Tag: Taxpayer Standing

Greenoak Holdings Ltd. v. Comm’r, 143 T.C. 170 (2014): Taxpayer Standing in Collection Due Process Appeals

Greenoak Holdings Ltd. v. Comm’r, 143 T. C. 170 (U. S. Tax Court 2014)

In Greenoak Holdings Ltd. v. Comm’r, the U. S. Tax Court ruled it lacked jurisdiction over a petition filed by third parties claiming ownership of assets potentially subject to levy for unpaid estate taxes. The court clarified that only the taxpayer, the estate in this case, has standing to appeal a collection due process (CDP) notice of determination. This decision underscores the limits of third-party rights in tax collection disputes and the procedural protections afforded to taxpayers under the Internal Revenue Code.

Parties

Greenoak Holdings Limited, Southbrook Properties Limited, and Westlyn Properties Limited (collectively, “Petitioners”) were the appellants in this case. They were represented by Michael Ben-Jacob. The respondent was the Commissioner of Internal Revenue, represented by Frederick C. Mutter. The estate of James B. Irwin was the taxpayer involved, with Howard L. Crown as the initial personal representative, later succeeded by Jill McCrory.

Facts

James B. Irwin died on September 21, 2009, and Howard L. Crown was appointed as the personal representative of the estate. The estate filed a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, in December 2010, reporting both probate and nonprobate assets. Among the nonprobate assets listed was the Karamia Settlement, an offshore trust owned by the decedent, which in turn owned the Petitioners. The estate failed to timely pay the reported estate tax, leading the Commissioner to issue a Final Notice of Intent to Levy and Notice of Your Right to a Hearing on November 28, 2012, to Crown. The estate requested a collection due process (CDP) hearing, which was held on April 18, 2013. On May 1, 2013, the Commissioner issued a notice of determination sustaining the levy on the estate’s nonprobate assets. The estate did not appeal this determination, but the Petitioners filed a petition with the U. S. Tax Court on May 30, 2013, asserting their ownership interest in the assets potentially subject to levy.

Procedural History

The U. S. Tax Court issued an order to show cause on June 19, 2013, directing the parties to explain why the estate should not be substituted as the petitioner. On July 11, 2013, the Commissioner moved to dismiss for lack of jurisdiction, arguing that the Petitioners were not proper parties to appeal the notice of determination. Crown, on behalf of the estate, agreed with the Commissioner’s position. On January 16, 2014, Crown resigned as personal representative, and Jill McCrory was appointed as his successor. McCrory filed supplemental responses on May 6, 2014, arguing that the Petitioners had standing to appeal and that the estate should be substituted as a party. The Tax Court ultimately dismissed the case for lack of jurisdiction on September 16, 2014.

Issue(s)

Whether a third party, who claims an ownership interest in property that might be subject to levy, has standing to appeal a notice of determination issued to the taxpayer under I. R. C. § 6330(d)?

Rule(s) of Law

The controlling legal principle is found in I. R. C. § 6330, which provides taxpayers with procedural protections before the Internal Revenue Service (IRS) can levy on their property to collect unpaid taxes. Specifically, I. R. C. § 6330(d) states that “[t]he person may, within 30 days of a determination under this section, appeal such determination to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter). ” The regulations under § 6330 further clarify that the “person” entitled to notice and appeal rights is the taxpayer liable for the unpaid tax, not third parties who may claim an interest in the property subject to levy.

Holding

The U. S. Tax Court held that it lacked jurisdiction over the Petitioners’ appeal because they were not the taxpayers liable for the unpaid estate tax, nor were they authorized representatives of the taxpayer. The court ruled that only the estate, as the taxpayer, had standing to appeal the notice of determination under I. R. C. § 6330(d).

Reasoning

The court’s reasoning focused on the statutory language and legislative history of I. R. C. § 6330, which consistently refers to “the person” as the taxpayer liable for the unpaid tax. The court noted that the purpose of § 6330 was to provide taxpayers with due process protections before the IRS could levy on their property. The court rejected the Petitioners’ argument that they were “persons” entitled to appeal rights under § 6330(d) because they claimed an ownership interest in property potentially subject to levy. The court emphasized that the regulations under § 6330 explicitly state that only the taxpayer is entitled to notice and appeal rights, and third parties must pursue other remedies, such as a wrongful levy action under I. R. C. § 7426. The court also considered the legislative history, which further supported the conclusion that § 6330 was intended to benefit taxpayers, not third parties. The court dismissed the successor personal representative’s attempt to reverse the estate’s original position and substitute the estate as a party, noting that the estate had not filed a timely petition.

Disposition

The U. S. Tax Court dismissed the case for lack of jurisdiction, as the Petitioners were not proper parties to appeal the notice of determination issued to the estate.

Significance/Impact

The Greenoak Holdings Ltd. v. Comm’r decision clarifies the limits of third-party standing in collection due process appeals under I. R. C. § 6330. It establishes that only the taxpayer liable for the unpaid tax has the right to appeal a notice of determination, and third parties claiming an interest in property subject to levy must pursue other remedies, such as a wrongful levy action under I. R. C. § 7426. This ruling has important implications for tax practitioners and taxpayers, as it underscores the importance of timely filing by the taxpayer to preserve appeal rights in collection disputes. The decision also highlights the procedural protections afforded to taxpayers under the Internal Revenue Code and the limited role of third parties in such proceedings.

September 16, 2014
Richardson v. Commissioner, 72 T.C. 818 (1979): Taxpayer Standing and the Validity of Unsigned Tax Returns

Richardson v. Commissioner, 72 T. C. 818 (1979)

A taxpayer lacks standing to challenge the government’s fiscal accounting practices under the Statement and Account clause, and an unsigned tax return does not start the statute of limitations.

Summary

In Richardson v. Commissioner, the U. S. Tax Court addressed the standing of a taxpayer to challenge the government’s fiscal practices under the Constitution’s Statement and Account clause, and the validity of an unsigned tax return for statute of limitations purposes. William B. Richardson refused to file tax returns or pay taxes, arguing that the Treasury Department’s reporting violated the Constitution. The court held that Richardson lacked standing because the clause limits the Executive Branch, not Congress’s taxing power. Additionally, the court ruled that Richardson’s unsigned 1971 tax return did not constitute a valid filing, thus not triggering the statute of limitations. The court also determined Richardson’s tax liability and upheld the addition to tax for failure to file.

Facts

William B. Richardson, employed as a public defender, did not file federal income tax returns or pay taxes for the years 1971-1974, asserting that the Treasury Department’s reporting of expenditures, particularly those of the intelligence community, violated the Constitution’s Statement and Account clause. In 1972, he mailed an unsigned 1971 tax return to the IRS, accompanied by a letter demanding the return of withheld taxes. The IRS assessed deficiencies and additions to tax for the years in question, which Richardson contested in court.

Procedural History

Richardson filed a petition with the U. S. Tax Court challenging the IRS’s determinations. The court addressed the issues of Richardson’s standing to challenge the government’s fiscal practices, the validity of his unsigned 1971 return, and the calculation of his tax liabilities and penalties.

Issue(s)

1. Whether Richardson has standing to challenge the government’s fiscal practices under the Statement and Account clause of the Constitution.
2. Whether the unsigned tax return filed by Richardson for 1971 constitutes a valid return for statute of limitations purposes.
3. Whether Richardson’s tax liabilities for 1971-1974 were correctly calculated by the IRS.
4. Whether the addition to tax for failure to file was properly imposed under section 6651(a).

Holding

1. No, because the Statement and Account clause limits the Executive Branch, not Congress’s taxing power.
2. No, because an unsigned return does not start the statute of limitations under section 6501(a).
3. Yes, with adjustments for rental income and dependency exemptions based on the evidence presented.
4. Yes, because Richardson’s failure to file was not due to reasonable cause.

Court’s Reasoning

The court applied the standing test from Flast v. Cohen, concluding that Richardson failed to establish a nexus between his taxpayer status and the alleged constitutional violation. The Statement and Account clause limits the Executive Branch, not Congress’s taxing and spending power, thus Richardson lacked standing. The court cited precedent to rule that an unsigned return does not constitute a valid filing for statute of limitations purposes. In calculating Richardson’s tax liabilities, the court considered his credible testimony regarding rental income and dependency exemptions. The court upheld the addition to tax under section 6651(a), finding that Richardson’s belief about unconstitutional Treasury practices did not constitute reasonable cause for failing to file. The court emphasized that the Constitution does not allow individual citizens to enforce general directives against the government.

Practical Implications

This decision clarifies that taxpayers cannot use the Statement and Account clause to challenge tax obligations based on alleged government fiscal misconduct. Attorneys should advise clients that unsigned tax returns do not start the statute of limitations, emphasizing the importance of proper filing. The case reinforces the IRS’s authority to assess taxes without time limitations when no valid return is filed. Practitioners should ensure clients understand the consequences of not filing, including potential penalties. This ruling may deter similar constitutional challenges in tax cases, impacting how taxpayers and their counsel approach disputes with the IRS.

August 9, 1979
Scheide v. Commissioner, 65 T.C. 455 (1975): Limits on Taxpayer Standing to Challenge Government Actions

Scheide v. Commissioner, 65 T. C. 455 (1975)

A taxpayer lacks standing to challenge alleged government violations of international law as a defense for nonpayment of taxes.

Summary

In Scheide v. Commissioner, the petitioner sought a “war crimes deduction” on her 1972 federal income tax return, claiming that payment of such taxes would make her complicit in alleged war crimes by the U. S. in Indo-China. The U. S. Tax Court denied the deduction, holding that the petitioner lacked standing to challenge these alleged violations under the criteria established in Flast v. Cohen. The court reasoned that the petitioner failed to show a personal stake in the controversy and was not in danger of becoming an accomplice to war crimes merely by paying taxes. This decision reaffirms the principle that general taxpayers cannot use tax disputes to litigate broader governmental policy issues.

Facts

In 1972, Lorna H. Scheide claimed a “war crimes deduction” of $16,344 on her federal income tax return, arguing that one-third of her taxes would fund U. S. involvement in Indo-China, allegedly constituting war crimes. The IRS disallowed the deduction, leading to a deficiency determination of $9,381. 62. Scheide filed a petition with the Tax Court seeking redetermination of the deficiency, asserting that payment of the disputed taxes would make her complicit in war crimes under Nuremberg Principle No. 7.

Procedural History

The Commissioner moved for partial summary judgment before the U. S. Tax Court on the issue of the “war crimes deduction. ” The court held a hearing on the motion and considered memorandums from both parties. The Tax Court granted the Commissioner’s motion, affirming the disallowance of the deduction and holding that Scheide lacked standing to raise the issue of alleged international law violations.

Issue(s)

1. Whether the petitioner has standing to challenge the alleged violations of international law by the United States as a defense for nonpayment of taxes.

Holding

1. No, because the petitioner fails to meet the requirements of Flast v. Cohen for taxpayer standing, and she has neither suffered an injury nor is she in danger of doing so as a consequence of such alleged violations.

Court’s Reasoning

The court applied the standing test from Flast v. Cohen, which requires a taxpayer to challenge a congressional enactment under the taxing and spending clause and show that it exceeds specific constitutional limitations on that power. Scheide’s challenge did not meet these requirements because the U. S. involvement in Vietnam was authorized under different constitutional provisions, and she failed to show that it violated specific limitations on the taxing and spending power. The court also rejected Scheide’s claim that paying taxes would make her a war criminal, citing John David Egnal and Nuremberg precedents to conclude that mere tax payment does not constitute complicity in war crimes. The court emphasized that standing requires a personal stake in the controversy, which Scheide lacked. The court’s decision was influenced by policy considerations against allowing general taxpayers to litigate broader governmental policy issues through tax disputes.

Practical Implications

This decision limits the ability of taxpayers to use tax disputes as a platform for challenging government actions on international law grounds. It clarifies that taxpayers must show a direct injury or imminent danger of injury to have standing in such cases, which is unlikely in most tax disputes. The ruling reinforces the separation between tax law and broader policy issues, requiring taxpayers to pursue other legal avenues for such challenges. This case has been cited in later decisions to deny similar claims of standing, shaping the practice of tax law by emphasizing the narrow scope of issues that can be litigated in tax court. Practitioners should advise clients against using tax filings to protest government actions unrelated to the tax code itself.

December 2, 1975