Tax Procedure and Tax Fraud in a Nutshell
Author:
Watson, Camilla E.
Edition:
6th
Copyright Date:
2022
26 chapters
have results for Tax
Chapter 14. Choice of Forum in Civil Tax Litigation 61 results (showing 5 best matches)
- As its name implies, the Tax Court hears only tax cases and because of that fact, Tax Court judges are experts in tax matters. Thus, taxpayers with the most complicated and technical issues often select the Tax Court for its ostensible expertise. Most taxpayers, though, choose to bring suit in the Tax Court because it is the only forum with deficiency jurisdiction. Thus, the taxpayer is not required to first pay the disputed tax in order to file suit (i.e., it is a “sue-first-pay-later” forum). For this reason, the Tax Court is sometimes referred to as the “poor man’s court.” An irony is that while the Tax Court is the forum chosen by most taxpayers, statistics show that taxpayers lose more often in the Tax Court than in other forums. Of course, these statistics do not consider the complexity of the legal issues or the merits of the cases, which is important because more cases tend to be brought in the Tax Court than in the other courts ( ...the taxpayer need not pay the tax...
- The Tax Court does not have jurisdiction over all controversies relating to federal taxes. Instead, its jurisdiction is limited to specific statutory grants, which include cases involving: income taxes, estate and gift taxes, windfall profits tax and certain excise taxes, and some declaratory judgments and disclosures. Even if subject matter jurisdiction exists, Tax Court jurisdiction is further dependent on exact compliance with several statutory prerequisites: The Commissioner must “determine” that a tax “deficiency” exists, the IRS must mail a Notice of Deficiency to the taxpayer, and the taxpayer must file a petition in the Tax Court within 90 days of the mailing of the Notice of Deficiency. Once a taxpayer has invoked the Tax Court’s jurisdiction by timely filing a petition, that election is irrevocable, and the taxpayer may not dismiss the petition and seek a refund trial.
- An exception to the “full payment” rule exists for so-called “divisible” or “transactional” taxes. Income taxes, estate taxes, and gift taxes are all non-divisible taxes that are subject to the full-payment rule. Examples of divisible or transactional taxes that permit refund-suit jurisdiction without full payment of the entire amount assessed are some excise taxes and penalties imposed on “responsible persons” under for failure to ensure that income taxes withheld from employees’ pay are actually paid to the Government. “Responsible persons” who wish to contest the penalty need only pay the full withheld taxes of any one individual (i.e., a single transaction), rather than the total amount withheld from all employees, to invoke jurisdiction.
- Another important consideration is the taxpayer’s financial ability or willingness to pay the disputed tax before litigating the controversy. Although one’s first impulse may be to select the Tax Court, because it is the only forum that does not require prepayment of the full putative tax, the impact of interest must be considered, because filing suit in the Tax Court does not stop the running of interest.
- If a taxpayer wants to avoid the accumulation of interest on any potential tax ultimately determined to be owing, she may pay the tax after or even before filing the Tax Court petition. However, if the deficiency is paid before the notice of deficiency is issued, she will have waived Tax Court jurisdiction. But as long as the taxpayer has a notice of deficiency, she may file a petition in the Tax Court. If she pays the tax, plus interest to date and any penalties, and she ultimately prevails, the Government must pay interest to her on the amounts found to have been overpaid.
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Glossary 63 results (showing 5 best matches)
- Small tax case procedure
- Tax Court (or United States Tax Court)
- Trust fund taxes
- (or tax evasion) as defined and prohibited under § 7201 of the Code is committed by “[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof.” Tax evasion under § 7201 is a felony and provides the harshest punishment under the Code. It also requires a greater quantum of proof by the Government than any other tax crime.
- Federal tax lien (or tax lien or general tax lien or general assessment lien)
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Chapter 1. Overview of the Federal Tax System 14 results (showing 5 best matches)
- Given the huge numbers of returns and the importance of the federal income tax, fair and efficient administration of the federal tax laws is essential. The federal tax system is built upon the idea of “voluntary compliance”: that is, each taxpayer is expected to account annually for all income and deductions during that taxable year and to pay the proper amount of tax. Thus, the Government must maintain confidence in the voluntary compliance system by ensuring that taxes are viewed as fair and that those who fail to comply with the tax laws are penalized. During the late 1970’s and early 1980’s, this system eroded due to widespread perceptions that wealthy individuals could avoid paying taxes by using “tax shelters,” that most people “cheated” on their federal income taxes, and that the IRS was so overburdened those who cheated were not likely to be caught. Both the IRS and Congress placed part of the blame for these perceptions on the civil tax penalty system, which they perceived...
- Taxes are the principal source of revenue for the federal Government, accounting for about 93-percent of all budget receipts. The remainder is covered primarily through borrowing. Revenue projections for fiscal year 2022 estimate that federal tax receipts will total about $4 trillion, which will constitute 17.3-percent of gross domestic product (GDP). The largest portion of these receipts will come from individual income taxes (around 51-percent), followed by payroll tax receipts (around 34-percent). In contrast, corporate income taxes for the same period are estimated to be around 6-percent, which represents a declining trend in the importance of corporate taxes as a source of revenue, despite a steady rise in corporate profits over the past several years.
- The Tax Relief and Healthcare Act of 2006 established the IRS Whistleblower Office to process tips from individuals who discover tax problems in their workplace. The tipsters may receive discretionary awards based on the amount of the recovery. See further discussion, § 16.2,
- The Tax Division of the Justice Department plays a significant role in the administration of the federal tax laws. Lawyers from the Tax Division represent the Government in refund suits (civil actions in United States district courts and the Court of Federal Claims, discussed in Chapter 14) and in civil suits challenging the validity of Treasury regulations and IRS rulings. In addition, Tax Division lawyers in the Criminal Section supervise the prosecution of criminal tax cases. Typically, the role of the Criminal Section is limited to reviewing criminal cases developed by the IRS and forwarding them for prosecution to U.S. Attorneys. In particularly complex or otherwise significant cases, lawyers from the Criminal Section will try the cases or offer substantial assistance to the U.S. Attorneys trying the cases.
- ...inefficient procedures of the IRS. While doubts were raised subsequently about the veracity of some of the testimony from these hearings, the die had been cast as far as Congress was concerned. The result was the IRS Restructuring and Reform Act of 1998 (RRA), signed into law on July 22, 1998 by President Clinton. This Act significantly altered the organization and operation of the IRS in an effort to make the tax administration process fairer and more efficient. Under the RRA, the IRS was required to review and restate its mission to place greater emphasis on serving the public and meeting taxpayers’ needs. In addition, the entire organization of the agency was changed from a geographically based structure to a more functionally based organization, similar to that of many private sector businesses. The former three-tiered organizational structure (national, regional and district offices) was eliminated (although the National Office retained much of its former organization) and...
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Chapter 13. Third Party Liability 39 results (showing 5 best matches)
- Employment taxes consist of two portions: (1) the employer’s portion, which consists of the employer’s share of FICA taxes plus FUTA (federal unemployment) taxes and (2) the employee’s portion, which the employer is required to withhold and remit quarterly to the Government. The latter portion consists of income taxes and the employees’ share of FICA and RRA (Railroad Retirement Act) taxes. It is only the employees’ (the second) portion that constitutes trust fund taxes. The employer is directly liable for the first portion and thus does not hold those taxes in trust.
- : any “person required to collect, truthfully account for and pay over any tax imposed.” The Supreme Court interpreted this statutory language to mean that a person responsible for collecting the taxes can be liable for the penalty, even if she lacks the authority to pay over the taxes when they are due. . Thus, a person who is responsible for collecting and accounting for taxes, and who actually does so, nevertheless can be liable for the 100-percent penalty if she terminates employment before the taxes are to be paid and the employer fails to pay them when they are due. The issue in was whether a person who acquired control of a business that was delinquent in its payroll taxes could be held liable for the delinquent taxes. In other words, can a responsible person be held liable for tax liability incurred before he became a responsible person? The Supreme Court held that such a person could be liable for the taxes that were already delinquent when he assumed control, but found...
- If the tax understatement was due to erroneously claimed deductions, no relief was available unless the tax understatement exceeded a certain percentage of the requesting spouse’s income for the year before the deficiency notice was mailed. The percentage varied, depending on the requesting spouse’s income. If her adjusted gross income was $20,000 or less, then the tax liability from which she was seeking relief must have exceeded 10-percent of that amount. If her adjusted gross income in the year before the deficiency notice was mailed was more than $20,000, then the tax liability must have exceeded 25-percent of that amount.
- The statute of limitations on assessment of tax based on fiduciary liability is the later of one year after the liability arises (that is, after debts are paid by the fiduciary) or the expiration of the statute of limitations on collection (not assessment) of the tax from the taxpayer. Because of the longer period of limitations for assessment of tax under the theory of fiduciary liability, the IRS sometimes will assess under this theory of liability when the statute of limitations on assessment against a transferee has expired. In one such case, the Tax Court held that a sole shareholder of a dissolved corporation who received all of its assets and paid some of its debts, but not its taxes, was a transferee but not a fiduciary and was not liable for the corporation’s taxes because the statute of limitations on assessment of transferee liability had expired.
- ) that the time period in which a refund claim must be filed is the later of: (1) three years from the date the return was filed and the taxes paid (if paid at that time); or (2) two years from the date the taxes were paid, if paid later. Although most taxes must be paid in full before a refund suit can be maintained, the 100-percent penalty under , an alleged responsible person need only pay the payroll tax for one employee for one quarter, not the entire deficiency, to qualify to litigate a refund claim. Thus, a person against whom a . After payment of the minimum amount, the refund suit must be filed within two years from the date of payment. The alternate three-year rule is inapplicable because there was no return filed with respect to the payroll taxes by the person against whom the penalty is being asserted. Litigation in the Tax Court without first paying any part of the tax is not possible because the penalty is assessed without prior issuance of a statutory notice of...
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Chapter 10. Civil Penalties and Interest 58 results (showing 5 best matches)
- Perhaps the most difficult issue in tax fraud litigation is the line between tax avoidance (which is legal) and tax evasion (which is illegal and will subject the taxpayer to possible civil and criminal penalties). Judges and scholars from Justice Holmes, in a famous 1916 case, to the present day have attempted to minimize the analytical problems involved by simply declaring the rule to be obvious: tax avoidance is the attempt to avoid taxes in a legal manner, while tax evasion (or fraud) is the attempt to evade taxes in an illegal fashion. In practice, though, the distinction is not easily drawn.
- Self-employed taxpayers and those who derive income not subject to withholding are responsible for estimating the amount of their tax liability and making estimated tax payments to cover this amount. Estimated tax payments for calendar year taxpayers are due by April 15, June 15, September 15 and the following January 15. Thus, when the return is due, the tax liability should have been paid in full or substantially paid. If the tax liability is underpaid, an estimated tax penalty will be imposed under for corporate taxpayers). This penalty may be avoided if the taxpayer’s total combined annual tax payments from all sources (withholding, estimated payments, and any amounts credited from the previous year’s refund) are equal to the lesser of (1) 90-percent of the tax due or (2) 100-percent of the tax shown on the return for the preceding taxable year (110-percent if the taxpayer’s adjusted gross income exceeds $150,000 ($75,000 for married taxpayers filing separately)). Also, no...
- § 6651(a)(2) penalties apply to the “net tax due.” This is the amount of tax owing, less any amounts paid or withheld before the due date, less any credits allowable. Thus, a taxpayer whose total tax due and owing is $10,000 and whose employer withheld $8,000 in federal income taxes, will have a net tax due of $2,000. If the taxpayer fails to file a return and pay the $2,000 net tax due for six months, she will be subject to a maximum penalty under of $510 (25.5-percent of the $2,000 net tax due). This amount will consist of $60 attributable to the failure to file penalty (maximum 25-percent less 2.5-percent during the 5 months the two penalties run together, plus 3-percent under § 6651(a)(2)). Note that the Tax Court does not have jurisdiction over the § 6651 penalties (including the § 6651(f) penalty) where they relate to a tax shown on a filed return. Thus, these penalties may be assessed immediately.
- If the understatement is due to a “tax shelter” item, different rules apply. The broad statutory definition of “tax shelter” can subject many items to the tax shelter rules. A “tax shelter” for purposes is defined to mean “a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement, if the principal purpose of such partnership, entity, plan, or arrangement is the avoidance or evasion of Federal income tax.” As discussed above, it is perfectly legal to plan or arrange to “avoid” income taxes, and a seemingly infinite number of actions or plans are designed to do exactly that. Nonetheless, if the plan or arrangement is principally motivated by a desire to decrease or avoid tax, then it is a “tax shelter” for purposes of
- Taxes collected through withholding are applied evenly to the four installments unless the taxpayer elects to have the amount credited to the period in which it is actually withheld. An underpayment of estimated tax in any of the quarters is considered a separate infraction of the revenue laws for that quarter. Any overpayment of tax may be credited against the following year’s estimated tax.
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Chapter 3. The Hazards and Standards of Tax Practice 57 results (showing 5 best matches)
- Tax practitioners complained bitterly about the 2007 amendment, because the “more likely than not” standard (interpreted as a greater than 50-percent chance of being sustained on the merits if challenged) was a more stringent standard than the “substantial authority” standard to which taxpayers were subject in order to avoid an accuracy-related penalty. Thus, there was a discrepancy between the standard for tax advisors and the standard for taxpayers. This disparity was eliminated in 2008 under the Emergency Economic Stabilization Act, which brought the standard for tax advisors in line with the standard for taxpayers. After the 2008 Act, the current standards for tax advisors are the “reasonable basis” standard for disclosed positions and the “substantial authority” standard for undisclosed positions. The “more likely than not” standard remains applicable to tax shelters and reportable transactions for returns prepared for tax years ending after October 3, 2008. So, after 2008, the...
- authorizes courts other than the Tax Court to impose penalties of up to $10,000 against taxpayers who bring frivolous or groundless tax suits. Under § 6673(b)(2) may be assessed by the IRS and collected in the same manner as a tax. The purpose of this provision is to permit sanctions imposed by all courts in connection with federal tax proceedings to be assessed and collected in the same manner as penalties imposed by the Tax Court. In addition, § 6673(b)(3) provides that federal appellate courts (the U.S. Courts of Appeal and the U.S. Supreme Court) may impose monetary sanctions, penalties, or court costs in favor of the Government for frivolous appeals of Tax Court decisions and tax decisions of other federal tribunals. Such awards may be assessed and collected in the same manner as a tax. Moreover, such orders may be registered with a U.S. district court and enforced in the same manner as other district court judgments.
- The majority of taxpayers use a return preparer to prepare and file their tax returns. An income tax return preparer is any person who prepares for compensation or who employs one or more persons to prepare for compensation, any tax return or claim for refund. (c). While some preparers, such as attorneys, CPAs, and enrolled agents are subject to strict federal and state licensing requirements, ethical obligations, and continuing professional education, preparers who do not fall into these categories are not required to meet minimum competency standards. In fact, the regulations provide that a “person may be an income tax return preparer without regard to educational qualifications and professional status requirements.” Reg. § 301.7705–15(d) quality of these preparers may vary widely, and this disparity can adversely affect the federal tax system in general, the National Taxpayer Advocate has recommended that Congress require Federal Tax Return Preparers (“FTRPs”) to register and...
- Attorneys and other professionals advising clients on tax matters owe dual obligations. First, they must represent their clients fairly, to the best of their ability and must use available legal means to reduce their client’s tax liability. To do less would deprive their clients of tax benefits to which they are legally entitled. Second, these professionals have an obligation to the Government, as well as to the public to support and implement the self-assessment system of taxation. Taking “aggressive” positions in the hope that their clients’ returns will not be audited, or attempting to conceal the transaction with confidentiality agreements and/or the use of complex transactions involving offshore companies in the hope that the IRS will not be able to track them violates the duty to the public when the position underlying the transaction is legally unsupportable. By counseling such positions, or acquiescing in them, the professional is assisting in the evasion of taxes, with a...tax
- authorizes the Tax Court to impose a penalty of up to $25,000 if it determines that a proceeding was instituted or maintained merely for delay or that the taxpayer’s position is frivolous or groundless. Although this provision has existed since 1926, it was seldom used prior to the barrage of “tax protestor” cases beginning in the late 1970’s. But the § 6673 penalty has been applied in various contexts and is not restricted to the typical “tax protestor” cases. The Tax Court has imposed the penalty in cases involving highly leveraged tax shelters, particularly where the underlying issues have already been litigated in the Government’s favor.
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Chapter 7. The Assessment Procedure and Statutes of Limitations 24 results (showing 5 best matches)
- A deficiency is defined under § 6211 as “the amount by which the tax imposed exceeds the excess of (1) the sum of (A) the amount shown as tax on the return, plus (B) the amounts previously assessed (or collected without assessment) as a deficiency, over (2) the amount of any rebates (abatements, credits, refunds or other payments).” If no return is filed, the entire amount of the tax liability is a deficiency. If the return fails to show the full amount of the tax liability, the excess of the amount due over the amount shown on the return constitutes a deficiency. Thus, the deficiency is not determined by nonpayment of the tax, but by the amount of tax due that is not shown on the return.
- There are two general ways in which an assessment normally occurs. One is through the summary assessment process in which tax liability that is shown on a return is recorded in a summary record, even though the tax itself may not have been paid. This amount is said to be “self-assessed.” The other is through the deficiency procedure, which normally occurs only at the end of the deficiency assessment period.
- The IRS can bypass the normal assessment rules when immediate collection action is necessary. Particularly in situations involving illegal source income, the IRS must be able to seize assets quickly when a delay is likely to allow the person in question to flee the country or conceal assets. The Code authorizes the IRS to assess and collect a tax immediately without going through the normal deficiency procedure, if it appears that collection of the tax would be jeopardized by delay. There are two separate statutory authorizations for extraordinary assessments: § 6851 permits the IRS to terminate a taxpayer’s taxable year and immediately assess the tax due (known as a “termination assessment”), and § 6861 permits immediate assessment of a tax already due (known as a “jeopardy assessment”).
- When is it too late for the IRS to notify a taxpayer that she owes an additional tax? The answer generally depends on whether and when a return was filed (or deemed filed), the types of errors or omissions in the return, and the taxpayer’s intent in filing the return (that is, whether the taxpayer willfully intended to evade tax).
- As in any area of the law, familiarity with the statutes of limitation is essential to proper handling of a tax controversy. The rules governing the time in which tax assessments may be made or claims for refund of overpayments must be filed are complex, technical, and often confusing.
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Chapter 11. The Collection Process 46 results (showing 5 best matches)
- The priority of a federal tax lien is governed by §§ 6321–6323 of the tax Code, as well as by provisions in the Bankruptcy Code. The general rule is “first-in-time-first-in-right,” so a non-tax lien that is perfected prior to a federal tax lien will have priority over the tax lien. The federal tax lien arises automatically and attaches to the taxpayer’s property without having to be filed. But the priority of the lien depends upon whether and when the IRS has filed a notice of its lien. If the notice has not been filed, the tax lien is invalid against judgment creditors, purchasers from the taxpayer, and holders of mechanics liens or security interests. . If the notice has been filed, the tax lien takes priority over subsequently perfected security interests or liens under the general rule. But there are some exceptions to the general rule. First, if the earlier filed non-tax lien is “inchoate,” the later federal tax lien takes priority over the non-tax lien. A lien is inchoate if...
- If the decision of the Appeals officer is adverse to the taxpayer, the taxpayer may seek judicial review by filing a Tax Court petition (or a complaint in the federal district court, if the Tax Court lacks jurisdiction over the underlying tax liability) within 30 days of the Appeals officer’s decision. Collection activities, criminal tax prosecutions, and refund suits continue to be suspended if the taxpayer files a timely request for judicial review.
- Because delinquent taxes are a debt owed to the Government, the United States may bring any type of civil action available to other creditors. In addition, the Code gives the IRS the power to collect delinquent taxes by administrative levy, and it also provides special rules for civil suits involving tax liens. But a prerequisite to all of the enforced collection methods is the existence of a valid tax lien.
- Levy may be made at any time after the federal tax lien arises and before the statute of limitations on collection has expired. Recall that the tax lien arises when the following three events have occurred: (1) the tax has been assessed, (2) the IRS has given notice of the assessment and demanded payment, and (3) the 10-day grace period from the date of the notice and demand for payment has passed, during which the taxpayer has neglected or refused to pay the tax.
- The taxpayer has not, in the preceding five years, failed to file any federal income tax return, failed to pay any federal income tax liability, or entered into an installment agreement for payment of any income tax liability;
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Preface 3 results
- Federal tax practice and procedure is a burgeoning and ever more important area of the tax law. Many tax cases are won or lost on procedural grounds alone, and an increasing number of law schools are incorporating tax procedure courses into their curricula. This book is intended as a supplement to the various casebooks and treatises on federal tax practice and procedure, especially Federal Tax Practice and Procedure, 3d edition by Watson, Billman and Chapman. This book summarizes the legal rules and provides a broad overview of the federal tax practice and procedure area in both the civil and the criminal contexts. It also delves into the policy behind the law and notes conflicts among the circuits and ambiguities in the law. However, this book is not intended to provide an exhaustive analysis of the law or its historical development.
- The last four chapters of this book are devoted to the criminal aspect of a tax practice. These chapters cover the investigation of tax crimes, the substantive offenses (under Titles 11, 18 and 26 of the U.S.C.), likely defenses, and important procedural aspects of criminal tax practice, focusing on Fourth, Fifth and Sixth Amendment rights.
- Federal tax practice and procedure is divided into two general categories: civil and criminal. The majority of the book (the first fifteen chapters) is devoted to the civil aspect of tax practice. The general organization of this sixth edition follows that of the fourth and fifth editions. In the interim between the earlier two editions and this sixth edition, however, there have been numerous important changes, including several important United States Supreme Court cases.
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Chapter 15. Additional Civil Litigation Considerations 24 results (showing 5 best matches)
- The Government may attempt to offset the taxpayer’s alleged overpayment of taxes with alleged underpayments not raised in the refund complaint. In other words, once the refund complaint is filed, the IRS is free to examine the returns in question, as well as those of other years, in an attempt to reduce the taxpayer’s recovery. If the Government attempts to set off a taxpayer’s alleged overpayment of taxes with alleged underpayments in tax years not barred by the statute of limitations, then the burden of proving the new issues depends on the tax involved in the new proposed adjustment and whether it relates to the same tax year that is at issue in the refund suit. If the proposed offsetting adjustment relates to the same type of tax (e.g., income tax or estate tax) in the same taxable year, or a related type of tax that will affect the tax in issue and is in the same taxable year, then the taxpayer will have to bear the burden of proof, even though the issue was raised by the...
- Although an in-depth examination of the principles of res judicata and collateral estoppel is beyond the scope of this discussion, the effect of the doctrines in tax cases cannot be overlooked. The purpose of both doctrines is to provide finality for judicial decisions and to bar repetitious suits. The doctrine of res judicata, also known as “claim preclusion,” bars relitigation of a claim after a final judgment on the merits has been issued in a suit involving the same parties or their privies. For tax cases, the Commissioner, the United States, and the district director (or division director) are considered identical parties. . Importantly, in tax cases, each taxable year generates a new and separate tax liability and cause of action. Res judicata thus bars a taxpayer from bringing suit with respect to tax liability for a year that was the subject of a prior suit. For example, if the taxpayer litigates an income tax deficiency for the taxable year 2020 in the Tax Court, she cannot...
- Prior to the 1980 enactment of the Equal Access to Justice Act (“EAJA”), there was almost no opportunity for a taxpayer to recover litigation costs and attorneys’ fees incurred in a tax dispute. The EAJA provided for recovery of costs in civil tax litigation, but it did not cover suits filed in the Tax Court.
- As mentioned in Chapter 14, the choice of forum is a principal consideration in civil tax litigation. Other considerations include the three unrelated but important litigation concerns that are discussed in this chapter: (1) the allocation of the burden of proof between the Government and the taxpayer; (2) the impact of res judicata and collateral estoppel in tax cases; and (3) recovery of attorneys’ fees.
- The IRS monitors the dockets of federal and state courts to identify defendants who have been found liable for misappropriation of funds or other illegal income-producing activities. It then can be expected to assess tax deficiencies, penalties, and interest based on facts proven in the earlier litigation that the defendant will be collaterally estopped to deny in a subsequent litigation of the tax issues.
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Chapter 12. Bankruptcy Proceedings 20 results (showing 5 best matches)
- The Bankruptcy Court and the Tax Court have concurrent jurisdiction to determine the debtor’s tax liability, but the Bankruptcy Court decides which court will hear the case. If a Tax Court petition is filed before the bankruptcy petition, the bankruptcy petition will stay the proceedings in the Tax Court. Either the IRS, the bankruptcy trustee, or the debtor/taxpayer may request the stay to be lifted for the Tax Court to hear the case. If the Bankruptcy Court grants the request and the case is heard by the Tax Court, the decision of the Tax Court is ...stay remains effective until the case is closed or dismissed or the debtor is discharged, and during the pendency of the bankruptcy case the Bankruptcy Court may decide the case. The Tax Court, which retains jurisdiction over the claim until the case is decided by the Bankruptcy Court, may determine the liability for the nondischargeable claims at the close of the bankruptcy proceeding. If the debtor/taxpayer receives a Notice of...
- Interest on the tax claim assumes the same priority as the underlying tax liability, provided the interest arises pre-petition. Post-petition interest on the tax claim is allowed only if the claim is “over-secured,” which means that the collateral securing the claim must be greater than the amount of the claim. Interest is determined under the bankruptcy laws and not under the tax laws.
- Claims of creditors generally fall into three categories: secured, priority, and unsecured. In general, secured claims are entitled to first priority, because they are satisfied by specific assets (i.e., collateral). A tax lien is secured to the extent of the value of the property to which the lien attaches, provided a Notice of Lien has been filed prior to the date of the bankruptcy petition. Even though the lien is perfected, a bankruptcy trustee may set aside certain transfers and liens, such as fraudulent transfers and perfected liens that are subordinate to those claims having superpriority status. Thus, the tax lien must secure an allowed claim for taxes that is not avoidable by the bankruptcy trustee. Any non-tax secured claims allowed by the court that are senior to the tax claim will take priority over the secured tax lien.
- . The 2005 Bankruptcy Act elevated domestic support obligations from seventh to first priority. Trustee fees also are accorded first level priority. Administrative expenses, including tax liabilities incurred during the administration of the bankruptcy estate are accorded second priority. Taxes that accrue during the ordinary course of business during the “gap period” between the commencement of an involuntary bankruptcy case and the appointment of a trustee are accorded third priority. Unsecured claims for income taxes withheld from wages and salaries earned within 180 days prior to the filing of the bankruptcy petition are entitled to fourth priority. Unsecured income tax or gross receipts tax claims that meet certain requirements (mostly pertaining to when the return was due, whether it was timely filed, and when the tax was assessed) are entitled to eighth priority and are nondischargeable. If a Notice of Tax Lien is not filed prior to the filing of the bankruptcy petition, the tax
- Treatment of secured tax claims is determined under of the Bankruptcy Code. Under this provision, the satisfaction of secured tax claims is limited:
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Chapter 18. Federal Tax Crimes 52 results (showing 5 best matches)
- The Internal Revenue Code contains numerous criminal provisions to prosecute tax offenses. In addition, a wide (and ever-growing) number of Title 18 and other general federal criminal statutes are employed in tax and tax-related prosecutions. This chapter discusses the principal criminal provisions of the Internal Revenue Code and the general federal criminal provisions under Title 18 that are most frequently used in tax prosecutions. This chapter also discusses the penalties for convictions of tax crimes and the methods of proving these crimes. Chapter 19 discusses the various defenses to these crimes.
- The Justice Department requires authorization of the Tax Division before charging mail fraud, either independently or as a predicate for a RICO charge, when the mailing charged is either the filing of a false tax return or other tax form or the mailing is to promote a tax fraud scheme, such as a tax shelter. According to the amendment, “authorization [to bring a mail fraud charge in such situations] will be granted only in exceptional circumstances.” The amendment explains the policy as follows: “It is the position of the Tax Division that Congress intended that tax crimes be charged as tax crimes and that the specific criminal law provisions of the Internal Revenue Code should form the focus of prosecutions when essentially tax law violation motives are involved, even though other crimes may technically have been committed.” United States Attorneys’ Manual, § 6–4.210.
- The effect of the Guidelines and Justice Department policy on tax offenders has been drastic. The Sentencing Commission indicated that while prior to the implementation of the Guidelines 57-percent of tax offenders received probation, the effect of the Guidelines should be that only three-percent of all tax offenders will avoid serving a prison sentence. In addition, the Tax Division of the Justice Department has stated that “the payment of the civil tax liability, plus a fine and suspended sentence, does not constitute a satisfactory disposition of a criminal case.” U.S. Attorneys’ Manual § 6–4.340. The result is that it is almost inevitable that a person who pleads guilty or is convicted of a tax crime will receive a prison sentence. Moreover, because the Government will almost inevitably seek civil penalties after the criminal phase of the case is completed, the additional fines and penalties could result in financial ruin in many cases.
- makes it a felony to willfully attempt to evade or defeat any tax or the payment of any tax. The exact statutory language is as follows:
- include individuals, partners, corporate officers and employees, and corporations, and conviction is possible even if the tax evaded is not the defendant’s tax. In other words, a person can be convicted under this provision for knowingly allowing another party to evade tax.
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Chapter 9. Remedies to Absolve the Harshness of the Statute of Limitations on Assessments and Claims for Refund 13 results (showing 5 best matches)
- In 2006, Congress resolved the longstanding question of whether the Tax Court has jurisdiction to apply equitable doctrines like recoupment. Section 6214(b) provides that the Tax Court may apply equitable recoupment to the same extent that it may be applied in the federal district courts and the U.S. Court of Federal Claims. The Tax Court has held that it may apply equitable recoupment over any tax imposed, whether or not it has jurisdiction over that tax, provided it has jurisdiction over the redetermination of the deficiency and the requirements of recoupment are met.
- , denied mitigation relief in a case involving a dispute over stock valuation. The stock was valued in 1974 for estate tax purposes at $215 per share, but the Commissioner asserted a higher value. The executor petitioned the Tax Court to resolve the dispute. In 1975, the corporation was liquidated, and the recipient of the stock, the decedent’s son, reported his taxable gain using the $215 basis established by the estate tax return. In 1980, the Tax Court ruled that the stock’s basis was $280 per share. The son then filed a refund claim to recover the overpayment from his 1975 return, asserting that the basis he had used to compute his taxable gain had been determined to be erroneous by the Tax Court’s 1980 decision. But the court denied relief, ruling that § 1312(7)(A) ...the son, which was the basis-determining transaction, but instead had occurred “in respect of” the subsequent liquidation of the corporation. The court further held that because the son was not a party to the Tax...
- , in which the administrator of an estate filed a refund suit against the IRS to recover an alleged overpayment. The estate initially had filed a return claiming a deduction for attorney’s fees and state inheritance taxes it had paid. Several years later, the return was audited, and the Commissioner disallowed all deductions, except the attorney’s fees, and assessed a deficiency. The estate paid the deficiency and then filed a claim for refund of this amount. The Commissioner conceded the substance of the estate’s argument, that the denial of the state inheritance taxes had been improper, but he also stated that the attorney’s fees had been improperly allowed. Although the statute of limitations for assessment had run, the Commissioner denied the estate’s claim on the ground that the amount of the attorney’s fees exceeded the amount of the inheritance tax deduction; therefore, there was no overpayment.
- . These provisions are quite technical, but they have a simple goal: to permit either a taxpayer or the Government to take a qualified “peek” into a time-barred year in order to use an inconsistent position to setoff or increase the current tax liability. In other words, if there is an adjustment to an item on a return in a current year that is inconsistent with the treatment of that item in an earlier year, the mitigation provisions allow the earlier year to be opened to adjust the treatment of the earlier item to make it consistent with the current treatment. The effect of the adjustment, however, occurs in the current year. These provisions can be used either by taxpayers (to decrease their current tax liability) or by the IRS (to increase the taxpayer’s current tax liability). In either case, the party seeking mitigation must show that the other party took a position in an open year that is inconsistent with the position taken by that party in a now-closed year.
- Most courts and commentators have concluded that the statutory mitigation rules apply only to income taxes, , but some courts have applied the rules outside the income tax context. . It is clear, however, that the mitigation provisions do not apply to employment taxes.
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Chapter 19. Defenses to Criminal Charges 21 results (showing 5 best matches)
- Tax protestors present a difficult problem in this context. One who fails to file or who files a false return is not shielded from conviction merely because she disagrees with the tax laws or believes they are unconstitutional or bad public policy. Failure to comply with the law based on a disagreement with it does not negate willfulness. Typical arguments raised by tax protestors are that the income tax is unconstitutional and that wages are not taxable income. Given the litany of cases in which the constitutionality of the income tax system has been upheld and the notion that wages are not taxable income flatly rejected, some courts imposed a reasonableness test on the good faith mistake of law defense, requiring the jury to reject the defense unless the defendant’s belief was reasonable.
- was convicted of tax evasion for failing to report income received from the sale of her rare blood plasma. Although the medical procedures involved in extracting the plasma were “accompanied by pain and discomfort and carry the risks of hepatitis and blood clotting,” the defendant had undergone the painful procedures up to six times per month during the years in question and had allegedly received more than $70,000 per year for her plasma. The company that bought her plasma also paid her a weekly salary of $200, withheld taxes on it, and furnished her a Form W-2 reflecting the taxes withheld. Mrs. Garber duly reported the salary as income each year and paid taxes on it. But since the company did not treat the payments for the plasma itself as wages and thus did not withhold taxes on these payments, Mrs. Garber did not pay any tax on them.
- The defense also presents other problems. For instance, in order to use the defense, the defendant will have to waive the attorney/client privilege or the federally authorized tax practitioner privilege. ( ). In addition, the defense may create a conflict between the defendant and her tax advisor, because the tax advisor also may be
- Not surprisingly, the personal and professional characteristics of a defendant may influence juries’ findings of willfulness. For example, an experienced tax lawyer or accountant who claims a good faith misunderstanding of the tax law, particularly if the question at issue is not novel or unsettled, stands less chance of being believed than someone who is generally unfamiliar with the complexities of the tax law. Similarly, juries may have a hard time believing an experienced businessman or college graduate who claims not to have known that tax returns must be filed. But simply being a lawyer or other professional does not necessarily ensure conviction. In a now-famous case, the Fifth Circuit took judicial notice “that most lawyers have only scant knowledge of the tax laws.”
- Grave penalties rest in this case on an unsubstantiated theory of tax law * * *. Whatever eventual success this proposition may enjoy as an interpretation of tax law—a destiny we do not influence here—present authority in support of the theory is far too tenuous and competing interpretations of the applicable law far too reasonable to justify these convictions.
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Chapter 6. Further Compliance: Audits and Administrative Appeals 25 results (showing 5 best matches)
- When the examiner has completed the examination of a return, she must explain any proposed adjustments to the taxpayer. If the taxpayer agrees with the proposed adjustments, she will be asked to sign a form (usually a Form 4549, “Income Tax Examination Changes,” or a Form 870, “Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment”), which will prevent her from challenging any deficiency in the Tax Court. Although execution of the form will not prohibit the taxpayer from having to pay the tax, she may file a claim for refund in the federal district court. Thus, a written consent to the proposed adjustments will not bar later refund litigation if the refund claim is denied by the IRS, but it will bar a Tax Court suit. Adjustments agreed to by the taxpayer after an office audit are usually reflected in a Form 1902-E (“Report of Individual Income Tax Audit Changes”), which does not prevent litigation of the deficiency in the Tax Court...
- The effect of executing a Form 870 (or Form 890 for estate or gift tax disputes) is to waive the statutory notice of deficiency (the “90-day letter”— ) and to consent to an immediate assessment and collection of the tax. . A taxpayer who signs a Form 870 may not litigate the tax deficiency in the Tax Court, but she may sue for a refund after paying the tax and filing a refund claim that is rejected by the IRS. Importantly, the IRS later may assess additional deficiencies for the same tax year covered by the Form 870.
- “Office audits” occur in an IRS office and are conducted by “tax auditors.” Typically, the scope of the office audit is restricted to specific “significant items” identified during the screening process. If a tax auditor uncovers significant items that were not previously detected, the scope of the audit can be expanded. More complex cases are handled as “field audits” by “revenue agents,” who are not restricted in the scope of the audit to identified significant items. Revenue agents are generally more highly educated and experienced than tax auditors; thus, they handle more complex cases. In a field audit, the revenue agent examines the taxpayer’s books and records, usually at the taxpayer’s home, business premises, or tax professional’s office.
- discussion, Chapter 7. The taxpayer then will have 90 days in which to pay the tax or file a Tax Court petition.
- Due to budgetary limitations, only a tiny minority of income tax returns are audited thoroughly. For instance, during the 1990’s, only about one-percent or less of all individual income tax returns were audited. It is also obvious that the greater the amount of income, the greater the likelihood of audit. For individuals, the chance of being audited more than doubles if the person’s income is over $100,000, and the odds increase as the income level rises. But even so, currently only about two-percent of all such returns are audited, although this number varies widely depending upon how the term “audit” is defined.
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Chapter 16. Criminal Investigations 28 results (showing 5 best matches)
- The Tax Relief and Health Care Act of 2006 modified and enhanced the awards program under new § 7623(b) . First, it created a Whistleblower Office within the IRS to handle informant claims that (1) relate to a tax noncompliance matter in which tax, penalties, interest and other additions to tax exceed $2 million or (2) relate to any taxpayer, except individual taxpayers are eligible only if their gross income exceeds $200,000 for at least one of the tax years in question. Second, the payment of an award is determined by the Whistleblower Office and if the informant provides information that leads to any judicial or administrative action, the individual will receive an award based on the amounts collected. Thus, the award is less dependent upon the discretion of the IRS after the 2006 amendments. Third, the amount of the award was raised to a minimum of 15-percent and a maximum of 30-percent of the amount of tax, penalties, interest, and fines paid to the Government as a result of the...
- Amount of Tax Involved
- Plea negotiations can occur at the Justice Department conference, except in cases being investigated by a grand jury. There is also the possibility of more than one conference and for the potential appearance of the taxpayer or a witness at the conference. According to the official Tax Division Directive issued in 1986, “[w]hile it is the function of the Tax Division to carefully review the facts, circumstances, and law of each criminal tax case as expeditiously as possible, the taxpayer should be given a reasonable opportunity to present his/her case at a conference before the Tax Division.” Tax Div. Directive 86–58, May 14, 1986.
- The factors considered significant by the Tax Division do not always coincide with the factors considered significant by the CID and the Chief Counsel. For example, the Justice Department generally will not decline to prosecute on the basis of the taxpayer’s poor health. Tax Division attorneys are directed to recommend prosecution if the attorney “believes the person’s conduct constitutes a Federal offense and that the admissible evidence is sufficient to obtain and sustain a conviction . . . .” U.S. Attorneys’ Manual § 9–27.220. The Government’s success rate in prosecuting tax crimes is very high, but its collection and enforcement activities have shrunk in the wake of devastating budget cuts. This is good news for wealthy tax cheats but bad news for the integrity of the tax system.
- Thus far, discussion has focused almost exclusively on civil liabilities under the Code. This chapter and those that follow focus on criminal investigations and prosecutions for tax offenses, but in reality, the distinction between civil fraud and criminal tax evasion remains murky.
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Chapter 5. Federal Tax Returns and Compliance 9 results (showing 5 best matches)
- All taxpayers must prepare (or have a professional prepare) and file federal income tax returns on which they must disclose and reconcile their annual financial transactions, determine their tax liability, and pay amounts due by certain dates. For the fiscal year 2020, there were around 240 million federal returns filed (a decrease of around 13 million returns since fiscal year 2019), of which over 189.5 million were income tax returns. In order to properly administer the internal revenue laws, the IRS must ensure that these returns adhere to a uniform standard.
- Electronic filing involves the transmission of tax returns or return information to the IRS via personal computer or through a tax professional. When the IRS receives the transmission, it processes and stores the information.
- An individual taxpayer may obtain an automatic six-month extension of time to file a federal income tax return by filing a Form 4868 (Request For Automatic Extension of Time to File U.S. Individual Income Tax Return). The form must be filed on or by the original due date of the return. Since an automatic extension of time to file does not extend the time to pay the tax, the taxpayer must estimate the amount of any remaining tax and must remit that amount with the Form 4868 to avoid penalties and interest. Special rules apply if the taxpayer is out of the country or in a combat zone.
- Payments of income tax are due quarterly and are paid either through employer withholding on wages of employees or through estimated tax payments on amounts that are not subject to withholding. The obligation to pay the tax liability is separate and distinct from the obligation to file a return. Thus, an automatic extension of time to file the return does not confer an automatic extension of time to pay. Instead, the tax must be estimated and any remaining liability must be paid at the time the Form 4868 is filed, unless the taxpayer has obtained a separate extension of time to pay. Such an extension may be granted for up to six months in the case of an income tax return, but it is not automatic. Instead, the taxpayer must make a showing of undue hardship. Such a showing is twofold: (1) the taxpayer must establish that the deficiency is not due to any fault of her own (i.e., negligence, intentional disregard of rules and regulations, or fraud) ( ...amount of the tax, she may submit...
- offset any or all of the refund because of amounts owed the government, the taxpayer remained liable to the ERO for the amount of the loan that was not repaid through the refund. Consumer advocates called RALs “highly predatory,” particularly for low-income taxpayers. In 2010, the IRS announced that it would no longer issue debt indicators to indicate whether taxpayers owed back taxes or other amounts. This was a major blow to the RAL industry, since it relied on the debt indicators to determine whether a filer was eligible for an RAL. Banks ceased to offer RALs after this, and in 2012, they disappeared altogether, to be replaced with the refund anticipation check (RAC). The RAC is an account established for the purpose of depositing an IRS refund. The IRS directly deposits the refund into the account and the bank then issues a pre-paid credit card or check to the taxpayer, less the amount of the tax preparation fee. The bank typically charges between $25 and $60 to set up an...
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Chapter 17. IRS Investigatory Powers and Techniques 22 results (showing 5 best matches)
- Widespread use of alleged “churches” as tax shelter devices prompted Congress to enact special legislation governing the sensitive problem of IRS summons authority for church records. Section 7611 provides special rules for any “church tax inquiry” (an investigation to determine whether the alleged church in fact qualifies for tax-exempt status) and for audits of churches. In general, § 7611 requires approval of a high-level Treasury official for any “church tax inquiry” and the IRS must furnish prior written notice to the church before any inquiry or audit explaining in detail the nature and purpose of the inquiry and the church’s rights.
- The Fifth Amendment prohibits prosecution of a felony charge without an indictment, unless the indictment is waived. Thus, a federal grand jury will be involved at some point in almost every criminal tax investigation. The grand jury can become involved either after the Justice Department has reviewed the case and concluded that prosecution is warranted without further investigation or the Justice Department can turn the case over to the grand jury for further investigation. According to the (11-5-2004). In addition, investigations of non-tax crimes can be expanded to include tax investigations if evidence of a tax crime is discovered.
- To equip the IRS to carry out its mission of enforcing the tax laws, Congress has given it enormous investigatory powers, chief of which is the summons power contained in (9-3-2020). Moreover, case law reveals that IRS agents have posed as clients of return preparers and tax shelter promoters suspected of fraud, as well as prospective buyers of businesses. These guises are probably only a fraction of the “covers” actually utilized. Grand jury investigations, and the reasons why they are increasingly utilized in tax cases, are discussed in § 17.2,
- The Supreme Court has indicated that the Fifth Amendment privilege may be validly asserted on a tax return if asserted against specific disclosures, ( the taxpayer responded to more than 25 questions with the words “Object: Self-Incrimination.” The Government argued that the form Neff filed did not constitute a valid tax return and the Ninth Circuit agreed. The Fifth Amendment also may not be asserted to avoid incrimination for a past violation of the income tax laws.
- to determine the liability of any person for any internal revenue tax;
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Index 75 results (showing 5 best matches)
Chapter 4. Disclosure of IRS Materials and Confidentiality of Return Information 16 results (showing 5 best matches)
- The tension between the citizens’ desire for privacy and their simultaneous demand for access to Government information is more acute in the tax area than perhaps any other. Because the federal tax system is based on voluntary compliance, the Government must foster compliance by assuring citizens that information reported by them will remain private. Tax returns contain a wealth of information that many individuals and businesses might not furnish if not assured of confidentiality. On the other hand, the principle that secrecy breeds misconduct is reflected in numerous state and federal laws ensuring public access to Government records. This chapter discusses the principal laws governing confidentiality of tax return information and mandatory disclosure of IRS documents and records.
- When it enacted the Privacy Act, Congress created a special commission to determine the types of safeguards that should be enacted for federal tax return information. The commission recommended that tax return information be more carefully protected than the Privacy Act guidelines required,
- Prior to 1976, federal tax returns and return information were treated as Government property and were routinely divulged by the IRS to other Government agencies. Spurred by the commission’s recommendations and by testimony confirming numerous Watergate-era incidents involving the Nixon administration’s use of tax return information in ordering audits for political purposes, Congress amended to the Code as part of the Tax Reform Act of 1976.
- Federal agencies and departments may use tax return information for purposes other than tax administration. These include the Social Security Administration and the Railroad Retirement Board, the Department of Labor, and the Pension Benefit Guaranty Corporation, etc. In addition, certain state agencies may receive return information for purposes of administering federal programs such as federal unemployment compensation, Medicare and Medicaid, and need-based school lunch programs. IRC § 6103(
- , described in number 5 above. The courts are currently split on the following question: once return information is disclosed in a judicial proceeding, does it lose its confidentiality and thereby become publicly disclosable by Government employees? In a 1988 decision, the Ninth Circuit condoned the issuance of press releases by the IRS and U.S. Attorneys announcing an investigation and an injunction action against several taxpayers to prohibit the promotion and sale of abusive tax would hamper the Government’s ability to publicize its tax law prosecutions and that court records are public, and any member of the public is free to inspect them. could have a chilling effect on taxpayers considering litigation with the IRS, because it specifically upheld the release of tax return information of taxpayers who were involved in civil injunction proceedings initiated by the Government. This would permit the IRS to publicize any civil tax dispute before it has reached the litigation phase.
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Chapter 8. Overpayments: Administrative Refunds 9 results (showing 5 best matches)
- An overpayment of tax is simply the excess of the amount of tax paid over the amount owed. Before an overpayment can arise, there first must be a payment of tax. Occasionally, there may be a question as to whether a remittance is a payment or a deposit. Under some circumstances, a taxpayer may make a deposit against the tax owed in order to stop the running of interest. The issue of whether a remittance constitutes a payment or a deposit is an important one, because the two-year statute of limitations on refund claims runs from the date the tax is paid (
- Once a tax has been assessed and collected, the IRS has no authority to refund or credit the amount of any overpayment (except in the case of a math error on the return) unless the taxpayer files a claim for refund. IRC § 6511(b)(1) . Claims for refund of taxes overpaid for the current year are made routinely by individuals on their Forms 1040. Claims for refund of income taxes overpaid in previous years are made by individuals on Form 1040X and by corporations on Form 1120X. All claims for refund of taxes, other than income taxes, must be made on Form 843. Claims for refund of taxes overpaid in previous years must “set forth in detail each ground on which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof.” Reg. § 301.6402–2(b)(1)
- Refund claims are filed with the IRS processing center in the region in which the tax was paid. A separate claim must be filed for each taxable year and for each type of tax. The taxpayer bears the burden of establishing that the claim was timely made. Under § 6402(a), the IRS will refund or credit the amount of an overpayment to the person who made the overpayment. Refund claims generally are nonassignable. But in , the U.S. Supreme Court held that a third-party taxpayer who paid the tax in order to remove a lien against her property was entitled to the refund, even though she was not the party against whom the tax was assessed. The Court did not decide the extent to which a party who volunteers to pay a tax assessed against someone else is entitled to seek a refund of the overpayment. The ...may obtain a certificate of discharge of tax lien against her property. To obtain the remedy, the third party must either post a bond or deposit an amount of money equal to the Government’s...tax
- The IRS processing center generally will process and refund (or credit against an existing tax liability) any claimed overpayment for the current tax year prior to any audit or other action, but claims for refund of taxes overpaid in previous years are usually examined by the Compliance Team of the Operating Division. If the Government either denies the claim for refund by issuing a statutory notice of claim disallowance under
- To illustrate: A taxpayer mails her 2019 tax return on April 15, 2020 and it is received by the IRS on April 19, 2020. The return reflects a total tax liability of $8,000, which was paid by withholding from her wages. On March 1, 2022, a deficiency of an additional $2,000 plus interest is assessed, and on May 1, 2022, the taxpayer pays the deficiency. The taxpayer’s return was deemed filed on April 15, 2020, the return’s due date, because it was postmarked on that date. ...that any of the total $10,000 tax plus interest that she paid is actually an overpayment, she may file a refund claim on or before April 15, 2023 (three years from the date the return was filed). If she does not file the claim within that period, she may file on or before May 1, 2024 (two years from the date she paid the assessed deficiency). Although a refund claim filed between April 16, 2023 and May 1, 2024 will be a timely claim, the amount of the refund is limited to the amount the taxpayer paid within the...
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Outline 21 results (showing 5 best matches)
Chapter 2. The Administrative Power of the IRS 27 results (showing 5 best matches)
- was not a tax regulation, and in subsequent cases the Supreme Court sent mixed messages about whether deference applied to tax interpretive regulations. This resulted in considerable debate over whether deference, while the Fifth, Eighth and Tenth Circuits, as well as the Federal Circuit, held that such deference did not apply to interpretive regulations. The Tax Court took the position that there was no distinction between the standard, because both focused on the reasonableness of the agency’s interpretation. In fact, the Tax Court held that “deference only establishes the framework for judicial analysis; it does not displace it.” deference no longer applied to tax regulations.
- . Rulings adverse to the Government on tax issues in any federal court, including the Tax Court, trigger the preparation of an “action on decision” (“AOD”) memorandum (published in the I.R.B.) explaining why the Government should or should not appeal. AODs are not an affirmative IRS statement of position. They are prepared by lawyers in the Office of the Associate Chief Counsel (Litigation) and are intended for internal use by IRS personnel in cases with similar issues. AODs are available to the public under the FOIA, and like letter rulings, they are published by commercial publishers, but they may not be relied upon by the public as precedent. If the IRS decides to alter its position to accept an adverse court ruling, it may issue an acquiescence (“acq.”), which means that it agrees with the result, but it does not necessarily mean that it agrees with the underlying rationale of the holding. If the IRS disagrees with some or all of the underlying rationale, it may issue an...
- Back in 1957, the United States Supreme Court upheld a retroactive revocation of a determination letter granting tax-exempt status to an organization, ruling that the IRS may correct a mistake of law retroactively unless retroactive revocation amounts to an abuse of discretion. . The Court distinguished a case decided the previous year by the Third Circuit, which had nullified a retroactive revocation of a tax-exempt status determination. Circuit found the action to be an abuse of discretion because the organization had disclosed all material facts to the IRS when it applied for tax-exempt status, and the effect of the retroactive revocation would have made the organization “liable for a tax bill so large as to wipe it out of existence.” As these cases illustrate, whether retroactive revocation amounts to an abuse of discretion depends upon the particular facts involved, including the harshness of the result to the taxpayer under the circumstances.
- Both legislative and interpretive regulations are cited according to the specific tax provision they implement. These citations are preceded by a “1.” For
- Rulings issued by the IRS have less precedential value than the “rules” or “regulations” discussed in the preceding section. The IRS issues two basic types of “rulings”: revenue rulings and letter rulings (usually called “private letter rulings” or “PLRs”). In the hierarchy of tax statements of position, revenue rulings are lower in judicial deference value than regulations but higher than letter rulings. The IRS also issues other types of statements of position, such as revenue procedures and determination letters, which are discussed at § 2.2.C, . The IRS rulings program has become increasingly important as the tax laws have become more complex and more frequently amended. Particularly in business
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Table of Tax Court Rules 9 results (showing 5 best matches)
- Publication Date: May 19th, 2022
- ISBN: 9781685612115
- Subject: Taxation
- Series: Nutshells
- Type: Overviews
- Description: The Sixth Edition of Tax Procedure and Tax Fraud in a Nutshell is designed to acquaint students with the theoretical and practical aspects of tax practice, from administrative or civil actions involving the Internal Revenue Service to criminal prosecutions brought by the Department of Justice. Specific coverage includes IRS and treasury rulemaking; IRS confidentiality and disclosure; ethical issues of tax practice; civil audits and administrative appeals; assessment issues; the collection process; civil and criminal penalties; statutes of limitations; civil litigation considerations in the various tax forums; civil and criminal IRS investigations; and tax crimes and prosecution.