limitations period Archives - TAX CONTROVERSY 360

Courts Outline Boundaries of the Anti-Injunction Act Post-CIC Services

by Kevin Spencer, Sarah M. Raben and McDermott Will & Emery | Aug 23, 2022 | Appellate Courts, Court Procedure Matters, IRS Appeals, Trial Courts

Since the Supreme Court of the United States’ decision in CIC Servs., LLC v. IRS was issued in May 2021, courts have grappled with how to apply the Anti-Injunction Act (AIA) in other contexts. The US Court of Appeals for the Eleventh Circuit recently affirmed the dismissal of a lawsuit under the AIA in Hancock County Land Acquisitions, LLC v. United States, while the Court of Appeals for the First Circuit recently held that the AIA does not prevent a challenge to the Internal Revenue Service’s (IRS) use of John Doe summons in Harper v. Rettig.

In July, we posted about a circuit split between the Sixth and Eleventh Circuits over claimed Administrative Procedure Act (APA) violations. As discussed below, these post-CIC Services decisions are shaping the boundaries of challenges based upon the APA and the AIA.

THE ELEVENTH CIRCUIT

The taxpayer in this case reported a $180 million deduction for a conservation easement on land it owned in Mississippi. The IRS audited the taxpayer and requested an extension of the statute of limitations on assessment in Internal Revenue Code (IRC) Section 6501. The taxpayer initially declined, but 11 months after the request it agreed to extend the limitations period. At that point, the IRS had almost finished with its examination, and the parties never executed the extension. The IRS issued a Notice of Final Partnership Administrative Adjustment (FPAA), and the taxpayer was unable to pursue an administrative resolution with the IRS Office of Independent Appeals (IRS Appeals). The taxpayer filed suit in US federal district court, arguing, among other things, that the IRS violated the APA when it did not send the case to IRS Appeals, resulting in the taxpayer being deprived of pre-litigation administrative resolution of its tax dispute. The IRS moved to dismiss the complaint for lack of subject matter jurisdiction, which the district court granted.

On appeal, the taxpayer argued that the suit was not barred by the AIA, citing CIC Services. The Eleventh Circuit, however, explained that the three considerations that led to that conclusion in CIC Services were the “same three considerations [that] lead to the opposite conclusion here.” The Court found that the taxpayer: (1) would not be subject to any costs separate and apart from the tax penalty from the FPAA; (2) was on the cusp of liability when it filed its suit and (3) would not suffer any criminal punishment by following the AIA’s “familiar pay-now-sue-later procedure.” The Court stated, “at its heart, this suit is a ‘dispute over taxes,’” and it was far from clear that under no circumstances could the IRS prevail on the merits of the taxpayer’s claim.

THE FIRST CIRCUIT

In 2013, the taxpayer in this case opened an account with a digital currency exchange. He deposited bitcoin into his account in 2013 and 2014. In 2015, he started to liquidate his Bitcoin holdings, which lasted until 2016 when his holdings were depleted. At that [...]

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Supreme Court Justice Breyer Announces Upcoming Retirement—A Look Back at His Tax Opinion in Home Concrete

by Kevin Spencer and McDermott Will & Emery | Jan 31, 2022 | Appellate Courts, Court Procedure Matters, Tax Reform, Trial Courts

On January 27, 2022, Supreme Court of the United States Justice Stephen Breyer formally announced his retirement, effective when the Supreme Court breaks for summer recess in June or July later this year—after his successor has been nominated and confirmed. Justice Breyer has served on the Supreme Court since 1994 and is the second-most senior justice after Justice Clarence Thomas.

Although Justice Breyer did not author a substantial number of tax opinions, the ones he did author are extremely important and include:

Marinello v. United States (criminal tax fraud)
United States v. Home Concrete & Supply, LLC (limitations period for assessing tax)
United States v. Brockamp (limitations period for refund or credit claims).

This post focuses on the Home Concrete case.

Home Concrete involved a challenge to the validity of US Department of the Treasury (Treasury) regulations issued during litigation that purported to overrule existing case law. In a 5-4 opinion authored by Justice Breyer, the Supreme Court rejected both the government’s statutory interpretation of the “substantial omission from gross income” exception to the normal three-year statute of limitations and the interpretation advanced in retroactive regulations issued during pending litigation. In doing so, the Court first applied principles of stare decisis and adhered to its prior opinion in Colony, Inc. v. Commissioner, which interpreted almost identical statutory language from the predecessor statute. It then held that, because it already interpreted the statute, there is no longer any different interpretation that is consistent with that precedent and available for adoption by the agency.

The history and procedural background are fascinating, and some of the issues highlighted in the case, but not directly decided, have been—and continue to be—developed. Further background on the case can be found in our 2012 Tax Executive article, “Home Concrete: The Story Behind the IRS’s Attempt to Overrule the Judiciary and Lessons for the Future.”

Practice Point: Home Concrete remains important today as there are several cases in the administrative and judicial pipeline involving challenges to tax reform and transfer pricing regulations. It is a must-read for any taxpayers who are currently, or are considering in the future, challenging the validity of Treasury regulations.

Andrew Roberson was one of the lawyers representing Home Concrete before the Supreme Court.

Extending the Statute of Limitations for Assessing Federal Tax

by Kevin Spencer and McDermott Will & Emery | Jan 14, 2022 | IRS Audits, Tax Reform, Tax Refunds

We previously provided an overview of the time limits imposed on the Internal Revenue Service (IRS) for assessing federal tax. The general rule is that the IRS must assess tax within three years from the later of the due date of the original tax return or the date it was filed. If the IRS does not assess tax during this period, it is foreclosed from doing so in the future. Note that the filing of an amended return does not restart or extend the limitations period. There are numerous exceptions to this rule, including if there is a substantial omission of income, fraud, failure to file a return, extension by agreement and failure to provide certain information regarding foreign transactions. We discussed many of these exceptions in Seeking Closure on Tax Positions: A Look at Tax Statutes of Limitation and Omitted Subpart F and GILTI Income May Be a Statute of Limitations Trap for the Unwary. Below, we discuss the rules and considerations for consenting to extending the time to assess federal tax.

Internal Revenue Code (Code) Section 6501(c)(4) provides that, except in the case of estate taxes, taxpayers (or their duly authorized representative) and the IRS may consent in writing to an extension of the limitations period for assessment. Importantly, such an agreement must be executed before the limitations period expires. In other words, assuming no other exception applies to the general three-year rule, an agreement to extend the limitations must be executed within the later of three years from the date the tax return was due or filed. If executed after that date, the consent is invalid. Thus, a late-filed consent cannot revive an otherwise closed limitations period. Under Code Section 6511(c), extending the statute of limitations on assessment also extends the period for filing a claim for credit or refund to six months after the expiration of the extended assessment period.

Form 872, Consent to Extend the Time to Assess Tax, is generally used to effectuate an agreed extension to a certain date, however, other versions of the form may be used for different types of taxpayers or issues (e.g., Form 872-M, Consent to Extend the Time to Make Partnership Adjustments, is used for partners subject to the centralized partnership audit regime under the Bipartisan Budget Act of 2015). Form 872-A, Special Consent to Extend the Time to Assess Tax, may be used to extend the limitations period for an indefinite period (referred to as an Open-Ended Consent). An Open-Ended Consent ends 90 days after the mailing by the IRS of written notification of termination or receipt by the IRS of written notification of termination from the taxpayer (both actions are accomplished through the use of Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax), or the mailing of a notice of deficiency. The IRS’s views on Open-Ended Consents are summarized in
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Courts Outline Boundaries of the Anti-Injunction Act Post-CIC Services

Supreme Court Justice Breyer Announces Upcoming Retirement—A Look Back at His Tax Opinion in Home Concrete

Extending the Statute of Limitations for Assessing Federal Tax

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