To lose in Tax Court on a gross receipts adjustment of $2,741,399, and yet reduce a deficiency of $3,111,363 to an ultimate liability of $21,956, earns the trusty attorneys for Michael G. Parker & Julie A. Parker, Docket No. 16021-16, filed 5/2/24, a Taishoff “Good Job, Hors Concours, with oak leaves, swords, and diamonds”.
For the loss, see my blogpost “A Recourse,” 8/14/23.
Said trusty attorneys, alas, must be content with whatever long green Mike & Julie shelled out, and my heartiest congratulations, because Judge Nega said it took Mike & Julie too long to come up with the records that proved their case.
Hence IRS substantially justified, wherefore no Section 7430 legals-and-admins payday for said trusty attorneys.
Of course, IRS folded the chops, and notwithstanding the multi-year delay in Mike & Julie coming up with the stuff, Judge Nega finds (as IRS stiped) that Mike & Julie didn’t unduly protract the proceedings, and they met the dollar limits.
There’s minor argy-bargy over exhaustion of administrative remedies, but “…if a party never receives a notice of proposed deficiency (30-day letter) prior to the issuance of the statutory notice of deficiency and the party does not refuse to participate in an Appeals conference while the case is docketed, that party shall be deemed to have exhausted the administrative remedies available to it for purposes of section 7430(b)(1). Treas. Reg. § 301.7430-1(f)(2); see also § 7430(b)(1) (‘Any failure to agree to an extension of the time for the assessment of any tax shall not be taken into account for purposes of determining whether the prevailing party meets the [exhaustion of administrative remedies requirement].’).” Order, at p. 4.
IRS asked for a Form 872 extender, which trusty attorneys refused. Consent gets you the 30-day letter and a mandatory trip to Appeals (take it, if you want admins-and-legals), but refusal doesn’t.
“Under Treas. Reg. § 301.7430-1(f)(2), petitioners to the Court who never received a 30-day letter shall be deemed to have exhausted the administrative remedies available to them if they participate in an Appeals conference after the case is docketed. In the present case, petitioners never received a 30-day letter and participated extensively in an Appeals conference while the case was docketed with the Court. Accordingly, petitioners are deemed to have exhausted the administrative remedies available to them for purposes of section 7430(b)(1).” Order, at p. 4.
But, as always, there’s a catch; and, as usual, it’s found in a footnote. “Under section 301.7430-1(f)(2)(ii), the taxpayer does not actually need to participate in an Appeals conference while the case is docketed as long as the taxpayer does not refuse to participate.” Order, at p. 4, footnote 4.
The trusty attorneys played the strategic shellgame right. Practitioners, keep this in your toolbox; if you must go to Appeals, when and how you go matters.
The problem that the trusty attorneys can’t solve is digging up the records.
“In analyzing whether respondent’s position was substantially justified, we focus on the documentation available to respondent at the times that respondent stated its position. Respondent issued the notice of deficiency on April 15, 2016, and did not receive any additional information from petitioners other than the information on the face of the Petition between that date and respondent’s answer to the petition on September 2, 2016. For respondent to eventually concede many of the issues in this case, petitioners had to subpoena their own CPAs and spend many years tracking down documentation, with the last documents that led to a concession appearing to have been exchanged three years later in September 2019.” Order, at p. 5.
And that IRS folded a bunch heavy-duty items in the SNOD (hi, Judge Holmes) avails not.
“In the absence of supporting documentation, respondent’s position on each of the issues stated in the notice of deficiency was justified to a degree that would satisfy a reasonable person. Petitioners point to no misapplication of law or mistake in how respondent interpreted facts known to him—instead, petitioners highlight the later good-faith concessions by respondent as somehow establishing that respondent took a position lacking substantial justification. As noted above, the fact that respondent ultimately concedes an issue does not necessarily indicate that respondent’s position was unreasonable.” Order, at p. 5 (Citation omitted).
Judge Nega doesn’t cite Reg. Section 1.6001-1(e), which requires records “shall be kept at all times available for inspection by authorized internal revenue officers or employees.”
Taishoff Law 