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Courtney Dunbar Jones and Emin Toro Confirmed to Tax Court

by McDermott Will & Emery | Aug 7, 2019 | Court Procedure Matters, Trial Courts, Uncategorized

On August 5, 2019, the Senate confirmed Courtney Dunbar Jones and Emin Toro as nominees to the US Tax Court in a voice vote before leaving for August recess. Jones and Toro will now each serve a 15-year term. President Trump had initially nominated each candidate in 2018, but the Senate was not able to confirm their appointments prior to the end of the last 2018 session—requiring the candidates to be renominated in February of 2019. We reported the initial nominations in “President Trump Announces Intent to Nominate Emin Toro to Tax Court” and “President Trump to Nominate Greaves to Tax Court; Senate Confirms Copeland and Urda.” Furthermore, we reported the renomination of these nominees in “Renominations to Fill Vacancies on the United States Tax Court.” (more…)

Law360: Myers May Make It Easier to Find Equitable Relief in Tax Court

by McDermott Will & Emery | Jul 18, 2019 | Appellate Courts, Court Procedure Matters, Trial Courts, Uncategorized

Laura L. Gavioli, PC, recently wrote an article for Law360 on a US Court of Appeals for the District of Columbia Circuit’s decision that may provide an equitable avenue for hearing of late-filed petitions in US Tax Court. The Law360 article, “Myers May Make It Easier to Find Equitable Relief in Tax Court,” can be accessed here.

A Notice of Deficiency Is Not Set in Stone

by Kevin Spencer and Le Chen | May 28, 2019 | Appellate Courts, IRS Guidance, Trial Courts, Uncategorized

A recent case decided by the United States Court of Appeals of the Tenth Circuit reminds taxpayers to be aware that the Internal Revenue Service (IRS) is not necessarily locked in to the positions and arguments stated in the Notice of Deficiency. In particular, the IRS is allowed to revise penalty determinations, or to make penalty determinations for the first time, during litigation in the Tax Court, notwithstanding any arguably inconsistent determination in the Notice of Deficiency.

In Roth v. Commissioner, 123 AFTR.2d 2019-1676 (10th Cir. 2019) , the taxpayers owned 40 acres of land in Prowers County, Colorado. In 2007, the taxpayers donated to the Colorado Natural Land Trust a conservation easement, which prohibited them from mining gravel upon the land. The taxpayers valued the easement at $970,000 and claimed charitable contribution deductions with respect to this amount on their 2007 and 2008 income tax returns.

The IRS examined the position, and determined that the easement was worth only $40,000. The revaluation resulted in underpayments of tax. The IRS revenue agent assigned to the case imposed an enhanced 40% gross valuation misstatement penalty pursuant to Internal Revenue Code (IRC) section 6662(h), because the claimed value of the easement had exceeded 200% of its actual value. The 40% penalty was approved on IRS administrative review, but due to an alleged clerical error, the Notice of Deficiency sent to the taxpayers listed only the standard 20% accuracy-related penalty under IRC section 6662(a).

The taxpayers filed a Petition in the US Tax Court. In its Answer, the IRS reasserted the 40% penalty. The taxpayers challenged the imposition of the enhanced penalty, citing IRC section 6751(b), which provides that a penalty can only be assessed pursuant to an approved “initial determination.” The taxpayers argued that the Notice of Deficiency was the “initial determination,” and because the enhanced penalty was not stated in the Notice of Deficiency, the IRS did not have the authority to impose a penalty in excess of the amount indicated thereon. The Tax Court ruled in favor of the IRS, considering itself bound by its decision Greav v. Commissioner (Graev III), 149 T.C. 485 (2017), which allows the IRS to assert additional penalties in an Answer to a taxpayer’s Tax Court petition.

The Tenth Circuit affirmed the Tax Court’s ruling. The Tenth Circuit rejected the taxpayers’ argument that the “initial determination” of a penalty was the amount shown on a Notice of Deficiency. The Tenth Circuit noted that IRC section 6212(a) provides that the IRS is authorized to send a Notice of Deficiency after having determined a tax deficiency, suggesting that the “initial determination” of a tax deficiency or penalty can occur prior to the sending of a Notice of Deficiency. The Tenth Circuit concluded that the 40% penalty determined by the IRS revenue agent was the “initial determination” for purposes of IRC section 6751(b).

The Tenth Circuit also cited Graev III for the proposition that an IRC section 6751(b) initial determination can be made by an IRS attorney in [...]

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What Happens At Exam, Stays At Exam!

by Kevin Spencer and Le Chen | Apr 25, 2019 | Court Procedure Matters, IRS Appeals, IRS Audits, IRS Guidance, Trial Courts, Uncategorized

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. (more…)

Second Circuit Weighs in on Tax Court’s Refund Jurisdiction

by McDermott Will & Emery, Kevin Spencer and McDermott Will & Emery | Apr 16, 2019 | Appellate Courts, Tax Reform, Tax Refunds, Trial Courts, Uncategorized

Borenstein v. Commissioner is an interesting opinion involving the intersection of canons of statutory construction and jurisdiction. Recently, the US Court of Appeals for the Second Circuit reversed the US Tax Court’s holding in Borenstein that the court lacked jurisdiction to order a refund of an undisputed overpayment made by the taxpayer. The case, which we discussed in a prior post, involved interpreting statutory provisions dealing with claims for a refund after a notice of deficiency was issued. The Tax Court’s holding was based on the application of the plain meaning rule to Internal Revenue Code (Code) Section 6512(b)(3), which limit its jurisdiction to order refunds of overpayments.

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Tax Court Provides Operational Update during Government Shutdown

by Editorial Team | Jan 14, 2019 | Trial Courts, Uncategorized

As we previously discussed, the United States Tax Court (Tax Court) closed its doors on December 28, 2018, until further notice. However, trial sessions scheduled for the weeks of January 7, and 14, 2019, were to proceed as scheduled. The Tax Court has updated its website to confirm that the trial sessions scheduled for the week of January 14, 2019, will proceed as scheduled, but that trial sessions scheduled for the week of January 28, 2019, in El Paso, Los Angeles, New York, Philadelphia, San Diego, and Lubbock are canceled. A decision regarding the trial sessions for the week of February 4, 2019, will be made on or before January 18, 2019.

As a result of the shutdown, the Tax Court did not issue any Orders or Opinions from December 31, 2018, to January 9, 2019. It started issuing Orders again on January 10, 2019, but no Opinions have been issued since December 27, 2018.

Practice Point: In addition to its impact on governmental agencies, the government shutdown continues to disrupt judicial operations. Some federal courts have continued to issue opinions during this time but activity in many cases has been postponed or canceled.

Tax Court to Shutdown Until Further Notice

by McDermott Will & Emery | Dec 28, 2018 | Trial Courts, Uncategorized

The United States Tax Court (Tax Court) has announced that it will be shutting down starting today, December 28, 2018 at 11:59 p.m., and will remain closed until further notice. However, trial sessions scheduled for the weeks of January 7 and 14, 2019, will proceed as scheduled. Electronic filing and electronic access to the Tax Court’s docket system will remain available and taxpayers may comply with statutory deadlines for documents required to be paper filed by timely mailing such documents using approved delivery services. Further updates will be provided on the Tax Court’s website.

Practice Point: The government shutdown continues to impact government agencies and the judicial system. For a detailed discussion of the impact of the shutdown on the Internal Revenue Service, see here.

ABA Recommends Allowing Limited Representation Before the Tax Court

by McDermott Will & Emery | Oct 4, 2018 | Court Procedure Matters, Trial Courts, Uncategorized

Last May, the US Tax Court (Tax Court) announced that approximately 70 percent of all taxpayers in Tax Court cases and approximately 90 percent of taxpayers in small tax cases are self-represented. The Tax Court encourages assistance by pro bono attorneys at its calendar calls, and strives to provide information to taxpayers about how they may be able to connect with those attorneys (more background on the Tax Court’s efforts can be found here). Although pro bono attorneys appear at Tax Court calendar calls to assist self-represented taxpayers, ethical rules may limit the ability of these attorneys to provide certain kinds of legal assistance. For example, once an attorney makes an appearance in a court case, typically the attorney cannot simply withdraw and stop representing the client. The attorney may have to get both the client’s and court’s consent to withdraw from the representation. The inability to provide legal advice for one or more occasions without potentially being stuck on a case is perceived to dissuade many practitioners from providing pro bono service.

In response to these concerns, the American Bar Association (ABA) Section of Taxation recently provided comments to the Tax Court regarding potential amendments to its rules relating to appearance and representation before the Tax Court. The ABA comments encourage the Tax Court to consider a limited appearance rule for pro bono attorneys appearing at the calendar call. This one-time appearance representation may encourage more attorneys to get involved in providing pro bono legal assistance to taxpayers. We will provide an update on any future action that the Tax Court may take in this regard.

Links to McDermott posts and articles about tax pro bono efforts by volunteer attorneys are listed below:

Senate Confirms Rettig as Next IRS Commissioner; Desmond Next?

by Kevin Spencer and McDermott Will & Emery | Sep 13, 2018 | IRS Audits, Tax Reform, Trial Courts, Uncategorized

On September 12, 2018, the Senate confirmed, by a vote of 64-33, Charles P. Rettig to be Commissioner of the Internal Revenue for the term expiring November 12, 2022. We previously discussed the nomination of Mr. Rettig and his background here.

The IRS Commissioner presides over the United States’ tax system and is responsible for establishing and interpreting tax administration policy and for developing strategic issues, goal and objectives for managing and operating the IRS. This includes responsibility for overall planning, directing, controlling and evaluating IRS policies, programs, and performance. The IRS Commissioner is also required by statute under Internal Revenue Code (Code) Section 7803 to ensure that all IRS employees are familiar with and act in accord with the Taxpayer Bill of Rights.

The nomination of Michael J. Desmond to be Chief Counsel of the Internal Revenue Service (IRS) remains pending in the Senate. We previously discussed the nomination of Mr. Desmond and his background here.

The IRS Chief Counsel 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, as well as all other legal matters. Attorneys in the IRS Chief Counsel’s Office serve as lawyers for the IRS. Their role is to provide the IRS and taxpayers with guidance on interpreting Federal tax laws correctly, represent the IRS in litigation, and provide all other legal support required to carry out the IRS mission

DC Circuit Reverses Tax Court and Holds Section 883 Regulations Invalid under Chevron Test

by Roger J. Jones | Aug 2, 2018 | Appellate Courts, Court Procedure Matters, IRS Guidance, Trial Courts, Uncategorized

On March 28, 2017, the US Tax Court (Tax Court) issued its opinion in Good Fortune Shipping SA v. Commissioner, 148 T.C. No. 10, upholding the validity of Treas. Reg. § 1.883-4. The taxpayer had challenged the validity of the regulation’s provision that stock in the form of “bearer shares” cannot be counted for purposes of determining the more-than-50-percent ownership test under Internal Revenue Code (Code) section 883(c)(1), but the Tax Court held that the regulation was valid under the two-step analysis of Chevron USA, Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), and applied it in ruling for the Internal Revenue Service (IRS). We previously discussed the Tax Court’s opinion here. The taxpayer appealed the Tax Court’s decision to the US Court of Appeals for the District of Columbia Circuit (DC Circuit).

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