Source: https://procedurallytaxing.com/author/patrickthomas/
Timestamp: 2019-02-22 16:22:35
Document Index: 68917576

Matched Legal Cases: ['§ 1', '§ 1', '§ 1', '§ 601', '§ 7463', '§ 7459']

Overpayment Jurisdiction in Partnership Cases; Orders vs. Opinions – Designated Orders: December 10 – 14, 2018
January 24, 2019 by Patrick Thomas 2 Comments
Professor Patrick Thomas from Notre Dame brings us this week’s designated order post. The first case he discusses raises and issue Professor Thomas and I first discussed a couple of years ago when he had a Tax Court case in which the petitioner expected a refund. He brought Rule 260 to my attention. I subsequently had my own clinic case with an unpaid refund. I pointed out the rule to the IRS attorney when I asked whether they objected to the motion I was preparing to file. The attorney asked that I hold off on filing the motion and I did. That decision led to a little tension with my client who wanted me to push harder but I felt that the attorney would work hard to get the refund issued based on her promise. She did. Only a small percentage of Tax Court cases result in a refund but a high percentage of those cases probably result in slow delivery of the refund. Understanding Rule 260 can be helpful.
In addition to introducing us to Rule 260, this post also questions the use of an order to dispose of a case that seems like a natural one for a decision. I cannot say why an order rather than opinion was used and hope that maybe some former Tax Court clerks who subscribe might be able to shed light on this decision in the comment section. Keith
The Tax Court picked up the pace this week. In addition to the cases detailed below, Judge Carluzzo issued a quick reminder that, under Craig v. Commissioner, a document entitled a “Decision Letter” may instead be treated as a Notice of Determination if, in fact, the facts warrant; Judge Armen disposed of a mooted motion for reconsideration; and Judge Halpern issued a cryptic order in a Whistleblower case that struck his order in the same case the prior week (which Caleb Smith covered for us previously).
Docket No. 21946-09, Greenteam Materials Recovery Facility PN v. C.I.R. (Order Here)
This case provides two important lessons. First, failing to use the Court’s formal procedures under Rule 260 for enforcement of an overpayment may result in a tongue lashing. Second, and more importantly, there is significant dispute regarding whether the Court may order refunds for partners that result from decisions in a partnership level proceeding.
The Court issued its decision in this case last year. In Judge Holmes’ view, the decision was largely favorable to Petitioners, and according to Petitioner’s counsel, resulted in a substantial refund for the partners in one tax year (along with some smaller deficiencies in others).
The Service issued computational adjustments to the partners for those deficiency years, but did not issue the refunds for the other year. Instead, the Service told the partners to sue for a refund in District Court or the Court of Federal Claims. So, Petitioner’s counsel sent a letter to the Tax Court, asking the Court to force the Service to issue the refund.
I’ve certainly been in a similar situation before. The Court issued a decision for my client, found an overpayment, and ordered a refund. Months came and went. Still no refund. Fortunately, the Tax Court Rules provide for a remedy: specifically, Tax Court Rule 260. In ordinary deficiency cases, the Court may order Respondent to issue a refund under Rule 260. Presumably, the Court could use its contempt power under section 7456(c) if the Service continued to refuse.
Rule 260 has a few hoops to jump through. First, under Rule 260(a)(2), Petitioner may not commence a Rule 260 proceeding until 120 days have lapsed since the decision became final under section 7481(a), which for non-appealed cases means 90 days after the decision is entered. So at least 210 days from the decision must elapse before starting down this path. The Court issued its decision in Greenteam on June 21, 2017, so Petitioner would successfully jump through this hoop.
However, Petitioners may not simply ask for the Court to step in without providing Respondent an opportunity to correct its mistake. Rule 260(b) specifies the content of the motion, which requires “a copy of the petitioner’s written demand on the Commissioner to refund the overpayment determined by the Court . . . [which] shall have been made not less than 60 days before the filing of the motion under this Rule . . . .” The demand also must be made to the last counsel of record for the Commissioner—not on any other Service employee.
I’m not sure whether Petitioner’s counsel made this demand, but it seems as if it at least wasn’t attached to the letter sent to the Tax Court.
Judge Holmes orders that the letter be treated as a motion under Rule 260, but subsequently denies that motion as being premature (presumably because no demand has been shown as made on Respondent).
Regardless, Judge Holmes does pontificate over whether the Court has any refund jurisdiction in the first instance. After all, no overpayment determination was made in the partnership level case; in TEFRA cases all overpayment issues are necessarily made at the partner level. According to Judge Holmes, section 6512(a)(4) “states [that the Tax Court’s] ordinary overpayment jurisdiction does not apply.”
I quibble somewhat with that statement; 6512(a) provides that a Petitioner may not obtain a refund using other mechanisms (e.g., a refund claim or suit); subsection (a)(4) provides an exception to this rule for partner level refund determinations. Rather, section 6512(b) provides the Tax Court with jurisdiction to determine overpayments, which presumes that the Tax Court has determined whether a deficiency exists and can therefore determine whether an overpayment exists. It can’t do so directly in partnership cases, and so the argument goes, the Tax Court doesn’t have refund jurisdiction as to related partners in such cases.
Still, section 6230(d)(5) provides, that “in the case of any overpayment by a partner which is attributable to a partnership item (or an affected item) and which may be refunded through this subchapter, to the extent practicable credit or refund of such overpayment shall be allowed or made without any requirement that the partner file a claim therefor.” Judge Holmes notes that secondary sources are unclear on whether, read together, these sections grant the Court overpayment jurisdiction in such a case.
Judge Holmes seems willing to consider the issue, but Petitioner must first renew its request under Rule 260. First step: issue a demand letter to Respondent’s counsel under Rule 260. Or, as the Service suggested, take up the issue in District Court or the Court of Federal Claims (where the jurisdictional issue is much less murky).
Docket No. 6699-18S, Banini v. C.I.R. (Order Here)
This order from Judge Leyden highlights my concern with the Court’s use of Designated Orders to fully dispose of cases. The facts of the case are also interesting, and a reminder to law students that they most likely cannot deduct their ever-increasing tuition payments.
Petitioner was a “Patent Technical Advisor” at a large law firm, and took advantage of the firm’s offer of non-interest-bearing loans to attend law school. Mr. Banini deducted his law school tuition payments on his federal income tax return for 2013 and 2014, and eventually graduated with a J.D. in January 2015.
Education expenses are deductible as business expenses under section 162 if the education “maintains or improves skills required by the taxpayer in his employment … or meets the express requirements of the taxpayer’s employer, or of other applicable law or regulations, imposed as a condition to the retention of the taxpayer of an established employment relationship….” 26 C.F.R. § 1.162-5(a). However, such expenses are still nondeductible if the education qualifies the taxpayer for a new trade or business. Id. § 1.162-5(b). So, even if the education “maintains or improves skills required by the taxpayer in his employment” (as a legal education certainly may when working as a patent agent in a large law firm), the expenses are nondeductible if the education qualifies the taxpayer for a new trade or business.
In the years that Petitioner deducted his education expenses, he was a Patent Technical Advisory—not an attorney. Therefore, Judge Leyden finds that the educational expenses qualified him for a new trade or business, even though the expenses could conceivably maintain or improve his skills within the scope of his current employment relationship with the law firm. Substantively, all is well and good with this order. The legal issue is straightforward.
But why dispose of this case via order at all, and not include it in the Tax Court Summary Opinion reporter? Off the cuff, reasons to not include an order in a reporter could include (1) a non-substantive order (such as an order setting a date for trial or for payment of a filing fee), (2) a concern regarding the order’s precedential effect (i.e., orders are, under Tax Court Rule 50(f), nonprecedential), and (3) relatedly, an efficiency concern regarding the opinion’s issuance procedures through the Chief Judge, which judges have previously noted as a reason to issue orders (and to designate them).
This order fully disposes of a substantive legal issue in this case. There is no precedential concern, because this is a Small Case; under section 7463(b), such cases carry no precedential value. That leaves us with an efficiency concern, i.e., that it may take more time to issue the opinion via the Court’s formal procedures, and that an order may more quickly disposes of the substantive issue.
The Court and individual judges must balance this efficiency concern with the public’s interest in obtaining information on the substantive legal issues. The order in Banini will not appear in searches on Westlaw, Lexis, or any other service. It appeared as a “Designated Order”, but only readers of this blog and individuals who checked the Tax Court’s website on December 13, 2018 would know this. (Searches on Westlaw and Lexis that I conducted returned no results regarding this case). Individuals searching for section 162 issues involving educational expenses and patent agents will likewise not find this case, unless they know to search the Court’s docket. A search of Westlaw and Lexis likewise revealed nothing more than a few old cases involving this fact pattern.
I understand the efficiency rationale behind issuing this decision as an order. Perhaps there is some other advantage of which I’m unaware. Nevertheless, I believe this strikes the wrong balance and obscures otherwise helpful information from the public. Understanding this concern, the Tax Court might consider permitting judges to issue opinions independently in a nonprecedential small case. This would better address the efficiency concern, while allowing the public and practitioners greater access to these decisions. This may raise a separate consistency concern among the Court, but this is somewhat mitigated because the opinions are nonprecedential.
Docket No. 6086-18L, Banahene v. C.I.R. (Order Here)
Judge Armen denied Respondent’s motion for summary judgment in this CDP case involving return preparer penalties. At issue is both 1) whether Respondent compiled with 26 C.F.R. § 1.6994-4(a)(1), (2) and 2) whether that regulation is mandatory or directory. That regulation seems to require that the Service “send a report of the examination to the tax return preparer” before assessing any penalties under section 6694. Section 2 of the regulation requires that the Service issue a 30-day letter to the preparer with administrative appeal rights, unless the statute of limitations on assessment under section 6696 will shortly run.
While Respondent desired summary judgment based upon the second issue—i.e., that the Service should, but need not comply with the regulations for the penalty assessments to be valid—Judge Armen did not wish to spend the Court’s limited resources to address this issue of first impression. Rather, if the Service actually had complied with the regulation, that novel issue would be mooted and the assessments upheld. Likewise, other issues raised in Respondent’s motion would be mooted if the assessments were invalid. Therefore, Judge Armen denied the motion.
Docket No. 21940-15L, McCarthy v. C.I.R. (Order Here)
Judge Halpern likewise denied Respondent’s motion for summary judgment in this CDP case, apparently because neither Petitioner nor Respondent addressed a dispositive issue in the case: whether Petitioner’s failure to provided updated financial information to IRS Appeals could serve as an independent basis to uphold the Service’s Notice of Determination. Instead, the parties focused on the correctness of Appeals’ decision to treat assets in Petitioner’s trust as those held by Petitioner’s nominee. Judge Halpern allows that, if failure to submit the financials would’ve been futile (i.e., Appeals had chosen to stick to its position to deny any requested collection alternative because of the trust issue), such failure might not support affirming Appeals’ decision. But because these issues are not in the record or otherwise briefed, Judge Halpern orders Petitioner to explain this failure in more detail.
Docket No. 23444-14, Palmolive Building Investors, LLC v. C.I.R. (Order Here)
Finally, Judge Gustafson denies summary judgment to Petitioner in this conservation easement case. Petitioner had requested summary judgment, asking the Court to find that Petitioner qualified for a reasonable cause exception to penalties, which were at issue due to the Court’s prior opinion upholding Respondent’s deficiency assessment.
Judge Gustafson denies summary judgment rather … summarily. However, he goes on to offers some comments, designed to help the parties prepare for trial—and of general interest to practitioners. He notes that some of the arguments raised as to reasonable cause depend upon legal issues decided as a matter of first impression and upon which the Tax Court and a Court of Appeals had disagreed. These factors generally auger in favor of a reasonable cause finding, because of the uncertainty regarding a party’s position on the issue. He notes, however, that a reasonable cause finding requires examination of all of the facts and circumstances, of which the legal issue’s novelty and the circuit split are but two. Because other facts and circumstances are materially disputed, summary judgment is not the appropriate vehicle to address these issues.
Filed Under: Designated Orders, Tax Court Tagged With: Patrick Thomas
Systemic Problems in the CAF Unit with Form 2848 Processing for Academic LITCs
January 13, 2019 by Patrick Thomas 3 Comments
Tax Court update: The Court’s website announces that all of the calendars scheduled for January 28 are cancelled.
Professor Patrick Thomas usually brings us posts on designated orders but today branches out to discuss an issue impacting all practitioners but of particular importance to academic clinics. All practitioners interact with the CAF unit at the IRS in order to submit their power of attorney (POA) forms. If the CAF unit does not operate efficiently, the problems there multiply downstream and cause significant frustration for the practitioner, the client and for other parts of the IRS. The failure of the CAF unit to operate efficiently can cause practitioners to resort to the phone lines and engage in lengthy calls to resolve issues and obtain transcripts in situations where the IRS and the practitioner would prefer to avoid that interaction.
While only a small portion of our readers will encounter the specific problems academic clinics encounter where the IRS breaks apart the required six page submission necessary when substituting a student onto a POA, many of the CAF unit problems cross all practice areas. The low income tax clinic community, and particularly its academic component, is engaging in a conversation with the CAF unit to seek improvements. We welcome others to join in that effort. If you read no other portion of Professor Thomas’ post today, look closely at the chart he created regarding correspondence. If you experience the same amazing problem of receiving correspondence two months after the date on the correspondence, let the IRS know about your frustration and help us work together with the IRS to improve this critical process. Keith
I’m willing to bet that all federal tax practitioners have, at one time or another, experienced problems with the IRS Centralized Authorization File (CAF) Unit. The CAF Unit processes Form 2848 (among other forms), which authorizes practitioners to receive information on behalf of their clients that is otherwise protected from disclosure under section 6103.
The Form 2848 Filing and Rejection Processes
Filling out and filing Form 2848 is, in theory, relatively straightforward. List the client’s name, address, and taxpayer identification number. List the representative’s name, address, phone, fax, and CAF number. List the tax periods and tax types for which the client wishes to grant access. Have the client sign, date, and print their name. Sign and date the form yourself as the practitioner. Fax the form to the CAF Unit. Within a week or two, the practitioner should have access to the taxpayer’s information throughout the IRS, including transcripts through IRS e-Services.
But sometimes the Form 2848 is rejected. Much of the time, the CAF Unit properly rejects incomplete Forms 2848. Perhaps the taxpayer or practitioner missed one of the steps above; that’s certainly happened to me more times than I’d like to admit.
Other times, the CAF Unit rejects a perfectly valid Form 2848. In my prior clinical practice, the CAF Unit often did so because they believed our signature appeared to be a copy or stamped. (It was not.) (How exactly the CAF Unit can perceive a copied or stamped signature from a fax—which is, itself, a copy—I do not know). Illegibility of a name or date can also cause rejection, even if it’s the fax that causes the illegibility.
In either case, the CAF Unit sends a letter to the practitioner and the taxpayer, indicating the problem it sees in the Form 2848, with a copy of the offending Form 2848 and directions for correcting the issue.
When the Form 2848 is rejected for an invalid reason, numerous complications arise. First, the practitioner doesn’t have access to the taxpayer’s information on IRS e-Services, making initial investigation of the tax problem fairly difficult. Second, IRS telephone assistors may be unwilling to speak with the practitioner, even where the practitioner can fax a Form 2848 to them directly. And third, but not unimportantly, the taxpayer can become confused because the IRS sends the taxpayer a copy of the POA rejection notice. The notice comes to the taxpayer with no context. The taxpayer receives it at the same time the practitioner receives notice so that the practitioner has no opportunity to explain what is happening before the taxpayer receives the notice of rejection of the POA. This frequently causes the taxpayer to believe either that they or the practitioner have made a mistake before the IRS (even when none has occurred) or that the IRS will not allow the practitioner to represent them leaving them on their own to deal with the IRS. These issues are an annoyance for most practitioners, but ultimately are surmountable.
Special Concerns for Academic LITCs
Student Representatives and Substitution Procedures
These problems multiply for academic Low Income Taxpayer Clinics, especially those that change students frequently. Per IRM 4.11.55.2.1.1, law students in an LITC may represent taxpayers if, per IRM 21.3.7.8.5, the Taxpayer Advocate Service issues a special appearance authorization (“Authorization Letter”), which we must attach to a Form 2848 on which a student representative appears. Student representative authority lasts for 130 days—about the length of one semester.
Because students cycle in and out of the Clinic so frequently, most academic clinics opt to use the “substitution procedures” to change or add representatives. Per IRM 4.11.55.2.3.1.2, a practitioner may substitute authority to another representative or add another representative if the taxpayer grants this authority on the original Form 2848, Line 5a. Per IRM 21.3.7.8.5(6) an LITC Director may delegate authority to student representatives. The Director must sign the substitute Form 2848 on behalf of the taxpayer, attach a copy of the original Form 2848 that authorized the Director to add or substitute a representative, and attach a copy of the Authorization Letter. The student representative and Director also sign as the representatives.
It is not feasible for LITCs to have clients sign a new Form 2848 every 4 to 6 months. IRS cases take a long time to work. Our Clinic currently has about fifty active cases; obtaining signatures for all of these clients would take up much of the first few weeks of the clinical experience. As many clinicians can attest, our clients may not respond to requests for information or documentation as quickly as we’d like. Therefore, the substitution procedures provide an expedient solution to this problem, one which is explicitly recognized in the IRM.
Form 2848 Rejections in Academic LITCs – A Case Study
Because of the confluence of these unique requirements, academic clinics experience a high rejection rate for Form 2848. All clinicians understand this intuitively; however, this past semester, I conducted a systemic analysis of my clinic’s Form 2848 submissions and rejections. Of the approximately 50 Forms 2848 submitted, 10 were rejected. Three were rejected for valid reasons (one student representative forgot to sign the 2848; in the other two, the student representative sent last semester’s Authorization Letter, rather than the current semester).
Failure to Timely Notify
Before delving into the reasons for the improper rejections, the CAF Unit’s notification delays deserve mention. Our Clinic’s small survey indicates that the CAF Unit consistently fails to notify practitioners of an error until about two months from the date of faxing the Form 2848. While the CAF Unit usually dates its rejection letters soon after it receives the Form 2848, we do not actually receive those letters anywhere close to their dates. One letter took nearly three months to arrive. Below, I include a table of the rejection letters I used in our analysis.
Letter Number Date of Fax from Clinic Date of CAF Receipt Date of Letter Date of Clinic Receipt Taxpayer
1 9/7/2018 9/10/2018 9/21/2018 11/5/2018 Client A
2 9/6/2018 9/6/2018 9/18/2018 11/5/2018 Client B
3 9/5/2018 9/11/2018 9/18/2018 11/5/2018 Client C
4 9/5/2018 9/11/2018 9/18/2018 11/5/2018 Client C
5 9/10/2018 9/10/2018 9/21/2018 11/5/2018 Client D
6 8/23/2018 8/23/2018 9/6/2018 10/25/2018 Client E
7 8/23/2018 8/23/2018 9/6/2018 10/25/2018 Client F
8 7/24/2018 7/24/2018 8/8/2018 9/24/2018 Client G
9 9/5/2018 9/4/2018 9/20/2018 11/6/2018 Client H
10 9/7/2018 9/12/2018 9/21/2018 11/7/2018 Client I
11 9/7/2018 9/10/2018 10/9/2018 12/3/2018 Client J
12 9/7/2018 9/24/2018 10/1/2018 December 2018 Client A
* While there were 10 clients and 10 Forms 2848 submitted, there are 12 rejection letters from the CAF. This is due, as noted above, to rejection letters for both a substitute Form 2848 and original Form 2848 for the same client.
This notification delay hampers effective client representation in an academic LITC. Telephone assistors routinely do not communicate with student representatives if they are not properly entered in CAF—even if a student can fax them an appropriately executed Form 2848. Students may not discover this until they must take action on a case within the two months in which the CAF Unit has failed to appropriately process their Form 2848. Unless I am physically present in the Clinic to step in and take over the conversation—a pedagogical opportunity that I do not enjoy usurping from my students—students often can make no progress and taxpayer representation suffers.
Stated Reasons for Rejections
In each letter to the practitioner/taxpayer that rejects a Form 2848, the CAF Unit provides a block-text reason for rejection. Below, I provide a redacted version of a letter I sent to the CAF Unit director in December, detailing the inappropriate rejections we received, along with our responses thereto. The stated reasons for rejection often feel Kafkaesque; for example, numerous letters stated that the CAF Unit rejected the Form 2848 because it did not include an Authorization Letter. The CAF Unit then attached the Authorization Letter from our submission to the Form 2848 it rejected. More details appear below:
Letters 1 and 12 (Client A)
On September 7, 2018, Student Attorney 1 submitted a substitute Form 2848 for our client, Client A. This included (1) an original Form 2848 signed by Client A, which authorized myself and a former student attorney; (2) the student authorization letter from TAS for Fall 2018; and (3) a substitute Form 2848 that I signed on behalf of Client A, which substituted Student Attorney 1 as the representative. The former student attorney was a student in the Tax Clinic in Spring 2018, and Student Attorney 1 was a student in Fall 2018.
The CAF Unit sent two rejection letters. The first (Letter 1), received on November 5, contained the entire submitted package, but rejected the Form 2848 as noted below:
“You indicated you are delegating or substituting one representative for another. Please refer to Section 601.505(b)(2)(i), Statement of Procedural Rules, which you can find in Publication 216, Conference and Practice Requirements, for information on what you must send to us to make this delegation or substitution…”
“You indicated you want an existing power of attorney to remain in effect. Please attach to your form a copy of the power of attorney you want to remain active.”
The Clinic received another rejection letter in December 2018 regarding this client. This letter only contained the original Form 2848. In addition to the statement referring the Clinic to 26 CFR § 601.505(b)(2)(i), the letter stated:
“On Form 2848, you entered “student attorney” … as the designation in the Declaration of Representative. We need a copy of the Authorization for Student Tax Practice Letter the Taxpayer Advocate Service sent you that authorizes you to practice before the IRS.”
Response: The Form 2848 that the CAF Unit sent back to the Clinic was properly filed. Using the substitution authority granted on the original Form 2848 that the client signed, I substituted Student Attorney 1 for the former student representative. The Clinic attached the original Form 2848, which was signed by the client and both representatives. I signed the substitute Form 2848 as the taxpayer’s POA, and both I and the new student representative signed as representatives. Finally, the Clinic attached the student authorization letter from the LITC Program Office for Fall 2018.
We did not indicate that we wanted an existing POA to remain in effect. Had we so indicated, we would have checked Line 6 on the Form 2848. Line 6 is blank on the substitute Form 2848.
Letters 3 & 4 (Client C)
Student Attorney 2 submitted a substitute Form 2848 for Client C on September 5, 2018. This fax submission contained the following documents, in this order: (1) fax cover sheet, (2) the Fall 2018 student authorization letter, (3) a substitute Form 2848, and (4) an original Form 2848, signed by the client, which granted authority to substitute or add representatives.
The CAF Unit stated the following reason for rejection of the Form 2848 in both Letter 3 and Letter 4:
“On Form 2848, you entered “student attorney”… . We need a copy of the Authorization for Student Tax Practice letter the Taxpayer Advocate Service sent you that authorizes you to practice before the IRS.
Response: Letter 3 contains a substitute Form 2848 that I signed on behalf of the client as her POA on August 29, 2018. Letter 4 contains the original Form 2848 that the client signed on June 28, 2018, and which granted me authority to substitute or add representatives. It seems that the CAF Unit separated the original Form 2848 from the substitute Form 2848, along with misplacing the student authorization letter.
Letter 5 (Client D)
Student Attorney 3 submitted a substitute Form 2848 for Client D on September 10, 2018. This fax submission contained the following documents, in this order: (1) fax cover sheet, (2) page one of a substitute Form 2848, (3) student authorization letter, (4) page two of the substitute Form 2848, and (4) an original Form 2848.
The CAF Unit stated the following reason for rejection of the Form 2848:
Response: As with Letter 1, we did not indicate that we wanted an existing POA to remain in effect. Had we so indicated, we would have checked Line 6 on the Form 2848. Line 6 is blank on the substitute Form 2848.
The letter from the CAF Unit attached only the substitute Form 2848 and a student authorization letter. The packet did not contain the original Form 2848. It appears that the CAF Unit separated the substitute from the original Form 2848.
Letter 8 (Client G)
Student Attorney 4 submitted an original Form 2848 to the CAF Unit on July 24, 2018, which was signed by the client, Client G, along with a student authorization letter for Summer 2018.
Response: The letter attached the original 2848, which was signed by the client and both representatives. It also attached the student authorization letter for summer 2018, dated May 9, 2018. This is the very document that the CAF Unit letter itself requests.
While the student authorization letter limits practice to a maximum of 130 days, 130 days from May 9, 2018 is September 16, 2018. Given that the CAF Unit received the Form 2848 on July 24, 2018 and issued this letter on August 8, 2018, there is no timeliness issue.
Letter 9 (Client H)
Student Attorney 4 sent a substitute Form 2848 for this client on September 5, 2018. This fax included (1) a fax cover sheet, (2) a substitute Form 2848 for Client H, which added the student attorney as a representative, and which I signed for the client (3) the Fall 2018 student authorization letter from TAS, and (4) the original Form 2848 signed by the client, which authorized me to substitute or add representatives.
The CAF Unit’s letter attached the original 2848, which is signed by the client and both representatives. It does not include the student authorization letter. It seems that the CAF Unit separated the original Form 2848 from the substitute Form 2848, along with misplacing the student authorization letter.
Letters 10 and 11 (Clients I and J)
Student Attorney 1 faxed a substitute Form 2848 for these clients on September 7, 2018. These faxes included (1) a fax cover sheet, (2) a substitute Form 2848 for the client, which added the student attorney as a representative, and which I signed for the client (3) the Fall 2018 student authorization letter from TAS, and (4) the original Form 2848 signed by the client, which authorized me to substitute or add representatives.
For Letter 10, the CAF Unit stated the following reason for rejection of the Form 2848:
“A copy of your civil power of attorney, guardianship papers, or other legal documents that authorize you to sign Form 2848.”
For Letter 11, the CAF Unit stated the following reason for rejection of the Form 2848:
Additionally, our client delivered Letter 10 to us. The CAF Unit did not copy us on this Form 2848 rejection letter.
These letters also attach only the substitute Forms 2848; they did not attach our student authorization letter from TAS or original Form 2848. It seems that for both letters, the CAF Unit separated the original Form 2848 from the substitute Form 2848, along with misplacing the student authorization letter.
Actual Reasons for Rejections
These rejections appear to largely to result from two separate, but related reasons, which match the shared intuition among academic LITC directors. First, it appears that the CAF Unit separates the original Form 2848 from the substitute Form 2848 and treats them as separate submissions. It then rejects the substitute Form 2848 for lacking the original Form 2848 that grants authority to substitute, and then rejects the original Form 2848 if the prior student’s 130-day authority expired or was not attached (or else, the original Form 2848 is rejected as duplicative of one already accepted). Second, the CAF Unit often separates the substitute or original Form 2848 from the Student Authorization Letter, and rejects the submission for lack of an Authorization Letter.
The CAF Unit’s use of dated fax technology bears some responsibility for causing this problem. The ABA Tax Section facilitated a call in October 2018 between LITC directors and the CAF Unit director, who confirmed that the CAF Unit uses physical fax machines, rather than the e-fax process that every other IRS unit uses (at least, that I’ve worked with).
Understandably, the CAF Unit receives very many Forms 2848 each day, and has a limited workforce, and so our Forms 2848 can, quite literally, be lost in the shuffle. Most Form 2848 submissions are 2-3 pages long, consisting of the two pages of the Form 2848, plus a fax cover sheet. Our submissions are often six pages long, consisting of a substitute Form 2848, an original Form 2848, a student authorization letter, and a fax cover sheet. I suspect that a CAF Unit employee may pick up only the first two pages of a Form 2848 and then disregard the remainder.
Keith suggested during that call that the CAF Unit may wish to implement an e-fax solution to ensure that it receives the entire fax. I agree with that approach, and accordingly suggested this solution to the CAF Unit director. I also submitted a Systemic Advocacy Management System (SAMS) report in December, informing TAS of the above problems and proposing this as a solution. According to the systemic advocacy analyst that I spoke with, the issue is being assigned to an active task force within TAS. I encourage other academic clinicians to submit similar reports via SAMS so that the IRS has the data to support this problem’s existence.
Effect of Changes to IRS Transcripts
Finally, recent changes to IRS Transcript procedures will further exacerbate the issues facing academic LITCs. Last fall, the Service announced that in January 2019, transcripts will no longer be faxed to practitioners who are not duly authorized in the CAF. Any transcripts would have to be mailed to the taxpayer’s last known address. Since then, the Service has stepped back somewhat from the position, allowing that if a telephone assistor could verify a Form 2848 over the phone, then the assistor could send transcripts to the practitioner’s secure mailbox on IRS e-Services. (The ABA Tax Section submitted commentary on these changes, which appear to have helped move the needle on this issue).
This is welcome news and ameliorates much of the concern for academic clinics. Nevertheless, students often encounter difficulties accessing IRS e-Services (for example, if they’ve never filed a federal income tax return or do not have loan or credit card information to verify identity).
Unwarranted Form 2848 rejections cause numerous negative consequences for low income taxpayers. The letters from the CAF Unit confuse our clients; they believe that some information is required of them or that their representative has erred. The rejections can also unnecessary delay the ability of student representatives to advocate on behalf of low income taxpayers, as IRS telephone assistors often refuse to speak with student representatives if their authority is not properly registered on the CAF. Additionally, forthcoming changes to transcript delivery will require that representatives are properly verified in CAF before issuing a transcript, with some helpful exceptions.
Finally, the CAF Unit takes, on average, two months to inform practitioners and/or taxpayers that a Form 2848 was rejected. The dates on the CAF Unit’s letters do not correspond to the actual dates of mailing. There is ordinarily a 45 day delay between the date on the letter and receipt in our Clinic. By the time students have faxed a Form 2848, learned of its rejection, and taken steps to fix it, the semester is essentially over. This problem can then repeat in subsequent semesters.
The CAF Unit should consider implementing an e-fax solution for its incoming correspondence. Because the largest source of error appears to be separation of the faxed pages, an e-fax solution would include the precise fax that the taxpayer intended to submit. I encourage the Service to consider these changes to improve taxpayer service and ensure taxpayers’ statutory right to representation before the IRS.
Filed Under: miscellaneous Tagged With: Patrick Thomas
December 14, 2018 by Patrick Thomas 4 Comments
Designated Orders: 10/15 – 10/19/2018 and Statistics from the Project’s First Year
November 8, 2018 by Patrick Thomas 2 Comments
Guest blogger Patrick Thomas of Notre Dame Law School brings us this week’s few designated orders. He then reviews the development of the Designated Order blogging project and reports the data that the team has gathered so far. There are some interesting statistics on Designated Orders that deserve some attention.
In related news, Paul Merrion at MLEX US Tax Watch recently wrote about (login required) the Tax Court’s new contract with Flexion, Inc. to develop a new electronic filing and case management system. The two-sentence announcement on the Tax Court’s homepage had escaped my notice. Paul’s article summarizes the request for proposals, which can be found here. While the Tax Court declined to comment on the article, this development may be a sign of greater openness to come. Christine
Designated Orders: 10/15 – 10/19/2018
The Tax Court issued only two designated orders during this week, both of which Judge Armen wrote. I will not discuss either in depth here. For posterity’s sake, Judge Armen upheld the Office of Appeals’ decision to sustain a levy in Cheshier v. Commissioner, a Collection Due Process case in which the Petitioner did not provide financial information or tax returns in the CDP hearing. In contrast, the second case, Levin v. Commissioner, involved a very responsive CDP petitioner. In Tax Court, the parties disagreed as to the financial analysis, the propriety of filing a NFTL after entering into an installment agreement, and the necessity of filing business tax returns. Alas, the Tax Court agreed with Respondent on all counts. The order from Judge Armen merely finalized Judge Ashford’s opinion in this case (T.C. Memo. 2018-172), which I would recommend for further reading.
The Designated Orders Project & Statistics
With such a light week, this provides an opportunity to take stock of our Designated Orders blogging project, which began in May 2017. Since then, Samantha Galvin, William (Bill) Schmidt, Caleb Smith, and I have tracked every order designated on the Tax Court’s website. As of October 30, 2018, there have been 623 designated orders—though many orders occur in consolidated cases, causing the number of “unique” orders to be substantially less at approximately 525.
Why do we track these orders? First, the orders often deal with substantive issues of tax procedure. Some orders could very well be reported opinions. Many of these issues—especially those arising in CDP cases—receive comparatively less coverage in the Tax Court’s opinions. Indeed, through “designating” an order, the individual judge indicates that the order is more important than a routine order (of which the Tax Court issues hundreds each day). The orders can often reveal the direction in which an individual judge or the Court is tracking on certain issues.
Given the importance of the orders, one might surmise that the Tax Court’s website could filter the designated orders from those not designated. One would be mistaken. The Order Search tool on the website does not distinguish between designated and undesignated orders. (I am told, however, that internal users within the Tax Court can search and filter Orders by whether they were designated.)
Instead, orders are listed on the “Today’s Designated Orders” page each weekday after 3:30pm Eastern time (or, a message appears that no orders were designated on that day). At some unspecified time overnight, any record of these orders disappears. Of course, the underlying orders are themselves maintained within the dockets of their respective cases. But without knowing which orders were designated, it becomes impossible to discover them.
As an aside: no compelling reason exists to hide the designated status of an order from the public. Professor Lederman’s recent post nicely encapsulates the continuing (though progressively fewer) transparency concerns that the Tax Court faces. This certainly is another; yet the Court’s historic rationale for preventing disclosure of information (the valid concern with taxpayer privacy) simply does not apply here.
So, Caleb, Samantha, Bill, and I began tracking every order each weekday in May 2017. We have logged the date, docket number, petitioner, judge, and hyperlink for every designated order since then.
This summer, I cleaned and analyzed one year of designated orders data from April 15, 2017 until April 15, 2018. (I acknowledge help from Bill in initially looking at this data, along with substantial work from my research assistant, Chris Zhao). In addition to the above data, I added data regarding the jurisdictional type, whether the case was a small case under IRC § 7463, and whether the order merely transmitted a bench opinion under IRC § 7459(b). I present those initial findings below. In later work, I will compare the designated orders with opinions and “undesignated” orders (some of which are indeed just as substantive as designated orders, as Bob Kamman has routinely pointed out to us).
The dataset revealed 319 unique orders during the research period. In terms of content, we have not systemically tracked the subject matter of designated orders in our dataset. From our experience, the vast majority of orders deal with substantive, often tricky issues. The one major exception is found in Judge Jacobs’ orders, which are often routine scheduling orders. We are not sure why these orders are designated, presuming the purpose of designating an order is to highlight an important case or issue.
While we did not track individual issues, the dataset does contain a jurisdictional breakdown. Deficiency and CDP cases accounted for the vast majority of orders (51.10% and 37.30%, respectively). Other case types included partnership proceedings, whistleblower, standalone innocent spouse, retirement plan qualification review, 501(c)(3) status revocation, and others that involved multiple jurisdictional types.
12.85% of orders were for a small tax case under section 7463. Small cases are underrepresented, compared with the Court’s 37% share of such cases generally (as of April 30, 2018, according to Judge Carluzzo’s presentation to the ABA Tax Section’s Pro Bono and Tax Clinics Committee).
Certain judges used Designated Orders much more frequently than others during the period reviewed. Judges Gustafson, Holmes, and Carluzzo lead the pack, having issued 46.40% of all designated orders, at 21%, 13.17%, and 12.23%, respectively. Thirteen judges (a substantial minority of the 31 active judges) did not designate a single order during the research period. Almost half of the regular judges—Judges Foley, Goeke, Nega, Paris, Pugh, Thornton, and Vasquez—issued no designated orders at all. (The Chief Judge, given their increased administrative duties, receives fewer individual cases. Further, Judge Thornton did designate two orders during May and June 2018. Judges Goeke and Vasquez, while currently on senior status, are classified in the dataset as regular judges, as they retired on April 21 and June 24, 2018, respectively.) Over half of the senior judges issued no designated orders. All of the Special Trial Judges designated orders and did so frequently, accounting for 29.47% of all designated orders.
Judges have also used Designated Orders to highlight bench opinions with substantive tax issues. A bench opinion is one rendered orally at a trial session that disposes of the entire case. After the transcript is prepared, the judge then orders transmittal of the bench opinion to the parties under Rule 152(b). For an example, see Chief Special Trial Judge Carluzzo’s order in Garza v. Commissioner. These transmittal orders represent 8.46% of all designated orders.
Judge Carluzzo issued 11 such orders, followed closed by Judges Gustafson and Buch at 9 and 6 orders, respectively. Judges Carluzzo, Gustafson, and Holmes designated every order that transmitted a bench opinion, while Judge Buch had some undesignated bench opinions (there were 80 other undesignated bench opinions from other judges, which represent the vast majority).
Some cases are repeat players in designated orders. Twenty-nine dockets received more than one designated order during the research period. Three dockets received three or more orders, two of which were among the most well-known cases then before the Tax Court: Docket No. 18254-17L, Kestin v. Commissioner (three orders); Docket No. 31183-15, Coca-Cola Co. v. Commissioner (three orders); and Docket No. 17152-13, Estate of Michael Jackson v. Commissioner (seven orders).
From a timing perspective, the Court’s orders seem to peak in December and March and drop off in January and May—both for regular and S cases. I’ll leave it to those with access to better data to inform us whether this corresponds with the Tax Court’s overall production during these times.
What do these data tell us? I’ll venture a few broad conclusions and raise further questions:
A substantial number of judges do not designate orders at all, or do so very seldom. Do these judges issue substantially more opinions? Are these judges’ workloads substantively different from those who do issue more designated orders?
Three judges (Judges Gustafson, Holmes, and Carluzzo) accounted for nearly half of all designated orders. Why is there such a disparity between these judges and the rest of the Court?
Judges issued only 112 bench opinions during the research period. (To get this figure I searched for “152(b)” on the Order Search tool for each judge between April 15, 2017 and April 15, 2018.) This strikes me as minute compared with the overall number of cases (2,244 cases closed during April 2018 alone). Keith has long argued to increase the use of bench opinions to resolve cases; the Court appears to have disregarded his advice. Of the 112 bench opinions, only 26 (23%) were designated. Judges might consider designating these orders such that they highlight their bench opinions to the public.
There is a large disparity in small cases on the docket (37% of all cases) with designated orders in small tax cases (12.85% of all designated orders). Are small cases simply too “routine” and less deserving of highlighting to the public?
Ideally, the Tax Court would publish its own statistical analysis of its cases, orders, and opinions, as Professor Lederman suggests. Perhaps the Court can discuss and address some of my questions above in so doing. In addition, the Court should allow public users to filter orders on the Tax Court’s website by whether the orders were designated.
In the meantime, we will continue to track these orders so that practitioners and researchers alike keep abreast of important developments at the Court. We’ve learned a great deal about certain substantive topics through this project —especially about penalty approval under section 6751.
I further hope these statistics on designated orders shed some light on the Court’s sometimes opaque operations. Unless the Court, as it should, decides to take up the mantle itself, we’ll continue to track, summarize, and look at trends stemming from these orders.