Paul L. Caron
Dean




Monday, May 23, 2022

Lesson From The Tax Court: Counting The Days

Most people know that the IRS generally has three years to audit a return. Calculating the proper three-year period, however, requires close attention to both the start date and the end date.  You need to count those days properly.  I tried to drill into my students the practice of always consulting a calendar when attempting to calculate the proper dates.  Christian Renee Evert v. Commissioner, T.C. Memo. 2022-48 (May 9, 2022) (Judge Marshall), reinforces that teaching: to calculate the period in which the IRS can assess a tax, you need to properly count the days in the three year period.

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May 23, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, May 9, 2022

Lesson From The Tax Court: Avoiding The 2-Year Lookback Period In Bankruptcy

Pope 3Today’s lesson is about how to maximize the discharge of tax liabilities through bankruptcy.  It's a lesson on timing.  Last year I blogged two cases showing how a bankruptcy tolls both the collection and assessment limitation periods in the Tax Code.  See Lesson From The Tax Court: For Whom The Bankruptcy Tolls, TaxProf Blog (July 19, 2021).  Today’s lesson is the flip side: we learn how taxpayers who want to discharge old tax liabilities through bankruptcy need to be careful about how the two-year lookback exception to discharge may be tolled by provisions in the Tax Code.

I offer today’s lesson in honor of Bob Pope, who died on April 29th.  Bob was one of those remarkable attorneys who could navigate the complex interplay of bankruptcy and tax law.  He was one of the founders of the Tax Collections, Bankruptcy and Workouts Committee in the ABA Section of Taxation, along with Paul Asofsky, Fran Sheehy, Ken Weil, and Mark Wallace.  He will be missed.

Bob would appreciate today’s lesson.  In Robert J. Norberg and Debra L. Norberg v. Commissioner, T. C. Memo 2022-30 (Apr. 5, 2022) (Judge Lauber), the taxpayers filed their 2016 return in February 2019 without paying the tax they reported due.  When the IRS started collection, the Norbergs asked for a CDP hearing.  When they got to Tax Court in September 2020 they filed a bankruptcy petition, hoping to wipe out the liability.  They failed because they mis-timed their bankruptcy petition.  An irony is that these taxpayers could have likely gotten their desired discharge if they had ignored the siren song of CDP.  Bob could have taught them that.  And, if you click below the fold, you too can learn this lesson on how to maximize the discharge of tax liabilities in bankruptcy.

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May 9, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (3)

Monday, May 2, 2022

Lesson From The Tax Court: Distinguishing Employees From Independent Contractors

Camp (2021)Pro Publica has proudly proclaimed that “If You’re Getting a W-2, You’re a Sucker.”  I know lots of workers who would strongly disagree.  For them, being a W-2 worker (a/k/a “employee”) is far more beneficial than their realistic alternative, which is being a 1099 worker (a/k/a “independent contractor”).  The Pro-Publica story was channeling this Brookings Institution study which noted how business owners can often hide their income but workers cannot because their employers rat them out with W-2s.

But most workers have no realistic choice.  Just ask your next Uber or Lyft driver.  For them, as for many others in various industries—from child-care to health-care to landscaping and construction—the choice is not whether or not to hide income.  Their choice is only whether their income gets reported to the IRS on a Form W-2 or a Form 1099.  The upside of being an employee is lower employment taxes and eligibility for unemployment benefits.  The potential downside is no §199A and no ability to deduct unreimbursed job expenses, given the current nastiness codified in §67(g).

And the choice of status is often on the employer.  Employers must decide whether and when to treat their workers as employees or as independent contractors.  Today’s lesson shows how they might be on the hook if they make the wrong classification.  Pediatric Impressions Home Health, Inc. v. Commissioner, T.C. Memo. 2022-35 (Apr. 12, 2022) (Judge Greaves), teaches us how Tax Court distinguishes employees from independent contracts.  It also shows us a potential safe harbor that employers can use to escape the unpaid obligations if it turns out they erroneously classified employees as independent contractors.  Details below the fold.

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May 2, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, April 18, 2022

Lesson From The Tax Court: What’s Excluded From The §132 Exclusion?

Rosty1Tax Day is here! And what better way to observe the day than a lesson on §132, a lesson that evokes the ghost of Dan Rostenkowski, whose curmudgeonly visage appears to the right.  For those who don’t know, Rostenkowski was the chairman of the House Ways and Means Committee from 1981 until 1994 when, in the great tradition of Illinois politicians, he was indicted on various counts of fraud, eventually pleading guilty to mail fraud.  Yes, political corruption in Illinois actually has its own Wikipedia entry.

During his time as head of the House tax writing committee, Rostenkowski oversaw multiple major legislative changes. Perhaps his crowning glory was his role in the 1986 Tax Reform Act, which has long been viewed as a triumph (however short-lived) of sound tax reform.

Today’s lesson has its genesis in the earlier Deficit Reduction Act of 1984, PL 98-369, 98 Stat. 494.  There, Congress wrote a new §132 to exclude from gross income a long list of traditional employee fringe benefits.  In Douglas Mihalik and Wendy J. Mihalik v. Commissioner, T.C. Memo. 2022-36 (Apr. 13, 2022) (Judge Gustafson), Mr. Mihalik received free airline tickets for himself and members of his family. He sought the exclusionary shelter of §132.  While §132 is very broadly written to cover various family members of an employee, Judge Gustafson teaches us how some family members are excluded from the exclusion.  Details below the fold.

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April 18, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, April 11, 2022

Lesson From The Tax Court: 50 Ways To Lose Your Interest Abatement Request

50 WaysObtaining an abatement of interest reminds me of Paul Simon’s song 50 Ways to Leave Your Lover.  Sure, the “50 ways” in the song title is misleading.  By my count, Simon gives us only four.  And some are singularly unhelpful for real life advice.  I mean, “make a new plan, Stan”?  Really?  But the hyperbole does it’s job: it draws attention to idea there are the multiple ways to break off a relationship.

My Lesson title is also hyperbolic, but serves the same purpose.  When a taxpayer wants the IRS to abate interest charges, there are lots of ways to lose.  Jeremy Edwin Porter v. Commissioner, T.C. Memo 2022-23 (March 28, 2022)(Judge Greaves) gives us a nice review of some of them.  There, the hapless taxpayer was trying to get interest abated for, among other periods, a 34 month period where the Tax Court did not rule on pending discovery motions.  The Court sustained the IRS rejection of the abatement request because, even if the delay was unreasonable, and even if it was not attributable to Mr. Porter, it was caused by the Tax Court, not the IRS.  Ouch.

This gives us a good excuse to review the many ways the IRS can reject an interest abatement request.  And perhaps learn how to be a diligent litigant so as to keep your client’s case moving along during Tax Court litigation.  I hope today’s lesson is more helpful than Simon’s song.  At least it won't be an earworm.  Details below the fold. 

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April 11, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, April 4, 2022

Lesson From The Tax Court: Penalty Approval In Conservation Easement Cases

Camp (2021)The §6751(b) supervisory approval requirement for penalties has been a thorn in the side of both the IRS and the Tax Court.  Today’s lesson shows us how the IRS penalty approval process in conservation easement audits has forced taxpayers to reach for wilder and less credible attacks in their attempts to avoid penalties by finding IRS procedural foot-faults.

First, in Pickens Decorative Stone LLC v. Commissioner, T.C. Memo. 2022-22 (Mar. 17) (Judge Lauber), the taxpayer argued that when the IRS had publicly committed in a general Notice to seeking penalties against the types of syndicated conservation easement scheme it had engaged in, the IRS was disabled from complying with §6751(b) because the supervisor in the audit had not signed off on that public Notice.  Yeah, pull your eyebrows down; the argument lost.

Second, in Oxbow Bend, LLC v. Commissioner, T.C. Memo. 2022-23 (Mar. 21, 2022) (also Judge Lauber), the taxpayer similarly argued the IRS failed to comply with §6751(b) when the Revenue Agent (RA) had failed to secure supervisory approval before telling the taxpayer during a status conference that penalties were “under consideration” when in fact the RA was completing an internal document recommending penalties that very day.  That was a loser as well.  Details below the fold.

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April 4, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (5)

Monday, March 28, 2022

Lesson From The Tax Court: Take The Administrative Appeal

Camp (2021)Taxpayers famously focus on trying to get their “day in court” against the evil IRS.  The Independent Office of Appeals (Appeals) is no court.  It is not surprising, then, that taxpayers’ myopia often leads them down the dangerously wrong path of ignoring their opportunity to go to Appeals.  Today’s lesson teaches us one reason that is a mistake.

In Mahammad A. Kazmi v. Commissioner, T.C. Memo. 2022-13 (Mar. 1, 2022) (Judge Paris), the IRS was seeking to collect a §6672 Trust Fund Recovery Penalty (TFRP) assessed against the taxpayer.  In a Collection Due Process (CDP) hearing, Mr. Kazmi attempted to explain why the assessment was improper against him.  He relied on the rule that a taxpayer can challenge a liability in a CDP hearing if the taxpayer had not had a prior opportunity to do so.  While Mr. Kazmi had been given the opportunity to take an administrative appeal during the prior §6672 assessment process, he said that should not count because it did not give him a day in court.  While that argument might have traction in other situations, it failed in this one.  Details below the fold.

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March 28, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink

Monday, March 21, 2022

Lesson From The Tax Court: What Constitutes A CDP 'Hearing'?

Camp (2021)Before the IRS can start collecting unpaid tax liabilities by levy, §6330(b)(1) requires it to give taxpayers an opportunity for a Collection Due Process (CDP) hearing with the IRS Independent Office of Appeals.

Many taxpayers do not fully understand how CDP hearings work. First, they erroneously expect that a CDP hearing is a discrete and physical event where they (finally!) confront the evil IRS.  Second, they erroneously expect that the point of the hearing is for the evil IRS to justify collection, including proving the correctness of the assessment.  Finally, they expect that they can go to Tax Court and get a do-over if they don't like the result they get from the CDP hearing.  Taxpayer with those expectations are doomed to disappointment.

Today’s lesson is for them. In Brian K. Bunton and Karen A. Bunton v. Commissioner, T.C. Memo. 2022-20 (Mar. 10, 2022), Judge Morrison gives a nice short lesson on what constitutes a CDP hearings.  The taxpayers complained that their CDP hearing was defective because (1) the Settlement Officer (SO) had not given them an in-person hearing, and (2) the IRS did not show the assessment was correct.  The Court rejected those complaints and in so doing, shows us what constitutes a CDP hearing. Details below the fold.

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March 21, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, March 14, 2022

Lesson From The Tax Court: The Finality Rule For §7430 Qualified Offers

Camp (2021)When you litigate against the IRS you may win but not prevail.  That is, even though §7430(a) promises that a “prevailing party” can recover costs and attorneys fees, it’s hard to be a "prevailing party" within the meaning of the statute.  If the government's ultimately losing position was substantially justified at the relevant time, the winning taxpayer won't be a prevailing party.  Sometimes that leads to a seemingly strange result that even if the Office of Appeals badly messes up, the taxpayer will not be a prevailing party if Chief Counsel catches the error and promptly concedes.  Keith Fogg blogged a good example of this over at Procedurally Taxing last week.

The Qualified Offer process is a substitute for being a prevailing party.  Making a properly qualified offer to settle a case removes the government's "substantially justified" defense.  Thus, if you make the offer during the administrative process, you can set up a recovery even if Chief Counsel concedes.

But making a effective Qualified Offer has its own difficulties.  Today’s lesson looks at one of the key rules for making a qualified offer: the finality rule.  In Gina C. Lewis v. Commissioner, 158 T.C. No. 3 (Mar. 3, 2022) (Judge Pugh), the taxpayer offered to settle an audit of her joint return by agreeing to 100% of a proposed deficiency.  But on a closer examination, she really just crossed her fingers, reserving the right to contest that liability through the §6015 spousal relief provisions at some unspecified later date.  So it was not really an offer to settle.  It was an offer to kick the can down the road.  Indeed, many years later, in Tax Court, the IRS agreed she was entitled to full relief under §6015(c).  Ms. Lewis then asked for costs and fees under §7430 on the grounds that the IRS had ended up worse off than if it had accepted her offer.  The Tax Court said no, for reasons discussed below the fold.

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March 14, 2022 in Bryan Camp, News, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Tuesday, February 22, 2022

Lesson From The Tax Court: The Tax Liabilities You Leave Behind

Camp (2021)We all know you can’t take it with you.  But what happens to the “it” after you die?  Ideally, you will have paid all your debts, and your Estate will distribute your “it” to the objects of your affection. The IRS will probably not be one of the objects of your affection.

However, few of us do everything ideally.  If you leave behind unpaid tax obligations, Congress has ensured that the federal government gets priority over the objects of your affection.  And tax claims also take priority over most other creditors.  But most is not all.  Some creditors get paid before the Tax Dude.  Thus, if your unpaid tax obligations exceed the assets in your Estate, then the objects of your affection will take bupkis ... unless they also happen to be one of the few types of creditors that get priority over the unpaid taxes.

That is what we learn from Estate of Anthony K. Washington v. Commissioner, T.C. Memo. 2022-4 (Feb. 2, 2022) (Judge Toro).  There, the decedent died with unpaid federal tax liabilities that exceeded the assets in his Estate.  The decedent’s ex-wife tried to convince the Tax Court that her claim against the Estate took priority over the tax claim.  Alternatively, she argued that the IRS erred when it did not account for her claim in evaluating the Estate’s Offer In Compromise (OIC), because ignoring her claim simply was not fair because paying the tax claim would leave the Estate with nothing.

Both arguments failed.  The case teaches us a lesson about the federal tax lien and about the difficulty Estates face in obtaining OICs.  Details in the usual space, below the fold.

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February 22, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, February 14, 2022

Lesson From The Tax Court: The Proper Baseline For Offers In Compromise

Camp (2021)Paying taxes can be painful.  When money is tight and other needs are pressing, sending money to the federal government understandably sinks on the taxpayer’s priority list.  But not the government’s!  Congress wants to make sure that paying taxes remains at the top of every taxpayer’s priority list.  That is why it gives the IRS really awesome collection powers.  If that duty to pay taxes is not uniformly enforced, the thinking goes, then voluntary compliance goes out the window and soon that window will be smashed by rocks thrown by rioting mobs.  Don’t want that.

At the same time, Congress recognizes that, sometimes, circumstances  should permit payment of less than the full amount.  The Offer In Compromise (OIC) process is designed to address those situations. The ability to secure an OIC, however, must always be evaluated against a default of full payment, not against a default of no payment.  That is what we learn from Edmund Gerald Flynn v. Commissioner, T.C. Memo. 2022-5 (Feb. 3, 2022) (Judge Urda).  There, the Court held that the taxpayer was not entitled to an OIC just because the full-pay obligation would be financially painful.  Details below the fold.

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February 14, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, February 7, 2022

Lesson From The Tax Court: The Innocence Requirement In § 6015(c) Proportional Relief

Camp (2021)Section 6015 allows taxpayers to obtain relief from an otherwise joint and several liability.  The statute contains three related provisions allowing relief.  Siblings.  First is the eldest child, traditional innocent spouse relief.  It was formerly in §6013(e) and is now found in §6055(b).  Second is the quite middle child, a proportionate relief provision that basically permits unwinding the jointly filed return.  That’s in §6015(c).  Third is the wild child, an equitable relief provision that permits relief when it would be unfair to impose joint liability.  That’s in §6015(f).

Of these three spousal relief provisions, the wild child §6015(f) gets most of the attention, at least in court, because it is a very facts-and-circumstances determination and so leads to the most disputes between a requesting spouse and the IRS.  There is also robust case law on the bossy oldest child §6015(b) because it has been around the longest, since 1971.

Today’s lesson is about §6015(c), the oft overlooked middle child.  While, arguably, all three provisions involve some concept of innocence, we learn today a crucial difference between how that concept works for (c) relief and (b) relief.  In Tara K. Tobin (Petitioner) and Jeffrey Tobin (Intervenor) v. Commissioner, T.C. Summ. Op. 2021-36 (Nov. 16, 2021) (Judge Guy), an IRS audit disclosed multiple items of unreported income.  Ms. Tobin asked for §6015(c) relief, agreeing to take responsibility for her unreported income items and leaving Mr. Tobin responsible for his.  Mr. Tobin objected, claiming that Ms. Tobin was not innocent enough to qualify for proportional relief.  In a short but useful lesson, we learn why the Tax Court decided for Ms. Tobin.  Details below the fold.

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February 7, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, January 31, 2022

Lesson From The Tax Court: The Presumption Of Regularity

Camp (2021)No, today’s lesson has nothing to do with your gastrointestinal system.  But it does relate to what comes out of the bureaucratic process.  The presumption of regularity affects a broad range of IRS work product, such as Notices of Deficiencies, Certificates of Assessments and, in today’s case, Penalty Approval forms.

In Long Branch Land LLC v. Commissioner, T.C. Memo. 2022-2 (Jan. 13, 2022) (Judge Lauber), the taxpayer attempted to take a very large charitable deduction for donation of a conservation easement.  In its Notice of Deficiency, the IRS not only disallowed the deductions but also proposed to assess penalties under §6662 and §6662A.  In Tax Court the IRS moved for partial summary judgment on the issue of whether it complied with the supervisory approval requirements of §6751(b)(1).

The taxpayer argued that the IRS failed to comply with the penalty approval requirements because the IRS employee who approved the penalty was not the “immediate supervisor” of the IRS employee who proposed the penalty.  Judge Lauber rejected the argument, invoking the presumption of regularity.  His use of the doctrine, however, demonstrates it chameleon-like quality: it is both a rule of law and a rule of evidence.  Details below the fold.

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January 31, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Tuesday, January 18, 2022

Lesson From The Tax Court: The Tacit Consent Rule

Camp (2021)Every marriage requires trust.  In my own marriage my DW trusts me to handle our finances.  I’m sort of the CFO of our marriage.  As part of my duties I prepare our taxes.  I try to explain them to my DW before I file, but more often than not she just waves me away with a smile, saying “I trust you.”  Back in the day when we filed paper returns I at least was able to ensure she signed the returns.  But now that we file electronically, I just make a few clicks and, boom!, it’s filed.

I have sometimes questioned whether we are really filing a joint return when it’s only me doing all the clicking for the electronic submission.  When one files electronically there is nothing analogous to an actual signature to show that both spouses have even seen, much less approved, of what is submitted.  You just need to create two 5-digit numbers, one for each spouse. Tax return preparers at least get to secure a wet signature on Form 8879 to show both spouses consented to the return preparer submitting the electronic return.  I got nothing like that.  Just a smile and a “I trust you.”

Today’s lesson answers my question.  In Om P. Soni and Anjali Soni v. Commissioner, T.C. Memo. 2021-137 (Dec. 1, 2021) (Judge Copeland), we learn that a spouse can tacitly consent to a joint return even when the spouse does not actually sign the return and even when someone else forges the spouse’s signature!  Whether there is tacit consent depends on the facts and circumstances of the filing.  And perhaps the most important factor is a history of one spouse’s trust in the other.  Details below the fold.

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January 18, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, December 20, 2021

A Year Of Lessons From The Tax Court (2021)

Here is a chronological listing of all the Lessons From The Tax Court I posted in 2021, with links to, the Lesson, the primary case discussed and its author.  I have also listed the primary Code sections mentioned or discussed in the Lesson.  At the end of the chronological listing, you will find a table listing the posts by which Tax Court Judge authored the Court's opinion.

Camp (2021)January 11: Too Much Control Over IRA Distribution Makes It Income (Brett John Ball v. Commissioner, T.C. Memo. 2020-152 (Nov. 10, 2020) (Judge Halpern) — §72, §408, §451, §671, §4975)

January 19, 2021: The CDP Silver Linings Playbook (Wiley Ramey v. Commissioner, 156 T.C. No. 1 (Jan. 14, 2021) (Judge Toro) — §6320, §6330)

January 25, 2021: No Deduction for Disguised Dividends (Aspro, Inc. v. Commissioner, T.C. Memo. 2021-8 (Jan. 21, 2021) (Judge Pugh) — §162)

February 1: No Product? No §162 Deduction! (William Bruce Costello and Martiza Legarcie v. Commissioner, T.C. Memo. 2021-9 (Jan. 25, 2021) (Judge Halpern) — §162, §212)

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December 20, 2021 in Bryan Camp, Miscellaneous, Tax, Tax News, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, December 13, 2021

Lesson From The Tax Court: Taxpayers Behaving Badly (2021)

This will be my last new post until January.  I will be spending my days (except for Christmas Day) grading exams.  Grades are due Monday, January 3th and then I resume teaching on January 11th, so you will likely see my next Lesson From The Tax Court on January 18th (the day after MLK holiday).

Santa

For the fourth year, my last new blog of the year presents cases where something in the facts made me just shake my head (SMH in texting parlance).  You can find the previous lists here (for 2018), here (for 2019) and here (for 2020).  This year I have six to share with you.  I present them in chronological order.  I invite you to consider which of theme may be examples of just an empty head and which are examples of something worse.

This year I also continue giving the Norm Peterson Award.  You will find more explanation below the fold.

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December 13, 2021 in Bryan Camp, New Cases, Tax, Tax News, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (4)

Monday, December 6, 2021

Lesson From The Tax Court: Taxpayer 'Filed' Return Even Though IRS Could Not Process It

Camp (2021)Case law gets made when things go wrong.  When things go right, a taxpayer will file a return, the IRS will process the return, and the taxpayer will receive any claimed overpayment as a refund.  Today's lesson arises from a breakdown between filing and processing.  It teaches us the difference between those concepts.

In James Forrest Willetts v. Commissioner, T.C. Sum. Op. 2021-39 (Nov. 22, 2021) (Judge Kerrigan), the taxpayer sought refund of an overpayment on the basis of a Form 1040 the IRS had refused to accept for processing because of concerns about identify theft.  The IRS was not sure whether the return was genuine.  By the time the taxpayer demonstrated the genuineness of the Form 1040, it was too late to get the refund unless the taxpayer’s submission of the rejected Form 1040 constituted the “filing” of a “return.”  The Tax Court framed the question as follows: “whether the Form 1040 petitioner mailed...constitutes a properly filed return.”  Op. at 5.  But do you see there are two questions presented in this framing?  First, did the rejected Form 1040 qualify as a “return.”  The Court said yes.  Second, was the rejected Form 1040 “filed” when the IRS could not process the Form? Again, the Court said yes.

The holdings in this non-precedential opinion are consistent with the recent Tax Court precedential opinion Fowler v. Commissioner, 155 T.C. No. 7 (2020), curiously uncited by Judge Kerrigan.  Fowler held a taxpayer had validly filed electronically even though the taxpayer had not supplied his Identify Protector Taxpayer Identification Number (IP-TIN) and thus the IRS could not process the return because, as in today’s case, it did not know who had submitted the return.

In this age of computer processing, especially as taxpayers and the IRS wrestle with such issues as identify theft and the complications created by COVID regarding return filing requirements, discerning whether and when a taxpayer “files” a document that qualifies as a “return” becomes all the more critical.  This Lesson helps us understand the issues at play.  Details below the fold.

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December 6, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, November 29, 2021

Lesson From The Tax Court: Who Is An IRS Employee's Immediate Supervisor For §6751 Penalty Approval?

Camp (2021)Today’s lesson involves yet more litigation over IRS compliance with the penalty approval process required by the formerly toothless §6751(b)(1).  In Sand Investment Co., LLC, et al. v. Commissioner, 157 T.C. No. 11 (Nov. 23, 2021) (Judge Lauber), the Tax Court continues teaching us the scope and operation §6751(b), a series of lessons it started back in 2017 when its decision in Graev v. Commissioner, 149 T.C. 485 (2017), gave the statute sharp teeth.  Among other requirements, the statute says approval must come from an IRS employee's “immediate supervisor.”  In today’s case, the IRS employee who proposed a bunch of penalties had two supervisors but only one definitely signed timely.  Judge Lauber finds that function trumps form in identifying which of the two supervisors was the right one to approve the proposed penalties.  This is a short lesson, and also one that will may be rendered moot.  Legislation passed by the House and now before the Senate de-fangs §6751(b).  Details below the fold.

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November 29, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, November 22, 2021

Lesson From The Tax Court: How To Mess Up Your Checkbook IRA

Camp (2021)The idea that freedom means control over your own destiny s arguably the most defining characteristic of American culture.  It is most certainly the basis on which various companies promote “checkbook IRAs.”  If you Google that term you will find a gaggle of companies urging people to take full control of their retirement funds, to free themselves from restrictive IRA custodians. The companies promote structures that purport to allow taxpayers maximum freedom over their investment decisions.  Freedom equals control. 

In Andrew McNulty and Donna McNulty v. Commissioner, 157 T.C. No. 10 (Nov. 18, 2021)(Judge Goeke) we learn that too much control messes up a checkbook IRA.  There, Mr. and Ms. McNulty created a checkbook IRA, funded it with transfers from their other retirement accounts, and then used the money to buy gold coins which they stored in their home.  The Tax Court said that last bit—storing the physical coins in their home—was too much control and thus the receipt of the coins was a taxable distribution to them.  While the taxpayers crossed the line in this case, it may not be altogether clear where that line is.  How far can a taxpayer go before they mess up their checkbook IRA?  Let’s see what we can learn.  Details below the fold.

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November 22, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, November 15, 2021

Lesson From The Tax Court: Not Every Decision Comes With An Opinion

Camp (2021)Once a taxpayer petitions the Tax Court to contest a Notice of Deficiency (NOD), the Tax Court will issue a decision in the case.  The taxpayer has no option to nonsuit the case like plaintiffs can do in state courts or in federal district courts.  It’s what I call the Hotel California rule: the taxpayer might check out (e.g. by abandoning the case), but can never leave (the Court's decision will issue).  For details, see Lesson From The Tax Court: The Hotel California Rule, TaxProf Blog (Nov. 12, 2018).

Today we learn that even though the Tax Court will issue a decision, it may not issue an opinion.  More, we learn why that is so.  In Paul Puglisi & Ann Marie Puglisi, et. al., v. Commissioner (4796-20, 4799-20, 4826-20, 13487-20, 13488-20, 13489-20) (Nov. 5, 2021) (Judge Gustafson), the IRS conceded all of a proposed deficiency (except for a small part that the taxpayers had conceded).  It asked the Court to enter decisions in favor of the taxpayers.  The taxpayers objected!  They wanted more than a victory.  They wanted fries with that: an opinion to go with the decision.  Judge Gustafson decided to accept the IRS concession and enter a decision for the taxpayers without an accompanying opinion on the merits.  In a 17-page Order he teaches us that while the Tax Court has the discretion to issue an opinion even when the IRS concedes a case, it will do so only under extraordinary circumstances.  Details below the fold.

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November 15, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, November 1, 2021

Lesson From The Tax Court: Whistleblower Died, But His Claim Survived

Camp (2021)The IRS has long been authorized to award informants a fee for information.  Informants unhappy with their awards, however, have not always had easy access to judicial review.  That changed in 2006 when Congress modified §7623 to permit taxpayers to ask the Tax Court to review “any determination regarding an award.” §7623(b)(4).  Tax Reform and Health Care Act of 2006, 120 Stat. 2922, 2959.  For a description of how the program works, see Lesson From The Tax Court: The Slippery Slope Of Tax Court Review, TaxProf Blog (Oct. 12, 2020).

Getting that Tax Court determination can take a long, long time.  That is because awards are first determined by the IRS Whistleblower Office (WBO) as a percentage of the proceeds collected from the taxpayer and collection can take a long, long time (hello CDP!).  At the end of all that time, if the whistleblower is not happy with the award, they can petition the Tax Court.  And obtaining a final decision from Tax Court can take a long, long, time as well.  Put those two long processes together and you are easily looking at 20 years from the first blow of the whistle to the final strike of the judicial gavel.

So what happens to the whistleblower’s claim if the whistleblower dies during that long, long time?  In Joseph A. Insinga v. Commissioner, 157 T.C. No. 8 (Oct. 27, 2021) (Judge Gustafson), we learn that a whistleblower’s Estate can continue to assert a claim for an award even after the whistleblower dies.  It's a seemingly simple lesson, but one that not as straightforward as you might expect, requiring the Tax Court to discern and apply common law doctrines.  Details below the fold. 

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November 1, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, October 25, 2021

Lesson From The Tax Court: Of Distributive Shares And The CDP Mashup

Camp (2021)Sometimes our biggest problems are self-created. In Taryn L. Dodd v. Commissioner, T.C. Memo. 2021-118 (Oct. 5, 2021) (Judge Lauber), the taxpayer was attempting to repudiate a tax liability she had self-reported but had not paid.  Her multi-year slog through Collection Due Process (CDP) involved three trips to the Tax Court.  Only in the third trip do we learn this basic lesson about passthrough entities: a partner must report as income her distributive share of partnership income, whether or not that share is actually received.  So now Ms. Dodd not only has her 2013 liability to pay off, she also has all the additions to tax and interest that continues to accrue.

We also learn a second lesson, a lesson about the structure of CDP.  The difference between Appeals Officers (AOs) and Settlement Officers (SOs) is more than just the title.  Each has different subject matter competencies but only SO's conduct CDP hearings, which are generally all about collection issues.  Sometimes, however, taxpayers can raise substantive tax issues, creating a CDP mashup.  When a taxpayer uses CDP to contest the merits of a liability, the lesson here is to be sure to ask the SO to confer with an AO.  Otherwise you get stuck like Ms. Dodd.  Details below the fold.   

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October 25, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, October 11, 2021

Classic Lesson From The Tax Court: Sex And Deductions

Camp (2021)I was going to title this week’s blog “The Concept of Inherently Personal.”  But I could not resist trying to put some clickbait in the title.  Today I want to discuss two classic cases from Tax Court.  They explore the never-ending balancing act needed to decide when an expense is deductible when it has both a personal and business aspect.  Between them, the two cases teach us a lesson about life in all its fullness.  That they both involve sex makes the lesson perhaps more memorable, but no less appropriate to any type of mixed business/personal deduction.  And while both cases involve sex, they do so from interestingly different perspectives.

In Vitale v. Commissioner, T.C. Memo. 1999-131 (Judge Fay), the Court denied deduction of certain expenses (payments to prostitutes), finding that the concededly business purpose of the expense was overcome by its inherently personal nature.  Yet in Hess v. Commissioner, T.C. Summary Opinion 1994-79 (Judge Joan Seitz Pate), the Court permitted a depreciation deduction for certain expenses (breast implants), finding that the inherently personal nature of the expense was overcome by its obvious business purpose.

You will find the surprisingly non-salacious details below the fold. 

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October 11, 2021 in Bryan Camp, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, October 4, 2021

Lesson From The Tax Court: The Many Rooms Of Tax Court Power

Camp (2021)All federal courts (except the Supreme Court) are created by Congress.  Congress defines the extent to which each federal court can invoke the power of the federal government to coerce the parties before them.  The fancy legal term for that power is “jurisdiction.”  Like all other federal courts, the Tax Court is a court of limited jurisdiction, limited to the powers that Congress permits it to exercise.

The Tax Court sometimes claims its power is more limited than other federal courts but that idea has been rightly called “fatuous.” Flight Attendants v. Commissioner, 165 F.3d 572, 578 (7th Cir. 1999) (Posner, J.) (“The argument that the Tax Court cannot apply the doctrines of equitable tolling and equitable estoppel because it is a court of limited jurisdiction is fatuous. All federal courts are courts of limited jurisdiction.”).

What is true, however, is that Congress gives the Tax Court much specific grants of powers than other federal courts.  I think of the varied jurisdictional grants as different rooms of power.  When you go to Tax Court, the extent of its powers depends on which door you enter and what room of power you find yourself in.  What the Court can do for you in some cases, it cannot do for you in others because of the way that Congress has written the statute.  It depends on which room of power you are in.  That’s the lesson we learn in Michael D. Brown v. Commissioner, T.C. Memo. 2021-112 (Sept. 23, 2021), where Judge Kerrigan explains that what the Tax Court can do when exercising its CDP jurisdiction is more limited than what it can do when exercising its deficiency jurisdiction.  The taxpayer was in the CDP room and wanted relief that could only be granted in the Deficiency room.  Those different rooms of power are different in scope and do not overlap.   Details below the fold.

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October 4, 2021 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, September 27, 2021

Lesson From The Tax Court: Emotional Distress Is Not Physical Illness

Camp (2021)My dad practiced medicine for some 40 years as both a surgeon and family practitioner.  He raised us to believe that someone who did not have objectively detectable causes for their physical symptoms was not really ill: it was “all in their head.”  The medical term for that idea is “psychosomatic disorder.” 

The Tax Code makes the same distinction.  Section 104(a)(2) permits taxpayers to exclude damages recovered for objectively detectible physical injuries or physical sickness.   But they may not exclude damages received for a sickness that is simply “all in their head.”  The legal term for that idea is “emotional distress.” 

Rebecca A. Tressler v. Commissioner, T.C. Summ. Op. 2021-33 (Sept. 13, 2021) (Judge Greaves), teaches us that damages even for severe emotional distress are not excludable unless properly linked to a physical injury.  Ms. Tressler had sued her former employer, alleging a variety of wrongs.  One allegation was that the employer failed to prevent a physical assault by another employee.  Ms. Tressler claimed these wrongs had caused her emotional distress which, in turn, had caused various physical ailments. The employer settled.  Both the IRS and Tax Court denied a §104(a)(2) exclusion because the settlement language failed to properly link the payments she received to physical injuries she sustained; they were just linked to her claim for emotional distress.  It was all in her head.

It did not have to be this way.  I think we can learn from this case how to write better settlement agreements.

Details below the fold.

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September 27, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, September 20, 2021

Lesson From The Tax Court: Failure To Understand Issue Preclusion May Trigger Sanctions

Camp (2021)Some people just cannot take no for an answer.  That is one of the reasons §6673 permits the Tax Court to impose a penalty of up to $25,000 on taxpayers who stubbornly present either frivolous or groundless arguments.

It is sometimes difficult, however, to distinguish a “no” from a “not now.”  Karson C. Kaebel v. Commissioner, T.C. Memo. 2021-109 (Sept. 9, 2021) (Judge Halpern), teaches a good lesson about issue preclusion, which is the important legal doctrine that tells us when “no” means “no.”  The taxpayer there asked the Tax Court to make the IRS take back a certification it had sent to the State Department.  But the reasons the taxpayer offered had already been rejected by both the Tax Court and the Court of Appeals in prior cases brought by the taxpayer about different subjects.  Judge Halpern explains why those no’s were really and truly no’s.  He also considers imposing §6673 penalties for the taxpayer’s intransigence.  So this will be a good lesson to learn, if for no other reason than to avoid penalties!   Details below the fold.

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September 20, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, September 13, 2021

Lesson From The Tax Court: Retirement Plan Drafting Error Loses Taxpayer $51k Deduction

Camp (2022)As tax practitioners know, to err is human, but to forgive requires a new set of regs.  Gayle Gaston v. Commissioner, T.C. Memo. 2021-107 (Sept. 2, 2021) (Judge Marvel), teaches us the lesson that if you want to get the §404(a) deduction for contributions to a profit-sharing plan, you need to be sure to properly link the plan to the taxpayer’s trade or business. In this case, the taxpayer received substantial deferred compensation payments from Mary Kay Cosmetics after her separation from that company and made substantial contributions to a retirement plan her tax advisor drafted for her.  Unfortunately, her one-participant profit sharing plan did not identify any trade or business as the source of the plan contributions.  That was error.  Both the IRS and the Tax Court were unforgiving.  Details below the fold.

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September 13, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Tuesday, September 7, 2021

Lesson From The Tax Court: IRS Can Issue Multiple 'Final' Spousal Relief Determinations

Camp (2021)Yogi Berra would have been a great tax practitioner.  In Nilda E. Vera v. Commissioner, 157 T.C. No 6 (Aug. 23, 2021), Judge Buch does his best Yogi Berra imitation by teaching us that just because the IRS issued one “final determination” about an innocent spouse claim does not prevent it from issuing a second “final determination” to the same taxpayer when the taxpayer resubmits the same claim for the same year.  That means taxpayers potentially get a second opportunity to petition the Tax Court for review of an IRS rejection even when the taxpayer missed the first opportunity.  The Tax Court thus interprets the law to encourage taxpayers to keep resubmitting equitable relief claims because one never knows when the IRS might issue a second final determination, either deliberately or, as here, because of a goof-up.  As Yogi might have said: it ain't final until it's final!  So when at first your claim's denied, file, file again.  In the context of §6015(f) relief requests, that is not actually a bad result.  Details below the fold.

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September 7, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Tuesday, August 31, 2021

Federal Tax Procedure (2021 Practitioner Edition)

John A. Townsend (Houston), Federal Tax Procedure (2021 Practitioner Ed.) (1,060 pages):

Federal Tax Procedure is a book originally prepared for a course on Tax Procedure taught by Adjunct Professor Townsend at the University of Houston School of Law (through the Fall of 2015). The book is updated annually in August. This is the 2021 edition. The book and related materials contain text discussion, relevant Code Section citations, and certain cases designed to encourage students to think about the Tax Procedure process. The book is in electronic format (Adobe Acrobat PDF format) and is in two versions: (1) a Student Edition (no footnotes); and (2) a Practitioner Edition (same as Student Edition but including footnotes). This is the Practitioner Edition. Both versions are available on Mr. Townsend's SSRN web page.

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August 31, 2021 in Book Club, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink

Monday, August 30, 2021

Lesson From The Tax Court: The 411 On Section 911

Camp (2021)The pullout from Afghanistan has dominated the news, and many of our lives.  While it is natural to think of the war as fought by U.S. soldiers, we cannot forget the considerable number of defense contractor personnel who provided significant support.  According to this report, there were over 88,000 contractor personnel in Afghanistan nine years ago.  Many were U.S. citizens.  While the number has dropped significantly in recent years, it appears multiple thousands of non-military U.S. citizens needed to be evacuated back to the United States this year.

Today's lesson involves one such contractor and the proper application of the §911 exclusion to her.  Whatever you may think about the tax issue, I know you join me in hoping this taxpayer has made a safe return to the U.S.

Section 911 allows certain taxpayers—called “qualified individuals”—to exclude from their gross income certain amounts of income earned from outside the United States.  The case of Deborah C. Wood v. Commissioner, T.C. Memo. 2021-103 (Aug. 18, 2021) (Judge Lauber), looks at whether a civilian defense contract worker in Afghanistan could use §911 to exclude her wage income.  It teaches a short but complete lesson on what it takes to be a qualified individual for the §911 exclusion.  It is worth your time to read and think about.  Details below the fold. 

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August 30, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, August 23, 2021

Lesson From The Tax Court: The Refund Lookback Period Trap

Camp (2017)Collection Due Process (CDP) hearings are generally all about collection.  Thus, if a taxpayer says that the IRS failed to apply an available credit to the tax at issue, that is a proper issue to bring up in a CDP hearing.  In Amr M. Mohsen v. Commissioner, T.C. Memo. 2021-99 (Aug. 11, 2021) (Judge Kerrigan), the taxpayer said the IRS should have applied an overpayment credit from a previous year to the tax sought to be collected.  The reason that the claimed credit was not available to be used is the lesson for today: there were no payments within the refund lookback period.  Oh, snap!  The trap!  Details below the fold. 

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August 23, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, August 16, 2021

Lesson From The Tax Court: The Concept Of Reasonable Collection Potential

Camp (2017)"Him that makes shoes go barefoot himself"
        -Robert Burton, The Anatomy Of Melancholy (1641)

One key concept for submitting a successful Offer In Compromise (OIC) is something called the Reasonable Collection Potential (RCP).  RCP is not a hard-and-fast calculation.  It contains lots of wiggle room for savvy taxpayers.  But there are limits.  Jerry R. Abraham and Debra J. Abraham v. Commissioner, T.C. Memo. 2021-97 (Aug. 3, 2021) (Judge Urda), teaches a very useful lesson in both the extent of, and limits to, the wiggle room in RCP calculations.

The irony in this case is that the taxpayer is a very savvy, experienced and successful tax attorney who specializes in OICs.  So he definitely knew what he was doing.  Yet he was unable to secure for himself what he undoubtedly secures for clients.  You could call this the case of the barefoot shoemaker.  Why that is so is the lesson for us all.  Details below the fold. 

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August 16, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (6)

Monday, August 9, 2021

Lesson From The Tax Court: Trailer Home Is Union Electrician’s Tax Home

Camp (2017)The concept of tax home can be elusive because it is so dependent on facts and circumstances. In William Geiman v. Commissioner, T.C. Memo. 2021-80 (June 30, 2021), Judge Urda teaches us which facts and circumstances are important in determining the tax home of a union member.  There, the Court finds that the taxpayer’s trailer home was also his tax home even though he did no work in the town where the trailer home was located.  This case may give us a useful way to approach a tax home determination, by asking where was the taxpayer’s last known tax home and then seeing if the facts of the year in question changed the answer.   See if you agree.  Details below the fold.

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August 9, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, July 26, 2021

Lesson From The Tax Court: No Deduction For Under-The-Table Cash Payments

Camp (2017)When my son took an informal job as a “ranch hand” this past May, he was delighted to receive unrecorded cash payments.  He thinks it means he does not have to report them as income.  He will discover differently next filing season when we prepare his taxes.  But he is not alone in thinking that unrecorded cash payments are like eating someone else's dessert: the calories don't count.

The attractive obscurity of unrecorded and unreported payments for workers, however, presents a problem for those who employ them.  Employers would like to deduct those labor costs under §162.   In Engen Robert Nurumbi v. Commissioner, T.C. Memo. 2021-79 (June 30, 2021) (Judge Pugh), we learn that the Tax Court will not even use the Cohan rule to rescue a taxpayer who seeks to deduct unrecorded cash payments made to workers.  Mr. Nurumbi’s unrecorded cash payments to his workers may have helped them hide their income, but it also bit him on the butt when he tried to deduct the payments.  As part of this short and blunt lesson, I address the question of whether the Cohan rule might actually be mandatory.  Details below the fold. 

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July 26, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (5)

Monday, July 19, 2021

Lesson From The Tax Court: For Whom The Bankruptcy Tolls

Camp (2017)Most tax practitioners are vaguely aware of bankruptcy law.  Today we learn something more.

Bankruptcy can have significant benefits for taxpayers.  First, it can stop IRS collection action.  Second, it can shake off a tax liability sooner than the 10 year time period Congress gives the IRS to collect.  Third, it can be a pre-payment forum, an alternative to the Tax Court, where the taxpayer can contest an unassessed liability.

Along with benefits, however, come costs.  The biggest cost is tolling.  Bankruptcy tolls various time periods for the IRS to assess or collect.  Two recent cases teach us just how costly bankruptcy tolling bad can be for taxpayers.  Dave Andrew Lufkin Sr., v. Commissioner, T.C. Memo. 2021-71 (June 8, 2021) (Judge Greaves), teaches how bankruptcy tolls tax collectionMarc. S. Barnes and Anne M. Barnes v. Commissioner, T.C. Memo. 2021-49 (May 4, 2021) (Judge Lauber), teaches how bankruptcy can also toll assessment:  it illustrates the confusing exception to discharge for tax debts that are unassessed but assessable as of the petition date.   Details below the fold.

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July 19, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Tuesday, July 6, 2021

Lesson From The Tax Court: The CDP Butterfly

ButterflyIt’s hard to catch a butterfly.  I have fond childhood memories of chasing them (and lightening bugs, too).  And when you do catch them you must handle them carefully because they are delicate.

Collection Due Process (CDP) hearings are like butterflies: taxpayers must act quickly to catch the first opportunity before it flits away and dies; and, even when caught, CDP hearings require careful handling.  Alhaji B. Benson v. Commissioner, T.C. Memo. 2021-78 (June 29, 2021) (Judge Urda), teaches us how even though taxpayers actually can get two CDP hearings, missing the first CDP opportunity forecloses challenging the underlying tax liability in the second opportunity.  Monique D. Long v. Commissioner, T.C. Memo. 2021-81 (June 30, 2021) (Judge Lauber), teaches us how it is all too easy to bungle a CDP hearing.

As usual, details below the fold.

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July 6, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, June 28, 2021

Lesson From The Tax Court: Restitution Overpayment Does Not Reduce Penalties On Deficiencies

Camp (2017)Today’s lesson teaches that a taxpayer’s payment of criminal restitution does not lower penalties associated with the repaid tax.  In Monty Ervin v. Commissioner, T.C. Memo. 2021-75 (June 23, 2021) (Judge Lauber), the taxpayer was subject to a criminal restitution order.  The IRS assessed the restitution amount and the taxpayer fully paid it.  The IRS later sent an NOD proposing deficiencies smaller than the already-paid restitution, as well as §6651 penalties-by-another-name for failure to file and failure to pay.  In affirming the IRS’s ability to assess and collect these associated amounts, Judge Lauber gives a good lesson in the difference between restitution assessments and deficiency assessments.

My colleagues over at Procedurally Taxing have given extensive coverage to restitution assessments and associated case law.  For those who want the deeper dive, I highly recommend plunging into Keith Fogg’s excellent 2019 post, “Interest and Penalties on Restitution-Based Assessments.”  Keith also blogged today’s case last week, where he gives his always useful insights.  And, for those who want the cutesy-cutesy version of today's case, there is this amusing summary given by Lew ("Don't Contact Me") Taishoff.

Still, I think the following lesson may be useful for readers unfamiliar with the area.  The key takeaway is to see how and why IRS assessments of criminal restitution orders are different from tax assessments, even though the payment of criminal restitution is treated as a payment of a tax obligation.  Confused?  Details below the fold.

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June 28, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, June 21, 2021

Lesson From The Tax Court: A Lesson Of Interest

We worked through Spring and Winter, through Summer and through Fall,
But the mortgage worked the hardest and the steadiest of us all.
It worked on nights and Sundays, it worked each holiday,
Settled down among us and it never went away.

-Ry Cooder, “The Taxes on The Farmer Feeds Us All,” Into The Purple Valley (1972)

Camp (2017)Today’s lesson is the taxpayer version of that famous Depression-era song: the accumulation of interest on tax liabilities is relentless, and difficult to reverse.  In Kannarkat P. Verghese et al. v. Commissioner, T.C. Memo. 2021-70 (June 7, 2021) (Judge Gustafson), the taxpayers were assessed a deficiency in 2014 for their tax years 1997 and 1998, as a result of over 13 years of audit and litigation between the IRS and three partnerships in which the taxpayers held an interest.  The taxpayers promptly asked for most of the accumulated interest to be abated per §6404.  They diligently pursued that request through 7 years of administrative and judicial proceedings.  Finally, last week, the Tax Court largely upheld the IRS’s refusal to abate the interest, teaching us our lesson.  The lesson cost these taxpayers over $80,000 in accrued interest (on liabilities of $54,000).  Not to mention attorneys fees.  But you can learn this lesson for free.  Just click on "continue reading..." 

Oh, and we also get a bonus lesson on §6603.  Apparently no one told these taxpayers they could suspend the running of interest by making a deposit in the nature of a cash bond.  Whoops.

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June 21, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, June 14, 2021

Lesson From The Tax Court: Accounting For Attorney Malpractice Settlements

Camp (2017)Sometimes, losing plaintiffs think their attorney messed up.  Sometimes, they are so sure that they sue their attorney for legal malpractice.  I think of those as lawsuits-within-lawsuits, kind of like the story-within-a-story literary device, perhaps most famously used by Shakespeare in Hamlet.  In a malpractice action, the original lawsuit becomes a lawsuit-within-a-lawsuit because the court decides the malpractice action in part by making a counterfactual inquiry on what could have been the outcome in the original lawsuit.

Sometimes, plaintiffs actually win the malpractice action.  More often they settle, accepting some amount of money from the attorney (or, more often, the attorney’s insurer) in exchange for promising to go away and never come back.

The extent to which an attorney malpractice settlement constitutes gross income is the ostensible lesson in two recent cases.  In Carol E. Holliday v. Commissioner, T.C. Memo. 2021-69 (June 7, 2021) (Judge Pugh), and in Debra Jean Blum v. Commissioner, T.C. Memo. 2021-18 (Feb. 18, 2021) (Judge Urda), the Tax Court rejected both taxpayers’ attempt to exclude settlements of their attorney malpractice claims from gross income, even though both taxpayers may well have been able to exclude settlements of the original action.  Using an “in lieu of” test, the Tax Court said that the settlement of the malpractice claim was different than settlement of the original claim.  The original claim had become merely a lawsuit-within-a-lawsuit, a play-within-a-play, and thus had an insufficient nexus with the actual payment to support exclusion.

The less obvious lesson in these cases is how the ostensible lesson creates a bargaining chip for malpractice attorneys sitting at the poker table of settlement negotiations.  Taxpayers might account for the tax treatment of malpractice settlements either by structuring the settlement to make the payments eligible for exclusion, or by grossing up the settlement to reflect taxes imposed that would not have been imposed on settlement of the original action.  Details below the fold.

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June 14, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, June 7, 2021

Lesson From The Tax Court: The Perils of Stipulations

Camp (2017)Tax Court procedure marches to a different beat from other federal courts.  For example, when a taxpayer files a Petition contesting a Notice of Deficiency (NOD) the taxpayer cannot voluntarily dismiss the case the way litigants can do in federal district court.  See Lesson From The Tax Court: The Hotel California Rule, TaxProf Blog (Nov. 12, 2018).  And it is not just pro se litigants who get tripped up, which is to be expected despite the heroic guidance given by the Tax Court on its webpage.  Experienced practitioners sometimes goof this up as well.

The recent case of Donald Bailey and Sandra M. Bailey v. Commissioner, T.C. Memo. 2021-55 (May 10, 2021) (Judge Pugh), teaches an important lesson about the crucial role of stipulations in the Tax Court’s decisional process: litigants must have a firm grasp of their case very early, or risk stipulating themselves into defeat as the taxpayers did in this case.  Details below the fold.

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June 7, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Tuesday, June 1, 2021

Lesson From The Tax Court: The Structure Of Substantiation Requirements

Camp (2017)Say you have 20 boxes of 5 different sizes.  Each size comes in 2 different colors  You can organize them in two ways.  You could create 5 groups of sizes, subdivided into 2 colors each.  Or you could create 2 groups of color, subdivided into 5 sizes each.  Or you could, like many of our clients, smash the boxes, throw then in a closet, and hope you never need them again.

Organizing boxes of deductions involves similar choices. The Tax Court keeps telling us that taxpayers bear the burden to prove their entitlement to deductions.  Taxpayers repeatedly fail to learn the lesson. Viola Chancellor v. Commissioner, T.C. Memo. 2021-50 (May 4, 2021) (Judge Urda), teaches a nice lesson on how one might organize various deductions according to the applicable substantiation requirement.  Judge Urda’s opinion addresses deductions taken on Schedule C by dividing them into two groups depending on their substantiation requirements.  Organizing deductions by their substantiation requirements is useful because taxpayers can use the Cohan rule to fill some substantiation requirements, but not others.  Spotting when and how to use the Cohan rule can be useful for tax preparation and planning, especially when your client’s dog ate the receipts — an increasingly tenuous claim in light of electronic receipts.  So I think it’s a lesson worth learning.  Details below the fold.

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June 1, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, May 24, 2021

Lesson From The Tax Court: CDP Settlement Officer Must Work Previously Rejected OIC

Camp (2017)Last week’s case of Katherine Mason, et. al, v. Commissioner, T.C. Memo. 2021-64 (May 20, 2021) (Judge Holmes), teaches that the IRS Office of Appeals must consider in a CDP hearing the merits of an Offer In Compromise (OIC) that a prior office found was submitted solely to delay collection.  I kid you not.  Agreeing with the taxpayer that “the CDP process is aimed very deliberately to give most taxpayers an opportunity to delay collection,” Op. at 21, Judge Holmes held that the CDP Settlement Officer abused her discretion when she refused to consider an OIC on its merits, even though she found it had been properly rejected for having been submitted precisely for purposes of delay.  Yes folks, welcome once again to the wacky world of Collection Delay Process.  I also see the case as teaching us both the value—and the limits on value—added by judicial review.  Finally, I think the taxpayer simply won the opportunity to lose again.  See if you agree.  Details below the fold. 

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May 24, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, May 17, 2021

Lesson From The Tax Court: A Timely Lesson For Filing Returns

Form 1040This year, the tax filing deadline for most folks is today, Monday, May 17th (here in Texas we get until June 15th because of the winter freeze).  The May 17th date is thanks to this questionable national extension issued by the IRS.  I say questionable because it is not clear why §7508A or any other statute gives the IRS the authority to extend the statutory deadline nationwide this year.  But no one is complaining.

And the IRS needs the extension as much as taxpayers do.  TIGTA reported in March that the IRS had still not processed almost 12 million 2019 paper returns as of last December 20th.  That should not be a criticism of the IRS.  While perhaps not the “master class” tweeted by Ms. Yellen, the IRS has done remarkably well to keep the machinery of tax collection moving during this time of COVID and Congressional Simon-Says statutes requiring immediate distribution of multiple Economic Impact Payments.  It would be difficult to expect more of any agency.  In short, everyone needs a little more time this year.

So today is Tax Day!  It's a great time for the lesson I see in William J. Spain and Idovia A. Spain v. Commissioner, T.C. Memo. 2021-58 (May 11, 2021) (Judge Lauber): how to comply with filing requirements and how to substantiate that compliance.  Sure, it’s a CDP case, but the lesson is equally applicable to all those last-minute tax return filings that will happen today.  In today’s case, the taxpayer’s careless CPA used his office postage meter to mail the Tax Court petition, but put no date on the envelope.  He relied on the U.S. Post Office to pick up the mail and postmark it.  Bad move.  The USPS did not postmark the envelope.  That failure at least created an opportunity to rescue the situation, but the CPA failed there as well.  The sad details are below the fold.

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May 17, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, May 10, 2021

Lesson From The Tax Court: The Measure Of Intent For Gift Exclusions Under §102(a)

Camp (2017)When my church stopped in-person worship services in 2020, we kept paying our part-time child-care workers.  We first paid them with PPP loan money (which we treated as wages).  When that ran out, we decided to continue payments.  Why did we do that?  First, they were part of our church family and we knew that losing those amounts would be a hardship for them.  Second, we wanted to retain goodwill so they would come back when we resumed in-person worship.  So we had dual intent, mixed motives.  Which dominated would determine whether those continued payments were taxable compensation or non-taxable gifts.  How is a Court supposed to figure that out?

Juan Pesante, Jr., and Maria A. Moreno-Pesante v. Commissioner, (Bench Opinion, May 6, 2021) (Judge Copeland) teaches how the Tax Court measures the intent of a payor to determine whether a taxpayer may exclude a payment as a gift under §102(a).  There, the payor had sent mixed messages on whether a $25,000 payment to Mr. Pesante was a gift.  The Tax Court agreed with the IRS that the payment was not a gift.  Judge Copeland’s reasoning gives a great road map for how taxpayers and their tax advisors should approach this messy life-in-all-its-fullness issue.  Details below the fold. 

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May 10, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, May 3, 2021

Lesson From The Tax Court: The Multiple Paths For Loss Deductions

Camp (2017)Section 165 permits certain groups of taxpayers to deduct certain losses of capital under certain circumstances.  I emphasize to my students that §165 is, at bottom, a capital recovery provision.  There is no deduction for lost opportunities, lost profits, or lost pets.  It's only for losses of capital “sustained during the taxable year and not compensated for by insurance or otherwise.” §165(a).

Ronnie S. Baum and Teresa K. Baum v. Commissioner, T.C. Memo. 2021-46 (Apr. 27, 2021) (Judge Kerrigan) teaches a nice basic lesson on the multiple ways taxpayers can deduct the loss of money under §165.  There the taxpayers claimed to have lost money in a stock purchase deal gone bad.  They tried to claim a theft loss deduction of $300,000 for tax year 2015.  The Tax Court said no.  The lesson I see is not so much about the rules for theft losses.  Rather, the reasons why these taxpayers lost gives a nice lesson in the various options taxpayers have in deducting losses.  It's a woulda-coulda-shoulda lesson.  In fact, I think the Baums may still be able to get the deduction, for a different reason in a different year.  I may be wrong!  I invite your thoughts below the fold.

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May 3, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, April 26, 2021

Lesson From The Tax Court: Abatement Of Assessment Brings No Relief From Liability

Camp (2017)Letters from the IRS are often confusing, both to clients and to practitioners.  So when the taxpayers in Robert Craig Colton and Alina Mazwin v Commissioner, T.C. Memo. 2021-44 (Apr. 21, 2021) (Judge Lauber) received a letter from the IRS saying “you do not owe us any money” for the very year they were disputing in Tax Court, you would not blame them for thinking that the IRS had conceded the case.  It hadn't.  The letter was only telling them that a premature assessment of the deficiency had been abated, not that the IRS's judgment about the underlying liability had changed.  The case teaches the important lesson that assessment and liability are different.  One must always be aware of the distinction between an assessment (or abatement) and the underlying liability.  Details below the fold.

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April 26, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, April 19, 2021

Lesson From The Tax Court: Blind Reliance Is Not Reasonable Reliance

Camp (2017)The Tax Code’s complexity is legend.  And logarithmic.  The more complex a taxpayer’s financial affairs become, the more difficult it becomes for even reasonable taxpayers to avoid errors.  In recognition of that, almost all of the major penalty statutes allow taxpayers to avoid penalties by showing that they had reasonable cause for errors found on audit.

When complexity hits a certain level, taxpayers turn to professionals for help.  Sometimes taxpayers think doing so absolves them of responsibility for any subsequent errors.  They think that relying on professional help is by itself reasonable.  Today’s case shows why that is not true.

Duane Pankratz v. Commissioner, T. C. Memo. 2021-26 (Mar. 3, 2021) (Judge Holmes), teaches that whether a taxpayer has reasonable cause to avoid penalties depends on much more than simply relying on a CPA to properly prepare the return or identify missing information.  There, the taxpayer engaged in a variety of business activities through 11 corporate entities.  After audit, the IRS proposed to assess over $10 million in deficiencies and penalties.  That’s a lot of error.  The taxpayer claimed to have a reasonable cause for the error: my tax professionals did not tell me.  Why that claim failed provides the main lesson.  Details below the fold. 

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April 19, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, April 12, 2021

Lesson From The Tax Court: The Incoherence Of §6751(b)

Camp (2017)Two recent Tax Court cases show us that while the §6751(b) supervisory approval requirement does apply to a tax penalty mechanically applied by a human employee it does not apply to the same penalty mechanically applied by a computer.  As a result, two similarly situated taxpayers get treated differently.  One gets penalized and the other does not.  It is an understandable result, but not a sensible one.  To me, it shows the incoherence of the statute.

In Andrew Mitchell Berry and Sara Berry v. Commissioner, T.C. Memo, 2021-42 (Apr. 7, 2021), Judge Marvell holds that a §6662(b)(2) understatement penalty is invalid without proper supervisory approval when proposed as a matter of routine in a 30-day letter issued by a Revenue Agent.  In contrast, Anna Elise Walton v. Commissioner, T.C. Memo. 2021-40 (Mar. 30, 2021) (Judge Urda) explains why supervisory approval is not required for the very same penalty if it is first proposed in a computer-generated CP2000 notice, issued without any human involvement.  Both the 30-day letter and the CP2000 notice serve the same function, to encourage the taxpayer to engage with the IRS to ensure the accuracy of their returns.  Yet the penalty proposed in one requires 2 humans to approve and the penalty proposed in the other requires no human approval.

These cases are straightforward applications of the statute.  They are unremarkable in their conclusions that human-proposed penalties need human review but computer-proposed penalties do not.  That is what the statute indeed says.  However, what makes them worth your time is that they demonstrate the strange interaction of penalty statutes and tax administration.  Here we have two equally culpable (or innocent, take your pick!) taxpayers, but only one gets hit with the same mechanically-computed penalty and that solely because of the difference in how the penalties are first proposed.  The difference is between what is routine and what is automatic.  It’s a difference created by how the IRS operates, the language of the statute, and the Tax Court’s interpretation of that statute.  And it’s a difference that makes little sense, at least to me.   I think there is a better distinction to be made.

If you are already a tax penalty jock and know how incoherent the system is, you do not need this lesson.  Otherwise, I invite you to dive into the details below the fold. 

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April 12, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, April 5, 2021

Lesson From The Tax Court: Passport Revocation Act Differs From Codification

Camp (2017)Justice John Marshall is typically credited as creating the idea that the judicial branch has the power to declare Acts of Congress unconstitutional.  See Marbury v. Madison, 5 U.S. 137 (1803).  But courts exercise that power cautiously, refusing to confront allegations of unconstitutionality if they can plausibly dodge the issue. See generally, Gunnar P. Seaquist, The Constitutional Avoidance Canon of Statutory Construction, The Advocate 25 (Summer 2015).

Robert Rowen v. Commissioner, 156 T.C. No. 8 (Mar. 30, 2021) (Judge Toro), shows us the caution of the Tax Court.  There, the taxpayer invited the Court to declare the passport revocation process, created by Congress in the FAST Act of 2015, unconstitutional.  The Court unanimously dodged the invitation, based on the taxpayer’s failure to distinguish between an Act of Congress and the codification of an Act.  The Tax Court viewed the only part of the FAST Act at issue to be the part codified in the Internal Revenue Code in §7345.  It held that since §7345 does not, on its own, trigger any deprivation of property or liberty, this was not the proper case for the Court to rule on the constitutionality of the entire passport revocation process.  I invite readers to form their own conclusions about the plausibility of the Court’s dodge.  Details below the fold.

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April 5, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, March 29, 2021

Lesson From The Tax Court: Failing Business No Reason To Stop Collection In CDP Hearing

Collection Due Process (CDP) is designed to protect taxpayers from abusive collection actions by the IRS.  American Limousines, Inc. v. Commissioner, T.C. Memo. 2121-36 (Mar. 25, 2021) (Judge Halpern), teaches that CDP does not require the IRS to stop trying to collect from a business just because the business was failing.  There the taxpayer owed over $1.1 million in employment taxes.  The Office of Appeals rejected both the taxpayer’s installment payment offer of $2,000 per month, and its alternative proposal to be placed in CNC.  The taxpayer said that the Office of Appeals should have put it into CNC to allow its business to improve.  The Tax Court upheld the Appeals determination, finding that Appeals satisfactorily balanced the need for collection against the difficulties enforced collection would create for the taxpayer.  Details below the fold.

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March 29, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)