In Uncategorized on 10/03/2017 at 16:34

Wait a minute, didn’t IRS already get Zip? Well, yes. Y’all will doubtless recall Judge Lauber’s detailed instructions to IRS and Zipora Klein’s lawyers to brief most particularly whether IRS might mulct Zip and husband Sam for interest and additions to tax. No? Well, check out my blogpost “Als Ob,” 11/22/16, wherein Judge Lauber channels early Twentieth Century German philosopher Hans Vaihinger in a prolonged discussion of “as if.”

In today’s episode, IRS is after Zipora Klein. 149 T. C. 15, filed 10/3/17, and husband Sam for additions and interest on their $562K tax-loss restitution for their various delicitons.

I must say the gang did their homework, laid it on Judge Lauber, and at close of play IRS gets zip, and Zip wins.

“The cases present a question of first impression in this Court:  whether the IRS may assess and collect interest and additions to tax on amounts assessed under section 6201(a)(4)(A).  That provision authorizes the Secretary, following a taxpayer’s criminal conviction for failure to pay any tax imposed by title 26, to ‘assess and collect the amount of restitution’ ordered by the sentencing court ‘in the same manner as if such amount were such tax.’”  149 T. C. 15, at pp. 2-3.

After much argy-bargy about what they owed the fisc, Zip coughed up the whole $562K, as IRS threatened her with the hoosegow. Now when Zip took the fall, she signed a closing agreement that said IRS could audit, and notwithstanding anything in her plea agreement, could visit Zip with fire and slaughter. This IRS does, as they seek interest and additions. IRS never audited Zip and Sam for six years after the years at issue.

IRS wants interest from the due dates of the returns at issue, not from when restitution was ordered, and for the full amount of the $562K tax loss for each year. And IRS hits Zip with a NFTL. And Sam, too, so he won’t feel left out.

“We gave at the office,” says Zip. Judge Lauber treats that as a cross-motion for summary J, because IRS wants summary J too.

Zip and Sam got a CDP with no collection alternative on offer. “The SO acknowledged that the restitution portion of the assessment ‘appear[s] to have been paid but noted that the assessed interest and additions to tax (he called them ‘penalties’) had not been paid.  Petitioners during the hearing did not request a collection alternative, but the SO allowed them two weeks to seek one.” 149 T. C. 15, at p. 10.

Zip and Sam stood pat, the SO hit them with a NOD, and Zip and Sam petitioned.

Standard of review? De novo. There never was an examination (audit) of Zip’s and Sam’s  returns for the years at issue, and the USDCCDCA said the exact amount of the tax loss was indeterminate; IRS used a bank records reconstruction to come up with the number, but Sam claimed some deductions he had weren’t reckoned in. So no SNOD, and Zip and Sam did not have a chance to contest at the CDP.

“Section 6601(a) provides that interest shall be paid ‘[i]f any amount of tax imposed by this title * * * is not paid on or before the last date prescribed for payment.’  Section 6651(a)(3) imposes an ‘addition to tax’ in case of failure to pay timely ‘any amount in respect of any tax required to be shown on a return   * * * which is not so shown.”  The question is whether these provisions authorize the Secretary to assess and collect interest and additions to tax on amounts of restitution ordered by a sentencing court and assessed under section 6201(a)(4).” 149 T. C. 15, at p. 15.

So Judge Lauber finds a counterfactual hypothesis. A dive into the grammar book (and what would a full-dress T. C. first impression extravaganza be without at least a bite into the stuffin’ of some linguistic exegesis?) shows that a counterfactual hypothesis is treatment of something that isn’t as if it was. Like taxing a non-resident alien as if they were a US citizen, although they’re not.

“Respondent acknowledges that restitution is not literally ‘a tax.’  See Staff of J. Comm. on Taxation, General Explanation of Tax Legislation Enacted in the 111th Congress, 461 (J. Comm. Print 2011) (noting that ‘restitution is not itself a determination of tax,’ so that before the enactment of section 6201(a)(4) the Code ‘d[id] not provide a basis on which tax may be assessed’). And the courts have recognized that ‘[c]riminal restitution, even as a penalty for a failure to pay taxes, is not a tax.’  United States v. Tilford, 810 F.3d 370, 372 (5th Cir. 2016).  Rather, Congress adopted in section 6201(a)(4) the counterfactual hypothesis that restitution is a tax for the limited purpose of enabling the IRS to assess that amount, thus creating an account receivable on the taxpayer’s transcript against which the restitution payment can be credited.” 149 T. C. 15, at p. 18.

Now the IRM is full of good language about how IRS can get the interest and additions no matter what the sentencing court decides. But the IRM doesn’t bind the courts, and “(T)hese IRM provisions, while long on instructions, are short on analysis.” 149 T. C. 15, at p. 20.

“The respect that courts accord an agency manual is limited to its ‘power to persuade’ by its ‘thoroughness, logic, and expertness.’  United States v. Mead Corp., 533 U.S. 218, 234-235 (2001).  On a question of statutory construction such as this, IRM provisions would have limited power to persuade, even if they evidenced ‘thoroughness, logic, and expertness,’ which these do not.” 149 T. C. 15, at p. 21.

And remember those high school grammar classes we all slept through? Well Leroy Muncy didn’t. He played that gambit (see my blogpost “Delegati Non Potest Delegare – Part Deux,” 5/17/17), and lost. His restitution was assessed as a deficiency, not as if it were a deficiency. Oh, that subjunctive mood.

IRS expends much paper and wind on what Congress intended, but the statute speaks for itself, or at least it does to Judge Lauber. Congress needed to give IRS a quick bookkeeping method to get restitution applied to what was owed the fisc, and the “as if” solution was the quickest.

And the Section 6305 child support collection provisions expressly exempt interest and penalties. The restitution calculation is not an audit. It’s a quick-and-dirty way to get money to where it belongs, and is more to do with unreported income than a fine-tuned substitute for a Rule 155 beancount.

“If the IRS wishes to collect interest and additions to tax, it is free to commence a civil examination of those returns at any time.  Upon final determination of petitioners’ 2003-2006 civil tax liabilities, interest will arise automatically under section 6601(a), and additions to tax (if appropriate) may be imposed under section 6651(a)(3).  But the interest and additions to tax would then be computed, not by reference to the $562,179 tax loss, but by reference to whatever petitioners’ actual tax liabilities are ultimately determined to be.” 149 T. C. 15, at pp. 34-35.

Might could be a wee SOL problem here, IRS.





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