TAX CONTROVERSY 360
TAX CONTROVERSY 360
McDermott’s Real-Time Tax Disputes Insights
TAX CONTROVERSY 360
McDermott’s Real-Time Tax Disputes Insights
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National Taxpayer Advocate’s Report Highlights Tough Times for Tax Administration

by and | Jan 18, 2022 | , , , ,

On January 12, 2022, the National Taxpayer Advocate released a report to US Congress concerning the state of tax administration in 2021. The report highlights the struggles the Internal Revenue Service (IRS) has been having in the wake of the COVID-19 pandemic, including how the IRS is substantially behind in processing returns, the breakdown of the IRS call center, delays in processing responses to IRS notices sent to taxpayers and a myriad of other issues. (There is indeed a backlog for processing millions of tax returns!)

The Taxpayer Advocate Service (TAS) can be a helpful and powerful tool for taxpayers looking to resolve their tax issues with the IRS. We have provided information on this resource in earlier submissions. (See Taxpayer Advocate Service: Not Just for Low-Income Taxpayers.)

Practice Point: For those who are having difficulties interacting with the IRS and unable to achieve reasonable or satisfactory responses or explanations, seeking assistance from TAS can go a long way in resolving tax issues. The process is free to taxpayers and starts with the filing of Form 911 with the appropriate TAS office. If you seek assistance in the near future, be mindful that TAS is currently flooded with requests for help but will work your case—if it meets the relevant criteria—as soon as possible. A dose of patience will be needed to work through this resource to obtain a successful resolution of your tax issue.



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District Court Broadly Interprets Informal Claim Doctrine

by and | Oct 5, 2021 | , ,

Internal Revenue Code (Code) section 7803(a)(3)(C) provides that taxpayers have “the right to pay no more than the correct amount of tax.” However, there are two relevant considerations to this “right.” First, the Internal Revenue Service (IRS) must take the appropriate steps before it can assess and collect any amount of tax beyond that reported by the taxpayer. Second, taxpayers who believe they overpaid their tax must take affirmative steps to protect their rights to claim a refund before the period of limitations on seeking a refund expires. We recently provided an overview of these steps.

Taxpayers traditionally claim the right to an income tax refund (or credit) by filing a formal amended tax return using the appropriate form prescribed by the IRS (e.g., Form 1040X, Form 1120X, etc.) under IRS procedures and guidelines (e.g., Code section 6402 and the underlying regulations). However, in some situations, taxpayers can assert a valid refund claim through other means such as correspondence or other written communications with the IRS that is not made by filing a formal amended tax return. Courts have consistently recognized the validity of so-called “informal” refund claims and explained that such claims must have a written component that gives the IRS sufficient notice of the fact that the taxpayer believes they have overpaid their income tax and that a refund is due.

Likewise, the IRS acknowledges the propriety of the informal claim doctrine. However, the IRS’s position appears to be inconsistent as Internal Revenue Manual 25.6.1.10.2.6(3) (09-29-2015) references the judicially-created informal claim doctrine noted above, but Publication 5125, which discusses the IRS’s Large Business & International examination process, states that the claim must also be made under penalties of perjury. (See: Internal Revenue Manual 25.6.1.10.2.6.3 (09-29-2015).)

The recent district court decision in Johnson v. United States (No. 2:10-cv-01561-TLN-JDP (E.D. Cal., Sept. 30, 2021) addressed whether correspondence between taxpayers and the Taxpayer Advocate Service (TAS) can give rise to an informal claim. The taxpayers in that case reviewed copies of their tax account transcripts for several years and determined that funds offset by the IRS from tax years 2013 and 2014 and applied to earlier tax years were incorrect because there was no liability remaining in those earlier years. Specifically, the taxpayers argued that they were entitled to refunds for tax years 2009 and 2010 and relied on discussions and correspondence with TAS, including a faxed letter summarizing the timeline of the issues, to support their position that their refund claim was timely under the informal claim doctrine. The IRS argued that the informal claim doctrine did not apply because the letter did not include facts sufficient to apprise the IRS of the factual basis for the claims; the letter only referenced 2009 (and therefore was insufficient for 2010) and was not signed under penalties of perjury.

The district court sided with the taxpayers regarding the year 2009, finding that the letter constituted an informal claim under the judicially-created informal claim [...]

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Weekly IRS Roundup August 17 – August 21, 2020

by | Aug 26, 2020 | ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 17, 2020 – August 21, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

August 19, 2020: The IRS requested comments from large corporate taxpayers currently utilizing the procedures under Revenue Procedure 94-69 to disclose changes in tax positions after the opening of an examination. The IRS is considering obsoleting Revenue Procedure 94-69, which is available to a small group of large corporate taxpayers. Revenue Procedure 94-69 provides special procedures for taxpayers that are subject to the (former) Coordinated Examination Program to show additional tax due or make disclosures to avoid the imposition of accuracy-related penalties for negligence, disregard of rules or regulations or substantial understatement of income tax under sections 6662(b)(1) and (b)(2). Comments are due by October 19, 2020.

August 19, 2020: The IRS published a practice unit concerning the taxability of distributions from an S corporation that either (1) does not have accumulated earnings and profits (AE&P), or (2) makes distributions from sources other than AE&P; that is, nondividend distributions made from the accumulated adjustments account, other adjustments account or a shareholder-level previously taxed income account from before 1983 to the extent it still exists. The practice unit also addresses what items to consider to determine the taxability of nondividend distributions, liquidating distributions and sale-or-exchange redemption distributions.

August 19, 2020: The IRS published a practice unit concerning the last-in first-out (LIFO) pooling method and taxpayers who may elect to compute opening and closing inventories for goods using LIFO.

August 20, 2020: The IRS published a memorandum concerning guidance for Taxpayer Advocate Service (TAS) employees on the types of cases accepted into TAS under Criteria 9 – Public Policy. The Taxpayer Advocate is adding four cases that fit the policy; (1) organizations where the IRS automatically revoked their tax-exempt status for failure to file an annual return or notice for three consecutive years; (2) cases involving any tax account-related issue referred to TAS from a Congressional office, including limited Economic Impact Payment (EIP) issues; (3) cases involving revocation, limitation or denial of a passport; and (4) cases that have been referred to a Private Collection Agency for collection of a federal tax debt.

August 20, 2020: The IRS published corrections to Treasury Decision 9614, which was published in the Federal Register on Tuesday, March 19, 2013. Treasury Decision 9614 contained final regulations that apply to transfers of certain property by a domestic corporation to a foreign corporation in certain nonrecognition exchanges, or to distributions of stock of certain foreign corporations by a domestic corporation in certain nonrecognition distributions. The corrections are effective on August 20, 2020.

August 21, 2020: The IRS announced it has temporarily stopped mailing notices to taxpayers with [...]

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Weekly IRS Roundup August 10 – August 14, 2020

by | Aug 18, 2020 | ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 10, 2020 – August 14, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

August 10, 2020: The IRS published corrections to a notice of proposed rulemaking related to section 245A(e) (Hybrid Dividends) that was published in the Federal Register on April 8, 2020. The notice contained proposed regulations that adjust hybrid deduction accounts to take into account earnings and profits of a controlled foreign corporation that are included in income by a US shareholder. The corrections are effective on August 11, 2020.

August 10, 2020: The IRS published corrections to final regulations from Treasury Decision 9896 that were published in the Federal Register on Wednesday, April 8, 2020. The final regulations provide guidance regarding hybrid dividends and certain amounts paid or accrued pursuant to hybrid arrangements, which generally involve arrangements whereby US and foreign tax law classify a transaction or entity differently for tax purposes. The correction is effective on August 12, 2020.

August 12, 2020: The IRS published a memorandum that modifies Taxpayer Advocate Service (TAS) case acceptance criteria for cases involving Economic Impact Payments (EIPs).

August 12, 2020: The IRS announced changes to user fees relating to certain requests for letter rulings and determinations that will take effect on January 4, 2021. The increased user fees described in this announcement will be reflected in Rev. Proc. 2021-4, which will be published in Internal Revenue Bulletin 2021-1 on January 4, 2021.

August 13, 2020: The IRS published a practice unit concerning the identification, review of the computation and determination of the circumstances when section 986(c) recognition is appropriate in the pre-Tax Cuts and Jobs Act (TCJA) environment. The practice unit addresses two issues: (1) Did the taxpayer correctly compute section 986(c) exchange gain or loss on the distribution of previously taxed earnings and profits (PTEP) to its US parent?; and (2) Was the distribution of previously taxed earnings and profits to the US parent resulting in the section 986(c) exchange gain or loss part of a step transaction that should be collapsed, a transaction lacking a business purpose and/or a transaction that lacks economic substance?

August 14, 2020: The IRS released Internal Revenue Bulletin 2020-34, dated August 17, 2020, containing the following: (1) REG-111879-20 (Employment Tax); (2) TD 9904 (Employment Tax); (3) REG-112042-19 (Excise Tax); (4) Notice 2020-58 (Income Tax); and (5) REG-132766-18 (Income Tax).

August 14, 2020: The IRS published corrections to final regulations (TD 9885) that were published in the Federal Register on Friday, December 6, 2019. The final regulations implement the base erosion and anti-abuse tax, which is designed to prevent the reduction of tax liability by certain large corporate taxpayers through certain payments [...]

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Weekly IRS Roundup October 14 – October 18, 2019

by | Oct 21, 2019 | ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 14 – October 18, 2019.

October 15, 2019: The IRS published a news release that discusses several tax benefits available to military families as part of National Work and Family Month.  

October 15, 2019: The IRS published guidance on corporate bond weighted average interest rates and the permissible range of interest rates used to calculate pension plan minimum funding for plan years beginning in October 2019. The IRS updated the yield curve and 24-month segment rates, the 30-year Treasury securities interest rates, and the minimum present value segment rates. 

October 16, 2019: The IRS released a Statistics of Income Bulletin. The statistics show how many Forms 709 were filed in 2018. The report also indicates the amount of gifts given by asset type and gender, including stocks, bonds, real estate, partnership and other business interests. 

October 16, 2019: The IRS published a statement on how it handles passport certifications for people with significant tax debt. In July, the IRS temporarily suspended passport certification procedures on passports for anyone who had a case open with the Taxpayer Advocate Service (TAS). After initially agreeing to that request, the IRS has now reversed its position. The IRS has determined that a blanket, systemic exception for anyone with an open TAS case is overly broad and could undermine the effectiveness of the statute enacted by Congress in the Fixing America’s Surface Transportation Act to collect a seriously delinquent tax debt. 

October 18, 2019: The IRS published interim guidance on partnership audit procedures. The memorandum provides guidance for appeals employees on new case procedures for different phases of the Bipartisan Budget Act of 2015 (BBA) centralized partnership audit regime, including: (1) Early Election into BBA; (2) Administrative Adjustment Request; (3) Notice of Proposed Partnership Adjustment ; (4) Modification Disputes; and (5) Notice of Final Partnership Adjustment.

October 18, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour in our Chicago office for this week’s roundup.



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National Taxpayer Advocate Reminds Congress of IRS Deficiencies

by and | Apr 18, 2018 | , ,

On April 17, 2018, the Taxpayer Advocate, Nina E. Olson, testified before a Congressional Oversight Committee regarding on-going challenges to the administration of an efficient and effective tax system. Ms. Olson runs the Taxpayer Advocate Service (TAS), an independent office within the Internal Revenue Service (IRS). The Taxpayer Advocate is appointed by and reports directly to the Commissioner of Internal Revenue. The office was created under the Taxpayer Bill of Rights, which became law on July 30, 1996. The office replaced the IRS Office of the Ombudsman. (more…)



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National Taxpayer Advocate Releases 2017 Annual Report to Congress

by | Jan 12, 2018 | ,

On January 10, 2018, the National Taxpayer Advocate (NTA) Nina E. Olson released her 2017 Annual Report to Congress. (For our coverage of the 2016 Annual Report, see here). The NTA also released the inaugural “Purple Book,” which “is a compendium of 50 legislative recommendations for strengthening taxpayer rights and improving tax administration that we and others have made over the years.” We will be reviewing the 2017 Annual Report and the Purple Book in the coming days for items of interest.

Practice Point: The Taxpayer Advocate Service (TAS), an independent organization within the IRS, is an excellent (and often underutilized) resource for individual and corporate taxpayers who may be at a standstill with the Internal Revenue Service—especially on a technical, administrative or “red-tape” issue. Taxpayers of all shapes and sizes should consider, where appropriate, utilizing the TAS in appropriate circumstances where they are encountering delays in the administration of their tax disputes



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National Taxpayer Advocate 2016 Report – Summons Enforcement

by | Jan 19, 2017 | , , , ,

In its Annual Report to Congress, the Taxpayer Advocate Service (TAS) recently reported summons enforcement actions under Internal Revenue Code (Code) Sections 7602, 7604, and 7609 as one of the “Most Litigated Issues” this year. Below, we summarize the general law related to summons enforcements actions and the findings set forth in the Annual Report.

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National Taxpayer Advocate Releases 2016 Annual Report to Congress

by | Jan 19, 2017 | ,

On January 10, 2017, the National Taxpayer Advocate Nina E. Olson released her 2016 Annual Report to Congress.

According to the Taxpayer Advocate Service (TAS), the report was delivered to Congress with no prior review by the Internal Revenue Service (IRS) Commissioner, the Secretary of the Treasury or the Office of Management and Budget.  The primary sections of the report include:

  • 2016 Special Focus – IRS Future State: The National Taxpayer Advocate’s Vision for a Taxpayer-Centric 21st Century Tax Administration
  • Most Serious Problems Encountered by Taxpayers
  • Recommendations to Congress
  • Most Litigated Issues
  • Taxpayer Advocate Service Research and Related Studies
  • Literature Reviews

Practice Point: TAS, an independent organization within the IRS, is an excellent (and often underutilized) resource for individual and corporate taxpayers who may be at a standstill with the IRS – especially on a technical, administrative, or “red-tape” issue. Taxpayers of all shapes and sizes should consider, where appropriate, utilizing the TAS in appropriate circumstances where they are encountering delays in the administration of their tax disputes.

This post is the first in a four-part series addressing highlights of the Annual Report that may be of interest to our readers.



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