Thursday, January 23, 2020

Does the Period Go Inside or Outside the End Quote? A Tax Court and Supreme Court Comparison (1/23/20; 1/25/20)

Note that this blog has been revised, most importantly, to include the Supreme Court Style Guide.  See below after the spreadsheet on Supreme Court opinions.

Readers will have noticed that, occasionally, in my blogs I nit pick, but usually only as a detour from the topic of the blog.  Today, a nit pick is the topic of the blog.

Recently, I started paying some attention to the Tax Court opinions placement of end quotes – inside or outside the period.  I noticed that in some of my anecdotal reads that Tax Court opinions (of all sorts, T.C., and T.C.M. and Summary) are inconsistent on that weighty topic.

The American rule, as I understand is, always inside the end quote.  See, e.g.:
  • Dreyer’s English (2019), p. 55 (“Though semicolons, because they are elusive and enigmatic and they like it that way, are set outside terminal quotation marks, periods and commas—and if I make this point once, I’ll make it a thousand times, and trust me, I will—are always set inside. Always.”)
  • Why do periods and commas go inside quotation marks in MLA style? (The MLA (Modern Language Association) Style Center 2/1/2018), here (“ William Strunk, Jr., and E. B. White, writing in 1959, noted that ‘[t]ypographical usage dictates the comma be inside the marks, though logically it seems not to belong there’” and “if you are preparing a paper for a class or for publication in the United States, place periods and commas inside quotation marks.”)
  • How to Use Quotation Marks: mysteries of combining quotation marks with other punctuation marks (Grammar Girl Quick and Dirty Tips 12/26/13), here, (“ in American English we always put periods and commas inside quotation marks”).
  • Periods and Quotation Marks (The Writing Cooperative 9/1/18), here (“The period should go inside the quotation marks.”)
So, having a choice today between watching the impeachment hearings, I decided that I could better occupy myself with other things.  I did. One of those things was to prepare the spreadsheets offered below in this blog.

TRAC Report on Fewer Civil Tax Cases in District Courts (1/23/20)

TRAC has this report:  Federal Civil Tax Suits Fall by Half Over Last Decade (TRAC 1/22/20), here.  Note that this report does not include Tax Court proceedings where most civil tax cases occur.  Nor does it include Court of Federal Claims filings where many tax refund suits are brought.

The latest available data from the federal courts show that during the first quarter of FY 2020 (October 2019 - December 2019) the government reported 158 new civil filings of federal tax suits. According to the case-by-case information analyzed by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University, this number is down by 19 percent over the same period from FY 2019 when the number of civil filings of this type totaled 194. 
If filings continue at the same pace for the rest of this fiscal year, total civil tax filings will be 632, down from 736 during the past fiscal year. Ten years ago during FY 2010 there were a total of 1,205 such suits. 
Federal civil tax suits cover a range of issues. Out of the 158 suits filed during the first quarter of FY 2020, a total of 65 (41%) were suits filed against the United States. See Figure 2. Over half of the suits filed by taxpayers were suits for refunds of taxes or penalties. Taxpayers also sued the Internal Revenue Service IRS to quash summons or to move litigation from the court in which the suit was filed. The remaining 93 (59%) of suits filed during this period were filed by the U.S. Frequently these were specific actions to enforce an IRS summons or a tax lien, but others involved various miscellaneous collection and regulatory matters. 
JAT Comments:

Tax Court Holds the TFRP is a Penalty Subject to § 6751(b) Supervisor Written Approval Requirement (1/23/20)

Update 1/27/20 9:15am:  Bryan Camp offers an excellent discussion of Chadwick:  Bryan Camp, Lesson From The Tax Court: §6672 Trust Fund Recovery Penalty Is Really A Penalty ... Sort Of (Procedurally Taxing Blog 1/27/20), here.

The Tax Court has been on a tear recently with precedential (including reviewed) T.C. opinions and significant T.C.M. opinions dealing with the nuances of § 6751(b)’s immediate supervisor written approval requirement.  See e.g., FTP2019 Update 05 - § 6751(b)'s Requirement for Supervisor Written Approval for Penalties (1/11/20; 11/23/20), here.  Tuesday, the Tax Court dropped another decision, Chadwick v. Commissioner, 154 T.C. ___, No. 5 (2020), here, holding that
A TFRP [Trust Fund Recovery Penalty in § 6672] is a “penalty” within the meaning of I.R.C. sec. 6751(b)(1). It is thus subject to the requirement that written supervisory approval be secured for the “initial determination of such assessment.
As I noted in the blog above, that was still an open issue, although Tuesday's Chadwick opinion, though precedential in the Tax Court, does not necessarily close the issue.  The IRS had taken the position that the TFRP is not a penalty for § 6751(b)’s immediate supervisor written approval requirement and may appeal.

The relevant portion of the opinion is Slip Op. 11-17.  That’s relatively short (those interested must read it), so I’ll just bullet point the key points in the Court’s analysis.
  • The Code calls the TFRP a penalty.  “Section 6672 was in place in 1998 when Congress enacted section 6751, and Congress is presumed to have known that section 6672 refers to the liability it creates as a ‘penalty.’” (See Slip Op. 11 n. 2.)
  • Congress placed § 6672 among the penalty sections of the Code.
  • Section 6751(c) says that penalties include “includes any addition to tax or any additional amount.”
  • The TFRP imposes liability for “willful” conduct, imposed as a sanction for not doing something.  “From the standpoint of the person sanctioned, they are “penalties” both as denominated by the Code and in the ordinary sense of the word.” (Slip Op. 15.)
  • Apparently addressing the IRS argument that TFRP was a tax because assessed and collected in the same manner as taxes, the applicable section simply says that the TFRP and other penalties are collected “assessed and collected in the same manner as taxes.”  So this argument would exempt from § 6751 many penalties to which it plainly applies.  (Slip Op. 16.)
JAT Comments:

Wednesday, January 22, 2020

Microsoft Summons Enforcement on Transfer Pricing "Planning" - Mixed on Privilege Claims (1/22/20)

After publishing this blog entry, a new article was published about Microsoft's transfer pricing planning and the audit.  I discuss that article in my comments below (Comment #4.)

In United States v. Microsoft, 2020 U.S. Dist. LEXIS 8781 (W.D. Wash. 1/17/20), here, the district court resolved a contentious summons enforcement proceeding started in December 2014.  (See the CourtListener docket entries, here.)  Summons enforcement proceedings are supposed to be “summary in nature.”  United States v. Clarke, 573 U.S. 248, 254 (2014) (citing United States v. Stuart, 489 U.S. 353, 369 (1989)).

So, why was this summons enforcement proceeding not so summary, taking just over 5 years to resolve?  A hint at the answer is the amount of the tax savings involved (perhaps $5 billion over 10 years, achieved at a cost of $10 million (I don't think that planning included tax professional fees)), the promoter tax shelter context (involving one of the prominent bullshit promoter tax shelter players, KPMG, in the early 2000s), and the sheer number of attorneys appearing in the case (many of whom are amici).  (For the attorneys, see the CourtListener list which may be reviewed by clicking on the “Parties and Attorneys on the CourtListener docket list above; the Government lists 4 attorneys, Microsoft lists 14 (included terminated attorneys), and the amici attorneys are more than I want to count; the relative imbalance between the attorneys for Government and attorneys for the parties opposing the Government reminds me of the old saying about Texas rangers–one mob, one Ranger; in this case one mob, 4 Government attorneys.)

Well, there is not much in the case.  It is, after all, a summons enforcement proceeding where, once the minimal Powell standards are met, the summons is enforced.  United States v. Powell, 379 U.S. 48 (1964).  The Court thus early on ordered the summons enforced.  United States v. Microsoft Corp., 154 F. Supp. 3d 1134 (2015).  But that left the privilege assertions to be thrashed over, hence the delay.

So, what’s the context for this battle?  Not surprisingly, high-dollar transfer pricing cost sharing arrangements that has drawn similar high dollar litigation with loads of attorneys.  E.g., Altera Corp. v. Commissioner, 926 F.3d 1061 17143 (9th Cir. 2019), reh. en banc den. 941 F.3d 1200 (9th Cir. 2019) (with an analogous melange of attorneys, including amici).  As the Microsoft Court said in the most recent opinion (the one linked in the opening paragraph):
Ultimately Microsoft did enter into cost sharing arrangements through technology licensing agreements. Because those cost sharing arrangements were required by law to be arm's length transactions, the design and implementation details are a central focus of the government's examination. The government expresses skepticism that a third party would be likely to enter into the agreements, thereby satisfying the arm's length standard, because the agreements contained several unique provisions. Dkt. #146 at ¶¶ 18-20. While many of the terms changed before and afterward the agreements were to have been formed, they remained favorable for Microsoft's income tax liability. Id. at ¶¶ 9-11. The government believes that the transactions were "designed and implemented for the purpose of avoiding tax." Id. at ¶ 20. n1
   n1 The government expresses further skepticism on the basis that the agreements effectively netted the Puerto Rican entity $30 billion for the "routine" reproduction of CDs containing software and did not otherwise have a significant impact on Microsoft's operations. Dkt. #146 at ¶¶ 15-20. 
Microsoft maintains that nothing was abnormal about its actions. [*7]  Microsoft argues that transfer pricing disputes with the government were prevalent and, "[r]ecognizing the inevitability of an [Internal Revenue Service ("IRS")] challenge, Microsoft was determined to be adequately prepared to defend these cost sharing arrangements." Dkt. #140 at 6; see also Dkt. #143 at ¶ 23. To this end, and because of the complexity of facts relevant to corporate international tax, Microsoft employed KPMG "to help the lawyers provide legal advice" and to give its own tax advice. Dkt. #140 at 1; Dkt. #143 at ¶¶ 7, 10. Mr. Boyle, then Microsoft's Corporate Vice President and Tax Counsel, maintains that the materials at issue were prepared for his use and that they were "prepared in anticipation of an administrative dispute or litigation with the IRS over the Puerto Rican cost sharing arrangement, the pricing of the software sales to Microsoft, and other issues expected to be in dispute relating to those transactions." Dkt. #143 at ¶ 23.

Tuesday, January 21, 2020

Presumption of Correctness and Burden of Proof (Persuasion) (1/21/20)

Today, I am going on a bit of a diversion, perhaps rant, about the loose use of the presumption of correctness much bandied about in tax judicial opinions.  What set me off this morning was the Tax Court opinion in Onyeani v. Commissioner, T.C. Memo. 2020-15, here.  In Onyeani, Onyeani petitioned for redetermination after a notice of deficiency was issued for 2015.  Nothing unusual there.  Procedurally, though it was not a typical case because it had been preceded by a termination assessment under § 6851(a).  Those termination assessments happen.  But what happens way more often is the nit I pick today relating to burden of proof and presumption of correctness.

In Onyeani, Judge Lauber says (p. *19):
The Commissioner’s determinations in a notice of deficiency are generally presumed correct. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). 
In the next sentence, Judge Lauber calls this the presumption of correctness, a common wording.

So what’s my beef?  At the very minimum, Rule 142, here, says nothing about presumptions--of correctness or otherwise.  The relevant part of Rule 142 is:
(a) General: (1) The burden of proof shall be upon the petitioner, except as otherwise provided by statute or determined by the Court; and except that, in respect of any new matter, increases in deficiency, and affirmative defenses, pleaded in the answer, it shall be upon the respondent. As to affirmative defenses, see Rule 39. 
Welch v. Helvering, 290 U.S. 111 (1933), here does say something about presumptions of correctness:
“[The Commissioner’s] ruling [NOD] has the support of a presumption of correctness, and the petitioner has the burden of proving it to be wrong. “
Side note: Helvering was Guy Tresilliam Helvering, Wikipedia here, the Commissioner of Internal Revenue. Many early cases thus refer to the Commissioner by the name of the Commissioner (Helvering in Welch v. Helvering and for many landmark cases early in the age of the modern income tax) or by Commissioner (as is the common practice now).  For an earlier iconic tax case where the Commissioner is referred to both ways (emphasis supplied), see Taylor v. Commissioner, 70 F.2d 619, 620-621 (2d Cir. 1934) (L. Hand, J.), aff’d Helvering v. Taylor, 293 U.S. 507 (1935).   I point out that the 2d Circuit decision was by Learned Hand, not because relevant to the present issue but to urge people who may not be familiar to Judge Learned Hand to become familiar.  See Wikipedia, here (noting inter alia that “Hand has been quoted more often by legal scholars and by the Supreme Court of the United States than any other lower-court judge.”

Now, back to Judge Lauber's quote linking some presumption of correctness via the conjunctive “and” to the burden of proof, I think the link is unnecessary and confusing because all that is really required is to note that the taxpayer has the burden of proof, meaning the burden of persuasion.

Thursday, January 16, 2020

Criminal Tax Evasion and Civil Fraud–If Found by the Trier, Can There be a Reasonable Cause/Good faith Defense (1/16/20; 1/17/20)

I have blogged several times on my Federal Tax Crimes Blog about how the “good faith” defense is subsumed in the definition of willfulness for tax crimes.  Willful is the intentional violation of a known legal duty.  If a trier of fact determines that the defendant intentionally violated a known legal duty, then per se that person did not have a good faith defense.  Accordingly, if the trial court in a criminal case where willfulness is an element of a tax crime properly instructs the jury on the willful element, the fact that the judge did not separately instruct the jury that good faith (such as reliance on tax professional) is a “defense” is not error or, at least not reversible error.  Simply put, proof of willfulness negates the good faith defense.  The defendant cannot have intended to violate a known legal duty and then have reasonable cause/good faith in violating that known legal duty.  Accordingly, for example, consider the following:  "[T]o prove willfulness beyond a reasonable doubt, the Government would have to negate the taxpayer's claim that he relied in good faith on the advice of his accountant.”  United States v. Stadtmauer, 620 F3d 237, 257 n. 22 (3d Cir. 2010).

Now I want to move this concept to the civil arena.  Section 6663, here, imposes a civil fraud penalty.  The conduct penalized under § 6663 is “fraud.”  Basically, the conduct penalized under § 6663 is the same conduct that is tax evasion in the criminal context – intentional violation of a known legal duty.  (There may be different verbal formulations, but that is the essence of it in both the criminal and civil arenas.)  So, if proof of tax evasion negates a reasonable cause defense, one would think that proof of civil fraud negates a reasonable cause defense.

Although I think this logic is irrefutable, some courts nevertheless act like they believe otherwise.  For example, in Purvis v. Commissioner, T.C. Memo. 2020-13, at *33-*48, here, the Tax Court found that the taxpayers committed civil fraud subject to the penalty under § 6663.  The Court concluded after 15 pages analyzing the evidence (*48):   “Accordingly, we hold that petitioners are liable for the section 6663(a) fraud penalties for the years at issue.”

The Court then  (at *49-*50) considered the reasonable cause defense.  But why did the Court do that after the Court found that the taxpayer had intended to violate a known legal duty?

One reason is the way the statutory provisions are written.  Specifically, § 6663 imposes the penalty for fraud but then, § 6664(c)(1), here, states (emphasis supplied): “No penalty shall be imposed under section 6662 or 6663 with respect to any portion of an underpayment if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion.”  But, as established in the criminal context, the taxpayer (called defendant in a criminal context) cannot have intended to violate a known legal duty if he had a reasonable cause/good faith defense.  That surely must be true in the civil context as well.

I would appreciate readers view on this issue.  Specifically, is it possible for the Government (the IRS in a Tax Court case) to prove civil fraud by clear and convincing evidence and the taxpayer then establish a reasonable cause/good faith defense?

One other thought.  The regulations for the reasonable cause defense under § 6664 on only address the accuracy related penalty under § 6662.  See Regs. § 1.6664-4, titled "Reasonable cause and good faith exception to section 6662 penalties." I suspect that this analysis is the reason.  The reasonable cause defense is an oxymoron if § 6663 civil fraud is proved.  But § 6664(c) is not the only time that Congress has legislated an oxymoron.

Addendum 1/17/20 12:00pm:

Saturday, January 11, 2020

FTP2019 Update 05 - § 6751(b)'s Requirement for Supervisor Written Approval for Penalties (1/11/20; 11/17/23)

Yesterday, I posted this as a standalone blog entry, but decided to incorporate it into the FTPB Update series.  Accordingly, I changed the caption and provide below a table entry showing the changes to the Federal Tax Procedure Book.  Otherwise I leave the blog as posted.

Section Affected
Edition page numbers
Ch. 8.  Penalties.
   III. Civil Penalties.
   L. Penalty Administration.
 1. Authority to Assess; Notice.
Practitioner Ed. pp. 414-419
Student Ed. pp. 287-289

This week, the Tax Court issued two T.C. opinions (one of which was a reviewed opinion) and a T.C. Memo Opinion dealing with the ongoing refinement, through interpretation, of the meaning of § 6751(b), here, which is:
No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.
There are some exceptions, but the focus in most of the cases (including the ones decided this week) has been the text quoted above.

The opinions are: Belair Woods, LLC v. Commissioner, 154 T.C. ___, No. 1 (2020) (reviewed), here; Frost v. Commissioner, 154 T.C. ___, No. 2 (2020), here; and Tribune Media Company v. Commissioner, T.C. Memo. 2020-2, here.  An excellent discussion of the opinions are presented in Bryan Camp's offering Lesson From The Tax Court: A Practical Interpretation Of The Penalty Approval Statute § 6751 (Tax Prof Blog 1/13/20), here. (Note:  I added this link to Bryan's article on 1/13/20.)

Rather than discussing those opinions, I offer an  overview of the current state of play on the interpretation of § 6751(b) from my Federal Tax Procedure book as I now have it in the working draft for the 2019 editions (which will be published in August 2020).  The key holdings of the cases are incorporated in this overview.  The overview in the blog below does not include footnotes; for those wanting the footnotes, I offer the text and footnotes in pdf format here. Here is a cut and paste of the overview without footnotes.  I do not indent to show that this is quoted text.

Second, § 6751(b)(1) prohibits the assessment of a penalty “unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.”  The purpose of the requirement was to prevent agents from improperly using the threat of a penalty as inappropriate leverage–a “bargaining chip”–to extract concessions when the IRS institutionally had not made a determination to assert a penalty.  This wording of statute, however, is facially nonsensical because there is no such thing in the tax law as the determination of an assessment and, in any event, the assessment comes long after the threat of penalties could have been made to bully taxpayers.  In statutory interpretation lingo, the statutory text is “ambiguous,” a characterization which has spawned many opinions as the courts try to deal with the deficiencies in the statutory text through purposive interpretation strategies to apply the text as the courts think or speculate Congress intended but did not say in the statutory text.  I attempt to bullet-point key features of the statutory prohibition under the current state of play.  I state the current state of play in general overview, but do not develop many of the nuances, some of which are yet to come.  There undoubtedly will be further refinements as the courts address various unique fact patterns, so stay tuned.  With those caveats, here is my summary:

The most significant issue has been the timing of the written approval.  Once the courts accepted that timing must be before the assessment despite the statutory text, the issue is to identify the timing of the initial determination required for the written approval.  The statutory text provides no guide for determining that earlier timing, but by focusing on the requirement for an “initial determination” and the legislative history, courts have looked to some event indicating more than a communication to the taxpayer that the agent was considering penalties.  The initial determination is “the document by which the Examination Division formally notifies the taxpayer, in writing, that it has completed its work and made an unequivocal decision to assert penalties.”  In the context of an audit, the initial determination is the 30-day letter (or equivalent such as the 60-day letter in a TEFRA audit) sent to the taxpayer stating Examination’s determination to assert one or more penalties and offering the taxpayer a right to contest the determination in Appeals.  Mere notice that to the taxpayer the agent is considering asserting penalties and asking the taxpayer to discuss the penalties is not the determination requiring written approval.  However, if the RAR is prepared asserting the penalty and delivered to the taxpayer, written approval must be before or contemporaneous with the RAR.  And, even a notice that the IRS has preliminarily determined to assert a penalty that the taxpayer can avoid by action on his part is not the initial determination requiring written approval.

Wednesday, December 25, 2019

Tax Perjury, § 7206(1) Is a Different Crime than Perjury, 18 USC § 1621 (12/25/19)

The following is a copy of a post to my Federal Tax Crimes Blog:

Yesterday, I was updating the working draft of my Federal Tax Procedure Book, here, for the 2020 editions to make a point about § 7206(1) here, which I and others call “tax perjury.”  See e.g., DOJ CTM 12.03 Generally, here (“Section 7206(1) is referred to as the “tax perjury statute,” because it makes the falsehood itself a crime.”) I added the caveat that tax perjury in § 7206(1) is not the crime of perjury, 18 USC § 1621.  The CTM thus cautions that “Although referred to as the ‘tax perjury statute,’ Section 7206(1) prosecutions are not perjury prosecutions.”  CTM 12.09[2] Law Of Perjury Does Not Apply To Section 7206(1) Prosecutions.  Thus features critical to perjury prosecutions (such as the two-witness rule and no corporate criminal liability) do not apply to § 7206(1) prosecutions.

In addressing this point, I discuss in a footnote Siravo v. United States, 377 F.2d 469 (1st Cir. 1967), here.  In Siravo , the defendant argued that § 7206(1) was not a perjury statute, because perjury requires false affirmative statements and the omission of income is not a false affirmative statement.  The Court held that the language of the jurat did cover such omissions because the jurat states that it is signed under penalty of perjury and the taxpayer attests under penalty of perjury that the return is true and correct, so that omitted income was clearly within the scope of the statement made under penalty of perjury covers omissions from the return (the Court treated the word "complete" in the jurat as superfluous to “true and correct”).  “Therefore, the government has made out a violation of the section, whether it be labelled a perjury statute or similar in nature,”  (Pp. 762-473 (cleaned up).  See also United States v. Cohen, 544 F. 2d 781, 783 (5th Cir. 1977) (cleaned up) (“The omission of a material fact [assets from the OIC] renders such a statement just as much not ‘true and correct’ within the meaning of§ 7206(1), as the inclusion of a materially false fact, Siravo v. United States, 377 F.2d 469 (1st Cir. 1967)."

Thursday, December 19, 2019

Eleventh Circuit Sustains IRS Summons Issued For French Tax Investigation (12/18/19)

In Redfern v. United States (11th Cir. Dkt. 19-12649 12/17/19) (unpublished), here, the Court affirmed the IRS’s issuance of summonses to various banks “at the request of the French government, pursuant to the United States–France Income Tax Treaty, to aid an ongoing investigation into Redfern’s [French] tax liability.” 

For background on the process, I cut and paste this (footnotes omitted) from a version of the working draft of my Federal Tax Procedure Book (basically same as in my Federal Tax Procedure 2019 editions):
In an increasingly globalized economy, records relevant to tax administration in one country may be possessed by someone in another country. Under many U.S. bilateral tax treaties, one treaty partner is obligated to assist the other in gathering information relevant to the latter's tax administration. For example, the Canadian tax authority (referred to as the “competent authority” in treaty parlance) under the U.S./Canada Double Tax Treaty may request the U.S. tax authority (i.e., the U.S. competent authority) to obtain information in the U.S. for Canadian tax administration. (This is commonly referred to as an “exchange of information” provision.) If the request is within the scope of the treaty, the U.S. competent authority will authorize the IRS to issue an administrative summons. The ultimate taxpayer involved may then bring a motion to quash if the summons is to a third party or, if the summons is to the taxpayer, may invoke any basis for noncompliance and await the IRS's pursuit of a summons enforcement proceeding.  
In United States v. Stuart, 109 S. Ct. 1183 (1989), Canada made such a request to the U.S., the U.S. issued summonses to third parties, and the taxpayer brought a motion to quash. The issue presented was whether the Code's limitation on the use of administrative summonses when a DOJ referral is in effect (§ 7602(d)) applies in the case of a summons issued under the Canadian treaty in relation to the Canadian tax. That Code limitation had been enacted after the U.S./Canadian double tax treaty in question had been negotiated and entered into force. Arguably, even if that limitation were not in the treaty, Congress's subsequent legislation may have created a treaty override. The taxpayer argued that the status of the Canadian tax investigation was the equivalent of a DOJ referral and thus the use of an IRS administrative summons was not proper. The Court held that, notwithstanding the subsequent enactment, the treaty itself controlled and had no such limitation, so that it need not inquire into the status of the Canadian investigation.  
In subsequent cases, courts have held that the propriety of the foreign country’s tax investigation is not relevant to whether the IRS can issue and enforce the summons (or avoid a petition to quash the summons); rather, the issue is whether the IRS has met the Powell requirements for the summons focusing on its actions and not that of the foreign treaty partner requesting the IRS to use its processes to obtain the requested information.  
 Similar processes are available under the OECD Convention on Mutual Assistance in Tax Matters, which is a multilateral treaty, and possibly other treaties as well, although most of the litigated cases appear to involve the bilateral double tax treaties.
The process employed in Redfern for the summons as follows (Slip Op. p. 2):
As required by Internal Revenue Code § 7609(a)(1), the IRS provided Redfern, as the holder of the accounts, with notice of the summons and an explanation of the recipient’s right to bring a proceeding to quash the summons. Specifically, it mailed the required notice to Redfern at (1) the address that appeared on his most recently filed and processed federal tax return and (2) the address identified by France as the address he reported to the government, as well as (3) to Leslie R. Kellogg, an attorney at Hodgson Russ LLP, from whom the IRS had received a power of attorney signed by Redfern authorizing her to receive confidential tax information on Redfern’s behalf.

Monday, December 9, 2019

Townsend Article on Burden of Proof and Valuation in Tax Cases (12/9/19)

I have posted on SSRN a draft of an article, titled  Burden of Proof in Tax Cases: Valuation and Ranges - an Update, I have submitted to the ABA Tax Lawyer for publication.  The SSRN posting where the draft can be downloaded is here

The SSRN Abstract is:
In this article, I update a previous article, John A. Townsend, Burden of Proof in Tax Cases: Valuations and Ranges, 2001 TNT 187-37 (2001). I discuss the difficulty in many valuation cases of determining a finite valuation point by the required degree of persuasion (more likely than not in most civil cases). This point was made cogently in a frequently cited opinion of by the Delaware Court of Chancery (which I quote in the next paragraph): 
It is one of the conceits of our law that we purport to declare something as elusive as the fair value of an entity on a given date. Valuation decisions are impossible to make with anything approaching complete confidence. Valuing an entity is a difficult intellectual exercise, especially when business and financial experts are able to organize data in support of wildly divergent valuations for the same entity. For a judge who is not an expert in corporate finance, one can do little more than try to detect gross distortions in the experts' opinions. This effort should, therefore, not be understood, as a matter of intellectual honesty, as resulting in the fair value of a corporation on a given date. The value of a corporation is not a point on a line, but a range of reasonable values, and the judge’s task is to assign one particular value within this range as the most reasonable value in light of all the relevant evidence and based on considerations of fairness.
Sometimes where ranges are identified, arbitrary conventions (such as the midpoint as in the case of publicly traded stock) can be used to determine the issue in litigation. But where there is no such convention that should be applied, the burden of persuasion can resolve the case by identifying the range. The party bearing the burden of persuasion (or risk of nonpersuasion) then has persuaded only as to the end of the range that does not favor that party and the value, based on persuasion, is determined accordingly. 
The party bearing the burden of persuasion in tax cases is usually the taxpayer. In the article, I discuss interesting features of the burden and how, at least in the Tax Court, the burden of persuasion might shift to the Commissioner under Helvering v. Taylor, 293 U.S. 507 (1935), which I think is often misunderstood. 
Another benefit of identifying the range is that, if it is determined on appeal that the trier of fact misapplied the burden of persuasion but did identify the range, the court of appeals can resolve the case by picking the other end of the range (unless a successful attack is made on the choice of the ends of the range).
The purpose of the advance publication on SSRN is to advised the community of the article and solicit comments for those wishing to make them.  I find that comments will help me make final revisions that make the final publication better.  Thanks in advance.

The SSRN listing for all of my articles is here.