Paul L. Caron
Dean


Monday, April 6, 2020

Lesson From The Tax Court: The Long And Short Of CDP

Tax Court (2017)I call it Collection Delay Process for a reason.  Two recent cases are bookend lessons on the speed of CDP.  These two cases suggest that the fastest CDP resolution one can reasonably expect is 2 years, but one can push that to 7-8 years depending on the complexity of the case and persistence of the taxpayer. 

First, Do S. Wong v. Commissioner, T.C. Memo 2020-32 (March 5, 2020) (Judge Lauber) is one of the shorter CDP timelines I’ve seen, with a correspondingly short opinion of 12 pages.  There, the taxpayer was able to stop active collection for about 2 years.

Second, Ronald M. Goldberg v. Commissioner, T.C. Memo 2020-38 (April 2, 2020) (Judge Morrison) is one of the longer CDP timelines I’ve seen, with a correspondingly long opinion of 163 pages.  There, the taxpayer was able to stop active collection for 7.5 years.

What each of these taxpayers gained in delay, however, is somewhat offset by the simultaneous extension of the collection limitations period.  As a result Mr. Wong's 2013 liability and Mr. Goldberg's much older 2004 liability are both now likely collectible through 2029.  The IRS may continue with enforced collection for both but one taxpayer will owe more in penalties and interest because of the longer delay.  Next week we will consider a lesson that Goldberg teaches on interest (unless a more interesting lesson comes up).  Today, however, I just present these cases to illustrate what practitioners might expect in the CDP process.

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April 6, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Thursday, April 2, 2020

Primer On How To Navigate The Recovery Rebate This Time

Two new posts from the eminent Carl Smith explain how the current rebate refund provisions differ from two past versions, and highlight what issues to anticipate with IRS administration of the provisions. 

"So, How Will the "Recovery Rebate" Refunds Work This Time? Part I:"

Section 6428 operates as a refundable credit – just like the earned income tax credit or the additional child tax credit.  Section 6428(b).  ... Because it has been awhile since this recovery rebate credit has been in the law (and because I litigated on behalf of taxpayers the only district court and appellate court opinions addressing the 2008 version of section 6428; see Sarmiento v. United States, 812 F. Supp. 2d 137 (E.D.N.Y. 2011), aff’d in part and rev’d in part, 678 F.3d 147 (2d Cir. 2012), and Maniolos v. United States, 741 F. Supp. 2d 555 (S.D.N.Y. 2010), aff’d per order, 469 Fed. Appx. 56(2d Cir. 2012)), I thought it would be useful for me to give a practical primer on how the new recovery rebate is written, how it was administered last time, and how I think it will be administered this time – because I anticipate the IRS will make administrative choices in 2020 similar to those that the IRS made in 2008....

"So, How will the "Recovery Rebate" Refunds Work This Time? Part II:"

This post is to discuss two issues under the prior versions of section 6428 that led to litigation and how those issues have or have not been addressed by the current legislation.  The two issues are:

  1. Whether the IRS may apply the recovery rebate credits (including stimulus checks) under section 6402 to reduce certain outstanding debts; and
  2. Which taxable year is the stimulus check “for” for purposes of bankruptcy?

The answer to the first question is decidedly “no”, with one exception.

The answer to the second question is still open – at least outside the Second Circuit.

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April 2, 2020 in Bryan Camp, Tax, Tax News, Tax Practice And Procedure | Permalink | Comments (0)

Monday, March 30, 2020

Lesson From The Tax Court: One Plus One Equals One

Tax Court (2017)Author’s Note: Like so many others I am now working from home and climbing various learning curves, some steeper than others.  So please accept my apologies if today’s post contains more errors than normal.  Hopefully they will just be errors of the fingers and not of the brain.  

The case of Sean McNamee v. Commissioner, T.C. Memo. 2020-37 (Mar. 18, 2020) (Judge Lauber) teaches us that taxpayers have only one opportunity to challenge a tax liability in a Collection Due Process (CDP) hearing, even though the Tax Code provides for up to two CDP hearings for any given tax liability.  In today's case the IRS erroneously refused to let Mr. McNamee challenge a tax liability in his first CDP hearing.  He did not obtain Tax Court review of that decision.  Instead, he re-challenged the liability in a second, later, CDP hearing involving the same underlying liability.  Mistake.  The Court held that even though the IRS screwed up the first time, the taxpayer’s failure to obtain judicial review of the first hearing precluded him from challenging the underlying liability in the second.  The lesson here centers on a tricky quirk in the CDP rules.  Details below the fold.   

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March 30, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, March 23, 2020

Lesson From The Tax Court: Last Known Address Rules And The Rule Of Law

Dog 2Celebrities are often hard to contact.  “Call my agent” is their standard line.  When do that on their tax returns, they should know that the last known address rules apply to celebrities the same as to regular folk.  That is the lesson in Duane Lee Chapman and Alice E. Smith, Deceased v. Commissioner, T.C. Memo. 2019-110 (Aug. 29, 2019) (Judge Ashford).  There, the taxpayers—famous from the TV reality show Dog the Bounty Hunter—put their agents’ address on their tax returns.  It cost them the opportunity to contest tax liabilities in Tax Court.

The case also shows us another meaning of the term Rule of Law.  That is why I am presenting this case today, as a follow-up on last week’s lesson.  Details below the fold. 

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March 23, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, March 16, 2020

Lesson From The Tax Court: The Two Postmark Rule And The Rule Of Law

Tax Court Logo 2Taxpayer petitions must still be filed in hard copy.  So you still need to understand the §7502 mailbox rules and the case of Sara M. Thomas and David A. Thomas v. Commissioner, T.C. Memo. 2020-33 (Mar. 11, 2020) (Judge Vasquez) teaches us a useful lesson.  There, taxpayers mailed their petition on March 5, 2018, the last day of the 90 day period.  When received by the Tax Court the envelope had two postmarks, one from a private postage meter that read “March 5” and one from the USPS that read “March 6.”  Relying on the applicable regulation, the Court said it was the USPS postmark that counted and dismissed the case for being filed late.

At one level this case is a straightforward lesson about the mailbox rules.  But it also illustrates one meaning of the phrase “Rule of Law.”  You would not think Tax Court opinions would deal with legal philosophy.  But they sometimes so.  Details below the fold.

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March 16, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, March 9, 2020

Lesson From The Tax Court: New Contract Turns Deductible Travel Into Non-Deductible Commute

Tax Court (2017)The case of Deborah Louise Biegalski v. Commissioner, T.C. Summ. Op. 2019-35 (Dec. 3, 2019)(Judge Colvin) teaches a useful lesson in the difference between deductible business travel and non-deductible commuting for taxpayers who work as independent contractors.  The wrinkle in this case was that the taxpayer’s travel was done per two different contracts for different types of work and for two discrete periods, each less than one year.  She thought that made her travel deductible.  The Tax Court disagreed.  Details below the fold.

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March 9, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, March 2, 2020

Lesson From The Tax Court: Taxpayer Cannot Cure Reporting Error During Audit

Tax Court (2017)The IRS is understandably skeptical of taxpayers who claim charitable deductions for conservation easements.  Opportunities for fakery abound, including valuation fakery, as explained in this nice post by Peter J. Reilly.  To help combat that kind of fakery, Congress has authorized the Treasury to adopt strict reporting requirements.  Today’s case shows just how strict they are.

In Oakhill Woods v. Commissioner, T.C. Memo. 2020-24 (Feb. 13, 2020) (Judge Lauber), the taxpayers made a conservation easement but their return omitted information required by regulation.  That proved fatal.  The IRS disallowed the deduction because of that omission, even though taxpayers offered the information during audit.  Judge Lauber agreed with the IRS that the taxpayers could not cure the omission during audit.  The taxpayers then tried to argue that the regulation was invalid.  Judge Lauber said “don’t be stupid” (but more politely).  It’s a nice lesson on the power of the IRS to impose reporting obligations and a cautionary tale to taxpayers on the danger of trying to game the reporting requirements with a needle in a haystack approach.

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March 2, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, February 24, 2020

Lesson From The Tax Court: What Is 'New Matter' That Shifts Burden Of Proof To IRS?

Tax Court (2017)Tax Court Rule 142 provides that “the burden of proof” in a Tax Court case is generally on the taxpayer.  Among the exceptions is the “new matter” exception.  When the IRS introduces a “new matter” it bears the burden of proof.  In Alvin E. Keels, Sr. v. Commissioner, T.C. Memo. 2020-25 (Feb. 19, 2020) (Judge Colvin) the NOD disallowed certain deductions for lack of substantiation.  After trial the IRS said that taxpayer's error was misapplication of §409A.  The Tax Court said that was a new theory and, hence, a new matter.  Because the IRS had not introduced any evidence to show how the taxpayer had misapplied §409A, the Court handed the taxpayer a sweet, sweet victory.  I read the case as a lesson in how broadly the Tax Court will construe the new matter exception.  The result was that while both the taxpayer and the IRS messed up, it was the IRS error that proved fatal thanks to the burden of proof shift in Rule 142.  I question the result here.  All of that comes below the fold. 

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February 24, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, February 17, 2020

Lesson From The Tax Court: IRS Automated Matching Program Not An 'Examination'

Tax Court (2017)Taxpayers think there is an audit lottery.  Tax professionals know better.  True, there is an audit lottery in the sense that only a very, very small percentage of returns are subject to human scrutiny.  But what most taxpayers overlook is that the IRS relies heavily on machines to process returns and, in that process, uses myriad automated programs to review all returns.  The truth is that every single return filed is subject to some level of review by the IRS.   One well known program is the Automated Underreporting program (AUR).  It matches information returns against taxpayer returns to catch under-reporting of income.

Last week’s case of Richard Essner v. Commissioner, T.C. Memo. 2020-23 (Feb. 12, 2020) (Judge Marvel) teaches a lesson about what happens when machine and human review of the same tax return overlap.  There, the IRS issued an NOD based on an AUR review while the same tax year was, at the same time, under human review.  The taxpayer argued that this duplicative review violated the §7605(b) restrictions on unnecessary or duplicative examinations.  Judge Marvel sympathized but hewed to a long line of precedent holding that AUR review does not trigger the §7605(b) restrictions.  Details below the fold.

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February 17, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, February 10, 2020

Lesson From The Tax Court: Drafting Error Costs Client $16 Million Deduction

Tax Court (2017)Tax statutes and tax regulations mostly use words to talk about numbers.  One of the basic lessons I must teach students is how to read numerical formulas that are expressed in words.  The importance of that lesson was recently reinforced by Railroad Holdings, LLC, Railroad Land Manager, LLC, Tax Matters Partner v. Commissioner, T.C. Memo. 2020-22 (Feb. 5, 2020) (Judge Gustafson).  There, the drafters of a conservation easement deed failed to properly incorporate the regulation’s proportionality requirement, a requirement that expresses a mathematical concept in words.  The resulting drafting error was so bad that not even tax litigators could twist the deed’s language to fit the requirement.  That cost the taxpayer a $16 million charitable deduction.  Details below the fold.

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February 10, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (4)

Monday, February 3, 2020

Lesson From The Tax Court: The Common Law Mailbox Rule Lives!

Tax Court (2017)The United States Postal Service (USPS) is a very large, complex organization, as detailed in this webpage.  It delivers some 146 billion pieces of mail a year.  It has a reputation for reliability.  The reputation is so strong that Congress actually made it the foundation of §7502’s statutory mailbox rule.  You know the rule: timely mailing is timely filing.

In Michael J. Seely and Nancy B. Seely v. Commissioner, T.C. Memo. 2020-6 (Jan.y 13, 2020) (Judge Vasquez) the Post Office apparently failed to put a postmark on an envelope containing the taxpayer's Tax Court petition.  The petition was received late but the Tax Court allowed the taxpayer the benefit of the timely-mailing rule, even though the statute requires a postmark and the regulations assume one.  This case shows us how the common law mailbox rule still lives and breathes in the statutory and regulatory gaps.  Details below the fold.

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February 3, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, January 27, 2020

Lesson From The Tax Court: §6672 Trust Fund Recovery Penalty Is Really A Penalty ... Sort Of

Tax Court (2017)Sometimes we get so used to norms of practice that we forget the legal text governing that practice.  Last week the Tax Court taught that text is still important.  In David J. Chadwick v. Commissioner, 154 T.C. No 5. (Jan. 21, 2020) (Judge Lauber), the Court held that the IRS must comply with §6751(b)’s supervisory approval requirements before assessing the §6672 Trust Fund Recovery Penalty.  That is because the text of §6751(b) says those requirements apply to any “penalty” and the text of §6672 permits the IRS to assess a “penalty.”

Some may laugh!  Some may snort “It’s so simple!”  But, truly I tell you, nothing is simple when you combine the Tax Code and lawyers.  While the lesson may seem simple, it’s more nuanced than you may realize.  And even though this is a reviewed opinion, it may be of surprisingly limited reach.  Details below the fold.

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January 27, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (3)

Monday, January 13, 2020

Lesson From The Tax Court: A Practical Interpretation Of The Penalty Approval Statute § 6751

Tax Court (2017)Section 6751 is a poorly written statute that has caused no end of headaches for taxpayers, the IRS and the Tax Court.  It requires supervisory approval of tax penalties at some point before those penalties are assessed.  But that statute does not say at what point.  Last week a surprisingly divided Tax Court created a relatively bright line for taxpayers and the IRS to know by when the IRS must conform to the supervisory approval requirements.  The Tax Court did so by giving the statute a practical rather than hyper-textual construction.  The cases are: (1) Belair Woods, LLC, et al v. Commissioner, 154 T.C. No. 1 (Jan. 6, 2020) (Judge Lauber writing for a majority of nine); (2) Tribune Media Company v. Commissioner, T.C. Memo 2020-2 (Jan. 6, 2020) (Judge Buch).  Details below the fold.

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January 13, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, January 6, 2020

Lesson From The Tax Court: Taxpayer Who Got $1.6m Assessment Reduced To $170k Not Entitled To Costs

Tax Court (2017)Section 7430(a) permits a court to award “reasonable administrative costs” and “reasonable litigation costs” (the largest being attorneys fees) to a taxpayer who is a “prevailing party” in a dispute with the IRS.  In Mark C. Klopfenstein v. Commissioner, T.C. Memo 2019-156 (Dec. 9, 2019) (Judge Lauber), Exam assessed a $1.6 million §6707 penalty against the taxpayer.  Mr. Klopfenstein eventually secured a closing agreement from Appeals that reduced the penalty to just under $170,000.  The IRS abated the assessment to that amount.  Mr. Klopfenstein then asked for “reasonable administrative costs” under §7430.  The Tax Court said no, because Mr. Klopfenstein was not a “prevailing party.”  You will find out why below the fold.

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January 6, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (0)

Monday, December 9, 2019

Lesson From The Tax Court: Taxpayers Behaving Badly (2019)

Santa ClausThis will be my last post until January.  I will be spending my days (except for Christmas Day) grading exams.  Grades are due Friday January 3rd so I hope to have my next post done for January 6th. 

For the second year, my last blog of the year is a roundup of the cases I read during 2019 where something in the facts made me just shake my head (SMH in texting parlance).  I present them to you now, in chronological order, and I invite you to consider which of the following cases may be examples of just an empty head and which are examples of something worse. [Lesson From The Tax Court: Taxpayers Behaving Badly (2018)]

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December 9, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (1)

Monday, December 2, 2019

Lesson From The Tax Court: How The Court Reviews Whistleblower Office Decisions

Tax Court (2017)Everyone, myself included, tends to refer to “the” IRS as if it is a sentient being.  We all know, however, that there is no such being.  Rather, the IRS is composed of many employees grouped together in different offices that perform different functions with various degrees of elan or despair.  It is the connections and coordination between these offices that make up “the” IRS.

Normally that distinction in not important.  But proved critical in last week’s case of Richard E. Lacey v. Commissioner, 153 T.C. No. 8 (Nov. 25, 2019).  There the Tax Court was asked whether it had jurisdiction to review the refusal of the IRS Whistleblower Office (WBO) to send whistleblower information to the Exam function.  The majority said yes.  The language of §7623(b)(4) gives the Tax Court jurisdiction to review any work product produced by the WBO.  Four Judges disagreed.  In their view, the statute does not permit review of decisions on whether or not to open exams in the first place, and that is true regardless of whether such decision is made by the WBO or by the relevant Exam function.  To the dissent, Tax Court review power turns on the functional nature of the work product and not the formality of the issuing office.   To the dissent, the IRS is the IRS.  To the majority, the IRS is sometimes discrete offices.

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December 2, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, November 25, 2019

Lesson From The Tax Court: The Scope And Standard Of Review In CDP Cases

Tax Court (2017)Many Tax Court cases teach lessons about Collection Due Process (CDP).  The case of Norman Hinerfeld v. Commissioner, T.C. Memo. 2019-47 (May 2, 2019) (Judge Halpern), teaches a nice lesson about how the Tax Court reviews IRS CDP decisions.  It illustrates the difference between the concepts of “scope” of review and “standard” of review.  And it introduces readers to the wacky world of tax administrative law which, must to the consternation of those academics who like their law neat and tidy, is anything but neat and tidy.  More below the fold.

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November 25, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (3)

Monday, November 18, 2019

Lesson From The Tax Court: Whistleblowers Don't Get To Work The Case

Tax Court (2017)You can't bring a Qui Tam action against a tax cheat.  You can blow the whistle, but it's not the same.

Qui Tam actions are lawsuits brought by private parties on behalf of the federal government against those who have defrauded the government.  Congress has long allowed such actions.  The current rules are found in 31 U.S.C. §3730.  That statute permits private parties to enforce the provisions of the immediately preceding statute, 31 U.S.C. §3729, known as the False Claims Act.

The False Claims Act, however, explicitly excludes actions against tax cheats from its scope.  See §3729(d).  That means private parties cannot bring Qui Tam actions to enforce the tax laws.  Instead, to help the IRS enforce the tax laws, Congress has created a whistleblower program, codified in §7623.  It permits individuals who report wrong-doing to the IRS to “receive as an award at least 15 percent but not more than 30 percent of the proceeds collected...”  In FY18, the Whistleblower Office's Report To Congress said that the program resulted in collection of over $1.44 billion, at a cost (of awards) of $312 million (about a 21% award rate). 

The recent case of Vincent J. Aprunzzese v. Commissioner, T.C. Memo. 2019-141 (Oct. 21, 2019)(Judge Vasquez) teaches the difference between a Qui Tam action and whistleblowing.  There, the whistleblower argued that he was due a larger award because the IRS could have collected much more based on the information he gave.  The Tax Court rejected the argument.  The case also shows why allowing Qui Tam actions for tax would not be a good idea: you don’t want private parties working the audits.  Details below the fold.

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November 18, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, November 11, 2019

Lesson From The Tax Court: One Year At A Time

Tax Court Logo 2I do not teach much tax accounting in my basic tax class.  I do, however, teach the general rule in §441(a) that each tax year stands alone.  Last week’s case of Roger G. Maki and Lilane J. Gervais v. Commissioner, T.C. Summary Op. 2019-34 (Nov. 4, 2019) (Judge Gerber), illustrates that general rule.  In Maki, the taxpayers won a §162 deduction for Mr. Maki’s travel away from home.  What makes this case fun is that these are the same retired taxpayers I blogged about last year in “Where Is A Retiree’s Tax Home.”  In both cases they won the issue, albeit for a smaller amount than they had claimed.  The lesson here is that a win in the first case did not guarantee the win in the next.  Details below the fold.

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November 11, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, November 4, 2019

Lesson From The Tax Court: No Jurisdiction Over Ambiguous NOD

Tax Court (2017)Jurisdiction is just a fancy word for “power.”  In a speech later published as The Path of The Law, the sainted Justice Holmes said: “in societies like ours the command of the public force is entrusted to the judges in certain cases, and the whole power of the state will be put forth, if necessary, to carry out their judgments and decrees.”  To Holmes, and others, courts are an instrumentality of government power.  The Tax Court is one such court.

In the tax arena, §6214 gives the Tax Court the power “to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency...”  And the whole force of the state---via the IRS---will be put forth, if necessary, to carry out its judgment regarding the correct amount of a deficiency.

Last week’s decision in U.S. Auto Sales, Inc. v. Commissioner, 153 T.C. No. 5 (Oct. 28, 2019), teaches a lesson in how the Tax Court takes a pragmatic approach to exercising its power to “redetermine...the deficiency.”  In that case, the IRS sent the taxpayer an erroneous NOD.  The error was in the taxpayer’s favor, to the tune of over $6 million.  The taxpayer filed a petition, ostensibly asking the Tax Court to wield it’s power to “redetermine...the deficiency.”  Un uh.  The IRS moved to dismiss the case for lack of jurisdiction because, it claimed, the erroneous NOD was also invalid.  Accordingly, there was no deficiency over which the Tax Court could exercise its power of review.

The Tax Court held that the NOD was invalid and so the Court could not exercise its power.  But the vote was 9-6, spread over five different written opinions.  My take-away is that what splits the majority and dissenting positions are different practical judgments about what parts of an NOD the Court should consider when deciding whether its jurisdiction has been properly invoked.  NOD's serve different purposes and different parts of an NOD package contribute to those different purposes. Details below the fold.

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November 4, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, October 21, 2019

100th Lesson From The Tax Court: The Role Of Innocence In § 6015 Spousal Relief

Happy 100thAuthor's Note:  This is my 10oth Lesson published on TaxProfBlog.  I continue to be very grateful to Paul for this opportunity.  I have learned loads from the cases and I enjoy sharing what I learn. 

Editor's Note:  I am very grateful to Bryan for the great work he has done on these weekly posts. Bryan has developed a huge following among tax academics and practitioners: his Lessons From The Tax Court are invariably among the most popular posts each week, and cumulatively have been viewed 2.6 million times (26,000 page views per post).

Section 6015 is not titled “Innocent Spouse Relief.”  It is titled “Relief From Joint and Several Liability on Joint Return.”  And you will not find the word “innocent” (or any cognate) in the statute’s text.  But we still call the relief granted by §6105 “innocent spouse relief.”  Two cases from last week teach why.  In Habibe Kruja (Petitioner), Ermir Kruja (Intervenor) v. Commissioner, T.C. Memo. 2019-136 (Oct. 15, 2019) (Judge Buch) the Tax Court granted partial relief under §6105(c).  In Lori D. Sleeth (Petitioner), David T. Sleet (Intervenor) v. Commissioner, T.C. Memo. 2019-138 (Oct. 15, 2019) (Judge Goeke), the Court denied relief under §6015(f).  Both cases show that the idea of innocence plays an important, if often implied, role in the application of §6015.  Details below the fold.

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October 21, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (6)

Monday, October 14, 2019

Lesson From The Tax Court: No § 911 Exclusion For Taxpayers With U.S. Abode

Tax Court (2017)In several Lessons From The Tax Court (here, here, and here) we have seen how the concept of a tax home is important for deciding when §162 allows a deduction for the expenses of travel away from home.  The lessons teach that a tax home is where one must live to earn a living.  One’s personal choice of abode may or may not be one’s tax home.  That is the law for §162 purposes.  For §911 purposes, however, Congress has made the taxpayer’s personal choice of abode part of the definition of tax home.  That definition is what tripped up the taxpayers in Joseph S. Bellwood And Jacqueline E. Bellwood v. Commissioner, T.C. Memo 2019-135 (October 7, 2019)(Judge Gustafson) and in James M. Cambria v. Commissioner, T. C. Summary Opinion 2019-28 (September 30, 2019)(Judge Nega).  Details below the fold.

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October 14, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, October 7, 2019

Lesson From The Tax Court: Payments v. Deposits

Tax Court (2017)The only thing worse than overpaying ones tax liabilities is not realizing one has overpaid until it is too late to get the overpayment refunded.  Section 6511 requires taxpayers to ask the IRS for refunds of overpayments within the later of: (1) three years after the relevant return was filed; or (2) two years after the relevant payment was made.  If no return was filed, then the two year period applies.

Section 6511, however, only applies when there has been a payment in the first place.  Not every remittance to the IRS constitutes a payment.  Sometimes taxpayers send in money without intending it to be a payment.  For example, a taxpayer might send money to simply stop the running of interest while the taxpayer pursues a protest of the amount of tax owed.  The IRS and courts call those remittances “deposits.”  The good news is that returns of deposits are not subject to the limitation periods in 6511.  The better news is that if a taxpayer is entitled to their return, the government might have to pay interest. §6603.

Thus, it is useful to learn the difference between a payment and a deposit.  In Michael C. Worsham v. Commissioner, T.C. Memo. 2019-132 (Oct. 1, 2019) (Judge Colvin) the taxpayer thought that his remittances to the IRS were not payments because he made them long before the IRS assessed the relevant taxes.  Judge Colvin makes quick work of that argument.  Perhaps too quick.  There is more to the difference between payments and deposits than the timing of the remittance.  I still think the taxpayer’s remittances in this case still might have been deposits, depending on facts not contained in the opinion.  Details below the fold.

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October 7, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, September 30, 2019

Lesson From The Tax Court: The Proper Role Of Delay In CDP

Tax Court (2017)I often call CDP “Collection Delay Process.”  That is not pure snark.  Part of the purpose of CDP is to pause collection long enough to give taxpayers adequate time to present information to a human IRS employee and explain why the IRS should not be collecting from them.  What constitutes adequate time turns on the plausibility of the taxpayer’s story.  That is today’s lesson.  

The problem with CDP is that many, if not most, of the taxpayers who press the pause button do so simply for the purpose of delay and not for the purpose of explanation.  Time and again one finds taxpayers who invoke their CDP rights and then do nothing else.  They do not present a collection alternative, do not submit forms showing their assets and liabilities, do not respond to Appeals employee’s requests for information.  More importantly, they do not give a plausible story on why the IRS should stop collection.  Instead they give only excuses as to why they need more and more delay.

IRS employees in Appeals become jaundiced.  When so many requests lack substance, it is all too easy to start thinking that all requests lack substance.  The resulting temptation is to discount taxpayer excuses for delay and move ahead with collection. 

Two recent Tax Court opinions show both the frustrations felt by IRS Appeals employees and the dangers of assuming all taxpayers simply want delay.  Together they teach why delay is indeed a necessary part of the CDP process.  In Derrick Barron Tartt v. Commissioner, T.C. Memo 2019-112 (September 3, 2019)(Judge Lauber) the taxpayer sought delay for delay’s sake.  The case shows us the kind of situations that IRS Appeals employees see as a general rule.  In contrast, the case of Taryn L. Dodd v Commissioner, T.C. Memo 2019-107 (August 22, 2019)(also Judge Lauber) shows us the exception to the rule and why Appeals must sometimes give a taxpayer repeated and repeated and repeated opportunities to provide information.

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September 30, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, September 23, 2019

Lesson From The Tax Court: The Functional Definition Of 'Return'

Tax Court (2017)I have blogged before about the myth that our system of taxation is one of “self-assessment.”   Our system is better described as one of self-reporting.  It depends on taxpayers properly reporting their items of income and deductions.  The IRS can do the rest. 

Section 6011 requires taxpayers to self-report on “a return or statement according to the forms and regulations prescribed by the Secretary.”  The most common return is the Form 1040.  Taxpayers who fail to file returns or who file fraudulent or frivolous returns are subject to various consequences.  For example, the three year statute of limitations on the IRS to audit a tax year is only triggered when the taxpayer files a return. §6501(c).  If what is filed is not a return, then the IRS can assess the penalties imposed by §6651(a) for the failure to file a return.  

It thus becomes important to know: what constitutes a “return”? 

Two recent Tax Court cases teach that a “return” is not simply a form but is a form which serves a function.  In Seaview Trading, LLC v. Commissioner, T.C. Memo. 2019-122 (Sept. 16, 2019) Judge Ruwe held that a copy of a return sent to a Revenue Agent could not function as a “return.”  In George J. Smith and Sheila Ann Smith v. Commissioner, T.C. Memo. 2019-111 (Sept. 3, 2019) Judge Halpern held that taxpayers who filed a completely frivolous Form 1040 had still filed a “return.”  Details below the fold.

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September 23, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, September 16, 2019

Lesson From The Tax Court: Administrative File Notes Are Not Ex-Parte Contact

Tax Court (2017)Tax collectors have an tough and lonely job.  I know.  I collected taxes for Arlington County, Virginia shortly after law school.  And when I was in IRS Office of Chief Counsel, my clients were Revenue Officers (ROs), the IRS employees whose dolorous job is to collect unpaid taxes. 

When a taxpayer receives a CDP hearing, ROs are prohibited from making ex part contacts with anyone in Appeals about the substance of the collections under review.  If the RO wants to communicate with anyone in Appeals about matters that are not ministerial, administrative, or procedural, they must give taxpayers an opportunity to participate in the discussion. Rev. Proc. 2000-43, §3, Q&A-6.   If they violate the ex-parte prohibition, then the CDP hearing becomes tainted and the ex part nature of the contact must either be cured or else the case be reassigned.  Rev. Proc. 2012-18, §2.10(1).

Not every communication from an RO to Appeals is a prohibited ex parte contact.  Last week’s case of Jason Stewart and Kristy Stewart v. Commissioner, T.C. Memo 2019-116 (September 10, 2019) (Judge Kerrigan) teaches a lesson in what does not constitute a prohibited communication from an RO to the Settlement Officer in a CDP hearing.  Details below the fold.

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September 16, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax News, Tax Practice And Procedure | Permalink | Comments (1)

Monday, August 19, 2019

Lesson From The Tax Court: A Lesson Of Interest

Tax Court (2017)Politicians love to brag about the voluntary nature of the U.S. tax system.  Back in 1862, the first Commissioner of Internal Revenue, George Boutwell, reported glowingly that, “sustained by the patriotic sentiments of the people, it is a matter for congratulation that the taxes assessed have, with few unimportant exceptions, been paid with cheerfulness...”  Those with boots on the ground had a different view: “Human nature must greatly change, before we shall find that patriotism is more universal than selfishness,” wrote the tax assessor Charles Emerson in 1867.

Good tax administration works with, rather than fights against, the selfishness of human nature.  One way to do that is by creating structural mechanisms that put taxpayers into a default posture of compliance.  Withholding is one of those.  Another way is to give taxpayers incentives to accurately comply with their reporting and payment obligations, incentives such as avoiding penalties and interest.

Enhancing taxpayer compliance is a central purpose of both penalties and interest.  See Policy Statement 20-1 in IRM 1.2.1.12 (08-01-2019).  Last week’s case of Jon D. Adams v. Commissioner, T.C. Memo. 2019-99 (Aug. 12, 2019) (Judge Urda) is an object lesson in how penalties and interest do that.  In particular the case illustrates how the difficulty in obtaining relief from interest, coupled with the very robust statutory interest rates, suggest that imposition of interest is more than just a mechanism to compensate the government for the lost time value of money; it is a compliance tool.

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August 19, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (3)

Monday, August 12, 2019

Lesson From The Tax Court: Know The Difference Between IRAs And 401(k)s

Tax Court (2017)Every year I lecture on the time value of money.  Part of the lecture compares a normal taxed savings account funded with after-tax dollars to a tax-free retirement account funded with pre-tax dollars.  At the end of my assumed 40-year investment period the difference astonishes the students and drives home my main point about the time value of money.

The effectiveness of my point does not depend on which type of tax-deferred retirement account is being used.  I figure most of my students will make use of a traditional IRA, or Roth, or spousal, or will be able to make use of a 401(k) plan or a 408(k) SEP plan.  It does not matter which type of plan they use: the power of tax deferral works in all of them.

But the type of retirement plan can make a huge difference to the treatment of early withdrawals.  That is the lesson from last week’s case of Lily Hilda Soltani-Amadi and Bahman Justin Amadi v. Commissioner, T.C. Summary Opinion 2019-19 (Aug. 8, 2019) (Judge Armen).  The taxpayers there had made an early withdrawal from their 401(k) plan to help buy their first home.  The distribution would have been penalty-free had it come from an IRA.  But it came from a 401(k) and so, while permitted, it carried with it the §72(t) 10% penalty.  Details below the fold.

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August 12, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (4)

Monday, August 5, 2019

Lesson From The Tax Court: Appeals Is Still Part Of The IRS, Really!

Tax Court (2017)I find it useful to think of tax administration as comprising two overarching functions: (1) determining tax liabilities and (2) collecting tax liabilities.  The IRS Office of Appeals (“Appeals”) supports both functions by mediating disputes between taxpayers and either the IRS exam function or collection function.  In Aldo Fonticiella v. Commissioner, T.C. Memo. 2019-74 (June 13, 2019), Judge Gerber teaches us that even though Appeals has a different (and wider) set of powers that often allow it to settle disputes without litigation, it still functions as an integral part of the IRS, no matter how many times Congress puts “Independent” in its title.

Taxpayers unhappy with Appeals look for creative ways to avoid its decisions.  In 2011, one such taxpayer argued that all Appeals work product violated the U.S. Constitution.  His theory was that Appeals Officers were “Officers of The United States” within the meaning of the U.S. Constitution.  That meant they had to be appointed by the President with the consent of the Senate.  Because they were not, they could not wield any power over taxpayers.  That made all their work illegal and without effect.  In Tucker v. Commissioner both the Tax Court (135 T.C. 114, 2010) and the D.C. Circuit (676 F.3d 1129, 2012) rejected the argument.  Not a single judge agreed with the taxpayer.

Creativity begets creativity.  In Fonticiella, Judge Gerber considers and rejects a companion argument, that Appeals is a “de facto independent agency” whose very existence is an affront to the U.S. Constitution.  While that is a loser argument today, it may become a winner eventually as Congress keeps trying to transform Appeals into a mini-me Tax Court.  The recently enacted Taxpayer First Act, P.L. 116-25, moves in that direction, although not far enough, IMHO, to affect the rationale for Judge Gerber’s decision.  You can read more about it below the fold.

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August 5, 2019 in Bryan Camp, IRS News, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, July 22, 2019

Lesson From The Tax Court: The Role Of Abuse In Spousal Relief Claims

Tax Court (2017)Divorce brings all kinds of consequences.  Today’s lesson is about one of the tax consequences.  In last week's case of Brigette Ogden v. Commissioner, T.C. Memo. 2019-88  (July 15, 2019) (Judge Halpern), the divorced taxpayer sought to be relieved of her obligation to pay tax reported on two prior joint returns.  She sought relief based in part on a claim of spousal abuse and a claim that a state court’s divorce decree absolved her of responsibility.  Judge Halpern’s opinion teaches lessons about: (1) the relationship of spousal abuse to spousal relief in §6015, (2) the relationship of state courts to federal tax law, and (3) the relationship of sub-regulatory IRS guidance---here a Revenue Procedure---to Tax Court review of an IRS decision about spousal relief.  Details below the fold.  It's all about relationships.

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July 22, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, July 8, 2019

Lesson From The Tax Court: When Does A Business Start?

Tax Court (2017)It takes money to make money.  Generally Congress allows taxpayers to deduct the money it takes from the money they make.  That’s the idea in §162.  But §162’s deceptively simple language----allowing a deduction for all “the ordinary and necessary expenses paid or incurred in carrying on a trade or business”---has gaps, to be filled by other statutes.  For example, §§183 and 212 apply the §162 idea to activities that are not a “trade or business” but still produce income and have associated costs.  And then there is that pesky timing issue: which costs are “expenses” that should be deducted in the current year and which costs should only allowed to be deducted over a longer period of time?  Sections 168(k) and 179 allow taxpayers to accelerate deductions of certain capital costs that otherwise would not qualify as “expenses” under §162’s simple language.

Section 195 deals with another gap:  how to treat the costs of starting a business.  Section 162 does not permit deductions until such time as the taxpayer is actually “carrying on” the business.  Section 195 allows taxpayers to reach back to the time before the business started and deduct their start up costs.  But to get to use §195 a taxpayer must actually start their business.  Last week’s case of Steven Austin Smith v. Commissioner, T.C. Sum. Op. 2019-12 (July 1, 2019) (Judge Vasquez) teaches a nice lesson about what it means to start a business.  There, the court found that a taxpayer was indeed carrying on his business even in a year where he had no sales income.  To be sure, he still lost because he was unable to substantiate his expenses.  There’s a bit of a lesson there as well.  But the main lesson is about when a business starts.

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July 8, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (4)

Monday, July 1, 2019

Lesson From The Tax Court: Yachts Are Pigs

.Tax Court (2017)You can put lipstick on a pig, but it’s still a pig.  According to Wikipedia, that is a late 20th century update to an older expression "A hog in armour is still but a hog.”  Both convey the same idea: superficial alterations do not change the essence of a thing.   

Two recent cases from the Tax Court teach a tax version of that lesson: no matter how much you dress up a yacht in a business suit, it’s still a pleasure boat.  First, in Carlos Langston and Pamela Langston v. Commissioner, T.C. Memo. 2019-19 (Mar. 21, 2019) (Judge Nega), we once again learn a lesson from the Langstons, the same taxpayers who tried to convince Judge Nega that they had converted their home into an income-producing asset.  That was the subject of this prior lesson.  Here, in the same case, they also tried to pass off a modest 58’ 2006 Meridian 580 yacht as a business asset.  I say "modest" advisedly because the second case is Charles M. Steiner and Rhoda L. Steiner v. Commissioner, T. C. Memo 2019-25 (April 2, 2019)(Judge Ruwe) and it involves a decidedly immodest 155’ Super Yacht called “Triumphant Lady.”  After the Steiners decided to sell that yacht they first tried to dress it up as a leasing venture to reduce their considerable carrying costs pending sale. 

Turns out, size did not matter.  Both taxpayers floundered on two of the several sharp shoals in the Tax Code that sink attempts to pass off pleasure boats as businesses.  Taxpayers lured by the siren song of tax breaks should learn the lessons you will find below the fold.

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July 1, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (1)

Monday, June 24, 2019

Lesson From The Tax Court: Ipse Dixit Cannot Fix It

Tax Court (2017)Mitchel Skolnick and Leslie Skolnick, et al. v. Commissioner, T.C. Memo. 2019-64 (June 3, 2019) (Judge Lauber) teaches an important lesson about the proper use of expert witnesses.  In Skolnick, the Tax Court rejected the taxpayer’s expert witness valuation of of 153 horses at two points in time 7 years apart because the expert did not adequately disclose the facts and methodology used to value each horse.  Judge Lauber held that the taxpayer could not fix the value of the horses through expert’s ipse dixit.

The form of the lesson is also instructive.  Even though the parties went to trial this past April, Judge Lauber’s opinion does not decide the case...directly.  The opinion merely grants an interstitial motion, called a motion in limine, to exclude the expert’s report from the evidentiary record.  One might ask why the Court would take the time to issue an opinion on just one aspect of a case after the bother of a trial.  Why did not the Court just issue an opinion on the merits of the dispute?  After all, if the expert’s opinion is worthless enough to exclude from evidence, it is unlikely to really be helpful in deciding the merits of the case. 

I give my thoughts on both lessons below the fold, although I won’t blame you if you prefer to just watch this classic Monty Python sketch “The Argument Clinic.” Ipse Dixit is the form of argument that predominates in the sketch and is part of what makes it funny.  In real life, however, taxpayer representatives who do not heed today’s lesson will not be laughing. 

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June 24, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (0)

Monday, June 17, 2019

Lesson From The Tax Court: Your Brand Is Your Business

Tax Court Logo 2Self-promotion is as American as P.T. Barnum.  So is wanting to avoid tax.  In K. Slaughter v. Commissioner, T.C. Memo. 2019-65 (June 4, 2019), Judge Wells teaches a lesson that all YouTube influencers and their return preparers need to learn: it is difficult to avoid self-employment tax on earnings from self-promotion.  Ms. Slaughter argued that her “brand” was an intangible asset separate from her business of writing crime novels, and so earnings attributed to her brand were not self-employment income.  The Court rejected her attempt to assign part of her earnings to what amounted to her investment in herself.  Her brand was itself her business.  Hey, at least she avoided penalties because her tax position was her accountants’ idea.  However, that leaves the accountants potentially vulnerable to penalties under §6694.  Details below the fold.   

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June 17, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (6)

Monday, June 10, 2019

Lesson From The Tax Court: The Long Tail of OICs and IAs

Tax Court (2017)Today’s lesson is about dogs and tails. Tax practitioners often work hard to get their clients into some kind of Offer In Compromise (OIC) or Installment Agreement (IA) with the IRS. Those are the dogs. But a successful IA or OIC involves more than just making timely payments on the deals. It involves an ongoing commitment to properly file returns and pay taxes for up to five years. That’s the long tail. And, to mix metaphors, that long tail can come back to bite a taxpayer who falls out of compliance. That’s the lesson we learn from two recent opinions: (1) Edward F. Sadjadi and Cynthia M. Sadjadi, T.C. Memo. 2019-58 (May 29, 2019) (Judge Cohen) (IRS can collect original liability against taxpayers who fully paid their OIC); (2) Kevin Scott Millen v. Commissioner, T.C. Memo. 2019-60 (May 30, 2019) (Judge Lauber) (taxpayer had his IA terminated even though he never missed a payment).

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June 10, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (1)

Monday, June 3, 2019

Lesson From The Tax Court: Another Pyrrhic CDP Win

Tax Court (2017)Last week, I discussed the case of Mr. Kearse, whose three lawyers secured him a CDP win some five years after filing a Tax Court petition.  They got the win because of an IRS screw-up.  They did not get the underlying assessment invalidated.  They did not get a merits determination of the underlying liability.  They did not kill future collection.  They got delay.  I questioned what value that whole process added for either Mr. Kearse or taxpayers in general.  

This week I discuss the case of Linda J. Romano-Murphy v. Commissioner, 152 T.C. No. 16 (May 21, 2019) (Judge Morrison).  Ms. Romano-Murphy, representing herself, secured a CDP win some 10 years after she first filed her Tax Court petition.  She got the win because of an IRS screw up.  Unlike Mr. Kearse's team she got the underlying assessment invalidated.   Once again, however, I question whether this win created value for either this taxpayer or taxpayers generally.

The case took 10 years because Ms. Romano-Murphy initially lost her Tax Court case on the merits of her liability.  She appealed to the 11th Circuit in 2013 on a procedural issue.  Three years later that court rendered its opinion that the IRS had screwed up by not following a new rule that the 11th Circuit discovered buried in an implication in the statutory language of §6672, a rule no one else had spotted during the 20 years the statute had been in operation.

The new rule is a procedural one: when the IRS proposes to assess a Trust Fund Recovery Penalty (TFRP) under Section 6672 and the taxpayer timely asks for a hearing with the Office of Appeals, then the IRS may not assess the liability until after Appeals performs its review and issues a document that reflects its final determination. 

The 11th Circuit sent the case back to the Tax Court to decide whether the IRS screw-up was harmless error.  In a 87-page opinion, the Tax Court said the IRS error was not harmless and held that the assessment was void.  It reversed the Appeals CDP determination since the IRS cannot collect a void assessment.

You may think this is great result for Ms. Romano-Murphy.  She got the assessment invalidated!  I wish I shared that happy outlook.  Alas!  I think the result is really just a win of delayed assessment and later collection.  And I cannot see how the 10-year delay benefits either the taxpayer or tax administration.  Details below the fold.

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June 3, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (0)

Tuesday, May 28, 2019

Lesson From The Tax Court: CDP Win Is Not Always A Victory

Tax Court Logo 2CDP officially stands for Collection Due Process.  I snark that it really stands for Collection Delay Process, because delay in administrative collection activities is really the main result taxpayers get from CDP.  But it’s not all snark.  At the administrative level, delaying the automated collection processes can be good for everyone.  Taxpayers can use that delay to work out collection alternatives and thus avoid the disruption of random ACS levies and NFTLs.  The IRS can bring more folks into ongoing compliance.  Win-win.

At the Tax Court level, however, delay generally helps neither taxpayers nor the IRS.  That is the lesson I see from two Tax Court cases decided last week:  (1) Jevon Kearse v. Commissioner, T.C. Memo. 2019-53 (May 20, 2019) (Judge Ashford); and (2) Linda J. Romano-Murphy v. Commissioner, 152 T.C. No. 16 (May 21, 2019) (Judge Morrison).  In both cases, the taxpayers “won” the case; the Tax Court entered a judgment for the taxpayers because of IRS screw-ups.  It is not clear, however, that the decisions did anything more than delay collection.  It appears the IRS can fix the procedural errors and then re-start collection.  If so, then the delay might actually hurt the taxpayers because of increased interest and penalties.  Or it might hurt the increasingly underwater federal fisc (and the rest of us) because delay increases the risk of taxpayers hiding or dissipating assets.

I will discuss Kearse this week and will discuss Romano-Murphy next week, when I’ve had more time to think on and condense that 87 page (!) opinion.

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May 28, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (1)

Monday, May 20, 2019

Lesson From The Tax Court: Mostly Dead Corporation Cannot File Petition

Tax Court (2017)As we learned from this scene in The Princess Bride, there’s dead...and then there’s mostly dead. 

In Timbron Holdings Corporation v. Commissioner, T.C. Memo. 2019-31 (April 8, 2019) (Judge Vasquez), the Tax Court decided that it could not hear the petition filed by a mostly dead corporation.  In reaching this conclusion, Judge Vasquez carefully followed existing Tax Court precedents to hold: (1) a corporation whose charter is suspended under California law (i.e. is mostly dead) has no capacity to file a Tax Court petition; (2) the corporation’s lack of capacity is not a defense that the government must raise but is instead an element of §6213’s jurisdictional requirements; and (3) “reliance on equity and policy considerations [cannot] overcome a jurisdictional defect.”

The idea that §6213 is a jurisdictional statute is an old idea.  Really old.  Decrepitly old.  If the right right case goes up on appeal, I think an appellate court will likely decide that old idea is dead.  Deceased.  Kaput.  Expired.  Gone.  Done in.  All-the-way dead.  Parrot dead.  To beat the dead horse, an appellate court is likely to find that §6213 is not a jurisdictional restriction on the Tax Court but is instead a “claims processing rule,” a term the Supreme Court uses to describe limitations that are important but not jurisdictional.  You can find the deathly dull details in my forthcoming article (Fall 2019 issue of The Tax Lawyer).

Timbron is not the right case to take on appeal.  I think the result would be the same even if §6213 were treated as a straight-forward non-jurisdictional limitations period.  But, either way, the result creates a curious contradiction in the Tax Court Rules.  Details below the fold.

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May 20, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (1)

Monday, May 13, 2019

Lesson From The Tax Court: Get It In Writing!

Tax Court (2017)Last week’s case of Jason Aaron Cook v. Commissioner, T.C. Memo. 2019-48 (May 7, 2019) (Judge Colvin), teaches a straightforward lesson: if you are not the custodial parent of a child and want to claim the child as your “dependent” within the meaning of §152, you need to obtain a Form 8332, or an equivalent document, from the custodial parent.  You need to get it in writing.

The case also teaches a more fundamental lesson in some of the complexities of family taxation.  The lesson here shows how the tax law indirectly defines families through the concept of dependents.  When a taxpayer can claim someone as a dependent, that triggers a host of different tax rules for that taxpayer---mostly good.  The cumulative effect creates the rules of family taxation. 

The biggest group of dependents are children, at least until more Boomers hit their dotage.  When spouses stay together the idea of defining families through the concept of dependents works pretty well.  When spouses split up, however, it becomes much harder figuring out the appropriate family unit to tax.  Section 152(e) uses a concept of "custodial parent."  Last week’s case is a good illustration of the Tax Code’s basic approach, and its limitations.

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May 13, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (2)

Monday, May 6, 2019

Lesson From The Tax Court: It Takes More Than Winning To Get Attorneys Fees Under §7430

Tax Court Logo 2It’s always nice to beat the IRS in court.  It is even sweeter when you can also make the IRS pay your attorneys fees.  But that is not so easy, even when you win.  In last week’s Tax Court opinion in Jason Bontrager v. Commissioner, T.C. Memo. 2019-45 (May 1, 2019) (Bontrager II) Judge Lauber teaches a short lesson about the attorneys fees award provisions in §7430.  Section 7430 balances policies of paying taxpayers when the government loses with protecting the federal fisc when the government’s litigating position was reasonable.

Bontrager II was a proceeding where the taxpayer sought to recover reasonable litigation costs under §7430 after having won the most significant issue in the case.  Mr. Bontrager followed all the proper administrative steps to get attorneys fees.  Yet he failed to get fees because Judge Lauber found that the IRS’s losing position was substantially justified.  That idea of substantial justification often prevents attorneys fees.  But if you click the "continue reading" button you can learn the one weird trick taxpayers use to overcome it!  (Except it’s not really a trick.  And it’s not really weird.  It’s right in the statute.  I am just trying to get you to read on.)

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May 6, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (0)

Monday, April 29, 2019

Lesson From The Tax Court: The Role Of The Taxpayer Bill of Rights

Taxpayer Bill of RightOver the years Congress has enacted various pieces of legislation that it labels “Taxpayer Bill of Rights” (TBOR).  The original TBOR came in 1988 as part of the Technical and Miscellaneous Revenue Act of 1988.  It was followed by a free-standing TBOR II in 1996, and then TBOR III in 1998, enacted as part of The IRS Restructuring and Reform Act of 1998. 

All three of these TBORs created substantive changes in the tax laws, such as adding procedures for the IRS to follow, giving taxpayers greater access to the Tax Court, giving taxpayers the right to sue under certain circumstances, creating the Taxpayer Advocate Service, etc. 

In 2015, Congress did something different.  It enacted yet another TBOR but this time the substantive command was framed as an additional duty given to the Commissioner, not additional rights given to taxpayers.  The new duty is to “ensure that employees of the Internal Revenue Service are familiar with and act in accord with taxpayer rights as afforded by other provisions of this title.”  There follows a list of 10 nobly worded vagaries, such as “the right to quality service” and “the right to a fair and just tax system” and “the right to finality” which is somewhat in tension with “the right to challenge the position of the Internal Revenue Service” and “the right to appeal a decision of the Internal Revenue Service in an independent forum” (think Collection Delay Process).  You can find the complete high-minded list in §7803(a)(3)

Taxpayers want TBOR IV to be more than pretty words.  They want §7803(a)(3) to give them substantive rights.  The recent case of Maria Ivon Moya v. Commissioner, 152 T.C. No. 11 (Judge Halpern) (April 17, 2019), teaches a lesson about that.  The case did not directly involve §7803(b).  It instead involved the administrative adoption of taxpayer rights in 2014, the year before the statute’s enactment.  Still, the Tax Court’s decision here is an important lesson that presages what is likely to happen when a taxpayer tries to allege violations of the statutory TBOR IV: do not waste Tax Court opportunities to argue the merits of an NOD by complaining about procedural errors. 

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April 29, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (3)

Monday, April 15, 2019

Lesson For Tax Day: When Tax Prep Software Gets It Wrong

THRI have been using tax prep software since at least the early 1990’s as my tax journey has followed the dimensions of my life journey: from single to married to parent; from renter to owner to landlord; and from debtor to investor.  If I have learned anything over the years about tax prep software, it is this: you cannot trust tax software to get it right.

This year, the H&R Block software wanted to give me a larger §25A American Opportunity Tax Credit (AOTC) than I was entitled to take.  For reasons I describe below the fold, I let the software do that.  Yes folks, I filed a false tax return!  And, no, it won’t get me in trouble, for reasons that may surprise you.  Today I give you a “you can do this at home” lesson on how to deal with erroneous tax prep software.  Happy Tax Day. 

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April 15, 2019 in Bryan Camp, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (2)

Monday, April 8, 2019

Lesson From The Tax Court: Hoist By His Own Petard

Tax Court (2017)In 17th Century warfare, armies used a primitive explosive device called a petard to help breach castles and walled cities.  It was basically a bell filled with gunpowder that would be shoved in a tunnel or hole facing the wall or gate to be breached.  The operator, called an enginer (pronounced “engine-ur” with emphasis on first syllable) would light the fuse and scramble back.  If all did not go well, however, the enginer might be blown up (hoisted) in the resulting explosion.  Thus the expression.  It’s an extremely common trope in fiction starting at least as far back as Hamlet, and continuing in modern times, as this lovely time-wasting website extensively details.

In tax law taxpayers build both primitive and sophisticated devices to avoid taxation.  Last week’s decision in Allen R. Davison III v. Commissioner, T.C. Memo. 2019-26 (April 3, 2019)(Judge Ashford) involves a taxpayer whose tax reduction device consisted of layering partnerships.  How ironic, then, that it blew up his chances for pre-payment litigation over the merits of a tax assessment.  He did not learn that unhappy lesson until both the IRS and then the Tax Court refused to let him litigate the merits of his tax liability in the CDP process.  Details below the fold.

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April 8, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (2)

Monday, March 25, 2019

Lesson From The Tax Court: Nothing Personal

Tax Court (2017)The Tax Code is built on a dichotomy between business and personal.  That is one of the ideas that runs throughout each semester of my basic tax class.  Whether a taxpayer is entitled to deduct an item of expense depends on whether the Code classifies the expense as business or personal.  In one box go expenditures needed to carry on an activity engaged in for profit.  Section 162 allows taxpayers to deduct the money it takes to make money.  In another box go expenditures made for personal consumption.  Section 262 disallows a deduction for such expenses.  One finds the same dichotomy in §165, which permits taxpayers to deduct business losses, but not non-business losses.

Sometimes it is difficult to distinguish business from personal.  In life, the difference is not a dichotomy but a continuum with expenditures often made for mixed purposes.  Still, taxpayer activity falls into either the deductible box or the non-deductible box.  There is no in-between.  The expense (or loss) is deductible or it’s not.  Congress helps taxpayers figure out into which box they fall with various statues.  Treasury helps them with various regulations.  And courts help with decisions like two Tax Court decisions from last week. 

Last week the Tax Court issued two opinions that teach lessons about distinguishing business activity from personal activity.  First, Carlos Langston and Pamela Langston v. Commissioner, T.C. Memo 2019-19 (Judge Nega) presents a really nice twist on the classic problem of how to tell when a taxpayer has converted a personal residence into an income-producing property.  There, the taxpayer's actual rental was not sufficient to convert a property formerly used as a personal residence into a property held for the production of income.  That surprised me.  Second, Edward G. Kurdzeil, Jr. v. Commissioner, T.C. Memo 2019-20 (Judge Holmes) concerns whether a taxpayer’s very expensive plane restoration activity was a business or a hobby.   I will blog Langston this week and Kurdziel next week. 

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March 25, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (3)

Monday, March 18, 2019

Lesson From The Tax Court: Form 2848 Does Not Change Your Address

Tax Court (2017)Generally, it’s nice to be noticed.  Tomorrow is my 24th wedding anniversary and I remain truly grateful that my wife noticed me one day long ago at a contra dance at Glen Echo.  That notice continues to this day, fully reciprocated. 

But sometimes it’s not so nice, such as when the notice comes from the IRS.  And when Congress wants the IRS to “notice” taxpayers (pun intended), it generally requires the IRS to send that notice to their last known address. 

The last known address rule is critical to learn.  Congress puts that rule in about 20 different statutes, helpfully listed in Rev. Proc. 2010-16.  The governing regulation generally allows the IRS to comply with the rule by using the address in its Master File database.  There are some exceptions.  In a blog last November, I discussed one exception: certain events can trigger an IRS duty of due diligence to go beyond the address in its database. 

Last week the Tax Court taught us about another exception in Damian K. Gregory and Shayla A. Gregory v. Commissioner, 152 T.C. No. 7 (Mar. 13, 2019) (Judge Buch).  There, Tax Court let us know, in a fully reviewed opinion, that a Power of Attorney (Form 2848) does not have the legal effect of telling the IRS that a taxpayer has changed their official address of record.  This is important because, as long-time practitioners know, Form 2848 used to work for that purpose (albeit as a backstop).  Time to unlearn that old lesson!  Details below the fold.

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March 18, 2019 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure | Permalink | Comments (5)

Monday, March 11, 2019

Lesson From The Tax Court: Murphy’s Law Of Mailing

Tax Court (2017)When something goes right most of the time, we generally are not prepared for when it goes wrong.  Last week’s opinion in Teri Jordan v. Commissioner, T.C. Memo. 2019-15 (Mar. 4, 2019) (Judge Buch) teaches that lesson as applied to the §7502 statutory mailbox rule.  It also teaches us what we need to know to avoid the unhappy outcome for Ms. Jordan.

Most folks know something about the statutory mailbox rule in §7502.  Or at least think they do.  Almost everyone has a general idea if they mail their tax returns or, as here, their Tax Court petition on the last day of the deadline for filing, all will be well.  That generally works out for them because the U.S. mail is reliable.  That reliability leads many folks to think they can print off a stamp or postage label from an internet provider and drop the petition off at their nearest U.S. Post Office (USPS).  Or taking it to the counter of a Fed Ex or UPS “store” is the same as taking it to a USPS counter.  Again, those actions usually result in a timely petition. 

More savvy (or cautious) taxpayers, however, not only know the mailbox rule, they also know Murphy’s law.  They know the best way to beat Murphy’s law of mailing is to use Registered Mail or Certified Mail.  Ms. Jordan was not one of the savvy.  She  used a private postage label printed out from Endicia.com to mail her Tax Court petition.  That proved to be a mistake.  To see how her case is a lesson for all of us, read on.

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March 11, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (7)

Monday, March 4, 2019

Lesson From The Tax Court: No Human Review Needed For Automated Penalties?

Tax Court (2017)Section 6751(b)(1) prohibits the IRS from assessing any penalty against a taxpayer “unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination...”  The Tax Court will not sustain a penalty unless the IRS produces evidence that the required personal approval has taken place before the IRS first notifies the taxpayer (typically in either a 30-day letter or the NOD) about the penalty.  Section 6751(b)(2) provides an exception to the personal approval requirement for “any...penalty automatically calculated through electronic means.” 

Craig S. Walquist and Maria L. Walquist v. Commissioner, 152 T.C. No. 3 (Feb. 25, 2019) (Judge Lauber) was one of two reviewed opinions issued last week that gave the IRS important wins on the scope of §6751.  In Walquist the Automated Correspondence Exam (ACE) system hit the taxpayers with a §6662 substantial understatement penalty.  No IRS employee even knew about it until after the taxpayers petitioned Tax Court in response to the automated NOD.  Thus, there was no supervisory approval as required by §6751(b)(1).  The Court decided, however, that the IRS was entitled to the §6751(b)(2) automatic computation exception to the supervisory approval requirement. 

At one level, this was an easy case against two unsympathetic taxpayer hobbyists.  At another level, however, the decision may create problems down the road because the facts of the case are more modest than the scope of the Court’s language.  That tension between facts and language may end up harming other taxpayers ensnared by the IRS automated processes.  As usual, you will find the more complete story below the fold.

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March 4, 2019 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure | Permalink | Comments (4)

Monday, February 25, 2019

Lesson From The Tax Court: Drawing The Line

Tax Court (2017)Tax law often involves line drawing.  Doyle v. Commissioner, T.C. Memo. 2019-8 (Feb. 6, 2019) (Judge Holmes) teaches two line-drawing lessons, one about the §104(a)(2) exclusion for payments received on account of physical injury and the other about “above-the-line” vs. “below-the-line” deductions. 

Mr. Doyle was a whistle-blower who sued his former employer after it fired him.  The parties settled the case without trial.  The former employer agreed to pay Mr. Doyle a total of $350,000 for lost wages and another $250,000 for emotional distress.  The payments were each split evenly between 2010 and 2011.  For each year the employer sent Mr. Doyle a W-2 for $175,000 and a 1099-MISC for $125,000.  In addition, Mr. Doyle paid some amount in attorneys fees.

The issue litigated in Tax Court was about the $125,000 emotional distress payments in each year.  It appears Mr. Doyle’s tax return preparer, one Herbert Hunter, took what can only be described as a bizarre reporting position.  No.  Wait.  It can also be described more kindly as “weird.”  That’s how Judge Holmes puts it.  A Judge with a less generous disposition might use the word “fraudulent.”

You be the judge.  To deal with the $125,000 payments for emotional distress, Mr. Hunter created a fake Schedule C, with a “999999” NAICS code (“unclassified establishment”).  On the 2010 Schedule C he reported the $125,000 payment, and then zeroed it out by two offsetting deductions: one for $23,584 for “legal and professional services,” and one for $101,416 for “personal injury.”  Mr. Hunter prepared the 2011 in much the same way, only then the deduction for legal fees was $33,000.  ”Weird”?  “Bizarre”?  “Fraudulent”?  Take your pick.  

By the time Mr. Doyle got to Tax Court, he at least had an attorney who understood the difference between an exclusion and a deduction.  One issue was whether the emotional distress payments were excludable under §104(a)(2).  The resolution of that issue is one of the line-drawing lessons today. 

But there was a second issue in the case, one that teaches a second line-drawing lesson. Mr. Doyle’s attorney, one Steven G. Early, seems to have totally missed the second issue, involving the proper place to deduct attorneys fees.  Judge Holmes missed that as well.  Sadly, I must confess I also missed it.  But Professor Gregg Polsky caught it (and I thank him for bringing it to my attention).  So I will pass that lesson on to you.  Keep reading. 

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February 25, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (3)

Monday, February 18, 2019

Lesson From The Tax Court: Jurisdiction To Determine Jurisdiction

Tax Court (2017)Last week’s case of Steven Samaniego v. Commissioner, T.C. Memo. 2019-7 (Feb. 6, 2019) (Judge Lauber) teaches a great (and short) lesson about the Tax Court’s subject matter jurisdiction.  Mr. Samaniego had asked for a CDP hearing but the Office of Appeals thought his request was untimely.  So it gave him an Equivalent Hearing and issued a Determination Letter to reflect its decision.  Mr. Samaniego petitioned the Tax Court.  Problem: the Tax Court does not have jurisdiction to review an Equivalent Hearing.  Solution: Judge Lauber treated the hearing as a CDP hearing because he found that the Office of Appeals had miscounted the applicable time period.  Hey Presto! Jurisdiction.  But getting Tax Court review turned out to be a Pyrrhic victory for the taxpayer, because Judge Lauber found no error. 

As we gear up for post-shutdown litigation over late-filed petitions this case is a useful lesson about how the Tax Court will take seriously its obligation to determine the scope of its own jurisdiction.  The case also shows the Court's willingness to look through form to substance when doing so.  I see the case as a direct descendant of Marbury v. Madison, 5 U.S. 138 (1803).  Details below the fold.

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February 18, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (0)

Monday, February 11, 2019

Lesson From The Tax Court: Taxpayer’s Shell Game Defeats IRS

Tax Court (2017)Those who perform shell games often view them as games of skill.  Those who lose money view them as blue collar swindles.  I personally lost money at one on the streets of New York in the early 1980’s, a tuition payment to the School of Hard Knocks. 

Sophisticated taxpayers use shells—layers of entities—to protect assets in a white collar version of the shell game.  In last week’s Campbell v. Commissioner, T.C. Memo. 2019-4 (Feb. 4, 2019) (Judge Kerrigan), it looks like the IRS lost money to one.  There, in a CDP proceeding, the Court found that the IRS abused its discretion in refusing an OIC of $12,600 to satisfy a $1.1 million tax liability.  The interesting part of the decision for me was trying to figure out how the taxpayer’s various shells affected the ability of the federal tax lien to attach to property or rights to property of the taxpayer.  Just based on what the Court wrote in its opinion, I think it possible that the IRS Chief Counsel attorney did not do enough to educate the Court on how to properly analyze the extent of IRS collection powers.

Of course, I am always trepidatious when critiquing an opinion, especially when the opinion is missing information that might well fix some of the problems I see.  Here, in particular, it may be me who is confused by the taxpayer’s shell game.  As usual, I welcome anyone who spots holes in my thinking to comment.

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February 11, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (1)