It’s Crystal Clear

Mark C. Klopfenstein, 2019 T. C. Memo. 156, filed 12/9/19, and his trusty attorneys got Appeals to drop $1.6 million in asserted Section 6707 preparer chops down to $169K, and stiped out for that. Examination claimed Mark was a “material advisor” who failed to dish about a bunch of Section 6111 reportables.

My ultra-sophisticated readers have already shouted “What SNOD? Section 6707s are assessables, they don’t need no SNOD!”

And Appeals never determined anything, whether for or against Mark: they just folded on all but the $169K, and Mark agreed to that. But Mark and trusty attorneys want Section 7430 admins (no legals because no litigation).

Judge Albert G (“Scholar Al”) Lauber gives IRS summary J.

“Congress intended section 7430(c)(7) to ‘protect the Commissioner from claims by taxpayers that positions taken by, for example, the Examination or Collections Division personnel, before issuance of a notice of deficiency or of the decision of Appeals, are not substantially justified.’ The statute accordingly ‘immuniz[es] the Government against claims for costs until the IRS’s position has crystallized in an Appeals Office decision or notice of deficiency.’ Because the Appeals Office in this case did not take a position that was ‘crystallized’ into either of those documents, petitioner cannot be considered ‘the prevailing party’ under section 7430(a).  See Friends of the Benedictines in the Holy Land, Inc. v. Commissioner, 150 T.C. 107, 114 (2018) (“When the Government fails to take a position at all, * * * a taxpayer cannot be the prevailing party.’). 2019 T. C. Memo. 156, at pp. 9-10 (Citations and footnote omitted).

For the story of the friendless Benedictines, see my blogpost “Friendless in the Holy Land,” 2/21/18.

The only thing Appeals ever put in writing was the settlement stip, so if that was the triggering determination for IRS’ position, then IRS had to be justified, because Mark signed off on it.

So once again, Examination and Collection have free-fire to herk-and-jerk, make heavy-duty demands, bludgeon and bullyrag, until the frustrated civilian calls them (at substantial expense), and then Appeals (supposedly independent) does a folderoo, and IRS walks.

As Judge Wells observed in Benedictines, supra, there’s a gap in the statute, but it is not up to Tax Court to fill it.

Yo Congress, it’s yours.