SCOTUS Reports

Tag: 2022

  • Hallmark Research Collective v. Commissioner of Internal Revenue, 159 T.C. No. 6 (2022): Jurisdictional Nature of the 90-Day Filing Deadline for Deficiency Cases

    Hallmark Research Collective v. Commissioner of Internal Revenue, 159 T. C. No. 6 (2022) (United States Tax Court, 2022)

    In a significant ruling, the U. S. Tax Court upheld the jurisdictional nature of the 90-day deadline for filing deficiency petitions, rejecting equitable tolling and affirming dismissal for untimely filings. Hallmark Research Collective sought to reopen its case after missing the filing deadline by one day, arguing for equitable tolling post-Boechler. The court, however, maintained that the deadline is non-negotiable, impacting taxpayers’ ability to challenge IRS deficiency determinations.

    Parties

    Hallmark Research Collective, Petitioner, sought to challenge the IRS’s deficiency determination against it. The Commissioner of Internal Revenue, Respondent, defended the dismissal of the case for lack of jurisdiction due to the late filing of the petition by Hallmark.

    Facts

    The IRS issued a notice of deficiency to Hallmark Research Collective on June 3, 2021, determining deficiencies, additions to tax, and penalties for tax years 2015 and 2016. The notice specified that the last day to file a petition with the U. S. Tax Court was September 1, 2021. Hallmark filed its petition electronically on September 2, 2021, one day late, attributing the delay to its CPA’s illness due to COVID-19. The Tax Court had previously dismissed Hallmark’s petition for lack of jurisdiction because it was filed late. Following the Supreme Court’s decision in Boechler, P. C. v. Commissioner, Hallmark moved to vacate the dismissal, arguing that the 90-day deadline in I. R. C. § 6213(a) is non-jurisdictional and subject to equitable tolling.

    Procedural History

    The Tax Court initially dismissed Hallmark’s petition on April 1, 2022, for lack of jurisdiction due to the late filing. Hallmark then moved to vacate this order on May 2, 2022, following the Supreme Court’s decision in Boechler, which held that a similar deadline in a different context was non-jurisdictional. The Commissioner opposed the motion, arguing that the 90-day deadline under § 6213(a) remains jurisdictional. The Tax Court reviewed the motion and denied it, reaffirming its previous dismissal.

    Issue(s)

    Whether the 90-day deadline for filing a deficiency petition under I. R. C. § 6213(a) is a jurisdictional requirement that precludes equitable tolling?

    Rule(s) of Law

    I. R. C. § 6213(a) provides that “Within 90 days, or 150 days if the notice is addressed to a person outside the United States, after the notice of deficiency authorized in section 6212 is mailed. . . the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. ” The court must assess whether this deadline is jurisdictional using the “text, context, and relevant historical treatment” of the statute as per Reed Elsevier, Inc. v. Muchnick, 559 U. S. 154, 166 (2010).

    Holding

    The Tax Court held that the 90-day filing deadline under I. R. C. § 6213(a) is jurisdictional and not subject to equitable tolling. Therefore, Hallmark’s late filing deprived the court of jurisdiction, and the dismissal of the case was proper.

    Reasoning

    The court’s reasoning was rooted in the statutory text, its context within the Internal Revenue Code, and a century of judicial and legislative history. The court found that the language of § 6213(a) clearly states that a petition must be filed within 90 days to confer jurisdiction, reinforced by the statutory scheme’s intent to balance taxpayer rights with governmental interests in timely tax collection. The court analyzed the legislative history and consistent judicial interpretation, noting that Congress has repeatedly reenacted § 6213(a) without altering its jurisdictional character despite opportunities to do so. The court distinguished Boechler by emphasizing that the statute at issue there, § 6330(d)(1), lacked the historical and statutory context that supports § 6213(a)’s jurisdictional nature. The court also considered the implications of § 7459(d), which treats a dismissal for lack of jurisdiction differently from other dismissals, further supporting the jurisdictional reading of § 6213(a). The court concluded that the uniform treatment of the 90-day deadline as jurisdictional by the Tax Court and circuit courts of appeals, coupled with Congress’s acquiescence, firmly established its jurisdictional character, precluding equitable tolling.

    Disposition

    The Tax Court denied Hallmark’s motion to vacate the dismissal order and affirmed the dismissal of the case for lack of jurisdiction.

    Significance/Impact

    This decision reaffirms the strict enforcement of the 90-day filing deadline under § 6213(a) as jurisdictional, impacting taxpayers’ ability to challenge IRS deficiency determinations in the Tax Court. It underscores the importance of timely filing and the lack of flexibility for equitable exceptions, which may influence taxpayers’ strategies in contesting IRS actions. The ruling maintains the balance intended by Congress between taxpayer rights and the government’s need for efficient tax collection, and it continues the long-standing judicial interpretation of the statute.

  • Green Valley Investors, LLC v. Commissioner, 159 T.C. No. 5 (2022): Administrative Procedure Act and IRS Rulemaking

    Green Valley Investors, LLC v. Commissioner, 159 T. C. No. 5 (U. S. Tax Court 2022)

    The U. S. Tax Court ruled that IRS Notice 2017-10, which classified certain conservation easement transactions as listed, was a legislative rule requiring notice and comment under the APA. The Court invalidated the notice and barred the imposition of penalties under section 6662A, impacting how the IRS identifies tax avoidance transactions.

    Parties

    Green Valley Investors, LLC, et al. , with Bobby A. Branch as Tax Matters Partner, were the petitioners. The Commissioner of Internal Revenue was the respondent. The case included consolidated actions involving Vista Hill Investments, LLC, Big Hill Partners, LLC, and Tick Creek Holdings, LLC, all with Bobby A. Branch as Tax Matters Partner.

    Facts

    Green Valley Investors, LLC, and other related entities, granted conservation easements to Triangle Land Conservancy in 2014 and 2015, claiming substantial charitable deductions on their tax returns. The IRS issued Notice 2017-10, identifying syndicated conservation easement transactions as listed transactions subject to reporting requirements and potential penalties. The IRS later disallowed these deductions and asserted penalties under sections 6662 and 6662A, among others, following audits.

    Procedural History

    The petitioners timely challenged the IRS’s adjustments and penalties through petitions to the U. S. Tax Court. Both parties moved for partial summary judgment, with the petitioners arguing against the retroactive application of penalties and the IRS’s failure to comply with the APA’s notice-and-comment rulemaking procedures for Notice 2017-10.

    Issue(s)

    Whether Notice 2017-10, which identified syndicated conservation easement transactions as listed transactions, was a legislative rule requiring notice-and-comment rulemaking under the Administrative Procedure Act?

    Rule(s) of Law

    The Administrative Procedure Act (APA) mandates that agencies follow notice-and-comment rulemaking for legislative rules, which have the force of law and impose new duties or rights. See 5 U. S. C. § 553. The APA does not apply to interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice. 5 U. S. C. § 553(b)(A).

    Holding

    The Court held that Notice 2017-10 was a legislative rule because it imposed new reporting obligations and potential penalties on taxpayers and advisors, thus requiring notice-and-comment rulemaking under the APA. As the IRS did not comply with these requirements, the Court set aside Notice 2017-10 and prohibited the imposition of section 6662A penalties in these cases.

    Reasoning

    The Court’s reasoning focused on distinguishing between legislative and interpretative rules. It concluded that Notice 2017-10 was a legislative rule because it created new substantive reporting obligations and penalties, not merely interpreting existing law. The Court rejected the IRS’s argument that Congress had implicitly exempted the IRS from APA requirements when it enacted section 6707A, which cross-referenced section 6011 regulations. The Court emphasized that Congress must expressly override APA requirements, and the mere reference to existing regulations did not suffice. The Court also noted that the IRS had not invoked the good cause exception to bypass notice and comment, which could have been an alternative approach.

    Disposition

    The Court granted the petitioners’ Cross-Motions for Summary Judgment in part, setting aside Notice 2017-10 and prohibiting the imposition of section 6662A penalties in these consolidated cases.

    Significance/Impact

    This decision has significant implications for the IRS’s ability to identify and regulate tax avoidance transactions. It clarifies that the IRS must follow APA notice-and-comment procedures when issuing rules that impose new obligations or penalties. The ruling may affect the IRS’s future use of notices to identify listed transactions and could lead to challenges against other IRS notices issued without notice and comment. The decision underscores the importance of procedural compliance in administrative rulemaking and could influence how tax shelters and similar transactions are regulated.

  • Cochran v. Commissioner, 159 T.C. No. 4 (2022): Automatic Stay and Discharge in Bankruptcy

    Cochran v. Commissioner, 159 T. C. No. 4 (U. S. Tax Ct. 2022)

    In Cochran v. Commissioner, the U. S. Tax Court ruled that the automatic stay in Tax Court proceedings, triggered by a Chapter 11 bankruptcy filing, remains in effect until the debtor completes all plan payments or receives a discharge, as per the 2005 amendment to the Bankruptcy Code. This decision clarifies that confirmation of a bankruptcy plan alone does not lift the stay, impacting how debtors and the IRS navigate tax disputes during bankruptcy.

    Parties

    Daniel Cochran and Kelley Cochran, Petitioners v. Commissioner of Internal Revenue, Respondent. The Cochrans were the appellants in the U. S. Tax Court proceeding, having initiated the action against the Commissioner’s notice of deficiency.

    Facts

    Daniel and Kelley Cochran received a notice of deficiency for tax year 2011 from the Commissioner of Internal Revenue on July 7, 2016, and subsequently filed a petition with the U. S. Tax Court challenging the deficiency. On February 15, 2017, the Cochrans filed for Chapter 11 bankruptcy in the U. S. Bankruptcy Court for the Northern District of California. This filing triggered an automatic stay of their Tax Court proceedings under 11 U. S. C. § 362(a)(8). On July 22, 2019, the bankruptcy court confirmed the Cochrans’ Chapter 11 plan. However, as of the date of the Tax Court’s opinion, the Cochrans had not completed all payments under their plan, and their bankruptcy case had not been closed or dismissed.

    Procedural History

    The Cochrans filed a petition with the U. S. Tax Court challenging a notice of deficiency issued by the Commissioner. After filing for Chapter 11 bankruptcy, an automatic stay was imposed on their Tax Court case pursuant to 11 U. S. C. § 362(a)(8). Following the confirmation of their Chapter 11 plan, the Cochrans moved to lift the automatic stay in the Tax Court. The Tax Court examined the motion under the standard of review for determining the applicability of an automatic stay, ultimately denying the Cochrans’ motion to lift the stay.

    Issue(s)

    Whether the confirmation of a Chapter 11 bankruptcy plan, under 11 U. S. C. § 1141(d)(5), terminates the automatic stay of a Tax Court proceeding under 11 U. S. C. § 362(a)(8) prior to the completion of all payments under the plan or the granting of a discharge?

    Rule(s) of Law

    The automatic stay under 11 U. S. C. § 362(a)(8) applies to Tax Court proceedings concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief. The stay is generally lifted under 11 U. S. C. § 362(c)(2) upon the closing of the bankruptcy case, the dismissal of the case, or the granting or denial of a discharge to the debtor. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 amended 11 U. S. C. § 1141(d) to include paragraph (5), which specifies that confirmation of a plan does not discharge any debt provided for in the plan until the court grants a discharge on completion of all payments under the plan or after notice and a hearing.

    Holding

    The Tax Court held that the automatic stay of Tax Court proceedings under 11 U. S. C. § 362(a)(8) remains in effect until the debtor completes all payments under the Chapter 11 plan or receives a discharge, as per the provisions of 11 U. S. C. § 1141(d)(5). The confirmation of the Cochrans’ Chapter 11 plan did not lift the automatic stay because neither of the conditions set forth in § 1141(d)(5) had been met.

    Reasoning

    The Tax Court’s reasoning was grounded in the statutory interpretation of 11 U. S. C. § 1141(d)(5), which was added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The court found that this amendment explicitly limits the effect of plan confirmation on the discharge of debts and, consequently, on the termination of an automatic stay. The court distinguished its prior holding in Moody v. Commissioner, which was based on the pre-2005 version of § 1141(d), and concluded that the new statutory provision clearly requires the completion of payments or a court-ordered discharge before the automatic stay is lifted. The Tax Court rejected the Cochrans’ argument that legislative history suggested a different intent, emphasizing that the statute’s plain language was unambiguous. The court also distinguished other cases cited by the Cochrans, noting that those cases dealt with the scope of entities covered by the automatic stay, not the conditions for its termination.

    Disposition

    The Tax Court denied the Cochrans’ motion to lift the automatic stay of proceedings, affirming that the stay remains in effect pending satisfaction of the conditions set forth in 11 U. S. C. § 1141(d)(5).

    Significance/Impact

    Cochran v. Commissioner clarifies the interaction between bankruptcy proceedings and tax disputes, particularly the effect of Chapter 11 plan confirmation on the automatic stay in Tax Court. The decision underscores the importance of the 2005 amendment to the Bankruptcy Code, which tightened the conditions for discharge and the lifting of the automatic stay. This ruling has significant implications for debtors and the IRS in managing tax liabilities during bankruptcy, requiring debtors to complete their plan payments or obtain a discharge before resuming Tax Court proceedings. The case also demonstrates the Tax Court’s deference to the plain language of statutory provisions in interpreting bankruptcy law, potentially influencing future cases involving the intersection of tax and bankruptcy law.

  • Smith v. Commissioner, 159 T.C. No. 3 (2022): Validity and Enforceability of Closing Agreements under I.R.C. § 7121

    Smith v. Commissioner, 159 T. C. No. 3 (2022)

    In a significant ruling, the U. S. Tax Court upheld the validity and enforceability of a closing agreement under I. R. C. § 7121, affirming that such agreements are final and conclusive unless fraud, malfeasance, or misrepresentation of material fact is shown. Cory H. Smith, a U. S. citizen employed at Pine Gap in Australia, challenged the agreement which required him to waive his right to exclude foreign earned income. The court’s decision clarifies the authority of IRS officials to execute such agreements and the strict conditions under which they can be set aside, impacting future tax treaty interpretations and the finality of closing agreements in tax law.

    Parties

    Cory H. Smith, as the Petitioner, challenged the notice of deficiency issued by the Commissioner of Internal Revenue, as the Respondent, in the U. S. Tax Court. The case proceeded through the Tax Court’s jurisdiction, with both parties filing competing motions for partial summary judgment.

    Facts

    Cory H. Smith, a U. S. citizen and engineer, was employed by Raytheon at the Joint Defense Facility at Pine Gap in Australia. As part of his employment, he entered into a closing agreement with the IRS under I. R. C. § 7121, waiving his right to elect the foreign earned income exclusion under I. R. C. § 911(a) for the tax years 2016-2018. Despite the agreement, Smith filed amended returns claiming the exclusion for 2016 and 2017 and made the same election on his 2018 return. The Commissioner issued a notice of deficiency disallowing these elections, leading Smith to petition the U. S. Tax Court for a redetermination of the deficiencies.

    Procedural History

    The case originated with Smith’s challenge to the notice of deficiency in the U. S. Tax Court. Both parties filed motions for partial summary judgment. The Commissioner argued that the closing agreement was valid and enforceable, while Smith contended that it was invalid due to lack of authority of the IRS official who signed it and alleged malfeasance and misrepresentation by the IRS. The Tax Court, after hearing arguments, ruled on the motions, applying a de novo standard of review.

    Issue(s)

    Whether the closing agreement entered into by Cory H. Smith with the Commissioner under I. R. C. § 7121 was valid and enforceable?

    Whether the Director, Treaty Administration, had the authority to execute the closing agreement on behalf of the Commissioner?

    Whether the closing agreement could be set aside under I. R. C. § 7121(b) due to malfeasance or misrepresentation of fact?

    Rule(s) of Law

    I. R. C. § 7121 authorizes the Secretary to enter into closing agreements with taxpayers, which are “final and conclusive” once approved by the Secretary, unless set aside for fraud, malfeasance, or misrepresentation of material fact. I. R. C. § 7121(b) specifies that closing agreements cannot be annulled, modified, set aside, or disregarded in any proceeding, and any determination made in accordance with such agreements is similarly protected. The authority to enter into closing agreements has been delegated by the Secretary to the Commissioner, and further delegated within the IRS, including to the Director, Treaty Administration, under Delegation Order 4-12.

    Holding

    The U. S. Tax Court held that the closing agreement between Cory H. Smith and the Commissioner was valid and enforceable. The court found that the Director, Treaty Administration, had the requisite authority to execute the agreement on behalf of the Commissioner. Additionally, the court determined that the agreement could not be set aside under I. R. C. § 7121(b) as Smith failed to show malfeasance or misrepresentation of material fact.

    Reasoning

    The court’s reasoning centered on the interpretation of the statutory framework governing closing agreements and the delegation of authority within the IRS. The court applied principles of statutory construction to Delegation Order 4-12, concluding that the Director, Treaty Administration, had the authority to act as the competent authority under tax treaties and execute closing agreements related to specific treaty applications. The court rejected Smith’s arguments regarding the lack of authority of the IRS official, the necessity of a formal competent authority request, and the exclusivity of delegation orders. Regarding malfeasance, the court found no violation of I. R. C. § 6103 in the IRS’s handling of the closing agreement process. The court also distinguished between misrepresentations of fact and law, holding that the recitals in the agreement were legal conclusions and not misrepresentations of material fact. The court emphasized the finality intended by Congress in enacting I. R. C. § 7121, which supports the strict enforcement of closing agreements unless the statutory exceptions are met.

    Disposition

    The U. S. Tax Court granted the Commissioner’s Motion for Partial Summary Judgment and denied Smith’s competing motion. The court upheld the validity and enforceability of the closing agreement, affirming the notice of deficiency issued by the Commissioner.

    Significance/Impact

    The decision in Smith v. Commissioner reinforces the finality and conclusiveness of closing agreements under I. R. C. § 7121, impacting how such agreements are viewed in tax litigation. It clarifies the delegation of authority within the IRS for executing closing agreements, particularly in the context of international tax treaties. The ruling underscores the stringent conditions under which closing agreements can be set aside, emphasizing the need for clear evidence of fraud, malfeasance, or misrepresentation of material fact. This case has broader implications for U. S. citizens working abroad and the application of tax treaties, particularly those involving the waiver of domestic tax rights to avoid double taxation. It may influence future negotiations and interpretations of tax treaties between the U. S. and other countries, ensuring that closing agreements remain a reliable tool for resolving tax liabilities.

  • Whistleblower 769-16W v. Commissioner, 159 T.C. No. 2 (2022): Judicial Discretion in Remanding Whistleblower Cases

    Whistleblower 769-16W v. Commissioner, 159 T. C. No. 2 (U. S. Tax Court 2022)

    In a significant ruling, the U. S. Tax Court affirmed its discretion to remand whistleblower claims to the IRS Whistleblower Office without retaining jurisdiction. The decision, stemming from a joint motion by the parties, allows for further evaluation of the whistleblower’s contribution to IRS actions against targeted taxpayers. This ruling clarifies the court’s role in whistleblower cases and enhances flexibility in handling such claims.

    Parties

    Whistleblower 769-16W, as the Petitioner, brought this case against the Commissioner of Internal Revenue, the Respondent. Throughout the litigation, the Petitioner was represented by Jason D. Wright, T. Barry Kingham, and Kaitlyn T. Devenyns, while the Respondent was represented by Jadie T. Woods and Eric R. Skinner.

    Facts

    The case originated in 2016 and involved the application of Internal Revenue Code section 7623(b), which governs whistleblower awards. In 2019, the Tax Court had previously remanded the case to the Whistleblower Office (WBO) to supplement an incomplete record and address specific questions. Upon remand, the WBO issued a supplemental determination, but the Petitioner remained unsatisfied. Following further proceedings, the parties narrowed their dispute and jointly moved for another remand to evaluate the whistleblower’s contribution to ongoing IRS actions against certain targets. This motion requested the court to vacate prior WBO determinations and remand the case without retaining jurisdiction.

    Procedural History

    The case was initially remanded in 2019 to the WBO for further consideration with the court retaining jurisdiction (Whistleblower 769-16W v. Commissioner, 152 T. C. 172 (2019)). After the WBO’s supplemental determination, the case returned to the Tax Court. Following additional pretrial proceedings and conferences, the parties filed a Joint Motion to Remand on August 4, 2022, seeking to vacate prior determinations and remand without jurisdiction. The court granted this motion, vacating the prior determinations and remanding the case to the WBO without retaining jurisdiction.

    Issue(s)

    Whether the U. S. Tax Court has discretion to remand a whistleblower case to the IRS Whistleblower Office without retaining jurisdiction?

    Rule(s) of Law

    The court applied principles of judicial discretion in remanding cases, drawing from precedents like Jacobson v. Commissioner, 148 T. C. 68 (2017), which allowed for voluntary dismissal of whistleblower cases. The court also relied on the Administrative Procedure Act (APA) standards for judicial review of agency actions, as discussed in cases such as Am. Bioscience, Inc. v. Thompson, 269 F. 3d 1077 (D. C. Cir. 2001).

    Holding

    The U. S. Tax Court held that it has the discretion to remand whistleblower claims to the IRS Whistleblower Office without retaining jurisdiction. The court exercised this discretion and granted the parties’ Joint Motion to Remand, vacating prior determinations and remanding the case without jurisdiction.

    Reasoning

    The court’s reasoning focused on the discretion afforded to appellate courts in remanding cases to lower courts or agencies. It distinguished the present case from previous remands under section 7623(b), noting that the joint motion by the parties and the unique circumstances of the case supported remand without jurisdiction. The court cited Jacobson v. Commissioner for its discretion to permit voluntary dismissals, and highlighted the norm of vacating agency action deemed arbitrary and capricious, followed by remand without retaining jurisdiction, as seen in cases like Burlington Resources, Inc. v. FERC, 513 F. 3d 242 (D. C. Cir. 2008). The court also noted that retaining jurisdiction is not necessary when the timeline for IRS actions is uncertain and not under the control of the WBO, and when there is no history of agency noncompliance or resistance to legal duties. The court emphasized that section 7623(b) does not limit whistleblowers to one proceeding before the WBO, thus supporting the decision to remand without jurisdiction.

    Disposition

    The U. S. Tax Court granted the parties’ Joint Motion to Remand, vacating the prior determinations of the Whistleblower Office and remanding the case without retaining jurisdiction.

    Significance/Impact

    This decision clarifies the Tax Court’s discretion in managing whistleblower cases, particularly in remanding claims to the IRS Whistleblower Office without retaining jurisdiction. It provides flexibility in handling whistleblower claims, allowing for more thorough evaluation by the WBO of the whistleblower’s contribution to ongoing IRS actions. The ruling may influence future whistleblower cases by setting a precedent for remands without jurisdiction when circumstances warrant, potentially affecting the procedural approach to whistleblower litigation and the efficiency of the IRS in evaluating claims.

  • Whistleblower 972-17W v. Commissioner of Internal Revenue, 159 T.C. No. 1 (2022): Disclosure of Taxpayer Information in Whistleblower Proceedings

    Whistleblower 972-17W v. Commissioner of Internal Revenue, 159 T. C. No. 1 (U. S. Tax Ct. 2022)

    In a landmark decision, the U. S. Tax Court ruled that the IRS must provide unredacted administrative records in whistleblower cases, affirming its jurisdiction to review whistleblower claims and interpreting I. R. C. § 6103(h)(4)(A) to allow for such disclosures. This ruling impacts how whistleblower cases are handled, emphasizing the court’s role in ensuring transparency and fairness in the award process.

    Parties

    Whistleblower 972-17W, as Petitioner, filed a petition against the Commissioner of Internal Revenue, as Respondent, in the U. S. Tax Court.

    Facts

    Whistleblower 972-17W provided information to the IRS about three target taxpayers. The IRS initiated actions against these taxpayers and collected proceeds. Despite this, the IRS Whistleblower Office (WBO) denied the whistleblower’s claim for an award under I. R. C. § 7623(b). The whistleblower petitioned the U. S. Tax Court for review. The Court ordered the Commissioner to submit both redacted and unredacted copies of the administrative record, which included the target taxpayers’ returns and return information. The Commissioner complied with the redacted copy but sought to be excused from filing the unredacted copy, citing I. R. C. § 6103 confidentiality concerns. The Court ordered an in camera review of the unredacted records, prompting the Commissioner to move for modification of the order, arguing that disclosure was not permitted under § 6103.

    Procedural History

    The whistleblower filed a petition in the U. S. Tax Court after the WBO denied the claim for an award. The Court initially ordered the Commissioner to submit the administrative record, both redacted and unredacted. The Commissioner complied with the redacted record but moved to modify the order regarding the unredacted record. The Court denied this motion, ordering an in camera review of the unredacted documents. The Commissioner then requested the Court to reconsider its order, leading to the present decision.

    Issue(s)

    Whether the U. S. Tax Court has jurisdiction to hear this whistleblower case under I. R. C. § 7623(b)(4)?

    Whether I. R. C. § 6103(h)(4)(A) authorizes the Commissioner to submit the unredacted administrative record to the Court for in camera review?

    Rule(s) of Law

    I. R. C. § 7623(b)(4) grants the Tax Court jurisdiction over appeals of determinations regarding whistleblower awards under § 7623(b)(1), (2), or (3).

    I. R. C. § 6103(h)(4)(A) permits the disclosure of returns or return information in a judicial proceeding pertaining to tax administration if “the taxpayer is a party to the proceeding, or the proceeding arose out of, or in connection with, determining the taxpayer’s civil or criminal liability, or the collection of such civil liability, in respect of any tax imposed [by the Code]. “

    Holding

    The U. S. Tax Court has jurisdiction to hear this whistleblower case as per I. R. C. § 7623(b)(4), given that the IRS had proceeded with an action against the target taxpayers and collected proceeds.

    I. R. C. § 6103(h)(4)(A) authorizes the Commissioner to submit the unredacted administrative record to the Court for in camera review, as the case arose in connection with determining the civil and criminal liabilities of the target taxpayers.

    Reasoning

    The Court’s jurisdiction was affirmed based on the reasoning in Li v. Commissioner, where the D. C. Circuit established that the Tax Court’s jurisdiction depends on the IRS proceeding with an action against the target taxpayers. The Court found that the case before it satisfied this criterion, as the IRS had indeed acted and collected proceeds based on the whistleblower’s information.

    The Court interpreted I. R. C. § 6103(h)(4)(A) to allow disclosure of the unredacted administrative record. It emphasized that the phrase “in connection with” is broad, encompassing any logical or causal connection to the determination of the target taxpayers’ liabilities. The Court rejected the Commissioner’s narrower interpretation, which required a direct legal liability or sanction from the government and a pre-existing relationship between the parties. The Court found that the whistleblower’s case was inextricably linked to the determination of the target taxpayers’ liabilities, as the IRS’s actions and outcomes were direct causes of the proceeding, and the whistleblower’s contribution to those actions was central to the merits of the case.

    The Court also addressed the Commissioner’s arguments based on legislative history and statutory purpose, concluding that these did not support a narrower reading of § 6103(h)(4)(A). The legislative history provided illustrative examples but was not exhaustive, and the statutory purpose of balancing confidentiality with other interests supported the Court’s broader interpretation. The Court noted that the Commissioner could still seek redactions under other rules if necessary, but could not use § 6103(a) to resist disclosure when § 6103(h)(4)(A) applied.

    Disposition

    The Court denied the Commissioner’s motion to modify its order, affirming its jurisdiction and the applicability of I. R. C. § 6103(h)(4)(A) to authorize the submission of the unredacted administrative record for in camera review.

    Significance/Impact

    This decision significantly impacts whistleblower litigation by affirming the Tax Court’s jurisdiction over cases where the IRS has acted on whistleblower information and collected proceeds. It also clarifies the scope of § 6103(h)(4)(A), allowing for the disclosure of unredacted administrative records in such cases, which enhances transparency and the ability of whistleblowers to challenge WBO determinations effectively. The ruling may influence future cases by setting a precedent for the interpretation of “in connection with” in the context of tax administration proceedings, potentially affecting the confidentiality of taxpayer information in whistleblower cases.

  • Brown v. Commissioner, 158 T.C. No. 9 (2022): Deemed Acceptance of Offers-in-Compromise Under I.R.C. § 7122(f)

    Brown v. Commissioner, 158 T. C. No. 9 (2022)

    In Brown v. Commissioner, the U. S. Tax Court ruled that an Offer-in-Compromise (OIC) submitted during a Collection Due Process (CDP) hearing is not automatically accepted if not rejected within 24 months, as per I. R. C. § 7122(f). The court held that the rejection period ends when the IRS returns the OIC, not when Appeals issues a notice of determination. This decision clarifies the application of the “deemed acceptance” rule in the context of CDP proceedings, ensuring that the IRS can promptly address OICs without being pressured by the 24-month deadline during ongoing CDP cases.

    Parties

    Michael D. Brown, as the petitioner, sought review of the Commissioner of Internal Revenue’s decision to reject his OIC. The Commissioner of Internal Revenue served as the respondent in this case, which was heard in the U. S. Tax Court.

    Facts

    Michael D. Brown, with a tax liability exceeding $50 million, received a Notice of Federal Tax Lien Filing and his right to a CDP hearing from the IRS on November 9, 2017. He timely requested the hearing and submitted an OIC on April 19, 2018, offering $320,000 to settle his liabilities for the tax years 2009 and 2010. The OIC was forwarded to the IRS’s Centralized Offer in Compromise Unit (COIC unit), which determined the offer to be processable. Subsequently, the offer was referred to a collection specialist in the Laguna Niguel branch (Laguna Group). On November 5, 2018, the Laguna Group returned the OIC to Brown, closing the file on his offer due to pending investigations that might affect the liability. Despite Brown’s efforts to have the decision overturned during the CDP hearing, the IRS Appeals officer upheld the Laguna Group’s decision and closed the case, issuing a notice of determination on August 12, 2020.

    Procedural History

    Following the IRS’s notice of determination on August 12, 2020, Brown timely petitioned the U. S. Tax Court for review. He filed a Motion for Summary Judgment on July 22, 2021, arguing that his OIC should be deemed accepted under I. R. C. § 7122(f). The court heard oral arguments on March 28, 2022, and issued its opinion on June 23, 2022, denying Brown’s motion. The court’s decision was based on the precedent set in Brown II and Brown III, where similar arguments were rejected.

    Issue(s)

    Whether an OIC submitted during a CDP hearing is deemed accepted under I. R. C. § 7122(f) if the IRS does not issue a notice of determination within 24 months of the offer’s submission.

    Rule(s) of Law

    I. R. C. § 7122(f) states that an OIC “shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer. ” Treasury Regulation § 301. 7122-1(d)(2) clarifies that an OIC is deemed pending only between the date it is accepted for processing and the date it is returned to the taxpayer. Notice 2006-68, § 1. 07, further explains that the 24-month period does not include time spent by the IRS Office of Appeals reviewing a rejected OIC.

    Holding

    The U. S. Tax Court held that Brown’s OIC was not deemed accepted under I. R. C. § 7122(f) because it was returned by the Laguna Group within 24 months of submission, specifically in November 2018. The court emphasized that the rejection period terminates upon the return of the OIC, not upon the issuance of the notice of determination by Appeals.

    Reasoning

    The court’s reasoning was grounded in the plain language of I. R. C. § 7122(f) and the applicable regulations and notices. It relied on previous decisions in Brown II and Brown III, which established that the 24-month period ends when the COIC unit returns the OIC. The court rejected Brown’s argument that the notice of determination by Appeals should be the terminating event, noting that such a rule would conflict with the statutory purpose of ensuring prompt IRS action on OICs. The court also addressed policy concerns, stating that requiring Appeals to issue a notice of determination within 24 months could lead to premature closures of CDP cases, potentially resulting in reversals and remands. Additionally, the court considered the practical implications of Brown’s theory, suggesting it could encourage delay tactics by taxpayers.

    Disposition

    The court denied Brown’s Motion for Summary Judgment, upholding the IRS’s decision to return his OIC within the 24-month period specified in I. R. C. § 7122(f).

    Significance/Impact

    The Brown decision clarifies the application of the “deemed acceptance” rule under I. R. C. § 7122(f) in the context of CDP proceedings. It reinforces the IRS’s ability to manage OICs efficiently without being constrained by the 24-month deadline during ongoing CDP cases. This ruling is significant for practitioners and taxpayers, as it sets a clear precedent that the return of an OIC by the IRS, rather than the issuance of a notice of determination by Appeals, is the critical event for determining whether an OIC is deemed accepted. The decision also underscores the importance of the IRS’s administrative procedures in handling OICs and may influence future legislative or regulatory adjustments to the tax collection process.

  • Chavis v. Commissioner, 158 T.C. No. 8 (2022): Trust Fund Recovery Penalties and Collection Due Process Procedures

    Chavis v. Commissioner, 158 T. C. No. 8 (U. S. Tax Ct. 2022)

    In Chavis v. Commissioner, the U. S. Tax Court upheld the IRS’s decision to sustain a tax lien against Angela M. Chavis for trust fund recovery penalties (TFRPs) assessed due to her corporation’s failure to pay payroll taxes. The court ruled that Chavis could not challenge her underlying liability at the collection due process (CDP) hearing because she had a prior opportunity to contest it. Additionally, the court affirmed that ‘innocent spouse’ relief was unavailable for TFRP liabilities, and upheld the IRS’s decision not to place her account in ‘currently not collectible’ status, emphasizing the procedural limitations in CDP hearings and the distinct nature of TFRP liabilities from joint income tax liabilities.

    Parties

    Angela M. Chavis, Petitioner, pro se; Commissioner of Internal Revenue, Respondent, represented by Catherine S. Tyson.

    Facts

    Angela M. Chavis and her then-husband were officers of Oasys Information Systems, Inc. , a corporation that withheld payroll taxes from its employees but failed to pay those taxes to the government during 2011-2014. The IRS issued Chavis a Letter 1153, Notice of Trust Fund Recovery Penalty, proposing to assess TFRPs against her and her husband under I. R. C. § 6672. Chavis received the letter but did not challenge the proposed assessment. Subsequently, the IRS assessed TFRPs totaling $146,682 against Chavis. In an effort to collect this liability, the IRS issued Chavis a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing. Chavis requested a collection due process (CDP) hearing, during which she sought to challenge her underlying liability, requested innocent spouse relief under I. R. C. § 6015, and asked for her account to be placed in ‘currently not collectible’ status and for the lien to be withdrawn. The IRS denied these requests, leading to Chavis’s petition to the U. S. Tax Court.

    Procedural History

    The IRS issued a Letter 1153 to Chavis, which she received but did not challenge. After assessing TFRPs, the IRS issued a Letter 3172, prompting Chavis to request a CDP hearing. The settlement officer (SO) reviewed Chavis’s requests during the CDP hearing and denied them, leading to a notice of determination sustaining the lien filing. Chavis timely petitioned the U. S. Tax Court, which reviewed the case under the summary judgment standard. The court applied an abuse of discretion standard of review to the IRS’s actions since Chavis’s underlying liability was not properly at issue.

    Issue(s)

    Whether Chavis, having received a prior opportunity to challenge her TFRP liability upon receipt of the Letter 1153, was entitled to challenge her underlying tax liability at the CDP hearing or in the U. S. Tax Court?

    Whether Chavis was eligible for ‘innocent spouse’ relief under I. R. C. § 6015 for her TFRP liability?

    Whether the IRS abused its discretion in sustaining the collection action against Chavis?

    Rule(s) of Law

    I. R. C. § 6330(c)(2)(B) states that a taxpayer may challenge the existence or amount of her underlying tax liability in a CDP case only if she did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute it.

    I. R. C. § 6672(a) provides that any person required to collect, truthfully account for, and pay over payroll taxes, who willfully fails to do so, shall be liable for a penalty equal to the total amount of the tax evaded or not accounted for and paid over.

    I. R. C. § 6015 provides relief from joint and several liability on joint returns, but this relief applies only to liabilities shown on (or should have been shown on) a joint federal income tax return.

    Holding

    The U. S. Tax Court held that Chavis was not entitled to challenge her underlying TFRP liability at the CDP hearing or in the court because she had a prior opportunity to dispute it upon receipt of the Letter 1153. The court also held that Chavis was not eligible for ‘innocent spouse’ relief under I. R. C. § 6015 because her TFRP liability did not arise from any liability shown on a joint federal income tax return. Finally, the court held that the IRS did not abuse its discretion in sustaining the collection action against Chavis.

    Reasoning

    The court’s reasoning was based on the statutory framework governing TFRPs and CDP hearings. The court noted that TFRPs are ‘assessable penalties’ not subject to deficiency procedures, but taxpayers have the opportunity to dispute their liability by appealing a Letter 1153. Since Chavis received the Letter 1153 and did not appeal, she was precluded from challenging her underlying liability at the CDP hearing. Regarding ‘innocent spouse’ relief, the court interpreted I. R. C. § 6015 to apply only to liabilities arising from joint federal income tax returns, not TFRPs. The court upheld the IRS’s decision to deny CNC status and lien withdrawal, finding that the settlement officer properly calculated Chavis’s ability to pay and that Chavis failed to provide evidence supporting her claims. The court emphasized that the IRS’s actions were not arbitrary, capricious, or without sound basis in fact or law, thus not constituting an abuse of discretion.

    Disposition

    The U. S. Tax Court granted the IRS’s motion for summary judgment, sustaining the notice of determination and upholding the tax lien filing against Chavis.

    Significance/Impact

    Chavis v. Commissioner reinforces the procedural limitations on challenging underlying liabilities in CDP hearings when a prior opportunity to dispute existed. It clarifies that ‘innocent spouse’ relief under I. R. C. § 6015 does not extend to TFRP liabilities, which are distinct from joint income tax liabilities. The decision also underscores the IRS’s discretion in determining collection alternatives based on the taxpayer’s financial situation and adherence to administrative procedures. This case is significant for practitioners and taxpayers dealing with TFRPs, as it highlights the importance of timely challenging proposed assessments and understanding the scope of relief available in CDP proceedings.

  • DelPonte v. Commissioner, 158 T.C. No. 7 (2022): Authority of IRS Chief Counsel in Innocent Spouse Relief Claims

    DelPonte v. Commissioner, 158 T. C. No. 7 (2022)

    In a landmark ruling, the U. S. Tax Court clarified that the IRS Chief Counsel has the authority to accept or reject innocent spouse relief determinations made by the Cincinnati Centralized Innocent Spouse Operation (CCISO) when such claims are raised as affirmative defenses in deficiency proceedings. This decision reaffirms the Chief Counsel’s discretion in litigation matters, impacting how innocent spouse relief is handled in Tax Court cases.

    Parties

    Michelle DelPonte, the petitioner, sought innocent spouse relief from joint tax liabilities with her former husband, William Goddard. The respondent was the Commissioner of Internal Revenue. DelPonte was the petitioner throughout the proceedings in the Tax Court, while the Commissioner defended the IRS’s position.

    Facts

    Michelle DelPonte and William Goddard, who were married, filed joint tax returns for the years 1999, 2000, and 2001. During their marriage, Goddard, a lawyer, engaged in aggressive tax-avoidance schemes, resulting in significant tax deficiencies assessed by the IRS. DelPonte, unaware of these schemes and the subsequent notices of deficiency, was jointly and severally liable for the taxes due to the joint filing status. After their separation, Goddard filed petitions on DelPonte’s behalf, asserting innocent spouse relief under I. R. C. § 6015(c). DelPonte only became aware of these proceedings in 2010 and subsequently sought relief from the IRS. The Cincinnati Centralized Innocent Spouse Operation (CCISO) concluded that DelPonte was entitled to relief, but the IRS’s Chief Counsel sought further information before making a final determination. DelPonte then moved for entry of decision, arguing that CCISO’s determination should be final.

    Procedural History

    The IRS issued notices of deficiency to Goddard’s law firm, which were not communicated to DelPonte. Goddard filed petitions asserting innocent spouse relief on DelPonte’s behalf without her knowledge. DelPonte, upon learning of the proceedings in 2010, ratified the petitions and sought innocent spouse relief. The Chief Counsel referred her request to CCISO, which determined she was entitled to relief but did not issue a final determination letter. Instead, CCISO communicated its findings to the Chief Counsel, who requested additional information. DelPonte moved for entry of decision based on CCISO’s determination. The Tax Court denied her motion, affirming the Chief Counsel’s authority to decide on the matter.

    Issue(s)

    Whether the IRS Chief Counsel has the authority to accept or reject a determination by the Cincinnati Centralized Innocent Spouse Operation (CCISO) regarding innocent spouse relief when such relief is raised as an affirmative defense in a deficiency proceeding in the Tax Court?

    Rule(s) of Law

    The authority of the Chief Counsel to represent the IRS in Tax Court cases is derived from I. R. C. § 7803(b)(2)(D), which delegates such duties to the Chief Counsel as prescribed by the Secretary, including representation in Tax Court. General Counsel Order No. 4 further delegates to the Chief Counsel the authority to decide whether and how to defend, prosecute, settle, or abandon claims or defenses in Tax Court cases. I. R. C. § 6015 provides for innocent spouse relief, allowing a spouse to seek relief from joint and several liability under certain conditions.

    Holding

    The Tax Court held that the Chief Counsel has the final authority to accept or reject CCISO’s determination of innocent spouse relief when such relief is raised as an affirmative defense in a deficiency proceeding. The court affirmed that the Chief Counsel’s discretion in litigation matters extends to deciding whether to adopt CCISO’s recommendations.

    Reasoning

    The court’s reasoning was rooted in the statutory and regulatory framework governing the IRS and Tax Court proceedings. The court emphasized that the Chief Counsel’s role in representing the IRS in Tax Court cases, as per I. R. C. § 7803(b)(2)(D) and General Counsel Order No. 4, includes the discretion to settle or litigate issues raised in deficiency proceedings. The court rejected DelPonte’s argument that CCISO’s determination should be binding, noting that CCISO’s role is advisory in deficiency cases. The court also addressed DelPonte’s fairness arguments, stating that the statutory scheme does not allow for altering the Chief Counsel’s authority in the name of equity. The court further clarified that the Chief Counsel’s guidance to attorneys, as seen in various notices, consistently used advisory language (‘should’ rather than ‘must’) when referring to CCISO’s determinations, reinforcing the discretionary nature of the Chief Counsel’s authority. The court also noted the procedural differences between deficiency cases and other avenues for seeking innocent spouse relief, such as stand-alone petitions or collection due process (CDP) hearings, and found that these differences did not justify altering the Chief Counsel’s authority.

    Disposition

    The Tax Court denied DelPonte’s motion for entry of decision, affirming that the Chief Counsel retains the authority to decide whether to accept or reject CCISO’s determination of innocent spouse relief in deficiency proceedings.

    Significance/Impact

    This decision clarifies the division of authority within the IRS regarding innocent spouse relief claims raised in deficiency proceedings. It reinforces the Chief Counsel’s role in litigation and decision-making in Tax Court cases, potentially affecting how taxpayers and their legal representatives approach such claims. The ruling may lead to more consistent handling of innocent spouse relief claims across different types of proceedings, ensuring that the Chief Counsel’s discretion is respected in deficiency cases. However, it also highlights the challenges faced by spouses who seek relief after being unaware of their joint liabilities, prompting potential future legislative or regulatory changes to address these issues more equitably.

  • DelPonte v. Commissioner, 158 T.C. No. 7 (2022): Authority in Innocent-Spouse Relief Determinations in Deficiency Cases

    DelPonte v. Commissioner, 158 T. C. No. 7 (2022)

    In DelPonte v. Commissioner, the U. S. Tax Court clarified that in deficiency proceedings where innocent-spouse relief is raised as an affirmative defense, the IRS Chief Counsel, not the Cincinnati Centralized Innocent Spouse Operation (CCISO), has the final authority to grant or deny relief. This ruling ensures that the IRS maintains consistent control over litigation decisions, impacting how taxpayers pursue innocent-spouse relief in Tax Court deficiency cases.

    Parties

    Michelle DelPonte, as the Petitioner, sought innocent-spouse relief against the Respondent, Commissioner of Internal Revenue, in multiple deficiency proceedings before the U. S. Tax Court. The cases were consolidated under docket numbers 1144-05, 1334-06, 20679-09, 20680-09, and 20681-09.

    Facts

    Michelle DelPonte was married to William Goddard, who filed joint tax returns with her for the tax years 1999, 2000, and 2001. Goddard, a lawyer involved in tax-avoidance strategies, received notices of deficiency from the IRS for these years, leading to joint and several liability for DelPonte. Unbeknownst to DelPonte, Goddard filed petitions on her behalf asserting innocent-spouse relief under I. R. C. § 6015. DelPonte learned of the deficiency proceedings in 2010, after which she hired her own counsel and ratified the petitions. The IRS’s Office of Chief Counsel referred her claim to the CCISO, which determined she was entitled to relief under § 6015(c). However, the Chief Counsel sought further information and did not accept CCISO’s determination, leading DelPonte to move for entry of decision granting her relief.

    Procedural History

    The IRS issued notices of deficiency to Goddard’s law firm in 2004, 2005, and 2009, which led to petitions being filed in the U. S. Tax Court. DelPonte, unaware of these proceedings until 2010, ratified the petitions and sought innocent-spouse relief. The Office of Chief Counsel referred the claim to the CCISO, which concluded DelPonte was entitled to relief under § 6015(c). Despite this, the Chief Counsel requested additional information and did not accept CCISO’s determination. DelPonte moved for entry of decision, which the court treated as a motion for partial summary judgment on the issue of her entitlement to innocent-spouse relief. The court denied the motion, holding that the Chief Counsel has final authority in deficiency cases.

    Issue(s)

    Whether, in a deficiency proceeding where innocent-spouse relief is raised as an affirmative defense, the IRS Chief Counsel or the CCISO has the final authority to grant or deny relief under I. R. C. § 6015?

    Rule(s) of Law

    The Internal Revenue Code § 7803 authorizes the Commissioner to administer the internal revenue laws, with the Chief Counsel responsible for representing the Commissioner in cases before the Tax Court. Delegation orders allow the Chief Counsel to decide whether to defend, settle, or abandon claims in Tax Court cases. The Internal Revenue Manual (IRM) outlines procedures for processing innocent-spouse relief claims, but specifies that in deficiency cases, the Chief Counsel retains jurisdiction over the matter.

    Holding

    The U. S. Tax Court held that in deficiency proceedings where innocent-spouse relief is raised as an affirmative defense, the IRS Chief Counsel, not the CCISO, has the final authority to grant or deny relief under I. R. C. § 6015.

    Reasoning

    The court’s reasoning centered on the statutory authority granted to the Chief Counsel under § 7803 and the delegation orders, which give the Chief Counsel the power to make litigation decisions in Tax Court cases. The court analyzed the historical context of innocent-spouse relief, noting that such relief was sought in deficiency proceedings before the current administrative processes existed. The court rejected DelPonte’s argument that CCISO determinations should be binding, citing the discretionary language in Chief Counsel notices and the IRM, which indicate that CCISO’s role is advisory in deficiency cases. The court also addressed DelPonte’s fairness argument, finding it unpersuasive due to the statutory framework that assigns litigation authority to the Chief Counsel.

    Disposition

    The court denied DelPonte’s motion for entry of decision, affirming that the Chief Counsel has the final authority in deficiency cases to grant or deny innocent-spouse relief.

    Significance/Impact

    The DelPonte decision clarifies the roles of the Chief Counsel and CCISO in deficiency proceedings involving innocent-spouse relief, ensuring that the IRS maintains consistent control over litigation decisions. This ruling may impact how taxpayers pursue innocent-spouse relief in Tax Court deficiency cases, emphasizing the importance of the Chief Counsel’s role in such proceedings. The decision reinforces the statutory framework and delegation orders governing the IRS’s internal operations, potentially affecting the procedural strategies of taxpayers seeking relief under I. R. C. § 6015 in deficiency cases.