Source: http://federaltaxcrimes.blogspot.com/2016/06/the-tax-court-sticks-to-its-allen.html
Timestamp: 2019-04-20 15:05:07+00:00

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I have previously blogged on the issue of whether the unlimited statute of limitations for fraud in § 6501(c)(1), here, requires the taxpayer's personal fraud or, on the other hand, merely a fraudulent position as a result of someone else's fraud (such as a return preparer). The issue rose to prominence after the Tax Court's decision in Allen v. Commissioner, 128 T.C. 37, 40 (2007) which held that the taxpayer's personal fraud was not required; all that was required, according to Allen, was fraud on the return without regard to the taxpayer's personal culpability. The Second Circuit seemed to agree in City Wide Transit, Inc. v. Commissioner, 709 F.3d 102 (2d Cir. 2013). But, the Court of Appeals for the Federal Circuit did not agree (at least two of three judges on the panel did not agree). BASR P'ship v. United States, 795 F.3d 1338 (Fed. Cir. 2015). The Government did not seek rehearing or certiorari in BASR, so that matter seemed to be practically resolved because taxpayers could choose to litigate the issue in the Court of Federal Claims (governed by its Court of Appeals, the Court of Appeals for the Federal Circuit).
We must decide whether respondent has proved that petitioners’ returns were prepared falsely or fraudulently with the intent to evade tax.
n6 We see no reason to revisit Allen v. Commissioner, 128 T.C. 37 (2007), on account of BASR P’ship v. United States, 113 Fed. Cl. 181 (2013), aff’d, 795 F.3d 1338 (Fed. Cir. 2015). In the Court of Appeals for the Federal Circuit’s opinion, a persuasive dissent was filed, as well as a concurring opinion that relied on sec. 6229, a provision inapplicable in the instant case. Accordingly, even in cases appealable in the Federal Circuit, it is unclear whether, in the absence of the application of sec. 6229, which interpretation of sec. 6501(c)(1) would prevail. Moreover, there is no jurisdiction for appeal of any decision of the Tax Court to the Court of Appeals for the Federal Circuit. Sec. 7482(a)(1). Additionally, the parties have not cited BASR P’ship and do not contend we should revisit Allen. Thus, Allen is controlling precedent in the instant case, and we do not revisit the analysis and conclusion in that Opinion.
This is a cautionary tale. First, practitioners must help their clients in forum choices. Where this issue is presented, the best forum choice is the Court of Federal Claims which, under Flora, requires full pre-payment of some amount, perhaps the full tax in issue. Second, taxpayers going to the Tax Court either by petition for redetermination of a deficiency or in a CDP hearing where liability can be contested (not all CDP cases if an opportunity to contest was previously available) will not fare well. Third, since sporadic litigation will continue in forums other than the Court of Federal Claims (particularly the Tax Court), it would appear that this issue will bubble up to other Circuits and, unless the IRS gives up the issue, a conflict may develop that might cause the Supreme Court to grant certiorari. Finnegan is appealable to the Eleventh Circuit which has not yet addressed the issue. My sense is that the Eleventh Circuit will be a taxpayer-friendly venue on this issue. Still, the Eleventh Circuit could create a conflict with the Court of Appeals for the Federal Circuit..
Finally, just a coincidence having nothing to do with the merits, Allen was decided by Judge Kroupa, who resigned from the Tax Court and was recently indicted. See Former US Tax Court Judge Kroupa Indicted (Federal Tax Crimes Blog 4/4/16; 4/5/16), here.
Les Book has an excellent discussion of Finnegan at Tax Court Sticks to Its Guns and Holds Fraud of Preparer Can Indefinitely Extend Taxpayer’s SOL on Assessment (Procedurally Taxing Blog 6/20/16), here.
JAT Correction: An earlier version of this blog entry indicated that the Finnegans lived within the Second Circuit which would make City Wide an influential, if not controlling, authority on appeal. Actually, at the time of filing the petition, they lived in the Eleventh Circuit which has yet to speak on this issue.

References: § 6501
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