Summary Opinions for 8/31/15 to 9/11/15

Before jumping into the tax procedure, I wanted to highlight a blog post by another Professor Fogg, Dr. Kevin Fogg, of the University of Oxford.  Kevin Fogg is to the History of Islam in Southeast Asia what our Keith Fogg is to tax procedure (not surprising, since Keith is Kevin’s father).  On September 24th, Kevin wrote a post about the passing of Adnan Buyung Nasution.  From the post, I learned that he gave much to Indonesian life, including the founding of a legal aid organization for those in Indonesian in need of legal assistance.  The post is brief, and gives a glimpse into the life of a great man who I knew nothing about.  Absolutely worth your time.

To the tax procedure (heavy on estate and gift this week):


  • We’ll start with a heavily redacted FSA discussing what constitutes adequate disclosure to avoid the extended and unlimited statute of limitations under Section 6501(c)(9) for gift purposes.  See LAFA 20152201F.  Usually, a gift has to be disclosure on a timely filed Form 709 (due April 15 the following year), which then starts a three year statute of limitations.  There is an exception when a gift is not shown or appropriately disclosed.  When there is inadequate disclosure, the IRS has unlimited time for assessment.  When this is the case, the gift can be brought up decades later upon the audit of the Form 706 for the taxpayer’s estate after death.  To adequately disclose, the taxpayer must provide sufficient information to  “apprise [the Service] of the nature” of the gift.   The Regulations flesh out what the IRS thinks is required:

(i) A description of the transferred property and any consideration received by the transferor; (ii) The identity of, and relationship between, the transferor and each transferee; … (iv) A detailed description of the method used to determine the fair market value of property transferred, including any financial data (for example, balance sheets, etc. with explanations of any adjustments) that were utilized in determining the value of the interest, any restrictions on the transferred property that were considered in determining the fair market value of the property, and a description of any discounts, such as discounts for blockage, minority or fractional interests, and lack of marketability, claimed in valuing the property . . . .In addition, if the value of the entity or of the interests in the entity is properly determined based on the net value of the assets held by the entity, a statement must be provided regarding the fair market value of 100 percent of the entity (determined without regard to any discounts in valuing the entity or any assets owned by the entity), the pro rata portion of the entity subject to the transfer, and the fair market value of the transferred interest as reported on the return. . .

See Reg. 301.6501(c)-1(f)(2).

Surprisingly, there is not much case law or other guidance on what is actually adequate disclosure.  The LAFA highlights two cases, Sanders and Lewis, but neither actually has much of a discussion.  Both were motions for summary judgement, and the Courts found there was a material question about the adequate disclosure, causing the motions to be dismissed without any concrete takeaways.  There was Chief Counsel Advice issued in 2002 discussing the statute in the transfer of closely held LLC interests.  The advice indicated inadequate disclosure had occurred where the taxpayer failed to specify the number of units transferred, the percentage ownership interest transferred, and the nature of the interests.  Interestingly, in that advice, Chief Counsel referenced the income tax regulations extending the statute of limitations for understatements of income, and the fact that a “clue” may be sufficient to cut off the statute.    Later in the advice, it did indicate that more than a “clue” would likely be required for proper disclosure.

Back to the LAFA, in which it was concluded that insufficient disclosure occurred.  On a 709, the taxpayer disclosed the transfer of an LP interest and an LLP interest to the taxpayer’s daughter.  It disclosed the name, percentage and value.  One of the EINs for the entity was incorrectly stated (missing one digit), and the “LP” and “LLP” were both left off the name of the entities.  The LAFA indicates these by themselves are fatal, and could result in an unlimited statute of limitations.  I disagree with this determination and would be inclined to take this before a judge.  The LAFA indicates there were 70 possible different EINs that could have resulted because of the missing digit.  I have to assume the Service has a searchable database, and could quickly have used the disclosed name to determine the  correct one.  That error by the preparer should not result in unlimited statute of limitations.

The advice also indicates the valuation was not adequately disclosed, resulting in the statute remaining open.  In the summary attached to the return, it was not explicitly stated how the valuation was done, no financial information was provided to back up the valuation, the discount percentages were not explained, and it appeared that additional, unspecified discounts were taken.  I would like to see the actual statement, not the redacted version.  A fair amount of disclosure was made, including that a valuation of the underlying property was done, which would implicate net asset value was used in the valuation.  Although the LAFA makes it seem unclear as to how the discounts were taken, my view might be different when reviewing the return as a whole.  In any event, the LAFA provides guidance on what the IRS might consider worth litigating, and should be considered in preparing summaries of gifts or attaching the appraisals.

  • In the end of August, the IRS announced it would abate penalties for missing or incorrect TINs for colleges and universities that filed Form 1098-T with the incorrect information for 2012 to 2014.  Under Section 6721, a penalty is imposed for each information return that is not filed or filed with incorrect or incomplete information.  For 2015, Section 6724(f) was modified to provide prospective relief for educational institutions that fail to include the TIN, if the organization attempted to obtain the information but was not able to obtain the information.  The change was not retroactive, but the IRS has decided to waive the prior penalties.  The notice indicates the IRS will contact the schools, but those who are not contacted should respond to the original penalty assessment notice.  No guidance is provided for those who already responded to the original penalty assessment.  In those cases, the institutions will have to contact the Service to make a refund claim.  It is possible some of those could be approaching the statute of limitations for the refund.
  • In the last SumOp we touched on the new opinion issued in the Marshall case from the Fifth Circuit holding the maximum amount of gift tax, penalties and interest that could be collected from the donee was the value of the initial gift under Section 6324(b) (reversing its prior holding).  It is also worth noting that the Fifth Circuit upheld the lower court’s holding that the executor of Mr. Marshall’s estate and trustees of related trusts were personally liable for the outstanding gift tax debt because they paid other creditors, set aside funds for charity, distributed personal property, paid rent on a vacant apartment, and paid for accounting and legal services of other entities instead of paying the government.  The Court held that 31 USC § 3713, the Federal Priority Statute, applied, because each fiduciary knew about the possible debts, although the fiduciaries argued they did not have actual knowledge.  The Court determined “notice of such facts as would put a reasonably prudent person on inquiry as to the existence of the unpaid claim” was found (and the fiduciaries essentially stated as much).  Marshall predominately dealt with transferee liability under Section 6901(a)(1)(A), but 31 USC § 3713 is incorporated by reference under Section 6901(a)(1)(B), and states a fiduciary is liable for the estate and gift taxes if distributions were made in a manner contrary to 31 USC § 3713.  I’m sure those involved are not happy with the result, but it has been a great gift tax procedure case.
  • Also in last week’s SumOp, we touched on the Minnick case, where the Ninth Circuit held that a taxpayer was not entitled to a conservation easement because the mortgage on the donated property was not properly subordinated.  Reader Scott Davies commented, indicating that oral argument of that case was available on YouTube.  You can read the comment here, which has the video imbedded.
  • The District Court for the Middle District of Georgia issued an order on two motions in the case Dickerson v. Suntrust Banks, Inc. which was somewhat unique.  The Court allowed the defendant bank’s motion to amend its pleading to properly add the United States (instead of the IRS), but also granted the United States’ motion to dismiss it from the action.  In the case, the taxpayer plaintiffs filed suit against the bank defendant alleging breach of contract, conversion, intentional infliction of emotional distress, violations of the GA fair business practices act and RICO statute, and, my favorite, wrongful dishonor (all I envision for this is an angry button-down father chasing a young man from his house).  The claims arose from the bank defendant’s closing of taxpayer’s account after being informed by the IRS that the accounts held erroneous tax refunds from numerous other taxpayers.  A portion of the funds were remitted to the IRS.

The bank defendant alleged that it took these actions based on an indemnification agreement it entered into with the IRS, which stated the IRS would repay the bank defendant for any payments it had to make to the taxpayer later based on the funds remitted to the IRS.  When the bank was served, it in turn filed a third party complaint against the IRS indicating it was entitled to the indemnification.  The government filed a motion to dismiss, arguing it had not waived sovereign immunity.

The bank argued that under The Little Tucker Act, 28 USC 1346, the Court had jurisdiction, because it was a civil claim against the US for over $10,000 based on a contract.  The Court found that there could have been a contract, and the Tiny Tuck could provide jurisdiction, but the bank did not allege any violation of the agreement.   Since there was no alleged violation, the Little Tucker Act did not provide jurisdiction.  I wonder if counsel for the bank had tried to include that the IRS had to defend any related claim.

  • From Jack Townsend’s Federal Tax Crimes blog, a post highlighting how to ensure conferences are obtained in criminal tax matters with the IRS and DOJ before indictments in criminal matters.
  • Around this time last year in SumOp, we covered the Tax Court case Law Office of John Eggersten v. Commissioner, where the Tax Court reversed its prior holding and held the general statute of limitations under Section 6501 (unlimited because no return was filed) applied to the assessment of ESOP excise tax.  The Service argued the statute of limitations under Section 4979A(e)(2)(D) supplemented, but did not replace the general statute.  The Sixth Circuit, in a split decision, has affirmed the tax court.  The quick and dirty is that the law firm and the ESOP that owned the stock in the law firm each filed the required income tax returns.  Due to some changes in the law, which the ESOP didn’t fully comply with, it also needed to file a Form 5330.  The Sixth Circuit determined the information filed on the other returns was not sufficient for the Service to calculate the tax due that should have been reflected on the Form 5330.  The taxpayer argued that although that was the case, it provided sufficient information on its returns to meet the requirement under Section 4979A that the limitations period begins with “the filing of a return…on which an entry has been made with respect” to the tax.  See Section 6501(b)(4).  The Court held that exception only applies if the information is reported on a return for which the tax should be reported, which was the return the taxpayer failed to file.



District Court Hands IRS Loss in its Bid to Exclude Discretionary Treaty Benefits From Judicial Review

Last month’s Starr v US involves a $38 million 2007 refund suit in the DC district court brought by Starr International (Starr), the then-largest shareholder in American Insurance Group (AIG). In most refund suits there is little question that a district court has the power to conduct a de novo review of the IRS’s decision to deny a refund claim and determine whether a taxpayer is entitled to a refund. Why did the IRS view the case differently?

The issue involves the IRS’s failure under the US-Swiss income tax treaty to grant Starr a discretionary reduction in withholding on US-sourced AIG dividends. IRS argued that its decision to not grant Starr the discretionary treaty-based withholding relief was for it alone to make, and that its decision was not subject to judicial review. The district court rejected the IRS position, and in so doing discussed an aspect of the Administrative Procedure Act that the IRS claimed applied (at least in principle) to the proceedings.

In this post I will summarize the dispute and offer my view as to why as a policy matter IRS should be reluctant to argue for absolute discretion over most substantive decisions it makes, especially one that goes to the merits of a tax liability such as in this case.


What is the APA provision at issue? The APA states that agency action is generally reviewable “except to the extent that . . . [it] is committed to agency discretion by law.” 5 U.S.C. § 701(a) (note that another statute such as the Anti-Injunction Act may also remove an IRS decision from court review; that was not at issue in this case). Starr did not bring an action under the APA, however, as it brought a refund suit under Section 7422 and 28 U.S.C.
§ 1346(a)(1). As such, Starr argued that the “committed to agency discretion” rule did not apply because it did not bring an APA claim.

The district court rejected Starr’s position and essentially provided that even if the claim itself were not brought under the APA (and by implication even if the APA did not apply to agency determinations of this type), the principle of nonreviewability in 5 USC § 701(a) applies to all agency actions because the APA merely codified traditional principles of nonreviewability. In other words, if the IRS could establish that the decision to grant treaty benefits at issue in the case were committed solely to the IRS’s discretion, then its decision would be unreviewable despite the fact that there was no APA cause of action.

How does an agency establish that something is solely in its discretion and this not subject to court review? The legal inquiry asks generally if there are judicially manageable standards for a court to review. While that seems a somewhat vague principle, it is safe to say that courts are reluctant to let agency actions escape judicial scrutiny.

That limitation on nonreviewability is for good reason, as many administrative law scholars have claimed and common sense dictates. In an article I wrote awhile back on CDP (around page 1167) I have discussed both the legal and policy reasons why unreviewability of agency action should be the rare exception. In that piece I quote extensively from a 1990 article by Ronald Levin in the Minnesota Law Review called Understanding Unreviewability in Administrative Law. Professor Levin summed up the policy reasons nicely:

Scrutiny of administrative action by an independent judiciary is an integral part of the American checks and balances system—a powerful deterrent to abuses of power and an effective remedy when abuses occur. By helping maintain public confidence that government officials remain subject to the rule of law, judicial review also bolsters the legitimacy of agency action. . . . Finally, judicial review can enhance the quality of administrative action by exposing partiality, carelessness, and perverseness in agencies’ reasoning.

Despite the policy reasons against doing so, over the years, in addition to being able to put an invisibility cloak around its actions due to the Anti-Injunction Act, IRS has claimed unreviewability based on the “committed to agency discretion” defense over a wide range of agency decisions. For example, prior to legislation, it argued with success that decisions to not abate interest and to not grant equitable relief from joint and several liability were exempt from court review, and it continues to assert unreviewability when taxpayers seek judicial review of IRS denials of collection alternatives outside of CDP.

The Discretionary Relief in the Swiss Treaty

As the opinion describes, Starr relocated its corporate headquarters to Switzerland from Ireland. It did so because of a highly-publicized split between former AIG CEO Ace Greenberg and AIG, and disputes over Starr funding AIG’s compensation plans. It alleged that its move to Switzerland was done to “protect its assets from an AIG lawsuit claiming that Starr was contractually obligated to fund the plan.”

That was significant because the US –Ireland treaty automatically provided that the rate on withholdings on dividends was 15% rather than the normal 30%. The US-Swiss treaty on the other hand provided for a reduced 15% rate if certain conditions were satisfied.

Because it failed to satisfy the conditions for the non-discretionary Swiss treaty benefit Starr did not qualify for the automatic reduction under the US-Swiss treaty. In the absence of qualifying for the automatic reduction, the US –Swiss treaty allowed for the discretionary relief that is at the heart of this dispute. The relief provision provides that a taxpayer “may, nevertheless, be granted the benefits of the Convention if the competent authority of the State in which the income arises so determines after consultation with the competent authority of the other Contracting State.” US Swiss Treaty, Art. XXII(6).

As the opinion explains, Treasury has published a Technical Explanation of the US-Swiss treaty; the Technical Explanation is as the opinion mentions roughly analogous to legislative history. That explanation provides that the reason for the limitation on benefits (that is, the reason why not every Swiss taxpayer was entitled to the reduced withholding) was to prevent “treaty shopping.” As the opinion sets out, treaty shopping is the practice of 
”moving … specifically to benefit from the lower U.S. tax rate offered by the U.S.-Swiss tax treaty.”

In 2007, Starr sent a request for discretionary reduced withholding as per the treaty to the US Competent Authority. Having not received a response in early 2010 it filed a protective refund claim. Starr forwarded the claim to the IRS analyst working the competent authority request. Shortly thereafter the competent authority denied the 2007 request for discretionary withholding relief, though interestingly it granted relief for the 2008 year.

Starr then sued for a refund in the fall of 2014. The complaint Starr brought claimed that the IRS abused its discretion for three reasons:

  1. Starr was not treaty shopping when it relocated to Switzerland,
  2. the IRS failed to consult with the Swiss Competent Authority before denying Starr’s request, and
  3. the IRS had no legal basis for issuing Starr a 2008 refund while denying its 2007 request based on the same material facts.

IRS filed a motion to dismiss on the grounds that its decision was unreviewable because it was committed to agency discretion. (alternatively, it also argued that the challenge raised an unreviewable political question, an issue that I will not discuss in this post but which the court found also did not apply to restrict court review).

How Did the Court Determine Whether the Matter Was Solely in the IRS Discretion?

As I discuss above, the court first disposed of Starr’s argument that only APA claims themselves are subject to the committed to agency discretion exception to judicial review. That IRS victory however was only short-lived though because the rest of the opinion discusses why in this case there was enough law for the court to apply, leading the court to the conclusion that it had the power to review the IRS’s decision to not grant Starr discretionary treaty relief. How does it get there? I suggest interested readers look at the opinion as there is lots there but I will hit a few of the highlights.

The court’s opinion goes through the black letter I also briefly describe above that generally asks if the applicable provision 
of law “is drawn so that a court would have no meaningful standard against which to judge the agency’s exercise of discretion,” or “in those rare instances where ‘statutes are drawn in such broad terms that in a given case there is no law to apply.’” (citations omitted).

In a footnote (note 7), the court notes the “strong presumption” that “Congress intends judicial review of administrative action” but also acknowledges that this case differs from many others given it was based not in a statute but a treaty provision. Despite the difference, it extends that presumption of reviewability to treaty provisions:

Federal courts “should normally apply the [background] presumptions supplied by American law” when ascertaining treatymakers’ intent in assessing entitlement to relief under a federal statute. One such presumption—an especially strong one—is that Congress intends for agency action to be reviewable. (citations omitted).

To look at the issue in question the court considered the prototypical agency matters that do get exempted from review, agency decisions whether to enforce or prosecute, and contrasted them with the IRS decision in this case. Despite accepting that distinction, IRS argued nonetheless that the treaty benefits’ decision warranted unreviewability because it implicated “complicated foreign policy matters” and courts have on occasion extended unreviewability to agency decisions sweeping in foreign policy.

The opinion distinguished a tax treaty’s benefits’ provision from those cases where courts found that the complex considerations in foreign policy matters rendered unreviewable, such as the State Department’s decisions to deny a consular visa or delegate a decision to control arms exports, noting that “reviewing a denial of benefits under the discretionary provision does not involve “second-guessing executive branch decision[s] involving complicated foreign policy matters.”

After disposing of the IRS argument that treaty benefit decisions were inherently nonreviewable the opinion undertook the task of discerning whether the “language, structure and history” of the benefits provision in the treaty supported nonreviewability. I hit some of the highlights of the opinion below.

The opinion started with a focus on the treaty language itself I quoted above, which provides permissively that the taxpayer “may” be granted relief. At first blush the use of the permissive “may” cuts in favor of absolute agency discretion, but the opinion notes that many cases have held that permissive language such as may was not determinative, leading the court to look to sources other than the text itself.

Its next stop was the treaty’s Technical Explanation, which as I mention above is like legislative history. Prepared by Treasury to assist the Senate in the ratification process, it reflects Treasury’s view and explanation of the treaty. That explanation includes a statement on the discretionary provision, stating that the Treasury would “base [its] determination . . . on whether the establishment, acquisition, or maintenance of the person seeking benefits under the Convention, or the conduct of such person’s operations, has or had as one of its principal purposes the obtaining of benefits under the convention.”

The opinion looked to testimony of Treasury officials, which like the explanation puts some context on the decision to grant discretionary benefits. For example, the Treasury Assistant Secretary stated that in determining eligibility for discretionary relief IRS would look for a “a substantial non-treaty-shopping motive for establishing themselves in their country of residence.”

While not part of the treaty itself, the explanation and testimony suggested a standard by which the IRS would evaluate requests for treaty relief. In fact, in denying Starr’s claim, the IRS applied that standard, informing Starr that it could not “conclude that obtaining treaty benefits was not at least one of the principal purposes for moving Starr’s management, and therefore its residency, to Switzerland.”

What was the IRS’s rebuttal? It pointed to Senate report accompanying the treaty ratification which stated that “the Secretary of the Treasury may, in his sole discretion, treat a foreign corporation as a qualified resident of a foreign country[.]” Tax Convention with Switzerland, S. Exec. Rep. No. 105-10, at 54 (1997). The opinion notes that this “does not explicitly discuss judicial review, but it nonetheless provides some evidence of an intent to preclude such review.” Despite what the opinion felt were the mixed messages, it felt that the report was not enough for the IRS to prevail:

IRS has not presented clear and convincing evidence that the discretionary provision was intended to preclude judicial review. Indeed, the structured guidance set forth in the Technical Explanation—a long with the lack of any express preclusion of judicial review—renders the issue sufficiently ambiguous that the presumption of reviewability controls?

IRS also argued that the “principal purpose” standard was too vague to afford a court meaningful review:

The IRS claims that this standard is not specific enough to permit review. What, asks the IRS, does it mean to conclude that a company’s “principal purpose” is to obtain the benefits of a tax treaty?

The opinion likewise finds this argument unavailing and notes that unlike IRS it was “not so daunted by the prospect of reviewing the IRS’s determinations. Courts routinely face somewhat amorphous and open-ended standards…. At the margins, it may be difficult to determine whether a company moved to Switzerland principally to lower its tax rate. But this does not mean there are no manageable standards to apply.”


Having survived a motion to dismiss, the case now will proceed to the merits. While the presence of the treaty provisions complicates the analysis, I think the district court got this one right on the law and on the policy. Courts are pushing back against IRS claims that its process or decisions should be insulated from judicial review. For the reasons Professor Levin succinctly mentions in his 1990 law review article, courts are rightfully skeptical of agency blanket calls for unreviewability. IRS has faced plenty of allegations of abuse of power, and it is rocked still by questions pertaining to its politicized review of applications for exemption. For an agency like the IRS, which administers a law which depends in part on continued public respect for the integrity of the tax system, IRS needs to choose its battles on this issue carefully.

Freezing the Refunds of Our Guests

PT is excited to put up its 500th post today.  We thank you for following us on this journey into the nooks and crannies of tax procedure.

Today we welcome first time guest blogger Sonya Miller.  Sonya was my student and clinic co-worker at Villanova where she obtained her LLM.  Villanova’s LLM program has tuition assistance for students who work 20 hours per week in the clinic while studying for their LLM.  Sonya was one of the amazing recruits to Villanova as a result of this program.  (If you know someone seeking an LLM that also wants tax controversy experience, tell them to check out the program.)  She clerked after her LLM and is now starting a new tax clinic herself.  She writes to talk about a group of cases that her clinic has encountered as it starts up.

Refund freezes are not a new thing.  For those practicing in the earned income tax credit (EITC) area, you know that the IRS routinely freezes the refunds of individuals seeking the refundable EITC.  So, the IRS does not just pick on guests but freezes refunds of other vulnerable citizens.  The IRS usually engages in freezing refunds where it feels vulnerable itself because sending out the refund will be the last it sees of those dollars and the circumstances surrounding the claim suggest that the taxpayer may not qualify for the requested amount.  The decision to freeze may make perfect sense as a tactic to avert inappropriate revenue loss; however, the lack of communication to the affected individuals coupled with the blunt rather than surgical use of the tactic lands the IRS once again in the doghouse. 

Taxpayers have remedies although they may not be easy remedies to pursue.  For those who read the recent post on bypassing normal channels at the IRS, take a look at the excellent comments it has drawn suggesting additional strategies.  In effect Sonya is exercising the strategy suggested by one commentator – publicity of the problem.  The other commentator suggests litigation and that soon will be available to Sonya’s clients.

It can be easy to forget that a tax return is a refund claim.  If the IRS freezes a taxpayer’s refund for more than six months, the door to the district courts swings open.  This is a strategy that Rob Nassau who directs the tax clinic at Syracuse has employed for frozen EITC refunds.  The next post from Sonya may describe the best procedure for bringing suits in these cases and her dealings with the Department of Justice Tax Division.  Keith


The Federal Tax Clinic at the University of South Dakota School of Law began operations this fall. We are aware of a group of nonresident taxpayers (taxpayers that fall under the rules for aliens temporarily present in the United States as students, trainees, scholars, teachers, researchers, exchange visitors, and cultural exchange visitors) who had their 2014 refunds frozen. Their refunds were the result of Form 1042-S (Foreign Person’s US Source Income Subject to Withholding) withholdings. The taxpayers were not aware of why their refunds had been delayed. We believe that they are among the many nonresident taxpayers whose refunds the IRS began systemically freezing this year.


In an IRM Procedural Update issued January 30, 2015, IRM, the Service advises that beginning January 1, 2015, it will systemically freeze a taxpayer’s entire refund where the taxpayer filed Form 1120-F and any portion of the refund is supported by a Form 1042-S. The freeze lasts up to 168 days, during which time Compliance will check the validity of the refund. If Compliance finds that the refund is not valid, the IRS will extend the freeze. If a taxpayer calls the IRS inquiring into the status of the refund, then the Service will advise the taxpayer that “[t]he IRS will need additional time to process your return. Please allow IRS up to six months from the original due date or the actual filing date of the return whichever is later to receive your refund.”  The IRM provides that no notices will be generated regarding the systemic freeze. However, if taxpayers call the IRS and claim hardship as the result of not having received their refund, the IRS will refer them to the Taxpayer Advocate Service. Although IRM presumably applies only to taxpayers filing Form ll20-F, i.e. foreign corporations, it appears that the IRS is also applying the IRM to systemically freeze the refunds of individuals who filed Form 1040NR.

After inquiring into the status of one refund (the taxpayer filed Form 1040NR), the IRS advised us that there was a 168-day hold on the refund because of the taxpayer’s Form 1042-S. IRM is the only IRS literature we have found that references a 168-day freeze for refunds supported by a Form 1042-S, which causes us to conclude that the IRS is likely applying this IRM, meant for Forms 1120-F, to Forms 1040NR. Additionally, similar to the language found in the IRM, the IRS has posted a statement to its website advising taxpayers who filed a Form 1040NR with Form 1042-S that the Service will need up to six months from the due date of the return or the date the return is received, whichever is later, to process the return and issue any refund.

In a follow up communication, the IRS advised us that it issued 3064C Letters to the nonresident taxpayers in mid-September 2015 (about five months after the taxpayers filed their returns) informing them that the Service needed more time to process the returns. We have not seen these letters. However, it is our understanding that the IRS does not address why the taxpayers’ refunds have been frozen or what the taxpayers can do to expedite the process. Prior to these letters, the IRS had not made any attempt to individually notify the taxpayers of the refund delays. As Yogi Berra is quoted to have said, “It’s déjà vu all over again.” The IRS has a significant history of silently freezing refunds.

The National Taxpayer Advocate (NTA) raised the issue of frozen refunds in her Annual Report to Congress as early as 2003 and as recently as 2013. In her 2005 Report the NTA listed Criminal Investigation Refund Freezes as one of the most serious problems within the IRS. Criminal Investigation Refund Freezes are a part of the Questionable Refund Program, which was “designed to identify fraudulent returns, to stop the payment of fraudulent refunds and to refer identified fraudulent refund schemes to Criminal Investigation (CI) field offices.” Although we believe the systemic freeze of refunds supported by a Form 1042-S is more likely the result of proposed Treasury Regulations detailed in IRS Notice 2015-10 than the result of the Questionable Refund Program, the same concerns regarding taxpayer rights noted in the NTA’s 2003, 2005, and 2013 Annual Reports applies.

Notice 2015-10 proposes regulations that affect the treatment of claims for refund and credits made by taxpayers subject to withholding rules under I.R.C. §§1441 – 1443 and §§1471 – 1472. The proposed regulations will allow the IRS to deny refunds to the extent that withholding agents have not deposited the correct amount of withholdings under I.R.C. §6302 and to the extent that reported withholdings are fictitious. As with cases in the Questionable Refund Program, the IRS is understandably concerned about the potential for fraud. This is especially true for withholdings reported on Form 1042-S because both the claimant and the withholding agent may be outside of the United States, making recovery of erroneously issued refunds nearly, if not actually, impossible.

Nevertheless, the problem with systemically freezing taxpayer refunds to investigate the validity of the refunds is that inevitably the “innocent” get caught in a net meant for “bad” actors. Regarding withholdings reported on Form 1042-S, the IRS acknowledges in Notice 2015-10 that perhaps there should be an exception for withholding agents who have a history of compliance or where the refund claimed is de minimis. However, judging from the frozen refunds, it appears that the IRS currently is not applying any such exceptions. If it were, we would think that the withholding agent in many of these cases—e.g., domestic withholding agents that are subject to IRS jurisdiction and have an excellent record of tax compliance (such as U.S. educational institutions), would be excepted from lengthy queries or that the taxpayers’ refunds (sometimes just a few hundred dollars each) would be viewed as de minimis.

The NTA has repeatedly emphasized the IRS’ need to implement proactive handling and management procedures to notify taxpayers that their refunds have been frozen and to provide a reason for such action and an opportunity to address the issue so that the refund claim may be resolved as expeditiously as possible. In 2006 the New York Times reported that the IRS would begin notifying taxpayers regarding frozen refunds, quoting then Commissioner Mark W. Everson as saying “I believe that appropriate notification should be given when refunds are frozen … Honest taxpayers expecting a refund deserve to be treated fairly.” Since then Mr. Everson’s belief that taxpayers deserve to be treated fairly has been made a priority, if not a reality. The Taxpayer’s Bill of Rights gives taxpayers the right to be informed, the right to quality service, the right to challenge the IRS’ position and be heard, and the right to a fair and just tax system. A systemic freeze of taxpayers’ refunds without prompt notice infringes upon these rights. A vague letter to the taxpayer requesting more time to review the return five months after the IRS has already frozen the taxpayer’s refund does not amount to fair treatment.

Restitution Based Assessment and Tax Return Preparers: An Uneasy Mix

At last week’s ABA Tax Section meeting in Chicago one of the panels I enjoyed most was the Civil and Criminal Tax Penalties discussion on tax preparer fraud moderated by Sara Neil of Capes Sokol (whose colleague Justin Gelfand has written on identity theft for us as a guest), with Scott Clarke from DOJ, Matt Mueller from Wiand Guerra King in Tampa and Paula Junghans from Zuckerman Spaeder in DC.

The panel’s materials included a 2015 case, United States v Horn, from the district court in Maryland. Horn involved a hearing regarding whether a return preparer who had pleaded guilty to one count of preparing and filing false returns in violation of 26 USC 7206(2) should be required to pay restitution. The opinion is by Judge Marvin Garbis, a former tax practitioner and author of books and articles on tax procedure. I do not know Judge Garbis personally but I recall one of my mentors Michael Saltzman admiring him for his tax procedure chops (no small feat as Michael’s talent was matched by a healthy and justified sense of tax procedure ego).

The opinion concludes for very practical reasons that the IRS should not be able to make a restitution based assessment (RBA) against Horn, and how it gets there rings some interesting tax procedure bells that I found worthy of a post.


Facts and Legal Background

The parties stipulated that the preparer Judianne Horn provided 16 clients with tax returns that listed false deductions on Schedule A or false business losses on Schedule C. The stipulation laid out over a four-year period the understatements of tax liabilities on a year-by-year basis for Horn’s clients. The total understatement of tax liabilities for the 42 federal tax returns (not every client had a return filed in every year) was $281,764.

We have recently discussed in the revision to Saltzman and Book the 2010 legislative change codified in Section 6201(a)(4)(A) that allows the IRS to assess and collect restitution under an order in Title 18 section 3556 “in the same manner as if such amount were such tax.” We discussed restitution based assessments in SaltzBook Chapter 10 (dealing with assessments) and in Jack Townsend’s redo of Chapter 12 (dealing with tax crimes); Keith also discussed it in PT in a post last year.

There are lots of interesting issues that spin off this important administrative power, and Horn raises one, namely whether the IRS has the ability to use RBA powers when the offense at issue relates to a preparer’s misconduct that implicates multiple taxpayers with multiple tax liabilities.

As the opinion describes, Section 6201(a)(4)(A) results generally in the IRS substituting itself for district courts when it comes to the payment of a restitution obligation. As an example of this, the opinion notes that an RBA “effectively eliminates the power of the district court to provide for periodic payments of restitution in amounts determined by the court subject to revision should the defendant’s financial circumstances change.”

The Tension Arising from Restitution Based on Third Party Liability

The rub as Judge Garbis describes was that when restitution is based on tax liabilities of others (such as but not exclusively when the defendant is a return preparer) it creates problems for both the courts and IRS in setting the proper amount but even more so perhaps in monitoring the payments going forward:

This creates a substantial level of complexity for determining the amount of restitution to be imposed and imposes a substantial management burden on the IRS and the court to monitor, not only in the application of restitution payments made by the defendant but also collections made by the IRS from taxpayers whose liabilities are the subject of the restitution order.

To fully appreciate this statement it is necessary to contrast loss for sentencing guideline purposes and restitution. The $281,764 understatement I referred to above determines loss for sentencing guidelines purposes. The loss for guidelines purposes exists irrespective of any post-offense circumstances, whereas the nature of restitution in the tax context makes those very post-offense circumstances quite relevant:

The function of restitution is to require a defendant to restore to the victim of a crime the loss caused by the defendant’s criminal conduct. A restitution award is not to be issued for punitive purposes or to provide the victim with a profit. Thus, the amount of restitution should not exceed the loss to the victim actually cased by the defendant.

The Horn opinion brings this back to the IRS:

In the context of a false federal income tax return, the actual loss to the IRS for which restitution should be paid is the deficit in tax collected with regard to the return in question-i.e., the amount of tax that would have been reported due on an accurate, correct tax return and paid, reduced by the amount collected by the IRS with regard to that return. (emphasis added).

Moreover, as the opinion notes, the actual loss to the IRS for restitution would have to take into account the tax liability reported as if the returns were properly filed, including deductions or credits that the taxpayers failed to originally claim. The proper amount of tax liability would also be reduced by the amount reported to the IRS on the false returns as well as “reductions in the restitution balance due as the IRS received payments and applied them to the tax liability understatement for the return in question.”

Given that the liability at issue here turns on third parties (the taxpayers whose returns Horn prepared) the opinion notes that the task would be dependent upon both “the number and complexity of the substantive issues presented in a particular case.” The process for defense counsel was as Judge Garbis describes one that would essentially require counsel to inquire into all 42 returns:

Defense counsel could be accused of a failure to provide effective assistance unless he/she reviewed the IRS’s proposed adjustments to each of these 42 returns, presumably with the assistance of a qualified tax professional.

Judge Garbis notes that the review should lead to some process (at cost that may be borne by the State if the defendant is represented by appointed counsel) whereby the defendant could access records and even potentially interview witnesses in a search for offsetting adjustments.

Contrasting Restitution Based Assessment with Restitution That is Not Assessed

The opinion notes in footnote 8 that “there may be reasonably debatable issues” as to whether the IRS can make a restitution based assessment in this case though the court for purposes of the order assumed that it could. I will take a quick stroll through that issue. Recall that Section 6201(a)(4)(A) provides that the Service may only assess an amount of restitution ordered “for failure to pay any tax imposed under [Title 26].” As the Service itself explained in a notice issued in 2011 “not every conviction in a Title 26 criminal case will result in an order of restitution that will be assessable.” Whether the IRS can use its RBA powers as the IRS in the notice from 2011 explained is based on whether the “restitution ordered is traceable to a tax imposed by Title 26 (e.g., cases stemming from an underreporting of income, an inflated credit or expense, or an alleged overpayment of tax that results in a false refund)….”

Not every restitution order connected to a Title 26 offense is within the reach of 6201(a)(4)(A):

On the other hand, criminal cases in which the restitution ordered is not traceable to a tax – such as when a taxpayer submits false documents or tells lies during an examination – may not result in assessable restitution.

Whether aiding and assisting in preparing and filing someone else’s tax return constitutes an amount of restitution ordered “for failure to pay any tax” is a question that the Horn opinion sidesteps and that I suspect other opinions may tackle, though IRS lists in its 2011 notice the 7206(2) offense Hom pleaded guilty to as an offense that “may” meet the requirements for assessment.

Back to the Horn opinion and what it does address. In discussing RBA, the opinion notes that once restitution is assessed, the IRS can use its full collection powers, with the assessment also subject to interest and late payment penalties.

In contrast, when there is restitution that does not result in an RBA, the opinion emphasizes the broad discretion that solely resides in a sentencing court:

However, when issuing a restitution order that does not result in an RBA, a sentencing court can exercise its discretion and decide whether to set a fixed date for payment in full or a schedule for partial payments consistent with the court’s finding regarding the defendant’s financial circumstances.The opinion illustrates the discretion with examples as to what the court (unlike the IRS) might do: Often, when a defendant does not have the ability to make full payment immediately, a sentencing court will defer all, or part, of the payment obligation during the time a defendant is incarcerated and will set a periodic payment schedule with the first payment due when the defendant is released from prison. The restitution order can provide that the amount of each periodic payment is subject to change depending upon changes in a defendant’s financial circumstances. The sentencing court can require, or waive, the accrual of interest on the unpaid balance. There will be no automatic “late payment penalty” applied to any unpaid balance of the full amount of restitution. Rather, the district court would consider imposing a sanction for a failure to make a restitution payment, taking into account the court’s determination of the defendant’s financial ability to meet the obligation.

Managing Restitution 

The opinion notes the important distinctions between the way the IRS and sentencing courts manage or monitor the receipt of restitution payments.  First, the opinion describes how courts manage the process:

In the absence of an RBA, a defendant’s restitution obligation is reduced, dollar for dollar, as the defendant makes payments pursuant to the restitution order.

IRS on the other hand treats payments made pursuant to an RBA as involuntary, with IRS having discretion to allocate the payments as it chooses among tax, interest and penalties. IRS may even, as the opinion notes, allocate payments to any other of the defendant’s own assessed liabilities that are wholly unrelated to the offense giving rise to the RBA.

The IRS’s discretion is amplified when the restitution relates to an order stemming from a return preparer’s criminal offense, with the IRS having the ability to allocate payments “among the taxpayers and income tax returns for which restitution would be due.”

Judge Garbis thus sets the stage for an administrative mess that led in part to his concluding that he would not order restitution in the case. Recall that when imposing restitution the IRS is not to collect more than the correct amount of tax at issue. When there are multiple taxpayers and multiple potential assessments and collections from those third parties, unless there is a process to track those payments and allocate the payments to the individual liabilities it would be very difficult for the IRS to represent to the court that it would limit its collection on the preparer’s assessed restitution to reflect its collection from those third parties whose returns the IRS would presumably examine.

Somewhat surprisingly, the IRS attempted to minimize the administrative burdens with a representation that it would not seek to enforce the laws with respect to the 16 taxpayers who benefitted from Horn’s illegal actions:

[T]he Government has taken the position that it will not seek to collect income tax underpaid by – or, better put, unwarranted refund payments made to – the taxpayers who filed the false returns.

Perhaps IRS did so because it wanted precedent on the books that it could get restitution in a case such as this, or perhaps it did so because it knew that resource constraints limited it from examining those 16 taxpayers and the 42 returns at issue (I won’t even go the SOL issues stemming from third party fraud, an issue we have spoken about in the BASR v US case in a guest post by Robin Greenhouse).

In any event, in a part of the opinion that appeals to my Introduction to Federal Income Tax professor hat, Judge Garbis pointed to the potential tax issues created when a preparer would make restitution payments that would benefit her clients by offsetting their tax obligations:

Nevertheless, unless the I.R.S. can make a decision to grant these taxpayers a gift from the Department of the Treasury, it should seek to have these taxpayers comply with their future tax obligations. Hence, if the Defendant were now to make a restitution payment that is applied to a tax liability of W.W., a taxpayer who obtained more than $17,000 of unwarranted refunds, it would appear that W.W. would have taxable income in the year of the Defendant’s payments.

This conclusion relates to the notion illustrated in cases such as Old Colony that a person has gross income when someone else pays that person’s tax on his or her behalf. The Horn opinion thus states that even if the IRS were not going to examine the prior returns to reflect ensuring past compliance, “the I.R.S. should monitor continually its application of restitution payments and ensure future tax compliance by the taxpayers to whose tax liabilities the payments are allocated.” While I have not fully thought through the Old Colony issue that Judge Garbis raises (for example, is the possible inclusion of income dependent upon there being an assessed liability agains the taxpayer?), the discussion at least implicates issues of coordination and the mechanism that the IRS would or should use to credit any restitution payments against individual taxpayer liabilities.

The Court Concludes that Restitution is Not Appropriate

Having I think established that the IRS desire to seek an RBA in this case created a number of vexing issues, the opinion expressed doubt as to whether the IRS was up for the task of managing and monitoring on a going-forward basis:

Indeed, it appears doubtful that the I.R.S. can, realistically, keep the Defendant and the Court (Probation Officer) informed of its application of Defendant’s payments. Moreover, the Government has described no coherent existing, or proposed, practicable process for keeping track of, and advising the Court (Probation Officer) and Defendant of, the status of payments made by, or collected from, taxpayers with respect to tax liabilities included in the restitution amount.

The “bottom line” is that if a tax return preparer defendant is unable to make more than modest partial payment of the restitution obligation, then a restitution order resulting in an RBA would impose a monitoring obligation on the I.R.S. and the Court (i.e., the Probation Officer) that, if at all possible to meet, would cause disproportionate managerial problems for the I.R.S. and the Court. (footnotes omitted).

The complexity and “disproportionate management burden” on the IRS and the court thus led to the conclusion that it was inappropriate to issue a restitution order. That burden was exacerbated by the financial circumstances of the defendant, as the court noted that a restitution order causing an RBA might be appropriate perhaps when “prompt, full payment can be required.” The opinion concludes by noting that it could have required restitution that would not have led to an RBA but that it chose not to in this case.

Parting Thoughts

Jack Townsend has noted that the relatively new RBA powers create some administrative challenges even when the restitution relates to an offense stemming from the defendant’s own tax liability (see his 2014 discussion of Murphy v Commissioner and procedures associated with RBA over at his Federal Tax Crimes blog here, with its sensible recommendation that IRS issue regs under the RBA statute).

The Horn opinion touches on some practical and legal challenges associated with an RBA that implicates third parties and their respective tax liabilities. In an email exchange over this case Jack offers the observation that “some of the real or imagined administrative problems that Horn raises could be solved by simply wiping off restitution on the criminal side once it has been assessed.”  As Jack notes, that “would let the IRS’s collection tools work the way they always work. It would also take legislation.” While at it, Jack suggests that with the “IRS’s robust tax collection mechanisms delegating tax restitution collection to the IRS and getting the courts / probation office / U.S. Attorney out would be a good use of limited resources.”  Jack also suggests that it would make sense for any delegation to the IRS include the IRS having the power to compromise the assessed restitution. 

IRS and DOJ have many tools at their disposal to go after crooked preparers, but Horn serves notice that at least among judges willing to inquire how the IRS will go about its business, the IRS may not be able to use an RBA when it comes to convicted preparers.



When is the Right Time to Bypass Normal Channels at the IRS

When representing a client during an examination, or in the collection process or in Appeals, a time can come when complete frustration sets in and you despair that you can never accomplish what you need for your client. How do you know when it’s time to give up on the normal process and move to a different path? In taking the different path, whether it is going to the manager of the employee handling the case, going to TAS, going to your client’s Congressman, or in very extreme cases making a referral to TIGTA, you know that you may likely burn a bridge with the person at the IRS handling the case. How do you balance between the potential benefit to your client or to the system and the known negative consequence? What duty do you owe to your current client with the problem versus your other clients or future clients whose cases may feel the impact of your broken relations? Does it matter that the IRS person works locally causing you to regularly encounter them versus the employee in a Service Center on the other side of the country? All of these thoughts and more go into the calculus of taking a case out of the mainstream path set by the IRS.


An article in the Fall 2015 TaxPro Journal by Charles Markham, “Intractable Tax Problems? Consider a Congressional Referral” got me thinking about this issue and whether any empirical research exists on this [See National Taxpayer Advocate Annual Report to Congress 2014, Page 549] or ethical opinions. In the article Charles does a good job of explaining how to go about making a Congressional referral. He also talks about how often you might make a Congressional referral – not often – and why. The discussion made me reflect on my years in Chief Counsel’s office and the attitude of those in my office toward practitioners who could not help themselves from elevating every case, or almost every case, in which they worked and did not get the result they desired. By elevating I mean these practitioners went to the manager, to TAS or to their Congressional representative. These practitioners held a special place in our hearts and it was not a good place.

Yet, moving a case into the hands of someone other than the assigned party needs to happen in some cases in order to assist a client in getting the correct result. The trick is knowing both how to do it and when to do it. Charles’ article is a good starting point. He describes the circumstances of the case in which he used the Congressional referral and the fact that the case was at a standstill. He mentions that “much of its power comes from being used sparingly.” His article gives a detailed and excellent roadmap to making a Congressional referral by describing each document that should go with the request and what to say. Similar thought and care should go into a referral to a manager, to TAS or to TIGTA. Asking to speak to the manager or submitting a 911 should never happen without the same type of detailed presentation that Charles describes in his article for a Congressional request. This will allow the person receiving your request to immediately understand what you want and why. Every effort to avoid personalizing the request should occur.

I thought I would add a few observations and draw on some former IRS employees to add theirs as well. I contacted four former colleagues I worked with in Richmond. Each worked as a manager and, of course, before that worked as the line employee.

Going to an employee’s manager is the easiest and the hardest of these options at the same time. The request to the manager fits into the easiest category since the manager should already have some engagement with the circumstances and certainly should know the general situation in which your request fits. The manager can act more quickly than the other parties to whom you might make your plea and the manager, if convinced, certainly has authority to direct the employee to produce the result you seek. By giving the manager the chance to fix the problem before moving to TAS, TIGTA or to Congress, you allow the manager to diffuse the situation without the problems created by outside intervention which could cause both the employee and the manager to have lasting dislike for you. The more you already have a relationship with the manager, and the employee, the better you can gauge this approach. If it is a local office in which you practice regularly, you may have a good sense of the success the elevation to the manager will bring. On the other hand, the manager must work with this employee every day and their first reaction will generally seek to protect the employee. Many times the employee’s behavior in the case may already reflect the position of the manager.

My former colleague Mike Colley who worked in the collection division observed that

First line managers rarely change the decision made by revenue officers when it is a judgement call. They may not agree that it is the best course of action, but do not want the less gifted revenue officers clearing enforcement actions with them prior to discussing same with POAs. If the revenue office is “off the reservation”, his/her proposed action should be discussed with the manager and will be well received.

Revenue officers and their first line managers share information formally and informally. If a POA frequently requests a meeting with a first line manager, he/she will not be able to negotiate successfully when lobbying for an alternative to actions proposed by a revenue officer. In fact, the manager may be less inclined to grant the action requested to encourage the POA to work with the revenue officer in the future.

Revenue officers not only share info about the actions of POAs with their managers, they also share it with each other. POAs need to understand that a reputation for trying to delay appropriate collection actions spreads quickly and will prevail for a long time.

Revenue officers have a lot of discretion. They have discretion as to actions to be taken, and when such action can be taken. Don’t poke the bear!

Former colleague, Mark Rocawich, who had the unusual distinction to serve as both the Chief of Collection and of Examination in Richmond basically agreed with Mike’s observation about the low chance of success in seeking to elevate a matter to the manager. His remarks focused on getting the revenue officer or agent removed from the case as opposed to simply elevating the matter to seek to have the group manager overrule the employee. He cited the CDP process as an opportunity to take the case out of the hands of a revenue officer where the case might not be going on the desired path, but he also felt CDP was an opportunity to continue working with a revenue officer where it looked like a reasonable resolution was possible. Similarly, in exam cases the case can effectively be removed from the agent by going to Appeals; however, that tactic may have lost some of its value if the representative wants to make arguments not presented to the agent and Appeals returns the case to the examination division at that point.

Former colleague, Bill Branch who worked in the Estate and Gift branch of the examination division, a more genteel practice area, had a more positive take on elevating the case to the manager. Each of my former colleagues has engaged in tax practice after retirement and Bill’s comments reflect both his experience inside and outside the IRS:

This can be a tough call, but I would not resist getting the group manager involved if I thought I was not being treated fairly by an agent.  Since working here, we’ve employed this move in five (?) audits.  I think it proved successful in four.  That is not to say we got everything we wanted, but the manager ended up making some concessions.  One thing to keep in mind [is that] most practitioners will “feel” it when they’re getting the shaft, or, at least, not a “fair shake” on the issues by the agent.  The manager should know that a practitioner isn’t going to ask for a manager’s involvement just to see if he can get a better deal without presenting any arguments of merit.  If the practitioner thinks he’ll get any concessions just by whining, he’s not going to get very far….  If the Taxpayer’s argument has merit, generally, the manager is willing to concede some and, perhaps, all of the issue.

George Gretes, who was the Chief, Appeals, before retirement had the following comments:

I agree with what has been stated above. If the case is in Appeals there should not be a concern about raising a problem to the manager. As noted earlier, these managers who are on the front line are, or should be, aware of the case and can take action to resolve problems and issues quickly and typically without creating additional problems. I also agree that a representative who is constantly going to the manager or elevating issues that have no merit is going to have his / her protest fall on “deaf ears”. In elevating a problem stick to the facts, the issue and try to avoid personality complaints and arguments.

The representative needs to know of all of the alternatives available to his client by including a search of alternative dispute resolution procedures in the Appeals section of the IRS Manual. For example, while the case is still in Examination or Collection (Compliance) and after raising the issue to the manager, consider asking for Fast Track Mediation, Fast Track Settlement or Early Referral to have Appeals involved in the case. Under these procedures Examination or Collection calls Appeals into the discussion to serve as a mediator or settle the issue or the case. Simply asking to use the process may move Compliance toward resolving the issue without involving Appeals. In addition, if the case is still not resolved under these procedures the case can go to Appeals and an Appeals Officer other than the one involved earlier will be assigned to the case.

If the case is in Appeals and the Appeals Officer is not working to resolve issue I would suggest asking to meet with the manager. If the issue is not resolved at that level I would ask for Post Appeals Mediation. Under this process another Appeals Officer or an Appeals manager is called into the process to resolve the issues. The problem with Post Appeals Mediation is that the “decision makers” must be at the meeting. That means the Appeals mediator will have settlement authority, your client may have to be there and they will be looking to make a decision at that meeting. By using the processes in place (after going to the first line manager) you are less likely to create a situation that you may regret in the next case you have before the IRS.

Going to TAS is another internal option before you seek Congressional assistance. If you have a good relationship with the Local Taxpayer Advocate, you may find that calling the advocate to discuss options for addressing the problem will help you in deciding what to do. If the LTA advocates bring it into their office after listening to your concerns and if you have confidence in your LTA, that provides a good sign that taking the case to the LTA will prove beneficial. The LTA may advise talking to the manager or seeking Congressional assistance. That person’s job is to fix problems stuck in the system. A good LTA probably knows the most efficient way to solve the problem. I have had good success partnering with the LTA on the decision of how to attack a problem. The more remote the location from your locality, the less likely the LTA will know the personalities involved but the LTA may still have a good sense of the systemic issues at play allowing her to provide good advice on how to attack it. Mark indicated that he found TAS very helpful in the past but that the budget cuts at the IRS had reduced the office with which he worked to a fraction of its former self making it very difficult to get assistance from TAS. Mike said “My philosophy is to make it easy for TAS to do their job. Be very clear as to the problem; all the actions you have taken (to include copies of letters to the IRS and proof of mailing; copies of correspondence from the IRS; and other information that documents the necessity of assistance from TAS).”

A Congressional request will draw an answer. The IRS will not run away from the request but you need to take care in the types of cases in which you choose to call upon the Congressional office. As Charles describes, in most cases, that office will slap a cover letter on your submission. If you want help in a case in litigation, the response from the IRS will generally be that the case is in litigation. That is not a process where the Congressional office can provide much help. If your case is stuck somewhere within the IRS, as Charles’ was, the letter from the Congressional office, which will draw attention at high levels, may prove the most efficient where you feel talking to the manager would be unproductive.

The nuclear option involves making a referral to TIGTA. This should occur only where you determine the IRS employee has done something wrong. Some things that IRS employees do wrong implicate Section 1203 of RRA 98 and can cost the employee their job. Most wrongful, or perceived wrongful, actions by IRS employees do not lead to dismissal but having a matter investigated by TIGTA can have serious consequences for the employee.

Those representing low income taxpayers may have a different take on working with the IRS because they so rarely encounter a revenue agent or revenue officer. Most of their cases get handled by groups of employees such as correspondence exam or ACS. Getting another employee to work on the case in those matters simply involves making the next contact with the IRS. Each time a different person touches the case. Going to the manager or TAS also involves different considerations since rarely does a relationship exist between a practitioner and an employee in one of the group functions.

Mike summed up his view of the situation with his comment that “the bottom line is that all practitioners will use the appeal process provided by the IRS when it is in the best interest of their client. However, the best practitioners do not file frivolous appeals on an ongoing basis.”

Fifth Circuit Tackles Intersection of TAO Rules and Statutes of Limitation

Generally, under the doctrine of sovereign immunity, the government can avoid civil liability unless there is a statute that gives a party the right to sue the government. Earlier this week in Rothkamm v US, the Fifth Circuit issued an opinion that considered whether a wife’s application for a Taxpayer Assistance Order (TAO) concerning a recovery of funds levied from her bank account to satisfy her husband’s tax debt tolled the nine-month wrongful levy statute of limitations. The Fifth Circuit held that the wife’s application for assistance to the Taxpayer Advocate Service tolled the statute, thus preventing the government from using sovereign immunity as a defense to the suit.

The case is important. It touches on the intersection of requests for assistance from TAS and statutes of limitation generally, and contains a full-throated consideration of the effect of requests for Taxpayer Assistance Orders on the time for bringing an action for a wrongful levy. That alone merits consideration in PT but the case’s reasoning and spirited dissent also suggest that it will have an impact on other matters that are subject to Taxpayer Advocate Service assistance requests.

In this post I will summarize the facts and highlight the main points in the majority and the dissenting opinion.


Summary of Facts

Kathryn Rothkamm and her husband filed separate tax returns. Kathryn also had a separate bank account which she claimed consisted of her separate property.  IRS issued a notice of levy on March 6, 2012 to collect on the husband’s tax debt. In response, the bank remitted the full amount of account (over $73,000) to the IRS on April 18, 2012. Within two weeks of the bank remitting the funds pursuant to the IRS levy, Kathryn filed an application for assistance with Taxpayer Advocate Service. In October of 2012 TAS responded to Kathryn and said it could not help. By May 15, 2013 Kathryn filed an administrative claim for wrongful levy under Section 6343(b) with the IRS. IRS denied the claim in July 2013. In September of 2013 Kathryn filed a suit for wrongful levy.

Statutory Background—Is the Wife a Taxpayer for These Purposes?

There is a nice labyrinth of statutes here and I will lay them out in this section.

Section 7426(a) provides the authority for a person “other than the person against whom is assessed the tax out of which such levy arose” to bring a suit for a wrongful levy in federal district courts.

Section 7426(i) provides that the nine-month statute of limitations in Section 6532(c)(1) applies for those suits. Section 6532(2) generally suspends the sol during the administrative consideration of the wrongful levy claim under Section 6343(b).

Superimposed on the scheme for wrongful collection claims and suits is Section 7811(a), which authorizes the NTA to issue Taxpayer Assistance Orders when “the taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the Secretary…”

Section 7811(b)(1) and Section 7811(b)(2) provide that a TAO can be issued to “require the Secretary to release property of the taxpayer levied upon”, or “to cease any action, take any action as permitted by law, or refrain from taking any action, with respect to the taxpayer” pertaining to a variety of matters, including collection.

Section 7811(d) provides the tolling provision that was the key to the case (and which I will return to later):

The running of any period of limitation with respect to any action described in [7811(b)] shall be suspended for—

(1) the period beginning on the date of the taxpayer’s (emphasis added) application under [7811(a)] and ending on the date of the National Taxpayer Advocate’s decision with respect to such application, and

(2) any period specified by the National Taxpayer Advocate in a Taxpayer Assistance Order issued pursuant to such application.

Those provisions also relate to Section 7701(a), which defines terms in Title 26 “where not otherwise distinctly expressed or manifestly incompatible with the intent thereof…” In particular, Section 7701(a)(14) provides that the “term “taxpayer” means any person subject to any internal revenue tax.”

Bringing it Back to Rothkamm

The issue as the Fifth Circuit discussed was thus the following:

As the district court explained, the IRS levied Rothkamm’s account on April 18, 2012. Thus, the general statute of limitations would have expired on January 18, 2013, absent any tolling. Rothkamm’s administrative wrongful levy claim, which she filed on May 15, 2013, would toll the running of the statute of limitations if filed within the statute of limitations. Thus, the core question is whether, as Rothkamm contends, the statute of limitations was tolled while her application for a TAO was pending before the TAS. If so, her administrative claim under § 6343(b) would also have been timely, and the statute of limitations for filing suit would have been suspended until January.

In a nutshell, the Fifth Circuit concluded that the district court was wrong when it found that Kathryn was not the taxpayer for purposes of Section 7811(d):

In this case, we conclude the district court erred in determining the definition of “taxpayer” under § 7811 by failing to supply the Internal Revenue Code’s generally applicable definition set out in § 7701; and the court further erred in its interpretation of § 7811(d)’s tolling provision by failing to follow theplain language of the statute and associated regulations.

The opinion is dense on this point, but here are some of the highlights.

There is a discussion of how Section 7701(a)(14) defines the term taxpayer and how the 1995 Supreme Court decision US v Williams found that a third party who paid an assessed tax to remove a federal tax lien from her property was a “taxpayer” that was entitled to bring an administrative refund claim:

Following Williams, Congress did not revise § 7701(a)(14), so the Supreme Court’s interpretation stands. Thus, under § 7701(a)(14), the word “taxpayer” means not only the person against whom a tax is assessed (here, Rothkamm’s husband) but also the person who actually pays the tax (here, Rothkamm herself). Pursuant to § 7701(a), that definition applies throughout Title 26 “where not otherwise distinctly expressed or manifestly incompatible with the intent thereof.

On appeal, IRS attempted to distinguish the significance of Williams with the 2007 Supreme Court case EC Term of Years Trust. In the lower court’s view that case provided support for the “proposition that the definition of “taxpayer” is somehow limited to the person against whom the tax is assessed in the wrongful levy context.”

The Fifth Circuit disagreed. EC Term of Years Trust held that a third party had to use the 9-month SOL under 7426 rather than the general refund suit SOL under 28 USC 1346. The Fifth Circuit found that EC Term of Years Trust did nothing to alter its conclusion that taxpayer should be defined to include third parties like the wife in this case:

All of which is to say that Williams defined “taxpayer” broadly under§ 7701(a)(14) to include not only the assessed taxpayer but also a person who actually pays the tax, and the 2007 Supreme Court decision EC Term of Years Trust did nothing to alter that definition. It simply held that a third-party (relative to the assessed taxpayer) whose property is wrongfully levied must bring suit under § 7426(a)(1) rather than § 1346(a)(1) because § 7426(a)(1) specifically covers that situation. In this case, Rothkamm brought suit under § 7426(a)(1) and has always conceded that the nine-month statute of limitations applies to her case.

Recall, however, that Section 7701(a) in the introductory language provides an out if an alternate statute contradicts the language or is “manifestly incompatible” with the definitional parts of 7701(a)(14). The Fifth Circuit opinion discusses how the TAO statute (section 7811) does not limit the definition of taxpayer so that in its view the definition in Section 7701(a)(14) controls:

 Similarly, the statute governing TAOs, § 7811, neither “specifically expresses” a more limited definition of “taxpayer” nor is “manifestly incompatible” with § 7701(a)(14)’s broad definition.

Nor in its view did the regulations under Section 7811 alter the conclusion that Kathryn was a taxpayer:

The associated regulations also do not “specifically express” a more narrow definition of “taxpayer.” Indeed, at least four of the ten example situations set out in the regulations, all concerning wrongful levies, are written without specifying whether the TAO applicant is an assessed taxpayer or a third-party taxpayer who pays the tax assessed to another. In short, neither the statutes (§§ 7803 and 7811) nor the regulations are “manifestly incompatible” with § 7701(a)(14)’s broad definition of “taxpayer.” Thus, the district court erred in holding that Rothkamm is not a “taxpayer” under § 7811.

(citations omitted)

Focus on Section 7811(d)-Even if The Wife is the Taxpayer Does The 7811(d) Tolling Provision Apply?

The opinion is perhaps more significant for its view on Section 7811(d). It rejected the district court’s alternative holding that even if the wife was a taxpayer the statute itself did not provide for tolling in her circumstances. The majority opinion did so because it felt that the statute made no reference to which party should benefit from the tolling.

The district court held that the tolling related to situations when the application for assistance prejudiced the IRS; in other words the tolling was a tool to help IRS with its assessment or collection but not taxpayers who sought assistance and then sought for example a refund or return of levied funds.

Here is language from the district court:

But even if the Court assumes for sake of argument that Rothkamm is a taxpayer within the meaning of 26 U.S.C. § 7811, she still cannot prevail because a plain reading of section 7811(d) shows that the time periods tolled relate to actions available to the IRS, not actions available to the taxpayer. See 26 U.S.C. § 7811(c), (d). This conclusion is reinforced by the relevant administrative regulations, which state unequivocally: “A taxpayer’s right to administrative or judicial review will not be . . . expanded in any way as a result of the taxpayer’s seeking assistance from TAS.” 26 C.F.R. § 301.7811–1 (emphasis added); see Demes v. United States, 52 Fed. Cl. 365, 373 (Fed. Cl. 2002) (“I.R.C. § 7811(a) . . . . does not go to the tolling of the statute of limitations in court, but rather confers the IRS with discretion to effect tolling upon a taxpayer’s request. Plaintiffs therefore cannot sue in a court for a refund under this provision, nor can the court use it as a basis to toll the statute of limitations in plaintiffs’ case:”

The district court’s interpretation was consistent with internal IRS advice, such as PMTA 2007-00429, which noted that it was possible to read Section 7811(d)’s tolling provision as applying to all matters before the TAS in a TAO request but that in its view that was an improper reading of the statute:

Section 7811 (d) provides for the suspension of any period of limitations relating to an action described is section 7811 (b). The actions identified in section 7811 (b) generally relate to the assessment or collection of tax. Treasury Regulation § 301.7811-1 (e) states that in general the limitations period for any action that is the subject of a TAO shall be suspended. The regulation does not specifically address the part of the statutory provision requiring the action to be one described in section 7811(b). Without addressing action under section 7811 (b), it could be inferred from the regulation that the filing of an application for a TAO results in the suspension of the applicable period of limitation for any action included therein. We do not believe that the regulatory provision should be interpreted this broadly. Such an interpretation would be inconsistent with the statutory language and inconsistent with the examples provided in the regulation, which specifically link suspension periods to actions described in section 7811 (b) of the statute.

Therefore, a filed application for a TAO will suspend the running of limitations periods for assessment or collection of tax under IRC §§ 6501 and 6502, because the failure to suspend the running of these periods of limitations could potentially prejudice the interests of the Service. A filed application for a TAO will not however, suspend the period of limitations for filing refund claims. If the intent of section 7811(d) is to provide protection to the Service while a taxpayer’s issue/problem is being addressed, failing to suspend the limitations period in section 6511 (b) does not injure or prejudice the interests of the Service. The interests of the taxpayer can be protected by filing a protective claim for refund.

The majority opinion flatly rejects the district court view of the scope of the tolling provision, looking to what it believes is a plain reading based on the statutory language in Section 7811(d) which refers to all actions in Section 7811(b) overall rather than any limiting language:

By its plain terms, § 7811(d)(1) applies to toll the running of any statute of limitations for any action described in § 7811(b) from the time the taxpayer files an application for the optional TAO until a decision is reached. Section 7811(d)(1) does not require that a TAO actually be issued or that any relief be granted. It simply provides that any statute of limitation for an action described in subsection (b) is tolled from the time an application is filed until the National Taxpayer Advocate reaches a decision.

It is plain from the language of the statute that because subsection (d) applies to all of subsection (b), it benefits both the IRS and the taxpayer, essentially pausing the running of the statutes of limitations applicable to both parties so that neither one is prejudiced by the TAO process. For instance, subsection (d), through subsection (b)(2)(A), tolls the statute of limitations for collection actions by the IRS, meaning the IRS does not lose any time to pursue collections when a taxpayer pursues a TAO. Likewise, subsection (d), through subsection (b)(1), tolls the statute of limitations for actions “to release property of the taxpayer levied upon.” By definition, such an action is one by the taxpayer, and any tolling on such an action necessarily benefits the taxpayer. (It is also, of course, precisely the action at issue in this case.) Thus, the taxpayer may pursue a TAO without fear that the process—which Congress expressly designed to assist taxpayers—will prejudice her administrative or judicial rights in the event she does not obtain TAO relief. Subsection (d)’s plain language means that neither the IRS nor the taxpayer is any worse off when a taxpayer decides to pursue TAO relief because all relevant statutes of limitations are tolled. Under the plain terms of the statute, this tolling occurs automatically until the National Taxpayer Advocate reaches a decision on the TAO application, without regard to any discretion on the part of the IRS.

Chevron and the Regulations Under Section 7811

The Fifth Circuit took aim at the district court’s view of the regulations under Section 7811 as well as cases that concluded that tolling was subject to IRS discretion.

The key regulatory provision in the district court’s view was Reg Section 301.7811-1(b). That provides that “[a] taxpayer’s right to administrative or judicial review will not be diminished or expanded in any way as a result of the taxpayer’s seeking assistance from TAS.”

The Fifth Circuit believed that the statutory analysis above was clear so that there was no need to even get into the weeds of the regulations under 7811:

First, under Chevron, if the language of the statute, § 7811(d), clearly provides for tolling (i.e., a waiver of sovereign immunity), then that ends the inquiry. The regulation cannot alter what Congress has clearly set out in the statute.

Moreover, the Fifth Circuit noted that the regulation the district court relied on (Reg Section 301.7811-1(b)) does not address tolling but only pertains to a general discussion of TAOs. In contrast, in the regulation addressing tolling, 301.7811-1(e), the court found no limitations on tolling once the TAO request is made:

[The]relevant language of section 301.7811-1(e) and the associated examples show that the running of the statute of limitations is tolled until a decision on the TAO application is reached. Importantly, this specific subsection on tolling says nothing about tolling being subject to the IRS’s discretion. Rather, the regulation notes that the Ombudsman (i.e., the representative of the Office of the Taxpayer Advocate, not the IRS) has the authority to lengthen—but not shorten—the period of tolling beyond the decision date…

The opinion goes on to criticize case such as Demes, a Court of Federal Claims opinion from 2002 (at page 25) which concluded that tolling is subject to IRS discretion as citing “no relevant support” for its conclusion.

Dissenting Opinion

This is an interesting dissent, looking to the broader context of the statute and also touching on its view of the regulations under 7811(d) as supporting the IRS position. The main difference between the majority and dissenting views revolves around the relationship between Section 7811(d) and 7811(b), with the dissent adopting the view that the tolling in Section 7811(d) relates to only actions implicated in Section 7811(b)(2) rather than Section 7811(b) generally:

In short, the majority holds that subsection (d) suspends the period of limitation for “any action described in subsection (b)” and subsection (b)(1) describes a wrongful levy action. That is, the period of limitation for filing an administrative request was tolled during the pendency of Rothkamm’s application for a Taxpayer Assistance Order (“TAO”), and she can rely on § 6532(c)(2).

Appealing in its simplicity, this plain language argument does not survive closer scrutiny for it steps past critical language. Subsection (d) provides that an application for a TAO suspends the running of the this case, this rule dictates that “action” has the same meaning in subsection (b) that it does in subsection (d). That is, subdivision (d) suspends the period of limitation only for the suits and proceedings in subdivision (b) that Congress described using the word “action.” Since subsection the word “action” in subsection (b)(1), § 7811(d) did not toll the period of limitation for Rothkamm’s wrongful levy claim – and her suit is untimely. The majority counters that this reading of § 7811 ignores that subsection (d) refers to all “action[s]” in subsection (b), not just those in subsection (b)(2). But this argument fails on its own terms; I contend only that subsection (b)(1) does not describe an “action,” not that subsection (d) does not apply to, or embrace, subsection (b)(1). If Congress had intended to suspend the period of limitation for all suits or proceedings described in subsection (b), it could have used either of those words – but it chose not to do so.

The dissent also looks to the overall role of TAS as supporting the IRS view in the case:

Although it may seem inequitable that subsection (d) only suspends the period of limitations for actions brought by the IRS, this was a sensible choice given that TAS – the agency that issues TAOs – lacks the power to direct taxpayers to do anything. As a result, nothing prevents a taxpayer from pursuing other remedies while seeking a TAO. In fact, a TAO “is intended to supplement existing procedures if a taxpayer is about to suffer or is suffering a significant hardship,” not “to be a substitute for an established administrative or judicial review procedure.”

In addition to disagreeing with the majority’s statutory analysis, the dissent also points out that the IRS’s own interpretation of the regulation in the IRM and Program Manager Technical Advice was subject to at least Skidmore deference.  As I discuss above, in the PMTA, the IRS had noted that the regulation might be read in a way that the majority opinion does but that in its view that was the incorrect result.

Recall that the majority sidestepped the issue of whether and to what extent the IRS should be entitled to deference in its view of the regulation because in its view the statute was clear in supporting tolling. The dissent disagreed, suggesting that the statute was plausibly read in a way consistent with the IRS view, thus leading to under Chevron a dismissal of the suit as untimely so long as the IRS view was reasonable (and in its view it was).


The case is a messy one and seems to turn in part on what the majority felt was an unfair outcome. The fairness here though is one that is in the eye of the beholder. Consider that the dissent also criticized the wife’s diligence; it was not clear why she waited several months after TAS did not help her before she filed her administrative wrongful levy claim, which she still could have filed in the 9-month period had she done so promptly.  That delay suggests that her lack of diligence was not enough for equitable tolling to have applied though the court does not mention whether this 9-month period can or cannot be equitably tolled, an issue we have discussed on many occasions and which the Ninth Circuit in Volpicelli has concluded can be equitably tolled (though the dissent in footnote 29 refers to a Third Circuit case pre-Volpicelli holding no equitable tolling in a wrongful levy context).

Moreover, as the dissent points out there is a compelling reason for taxpayers to have a short window of time to bring these actions, that is to allow the IRS to go after other assets if in fact it has improperly levied on assets.

The majority opinion raises many questions. For example, how far does it extend in other cases when taxpayers request TAOs? When precisely is the tolling triggered and when does it end? As a policy and legal matter, what should trigger the tolling?  I frankly had not thought much about these and other questions in considering the impact of Section 7811 on a variety of statutes of limitation. Steve and I are in the process of rewriting the Saltz/Book chapter on statutes of limitation, and this case will cause us to think hard about the reach of the statute.

“Judging Litigating Hazards – Another View”

Today we welcome guest blogger Sheldon “Shelly” Kay. Shelly practices with Sutherland in Atlanta.  He was the District Counsel in Atlanta when I was the District Counsel in Richmond, and we went to many meetings together.  After leaving Chief Counsel’s office, he returned to the IRS as an executive where he served, during part of that return visit, as the National Director of Appeals.  He is a great manager and leader.  He writes today to present a different view of the state of Appeals than my rather gloomy view published a few months ago.  Because his practice takes him to a different part of the hallway in Appeals or perhaps a different office since I doubt his cases get handled by too many Service Center Appeals employees, we may be describing different experiences based on our different client bases.  I hope his assessment is more correct than mine.  Keith

Like Professor Fogg, I am a former attorney and supervisor for the Office of Chief Counsel of the Internal Revenue Service. Additionally, I was also the Deputy Chief and the Chief of Appeals. Throughout my career, I have had the opportunity to work closely with and across the table from many Appeals Technical Employees (both Appeals Officers and Settlement Officers). Throughout all, I have gained a great respect for their knowledge and have valued their input.

Professor Fogg lists several areas where he has perceived a decline in Appeals, leaving it, in his words, “a very different Appeals Division from the one developed decades ago.” He also suggests that Appeals officers “with little or no knowledge of litigation” cannot properly analyze evidentiary questions or properly evaluate hazards of litigation. I respectfully disagree with his assessment.



In the tax arena, training is vital to being able to keep up with the ever-changing legal landscape. With the significant budget decreases over the last several years, Appeals has had less to spend on training. I have often stated that more funds for training would be advantageous for Appeals, its Technical Employees, as well as the taxpayers, and I continue to believe that. However, given the current budgetary restrictions, Appeals has done an excellent job of addressing several important areas in the training of its employees using in-house experts to fill the gaps in some cases.

For example, with the assistance from attorneys of the Office of Chief Counsel, led by Associate Area Counsel, Mark Miller, Appeals Technical Employees have been offered targeted training classes. Just this year, Miller’s team of attorneys from all Chief Counsel Divisions, taught a web-based, two-day, seven-hour course on topics such as:

  • Rules of evidence
  • The weight to be given taxpayers’ testimony
  • Burden of proof
  • Hazards of Litigation and penalties
  • IRC section 6201(d).

Attending Calendar Calls, Tax Court Trials and Receiving Counsel Settlement Memorandum

Just a couple of years ago, while I was at the Appeals Division, Mark Miller and a group of dedicated and knowledgeable Chief Counsel attorneys, visited Appeals Division’s campuses (Service Centers) to provide a two-day seminar for both Appeals Officers and Settlement Officers that covered technical tax and procedural topics.

I would agree that watching the trial of a case that an Appeals Technical Employee personally considered would be helpful. However, suggesting that such attendance would help in weighing the credibility of witnesses is a little overdone. Analyzing credibility and the weight that a court might give to testimony is something we all can do. I would argue that the amount and nature of an Appeals Officer’s experience, as well as just having the ability to judge credibility, is what’s important.

As for the suggestion that Appeals Technical Employees should learn how Chief Counsel attorneys resolve cases, all Counsel Settlement Memoranda are shared with Appeals. Reviewing the CSMs can provide a useful tool for additional growth by Appeals Technical Employees. I would recommend to all Appeals managers that they use the opportunity for continued training, presented whenever they receive a CSM. This kind of feedback can help in the development of their professionals.

Due to recent policy changes designed to bolster its independence, the Appeals Division is currently working on a docketed examination assistance project. In public statements, Appeals has explained that the project was initiated to develop formal procedures for obtaining examination assistance from Compliance technical employees when taxpayers submit new information or raise new issues in docketed Tax Court cases. Appeals is working closely with Compliance and Counsel to devise procedures that protect Appeals’ independence while getting examiners to review new information submitted on docketed cases.

Understanding Burden of Proof

Not only has the topic of burden of proof been covered in Chief Counsel training for Appeals Technical Employees discussed above, but, as we all know, the determination of who has the burden of proof rarely makes a difference in a court’s opinion. While a discussion of burden of proof will often appear in a Tax Court opinion, the Court usually concludes that determining who has the burden of proof does not impact its opinion.

“Reach the Correct Result”

Professor Fogg suggests that Appeals Technical Employees are trying “to reach the correct result.” I am not sure what is meant by “the correct result,” but Appeals Division’s mission is to “resolve tax controversies, without litigation, on a basis which is fair and impartial to both the government and the taxpayer and in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Internal Revenue Service.” Appeals’ mission directs it to reach principled resolutions of tax disputes based on the law and the relevant facts as developed by Compliance.

Quality Service

If anyone finds that Appeals Technical Employees are not properly performing their duties or understanding the nuances of a particular case, taxpayers and their representatives should elevate their concerns to Appeals management. Discussing issues with Appeals management, just like in the other operating divisions of the IRS, can help both parties (taxpayers and Appeals) better understand the issues and procedures involved and is an accepted way to respond to situations, like those identified by Professor Fogg. The Taxpayer Bill of Rights listed in IRS Publication 1 includes the Right to Quality Service. Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service. I encourage taxpayers and their representatives to elevate concerns to Appeals’ management whenever appropriate.

I am proud to have been the Chief of Appeals. The Appeals Division that I regularly experience is as good today as it was “decades ago.”