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.

Principal Life -- A Masterpiece of Tax Procedure (11/29/13)

In my last Tax Procedure Class, we spent most of the class discussing Principal Life Ins. Co. v. United States, 95 Fed. Cl. 786 (Fed. Cl. 2010).  The Court's slip opinion is here; students can link to a nonofficial version (Harvard Caselaw Access Project) but with local page citations, here.  I do ask, however, that students download the actual case with the local page citations. 

The reasons I think the case is important are: (i) it is a tax procedure case; (ii) it is a tour de force tax procedure case; and (iii) it covers a lot of ground that we covered earlier in the class.  I promised the students that I would post a blog on the case in order to help them learn Tax Procedure and, even, study for the examination.  THIS POSTING IS NOT INTENDED AND SHOULD NOT BE USED AS A SUBSTITUTE FOR ACTUALLY READING AND STUDYING THE CASE.

Judge Allegra (Wikipedia here) introduces the case as follows:

"The procedural aspects of the tax laws are of overriding importance in many controversies," one commentator has noted, "eclipsing or making moot substantive issues such as the allowance of deductions or credits, recognition or deferral of income, and methods of accounting." Theodore D. Peyser, 627-3rd Tax Management Portfolio, "Limitations Periods, Interest on Underpayments and Overpayments, and Mitigation" at 1 (2010). At times, the questions spawned by these procedures take on an almost "metaphysical" cast, Baral v. United States, 528 U.S. 431, 436, 120 S. Ct. 1006, 145 L. Ed. 2d 949 (2000), like "when is taxable income taxed?" The ontology needed to solve such abstruse inquiries comes not from philosophical tomes, but from Chapters 63 through 66 of the Internal Revenue Code of 1986, which supply interfused rules mapping the contours of commonly-used, but frequently-misunderstood, tax concepts such as "assessment," "deposit," and "overpayment." 

Though the background provided by these rules can be numbing in its intricacy, the dispute presented by the cross-motions for summary judgment pending before the court can be stated simply: Plaintiff, Principal Life Insurance Company and Subsidiaries (plaintiff or Principal) argues that it is entitled to certain overpayments because its taxes were not timely assessed by the Internal Revenue Service (IRS). Defendant responds that the taxes in question were timely assessed and that even if they were not, they are not recoverable as an overpayment. Plaintiff is wrong; defendant is right. It remains to explain why.

KEY FACTS:

The Effect of Violation of the Statutory Requirements for a Notice of Deficiency (8/15/13)

Leslie Book has a good blog entry titled What Happens When The IRS Violates a Statutory Requirement Relating to Notices of Deficiency? (Procedurally Taxing 8/13/13), here.  His general topic is when courts will treat a failure to meet the statutory requirements for a notice of deficiency as invalidating the purported notice of deficiency.  The statutory requirements for the notice are:

1. The date to file a petition for redetermination in the U.S. Tax Court.
2. Notice of Taxpayer Advocate's Contact Information.
3. Notice sent to Taxpayer's Last Known Address.
4. Explanation of Basis for Deficiency.

I encourage readers to read Professor Book's blog entry for more detail than I offer here (except as to item 4).  The unifying theme is whether the taxpayer has been prejudiced by some IRS footfault in meeting these statutory requirements.  Professor Book discusses that prejudice issue in the context of requirements 1 and 2.  It is also present in #3, for the cases hold that, if, despite not being sent to the last known address, the taxpayer actually receives the notice of deficiency in time to file a petition for redetermination, the notice of deficiency will not be invalidated (so that it will operate to suspend the statute of limitations and support the ultimate assessment if the taxpayer did not petition the Tax Court or even if he did petition the Tax Court and loses the last known address issue).

I would like to address briefly the Scar case (Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987)) which Professor Book discusses briefly.  I offer the following from  my book (footnotes omitted):

As noted above, the deficiency notices must describe the basis for the deficiency but failure to do so will not invalidate the deficiency.  Thus, the taxpayer appears to have a statutory right to the information in the notice of deficiency, but no statutory remedy if he does not receive it in the notice of deficiency.  As we shall note, however, there may be some remedies short of invalidity of the notice for failure to meet this requirement of § 7522(a). 

Usually, there will be some explanation.  It may be summary or even cryptic because the determination usually follows an audit in which the taxpayer participated and was aware of the issues the IRS was raising.  Indeed, in such cases, usually the taxpayer will have been provided some type of report (often referred to as a Revenue Agent's Report (“RAR”)) that explains the proposed adjustments.  But again, although the Code provides that the taxpayer be notified of the basis for the deficiency, there is no Code remedy if one is not provided.

Assessment Statute of Limitations When Contesting an Allegedly Invalid Notice of Deficiency (8/16/12)

In the text, I noted (Footnoted version pp. 187-188; Nonfootnoted version p. 133):

Parsing the text of the statute, § 6503(a)(1) suspends the period of limitation on assessments until 60 days beyond whichever of the following dates applied (depending upon whether the taxpayer petitions the Tax Court): (1) if the taxpayer does not petition the Tax Court, the end of the 90-day period during which the IRS was prohibited from making the assessment (the same 90 period during which the taxpayer could have petitioned the Tax Court but did not), and (2) if “a proceeding in respect of the deficiency is placed on the docket of the Tax Court,” the date the Tax Court decision becomes final. n647 

 n647 Recognizing the text’s substantial meaning, see Shockley v. Commissioner, 686 F.3d 1228 (11th Cir. 2012).

Section 6503(a) is here.  The Shockley opinion is here.

I ask you now to focus on the quote establishing second suspension period indicated in the quote - "if a proceeeding * * * is placed on the docket of the Tax Court" and the accompanying footnote.  In a recent article, practitioners have critiqued the Shockley holding for its potential consequences beyond the limited confines of the case.  Andy R. Roberson and Kevin Spencer, 11th Circuit Allows Invalid Notice to Suspend Asssessment Period, 136 Tax Notes 709 (Aug. 6, 2012) (criticizing Shockley for the scope of its potential application in other cases).  The article is here.