In Uncategorized on 04/20/2015 at 16:30

The lot of the lawyer (even the honest ones, Joan Farr baby) is often an unhappy one. One must sometimes make arguments that would yield an unfair result, provided the law can reasonably be read to permit the same. Two for the price of one today.

First up, David Eugene Yuska, 2015 T. C. Memo. 77, filed 4/20/15, with CSTJ Panuthos listening to IRS’s unfair but vaguely justified argument, but shooting it down on his own motion to bail out bankrupt Dave. Dave self-reported two years, didn’t pay, IRS gave him an NFTL, Dave asked for review, and then Dave filed Ch 13.

A week later Appeals gave Dave a NOD, and Dave petitions. IRS moves to dismiss the petition, as it violates 11 USC§362(a)(8).

No doubt, says CSTJ Panuthos, the petition is toast. But why it is toast is the whole story. IRS says Tax Court already decided that a NOD out of a levy, when taxpayer filed Chapter, is a continuation of administrative collection proceedings against the debtor, and that’s a no-no pursuant to 11USC§362(a)(1). But if that’s so, and the petition fails because no NOD, then when Dave’s Ch. 13 proceeding is over, he can’t go back to Appeals for a new NOD or petition from one if he doesn’t like what Appeals gives him. Unlike a SNOD, Dave doesn’t get the sixty-days-after-discharge-or-dismissal to refile his petition.

“When petitioner filed a petition in bankruptcy (after the request for administrative review under section 6320), it is clear that the commencement and/or continuation of collection activity was barred as a result of the stay provisions in 11 U.S.C. sec. 362(a)(1). Nevertheless, respondent issued the notice of determination sustaining the IRS collection action during the pending bankruptcy. We conclude that the notice of determination issued while the bankruptcy was pending was in violation of the stay and accordingly is invalid.” 2015 T. C. Memo. 77, at p. 8. (Footnote omitted).

Because it’s important, here’s the footnote. “If we were to hold otherwise, petitioner would lose the right of judicial review of the lien filing in this Court. We noted in Prevo v. Commissioner, 123 T.C. 326, 330 (2004), that Congress did not include in secs. 6320 and 6330 a tolling provision comparable to the tolling provision in sec. 6213(f) that would extend the period for petitioner to file a petition for lien or levy action with this Court.” 2015 T. C. Memo. 77, at p. 8, footnote 2.

Here’s the second, a small-claimer from CSTJ Panuthos, Tony Carrancho and Linda Carrancho, 2015 T. C. Sum. Op. 29, filed 4/20/15, but Tony makes out much less well than Dave.

Tony was disabled, so got Social Security, but that was offset by Workers’ Comp. CSTJ Panuthos explains: “Workers’ compensation is generally excludable from a taxpayer’s gross income. Sec. 104(a)(1). In contrast, Social Security benefits, including Social Security disability benefits, may be includable in a taxpayer’s gross income pursuant to a statutory formula that takes into account a number of factors, including the amount of Social Security benefits received, the taxpayer’s other income, and the taxpayer’s filing status. Sec. 86. If the amount of Social Security benefits that a taxpayer receives is reduced because of the receipt of workers’ compensation benefits, then the amount of the workers’ compensation benefits that causes the reduction is treated as though it were a Social Security benefit.” 2015 T. C. Sum. Op. 29, at p. 4 (Citations omitted).

Which means in English that what was tax-exempt is now taxable. What Tony got included payments for previous years, so there is an elective “out” per Section 86(e). I discussed that back in my blogpost “Disabled”, 1/4/13.

But of course Tony, who obviously is not an attorney, a CPA, nor an EA, doesn’t know about Section 86(e). Helpful as always (after all, they’re from the government), “Respondent [IRS] provided a computation showing that petitioners would not benefit from a sec. 86(e) election. Petitioners did not provide any such computation. We presume that petitioners would not benefit from a sec. 86(e) election.” 2015 T. C. Sum. Op. 29, at p. 5, footnote 2.

“When petitioner applied for Social Security benefits, part of his workers’ compensation benefits, which were otherwise excludable from gross income, were treated as Social Security benefits pursuant to the provisions of section 86(d)(3). This recharacterization caused petitioners’ tax to increase by more than the amount of increase in benefits received as a result of petitioner’s qualifying for Social Security benefits.

“While the result appears harsh, our role is to enforce the laws as written and interpreted. As the Supreme Court of the United States has instructed, the role of the courts is to apply the statute as written.” 2015 T. C. Sum. Op. 29, at pp. 5-6. (Citations omitted).

So Tony now knows how a National Fine Thread 5/16ths feels when put into place.

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