A recent case decided by the US Tax Court reminds us that when you litigate a case in Tax Court, what happened during the Internal Revenue Service (IRS) examination and Appeals bears very little relevance (if any) once you get to court. Generally, Tax Court’s proceedings are de novo, and the court looks solely to the IRS’s position in the Notice of Deficiency (Notice). The Revenue Agent’s Report and other statements made by the IRS before the issuance of the Notice are typically ignored.

In Moya v. Commissioner, 152 TC No. 11 (Apr. 17, 2019), the IRS determined deficiencies related to the disallowance of certain business expense deductions. The taxpayer did not assign error to the disallowance, but instead argued that the Notice was invalid because the IRS had violated her right to be informed and her right to be heard under an IRS news release and an IRS publication outlining various rights of taxpayers. Specifically, the taxpayer asserted that she had requested that her examination proceedings be transferred to California after she had moved from Las Vegas to Santa Cruz, and that the IRS had violated the her rights by providing vague and inconsistent responses to, and by ultimately denying, her request.
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Taxes and tax litigation can be complex and confusing. Taxpayers have the option of filing a petition in the United States Tax Court (Tax Court) prior to payment of any asserted deficiency. Alternatively, taxpayers can pay the deficiency, file a claim for refund with the Internal Revenue Service and, if that claim is denied or

Andrew Roberson and Elizabeth Chao recently wrote an article for Law360 entitled, “A Recent Tax Court View Of Statute Of Limitations Provisions.” The article discusses the Tax Court’s recent opinion in Rafizadeh v. Commissioner on statute of limitations for amounts reportable under Internal Revenue Code Section 6038D.

Read the full coverage on Law360 here.

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

The issue of whether a valid tax return has been filed usually comes up in the context of individuals. One common situation involves taxpayers who file so-called zero returns or returns with an altered jurat and protest paying any taxes. Another common situation, which has received substantial attention lately, involves whether a tax return filed after an assessment by the Internal Revenue Service (IRS) is a “return” for purposes of the Bankruptcy Code. We previously posted on the latter.

This post focuses on the uncommon situation where the IRS disputes whether a corporate taxpayer filed a valid return. As we have previously discussed, in the widely cited Beard v. Commissioner, 82 TC 766 (1984), the Tax Court defined a four-part test (the Beard Test) for determining whether a document constitutes a “return.” To be a return, a document must: (1) provide sufficient data to calculate tax liability; (2) purport to be a return; (3) be an honest and reasonable attempt to satisfy the requirements of the tax law; and (4) be executed by the taxpayer under penalties of perjury. This test applies to all types of taxpayers, and its application to corporate taxpayers was recently highlighted in New Capital Fire, Inc. v. Commissioner, TC Memo. 2017-177.

In New Capital Fire, Capital Fire Insurance Co. (Old Capital) merged into New Capital Fire, Inc. (New Capital), with New Capital surviving, on December 4, 2002. The merger was designed to be a tax-free reorganization under Internal Revenue Code (Code) Section 368(a)(1)(F). Old Capital did not file a tax return for any part of 2002 and New Capital filed a tax return for 2002 which included a pro forma Form 1120-PC, US Property and Casualty Insurance Company Income Tax Return, for Old Capital’s 2002 tax year. The IRS issued Old Capital a notice of deficiency in 2012 determining that Old Capital was required to file a return for the short tax year ending December 4, 2002, because the merger failed to meet to reorganization rules.
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The Internal Revenue Service (IRS) and taxpayers frequently spar over the meaning and interpretation of tax statutes (and regulations). In some situations, one side will argue that the statutory text is clear while the other argues that it is not and that other evidence of Congress’ intent must be examined. Courts are often tasked with determining which side’s interpretation is correct, which is not always an easy task. This can be particularly difficult where the plain language of the statute dictates a result that may seem unfair or at odds with a court’s views as the proper result.

The Tax Court’s (Tax Court) recent opinion in Borenstein v. Commissioner, 149 TC No. 10 (August 30, 2017), discussed the standards to be applied in interpreting a statute and reinforces that the plain meaning of the language used by Congress should be followed absent an interpretation that would produce an absurd result.

In Borenstein, the taxpayer made tax payments for 2012 totaling $112,000, which were deemed made on April 15, 2013. However, she failed to file a timely return for that year and the IRS issued a notice of deficiency. Before filing a petition with the Tax Court, the taxpayer submitted return reporting a tax lability of $79,559. The parties agreed that this liability amount was correct and that the taxpayer had an overpayment of $32,441 due to the prior payments. However, the IRS argued that the taxpayer was not entitled to a credit or refund of the overpayment because, under the plain language of Internal Revenue Code Sections 6511(a) and (b)(2)(B), the tax payments were made outside the applicable “lookback” period keyed to the date the notice of deficiency was mailed.
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Taxpayers can choose whether to litigate tax disputes with the Internal Revenue Service (IRS) in the US Tax Court (Tax Court), federal district court or the Court of Federal Claims. Claims brought in federal district court and the Court of Federal Claims are tax refund litigation: the taxpayer must first pay the tax, file a claim for refund, and file a complaint against the United States if the claim is not allowed. Claims brought in the Tax Court are deficiency cases: the taxpayer can file a petition against the IRS Commissioner after receiving a notice of deficiency and does not need to pay the tax beforehand.

As demonstrated in the chart below, approximately 97 percent of tax claims are instituted in the Tax Court. It should be noted that, after a taxpayer files a petition in Tax Court, the taxpayer no longer has the option of bringing the claim in any other court for the year(s) at issue.

Tax Court Versus Tax Refund Litigation

Source: https://www.irs.gov/uac/soi-tax-stats-chief-counsel-workload-tax-litigation-cases-by-type-of-case-irs-data-book-table-27


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On April 4, 2017, QinetiQ U.S. Holdings, Inc. petitioned the US Supreme Court to review the US Court of Appeals for the Fourth Circuit’s decision that the Administrative Procedure Act of 1946 (APA) does not apply to the Internal Revenue Service (IRS) Notices of Deficiency. We previously wrote about the case (QinetiQ U.S. Holdings, Inc. v. Commissioner, No. 15-2192) here, here, here and here. To refresh, the taxpayer had argued in the US Tax Court that the Notice of Deficiency issued by the IRS, which contained a one-sentence reason for the deficiency determination, violated the APA because it was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” The APA provides a general rule that a reviewing court that is subject to the APA must hold unlawful and set aside an agency action unwarranted by the facts to the extent the facts are subject to trial de novo by the reviewing court. The Tax Court disagreed, emphasizing that it was well settled that the court is not subject to the APA and holding that the Notice of Deficiency adequately notified the taxpayer that a deficiency had been determined under relevant case law. The taxpayer appealed to the 4th Circuit, which ultimately affirmed the Tax Court’s decision.
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