United States Tax Court

On Friday, September 15, the Tax Court announced that it will be holding its 2018 Judicial Conference in Chicago, Illinois, on the campus of Northwestern University’s Pritzker School of Law on March 26-28, 2018. The press release provides:

The 2018 Tax Court Judicial Conference will be held in Chicago, Illinois, on the campus of Northwestern University’s Pritzker School of Law on Monday evening, March 26, 2018, Tuesday, March 27, 2018 (entire day), and Wednesday, March 28, 2018 (half day). The purpose of the judicial conference is to provide attendees with the opportunity to (1) review and discuss issues of material interest regarding the tax litigation process, (2) discuss ways in which the tax litigation process in the Court may be improved, and (3) network with fellow Tax Court practitioners. In addition to the Judges of the United States Tax Court, the Court intends to invite representatives from the Internal Revenue Service, the Department of Justice, private practice, low-income taxpayer clinics, academia, Capitol Hill, and other courts. A variety of plenary and breakout sessions will address issues relevant to practice before the Court.

Applications to attend the 2018 Tax Court Judicial Conference will be accepted from September 15, 2017, through November 15, 2017. An application form is available on the Court’s website at http://www.ustaxcourt.gov/judicial_conference_application.pdf. Please note that space is limited, and the Court may not be able to extend an invitation to all those who apply.

We have attended the Tax Court Judicial Conference on several occasions and have spoken on panels at the conference. The material presented is extremely informative and provides a unique opportunity to personally interact with judges and fellow Tax Court practitioners. Applications are being accepted from now through November 15, 2017, either by email or regular mail. If you plan to attend, please send us an email so we can say hello!

We previously posted on what we called the “issue of first impression” defense to penalties and the recent application of this defense by the United States Tax Court (Tax Court) in Peterson v. Commissioner, a TC Opinion. We noted that taxpayers may want to consider raising this defense in cases where the substantive issue is one for which there is no clear guidance from the courts or the Internal Revenue Service. Yesterday’s Memorandum Opinion by the Tax Court in Curtis Investment Co., LLC v. Commissioner, addressed the issue of first impression defense in the context of the taxpayer’s argument that it acted with reasonable cause and good faith in its tax reporting position related to certain Custom Adjustable Rate Debt Structure (CARDS) transactions. For the difference between TC and Memorandum Opinions, see here.

The Tax Court (and some appellate courts) has addressed the tax consequences of CARDS transactions in several cases, each time siding with the Internal Revenue Service (IRS). In its opinions in those other cases, the Tax Court has found that the CARDS transaction lacks economic substance. The court in Curtis Investment concluded that the CARDS transactions before it was essentially the same as the CARDS transactions in the other cases with only immaterial differences. Applying an economic substance analysis, the Tax Court held the taxpayer issue lacked a genuine profit motive and did not have a business purpose for entering into the CARDS transactions. Continue Reading Tax Court Addresses “Issue of First Impression” Defense to Penalties

On July 26, 2017, the United States Tax Court (Tax Court) handed a complete victory to Eaton Corporation (Eaton) relating to the Internal Revenue Service’s (IRS) cancellation of two Advance Pricing Agreements (APA). Eaton Corporation v. Commissioner, TC Memo 2017-147. The Tax Court held that the IRS had abused its discretion in cancelling the two successive unilateral APAs entered into by Eaton and its subsidiaries with respect to the manufacturing of circuit breaker products in Puerto Rico, and it found no transfer of any intangibles subject to Internal Revenue Code (Code) Section 367(d). In 2011, the IRS cancelled Eaton’s first APA effective January 1, 2005, and the renewal APA effective January 1, 2006, on the ground that Eaton had made numerous material misrepresentations during the negotiations of the APAs and during the implementation of the APAs. As a result of the APA cancellations, the IRS issued notice of deficiencies for 2005 and 2006 determining that a transfer pricing adjustment under Code Section 482 was necessary to reflect the arm’s-length result for the related party transactions. Eaton disputed the deficiency determinations, contending that the IRS abused its discretion in cancelling the two APAs.

The Tax Court considered whether Eaton made misrepresentations during the negotiations or the implementation. With respect to the APA negotiations, the court established the standard for misrepresentation as “false or misleading, usually with an intent to deceive, and relate to the terms of the APA.” Based on the evidence of the negotiations presented at trial, the court concluded that there were no grounds for cancellation of the APAs; “Eaton’s evidence that it answered all questions asked and turned over all requested material is uncontradicted.” Additionally, the court rejected the IRS’s contention that more information was needed; “The negotiation process for these APAs was long and thorough.” Thus, the IRS “had enough material to decide not to agree to the APAs or to reject petitioner’s proposed TPM and suggest another APA. Cancelling the APAs on the grounds related to the APA negotiations was arbitrary.” Continue Reading Tax Court Hands Eaton a Complete Victory on the Cancellation of its Advance Pricing Agreements

The Acting Chief Counsel announced that effective April 1, 2017, Drita Tonuzi will serve as the Deputy Chief Counsel (Operations), in Washington DC.  In this position, Ms. Tonuzi will provide legal guidance and litigation support to the Internal Revenue Service (IRS) and the Departments of Treasury and Justice in all matters pertaining to the administration and enforcement of the Internal Revenue laws.  This includes responsibility for all litigation in the United States Tax Court as well as the management of personnel in fifty field offices nationwide and in headquarters operations in Washington, DC. She will directly supervises nine Divisions including Large Business and International (LB&I), Small Business/Self Employed (SB/SE), Tax Exempt and Governmental Entities (TEGEDC), Wage and Investment (W&I), General Legal Services (GLS), Criminal Tax (CT), Procedure and Administration (P&A), Finance and Management (F&M) and Counsel to the National Taxpayer Advocate (CNTA).

Ms. Tonuzi began her career with the Office of Chief Counsel in 1987 in the Manhattan Office, where she litigated cases before the United States Tax Court. She served as the Securities & Financial Services Firms Industry Counsel and managed a group of attorneys, Deputy Division Counsel for the Large Business & International Division (formerly LMSB), where she was responsible for the operation and litigation of the organization and most recently she served as Associate Chief Counsel Practice and Administration.

With Ms. Tonuzi’s promotion, Kathryn Zuba has been appointed as the Acting Associate Chief Counsel, Procedure and Administration. Ms. Zuba will head an office of more than 150 professionals, who provide legal services to the IRS, other components of the Chief Counsel’s Office, other government agencies, and the public in the areas of federal tax procedure and administration. The responsibilities of this office include matters relating to the reporting and payment of taxes; assessment and collection of taxes; the abatement, credit or refund of over-assessments or overpayments of taxes; the filing of information returns; bankruptcy; disclosure; FOIA; privacy law; litigation sanctions; judicial doctrines; ethics; and liaison with the courts.

Amicus–or “friend of the court”–briefs are not uncommon in Supreme Court and appellate court cases.  The purpose of an amicus brief is generally to provide assistance to the court by presenting additional arguments either in support or opposition of one of the litigant’s positions.  Amicus briefs should not rehash the same arguments presented by one of the parties, but rather should provide insights and a different perspective that is not presented by the parties, and to inform the court of the impact of the issues in the case on other affected parties.  The Federal Rules of Appellate Procedure provide detailed rules on how and when to file an amicus brief.  See here for Federal Rule of Appellate Procedure 29, which governs amicus filings.

Sometimes, amicus parties want to get involved at the trial court level before the trial record is fixed.  Thus, increasingly, amicus briefs are being filed in trial courts, and in particular in the United States Tax Court (Tax Court).  When, why and how to file an amicus brief in a trial court is not clear.  Indeed, most trial courts do not have procedural rules that directly address those filings.  This post provides an overview of some of the considerations and procedures for filing such briefs in a Tax Court case.

Whether to allow an amicus to participate in a case is within the sound discretion of the court.  Because the filing of an amicus brief is discretionary, the typical practice is to file a motion seeking permission or“leave” of the court to file an amicus brief accompanied with a statement stating that the litigants do, or do not, object to the filing of the amicus brief.

In deciding whether to grant permission to file anamicus brief, the Tax Court generally examines whether “the proffered information is timely, useful or otherwise helpful.”  The court also considers whether amici are advocates for one of the parties, have an interest in the outcome of the case and possess unique information or perspective.  This is consistent with the standards applied by other courts in making the determination.

Practice Point:  Several factors should be considered by taxpayers in deciding whether to file an amicus brief in Tax Court.  In addition to the cost, taxpayers may want to consider whether their position is being adequately represented by another taxpayer’s case and whether they believe that they can provide arguments that might persuade the court to adopt their position.  Participation as an amicus can also be helpful to taxpayers in coordinating legal positions and ensuring that the best possible arguments are presented on issues of first impression.  An effective amicus brief has the potential to persuade the court, and can be an effective tool to resolve an issue favorably.  This is especially true when, because of the specific facts of the taxpayer, the perspectives of other taxpayers are not adequately addressed.