Saturday, February 11, 2017

Tax Procedure Book Errata - Notice of Deficiency Determination (2/11/17)

Book Outline Section
Nature of Update
Location for current editions
Ch. 11 Notice of Deficiency
I.   The Notice of Deficiency and its Role in the System (A Reprise).
     A.  General.
     B.   What is a Notice of Deficiency?
            1.  A Deficiency.
             2.  The Notice of Deficiency.
                     a.   The Notice, Determination and Explanation.
                            (1)    The Determination Requirement.
Discussion of a recent case, Dees v. Commissioner, 148 T.C. ___, No. 1 (2017) (reviewed opinion), here, holding that a notice of deficiency stating $0.00 deficiency but with attachments indicating that a claimed tax benefit had been denied was a valid notice of deficiency
Student Ed. P. 358 (after the 2d full paragraph)

Practitioner Ed. p.  504 (after the carryover paragraph at the top)

               The tolerance for some level of imperfection in notices of deficiency is understandable given the ability to resolve or moot the problems by filing a Tax Court petition for redetermination.  But, what about a document in the regular form of a notice of deficiency that states the amount of the deficiency as $0.00?  A taxpayer receiving such a document would know that it is described as a notice of deficiency and that he may file a petition for redetermination is he does not agree.  But the deficiency is stated to the $0.00, and he may agree with that number.  In a 2017 reviewed opinion of the Tax Court (with strong concurring and dissenting opinions), the Court held that the standard form letter for a notice of deficiency that stated that the deficiency amount was $0.00 but included attachments clearly indicating that a deficiency had been determined because a claimed credit was disallowed met the requirements for a notice of deficiency.  n1635a The majority formulated the questions presented as:
   n1635a   Dees v. Commissioner, 148 T.C. ___, No. 1 (2017) (reviewed opinion).
  • “Whether the notice objectively put a reasonable taxpayer on notice that the Commissioner determined a deficiency in tax for a particular year and amount.  If the notice, viewed objectively, sets forth this information, then it is a valid notice”
  • If, however, that inquiry does not provide an answer (i.e., the notice is ambiguous as to the requirements for a deficiency, then, for the notice to be valid, the evidence “establish that the Commissioner made a determination and that the taxpayer was not misled by the ambiguous notice.”  The majority elsewhere in the opinion frames the latter inquiry as to whether the “taxpayer was prejudiced by an ambiguous notice.”  On the latter point, the majority concluded as follows:

The notice on its face is ambiguous, but the Commissioner has established that he made a determination and that Mr. Dees was not misled by the notice. Mr. Dees timely filed a petition to challenge the notice, and that petition makes clear that Mr. Dees understood that the Commissioner had disallowed his refundable credit: He stated in his petition both that the Commissioner had erred in denying his premium tax credit and that he had documents to substantiate his entitlement to the credit. This establishes that Mr. Dees was not misled by the notice.
 The tests thus enunciated may be described as an objective test and a subjective test. n1635b
   n1635b Judge Ashford’s concurring opinon says that “The opinion of the Court delineates a two-prong approach (with both objective and subjective elements) to determining our deficiency jurisdiction * * * *.”

               As with the last known address requirement for notices, a taxpayer desiring to present this issue should consider the statute of limitations on assessment.  If the taxpayer brings the issue to the IRS’s attention while the statute is still open (either in some administrative process or by petition to the Tax Court, the IRS may solve the problem by issuing a new notice.  If the taxpayer files a petition in the Tax Court while the statute is still open, the mere filing of the petition will suspend the statute of limitations until the Tax Court decision is final even if the notice is ultimately determined by the Tax Court to be invalid. n1635c
   n1653c  §§ 6213(a) (prohibition on assessment which Tax Court petition for redetermination is pending; and 6503(a)(1) (suspension during period of prohibition).  See Shockley v. Commissioner, 686 F.3d 1228 (11th Cir. 2012) (holding that the filing of a Tax Court petition invoked the suspension even if the notice of deficiency was invalid or the filing was not by the proper person; per § 6503(a)(1), the suspension occurs “if a proceeding in respect of the deficiency is placed on the docket of the Tax Court”).

Addendum:  Links to statutes cited:
  • § 6213(a), here.
  • § 6503(a)(1), here.

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