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July 2022 Digest

Posted on Aug. 2, 2022

PT regularly brings awareness to important issues and July was no different. One notable post joined hundreds of organizations and state and local leaders to ask that the ITIN request or renewal deadline be extended to allow otherwise eligible individuals to claim the 2021 child tax credit. Another highlight is Caleb’s thought-provoking series of posts which takes a deeper dive into the rules and guidance surrounding deemed offer acceptances.

Requests, Recommendations, and Updates

Will the Commissioner agree that a filing extension is necessary so that all eligible children can claim the enhanced Child Tax Credit?: A valid ITIN was needed to claim the 2021 enhanced child tax credit and ITIN requests and renewals were required to be filed by April 18, 2022. The authors of this post join others to request that the Commissioner use his authority and the COVID-19 emergency declaration to extend the ITIN filing deadline for taxpayers who would otherwise be eligible to claim to claim the credit.

Protecting Tax Court Litigants and Revealing Records: A Conundrum for the Tax Court with a Simple Solution.: The Court has almost fixed the DAWSON glitch that sealed all documents in cases where only one document was to be sealed. Some of the documents can already be viewed on kiosks in the courthouse. The post recommends that the Court create a process so that unrepresented taxpayers can easily request that their information or documents be sealed or otherwise kept private which would be especially helpful for survivors of domestic violence.

Proposed Firearm Safety Deduction Legislation: At What Procedural Cost?: A procedural nightmare could ensue if the proposed firearm safety deduction is enacted in its current form. The legislation contains directives on how any information shared by taxpayers about firearm ownership must be destroyed and cannot be passed onto others. Notwithstanding the procedural burdens created by the directives, it’s possible that others could still discern gun ownership status from a tax return in other ways (for example, if the income is added back for state purposes).

Letter to IRS from AICPA: The AICPA sent a letter to the IRS with recommendations and requests related to addressing the difficulties taxpayers and representatives currently face when interacting with the IRS. It recommends and requests that the IRS: 1) become more transparent about the status of operations, 2) continue to use surge teams to address high volume areas and to process tax returns, 3) continue to suspend certain automated compliance actions, and 4) create a streamlined provision for reasonable cause penalty requests until things are operating at a more normal pace.

Going Forward and Reflecting Back: Keith reflects on his last day as Harvard’s LITC director, provides updates on his plans for the future, and thanks the colleagues and volunteers who played a significant role in his LITC career.

Offers in Compromise & Deemed Acceptance

The Age of Offers: Pitfalls and Possibilities for “Aging Into” Offer Acceptance: Time is significant to section 7122(f), and in this first of four posts, Caleb examines what starts the clock. This requires a look at the different clocks at issue when an offer is submitted through the CDP process and the difference between when an offer is “pending” versus “submitted.”

Aging Offers into Acceptance: When Does the Clock Stop?: Following his look at when the clock starts, Caleb turns his focus on when the IRC 7122(f) clock “stops” in light of the decision in Brown. After looking at varying possibilities, he concludes that the Court’s decision is problematic.

Administrative Law in Practice: Deemed Offer Acceptance and IRS Notice 2006-68: Notice 2006-68 provides guidance on the meaning of the word “reject” in section 7122(f). Caleb looks at its authority, the level of deference it should receive, and its procedural and substantive defects.

Contract Law and Rejecting Offers in Compromise: In his final post on this topic (at least for July) Caleb envisions what he would have submitted as comments on Notice 2006-68.  He also reads the IRM to allow Appeals to make determinations about offers independently, rather than just review rejections, and believes it should do so as a matter of contract law.

A Real Case in Which an Offer Aged into Acceptance: A section 7122(f) offer acceptance has happened in real life! This post shares the letter the IRS sent when accepting the offer.

Tax Court Decisions

Creativity Is Not Always Rewarded: Chavis gave the Court its first opportunity to answer whether innocent spouse relief is available for the trust fund recovery penalty. Section 6015(f) does not explicitly answer the question, but the Court looks at the revenue procedure and regulations to find that relief is limited to income taxes. The post goes onto point out that the Taxpayer First Act has created a situation where different standards and scopes of review apply depending on whether an innocent spouse request originates from 6330 or 6015, which will likely create additional new questions for the Court in the future.  

Offer in Compromise Rejection Sustained by Tax Court: An ETA OIC rejection was sustained for a taxpayer who took a retirement distribution to purchase a house for his estranged wife and children in lieu of paying child support in Serna. The petitioner argued the house was essential for many reasons because his children have developmental disabilities, but he didn’t provide any evidence about the harm selling the house would cause. Court decisions related to ETA OIC offers are rare, so this case provides a glimpse into a lesser-known area of IRS administration.

No Reasonable Cause For Failing To Include $238,000 From Information Return Sent To Old Address: LaRochelle highlights what facts are relevant when arguing for reasonable cause penalty abatement and the potential dangers of a return preparer representing parties at trial. The petitioners didn’t report a large IRA distribution because the information return was sent to an old address. The amount of the distribution, the husband’s business proficiency, and reliance upon the preparer who wasn’t provided with complete information didn’t support reasonable cause.

IRS Stuck with Concession The IRS was bound by its decision to concede an issue after mistakenly misconstruing terminology in a Rule 122 case of the Estate of Demuth, Jr. The issue involved end-of-life gifts by checks that were not yet cashed at time of death. Because a stop payment order could have been placed on any of the checks, under state law, none of the checks represented completed gifts. The Court was concerned that allowing the IRS to withdraw the concession would disadvantage the petitioner who relied upon it while drafting its Rule 122 brief.

Tax Court Refuses to Allow Petitioner to Amend the Petition: The petitioner in TBL Licensing was not allowed to amend its petition 6 and ½ years after the initial filing and a few months after a precedential decision was issued. Petitioner moved for the amendment after the IRS filed a motion to vacate asking for the decision to explicitly state the amount of the deficiency. In its amendment, petitioner argued it should be able use a research credit to reduce its liability, despite knowing of the credit when the initial petition was filed. The Court finds petitioner had no good excuse for not raising the issue earlier and allowing it to do so now would burden the Court and IRS.

District Court and Court of Federal Claims Decisions

Power of Federal Tax Lien: The power of a tax lien over an interest held by a non-liable party was at issue in Sadig. A rule in the Northern District of Illinois required the IRS to explain the procedures of how to respond to the IRS’s motion for summary judgment to the pro se petitioner. The case involved transfers for no consideration after most of the tax years were assessed and liens were filed, so it was easy for the government to foreclose on the property. One assessment happened after the transfer, but the transfer occurred while the liability existed and met the requirements for constructive fraud.

Another IRC 6511(h) Loss: The Court grants petitioner’s motion for reconsideration on its lack of jurisdiction ruling, but then dismisses the case for failure to state a claim. In Ruebsamen petitioner’s section 6511(h) claim didn’t include evidence of his disability at the time it was filed with the IRS as required by Rev. Proc. 99-21. The Court initially dismissed the case for lack of jurisdiction under the duly filed requirement of 7422, but its views of jurisdiction in this area are changing in light of Brown.

Another Tax Provision Found to Not Create a Jurisdictional Time Period for Filing: Courts continue to expansively apply Supreme Court precedent to questions of jurisdiction. In Clark, the Court held period for filing suit under for unlawful disclosure under section 7431 not jurisdictional. The resounding theme is that unless Congress has made a “clear statement,” a filing deadline is not jurisdictional.

Circuit Court Decisions

Circuit Court Holds That LLC Distinct From Its Agent For Purposes of Criminal Referral Exception To Summons Power: The 4th Circuit holds the IRS can summons a business entity related to, but not directly involved in, a criminal investigation. The case involves an LLC which was being examined about donating a conservation easement when criminal investigations of the LLC’s accountants, preparers and others simultaneously begun. An entity is a separate “person” from its owners, so because there was no DOJ referral specifically made for the LLC, the IRS is not prevented from summonsing it.

Bankruptcy and Taxes

Filing a Notice of Federal Tax Lien For Personal Property: The IRS filed an NFTL in the wrong county, in In re: Vanessa Catherine Stephenson, so its claim was unsecured. Unlike an NOD, the IRS cannot use a taxpayer last known address to determine in which county to file an NFTL, instead it must determine the taxpayer’s residence at the time of filing. This is because the NFTL filing rule exists to protect other creditors and creditors do not have access to IRS records. If a national tax lien registry existed, like Keith has proposed, it would prevent this issue from occurring.

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