Source: https://procedurallytaxing.com/author/stephenolsen/
Timestamp: 2019-01-19 06:05:39
Document Index: 689505393

Matched Legal Cases: ['§ 6511', '§ 6511', '§ 6511', '§ 1395', '§ 6325', '§ 6325', '§ 552', '§ 552', '§ 2201']

Your Psychologist Might Be a Physician, but Your Counselor is Not (Under Section 6511(h))
June 27, 2017 by Stephen Olsen 1 Comment
Last week, a Magistrate Judge for the District Court of the Western District of Washington in Milton v. United States (sorry, can’t find the order for free yet) granted the IRS’ motion for reconsideration on a refund claim based on financial disability. The order may place some restrictions on the direction financial disability cases under Section 6511(h) have been headed. We have covered this topic in great detail, including some small breakthroughs taxpayers have made in claiming financial disability under Section 6511(h). Most recently, Keith wrote about the potential taxpayer victory in Stauffer v. IRS, where the Court declined to afford Rev. Proc. 99-21 deference regarding the definition of physician. Keith’s wonderful write up can be found here. In Keith’s post he links to several of our prior posts on the subject, including a comprehensive two part post on the Tax Court case, Kurko, dealing with the same general concept written by Carlton Smith. In addition, for those who want to learn more about Section 6511(h), Chapter 11.05[2][b] of SaltzBook was recently rewritten to cover this topic in great detail.
As Keith notes in his write up in Stauffer, that case opened the door for potential relief under Section 6511(h) regarding the use of a psychologist to show disability, but this would have to be approved by the District Court (there is other Stauffer litigation, unfortunately alleging that Mr. Stauffer’s girlfriend at the end of his life may have inappropriately taken $700,000 from him). The IRS filed objections to the ruling in late February, which were replied to in early March. I have not found any other filings or orders in that case.
I will borrow heavily from Keith’s post to frame the issue and the Court holding in Stauffer before touching on the holding in Milton:
The IRS filed a motion to dismiss for lack of jurisdiction because the claim for refund was untimely… Examining the statute led to an examination of Rev. Proc. 99-21 which “sets forth in detail the form and manner in which proof of financial disability must be provided.” The Rev. Proc. states that the claimant must submit “a written statement by a physician (as defined in section 1861(r)(1) of the Social Security Act, 42 U.S.C. 1395x(r), qualified to make such determination…” The court noted that the Rev. Proc. does not define “physician” but borrows the definition from the Social Security statute. The reference to section 1861(r)(1) creates confusion because that section does not have subsections. Instead it has one large paragraph defining physician that includes five categories: (1) “a doctor of medicine or osteopathy,” (2) a doctor of dental surgery or of dental medicine,” (3) “a doctor of podiatric medicine,” (4) “a doctor of optometry,” and (5) “a chiropractor.”
The court notes that the Rev. Proc. does not receive Chevron deference because it expresses the view of one employee and not the view of the agency. The Rev. Proc. receives deference “only to the extent that those interpretations have the power to persuade.” The court then explains how the Rev. Proc. fails to persuade…
The court also cites to case law accepting the opinion of the treating psychologist while noting that the SSA and IRS definitions of disability are virtually identical. So, the limitation argued by the IRS in its Rev. Proc. does not make sense and is inconsistent with the SSA rules it apparently sought to mimic…
Without a reasoned explanation and in light of the fact that the opinion of psychologist in these types cases is viewed as acceptable in other contexts, the Rev. Proc. does not provide persuasive authority. The court states “I conclude that the defendant’s interpretation of the term ‘physician’ in Revenue Procedure 99-21 is not entitled to deference here. I conclude further that to the extent the psychologist’s statement the plaintiff submitted supports a financial disability based on a mental impairment, the IRS was not required to reject it on the ground that it did not constitute a ‘physician’s statement.
In Stauffer, I believe the Court concluded that subsection (1) was the applicable definition the Rev. Proc. was seeking to use, although that is perhaps unclear, which Keith explains in his post. Under (1), the definition is “a doctor of medicine or osteopathy.” As quoted from Keith’s post above, the Court found that the Rev. Proc. was not persuasive on this matter, and that there was clear reason to believe a psychologist should be allowed to opine on financial disability, especially as regard mental impairment.
In Milton v. United States, the taxpayer sought to push this argument slightly further. Procedurally, the IRS had previously sought to dismiss the case for lack of jurisdiction. The Court denied that motion in May, which can be found here. That order did not focus on financial disability. Instead, the Court held as follows:
Plaintiff waited until January 2014 to file his tax return for his income tax liabilities from 2000… Plaintiff asserts that he filed a subsequent late return in May 2014 for the same tax liabilities from 2000… Defendant concedes that the late return filed in 2014 constitutes both a return and a refund claim… Accordingly, Defendant appears to concede that Plaintiff meets the requirements of § 6511(a) because Plaintiff “duly filed” his refund claim within three years of his tax return. Because Plaintiff meets § 6511(a)’s time limitation, this Court may exercise jurisdiction over the lawsuit…
Defendant offers no authority to prove that § 6511(b)(2)(A)—the “lookback” period—has any bearing on subject-matter jurisdiction. The remaining arguments in Defendant’s brief are more appropriately analyzed in a motion for summary judgment.
If the Section 6511(h) argument was initially briefed, the holding on jurisdiction above would have rendered it moot. I did not pull the briefs. We have discussed whether the Section 6511(b) look back is jurisdictional or not. I blogged the case Boeri v. United States, where the Federal Circuit determined it was not. Carl Smith has forwarded to me what I believe the Ninth Circuit’s last statement on this issue was, which can be found in Reynoso v. United States. The Ninth Circuit held it was jurisdictional, but did so without reviewing more current SCOTUS holdings limiting use of that term. Given the Ninth Circuit’s holding, the Service was understandably unhappy with this result, and filed a motion for reconsideration. The Judge granted the motion, determining that Section 6511(b)(2)(A) was jurisdictional, and the refund claim was outside of the time frame.
The taxpayer, in response, made an argument that he was disabled under Section 6511(h). It does not specify his disability, but he submitted a statement from “Tim Liddle, a ‘MA, LMHC, MAC.’” Those designations, I believe, are a Masters of Arts (presumably in counseling), a Licensed Mental Health Counselor designation, and either a Master Addiction Counselor or a Master of Arts in Counseling. He was clearly a trained counselor who was assisting the taxpayer for some mental health issues.
I found two points of the holding here interesting. First, the Court states “physician” under Rev. Proc. 99-21 is “a doctor of medicine or osteopathy, a doctor of dental surgery or dental medicine, a doctor of podiatric medicine, a doctor of optometry, or a licensed chiropractor. 42 U.S.C. § 1395x(r).” As Keith noted in his post, it is unclear if this entire paragraph is intended to apply, or only “a doctor of medicine or osteopathy.” The Court did not provide its rationale. This could be an interesting issue moving forward with other cases. It would also be fairly interesting to have a podiatrist or chiropractor provide an opinion about a taxpayer’s mental health.
And, second, the Court found that none of the above designations qualify as a physician, as it is defined. This was a “fatal error”, finding that Congress deliberately drafted the definition of “physician” narrowly, and the matter was dismissed for lack of subject matter jurisdiction. While the District Court for Massachusetts was willing to look at the SSA procedures in determining disability, the Washington court did not provide the same review. I believe counselor notes can be used as evidence to show disability in an SSA hearing (if the requesting party consents to disclosure), although I am not certain if they are sufficient without other evidence.
The strides made in Stauffer and Kurko make sense. Someone suffering from mental illness will likely see a psychologist. For that person, it may be the absolutely 100% correct treatment option, and the failure to have contemporaneous interaction with a physician should not preclude them from making the claim. It is not surprising, however, that this court did not extend the rationale to counselors at this point.
New Estate Tax Lien Discharge Procedures — Give the IRS All the Monies
May 8, 2017 by Stephen Olsen Leave a Comment
In early April, the IRS issued updated guidance relating to the processing of the estate tax liens after June of 2016. See SBSE-05-0417-0011. In June of 2016, various changes were made to the administration of the estate tax, including which groups in SBSE handled requests for the discharge of the estate tax lien. The changes to the discharge were fairly drastic in some ways, and the Service took a significant amount of time getting around to announcing the changes (which it states is actually just the correct implementation of the law, perhaps implying the prior handling was incorrect). The new provisions appear to force prepayment of tax, or at least handing over the funds, in exchange for the discharge of the lien in a broader range of situations, potentially creating a significant hardship for estates. This has caught many estate administration lawyers off guard, altering sales, and angering many in the professional community.
The estate tax lien is somewhat different than other tax liens, and arises in every estate (you just don’t know it most of the time). Under Section 6324(a), a lien is immediately imposed on all property in the “gross estate” of the decedent. This includes property passing through the estate, but also most property passing directly to a beneficiary by operation of law, such as property held joint with right of survivorship, and most property passing by beneficiary designation. As stated in the IRS guidance:
Unlike other tax liens, no assessment, no notice and no demand for payment are necessary to create the estate tax lien. It attaches at the time of the decedent’s death, before the tax is determined, and is security for any estate taxes that may be determined to be due. It is referred to as the “silent lien” and does not have to be recorded to be enforced.
Sneaky stuff, but arguably provides important protection for the Fed. This lien attaches and remains in place for ten years after the date of death unless discharged. There are some provisions extending the lien in circumstances where the estate tax is deferred, such as under Section 6166, but otherwise the use-by date is set at ten years. As a side note, it is possible for a general tax lien to also be imposed under Section 6321, which could be in place longer, so in dealing with a lien estate tax practitioner must determine if one or both are in place. See IRM 5.5.8.2. For those looking to learn more about this lien, Keith and Les recently drafted chapter 14A.20 in SaltzBook, which covers the lien in depth, along with the transferee liability, how to request discharge, and various other interesting aspects of the “silent lien.”
As indicated above, the lien is imposed immediately, while the audit could take months or years to occur, if ever at all. Various situations would not be audited or do not require returns. This can create issues, especially for illiquid estates, that need funds for administration costs. If a fiduciary sought to transfer assets, especially when finicky title insurance and mortgage companies were involved, assurances would be needed that the property could be transferred free and clear.
Under the old rules, release or discharge was handled by different groups depending on whether a return was filed or audit was occurring. If no return was filed or a return was under audit, Exam reviewed the request. This used to be outlined in IRM 4.25.14.2, which has subsequently been updated to indicate Exam will no longer be handling discharge requests. Specialty Collection Advisory used to handle all other requests relating to the estate tax lien, which was covered under IRM 5.5.8 and IRM 5.12.10.
The prior procedures would allow the fiduciary to request a discharge of the lien on the property to be sold by filing a Form 4422, Application for Certificate of Discharging Property Subject to the Estate Tax Lien. This was fairly routine in the past and occurred quickly, allowing property to be sold and estates to obtain the proceeds. This was allowed under Section 6325 if the lien was “fully satisfied or provided for.” Presumably, the “provided for” language was what was relied upon prior to payment and the issuance of a closely letter. The regulations added some additional requirements regarding “necessity” of the estate.
In SBSE-05-0417-0011, the Service outlined the new procedures for requesting discharge, and it appears the conditions for obtaining discharge have become a bit more strict. Beginning in June of 2016, responsibly for all discharge applications of the estate tax lien were shifted to Advisory to be handled by its “Estate Tax Lien Group.” Information about requesting the discharge, including the address to send such requests, is found on the IRS webpage here. The directions provide that such requests must be filed “at least 45 days before the transaction date”, which is roughly a month or more longer than such requests used to take. This is irksome, but not as problematic as some other changes that have been made.
After noting discharge is completely discretionary, the advice indicates considerations that Advisory may take into account, including situations where Advisory does not need to consult with Exam prior to issuing a discharge, stating:
In many instances, decisions concerning the discharge application can be made from the information provided on the Form 706 (if applicable) and the Form 4422 without the need to coordinate with Examination Estate & Gift. For example, if based on the information provided with the Form 4422 and internal account records you are able to determine that the estate tax liability has been paid, or the estate is not subject to a Form 706 filing requirement, or the value of other property disclosed on the Form 4422 that will remain subject to the estate tax lien is more than ample to protect the government’s interest in the payment of the estate tax, coordination with Examination Estate &Gift is not ordinarily necessary (emph. added).
The advice goes on to cover situations where Advisory will need to coordinate with Exam or Chief Counsel when considering discharge. I emphasized some language in the above quote, because that language would seem to indicate discharge is appropriate where there is clearly more than sufficient other assets to timely pay the estate tax, which historically occurred. Other language would give the same impression:
In many instances, in determining whether to grant an estate tax lien discharge, the issue you will need to consider is whether the estate tax liability is adequately provided for, meaning that the government’s interest in collecting the estate tax is secured… In determining whether an estate tax liability is adequately provided for, you have discretion and should exercise your judgment in making that decision based on the particular circumstances…[and] you may also consider the criteria in IRC § 6325(b) as a guideline in making your decision as the estate tax liability will generally be adequately provided for when one or more of the IRC § 6325(b) criteria set forth below is satisfied. In addition, there may be other circumstances where you and your manager determine that the estate tax liability has been adequately provided for under the particular circumstance involved.
This again would indicate payment at the time of discharge is not required, although gets a little thornier perhaps by reference to Section 6325(b), which allows for discharge in various circumstances, such as having double the potential liability available, partial payment, substitution of proceeds at sale, substitution of other assets (deposits, bonds, etc.).
The advice then covers some common scenarios. For instance, if no Form 706 is required to be filed, no discharge is offered, and instead Letter 1352 is issued indicating no return must be filed. When a return is required, but no tax is due, the advice indicates escrow may not be needed. But, if there are questions as to the veracity of the claim, additional research may be needed, and perhaps escrow.
Then it starts to get problematic, stating:
if the Form 4422 shows an estimated estate tax greater than the net proceeds from the property being sold, and no estimated payment has been made, then the net proceeds should be paid or escrowed before granting the discharge.
For an estate that is illiquid, holding only real property or closely held business interests, this could be very problematic. And, anecdotally, it appears some estates are running into this issue. Although the estate tax is a priority claim, there are various other administration costs that can be paid first (my fave, attorneys’ fees). It could also impact the payment of state death taxes, the timing of which can be more important that federal taxes. In Pennsylvania, for instance, prepayment of inheritance tax at the three month mark will provide a five percent discount off the tax bill. At least one tax practitioner has requested some type of hardship request from having to pay over the funds, and been rebuffed.
It also brings into question what will happen for someone who would have requested an extension to pay tax under Section 6161 or Section 6166. I suppose the funds could be escrowed until the return is filed, but the funds may have been needed to run a closely held company or pay another debt.
I do not necessarily begrudge the IRS attempting to ensure payment, but this seems like an attempt to solve a problem that may not have existed. I would be interested in seeing whether or not the IRS often gets stiffed on federal estate tax by people who request a discharge and have indicated tax may be due (my suspicion is no, but I could be wrong). If this is not a problem, it seems like this change that can drastically and negatively impact estate administration (and potentially the value of estate assets) is misguided. It would also be good if the IRS became a bit more flexible on a case by case basis – there cannot be that many of these per year — which the guidance seems to still allow. From the anecdotal evidence, it would seem that the factors in Section 6325(b) may have been applicable in having assets worth double the tax debt still under the lien, but funds have still had to be paid or escrowed.
The take away for now is that 1) you have to apply much more in advance from closing and 2) if you need the proceeds from the sale, you probably need to make a compelling argument under Section 6325(b) why the fisc would be lighter for it.
What is a “Record” for FOIA
April 19, 2017 by Stephen Olsen 2 Comments
In today’s post, I am covering a somewhat stale, non-tax holding in American Immigration Lawyers Association v. Executive Office for Immigration Review (“AILA”), a case dealing with a FOIA request “seeking disclosure of records related to complaints about the conduct of immigration judges.” It will also touch on the DOJ response to the case, which was issued in January. Perfect for a tax procedure blog that tries to stay somewhat current. The case, decided by the DC Circuit, is important, however, because the determination of what could be redacted from a record, once it is determined the record was responsive to the FOIA request. Specifically, whether non-responsive aspects of the record could be redacted (spoiler – Sri Srinivasan says “no”). This has far reaching potential consequences with FOIA requests beyond the narrow scope of the request, including to FOIA requests made in relation to tax cases or requests for information about how the Service administers the laws.
The substance of the case does not matter much for this discussion, although it is interesting that such terrible allegations have repeatedly been made against the immigration judges. Various complaints included disrespectful and at times racist treatment of defendants, and sometimes fairly reprehensible treatment of counsel. Unfortunately, this is probably old hat for people who work in this system; makes me somewhat thankful when I do catch a helpful Appeals Officer or Revenue Agent or the quality work usually done by the tax court. In this case, AILA requested all information relating to complaints about the immigration judges. Interestingly, I believe some faulty redacting relating to this case may have resulted in the summary of the complaints being released, along with the judges’ names. I just redacted the heck out of about 1500 pages using Adobe, and now I am a little nervous. I would assume the FOIA folks redact far more frequently than me.
Procedurally, FOIA generally requires the feds to make certain information available to the public, but subject to nine exceptions. See 5 USC § 552(a). The pubic is allowed to request the documents, and the agency must provide them, but has the ability to withhold the documents if the entire document is subject to an exemption, or can redact portions that are properly withheld and provide the rest of the document. The exemptions can be found listed here. For those of you interested in learning all about the intersection of FOIA and tax practice and procedure, Les recently updated chapter 2 of SaltzBook, which covers this in great detail, including all the exemptions and how to use FOIA requests in your practice.
In AILA, what is important is that various documents were found that were responsive to the extensive requests made. Many of those documents contained portions that were responsive to the request, and portions that were responsive but also fit into one of the exemptions. Aspects of some of the documents were also non-responsive. Meaning, portions of the documents did not relate to the request that was made. Agency practice, I believe including the IRS, was to redact all portions of the document that were exempt, and also to redact all the portions of the document that were non-responsive to the request. When in doubt, keep it out.
This practice had been somewhat sanctioned by various district courts, and was in question in AILA. The DC Circuit, however, disagreed with the district courts. In discussing the “ostensibly non-responsive material” (you know this isn’t going to go your way when “ostensibly” is applied to your position), the Court noted that the government’s position was that it was not under any obligation to release information concerning matters unrelated to the FOIA request. Not a wholly absurd position. In the Vaughn index, examples were given as to why the portions of the documents were not responsive, such as information relating to the judge needing to clean his/her office, and vacation plans. That is all interesting, but not germane to the request.
Although the lower court and other district courts had addressed this issue, it was the first time the DC Circuit had taken the matter up. The Court began by providing some background information, stating FOIA requires “’each agency, upon any request for records which (i) reasonably describes such records and (ii) is made in accordance with published rules stating time, place, fees (if any), and procedures to be followed, shall make the records promptly available to any person.’ 5 USC § 552(a)(3)(A).” Further, in “responsive records” certain portions may be redacted pursuant to the exemptions. The only provisions, however, related to responsive records, and withholding information, is found within those exemptions. The court stated, FOIA creates a process for an agency to follow when responding to a FOIA request:
First, identify responsive records; second, identify those responsive records or portions of responsive records that are statutorily exempt from disclosure; and third, if necessary and feasible, redact exempt information from the responsive records. The statute does not provide for…redacting non-exempt information within responsive records.
Relying on a handful of SCOTUS cases that required FOIA exemptions to be narrowly construed, the Court did not see how it could authorize the redacting of aspects of records that were found to be responsive. As stated above, the manner in which agencies generally redacted was contrary to this holding.
We do not know the exact significance of the holding yet, and the Court somewhat foreshadowed what impact this case may have. The Court stated:
The practical significance of FOIA’s command to disclose a responsive record as a unit…depends on how one conceives of a “record.” Here the parties have not addressed the antecedent question of what constitutes a distinct “record” for FOIA purposes…for purposes of this case, we simply take as a given [the government’s] own understanding of what constitutes a responsive “record,” as indicated by its disclosures…
Although FOIA includes a definition section…that sections provides no definition of the term “record.” Elsewhere, the statute describes the term record as ‘include[ing] any information that would be an agency record…when maintained by an agency in any format, including an electronic format’…but that description provides little help in understanding what is a “record” in the first place.”
In the text of the case, the Court compares the definition of “record” under FOIA to the definition of record under the Privacy Act, which states it is “any item, collection, or grouping of information.” See 44 USC § 2201(2). Although not completely clear, it is more instructive than no definition at all.
In AILA, the Court’s holding was clearly not going to sit well with the government, but the Court provided the framework for each agency to rethink how it approached FOIA requests in a manner that mitigated what the agencies viewed as a negative holding. The DOJ somewhat took them up on that offer. In January of 2017, Office of Information Policy released guidance entitled, “Defining a ‘Record’ Under FOIA” addressing the holding in AILA. The guidance notes that after AILA, “it is not permissible to redact information within a record as “non-responsive.” It also highlighted the fact that the Court looked to the “sister statute” of FOIA, The Privacy Act, 5 USC 552a(a)(4) for the potential definition of “record” as “any item, collection, or grouping of information.”
From this, the guidance encouraged the agencies to use the Privacy Act definition and use a “more fine-tuned, content-based approach to the decision,” as to what a record is, and determine if an entire document is the record, or just a page, or just a paragraph. In AILA, the Court stated it may be impossible to withhold one sentence of a paragraph, and DOJ agreed. The guidance provided some practical pointers about how an agency must then report the number of records the agency has that is responsive. It should also clearly identify each record and if it contains multiple subjects so “the requester can readily see why and how the agency divided the document into distinct ‘records’.”
AILA was a substantial departure from how agencies, including Treasury, and the Service, handled FOIA responses. The case, however, provided a roadmap to mitigate the shift, which the Government apparently will seek to implement. The practical impact may be less overall pages, but with less redaction.
Filed Under: FOIA