It is absolutely gorgeous out today. A great day to run the Boston Marathon, which my mother-in-law is doing this morning. Go Jean! I can’t imagine how the environment feels, with such emotion following last year. My house will be cheering all the runners and the City of Boston today.
Last week had two great guest posts, for which we are grateful. Professors Stephanie Hoffer and Christopher Walker of Ohio State posted the first part of their two part article on the Death of Tax Exceptionalism and the Tax Court. These are teaser posts for a full article to be published soon. Professors Hoffer and Walker argue forcefully that the Tax Court and some circuit courts have failed to situate court review of IRS determinations as within the mainstream of administrative law. We believe the article is important and practical procedural scholarship and recommend a read. And, our (guest) blogger, Carlton Smith posted on timely filing from prison and the recent Sharma case. Mr. Smith’s most recent post highlights this interesting specific issue, but, of course, also provides great insight into a range of other procedure areas like equitable tolling, appellate venue, and the Golsen rule.
To the other procedure items from last week:
- Sticking with Carlton Smith. He sent us an email earlier this week updating us on the cases currently considering Rand and penalties. Carl has written on this before for us, most recently in his very well received post, “Seven Tax Court Judges Depart From the Court’s Penalty Precedents.” This week, the Tax Court published its decision in Faecher v. Comm’r, following Rand and indicating the Court has some duty to remove penalties even when not plead by the taxpayer, stating:
The Commissioner generally bears the burden of production with respect to the liability of any individual for any penalty or addition to tax. Sec. 7491(c). However, we have held that where the taxpayer fails to state a claim with respect to a penalty or addition to tax, the Commissioner incurs no obligation to produce evidence in support of the individual’s liability pursuant to section 7491(c), see Funk v. Commissioner, 123 T.C. 213, 216-218 (2004); Swain v. Commissioner, 118 T.C. 358, 364-365 (2002), at least where nothing in the record suggests the addition or penalty has been incorrectly computed. Where, as here, the record demonstrates that the penalty sought by respondent is erroneously calculated, we conclude that it should not be sustained, without regard to whether petitioner has stated a claim in the petition concerning the penalty.
Later in the week, other orders were issued in similar cases, with similar results. Appeals in these cases can go to various courts, including the DC Circuit, Second Circuit and Seventh Circuit. I am sure Mr. Smith will continue to monitor on this matter, and provide us with additional insight.
- I am happy to engage in some self-promotion for Villanova here (although somewhat envious, because Villanova wasn’t throwing this cash around when I was going through). The Grad Tax Program has announced its Villanova Graduate Tax Program Assistantships for 2014-2015. The program provides tuition scholarship for up to two (2) full-time LL.M. students. The recipients receive a complete waiver of tuition and academic fees for the Villanova Graduate Tax Program courses that will fulfill the requirements of the degree program (24 credits). In exchange for the free tuition, you are enslaved to Keith Fogg for 20 hours of service per week in the Villanova Federal Tax Clinic for case-related and research work. I jest, but the Villanova Federal Tax Clinic provides some of the best preparation for the actual practice of law, and prospective students would be hard pressed to find a better clinic director than Keith Fogg (apart from Les who directed when I was there). Interested students must apply to the Villanova Graduate Tax Program and indicate an interest in this assistantship on the program application in order to be considered. The application deadline for Fall is July 31st. Please email firstname.lastname@example.org with any questions.
- Reuben Miller posted the final order to a LinkedIn group in Jackson v. Comm’r, the case where the Court questioned whether Notice 3219 was a valid SNOD. We previously covered this case here, and here. The Court held that the taxpayers were not mislead by the notice, it had jurisdiction to review the matter, and appears to have taken into consideration the fact that the Service will no longer be using the language in the form that it found questionable in coming to those determinations. A nod should be given to the Tax Court for prodding the Service to fix a faulty form, and the Service should be commended for its prompt response to the problem (assuming reports are correct that the form has been retired and/or reworked). Interesting, the Hoffer/Walker article I discussed above makes the point that the Tax Court could be doing more of this institutional prodding if the APA were held to apply to Tax Court proceedings.
- The Tax Court last week in Ad Investment 2000 Fund, LLC v. Comm’r agreed with the IRS that taxpayers waived attorney-client privilege with respect to opinion letters from a law firm when the taxpayers attempted to invoke the affirmative defenses of good faith and state of mind even though the taxpayers were not raising a reliance of counsel defense. This case will garner some attention, and we hope to have some follow up content in the near future.
- Slovakia has found a way to turn tax procedure into a successful game show, which the country seems to love and has assisted the taxing authority in increasing compliance. I have not fact checked any of this, and it is all taken from a NYT blog found here. The government had been losing revenue from its VAT because taxpayers were failing to comply with the reporting requirements. Auditing and prosecuting was an expensive way to handle the issue, so Slovakia created a lottery where the government selected winners based on VAT receipts submitted to the government. Each citizen (not the merchant) submits the receipts, which are then checked against the merchant’s filings. Any purchase over one Euro can be submitted. Every month, a receipt is selected, and the taxpayer either receives a car, or a chance to be on the Slovakian version of the Price is Right (I’m picturing Borat meets Bob Barker, which is probably totally wrong, and offensive to the Slovakians). Although the article provides no direct proof, VAT collections are way up since the start, and many taxpayers have complained about merchants providing fake receipts or no receipts, making it easier to focus on cheats. I’m not sure which is more effective, but Slovakia’s plan is certainly more interesting than the IRS YouTube videos.
- The Tax Court has found that an estate was not eligible to pay its estate tax installments under Section 6166, as it failed to make the election on a timely filed Form 706. In Estate of W. R. Woodbury v. Comm’r, the estate did include a letter indicating its intent to make a Section 6166 election when it made its extension request. Two and half years after the extension period passed, the estate filed its return and elected Section 6166. The Court did consider whether the letter was an effective election under Section 6166, but it failed to include the requirements found under the statute and under Treas. Reg. § 20.6166-1. Specifically, the applicable assets and their values were not included in the transmittals.
- Additional IRS notice regarding the various phone scams targeting taxpayers. The Service reiterated that it always sends written notices regarding amounts outstanding, and never asks for credit card information over the phone. The notice also notes that the scammers are threatening deportation, arrest, shutting off utilities, and revoking driver’s licenses.