’s wife discharged her joint and several liability in bankruptcy.
At the end of this designated order, Judge Gustafson said that the case would proceed to trial and requested that the parties show, at trial, what petitioner’s individual liability would have been had he filed separately from his wife.
- In a subsequent, non-designated order issued on September 5, 2017 (here) the Court granted respondent’s motion to submit the case under rule 122 and the case was stricken for trial. In that non-designated order, petitioner stipulated to the amounts of his and his wife’s income in the years at issue. The Court ordered the parties to file a status report stating whether they wished to provide additional briefs, or rely solely on the information in the pretrial memoranda, prior to the Court making its decision.
Receiving a Refund Does Not Preclude a Deficiency
Docket # 26549-16S, Chambers v. C.I.R. (Order and Decision Here)
In this case the taxpayer petitioned the Court after she incorrectly claimed an excess net premium tax credit in tax year 2014. The error arose because the taxpayer entered the annual totals listed on her Form 1095-A as monthly amounts into the tax software that she used to prepare her return. The IRS audited the return and later issued a notice of deficiency reflecting a $2,880 deficiency, which was the difference between the amount of net premium tax credit to which she was entitled of $120 and the net premium tax credit which she had mistakenly claimed of $3,000.
Petitioner did not make the argument that the deficiency amount was incorrect, but rather she argued that the IRS had “ample” time to correct any miscalculations prior to sending her a refund. As a result, she believed that the IRS should be precluded from determining a deficiency. She filed her return on March 9, 2015 and received the refund on April 13, 2015. She stated that in between this (very short by IRS standards) time her return was audited and that the IRS requested copies of the information she had entered, presumably her Form 1095-A.
The Court doesn’t comment on whether the IRS actually requested any information in between the date the return was filed and the date the refund was issued. Instead, the Court held that even if a return was audited before a refund was issued, it would not bind the IRS in the absence of a closing agreement, valid compromise or final adjudication.
Since the petitioner did not dispute the substantive determinations made in the notice of deficiency, respondent filed a motion for summary judgement under Rule 121.
The Court agreed there was no genuine dispute to material fact so it granted respondent’s motion for summary judgment and decided that the petitioner had a deficiency in income in the amount of the excess refund.
- We often have clients who desire to make similar arguments in the belief that the onus is on the IRS to determine that a refund is correct before it is issued. Unfortunately, these are not arguments that the IRS nor Court are willing to entertain. I presume this belief arises often among low-income clients since most refunds are spent immediately, and often on necessary living expenses, leaving the client in a very uncomfortable spot once the IRS demands that the amount be repaid.
- In my experience, errors made by state healthcare exchanges have been the culprit of issues with premium tax credits, unfortunately in this case, the taxpayer was the one who got it wrong.