Tax Court Opinion on Various Aspects of Collection Activity for RBAs and Coordination with DOJ (1/28/21)

 In Reynolds v. Commissioner, T.C. Memo. 2021-10, TC Dkt entry #20 here * and TN here, in a collection due process (“CDP”) case, the Court (Judge Thornton) discussed restitution-based assessment (“RBA”) under § 6201(a)(4).  In the prior criminal case preceding, the sentencing judge (i) imposed tax restitution of $193,812, but waived interest on the restitution based on a finding that the Reynolds could not pay; (ii) ordered payments during imprisonment of $25 per quarter and during supervised release of the greater of $100 or 10% of his monthly income; and (iii) ordered that Reynolds apply income tax refunds and “anticipated or unexpected financial gains.”

The IRS made the RBA in the amount of $193,812 restitution and also assessed interest for the period.  The IRS audited the years 2002 and 2003 and determined deficiencies and civil fraud penalty.  Reynolds petitioned the Tax Court to redetermine the deficiencies.  The decision document reduced the deficiencies and assessed the civil fraud penalty but noted (Slip Op. 5 n. 2) that the civil fraud penalty had been discharged in a bankruptcy proceeding (although there is no further explanation).

In this CDP case, Reynolds complained about the IRS’s collection activity with regard to the RBA.  I will just bullet point some of the key discussion / holdings rather than have a further narrative.

• The opinion discusses the IRS Collection Advisory Group’s role in RBAs which interfaces with IRS Collections.  The opinion describes this group (Slip Op. 6 n 2): 

The IRS Collection Advisory Group coordinates and monitors probation and restitution cases; the advisor serves as a liaison for coordinating such cases with IRS field offices and the Department of Justice (DOJ). See Internal Revenue Manual (IRM) pt. 5.1.5.16 (Oct. 6, 2017); IRM pt. 5.19.23.1(5) (Oct. 27, 2017); IRM pt. 25.26.1.5.2 (Mar. 24, 2014). 

• The opinion discusses the Revenue Officers’ collection activity over a number of years in some detail, mostly after the NFTL.

• Reynolds attorneys apparently believed that once an RBA was made, only the IRS could collect.  However, the IRS position was that there were two separate debts:  the restitution debt that DOJ’s financial unit can collect; and the RBA that the IRS can collect.  Of course, to the extent that restitution and RBA are the same, payments against one are credited against the other so that there is not double payment.  But, DOJ and the IRS can proceed on separate tracks to collect, although there must be some coordination.

• The IRS and the Reynolds tilted during much of the period over Reynolds’ ability to pay more than he was paying.  In the final analysis, the IRS concluded that "this appeal is being maintained primarily for delay."  (Slip Op. 17.)

• The IRS eliminated the restitution interest and failure to pay penalties per Klein v. Commissioner, 149 T.C. 341 (2017 ).

Sunstein Articles Supporting Chevron Deference (1/18/21)

Readers of this blog know that conservative and libertarian judges have noised since around 2000 that the Chevron “Framework” derived from Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) is variously unconstitutional or illegal and should be junked.  The Chevron Framework basically requires, in a two-step format, that courts defer to reasonable agency interpretations of ambiguous statutory text.  The Framework is more nuanced, but I think the description is a sufficient high-level overview of the Framework for purposes of this blog.

 A lot of claims are made about the Chevron Framework being illegal and unconstitutional.  One of the most persistent claims is that Chevron deference violates the APA command that “the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.”  5 U.S.C. § 706.  Solely on the basis of that statutory text, the anti-Chevronists claim that a court reviewing agency actions based on agency interpretation of ambiguous statutory text must interpret the ambiguous statutory text de novo rather than defer to agency interpretation.

I have argued against this “interpretation” (if you will) of § 706.  See Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (August 23, 2020). Available at SSRN: https://ssrn.com/abstract=3400489.  In that article, I review the history of deference before enactment of the APA in 1946 and after the enactment of the APA.  See pp. 71-79, beginning here.  I further argue that § 706 is not inconsistent with deference to reasonable agency interpretations.  See pp. 92-95, beginning here.  (Note that I err in my opening statement that "Here are my reasons for rejecting any notion that deference is consistent with § 706;"  the correct statement (with correction in red will be corrected in the next draft) is "Here are my reasons for rejecting any notion that deference is inconsistent with § 706;" actually my argument is that deference before and after Chevron is consistent with § 706.)

I write today to advise readers of a recent articles regarding Chevron, one of which covers the same ground.  The two articles are by Professor Cass Sunstein. a leading administrative law scholar (Wikipedia here).  In the first article, Professor Sunstein reviews the same trajectory and arguments I make in my article with the same conclusion – that deference to reasonable agency interpretations is consistent with § 706 (whether referring to the intent of Congress or original public meaning of Congress).   Sunstein, Cass R., Is Chevron Inconsistent with the APA? (December 4, 2020). Available at SSRN: https://ssrn.com/abstract=3742429.  See also my article, p. 94 n. 378, here (citing another Sunstein article, with others, on the basic point that deference is consistent with § 706.

Further, not only is Chevron consistent with § 706, Professor Sunstein also argues in a separate article that even if it arguably were not (or at least could not be conclusively shown to be consistent), rejecting Chevron deference at this date would be imprudent.  Sunstein, Cass R., On Overruling Chevron (November 1, 2020). Available at SSRN: https://ssrn.com/abstract=3723681.  In the article Sunstein concludes (pp. 14-15, footnote omitted):

Outstanding Article on Current State of IRS Voluntary Disclosure Practice (1/16/21)

 This brief blog today is to alert readers to an outstanding article on the current state and some uncertainties and risks of the IRS Voluntary Disclosure Practice (“VDP”).  Scott Michel and Mark Matthews, The 2020 Revision to the Internal Revenue Manual’s Voluntary Disclosure Practice: More Consistency with Greater Risk (Bloomberg Daily Tax Report 1/12/21), here.  The article is prompted by recent changes to the IRM provisions on the VDP.  IRM 9.5.11.9(1) (09-17-2020), Voluntary Disclosure Practice, here.

This blog post is cross-posted on my Federal Tax Crimes Blog, here.

Deloitte and Tax Analysts Open Tax Analysts Library to Public Without Subscription (1/11/21; 1/12/21)

Last week, Deloitte posted this news release:  Deloitte and Tax Analysts Take Great Strides to Increase Tax Policy Transparency:  Professional services leader joins forces with nonprofit to make federal tax law library easily accessible to the public, here.  In pertinent part, the release says:

As part of Deloitte Tax’s sponsorship, visitors to the site can now access details about the federal code, regulations, and other primary source documents, including the Internal Revenue Code of 1986; proposed, final and temporary regulations; rules for lawyers, accountants and others practicing before the IRS; Treasury decisions, IRS guidance, and private rulings; court and legislative documents; public comments on regulations; rate tables; and other correspondence, press releases and miscellaneous tax documents.

The site for access appears to be here:  https://www.taxnotes.com/research

This is a tremendous service to the public.  Thnks to Tax Notes and Deloitte.

I have not tested the search mechanisms for the various categories of documents.  Some quick simple testing indicates that the search and results are not of the sophisticated type for on the major legal research platforms such as Westlaw and Lexis.  Still, creative use of the search tools might make it very useful.

I generally use the Lexis platform and like it because it permits me to do date limited research -- i.e., pick up all new cases involving a search topic (e.g., FBARs) after a certain date (e.g., the date I last did that date limited search).  That permits me to pick up new materials (cases and articles).  I don't know if that can be done in the Tax Notes databases, although I did see that topics can be selected for search and the results shown in reverse chronological order.

JAT Addition (1/12/21)

Whistleblower FYE 2020 Report (1/6/21)

 The IRS Whistleblower Office has released a report titled Fiscal Year 2020 annual report, here.  The opening message from the Director of the WBO, Lee D. Martin, is (have added links for the publications referenced):

The fiscal year (FY) 2020, which began on October 1, 2019, marked the 14th anniversary of the Whistleblower Office and the Whistleblower Program. I am extremely proud of the dedicated women and men in the Whistleblower Office, Small Business/Self-Employed (SB/SE) Initial Claims Evaluation unit, and other divisions across the Internal Revenue Service (IRS). Since 2007, the Whistleblower Program paid awards to whistleblowers totaling more than $1 billion dollars and has led to the successful collection of $6.14 billion from noncompliant taxpayers. 

Statistically in FY 2020, the Whistleblower Office made 169 awards to whistleblowers totaling $86,619,032 (before sequestration), which includes 30 awards under Internal Revenue Code (IRC) § 7623(b). Proceeds collected were $472,080,014. Included in the proceeds collected, as a result of IRC § 7623(c), are the non-Title 26 amounts collected for criminal fines, civil forfeitures, and violations of reporting requirements amounting to $110,438,166. The Title 26 amounts collected were $361,641,848. Whistleblower claim numbers assigned in FY 2020 decreased by 20 percent from those submitted in FY 2019, and closures decreased by 33 percent. 

During FY 2020, we continued our focus on operationalizing the whistleblower statutes under the Taxpayer First Act of 2019 (TFA 2019). This included adding four analysts to meet the increased workload due to the new provisions. To educate whistleblowers about the new TFA 2019 provisions, we updated Publication 5251, Whistleblower Claim Process and Timeline, and Internal Revenue Manuals 25.2.1 and 25.2.2. On December 3, 2019, we signed a Memorandum of Understanding (MOU) with Alcohol and Tobacco Tax and Trade Bureau (TTB) that put in place procedures between the IRS and TTB to process claims for whistleblower awards under Internal Revenue laws that are administered and enforced by TTB. On April 30, 2020, the Whistleblower Office held its first ever Whistleblower Program Forum. Lastly, like other organizations and businesses, the Whistleblower Office worked diligently to maintain Whistleblower Program operations that were impacted by office closures due to the coronavirus crisis.