Posts related to Boechler and its impact on pending and future cases continued to dominate PT’s coverage in May. The month’s coverage also included interesting and significant information from the ABA Tax Section Annual Meeting.
The Ongoing Impact of Boechler: Pending Cases and Other Updates
Boechler Challenge to Tax Court Position on IRC 6213: Hallmark Research Collective filed a motion to vacate an order that dismissed their case for lack of jurisdiction when their deficiency petition was filed one day late. This may end up being the first case where the issue of jurisdiction in a section 6213(a) case is before the Court after Boechler. The IRS has 30 days to respond to the motion [and the Tax Court has assigned it to Judge Gustafson, see directly below], so there should be an update soon.
Tax Court Temporarily Stops Issuing Dismissals for Lack of Jurisdiction of Late Deficiency Petitions: Judge Gustafson (rather than a special trial judge) was assigned to rule on Hallmark’s motion indicating that the Court is taking it very seriously. The Court has not issued any orders to dismiss for lack of jurisdiction in late-filed deficiency cases recently. This prevents appeals from being made to the Circuit courts as test cases for the section 6213(a) issue, however, there is one case out there to watch in the Third Circuit: Culp.
What’s Happening in Myers and Whistleblower Cases After the Decision the Statute is a Claims Processing Rule Four post-Myers whistleblower cases shed light on what may happen in late filed CDP cases when the IRS doesn’t raise the issue of timing. Petitioners in the cases may have had equitable tolling arguments, but never needed to raise them. The Tax Court can no longer raise timeliness issues on its own, so it proceeded to consider the cases as though they were timely filed with respect to respondent’s motions for summary judgment.
The Mess Following IRS Mistakenly Sending Determination to Taxpayer’s Former Attorney: Missed Deadlines and Damages For Wrongful Disclosure In Castillo, the IRS sent a CDP notice of determination to an attorney who was no longer authorized to represent the taxpayer, resulting in a disclosure violation. This also resulted in the taxpayer’s failure to timely challenge the underlying liability in Tax Court, which led to a levy of the taxpayer’s bank accounts and created passport restrictions. The case is still in progress and the Second Circuit will remand it back to the Tax Court. It’s one to watch, because it may result in a decision about equitable tolling in CDP cases, as well as the amount and type of damages potentially available for unauthorized disclosures.
Important Issues to Watch and Announcements
What to Do After Receiving a Notice of Claim Disallowance: Section 6514(a)(2) bars a refund or credit if more than two years have passed from a notice of claim disallowance. Pandemic-related delays in working with the IRS have increased the likelihood that a resolution will not be reached before the two-year period expires. In order to preserve the right to obtain the refund or credit, the taxpayer must either file suit or ensure that they and an authorized IRS employee sign a Form 907.
Momentum Possibly Building for IRS To Provide Online Filing Options For Taxpayers: This post looks at recent research in the tax return filing arena, including a report on the issues with Free File, an article on the benefits that would come from the IRS pre-populating tax returns, and ideas that have been proposed by the NTA and Senator Warren.
Join the Center for Taxpayer Rights for a Celebration of Keith Fogg’s Career on the Occasion of his Retirement: Keith’s retirement is announced and details for a (now passed) Zoom celebration are shared. Nina reflects on the beginning of her friendship with Keith and the ripple effect it has had on her life and career.
Information from the ABA Tax Section Meeting
Update on Premature Assessments: The days of frequent premature assessments are coming to an end. The Tax Court has caught up with its backlog and is winding down the system it had in place to avert premature assessments. Petitions are generally arriving at Chief Counsel now about 3-4 weeks after filing. For the time being, practitioners and petitioners should still check for any payments made on premature assessments before signing decision documents. The taxpayer can lose the right to the payment if the issue isn’t identified within 30 days from the decision being entered.
Information from Court Practice and Procedure Programming at ABA Tax Section Meeting Part 1: U.S. Tax Court Judge Toro and Claims Court Judge Wolski participated on a panel at the Meeting. Judge Toro shared information about electronic petitions, proposed rule changes, the status of the Court’s backlog, and new Dawson features. Judge Wolski shared information about rule changes and jurisdiction in Tucker Act and Little Tucker Act claims in light of Boechler. A link to the complete outline of cases and material discussed is available on the post.
Information from Court Practice and Procedure Programming at ABA Tax Section Meeting Part 2: Mark Cottrell from the Procedure and Administration Division of Chief Counsel also participated on a panel. He shared charts and information about the tax dollars in dispute and case inventory at the various trial Courts and the cases and settlements in the Tax Court as well as updates related to Tax Court Rule 36 and recent cases, and more.
Information on Appeals Presented at ABA Tax Section Meeting: COVID’s impact on Appeals was covered in a panel at the Meeting. This post shares slides and summarizes the topics discussed in the panel, including the inventory and handling of cases in Appeals, the challenges Appeals faced working from home, and the issues around the handling of docketed cases.
Circuit Court Decisions
Rare Discharge in Bankruptcy for Taxpayers with a Return Filed After an SFR Assessment: In Golden a married couple in the Ninth Circuit was successful in having their tax liability discharged even though they filed their return after an SFR assessment. The IRS argued that the tax on a return filed after an SFR assessment is per se nondischargable, which the Court rejected. The case is a rare example of a bankruptcy court using a subjective test analysis and looking to the totality of the circumstances to determine that the return was an honest and reasonable attempt to satisfy the tax law.
The 9th Circuit Reverses The Tax Court, Finding That The Taxpayer Had Filed A Return When It Provided A Copy To The IRS During Its Examination: Subregulatory guidance played a role in the Ninth Circuit finding that a signed copy of a return faxed to an IRS agent was a return for purposes of the assessment statute which barred a later FPAA adjustment in Seaview Trading, LLC.
IRS Not Giving Up on Thorny SOL Issues When Taxpayer Fails to Backup Withhold: The IRS issued an Action on Decision disagreeing with the Fifth Circuit’s decision in Quezada. The Fifth Circuit found that the taxpayer’s Form 1040 and his business’s Forms 1099 which omitted workers’ tax identification numbers provided enough information for an informal Form 945 and started the running of the statute of limitations for backup withholding The IRS’s position is that the forms do not provide enough information and an actual Form 945 is needed before the statute starts running.
The Ongoing Effort to Properly Situate the Tax Court: Believe it or not, the location of the Tax Court within our government is still uncertain. The answer is relevant to section 7443(f) which allows the President to remove a Tax Court judge. A 2014 decision inthe D.C. Circuit, Kuretski, found that Presidential removal was permissible because the Court was an executive agency. Section 7411 was subsequently enacted and clarified that the Court was not an agency of, and was independent from the executive branch, but this had no effect on the President’s removal power. An appeal has recently been filed in the D.C. Circuit in an effort to overturn Kuretski. This post provides more information on the case and its possible implications.
Tax Court, District Court, and Claims Court Decisions
What Happens to Employees When the Employer Fails to Pay Over to the Government Withheld Taxes: In Plazzi v. FedEx Groud Package System, Inc. employees sued their employer because their withheld wages were not paid over to the government, but such suits are barred by Section 3403. The post takes a closer look at the way the third-party intermediary system of tax payment operates and the importance of documenting withholding.
Default Judgment: Timeliness is important for both filing and responding to lawsuits. The district court denied a tax return preparer’s motion to set aside a default judgment injunction against him. The judgement was entered after the preparer failed to answer the IRS’s suit in a timely manner. He argued that his untimeliness did not result from culpable conduct, and he thought he had more time, but the facts in his case failed to support his argument.
Court Blesses Offset Before Pandemic When Later Filed Return Would Have Been Treated Differently: In Seto, the taxpayer’s position was had he waited to file 2019 his return until after the CARES Act was passed, his Investment Tax Credit refund would not have been offset and applied to his student loans. The CARES relief provisions, however, were directed at EIP-related refunds and not other types of refunds. The Claims Court did not focus on the different refund types, but rather found that the taxpayer was not entitled to the amount because the CARES Act didn’t apply retroactively.
Can Intentionally Filing an Improper Information Return Justify a Claim for Damages Under Section 7434?…Continued!: Whether worker misclassification can give rise to action under section 7434 is causing a debate in district courts. Recently in Austin v. Metro Dev. Grp. the Court interpreted the section to only apply to fraudulent payment amounts on information returns and not worker misclassification. The post takes a closer look at the language of the statute and finds that there is still an argument to be made that the section should apply to fraudulent misclassifications.
Things are Different at the Government: Attorneys in the Office of Chief Counsel and the DOJ Tax Division are in the driver’s seat in deciding when to settle. They are not required to bring a settlement offer to their clients (i.e. the IRS or DOJ), in the same way that private practice attorneys are under professional conduct rules. A recent example of this was in Delponte, where the innocent spouse unit determined that petitioner was entitled to relief. The IRS attorney was not bound by that determination, however, and decided to bring the innocent spouse issue to trial.
Consent to Extend the Statute of Limitations: In Evert, the petitioner argued that she only signed a Form 872 under duress by the Appeals Officer assigned to her case. It is the petitioner’s burden to show duress and she failed to meet it. This post discusses the importance of the Form 872 and cases in which the taxpayers were able to show they signed it under duress.