Chapter 6
Tax Court Litigation
and Claims for Refunds
§ 6:1
Introduction
§ 6:2
Organization of Tax Court
§ 6:2.1
In General
§ 6:2.2
Matters Allowed to the Special Trial Judges
§ 6:2.3
Jurisdiction Overview
§ 6:2.4
Jurisdiction Over Deficiency Proceedings
[A] Valid Statutory Notice of Deficiency
[A][1] Existence of a Deficiency
[A][2] Deficiency Tax
[A][3] The Last Known Address Issue
[A][4] The Scar Issue
[A][5] Motion to Dismiss for Lack of Jurisdiction
[B] Timely Tax Court Petition
[B][1] Mailbox Rule—Timely-Mailed, Timely-Filed,
Timely-Paid
§ 6:2.5
Extent of Tax Court Jurisdiction Over Deficiency Proceedings
[A] Jurisdiction Over Additional Issues
[B] Incidental Refund Jurisdiction
[C] Equitable Recoupment Jurisdiction
§ 6:2.6
Jurisdiction Over Non-Deficiency Proceedings
[A] Determination of Innocent Spouse and Joint Return
Separate Liability Elections
[B] Review of Final Partnership Administrative Adjustments
Under TEFRA
[C] Review of Partnership Administrative Adjustments
Where Administrative Adjustment Request Is Not
Allowed in Full Under TEFRA
[D] Review of Final Partnership Administrative Adjustments
for Large Partnership Under TEFRA
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
[E]
Review of Large Partnership Administrative
Adjustments Where Administrative Adjustment Request
Is Not Allowed in Full Under TEFRA
[F] Statutory Interest Determinations
[G] Reviewing of Abatement of Interest Denials
[H] Awarding Reasonable Litigation and Administrative
Costs
[I] Enforcement of Overpayment Decisions
[J] Modification of Decisions in Section 6166 Estate Tax
Cases
[K] Review of Jeopardy Assessments in Ongoing Tax Court
Cases
[L] Review of Certain Sales of Seized Property
[M] Collection Due Process Actions for Release of Liens and
Levies
[N] Disclosure Actions
[O] Injunction Authority
§ 6:2.7
Jurisdiction Over Administrative Determinations by the IRS
[A] Declaratory Judgment Relating to Oversheltered Return
[B] Declaratory Judgment Relating to Qualification of
Exempt Organization
[C] Declaratory Judgment Relating to Worker Classification
[D] Declaratory Judgment Relating to Qualification of
Retirement Plan
[E] Declaratory Judgment Relating to Gift Valuation
[F] Declaratory Judgment Relating to Government
Obligations
[G] Declaratory Judgment Relating to Eligibility of an Estate
to Make Installment Payments Under Section 6166
§ 6:2.8
Special Trial Judge Reports: Ballard v. Commissioner
[A] Background
[B] Special Trial Judge Reports: Post-Ballard
v. Commissioner Amendments to Tax Court Rules of
Practice
§ 6:2.9
Tax Court Rules of Practice and Procedure
§ 6:3
Tax Court Litigation
§ 6:3.1
In General
§ 6:4
Practice Before the Tax Court
§ 6:5
Tax Court Versus Other Forums
§ 6:5.1
Factors to Consider
[A] Payment of Deficiency
[B] Trial by Jury
[C] Geography, Precedent, and Timetable
[D] Increased Tax Deficiency
[E] Government Representation
[F] Availability of Discovery
[G] Small Tax Case Procedures
§ 6:5.2
Res Judicata and Collateral Estoppel
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Tax Court Litigation and Claims for Refunds
§ 6:6
Commencing a Tax Court Case
§ 6:6.1
Disclosure Statement
§ 6:6.2
Service of Papers
§ 6:6.3
Form and Style of Papers
§ 6:6.4
Appearance by Counsel
§ 6:6.5
Pleadings
[A] General Rules
[B] Form Required
[C] Petition
[C][1] Petition for Innocent Spouse or Separate Liability
Election: The “Stand-Alone Proceeding”
[C][2] Petition for Award of Reasonable Administrative
Costs
[C][3] Petition for Lien or Levy Action
[D] Commissioner’s Answer
[E] Petitioner’s Reply
[F] Amended and Supplemental Pleadings
§ 6:6.6
Motions
§ 6:7
Parties
§ 6:8
Stipulations, Discovery, and Settlements
§ 6:8.1
Stipulations
§ 6:8.2
Discovery
[A] Timing of Discovery
[B] Informal Discovery Request
[C] Interrogatories
[D] Requests for Production
[E] Requests for Admission
[F] Evidentiary Depositions
[G] Depositions
[G][1] Depositions Upon Consent of the Parties
[G][2] Depositions Without Consent of the Parties,
Including Nonparty Witnesses, Party Witnesses, and
Expert Witnesses
[G][3] Deposition of an Expert Witness for Other Than
Discovery Purposes
[H] Deposition After Commencement of Trial
[I] Discovery of Experts
[I][1]
Interrogatories
[I][2]
Deposition
[I][3]
Expert Witness Reports
[J] Motion for Protective Order
[K] Motion for Continuance
§ 6:8.3
Settlement
[A] Settlements by Appeals
[B] Settlements by Counsel
[C] Tax Court Mediation and Voluntary Binding Arbitration
§ 6:9
Trial
§ 6:9.1
Place of Trial
(Shafiroff, Rel. #21, 11/09)
6–3
§ 6:1
IRS PRACTICE & PROCEDURE DESKBOOK
§ 6:9.2
§ 6:9.3
§
§
§
§
§
§
§
§
§
§
§
Evidence
Burden of Proof
[A] Burden on the Taxpayer: In General
[B] Burden on the Commissioner: Taxpayer Bill of Rights 3
§ 6:9.4
Courtroom Procedures
[A] Calendar Call
[B] Trial
6:10 Trial Memoranda and Briefs
§ 6:10.1 In General
§ 6:10.2 Form and Content
6:11 Decision of the Court
6:12 Proceedings After Trial
6:13 Small Tax Cases
6:14 Tax Refund Suits
§ 6:14.1 Two Types of Refund Suits
§ 6:14.2 Jurisdiction for Tax Refund Suits
[A] Full Payment
[B] Timely Claim for Refund
[C] Proper Claim for Refund
[D] Timely Refund Suit
[E] Payment Versus Deposit
§ 6:14.3 Informal Claims for Refund
§ 6:14.4 Protective Claim for Refund
§ 6:14.5 Formal Claim for Refund
§ 6:14.6 Suspending the Statute of Limitations During Period of
Disability
[A] Statements Required to Claim Financial Disability
§ 6:14.7 Tax Refund Complaint
[A] Form of the Complaint
[B] Request for Jury Trial
[C] Government’s Answer and Counterclaim
[D] Burden of Proof
[E] Judgment and Appeals
6:15 Reduction of Refund for Nontax Debt
6:16 Refund Proceedings Involving Divisible Taxes and IRS Levies
6:17 Waiving Right to Sue the United States
6:18 Tentative Carryback Adjustments
6:19 Joint Committee Review
6:20 Erroneous Refunds and Credits
§ 6:1
Introduction
If a tax controversy with the Internal Revenue Service cannot be
resolved to the satisfaction of both the taxpayer and the Service at
the administrative level, the taxpayer may wish to have a court
adjudicate the matter. Depending on the type of matter, the taxpayer
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Tax Court Litigation and Claims for Refunds
§ 6:2.1
may have his case heard in the U.S. Tax Court, the U.S. Court of
Federal Claims,1 or a federal district court. Choosing the proper court
should be part of the practitioner ’s strategy in resolving a tax controversy. This chapter analyzes that strategy and summarizes the
procedural rules with which the practitioner should be familiar in
representing a taxpayer.
§ 6:2
Organization of Tax Court
§ 6:2.1
In General
The U.S. Tax Court is established as a court of record under Article I
of the Constitution and by section 7441 of the Internal Revenue
Code.2 The Tax Court’s jurisdiction is expressly conferred by statute.
Jurisdiction is generally prescribed by section 7442, but specific grants
of jurisdiction are interspersed throughout the Code. The procedure
under which the court operates is prescribed in sections 7451 through
7465. Pursuant to its statutory authority in section 7453, the court has
promulgated Rules of Practice and Procedure under which it operates.
Except in proceedings conducted under sections 7436(c) and 7463, the
rules of evidence applicable in the Tax Court are the rules of evidence
applicable in trials without a jury in the U.S. District Court for the
District of Columbia.3 The specific Internal Revenue Code provisions
conferring Tax Court jurisdiction are discussed in subsequent text.
The Tax Court is a court of national jurisdiction with judges who
are appointed by the President for fifteen-year terms. The Tax Court is
composed of sixteen presidentially appointed members, 4 eleven senior
judges, and five Special Trial Judges. Appointments are made solely on
the grounds of fitness to perform the duties of the office. 5 The Chief
Judge is selected by the members of the court. At the age of sixty-five,
judges may retire into senior status. The Chief Judge assigns each case
to a sitting judge and that judge acts as a division of the entire court. 6
1.
2.
3.
4.
5.
6.
Formerly called the U.S. Claims Court and, before that, the U.S. Court of
Claims.
The U.S. Tax Court is the successor to the Tax Court of the United States
and the Board of Tax Appeals. The Board of Tax Appeals was created by the
Revenue Act of 1924. In 1942, the board’s name was changed to the
Tax Court of the United States and in 1969, as a result of the enactment of
the Tax Reform Act, the court became an Article I court and was named the
U.S. Tax Court.
I.R.C. § 7453.
I.R.C. § 7443 provides for nineteen presidentially appointed members of
the court.
I.R.C. § 7443(b).
I.R.C. § 7444(c).
(Shafiroff, Rel. #21, 11/09)
6–5
§ 6:2.2
IRS PRACTICE & PROCEDURE DESKBOOK
Under the Internal Revenue Code,7 the Chief Judge must be elected
at least every two years by the presidentially appointed Tax Court
judges. The term generally starts in June. The Chief Judge is also a
liaison for the court and interacts with Congress and the public. He or
she attends numerous circuit courts of appeals’ judicial conferences or
sometimes selects another judge of the Tax Court to attend. The Chief
Judge has a lot of influence over the daily practice of the court. He or
she determines how the court is configured, sets policy, and handles a
variety of administrative matters, including how many trial sessions
should be scheduled in a particular city and which judges are assigned
to those sessions. The Chief Judge may also choose to hear cases
(usually infrequently, in view of so many other court-related
responsibilities).8
Trial sessions are conducted and the other work of the court is
performed by presidentially appointed judges, by senior judges serving
on recall, and by Special Trial Judges.9 As of May 2009, there were
approximately 28,000 docketed cases, of which approximately 9,000
were represented by counsel.
All of the judges have expertise in the tax laws and apply that
expertise in a manner to ensure that taxpayers are assessed only what
they owe, and no more. Although the court is physically located in
Washington, D.C., the judges travel nationwide to conduct trials in
approximately seventy-four designated cities.10
§ 6:2.2
Matters Allowed to the Special Trial Judges
The Chief Judge has the power to appoint Special Trial Judges to
assist the Tax Court in particular matters.11 The proceedings that may
be assigned to Special Trial Judges are:
(1)
declaratory judgment proceedings,
(2)
proceedings under section 7463 (relating to “small tax cases”
discussed below),
(3)
proceedings where neither the deficiency nor the amount of
any claimed overpayment exceeds $50,000, 12
7.
8.
9.
10.
11.
12.
I.R.C. § 7444(b).
From an interview of Judge Vasquez by the N.Y. State Society of CPAs in
2004.
The Chief Judge is also empowered to designate Special Trial Judges. Tax
Court Rule 180; I.R.C. § 7443A(a).
See http://ustaxcourt.gov/dpt_cities.htm for a complete list. Note that
approximately eleven of the cities are only for small tax court cases.
I.R.C. § 7443(a).
The Taxpayer Bill of Rights 3 changed the amount from $10,000 to
$50,000. See discussion of “small tax cases,” infra.
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Tax Court Litigation and Claims for Refunds
§ 6:2.3
(4)
any proceeding under section 6320 (relating to notice and
opportunity for hearing upon filing of notice of lien) or 6330
(relating to notice and opportunity for hearing before levy),
(5)
any proceeding under section 7436(c) (relating to small case
employment proceedings),
(6)
any proceeding under section 7623(b)(4) (relating to awards to
so-called whistleblowers), and
(7)
any other proceeding which the Chief Judge may designate. 13
There are currently five Special Trial Judges on the court, including
the Chief Special Trial Judge.
§ 6:2.3
Jurisdiction Overview
The Tax Court is a court of law,14 not a court of equity, and has
limited jurisdiction possessing only those powers to adjudicate controversies that have been expressly, statutorily granted by Congress. 15
The Tax Court is without authority to enlarge that statutory grant of
jurisdiction. However, the court can determine whether or not it has
jurisdiction over a matter pending before the court.16
The majority of cases heard by the Tax Court involve the redetermination of a deficiency asserted for income, gift, or estate taxes
imposed by subtitles A and B of the Code. 17 The Tax Court’s
jurisdiction extends to transferee or fiduciary liability for income,
estate, or gift taxes.18 Once the court determines it has jurisdiction
to redetermine a deficiency, it also has jurisdiction to determine the
amount of any overpayment for the same taxable period pending
before the court.19 If the IRS fails to refund an overpayment within
120 days after a final decision, the Tax Court has the jurisdiction to
order the refund of the overpayment and related interest. 20
13.
14.
15.
16.
17.
18.
19.
20.
I.R.C. § 7443A(b)(1)–(7), as amended by the Pension Protection Act of
2006, Pub. L. No. 109-280, § 857(a), 120 Stat. 780.
The Tax Court lacks equitable powers, but does have the authority to grant
equitable recoupment. I.R.C. § 6214(b).
I.R.C. § 7442. Note that as a court of law, the Tax Court’s jurisdiction is
limited by statute; nonetheless, while the court lacks general equitable
powers, it does apply certain equitable principals in deciding issues before
the court. See, e.g., Woods v. Comm’r, 92 T.C. 776 (1989).
Hambrick v. Comm’r, 118 T.C. 348 (2002); Hazim v. Comm’r, 83 T.C. 471
(1984).
I.R.C. § 6213.
I.R.C. § 6901.
See I.R.C. § 6512(b) for certain limitations on the amount of any credit or
refund.
I.R.C. § 6512(b)(2).
(Shafiroff, Rel. #21, 11/09)
6–7
§ 6:2.4
IRS PRACTICE & PROCEDURE DESKBOOK
§ 6:2.4
Jurisdiction Over Deficiency Proceedings
The bulk of Tax Court cases fall under the Tax Court’s jurisdiction
to handle deficiency proceedings. The Tax Court has jurisdiction to
redetermine whether deficiencies determined by the Commissioner
are correct. The provisions of sections 6211 through 6216 relate to
deficiency proceedings.
For the Tax Court, a court of limited jurisdiction,21 to have jurisdiction over a tax deficiency controversy two things must be present. First,
the Service must issue a valid statutory notice of deficiency22 or notice of
transferee or fiduciary liability. The notice of deficiency must be for
income, gift, or estate taxes, certain excise taxes, windfall profit taxes, or
any other taxes specifically the subject of a notice of deficiency.23
Second, the taxpayer must file a timely petition with the Tax Court.
[A] Valid Statutory Notice of Deficiency
[A][1] Existence of a Deficiency
In order to have a valid statutory notice of deficiency, there must be
a deficiency at the time the notice is issued. Tax payments made by the
taxpayer before the IRS issued a notice of deficiency are “collected
without assessment” and, consequently, not included in determining
the existence of a “deficiency” that provides the predicate for Tax
Court jurisdiction.24 If the IRS issues a deficiency notice, but the
deficiency has been paid in full before the notice, there is no deficiency
and the Tax Court lacks jurisdiction.25 In the interesting case of Wilson
v. Commissioner,26 where a taxpayer executed a plea agreement and
consequently reported $328,000 in diverted corporate receipts and
dividends and the IRS subsequently issued a notice of deficiency
showing no additional tax, but penalties under sections 6651(f)
(fraudulent failure to file) and 6654 (failure to pay estimate taxes), it
was held that the additions to tax determined in taxpayer ’s notice of
deficiency were not attributable to “deficiencies” and, thus, the Tax
Court lacked jurisdiction over such additions to tax. The court
concluded: “We recognize the difficult position in which petitioners
21.
22.
23.
24.
25.
26.
I.R.C. § 7442. See Garbett v. Comm’r, T.C. Memo 2000-31.
Variously referred to in practice as a statutory notice, a deficiency notice, a
ninety-day letter or a stat notice.
T.C. Rule 13.
Hillenbrand v. Comm’r, T.C. Memo 2002-303.
Bendheim v. Comm’r, 214 F.2d 26 (2d Cir. 1954). Treas. Reg. § 301.62131(b)(3). This is not an uncommon occurrence where a taxpayer pays a
deficiency developed in a tax examination at the last minute, but, before
the payment registers with the IRS, the IRS issues a statutory notice of
deficiency.
Wilson v. Comm’r, 118 T.C. 537 (2002).
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Tax Court Litigation and Claims for Refunds
§ 6:2.4
are placed by not being able to come to the Tax Court to test the
validity of the respondent’s action in asserting the penalty. Nevertheless, that is the law and we must take it as we find it.”
[A][2] Deficiency Tax
The deficiency must be in respect of any tax imposed by Code
subtitle A (income taxes) or B (estate and gift taxes) or Code chapter 41
(excise taxes relating to public charities), 42 (excise taxes relating to
private foundations and certain other tax-exempt organizations), 43
(excise taxes relating to qualified pension, etc., plans), 44 (excise taxes
relating to qualified investment entities), or 45 (relating to the windfall
profit tax). Thus, if the IRS were to issue a statutory notice of deficiency
claiming a deficiency in Code chapter 35 (taxes on wagering), the Tax
Court would lack jurisdiction over any petition from that deficiency
notice, because a wagering excise tax is not a “deficiency” tax.
[A][3] The Last Known Address Issue
For purposes of determining whether a notice of deficiency has been
properly mailed to the taxpayer ’s last known address, a taxpayer ’s last
known address is the address which appears on the taxpayer ’s most
recently filed return, unless the IRS has been given clear and concise
notification of a different address. A taxpayer ’s “most recently filed
return” is that return which has been properly processed by an IRS
service center such that the address appearing on the return was
available to the IRS agent when that agent prepared to send a notice
of deficiency in connection with an examination of a previously filed
return. Using a different address on a subsequently filed (but not
processed) return is clear and concise notification to the agent issuing
a notice of deficiency, if such address could be obtained by a computer
generation of an IRS computer transcript using the taxpayer ’s taxpayer
identification number.27 Even if the IRS fails to send a notice of
deficiency to the taxpayer at the last known address, if the taxpayer
gets the notice from any source in time to file a Tax Court petition, the
“no harm, no foul” rule applies and the notice will be deemed proper.28
[A][4] The Scar Issue
Section 6212(a) authorizes the Commissioner to send a notice of
deficiency, if he first determines that there is a deficiency. Section
6212(a) offers no formal requirements for a determining a deficiency
and few for the deficiency notice. The notice must (1) identify the
taxpayer, (2) identify the tax, (3) state the amount of the deficiency,
27.
28.
Ables v. Comm’r, 91 T.C. 1019 (1988).
Clodfelter v. Comm’r, 527 F.2d 754 (9th Cir. 1975).
(Shafiroff, Rel. #21, 11/09)
6–9
§ 6:2.4
IRS PRACTICE & PROCEDURE DESKBOOK
and (4) identify the taxable year involved. 29 Nothing more appears to
be required. Nevertheless, there is an issue whether the statutory
requirement of a “determination” of a deficiency has any substantive
content. That is, must the IRS actually do something, other than issue
a deficiency notice satisfying the formal requirements?
In Scar v. Commissioner,30 the contested notice of deficiency, on its
face, showed that the taxpayers’ return had not been examined and
that the maximum tax rate had been applied although not necessarily
correctly. The Commissioner later conceded that the notice of deficiency referred to a tax shelter totally unrelated to the taxpayers in any
way. Scar, therefore, held that because the purported notice of deficiency revealed on its face that no determination of tax deficiency had
been made in respect to the taxpayers, it did not meet the requirements of section 6212(a) and, accordingly, the Tax Court lacked
jurisdiction to hear the case. Two years later, the Ninth Circuit
narrowed Scar and held that the IRS could avoid the result in Scar
if it were able to show by extrinsic evidence that it had performed some
minimal effort to make a “determination.”31
Scar still has some validity, however. In Kong v. Commissioner,32
the Tax Court followed Scar and found a deficiency notice invalid where
the IRS issued an incoherent deficiency notice, ignored the information
available on the taxpayer, and arbitrarily calculated the tax rate.
[A][5] Motion to Dismiss for Lack of Jurisdiction
The Tax Court has developed a practical, if unusual, rule for
taxpayers attempting to deal with an assessment based on an invalid
notice of deficiency. A taxpayer could bring an injunction action in
district court to restrain any improper collection efforts based on an
invalid deficiency notice, because such actions are excluded from the
typical bar to tax injunctions in the Anti-Injunction Act.33 However,
district court actions are expensive to bring. Instead, the taxpayer can
file a petition with the Tax Court based on the invalid statutory notice
of deficiency and then move to dismiss his or her own petition for lack
of jurisdiction on the grounds that the statutory notice was invalid. If
successful, the Tax Court will dismiss the case on those grounds and
the taxpayer will have a judicial determination that the deficiency
notice was invalid. It would necessarily follow that any assessment
or collection based on such a notice would likewise be invalid.
29.
30.
31.
32.
33.
See Stamm Int’l Corp. v. Comm’r, 84 T.C. 248, 253 (1985); Foster v.
Comm’r, 80 T.C. 34, 229–30 (1983).
Scar v. Comm’r, 814 F.2d 1363 (9th Cir.1987).
Clapp v. Comm’r, 875 F.2d 1396 (9th Cir. 1989).
Kong v. Comm’r, T.C. Memo 1990-480.
I.R.C. § 7421(a).
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Tax Court Litigation and Claims for Refunds
§ 6:2.4
[B] Timely Tax Court Petition
When the IRS mails a valid statutory notice of deficiency, the
taxpayer has ninety days from the date of the mailing to file a petition
for redetermination with the Tax Court.34 If the statutory notice is
mailed to a person outside the United States, the period is extended to
150 days.35 If a petition is not filed within ninety days (or 150 days in
the case of person outside the United States), the Tax Court will have
no jurisdiction.36 The petition will be dismissed regardless of the cause
for late filing. The taxpayer ’s sole remedy is to pay the tax and file an
administrative refund claim. If the refund is denied, the taxpayer may
commence a refund action in a U.S. district court or in the U.S. Court
of Federal Claims.
[B][1] Mailbox Rule—Timely-Mailed, Timely-Filed,
Timely-Paid
The court’s jurisdiction to redetermine a deficiency depends on the
issuance of a valid notice of deficiency and a timely-filed petition.37
Section 7502 sets forth the general rule that any return, claim, statement or other document required to be filed or any payment required to
be made within a prescribed period is considered filed or paid on the date
it is received if it is received on or before the due date. If, however, the
document is received shortly after the due date, the timely-mailed, timelyfiled (“mailbox rule” or “postmark rule”) may apply. Section 7502 treats
the postmark date as the date of delivery if (1) the U.S. postmark date is
within the period for filing or payment, including extensions;38 (2) the
return, claim, or other document is deposited in the mail in the United
States in an envelope or wrapper properly addressed to the appropriate
Service office with postage prepaid;39 and (3) the return, claim, or other
document is delivered to the Service office after the date it was due.40
There has been much litigation41 on the timely-mailing, timely-filing
rule and taxpayers should document the mailing of their filings.
34.
35.
36.
37.
38.
39.
40.
41.
I.R.C. § 6213(a).
Id.
Ward v. Comm’r, 907 F.2d 517, 521 (5th Cir. 1990).
T.C. Rule 13(a), (c); Monge v. Comm’r, 93 T.C. 22, 27 (1989); Normac,
Inc. v. Comm’r, 90 T.C. 142, 147 (1988).
I.R.C. § 7502(a)(2)(B).
I.R.C. § 7502(a)(2)(A).
I.R.C. § 7502(a)(2).
Sanderling, Inc. v. Comm’r, 67 T.C. 176 (1976), aff ’d 571 F.2d 174 (2d Cir.
1978); Hartwick v. United States, 83-2 U.S.T.C. ¶ 9504 (W.D.N.Y. 1983);
Joseph W. Feldman v. Comm’r, 47 T.C. 329 (1966); Alexander Molosh, 45
T.C. 320 (1965); Sylvan v. Comm’r, 65 T.C. 548 (1975); Ruegsegger v.
Comm’r, 68 T.C. 463 (1977); Booher v. Comm’r, 45 T.C.M. 1246 (1983).
(Shafiroff, Rel. #21, 11/09)
6–11
§ 6:2.4
IRS PRACTICE & PROCEDURE DESKBOOK
As discussed below, effective July 30, 1996, section 7502(f) was
amended to allow taxpayers to use either the U.S. Postal Service or a
private delivery service. 42 Section 7502 was amended so that a
“designated delivery service” is treated as the equivalent of the U.S.
Postal Service. The date a document is recorded or marked as received
by a designated delivery service is treated as the date of filing, in the
same manner as the U.S. Postal Service postmark.
Practice Pointer: A problem can arise, however, when the
destination office denies receipt. This could happen in a number
of ways. The destination office has no record of receipt or the
postal service or private delivery service loses the document in
transit. Section 7502 only operates if the document is actually
delivered at some time. If the document is lost, section 7502 is
unavailable for private delivery services. Fortunately, a certified or
registered mail receipt is prima face evidence of delivery under
section 7502, whether the item is delivered or not. 43 It is
important to remember there is no analogue to this prima face
evidence of delivery rule for private delivery services. Accordingly,
the prudent practitioner sends all filings only by certified or
registered mail and takes great care to save the mailing receipts.
The prudent practitioner never uses a private delivery service for
critical documents filed with the IRS that are time sensitive.
In all cases the jurisdiction of the Tax Court depends upon the
timely filing of the “petition” by the taxpayer or taxpayer ’s counsel. Of
course, for the taxpayer to file a petition, the taxpayer must be a proper
taxpayer. In this regard, it is not enough that the taxpayer may have
caused a petition to be forwarded to the Tax Court for filing; the term
“proper” means that the taxpayer tendering (directly or through an
agent) a petition must have the capacity to litigate, which is determined by state law.44 Thus, where the State of California Franchise
Tax Board suspended petitioner ’s corporate powers, rights, and privileges for failure to pay state income taxes, and the board did not relieve
the petitioner of that suspension until after the ninety-day period
in which it was required to file a petition with the Tax Court, 45 the
court dismissed for lack of jurisdiction.46 Similarly, where a petition
42.
43.
44.
45.
46.
The private delivery services include: DHL, FedEx, and UPS.
I.R.C. § 7502(c)(1)(A) and Treas. Reg. § 301.7502-1(e).
David Dung Le, M.D., Inc. v. Comm’r, 114 T.C. 268 (2000); ABFA Trust v.
Comm’r, T.C. Memo 2000-31.
For a discussion of the manner of preparing and filing a Tax Court petition,
see infra.
T.C. Rule 60(a)(1); David Dung Le, M.D., Inc. v. Comm’r, supra.
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Tax Court Litigation and Claims for Refunds
§ 6:2.4
identified the taxpayer only as “Tarragon Trust,” and neither the
caption nor the body of the petition identified petitioner ’s trustee,
the Tax Court did not have jurisdiction to hear the case.47 Additionally, where local law requires the trustees to act unanimously and only
one of two trustees files the Tax Court petition, the Tax Court will lack
jurisdiction to hear the case.48 Further, where the Service was unable
to establish the identity of the trustees authorized to act on behalf of a
trust, the Tax Court dismissed the petition on the ground that it was
not filed by a proper party under Tax Court Rule 60(c).49
In Campos v. Commissioner,50 the Tax Court held that when the
taxpayer husband lacked capacity under local law, his wife was allowed
to sign the petition on his behalf under the provisions of Tax Court
Rule 60(d). Even though the wife was not a duly appointed representative, she was authorized by the court to sign the petition on behalf of
the husband; the wife was recognized as the husband’s “next friend.”51
Where jurisdiction is conferred upon the Tax Court by the Commissioner ’s issuance of a notice of deficiency or of transferee or
fiduciary liability, the petition must be filed within ninety days (or
150 days if the notice is addressed to a person outside the United
States) of the date on which the notice is mailed (which date appears
on the face of the notice of deficiency). 52 When a taxpayer does not file
47.
48.
49.
50.
51.
52.
Tarragon Trust v. Comm’r, T.C. Memo 2001-314. See also T.C. Rules 50
and 23(a). See also Bella Vista Chiropractic Trust v. Comm’r, T.C. Memo
2003-8 (court did not have jurisdiction where the taxpayer did not provide
documentation necessary to support its contention that individual named
on petition was the trustee of taxpayer).
Id.
Northstate Tax Consultants v. Comm’r, T.C. Memo 2001-279. See also
Adorno Asset Mgmt. Trust v. Comm’r, T.C. Memo 2003-127 (motion to
dismiss for lack of jurisdiction granted when no evidence presented that
petitioner, the person named as trustee of the trust, was duly authorized
to prosecute claim on behalf of trust); Adorno Bus. Co. v. Comm’r,
T.C. Memo 2003-126 (same); Sunshine Residential Trust v. Comm’r, T.C.
Memo 2003-39 (same); Rancho Residential Servs. Trust v. Comm’r, T.C.
Memo 2003-57 (same).
Campos v. Comm’r, T.C. Memo 2003-193.
Id. quoting T.C. Rule 60(d).
I.R.C. § 6213(a). Where the petition is with respect to a collection due
process action to secure the release of a lien or levy, the petition must be
filed in thirty days. See, e.g., Sarrell v. Comm’r, 117 T.C. 122 (2001)
(petition filed in thirty-seven days prevents court from obtaining jurisdiction). See also White v. Comm’r, T.C. Memo 2006-252 (following failure to
file a proper amended petition in a section 6330 matter, petition was
dismissed and taxpayer filed motion for leave to move to vacate dismissal;
held that the court had jurisdiction over motion for leave, but denial of
motion was warranted given taxpayer ’s repeated failure to respond to
court’s order to file proper petition).
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
the petition on time, the Tax Court lacks jurisdiction. 53 For purposes
of ascertaining whether the petition has been timely-filed, if the
petition is postmarked by the U.S. Postal Service within the prescribed
period, the petition is timely-filed. 54 Contrariwise, a U.S. Postal
Service postmark after the prescribed time for filing is conclusive
proof that the petition was not filed timely.55 In order to prove that
the petition was timely-filed, counsel should use either registered or
certified mail.56 The regulations provide that if the postmark on the
envelope or wrapper is made other than by the U.S. Post Office, (1) the
postmark so made must bear a date on or before the last date, or
the last day of the period, prescribed for filing the document, and
(2) the document must be received by the agency, officer, or office with
which it is required to be filed not later than the time when a
document contained in an envelope or other appropriate wrapper
that is properly addressed and mailed and sent by the same class of
mail would ordinarily be received if it were postmarked at the same
point of origin by the U.S. Post Office on the last date, or the last day of
the period, prescribed for filing the document. However, in case the
document is received after the time when a document so mailed and so
postmarked by the U.S. Post Office would ordinarily be received, such
document will be treated as having been received at the time when a
document so mailed and so postmarked would ordinarily be received,
if the person who is required to file the document establishes:
(i)
53.
54.
55.
56.
that it was actually deposited in the mail before the last
collection of the mail from the place of deposit that was
postmarked (except for metered mail) by the U.S. Post Office
See, e.g., Galvin v. United States, 239 F.2d 166 (2d Cir. 1956); Muñoz v.
Comm’r, T.C. Memo 2000-18; Hord v. Comm’r, T.C. Memo 2000-147;
Erickson v. Comm’r, T.C. Memo 2000-209; Musselman v. Comm’r, T.C.
Memo 2006-26.
I.R.C. § 7502(a)(2); Robinson v. Comm’r, T.C. Memo 2000-146. Note that
under I.R.C. § 7502(c) and accompanying Treas. Reg. § 301.7502-1, the
receipt for registered or certified mail is prima facie evidence that the
petition (or return, claim, or other document) was delivered and the date of
registration or certification is the postmark date. Moreover, once a taxpayer files a petition, the Tax Court notifies the IRS and enforcement
action is stopped pending a court ruling. Where mail delivery was delayed
at the Brentwood postal facility in Washington, D.C., due to anthrax
contamination, the Tax Court did not receive timely mail petitions and,
consequently, was unable to notify the IRS to cease collection procedures.
The IRS nonetheless took action in these cases to preserve taxpayers’
rights. See IR-2001-120 (Dec. 20, 2001).
Hendley v. Comm’r, T.C. Memo 2000-348. See also I.R.C. § 7502.
Rubke v. Comm’r, T.C. Memo 2002-23; Berry v. Comm’r, T.C. Memo
1981-106.
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Tax Court Litigation and Claims for Refunds
§ 6:2.4
on or before the last date, or the last day of the period,
prescribed for filing the document,
(ii) that the delay in receiving the document was due to a delay in
the transmission of the mail, and
(iii) the cause of such delay.57
It cannot be stressed enough that the ninety-day period is statutory
and cannot be extended under any circumstances.58 Indeed, it has
been held that a severe blizzard that prevented the taxpayer from
57.
58.
Treas. Reg. § 301.7502-1(c)(1)(iii)(B). See, e.g., Robinson v. Comm’r, T.C.
Memo 2000-146; Berry v. Comm’r, T.C. Memo 1981-106. See also Oswald
v. Comm’r, T.C. Memo 1995-17. But compare Rotenberry v. Comm’r, 847
F.2d at 233–34 (5th Cir. 1988), where the court held, “The cause of delay
element may be satisfied if the taxpayer offers adequate proof of reasons for
delays in the processing and handling of the mail generally between the
receiving station and the addressee during the critical days involved. The
proof offered need not specifically pinpoint the item of mail in question.”
See also Kirschenbaum v. Comm’r, T.C. Memo 2001-102 (court lacked
jurisdiction to hear a petition received by the Tax Court on the 100th day
after the mailing of the notice of deficiency where the taxpayer used a
private postage meter and failed to establish that the delay in receiving the
document was due to a delay in the transmission of the mail and the cause
of such delay).
Cf. Treas. Reg. § 301.7502-1(c)(1)(iii)(B), supra. See also Morgan v.
Comm’r, 88 A.F.T.R.2d 2001-7348 (9th Cir. 2001) (no equitable tolling
available when taxpayer files improper pro se “complaint” in lieu of
petition with the Tax Court); Olsen v. Comm’r, T.C. Memo 2002-206
(period for filing petition not tolled during pendency of refund claim in
federal district court); Khouri v. Comm’r, T.C. Memo 2002-170 (taxpayers,
who were residents of California, were not affected by terrorist attacks of
September 11, 2001, as would support relief from deadline for filing
petition under Notice 2001-61, 2001-40 I.R.B. 305 and section 7508A,
dealing with extension of deadlines resulting from a presidentially declared
disaster or a terroristic or military action). But compare Gibson v. Comm’r,
T.C. Memo 2002-218 (although petition arrived thirty days late, petition
accepted as timely when taxpayer provided credible testimony as to where
and when petition was mailed, which coincided with delays in Tax Court’s
U.S. mail delivery; significant delays were experienced due to anthrax scare
after the September 11, 2001, attacks, all mail was subject to irradiation
treatment, and irradiation made the postmark on the envelope illegible).
See also Blake v. Comm’r, T.C. Memo 2007-184 (timely-mailing, timelyfiling rule applied; court took judicial notice that mail sent to and received
by the Tax Court is irradiated and delays are caused by such treatment,
even though “the envelope containing the petition and the January 16,
2007, check does not bear any obvious signs of irradiation treatment”). Cf.
Crook v. Comm’r, 97 A.F.T.R.2d 2006-1643 (10th Cir. 2006) (Tax Court
properly dismissed case for lack of jurisdiction; petition by incarcerated
taxpayer filed after ninety-day period).
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
getting to the post office did not extend the ninety-day period.59 Thus,
in order to reap the benefit of the statutory mailbox rule, counsel need
only send the petition by certified or registered mail (or use a private
delivery service, as authorized by the Taxpayer Bill of Rights 2,
discussed below), the sender ’s receipt for which is prima facie evidence
of timely mailing.60 As the regulations state:
If the document . . . is sent by U.S. certified mail and the sender ’s
receipt is postmarked by the postal employee to whom the
document . . . is presented, the date of the U.S. postmark on the
receipt is treated as the postmark date of the document. Accordingly, the risk that the document will be postmarked on the day
that it is deposited in the mail may be eliminated by the use of . . .
61
certified mail.
In short, by sending the petition by certified or registered mail, the
date of the postmark will be deemed the date that the petition is filed,
and the sender ’s receipt will be prima facie evidence of the mailing on
the date indicated.
Counsel should note that as a consequence of the Taxpayer Bill of
Rights 3, for notices of deficiency mailed after December 31, 1998, the
IRS must include on each notice of deficiency the date determined by
59.
60.
61.
Harwood v. Comm’r, T.C.M. (P-H) ¶ 79,054 (1981). See also Wong v.
Comm’r, 88 A.F.T.R.2d 2001-5165 (9th Cir. 2001) (correspondence with
the IRS during the ninety-day filing period did not extend the time to file a
petition with the Tax Court).
I.R.C. § 7502(c); Treas. Reg. § 301.7502-1(c)(2). Cf. Rubke v. Comm’r, T.C.
Memo 2002-23. See also Sorrentino v. United States, 171 F. Supp. 2d
1150, 1154, n.2 (D. Colo. 2001): “The common law mailbox rule [as
opposed to the statutory postmark rule of section 7502] articulated by the
Tenth Circuit and other courts does not stand for the proposition that a
document is filed when mailed, but rather that there is a rebuttable
presumption of physical delivery and thus filing within the ordinary course
of the mail upon proof of mailing.” See Carroll v. Comm’r, 71 F.3d 1228,
1230 (6th Cir. 1995); In re Nimz Transp., Inc., 505 F.2d 177, 179 (7th Cir.
1974). . . .” (Emphasis in the original.) See also the discussion of the
statutory timely-mailing, timely-filing rule (also known as the “mailbox
rule” or “postmark rule”) with respect to the filing of claims for refund,
infra.
Rubke v. Comm’r, supra, quoting Treas. Reg. § 301.7502-1(c)(2). See also
Kirschenbaum v. Comm’r, T.C. Memo 2001-102. In an interesting and
highly informative case, the Tax Court held that it lacked jurisdiction to
hear a petition it received 105 days after the mailing of the notice of
deficiency where the taxpayers may have sent their petition by certified
mail, but, because they did have their sender ’s receipt postmarked by the
U.S. Postal Service and the envelope containing the petition was not
postmarked by the U.S. Postal Service, only by private meter, the taxpayers
could not secure the benefit of the mailbox rule. Peterson v. Comm’r, T.C.
Memo 2001-11. See also Treas. Reg. § 301.7502-1(c)(2).
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Tax Court Litigation and Claims for Refunds
§ 6:2.4
the IRS as the last day on which the taxpayer may file a petition with
the Tax Court.62 Any petition filed with the Tax Court on or before the
last date specified by the IRS will be deemed to be filed timely.63
In interpreting section 3463(a), the Tax Court has held that where
the IRS fails to put the petition date on the notice, and the taxpayer
nevertheless received the notice and filed a petition in a timely
manner, such notice is timely.64 The rationale of the court was that
although Congress used mandatory language in section 3463(a) (“shall
include”), it failed to prescribe what consequences result from failure
to include such date.65 This approach appears to be the trend.66
In a situation where the Service failed to include the section 3463(a)
date and the taxpayer consequently failed to file a timely petition, an
unanswered question was whether the Tax Court would invalidate the
notice of deficiency. In Rochelle v. Commissioner,67 a majority of the
Tax Court held that such notice is not rendered invalid. Nonetheless,
it is important to note that the court’s holding may not be so broad as
to preclude any further litigation on the matter. This is because in
holding that the notice of deficiency was not rendered invalid, the
Rochelle court cited Smith v. Commissioner,68 and repeated what it
had stated in that case: “Congress did not specify what consequences
were to follow from the Commissioner ’s failure to provide the petition
date in the notice of deficiency.”69 It is important to point out,
however, that the petitioner in Rochelle was a lawyer, who filed the
petition fifty-six days late. In refusing to grant the taxpayer a virtual
“unlimited” time period in which to file the petition,70 the court noted
that the legislative history of section 3463(b) was to protect those
taxpayers who detrimentally relied on the Commissioner ’s miscalculation of the petition date. But, the court noted, the theory of detrimental reliance assumes the actual provision of misleading
62.
63.
64.
65.
66.
67.
68.
69.
70.
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112 Stat.
827, Title III, § 3463(a), amending I.R.C. § 6213(a).
I.R.C. § 6213(a), as amended by the IRS Restructuring and Reform Act of
1998, Pub. L. No. 105-206, 112 Stat. 827, Title III, § 3463(b).
Smith v. Comm’r, 114 T.C. 489 (2000), aff ’d, 275 F.3d 912 (10th Cir.
2001).
Id.
See Elings v. Comm’r, 324 F.3d 1110, 1113 (9th Cir. 2003) (“[W]e draw
support for our conclusion from our sister circuits. The two circuits to
address this issue, the Fifth [Rochelle, supra] and the Tenth [Smith, supra]
Circuits, have both concluded that the calculated date does not invalidate
the notice.”).
Rochelle v. Comm’r, 116 T.C. 356 (2001), aff ’d, 293 F.3d 740 (5th Cir.
2002).
Smith v. Comm’r, supra.
Rochelle v. Comm’r, supra.
Id. n.3.
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
information upon which a party could rely. This case, however, did not
involve a provision of misinformation.
[T]he notice of deficiency issued to petitioner clearly provided that
his petition had to be filed within 90 days of the mailing of the
notice and it emphasized the consequence of not doing so. We do
not believe that a reasonable person, let alone one with petitioner’s legal training, would interpret the mere absence of a
stamped petition date following the heading “Last Date to File a
Petition With the United States Tax Court” as the grant of an
71
unlimited filing period . . . .
Indeed, the court did not rule out the possibility that another case
on different facts may well demand a different outcome:
We do not address in this opinion the situation in which a
taxpayer receives a deficiency notice omitting the petition date
and files his petition just after expiration of the filing period set
forth in the first sentence of [Internal Revenue Code] sec. 6213(a)
72
due to the taxpayer’s miscalculation thereof.
On a separate matter, but nonetheless related to the general issue of
jurisdiction, is the question of appeal from the Tax Court and section
7486. This section provides that if the amount of the deficiency
determined by the Tax Court is disallowed in whole or in part by the
court of appeals, the amount so disallowed is to be credited or refunded
to the taxpayer, without the making of a claim or, if collection has not
been made, abated.73 But where a court of appeals reverses and
remands for further proceedings without indicating that an ascertainable “amount” of the previously determined deficiency cannot be
properly assessed on remand, no part of the amount of the previously
determined deficiency has been disallowed for purposes of section
7486.74 In such a case, for the taxpayer to secure a stay of collection, it
would be necessary for the taxpayer to post a bond. Of course, the Tax
Court also lacks jurisdiction when the petition was filed after bankruptcy proceedings had already commenced and an automatic stay was
in place.75 Moreover, a matter of jurisdiction cannot be waived and
may be raised at any time.76
71.
72.
73.
74.
75.
76.
Rochelle v. Comm’r, supra.
Id. n.5.
I.R.C. § 7486.
Estate of Smith, 115 T.C. 342 (2000). Cf. Wechsler v. United States, 86
A.F.T.R.2d 2000-5053 (S.D.N.Y. 2000).
Cassell v. Comm’r, T.C. Memo 2006-132.
Id.
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Tax Court Litigation and Claims for Refunds
§ 6:2.4
In response to cases such as Blank v. Commissioner,77 the Taxpayer
Bill of Rights 278 authorizes the use of private delivery services.79
Section 7502(f) authorizes the IRS to designate certain private delivery
services for purposes of section 7502. If the IRS so designates a private
delivery service, references in section 7502 to the U.S. mail are treated
as including the designated private delivery service, and references to a
postmark are treated as including the analogous date that is recorded
or marked by the designated private delivery service. 80 Notice 200262,81 provides special rules to determine the date that is treated as the
postmark date for purposes of section 7502 when a designated private
delivery service is used. Consequently, if the taxpayer uses a “designated delivery service,”82 delivery of the Tax Court petition to the
private delivery service at the conclusion of the ninety-day period will
result in a timely-filed petition if the delivery service appropriately
records the date on the cover of the delivered item.83
The case of Cranor v. Commissioner84 illustrates the preceding
principle. In Cranor, the taxpayer deposited an envelope containing
the taxpayer ’s Tax Court petition with FedEx on the eighty-seventh
day after the IRS mailed the notice of deficiency. The envelope bore
the correct name, address, and zip code of the Tax Court.85 The
taxpayer sent the petition by “FedEx Standard Overnight-Next
Business Afternoon.”86 The taxpayer also erroneously marked the
package “Hold Saturday,” which created the problem. Under FedEx
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
Blank v. Comm’r, 76 T.C. 400 (1981).
Pub. L. No. 104-168, 110 Stat. 1473.
Pub. L. No. 104-168, § 1210, which added subsection (f) to I.R.C. § 7502,
effective July 30, 1996.
See I.R.C. § 7502 (f) (2) (C). See also Rev. Proc. 97-19, 1997-1 C.B. 644,
modified by Notice 2002-62, 2002-2 C.B. 574, modified by Notice
2004-83, 2004-2 C.B. 1030. Notice 2004-83, 2004-2 C.B. 1030, modifies
Notice 2002-62, 2002-2 C.B. 574, and updates the list of private delivery
services that have been designated for purposes of section 7502. Notice 97-26,
1997-1 C.B. 413, modified by Notice 97-50, 1997-2 C.B. 305, modified by
Notice 98-47, 1998-2 C.B. 319, modified by Notice 99-41, 1999-2 C.B. 325,
modified by Notice 2004-83, 2004-2 C.B. 1030.
Notice 2002-62, 2002-2 C.B. 574.
I.R.C. § 7502(f)(2). See also Adv. Rev. Proc. 97-19, 1997-1 C.B. 644.
I.R.C. § 7502(f)(1).
Cranor v. Comm’r, T.C. Memo 2001-27 (2001).
Actually, it was the taxpayer ’s lawyer who caused the petition to be mailed
in Cranor. Of course, I impute the actions of the lawyer to the taxpayer in
the main text. As an aside, the lawyer addressed the airbill to “Clerk,
United State [sic] Tax Court.” The Tax Court found, however, “that is
substantially the correct name . . . for this Court.”
FedEx is a private delivery service for purposes of section 7502(f), and
FedEx Standard Overnight Service is a proper type of delivery service, as per
Notice 99-41, 1999-2 C.B. 325 (modified by Notice 2004-83, 2004-2 C.B.
1030).
(Shafiroff, Rel. #21, 11/09)
6–19
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IRS PRACTICE & PROCEDURE DESKBOOK
policy, if a package is marked “Hold Saturday,” FedEx will hold it for
Saturday pickup by the recipient at a FedEx location specified by the
sender. The taxpayer did not specify the location. Moreover, “Hold
Saturday” is not available for overnight delivery, the mode chosen by
the taxpayer. FedEx did not tell the Tax Court or the taxpayer that it
was holding the package. FedEx subsequently returned the package to
the taxpayer. The taxpayer subsequently removed the petition from the
package and placed it in a new FedEx envelope. FedEx delivered this
new package to the Tax Court on the 101st day after the notice of
deficiency was sent.
The Service moved to dismiss on jurisdictional grounds, contending that the petition was not filed within the time prescribed by section
7502. The court held that the term “address” has a generally understood meaning, the “Hold Saturday” designation was not part of the
address, and, consequently, the taxpayer had properly addressed the
envelope.87 The court also held that the statutory “timely-mailing is
timely-filing” rule is applicable because the taxpayer used an approved
private delivery service and mode of delivery,88 citing Price v. Commissioner.89 In Price, the court found that the petition was timely-filed
where the original envelope in which it was sent by certified mail was
returned as undeliverable to the sender because of an improper zip
code and the sender re-sent it in a second envelope. The second
envelope was late, but the first was deemed not late under the
timely-mailing, timely-filing rule, improper zip code notwithstanding.
A “designated delivery service” is any delivery service provided by a
trade or business if that service is designated by the Treasury Department. The Treasury Department can designate a delivery service as
acceptable only if the Secretary determines that the service:
(1)
is available to the public;
(2)
is at least as timely and reliable on a regular basis as the U.S.
mail;
(3)
records electronically to its database, kept in the regular course
of its business, or marks on the cover of the item to be
delivered, the date on which such item was given to that trade
or business for delivery; and
87.
88.
89.
Cranor v. Comm’r, supra, citing Comm’r v. Soliman, 506 U.S. 168, 174
(1993), and Comm’r v. Brown, 380 U.S. 563, 570–72 (1965); distinguishing
cases where the envelopes were addressed to the wrong court, street address,
city, or zip code. See, e.g., Estate of Cerrito v. Comm’r, 73 T.C. 896 (1980);
C. Frederick Brave, Inc. v. Comm’r, 65 T.C. 1001 (1976); Axe v. Comm’r, 58
T.C. 256 (1972); Lurkins v. Comm’r, 49 T.C. 452 (1968).
Cranor v. Comm’r, supra, citing section 7502(a), (f); Notice 99-41, 1992-2
C.B. 325 (modified by Notice 2004-83, 2004-2 C.B. 1030).
Price v. Comm’r, 76 T.C. 389 (1981).
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Tax Court Litigation and Claims for Refunds
(4)
§ 6:2.4
meets such other criteria as the Secretary may prescribe. 90
The Service has designated specific types of delivery services offered
by four designated private delivery services that qualify under the
timely-mailing, timely-filing rule.
Effective January 1, 2005, the list of designated private delivery
services is as follows:
1.
DHL Express (DHL): DHL Same Day Service, DHL Next Day
10:30 A.M. DHL Next Day 12:00 P.M. DHL Next Day 3:00 P.M.
and DHL 2nd Day Service;
2.
Federal Express (FedEx): FedEx Priority Overnight, FedEx
Standard Overnight, FedEx 2 Day, FedEx International Priority, and FedEx International First; and
3.
United Parcel Service (UPS): UPS Next Day Air, UPS Next Day
Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M. UPS
Worldwide Express Plus, and UPS Worldwide Express.91
Airborne Express, Inc. (Airborne) was removed from the list due to
the acquisition of Airborne by DHL Worldwide Express Inc. The
combined entity operates solely under the trade name “DHL Express.”
DHL, FedEx, and UPS are not designated with respect to any type of
delivery service that is not identified above.
Notice 2004-8392 continues to provide special rules used to determine the date that will be treated as the postmark date for purposes of
section 7502. Counsel must be aware that any type of delivery service
not listed does not qualify, even if it is offered by DHL, FedEx or UPS.
Additionally, the timely-mailing, timely-filing rule will not apply
unless an item is actually given to, or picked up by, a designated
private delivery service on or before the due date of the petition or
other item.93 When a private delivery service is used, the “postmark”
date is the date the private delivery service records electronically to its
database as the date on which an item was given to it for delivery, or
the date marked on the cover of the item as the date on which it was
given to the private delivery service for delivery. Additional rules apply
90.
91.
92.
93.
I.R.C. § 7502(f)(2).
Notice 2004-83, 2004-2 C.B. 1030, modifying and superseding
Notice 2002-62, 2002-2 C.B. 574. See also Notice 97-19, 1997-1 C.B.
394; Notice 97-26, 1997-1 C.B. 413; Notice 97-50, 1997-2 C.B. 305;
Notice 99-41, 1999-2 C.B. 325.
Notice 2004-83, 2004-2 C.B. 1030, modifying Notice 97-26, 1997-1 C.B.
413.
See Austin v. Comm’r, T.C. Memo 2007-11 (timely-mailing, timely-filing
rule not applied where taxpayer left petition for pickup by FedEx at a Days
Inn; the latter “is not a private delivery service,” comparing case with
Cranor v. Comm’r, T.C. Memo 2001-27, discussed supra.)
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
for each specific private delivery service, and the practitioner is urged
to consult with the latest IRS notice or ruling.94
With respect to international mailings, the Service has stated in a
revenue ruling that a federal tax return, claim for refund, statement, or
other document required or permitted to be filed with the Service or
with the U.S. Tax Court that is given to a designated international
delivery service before midnight on the last date prescribed for filing
shall be deemed timely filed pursuant to section 7502(a), (d)(1), and (f)(1).
If the last date for filing falls on a Saturday, Sunday, or a legal holiday
within the meaning of section 7503, returns, claims, statements, and
other documents will be considered timely if given to a designated
international delivery service before midnight on the next succeeding
day which is not a Saturday, Sunday, or a legal holiday. Such returns,
claims for refund, statements, or other documents will be deemed filed
on the date the document was given to the designated delivery service,
as recorded electronically on its database or marked on the cover in
which the item is to be delivered pursuant to section 7502(f)(2)(C).95
Counsel must note that this revenue ruling will not apply to foreign
postmarked documents filed with the U.S. Tax Court, such as petitions
and notices of appeal, unless given to a designated internal delivery
service, pursuant to section 7502(f).96
§ 6:2.5
Extent of Tax Court Jurisdiction Over Deficiency
Proceedings
[A] Jurisdiction Over Additional Issues
Section 6214(a) provides that the Tax Court has jurisdiction to
redetermine the correct amount of the deficiency even if the amount
so determined is greater than the amount of the deficiency and to
determine whether any additional amount should be assessed if claim
therefore is asserted by the Commissioner at or before the hearing or a
rehearing. Thus, in applying section 6214(a) in the deficiency context,
the Tax Court does not merely review whether the IRS correctly
calculated the amount of tax due, the Tax Court potentially can review
94.
95.
96.
Notice 2004-83, 2004-52 I.R.B. 1030, modifying and superseding Notice
2002-62, 2002-2 C.B. 574. See also Notice 97-19, 1997-1 C.B. 394;
Notice 97-26, 1997-1 C.B. 413; Notice 97-50, 1997-2 C.B. 305; Notice 9941, 1999-2 C.B. 325. See also Raczkowski v. Comm’r, T.C. Memo 2007-72
(“electronic tracking information from UPS demonstrated that the
‘Express Pad Pak’ containing the petition was received by UPS at 3:40 P.M.
on October 6, 2006, the ninety-first day after the mailing of the notice of
deficiency”).
Rev. Rul. 2002-23, 2002-1 C.B. 811, superseding Rev. Rul. 80-218, 1980-2
C.B. 386.
Rev. Rul. 2002-23, supra, citing Sarrell v. Comm’r, 117 T.C. 122 (2001).
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everything relating to the taxpayer ’s tax and tax year (for example,
understated income, overstated deductions, etc.).
Practice Pointer: Section 6214(a) presents a trap for those
who have survived an IRS examination where the IRS missed
significant adjustments in favor of the IRS. This trap can be
irresistible if the adjustments the IRS did make in the deficiency
notice are weak and the taxpayer thinks that he or she can win
them in litigation before the Tax Court. Be careful. Once a
taxpayer is before the Tax Court, there is nothing preventing
the IRS from realizing its omission and trying to assert an
increased deficiency and penalties based on adjustments beyond
those identified in the deficiency notice.
[B] Incidental Refund Jurisdiction
Section 6512(b)(1) gives the Tax Court jurisdiction to order a
refund, if the Tax Court determines as part of its decision that
tax was paid in the following three situations specified in section
6512(b)(3):97
1.
Section 6512(b)(3)(A) allows the Tax Court to order a refund of
any amounts paid after the mailing of the deficiency notice.
This is a common situation where the taxpayer, to stop the
running of interest, pays all or part of a proposed deficiency
after the mailing of the statutory notice of deficiency.
2.
Section 6512(b)(3)(B) allows the Tax Court to order a refund of
any amounts that would be refundable under the normal
refund rules, assuming a hypothetical claim for refund stating
the grounds upon which the Tax Court finds that there is an
overpayment was filed on the date of the mailing of the
deficiency notice.
3.
Section 6512(b)(3)(C) allows the Tax Court to order a refund of
any amounts that are the subject of an ongoing jurisdictionally
proper refund claim filed before the mailing of the deficiency
notice. Section 6512(b)(3)(C)(iii), which applies to ongoing
refund suits, should be read in connection with section 7422(e),
which brings ongoing refund suits into the Tax Court where
the refund suit and the Tax Court petition concern the same
taxes and tax years. This section essentially picks up any
refund activity in existence at the time of the deficiency notice
and moves it to the Tax Court proceeding.
97.
In order to understand section 6512(b)(3), the reader needs to understand
the rules pertaining to refund claims discussed below.
(Shafiroff, Rel. #21, 11/09)
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[C]
Equitable Recoupment Jurisdiction
In the past, there has been a question as to whether the Tax Court
had jurisdiction to apply the doctrine of equitable recoupment, which
allows a taxpayer to offset a time-barred overpayment against a
deficiency, and allows the IRS to offset a time-barred deficiency against
an overpayment, provided that the overpayment and deficiency arose
from the same item, transaction, or taxable event.98 The Tax Court
held that it did have jurisdiction;99 the IRS disagreed.100 Congress has
settled the matter, however.
The doctrine of equitable recoupment operates only in the nature of a
defense to reduce the government’s timely claim for a deficiency, or the
taxpayer’s timely claim for a refund, not affirmatively to collect the
time-barred overpayment or underpayment.101 The elements necessary
to sustain a claim for equitable recoupment are: (1) the refund or
deficiency for which recoupment is sought by way of offset is barred
by time; (2) the time-barred offset arose out of the same transaction,
item, or taxable event as the overpayment or deficiency before the court;
(3) the transaction, item or taxable event has been inconsistently subject
to two taxes; and (4) if the subject transaction, item, or taxable event
involves two or more taxpayers, there be sufficient identity of interest
between the taxpayers subject to the two taxes so that the taxpayers
should be treated as one.102 While it has not always been certain that the
Tax Court has jurisdiction over equitable recoupment cases, it is clear
that the court does now.103 As a result of the Pension Protection Act of
2006, the Tax Court now has authority to apply the equitable recoupment doctrine, effective for any action or proceeding in the Tax Court
with respect to which a decision has not become final (as per section
7481) as of August 17, 2006.104
98.
99.
100.
101.
102.
103.
104.
United States v. Dalm, 494 U.S. 596 (1990).
Estate of Mueller v. Comm’r, 101 T.C. 551 (1993).
Rev. Rul. 71-56, 1971-1 C.B. 404.
Orenstein v. Comm’r, T.C. Memo 2000-150, citing Bull v. United States,
295 U.S. 247 (1935).
Orenstein, supra, citing Crop Assocs.—1986 v. Comm’r, 113 T.C. 198,
200–01 (1999), and Estate of Branson v. Comm’r, 113 T.C. 6, 15 (1999).
See also Estate of Buder v. United States, 436 F.3d 936 (8th Cir. 2006)
(government allowed to assert equitable recoupment doctrine to prevent
unjust enrichment, but not entitled to interest on the equitable recoupment).
See Orenstein v. Comm’r, supra, citing United States v. Dalm, 494 U.S.
596 (1990); Estate of Mueller v. Comm’r, 101 T.C. 551 (1993); Estate of
Bartels v. Comm’r, 106 T.C. 430 (1996); Estate of Branson, supra.
I.R.C. § 6214(b), as amended by the Pension Protection Act of 2006, Pub.
L. No. 109-280, 120 Stat. 780, § 858(a), (b). The 2006 Act amended
section 6214(b) by adding the italicized following sentence:
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Moreover, the Tax Court also has jurisdiction over certain actions for
declaratory judgment or disclosure.105 Generally speaking, actions for
declaratory judgment over which the Tax Court has jurisdiction relate
to the qualification of retirement plans, exchanges described in section
367(a) (1) of the Code, the status of certain governmental obligations,
and the initial or continuing qualification of certain exempt organizations or private foundations.106 In addition, the court also has jurisdiction over several types of disclosure actions relating to written
determinations by the Service and their background file documents,
as authorized by section 6110 of the Code.107
In an unusual case,108 the Tax Court held that it did not have
jurisdiction over the addition to tax for failure to pay the amount of tax
shown on the return, even though it had jurisdiction to redetermine a
deficiency in tax with respect to that return. The Tax Reform Act of
1986109 has since provided that the Tax Court has jurisdiction over
any addition to tax where it already has jurisdiction to redetermine a
deficiency in tax with respect to that return. Aside from resolving this
jurisdictional issue, the jurisdiction of the Tax Court is not altered. 110
In Blonien v. Commissioner,111 the Tax Court held that while it had
jurisdiction to determine the effect of partnership-level allocations on
the taxpayer ’s tax liability under sections 6221 and 6231, it did not
have jurisdiction in an individual taxpayer proceeding to determine
whether the taxpayer was not in fact a partner.
105.
106.
107.
108.
109.
110.
111.
The Tax Court in redetermining a deficiency of income tax for any
taxable year or of gift tax for any calendar year or calendar quarter
shall consider such facts with relation to the taxes for other years or
calendar quarters as may be necessary correctly to redetermine the
amount of such deficiency, but in so doing shall have no jurisdiction
to determine whether or not the tax for any other year or calendar
quarter has been overpaid or underpaid. Notwithstanding the preceding sentence, the Tax Court may apply the doctrine of equitable
recoupment to the same extent that it is available in civil tax cases
before the district courts of the United States and the United States
Court of Federal Claims.
T.C. Rule 13(b).
T.C. Rule 210(a).
T.C. Rule 220(a).
Estate of Young v. Comm’r, 81 T.C. 879 (1983).
I.R.C. § 6214(a), as amended by Pub. L. No. 99-514, § 1554(a), 100 Stat.
2085, 2754 (1986).
Conference Report at 805.
Blonien v. Comm’r, 118 T.C. 541 (2002). Cf. Katz v. Comm’r, 116 T.C.5
(2001), cited by the court at 564, n.6 of the opinion (determination of who
is a partner can be a partner-level item where resolution of the issue would
not affect the allocation of partnership items to the other partners).
(Shafiroff, Rel. #21, 11/09)
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Jurisdiction Over Non-Deficiency Proceedings
The Taxpayer Bill of Rights 1112 greatly expanded the jurisdiction of
the Tax Court. The applicable provisions are discussed below, as well
as the impact of the Taxpayer Relief Act of 1997 (TRA97)113 and the
Taxpayer Bill of Rights 3.114 Jurisdictional grants by Congress to the
Tax Court over non-deficiency proceedings are:
•
Claims for relief from joint and several liabilities (section 6015(e));
•
Review of final partnership administrative adjustments (section
6226);
•
Review where an administrative adjustment request is not
allowed in full (section 6228);
•
Review of partnership adjustments of a large partnership (section
6247);
•
Review where an administrative adjustment request is not
allowed in full for a large partnership (section 6252);
•
Redetermination of interest on deficiencies or overpayments
determined by the Tax Court (section 7481(c));
•
Interest abatement claims (section 6404(i));
•
Actions for administrative costs (section 7430(f)(2));
•
Enforcement of overpayment decision by the Tax Court if not
refunded by the Service within 120 days after the decision of the
court has become final (section 6512(b)(2));
•
Modification of final decision in an estate tax case to reflect
interest paid pursuant to section 6166 (section 7481(d));
•
Review of the reasonableness and appropriateness of a jeopardy
assessment where a taxpayer has petitioned the Tax Court to
redetermine a deficiency (section 7429(b)(2)(B));
•
Review of sale by the Service of seized property pending
decision by the Tax Court in a deficiency proceeding (section
6863(b)(3)(C));
•
Review of collection due process cases (sections 6320 and 6330);
and
•
Disclosure actions (section 6110(f)(3)).
112.
113.
114.
Technical Corrections and Miscellaneous Revenue Act of 1988, § 6226
et seq. [hereinafter TAMRA].
Pub. L. No. 105-34, 111 Stat. 788.
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III,
112 Stat. 827.
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Tax Court Litigation and Claims for Refunds
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[A] Determination of Innocent Spouse and Joint
Return Separate Liability Elections
Section 6015(e) grants the Tax Court jurisdiction to determine relief
from joint and several liability under section 6015. The Tax Court has
jurisdiction to determine relief from joint and several liability
under section 6015 when a petitioner raises a claim for relief under
this section in several contexts, for example, a deficiency proceeding
under section 6213(a), a stand-alone proceeding under section 6015(e),
or a collection due process proceeding under section 6330. The court
reviews the Service’s determinations under section 6015(b) and (c)
de novo, but reviews the Service’s determinations under section 6015
(f) for abuse of discretion. Section 6015(e)(1)(A) is effective with respect
to any liability for tax arising after July 22, 1998, and any liability for tax
arising on or before such date but remaining unpaid as of that date.115
The Taxpayer Bill of Rights 3 makes substantial changes to the
innocent spouse relief provisions, and also allows married taxpayers to
make a separate liability election.116 An analysis of the Tax Court’s
jurisdiction in light of the Taxpayer Bill of Rights 3 follows.
If the IRS denies a taxpayer an election for innocent spouse relief or
separate liability, the taxpayer may petition the Tax Court for review.
The petition must be filed no later than ninety days following the date
on which the IRS mails by certified or registered mail a determination
of the relief requested or, if earlier, six months after the election was
filed and before the close of the ninety-day period.117
A question that has arisen is whether the Tax Court, a court of
limited jurisdiction,118 has jurisdiction to review for abuse of discretion a denial by the IRS of a taxpayer ’s request, pursuant to section
6015(f), for equitable spouse relief. Initially, the Service’s position was
that judicial review of an innocent spouse claim is limited to elections
115.
116.
117.
118.
T.C. Rules 320-325.
I.R.C. § 6015(a)(1), (2), as added by the IRS Restructuring and Reform Act
of 1998, Pub. L. No. 105-206, 112 Stat. 827, Title III, section 3201(a)
[hereinafter 98 Act].
I.R.C. § 6015(e)(1)(A), as added by the 98 Act. I.R.C. § 6015(e)(1) was
amended by Pub. L. No. 106-554, § 1(a)(7), codified at 44 U.S.C. § 3516,
which enacted into law section 313(a)(1) of H.R. 5662, and which inserted
“against whom a deficiency has been asserted and” following “individual.”
For elucidation, see Ewing v. Comm’r, 118 T.C. 494 (2002), discussed in
the text, infra. See also Treas. Reg. § 1.6015-7. But note that the Tax Relief
and Health Care Act of 2006, Pub. L. No. 109-432, 120 Stat. 2922, § 408(a)
amended section 6015(e)(1) by adding, “or in the case of an individual
who requests equitable relief under subsection (f).” Thus, there is no
dispute now as to whether the Tax Court has jurisdiction over equitable
proceedings based on section 6015(f). For further discussion, see infra.
For a general discussion of the jurisdiction of the Tax Court, see supra.
(Shafiroff, Rel. #21, 11/09)
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under subsections (b) and (c) of section 6015.119 The basis for this
determination was a restrictive reading of section 6015(e)(1)(A), which
provides, “[i]n the case of an individual who elects to have subsection (b)
or (c) [of section 6015] apply . . . [t]he individual may petition the Tax
Court (and the Tax Court shall have jurisdiction) to determine the
appropriate relief available to the individual . . . .” In a series of cases,
however, the Tax Court held, based upon the legislative history of
section 6015, that it did have jurisdiction to review for abuse of
discretion the Service’s decision to deny the taxpayer ’s request for
equitable relief pursuant to section 6015(f).120 The Service, however, in
an acquiescence in one of these cases, Fernandez v. Commissioner,121
indicated that it would follow the holding of the Tax Court. Thus, at
that point, it was no longer subject to question that the Tax Court did
indeed have jurisdiction to review for abuse of discretion the Service’s
decision to deny a taxpayer ’s request for equitable relief pursuant to
section 6015(f).122
119.
120.
121.
Field Service Advisory 1999-29019 (July 23, 1999).
Butler v. Comm’r, 114 T.C. 276 (2000); Charlton v. Comm’r, 114 T.C. 333
(2000); Fernandez v. Comm’r, 114 T.C. 324 (2000); Cheshire v. Comm’r,
115 T.C. 183 (2000).
Fernandez v. Comm’r, 114 T.C. 324 (2000), acq. A.O.D. 2004-5. In that
acquiescence, the Service acquiesced in result only. The A.O.D. stated in
pertinent part:
We agree with the court’s statutory construction of section 6015(e)
for cases in which the Service has determined a deficiency against
the taxpayer and the court’s jurisdiction to review the Service’s
denial of relief under subsection (f) is predicated on the taxpayer ’s
election of relief under section 6015(b) or (c). We do not agree that
the court has jurisdiction, under section 6015(e), to review the
Commissioner’s determination under section 6015(f) in cases in
which no deficiency has been asserted. Taxpayers cannot qualify for
relief under either subsection (b) or (c) in cases that involve underpayments of tax reported on their joint return rather than understatements of tax. See I.R.C. section 6015(b)(1)(B) and (c)(1). The
Commissioner ’s prior acquiescence in this case is modified to
extend only to cases in which there is an understatement of tax
and the Service has determined a deficiency against a taxpayer.
Section 6015(e) was amended [by Pub. L. No. 106-554, section 1(a)(7)]
after the opinion in Fernandez was entered and now explicitly
conditions Tax Court jurisdiction to cases where “a deficiency has
been asserted.”
122.
The Service’s interpretation has received support. See Maier v. Comm’r,
360 F.3d 361 (2d Cir. 2004); Ewing v. Comm’r, 439 F.3d 1009 (9th Cir.
2006). For discussion of these cases, see infra.
But see Maier v. Comm’r, 360 F.3d 361 (2d Cir. 2004), where the court, in
dictum, stated:
The Tax Court assumed that it would have had jurisdiction if the
electing spouse had appealed from an adverse IRS determination
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Similarly, the Tax Court has held that it has jurisdiction to review
the Service’s determination that a spouse is not entitled to equitable
relief under section 66(c),123 and the Service has acquiesced.124
In Fernandez v. Commissioner125 and Butler v. Commissioner,126
the court held that it had jurisdiction to review a denial of relief under
section 6015(f). Both cases involved deficiencies, even though the
under section 6015(f), the equitable relief provision. Indeed, the Tax
Court has so held in other cases. See Ewing v. Comm’r, 118 T.C.
494, 2002 WL 1150775 (2002); see also Butler v. Comm’r, 114 T.C.
276, 2000 WL 502841 (2000); Fernandez v. Comm’r, 114 T.C. 324,
2000 WL 565108 (2000). The Court of Federal Claims has also
endorsed the Tax Court’s position. See Flores v. United States, 51
Fed. Cl. 49, 51 n.1 (2001) (adopting the reasoning of Butler). And
two courts of appeals have assumed jurisdiction over such petitions
even though they did not focus on the possibility that the statute
might preclude judicial review. See Cheshire v. Comm’r, 282 F.3d
326, 338 (5th Cir. 2002); Mitchell v. Comm’r, 292 F.3d 800, 806–08
(D.C. Cir. 2002).
But the question of the jurisdiction of the Tax Court in the case of
an electing spouse’s petition for review of an IRS determination
under section 6015(f) when the court does not already have deficiency jurisdiction is not free from doubt; only petitions to review
IRS determinations under subsections (b) and (c) are expressly
enumerated in section 6015(e) and (h). See In re French, 255 B.R.
1, 2 (Bankr. N.D. Ohio 2000) (“Congress chose to exclude from
judicial review the issue of whether a taxpayer is entitled to
equitable relief under section 6015(f).”). Resolution of the question
of Tax Court jurisdiction over electing spouse petitions for review in
these circumstances is unnecessary to this appeal because a holding
that no jurisdiction exists to hear a petition for review of a subsection (f) determination by an electing spouse could only reinforce our
conclusion of no jurisdiction as to the non-electing spouse. If the
electing spouse cannot get statutory judicial review of the IRS’s
discretionary determination, then, a fortiori, the non-electing
spouse cannot either. Id. at 364, n.1.
123.
124.
125.
126.
Beck v. Comm’r, T.C. Memo 2001-198. The Service has issued an
acquiescence for Beck v. Comm’r, A.O.D. 2002-05 (Sept. 6, 2001) (“The
Tax Court, in a proceeding where the Tax Court already has jurisdiction,
such as in a deficiency or collection due process proceeding, has jurisdiction to review a claim for relief under section 66(c). Accordingly, the
Service will no longer contest the Tax Court’s jurisdiction to review a
request of relief under section 66(c) in a proceeding where the court already
has jurisdiction.”). But note that, unlike section 6015(e), section 66(c) does
not provide the Tax Court with jurisdiction if the taxpayer files a “standalone” petition in response to a denial of request for relief made pursuant
to section 66(c). Bernal v. Comm’r, 120 T.C. 102 (2003). For further
discussion, see infra.
Action on Decision 2001-07 (Sept. 6, 2001).
Fernandez v. Comm’r, supra.
Butler v. Comm’r, 114 T.C. 276 (2000).
(Shafiroff, Rel. #21, 11/09)
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court did not limit its holding to deficiency situations. But Congress
amended section 6015(e) effective on December 21, 2000. 127 By so
doing, the amendment added “against whom a deficiency has been
asserted and” after the word “individual.” Thus, section 6015(e)(1)
presently reads, “In the case of an individual against whom a deficiency has been asserted and who elects to have subsection (b) or (c)
apply . . . .”128 In the case of Ewing v. Commissioner,129 the taxpayer
filed the petition after the effective date of the amendment, thus
forcing the court to decide whether the amendment presented a new
requirement that a deficiency must be asserted before the Tax Court
has jurisdiction to review the Commissioner ’s denial of equitable
relief pursuant to section 6015(f) in a “stand alone” petition proceeding.130 The court, in analyzing the legislative history of section 6015,
concluded that the absence of an asserted deficiency does not deprive
the Tax Court of jurisdiction over a petitioner ’s claim for equitable
relief pursuant to section 6015(f).131 Of interest in the case is that
the Service did not contend that the Tax Court did not have
jurisdiction.132
In reversing Commissioner v. Ewing,133 the Ninth Circuit held that
the Tax Court erred in asserting jurisdiction in the absence of a
127.
128.
129.
130.
131.
132.
133.
Consolidated Appropriations Act, 2001, Pub. L. No. 106-554, § 1(a)(7),
codified at 44 U.S.C. § 3516, which enacted into law section 3313(1)(1) of
H.R. 5662. But see Comm’r v. Ewing, 439 F.3d 1009, rev’g 118 T.C. 494,
discussed infra.
But note that the Tax Relief and Health Care Act of 2006, Pub. L. No. 109432, 120 Stat. 2922, § 408(a) amended section 6015(e)(1) by adding, “or in
the case of an individual who requests equitable relief under subsection (f).”
Thus, there is no dispute now as to whether the Tax Court has
jurisdiction over equitable proceedings based on section 6015(f). For
further discussion, see infra.
Ewing v. Comm’r, 118 T.C. 494 (2002).
No deficiency notice was issued in Ewing because the IRS did not challenge
the tax reported on the return. Still, the taxpayer could secure relief under
section 6015(f) because that section provides “it is inequitable to hold the
individual liable for any unpaid tax or any deficiency” [Emphasis added].
Ewing v. Comm’r, supra, at 505–06. A “stand alone” petition arises when
the taxpayer raises only the affirmative defense of innocent spouse or
separate liability election and does not contest the underlying liability,
because the Service accepts the tax due per the return and does not issue a
notice of deficiency. For discussion, see infra.
Ewing v. Comm’r, supra. But see the strong dissent at 510, emphasizing
the “plain language” of the amendment.
Id. at 506. Of course, jurisdiction is a matter of law, and the parties cannot
agree to confer jurisdiction on the Tax Court. Nonetheless, it is not insignificant that the Service did not oppose the taxpayer on the jurisdictional
issue. But see infra, for discussion of 439 F.3d 1009, rev’g 118 T.C. 494.
Comm’r v. Ewing, 439 F.3d 1009 (9th Cir. 2006), rev’g and vacating 122
T.C. 32 (2004), 118 T.C. 494 (2002).
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deficiency when the taxpayer nonetheless claimed innocent spouse
status under section 6015(f), dealing with equitable relief. The
Eighth Circuit later agreed with the Ninth Circuit in Bartman v.
Commissioner.134
In Billings v. Commissioner,135 the Tax Court reconsidered its prior
holding in Ewing v. Commissioner,136 and expressly held that section
6015(e) does not give the Tax Court jurisdiction over non-deficiency
stand-alone petitions. But Congress has put an end to this matter.
The Tax Court now does indeed have jurisdiction in non-deficiency
stand-alone petitions.
The Tax Relief and Health Care Act of 2006137 amended section
6015(e) to confer jurisdiction on the Tax Court in non-deficiency
stand-alone petitions.138 Thus, the statute, as a result of the 2006
Act, now provides, “In the case of an individual against whom a
deficiency has been asserted and who elects to have subsection (b) or
(c) apply, or in the case of an individual who requests equitable relief
under subsection (f),”139 such a person may petition the Tax Court.
The amendment is effective for liability for taxes arising or remaining
unpaid on or after December 20, 2006.140 The Butner v. Commissioner141 case summarizes this area of law, pre- and post-Tax Relief
and Health Care Act of 2006 Act.
Maier v. Commissioner,142 imposed another limitation on the Tax
Court’s jurisdiction regarding section 6015(f) relief. In Maier, the nonelecting spouse (the former husband) filed a petition with the Tax
Court appealing the IRS’s determination that the electing spouse (the
former wife) was entitled to innocent spouse relief under section 6015(f).
The Tax Court dismissed for lack of jurisdiction.143
The Second Circuit affirmed, stating:
At issue in this case are the rights afforded to non-electing spouses
in administrative and Tax Court innocent spouse determinations.
Section 6015(e) is unambiguous about who may file petitions for
134.
135.
136.
137.
138.
139.
140.
141.
142.
143.
Bartman v. Comm’r, 446 F.3d 785, 787 (8th Cir. 2006).
Billings v. Comm’r, 127 T.C. 7 (2006).
Ewing v. Comm’r, 118 T.C. 494 (2002), rev’d, 439 F.3d 1009 (9th Cir.
2006).
Pub. L. No. 109-432 [hereinafter “2006 Act”], 120 Stat. 3061.
I.R.C. § 6015(e)(1), as amended by section 408(a) of the 2006 Act.
Id.
2006 Act, section 408(b)(7).
Butner v. Comm’r, T.C. Memo 2007-136. For the same principle that the
Tax Court has jurisdiction over a non-deficiency stand-alone petition under
section 6015(f), see also Ware v. Comm’r, T.C. Memo 2007-112; Smith v.
Comm’r, T.C. Memo 2007-117; Banderas v. Comm’r, T.C. Memo 2007-136.
Maier v. Comm’r, 350 F.3d 361 (2d Cir. 2004).
Maier v. Comm’r, 119 T.C. 267 (2002).
(Shafiroff, Rel. #21, 11/09)
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review with the Tax Court, the very action Mr. Maier, a nonelecting spouse without a notice of deficiency, undertook here. The
first, most general subsection of § 6015(e), entitled “Petition for
review by Tax Court,” reads, in relevant part: “In the case of an
individual . . . who elects to have [innocent spouse provisions]
apply [,] . . . the individual may petition the Tax Court (and the Tax
Court shall have jurisdiction) to determine the appropriate relief
available . . .” 26 U.S.C. § 6015(e)(1)(A) (emphasis added).
Nowhere in § 6015, or any other congressional act, is the Tax
Court given jurisdiction over petitions for review filed by nonelecting spouses; under § 6015(e)(1)(A), only an individual making
the election is afforded the right of petitioning for review with the
Tax Court.
In Wenner v. Commissioner,144 another jurisdictional case, the Tax
Court, in a case of first impression, had to determine whether it had
jurisdiction to decide an affirmative defense under section 6015 pled
in a section 6404 petition for judicial review of the Commissioner ’s
determination not to abate interest.145 The court stated:
As a stand alone proceeding, the Court has no jurisdiction to
consider a request for relief from joint liability on a joint return
under section 6015 unless the following three requirements are
met: (1) the taxpayer has filed a timely election pursuant to section
6015, (2) respondent has notified the taxpayer that respondent has
denied the taxpayer’s request for relief under that section, and
(3) the taxpayer has timely petitioned this Court for relief under
section 6015(e)(1). See sec. 6015. The record here discloses that
none of the procedural requirements for our jurisdiction under
section 6015(e) has been satisfied.
However, we can find no compelling reason to distinguish the
146
logic and reasoning of this Court in Neely v. Commissioner . . . .
An entitlement to the statutory relief provided by section 6015 is
no less a defense to respondent’s determination than the statutory
relief provided by section 6501(a) in the Neely case. There, as in
the instant case, an affirmative defense was pleaded in a matter
properly before the Court. Petitioner ’s petition under section 6404
is properly before the Court, and we hold we require no additional
147
jurisdiction to address Ms. Clark’s claim for section 6015 relief.
144.
145.
146.
147.
Wenner v. Comm’r, 116 T.C. 284 (2001).
For a discussion of the Tax Court’s jurisdiction to abate interest under
section 6404, see infra.
Neely v. Comm’r, 115 T.C. 287 (2000). In Neely, the court held that it had
jurisdiction to decide an affirmative defense raised by the taxpayer in a
section 7436 case (Proceedings for Determination of Employment Status),
which allows judicial review of a determination of the Commissioner.
Wenner, 116 T.C. at 288.
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Except as otherwise provided in sections 6851 (relating to termination assessments) and 6861 (relating to jeopardy assessments), no levy
or proceeding in court may be made, begun, or prosecuted by the IRS
against the taxpayer making either the innocent spouse or separate
liability election for collection of any assessment to which the election
relates until the expiration of the ninety-day period described above, or,
if a petition has been filed with the Tax Court, until the decision of the
Tax Court has become final.148 Rules similar to the rules of section
7485 (relating to the posting of bond to stay assessment and collection) apply with respect to the collection of any such assessment. 149
Notwithstanding the provisions of section 7421(a) (the so-called antiinjunction statute), the beginning of an improper levy or proceeding
during the time the Service is prohibited from engaging in collection
action may be enjoined by a proceeding in a proper court, including the
Tax Court. Nonetheless, the Tax Court will not have jurisdiction to
enjoin collection actions or proceedings unless a timely petition has
been filed, and then only in respect of the amount of the assessment to
which the election under innocent spouse or separate liability relates.150
The running of the period of limitations in section 6502 on the
collection of the assessment to which the petition relates is suspended
for the period during which the IRS is prohibited from collecting by
levy or a proceeding in court and for sixty days thereafter. The running
of the period of limitations in section 6502 may also be suspended if a
waiver is made, from the time the date the claim for relief was filed
until sixty days after the waiver is filed with the IRS.151
148.
149.
150.
151.
I.R.C. § 6015(e)(1)(B)(i), as added by the 98 Act, as amended by Pub. L. No.
106-554, Consolidated Appropriations Act of 2001, section 1(a)(7), which
enacted into law section 313(a)(3)(C) of H.R. 5662 and substituted “until the
close of the ninetieth day referred to in subparagraph (A)(ii)” for “until the
expiration of the ninety-day period described in subparagraph (A)” and
inserted “under subparagraph (A)” following “filed with the Tax Court.”
Note that the Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432,
section 408(b)(2) amended section 6015(e)(1)(B)(i) by adding, “or requesting
equitable relief under subsection (f) . . . .” The point is that the Tax Court now
has jurisdiction over equitable proceedings based on section 6015(f). For
further elucidation, see supra.
Id.
I.R.C. § 6015(e)(1)(B)(ii), as added by the 98 Act. Note that the Tax Relief
and Health Care Act of 2006, Pub. L. No. 109-432, section 408(b)(3)
amended section 6015(e)(1)(B)(ii) by adding, “or to which the relief request
under subsection (f) relates.” The point is that the Tax Court now has
jurisdiction over equitable proceedings based on section 6015(f). For
further elucidation, see supra.
I.R.C. § 6015(e)(2)(A), (B), as added by the 98 Act, as amended by Pub. L.
No. 106-554, Consolidated Appropriations Act of 2001, section 1(a)(7),
which enacted into law section 313(a)(3)(D)(ii) of H.R. 5662. Regarding
waiver, see I.R.C. § 6105(e)(5), added by Pub. L. No. 106-554, section 1(a)(7),
which enacted into law section 313(a)(3)(D)(i) of H.R. 5662.
(Shafiroff, Rel. #21, 11/09)
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If the Tax Court determines that a refund is allowed, it will grant a
credit or refund to the extent attributable under the innocent spouse or
limited liability rules, except as otherwise provided in sections 6512(b)
(relating to limits on overpayments determined by the Tax Court);
7121 (relating to closing agreements); and 7122 (relating to offers in
compromises).152
Where a taxpayer makes an election under the innocent spouse or
limited liability rules, if a decision of the Tax Court in any prior
proceeding for the same taxable year has become final, that decision is
conclusive except with respect to the qualification of the taxpayer for
relief which was not an issue in that proceeding. This exception to the
general principles of res judicata (under which issues that could have
been raised in an earlier proceeding are barred in a subsequent
proceeding) will not apply if the Tax Court determines that the
taxpayer participated “meaningfully” in that prior proceeding.153 In
such a case, res judicata will apply and be a bar to the taxpayer seeking
to raise innocent spouse or separate liability defenses.
152.
153.
I.R.C. § 6015(e)(3)(A), as added by the 98 Act, and redesignated section
6015(g)(1) by Pub. L. No. 106-554, Consolidated Appropriations Act of
2001, section 1(a)(7), which enacted into law section 313(a)(2)(B) of H.R.
5662.
I.R.C. § 6015(e)(3)(B), as added by the 98 Act, redesignated section 6015(g)(2)
by Pub. L. No. 106-554, Consolidated Appropriations Act of 2001, section
1(a)(7), which enacted into law section 313(a)(2)(B) of H.R. 5662. See, e.g.,
Vetrano v. Comm’r, 116 T.C. 272 (2001) (section 6015(g)(2) prescribes the
res judicata effect that a final decision has with respect to a later election
and precludes granting a spouse’s request to withdraw her elections
without prejudice). In an IRS chief counsel advice memorandum, it was
held that a taxpayer might claim relief from joint and several liability for
the same tax years that were the subject of a prior district court judgment,
which reduced the tax assessments to judgment and foreclosed the tax
liens. The fact that the tax years in question were the subject of the district
court decision which reduced the tax liens to judgments, did not preclude
reliance on the statutory exception to res judicata. I.R.C. § 6015(e)(3)(B).
While the Tax Court decision was res judicata for purposes of the district
court case and, thus, the merits of the tax liability could not be relitigated
in the district court case, the district court litigation did not alter the fact
that the Tax Court decision was a final decision, which conclusively settled
the merits of the tax liabilities. The intent of the I.R.C. § 6015(e)(3)(B)
exception, however, was to permit the raising of innocent spouse relief
despite such a final Tax Court decision. IRS Chief Couns. Adv. Mem.
2000-06-040 (Feb. 11, 2000).
For a discussion of the principles of res judicata and the related doctrine
of collateral estoppel, see infra. Note that the Tax Relief and Health Care Act
of 2006, Pub. L. No. 109-432, section 408(b)(3) amended section 6015(g)(2)
by adding, “or any request for equitable relief under subsection (f).” The
point is that the Tax Court now has jurisdiction over equitable proceedings
based on section 6015(f). For further elucidation, see supra.
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If either spouse begins a suit for a refund, the Tax Court loses
jurisdiction over the taxpayer ’s action for relief under the innocent
spouse or separate liability rules to whatever extent jurisdiction is
acquired by the district court or the U.S. Court of Federal Claims over
the taxable years that are the subject of the suit for refund. 154 The
court acquiring jurisdiction has jurisdiction over the petition for relief
under the innocent spouse or separate liability provisions. 155
The Tax Court has established rules that provide the taxpayer filing
a joint return but not making the election for relief under the innocent
spouse or separate liability provisions with adequate notice and an
opportunity to become a party to a proceeding.156 The Tax Court has
promulgated Rules 320 through 325, which specify procedures relating
to actions under section 6015.157 Most importantly, Rule 325 addresses the participation of the non-electing spouse.
First, the rule requires the IRS to serve notice of the filing of a petition
under section 6015 on the non-electing spouse.158 Second, the nonelecting spouse has sixty days following the service of the notice by
the IRS in which to file a notice of intervention with the Tax Court.159
The non-electing spouse must attach to the notice of intervention a
copy of the notice of filing.160 All new matters of claim or defense in a
154.
155.
156.
157.
158.
I.R.C. § 6015(e)(3)(C)(i), as added by the 98 Act, redesignated section
6015(e)(3)(A), by Pub. L. No. 106-554, Consolidated Appropriations Act of
2001, section 1(a)(7), which enacted into law section 313(a)(2)(B) of H.R. 5662.
I.R.C. § 6015(e)(3)(C)(ii), as added by the 98 Act, redesignated section
6015(e)(3)(B), by Pub. L. No. 106-554, Consolidated Appropriations Act of
2001, section 1(a)(7), which enacted into law section 313(a)(2)(B) of H.R.
5662.
I.R.C. § 6015(e)(4), as added by the 98 Act.
For a discussion of the preparation of a Tax Court petition based solely
under I.R.C. § 6015(e)(1)(A) (a so-called stand-alone proceeding), see infra.
T.C. Rule 325(a). Rule 325(a) states:
Notice: On or before 60 days from the date of the service of the
petition, the Commissioner shall serve notice of the filing of the
petition on the other individual filing the joint return and shall
simultaneously file with the Court a copy of the notice with an
attached certificate of service. The notice shall advise the other
individual of the right to intervene by filing a notice of intervention
with the Court not later than 60 days after the date of service on the
other individual.
159.
T.C. Rule 325(b). Rule 325(b) states:
Intervention: If the other individual filing the joint return desires to
intervene, then such individual shall file a notice of intervention
with the Court not later than 60 days after service of the notice by
the Commissioner of the filing of the petition, unless the Court
directs otherwise. All new matters of claim or defense in a notice of
intervention shall be deemed denied.
160.
Id.
(Shafiroff, Rel. #21, 11/09)
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notice of intervention are deemed denied.161 Thus, in two cases,162 the
Tax Court, in effectuating the Congressional intent behind section
6015 and its own rules,163 has summarized the procedural rules
applicable to the non-electing spouse as follows:
We hold that whenever, in the course of any proceeding before the
Court, a taxpayer raises a claim for relief from joint liability under
section 6015, and the other spouse (or former spouse) is not a
party to the case, the Commissioner must serve notice of the
claim on the other individual who filed the joint return for the
year(s) in issue. The notice shall advise such other individual of
his or her opportunity to file a notice of intervention for the sole
purpose of challenging the petitioning individual’s entitlement to
relief from joint liability pursuant to section 6015. Such notice
shall include a copy of Interim Rule 325. The Commissioner shall
at the same time file with the Court a certification of such notice
or, in a stand-alone case brought under section 6015(e)(1)(A), state
in the answer that such notice has been provided. See Interim
Rule 324(a)(2). Any intervention shall be made in accordance with
the provisions of Interim Rule 325(b). These procedures are
effective immediately and are applicable to all cases, including
164
small tax cases.
In the case of Fain v. Commissioner,165 the Tax Court, in a case of
first impression involving section 6015 and Tax Court Rule of Practice
325, had to address the question of whether a non-requesting spouse’s
right to intervene in proceedings on a request for innocent-spouse
relief survives death. The court held in the affirmative and, after giving
the background, explained the law:
The first question we have to answer is whether Robert’s[, the
husband’s,] right to intervene survives his death. There’s no clear
answer in the Code or regulations, so we rely on analogy, some
background principles of law, and a nod to reasonableness. We
start with the language of section 6015(e)(4), which gives a
nonrequesting spouse the unconditional right to “become a party.”
We have already held that this means that he has a right to
intervene within the meaning of rule 24(a)(1) of the Federal Rules
161.
162.
163.
164.
165.
Id.
Corson v. Comm’r, 114 T.C. 354 (2000); King v. Comm’r, 115 T.C. 118
(2000).
T.C. Rules 320–25.
King v. Comm’r, 115 T.C. 118, 125 (2000). See also Corson v. Comm’r,
114 T.C. 354 (2000). For a discussion of a stand-alone proceeding, see
infra. For a discussion of small tax case procedures in the Tax Court, see
infra. See also Rev. Proc. 2000-15, 2000-5 I.R.B. 447; Hale Exemption
Trust v. Comm’r, T.C. Memo 2001-89.
Fain v. Comm’r, 129 T.C. No. 11 (2007).
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Tax Court Litigation and Claims for Refunds
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of Civil Procedure. Van Arsdalen v. Commissioner, 123 T.C. 135,
143, 2004 WL 1632736 (2004). And it is generally the case that a
right to intervene passes to a decedent’s estate. See, e.g., Salt River
Pima-Maricopa Indian Cmty. v. United States, 231 Ct. Cl. 1033
(1982). An estate’s right to intervene in some cases does not, of
course, imply a general rule that all rights to intervene survive
death. But Franklin observed long ago that nothing in life is certain
but death and taxes. And the Internal Revenue Code makes sure
that taxes survive even death. Sec. 6901(a)(1)(A)(i), (h). The
survival of a decedent’s tax liability means that as a practical
matter his heirs or beneficiaries may be affected by the outcome of
an innocent-spouse case. The opportunity to intervene is an
opportunity to protect those interests, because granting innocentspouse relief will make the estate of the nonrequesting spouse the
only source of payment for any unpaid tax the deceased has left
behind.
Turning to the Code again, we find that it also states, as a general
rule, that any person acting for another person in a fiduciary
capacity shall assume the powers, rights, duties, and privileges of
that person with respect to taxes, sec. 6903, and that the word
“fiduciary” includes executors and administrators, sec. 7701(a)(6).
We have already applied these sections to allow executors and
administrators to seek innocent-spouse relief, e.g., Jonson v.
Commissioner, 118 T.C. 106, 2002 WL 199830 (2002) (estate of
deceased spouse able to request relief under section 6015), affd.
353 F.3d 1181, 1184 (10th Cir. 2003), and the Commissioner
himself has ruled likewise, Rev. Rul. 2003-36, 2003-1 C.B. 849.
Construing the Code to allow executors and administrators to
intervene to oppose relief seems equally justified.
The forgoing provisions apply to any tax liability arising after
July 22, 1998 and any tax liability arising on or before this date, but
remaining unpaid as of the date.166 Counsel should note that the
interim rules referred to above are no longer interim. The Tax Court has
made the rules in sections 320–25 permanent, effective June 30, 2003.
[B] Review of Final Partnership Administrative
Adjustments Under TEFRA
The Tax Court has jurisdiction to hear actions for readjustments of
partnership items under sections 6226 and 6228.167 Section 6226,
effective for partnership years beginning after September 3, 1982,
grants the Tax Court jurisdiction to determine all partnership items
166.
167.
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III
(Taxpayer Bill of Rights 3), section 3201(g)(1).
T.C. Rule 240. The content of such a petition is provided for in T.C. Rule
241.
(Shafiroff, Rel. #21, 11/09)
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for the partnership for the partnership year to which a notice of final
partnership administrative adjustments relates, the proper allocation
of such items among the partners, and the applicability of any penalty,
addition to tax, or additional amount that relates to an adjustment to
a partnership item. A decision under section 6226 has the same force
and effect as a regular Tax Court decision and is reviewable as such. 168
[C]
Review of Partnership Administrative
Adjustments Where Administrative Adjustment
Request Is Not Allowed in Full Under TEFRA
Section 6228, effective for partnership years beginning after
September 3, 1982, grants the Tax Court jurisdiction to determine
those partnership items to which the part of the tax matters partner ’s
request under section 6227 not allowed by the Commissioner relates
and those items with respect to which the Commissioner asserts
adjustments as offsets. A decision under section 6228 has the same
force and effect as a regular Tax Court decision and is reviewable as
such.169
[D]
Review of Final Partnership Administrative
Adjustments for Large Partnership Under TEFRA
Section 6247, effective for partnership years ending on or after
December 31, 1997, grants the Tax Court jurisdiction to determine all
partnership items for the large partnership for the partnership year to
which a notice of final partnership administrative adjustments relates,
the proper allocation of such items among the partners, and the
applicability of any penalty, addition to tax, or additional amount for
which the partnership may be liable under section 6242(b). A decision
under section 6247 has the same force and effect as a regular Tax
Court decision and is reviewable as such.170
[E]
Review of Large Partnership Administrative
Adjustments Where Administrative Adjustment
Request Is Not Allowed in Full Under TEFRA
Section 6252, effective for partnership years ending on or after
December 31, 1997, grants the Tax Court jurisdiction to determine
those large partnership items to which the part of the tax matters
partner ’s request under section 6251 not allowed by the Commissioner relates and those items with respect to which the Commissioner asserts adjustments as offsets. A decision under section 6252
168.
169.
170.
T.C. Rules 240–251.
Id.
T.C. Rules 300–305.
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Tax Court Litigation and Claims for Refunds
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has the same force and effect as a regular Tax Court decision and is
reviewable as such.171
[F] Statutory Interest Determinations
Section 7481(c), effective for assessments of deficiencies redetermined by the Tax Court and made after November 10, 1988, grants
the Tax Court jurisdiction to resolve disputes that arise over the
Commissioner ’s post-decision computation of interest. Following a
decision by the Tax Court, the IRS assesses the entire amount
redetermined as the deficiency by the Tax Court and adds to the
deficiency interest computed at the statutory rate. If the taxpayer
disagrees with the IRS interest computation, however, the Tax Court
now has jurisdiction to resolve the dispute, which previously it did
not.172 More specifically, if a dispute arises over the IRS’s computation
of the interest due on a deficiency, then, within one year from the date
the Tax Court decision becomes final, the taxpayer may file a petition
in the Tax Court for a determination of interest due. Pursuant to the
TRA97,173 after August 4, 1997, the appropriate mechanism to seek a
redetermination is by motion.174 The taxpayer is required to pay the
entire deficiency redetermined by the Tax Court and the interest
determined by the IRS before challenging the IRS computation of
interest in the Tax Court.175
The Tax Court may redetermine interest in either of the following
situations: (1) an assessment has been made by the Secretary under
section 6215, which includes interest, and the taxpayer has paid the
entire amount of the deficiency plus interest claimed by the Secretary;
or (2) the Tax Court finds under section 6512(b) that the taxpayer has
made an overpayment. If the court determines either that the taxpayer
has made an overpayment of interest or that the Secretary has made an
underpayment of interest, the court will enter an order determining an
overpayment of tax pursuant to section 6512(b)(1). A decision with
respect to overpayment of interest is reviewable on appeal in the same
manner as a decision of the Tax Court with respect to the deficiency. 176
[G] Reviewing of Abatement of Interest Denials
Section 6404(i), effective for requests for abatement made after
July 30, 1996, grants the Tax Court jurisdiction to determine whether
171.
172.
173.
174.
175.
176.
T.C. Rules 300–305.
I.R.C. § 7481(c), added by TAMRA section 6246(a).
Pub. L. No. 105-34.
I.R.C. § 7481(c), as amended by Pub. L. No. 105-34, section 1452(a) and
(b). See also discussion of motions later in this chapter.
I.R.C. § 7481(c)(1)–(3).
T.C. Rule 261.
(Shafiroff, Rel. #21, 11/09)
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the Commissioner’s failure to abate interest under section 6404 was an
abuse of discretion. A Tax Court decision under section 6404 is reviewable on appeal in the same manner as a regular decision of the Tax
Court, but only as to the matters determined in such decision.177
Section 6404(h)178 grants the Tax Court jurisdiction to review
abatement of interest denials179 if the appealing party meets the
requirements of section 7430(c)(4)(A)(ii). Section 7430(c)(4)(A)(ii)
references the requirements of 28 U.S.C. § 2412(d)(2)(B), which, for
purposes of an award of attorneys fees and litigation costs, defines
party as an individual whose net worth does not exceed $2 million at
the time the civil action was filed. The statute refers to individuals,
corporations, partnerships, and associations, but not estates. Nonetheless, it has been held that the $2 million limitation also applies to
estates.180
As previously stated, the Commissioner has the authority to abate
the assessment of interest on a deficiency if the accrual of such interest
is attributable to an error or delay by an IRS employee in performing a
ministerial act181 or, since after July 30, 1996, a managerial act.182 In
order for the Tax Court to order an abatement of interest, the taxpayer
must prove that the Commissioner exercised his discretion arbitrarily,
capriciously, or without sound basis in fact or law, and that no
significant aspect of the error or delay can be attributed to the taxpayer
involved. Because the legislative history behind section 6404(e) indicates that it is not to be used routinely, the court will order
abatement only “where failure to abate interest would be widely
perceived as grossly unfair.”183 With the taxpayer required to satisfy
177.
178.
179.
180.
181.
182.
183.
T.C. Rules 280–284.
Formerly I.R.C. § 6404(g), before amendment by the IRS Restructuring and
Reform Act of 1998, Title III (Taxpayer Bill of Rights 3), sections 3305(a),
3309(a). See, e.g., McElroy v. Comm’r, T.C. Memo 2004-254; Landvogt v.
Comm’r, T.C. Memo 2003-217; Hunt v. Comm’r, T.C. Memo 2003-283;
Stewart v. Comm’r, T.C. Memo 2003-106; Washington v. Comm’r, 120
T.C. 114 (2003). See also Beall v. United States, 336 F.3d 419 (5th Cir.
2003) (Tax Court does not have exclusive jurisdiction over abatement
claims; district courts also can review IRS denial of request for interest
abatement). Cf. Hinck v. United States, 550 U.S. 501 (2007), holding
that the Tax Court has exclusive jurisdiction to review refusal by IRS to
abate interest, abrogating Beall v. United States, supra.
See I.R.C. § 6404(e), relating to authority of the Commissioner to abate
interest attributable to unreasonable errors or delays by the IRS.
Estate of Kunze v. Comm’r, 233 F.3d 948 (7th Cir. 2000).
I.R.C. § 6404(e)(1).
I.R.C. § 6404(e), as amended by the Taxpayer Bill of Rights 2, Pub. L. No.
104-168, § 301.
Hawksley v. Comm’r, T.C. Memo 2000-354, citing Lee v. Comm’r, 113
T.C. 145 (149), and H.R. REP. NO. 99-426, at 844 (1985), 1986-3 C.B.
(vol. 2) 1, 844.
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such a relatively high burden,184 it is not surprising that the cases are
typically resolved in favor of the Service.185
The regulations specifically limit the abatement of interest to income, estate, gift, generation-skipping and excise taxes.186 In the case of
Miller v. Commissioner,187 the Tax Court held that the Commissioner
did not commit an abuse of discretion by denying the taxpayer ’s claim
for abatement, holding that the IRS does not have the authority under
section 6404(e) to abate interest on employment taxes.188 On appeal,
the Ninth Circuit agreed with the Tax Court, holding that the Service’s
position of excluding interest on employment taxes was proper because
184.
185.
186.
187.
188.
Pursuant to the IRS Restructuring Act of 1998, and the addition of section
7491(a), the burden of proof is shifted from the taxpayer to the IRS if, inter
alia, the taxpayer introduces credible evidence with respect to any factual
issue relevant to ascertaining the liability of the taxpayer for any tax
imposed by subtitle A or B of the I.R.C. (title 26 U.S.C.). In general,
interest on an underpayment of tax is imposed by section 6601, which is
part of subtitle F of the Code. Accordingly, section 7491(a) does not apply
in the situation discussed in the text. Hawksley v. Comm’r, T.C. Memo
2000-354, n.13. For a discussion of section 7491 and the burden of proof,
see this chapter, infra.
See, e.g., Hinck v. United States, 64 Fed. Cl. 71 (2005); Wright v. Comm’r,
95 A.F.T.R.2d 2005-1415 (5th Cir. 2005); Scanlon White, Inc. v. Comm’r,
T.C. Memo 2005-282; Bo v. Comm’r, T.C. Memo 2005-150 (granting
maternity leave to Appeals Officer assigned to taxpayer ’s case not a
ministerial act, but losing taxpayer ’s file was a ministerial act that
warranted abatement of interest); Hepps v. Comm’r, T.C. Memo 2005138 (fact question as to whether denial of abatement of interest would be
unfair precluded granting government’s motion for summary judgment);
Bartelma v. Comm’r, T.C. Memo 2005-64; Mitchell v. Comm’r, T.C.
Memo 2004-277; Wright v. Comm’r, 381 F.3d 41 (2d Cir. 2004) (Tax
Court ruling in favor of IRS vacated and remanded, but taxpayer cautioned
“that our remand to the Tax Court is limited to . . . four narrow issues and
that the Tax Court is not authorized by this opinion to revisit or rehear
previously adjudicated issues . . . .”); Smith v. Comm’r, T.C. Memo 2002-1;
Camerato v. Comm’r, T.C. Memo 2002-28; Wish v. Comm’r, T.C. Memo
2001-57; Coco v. Comm’r, T.C. Memo 2001-80; Strang v. Comm’r, T.C.
Memo 2001-104; Kupersmit v. Comm’r, T.C. Memo 2001-221; Pettyjohn
v. Comm’r, T.C. Memo 2001-227; Chan v. Comm’r, T.C. Memo 2001-268;
Spurgin v. Comm’r, T.C. Memo 2001-290; Gaudet v. Comm’r, T.C. Memo
2001-309; Hanks v. Comm’r, T.C. Memo 2001-319; Berry v. Comm’r, T.C.
Memo 2001-323; Scott v. Comm’r, T.C. Memo 2000-369; Hawksley v.
Comm’r, T.C. Memo 2000-354; Donovan v. Comm’r, T.C. Memo 2000220; Banat v. Comm’r, T.C. Memo 2000-141, aff ’d, 2000-1 U.S. Tax Cas.
(CCH) ¶ 50,296 (2d Cir. 2001); Jacobs v. Comm’r, T.C. Memo 2000-123;
Gorgie v. Comm’r, T.C. Memo 2000-80; Brown v. Comm’r, T.C. Memo
2000-61; Dundore v. Comm’r, T.C. Memo 2000-45; Gross v. Comm’r,
T.C. Memo 2000-44.
Treas. Reg. § 301.6404-2(a)(1)(i).
Miller v. Comm’r, T.C. Memo 2000-196.
Id. See also Woodral v. Comm’r, 112 T.C. 19 (1999).
(Shafiroff, Rel. #21, 11/09)
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the regulations are not unreasonable or plainly inconsistent with the
statute, and thus entitled to deference.189
In Hinck v. United States,190 the Supreme Court held that the Tax
Court is the exclusive forum for judicial review of IRS refusal to abate
interest, abrogating Beall v. United States.191
[H]
Awarding Reasonable Litigation and
Administrative Costs
The Tax Court has jurisdiction to hear claims for reasonable
litigation and administrative costs authorized under section 7430. 192
Claims for these costs are made by motion if the court already has
jurisdiction over the parties,193 or by petition if the court does not
already have jurisdiction.194
Section 7430(f)(2), effective with respect to proceedings commenced
after November 10, 1988, establishes jurisdiction in the Tax Court to
decide appeals of taxpayers from decisions by the Internal Revenue
Service denying awards for reasonable administrative costs within the
meaning of section 7430(c)(2).195
[I]
Enforcement of Overpayment Decisions
The Tax Court has always had jurisdiction to determine that a
taxpayer is due a refund of a tax for which the IRS asserted a deficiency.
However, before enactment of the Taxpayer Bill of Rights 1, if the IRS
failed to refund or credit an overpayment determined by the Tax Court,
the taxpayer had to seek relief in another court. This has changed.
Since enactment of the Taxpayer Bill of Rights 1, the Tax Court has
jurisdiction to order the refund of an overpayment plus interest if,
within 120 days after a Tax Court decision has become final, the IRS
fails to refund to a taxpayer an overpayment determined by the
Tax Court.196 If the IRS does not establish that its failure to refund
an overpayment was substantially justified, then the taxpayer is
entitled to interest on the overpayment at 120% of the overpayment
interest rate.197
189.
190.
191.
192.
193.
194.
195.
196.
197.
Miller v. Comm’r, 310 F.3d 640 (9th Cir. 2002).
Hinck v. United States, 550 U.S. 501 (2007).
Beall v. United States, 336 F.3d 419 (5th Cir. 2003).
I.R.C. § 7430(a); T.C. Rules 230–33; 270–74.
T.C. Rules 231. Note that agreed cases are handled differently from
unagreed cases. Agreed cases are handled by stipulated decision. T.C.
Rule 231(a). Unagreed cases are handled by motion. T.C. Rule 213(b).
T.C. Rule 271. For the content of the petition, see discussion, infra.
See T.C. Rules 270–274.
I.R.C. § 6512(b)(2), added by TAMRA section 6244.
Id.
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Prior to enactment of TRA97,198 however, it was not clear whether
the Tax Court’s order could be appealed.199 TRA97 makes it clear that
such an order (granting or denying taxpayer ’s motion for a Tax Court
order requiring the IRS to make the refund) is appealable in the same
manner as a decision of the Tax Court, but only with respect to
matters determined in the order.200
Prior to enactment of the Taxpayer Bill of Rights 3,201 if a taxpayer
contested a deficiency in the Tax Court, no credit or refund of tax for
the contested taxable year generally could be made, except in accordance with a decision of the Tax Court that became final. More
specifically, where the Tax Court determined that an overpayment
had been made and a refund was due the taxpayer, and a party
appealed a portion of the decision of the Tax Court, no provision
existed for the refund of any portion of any overpayment that was not
contested in the appeal.202 The Taxpayer Bill of Rights 3 changed this.
Effective July 22, 1998, if a notice of appeal in respect of a decision of
the Tax Court is filed under section 7483, the IRS is authorized to
refund or credit the overpayment determined by the Tax Court to the
extent the overpayment is not contested on appeal.203
Before making a refund, the IRS must first offset the overpayment
by past-due child support, debts owed to federal agencies 204 and pastdue state tax obligations.205 Before TRA97, it was not clear whether
the Tax Court had jurisdiction over the validity or merits of the credits
or offsets (for example, child support).206 TRA97 made it clear that the
Tax Court does not have jurisdiction over the validity or merits of
the credits or offsets that reduce or eliminate the refund to which the
taxpayer would be otherwise entitled.207
198.
199.
200.
201.
202.
203.
204.
205.
206.
207.
Pub. L. No. 105-34.
Statement of Managers, Revenue Act of 1988, section 1451.
I.R.C. § 6512(b)(2), as amended by Pub. L. No. 105-34, section 1451(a).
See also T.C. Rule 260.
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III.
IRS Restructuring and Reform Act of 1998 (H.R. 2676), Committee Report
at 112.
I.R.C. § 6512(b)(1), as amended by the IRS Restructuring and Reform Act of
1998, Pub. L. No. 105-206, Title III (Taxpayer Bill of Rights 3), section 3464(d).
See I.R.C. § 6402. See also the discussion in text, infra.
The government refers to this redemption program as the Treasury Offset
Program (TOP). See, e.g., United States v. Grieshaber, 86 A.F.T.R.2d 20006375 (E.D. La. 2000).
Statement of Managers, Technical Corrections and Miscellaneous section
1451.
I.R.C. § 6512(b)(4), as amended by Pub. L. No. 105-34, section 1441(b).
See Bocock v. Comm’r, 127 T.C. 178 (2006):
We do not have jurisdiction over the issue of whether respondent
improperly credited the payments in issue because respondent
(Shafiroff, Rel. #21, 11/09)
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[J]
Modification of Decisions in Section 6166
Estate Tax Cases
The Code allows a deduction against either the estate tax or the
income tax for interest paid by an estate on a federal or state estate tax
liability during the period the estate is being administered. In addition,
the Code allows certain estates that consist largely of an interest in a
closely held business to elect to pay federal estate tax over an extended
payment period. Before enactment of the Taxpayer Bill of Rights 1, the
IRS took the position that, because an estate may accelerate the
payment of federal or state estate taxes during the extended payment
period, an estate was not entitled to a deduction for interest anticipated to be paid during the extended payment period, but was entitled
to a deduction only when such interest was actually paid by the estate.
Consequently, because the amount of the estate tax deduction for
interest to which an estate was entitled could not be determined until
the interest was paid, the Tax Court could not enter a final judgment
in an estate tax case until the extended payment period had expired. 208
However, since enactment of the Taxpayer Bill of Rights 1, the Tax
Court has authority to modify a final decision in an estate tax case
solely to reflect the estate’s entitlement to a deduction for interest paid
during an extended payment period.209
[K]
Review of Jeopardy Assessments in Ongoing Tax
Court Cases
Section 7429(b)(2)(B), effective for assessments or levies made on or
after July 1, 1989, establishes jurisdiction in the Tax Court to review in
the same manner as a U.S. District Court the reasonableness of the
jeopardy assessment or levy made for deficiencies that are presently
and properly before the Tax Court for redetermination. Any Tax Court
determination under section 7429(b)(2)(B) is final and conclusive and
is not reviewable in any other court.210
credited $10,406.63 to Mr. Ryals’s 1978 tax liability, pursuant to
section 6402(a), after petitioners reported an overpayment of
$17,645 on their 2002 tax return. This Court does not have
jurisdiction to review the credit made by the Commissioner pursuant to section 6402(a) in the instant case.
208.
209.
210.
See sec. 6512(b)(4); Savage v. Comm’r, 112 T.C. 46, 49-51, 1999 WL
71571 (1999). Id. at 182 (footnote omitted).
Statement of Managers, Technical Corrections and Miscellaneous Revenue
Act of 1988, at 323.
I.R.C. § 7481(d), added by TAMRA section 6247(a). See also T.C. Rule
262.
T.C. Rule 56.
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[L] Review of Certain Sales of Seized Property
Section 6863(b)(3)(C), effective February 8, 1989, for review of
the Commissioner ’s determination to sell certain seized property,
establishes jurisdiction in the Tax Court to order a stay or approval
or disapproval, pending resolution of the underlying tax deficiency, of
the sale by the Service of the seized property. Any order of the court
disposing of a motion filed under section 6863(b)(3)(C) is reviewable
on appeal in the same manner as a decision of the Tax Court with
respect to the deficiency.211
As is discussed elsewhere in this text, if a taxpayer fails to pay a tax on
notice and demand after the IRS makes a jeopardy assessment, a lien
arises in favor of the United States upon property belonging to the
taxpayer and the IRS can immediately seize the taxpayer ’s property.
Pending issuance of a notice of deficiency and, if the taxpayer challenges
the assessment in either the Tax Court or a federal district court, pending
the decision of that court, the IRS cannot sell the property seized unless:
(1)
the taxpayer consents to the sale,
(2)
the IRS determines that the expenses of conservation and
maintenance will greatly reduce the net proceeds, or
(3)
the property is liable to perish or become greatly reduced in
value by keeping, or cannot be kept without great expense. 212
In the past, if the taxpayer wished to contest an IRS determination
to sell seized property, the taxpayer ’s only recourse was to bring suit
in federal district court.213 Since enactment of the Taxpayer Bill of
Rights 1, however, the Tax Court is granted jurisdiction during the
pendency of proceedings before it to review the IRS determination to
sell seized property under one of the exceptions stated above. 214
[M]
Collection Due Process Actions for Release of
Liens and Levies
The Tax Court has jurisdiction to hear actions for the release of
liens and levies under sections 6320(c) and 6330(d). 215 Such an action
is initiated by petition.216 Counsel should note that effective for
211.
212.
213.
214.
215.
216.
See T.C. Rule 57.
I.R.C. § 6863(b)(3)(B).
Statement of Managers, Technical Corrections and Miscellaneous Revenue
Act of 1988, at 322.
I.R.C. § 6863(b)(3)(c), added by TAMRA section 6245(a).
T.C. Rule 330.
See, e.g., Dorn v. Comm’r, 119 T.C. 356 (2002); Sarrell v. Comm’r, 117
T.C. 122 (2001). For the content of the petition, see discussion, infra. Cf.
Greene-Thapedi v. Comm’r, 126 T.C. 1 (2006) (“section 6330 does not
expressly give this Court jurisdiction to determine an overpayment or to
(Shafiroff, Rel. #21, 11/09)
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determinations made after the date that is sixty days after August 17,
2006, the Tax Court has sole jurisdiction in section 6320 and
section 6330 matters.217
Section 6330, effective with respect to collection actions commenced after January 19, 1999, grants the Tax Court jurisdiction to
review the lien or levy determination made by the Office of Appeals
under section 6320 or 6330.218
[N]
Disclosure Actions
Section 6110(f)(3) establishes jurisdiction in the Tax Court to
review determinations by the Commissioner with respect to whether,
order a refund or credit of taxes paid”). See also Zapara v. Comm’r, 126
T.C. 215, 232, footnote 14:
This Court has recognized limits to its ability to provide relief in
sec. 6330 collection cases. For instance, in Greene-Thapedi v.
Comm’r, 126 T.C. 1 (2006), this Court held that it lacks jurisdiction in a sec. 6330 proceeding to determine an overpayment or to
order a refund or credit of taxes paid. The decision in GreeneThapedi was predicated partly on a long jurisdictional history that
militated against this Court’s assuming refund jurisdiction without
express legislative provision and partly on the absence in sec. 6330
of limitations corresponding to the limitations in sec. 6511 on
claims for credits or refunds of overpayments of tax. Such concerns
are not presented by the instant case, which does not involve any
claim of an overpayment of taxes and does not involve any refund or
credit with respect to an overpayment of taxes.
217.
Pension Protection Act of 2006, Pub. L. No. 109-280 section 855(a),
amending I.R.C. § 6015(d)(1). The statute now reads: “The person may,
within 30 days of a determination under this section, appeal such
determination to the Tax Court (and the Tax Court shall have jurisdiction
with respect to such matter).” Previously, the Tax Court had jurisdiction
for the appeal only if it had jurisdiction over the underlying tax liability.
Thus, if the section 6330 matter dealt with excise taxes, the Tax Court did
not have jurisdiction and an appeal would have to have been heard by a
district court. Cf. former section 6330(d)(1):
The person may, within 30 days of a determination under this
section, appeal such determination—(A) to the Tax Court (and the
Tax Court shall have jurisdiction with respect to such matter); or
(B) if the Tax Court does not have jurisdiction of the underlying tax
liability, to a district court of the United States.
If a court determines that the appeal was to an incorrect court, a
person shall have 30 days after the court determination to file such
appeal with the correct court. See, e.g., Gorospe v. Comm’r, 451 F.3d
966 (9th Cir. 2006), cert. denied, 127 S. Ct. 987, 166 L. Ed. 2d 711
(2007). As stated in the main text, however, the Tax Court now has
sole jurisdiction in section 6320 or 6330 matters, irrespective of the
underlying tax.
218.
T.C. Rules 330–334.
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and to what extent, written determinations and background file
documents may be disclosed to the public. 219
[O] Injunction Authority
Under prior law, the jurisdiction to restrain IRS assessment and
collection of tax rested solely with the federal district courts. Consequently, even though, as a general rule, no assessment or collection of
tax can be made until the decision of the Tax Court has become final,
a taxpayer with a case before the Tax Court who was faced with a
premature IRS assessment was forced to challenge that assessment in
federal district court. Since the enactment of the Taxpayer Bill of
Rights 1, this added burden of litigation no longer exists: The Tax
Court now has jurisdiction (concurrent with federal district courts) to
restrain the assessment and collection of any tax by the IRS if the tax is
the subject of a timely filed petition pending before the Tax Court. 220
Further, the Taxpayer Bill of Rights 3 provides that a proper court,
including the Tax Court, may order a refund of any amount collected
by the Service within the period during which it is prohibited from
collecting a deficiency by levy or through a proceeding in court. 221
With respect to improper assessment and collection activities by the
IRS during the period for filing a petition with the Tax Court or during
the pendency of a Tax Court proceeding for a so-called TEFRA
partnership,222 the Code states that the IRS action “may be enjoined
in the proper court.”223 It was unclear, however, if the Tax Court was a
“proper court.”224 TRA 97 clarifies that an action to enjoin premature
assessments of deficiencies attributable to partnership items may
be brought in the Tax Court225 for partnership years ending after
August 5, 1997.226
The Tax Court has promulgated T.C. Rule 55, effective July 1, 1990
and amended October 3, 2008, to implement its jurisdiction to
restrain assessment or collection. Any order by the Tax Court resolving
such an injunction proceeding is treated as, and may be appealed as, a
final decision of the Tax Court, pursuant to section 7482(a)(3),
effective November 11, 1988.
219.
220.
221.
222.
223.
224.
225.
226.
T.C. Rules 220–229A.
I.R.C. § 6213(a), as amended by TAMRA section 6243(a) and the IRS
Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III
(Taxpayer Bill of Rights 3), section 3464(a).
I.R.C. § 6213(a), as amended by the IRS Restructuring and Reform Act of
1998, Pub. L. No. 105-206, Title III, section 3464(a)(1)–(2).
I.R.C. § 6221 et seq.
I.R.C. § 6225(b).
Committee Reports, H.R. 2014, section 1239.
I.R.C. § 6225(b), as amended by Pub. L. No. 105-34, section 1239(a).
Pub. L. No. 105-34, section 1239(f).
(Shafiroff, Rel. #21, 11/09)
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§ 6:2.7
Jurisdiction Over Administrative Determinations
by the IRS
Under specific jurisdictional grants by Congress listed below and
described at Chief Counsel Directives Manual (CCDM) 35.1.1.18.2
through 35.1.1.18.8, the Tax Court has jurisdiction to review the
following administrative determinations by the Commissioner:
•
Treatment of items other than partnership items with respect to
an oversheltered return (section 6234(c));
•
Status and classification of organizations under section 501(c)(3)
(section 7428);
•
Determination of worker classification (section 7436);
•
Qualification of certain retirement plans (section 7476);
•
Valuation of certain gifts (section 7477);
•
Status of certain governmental obligations (bonds) (section
7478); and
•
Eligibility of an estate with respect to installment payments
under section 6166 (section 7479).
[A] Declaratory Judgment Relating to
Oversheltered Return
Section 6234(c) grants the Tax Court jurisdiction to make a
declaration with respect to the Commissioner ’s determination on all
items other than partnership items and affected items (which require
partnership level determinations as described in section 6230(a)(2)(A)(i))
for the taxable year to which a notice of adjustment relates. Any such
declaration has the force and effect of a Tax Court decision and is
reviewable as such.227
[B]
Declaratory Judgment Relating to Qualification
of Exempt Organization
Section 7428 grants the Tax Court jurisdiction to make a declaration with respect to the Commissioner ’s determination (or failure to
make a determination) of initial or continuing qualification of an
organization under section 501(c)(3) or with respect to its initial or
continuing classification as a private foundation, as defined in section
509(a), or a private operating foundation, as defined in section 4942(j)(3).
Any such declaration has the force and effect of a Tax Court decision
and is reviewable as such.228
227.
228.
See T.C. Rules 310–316.
See T.C. Rules 210–218.
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[C] Declaratory Judgment Relating to Worker
Classification
Section 7436 grants the Tax Court jurisdiction to make a declaration with respect to the Commissioner ’s determination that one or
more individuals performing services for such person are employees of
such person for purposes of Subtitle C, Employment Taxes, and that
such person is not entitled to treatment under subsection (a) of section
530 of the Revenue Act of 1978 with respect to such individual. The
Tax Court has jurisdiction to determine whether such determination
by the Commissioner is correct and the proper amount of employment
tax under such determination. Any such declaration has the force and
effect of a Tax Court decision and is reviewable as such, unless the
proceedings are conducted under the small case procedures described
in section 7463.229
The TRA 97230 expanded the jurisdiction of the Tax Court to
resolve certain disputes regarding employment status. More specifically, in connection with the audit of any person, if there is an actual
controversy involving a determination by the IRS as part of an
examination that (1) one or more individuals performing services for
that person are employees of that person, or (2) a person is not entitled
to relief under section 530 of the Revenue Act of 1978, the Tax Court
has jurisdiction to determine whether the IRS is correct.231 The
Consolidated Appropriations Act of 2001 also confers jurisdiction
upon the Tax Court to determine the proper amount of employment
tax under such determination.232 The 2001 Act is effective retroactively
229.
230.
231.
232.
See T.C. Rules 290–294.
Pub. L. No. 105-34.
I.R.C. § 7436, as added by Pub. L. No. 105-34, section 1454(a) (former
section 7436 was redesignated section 7437); see also I.R.C. §§ 7421(a),
7453, and 7481(b), as amended by Pub. L. No. 105-34, section 1454(b).
Counsel should note that although the Taxpayer Relief Act conferred
jurisdiction on the Tax Court to decide issues regarding employment
status, it did not give the Tax Court jurisdiction to decide the amount of
employment tax and income tax withholding. See Henry Randolph
Consulting v. Comm’r, 112 T.C. 1 (1999). It is important to note, however,
that section 7436 was amended retroactively to August 5, 1997, to also
include “the proper amount of employment tax under such determination.” Section 314(f) of the Community Renewal Tax Relief Act of 2000,
incorporated in the Consolidated Appropriations Act of 2001, Pub. L.
No. 105-55, section 1(a)(7), amending I.R.C. § 7436. See also discussion,
infra.
I.R.C. § 7436(a), as amended by section 314(f) of the Community Renewal
Tax Relief Act of 2000 (H.R. 5662), which was incorporated in
the Consolidated Appropriations Act of 2001, Pub. L. No. 105-55, section
1(a)(7).
(Shafiroff, Rel. #21, 11/09)
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to August 5, 1997.233 Moreover, in Ewens & Miller, Inc. v. Commissioner,234 in a case of first impression, the Tax Court held that the
amendment of section 7436(a) provided by the Community Renewal
Tax Relief Act of 2000 also resulted in Congress conferring the court
with jurisdiction over additions to tax and penalties found in chapter 68
of subtitle F (sections 6651 through 6751), including deciding the proper
amount of such additions to tax and penalties related to taxes imposed
by subtitle C with respect to worker classification or section 530
treatment determinations. Any such redetermination by the Tax Court
has the force and effect of a Tax Court decision and is reviewable as
such.235 Because the “Notice of Determination” constitutes the Service’s
determination described in section 7436(a), the Notice of Determination
is a jurisdictional prerequisite for seeking Tax Court review of the
Service’s determinations regarding worker classification, section 530
treatment, and the proper amount of employment tax under those
determinations.236 Tax Court proceedings seeking review of these determinations may not be commenced prior to the time the Service sends the
Notice of Determination by certified or registered mail.237 Also, a failure
to agree is a determination for this purpose.238 The review by the Tax
Court is de novo, and not a review of the administrative record.239
In the case of Evans Publishing, Inc. v. Commissioner,240 the Tax Court
held that it had jurisdiction to rule on the IRS’s affirmative allegations in
the Commissioner’s answer that the taxpayer compensated additional
employees through monies disguised as loans, even though such claims
were not included in the Notice of Determination, explaining:
Congress has specifically given the Court jurisdiction to determine the proper amount of employment tax under the Commissioner’s determination of whether an individual is an employee.
Sec. 7436(a). Employment taxes are calculated by applying
specified percentages to an individual’s wages. Secs. 3101(a);
3111(a); 3301(a); 3402(a). Thus, in order to compute the proper
amount of employment taxes it is necessary to determine the
233.
234.
235.
236.
237.
238.
239.
240.
Section 314(f) of the Community Renewal Tax Relief Act of 2000 (H.R.
5662), which was incorporated in the Consolidated Appropriations Act of
2001, Pub. L. No. 105-55, section 1(a)(7). See also Notice 2002-5, 2002-3
I.R.B. 320. See also Neely v. Comm’r, 116 T.C. 79 (2001) (prior order
dismissing for lack of jurisdiction as to amounts of employment taxes
relating to the Commissioner ’s determination concerning worker classification vacated in light of amendment to section 7436).
Ewens & Miller, Inc. v. Comm’r, 117 T.C. 263 (2001).
Id.; see also I.R.C. § 7436(a), flush language, (e).
Notice 2002-5, 2002-3 I.R.B. 320.
Id.
Committee Reports, H.R. 2014, section 1454.
Id.
Evans Publ’g, Inc. v. Comm’r, 119 T.C. 242 (2002).
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total amount of each individual’s wages. Therefore, it follows that
the Court’s jurisdiction includes determining the amount of
wages paid to individuals that the Commissioner determined,
or alleged in the answer, to be employees of the taxpayer.
If the IRS sends a determination notice by certified or registered
mail to the petitioner, the petition must be filed before the ninety-first
day after the date of the mailing.241 Assessment and collection of the
tax is suspended while the matter is pending in the Tax Court. 242
If, during the pendency of the proceeding, the petitioner changes his
treatment for employment tax purposes of any individual, whose
employment status as an employee is involved in the proceeding, to
treatment as an employee, that change cannot be taken into account
in the Tax Court’s determination.243
Small tax case procedures244 are available for employment taxes
placed in dispute if the amount is $50,000 or less for each calendar
quarter involved.245 Moreover, Special Trial Judges can now hear such
small case employment tax proceedings. 246
The awarding of costs and fees under section 7430 of the Code
applies to these proceedings.247 In Charlotte’s Office Boutique, Inc. v.
Commissioner,248 it was held that even though the Service and the
taxpayer agreed that the taxpayer was an employee, that agreement
does not deprive the Tax Court of jurisdiction to hear the taxpayer ’s
petition for a redetermination of resulting penalties.
[D] Declaratory Judgment Relating to Qualification
of Retirement Plan
Section 7476 grants the Tax Court jurisdiction to make a declaration with respect to the Commissioner ’s determination (or failure to
241.
242.
243.
244.
245.
246.
247.
248.
I.R.C. § 7436(b)(2). See also Notice 2002-5, 2002-3 I.R.B. 320.
I.R.C. § 7436(d)(1).
I.R.C. § 7436(a)(3).
See infra.
I.R.C. § 7436(c)(1), as amended by the IRS Restructuring and Reform Act
of 1998, Pub. L. No. 105-206, Title III (Taxpayer Bill of Rights 3), section
3103(b)(1). Before amendment, the amount could not exceed $10,000 for
each calendar quarter involved. See also Henry Randolph Consulting v.
Comm’r, supra. See also Notice 2002-5, 2002-3 I.R.B. 320.
I.R.C. § 7443A(b)(6), as added by the Pension Protection Act of 2006, Pub.
L. No. 109-280, section 857(a). Note that the Special Trial Judge is also
authorized to make the decision of the court. I.R.C. § 7433A(c), as
amended by the Pension Protection Act of 2006, Pub. L. No. 109-280,
section 857(b). The effective date is any small case employment tax
proceeding with respect to which a decision has not yet become final
before August 17, 2006.
I.R.C. § 7436(d)(2).
Charlotte’s Office Boutique, Inc. v. Comm’r, 425 F.3d 1203 (9th Cir. 2005).
(Shafiroff, Rel. #21, 11/09)
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make a determination) of the initial or continuing qualification of a
retirement plan. Any such declaration has the force and effect of a Tax
Court decision and is reviewable as such.249
[E]
Declaratory Judgment Relating to Gift Valuation
Section 7477, effective for gifts made after August 5, 1997, grants the
Tax Court jurisdiction to make a declaration with respect to the Commissioner’s determination of the value of any gift shown on the return of
any gift tax imposed by chapter 12 of the Code. Any such declaration has
the force and effect of a Tax Court decision and is reviewable as such.250
[F]
Declaratory Judgment Relating to Government
Obligations
Section 7478 grants the Tax Court jurisdiction to make a declaration with respect to the Commissioner ’s determination (or failure to
make a determination) regarding whether interest on prospective
obligations will be excludable from gross income under section 103(a).
Any such declaration has the force and effect of a Tax Court decision
and is reviewable as such. 251 Tax Court decisions relating to
governmental obligations may only be reviewed by the U.S. Court of
Appeals for the District of Columbia Circuit.252
[G]
Declaratory Judgment Relating to Eligibility of
an Estate to Make Installment Payments Under
Section 6166
Section 7479, effective for estates of decedents dying after August 5,
1997, grants the Tax Court jurisdiction to make a declaration with
respect to the Commissioner ’s determination (or failure to make a
determination) regarding whether an estate is eligible to make an
installment payment election under section 6166 and whether the
extension of time provided in section 6166 has ceased to apply. Any
such declaration has the force and effect of a Tax Court decision and is
reviewable as such.253
If the statutory notice of deficiency includes additions to tax or
penalties254 the Tax Court has the jurisdiction to redetermine those
adjustments as well as the underlying tax deficiency.255
249.
250.
251.
252.
253.
254.
255.
T.C. Rules 210–218.
T.C. Rules 210–218.
See T.C. Rules 210–218.
See I.R.C. § 7482(b)(3).
See T.C. Rules 210–218.
These include section 6662 accuracy related penalty, section 6663 fraud
penalty, section 6665 late filing and late payment penalties, and sections
6654, 6655, and 6665(b)(2) failure to pay estimated tax penalty.
I.R.C. §§ 6214(a) and 6665(a).
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§ 6:2.8
Special Trial Judge Reports: Ballard
v. Commissioner
[A] Background
During the 2005 term, in Ballard v. Commissioner,256 the U.S.
Supreme Court addressed the important question of whether the Tax
Court could exclude Special Trial Judge reports from the record on
appeal. In holding that the Tax Court could not exclude these reports,
the Tax Court subsequently revised its Rules of Practice.
The history of this interesting problem and the reasoning of the
court are summarized as follows:257
The Tax Court’s Chief Judge appoints auxiliary officers, called
Special Trial Judges, to hear certain cases, 26 U.S.C. § 7443A(a),
(b), but ultimate decision, when tax deficiencies exceed $50,000,
is reserved for the court itself, § 7443A(b)(5), (c). Tax Court Rule
258
183(b)
governs the two-tiered proceedings in which a Special
Trial Judge hears the case, but the court renders the final decision.
259
Rule 183(b)
directs that, after trial and submission of briefs, the
Special Trial Judge “shall submit a report, including findings of
260
fact and opinion, to the Chief Judge, [who] will
assign the case
to a Judge of the Court.” In acting on the report, the assigned Tax
256.
257.
258.
259.
260.
Ballard v. Comm’r, 544 U.S. 40 (2005).
The material that follows is taken substantially verbatim from the syllabus
of the court. I have made some minor editorial changes for ease of reading.
The explanatory footnotes in the quoted material are mine and not the
court’s.
In the wake of Ballard, the Tax Court amended its Rules of Practice,
effective September 20, 2005. The rules that were amended were 1, 182,
and 183 (200 and 202 also were amended, apart from Ballard). These
amendments are discussed in the next section of text.
T.C. Rule 183(b), at the time Ballard was decided, dealt with the Special
Trial Judge’s report and stated: “After all the briefs have been filed by all the
parties or the time for doing so has expired, the Special Trial Judge shall
submit a report, including findings of fact and opinion, to the Chief Judge,
and the Chief Judge will assign the case to a Judge or Division of the
Court.”
T.C. Rule 83(c), at the time Ballard was decided, dealt with the action
required on the Special Trial Judge’s report, and stated: “The Judge to
whom or the Division to which the case is assigned may adopt the Special
Trial Judge’s report or may modify it or may reject it in whole or in part,
or may direct the filing of additional briefs or may receive further evidence
or may direct oral argument, or may recommit the report with instructions. Due regard shall be given to the circumstance that the Special Trial
Judge had the opportunity to evaluate the credibility of witnesses, and the
findings of fact recommended by the Special Trial Judge shall be presumed
to be correct.”
(Shafiroff, Rel. #21, 11/09)
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Court judge must give “[d]ue regard to the circumstance that the
[s]pecial [t]rial [j]udge had the opportunity to evaluate the credibility of the witnesses,” must “presum[e] to be correct” fact
findings contained in the report, and “may adopt the [s]pecial
[t]rial [j]udge’s report or may modify it or may reject it in whole or
in part.” Rule 183(c). Until 1983, such Special Trial Judge reports
were made public and included in the record on appeal.
Pursuant to a rule revision that year, those reports are now
withheld from the public and excluded from the appellate record,
and Tax Court judges do not disclose whether the final decision
“modi[fies]” or “reject[s]” the Special Trial Judge’s initial report.
Instead, the final decision invariably begins with a statement
that the Tax Court judge “agrees with and adopts the opinion of
the [s]pecial [t]rial [j]udge.” Whether and how the final decision
deviates from the Special Trial Judge’s original report is never
revealed.
****
Held: The Tax Court may not exclude from the record on appeal
Rule 183(b) reports submitted by Special Trial Judges. No statute
authorizes, and Rule 183’s current text does not warrant, the
concealment at issue.
Nowhere in the Tax Court’s current Rules is this joint enterprise
described or authorized. Notably, the Rules provide for only one
Special Trial Judge “opinion”: Rule 183(b) instructs that the Special
Trial Judge’s report, submitted to the Chief Judge before a regular
Tax Court judge is assigned to the case, shall consist of findings
of fact and opinion. It is the Rule 183(b) report, not some
subsequently composed collaborative report, that Rule 183(c),
tellingly captioned “Action on the Report,” instructs the Tax Court
judge to review and adopt, modify, or reject. It is difficult to
comprehend how a Tax Court judge would give “[d]ue regard”
to, and “presum[e] to be correct,” an opinion he himself collaborated in producing.
The Tax Court, like all other decision-making tribunals, is obliged
to follow its own Rules. See, e.g., Service v. Dulles, 354 U.S. 363,
388, 77 S. Ct. 1152, 1 L. Ed. 2d 1403. Although the Tax Court is
not without leeway in interpreting its Rules, it is unreasonable
to read into Rule 183 an unprovided for collaborative process, and
to interpret the formulations “due regard” and “presumed to be
correct,” to convey something other than what those same words
meant prior to the 1983 rule changes.
The Tax Court’s practice is extraordinary, for it is routine in
federal judicial and administrative decision-making both to
disclose a hearing officer ’s initial report, see, e.g., 28 U.S.C.
§ 636(b)(1)(C), and to make that report part of the record available
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Tax Court Litigation and Claims for Refunds
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to an appellate forum, see, e.g., 5 U.S.C. § 557(c). The Commissioner asserts a statutory analogy, however, 26 U.S.C. § 7460(b),
which instructs that when the full Tax Court reviews the decision
of a single Tax Court judge, the initial one-judge decision “shall
not be part of the record.” This Court rejects the Commissioner ’s
endeavor to equate proceedings that differ markedly. Full Tax
Court review is designed for resolution of legal issues. Review of
that order is de novo. In contrast, findings of fact are key to Special
Trial Judge reports. Those findings, under the Tax Court’s Rules,
are not subject to de novo review. Instead, they are measured
against “due regard” and “presumed correct” standards. Furthermore, all regular Tax Court members are equal in rank, each has
an equal voice in the Tax Court’s business, and the regular judge
who issued the original decision is free to file a dissenting opinion
recapitulating that judge’s initial opinion. The Special Trial Judge,
who serves at the pleasure of the Tax Court, lacks the regular
judges’ independence and the prerogative to publish dissenting
views.
[B] Special Trial Judge Reports: Post-Ballard
v. Commissioner Amendments to Tax Court
Rules of Practice
In light of Ballard v. Commissioner,261 the Tax Court amended its
Rules of Practice and Procedure, not only with respect to the reports of
Special Trial Judges, but also regarding its rulemaking authority. First,
as to the reports of the Special Trial Judges, a change to the Tax Court’s
Rules of Practice and Procedure was added, effective September 20,
2005, which reads as follows:
In the event the Chief Judge decides to assign a case (other than a
small tax case) to a Judge to prepare a report in accordance with
section 7460 and to make the decision of the Court, the proposed
findings of fact and opinion previously submitted to the Chief
Judge shall be filed as the Special Trial Judge’s recommended
findings of fact and conclusions of law. Thereafter, the procedures
262
of Rule 183(b), (c), and (d) shall apply.
Further, and most importantly, Tax Court Rule 183 has been deleted
and replaced with the following:
Except in cases subject to the provisions of Rule 182 or as
otherwise provided, the following procedure shall be observed in
cases tried before a Special Trial Judge:
261.
262.
Ballard v. Comm’r, 544 U.S. 40 (2005).
T.C. Rule 183, effective Sept. 20, 2005.
(Shafiroff, Rel. #21, 11/09)
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§ 6:2.8
263.
IRS PRACTICE & PROCEDURE DESKBOOK
(a)
Trial and Briefs: A Special Trial Judges shall conduct the trial
of any assigned case. After such trial, the parties shall submit
their briefs in accordance with the provisions of Rule 151.
Unless otherwise directed, no further briefs shall be filed.
(b)
Special Trial Judge’s Recommendations: After all the briefs
have been filed by all the parties or the time for doing so has
expired, the Special Trial Judge shall file recommended
findings of fact and conclusions of law and a copy of the
recommended findings of fact and conclusions of law shall be
served in accordance with Rule 21.
(c)
Objections: Within forty-five days after the service of the
recommended findings of fact and conclusions of law, a party
may serve and file specific, written objections to the recommended findings of fact and conclusions of law. A party may
respond to another party’s objections within thirty days after
being served with a copy thereof. The above time periods
may be extended by the Special Trial Judge. After the time for
objections and responses has passed, the Chief Judge shall
assign the case to a Judge for preparation of a report in
accordance with section 7460. Unless a party shall have
proposed a particular finding of fact, or unless the party shall
have objected to another party’s proposed finding of fact, the
Judge may refuse to consider the party’s objection to the
Special Trial Judge’s recommended findings of fact and
conclusions of law for failure to make such a finding or for
inclusion of such finding proposed by the other party, as the
case may be.
(d)
Action on the Recommendations: The Judge to whom the
case is assigned may adopt the Special Trial Judge’s recommended findings of fact and conclusions of law, or may
modify or reject them in whole or in part, or may direct
the filing of additional briefs, or may receive further evidence,
or may direct oral argument, or may recommit the recommended findings of fact and conclusions of law with instructions. The Judge’s action on the Special Trial Judge’s
recommended findings of fact and conclusions of law shall
be reflected in the record by an appropriate order or report.
Due regard shall be given to the circumstance that
the Special Trial Judge had the opportunity to evaluate
the credibility of witnesses, and the findings of fact recommended by the Special Trial Judge shall be presumed to
263
be correct.
T.C. Rule 183, effective Sept. 20, 2005.
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§ 6:2.9
Tax Court Rules of Practice and Procedure
Pursuant to its statutory authority in section 7453, the court has
promulgated Rules of Practice and Procedure under which it operates.264 Except in proceedings conducted under sections 7436(c) and
7463, the rules of evidence applicable in the Tax Court are the rules of
evidence applicable in trials without a jury in the U.S. District Court
for the District of Columbia.265 The court has the authority to issue
subpoenas for attendance, testimony and production of documents at
trial or deposition. The court can order foreign petitioners to produce
relevant documents and can hold a person in contempt as well as order
a U.S. marshal to assist in carrying out the court’s orders. 266
Additionally, changes to the Tax Court’s Rules of Practice and
Procedure now provide for giving public notice and an opportunity
for comment from the public:
When rules or amendments to these rules are proposed by the
Court, notice of such proposals and the ability of the public to
comment shall be provided to the bar and to the general public and
shall be posted on the Court’s Internet Web site. If the Court
determines that there is an immediate need for a particular rule
or amendment to an exiting rule, it may proceed without public
notice and opportunity for comment, but the Court shall promptly
267
thereafter afford such notice and opportunity for comment.
On September 18, 2009 the Tax Court announced that it has
adopted amendments to its Rules of Practice and Procedure. 268 Several
of the amendments conform the Tax Court’s Rules more closely with
264.
265.
266.
267.
The Rules are available at www.ustaxcourt.gov/rules/Rules.pdf.
I.R.C. § 7453.
I.R.C. § 7456.
T. C. Rule 1(c), effective Sept. 20, 2005. The basis for this important
change was Ballard v. Comm’r, 544 U.S. 40, 46, n.1:
Unlike other judicial and administrative bodies, the Tax Court does
not maintain a formal practice of publicly disclosing proposed
amendments to its Rules. See Estate of Kanter v. Comm’r, 337
F.3d 833, 877–78, n. 2 (C.A.7 2003) (Cudahy, J., concurring in part
and dissenting in part) (describing the Tax Court’s lack of a “formal
documented procedure” for amending its Rules as “oddly out of sync
with prevailing practice in other areas of the law ”). Although the
Tax Court solicits comments on proposed rule changes from the
American Bar Association’s Section on Taxation, see ABA Members
Suggest Modifications to Proposed Amendments of Tax Court
Rules, 97 Tax Notes Today, p. 167-25 (Aug. 28, 1997), the court
apparently does not publish its proposals to, or accept comments
from, the general public.
268.
The Rules of Practice and Procedure, as amended, are available at www.
ustaxcourt.gov.
(Shafiroff, Rel. #21, 11/09)
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selected procedures from the Federal Rules of Civil Procedure. The
amendments range from the service of papers, interrogatories, depositions, electronically stored information, contemporaneous transmission of testimony, and payment by credit cards. The proposed changes
include modification of several of its discovery rules, including the
rules regarding contemporaneous transmission of testimony, and
address “electronically stored information” (ESI).
In addition, the court amended Rule 202 (procedures applicable to
disciplinary proceedings) and Rule 11 (payment of certain fees and
charges by credit card). The court has also adopted various conforming
amendments to its rules and forms. The amendments are effective as
of January 1, 2010, except that the amendment to Rule 11 regarding
credit card payments is effective as of September 18, 2009.
On October 3, 2008, the Tax Court previously adopted amendments
to its Rules of Practice and Procedure authorizing electronic service of
case-related documents. As amended, Rule 21(b)(1)(D) provides that
service of papers may be made by electronic means if the person served
consented in writing. Rule 21(b) was also amended as part of the
September 18, 2009 changes. Rule 21(b)(1)(D) was a component of the
Tax Court’s initiative to implement technological advances that will
eventually permit both electronic filing and electronic service of
documents in a manner analogous to that available in other federal
courts. On Monday, January 12, 2009, the Tax Court began sending
e-mails with the subject line “Practitioner Access—Electronic Service
(eService)—Action Required” to the active practitioners on its rolls who
previously registered for Practitioner Services either electronically or by
paper application. The e-mail announced the impending availability
during January 2009 of electronic service of case-related documents
(“eService”) in lieu of conventional paper service by the court.
The Tax Court began a pilot e-filing program on May 7, 2009. The
pilot is open to petitioners and practitioners in good standing with the
court who have registered for e-access, agreed to its terms of use, and
consented to e-service. The pilot applies to all cases first calendared for
trial or hearing after August 31, 2009. For example, a petitioner or
practitioner registered for e-access whose case is first calendared for
trial on September 21, 2009, may participate in the pilot; however, a
petitioner or registered practitioner whose case is set for hearing or
trial before September 1, 2009, may not participate in the pilot.
Registered petitioners and practitioners may participate in the pilot
if their case has not been set for trial. E-filing during the pilot is
prohibited in cases set for hearing or trial before September 1, 2009.
The Tax Court’s video production, “An Introduction to the United
States Tax Court,” is a useful training video now available for viewing
online at the Tax Court’s Web site at www.ustaxcourt.gov. The video
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covers an introduction to the Tax Court, information about filing a
petition, pretrial matters, calendar call and what to expect during a
trial as well as post-trial proceedings. The video is a good introduction
to a Tax Court proceeding. However, before representing any client, if
the representative has not appeared before the Tax Court it is highly
recommended that the representative sit through a Monday calendar
session and one or two trials in order to become familiar with the
procedures.
§ 6:3
Tax Court Litigation
§ 6:3.1
In General
It is fair to say that well over 80% of the tax litigation in the United
States takes place in the Tax Court. This is due primarily to the fact
that a taxpayer can litigate a tax deficiency in Tax Court without first
paying the tax, unlike a tax refund suit in the U.S. Court of Federal
Claims, or federal district court where the taxpayer must first pay the
tax.269 Litigation in the Tax Court is also typically significantly less
expensive due to the limited discovery allowed to the parties.
§ 6:4
Practice Before the Tax Court
An attorney can be admitted to practice before the Tax Court upon
filing with the admissions clerk a completed application accompanied
by a fee of $35 and a current certificate, executed within ninety
calendar days preceding the date of the filing of the application,
from the clerk of the U.S. Supreme Court or of the highest or
appropriate court of any state or of the District of Columbia. 270
Practitioners in the Tax Court, including Chief Counsel attorneys,
are required to carry on their practice in accordance with the letter and
spirit of the Model Rules of Professional Conduct of the American Bar
Association. Any other applicant, that is, one not an attorney, must, in
addition to paying the $35 fee, pass an examination 271 administered
by the Tax Court and be sponsored by at least two persons admitted to
practice before the Tax Court, each of whom submits a letter of
recommendation on behalf of the applicant. 272 Application forms
269.
270.
271.
272.
If the taxpayer ’s primary purpose in instituting or maintaining a Tax
Court proceeding is to defer tax payment otherwise due, the Tax Court has
the authority to impose a penalty for an amount not in excess of $25,000.
I.R.C. § 6673.
T.C. Rule. 200(a)(2).
Urban legend has it that the examination is rather difficult to pass.
T.C. Rule 200(a)(3), (c), and (d).
(Shafiroff, Rel. #21, 11/09)
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and other necessary information will be furnished upon request
addressed to:
Admissions Clerk, U.S. Tax Court
400 Second Street, N.W.
Washington, D.C. 20217
The Tax Reform Act of 1986 authorizes the Tax Court also to impose a
$25 periodic registration fee on practitioners admitted to practice
before the Tax Court. The frequency and amount of the fee is
determined by the court, except that the amount cannot exceed $30
per year.273
§ 6:5
Tax Court Versus Other Forums
Assuming that the taxpayer can confer jurisdiction on the Tax
Court, should he or she? More specifically, should the taxpayer litigate
his or her differences with the Service in the Tax Court or should he or
she go into the U.S. Court of Federal Claims (hereinafter referred to as
the Claims Court) or a federal district court?
§ 6:5.1
Factors to Consider
[A] Payment of Deficiency
After a taxpayer has been issued a statutory notice of deficiency or
of liability, he or she, of course, can pay the tax and file a claim for
refund which, if denied by the Service, will enable the taxpayer to file
suit in the federal district court or the Claims Court.274 The main
advantage of seeking redress in the Tax Court is that it is the only court
where the taxpayer can seek a redetermination of the Commissioner ’s
deficiency without first paying the tax. Once a valid petition is filed the
IRS is prohibited from assessing or collecting the tax.275 The stay on
assessment and collections expires when the time for the taxpayer to
appeal an adverse decision of the Tax Court expires.
Payment of the tax before the ninety-day notice is issued will
deprive the Tax Court of jurisdiction. Payment after the ninety-day
notice is issued, however, even though before the petition is filed, will
not deprive the Tax Court of jurisdiction.276 If the client is interested
273.
274.
275.
276.
I.R.C. § 7475, added by Pub. L. No. 99-514, section 1553, 100 Stat. 2085,
2754 (1986).
See discussion of claims, infra.
Note, however, that the IRS has the authority to make a jeopardy assessment under section 6861 if appropriate.
I.R.C. § 6213(b)(4). Payment will stop the running of interest while the Tax
Court is pending. If the decision is less than the amount paid, the taxpayer
will receive a refund plus interest.
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in tolling the running of interest on the proposed deficiency, counsel
should consider advising the client to pay the tax after the ninety-day
letter is issued.
In contrast to the Tax Court, in order to confer jurisdiction on the
district court or the Claims Court, it is necessary for the taxpayer to
pay the entire tax for the entire taxable period. For income taxes this
means paying the entire deficiency.277 Where excise taxes or employment taxes are involved, however, it is sufficient that the taxpayer pay
the tax for one day’s transactions or for one employee for one period,
and file suit for refund if its claim is denied by the Service.278
This factor—lack of payment—in and of itself may be the deciding
factor for most taxpayers to select the Tax Court.
[B] Trial by Jury
Another factor that taxpayer ’s counsel should take into account is
the availability of trial by jury. A jury is available only in federal district
court.279 If counsel believes that there are certain factors present that
will have jury appeal, then this should be a factor in counsel’s “forum
shopping.” Tax Court judges hear nothing but tax cases. Indeed, they
are experts in the field. This is to be contrasted with judges sitting in
the district court and the Claims Court, who hear a wide variety of
cases. If counsel believes that the case depends upon the court’s
properly understanding a tax concept of great complexity, he or she
should consider going the Tax Court route. If counsel is looking for
equity, the refund route is indicated.
In addition, there is a psychological factor that must be taken into
account. In any settlement negotiation before a Tax Court trial, the
bottom line issue presented to the district counsel attorney is how
much the taxpayer will pay. That is to say, the taxpayer may face a
statutory notice showing he or she owes $10,000, and through
negotiations may be able to whittle that down to $4,000. The point
is that the government will receive something from the taxpayer. This
is to be contrasted with litigation in district court or the Claims Court,
wherein it is generally an issue of how much the taxpayer is going to
get back—how much the government will pay. The psychological
impact is clear. Thus, it may very well be more difficult to settle a
tax case in the district court or the Claims Court than in the Tax
Court.
277.
278.
279.
28 U.S.C. § 1346(a)(1); Flora v. United States, 362 U.S. 145 (1960).
Provanzo v. United States, 86 A.F.T.R.2d 2000-6622 (S.D. Cal. 2000).
See, e.g., Steele v. United States, 280 F.2d 89 (8th Cir. 1960); Jones v. Fox,
162 F. Supp. 449 (D. Md. 1957).
28 U.S.C. § 2402.
(Shafiroff, Rel. #21, 11/09)
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[C]
Geography, Precedent, and Timetable
Still another factor is geography. The Claims Court sits only in the
District of Columbia. This is to be contrasted with the federal district
courts and the Tax Court. The Tax Court judges “ride the circuit,”
spending a few weeks in many different cities. There are approximately seventy-four cities280 in which the court sits.281 Whereas,
district courts are located in most major cities throughout the United
States.
In selecting the proper forum, counsel should consider the precedent established in each of the available forums and determine the
track record of the respective appellate courts to which the appeal
could be taken. If a case is appealed from a tax court decision, counsel
would look to the legal residence of the taxpayer or the principal place
of business or principal office or agency at the time the petition is
filed.282 An appeal from a district court would be filed in the circuit in
which the district court is located and an appeal from the Claims
Court must be taken to the Court of Appeals for the Federal Circuit. 283
The Tax Court in determining precedent looks to the “Golsen
Rule.” The “Golsen Rule” originated with the case of Jack E. Golsen.284
In Golsen, the Tax Court held that generally it would follow the rule of
law laid down by the Court of Appeals to which an appeal in the case
before it would lie assuming the facts were squarely on point. If,
however, the appeal would be to a different circuit, the Tax Court will
reconsider an issue in light of the reasoning of the reversing appellate
court, but if the Tax Court is of the opinion that its original opinion is
correct, the court will follow its original holding.285 District courts will
follow the decision of their own circuits and the Claims Court will
follow the decisions of the Federal Circuit.
The Tax Court schedules almost all cases for trial in the order of the
filing of their petition, taking into consideration the designated place
of trial and the court’s schedule of sessions. On average it may take six
to eighteen months to have the case calendared for trial. In regular
cases, trial notices are generally issued to the parties at least five
280.
281.
282.
283.
284.
285.
It should be noted that approximately eleven of the cities are for small case
trials only.
The list is provided by the Tax Court and is available at http://ustaxcourt.
gov/dpt_cities.htm.
I.R.C. § 7482(b). Section 7482(b) covers venue for other types of actions,
such as declaratory decisions.
28 U.S.C. §§ 1294 and 1295.
Golsen v. Comm’r, 54 T.C. 742 (1970), aff ’d 445 F.2d 985 (10th Cir. 1971).
See also Lardas v. Comm’r, 99 T.C. 490 (1992) where the Tax Court
explained the Golsen rule, noting that the Tax Court will only follow a
circuit court’s opinion that is “squarely on point.”
See Peat Oil and Gas Assocs. v. Comm’r, 100 T.C. 271 (1993).
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months prior to the date of the scheduled trial session. In “S” cases,
trial notices are generally issued to the parties at least two months
prior to the date of the scheduled trial session.
[D] Increased Tax Deficiency
As discussed above, after the petition is filed in the Tax Court, the
Commissioner may file a motion to increase the deficiencies and
include new issues in the proceedings. The Tax Court is not limited to
the original amount set forth in the statutory notice of deficiency,
rather the court has the authority to increase the deficiency. The IRS
may raise new issues and request an increased deficiency. Although, if
new issues are allowed, the Commissioner will have the burden of
proof on the new issues raised.286 The Tax Court can deny the
Commissioner ’s request if the petitioner would be prejudiced as a
result of the increased deficiency.287
In district court or the Claims Court, the taxpayer will not have
exposure for paying additional taxes unless the assessment statute is
still open. In almost all tax refund suits the assessment statute has
long passed by the time the taxpayer gets around to filing a refund suit.
However, it should be noted that the government can offset the claim
and reduce the amount to zero. The government will not be able to
assess and collect any additional deficiency.
[E]
Government Representation
In the Tax Court the Commissioner is represented by attorneys
from the Office of the IRS Chief Counsel. In refund suits the
government is represented by attorneys from the Department of
Justice.288 It is fair to say that both sets of lawyers practice tax
litigation for a living and know what they are doing. Plus, they have
the enormous resources of the government backing them and supervising them.
Practice Pointer: When you litigate against the government in a
tax case, remember that you are playing on its home court. The
Chief Counsel lawyers are before the Tax Court in every case and
the Department of Justice lawyers are before the Claims Court
and the district courts in every case; your client isn’t. Remember
too, that the IRS has drafted most of the rules in the form of
the Treasury Regulations, and those rules are drafted to
protect the revenue. You are dependent on the good faith and
286.
287.
288.
T.C. Rule 142.
T.C. Rule 41.
In some cities, the local U.S. Attorney ’s office may represent the
government.
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
professionalism of the government lawyers to reach a satisfactory
resolution of your case, either through settlement or litigation.
You should always treat them professionally and with good faith
and you should assume that they are treating you likewise in the
absence of absolute proof to the contrary.
[F]
Availability of Discovery
As discussed below, the normal discovery provided in the Federal
Rules of Civil Procedure is available in the refund cases in the Claims
Court and the district courts. These discovery rules are very expensive,
primarily due to the free availability of depositions. The Tax Court
discovery rules are much more restrictive and, hence, much less
expensive. However, in light of the September 18, 2009 amendments
to the discovery rules, the jury is still out as to how these changes will
impact future litigation.
[G]
Small Tax Case Procedures
Unlike the other courts, the Tax Court has specific procedures for
liabilities of $50,000 or less.289 As discussed above, the Tax Court
provides taxpayers the option to elect the “small case” procedures.
Some of the advantages include reduced cost (attorney ’s and filing
fees); procedures are a lot more informal; the Rules of Evidence are
applied more liberally; counsel and the court are more forgiving during
the trial presentation; and the decision will be final once rendered.
§ 6:5.2
Res Judicata and Collateral Estoppel
Related to the issue of choice of forum are the doctrines of res
judicata and collateral estoppel. 290 The U.S. Supreme Court, in
Commissioner v. Sunnen,291 has explained what the doctrines are,
how they differ, and how the doctrines are applicable to federal tax
controversies:
289.
290.
291.
I.R.C. § 7463.
Collateral estoppel, of course, is different from equitable estoppel, which
precludes a person from raising a claim or defense that he or she would
otherwise would be able to, but for prior conduct that was in some way a
misrepresentation of fact. While either the taxpayer or the government
may raise collateral estoppel as an affirmative defense to a cause of action
claim by the other, it is unclear whether estoppel of the equitable type may
ever run against the government. See McCorkle v. Comm’r, 124 T.C. 56
(IRS not equitably estopped); Hunt v. United States, 94 F. Supp. 2d 665,
668–69 (D. Md. 2000) (IRS equitably estopped), citing Heckler v. Cmty.
Health Servs., 467 U.S. 51 (1984), and Miller v. United States, 949 F.2d
708 (4th Cir. 1991).
Comm’r v. Sunnen, 333 U.S. 591 (1948). For purposes of readability and
space limitations, citations, quotation marks, ellipses, and footnotes have
been omitted.
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Tax Court Litigation and Claims for Refunds
§ 6:5.2
Res judicata is a doctrine judicial in origin. The general rule of res
judicata applies to repetitious suits involving the same cause of
action. It rests upon considerations of economy of judicial time
and public policy favoring the establishment of certainty in legal
relations. The rule provides that when a court of competent
jurisdiction has entered a final judgment on the merits of a cause
of action, the parties to the suit and their privies are thereafter
bound not only as to every matter which was offered and received
to sustain or defeat the claim or demand, but as to any other
admissible matter which might have been offered for that purpose.
But where the second action between the same parties is upon a
different cause or demand, the principle of res judicata is applied much
more narrowly. In this situation, the judgment in the prior action
operates as an estoppel, not as to matters which might have been
litigated and determined, but only as to those matters in issue or
points controverted, upon the determination of which the finding or
verdict was rendered.
Since the cause of action involved in the second proceeding is not
swallowed by the judgment in the prior suit, the parties are free to
litigate points which were not at issue in the first proceeding, even
though such points might have been tendered and decided at that
time. But matters which were actually litigated and determined in the
first proceeding cannot later be relitigated. Once a party has fought out
a matter in litigation with the other party, he cannot later renew that
duel. In this sense, res judicata is usually and more accurately referred
to as estoppel by judgment, or collateral estoppel.
These same concepts are applicable in the federal income tax field.
Income taxes are levied on an annual basis. Each year is the origin of a
new liability and of a separate cause of action. Thus, if a claim of
liability or non-liability relating to a particular tax year is litigated, a
judgment on the merits is res judicata as to any subsequent proceeding
involving the same claim and the same tax year. But, if the later
proceeding is concerned with a similar or unlike claim relating to a
different tax year, the prior judgment acts as a collateral estoppel only
as to those matters in the second proceeding that were actually
presented and determined in the first suit. Collateral estoppel operates, in other words, to relieve the government and the taxpayer of
redundant litigation of the identical question of the statute’s application to the taxpayer ’s status. But collateral estoppel is a doctrine
capable of being applied so as to avoid an undue disparity in the impact
of income tax liability. A taxpayer may secure a judicial determination
of a particular tax matter, a matter which may recur without substantial variation for some years thereafter. But a subsequent modification of the significant facts or a change or development in the
controlling legal principles may make that determination obsolete or
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
erroneous, at least for future purposes. If such a determination is then
perpetuated each succeeding year as to the taxpayer involved in the
original litigation, he is accorded a tax treatment different from that
given to other taxpayers of the same class. As a result, there are
inequalities in the administration of the revenue laws, discriminatory
distinctions in tax liability, and a fertile basis for litigious confusion.
Such consequences, however, are neither necessitated nor justified by
the principle of collateral estoppel. That principle is designed to
prevent repetitious lawsuits over matters which have once been
decided and which have remained substantially static, factually and
legally. It is not meant to create vested rights in decisions that have
become obsolete or erroneous with time, thereby causing inequities
among taxpayers.
And so where two cases involve income taxes in different taxable
years, collateral estoppel must be used with its limitations carefully in
mind so as to avoid injustice. It must be confined to situations where
the matter raised in the second suit is identical in all respects with that
decided in the first proceeding and where the controlling facts and
applicable legal rules remain unchanged. If the legal matters determined in the earlier case differ from those raised in the second case,
collateral estoppel has no bearing on the situation. And where the
situation is vitally altered between the time of the first judgment and
the second, the prior determination is not conclusive. As demonstrated [in another case] a judicial declaration intervening between the
two proceedings may so change the legal atmosphere as to render the
rule of collateral estoppel inapplicable. But the intervening decision
need not necessarily be that of a state court. While such a state court
decision may be considered as having changed the facts for federal tax
litigation purposes, a modification or growth in legal principles as
enunciated in intervening decisions of this court may also effect a
significant change in the situation. Tax inequality can result as readily
from neglecting legal modulations by this court as from disregarding
factual changes wrought by state courts. In either event, the supervening decision cannot justly be ignored by blind reliance upon the
rule of collateral estoppel. It naturally follows that an interposed
alternation in the pertinent statutory provisions or Treasury Regulations can make the use of that rule unwarranted.
Of course, where a question of fact essential to the judgment is
actually litigated and determined in the first tax proceeding, the parties
are bound by that determination in a subsequent proceeding even
though the cause of action is different. And if the very same facts and
no others are involved in the second case, a case relating to a different
tax year, the prior judgment will be conclusive as to the same legal
issues that appear, assuming no intervening doctrinal change. But if
the relevant facts in the two cases are separable, even though they be
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§ 6:5.2
similar or identical, collateral estoppel does not govern the legal issues
that recur in the second case. Thus, the second proceeding may
involve an instrument or transaction identical with, but in a form
separable from, the one dealt with in the first proceeding. In that
situation, a court is free in the second proceeding to make an
independent examination of the legal matters at issue. It may then
reach a different result or, if consistency in decision is considered just
and desirable, reliance may be placed upon the ordinary rule of stare
decisis. Before a party can invoke the collateral estoppel doctrine in
these circumstances, the legal matter raised in the second proceeding
must involve the same set of events or documents and the same
bundle of legal principles that contributed to the rendering of the first
judgment.292
Thus, for either the government or the taxpayer to make use of the
doctrine of res judicata, the following elements must be satisfied:
(1)
the parties in the later action must be identical to the parties
in the prior action;
(2)
the judgment in the prior action must have been rendered by a
court of competent jurisdiction;
(3)
the prior action must have concluded with a final judgment on
the merits; and
(4)
the same claim or cause of action must be involved in both
suits.293
In United States v. Boyce,294 a district court dealt with the application of res judicata to Tax Court Rule 90(c) and (f). Rule 90(c) provides,
“Each matter is deemed admitted unless, within 30 days after service
of the request . . . the party to whom the request is directed serves upon
the requesting party (1) a written answer . . . or (2) an objection . . . .”
Rule 90(f) provides: “Any admission made by a party under this Rule is
for the purpose of the pending action only and is not an admission by
such party for any other purpose, nor may it be used against such party
in any other proceeding.” In Boyce, the court held on policy grounds
292.
293.
294.
Id. at 597–602.
United States v. Shanbaum, 10 F.3d 305, 310 (5th Cir. 1994). For several
cases applying the doctrine of res judicata, see Overton v. United States,
88 A.F.T.R.2d 2001-6572 (W.D. Okla. 2001); United States v. Boyce, 85
A.F.T.R.2d 2000-1938 (S.D. Cal. 2000); Lombard v. Comm’r, 84
A.F.T.R.2d 99-6937 (W.D. Va. 1999); Puckett v. United States, 82
F. Supp. 2d 660 (S.D. Tex. 1999), aff ’d without published opinion, 213
F.3d 636 (5th Cir. 2000). See also I.R.S. Chief Counsel Adv. Mem.
2000-06-040 (Feb. 11, 2000), supra, as it relates to res judicata and
innocent spouse relief.
United States v. Boyce, 85 A.F.T.R.2d 2000-1938 (S.D. Cal. 2000).
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
that, notwithstanding Rule 90(f), the mere fact that the Tax Court’s
judgment was based on the taxpayers’ deemed admissions did not bar
application of the doctrine of res judicata so long as all of the other
elements of the doctrine were satisfied.295
The Tax Court dealt with the application of collateral estoppel
in the context of admissions in a prior criminal tax conviction. In
Console v. Commissioner,296 the taxpayer plead guilty to a count of
criminal tax evasion for the year 1986 under section 7201. That
conviction, the court held, collaterally estopped him from denying
that his underpayment of income tax for that year was due to civil
fraud for purposes of section 6653(a). In so holding, the court stated:
It is well settled in this Court that the Commissioner may
establish fraud by relying upon matters deemed admitted under
Rule 90. The Commissioner may also establish fraud by relying on
facts deemed to be stipulated under Rule 91(f). On the basis of our
review of the record, we conclude that respondent has clearly and
convincingly proven both prongs of the two-part test for fraud
[underpayment of taxes, with some part of the underpayment due
to fraud] . . . . Petitioner ’s conviction of criminal tax evasion for
1986 under section 7201 collaterally estops him from denying
that his underpayment of income tax for 1986 was due to fraud for
297
purposes of section 6653(a).
This, of course, was the proper result because the standard of proof
for a criminal conviction—beyond a reasonable doubt—is higher
than what is needed for a finding of liability in a proceeding to
establish civil fraud—evidence that is clear and convincing.
In Johnston v. Commissioner,298 the Tax Court stated its own
formulation for applying collateral estoppel, with five prerequisites:
(1)
The issue in the second suit must be identical in all respects
with the one decided in the first suit.
(2)
There must be a final judgment rendered by a court of
competent jurisdiction.
(3)
Collateral estoppel may be invoked against parties and their
privies to the prior judgment.
(4)
The parties must actually have litigated the issues and the
resolution of these issues must have been essential to the prior
decision.
295.
296.
297.
298.
Id.
Console v. Comm’r, T.C. Memo 2001-232.
Id. For purposes of readability, citations have been omitted.
Johnston v. Comm’r, 119 T.C. 27 (2002).
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Tax Court Litigation and Claims for Refunds
(5)
§ 6:5.2
The controlling facts and applicable legal rules must remain
unchanged from those in the prior litigation.
Additionally, where collateral estoppel premised on a state court
proceeding is sought to be used offensively in federal court, reference is
made to the controlling state law to determine the propriety of such
offensive use.299 California courts have sanctioned use of offensive
collateral estoppel.300
In Acme Steel Co. v. Commissioner, 301 the court gave
further elucidation to the fourth element stated above, that is, that
the parties must actually have litigated the issues:
The problem with petitioner’s theory is that it fails to acknowledge that the bankruptcy court’s nonrebate conclusion is premised
on respondent’s stipulation that Interlake was the common parent
of the affiliated group at the time the tentative refunds were paid
to petitioner. This is neither a fact nor a legal conclusion we are
bound to accept. It is well settled that collateral estoppel does not
apply where the issue sought to be precluded was determined in a
stipulation. Levinson v. United States, 969 F.2d 260, 264 (7th
Cir.1992). The rationale behind the rule is that stipulated matters
have not been adjudicated on the merits. Id.; see also In re Cassidy,
892 F.2d 637, 640 n.1 (7th Cir. 1990) (citing United States v. Intl.
Bldg. Co., 345 U.S. 502, 506, 73 S. Ct. 807, 97 L.Ed. 1182 (1953)
(observing that judgments based on stipulated facts have no
collateral estoppel effect, especially in tax cases, because facts so
determined are not actually litigated as the doctrine requires)). In
the case at hand, petitioner ’s status at the time the tentative
refunds were paid has not been adjudicated. We therefore disagree
with petitioner ’s contention that “the facts relating to [petitioner’s] authority to receive the refunds have now been conclusively established.”
Moreover, while it would seem that when the taxpayer enters into a
closing agreement with the Service, the taxpayer should be collaterally
estopped in subsequent litigation, that is not a foregone conclusion, as
was illustrated in In re Boddiford:302
Closing agreements are governed by 26 U.S.C. § 7121, which
provides in part that:
299.
300.
301.
302.
Bertoli v. Comm’r, 103 T.C. 501, 508, 1994 WL 579942 (1994).
Id. at 33–34. See Imen v. Glassford, 201 Cal. App. 3d 898, 247 Cal. Rptr.
514, 518–19 (Cal. 1988); Estate of Gump v. Gump, 1 Cal. App. 4th 582, 2
Cal. Rptr. 2d 269, 286 (Cal. Ct. App. 1991).
Acme Steel Co. v. Comm’r, T.C. Memo 2003-118.
In re Boddiford, 312 B.R. 827 (Bankr. W.D. Va. 2004).
(Shafiroff, Rel. #21, 11/09)
6–69
§ 6:5.2
(b)
IRS PRACTICE & PROCEDURE DESKBOOK
. . . such agreement shall be final and conclusive, and except
upon a showing of fraud or malfeasance, or misrepresentation of a material fact—
(1)
the case shall not be reopened as to the matters agreed
upon or the agreement modified by any officer, employee, or agent of the United States, and
(2)
in any suit, action or proceeding, such agreement, or
any determination, assessment, collection, payment,
abatement, refund, or credit made in accordance therewith, shall not be annulled, modified, set aside, or
disregarded.
***
The requirement that the issue be actually litigated does not
prevent consent judgments from having collateral estoppel effect.
Both parties in the case at bar agree that such judgments can preclude
subsequent litigation of the issue which has been resolved by the
parties’ agreement. In such a situation the intention of the parties is
the determining factor in satisfying this requirement. Both parties cite
In re Olson, 170 B.R. 161 (Bankr. D.N.D. 1994), for this proposition.
In that case the court held that “[w]hen a court is confronted with a
consent judgment founded upon an agreement of the parties, the issue
of ‘intention’ then becomes the polestar for satisfying the defect
inherent in fulfilling [the] ‘actually litigated’ requirement of collateral
estoppel.” Id. at 167. The court in Olson went on to say that such an
agreement must contain, “far reaching preclusive language.” Id.
To determine whether the parties intended to settle the issue of
fraud on the part of Boddiford so as to satisfy the “actually litigated”
requirement of collateral estoppel, the court will first turn to
the language of the closing agreement. The closing agreement uses
IRS Form 866-c (Rev. July 1981), which is titled “Agreement as to Final
Determination of Tax Liability.” Nothing on the form refers to the
fraudulent nature of Boddiford’s conduct. In fact the word “fraud”
only appears once on the one page form and refers to the fact that
the agreement may be reopened in case a fraud is committed on or by
Boddiford in entering into the agreement. The form does apportion the
taxes and penalties owed to particular Internal Revenue Code sections.
In Boddiford’s agreement, a portion of the total sum was attributable
to 26 U.S.C. § 6663, which states in part, “[i]f any part of any
underpayment . . . is due to fraud, there shall be added to the tax an
amount equal to 75 percent of the portion of the underpayment which
is attributable to fraud.” Id. at (a). The case of In re Stodut, 181 B.R.
751 (Bankr. S.D.N.Y. 1995), dealt with a settlement agreement
reached between the taxpayers and the IRS on IRS Form 870-AD in
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Tax Court Litigation and Claims for Refunds
§ 6:6
which the taxpayer stipulated to owing certain taxes and penalties.
Like the agreement before this court, the stipulation in Stodut attributed a portion of the moneys owed to a civil fraud penalty. In a
subsequent bankruptcy proceeding to determine the dischargeability of
the agreed upon tax debt, the IRS sought to preclude the taxpayers
from disputing the fraudulent nature of their conduct because of
the stipulation. The Bankruptcy Court rejected its argument, holding
that a “civil fraud assessment, even if it is consented to in a stipulation, does not as a matter of law except a tax debt from discharge . . . .”
Id. at 756. Rather, the court held, “[t]o have a preclusive effect, the
stipulation must embody some indication that the parties intended to
foreclose the discharge issue from future litigation.” Id.
The holding in Stodut is even more persuasive in a situation where
the IRS has compromised on the amount due under the fraud penalty.
Such was the case in In re Riley,303 where the IRS sought to bar
taxpayers from disputing the fraudulent nature of their tax returns
based on a closing agreement in which they stipulated to owing a
penalty attributable to an Internal Revenue Code section dealing with
fraud. The court rejected the IRS’ position in part because the penalty
assessed was 5% of the underpayment when the pertinent section
called for a 50% penalty. See id. at 176. In the present case, the IRS and
Boddiford agreed to a significantly reduced penalty, 20% versus the
75% mandated in section 6663. It seems to this court that there is a
major difference between one’s agreement to pay a portion of an
asserted penalty in order to settle a claim and one’s agreement that
he is liable for the full amount of the penalty. Such a compromise
substantially weakens the argument that the agreement was intended
to bind Boddiford on the issue of the fraudulent nature of his underpayment as contrasted with the agreed upon amount of his tax
liability.304 Collateral estoppel has also been used to preclude a
taxpayer from relitigating the section 6213(a) exception to the AntiInjunction Act (section 7421).305
§ 6:6
Commencing a Tax Court Case
A case is commenced in the Tax Court by filing a petition to
redetermine the deficiency, to redetermine the liability of the transferee or fiduciary, to obtain a declaratory judgment or disclosure, to
adjust or readjust partnership items, to obtain an award for reasonable
303.
304.
305.
In re Riley, 202 B.R. 169 (Bankr. M.D. Fla. 1996).
Id. at 829–30.
MacElvain v. United States, 90 A.F.T.R.2d 2002-5255 (2002) (excellent
discussion on differences between collateral estoppel and res judicata).
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
administrative costs, or to obtain a review of the Commissioner ’s
failure to abate interest.306 At the time the petition is filed, a fee of $60
is paid to “Clerk, United States Tax Court.”307 The payment of any fee
can be waived by the court upon the taxpayer ’s presentation of an
affidavit containing specific financial information showing inability to
make the payment because of financial circumstances. 308 When the
fee is not paid until after a timely petition is filed, the court still has
jurisdiction, and the taxpayer will not be deprived of his or her day in
court.309
§ 6:6.1
Disclosure Statement
The amended T.C. Rule 20(c) requires a nongovernmental corporation, partnership, or limited liability company to submit with its
petition a separate disclosure statement. In the case of the nongovernmental corporation, the disclosure statement shall identify any parent
corporation and any publicly held entity owing 10% or more of the
petitioner ’s stock or state that there is no such entity. In the case of a
partnership or limited liability company, the statement shall identify
any publicly held entity owning an interest. The amendment is
consistent with the Rules of Civil Procedure, which were created to
provide the judges with additional information in determining if they
have a financial interest, thereby disqualifying the judge.
§ 6:6.2
Service of Papers
All petitions are served on the government by the clerk of the Tax
Court. All other papers are also served by the clerk unless otherwise
provided in the Tax Court Rules of Practice or directed by the court, or
unless the original papers are filed with a certificate by a party or his or
her counsel that service of that paper has been made on the party to be
served by his or her counsel.310 Service can be made by mail directed to
either the party or the party‘s counsel at his or her last known address.
Service by mail is complete upon mailing, and the date of mailing is
the date of service. As an alternative to service by mail, however,
service can be made by delivery to a party or his or her authorized
representative.311
306.
307.
308.
309.
310.
311.
T.C. Rule 20(a), 22.
T.C. Rule 20(b). A fee of $60 is required for the commencement of any case
in the Tax Court, including “Small Tax Cases,” discussed in the text below.
This became effective for all cases commenced after April 30, 1985. U.S.
Tax Court Press Release (Feb. 19, 1985).
T.C. Rule 20(b).
Rea v. Comm’r, 60 T.C. 717 (1973).
T.C. Rule 21(b)(1).
Id.
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Tax Court Litigation and Claims for Refunds
§ 6:6.3
When service is to the clerk of the court, the proper address is:
U.S. Tax Court
400 Second Street, N.W.
Washington, D.C. 20217312
When service is made on the Commissioner directly, it should be
directed to his or her counsel at the office address indicated in the answer
filed in the case; if no answer has been filed, service is on the Chief
Counsel of the Internal Revenue Service, Washington, D.C. 20224.
§ 6:6.3
Form and Style of Papers
All papers filed with the court must be captioned, dated, and signed
as follows. A proper caption must be placed in all papers filed with the
court.313 The caption must set forth the name of the court (U.S. Tax
Court), the title of the case, and the docket number when it becomes
available.314 All such prefixes and titles as “Mrs.” or “Doctor” are
omitted from the caption. The full name and surname of each
petitioner is set forth in the caption. The name of an estate or trust
or other person for whom the fiduciary acts precedes the fiduciary ’s
name and title (for example, “Estate of John Doe, deceased, Richard
Roe, executor”).315
With respect to the signature requirement, the original signature,
either of the party or the party’s counsel, must be subscribed in writing
to the original of every paper filed by or for the taxpayer with the court.
An individual, rather than a firm, name is used. An exception to this is
when the petitioner is a corporation or an unincorporated association.
Under these circumstances, subscription is to be made in the name of
the corporation or association by one of its active or authorized officers
(for example, “XYZ, Inc., by John Smith, President”).316
The name, mailing address, and telephone number of the taxpayer
or counsel, as well as counsel’s Tax Court bar number, is typed or
printed immediately below the written signature. The mailing address
of the signatory should include a firm name if it is an essential part of
the accurate mailing address.317
Except where it is otherwise provided by the Tax Court Rules of
Practice, for each paper filed with the court there must also be filed
four conforming copies, together with the signed original. When the
filing is in more than one case (as in filing a motion to consolidate) the
312.
313.
314.
315.
316.
317.
T.C. Rule 10(e).
T.C. Rule 23(a)(1).
A docket number is assigned by the clerk after the petition is filed.
T.C. Rule 23(a)(1).
T.C. Rule 23(a)(3).
Id.
(Shafiroff, Rel. #21, 11/09)
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§ 6:6.4
IRS PRACTICE & PROCEDURE DESKBOOK
number filed should include one additional copy for each docket
number in excess of one.318
Papers filed with the court can be prepared by any process, provided
that the papers, including copies, are clear and legible. 319 Typewritten
or printed papers must be typed or printed only on one side, on
opaque, unglazed paper, 8½” wide × 11” long. All such papers must
have margins on both sides of each page that are no less than 1” wide,
and margins on the top and bottom of each page that are no less than
¾-inch wide. Text and footnotes must appear in consistent typeface no
smaller than twelve characters per inch produced by a typewriting
element or twelve-point type produced by a non-proportional print
font (for example, Courier), with double spacing between each line of
text and single spacing between each line of indented quotations and
footnotes. Quotations in excess of five lines must be set off from the
surrounding text and indented. Double-spaced lines must be no more
than three lines to the vertical inch, and single-spaced lines must be no
more than six lines to the vertical inch.320 All papers are bound
together on the upper left-hand side only and are to contain no backs
or covers.321 All citations must be underscored when typewritten and
in italics when printed.322 Counsel should note that the clerk of the
court can return without filing any paper that does not conform to the
requirements stated above.323 The court, however, is reluctant to
resort to this if the taxpayer would thereby be denied his or her day
in court.324
§ 6:6.4
Appearance by Counsel
Counsel can enter an appearance either by subscribing to the
petition or other initial pleading, or by subsequently filing an entry
of appearance in duplicate, signed by counsel individually and containing the name and docket number of the case, the mailing address and
telephone number of counsel so appearing, and a statement that
counsel is admitted to practice before the court. 325 The entry of
appearance is to be in the form set forth in appendix 1 of the Tax
Court Rules of Practice.326
318.
319.
320.
321.
322.
323.
324.
325.
326.
T.C. Rule 23(b).
T.C. Rule 23(c).
T.C. Rule 23(d), as amended, effective Aug. 1, 1998.
T.C. Rule 23(e).
T.C. Rule 23(f).
T.C. Rule 23(g).
See Fletcher Plastics, Inc. v. Comm’r, 64 T.C. 35 (1975).
T.C. Rule 24.
Certain forms have been printed and are available upon request from
the Clerk of the Court. These are: Form 2 (Petition, Small Tax Case);
Form 3 (Entry of Appearance); Form 4 (Substitution of Counsel); Form 5
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Tax Court Litigation and Claims for Refunds
§ 6:6.5
§ 6:6.5
Pleadings
[A] General Rules
The purpose of the pleadings is to give the parties and the court fair
notice of the matters of controversy and the basis for the parties’
positions.327 As a consequence, pleadings are to be simple, concise,
and direct. Moreover, no technical forms of pleading are required. 328
In addition, a party is allowed to plead in the alternative and can
state as many separate claims or defenses as he or she has, regardless
of their consistency or the grounds on which they are based. 329
[B] Form Required
Every pleading is required to contain a caption setting forth the
name of the court (U.S. Tax Court), the title of the case, the docket
number when it is available (that is, after the petition is filed and the
clerk assigns a docket number), and a designation to show the nature
of the pleading.330
All averments of claim or defense and all statements in support
thereof must be made in separately designated paragraphs. Each
paragraph is to be limited, as far as is practicable, to a statement of
a single item or a single set of circumstances. Each paragraph may be
referred to by that designation in subsequent pleadings.331 Statements
in a particular pleading can be adopted by reference in another part of
the same pleading, in another pleading, or in a later motion. 332
Each pleading must be signed in the manner discussed above. When
there is more than one attorney of record, only one need sign the
pleading, and although pleadings are not required to be verified or
327.
328.
329.
330.
331.
332.
(Designation of Place of Trial); Form 6 (Subpoena); Form 7 (Application
for Order to Take Deposition); and Form 13 (Petition for Administrative
Costs under I.R.C. § 7430(f)(2)). All the forms may be typewritten or
printed, except that the subpoena (Form 6) must be obtained from the
court. When preparing papers for filing with the court, attention should
be given to the applicable requirements of Rule 23 in regard to form, size,
type, and number of copies, as well as to such other rules of the court as
may apply to the particular item. T.C. Rule Prac. & Proc., App. I.
Counsel should note that all of these form are now available at www.
ustaxcourt.gov, and may be filed in and printed directly from Adobe
Acrobat Reader.
T.C. Rule 31(a).
T.C. Rule 31(b).
T.C. Rule 31(c).
T.C. Rule 32(a).
T.C. Rule 32(b).
T.C. Rule 32(c). With respect to other provisions relating to the form
and style of papers filed with the court, see Rules 23, 56(a), 57(a), 210(d),
220(d), 240(d), 300(d), and 320(c). T.C. Rule 32(d).
(Shafiroff, Rel. #21, 11/09)
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accompanied by an affidavit,333 the signature of counsel or a party
constitutes a certificate that he or she has read the pleading and that,
to the best of his or her knowledge and belief, there is good ground to
support it and it was not interposed for purposes of delay or to increase
the costs of litigation. The signature of counsel also constitutes a
representation by counsel that he or she is authorized to represent the
party on whose behalf the pleading is filed. If a pleading is not signed,
it will be stricken, unless it is signed promptly after the omission is
called to the attention of the pleader. If a pleading is signed in violation
of this rule, the court, upon motion or upon its own initiative, can
impose upon the person who signed it, a represented party, or both, an
appropriate sanction, which may include an order to pay the other
party the amount of the reasonable expenses incurred because of the
filing of the pleading, including reasonable counsel’s fees. 334
[C]
Petition
With respect to a notice of deficiency or of fiduciary or transferee
liability, the petition must be substantially in accordance with Form 1
in appendix 1 of the Tax Court Rules of Practice. Ordinarily, a separate
petition must be filed with respect to each notice of deficiency or each
notice of liability. However, a single petition may be filed seeking a
redetermination with respect to all notices of deficiency or liability
directed to one person alone, or to such person and one or more other
persons, or to a husband and a wife, individually, except that the court
may require a severance and a separate case to be maintained with
respect to one or more of such notices. Where the notice of deficiency
or liability is directed to more than one person, each such person
desiring to contest it must file a petition, either separately or jointly
with any such other person, and each such person must satisfy all the
requirements of this rule in order for the petition to be treated as filed
by such person. The petition must be complete so as to enable
ascertainment of the issues. Telegrams, cablegrams, radiograms, telephone calls, and similar communications will not be recognized as a
petition. Failure of the petition to satisfy the requirement stated may
be grounds for dismissal of the case.335
333.
334.
335.
T.C. Rule 33(a).
T.C. Rule 33(b).
T.C. Rule 34(a)(1). In Blum v. Comm’r, 86 T.C. 1128 (1986), the Tax Court
held that an electronically transmitted petition was considered to be a
communication similar to a telegram, cablegram, radiogram, or telephone
call; it was, therefore, not sufficient to confer jurisdiction upon the court.
In 1987, Rule 34(a)(1) was amended effective May 29, 1986, the date of the
Blum decision, specifically to prohibit an “electronically transmitted copy”
as a petition. For the requirements relating to the petitions in other
actions, see the following rules: declaratory judgment actions, Rules 211(b),
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The caption must contain the petitioner ’s name.336 The introductory paragraph must inform the court that the taxpayer(s) is petitioning for a redetermination of the deficiency or liability as set forth by
the Commissioner in the notice of deficiency. This paragraph must
also include the Service symbols in the notice of deficiency and the
date of the deficiency notice.
The first numbered paragraph must indicate whether the petitioner
is an individual, fiduciary, corporation, etc., and state its mailing
address. If the address of the residence or principal office is different
from the mailing address, that must be stated. Where the petitioner is
a corporation, the petition must state its principal place of business or
principal office or agency. In all cases, the office of the IRS where the
tax return for the period in controversy was filed must be given. The
legal residence, principal place of business, or principal office or agency
must be stated as of the date of filing of the petition. Where there is a
variance between the name set forth in the notice of deficiency or
liability and the correct name, a statement of the reasons for this
variance must be stated in the petition. 337 This first numbered
paragraph must also state the city and state of the office of the IRS
where the tax return for the period involved was filed.
Prior to March 1, 2008, Tax Court petitions were required to
include the taxpayer ’s social security number along with the home
address. Due to privacy concerns the court adopted T.C. Rule 20(b)
which provides for the submission of a separate statement with the
taxpayer ’s social security number. That statement, Form 4,338 will
not, however, be part of the court’s file, and hence not available to the
general public. The new Tax Court Rule 27 directs all parties including
the IRS to redact taxpayer identification numbers, dates of birth,
names of minor children, and financial account numbers in filings
with the Tax Court.
336.
337.
338.
311(b); disclosure actions, Rule 221(b); partnership actions, Rules 241(b),
301(b); administrative costs actions, Rule 271(b); abatement of interest
actions, Rule 281(b); redetermination of employment status actions, Rule
291(b); determination of relief from joint and several liability on a joint
return actions, Rule 321(b); and lien and levy actions, Rule 331(b). As to
joinder of parties in declaratory judgment actions, in disclosure actions,
and in partnership actions, see Rules 215, 226, and 241(h) and 301(f),
respectively. T.C. Rule 43(a)(2).
If both husband and wife filed the petition, the petition must be in the
name of husband and wife (e.g., “John Smith and Mary Smith, Petitioners”).
T.C. Rule 34(b)(1).
Form 4 can be located on the Tax Court’s website, available at www.
taxcourt.gov, in appendix I of its Rules of Practice and Procedure.
(Shafiroff, Rel. #21, 11/09)
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The second numbered paragraph of the petition must contain the
date of the notice of deficiency or liability and the city and state of the
office of the IRS that issued the notice.339
The third numbered paragraph of the petition must state the amount
of the deficiency or liability determined by the Commissioner, the nature
of the tax (for example, income, estate, gift), the tax periods for which the
determination was made, and, if different from the Commissioner ’s
determination, the approximate amount of taxes in controversy.340
The fourth numbered paragraph of the petition must contain clear,
concise assignments of every error that the petitioner alleges has been
committed by the Commissioner in the determination of the deficiency.341 This may readily be accomplished by counsel by simply
tracking the agent’s ninety-day letter. Thus, for example, if an interest
expense was disallowed on a taxpayer ’s return on the ground that the
taxpayer did not establish that the payments were in fact interest (that
is, the charge for the use of money), the error alleged to have been
committed by the Commissioner would be “in determining that the
monies paid were not paid for the use of money.”
The assignments of error must also include issues in respect of
which the burden of proof is on the Commissioner.342 Thus, even
though the Commissioner has the burden of proof with respect to the
civil fraud penalty, the taxpayer must allege that the assertion of the
civil fraud penalty by the Commissioner was in error.343
Whenever there is doubt as to whether or not an issue should be
raised, counsel should raise it. The reason for this is that any issue not
raised in the assignment of error is deemed to be conceded. 344
Thus, it has been held345 that an issue not raised in the petition is
not deemed timely and will not be considered by the court when raised
for the first time on argument on the brief or on motion.346
Finally, each assignment of error must be separately lettered. 347
339.
340.
341.
342.
343.
344.
345.
346.
347.
T.C. Rule 34(b)(2).
T.C. Rule 34(b)(3).
T.C. Rule 34(b)(4).
Id. Regarding changes made by the Taxpayer Bill of Rights 3 to the burden
of proof, see the discussion in the text, infra.
Gordon v. Comm’r, 73 T.C. 736 (1980).
T.C. Rule. 34(b)(4). See also Swain v. Comm’r, 118 T.C. 358, 362 (2002),
where the court held that an issue not addressed by clear and concise
assignment of error in the petition is deemed conceded, even where the
Commissioner has failed to produce evidence, as required by the Taxpayer
Bill of Rights 3, that imposition of a penalty is appropriate. For a
discussion of Swain, see infra.
See, e.g., Heckett v. Comm’r, 8 T.C. 841 (1947); Single v. Comm’r, T.C.M.
(P-H) ¶ 63,158 (1963).
See discussion of amending petition, infra.
T.C. Rule 34(b)(4).
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The fifth numbered paragraph must contain clear, concise lettered
statements of the facts on which petitioner bases the assignments of
error,348 except with respect to those assignments of error for which
the Commissioner has the burden of proof. It is in this paragraph that
the taxpayer or counsel states the facts that, if found by the court,
would require the court to find that the Commissioner indeed had
committed error in determining the deficiency or liability. Although
some practitioners still subscribe to the old maxim of “hiding the ball”
so as not to “tip our hand,” I submit that that practice is no longer
valid. This is due in part to the requirement that the parties stipulate
to all facts not in issue.349 However, counsel should be cautious about
setting forth facts early in the proceeding if counsel has not been fully
involved up to the point of filing the petition. The Tax Court only
requires notice pleading and counsel should not set forth facts without
independently confirming them.
Paragraph six (not numbered) requires the prayer for relief sought by
the petitioner.350 For example, a typical prayer might be that the court
find that the deficiency does not exist, that only a $100 deficiency exists,
or that the taxpayer is entitled to a refund based on an overpayment.
The seventh paragraph requires the signature, mailing address, and
telephone number of each petitioner or his or her counsel, as well as
counsel’s Tax Court bar number.351
Because much reference is made to the notice of deficiency or
liability, the Rules of Practice require counsel to attach the notice to
the petition.352 Although the rule states that only a notice of deficiency
that is “material to the issues raised by the assignments of error ” need
be attached, in practical terms, counsel should always attach the entire
ninety-day notice. The notice should be marked as Exhibit A and so
referred to in the petition.
It should be noted parenthetically that any claim for reasonable
litigation costs and attorney ’s fees is not to be included in the
petition.353 Rather, it is included in the stipulated decision submitted
by the parties for entry by the court if both parties have reached
agreement on an award of reasonable attorney’s fees. If not agreed, the
348.
349.
350.
351.
352.
353.
T.C. Rule. 34(b)(5).
See the discussion of use of stipulations in the Tax Court, infra.
T.C. Rule 34(b)(6).
T.C. Rule. 34(b)(7). For the requirements as to the content of the petition
in a small tax case, see Rule 173(a). For the requirements as to the content
of the petition in other actions, see Rule 211(c), (d), (e), (f), and (g), Rule
221(c), (d), and (e), Rule 241(c), (d), and (e), Rule 271(b), Rule 281(b), Rule
291(b), Rule 301(b), Rule 311(b), Rule 321(b), Rule 331(b), and Rule 34(c).
T.C. Rule 34(b)(8).
Id.
(Shafiroff, Rel. #21, 11/09)
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claim is made by motion.354 For each Tax Court petition filed, there
must be a signed original together with two conformed copies. 355
Counsel will receive back one of the copies with the docket number
assigned by the clerk.
[C][1] Petition for Innocent Spouse or Separate
Liability Election: The “Stand-Alone Proceeding”
There are several jurisdictional bases upon which the Tax Court
may review a claim for relief from joint liability under section 6015,
dealing with innocent spouse or separate liability election. One basis is
the traditional petition based on a notice of deficiency where the
petition includes, among other issues, a claim by one or both spouses
for relief from joint liability. Relief claimed in this context has
traditionally been characterized as an affirmative defense, and the
enactment of section 6015 by the IRS Restructuring and Reform Act of
1998356 has not negated the Tax Court’s authority to consider a claim
for such relief in a so-called deficiency proceeding. 357
Thus, where a taxpayer disputes a deficiency on several grounds,
only one of which includes a section 6015 defense, the innocent
spouse or separate liability election merely becomes an affirmative
defense; the petition is prepared in the same manner as has been
discussed in the preceding section of this text.
But what of the situation where the taxpayer raises only the
affirmative defense of innocent spouse or separate liability election
and where the Service does not issue a deficiency notice? In such a
case, the taxpayer is not contesting the amount of the tax due, only
that he or she is not responsible for it pursuant to the innocent spouse
or separate liability elections of section 6015. Section 6015(e)(1)(A)
provides the Tax Court with jurisdiction to consider a claim for relief
from joint liability by specifically allowing a spouse who elects
relief under section 6015 to petition the court for review of the
Commissioner ’s determination regarding an administrative claim
for relief. Unlike a deficiency proceeding, 358 a proceeding under
section 6015(e)(1)(A) is restricted to the issue of relief from joint
354.
355.
356.
357.
358.
T.C. Rule. 231(a)(2).
T.C. Rule 34(d).
IRS Restructuring and Reform Act of 1998, Title III (Taxpayer Bill of
Rights 3), § 3201(a).
King v. Comm’r, 115 T.C. 118, 121 (2000).
Another situation in which the Tax Court has jurisdiction to review a
claim for relief from joint liability involves the collection due process
procedures of sections 6320 and 6330. Among the issues that can be
considered under sections 6320 and 6330 are “the underlying tax liability”
and “appropriate spousal defenses.” See I.R.C. § 6330(c)(2). See also King
v. Comm’r, 115 T.C. at 122 (2000).
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liability for the individual electing such relief.359 A proceeding under
section 6015(e)(1)(A) has been referred to as a “stand-alone” proceeding.360 As stated earlier, in a stand-alone proceeding, the non-electing
spouse is statutorily entitled to adequate notice and an opportunity to
become a party to the proceeding.361
Importantly, in Bernal v. Commissioner,362 the Tax Court held that
a stand-alone proceeding is not available in a section 66(c)363 scenario:
Unlike section 6015, section 66 does not specifically and separately grant this Court jurisdiction over the Commissioner ’s
denial of equitable relief under section 66(c). In Fernandez v.
Commissioner, 114 T.C. 324, 2000 WL 565108 (2000), we
considered a petition filed under the “stand alone” provisions of
section 6015(e). We pointed out in Fernandez that our jurisdiction
depended upon the specific provisions of section 6015(e)(1)(A). Id.
at 329. In fact, section 6015(e) sets forth specific and separate
provisions for filing a petition for review of the appropriate
relief available with respect to a claim for relief from joint and
several liability. While section 66(c) permits a spouse who does not
file joint returns to seek relief from the effects of community
income, said section does not contain a parallel provision to section
6015(e) providing for review by the Tax Court. Without such a
parallel provision the conclusion is evident, that we do not have
jurisdiction to consider a “stand alone” petition under section 66.
As noted supra . . . , section 66(c) was amended at the same time as
the enactment of section 6015. There is nothing in the statute or
legislative history from which we could conclude that Congress
intended to provide independent (“stand alone”) review by the
Tax Court of the denial of a claim for relief under section 66.
Section 66(c) contemplates that petitioner be given the opportunity
to request administrative relief from liability for income tax
on community property income. Petitioner filed a Form 8857
and requested such relief. Although petitioner is dissatisfied
with respondent’s determination not to grant relief, there is no
provision in section 66(c) that would vest the Court with jurisdic364
tion to review respondent’s administrative determination.
Where a taxpayer wishes to commence an action for determination of relief from joint and several liability solely as a result
of filing a joint return (innocent spouse or separate liability
359.
360.
361.
362.
363.
364.
I.R.C. § 6013(d)(3).
King v. Comm’r, 115 T.C. at 122 (2000).
Id. For a discussion of notice to the non-electing spouse, see discussion,
supra.
Bernal v. Comm’r, 120 T.C. 102 (2003).
For a discussion of I.R.C. § 66(c), dealing with treatment of community
property income, see this chapter, supra.
Bernal, 120 T.C. at 107–08 (footnote omitted).
(Shafiroff, Rel. #21, 11/09)
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365
election),
he or she commences an action by filing a petition
366
with the Tax Court.
The Tax Court rules detail the manner in which a stand-alone
petition is to be prepared. The content of such a petition is to be
entitled, “Petition for Determination of Relief from Joint and Several
Liability on a Joint Return,”367 and must contain the following:
(1)
The petitioner ’s name, legal residence, and mailing address.
(2)
A statement of the facts upon which the petitioner relies to
support the jurisdiction of the court and, as an attachment, a
copy of the Commissioner ’s Notice of Determination of the
relief available pursuant to section 6015 or, if the Commissioner has not issued to the petitioner a Notice of Determination of the relief available pursuant to section 6015, a copy of
the election for relief filed by the petitioner.
(3)
A statement of the facts upon which the petitioner relies in
support of the relief requested.
(4)
A prayer setting forth the relief sought by the petitioner.
(5)
The name and mailing address of the other individual filing
the joint return, if available.
(6)
The signature, mailing address, and telephone number of the
petitioner or the petitioner ’s counsel, as well as counsel’s Tax
Court bar number.368
A claim for reasonable litigation or administrative costs is not
included in the petition in an action for determination of relief from
joint and several liability on a joint return. Rather, counsel must
comply with Tax Court Rule 231 regarding claims for reasonable
litigation or administrative costs.369
The filing fee for filing a petition for determination of relief from joint
and several liability on a joint return is $60, payable at the time of
filing.370 At the time of filing a petition for determination of relief from
joint and several liability on a joint return, the petitioner must file a
designation of place of trial in accordance with Tax Court Rule 140.371
365.
366.
367.
368.
369.
370.
371.
See I.R.C. § 6015.
T.C. Rule 321(a). See also Rule 20, relating to commencement of the case;
Rule 22, relating to the place and manner of filing the petition; and
Rule 32, relating to the form of pleadings.
T.C. Rule 321(b).
T.C. Rule 321(b)(1)–(5).
T.C. Rule 321(b) (flush).
T.C. Rule 321(d).
T.C. Rule 322. For a discussion of Rule 140 and place of trial, see infra.
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The Commissioner must file an answer or must move with respect
to the petition within the periods specified in and in accordance with
the provisions of Tax Court Rule 36.372 On or before sixty days from
the date of the service of the petition, the Commissioner must serve
notice of the filing of the petition on the other individual (non-electing
spouse) filing the joint return and shall simultaneously file with the
court a copy of the notice with an attached certificate of service. The
notice must advise the other individual of the right to intervene by
filing a notice of intervention with the court not later than sixty days
after the date of service on the other individual. 373
Tax Court Rule 37 governs replies by the petitioner.374
[C][2] Petition for Award of Reasonable
Administrative Costs
As mentioned earlier, a taxpayer may be entitled to an award of
reasonable costs. Assuming that such costs are available, it is important for counsel to know the proper mechanism for the recovery
of such costs. Where the Tax Court already has jurisdiction over the
parties and the parties agree in the amount of reasonable litigation and
administrative costs, the amount of the costs is to be included in the
stipulated decision.375 Where, however, the parties cannot agree, the
taxpayer who is before the Tax Court is to submit a claim for such
costs by motion.376 The content of the motion is detailed in the Tax
Court Rules of Practice.377
On the other hand, if the court does not have jurisdiction over the
parties who have resolved the underlying substantive issues but not
372.
373.
374.
375.
376.
377.
T.C. Rule 323(a). For a discussion of Rule 36, see infra.
T.C. Rule 325(a). If the other individual filing the joint return (the nonelecting spouse) desires to intervene, then such individual must file a
notice of intervention with the court not later than sixty days after service
of the notice by the Commissioner of the filing of the petition, unless the
court directs otherwise. All new matters of claim or defense in a notice of
intervention are deemed denied. T.C. Rule 325(b). See, e.g., Van Arsdalen v.
Comm’r, 123 T.C. 135 (2004); cf. Baranowicz v. Comm’r, 432 F.3d 972
(9th Cir. 2005) (taxpayer could not appeal Tax Court’s grant of innocent
spouse relief to former wife; taxpayer suffered no redressable injury and,
therefore, lacked standing).
T.C. Rule 323(b). For a discussion of Rule 37, see infra.
T.C. Rule 231(a)(1). The reader should note that the costs described in
section 7430 may be recovered in any court, including the Tax Court.
Nonetheless, because this chapter emphasizes litigation in the Tax Court
and this section deals specifically with the Tax Court petition, the
emphasis in this portion of the material is necessarily on Tax Court
procedure. The procedure for submitting a claim in other courts, such as
district court or the Court of Claims is beyond the scope of this treatise.
T.C. Rule 231(a)(2).
T.C. Rule 231(b).
(Shafiroff, Rel. #21, 11/09)
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the recovery of administrative costs (this would arise if, for example,
the taxpayer and the IRS Office of Appeals reached agreement in a
non-docketed case with respect to all issues except the section 7430
matters), the taxpayer may petition the Tax Court for a review of the
Service’s decision.378
Initially, it is to be noted that in such a case, the Tax Court has
jurisdiction only if two conditions are satisfied: (1) the IRS has made a
decision denying (in whole or in part) an award for reasonable
administrative costs under section 7430(a);379 and (2) a petition for
an award for reasonable administrative costs is filed with the Tax
Court within the period specified in section 7430(f)(2). 380 Section
7430(f)(2) states that if the IRS sends by certified or registered mail a
notice of a decision granting or denying (in whole or in part) an award
for reasonable administrative costs, no proceeding in the Tax Court
may be initiated unless the petition is filed before the ninety-first day
after the date of the mailing.
As to the burden of proof, the burden is on the taxpayer to prove
that it has substantially prevailed; has exhausted the administrative
remedies available to it within the IRS; has not unreasonably protracted the administrative proceeding; has satisfied the net worth
requirements, if applicable; and has substantially prevailed with
respect to either the amount in controversy or the most significant
issue or set of issues presented in the administrative proceeding. 381
The taxpayer is not to be treated as the prevailing party if the IRS
establishes that its position was substantially justified. 382
The content of a petition for an award of reasonable administrative
costs is entitled “Petition for Administrative Costs (Sec. 7430(f)(2)).”
Such a petition must be substantially in accordance with T.C. Rules
Form 13, or, in the alternative, contain the following:
(1)
378.
379.
380.
381.
382.
In the case of petitioner other than a corporation, the petitioner ’s name and legal residence; in the case of a corporate
petitioner, the petitioner ’s name and principal place of business or principal office or agency; and in all cases, the
petitioner ’s mailing address and identification number (for
example, Social Security number or employer identification
number). The mailing address, legal residence, and principal
place of business, or principal office or agency, is to be stated as
of the date that the petition is filed.
I.R.C. § 7430(f)(2).
T.C. Rule 270(c)(1).
T.C. Rule 270(c)(2).
T.C. Rules 232(e), 270(d).
T.C. Rule 233(e). See also I.R.C. § 7430(c)(4)(B).
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(2)
The date of the decision denying an award for administrative
costs in respect to which the petition is filed, and the city and
state of the office of the IRS which issued the decision.
(3)
The amount of the administrative costs claimed by the petitioner in the administrative proceeding; the administrative
costs denied by the IRS; and, if different from the amount
denied, the amount of administrative costs now claimed by
the petitioner.
(4)
Clear and concise lettered statements of the facts on which the
petitioner relies to establish that, in the administrative proceeding, the petitioner substantially prevailed with respect to
either the amount in controversy or the most significant issue
or set of issues presented in the administrative proceeding.
(5)
A statement that the petitioner meets the net worth requirements of [28 U.S.C. § 2412(d)(2)(B)].
(6)
The signature, mailing address, and telephone number of each
petitioner or each petitioner ’s counsel, as well as counsel’s Tax
Court bar number.
(7)
A copy of the decision denying (in whole or in part) an award
for reasonable administrative costs in respect of which the
petition is filed.383
The fee for filing a petition for administrative costs is $60, payable
at the time of filing.384
The Commissioner must file an answer or move with respect to the
petition within the periods specified in accordance with the provisions
of Tax Court Rule 36, 385 as well comply with other additional
requirements detailed in the Tax Court Rules of Practice.386 Regarding
replies by the petitioner, Tax Court Rule 37 governs.387
[C][3] Petition for Lien or Levy Action
As mentioned earlier, the Tax Court has jurisdiction to hear
actions for the release of liens and levies under sections 6320(c) and
6330(d).388 A lien or levy action under section 6320(c) or 6330(d) is
commenced by filing a petition with the Tax Court.389
383.
384.
385.
386.
387.
388.
389.
T.C. Rule 271(b)(1)–(7).
T.C. Rule 271(c).
T.C. Rule 272(a)(1). For a discussion of Rule 36, see infra.
See T.C. Rule 272(a)(2)(A)–(E).
T.C. Rule 272(b). For a discussion of Rule 37, see infra.
T.C. Rule 330(a), (b).
T.C. Rule 331(a).
(Shafiroff, Rel. #21, 11/09)
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A petition filed pursuant to section 6320(c) or 6330(d) is entitled,
“Petition for Lien Action Under Code Section 6320(c),” or “Petition for
Levy Action Under Code Section 6330(d),” as applicable, and must
contain the following:
(1)
In the case of a petitioner other than a corporation, the
petitioner ’s name and legal residence; in the case of a corporate petitioner, the petitioner ’s name and principal place of
business or principal office or agency; and in all cases, the
petitioner ’s mailing address. The mailing address, legal residence, and principal place of business, or principal place or
business, or principal office or agency, shall be stated as of the
date that the petition is filed.
(2)
The date of the Notice of Determination concerning collection
action(s) under section 6320 and/or 6330 by the Internal
Revenue Service Office of Appeals (hereinafter “Notice of
Determination”), and the city and state of the Office which
made such determination.
(3)
The amount or amounts of the underlying tax liability, and the
year or years or other periods to which the lien or levy
determination relates.
(4)
Clear and concise assignments of each and every error which
the petitioner alleges to have been committed in the lien or
levy determination. Any issue not raised in the assignments of
error is deemed to be conceded. Each assignment of error is
separately lettered.
(5)
Clear and concise lettered statements of the facts on which the
petitioner bases each assignment of error.
(6)
A prayer setting forth the relief sought by petitioner.
(7)
The signature, mailing address, and telephone number of each
petitioner or each petitioner ’s counsel, as well as counsel’s Tax
Court bar number.
(8)
As an attachment, a copy of the lien or levy determination. 390
390.
T.C. Rule 331(b)(1)–(8). See Lunsford v. Comm’r, 117 T.C. 183, 185–86
(2001) (“Lunsford II”), where the court held:
Our Rules require petitioners to specify the facts upon which they
rely for relief under I.R.C. § 6330. A petition filed under I.R.C.
§ 6330 must contain “Clear and concise lettered statements of the
facts on which the petitioner bases each assignment of error.”
Rule 331(b)(5). Any issue not raised in the assignments of error shall be
deemed to be conceded.
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The petition must be filed within thirty days of a lien or levy
determination.391 Note that this period is different from the ninetyday period with respect to filing a petition for a redetermination of a
notice of deficiency.
A claim for reasonable litigation or administrative costs is not
included in the petition for a lien or levy action.392
The fee for filing a petition for a lien or levy action is $60, payable at
the time of filing.393
[D] Commissioner’s Answer
The Commissioner has sixty days from the date of service of the
petition within which to file an answer, or forty-five days from that
date within which to make a motion with respect to the petition. The
Commissioner has like periods from the date of service of an amendment to the petition to answer or move in response thereto.394
The purpose of the answer is to advise the petitioner and the court of
the nature of the Commissioner ’s defense. In this respect, the Commissioner either may make a specific admission or denial of each material
allegation in the petition, or, if without knowledge or information to
form a belief as to the truth of an allegation, may so state, which will
have the effect of a denial. In addition, the answer must contain a clear
and concise statement of every ground, together with the facts to support
those grounds on which the Commissioner relies and for which the
Commissioner has the burden of proof.395 The answer must contain
affirmative allegations of any facts upon which the respondent relies for
defense or for affirmative relief or to sustain any issue with respect to
which the burden of proof is on the respondent. Each further defense and
the allegations with respect to each issue upon which the respondent has
the burden of proof should be separately and consecutively numbered
with the detailed allegations of supporting facts.396
An adequate answer is considered to include appropriate admissions, qualifications, and denials of each material fact alleged in the
petition; presents all defenses available to the respondent; requests any
affirmative relief to which the respondent is entitled; and alleges facts
in sufficient detail to support any issue upon which the respondent has
the burden of proof. An adequate answer may be one in which detailed
391.
392.
393.
394.
395.
396.
I.R.C. § 6330(d)(1). See also I.R.C. § 6320(c).
T.C. Rule 331(b), flush language.
T.C. Rule 330(d).
T.C. Rule. 36(a). Note that effective March 13, 2007, the Commissioner
must also file an answer to small tax case petitions. T.C. Rule 173(b). For
further elucidation, see infra, dealing with small tax cases.
T.C. Rule 36(b).
CCDC 35.2.2.2.8 Affirmative Allegations (Aug. 11, 2004).
(Shafiroff, Rel. #21, 11/09)
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facts are alleged, or one in which the minimum required facts are
alleged, depending upon the facts and circumstances of each case. In
determining the amount of detail to be alleged, consideration must be
given to the result to be accomplished by such allegations and
particularly whether the answer with minimum allegations can be
defended as adequate under the court’s rules if petitioner files a motion
with respect thereto.
In answering petitions, IRS Counsel attorneys usually rely on the
information contained in the administrative file. T.C. Rule 33(b)
imposes upon counsel (as well as pro se petitioners) the duty to
make reasonable inquiry as to both the facts and the law prior to the
filing of any pleading. The signature of counsel constitutes a certification that he or she has read the pleading and, that after reasonable
inquiry, has determined that it is well grounded in fact and is
warranted by existing law or a good faith argument for the extension,
modification, or reversal of existing law.
It is clear that T.C. Rule 33(b) imposes an affirmative duty upon
counsel to investigate the facts of the case and the relevant law prior to
filing an answer or other pleading. A good faith belief that the case is
well grounded in fact and law is not sufficient to satisfy the rule.
Reasonable inquiry is a more stringent standard than good faith. What
constitutes a reasonable inquiry may depend on such factors as how
much time for investigation was available to the signer of the answer
or motion; whether he or she had to rely on a client for information as
to the facts underlying the answer, pleading, motion, or other paper;
whether the pleading, motion, or other paper was based on a plausible
view of the law; or whether he or she depended on forwarding counsel
or another member of the bar.
T.C. Rule 36 requires the specific admission or denial of each material
allegation in the petition. Therefore, the Chief Counsel attorney, in the
preparation of the answer, must ascertain what facts alleged in the
petition are known by the respondent to be true. The Counsel attorney
is normally not required to conduct further investigation to determine
the accuracy of alleged facts prior to answering the petition. If an alleged
fact would be stipulated on the basis of the investigative reports and
other information contained in the respondent’s file, it should be
admitted in the answer. The court’s rules do not require the admission
of immaterial facts, facts colored by the petitioner ’s pleading, allegations
representing half-truths, arguments, or conclusions, but care should be
exercised in denying facts not in dispute merely because of the manner
in which they are alleged. For allegations of fact in the foregoing
categories it may be advisable to deny the fact as alleged but follow it
with a correct allegation of the fact. In practice, however, a large
percentage of answers contain the phrase, “denies for lack of sufficient
information” without any meaningful review.
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Every material allegation set out in the petition that is not expressly
admitted or denied in the answer is deemed to be admitted. 397
[E]
Petitioner’s Reply
Replies by petitioners are required only for those issues for which
the Commissioner has the burden of proof.398 The petitioner has
forty-five days from the date of service of the answer within which to
file a reply, or thirty days from service within which to move with
respect to the answer.399 In his or her reply, the petitioner will either
make a specific admission or denial or, if without knowledge or
information sufficient to form a belief as to the truth of an allegation,
so state, which statement will have the effect of a denial. 400 When a
reply is filed, every affirmative allegation set out in the answer and not
expressly admitted or denied in the reply will be deemed to be
admitted.401 In addition, the reply must contain a clear, concise
statement of every ground (and the facts in support of that ground)
on which the petitioner relies affirmatively or in avoidance of any
matter in the answer on which the Commissioner has the burden of
proof.402
[F] Amended and Supplemental Pleadings
A party is allowed to amend his or her pleading once as a matter of
right at any time before a responsive pleading is served. If the pleading
is one for which no responsive pleading is permitted, and the case has
not been placed on the trial calendar, the party can amend it as of right
at any time within thirty days after it is served. In other cases, a party
can amend the pleading by leave of the court or by written consent of
the opposing party. Leave to amend, however, is freely given when
justice so requires.403
A pleading is amended by a motion stating the reasons for the
amendment and accompanied by the proposed amendment. 404
In addition to the above, the court can, upon motion of any party at
any time, allow amendment of the pleading to conform to the
evidence.405 In addition, upon motion of a party, the court can permit
the party to file a supplemental pleading setting forth transactions or
397.
398.
399.
400.
401.
402.
403.
404.
405.
T.C. Rule 36(c).
T.C. Rule 37(b); see Beringer v. Comm’r, 29 B.T.A. 250 (1933).
T.C. Rule 37(a).
T.C. Rule 37(b).
T.C. Rule 37(c).
T.C. Rule 37(b).
T.C. Rule 41(a).
Id.
T.C. Rule 41(b). For an extensive discussion on this rule, see Arberg v.
Comm’r, T.C. Memo 2007-244.
(Shafiroff, Rel. #21, 11/09)
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occurrences that have happened since the date of pleading sought to be
supplemented.406
§ 6:6.6
Motions
Motions practice is an important aspect in the handling of Tax Court
litigation. Proper action by way of motions may not only expedite the
handling and disposition of cases, improve pleadings and narrow the
issues, eliminate the necessity of proof of certain facts, and facilitate trial
matters, but may be essential in determining whether or not the Tax
Court has jurisdiction of the case. This is not to say, however, that a
motion should be filed for every defect in the petitioner ’s pleading.
Motions should only be filed in situations in which there is a substantial
basis therefore and a desired objective in the handling of the case to be
achieved. Counsel should recognize promptly any situation in which a
motion should be filed and take action at the earliest possible date. The
views and actions of the Tax Court on motions vary to a considerable
extent, dependent upon which judge holds a particular motions session.
Since the court may take various actions with respect to similar
motions, the granting or denying of one type of motion is not necessarily
an indication of the court’s action on a similar motion, which is filed at a
later date if heard by a different judge.
The motions for a more definite statement,407 to strike,408 and to
dismiss409 are most common in Tax Court litigation. Their formats
406.
407.
408.
409.
T.C. Rule 41(c).
T.C. Rule 51.
T.C. Rule. 52.
T.C. Rule 53. See also Rule 123(b), relating to dismissal for failure of a
petitioner to properly prosecute or to comply with the Tax Court Rules.
There are numerous cases where the Tax Court has dismissed the
taxpayer ’s case for a failure of the taxpayer to prosecute. See, e.g.,
Higginbotham v. Comm’r, T.C. Memo 2005-270; Basile v. Comm’r, T.C.
Memo 2005-51; Hilvety v. Comm’r, 88 A.F.T.R.2d 2001-6426 (7th Cir.
2001); Wronke v. Comm’r, 88 A.F.T.R.2d 2001-5624 (7th Cir. 2001);
Marks v. Comm’r, T.C. Memo 2002-4; Patton v. Comm’r, T.C. Memo
2001-256; Deserio v. Comm’r, T.C. Memo 2001-154; Lopez v. Comm’r,
T.C. Memo 2001-93. In Colon v. Comm’r, 252 F.3d 662 (2d Cir. 2001), the
court of appeals held that the Tax Court did not abuse its discretion in
dismissing a case under Tax Court Rule 123(b) for the taxpayer ’s failure to
prosecute. The court stated that in determining whether the Tax Court has
abused its discretion in dismissing an action for failure to prosecute, it
would consider the same factors in determining whether a district court
has abused its discretion. These factors are: (1) the duration of petitioner ’s
failures or non-compliance; (2) whether petitioner had notice that such
conduct would result in dismissal; (3) whether prejudice to the Commissioner is likely to result; (4) whether the court balanced its interest in
managing its docket against petitioner ’s interest in receiving an opportunity to be heard; and (5) whether the court adequately considered the
efficacy of a sanction less draconian than dismissal.
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are discussed in the Tax Court Rules of Practice.410 Other motions
relate to the following matters:
•
extensions of time;411
•
making certain defenses;412
•
amending pleadings;413
•
substituting parties;414
•
compelling answers to interrogatories;415
•
depositions;416
•
requests for admissions;417
•
stipulations;418
•
summary judgments;419
•
setting aside defaults or dismissals;420
•
continuances;421
•
the place of trial;422
•
consolidations and separations;423
•
delinquent briefs;424
•
reconsiderations;425
410.
411.
412.
413.
414.
415.
416.
417.
418.
419.
420.
421.
422.
423.
424.
425.
T.C. Rule 50–53.
T.C. Rule 25(c).
T.C. Rule 40.
T.C. Rule 41.
T.C. Rule 63.
T.C. Rule 71(c).
T.C. Rule 81(b).
T.C. Rule 90(e). See also Rule 90(f), dealing with the effect of admissions.
Cf. United States v. Boyce, 85 A.F.T.R.2d 2000-1938 (S.D. Cal. 2000)
(effect of Rule 90(f) on the doctrine of res judicata, discussed in the text,
supra).
T.C. Rule 91(f); see also discussion of stipulations, infra.
T.C. Rule 121(a).
T.C. Rule 123(c).
T.C. Rule 134.
T.C. Rule 140(c); see also discussion of place of trial, infra.
T.C. Rule 141.
T.C. Rule 151(c).
T.C. Rule 161. See, e.g., Martin v. Comm’r, T.C. Memo 2004-14:
Reconsideration under Rule 161 is intended to correct substantial
errors of fact or law and allow the introduction of newly discovered
evidence that the moving party could not have introduced, by the
exercise of due diligence, in the prior proceeding. Estate of Quick v.
Comm’r, 110 T.C. 440, 441, 1998 WL 341635 (1998). This Court
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
•
vacating or revising decisions;426
•
reasonable litigation costs;427
•
restraining assessment or collection;428
•
reviewing a jeopardy assessment or collection;429 and
•
for voluntary binding arbitration on factual issues.430
The majority of motions sessions of the court are held in Washington,
D.C.431 The court issues orders calendaring cases for hearing in all
cases that are to be included on the motions calendar. With the
exception of holiday seasons or special events, the court sits every
Wednesday for motions sessions. Joint or agreed motions and sometimes ex parte motions are often acted upon by the court without being
calendared for hearing at a motions session unless the court determines that it desires oral arguments thereon. Motions in calendared
cases should normally be filed sufficiently in advance of the trial date
to permit the court to act prior to the trial session. From time to time
the Tax Court calendars for a motions session a case for purposes of a
pretrial conference, or for a report as to whether it is to be tried or
settled and, if the latter, on the status of the settlement negotiations.
It is preferable that motions in which there is no basic disagreement
between the parties be joint motions, ex parte motions endorsed “No
Objection” by the opposing party, or motions which contain the
statement that the opposite party has no objection. Counsel must
has discretion whether to grant a motion for reconsideration and
will not do so unless the moving party shows unusual circumstances or substantial error. Id.; see also Vaughn v. Comm’r, 87 T.C.
164, 166–167, 1986 WL 22160 (1986). “Reconsideration is not the
appropriate forum for rehashing previously rejected legal arguments
or tendering new legal theories to reach the end result desired by the
moving party.” Estate of Quick, supra at 441–442.
426.
427.
428.
429.
430.
431.
T.C. Rule 162. See, e.g., Cinema ’84 v. Comm’r, 122 T.C. 264 (2004)
(discussing when the court has authority to vacate a decision that has
become final, abrogating Lydon v. Comm’r, 56 T.C. 128 (1971)); Kun v.
Comm’r, T.C. Memo 2004-273 (taxpayer failed to cite sufficient grounds
to vacate decision); All Cmty. Walk In Clinic v. Comm’r, T.C. Memo 2005190 (“The finality of a decision is generally absolute, and the Tax Court’s
authority to vacate a final decision is limited . . . . This Court has
jurisdiction to set aside an otherwise final decision if there is fraud on
the Court.”).
T.C. Rule 231.
T.C. Rule 55.
T.C. Rule 56.
T.C. Rule 124.
If a particular case is assigned to a judge the motions may be heard at the
place of trial.
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contact the opposing party and attempt to obtain a statement concerning petitioner ’s position on the granting of such motion. If
counsel is unable to contact the opposing party, this should be noted
in the motion. Counsel should exercise care in the endorsement or the
agreement of no objection to respondent’s motion, not only as to the
relief requested but also to the respondent’s statements as to the basis
of the motion. This is particularly important with respect to motions
for continuances from trial sessions on the basis of a pending case in
litigation which may affect the instant case, or representations concerning the settlement posture of the case.
There is an additional motion of which counsel should be aware: a
motion to redetermine interest. Initially, it should be pointed out that
after the Tax Court determines that a deficiency exists, the IRS is
entitled to collect interest on the deficiency. If the taxpayer disagrees
with the IRS computation of interest,432 the TRA 97433 makes it clear
that the taxpayer must challenge the IRS determination of interest
pursuant to a motion, not by filing a petition.434 The provision also
makes clear that the Tax Court’s jurisdiction to redetermine the
amount of interest does not depend on whether the interest is underpayment interest or overpayment interest.435 The effective date of this
provision was August 5, 1997.436
§ 6:7
Parties
In Tax Court litigation the taxpayer who initiates the suit is the
“petitioner”; the Commissioner is the “respondent.”437 The Commissioner is represented in Tax Court by lawyers from the Office of Chief
Counsel.
§ 6:8
Stipulations, Discovery, and Settlements
§ 6:8.1
Stipulations
Although provision is made in the Tax Court Rules of Practice for
discovery through use of written interrogatories, production of documents, depositions, and requests for admissions,438 both practitioners
432.
433.
434.
435.
436.
437.
438.
See I.R.C. §§ 6215 and 7481(c).
Pub. L. No. 105-34.
I.R.C. § 7481(c), amended by Pub. L. No. 105-34, section 1452(a).
I.R.C. § 7481(c)(2), amended by Pub. L. No. 105-34, section 1452(a).
Pub. L. No. 105-34, section 1452(b).
T.C. Rule 60.
T.C. Rule 70–75, 80–85, 90. Cf. K&M La Botica v. Comm’r, T.C. Memo
2001-33.
(Shafiroff, Rel. #21, 11/09)
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and the government rely primarily on stipulations. 439 Both the government and the petitioner are required to stipulate to the fullest
extent possible all nonfrivolous matters that are relevant to the
pending case, regardless of whether the matters involve fact, opinion,
or law. Both parties should stipulate to all facts, documents, and
papers, and all evidence that fairly should not be in dispute. 440
Counsel can readily see how this technique streamlines the discovery
process. Reduced to its simplest form, the technique means both
petitioner and respondent stipulate to as many facts, documents, or
other exhibits, as possible. Those that cannot be stipulated to are
typically in issue and are litigated.
The stipulation process is “the bedrock of Tax Court practice” and is
designed “as an aid to the more expeditious trial of cases as well as for
settlement purposes.”441 Rule 91 governs the court’s approach to
stipulations, as well as the mechanical process by which stipulations
are made.442 Other courts would do well to emulate the stipulation
process. The concept is rather simple: reasonable lawyers can look at a
case, no matter how complicated it might be, and identify those facts
which should not be in dispute. So the lawyers identify those facts and
stipulate to them. As for the facts that remain in dispute, those facts
will be admitted during trial. What could be simpler?
Stipulations must be in writing, signed by the parties thereto or by
their counsel, and must observe the requirements of Rule 23 as to form
and style of papers, except that the stipulation must be filed with the
court in duplicate and only one set of exhibits is required. Documents
or other papers that are the subject of stipulation in any respect and
439.
440.
441.
442.
Since enactment of I.R.C. § 7491, as added by the IRS Restructuring
and Reform Act of 1998, Pub. L. No. 105-206, Title III (Taxpayer Bill of
Rights 3), section 3001(a), which shifts the burden of proof to the IRS in
many cases, it has been said that district counsel is now relying more
heavily on interrogatories than it has in the past. Nonetheless, in a
telephone discussion the author had with the Office of Chief Counsel, it
was stated that the greater use of interrogatories goes back at least three
years prior to passage of the 98 Act, and has its roots in those taxpayers
who raise constitutional defenses to deficiencies. In that discussion, the
author was assured that taxpayers and their counsel who raise good faith
defenses will not be subject to formal discovery. Rather, in such cases, the
Service will continue to rely on stipulations.
T.C. Rule 91(a)(1). Cf. Hambarian v. Comm’r, 118 T.C. 565, 571 (2002)
(while Rule 91 requires parties to exchange documents and stipulate to
them in preparation for trial, the work product privilege could be raised in
a proper case as a bar, but not in the instant case where, given 100,000
documents, the court found that “there is little or no likelihood that the
defense attorney’s mental impressions would be discernable”).
Branerton Corp. v. Comm’r, 61 T.C. 691, 692 (1974).
See Rule 230(a).
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Tax Court Litigation and Claims for Refunds
§ 6:8.1
that the parties intend to place before the court must be annexed to or
filed with the stipulation. The stipulation must be clear and concise.
Separate items must be stated in separate paragraphs and must be
appropriately lettered or numbered. Exhibits attached to a stipulation
must be numbered serially, that is, 1, 2, 3, etc. The exhibit number
shall be followed by “P” if offered by the petitioner (the taxpayer), for
example, 1-P; “R” if offered by the respondent (the Commissioner), for
example, 2-R; or “J” if joint, for example, 3-J.443 Stipulations are filed
by the parties at or before commencement of the trial unless the court
directs otherwise.444
Another area in which counsel may find inconsistencies among the
judges is with respect to objections. Some judges require that objections by a party to the stipulation or part of the stipulation should be
noted in the stipulation itself, other judges will consider any objection
to a stipulated matter at the commencement of the trial or, for good
cause shown, during trial. 445 Counsel should check to see if a
particular judge has a preference regarding setting forth objections in
the body of the stipulation as well as carefully preparing the preamble
to the stipulation. Counsel must treat a stipulation with great caution
because it is treated as a conclusive admission unless otherwise agreed
upon by the parties.446 The stipulation process can be a tremendous
tool in preparing your case for trial and briefing.
443.
444.
445.
446.
T.C.
T.C.
T.C.
T.C.
Rule
Rule
Rule
Rule
91(b), as amended, effective Aug. 1, 1998.
91(c).
91(d).
91(e). See, e.g., Israel v. Comm’r, T.C. Memo 2003-238:
Rule 91(e) provides that a stipulation is treated “as a conclusive
admission by the parties to the stipulation” and shall be binding
in the pending case. Further, the rule provides that the Court will
not permit a party to “qualify, change, or contradict a stipulation”
except that the Court may do so “where justice requires.” Rule 91(e).
For each of the years in issue, petitioner conceded the amounts of
unreported income in the stipulations of facts. Petitioner did not
move to be relieved from the stipulations or present grounds that
he should not be bound to his admission. See Rule 91(e); Said v.
Comm’r, T.C. Memo 2003-148. We conclude that the stipulations
are binding.
See also WFO Corp. v. Comm’r, T.C. Memo 2004-1815:
The question of whether counsel has the authority to settle a case
on behalf of a taxpayer is factual and must be decided according
to common law principles of agency. Dorchester Indus., Inc. v.
Comm’r, 108 T.C. 320, 331, 1997 WL 210795 (1997), aff ’d
without published opinion 208 F.3d 205 (3d Cir. 2000); Adams v.
Comm’r, 85 T.C. 359, 369-372, 1985 WL 15386 (1985); Kraasch v.
Comm’r, 70 T.C. 623, 627-629, 1978 WL 3306 (1978). Authority
may be granted by express statements or by implication from
a taxpayer ’s words or deeds. Estate of Quirk v. Comm’r, T.C. Memo
(Shafiroff, Rel. #21, 11/09)
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Practice Pointer: Think of the stipulation process as the roadmap for the trial and the brief. As petitioner it provides you with
an opportunity to tell your story with facts and documents.
Usually, Tax Court trials do not have any surprises and generally
there is no reason not to provide all relevant facts absent
impeachment evidence. The facts should be known to both
parties prior to walking into the courtroom not only for trial
purposes but also to stimulate settlement discussions. The
stipulation process provides the parties with an opportunity to
set forth all of the facts and exhibits in an effort to get an
agreement and reduce the trial time. Since the Tax Court does
not have jury trials, the emphasis should be on admitting all
necessary facts and exhibits to properly argue the case on brief.
Tax court opinions are based upon the facts and the application
of the law. Although credibility of witnesses may be extremely
relevant in a particular case, the majority of cases involve the
determination of the facts.
The stipulation should force the parties to focus on the relevant
facts and documents. In fact, counsel should think ahead to the
1995-234. Where taxpayers challenge the authority of counsel to act
on their behalf, the burden of proof rests with the taxpayers to show
that their counsel lacked authority. Newbern v. Comm’r, T.C.
Memo 1999-112.
***
While we have discretion to set aside a filed settlement stipulation,
that discretion will only be exercised for good cause. Dorchester
Indus., Inc. v. Comm’r, 108 T.C. 320, 334, 1997 WL 210795
(1997). Generally, the party seeking to avoid the agreement must
show that failure to exercise the discretion would prejudice him, no
substantial injury will be occasioned to the opposing party, refusal
to exercise discretion might result in injustice, and the inconvenience to the court is slight. Id. at 334-335; Adams v. Comm’r, 85
T.C. at 375; see also Rule 91(e). Where the court cancels a trial in
reliance on a stipulation, the standard is even higher, and the
moving party must “satisfy standards akin to those applicable in
vacating a judgment entered into by consent”. Dorchester Indus.,
Inc. v. Comm’r, supra at 335; Stamm Int’l Corp. v. Comm’r, 90 T.C.
315, 1988 WL 12046 (1988); Himmelwright v. Comm’r, T.C.
Memo 1988-114. See also Lewis v. Comm’r, T.C. Memo 2005205 (stipulated decisions not vacated, notwithstanding misconduct
by IRS attorneys, when taxpayers and their counsel knew of the
misconduct when they entered into the stipulation decisions);
Golden v. Comm’r, T.C. Memo 2005-170 (“agreed or stipulated
judgment is a judgment on the merits for purposes of res judicata”);
Merriam v. Comm’r, T.C. Memo 2005-17 (stipulated decision not
vacated because sole issue was whether a fraud on the court had
occurred, and court found that none occurred).
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writing of a brief. Agreeing to the relevant facts and exhibits in the
stipulation saves trial time and provides the basis for your findings of
facts in the brief. The Chief Counsel attorney usually agrees to
“objective facts,” but is reluctant to stipulate to facts that he does
not “know” to be true. The difference is whether the Chief Counsel
attorney makes an effort to determine whether the facts are true and
what information counsel provides to them or even possible access to
witnesses. Although Chief Counsel attorneys tend to want to stipulate
to the exhibits rather than the facts, if you start the process early and
work with them, and, if necessary, file a 91(f) Motion, going into the
trial a large percentage of your work should be done on the front end
via the stipulation rather than waiting until you start drafting the brief.
Don’t wait until the last minute to start the process, otherwise, the
stipulation will include nothing but exhibits. Anyone that has written
a Tax Court brief understands the difficult task of producing a
thorough, well-reasoned findings of facts. Don’t wait until you are
writing the brief to realize you neglected to include an important fact
or document in the record.
If any party refuses to stipulate in accordance with the Tax Court
Rules of Practice, the party proposing the stipulation can file a motion
for an order directing the delinquent party to show cause why the
matters covered in the motion should not be deemed admitted. 447 If
no response is filed to the motion, the matter will be deemed
stipulated for purposes of the pending case.448
Practice Pointer: Consider filing the stipulation of fact as soon
as practical. Assuming the stipulation contains useful information it will be useful for the judge to read the stipulation during
his or her preparation for the trial. If the stipulation is filed the
morning of the trial or shortly before the trial is scheduled to take
place it is unlikely that the judge will have an opportunity to
review the stipulation.
Just as the Tax Court favors stipulations, it also favors settlements.449 In general, a tax settlement agreement (stipulated decision
document) is a contract.450 As such, it is interpreted using general
447.
448.
449.
450.
T.C. Rule 91(f)(1).
T.C. Rule 91(f)(3).
Dorchester Indus. v. Comm’r, 108 T.C. 320 (1997), aff ’d without published
opinion at 208 F.3d 205 (3d Cir. 2000).
Cases settled in the Tax Court are typically done via stipulated decisions.
See, e.g., Olsen v. Comm’r, 87 A.F.T.R.2d 2001-863 (9th Cir. 2001), aff ’g
T.C. Memo 1999-331; Chu v. Comm’r, T.C. Memo 2001-84.
(Shafiroff, Rel. #21, 11/09)
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contract law principles.451 Thus, mutual mistake and fraud may be
raised as defenses to avoid a settlement agreement. 452 Thus, if the
language of an agreement is unambiguous, the court will not consider
any extrinsic evidence.453
But where the language is not so clear, the court will examine the
language within the context of the circumstances surrounding the
execution of the agreement.454 To find a valid settlement in a tax case,
it has been said that it is not necessary that the parties execute a
formal closing agreement under section 7121. Rather, a settlement
agreement may be reached though offer and acceptance “made by
letter, or even in the absence of a writing,”455 although it may well be
that a failure to have a settlement in writing will preclude enforcement.456 Settlement offers made and accepted by letters have been
enforced as binding agreements.457 Of course, a settlement will not be
enforced when the IRS employee who signed the settlement was not
authorized to do so.458
451.
452.
453.
454.
455.
456.
457.
458.
Buesing v. United States, 47 Fed. Cl. 621 (2000), citing Treaty Pines Invs.
P’ship v. Comm’r, 967 F.2d 206, 211 (5th Cir. 1992). Cf. Hunt v. United
States, 94 F. Supp. 2d 665 (D. Md. 2000). See also S&O Liquidating P’ship
v. Comm’r, 291 F.3d 454, 459 (7th Cir. 2002):
A duly approved closing agreement [or settlement agreement],
signed by the participating individuals, is a contract that is governed
by federal common law and is interpreted under “standard principles of contract law-more precisely, the core principles of the
common law of contract that are in force in most states.” Thus, if
a closing agreement’s terms are clear and unambiguous, we are
obligated to enforce the language as it is written, without resort to
extrinsic evidence or interpretive devices, such as a letter from a
party’s attorney purporting to attach a hidden meaning to anything
therein.
See, e.g., Comet Printing v. Comm’r, 87 A.F.T.R.2d 2001-1545 (9th Cir.
2001), rev’g T.C. Memo 1998-262. Cf. Olsen v. Comm’r, 87 A.F.T.R.2d
2001-863 (9th Cir. 2001), aff ’g T.C. Memo 1999-331; Chu v. Comm’r,
T.C. Memo 2001-84.
Monahan v. Comm’r, 321 F.3d 1063 (11th Cir. 2003); Ratke v. Comm’r,
T.C. Memo 2004-86.
Buesing v. United States, supra, citing Robbins Tire & Rubber Co. v.
Comm’r, 52 T.C. 420 (1969).
Dorchester Indus., 108 T.C. at 330, quoting Lamborn v. Comm’r, T.C.
Memo 1995-515. Cf. T.C. Rule 91(b).
Hunt v. United States, supra, at 668, citing I.R.C. §§ 7121 and 7122, and
distinguishing Dorchester Indus. v. Comm’r, supra.
Dorchester Indus., 108 T.C. at 330, citing Haiduk v. Comm’r, T.C. Memo
1990-506.
Becker Holding Corp. v. Comm’r, T.C. Memo 2004-58 (“This Court has
repeatedly declined to enforce a settlement agreement when the person
entering into the agreement on behalf of the Commissioner lacked the
authority to bind the Commissioner.”).
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In applying these basic principles, it has been held that correspondence exchanged between the taxpayer and the IRS did not give rise to
a binding settlement agreement where there was no meeting of
the minds with respect to the material term of when payment could
be made, and even if there was such an agreement, it was voidable on
the ground of misrepresentation and mistake.459 It has also been held
that there cannot be an enforceable settlement without a writing to
memorialize the agreement.460
When a court of appeals reviews the Tax Court’s decision to enforce
a stipulation, the standard used by the appellate court is abuse of
discretion. Thus, a stipulated decision generally will be enforced
unless “manifest injustice would result.”461 On November 27, 2007,
the Tax Court announced that it has adopted a new form, “Final Status
Report.” The purpose of the new form is to provide a simple means for
parties to inform the court about a last-minute settlement of a case or
a change in the estimate of the likelihood and/or length of trial not
previously reported to the court. Parties may access an electronic
version of the Final Status Report form and submit it to the court by
clicking on the “Final Status Report” tab from the menu of options on
the court’s website at www.ustaxcourt.gov. The website also displays
instructions for use of the Final Status Report form.462
A case in which all pertinent facts are stipulated may be submitted to
the Tax Court for decision without trial.463 The submission of a fullystipulated case for decision under Rule 122 is made by a joint motion of
the parties. The motion may be made at any time and need not wait for
the case to be calendared for trial.464 The submission of a case for
decision under Rule 122 does not alter the burden of proof.465 This
procedure is very similar in effect to cross-motions for summary
judgment, with one important difference. With cross-motions for summary judgment, a party still has the option of defending on the grounds
that there exists genuine issues of material fact and precluding summary
459.
460.
461.
462.
463.
464.
465.
Buesing v. United States, supra.
Hunt v. United States, supra.
Lamanna v. Comm’r, 94 A.F.T.R.2d 2004-5322 (9th Cir. 2004), quoting
Bail Bonds by Marvin Nelson Inc. v. Comm’r, 820 F.2d 1543, 1549 (9th
Cir. 1987). See also Console v. Comm’r, 92 A.F.T.R.2d 2003-5644 (3d Cir.
2003) (“stipulations pursuant to Tax Court Rule 91 have been described as
the bedrock of Tax Court Practice and [are] considered largely responsible
for the courts’ ability to keep current with the thousands of cases docketed
each year”) (citations omitted).
U. S. Tax Court, Press Release, Nov. 27, 2007, available at www.ustaxcourt.
gov/press/112707.pdf.
T.C. Rule 122(a).
Id.
T.C. Rule 122(b).
(Shafiroff, Rel. #21, 11/09)
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judgment for the other party. In contrast, a Rule 122 submission is the
equivalent of trying the case—it is submitted for judgment.
§ 6:8.2
Discovery
Careful planning and preparation are the keys to appropriate
handling of a Tax Court case. The proper trial of a case requires a
clear understanding of the issues, the gathering of evidence, and the
organization of the evidence as it relates to the issues. This can be
achieved best if counsel, as early as the time the petition is prepared,
understands what steps must be taken in the case, including use of
discovery and admissions, and resolves to follow those steps. The
attorney should also consider whether the importance or complexity of
the case calls for expedited or special handling.
One of the reasons that litigation in the Tax Court is less expensive
than litigation in federal district court is the Tax Court’s relatively
restrictive discovery rules.
[A] Timing of Discovery
Unless leave of the Tax Court is obtained in advance, discovery may
not begin before the expiration of thirty days after the answer (or reply
if one is required) has been filed.466 Discovery must be completed no
later than forty-five days before the date set for the call of the case on a
trial calendar.
[B]
Informal Discovery Request
The Tax Court relies heavily on informal discovery.467 In fact, the
Tax Court expects the parties to attempt to attain the objectives of
discovery through informal consultation or communication before
utilizing the discovery procedures provided in the rules.468 The purpose of informal discovery is to facilitate the stipulation process and to
remove unnecessary prolonging of the litigation process and to encourage settlement discussion.469 Thus, practitioners should try to
obtain information through informal exchanges before resorting to
formal discovery methods provided in the rules.
Discovery and requests for admissions may not be commenced by a
party until after that party has made a meaningful, good faith attempt to
attain the objectives of discovery through informal consultation or
communication.470 The Tax Court is insistent that the parties use
informal efforts to obtain needed information for the preparation of
466.
467.
468.
469.
470.
T.C. Rule 70(a)(2), 38.
Westreco, Inc. v. Comm’r, 60 T.C.M (CCH) 824 (1990).
T.C. Rule 70(a)(1).
Branerton Corp. v. Comm’r, 61 T.C. 691, 692 (1974).
T.C. Rules 70(a), 90(a); Branerton Corp. v. Comm’r, supra.
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the case for trial. The court expects the parties to discuss, deliberate, and
exchange ideas, exchange documents, thoughts, and opinions on an
informal basis before resorting to the methods specified in the rules.
Short cuts to the use of formal discovery will not be tolerated by the court.
Typically, respondent will send out a “Branerton letter” setting a
conference date, time, and place and a list of specific questions or
request for documents. The so-called Branerton conference is an
invitation to exchange documents and positions in support of the
pleadings. Counsel should be proactive and issue its own Branerton
letter and request documents and positions in support of the respondent’s case. Branerton, on the other hand, is used not only to request
information regarding supporting witnesses and documents, but also
for interrogatories and requests for admission.471
As set forth in the Tax Court’s pretrial order, the parties are required
to exchange all documents at least fourteen days before the call of the
calendar and all facts should be stipulated to the maximum extent
possible.
[C] Interrogatories
Tax Court Rule 71 allows for the use of written interrogatories,
without leave of the court to be served on a party. Rule 71 was
amended to prescribe a presumptive limit of twenty-five interrogatories that one party may serve on another party, including all discrete
subparts of an interrogatory, but excluding interrogatories authorized
under Rule 71(d) regarding an opposing party’s expert.472 A motion for
leave to serve additional interrogatories may be granted by the court to
the extent consistent with Rule 70(b)(2).
This change of the interrogatory rule will put additional pressure on
the parties to fully utilize the informal discovery process. 473
Answers to the interrogatories must be made consistent with the
information available to the answering party, and all answers must be
made in good faith. If an objection is made to all or part of an
interrogatory, the reasons for the objection must be stated.474 Answers
to interrogatories are due within forty-five days after interrogatories have
been served. To protect the ability to request sanctions for failure to
471.
472.
473.
474.
Historically, unanswered Branerton requests are converted into formal
discovery requests. The proposal to change the court’s rule to limit the
number of formal interrogatories raises the question of whether Branerton
requests will be similarly limited to twenty-five questions.
T.C. Rule 71(a) is effective January 1, 2010 and was to be consistent with
Rule 33 of the Federal Rules of Civil Procedure.
See Branerton v. Commissioner, 61 T.C. 691, 692 (1974).
T.C. Rule 71(c). The Court proposes to amend Rule 71(a) to include a
presumptive limit of twenty-five interrogatories that one party may serve
on another party.
(Shafiroff, Rel. #21, 11/09)
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answer interrogatories, the thirty-day period within which a response to
the interrogatories is required should end before the time by which
formal discovery must be completed under Rules 70(a)(2) and 104(b). All
discovery should be initiated no later than seventy-five days prior to the
call of the calendar.
[D]
Requests for Production
Tax Court Rule 72475 allows for a request for the production of
documents during the discovery period and without leave of the Tax
Court. A request to produce can include a request for permission to
inspect and copy designated documents or to inspect, copy, test, or
sample any tangible things to the extent such item is in the possession, custody, or control of the party on whom the request has been
served.476 A request for production can also be used to gain entry on
land or other property in possession or control of the party on which
the request has been served for the purpose of inspecting, measuring,
surveying, photographing, testing, or sampling property or any specified object or operation on such property.477
[E]
Requests for Admission
Tax Court Rule 90 governs requests for admissions. The purpose of
requests for admissions is to establish as efficiently and quickly as
possible undisputed matters and thereby eliminate the necessity of
proof on such matters at trial. It is considered to assist in the
mandatory stipulation process. Requests for admission may be served
by one party on any other party without leave of the court. 478 Response
to requests for admissions must be served on the requesting party
within thirty days from the date of service of the requests. The
response must specifically admit or deny the matter, in whole or in
part, or state that the matter cannot be truthfully admitted or denied
and the reasons therefore. The response may object to the matter,
stating, in detail, the reasons therefore. Failure to respond to requests
for admission will result in a deemed admission of that matter for all
purposes of the proceeding.479
475.
476.
477.
478.
479.
T.C. Rule 72 was amended to include reference to discovery of electronically stored information and to prescribe specific procedures applicable to
the production of electronically stored information consistent with Rule 34
of the Federal Rules of Civil Procedure.
T.C. Rule 72(a)(1). The Tax Court proposes to amend Rule 72(a) and (b) to
include references to discovery of electronically stored information and to
prescribe specific procedures applicable to the production of electronically
stored information. See Fed. R. Civ. P. 34.
T.C. Rule 71(a)(2).
T.C. Rule 90(b).
T.C. Rule 90(c).
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[F] Evidentiary Depositions
Under Tax Court Rule 81,480 a party may take a deposition to
perpetuate testimony of that party or of any other person, including
expert witnesses, or to preserve any document or thing. An evidentiary
deposition may be taken only when substantial risks exist that a
person, document, electronically stored information,481 or thing will
not be available at the trial, and must be limited to testimony, or a
document, or electronically stored information or thing, that is not
privileged and is material to the issues in dispute.482 An application
must be filed requesting an order from the Tax Court authorizing the
deposition to be taken for the purpose of perpetuating evidence. 483 Tax
Court Rule 81(b) lists the information that must be included in the
application. An order will be issued by the Tax Court if it approves the
taking of the deposition.484 In lieu of filing a unilateral application
with the Tax Court, the parties may agree to take an evidentiary
deposition by filing a stipulation reflecting the agreement with the
clerk.485
[G] Depositions
Historically, depositions in the Tax Court were very limited and in
practice were rare. Evidentiary depositions are allowed to preserve
testimony or evidence for trial in limited situations. 486 Discovery
depositions are allowed if all parties to the case consent by written
stipulation.487 Compulsory discovery depositions of a nonparty were
available in very few instances.488 The restricted use of depositions
was intentional and was designed to avoid an “excessive and abusive
use of discovery depositions.”489 Deposition may be on oral or written
questions.490
Effective January 1, 2010, Tax Court Rules 74, 75, and 76 will be
deleted and replaced with the new Rule 74. This new rule is broken
into three main categories, 74(b)—Depositions Upon Consent of
the Parties; 74(c)—Depositions Without Consent of the Parties,
480.
481.
482.
483.
484.
485.
486.
487.
488.
489.
490.
T.C. Rule 81(a) and (b) were amended to include reference to electronically
stored information.
T.C. Rule 81(a) includes electronically stored information (effective
Jan. 1, 2010).
T.C. Rule 81(a).
T.C. Rule 81(b), amendment effective Jan. 1, 2010.
T.C. Rule 81(b)(2).
T.C. Rule 81(d).
See T.C. Rule 81.
See T.C. Rule 74.
See T.C. Rule 75. (as of January 1, 2010, Rule 75 will be deleted and
amended as part of Rule 74).
Official Note to T.C. Rule 74, 71 T.C. 1195 (1979).
T.C. Rule 74(e).
(Shafiroff, Rel. #21, 11/09)
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Including Nonparty Witnesses, Party Witnesses, and Expert Witnesses;
and 74(d)—Use of Deposition of an Expert Witness for Other Than
Discovery Purposes.
[G][1] Depositions Upon Consent of the Parties
Under the new Rule 74(b), a discovery deposition of a party or a
nonparty may be taken if all parties consent within the time limits set
forth in Rule 70(a)(2). A deposition for discovery purposes may be
taken of a party, a nonparty witness, or an expert witness. The parties
must file a written stipulation (in duplicate) with the Tax Court
evidencing the parties’ mutual consent to the deposition.491 The
stipulation should set forth the following information:
(a)
the names and addresses of the persons to be examined;
(b)
the reasons for deposing those persons rather than waiting to
call them as witnesses at the trial;
(c)
the substance of the testimony that the party expects to elicit;
(d)
a statement showing how the proposed testimony or document or thing is material to a matter in controversy;
(e)
a statement describing any books, papers, documents, or
tangible things to be produced at the deposition by the persons
to be examined;
(f)
the time and place proposed for the deposition;
(g)
the officer before whom the deposition is to be taken;
(h)
the date on which the petition was filed with the court, and
whether the pleadings have been closed and the case placed on
a trial calendar;
(i)
any provisions desired with respect to payment of expenses,
fees, and charges relating to the depositions; and
(j)
application to videotape the deposition and the names of the
videotape operator and his employer.492
If the consensual deposition deponent is not a party to the case,
notice of the deposition must be served on the deponent. If the
deposition is by written questions, the notice must be attached to
the questions. The notice must set forth:
491.
492.
T.C. Rule 74(a), 81(d).
T.C. Rule 81(b), (d).
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(a)
a recitation that the deposition is being taken pursuant to Tax
Court Rule 74,
(b)
the name of the party or parties seeking the deposition,
(c)
the time and place proposed for the deposition, and
(d)
the name of the officer before whom the deposition is to be
taken.493
[G][2] Depositions Without Consent of the Parties,
Including Nonparty Witnesses, Party Witnesses,
and Expert Witnesses
Under the old Rule 75, compulsory discovery depositions were
taken of a nonparty witness under limited circumstances. However,
compulsory depositions were not to be taken of a party.494 The new
Rule 74(c) provides that discovery deposition may be taken of a
nonparty, party witness or an expert witness. The key change to the
rule is it permits a party to move to take the deposition of another
party or the court in the exercise of its discretion may order the
deposition of a party sua sponte.
Nonparty Witnesses. A party may depose a nonparty witness without leave of court and without the consent of all of the parties. The
party desiring to take a deposition under this subparagraph shall give
notice in writing to every other party and the nonparty witness to be
deposed. A party or a nonparty witness has fifteen days to file an
objection to the deposition.
Party Witnesses. A party may take the deposition of another party
without the consent of all the parties by filing a written motion. 495
Upon the filing of a motion to take the deposition of a party, the court
shall issue an order directing each non-moving party to file a written
objection or response. The deposition of a party without consent is an
extraordinary method of discovery and may be taken only pursuant to
an order of the court. Whether to issue such an order is a matter solely
within the discretion of the judge or Special Trial Judge who is
responsible for the case. Discretion may be exercised either sua sponte
or pursuant to a motion filed by a party. A judge or Special Trial Judge
should only order such a deposition where the testimony or information sought practicably cannot be obtained through informal communications or the court’s normal discovery procedures and to the extent
consistent with Rule 70(b)(2).
493.
494.
495.
Tax Court Rule 74(b).
Official Note to T.C. Rule 75, 79 T.C. 1141–42 (1982).
T.C. Rule 74(c) is amended to conform with Rule 30(a)(1) of the Federal
Rules of Civil Procedure.
(Shafiroff, Rel. #21, 11/09)
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It is too early to determine what effect if any this new rule will have
on Tax Court litigation. Typically, practitioners view Tax Court as a
cost-efficient forum and allowing party depositions may significantly
increase the cost and duration of litigation. In light of the changes to
Rule 71, whereby the parties are restricted to issuing twenty-five
interrogatories, there is concern that this may increase the government’s need to depose a witness or party. Time will tell if the
government starts to request party depositions and the court’s reactions to the requests.
Expert Witnesses: A party may take the deposition of an expert
witness without the consent of all the parties by filing a written
motion and shall set forth the following information set forth above.
[G][3] Deposition of an Expert Witness for Other Than
Discovery Purposes
The new Rule 74(d) provides the parties the ability to file a written
motion to request that its expert witness be deposed and the transcript
serve as the expert witness’ report as required by Rule 143(g)(1).
[H]
Deposition After Commencement of Trial
The Tax Court is different from other tax forums in that it may
allow or direct the taking of a deposition to perpetuate testimony after
a trial has started.496 This rule was intended to reflect an already
existing practice in the Tax Court and was not adapted from the
Federal Rules of Civil Procedure nor based on any prior Tax Court
Rule.497
[I]
Discovery of Experts
Historically, the Tax Court prohibited one party from taking discovery of another party’s experts expected to testify at trial. Instead, a
party’s discovery options were limited to written interrogatories
pursuant to Tax Court Rule 71(d). Effective July 1, 1990, the Tax
Court adopted Tax Court Rule 76, which permits the limited use of
depositions on experts.498 Effective January 1, 2010, Rule 76 will be
deleted and incorporated into Rule 74, Depositions for Discovery
Purposes, discussed above.
[I][1] Interrogatories
Interrogatories may still be served on the opponent’s expert who is
expected to testify at trial (consulting experts who are not expected to
496.
497.
498.
T.C. Rule 83.
Office Note to T.C. Rule 83, 60 T.C. 1111 (1973).
Official Notes to T.C. Rule 76, 93 T.C. 910–13 (1989).
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testify at trial are excluded from discovery).499 In lieu of providing
answers to interrogatories, the responding party may provide the
other party with a copy of an expert witness report containing such
information.500 Effective January 1, 2010 the rules on interrogatories
will be limited to twenty-five requests; however, there is an exception
for expert witnesses. Interrogatories concerning an opposing party ’s
expert are not counted among the presumptive limit of twenty-five
interrogatories prescribed by the new Rule 71(a).
[I][2] Deposition
Deposition of an opponent’s expert was available under Tax Court
Rule 76 in certain limited circumstances. Rule 76 will be deleted and
incorporated into Rule 74 effective January 1, 2010. An expert may be
deposed by consent or pursuant to compulsory deposition. 501
If a deposition of an expert is compulsory, the scope of the deposition is limited to:
(a)
the knowledge, skill, experience, training, or education that
qualifies the witness to testify as an expert in respect of the
issue or issues in dispute,
(b)
the opinion of the witness,
(c)
the facts or data that underlie the opinion, and
(d)
the witness’ analysis showing how the witness proceeded from
the facts or data to draw the conclusion that represents the
opinion of the witness.502
Compulsory deposition is available only with a court order. 503
To initiate the compulsory deposition process, the deposing party
must file a motion with the Tax Court.504 Tax Court Rule 76(d)(2) sets
forth the specific items that must be included in the motion. After the
motion is filed, the opposing party has fifteen days to object or respond
to the motion.505 Under Rule 74(c)(4)(C), the court may exercise its
own discretion and on its own motion order the taking of a deposition
of an expert witness and allocate the cost as it deems appropriate.
499.
500.
501.
502.
503.
504.
505.
T.C. Rule 71(d)(1).
Id.
T.C. Rules 74, 76.
T.C. Rule 76(b).
T.C. Rule 76(a)(2). Effective January 1, 2010, the rule can be found at T.C.
Rule 74(c)(4).
T.C. Rule 76(d)(1).
T.C. Rule 76(d)(3).
(Shafiroff, Rel. #21, 11/09)
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[I][3] Expert Witness Reports
The Tax Court is unique in that it requires experts who are expected
to testify to file a written expert witness report.506 The expert witness
report must set forth the expert’s qualifications and the expert’s
opinions and facts or data on which the opinion is based, and the
reasons for the expert’s conclusions.507 The expert opinion offered in
the report must follow the standards set forth in the Federal Rules of
Evidence section 702 and by the Supreme Court’s holdings in Daubert
and Kumho Tire Co. Gross v. Commissioner.508 The expert’s opinion
must be relevant and reliable and based on sound methodology. 509 If
admitted, the report serves as the expert’s testimony. Additional direct
testimony of the expert is allowed only to clarify or emphasize matters
in the report or to cover matters arising after the report is prepared. 510
The Tax Court is unique with respect to the rule and it is another area
in which the preference of the judge impacts the outcome. Some
judges strictly adhere to Rule 143 in that they do not allow the expert
to testify to other than preliminary information, whereas other judges
may allow the party some leeway and permit substantive questions
about the report. Again, knowing your judge and his preferences is very
helpful.
[J]
Motion for Protective Order
Rule 103 provides that, upon motion by a party or other affected
person and for good cause shown, the Tax Court may enter any order
which justice requires to protect a party or other person from annoyance, embarrassment, oppression, or undue burden or expense. Tax
Court Rule 103 describes the types of protective orders the court may
enter to achieve these purposes. A protective order generally protects
against disclosure to the general public, not the litigants. "Good cause"
for granting a motion for protective order under Tax Court Rule 103
exists when intervention by the court is necessary to prevent substantial abuse. As an example, a protective order may be appropriate
when a discovery request is excessively burdensome, repetitive, or
clearly intended to harass, embarrass, or distract the responding party
from trial preparation.511 As another example, a protective order may
506.
507.
508.
509.
510.
511.
T.C. Rule 143(f).
Id.
Gross v. Comm’r, 78 T.C.M. (CCH) 201 (1999).
Kumho Tire Co. Ltd. v. Carmichael, 526 U.S. 137, 137 (1999).
T.C. Rule 143(f)(1). Effective January 1, 2010, the expert witness report
section is moved to Rule 143(g) as a new subsection (b) was added to
permit testimony in open court by contemporaneous transmission from
another location.
Wooten v. Comm’r, T.C. Memo 1993-241 (petitioner ’s interrogatories
unduly burdensome and irrelevant to the issues in the case).
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be appropriate when a party serves formal discovery on the other party
without first utilizing informal consultation or communications. 512
Before seeking a protective order, counsel should consider providing a
partial response or objection, explaining the reason for doing so and
offering to complete the response at the appropriate time.
When interrogatories or a request for the production of documents
are served and the respondent files a motion seeking a protective order
(after the respondent’s time to respond expires) a motion to compel
under Tax Court Rule 104 should be filed. The Tax Court typically will
schedule the hearing on the motion to compel and the motion for
protective order at the same time. If the motion to compel is not filed
until the Tax Court acts upon the motion for protective order, there
will be needless delay.
Relying on section 7461(b), a party or an affected person may file a
motion for protective order to have the court seal tax returns and
return information admitted or to be admitted into evidence on the
ground that disclosure would reveal trade secrets or other confidential
information. Under section 7461(b), the Tax Court may prevent
disclosure of trade secrets or other confidential information by sealing
the record to be opened only as directed by the court. The Tax Court
will not seal the record regarding trade secrets or other confidential
information in every case. Rather, courts exercise their discretion in
deciding whether to seal the record, balancing the public’s right of
access and the possibility of a miscarriage of justice when the information sought to be protected is shown to be a trade secret or other
confidential information.513 Accordingly, the Tax Court narrowly
construes its authority to seal records.
[K] Motion for Continuance
The Tax Court may grant a party ’s motion for continuance;
however, the court does not grant motions haphazardly. As set forth
in the Pretrial Order, the court will only grant continuances for
exceptional circumstances. Typically, if such a motion is granted, the
judge will retain jurisdiction over the case to ensure timely rescheduling
for trial and to prevent the parties from shopping for another judge. If a
continuance is necessary, the parties should request the motion as soon
as possible and set forth the reasons for the request.514 Motions filed
within thirty days of the call of the calendar are skeptically reviewed
and the parties should not anticipate the court granting the motion.
512.
513.
514.
Schneider Interest, LP v. Comm’r, 119 T.C. 151 (2002); Branerton Corp. v.
Comm’r, 61 T.C. 691 (1974).
Willie Nelson Music Co. v. Comm’r, 85 T.C. 914, 919–20 (1985). See
United States v. IBM, 67 F.R.D. 40, 46 (S.D.N.Y. 1975); see also Turick v.
Yamaha Motor Corp., 121 F.R.D. 32, 35 (S.D.N.Y. 1988).
T.C. Rule 133.
(Shafiroff, Rel. #21, 11/09)
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§ 6:8.3
Settlement
The established goals of both the Office of Chief Counsel and the
Service are to settle as many Tax Court cases as possible at the earliest
possible date prior to the cases being calendared for trial, to prepare
adequately for trial those cases not settled, and to dispose of all
pending cases in the most efficient and expeditious manner. In the
fulfillment of this responsibility, Counsel and Appeals have separate
functions to perform.515 The government’s settlement authority in
docketed Tax Court cases is split between Appeals and the Office
of Chief Counsel. The respective roles of Appeals and Counsel in
the development and disposition of Tax Court cases are stated in
Revenue Procedure 87-24.516 One of the primary purposes of Revenue
Procedure 87-24, is to expedite the disposition of Tax Court cases. It is
important for practitioners and their clients not only to understand
that the IRS handles Tax Court cases in accordance with Revenue
Procedure 87-24, but also that they know what those procedures are
and what steps they should take for an early disposition of their cases.
In cases in which the statutory notices were issued by Examination or
the Service Center, Appeals will take appropriate steps to inform the
petitioner or petitioner ’s counsel of the Revenue Procedure. Likewise,
in those cases in which Counsel retains the case or an issue in the case
rather than referring the case to Appeals, it is sometimes necessary for
Counsel to take action with respect to acquainting the petitioners or
their counsel with the limits of the Revenue Procedure.
Practice Pointer: Clients often have difficulty in understanding
that, in any tax litigation, the government seeks a settlement
based on the merits of each issue, rather than the amount of
money involved or the taxpayer ’s ability or inability to pay. This
general guideline is applicable even though there may be a
substantial basis for concluding that the petitioner may not be
able to pay the agreed deficiency. In virtually every case, the
government believes that the case should be settled on its merits
and, if the petitioner is unable to pay such deficiency, he can later
file an offer in compromise based upon doubt as to collectability.
Practitioners should make sure the client understands this
concept.
Hazards of litigation should be applied to the facts, legal authority
and likely outcome in litigation. It is the Appeals Officer or the Chief
Counsel attorney’s job to evaluate the case for settlement and your job
is to help the Appeals Officer or Chief Counsel attorney get to the best
515.
516.
CCDM 35.5.1.3 Management of Tax Court Cases (Aug. 11, 2004).
1987-1 C.B. 720.
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possible answer for your client. Both parties should weigh all of the
facts, including the credibility of witnesses, availability of supporting
documentation, and the persuasiveness of the witnesses and documents in supporting the parties’ burden. Representatives may have an
additional advantage in that the Appeals Officer or Chief Counsel
attorney was not the original fact finder. Rather, they receive an
administrative file with the notes, comments, and documentation
provided by the revenue agent. Representatives, on the other hand,
may be privy to additional facts and documentation either not
previously requested or included in the administrative file.
[A] Settlements by Appeals
Revenue Procedure 87-24 sets forth, in general terms, the respective
settlement procedures of Appeals and the Office of Chief Counsel in
docketed Tax Court cases. In general, Appeals has settlement responsibility over docketed cases referred to it pursuant to these procedures
until the case is returned to the Office of Chief Counsel. A case or an
issue in a case may be reserved by Counsel rather than referring it to
Appeals.517 Counsel reviewers and Appeals managers confer on a
regular basis to identify those cases within Appeals jurisdiction that
should be referred to Counsel for discovery or where there is no
settlement progress and/or the case is likely to appear on a trial
calendar. Certain cases may meet the requirements to qualify the
case for “designated for litigation” status. Once a case is designated for
litigation, the designated issue will not be resolved without a full
concession by the taxpayer, unless it is subsequently de-designated. 518
Normally, Counsel will review the settlement documents prepared
by Appeals during its settlement jurisdiction for form and accuracy
only, without regard to the substance of a settlement effectuated by
Appeals. Counsel may, however, initiate contact with Appeals if
questions arise upon review concerning the substance of a proposed
settlement. In any such communication, Appeals and Counsel must
exercise care to honor the restrictions on ex parte communications
between Appeals and Counsel.519
If a full settlement is not effected by Appeals with the petitioner or
petitioner ’s counsel, or if the taxpayer declines to discuss settlement
after being given an opportunity to do so, the case will be returned to
517.
518.
519.
See IRM 2.2.4 regarding some exceptions to Appeals referrals.
See CCDM 33.3.6 for the procedures on designating a case for litigation.
Section 1001(a)(4) of the IRS Restructuring and Reform Act of 1998
prohibits ex parte communications between IRS appeals officers and other
IRS employees to the extent that the communications would appear to
compromise the independence of the appeals officers. The purpose of the
prohibition is to ensure that the Appeals Office remains free from
influence by tax collection or examination employees.
(Shafiroff, Rel. #21, 11/09)
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Counsel for trial preparation. Appeals will prepare a transmittal
memorandum and case memorandum setting forth the issues that
are settled and any that remain unsettled. Whenever a docketed case is
returned to Counsel, authority to dispose of the case by trial or
settlement rests with Counsel, unless Counsel and Appeals agree
that Appeals should continue with settlement negotiations over
some or all of the issues. Thus, in some situations Counsel will
prepare a case for trial while Appeals simultaneously conducts settlement negotiations for some or all of the issues in the case. Additionally, Counsel and Appeals may agree to return the entire case to
Appeals if there is a strong likelihood of settlement of all or part of the
case and such transfer will promote more efficient disposition of the
case. The IRS tries to avoid repetitive transfers of the case between
Counsel and Appeals.
[B]
Settlements by Counsel
It is important to understand that government trial lawyers in tax
cases do not have the individual authority to settle a tax case.
Acceptance of a negotiated settlement is always conditioned upon
approval by the appropriate official. In practice, however, most line
attorneys work closely with their supervisors and getting approval is
usually not a hurdle they need to overcome to finalize a settlement. In
addition, in cases requiring a report to the Joint Committee on
Taxation under section 6405, no settlement may be entered into until
the government has complied with the requirements of that section.
The parties can enter a basis of settlement in the record but it is
contingent upon Joint Committee review. In all situations, internal
delegations of authority determine what officials may enter into
binding settlement agreements in docketed cases.
The Tax Court looks to contract principles to determine whether
the parties have reached an enforceable settlement agreement. 520 The
Tax Court in Dorchester announced that it will no longer follow
Cole v. Commissioner,521 which had held that settlement agreements
are not binding until filed as a stipulation or made part of the record.
The court may therefore enforce a settlement agreement evidenced
solely by an exchange of correspondence between the parties, particularly where the parties have communicated to the court that they have
achieved a settlement agreement.522 The court may also enforce a
settlement agreement even in the absence of communication of the
fact of the agreement to the court. The parties should expect that any
520.
521.
522.
Dorchester Indus., Inc. v. Comm’r, 108 T.C. 320 (1997), aff ’d, 208 F.3d
205 (3d Cir. 2000).
Cole v. Comm’r, 30 T.C. 665 (1958), aff ’d, 272 F.2d 13 (2d Cir. 1959).
See, e.g., Manko v. Comm’r, T.C. Memo 1995-10.
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unequivocal communication of an acceptance of a settlement offer will
be irreversibly binding and enforceable, unless the communication
expressly sets forth any conditions that must be satisfied before
achieving a binding agreement, including any required procedures
for formal acceptance of a settlement offer. Thus, it is possible that
the Tax Court would enforce a settlement, even though the appropriate
officials never approved it.
[C] Tax Court Mediation and Voluntary Binding
Arbitration
On November 6, 1995, the IRS Office of Chief Counsel published a
memorandum setting forth general considerations and procedures for
the use of mediation for docketed Tax Court cases.523 The procedures
address eligibility, the process, mediator selection, and proposed terms
of an agreement to mediate.
At present, the Tax Court Rules do not specifically require mediation or provide procedures for the use of mediation. Some Tax Court
judges have used mediation to resolve issues, either under Rule 124 or
under their general discretion. In some cases, the Tax Court judge
assigned to the case has been appointed as the mediator. In other
cases, a Special Trial Judge has been appointed as mediator. Although
Chief Counsel has in place mediation procedures, there are no formal
mediation procedures established by the court. Rather, the parties and
the judge work together to establish applicable procedural guidelines
and timetables. In my experience the court has been very receptive to
mediation.
There are a few key elements to a successful mediation: the skills of
the mediator, the parties’ desire to resolve their case, and the involvement of the decision-making person. Each mediator has his or her own
style. Both parties must approach mediation with open minds and be
willing to be flexible throughout the process. Most parties have
preconceived ideas when entering into the process. The key to a
successful mediation is the ability of each party to listen to the other
side’s concerns and address them. By doing so, a party may be able to
persuade the other party of a particular position. Aggressive advocacy
does not work with mediation. A party must be willing to think in new
ways in presenting its arguments and responding to the other side’s
concerns. A good mediator encourages the parties to discuss openly
their understanding of the strengths and weaknesses of their position.
Those confidential communications may lead to possible avenues of
settlement discussion that the parties may not have explored.
523.
For the IRS Chief Counsel’s mediation program involving issues in
docketed cases, see Chief Counsel Directives Manual CCDM (35)3(20)0.
(Shafiroff, Rel. #21, 11/09)
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Finally, the decision maker must be involved in the process. The
representatives of the parties are generally too close to the case to be
impartial. With mediation, decision makers have the opportunity to
participate in the process and reassess the case based upon their
observations. And in some case, it is the decision maker that needs
to hear and understand the other side’s arguments in order to come to
a successful resolution.
Mediation is a cost-effective, early resolution process both for
taxpayers and the IRS. An effective mediator provides the parties
with an independent and fresh analysis and can offer each party an
honest assessment of the relative strengths and weaknesses of its case,
point out the hazards of litigation, and advocate settlement positions.
By providing an informal environment for the parties to discuss the
specifics of their case with candor, as well as providing interpretation
of the law applicable to the dispute, an effective mediator can guide the
parties in resolving their disputes.
Tax Court Rule 124 permits any factual issue to be resolved via
voluntary binding arbitration rather than litigation. Since the rule’s
adoption in 1990, a number of cases, primarily involving valuation
disputes, have used voluntary binding arbitration to resolve issues of
fact. Most of these cases have used conventional arbitration, in which
the arbitrator determines the outcome of the proceeding without
constraint. In 1993, however, Apple Computer Inc. and the Service
agreed to use “baseball arbitration” to resolve a transfer pricing
dispute. In baseball arbitration each party submits a proposed settlement to the arbitrator and only one proposal is selected.
Both mediation and arbitration provide a confidential environment
in a less costly forum and should be considered as a possible option for
settlement.
§ 6:9
Trial
§ 6:9.1
Place of Trial
At the time of filing the petition, the petitioner or counsel must file
a designation of place of trial showing the place at which petitioner
would prefer the trial to be held. Since the Tax Court is a court of
national jurisdiction and since the Chief Counsel has trial lawyers
all over the country, the taxpayer can select a place of trial almost
anywhere that suits him. The Tax Court is based in Washington, D.C.,
but its judges travel throughout the country to hear tax cases.
The court sits at least once a year in seventy-four cities524 and, where
possible, grants the petitioner ’s designation of trial at one of these
524.
Approximately eleven of the cities are designated for small tax cases only.
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cities. Most attorneys request place of trial where their office is located,
where the taxpayer is located, or possibly where the witness or books and
records are located. It is up to the taxpayer to designate a place of trial. If
the place of trial is not designated, the Commissioner, when filing the
answer, will designate a preferred place of trial. In any case, the parties
are notified where the trial will be held.525 Some practitioners have
requested Washington, D.C. as the place of trial in anticipation of filing
numerous motions, potential conferences with the court, or out of a
desire for more flexibility as to the scheduling of a trial.
The request for designation of place of trial is filed separately from
the petition and is subject to the requirements of form applicable to
motions. The request consists of an original and two copies.526
§ 6:9.2
Evidence
Tax Court trials are conducted in accordance with the rules of
evidence applicable in trials without a jury in the U.S. District Court
for the District of Columbia, which include the evidentiary rules in the
Federal Rules of Civil Procedure and any rules of evidence generally
applicable in the federal courts (including the U.S. District Court for
the District of Columbia).527
Practice Pointer: The issue of the waiver of privilege is controlled
by the rules of the District Court of the District of Columbia. In
arguing the privilege, practitioners should not rely on the circuit
court of the taxpayer ’s jurisdiction, rather they should rely on the
authorities established by the U.S. District Court for the District
of Columbia. In Johnson v. Commissioner,528 the Tax Court, in a
case of first impression, had to resolve whether federal common
law or local state law would apply to deciding whether there was
a waiver of the attorney-client privilege. In holding that federal
common law applied, the court stated:
Consistent with this directive [that Tax Court proceedings are to
be conducted in accordance with the rules of evidence applicable in
trials without a jury in the United States District Court for the
District of Columbia], we observe the Federal Rules of Evidence.
Rule 501 of the Federal Rules of Evidence controls issues of
privilege and specifies as follows:
525.
526.
527.
528.
T.C. Rule 140(a).
T.C. Rule 140(b).
T.C. Rule 143(a). See also section 7453, which provides that the Tax Court
is bound by the rules of evidence applicable in a trial without a jury in the
U.S. District Court for the District of Columbia.
Johnson v. Comm’r, 119 T.C. 27 (2002). See also Bernardo v. Comm’r, 104
T.C. 677, 693 (1995).
(Shafiroff, Rel. #21, 11/09)
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Except as otherwise required by the Constitution of the
United States or provided by Act of Congress or in rules
prescribed by the Supreme Court pursuant to statutory
authority, the privilege of a witness, person, government,
State, or political subdivision thereof shall be governed by
the principles of the common law as they may be accordance
with State law.
The foregoing rule establishes a structure where “Issues concerning
application of the attorney-client privilege in the adjudication of
federal law are governed by federal common law.” Clarke v. Am.
Commerce Nat’l Bank, 974 F.2d 127, 129 (9th Cir. 1992); see also
United States v. Zolin, 491 U.S. 554, 562, 109 S. Ct. 2619, 105 L.
Ed. 2d 469 (1989); United States v. Mass. Inst. of Tech., 129 F.3d
681, 684 (1st Cir. 1997); United States v. Blackman, 72 F.3d 1418,
1423–24 (9th Cir. 1995); Gannet v. First Nat’l State Bank, 546 F.2d
1072, 1075–1076 (3d Cir. 1976). Conversely, State attorney-client
privilege rules apply where the underlying cause of action rests on
State law. Rhone-Poulenc Rorer, Inc. v. Home Indem. Co., 32 F.3d
851, 861–62 (3d Cir. 1994).
Petitioners argue that the cases at bar involve the latter situation.
Petitioners claim: The issue here is not whether Petitioner has
waived his attorney-client privilege in the within U.S. Tax Court
proceeding involving federal statutes of the Internal Revenue
Code. The issue here is whether Petitioner waived his attorneyclient privilege in Fitzsimon v. S.C. Equestrian, et al., a 1994 State
Court proceeding involving causes of action under the laws of the
State of California . . . .
We, however, disagree. The matter before us is a redetermination
of petitioners’ Federal income tax liabilities under Title 26 of the
United States Code. It therefore falls squarely within the abovedescribed parameters for an adjudication of Federal interpreted by
the courts of the United States in the light of reason and experience.
However, in civil actions and proceedings, with respect to an
element of a claim or defense as to which State law supplies the
rule of decision, the privilege of a witness, person, government,
529
State, or political subdivision thereof shall be determined in law.
§ 6:9.3
Burden of Proof
Although the taxpayer has traditionally had the burden of proof,530
the Taxpayer Bill of Rights 3 has shifted the burden to the Commissioner
529.
530.
Id. at 33–34.
The burden of proof is composed of the burden of production (sometimes
called the burden of coming forward) and the burden of persuasion.
Compare I.R.C. § 7491(a) and (c). See also Higbee v. Comm’r, 116 T.C.
438 (2001), discussed infra, and the analysis provided in the Internal
Revenue Manual, infra.
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in many, but not all, situations. We, therefore, first explore the traditional rule (burden on the taxpayer), followed by the changes made by the
Taxpayer Bill of Rights 3 (burden on the Commissioner).
[A] Burden on the Taxpayer: In General
Traditionally, the burden of proof has been, and still is in many
circumstances, on the petitioner to establish that the Commissioner ’s
notice of deficiency or of liability is wrong.531 There are, of course,
exceptions to this rule. If it is expressly provided by statute that the
Commissioner has the burden of proof with respect to a particular issue,
the Commissioner must prove his or her case.532 Common examples
are the issues of fraud and transferee liability.533 In addition, the
Commissioner has the burden of proof as to any new matter raised
for the first time in the answer and as to any affirmative defenses.534 The
Commissioner also has the burden of proof where it is averred that the
taxpayer had sources of unreported income. Thus, it has been held, “A
presumption of correctness attaches to the Commissioner ’s assessment
once some substantive evidence is introduced demonstrating that the
taxpayer received unreported income.”535 This evidentiary foundation
“may consist of evidence linking the taxpayer with an income-producing
activity such that it can be inferred that the taxpayer received income
from the activity, or it may consist of evidence showing an ownership
interest in assets possessed by the taxpayer.”536 But where the statements in the Notice of Deficiency do not link the taxpayer with an
income-producing activity or ownership of an asset which produced
income, or reveal or describe any supporting substantive evidence, or fail
to demonstrate any rational basis for the imputation of unreported
income to years before and after the alleged tax year in question, “the
government is, in essence, forcing the taxpayer to prove a negative.”537
531.
532.
533.
534.
535.
536.
537.
Welch v. Helvering, 290 U.S. 111 (1933).
See especially the next section of text for a discussion of the Taxpayer Bill
of Rights 3.
T.C. Rule 142(a)(1), 142(b), and 142(d).
T.C. Rule 142(a)(1).
United States v. Nipper, 87 A.F.T.R.2d 2001-828 (10th Cir. 2001), quoting
United States v. McMullin, 948 F.2d 1188, 1192 (10th Cir. 1991). Cf.
Estate of Mitchell v. Comm’r, 250 F.3d 696 (9th Cir. 2001), aff ’g in part,
rev’g in part, and remanding T.C. Memo 1997-461, on remand, T.C.
Memo 2002-98. Appellate court “looked behind” the notice of deficiency
and did not involve a case of unreported income. The IRS, consequently,
has issued a nonacquiescence. A.O.D. CC-2005-01 (June 3, 2005).
United States v. Nipper, supra, quoting Sundel v. Comm’r, 75 T.C.M.
(CCH) 1853, 1856 (1998).
United States v. Nipper, supra (case remanded to the district court wherein
the government had the burden of proving that its tax assessment based on
the unreported income was correct).
(Shafiroff, Rel. #21, 11/09)
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Tied in to the general rule putting the burden of proof on the
taxpayer is the rule that the Commissioner ’s determination is entitled
to a presumption of correctness unless made without any foundation
or supporting evidence.538 Thus, it has been held: “All that is required
to support the presumption [of correctness] is that the Commissioner’s determination have some minimal factual predicate. It is
only when the Commissioner ’s assessment is shown to be ‘without
rational foundation’ or ‘arbitrary and erroneous,’ that the presumption
should not be recognized.”539
It is often stated that the taxpayer will prevail in the Tax Court, that
is, meet his or her burden, by establishing that the Commissioner ’s
report is wrong—even though the petitioner does not establish what
the correct amount of tax liability should be.540 As a practical matter,
though, the petitioner will normally be able to establish that the
Commissioner ’s report is wrong precisely by showing why the petitioner ’s position is correct. Be that as it may, once the taxpayer
establishes a prima facie case, typically by proving the averments in
the petition, the presumption that the Commissioner ’s report is
correct disappears and whichever side establishes its point by a
preponderance of the evidence will prevail.
In short, the taxpayer has traditionally had both the burden of
proving the Commissioner wrong (burden of proof), and the burden of
producing the evidence to support a finding contrary to the Commissioner’s determination (burden of production).
[B]
Burden on the Commissioner: Taxpayer Bill of
Rights 3
The Taxpayer Bill of Rights 3 has made significant changes to the
burden of proof. An analysis of this legislation follows.
General Rule for Shifting of Burden of Proof: If, in any court
proceeding, a taxpayer introduces “credible evidence” with respect to
any factual issue relevant to ascertaining the liability of the taxpayer
for any tax imposed by subtitle A or B of the Code (income, estate, and
gift),541 the IRS has the burden of proof with respect to that issue.542
538.
539.
540.
541.
542.
Tinsman v. Comm’r, 87 A.F.T.R.2d 2001-2533 (8th Cir. 2001), citing Page
v. Comm’r, 58 F.3d 1342 (8th Cir. 1995).
Barmes v. Comm’r, T.C. Memo 2001-155, quoting Pittman v. Comm’r,
100 F.3d 1308, 1317 (7th Cir. 1996), aff ’g T.C. Memo 1995-243.
Helvering v. Taylor, 293 U.S. 507 (1935).
Thus, this provision does not apply to subtitle C (relating to employment
taxes), Subtitle D (relating to miscellaneous excise taxes), or subtitle E
(relating to alcohol, tobacco, and certain other excise taxes).
I.R.C. § 7491(a)(1), as added by the 98 Act, section 3001(a). See also T.C.
Rule 142(a)(2): “See Code section 7491 where credible evidence is
introduced by the taxpayer, or any item of income is reconstructed by the
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Credible Evidence: “Credible evidence” is the quality of evidence
which, after critical analysis, the court would find sufficient upon
which to base a decision on the issue if no contrary evidence were
submitted (without regard to the pre-Taxpayer Bill of Rights 3 judicial
presumption of IRS correctness). A taxpayer has not produced credible
evidence for these purposes if the taxpayer merely makes implausible
factual assertions, frivolous claims, or tax protester-type arguments.
Commissioner solely through the use of statistical information on unrelated taxpayers, or any penalty, addition to tax, or additional amount is
determined by the Commissioner.” The Internal Revenue Manual provides
this excellent discussion on the difference between the burden of production and the burden of persuasion, and how these burdens were allocated
pre- and post-Taxpayer Bill of Rights 3:
The burden of proof encompasses both the burden of production
(also known as the burden of going forward with the evidence) and
the burden of persuasion.
The burden of production can be met if the party who bears it comes
forward with evidence supporting its position. The burden of
production requires a party to demonstrate that it has some concrete and positive evidence, as opposed to a mere theoretical
argument, that there is some substance to their position. Once a
party has established this threshold burden, the burden of production (going forward) shifts back to the other party. In the past, the
taxpayer bore the initial burden of production with respect to both
the deficiencies and penalties. By requiring that the taxpayer
produce credible evidence that would be sufficient to base a decision
if not rebutted, the Act leaves the burden of production on the
taxpayer. However, under section 7491(c) [relating specifically to
penalties], the Service now bears the burden of production with
respect to the determination that a penalty applies. Once the
Service has met the burden of production, the taxpayer retains the
burden of persuading the court that the penalty is not appropriate,
by raising defenses to the penalty, such as reasonable cause.
To say that a party bears the burden of persuasion is to say that the
party must persuade the court that its position is correct. If the
party fails to meet its burden, it will lose the case. Stated another
way, a party that has met the burden of persuasion has persuaded
the Court that its evidence outweighs the evidence of the other
party. In the past, the taxpayer bore this burden and had to convince
the Court that the Service was wrong. Based on the legislative
history of RRA 98, the burden of persuasion has shifted to the
Government. Since the Government has the burden of persuasion,
the Government will prevail only if the preponderance of the
evidence (more than 50%) favors the Government. If the taxpayer
complies with the statutory requirements, the Service must now
assume the burden of showing to the satisfaction of the Court that
the tax liability as determined was correct, and the taxpayer no
longer bears the burden of proof. INTERNAL REVENUE MANUAL
section 8.6.1.3.5(9)–(11) (Dec. 18, 2001).
For discussion of burden of proof and penalties, see infra.
(Shafiroff, Rel. #21, 11/09)
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The introduction of evidence will not meet this standard if the court is
not convinced that it is worthy of belief. If, after evidence from both
sides, the court believes that the evidence is equally balanced, the court
is to find that the IRS has not sustained its burden of proof.543
Several cases have discussed what evidence qualifies as “credible
evidence” for purposes of shifting the burden of proof. In Higbee v.
Commissioner,544 the taxpayers claimed to have sustained a casualty
loss deduction representing damage to their property that was not
reimbursed by the taxpayers’ insurance company. Although the taxpayers were awarded a judgment by a small claims court, the taxpayers
asserted that the judgment remained unpaid. The only evidence that
the taxpayers presented to support the claimed deduction was a form
document entitled, “Small Claims Complaint/Summons/Answer,”
which appeared to be issued by a local justice court, but which did
not bear any type of notation or certification by a governmental
official. The court held that the taxpayers did not satisfy the “credible
evidence” requirement to shift the burden of proof:
Petitioners’ evidence does not meet the requirements of section
7491(a). Besides the fact that the form document entitled “Small
Claims Complaint/Summons/Answer” does not actually indicate
whether litigation in small claims court was commenced or
completed, the document itself does not qualify as a competent
appraisal or reliable estimate of the cost of any repairs. Because
petitioners have failed to provide credible evidence of a casualty
loss, the burden of proof as to this issue is not placed on
545
respondent.
In Sykes v. Commissioner,546 the Tax Court found that a substantial amount of the taxpayer ’s testimony regarding the accumulation of
a cash hoard in the amount of $149,000 was not credible evidence. Of
the $149,000 in dispute, the court found that $40,000 was attributable to prior taxable income, but that $109,000 was attributable to
unreported taxable income for the year in question. In holding that the
taxpayers bore the burden of proving the amount of the cash hoard, the
court stated:
543.
544.
545.
546.
S. REP. NO. 105-174. See, e.g., Estate of Deputy v. Comm’r, T.C. Memo
2003-176, where the court noted that while I.R.C. § 7491 does not define
the term “credible evidence,” the term is explained in the legislative
history, quoting S. REP. NO. 105-174, supra, and finding that in a so-called
battle of experts, the Service’s expert’s conclusions were supported by
explanations, while the taxpayer ’s figures were without empirical support
or explanation and were purely subjective.
Higbee v. Comm’r, 116 T.C. 438 (2001).
Id. at 443.
Sykes v. Comm’r, T.C. Memo 2001-169.
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Section 7491(a)(1) refers to credible evidence relating to “any
factual issue.” We do not place the burden on respondent to prove
one part of that issue and on petitioner to prove the rest. Thus,
petitioners bear the burden of proving the amount of the cash
547
hoard.
In Landers v. Commissioner,548 the taxpayer redeemed a number of
U.S. savings bonds, which had accrued interest of $10,255. The
taxpayer did not report this income on her tax return for the appropriate year. The Service recomputed her tax liability accordingly. The
taxpayer admitted that the bond interest was not reported, but contended that such interest could have been reported in tax returns for
prior taxable years. The taxpayer did not produce copies of such
returns. The court sustained the Commissioner ’s determination of
deficiency, finding that the taxpayer did not produce any credible
evidence to shift the burden of proof to the Commissioner.
In Gouveia v. Commissioner,549 it was held that the taxpayer failed
to produce credible evidence that trusts used to evade taxes should be
respected for federal income tax purposes. It also has been held that
assertions that the IRS refused to transfer a case to the IRS Appeals
Office are not grounds for reallocating the burden of proof.550
Limitations: The burden of proof will shift only if the taxpayer
meets the following conditions:
(A) The taxpayer has complied with the requirements of the
Internal Revenue Code and the regulations issued thereunder
to substantiate any item (as before enactment of the Taxpayer
Bill of Rights 3).551 Accordingly, taxpayers must meet applicable substantiation requirements, whether generally imposed,552 or imposed with respect to specific items, such as
charitable contributions,553 or meals, entertainment, travel,
and certain other expenses.554 Substantiation requirements
547.
548.
549.
550.
551.
552.
553.
554.
Id.
Landers v. Comm’r, T.C. Memo 2003-300.
Gouveia v. Comm’r, T.C. Memo 2004-256.
Estate of Weiss v. Comm’r, T.C. Memo 2005-284.
I.R.C. § 7491(a)(2)(A), as added by the 98 Act; S. REP. NO. 105-174.
See, e.g., I.R.C. § 6001 and Treas. Reg. § 1.6001-1, requiring every person
liable for any tax to keep such records as the Treasury Department may
from time to time prescribe, and section 6038 and 6038A, requiring U.S.
persons to furnish certain information the Treasury Department
may prescribe with respect to foreign businesses controlled by the U.S.
person. S. REP. NO. 105-174, n.23.
I.R.C. § 170(a)(1) and (f)(8) and Treas. Reg. § 1.170A-13. S. REP. NO. 105-174,
n.24.
See, e.g., I.R.C. § 274(d) and Treas. Reg. §§ 1.274(d)-1, 1.274-5T, and
1.274-5A. S. REP. NO. 105-174, n.25.
(Shafiroff, Rel. #21, 11/09)
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include any requirement of the Code or regulations that the
taxpayer establish an item to the satisfaction of the IRS.555
Taxpayers who fail to substantiate any item in accordance
with the legal requirement of substantiation will not have
satisfied the legal conditions that are prerequisite to claiming
the item on the taxpayer ’s tax return and will accordingly
be unable to avail themselves of this provision regarding the
burden of proof. Thus, if a taxpayer required to substantiate
an item fails to do so in the manner required (or destroys
the substantiation), this burden of proof provision is
inapplicable.556
(B)
555.
556.
557.
558.
559.
560.
The taxpayer has maintained all records required under the
Code and has cooperated with reasonable requests by the IRS
for witnesses, information, documents, meetings, and interviews,557 including providing, within a reasonable period of
time, access to and inspection of witnesses, information, and
documents within the control of the taxpayer, as reasonably
requested by the IRS.558 Cooperation also includes providing
reasonable assistance to the IRS in obtaining access to and
inspection of witnesses, information, or documents not
within the control of the taxpayer (including any witnesses,
information, or documents located in foreign countries). 559 A
necessary element of cooperating with the IRS is that the
taxpayer must exhaust his or her administrative remedies
(including any appeal rights provided by the IRS). The taxpayer is not required to agree to extend the statute of limitations to be considered cooperative. Cooperating also means
that the taxpayer must establish the applicability of any
privilege.560
For example, I.R.C. § 905(b) provides that foreign tax credits shall be
allowed only if the taxpayer establishes to the satisfaction of the IRS all
information necessary for the verification and computation of the credit.
Instructions for meeting that requirement are set forth in Treas. Reg.
§ 1.905-2. S. REP. NO. 105-174, n.26.
S. REP. NO. 105-174. If, however, the taxpayer can demonstrate that he
had maintained the required substantiation, but that it was destroyed or
lost through no fault of the taxpayer, such as by fire or flood, existing
tax rules regarding reconstruction of those records would continue to
apply. S. REP. NO. 105-174, n.27.
I.R.C. § 7491(a)(2)(B), as added by the 98 Act.
S. REP. NO. 105-174.
Cooperation also includes providing English translations as reasonably
requested by the IRS. S. REP. NO. 105-174, n.22.
S. REP. NO. 105-174. Counsel should state in the petition, if applicable,
that these conditions have been satisfied.
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§ 6:9.3
In the case of a partnership, corporation, or trust, the taxpayer
is described in section 7430(c)(4)(A)(ii).561 This means that
taxpayers other than individuals must meet the net worth
limitations that apply for awarding attorneys fees (accordingly,
no net worth limitation would be applicable to individuals).
Corporations, trusts, and partnerships whose net worth exceeds $7 million are not eligible for the benefits of the
provision. The taxpayer has the burden of proving that it
meets each of the foregoing three conditions, because they
are necessary prerequisites to establishing that the burden of
proof is on the IRS.562
Coordination with Other Burden of Proof Provisions: The forgoing burden of proof rule563 does not apply to any issue if any other
provision of the Code provides for a specific burden of proof with
respect to that issue.564 Those provisions providing for a specific
burden of proof are:565 fraud;566 required reasonable verification of
information returns;567 foundation managers;568 transferee liability;569 review of jeopardy levy or assessment procedures;570 property
transferred in connection with performance of services; 571 illegal
bribes, kickbacks, and other payments; 572 golden parachute payments;573 unreasonable accumulation of earnings and profits;574 expatriation;575 public inspection of written determinations;576 penalties
for promoting abusive tax shelters, aiding and abetting the understatement of tax liability, and filing a frivolous income tax return; 577
income tax return preparers’ penalty;578 and status of employees.579
561.
562.
563.
564.
565.
566.
567.
568.
569.
570.
571.
572.
573.
574.
575.
576.
577.
578.
579.
I.R.C. § 7491(a)(2)(C), as added by the 98 Act.
S. REP. NO. 105-174.
I.R.C. § 7491(a)(1), as added by the 98 Act.
I.R.C. § 7491(a)(3), as added by the 98 Act.
S. REP. NO. 105-174.
I.R.C. §§ 7454(a), 7422(e).
I.R.C. § 6201(d).
I.R.C. § 7454(b).
I.R.C. § 6902(a).
I.R.C. § 7429(g)(1).
I.R.C. § 83(d)(1).
I.R.C. § 162(c)(1), (2).
I.R.C. § 280G(b)(2)(B).
I.R.C. § 534.
I.R.C. §§ 877(e), 2107(e), and 2502(a)(4).
I.R.C. § 6110(f)(4)(A).
I.R.C. § 6703(a).
I.R.C. § 7427.
Section 530 of the Revenue Act of 1978, Pub. L. No. 95-600, as amended
by section 1122, Pub. L. No. 104-188.
(Shafiroff, Rel. #21, 11/09)
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Use of Statistical Information on Unrelated Taxpayers: In the
case of an individual taxpayer, the IRS has the burden of proof in any
court proceeding with respect to any item of income which was
reconstructed by the IRS solely through the use of statistical information on unrelated taxpayers.580 An example of this would be the
average income for taxpayers in the area in which the taxpayer lives. 581
Penalties: Notwithstanding any other provision in the Internal
Revenue Code, the IRS has the burden of production in any court
proceeding with respect to the liability of any individual for any
penalty, addition to tax, or additional amount imposed by the
Code.582 Thus, in any court proceeding, the IRS must initially come
forward with evidence that is appropriate to apply a particular penalty
to the taxpayer before the court can impose the penalty. This provision
is not intended to require the IRS to introduce evidence of elements
such as reasonable cause or substantial authority. Rather, the IRS must
come forward initially with evidence regarding the appropriateness of
applying a particular penalty to the taxpayer; if the taxpayer believes
that, because of reasonable cause, substantial authority, or a similar
provision, it is inappropriate to impose the penalty, it is the taxpayer ’s
responsibility (and not the responsibility of the IRS) to raise those
issues.583
In Higbee v. Commissioner,584 the Tax Court gave further elucidation to these principles:
Finally, we note that Congress placed only the burden of production on the Commissioner pursuant to section 7491(c). Congress’
use of the phrase “burden of production” and not the more general
phrase “burden of proof” as used in section 7491(a) indicates to us
that Congress did not desire that the burden of proof be placed on
the Commissioner with regard to penalties. See sec. 7491(c).
Therefore, once the Commissioner meets his burden of production, the taxpayer must come forward with evidence sufficient to
persuade a Court that the Commissioner ’s determination is
585
incorrect.
Moreover, the reference in section 7491(a) to tax liabilities imposed
by subtitle A or B, whereas penalties are imposed by subtitle F, as well
as the structure of section 7491 as a whole, led the court to believe that
580.
581.
582.
583.
584.
585.
I.R.C. § 7491(b), as added by the 98 Act.
S. REP. NO. 105-174.
I.R.C. § 7491(c), as added by the 98 Act.
S. REP. NO. 105-174.
Higbee v. Comm’r, 116 T.C. 438 (2001).
Id. at 447–48.
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Congress intended for section 7491(c), and not section 7491(a), to
apply to penalties.586
In Swain v. Commissioner,587 in a case of first impression, the Tax
Court had to decide whether a taxpayer who fails in his petition to
assign error to a penalty will be deemed to concede the penalty,
notwithstanding that the Commissioner has failed to produce
evidence that imposition of the penalty is appropriate. 588 In holding
that the taxpayer was deemed to have conceded the penalty, the court
stated:
The Commissioner’s burden of production under section 7491(c)
is to produce evidence that it is appropriate to impose the relevant
penalty, addition to tax, or additional amount (without distinction, penalty). See Higbee v. Commissioner, 116 T.C. 438, 446,
2001 WL 617230 (2001). Unless the taxpayer puts the penalty
into play, however (by assigning error to the Commissioner ’s
penalty determination), the Commissioner need not produce
evidence that the penalty is appropriate, since the taxpayer is
deemed to have conceded the penalty.
The case of Funk v. Commissioner589 involved a taxpayer who
contested a section 6651(a)(1) penalty, filing a seventy-four-page petition. In the petition the taxpayer asserted that he was a “non-taxpayer”
and other “gibberish.” The Commissioner filed a motion to dismiss
on the ground that the taxpayer failed to state a claim upon which
relief could be granted. The court held that the burden of production
imposed upon the Service under section 7491(c) is not applicable when
the pleading fails to state a claim for relief.590
In Thompson v. Commissioner,591 it was held that notwithstanding
the shifting of the burden of proof by section 7491, the Tax Court is
586.
Id. at n.6. See also Cabirac v. Comm’r, 120 T.C. 163 (2003):
Section 6651(a)(1) provides an addition to tax for a failure to file a
return on or before the specified filing date unless it is shown that
such failure is due to reasonable cause and not due to willful
neglect. Once the Commissioner meets his initial burden of production to show that the addition to tax is appropriate, the taxpayer
bears the burden of proving his failure to file timely the required
return did not result from willful neglect and that the failure was
due to reasonable cause. Higbee v. Comm’r, 116 T.C. 438, 447,
2001 WL 617230 (2001). Id. at 169 (footnote omitted).
587.
588.
589.
590.
591.
Swain v. Comm’r, 118 T.C. 358 (2002).
For a discussion on filing the Tax Court petition and the requirement that
the petition contain assignments of error, see supra.
Funk v. Comm’r, 123 T.C. 213 (2004).
Id.
Thompson v. United States, 499 F.3d 129 (2d Cir. 2007).
(Shafiroff, Rel. #21, 11/09)
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not bound by formulas or opinions proffered by expert witnesses; it
may reach a determination based on its own analysis of the record.
Effective date: The foregoing provision generally applies to court
proceedings arising in connection with “examinations” commencing
after July 22, 1998.592 In any case where there is no “examination,”
these rules apply to court proceedings arising in connection with
taxable periods or events beginning or occurring after July 22,
1998.593 Neither the Code nor the legislative history defines the
term examination. Nonetheless, the Committee Report states that
an audit is not the only event that would be considered an examination for purposes of this provision. For example, the matching of an
information return against amounts reported on a tax return is
intended to be an examination for purposes of this provision. Similarly, the review of a claim for refund prior to issuing that refund is also
intended to be an examination for purposes of this provision.
Off-the-Record Chambers Conferences and Telephone Conference Calls: The trial judge may conduct chambers conferences or
telephone conference calls in which discovery schedules, stipulation
difficulties, the parties’ positions on the issues, and other pretrial
issues are discussed. Occasionally, the parties’ recollection of facts or
issues agreed upon differs from that of the trial judge or each other.
Since there is no transcript, there is often little counsel can do to
counter the judge’s or the opposing counsel’s contrary memories.
Counsel should document the call or conference in writing or on the
record, in addition to any agreements or concessions made by the
parties, for their files.
If such a conference is held during a trial session, and it is advisable
to memorialize any agreements or the lack of an agreement, a court
reporter is normally available to record the results of the conference for
the record. Counsel should request the court’s permission to state the
substance of the conference on the record. Counsel should state the
terms of any stipulations reached, as the counsel understands them. In
addition, the counsel should consider stating for the record, that, while
other matters were discussed, no other agreements were reached.
Example: “The parties just concluded a chambers conference with
the court. We agreed to stipulate that [describe stipulated matters], and
we agreed to file a written stipulation to that effect by [date]. While
other matters were discussed, no other agreements were reached.”
Telephone conference calls have been widely used by the court to
conduct pretrial scheduling in lieu of formal status hearings. Since
592.
593.
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III
(Taxpayer Bill of Rights 3), section 3001(c)(1).
Id., section 3001(c)(2).
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opportunities for misunderstandings exist, counsel should follow up
with a letter to respondent, with a copy to the trial judge, confirming
the agreements reached and acknowledging those areas in which
agreements were not reached. In general, it is a better practice to
confirm in writing any agreements or concessions made by the parties
in contacts where no transcript will be prepared.
Practice Pointer: Counsel needs to put on the best case possible
and set forth all of the relevant facts and documents to establish
the taxpayer ’s case. Hoping the court will be persuaded by the
fact that the respondent has not met his burden may be detrimental to your client.
§ 6:9.4
Courtroom Procedures
[A] Calendar Call
The Tax Court schedules almost all cases for trial in the order in
which their petitions were filed, taking into consideration the designated place of trial and the court’s schedule of sessions. In regular
cases, trial notices are generally issued to the parties at least five
months prior to the date of the scheduled trial session. In “S” cases,
trial notices are generally issued to the parties at least two months
prior to the date of the scheduled trial session. The court may be
reluctant to add cases to the calendar after it is issued. If, however,
there are uncalendared cases designated for the same place of trial that
are related to cases on the calendar, a motion should be filed to have
those cases added to the calendar and consolidated with the calendared
cases for trial. If circumstances warrant, other cases may be the subject
of a motion to calendar for trial or a request for a continuance to
consolidate the matters on an upcoming calendar. The motion should
clearly indicate the number of trial hours that will be added as a result
of the case being calendared.
The Tax Court divides the fiscal year for trial sessions into three
terms. The Fall Term generally begins in September; the Winter Term
begins in January; and the Spring Term begins in April. The calendar call
is the court’s first appearance at a designated location, and it is the
beginning of the court’s session. Before the cases are called, most of
the judges open with introductory remarks about how the session will be
conducted, including any preferences that particular judge has as to the
organization of the calendar, filing of motions, or trials. As specifically set
forth in the court’s Pretrial Order, unless other arrangements have been
made for a particular case, petitioner ’s counsel should expect all cases
which have not been settled or continued to be called. Do not make the
mistake of thinking respondent’s counsel can make a representation to
the court on petitioner ’s behalf unless otherwise cleared with the court.
(Shafiroff, Rel. #21, 11/09)
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Historically, calendar call was organized by docket numbers. The
oldest docket numbers were called first to make a report to the court.
Recently, some of the Tax Court judges have begun instituting a
“check-in procedure” wherein counsel would inform the clerk that
they are in the courtroom and ready to proceed, similar to what most
local district courts do. However, each judge has their own preference—
you may see the traditional calendar organized one month and the
next month another judge may use the check-in method.
For the larger metropolitan cities the calendars were typically set for
a two week period. Approximately, 250 cases are placed on a two week
calendar and 125 cases are placed on a one week calendar session. The
court appears to moving away from two week calendars in an effort to
have more frequency in particular cities. The cases for trial will
thereupon be tried in due course, but not necessarily in the order
listed on the calendar.594 The court schedules a session at least once a
year in all seventy-four cities.
If the parties have reached a basis of settlement the parties should
execute a stipulated decision and file prior to the call of the calendar.
Once filed, the court will remove the case from the calendar. If the
parties have not yet signed a stipulated decision, both counsel should
appear at calendar and orally provide the court with the basis of
settlement addressing all issues raised in the petition or answer and
provide the court with a timetable as to when the stipulated decision
will be filed, or the better practice would be to file a written document
setting forth the basis of the stipulation. Unfortunately, as the saying
goes, many settlements are reached on the courtroom steps and the
parties do not have sufficient time to prepare a written stipulation. In
either case, do not fail to make an appearance at the calendar or expect
your opposing counsel to make representation on your behalf without
the express permission of the court.595
If the matter has not been resolved prior to the call of the calendar,
all parties should appear and be prepared to try their case during the
calendar session. Do not expect that the case will be continued, or will
trail another matter. If a continuance is required, the parties should
file a motion at the soonest possible time and set forth sufficient
grounds for the continuance.
As each case is called, counsel should appear and announce their
appearance. The court may question the parties concerning certain
aspects of the case during the calendar call. Be prepared to try the case
on that day, if necessary. Counsel should inform the court of the
issues, the expected trial time, and the extent to which the facts
594.
595.
T.C. Rule 131(c).
See Pretrial Order for additional information.
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have been stipulated or the reasons for any failure to stipulate. It may
be appropriate to request a pretrial or chambers conference, and to
explain the need for the court’s assistance. If there is a considerable
discrepancy between the estimated trial time given by counsel at the
calendar call and the estimated trial time reported on the pretrial
memorandum, be prepared to explain the difference.
With the large number of cases on the calendar, the court tries to set
the time of trial for all cases when convenient to the parties. However,
in certain circumstances, it may be preferable to set up a call with the
court before the call of the calendar and request a time and date certain
for a particular case to be tried. Each judge will have their own
preferences as to whether or not to grant the parties request. Often,
the court will not set specific trial dates, and will set only the order of
the trials.
Upon the completion of the calendar call, the court normally takes
a short recess and schedules the hearings and the trials. After the
recess, the court announces the order, and may or may not set specific
dates and times for all trials.
[B] Trial
When the case is called for trial, entries of appearance must again be
made by the attorneys for the respective parties, even though they
appeared at the calendar call. An appearance on behalf of the petitioner
is usually entered first, followed by the entry of appearance by the
Chief Counsel attorney. Counsel should stand to address the court.
Counsel should not approach the bench unless the court has granted
permission or has requested him/her to do so. Since the Tax Court’s
court reporters utilize audio recordings to create transcripts, the
attorneys must remember to speak distinctly and slowly enough to
be understood for the recording. Another point to remember is to stay
near the microphone and when approaching the bench or witness do
not speak until you return to the microphone. Neither counsel nor a
witness should read newspapers or other materials while the court is
in session, and must refrain from eating, drinking, chewing gum, or
carrying on private conversations during the session. Proper attire
should be worn at all times while the court is in session. Some judges
have specific decorum rules that may be provided at the beginning of a
trial session and must be respected.
When the case is called for the trial, the parties have an opportunity
to address any preliminary concerns with the court, and may ask the
court to clarify a matter. Motions pertaining to the pleadings, jurisdiction, etc., which were previously overlooked, must be presented and
disposed of when the case is called for trial. When the case is called for
trial, the stipulation of facts and other stipulations are offered into
evidence, even if they were lodged with the court at the calendar call. It
(Shafiroff, Rel. #21, 11/09)
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is helpful to lodge the stipulation as early as practical and the parties
are not restricted to file only one stipulation of facts, rather the parties
can file multiple stipulations. This permits the judge to review not
only the trial memorandum or any motions but the stipulation as well
in an effort to prepare for trial. If possible, the attorney should avoid
the oral stipulation of new material at trial. The court should be asked
to allow an oral stipulation to be reduced to writing if it covers an
important subject or is lengthy. That is particularly necessary because
it is usually not practical to have the court reporter read back the
stipulated matter. Tax Court, unlike other courts, uses tape recordings
for the transcripts. It is very difficult to ask the reporter to read back
what was previously stated, unlike a situation in which the court uses
a stenographer.
Where appropriate, an oral motion to exclude witnesses from the
courtroom should be made when the case is called, before the trial
begins. Generally, the court will order the exclusion of proposed
witnesses. 596 Furthermore, the court may exempt prospective
witnesses from exclusion if they are shown to be essential to the
presentation of a party’s case, such as expert witnesses.
Generally, the court will ask the party bearing the most significant
burden of proof (usually the petitioner) to make the first opening
statement. In small cases, however, the court frequently asks respondent’s attorney to make the first opening statement. Counsel should
listen carefully to the petitioner ’s opening statement, and may wish to
take notes and address any matters not raised or new matters asserted.
This is another area in which judges have different practices. My
observation is that most judges want the parties to focus on the legal
issues rather than go into a detailed discussion of the facts. The facts
should have been provided in the pretrial memorandum and will be
presented throughout the trial. Counsel should emphasize the legal
issues and the support for their positions. Unlike a jury trial, in a tax
court trial the judge is familiar with the facts and issues and is more
interested in the proceedings rather than watching “Perry Mason.”
Counsel’s opening statement must be carefully prepared. It should
be based upon a well-developed outline, rather than a prepared
statement to be read in court. The advantage of the outline is that it
lists the points to be covered, while allowing for flexibility and
responsiveness with respect to respondent’s or the judge’s prior comments. The statement should be concise and to the point, and should
inform the court of each basis upon which the respondent relies as to
596.
It should be noted that the petitioner cannot be excluded. In addition, an
officer or employee designated as the representative of a non-natural party,
such as a corporation, may not be excluded. See T.C. Rule 145(a); Griffith
v. Comm’r, T.C. Memo 1988-123.
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each issue or defense. It should set forth the significance of any facts
that may help the court to understand counsel’s theory of the case, and
to make evidentiary and other rulings during the trial.
In most cases, the burden of proof (persuasion and production) is on
petitioner. The court usually requires petitioner to present his case
first on those issues upon which he has the burden of proof. Where
each party has the burden of proof as to one or more issues and each
party has out-of-town witnesses, it may be appropriate to request the
court to rule on the order of the trial at the calendar call or earlier.
Respondent’s position is that petitioner is always to proceed first on
any issue for any year upon which petitioner has either the burden of
proof or the burden of going forward. If the court rules otherwise,
respondent must be prepared to proceed.
Exhibits introduced into evidence at trial must first be identified by
a witness, unless such identification is waived by opposing counsel or
the document is self-authenticating. The common practice is to hand
an exhibit to the clerk and to ask that it be marked for identification
purposes. The witness may then be asked to identify it. If there are a
number of exhibits to be offered into evidence at trial, these exhibits
may be marked by the clerk before the trial. Copies of exhibits should
be given to respondent’s counsel before trial as required by the court’s
Standing Pretrial Order. All exhibits which are not admitted into
evidence should have been marked for identification purposes for a
complete record. That is necessary for an offer of proof and an appeal
of an evidentiary ruling.
This is another area in which the Tax Court is unique. As a result of
using a tape recorder to transcribe the proceedings, counsel needs to
speak near the microphone. While approaching the bench or the
witness, counsel should not speak as the court reporter will not be
able to pick up the speech. Counsel should request to approach the
bench or witness in front of a microphone, walk to the bench, and
return to the microphone before speaking again.
Once exhibits are marked for identification purposes by the clerk,
the exhibits can be introduced at the trial and subsequently offered
into evidence. Generally, the court only admits into evidence copies of
exhibits which are legible and accurate. If possible, the original exhibit
should be in the courtroom for examination when a copy is offered
into evidence. Only exhibits which are offered into evidence and
retained by the court are stamped by the court.
If counsel wishes to remain seated at the counsel table while
examining witnesses, he or she should request the court’s permission
to do so. The attorney should always stand when addressing or being
addressed by the court. If the attorney cannot clearly and distinctly
hear the witness’ answer, the judge should be requested to instruct the
witness to speak louder and more distinctly. If any question arises as to
(Shafiroff, Rel. #21, 11/09)
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the witness’ answer, the attorney should request the court to ask the
reporter to replay it. If there is any doubt as to whether the witness
heard or understood the question, it should be repeated or withdrawn
and rephrased.
In a Tax Court trial, good cross-examination is not possible without
good preparation, including a complete mastery of the facts. While it is
usually not possible to prepare specific questions to be asked on crossexamination, an outline of the matters to be covered should always be
made. Good cross-examination is not possible unless the attorney has
paid close attention to the direct examination and made notes of areas
to be covered. Two general rules to keep in mind for cross-examination
are to phrase the questions narrowly to require specific answers, and
to ask the questions in an order which prevents the witness
from anticipating crucial questions. Never ask questions on crossexamination to which the answers are unknown or may not be
reasonably anticipated, although surprises are sometimes unavoidable.
It is rare that counsel will have a “Perry Mason” moment and, if one
occurs, it is usually not a positive illumination. With both direct and
cross-examination, it is critical to listen to the witness’ responses, and
to react accordingly, and not be wed to a script.
§ 6:10
Trial Memoranda and Briefs
§ 6:10.1
In General
A standing pre-trial order of the Tax Court is sent to all parties
along with the Notice of Trial. This order instructs the parties, in
addition to ordering them to begin discussion for purposes of settlement and/or preparation of a stipulation of facts, to prepare a trial
memorandum substantially in the form attached to the order (the
information is typed directly on the form, which can be expanded by
adding additional pages, as necessary), and submit it to the court and
to the opposing party not less than fifteen days before the first day of
the trial session. The trial memorandum requires each party to state,
inter alia, the issues; the names of witness(es) each party expects to
call, along with a brief summary of expected testimony; an estimate of
the trial’s time; a summary of facts; a brief synopsis of legal authorities
in which each party discusses fully its legal position; and any expected
evidentiary problems.597
If any unexcused failure to comply with the court’s order adversely
affects the timing or conduct of the trial, the court may impose
appropriate sanctions, including dismissal, to prevent prejudice to
597.
A copy of the Tax Court’s Standing Pre-Trial Order is available at www.irs.
gov/pub/irs-ccdm/cc-2009-019.pdf.
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the other party or imposition on the court.598 Such failure may also be
considered in relation to disciplinary proceedings involving counsel. 599
The Trial Memorandum may be counsel’s first real opportunity to
educate the judge as to your facts and supporting legal position—use it
wisely. Counsel should set forth the evidence to be introduced at trial
and the basis for the legal positions. List all witnesses that you
anticipate calling. It is better to drop a witness then to request
permission to add a witness to your list. One thing to consider is to
incorporate the opposing counsel’s witness list in case your opposing
counsel lists a witness you were not familiar with and then decides not
to call the individual. There does not appear to be authority for this
but there is no downside in asking. In most circumstances the judge
will be very skeptical of permitting a witness to testify if that witness
was not previously disclosed to the other side—again, another area
in which the sitting judge impacts the outcome. As the memorandum
will be served on the other party it will also be a roadmap as to where
you plan on going in your case. With the majority of tax cases that
usually is not an issue as the facts and law are typically known to both
parties before walking into the courtroom.
The heart of the Tax Court case is the brief. When trial is concluded,
counsel should ask the court reporter for the appropriate form to order
a transcript of the proceeding. The brief sets forth the parties’ arguments supported by law, regulation, and evidence introduced at the
trial. The briefs can be filed simultaneously or seriatim, as the
presiding judge directs. Simultaneous briefs are filed as follows: opening briefs are typically filed within seventy-five days after the conclusion of the trial and answering briefs are typically filed forty-five days
thereafter. Seriatim briefs are filed as follows: Petitioner ’s opening brief
is typically filed within seventy-five days after the conclusion of the
trial and respondent’s answering brief is typically filed within forty-five
days thereafter. Petitioner ’s reply brief is filed within thirty days after
the due date of the answering brief.600 However, depending upon the
complexity of the case more time may be provided. Counsel should
consider asking the court for permission to file seriatim briefs because
as the petitioner you want “final say.” Indeed, this is appropriate,
because the petitioner typically has the burden of proof. Note, however,
each judge has his or her own preferences regarding the filing of briefs.
598.
599.
600.
Tax Court Standing Pre-Trial Order. T.C. Rule 131(b). See, e.g., Wheelis v.
Comm’r, T.C. Memo 2002-102; Lee v. Comm’r, T.C. Memo 2002-95;
Ruocco v. Comm’r, T.C. Memo 2002-91.
Tax Court Standing Pre-Trial Order. T.C. Rule 131(b). See also T.C. Rule
202(a).
T.C. Rule 151(b)(1), (2).
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
In most trials, the trial transcript is very important to the brief and
the brief cannot be filed until the transcript is secured. If the transcript
is not forthcoming, counsel should file a motion for extension of time
for filing the brief.601 If the attorney anticipates that additional time
beyond that provided in the rules will be needed for the brief preparation or the review of the transcript, such problems should be pointed
out to the court in the request for additional time and counsel should
solicit their opposing counsel’s agreement. In addition, it is important
for counsel to review the transcript with the witnesses to determine if
there are any errors. Counsel should contact the opposing counsel in
an effort to correct the record. Depending upon the error it may be very
important to correct the record prior to filing the briefs. The sooner the
parties agree the better.
Many of the judges impose page limitations for briefs. Counsel
must strictly comply with any such limitations, and with the format
and the spacing provisions of T.C. Rule 23(d). If the judge establishes a
page limitation, counsel must clarify, on the record, any ambiguities as
to what is intended, before the court goes into recess and the parties
leave the courtroom. For example, it may not be clear whether the
court intends for the page limitation to apply to the entire brief,
including the cover page, the table of contents, and the citations
page, or only to the narrative sections of the brief. Some judges in
some of the larger case have requested counsel to use hyperlinks to the
authorities and submit the briefs in a CD-ROM format. Each judge
has his or her own preference and counsel should make sure there are
aware of the judge’s predilections.
Historically, each brief was served by the clerk of the Tax Court
upon the opposite party after it was filed, except where it bore a
notation that it had already been served by the parties. T.C. Rule 151(c)
was amended to require that the parties serve seriatim briefs on each
other whereas simultaneous briefs are served on the Clerk of the
Court. Moreover, in the event of simultaneous briefs, no brief will be
served until the corresponding brief of the other party has been filed. 602
Delinquent briefs will not be accepted unless counsel files a motion
setting forth a reason deemed sufficient by the court to account for the
delay.603 A signed original and two copies of each brief (plus an
additional copy for each person to be served) must be filed. 604
601.
602.
603.
604.
T.C. Rule 151(b). T.C. Rule 151(b) provides the standard times for filing
briefs, which are seventy-five days after the conclusion of the trial for the
opening brief, and forty-five days thereafter for a reply brief or an answering
brief.
T.C. Rule 151(c). Cf. T.C. Rule 246(c).
Id.
T.C. Rule 151(d).
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As a general rule, the Tax Court will not consider issues raised for
the first time on brief where surprise and prejudice are found to
exist.605 Thus, in Estate of Forbes,606 where the Commissioner raised
a sham transaction theory for the first time on brief, and although the
Tax Court may affirm the Commissioner ’s determinations for reasons
other than those cited in the Notice of Deficiency, “the Court must
determine whether there has been surprise and substantial disadvantage to the petitioner in the presentation of his case because of the
manner in which the statutory notice and pleadings were drawn.”607
Consequently, where the taxpayer was surprised and prejudiced by
the respondent’s post-trial contentions, and because neither the
Notice of Deficiency nor the pleadings alerted the taxpayer to
the Service’s sham transaction theory, the Tax Court found that the
taxpayer was denied the opportunity to present evidence regarding it.
Accordingly, the court declined to consider the Service’s new theory
first raised on brief.608
§ 6:10.2
Form and Content
Under Tax Court Rule 151 all briefs must contain the following
information in the order indicated:
(1)
On the first page, a table of contents with page references. This
is followed by a list of all citations (arranged alphabetically as
to cited cases) stating the pages in the brief at which items are
cited. Citations are underscored when typewritten and in
italics if printed.609
(2)
A statement of the nature of the controversy, the tax involved,
and the issues to be decided by the court.610
(3)
Proposed findings of fact in the opening brief based on the
evidence in the form of numbered statements, each of which is
complete and consists of a concise statement of essential facts
(and not a recital of testimony), discussion, or argument
relating to the evidence or the law. In each of the numbered
605.
606.
607.
608.
609.
610.
Estate of Forbes v. Comm’r, T.C. Memo 2001-72, citing Sunderstrand
Corp. v. Comm’r, 96 T.C. 226, 346–47 (1991); Seligman v. Comm’r, 84
T.C. 191, 198 (1995), aff‘d, 796 F.2d 116 (5th Cir. 1986); Fox Chevrolet,
Inc. v. Comm’r, 76 T.C. 708, 733–35 (1981).
Estate of Forbes v. Comm’r, supra.
Estate of Forbes, supra, quoting Estate of Horvath v. Comm’r, 59 T.C. 551,
555 (1973), and citing Mills v. Comm’r, 399 F.2d 744 (4th Cir. 1968), aff ’g
T.C. Memo 1967-67; Estate of Finder v. Comm’r, 37 T.C. 411 (1961).
Estate of Forbe v. Comm’r, supra, citing Seligman v. Comm’r, supra.
T.C. Rule 151(e).
T.C. Rule 151(e)(2).
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
statements there must be inserted references to the pages of
the transcript, the exhibits, or other sources relied upon to
support the statement. In answering the reply brief, the party
will set forth his or her objections (together with the reasons
therefore) to any proposed findings of opposing counsel,
showing the numbers of the statements to which the objections are directed. In addition, the party may set forth alternative proposed findings of fact.611
(4)
A concise statement of the points on which the party relies. 612
(5)
The argument, which sets forth and discusses the points of
law and any disputed question of fact.613
(6)
The signature of counsel or the party submitting the brief.614
If the deficiency is a “small tax case,”615 the trial judge may make
oral findings of fact.616 As part of the signature, counsel must include
his or her Tax Court bar number.617
§ 6:11
Decision of the Court
It is not uncommon for the court, after it has filed or stated its
opinion determining the issues involved, to await entry of the decision. The purpose of this is to permit the parties to submit computations,618 pursuant to the court’s determination of the issues, showing
the correct amount of the deficiency. If the parties are in agreement as
to the amount of the deficiency or overpayment, either or both of them
will file with the court an original and two copies of the computation,
611.
612.
613.
614.
615.
616.
T.C. Rule 151(e)(3).
T.C. Rule 151(e)(4).
T.C. Rule 151(e)(5).
T.C. Rule 151(e)(6).
See the discussion of “small tax cases,” infra.
T.C. Rule 152. As a result of amendments to the rules of practice, the trial
judge also may issue oral findings of fact in cases other than small cases:
Except in actions for declaratory judgment or for disclosure (see
Titles XXI and XXII), the Judge, or the Special Trial Judge in any
case in which the Special Trial Judge is authorized to make the
decision of the Court pursuant to section 7436(c) or 7443A(b)(2),
(3), or (4), and (c), may, in the exercise of discretion, orally state the
findings of fact or opinion if the Judge or Special Trial Judge is
satisfied as to the factual conclusions to be reached in the case and
that the law to be applied thereto is clear. T.C. Rule 152(a). Counsel
should especially note that under I.R.C. § 7443A(b)(4), dealing with
Collection Due Process cases under §§ 6320 or 6330, the Code
specifically mentions “any proceeding under § 6320 or 6330.”
617.
618.
T.C. Rule 23(a)(3).
Commonly referred to as “Rule 155” comps.
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Tax Court Litigation and Claims for Refunds
§ 6:12
showing the amount of the deficiency, liability, or overpayment and
that there is no disagreement that the figures shown are in accordance
with the court’s findings. The court will then enter its decision. 619
If, however, the parties are not in agreement as to the amount of the
deficiency or overpayment, each of them will file with the court their
proposed computations, the amount to be included in the decision in
accordance with the findings and conclusions of the court, and then
serve each other.620 The court may, at its discretion, place the matter
upon a motion calendar for argument.621
Sometimes judges decide to issue bench opinions after the trial.
Situations in which the court may render a bench opinion include
cases presenting issues for which a brief may be direct filed, for
example, substantiation, valuation, and fraud cases; cases in which
the law to be applied is clear and the issue to be decided is highly
factual; and where the court has decided the same issue for similarly
situated taxpayers.
§ 6:12
Proceedings After Trial
Either party can file a motion for reconsideration of findings or
opinion within thirty days after a written opinion or the pages of the
transcript that contain findings of facts stated orally, pursuant to Rule
152, have been served.622 Any party can also move to vacate or revise
the decision with or without new or further trial within thirty days
619.
620.
621.
622.
T.C. Rule 155(a).
T.C. Rule 155(b) was amended to eliminate the requirement that the Clerk
serve an unagreed computation on the opposite party.
T.C. Rule 155(b).
T.C. Rule 161. See, e.g., Estate of Halder v. Comm’r, T.C. Memo
2003-284:
Reconsideration under Rule 161 permits us to correct manifest
errors of fact or law, or to allow newly discovered evidence to be
introduced that could not have been introduced before the filing of
an opinion, even if the moving party had exercised due diligence.
See Rothwell Cotton Co. v. Rosenthal & Co., 827 F.2d 246, 251,
amended per order 835 F.2d 710 (7th Cir. 1987); see also Traum v.
Comm’r, 237 F.2d 277, 281 (7th Cir. 1956), aff ‘g T.C. Memo 1955127. The granting of a motion for reconsideration rests within the
discretion of the Court, and we shall not grant a motion for
reconsideration unless the party seeking reconsideration shows
unusual circumstances or substantial error. See Alexander v.
Comm’r, 95 T.C. 467, 469, 1990 WL 160996 (1990), aff ’d without
published opinion sub nom. Stell v. Comm’r, 999 F.2d 544 (9th Cir.
1993); Estate of Halas v. Comm’r, 94 T.C. 570, 573, 1990 WL
40948 (1990); Vaughn v. Comm’r, 87 T.C. 164, 166-167, 1986 WL
22160 (1986); Estate of Bailly v. Comm’r, 81 T.C. 949, 951, 1983
WL 14903 (1983); Haft Trust v. Comm’r, 62 T.C. 145, 147, 1974
WL 2626 (1974), aff ’d on this issue 510 F.2d 43, 45 n.1 (1st Cir.
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
after the decision has been entered, unless the court permits
otherwise.623
With respect to the appeal of Tax Court decisions, both the taxpayer
and the government can appeal the decision of the court to the
appropriate court of appeals by filing a notice of appeal with the clerk
of the Tax Court within ninety days after the decision is entered.624
The rules for venue for the appeal are set forth in section 7483(b) and
in general provide venue, depending on the type of petitioner, at the
principal place of business or the legal residence of the petitioner at the
time the petition was filed with the Tax Court.
1975). Reconsideration is not the appropriate forum for rehashing
previously rejected legal arguments or tendering new legal theories
to reach the end result desired by the moving party. See Estate of
Quick v. Comm’r, 110 T.C. 440, 441–42, 1998 WL 341635,
supplementing 110 T.C. 172, 1998 WL 113911 (1998); Stoody v.
Comm’r, 67 T.C. 643, 644, 1977 WL 3745 (1977), supplementing
66 T.C. 710, 1976 WL 3725 (1976).
623.
624.
T.C. Rule 162. For a discussion regarding when the Tax Court may vacate a
decision after it becomes final, see Trans World Travel v. Comm’r, T.C.
Memo 2001-6.
T.C. Rule 190. See, e.g., Zimmerman v. Comm’r, 90 A.F.T.R.2d 2002-7602
(10th Cir. 2002), where a failure to use certified mail (see discussion,
supra, for the timely-mailing-timely-filing rule) precluded an appeal:
This April 11, 2002 notice of appeal was untimely. Mr. Zimmerman’s former counsel, however, also sent a letter to the Tax Court
stating that she had mailed an original notice of appeal to the Tax
Court on February 26, 2002, eighty-one days after the motion for
reconsideration was denied. Her letter claimed that the original
notice of appeal “evidently was destroyed in the mail” and that “[w]e
received in our office a mangled representation of we think the
appeal.” [sic] R. doc. 14, letter of April 11, 2002. Counsel’s letter
contained a photocopy of the original notice of appeal, but no
registered or certified mail receipt and no evidence of the original
envelope, its postmark date or its “mangled” contents.
A notice of appeal is deemed delivered on the date of mailing, as
established by a United States postmark. 26 U.S.C. § 7502(a), (b);
26 C.F.R. § 301.7502-1(b)(iii). Use of registered mail or certified
mail provides prima facie evidence that the notice of appeal was
delivered; the date of registration or the date of the U.S. postmark
on the certified mail receipt is treated as the postmark date. 26 U.S.C.
§ 7502(c)(1); 26 C.F.R. § 301.7502-1(c)(2). Mr. Zimmerman has
presented no evidence that the original notice of appeal was postmarked within the prescribed time period. We have only counsel’s
unsworn letter and a purported copy of the original notice of appeal
to evidence the first attempt at filing a notice of appeal. These items
are insufficient as a matter of law to establish timely delivery and
filing. Therefore, we dismiss Mr. Zimmerman’s petition for review
as untimely.
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While the filing of a notice of appeal to the appropriate court of
appeals is jurisdictional, it has been held that a notice of appeal is to be
liberally construed and mere technicalities will not foreclose the
court’s review, particularly where the intent to appeal is apparent,
and there is no prejudice to the adverse party.625 Thus, where the Tax
Court consolidated nine cases for trial purposes and issued a memorandum opinion, and the taxpayers’ notice of appeal specified the
memorandum opinion rather than the individual judgments as the
decision from which an appeal was sought, and the IRS conceded at
oral argument that it was not prejudiced by the notice, the taxpayer ’s
notice sufficiently put the IRS on notice that the final judgments were
being appealed, there being no requirement that separate notices of
appeal be filed on separate pieces of paper.626
The courts of appeals review Tax Court decisions in the same a
manner and to the same extent as decisions of the district courts in
civil actions tried without a jury.627 The Tax Court’s legal conclusions
are subject to de novo review, and its factual findings can be set aside
only if clearly erroneous.628
Note that the stay of collection of the deficiency provided by the Tax
Court proceeding vanishes when the Tax Court enters its decision,
unless an appeal is filed and unless the taxpayer posts a bond under
section 7485.
Practice Pointer: The authors have never seen anyone post a
bond in these circumstances. The bonds are very expensive and
would appear to be a waste of money. Why pay all that money to
the bonding company when you can apply that money against
the deficiency?
§ 6:13
Small Tax Cases
If the amount in dispute, including additions to tax and penalties,
does not exceed $50,000 for any one taxable year in the case of income
taxes, a total of $50,000 in the case of estate taxes, $50,000 for any
one calendar year in the case of gift taxes, or $50,000 for any one
taxable period in the case of excise taxes, the petitioner can request
625.
626.
627.
628.
Sather v. Comm’r, 251 F.3d 1168, 1171 (8th Cir. 2001), citing Klaudt v.
U.S. Dep’t of Interior, 990 F.2d 409 (8th Cir. 1993). See also Torres v.
Oakland Scavenger Co., 487 U.S. 312 (1988).
Sather, 251 F. 3d at 1172, citing Hawkins v. City of Farmington, 189 F.3d
695 (8th Cir. 1999).
Katz v. Comm’r, 335 F.3d 1121, 1125–26 (10th Cir. 2003), quoting Kurzet
v. Comm’r, 222 F.3d 830, 833 (10th Cir. 2003) (quotation marks omitted).
Id. at 1126, quoting Kkurzet v. Comm’r, supra (quotation marks omitted).
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
that the case be handled as a small tax case.629 Small tax cases are
typically a benefit to the taxpayer who represents himself or herself pro
se. Formal rules of evidence may not be enforced depending upon the
sophistication of the taxpayer, filing of briefs are not required, and no
appeal is available from the court’s decision. Yet further, the petition is
very simple, and is provided by the court.630 If the taxpayer ’s means
are limited, counsel should consider the possibility of representing the
taxpayer under the small tax case procedures. The advantage to the
taxpayer is that the attorney’s and filing fees will be much less than in
the regular Tax Court, yet the taxpayer will have the benefit of counsel
advocating his or her cause.
Prior to the Taxpayer Bill of Rights 3,631 the amount in controversy
could not exceed $10,000.632 Congress increased this to $50,000
because it believed that small case procedures should be expanded.
Nonetheless, Congress also recognized that an increase of this size
may encompass a small number of cases of significant precedential
value. Accordingly, Congress anticipated that the Tax Court will
carefully consider IRS objections to small case treatment, such as
objections based upon the potential precedential value of the case. 633
Small case procedures are available for income, estate, gift, and
certain excise taxes, as well as for certain innocent spouse and pre-levy
cases.634 Moreover, most recently,635 small case procedures are also
available for certain employment tax cases, if the amount of employment taxes in dispute is $50,000 or less for each calendar quarter
involved.636 The Community Renewal Tax Relief Act of 2000637
629.
630.
631.
632.
633.
634.
635.
636.
637.
I.R.C. § 7463(a), as amended by the IRS Restructuring and Reform
Act of 1998, Pub. L. No. 105-206, Title III (Taxpayer Bill of Rights 3),
§ 3103(b)(1). Prior to amendment, the amounts could not exceed $10,000.
See text, infra.
See www.ustaxcourt.gov/forms/Petition_Kit.pdf for a copy of the form.
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III.
I.R.C. § 7463(a), before amendment by the Taxpayer Bill of Rights 3, Pub.
L. No. 105-206, Title III.
S. REP. NO. 105-174.
I.R.C. § 7463(a), (f).
Pub. L. No. 105-34, section 1454(a), effective retroactively to August 5,
1997.
I.R.C. § 7436(c). For a detailed discussion of the jurisdiction of the Tax
Court over employment tax cases, see supra.
Pub. L. No. 106-554, § 1(a)(7), adding I.R.C. § 7463(f), effective
December 21, 2000. See also T.C. Rule 170–75; 291(c); 321(c); 331(c).
Note that effective March 13, 2007, T.C. Rule 173(b) has been amended in
that the Commissioner must now file an answer in all cases, even those
involving small tax cases: “(b) Answer: The Commissioner shall file an
answer or shall move with respect to the petition within the periods
specified in, and in accordance with the provisions of, Rule 36.” The
reason for this change is given by Tax Court:
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§ 6:13
amended section 7463 to permit the election of the small tax case
procedures in petitions for the determination of relief from joint and
several liability on a joint return and petitions to commence lien and
levy actions. Accordingly, Rules 321 and 331 provide cross-references
to the small tax case rules (Rules 170 through 175). Further, the court
has revised its Form 2 to provide a check-the-box small tax case
petition form. Small case procedures also are available for lien or
levy actions under section 6320 or 6330.638
Tax Court Rule 177 provides that trials of small tax cases will be
conducted as informally as possible, consistent with orderly procedure,
and any evidence deemed by the court to have probative value will be
admissible. The CCDM states that “where a pro se petitioner is doing
his best to present his case to the court, technical evidentiary or
procedural objections should not be made. The Field attorney should
assist the pro se petitioner to bring out all the facts, and the crossexamination should be for the purpose of presenting to the court all
pertinent and competent evidence.”639
The purpose of the “S” case procedure is to provide a forum where
the taxpayer can have his day in court at an early time and at a
reasonable cost. Small case calendars are normally issued at least two
months before the session.
In Schwartz v. Commissioner,640 the Tax Court gave further
elucidation to the small case limitation of section 7463 in the context
Because current Rules generally do not require the Commissioner to
file answers in small tax cases, taxpayers and low-income-taxpayer
clinics have sometimes had difficulty in identifying and contacting,
until shortly before trial, the IRS attorney responsible for a case.
Requiring the Commissioner to file answers in all small tax cases
will provide taxpayers or their counsel the name, address, and
telephone number of the IRS attorney responsible for the case
well before trial. This information should facilitate essential pretrial
communication between the parties, encourage earlier consideration of small tax cases by the appropriate IRS attorney, and
reduce instances in which the parties and the Court are surprised
by 11th-hour procedural and jurisdictional motions.
In addition, small tax cases move through the administrative
system relatively quickly and may present novel issues resulting
from changes in the tax law. The filing of answers may promote
earlier identification of such issues and assist the Court in making
informed and timely decisions as to whether it might be appropriate
to discontinue small tax case proceedings in particular instances,
pursuant to I.R.C. § 7463(d). It is not anticipated that the amendment will result in any significant delay in the calendaring of small
tax cases for trial.
638.
639.
640.
See www.ustaxcourt.gov, Form 2.
35.6.2.12 Trial of “S” Cases (Aug. 11, 2004).
Schwartz v. Comm’r, 128 T.C. 6 (2007).
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
of a Collection Due Process Hearing under section 6330. Pursuant to
section 6330(d), the taxpayers filed a petition challenging IRS’s
determination to proceed with collection. The taxpayers elected to
have the case conducted under the small tax case procedures authorized by section 7463. The unpaid income tax involved was for the
1997–2003 tax years. The unpaid tax for any single year did not exceed
$50,000, but the total tax for all years exceeded $150,000. The Tax
Court held that section 7463(f)(2) provides that a section 6330
collection case petitioned to this court is eligible to be conducted
under the small tax case procedures “in the case of . . . a determination
in which the unpaid tax does not exceed $50,000.” The total unpaid
tax in this case with respect to which the IRS determined to take
collection action exceeded $50,000, and, therefore, the case was not
eligible to be conducted under the small tax case procedures provided
in section 7463.641
Moreover, Rule 171 permits a taxpayer to request that the proceeding be conducted as a small tax case.642 Rule 171(c) also permits a
petitioner to request the small tax court designation be removed and
reassigned as to a regular case. Judges are inclined to grant their
request up until the time of trial and no later than the opinion being
released.
§ 6:14
Tax Refund Suits
As an alternative to Tax Court, the taxpayer may choose to pay the
tax and file a claim for refund. By doing this, taxpayer forgoes the
ability to go the Tax Court route.643 This is so because, in order to
confer jurisdiction on the Tax Court, the taxpayer must be issued a
ninety-day Notice of Deficiency. If the tax is paid in full, however, and
the IRS subsequently denies taxpayer ’s claim for refund, no Notice of
Deficiency can be issued because the taxpayer does not owe any
money. Therefore, the taxpayer ’s remedy is to file a refund suit in
federal district court or the Claims Court.644
Prior to filing suit in either court, however, for income, estate, and
gift taxes alleged to have been erroneously or illegally collected, a claim
641.
642.
643.
644.
Id.
T.C. Rule 171(b).
As discussed above, if the taxpayer has an action pending in Tax Court it is
possible for the court to determine that an overpayment exists for a year for
which the Service determined a deficiency and issued a statutory Notice of
Deficiency.
But note expanded jurisdiction of the Tax Court under certain circumstances, as discussed earlier in this chapter.
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for refund must be duly filed with the Service645 after full payment for
the taxable period has been made.646
The big tactical advantage of a refund suit over a Tax Court
proceeding is that, in the typical case, there is no monetary downside
to the taxpayer if the government uncovers taxpayer unfavorable
adjustments during the course of the litigation. Unlike a Tax Court
proceeding where the Tax Court’s ability to increase the deficiency is
unlimited, in a refund suit the statute of limitations on assessment
has typically expired and the government lacks the ability to collect
additional taxes through the refund suit.
Practice Pointer: If the IRS missed significant potential adjustments in favor of the IRS, and the IRS failed to make these
adjustments in the statutory Notice of Deficiency the taxpayer
should seriously consider forgoing the Tax Court route to challenge
the asserted adjustments, and consider going the refund route.
However, you must take into consideration that the refund claim
(amended return) must meet the same standards for filing an
original return. In other words, if the taxpayer, or preparer, is aware
of a known error or the positions were groundless or fraudulent
on the original return, you might not be able to file a claim for
refund repeating those same groundless or fraudulent positions.
§ 6:14.1
Two Types of Refund Suits
A refund suit seeks to recover an “overpayment” of tax. An overpayment is the amount of tax paid over the amount that the IRS might
645.
646.
I.R.C. § 7422(a). Nweke v. IRS, 88 A.F.T.R.2d 2001-7067 (N.D. Cal. 2001);
Kay v. IRS, 85 A.F.T.R.2d 2000-1993 (9th Cir. 2000); Teixeira v. United
States, 2000-1 U.S. Tax. Cas. (CCH) ¶ 50,478 (D.S.C. 2000); Cantera v.
United States, 92 A.F.T.R.2d 2003-6745 (W.D. Pa. 2003). See also Dunn &
Black v. United States, 492 F.3d 1084 (9th Cir. 2007) (the Code’s administrative exhaustion requirement—filing a claim for refund and its denial
by the Service or the Service’s failure to take action on the claim within the
statutorily provided timeframe—for suits for illegally collected taxes is
applicable to non-taxpayers, too).
See Flora v. United States, 362 U.S. 145 (1960). See also Roberts v. United
States, 89 A.F.T.R.2d 2002-1318 (N.D. Tex. 2002); Barber v. United States,
85 F. Supp. 2d 967 (N.D. Cal. 2000); Provenzano v. United States, 86
A.F.T.R.2d 2000-6622 (S.D. Cal. 2000). See also 28 U.S.C. § 1346. See
also Royal Denim for Imp. & Exp., Inc., 371 F. Supp. 2d 569 (S.D.N.Y.
2005) (full payment of jeopardy assessment was jurisdictional prerequisite
to filing of tax refund suit). Cf. E.W. Cripps Co. & Subsidiaries v. United
States, 420 F.3d 589 (6th Cir. 2005) (district court has subject matter
jurisdiction over a claim for interest on an overpayment of tax when there
is no separate claim seeking a refund of the overpaid tax and the interest
sought by the taxpayer exceeds $10,000). See also Daniels v. United States,
77 Fed. Cl. 251 (2007) (explaining Flora, supra).
(Shafiroff, Rel. #21, 11/09)
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have properly assessed and demanded.647 The most common type of
refund suit seeks to recover an overpayment referred to as a “judicial”
overpayment governed by the rule the Court case of Lewis v.
Reynolds.648 In Lewis, the Court held that the taxpayer in a refund
suit must prove that he or she has made an overpayment of tax
and this burden potentially places the taxpayer ’s entire return at issue.
In other words, the entire return may be reexamined and not just on
the grounds set forth in the refund claim. The tax may be redetermined irrespective of the result of any previous audit, and the
uncollectibility of any deficiency computed; and to determine if the
tax as redetermined exceeds the amount of the refund claim, if so,
there will be no overpayment. Although the statute of limitations may
have barred the assessment and collection of any additional sum, it
does not obliterate the right of the United States to retain payments
already received when they do not exceed the amount which
might have been properly assessed and demanded. 649 Accordingly,
the government can raise offsetting adjustments to reduce any potential taxpayer favorable adjustment claimed and proven by the taxpayer.
The fact that the government is likely barred by the statute of
limitations from assessing additional taxes due to these offsetting
adjustments is irrelevant.650
The second type of refund suit seeks to recover a “statutory”
overpayment defined in section 6401(a). Under that section, amounts
assessed or collected outside of the statute of limitations are by
statutory definition “overpayments.” It is unclear whether or not the
rule of Lewis v. Reynolds would apply to a statutory overpayment. It is
also unclear whether or not the full payment rule, discussed infra,
would apply to statutory overpayments under section 6401(1), as full
payment on a statutorily barred assessment would seem pointless. In
Liberty Glass,651 the court focused on what is the correct amount of
tax “rightfully due”; that is, what is the amount of tax finally
determined to be legally due by a court. A tax assessed or collected
after the expiration of the applicable period of limitations is an
647.
648.
649.
650.
651.
Lewis v. Reynolds, 284 U.S. 281, 283 (1932).
Id.
Id. at 283.
Id. See also Rev. Rul. 81-87, 1981-1 C.B. 580 (adjustments that increase or
decrease taxable income, even those barred by the statute of limitations,
are taken into account in determining the amount of overpayment to be
refunded). See Allen v. United States, 95-1 U.S.T.C. ¶ 50,253 (11th Cir.
1995), where the IRS was permitted to assert delinquency and negligence
penalties to offset a refund claim, despite the fact that the statute of
limitations for directly assessing penalties for the year had expired.
Jones v. Liberty Glass Co., 332 U.S. 524, 531 (1947).
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“overpayment” because the tax is not rightfully due.652 Where the
taxpayer pays an amount after the applicable period of limitations
on assessment or collection has expired, the taxpayer can recover the
overpayment by filing a claim for refund, and, if necessary, instituting
a suit for refund.653 In Bachner v. Commissioner,654 the Tax Court,
saying it was following Lewis v. Reynolds, held that although the
Service could no longer assess a deficiency against the taxpayer, the
statutory bar did not extinguish the right of the government to retain
payments already received to the extent that they do not exceed the
amount of the taxpayer ’s actual tax liability. Thus, the Tax Court
upheld the Service’s position in Revenue Ruling 85-67. 655 The Tax
Court also held that the Service could reduce the amount of the
taxpayer ’s refund by the amount of negligence and late filing penalties.
§ 6:14.2
Jurisdiction for Tax Refund Suits
The jurisdiction prerequisites for a tax refund suit are the following:
1.
Full payment;
2.
A timely claim for refund;
3.
A proper claim for refund, and
4.
A timely refund suit.
[A] Full Payment
A taxpayer can file suit in district court or in the U.S. Court of
Federal Claims for a refund of income, estate, or gift tax only after
paying in full the tax assessed by the IRS. This full-payment rule must
be met in order for the taxpayer to initiate a refund suit.656 There is a
debate about whether the term “full payment” means the total payment of the sum of the assessed tax, interest, and penalties, or whether
a prepayment of tax principal is all that is required. The Federal
Circuit Court of Appeals held that the Flora full payment rule requires
652.
653.
654.
655.
656.
I.R.C. § 6401(a). See Ewing v. United States, 914 F.2d 499 (4th Cir. 1990)
(“[s]ince the amounts paid in 1985 were ‘collected’ by the IRS outside of
the period for assessment with no assessment having been made, they
come within (the Section 6401) definition of ‘overpayment’”); Diamond
Gardner Corp., 38 T.C. 875, 879–81 (1962); Rhodes v. Edwards, 56-2
U.S.T.C. ¶ 9643 (M.D. Ga. 1956).
Bowers v. N.Y. & Albany Co., 273 U.S. 346, 349 (1927); Cohen v.
United States, 23 Cl. Ct. 717, 91-2 U.S.T.C. ¶ 50,384 (1991).
Bachner v. Comm’r, 109 T.C. 125 (1997), after remand, 81 F.3d 1274,
1277 (3d Cir. 1996).
Rev. Rul. 85-67, 1985-1 C.B. 364.
Flora v. United States, 78 S. Ct. 1079, 357 U.S. 63, 78, 58-2 U.S.T.C.
¶ 9606 (1958).
(Shafiroff, Rel. #21, 11/09)
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that taxpayers need only prepay the tax principal in order for the U.S.
Court of Federal Claims to have subject matter jurisdiction. 657 The
court went on to say that only if a taxpayer asserts a claim with respect
to interest or penalties on grounds not fully determined by the taxrelated claim would prepayment of interest and penalties (as well as
the assessed tax) be required. In contrast, some circuit and district
courts have held that the taxpayer must make a prepayment of the
assessed tax, penalties, and interest, in order to have standing to file
suit.658
The full-payment rule applies to the assessed liability that is the
subject of the refund suit. Inability to pay, partial payment, or installment payment agreements do not satisfy the full-payment rule. The
full-payment rule applies to refund suits in the U.S. Court of Federal
Claims, as well as in district courts. Note that taxpayers may only file
a petition in the Tax Court on a pre-payment basis.
An exception to the full-payment rule is available when divisible
taxes are involved. Divisible taxes are those for which the assessment
can be divided into a tax on each transaction or event. The taxpayer
need only pay a divisible part of the full assessment. Divisible taxes
include:
1.
Manufacturer ’s excise tax,
2.
Highway use tax,
3.
Wagering tax,
4.
FICA and FUTA taxes,
5.
Income withholding tax on wages,
6.
The responsible-person penalty under IRC Section 6672, Failure to Collect and Pay Over Withholding Taxes,
7.
The excise tax on transfers to foreign trusts, and
8.
Excise taxes imposed on prohibited acts of private foundations
and qualified pension plans, etc.
Thus, for example, a taxpayer need only pay the employment tax
assessed for one employee for one quarter in order to file a claim for
refund and, if denied, file suit with respect to the employment tax
issue affecting the entire class of employees.
Note that TRA 97 grants the Tax Court jurisdiction to review
worker classification determinations when the IRS has determined
either that a worker is an employee, or that the service recipient is not
657.
658.
See Shore v. United States, 93-2 U.S.T.C. ¶ 50,623 (Fed. Cir. 1993).
Magnone v. United States, 90-1 U.S.T.C. ¶ 50,253 (2d Cir. 1990); Arnold v.
United States, 82-2 U.S.T.C. ¶ 13,476 (N.D. Ohio 1982).
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entitled to relief under section 530 of the Revenue Act of 1978, if the
service recipient files a petition within ninety days of an IRS determination. Under prior law, worker classification disputes could be
litigated only in a refund suit in a district court or the Court of Federal
Claims. Making the Tax Court available for litigating worker classification disputes will provide taxpayers with the flexibility to resolve
these disputes without the need to pay any of the asserted taxes in
advance.
[B] Timely Claim for Refund
Section 7422 mandates as a jurisdictional prerequisite to a tax
refund suit that the taxpayer file a refund claim in accordance with the
Treasury Regulations.659 For all taxes (other than those payable by
stamp) where a return is required, a claim for refund must be filed
within three years from the time the original return was filed or within
two years from the time the tax was paid, whichever period expires
later.660 A late filed return claiming a refund is both an original return
and a timely refund claim (that is, it is filed within three years of the
filing of the original return).661 Note that a claim for refund is valid
where filed within three years of the date the original tax return is
filed, no matter when the return is filed. If no return is filed, the claim
must be filed within two years from the time the tax was paid. 662
For purposes of these rules, section 6513(a) provides that any return
filed before the last day prescribed for the filing thereof shall be
considered as filed on such last day. Section 6513(a) further provides
that for the purpose of these rules, payment of any portion of the tax
made before the last day prescribed for the payment of the tax shall be
considered made on such last day. For purposes of the refund claim
rules, the last day prescribed for filing the return or paying the tax shall
be determined without regard to any extension of time granted the
taxpayer and without regard to any election to pay the tax in
installments.
If the taxpayer and the IRS properly extend the time for assessment
statute pursuant to section 6501(c)(4), the time for filing a refund
claim does not expire until six months after the expiration of the
period for making the assessment as set forth in the Form 872,
Consent to Extend the Time to Assess Tax, or similar form.663
659.
660.
661.
662.
663.
See also I.R.C. §§ 6511(b)(1) and 6402(a).
I.R.C. § 6511(a).
Rev. Rul. 76-511, 1976-2 C.B. 428; Omohundro v. United States, 300 F.3d
1065 (9th Cir. 2002).
I.R.C. § 6511(a).
I.R.C. § 6511(c).
(Shafiroff, Rel. #21, 11/09)
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[C]
Proper Claim for Refund
The term “proper claim for refund” is an invention of tax practitioners to explain additional jurisdictional requirements for a refund
claim. A proper claim for refund must do two things. First, it must
satisfy the Doctrine of Variance by stating the grounds upon which the
claim is based.664 Under the Doctrine of Variance the court will have no
jurisdiction to consider grounds not stated in the refund claim. Second,
the refund claim must satisfy the requirements of section 6511(b),
which limit the amount of tax that can be refunded, even if the refund
claim is timely. These timing rules can be confusing. Where the taxpayer
relies on the three-year period under section 6511(a) for filing a refund
claim, the amount which can be refunded to the taxpayer is limited to
the amount of tax paid during the three-year period immediately
preceding the filing of the claim, plus any extension of time for filing
the return.665 This is often referred to as the “three-year look-back
period.”666 If the taxpayer relies on the two-year period under section
6511(a) for filing a timely refund claim, the amount of refund is limited
to the amount of tax paid within two years from the filing of the claim.
This rule is often referred to as the “two-year look-back period.”667 This
two-year look-back period usually applies if a deficiency is paid as a
result of an audit of a taxpayer ’s previously filed return.668
Where the taxpayer relies on the six month period after the
expiration of an agreed assessment statute extension to file a timely
refund claim, the amount of the credit or refund is limited to: (1) the
portion of the tax paid after the execution of the first extension
agreement and before the filing of the claim; plus (2) the portion of
the tax recoverable under the rules pursuant to section 6511(b)(2) (that
is, the three-year look-back rule or the two-year look-back rule). Think
of this rule as if a hypothetical claim for refund had been filed on the
664.
665.
666.
667.
668.
See § 6:14.3 Formal Claims for Refund, infra.
I.R.C. § 6511(b)(2)(A).
See Rev. Rul. 76-511, 1976-2 C.B. 428; Rev. Rul. 78-343, 1978-2 C.B. 326;
and Weisbart v. United States, 222 F.3d 93 (2d Cir. 2000), which caused
the regulations under section 7502 to be amended to treat late-filed
original returns as filed on the postmark date for purposes of section
6511(b)(2)(A). See T.D. 8932.
I.R.C. § 6511(b)(2)(B).
The Taxpayer Relief Act of 1997 statutorily reverses a 1996 Supreme Court
case, Comm’r v. Lundy, 116 S. Ct. 647, 96-1 U.S.T.C. ¶ 50,035 (1996), by
allowing taxpayers to receive a refund of earlier tax payments (e.g., withholding) so long as they file their original tax return within three years of
the original due date. In Lundy, the court held that a taxpayer would be
limited to a refund of amounts paid within the prior two years if the IRS
issues a statutory Notice of Deficiency prior to the date the original return
is filed. The change applies to refund claims for tax years ending after
August 5, 1997.
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date the first statute extension agreement was executed and that claim
keeps the refund statute open.
[D] Timely Refund Suit
If a claim for refund (such as a Form 1040X, Amended U.S.
Individual Income Tax Return, Form 1120X, Amended U.S. Corporation Income Tax Return, or Form 843, Claim for Refund and Request
for Abatement) is denied, the taxpayer has two years, from the date of
mailing (by certified or registered mail), by the IRS of such notice of
disallowance, to file suit in the district court or U.S. Court of Federal
Claims.669 The two-year period begins to run on the date the Service
mails the taxpayer a notice of disallowance, whether or not the
taxpayer actually receives the notice.670 The IRS and the taxpayer
can use a Form 907 to extend the two-year period.671 The period for
bringing suit is not extended by resubmitting a rejected refund claim
with new evidence.672
In lieu of waiting for the refund to be disallowed, suit may be filed
after waiting six months from the date the claim is filed.673 A taxpayer
may start the two-year period by waiving the right to receive a statutory
notice of disallowance (generally by signing Form 2297).674 Reconsideration by the IRS of a denied refund request does not extend the twoyear period.675 In the absence of a notice of disallowance or a waiver by
the taxpayer, there is no time limit for filing suit. Thus, suits on
informal claims (as well as suits on formal claims not disallowed)
may be started many years after the claim was filed. A taxpayer who
has allowed the two-year period to file suit to expire cannot revive
taxpayer’s right to file suit by filing a second claim on the same grounds.
A math error notice adjusting or eliminating an overpayment of tax
claimed on a taxpayer ’s timely filed original return is not a “notice of
disallowance” for purposes of triggering the statute of limitations on
filing a refund suit under section 6532. Math error notices do not
constitute a “final” notice of disallowance because they typically request
669.
670.
671.
672.
673.
674.
675.
I.R.C. § 6532 (a)(1).
Robert G. Rosser v. United States, 94-1 U.S.T.C. ¶ 50,002 (11th Cir. 1993).
See IRS CCA 200203002, which concludes that the taxpayer could file a
refund suit after the limitations period because of an inadequate notification letter from the IRS.
The IRS was precluded from pleading that the two-year period had expired,
as it inadvertently led the taxpayer to believe that the deadline had been
extended. Howard Bank v. United States, 759 F. Supp. 1073, 91-1 U.S.T.C.
¶ 60,053 (D.C. Vt. 1991).
L & H Co. v. United States, 963 F.2d 949, 92-1 U.S.T.C. ¶ 50,275 (6th Cir.
1992).
I.R.C. § 6532(a)(1).
I.R.C. § 6532 (a)(3).
I.R.C. § 6532(a)(4).
(Shafiroff, Rel. #21, 11/09)
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additional information before a taxpayer ’s claim can be granted, and do
not inform the taxpayer of his or her right to file suit to recover the tax.676
[E]
Payment Versus Deposit
A recurring issue in refund litigation is whether the remittance
made by the taxpayer was a “payment” of tax subject to the statutory
requirements for refund claims and refund suits, or whether the
remittance was a “deposit,” refundable on demand at any time.
Taxpayers have attempted to avoid the statutory bar to refund claims
by characterizing their remittance as a deposit. The Supreme Court’s
positive citation of Revenue Procedure 84-58677 likely ends the debate
on the subject.678 Revenue Procedure 2005-18679 entitled “Deposits
Made to Suspend the Running of Interest on Potential Underpayments” superseded Revenue Procedure 84-58, but carried over its
substance. The Revenue Procedure contains detailed rules for distinguishing a payment from a deposit. In short, if the remittance is made
in respect of some identifiable potential liability, it is a payment. If the
remittance is specified by the taxpayer as a deposit, it will be considered a deposit. If the taxpayer appears to be throwing money at the
IRS with nothing specific in mind, the remittance will be considered a
deposit. Of course, even if the remittance is considered a deposit, if the
IRS has an unpaid assessment against the taxpayer, the IRS can seize
the deposit to pay the other assessment owed by the same taxpayer.
A taxpayer may want to make a deposit with the IRS in order to stop
the running of interest on an anticipated tax liability. There are two types
of such deposits. The first type is a deposit in the nature of a cash bond
made pursuant to Revenue Procedure 84-58. These deposits do not earn
interest from the IRS in the event they are refunded. The second type is a
deposit under section 6603 which earns interest on the portion of the
deposit attributable to a disputable tax as defined in that section.680 There
appears to be no good reason why today a taxpayer would make a deposit
in the nature of a cash bond rather than a deposit under section 6603.
§ 6:14.3
Informal Claims for Refund
In order to file a proper claim for refund, counsel should use
Form 1040X (individual returns), Form 1120X (corporate income
676.
677.
678.
679.
680.
SCA 200111043 (Jan. 30, 2001).
Rev. Proc. 84-58, 1984-2 C.B. 501.
Baral v. United States, 528 U.S. 431, 438 (2000).
Rev. Proc. 2005-18, 2005-1 C.B. 798.
I.R.C. § 6603(d) states that the term “disputable tax” means the amount of
tax specified at the time of the deposit as the taxpayer ’s reasonable estimate
of the maximum amount of any tax attributable to disputable items.
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§ 6:14.3
tax return), or Form 843 (refund of taxes other than income taxes).
Informal claims, that is, claims filed on inappropriate forms, have
sometimes been held to be valid.681 Such claims have also been held to
be invalid. 682 (I mention this for counsel who has to salvage a
taxpayer ’s error; counsel should always use the proper form.)
In PALA, Inc. Employees Profit Sharing Plan and Trust Agreement v.
United States,683 the Court of Appeals for the Fifth Circuit explained
the informal claim doctrine:684
PALA argues that, although it never filed a 1041 refund claim
within the limitations period, it presented a timely “informal
claim.” While its theoretical underpinnings remain shrouded in
685
some obscurity,
the informal claim doctrine has received the
686
endorsement of the Supreme Court.
According to this doctrine,
an informal claim is sufficient if it is filed within the statutory
period, puts the IRS on notice that the taxpayer believes an
erroneous tax has been assessed, and describes the tax and year
with sufficient particularity to allow the IRS to undertake an
687
investigation.
Although an informal claim may include oral
681.
682.
683.
684.
685.
686.
687.
United States v. Kales, 314 U.S. 186 (1941); Watson v. United States, 246
F. Supp. 755 (E.D. Tenn. 1965). For a case regarding an informal claim
where the taxpayer ’s complaint withstood a legal challenge to the district
court’s jurisdiction, see Salah v. United States, 87 A.F.T.R.2d 2001-1462
(7th Cir. 2001).
Livermore v. Miller, 94 F.2d 111 (5th Cir.), cert. denied, 304 U.S. 582
(1938). Kaetz v. IRS, 83 A.F.T.R.2d 99-2536 (D. Pa. 1999), aff ’d without
published opinion, 225 F.3d 649 (3d Cir. 2000); Mobile Med Support Servs.
v. United States, 86 A.F.T.R.2d 2000-6760 (D. Conn. 2000). For a case
involving an allegation of an informal claim where the taxpayer did not
prevail, see Jackson v. Comm’r, T.C. Memo 2002-44 (letter in which the
taxpayer informed the IRS that he believed he had overpaid his taxes and
was entitled to a refund did not qualify as an informal claim).
PALA, Inc. Employees Profit Sharing Plan & Trust Agreement v. United
States, 234 F.3d 873 (5th Cir. 2000).
Id. at 877, 879. For the sake of consistency, footnote numbering follows the
sequence already established in this text, not the actual sequence that is in the
opinion. Also for the sake of consistency, although the cases cited in the opinion
are in italics, roman type is used herein. Further, in the interest of brevity, some
citations have been edited, and these are indicated by use of ellipses. Other
minor modifications have also been adopted for purposes of style.
For an excellent discussion of the theoretical difficulties associated with
the informal claim doctrine, see BCS Fin. Corp. v. United States, 118 F.3d
522, 524–27 (7th Cir. 1997) (Posner, C.J.).
See United States v. Kales, supra.
See Kales, 314 U. S. at 194–95; Gustin v. United States, 876 F.2d 485,
488; Bauer v. United States, 594 F.2d 44, 46 (5th Cir. 1979); Am. Radiator
& Standard Sanitary Corp. v. United States, 162 Ct. Cl. 106 (1963).
(Shafiroff, Rel. #21, 11/09)
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688
communications, it must have a written component.
There are
no “hard and fast rules” for determining the sufficiency of an
informal claim, and each case must be decided on its own facts
“‘with a view towards determining whether under those facts the
Commissioner knew, or should have known, that a claim was
689
being made.’”
However, it is not enough that the IRS merely
“has information somewhere in its possession from which it
690
might deduce that the taxpayer is entitled to a refund. . . .”
Even if PALA had filed a timely informal claim, this claim was not
subsequently amended by a formal claim. Informal claims have
been likened to pleadings, for which technical deficiencies generally can be corrected by amendment so as to relate back to the
691
original date of filing suit.
Similarly, courts will excuse “harmless noncompliance” with the formalities prescribed for refund
692
claims.
However, the doctrine is predicated on an expectation
693
that these formal deficiencies will at some point be corrected.
Moreover, if the IRS rejects the informal claim after the statutory
694
period has expired, the claim cannot be amended.
Several other cases also have dealt with the informal claim
695
doctrine. In Kaffenberger v. United States,
the issue before
the court was whether a Form 4868, “Automatic Extension
Request,” for filing a Form 1040 could be used to satisfy the
requirements of an informal claim. In holding that it could, the
court provided an outstanding review of the law in this area,
stating:
688.
689.
690.
691.
692.
693.
694.
695.
See Gustin v. United States, 876 F.2d 485, 489; Am. Radiator, 318 F.2d at
920. As the Court of Claims has stated, the informal claim must provide
“clear and explicit” notice. Mo. Pac. R.R. Co. v. United States, 214 Ct. Cl.
623 (1977). See Bauer, 594 F.2d at 46.
See Gustin, 876 F.2d at 488–89, quoting Newton v. United States, 143 Ct.
Cl. 293 (1958).
Gustin, 876 F.2d at 489; see Am. Radiator, 318 F.2d at 920.
See FED. R. CIV. P. 15(c); United States v. Memphis Cotton Oil Co., 288
U.S. 62, 72–73 (1933) (Cardozo, J.). However, while the Supreme Court
has embraced the pleadings analogy, it has also cautioned that this analogy
“is not to be so slavishly followed as to ignore the necessities and realities
of administrative procedure.” United States v. Andrews, 302 U.S. 517, 524
(1938).
BCS Fin. Corp. v. United States, 118 F.3d 522, 524 (7th Cir. 1997) (Posner,
C.J.).
See Kales, 314 U.S. 186; Memphis Oil Co., 288 U.S. at 72–73; BCS Fin.
Corp., 118 F.3d at 524; Am. Radiator, 318 F.2d at 921–22; Tobin v.
Tomlinson, 310 F.2d 648, 652 (5th Cir. 1962); Night Hawk Leasing Co.
v. United States, 18 F. Supp. 938, 941–42; Hollie v. Comm’r, 73 T.C. 1198,
1216; BORIS I. BITTKER & LAWRENCE LOKKEN, FEDERAL TAXATION OF
INCOME, ESTATES AND GIFTS § 112.5.2 (2000).
See Tobin, 310 F.2d at 652; Hollie, 73 T.C. at 1216; BITTKER & LOKKEN,
supra, section 112.5.2.
Kaffenberger v. United States, 314 F.3d 944 (8th Cir. 2003).
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The Kaffenbergers argued to the jury, apparently successfully, that
they had made an informal claim for refund when they designated
that $26,700 of a prior credit be applied to their 1990 tax liability
on the Form 4868 Automatic Extension Request, filed on April 15,
1991, well within three years and six months of April 15, 1990.
On appeal, the government argues that there is no evidence to
support the jury’s finding that the Kaffenbergers made an informal
claim for refund. . . .
Treasury regulations specify what is required of a taxpayer to file a
valid claim for refund or credit of taxes previously paid. See 26 C.F.R.
§ 301.6402-2(b)(1); § 301.6402-3(a). Although the regulation
states that a claim that fails to comply with the requirements
will not be considered as a claim for refund, § 301.6402-2(b)(1), the
Supreme Court has endorsed informal claims filed within the
statutory period that have technical deficiencies, as long as a valid
refund claim is subsequently made after the period has run. . . . In
essence, an informal claim that puts the IRS on notice that a claim
is being made tolls the statute of limitations until the deficiencies
are corrected in a subsequent refund claim. . . . Generally, “an
informal claim is sufficient if it is filed within the statutory period,
puts the IRS on notice that the taxpayer believes erroneous tax has
been assessed, and describes the tax and year with sufficient
particularity to allow the IRS to undertake an investigation.”
PALA, Inc. Employees Profit Sharing Plan and Trust Agreement v.
United States, 234 F.3d 873, 877 (5th Cir. 2000). The sufficiency of
an informal claim depends on the individual facts of each case,
“with a view towards determining whether under those facts the
Commissioner knew, or should have known, that a claim was
being made.” Id. (internal quotations omitted). Failure to specify
the year does not necessarily defeat the informal claim if other
facts suffice to put the IRS on notice of the specific refund sought.
See id. at 878 (“The fact that PALA’s letter does not specifically
mention the year 1991 is irrelevant. . . .”). . . . An informal claim
which is partially informative may be treated as valid even though
‘too general’ or suffering from a ‘lack of specificity’—at least where
those defects have been remedied by a formal claim filed after
the lapse of the statutory period but before the rejection of the
informal request.
At a bare minimum, the Kaffenbergers’ informal claim had to
contain a written component within the statute of limitations,
and must have been followed by a formal claim that remedied any
defects in the informal claim. The Form 4868 Automatic Extension
Request, which reflected “other payments and credits” of $26,700
and which was filed on April 15, 1991, satisfies the written
component. Further, Form 4868 contained the Kaffenbergers’
signatures and declarations under penalties of perjury that the
information was correct. . . . There is no dispute that the 1989
Form 1040, which was filed on July 29, 1994, and requested a
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
refund of $38,309, and the 1989 Form 1040X, which was filed on
September 26, 1995, and requested a refund of an additional
$3,286, made formal claims for refund, albeit untimely ones. These
forms satisfy the minimum requirements for an informal refund
claim. Whether the remaining facts and circumstances satisfy the
informal claim doctrine is highly fact intensive. “No hard and fast
rules can be applied because it is a combination of facts and
circumstances which must ultimately determine whether or not
an informal claim constituting notice to the Commissioner has
been made. Necessarily each case must be decided on its own
peculiar set of facts. . . .” Newton v. United States, 143 Ct. Cl.
293, 163 F. Supp. 614, 619 (Ct. Cl. 1958) (rejecting Commissioner ’s
application of “guiding principles” distilled from prior cases). In
making this factual inquiry, it is important to note that the written
component within the statutory period—Form 4868 in this case—
need not contain all of the information necessary to put the IRS on
notice that a refund was being sought. The written component
“should not be given a crabbed or literal reading, ignoring all the
surrounding circumstances which give it body and content. The
focus is on the claim as a whole, not merely the written component.” Estate of Hale v. United States, 876 F.2d 1258, 1262 (6th Cir.
1989). . . .
Shortly after filing Form 1040 for the 1988 tax period, directing
that a $26,794 overpayment be applied to 1989, the Kaffenbergers
received a notice dated April 15, 1991, that they were entitled to a
refund of $26,770. Evidence introduced at trial revealed that that
type of notice normally is not sent when a refund is to be applied
to the following year ’s tax liability. The Kaffenbergers filed Form
4868 the same day, notifying the IRS that they wanted $26,700 of
“other payments or credits” to be applied to their 1990 liability.
The IRS also had Form 4868 for 1989 on file, with which the
Kaffenbergers had paid $35,000 for estimated payments toward
their 1989 tax liability. Thus, at the time the IRS received Form
4868 for 1990 in April 1991, the IRS knew that the Kaffenbergers
were entitled to a refund of $26,770, that the Kaffenbergers had
requested that the refund from 1988 be applied to their 1989
liability, that the Kaffenbergers had paid $35,000 in estimated
payments toward their 1989 liability, that the IRS had recently
sent the Kaffenbergers a notice of refund for the same $26,770 the
Kaffenbergers had asked to be applied to their 1989 liability, and
that the Kaffenbergers had requested $26,700 from “other payments and credits” be applied to their 1990 liability.
The government argues that the Kaffenbergers’ failure to include
the $26,700 amount on the line for “1989 overpayments allowed
as a credit” on the Form 4868 contradicts the Kaffenbergers’
assertion that they were claiming a refund from 1989. The jury
apparently did not buy that argument, however. We believe that
the jury ’s implicit finding that there is no inconsistency is
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supported by the evidence, particularly in light of the fact that as of
April 15, 1991, the Kaffenbergers had not filed their 1989 Form
1040, so that the exact amount of the overpayment for 1989 was
unknown at that time.
In these unique factual circumstances, we cannot say that any error
by the district court in entering judgment based on the jury’s special
verdict was obvious. See Gustin v. United States Internal Rev. Serv.,
876 F.2d 485, 488 (5th Cir. 1989) (“There are no hard and fast rules
for evaluating the sufficiency of an informal claim, and each case
must be decided on its own particular set of facts. . . .”). We believe
these facts were sufficient to put the IRS on notice, as of April 1991,
that the Kaffenbergers were claiming a refund of $26,700 and that
the information held by the IRS described the refund sought with
sufficient particularity to allow the IRS to investigate the claim.
These facts are not so different from other factual scenarios in which
courts have found an informal claim that we could say that the
jury’s verdict was plainly erroneous. See, e.g., Penn Mut. Indemn.
Co. v. Commissioner, 277 F.2d 16, 18, 19 (3d Cir. 1960) (holding
that a letter attached to a return protesting the constitutionality of
the tax and refusing to pay the tax shown due on the return was an
informal claim); Cumberland Portland Cement Co. v. United States,
122 Ct. Cl. 580, 104 F. Supp. 1010, 1013–14 (Ct. Cl. 1952) (finding
an informal claim where Commissioner notified taxpayer of overassessment and informed taxpayer of need to file Form 843 to
protect itself against the running of the statute of limitations, where
taxpayer sent letter asking that “a prompt settlement be made in
this matter of overassessment” with its signed “Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and
Acceptance of Overassessment,” but did not timely file Form 843,
as instructed by the Commissioner); Night Hawk Leasing Co. v.
United States, 84 Ct. Cl. 596, 18 F. Supp. 938, 941 (1937) (finding
that notation on the back of a check stating “This check is accepted
as paid under protest pending final decision of the higher courts”
was a valid informal claim). Because we affirm the jury’s determination that the Kaffenbergers made a sufficient informal claim for
refund within the statute of limitations, they are entitled to a refund
696
of $26,700 from 1989.
697
In Mobil Corporation v. United States,
the United States Court
of Federal Claims was presented with the question as to whether a
taxpayer’s discussion with the IRS about interest calculation could
constitute an informal claim. In holding that such discussion
could not, where the discussions took place after the statute of
limitations had expired, the court stated:
696.
697.
Kaffenberger v. United States, supra, at 954–56 (some citations and
quotations omitted); acq. in part, A.O.D., 2004-35 I.R.B. 350.
Mobil Corp. v. United States, 52 Fed. Cl. 327 (2002).
(Shafiroff, Rel. #21, 11/09)
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The informal claims doctrine permits a taxpayer to rely upon
informal submissions to the IRS in some circumstances, but they
must be made within the period established by I.R.C. § 6511 for
filing refund claims. The Court of Claims stressed that although
an informal claim may lack the requisite formality, it must be filed
within the statutory period for filing a formal claim. . . .
Any other approach would favor informal claims over formal
claims. A formal claim must be filed timely. It follows that an
informal claim providing the same information also would be
subject to the applicable statute of limitations. The informal claim
698
doctrine does not apply in these circumstances.
In Commissioner v. Ewing,699 it has been held that submission of
Form 8857, “Request for Innocent Spouse Relief,” cannot be deemed to
be an informal claim. The court stated:
Ewing contends in her cross-appeal that the Tax Court erred in
failing to grant her a refund. We reject her contention because she
failed to raise it below, and she has failed to demonstrate
any exceptional circumstances why we should consider it. See
Kochansky v. Commissioner, 92 F.3d 957, 959 (9th Cir. 1996)
(declining to consider an argument not raised in the Tax Court);
Monetary II Ltd. P’ship v. Commissioner, 47 F.3d 342, 347 (9th
Cir. 1995) (deeming an argument waived where the petitioner did
not raise it in the Tax Court and provided no justification for the
failure to do so).
Ewing did not raise the issue of a refund in the Tax Court. Her
Form 8857, Request for Innocent Spouse Relief, contains no
request or claim for a refund. We disagree with Ewing’s contention
that her request for relief in Form 8857 constituted an informal
claim for a refund. Unlike Washington v. Commissioner, 120 T.C.
137, 2003 WL 1905643 (2003), on which she relies, Ewing’s
statement attached to her Form 8857 merely stated that her tax
liability for 1995 was zero. By contrast, the petitioner in Washington specifically requested tax refunds with interest for each of the
tax years in question. See id. at 162.
Furthermore, Ewing is not entitled to a refund because she failed
to comply with the requirements of I.R.C. §§ 6015(g) and 6511.
We reject Ewing’s contention, raised for the first time in her reply
brief as cross-appellant, that the doctrine regarding an informal
claim for a refund, described in United States v. Kales, 314 U.S.
698.
699.
Id. at 334–35. See also Goldin v. Comm’r, T.C. Memo 2004-129 (series of
letters taxpayer sent to IRS did not give Service sufficient notice that she
sought a refund of taxes paid). See also Mobil Corp. v. United States, 67
Fed. Cl. 708 (2005) (summary of informal claim doctrine and other
administrative aspects of the problem).
Comm’r v. Ewing, 439 F.3d 1009 (9th Cir. 2006).
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Tax Court Litigation and Claims for Refunds
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186, 62 S. Ct. 214, 86 L. Ed. 132 (1941), applies to her case. The
doctrine addresses whether an informal claim for a refund should
stop the running of the statute of limitations for a refund claim.
First Sec. Bank of Idaho, N.A. v. Commissioner, 592 F.2d 1046,
1049 (9th Cir. 1979). It is concerned with claims that are
“deficient merely in one or two of the technical requirements
imposed by the Treasury regulation [26 C.F.R. § 301.6402-2(b)(1)].”
BCS Fin. Corp. v. United States, 118 F.3d 522, 524 (7th Cir.
1997); see also Kaffenberger v. United States, 314 F.3d 944, 954
(8th Cir. 2003) (citing Kales and stating that “the Supreme Court
has endorsed informal claims filed within the statutory period
that have technical deficiencies, as long as a valid refund claim is
subsequently made after the period has run”). There is no
evidence that Ewing made a technically-deficient claim within
the statutory period. Furthermore, any such informal claim
“must have been followed by a formal claim that remedied any
defects in the informal claim.” Id. at 955. The informal claim
doctrine accordingly does not apply. For all of these reasons, we
700
dismiss Ewing’s cross-appeal.
Similarly, in Barker v. United States,701 another claim founded on
being an innocent spouse, when the taxpayer filed after the statutory
period of time, although the court recognized the informal claim
doctrine, that doctrine could not apply on the instant facts:
Plaintiff cannot overcome this lack of timeliness by pointing to the
fact (alleged in her complaint) that she first contacted the IRS in
1995 to inquire about the refund of her 1994 overpayment.
Although the case law recognizes that a claim for refund may be
informal, i.e., the refund claim need not meet all of the requisites
specified by regulation in order to be considered legally sufficient, at
a minimum the taxpayer must demonstrate that through his or her
dealings with the IRS, the agency was put on notice, either actually
or constructively, that a refund was being sought and the grounds
therefor. Mobil Corp. v. United States, 67 Fed. Cl. 708, 716
[96 AFTR 2d 2005-6230] (2005). In addition, an informal claim
for refund must have a documentary component—some form of
writing that is probative of the intention to pursue a refund. Arch
Eng’g Co. v. United States, 783 F.2d 190, 192 [57 AFTR 2d 86-1178]
(Fed. Cir. 1986). Assessed against these requirements, plaintiff ’s
alleged contact with the IRS in 1995 is insufficient to qualify as an
informal claim for refund. Yuen, 825 F.2d at 245 (holding that
plaintiff ’s verbal notice to the local IRS office that she was claiming
innocent spouse relief did not constitute a valid refund claim).
700.
701.
Id. at 1014–15 (footnote omitted).
Barker v. United States, 98 A.F.T.R.2d 2006-5741, 2006-5743 (Fed. Cl.
2006). See also Frontier Chevrolet Co. v. United States, 98 A.F.T.R.2d
2006-7321 (D. Mont. 2006) (discussing requirements for informal claim).
(Shafiroff, Rel. #21, 11/09)
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§ 6:14.4
Protective Claim for Refund
If the resolution of the claim is contingent on future events and
may not be determinable until after the time period for filing a claim
for refund expires, practitioners can file a protective claim for refund
on behalf of the taxpayer. A protective claim can be either a formal claim
or an amended return for credit or refund. Protective claims are often
based on current litigations or expected changes in the tax law, other
legislation, or regulations. A protective claim preserves the taxpayer ’s
right to claim a refund once the contingency is resolved. A protective
claim does not have to state a particular dollar amount or demand an
immediate refund. However, to be valid, a protective claim must:
•
Be in writing and be signed,
•
Include the taxpayer ’s name, address, social security or identification number,
•
Identify and describe the contingencies affecting the claim,
•
Clearly alert the IRS as to the essential nature of the claim, and
•
Identify the specific year(s) for which a refund is sought.
Generally, the IRS will delay action on the protective claim until the
contingency is resolved, and the IRS may obtain additional information
necessary to process the claim and either allow or disallow the claim.
§ 6:14.5
Formal Claim for Refund702
A properly prepared claim for refund must include all of the
following elements.703 It must be written and contain the taxpayer ’s
name, address, and identification number. It must state facts verified
by a written declaration that it is made under the penalty of perjury.
702.
703.
It should be noted that section 6611(b)(2) provides for the payment of
interest in the case of a refund, from the date of the overpayment to a date
preceding the refund check by not more than thirty days.
Treas. Reg. § 301.6402-2(b)(1). The taxpayer should identify the item(s)
giving rise to the overpayment, the nature of the change, and detail the
grounds (or basis) upon which a refund or credit is claimed. The IRS must
be able to determine the legality of the claim. Alternative grounds can be
stated. The grounds upon which the refund is based is the most important
part of the claim. This is because any later suit for refund must be based on
the same grounds as stated in the claim. See Goulding v. United States,
929 F.2d 329 (7th Cir. 1991), wherein the court held that although the
claim for refund was vague, the IRS was fully aware of the nature of the
claim and waived its defense of an insufficient claim (the specificity
requirement of Regulation Section 301.6402-2(b)(1) may be waived). See
also Burlington Northern Inc. v. United States, 684 F.2d 866 (Ct. Cl. 1982)
(new evidence did not constitute an additional ground of recovery at
variance with the grounds for refund asserted in the initial claim, but
rather the data supported the basis of original claim); Angle v. United
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Tax Court Litigation and Claims for Refunds
§ 6:14.5
With respect to income, gift, and federal employment taxes, a separate
claim must be made for each taxable year or period. The amount of
the claim must be stated and a demand for the refund made.
Most importantly, the claim must set forth in detail each ground or
legal issue upon which the refund is based. Lastly, but maybe most
importantly, there must be an “overpayment” in tax for the year(s) at
issue.704 Other than applying common sense as to the meaning of an
overpayment, one would think it would be defined in the code.
However, the Supreme Court defined the term in Jones v. Liberty
Glass Co., as the following:
[W]e read the word “overpayment” in its usual sense, as meaning any
payment in excess of that which is properly due. Such an excess
payment may be traced to an error in mathematics or in judgment
or in interpretation of facts or law. And the error may be committed
by the taxpayer or by the revenue agents. Whatever the reason, the
payment of more than is rightfully due is what characterizes an
705
overpayment.
In other words, an overpayment is a payment in
excess of what properly should have been assessed or collected as tax.
The claim must set forth in detail each ground upon which a credit
or refund is claimed and facts sufficient to apprise the Commissioner
of the exact basis thereof.706 In practice, most practitioners provide a
written statement or attach an Excel spreadsheet reflecting the various
changes to the return. However, if the error is something easily
explained it would be helpful to provide a detailed explanation and
related documents in the hopes that a service center employee could
make the determination that the explanation and documentation
support the issuance of the refund rather than sending the claim out
to a field office for an examination.
Several points must be highlighted at this particular stage. First,
failing to state any grounds upon which the claim is based may affect
the suit for refund if the IRS denies the claim.707 That is to say, the
704.
705.
706.
707.
States, 996 F.2d 252 (10th Cir. 1993) (new grounds stated in untimely
amended claim are not a basis for a refund); and FSA 200211006 (Service
determined that initial refund claims were for specific rather than general
claims, causing later-filed supplemental claims to be untimely).
I.R.C. § 6401(a).
Id.
I.R.C. § 6402, as amended by the Personal Responsibility and Work
Opportunity Reconciliation Act of 1996, Pub. L. No. 104-193; see also
Treas. Reg. § 301.6402-2.
Note that this rule does not apply to the amount of the refund claim. Courts
have held that the computation of the refund will not control the amount
refunded as long as the grounds are clearly stated. See Pink v. United States,
105 F.2d 183, 39-1 U.S.T.C. ¶ 9519 (2d Cir. 1939). See also Mutual
Assurance, Inc. v. United States, 95-2 U.S.T.C. ¶ 50,361 (11th Cir. 1995),
(Shafiroff, Rel. #21, 11/09)
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suit for refund cannot be based on a ground not stated in the claim. 708
This is the Doctrine of Variance.709
708.
nonacq., AOD 1999-014 (a revised calculation of the refund amount,
asserted through an amended (but untimely) claim relates to the date the
original claim was filed as long as new substantive issues or claims, are not
raised). As an extra precaution, however, it might be wise to add the phrase
“or such greater amount as is legally refundable plus statutory interest” to
the refund claim. But note that if the IRS settles a refund claim in part, and
the taxpayer signs a Waiver of Notice of Disallowance, or if the taxpayer
receives a notice of disallowance, the right to amend the claim ceases. See
also SCA 199941039 (IRS National Office Service Center Advice dated
Oct. 15, 1999) (Counsel concluded that taxpayer ’s $1 claim is an ordinary
claim that is incomplete, rather than a protective claim, because taxpayer ’s
failure to state actual amount of claim arises from taxpayer ’s failure to
compile records, rather than from a stated contingency affecting amount of
claim).
See, e.g., Four Star Oil & Gas Co. v. United States, 49 Fed. Cl. 755 (Fed.
Cir. 2001); Stoller v. United States, 444 F.2d 1391 (5th Cir. 1971); Barber v.
United States, 85 F. Supp. 2d 967 (N.D. Cal. 2000); see also Monat Capital
Corp. v. United States, 869 F. Supp. 1513 (D. Kan. 1994), distinguishing
Stoller. For a detailed discussion on the substantial variance doctrine, see
the case of Mobil Corp. v. United States, 52 Fed. Cl. 327 (2002), where the
court held that a claim for refund of deficiency interest was at variance to
the original timely filed claim:
The requirement that a refund may be allowed only upon the
grounds specified in the claim presented to the IRS has given rise
to the “Doctrine of Variance.” That doctrine provides that “a ground
for a refund that is neither specifically raised by a timely claim for a
refund, nor comprised within the general language of the claim,
cannot be considered by a court in a subsequent suit for a refund.”
Ottawa Silica Co. v. United States, 699 F.2d 1124, 1138 (Fed. Cir.
1983) (citations omitted).
Taxpayers are barred from substantially varying either the factual
basis or the legal basis of any claim for refund that may have been
presented. Lockheed Martin Corp. v. United States, 210 F.3d 1366,
1371 (Fed. Cir. 2000) (“With regard to the legal component of the
substantial variance rule, any legal theory not expressly or impliedly
contained in the application for refund cannot be considered by a
court in which a suit for refund is subsequently initiated. The
taxpayer similarly may not substantially vary at trial the factual
bases raised in the refund claims presented to the IRS.”) (internal
quotation marks and citations omitted).
Defendant contends that the complaint must be dismissed because
plaintiff did not file a timely claim for refund asserting that IRS
failed to recompute the account module in determining the amount
of interest that plaintiff owed. The rule of substantial variance is a
jurisdictional prerequisite. Ottawa Silica Co., 699 F.2d at 1139.
Plaintiff responds with a series of arguments. Id. at 331–32. See also
Sierra Pac. Res. & Subsidiaries v. United States, 90 A.F.T.R.2d 20027501 (Fed. Cl. 2002), citing Mobil Corp. v. United States, supra.
709.
For a good discussion of the Doctrine of Variance, see GCM 38786.
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Tax Court Litigation and Claims for Refunds
§ 6:14.5
Thus, subsequent litigation of the IRS’s denial of a refund claim is
limited to the grounds fairly contained within the refund claim.710 Courts
have declined to consider taxpayer assertions that vary from those
grounds originally specified in the administrative refund claim on the
basis of the variance doctrine.711 However, a claim precluded under the
variance doctrine can be used as an offset to an offset raised by the IRS.712
If counsel wishes to add another ground on which his claim is based
(for example, as a response to the Service’s rejection of a claim on
technical grounds), he can do so as long as the statute of limitations has
not expired. Although adding an amendment to a properly filed claim
after the statutory period has expired is generally not allowed, certain
amendments may be made to a properly filed claim even after the
statutory period has expired, as the U.S. Court of Federal Claims recently
stated in Mobil Corp. v. United States.713 The court explained:
The law allows certain amendments to a properly filed claim after
the statutory period has expired. Plaintiff argues that its claim in
the Spring of 1992 could be viewed as an amendment, if it is not
an informal claim. See United States v. Kales, 314 U.S. 186, 194,
86 L. Ed. 132, 62 S. Ct. 214 (1941) (notice fairly advising IRS of
the nature of taxpayer’s claim treated as a claim where lack of
specificity remedied by amendment filed after the lapse of the
statutory period).
Plaintiff cannot meet the legal requirements of an amendment to a
claim. Amendments must be “germane” to the original claim, and
they must be presented before the original claim has been
resolved . . . .
A taxpayer may raise a new ground for refund in an amended
claim only if the ground is “germane” to a timely filed claim. The
Supreme Court explained this requirement as follows:
An amendment which merely makes more definite the
matters already within [IRS’] knowledge, or which . . .
[IRS] would naturally have ascertained, is permissible. On
the other hand, a claim which demands relief upon one
asserted fact situation . . . cannot be amended to discard that
basis and invoke action requiring examination of other
matters not germane to the first claim.
710.
711.
712.
713.
Angelus Milling Co. v. Comm’r, 45-1 U.S.T.C. ¶ 9310 (S. Ct. 1945).
See United States v. Felt & Tarrant Mfg. Co., 51 S. Ct. 376, 283 U.S. 269
(1931); Leon Stoller v. United States, 1971-1 U.S.T.C. ¶ 9418 (5th Cir. 1971).
See Charter Company v. United States, 971 F.2d 1576, 92-2 U.S.T.C.
¶ 50,500 (11th Cir. 1992).
Mobil Corp. v. United States, 52 Fed. Cl. 327 (2002). See also Parker
Hannifin Corp. v. United States, 71 Fed. Cl. 231 (2006), quoting from
United States v. Andrews, 302 U.S. 517 (1938), quoted in Mobil Corp.,
supra.
(Shafiroff, Rel. #21, 11/09)
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United States v. Andrews, 302 U.S. 517, 524, 82 L. Ed. 398, 58
S. Ct. 315 (1938).
Plaintiff ’s 1992 calculation claim cannot be said to have “merely
[made] more definite the matters already within [IRS’] knowledge.” Id. IRS did not know of a problem with the computation of
deficiency interest for tax year 1974 when plaintiff filed originally
in 1981 or amended in 1983. Plaintiff contends that Andrews
allows amendment in these circumstances because IRS “would
naturally have ascertained” its error in failing to recompute the
account module in the course of investigating the original claim.
But this is not a situation in which the original claim was too
general and merely lacked specificity with respect to an issue
within the scope of that general claim. IRS would not “naturally”
have ascertained the specific contours of the claim when evaluating the facts underlying the general claim.
The potential amended claim would not render sufficiently specific a “too general claim” because plaintiff ’s original refund claim
was specific as to IRS’ alleged error and the relief sought. Plaintiff
asked for reassessment of taxes due and return of deficiency
interest that it had paid. The claim did not allege an error in
IRS’ prior calculation of deficiency interest. A factual investigation
by IRS would “naturally” focus only on the dispute concerning
taxes due. Indeed, if IRS had concluded that no refund of taxes
were appropriate, it “naturally” would have stopped there. It would
have made no calculations with respect to a refund of deficiency
interest. Plaintiff relies upon Continental Foundry & Mach. Co. v.
United States, 141 Ct. Cl. 604, 159 F. Supp. 608 (1958), for the
proposition that a taxpayer may amend a claim to challenge IRS’
method of computation. The court concluded that a prerequisite
for an amended claim is that the original claim directed IRS’
attention to the subsequent claim. See id. at 612. This plaintiff ’s
original claim did not direct IRS to examine its method of
calculating deficiency interest, however, as noted.
Plaintiff also cites Addressograph-Multigraph Corp. v. United
States, 112 Ct. Cl. 201, 223, 78 F. Supp. 111 (1948), in which
the court concluded that an amendment to the original claim was
germane where “the amendment merely made more definite the
matters already within the knowledge of the Commissioner,
which in the course of his investigation he actually did ascertain.”
In that case, however, the court determined that the amendment
“did not involve a ‘new and unrelated ground,’ but bore a very close
relation to the timely claims.” Id. at 223. Here, the claim that
plaintiff offers as an amendment was an entirely different claim.
While plaintiff routinely sought interest on the over-assessment,
to which it was entitled anyway, the current claim is a new one—
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that IRS did not calculate the interest in accordance with then714
standard procedures.
A claim for refund must be filed within three years from the date
the return was filed (or the due date if filed earlier) or two years
from the date the tax was paid, whichever is later.715 If no return was
filed, the claim must be filed within two years from the time the
714.
715.
Mobile Corp., 52 Fed. Cl. at 335–36. See also Sierra Pac. Res. &
Subsidiaries v. United States, 90 A.F.T.R.2d 2002-7501 (Fed. Cl. 2002),
citing Mobil Corp. v. United States, supra. See also Crompton Corp. v.
United States, 92 A.F.T.R.2d 2003-5625 (Fed. Cl. 2003) (“The law does
allow certain amendments to a properly filed claim after the statutory
period has expired. In order to be valid, amendments must be ‘germane’ to
the original claim and must be presented before the original claim has been
resolved”) (citations omitted).
I.R.C. § 6511(a). See, e.g., MacElvain v. United States, 90 A.F.T.R.2d 20025118 (M.D. Ala. 2002); Pavlik v. IRS, 88 A.F.T.R.2d 2001-6501 (S.D. Cal.
2001); Vegas v. United States, 87 A.F.T.R.2d 2001-2472 (D. Haw. 2001);
United States v. Schurz, 113 F. Supp. 2d 1250 (S.D. Ind. 2000); Means v.
United States, 85 A.F.T.R.2d 2000-649 (Fed. Cl. 1999); 86 A.F.T.R.2d
2000-6555 (Fed. Cl. 2000); Otinger v. United States, 85 A.F.T.R.2d 20001411 (Fed. Cl. 2000); Boatwright v. United States, 86 A.F.T.R.2d 20006407 (D. Colo. 2000); Bloom v. United States, 86 A.F.T.R.2d 2000-6192
(M.D. Pa. 2000); Laberge v. United States, 85 A. F.T.R.2d (E.D. Mich.
2000). See also United States v. Brockamp, 519 U.S. 347 (1997), holding
that the refund limitations period cannot be extended for equitable
reasons (taxpayer senile). But compare with Becton Dickinson & Co. v.
Wolckenhauer, 24 F. Supp. 2d 375 (D.N.J. 1998), remanded by 215 F.3d
340 (3d Cir. 2000), cert. denied, 121 S. Ct. 761 (2001), holding that the
Supreme Court’s decision in Brockamp does not foreclose the possibility of
equitable tolling under section 6532. Contra Sullivan v. United States, 46
Fed. Cl. 480 (2000), stating that the U.S. Supreme Court in
Brockamp “left no doubt” that in tax refund claims Congress did not
intend the equitable tolling doctrine to apply to the time limitations set
out in section 6511. Sullivan v. United States, at 489. Cf. I.R.C. § 6511(h),
as amended by the IRS Restructuring and Reform Act of 1998, Pub. L. No.
105-206, Title III (Taxpayer Bill of Rights 3), section 3202(a), and
discussed in the text, infra. In a fully separate but related issue, the Service
has held that it is authorized to refund an overpayment of tax after the
period for filing a claim for refund has expired if the taxpayer substantiates
that the math error notice previously sent the taxpayer was not correct and
that his or her liability, including the overpayment of tax, was reported
correctly on the original return that was filed before the filing a refund
claim expired. Nat’l Office Serv. Ctr. Adv. Mem. 200111043. See also
Harrigill v. United States, 297 F. Supp. 2d 909 (S.D. Miss. 2004), where the
court distinguishes, for purposes of the statute of limitations, a “payment”
(which would have resulted in the statute of limitations having expired)
and a “deposit” (which would have resulted in the taxpayer having filed a
timely claim), and holding that the taxpayer made a deposit, when both
the IRS and the taxpayer treated the payment as a deposit and not a
(Shafiroff, Rel. #21, 11/09)
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tax was paid.716 There are, however, exceptions to the two-year/threeyear rule. These include deductions for a bad debt or for securities
becoming worthless,717 certain limited equitable situations (referred to
as mitigation of statute),718 net operating loss carrybacks,719 credits
against estate taxes for foreign estate or death taxes,720 and when the
period of limitations is tolled due to a disability.721 The government
716.
717.
718.
719.
720.
721.
payment. Cf. Danoff v. United States, 324 F. Supp. 2d 1086 (C.D. Cal.
2004) (amount remitted by the taxpayer was a payment, rather than a
deposit); Harrigill v. United States, 410 F.3d 786 (5th Cir. 2005) (same). Cf.
Wachovia Bank v. United States, 95 A.F.T.R.2d 2005-1939 (M.D. Fla.
2005) (limitations period not applicable when taxpayer had no duty to file
and did so only in error); but see Wachovia Bank v. United States, 455 F.3d
1261 (11th Cir. 2006), reversing and remanding district court (trustee’s
claim governed by general three-year statute).
I.R.C. § 6511(a). It has been held that the three-year time limit in section
6511 applies only if the return was timely filed; to hold otherwise would
reward taxpayers for filing late tax returns and would allow any late return
to start the three-year time period. Miller v. United States, 38 F.3d 473,
476–76 (9th Cir. 1994). For a case regarding the three-year rule, see Vegas
v. United States, 87 A.F.T.R.2d 2001-2472 (D. Haw. 2001), citing Miller v.
United States, supra. But see Omohundro v. United States, 300 F.3d 1065
(9th Cir. 2002), which abrogated Miller, supra, at 1069 (“we conclude we
are no longer bound by Miller. Accordingly, we hold that under I.R.C.
§ 6511(a), a taxpayer ’s claim for credit or a refund is timely if it is filed
within three years from the date his income tax return is filed, regardless of
when the return is filed”).
I.R.C. § 6511(d). Cf. Georgeff v. United States, 67 Fed. Cl. 598 (2005)
(extended statute of limitations for refund based on bad debts and worthless securities not applicable to refund claim where the claim was included
on the taxpayer ’s original tax return; refund claim was not “on account of”
a newly determined worthless security in accordance with statute).
I.R.C. §§ 1311–14. For cases explaining the mitigation provisions of I.R.C.
§§ 1311–14, see Coohey v. United States, 172 F.3d 1060 (8th Cir. 1999);
Anthony v. United States, 164 F. Supp. 2d 1202 (D. Idaho 2001). In
addition to the mitigation provisions of the Code, there also exists the
doctrine of equitable recoupment, which operates only in the nature of a
defense to reduce the government’s timely claim for a deficiency, or the
taxpayer’s timely claim for a refund, not affirmatively to collect the timebarred overpayment or underpayment. See discussion on Equitable Recoupment Jurisdiction, supra. Equitable estoppel is rarely a theory for a
taxpayer to proceed under to avoid a problem with the statute of limitations. Danoff v. United States, 324 F. Supp. 2d 1086 (C.D. Cal. 2004).
I.R.C. § 6511(d)(2). See, e.g., Kondic v. United States, 86 A.F.T.R.2d 20006555 (Fed. Cl. 2000). Cf. Electrolux Holdings, Inc. v. United States, 71 Fed.
Cl. 748 (2006) (case of first impression involving section 6511(d)(2)(a) and
holding that the exception to the general statute of limitations for filing
refund claim was not applicable).
I.R.C. § 2014(e).
I.R.C. § 6511(h), as amended by the IRS Restructuring and Reform Act of
1998, Pub. L. No. 105-206, Title III (Taxpayer Bill of Rights 3), section
3202(a), and discussed in the text, infra.
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may also agree with the taxpayer to extend the two-year period of time
to bring suit.722
It is important to note that even when the taxpayer files a timely
claim, the amount refunded may nonetheless be limited. This limitation is based upon when the underlying tax itself was paid.
(A) Limit where claim filed within three-year period. If the claim
was filed by the taxpayer during the three-year period from the
date the return was filed (or due date if later), the amount of
the refund (or credit) cannot exceed the portion of the tax paid
within the period, immediately preceding the filing of the
claim, equal to three years plus the period of any extension
of time for filing the return.723
(B) Limit where claim not filed within three-year period. If the
claim was not filed within such three-year period, the amount
of the refund (or credit) cannot exceed the portion of the tax
paid during the two years immediately preceding the filing of
the claim.724
722.
723.
724.
I.R.C. § 6532(a)(2). Form 907 is used to extend the period for filing suit.
See Kaffenberger v. United States, 314 F.3d 944 (8th Cir. 2003). In Rev.
Rul. 71-57, 1971-1 C.B. 405, the Service took the position that the
extension provided for in section 6532(a)(2) applies only when the statute
of limitations has not already run. The Eighth Circuit disagreed:
We respectfully disagree with the IRS’s revenue ruling. In section 6501,
the statute limiting the IRS’s time frame for assessing taxes to three years
from the date the return is filed, Congress allows the IRS and taxpayer to
further “extend [the assessment period] by subsequent agreements in
writing made before the expiration of the period previously agreed
upon.” I.R.C. § 6501(c)(4). If Congress had intended “extend” to carry
the definition given it by the IRS, there would have been no need for
Congress to include the phrase “before the expiration of the period
previously agreed upon” in the provision allowing the IRS and taxpayer
to enter subsequent extensions under section 6501. We decline to adopt
the IRS’s definition of “extension” where to do so renders the above quoted
portion of section 6501 “insignificant, if not wholly superfluous.” [United
States v.] Duncan, 121 S. Ct. at 2125. We hold that the IRS acted within its
statutory authority in entering into the Form 907 Agreement to extend the
time to bring suit on the original 1989 refund claim, even though the
statutory time period for bringing suit had lapsed prior to the date of the
Form 907 Agreement. Consequently, the district court properly exercised
jurisdiction over the original 1989 refund claim. Kaffenberger v. United
States, supra, at 953.
I.R.C. § 6511(b)(2)(A). See, e.g., Trotter v. IRS, 85 A.F.T.R.2d 1337 (10th
Cir. 2000). In a case dealing with remittances of estimated income tax and
withholding tax, the Supreme Court has held that such remittances were
paid on the due date of the calendar year of taxpayer ’s income tax return,
rather than the date on which tax liability was assessed. Baral v. United
States, 528 U.S. 431 (2000).
I.R.C. § 6511(b)(2)(B).
(Shafiroff, Rel. #21, 11/09)
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(C) Limit if no claim filed. If no claim was filed, the refund (or
credit) cannot exceed the amount that would be allowable
under (A) or (B), above, as the case may be, if claim was filed
on the date the refund is allowed.725
For some time there had been a question as to whether a taxpayer
who had filed a claim for refund on an original tax return could secure
the benefit of the timely-mailing-timely-filing rule726 when the underlying return was filed late.727 The opinions were split, with some
jurisdictions holding that for timely-mailing-timely-filing rule to apply,
the underlying return itself had to be timely filed,728 while others held
that the timeliness of the claim and return had to be looked at
independently, thus affording the taxpayer the benefits of the timelymailing-timely-filing rule.729 The decision was put to rest when the IRS
acquiesced in Weisbart v. United States.730 Accordingly, the Service will
apply the timely-mailing-timely-filing rule of section 7502(a) in such
cases and treat claims for refund included on delinquent original returns
as filed on the date of mailing for purposes of section 6511(b)(2)(A).731
The Treasury Department promulgated regulations, 732 consistent
with the Weisbart case and the subsequent Service acquiescence,733
that determined in certain situations, a claim for credit or refund made
725.
726.
727.
728.
729.
730.
731.
732.
733.
I.R.C. § 6511(b)(2)(C). For an excellent discussion of this section, see Fed.
Tax Coordinator 2d (RIA) ¶ T-7548 (2007 edition).
See I.R.C. § 7502(a). See also discussion supra, regarding mailing of a
timely Tax Court petition.
See I.R.C. § 6511(b)(2)(A).
See, e.g., Anastasoff v. United States, 223 F.3d 898 (8th Cir. 2000), opinion
subsequently vacated on reh’g en banc by 235 F.3d 1054 (8th Cir. 2000),
due to the Service’s acquiescence in Weisbart, infra; Christie v. United
States, 1992 U.S. App. LEXIS 38446 (8th Cir. Mar. 20, 1992); Branstrom v.
United States, 44 Fed. Cl. 1 (1999); Manka v. United States, 105 F. Supp.
2d 490 (E.D. Va. 2000).
See, e.g., Weisbart v. United States, 222 F.3d 93 (2d Cir. 2000); Anderson v.
United States, 746 F. Supp. 15 (E.D. Wash. 1990), aff ’d, 966 F.2d 487 (9th
Cir. 1992).
Weisbart v. United States, 222 F.3d 93 (2d Cir. 2000), acq., 2000-48 I.R.B.
515.
Weisbart, acq., 2000-48 I.R.B. 515. A.O.D. 2000-09. See also Chief
Couns. Notice CC-2001-019. See also Omohundro v. United States, 300
F.3d 1065 (9th Cir. 2002), which abrogated Miller v. United States, 38 F.3d
473 (9th Cir. 1994), which was inconsistent with the holding of Weisbart,
and held, “we conclude we are no longer bound by Miller. Accordingly, we
hold that under I.R.C. § 6511(a), a taxpayer ’s claim for credit or a refund is
timely if it is filed within three years from the date his income tax return is
filed, regardless of when the return is filed.” Id. at 1069, and citing
Weisbart v. United States, supra. See also Spiroff v. United States, 2003
U.S. Dist. LEXIS 990 (E.D. Mich. 2002).
T.D. 8932, Treas. Reg. § 301.7502-1.
Weisbart v. United States, supra.
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on a late filed original income tax return should be treated under
section 7502 as timely filed on the postmark date for purposes of section
6511(b)(2)(A). In these same regulations,734 the Treasury Department
has further determined that claims for credit or refund made on late filed
original tax returns other than income tax returns should also be treated
under section 7502 as timely filed on the postmark date for purposes of
section 6511(b)(2)(A). This would include returns such as Form 720,
Quarterly Federal Excise Tax Return, and Form 706, U.S. Estate Tax
Return. These changes will be applied retroactively to certain previously
disallowed claims for credit or refund.735 On a related matter, these
regulations also provide that a document filed electronically with an
electronic return transmitter (as defined in the regulations) is deemed to
be filed on the date of the electronic postmark.736
Is the common law mailbox rule, which states only that a letter
properly addressed and deposited in the U.S. mail is presumed received
in the ordinary course of mail, available when the taxpayer does not
use registered or certified mail? In Sorrentino v. United States,737 a
district court followed the reasoning of the Eight and Ninth Circuits
and answered that question in the affirmative, holding that the timelymailing-timely-filing postmark rule of section 7502 does not vitiate
the common law mailbox rule. Nonetheless, as Sorrentino points out,
there is a split of authority and some jurisdictions take the position
that section 7502 preempts the common law mailbox rule. 738 But on
appeal, the Tenth Circuit reversed.739
734.
735.
736.
737.
738.
739.
T.D. 8932, Treas. Reg. § 301.7502-1.
T.D. 8932, Treas. Reg. § 301.7502-1(g).
Treas. Reg. § 301.7502-1(d).
Sorrentino v. United States, 171 F. Supp. 2d 1150 (D. Colo. 2001). But see
Sorrentino v. United States, 383 F.3d 1187 (10th Cir. 2004), rev’g 171
F. Supp. 2d 1150. For discussion, see infra.
Sorrentino, 171 F. Supp. 2d at 1154, citing Carroll v. Comm’r, 71 F.3d 1228
(6th Cir. 1995) (summarizing cases). Note the distinction between the
common law mailbox rule and the so-called timely-mailing-timely-filing
or postmark rule of section 7502: “The common law mailbox rule [as
opposed to the statutory postmark rule of I.R.C. § 7502] articulated by the
Tenth Circuit and other courts does not stand for the proposition that a
document is filed when mailed, but rather that there is a rebuttable
presumption of physical delivery and thus filing within the ordinary course
of the mail upon proof of mailing.” See Carroll v. Comm’r, 71 F.3d 1228,
1230 (6th Cir. 1995); In re Nimz Transp., Inc., 505 F.2d 177, 179 (7th Cir.
1974). . . .” (Emphasis in the original.) Sorrentino, supra, at 1154, n.2. See
also discussion of the statutory timely-mailing-timely-filing rule in the
context of timely filing of the Tax Court petition, supra. See also Goldcorp,
Inc. v. United States, 89 A.F.T.R.2d 2002-2020, for an extensive discussion
of Carroll v. Comm’r, supra, and the distinction between the common law
mailbox rule and the timely-mailing-timely-filing or postmark rule.
Sorrentino v. United States, 383 F.3d 1187 (10th Cir. 2004), cert. denied,
546 U.S. 812 (2005).
(Shafiroff, Rel. #21, 11/09)
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Although the appeals court agreed with the district court that
section 7502 does not supplant the common law mailbox rule, it
disagreed with the district court that the mailbox rule was applicable
on the facts of the case:
At the same time, I deem unwise Judge Seymour ’s apparent
unconditional endorsement of the mailbox rule based solely
upon a taxpayer’s uncorroborated self-serving testimony of mailing,
especially where that taxpayer has a history of filing untimely
returns. Such an endorsement would necessarily result in a jury
trial every time a taxpayer, regardless of the surrounding circumstances, alleges timely mailing. No Circuit Court has made such an
endorsement and, unlike Judge Seymour, I decline Taxpayers’
invitation to be the first. I agree with the Eighth and Ninth Circuits’
narrow holdings . . . which turned on (1) evidence of an actual
postmark, and (2) evidence of mailing apart from the taxpayer ’s selfserving testimony. Like the Eighth Circuit, I would require more
than mere proof of mailing, such as direct proof of postmark which
is “verifiable beyond any self-serving testimony of a taxpayer who
claims that a document was timely mailed.” Wood, 909 F.2d at
1161. As the Ninth Circuit opined in Lewis v. United States, 144
F.3d 1220, 1222 (9th Cir. 1988): “The Service, of course, does not
have to take a taxpayer’s unsupported word, but when a taxpayer
with an unblemished record for paying taxes produces circumstantial evidence supporting his word, the government needs more than
a skeptical smile to support its doubt of credibility.” Allegations of
740
mailing are easy to make and hard to disprove.
Grossman v. Commissioner741 is instructive in both the timelymailing-timely-filing rule and the burden of proof rule. 742 In that case,
the Service issued a Notice of Deficiency to the taxpayer. The envelope
containing the taxpayer ’s petition was postmarked by a private postage
meter with a date of March 30, 2004. The envelope was properly
addressed, but it was received by the court after the ninety-day period
for filing prescribed by section 6213(a). The Service moved to dismiss
the case for lack of jurisdiction on the ground that taxpayer ’s petition
for redetermination was not timely filed. The taxpayer contended that
the petition was timely filed because it was mailed in accordance with
the timely-mailing-timely-filing rule in section 7502, and the regulations prescribed thereunder. The taxpayer also contended that because
he satisfied the requirements of section 7491(a) the burden of proof
shifted to the Service on the issue of whether the petition was timely
740.
741.
742.
Id. at 1194.
Grossman v. Comm’r, T.C. Memo 2006-164.
For discussion of burden of proof, see section 6:9.3 supra.
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filed. The Service argued that the plain language of section 7491(a)(1)
indicates it is not applicable to the issue of whether the petition was
timely filed. The Service argued, in the alternative, that section 7491(a)(3)
precludes the application of 7491(a)(1) to the issue of whether
taxpayer ’s petition was timely filed because the regulations are
legislative regulations pursuant to Congress’s grant of authority in
section 7502(b) and because the regulations specifically place the
burden of proof on taxpayers. The Tax Court held that the Service’s
motion to dismiss for lack of jurisdiction was denied because the
preponderance of the evidence established that the petition was timely
filed in accordance with the regulations.743 In addition, the court
found that it did not have to decide whether section 7491(a) is
applicable to the jurisdictional issue because it decided the timely
mailing of the petition on the preponderance of the evidence: that the
taxpayer actually deposited in the U.S. mail before the last day of the
period for filing the petition; that the delay in receiving the document
was due to a delay caused by errors made by the U.S. Postal Service in
the transmission of the mail; and that the petition was properly
addressed to the Tax Court.
For some time it has been thought that the statutory timelymailing-timely-filing rule of section 7502 also applies to foreign postmarks.744 In Pekar v. Commissioner,745 however, the Tax Court held
that the timely-mailing-timely-filing provisions of section 7502 do not
apply to foreign postmarks, and that foreign postmarks do not
effectively cause the filing date of a document to be the postmark
date. In an unusual procedure, the Service subsequently filed a motion
requesting that the Tax Court modify its opinion to follow Revenue
Ruling 80-218,746 which provides that federal tax returns mailed by
taxpayers in foreign countries will be accepted as timely filed if they
bear an official postmark dated on or before midnight of the last date
prescribed for filing, including any extension of time for such filing.
The Tax Court granted the Service’s motion. While the court’s
decision reflects the Service’s concession, the court’s opinion does
not. Of course, the position of the Service is reflected in the decision
and, in an acquiescence, the Service has stated that it will not follow
the opinion issued in Pekar. Thus, it is the Service’s position that
federal tax returns mailed by taxpayers in foreign countries will be
accepted as timely filed if they bear an official postmark, dated on or
743.
744.
745.
746.
See Treas. Reg. § 301.7502-1(c)(1)(iii)(B)(2).
See Rev. Rul. 80-218, 1980-2 C.B. 386.
Pekar v. Comm’r, 113 T.C. 158 (1999).
1980-2 C.B. 386.
(Shafiroff, Rel. #21, 11/09)
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before the due date for the return. 747 The Service has recently
reaffirmed the position taken in Revenue Ruling 80-218.748
An interesting problem was presented in Commissioner v. Lundy.749
The taxpayer had not filed a return, but received a Notice of Deficiency
within three years after the date the return was due. The taxpayer
challenged the proposed deficiency in Tax Court, and sought an overpayment resulting from withholding. The Supreme Court held that the
taxpayer could not recover overpayments attributable to withholding
during the tax year because no return was filed and the two-year “look
back” rule applied. Since withheld amounts are deemed paid as of the
date the taxpayer’s return was first due (that is, more than two years
before the Notice of Deficiency was issued), such overpayments could
not be recovered. By contrast, if the same taxpayer had filed a return on
the date the Notice of Deficiency was issued, and then claimed a refund,
the three-year “look back” rule would apply, and the taxpayer could have
obtained a refund of the over-withheld amounts.750
As a result of the TRA 97,751 taxpayers who initially fail to file a
return, but who receive a Notice of Deficiency and file suit to contest
it in the Tax Court during the third year after the return due date, are
permitted to obtain a refund of excessive amounts paid within the
three-year period prior to the date of the deficiency notice. 752 The
747.
748.
Pekar v. Comm’r, A.O.D. 2002-04.
Rev. Rul. 2002-23, 2002-1 C.B. 81, superseding Rev. Rul. 80-218, 1980-2
C.B. 3815:
Pursuant to Rev. Rul. 80-218 (1980-2 C.B. 386), and Policy Statement P-2-9 (July 27, 1969), the Service has accepted federal tax
returns mailed by taxpayers from foreign countries as timely filed if
they bear an official postmark dated on or before the last date
prescribed for filing, including any extension of time for such filing.
If the last date for filing falls on a Saturday, Sunday, or a legal
holiday within the meaning of section 7503, returns have been
considered timely if postmarked on or before the next succeeding
day which is not a Saturday, Sunday, or a legal holiday. This revenue
ruling reaffirms the position previously announced in Rev. Rul.
80-218 and Policy Statement P-2-9. For purposes of this revenue
ruling, the term legal holiday means a legal holiday in the District of
Columbia in the United States, or a Statewide legal holiday in the
State where the federal tax return, claim for refund or other
document is required to be filed or sent. The term does not include
legal holidays in foreign countries unless such holidays are also legal
holidays in the District of Columbia or applicable State. . . .
749.
750.
751.
752.
Comm’r v. Lundy, 516 U.S. 235 (1996).
Committee Reports, H.R. 2014, section 1282.
Pub. L. No. 105-34.
I.R.C. § 6512(b)(3), as amended by Pub. L. No. 105-34, section 1282(a).
See also Krape v. Comm’r, T.C. Memo 2007-125 (explaining section
6512(b)(3) and ultimately holding that the court did not have jurisdiction).
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effective date for this provision is for claims for refund or credit with
respect to tax years ending after August 5, 1997.753 Of course, for tax
years ending before August 6, 1997, the rule articulated in Commissioner v. Lundy would apply.754
After the claim for refund is filed,755 the IRS will typically do one of
three things. Either the claim will be denied, accepted as filed and
payment made,756 or it may be examined. If the claim is examined, the
procedures are almost the same as in an examination of a tax return.
However, there are times when a taxpayer is filing a claim for refund
based solely on contested income tax or on estate or gift tax issues and
the taxpayer does not want to have the claim reviewed, rather the
taxpayer desires to file a refund suit and is going through the
formalities required to file suit. In that situation the claim should
request that it be rejected immediately to provide the ability to quickly
file a refund suit.
If the claim is disallowed the IRS must provide an explanation as to
why the claim is disallowed or partially disallowed. A claim for refunds
may be disallowed because it was filed late, it was waived as part of a
settlement, it covered years or issues covered by a closing agreement,
or may have been related to a return covered by a final court
determination.
If the claim is disallowed the taxpayer will also have the right to an
Appeals Office hearing. If the taxpayer does not receive satisfaction at
the examination level or the Appeals Office level, the taxpayer should
consider filing suit in federal district court or the Claims Court. 757 The
suit may be started no earlier than six months after the filing of the
753.
754.
755.
756.
757.
Pub. L. No. 105-34, section 1282(b). See, e.g., Brosi v. Comm’r, 120 T.C. 5
(2003).
See, e.g., Healer v. Comm’r, 115 T.C. 316 (2000).
Counsel should not mail the claim for refund, but rather should appear at
the local IRS office and submit it in person, having a conforming copy
stamped in by a Service employee. The reason for this is that if a claim for
refund is filed at a time when the statute of limitations is about to expire,
should the claim for refund be lost, the taxpayer would be hard pressed to
prove that the claim, in fact, was timely filed.
The refund must first, however, be credited to any outstanding federal tax
liability before the taxpayer actually receives the check. See I.R.C. §§ 6402,
6403. See also reduction for non-tax debts, discussed infra.
District courts have concurrent jurisdiction with the claims court: “The
district courts shall have original jurisdiction, concurrent with the United
States Court of Federal Claims, of: (1) Any civil action against the United
States for the recovery of any internal-revenue tax alleged to have been
erroneously or illegally assessed or collected, or any penalty claimed to
have been collected without authority or any sum alleged to have been
excessive or in any manner wrongfully collected under the internalrevenue laws. . . .” 28 U.S.C. § 1346(a)(1). See also I.R.C. § 7402(f) and
28 U.S.C. § 1340.
(Shafiroff, Rel. #21, 11/09)
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claim, unless the IRS denies the claim within that period of time. In
no case, however, can the suit be brought more than two years after the
Commissioner mailed to the taxpayer by registered or certified mail a
notice of disallowance of the refund claim.758 Pursuant to the Taxpayer
758.
I.R.C. § 6532(a). See, e.g., In re Pransky, 318 F.3d 536 (3d Cir. 2003);
Juhasz v. Sec’y, Dep’t of Treasury, 89 A.F.T.R.2d 2002-3087 (6th Cir. 2002);
Haze v. United States, 90 A.F.T.R.2d 2002-7139 (D. Ariz. 2002); Garrett v.
United States, 87 A.F.T.R.2d 2001-2002 (9th Cir. 2001). See also Smilde v.
O’Neill, 88 A.F.T.R.2d 2001-6424 (7th Cir. 2001), where the court lacked
jurisdiction because the taxpayer failed to serve any of the defendants with
process within 120 days of the filing of the complaint, as required by the
Federal Rules of Civil Procedure. See also Nat’l Office Serv. Ctr. Adv. Mem.
200111043, where the Service held that the it is not authorized to refund
an overpayment of tax after the period for filing a claim for refund has
expired where the taxpayer was sent a notice of claim disallowance with
respect to a claim filed on an original return if the taxpayer did not file a
suit for refund within two years after the notice of claim disallowance was
mailed to the taxpayer, unless the Service and the taxpayer agreed in
writing to extend the period for filing a refund suit and such period had not
yet expired. Of course, the government and the taxpayer can agree to
extend the period of limitations to bring suit. See Kaffenberger v. United
States, 314 F.3d 944 (8th Cir. 2003), discussed at length, supra. Cf.
Grandelli v. Dep’t of Treasury (Internal Revenue Serv.), 98 A.F.T.R.2d
2006-7847, 7849–50 (E.D. Pa. 2006):
Plaintiffs, however, claim that they were orally advised by IRS
General Counsel Jack Anagnostis that plaintiffs had until September 2004 in which to file their refund suit. This raises the issue of
whether the IRS can be estopped from arguing that the statute of
limitations bars the plaintiffs’ refund claim. “Estoppel is an equitable doctrine invoked to avoid injustice in particular cases.”
Heckler v. Community Health Services of Craw-ford County, Inc.,
467 U.S. 51, 59 (1984). “Parties attempting to estop another private
party must establish that they relied to their detriment on their
adversary’s misrepresentation and that such reliance was reasonable because they neither knew nor should have known the adversary’s conduct was misleading.” Fredericks v. Comm’r of Internal
Revenue Service, 126 F.3d 433, 438 [80 AFTR 2d 97-6412] (3d
Cir.1997) (citing Heckler, 467 U.S. at 59, and U.S. v. Asmar, 827
F.2d 907, 912 [60 AFTR 2d 87-5525] (1987)).
The Third Circuit is among the majority of circuits that recognizes
the possibility of asserting estoppel against the government, however, it imposes an additional burden on claimants to establish
some “affirmative misconduct on the part of the government
officials.” Id. (citing U.S. v. Asmar, 827 F.2d 907, 911 [60 AFTR
2d 87-5525] n.4 (1987)).
The plaintiffs are unable to invoke the doctrine of estoppel in this
case as they have failed to show that any reliance they placed on the
alleged advice given by Mr. Anagnostis was reasonable. As a factual
matter, in both the IRS’s letter to plaintiffs in which it denied
plaintiffs’ appeal of their tax refund request for the 1996 tax year
and in a second letter denying plaintiffs’ request for a second appeal
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Bill of Rights 3, for disallowances after the 180th day after July 22,
1998, the IRS must provide the taxpayer with an explanation for the
disallowance,759 thus providing the taxpayer a chance to respond. 760
Obviously, if the government issues a refund erroneously, it may
seek to recover it.761 In such case, the government must file the suit
within two years after the making of such refund, unless there was a
fraud or misrepresentation of a material fact on the part of the
taxpayer, in which case the period of limitations is five years. 762 It
has been held that the two-year statute of limitations in section
6532(b) does not apply to an erroneously returned deposit that was in
the nature of a cash bond, on which interest was not to be paid on its
return to the taxpayer.763 It also has been held that the limitations
period for the government’s suit began to run when the erroneously
sent refund check cleared, not when the taxpayer received it.764
On one final note, counsel should note that if a joint tax return has
been filed, both husband and wife must file the claim for refund. 765
Additionally, any refund issued will be in the name of both spouses
regardless of whether or not they are separated or divorced at the time
of their refund request, the IRS clearly notified plaintiffs of the date
by which plaintiffs could file suit.[FN2] In addition, in both letters,
the IRS warned the plaintiffs in clear and unambiguous terms that
any appeal did not operate to extend the statute of limitations.
There continues to be many cases where taxpayers file their suit
beyond the two-year period of limitations. Of course, these cases are
dismissed for lack of jurisdiction. See, e.g., Van Es v. Internal Revenue
Serv., 93 A.F.T.R.2d 2004-984 (D.N.M. 2001); Killingsworth v.
United States, 92 A.F.T.R.2d 2003-7264 (E.D. Tex. 2003); Nardini
v. United States, 2003 U.S. Dist. LEXIS 17688 (N.D.N.Y. 2003). Cf.
Secret v. United States, 91 A.F.T.R.2d 2003-879 (N.D.W.V. 2003) (suit
dismissed without prejudice when taxpayer filed suit within two-year
period but before the expiration of six months from the date of filing
the claim.)
759.
760.
761.
762.
763.
764.
765.
I.R.C. § 6402(k), as added by the IRS Restructuring and Reform Act of
1998, Pub. L. No. 105-206, Title III (Taxpayer Bill of Rights 3), §§ 3505(a),
(b), 3711(a).
S. REP. NO. 105-174.
I.R.C. § 7405. See also I.R.C. §§ 6514(a)(a)(1) and 6511(b)(1). See also
United States v. Foster, 90 A.F.T.R.2d 2002-756 (4th Cir. 2002); United
States v. Auston, 89 A.F.T.R.2d 2002-2121 (7th Cir. 2002); United States v.
Lesinski, 85 A.F.T.R.2d 2000-1289 (S.D.N.Y. 2000).
I.R.C. § 6532(b). See also United States v. N. Trust Co., 372 F.3d 886, 888
(7th Cir. 2004 (misrepresentation differs from fraud, “otherwise section
6532(b) would be redundant”).
United States v. Domino Sugar Corp., 349 F.3d 83 (2d Cir. 2003).
United States v. Greene-Thapedi, 398 F.3d 635 (7th Cir. 2005).
Treas. Reg. § 1.6013-1(a)(2); Dunn v. Comm’r, T.C.M. (P-H) ¶ 63,189
(1963).
(Shafiroff, Rel. #21, 11/09)
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the refund is issued. Clearly, a disgruntled spouse can cause many
problems in this area.
§ 6:14.6
Suspending the Statute of Limitations During
Period of Disability
As mentioned in the previous section of text, a taxpayer generally
must file a refund claim within three years of the filing of the return or
within two years of the payment of the tax, whichever period expires
later (if no return is filed, the two-year limit applies). 766 Of course, a
refund claim that is not filed timely is rejected. Prior to enactment of
the Taxpayer Bill of Rights 3,767 there was no explicit statutory rule
providing for equitable tolling of the statute of limitations. Several
courts had considered whether equitable tolling implicitly exists. The
First, Third, Fourth, and Eleventh Circuits rejected equitable tolling
with respect to tax refund claims. The Ninth Circuit permitted
equitable tolling. However, the United States Supreme Court reversed
the Ninth Circuit in United States v. Brockamp,768 holding that
Congress did not intend the equitable tolling doctrine to apply to
the statutory limitations of section 6511 on the filing of tax refund
claims.769 But with the Taxpayer Bill of Rights 3, Congress responded
to the Supreme Court’s Brockamp holding and made equitable tolling
available in cases of severe medical disability.
More specifically, the running of the statute of limitations for filing
a claim for refund is suspended during any period of an individual’s life
that he or she is “financially disabled.”770 A person is financially
disabled if the person is unable to manage his or her financial affairs by
reason of a medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than twelve
months.771 An individual is not considered to have such an impairment unless proof of the existence thereof is furnished in such form
766.
767.
768.
769.
770.
771.
I.R.C. § 6511(a).
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III.
United States v. Brockamp, 519 U.S. 347 (1997), rev’g 67 F.3d 260 and 70
F.3d 120. For a case where a taxpayer was not permitted to make use of the
doctrine of equitable tolling, see Knis v. United States, 87 A.F.T.R.2d 20012391 (Fed. Cir. 2001) (“the limitations period is not subject to equitable
tolling”). See also Demes v. United States, 52 Fed. Cl. 356 (2002), where it
was held that the statute of limitations for filing a claim for refund was not
tolled by the taxpayer filing an application for a Taxpayer Assistance Order
(TAO).
H. REP. NO. 105-364, pt. 1.
I.R.C. § 6511(h)(1), as amended by the IRS Restructuring and Reform Act
of 1998, Pub. L. No. 105-206, Title III (Taxpayer Bill of Rights 3), section
3202(a).
I.R.C. § 6511(h)(2)(A), as amended by the 98 Act.
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and manner as the IRS may require.772 In applying the medically
determinable test, the IRS will evaluate whether a medical opinion
that a physical or mental impairment exists has been offered by a
person qualified to do so with respect to that particular type of
impairment.773 An individual is not treated as financially disabled
during any period that such individual’s spouse or any other person
(such as a guardian) is authorized to act on behalf of the individual in
financial matters.774
This provision applies to periods of disability before, on, or after
July 22, 1998, but does not apply to any claim for credit or refund
which (without regard to this provision) would be barred by operation
of any law or rule of law (including res judicata) as of the July 22
date.775
In the case of Brosi v. Commissioner,776 the Tax Court held that the
Code makes no provision for suspending the period of limitations for
filing a claim for refund because the taxpayer had to devote time to
caregiving responsibilities for his mother. The court’s reasoning was
based upon the plain meaning of the statute:
A plain reading of section 6511(h) demonstrates that the physical
or mental impairment must be that of the taxpayer, not of some
third person. See United States v. Ron Pair Enters Inc., 489 U.S.
235, 241, 103 L. Ed. 2d 290, 109 S. Ct. 1026 (1989) (“The task of
resolving the dispute over the meaning of . . . [a statute] begins
where all such inquiries must begin: with the language of the
statute itself. . . . In this case it is also where the inquiry should
end, for where, as here, the statute’s language is plain, ‘the sole
function of the courts is to enforce it according to its terms.’”). In
defining “financially disabled,” section 6511(h)(2)(A) refers to “a
medically determinable physical or mental impairment of the
individual” to whom the statute of limitations applies. (Emphasis
added.) To have any logical meaning, the statute must equate
“the individual” with the taxpayer claiming the benefits of section
6511(h). Furthermore, Congress clearly intended that the physical
or mental impairment of the taxpayer be substantial. First, the
impairment must be one that is “expected to result in death or
which has lasted or can be expected to last for a continuous period
of not less than 12 months.” Sec. 6511(h)(2)(A). Secondly, to claim
these extraordinary benefits, the taxpayer must present proof of a
772.
773.
774.
775.
776.
Id.
H. REP. NO. 105-364, pt. 1.
I.R.C. § 6511(h)(2)(B), as amended by the 98 Act.
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III,
section 3202(b). See, e.g., Pritchett v. Comm’r, 2001 U.S. Dist. LEXIS
6999 (C.D. Cal. 2001).
Brosi v. Comm’r, 120 T.C. 5 (2003).
(Shafiroff, Rel. #21, 11/09)
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qualifying impairment in the form and manner specified by the
Secretary. See sec. 6511(h)(2)(A).
The Secretary has established such form and manner in Rev. Proc.
777
99-21, 1999-1 C.B. 960.
According to the revenue procedure,
the taxpayer must provide a physician’s written statement setting
forth inter alia: (1) a description of the taxpayer ’s physical or
mental impairment; (2) the physician’s medical opinion that the
taxpayer ’s physical or mental impairment prevented him from
managing his financial affairs; (3) the physician’s medical opinion
that the impairment was or could be expected to result in death or
lasted (or could be expected to last) for a continuous period of not
less than 12 months, etc.
In this case, petitioner does not contend that he suffered from the
type of physical or mental impairment contemplated by section
6511(h)(2). Instead, petitioner explains that his failure to timely
file a return or claim a refund is a result of his care-giving
responsibilities provided to his mother and his contemporaneous
employment as an airline pilot. Petitioner explains that he functioned as his maternal parent’s primary health care provider for
some four years commencing in 1996. Responsibilities included
weekly round [sic] travel from Pennsylvania to the parental homestead in Illinois, four days a week of virtually constant care-giving,
and during the remaining three days a week, maintaining his
employment as a pilot with US Airways traveling at all times and
remaining away from his domicile.
Petitioner does not articulate any physical or mental impairment
from which he suffered during any period at issue here. Instead,
petitioner contends that his care-giving responsibilities provided
to another while simultaneously earning a living somehow afford
him the extraordinary benefits of section 6511(h). We disagree.
While we sympathize with petitioner regarding his mother ’s
condition and the demands of his employment, those are the
types of problems confronted by many taxpayers and are not the
conditions contemplated in section 6511(h). Viewing the record in
the light most favorable to petitioner, he cannot sustain his claim
778
to the benefits articulated in section 6511(h).
In Sumner v. United States,779 the Court of Federal Claims, in
explaining and summarizing United States v. Brockamp,780 held that
there is no general equitable exception to section 6511:
777.
778.
779.
780.
For summary and discussion of Rev. Proc. 99-21, 1999-1 C.B. 970, see
next section of text, infra.
Brosi, 120 T.C. at 10–12.
Sumner v. United States, 71 Fed. Cl. 627 (2006).
United States v. Brockamp, supra.
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The Sumners’ concern over the fairness of a statute of limitations
that relieves the IRS of reimbursement obligations for mistakenly
overpaid taxes is understandable. However, legislation enacted
by Congress cannot be ignored by this court or the IRS for even
the most compelling reasons. Hopland Band of Pomo Indians v.
United States, 855 F.2d 1573, 1576–77 (Fed. Cir. 1988) (“The . . .
statute of limitations on actions against the United States is a
jurisdictional requirement attached by Congress as a condition of
the government’s waiver of sovereign immunity and, as such,
must be strictly construed.”); cf. Wadlington v. United States, 68
Fed. Cl. 145 [96 AFTR 2d 2005-6384] (2005) (ruling that a 2003
notice showing overpayment of 1999 taxes could not toll the
statute of limitations despite the taxpayer ’s inability to file a
781
timely refund claim due to the late notice).
[A] Statements Required to Claim Financial
Disability
Unless otherwise provided in IRS forms and instructions, the
following statements must be submitted with a claim for refund of
tax or credit to claim financial disability for purposes of section 6511(h):
(1)
781.
A written statement by a physician, qualified to make the
determination, that sets forth:
(a)
the name and a description of the taxpayer ’s physical or
mental impairment;
(b)
the physician’s medical opinion that the physical or
mental impairment prevented the taxpayer from managing the taxpayer ’s financial affairs;
(c)
the physician’s medical opinion that the physical or
mental impairment was or can be expected to result in
death, or that it has lasted (or can be expected to last) for
a continuous period of not less than twelve months;
(d)
to the best of the physician’s knowledge, the specific
time period during which the taxpayer was prevented by
such physical or mental impairment from managing the
taxpayer ’s financial affairs; and
(e)
the following certification, signed by the physician:
“I hereby certify that, to the best of my knowledge and
belief, the above representations are true, correct, and
complete.”
Sumner, 71 Fed. Cl. at 629.
(Shafiroff, Rel. #21, 11/09)
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(2)
A written statement by the person signing the claim for credit
or refund that no person, including the taxpayer ’s spouse, was
authorized to act on behalf of the taxpayer in financial matters
during the period described in paragraph (1)(d). Alternatively,
if a person was authorized to act on behalf of the taxpayer in
financial matters during any part of the period described in
paragraph (1)(d), the beginning and ending dates of the period
of time the person was so authorized.782
§ 6:14.7
Tax Refund Complaint
In a federal district court, the refund suit is commenced by filing a
complaint with the clerk of the district court and paying the filing
fee.783 The clerk issues a summons and the taxpayer makes service
upon the government by delivering a copy of the summons and the
complaint to the local U.S. Attorney and by sending a copy of each by
registered or certified mail to the U.S. Attorney General at the
Department of Justice, Washington, D.C. 20530.784 Each district court
has its own local rules concerning filing. Counsels should check with
the local rules for compliance.
In the Court of Federal Claims, the refund suit is commenced by
delivering to the clerk at 717 Madison Place, N.W., Washington, D.C.
20005, the original and seven copies of the complaint, and a $120
filing fee.785 The clerk serves the Attorney General with five copies of
the complaint.786
[A] Form of the Complaint
The general form and contents of a complaint are governed by the
procedural rules of the particular refund tribunal. At a minimum, a
complaint must contain: (1) a short and plain statement of the
grounds on which the court’s jurisdiction depends, (2) a short and
plain statement of the claim showing that the plaintiff is entitled to
relief, and (3) a demand for judgment for the relief claimed. 787
[B]
Request for Jury Trial
Tax refund action in a federal district court can be heard by jury if a
timely demand is made by either party.788 A jury trial is not available
782.
783.
784.
785.
786.
787.
788.
Rev. Proc. 99-21, 1999-1 C.B. 970.
FED. R. CIV. P. 3; 28 U.S.C. § 1914, as amended by Pub. L. No. 104-317.
FED. R. CIV. P. 4.
Ct. Fed. Cl. R. 3(a), (c), 77(k)(2).
Ct. Fed. Cl. R. 4(a).
FED. R. CIV. P. 8(a); Ct. Fed. Cl. R. 8(a).
28 U.S.C. § 2402.
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in the Court of Federal Claims.789 A written demand must be filed
any time from the commencement of an action to a date not later
than ten days after the service of the last pleading. 790 If a request is
not made or is untimely, it constitutes a waiver of the right to jury
trial.791
[C] Government’s Answer and Counterclaim
The government must file and serve its answer to a complaint
within sixty days after it has received service of the complaint. 792
[D] Burden of Proof
In a refund suit, the ultimate question is whether the taxpayer
overpaid the tax. The taxpayer in a refund suit has the burden not
only to show that the IRS’s assessment is incorrect, but also has the
burden to prove the correct amount of tax due.793 The taxpayer must
establish the right to recover by a preponderance of the evidence. 794
Once the taxpayer introduces credible evidence relevant to ascertaining the taxpayer ’s liability, the burden of proof shifts to the government to show otherwise.795 The shifting of the burden occurs only if:
(1) the taxpayer has complied with the requirements to substantiate
any item, (2) the taxpayer has maintained all records required and has
cooperated with reasonable request by the IRS, and (3) in the case of a
partnership, corporation or trust, the taxpayer ’s net worth does not
exceed $7 million.796 On certain issues, such as fraud and transferee
liability, the government has the burden of proof.797 In addition, the
government has the burden of production with respect to the liability
of any individual for any penalty, addition to tax, or additional amount
imposed by the Code.798
[E]
Judgment and Appeals
An appeal from the decision of the federal district court or the Court
of Federal Claims must be filed with the clerk within sixty days after
the entry of the judgment.799
789.
790.
791.
792.
793.
794.
795.
796.
797.
798.
799.
See Ct. F. Cl. R. 1(b).
FED. R. CIV. P. 38(b).
FED. R. CIV. P. 38(d).
FED. R. CIV. P. 4(j).
Lewis v. Reynolds, 284 U.S. 281, 283. See also Dye v. United States, 121
F.3d 1399 (10th Cir. 1997); Sara Lee Corp. v. United States, 29 Fed. Cl. 330
(1993).
United States v. Anderson, 269 U.S. 422, 433 (1926).
See I.R.C. § 7491(a).
I.R.C. § 7491(b).
See I.R.C. § 6703(a).
I.R.C. § 7491(c).
FED. R. APP. P. 3, 4.
(Shafiroff, Rel. #21, 11/09)
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Reduction of Refund for Nontax Debt
The Service has the authority to credit any overpayment, within the
applicable period of limitation, against any Internal Revenue tax owed
by the person entitled to that overpayment.800 The Tax Reform Act of
1984 added provisions to provide that any refund overpayment due a
taxpayer can be reduced by the amount of a nontax debt owed to the
federal government.801 These provisions generally apply with respect
to refunds payable after December 31, 1985.802 In addition, beginning
with refunds payable after December 31, 1985, the Service has been
given the authority to offset refunds with past-due child support
obligations,803 and debts owed to another federal agency. For refunds
payable after December 31, 1999, the Taxpayer Bill of Rights 3
provides that the refund offset program is also extended to cover
certain past-due state income tax liabilities.804 The Service will notify
the taxpayer is this happens. If the taxpayer is unlucky to have their
tax refund offset by these liabilities the taxpayer cannot use the appeal
and refund procedures rather the taxpayer will be required to tax action
against the other government agency.
Before federal tax overpayment can be used to offset past-due state
income tax the following criteria must be met:
800.
801.
802.
803.
804.
I.R.C. § 6402(a), amended by Pub. L. No. 104-198, section 110(l)(7)(A).
See, e.g., Barkley v. Comm’r, T.C. Memo 2001-101; McKoin v. Comm’r,
T.C. Memo 2001-62; Smith v. United States, 87 A.F.T.R.2d 2001-477 (Fed.
Cir. 2001). See also Sunoco, Inc. v. Comm’r, 122 T.C. 88 (2004) (held that
the Tax Court’s jurisdiction on overpayments includes those resulting
from interest accruing on overpayments of tax and that while the IRS
cannot be compelled to credit an overpayment against a liability of the
taxpayer, if the IRS chooses to do so, however, then section 6402(a)
provides that the Commissioner may credit the amount of the overpayment, including any interest allowed thereon against a liability of the
taxpayer and, with certain exceptions, shall refund any balance to the
taxpayer).
In a series of revenue rulings, the Service has indicated how it will offset
overpayments from a joint tax return against a spouse’s separate tax
liability in community property states: Rev. Rul. 2004-71, 2004-2 C.B.
74 (Arizona and Wisconsin law); Rev. Rul. 2004-72, 2004-2 C.B. 77
(California, Idaho, and Louisiana law); Rev. Rul. 2004-73, 2004-2 C.B.
80 (Nevada, New Mexico, and Washington law).
Pub. L. No. 98-369, section 2653(b), 98 Stat. 494, 1154 (1984) (adding
I.R.C. § 6402(d)–(g)).
Pub. L. No. 98-369, section 2653(c), 98 Stat. 1156 (1984), amended by
Pub. L. No. 102-164, section 1401(a).
Pub. L. No. 98-378, section 21(e)(1), 98 Stat. 1305, 1325 (1984), amending I.R.C. § 6402(c). See, e.g., Jacobs v. United States, 2001 U.S. Dist.
LEXIS 3274 (N.D. Ala. 2001).
I.R.C. §§ 6103(l)(10), 6402(e), as amended by the IRS Restructuring and
Reform Act of 1998 Pub. L. No. 105-206, Title III, section 3711(a), (b).
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•
The state agency must notify the taxpayer by certified mail with
return receipt that the state plans to ask for an offset against
your federal income tax overpayment,
•
The state agency must give the taxpayer sixty days to show that
some or all of the state income taxes is not past due or legally
enforceable,
•
The state agency must consider any evidence from you in
determining that income tax is past due or legally enforceable,
•
The state agency must satisfy any other requirements to ensure
that there is a valid past-due tax obligation, and
•
The state agency must show that all reasonable efforts to obtain
payment have been made before requesting the offset.
§ 6:16
Refund Proceedings Involving Divisible Taxes and
IRS Levies
When a taxpayer litigates a matter over which the Tax Court has
jurisdiction, the Service is statutorily prohibited from seeking to
collect the amount in dispute before the court renders a final decision.805 Unfortunately for taxpayers, the Tax Court does not have
jurisdiction over all so-called divisible taxes—those that are paid
periodically: payroll taxes (for example, FICA), and the so-called
100% penalty provided for in section 6672.806 Consequently, when a
taxpayer wishes to contest a divisible tax matter for which the Tax
Court does not have jurisdiction, he will typically pay the tax for one
employee for one quarter and file a claim for a refund. 807 If the claim is
denied or not acted upon within six months, the taxpayer may file suit
in district court or the Claims Court.808 Although there is no statute
prohibiting the IRS from collecting the total tax due, as there is in Tax
Court litigation, by administrative rules, the Service generally does not
seek to collect the assessment before the district court or Claims Court
renders a final decision.809 Since enactment of the Taxpayer Bill of
805.
806.
807.
808.
809.
I.R.C. § 6213(a). Cf. I.R.C. § 7485.
Prior to August 5, 1997, the Tax Court did not have any jurisdiction over
any divisible taxes. After August 4, 1997, however, the Tax Court did
obtain jurisdiction to hear cases involving employment status of individuals and the proper amount of related employment taxes. I.R.C. § 7436.
For a detailed discussion of Tax Court jurisdiction and proceedings for
determination of employment status, see supra.
See I.R.C. § 7422; 28 U.S.C. § 1346. See also Field v. United States, 328
F.3d 58 (2d Cir. 2003), for a discussion 7422(h), relating to certain actions
with respect to partnership items.
See the discussion, supra, regarding filing claims for refund.
I.R.S. Policy Statement 5-16 (1984).
(Shafiroff, Rel. #21, 11/09)
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Rights 3, however, the Service is generally statutorily prohibited from
levying on property of any person for any unpaid divisible tax during
the pendency of certain federal proceedings.810
With respect to unpaid tax attributable to taxable periods beginning
after 1998,811 no levy may be made of any person with respect to any
unpaid “divisible tax” during the “pendency of any proceeding”
brought by that person in a proper federal trial court (district court
or Claims Court) for the recovery of any portion of such divisible tax
that was by that person if the decision in such proceeding would be res
judicata with respect of such unpaid tax, or such person would be
collaterally estopped from contesting the unpaid tax by reason of such
proceeding.812
A “divisible tax” is defined as any tax imposed by subtitle C of the
Internal Revenue Code (employment taxes), and the penalty imposed
by section 6672 (the 100% penalty).813 As to the term “pendency of
any proceeding,” a proceeding is pending beginning on the date of the
proceeding commences and ending on the date that a final order or
judgment from which an appeal may be taken is entered in the
proceeding.814
Nonetheless, the prohibition against levy does not apply if the
taxpayer files a written notice with the IRS that waives the suspension
of collection in writing (because collection will stop the running of
interest and penalties on the tax liability).815 Nor does it apply if the
IRS finds that the collection of tax is in jeopardy.816 The prohibition
also does not apply to any levy made to carry out an offset under
section 6402, or to any levy that was first made before the date that the
refund proceeding began.817
In addition to the prohibition against levy, the statute also prohibits
the IRS from beginning any court action to collect any of the unpaid
tax during the pendency of the proceeding.818 This limitation on
collection does not, of course, apply to any counterclaim in a refund
810.
811.
812.
813.
814.
815.
816.
817.
818.
I.R.C. § 6331(i), as added by the IRS Restructuring and Reform Act of
1998, Pub. L. No. 105-206, Title III (Taxpayer Bill of Rights 3), section
3433(a).
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III
(Taxpayer Bill of Rights 3), section 3433(b).
I.R.C. § 6331(i)(1).
I.R.C. § 6331(i)(2).
I.R.C. § 6331(i)(6).
I.R.C. § 6331(i)(3)(A)(i); S. REP. NO. 105-174.
I.R.C. § 6331(i)(3)(A)(ii).
I.R.C. § 6331(i)(3)(B).
I.R.C. § 6331(i)(4)(A).
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suit or related proceeding819 nor does it bar the Service from filing a
lien to protect the interest of the government.820
Should the Service engage in a collection action that is prohibited by
the statute, the anti-injunction statute of section 7421(a) will not
apply and the taxpayer may secure injunctive relief (during the period
such prohibition is in force) by the court in which the refund
proceeding is brought to halt any such illegal collection activity. 821
The period of limitations for collection of tax under section 6502 is
suspended for the period during which the IRS is prohibited from
making a levy.822
§ 6:17
Waiving Right to Sue the United States
Prior to enactment of the Taxpayer Bill of Rights 3,823 there was no
restriction on the circumstances under which the government could
request a taxpayer to waive the taxpayer ’s right to sue the United
States or one of its employees for any action taken in connection with
the tax laws.824 As of July 22, 1998, however, this changed.825 As a
general rule, no officer or employee of the United States may request a
taxpayer to waive the taxpayer ’s right to bring a civil action against the
United States or any officer or employee of the Untied States for any
action taken in connection with the Internal Revenue laws.826
There are, however, two exceptions to this rule: (1) where a taxpayer
enters into a waiver which is knowingly and voluntarily; or (2) where
the request by the officer or employee is made in person and the
taxpayer ’s attorney or other federally authorized tax practitioner
819.
820.
821.
822.
823.
824.
825.
826.
I.R.C. § 6331(i)(4)(A)(i), (ii). Proceedings which are related to a proceeding
include, but are not limited to, civil actions or third-party complaints
initiated by the United States or another person with respect to the same
kinds of tax (or related taxes or penalties) for the same (or overlapping) tax
periods. For example, if a taxpayer brings suit for a refund of a portion of a
penalty that the taxpayer has paid under section 6672, the United States
could, consistent with this provision, counterclaim against the taxpayer
for the balance of the penalty or initiate related claims against other
persons assessed penalties under section 6672 for the same employment
taxes. IRS Restructuring and Reform Act of 1998 (H.R. 2676), Committee
Report at 101.
S. REP. NO. 105-174.
I.R.C. § 6331(i)(4)(B).
I.R.C. § 6331(i)(5).
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III.
IRS Restructuring and Reform Act of 1998 (H.R. 2676), Committee Report
at 116.
No effective date is stated; therefore, it is the date of enactment, July 22,
1998.
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III,
section 3468(a).
(Shafiroff, Rel. #21, 11/09)
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(within the meaning of section 7525(a)(3)(A) of the Internal Revenue
Code) is present, or the request is made in writing to the taxpayer ’s
attorney or other representative.827
Nonetheless, Congress did not intend the general restriction to
apply to the waiver of claims for attorneys’ fees or costs or to the
waiver of one or more claims brought in the same administrative or
judicial proceeding with other claims that are being settled. 828
§ 6:18
Tentative Carryback Adjustments
Under typical examination procedures it takes time to examine a
large dollar claim. Depending on the size of the refund and the
complexities involved it may take one to two years on average for
the Service to conduct an examination to determine the validity of the
claim. Congress realized that businesses may have an immediate need
for cash and as result enacted section 6411. Section 6411 was intended
to secure a quick tentative refund of taxes resulting from carryback of a
NOL, net capital loss, or unused general business credit for both
corporations and individuals. Section 6411 provides taxpayers the
ability to file an application for tentative refund based on a tentative
carryback adjustment. The right to file an application for a tentative
adjustment is not limited to corporations. Any taxpayer who is
entitled to carry back a loss or unused credit may apply for a quick
refund.829 An application filed under section 6411 does not constitute
a claim for credit or refund, and the amount carried back results in
only the tentative allowance of any refunded overpayment. The Service
must act on a quick refund application within ninety days after
the application is filed or within ninety days after the last day of the
month that the return for the year of loss (or unused credit) is due
(including extensions of the return filing date), whichever is later.
Application for a tentative carryback adjustment must be filed
within one year after the end of year in which the loss or credit
occurred. The application must be filed after return for the year of loss
is filed. Corporations should use Form 1139; individuals should use
Form 1045. The IRS must act on the application within ninety days
after application is filed or within ninety days after the last day of the
827.
828.
829.
IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Title III,
section 3468(b).
IRS Restructuring and Reform Act of 1998 (H.R. 2676), Committee Report
at 116.
Treas. Reg. § 1.6411-1(a).
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month that the return for the loss year is due (including extensions),
whichever is later.830
In processing the tentative allowance the Service will make a
preliminary check on the appropriateness of the refund. A request
for a tentative allowance may be denied if it contains errors of
computation or material omissions that the Service believes cannot
be corrected within the ninety-day period. If the Service approves the
tentative allowance application, the Commissioner may credit or
reduce the tentative refund by any assessed tax liabilities, unassessed
liabilities identified in a statutory Notice of Deficiency, unassessed
liabilities identified in a proof of claim filed in bankruptcy proceeding,
and other unassessed liabilities in rare and unusual circumstances. 831
The application may be disallowed if there are material omissions or
material errors that cannot be corrected within ninety days. 832
The application does not constitute a “claim for refund,” it is a
request for a tentative allowance. Thus, if disallowed, no suit may be
brought in district court or the U.S. Court of Federal Claims. 833 In
such a case, the taxpayer would have to file a formal claim for refund
(for example, Form 1120X or 1040X) and then file suit if the formal
claim is denied (or after waiting six months).834
After the tentative refund is paid, the IRS may conduct a full
examination of the return with the NOL, net capital loss, or credit.
If it is later determined that the amount refunded was greater than the
actual overpayment for the year, the IRS can assess the taxes owed in
one of three ways: (1) send a statutory Notice of Deficiency; (2) treat
the excess as a math error under section 6213(b)(3); or (3) file suit
under section 7405. In most cases, the IRS will issue a Statutory
Notice of Deficiency (thus allowing the taxpayer to litigate the issues
raised in Tax Court). Examples of the Service treating the excess as a
math error and making an immediate assessment include: when the
statute of limitations on assessment is about to expire; the taxpayer
filing for bankruptcy.835
830.
831.
832.
833.
834.
835.
I.R.C. § 6411(b). However, see Rev. Rul. 75-327, 1975-2 C.B. 481 where
the Service ruled that a tentative carryback refund could not be based on a
“tentative” Form 1120.
See also Temp Reg. § 1.6411-1, Rev. Rul. 2007-51, 2007-2 C.B. 573, and
Rev. Rul. 2007-52, 2007-2 C.B. 575.
See Rev. Rul. 2007-53, 2007-37 I.R.B. 577, which concludes that the IRS
will not consider the amounts to which the taxpayer and the Commissioner are in disagreement in computing the allowable refund.
I.R.C. § 6411(a).
I.R.C. § 6532(a)(1).
See FSA 200016006 (Jan. 10, 2000), wherein the IRS treated an excessive
refund as a deficiency resulting from a mathematical or clerical error
appearing on the return.
(Shafiroff, Rel. #21, 11/09)
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IRS PRACTICE & PROCEDURE DESKBOOK
Joint Committee Review
Section 6405(a) provides that no refund or credit in excess of
$2 million will be made until after the expiration of thirty days from
the date a report is submitted to the Joint Committee on Taxation. 836
Joint Committee review is not necessary for a refund or credit of
estimated or withheld income tax, regardless of amount. Joint Committee review is not required before issuing a refund with respect to a
carryback adjustment claim pursuant to section 6411 (Forms 1139 or
1045—Application for Tentative Carryback Adjustment). Thus, if a
Form 1139 carryback refund adjustment exceeds $2 million, the IRS
will issue the refund or credit before reporting it to the Joint Committee (unless there are material errors or omissions). If the ultimate
refund (determined by reducing the refund by any subsequently
determined deficiency) exceeds the threshold, a report will be sent to
the Joint Committee.
Example: ABC Corporation has a NOL in 2008. In 2009, ABC
Corporation files a Form 1139 and carries back the NOL to 2006,
requesting a refund of $2.1 million. The Service issues the refund
without Joint Committee review. If, after examination, the IRS
makes no adjustments to the NOL or to the carryback year, a
report to the Joint Committee will be required. However, if after
examination, the IRS makes an adjustment resulting in a deficiency of $600,000 in the carryback year, thereby causing the
ultimate refund to be less than $2,000,000 ($2,100,000—
$600,000), a report to the Joint Committee will not be required.
If a refund or credit of an overpayment previously was reported to
the Joint Committee (resulting in payment of the refund), and subsequently, a further overpayment is determined, the case is not reportable unless the subsequently proposed refund or credit exceeds
$2 million. An overpayment of penalty or interest is included in
determining whether an overpayment exceeds $2 million.
Example: If a case involves an overpayment of tax of $1,800,000
and an overpayment of previously assessed (and paid) interest of
$220,000, it must be reported to the Joint Committee.
In determining if the threshold is met, a deficiency against one
taxpayer will not be offset against an overpayment of another taxpayer,
even though the changes resulted from the allocation of income or
deductions from one taxpayer to the other. Concerning the same
taxpayer and the same examination, a deficiency for one taxable year
836.
See IRM 4.36 Joint Committee Procedures (Aug. 15, 2004) for the
procedures followed by the IRS in processing joint committee refunds.
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should be offset against an overpayment for another taxable year for
the same type of tax. However, if an overpayment in one year results
in a deficiency in another (type of) tax for the same taxpayer for the
same taxable year, the deficiency should not be used to offset the
overpayment (this could occur with estate and gift taxes). If a year is
under examination and the taxpayer files a NOL carryback claim
sufficient to bring the examination of the year within the jurisdiction
of the Joint Committee, the examination will be extended to include
the loss year.
Example: Examination of year 2006 produces an overpayment of
$1,420,000. Before the case is closed, the IRS agent learns that the
taxpayer has filed a claim for refund of $600,000 for 2006 based on
a 2008 NOL (Form 1139—Application for Tentative Carryback
Adjustment). Therefore, a report to the Joint Committee would be
necessary and should include both the 2006 and 2008 tax years.
It is the Service’s practice to keep the statute of limitations open for
fifteen months on all returns involved in a Joint Committee case until
the Committee’s consideration is completed.837 The Internal Revenue
Manual (IRM) states that restricted consents to extend the statute of
limitations generally will not be accepted for returns involved in a
Joint Committee case. The Joint Committee has no explicit authority
to approve or disapprove a proposed refund. Rather, the Joint Committee makes recommendations. The legislative history underlying
section 6405 indicates that Congress wanted the Joint Committee to
monitor whether the Service’s administration of the Code is consistent with Congressional intent and without favoritism.838
837.
838.
See 4.36.3.5 Statue of Limitations (Aug. 15, 2004).
See Chief Counsel Notice CC-2003-023 (July 3, 2003). In a 2000 Field
Service Advice, Counsel concluded that in considering a request for an
expedited refund in a Joint Committee case under the procedures in IRM
4.36.4, it may only refund the amount that is determined to be the
minimum amount of overpaid tax (i.e., the amount for which the IRS
has made a determination with respect to the refund claim). FSA
200033003 (Apr. 25, 2000). In a 2000 Field Service Advice, Counsel
concluded that the IRS may issue an expedited refund pending completion
of a “large case” exam after accepting a surety bond to secure the tax
refunded if the IRS agrees that the taxpayer is entitled to the refund on one
or more issues. Under a “modified expedite refund report,” which may be
used when there are unagreed issues or unexamined source years, the
refund may be issued if the JCTapproves the refund and the taxpayer posts
a surety bond, even though the IRS has not completed the examination.
Here, the agent reviewing the refund claim had “determined” that the
amended return was correct and that the taxpayer was entitled to the
refund in the amount claimed. FSA 200101019 (Oct. 2, 2000).
(Shafiroff, Rel. #21, 11/09)
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Practice Pointer: Although the IRM requires the revenue agent
or the Appeals Officer assigned to the Joint Committee case to
request a statute extension under section 6501(c)(4) while the
Joint Committee considers the case, there appears to be little or
no benefit for the taxpayer to consent. In theory, the parties have
reached a settlement of the underlying issues. The Joint Committee review is more of an administrative review and the chance
is remote that the Joint Committee will return the case for
further development. Neither the Code nor the regulations
require the assessment statute pursuant to section 6501 to
remain open during the Joint Committee review. It is solely a
requirement in the IRM. When a case is sent to Joint Committee
review the taxpayer will have signed the necessary documentation (Form 870, and/or Form 906) but the Service will not
countersign until after Joint Committee review. If the overpayment is the result of an examination rather than a claim filed the
taxpayer can always file a protective claim for refund to protect
the refund statute rather than agree to sign an assessment
extension. All an assessment statute extension does is protect
the IRS and possibly allow the IRS to renege on the agreement
and seek to recover a deficiency on other issues. If the refund is as
a result of a claim filed, there is no legal benefit to a taxpayer to
sign a statute extension. The practical question is whether there
is potential exposure on the return and whether for business
reasons the taxpayer wants to agree separate and apart from the
legal reason to extend the statute. Taxpayers feel obligated to
agree to extend the statute, but the claim filed protects the
taxpayer ’s refund statute of limitations.
§ 6:20
Erroneous Refunds and Credits
Section 7405839 provides the Service with the ability to recover
erroneous refunds within two years of payment. The two-year period
can be extended to five years if any part of the refund was induced
by fraud or misrepresentation of a material fact.840 If the Service
makes an error in issuing a refund, it can recoup the amount
incorrectly refunded by filing a suit for erroneous refund or by
839.
840.
See also IRC § 6532(b).
IRC § 6532(b). The ten-year collection statute of limitations of an assessment has uniformly been held not to apply to the collection of an
erroneous refund, because the original payment of the assessment extinguished it. See Stanley v. United States, 35 Fed. Cl. 493 (1996), following
United States v. Wilkes, 946 F.2d 1143 (1st Cir. 1991); O’Bryant v. United
States, 49 F.3d 340 (7th Cir. 1995); Clark v. United States, 63 F.3d 83 (1st
Cir. 1995).
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following “post-collection assessment procedures.” The Service is
required to issue a Notice of Deficiency and supplemental assessment.841 The Manual defines an erroneous refund842 as “the receipt of
any money from the Service to which the recipient is not entitled.”
This definition includes all erroneous refunds regardless of taxpayer
intent or whether the error that caused the erroneous refund was made
by the IRS, the taxpayer or a third party.
The recipient of an erroneous refund has a legal obligation to repay
the amount to the IRS.843 Legally, however, the IRS must follow
specific guidelines to recover and collect erroneous refunds. For the
IRS to recover an erroneous refund, the IRS must clearly show that an
erroneous refund was issued, the amount of the erroneous refund, and
that the applicable limitation period has not expired. In an action to
recover an erroneous refund brought pursuant to section 7405 the
government bears the burden of proof.844 Equitable considerations do
not preclude the government from pursuing an erroneous refund. The
government is entitled to institute a civil action under section 7405 to
recover any portion of a tax erroneously refunded to a taxpayer. “Equity
has no power to change this wholly legal result.” 845 While an erroneous refund action is subject to equitable considerations, the premise
behind such an action “is that the taxpayer is unjustly enriched at
the expense of the government and other taxpayers.” 846 “As such, the
government must show that the taxpayer has money ’it ought not to
retain.’ If the government’s proof is sufficient to prove that a refund
is erroneous, it is also sufficient to demonstrate that the taxpayer
has money that it ought not to retain and that the government is
entitled to recover.”847 Thus, the government will satisfy its burden
by showing that a refund was erroneous. To demonstrate that a refund
was erroneous under section 7405 the government must establish:
(1) that a refund was paid to the taxpayer, (2) the amount of the refund,
(3) that the government’s recovery action was timely, and (4) that the
taxpayer was not entitled to the refund. 848 When determining
whether the Service is entitled to recover an erroneous untimely
841.
842.
843.
844.
845.
846.
847.
848.
See Singleton v. United States, 128 F.3d 833 (4th Cir. 1997).
IRM 21.4.5.1-Erroneous Refunds Overview (Oct. 1, 2006).
It should be noted that interest is recoverable on the erroneous refund at
the underpayment rate from the date of payment of the refund.
Soltermann v. United States, 272 F.2d 387 (9th Cir. 1959); United States v.
Wood, 79 F.2d 286 (3d Cir. 1935).
Valley Ice & Fuel Co. v. United States, 30 F.3d 635, 640 (5th Cir. 1994).
United States v. MacPhail, 313 F. Supp. 2d 729, 735 (S.D. Ohio 2004).
Id.
United States v. Philadelphia Marine Trade Ass’n/Int’l Longshoreman’s
Ass’n Vacation Fund, 471 F. Supp. 2d 518, 524 (E.D. Pa. 2007). In an
(Shafiroff, Rel. #21, 11/09)
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refund from a taxpayer, a court need not examine the intrinsic merits
of the case.849
Some examples of erroneous refunds850 include misapplied payments (a payment applied to the wrong Taxpayer Identification
Number (TIN)); a taxpayer ’s designated payment posts to the correct
TIN but the wrong type of tax or tax year; a credit refund of any type if
the taxpayer is not entitled; an incorrect tax assessment causing an
incorrect refund; a taxpayer fraudulently or mistakenly receives refunds from more than one TIN for the same tax period; a direct
deposit is applied to the wrong person’s bank account due to IRS error;
the tax liability has been understated due to an error on either a tax
assessment or on an adjustment to the tax liability and the error
results in a refund; errors on refundable or nonrefundable credits that
are subject to the deficiency procedures; the taxpayer overstates their
federal income tax withholding credits or estimated income tax
payments on a return or a claim for refund.
In the past, the Service has taken the position that whether a refund
is a rebate refund or a nonrebate refund affects the procedures it can
employ to recover the refund. However, the courts have disagreed and
in the Eleventh Circuit case of Bilzerian v. United States,851 the court
held that once the tax liability was paid, no erroneous refund could
revive it. The Service is required to follow the section 7405 procedures,
or make a new assessment including issuing a Notice of Deficiency.
The Service acquiesced in the court’s holding that the issuance of an
erroneous refund does not revive an extinguished assessment. 852
One issue that occasionally comes up for financial statement
purposes is whether the company needs to establish a reserve for a
potential erroneous refund situation. Companies need to apply their
facts and circumstances and determine if a reserve would be appropriate in light of their facts.
849.
850.
851.
852.
action to recover an erroneous refund under section 7405, the government
bears the burden of proof. United States v. McFerrin, 492 F. Supp. 2d 695,
701 (S.D. Tex. 2007) (citing United States v. Commercial Nat’l Bank of
Peoria, 874 F.2d 1165, 1169 (7th Cir.1989)).
See United States v. C.E. Mathews, Inc., 59-1 USTC ¶ 9265 (5th Cir.
1959); see also Smyth v. United States, 92 F.2d 900, 37-2 USTC ¶ 9396
(10th Cir. 1937) (untimely payments are to be recovered by the taxpayer or
the Service on the basis of time without regard to the merits of the case).
IRM 21.4.5.2-Examples and Causes of Erroneous Refunds (Oct. 1, 2006).
Bilzerian v. United States, 86 F.3d 1067 (11th Cir. 1996).
AOD 1998-002.
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