The Tax Court in Brief December 26, 2021 – January 1, 2022

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The Tax Court in Brief

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation: The Week of December 26, 2021 – January 1, 2022


Ahmed v. Comm’r, T.C. Memo. 2021-142

December 28, 2021 | Thornton, J. | Dkt. No. 12876-18L

Opinion

Short SummaryThe IRS filed a notice of federal tax lien against Mr. Ahmed with respect to his 2013, 2014, 2015, and 2016 Forms 1040 tax years and certain trust fund recovery penalties assessed against him under section 6672 of the Code (TFRPs). Mr. Ahmed later paid the 2013, 2014, 2015, and 2016 Forms 1040 taxes—and the Tax Court granted the IRS’s motion to dismiss these years as moot, leaving only the TFRPs.  After Mr. Ahmed received a supplemental Appeals hearing, he sent a check to the IRS in the amount of $625,000 with a letter that stated that the $625,000 was a “cash bond deposit” under Rev. Proc. 2005-18.  The IRS received the payment and applied it against the outstanding TFRPs.  The IRS then moved to dismiss the remainder of the case in Tax Court on grounds of mootness.

Key IssuesWhether a taxpayer’s CDP case becomes moot when the taxpayer submits a “cash bond deposit” for TFRPs while the case is pending in the Tax Court.

Primary Holdings:  A taxpayer’s case becomes moot when a taxpayer makes full payment of the liabilities at issue while the case is pending in Tax Court.  In this case, because the taxpayer concedes that it was not a deposit under section 6603, the payment to the IRS constituted full payment and resolved the outstanding liabilities.

Key Points of Law:

InsightThe Ahmed case shows how super technical the relevant statutory provisions are in a CDP case.  If a taxpayer wants to ensure that the Tax Court continues to have jurisdiction over the CDP claims, the taxpayer should ensure that full payment of the tax liabilities at issue has not been made.


Brian K. Bunton and Karen A. Bunton, v. Comm’r, T.C. Memorandum 2021-141

December 28, 2021 | Weiler, J. | Dkt. No. 20438-19L 

Short SummaryThe main issue, in this case, is whether the IRS abused its discretion when sustaining a notice of levy issued to the taxpayers.

Brian K. Bunton and Karen A. Bunton (the taxpayers), filed an income tax return for 2016 attaching two Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc., jointly with a letter stating tax protestor arguments concluding that the “payments made to us by these private sector companies did not result from any taxable activity and do not constitute any taxable income under relevant law”.

The IRS began an examination on the return and determined that the taxpayers had unreported income in the amount of the missing W-2s. The IRS also submitted an “Address Information Request” to the U.S. Postal Service to confirm the taxpayers’ address. The IRS sent a statutory notice of deficiency to the taxpayers. The taxpayers did not challenge such notice in the Tax Court.

After 1 year, the IRS sent a levy notice to the taxpayers informing on their right to request a CDP hearing, which was requested timely. Taxpayers did not include their telephone number and on Form 12153, they requested a face-to-face hearing. A settlement officer (SO) was assigned to the case, who reached out to the taxpayers and requested financial information to be considered for a collection alternative. Taxpayers responded by requesting abatement of taxes because violated “certain Internal Revenue Code” claiming that the notice of deficiency was void as a matter of law because it did not contain a written declaration under penalty of perjury. The taxpayers did not attend their CDP and Appeals issued a Notice of Determination Concerning Collection Actions for tax years 2016 (notice of determination) sustaining the levy notice. The taxpayers filed suit in Tax Court to challenge such notice and to contest the tax liability. The Court ruled against the taxpayers.

Key Issues: Whether the IRS abused its discretion when sustaining the levy notice issued to the taxpayers.

Primary Holdings: The IRS did not abuse its discretion when sustaining the levy notice.

Key Points of Law:

The Tax Court has jurisdiction to review the determination of Appeals in a CDP case. I.R.C. 6330(d)(1). In a CDP case, a taxpayer generally challenges the determinations made by Appeals. the taxpayer can challenge the underlying tax liability only if he did not receive a notice of deficiency or had a prior opportunity to contest the liability. I.R.C. 6330(c)(2)(B); see Sego v. Commissioner, 114 T.C. 604 , 609 (2000). If the underlying tax liability is properly at issue, the Court reviews de novo. Goza v. Commissioner, 114 T.C. 176 , 181-182 (2000). For any other determination made by Appeals, the Court reviews only for abuse of discretion. Craig v. Commissioner, 119 T.C. 252 , 260 (2002).

Abuse of discretion exists if the determination was arbitrary, capricious, or without sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. 301 , 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).

Here, the taxpayers challenged both the tax liability and the determination sustaining the levy:

Here, the IRS mailed a notice to the taxpayers’ last known address and to the POA on file. Moreover, the IRS did verify the address of the taxpayers with the U.S. Postal Service. Accordingly, the Court determined that the IRS exercised reasonable diligence in determining that the copies of the notice of deficiency were properly sent to the petitioner’s last known address.

In this regard, the levy was sustained because the levy of the State tax refund was proper under I.R.C. 6330(f)(2). In this case, the levy was imposed on the State tax refund, falling squarely under this provision.

As for the remaining determination concerning the IRS failure to contact the taxpayers before the date of their scheduled CDP hearing, the Court determined that the correspondence between the IRS to the taxpayers, requiring the filing of tax returns, requesting information, among others, constituted their CDP hearing. See Kipp v. Commissioner, T.C. Memo. 2015-7.

As for the balance need for efficient collection with the concern of the taxpayer that the collection action is not more intrusive than necessary, the Court determined that the IRS’ actions were proper considering the fact that the petitioners never submitted the requisite financial information or outstanding tax returns. Thus the analysis was properly made on the available information to the IRS.

Insight:  This case only adds to the long list of tax protestor cases. Taxpayers should be aware of “information” available on the web, that favors not filing of a tax return or not reporting income. This case only shows that such arguments would not be fruitful in Court and moreover, will put the taxpayers in situations that can be avoided by a correct filing and proper tax advice.


Whistleblower 15977-18W v. Comm’r, T.C. Memo. 2021-143 

December 29, 2021 | Guy, J. | Dkt. No. 15977-18W

Opinion

Short SummaryThe whistleblower submitted a Form 211, Application for Award for Original Information, to the IRS.  In Form 211, the whistleblower identified a target, which according to the whistleblower, was a dual citizen of the United States and Country X and was subject to, but failed to pay, substantial amounts of various Federal taxes.  The IRS Whistleblower Office (WBO) reviewed the information and denied an award under section 7623(a).  The whistleblower filed a petition with the United States Tax Court, and the IRS sought summary judgment on the claim.  The whistleblower filed an opposition to the summary judgment motion and also a separate motion to remand to perfect the claim.

Key Issues: Whether the WBO followed the correct procedure in reaching its determination to reject the Whistleblower’s request for an award.

Primary HoldingsThe court granted the Commissioner’s summary judgment motion because the WBO’s determination was adequately supported, and the whistleblower failed to provide specific and credible information to support the award.  The court denied the whistleblower’s motion to remand.  While the whistleblower is free to perfect the claim and resubmit it, the WBO is not required to permit a whistleblower to do so within the context of this action.

Key Points of Law

Insight: While this Whistleblower has the opportunity to perfect his claim and resubmit it to the Whistleblower Office, he will he need specific, credible evidence to support his claim for an award.


Starcher v. Comm’r, T.C. Mom 2021-144 

December 30, 2021 | Lauber, J. | Dkt. No. 12356-20L

Opinion

Short Summary:  This is a collection due process (“CDP”) hearing in which the taxpayer contests an IRS determination upholding the filing of a Notice of Intent to Levy (the “Levy Notice”) as to the taxpayer’s 2014 tax year.  Ultimately, the Tax Court finds that the taxpayer was not eligible to contest her tax liability in the CDP hearing and that the IRS did not abuse its discretion in upholding the levy notice

Key Issues:

Facts and Primary Holdings

Key Points of Law:

InsightThe rules regarding challenging an underlying tax liability at a CDP hearing are fairly strict.  If a taxpayer had the opportunity prior to the CDP hearing to contest that liability – an opportunity that is usually presented by a notice of deficiency (as it was here) – then they will not be able to challenge that tax liability at the CDP hearing.  It is imperative that a taxpayer timely respond to a notice of deficiency in order to preserve their rights to have the Tax Court consider their case.


 Pfetzer v. Comm’r, TC Memo. 2021-145

 December 30, 2021 | Pugh, J. | Dkt. No. 10346-18L
Opinion

Short Summary: Mr. Pfetzer (“Petitioner”) did not file federal income tax returns for 2004 through 2012. The Internal Revenue Service (“IRS”) prepared substitutes for returns and assessed tax for each of these years. Petitioner did not pay the assessed tax liabilities.

In June 2016, the IRS sent a petitioner a Notice of Federal Tax Lien Filing (“NFTL”) covering the unpaid tax liabilities. In response, Petitioner timely submitted a request for collection due process (“CDP”) hearing, arguing in part that he did not owe the asserted tax for 2010 and 2011 and that he wanted verification that the IRS had complied with all legally required procedures.

In September 2016, a settlement officer (“SO”) contacted Petitioner and requested that he submit tax returns for 2010 and 2011 as well as additional information and returns if he wanted to be considered for collection alternatives. Petitioner responded by challenging the tax assessments for 2004 through 2012. Petitioner questioned whether the IRS had properly issued notices of deficiency for these years and asserted that he had never received any such notices.

On April 23, 2018, the IRS issued a notice of determination sustaining the NFTL filing. In reaching this conclusion, the SO looked at computerized transcripts that showed that notices of deficiency were sent to Petitioner’s last known address.

Petitioner filed a petition with the Tax Court challenging the notice of determination and arguing in part that the SO failed to verify that all legal and administrative requirements were followed.

The IRS filed a motion for summary judgment, which the Court denied, remanding the case to IRS Appeals. The Court noted that there remained questions regarding what was in the administrative record and what the SO relied upon to verify that all legal and administrative requirements were met. Specifically, the Court pointed out precedent stating that when a taxpayer alleges that the notice of deficiency was not mailed, it is insufficient for the IRS merely to consult transcripts to verify the proper mailing of the notice of deficiency. Instead, the IRS must look to “underlying documents in addition to the tax transcripts, such as the taxpayer’s return, a copy of the notice of deficiency, and the certified mailing list.”

On remand, Petitioner continued to assert that he had not received notices of deficiency for any of the years at issue. The SO argued that Petitioner could not challenge the underlying tax liabilities. Ultimately, IRS appeals sustained the NFTL filing. In a supplemental notice of determination, the SO stated that she had relied on transcripts to verify that the notices of deficiency had been sent to Petitioner.

Petitioner and the IRS filed a joint motion to submit the case under Tax Court Rule 122, Submission Without Trial, along with a joint stipulation of facts with accompanying exhibits. The stipulated record did not include the IRS’s complete administrative record, any notice of deficiency, or proof of mailing to Petitioner’s last known address.

Key Issues

Primary Holdings

Key Points of Law

InsightsPfetzer demonstrates the importance of taxpayers’ demanding that the IRS prove that it has complied with all legal and administrative requirements that are necessary for the IRS to be able to take the action in question.


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