Accounting 432/732 Outline—Chapter 1
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Chapter 7Notice of Deficiency Omit Greenberg’s Express Inc. 62 TC 324 (1974) (pp 331-335), Achiro 77 TC 881 (1981) (pp 340-344), Nicholson TCM 93-183 (pp. 344-346), Mitchell 250 F3d 696 (2001) (pp. 346-350) Williams, 935 F2d 1066 (1991) (pp 351-353), Mulvania 769 F 2d 1376 (CA-9, 1985), (pp 353-357), Scar 814 F 2d 1363 (CA-9, 1987) (pp 358-370) § 7.01 Introduction Introductory Comments Most tax litigation begins with the letter from the IRS known as a “notice of deficiency” Review Sample Notice of Deficiency shown on pages 326 and 327. Do Problem 7-1
First, it is an indispensable prerequisite to Tax Court subject matter jurisdiction, the Tax Court’s authority over the case, the taxpayer’s “ticket to the Tax Court”. Second the notice informs the taxpayer of the IRS legal claim, and if the case is docketed, part of the tax court pleadings. Notice of Deficiency and the Burden of Proof The notice of deficiency traditionally has benefited from a presumption of correctness. Effectively that has meant that the taxpayer bore the burden of going forward with evidence to rebut the IRS determination. The taxpayer who fails to shift the burden of proof under § 7491 likely remains subject to this provision: § 7491 (a) generally provides that the burden of proof with respect to a factual issue shifts from the taxpayer to the IRS where the taxpayer meets five requirements:
“Arbitrary and Erroneous” Notices of Deficiency If a notice’s determination is based on alleged unreported income, the taxpayer’s situation is analogous to a “naked assessment” he would have to prove non-receipt of income. Anastasato 794 F2d 884 (CA-3, 1986) Did the court recognize the Commissioner’s deficiency determination is entitled to the presumption of correctness? Did the taxpayer rebut the presumption by showing it was arbitrary and erroneous? What did the Court of Appeals order the Tax Court to do? Review--Farmington 1099 case. The Role of the Notice of Deficiency and in the Burden of Persuasion Tax Court Rule 142 (a)(1) The burden of proof shall be upon the petitioner except as otherwise provided by statute or determined by the Court; and except that in respect of any new matter, increases in deficiency and affirmative defenses pleaded in the answer it shall be upon the respondent. Under this rule the IRS must avoid having late-raised issued characterized as “new matter”. Proper drafting of the notice of deficiency or possible issuing a second notice may avoid the problem. Do Problem 7-2 Invalid Notices of Deficiency § 6212 (b)(1) “In the absence of notice to the Secretary…of the existence of a fiduciary relationship, notice of deficiency in respect of a tax……………….if mailed to the taxpayer at his last known address, shall be sufficient for purposes subtitle A…………and this chapter even if such taxpayer is deceased, or is under a legal disability, or in the case of a corporation has terminated its existence. Notices are particularly susceptible to invalidation for failure to meet the “last know address” criterion of § 6212 (b). The last known address is a safe harbor, a substitute for actual notice to the taxpayer. In January, 2001, the Treasury promulgated regulations regarding the “last known address rules under § 6212. Under the regulations the general rule remains that a taxpayers last known address is the one shown on his most recently filed tax return, unless the taxpayer has provided the IRS with “clear and concise notification of a different address.” Revenue Procedure 2001-18 provides that notification may be provided on a properly completed Form 8222. The Revenue Procedure also provides that a return showing a new address normally will be processed after a 45 day processing period. If the taxpayer’s name and last known address in the IRS’s records match the taxpayer’s name and prior mailing address in the Postal Service database, the new address in the postal database is deemed to be the taxpayer’s last known address absent “clear and concise notification” to the IRS of a new address. Do Problem 7-4 Invalidating a Notice of Deficiency for IRS Failure to Make a “Determination” In Scar 814 F 2d 1363 (CA-9, 1987) the Court held that failure to make a thoughtful determination invalidates a notice of deficiency. Portilillo 932 F 2d 1128 (CA-5, 1991) raised the Scar issue. Describe briefly the facts and proceedings in the case. What was the nature of Portillo’s argument that the IRS failed to make a determination? What was the IRS position? How did this case relate to the findings in Scar? What condition did the Court impose on the Commissioner before giving him the benefit of the presumption of correctness? Did the Commissioner prevail and what was the Court’s conclusion?
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