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T H E M O S T L I T I G A T E D T A X I S S U E S
M O S T L I T I G A T E D I S S U E S : I N T R O D U C T I O N
Internal Revenue Code § 7803(c)(2)(B)(ii)(X) requires the National Taxpayer Advocate to
identify the ten tax issues most often litigated in the federal courts, classified by the type
of taxpayer affected. Through analysis of these issues, the National Taxpayer Advocate
will, if appropriate, make recommendations designed to mitigate disputes that result in
litigation. The recommendations included in this analysis could minimize some of the
litigation covered in this section.
1
Taxpayer Advocate Service (TAS) analysts utilized commercial legal research databases to
identify the ten most litigated issues (Most Litigated Issues) in federal courts during the
period of June 1, 2004 through May 31, 2005.
2
For purposes of the Most Litigated Issues
section of the report, the term “litigated” refers to cases in which the court issued an opin-
ion.
3
The ten Most Litigated Issues identified for this year are:
Collection Due Process hearings, under IRC §§ 6320 and 6330;
Gross income, under IRC § 61 and related Code sections;
Failure to file penalty, under IRC § 6651(a)(1);
Trade or business expenses;
Frivolous issues penalty, under IRC § 6673;
Negligence penalty, under IRC § 6662(b)(1);
Family status issues, under IRC §§ 2, 21, 24, 32 and 151;
Relief from joint and several liability for spouses, under IRC § 6015;
Summons enforcement, under IRC § 7604; and
Trust Fund Recovery Penalty, under IRC § 6672.
The top ten litigated issues are substantially similar to those identified in 2004,
4
with some
important exceptions. For the first time, summons enforcement is a Most Litigated Issue,
which may be due in part to the IRS’s increased emphasis on enforcement.
5
While the
1
For example, Collection Due Process (CDP) is again the number one most litigated issue this year. The
National Taxpayer Advocate is making a legislative recommendation to reform CDP legislation, designed
to increase the availability of review for some taxpayers while reducing the incentive to appeal solely
for the purpose of delaying collections. See Key Legislative Recommendation: Restructuring and Reform of
Collection Due Process Provisions, supra.
2
Federal tax cases are tried in the United States Tax Court, the United States district courts, the United
States Court of Federal Claims, the United States bankruptcy courts, United States Courts of Appeals and
the United States Supreme Court.
3
We recognize that many cases are resolved prior to the court issuing an opinion. Some taxpayers are able
to reach settlement with the IRS before trial while other taxpayers’ cases are dismissed for a variety of rea-
sons, including lack of jurisdiction and lack of prosecution. In addition, courts can also issue less formal
“bench opinions” which are not published or precedential. For example, bench opinions are issued by the
United States Tax Court pursuant to Tax Court Rule 152, wherein Tax Court Trial Judges or Special Trial
Judges read oral findings of fact or opinion into the trial transcript. We received copies of some bench
opinions for Collection Due Process cases, this year’s most litigated issue.
4
See National Taxpayer Advocate 2004 Annual Report to Congress 495.
5
Beginning in 2002, the IRS identified the increased use of summonses as a part of the overall shift in
audit priorities toward abusive schemes and promoter investigations. IRS News Release, IRS Sets New
Priorities, September 2002.
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other issues remain substantially the same, there was a reordering of the top ten issues
caused by a decrease in litigation involving family status issues
6
and an increase in litigation
involving the failure-to-file penalty, the negligence penalty, and the frivolous issues penalty.
7
Once the ten issues were identified, TAS personnel provided analysis for each issue that
includes four sections: a summary of the findings, a description of the present law, analy-
sis of the litigated cases and a conclusion. We have listed each of the cases litigated, by
issue, in Appendix 3 of this report and have categorized the cases by type of taxpayer.
The case listings for each issue identify the specific citation of the case, the main issue(s),
whether the taxpayer was represented at trial or argued the case pro se, and the decision of
the court. We classify the “opinion” of the court as a decision for the taxpayer, the IRS,
or as a split decision. For purposes of this analysis, when identifying the decision of the
court we only considered the issue analyzed, and a split decision was defined as a partial
allowance of the specific issue litigated.
A N O V E R V I E W O F H O W TA X I S S U E S A R E L I T I G A T E D
Taxpayers generally have access to four different tribunals in which to initially litigate a
tax matter – the United States Tax Court, United States district courts, the United States
Court of Federal Claims, the United States bankruptcy courts. With limited exceptions,
taxpayers have an automatic right of appeal from decisions of the trial court.
8
The United States Tax Court is generally a “prepayment” forum in that taxpayers have
access to the Tax Court without having to pay the disputed tax in advance. The Tax Court
has jurisdiction over a variety of issues, to include deficiencies, certain declaratory judg-
ment actions, collection due process, and relief from joint and several liability.
9
The federal district courts and the Court of Federal Claims have concurrent jurisdiction over
tax matters in which (1) the tax has been assessed and paid in full,
10
and (2) the taxpayer has
filed an administrative claim for refund.
11
The federal district courts are the only forums in
which a taxpayer can receive a jury trial. Bankruptcy courts can adjudicate tax matters that
were not previously adjudicated before the initiation of a bankruptcy case.
12
6
There was a 60 percent decrease in Family Status related issues down from 72 litigated in 2004 to 45 liti-
gated in 2005.
7
There was also a 60 percent increase in failure-to-file penalty litigation and a 91 percent increase in litiga-
tion involving application of the frivolous issues penalty.
8
See IRC § 7482 (providing that the United States Courts of Appeals have jurisdiction to review the deci-
sions of the Tax Court). There are exceptions to this general rule. For example, IRC § 7463 provides
special procedures for small Tax Court cases (where the amount of the deficiency or claimed overpayment
totals $50,000 or less) from which appellate review is not available. See also 28 U.S.C. § 1294 (appeals from
district court are to the appropriate Court of Appeals); 28 U.S.C. § 1295 (appeals from Court of Federal
Claims are heard in the Federal Circuit Court).
9
IRC §§ 6214, 7476-7479, 6330, and 6015.
10
28 U.S.C. § 1346(a)(1). See Flora v. United States, 362 U.S. 145 (1960).
11
IRC § 7422(a).
12
See 11 U.S.C.A. §§ 505(a)(1) and (a)(2)(A).
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A N A LY S I S O F
P R O S E
L I T I G A T I O N
As in the previous two years our analysis indicated that many taxpayers represented them-
selves before the courts, pro se.
13
The following table (Table 3.I-01) lists the most litigated
tax issues for the period June 1, 2004, through May 31, 2005, and identifies the number
of cases in which taxpayers represented themselves before the court.
T A B L E 3 . I - 0 1 ,
P R O S E
C A S E S B Y I S S U E
Most L i t i g a t e d Issue
To t a l N u m b e r of L i t i g a t e d
Cases R e v i e w e d
Pro S e
Litigation
Percentage o f
Pro S e
C a s e s
Collection Due Process 209 165 79%
Gross Income 108 60 56%
Failure to File Penalty 75 58 77%
Trade or Business Expense 67 46 69%
Frivolous Issues Penalty 67 64 96%
Negligence Penalty 57 33 58%
Family Status Issues 45 39 87%
Joint and Several Liability 45 27 60%
Summons Enforcement 44 20 45%
Trust Fund Recovery Penalty 34 8 24%
Total 751 520 69%
Table 3.I-02 demonstrates that taxpayers have a higher chance of prevailing in litigation if
they are represented.
T A B L E 3 . I - 0 2 , O U T C O M E S F O R
P R O S E
A N D R E P R E S E N T E D TA X P AY E R S
Pro S e Ta x p a y e r s Repre s e n t e d Taxpa y e r s
Most L i t i g a t e d Issue
To t a l
Cases
Ta x p a y e r
Prevailed i n
whole o r in p a r t
Percent
To t a l
Cases
Ta x p a y e r
Prevailed i n
whole o r in p a r t
Percent
Collection Due Process 165 15 9% 44 9 20%
Gross Income 60 11 18% 48 14 29%
Failure to File Penalty 58 2 3% 17 3 18%
Trade or Business Expense 46 7 15% 21 9 43%
Frivolous Issues Penalty 64 17 27% 3 1 33%
Negligence Penalty 33 10 30% 24 8 33%
Family Status Issues 39 5 13% 6 2 33%
Joint and Several Liability 27 6 22% 18 6 33%
Summons Enforcement 20 0 0% 24 2 8%
Trust Fund Recovery Penalty 8 1 13% 26 12 46%
Totals 520 74 14% 231 66 29%
13
“Pro Se” means “for oneself; on one’s own behalf; without a lawyer.” Black’s Law Dictionary 1236-37 (7th
ed. 1999).
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C O L L E C T I O N D U E P R O C E S S ( C D P ) H E A R I N G S I S S U E # 1
LI TI GAT ED
I S S U E # 1
A P P E A L S F R O M C O L L E C T I O N D U E P R O C E S S ( C D P ) H E A R I N G S U N D E R
I N T E R N A L R E V E N U E C O D E S E C T I O N S 6 3 2 0 A N D 6 3 3 0
S U M M A R Y
Collection Due Process (CDP) hearings, established by the IRS Restructuring and Reform
Act of 1998 (RRA 98), provide taxpayers an important opportunity for independent review
by the Office of Appeals (Appeals) of the IRS’s decision to file a lien or its proposal to
undertake a levy action.
1
At the CDP hearing, the taxpayer has the statutory right to raise
certain issues, including the appropriateness of collection actions, collection alternatives,
spousal defenses, and under certain limited circumstances, the underlying tax liability.
2
The taxpayer also has an automatic right to judicial review of Appeals’ determination,
provided that the taxpayer timely requests the CDP hearing and timely requests judicial
review.
3
Generally, collection action is stayed during the CDP hearing process and any
judicial review that may follow.
4
As was the case in 2003 and 2004, Collection Due Process is the most frequently litigated
tax issue in federal courts during the period analyzed for the Annual Report to Congress.
CDP rights are a dramatic departure from the post-deprivation hearings that characterized
IRS collection procedure utilized prior to RRA 98.
5
CDP has been criticized by many for
slowing down the collection process and allowing a forum for some taxpayers to expound
frivolous arguments. These critics contend that the costs of CDP are significant, while the
benefits of CDP are few.
6
However, other commentators note that CDP hearings bring
vital independent oversight to bear upon IRS tax collectors who are not infallible and
whose collection powers are considerable.
7
The CDP cases litigated in the federal courts
reflect that there is an element of truth to these competing points of view. On balance,
we believe that collection appeal rights with limited judicial review protect taxpayers from
arbitrary collection decisions. In the Key Legislative Recommendations section of this
report, the National Taxpayer Advocate proposes significant changes to CDP legislation.
8
1
Internal Revenue Service Restructuring and Reform Act of 1998, Pub.L. No. 105-206 § 3401, 112 Stat. 685.
2
IRC §§ 6320(c) and 6330(c).
3
IRC §§ 6320(a)(3)(B) and 6330(a)(3)(B) set forth the time requirements for requesting a CDP hearing and
IRC §§ 6320(c) and 6330(d) set forth the time requirements for obtaining judicial review of Appeals’ deter-
mination.
4
IRC § 6330(e)(1) provides that in general there is a suspension of levy actions during the CDP process (along
with a corresponding suspension in the running of the collection statute of limitations). However, IRC §
6330(e)(2) allows the IRS to resume levy actions during judicial review upon a showing of “good cause.”
5
Phillips v. Comm’r, 283 U.S. 589 (1931) (holding that where there is adequate opportunity for judicial deter-
mination after levy there is no right to pre-levy hearings).
6
Bryan T. Camp, Failure of Collection Due Process, Pt. 1: The Collection Context, 104 Tax Notes 969 (Aug. 30,
2004); Bryan T. Camp, The Failure of CDP, Part 2: Why it Adds No Value, 104 Tax Notes 1567 (Sept. 27,
2004); Bryan T. Camp, The Costs of CDP, 105 Tax Notes 1445 (Dec. 6, 2004).
7
Leslie Book, The Collection Due Process Rights: A Misstep or a Step in the Right Direction?, 41 Hous. L. Rev.
1145 (2004).
8
See Key Legislative Recommendation: Restructuring and Reform of Collection Due Process Provisions, supra.
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P R E S E N T L A W
Current law provides taxpayers an opportunity for independent review of a lien
9
filed by
the IRS or a proposed levy action.
10
The purpose of CDP rights was to give taxpayers
adequate notice of collection activity and a meaningful hearing before the IRS deprives
them of property. The hearing allows the taxpayer an opportunity to raise issues germane
to the collection of the tax, including:
11
Appropriateness of collection actions;
12
Collection alternatives such as installment agreement, offer in compromise, posting a
bond or substitution of other assets;
13
Appropriate spousal defenses;
14
and
The existence or amount of the tax, but only if the taxpayer did not receive a notice
of deficiency or did not otherwise have an opportunity to dispute the tax liability.
15
A taxpayer may not reintroduce an issue that was raised and considered at a prior admin-
istrative or judicial hearing if the individual participated meaningfully in the prior hearing
or proceeding.
16
Procedurally, the IRS must provide notice to the taxpayer of the lien filing
17
and of its
intent to levy.
18
The Notice of Federal Tax Lien must be provided to the taxpayer not
more than five days after the day of the filing of the notice of the lien.
19
The Notice of
Intent to Levy must be provided to taxpayers at least 30 days before the day of the levy.
20
The IRS is also required to notify the taxpayer of his or her right to a CDP hearing after
the filing of the Notice of Federal Tax Lien (NFTL) and before any levy action can take
place. In the case of a lien, the CDP hearing notice must be provided to the taxpayer
not more than five days after the filing of the NFTL and must inform the taxpayer of his
9
IRC § 6320.
10
IRC § 6330.
11
Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 3401, 112 Stat.
685; S. Rep. No. 105-174.
12
IRC §§ 6330(c)(2)(A)(ii) and 6320(c).
13
IRC §§ 6330(c)(2)(A)(iii) and 6320(c).
14
IRC §§ 6330(c)(2)(A)(i) and 6320(c).
15
IRC §§ 6330(c)(2)(B) and 6320(c).
16
IRC §§ 6330(c)(4) and 6320(c).
17
IRC § 6320(a).
18
IRC § 6331(d).
19
IRC § 6320(a)(2). The Notice of Federal Tax Lien can be provided to the taxpayer in person, left at the
taxpayer’s residence or dwelling, or can be sent by certified or registered mail to the taxpayer’s last known
address.
20
IRC § 6331(d)(2). The Notice of Intent to Levy can be provided to the taxpayer in person, left at the
taxpayer’s residence or dwelling, or can be sent by certified or registered mail to the taxpayer’s last known
address.
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or her right to request a CDP hearing within the 30-day period that begins on the expira-
tion of the fifth day after the filing of the NFTL.
21
In the case of a levy, the CDP hearing
notice must be provided to the taxpayer no fewer than 30 days before the first levy and
must inform the taxpayer of his or her right to request a hearing 30 days from the date
that the notice is sent.
22
Under both lien and levy procedures, the taxpayer must return a signed, written request
for a CDP hearing within 30 days of the date of notice.
23
Taxpayers who request a CDP
hearing after the 30 days will receive an “equivalent hearing,” which is similar to a CDP
hearing except there is no judicial review of an equivalent hearing.
24
Proposed revisions
to the CDP regulations require the taxpayer to put the reasons for the CDP hearing in
writing (preferably using Form 12153, Request For A Collection Due Processs Hearing), and the
failure to provide the basis for hearing may result in a denial of a face-to-face hearing.
25
Proposed revisions also eliminate the availability for equivalent hearings if the taxpayer
does not make a request for a hearing within one year from the date of issuance of the
CDP Notice.
26
When a taxpayer requests CDP hearings with respect to both a lien and a proposed levy,
the IRS Appeals officer will attempt to conduct one hearing.
27
The IRS will suspend
collection action throughout the hearing process, unless it determines that the collection
of the tax is in jeopardy.
28
Collection activity is also suspended throughout any judicial
review of Appeals’ determination, unless the underlying tax liability is not at issue and the
IRS can demonstrate to the court good cause to resume collection activity.
29
Collection Due Process hearings are informal. The Office of Appeals presumptively
establishes telephonic CDP hearings, and it is incumbent on the taxpayer to request a
21
IRC § 6320(a)(2).
22
IRC § 6330(a)(2). The CDP hearing notice can be provided to the taxpayer in person, left at the taxpayer’s
residence or dwelling, or can be sent by certified or registered mail (return receipt requested) to the tax-
payer’s last known address.
23
IRC §§ 6330(a)(3)(B) and 6330(a)(3)(B); Treas. Reg. § 301.6320-1(c) and Treas. Reg. § 301.6330-1(c).
24
Treas. Reg. § 301.6330-(1)(i).
25
Prop. Treas. Reg. § 301.6320-1 and Prop. Treas. Reg. § 301.6330-1. The proposed regulations provide tax-
payers an opportunity to cure a failure to provide a basis for the CDP hearing.
26
Id.
27
IRC § 6320(b)(4).
28
IRC § 6330(e)(1) provides the general rule for suspending collection activity while IRC § 6330(f) provides
that if collection of the tax is deemed in jeopardy, section 6330 does not apply.
29
IRC§ 6330(e)(1) and 6330(e)(2). In Burke v. Comm’r, 124 T.C. 189 (2005), the Tax Court granted the IRS’s
motion to levy while the case was on appeal since the taxpayer was espousing only frivolous arguments;
see also Howard v. Comm’r, T.C. Memo. 2005-100, where the IRS moved for and obtained from the court
an order allowing resumption in levy activity on the taxpayer due to the taxpayer’s frivolous arguments
made solely for the purpose of delaying collection.
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face-to-face hearing.
30
Courts have determined that, depending on the circumstances,
a CDP hearing need not be face-to-face with the Appeals officer,
31
but instead, can take
place by telephone,
32
or by an exchange of correspondence.
33
The hearing is to be held
by an impartial officer from the Appeals function of the IRS.
34
In addition to the issues
described above that the taxpayer is permitted to address, the Appeals officer must obtain
verification that the requirements of all laws and procedures have been satisfied for the
IRS to proceed with collection activity.
35
In making its determination, Appeals must
weigh the issues raised by the taxpayer and determine whether the proposed collection
action balances the need for efficient collection of taxes with the legitimate concern of the
taxpayer that any collection action be no more intrusive than necessary.
36
Within 30 days
of the Appeals determination, the taxpayer may petition the United States Tax Court or
where appropriate, the U.S. district court for judicial review of Appeals’ determination.
37
Where the validity of the tax liability is properly at issue in the CDP hearing, the amount
of the tax liability will be reviewed by the appropriate court on a de novo basis.
38
Where
the appropriateness of the collection action is at issue, the court will review the IRS’s
administrative determination for abuse of discretion.
39
A N A LY S I S O F L I T I G A T E D C A S E S
Collection Due Process was the most litigated tax issue in the federal court system
between June 1, 2004 and May 31, 2005. Two hundred and nine (209) CDP court deci-
30
Appeals Letter 3855. See also Treas. Reg. § 301.6320-1(d)(2) Q&A D6 and Treas. Reg. § 301.6320-1(d)(2)
Q&A D6 regarding the informality of CDP hearings.
31
For example, in Casey v. Comm’r, T.C. Memo. 2004-228, the Tax Court held that a face-to-face hearing was
not required where taxpayer had a reasonable opportunity for a hearing, but changed addresses and failed to
provide the IRS her new address. However, in Cavanaugh v. U.S., 93 A.F.T.R.2d (RIA) 2004-1522 (D. N.J.
2004), where the facts were disputed as to whether the taxpayer knew that phone conversations constituted
the taxpayer’s CDP hearing, the court remanded the case for Appeals to provide a face-to-face hearing.
32
In Whiting v. Comm’r, T.C. Memo. 2004-136, the Tax Court held that two phone conversations by the tax-
payer’s representative and the Appeals officer were sufficient to constitute a CDP hearing in the absence
of testimony regarding the content of the phone conversations.
33
Treas. Regs. §§ 301.6320-1(d)(2), Q&A-D6 and 301.6330-1(d)(2), Q&A-D6.
34
IRC §§ 6320(b)(1), 6320(b)(3), 6330(b)(1) and 6330(b)(3).
35
IRC § 6330(c)(1).
36
IRC § 6330(c)(3).
37
IRC §§ 6330(d)(1) and 6320(c).
38
The legislative history of RRA 98 addresses the standard of review courts should apply in reviewing the
IRS’s administrative CDP determinations. H.R. Rep. No.105-599 at 266 (Conf. Rep.). The term de novo
means anew. Black’s Law Dictionary, 447 (7th ed. 1999).
39
Robinette v. Comm’r, 123 T.C. 85 (2004), appeal docketed, No. 04-4081 (8th Cir. Dec. 16, 2004) (noting that
abuse of discretion means an adjudicator’s decision which is arbitrary, capricious, clearly unlawful or without
a sound basis in law or fact).
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sions were reviewed.
40
Excluding unpublished bench opinions that were not included in
prior years’ statistics, this represents an eight percent increase from the 182 CDP cases
from last year’s analysis and a one percent decrease from the 199 CDP cases reported in
2003.
41
The 209 decided cases do not reflect the full measure of CDP litigation involv-
ing taxpayers and the IRS during the review period. Not all CDP cases result in decisions
for or against taxpayers. For example, from June 1, 2004 to May 31, 2005, taxpayers filed
approximately 1,098 CDP cases in the United States Tax Court and 114 cases in United
States district courts.
42
Some cases are resolved through negotiated settlements while
other taxpayers do not pursue their litigation after filing their petitions with the courts,
resulting in dismissal of the action. While these 209 decided cases may not provide the
full measure of all CDP litigation, they do provide useful insight into the costs and ben-
efits of CDP by shedding light on the situations of taxpayers utilizing CDP. Table 1 in
Appendix 3 provides a detailed listing of litigated CDP cases, including specific informa-
tion about the types of taxpayers involved.
Litigation Success Rate
Taxpayers prevailed in whole or in part in 24 of the 209 cases reviewed (or approximately
11 percent). In 16 of the 209 cases (approximately 8 percent), courts either remanded the
case to Appeals because issues of material fact remained, or ruled that the IRS abused its
discretion.
43
Of the remaining eight cases where taxpayers prevailed, four involved the
existence or amount of underlying liability or application of the relief from joint and sev-
eral liability provisions under IRC § 6015,
44
and four cases involved procedural rulings.
45
Table 3.1.1 below compares litigation success rates in CDP cases for the 2002, 2003, and
2004 Reports to Congress.
40
The cases reviewed for the Most Litigated Issues section of the report are those opinions that are pub-
lished through on-line legal research services. In addition, the 209 litigated CDP opinions include 12
bench opinions issued pursuant to United States Tax Court Rule 152, wherein Tax Court Trial Judges or
Special Trial Judges render oral findings of fact or opinion into the trial transcript. Bench opinions are not
available through on-line research services and we did not have access to all bench opinions or orders of
dismissal issued during this timeframe.
41
See National Taxpayer Advocate 2003 Annual Report to Congress 318; National Taxpayer Advocate 2004
Annual Report to Congress 498.
42
Statistics were provided by the Internal Revenue Service Office of Chief Counsel.
43
Berger v. Comm’r, No. 19535-02L (Dec. 15, 2004); Calderone v. Comm’r, T.C. Memo. 2004-240; Demus v.
Comm’r, No. 6636-04L (Dec. 15, 2004); Fowler v. Comm’r, T.C. Memo. 2004-163; Jackson v. Comm’r, T.C.
Summ. Op. 2005-12; Johnson v. Comm’r, T.C. Summ. Op. 2005-47; Karara v. Comm’r, No. 7748-02L (Dec.
15, 2004); Langer v. U.S., 95 A.F.T.R.2d (RIA) 894 (8th Cir. 2005); Parker v. Comm’r, T.C. Memo. 2004-226;
Pollack v. U.S., 327 F.Supp.2d 907 (W.D. Tenn. 2004); Robinette v. Comm’r, 123 T.C. 85 (2004), appeal dock-
eted, No. 04-4081 (8th Cir. Dec. 16, 2004); Skrizowski v. Comm’r, T.C. Memo. 2004-229; Thorpe v. Comm’r,
T.C. Summ. Op. 2004-98; Zapara v. Comm’r, 124 T.C. 223 (2005); Cox v. U.S., 345 F.Supp.2d 1215 (W.D.
Okla. 2004); Newstat v. Comm’r, T.C. Memo. 2004-208.
44
Hayes v. Comm’r, T.C. Memo. 2005-57; Hendricks v. Comm’r, T.C. Memo. 2005-72; Molina v. Comm’r, T.C.
Memo. 2004-258.
45
Beverly v. Comm’r, T.C. Memo. 2005-41; Klet v. Comm’r, T.C. Summ. Op. 2004-172; Smith v. Comm’r, 124
T.C. 36 (2005); Electro, Inc. v. Comm’r, 95 A.F.T.R.2d (RIA) 700 (D. Or. 2005).
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T A B L E 3 . 1 . 1 , C D P L I T I G A T I O N S U C C E S S R A T E S
COURT
DECISIONS
2002
Percentage
2003
Percentage
2004
Percentage
2005
Percentage
Decided for IRS 90% 96% 95% 89%
Decided for Taxpayer 7% 1% 4% 8%
Split Decision
46
3% 3% 1% 3%
The increased litigation success rate for taxpayers in the 2004 - 2005 review period does
not likely suggest any particular trend.
46
Issues Litigated
In 2004, we focused on the numerous procedural problems that taxpayers experienced
with CDP hearings and judicial review of those hearings.
47
Taxpayers continued to expe-
rience these problems, and we discuss that issue further below. However, this year we
focused more on the substantive issues raised by taxpayers in an effort to determine how
useful CDP was for litigants and for tax administration. As was described above, taxpay-
ers are able to raise a variety of issues at CDP hearings. It is essential for taxpayers to raise
all relevant issues with Appeals so that the issue is preserved in the event it is necessary
to pursue judicial review.
48
If the issue is not raised in the CDP hearing, it may not be
raised on judicial review.
49
Table 3.1.2 below demonstrates the different issues raised by
taxpayers and the frequency of success for each issue.
50
46
A "split" decision refers to a case with multiple issues where both the IRS and the taxpayer prevail on one
or more substantive issues.
47
National Taxpayer Advocate 2004 Annual Report to Congress 498.
48
Treas. Reg. § 301.6330-1(f) Q-AF5 provides:
Q-F5 What issue or issues may the taxpayer raise before the Tax Court or before a district court if the tax-
payer disagrees with the Notice of Determination?
A-F5 In seeking Tax Court or other district court review of Appeals’ Notice of Determination, the tax-
payer can only ask the court to consider an issue that was raised in the taxpayer’s CDP hearing.
49
Id.
50
The number of issues does not equal the number of cases reviewed for three reasons. First, for purposes
of identifying issues, we did not take into consideration issues considered by the courts to have been friv-
olous or raised solely for the purpose of delay. Second, other cases had multiple issues. Third, numerous
decisions addressed only threshold procedural questions and did not address the substantive issue raised
by the taxpayer.
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T A B L E 3 . 1 . 2 , S U C C E S S O F L I T I G A N T S B Y I S S U E
51
Issue
No. C a s e s Issue
Argued
IRS
Prevailed
Ta x p a y e r
Prevailed
Collection Alternatives 40 35 5
Validity of Liability 39 33 6
Procedural Requirements 37 31 6
Abatement of Penalties 15 15 0
Payment of Liability
52
9 7 2
Bankruptcy Issues 6 3 3
Abatement of Interest 5 4 1
Collection Statute Expiration 4 4 0
Relief from Joint & Several 2 1 1
Total: 157 133 24
52
Collection Alternatives
Collection alternatives were litigated more than any other CDP issue. Taxpayers have
a statutory right to raise collection alternatives in their CDP hearings.
53
The two most
frequently litigated collection alternatives were offers in compromise
54
and installment
agreements.
55
Each of these collection alternatives requires current filing compliance on
the taxpayer’s part; offers in compromise additionally require that taxpayers remain in fil-
ing and payment compliance for an additional five years or until the liability is full paid,
whichever is longer, or else the offer will be defaulted and the tax reinstated.
56
Courts
review Appeals’ consideration of collection alternatives, such as offers in compromise uti-
lizing an abuse of discretion standard.
57
Five taxpayers were able to demonstrate that the IRS abused its discretion when considering
51
This count excludes numerous cases where taxpayers raised procedural issues that the courts deemed frivo-
lous or groundless. See e.g., Kubon v. Comm’r, T.C. Memo. 2005-71 (the Secretary or delegate may issue
collection notices, assessment was valid) Henderson v. Comm’r, T.C. Memo. 2004-157 (assessment was proper,
notice of balance due/Notice of Intent to Levy meet requirement for notice and demand for payment).
52
In these cases, taxpayers argued that previous payments, levies, or credits satisfied liabilities.
53
IRC §§ 6330(c)(2) and 6320(c).
54
Offers in compromise are provided for in IRC § 7122 and allow the IRS to compromise the taxpayer’s
liability based on doubt as to liability, doubt as to collectibility, and effective tax administration. Treas.
Reg. § 301.7122-1.
55
Installment agreements are provided for in IRC § 6159 and allow taxpayers who cannot immediately sat-
isfy the liability to full-pay the liability in installments.
56
See IRM § 5.14.1.5.1 for installment agreements; see § IRM 5.8.3.4.1 and IRS Form 656 for offers.
57
Robinette v. Comm’r, 123 T.C. 85 (2004), appeal docketed, No. 04-4081 (8th Cir. Dec. 16, 2004).
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their collection alternatives.
58
While relatively few in number (taxpayers prevailed in 13 per-
cent of CDP cases in which collection alternatives were raised), these cases demonstrate the
importance of judicial review to CDP rights as a check against arbitrary collection actions.
For example, in Johnson v. Commissioner, Appeals rejected the proposed installment agree-
ment of an individual who alleged that he was homeless (living in a temporary shelter), and
Appeals determined to let levy action proceed against the taxpayer because he had failed
to file two tax returns, although the taxpayer had given evidence that his income was insuf-
ficient to require the filing of those returns.
59
In Fowler v. Commissioner, the court held that
the IRS abused its discretion in denying a taxpayer’s offer in compromise proposal based on
the Appeals officer’s use of national expense standards to compute the taxpayer’s expenses
when the taxpayer’s actual expenses were available.
60
In Robinette v. Commissioner, the Tax
Court held that it was an abuse of discretion to default the taxpayer’s offer in compromise
(which requires that the taxpayer remain in compliance for five years) for the late filing of
a tax return when the taxpayer’s representative testified that he mailed the return and when
the return reflected that the taxpayer was entitled to a refund.
61
These cases are examples of
how judicial review can improve IRS collection policy by helping to instill more flexibility
and common sense to its resolution practices.
Validity of the Underlying Liability
The next largest category of issues raised by taxpayers on judicial review was the validity
of the taxpayer’s underlying liability.
62
Taxpayers are able to argue the underlying liabil-
ity in the CDP hearing and in de novo proceedings before the Tax Court if they did not
receive a notice of deficiency or have a previous opportunity to argue the issue prior to
the hearing.
63
In 26 of the 39 cases where the underlying liability was raised, courts found
that the taxpayers had received a notice of deficiency or had had another opportunity
to argue the underlying liability.
64
In three cases, however, courts made pre-trial rulings
allowing taxpayers to argue the underlying liability where it appeared that the taxpayers
58
Skrizowski v. Comm’r, T.C. Memo. 2004-229 (holding it was an abuse of discretion to not fully investigate
the OIC before rejecting it and not basing rejection on taxpayer’s income, assets and allowable expenses
and ability to pay. The court found that the taxpayer did not receive $5 million in business income
reported on taxpayer’s return when taxpayer was intoxicated when he submitted the delinquent return
after allegedly being told by an IRS collections officer that he could go to jail if he did not file the return,
and further noted that the Appeals officer did not believe the reported income was valid); Cox v. U.S., 345
F.Supp.2d 1215 (W.D. Okla. 2004) (holding it was abuse of discretion to conclude that taxpayer could
not make installment agreement payments when the company had been making payments on the tax);
Robinette v. Comm’r, 123 T.C. 85 (2004), appeal docketed, No. 04-4081 (8th Cir. Dec. 16, 2004); Fowler v.
Comm’r, T.C. Memo. 2004-163; Johnson v. Comm’r, T.C. Summ. Op. 2005-47.
59
Johnson v. Comm’r, T.C. Summ. Op. 2005-47.
60
Fowler v. Comm’r, T.C. Memo. 2004-163.
61
Robinette v. Comm’r, 123 T.C. 85 (2004), appeal docketed, No. 04-4081 (8th Cir. Dec. 16, 2004).
62
See Key Legislative Recommendation, Restructuring and Reform of Collection Due Process Provisions, supra, pro-
posing elimination of de novo judicial review of the underlying liability in CDP cases.
63
IRC §§ 6320(c) and 6330(c)(2)(B); H.R. Rep. No. 105-599 at 266 (1998) (Conf. Rep.).
64
See Table 1 in Appendix 3 for a list of cases where the court found the taxpayer was not entitled to argue
the underlying liability.
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may have been denied an earlier opportunity to do so.
65
In three other cases, taxpayers
successfully raised and prevailed on the issue of the underlying liability.
66
Satisfaction of Procedural Requirements
The third largest category of CDP cases were taxpayers who argued that Appeals
failed to follow all procedural requirements in offering and conducting the CDP
hearing. In making its determination, Appeals is required to consider all issues
raised by the taxpayer, and obtain verification that all laws and procedures have
been followed to take the proposed collection action. In making its determination,
Appeals must balance the need for efficient tax collection with the taxpayer’s legiti-
mate concern that any proposed collection alternative be no more intrusive than
necessary.
67
The CDP statute and Treasury Regulations also impose notice and hear-
ing procedural requirements on the IRS.
68
Five taxpayers prevailed in their arguments that the IRS failed to follow all required
procedural steps.
69
In Cox v. Commissioner, the court stressed the importance of CDP’s
procedural requirements, holding that the taxpayer was entitled to prior notice of the
CDP hearing and that the taxpayer did not receive prior notice or any notice that two
phone conversations constituted the CDP hearing.
70
The court emphasized the impor-
tant role that adequate notice plays in the provision of CDP rights: Finally, although it is
true that the Act does not import all federal due process protections into its requirements,
it is also true that the opportunity to be heard at a meaningful time and in a meaning-
ful manner is a bedrock principle of federal due process. See Armstrong v. Manzo, 380
U.S. 545, 552, 85 S.Ct. 1187, 14 L.Ed.2d 62 (1965) (a fundamental requirement of due
65
Berger v. Comm’r, No. 19535-02L (Dec. 15. 2004) (finding that taxpayer’s signature signing for notice of
deficiency appeared to be forged); Calderone v. Comm’r, T.C. Memo. 2004-240 (holding that taxpayer’s repre-
sentative may not have informed taxpayer about the notice of deficiency); Newstat v. Comm’r, T.C. Memo.
2004-208 (finding that there was no apparent record of a notice of deficiency for one year at issue).
66
Molina v. Comm’r, T.C. Memo. 2004-258 (holding that distribution from retirement plan was not taxable
in 2000); Zelaya v. Comm’r, T.C. Summ. Op. 2004-163 (holding that liability stemming from issuance of
second refund check was invalid since evidence showed that check had been forged); Langer v. U.S., 95
A.F.T.R.2d (RIA) 894 (8th Cir. 2005) (holding taxpayer not collaterally estopped from raising FICA tax
issues in district court after improperly raising the issue in Tax Court).
67
IRC § 6330(c)(3).
68
See IRC §§ 6320(a) and 6330(a) governing notice requirements; see also Treas. Reg. §§ 301.6320 et seq. and
301.6330 et seq. governing the hearing procedure.
69
Demus v. Comm’r, 6636-04L (Dec. 15, 2004) (remanding the case to Appeals to consider and address in the
Notice of Determination all issues raised by taxpayer); Karara v. Comm’r, No. 7748-02L (Dec. 15, 2004)
(holding taxpayer did not receive adequate CDP notice for tax year); Parker v. Comm’r, T.C. Memo. 2004-
226 (when taxpayer requests face-to-face hearing, Appeals was required to hold hearing in closest Appeals
office to taxpayer); Pollack v. U.S., 327 F.Supp.2d 907 (W.D. Tenn. 2004), reconsidered at 95 A.F.T.R.2d 1191
(W.D.Tenn. 2004) (holding procedure not followed when Appeals Officer did not properly complete form
prior to giving it to taxpayer in accordance with IRM; upon reconsideration, the court found that the notice
of deficiency mailed to wrong address and the taxpayer could contest underlying liability); Cox v. U.S., 345
F.Supp.2d 1215 (W.D. Okla. 2004) (holding notice of CDP hearing was inadequate).
70
Cox v. U.S., 345 F.Supp.2d 1218 (W.D. Okla. 2004).
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process is the opportunity to be heard, granted at a meaningful time and in a meaningful
manner). Inadequacy of notice of the hearing required by § 6330 inevitably impairs the
protections which are explicitly provided for in that section.
Last year we reported numerous cases where taxpayers had objected to Appeals’ refusal
to allow them to record their CDP hearings notwithstanding the holding in Keene v.
Commissioner, which recognized taxpayers’ right to record hearings. Taxpayers continued
to use this argument in an attempt to invalidate Appeals’ determination; however, courts
have demonstrated little inclination to remand a case on this basis where the taxpayer has
failed to make other substantive arguments in the CDP process.
71
The IRS has changed
its procedures to permit recording of CDP hearings when the hearing is face-to-face if
certain requirements are met.
72
Taxpayers also continue to make similar arguments about
the right to a face-to-face hearing, but courts have recognized there is no absolute right to
a face-to-face hearing and are unwilling to remand the case back to Appeals on this basis
where the taxpayer makes no other substantive arguments.
73
Most taxpayers raising the argument of noncompliance with CDP procedures argued in
general fashion that the IRS failed to adequately complete the verification requirements
of IRC § 6330(c)(1). None of these taxpayers prevailed.
74
Taxpayers continued to demonstrate confusion with procedural aspects of CDP. Appeals
from CDP hearings relating to income taxes are appealed to the Tax Court, while employ-
ment taxes and certain penalty appeals, such as the IRC § 6702 frivolous return penalty,
are made to the appropriate district court.
75
At least ten of the taxpayers filed their
appeals in the wrong court.
76
As we described in last year’s report, judicial review would
be greatly simplified if jurisdiction was consolidated in the Tax Court.
77
71
Borchardt v. Comm’r, 338 F.Supp.2d 1040 (D. Minn. 2004).
72
IRM § 8.6.1.2.5
73
Casey v. Comm’r, T.C. Memo. 2004-228; Chandler v. Comm’r, T.C. Memo. 2005-99; Gardner v. Comm’r, 95
A.F.T.R.2d (RIA) 2023 (D. N.J. 2005); Quigley v. Comm’r, 358 F.Supp.2d 427 (E.D. Pa. 2004). See also, Treas.
Reg. § 601.106(b), providing in part “the appeal procedures do not extend to cases involving solely the
failure or refusal to comply with the tax laws because of moral, religious, political, constitutional, consci-
entious, or similar grounds.”
74
See Table 1, Appendix 3 for cases where this argument was made. Additionally, many of the taxpayers
whose arguments were deemed “frivolous” or made solely for the purpose of delay also raised the verifica-
tion argument.
75
IRC §§ 6330(d)(1) and 6320(c).
76
Israel v. U.S., 93 A.F.T.R.2d (RIA) 2044 (S.D. Iowa 2005); Kupcho v. Comm’r, 95 A.F.T.R.2d (RIA) 1439
(D. N.J. 2005); Mackinnon v. Fredrickson, 95 A.F.T.R.2d (RIA) 1973 (D. Or. 2005); Peterson v. Kreidich, 95
A.F.T.R.2d (RIA) 2416 (11th Cir. 2005); Rustam v. Comm’r, T.C. Memo. 2005-42; Torczon v. Lucas, 95
A.F.T.R.2d (RIA) 681 (9th Cir. 2005); Updegrave v. U.S., 94 A.F.T.R.2d (RIA) 6155 (D. Or. 2005); Burns v.
U.S., 95 A.F.T.R.2d (RIA) 1160 (M.D. Tenn. 2005); Canaday v. U.S., 94 A.F.T.R.2d (RIA) 6311 (S.D. W.Va.
2004); Cobin v. Comm’r, A.F.T.R.2d (RIA) 717 (D. S.C. 2005).
77
National Taxpayer Advocate 2004 Annual Report to Congress 502; see also Key Legislative
Recommendation: Restructuring and Reform of Collection Due Process Provisions, supra.
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Penalty Abatement
Taxpayers can request the abatement of penalties in CDP hearings provided that the
taxpayer has not previously had an opportunity to raise the issue.
78
The most frequently
litigated penalties that taxpayers sought to abate through CDP hearings were:
IRC § 6651: The penalty for failure to file a timely tax return penalty pursuant to
IRC § 6651 can be abated by demonstrating that the failure to file was due to rea-
sonable cause, and courts review the issue on a de novo standard.
79
Jurisdiction for
judicial review from CDP hearings pertaining to the failure to file penalty applicable
to income tax returns is with the Tax Court.
80
In cases where taxpayers sought abate-
ment of the failure to file penalty, the issue was raised in conjunction with other
issues, and none of the taxpayers were able to demonstrate reasonable cause.
81
IRC § 6702: The frivolous return penalty under IRC § 6702 is assessed against tax-
payers who file a tax return that does not contain substantially correct information
due to a position taken by the taxpayer that is frivolous or is based on a desire to
impede or delay the administration of federal taxes.
82
Jurisdiction for judicial review
from CDP hearings pertaining to the frivolous income tax return penalty is with
the appropriate United States district court.
83
The reviewed decisions reflected a
disagreement among the courts about the standard of review for this type of penalty
(i.e. de novo or abuse of discretion).
84
All of the taxpayers assessed these penalties
had filed returns showing zeroes in the boxes where taxable income is reported, and
none of these taxpayers raised meritorious issues on appeal.
85
78
IRC §§ 6320(c) and 6330(c)(4) provide that taxpayers are precluded from raising issues in a CDP hearing
if the issue was raised in any other administrative or judicial proceeding, provided that the person mean-
ingfully participated in the proceeding.
79
Goza v. Comm’r, 114 T.C. 176 (2000).
80
IRC § 6330(d)(1)(A) and (B).
81
Most of these taxpayers failed to offer any evidence on reasonable cause. See Conner v. Comm’r, T.C.
Summ. Op. 2005-27; Seavey v. Comm’r, T.C. Summ. Op. 2005-8; but see Jackson v. Comm’r, T.C. Summ.
Op. 2005-12 (holding that taxpayers failed to prove that the IRS agreed to abate penalties).
82
IRC § 6702(a)(1)-(2).
83
IRC § 6330(d)(1)(A) and (B); see Hoffman v. U.S., 209 F.Supp.2d 1089 (W.D. Wash. 2002).
84
Le Doux v. U.S., 375 F.Supp.2d 1242 (D. N.M. 2005). In Le Doux, the court noted that some courts have
held that a frivolous penalty is reviewed on a de novo standard, citing Lemieux v. U.S., 230 F.Supp.2d 1143
(D. Nev. 2002), while other courts have held that the standard is abuse of discretion, citing Carroll v. U.S.,
217 F.Supp.2d 852 (W.D. Tenn. 2002). The court in Le Doux held that under either standard the taxpayers
had filed a frivolous return.
85
Gardner v. U.S., 95 A.F.T.R.2d (RIA) 2023 (D. N.J. 2005); Herip v. U.S., 95 A.F.T.R.2d (RIA) 537 (6th Cir.
2004); Holmes v. U.S., 351 F.Supp.2d 526 (W.D. La. 2004); McCurdy v. U.S., 95 A.F.T.R.2d (RIA) 2776 (D.
Mass. 2005); Meyer v. Comm’r, 95 A.F.T.R.2d (RIA) 2471 (W.D. WI 2005)(incurring additional Rule 11
sanctions for making frivolous arguments); Quigely v. U.S., 358 F.Supp.2d 427 (E.D. PA 2004); Ray v. U.S.,
94 A.F.T.R.2d (RIA) 5925 (W.D. Mo. 2004); Schultz v. U.S., 95 A.F.T.R.2d (RIA) 1977 (W.D. MI 2005);
Sergio v. U.S., 95 A.F.T.R.2d (RIA) 1174 (2005); Turner v. U.S., 372 F.Supp.2d 1053 (S.D. Ohio 2005);
Updegrave v. U.S., 94 A.F.T.R.2d (RIA) 6155 (D. Or. 2004).
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Application of Payments
Taxpayers also argued that payments, levies, or credits satisfied all or part of the outstand-
ing liabilities and the IRS misapplied their payments. Taxpayers prevailed on this issue
in two of six cases. In Hayes v. Commissioner, the taxpayers and the IRS disagreed about
whether the disputed liability had been paid. Before trial, however, the IRS’s counsel
discovered that the IRS had misapplied the taxpayer’s payment to a different year and
disclosed this fact to the court.
86
In Zapara v. Commissioner, the Tax Court held that
pursuant to IRC § 6335(f)
87
taxpayers were entitled to a credit for the value of stock
accounts, which had been seized, as of the date which the IRS was required to sell the
stock, having been requested to do so by the taxpayers.
88
Bankruptcy
Some CDP cases raised the automatic stay provisions and discharge provisions of the
Bankruptcy Code. When a taxpayer files a petition in bankruptcy court, there is an
automatic stay on the commencement or continuation of any judicial or administrative
proceeding against the debtor that was or could have been started before the commence-
ment of the bankruptcy case.
89
Over the past year, the Tax Court dealt with different
scenarios involving the interaction of taxpayers’ CDP cases and their bankruptcy peti-
tions. In Smith v. Commissioner, the Tax Court found that it did not have jurisdiction,
holding that Appeals’ Notice of Determination was issued in violation of the automatic
stay where the taxpayer filed his bankruptcy petition after his CDP hearing but before
Appeals’ determination, thus invalidating the determination.
90
The automatic stay
worked to the taxpayer’s disadvantage in Prevo v. Commissioner, where the Tax Court held
that it had no jurisdiction when the taxpayer filed a bankruptcy petition after the Notice
of Determination was issued, but before petitioning the Tax Court. The Court stated that
this was a “trap for the unwary,” noting the absence of a tolling provision in IRC §§ 6320
or 6330 comparable to IRC § 6213(f).
91
The National Taxpayer Advocate recommended
a legislative change in the 2004 Annual Report
92
to fix this unintended result.
In general, tax liabilities for taxable years in which a return was due, including exten-
sions, within three years of the date of the filing of the bankruptcy petition may not be
86
Hayes v. Comm’r, T.C. Memo. 2005-57.
87
IRC § 6335(f) requires the IRS to sell seized property within 60 days of the request by taxpayers.
88
Zapara v. Comm’r, 124 T.C. 223 (2005).
89
11 U.S.C.A. § 362(a).
90
Smith v. Comm’r, 124 T.C. 36 (2005); see also Beverly v. Comm’r, T.C. Memo. 2005-41 (invalidating the IRS’s
Notice of Intent to Levy where it was issued after the filing of taxpayer’s bankruptcy petition).
91
Prevo v. Comm’r, 123 T.C. 326 (2004). Other taxpayers were unsuccessful in attempting to use the automat-
ic stay to shield them from collection actions. Meadows v. Comm’r, 405 F.3d 949 (11th Cir. 2005) (holding
that application of wife’s $10,000 offer-in-compromise payment to debt that was later discharged in bank-
ruptcy was not a violation of the automatic stay from taxpayer’s previous bankruptcy filing).
92
National Taxpayer Advocate 2004 Annual Report to Congress 490.
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discharged in bankruptcy.
93
One taxpayer unsuccessfully argued that his liabilities were
discharged, but the Tax Court determined that the taxes were not discharged and were not
dischargeable. The court determined that the tax liabilities for several years at issue were
liabilities for which returns were due (including extensions) within three years of the fil-
ing of the bankruptcy petition and thus, were not dischargeable. The tax liability for the
remaining year was not dischargeable because the due date for the return (including exten-
sions) for the year at issue was after the date that the bankruptcy petition was filed.
94
Interest Abatement
In CDP hearings, taxpayers may raise the issue of abatement of interest from the liability
pursuant to IRC § 6404(e), which allows the IRS to abate interest attributable to unrea-
sonable error or delay resulting from a ministerial or managerial act.
95
Courts review
the Appeals’ determination on abatement of interest utilizing an abuse of discretion
standard.
96
In one case, the taxpayer was able to demonstrate that the IRS unreasonably
delayed in providing the taxpayer an escrow demand letter, which the taxpayer needed so
that he could finance the repayment of the tax liability.
97
Collection Statute Expiration
Generally, the IRS has ten years from the date of assessment to collect a tax.
98
The run-
ning of the ten-year collection period is suspended on the occurrence of certain events,
including the filing of a CDP hearing request
99
and the submission by taxpayers of
offers-in-compromise or installment agreements.
100
Four taxpayers raised the expiration
of the statute of limitations as a defense to the imposition of collection action; none pre-
vailed.
101
93
11 U.S.C.A. §§ 523(a)(1)(A) and 507(a)(8)(A)(i).
94
Klet v. Comm’r, T.C. Summ. Op. 2004-172.
95
IRC § 6404(e); Treas. Reg. § 1.6404-2(a)(2).
96
Woodral v. Comm’r, 112 T.C. 19 (1999).
97
Jackson v. Comm’r, T.C. Summ. Op. 2005-12 (holding in a split decision that some of the accrued interest
was attributable to the IRS’s delay in providing taxpayer an escrow demand letter and also holding that
Appeals had not abused its discretion in refusing to abate penalties).
98
IRC § 6502(a)(1).
99
When a CDP hearing is elected, the suspension of the collection statute exists until the hearing and any
related appeals are concluded. IRC § 6330(e)(1).
100
The collection statute is suspended while offers-in-compromise and installment agreements are pending.
IRC § 6331(i)(5) and (k)(1)-(2).
101
Van Dyke v. Comm’r, T.C. Summ. Op. 2005-5; Griffith v. Comm’r, T.C. Memo. 2004-267; Picchiottino v.
Comm’r, T.C. Memo. 2004-231; Picchiottino v. Comm’r, T.C. Memo. 2004-232.
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Relief From Joint and Several Liability On Joint Returns
Relief from joint and several liability on joint returns pursuant to IRC § 6015 is also a
Most Litigated Issue for this year’s report. Taxpayers have the option to raise these issues
in CDP hearings.
102
Two taxpayers litigated the Appeals determination on IRC § 6015
issues in CDP hearings, with one taxpayer prevailing.
103
Pro Se Analysis
One hundred and sixty-five (or 79 percent) of the 209 cases litigated were brought before
the courts by the taxpayer, pro se, without benefit of counsel. This is a modest increase
from 74 percent in the previous year.
104
Table 3.1.3 shows the breakdown of pro se and
represented taxpayers and the decisions rendered by the court, indicating that approxi-
mately nine percent of pro se taxpayers receive some relief on judicial review while 20
percent of represented taxpayers received full or partial relief from their CDP appeals.
T A B L E 3 . 1 . 3 , S U C C E S S R A T E S A N D R E P R E S E N TA T I O N
Court D e c i s i o n s
Ta xpaye r Pro Se Repre s e n t a t i o n
Vo l u m e Percentage o f Tot a l Vo l u m e Pe r c e n t a g e O f To t a l
Decided for IRS 150 91% 35 80%
Decided for Taxpayer 10 6% 8 18%
Split Decision 5 3% 1 2%
Totals: 165 100% 44 100%
C O N C L U S I O N
CDP continues to be the most litigated issue in federal tax courts. This volume is due in
part to the breadth of issues that can be raised in CDP hearings. Despite weaknesses in
the CDP legislation, we think CDP and judicial oversight of the collection process serves
as an important check on the IRS and balances the taxpayers’ concerns about collection
action with the government’s need to collect taxes. We have attempted to address these
weaknesses in a Key Legislative Recommendation in this year’s report so that the value of
CDP is preserved.
102
IRC § 6330(c)(2)(A)(i).
103
Zachry v. Comm’r, T.C. Summ. Op. 2005-55; Hendricks v. Comm’r, T.C. Memo. 2005-72.
104
National Taxpayer Advocate 2004 Annual Report to Congress 509.
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A N D R E L A T E D C O D E S E C T I O N S
S U M M A R Y
Gross income is the starting point for computing taxable income and the amount of tax
that must be paid. The issue of what constitutes gross income under IRC § 61 is once
again a most litigated issue, as it has been in each of the National Taxpayer Advocate’s
Annual Reports to Congress. The cases reviewed for this report involved whether income
was includible in taxable gross income, whether the Internal Revenue Code (IRC) specifi-
cally excluded an item of income, and whether taxpayers reported the correct amount of
income. While the cases touched on a variety of issues, the four most prevalent were:
Awards and settlements;
Disability and Social Security benefits;
Constructive dividends; and
Unreported income.
P R E S E N T L A W
IRC § 61 broadly defines gross income as “all income from whatever source derived.”
1
The courts also construe this provision broadly, categorizing income as “any accession to
wealth.”
2
However, the Code excludes many specific items from gross income,
3
and the
courts construe these exclusions narrowly.
4
A N A LY S I S O F L I T I G A T E D C A S E S
This analysis covers cases involving gross income that were decided in the federal court
system between June 1, 2004, and May 31, 2005.
5
The detailed analysis of cases is limited
to certain categories with a high volume of cases, and to a follow-up of issues identi-
fied in the Annual Report to Congress for fiscal years 2002, 2003 and 2004.
6
Table 2 in
Appendix 3 provides a detailed listing of the cases analyzed for this report.
1
IRC § 61(a).
2
Comm’r v. Glenshaw Glass Co., 348 U.S. 426, 430 (1955).
3
See e.g., IRC §§ 104, 105, and 108.
4
Comm’r v. Schleier, 515 U.S. 323 (1995).
5
The methodology used to identify income cases was based on a review of federal cases involving IRC § 61.
6
National Taxpayer Advocate 2002 Annual Report to Congress 260-271; National Taxpayer Advocate 2003
Annual Report to Congress 332-351; and National Taxpayer Advocate 2004 Annual Report to Congress
511-523.
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A W A R D S A N D S E T T L E M E N T S
Taxation of settlements and judgments remains a frequently litigated issue. Taxpayers
disagree with the IRS over whether the award or a portion of the award qualifies for exclu-
sion from gross income as an amount “received on account of personal physical injuries
or physical sickness”
7
and whether the attorney fee portion of the award or settlement is
includible in gross income.
The Supreme Court’s decision in Commissioner v. Banks clarifies the tax treatment of con-
tingent attorney fees only, holding that generally, when a litigant’s recovery of damages
constitutes income, contingent attorney’s fees should be included in the taxpayer’s gross
income.
8
In 2004, Congress passed legislation addressing the deductibility of attorneys’ fees and
court costs in discrimination suits, effective for awards received after October 22, 2004.
9
The new provision allows an “above the line” deduction not to exceed the amount of
the judgment or settlement. This means that attorney fees in discrimination cases are
generally deducted from gross income when computing adjusted gross income.
10
For
contingent fee awards in discrimination cases received on or before October 22, 2004, the
taxpayer must include the fee in gross income and deduct it as a miscellaneous itemized
deduction, subject to a reduction by two percent of the taxpayer’s adjusted gross income
and Alternative Minimum Tax (AMT).
11
I R C § 1 0 4 ( a ) ( 2 )
Under IRC § 104(a)(2), the award (other than punitive damages) is excluded from gross
income if the judgment or settlement is “on account of personal physical injuries or phys-
ical sickness.”
12
This exclusion can lead taxpayers to structure judgments or settlements
to reflect compensation for physical injuries, rather than other forms of damages not eli-
gible for the exclusion. Nine opinions were issued this year on whether an award was “on
7
IRC § 104(a)(2) excludes from gross income damages (other than punitive damages) received “on account
of personal physical injuries or physical sickness.”
8
Comm’r v. Banks, 543 U.S. 426, 125 S. Ct. 826 (2005).
9
On October 22, 2004, the President signed into law H. R. 4520, the American Jobs Creation Act of
2004. Section 703, Civil Rights Tax Relief, provides relief from the double taxation of attorneys’ fees and
court costs awarded to plaintiffs in lawsuits for unlawful discrimination. The new law allows an “above
the line” deduction of these amounts for adjusted gross income (AGI), thus effectively subtracting these
amounts for purposes of the taxable income of the plaintiff.
10
IRC § 62(a)(19).
11
Comm’r v. Banks, 543 U.S. 426, 125 S. Ct. 826, 830-31 (2005); IRC § 67– limitation on miscellaneous
itemized deductions. See description of contingent attorney fees, infra for more analysis of Banks and its
implications.
12
IRC § 104(a)(2).
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account of personal physical injuries or physical sickness.”
13
Taxpayers lost all nine cases.
Courts interpret § 104(a)(2) very narrowly.
14
In Vincent v. Commissioner, the taxpayer
received a settlement in a wrongful termination suit. The taxpayer alleged she missed
work due to an ulcer, and the settlement agreement allocated $240,000 of the settlement
award for “personal injuries and emotional distress.” The court looked to the underlying
claim, and held that despite the wording of the settlement agreement, the award was really
for discrimination and not “personal physical injuries” and the award was includible in
gross income.
15
In Murphy v. IRS, the taxpayer sued the New York National Guard for employment
discrimination. The taxpayer offered medical testimony that she experienced physical
injuries, including teeth grinding, due to the discrimination. The taxpayer later settled the
case, and the agreement allocated $45,000 of the award to “mental pain and anguish.”
16
The court held this award did not qualify for the § 104(a)(2) exclusion, as “mental pain
and anguish” is not a physical injury even when it leads to a physical injury, and hence
the award was fully taxable.
17
Contingent Attorneys’ Fees
For those awards not excludable under IRC § 104(a)(2), the issue has arisen as to whether
the attorney fees portion of a taxable award is also includible in gross income. In
Commissioner v. Banks, the Supreme Court held that generally, when a plaintiff’s settle-
ment or judgment constituted income, the plaintiff’s income includes the portion of
the judgment or settlement allocated to attorney fees as a contingent fee. The court did
not address the issue of claims brought under federal statutes that authorize fee awards
to attorneys, stating that because the attorney’s fees in Banks were paid on the basis of
a contingent fee contract, it was unnecessary to address the taxation of attorneys’ fees
that could have been awarded under federal statute.
18
Before the Supreme Court deci-
sion in Banks, the lower courts were split on the tax treatment of attorney fees.
19
The
Fifth, Sixth, and Eleventh Circuits held that the contingent fee portion of a judgment or
settlement should not be included in plaintiff’s gross income. Six other circuits held that
such fees are includible in gross income, with some circuits relying on state law property
13
Bolden v. Comm’r, T.C. Summ. Op. 2004-114; Brooks v. U.S., 383 F.3d 521 (6th Cir. 2004); Henderson v.
Comm’r, 94 A.F.T.R.2d 5246 (9th Cir. 2004); Kidd v. Comm’r, T.C. Memo. 2004-135; Murphy v IRS, 362
F.Supp. 2d 206 (D.D.C. 2005); Ndirika v. Comm’r, T.C. Memo. 2004-250; Valia v. Comm’r, T.C. Summ.
Op. 2005-17; Vincent v. Comm’r, T.C. Memo. 2005-95.
14
Kidd v. Comm’r, T.C. Memo. 2004-135.
15
Vincent v. Comm’r, T.C. Memo. 2005-95.
16
Murphy v. IRS, 362 F.Supp.2d 206, 210 (D.D.C. 2005).
17
Id.
18
Comm’r v. Banks, 543 U.S. 426, 125 S. Ct. 826 (2005).
19
Id.
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interests while others disregarded state law.
20
In Banks, the Supreme Court held that the
contingent attorneys' fees portion of the settlement was taxable income to the plaintiff
under the anticipatory assignment of income doctrine.
21
Inclusion in gross income of contingent attorney fees that the individual plaintiff never
receives can cause inequitable results because of the way the Internal Revenue Code
deals with the corresponding deduction of the fees. While taxpayers can deduct the
full amount of attorney fees they are required to take into income, many taxpayers are
adversely affected because the deductions are treated as miscellaneous itemized deduc-
tions.
22
Miscellaneous itemized deductions are deductible only if the taxpayer itemizes,
and are subject to a two percent floor under IRC § 67. More importantly, miscellaneous
itemized deductions are not taken into account for purposes of computing the AMT.
23
Therefore, the taxpayer may end up paying more in taxes than the amount of the award
settlement he or she actually received for awards received on or before October 22,
2004.
24
In Banks and its companion case, Commissioner v. Banaitis, the taxpayers received settle-
ment awards and their attorneys received portions of the awards under contingent fee
arrangements.
25
The taxpayers argued that because applicable state law granted the attor-
ney a property interest in the contingent fee portion of the award, the taxpayer should
not have to include the contingent fee in gross income. The Supreme Court rejected that
argument, holding that amounts representing the contingent attorney fee portions of the
awards are includible in the plaintiff’s gross income because the fee arrangement was an
“anticipatory assignment of income.” The Court reasoned that “income should be taxed
to the party who earns the income and enjoys the consequent benefits.”
26
State property
laws do not change the fundamental principal-agent nature of the attorney-client relation-
ship, and are thus irrelevant.
27
The Supreme Court decision in Banks requires that if the settlement or judgment consti-
tutes income, i.e. the award does not fall under the exclusion under IRC § 104(a)(2) for
20
Comm’r v. Banks, 543 U.S. 426, 125 S. Ct. 826 (2005).
21
Id. at 830-31.
22
Biehl v. Comm’r, 351 F.3d 982, 984 (9th Cir. 2003).
23
IRC § 56(b)(1)(A)(i).
24
See National Taxpayer Advocate’s 2004 Annual Report to Congress 517, footnote 47, citing David G.
Savage, A Win-Lose Situation, 90 A.B.A.J., 18 (Nov. 2004), discussing Spina v. Forest Preserve District of
Cook County, 207 F.Supp.2d 764 (N.D. Ill. 2002) where the taxpayer received a $300,000 award and her
attorneys received $1 million in fees, all of which was taxed to the taxpayer, resulting in a tax liability that
exceeded her award by $99,000.
25
Comm’r v. Banks, 125 S. Ct. at 829-30; Banaitis v. Comm’r, 340 F.3d 1074 (9th Cir. 2003). In Banitis v.
Commissioner, an Oregon case, the court ruled that the state law afforded a property interest in the settle-
ment and therefore portion of the settlement paid directly for attorney fees was excluded from income.
26
Comm’r v. Banks, 125 S. Ct. at 830.
27
Id.
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personal physical injury or physical sickness or the exclusion under IRC § 62(a)(19) for
claims involving unlawful discrimination paid after October 22, 2004, taxpayers report as
gross income the contingent attorney fee portion of these awards, even in cases in which the
taxpayer never actually receives that amount or is legally entitled to receive it.
28
The Tax
Court relied on the Banks decision in deciding two subsequent contingent fee cases.
29
D I S A B I L I T Y A N D S O C I A L S E C U R I T Y B E N E F I T S
As workers age and retire, wage income is often replaced by other forms of income, such
as disability benefits, Social Security, and tax-advantaged retirement income. Because
these forms of income can be wholly or partially excludible from gross income, taxpay-
ers and the IRS frequently litigate the characterization of certain of these payments. This
year, courts issued 26 opinions, compared with 11 last year.
30
Disability Income
We reviewed six cases in which taxpayers claimed that some sort of disability benefits were
excludible from income under IRC §§ 104 or 105.
31
Two cases involving military pension
income illustrate how narrowly courts interpret the statutory exclusions for disability pay-
ments.
32
In Hintz v. Commissioner, the taxpayer, a retired U.S. Army infantryman, claimed
he should be able to exclude his disability pension income from the Department of
Defense. The Tax Court held for the IRS, as there was no evidence the taxpayer’s disabil-
ity stemmed from combat, a requirement for the exclusion under IRC § 104(b)(2)(C).
33
28
In response to the pending litigation, the American Jobs Creation Act of 2004, § 703, Pub. L. No. 108-357,
118 Stat. 1418, 1546 (2004), enacted IRC § 62(a)(19) to allow an “above-the line” deduction for attorney
fees in awards or settlements of certain claims of “unlawful discrimination.” As a result, the deduction is
taken before adjusted gross income is computed and is not subject to either IRC § 67 or AMT. However,
contingent attorney fee portions of other judgments or settlements of cases not specified in the statute are
subject to the Banks rule.
29
The Tax Court cited Banks in Williams v. Comm’r, T.C. Memo. 2005-29 (taxpayers must include in gross
income 40 percent attorneys’ fee from employment discrimination settlement), and Vincent v. Comm’r,
T.C. Memo. 2005-95 (attorney fee portion of the settlement includible in gross income).
30
Barkley v. Comm’r, T.C. Memo. 2004-287; Buras v. Comm’r, T.C. Summ. Op. 2004-161; Cawvey v. Comm’r,
T.C. Summ. Op. 2005-63; Cohen v. Comm’r, T.C. Memo. 2004-227; Dirks v. Comm’r, T.C. Memo. 2004-
138; Dotson v. Comm’r, T.C. Summ. Op. 2004-164; Davis v. Comm’r, T.C. Summ. Op. 2005-61; Flores
v. Comm’r, T.C. Summ. Op. 2005-57; Hayden v. Comm’r, 95 A.F.T.R.2d 1918 (9th Cir. 2005); Headen v.
Comm’r, T.C. Summ. Op. 2005-33; Hintz v. Comm’r, T.C. Summ. Op. 2005-43; Kellum v. Comm’r, T.C.
Summ. Op. 2005-29; Klingaman v. Comm’r, T.C. Summ. Op. 2005-36; Mitchell v. Comm’r, T.C. Summ.
Op. 2004-160; Molina v. Comm’r, T.C. Memo. 2004-258; Olson v. Comm’r, T.C. Memo. 2004-197; Peters v.
Comm’r, T.C. Summ. Op. 2005-42; Reimels v. Comm’r, 123 T.C. 245 (2004); Seidel v. Comm’r, T.C. Memo.
2005-67; Seidel v. Comm’r, T.C. Summ. Op. 2005-51; Sternberg v. I.R.S., 95 A.F.T.R.2d 402 (2nd Cir. 2005);
Werts v. Comm’r, T.C. Summ. Op. 2005-34; White v. Comm’r, T.C. Summ. Op. 2005-62; Widemon v.
Comm’r, T.C. Memo. 2004-162; Wright v. Comm’r, T.C. Memo. 2005-5; Youngblood v. Comm’r, T.C. Memo.
2005-43; National Taxpayer Advocate 2004 Annual Report to Congress 599-600.
31
Hayden v. Comm’r, 95 A.F.T.R.2d 1918 (9th Cir. 2005); Hintz v. Comm’r, T.C. Summ. Op. 2005-43; Kellum
v. Comm’r, T.C. Summ. Op. 2005-29; Reimels v. Comm’r, 123 T.C. 245 (2004); Wright v. Comm’r, T.C.
Memo. 2005-5; Youngblood v. Comm’r, T.C. Memo. 2005-43.
32
Hintz v. Comm’r, T.C. Summ. Op. 2005-43; Reimels v. Comm’r, 123 T.C. 245 (2004).
33
Hintz v. Comm’r, T.C. Summ. Op. 2005-43.
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In Reimels v. Commissioner, the taxpayer, disabled by Agent Orange exposure in Vietnam,
claimed that his Social Security disability insurance benefits were excluded from gross
income under § 104(a)(4), which excludes payments received for personal injury or
sickness resulting from active military service. The Tax Court held his Social Security
disability income was not excludible because the taxpayer received it because he was dis-
abled, and it did not matter to Social Security that the disability resulted from his military
service.
34
Social Security Benefits
The IRS prevailed in six cases dealing directly with the taxation of Social Security benefits
under IRC § 86.
35
Depending on the taxpayer’s adjusted gross income and filing status,
Social Security may be treated in one of three ways: excluded entirely from gross income,
50 percent included in gross income, or 85 percent included in gross income.
36
This is
not the only complexity taxpayers face when dealing with the taxation of their Social
Security benefits.
37
For example, when a person receives both worker’s compensation and
Social Security, the Social Security Administration pays the recipient less due to his or her
receiving worker’s compensation.
38
This reduction is known as the “worker’s compensa-
tion offset.”
39
Treating the offset as Social Security converts otherwise tax-free worker’s
compensation into potentially taxable income.
40
In both Cawvey v. Commissioner and
Flores v. Commissioner, the Tax Court agreed with the IRS that the worker’s compensation
offset was includible in gross income under IRC § 86(d)(3).
41
The court expressed sympa-
thy for the taxpayer in Flores but was bound by the law as written by Congress.
42
Tax-Advantaged Retirement Accounts
We reviewed 14 cases dealing with tax-advantaged retirement income and accounts, such
34
Reimels v. Comm’r, 123 T.C. 245 (2004).
35
Cawvey v. Comm’r, T.C. Summ. Op. 2005-63; Davis v. Comm’r, T.C. Summ. Op. 2005-61; Flores v. Comm’r,
T.C. Summ. Op. 2005-57; Headen v. Comm’r, T.C. Summ. Op. 2005-33; Klingaman v. Comm’r, T.C. Summ.
Op. 2005-36; Werts v. Comm’r, T.C. Summ. Op. 2005-24.
36
IRC § 86.
37
See Richard M. Colombik, Social Security Benefits: How Much is Taxable, 14-SUM Experience 44 (Summer
2004), discussing the complexity of Social Security taxation, which can vary based on the taxpayer’s “other
sources and amounts of income” and concluding that most taxpayers receiving Social Security will need
either a computer or a tax preparer to determine the amount of taxable benefits.
38
IRC § 86(d)(3); See Cawvey v. Comm’r, T.C. Summ. Op. 2005-63; Flores v. Comm’r, T.C. Summ. Op. 2005-57.
39
Cawvey v. Comm’r, T.C. Summ. Op. 2005-63.
40
IRC § 86(d)(3). Worker’s compensation is generally excludible from gross income under IRC § 104(a)(1).
Treating the offset as Social Security under IRC § 86 makes the offset amount, which is worker’s com-
pensation, potentially fifty or eight-five percent includible in gross income, depending on the taxpayer’s
adjusted gross income.
41
Cawvey v. Comm’r, T.C. Summ. Op. 2005-63; Flores v. Comm’r, T.C. Summ. Op. 2005-57.
42
Flores v. Comm’r, T.C. Summ. Op. 2005-57.
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as pensions, Individual Retirement Accounts (IRAs), and 401(k)s.
43
These cases presented
an array of issues, including: premature distributions from a Roth IRA that exceeded con-
tributions;
44
unpaid loans from a 401(k) account;
45
cashing out an inherited IRA;
46
and a
premature distribution from an IRA.
47
The IRS won 10 of these 14 cases, taxpayers pre-
vailed in two, and the court rendered split decisions in the two others.
48
Two cases dealt with the 60-day rollover rule for liquidated IRAs.
49
Amounts distributed
from a traditional IRA to a taxpayer are not taxable if the taxpayer puts the money into
another traditional IRA within 60 days.
50
In both cases, the Tax Court applied the rule
and held that the taxpayers who failed to rollover IRA distributions within 60 days must
include those amounts in gross income.
51
C O N S T R U C T I V E D I V I D E N D S
A constructive dividend occurs when a corporation confers an economic benefit upon a
shareholder without any expectation that the shareholder will reimburse the corporation.
52
The corporation need not formally declare a dividend for a constructive dividend to exist.
53
Like a cash dividend, a constructive dividend is not deductible by the corporation and is
taxable to the shareholder.
54
Constructive dividends generally occur in three ways:
When the corporation pays the personal expenses of the shareholder;
55
43
Barkley v. Comm’r, T.C. Memo. 2004-287; Buras v. Comm’r, T.C. Summ. Op. 2004-161; Cohen v. Comm’r,
T.C. Memo. 2004-227; Dirks v. Comm’r, T.C. Memo. 2004-138; Dotson v. Comm’r, T.C. Summ. Op. 2004-
164; Mitchell v. Comm’r, T.C. Summ. Op. 2004-160; Molina v. Comm’r, T.C. Memo. 2004-258; Olson v.
Comm’r, T.C. Memo. 2004-197; Peters v. Comm’r, T.C. Summ. Op. 2005-42; Seidel v. Comm’r, T.C. Summ.
Op. 2005-51; Seidel v. Comm’r, T.C. Memo. 2005-67; Sternberg v. Comm’r, 95 A.F.T.R.2d 402 (2d Cir. 2005);
White v. Comm’r, T.C. Summ. Op. 2005-62; Widemon v. Comm’r, T.C. Memo. 2004-162.
44
Widemon v. Comm’r, T.C. Memo. 2004-162.
45
White v. Comm’r, T.C. Summ. Op. 2005-62.
46
Olson v. Comm’r, T.C. Memo. 2004-197.
47
Cohen v. Comm’r, T.C. Memo. 2004-227.
48
Barkley v. Comm’r, T.C. Memo. 2004-287; Buras v. Comm’r, T.C. Summ. Op. 2004-161; Cohen v. Comm’r,
T.C. Memo. 2004-227; Dirks v. Comm’r, T.C. Memo. 2004-138; Dotson v. Comm’r, T.C. Summ. Op. 2004-
164; Mitchell v. Comm’r, T.C. Summ. Op. 2004-160; Molina v. Comm’r, T.C. Memo. 2004-258; Olson v.
Comm’r, T.C. Memo. 2004-197; Peters v. Comm’r, T.C. Summ. Op. 2005-42; Seidel v. Comm’r, T.C. Summ.
Op. 2005-51; Seidel v. Comm’r, T.C. Memo. 2005-67; Sternberg v. Comm’r, 95 A.F.T.R.2d 402 (2d Cir. 2005);
White v. Comm’r, T.C. Summ. Op. 2005-62; Widemon v. Comm’r, T.C. Memo. 2004-162.
49
Dirks v. Comm’r, T.C. Memo. 2004-138; Peters v. Comm’r, T.C. Summ. Op. 2005-42.
50
IRC § 408(d)(3)(A).
51
Dirks v. Comm’r, T.C. Memo. 2004-138; Peters v. Comm’r, T.C. Summ. Op. 2005-42.
52
Muhich v. Comm’r, 238 F.3d 860, 863 (7th Cir. 2001).
53
Noble v. Comm’r, 368 F.2d 439, 442 (9th Cir. 1966).
54
Muhich v. Comm’r, 238 F.3d at 863.
55
Ali v. Comm’r, T.C. Memo. 2004-284; Benson v. Comm’r, T.C. Memo. 2004-272; Bruecher v. Comm’r, T.C.
Summ. Op. 2005-52; Delaware Corp. v. Comm’r, T.C. Memo. 2004-280; Lenzen v. Comm’r, T.C. Memo.
2005-120; Noble v. Comm’r, 368 F.2d 439; Strong v. Comm’r, T.C. Memo. 2005-125.
◆
M O S T L I T I G A T E D
T A X I S S U E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
495
L I T I G A T E D I S S U E S
S E C T I O N
THREE
When the shareholder directs one corporation to distribute assets or transfer funds to
another corporation the shareholder owns;
56
and,
When the shareholder receives money as a tax free transaction (such as a loan) from
the corporation and has no intention of paying it back.
57
Taxpayers who receive unreported income or whose personal expenses are paid by the
controlled corporation sometimes claim that the payment of personal expenses is a loan
to the shareholder, but courts usually reject the argument.
58
We reviewed 12 opinions issued this year.
59
The IRS won ten cases and taxpayers pre-
vailed twice.
U N R E P O R T E D I N C O M E
We reviewed 32 cases involving unreported income this year.
60
Fifteen cases dealt with
unreported business income;
61
while 14 others dealt with unreported wage and invest-
ment income reported to taxpayers and the IRS by third parties on information returns
56
Benson v. Comm’r, T.C. Memo. 2004-272; Menard, Inc. v. Comm’r, T.C. Memo. 2004-207.
57
In situations where the shareholder does not intend to pay the money back or the money is not for a tax-
free transaction such as a loan. See Bussell v. Comm’r, T.C. Memo. 2005-77; Gowni v. Comm’r, T.C. Memo.
2004-154; and Moran v. Comm’r, T.C. Memo. 2005-66.
58
See Bruecher v. Comm’r, T.C. Summ. Op. 2005-52; Gowni v. Comm’r, T.C. Memo. 2004-154; and, Lenzen v.
Comm’r, T.C. Memo. 2005-120. But see Morrison v. Comm’r, T.C. Memo. 2005-53 (company’s payment of
shareholder personal expenses did not constitute a constructive dividend and was a legitimate loan when
the taxpayer repaid the corporation for some of the personal expenses and paid some interest on the out-
standing amount).
59
Ali v. Comm’r, T.C. Memo. 2004-284; Benson v. Comm’r, T.C. Memo. 2004-272; Bruecher v. Comm’r, T.C.
Summ. Op. 2005-52; Bussell v. Comm’r, T.C. Memo. 2005-77; Delaware Corp. v. Comm’r, T.C. Memo. 2004-
280; Gowni v. Comm’r, T.C. Memo. 2004-154; Lenzen v. Comm’r, T.C. Memo. 2005-120; Menard, Inc. v.
Comm’r, T.C. Memo. 2004-207; Moran v. Comm’r, T.C. Memo. 2005-66; Morrison v. Comm’r, T.C. Memo.
2005-53; PK Ventures, Inc. v. Comm’r, T.C. Memo. 2005-56; Strong v. Comm’r, T.C. Memo. 2005-125.
60
Acle v. Comm’r, T.C. Summ. Op. 2004-82; Arvin v. Comm’r, T.C. Summ. Op. 2004-108; Bien-Aime v. Comm’r,
T.C. Summ. Op. 2004-175; Blanning v. Comm’r, T.C. Memo. 2004-201; Brenner v. Comm’r, T.C. Memo. 2004-
202; Castleton v. Comm’r, T.C. Memo. 2005-58; Chin v. Comm’r, T.C. Memo. 2004-189; Coccia v. Comm’r; T.C.
Summ. Op. 2004-159; Coomes v. Comm’r, T.C. Summ. Op. 2004-182; Corrigan v. Comm’r, T.C. Memo. 2005-
119; Doxtator v. Comm’r, T.C. Memo. 2005-113; Edwards v. Comm’r, T.C. Memo. 2005-52; Ford v. Comm’r,
T.C. Memo. 2005-18; Gouveia v. Comm’r, T.C. Memo. 2004-256; Gowni v. Comm’r, T.C. Memo. 2004-154;
Graham v. Comm’r, T.C. Memo. 2005-68; Jondahl v. Comm’r, T.C. Memo. 2005-55; Kikalos v. U.S., 408 F.3d
900 (7th Cir. 2005); Knauss v. Comm’r, T.C. Memo 2005-6; Lewis v. Comm’r, T.C. Memo. 2005-111; Malfatti
v. Comm’r, T.C. Memo. 2005-19; Namyst v. Comm’r, T.C. Memo. 2004-263; Ogu v. Comm’r, T.C. Summ. Op.
2004-87; Payne v. Comm’r, T.C. Memo. 2005-130; Pickering v. Comm’r, T.C. Summ. Op. 2004-136; Polonczyk
v. Comm’r, T.C. Summ. Op. 2005-66; Rinn v. Comm’r, T.C. Memo. 2004-256; Rodriguez v. Comm’r, 95
A.F.T.R.2d 1723 (9th Cir. 2005); Rodriguez v. Comm’r, T.C. Memo. 2005-12; Starkovich v. Comm’r, T.C. Summ.
Op. 2004-173; Strong v. Comm’r, T.C. Memo. 2005-125; Westby v. Comm’r, T.C. Memo. 2004-179.
61
Acle v. Comm’r, T.C. Summ. Op. 2004-82; Blanning v. Comm’r, T.C. Memo. 2004-201; Chin v. Comm’r, T.C.
Memo. 2004-189; Coomes v. Comm’r, T.C. Memo. 2004-182; Edwards v. Comm’r, T.C. Memo. 2005-52;
Gouveia v. Comm’r, T.C. Memo. 2004-256; Gowni v. Comm’r, T.C. Memo. 2004-154; Graham v. Comm’r,
T.C. Memo. 2005-68; Kikalos v. U.S., 408 F.3d 900 (7th Cir. 2005); Knauss v. Comm’r, T.C. Memo. 2005-6;
Payne v. Comm’r, T.C. Memo. 2005-130; Rinn v. Comm’r, T.C. Memo. 2004-256; Starkovich v. Comm’r, T.C.
Summ. Op. 2004-173; Strong v. Comm’r, T.C. Memo. 2005-125; Westby v. Comm’r, T.C. Memo. 2004-179.
◆
◆
G R O S S I N C O M E I S S U E # 2
TH E MO ST LI TI GAT ED TA X I S S U E S
496
M O S T L I T I G AT E D
M O S T L I T I G A T E D
T A X I S S U E S
S E C T I O N
THREE
G R O S S I N C O M E I S S U E # 2
such as Form W-2, Form 1099-INT, Form 1099-DIV and Form 1099-MISC.
62
Three cases
dealt with both kinds of unreported income.
63
Unreported business income cases often
concern taxpayers receiving payments from customers and not reporting the income on
their tax returns.
64
Of the 18 cases dealing with unreported business income, taxpayers
won three, the IRS won 11, and four cases had split decisions in which part but not all of
the IRS determination was upheld.
65
There were 17 cases in which third parties reported
income on Form W-2 or Form 1099, but the taxpayer either did not file a tax return
66
or
filed and did not fully report the Form W-2 or Form 1099 income.
67
The IRS won 15
cases involving unreported third party reported income, while a taxpayer won one and the
final case had a split outcome.
68
P R O S E
A N D R E P R E S E N T E D TA X P AY E R S
Sixty of these cases, or 56 percent, were litigated without counsel, pro se.
69
While pro se
litigants fared slightly better than represented litigants in cases not involving business
income, represented litigants fared much better than their pro se counterparts in cases
involving business income.
62
Arvin v. Comm’r, T.C. Summ. Op. 2004-108; Bien-Aime v. Comm’r, T.C. Summ. Op. 2004-175; Castleton v.
Comm’r, T.C. Memo. 2005-58; Corrigan v. Comm’r, T.C. Memo. 2005-119; Doxtator v. Comm’r, T.C. Memo.
2005-113; Ford v. Comm’r, T.C. Memo. 2005-18; Lewis v. Comm’r, T.C. Memo. 2005-111; Malfatti v.
Comm’r, T.C. Memo. 2005-19; Namyst v. Comm’r, T.C. Memo. 2004-263; Ogu v. Comm’r, T.C. Summ. Op.
2004-87; Pickering v. Comm’r, T.C. Summ. Op. 2004-136; Polonczyk v. Comm’r, T.C. Summ. Op. 2005-66;
Rodriguez v. Comm’r, 95 A.F.T.R.2d 1723 (9th Cir. 2005); Rodriguez v. Comm’r, T.C. Memo. 2005-12.
63
Brenner v. Comm’r, T.C. Memo. 2004-202; Coccia v. Comm’r, T.C. Summ. Op. 2004-159; Jondahl v. Comm’r,
T.C. Memo. 2005-55.
64
See e.g., Payne v. Comm’r, T.C. Memo. 2005-130, where the taxpayer, a roofer, deposited smaller customer
payments directly into his personal bank account without reporting the payments as income.
65
Acle v. Comm’r, T.C. Summ. Op. 2004-82; Blanning v. Comm’r, T.C. Memo. 2004-201; Brenner v. Comm’r,
T.C. Memo. 2004-202; Chin v. Comm’r, T.C. Memo. 2004-189; Coccia v. Comm’r, T.C. Summ. Op. 2004-
159; Coomes v. Comm’r, T.C. Memo. 2004-182; Edwards v. Comm’r, T.C. Memo. 2005-52; Gouveia v.
Comm’r, T.C. Memo. 2004-256; Gowni v. Comm’r, T.C. Memo. 2004-154; Graham v. Comm’r, T.C. Memo.
2005-68; Jondahl v. Comm’r, T.C. Memo. 2005-55; Kikalos v. U.S., 408 F.3d 900 (7th Cir. 2005); Knauss v.
Comm’r, T.C. Memo. 2005-6; Payne v. Comm’r, T.C. Memo. 2005-130; Rinn v. Comm’r, T.C. Memo. 2004-
256; Starkovich v. Comm’r, T.C. Summ. Op. 2004-173; Strong v. Comm’r, T.C. Memo. 2005-125; Westby v.
Comm’r, T.C. Memo. 2004-179.
66
See e.g., Malfatti v. Comm’r, T.C. Memo. 2005-19.
67
See e.g., Bien-Aime v. Comm’r, T.C. Summ. Op. 2004-175.
68
Arvin v. Comm’r, T.C. Summ. Op. 2004-108; Bien-Aime v. Comm’r, T.C. Summ. Op. 2004-175; Brenner v.
Comm’r, T.C. Memo. 2004-202; Castleton v. Comm’r, T.C. Memo. 2005-58; Coccia v. Comm’r, T.C. Summ.
Op. 2004-159; Corrigan v. Comm’r, T.C. Memo. 2005-119; Doxtator v. Comm’r, T.C. Memo. 2005-113; Ford
v. Comm’r, T.C. Memo. 2005-18; Jondahl v. Comm’r, T.C. Memo. 2005-55; Lewis v. Comm’r, T.C. Memo.
2005-111; Malfatti v. Comm’r, T.C. Memo. 2005-19; Namyst v. Comm’r, T.C. Memo. 2004-263; Ogu v.
Comm’r, T.C. Summ. Op. 2004-87; Pickering v. Comm’r, T.C. Summ. Op. 2004-136; Polonczyk v. Comm’r,
T.C. Summ. Op. 2005-66; Rodriguez v. Comm’r, 95 A.F.T.R.2d 1723 (9th Cir. 2005); Rodriguez v. Comm’r,
T.C. Memo. 2005-12.
69
Four of the 60 cases had a split outcome and these four split outcome cases are not included in the count
of pro se cases in Table 3.2.1.
M O S T L I T I G A T E D
T A X I S S U E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
497
L I T I G A T E D I S S U E S
S E C T I O N
THREE
T A B L E 3 . 2 . 1 , A N A L Y S I S O F P R O S E I N C O M E C A S E S
Ty p e o f
Ta x p a y e r
Number o f
Cases
Pro S e Re p r e sente d
Split D e c i s i o n
Decision f o r
Ta x p a y e r
Decision f o r
IRS
Decision f o r
Ta x p a y e r
Decision f o r
IRS
Individual 83 6 41 3 27 6
Business 25
70
1 8 6 7 3
Total 108 7 49 9 34 9
70
C O N C L U S I O N
While no clear patterns emerge from the analysis of litigated cases, gross income is clearly
an area of confusion and contention between taxpayers and the IRS. This year, taxpayers
prevailed in whole or in part in 25 of 108 cases, or 23 percent of the total.
With the Supreme Court’s ruling in Banks and the enactment of IRC § 62(a)(1), the area
of contingent attorney’s fees in litigation is clearer and likely to be litigated less often.
Litigation on whether the award was received for “physical” injuries and if so, not subject
to tax, continues to be an issue for the courts.
The increase in retirement and disability income cases and the variety and complexity of
pension benefit tax law suggest this issue will continue to confuse taxpayers and create
contention with the IRS. Other issues, such as constructive dividends and unreported
income, show that some taxpayers will search out ways to avoid taxable income, and the
IRS will need to be vigilant to ensure adherence to the law and proper tax collection.
71
70
One case involving an estate is included in the business category.
71
Unreported income is the single largest component of the “tax gap,” accounting for eighty percent of the
tax gap or $251 billion to $291 billion per year. See Most Serious Problem: The Cash Economy, supra; Key
Legislative Recommendation: Measures to Reduce Noncompliance in the Cash Economy, supra.
G R O S S I N C O M E I S S U E # 2
TH E MO ST LI TI GAT ED TA X I S S U E S
498
M O S T L I T I G AT E D
M O S T L I T I G A T E D
T A X I S S U E S
S E C T I O N
THREE
F A I L U R E T O F I L E P E N A LT Y I S S U E # 3
LI TI GAT ED
I S S U E # 3
F A I L U R E T O F I L E P E N A LT Y U N D E R I N T E R N A L R E V E N U E C O D E S E C T I O N 6 6 5 1 ( a) ( 1 )
S U M M A R Y
The federal court system issued published decisions in 75 cases involving the penalty for
failure to file a timely tax return under IRC § 6651(a)(2) during the 12 months from June
1, 2004 to May 31, 2005, which this report covers.
1
The IRS prevailed in all but five cases.
The failure to file penalty is mandatory unless the taxpayer can demonstrate that the failure
is due to reasonable cause and not willful neglect.
2
Among the cases analyzed, it was often
very difficult for the taxpayer to meet this standard.
3
P R E S E N T L A W
A taxpayer who fails to file a tax return on or before its due date will be subject to a five per-
cent penalty for each month or partial month that the return is late.
4
This penalty generally
accumulates for each month the return is not filed up to a maximum of 25 percent.
5
If the
taxpayer’s failure to file is fraudulent, the penalty is 15 percent per month or partial month
up to a maximum of 75 percent.
6
The penalty is based on the amount of tax due, minus
any credit the taxpayer is entitled to receive or payment made by the due date.
7
The IRS has the burden of production in any court proceeding with respect to the liabil-
ity of any individual for an addition to tax under IRC § 6651(a).
8
To meet this burden,
the IRS must produce sufficient evidence indicating that it is appropriate to impose the
relevant penalty or addition to tax.
9
Once the IRS meets this burden, the taxpayer must
come forward with evidence sufficient to persuade a court that the IRS’s determination is
incorrect.
10
The taxpayer also bears the burden of proof with regard to issues of reason-
able cause.
11
To prove reasonable cause, a taxpayer must show that he or she exercised
ordinary business care and prudence, but was still unable to file by the due date.
12
1
IRC § § 6651(a)(2) and (a)(3) also imposes failure to pay penalties as well, however, only a small number
of cases involved these penalties, and therefore, the failure to pay penalty cases are not addressed here.
2
IRC § 6651(a)(1).
3
In the 2001 Annual Report to Congress, the National Taxpayer Advocate recommended a legislative
change that would broaden the reasonable cause standard to include taxpayers who make one-time, inad-
vertent errors on their returns. National Taxpayer Advocate 2001 Annual Report to Congress 188.
4
IRC § 6651(a)(1).
5
Id.
6
IRC § 6651(f).
7
IRC § 6651(b).
8
IRC § 7491(c). An exception to this rule alleviates the IRS from this initial burden where the taxpayer’s
petition fails to state a claim for relief from the addition to tax, such as where the taxpayer only makes
frivolous arguments. Funk v. Comm’r, 123 T.C. 213 (2004).
9
Higbee v. Comm’r, 116 T.C. 438, 446 (2001).
10
Id.
11
Id.
12
Treas. Reg. § 301.6651-1(c)(1).
M O S T L I T I G A T E D
T A X I S S U E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
499
L I T I G A T E D I S S U E S
S E C T I O N
THREE
The failure to file penalty applies to income, estate, gift, and certain excise tax returns.
13
IRC § 6698 provides for a penalty for failure to file partnership returns, which is based on
different criteria but also carries a reasonable cause component.
14
A N A LY S I S O F L I T I G A T E D C A S E S
We analyzed 75 opinions issued between June 1, 2004 and May 31, 2005, where the
failure to file penalty was in dispute. All but seven of these cases were litigated in the
United States Tax Court. A detailed listing of these cases appears in Table 3 in Appendix
3. Fifty-five cases involved individual taxpayers, 19 involved businesses (including indi-
viduals engaged in self-employment or partnerships) and one case involved an estate.
Taxpayers were represented by attorneys in only 17 cases. Of the 58 cases in which tax-
payers appeared pro se, only one case was resolved in the taxpayer’s favor and one other
resulted in a split decision. Thus, taxpayers were unrepresented in the vast majority of
cases decided in the IRS’s favor.
A common basis for the courts ruling against taxpayers in these cases was the lack of any
evidence offered to show that the failure to file was due to reasonable cause.
15
The argu-
ments taxpayers put forth in defense of their failures to file timely (or at all) include the
following:
Medical Illness: Depending on the facts and circumstances, a medical illness can
constitute reasonable cause for failing to file a tax return on time.
16
However, courts
will reject medical illness as a basis for reasonable cause where the illness did not
keep the taxpayer from functioning in other aspects of life, such as work.
17
In the
context of a joint return, medical conditions afflicting one spouse do not generally
excuse the failure to file.
18
In one case, however, a husband’s condition was severe
enough to require the wife to abandon her work-related responsibilities to care for
him, and impaired her ability to exercise ordinary business care and prudence.
19
13
IRC § 6651(a)(1).
14
IRC § 6698.
15
See, e.g., Brunner v. Comm’r, T.C. Memo. 2004-187, Desauguste v. Comm’r, T.C. Summ. Op. 2005-60, Franklin
v. Comm’r, T.C. Summ. Op. 2004-126; Greendyk v Comm’r, T.C. Memo. 2005-108, Malfatti v. Comm’r,
T.C. Memo. 2005-19, Rinn v. Comm’r, T.C. Memo. 2004-246, Rosa v. Comm’r, T.C. Summ. Op. 2005-53,
Widemon v. Comm’r, T.C. 2004-162.
16
Harbour v. Comm’r, T.C. Memo. 1991-532. In Harbour, the taxpayer was in a coma during the month
before his tax return was due. Clearly, he was not able to work during this time or participate in any
other life activities. Therefore, the Tax Court determined that this medical condition was a reasonable
cause for failure to timely file his tax return.
17
O’Laughlin v. Comm’r, T.C. Summ.Op. 2004-79 (holding that although taxpayer was in a serious automo-
bile injury, taxpayer did not prove that the injury was severe enough to prevent taxpayer from filing her
returns); see also Barkley v. Comm’r, T.C. Memo. 2004-287; Appel v. Comm’r, T.C. Summ. Op. 2004-90.
18
Appel v. Comm’r, T.C. Summ. Op. 2004-90 (holding that illness of spouse was not so substantial as to pre-
vent taxpayer from working or engaging in other activities).
19
Wesley v. United States, 95 A.F.T.R.2d (RIA) 1832 (N.D. Fla. 2005).
◆
F A I L U R E T O F I L E P E N A LT Y I S S U E # 3
TH E MO ST LI TI GAT ED TA X I S S U E S
500
M O S T L I T I G AT E D
M O S T L I T I G A T E D
T A X I S S U E S
S E C T I O N
THREE
F A I L U R E T O F I L E P E N A LT Y I S S U E # 3
Unavailability of Records: Taxpayers also asserted the unavailability of records as
a basis for the reasonable cause defense.
20
The general rule is that unavailability of
records does not constitute reasonable cause.
21
If, however, the taxpayer used ordi-
nary business care and prudence to obtain the records, the taxpayer may be able to
establish reasonable cause for not timely filing.
22
Reliance Upon a Tax Professional: Some taxpayers argued that reliance upon a
professional was a defense to the failure to file penalty.
23
However, the Supreme
Court has made clear in United States v. Boyle that taxpayers have a non-delegable
duty to file a return on time, and the taxpayer’s reliance on an agent does not excuse
failure.
24
There are exceptions to this general rule, such as where a person suffers
from a disability and must rely on third parties to fulfill his or her filing obliga-
tions.
25
In one case, a U.S. district court found that reliance upon a professional,
coupled with the taxpayer’s illness, was reasonable cause for one tax year but not for
other years in question.
26
Reliance Upon Spouse or Other Agent: The Boyle rule against reliance on third
parties to file tax returns also applies to reliance on family members such as spouses
to file, where the taxpayer knew or had reason to know that the returns were not
timely filed.
27
Ignorance of the Law: Taxpayers also argued that they believed there was no obli-
gation to file a tax return.
28
Ignorance of the law is not a reasonable cause for not
timely filing, unless the taxpayer has made a reasonable good faith effort to comply
with the law, or could not reasonably be expected to be aware of the requirement.
29
20
Chu v. Comm’r, T.C. Memo. 2005-110.
21
Crocker v. Comm’r, 92 T.C. 899, 913 (1989).
22
Haley v. Comm’r, T.C. Memo. 1977-348.
23
Bruecher v. Comm’r, T.C. Summ. Op. 2005-52 (holding belief that professional filed extension is not rea-
sonable cause).
24
United States v. Boyle, 469 U.S. 241, 252(1985) (holding, “It requires no special training or effort to ascer-
tain a deadline and make sure that it is met. The failure to make a timely filing of a tax return is not
excused by the taxpayer’s reliance on an agent, and such reliance is not ‘reasonable cause’ for a late filing
under § 6651(a)(1).”).
25
Id. at 249.
26
Wesley v. U.S., 95 A.F.T.R. 2d (RIA) 1832 (N.D. Fla. 2005).
27
Quarterman v. Comm’r, T.C. Memo. 2004-241 (holding that reliance upon spouse does not excuse obliga-
tion to file); Westby v. Comm’r, T.C. Memo. 2004-179 (holding spouse knew that returns were not filed and
did not take any corrective steps which were available to her).
28
Rollins v. Comm’r, T.C. Memo. 2004-260 (holding that taxpayer was required to file excise tax returns for
IRC § 401(k) plans and taxpayer’s belief that returns were not required does not constitute reasonable
cause).
29
IRM § 20.1.1.3.1.2.1 provides that a taxpayer may establish reasonable cause based on ignorance of the
law if: (1) a reasonable and good faith effort was made to comply with the law, or (2) the taxpayer was
unaware of a requirement and could not reasonably be expected to know of the requirement.
◆
◆
◆
◆
M O S T L I T I G A T E D
T A X I S S U E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
501
L I T I G A T E D I S S U E S
S E C T I O N
THREE
“Zero Return” Filers: Some taxpayers protested their obligation to pay taxes by fil-
ing tax returns with zeroes on every line of the tax return.
30
These taxpayers argued
that they should not be assessed a failure to file penalty when a return was filed.
This defense was unsuccessful as the courts hold that frivolous returns do not consti-
tute a tax return for purposes of the IRC § 6651 penalty.
In 14 of the IRC § 6651(a)(1) cases, taxpayers asserted arguments that the courts consid-
ered frivolous.
31
In all but four of those cases, the court assessed the frivolous litigation
penalty under IRC § 6673 against taxpayers.
32
The U.S. Tax Court also rendered an
important decision with respect to the burden of proof in failure to file cases where the
taxpayer asserts only frivolous arguments. In Funk v. Commissioner, the Tax Court held
that while the IRS has the initial burden of production in cases involving additions to tax
(such as additions under IRC § 6651), that burden is shifted if the taxpayer advances only
frivolous arguments.
33
The existence of reasonable cause in any given case depends on all the facts and circum-
stances of the case,
34
and what one court may find reasonable, another court may not.
C O N C L U S I O N
The failure to file penalty was enacted to encourage voluntary compliance and make it
clear that noncompliance would not be tolerated.
35
Further, the penalty seeks to estab-
lish fairness by penalizing those taxpayers who do not comply with the filing deadline.
Notwithstanding that the due date for individual tax returns is common knowledge and
routinely publicized by the IRS and the media, the failure to file penalty remains the sub-
ject of frequent litigation.
36
30
Arvin v. Comm’r, T.C. Summ. Op. 2004-108; Benedetti v. Comm’r, T.C. Summ. Op. 2005-6; Halcott v.
Comm’r, T.C. Memo. 2004-214; Turner v. Comm’r, T.C. Memo. 2004-251.
31
Brenner v. Comm’r, T.C. Memo. 2004-202; Brunner v. Comm’r, T.C. Memo. 2004-187; Buras v. Comm’r, T.C.
Summ. Op. 2004-161; Currier v. Comm’r, T.C. Memo. 2005-21; Florance v. Comm’r, T.C. Memo. 2005-60;
Malfatti v. Comm’r, T.C. Memo. 2005-19; Milby v. Comm’r, T.C. Memo. 2005-15; Rodriguez v. Comm’r, T.C.
Memo. 2005-12; Storaasli v. Comm’r, T.C. Memo. 2005-59; Benedetti v. Comm’r, T.C. Summ. Op. 2005-6;
Funk v. Comm’r, 123 T.C. 213 (2004); Arvin v. Comm’r, T.C. Summ. Op. 2004-108; Greendyk v. Comm’r,
T.C. Memo. 2005-108; Rinn v. Comm’r, T.C. Memo. 2004-108.
32
While the courts did not assess the frivolous argument penalty in these cases, litigants were given stern
warnings about advancing any such arguments in the future; Funk v. Comm’r, 123 T.C. 213 (2004); Arvin
v. Comm’r, T.C. Summ. Op. 2004-108; Greendyk v. Comm’r, T.C. Memo. 2005-108; Rinn v. Comm’r, T.C.
Memo. 2004-108.
33
Funk v. Comm’r, 123 T.C. 213 (2004).
34
IRM § 20.1.1.3.1(1).
35
See Policy Statement P-1-18 dated April 27, 1992, IRM 1.2.1.2.3.
The United States tax system relies on taxpayers’ willingness to voluntarily and accurately report
their income, file returns, and pay taxes. Penalties encourage this type of compliance and deter
noncompliance, while also attempting to establish fairness in the system by imposing an additional
cost on the noncompliant taxpayer.
36
The failure to file penalty has appeared as a most litigated issue in the 2000, 2001, 2003, and 2004 Annual
Report to Congress. The 2000 report groups all penalties together. The 2001 report combines the failure
to file and the failure to pay penalties.
◆
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The IRS should determine whether this penalty positively influences compliance as
intended. Congress should again consider the National Taxpayer Advocate’s recommen-
dation of a one-time abatement of the penalty for taxpayers who comply with their filing
obligations, but in an untimely manner.
37
This proposal would broaden the definition of
reasonable cause and give the IRS the authority to abate a late filing penalty for inadver-
tent taxpayer mistakes, while still supporting the IRS’s goal of voluntary compliance.
37
National Taxpayer Advocate 2001 Annual Report to Congress 188. This provision was included in the
House-passed Taxpayer Protection and IRS Accountability Act of 2003. See H.R. 1528, 108th Cong. § 106
(2003).
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A N D R E L A T E D S E C T I O N S
S U M M A R Y
Trade or business expense is perennially one of the 10 most litigated tax issues in the
federal courts. We identified 67 cases that included a trade or business expense issue and
were litigated between June 1, 2004, and May 31, 2005. The courts affirmed the IRS posi-
tion in over three-fourths of the cases, while taxpayers prevailed less than 10 percent of
the time.
1
The remaining cases resulted in split decisions.
P R E S E N T L A W
Internal Revenue Code (IRC) section 162 is one of the Code’s most fundamental provi-
sions, allowing deductions for ordinary and necessary trade or business expenses paid or
incurred during the taxable year. Rules regarding the practical application of IRC § 162
have evolved largely from case law and administrative guidance. The IRS, Department of
Treasury, Congress, and the courts continue to provide legal guidelines about whether a
taxpayer is entitled to certain trade or business deductions. The litigated cases analyzed
for this report reveal that this process is ongoing. When a taxpayer seeks judicial review
of the IRS’s determination of tax liability, the courts must often address a series of ques-
tions, including those discussed below, before issuing decisions.
What constitutes a trade or business for purposes of IRC § 162?
Although “trade or business” is one of the most widely used terms in the IRC, neither
the Code nor the Treasury Regulations provide a definition.
2
The definition of “trade or
business” comes from the common law of federal income tax, where concepts have been
developed and refined by court decisions.
3
The Supreme Court has interpreted “trade or
business” for purposes of IRC § 162 to mean an activity conducted “with continuity and
regularity” and with the primary purpose of making income or a profit.
4
What is an ordinary and necessary expense?
Ordinary and necessary expenses are current business expenses that are paid or incurred
during the taxable year. A current business expense must be both ordinary and necessary
in relation to the taxpayer’s trade or business.
5
In Welch v. Helvering,
6
the Supreme Court
stated that the words “ordinary” and “necessary” have difference in meaning, and both
1
The IRS prevailed in 51 of 67 cases, while taxpayers prevailed in six cases.
2
In 1986, the term “trade or business” appeared in at least 492 subsections of the Code and 664 provisions
of the Treasury Regulations. F. Ladson Boyle, What Is a Trade or Business? 39 Tax Law. 737 (Summer 1986).
3
Carol Duane Olson, Toward a Neutral Definition of “Trade or Business” in the Internal Revenue Code, 54 U. Cin.
L. Rev. 1199 (1986).
4
Comm’r v. Groetzinger, 480 U.S. 23, 35 (1987).
5
IRC § 162(a).
6
290 U.S. 111 (1933).
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must be satisfied for a taxpayer to benefit from the deduction. In Deputy v. Du Pont,
7
the
Supreme Court described an “ordinary” expense as customary or usual and of common
occurrence in the taxpayer’s business. A “necessary” expense is described as appropriate
and helpful for development of the business.
8
The courts have held that the amount of the expense must be reasonable as well as
ordinary and necessary. In Commissioner v. Lincoln Elec. Co.,
9
the Court of Appeals for
the Sixth Circuit held that “…the element of reasonableness is inherent in the phrase
‘ordinary and necessary.’ Clearly, it was not the intention of Congress to automatically
allow as deductions operating expenses incurred or paid by the taxpayer in an unlimited
amount.”
10
Can the taxpayer substantiate that the expense was paid or incurred during the taxable year?
Present law requires a taxpayer to maintain books and records that substantiate income,
deductions, and credits, including adequate records to substantiate deductions claimed as
trade or business expenses.
11
If a taxpayer is unable to substantiate deductions by docu-
mentary evidence (e.g., invoice, paid bill, or canceled check) but can establish that he or
she had some deductible business expenditures, the courts may opt to employ the Cohan
rule to grant the taxpayer a reasonable amount of deductions.
The Cohan rule is a rule of “indulgence” established by the Court of Appeals for the
Second Circuit in its decision in Cohan v. Commissioner.
12
The Court of Appeals held
“…the Board should make as close an approximation as it can, bearing heavily if it chooses
upon the taxpayer whose inexactitude is of his own making. But to allow nothing at all
appears to us inconsistent with saying that something was spent.”
13
The Cohan rule may not be utilized in situations where IRC § 274(d) applies. Code section
274(d) provides that unless a taxpayer complies with strict substantiation rules, no deduc-
tion is allowable for (1) traveling expenses, (2) entertainment expenses, (3) gifts, or (4)
certain “listed property.”
14
A taxpayer is required to substantiate a claimed IRC § 274(d)
expense with adequate records or sufficient evidence corroborating the taxpayer’s state-
ment establishing the amount, time, place, and business purpose of the expense.
15
7
308 U.S. 488, 495 (1940).
8
Comm’r v. Tellier, 383 U.S. 687, 679 (1996) (citations omitted).
9
176 F.2d 815 (6th Cir. 1949).
10
Comm’r v. Lincoln Elec. Co., 176 F.2d 815, 817 (6th Cir. 1949) (citation omitted).
11
IRC § 6001; Treas. Reg. § 1.6001-1; Treas. Reg. § 1.446-1(a)(4).
12
39 F.2d 540 (2nd Cir. 1930).
13
Cohan v. Comm’r, 39 F.2d 540, 544 (2nd Cir. 1930).
14
“Listed property” means any property that can be used for personal purposes, including any property used
as a means of transportation, any property of a type generally used for purposes of entertainment, recre-
ation, or amusement, any computer or peripheral equipment, etc. IRC § 280F(d)(4)(A)(ii), (iii), and (iv).
15
Treas. Reg. § 1.274-5T(b).
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Who has the burden of proof in a substantiation case?
Generally, a taxpayer bears the burden of proving entitlement to the business expense
deductions and that the proposed determination made by the Commissioner of Internal
Revenue is incorrect.
16
IRC § 7491(a) provides that the burden of proof shifts to the
Commissioner under certain specified conditions.
17
In order to shift the burden to the Commissioner, a taxpayer must: (1) introduce credible
evidence with respect to any factual issue relevant to ascertaining the taxpayer’s liability;
(2) comply with the requirements to substantiate deductions; (3) maintain all records
required under the IRC; and (4) cooperate with reasonable requests by the IRS for wit-
nesses, information, documents, meetings, and interviews.
18
A N A LY S I S O F L I T I G A T E D C A S E S
Trade or business expenses have been one of the 10 most litigated issues by taxpayers
since the first edition of the National Taxpayer Advocate’s Annual Report to Congress
in 1998.
19
We reviewed 67 cases involving various trade or business expense issues that
were litigated in the federal court system during the period June 1, 2004, through May 31,
2005. Table 4 in Appendix 3 contains a detailed listing of the cases.
Table 3.4.1 categorizes the significant trade or business expense issues raised by taxpayers.
Cases involving multiple issues are included in more than one category. In Doxtator v.
Commissioner,
20
for example, three distinct trade or business expense issues were raised, so
the case can be found in three categories in Table 3.4.1.
16
See Tax Court Rule 142(a) and Welch v. Helvering, 290 U.S. 111, 115 (1933).
17
IRC § 7491(a)(1) applies to a court proceeding in which the examination started after July 22, 1998, and if
there is no examination, to the taxable period or events which started or occurred after July 22, 1998.
18
IRC § 7491(a)(1), (2).
19
National Taxpayer Advocate 1998-2004 Annual Report to Congress.
20
T.C. Memo. 2005-113.
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T A X I S S U E S
S E C T I O N
THREE
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T A B L E 3 . 4 . 1 , T R A D E O R B U S I N E S S E X P E N S E C A S E S & I S S U E S
Issue Ty p e o f Tax p a y e r
Sole P r o p r i e t o r Business E n t i t y
Ordinary and Necessary Trade or Business Expenses
21
44 12
Casualty Loss
22
5 2
Depreciation
23
6 1
Expense Election under IRC § 179
24
1 1
Profit Objective
25
10 0
Substantiation of Expenses
26
25 2
Material Participation in Passive Activity
27
1 0
T A B L E 3 . 4 . 2 , P R E V A I L I N G P A R T Y I N T R A D E O R B U S I N E S S E X P E N S E C O U R T
D E C I S I O N S , P R O S E TA X P A Y E R V E R S U S T A X P A Y E R S W I T H R E P R E S E N TA T I O N
Ty p e O f Tax p a y e r IRS Tax p a y e r S p l i t To t a l
Pro Se
39 2 5 46
Represented by Counsel 12 4 5 21
Totals 51 6 10 67
Over two-thirds of the taxpayers litigating trade or business issues represented themselves
pro se. Table 3.4.2 shows that represented taxpayers fared better than their pro se coun-
terparts. Taxpayers with representation received full or partial relief in 43 percent of the
cases litigated (nine of 21), while pro se taxpayers received relief only 15 percent of the
time (seven of 46).
21
IRC § 162(a) allows deductions for ordinary and necessary trade or business expenses paid or incurred
during the taxable year.
22
IRC § 165(a) allows a deduction for any loss sustained during the taxable year that is not compensated for
by insurance or otherwise.
23
IRC § 167(a) provides for a depreciation deduction for the exhaustion, wear and tear (including a reason-
able allowance for obsolescence) of property used in the trade or business or held for the production of
income.
24
Under IRC § 179, a taxpayer may make an election to expense certain depreciable business assets.
25
IRC § 183(a) provides that no deduction attributable to an activity shall be allowed if such activity is not
engaged in for profit.
26
IRC § 6001 requires a taxpayer to maintain books and records that substantiate income, deductions, and
credits, including adequate records to substantiate deductions claimed as trade or business expenses. For
certain expenses, IRC 274(d) requires taxpayers substantiate by adequate records (1) the amount of such
expense or other item; (2) the time and place of the travel, entertainment, amusement, recreation, or use
of the facility or property, or the date and description of the gift; (3) the business purpose of the expense
or other item; and (4) the business relationship to the taxpayer of persons entertained, using the facility or
property, or receiving the gift.
27
IRC § 469 disallows a deduction for taxpayers engaged in a “passive activity” unless the taxpayer materi-
ally participates in that activity. IRC § 469(c)(2) includes any rental activity in the definition of “passive
activity.”
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Table 3.4.3 reflects the disposition of court decisions in each category of cases.
T A B L E 3 . 4 . 3 , P R E V A I L I N G P A R T Y I N T R A D E O R B U S I N E S S E X P E N S E C O U R T
D E C I S I O N S , S O L E P R O P R I E T O R S V E R S U S B U S I N E S S E N T I T I E S
Ty p e O f Tax p a y e r IRS Tax p a y e r S p l i t To t a l
Sole Proprietors 42 3 7 52
Business Entities 9 3 3 15
Totals 51 6 10 67
Sole Proprietors
Fifty-two of the 67 cases analyzed were litigated by taxpayers in their capacity as sole pro-
prietors. In many instances, sole proprietors claimed trade or business deductions without
adequately documenting those expenses with contemporaneous record-keeping.
For example, in Blanning v. Commissioner,
28
a taxpayer who was convicted of illegal busi-
ness practices failed to file federal tax returns for the years in question. The IRS denied
trade or business expense deductions for those years, as the taxpayer could not provide
records of expenses. Generally, a taxpayer must show that he or she is entitled to deduc-
tions with respect to business activity. Taxpayers are required to maintain books and
records in support of the items reported on a return. In this case, the pro se taxpayer
attempted to meet his burden by reconstructing his expenditures through secondary and
incomplete documentation, such as credit card statements. The Tax Court held that
under the Cohan rule, inadequately substantiated expenses may be estimated where it is
shown that a taxpayer is unquestionably entitled to some deductions. Accordingly, the
court held that the taxpayer was entitled to business deductions of $15,123 and $5,492 for
the years in question.
Another common trade or business issue litigated by sole proprietors relates to whether an
activity had a profit objective. To be considered a bona fide trade or business, an activ-
ity must be conducted with continuity and regularity, and the taxpayer’s primary purpose
for engaging in the activity must be for income or profit. The test for whether a taxpayer
conducted an activity for profit is whether he or she entered into or continued the activ-
ity with an actual or honest objective of making a profit.
29
In Lopez v. Commissioner,
30
the pro se taxpayers appealed the Tax Court’s determination
that the taxpayers did not have a sufficient profit motive in their Amway activities to
be entitled to trade or business expense deductions. The taxpayers were distributors for
28
T.C. Memo. 2004-2001.
29
IRC § 183; Treas. Reg. § 1.183-2(a).
30
94 A.F.T.R.2d (RIA) 7075 (5th Cir. 2004).
T R A D E O R B U S I N E S S E X P E N S E S I S S U E # 4
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508
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T A X I S S U E S
S E C T I O N
THREE
T R A D E O R B U S I N E S S E X P E N S E S I S S U E # 4
Amway, a marketer of various personal and household products. In their Amway activi-
ties, the taxpayers sold products at cost to both their downline distributors and their
customers, many of whom were friends of the taxpayers. Although the taxpayers had no
prior business experience, they did not seek advice from unbiased, independent business
sources. The Court of Appeals for the Fifth Circuit affirmed the Tax Court’s decision,
noting that the taxpayers spent much of their Amway-related time socializing with the
family and friends they had recruited as downline distributors.
Business Entities
Fifteen of the 67 trade or business expense cases tried in federal courts involved business
entities, which had slightly greater success than sole proprietors in receiving a favorable
outcome. Taxpayers received full or partial relief from the courts in 40 percent of the
business entity cases (six of 15), compared to less than 20 percent in sole proprietor cases
(10 of 52). This success rate may be explained in part by the fact that most business enti-
ties were represented in court by attorneys, whereas most sole proprietors represented
themselves.
Congress enacted IRC § 179 to provide an incentive for businesses to invest in new
tangible personal property. Section 179(a) allows a business a deduction for property
used in a trade or business that it must otherwise add to its capital account and depreci-
ate. However, certain kinds of property are excluded from the definition of “section
179 property,” including “property which is used predominantly to furnish lodging or in
connection with the furnishing of lodging.”
31
An exception to the exclusion is “property
used by a hotel or motel in connection with the trade or business of furnishing lodging
where the predominant portion of the accommodations is used by transients.”
32
In Shirley v. Commissioner,
33
the Tax Court considered whether a taxpayer in the business
of renting and selling motor homes qualified for the § 179 deduction for the cost of a
motor home. The IRS argued that motor homes generally are property used predomi-
nantly to furnish lodging. The taxpayer contended that motor homes are primarily for
transportation. In the alternative, the taxpayer also argued that even if a motor home is
predominantly used for lodging, it qualifies for the exception to the exclusion because it
is lodging used by transients, and most of the taxpayer’s customers were short-term renters
(less than 30 days). The Tax Court, while recognizing the difficulty in making an “all or
nothing” classification of mixed-use assets, concluded that the purchase of a motor home
rented primarily to transients qualified for the deduction under § 179.
31
See IRC § 179(d)(1); IRC § 50(b)(2).
32
IRC § 50(b)(2)(B).
33
T.C. Memo 2004-188.
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C O N C L U S I O N
Taxpayers continue to challenge the IRS with regard to trade or business expense deduc-
tions, and represented taxpayers fare better than their pro se counterparts. While the IRS
generally prevails, the courts do not always favor the IRS’s application of the law to the
taxpayer’s facts and circumstances. This is an indication that the definition of an allow-
able trade or business expense is open to interpretation.
Many of the cases analyzed demonstrate taxpayer confusion over legal requirements. The
IRS can assist these taxpayers and minimize litigation by continuing to provide clear guid-
ance on the deductibility of trade or business expenses. Through education, outreach,
and partnering with stakeholders, the IRS can help taxpayers understand what trade or
business deductions are allowable and how to substantiate those expenses. The IRS
should continue to reach out proactively to taxpayers about this issue, particularly sole
proprietors. By helping them understand the legal requirements, the IRS will encourage
taxpayers to comply with their tax obligations and minimize the risk of litigation.
T R A D E O R B U S I N E S S E X P E N S E S I S S U E # 4
TH E MO ST LI TI GAT ED TA X I S S U E S
510
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THREE
F R I V O L O U S I S S U E S P E N A LT Y I S S U E # 5
LI TI GAT ED
I S S U E # 5
F R I V O L O U S I S S U E S P E N A LT Y U N D E R I N T E R N A L R E V E N U E C O D E S E C T I O N 6 6 7 3
S U M M A R Y
During the 12 months between June 1, 2004, and May 31, 2005, the federal court system
issued decisions in at least 67 cases involving the IRC § 6673 penalty. This penalty is
assessed against taxpayers for maintaining a case primarily for delay, raising frivolous argu-
ments, or unreasonably failing to pursue administrative remedies.
1
In 18 of these cases,
the United States Tax Court decided not to impose the penalty but did warn taxpay-
ers that sanctions may be appropriate in the future if they engaged in similar conduct.
2
Nonetheless, we include these cases in our analysis to help illustrate what conduct the
courts will and will not tolerate.
P R E S E N T L A W
The United States Tax Court is authorized to impose a penalty against a taxpayer if he or
she institutes or maintains a proceeding primarily for delay, takes a frivolous position in a
proceeding, or unreasonably fails to pursue available administrative remedies.
3
The maxi-
mum penalty is $25,000.
4
In some cases, the IRS requests that the Tax Court impose the
penalty; in other cases, however, the Tax Court may exercise its discretion sua sponte,
5
in
imposing the penalty.
Any attorney or other person admitted to practice before the Tax Court who unreason-
ably and vexatiously multiplies the proceedings in any case could have to personally
pay the excess costs, expenses, and attorneys’ fees incurred because of such conduct.
6
1
IRC § 6673(a)(1).
2
Arevalo v. Comm’r, 124 T.C. 244 (2005); Arvin v. Comm’r, T.C. Summ. Op. 2004-108; Cozzens v. Comm’r,
T.C. Memo. 2005-98; Dalton v. Comm’r, T.C. Memo. 2005-7; Dashiell v. Comm’r, T.C. Memo. 2004-210;
Dues v. Comm’r, T.C. Memo. 2005-109; Funk v. Comm’r, 123 T.C. 213 (2004); Greendyk v. Comm’r, T.C.
Memo. 2005-108; Mathews v. Comm’r, T.C. Memo. 2005-84; McBride v. Comm’r, T.C. Memo 2004-178;
Olson v. Comm’r, T.C. Memo. 2004-234; Rewerts v. Comm’r, T.C. Memo. 2004-248; Rinn v. Comm’r, T.C.
Memo. 2004-246; Sides v. Comm’r, T.C. Memo. 2004-141; Shireman v. Comm’r, T.C. Memo. 2004-155;
Smith v. Comm’r, T.C. Memo. 2004-198; Snyder v. Comm’r, T.C. Memo. 2005-89; Thompson v. Comm’r, T.C.
Memo. 2004-204. In each of these cases, the taxpayers were spared the IRC § 6673 penalty by the Tax
Court’s good graces.
3
IRC § 6673(a)(1)(A),(B),(C).
4
IRC § 6673(a)(1).
5
“Sua sponte” is a term that means without prompting or suggestion. Thus, for conduct that the Tax
Court finds particularly offensive, the Tax Court can choose to impose a penalty under IRC § 6673 even
if the IRS has not requested that the penalty be imposed. See, e.g., Brunner v. Comm’r, T.C. Memo. 2004-
187 (Tax Court imposed the penalty without being asked to do so when the taxpayer made numerous
frivolous constitutional arguments regarding the requirement to file an income tax return).
6
IRC § 6673(a)(2).
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Taxpayers who institute an action pursuant to IRC § 7433
7
in a United States district
court for damages against the United States could be subject to a maximum penalty of
$10,000 if the court determines that the taxpayer's position in the proceedings is frivo-
lous or groundless.
8
In addition, federal laws and rules of procedure permit other federal
courts to apply penalties for raising frivolous arguments or using litigation tactics only
to delay the collection process.
9
However, this report covers only IRC § 6673 due to the
number of cases involving this Code section.
A N A LY S I S O F L I T I G A T E D C A S E S
We analyzed 67 opinions issued between June 1, 2004 and May 31, 2005 that addressed
the IRC § 6673 penalty. All but ten of these cases were decided in the United States Tax
Court.
10
A detailed listing of these cases appears in Table 5 in Appendix 3. Sixty-four of
these cases involved individual taxpayers and the other three involved business taxpay-
ers. Only three taxpayers were represented by attorneys. Taxpayers appeared pro se in the
remaining 64 cases. Taxpayers were spared the penalty in 18 cases. Therefore, taxpayers were
unrepresented in nearly all cases, and a majority of the cases were decided in the IRS’s favor.
Taxpayers repeatedly raised the following arguments that the Tax Court has deemed frivo-
lous and groundless, and consequently were subject to a penalty under IRC § 6673(a)(1):
Invalid notice of deficiency: Taxpayers argued that a notice of deficiency was
invalid because the person sending it lacked sufficient authority to sign the notice.
For instance, in one case a taxpayer argued that the notice was invalid because it was
not signed by the Secretary of the Treasury, and his request for a delegation order
was not met.
11
In rejecting the taxpayer’s argument, the Tax Court explained that
the Secretary’s authority to issue a notice of deficiency was delegated to IRS service
7
IRC § 7433(a) allows taxpayers a cause of action against the IRS, as follows:
If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee
of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any
provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil
action for damages against the United States in a district court of the United States. Except as
provided in section 7432, such civil action shall be the exclusive remedy for recovering damages
resulting from such actions.
8
IRC § 6673(b)(1).
9
28 U.S.C.A § 1927 (providing Federal courts can sanction an attorney or any other person admitted to
practice before any court of the United States or any Territory thereof for unreasonably and vexatiously
multiplying proceedings).
10
In nine cases, the Tax Court awarded a penalty under IRC § 6673(a)(1) and the taxpayers appealed to the
applicable United States Court of Appeals. The judgment of the Tax Court regarding the penalty was
affirmed in each of those cases. We also identified one case involving IRC § 6673(b)(1), where the taxpay-
ers instituted an action under IRC § 7433. See Mathis v. U.S., 94 A.F.T.R.2d (RIA) 6340 (D. S.D. 2004)
(court required taxpayers to pay a penalty of $3,000 under IRC § 6673(b)(1) because taxpayers knew at the
time they instituted their action that their claims had been rejected in previous cases).
11
Henderson v. Comm’r, T.C. Memo. 2004-157 (holding that the Memphis Service Center Director had the
authority to sign the notice of deficiency; therefore, taxpayer failed to raise any legitimate arguments and
the proceeding was instituted and maintained primarily for delay). Compare Thompson v. Comm’r, T.C.
Memo. 2004-204 (Tax Court declined to impose the penalty even though the taxpayer argued the notice
of deficiency was invalid because it wasn’t signed by the Secretary or his delegate).
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center directors, and the Code does not require the IRS to provide the taxpayer
with a copy of the delegation order.
12
In a different case, a taxpayer attempted
to argue that he did not receive a notice of deficiency. In rejecting the taxpayer’s
argument, the Tax Court relied on the testimony given at trial to conclude that the
taxpayer may have intentionally provided the IRS with the wrong mailing address.
13
Moreover, the Tax Court noted that the taxpayer ignored the Court’s explicit previ-
ous warning that any further proceedings would be subject to an IRC § 6673 penalty
if frivolous issues were raised.
14
Contrast these cases with Rewerts v. Commissioner,
T.C. Memo. 2004-248, in which the Tax Court declined to impose the penalty when
the taxpayer argued the notice of deficiency was invalid. In its analysis, the Tax
Court noted that there was no evidence the taxpayer had previously been a litigant
in the Tax Court, and no evidence the taxpayer had been given a warning of the pos-
sible imposition of the penalty if he continued making his arguments.
Income is not taxable: In one case, a taxpayer argued that he should not be subject
to an income tax because he was a minister and his income was remuneration direct-
ly to his church to be used for charitable purposes. The taxpayer also contended
his pension plan payments and Social Security payments were exempt from federal
income tax because he donated the majority of his income to his church and was an
agent of the tax exempt religious order.
15
In rejecting the taxpayer’s arguments, the
Tax Court noted that the taxpayer did not receive the pension or social security ben-
efits in his capacity as a minister, but rather received them from his former job with
the motion picture industry. Moreover, the taxpayer paid rent and other expenses
before distributing the remainder of his income to the church. Therefore, the tax-
payer was not relieved of his obligation to pay federal income tax and did not enjoy
the same tax-exempt status as the church.
16
IRS failed to notify taxpayer of its authority to collect taxes provided in the
Internal Revenue Code: Taxpayers also asserted the frivolous argument that the
IRS had no authority to collect income tax.
17
In rejecting the taxpayers’ arguments,
the Tax Court emphasized that it has consistently imposed § 6673 penalties in lien
and levy cases where the taxpayer raised frivolous arguments as to the validity of the
Federal income tax.
12
Henderson v. Comm’r, T.C. Memo. 2004-157.
13
Lehmann v. Comm’r, T.C. Memo. 2005-90 (holding that the taxpayer cannot deliberately refuse the delivery
of a statutory notice and then claim to have defeated actual receipt, and therefore, the taxpayer’s failure to
inform the IRS of his new address was a frivolous argument).
14
Id.
15
Buras v. Comm’r, T.C. Summ. Op. 2004-161. For more discussion of common taxpayer arguments regard-
ing whether wages are taxable, see Howard v. Comm’r, T.C. Memo. 2005-144; Krueger v.Comm’r, T.C.
Memo. 2005-105; Howard v. Comm’r, T.C. Memo. 2005-100. In each of these cases, the arguments were
rejected as frivolous and without merit and the Tax Court imposed a penalty.
16
Id.
17
Kolker v. Comm’r, T.C. Memo. 2004-288; Gilligan v. Comm’r, T.C. Memo. 2004-194; Gavigan v. Comm’r,
T.C. Summ. Op. 2004-155.
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Raising frivolous issues in Collection Due Process hearings for the purpose of
delay: The taxpayer always has a right to a Collection Due Process hearing with
the IRS Appeals function when the IRS is proposing its first levy action or after it
files a notice of federal tax lien with respect to any tax periods.
18
Taxpayers must be
informed in writing of their right to a hearing. Some taxpayers abuse this right to a
hearing to delay the collection process.
19
During the hearings, when the taxpayer con-
tinues to raise frivolous arguments, Appeals officers provide the taxpayer with a copy
of cases that illustrate the consequence (i.e., the IRC § 6673 penalty) for raising such
frivolous issues.
20
Moreover, in many of these lien and levy cases, the Tax Court gave
explicit warning regarding the possibility of a sanction under IRC § 6673 but taxpayers
nonetheless continued making frivolous arguments in further proceedings.
21
In only one case in our review did the taxpayer ask the Tax Court to sanction the IRS’s
attorney.
22
In concluding that the taxpayer’s motion for sanctions was without merit, the
Tax Court found that the taxpayer had been uncooperative and strongly cautioned the
taxpayer against proceeding in bad faith in future Tax Court litigation.
23
C O N C L U S I O N
Taxpayers did not raise any genuine issues in the cases we analyzed. These taxpayers raised
frivolous arguments, which have been repeatedly litigated and rejected in the past. The
courts have consistently stated that these boilerplate arguments are frivolous and without
merit. These cases best serve as a warning to taxpayers and their representatives – the IRS
will ask the Tax Court to impose the IRC § 6673 penalty on taxpayers who raise frivolous
or groundless issues or institute proceedings for the purpose of delay. Moreover, even if
the IRS does not request a penalty, taxpayers may not escape sanctions if the Tax Court
finds their conduct to fall within the activities Congress made subject to IRC § 6673.
18
IRC §§ 6320 and 6330.
19
Williams v. Comm’r, T.C. Memo. 2005-94 (holding that taxpayers who abuse the protections provided to
them under IRC § 6330 by bringing dilatory or frivolous actions will be subject to a penalty under IRC §
6673).
20
Poe v. Comm’r, T.C. Memo. 2005-107. In that case, the Tax Court quoted from language in the attachment
to the notice of determination where the taxpayer was clearly warned about the possibility of a pen-
alty. In addition, IRS provided taxpayer with a copy of prior cases where the same arguments had been
deemed frivolous.
21
See Burke v. Comm’r, 124 T.C. 189 (2005) (penalty of $2500 awarded when taxpayer did not raise any legit-
imate issues at trial and frivolous issues that had previously been addressed by the Tax Court in taxpayer’s
earlier proceeding for other tax years were perpetrated).
22
Casey v. Comm’r, T.C. Memo. 2004-288.
23
Id.
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S U M M A R Y
We reviewed 57 cases involving the accuracy related penalty under Internal Revenue Code
section 6662(b)(1) issued by federal courts during the 12 months from June 1, 2004 to
May 31, 2005.
1
This penalty is assessed against taxpayers for underpayment of tax due to
the taxpayer’s negligence or disregard of tax rules or regulations and was generally decided
in conjunction with other issues in the cases analyzed. While IRC § 6662 provides an
accuracy-related penalty for other conduct as well,
2
this report covers only the negligence
penalty because of the number of cases litigated on this issue. Taxpayers can avoid the
accuracy-related penalty only if they are able to demonstrate that the negligence was due to
“reasonable cause” and that they “acted in good faith.”
3
As the cases analyzed here indicate,
it is often difficult for the taxpayer to satisfy the reasonable cause and good faith standard.
P R E S E N T L A W
The federal income tax system relies on the willingness of taxpayers to voluntarily and
accurately report their income, file returns, and pay taxes. Civil penalties have been
incorporated into the system to encourage voluntary compliance and deter noncompli-
ance. The assessment of penalties can also promote fairness by subjecting noncompliant
taxpayers to an additional cost.
4
Underpayment of taxes occasioned by taxpayers’ negligence or disregard of the rules and
regulations will generally be subject to a 20 percent penalty of the underpaid tax.
5
For
purposes of this provision, the term “negligence” means any failure to make a reasonable
attempt to comply with the Internal Revenue Code and the term “disregard” includes
careless, reckless or intentional disregard of the law.
6
The 20 percent penalty for negli-
gence will be applied when a taxpayer fails to:
1
These cases are identified by researching opinions published through online legal research services.
2
IRC § 6662(b) sets forth the causes for underpayments of tax for which the accuracy-related penalty can
be assessed;
(b) Portion of underpayment to which section applies. This section shall apply to the portion of any
underpayment which is attributable to one or more of the following:
(1) Negligence or disregard of rules or regulations.
(2) Any substantial understatement of income tax.
(3) Any substantial valuation misstatement under chapter 1.
(4) Any substantial overstatement of pension liabilities.
(5) Any substantial estate or gift tax valuation understatement.
3
IRC § 6664(c).
4
Policy Statement P-1-18, dated April 27, 1992, IRM § 1.2.1.2.3.
5
IRC § 6662(a). Additionally, taxpayers will be subjected to a 40 percent penalty if an underpayment for a
taxable year is attributable to a substantial valuation overstatement. IRC § 6662(e).
6
IRC § 6662(c); see also Treas. Reg. § 1.6662-3(b)(1), (2).
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Make a reasonable attempt to comply with the tax code;
Exercise ordinary and reasonable care when preparing a tax return;
Keep adequate books and records; and
Substantiate items properly.
7
The IRS has identified other indicators of negligence, including:
Failure to report income included on an information return;
8
Failure to make a reasonable inquiry into the correctness of a deduction, credit, or exclu-
sion on the tax return that seems too good to be true under the circumstances;
9
and
Items on individual returns of partners or S corporation shareholders that are clearly
inconsistent with the treatment of those items on the returns of the partnership or
S Corporation.
10
The Internal Revenue Manual also provides guidelines for IRS examiners to consider
when assessing the negligence penalty.
11
The IRS bears the burden of production in court with regard to whether the negligence
penalty is appropriate.
12
The burden of production requires the IRS to come forward
with sufficient evidence to indicate that it is appropriate to impose the penalty.
13
Once
the IRS meets this burden, the penalty is mandatory unless the taxpayer can demonstrate
that he or she acted with reasonable cause and in good faith. The determination of wheth-
er a taxpayer acted with reasonable cause and in good faith is made on a case-by-case
basis, taking into account all the pertinent facts and circumstances.
14
To prove reasonable cause and good faith, taxpayers must primarily show that they made
a reasonable attempt to assess their correct tax liabilities, and that any error was the result
of an honest misunderstanding of fact or law that is reasonable considering all facts and
circumstances.
15
When analyzing the circumstances of the case, the courts can consider
the taxpayer’s experience, knowledge, and education level.
16
7
Treas. Reg. § 1.6662-3(b)(1).
8
Treas. Reg. § 1.6662-3(b)(1)(i).
9
Treas. Reg. § 1.6662-3(b)(1)(ii).
10
Treas. Reg. § 1.6662-3(b)(1)(iii) and (iv).
11
IRM 20.1.5.7.1(3) provides that the following are indicators of negligence:
Unreported or understated income; significantly overstated deductions or credits; careless, improper, or
exaggerated deduction; misrepresenting or miscategorizing deductions in such a way as to conceal their true
nature; unexplainable items; inadequately kept books or records; cooperative state programs and state reports
showing a negligence penalty (taking into account other factors and not relying entirely on the findings of
another taxing agency); substantial errors on an issue (e.g., Earned Income Tax Credit) that had been adjusted
in a prior year; and providing one’s return preparer with incorrect or incomplete information.
12
IRC § 7491(c).
13
Id.
14
Treas. Reg. § 1.6664-4(b)(1).
15
Id.
16
Id.
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A N A LY S I S O F L I T I G A T E D C A S E S
Of the 57 published opinions reviewed, 17 cases involved individual income taxpayers
and 40 involved business taxpayers. The accuracy-related penalty was not the primary
issue in the majority of the cases analyzed, but was considered in conjunction with
underlying tax deficiencies. The IRS prevailed in 39 cases (68 percent), while taxpayers
prevailed in 13 cases (23 percent), and five cases ended in split decisions. Taxpayers were
represented by counsel in 24 cases and were pro se in the 33 others. A detailed listing of
these cases appears in Table 6 in Appendix 3.
A common reason for courts ruling against taxpayers was the lack of any evidence offered
by taxpayers to demonstrate that there was reasonable cause and that the taxpayers acted
in good faith with respect to the underpayments of tax.
17
In other cases, taxpayers
advanced cogent explanations, but had varying degrees of success, as demonstrated by a
summary of the arguments set out below:
Taxpayer Did Not Receive Information Returns: This argument is rarely successful
in defeating the IRC § 6662(b)(1) penalty because there are other methods taxpayers
could use to compute their income, and the burden of reporting the proper amounts
of income and paying the proper amount of tax is not contingent upon a third party
supplying information returns. Moreover, the IRS views the failure to include on an
income tax return an amount of income shown on an information return as a strong
indication of negligence.
18
If, however, taxpayers do not receive an information
return, such as a Form W-2 (Wage and Tax Statement), but nonetheless still attempt to
comply with the tax laws, then they may be able to demonstrate reasonable cause
and avoid the accuracy-related penalty.
19
Information Provided on Information Return Was Incorrect: One taxpayer
asserted the reasonable cause defense based on reliance on inaccurate information on
a Form W-2 Wage and Tax Statement, which failed to include the taxpayer’s bonus
amount. The Tax Court upheld the negligence penalty on the basis that the taxpayer
failed to make a reasonable attempt to comply with the provisions of the Internal
Revenue Code.
20
The taxpayer appealed, and the Tenth Circuit Court of Appeals
determined that the Tax Court’s conclusion as to the reasonableness of the taxpayer’s
conduct was not erroneous and affirmed the penalties.
21
Unsubstantiated Arguments by Taxpayers: A number of taxpayers tried to make
the argument that the positions taken on their returns were reasonable, however,
17
Rahimi v. Comm’r, T.C. Summ. Op. 2004-156 (holding that there was nothing in the record indicating that
the taxpayers acted with reasonable cause); Montagne v. Comm’r, T.C. Memo. 2004-252.
18
Treas. Reg. § 1.6662-3(b)(i).
19
Namyst v. Comm’r, T.C. Memo. 2004-263 (holding that taxpayers must make an effort to comply with the
tax law based on the information that they have).
20
Williams v. Comm’r, T.C. Memo. 2003-97.
21
Williams v. Comm’r, 95 A.F.T.R. 2d (RIA) 764 (10th Cir. 2005)(taxpayer’s employer later issued corrected
W-2s to taxpayer but taxpayer made no effort to file amended returns for the years in question).
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they failed to provide any documentation to substantiate their claims.
22
Maintaining
accurate and complete books and records is crucial because it demonstrates that tax-
payers are trying to be responsible, notwithstanding the fact that unintentional errors
were committed.
Reliance on a Tax Professional: Reliance on a tax professional is a defense to the
negligence penalty if the reliance is reasonable based upon all of the facts and cir-
cumstances of the taxpayer’s situation.
23
This defense was a recurring issue in the
cases reviewed, and a number of taxpayers prevailed against the IRS by making the
necessary showing of proof that:
The tax adviser was a competent professional who had sufficient expertise to jus-
tify reliance;
The taxpayer provided all necessary information to the preparer; and
The taxpayer relied in good faith on the adviser’s judgment.
24
Taxpayers were not granted relief from the penalty where:
The taxpayer did not review the tax return before signing ;
25
Reliance on tax professional was not reasonable;
26
and
The taxpayer did not provide the tax professional with
accurate and complete information.
27
22
Dumond v. Comm’r, T.C. Summ.Op. 2005-11 (holding that taxpayer could not substantiate deductions
reported on Schedule C); Biazar v. Comm’r, T.C. Memo. 2004-270 (taxpayers failed to establish reasonable
cause or good faith in failing to maintain records for Schedule C expenses); Starkovich v. Comm’r, T.C.
Summ. Op. 2004-173 (taxpayer failed to keep adequate books and records).
23
Treas. Reg. § 1.6664-4(c).
24
Caspian Consulting Group, Inc. v. Comm’r, T.C. Memo. 2005-54; Bernardo v. Comm’r, T.C. Memo. 2004-199.
Compare Mediaworks, Inc. v. Comm’r, T.C. Memo. 2004-177 (citations omitted) (concluding that none of
the three requirements were met: (1) the mere fact that someone is a certified public accountant does not
make him a competent advisor; (2) taxpayer didn’t provide advisor with all necessary information and
actually gave advisor misinformation; and (3) taxpayer did not rely in good faith on advisor’s judgment
when taxpayer had the same deduction disallowed in an earlier year).
25
Bien-Aime v. Comm’r, T.C. Memo. 2004-281 (failure to carefully review return before signing is not reason-
able). See also McNair v. Comm’r, T.C. Summ. Op. 2004-115.
26
Kooyers v. Comm’r, T.C. Memo. 2004-281 (holding that relying on tax professional was unreasonable when
the tax scheme was without economic substance has repeatedly been rejected by courts and taxpayers
offered no evidence that adviser was competent); Van Scoten v. Comm’r, T.C. Memo. 2004-275 (reliance
on another investor in the same partnership was unreasonable); Hansen v. Comm’r, T.C. Memo. 2004-269
(advice from general partner or partner’s counsel was not reasonable, as such advice was not free from
an inherent conflict of interest); Barnes v. Comm’r, T.C. Memo. 2004-266 (involving IRC § 6653, the pre-
decessor to today’s negligence penalty, holding that reliance on tax matters partner was not objectively
reasonable, as the partner was also the promoter of the shelter); Hitchen v. Comm’r, T.C. Memo. 2004-265
(reliance on promoters of investment unreasonable).
27
Benson v. Comm’r, T.C. Memo. 2004-272 (holding that taxpayer is ultimately responsible for the correct-
ness of the tax return and must furnish the return preparer with the information necessary for preparing
the return). See also CMA Consolidated, Inc. v. Comm’r, T.C. Memo. 2005-16; Delaware Corp. v. Comm’r,
T.C. Memo. 2004-280.
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When courts are making fact and circumstance determinations in cases where the taxpayer
raises the reasonable cause defense, courts take a number of factors into consideration,
including the taxpayer’s education, knowledge, and experience.
28
These factors allow the
courts to exercise discretion in upholding the penalty in some cases while disallowing the
penalty in others, even though the underlying facts are similar. For example, the court
will factor into its analysis the taxpayer’s ability to understand the tax issue and the issue’s
level of complexity.
29
Thus, the more sophisticated or educated the taxpayer, the less
likely it is that the reasonable cause defense will prevail. The existence of reasonable cause
in any given case depends on all the facts and circumstances of the case,
30
and what con-
stitutes reasonable for one taxpayer may not be reasonable for another.
C O N C L U S I O N
Courts overturned the IRS’s imposition of the IRC § 6662(b)(1) penalty in whole or in
part in 32 percent of the opinions reviewed, an increase of 13 percent over last year’s
percentage of taxpayer victories.
31
Taxpayers continued to experience problems that are
largely of their own making (e.g., failure to keep adequate and complete records, not
independently reviewing tax returns prepared by professionals, and not providing any
evidence or argument to demonstrate reasonable cause) in litigating this issue. Taxpayer
victories in a percentage of the cases do, however, raise the question of whether the IRS
always exercises proper oversight on the imposition of the negligence penalty.
The accuracy-related penalty has appeared in the Most Litigated Issues section of the
National Taxpayer Advocate’s Annual Report to Congress for four of the past six years.
32
As discussed elsewhere in this report, the IRS abates a large percentage of other types of
penalties. This fact, and the significant number of taxpayers who prevailed on reasonable
cause in this year’s litigated cases, indicate that the IRS should study if the accuracy-
related penalty is achieving its original goal of promoting voluntary compliance by
encouraging accurate tax returns. At some point, the penalty should be applied less fre-
quently if it is achieving its intended goal.
28
Treas. Reg. § 1.6664-4(b)(1).
29
Malone v. Comm’r, T.C. Memo. 2005-69 (although taxpayer was a practicing attorney, tax was not his area
of expertise and reasonable minds could differ as to the tax implications of his business transactions).
30
IRM 20.1.1.3.1(1).
31
National Taxpayer Advocate 2004 Annual Report to Congress 536.
32
National Taxpayer Advocate 1999 Annual Report to Congress, vol. III-2; National Taxpayer Advocate
2000 Annual Report to Congress 67; National Taxpayer Advocate 2001 Annual Report to Congress 261;
and National Taxpayer Advocate 2003 Annual Report to Congress 364.
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F A M I LY S TA T U S I S S U E S U N D E R I N T E R N A L R E V E N U E C O D E
S E C T I O N S 2 , 2 1 , 2 4 , 3 2 , A N D 1 5 1
S U M M A R Y
The Earned Income Tax Credit (EITC),
1
dependency exemption,
2
head of household
filing status,
3
child tax credit,
4
and child and dependent care credit
5
are issues that fre-
quently arise in the same cases and involve similar factual determinations. Therefore, this
report combines these issues into a single “family status” category. Family status issues
involve exemptions, credits, and filing status claimed by taxpayers when they prepare their
federal tax returns.
During our review period (June 1, 2004 through May 31, 2005), the federal courts decided
45 cases concerning these issues. Two-thirds of these cases dealt with multiple family
status credits and deductions, with the determination of one issue often affecting others.
For example, a denial of the dependency exemption will result in the summary denial of
the child tax credit, and may jeopardize eligibility for head of household filing status and
the child and dependent care credit. The chart below illustrates the extent to which these
claims were litigated together.
T A B L E 3 . 7 . 1 , F A M I L Y S T A T U S I S S U E S P E R C A S E
1
IRC § 32.
2
IRC § 151.
3
IRC § 2(b).
4
IRC § 24.
5
IRC § 21.
.UMBEROF)SSUES0ER#ASE
/NE)SSUE
4WO)SSUES
4HREE)SSUES
&OUR)SSUES
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P R E S E N T L A W
6
Earned Income Tax Credit – IRC § 32
The Earned Income Tax Credit (EITC), a refundable credit for low income working tax-
payers, is the nation’s largest need-based anti-poverty program.
7
For the 2004 tax year, 22
million taxpayers claimed over $38 billion in credits.
8
Taxpayers may qualify for the cred-
it with a “qualifying child”
9
or with “income-only.”
10
For tax year 2005, the maximum
EITC for a taxpayer with two or more qualifying children is $4,400, while a taxpayer satis-
fying the income-only requirements may claim up to $399.
11
All taxpayers claiming the EITC must meet several general eligibility requirements.
12
Eligibility for the qualifying child credit requires that the child satisfy additional tests.
13
Special tiebreaker rules apply where more than one taxpayer is eligible to claim a qualify-
ing child for the EITC.
14
A taxpayer qualifying under the income-only rules must meet
residency
15
and age
16
requirements, and must not be claimed as a dependent by another
taxpayer.
17
The maximum earned income for a taxpayer claiming the EITC with a quali-
fying child is significantly higher than for a taxpayer claiming the income-only EITC.
18
6
The Working Families Tax Relief Act, Pub. L. No. 108-311 (2004) (WFTRA) made changes to family status
definitions that affect all Code sections discussed here, effective starting in 2005. Discussion in this sec-
tion reflects Code provisions for 2004 and earlier.
7
IRS, IRS Earned Income Tax Credit (EITC) Initiative: Final Report to Congress, October 2005 1-2 (Oct. 2005);
see also Frank Sammartino, Eric Toder and Elaine Maag, Providing Federal Assistance for Low Income Families
Through the Tax System: A Primer, The Urban-Brookings Tax Policy Center, 8 (July 2002) at http://www.
urban.org/uploadedpdf/410526.pdf.
8
IRS, Data Book 2004, Publication 55B, Table 5, 9. The Data Book 2004 pertains to Fiscal Year 2004, from
October 1, 2003 through September 30, 2004.
9
IRC § 32(c)(1)(A)(i).
10
IRC § 32(c)(1)(A)(ii).
11
Rev. Proc. 2004-71.
12
Taxpayers must meet requirements with respect to earned income, (IRC § 32(a)(2)(A)) adjusted gross
income (IRC § 32(a)(2)(B)), citizenship or residency (IRC § 32(c)(1)(D)), taxpayer identification number
(IRC § 32(c)(1)(F)), filing status (IRC § 32(d)), and maximum investment income (IRC § 32(i)).
13
These include residency (IRC § 32(c)(3)(A)(ii)), relationship (IRC § 32(c)(3)(B)), and age (IRC §
32(c)(3)(C)) tests.
14
IRC § 32(c)(1)(C). If only one of the taxpayers claiming the qualifying child for the EITC is the child’s
parent, only the parent may treat the child as a qualifying child. If two of the taxpayers are the child’s
parents, and they do not file a joint return, only the parent with whom the child lived the longest during
the taxable year may claim the qualifying child. If the child spent the same amount of time with each
parent, only the parent with the higher adjusted gross income will be eligible to claim the qualifying child.
Finally, if none of the taxpayers who claim the EITC with respect to the same child is a parent of the
child, only the taxpayer with the highest adjusted gross income may treat the child as a qualifying child.
15
IRC § 32(c)(1)(A)(ii)(I).
16
IRC § 32(c)(1)(A)(ii)(II).
17
IRC § 32(c)(1)(A)(ii)(III).
18
To claim the EITC for tax year 2005, the taxpayer’s AGI must be less than $35,263 ($37,263 for married
taxpayers filing jointly) if the taxpayer has more than one qualifying child, $31,030 ($33,030 for married
filing jointly) if the taxpayer has one qualifying child, or $11,750 ($13,750 for married filing jointly) if the
taxpayer does not have any qualifying children. (Rev. Proc. 2004-71).
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Dependency Exemption – IRC § 151
IRC § 151 governs dependency and personal exemptions. A taxpayer may claim a depen-
dency exemption for each individual who qualifies as a dependent under IRC §152
19
and
either (1) is a child of the taxpayer who has not attained the age of 19 by the end of the
taxable year (24 for full-time students or any age if permanently and totally disabled), or
(2) has gross income for the calendar year that is less than the exemption amount.
20
Head of Household – IRC § 2(b)
The head of household filing status under IRC § 2(b) entitles a taxpayer to a larger stan-
dard deduction and a more favorable tax rate than a single taxpayer or a married taxpayer
filing separately.
21
A taxpayer must meet two main requirements to qualify as a head of
household. First, he or she must be unmarried or “considered unmarried” at the end of
the taxable year.
22
Second, the taxpayer must maintain a household that is the principal
place of abode of an individual for whom the taxpayer is entitled to a dependency exemp-
tion under IRC §151, with one exception: where a taxpayer provides over half the cost
of maintaining a household that is the principal place of abode for a son or daughter, the
taxpayer may file as head of household notwithstanding his inability to claim the depen-
dency exemption.
23
19
IRC § 152 defines a dependent as follows: A dependent is an individual who is a U.S. citizen and receives
more than half of his or her support from the taxpayer and is either: (1) A son or daughter of the tax-
payer, or a descendant of either, (2) A stepson or stepdaughter of the taxpayer, (3) A brother, sister,
stepbrother, or stepsister of the taxpayer, (4) The father or mother of the taxpayer, or an ancestor of either,
(5) A stepfather or stepmother of the taxpayer, (6) A son or daughter of a brother or sister of the taxpayer,
(7) A brother or sister of the father or mother of the taxpayer, (8) A son-in-law, daughter-in-law, father-
in-law, mother-in-law, brother-in-law, or sister-in-law of the taxpayer, or (9) An individual (other than an
individual who at any time during the taxable year was the spouse, determined without regard to § 7703,
of the taxpayer) who, for the taxable year of the taxpayer, has as his principal place of abode the home of
the taxpayer and is a member of the taxpayer’s household. IRC § 152(a). Additionally, a child meets the
definition of a dependent if that child: (a) is the legally adopted child of the taxpayer; (b) is a member of
the individual’s household through placement by an authorized placement agency for legal adoption by
the taxpayer; and (c) is the foster child of the individual and, for the taxable year of that taxpayer, resides
with the taxpayer and is a member of that household. IRC § 152(b)(2).
20
IRC § 151(c)(1). For tax year 2005, the exemption amount is $3,200 (Rev. Proc. 2004-71).
21
For tax year 2005, the standard deduction for head of household is $7,300 (Rev. Proc. 2004-71).
22
IRC § 2(b)(1). Under IRC § 2(b)(2), a taxpayer is not considered married if he is legally separated from
his spouse under a decree of divorce or separate maintenance, or if his spouse is a nonresident alien. A
taxpayer is also considered unmarried if he meets the requirements set forth in IRC § 7703(b), which
requires, among other things, that the taxpayer has lived apart from his spouse during the last six months
of the taxable year, and furnished over one-half the cost of maintaining his household as the principal
home of a child as defined in IRC § 151(c)(3). A taxpayer whose spouse died during the taxable year is
considered married for that year. IRC § 2(b)(2)(D).
23
A taxpayer may qualify as head of household if the taxpayer is not eligible for the dependency exemption
provided the taxpayer maintains a household for a son or daughter and is unmarried at the end of the
year. To maintain a household, the taxpayer must pay more than fifty percent of the cost of maintaining
the home. Treas. Reg. § 1.2-2(b)(3)(i).
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Child Tax Credit – IRC § 24
Eligibility to claim the child tax credit, as codified in IRC § 24, is based on a three-part
test. A taxpayer must be able to claim a dependency exemption for the child, the child
must be under 17 years of age, and the child must bear a relationship to the taxpayer
described in IRC § 32(c)(3)(B).
24
The child tax credit is applied to any taxes due and is
refundable for some taxpayers.
25
Child and Dependent Care Credit - IRC § 21
The child and dependent care credit under IRC § 21 is intended to help offset the
child and dependent care expenses a taxpayer incurs so that the taxpayer may pursue
employment. To claim the credit, the taxpayer must have contributed over half the
cost of maintaining a household in which one or more “qualifying individuals” reside.
26
Taxpayers must also meet requirements with respect to filing status
27
and earned income.
28
A taxpayer may claim a credit of up to 35 percent
29
of child and dependent care expenses
paid, up to a maximum of $3,000 for a taxpayer with one qualifying individual or $6,000
with two or more qualifying individuals.
30
A taxpayer may not claim this credit based on
household or care expenses paid to a relative unless the relative is age 19 or older and not
a dependent of the taxpayer.
31
A N A LY S I S O F L I T I G A T E D C A S E S
Pro Se
Analysis
Taxpayers were represented by counsel in only six of 45 cases litigated this year.
32
Many
of the cases were highly fact-specific and involved a complicated web of statutory provi-
sions. It appeared that many of the taxpayers did not understand either the law or how to
24
IRC § 24(c). The child tax credit adopts the EITC relationship test, in which a qualifying child may be
(1) a son, daughter, stepson, stepdaughter, or descendant of any such individual, (2) a brother, sister, step-
brother, stepsister, or a descendant of any such individual, or (3) a foster child placed with the taxpayer
by an authorized placement agency. For tax year 2004 and earlier, the relationship test includes a require-
ment that the taxpayer care for individuals in the latter two categories as the taxpayer’s own child.
25
IRC § 24(d).
26
IRC §§ 21(a)(1), 21(e)(1). A “qualifying individual” is (1) a dependent of the taxpayer under the age of
13 and with respect to whom the taxpayer is entitled to a dependency exemption, or (2) a dependent or a
spouse who is physically or mentally unable to care for himself. IRC § 21(b)(1).
27
IRC § 21(e)(2).
28
IRC § 21(d)(1). Special rules with respect to the calculation of earned income apply for a spouse of a tax-
payer who is a student or who is incapable of caring for himself. IRC § 21(d)(2).
29
This percentage is reduced one percentage point for every $2,000 the taxpayer’s adjusted gross income
exceeds $15,000, but not below 20 percent. IRC § 21(a)(2).
30
IRC § 21(c).
31
IRC §21(e)(6).
32
Brettin v. Comm’r, T. C. Summ. Op. 2004-95, Hutchinson v. Comm’r, T.C. Summ. Op. 2005-58, In re Adkins,
2004 WL 2334716 (Bankr. D. Kan. 2004), In re James, 406 F.3d 1340 (11th Cir. 2005), In re Schwarz, 314
B.R. 433 (D. Neb. 2004), Jondahl v. Comm’r, T.C. Memo 2005-55.
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present relevant evidence. The assistance of counsel might have made a difference in the
outcome of these cases. A detailed listing of all family status cases analyzed appears in
Table 7 in Appendix 3.
Earned Income Tax Credit - IRC § 32
Introduction
Twenty cases involving the EITC were litigated during the reporting period,
33
down
from 28 in the previous year.
34
The cases essentially fell into three general categories: (1)
Qualifying Child, (2) Income Related, and (3) Married Person Filing Status.
Qualifying Child
Eleven cases involved the issue of whether a taxpayer had a “qualifying child” for claiming
the EITC,
35
with all cases decided against the taxpayer. As previously noted, a qualifying
child must meet age, residency, and relationship requirements
36
and may only be claimed
for EITC purposes by one taxpayer.
37
In six cases, taxpayers were not able to show that the children lived with them for more
than half of the taxable year.
38
Two cases were decided against the taxpayers because they
failed to demonstrate that they cared for the children as their own.
39
One case involved
the age test, in which the court determined the taxpayer’s stepson was not a qualifying
child because he was 21 years old and not a full-time student.
40
33
Booker v. Comm’r, T.C. Summ. Op. 2004-92, Colstock v. Comm’r, T.C. Summ. Op. 2005-54, Diaz v. Comm’r,
T.C. Memo. 2004-145, In re Adkins, 2004 WL 2334716 (Bankr. D. Kan. 2004), In re James, 406 F.3d 1340
(11th Cir. 2005), Jones v. Comm’r, T.C. Summ. Op. 2004-133, Joseph v. Comm’r, T.C. Summ. Op. 2004-137,
Lear v. Comm’r, T.C. Memo 2004-253, Mbachu v. Comm’r, T.C. Summ. Op. 2004-168, Mbanu v. Comm’r,
T.C. Summ. Op. 2005-56, Muncy v. Comm’r, T.C. Summ. Op. 2005-20, Myers v. Comm’r, T.C. Summ.
Op. 2005-15, Ogu v. Comm’r, T.C. Summ. Op. 2004-87, Petty v. Comm’r, T.C. Memo 2004-144, Rogers v.
Comm’r, T.C. Memo. 2004-245, Sampson v. Comm’r, T.C. Summ. Op. 2005-30, Somsukcharean v. Comm’r,
T.C. Summ. Op. 2005-49, Toney v. Comm’r, T.C. Memo. 2004-165, Urena v. Comm’r, T.C. Summ. Op.
2004-138, Varner v. Comm’r, T.C. Summ. Op. 2004-111.
34
National Taxpayer Advocate 2004 Annual Report to Congress 560.
35
Booker v. Comm’r, T.C. Summ. Op. 2004-92, Colstock v. Comm’r, T.C. Summ. Op. 2005-54, Jones v. Comm’r,
T.C. Summ. Op. 2004-133, Joseph v. Comm’r, T.C. Summ. Op. 2004-137, Lear v. Comm’r, T.C. Memo 2004-
253, Mbachu v. Comm’r, T.C. Summ. Op. 2004-168, Muncy v. Comm’r, T.C. Summ. Op. 2005-20, Ogu v.
Comm’r, T.C. Summ. Op. 2004-87, Somsukcharean v. Comm’r, T.C. Summ. Op. 2005-49, Urena v. Comm’r,
T.C. Summ. Op. 2004-138, Varner v. Comm’r, T.C. Summ. Op. 2004-111.
36
IRC § 32(c)(3).
37
IRC § 32(c)(1)(C).
38
Jones v. Comm’r, T.C. Summ. Op. 2004-133, Mbachu v. Comm’r, T.C. Summ. Op. 2004-168, Muncy v.
Comm’r, T.C. Summ. Op. 2005-20, Ogu v. Comm’r, T.C. Summ. Op. 2004-87, Urena v. Comm’r, T.C.
Summ. Op. 2004-138, Varner v. Comm’r, T.C. Summ. Op. 2004-111.
39
Booker v. Comm’r, T.C. Summ. Op. 2004-92, Somsukcharean v. Comm’r, T.C. Summ. Op. 2005-49. The
WFTRA eliminated the requirement to care for children as one’s own, which would have changed the
outcome in Somsukcharean. In Booker, however, because the child claimed by the taxpayer did not meet
the relationship test, the EITC would still have been denied.
40
Jones v. Comm’r, T.C. Summ. Op. 2004-133.
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Two cases involved qualifying children who could be claimed by more than one taxpayer.
41
Because only one taxpayer may claim a qualifying child for the EITC, the Tax Court applied
the tiebreaker rules of IRC § 31(c)(1)(C) in each case and determined that only the taxpayer
with the higher adjusted gross income (AGI) was entitled to claim the child.
Income-Related
Four taxpayers were denied the EITC due to income qualification issues.
42
One taxpayer
did not meet the central requirement of the earned income tax credit — that is, he did not
have any earned income.
43
In the other three cases, taxpayers disputed whether certain
items of income should be considered “earned income” for the purposes of calculat-
ing the EITC:
44
Rogers v. Commissioner (wages earned in a penal institution), Myers v.
Commissioner (trust income), and Petty v. Commissioner (gambling winnings). In all three
cases, the court found the items in dispute were includible as earned income, thus render-
ing the taxpayers in Myers and Sampson ineligible to claim the EITC and reducing the
credit for the taxpayer in Petty.
Married Taxpayer Filing Status
Four cases involved taxpayers whose filing statuses were in dispute.
45
Under IRC § 32(d),
a married taxpayer must file a joint tax return to claim the EITC. One taxpayer conceded
that he was married and had not filed a joint return.
46
The other three cases involved
determinations under IRC § 7703(b). Two taxpayers were unable to provide evidence that
their spouses did not live with them during the last six months of the taxable year.
47
In
the remaining case, the taxpayer did not qualify as unmarried because he did not provide
over half the cost of maintaining a household that was the principal home for more than
one-half of the taxable year of a child for whom he was entitled to claim a dependency
exemption.
48
41
Joseph v. Comm’r, T.C. Summ. Op. 2004-137, Lear v. Comm’r, T.C. Memo 2004-253.
42
Myers v. Comm’r, T.C. Summ. Op. 2005-15, Petty v. Comm’r, T.C. Memo 2004-144, Rogers v. Comm’r, T.C.
Memo. 2004-245, Sampson v. Comm’r, T.C. Summ. Op. 2005-30.
43
Sampson v. Comm’r, T.C. Summ. Op. 2005-30.
44
Petty v. Comm’r, T.C. Memo 2004-144, Rogers v. Comm’r, T.C. Memo. 2004-245, Myers v. Comm’r, T.C.
Summ. Op. 2005-15.
45
Colstock v. Comm’r, T.C. Summ. Op. 2005-54, Diaz v. Comm’r, T.C. Memo. 2004-145, Mbanu v. Comm’r,
T.C. Summ. Op. 2005-56, Toney v. Comm’r, T.C. Memo. 2004-165.
46
Mbanu v. Comm’r, T.C. Summ. Op. 2005-56.
47
Colstock v. Comm’r, T.C. Summ. Op. 2005-54, Diaz v. Comm’r, T.C. Memo. 2004-145.
48
Toney v. Comm’r, T.C. Memo. 2004-165.
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Dependency Exemption – IRC § 151
The dependency exemption was litigated in 31 family status cases,
49
with taxpayers pre-
vailing in two of them.
50
Eighteen dependency exemption cases involved the application of IRC § 152(e), the sup-
port test for a child of divorced parents.
51
Under IRC § 152(e), the exemption goes to the
custodial parent unless that parent signs a written declaration releasing the exemption.
52
Taxpayers in eight divorced parent cases were noncustodial parents claiming the depen-
dency exemption based on provisions in their divorce decrees.
53
Although the language
in the decrees appeared to grant the noncustodial parents the exemptions, the decrees
did not conform to the statutory requirements of IRC § 152(e).
54
Thus, all claims were
denied, as “it is well settled that state courts, by their decisions, cannot determine issues
of federal tax law.”
55
49
Allsopp v. Comm’r, T.C. Summ. Op. 2004-154, Bernardo v. Comm’r, T.C. Memo. 2004-199, Booker v.
Comm’r, T.C. Summ. Op. 2004-92, Bouch v. Comm’r, T.C. Summ. Op. 2004-167, Boulden v. Comm’r, T.C.
Summ. Op. 2004-124, Brettin v. Comm’r, T. C. Summ. Op. 2004-95, Brunner v. Comm’r, T.C. Memo. 2004-
187, aff’d 2005 U.S. App. LEXIS 14885 (3rd Cir., July 8, 2005), Caputi v. Comm’r, T.C. Memo. 2004-283,
Colstock v. Comm’r, T.C. Summ. Op. 2005-54, Corrigan v. Comm’r, T.C. Memo. 2005-119, Curello v. Comm’r,
T.C. Summ. Op. 2005-23, Elkins v. Comm’r, T.C. Summ. Op. 2004-84, Emanie v. Comm’r, T.C. Summ.
Op. 2004-78, Howard-Crowley v. Comm’r, T.C. Summ. Op. 2004-150 Hubbard v. Comm’r, T.C. Summ. Op.
2004-148, Hutchinson v. Comm’r, T.C. Summ. Op. 2005-58, Jones v. Comm’r, T.C. Summ. Op. 2004-133,
Joseph v. Comm’r, T.C. Summ. Op. 2004-137, Lear v. Comm’r, T.C. Memo 2004-253, McNair v. Comm’r,
T.C. Summ. Op. 2004-115, Montwillo v. Comm’r, T.C. Summ. Op. 2004-123, Sampson v. Comm’r, T.C.
Summ. Op. 2005-30, Scott v. Comm’r, T.C. Summ. Op. 2004-129, Somsukcharean v. Comm’r, T.C. Summ.
Op. 2005-49, Spanier v. Comm’r, T.C. Summ. Op. 2004-106, Szasz v. Comm’r, T.C. Summ. Op. 2004-169,
Toney v. Comm’r, T.C. Memo. 2004-165, Varner v. Comm’r, T.C. Summ. Op. 2004-111, Wells v. Comm’r, T.C.
Summ. Op. 2004-153, Wentland v. Comm’r, T.C. Summ. Op. 2004-134, Werther v. Comm’r, T.C. Summ.
Op. 2005-28.
50
Corrigan v. Comm’r, T.C. Memo. 2005-119, Elkins v. Comm’r, T.C. Summ. Op. 2004-84.
51
Allsopp v. Comm’r, T.C. Summ. Op. 2004-154, Bouch v. Comm’r, T.C. Summ. Op. 2004-167, Boulden v.
Comm’r, T.C. Summ. Op. 2004-124, Caputi v. Comm’r, T.C. Memo. 2004-283, Corrigan v. Comm’r, T.C.
Memo. 2005-119, Curello v. Comm’r, T.C. Summ. Op. 2005-23, Elkins v. Comm’r, T.C. Summ. Op. 2004-
84, Emanie v. Comm’r, T.C. Summ. Op. 2004-78, Howard-Crowley v. Comm’r, T.C. Summ. Op. 2004-150,
Hutchinson v. Comm’r, T.C. Summ. Op. 2005-58, Montwillo v. Comm’r, T.C. Summ. Op. 2004-123, Muncy
v. Comm’r, T.C. Summ. Op. 2005-20, Scott v. Comm’r, T.C. Summ. Op. 2004-129, Spanier v. Comm’r, T.C.
Summ. Op. 2004-106, Varner v. Comm’r, T.C. Summ. Op. 2004-111, Wells v. Comm’r, T.C. Summ. Op.
2004-153, Werther v. Comm’r, T.C. Summ. Op. 2005-28. IRC § 152(e) also applies in the case of parents
that have never been married. 121 T.C. 245, 251 (2003).
52
IRC § 152(e)(2).
53
Allsopp v. Comm’r, T.C. Summ. Op. 2004-154, Curello v. Comm’r, T.C. Summ. Op. 2005-23, Emanie v.
Comm’r, T.C. Summ. Op. 2004-78, Howard-Crowley v. Comm’r, T.C. Summ. Op. 2004-150, Muncy v.
Comm’r, T.C. Summ. Op. 2005-20, Scott v. Comm’r, T.C. Summ. Op. 2004-129, Spanier v. Comm’r, T.C.
Summ. Op. 2004-106, Werther v. Comm’r, T.C. Summ. Op. 2005-28.
54
To meet the requirements of IRC § 152(e), a parent may complete an IRS Form 8332 or submit a declara-
tion that conforms to the substance of Form 8332. Treas. Reg. § 1.152-4T(a) A-3. Form 8332 requires a
taxpayer to provide (1) the name of the noncustodial parent claiming the exemption (2) the noncustodial
parent’s social security number, (3) the name of the child or children for whom the exemption is released,
(4) the years for which the exemption is released, (5) the signature of the custodial parent and the date of
the signature, and (6) the custodial parent’s social security number. IRS Form 8332, Release of Claim to
Exemption for Child of Divorced or Separated Parents (December 2003).
55
Allsopp v. Comm’r, T.C. Summ. Op. 2004-154.
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In addition to the divorced parent cases, 11 cases involved the issue of whether the individ-
ual for whom the exemption was claimed qualified as a “dependent.”
56
To be classified as
the dependent of a taxpayer for the years in question, an individual must receive over half
of his or her support from the taxpayer and meet either a relationship or a residence test.
57
Ten taxpayers were denied the dependency exemption because they were unable to provide
sufficient evidence that they had provided over half of the individual’s support.
58
The tax-
payer in McNair v. Commissioner was denied the exemption because none of the children for
whom she tried to claim it lived with her during the taxable years in question.
59
One noncustodial parent who was denied the dependency exemption challenged the consti-
tutionality of IRC § 152(e) on equal protection grounds. However, the Tax Court upheld the
constitutionality of the provision under the rational basis standard, as it had a “legitimate con-
gressional purpose.”
60
In two other cases, the issue of whether the taxpayer was entitled to the
dependency exemption became moot because of determinations regarding other issues.
61
Head of Household Filing Status – IRC § 2(b)
Eighteen cases involving head of household status were litigated during the reporting
period,
62
with a single taxpayer prevailing on his claim.
63
Nine taxpayers were denied head of household filing status because they failed to dem-
onstrate that they maintained a household that was the primary place of abode for a
56
Bernardo v. Comm’r, T.C. Memo. 2004-199, Booker v. Comm’r, T.C. Summ. Op. 2004-92, Brunner v.
Comm’r, T.C. Memo. 2004-187, Colstock v. Comm’r, T.C. Summ. Op. 2005-54, Joseph v. Comm’r, T.C.
Summ. Op. 2004-137, Lear v. Comm’r, T.C. Memo 2004-253, McNair v. Comm’r, T.C. Summ. Op. 2004-
115, Somsukcharean v. Comm’r, T.C. Summ. Op. 2005-49, Szasz v. Comm’r, T.C. Summ. Op. 2004-169,
Toney v. Comm’r, T.C. Memo. 2004-165, Wentland v. Comm’r, T.C. Summ. Op. 2004-134.
57
IRC § 152(a).
58
Bernardo v. Comm’r, T.C. Memo. 2004-199, Booker v. Comm’r, T.C. Summ. Op. 2004-92, Brunner v.
Comm’r, T.C. Memo. 2004-187, Colstock v. Comm’r, T.C. Summ. Op. 2005-54, Joseph v. Comm’r, T.C.
Summ. Op. 2004-137, Lear v. Comm’r, T.C. Memo 2004-253, Somsukcharean v. Comm’r, T.C. Summ. Op.
2005-49, Szasz v. Comm’r, T.C. Summ. Op. 2004-169, Toney v. Comm’r, T.C. Memo. 2004-165, Wentland
v. Comm’r, T.C. Summ. Op. 2004-134. It seems likely that some of these cases would have had different
results under WFTRA.
59
McNair v. Comm’r, T.C. Summ. Op. 2004-115.
60
Caputi v. Comm’r, T.C. Memo. 2004-283.
61
In Jones v. Comm’r, the court found the dependency exemption would not reduce the taxpayer’s taxable
income. T.C. Summ. Op. 2004-133. In Sampson v. Comm’r, the court determined the taxpayer did not
have earned income for the year. T.C. Summ. Op. 2005-30.
62
Bernardo v. Comm’r, T.C. Memo. 2004-199, Booker v. Comm’r, T.C. Summ. Op. 2004-92, Caputi v.
Comm’r, T.C. Memo. 2004-283, Castleton v. Comm’r, T.C. Memo 2005-58, Colstock v. Comm’r, T.C. Summ.
Op. 2005-54, Elkins v. Comm’r, T.C. Summ. Op. 2004-84, Emanie v. Comm’r, T.C. Summ. Op. 2004-
78, Hubbard v. Comm’r, T.C. Summ. Op. 2004-148, Jondahl v. Comm’r, T.C. Memo 2005-55, Mbachu v.
Comm’r, T.C. Summ. Op. 2004-168, Mbanu v. Comm’r, T.C. Summ. Op. 2005-56, Montwillo v. Comm’r,
T.C. Summ. Op. 2004-123, Muncy v. Comm’r, T.C. Summ. Op. 2005-20, Ogu v. Comm’r, T.C. Summ. Op.
2004-87, Sampson v. Comm’r, T.C. Summ. Op. 2005-30, Szasz v. Comm’r, T.C. Summ. Op. 2004-169, Toney
v. Comm’r, T.C. Memo. 2004-165, Varner v. Comm’r, T.C. Summ. Op. 2004-111.
63
Hubbard v. Comm’r, T.C. Summ. Op. 2004-148.
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dependent.
64
In Bernardo v. Commissioner, a mother tried to file as head of household,
claiming her home was her daughter’s principal place of abode during the taxable year,
though the daughter was frequently away pursuing her singing career. An individual may
have “temporary absences from the household due to special circumstances” and still be
considered a member of the taxpayer’s household,
65
but the evidence implied that had
the daughter found paid work elsewhere, she would probably have stayed there. The
court found this inconsistent with the daughter having the same principal place of abode
as the taxpayer, and denied the taxpayer head of household status.
Marital status was an issue in five filing status cases.
66
In two of these cases, the taxpayers
admitted they were married,
67
one case involved an IRC § 7703(b) determination,
68
and
the other two were based on sufficiency of evidence.
69
Courts denied head of household filing status in two cases because the taxpayers had been
denied exemptions for their dependents.
70
One taxpayer’s claim was rendered moot by
another determination.
71
Finally, one taxpayer was denied head of household filing status solely because he could
not show that he had contributed over half of the cost of maintaining a household.
72
We note here that the definition of “head of household” was modified by the Working
Families Tax Relief Act.
73
64
Bernardo v. Comm’r, T.C. Memo. 2004-199, Caputi v. Comm’r, T.C. Memo. 2004-283, Castleton v. Comm’r,
T.C. Memo 2005-58, Emanie v. Comm’r, T.C. Summ. Op. 2004-78, Montwillo v. Comm’r, T.C. Summ. Op.
2004-123, Muncy v. Comm’r, T.C. Summ. Op. 2005-20, Ogu v. Comm’r, T.C. Summ. Op. 2004-87, Toney v.
Comm’r, T.C. Memo. 2004-165, Varner v. Comm’r, T.C. Summ. Op. 2004-111.
65
Treas. Reg. § 1.2-2(c)(1).
66
Colstock v. Comm’r, T.C. Summ. Op. 2005-54, Hubbard v. Comm’r, T.C. Summ. Op. 2004-148, Jondahl
v. Comm’r, T.C. Memo 2005-55, Mbachu v. Comm’r, T.C. Summ. Op. 2004-168, Mbanu v. Comm’r, T.C.
Summ. Op. 2005-56.
67
Colstock v. Comm’r, T.C. Summ. Op. 2005-54, Mbanu v. Comm’r, T.C. Summ. Op. 2005-56.
68
Mbachu v. Comm’r, T.C. Summ. Op. 2004-168.
69
Hubbard v. Comm’r, T.C. Summ. Op. 2004-148, Jondahl v. Comm’r, T.C. Memo 2005-55.
70
Booker v. Comm’r, T.C. Summ. Op. 2004-92, Szasz v. Comm’r, T.C. Summ. Op. 2004-169. The taxpayer
can claim head of household filing status for maintaining a household that is considered the principal
place of abode for the taxpayer’s unmarried son, daughter, stepson, stepdaughter, or unmarried descen-
dent of the taxpayer’s son or daughter. For all other qualifying individuals, including the taxpayer’s
mother or father, the taxpayer must be able to claim the qualifying individual as a dependent in order to
qualify for head of household filing status. IRC § 2(b)(1)(B).
71
Sampson v. Comm’r, T.C. Summ. Op. 2005-30.
72
Elkins v. Comm’r, T.C. Summ. Op. 2004-84.
73
Pub. L. No. 108-311, Working Families Tax Relief Act of 2004 (WFTRA). WFTRA set a uniform
definition of a “qualifying child” for tax benefits such as head of household filing status, dependency
exemptions, child tax credit, child and dependent care credit, and earned income tax credit. For the child
and dependent care credit, the taxpayer is no longer required to pay over half the cost of maintaining a
household for the qualifying child. The taxpayer is still required to pay over half the cost of maintain-
ing a household which is the primary residence for the qualifying child or qualifying relative in order to
qualify for head of household filing status.
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Child Tax Credit – IRC § 24
Sixteen cases involving the child tax credit were litigated during the reporting period.
74
In addition to the child’s age and residency requirements, a taxpayer must also be able to
claim a dependency exemption for the child.
75
Because qualifying for the dependency
exemption is required to claim the child tax credit, the child tax credit will be summarily
denied where the dependency exemption is denied, as it was in 15 cases.
76
In Castleton v.
Commissioner, the IRS conceded the taxpayer was entitled to the dependency exemption,
and the child met the age and residency requirements, so the credit was granted.
77
Child and Dependent Care Credit – IRC § 21
The Child and Dependent Care Credit was litigated in three cases,
78
with a taxpayer prevail-
ing in one. Two cases turned on the question of whether there was “sufficient evidence” to
claim the credit. In both Elkins v. Commissioner and Hubbard v. Commissioner, the issue of
whether the taxpayers had qualifying children was not in dispute. However, the IRS chal-
lenged both claims based on what it asserted was insufficient substantiation for the credit.
In Hubbard, the Tax Court found that the respondent’s disallowance of the child and depen-
dent care credit was unwarranted.
79
In Elkins, however, the court found significant evidence
that the dependent care center the taxpayer claimed to have used was not in operation dur-
ing the year in issue, and sustained the IRS’s disallowance of the credit.
80
74
Allsopp v. Comm’r, T.C. Summ. Op. 2004-154, Bouch v. Comm’r, T.C. Summ. Op. 2004-167, Boulden v.
Comm’r, T.C. Summ. Op. 2004-124, Brettin v. Comm’r, T. C. Summ. Op. 2004-95, Caputi v. Comm’r, T.C.
Memo. 2004-283, Castleton v. Comm’r, T.C. Memo 2005-58, Colstock v. Comm’r, T.C. Summ. Op. 2005-
54, Curello v. Comm’r, T.C. Summ. Op. 2005-23, Elkins v. Comm’r, T.C. Summ. Op. 2004-84, McNair v.
Comm’r, T.C. Summ. Op. 2004-115, Montwillo v. Comm’r, T.C. Summ. Op. 2004-123, Muncy v. Comm’r,
T.C. Summ. Op. 2005-20, Somsukcharean v. Comm’r, T.C. Summ. Op. 2005-49, Wells v. Comm’r, T.C.
Summ. Op. 2004-153, Werther v. Comm’r, T.C. Summ. Op. 2005-28, Scott v. Comm’r, T.C. Summ. Op.
2004-129.
75
IRC § 24(c)(1)(A)-(C).
76
Allsopp v. Comm’r, T.C. Summ. Op. 2004-154, Bouch v. Comm’r, T.C. Summ. Op. 2004-167, Boulden v.
Comm’r, T.C. Summ. Op. 2004-124, Brettin v. Comm’r, T. C. Summ. Op. 2004-95, Caputi v. Comm’r, T.C.
Memo. 2004-283, Colstock v. Comm’r, T.C. Summ. Op. 2005-54, Curello v. Comm’r, T.C. Summ. Op. 2005-
23, Elkins v. Comm’r, T.C. Summ. Op. 2004-84, McNair v. Comm’r, T.C. Summ. Op. 2004-115, Montwillo
v. Comm’r, T.C. Summ. Op. 2004-123, Muncy v. Comm’r, T.C. Summ. Op. 2005-20, Somsukcharean v.
Comm’r, T.C. Summ. Op. 2005-49, Wells v. Comm’r, T.C. Summ. Op. 2004-153, Werther v. Comm’r, T.C.
Summ. Op. 2005-28, Scott v. Comm’r, T.C. Summ. Op. 2004-129.
77
Castleton v. Comm’r, T.C. Memo 2005-58.
78
Elkins v. Comm’r, T.C. Summ. Op. 2004-84, Hubbard v. Comm’r, T.C. Summ. Op. 2004-148, McNair v.
Comm’r, T.C. Summ. Op. 2004-115.
79
Hubbard v. Comm’r, T.C. Summ. Op. 2004-148.
80
Elkins v. Comm’r, T.C. Summ. Op. 2004-84.
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C O N C L U S I O N
Family status provisions are fundamental components of the tax code, yet they have com-
plicated and sometimes conflicting eligibility standards. Because of this, tax filing has
become an increasingly difficult exercise for low income to middle income families. As
the above analysis shows, taxpayers who wish to claim the family status credits and deduc-
tions often do not understand the qualification requirements or how to properly satisfy
them. Further, such taxpayers often lack legal representation when they go before the
courts. The changes to family status provisions made by the Working Families Tax Relief
Act, effective in 2005, may ease the burden somewhat through the uniform definition of a
qualifying child, though the changes would not have affected the outcome of the majority
of the cases here.
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C O D E S E C T I O N 6 0 1 5
S U M M A R Y
Married persons may elect to file their income tax returns jointly or separately. Spouses
filing joint federal tax returns are jointly and severally liable for any deficiency or tax
due.
1
Joint and several liability enables the IRS to collect the entire amount owed from
either taxpayer.
IRC § 6015 provides three avenues for relief from joint and several liability. Section
6015(b) provides relief for deficiencies and is similar to the innocent spouse relief for-
merly provided in the repealed section 6013(e). Section 6015(c) also provides relief for
deficiencies and allocates the liability to each spouse. Section 6015(f) provides equitable
relief from deficiencies and underpayments if a taxpayer is not eligible for relief under
6015(b) or (c). A taxpayer generally files Form 8857, Request for Innocent Spouse Relief, to
elect relief. We reviewed 45 federal court opinions involving relief under IRC § 6015 that
were issued between June 1, 2004, and May 31, 2005.
P R E S E N T L A W
Traditional Innocent Spouse Relief Under IRC § 6015(b)
IRC § 6015(b)(1) provides full or partial relief from joint and several liability if the
requesting taxpayer can demonstrate that:
A joint return was filed;
There was an understatement of tax attributable to erroneous items of the nonre-
questing taxpayer;
Upon signing the return, the requesting taxpayer did not know or have reason to
know of the understatement;
Taking into account all the facts and circumstances, it is inequitable to hold the
requesting taxpayer liable; and
Requesting spouse made the election within two years after the IRS began collec-
tion activities with respect to the requesting taxpayer.
Allocation of Liability Under IRC § 6015(c)
IRC §6015(c) relieves the requesting taxpayer of liability for deficiencies allocable solely
to the nonrequesting taxpayer. To obtain relief under this section, the requesting taxpayer
must demonstrate that:
A joint return was filed;
At the time the election is made, the taxpayers are unmarried, legally separated,
or have not lived in the same household for the 12 months immediately preced-
1
IRC § 6013(d)(3).
1.
2.
3.
4.
5.
1.
2.
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ing the election; and
The election was made within two years after the IRS began collection activities
with respect to the requesting taxpayer.
This election separates or allocates the deficiency arising under the joint return and allo-
cates to each joint filer that portion of the deficiency attributable to each joint filer as
calculated under the allocation provisions of § 6015(d).
A taxpayer is ineligible to make an election under IRC § 6015(c) if the IRS demonstrates
that, at the time the return was signed, the requesting taxpayer had “actual knowledge” of
any item giving rise to the deficiency. Additionally, relief is denied for amounts attribut-
able to fraud, fraudulent schemes, or the certain transfers of disqualified assets.
Equitable Relief Under IRC § 6015(f )
IRC § 6015(f) provides equitable relief from deficiencies and underpayments for taxpayers
who can demonstrate that:
Relief under IRC § 6015(b) or (c) is unavailable; and
Taking into account all the facts and circumstances, it would be inequitable to
hold the taxpayer liable for the underpayment or deficiency.
IRC § 6015(f) directed the Secretary to issue procedures governing equitable relief. Rev.
Proc. 2003-61 lists some of the factors considered by the IRS in determining whether
equitable relief is appropriate.
2
These factors include marital status, economic hardship,
knowledge or reason to know, legal obligations of the nonrequesting spouse, significant
benefit to the requesting spouse, compliance with income tax laws, and abuse.
Unlike IRC § 6015(b) and (c), which relieve taxpayers from understatements of tax, equi-
table relief under IRC § 6015(f) is available for both understatements and underpayments.
2
Rev. Proc. 2003-61, 2003-2 C.B. 296, superseding Rev. Proc. 2000-15, 2000-1 C.B. 447. Section 4.01 of
this revenue procedure sets out seven threshold conditions that must be met by the taxpayer to be eligible
for relief under IRC § 6015(f). The seven threshold conditions are: the requesting spouse filed a joint
return for the taxable year for which he or she seeks relief; the relief is not available to the requesting
spouse under IRC § 6015(b) or (c); the requesting spouse applies for relief no later than two years after
the date of the IRS’s first collection activity; no assets were transferred between the spouses as part of a
fraudulent scheme; the nonrequesting spouse did not transfer disqualified assets to the requesting spouse;
the requesting spouse did not file, or fail to file, with a fraudulent intent; and the income tax liability
from which the relief is sought is attributable to the nonrequesting spouse. Section 4.02 establishes three
elements the taxpayer can prove to qualify for relief of an underpayment: spouses are no longer married,
are legally separated, or not members of the same household for the last 12 months; the requesting spouse
had no knowledge, or reason to know, that the nonrequesting spouse would not pay the income tax liabil-
ity; and the requesting spouse will suffer economic hardship if the IRS does not provide relief. Finally, if
the taxpayer satisfies the threshold conditions, but fails to prove the section 4.02 elements, section 4.03
sets out nonexclusive factors the IRS considers in determining whether equitable relief is appropriate.
3.
1.
2.
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Judicial Review
Taxpayers seeking relief under IRC § 6015 generally file Form 8857, Request for Innocent
Spouse Relief, to make the election. After reviewing the request, the IRS issues a notice of
determination granting or denying relief. The taxpayer has 90 days from the date the IRS
mails the notice to file a petition with the United States Tax Court.
3
If the taxpayer does
not receive a determination within six months of filing Form 8857, he or she may petition
the Tax Court any time after the six month period.
4
A taxpayer may also raise relief from
joint and several liability in a Collection Due Process proceeding,
5
a deficiency proceed-
ing,
6
or a refund suit.
A N A LY S I S O F L I T I G A T E D C A S E S
We analyzed 45 opinions issued between June 1, 2004, and May 31, 2005. Forty-two
cases were decided in the Tax Court, two were decided in United States Courts of
Appeals,
7
and one was decided in United States district court.
8
Of the 45 cases, 33 were
decided in favor of the IRS, 11 in favor of the taxpayer, and one was a split decision.
9
See Table 8 in Appendix 3 for a detailed breakdown of the decided cases.
While the courts considered many factors in determining the appropriateness of relief
under IRC § 6015, the most significant was whether the requesting taxpayer had actual
or constructive knowledge of the tax deficiency. All three avenues for relief contain a
knowledge element making it the linchpin in most of the courts’ analyses.
10
As such, tax-
payers generally were not successful if they could not show a lack of actual or constructive
knowledge in § 6015(b) or (f) cases.
11
In § 6015(c) cases, the IRS has the burden of prov-
3
IRC § 6015(e)(1)(A)(ii).
4
IRC § 6015(e)(1)(A)(i)(II).
5
IRC § 6320(c); § 6330(c)(2)(A)(i).
6
Corson v. Comm’r, 114 T.C. 354, 363 (2000).
7
Alt v. Comm’r, 93 A.F.T.R.2d (RIA) 2561 (6th Cir. 2004), cert. denied, 125 S. Ct. 606 (Nov. 29, 2004)
(affirming Tax Court’s decision not to grant relief under IRC §§ 6015(b) and 6015(f) because petitioner
failed to show it would be inequitable to hold her liable for the tax deficiency); Pless v. Comm’r, 111 Fed.
Appx. 178 (4th Cir. 2004) (affirming Tax Court’s decision not to grant relief under IRC § 6015(f) because
petitioner failed to present evidence supporting her claim despite several opportunities to do so).
8
U.S. v. Haag, 94 A.F.T.R.2d (RIA) 6665 (D, Mass. 2004) (granting the IRS’s motion for partial summary
judgment on the grounds that petitioner failed to meet two year filing requirement).
9
The phrase “split decision” refers to cases where the IRS and the taxpayer prevailed in one or more aspects
of the disputed issues. The split decision was Levy v. Comm’r, T.C. Memo. 2005-92 (granting relief for peti-
tioner’s 1979, 1991—1995 tax deficiencies, and denying relief for petitioner’s 1996—1999 tax deficiencies).
10
Taxpayer must establish he or she did not know, or have reason to know, of the deficiency.
IRC § 6015(b)(1)(C); election not valid if the IRS can show the taxpayer had actual knowledge of the
item giving rise to the deficiency. IRC § 6015(c)(3)(C); IRS will grant relief if the requesting taxpayer had
no knowledge or reason to know nonrequesting taxpayer would not pay tax liability.
Rev. Proc. 2003-61 § 4.02(1)(b). Knowledge or reason to know of the deficiency weighs against the
requesting taxpayer in the “facts and circumstances test.” Rev. Proc. 2003-61, § 4.03(2)(a)(iii).
11
Rev. Proc. 2003-61 modifies Rev. Proc. 2000-15 to reduce the weight given to the knowledge or reason to
know factor in section 6015(f) determinations. Rev. Proc. 2003-61, § 3.02.
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ing actual knowledge. The IRS lost in four of 14 cases where the government failed to
carry its burden of proof as to “actual knowledge” under IRC § 6015(c)(3)(C).
Taxpayers were often unrepresented in joint and several liability cases. Sixty percent (27
of 45) of the taxpayers litigated cases without the assistance of legal representation, i.e.,
pro se. IRC § 6015(e)(4) directs the Tax Court to establish rules providing the nonrequest-
ing spouse with adequate notice and an opportunity to intervene in the case.
12
The
nonrequesting spouse intervened in approximately 18 percent of the cases (eight out of
45). Intervention may lead to longer and more expensive litigation, especially when IRS
has conceded the issue of relief.
13
Most of the decided cases were resolved on factual determinations involving knowledge,
economic hardship, or whether it would be inequitable to hold the requesting spouse
liable for the tax. Over one-half of the cases turned on the factor analysis in Rev. Proc.
2003-61 or its predecessor, Rev. Proc. 2000-15. The Tax Court issued four precedential
opinions involving procedural legal issues.
McGee v. Commissioner
To be timely, a requesting spouse must elect relief from joint and several liability no later
than two years from the date of the IRS’s first collection activity against the requesting
spouse.
14
The IRS’s offset of a refund against an existing tax assessment under § 6402 is
a collection activity that triggers the two-year period.
15
In McGee v. Commissioner, the IRS
denied the requesting spouse’s claim for relief under IRC § 6015(f) solely on the basis
that the claim was filed more than two years after the refund offset. The Tax Court con-
cluded that the refund offset notice was a “collection-related” notice and that the IRS’s
failure to provide the requesting spouse with adequate notice of the right to file a claim
for relief under § 6015 violated § 3501(b)
16
of the Internal Revenue Service Restructuring
and Reform Act of 1998, resulting in prejudice to the spouse. The Tax Court held that
the two-year rule did not start to run and that the requesting spouse’s claim was timely.
17
In response, to the opinion, the IRS added language in 2005 to Publication 1, Your Rights
As A Taxpayer, informing taxpayers that a refund offset could start the two-year period
and revised the refund offset notices to inform taxpayers of the two-year rule and the
taxpayer’s right to file an innocent spouse claim.
18
The IRS also issued a notice directing
12
Tax Ct. R. 325.
13
Coleman v. Comm’r, T.C. Summ. Op. 2004-165 (IRS had conceded relief; Tax Court sustained relief despite
intervenor’s objection).
14
IRC § 6015(b)(1)(E); IRC § 6015(c)(3)(B); Rev. Proc. 2003-61, §§ 4.01(3)and (5); Treas. Reg. § 1.6015-
5(b)(1).
15
Campbell v. Comm’r, 121 T.C. 290 (2003).
16
Section 3501(b) provides that the Secretary must provide notice of an individual’s right to elect relief from
joint and several liability in Publication 1 and in any “collection-related notices.”
17
McGee v. Comm’r, 123 T.C. 314 (2004).
18
IRS Pub. 1, Your Rights As A Taxpayer (May 2005).
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counsel and IRS employees to no longer raise the timeliness issue unless the facts are dis-
tinguishable from McGee.
19
Van Arsdalen v. Commissioner
Tax Court Rule 325 provides procedures for nonrequesting spouses to intervene in a
§ 6015 Tax Court proceeding. Pursuant to those rules, the IRS served notice on
Ms. Van Arsdalen’s former spouse, Mr. Murray, of his right to intervene in the case for
the sole purpose of challenging Ms. Van Arsdalen’s right to § 6015 relief. Mr. Murray filed a
notice of intervention and expressed his intent to intervene for the sole purpose of sup-
porting his former wife’s right to relief. The Tax Court granted Ms. Van Arsdalen’s motion
to strike the notice because it unnecessarily restricted Mr. Murray’s right to intervene.
The Tax Court explained that neither the statute nor the Tax Court rules restricted the
right of intervention.
20
The IRS revised the notice of filing that it serves on intervenors
to be consistent with the court’s holding by deleting the restrictive language.
21
Drake v. Commissioner
The taxpayer filed a bankruptcy petition in September 2003. In January 2004, the IRS
issued a notice of determination to the taxpayer denying her claim for relief under § 6015,
and she timely filed a petition in Tax Court to challenge the determination. The Tax Court
granted the IRS’s motion to dismiss for lack of jurisdiction because the taxpayer filed her
petition in violation of the automatic stay imposed by the Bankruptcy Code. The Tax
Court noted that Congress did not include a tolling provision in § 6015 comparable to IRC
§ 6213(f), which would permit a taxpayer to file a petition for redetermination with the Tax
Court after the automatic stay is no longer in effect.
22
The National Taxpayer Advocate rec-
ommended a legislative change in the 2004 Annual Report
23
to fix this unintended result.
Friday v. Commissioner
The IRS issued a notice of determination denying the taxpayer’s claim for relief under
§ 6015 because it was untimely, and the taxpayer filed a petition in Tax Court to challenge
the determination. Following the McGee opinion, the IRS filed a motion to remand the
case back to IRS for a determination on the merits with respect to the taxpayer’s claim
for relief. The Tax Court denied the IRS’s motion providing that if more time is needed
to make a determination, the IRS should request a continuance. The Tax Court stated
that it does remand CDP cases because the Commissioner retains jurisdiction under IRC
§ 6330(d)(2), but pointed out that § 6015 does not contain a parallel provision.
24
The
19
CC Notice, 2005-010 (May 20, 2005).
20
Van Arsdalen v. Comm’r, 123 T.C. 135 (2004).
21
CC Notice 2005-011, Q&A 6 (May 20, 2005).
22
Drake v. Comm’r, 123 T.C. 320 (2004).
23
National Taxpayer Advocate 2004 Annual Report to Congress 490.
24
Friday v. Comm’r, 124 T.C. 220 (2005).
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Commissioner no longer files motions to remand.
25
C O N C L U S I O N
Joint and several liability under IRC § 6015 remains a highly litigated issue. Most of the
cases are resolved on factual determinations of knowledge, reason to know, and hardship.
Taxpayers’ success or failure often turns on their willingness and ability to provide docu-
mentation. The Tax Court continues to resolve procedural issues requiring the IRS to
modify its procedures in response to the court’s rulings.
25
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S U M M A R Y
We reviewed 44 federal court opinions on issues related to IRS summons enforcement
during the 12 months from June 1, 2004, through May 31, 2005.
1
The IRS has the
authority to summon the production of books, records or testimony from witnesses when
investigating either a civil or criminal tax liability.
2
This information can be obtained
from the person who is the subject of the investigation by serving a summons directly on
that person.
3
The IRS can also obtain this information from third-party record keepers
who are holding records relating to that person by serving summonses upon those record
keepers and providing notice of the summons to the person identified in the summons.
4
When a summons is served upon the person who is the subject of the investigation, that
person may contest the legality of the summons by waiting until the IRS brings a pro-
ceeding to enforce the summons and raising appropriate arguments at that time.
5
When a
summons is served upon a third-party record keeper, a person identified in the summons
can challenge the legality of a summons by intervening in a proceeding or by bringing a
proceeding to quash the summons.
6
Generally, the burden on the IRS to demonstrate
the validity of the summons is minimal and the burden upon the taxpayer to demonstrate
the illegality of the summons is formidable.
7
The taxpayer prevailed in whole or in part
in only two of the 44 cases.
8
1
A summons is a document notifying the person to whom it is directed that he must appear on the day
designated and answer claims or give testimony or produce certain books, papers or other data. Albachten
v. Corbett, 156 F. Supp. 863 (S.D. Cal. 1957).
2
IRC § 7602; Treas. Reg. § 301.7602-1.
3
IRC §§ 7602(a) and 7603(a).
4
IRC §§ 7603(b) and 7609(a).
5
Schulz v. IRS, 395 F.3d 463 (2nd Cir. 2005), clarified by Schulz v. IRS, 413 F.3d 297 (2nd Cir. 2005 (clarify-
ing that the initial second circuit opinion did not prohibit pre-hearing attachments).
6
IRC § 7609(a) requires that anyone identified in a third-party summons (other than the person sum-
moned) must be given notice of the summons. IRC § 7609(b) provides that those persons who are
entitled to notice can intervene in a proceeding regarding the summons and can initiate a proceeding to
quash the summons.
7
The burden upon the government is slight for the statute must be read broadly in order to ensure that the
enforcement powers of the IRS are not unduly restricted. U.S. v. Judicial Watch, Inc., 371 F.3d 824 (D.C.
Cir. 2004).
8
Doe v. U.S., 398 F.3d 686 (5th Cir. 2005), rev’g Doe v. KPMG, L.L.P., 93 A.F.T.R.2d (RIA) 1808 (N.D.
Tex. 2004) (reversing U.S. district court ruling that applied equitable tolling doctrine to extend statute of
limitations for assessment while summons was litigated); U.S. v. BDO Seidman, LLP, 94 A.F.T.R.2d (RIA)
5066 (N.D. Ill. 2004); U.S. v. BDO Seidman, LLP, 95 A.F.T.R.2d (RIA) 1725 (N.D. Ill. 2005); U.S. v. BDO
Seidman, 368 F.Supp.2d 858 (N.D. Ill. 2005) (one case, three opinions issued involving the attorney-client
privilege and exceptions to that privilege.).
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P R E S E N T L A W
The IRS has broad authority under IRC § 7602 to issue summonses for the examination
of a taxpayer’s books and records or to direct testimony under oath.
9
The IRS has the
authority to enforce a summons under IRC § 7604 by bringing suit in the appropriate
United States district court. The IRS also has the authority to obtain information related
to an investigation from third-party record keepers pursuant to IRC § 7609, provided
that notice is given to those identified in the summons so that they have the opportunity
to contest the summons. A summons can be contested on the grounds that the IRS has
failed to satisfy the threshold requirements for issuing a summons, as set forth by the
Supreme Court in United States v. Powell:
The investigation must be conducted for a legitimate purpose;
The inquiry must be relevant to that purpose;
The IRS must not already possess the information; and
All required administrative steps must have been taken.
10
The IRS initially has the burden in a summons enforcement proceeding to show that the
Powell requirements are satisfied. The burden shifts to the person attempting to quash the
summons to demonstrate the Powell requirements were not met or that enforcement of
the summons would be an abuse of process.
11
The IRS’s burden in satisfying the Powell
requirements is minimal, while the taxpayer’s burden to demonstrate that one of the fac-
tors has not been satisfied is heavy.
12
There are other limitations on the issuance of a summons, including the restriction
against issuing summons after an IRS recommendation to the Department of Justice for
criminal prosecution.
13
Additionally, the IRS may not obtain information protected by a
statutory or common law privilege, such as:
Attorney-client privilege;
14
Work product privilege;
15
or
9
U.S. v. Arthur Young & Co., 465 U.S. 805, 816 (1984) (stating, “In order to encourage effective tax investi-
gations, Congress has endowed the IRS with expansive information-gathering authority . . ..”
10
United States v. Powell, 379 U.S. 48, 58-59 (1964).
11
La Mura v. U.S., 765 F.2d 974, 979 (11th Cir. 1985).
12
The IRS burden can generally be satisfied by presenting the sworn affidavit of the agent who issued the
summons attesting to the necessary facts. Id.
13
IRC § 7602(d)(1).
14
The attorney-client privilege generally provides protection from discovery of information where:
(1) legal advice of any kind is sought, (2) from a professional legal advisor in his or her capacity as such,
(3) the communication is related to this purpose, (4) made in confidence, (5) by the client, (6) and at the
client’s insistence protected, (7) from disclosure by the client or the legal advisor, (8) except where the
privilege is waived. U.S. v. Evans, 113 F.3d 1457 (7th Cir. 1997), citing John Henry Wigmore, Evidence in
Trials at Common Law § 2292 (John T. McNaughten rev. 1961).
15
The work product doctrine protects against the discovery of documents and other tangible things pre-
pared in anticipation of litigation. U.S. v. BDO Seidman, LLP, 95 A.F.T.R.2d (RIA) 1725 (N.D. Ill. 2005).
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Tax practitioner privilege.
16
There are limitations to these privileges. For example, these privileges extend to “tax
advice” but not to tax return preparation materials.
17
Additionally, the identities of cli-
ents are not generally considered privileged information, except in rare cases where so
much of the actual confidential communication has been disclosed such that merely iden-
tifying the client would effectively disclose that communication.
18
Another limitation is
the so-called “crime-fraud” exception that permits discovery of communications between
an attorney and client that are in furtherance or perpetration of a fraud.
19
When the IRS serves a summons on a third-party record keeper, the IRS is required to
give notice of the summons to any person who is identified in the description of the
books and records contained in the summons in order that such person can contest the
summons.
20
Notice must be provided to the person within three days of the day on
which the summons is served to the record keeper, but no later than the 23rd day before
the day fixed on the summons on which the records will be reviewed.
21
Persons entitled
to notice under IRC § 7609(a)(2) may bring a proceeding to quash a third-party record
keeper summons in the appropriate federal district court. These proceedings must be
brought within 20 days after notice of the summons is served.
22
Summonses issued “in
aid of collection” of an assessed liability or judgment rendered against a person whose
liability is at issue are generally exempt from IRC § 7609 notice procedures.
23
In other
words, the IRS is not required to give notice to persons identified in the summons where
the purpose of the summons is to aid the collection of a liability. However, the courts
have interpreted the “aid of collection” exception to apply only where the taxpayer, upon
whose liability the summons is issued, owns a legally identifiable interest in the account
or other property for which records are summoned.
24
A N A LY S I S O F L I T I G A T E D C A S E S
This is the first year that summons enforcement appears in the National Taxpayer
Advocate’s Annual Report to Congress as a Most Litigated Issue. A detailed listing of this
16
IRC § 7525 extends the protection of the common law attorney-client privilege to tax practitioners.
Criminal tax matters and communications regarding tax shelters are exceptions to the privilege.
IRC § 7525 (a)(2) and (b). The tax practitioner privilege is interpreted based on the common law rules of
the attorney-client privilege. U.S. v. BDO Seidman, LLP, 337 F.3d 802, 810-812 (7th Cir. 2003).
17
U.S. v. Frederick, 182 F.3d 496 (7th Cir. 1999).
18
BDO Seidman at 811.
19
U.S. v. Zolin, 491 U.S. 554 (1989).
20
IRC § 7609(a); Treas. Reg. § 301.7609-3(a); see also Ip v. U.S., 205 F.3d 1168,1172 (9th Cir. 2000) (stating
“The purpose of the notice provision is to allow people to assert defenses, such as attorney-client privilege
or relevancy objects, that would be unavailable to them in the absence of notice.”)
21
IRC § 7609(a)(1).
22
IRC § 7609(b)(2)(A).
23
IRC §7609(c)(2)(D); Treas. Reg. § 301.7609-4(a).
24
Ip v. U.S., 205 F.3d 1168,1172-1176 (9th Cir. 2000).
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year’s cases can be found in Table 9 in Appendix 3. Summons enforcement is the primary
issue in all of these cases. The court ruled in favor of the IRS in 42 of the 44 cases, while a
taxpayer prevailed in one case and another ended in a split decision. Attorneys represented
taxpayers in 24 cases, while 20 taxpayers were pro se (i.e., without counsel). Arguments raised
by litigants against the IRS summons generally fell into the following categories:
Powell Requirements: None of the litigants prevailed when attacking IRS sum-
monses based on satisfaction of the Powell requirements. The burden on the IRS is
“slight” while the burden on those challenging the summons is significant.
25
Courts
found that revenue agents’ questionable comments were not sufficient to prove
improper purpose by the agency or those with authority to initiate the audit.
26
Likewise, the IRS defeated a taxpayer’s claim that the IRS already possessed the
information by providing an affidavit to the contrary from the agent who issued the
summons.
27
Taxpayers were also unsuccessful when disputing the relevance of the
documents to the investigation.
28
Notice: The issue of insufficient notice was raised by taxpayers in several cases in
an attempt to invalidate summonses.
29
Additionally, because entitlement to notice
confers standing to challenge a summons under IRC § 7609(b), the IRS also raised
entitlement to notice as a means to argue that litigants did not have standing to
contest the summons.
30
The notice requirements for a summons issued in aid of col-
lection of a tax liability were addressed in Cranford v. U.S.
31
Generally, the IRS is not
required to give notice of a summons in aid of collection, provided that the taxpayer
who is the subject of the investigation has a legally significant interest in the account
or other property for which records are sought.
32
The United States district court
ruled in Cranford that the IRS was not required to give the taxpayer’s spouse notice
of the summons because the summons was in aid of the collection of her husband’s
tax liability and her husband had a legally identifiable interest in the credit card
account.
33
25
U.S. v. Kis, 658 F.2d 526 (7th Cir. 1981)
26
U.S. v. Judicial Watch, Inc., 371 F.3d 824, 829-830 (D.C. Cir. 2004).
27
Xelan v. U.S., 361 F.Supp.2d 459, 465-466 (D. Md. 2005).
28
U.S. v. Monumental Life Insurance Co., 345 F.Supp.2d 712 (W.D. Ky. 2004); Grenier v. U.S., 94 A.F.T.R.2d
(RIA) 7116 (D. N.D. 2004);
29
Conner v. U.S., 94 A.F.T.R.2d (RIA) 5794 (W.D. Va. 2004) (holding that although the date of the notice
was in dispute, even if the notice was one day late, the taxpayer was not prejudiced); Xelan, Inc. v. U.S., 94
A.F.T.R.2d (RIA) 6755 (E.D. Pa. 2004) (holding that IRS is not required to give notice to all people who
might be referenced on summoned records).
30
Thompson-Perry v. U.S., 94 A.F.T.R.2d (RIA) 6862 (N.D. Ohio 2004) (holding that taxpayer did not have
standing to file suit because the summons was issued in “aid of collection” and was exempt from
IRC § 7609 notice requirements).
31
Cranford v. U.S., 359 F.Supp.2d 981.
32
Ip v. U.S., 205 F.3d 1168,1176 (9th Cir. 2000).
33
Cranford v. U.S., 359 F.Supp.2d at 988.
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Criminal Referral: Taxpayers also raised IRC § 7602(d) in order to invalidate sum-
monses where taxpayers perceived an impending referral to the Department of Justice
for criminal prosecution.
34
The IRS is prohibited from issuing a summons or begin-
ning an enforcement proceeding on a summons if a referral to the Department of
Justice is in effect.
35
Courts generally accept the testimony of the IRS agent who
issued the summons that no criminal referral has been made, unless the person con-
testing the summons can provide direct evidence to the contrary.
36
Constitutional Arguments: Taxpayers also unsuccessfully raised constitutional
arguments.
37
Courts noted that First Amendment rights can be implicated by IRS
summonses if it can be demonstrated that the IRS will subsequently take action with
the information that may “chill” free speech rights. Taxpayers also claimed that sum-
monses were too broad in violation of the Fourth Amendment’s restrictions against
unreasonable searches and seizures; however, the courts ruled a summons is not over-
ly broad for constitutional purposes if it is reasonably relevant to the IRS’s inquiry.
38
Additionally, taxpayers raised Fifth Amendment protections. Although the Fifth
Amendment privilege may be applicable in summons cases, it is inapplicable where
the summons seeks only non-testimonial data.
39
Privilege and Equitable Estoppel: The only two arguments to prevail against the
IRS in the summons litigation cases was the assertion of privilege as a bar to disclo-
34
U.S. v. Xelan, Inc., 96 A.F.T.R.2d (RIA) 5217 (S.D. Iowa 2005) (holding that agent’s affidavit that no refer-
ral had been made to the Department of Justice is sufficient to override plaintiff’s concerns that a grand
jury subpoena was issued to one of the plaintiff’s entities); U.S. v. Pate, 94 A.F.T.R.2d (RIA) 5480 (5th Cir.
2004) (holding that summons is enforceable unless taxpayer can demonstrate that the sole purpose in
issuing the subpoena is related to the criminal investigation); U.S. v. Hayden, 358 F.Supp.2d 951 (S.D. CA
2004) (holding IRC § 7602(b) allows IRS to investigate for “any offense” and matter was not referred to
Department of Justice); Ryerson v. IRS, 371 F.Supp.2d 1130 (D. AZ 2005) (holding that testimony of agent
that no referral had been made is sufficient).
35
IRC § 7602(d).
36
Ryerson v. IRS, 371 F.Supp.2d 1130 (D. Ariz. 2005) (holding that testimony of agent that no referral
had been made is sufficient where plaintiff offered no evidence to the contrary). U.S. v. Norwood, 343
F.Supp.2d 869 (D. N.D. 2004) (holding mere suspicion of future criminal prosecution is insufficient to
invalidate summons).
37
U.S. v. Heubusch, 95 A.F.T.R.2d (RIA) 1066 (2nd Cir. 2005) (holding documents suppressed in criminal
case can be summonsed in civil case without violating the Fourth Amendment’s prohibition against
unreasonable searches and seizures if there was an independent source for discovering the information,
as there was in this case); U.S. v. Judicial Watch, 371 F.3d 824 (D.C. Cir. 2004) (holding (1) there was no
evidence that audit and summons were retaliatory or that the request for names of donors contributing
more than $3,000 would chill donors’ rights to free speech under the first amendment; (2) summons was
not so overbroad as to violate the Fourth Amendment; and (3) neither the audit or summons was a selec-
tive “prosecution” or retaliatory, therefore, the Fifth Amendment was not violated) U.S. v. B & D Vending,
Inc., 398 F.3d 728 (6th Cir. 2004) (holding that discovery of corporate documents does not raise Fifth
Amendment issues of owner of the corporation); Ryerson v. IRS, 371 F.Supp.2d 1130 (D. AZ 2005) (hold-
ing that while discovery of documentary evidence may be unpleasant for taxpayer, such discovery does not
raise Fifth Amendment issues).
38
Judicial Watch, 371 F3d at 831-32.
39
U.S. v. Olmer, 94 A.F.T.R.2d (RIA) 6482 (D. Neb. 2004) (stating that the fifth amendment privilege is inap-
plicable to summonses seeking non-testimonial data, such as copyrighted names.
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sure of the summoned information and a lower court’s improper use of the doctrine
of equitable estoppel to extend the statute of limitations.
40
In the case where the
taxpayer prevailed and the split decision, there was a history of prolonged litigation
in other cases between the same parties (i.e. the IRS, various tax consultants and their
clients) over the marketing and use of tax shelters, involving thousands of contested
documents.
41
The IRS prevailed in much of this litigation, particularly where the
taxpayers or their consultants asserted that the identities of taxpayers were within the
attorney-client or tax practitioner privilege.
42
However, courts continued to restrict
IRS summons enforcement where the documents sought evidenced an intent to
seek legal advice from counsel or other tax practitioners, provided that the privilege
had not been waived.
43
The Fifth Circuit refused to apply the doctrine of equitable
estoppel to extend the statute of limitations on assessment during summons litiga-
tion, reversing the district court’s application of that doctrine.
44
C O N C L U S I O N
The IRS may issue a summons to obtain information needed to determine the correctness
of a return, determine if a tax return should have been filed, determine a taxpayer’s tax
liability, or to collect a taxpayer’s liability.
45
For these purposes, the IRS may summons
documentation from taxpayers who have failed to voluntarily provide that information to
the IRS. As the cases demonstrate, the summons authority is also useful in uncovering
the identities of taxpayers who participate in fraudulent schemes. In at least nine of the
cases reviewed, the summons in question was issued to third-parties who the IRS believed
were marketing unlawful tax shelters to taxpayers, reflecting the IRS’s increased attention
40
U.S. v. BDO Seidman, LLP, 95 A.F.T.R.2d (RIA) 1725 (N.D. Ill. 2005) (holding after in camera review that all
but one of the documents reviewed were privileged attorney-client communications); U.S. v. BDO Seidman,
368 F.Supp.2d 858 (N.D. Ill. 2005) (holding attorney-client communications were not waived when coun-
sel memorandum was allegedly faxed to a law firm experiencing similar legal issues with the IRS).; Doe
v. U.S., 398 F.3d 686 (5th Cir. 2005) (reversing a district court’s holding that the statute of limitations on
assessment is equitably tolled during summons litigation).
41
U.S. v. BDO Seidman, LLP, 337 F.3d 802, 810-812 (7th Cir. 2003); U.S. v. BDO Seidman, LLP, 95 A.F.T.R.2d
(RIA) 1725 (N.D. Ill. 2005); U.S. v. BDO Seidman, 368 F.Supp.2d 858 (N.D. Ill. 2005); Doe v. KPMG, LLP,
398 F.3d 686 (5th Cir. 2005); see also U.S. v. Arthur Andersen, LLP, 273 F.Supp.2d 955 (N.D. Ill. 2003),
amended on reconsideration, U.S. v. Arthur Anderson, LLP, 92 A.F.T.R.2d (RIA) 5800 (N.D. Ill. 2003).
42
U.S. v. BDO Seidman, LLP, 337 F.3d 802 (7th Cir. 2003).
43
BDO Seidman, LLP, 95 A.F.T.R.2d (RIA) 1725 (N.D. Ill. 2005) (holding that “no warranty” language in
consulting agreement did not result in a waiver of attorney-client privilege).
44
Doe v. U.S., 398 F.3d 686 (5th Cir. 2005) equitable tolling, assessed against the taxpayer, suspends the
statute of limitations because the taxpayer acted with unclean hands; for example, taxpayer intentionally
shielding their identity from the IRS until the statute of limitations expires.
45
IRC § 7602(a).
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to shelter activity.
46
As the IRS becomes more aggressive in its enforcement initiatives, it
is likely it will make increased use of the summons enforcement tool, and the courts will
continue to see increased numbers of these cases.
46
Doe v. U.S., 398 F.3d 686 (5th Cir. 2005); U.S. v. BDO Seidman, 95 A.F.T.R.2d (RIA) 2090 (E.D. Il. 2005);
U.S. v. BDO Seidman, 95 A.F.T.R.2d (RIA) 1725 (N.D. Ill. 2005); Xelan, Inc v. U.S., 94 A.F.T.R.2d (RIA)
6755 (E.D. Pa. 2004); Xelan, Inc v. U.S., 361 F.Supp.2d 459 (D. Md. 2005); Xelan, Inc v. U.S., 94 A.F.T.R.2d
(RIA) 5217 (S.D. Iowa 2004); Estate of Reiserer v. U.S., 95 A.F.T.R.2d (RIA) 2660 (W.D. Wash 2005);
Domestic Executive Leasing Services, LLC, v. U.S., 95 A.F.T.R.2d (RIA) 1966 (D. Nev. 2005); U.S. v. Kaiser, 397
F.3d 641 (8th Cir. 2005).
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S U M M A R Y
The Trust Fund Recovery Penalty under Internal Revenue Code § 6672 is a means by
which the government holds certain persons responsible for willfully failing to withhold
or remit the trust fund portion of payroll taxes.
1
When a person is deemed a “responsible
person” under the statute, the IRS assesses a civil penalty equal to 100 percent of the trust
fund portion of the payroll taxes that were not remitted.
2
Whether a person actually had
the responsibility to withhold payroll taxes and whether he or she willfully failed to do so
are mixed questions of law and fact that are frequently litigated in United States district
courts, bankruptcy courts, and the Court of Federal Claims.
P R E S E N T L A W
To be liable for the Trust Fund Recovery Penalty (TFRP), a person must be responsible for
withholding and remitting taxes and have willfully avoided paying those taxes.
3
Thus, to
obtain relief from the TFRP, a taxpayer must either demonstrate that he or she was not a
“responsible person” or did not act “willfully” within the meaning of IRC § 6672.
Responsible Person
The determination of whether one is a responsible person within the meaning of IRC § 6672
is a matter of status, duty, and authority, as evidenced by:
Holding of a corporate office;
Control over financial affairs;
The authority to disburse corporate funds; or
The ability to hire and fire employees.
4
A “responsible person” is someone with significant (not necessarily exclusive) control over
the company’s finances.
5
In general, the IRS will not seek to assess the penalty against
non-owner employees of the business entity who act solely under the control of others
and are not in a position to act independently of others.
6
On the other hand, instructions
from a superior to not pay taxes do not immunize a person otherwise responsible under
1
IRC §§ 3102 and 3402(a) require employers to withhold certain Social Security and income taxes from
employees’ wages. IRC § 7501 provides that taxes withheld from others, which are to be paid to the
United States, are held in a special fund in trust for the United States. Thus, these amounts are referred to
as the “trust fund” portion of payroll taxes. The IRS is required to credit the employees for the withheld
taxes even if the employer fails to remit them. Slodov v. United States, 436 U.S. 238 (1978).
2
IRC § 6672.
3
United States v. Carrigan, 31 F.3d 130, 133-34 (3rd Cir. 1994).
4
Thibodeau v. U.S., 828 F.2d 1499, 1503 (11th Cir. 1987). When conducting trust fund responsibility inter-
views with potentially responsible persons, the IRS uses Form 4180 (Report of Interview with Individual
Relative to Trust Fund Recovery Penalty) in order to make a determination regarding responsibility.
5
United States v. Carrigan, 31 F.3d 130, 133 (3rd Cir. 1994) (citation omitted).
6
IRM § 1.2.1.5.14.(3).
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the statute.
7
In addition, the term “responsible person” can include corporations and
other artificial entities.
8
Willfulness
To prove willfulness, the IRS must demonstrate that the person had knowledge of the pay-
ments to other creditors after he or she was aware that withholding taxes were delinquent
and made a voluntary act to prefer one creditor over the United States.
9
While no bad
motive needs to be established to prove willfulness, the IRS must at least demonstrate that
the taxpayer acted in reckless disregard of whether the taxes were being paid over.
10
Procedural Issues
The IRS conducts a investigation, including interviewing potentially responsible persons,
before making an assessment.
11
The IRS has no obligation to attempt to collect trust fund
taxes from the employer before assessing the TFRP penalty against a responsible person.
12
Note, however, that the period in which the IRS must assess the TFRP against a respon-
sible person is the period in which the IRS must assess the employer for the underlying
employment tax liability.
13
The responsible person and the IRS may agree to extend the
period for assessing the TFRP by executing Form 2750, Waiver Extending Statutory Period for
Assessment of Trust Fund Recovery Penalty.
Before the IRS can assess the penalty, however, it must send notice to the taxpayer
informing him or her of the proposed assessment.
14
In the notice, the IRS encloses Form
2751, Proposed Assessment of Trust Fund Recovery Penalty, setting forth the periods and
amounts of the proposed TFRP assessment, and offering the taxpayer an opportunity to
appeal the proposed assessment to the Office of Appeals.
15
If the taxpayer and the IRS
still cannot agree on the proposed assessment after the Appeals conference, the taxpayer
can pay a specified portion of the liability and file a claim for refund in the appropriate
7
Brounstein v. U.S., 979 F.2d 952, 955 (3rd Cir. 1992) (citations omitted).
8
Pacific Nat’l Ins. Co. v. United States, 422 F.2d 26, 30 (9th Cir. 1970).
9
In re Pugh, 315 B.R. 889, 898 (D. Nev. 2004); Phillips v. United States, 73 F.3d 939, 942 (9th Cir. 1996).
10
Phillips v. United States, 73 F.3d at 942.
11
IRM § 5.7.6.
12
The plain language of IRC § 6672 does not require the IRS to try to collect from the employer first.
13
Lauckner v. United States, 68 F.3d 69 (3d Cir. 1995), acq., 1996-2 C.B. 1.
14
IRC § 6672(b)(1).
15
See IRS Letter 1153.
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district court or the Court of Federal Claims.
16
When the government produces a cer-
tificate that the penalty assessments for failure to pay withholding taxes were made, the
government is entitled to a presumption of correctness in district courts or the Court of
Federal Claims, while the person against whom the penalty is assessed bears the burden of
proving by a preponderance of the evidence that he or she is not liable.
17
In bankruptcy
courts where TFRP issues arise when the IRS seeks to assert its TFRP claim against the
debtor’s assets, the burden is also on the debtor objecting to the claim to overcome the
prima facie validity of the creditor’s claim.
18
A N A LY S I S O F L I T I G A T E D C A S E S
We reviewed 34 opinions issued by federal courts in which the TFRP was an issue.
Taxpayers prevailed in whole or in part in 13 of the 34 cases, though in three of these
cases the court was denying the IRS’s motion for summary judgment, thereby requiring
the parties to go to trial on the contested issue.
19
A detailed breakdown of TFRP cases
appears in Table 10 in Appendix 3.
Of the cases where taxpayers prevailed on the substantive Trust Fund Recovery Penalty
issue (thereby disposing of the case in taxpayer’s favor), courts relied on three arguments
made by taxpayers:
Taxpayer Was Not a “Responsible Person”: In three cases, the courts ruled that the
taxpayer was not a “responsible person” even though the taxpayer was in a position
of authority. In Dewing v. United States, for example, the court ruled that a general
manager of a casino did not have sufficient control of financial decisions to warrant
a responsible person designation.
20
In Salzillo v. United States, the Court of Federal
16
IRC § 6672(c) provides that if the taxpayer makes the required payment within 30 days of notice and
demand for payment and files suit within 30 days of the IRS denial of refund, levy action will be stayed
until the conclusion of the court proceedings. IRS Letter 1153 instructs taxpayers who wish to contest the
IRS assessment that they can appeal the assessment without paying the entire trust fund recovery
penalty by: (1) paying the contested payroll tax for at least one employee for each period of liability that
the taxpayer wishes to contest; (2) filing a claim for refund for the amounts paid using IRS Form 843,
Claim for Refund and Request for Abatement; and (3) posting a bond with the IRS for one and one-half
times the amount of the penalty that is left after making the payment for the one employee. As the Trust
Fund Recovery cases demonstrate, once the case is filed, the IRS typically counterclaims for the balance
of the unpaid liability, thereby placing the entire TFRP liability at issue. See, e.g., Ashworth v. U.S., 95
A.F.T.R.2d (RIA) 2476 (D. N.J. 2005); Baimbridge v. United States, 335 F.Supp.2d 1084 (S.D. Cal. 2004);
Gutherie v. United States, 359 F.Supp.2d 693 (E.D. Tenn. 2005).
17
Fidelity Bank v. United States, 616 F.2d 1181, 1186 (10th Cir. 1980); Barnett v. United States, 988 F.2d 1449,
1453 (5th Cir. 1993).
18
In re Frank, 322 B.R. 745 (M.D. N.C. 2005).
19
Ashworth v. United States, 95 A.F.T.R.2d (RIA) 2476 (D. N.J. 2005)(granting summary judgment as to will-
fulness but question of fact exists as to whether controller was responsible person); Baimbridge v. United
States, 335 F.Supp.2d 1084 (S.D. Cal. 2004) (question of fact existed about whether installment agreement
estopped government from asserting willfulness element of TFRP responsibility); In re Pugh, 315 B.R. 889
(D. Nev. 2004)(denying IRS’s motion for summary judgment because there was a question of fact about
whether corporate officer knew about the withholding taxes had not been paid).
20
Dewing v. United States, 95 A.F.T.R.2d (RIA) 1609 (D. Nev. 2005).
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Claims held that the Chief Financial Officer (CFO) was not a responsible person
because the president of the company exercised complete dominion over all financial
decisions of the company, thereby impairing the CFO’s ability to pay the delinquent
employment taxes.
21
Thus, the title given to a particular position within a business
is not determinative as to responsible person status. In Secret v. United States, the IRS
pursued an outside accountant for the TFRP, in large part because the accountant
had signed Form 4180 Report of Interview with Individual Relative to Trust Fund Recovery
Penalty, and answered all its questions in the affirmative, indicating he had substantial
financial responsibility for the company.
22
The court rejected the IRS’s argument
that the accountant had admitted liability by virtue of Form 4180, finding:
Despite the government’s unwavering reliance on Secret’s Form 4180, the Court
finds the document rather unhelpful. The form contains no express admission of
responsibility or acknowledgement of liability. It uses vague, undefined terms.
23
The court found that the preponderance of the evidence established that the accoun-
tant did not have true control or authority to take any actions and held that the
accountant was not a “responsible person.”
24
Taxpayer Did Not Act Willfully. In several cases, courts ruled that while the tax-
payer was a responsible person, the taxpayer had demonstrated that there was no
willfulness on his or her part. One taxpayer successfully made this argument by
demonstrating he had a good faith belief that all payroll taxes were being paid and
that he had instituted dedicated accounts for this purpose.
25
A similar argument,
however, was unsuccessful for the president/chief executive officer who hired a surety
company to pay the employment taxes when insufficient funds were available. In
holding the president/CEO liable for the TFRP, the court concluded that even if the
surety company did have some financial responsibility, that fact alone was not dis-
positive of the president/CEO’s liability when he willfully paid other creditors while
knowing that employment taxes were due.
26
Bankruptcy Law Precludes IRS Action. Taxpayers prevailed in two bankruptcy
cases with differing arguments about the non-dischargeability of TFRP liabilities.
27
In United States v. White, the court concluded that because employment taxes (includ-
21
Salzillo v. United States, 66 Fed. Cl. 23 (2005).
22
Secret v. United States, 373 F.Supp.2d 619 (N.D. W.Va. 2005). Form 4180 asks: Did you: Direct the payment
of bills? Make bank deposits? Authorize payroll checks? Prepare federal payroll tax returns? Authorize pay-
ment of federal tax deposits? Review federal income tax returns? Determine company financial policy?
23
Secret v. United States, 373 F.Supp.2d at 627.
24
Id. at 629.
25
In re Frank, 322 B.R. 745, 760 (M.D. N.C. 2005) (holding that the taxpayer was not required to follow-up to
determine whether these mechanisms were actually utilized by those responsible for making the payments).
26
Lencyk v. United States, 384 F.Supp.2d 1028, 1035 (W.D. Tex. 2005).
27
TFRP liabilities are not normally discharged in bankruptcy.
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ing TFRP liabilities) were nondischargeable, the automatic stay
28
could only be lifted
when the case was closed or dismissed. Consequently, the court held that an assess-
ment of the TFRP liability was void when made while the case was in bankruptcy
because it violated the automatic stay provisions of the Bankruptcy Code,
29
In con-
trast, the court in In re Lowthorp concluded that the TFRP assessment was discharged
because the IRS did not file a proof of claim based on that debt.
30
Consequently,
the court determined that the IRS’s demands for payment of the TFRP liability were
violations of the court’s discharge injunction and held the IRS in contempt of court
and imposed sanctions.
31
Taxpayers also were unsuccessful in utilizing certain arguments against the willfulness
component of TFRP liability test.
Directions of Superiors Affecting Willfulness. Several taxpayers argued that their
omission in failing to pay payroll taxes was due to a superior who instructed them
not to pay on the explicit or implied threat of being terminated from employment if
the payments were made.
32
This excuse was not successful for any of the taxpayers,
with one court labeling it a type of “Nuremberg defense.”
33
Agreements with Third Parties Affecting Willfulness. Several taxpayers argued that
the willfulness element of the TFRP liability test could be rebutted by demonstrating
an agreement with a third party about how the business’s money would be used. In
Underberg v. United States, the court rejected the argument by the two responsible per-
sons that the company’s arrangement with a third party financial services firm, which
took control over the company’s finances, made it impossible to comply with its tax
obligations.
34
An unsympathetic court noted:
While the dilemma of choosing between losing one’s job and violating the nation’s
tax laws may be a harsh one, corporate officers and directors who face this dilemma
are not thereby absolved of responsibility for payment of withholding taxes.
35
In Baimbridge v. United States, the potentially responsible person attempted to address
the willfulness component of the TFRP liability test by arguing that the corporation
had entered into an installment agreement for the repayment of the delinquent tax,
and therefore, the IRS should be estopped from assessing the penalties because it was
28
11 U.S.C.A. § 362(a)(6).
29
United States v. White, 325 B.R. 918 (N.D. Ga. 2005).
30
In re Lowthorp, 325 B.R. 470 (M.D. Fla. 2005).
31
In re Lowthorp, 325 B.R. 470 (M.D. Fla. 2005) at 474. See In re Lowthorp, 332 B.R. 656 (Bankr. Fla. 2005),
for a discussion of the sanctions imposed against the IRS.
32
Ashworth v. United States, 95 A.F.T.R.2d (RIA) 2476 (D. N.J. 2005); In re Borman, 94 A.F.T.R.2d (RIA) 6301
(Bankr. S.D. Fla. 2004)
33
In re Borman, 94 A.F.T.R.2d (RIA) 6301 (Bankr. S.D. Fla. 2004).
34
Underberg v. United States, 362 F.Supp.2d 1278, 1288 (D. N.M. 2005).
35
Id. at 1287 (citation omitted).
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fully aware that the business was going to continue operation and satisfy non-IRS
creditors.
36
The court denied the IRS’s motion for summary judgment on the issue
of willfulness, thereby requiring the parties to go to trial, though the court noted that
“binding the government through equitable estoppel is no easy task.”
37
Subsequent Cooperation Is Irrelevant to Determination of Willfulness. In
another decision, a district court held that an individual’s cooperation after the TFRP
assessment was made is irrelevant to the determination of willfulness and held the
individual liable for the TFRP, consequently reversing a bankruptcy court decision.
38
The taxpayer was a vice president of the corporation and a shareholder who had
check-signing authority, and he paid other creditors in preference to the IRS; thus,
he acted willfully and cooperating fully with an IRS revenue officer after receiving a
demand for full payment of the past due taxes was irrelevant.
39
Pro Se Analysis
Only eight out of 34 (or 24 percent) of the taxpayers in these cases were pro se, or unrepre-
sented by counsel, and only one unrepresented taxpayer prevailed on the issues raised in
litigation. Of the taxpayers who were represented, 12 out of 26 (or 46 percent) prevailed
on some or all of the issues. The cases demonstrate that issues related to IRC § 6672 are
both procedurally and substantively complex and generally required competent counsel.
C O N C L U S I O N
The TFRP cases reviewed often involved officers of small businesses, such as chief execu-
tive officers or chief financial officers, who had some role in determining financial
expenditures. Where these officers were also shareholders or investors in the business, the
courts had little difficulty in making the requisite “responsible person” and “willfulness”
determinations because there appeared to be actual authority and control to make deci-
sions about paying or not paying payroll taxes. However, where the officer was a salaried
employee or an outside accountant, the courts struggled with the degree of the person’s
true level of authority and control. As one court noted, these cases often reflect the diffi-
cult choices for corporate officers who are faced with the dilemma in a struggling business
between losing one’s job or violating the nation’s tax laws. Still, these choices do not
excuse the responsibility of paying payroll taxes.
36
Baimbridge v. United States, 335 F.Supp.2d 1084 (S.D. Cal. 2004).
37
Id. at 1091.
38
United States v. Beltran, 316 B.R. 371 (S.D. Fla. 2004), rev’g In re Beltran, 93 A.F.T.R.2d (RIA) 2303 (Bankr.
S.D. Fla. 2003).
39
Id. at 374.
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IRC § 7803 requires the National Taxpayer Advocate to report to Congress annually on
the activities of the Office of the Taxpayer Advocate.
1
Taxpayer Advocate Service case
advocacy work reflects the IRS’s operational priorities and workload. Since its “stand
up” in 2000, TAS case receipts increasingly reflect the IRS’s emphasis on enforcement
activities.
C A S E A D V O C A C Y
Case Receipts
IRC § 7811(a) defines the types of hardships taxpayers experience which would meet the
criteria for TAS intervention. Chart 4.1 illustrates these receipts by Criteria Code (CC).
C h A R T 4 . 1 , F Y 2 0 0 5 TA S C A S E R E C E I P T S B Y C R I T E R I A C O D E
1
IRC § 7803(c)(2)(B)(ii)
##
##
##
##
##
##
##
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Economic B u r d e n Case R e c e i p t s
Criteria C o d e Description Number o f Cases % o f Cases
CC 1
Taxpayer is suffering or about to suffer a significant hardship
(IRC §7811(a)(1)(A))
29,021 15
CC 2 Taxpayer is facing a threat of adverse action (IRC §7811(a)(2)(A)) 7,870 4
CC 3
Taxpayer will incur significant costs if relief is not granted (IRC
§7811(a)(2)(C))
4,126 2
CC 4
Taxpayer will suffer irreparable injury, or long term adverse impact
(IRC §7811(a)(2)(D))
4,252 2
Total Economic Burden Case Receipts 45,269 23%
Systemic B u r d e n Case R e c e i p t s
Criteria C o d e Description N u m b e r o f C a s e s % o f Cases
CC 5
Taxpayer has experienced a delay of more than 30 days to resolve a
tax account problem (IRC §7811(a)(2)(B))
42,553 22
CC 6 Taxpayer has not received a response by the date promised 39,875 20
CC 7
A system(s) or procedure(s) has failed to operate as intended or
failed to resolve the taxpayer’s problem
67,036 34
CC 9
The Local Taxpayer Advocate has determined it is in the best
interest of the taxpayer for TAS to be involved
2,946 1
Total Systemic Burden Case Receipts 152,410 77%
Total Case Receipts 197,679 100%
IRC § 7803 authorizes the National Taxpayer Advocate to develop guidance for all
IRS officers and employees outlining the criteria for referring taxpayer inquiries to
TAS.
2
Seven of our criteria fall into two broad taxpayer burden categories: economic
burden and systemic burden. TAS also accepts cases where a Local Taxpayer Advocate
determines it is in the best interest of the taxpayer for TAS to accept the case into the
program. In reviewing our definitions and verification procedures for criteria, we found
that in some cases, a few of our requirements for the taxpayer to prove economic harm
prior to case acceptance were counterintuitive and caused additional burden. TAS sub-
sequently clarified its case acceptance definitions to include situations:
Where, due to considerations of equity or protection of taxpayer rights, it is in the
best interest of the taxpayer to accept his or her case, and
Where the National Taxpayer Advocate determines that compelling public policy
warrants assistance to an individual or group of taxpayers.
Moreover, TAS simplified the verification procedures for economic burden cases. We
will implement these clarifications in January 2006.
2
IRC § 7803(c)(2)(C)(ii).
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A D V O C A C Y
TAS receipts rose 17 percent in FY 2005 compared to FY 2004. Chart 4.3 illustrates
TAS receipts for the last four fiscal years.
C h A R T 4 . 3 , TA S R E C E I P T S
While TAS receipts rose in the last fiscal year, our staffing has steadily declined over the
past several years, from 2,198 staff years in FY 2002 to 1,943 staff years in FY 2005.
The majority of taxpayers contact TAS because they are experiencing a systemic burden
caused by a process, procedure, or system within the IRS that either failed to operate as
intended or failed to resolve the taxpayer’s problem. In FY 2005, 77 percent of our case
receipts met this category, while the remaining 23 percent were the result of taxpayers
experiencing some sort of economic burden. The percentage of economic burden cases
continues to grow as the IRS increases enforcement and compliance activities and TAS
conducts outreach to specific taxpayer populations. Chart 4.4 illustrates the trend of
economic burden case receipts over the last four fiscal years.
C h A R T 4 . 4 , TA S E C O N O M I C B U R D E N C A S E R E C E I P T S A S A P E R C E N T A G E
O F T O TA L R E C E I P T S
&9 &9 &9 &9
0%
5%
10%
15%
20%
25%
FY 2001
13.8%
16.1%
18.8%
21.1%
23.2%
FY 2002 FY 2003 FY 2004 FY 2005
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As the chart below illustrates, TAS systemic burden receipts increased 15.5 percent in
FY 2005 compared to FY 2004. These cases involve taxpayers experiencing delays of
more than 30 days to resolve tax account problems, not receiving responses by the date
promised, and systems or procedures failing to operate as intended or failing to resolve
the taxpayer’s problem. This increase in receipts corresponds to the overall increase in
regular case receipts (17 percent) over FY 2004. Increased Criminal Investigation (CI)
receipts continue to impact overall TAS receipts. Of the CI receipts, 86.5 percent were
attributed to systemic burden.
3
C h A R T 4 . 5 , S Y S T E M I C B U R D E N C A S E R E C E I P T S
Although TAS systemic burden case receipts increased 15.5 percent over the FY 2004 figure
(149,464 versus 129,382), the percentage of systemic burden receipts has steadily declined
from 81.2 percent in FY 2003 to 76.8 percent in FY 2005 as illustrated in Chart 4.6.
C h A R T 4 . 6 , S Y S T E M I C B U R D E N A N D T O T A L T A S C A S E R E C E I P T S
3
See Most Serious Problem: Criminal Investigation Refund Freezes, supra.
0
50,000
100,000
150,000
200,000
250,000
FY 2001
216,730
182,059
152,835
129,382
149,464
FY 2002 FY 2003 FY 2004 FY 2005
74%
76%
78%
80%
82%
81.2%
78.9%
76.8%
FY 2003 FY 2004 FY 2005
Systemic Burden Receipts to Total TAS Receipts
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A D V O C A C Y
Sources of TAS Casework
TAS uses primary and secondary issue codes to identify the issues that lead taxpayers to
seek TAS assistance. Table 4.7 illustrates the top 15 case issues received in TAS in FY
2005 based on the taxpayer’s primary and secondary issue codes.
T A B L E 4 . 7 , T O P 1 5 I S S U E S R E C E I V E D I N TA S I N F Y 2 0 0 5
Rank Description o f Issue Number o f Cases
1 Criminal Investigation (CI) / Return Preparer Program 31,627
2 Expedite Refund Request 17,775
3 EITC - Revenue Protection Strategy Claims 17,180
4 Processing Amended Return 16,960
5 Levy/Federal Payment Levy Program Levies 13,529
6 Processing Original Return 12,692
7 Audit Reconsideration 9,898
8 Other Refund Inquiries/Issues 7,958
9 Injured Spouse Claim 7,432
10 Closed Underreporter Program 7,205
11 Open Examinations (Non EITC) 6,776
12 Requests for Copies of Returns/Transcripts/Reports or FOIA 6,413
13 Liens 6,199
14 Returned/Stopped Refunds 5,560
15 Failure to File and Failure to Pay Penalties 5,131
Trends in TAS Case Receipts
TAS case receipts reflect the cause and effect of IRS operational priorities and workload.
Increased law enforcement and compliance activities, shifts in the availability and delivery
of services to taxpayers, and consolidation and centralization of IRS work processes are
apparent in the types of issues that caused taxpayers to seek our assistance in FY 2005.
Criminal Investigation Cases
Since FY 2002, TAS case receipts involving Criminal Investigation (CI) issues have
steadily increased as reflected in Chart 4.8.
C A S E A N D S Y S T E M I C ADVOCACY
554
A D V O C A C Y
C A S E A N D S Y S T E M I C
A D V O C A C Y
S E C T I O N
FOUR
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C h A R T 4 . 8 , C I R E C E I P T S F O R F Y 2 0 0 2 – F Y 2 0 0 5
In both FY 2004 and FY 2005, CI cases comprised the largest portion of TAS receipts.
4
In FY 2005, 28,639 taxpayers contacted TAS because, as a result of CI actions, the IRS
failed to issue their refunds or process their returns. This represents a 77.5 percent
increase compared to 16,139 cases in FY 2004. The primary programs CI uses to detect
and investigate refund fraud are the Questionable Refund Program (QRP) and the Return
Preparer Program (RPP).
5
TAS closed 26,206 QRP cases in FY 2005. As illustrated in
Table 4.9, TAS obtained full or partial relief for taxpayers in 60 percent of those cases.
T A B L E 4 . 9 , D I S P O S I T I O N O F C I C A S E S F O R F Y 2 0 0 5
TYPE O F RELIEF FY 2 0 0 5 % T O TAL
RELIEF GIVEN 15,708 60%
Full relief 14,658 56%
Partial relief 1,050 4%
NO RELIEF 10,498 40%
TOTAL 26,206 100%
Lien Issues
In FY 2005, TAS received 6,199 cases where the primary or secondary issue involved a
Notice of Federal Tax Lien, compared to 4,329 in FY 2004 and 3,501 in FY 2003. The
IRS has centralized routine lien filing and release operations at one campus and reduced
the number of field offices that handle the more complex, technical lien issues.
Levy Issues
As the IRS continues to step up its compliance activities, TAS has seen an increase
in the number of taxpayers who need our assistance to resolve issues involving lev-
4
National Taxpayer Advocate 2004 Annual Report to Congress 578.
5
In May 2005, TAS established a new primary issue code to track RPP cases. As of the end of FY 2005,
TAS received 357 RPP cases.
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ies, including Federal Payment Levy Program (FPLP) issues. In FY 2005, TAS received
13,529 cases where a levy was the primary or secondary issue compared to 9,019 in
FY 2004, representing a 27 percent increase. FPLP levies on Social Security benefits
increased 335 percent, from 345 cases in FY 04 to 1,502 in FY 05.
6
Taxpayer Assistance Center Cases
TAS continues to see an influx of cases related to the level of service available at IRS
Taxpayer Assistance Centers (TACs). As these offices eliminate services and reduce
hours of operation and staffing, taxpayers are turning to TAS for assistance. To illus-
trate, we received 6,413 cases in FY 2005 where taxpayers requested copies of returns,
forms, or transcripts, which are no longer available through the TACs. This represents
an increase of 58 percent from FY 2004, when we received 4,053 such cases. TAS estab-
lished a special use code in FY 2005 to track the number and nature of cases related to
the reduction in services at TACs, and we are closely monitoring this issue.
7
Case Closures
In FY 2005, TAS closed 190,153 cases received in the past fiscal year or prior years and
provided full or partial relief to the taxpayer in 68.14 percent of these cases. FY 2005 case
closures increased 11.4 percent over FY 2004, an increase largely attributable to the 17 per-
cent growth in case receipts. Table 4.10 details the disposition of cases closed in FY 2005.
T A B L E 4 . 1 0 , A P P L I C A T I O N F O R TA x P A Y E R A S S I S TA N C E O R D E R C A S E D I S P O S I T I O N
Ty p e o f Relief Number %
Total Applications for Taxpayer Assistance Closed 190,153 100.00%
Taxpayer Assistance Orders (TAO) Issued 20 0.01%
Relief provided to taxpayer 129,560 68.14%
Full relief 119,237 62.71%
Partial relief 10,309 5.42%
TAO issued-BOD (Business Operating Division) /Function complied 12 0.01%
TAO issued-BOD/Function appealed; TAO sustained 1 0.00%
TAO issued-BOD/Function appealed; TAO modified 1 0.00%
No relief provided to taxpayer 57,133 30.05%
No relief - no response 23,388 12.30%
No relief - Advocate does not deem relief appropriate 18,114 9.53%
No relief - BOD/Function already provided relief 8,584 4.51%
No relief - TP withdraws relief request 2,789 1.47%
No relief - Hardship not substantiated 1,611 0.85%
No relief - no internal revenue law issue 1,391 0.73%
No relief - relief appropriate but law prevents change 1,252 0.66%
TAO issued-BOD/Function appealed; TAO rescinded 4 0.00%
Relief Not Identified 3,460 1.82%
6
See Most Serious Problem: Levies On Social Security Payments, supra.
7
See Most Serious Problem: Taxpayer Services, supra.
C A S E A N D S Y S T E M I C ADVOCACY
556
A D V O C A C Y
C A S E A N D S Y S T E M I C
A D V O C A C Y
S E C T I O N
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C A S E A N D S Y S T E M I C A D V O C A C Y
Case Quality and Timeliness
TAS continues to focus on improving case quality, including accuracy, timeliness, and
effective communication. The business results, measured by TAS case quality standards,
demonstrate continued progress over the last four years, as illustrated in Chart 4.11.
8
At
the end of FY 2005, quality stands at 91.6 percent. The goal was 91 percent for FY 2005
and is 91.5 percent for FY 2006.
C h A R T 4 . 1 1 , T A S C A S E Q U A L I T Y F Y 2 0 0 2 T h R O U G h F Y 2 0 0 5
Timely case action as measured by Quality Standards 1, 2, and 3 continues to improve,
as noted in Chart 4.12. During FY 2005, TAS implemented a number of improvement
initiatives. Offices now have procedures to monitor critical customer contact dates and
have adopted back-up plans for situations when advocates are away from the office.
Timely actions positively impact case cycle time and customer satisfaction.
C h A R T 4 . 1 2 , T A S Q U A L I T Y T I M E L I N E S S S T A N D A R D S
8
TAS quality standards are: 1). Did TAS make timely contact with the taxpayer? 2). Did TAS take initial
action/request information within the specified period? 3).Did TAS take all subsequent actions timely
from the time action could have been taken? 4). Did TAS resolve all taxpayer issues? 5). Did TAS address
all related issues? 6). Were all actions taken by TAS and the IRS operations/functional divisions technical-
ly and procedurally correct? 7). Did TAS give the taxpayer a clear, complete, correct explanation at closing?
40%
50%
60%
70%
80%
90%
100%
110%
FY 2003FY 2002FY 2002 FY 2004 FY 2005
91.580.268.1 96.2 98.2
91.080.170.3 96.1 98.1
68.254.349.3
Std 1 QR
Std 2 QR
Std 3 QR 81.5 86.5
TAS Quality Timeliness Standards
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A D V O C A C Y
In FY 2005, TAS created specific objectives in support of our strategies and operational
priorities, including the ability to identify and respond to taxpayer concerns.
One such objective established standard procedures for reviewing all TAS cases open 100
days or longer.
9
These reviews allow us to gauge compliance with TAS case processing
requirements and to ensure case actions are taken at the right time and in the correct
manner. The reviews assess whether cases are progressing in a timely and effective way
and whether TAS is pursuing appropriate remedies, including issuance of a Taxpayer
Assistance Order.
As an adjunct to the 100-Day Case Review Procedures, and in response to findings by
the Treasury Inspector General For Tax Administration (TIGTA) in September 200410
regarding the timeliness of TAS case processing, we established Early Intervention
Guidelines to ensure taxpayer problems are resolved in the most effective and efficient
manner. The guidelines require managerial review early on in the case processing cycle
to determine whether TAS is pursuing the best approach and taking timely actions. The
reviews serve to ensure that the taxpayer’s problem is clearly defined and an appropriate
plan of action is developed.
Operations Assistance Requests (OARs)
TAS uses Operations Assistance Requests (OARs) to request assistance from an IRS
operating division or function to complete an action on a TAS case. An OAR is needed
when TAS does not have the statutory or delegated authority to take the action(s)
required to resolve the taxpayer’s problem. Table 4.13 highlights the OARs issued and
closed during FY 2005 and the average number of days it took the IRS to complete the
requested action(s).
T A B L E 4 . 1 3 , O A R A C T I V I T Y F O R F Y 2 0 0 5
Operating D i v i s i o n / F u n c t i o n OARs I s s u e d O A R s C l o s e d
11
Av e r a g e A g e (Days)
Appeals 1,879 1,620 69.5
Criminal Investigation 36,341 34,825 23.8
Large/Mid-Size Business 119 89 38.9
Small Business/Self-Employed 61,824 50,805 20.5
Tax Exempt/Government Entities 691 544 31.8
Wage & Investment 61,242 52,680 19.7
Total 162,096 140,563 21.6
9
TAS established 100-Day Case reviews in FY 2003. The objectives and procedures for conducting the
reviews were standardized in the FY 2005 TAS Program Letter.
10
Treasury Inspector General For Tax Administration, Ref. No. 2004-10-166, The Taxpayer Advocate Service
Needs to Improve Case Management to Ensure Taxpayer Problems are Resolved Timely (September 2004).
11
Does not include OARs rejected by the Operating Divisions/Functions due to incomplete or missing
information or because they were routed to the wrong area.
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Taxpayer Assistance Orders
Internal Revenue Code § 7811 authorizes Local Taxpayer Advocates to issue a Taxpayer
Assistance Order (TAO) when a taxpayer is suffering or about to suffer a significant
hardship as a result of the IRS’ administration of tax laws. Upon receipt of a TAO,
the responsible IRS official can either agree to take the action requested or appeal the
request.
During FY 2005, TAS issued 20 TAOs, compared to 30 in FY 2004. Eleven were Direct
TAOs and nine were Review TAOs. The IRS complied with the requested action on
twelve TAOs. Three TAOs were rescinded after discussion and negotiation between TAS
and the IRS resolved the taxpayers’ issues. One TAO was rescinded after new informa-
tion revealed the taxpayer was not entitled to the requested relief. The IRS appealed
two of the TAOs, of which one was sustained and one was modified.
T A B L E 4 . 1 4 , TA x P AY E R A S S I S T A N C E O R D E R S I S S U E D B Y B U S I N E S S O P E R A T I N G
D I V I S I O N ( B O D ) / F U N C T I O N
Small Business/Self-employed 11
Wage and Investment 7
Appeals 2
IRC § 7811(b) further provides that a TAO may require the action(s) to be taken within a
specified timeframe. All of the TAOs had specified timeframes, of which ten were com-
pleted on or before the date specified. Two were completed within four days of the specified
timeframe, one within 14 days, and one within 19 days. Two remain open pending resolu-
tion of all issues related to the TAO. Table 4.15 summarizes the actions requested.
T A B L E 4 . 1 5 , TA O R E Q U E S T E D A C T I O N S
Compliance I s s u e s
Levy Issues
Partial release of levy to allow taxpayer to meet payroll
Partial release of levy on partnership income
Release of levy pending processing of corrected returns. to adjust tax liability assessed as a
result of Substitute for Return assessments
Lien Issues Review decision to not withdraw a Notice of Federal Tax lien under IRC § 6323(j)(I)(D)(3)
Appeals Issues Provide taxpayer with Appeals hearing
Offer in Compromise
Issues
Accept taxpayer’s Offer in Compromise or provide explanation for rejection
Reopen taxpayer’s request for Offer in Compromise
Reconsider rejection of Offer in Compromise based on classification of an Individual
Retirement Account as a dissipated asset
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Processing I s s u e s
Refund Issues
Issue manual refund of Earned Income Tax Credit to
relieve a taxpayer’s hardship
Issue a Direct Deposit manual refund
Waive requirement to provide verification of bank
account information and issue Direct Deposit manual
refund to FEMA worker in hurricane disaster area
Earned Income Tax Credit Issues
Acknowledge and assign TAS Operations Assistance.
Request to make a determination regarding a taxpayer’s
entitlement to the Earned Income Tax Credit
Penalty Issues Abate Trust Fund Recovery Penalty
Account Adjustment Issues Reconsider abatement of Substitute for Return
assessments
Congressional Casework
TAS is responsible for independently reviewing all tax account related inquiries sent
to the IRS by members of Congress. During FY 2005, TAS received 11,509 inquiries,
of which 440 were duplicates.
12
Table 4.16 highlights the top ten issues identified in
Congressional inquiries.
T A B L E 4 . 1 6 , T O P T E N I S S U E S I D E N T I F I E D I N C O N G R E S S I O N A L I N Q U I R I E S
Issue Number
Levies (including the Federal Payment Levy Program) 634
Application for Exempt Status (Form1023/1024) 483
Copies of Returns/Transcripts/Reports/FOIA 419
Account/Notice Inquiry 416
Failure to File Penalty (FTF)/ Failure to Pay Penalty (FTP) 406
Offer in Compromise - Doubt as to Collectibility 405
Open Audit (Non RPS, EITC) 404
Reconsideration/SFR/6020B/Audit 404
Other Refund Inquiries/Issues 308
Open Unreported Income Program 294
T A S D I S A S T E R R E L I E F E F F O R T S
TAS played an active role in disaster relief this past year. Even though Hurricanes
Katrina, Rita, and Wilma temporarily closed offices and forced some of our employees
to relocate, TAS continually sought to help victims at both the national and local lev-
els. For example, immediately after Hurricane Katrina evacuees moved to the Houston
convention center, the Houston TAS office helped those who had no documents to
establish their identities. TAS employees provided transcripts to establish names and
12
Duplicate Congressional inquiries are cases with inquiries from more than one Congressional office on
the same taxpayer and the same issue. Currently, these cases are not reflected in TAS overall receipts and
closure statistics.
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addresses, which assisted the victims in obtaining relief benefits. TAS also participated
in a four-part strategy to address disaster relief.
TAS Disaster Policy Group
The IRS’s Disaster Policy Group includes representatives from TAS and each operating
division and function. The group reviews the scope of each event and makes recom-
mendations for relief, including up-to-date policy and procedural guidance to help IRS
employees respond to disaster or emergency situations. Two sub-teams of the council
address technical, tax related issues and personnel issues, and TAS participates on both.
TAS also established its own internal Disaster Policy Group, which is comprised of the
Deputy National Taxpayer Advocate and senior leaders from TAS program areas impact-
ed by disaster efforts. The group sets policy, addresses TAS issues relating to disaster
relief, and elevates service-wide or legislative issues to the IRS Disaster Relief Council.
The areas addressed include finance, systems issues, communications, education, pro-
gram guidance, employee issues, legal issues, and case advocacy.
Question and Answer Mechanism
TAS established a special e-mail address that TAS employees use to elevate issues or
questions relating to disasters. TAS subject matter experts review, research, and answer
the questions, with the analysis and answers posted to TAS’ internal website and dis-
tributed through all-employee email publications. Members of the TAS Disaster Policy
Group approve the responses provided through this forum for consistency and policy
purposes. The group also sends a personalized response to every employee who submits
a question to the e-mail address.
TAS Special Editions
TAS publishes an electronic newsletter, Special Edition, to convey urgent information to
all TAS employees when necessary. TAS issued Special Editions almost daily immediately
after Hurricanes Katrina and Rita to provide employees with the latest information
needed to assist hurricane victims, including important intranet links, and answers to
questions posed through the special e-mail address mentioned above. The Special Edition
newsletters are also available on the TAS internal web site for employees to use as a ref-
erence tool in dealing with disasters.
Disaster Guidance
TAS developed a reference guide to use in conducting outreach to taxpayers and practi-
tioners. The guide addressed the following activities:
FEMA Volunteers – Joint Field Office
FEMA requested 2,000 volunteers for deployment to the Gulf States area to assist with
recovery efforts related to Hurricane Katrina. The IRS put in place an application pro-
cess by which employees volunteered to work directly with FEMA, with concurrence
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from their managers and IRS business units. TAS employees’ applications were reviewed
for business concurrence at the Deputy National Taxpayer Advocate level. FEMA ulti-
mately selected eight TAS employees for this effort.
Local Disaster Cadres
As part of a Strategic Relationship Management Local Council (SRMLC) initiative,
or other local initiatives, TAS nominated an individual(s) to serve on teams ready to
respond to local disaster issues. Participation of TAS employees on these teams varies
across the country. These teams take part in a number of activities, but predominately
staff FEMA Disaster Recovery Centers (DRCs) and are activated early in the disaster
response process.
FEMA Disaster Recovery Centers
A Disaster Recovery Center (DRC) is a readily accessible facility or mobile office where
applicants can go for information about FEMA or other disaster assistance programs.
A number of agencies provide assistance at these centers. The IRS is typically present
handing out disaster kits, providing transcript information, educating taxpayers on tax
law provisions and changes relating to the disaster, answering taxpayer questions, refer-
ring hardship situations to TAS, and assisting taxpayers in filing claims related to disaster
losses. TAS’ primary function in this endeavor is an off-site support role in which the
organization provides transcripts for taxpayers to use in preparing disaster claims.
FEMA Call Sites
Thousands of IRS employees in Buffalo, Dallas, Philadelphia, and Atlanta met the chal-
lenge when FEMA requested their assistance in answering FEMA’s toll-free lines. TAS
was prepared to provide assistance after hours, if needed. However, this need for addi-
tional support did not materialize.
Small Business Development Center (SBDC) Support
The IRS has signed a Memorandum of Understanding with the SBDC to assist in
setting up joint outreach sites to help businesses affected by the disaster reestablish
themselves. TAS supports this initiative by providing expedited tax return transcripts,
which are useful in reconstructing financial records and completing loan applications.
Low Income Taxpayer Clinic (LITC)/American Bar Association (ABA) Support
TAS will pair ABA volunteers with LITCs to offer disaster relief assistance, which will
include:
The ABA selecting LITCs to receive disaster-related calls coming into the ABA’s
disaster toll-free number, with implementation planned for the 2005 filing season;
Training and encouraging ABA volunteers to work with LITCs to pair the volunteer
with the most convenient LITC site offering disaster relief assistance;
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TAS training LITCs and ABA volunteers on disaster casualty losses, transcripts, and
related disaster issues through a phone forum; and
TAS providing expedited transcript support to taxpayers seeking disaster relief assis-
tance through the LITC/ABA partnership.
Red Cross /Other Site Assistance
The Red Cross refers some disaster victims to other agencies, including the IRS, for addi-
tional services, including transcript information or the filing of claims. TAS does not
anticipate a large need for outreach in conjunction with the Red Cross, however, local
events and special Red Cross assistance sites at the local level may dictate otherwise.
S Y S T E M I C A D V O C A C Y
Effective systemic advocacy improves tax administration and taxpayer compliance, bene-
fiting the IRS as well as taxpayers. The TAS Office of Systemic Advocacy works directly
with the IRS on problems caused by administrative practices and helps to develop legis-
lative recommendations, when warranted.
In the past year, TAS received notice of more than 600 potential systemic problems
from TAS and IRS employees and external stakeholders, including taxpayers, practitio-
ners, and research and academic institutions. To heighten awareness of these pressing
issues and facilitate rapid responses, the National Taxpayer Advocate recently revised the
Systemic Advocacy structure to include a Director of Advocacy Projects and a Director
of Immediate Interventions.
O F F I C E O F A D V O C A C Y P R O J E C T S
The Office of Advocacy Projects addresses systemic issues having impact and complexity
that demand strategic, long-term analysis. These issues, which affect specific segments
of the taxpayer population, may pertain to businesses, individuals, or non-profit entities.
Systemic Advocacy and field analysts, attorney advisors, and Local Taxpayer Advocates
(LTAs) wrote throughout the year on these advocacy projects, which may be designated
Most Serious Problems in the Annual Report to Congress if they are not resolved timely.
The Office of Advocacy Projects also supports the LTAs with their Advocacy Portfolios.
13
A D V O C A C Y P O R T F O L I O S
Each Local Taxpayer Advocate (LTA) maintains an Advocacy Portfolio to bring the
field perspective to advocacy issues and thereby integrate case and systemic advocacy.
Portfolio assignments are issues of national importance. The LTAs leverage their exper-
tise and field contacts to promote awareness and rapid correction of systemic problems
in IRS offices and campuses. LTAs identify local systemic issues; bring an experienced
perspective to pending IRS program modifications, and network with peers throughout
13
See Appendix II for a complete listing of these Portfolio assignments.
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TAS and the operating divisions. As Portfolio Advisors, they maintain a current under-
standing of their topics, initiate proposals, assist in resolving problems, and monitor the
progress of their Portfolios.
I M M E D I A T E I N T E R V E N T I O N S
The National Taxpayer Advocate gives high priority to issues that meet “Immediate
Intervention” criteria. An issue rises to the status of an Immediate Intervention when
IRS actions, published or unpublished guidance, inequitable treatment, or other unusual
circumstances result in an action against a taxpayer or group of taxpayers that requires
immediate relief. TAS pursued the following Immediate Interventions in 2005:
Electronic Filing in Puerto Rico. The IRS planned to discontinue Form 1040 elec-
tronic filing in Puerto Rico due to concerns about inappropriate Additional Child
Tax Credit (ACTC) claims. The proposal could have caused inequitable treatment
of approximately 79,000 low-income taxpayers and their practitioners. The IRS
did not timely inform them of the change and they could not make the necessary
adjustments for the filing season. After TAS raised this issue, the IRS decided to
continue accepting electronic Forms 1040 from Puerto Rico, and have the IRS
Philadelphia Campus screen these returns for ACTC eligibility.
Direct Debit Installment Agreement (DDIA) Payments in Disaster Areas. Many issues
relating to the hurricanes of 2005 rose to the level of an Immediate Intervention.
Of particular importance were those hurricane victims who had existing Direct
Debit Installment Agreements (DDIAs) with the IRS and whose automatic pay-
ments toward their tax liabilities were still being processed, even though many
had no job or wages. The Tax Policy Board for disaster relief accepted a TAS rec-
ommendation to allow relief to taxpayers, return the payments, and suspend the
DDIAs.
Centralized Lien Processing. Several taxpayers and IRS employees raised hardship
situations resulting from delays in providing payoff balances and lien releases by
the Centralized Case Processing (CCP) Lien Unit. TAS, working with CCP man-
agement and staff, identified and implemented solutions.
Estimated Average Preparation Times and Out-of-Pocket Expenses included in the
Instructions to Form 1040. The year 2005 concluded with a barrage of inquiries
from tax practitioners and software providers regarding instructions for individual
tax returns, which the IRS issued in November. These instructions included a chart
outlining the estimated average preparation times and out-of-pocket expenses for
each return preparation method. The chart stratifies this information by hours and
costs in three categories:
Self-Prepared Without Tax Software;
Self-Prepared With Tax Software; and
Prepared by Paid Professional.
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The information caused a great deal of concern for practitioners, who felt it gave
the impression of dictating a reasonable price for their services. The software com-
munity also expressed concerns because the chart indicated it is more cost effective
and time efficient to prepare a paper return rather than file a return electronically.
S Y S T E M I C A D V O C A C Y R E C E I P T S A N D P R O J E C T S
The TAS Office of Systemic Advocacy reviews and assigns advocacy work through the
Systemic Advocacy Management System (SAMS). The Office of Systemic Advocacy
tracks its work on SAMS, a web-based application available to IRS employees and the
public.
14
Systemic Advocacy employees review all issue submissions and apply criteria
that categorize and develop the issues into projects when appropriate, or assimilate new
issues into existing projects.
Table 4.17 illustrates monthly issue receipts, new advocacy projects created from receipts
and project closures for fiscal year 2005.
T A B L E 4 - 1 7 , F Y 2 0 0 5 S A M S R E C E I P T S , N E W P R O J E C T S , A N D C L O S U R E S
During fiscal year 2005, the Office of Systemic Advocacy received 635 advocacy issues,
with the majority coming via SAMS.
15
The public (taxpayers, academics, and tax profes-
sionals) submitted approximately 17 percent of SAMS issues via the Internet. TAS and
other IRS employees delivered the remaining issues directly into SAMS using the IRS
intranet.
The number of submissions declined by 34 percent from FY2004, a trend attributed to
IRS and TAS employees growing more familiar with SAMS and the criteria for a system-
ic issue. Thus, Systemic Advocacy received a larger number of appropriate submissions
14
SAMS is a database of advocacy issues submitted to TAS by employees and the public and the projects
created from these issues. The Internet version of SAMS is available through the Systemic Advocacy pages
of the TAS website at http://www.irs.gov/advocate.
15
A limited number of advocacy issues come into the Office of Systemic Advocacy through outreach and
emails directly to the National Taxpayer Advocate and the Executive Director of Systemic Advocacy.
These are input and tracked on SAMS along with issues sent directly through the system.
/#4 ./6 $%# *!. &%" -!2 !02 -!9 *5. *5, !5' 3%0
3!-32ECEIPTS
.EW0ROJECTS#REATED
#LOSED0ROJECTS
2 0 0 5 A N N U A L R E P O R T
◆
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565
C A S E A N D S Y S T E M I C
A D V O C A C Y
S E C T I O N
FOUR
A D V O C A C Y
and accepted fewer that required transfer to other IRS units. These transfers fell almost
200 percent from FY 2004, with the largest decrease involving questions and suggestions
for improving TAS case processing procedures and policy. TAS brought a new database
online to track and respond to these types of questions in April 2005.
16
Systemic Advocacy reviews all issue submissions using established criteria to prioritize
inventory and develop advocacy projects.
17
If an issue meets criteria and all facts are
present, Systemic Advocacy ranks the issue to assess its general scope, visibility and
sensitivity, and the interest it generates among members of Congress, the media, and
stakeholders. The ranking process also considers the impact on taxpayer burden and
taxpayer rights as well as TAS’s ability to effect change by working the issue. Systemic
Advocacy developed approximately 28 percent of submissions into new projects during
FY 2005, creating 175 projects in all. Meanwhile, the number of closed (completed)
projects rose almost 20 percent over FY 2004.
As the above statistics depict, most submissions do not become projects. Some (e.g.,
local issues, tax law questions) may not truly represent systemic problems, while others,
such as requests for IRS system changes, can be better handled through existing IRS
processes. However, Systemic Advocacy staff continually assesses all submissions to
identify trends and gain a comprehensive understanding of problems.
C h A R T 4 - 1 8 , T O P S Y S T E M I C A D V O C A C Y P R O J E C T C A T E G O R I E S
Table 4.19 outlines the top 25 systemic issue topics in SAMS by major issue (MI) codes
that correspond to tracking on TAMIS, the TAS database of individual taxpayer cases.
Some of the advocacy issues do not directly match with TAMIS MI Codes because cases
usually relate to service and account problems. For example, Earned Income Tax Credit
16
The CAPER (Cases and Correspondence - Analysis - Policy and Procedure – Evaluative - Review) system,
a forum for TAS field and campus offices to submit questions, issues, and suggestions to the TAS Taxpayer
Accounts Operations (TAO) office, became operational in FY 2005.
17
Submissions identifying issues that are so highly visible, sensitive, or urgent that there is no time for nor-
mal corrective steps to occur are elevated as Immediate Intervention projects and assigned immediately.
Notices, 10
Examination Issues, 7
Offers in Compromise, 7
Penalty Issues, 7
Case Processing, 6
Collection Issues, 6
Levy, 6
Refunds Direct
Deposit, 6
Service, 6
Installment
Agreements, 5
Top Ten Systemic Advocacy Project Categories for FY2005
C A S E A N D S Y S T E M I C ADVOCACY
566
A D V O C A C Y
C A S E A N D S Y S T E M I C
A D V O C A C Y
S E C T I O N
FOUR
C A S E A N D S Y S T E M I C A D V O C A C Y
is listed under Exam MI Codes and does not have a separate code for problems with the
related EITC law. Systemic advocacy issues often address problems with either a lack of
or inadequate guidance, or difficulty applying tax law.
T A B L E 4 - 1 9 , T O P 2 5 I S S U E S R E C E I V E D I N S A M S F O R F Y 2 0 0 5
MI C o d e Description F Y 0 5 A d v o c a c y Receipts
N/A Case Processing 39
780 Offers in Compromise (OIC) 29
100 Service 29
111 Notices 28
301 Return Processing 23
390 Information Reporting 21
600 Examination Issues 21
751 Installment Agreements 18
000 Refund Issues 17
200 Payments/Account Credits 16
701 Collection Issues 15
410 Multiple/Mixed ID Numbers 15
100 Form or Publication Issue 14
105 Determinations 14
500 Penalty Issues 14
N/A Income Issues 13
710 Levy 13
720 Lien 13
N/A Extension to File 11
400 Entity Issues 11
330 Amended Return 10
990 Access to IRS 9
630-640 Earned Income Tax Credit (EITC) 9
830 Interest Calculation 9
340 Injured Spouse (Form 8379) 8
Ongoing SAMS enhancements include the addition of a project history screen for ana-
lysts to facilitate project management and another screen to allow SAMS issue reviewers
to make notations during the ranking process.
Chart 4.20 illustrates the top ten SAMS issues in fiscal year 2005. The following top-
ics from FY 2004 are no longer among the top ten receipts: Earned Income Tax Credit
(EITC), Individual Taxpayer Identification Number (Form W-7), Penalty Issues, and
Form/Publication Issue. These were replaced by Examination Issues, Refund Issues,
Payments/Account Credits, and Case Processing.
2 0 0 5 A N N U A L R E P O R T
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567
C A S E A N D S Y S T E M I C
A D V O C A C Y
S E C T I O N
FOUR
A D V O C A C Y
C h A R T 4 - 2 0 , T O P T E N I S S U E T O P I C S R E C E I V E D I N S A M S I N F Y 0 5
I N T E R N A L R E V E N U E M A N U A L A N D I N T E R N A L M A N A G E M E N T D O C U M E N T ( I M D ) R E V I E W
In addition to addressing matters of priority concern, the Office of Immediate
Interventions is the Single Point of Contact (SPOC) for review of all internal manage-
ment documents (such as interim guidance, policy statements, or delegations order)
including the Internal Revenue Manual (IRM) that affects taxpayers. Review of these
documents not only focuses on taxpayer rights and burden, but also on tracking these
documents to ensure that, the IRM properly incorporates the recommendations of each
Annual Report to Congress.
TAS received 346 Internal Revenue Manual and Internal Management Documents
(IMDs) for review and provided feedback on 113, placing particular importance on
Collection IRMs relating to liens, levies, and managerial involvement and oversight in
these processes. TAS also provided a response on guidance relating to time frames for
receiving and processing Collection Due Process (CDP) hearing requests to ensure tax-
payers were allowed adequate time to respond before IRS took collection action.
O T h E R I N I T I A T I V E S
The following table lists some of the initiatives and projects pursued by Systemic
Advocacy in fiscal year 2005.
Case Processing, 39
Offers in
Compromise, 29
Service, 29
Notices, 28
Return Processing, 23
Information
Reporting, 21
Examination
Issues, 21
Installment
Agreement, 18
Refund Issues, 17
Payments/Account Credits, 16
FY 2005 Top Ten Issue Topics With Receipt Count
C A S E A N D S Y S T E M I C ADVOCACY
568
A D V O C A C Y
C A S E A N D S Y S T E M I C
A D V O C A C Y
S E C T I O N
FOUR
C A S E A N D S Y S T E M I C A D V O C A C Y
T A B L E 4 - 2 1 , S Y S T E M I C A D V O C A C Y I N I T I A T I V E S 2 0 0 5
Systemic I n i t i a t i v e Actions Taken
Private Debt Collection
Initiative
The NTA has identified seven areas for particular attention: contractor training,
policies and procedures, taxpayer privacy, notices, complaint processes, case selec-
tion criteria and exclusion codes, and contractor monitoring and case research of
the PDC initiative scheduled for July 2006. The IRS should establish procedures
for taxpayers treated unfairly by debt collectors could get TAS assistance.
18
Taxpayer Assistance Centers
(TACs)
Assess the effects of IRS decreases in service by monitoring their impact on TAS
inventory, using a special TAMIS code to track workload results.
19
Taxpayer Rights Training Reviewed the IRS course material developed for newly hired Compliance
employees and Appeals officers and determined that it did not systematically
address taxpayer rights.
Uniform Definition of a
Qualifying Child (UDOQC)
Address the implementation of UDQOC and its impact on tax provisions and
processes. The IRS is training employees servicewide and TAS will deliver an
Interactive Video Training (IVT).
Collections Statute Expiration
Dates (CSEDs)
Identify methods to correct accounts with erroneous or miscalculated CSEDs
areas such as installment agreements, offer in compromise and substitute for
return accounts. The IRS has corrected over one million accounts where taxpayer
requests for installment agreements had caused an incorrect extension of the stat-
ute. The IRS is running extracts to identify monies that may have been incorrectly
withheld from taxpayers.
Federal Payment Levy Program
(FPLP)
Work is underway with the Wage and Investment Operating Division to develop
an effective income exclusion model to protect taxpayers with limited incomes
from being levied upon. IRS's proposal provides specific due dates on notices for
payment instead of the generic 30 days.
20
Appeals-SB/SE Fast Track
Settlement Initiative Team
TAS participated in a team that developed a more efficient Alternative Dispute
Resolution (ADR) strategy for SB/SE cases.
IRS SB/SE Audit
Reconsideration Task Force
Analyzed the entire audit reconsideration process and reviewed the TAS EITC
Audit Reconsideration study to substantially modify changes to the process,
include a revised policy statement and IRM. Future training is planned for cam-
pus employees.
IRS SB/SE Innocent Spouse
Task Force
Advocacy Projects joined a cross-functional team charged with redesigning Form
8857, Request for Innocent Spouse Relief. The new form is to allow for earlier
determinations and eliminate additional correspondence to the taxpayer. TAS’ goal
is to ensure that taxpayer rights and burden issues are considered.
21
Notice Strategy Planning This initiative includes a five-year, servicewide notice improvement plan. The
group envisions creating a list of all notices by type and function, intended pur-
pose, mailing costs, volumes, and content to determine which notices to change,
add, or eliminate.
18
See Most Serious Problem: Private Debt Collection Initiative, supra.
19
See Most Serious Problem: Taxpayer Service, supra.
20
See Most Serious Problem: Levies On Social Security Payments, supra.
21
See Most Serious Problem: Innocent Spouse Claims, supra.
A P P E N D I X
T A X P A Y E R A D V O C A T E S E R V I C E
T O P 2 5 C A S E A D V O C A C Y I S S U E S
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
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TA X P A Y E R A DVO CATE S E R V I C E
569
SECTION
FIVE
1
T O P 2 5 C A S E A D V O C A C Y I S S U E S F O R F Y 2 0 0 5 I D E N T I F I E D B Y TA M I S R E C E I P T S
Core I s s u e Code Description To t a l
95x Criminal Investigation 26,505
63x-640 EITC Certification/Recertification/ Reconsideration/ Revenue Protection Strategy 14,180
330 Processing Amended Returns 11,919
71x Levies 10,131
310 Processing Original Returns 8,866
620 Reconsideration/Substitute For Return/6020b/Audit 7,425
020 Expedite Refund Requests 6,931
340 Injured Spouse Claim 6,283
670 Closed Underreporter 5,816
150 Copies of Returns/Transcripts/Reports/FOIA 5,449
610 Open Audit (non-RPS,EITC) 5,215
72x Liens 5,045
210 Missing/Incorrect Payments 3,807
520 Failure To File / Failure To Pay Penalties 3,603
090 Other Refund Issues 3,225
390 Other Document Processing Issues 2,966
450 Form W-7/ITIN/ATIN 2,744
660 Open Automated Underreporter 2,731
060 IRS Offset 2,628
675 CAWR/FUTA 2,572
75x Installment Agreements 2,572
010 Lost or Stolen Refunds 2,514
110 Account/Notice Inquiries 2,367
78x Offers In Compromise 2,279
040 Returned/Stopped Refunds 2,221
Total
Grand Total - All TAS Cases FY 2005
149,994
190,153
AP PE ND IX
◆
2
570
A P P E N D I C E S
T A X P A Y E R A D V O C A T E S E R V I C E
A D V O C A C Y P O R T F O L I O S
SECTION
FIVE
A P P E N D I X
2
A D V O C A C Y P O R T F O L I O S
Portfolio LTA Name S t a t e / O f f i c e Ph o n e N u m b e r
Abusive Schemes Zelle, J MO 314-612-4610
Appeals: ADR McMurray, T IL Springfield 217-862-6382
Appeals: CDP Hearings Gorga, P NY Manhattan 212-436-1011
Appeals: Nondocketed Inventory Logan, A WY 307-633-0800
Appeals: Nondocketed Inventory (Campus) Safrey, E BSC 631-654-6686
Appeals: Nondocketed Inventory (Field) Trudeau, M ID 208-387-2927
Audit Reconsiderations Keleman, L CA Los Angeles 213-576-3140
Audit Reconsiderations (Audit Recon/ASFR/6020B Carey, W ATSC 770-936-4500
AUR Exam Boucher, D ME 207-622-8528
Backup Withholding Adams, M KS 316-352-7506
Bankruptcy Processing Issues Mettlen, A PA Pittsburgh 412-395-5987
Campus Consistency Wess, D MSC 901-395-1900
Carryback/Carryforward Claims Blair, C OSC 801-620-7168
CAWR/FUTA Keating-Jones, J OR 503-326-7816
Centralized Lien Filing and Releases Diehl, M CSC 859-669-5316
Criminal Investigation Cases (CI) & Criminal Investigation
Freezes
Sawyer, M FSC 559-442-6400
Collection Contract Support Kleckley, F SC 803-253-3029
CSEDs Sherwood, T CO 303-446-1012
EITC: Certification/Precertification Mings, L KCC 816-926-2493
EITC: Exam Re-engineering (Math Error) Martinez, L NM 505-837-5505
EITC: Notice Redesign Taylor, S IL Chicago 312-566-3800
EITC: Outreach and Education, Financial Literacy Mapp, T PA Philadelphia 215-861-1304
EITC: Outreach and Education, Rural Allen, B GA 404-338-8099
EITC: Recertification Lewis, C LA 504-558-3001
EO Applications, Penalties, Education, and Outreach Finnesand, M SD 605-226-7248
ETA/Electronic Filing Martin, B TN 615-250-5000
ETA/Electronic Return Originators Scott, C OK 405-297-4055
Examination Strategy Revel-Addis, B FL Jacksonville 904-665-1000
Excise Tax Diehl, M CSC 859-669-5316
Federal Payment Levy Program (FPLP) Morris, R WI 414-297-3046
FPLP Communication O’Shaughnessy, M NH 603-433-0571
Filing Season Readiness/SPEC Douts, K AK 907-271-6877
Frontline Leader Readiness Program (FLRP) Kitson, A NY Brooklyn 718-488-2080
Health Care Tax Credit (HCTC) Cummings, L TX Dallas 214-413-6500
Identity Theft Safrey, E BSC 631-654-6686
Injured Spouse Post, T WV 304-420-6616
Innocent Spouse Relief: IRC § 6015 Adams, C CA Laguna Nigel 949-389-4804
Installment Agreements: Allowable Expenses (High Cost) Moore, L FL Ft. Lauderdale 954-423-7677
Installment Agreements: Allowable Expenses
(Low Cost)
Washington, J MS 601-292-4800
Installment Agreements: Processing Tam, T CA Oakland 510-637-2703
Interest Computations, Abatement of Interest Romano, F CT 860-756-4555
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
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TA X P A Y E R A DVO CATE S E R V I C E
571
A D V O C A C Y
P O R T F O L I O S
SECTION
FIVE
Portfolio LTA Name S t a t e / O f f i c e Ph o n e N u m b e r
International Taxpayers Puig, JC PR
787-622-8930 (S)
787-622-8940 (E)
IRS Training on Taxpayers Rights Hickey, M NE 402-221-4181
ITIN Outreach Blount, P MI 313-628-3670
ITIN Processing Dowd, L PSC 215-516-2499
Levy (710) [Hardship determination linked to release of levy] Polson, R IA 515-284-4780
Lien Release, Lien Withdrawal, Lien Subordination, Lien
Discharge
Lauterbach, L NJ 973-921-4043
LITC Lewis, C LA 504-558-3001
Manual Refunds Strayer, C OH Cleveland 216-522-7134
Mentoring Coss, V ANC 978-474-5549
Mixed and Scrambled TINs (Multiple/Mixed TINS (410)) Murphy, M AZ 602-207-8240
Multilingual Initiative Glass, D TX Austin 512-499-5875
Navigating the IRS Gray, P AR 501-324-6269
Nonfiler Strategy Bjornson, B MN 651-312-7999
Notice Clarity Smith, G NY Albany 518-427-5413
Notice Clarity (Account/Notice Inquiry Transfer Criteria (110) Egan, C RI 401-525-4200
OIC (Field, COIC) Burns, L KY 502-582-6030
OIC (Field, ETA, COIC) Sonnack, B TX Houston 713-209-3660
Outreach to ESL Taxpayers (including ITINs) Puig, JC PR
787-622-8930 (S)
787-622-8940 (E)
Outreach and Marketing to Low Income TPs (Marketing too) Grant, D NV 702-455-1241
Penalties: e.g. failure to pay, abatements,
adjustments, estimated
Sherwood, T CO 303-446-1012
Position Management Wirth, B NY Buffalo 716-686-4850
Practitioner Priority Services Beck, J WA 206-220-6037
Preparer Penalties Votta, P MD 410-962-2082
Returned/Stopped Refunds Gilchrist, M AL 205-912-5631
Schedule K-1 Matching Sheely, K IN 317-226-6332
Seizure and Sale Beck, J WA 206-220-6037
TACs-Rural Foard, L ND 701-239-5141
TACs-Urban and Communications VanHorn, C OH Cincinnati 513-263-3260
TAS Confidentiality/IRC 6103 Bjornson, B MN 651-312-7999
Tax Exempt Entities: EP Penalties Blair, C OSC 801-620-7168
Tax Exempt Entities: EP returns (Forms 5500) Blair, C OSC 801-620-7168
Tax Exempt Entities: Tribal Government Issues Wirth, B NY Buffalo 716-686-4850
Tax Forums Allen, B GA 404-338-8099
TIGTA/GAO Thompson, T MT 406-441-1022
Tip Reporting Grant, D NV 702-455-1241
Transcript Delivery System (Copies of returns, transcripts,
reports, FOI
Cooper-Aquilar, S UT 801-799-6958
Transition of SB Work Keleman, L CA Los Angeles 213-576-3140
Trust Fund Recovery Penalty Campbell, M VA 804-916-3501
A D V O C A C Y P O R T F O L I O S ( C O N T. )
AP PE ND IX
◆
3
572
A P P E N D I C E S
T A X P A Y E R A D V O C A T E S E R V I C E
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
SECTION
FIVE
A P P E N D I X
3
T A B L E 1
A P P E A L S F R O M C O L L E C T I O N D U E P R O C E S S H E A R I N G S U N D E R I R C § § 6 3 2 0 A N D 6 3 3 0
Case C i t e Issue(s)
Pro S e
Decision
Individual Taxpayers ( I s s u e s O t h e r Than B u s i n e s s )
Adams v. Comm’r, 95 A.F.T.R.2d (RIA) 1862 (9th Cir. 2005) Frivolous issues Yes IRS
Alaniz v. Comm’r, T.C. Memo. 2005-4 Rejection of OIC as abuse No IRS
Ali v. U.S., 95 A.F.T.R.2d (RIA) 1319 (S.D. Ohio 2005)
Tax Court jurisdiction on slavery
reparations refund issue
Yes IRS
Anderson v. Comm’r, T.C. Dckt. No. 8869-04S (March 21, 2005) Financial hardship Yes IRS
Antlocer v. U.S., 94 A.F.T.R.2d (RIA) 5141 (9th Cir. 2004) Equivalent hearing, no jurisdiction Yes IRS
Asemani v. Comm’r, 94 A.F.T.R.2d (RIA) 6628 (M.D. Pa. 2004)
Jurisdiction where no CDP notice
issued
Yes IRS
Austin v. Comm’r, 95 A.F.T.R.2d (RIA)2304 (E.D. Cal. 2005) Late filing of petition, no jurisdiction Yes IRS
Avula v. Comm’r, 94 A.F.T.R.2d (RIA) 5267 (8th Cir. 2004) Inability to argue liability Yes IRS
Balice v. Comm’r, T.C. Memo. 2005-35 Late filing of petition, no jurisdiction No IRS
Banis v. Comm’r, T.C. Memo. 2004-237 Liability not discharged Yes IRS
Barnett v. U.S., 366 F.3d 1243 (11th Cir. 2004) Validity of assessment Yes IRS
Bartley v. U.S., 343 F.Supp.2d 649 (N.D. Ohio 2004) Frivolous issues Yes IRS
Berger v. Comm’r, T.C. Dckt. No. 19535 (March 21, 2005) Ability to argue liability Yes TP
Beverly v. Comm’r, T.C. Memo. 2005-41 Automatic stay in bankruptcy Yes TP
Black v. Comm’r, T.C. Memo. 2005-46 Rejection of OIC as abuse Yes IRS
Blankenship v. U.S., 94 A.F.T.R.2d (RIA) 5947 (S.D. Tex. 2004) Verification requirements satisfied Yes IRS
Boyd v. U.S., 95 A.F.T.R.2d (RIA) 847 (10th Cir. 2005) Frivolous issues Yes IRS
Borchardt v. Comm’r, 338 F.Supp.2d 1040 (D. Minn. 2004) Right to make recording of hearing Yes IRS
Broderick v. Comm’r, 95 A.F.T.R.2d (RIA) 1004 (9th Cir. 2004)
Propriety of motion for summary
judgment and sanctions
Yes IRS
Brookbank v. Comm’r, T.C. Dckt. No. 19226-02L (Feb. 28, 2005) Frivolous issues Yes IRS
Brown v. Comm’r, T.C. Summ. Op. 2004-130. Reliance on IRS to abate of interest Yes IRS
Brown v. Comm’r, T.C. Summ. Op. 2005-37 Inability to argue liability Yes IRS
Brozgal v. Comm’r, T.C. Dckt. No.8159-04S (March 21, 2005) TP could not prove liability issue Yes IRS
Burke v. Comm’r, 124 T.C. 189 (2005) Frivolous issues Yes IRS
Burns v. U.S., 95 A.F.T.R.2d (RIA) 1160 (M.D. Tenn. 2005) Filed appeal in wrong court Yes IRS
Burns v. U.S., 95 A.F.T.R.2d (RIA) 1599 (M.D. Tenn. 2005) Right to face-to-face hearing Yes IRS
Calderone v. Comm’r, T.C. Memo. 2004-240 Ability to argue liability No TP
Canaday v. U.S., 94 A.F.T.R.2d (RIA) 6311 (S.D. W.Va. 2004) Filed appeal in wrong court Yes IRS
Cansino v. Comm’r, 94 A.F.T.R.2d (RIA) 7256 (9th Cir. 2004) Jurisdiction for Tax Court Yes IRS
Cardona v. Comm’r, 94 A.F.T.R.2d (RIA) 7148 (2nd Cir. 2004) Frivolous issues Yes IRS
Casey v. Comm’r, T.C. Memo. 2004-228 Failure to offer face-to-face as abuse Yes IRS
Castillo v. Comm’r, T.C. Memo. 2004-238 Rejection of IA not abuse No IRS
Cena v. Comm’r, 94 A.F.T.R.2d (RIA) 2927 (W.D. Tex. 2005) Failure to state a claim Yes IRS
Chandler v. Comm’r, T.C. Memo. 2005-99
Refusal to grant face-to-face and
rejection of OIC
Yes IRS
Chocallo v. Comm’r, T.C. Memo. 2004-152 Jurisdiction to grant relief requested Yes IRS
Christofferson v. Comm’r, T.C. Dckt. No. 5730-04S (March 3, 2005) Inability to argue liability Yes IRS
Cianflone v. IRS, 95 A.F.T.R.2d (RIA) 1601 (D. Md. 2005) Failure to state a claim Yes IRS
Collier v. Comm’r, T.C. Memo. 2004-171 Not processing OIC as abuse Yes IRS
Cobin v. Comm’r, 95 A.F.T.R.2d (RIA) 717 (D. S.C. 2005) Filed Appeal in wrong court Yes IRS
Conner v. Comm’r, T.C. Summ. Op. 2005-27 No IRS delay to abate interest Yes IRS
Crass v. Comm’r, T.C. Dckt. No. 9616-04S (2005) Inability to argue liability Yes IRS
Currie v. U.S., 95 A.F.T.R.2d (RIA) 1961 (N.D. Ga. 2005) Inability to argue liability Yes IRS
Dalton v. Comm’r, T.C. Memo. 2005-7 Inability to argue liability Yes IRS
Dashiell v. Comm’r, T.C. Memo. 2004-210 Frivolous issues Yes IRS
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
573
L I T I G A T E D
C A S E S
SECTION
FIVE
Case C i t e Issue(s)
Pro S e
Decision
Deaton v. Comm’r, T.C. Memo. 2005-1 Underlying liability, claim of credit No IRS
Del Vecchio v. Comm’r, T.C. Memo. 2004-218 Validity of assessment Yes IRS
Demus v. Comm’r, T.C. Dckt. No. 6636-04L
(Jan. 31, 2005) Adequacy of Notice of Determination Yes TP
Desalvo v. Comm’r, T.C. Summ. Op. 2004-166
Inability to argue liability and
rejection of OIC as abuse
Yes IRS
Devries v. Comm’r, 359 F.Supp.2d 988
(E.D. Cal. 2005) Anti-Injunction Act as bar to relief Yes IRS
Dick v. Comm’r, T.C. Dckt. No. 13102-04L
(April 27, 2005) Inability to argue liability Yes IRS
Doing v. Comm’r, 95 A.F.T.R.2d (RIA) 1867 (9th Cir. 2005) Inability to argue liability Yes IRS
Dysle v. Comm’r, T.C. Memo. 2004-285 IRS application of payments Yes IRS
Eberhardt v. Comm’r, T.C. Summ. Op. 2004-147
Inability to argue liability, rejection of
OIC, abatement of interest
Yes IRS
Eckert v. Comm’r, T.C. Memo. 235 Misapplication of payments Yes IRS
Edwards v. U.S., T.C. Summ. Op. 2004-158 Leaving NFTL in place as abuse Yes IRS
Elkins v. U.S., 95 A.F.T.R.2d (RIA) 597 (M.D. Ga. 2004) TP provides no alternatives Yes IRS
Farley v. Comm’r, T.C. Memo. 2004-168 Inability to argue liability Yes IRS
Fishbach v. Comm’r, T.C. Memo. 2005-38 Inability to argue liability Yes IRS
Florance v. Comm’r, T.C. Memo. 2005-61 Frivolous issues Yes IRS
Forman v. U.S., 95 A.F.T.R.2d (RIA) 1633 (N.D. Ill. 2005) Lack of standing for husband and wife No IRS
Fowler v. Comm’r, T.C. Memo. 2004-163 Use of national expense standards Yes TP
Frate v. Comm’r, T.C. Summ. Op. 2004-91 Whether levied wages embezzled Yes IRS
Gardner v. Comm’r, 95 A.F.T.R.2d (RIA) 2032 (D. N.J. 2005)
Face-to-face hearing and validity of
hearing
Yes IRS
Gatlos v. Comm’r, T.C. Memo. 2004-192 Frivolous issues Yes IRS
Gavigan v. Comm’r, T.C. Summ. Op. 2004-155 Frivolous issues Yes IRS
Geary v. Comm’r, T.C. Summ. Op. 2005-16 Inability to argue liability Yes IRS
Gerakios v. Comm’r, T.C. Memo. 2004-203 Moot issues, liability paid Yes IRS
Gibson v. Comm’r, T.C. Dckt. No. 19577-04S (May 12, 2005) Inability to argue liability Yes IRS
Gilligan v. Comm’r, T.C. Memo. 2004-194 Frivolous issues Yes IRS
Goblirsch v. Comm’r, T.C. Memo. Op. 2005-78 Liability for capital gains tax Yes IRS
Griffith v. Comm’r, T.C. Memo. 2004-267 Expiration of collection statute Yes IRS
Hamzik v. Comm’r, T.C. Memo. 2004-223 Frivolous issues Yes IRS
Harris v. Comm’r, T.C. Summ. Op. 2005-25
No evidence presented as to liability,
rejecting OIC as abuse of discretion
Yes IRS
Hayes v. Comm’r, T.C. Memo. 2005-57 Whether TP had paid liability Yes TP
Henderson v. Comm’r, T.C. Memo. 2004-157 Frivolous issues Yes IRS
Hendricks v. Comm’r, T.C. Memo. 2005-72 Innocent spouse No TP
Herip v. U.S., 95 A.F.T.R.2d (RIA) 537 (6th Cir. 2004) Whether all procedures were followed No IRS
Hibben v. U.S., 95 A.F.T.R.2d (RIA) 2063 (E.D. Ky. 2005) Raising CDP in summons case Yes IRS
Hiland v. Comm’r, T.C. Memo. 2004-225 Frivolous issues Yes IRS
Holguin v. Comm’r, 94 A.F.T.R.2d (RIA) 5803 (9th Cir. 2004) Frivolous issues Yes IRS
Hobbs v. Comm’r, 95 A.F.T.R.2d (RIA) 6194 (9th Cir. 2004) Frivolous issues Yes IRS
Holliday v. Comm’r, T.C. Memo. 2004-172 Whether all procedures were followed Yes IRS
Holmes v. Comm’r, 351 F.Supp.2d 526 (W.D. La. 2004) Failure to appear at CDP hearing Yes IRS
Howard v. Comm’r, T.C. Memo. 2005-100 Frivolous issues Yes IRS
Hudspath v. Comm’r, T.C. Memo. 2005-83 Inability to raise liability Yes IRS
Israel v. U.S., 93 A.F.T.R.2d (RIA) 2044 (S.D. Iowa 2005) Filed appeal in wrong court Yes IRS
Jackling v. Comm’r, 352 F.Supp.129 (D. N.H. 2004) Inability to argue liability Yes IRS
Jackson v. Comm’r, T.C. Summ. Op. 2005-12 Abatement of interest and penalties Yes Split
Johnson v. Comm’r, T.C. Summ. Op. 2005-47 Ignoring TP’s poverty as abuse Yes TP
Johnston v. Comm’r, T.C. Memo. 2004-224 Frivolous issues Yes IRS
Johnston v. U.S., 95 A.F.T.R.2d (RIA) 699 (9th Cir. 2005) Filed appeal in wrong court Yes IRS
T A B L E 1 : A P P E A L S F R O M C O L L E C T I O N D U E P R O C E S S H E A R I N G S U N D E R I R C § § 6 3 2 0 A N D 6 3 3 0
( C O N T. )
AP PE ND IX
◆
3
574
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
Case C i t e Issue(s)
Pro S e
Decision
Judd v. Comm’r, T.C. Summ. Op.. 2005-59 Application of payments Yes IRS
Kaplowitz v. Comm’r, T.C. Memo. 2005-62 Frivolous issues Yes IRS
Kara v. Comm’r, T.C. Dckt. No. 7748-02L (Jan. 25 2005) Sufficiency of CDP notice Yes TP
Karns v. Dix, 95 A.F.T.R.2d (RIA) 1593 (D. S.D. 2005) Jurisdiction to sue IRS employees Yes IRS
Kelby v. Comm’r, T.C. Memo. 2005-25 Whether all procedures followed No IRS
Kendricks v. Comm’r, 124 T.C. 69 (2005) Rejection of OICs as abuse No IRS
Khalid v. U.S., 95 A.F.T.R.2d (RIA) 1860 (E.D. Pa. 2005) Prerequisite of CDP hearing request Yes IRS
Kilgore v. Comm’r, T.C. Memo. 2005-24 Frivolous issues Yes IRS
Kim v. Comm’r, T.C. Memo. 2005-96 Erroneous notice of determination Yes IRS
Klet v. Comm’r, T.C. Summ. Op. 2004-172 Discharge of liability in bankruptcy Yes Split
Kolker v. Comm’r, T.C. Memo. 2004-288 Frivolous issues Yes IRS
Kone v. U.S, 94 A.F.T.R.2d (RIA) 6924 (D. Md. 2004) Jurisdiction when appeal filed late Yes IRS
Krueger v. Comm’r, T.C. Memo. 2005-105 Frivolous issues Yes IRS
Kubon v. Comm’r, T.C. Memo. 2005-71 Frivolous issues Yes IRS
Kun v. U.S., T.C. Memo. 2004-209
Ability to argue liability, rejection of
OIC as abuse of discretion
Yes IRS
Kupcho v. Comm’r, 95 A.F.T.R.2d (RIA) 1439 (D. N.J. 2005) Filed appeal in wrong court Yes IRS
Kyles v. Comm’r, T.C. Dckt. No. 9213-04S (March 15, 2005) Lack of notice as abuse of discretion Yes IRS
Laing v. Comm’r, 94 A.F.T.R.2d (RIA) 7225 (W.D. Tex. 2004) Lack of notice as abuse of discretion No IRS
Langer v. U.S., 95 A.F.T.R.2d (RIA) 894 (8th Cir. 2005) FICA taxes incorrectly assessed No TP
LeDoux v. U.S., 375 F.Supp.2d 1242 (D. NM 2005) Whether all procedures followed Yes IRS
Lee v. Comm’r, T.C. Memo. 2004-264 IRS refusal to record as abuse Yes IRS
Lehman v. Comm’r, T.C. Memo. 2005-90 Frivolous issues Yes IRS
Lister v. U.S., 94 A.F.T.R.2d (RIA) 5342 (10th Cir. 2004) Frivolous issues Yes IRS
Littriello v. Comm’r, 2005 WL 1173277 (W.D. Ky. 2005) Validity of IRS regulations No IRS
Lozon v. Comm’r, 94 A.F.T.R.2d (RIA) 5234 (E.D. Mich. 2004)
Right to record hearing and notice as
constitutional issues
Yes IRS
Lykes v. Comm’r, T.C. Memo. 2004-159 Reasonable cause to abate penalties Yes IRS
Mackinnon v. Fredrickson, 95 A.F.T.R.2d (RIA) 1973 (D. Or. 2005) Filed appeal in wrong court Yes IRS
Malis v. Comm’r, 95 A.F.T.R.2d (RIA) 1002 (9th Cir. 2005) IRS refusal to record as abuse Yes IRS
McBride v. Comm’r, T.C. Memo. 2004-178 Frivolous issues Yes IRS
McCauley v. U.S., 2004 WL 2106544 (E.D. Pa. 200) Whether all procedures followed Yes IRS
McCorckle v. Comm’r, 124 T.C. 56 Equitable estoppel against IRS Yes IRS
McCurdy v. Comm’r, 95 A.F.T.R.2d (RIA) 2776 (D. Mass. 2005) IRS refusal to record Yes IRS
McElroy v. Comm’r, T.C. Memo. 2004-254 Refusal to abate interest as abuse Yes IRS
McNamara v. U.S., T.C. Summ. Op. 2005-22 Abuse to proceed with collection Yes IRS
Meadows v. Comm’r, 405 F.3d 949 (11th Cir. 2005)
Application of payment as violation of
bankruptcy stay
No IRS
Meehan v. Comm’r, 122 T.C. 396 (2004)
Severance as “wages” within meaning
of CDP regulations
Yes IRS
Meyer v. Comm’r, 95 A.F.T.R.2d (RIA) 2471 (W.D. Wis. 2005) Frivolous issues Yes IRS
Meyer v. Comm’r, T.C. Summ. Op. 2005-82 Frivolous issues Yes IRS
Molina v. Comm’r, T.C. Memo. 2004-258 Distribution from plan as taxable Yes TP
Moore v. Comm’r, T.C. Memo. 2005-93 Inability to argue liability Yes IRS
Moran v. Comm’r, 94 A.F.T.R.2d (RIA) 5840 (N.D. Ill. 2004) Whether payments made No IRS
Mosby v. U.S., 94 A.F.T.R.2d (RIA) 5598 (9th Cir. 2004) No review in equivalent hearing Yes IRS
Nguyen v. Comm’r, T.C. Summ. Op. 2004-144 Inability to argue liability Yes IRS
Norton v. Comm’r, T.C. Memo. 2005-44
Interest and penalties as paid from
seized funds
Yes IRS
Olsen v. Comm’r, 326 F.Supp.2d 184 (D. Mass. 2004) Rejection of OIC as abuse No IRS
Orum v. Comm’r, 123 T.C. 1, aff’d, 412 F.3d 819 (7th Cir. 2005) Jurisdiction to order IA acceptance Yes IRS
Parker v. Comm’r, T.C. Memo. 2004-226 Hearing at closest Appeals office Yes TP
T A B L E 1 : A P P E A L S F R O M C O L L E C T I O N D U E P R O C E S S H E A R I N G S U N D E R I R C § § 6 3 2 0 A N D 6 3 3 0
( C O N T. )
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
575
L I T I G A T E D
C A S E S
SECTION
FIVE
Case C i t e Issue(s)
Pro S e
Decision
Peterson v. Kreidich, 95 A.F.T.R.2d (RIA) 2416 (11th Cir. 2005) Filed appeal in wrong court Yes IRS
Picchiottino v. Comm’r, 2004-231 Collection statute of limitations Yes IRS
Picchiottino v. Comm’r, 2004-232 Collection statute of limitations Yes IRS
Pixely v. Comm’r, 123 T.C. 269 (2004) Rejection of tithe expense as abuse No IRS
Poe v. Comm’r, T.C. Memo. 2005-107 Frivolous issues Yes IRS
Pollack v. U.S., , 327 F.Supp.2d 907 (W.D. Tenn. 2004)
Inability to argue TFRP liability, but
procedure not followed
No Split
Popky v. U.S., 326 F.Supp.2d 594 (E.D. Pa. 2004) Request from third party not levy No IRS
Powers v. Comm’r, T.C. Summ. Op. 2005-21 Rejection of OIC as abuse Yes IRS
Prevo v. Comm’r, 123 T.C. 326 (2004) Jurisdiction to hear case in bankruptcy Yes IRS
Quigley v. Comm’r, 358 F.Supp.2d 427 (E.D. Pa. 2004) Face-to-face hearing requirement Yes IRS
Ramos v. U.S., 351 F.Supp.2d 5 (N.D. NY 2004) Rejection of OIC as abuse Yes IRS
Ray v. Smith, 94 A.F.T.R.2d (RIA) 5925 (W.D. Mo. 2003) Whether all procedures followed Yes IRS
Rewerts v. Comm’r, T.C. Memo. 2004-248 Frivolous issues Yes IRS
Roberts v. Comm’r, T.C. Summ. Op. 2005-40 Whether all payments made Yes IRS
Roberts v. Comm’r, T.C. Summ. Op. 2005-31
COD income belonged to TP, reject-
ing OIC as abuse
Yes IRS
Robinette v. Comm’r, 123 T.C. 85 (2004), appeal docketed,
No. 04-4081 (8th Cir. Dec. 16, 2004)
Default of OIC as abuse, review of
new evidence
No TP
Rustam v. Comm’r, T.C. Memo. 2005-42 Filed TFRP appeal in wrong court No IRS
Salza v. U.S., 2005 WL 149813 (E.D. Wis. 2005) Lack of jurisdiction Yes IRS
Schroeder v. Comm’r, T.C. Memo. 2005-48 Appellate review as stay Yes IRS
Schultz v. U.S., 95 A.F.T.R.2d (RIA) 1977 (W.D. Mich. 2005) Frivolous issues Yes IRS
Scibilia v. Comm’r, T.C. Memo. 2005-79 Inability to argue liability Yes IRS
Seavey v. Comm’r, T.C. Summ. Op. 2005-8 Reasonable cause on 6651 penalty Yes IRS
Sergio v. Comm’r, 95 A.F.T.R.2d (RIA) 1174 (N.D. Ga. 2005) Proceeding with collection as abuse Yes IRS
Shireman v. Comm’r, T.C. Memo. 2004-155 Whether all procedures followed Yes IRS
Siquieros v. U.S., 94 A.F.T.R.2d (RIA) 5518 (W.D. Tex.. 2004) Rejection of OIC as abuse Yes IRS
Simmons v. U.S., 95 A.F.T.R.2d (RIA) 1981 (N.D. Ga. 2005) Lack of CDP notice Yes IRS
Skrizowski v. Comm’r, T.C. Memo. 2004-229 Abuse to reject OIC No TP
Smith v. Comm’r, 124 T.C. 36 (2005) Jurisdiction when case in bankruptcy No TP
Snyder v. Comm’r, T.C. Memo. 2005-89 Frivolous issues Yes IRS
Speltz v. Comm’r, 124 T.C. 165 (2005) Rejection of OIC as abuse No IRS
Splawn v. U.S., 95 A.F.T.R.2d (RIA) 5628 (E.D. Tenn. 2004) Rejection of OIC as abuse No IRS
Stevens v. Comm’r, T.C. Dckt. No. 16710-04S (Feb. 8, 2005) Jurisdiction no determination issued Yes IRS
Talen v. Comm’r, 355 F.Supp.2d 22 (D. D.C. 2004) Inability to argue liability in TFRP case No IRS
Tate v. Comm’r, T.C. Dckt. No. 11923-04S (March 16, 2005) Proceeding with collection as abuse Yes IRS
Taylor v. Comm’r, T.C. Memo. 2005-74 Frivolous issues Yes IRS
Taylor v. Comm’r, 95 A.F.T.R.2d (RIA) 2413 (9th Cir. 2005) Failure to appear at CDP hearing No IRS
Thompson v. Comm’r, T.C. Memo. 2004-204 IRS failure to record as abuse Yes IRS
Thorpe v. Comm’r, T.C. Summ. Op. 2004-98
Strict adherence to Form 8857 as
abuse, rejection of CNC as abuse
Yes Split
Tinnerman v. Comm’r, 95 A.F.T.R.2d (RIA) 2401 (M.D. Fla. 2005) Failure to provide face-to-face as abuse No IRS
Torczon v. Lucas, 95 A.F.T.R.2d (RIA) 681 (9th Cir. 2005) Filed appeal in wrong court Yes IRS
Turner v. U.S., 372 F.Supp.2d 1053 (S.D. Ohio 2005) Failure to provide face-to-face as abuse Yes IRS
Updegrave v. U.S., 94 A.F.T.R.2d (RIA) 6155 (D. Or. 2005) Filed appeal in wrong court Yes IRS
Van Dyke v. Comm’r, T.C. Summ. Op. 2005-5 Collection statute of limitations Yes IRS
Vierow v. Comm’r, T.C. Memo. 2004-255 Location of hearing as abuse Yes IRS
Whiting v. Comm’r, T.C. Memo. 2004-136 Phone conversations as CDP hearing No IRS
Williams v. Comm’r, T.C. Memo. 2005-94 Frivolous issues Yes IRS
Yazzie v. Comm’r, T.C. Memo. 2004-233 Frivolous issues Yes IRS
T A B L E 1 : A P P E A L S F R O M C O L L E C T I O N D U E P R O C E S S H E A R I N G S U N D E R I R C § § 6 3 2 0 A N D 6 3 3 0
( C O N T. )
AP PE ND IX
◆
3
576
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
Case C i t e Issue(s)
Pro S e
Decision
Zachry v. Comm’r, T.C. Summ. Op. 2005-55 Innocent spouse relief Yes IRS
Zapara v. Comm’r, 124 T.C. 223 (2005) Failure to sell stock as directed Yes Split
Zarcone v. U.S., 94 A.F.T.R.2d (RIA) 5470 (N.D. Cal. 2004) Jurisdiction to compel accepting OIC Yes IRS
Zarcone v. U.S., 94 A.F.T.R.2d (RIA) 6210 (N.D. Cal. 2004) Reconsideration of opinion Yes IRS
Zelaya v. Comm’r, T.C. Summ. Op. 20040-163
Liability attributable to duplicate
refund
Yes TP
Business Taxpayers (Sole Proprietorships including Schedule C and/or F, Schedule E, Corporations, Partnerships and Trusts)
Allglass Systems Inc. v. U.S., 330 F.Supp.2d 540 (E.D. Pa. 2004)
Failure to inform of CDP hearing,
rejection of OIC as abuse
No IRS
Alliance Services, Inc. v. U.S., 363 F.Supp.2d 1367 (N.D. Ga. 2005) Rejection of OIC as abuse, RCP No IRS
American Bethel Corp. v. U.S., 94 A.F.T.R.2d (RIA) 5994 (W.D. Va.
2004)
Refusal to suspend collection as abuse No IRS
Barrett v. Comm’r, T.C. Summ. Op. 2004-128 Inability to raise liability per agreement Yes IRS
Christopher Cross, Inc. v. U.S., 95 A.F.T.R.2d (RIA) 1970 (E.D. La. 2005) Non-processable OIC as abuse No IRS
Christopher Cross, Inc. v. U.S., 95 A.F.T.R.2d (RIA) 1322(E.D. La. 2004) Returning OIC as abuse No IRS
Comfort Health Care, Inc. v. Comm’r, 2005 WL 1656914
(D. Minn. 2005)
Inability to argue liability, impartiality
of Appeals officer
No IRS
Cox v. U.S., 345 F.Supp.2d 1215 (W.D. Okla. 2004)
Inadequate notice of hearing,
rejection of OIC
No TP
Electro, Inc. v. Comm’r, 95 A.F.T.R.2d (RIA) 700 (D. Or. 2005) Late service of complaint No TP
Enos v. Comm’r, 123 T.C. 284 (2004)
33 year old liability not extinguished
due to 3rd party levy
No IRS
Francis Harvey & Sons, Inc. v. U.S., 94 A.F.T.R.2d (RIA) 7258
(D. Mass. 2004)
Inability to challenge liability,
evidence as to reasonable cause
No IRS
Keesh Construction Co., Inc. v. U.S., 94 A.F.T.R.2d (RIA) 6477
(S.D. Ohio 2004)
Moot-bankruptcy No IRS
Landel Corp. v. U.S., 95 A.F.T.R.2d (RIA) 2001 (W.D. Wash. 2005) Failure to consider IA as abuse No IRS
Living Care Alternatives of UTICA, Inc. v. U.S., 411 F.3d 621
(6th Cir. 2004)
Not considering OIC as abuse No IRS
Munguia Printers, Inc. v. U.S., 95 A.F.T.R.2d (RIA) 1355 (W.D. Tex.
2005)
Inability to argue liability No IRS
Newstat v. Comm’r, T.C. Memo. 2004-208
Inability to argue liability, no record
addressing 1999 liability
Yes Split
Perry v. U.S., 94 A.F.T.R.2d (RIA) 5623 (E.D. N.C. 2004) Adequate CDP notice Yes IRS
Reid & Reid, Inc. v. U.S., 366 F.Supp.2d 284 (D. Md. 2005) Rejecting IA as abuse No IRS
Winters v. Comm’r, T.C. Memo. 2005-3 Substantiating liability argument Yes IRS
T A B L E 1 : A P P E A L S F R O M C O L L E C T I O N D U E P R O C E S S H E A R I N G S U N D E R I R C § § 6 3 2 0 A N D 6 3 3 0
( C O N T. )
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
577
L I T I G A T E D
C A S E S
SECTION
FIVE
T A B L E 2
G R O S S I N C O M E U N D E R I R C § 6 1 A N D R E L A T E D S E C T I O N S
Case C i t e Issue(s)
Pro S e
Decision
Individual T P s (Issues O t h e r T h a n Business)
Abeid v. Comm'r, 122 T.C. No. 24 Lottery winnings of nonresident aliens No IRS
Abeyta v. Comm'r, T.C. Summ. Op. 2005-44 Lodging exclusion IRC § 119 Yes IRS
Ali v. Comm'r, T.C. Memo. 2004-284 Constructive dividends No IRS
Arvin v. Comm'r, T.C. Summ. Op. 2004-108 Unreported income/frivolous argument Yes IRS
Barkley v. Comm'r, T.C. Memo. 2004-287 Retirement income Yes IRS
Bien-Aime v. Comm'r, T.C. Summ. Op. 2004-175 Unreported income Yes IRS
Bolden v. Comm'r, T.C. Summ. Op. 2004-114 Settlement income IRC § 104(a)(2) Yes IRS
Brooks v. US, 383 F.3d 521 (6th Cir. 2004) Settlement income IRC § 104(a)(2) No IRS
Bruecher v. Comm'r, T.C. Summ. Op. 2005-52 Constructive dividends No IRS
Bunker v. Comm'r,
T.C. Summ. Op. 2005-35
Insurance proceeds paying credit card debts are
income
Yes IRS
Buras v. Comm'r, T.C. Summ. Op. 2004-161 Retirement income Yes IRS
Bussell v. Comm'r, T.C. Memo. 2005-77 Constructive dividends Yes IRS
Castleton v. Comm'r, T.C. Memo. 2005-58 Unreported income Yes TP
Cawvey v. Comm'r,
T.C. Summ. Op. 2005-63
Social Security versus Workers' Compensation
IRC § 86(d)(3)
Yes
IRS
Chamberlain v. Comm'r,
401 F.3d 335 (5th Cir. 2005)
Prejudgment interest is not excluded from income
under IRC § 104(a)(2)
No
IRS
Cohen v. Comm'r, T.C. Memo. 2004-227 Retirement income No IRS
Comm'r v. Banks,
125 S.Ct. 826
Settlement income under IRC § 104(a)(2) —
Contingent attorney fee awards not excluded
No IRS
Corrigan v. Comm'r, T.C. Memo. 2005-119 Unreported income/Discharge of indebtedness Yes Split
Davis v. Comm'r, T.C. Summ. Op. 2005-61 Social Security income Yes IRS
Delaware Corp. v. Comm'r, T.C. Memo. 2004-280 Constructive dividends No IRS
Dirks v. Comm'r, T.C. Memo. 2004-138
Retirement income (60-day rollover requirement
not waived)
No IRS
Dotson v. Comm'r, T.C. Summ. Op. 2004-164 Retirement income/Alimony IRC § 71 Yes TP
Doxtator v. Comm'r, T.C. Memo. 2005-113
Compensation from Indian tribe/Unreported
income
Yes IRS
Dunkin v. Comm'r, 124 T.C. No. 10
Exclusion for community property divorce pay-
ments
Yes TP
Filer v. Comm'r, T.C. Summ. Op. 2005-39 Annuity income/Oral trust Yes TP
Flores v. Comm'r, T.C. Summ. Op. 2005-57
Social Security versus Workers' Compensation
IRC § 86(d)(3)
Yes IRS
Ford v. Comm'r, T.C. Memo. 2005-18 Unreported income No IRS
Francisco v. Comm'r, 370 F.3d 1228 (D.C. Cir. 2004) International Waters income No IRS
Hamilton v. Comm'r, T.C. Memo. 2004-161 Lottery winnings Yes IRS
Hayden v. Comm'r, 95 A.F.T.R.2d 1918 (9th Cir. 2005) Disability income IRC § 105 No IRS
Headen v. Comm'r, T.C. Summ. Op. 2005-33 Social Security income Yes IRS
Henderson v. Comm'r, 94 A.F.T.R.2d 5246 (9th Cir. 2004) Settlement income IRC § 104(a)(2) Yes IRS
Hintz v. Comm'r, T.C. Summ. Op. 2005-43 Disability pension income IRC § 104(b)(3) Yes IRS
Hurst v. Comm'r, 124 T.C. No. 2
Sale of S Corporation/Health insurance
premiums
No Split
Jombo v. Comm'r, 398 F.3d 661 (D.C. Cir. 2005)
Constructive receipt of lottery winnings under
IRC § 451
Yes IRS
Jondahl v. Comm'r, T.C. Memo. 2005-55 Unreported income No Split
Jones v. U.S., 355 F.Supp.2d 1292 (S.D. Ala. 2004) Ordinary Income versus capital gain No IRS
Kean v. Comm'r, 407 F.3d 186 (3d. Cir. 2005) Alimony IRC § 71 No IRS
Kellum v. Comm'r, T.C. Summ. Op. 2005-29 Worker's Compensation versus wages Yes IRS
AP PE ND IX
◆
3
578
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
Case C i t e Issue(s)
Pro S e
Decision
Kidd v. Comm'r, T.C. Memo. 2004-135 Settlement Income IRC § 104(a)(2) Yes IRS
Klingaman v. Comm'r, T.C. Summ. Op. 2005-36 Gambling income/Social Security Yes IRS
Kooyers v. Comm'r, T.C. Memo. 2004-281 Ponzi scheme victims income Yes TP
Lenzen v. Comm'r, T.C. Memo. 2005-120 Constructive Dividends No IRS
Lewis v. Comm'r, T.C. Memo. 2005-111 Unreported Income Yes IRS
Malfatti v. Comm'r, T.C. Memo. 2005-19 Unreported Income Yes IRS
Menard, Inc. v. Comm'r, T.C. Memo. 2004-207
Constructive Dividends/Constructive Receipt of
Interest
No IRS
Mitchell v. Comm'r, T.C. Summ. Op. 2004-160 Retirement Income Yes IRS
Molina v. Comm'r, T.C. Memo. 2004-258 Income from 401(k) Loan IRC § 72(p) Yes TP
Moran v. Comm'r, T.C. Memo. 2005-66 Constructive Dividends Yes IRS
Morrison v. Comm'r, T.C. Memo. 2005-53 Constructive Dividends No TP
Murphy v. I.R.S., 362 F.Supp. 2d 206 (D.D.C. 2005) Settlement Income IRC § 104(a)(2) No IRS
Namyst v. Comm'r, T.C. Memo. 2004-263 Unreported Income No IRS
Ndirika v. Comm'r, T.C. Memo. 2004-250 Settlement Income IRC § 104(a)(2) Yes IRS
Ngatuvai v. Comm'r, T.C. Summ. Op. 2004-143 Discharge of Indebtedness IRC § 108 Yes IRS
Ogu v. Comm'r, T.C. Summ. Op. 2004-87 Unreported Stock Sale Proceeds Yes IRS
Olson v. Comm'r, T.C. Memo. 2004-197 Retirement Income No IRS
Owens v. Comm'r, T.C. Summ. Op. 2004-102 Gifts versus Taxable Compensation Yes IRS
Peters v. Comm'r, T.C. Summ. Op. 2005-42 Retirement Income Yes IRS
Petty v. Comm'r, T.C. Memo. 2004-144 Gambling Income Yes IRS
Pickering v. Comm'r, T.C. Summ. Op. 2004-136 Unreported Income Yes IRS
PK Ventures, Inc. v. Comm'r, T.C. Memo. 2005-56 Constructive Dividends No TP
Polonczyk v. Comm'r, T.C. Summ. Op. 2005-66 Unreported Income Yes Split
Quarterman v. Comm'r, T.C. Memo. 2004-241 Interest Income No IRS
Reimels v. Comm'r, 123 T.C. No. 13
Disability/retirement income not excluded under
IRC § 104(a)(4)
Yes IRS
Revolinski v. Comm'r, T.C. Summ. Op. 2005-26 Life insurance surrender proceeds Yes IRS
Rodriguez v. Comm'r, 95 A.F.T.R.2d 1723 (9th Cir. 2005) Unreported income Yes IRS
Rodriguez v. Comm'r, T.C. Memo. 2005-12 Unreported income/Frivolous argument Yes IRS
Seidel v. Comm'r, T.C. Memo. 2005-67
Taxation of Distribution of 401(k) in a divorce
settlement
Yes Split
Seidel v. Comm'r, T.C. Summ. Op. 2005-51
Taxation of distribution of 401(k) in a divorce
settlement
Yes Split
Sternberg v. I.R.S., 95 A.F.T.R.2d 402 (2d Cir. 2005) Retirement income Yes IRS
Strong v. Comm'r, T.C. Memo. 2005-125 Unreported income/Constructive dividends No IRS
Taibo v. Comm'r, T.C. Memo. 2004-196 Johnston island No TP
Trent v. U.S., 372 F.Supp.2d (S.D.W.Va. 2005) Settlement income IRC § 104(a)(2) No IRS
Valia v. Comm'r, T.C. Summ. Op. 2005-17 Settlement income IRC § 104(a)(2) Yes IRS
Vincent v. Comm'r, T.C. Memo. 2005-95 Settlement income IRC § 104(a)(2) No IRS
Werts v. Comm'r, T.C. Summ. Op. 2005-24 Social Security income Yes IRS
White v. Comm'r, T.C. Summ. Op. 2005-62 Retirement income Yes IRS
Widemon v. Comm'r, T.C. Memo. 2004-162 Retirement income Yes IRS
Williams v. Comm'r, 95 A.F.T.R.2d 764 (10th Cir. 2005) Gifts versus taxable compensation No IRS
Williams v. Comm'r, T.C. Memo. 2005-29
Settlement income (Attorney's fees) IRC §
104(a)(2)
No IRS
T A B L E 2
G R O S S I N C O M E U N D E R I R C § 6 1 A N D R E L A T E D S E C T I O N S ( C O N T. )
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
579
L I T I G A T E D
C A S E S
SECTION
FIVE
Case C i t e Issue(s)
Pro S e
Decision
Wolman v. Comm'r, T.C. Memo. 2004-262
Sale of lottery winnings is ordinary income, not a
capital gain
Yes IRS
Wright v. Comm'r, T.C. Memo. 2005-5 Disability income IRC § 105 No IRS
Youngblood v. Comm'r, T.C. Memo. 2005-43
Disability/Retirement income not excluded under
IRC § 104(a)(1)
No IRS
Business T P s (Sole P r o p r i e t o r s h i p s i n c l u d i n g Schedule C and/or F, Schedule E , C o r p o r a t i o n s , P a r t n e r s h i p s a n d Business Trusts)
Acle v. Comm'r, T.C. Summ. Op. 2004-82 Unreported income Yes IRS
Benson v. Comm'r, T.C. Memo. 2004-272
Constructive dividends/Discharge of Indebtedness
income
No IRS
Blanning v. Comm'r, T.C. Memo. 2004-201 Unreported income Yes IRS
Brenner v. Comm'r, T.C. Memo. 2004-202 Unreported income/Frivolous argument Yes IRS
Chin v. Comm'r, T.C. Memo. 2004-189 Unreported income No TP
CMA Consolidated, Inc. v. Comm'r, T.C. Memo. 2005-16 Assignment of income No IRS
Coccia v. Comm'r, T.C. Summ. Op. 2004-159 Unreported income Yes IRS
Coomes v. Comm'r, T.C. Memo. 2004-182 Unreported income Yes IRS
Edwards v. Comm'r, T.C. Memo. 2005-52 Unreported income Yes IRS
Gouveia v. Comm'r, T.C. Memo. 2004-256 Unreported income/Sham trusts No IRS
Gowni v. Comm'r, T.C. Memo 2004-154
Unreported Income, constructive dividends,
capital gain basis
No Split
Gracia v. Comm'r, T.C. Memo. 2004-147 Discharge of indebtedness IRC § 108 No TP
Graham v. Comm'r, T.C. Memo. 2005-68 Unreported income No Split
Greene v. U.S., 62 Fed.Cl. 418
Taxation of insurance company's policyholders
surplus account
No IRS
Kikalos v. U.S., 408 F.3d 900 (7th Cir. 2005) Unreported income No TP
Knauss v. Comm'r, T.C. Memo. 2005-6 Settlement income/unreported income No Split
Mas One Limited Partnership v. Comm'r, 390 F.3d 427 (6th
Cir. 2004)
Partnership income/Discharge of debt No IRS
McGraw v. Comm'r, 384 F.3d 965 (8th Cir. 2004) Reconstructing Income IRC § 446(b) No IRS
Mirarchi v. Comm'r, T.C. Memo. 2004-148 Discharge of indebtedness IRC § 108 No TP
Payne v. Comm'r, T.C. Memo. 2005-130 Unreported income No IRS
Price v. Comm'r, T.C. Memo. 2004-149 Discharge of indebtedness IRC § 108 No TP
Rinn v. Comm'r, T.C. Memo. 2004-256 Unreported income/Frivolous argument Yes IRS
Starkovich v. Comm'r, T.C. Summ. Op. 2004-173 Unreported income Yes IRS
Westby v. Comm'r, T.C. Memo. 2004-179 Unreported income Yes TP
Estates a n d Tru s t s
Estate of Martinez v. Comm'r, T.C. Memo. 2004-150 Discharge of indebtedness IRC § 108 No TP
T A B L E 2
G R O S S I N C O M E U N D E R I R C § 6 1 A N D R E L A T E D S E C T I O N S ( C O N T. )
AP PE ND IX
◆
3
580
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
T A B L E 3
F A I L U R E T O F I L E P E N A LT Y U N D E R I R C § 6 6 5 1 ( A ) ( 1 )
Case C i t e Issue(s)
Pro S e
Decision
Individual T P s (Issues O t h e r T h a n Business)
Appel v. Comm'r, T.C. Summ. Op. 2004-90 Medical problems not reasonable cause Yes IRS
Arvin v. Comm'r, T.C. Summ.Op. 2004-108 Zero income return not a tax return for purposes of penalty Yes IRS
Barkley v. Comm'r, T.C. Memo. 2004-287
Job stress and medical problems of family member not rea-
sonable cause
Yes IRS
Basile v. Comm'r, T.C. Memo. 2005-51 TPs failed to appear at trial Yes IRS
Benedetti v. Comm'r, T.C. Summ. Op. 2005-6 “Zero income” return not a tax return for purposes of penalty Yes IRS
Berry v. Comm'r, T.C. Memo. 2005-91 Inability to assemble necessary documentation in time to file No IRS
Bowen v. Comm'r, 95 A.F.T.R. 2d (RIA) 2009
(9th Cir. 2005)
There is a legal obligation to file & pay federal income taxes Yes IRS
Brenner v. Comm'r, T.C. Memo. 2004-202
There is legal obligation to file & pay federal income taxes/
no evidence presented to show reasonable cause
Yes IRS
Brunner v. Comm'r, T.C. Memo. 2004-187 No evidence as to reasonable cause Yes IRS
Buras v. Comm'r, T.C. Summ. Op. 2004-161 No legal obligation to file or pay federal income taxes Yes IRS
Chu v. Comm'r, T.C. Memo. 2005-110 Unavailability of records as reasonable cause Yes IRS
Conner v. Comm'r, T.C. Summ. Op. 2005-27 No evidence to show reasonable cause Yes IRS
Currier v. Comm'r, T.C. Memo. 2005-21 Claim of no tax liability under the law Yes IRS
Desauguste v. Comm'r, T.C. Summ. Op. 2005-60 No evidence to show reasonable cause Yes IRS
DiFlora v. Comm'r, T.C. Summ. Op. 2004-101 No evidence as to reasonable cause Yes IRS
Dysle v. Comm'r, T.C. Memo. 2004-285 No evidence presented to show tax returns were filed Yes IRS
Florance v. Comm'r, T.C. Memo. 2005-60 No evidence as to reasonable cause Yes IRS
Franklin v. Comm'r, T.C. Summ. Op. 2004-126
No evidence presented to substantiate claim that tax return
timely filed
Yes IRS
Funk v. Comm'r, 123 T.C. 213 (2004)
IRS does not have initial burden of proof on solely frivolous
claims
Yes IRS
Golshani v. Comm'r, T.C. Summ. Op. 2004-174 No evidence as to reasonable cause No IRS
Gowni v. Comm'r, T.C. Memo. 2004-154 No evidence as to reasonable cause No IRS
Graham v. Comm'r, T.C. Memo. 2005-68
Reliance on automatic extension as reasonable cause when
estimate of liability not made with extension request
No IRS
Graves v.Comm'r, T.C. Memo. 2004-140
Unavailability of information because of pending bankruptcy
proceeding as reasonable cause
Yes IRS
Greendyk v. Comm'r, T.C. Memo. 2005-108 No evidence as to reasonable cause No IRS
Gropper v. United States, 95 A.F.T.R.2d (RIA)
1926 (E.D. Pa. 2005)
Genuine issue of material fact as to whether the TP's medical
condition constituted reasonable cause
No TP
Halcott v. Comm'r, T.C. Memo. 2004-214 Zero income return not a tax return for purposes of penalty Yes IRS
Harris v. Comm'r, T.C. Summ. Op 2004-85
TP was able to meet her burden of proof and show that her
tax return was filed timely.
Yes TP
Jaroff v. Comm'r, T.C. Memo. 2004-276
Extensions of time to file invalid/no evidence presented as to
reasonable cause
No IRS
Kellum v. Comm'r, T.C. Summ. Op. 2005-29 No evidence as to reasonable cause Yes IRS
Lawless v. Comm'r, T.C. Summ. Op. 2005-18 Self-serving testimony as to filing return deemed insufficient Yes IRS
Lewis v. Comm'r, T.C. Memo. 2005-111 No evidence as to reasonable cause Yes IRS
Lykes v. Comm'r, T.C. Memo. 2004-159
Marital difficulty/illness of spouse/military duty as
reasonable cause
Yes IRS
Malfatti v. Comm'r, T.C. Memo. 2005-19 No evidence as to reasonable cause Yes IRS
Maloney v. Comm'r, T.C. Memo. 2005-27 Self-serving testimony about filing return insufficient No IRS
Mason v. Comm'r, T.C. Memo. 2004-247 Failure to file was fraudulent Yes IRS
Milby v. Comm'r, T.C. Memo. 2005-15 TP’s obligation to file return Yes IRS
Ndirika v. Comm'r, T.C. Memo. 2004-250 No evidence as to reasonable cause Yes IRS
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
581
L I T I G A T E D
C A S E S
SECTION
FIVE
Case C i t e Issue(s)
Pro S e
Decision
O'Laughlin v. Comm'r, T.C. Summ. Op. 2004-79 Physical injuries from car accident as reasonable cause Yes IRS
Olson v. Comm'r, T.C. Memo. 2004-234 No evidence as to reasonable cause Yes IRS
Pickering v. Comm'r, T.C. Summ. Op. 2004-136 No evidence as to reasonable cause Yes IRS
Preston v. Comm'r, T.C. Summ. Op. 2005-64 Neglecting/forgetting to file as reasonable cause Yes IRS
Quarterman v. Comm'r, T.C. Memo. 2004-241 Reliance on Spouse to file No IRS
Robinson v. Comm'r, T.C. Memo. 2005-70 No evidence presented as to reasonable cause Yes IRS
Rodriguez v. Comm'r, T.C. Memo. 2005-12 No evidence as to reasonable cause Yes IRS
Rodriguez v. Comm'r, 95 A.F.T.R. 2d (RIA) 1723
(9th Cir. 2005), aff'g T.C. Memo. 2003-105
No evidence as to reasonable cause Yes IRS
Rollins v. Comm'r, T.C. Memo. 2004-260 Belief that excise returns were not required to be filed Yes IRS
Sawukaytis v. Comm'r, 93 A.F.T.R.D.2d (RIA)
2847 (6th Cir. 2004), aff'g T.C. Memo. 2002-156
No evidence presented as to reasonable cause Yes IRS
Seavey v. Comm'r, T.C. Summ. Op. 2005-8 No evidence as to reasonable cause Yes IRS
Spanier v. Comm'r, T.C. Summ. Op. 2004-106 Protesting obligation to file Yes IRS
Storaasli v. Comm'r, T.C Memo. 2005-59 No evidence as to reasonable cause Yes IRS
Strong v. Comm'r, T.C. Memo. 2005-125 No evidence as to reasonable cause No IRS
Turner v. Comm'r, T.C. Memo. 2004-251 Zero income return not a return for purposes of penalty Yes IRS
Wesley v. United States, 95 A.F.T.R. 2d (RIA)
1832 (N.D. Fla. 2005)
Reliance on professional plus illness as reasonable cause No Split
Westby v. Comm'r, T.C. Memo. 2004-179 Reliance on spouse unreasonable Yes IRS
Widemon v. Comm'r, T.C. Memo. 2004-162 No evidence on reasonable cause Yes IRS
Business T P s (Sole P r o p r i e t o r s h i p s i n c l u d i n g Schedule C and/or F, Schedule E , C o r p o r a t i o n s , P a r t n e r s h i p s , E s t a t e s and Trusts)
Allnutt v.Comm'r, T.C. Memo. 2004-239 TP engaged in taxable activity/had obligation to file Yes IRS
Benson v. Comm'r, T.C. Memo. 2004-272 Reliance on guardian to file return as reasonable cause No IRS
Biazar v. Comm'r, T.C. Memo. 2004-270
As to some years, TP provides no evidence, as to others IRS
cannot prove when return was received
Yes Split
Bijlani v. Comm'r, T.C. Summ. Op. 2004-96 Medical illness not reasonable cause Yes IRS
Bruecher v. Comm'r, T.C. Summ. Op. 2005-52
Reliance on tax professional to file an extension as
reasonable cause
No IRS
Donald's Electric & Refrigeration Service, Inc. v.
United States, 95 A.F.T.R. 2d (RIA) 1398
(W.D. Va. 2005)
Mental illness of employee in charge of tax matters as reason-
able cause
No IRS
Dworshak v. Comm'r, T.C. Memo. 2004-249 Busy with business activities as reasonable cause Yes IRS
Estate of Korby v. Comm'r, T.C. Memo. 2005-102 No argument for reasonable cause made No IRS
Edwards v. Comm'r, T.C. Memo. 2005-52 Amount of income as reasonable cause Yes IRS
Ellis v. Comm'r, T.C. Summ. Op. 2004-170 No evidence presented as to reasonable cause Yes IRS
Ferrada v. Comm'r, T.C. Summ. Op. 2004-93 No evidence presented as to reasonable cause Yes IRS
Howard-Crowley v. Comm'r, T.C. Summ.
Op. 2004-150
No evidence as to reasonable cause presented Yes IRS
Landers v. Comm'r, T.C. Summ. Op. 2004-105 No evidence presented as to reasonable cause Yes IRS
Matthews v. Comm'r, T.C. Summ. Op. 2004-89 No evidence presented as to reasonable cause No IRS
McGrath v. United States, 94 A.F.T.R.2d (RIA)
6138 (D. Ore. 2004)
Reliance on agent insufficient Yes IRS
Montague v. Comm'r, T.C. Memo. 2004-252 No evidence presented as to reasonable cause Yes IRS
Moran v. Comm'r, T.C. Memo. 2005-66 No evidence presented as to reasonable cause Yes IRS
Rinn v. Comm'r, T.C. Memo. 2004-246 No evidence presented as to reasonable cause Yes IRS
Rosa v. Comm'r, T.C. Summ. Op. 2005-53 No evidence presented Yes IRS
Walz v. Comm'r, T.C. Summ. Op. 2005-1 No evidence presented as to reasonable cause No TP
T A B L E 3 : F A I L U R E T O F I L E P E N A LT Y U N D E R I R C § 6 6 5 1 ( A ) ( 1 ) ( C O N T. )
AP PE ND IX
◆
3
582
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
T A B L E 4
T R A D E O R B U S I N E S S E X P E N S E S U N D E R I R C § 1 6 2 A N D R E L A T E D S E C T I O N S
Case C i t e Issue(s)
Pro S e
Decision
Sole P r o p r i e t o r s
Alacan v. Comm'r, T.C. Memo. 2005-63 TPs failed to substantiate expenses Yes IRS
Applegage v. Comm'r, T.C. Summ. Op. 2004-113
Unreimbursed expense incurred in capacity as corporate offi-
cer denied
Yes IRS
Aregoni v. Comm'r, T.C. Summ. Op. 2005-65 TP failed to substantiate expenses Yes IRS
Arevalo v. Comm'r, 124 T.C. 244 (2005) TPs denied depreciation deduction for pay phones Yes IRS
Barton v. Comm'r, T.C. Memo. 2005-97
TP denied deduction for auto expenses for failure to
substantiate
No IRS
Bernardo v. Comm'r, T.C. Memo. 2004-199
TP failed to substantiate tax preparation fees and music per-
formance activity not done for profit
Yes IRS
Blanning v. Comm'r, T.C. Memo. 2004-201
TP failed to substantiate deductions, but court employed
Cohan rule
Yes TP
Brody v. Comm'r, T.C. Summ. Op. 2004-149
TP failed to substantiate vehicle expense and failed to prove
he operated a trade or business
Yes IRS
Calarco v. Comm'r, T.C. Summ. Op. 2004-94
Playwright engaged in playwriting for profit, but failed to
properly substantiate many of his business expenses
Yes Split
Chu v. Comm'r, T.C. Memo. 2005-110 Unreimbursed employee expenses denied Yes IRS
Coccia v. Comm'r, T.C. Summ. Op. 2004-159
TP denied expenses for operating newsstand for failure to
substantiate
Yes IRS
Corrigan v. Comm'r, T.C. Memo. 2005-119
Stock commission rebates allowable deduction, but casualty loss
denied and deduction for horse breeding activity denied b/c
TP was not a joint venturer
Yes Split
Doxtator v. Comm'r, T.C. Memo. 2005-113
TP did not conduct business activity w/ continuity
and regularity, did not have profit motive, and failed to sub-
stantiate casualty losses
Yes IRS
Dumond v. Comm'r, T.C. Summ. Op. 2005-11
TP denied deduction for wages paid to minor children as not
reasonable compensation and lack of substantiation
Yes IRS
Ellis v. Comm'r, T.C. Summ. Op. 2004-170 TP denied deductions for failure to substantiate Yes IRS
Evan v. Comm'r, T.C. Memo. 2004-180
TPs not in trade/business w/ continuity and regularity and
failed to substantiate expenses
Yes IRS
Ferrada v. Comm'r, T.C. Summ. Op. 2004-93
TPs failed to substantiate deductions and failed to prove
expenses were ordinary and necessary
Yes IRS
Franklin v. Comm'r, T.C. Summ. Op. 2004-126
TP could not substantiate job search expenses and was unem-
ployed for more than a reasonable temporary period
Yes IRS
Garcia v. Comm'r, T.C. Supp. Op. 2005-2
TPs denied expenses relating to employment as high school
teachers that were not ordinary & necessary
Yes IRS
Giles v. Comm'r, T.C. Memo. 2005-28 Horse breeding not done for profit No IRS
Hopkins v. Comm'r, T.C. Memo. 2005-49 TPs denied advertising expenses that were not reasonable No IRS
Horwath v. Comm'r, T.C. Memo. 2004-213
TPs improperly depreciated property owned by a corporation
that TPs were shareholders in and TP denied travel expense
deduction because entitled to reimbursement by employer but
chose not to be reimbursed
Yes IRS
Howard-Crowley v. Comm'r, T.C. Summ. Op.
2004-150
TP denied deductions for failure to substantiate Yes IRS
Hubbard v. Comm'r, T.C. Summ. Op. 2004-148
TP denied bad debt deduction in connection with his person-
al security activity and denied business meeting and telephone
expenses for lack of substantiation
Yes IRS
Kellum v. Comm'r, T.C. Summ. Op. 2005-29
TP denied casualty loss deduction because insurance claim
had reasonable prospect of recovery and denied expenses for
insurance activity for failure to substantiate
Yes IRS
Lapid v. Comm'r, T.C. Memo. 2004-222 TPs were not material participants in hotel business No IRS
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
583
L I T I G A T E D
C A S E S
SECTION
FIVE
Case C i t e Issue(s)
Pro S e
Decision
Lopez v. Comm'r, 94 A.F.T.R.2d (RIA) 7075
(5th Cir. 2004)
Amway distributors did not have profit motive Yes IRS
Malone v. Comm'r, T.C. Memo. 2005-69 TPs not in trade or business of giving music lessons Yes IRS
Matthews v. Comm'r, T.C. Summ. Op. 2004-89 Rodeo and horse training activity not done for profit Yes IRS
McEuen v. Comm'r, T.C. Summ. Op. 2004-107
Education qualified TP for a new trade or business and
expense therefore not deductible
Yes IRS
McNair v. Comm'r, T.C. Summ. Op. 2004-115
TP failed to substantiate business travel expenses and some tax
preparation fees, cell phone charges, and postage
Yes Split
Missouri v. Comm'r, T.C. Summ. Op. 2004-118 TP failed to substantiate employee business expenses Yes IRS
Montagne v. Comm'r, T.C. Memo. 2004-252 Horse breeding not done for profit Yes IRS
Moran v. Comm'r, T.C. Memo. 2005-66 Beauty shop owner fraudulently deducted alleged expenses Yes IRS
Mullins v. U.S., 334 F. Supp. 2d 1042 Cattle farm operated with profit objective No TP
Oatman v. Comm'r, T.C. Memo. 2004-236
TP improperly calculated depreciation deduction for rental
property
Yes Split
Ollett v. Comm'r, T.C. Summ. Op. 2004-103 Amway activity not done for profit Yes IRS
Panages v. Comm'r, T.C. Summ. Op. 2005-3
TP denied gambling losses because she didn't pursue gam-
bling full-time
Yes IRS
Rivera v. Comm'r, T.C. Summ. Op. 2004-81 Rental of real estate not done for profit Yes IRS
Rosa v. Comm'r, T.C. Summ. Op. 2005-53 TP failed to substantiate expenses Yes IRS
Saffran v. Comm'r, T.C. Summ. Op. 2004-152 TP denied deductions for failure to substantiate Yes IRS
Sax v. Comm'r, T.C. Summ. Op. 2004-171 TP denied deductions for failure to substantiate Yes IRS
Seidel v. Comm'r, T.C. Memo. 2005-67 TP failed to substantiate expenses Yes IRS
Setyono v. Comm'r, T.C. Summ. Op. 2004-127 TP failed to substantiate expenses Yes IRS
Sundby v. Comm'r, T.C. Summ. Op. 2004-104
TPs failed to substantiate deductions and some trade or busi-
ness expenses should have been claimed by corporation rather
than individuals
Yes IRS
Tigrett v. U.S., 358 F. Supp. 2d 672 Court denied both parties' request for summary judgment No Split
Walz v. Comm'r, T.C Summ. Op. 2005-1 TP denied some deductions for failure to substantiate No Split
Westby v. Comm'r, T.C. Memo. 2004-179
Disallowance of law practice deductions was arbitrary and
unreasonable
Yes TP
Whalen v. Comm'r, T.C. Summ. Op. 2005-45
TP denied deductions for expenses that could have been reim-
bursed by employer and for failure to substantiate
Yes IRS
Wheir v. Comm'r, T.C. Summ. Op. 2004-117
TP entitled to deduct travel and transportation expenses but
not entitled to deduct certain expenses for body building activ-
ity that were not useful only in body building business
Yes Split
Wilkerson v. Comm'r, T.C. Summ. Op. 2004-99
TP could not substantiate deductions and forfeiture of rights
under collective bargaining agreement is not a deductible loss
Yes IRS
Wood v. Comm'r, T.C. Memo. 2004-200
TPs held not to be carrying on a real estate developing busi-
ness
Yes IRS
Business E n t i t i e s
Beiner, Inc. v. Comm'r, T.C. Memo. 2004-219 Employee compensation was reasonable No TP
Edwards v. Comm'r, T.C. Memo. 2005-52
TP denied deduction for rent because expense was not ordi-
nary and necessary
Yes IRS
Hackworth v. Comm'r, T.C. Memo. 2004-173
TP denied loss deduction for money forfeited to state during
raid of illicit gambling operation
No IRS
Knauss v. Comm'r, T.C. Memo. 2005-6
S Corp's deductions denied when expenses were for personal
benefit of shareholders
No IRS
Lenzen v. Comm'r, T.C. Memo. 2005-120 TP was denied gambling losses No IRS
T A B L E 4 T R A D E O R B U S I N E S S E X P E N S E S U N D E R I R C § 1 6 2 A N D R E L A T E D S E C T I O N S
( C O N T. )
AP PE ND IX
◆
3
584
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
Case C i t e Issue(s)
Pro S e
Decision
Maguire/Thomas Partners v. Comm'r, T.C. Memo.
2005-34
TP allowed depreciation deduction for variance associated with
building, but not for zoning change expenses in general
No Split
Mediaworks v. Comm'r, T.C. Memo. 2004-177
Deduction for yacht-related expenses denied because they
were not ordinary and necessary
No IRS
Menard, Inc. v. Comm'r, T.C. Memo. 2004-207,
motion for reconsideration denied, T.C. Memo.
2005-3
TP denied deduction for portion of employee compensation
that was unreasonable
No IRS
Metro Leasing v. Comm'r, 376 F.3d 1015
(9th Cir. 2004)
Excessive employee compensation No IRS
Miller & Sons Drywall, Inc. v. Comm'r, T.C.
Memo. 2005-114
TP's compensation to employee-shareholders held to be rea-
sonable, and thus fully deductible
No TP
Mires v. U.S., 372 F. Supp. 2d 1265 TP failed to substantiate legal expenses No IRS
Payne v. Comm'r, T.C. Memo. 2005-130
S corporation denied deduction for check-cashing expenses
because they were not ordinary and necessary business
expenses
No IRS
PK Ventures v. Comm'r, T.C. Memo. 2005-56
Employee comp deduction limited to reasonable comp, which
was higher than IRS previously allowed, but lower than what
TP claimed
No Split
Shirley v. Comm'r, T.C. Memo. 2004-188
TP allowed § 179 deduction for purchase of a motor home to
be added to a rental fleet
No TP
Strong v. Comm'r, T.C. Memo. 2005-125
TP allowed deductions for advertising, but denied all other
deductions for lack of substantiation
No Split
T A B L E 4 T R A D E O R B U S I N E S S E X P E N S E S U N D E R I R C § 1 6 2 A N D R E L A T E D S E C T I O N S
( C O N T. )
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
585
L I T I G A T E D
C A S E S
SECTION
FIVE
T A B L E 5
F R I V O L O U S I S S U E S P E N A LT Y U N D E R I R C § 6 6 7 3
Case C i t e Issues
Pro S e
Decision
Individual Taxpayers ( I s s u e s o t h e r than B u s i n e s s )
Adams v. Comm’r, 127 Fed. Appx. 963
(9th Cir. 2005)
TPs argued that only corporate profit constitutes income
subject to federal taxes
Yes IRS
Arevalo v. Comm’r, 124 T.C. 244 (2005) TP filed a Tax Court petition as a way to delay collection process Yes TP
Arvin v. Comm’r, T.C. Summ. Op. 2004-108
TP argued that the 16th Amendment did not give the Federal
government new taxing authority and that income tax is really
an excise tax on those licensed or incorporated
Yes TP
Benedetti v. Comm’r, T.C. Summ. Op. 2005-6 TP argued that wages are property and not gross income Yes IRS
Boyd v. Comm’r, 121 Fed. Appx. 348
(10th Cir. 2005)
IRS’s refusal to allow taxpayer to audio record hearing did not
require remand
Yes IRS
Brennecke v. Comm’r, T.C. Memo. 2005-11
TP raised frivolous arguments as to why he wasn’t required to
pay tax
Yes IRS
Brunner v. Comm’r, T.C. Memo. 2004-187
TP raised arguments under the 4th, 5th, 9th, 13th, and 16th
Amendments as to why he wasn’t required to file a return
Yes IRS
Buras v. Comm’r, T.C. Summ. Op. 2004-161
TP argued that he was an agent of the church and since the
church was not taxable his wages should not be either
Yes IRS
Burke v. Comm’r, 124 T.C. 189 (2005) TP argued that notice of deficiency was invalid Yes IRS
Cardona v. Comm’r, 94 A.F.T.R.2d (RIA)
7148 (2d Cir. 2004)
TP argued the notice of lien didn’t comply with procedural
requirements and therefore was deprived of due process
Yes IRS
Casey v. Comm’r, T.C. Memo. 2004-228
TP argued that IRS attorney’s communications were
vexatious and burdensome and subject to sanction under
IRC § 6673(a)(2)
Yes IRS
Chase v. Comm’r, T.C. Memo. 2004-142
TP claimed that the federal government had no jurisdiction
over him
Yes IRS
Cozzens v. Comm’r, T.C. Memo. 2005-98
IRS’s refusal to allow taxpayer to audio record hearing does not
require remand
Yes TP
Currier v. Comm’r, T.C. Memo. 2005-21
TP offered common frivolous arguments as to why notice of
deficiency was invalid and why he didn’t owe tax
Yes IRS
Dalton v. Comm’r, T.C. Memo. 2005-7 TP argued that notice of deficiency was invalid Yes TP
Dashiell v. Comm’r, T.C. Memo. 2004-210 TPs argued that their income was not includable in gross income Yes TP
Dues v. Comm’r, T.C. Memo. 2005-109
IRS’s refusal to allow taxpayer to audio record hearing did not
require remand
Yes TP
Florance v. Comm’r, T.C. Memo. 2005-60 TP argued that he should not be considered a taxpayer Yes IRS
Florance v. Comm’r, T.C. Memo. 2005-61 TP argued that he should not be considered a taxpayer Yes IRS
Funk v. Comm’r, 123 T.C. 213 (2004)
TP argued that he is not considered a TP, the IRS has no
jurisdiction over him, and the IRS has no statutory authority
to collect taxes
Yes TP
Gatlos v. Comm’r, T.C. Memo. 2004-192
TPs argued that the Commissioner had to sign the notice of
intent to levy, the 16th Amendment is unconstitutional, and
the Secretary has no authority to collect tax
Yes IRS
Gavigan v. Comm’r, T.C. Summ. Op. 2004-
155
TP argued that there was no law that required her to pay taxes
and forcing people to pay them was slavery
Yes IRS
Gilligan v. Comm’r, T.C. Memo. 2004-194 TP only challenged existence of law taxing earnings Yes IRS
Greendyk v. Comm’r, T.C. Memo. 2005-108
Neither TP nor his attorney submitted frivolous documents or
briefs to the court
No TP
Hamzik v. Comm’r, T.C. Memo. 2004-223
TP argued that he is not a taxpayer, and he has no earnings
that may be taxed
Yes IRS
Henderson v. Comm’r, T.C. Memo. 2004-157 TP argued that the Secretary had to sign the notice of deficiency Yes IRS
Hiland v. Comm’r, T.C. Memo. 2004-225
TP submitted lengthy communications to the court and incor-
rectly applied cases and the tax code
Yes IRS
Hobbs v. Comm’r, 94 A.F.T.R.2d (RIA) 6194
(9th Cir. 2004)
TPs made frivolous arguments and had been previously
warned of the possibility of sanctions
Yes IRS
Holguin v. Comm’r, 94 A.F.T.R.2d (RIA)
5803 (9th Cir. 2004)
TP raised numerous frivolous issues in collection due process
hearings solely for purpose of delay
Yes IRS
AP PE ND IX
◆
3
586
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
Case C i t e Issues
Pro S e
Decision
Howard v. Comm’r, T.C. Memo. 2005-144 TP argued that being paid is not a taxable event Yes IRS
Howard v. Comm’r, T.C. Memo. 2005-100 TP argued wages are not income Yes IRS
Johnston v. Comm’r, T.C. Memo. 2004-224
TP submitted lengthy communications to the court and mis-
applied the law
Yes IRS
Kaplowitz v. Comm’r, T.C. Memo. 2005-62
TP argued that he was denied the opportunity to dispute the
existence or amount of his tax liability
Yes IRS
Kilgore v. Comm’r, T.C. Memo. 2005-24
TP argued she was not a taxpayer and the Commissioner
needed to provide statute and Constitutional Amendments
that allow for an income tax
Yes IRS
Kolker v. Comm’r, T.C. Memo. 2004-288 TP argued that there was no law requiring him to pay income tax Yes IRS
Krueger v. Comm’r, T.C. Memo. 2005-105 TP argued that wages were not taxable income Yes IRS
Kubon v. Comm’r, T.C. Memo. 2005-71
TP argued that wages are not income and that notice of deter-
mination was insufficient
Yes IRS
Le Doux v. Comm’r, 94 A.F.T.R.2d (RIA)
5013 (10th Cir. 2004)
TP argued notice of deficiency invalid because not signed by
the Secretary
Yes IRS
Lehmann v. Comm’r, T.C. Memo. 2005-90
TP argued notice of deficiency was invalid because he didn’t
receive it
Yes IRS
Malfatti v. Comm’r, T.C. Memo. 2005-19
TP argued that liabilities are excise taxes, and TP failed to meet
with the IRS or provide any of the requested information
Yes IRS
Mathews v. Comm’r, T.C. Memo. 2005-84
TP offered only frivolous arguments that the IRS was commit-
ting a fraud against him
Yes TP
Mathis v. United States, 94 A.F.T.R.2d (RIA)
6340 (D. S.D. 2004)
TPs instituted IRC § 7433 wrongful collection action but
knew their claims had been rejected in previous cases
Yes IRS
McBride v. Comm’r, T.C. Memo. 2004-178 TP argued the income tax was unconstitutional Yes TP
Meyer v. Comm’r, T.C. Memo. 2005-81
TPs primarily used the administrative hearings to delay the
collection process, making frivolous arguments – including
that the IRC doesn’t establish tax liability
Yes IRS
Meyer v. Comm’r, T.C. Memo. 2005-82
TPs primarily used the administrative hearings to delay the
collection process, making frivolous arguments – including
that the IRC doesn’t establish tax liability
Yes IRS
Milby v. Comm’r, T.C. Memo. 2005-15 TP argued that the IRS had not met the burden of proof Yes IRS
Olson v. Comm’r, T.C. Memo. 2004-234 TP argued that his wages were nontaxable Yes TP
Poe v. Comm’r, T.C. Memo. 2005-107
TP raised frivolous arguments related to IRS procedure that
were primarily for delay
Yes IRS
Rewerts v. Comm’r, T.C. Memo. 2004-248
TP argued that the notice of deficiency must be signed by the
Secretary of the Treasury
Yes TP
Rodriguez v. Comm’r, T.C. Memo. 2005-12
TP argued he did not receive an opportunity to challenge the
IRS’s evidence presented at trial
Yes IRS
Sawukaytis v. Comm’r, 93 A.F.T.R.2d (RIA)
2847 (6th Cir. 2004)
TP argued federal income tax is an excise tax No IRS
Shireman v. Comm’r, T.C. Memo. 2004-155
TP argued that the IRS had to rely on a particular document
to verify that applicable laws and procedures have been met for
a Collection Due Process hearing
Yes TP
Sides v. Comm’r, T.C. Memo. 2004-141
TP made frivolous arguments in petition but at trial admitted
arguments were inappropriate and promised not to raise these
frivolous arguments again
Yes TP
Smith v. Comm’r, T.C. Memo. 2004-198
TP failed to appear at trial and then offered frivolous argu-
ments for delay of collection process
Yes TP
Snyder v. Comm’r, T.C. Memo. 2005-89
IRS’s refusal to allow taxpayer to audio record hearing does not
require remand
Yes TP
Stearman v. Comm’r, T.C. Memo. 2005-39
TP argued that there is no such thing as income tax and that
the 16th Amendment is unconstitutional
Yes IRS
Stephanatos v. Comm’r, T.C. Memo. 2004-151
TP made frivolous arguments concerning improper deductions
and whether wages are taxable income
Yes IRS
Storaasli v. Comm’r, T.C. Memo. 2005-59
TP argued that the federal government did not have the
authority to enforce a federal income tax and that notice of
deficiency was improper
Yes IRS
T A B L E 5 : F R I V O L O U S I S S U E S P E N A LT Y U N D E R I R C § 6 6 7 3 ( C O N T . )
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
587
L I T I G A T E D
C A S E S
SECTION
FIVE
Case C i t e Issues
Pro S e
Decision
Taylor v. Comm’r, T.C. Memo. 2005-74 TP argued notice of deficiency was invalid Yes IRS
Tello v. Comm’r, 95 A.F.T.R.2d (RIA) 1916
(5th Cir. 2005), cert. denied, 126 S.Ct. 381
(Oct. 3, 2005)
TP failed to cooperate with IRS and ignored warnings to stop
making frivolous arguments
Yes IRS
Thompson v. Comm’r, T.C. Memo. 2004-204
TP argued that notice of deficiency was invalid because not
signed by Secretary or his delegate
Yes TP
Williams v. Comm’r, T.C. Memo. 2005-94
TP submitted lengthy communications to the court and mis-
applied tax law, court decisions, and Constitutional provisions
Yes IRS
Wos v. Comm’r, 94 A.F.T.R.2d (RIA) 6195
(7th Cir. 2004)
TP argued that profit from business is not income, no liability
because he didn’t receive valid assessment, and IRS didn’t have
authority to prepare return
Yes IRS
Yazzie v. Comm’r, T.C. Memo. 2004-233
TP argued that no law established liability for income taxes or
required her to file a return
Yes IRS
Business Taxpayers ( S o l e P r o p r i e t o r s h i p s including S c h e d u l e C o r F, S c h e d u l e E, C o r p o r a t i o n s , P a r t n e r s h i p s , and Trusts)
Brenner v. Comm’r, T.C. Memo. 2004-202
TP raised frivolous arguments ranging from communism to
separation of church and state
Yes IRS
Rinn v. Comm’r, T.C. Memo. 2004-246
TPs’ court filings were frivolous and were warned at trial about
the penalty but filed no brief and didn’t continue to pursue
those arguments after trial
Yes TP
Sinele v. Comm’r, T.C. Memo. 2004-137
TP offered new argument on the eve of trial for the purpose of
delaying the proceedings
No IRS
T A B L E 5 : F R I V O L O U S I S S U E S P E N A LT Y U N D E R I R C § 6 6 7 3 ( C O N T . )
AP PE ND IX
◆
3
588
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
T A B L E 6
N E G L I G E N C E P E N A LT Y U N D E R I R C § 6 6 6 2 ( B ) 1
Case C i t e Issue(s)
Pro S e
Decision
Individual Taxpayers ( I s s u e s O t h e r Than B u s i n e s s
Abeyta v. Comm'r, T.C. Summ. Op. 2005-44 TPs (H&W) reasonably relied on tax professional Yes TPs
Bien-Aime v. Comm'r, T.C. Memo. 2004-281 TP failed to carefully review tax return prepared by advisor Yes IRS
Bolden v. Comm'r, T.C. Summ. Op. 2004-114 TP did not inquire about the accuracy of her tax return Yes IRS
Bosco v. Comm'r, T.C. Summ. Op. 2005-14
TP intentionally disregarded information from her employer
regarding payment of moving expenses/TP's reliance on advis-
er regarding deductibility of moving expenses was reasonable
Yes Split
Cohen v. Comm'r, T.C. Memo. 2004-227 Not receiving a Form 1099-R is not reasonable cause No IRS
DiFlora v. Comm'r, T.C. Summ. Op. 2004-101 TP provided no evidence to show reasonable cause Yes IRS
Golshani v. Comm'r, T.C. Summ. Op. 2004-
174
TPs (H&W) reasonably attempted to comply with the tax
code
No TPs
Gowni v. Comm'r, T.C. Memo. 2004-154
TPs (H&W) did not reasonably rely on the tax professional/
did not keep adequate books & records
No IRS
Graves v. Comm'r, T.C. Memo. 2004-140
TPs (H&W) did not keep adequate books & records/did not
attempt to ascertain correctness of deduction
Yes IRS
Howard-Crowley v. Comm'r, T.C. Summ. Op.
2004-150
TP provided no evidence to show reasonable cause Yes IRS
Namyst v. Comm'r, T.C. Memo. 2004-263
W-2, but H&W reasonably attempted to comply with the
tax law based on information available
No TPs
Reimann v. Comm'r, T.C. Summ. Op. 2005-10
TPs (H&W) did not make sufficient effort to ascertain cor-
rect tax liability/did not consult a tax professional.
Yes IRS
Spanier v. Comm'r, T.C. Summ. Op. 2004-106
No reasonable basis for deductions — Court order allowing
TP (H) to claim dependency exemptions not issued until
after return was filed
Yes Split
Stephanatos v. Comm'r, T.C. Memo. 2004-151 TP's arguments were frivolous Yes IRS
Taibo v. Comm'r, T.C. Memo. 2004-196
TP's reliance on a current income tax regulation was reason-
able cause
No TP
Turner v. Comm'r, T.C. Memo. 2004-251 TP's return containing zeroes was held to be invalid return Yes TP
Williams v. Comm'r, 95 A.F.T.R. 2d (RIA) 764
(10th Cir. 2005)
TP relied on incorrect W-2 when completing income tax
return
No IRS
Business Taxpayers ( s o l e p r o p r i e t o r s h i p s including S c h e d u l e C a n d / o r F, S c h e d u l e E, C o r p o r a t i o n s , P a r t n e r s h i p s , and Trust(s)).
Acle v. Comm'r, T.C. Summ. Op. 2004-82 TP did not keep complete or adequate records Yes IRS
Allnutt v. Comm'r, T.C. Memo. 2004-239
TP's reliance on adviser not reasonable when complete/accu-
rate records not provided
Yes IRS
Barnes v. Comm'r, T.C. Memo. 2004-266 TP did not reasonably rely on tax professional No IRS
Beiner, Inc. v. Comm'r, T.C. Memo. 2004-219
TP exercised ordinary business care and prudence in
determining deduction for officer compensation
No TP
Benson v. Comm'r, T.C. Memo. 2004-272
TPs did not provide complete information to their tax
professionals
No IRS
Bernardo v. Comm'r, T.C. Memo. 2004-199 Reasonable reliance on tax professional/lack of substantiation Yes Split
Biazar v. Comm'r, T.C. Memo. 2004-270
TPs (H&W) failed to show reasonable cause for failure
to maintain records of schedule C expenses
Yes IRS
Calarco v. Comm'r, T.C. Summ. Op. 2004-94
TP did not exercise reasonable diligence to determine
correctness of deductions/didn't keep accurate records
Yes Split
Caspian Consulting Group, Inc. v. Comm'r,
T.C. Memo. 2005-54
TP's reliance on tax professional was reasonable when TP
gave professional all necessary records
No TP
CMA Consolidated, Inc. v. Comm'r, T.C.
Memo. 2005-16
TP could not reasonably rely on the tax professional when
TP did not disclose all relevant facts
No IRS
Corrigan v. Comm'r, T.C. Memo. 2005-119
TP unreasonably relied on attorney and did not keep ade-
quate records
Yes IRS
Delaware Corp. v. Comm'r, T.C. Memo. 2004-
280
TP's reliance on tax professional not reasonable when correct
information not provided
No IRS
Doxtator v. Comm'r, T.C. Memo. 2005-113
TP's position regarding self-employment tax exemption was
reasonable/TP failed to keep books & records to substantiate
expenses
Yes Split
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
589
L I T I G A T E D
C A S E S
SECTION
FIVE
Case C i t e Issue(s)
Pro S e
Decision
Dumond v. Comm'r, T.C. Summ. Op. 2005-11
TP did not keep adequate records or otherwise substantiate
deductions
Yes IRS
Fairey v. Comm'r, T.C. Memo. 2005-129 TPs (H&W) failed to keep adequate records Yes ERS
Firsow v. Comm'r, T.C. Summ. Op. 2004-112
TPs (H&W) did not take reasonable steps to comply with
the law/did not keep credible records
No IRS
Gouveia v. Comm'r, T.C. Memo. 2004-252
TPs' reliance on tax avoidance scheme repeatedly rejected by
the courts was not reasonable/TPs did not show that they
relied on advice from a tax professional
No IRS
Graham v. Comm'r, T.C. Memo. 2005-68 TP failed to show reasonable cause No IRS
Hansen v. Comm'r, T.C. Memo. 2004-269 TP did not reasonably rely on tax professional No IRS
Hitchen v. Comm'r, T.C. Memo. 2004-265 TP could not reasonably rely on the tax professional Yes IRS
Horwath v. Comm'r, T.C. Memo. 2004-213
No reasonable cause shown or good faith in computing the
deductions
Yes IRS
Hurst v. Comm'r, 124 T.C. 16 (2005) TPs reasonably complied with the tax code No TPs
Kooyers v. Comm'r, T.C. Memo. 2004-281 TPs failed to prove their tax professional was competent Yes IRS
Lenzen v. Comm'r, T.C. Memo. 2005-120
TPs did not keep adequate records of their wins or losses
from gambling
No IRS
Malone v. Comm'r, T.C. Memo. 2005-69
TP was an educated individual but did not have tax expertise
and reasonable minds could differ as to the tax treatment of
complex issue
Yes TP
McNair v. Comm'r, T.C. Summ. Op. 2004-115
TP did not review tax returns before filing/didn't keep
adequate records
Yes IRS
Mediaworks, Inc. v. Comm'r, T.C. Memo.
2004-177
TP's reliance on adviser not reasonable when adviser not
competent
No IRS
Menard, Inc. v. Comm'r, T.C. Memo. 2004-
207
TPs did not provide their tax professional with complete and
accurate records
No IRS
Montagne v. Comm'r, T.C. Memo. 2004-252 TPs did not provide any evidence to show reasonable cause Yes IRS
Morrison v. Comm'r, T.C. Memo. 2005-53
Court held no underpayment of tax existed, so penalty not
applicable
No TP
Mortensen v. Comm'r, T.C. Memo. 2004-279
TP's reliance on promoters of the investment and other
investors was not objectively reasonable
No IRS
Oatman v. Comm'r, T.C. Memo. 2004-236
TPs (H&W) used improper methods to compute deprecia-
tion & didn't provide evidence to show reasonable cause
Yes IRS
Ogu v Comm'r, T.C. Summ. Op. 2004-87
TP did not keep adequate books & records/did not substan-
tiate
Yes IRS
Panages v. Comm'r, T.C. Summ. Op. 2005-3
TP had a reasonable basis for believing that she was a profes-
sional gambler/kept accurate records
Yes TP
Rahimi v. Comm'r, T.C. Summ. Op. 2004-156 TPs could not show reasonable cause Yes IRS
Starkovich v. Comm'r, T.C. Summ. Op. 2004-
173
TP did not keep adequate records Yes IRS
Van Scoten v. Comm'r, T.C. Memo. 2004-275
TP's reliance on another investor in same partnership not
objectively reasonable
No IRS
Walz v. Comm'r, T.C. Summ. Op. 2005-1 TP reasonably relied on tax professional No TP
Westby v. Comm'r, T.C. Memo. 2004-179
TP kept complete and adequate records and could show
reasonable cause
Yes TP
Wood v. Comm'r, T.C. Memo. 2004-200
TP's deductions were improper, and he did not consult a tax
professional
Yes IRS
T A B L E 6 : N E G L I G E N C E P E N A LT Y U N D E R I R C § 6 6 6 2 ( B ) 1 ( C O N T . )
AP PE ND IX
◆
3
590
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
T A B L E 7
F A M I LY S TA T U S I S S U E S U N D E R I R C § § 2 , 2 1 , 2 4 , 3 2 , A N D 1 5 1
Case C i t e Issue(s)
Pro S e
Decision
Individual T P s (Issues O t h e r T h a n Business)
Allsopp v. Comm'r, T.C. Summ. Op. 2004-154 Dependency Exemption, Child Tax Credit Yes IRS
Bernardo v. Comm'r, T.C. Memo. 2004-199 Dependency Exemption, Filing Status Yes IRS
Booker v. Comm'r, T.C. Summ. Op. 2004-92 Dependency Exemption, EITC, Filing Status Yes IRS
Bouch v. Comm'r, T.C. Summ. Op. 2004-167 Dependency Exemption, Child Tax Credit Yes IRS
Boulden v. Comm'r, T.C. Summ. Op. 2004-124 Dependency Exemption, Child Tax Credit Yes IRS
Brettin v. Comm'r, T. C. Summ. Op. 2004-95 Dependency Exemption, Child Tax Credit No IRS
Brunner v. Comm'r, T.C. Memo. 2004-187 Dependency Exemption Yes IRS
Caputi v. Comm'r, T.C. Memo. 2004-283 Dependency Exemption, Child Tax Credit, Filing Status Yes IRS
Castleton v. Comm'r, T.C. Memo 2005-58 Child Tax Credit, Filing Status Yes Split
Colstock v. Comm'r, T.C. Summ. Op. 2005-54
Dependency Exemption, Child Tax Credit, EITC,
Filing Status
Yes IRS
Corrigan v. Comm'r, T.C. Memo. 2005-119 Dependency Exemption Yes TP
Curello v. Comm'r, T.C. Summ. Op. 2005-23 Dependency Exemption, Child Tax Credit Yes IRS
Diaz v. Comm'r, T.C. Memo. 2004-145 EITC Yes IRS
Elkins v. Comm'r, T.C. Summ. Op. 2004-84
Dependency Exemption, Child Tax Credit, Filing
Status, Child and Dependent Care Credit
Yes Split
Emanie v. Comm'r, T.C. Summ. Op. 2004-78 Dependency Exemption, Filing Status Yes IRS
Howard-Crowley v. Comm'r, T.C. Summ. Op.
2004-150
Dependency Exemption Yes IRS
Hubbard v. Comm'r, T.C. Summ. Op. 2004-148 Filing Status, Child and Dependent Care Credit Yes TP
Hutchinson v. Comm'r, T.C. Summ. Op. 2005-58 Dependency Exemption No IRS
In re Adkins, 2004 WL 2334716 (Bankr. D.
Kan. 2004)
Pro rata share of EITC is includible in bankruptcy
estate
No Trustee
In re James, 406 F.3d 1340 (11th Cir. 2005)
EITC is "public assistance" which debtors can claim as
exemption under Alabama law.
No TP
In re Schwarz, 314 B.R. 433 (D. Neb. 2004)
Portions of federal and state refunds attributable to
child tax credit not included in bankruptcy estate.
No TP
Jondahl v. Comm'r, T.C. Memo 2005-55 Filing Status No IRS
Jones v. Comm'r, T.C. Summ. Op. 2004-133 Dependency Exemption, EITC Yes IRS
Joseph v. Comm'r, T.C. Summ. Op. 2004-137 Dependency Exemption, EITC Yes IRS
Lear v. Comm'r, T.C. Memo 2004-253 Dependency Exemption, EITC Yes IRS
Mbachu v. Comm'r, T.C. Summ. Op. 2004-168 EITC, Filing Status Yes IRS
Mbanu v. Comm'r, T.C. Summ. Op. 2005-56 EITC, Filing Status Yes IRS
McNair v. Comm'r, T.C. Summ. Op. 2004-115
Dependency Exemption, Child Tax Credit, Child and
Dependent Care Credit
Yes IRS
Montwillo v. Comm'r, T.C. Summ. Op. 2004-123 Dependency Exemption, Child Tax Credit, Filing Status Yes IRS
Muncy v. Comm'r, T.C. Summ. Op. 2005-20
Dependency Exemption, Child Tax Credit, EITC,
Filing Status
Yes IRS
Myers v. Comm'r, T.C. Summ. Op. 2005-15 EITC Yes IRS
Ogu v. Comm'r, T.C. Summ. Op. 2004-87 EITC, Filing Status Yes IRS
Petty v. Comm'r, T.C. Memo 2004-144 EITC Yes IRS
Rogers v. Comm'r, T.C. Memo. 2004-245 EITC Yes IRS
Sampson v. Comm'r, T.C. Summ. Op. 2005-30 Dependency Exemption, EITC, Filing Status Yes IRS
Scott v. Comm'r, T.C. Summ. Op. 2004-129 Dependency Exemption, Child Tax Credit Yes IRS
Somsukcharean v. Comm'r, T.C. Summ. Op.
2005-49
Dependency Exemption, Child Tax Credit, EITC Yes IRS
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
591
L I T I G A T E D
C A S E S
SECTION
FIVE
Case C i t e Issue(s)
Pro S e
Decision
Spanier v. Comm'r, T.C. Summ. Op. 2004-106 Dependency Exemption Yes
Custodial
Parent
Szasz v. Comm'r, T.C. Summ. Op. 2004-169 Dependency Exemption, Filing Status Yes IRS
Toney v. Comm'r, T.C. Memo. 2004-165 Dependency Exemption, EITC, Filing Status Yes IRS
Urena v. Comm'r, T.C. Summ. Op. 2004-138 EITC Yes IRS
Varner v. Comm'r, T.C. Summ. Op. 2004-111 Dependency Exemption, EITC, Filing Status Yes IRS
Wells v. Comm'r, T.C. Summ. Op. 2004-153 Dependency Exemption, Child Tax Credit Yes IRS
Wentland v. Comm'r, T.C. Summ. Op. 2004-
134
Dependency Exemption Yes Split
Werther v. Comm'r, T.C. Summ. Op. 2005-28 Dependency Exemption, Child Tax Credit Yes IRS
T A B L E 7 : F A M I LY S T A T U S I S S U E S U N D E R I R C § § 2 , 2 1 , 2 4 , 3 2 , A N D 1 5 1 ( C O N T. )
AP PE ND IX
◆
3
592
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
T A B L E 8
R E L I E F F R O M J O I N T A N D S E V E R A L L I A B I L I T Y U N D E R I R C § 6 0 1 5
Case C i t e I s s u e s
Pro S e
Intervenor D e c i s i o n
Abelein v. Comm’r, T.C. Memo. 2004-274,
appeal docketed, No. 05-71672 (9th Cir.
Mar. 7, 2005)
6015(b), (f ); RP, §4.03 No No IRS
Albin v. Comm’r, T.C. Memo. 2004-230 6015(b),(c),(f); RP, §4.03 Yes No IRS
Alt v. Comm’r, 93 A.F.T.R.2d (RIA) 2561
(6th Cir. 2004), aff’g 119 T.C. 306 (2002)
6015(b),(c),(f); RP, §4.03 No No IRS
Barnes v. Comm’r, T.C. Memo. 2004-266 6015(b),(c),(f ); RP, §4.03 No No IRS
Baumann v. Comm’r, T.C. Memo. 2005-31
TC determined H had sufficient opportunity to
participate; 6015(f); RP, §4.03
No No IRS
Becherer v. Comm’r, T.C. Memo. 2004-282 6015(b), (c), (f ); RP, §4.03 Yes No IRS
Bowen v. Comm’r, T.C. Summ. Op. 2005-32 6015(c) (IRS did not prove actual knowledge) Yes No TP
Bussell v. Comm’r, T.C. Memo. 2005-77
6015(b) and (c) (knowledge);RP, §4.01 (threshold
condition/fraud)
Yes No IRS
Capehart v. Comm’r, T.C. Memo. 2004-268,
appeal docketed, No. 05-71306 (9th Cir.
Feb. 22, 2005)
6015(b),(c),(f); RP, §4.03 No No IRS
Coleman v. Comm’r, T.C. Summ. Op. 2004-
165
IRS had conceded relief; TC sustained relief despite
intervenor’s objection
Yes Yes TP*
Cook v. Comm’r, T.C. Memo. 2005-22 6015(c) (IRS did not prove actual knowledge) Yes No TP
Cullen v. Comm’r, T.C. Memo. 2004-176 6015(b),(c),(f)(knowledge); RP, §4.03 Yes No IRS
DeFore v. Comm’r, T.C. Summ. Op. 2004-162 6015(c) (IRS did not prove actual knowledge) Yes No TP
Drake v. Comm’r, 123 T.C. 320 (2004)
Tax Court granted govt’s motion to dismiss; held
that automatic bankruptcy stay bars the filing of a
petition in a 6015 standalone proceeding
No No IRS
Durham v. Comm’r, T.C. Memo. 2004-184 6015(b),(c),(f); RP, §4.03 (underpayment) Yes No IRS
Ford v. Comm’r, T.C. Memo. 2005-18 6015(b) (knowledge or reason to know) No No IRS
Friday v. Comm’r, 124 T.C. 220 (2005)
Tax Court denied IRS motion to remand case back
to agency to make merits determination; no 6015
analog to CDP remand under the retained jurisdic-
tion provision of 6330(d)
No No TP
George v. Comm’r, T.C. Memo. 2004-261 6015(f) (underpayment); RP, §4.03 Yes No IRS
Giles v. Comm’r, T.C. Summ. Op. 2004-145
6015(b),(c),(f) (knowledge or reason to know); RP,
§4.03
Yes No IRS
Griffin v. Comm’r, T.C. Summ. Op. 2005-41 6015(f) (underpayment); RP, §4.03 Yes No IRS
Haag, U.S. v., 94 A.F.T.R.2d 6665 (D.
Mass. 2004)
6015(b),(f) (timeliness of claim) No No IRS
Hall v. Comm’r, T.C. Memo. 2004-170 6015(f ) (timeliness of claim) Yes Yes IRS
Hendricks v. Comm’r, T.C. Memo. 2005-72 6015(b) (no knowledge or reason to know) No No TP
James v. Comm’r, T.C. Summ. Op. 2004-176 6015(f ); RP, §4.03 (underpayment) No No IRS
Jones v. Comm’r, T.C. Summ. Op. 2005-9
Denied relief in two years because tax fully paid
prior to effective date of 6015; third year dismissed
for lack of jurisdiction
Yes IRS
Knorr v. Comm’r, T.C. Memo. 2004-212 6015(f); RP, §4.03 (underpayment) No Yes IRS
Levy v. Comm’r, T.C. Memo. 2005-92
Denied 6015(b) based on reason to know; granted
(c) relief based on govt’s failure to proved actual
knowledge; granted and denied (f) relief for various
years based on factor analysis in RP, §4.03
No No Split
Lopez v. Comm’r, T.C. Memo. 2005-36 6015(f) (underpayment), RP §4.03 Yes No IRS
McClelland v. Comm’r, T.C. Memo. 2005-121 6015(b) (knowledge or reason to know) No No TP
McGee v. Comm’r, 123 T.C. 314 (2004)
6015(f) Tax Court held that failure to notify TP of
right to file claim for 6015 relief in refund offset
notice as required by RRA98 § 3501 precludes any
finding that the claim was untimely filed
Yes No TP
* The IRS conceded the 6015 issue prior to trial; the nonrequesting spouse intervened resulting in a trial and opinion favor-
able to the requesting spouse.
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
593
L I T I G A T E D
C A S E S
SECTION
FIVE
Case C i t e I s s u e s
Pro S e
Intervenor D e c i s i o n
Monsour v. Comm’r, T.C. Memo. 2004-190
6015(b), (f ), and (g)(2) TC held that TP had mate-
rially participated in the prior TC proceeding and
was precluded by res judicata from raising an inno-
cent spouse claim
No No IRS
Morello v. Comm’r, T.C. Memo. 2004-181 6015(f) (underpayment); RP, §4.03 Yes No IRS
Nelson v. Comm’r, T.C. Memo. 2005-9
6015(f) Tax Court held that failure to notify TP of
right to file claim for 6015 relief in refund offset
notice as required by RRA98 § 3501 precludes any
finding that the claim was untimely filed
Yes TP
Noons v. Comm’r, T.C. Memo. 2004-243 Res judicata No No IRS
O’Neill v. Comm’r, T.C. Memo. 2004-183 6015(f ) (underpayment); RP, §4.03 Yes Yes IRS
Payne v. Comm’r, T.C. Memo. 2005-130 6015(b),(c),(f) ;Reason to know; fraud No No IRS
Pless v. Comm’r, 111 Fed. Appx. 178 (4th
Cir. 2004), affg T.C. Memo. 2004-24
6015(f); RP, §4.03 Yes No IRS
Rivera v. Comm’r, T.C. Memo. 2005-33
6015(g); statute precludes refunds for relief granted
under 6015(c)
Yes No IRS
Scarborough v. Comm’r, T.C. Summ. Op.
2004-116
6015(f) (underpayment); RP, §4.03 Yes Yes IRS
Sjodin v. Comm’r, T.C. Memo. 2004-205,
appeal docketed, No. 05-1110 (8th Cir. Jan.
10, 2005)
6015(f) (underpayment); RP, §4.03 Yes No IRS
Taylor v. Comm’r, T.C. Summ. Op. 2005-48 6015(f ) (underpayment); RP, §4.03 Yes Yes IRS
Thorpe v. Comm’r, T.C. Summ. Op. 2004-98
Tax Court remanded CDP case to IRS to consider
TP’s 6015(c) claim; AO’s refusal to consider claim
because it was not filed on Form 8857 was an abuse
of discretion
Yes No TP
Van Arsdalen v. Comm’r, 123 T.C. 135
(2004)
Tax Court held that former spouse had right to
intervene in support of requesting spouse’s claim
for relief
No Yes TP
Wang v. Comm’r, T.C. Summ. Op. 2004-113 6015(b), (f ); RP, §4.03 Yes No IRS
Zachry v. Comm’r, T.C. Summ. Op. 2005-55 6015(b),(c),(f) (actual knowledge); RP, §4.03 Yes Yes IRS
T A B L E 8 : R E L I E F F R O M J O I N T A N D S E V E R A L L I A B I L I T Y U N D E R I R C § 6 0 1 5 ( C O N T. )
AP PE ND IX
◆
3
594
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
T A B L E 9
S U M M O N S E N F O R C E M E N T U N D E R I R C § 7 6 0 4
Case C i t e Issue(s)
Pro S e
Decision
Individual T P s (Issues O t h e r T h a n Business)
Conner v. U.S., 94 A.F.T.R.2d (RIA) 7287 (W.D. Va. 2004).
7609(a)(1) notice timely; 6531 6 year limit does
not prevent discovery; IRS does not already have
records
No IRS
Cranford v. U.S. 359 F.Supp.2d 981 (E.D. Cal. 2005).
TP’s spouse not entitled to notice and did not
have standing
No IRS
Doe v. U.S., 398 F.3d 686 (5th Cir. 2005), rev’g Doe v.
KPMG, LLP, 93 A.F.T.R.2d (RIA) 1808 (N.D. Tex. 2004).
Statute of limitations on assessment not extend-
ed by equitable tolling
No TP
Edlund v. U.S., 95 A.F.T.R.2d (RIA) 1650 (D. Colo. 2005).
Powell requirements satisfied:, e.g. summons for
legitimate purpose; data relevant; IRS does not
have data already; summons procedures followed
No IRS
English v. Krubsack, 371 F.Supp.2d 1198 (E.D. Cal. 2005). Powell requirements satisfied Yes IRS
Green v. Bank One N.A., 95 A.F.T.R.2d (RIA) 2085 (E.D.
Cal. 2005).
The Powel requirements were met and the argu-
ments the plaintiff put forward were frivolous
Yes IRS
Grenier v. U.S., 94 A.F.T.R.2d (RIA) 7116 (D. N.D. 2004). Summons sufficiently narrow No IRS
Haydel v. U.S., 2005 WL 233805 (N.D. Tex. 2005) Powell requirements were met Yes IRS
Hembree v. U.S., 95 A.F.T.R.2d (RIA) 2198 (M.D. Fla. 2005). Powell requirements were met Yes IRS
Jewett v. U.S., 95 A.F.T.R.2d (RIA) 1846 (N.D. Ohio. 2005). TP offered frivolous arguments against summons Yes IRS
Lintzenich v. U.S., 95 A.F.T.R.2d (RIA) 1169 (S.D. Ind.
2005).
Summons issued for legitimate purpose although
general 3-year period for assessment has passed
No IRS
Marks v. U.S., 94 A.F.T.R.2d (RIA) 7272 (N.D. Tex. 2004). TP offers frivolous arguments Yes IRS
Ryerson v. I.R.S., 95 A.F.T.R.2d (RIA) 2100 (D. Ariz. 2005).
Powell requirements satisfied; 5th Amendment
rights not violated
Yes IRS
Schulz v. I.R.S., 395 F.3d 463 (2nd Cir. 2005), clarified by,
Schulz v. I.R.S., 413 F.3d 297 (2nd Cir. 2005).
TP has no standing to contest summons served
on him until IRS attempts to enforce the sum-
mons
Yes IRS
Sochia v. U.S., 94 A.F.T.R.2d 5502 (W.D. Tex. 2004). TP offers frivolous arguments Yes IRS
Steiniger v. U.S., 95 A.F.T.R.2d (RIA) 1088 (E.D. Pa. 2005). Powell requirements satisfied Yes IRS
Thomas v. U.S., 94 A.F.T.R.2d (RIA) 5015 (D. Me. 2004).
The Powell requirements were met and the TP’s
arguments were frivolous
Yes IRS
Thompson-Perry v. U.S., 94 A.F.T.R.2d (RIA) 6862 (N.D.
Ohio. 2004).
TP not entitled to notice, did not have stand-
ing; proceeding not timely
No IRS
Tilley v. U.S., 95 A.F.T.R.2d (RIA) 1395 (5th Cir. 2005). Lack of attestation does not invalidate summons Yes IRS
Tilley v. U.S., 94 A.F.T.R.2d (RIA) 6942 (M.D.N.C. 2004). TP failed to file petition within 20 day period Yes IRS
U.S. v. Heubusch, 95 A.F.T.R.2d (RIA) 1066 (2nd Cir. 2005).
Documents improperly seized in criminal case
can be summoned in civil case if IRS has inde-
pendent knowledge
No IRS
U.S. v. Hibben, 95 A.F.T.R.2d (RIA) 2055 (E.D. Ky. 2005);
US. v. Hibben, 95 A.F.T.R.2d (RIA) 2063 (E.D. Ky. 2005).
Powell requirements met; TP offers frivolous
arguments
Yes IRS
U.S. v. Hubbard, 122 Fed.Appx. 868 (8th Cir. 2005).
Affirmed district court - IRS made prima facia
case for summons enforcement
Yes IRS
U.S. v. Milligan, 95 A.F.T.R.2d (RIA) 1994 (D. Ariz. 2005). No Fifth Amendment privilege; in camera hear-
ing denied
No IRS
U.S. v. Norwood, 94 A.F.T.R.2d (RIA) 5933 (D. N.D. 2004);
U.S. v. Norwood, 94 A.F.T.R.2d (RIA) 5938 (D. N.D. 2004);
U.S. v. Norwood, 95 A.F.T.R.2d (RIA) 2470 (D. N.D. 2005).
No violation of Fourth or Fifth Amendment,
discovery request is outside scope of summons
proceeding
No IRS
U.S. v. Olmer, 94 A.F.T.R.2d (RIA) 6482 (D. Neb. 2004).
Fifth Amendment not applicable to summons
seeking nontestimonial data
Yes IRS
U.S. v. Ott, 94 A.F.T.R.2d (RIA) 6558 (D. Kan. 2004). Failure to comply with summons Yes IRS
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
595
L I T I G A T E D
C A S E S
SECTION
FIVE
Case C i t e Issue(s)
Pro S e
Decision
U.S. v. Pate, 94 A.F.T.R.2d (RIA) 5480 (5th Cir. 2004).
Affirmed district court holding that summonses
were not issued solely for criminal investigation
No IRS
U.S. v. Pelayo, 94 A.F.T.R.2d (RIA) 5034 (N.D. Cal. 2004). Powell requirements were met Yes IRS
Business T P s (Sole P r o p r i e t o r s h i p s i n c l u d i n g Schedule C and/or F, Schedule E , C o r p o r a t i o n s , P a r t n e r s h i p s , E s t a t e s and Trusts)
Belsby v. Comm’r, 95 A.F.T.R.2d (RIA) 400 (E.D. Wash. 2004).
Bank records relevant to determine tax liability
Powell requirements met
Yes IRS
Domestic Executive Leasing Services, LLC, v. U.S., 95
A.F.T.R.2d (RIA) 1966 (D. Nev. 2005).
Summonsed records were relevant No IRS
Estate of Reiserer v. U.S., 95 A.F.T.R.2d (RIA) 2660 (W.D.
Wash. 2005).
Summons does not abate upon individual’s
death; client’s identities are not privileged; sum-
moned documents were relevant
No IRS
U.S. v. B & D Vending, Inc., 398 F.3d 728 (6th Cir. 2004).
Affirmed district court, corporate documents
not protected by the Fifth Amendment
No IRS
U.S. v. BDO Seidman, LLP, 337 F.3d 802, 810-812 (7th Cir.
2003); U.S. v. BDO Seidman, LLP, 95 A.F.T.R.2d (RIA)
1725 (N.D. Ill. 2005); U.S. v. BDO Seidman, 368 F.Supp.2d
858 (N.D. Ill. 2005).
Some summonsed documents protected by
attorney-client privilege. Court found crime-
fraud exception prevented one document from
being privileged
No Split
U.S. v. Boulware, 350 F.Supp.2d 837 (D. Haw. 2004). TP not entitled to intervene, no abuse of process No IRS
U.S. v. Brown, 95 A.F.T.R.2d (RIA) 1261 (N.D. Fla. 2005). Court rejected jurisdictional arguments Yes IRS
U.S. v. Hayden, 95 A.F.T.R.2d (RIA) 815 (S.D. Cal. 2004).
Summons enforceable if for determining civil
tax liability, even if documents may relate to the
criminal investigation of another party
No IRS
U.S. v. Judicial Watch, 371 F.3d 824 (D.C. Cir. 2004).
Affirmed district court holding that summons
issued for legitimate purpose; no violation of
First, Fourth, or Fifth Amendment
No IRS
U.S. v. Kaiser, 397 F.3d 641 (8th Cir. 2005).
Affirmed district court holding that summonses
not for improper purpose or in retaliation
No IRS
U.S. v. Montgomery Global Advisors, LLC, 95 A.F.T.R.2d
(RIA) 1997 (N.D. Cal. 2005).
Failure to comply with summons No IRS
U.S. v. Monumental Life Ins, 94 A.F.T.R.2d (RIA) 6487
(W.D. Ky. 2004).
Powell requirements met No IRS
Xelan, Inc v. U.S., 94 A.F.T.R.2d (RIA) 5217 (S.D. Iowa
2004).
Notice of summons does not need to be pro-
vided to all plan participants
No IRS
Xelan, Inc v. U.S., 361 F.Supp.2d 459 (D. Md. 2005). Powell requirements satisfied No IRS
Xelan, Inc v. U.S., 94 A.F.T.R.2d (RIA) 6755 (E.D. Pa.
2004).
Notice need not be provided to all plan partici-
pants; no criminal referral made
No IRS
T A B L E 9 : S U M M O N S E N F O R C E M E N T U N D E R I R C § 7 6 0 4 ( C O N T. )
AP PE ND IX
◆
3
596
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
3
M O S T L I T I G A T E D TA X I S S U E S : TA B L E S O F L I T I G A T E D C A S E S
T A B L E 1 0
T R U S T F U N D R E C O V E R Y P E N A L T Y ( T F R P ) U N D E R I R C § 6 6 7 2
Case C i t e Issue(s)
Pro S e
Decision
Individual T P s (Issues O t h e r T h a n Business)
Ashworth v. United States, 95 A.F.T.R.2d (RIA) 2476 (D. N.J.
2005)
Responsibility determination for jury; will-
fulness found as a matter of law
No Split
Austin v. Comm’r, 95 A.F.T.R.2d (RIA) 2304 (E.D. CA 2005) TP’s complaint untimely Yes IRS
Baimbridge v. United States, 335 F.Supp.2d 1084 (S.D. Cal.
2004)
Responsibility determination as matter of
law; estoppel argument for trial
No Split
In re Borman, 94 A.F.T.R.2d (RIA) 6301 (Bankr. S.D. Fla. 2004) Instruction not to pay tax as defense No IRS
Brewer v. United States, 390 F.Supp.2d 1378 (S.D. Ga. 2005)
Equitable tolling principles do not apply
when determining timeliness of TFRP
refund suit
No IRS
Dallin v. United States, 62 Fed. Cl. 589 (2004)
Whether IRS followed proper procedures
when assessing TFRP
No IRS
Currie v. Comm’r, 95 A.F.T.R.2d (RIA) 1961 (N.D. GA 2005) TP cannot argue TFRP liability Yes IRS
Dewing v. United States, 95 A.F.T.R.2d (RIA) 1609 (D. Nev.
2005)
TP had no control or authority No TP
Ferguson v. United States, 94 A.F.T.R.2d (RIA) 6322 (S.D. Iowa
2004)
In action for attorneys fees, TFRP was justi-
fied against CEO but not controller
No Split
In re Fiesole Trading Corp., 315 B.R. 198 (D. Mass. 2004) 6672 as a tax or as a penalty No TP
In re Frank, 322 B.R. 745 (M.D. N.C. 2005)
Notice as invalidating assessment; designat-
ing payments for trust fund as negating
willfulness Yes Split
Glass v. United States, 335 F.Supp.2d 736 (N.D. Tex. 2004) Assessment of TFRP not justified No TP
Gutherie v. United States, 359 F.Supp.2d 693 (E.D. Tenn. 2005)
Obligation of government to liquidate
assets and apply them to trust fund liability
during bankruptcy
Yes IRS
Lencyk v. United States, 384 F.Supp.2d 1028 (W.D. Tex. 2005)
Responsibility and willfulness determina-
tion and impact of using surety company
on determination
No IRS
Lewis v. United States, 95 A.F.T.R.2d (RIA) 2752 (W.D. Tenn.
2005)
Issues raised are moot
No IRS
Littriello v. United States, 95 A.F.T.R.2d (RIA) 2581 (W.D. Ky.
2005)
6672 as only means to assess tax against
member of a limited liability company
No IRS
In re Lowthorp,325 B.R. 470 (M.D. Fla. 2005)
Demand letters post discharge violated
court order
No TP
Jackling v. IRS, 352 F.Supp.2d 129 (D. NH 2004) TP waived ability to argue TFRP liability Yes IRS
Jean v. U.S., 396 F.3d 449 (1st Cir. 2005) Substantial basis for TFRP assessment Yes IRS
Killingsworth v. U.S., 94 A.F.T.R.2d (RIA) 6108 (5th Cir. 2004) Expiration of refund statute Yes IRS
Lubetzky v. United States, 393 F.3d 76 (1st Cir. 2004) Timing of responsible person status No IRS
Moran v. United States, 94 A.F.T.R.2d (RIA) 5840 (N.D. Ill. 2004) Whether TFRP payments were made No IRS
Pollack v. U.S., 327 F.Supp.2d 907 (W.D. TN 2004)
TP responsible person, but TFRP procedure
not followed
No Split
In re Pugh, 315 B.R. 889 (D. Nev. 2004)
Responsible person but question of fact as
to willfulness
No Split
Rustam v. Comm’r, T.C. Memo. 2005-42
Petition to challenge TFRP liability filed in
wrong court
No IRS
Salzillo v. United States, 66 Fed. Cl. 23 (2005) Responsibility determination No TP
Secret v. United States, 373 F.Supp.2d 619 (N.D. W. Va. 2005) Responsibility determination for CPA No TP
Underberg v. United States, 362 F.Supp.2d 1278 (D. N.M. 2005) Financing arrangement negating willfulness No IRS
United States v. Beltran, 316 B.R. 371 (S.D. Fla. 2004)
Subsequent cooperation in assisting IRS
collect past due taxes as negating willfulness
No IRS
United States v. Kraljevich, 364 F.Supp.2d 655 (E.D. Mich. 2005) Responsibility and willfulness Yes IRS
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
597
L I T I G A T E D
C A S E S
SECTION
FIVE
Case C i t e Issue(s)
Pro S e
Decision
United States v. Scharringhausen, 95 A.F.T.R.2d (RIA) 825 (S.D.
Cal. 2005)
Setting aside TFRP judgment where TP did
not answer complaint
No IRS
United States v. White, 325 B.R. 918 (N.D. Ga. 2005)
Effect of TFRP assessment made in viola-
tion of automatic stay
No TP
Urban v. United States, 392 F.Supp.2d 1018 (N.D. Ill. 2005)
Effect of IRS loss of Waiver Extending
Assessment Statute
No IRS
In re Yeh, 94 A.F.T.R.2d (RIA) 5800 (Bankr. N.D. Ala. 2004) Responsibility and willfulness determination No IRS
T A B L E 1 0 : T R U S T F U N D R E C O V E R Y P E N A L T Y ( T F R P ) U N D E R I R C § 6 6 7 2 ( C O N T. )
AP PE ND IX
◆
4
598
A P P E N D I X
A P P E N D I C E S
T A X P A Y E R A D V O C A T E S E R V I C E
A C R O N Y M G L O S S A R Y
SECTION
FIVE
4
A C R O N Y M G L O S S A R Y - A N N U A L R E P O R T T O C O N G R E S S 2 0 0 5
Acronym Definition
ACDS Appeals Centralized Database System
ACH Automated Clearing House
ACS Automated Collection System
ACTC Advance Child Tax Credit
AEITC Advanced Earned Income Tax Credit
AGI Adjusted Gross Income
AICPA American Institute of Certified Public Accountants
AIS Automated Insolvency System
AJCA American Jobs Creation Act of 2004
AIMS Audit Information Management System
ALE Allowable Living Expenses
ALS Automated Lien System
AMT Alternative Minimum Tax
ANMF Automated Non Master File
AOIC Automated Offer In Compromise
ARC Annual Report to Congress
AQMS Appeals Quality Measurement System
ASED Assessment Statute Expiration Date
ASFR Automated Substitute for Return
ATAO Application for Taxpayer Assistance Order
AUR Automated Underreporter
AWSS Agency Wide Shared Services
BMF Business Master File
CADE Customer Account Data Engine
CARE Customer Assistance, Relationships & Education
CAS Customer Account Services
CAWR Combined Annual Wage Reporting Program
CCISO Cincinatti Centralized Innocent Spouse Operations
CCR Central Contractor Registration
CDP Collection Due Process
CDPTS Collection Due Process Tracking System
CEX Consumer Expenditure Survey
CFF Collection Field Function
CERCA Council for Electronic Revenue Communication Advancement
CID Criminal Investigation Division
CIDS Centralized Inventory Distribution System
CIP Compliance Initiative Project
CNC Currently Not Collectible
COIC Centralized Offer In Compromise
COTR Contract Officer Technical Representative
CONOPS Concept of Operations
CPE Continuing Professional Education
CQMS Collection Quality Management System
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
599
A C R O N Y M
G L O S S A R Y
SECTION
FIVE
Acronym Definition
CRIS Compliance Research Information System
CSED Collection Statute Expiration Date
CSR Customer Service Representative
CTC Child Tax Credit
DA Disclosure Authorization
DATC Doubt As To Collectibility
DATL Doubt As To Liability
DDP Daily Delinquency Penalty
DI Desktop Integration or Debt Indicator
DIF Discriminant Inventory Function
DPT Dynamic Project Team
EAR Electronic Account Resolution
EBT Electronic Benefits Transfer
EDS Exempt Determinations System
EFIN Electronic Filing Identification Number
EFTPS Electronic Federal Tax Payment System
EGTRRA Economic Growth and Tax Relief Reconciliation Act
EIN Employer Identification Number
EITC Earned Income Tax Credit
ELS Electronic Lodgment Service
EO Exempt Organization
EP Employee Plans
EQRS Embedded Quality Review System
ERCS Examination Returns Control System
ERIS Enforcement Revenue Information System
ERO Electronic Return Originator
ERSA Employee Retirement Savings Account
ES Estimated Tax Payments
ESA Educational Savings Account
ESL English as a Second Language
ETA Electronic Tax Administration
ETACC Electronic Tax Administration Advisory Committee
ETLA Electronic Tax Law Assistance
FA Field Assistance
FDC Fraud Detection Center
FDCPA Fair Debt Collection Practices Act
FICA Federal Insurance Contribution Act
FMS Financial Management Service
FOIA Freedom Of Information Act
FPDC Federal Procurement Data Center
FPDS Federal Procurement Data System
FMV Fair Market Value
FPLP Federal Payment Levy Program
A C R O N Y M G L O S S A R Y - A N N U A L R E P O R T T O C O N G R E S S 2 0 0 5 ( C O N T. )
AP PE ND IX
◆
4
600
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
4
A C R O N Y M G L O S S A R Y
Acronym Definition
FTC Federal Trade Commission
FTD Federal Tax Deposit or Failure To Deposit
FTE Full Time Equivalent
FTF Failure To File
FTI Federal Tax Information
FTP Failure To Pay
FY Fiscal Year
GAO Government Accountability Office or General Accounting Office
GE Government Entities
ICM Intelligent Call Management
ICP Integrated Case Processing
ICS Integrated Collection System
IDFP IRS Directory for Practitioners
IDRS Integrated Data Retrieval System
IDS Inventory Delivery System
IMF Individual Master File
IPIA Improper Payments Improvement Act
IRC Internal Revenue Code
IRI Incomplete Return Item
IRM Internal Revenue Manual
IRS Internal Revenue Service
IRSAC Internal Revenue Service Advisory Council
ISP Industry Specialization Program
ISRP Integrated Submission and Remittance Processing
ISTS Innocent Spouse Tracking System
ITIN Individual Taxpayer Identification Number
LEP Limited English Proficiency
LITC Low Income Taxpayer Clinic
LLC Lifetime Learning Credit
LMSB Large & Mid-Sized Business Operating Division
LOS Level of Service
LRF Last Return Filed
LSA Lifetime Savings Account
LTA Local Taxpayer Advocate
MAGI Modified Adjusted Gross Income
MFT Master File Transaction Code
MITS Modernization and Information Technology Services
NFTL Notice of Federal Tax Lien
NMF Non-Master File
NPIIT Notice Process Improvement Initiative Team
NRP National Research Program
NSG Notice Support Group
NTA National Taxpayer Advocate
A C R O N Y M G L O S S A R Y - A N N U A L R E P O R T T O C O N G R E S S 2 0 0 5 ( C O N T. )
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
601
A C R O N Y M
G L O S S A R Y
SECTION
FIVE
Acronym Definition
NUMIDENT Number Identification Database
OAR Operations Assistance Request
OASDI Old-Age, Survivors, and Disability Insurance
OBRA Omnibus Budget Reconciliation Act of 1989
OIC Offer in Compromise
OMB Office of Management and Budget
OPR Office of Professional Responsibilitly
OPERA Office of Program Evaluation, Risk, & Analysis
OPI Office of Penalty and Interest Administration
PAF Payer Account File
PDC Private Debt Collection
POA Power Of Attorney
PTIN Preparer Tax Identification Number
QRP Questionable Refund Program
RAC Refund Anticipation Check
RACS Revenue Accounting Control System
RAL Refund Anticipation Loan
RCA Reasonable Cause Assistant
RCP Reasonable Collection Potential
RFQ Request For Quotations
RGS Report Generation System
ROFT Record of Federal Tax
RRA 98 Internal Revenue Service Reform and Restructuring Act of 1998
RPS Revenue Protection Strategy
RPP Return Preparer Program
SAMS Systemic Advocacy Management System
SAR Strategic Assessment Report
SB/SE Small Business/Self Employed Operating Division
SBJPA Small Business Job Protection Act
SERP Servicewide Electronic Research Program
SFR Substitute for Return
SPEC Stakeholder Partnerships, Education & Communication
SPOC Single Point of Contact
SSA Social Security Administration
SSI Supplemental Security Income
SSN Social Security Number
STARS Scheme Tracking and Referral System
TAC Taxpayer Assistance Center
TAMIS Taxpayer Advocate Management Information System
TANF Temporary Assistance to Needy Families
TAP Taxpayer Advocacy Panel
TAS Taxpayer Advocate Service
TCE Tax Counseling for the Elderly
A C R O N Y M G L O S S A R Y - A N N U A L R E P O R T T O C O N G R E S S 2 0 0 5 ( C O N T. )
AP PE ND IX
◆
4
602
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
4
A C R O N Y M G L O S S A R Y
Acronym Definition
TCMP Taxpayer Compliance Measurement Program
TDA Taxpayer Delinquent Account
TDRA Tip Rate Determination Agreement
TDI Taxpayer Delinquency Investigation
TDQAS Training Development Quality Assurance System
TDS Transcript Delivery System
TEC Taxpayer Education and Communication
TE/GE Tax Exempt & Government Entities Operating Division
TFRP Trust Fund Recovery Penalty
TIGTA Treasury Inspector General for Tax Administration
TIN Taxpayer Identification Number
TOP Treasury Offset Program
TPDS Third Party Data Store
TPI Total Positive Income
TPNCs Taxpayer Notice Codes
TRA 97 Taxpayer Relief Act of 1997
TRAC Tip Reporting Alternative Commitment
TRIS Telephone Routing Interactive System
UCH Universal Case History
UI-DIF Unreported Income Discriminant Function
VITA Volunteer Income Tax Assistance
W & I Wage and Investment Operating Division
WFTRA Working Families Tax Relief Act
WIC Women, Infants and Children
A C R O N Y M G L O S S A R Y - A N N U A L R E P O R T T O C O N G R E S S 2 0 0 5 ( C O N T. )
A P P E N D I X
T A X P A Y E R A D V O C A T E S E R V I C E
D I R E C T O R Y
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
603
SECTION
FIVE
5
NATI O NA L TA XPAY ER A DV O CATE
1111 Constitution Avenue NW
Room 3031, TA
Washington, DC 20224
Phone: 202-622-6100
FAX: 202-622-6113
DE P UT Y NAT IO N A L TA X PAY E R AD V O C ATE
1111 Constitution Avenue NW
Room 3031, TA
Washington, DC 20224
Phone: 202-622-4300
FAX: 202-622-6113
EX E CU T I V E DI R EC T OR , SY S TE M IC A D V O CA C Y
1111 Constitution Avenue NW
Room 3219, TA:SA
Washington, DC 20224
Phone: 202-622-7175
FAX: 202-622-3125
EX E CU T I V E DI R EC T OR , CA S E AD V OC A CY
1111 Constitution Avenue NW
Room 3039, TA
Washington, DC 20224
Phone: 202-622-7175
FAX: 202-622-3125
CO N GR E S S IO N AL A F FA IR S L IA I S O NS
1111 Constitution Avenue NW
Room 3031, TA
Washington, DC 20224
Phone: 202-622-4321 or 202-622-4315
FAX: 202-622-6113
A R E A O F F I C E S
S Y S T E M I C
A D V O C A C Y
D I R E C T O R S
NE W Y O R K/ N EW E N GL A N D
290 Broadway 14th floor
New York, NY 10007
Phone: 212-298-2015
FAX: 212-298-2016
RI C HM O N D
400 N. 8th St. Room 328
Richmond, VA 23240
Phone: 804-916-3510
FAX: 804-916-3641
AT L AN TA /I N TE R NATI O NA L
401 W. Peachtree St.
Stop 101-R Room 1970
Atlanta, GA 30308
Phone: 404-338-8710
FAX: 404 338-8709
CI N CI N N ATI
312 Elm Street, Suite 2250
Cincinnati, OH 45202
Phone: 859-669-5556
FAX: 869-669-5808
DA L LA S
4050 Alpha Road
Mail Stop 1005 MSRO, Room 1224A
Dallas, TX 75244-4203
Phone: 972-308-7019
FAX: 972-308-7166
OA K LA N D
1301 Clay St. Suite 1030-N
Oakland, CA 94612
Phone: 510-637-2070
FAX: 510-637-3189
SE ATT LE
915 2nd Ave. Stop W-404
Seattle, WA 98174
Phone: 206-220-4356
FAX: 206-220-4930
DI R EC T O R , AD V OC A CY P RO J EC T S
1111 Constitution Avenue NW
Room 3219, TA:SA:AP
Washington, DC 20224
Phone: 202-622-7175
FAX: 202-622-3125
DI R EC T O R , IM M ED I AT E I NT ER VE N T I ON S
1111 Constitution Avenue NW
Room 3219, TA:SA:II
Washington, DC 20224
Phone: 202-622-7175
FAX: 202-622-3125
AP PE ND IX
◆
5
604
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
5
T A S D I R E C T O R Y
AN D OV E R
310 Lowell St., Stop 120
Andover, MA 01812
Phone: 978-474-5549
FAX: 978-247-9034
AT L AN TA
4800 Buford Hwy, Stop 29-A
Chamblee, GA 30341
Phone: 770-936-4500
FAX: 770-234-4445
AU S TI N
3651 S. Interregional Hwy,
Stop 1005 AUSC
Austin, TX 78741
Phone: 512-460-8300
FAX: 512-460-8267
BR O OK H AV E N
1040 Waverly Avenue, Stop 02
Holtsville, NY 11742
Phone: 631-654-6686
FAX: 631-447-4879
CI N CI N N ATI
201 Rivercenter Blvd., Stop 11-G
Covington, KY 41011
Phone: 859-669-5316
FAX: 859-669-5405
FR E SN O
5045 East Butler Ave., Stop 1394
Fresno, CA 93888
Phone: 559-442-6400
FAX: 559-442-6507
KA N SA S CI T Y
2306 East Bannister Rd.,
Stop 1005 ROE
Kansas City, MO 64131
Phone: 816-926-2493
FAX: 913-696-6390
ME M PH I S
5333 Getwell Road, Stop 13-M
Memphis, TN 38118
Phone: 901-395-1900
FAX: 901-395-1925
OG D EN
1973 N. Rulon White Blvd.,
Stop 1005
Ogden, UT 84404
Phone: 801-620-7168
FAX: 801-620-3096
PH I LA D E L PH I A
11601 Roosevelt Blvd.,
Stop SW-820
Philadelphia, PA 19154
Phone: 215-516-2499
FAX: 215-516-2677
C A M P U S
O F F I C E S
AL A BA M A
801 Tom Martin Drive, Room
151-PR
Birmingham, AL 35211
Phone: 205-912-5631
FAX: 205-912-5633
AL A SK A
949 E 36th Ave., Stop A-405
Anchorage, AK 99508
Phone: 907-271-6877
FAX: 907-271-6157
AR I ZO N A
210 E. Earll Dr., Stop 1005 PHX
Phoenix, AZ 85012-2623
Phone: 602-207-8240
FAX: 602-207-8250
AR K AN S A S
700 West Capitol Street,
Stop 1005 LIT
Little Rock, AR 72201
Phone: 501-324-6269
FAX: 501-324-5183
CA L IF O R N IA ( L AG U NA N IG U EL )
24000 Avila Road, Stop 2000
Laguna Niguel, CA 92677
Phone: 949-389-4804
FAX: 949-389-5038
CA L IF O R N IA ( L OS A N G E LE S )
300 N. Los Angeles St.,
Stop 6710 LA
Los Angeles, CA 90012
Phone: 213-576-3140
FAX: 213-576-3141
CA L IF O R N IA ( O AK L AN D)
1301 Clay St., Suite 1540-S
Oakland, CA 94612
Phone: 510-637-2703
FAX: 510-637-2715
CA L IF O R N IA ( S AC R AM EN T O) *
4330 Watt Avenue. Stop SA5043
Sacramento, CA 95821
Phone: 916-974-5007
FAX: 916-974-5902
CA L IF O R N IA ( S AN J O S E ) *
55 S. Market St., Stop 0004
San Jose, CA 95113
Phone: 408-817-6850
FAX: 408-817-6851
CO L OR A D O
600 17th St., Stop 1005 DEN
Denver, CO 80202-2490
Phone: 303-446-1012
FAX: 303-446-1011
CO N NE C T I CU T
135 High Street, Stop 219
Hartford, CT 06103
Phone: 860-756-4555
FAX: 860-756-4559
DE L AWA R E
409 Silverside Road
Wilmington, DE 19809
Phone: 302-792-6679
FAX: 302-792-6648
DI S TR I C T O F CO L UM B I A
Note: District of Columbia resi-
dents should contact the Baltimore
Taxpayer Advocate Service at the
following address, telephone, or FAX
number until the D.C. office opens
on May 1, 2006:
31 Hopkins Plaza, Room 940
Baltimore, MD 21201
Phone: 410-962-2082
FAX: 410-962-9340
Beginning May 1, 2006, taxpayers
may visit the D.C. office at the fol-
lowing location, or contact the office
by mail, telephone or FAX number:
Of f ic e Lo c at i on
500 North Capital St. N.W.
Suite 1301
Washington, D.C. 20221
Phone: 202-874-0001
FAX: 202-874-0801
Ma i li n g A d dr e ss
1111 Constitution Ave. N.W.
TAS:DC:LTA-NCA-1301
Washington, D.C. 20224
FL O RI D A ( F T. L A UD E R D AL E )
7850 SW 6th Court, Room 265
Plantation, FL 33324
Phone: 954-423-7677
FAX: 954-423-7685
*
LTA located in Oakland,
California.
L O C A L O F F I C E S
B Y S TA T E A N D
L O C A T I O N
A P P E N D I C E S
2 0 0 5 A N N U A L R E P O R T
◆
TA X P A Y E R A DVO CATE S E R V I C E
605
D I R E C T O R Y
SECTION
FIVE
FL O RI D A ( J AC K SO N VI LL E )
841 Prudential Drive, Suite 100
Jacksonville, FL 32207
Phone: 904-665-1000
FAX: 904-665-1817
GE O RG I A
401 W. Peachtree St., NW
Summit Bldg., Room 510,
Stop 202-D
Atlanta, GA 30308
Phone: 404-338-8099
FAX: 404-338-8096
HAWAI I
300 Ala Moana Blvd., #50089
Stop H-405 / Room 1-214
Honolulu, HI 96850
Phone: 808-539–2870
FAX: 808-539-2859
ID A HO
550 W. Fort St., Box 041
Boise, ID 83724
Phone: 208-387-2827
FAX: 208-387-2824
IL L IN O I S ( CH I CA G O)
230 S. Dearborn St.
Room 2860, Stop-1005 CHI
Chicago, IL 60604
Phone: 312-566-3800
FAX: 312-566-3803
IL L IN O I S ( SP R IN G FI EL D )
3101 Constitution Drive
Stop 1005 SPD
Springfield, IL 62704
Phone: 217-862-6382
FAX: 217-862-6373
IN D IA N A
575 N. Pennsylvania St.
Room 581 - Stop TA770
Indianapolis, IN 46204
Phone: 317-685-7840
FAX: 317-685-7790
IO WA
210 Walnut St.
Stop 1005 DSM, Room 483
Des Moines, IA 50309
Phone: 515-284-4780
FAX: 515-284-6645
KA N SA S
271 West 3rd St. North
Stop 1005-WIC, Suite 2000
Wichita, KS 67202
Phone: 316-352-7506
FAX: 316-352-7212
KE N TU C K Y
600 Dr. Martin Luther King Jr.
Place, Room 325
Louisville, KY 40202
Phone 502-582-6030
FAX: 502-582-6463
LO U IS I A N A
1555 Poydras Street, Suite 220,
Stop 2
New Orleans, LA 70112
Phone: 504-558-3001
FAX: 504-558-3348
MA I NE
68 Sewall Street, Room 313
Augusta, ME 04330
Phone: 207-622-8528
FAX: 207-622-8458
MA RY LA N D
31 Hopkins Plaza, Room 940
Baltimore, MD 21201
Phone: 410-962-2082
FAX: 410-962-9340
MA S SA C H U SE T TS
JFK Building
15 New Sudbury Street, Room 725
Boston, MA 02203
Phone: 617-316-2690
FAX: 617-316-2700
MI C HI G A N
McNamara Federal Bldg.
477 Michigan Ave.
Room 1745 - Stop 7
Detroit, MI 48226
Phone: 313-628-3670
FAX: 313-628-3669
MI N NE S O TA
Wells Fargo Place
30 E. 7th Street, Suite 817
Stop 1005 STP,
St Paul, MN 55101
Phone: 651-312-7999
FAX: 651-312-7872
MI S SI S S I PP I
100 West Capitol Street,
Stop JK31
Jackson, MS 39269
Phone: 601-292-4800
FAX: 601-292-4821
MI S SO U R I
1222 Spruce St.
Stop 1005 STL, Room 10.314
St Louis, MO 63103
Phone: 314-612-4610
FAX: 314-612-4628
MO N TAN A
10 West 15th St., Suite 2319
Helena, MT 59626
Phone: 406-441-1022
FAX: 406-441-1045
NE B RA S K A
1313 Farnam St.
Stop 1005 OMA, Room 208
Omaha, NE 68102
Phone: 402-221-4181
FAX: 402-221-3051
NE VAD A
110 City Parkway, Stop 1005 LVG
Las Vegas, NV 89106
Phone: 702-868-5179
FAX: 702-868-5445
NE W H A M PS H IR E
Thomas J. McIntyre Federal Bldg.
80 Daniel Street, Room 403
Portsmouth, NH 03801
Phone: 603-433-0571
FAX: 603-430-7809
NE W J E R SE Y
955 South Springfield Avenue,
1st Floor
Springfield, NJ 07081
Phone: 973-921-4043
FAX: 973-921-4355
NE W M E X IC O
5338 Montgomery Blvd., NE
Stop 1005 ALB
Albuquerque, NM 87109
Phone: 505-837-5505
FAX: 505-837-5519
NE W Y O R K (A L BA N Y)
Leo O’Brien Federal Building
1 Clinton Square, Room 354
Albany, NY 12207
Phone: 518-427-5413
FAX: 518-427-5494
NE W Y O R K (B R OO K LYN )
10 Metro Tech Center
625 Fulton Street
Brooklyn, NY 11201
Phone: 718-488-2080
FAX: 718-488-3100
NE W Y O R K (B U FFA L O )
201 Como Park Blvd
Buffalo, NY 14227-1416
Phone: 716-686-4850
FAX: 716-686-4851
AP PE ND IX
◆
5
606
A P P E N D I X
A P P E N D I C E S
SECTION
FIVE
5
T A S D I R E C T O R Y
NE W Y O R K (M A NH ATTA N )
290 Broadway - 5th Floor
Manhattan, NY 10007
Phone: 212-436-1011
FAX: 212-436-1900
NO RT H CA R OL I N A
320 Federal Place, Room 125
Greensboro, NC 27401
Phone: 336-378-2180
FAX: 336-378-2495
NO RT H DA K OTA
657 Second Ave, North
Stop 1005 FAR, Room 244
Fargo, ND 58102-4727
Phone: 701-239-5141
FAX: 701-239-5323
OH I O ( C IN C IN N AT I )
550 Main St., Room 3530
Cincinnati, OH 45202
Phone: 513-263-3260
FAX: 513-263-3257
OH I O ( C LE V EL A ND )
1240 E. 9th St., Room 423
Cleveland, OH 44199
Phone: 216-522-7134
FAX: 216-522-2947
OK L AH O M A
55 North Robinson
Stop 1005 OKC, Room 138
Oklahoma City, OK 73102
Phone: 405-297-4055
FAX: 405-297-4056
OR E GO N
1220 S.W. 3rd Ave., Stop O-405
Portland, OR 97204
Phone: 503-326-2333
FAX: 503-326-5453
PE N NS Y LVA NI A ( PH I LA D E L PH I A)
600 Arch Street, Room 7426
Philadelphia, PA 19106
Phone: 215-861-1304
FAX: 215-861-1613
PE N NS Y LVA NI A ( PI T TS B U R GH )
1000 Liberty Avenue, Room 366
Pittsburgh, PA 15222
Phone: 412-395-5987
FAX: 412-395-4769
RH O DE I SL A ND
380 Westminster Street
Providence, RI 02903
Phone: 401-525-4200
FAX: 401-525-4247
SO U TH C AR O LI N A
1835 Assembly Street, Room 466,
MDP-03
Columbia, SC 29201
Phone: 803-253-3029
FAX: 803-253-3910
SO U TH D AK O TA
115 4th Ave, Southeast
Stop 1005 ABE, Room 114
Aberdeen, SD 57401
Phone: 605-226-7248
FAX: 605-226-7246
TE N NE S S E E
801 Broadway, Stop 22
Nashville, TN 37203
Phone: 615-250-5000
FAX: 615-250-5001
TE X AS ( AU S TI N )
300 E. 8th St.
Stop 1005-AUS, Room 136
Austin, TX 78701
Phone: 512-499-5875
FAX: 512-499-5687
TE X AS ( DA L LA S )
1114 Commerce St.
MC 1005DAL, Room 1004
Dallas, TX 75242
Phone: 214-413-6500
FAX: 214-413-6594
TE X AS ( HO U ST O N)
1919 Smith St.
Stop 1005 HOU, Room 1650
Houston, TX 77002
Phone: 713-209-3660
FAX: 713-209-3708
UTA H
50 South 200 East, Stop 1005 SLC
Salt Lake City, UT 84111
Phone: 801-799-6958
FAX: 801-799-6957
VE R MO N T
Courthouse Plaza
199 Main Street
Burlington, VT 05401-8309
Phone: 802-860-2089
FAX: 802-860-2006
VI R GI N I A
400 N. 8th St., Room 916
Richmond, VA 23240
Phone: 804-916-3501
FAX: 804-916-3535
WA S HI N GT O N
915 2nd Ave., Stop W-405
Seattle, WA 98174
Phone: 206-220-6037
FAX: 206-220-6047
WE S T V I RG I NI A
425 Juliana St., Room 3012
Parkersburg, WV 26101
Phone: 304-420-8695
FAX: 304-420-8660
WI S CO N S I N
310 W. Wisconsin Ave.
Suite 1298 West Tower -
Stop 1005 MIL
Milwaukee, WI 53203
Phone: 414-297-3046
FAX: 414-297-3362
WY O MI N G
5353 Yellowstone Road
Cheyenne, WY 82009
Phone: 307-633-0800
FAX: 307-633-0918
IN T ER N AT IO N A L -P U ER T O R IC O
San Particio Office Bldg
7 Tabonuco Street, Room 200
Guaynabo, PR 00966
Phone 787-622-8930 (Spanish)
787-622-8940 (English)
FAX: 787-622-8933
