SCOTUS Reports

Tag: U.S. Tax Court

  • Kraske v. Commissioner, 161 T.C. No. 7 (2023): Timeliness of Supervisory Approval for Penalties under I.R.C. § 6751(b)

    Kraske v. Commissioner, 161 T. C. No. 7 (2023)

    In Kraske v. Commissioner, the U. S. Tax Court ruled that supervisory approval for penalties under I. R. C. § 6751(b) is timely if given before the supervisor loses discretion, following the Ninth Circuit’s precedent in Laidlaw’s Harley Davidson. This decision impacts how and when the IRS must approve penalties, ensuring discretion remains with the supervisor until the case is transferred to Appeals.

    Parties

    Wolfgang Frederick Kraske, the petitioner, proceeded pro se. The respondent was the Commissioner of Internal Revenue, represented by Alexander D. DeVitis and Christine A. Fukushima.

    Facts

    The IRS examined Wolfgang Frederick Kraske’s federal income tax returns for 2011 and 2012. On June 2, 2014, a tax compliance officer (TCO) issued Kraske a 15-day letter proposing deficiencies and penalties under I. R. C. § 6662(a) and (b)(2). Kraske was given 15 days to request a conference with the IRS Office of Appeals. On July 16, 2014, Kraske mailed a request for Appeals consideration, which was received by the TCO on July 24, 2014. On July 21, 2014, the TCO’s immediate supervisor approved the penalties. The case was forwarded to Appeals on August 12, 2014, after which Kraske was unable to reach a settlement, leading to a notice of deficiency issued on July 28, 2015.

    Procedural History

    Kraske timely filed a petition with the U. S. Tax Court, challenging the penalties under I. R. C. § 6662(a) and (b)(2). The court previously sustained the tax deficiencies for 2011 and 2012 in a separate opinion, T. C. Memo. 2023-128. The current opinion focuses on the timeliness of the supervisory approval of the penalties under I. R. C. § 6751(b). The court applied the Golsen doctrine, following the Ninth Circuit’s precedent in Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 29 F. 4th 1066 (9th Cir. 2022), which reversed and remanded 154 T. C. 68 (2020).

    Issue(s)

    Whether the written supervisory approval of the penalties under I. R. C. § 6751(b) was timely, given that it occurred after the issuance of the 15-day letter but before the case was transferred to the IRS Office of Appeals.

    Rule(s) of Law

    I. R. C. § 6751(b)(1) requires that no penalty shall be assessed unless the initial determination of such assessment is personally approved in writing by the immediate supervisor of the individual making such determination. The Ninth Circuit in Laidlaw’s Harley Davidson held that supervisory approval must be obtained before the assessment of the penalty or, if earlier, before the relevant supervisor loses discretion whether to approve the penalty assessment.

    Holding

    The U. S. Tax Court held that the written supervisory approval for the penalties was timely under the standard set by the Ninth Circuit in Laidlaw’s Harley Davidson, as the supervisor retained discretion to approve or withhold approval when she did so on July 21, 2014, before the case was transferred to Appeals.

    Reasoning

    The court applied the Golsen doctrine, following the Ninth Circuit’s decision in Laidlaw’s Harley Davidson, which held that supervisory approval under § 6751(b) is timely if given before the supervisor loses discretion. The court rejected its prior position in Clay v. Commissioner, which required approval before formal communication of the penalty to the taxpayer. The Ninth Circuit’s rationale was deemed to extend to penalties subject to deficiency procedures, and the court found that the supervisor retained discretion when approving the penalties on July 21, 2014, as the case had not yet been transferred to Appeals. The court noted that this timeline was consistent with the Ninth Circuit’s findings in Laidlaw’s Harley Davidson. The court also considered the broader implications of the Ninth Circuit’s holding, which emphasized the importance of supervisory discretion over formal communication deadlines.

    Disposition

    The court entered a decision for the respondent, affirming the imposition of the penalties under I. R. C. § 6662(a) and (b)(2).

    Significance/Impact

    Kraske v. Commissioner clarifies the timing requirements for supervisory approval under I. R. C. § 6751(b), aligning with the Ninth Circuit’s precedent. This ruling ensures that supervisory approval is considered timely if given before the supervisor loses discretion, which may occur upon transfer to Appeals. The decision impacts IRS procedures and taxpayer rights, emphasizing the importance of maintaining supervisory discretion throughout the penalty assessment process. It also highlights the application of the Golsen doctrine, where the Tax Court follows the precedent of the Court of Appeals with jurisdiction over the appeal, ensuring consistency and judicial efficiency. Subsequent courts may refer to this case when addressing similar issues regarding the timeliness of penalty approvals.

  • Estate of James E. Caan v. Commissioner, 161 T.C. No. 6 (2023): IRA Distribution and Rollover Rules Under I.R.C. § 408(d)

    Estate of James E. Caan v. Commissioner, 161 T. C. No. 6 (2023)

    The U. S. Tax Court ruled that James E. Caan’s partnership interest in a hedge fund, held in an IRA, was distributed to him when UBS resigned as custodian due to Caan’s failure to provide a required valuation. The court held that the subsequent liquidation of the interest and contribution of cash proceeds to another IRA did not qualify as a tax-free rollover, as it violated the “same property” rule under I. R. C. § 408(d)(3). This decision underscores the strict application of IRA distribution and rollover rules, impacting how non-traditional assets are managed within IRAs.

    Parties

    Estate of James E. Caan, Deceased, Jacaan Administrative Trust, Scott Caan, Trustee, Special Administrator, as Petitioner, v. Commissioner of Internal Revenue, as Respondent.

    Facts

    James E. Caan held two Individual Retirement Accounts (IRAs) with Union Bank of Switzerland (UBS), one of which contained a partnership interest in the P&A Multi-Sector Fund, L. P. (P&A Interest). The custodial agreement between Caan and UBS required Caan to provide UBS with the P&A Interest’s year-end fair market value (FMV) annually. In 2015, Caan failed to provide the 2014 year-end FMV, prompting UBS to notify him of the distribution of the P&A Interest and issue a Form 1099-R reporting a distribution valued at $1,910,903, which was the last known FMV from 2013. More than a year later, Caan’s financial advisor liquidated the P&A Interest and contributed the cash proceeds to an IRA at Merrill Lynch.

    Procedural History

    Caan reported an IRA distribution on his 2015 income tax return, claiming it was nontaxable as a rollover contribution under I. R. C. § 408(d)(3). The Commissioner disagreed and issued a notice of deficiency. Caan requested a private letter ruling to waive the 60-day period for rollover contributions, which was denied. Caan then filed a petition with the U. S. Tax Court for redetermination of his 2015 income tax deficiency under I. R. C. § 6213(a).

    Issue(s)

    Whether the P&A Interest was distributed to Caan in tax year 2015 within the meaning of I. R. C. § 408(d)(1)? Whether the P&A Interest was contributed to Merrill Lynch in a manner that would qualify as a rollover contribution under I. R. C. § 408(d)(3)? What was the value of the P&A Interest at the time of the distribution? Whether the Tax Court has jurisdiction under I. R. C. § 6213(a) to review the Commissioner’s denial of Caan’s request for a waiver of the 60-day period for rollover contributions under I. R. C. § 408(d)(3)(I)? What is the standard of review for such a denial, and did the Commissioner abuse his discretion in denying the waiver?

    Rule(s) of Law

    I. R. C. § 408(d)(1) governs the taxability of IRA distributions. I. R. C. § 408(d)(3) allows for tax-free rollovers if the entire amount received is contributed to another IRA within 60 days, and the same property rule requires the exact same property to be contributed. I. R. C. § 408(d)(3)(I) permits the IRS to waive the 60-day requirement under certain conditions. The Tax Court has jurisdiction to review denials of waivers under I. R. C. § 408(d)(3)(I) and reviews such denials for abuse of discretion.

    Holding

    The P&A Interest was distributed to Caan in tax year 2015 within the meaning of I. R. C. § 408(d)(1). The subsequent contribution of the P&A Interest to Merrill Lynch did not qualify as a tax-free rollover under I. R. C. § 408(d)(3) because Caan changed the character of the property by liquidating it and contributing cash. The value of the P&A Interest at the time of distribution was $1,548,010. The Tax Court has jurisdiction to review the Commissioner’s denial of a waiver under I. R. C. § 408(d)(3)(I), and the standard of review is abuse of discretion. The Commissioner did not abuse his discretion in denying the waiver because granting it would not have helped Caan due to the violation of the same property rule.

    Reasoning

    The court found that UBS distributed the P&A Interest to Caan in 2015 when it resigned as custodian due to Caan’s failure to provide the required valuation. This action placed Caan in constructive receipt of the P&A Interest. The court applied the same property rule established in Lemishow v. Commissioner, holding that Caan’s liquidation of the P&A Interest and contribution of cash to another IRA did not qualify as a tax-free rollover. The court also considered the legislative history and regulations supporting the strict application of the same property rule. Regarding the value of the P&A Interest, the court accepted the Commissioner’s proposed value of $1,548,010, as it closely matched the liquidation proceeds. Finally, the court extended its holding in Trimmer v. Commissioner to find jurisdiction to review the Commissioner’s denial of a waiver under I. R. C. § 408(d)(3)(I) and upheld the denial as not an abuse of discretion because the waiver would not have changed the outcome due to the violation of the same property rule.

    Disposition

    The Tax Court affirmed the Commissioner’s determination that the P&A Interest was distributed and taxable, and upheld the denial of the waiver request.

    Significance/Impact

    This case reaffirms the strict application of the same property rule in IRA rollovers and the consequences of failing to adhere to custodial agreement requirements for non-traditional assets in IRAs. It highlights the importance of timely providing valuations for such assets and the potential tax implications of failing to do so. The decision also clarifies the Tax Court’s jurisdiction and standard of review for denials of waivers under I. R. C. § 408(d)(3)(I), which may impact future cases involving IRA distribution issues.

  • 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.

  • 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.

  • 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.

  • Berenblatt v. Commissioner, 160 T.C. No. 14 (2023): Discovery Standards in Whistleblower Award Cases

    Berenblatt v. Commissioner, 160 T. C. No. 14 (2023)

    In Berenblatt v. Commissioner, the U. S. Tax Court established stringent discovery standards for whistleblower award cases under I. R. C. § 7623. The court ruled that discovery is limited to the administrative record, and only upon a significant showing of bad faith or an incomplete record can additional materials be sought. This decision underscores the court’s adherence to the record rule and clarifies the scope of permissible discovery in whistleblower appeals, impacting future cases by setting a high bar for expanding the record beyond what the IRS designates.

    Parties

    Jeremy Berenblatt (Petitioner) v. Commissioner of Internal Revenue (Respondent). Berenblatt was the appellant in the Tax Court, challenging the IRS Whistleblower Office’s (WBO) denial of his whistleblower award claim.

    Facts

    Jeremy Berenblatt, a stock trader, was interviewed by the IRS in November 2007 regarding a tax shelter involving digital foreign exchange options known as Short Options Strategies (SOS). Berenblatt alleged that the transaction lacked economic substance and was potentially fraudulent. He later claimed that his information led to the IRS’s successful use of the economic substance theory in related litigation. In July 2015, Berenblatt filed Form 211 with the WBO, seeking an award based on his 2007 interview. The WBO denied his claim, citing that the IRS had already known the relevant information before Berenblatt’s interview. Berenblatt then appealed to the Tax Court under I. R. C. § 7623(b)(4).

    Procedural History

    Berenblatt filed a petition with the U. S. Tax Court to review the WBO’s denial of his award claim. He sought discovery from the IRS, filing motions to compel the production of documents and responses to interrogatories. The IRS produced a 765-page administrative record, asserting it was complete. The court reviewed Berenblatt’s motions under the standard of review set by the Administrative Procedure Act and the scope of review limited to the administrative record. The court granted a stay of proceedings to address the discovery disputes and issued its ruling on the motions to compel.

    Issue(s)

    Whether a whistleblower can compel discovery beyond the administrative record designated by the IRS in an appeal of a whistleblower award denial, and if so, under what circumstances?

    Rule(s) of Law

    In whistleblower award appeals under I. R. C. § 7623, the Tax Court’s review is governed by the standard of review under the Administrative Procedure Act, which permits reversal of agency action found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. ” The scope of review is generally confined to the administrative record, as articulated by the D. C. Circuit’s record rule. Discovery beyond the administrative record is permissible only upon a significant showing of bad faith or an incomplete record by the IRS. Treasury Regulation § 301. 7623-3(e) lists materials that must be included in the administrative record.

    Holding

    The Tax Court held that Berenblatt’s motions to compel discovery were largely unsupported by a significant showing of bad faith or an incomplete record. The court denied most of Berenblatt’s document and interrogatory requests, except for a request related to notes taken during his 2007 interview, which the court ordered the IRS to clarify.

    Reasoning

    The court reasoned that the IRS’s designation of the administrative record enjoys a presumption of correctness. Berenblatt’s requests for documents and interrogatory responses largely sought materials outside the administrative record and before his involvement with the IRS. The court emphasized that discovery in whistleblower cases must be limited to materials directly or indirectly considered by the WBO or those falling under categories listed in Treasury Regulation § 301. 7623-3(e). Berenblatt’s contention that the WBO should have reviewed certain documents was rejected, as there was no evidence that the WBO negligently excluded documents that could have been adverse to its decision. The court noted that the IRS had already developed the economic substance argument before Berenblatt’s interview, as evidenced by an expert report dated before the interview. The court allowed limited discovery only regarding notes from Berenblatt’s interview, as they were part of the complete record under the regulation.

    Disposition

    The court denied Berenblatt’s motions to compel discovery, except for compelling the IRS to clarify whether notes were taken during his 2007 interview and, if so, their current status.

    Significance/Impact

    This case sets a precedent for the standards governing discovery in whistleblower award appeals, reinforcing the record rule and the presumption of correctness for the IRS’s administrative record designation. It clarifies that whistleblowers must make a significant showing of bad faith or an incomplete record to obtain discovery beyond the designated record. The decision impacts future whistleblower cases by limiting the scope of discovery and emphasizing the importance of the administrative record in judicial review. It also highlights the Tax Court’s adherence to the D. C. Circuit’s precedent in whistleblower matters, affecting how such cases are litigated and the evidence considered by the court.