In Uncategorized on 01/07/2020 at 19:12

Judge Pugh unpacks another of the 6751(b) Boss Hoss conundra, which have taken over my blog and Tax Court’s opinions, in Charles L. Frost, 154 T. C.2, filed 1/7/20 (wasn’t his name all over those old American Express card advertisements? The specimen cards all bore the name Charles L. Frost).

Judge Pugh seems to echo a much more exalted authority who inveighed against experts in the law, who loaded people with burdens heavy to bear.

IRS hit Charles L. Frost with SNODs for three (count ‘em, three) years, but had a CPAF for the last such year only. Thus, chops for Years One and Two are off the table per Graev. Charles L. Frost had his share of LLC operating losses denied for want of proof of basis in his membership interest, and his travel expenses for want of Section 274 substantiation. Although an EA who qualified based upon prior IRS service, Charles L. Frost had recordkeeping problems.

The issue today is Section 7491(c) burden of production.

No question the CPAF was duly Boss Hossed long before IRS breathed Word One of penalty to Charles L. Frost. And IRS trotted out the CPAF on the trial. So what happens next?

Judge Pugh: “We hold that the Commissioner’s introduction of evidence of written approval of a penalty before a formal communication of the penalty to the taxpayer is sufficient to carry his initial burden of production under section 7491(c) to show that he complied with the procedural requirements of section 6751(b)(1). Because the Civil Penalty Approval Form indicated approval of the penalty for a substantial understatement but not for negligence, respondent has not satisfied his burden as to the penalty for negligence.” 154 T. C. 2, at pp. 21-22.

Now what? Must IRS prove they never communicated with Charles L. Frost prior to getting the Boss Hoss sign-off?

No, you can’t prove a negative.

“The burden now shifts to petitioner to offer evidence suggesting that the approval of the substantial understatement penalty was untimely–e.g., that there was a formal communication of the penalty before the proffered approval. If a taxpayer makes that showing, we will weigh the evidence before us to decide whether the Commissioner satisfied the requirements of section 6751(b)(1). This rule is faithful to the requirement that the Commissioner come forward initially with evidence of written penalty approval. By shifting the burden to the taxpayer after the Commissioner makes the initial showing, we avoid imposing the burden of proving a negative (i.e., that there were no prior formal communications). If the taxpayer introduces sufficient evidence to contradict the Commissioner’s initial showing, then the Commissioner can respond with additional evidence and argument, and the Court can weigh all of the evidence (that is after all the business of judging). And evidence of prior formal communication (if it exists) would be available to the taxpayer since he would have received such a communication and therefore could introduce it to challenge a claim that the supervisory approval was timely. In other words, the rule we articulate today will not require the Commissioner to show that there was no prior formal communication as part of his initial burden.” 154 T. C. 2, at pp. 22-23.

The beloved bright-line test is triumphant. There must be a duly documented Boss Hoss sign-off before a formal consequential communication from IRS manifesting a clear intention to chop the taxpayer. Then the taxpayer must come forward with evidence (another pet peeve of mine is the phrase “credible evidence”; can there be incredible evidence?) that there was earlier formal communication. Then the Court can decide.

Of course, if any of the bullying/bludgeoning so deplored by Congress has taken place, the RA did it without “formal communication” long before the Boss Hoss sign-off, which in any case was superfluous, as the bullied/bludgeoned taxpayer signed the Statement of Agreed Changes conceding their meritorious case, which never reached Tax Court.

As the players say, “If the ref don’t see it, the ref can’t call it.”



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