Tax Notes logo

Year in Review – Court Cases

Posted on Jan. 5, 2021

This review of 2020 Tax Court cases is partially cribbed from a presentation given by LaKesha P. Thomas, Esq., Clinic Director at Three Rivers Legal Services (FL); William Schmidt, Clinic Director at Kansas Legal Services; and Caleb Smith, Associate Professor of Clinical Law at University of Minnesota Law School.

In this post several of the cases of particular importance this year are highlighted. Litigation during 2020 seemed to take a back seat to general tax administration which the pandemic through into thorough disarray. Nonetheless, the EIP cases offered some interesting crossover litigation and other cases explored important areas of tax procedure as well.

Note that some of the Tax Court cases discussed below are not linked, as online opinions are currently unavailable through the Tax Court site due to the ongoing implementation of the DAWSON system.

EIP Litigation:

Scholl v. Mnuchin, Dk. No. 20-cv-05309-PJH discussed here, here, here and here.

  • IRS withholding EIPs to incarcerated individuals and encouraging those that received them to pay them back.
  • Statute does not include incarceration as disqualifying otherwise eligible individuals. Only legal authority is IRS online FAQs.
  • Class Action Suit: Victory for Incarcerated Individuals
  • Importance for Practitioners:
  • Using admin law as your way into Court
  • Increasing reliance by IRS on FAQs and sub-regulatory guidance in fast-changing circumstances

Amador v. Mnuchin, Dk. No. 20-cv-01102-TDC (D. Md.) discussed here.

  • IRS denying EIPs to U.S. citizens who filed joint returns with a non-citizen spouse (filed as a class action).
  • Court denied gov’t motion to dismiss on sovereign immunity, standing, and 12(b)(6) grounds.
  • Related case: Doe v. Trump, Dk. No. 20-cv-00858 (C.D. Cal.) (granting government motion to dismiss and sustaining CARES Act spousal exclusion under rational basis review), appeal pending, Dk. No. 20-56019 (9th Cir.)

R.V. v. Mnuchin, Dk. No. 20-cv-01148-PWG (D. Md.)

  • IRS denying EIPs to U.S. citizens who are the underage children of undocumented immigrants.
  • Court denied gov’t motion to dismiss on standing and 12(b)(6).

What is a return:

Fowler v. C.I.R., 155 T.C. No. 7 (2020) discussed here and here.

  • Individual attempted to e-file return multiple times but was rejected for lacking “IP PIN.” Later mailed in return.
  • IRS began deficiency procedures within 3 years of later mailed return, but not within 3 years of e-filed attempts. If those (rejected) e-filed returns were valid, IRS deficiency untimely. Which is what Court held.
  • E-filed returns are rejected all the time when they otherwise would be valid
  • ASED date arguments (and by consequence, CSED)
  • Late filing penalty arguments

Quezada v. IRS, No. 19-51000 (5th Cir., Dec. 11, 2020) see discussion of Fifth Circuit’s opinion here and prior opinions here and here

  • Taxpayer failed to file Form 945 for backup withholding.
  • In bankruptcy, IRS sought to collect assessed tax, penalties & interest; taxpayer argued that the 3-year statute of limitation had expired, because his filed 1040 & 1099 were a “return” that triggered the SOL.
  • Fifth Circuit found the 1040 & 1099 combination sufficient to constitute a “return” and reversed bankruptcy court and district court, which had both agreed with the IRS.

Coffey v. Commissioner, No. 18-3256 (8th Cir., Dec. 15, 2020), rev’g, 150 T.C. 60 (2018) (fully reviewed and very fractured Tax Court opinion), see discussion of Eighth Circuit’s opinion here and previous discussions here, here and here

  • Taxpayers claimed to be residents of Virgin Islands.
  • Taxpayers filed returns with Virgin Islands and gave copy of portion of returns to IRS
  • Tax Court found submissions triggered running of statute of limitations and 8th Circuit reversed

Innocent Spouse Cases

Sutherland v. C.I.R., 155 T.C. No. 6 (2020) discussed here, here, here and here.

  • Taxpayer First Act (TFA) changed scope of review of Tax Court in Innocent Spouse (I/S) cases mostly to admin record at time of IRS determination (IRC 6015(e)(7))
  • Problem is taxpayers can get into Tax Court before (or without) IRS making a determination in I/S (IRC 6015(e)(1)(A)). What does Tax Court Review? Sutherland kicks the can… TFA provision only applies for petitions filed after 7/1/2019

Jacobsen v. C.I.R., 2020 U.S. App. LEXIS 4544 (7th Cir. 2020) discussed here and here.

  • Tax Court and 7th Circuit determining how to weigh factors in Innocent Spouse relief where taxpayer has “actual knowledge” of items leading to understatement
  • Taxpayer seeking equitable relief under IRC 6015(f) with all positive factors except knowledge… both courts say, “no dice.”
  • Highlights the need to argue no actual knowledge!!! (If at all possible)
  • Recognize extreme uphill battle of getting reversal on Appeal for I/S

CDP Cases

Lander v. C.I.R., 154 T.C. No. 7 (2020) discussed here, here, here and here.

  • Collection Due Process Issue: When is a taxpayer precluded from raising the underlying tax because they had a “prior opportunity” to dispute? (IRC 6330(c)(2)(B))
  • Tax Court held that taxpayer request for audit reconsideration (with Appeals) was “prior opportunity” precluding right to raise underlying liability
  • Importance for Practitioners:
    • Don’t request audit reconsideration (i.e. wait until CDP to raise the issue)?
    • Take it to appellate court? Don’t use S-Case designation…

Patrick’s Payroll Services v. Comm’r, No. 20-1772 (6th Cir.) discussed here

  • Taxpayer arguing that 6330(c)(2)(B) imposes a disjunctive test (i.e. non-receipt of notice of deficiency or no prior opportunity) that allows a taxpayer to contest their underlying liability if one of the conditions is satisfied

Amanda Iris Gluck Irrevocable Trust v. Comm’r, 154 T.C. No. 11 (2020), discussed here.

  • Taxpayer sought to challenge underlying liability resulting from IRS computational adjustments.
  • Judge Lauber found that the taxpayer did not have a prior opportunity and that Court had jurisdiction to review a computational adjustment in CDP cases.

Cue v. Comm’r, No. 21404-18SL (T.C. 2019), discussed here.

  • Taxpayer challenged filing of federal tax lien on basis that a FTL would prevent him from keeping his job as a banker. At Appeals, the settlement officer declined to withdraw the lien and the taxpayer lost his job.
  • In a bench opinion, Judge Goeke found that the SO abused her discretion by failing to consider that the taxpayer would lose his job if she failed to withdraw the lien. Judge Goeke reversed and declined to sustain the notice of determination.

Barnhill v. Comm’r, 155 T.C. 1 (2020), discussed here.

  • Taxpayer did not receive a letter from the IRS scheduling an Appeals conference to dispute assessment of a Trust Fund Recovery Penalty (TFRP).
  • Judge Gustafson held that the taxpayer did not have a prior opportunity to dispute and thus was able to challenge the filing of a federal tax lien on the merits.

Timely Filing as Jurisdiction or Claims Processing Rule

Organic Cannabis Foundation v. Comm’r, No. 17-72874 (9th Cir.)

  • 9th Cir. panel affirmed Tax Court and held that IRC 6213(a)’s time limit is jurisdictional

Boechler, P.C. v. Comm’r, No. 19-2003 (8th Cir.) discussed here

  • 8th Cir. panel affirmed district court and held that IRC 6330(d)(1)’s 30-day CDP time limit is jurisdictional.

Castillo v. Comm’r, No. 20-1635 (2d Cir.)

  • Briefs submitted – arguments by taxpayer and amici for non-jurisdictional nature of CDP filing deadline & that IRC 6330(d)(1) should be interpreted to allow jurisdiction on late-filing when CDP notice was not received by petitioner within 30-day period
Copy RID