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Weekly IRS Roundup September 9 – September 13, 2024

by , and | Sep 19, 2024 | , ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 9, 2024 – September 13, 2024.

September 10, 2024: The IRS extended the deadline to file individual and business tax returns and make tax payments for certain individuals and businesses in Connecticut and New York that were affected by severe weather that began on August 18, 2024. The new deadline is February 3, 2025. The extended deadline is available to taxpayers in any area designated by the Federal Emergency Management Agency (FEMA), including individuals and households that reside or have a business in Suffolk County in New York and in Fairfield, Litchfield, and New Haven Counties in Connecticut.

September 11, 2024: The IRS released an updated version of IRS Form 1099-DA and draft instructions for digital asset brokers to report sales and exchanges of digital assets beginning in 2025.

September 11, 2024: The IRS reminded taxpayers of their right to finality under the Taxpayer Bill of Rights and to know the deadlines for challenging IRS decisions and the time limits for the IRS to audit or collect taxes. This right ensures that taxpayers are aware when an audit is concluded and understand the specific timeframes for various tax-related actions.

September 12, 2024: The IRS released Notice 2024-66, which provides relief from the penalty under Internal Revenue Code (Code) § 6655 for underpayments of estimated corporate alternative minimum tax (CAMT) installments by corporations for taxable years beginning after December 31, 2023, and before January 1, 2025. This notice extends and incorporates relief from previous notices, offering additional time for corporations to meet their estimated tax obligations.

September 12, 2024: The IRS reminded taxpayers that the Taxpayer Advocate Service, an independent organization within the IRS, provides free assistance to individuals, businesses, and exempt organizations experiencing financial difficulties or systemic issues that cannot be resolved through standard IRS procedures.

September 13, 2024: The IRS extended the deadline to file federal individual and business tax returns and make tax payments for certain individuals and businesses in Louisiana that were affected by Tropical Storm Francine. The new deadline is February 3, 2025. The extended deadline is available to taxpayers in any area designated by FEMA, including individuals and households that reside or have a business in any Louisiana county.

September 13, 2024: The IRS released proposed regulations that outline the rules for calculating adjusted financial statement income and determining applicable corporation status under the CAMT for tax years starting after 2022. The proposed regulations provide additional guidance on partnership investments, corporate transactions, and foreign tax credits and extend penalty relief for corporations failing to pay estimated CAMT for tax years beginning after December 31, 2023, and before January 1, 2025.

September 13, 2024: The IRS released proposed regulations that exclude Tribal general welfare benefits from gross income under [...]

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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 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 – Penalties

by | Jan 26, 2017 | , , , ,

Every year, the Taxpayer Advocate Service’s (TAS) Annual Report to Congress provides a unique perspective regarding the workings of the Internal Revenue Service (IRS) and how the IRS relates to the vast majority of taxpayers. That insight is particularly valuable when the IRS chooses to assert penalties—one of the most policy-driven decisions that the IRS can make. In its 2016 report, the TAS makes a number of important observations and recommendations related to three of the most commonly asserted types of penalties—accuracy-related penalties, failure-to-file and failure-to-pay penalties, and the Trust Fund Recovery Penalty.

Accuracy-Related Penalties

The TAS identified 122 cases litigated between June 1, 2015, and May 31, 2016 (the reporting period), involving accuracy-related penalties.  Of those cases, the IRS prevailed in full in 86 cases (70 percent), taxpayers prevailed in full in 20 cases (16 percent), and 16 cases were split decisions (13 percent) (percentages were rounded down in the original report). Unusual this year were the number of split decisions and the number of taxpayer wins in pro se cases. Many cases involving the negligence penalty turned upon the taxpayer’s failure to maintain adequate books and records related to the adjustments at issue.

In 2013, the TAS issued a study noting that the IRS’s imposition of accuracy-related penalties, subsequently abated after an assessment and a successful taxpayer appeal (among other fact patterns), could lead to a perception of unfairness among taxpayers regarding the IRS’s manner of assertion of these penalties. The TAS cited this study in its 2016 report, and noted again that this conduct could be detrimental to voluntary taxpayer compliance and could undermine the purpose of accuracy-related penalties.

In fact, a main priority of the Annual Report overall is to improve voluntary compliance, a fundamental element of our tax system. The TAS notes that “unnecessary coercion” by the IRS—whether through unsustained penalties or otherwise—could have the effect of reducing voluntary compliance.

Failure-to-File / Failure-to-Pay Penalties

The TAS identified 45 total decisions involving failure-to-file and failure-to-pay penalties in the reporting period.  Of these, 28 cases involved taxpayers representing themselves. The majority of cases involved full or partial taxpayer losses.

The TAS noted, consistent with our experience, that the IRS frequently relies upon selection of failure-to-file and failure-to-pay cases through its Reasonable Cause Assistant software, which makes the initial decision to impose the relevant penalties in most cases without significant human involvement.  Personal review of the penalty decision does not generally occur until after the taxpayer files an administrative appeal.  The TAS advocated for heightened personal review of these penalties and heightened consideration of relevant facts and circumstances potentially supporting abatement.

Trust Fund Recovery Penalties

The TAS noted that several Trust Fund Recovery Penalty cases this year had successfully challenged whether the penalty was properly noticed and assessed. United States v. Appelbaum, 117 A.F.T.R.2d 2016-633 (W.D.N.C.); Romano-Murphy v. United States, 816 F.3d 707 (11th Cir. 2016).

The TAS further discussed a number of unsuccessful taxpayer challenges to assessment of the Trust Fund Recovery Penalty on grounds of [...]

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National Taxpayer Advocate 2016 Report – IRS Appeals and Alternative Dispute Resolution

by and | Jan 24, 2017 | , , , ,

In its annual report to the US Congress, the Taxpayer Advocate Service (TAS) had a lot to say about IRS Appeals and the (lack of) use of other alternative dispute resolution (ADR) techniques. In this post, we will highlight what the TAS had to say in this area.

IRS Appeals

Undoubtedly, one of the Internal Revenue Service’s (IRS) most successful dispute resolution techniques has been IRS Appeals. Briefly, after the IRS’s Examination Division proposes a tax adjustment, taxpayers have the statutory right to seek an “appeal” of the decision. IRS Appeals is a separate and seemingly independent division of the IRS where one or more appeals officers review the redeterminations and adjustments made by the Examination Division, and attempt to settle the dispute directly with the taxpayer based upon a “hazards of litigation” analysis, much in the same manner as a judge would rule. The TAS acknowledged the success and utility of the IRS Appeals program and mission, but requested that Congress expand the program, giving the IRS the resources it needs to manifest the full intent of the program.

The TAS reported that funding for IRS Appeals has diminished sharply—by about 11 percent from 2013 to 2016, with staff reduced during the same period by 24 percent. In response to shrinking resources, but hobbled by the same duties and similar case load, IRS Appeals has been forced to implement procedures and policies that hamper its long-term mission of providing a fair and impartial review of the Examination Division’s adjustments. The TAS pointed out that these policies have resulted in (1) creating an inhospitable Appeals environment; (2) limiting in-person Appeals conferences; (3) reducing the Appeals officer’s ability to perform a quality substantive review; and (4) failing to protect the rights of taxpayers when conducting collection Appeals hearings. The TAS noted that there has been a large increase of cases docketed in the US Tax Court before seeking an IRS appeal. The TAS believes that docketing a case before it goes to Appeals has added inefficiency and unnecessarily increased the case load of the Tax Court.

The TAS suggested the following solutions:

  1. Expand the locations in which Appeals Officers hear matters. Presently, there are numerous states in which there are no IRS appeals officers. As a result, taxpayers who seek an appeal and request an in-person conference are forced to travel to the states in which an IRS appeals officer is located.
  2. Hold more in-person appeals conferences. The TAS report argues that in-person conferences facilitate the efficient and expeditious settlement of matters.
  3. Revise procedures and policies to allow IRS appeals officers additional discretion and time to undertake factual development and provide more substantive review of matters.

Practice point: We have recently reported about many of the issues facing taxpayers seeking review by IRS Appeals. The TAS confirms our critiques of the system. IRS Appeals is a very good and useful technique that has a high probability of settling cases. Generally, appeals [...]

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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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