In Uncategorized on 08/27/2015 at 23:52

When a taxpayer sends IRS money, it can be intended for one of two things: either to pay a liability, or to serve as a deposit (which can stop the accrual of interest). If a deposit, the taxpayer wants to fight the asserted liability, and can do so. But if a payment, then to the extent the money is applied to the liability (and the taxpayer so intended), then there’s nothing more to fight about.

But payment of an asserted deficiency strips Tax Court of jurisdiction, while a deposit does not.

So The Judge With a Heart, STJ Armen, wants to know which it is, in Hilbert Edward Schoeninger & Janis H. Schoeninger, Docket No. 16875-14S, filed 8/27/15.

It’s been a long day, starting with vacation in the Berkshires, a meeting in Albany, and a trip to the Green Mountain State, so I’ll be brief.

IRS hit Hil & Jan with a CP2000, Hil & Jan sent IRS a check, IRS sent a SNOD, Hil & Jan petitioned the SNOD, and IRS moved to dismiss, claiming no jurisdiction as Hil & Jan paid in full. But Hil & Jan’s petition was directed to liability for the deficiency.

So STJ Armen wants to know whether Hil & Jan paid or deposited.

Tax Court jurisdiction depends upon a valid SNOD. If the asserted deficiency has been paid before issuance of the SNOD, no jurisdiction. But if the petitioner deposited the money to stop accrual of interest and still wants to fight the deficiency, then jurisdiction.

“Rev. Proc. 2005-18, 2005-1 C.B. 798, gives guidance in determining whether a remittance is considered a payment or a deposit. According to Rev. Proc. 2005-18, sec. 4.01(1), 2005-1 C.B. at 799, the taxpayer may make a deposit by remitting to the IRS a check or money order, accompanied by a written statement designating the remittance as a deposit. However, if the remittance is undesignated, i.e., is not designated as a deposit, other facts and circumstances help determine whether it is a payment or a deposit. Rev.Proc. 2005-18, secs. 4.01(2), 4.03, 4.04, 2005-1 C.B. at 799-800.

“If an undesignated remittance is made in the full amount of a proposed liability, such as an amount proposed in a revenue agent’s or examiner’s report, the undesignated remittance will be treated as a payment of tax. Rev. Proc. 2005-18, sec. 4.03, 2005-1 C.B. at 799. However, any undesignated remittance that is made while the taxpayer is under examination, but before a liability is proposed in writing (e.g., before the issuance of a revenue agent’s or examiner’s report), will be treated by the Service as a deposit if the taxpayer has no outstanding liabilities. Rev. Proc. 2005-18, sec. 4.04(1), 2005-1 C.B. at 800.” Order, at p. 3.

But since neither IRS nor Hil & Jan address what the remittance was for, they should do so now.

Takeaway– Make it clear, practitioner: payment or deposit?


In Uncategorized on 08/26/2015 at 16:37

No, not Graham Greene’s 1951 novel nor the 1955 film version with Van Johnson and Deborah Kerr, rather this is the end of a love affair with the Chenery doctrine that began with The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Imperturbable, Implacable, Indefatigable, Illustrious, Irrefragable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

Judge Holmes kicked off the fray and kicked out IRS’ summary J motion in my blogpost “He Loves Chenery,” 12/17/14.

So it looks like Fredric A. Gardner and co-petitioner Elizabeth A. Gardner, corp-sole dodge-floggers got a bye, right?

Well, guess not, because, having been given a chance to contest their Section 6700 phony-flogger chop ($47K worth), they encounter His Honor Big Julie, Judge Julian I Jacobs (hereinafter referred to as HHBJJJIJ), who finds that Fred and Elizabeth had their chance and they blew it.

And it’s a full-dress T.C., Fredric A. Gardner, 145 T. C. 6, filed 8/26/15. And not a word of dissent.

If you want to learn how to promote and flog a phony tax dodge, read pages 7 through 11 of the opinion. Then don’t do it.

While it may pay to advertise, in the Gardners’ case it brought down the IRS, who grabbed their bank records and found they’d flogged 300 of the phoney deals. So the Gardners’ advertising paid the IRS.

Floggers of phony pseudo-religious dodges, read 2 Samuel 1:20.

Anyway, IRS concedes that, notwithstanding the decision of USDC for District of Arizona that “(1) the Gardners’ customers were harmed by their reliance on the structure of the corporation sole plan, (2) the United States was harmed as a result of the Gardners’ clients’ failing to pay correct amounts of tax to the Treasury, and (3) the public was harmed because the IRS was forced to devote resources to identify and recover lost revenue…. “, and enjoining the Gardners from further flogging, 145 T. C. 6, at p. 13, the Gardners never got the chance to contest the penalty, so Tax Court can look at matters de novo.

Great tactical move, IRS. De novo review takes administrative record out of the picture, and Chenery is benched for the rest of the game.

And Ninth Circuit affirmed DCDA, 145 T. C. 6, at p. 28.

Tax Court had previously affirmed the Gardners’ own tax liabilities. The Section 6700 chop came later.

The Gardners went to Appeals, which claimed they’d had a previous shot at litigating the chop, and bounced their appeals. Gardners petitioned. And, per my blogpost abovecited, went to trial.

“The section 6700 penalty is governed by the procedural rules of section 6703, which, in general, removes section 6700 penalty assessments from the deficiency jurisdiction of this Court. However, section 6330(d)(1) provides this Court with jurisdiction to review an appeal from the Commissioner’s determination to proceed with collection activity regardless of the type of underlying tax involved. And we have held that our jurisdiction includes reviewing the Commissioner’s lien and levy activities regarding penalties governed by the procedural rules of section 6703, including section 6700. Thus, we have jurisdiction to review the notices of determination issued to petitioners.” 145 T. C. 6, at p. 21. (Footnote omitted).

OK, that’s out of the way. Now what?

Section 6700 doesn’t require that any of the flogees actually bought the stuff or used it, or that if they did buy and use, it cost the fisc one centavo.

“…the legislative history of the section states that the actions of the plan participants are not relevant to the application of the section. “There need not be reliance by purchasing taxpayer or actual under-reporting of tax. These elements have not been included because they would substantially impair the effectiveness of this penalty. Thus, a penalty can be imposed based upon the offering materials of the arrangement without an audit of any purchaser of interests.” S. Rept. No. 97-494 (Vol. 1), at 267 (1982), 1982 U.S.C.C.A.N. 781, 1015.” 145 T. C. 6, at p. 25.

Now IRS can trot in collateral estoppel, and they do. And it works.

“Petitioners reply that collateral estoppel is inapplicable in these cases. ‘It is clear there are no abusive transactions to give rise to the penalty. Respondent did not prove the abusive transaction. What the respondent is passing off as proof is the District Court said that the Gardners engaged in conduct that violates IRC § 6700.’ Petitioners then argue that the corporation sole plan was not an abusive tax shelter. However, petitioners’ position is precisely what the doctrine of collateral estoppel was intended to avoid: relitigating closed questions. Petitioners repeated in this Court the same argument that they made in the District Court as well as the same false statements made to their customers that led the District Court to enjoin them. We thus hold that the doctrine of collateral estoppel applies in the instant situation and that the District Court’s determination is conclusive. Consequently, respondent has met his burden of establishing that the Gardners are liable for the section 6700 penalties.” 145 T. C. 6, at p. 29. (Footnote omitted).

On the trial, IRS Senior Program Analyst Kurt (“Kuxie”) Kuxhausen buried the Gardners with his detailed discussion of his audits of flogees (some four or so of whom were actual bona fide religious, and one of whom even got a legitimate refund, and they testified for the Gardners on the trial), but he established the Gardners sold the 47 phonies alleged.

And the notice the Gardners got was sufficient, even if the tax year was wrong. They were aware what IRS demanded, and could contest, and did. And the Gardners stipulated they sold 67 schemes in the year stated in the notice, even though IRS nailed them for only 47. 145 T. C. 6, at p. 36.

By the way, even looking at the administrative record, the Gardners are out.

Sorry, Judge Holmes. The end of the affair.


In Uncategorized on 08/25/2015 at 21:30

Abroad at Home

That Obliging Jurist, Judge David Gustafson, gets to pull into the Chevron station, and doesn’t hold the Mayo. And he needn’t invoke the canon expressio unius exclusio Altera. No, Congress clearly gave IRS the authority to make regulations about the Foreign Earned Income Exclusion (FEIE), and Nancy McDonald falls foul thereof in 2015 T. C. Memo. 169, filed 8/25/15.

I’m a wee bit late with my post tonight, getting used to the fresh air of the Berkshires, so I’ll get to the point.

Nancy failed to file for the year at issue, so IRS gave her a SFR and a SNOD gratis and for free. Nancy ripostes after the SOL has run on that year with a 1040 claiming the FEIE, and paying the balance due giving effect thereto. IRS closes the SNOD.

But Nancy isn’t home free, because IRS audits her and disallows the FEIE, claiming Nancy blew the Reg. Section 1.911-7(a)(2) requirement for electing to exclude. Nancy petitions, claiming the Reg is invalid as contradicting Section 911.

The basic test for the FEIE, like ancient Gaul, is divided into three parts: “(1) the taxpayer must be a U.S. citizen who is a bona fide resident of a foreign country for an entire taxable year or physically present in a foreign country during at least 330 days out of a 12-month period, (2) the taxpayer must have earned income from personal services rendered in a foreign country; and (3) the taxpayer’s tax home for the period must be outside of the United States.” 2015 T. C. Memo. 169, at p. 6. (Citations omitted).

IRS claims Nancy flunks the tests, but Judge Gustafson doesn’t have to go there.

The issue is whether Congress gave Treasury general or specific authority to regulate. The statute says the taxpayer must elect to take the FEIE. The statute gives Treasury authority. And Section 7805 gives authority to make regulartions concerning timeliness.

There is no specific deadline for election in the statute, but the Reg states election must be made on a timely filed return before IRS audits them.

And that’s reasonable. So Mayo and Altera are satisfied.

Nancy is too late. And the Reg stands.




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