We previously discussed the Internal Revenue Service’s (IRS) surprising position that for taxpayers making an election under Internal Revenue Code (Code) Section 965(h) to pay the transition tax over 8 years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full 8 years of installment payments. The IRS’s position has affected many taxpayers, and practitioners have expressed their concerns to the IRS.

On June 4, 2018, the IRS responded to these concerns. Rather than changing its position, the IRS has doubled down; however, the IRS has taken the small but welcome step of allowing some penalty relief for taxpayers affected by the earlier guidance as set forth in new Questions and Answers 15, 16 and 17.

Based on discussions with the IRS, it appears that the IRS’s position is based on the view that it has broad authority under Code Section 6402 to apply overpayments against other taxes owed, and that Code Section 6403 requires an overpayment of an installment payment to be applied against unpaid installments. Thus, the IRS maintains that the Code Section 965 tax liability is simply a part of the tax year 2017 liability, and it is, except for Code Section 965(h) and a timely election thereunder, payable and due by the due date of the 2017 tax return. Any future installments for the Code Section 965 liability are, in the IRS’s view, not part of a tax for a future tax year that has yet to have been determined, as the tax has already been self-assessed by the taxpayer for 2017. Accordingly, the IRS views any overpayments as being applied within the same tax period to the outstanding Code Section 965 tax owed by the taxpayer even though taxpayers making a timely Code Section 965(h) election are not legally required to make additional payments until subsequent years.
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In 2015, after repeated efforts by Nina E. Olson, the National Taxpayer Advocate, Congress enacted the Taxpayer Bill of Rights (TBOR) in Internal Revenue Code (Code) Section 7803(a)(3). We have previously written about TBOR here, here and here.

Since TBOR was enacted, the IRS has issued information on its website regarding the 10 rights contained in Code Section 7803(a)(3). The IRS provides a summary of these rights. Additionally, the IRS has provided specific information on these rights. To summarize, the 10 rights are:

  1. The right to be informed.
  2. The right to quality services.
  3. The right to pay no more than the correct amount of tax.
  4. The right to challenge the position of the Internal Revenue Service and be heard.
  5. The right to appeal a decision of the Internal Revenue Service in an independent forum.
  6. The right to finality.
  7. The right to privacy.
  8. The right to confidentiality.
  9. The right to retain representation.
  10. The right to a fair and just tax system.


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Statutes in the Internal Revenue Code (Code), like statutes in other areas of the law, are filled with terms that invite differing interpretations. As a general rule, a statutory term should be given its normal and customary meaning. This might entail resorting to common dictionary definitions from Webster’s or Black’s Law Dictionary. It might also

Within the Internal Revenue Code (Code) is a rule commonly known as the “mailbox rule” or the “timely mailed, timely filed rule.” Under Code Section 7502(b), the date that an item—including a Tax Court petition—is postmarked and mailed can also be the date the item is considered filed. When an item is received after the filing deadline, the mailbox rule can make all the difference. There are, however, procedural requirements which must be satisfied. In Pearson v. Commissioner, the Tax Court, in a court-reviewed opinion, held that a Tax Court petition mailed with a Stamps.com postage label was timely filed under the mailbox rule.

Taxpayers generally have 90 days to file a petition with the Tax Court after receiving a notice of deficiency. In Pearson, the Tax Court received the taxpayers’ petition one week after the 90-day period expired, but the envelope in which the petition was mailed bore a Stamps.com postage label dated within the 90-day period. The administrative assistant who created the Stamps.com postage label supplied the court with a declaration under penalty of perjury stating that she went to a US Post Office the same day as the postage label date and mailed the petition.
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On September 14, 2017, Cross Refined Coal LLC (Partnership) (and USA Refined Coal LLC as the Tax Matters Partner) filed a Petition in the US Tax Court seeking a redetermination of partnership adjustments determined by the Internal Revenue Service (IRS). According to the Petition, during audit of the 2011 and 2012 tax years, the IRS

Coca-Cola is seeking a re-determination in Tax Court of certain Internal Revenue Service (IRS) transfer-pricing adjustments relating to its 2007–2009 tax years. In the case, the IRS moved for partial summary judgment seeking a ruling that a 1996 Internal Revenue Code Section 7121 “closing agreement” executed by the parties is not relevant to the case before the court.

Closing Agreement Background

Following an audit of the taxpayer’s transfer pricing of its tax years 1987–1989, the parties executed a closing agreement for Coca-Cola’s 1987–1995 tax years. In the closing agreement, the parties agreed to a transfer pricing methodology, in which the IRS agreed that it would not impose penalties on Coca-Cola for post-1995 tax years if Coca-Cola followed the methodology agreed upon. Despite following the agreed-to methodology for its post-1995 tax years, the IRS determined income tax deficiencies for Coca-Cola’s 2007–2009 tax years, arguing that pricing was not arm’s-length.
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As most taxpayers know, under Internal Revenue Code (Code) Section 6501(a), the Internal Revenue Service (IRS) generally has three years after a tax return is filed to assess any additional tax. However, Code Section 6501 provides several exceptions to this rule, including but not limited to the following.

  • False or fraudulent returns with the intent to evade tax (unlimited assessment period)
  • Willful attempt to defeat or evade tax (unlimited assessment period)
  • Failure to file a return (unlimited assessment period)
  • Extension by agreement (open-ended or for a specific period)
  • Adjustments for certain income and estate tax credits (separately provided in specific statutes)
  • Termination of private foundation status (unlimited assessment period)
  • Valuation of gifts of property (unlimited assessment period)
  • Listed transactions (assessment period remains open for one year after certain information is furnished)
  • Substantial omission of items (six-year assessment period)
  • Failure to include certain information on a personal holding company return (six-year assessment period)

If the IRS issues a notice of deficiency and the taxpayer files a petition in the Tax Court, the statute of limitations on assessment is extended until after the Tax Court’s decision becomes final. See Code Section 6503(a); see also Roberson and Spencer, “11th Circuit Allows Invalid Notice to Suspend Assessment Period,” 136 Tax Notes 709 (August 6, 2012).
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Faced with the prospect of potential tax liability after an unsuccessful audit, taxpayers are faced with the options of filing a petition in the US Tax Court (Tax Court) prior to paying the liability or paying the liability, making a claim for refund, and (if denied or more than six months have passed) suing the government for a refund in local district court or the Court of Federal Claims. For taxpayers that select the Tax Court route, sometimes a question later arises as to whether they can seek to dismiss their case in order to refile in a different forum. The problem that arises is that Internal Revenue Code (Code) Section 7459(d) provides that if a Tax Court petition in a deficiency proceeding is dismissed (other than for lack of jurisdiction), the dismissal is considered as a decision that the deficiency is the amount determined by the Internal Revenue Service (IRS).

Taxpayers have attempted to avoid this rule in the past, presumably so that they could refile a lawsuit in another forum either because they believe that forum would be more favorable or because they desire a jury trial (Tax Court cases are bench trial; no juries are allowed). More than 40 years ago, the Tax Court rejected this tactic in Estate of Ming v. Commissioner, 62 TC 519 (1974),  holding that under Code Section 7459(d), a taxpayer who petitions the court for a redetermination of a deficiency may not withdraw a petition to avoid the entry of decision. Specifically, the court held: “It is now a settled principle that a taxpayer may not unilaterally oust the Tax Court from jurisdiction which, once invoked, remains unimpaired until it decides the controversy.” Since Ming, the Tax Court has distinguished its holding in collection due process cases which involve the review of the IRS’s collection action, not the redetermination of a tax deficiency. See Wagner v. Commissioner, 118 TC 330 (2002). The Tax Court has further extended Wagner to non-deficiency cases involving whistleblower claims under Code Section 7623(b)(4) and stand-alone innocent spouse cases under Code Section 6015(e)(1). See Jacobson v. Commissioner, 148 TC No. 4 (Feb. 8, 2017); Davidson v. Commissioner, 144 TC 273 (2015).
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