There are many complexities in the Internal Revenue Code. There are also many nuances in tax procedure. Put the two together and there are ingredients for the need for guidance. Earlier this week the IRS issued a nonacquiesence in a 2016 Tax Court case that had slipped through and I had not noticed.
The case at issue is Tsehay v. Commissioner, T.C. Memo. 2016–200. In Tsehay, the taxpayer, a custodian whose first language was not English, had an on again off again relationship with his spouse. During 2013, the taxpayer testified (credibly, according to the opinion) that he his wife and their children lived with him though by 2014 they had separated. He, using a paid return preparer, filed a 2013 return as head of household and claimed his kids as qualifying children for the EITC and dependency exemptions. HOH status was crucial for purposes of the EITC, as married taxpayers who are not divorced or separated (or who do not live apart from their spouse for the last 6 months of the year and who otherwise generally pay ½ of the household and childcare expenses) cannot claim the EITC unless they file a joint return. There is no similar anti-MFS rule in place for claiming children as dependents.
The opinion concluded that his credible testimony regarding his living with his kids was enough to justify his receiving dependency exemptions and the EITC.
It appears that the judge and IRS counsel may have missed the special rule that prevents MFS taxpayers from claiming the EITC.
This takes us to earlier this month when the IRS announced that it did not acquiesce in the case. We have not discussed this form of guidance in the blog. The Internal Revenue Bulletin nicely describes the IRS policy on commenting on case law, which comes in the form of acquiescence, acquiescence in result only, or nonacquiescence:
It is the policy of the Internal Revenue Service to announce at an early date whether it will follow the holdings in certain cases. An Action on Decision is the document making such an announcement. An Action on Decision will be issued at the discretion of the Service only on unappealed issues decided adverse to the government. Generally, an Action on Decision is issued where its guidance would be helpful to Service personnel working with the same or similar issues. Unlike a Treasury Regulation or a Revenue Ruling, an Action on Decision is not an affirmative statement of Service position. It is not intended to serve as public guidance and may not be cited as precedent.
Actions on Decisions shall be relied upon within the Service only as conclusions applying the law to the facts in the particular case at the time the Action on Decision was issued. Caution should be exercised in extending the recommendation of the Action on Decision to similar cases where the facts are different. Moreover, the recommendation in the Action on Decision may be superseded by new legislation, regulations, rulings, cases, or Actions on Decisions. Prior to 1991, the Service published acquiescence or nonacquiescence only in certain regular Tax Court opinions. The Service has expanded its acquiescence program to include other civil tax cases where guidance is determined to be helpful. Accordingly, the Service now may acquiesce or nonacquiesce in the holdings of memorandum Tax Court opinions, as well as those of the United States District Courts, Claims Court, and Circuit Courts of Appeal. Regardless of the court deciding the case, the recommendation of any Action on Decision will be published in the Internal Revenue Bulletin.
The recommendation in every Action on Decision will be summarized as acquiescence, acquiescence in result only, or nonacquiescence. Both “acquiescence” and “acquiescence in result only” mean that the Service accepts the holding of the court in a case and that the Service will follow it in disposing of cases with the same controlling facts. However, “acquiescence” indicates neither approval nor disapproval of the reasons assigned by the court for its conclusions; whereas, “acquiescence in result only” indicates disagreement or concern with some or all of those reasons. “Nonacquiescence” signifies that, although no further review was sought, the Service does not agree with the holding of the court and, generally, will not follow the decision in disposing of cases involving other taxpayers. In reference to an opinion of a circuit court of appeals, a “nonacquiescence” indicates that the Service will not follow the holding on a nationwide basis. However, the Service will recognize the precedential impact of the opinion on cases arising within the venue of the deciding circuit.
At times, the AOD that the Service issues has an extensive discussion of the reasoning. Other times, as in AOD 2017-05 on Tsehay, it just states the conclusion that the Service does not acquiesce in the decision. That nonaqciescence makes sense, as it appears that Tsehay is just the result of a counsel and judicial foot fault on the law. It is intended to remind counsel attorneys (and taxpayers) that it is inappropriate to rely on Tsehay for the position that married taxpayers who file an MFS return or who are required to file an MFS return are entitled to the EITC. As a guest post from Andy Grewal discusses a couple of years ago, while Tax Court memo opinions are not supposed to be precedential (and are intended to be used only in clear cut or heavy factual cases), as a practical matter advocates and the court itself often look to and effectively rely on these cases so Counsel wanted to clear the air.
Because AODs give direct insight into Chief Counsel’s litigating position and because understanding that position allows a representative to provide valuable advice about the likelihood a case will go to trial rather than settle, the more AODs the IRS issues the better. Back in the 1970s the IRS issued AODs routinely. Today, issuing an AOD seems to be the exception rather than the rule. Still, the AODs that are issued provide a benefit when trying to understand what will happen with a case and they should not be overlooked.