Paul L. Caron

Tuesday, February 5, 2019

Fogg Posts Two Tax Papers On SSRN

SSRN Logo (2018)Keith Fogg (Harvard) has posted two tax papers on SSRN:

Can the Taxpayer Bill of Rights Assist Your Clients?, 92 Temple L. Rev. ___ (2019):

Congress has added a Taxpayer Bill of Rights (TBOR) to the Internal Revenue Code following the administrative adoption by the IRS of the identical slate of rights. The question for taxpayers and practitioners with respect to TBOR concerns its impact, if any, in seeking a remedy for certain IRS behavior.

Practitioners have begun to argue for remedies based on the rights enumerated in TBOR. Facebook became one of the first taxpayers to seek to use TBOR to obtain a right that the IRS had otherwise denied. The Tax Court found that the remedy Facebook sought based on perceived rights in TBOR was not a remedy the court could provide. In the Facebook case the IRS followed the guidance set forth in a Revenue Procedure.

Other taxpayers have also begun to test the waters with TBOR arguments. This paper analyzes several cases and several situations in which TBOR has arisen or might soon arise as the basis for seeking a remedy not otherwise available. The paper concludes that taxpayers will struggle to find a basis for remedy in TBOR when facing a specific statute, regulatory or even sub-regulatory guidance directing the IRS to take a specific path. TBOR could make a difference in situations in which the IRS has leeway in deciding what to do.

The specific area in which the IRS has great leeway in deciding the course of action it will pursue falls in the collection of taxes. So much of collection is driven by judgment and policy that it presents one of the primary areas in which TBOR could apply to assist taxpayers in reaching the remedy that best suits their situation in balance with the needs of the IRS. The paper discusses some collection situations in which TBOR could make a difference.

The other area where TBOR could make a difference is the formulation of regulatory and sub-regulatory guidance. The IRS should build a culture that embraces the goals of TBOR and uses them as it constructs its interactions with taxpayers. The paper discusses how this might happen.

has moved past its infancy but not far. There is much to learn about how TBOR will impact tax administration. Litigation will help to move TBOR to where Congress intended it to be or help to move Congress to reshape TBOR into the impact statement it intended.

Access to Judicial Review in Non-Deficiency Tax Cases:

In the case of Flora v. United States the Supreme Court determined that the jurisdictional statute governing tax refund suits did not make clear whether a taxpayer must fully pay the tax before filing suit to obtain a refund. Despite the lack of clarity in the statute, a split in the circuits and no strong reasons for its decision, a 5-4 majority of the Court decided in its second try at the case that a taxpayer who received a statutory notice of deficiency and failed to petition the Tax Court could not pay a partial amount of the tax and sue for refund.

Seventeen years later in the case of Laing v. United States, the Solicitor General argued that Flora was limited to situations in which the taxpayer had received a notice of deficiency and failed to petition the Tax Court and did not create a bar to partial payment in other situations. Despite its weak foundation and its narrow scope, the Flora decision now stands as a broad bar to taxpayers seeking a refund who do not fully pay the tax before bring the suit. The IRS and the Department of Justice have completely reversed course from the argument made by the Solicitor General in Laing.

The result of the current interpretation of Flora by the lower courts is that for taxpayers who never have the opportunity to petition the Tax Court prior to assessment or who missed the opportunity to go to Tax Court but can never scape together enough money to fully pay the tax the opportunity for judicial review of the actions of the IRS may be lost. The recent case of Larson v. United States brings this home in stark fashion. Mr. Stark promoted tax shelters. The IRS assessed against him, and others, a tax shelter promotion penalty of approximately $160 million. Because the penalty was an assessable penalty which did not exist when Flora was decided and because he does not have $160 million with which to satisfy the assessment, Mr. Larson is barred from judicially contesting this assessment.

This paper analyzes how we reached the situation that certain taxpayers have no opportunity for judicial review of the actions of the IRS and suggests a path that would allow ever taxpayer the opportunity for judicial review of their tax assessment.

It appeared that Congress attempted to provide an opportunity for judicial review when it passed the Collection Due Process provisions in 1998; however, the regulations written by the IRS have the effect of cutting off judicial review in situations in which the taxpayer has the opportunity for administrative review. The paper suggests that relatively small changes to the Collection Due Process provisions could provide the opportunity for judicial review of tax assessments to everyone. It also explores other avenues that could provide this opportunity.

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