Adequacy of IRS Notices & Variance in Refund Claims (9/15/12)

In Bush v. United States, 2012 U.S. Claims LEXIS 1083 (2012), here, the Court of Federal Claims held in a tax refund suit that a computational adjustment based on a partnership adjustment was subject to the Scar analysis of validity of an IRS determination and that the taxpayer had a fatal variance between an argument first advanced in briefing in the case.  I'll look at both of these issues.

THE SCAR ISSUE

In Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987), the Ninth Circuit held that a facially invalid basis for an adjustment in the notice of deficiency meant that the IRS had not made the required determination for a notice of deficiency and thereby invalidated the notice of deficiency.  Bush involves a computational adjustment from a partnership audit rather than a notice of deficiency, but it will be helpful to put Scar in its context.  I offer the  background for the Scar holding (cut and pasted from my Federal Tax Procedure book is (footnotes omitted):

2. The Notice of Deficiency. 

a. The Determination and Explanation. 

The IRS is authorized to issue a deficiency notice “If the Secretary determines that there is a deficiency.”  § 6212(a).  The notice of deficiency should “describe the basis for, and identify the amounts (if any) of, the tax due, interest, additional amounts, additions to the tax, and  assessable penalties included in such notice,” § 7522(a).  Frequently, the notice of deficiency will be somewhat sparse in its explanation, but usually the taxpayer will have been given an agent’s report that explains the IRS position.  And, in any event, the same statute provides: “An inadequate description under the preceding sentence shall not invalidate such notice.”   [Note § 7522(a) was not in the law when Scar was decided; and does not apply to computational adjustments in any event.]