The Tax Court in Brief August 22 – August 28, 2020

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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.

The Week of August 22 – August 28, 2020


Swanberg v. Comm’r, T.C. Memo. 2020-123 

August 25, 2020 | Lauber, J. | Dkt. No. 10266-19L

Short SummaryMr. Swanberg filed a 2013 return but failed to pay in full the tax reported on the return.  The IRS later issued him IRS Letter 11, Notice of Intent to Levy and Notice of Your Right to a Hearing.  Mr. Swanberg timely requested a Collection Due Process (CDP) hearing.  During the hearing, he contended that the proposed levy was premature because the IRS had failed to adjust his tax liabilities for other tax years going back to 2000.  In addition, he expressed an interest in entering into an offer in compromise or installment agreement.

During the CDP hearing, the Settlement Officer (SO) reviewed Mr. Swanberg’s tax transcripts as far back as 2000 and determined that he did not have any overpayments or credits.  In addition, the SO reviewed the financial information Mr. Swanberg submitted and determined that:  (1) he did not qualify for an OIC; and (2) he could make monthly payments of $2,471.  Mr. Swanberg declined the SO’s offer for an installment agreement of $2,471.  Thereafter, the IRS issued a notice of determination sustaining the levy.    

Key Issue:  Whether the SO abused her discretion in concluding that the proposed levy action was appropriate.

Primary Holdings

Key Points of Law:

InsightAs Swanberg shows, the Tax Court’s review of collection alternatives proposed by a taxpayer during a CDP hearing is extremely deferential to the IRS.  Because of this deferential standard, taxpayers should strive to obtain as favorable of a collection alternative as possible during the pendency of the CDP hearing.


Rivas v. Comm’r, T.C. Memo. 2020-124 

August 25, 2020 | Greaves, J. | Dkt. No. 15742-19

Short SummaryThe IRS mailed a notice of deficiency to Ms. Rivas on May 21, 2019.  The notice of deficiency was sent to her last known address and the address that she used on her petition with the Tax Court.  The Tax Court received Ms. Rivas’ petition on August 27, 2019, in an envelope bearing a U.S. Postal Service postmark of August 20, 2019.

The IRS filed a motion to dismiss the petition on the ground that it was not filed within the 90-day filing period under Section 6213(a).  Specifically, the IRS argued that the 90-day period expired on August 19, 2019, and that Ms. Rivas’ petition was one day late.  In response, Ms. Rivas argued that her attorney had “dropped . . . [the petition] in the United States Mail Drop Box on the night of August 19, 2019.”  Ms. Rivas also argued that the 90-day period to file a petition with the Tax Court is a “claims processing rule” and subject to equitable tolling.

Key Issue:  Whether the Tax Court has jurisdiction to hear Ms. Rivas’ case.

Primary Holdings

Key Points of Law:

InsightThe Rivas decision acts as a cautionary tale for taxpayers to strictly comply with the Tax Court’s statutory jurisdictional requirements.  When mailing a petition to the Tax Court, taxpayers should ensure they keep documentary proof that the petition was timely filed through delivery to the United States Postal Service.


Whistleblower v. Comm’r, 155 T.C. No. 2

August 26, 2020 | Toro, E.

Dkt. Nos. 21276-13W, 21277-13W

 Short SummaryPetitioner originally filed a suit against the IRS asking the Tax Court to consider whether they could be eligible for a whistleblower award, when they had not approached the Whistleblower Office until after the Government had collected approximately $74 million from a targeted business pursuant to a plea agreement and which the Petitioner asserted they had contributed to the Government’s recovery.   The Tax Court held that Petitioner could be considered for the whistleblower award and instructed the IRS to consider the merits of Petitioner’s claim.  The IRS and Petitioner agreed that Petitioner was eligible for a total award of 24% of the collected proceeds, however the parties could not agree whether certain amounts were collected proceeds for the purposes of the award.  The parties also agreed that any award would be reduced by a sequester reduction percentage.  The Tax Court then issued a second opinion determining the total amount of the collected proceeds for the purposes of the whistleblower award.  After Petitioner had received all the payments by the Government, it filed motions with the Tax Court asking the court to enforce its previous two decisions without the sequester reductions.  The IRS denied Petitioner’s motions finding that the Petitioner was not entitled to the relief requested.

Key Issue:  Does the Tax Court have the jurisdiction over whistleblower decisions with respect to appeals of the amount awarded, and does it have the authority to enforce such decisions.

Primary Holdings

Key Points of Law:

InsightThis case highlights and solidifies the Tax Court’s jurisdiction over whistleblower actions with respect to appeals of award determinations.  It also illustrates that the Tax Court has authority to enforce its decisions.


TGS-NOPEC Geophysical Company & subsidiaries v. Comm’r, 155 T.C. No. 3. 

August 26, 2020 | Paris, J. | Dkt. No. 28140-14

Short SummaryThe case involves the analysis and discussion of the provisions related to the activities that qualify as domestic production activities, pursuant to section 199. Specifically, the Court analyzes whether the sale or license of processed seismic data meets the definition of Qualifying Production Property (QPP) for purposes of calculating the Domestic Production Gross Receipts (DPGR) and hence to determine the amount of the domestic production deduction allowed to TGS-NOPEC Geophysical Company & subsidiaries (the “taxpayer”)

In 2008 the taxpayer, a company specialized in the processing and licensing of seismic data to companies in the oil and gas industry, claimed a Domestic Production Activities Deduction (DPAD) in accordance to section 199. Such deduction was based on the grounds that its gross receipts from the sale or license of processed seismic data constituted DPGR. The taxpayer position was that the processed seismic data met the QPP definition either as tangible personal property or sound recordings produced in the U.S. or as engineering services performed in the U.S. with respect to the construction of real property in the U.S. The IRS disagreed with that position and denied the deduction.

To determine whether the DPAD was allowed, the Court first analyzed if the processed seismic data sale or license by the taxpayer fall within the concept of QPP as provided by section 199(c)(5). For such purposes, the Tax Court focused the analysis on the definition of (i) tangible personal property as defined in section 199(c)(5) and the concept of (ii) sound recordings as described in section 168(f)(4). Additionally, the Court analyzed whether the processing carried by the taxpayer fall within the concept of engineering services performed with respect to construction of real property in the U.S as provided by section 199(c)(4).

The Tax Court rejected the taxpayer’s position that the processed seismic data qualified as tangible property or sound recording. However, the Tax Court agreed with the taxpayer, that the processing of seismic data constituted engineering services with respect to the construction of real property in the U.S.

Key Issues:  Does the processed seismic data qualifies as tangible personal property or sound recording under the definition of section 199(c)(5)? Does the processing of such data qualify as engineering services performed in the U.S. with respect to the construction of real property as provided by 199(c)(4)?

Primary Holdings: Processed seismic data is not QPP because such property is not tangible nor a sound recording. The processing of such data qualifies as engineering services performed in the U.S. with respect to the construction of real property. However, the processing of the taxpayer’s parent company data for clients of the parent company does not constitute DPGR.

Key Points of Law:

Section 199 provides a deduction for a specific percentage of the lesser of “qualifying production activities income” (QPAI) or the taxpayer’s income. QPAI is the excess of the taxpayer’s DPGR over the sum of COGS allocable to such receipts and other expenses. DPGR means the gross receipts that the taxpayer derives from any lease, rental, license, sale, exchange, or other disposition of QPP. For this purpose, QPP includes tangible personal property and sound recordings as defined in section 168(f)(4).

To determine that the processed seismic data does not fall within the concept of QPP, the Court reasoned as follows:

Because the taxpayer argued alternatively that the processing of seismic data constitutes engineering services with respect to construction of real property in the U.S., which constitute DPGR, the Court reasoned as follows:

InsightThis case makes evident the strict application of the concepts used in section 199 and allows to confirm the distinction set up by Texas Instruments I and II. This distinction is relevant to establish the type of items that the taxpayer may use in the planning, specifically to obtain the more benefit from a deduction. Analysis of the specific concepts should be construed strictly to meet the requirements provided by the Code and relevant in other similar areas like the DISC section.


Van Bemmelen v. Comm’r, 155 T.C. No. 4

August 27, 2020 | Thornton, J. | Dkt. No. 19787-18W

Short SummaryOn March 12, 2018, Dr. Van Bemmelen’s attorney submitted to the IRS Whistleblower Office (WO) a completed Form 211, Application for Award for Original Information.  The IRS reviewed the claim and determined that the allegations were “not specific, credible or . . . [were] speculative[.]”  Accordingly, the IRS issued a letter entitled “FINAL DECISION UNDER SECTION 7623(a)” which denied any award to Dr. Van Bemmelen.

Dr. Van Bemmelen timely filed a petition with the Tax Court in response to the IRS’ determinations in the letter.  The IRS filed a motion for summary judgment, which was opposed by Dr. Van Bemmelen.  Later, Dr. Van Bemmelen filed a motion to supplement the record, in addition to a first supplement to motion to supplement the record, requesting that the administrative record be supplemented with two items that were not included in the materials the IRS certified as the administrative record:  a 2012 document and a 2019 docuement.  The IRS filed an opposition to the motions.

Key Issue:  Whether:  (1) the administrative record should be supplemented; and (2) the IRS’ motion for summary judgment should be granted.

Primary Holdings

Key Points of Law:

InsightThe Van Bemmelen decision shows the significance of ensuring the administrative record is complete and also the hardship tax whistleblowers have in receiving an award where the IRS refuses to act on the whistleblower information.

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