Monday, September 19, 2022
Who uses paper checks anymore? Not my kids. My daughter even prefers to incur a surcharge for using her debit card to pay her rent rather than walking a paper check to the rental office. The practical reason, she says, is that when she uses her debit card she can immediately see the impact on her checking account balance by looking at her “available balance” number in her banking app. If she wrote a check, she’d have to wait until the check cleared and she fears over-drawing her account.
That delay—between the time a person writes and check and the time it gets reflected in their checking account—is what gives us our lesson in Estate of William E. Demuth Jr. et al. v. Commissioner, T.C. Memo. 2022-72 (July 12, 2022 )(Judge Jones). In that case the issue was the value of an investment account on the date of the decedent’s death. On that date there were 10 checks totaling $436,000 that had been written on the account but had not cleared. The Executor did not include that amount on the Form 706 because the recipients of the checks had deposited them before the decedent died. Their accounts had been credited. They had been paid. Or so thought the Executor. The IRS, however, thought that the checks had not been paid because they had not cleared the decedent’s bank. So the money still belonged to the taxpayer and should have been included in the valuation of his Estate.
In (mostly) agreeing with the IRS, Judge Jones gives us a useful lesson on basic commercial law principles. Maybe my kids won't care, but enough folks still use checks that it's a lesson worth remembering. Details below the fold.
September 19, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, September 12, 2022
Section 7121 authorizes the IRS to enter into “an agreement in writing” with taxpayers “in respect of any internal revenue tax for any taxable period.” Such agreements are called “Closing Agreements.” As implied by that name, the big idea here is that such agreements are meant to “close” a particular tax issue or a particular tax year or years. Accordingly, the general rule is that such agreements are final: they “close” the ability of either the IRS or the taxpayer to later assert a different position with respect to the matters covered in the Closing Agreement.
In Cory H. Smith v. Commissioner, 159 T.C. No. 3 (Aug. 25, 2022) (Judge Toro), the Tax Court teaches a lesson on that finality rule. There, the taxpayer had signed a Closing Agreement for multiple years promising not to claim the §911 exclusion for foreign earned income. He then reneged by filing amended returns (for some years) and original returns (for other years), breaking that promise. Even though the opinion is a 43-page precedential opinion, the lesson is relatively simple: Closing Agreements are final; one must be very careful when signing one because final means final.
What is also interesting (at least to me) is why the Tax Court may have taken extra effort to hammer on the finality rule and issue this opinion as a T.C. opinion. It seems Mr. Smith did not act alone. He appears to have received some dubious advice from his tax return preparer, an Enrolled Agent (EA) who awkwardly styles himself as “Dr.” Castro. Op. at 16, note 20. That EA seems to have also given the same bum advice to a bunch of other taxpayers. The Court notes that “at least 19 other cases pending in our Court involve the same issue as the one presented here.” Op. at 11, note 14. So making this first-out opinion a precedential opinion should help to efficiently dispose of all the rest. The Court makes the effort to note that all 19 of the other cases involve this same EA. This leads to some thoughts about potential §6694 penalties.
Details below the fold.
September 12, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, August 29, 2022
To say the Internal Revenue Code is complex is like saying a virus is hard to see. It understates the obvious. NSS. Today the Tax Court teaches us one consequence of that complexity: the meaning and scope of one statute (§6103) can be altered by the later addition of another statute (§7623(b)). The former is the statute that requires the IRS to keep taxpayer information confidential. The latter is the statute that allows whistleblowers to obtain Tax Court review of a denial of a whistleblower award.
In Whistleblower 972-17W v. Commissioner, 159 T.C. No. 1 (July 13, 2022) (Judge Toro), the Court said the IRS had to give a whistleblower the unredacted returns and return information of three taxpayers that the whistleblower informed on. Folks, this is a reviewed opinion and all 15 of the reviewing judges agreed with Judge Toro’s decision (one judge did not participate). While the decision is rational, its conclusion is certainly not a slam dunk. IMHO it misses the forest for the trees, resting on a curious presumption about the statutory text in 6103. Whether or not readers agree with that, we can all agree this case illustrates how a later statute may give new meaning to the words in an older statute. That is an inherent difficulty in interpreting statutory language that is part of such a wickedly complex Code.
Trigger warning: today’s post runs a bit longer than normal. So the refresh rate will likely bother those who click through. I am so sorry for that! But this lesson is really just so cool that I hope you will persevere.
August 29, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, August 15, 2022
The basic rule is simple: the taxpayer bears the burden of proof. That is, all income is gross income unless the taxpayer proves a statutory entitlement to an exclusion; and no expenditure is deductible unless the taxpayer proves a statutory entitlement to a deduction.
Complexity comes in the statutes that allow exclusions and deductions. But the basic burden does not change: it is ultimately the taxpayer who must persuade either the IRS or the Tax Court of their entitlement to the exclusion or deduction claimed.
Clement Ziroli and Dawn M. Ziroli v. Commissioner, T.C. Memo. 2022-75 (July 14, 2022) (Judge Nega), shows us how the burden of persuasion applies in the complexity of a deduction statute. There, the taxpayer sought to deduct an expenditure that was allowed by §162(a) but might or might not be disallowed by the §162(f) prohibition of deductions for penalties. The taxpayer was unable to persuade the Tax Court that the expenditure was not a penalty. He could not prove the negative. Hence, no deduction.
The lesson relates back to the idea we looked at last week: the ambiguity of penalties. Here, that ambiguity worked against the taxpayer because of the burden of persuasion. Details below the fold.
August 15, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, August 8, 2022
When we think of penalties we naturally think of punishment. I mean, to channel Steven Wright, if a penalty is not punishment when why does the word start with “penal”? Both this week and next week’s lesson teach us how penalties serve other purposes as well. Today, in Lionel E. Larochelle and Molly B. Larochelle v. Commissioner, T.C. Summ. Op. 2022-12 (July 12) (Judge Leyden), we learn why non-receipt of a Form 1099 does not constitute reasonable cause to escape the §6662(a) penalty for making a substantial understatement of tax. Next week we will look at whether a court-ordered disgorgement of illegal gains is a penalty for purposes of a §162(f) prohibition on deductions for governmental fines or penalties. Today’s short lesson awaits below the fold.
August 8, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, August 1, 2022
The tax laws are conflicted. They encourage retirement savings by permitting taxpayers to deduct contributions to their Individual Retirement Accounts (IRA’s). But that encouragement is hedged by various restrictions and caps as well as a special excise tax imposed on contributions that exceed the applicable caps. And Congress crosses its fingers if taxpayers take early distributions. Those can result in penalties as well as inclusion in gross income. However, Congress uncrosses those fingers if the early distributions are properly rolled into another IRA.
Given these various statutory hedges and crossed-fingers, it’s no wonder that navigating the tax rules for retirement accounts is tricky! Particularly tricky are managing rollovers from one type of retirement plan to another. Mistakes there can have both income tax consequences and excise tax consequences. Thus, we must always keep straight the difference between different types of taxes, just like we saw in last week’s lesson.
This week, we learn how excise tax consequences are different than income tax consequences of a messed up IRA rollover. In Clair R. Couturier, Jr. v. Commissioner, T.C. Memo. 2022-69 (July 6, 2022) (Judge Lauber), the taxpayer escaped a huge income tax liability for messing up some of the rollover rules because the limitation period for assessment had run, but got snagged for a $8.5 million excise tax for excess IRA contributions. Yeah, we’re talking a lot of money here, putting enough at risk for the taxpayer to hire one of the best tax lawyers in the country to represent him. Alas, even Lavar Taylor could not pull him out of the $8.5 million hole. He tried to argue that the IRS was bound by the income tax characterization of the transaction. The Court rejected that argument because...an excise tax is not an income tax. Details below the fold.
August 1, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, July 25, 2022
The Internal Revenue Code is full of taxes and penalties. Oh my, so many taxes and penalties! You must always stay aware of which kinds of taxes or penalties are at issue in order to know what rules of law apply. This week and next week will give us two lessons on the importance in keeping straight the different kinds of taxes and penalties.
In Angela M. Chavis, 158 T.C. No. 8 (June 15, 2022) (Judge Lauber), the taxpayer was seeking spousal relief under §6015(f) from Trust Fund Recovery Penalties assessed per §6672 against her and her then-husband. The liability for §6672 penalties is joint and several. And, if you squint, the text of §6015(f) appears to allow relief from any joint and several liability. Today we learn not to squint. Section 6015(f) provides relief only from joint liability for income taxes. Trust Fund Recovery Penalties are not income taxes. So no spousal relief for §6672 penalties. You will find a bit more (but not much) below the fold. It’s a short lesson for a hot summer day.
July 25, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, July 18, 2022
Tax collection is a process, not an event. The process can last ten years or more. During that time many different events may occur. Different events may bring with them different decision-makers within the IRS. The secret sauce of representing clients is that when you hit an unfavorable decision-maker, try to find a new one. An example of that is getting a CDP hearing. CDP hearings allow taxpayers to pause collection while they ask for alternatives to full collection, such as Offers In Compromise (OICs). The CDP hearing is conducted by a Settlement Officer (SO) in the IRS Independent Office of Appeals (Appeals).
Thus, the SO represents a new layer of decision-making. But what do you get with this new decision-maker? Today’s lesson teaches that you may not get what you think.
Michael D. Brown v. Commissioner, 158 T.C. No. 9 (June 23, 2022) (Judge Lauber), address what I think is a common misconception about CDP hearings: that Appeals makes decisions about collection alternatives. It does not. It reviews decisions made by the relevant IRS function. At issue in Brown was whether the IRS waited more than two years to reject his OIC, which was proposed as part of a CDP hearing. If so, then his low-ball OIC would be deemed accepted under §7122(f). Although the IRS unit that evaluated his OIC rejected it after a few months, the formal Appeals decision in the CDP hearing came more than two years later. Mr. Brown went to Tax Court, claiming the benefit of §7122(f). The Tax Court said no. Appeals did not reject the OIC; all it was doing was reviewing the rejection decision made by the IRS.
This was not a slam dunk win for the IRS. I think it’s worth your time to see why. Details below the fold.
July 18, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, July 11, 2022
Figuring out when or whether a taxpayer has filed a return is important for many reasons. On the one hand, proper filing limits the time for the IRS to assess. Thus taxpayers generally want the courts to find they have filed. On the other hand, filing a frivolous or fraudulent return can lead to penalties. In those situations, taxpayers want the courts to find they have not filed!
Sometimes a taxpayer will give an IRS employee a copy of a return they claim was previously filed. Does that constitute the filing of a return? Well, it depends. Just like last week, I think it useful to compare the Tax Court and Circuit Court cases.
In a logic-challenged opinion, the Ninth Circuit recently decided giving a copy did constitute filing a return ... for for statute of limitations purposes. See Seaview Trading, LLC v. Commissioner, 447 F.3d 706 (9th Cir. 2022), rev’g T.C. Memo. 2019-122. While I agree with the dissenting judge that “the majority's analysis and conclusions are logically absurd and should not be the holding of this court,” there is no denying the decision was good news for taxpayers.
Now comes the Tax Court and in Chule Rain Walker v. Commissioner, T.C. Memo. 2022-63 (June 15, 2022), Judge Nega decides that giving an IRS employee a copy of a frivolous return does not constitute filing a return ... for frivolous penalty purposes!
Win-win for taxpayers? As usual, the devil is in the details, which you can find below the fold.
July 11, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, June 27, 2022
My students—especially those with accounting backgrounds—come to class expecting that tax law is all about bright line rules and lots of calculations. They are either disappointed, frustrated, or relieved to find that tax law is like other law: it’s words, words that are generally complex, often opaque, and frequently mysterious. That’s why taxpayers need competent tax practitioners to advise them!
Some tax practitioners are more aggressive and some are more cautious. Today’s lesson is for the more aggressive ones. In Raul Romana and Maria Corazon Romana v. Commissioner, T.C. Sum. Op. 2022-9 (June 16, 2022), Judge Carluzzo generously allowed a taxpayer to deduct the cost of a her “scrublike clothing.”
Those of us who are more cautious will disregard this decision. It’s an outlier and, no, I certainly would not advise my client to start deducting the cost of this type of clothing! At the same time, however, the opinion may well provide aggressive taxpayers and their advisors protections from penalties if and when they try this trick at home. The substantive tax lesson is short and sweet. The penalty lesson is more complex, opaque, and mysterious.
Details below the fold.
June 27, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, June 13, 2022
It’s sweet to beat the tax man. It’s even sweeter when you can make the government pay your litigation costs and attorneys fees under §7430. But the bitter lesson for today is that you must be careful to ask the right court. Law is hierarchical. You can appeal a lower court’s adverse decision to a higher court. But you cannot appeal a higher court’s adverse decision to a lower court!
In Celia Mazzei v. Commissioner, T.C. Memo. 2022-43 (May 2, 2022) (Judge Thornton), the taxpayer asked the wrong court for attorneys fees and because of that had nowhere to go when the court denied fees. Ms. Mazzei had fought the IRS for over 10 years, losing in Tax Court in a reviewed opinion in 2018. Undaunted, she appealed to the Ninth Circuit. She won! Yay! Her attorneys then filed a “protective” motion with the Ninth Circuit for both her appellate litigation costs (about $70,000) and her trial court litigation costs (some $330,000). The government argued that its litigating position was substantially justified.
The Ninth Circuit’s response was disappointingly succinct: “denied.” Undaunted, Ms. Mazzei’s attorneys then asked the Tax Court for the $330,000 in trial court litigation costs. The government opposed the motion for the same reason it gave the Ninth Circuit. Judge Thornton, however, rejected the §7430 request for a different reason. He ruled that the Ninth Circuit’s single word left the Tax Court powerless to act on the request. Appeals go up the hierarchy, not down. The taxpayer had asked the wrong court. Details below the fold.
June 13, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, June 6, 2022
Congress eliminated the deduction for alimony in the December 2017 Reconciliation Act (informally called the Tax Cuts and Jobs Act, or TCJA). The concept is still important, however. First, the legislation grandfathered in alimony payments made pursuant to divorce or separation instruments executed on or before December 31, 2018. So the question of whether a payment qualifies as alimony will thus still be important for many taxpayers for years to come. Second, the definition continues to play an important role in analyzing the support requirements for dependents. See §152(d)(5).
Determining whether payments constitute alimony is not always easy and errors can lead to §6662 penalties for careless taxpayers and their advisors. Jihad Y. Ibrahim v. Commissioner, T.C. Summ. Op. 2022-7 (May 16, 2022) (Judge Weiler), teaches us the importance of the words used in divorce instruments. There, Dr. Ibrahim sought to deduct $50,000 in payments to his ex-wife. He called them as alimony on his return. But the marital separation agreement and the divorce decree did not call them that. The IRS disallowed the deduction as contrary to the plain language in the divorce decree. Despite Dr. Ibrahim’s ingenious arguments, the Tax Court agreed with the IRS and held the taxpayer to his word(s). Details below the fold.
June 6, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Tuesday, May 31, 2022
The sainted Justice Holmes once wrote: “Men must turn square corners when they deal with the Government.” It is no accident that Justice Holmes wrote that in a tax case. Rock Island R.R. v. United States, 254 U.S. 141, 143 (1920). Of all the corners in all the laws governing citizen interaction with government, tax laws contain some of the squarest. This is a lesson we’ve seen before. See Lesson From The Tax Court: The Structure Of Substantiation Requirements of §170, TaxProf Blog (Sept. 24, 2018). But I think it’s a lesson worth repeating: the substantiation rules in §170 contain some very sharp corners. The lesson is important for high-end donations such as the one in today’s case. And it is not just a lesson for taxpayers, but also for charities.
In Martha L. Albrecht v. Commissioner, T.C. Memo. 2022-53 (May 25, 2022) (Judge Greaves), the taxpayer made a very large donation to a museum and claimed a §170 charitable donation deduction on her return. The IRS said that the 5-page document memorializing the gift did not meet the statutory substantiation requirements for such a gift. The Tax Court agreed. Thus, no §170 deduction. Details below the fold.
May 31, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, May 23, 2022
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.
May 23, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, May 9, 2022
Today’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.
May 9, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, May 2, 2022
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.
May 2, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, April 18, 2022
Tax 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.
April 18, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, April 11, 2022
Obtaining 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.
April 11, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, April 4, 2022
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.
April 4, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, March 28, 2022
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.
March 28, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink
Monday, March 21, 2022
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.
March 21, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, March 14, 2022
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.
March 14, 2022 in Bryan Camp, News, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Tuesday, February 22, 2022
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.
February 22, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, February 14, 2022
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.
February 14, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, February 7, 2022
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.
February 7, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, January 31, 2022
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.
January 31, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink
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Tuesday, January 18, 2022
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.
January 18, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, December 20, 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.
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)
December 20, 2021 in Bryan Camp, Miscellaneous, Tax, Tax News, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, December 13, 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).
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.
December 13, 2021 in Bryan Camp, New Cases, Tax, Tax News, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, December 6, 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.
December 6, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, November 29, 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.
November 29, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, November 22, 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.
November 22, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, November 15, 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.
November 15, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, November 1, 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.
November 1, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, October 25, 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.
October 25, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, October 11, 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.
October 11, 2021 in Bryan Camp, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, October 4, 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.
October 4, 2021 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, September 27, 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.
September 27, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, September 20, 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.
September 20, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, September 13, 2021
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.
September 13, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Tuesday, September 7, 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.
September 7, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Tuesday, August 31, 2021
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.
August 31, 2021 in Book Club, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
Monday, August 30, 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.
August 30, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, August 23, 2021
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.
August 23, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, August 16, 2021
"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.
August 16, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, August 9, 2021
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.
August 9, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, July 26, 2021
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.
July 26, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, July 19, 2021
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 collection. Marc. 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.
July 19, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Tuesday, July 6, 2021
It’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.
July 6, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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Monday, June 28, 2021
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.
June 28, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink
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