Source: http://federaltaxprocedure.blogspot.com/2012/08/
Timestamp: 2019-04-25 11:07:21+00:00

Document:
Note: This blog entry is a cut and paste from my Federal Tax Crimes Blog: Nonprecedential / Unpublished Appellate Decisions Morphing Into Precedent? (8/29/12), here. Re-publishing it here by cut and paste does not make the contents any more authoritative.
In United States v. Boardwalk Motor Sports, Limited, ___ F.3d ___, 2012 U.S. App. LEXIS 17978 (5th Cir. 2012), here, the Court dealt with some nuances of the IRS collection process dealing with liens and levies. The majority and minority opinions are a bit obtuse in their holdings, but the opinions do offer an opportunity to step through the lien and levy process in a way that students should learn in a basic tax procedure course. Hence, I provide a summary -- dealing with the big points and not getting into the details of some of the convoluted reasoning of the majority and the minority as to what the right result should be.
1. The taxpayer had tax lien filings for over $3 million. The IRS had filed the tax lien of public record.
(B) before the purchaser obtains such notice or knowledge, he has acquired possession of such motor vehicle and has not thereafter relinquished possession of such motor vehicle to the seller or his agent.
Note that this exception for automobile purchases has two conjunctive components. The bottom line is that any person who acquires an interest in the taxpayer's property while the lien is filed is loses to the IRS unless an exception applies.
In my Tax Procedure class, we always study United States v. Boyle, 469 U.S. 241 (1985), here, which rejected an executor's claim of reliance on an attorney as reasonable cause for late filing of the estate tax. Most failure to file penalties have relief where the failure is due to reasonable cause and not willful neglect. Since Boyle, the IRS is trigger happy to assert failure to file penalties upon the mere failure to file. If reliance on the attorney is not reasonable cause, what is? Well, at least a coma or other disability. But, at least in the IRS's imagination, not much else.
Of course, Boyle did involve a commonly filed or at least commonly recognized return -- the estate tax return. Hence, a reasonably prudent executor might be expected to know or at least inform himself of the filing date for an estate return. There are any number of less common returns and forms with reasonable cause relief for penalties. Does Boyle command the penalties in those cases upon failure to file?
I have just posted on the Federal Tax Crimes Blog an entry titled Reasonable Cause Defense for Failure to File Form 3520 (8/25/12), here. The entry discusses a recent decision in a case denying the Government summary judgment in a failure to file Form 3520 reporting transfers to a foreign trust. The taxpayer in the case argued reasonable reliance on his accountant who allegedly knew all or enough of the facts to have advised the taxpayer and prepared the required Form for timely filing. Boyle did not warrant summary judgment for for the Government in that case. The case is proceeding to trial on the factual issue of reasonable cause.
The Federal Tax Crimes Blog entry and the case it discusses are not required reading for my students in the class, but readers of this blog interested in the topic might want to read it.
In United States v. Eaton, 2012 U.S. Dist. LEXIS 115003 (ND OH 2012), here, the IRS was not pleased with the taxpayer's assertion of privilege in a contentious audit. In an earlier blog today on the sister blog site, Federal Tax Crimes blog, in discussing the John Doe Summons, I discussed the administrative summons and the minimal showing the IRS must make to obtain a court enforcement order. See The IRS Administrative Summons as Pretext to Avoid the Need for a John Doe Summons (8/20/12), here. I won't repeat that discussion here, for it overlaps with what I do discuss.
I should just stick to the opinion, but I do link to an earlier article that suggests that the ongoing to and fro between Eaton and the IRS has been quite adversarial (adversarial on steroids). See Patrick Temple-West, Eaton, IRS tangle over cross-border pricing pacts (Reuters 6/17/12), here. The IRS had, for the first time in four years, canceled APAs, Advanced Pricing Agreements between the IRS and the taxpayer as to transfer pricing mothologies, and then, after extensive investigation, issued a notice of deficiency. The article discusses the filing of a Tax Court petition in response to the notice of deficiency. But, apparently toward the end of the audit rancor, the IRS issued those summonses which it sought to enforce. Hence the case I discuss in this blog.
n1 Eaton also asserts that, "in practical terms," the 2005 and 2006 examination ended on December 19, 2011 (just four business days after the summons response date in Case Nos. 24, 26, and 27), when the IRS issued Eaton a Notice of Deficiency asserting tax deficiencies related to Eaton's 2005 and 2006 tax years. Eaton contends the IRS was aware when it served its summonses that Eaton intended to challenge in court any adjustments made by the IRS to its transfer pricing. In fact, on February 29, 2012, Eaton filed a petition with the United States Tax Court challenging the IRS's Notice of Deficiency, Eaton Corp. v. Commissioner, Case No. 5576-12 (T.C. filed February 29, 2012).
I posted on the page to the right a short piece from a friend to help students study law. The page is titled: Good Advice for Studying the Law - Highly Recommended. I now another offering for a different, but complementary approach. The Volokh Conspiracy, an excellent blog, serves up this delightful offering: David Kopel, “Beer + Pizza = Success.” The key formula for law students (8/19/12), here.
Not much I can add to that, except that I will hoist a glass to the proposition / advice. I can add that my related law school memories are to the Tavern in Charlottesville, Virginia, within reasonable proximity to the UVA Law School. I and some friends would go to the gym around 8:30 or 9 in the evening for some handball and, upon concluding that, would head out to the Tavern for some beer. (Because of the proximity, one could walk or stumble back to the law dorms in the first year, if that became necessary or recognized the need to do so.) It was all beer. I don't even remember what, if anything, the Tavern offered to eat. We had some good conversations. I don't remember any about the law, but then I don't remember any conversations from the Tavern either. Do remember some laughs and some stunts.
And, I can also add that at UH Law where I have been teaching since the about 1983 (had about a 5 year break in the late 1980s), we used to have a joint across the street named Grace's. I used to teach from 7:30pm to 9:10pm (no breaks). Then, many in the class would convene at Grace's for libations. Beer was the fare. I would have one; two max (that alone was a different experience from the Tavern in Charlottesville). No food that I can remember. Lots of laughs. Remember no stunts. Do remember some great students!
I posted earlier today on my Federal Tax Crimes Blog a discussion of the John Doe Summons. See The IRS Administrative Summons as Pretext to Avoid the Need for a John Doe Summons (8/20/12), here. The topic of the discussion is a prominent part of the Federal Tax Procedure class. I accordingly recommend that blog entry to readers of this blog, particularly students in my class.
The principal discussion of the IRS regular administrative summons and the John Doe Summons in the Federal Tax Procedure Book (2012 edition) at pp. 352-362 of the Footnoted version and 256-262 of the NonFootnoted Version.
In Meruelo v. Commissioner, ___ F.3d ___, 2012 U.S. App. LEXIS 17208 (9th Cir. 2012), here, the Ninth Circuit held that a notice of deficiency ("NOD") adjusting partnership affected items which is timely by reference to the individual taxpayer's statute of limitations is proper despite there having been no partnership level TEFRA audit. The setting and resolution of the case permit me to address an issue I made earlier that, under the Allen holding (which I think is wrongly decided), fraud on the return can keep the statute of limitations for a taxpayer who does not commit the fraud. In Allen, the fraud of the return preparer was involved, but the sweep of the holding is not limited to the return preparer but to anyone materially involved in a chain of events that support a fraudulent position reported on the taxpayer's return. I noted particularly that fraud with respect to the abusive tax shelters that ran rampant in the late 1990s and early 2000s and led to criminal prosecution of the enablers should be a potential application of the Allen holding. See Does the Preparer's Fraud Invoke the Unlimited Statute of Limitations? (8/5/12), here. This type of fraudulent shelter may have been involved in Meruelo.
In Meruelo, the partnership in question (Intervest) did a foreign currency transaction, probably of a Son-of-Boss variety. The transaction may have been fraudulent, although that issue was not resolved in Meruelo. Rather than TEFRA audit the partnership, however, the IRS sent the taxpayers (husband and wife) a NOD disallowing the partner's losses claimed indirectly from the partnership. (Actually the partner in the tax shelter partnership (Intervest) was a disregarded sole member LLC owned by the taxpayer; I ignore the intervening disregarded entity because, well, for tax purposes it is disregarded.) The NOD was timely under the taxpayers' statute of limitations.
Although it is clear that, had there been a timely TEFRA audit of the partnership, the IRS could have relied upon TEFRA's statute of limitations period to make a timely assessment of partnership items and partnership affected items, there was in fact no TEFRA audit. Now, I have just used some TEFRA jargon that I am going to have to explain in order to move. The following is a good summary from CC-2009-011 "Protective Assessments of Affected Items in TEFRA Partnership Cases, (March 11, 2009), here.
n647 Recognizing the text’s substantial meaning, see Shockley v. Commissioner, 686 F.3d 1228 (11th Cir. 2012).
Section 6503(a) is here. The Shockley opinion is here.
I ask you now to focus on the quote establishing second suspension period indicated in the quote - "if a proceeeding * * * is placed on the docket of the Tax Court" and the accompanying footnote. In a recent article, practitioners have critiqued the Shockley holding for its potential consequences beyond the limited confines of the case. Andy R. Roberson and Kevin Spencer, 11th Circuit Allows Invalid Notice to Suspend Asssessment Period, 136 Tax Notes 709 (Aug. 6, 2012) (criticizing Shockley for the scope of its potential application in other cases). The article is here.
In Exxon Mobil Corp. v. Commissioner, 689 F.3d 191 (2d Cir. 2012), here, the Second Circuit held that Exxon Mobil is entitled to retrospective interest netting which is now required under Section 6621(d) prospectively since the enactment of global interest netting in 1998. The opinion was written by Judge Jose A. Cabranes. His Wikipedia entry is here.
Under section 6621 of the Internal Revenue Code ("I.R.C."), interest is calculated at a higher rate for corporate tax underpayments than it is for corporate tax overpayments. In principle, therefore, a corporate taxpayer could owe the Treasury underpayment interest even if the amount by which the taxpayer had underpaid its taxes in one tax year (or set of tax years) was entirely offset by the amount by which it had overpaid in another tax year (or set of tax years). To remedy this apparent inequity, Congress amended section 6621 in 1998 to include a provision for "global interest netting," by which the interest rate differential is adjusted to yield a net interest rate of zero for periods of reciprocal indebtedness — that is, periods during which the taxpayer's overpayments in one set of tax years overlap and offset its equivalent underpayments in another set. See I.R.C. § 6621(d), 26 U.S.C. § 6621(d).
By noncodified contemporaneous legislation (called the "special rule"), Congress allowed the retrospective application of global interest netting. The issue in Exxon Mobil was whether the taxpayer qualified for the special retrospective relief provision.
The narrow question the Court resolved was "whether retrospective global interest netting is permitted when the limitations period for either of the 'legs' of the period of overlapping indebtedness has not expired, or only when the period of limitations for both legs is open." Since this is an issue that arises only under the retrospective relief provision that has no continuing significance, I will not get into the substantive issues.
A not-uncommon taxpayer self-help collection "defense" is to title property in the names of third parties in order to avoid IRS collection against the property. The common law and state law developed legal protections for creditors to be able to get past the nominal titling of the property to third parties. These protections appear in the form of concepts such as nominee and alter ego liability and transferee liability for transfers in fraud of creditors. The IRS uses these concepts to take collection activity, including filing liens against the third party. I cover these concepts in the Federal Tax Procedure Book (footnoted at pp. 610 - 620; nonfootnoted at pp. 446 - 453).
1. The IRS is increasingly using alter ego and nominee liens which have, practitioners feel, "insufficient due process protections." Problems with the process include lack of notice to the alter ego or nominee. A practitioner noted that, since the use of the alter ego or nominee lien requires advance counsel approval, the Appeals Officer may be reluctant to override the counsel.
2. One participant suggested seeking Taxpayer Advocate Service involvement as soon as an alter ego lien is improperly asserted.
In Allen v. Commissioner, 128 T.C. 37 (2007), here, the Tax Court (Judge Kroupa) held that Section 6501(c)(1) imposes an unlimited statute of limitations for the preparer's fraud in preparing the tax return. This blog asserts that that holding is incorrect. I should note that the opinion has only sporadically been referred to and there are no authoritative decisions other than Allen to test the validity of its analysis or my arguments for that analysis being incorrect.
(1) False return. In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.
(a) Imposition of penalty. If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
The Allen Court read Section 6501(c)(1) according to what it claimed was a "plain meaning analysis." The statute does not limit the fraud to the taxpayer's fraud. If the return is fraudulent, the unlimited statute applies regardless of whose fraud is involved. The preparer's fraud suffices.
In my view, the Allen Court is wrong. First, one consequence of reading this statute literally, would logically mean that the fraud penalty applies when the preparer's rather than the taxpayer's fraud was involved. The IRS did not assert the fraud penalty in Allen, so the Tax Court did not have to come to grips with this issue. However, there is nothing in the bare text of the civil fraud penalty that limits the term "fraud" on the return to the taxpayer's fraud. Of course, the taxpayer's own fraud has always been required for the civil fraud penalty. (Cf. Section 6663(c) ("In the case of a joint return, this section shall not apply with respect to a spouse unless some part of the underpayment is due to the fraud of such spouse.").) Still, so far as we can tell, Allen was the first time the IRS urged that a nontaxpayer's fraud with respect to a return can open the statute of limitations under Section 6501(c)(1), so it is not inconceivable that the same analysis might apply to the civil fraud penalty. In this regard, the IRS wisely did not assert the civil fraud penalty. I say wisely because such heavy handedness might have caused it to lose the statute of limitations issue. Still, as I shall note, given the correlation of the two consequences of fraud, it seems to me illogical to treat the two consequences differently. I think that given the choice of both to apply or neither, the only logical one from a tax policy standpoint is that neither should apply.
In National Federation of Independent Business v. Sebelius, 567 U.S. ___ (2012), here, the Supreme Court affirmed the individual mandate as a tax but held that it was not a tax for purposes of the Anti-Injunction Act ("AIA"), 26 USC 7421(a), here, which prohibits injunctions against a tax assessment or collection. What's that all about? I won't try to answer that question in detail, but I will introduce readers to the back ground of the AIA.
(a) Tax. Except as provided in sections 6015 (e), 6212 (a) and (c), 6213 (a), 6225 (b), 6246 (b), 6330 (e)(1), 6331 (i), 6672 (c), 6694 (c), and 7426 (a) and (b)(1), 7429 (b), and 7436, no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.
Injunctions or injunction substitutes (such as declaratory judgments) are not allowed in tax controversies. § 7421(a) (Also called the Anti-Injunction Act). The reasons are (1) there is a strong governmental imperative in avoiding interference with the revenue function and (2) there are adequate procedures otherwise provided in which taxpayers can contest tax liabilities without undue burden.
You will note that there are certain statutory exceptions to the prohibition (see the opening "Except as" clause). The exceptions do not swamp the rule but they are significant. In the Tax Procedure course we cover some of these exceptions. For example, the notice of deficiency giving the taxpayer pre-assessment access to the Tax Court for income and estate and gift tax is an exception (see the reference in Section 7421(a) to Sections 6212 and 6213); if the notice is not sent or not properly sent (e.g., to the taxpayer's last known address), the taxpayer may enjoin any IRS assessment and attempt to collect the tax. (We will study also certain more efficient alternatives to remedying this particular problem, but the injunction suit is available.) There are other statutory exceptions, but for present purposes just note that there is a general prohibition on injunction suits unless there is an exception. There is also a judicially-created exception applicable only in rare cases of clear unconstitutionality, but again that should not detract from the general rule. I discuss the AIA and the exceptions in the texts as follows: (i) footnoted version, pp. 525 ff; (ii) nonfootnoted version, pp. 387 ff. (I also mention in the footnotes the AIA in discussing the exceptions, such as the exception for failure to send a proper notice of deficiency.
Where applicable, the AIA means that a tax cannot be enjoined. This will mean, generally, that the, for taxes other than those requiring a notice of deficiency, the taxpayer must first pay the tax and then litigate the taxpayer's liability for the tax. As applicable to the individual mandate which does not require a notice of deficiency, that would mean that a taxpayer / citizen must first pay the tax which does not kick in until 2014 and then litigate liability.
In the Tax Procedure class, we study fraud with respect to tax obligations. Fraud has criminal and civil components. Although we cover briefly the criminal components, I cover those in detail in a separate class, titled Tax Fraud and Money Laundering which will be taught next in the Spring of 2013 (see web page here). In this Tax Procedure class we focus more on the civil components.
There are two key civil fraud penalties in the Code. The one principally encountered in practice is Section 6663, here. That section imposes a civil fraud penalty of 75% of the portion of an underpayment required to be shown on a return if "attributable to fraud." The other key civil fraud penalty is Section 6651(f), here, which triples the failure to file penalty, to a maximum of 75%, if the failure to file is "fraudulent." Each of these is viewed as a civil counterpart of the tax evasion crime under Section 7201 which can apply to a fraudulent return and a fraudulent failure to file.
Tax Procedure students might want to review an example of how the Government proves civil fraud that I discuss in a recent Federal Tax Crimes Blog entry, titled Tax Court Finds Fraud Based, in Part, On Negative Inference from Fifth Amendment Assertion (7/31/12), here. The key points relevant to Tax Procedure that I discuss in that blog entry are: (1) general rules of civil tax fraud cases, including certain "badges of fraud" permitting an inference of fraud for purposes of meeting the requirement that the IRS prove fraud by clear and convincing evidence and (2) the role of a negative inference when the taxpayer asserts the Fifth Amendment in a civil proceeding.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 6621
 § 6621
 v. 
 v. 
 § 7421