SCOTUS Reports

Tag: 2023

  • Whistleblower 8391-18W v. Commissioner of Internal Revenue, 161 T.C. No. 5 (2023): Whistleblower Award Determination under I.R.C. § 7623(b)

    Whistleblower 8391-18W v. Commissioner of Internal Revenue, 161 T. C. No. 5 (U. S. Tax Ct. 2023)

    The U. S. Tax Court upheld a 22% whistleblower award under I. R. C. § 7623(b), finding no abuse of discretion by the IRS Whistleblower Office (WBO). The whistleblower sought a 30% award for information provided on a dividend withholding tax scheme, but the court affirmed the WBO’s decision based on the administrative record and applicable legal standards. The ruling clarifies the discretion afforded to the WBO in determining award percentages and reinforces the procedural requirements for whistleblower awards.

    Parties

    Whistleblower 8391-18W (Petitioner) v. Commissioner of Internal Revenue (Respondent).

    Facts

    In 2006, an IRS audit team began examining the tax returns of Redacted 4 and Redacted 5. In 2008, the Petitioner submitted a claim to the WBO, identifying Redacted 2 as a participant in a dividend tax withholding scheme. The audit team, already investigating Redacted 4 and Redacted 5, received Petitioner’s information in 2009. This information was used during the ongoing examination, leading to the collection of proceeds. In 2018, the WBO determined that Petitioner was entitled to a 22% mandatory award of the collected proceeds. The Petitioner challenged this decision, seeking a 30% award and asserting additional claims related to the timing of payment, interest, and sequestration reduction.

    Procedural History

    The WBO issued a preliminary award recommendation of 22% in 2018, followed by a final determination. The Petitioner filed a petition with the U. S. Tax Court in 2018, challenging the award percentage and other issues. Both parties moved for summary judgment. The Tax Court reviewed the administrative record under the abuse of discretion standard and denied the Petitioner’s motions while granting the Respondent’s motion for summary judgment.

    Issue(s)

    Whether the WBO abused its discretion in determining a 22% award percentage under I. R. C. § 7623(b)?

    Whether the WBO should have paid the 22% award while the Petitioner challenged the remaining 8%?

    Whether the Petitioner is entitled to interest on the award under I. R. C. § 7623(b)?

    Whether the WBO properly applied a sequestration reduction to the award?

    Rule(s) of Law

    I. R. C. § 7623(b) authorizes mandatory awards for whistleblowers whose information leads to collected proceeds, with awards ranging from 15% to 30% based on the whistleblower’s substantial contribution. Treasury Regulation § 301. 7623-4(c)(1)(i) specifies that awards depend on the extent of the whistleblower’s substantial contributions. The Tax Court reviews WBO determinations under an abuse of discretion standard, confined to the administrative record (Kasper v. Commissioner, 150 T. C. 8 (2018)).

    Holding

    The Tax Court held that the WBO did not abuse its discretion in determining a 22% award for the Petitioner. The court further held that I. R. C. § 7623(b) does not provide for the payment of interest on a mandatory award. The WBO’s application of a sequestration reduction was upheld as not constituting an abuse of discretion.

    Reasoning

    The court reasoned that the WBO’s discretion in determining award percentages is broad, guided by positive and negative factors outlined in Treasury Regulation § 301. 7623-4(b). The WBO considered the administrative record, including the fact that the audit was already underway when the Petitioner’s information was used, which justified the 22% award. The court rejected the Petitioner’s argument for a higher award based on other claims involving the same scheme, noting that each claim’s circumstances can differ. The court also found no basis for immediate payment of the 22% award while the Petitioner challenged the remaining 8%, as the regulations require final determination of all appeals before payment. The absence of an explicit statutory provision for interest on whistleblower awards, combined with the no-interest rule, led the court to deny the Petitioner’s claim for interest. The court upheld the application of the sequestration reduction, citing prior precedent.

    Disposition

    The Tax Court denied the Petitioner’s motions for partial and full summary judgment and granted the Respondent’s motion for summary judgment, affirming the WBO’s determination of a 22% award.

    Significance/Impact

    This decision reinforces the discretion afforded to the WBO in determining award percentages under I. R. C. § 7623(b), emphasizing the importance of the administrative record in such determinations. It clarifies that whistleblowers are not entitled to interest on awards and that sequestration reductions are applicable. The ruling underscores the procedural requirements for whistleblower awards, impacting how whistleblowers and the IRS approach such claims and reinforcing the Tax Court’s limited scope of review under the abuse of discretion standard.

  • Joseph Amundsen and Anna Amundsen v. Commissioner of Internal Revenue, T.C. Summary Opinion 2023-30: Deductions and Accuracy-Related Penalties in Tax Law

    Joseph Amundsen and Anna Amundsen v. Commissioner of Internal Revenue, T. C. Summary Opinion 2023-30 (United States Tax Court 2023)

    In a significant ruling, the U. S. Tax Court upheld the IRS’s denial of a certified public accountant’s claimed deductions for cost of goods sold and various business expenses, emphasizing stringent substantiation requirements. The court also sustained an accuracy-related penalty, highlighting the importance of proper tax reporting and the consequences of substantial understatements of income tax, particularly for tax professionals.

    Parties

    Joseph Amundsen and Anna Amundsen, petitioners, filed their case pro se. The respondent was the Commissioner of Internal Revenue, represented by Dillon T. Haskell, Thomas A. Deamus, and Mimi M. Wong.

    Facts

    Joseph Amundsen, a certified public accountant (CPA) licensed in California and New York, operated a sole proprietorship from his residence in Pennsylvania. His practice primarily involved preparing federal income tax returns. Amundsen was a member of the Yale Club in New York City, where he claimed to meet clients, and maintained a virtual office in downtown New York City for mail and answering services. On their 2015 federal income tax return, the Amundsens reported $66,976 in gross receipts and $69,233 as cost of goods sold, resulting in a reported loss. The IRS disallowed the cost of goods sold and assessed an accuracy-related penalty under section 6662(a).

    Procedural History

    The IRS issued a notice of deficiency on March 7, 2019, determining a deficiency in the Amundsens’ 2015 federal income tax and a section 6662(a) accuracy-related penalty. The case was heard pursuant to section 7463 of the Internal Revenue Code. Anna Amundsen’s case was dismissed for lack of prosecution on January 17, 2023, leaving Joseph Amundsen as the sole petitioner. The decision in this case is not reviewable by any other court and is not to be treated as precedent.

    Issue(s)

    Whether petitioners are entitled to the cost of goods sold reported on their Schedule C for the tax year 2015?

    Whether petitioners are entitled to any deductions for trade or business expenses for the tax year 2015?

    Whether petitioners are liable for a section 6662(a) accuracy-related penalty for the tax year 2015?

    Rule(s) of Law

    The burden of proof in tax cases generally rests with the taxpayer to prove the Commissioner’s determinations incorrect (Rule 142(a); Welch v. Helvering, 290 U. S. 111, 115 (1933)). Deductions are a matter of legislative grace, and taxpayers must substantiate their entitlement to any claimed deduction (INDOPCO, Inc. v. Commissioner, 503 U. S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U. S. 435, 440 (1934)). Section 162(a) allows deductions for ordinary and necessary expenses paid or incurred in carrying on a trade or business. Section 274(d) prescribes stringent substantiation requirements for certain expenses, including travel and entertainment. Section 6662(a) imposes a penalty for substantial understatements of income tax, which can be avoided if the taxpayer shows reasonable cause and good faith (section 6664(c)(1)).

    Holding

    The court held that petitioners were not entitled to the cost of goods sold reported on their Schedule C, as they failed to establish any basis for such a deduction. The court allowed deductions for substantiated trade or business expenses totaling $6,238, but disallowed all other claimed expenses due to lack of substantiation. The court sustained the section 6662(a) accuracy-related penalty, finding that the petitioners’ understatement of income tax was substantial and that they did not act with reasonable cause and good faith.

    Reasoning

    The court’s reasoning centered on the petitioners’ failure to meet the burden of proof and substantiation requirements. For the cost of goods sold, the court found that the petitioners did not establish any basis for the deduction. Regarding trade or business expenses, the court applied the Cohan rule (Cohan v. Commissioner, 39 F. 2d 540, 543-44 (2d Cir. 1930)) to estimate allowable deductions where some substantiation was provided, such as for tax preparation software and CPA licensing fees. However, the court denied deductions for travel and home office expenses due to the petitioners’ failure to meet the stringent substantiation requirements of section 274(d) and section 280A(c), respectively. The court also upheld the accuracy-related penalty, emphasizing the petitioners’ lack of reasonable cause and good faith, particularly given Joseph Amundsen’s professional background as a CPA. The court considered the petitioners’ misclassification of business expenses as cost of goods sold and their inadequate substantiation efforts as evidence of negligence.

    Disposition

    The court ordered that a decision be entered under Rule 155, reflecting the disallowance of the cost of goods sold, the allowance of specific trade or business expense deductions, and the imposition of the section 6662(a) accuracy-related penalty.

    Significance/Impact

    This case underscores the importance of proper substantiation for tax deductions, particularly for tax professionals. It reaffirms the stringent requirements of sections 274(d) and 280A(c) for travel and home office expenses, respectively. The decision also highlights the consequences of substantial understatements of income tax, emphasizing that even tax professionals are not immune to accuracy-related penalties if they fail to act with reasonable cause and good faith. This case may serve as a cautionary tale for tax practitioners about the importance of meticulous record-keeping and accurate tax reporting.

  • Organic Cannabis Foundation, LLC v. Commissioner, 161 T.C. No. 4 (2023): Equitable Tolling and Collection Due Process Hearings

    Organic Cannabis Foundation, LLC v. Commissioner, 161 T. C. No. 4 (2023)

    The U. S. Tax Court ruled that the 30-day deadline for requesting a Collection Due Process (CDP) hearing can be equitably tolled, overturning prior precedent. This decision enhances taxpayer rights by allowing late-filed requests for CDP hearings to be considered under certain circumstances, impacting how the IRS handles tax collection disputes.

    Parties

    Organic Cannabis Foundation, LLC, the petitioner, sought review of the IRS’s tax lien filings for the years 2010, 2011, and 2018. The respondent was the Commissioner of Internal Revenue. The case was heard in the U. S. Tax Court under docket numbers 381-22L and 5442-22L.

    Facts

    Organic Cannabis Foundation, LLC, had unpaid income taxes for the years 2010, 2011, and 2018. The IRS issued notices of federal tax lien (NFTL) filings for these years. The petitioner timely requested a CDP hearing for 2010 and 2011 within the 30-day period specified by I. R. C. § 6320(a)(3)(B). However, the request for a 2018 CDP hearing was submitted one day after the deadline. The IRS treated this as untimely and provided an equivalent hearing instead, which does not allow for judicial review. The petitioner challenged the timeliness of the 2018 request and argued for equitable tolling of the 30-day period.

    Procedural History

    The IRS provided a CDP hearing for 2010 and 2011 and an equivalent hearing for 2018, issuing a Notice of Determination for 2010 and 2011, and a Decision Letter for 2018. The petitioner filed a petition seeking review for all three years. The Commissioner moved to dismiss the 2018 claim for lack of jurisdiction, arguing that the hearing request was untimely. The Tax Court overruled its prior precedent in Kennedy v. Commissioner, which had held that the 30-day period for requesting a CDP hearing was a fixed deadline not subject to equitable tolling.

    Issue(s)

    Whether the 30-day period for requesting a CDP hearing under I. R. C. § 6320(a)(3)(B) is subject to equitable tolling?

    Rule(s) of Law

    The Internal Revenue Code, specifically I. R. C. § 6320, provides taxpayers with the right to request a CDP hearing within 30 days of receiving a notice of federal tax lien filing. The Supreme Court’s decision in Boechler, P. C. v. Commissioner established that nonjurisdictional deadlines, such as the 30-day period for filing a petition for judicial review, are subject to equitable tolling. The Tax Court applied this principle to the administrative deadline for requesting a CDP hearing.

    Holding

    The Tax Court held that the 30-day period for requesting a CDP hearing is subject to equitable tolling. The court overruled Kennedy v. Commissioner to the extent that it held the 30-day period was a fixed deadline not amenable to equitable tolling.

    Reasoning

    The Tax Court’s reasoning was grounded in the Supreme Court’s decision in Boechler, which established that nonjurisdictional deadlines are presumptively subject to equitable tolling unless Congress clearly indicates otherwise. The court found no such clear statement in I. R. C. § 6320 that would preclude equitable tolling of the 30-day period. The court also examined the legislative history and Treasury regulations, concluding that they did not categorically preclude equitable tolling. The court noted that the regulations allow for some equitable considerations, such as permitting taxpayers to perfect defective hearing requests after the 30-day period. The court rejected the argument that the IRS’s need for prompt collection justified a strict deadline, emphasizing the remedial nature of the CDP regime designed to protect taxpayers. The court also considered the administrative burden of applying equitable tolling but found it manageable compared to other tax-related deadlines.

    Disposition

    The Tax Court remanded the collection action for 2018 to the IRS Independent Office of Appeals to determine whether the circumstances surrounding the petitioner’s late filing warranted equitable tolling.

    Significance/Impact

    This decision expands taxpayer rights by allowing for the possibility of equitable tolling of the 30-day period for requesting a CDP hearing. It overrules prior Tax Court precedent and aligns with the Supreme Court’s approach to nonjurisdictional deadlines. The ruling may lead to increased requests for CDP hearings and could affect the IRS’s collection procedures. It also highlights the importance of considering equitable principles in administrative processes, potentially influencing future interpretations of similar statutory deadlines.

  • Organic Cannabis Foundation, LLC v. Commissioner of Internal Revenue, 161 T.C. No. 4 (2023): Equitable Tolling of the 30-Day Period for Requesting a Collection Due Process Hearing

    Organic Cannabis Foundation, LLC v. Commissioner of Internal Revenue, 161 T. C. No. 4 (2023)

    In a significant ruling, the U. S. Tax Court decided that the 30-day deadline for requesting a Collection Due Process (CDP) hearing can be equitably tolled, overturning prior precedent. This decision expands taxpayer rights by allowing late-filed requests to be considered when equitable circumstances exist, impacting future IRS collection actions and taxpayer interactions.

    Parties

    The petitioner, Organic Cannabis Foundation, LLC, is a California limited liability company that elected to be taxed as a corporation. The respondent is the Commissioner of Internal Revenue. The case was heard in the U. S. Tax Court with docket numbers 381-22L and 5442-22L.

    Facts

    Organic Cannabis Foundation, LLC had unpaid income taxes for the years 2010, 2011, and 2018. The IRS issued notices of federal tax lien (NFTL) filings for these years. The petitioner timely requested a CDP hearing for the 2010 and 2011 tax years within the statutory 30-day period. However, the petitioner’s request for a 2018 CDP hearing was submitted one day after the 30-day period. The IRS provided a CDP hearing for 2010 and 2011 but determined the 2018 request was untimely and offered an equivalent hearing instead. The petitioner filed a petition seeking review for all three years, and after the petition was filed, the IRS issued a Decision Letter for 2018.

    Procedural History

    The IRS moved to dismiss the case regarding the 2018 tax year for lack of jurisdiction, arguing that the petitioner’s request for a CDP hearing was untimely, and thus, there was no determination to review. The petitioner argued that the 30-day period should be equitably tolled and that the IRS should have made a determination for 2018. The Tax Court overruled its previous holding in Kennedy v. Commissioner, which stated that the 30-day period was a fixed deadline not subject to equitable tolling, and remanded the case to the IRS to consider whether the circumstances warranted equitable tolling for the 2018 tax year.

    Issue(s)

    Whether the 30-day period for requesting a CDP hearing under I. R. C. § 6320(a)(3)(B) can be equitably tolled?

    Rule(s) of Law

    The Internal Revenue Code, I. R. C. § 6320, provides taxpayers with the right to a CDP hearing upon the filing of an NFTL. The statute requires that such a hearing be requested within 30 days after the 5-day notice period following the NFTL filing. The Supreme Court has established a rebuttable presumption that nonjurisdictional filing deadlines are subject to equitable tolling, as articulated in Irwin v. Dep’t of Veteran Affairs, 498 U. S. 89 (1990).

    Holding

    The Tax Court held that the 30-day period for requesting a CDP hearing under I. R. C. § 6320(a)(3)(B) is subject to equitable tolling. The court overruled Kennedy v. Commissioner, which had previously held that the 30-day period was a fixed deadline not amenable to equitable tolling.

    Reasoning

    The court’s reasoning focused on the statutory text, context, and legislative history of I. R. C. § 6320. The court found no clear statement in the statute that the 30-day period was an administrative bar that precluded Appeals from considering untimely requests. The court applied the Supreme Court’s framework from cases such as Boechler, P. C. v. Commissioner, 142 S. Ct. 1493 (2022), which held that a similar 30-day period under I. R. C. § 6330(d)(1) was subject to equitable tolling. The court noted the remedial nature of the CDP regime, designed to provide due process and fairness to taxpayers, supported the application of equitable tolling. The court also considered the Treasury regulations, which, while setting forth a strict 30-day deadline, did not categorically preclude equitable tolling and allowed for certain exceptions. The court concluded that the absence of a clear statement against equitable tolling, combined with the statute’s remedial purpose, supported the application of the doctrine. The court remanded the case for the IRS to determine whether equitable tolling was warranted based on the circumstances surrounding the petitioner’s late filing for the 2018 tax year.

    Disposition

    The Tax Court overruled its precedent in Kennedy v. Commissioner and held that the 30-day period for requesting a CDP hearing is subject to equitable tolling. The court remanded the case to the IRS to determine if equitable tolling applied to the 2018 tax year.

    Significance/Impact

    This ruling significantly expands taxpayer rights by allowing for the equitable tolling of the 30-day period to request a CDP hearing. It overturns prior precedent that treated the deadline as fixed, thereby enhancing due process protections for taxpayers. The decision aligns the administrative deadline with the judicial filing deadline under I. R. C. § 6330(d)(1), which the Supreme Court held was subject to equitable tolling. The ruling may lead to more flexible IRS practices in handling late-filed CDP hearing requests and could influence future cases regarding the application of equitable principles in tax law. It underscores the importance of the CDP regime as a protective mechanism for taxpayers facing IRS collection actions.

  • Piper Trucking & Leasing, LLC v. Commissioner of Internal Revenue, 161 T.C. No. 3 (2023): Automated Penalties and Supervisory Approval Requirements

    Piper Trucking & Leasing, LLC v. Commissioner of Internal Revenue, 161 T. C. No. 3 (2023)

    The U. S. Tax Court ruled that penalties automatically assessed by the IRS’s CAWR computer program do not require supervisory approval under I. R. C. § 6751(b)(1). This decision clarifies that penalties calculated through electronic means are exempt from the approval requirement, impacting how the IRS enforces tax compliance.

    Parties

    Piper Trucking & Leasing, LLC, as Petitioner, and the Commissioner of Internal Revenue, as Respondent, in a case heard before the United States Tax Court.

    Facts

    Piper Trucking & Leasing, LLC, a single-member limited liability company based in Celina, Ohio, failed to file Forms W-2 for the year 2015 with the Social Security Administration (SSA). The SSA issued two warning letters to Piper Trucking, which went unheeded, leading to the transfer of the company’s information to the IRS. The IRS’s Combined Annual Wage Reporting (CAWR) computer program then automatically assessed a penalty under I. R. C. § 6721(e) against Piper Trucking for failing to file these forms. Piper Trucking did not respond to the penalty notice, and the IRS subsequently filed a Notice of Federal Tax Lien and issued a notice of determination sustaining the lien.

    Procedural History

    The IRS assessed the penalty on March 4, 2019, and sent a Notice of Federal Tax Lien Filing on September 17, 2019. Piper Trucking requested a Collection Due Process (CDP) hearing, which was scheduled for June 24, 2020, but neither the company nor its representative attended. A second hearing was scheduled for June 30, 2020, which Piper Trucking’s representative attended but failed to submit the required documentation by the set deadline. On April 30, 2021, the IRS issued a Notice of Determination Concerning Collection Actions sustaining the lien filing. Piper Trucking timely filed a Petition with the U. S. Tax Court on June 4, 2021. The Tax Court denied the IRS’s first Motion for Summary Judgment on September 27, 2022, due to a lack of evidence regarding supervisory approval of the penalty. Both parties filed subsequent Motions for Summary Judgment on November 9, 2022, and December 5, 2022, respectively.

    Issue(s)

    Whether a penalty assessed under I. R. C. § 6721(e) through the IRS’s CAWR computer program requires supervisory approval under I. R. C. § 6751(b)(1).

    Rule(s) of Law

    I. R. C. § 6751(b)(1) mandates that no penalty shall be assessed unless the initial determination to assert such penalty is approved in writing by the immediate supervisor of the person making the determination. However, I. R. C. § 6751(b)(2)(B) exempts penalties “automatically calculated through electronic means” from this requirement.

    Holding

    The U. S. Tax Court held that a penalty assessed under I. R. C. § 6721(e) through the IRS’s CAWR computer program does not require supervisory approval under I. R. C. § 6751(b)(1) because it is “automatically calculated through electronic means. “

    Reasoning

    The court’s reasoning was grounded in the statutory language of I. R. C. § 6751(b)(2)(B), which explicitly exempts penalties calculated through electronic means from the supervisory approval requirement. The court referenced Walquist v. Commissioner, 152 T. C. 61 (2019), which established that penalties assessed without human intervention through an IRS computer program are considered automatically calculated. The court emphasized that the penalty in question was assessed entirely by the CAWR program without any human involvement, thus falling squarely within the statutory exception. The court also noted that Piper Trucking did not dispute the underlying liability during the CDP hearing, which further supported the court’s decision to review the IRS’s administrative determinations for abuse of discretion. The court concluded that the IRS’s Appeals officer met the requirements of I. R. C. § 6330(c) and did not abuse discretion in sustaining the lien.

    Disposition

    The U. S. Tax Court granted summary judgment in favor of the Commissioner of Internal Revenue, affirming the penalty assessment and the sustaining of the lien.

    Significance/Impact

    This decision clarifies the scope of I. R. C. § 6751(b)(1) by affirming that penalties automatically assessed by IRS computer systems do not require supervisory approval. It has significant implications for IRS enforcement practices, particularly in the context of automated penalty assessments. The ruling may lead to increased reliance on automated systems for penalty assessments, potentially streamlining IRS operations but also raising questions about due process and the role of human oversight in tax enforcement. The decision also underscores the importance of taxpayers engaging with the IRS during CDP hearings, as failure to do so can limit their ability to challenge underlying liabilities.

  • Larkin v. Commissioner, T.C. Memo. 2023-106: Deficiency Calculation and Abatement Procedures in Tax Law

    Larkin v. Commissioner, T. C. Memo. 2023-106 (United States Tax Court, 2023)

    In Larkin v. Commissioner, the U. S. Tax Court revised its earlier decisions on tax deficiencies for 2003-2006, following a remand from the D. C. Circuit. The court corrected specific errors in the deficiency calculations as instructed, emphasizing the importance of accurate assessments and the procedural framework for abatements in tax law. This ruling underscores the Tax Court’s adherence to appellate mandates and the necessity of precise deficiency determinations in tax disputes.

    Parties

    Daniel E. Larkin and Christine L. Larkin (Petitioners) v. Commissioner of Internal Revenue (Respondent) at both the trial level and on appeal before the U. S. Court of Appeals for the District of Columbia Circuit.

    Facts

    The case involved consolidated petitions by Daniel E. Larkin and Christine L. Larkin challenging deficiencies in federal income tax for the taxable years 2003, 2004, 2005, and 2006. The Tax Court had initially entered decisions under Rule 155 based on the Commissioner’s computations. On appeal, the D. C. Circuit affirmed the Tax Court’s decisions but identified four computational errors affecting the deficiencies, additions to tax, and penalties. The case was remanded to the Tax Court to correct these errors. The petitioners argued against the revised computations, raising issues about prior assessments, abatements, and the application of foreign tax credit carryovers.

    Procedural History

    The Tax Court initially entered decisions under Rule 155 in 2017, adopting the Commissioner’s computations for the deficiencies. The petitioners appealed to the D. C. Circuit, which affirmed the Tax Court’s decisions in part, vacated them in part due to four acknowledged errors, and remanded the case for corrected decisions. On remand, the Tax Court directed the parties to file revised Rule 155 computations. The Commissioner filed revised computations, which the petitioners objected to, leading to further revisions and supplemental filings by the Commissioner.

    Issue(s)

    Whether the Tax Court, on remand, should enter revised decisions correcting the deficiencies, additions to tax, and penalties for the years 2003-2006 based on the Commissioner’s revised computations, considering the mandate from the D. C. Circuit and the applicable procedural rules?

    Rule(s) of Law

    The court applied Rule 155 of the Tax Court Rules of Practice and Procedure, which allows the court to withhold entry of a decision to permit the parties to submit computations of the correct deficiencies resulting from the court’s opinion. Section 6211(a) of the Internal Revenue Code defines a deficiency as the amount by which the tax imposed exceeds the sum of the tax shown on the return plus any amounts previously assessed or collected without assessment. Section 7486 governs the abatement of assessments made under section 7485(a) during the pendency of an appeal.

    Holding

    The Tax Court held that it should enter revised decisions based on the Commissioner’s revised computations, correcting the deficiencies, additions to tax, and penalties for the years 2003-2006 as directed by the D. C. Circuit’s mandate. The court rejected the petitioners’ objections to the revised computations, finding them without merit and outside the scope of the mandate and Rule 155 proceedings.

    Reasoning

    The Tax Court reasoned that its role on remand was limited by the D. C. Circuit’s mandate and the procedural constraints of Rule 155. The court emphasized that the mandate rule required adherence to the appellate court’s instructions to correct the specified errors without reconsidering other issues. The court treated the assessments made in 2007 for the 2004 taxable year as lawfully assessed deficiencies, which were not part of the deficiency determined by the Tax Court and should not be included in the revised deficiency calculation. The court also found that section 7486 did not require abatement of assessments made during the pendency of the appeal before the entry of revised decisions, given the Commissioner’s representation that he would make necessary abatements. The court rejected the petitioners’ claims about prior abatements and foreign tax credit carryovers as outside the scope of the mandate and Rule 155. The court concluded that the revised computations accurately reflected the corrections required by the D. C. Circuit, and thus, it would enter revised decisions accordingly.

    Disposition

    The Tax Court entered revised decisions in accordance with the Commissioner’s revised computations, correcting the deficiencies, additions to tax, and penalties for the years 2003-2006 as required by the D. C. Circuit’s mandate.

    Significance/Impact

    This case reinforces the importance of precise deficiency calculations in tax disputes and the procedural framework for correcting errors in such calculations. It highlights the Tax Court’s adherence to appellate mandates and the limitations of Rule 155 proceedings in reconsidering issues beyond the scope of the mandate. The decision also clarifies the application of sections 6211(a) and 7486 in the context of deficiency assessments and abatements, providing guidance for future tax litigation involving similar issues. The ruling underscores the necessity for taxpayers to raise all relevant issues at appropriate stages of litigation to avoid waiving them under the mandate rule.

  • Zola Jane Pugh v. Commissioner of Internal Revenue, 161 T.C. No. 2 (2023): Discretionary Dismissal in Tax Court Proceedings

    Zola Jane Pugh v. Commissioner of Internal Revenue, 161 T. C. No. 2 (2023)

    In a significant ruling, the U. S. Tax Court upheld its discretion to dismiss cases without prejudice, even in the absence of objection from the Commissioner. Zola Jane Pugh sought dismissal of her challenge to a tax debt certification under I. R. C. § 7345, which had led to her passport denial. The Court’s decision clarifies its authority in managing its docket and supports taxpayers’ rights to withdraw cases without facing legal prejudice, setting a precedent for similar future disputes.

    Parties

    Zola Jane Pugh, the Petitioner, represented herself pro se throughout the proceedings. The Respondent, Commissioner of Internal Revenue, was represented by Susan K. Bollman and John S. Hitt.

    Facts

    On July 23, 2018, Zola Jane Pugh was notified by the Commissioner of Internal Revenue that she was certified to the U. S. Department of State as having a “seriously delinquent tax debt” under I. R. C. § 7345. This certification resulted in the State Department’s refusal to renew Pugh’s U. S. passport on April 15, 2019. Pugh contested this certification in the U. S. Tax Court, arguing its erroneous nature and alleging constitutional violations due to the nonissuance of her passport. The Commissioner filed two Motions for Summary Judgment, which were denied due to insufficient documentation. On January 23, 2023, Pugh moved to dismiss her case, claiming she was an “alien foreign national” exempt from taxation, a claim unsupported by evidence. Initially, the Commissioner objected to the dismissal but later withdrew the objection, stating no clear legal prejudice would result from dismissal.

    Procedural History

    Pugh filed a petition in the U. S. Tax Court under I. R. C. § 7345(e) to challenge the certification of her tax debt. The Commissioner filed a Motion for Summary Judgment on January 19, 2021, which was denied without prejudice due to lack of supporting documentation. A second Motion for Summary Judgment was filed on November 23, 2022, but Pugh did not respond to either motion. On January 23, 2023, Pugh filed a Motion to Dismiss, which the Commissioner initially opposed but later did not object to. The Tax Court considered the motion and determined it had the discretion to dismiss the case without prejudice.

    Issue(s)

    Whether the U. S. Tax Court has discretion to grant a taxpayer’s unilateral motion to dismiss without prejudice in a case contesting a certification under I. R. C. § 7345?

    Rule(s) of Law

    The U. S. Tax Court has the authority to manage its docket, including the power to dismiss cases without prejudice. This discretion is guided by the Federal Rules of Civil Procedure (FRCP) 41(a)(2), which allows dismissal by court order on terms the court considers proper, absent clear legal prejudice to the opposing party. The Tax Court has previously granted motions to dismiss without prejudice in various contexts outside of deficiency cases, such as those under I. R. C. §§ 6320(c), 6015(e), 7623(b)(4), 6404(h), 7430(f)(2), and 7476.

    Holding

    The U. S. Tax Court held that it has discretion to grant Pugh’s unilateral Motion to Dismiss without prejudice her case contesting a certification under I. R. C. § 7345. The Court found that absent evidence of clear legal prejudice to the Commissioner, it would grant the motion to dismiss.

    Reasoning

    The Tax Court reasoned that while it cannot dismiss deficiency cases without prejudice under I. R. C. § 7459(d), its jurisdiction extends to various non-deficiency disputes where it has granted motions to dismiss without prejudice. The Court looked to FRCP 41(a)(2) for guidance, which allows dismissal by court order absent clear legal prejudice to the opposing party. The Commissioner’s withdrawal of objection and assertion of no clear legal prejudice supported the Court’s decision to grant the motion. The Court also noted that the certification of Pugh’s tax debt would remain in place despite the dismissal, further mitigating any potential prejudice. The Court’s analysis included consideration of prior cases where similar motions were granted and the lack of controlling Tax Court Rules on the issue.

    Disposition

    The U. S. Tax Court granted Pugh’s Motion to Dismiss without prejudice, denied the Commissioner’s pending Motion for Summary Judgment as moot, and dismissed the case.

    Significance/Impact

    This case establishes that the U. S. Tax Court retains discretion to dismiss cases without prejudice in non-deficiency disputes, even when the Commissioner does not object. It underscores the Court’s authority to manage its docket and supports taxpayers’ rights to withdraw cases without facing legal prejudice. The ruling may influence future cases involving I. R. C. § 7345 certifications and similar disputes, clarifying the procedural rights of taxpayers in Tax Court proceedings. It also highlights the importance of the Commissioner’s position on motions to dismiss, as their lack of objection can significantly impact the Court’s decision.

  • Joseph E. Abe, DDS, Inc. v. Commissioner of Internal Revenue, 161 T.C. No. 1 (2023): Discretion in Voluntary Dismissal of Declaratory Judgment Cases

    Joseph E. Abe, DDS, Inc. v. Commissioner of Internal Revenue, 161 T. C. No. 1 (U. S. Tax Court 2023)

    In Joseph E. Abe, DDS, Inc. v. Commissioner, the U. S. Tax Court ruled that it has discretion to grant voluntary dismissals in nondeficiency cases filed under I. R. C. § 7476, which involve the qualification of retirement plans. The court dismissed the petitioner’s case after the Commissioner did not object, emphasizing the court’s authority to manage its docket and the lack of prejudice to the Commissioner. This decision reinforces the court’s flexibility in handling nondeficiency cases.

    Parties

    Joseph E. Abe, DDS, Inc. , as Petitioner, challenged the Commissioner of Internal Revenue, as Respondent, in a declaratory judgment action regarding the qualification of a retirement plan under I. R. C. § 7476.

    Facts

    Joseph E. Abe, DDS, Inc. , a California corporation, established the Joseph E. Abe, DDS, Inc. , Retirement Plan effective July 1, 1982. On September 9, 1987, the IRS issued a favorable determination letter confirming the plan’s compliance with I. R. C. § 401(a). The plan was terminated effective January 1, 2019. An audit initiated by the IRS on November 25, 2020, covered the years 2012 through 2019, resulting in a Revenue Agent Report on October 27, 2021, and a final revocation letter on June 21, 2022, stating that the plan did not meet § 401(a) requirements. The petitioner filed a timely Petition with the U. S. Tax Court on September 16, 2022, seeking a declaratory judgment that the plan was qualified from 2012 through 2019. The respondent filed a timely Answer on November 17, 2022. On January 14, 2023, the petitioner moved to dismiss the Petition, and the respondent did not object.

    Procedural History

    The petitioner filed a Petition for declaratory judgment pursuant to I. R. C. § 7476 on September 16, 2022, which was timely following the IRS’s final revocation letter dated June 21, 2022. The respondent filed an Answer on November 17, 2022. On January 14, 2023, the petitioner moved to dismiss the case. The respondent did not object to the Motion to Dismiss. The court, having discretion under its rules and precedent, granted the Motion to Dismiss without prejudice.

    Issue(s)

    Whether the U. S. Tax Court has discretion to grant a motion for voluntary dismissal in a nondeficiency case filed under I. R. C. § 7476.

    Rule(s) of Law

    The U. S. Tax Court’s jurisdiction extends to reviewing the Commissioner’s decisions regarding the initial or continuing qualification of a retirement plan under I. R. C. § 7476(a). The court may look to the Federal Rules of Civil Procedure (FRCP) for guidance in the absence of specific Tax Court rules. FRCP 41(a)(2) permits voluntary dismissal at a court’s discretion, unless the defendant will suffer clear legal prejudice.

    Holding

    The U. S. Tax Court has discretion to grant motions for voluntary dismissal in nondeficiency cases filed under I. R. C. § 7476. The court dismissed the case without prejudice as the Commissioner did not object, and the statutory period for refiling had expired.

    Reasoning

    The court reasoned that it has jurisdiction over nondeficiency cases, including those filed under § 7476, and that it has previously granted taxpayers’ motions to dismiss in similar nondeficiency cases. The court cited precedents such as Stein v. Commissioner, Mainstay Bus. Sols. v. Commissioner, Jacobson v. Commissioner, Davidson v. Commissioner, and Wagner v. Commissioner, where voluntary dismissals were granted in nondeficiency cases. The court emphasized that FRCP 41(a)(2) allows for such dismissals at the court’s discretion, unless the nonmoving party would suffer clear legal prejudice. The court found no prejudice to the Commissioner, who did not object to the dismissal, and noted that the statutory period for refiling had expired. The court’s decision was based on its authority to manage its docket and the equitable considerations involved in granting the dismissal.

    Disposition

    The U. S. Tax Court granted the petitioner’s Motion to Dismiss and dismissed the case without prejudice.

    Significance/Impact

    This case reaffirms the U. S. Tax Court’s discretion to grant voluntary dismissals in nondeficiency cases, particularly those involving declaratory judgments under I. R. C. § 7476. It highlights the court’s flexibility in managing its docket and the importance of the Commissioner’s non-objection in such cases. The ruling provides clarity for taxpayers and practitioners on the procedural aspects of seeking dismissal in similar nondeficiency actions, ensuring that the court can efficiently handle its caseload while respecting the rights of both parties.

  • Sanders v. Commissioner, 160 T.C. No. 16 (2023): Timeliness of Electronically Filed Petitions and the Application of I.R.C. § 7451

    Sanders v. Commissioner, 160 T. C. No. 16 (U. S. Tax Ct. 2023)

    In Sanders v. Commissioner, the U. S. Tax Court ruled that a petition filed 11 seconds after the deadline via the court’s electronic filing system, DAWSON, was untimely. The court clarified that user-specific technical difficulties do not constitute inaccessibility under I. R. C. § 7451, which extends filing deadlines only when a filing location is inaccessible to the public. This decision underscores the importance of timely electronic filing and the strict interpretation of jurisdictional filing deadlines in tax deficiency cases.

    Parties

    Antawn Jamal Sanders, as Petitioner, filed the case pro se against the Commissioner of Internal Revenue, as Respondent. The case was docketed as No. 25868-22 in the United States Tax Court.

    Facts

    On September 8, 2022, the Commissioner mailed a notice of deficiency to Antawn Jamal Sanders, which stated that the last day to file a petition was December 12, 2022. Sanders attempted to file his petition electronically through the Tax Court’s DAWSON system. He encountered difficulties with his mobile device and had to switch to a computer. Despite multiple attempts, Sanders uploaded and filed his petition at 12:00:11 a. m. on December 13, 2022, which was 11 seconds after the deadline. The DAWSON system was fully operational during the relevant period, and no system-wide outages were reported.

    Procedural History

    The Commissioner filed a Motion to Dismiss for Lack of Jurisdiction on January 25, 2023, arguing that Sanders’s petition was untimely. Sanders objected on February 21, 2023, claiming he encountered system errors. The Tax Court took judicial notice of DAWSON activity records and invited briefs from amici curiae, including the Center for Taxpayer Rights. The court reviewed the case and issued its opinion on June 20, 2023, applying a de novo standard of review for questions of law and jurisdiction.

    Issue(s)

    Whether a petition filed through the Tax Court’s electronic filing system (DAWSON) 11 seconds after the deadline, due to user-specific technical difficulties, is considered timely under I. R. C. § 6213(a) and § 7451(b)?

    Rule(s) of Law

    Under I. R. C. § 6213(a), a petition must be filed within 90 days after the mailing of a notice of deficiency. Rule 22(d) of the Tax Court Rules of Practice and Procedure specifies that an electronically filed petition is timely if filed by 11:59 p. m. eastern time on the last day. I. R. C. § 7451(b) provides that if a filing location is inaccessible or otherwise unavailable to the general public, the filing period is extended. The Tax Court has previously held that the timely mailing rule under I. R. C. § 7502 does not apply to electronically filed petitions (Nutt v. Commissioner, 160 T. C. , slip op. at 4 (May 2, 2023)).

    Holding

    The Tax Court held that Sanders’s petition was untimely under I. R. C. § 6213(a) because it was received 11 seconds after midnight on December 13, 2022. The court further held that I. R. C. § 7451(b) did not apply because DAWSON was accessible and operational at all relevant times, and the difficulties Sanders experienced were unique to him and not indicative of general inaccessibility.

    Reasoning

    The court reasoned that a petition is considered filed when it is received by the court, consistent with prior rulings (Leventis v. Commissioner, 49 T. C. 353 (1968); Nutt v. Commissioner, 160 T. C. , slip op. at 3 (May 2, 2023)). The court rejected the argument that the timely mailing rule under I. R. C. § 7502 should apply to electronic filings, as it does not extend to Tax Court petitions. Regarding I. R. C. § 7451(b), the court distinguished between system-wide inaccessibility and user-specific issues, citing cases such as In re Beal (616 B. R. 140 (Bankr. D. Utah 2020)) and In re Sizemore (341 B. R. 658 (Bankr. N. D. Ind. 2006)). The court noted that DAWSON logs and the court’s own records confirmed the system’s operational status during the relevant period. The court also addressed the amicus’s argument for equitable tolling, stating that the filing deadline under I. R. C. § 6213(a) is jurisdictional and cannot be equitably tolled (Hallmark Rsch. Collective v. Commissioner, 159 T. C. , slip op. at 42 (Nov. 29, 2022)).

    Disposition

    The Tax Court dismissed the case for lack of jurisdiction due to the untimely filing of the petition.

    Significance/Impact

    This case clarifies the application of I. R. C. § 7451(b) to electronically filed petitions, emphasizing that user-specific issues do not constitute inaccessibility. It reinforces the strict enforcement of jurisdictional filing deadlines in tax deficiency cases and the importance of timely electronic filing. The decision may impact future cases involving electronic filing, particularly in how courts interpret and apply the accessibility requirement of I. R. C. § 7451(b). It also highlights the need for filers to account for potential technical difficulties when filing close to deadlines.

  • Castillo v. Commissioner, 160 T.C. No. 15 (2023): Substantial Justification and Litigation Costs Under I.R.C. § 7430

    Castillo v. Commissioner, 160 T. C. No. 15 (U. S. Tax Ct. 2023)

    In Castillo v. Commissioner, the U. S. Tax Court ruled that the IRS’s position on the jurisdictional nature of the 30-day filing deadline for a collection due process (CDP) determination was substantially justified. This decision was based on pre-existing case law, even though the Supreme Court later ruled in Boechler that the deadline was nonjurisdictional. Consequently, the court denied the taxpayer’s request for litigation costs under I. R. C. § 7430, highlighting the importance of substantial justification in tax litigation.

    Parties

    Josefa Castillo, as the Petitioner, sought review of a collection due process (CDP) determination by the Commissioner of Internal Revenue, as the Respondent. The case progressed from the U. S. Tax Court to the U. S. Court of Appeals for the Second Circuit and back to the Tax Court upon remand.

    Facts

    Josefa Castillo received a notice of deficiency for the 2014 tax year, which was mailed to her last known address but returned unclaimed. The IRS assessed a deficiency and penalty, and later issued a Notice of Federal Tax Lien (NFTL) filing. Castillo requested a CDP hearing, arguing that she was not liable for the deficiency because the income attributed to her was from a business she had sold. The IRS upheld the NFTL filing. Castillo filed a late petition for review with the Tax Court, which the IRS moved to dismiss for lack of jurisdiction due to the untimely filing. The Tax Court granted this motion, but the case was appealed and held in abeyance pending the Supreme Court’s decision in Boechler, P. C. v. Commissioner. After Boechler, the Second Circuit vacated the Tax Court’s dismissal and remanded the case. On remand, the IRS conceded the case, and Castillo sought litigation costs under I. R. C. § 7430.

    Procedural History

    The IRS moved to dismiss Castillo’s petition for lack of jurisdiction due to the late filing, which the Tax Court granted. Castillo appealed to the U. S. Court of Appeals for the Second Circuit, which held the case in abeyance pending the Supreme Court’s decision in Boechler, P. C. v. Commissioner. Post-Boechler, the Second Circuit vacated the Tax Court’s dismissal and remanded the case. On remand, the IRS conceded the case in full. Castillo then moved for litigation costs under I. R. C. § 7430, which the Tax Court denied, finding the IRS’s position substantially justified.

    Issue(s)

    Whether the IRS’s position that the Tax Court lacked jurisdiction due to the untimely filing of Castillo’s petition was substantially justified under I. R. C. § 7430?

    Rule(s) of Law

    Under I. R. C. § 7430, a prevailing party may be awarded reasonable litigation costs if the position of the United States in the proceeding was not substantially justified. The IRS’s position is considered substantially justified if it has a reasonable basis in law and fact. I. R. C. § 6330(d)(1) sets a 30-day deadline for filing a petition for review of a CDP determination, which was considered jurisdictional until the Supreme Court’s decision in Boechler, P. C. v. Commissioner, 142 S. Ct. 1493 (2022).

    Holding

    The Tax Court held that the IRS’s position was substantially justified because, at the time of the filing of Castillo’s petition, the 30-day deadline under I. R. C. § 6330(d)(1) was considered jurisdictional based on existing case law. Therefore, Castillo was not treated as the prevailing party for the purpose of I. R. C. § 7430, and her motion for litigation costs was denied.

    Reasoning

    The Tax Court’s reasoning focused on the substantial justification of the IRS’s position. The court noted that before the Supreme Court’s decision in Boechler, the 30-day deadline for filing a petition for review of a CDP determination was uniformly held to be jurisdictional by both the Tax Court and federal courts of appeals. The IRS’s position was based on this established case law, which provided a reasonable basis in law and fact. The court cited cases like Kaplan v. Commissioner and Guralnik v. Commissioner to support this view. Furthermore, the court rejected Castillo’s argument that the IRS’s failure to follow Internal Revenue Manual (IRM) guidance created a presumption against substantial justification, as the IRM is not considered “applicable published guidance” under I. R. C. § 7430(c)(4)(B)(iv). The court’s analysis highlighted the importance of the timing of legal positions in tax litigation and the impact of new Supreme Court decisions on previously settled law.

    Disposition

    The Tax Court denied Castillo’s motion for reasonable litigation costs under I. R. C. § 7430.

    Significance/Impact

    This case underscores the doctrine of substantial justification under I. R. C. § 7430 and its application in tax litigation, particularly in light of evolving case law. The decision emphasizes that the IRS’s position can be considered substantially justified based on the legal landscape at the time of the litigation, even if subsequent Supreme Court decisions alter that landscape. This ruling has practical implications for taxpayers seeking litigation costs, highlighting the need to consider the timing and basis of the IRS’s legal positions. It also reflects the broader tension between taxpayer rights and the government’s ability to defend its positions based on established law at the time of litigation.