At the recent ABA Tax Section meeting the Tax Court announced that it had eliminated its backlog of cases which should stop the premature assessment problem it has created during the past two years because of the significant delays in getting petitioners over to IRS Chief Counsel’s office. As we have discussed before here and here, when the IRS sends out a notice of deficiency, it puts a time frame on hearing that the taxpayer has filed a petition in Tax Court in response to the notice. The notice suspends the statute of limitations on assessment for 90 days plus 60 days but the IRS must act relatively quickly after the 90 days runs in order to insure that it makes a timely assessment. So, if it has not heard that the taxpayer filed a Tax Court petition by the date it selects after sending the notice – something like 90 days plus an additional 20 days – it assesses the liability shown in the statutory notice and begins the collection process.
The Tax Court eventually acknowledged the problem its petition processing delays caused the IRS, and hence the petitioner, and several months ago worked out a system for notifying Chief Counsel of new petitions even before it formally sent the petition to Chief Counsel for answer. The system seems to have worked well and eliminated or significantly reduced the number of premature assessments. Judge Toro noted in his comments that because the Tax Court has caught up with its backlog, the Court is winding down the early warning system created to avert premature assessments. In a later panel Paul Butler, an executive with Chief Counsel in SBSE, stated that petitions generally arrive at Chief Counsel now about 3-4 weeks after filing but some still take a few months. So, it seems that we have a happy ending.
Professor Elizabeth Maresca, the director of the tax clinic at Fordham law school, raised an interesting point at the recent ABA Tax Section meeting that I had not considered. I pass it along in case others have also not thought of the potential problem caused by the premature assessments and the cases in the settlement pipeline.
The problem of premature assessments has been around for as long as I remember; however, the incidence of premature assessments prior to the pandemic was low. In my experience, it usually happened for cases filed around the holiday period at the end of the year when the Tax Court clerk’s office probably operated at a skeletal level due to both holiday leave and end of year use or lose leave. Each year it seemed some cases would not make it from the Tax Court to Chief Counsel. For represented petitioners the premature assessment usually caused little problem because their representative would contact the local Chief Counsel office and the assigned attorney would fix the problem rather promptly causing an abatement of the assessment. For pro se taxpayers who did not know the assessment should not have occurred, fixing the problem did not necessarily occur quickly because they failed to ask for an abatement. The number of problem cases, however, would generally be quite low which does not mean it did not adversely impact individuals unaware that an easy fix existed.
Now we have quite a large number of premature assessments in the system. Chief Counsel attorneys are on the alert for premature assessments but may not catch them all. The possibility exists that the IRS has made premature assessments yet to be reversed and it has collected money on those assessments by offset or otherwise. Now these cases filed a year or two ago are coming to the end which will cause the preparation of a decision document. I hope that in every case in which the IRS prepares a decision document, it pulls a transcript and carefully checks to determine if a premature assessment occurred and if payments were made that need to be reflected in the decision document. I am not sure that it does.
Professor Maresca recommended that attorneys representing petitioners in Tax Court cases request from Counsel a transcript of account for the year(s) before the Tax Court in order to make a check for any premature assessment and payment before signing the decision document. The advice makes sense to me. If the taxpayer has made payments on the account and the decision document does not reflect those payments, the taxpayer could lose them unless the problem is found within 30 days of the entry of the decision document.
While I mentioned above that the Chief Counsel assigned to the case will quickly fix it if the premature assessment is brought to their attention, the possibility exists that delays will occur. Chief Counsel’s office has created a form for making a referral of a premature assessment and has a special email address. You can find the form here. The email address is on the form.
If calling your favorite Chief Counsel attorney, or the attorney assigned to the case, or emailing the form does not quickly result in fixing the premature assessment, you could consider filing a Tax Court Rule 55 motion. Here is a template memorandum that could accompany such a motion for anyone in need of this resource. Thanks to Frank Agostino for providing this resource.
Hopefully, we will soon be back to the good old days of rare premature assessments. Until we get all of the assessments from the pandemic worked through the system, be on the lookout for problem cases.