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Margie Rollinson Becomes First Female IRS Chief Counsel

On March 6, 2024, the Internal Revenue Service (IRS) announced that Margie Rollinson has been sworn in as the 49th chief counsel, making her the first female to take on the role. The position has been vacant since Michael Desmond stepped down on January 20, 2021. It took nearly a year for the US Senate to confirm his appointment. We previously reported on Ms. Rollinson’s nomination to the top job.

Ms. Rollinson began her career at Ernst & Young (EY) in 1987, became a partner in 1997 and was eventually named Deputy Director of the National Tax Department, where she also led the International Tax Technical Committee.

In 2013, Ms. Rollinson left EY and joined the IRS Office of Chief Counsel as the Technical Deputy Associate Chief Counsel in the Office of the Associate Chief Counsel International. In 2016, she was named Associate Chief Counsel International and oversaw 100 tax lawyers responsible for issuing published guidance and providing technical guidance.

Practice Point: The IRS Chief Counsel position is appointed by the President of the United States (with the advice and consent of the Senate) and serves as the chief legal advisor to the IRS Commissioner on all matters pertaining to the interpretation, administration and enforcement of the Internal Revenue Code. Under the Internal Revenue Service Restructuring and Reform Act of 1998, the Chief Counsel reports to both the IRS Commissioner and the General Counsel of the Department of Treasury.




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Can the Government Sue for Tax Debts Outside Internal Revenue Code Procedures?

On June 1, 2023, in United States v. Liberty Global, Inc., the US District Court for the District of Colorado held that the US Department of Justice (DOJ) can assert and seek judgment for federal income tax deficiencies using a common law right of action, bypassing the usual statutory tax deficiency procedures outlined in the Internal Revenue Code (IRC). This decision might encourage the DOJ to seek tax collections through court judgments moving forward without following the IRC’s deficiency procedures.

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Late CDP Petitions May Still Be Entitled to Tax Court Review

In a unanimous decision in Boechler, P.C. v. Commissioner issued on April 21, 2022, the Supreme Court of the United States reversed the US Court of Appeals for the Eighth Circuit’s ruling (which affirmed the US Tax Court) and held that the 30-day time limit to file a petition with the Tax Court in a collection due process (CDP) case is a non-jurisdictional deadline subject to equitable tolling. The Supreme Court remanded the case to determine whether the taxpayer is entitled to equitable tolling.

The one-day-late showdown started in 2015, when the Internal Revenue Service (IRS) notified Boechler, P.C. (Boechler), a North Dakota law firm, of a tax discrepancy. Boechler did not respond, which triggered the assessment of an “intentional disregard” penalty along with a notice that the IRS intended to seize Boechler’s property to satisfy the penalty. Boechler requested a CDP hearing before the IRS Independent Office of Appeals (IRS Appeals), arguing that: (1) there was no discrepancy in its tax filings and (2) the penalty was excessive. IRS Appeals rejected these arguments and sustained the proposed levy. Boechler then had 30 days to file its Tax Court petition but missed the deadline by one day. The Tax Court dismissed the petition for lack of jurisdiction, holding that the 30-day filing deadline is jurisdictional and cannot be equitably tolled. The Eighth Circuit affirmed.

The Supreme Court granted certiorari. The US government argued that the deadline was jurisdictional and the Tax Court lacks the power to accept a tardy filing by applying the doctrine of equitable tolling. Boechler argued that equitable tolling applied, and the Tax Court had jurisdiction over its case. The Supreme Court, continuing a trend of distinguishing between claim processing rules and jurisdictional rules, agreed with Boechler.

Internal Revenue Code (Code) Section 6330(d)(1) states, “[t]he person may, within 30 days of a determination under this section, petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter).” The Supreme Court explained that a procedural requirement is treated as jurisdictional “only if Congress ‘clearly states’ that it is” Arbaugh v. Y & H Corp., 546 U. S. 500, 515 (2006), although US Congress need not “incant magic words.” Sebelius v. Auburn Regional Medical Center, 568 U. S. 145, 153 (2013).

The Supreme Court clarified that the question was whether the statutory language limits the Tax Court’s jurisdiction to petitions filed within that timeframe. That answer turned on the meaning of the phrase “such matters.” The first independent clause explains what a taxpayer may do, (“The person may, within 30 days of a determination under this section, petition the Tax Court for review of such determination.”) However, the phrase “such matters” does not clearly mandate the jurisdictional reading and lacks clear antecedent. In addition, the Supreme Court also explained that Code Section 6330(d)(1) lacked in comparable clarity as to other tax provisions enacted around the same time. Finally, the Supreme [...]

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An Update on Section 6751 Penalties

Tax penalties are always a hot topic here. The Internal Revenue Service (IRS) has a large arsenal when it comes to grounds for asserting penalties on income tax deficiencies, ranging from the common 20% penalty under Internal Revenue Code (Code) Section 6662(a) to higher penalties ranging from 40% (gross valuation or basis misstatements and economic substance) to 75% (fraud).

However, before the IRS can assert most penalties against taxpayers, it must comply with the procedural requirement in Code Section 6751(b): That the “initial determination” to assert the penalty be “personally approved (in writing) by the immediate supervisor of the individual making such determination.” As the US Court of Appeals for the Second Circuit explained in Chai v. Commissioner, US Congress imposed this requirement because it “believes that penalties should only be imposed where appropriate and not as a bargaining chip” and “[t]he statute was meant to prevent IRS agents from threatening unjustified penalties to encourage taxpayers to settle.”

Over the past several years, there has been substantial litigation over the proper interpretation and application of Code Section 6751(b). The US Tax Court’s recent opinion in Oxbow Bend, LLC v. Commissioner is the latest development. In Oxbow Bend, the Tax Court rejected the taxpayer’s position that the “initial determination” was made on the date that the examining agent prepared a penalty lead sheet reflecting her recommendation to assert penalties and stated in a telephone conference with the taxpayer’s representative on that same day that penalties were being considered. Approximately three months later, the examining agent’s supervisor approved the penalty lead sheet, and the IRS issued a Notice of Final Partnership Administrative Adjustment asserting the penalties. The Tax Court, relying on its prior precedent, held that the word “determination”:

  1. “has an established meaning in the tax context and denotes a communication with a high degree of concreteness and formality”
  2. “signifies a consequential moment of IRS action”
  3. is not a “mere suggestion, proposal, or initial informal mention of penalties”
  4. “will be embodied in a formal written communication that notifies the taxpayer of the decision to assert penalties.”

Thus, under the Tax Court’s analysis, an “initial determination” can only be made in a “written” document that is provided to the taxpayer.

Oxbow Bend is a memorandum opinion of the Tax Court and, therefore, is limited to its facts and technically not precedential, as we have discussed in the past. However, memorandum opinions are often cited by litigants, and the Tax Court does not disregard these types of opinions lightly. One has to wonder whether, under different facts where an examining agent makes an explicit oral statement to a taxpayer that penalties “will” be asserted, courts might reach a different result given Congress’s express intent that examining agents should not threaten penalties and use them as a bargaining chip for settlement purposes. Further, Code Section 6751(b) expressly requires that the supervisory approval be “in writing” but contains a written requirement for purposes of the [...]

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District Court Vacates, Sets Aside IRS Reportable Transaction Notice

The fallout from taxpayer challenges to the Internal Revenue Service’s (IRS) “reportable transaction” regime continues. On March 21, 2022, the district court in CIC Servs., LLC v. IRS ruled in favor of the taxpayer, vacating Notice 2016-66 and ordering the IRS to return all documents and information produced pursuant to Notice 2016-66 to taxpayers and material advisors.

We previously posted about the Supreme Court of the United States’ decision in CIC Servs., LLC v. IRS, which allowed a pre-enforcement challenge to the IRS’s reportable transaction regime. On remand, the parties filed cross-motions for summary judgment. The district court, relying on Mann Construction, Inc. v. United States, explained that the “Sixth Circuit’s analysis in Mann Construction is binding on this Court and applies equally to the arguments advanced by the IRS regarding Notice 2016-66 in this case.” The court dealt the IRS another blow, holding that Notice 2016-66 had to also be set aside as an agency action that was arbitrary and capricious: “[s]imply including cases in the administrative record that suggest certain tax structures could be abusively employed is not synonymous with examining relevant facts and data in connection with issuing the Notice.” In determining the appropriate relief, the court rejected the IRS’s request to limit vacatur of the Notice to CIC, explaining that “vacating the Notice in its entirety is appropriate” and citing the US Court of Appeals for the Sixth Circuit’s prior statement that the IRS “do[es] not have a great history of complying with APA procedures, having claimed for several decades that their rules and regulations are exempt from those requirements” (See CIC Servs., LLC v. IRS, 925 F.3d 247, 258 (6th Cir. 2019) quoting Kristin E. Hickman & Gerald Kersa, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683, 1712-13 (2017)).

Practice Point: The assault on the IRS’s reportable transaction regime is far from over. We recently posted about the Sixth Circuit’s opinion in Mann Construction in which it held that Notice 2007-83, which required disclosure of listed transactions relating to certain employee benefit plans, violated the Administrative Procedure Act (APA). APA challenges continue to expand to other IRS notices that bypassed the notice-and-comment requirement, including Notice 2017-10, which identifies certain syndicated conservation easement transactions as listed transactions subject to disclosure to the IRS. These developments will certainly have a significant impact on taxpayers and material advisors’ responsibilities as we move into the tax filing season.




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