A Fine Distinction: When A Temporary Regulation Is No Longer Temporary.

The IRS churns out regulations every year. When it does so it generally uses the notice and comment procedure prescribed by the Administrative Procedure Act. At times, however, it has to issue regulations immediately, as when new tax legislation is passed. In these cases, it resorts to temporary regulations. Sometimes these “temporary” regulations take up quasi-permanent status. In other instances, they may be incorporated into final regulations that are adopted through normal APA procedures.

Last Friday, the D.C. Circuit issued an opinion that turned on a very fine distinction: the difference between a temporary regulation standing on its own and a temporary regulation that had been incorporated into a final regulation.… Read More

Win By Losing: The Weird World of Tax Court Jurisdiction.

In the world of tax law, much is counter-intuitive. As a long-time litigator, my personal favorite is when the taxpayer moves to dismiss his own case for lack of subject matter jurisdiction. Tax being tax, this move actually makes sense. A recent case from the D.C. Circuit, Edwards v. Commissioner, 2015 U.S. App. LEXIS 10323 (D.C. Cir. June 19, 2015), illustrates the point.

The taxpayers, Lisa Edwards and Joseph Thomas, were audited by the IRS in 2009, a process that resulted in significant additional tax liability. Then it got messy: the IRS claims it sent the taxpayers a notice of deficiency in March of 2010, but the taxpayers apparently did not receive it.… Read More

Collection Due Process Triggers Tax Court Review of Section 6707A Penalties.

Section 6707A imposes significant penalties for the failure to report on the taxpayer’s return any listed or reportable transactions, which are transactions that the IRS has determined are tax shelters. The penalty is significant, seventy-five percent of the tax reduction associated with the undisclosed tax shelter. I.R.C. § 6707A(b)(1).

To make matters worse, the Tax Court has ruled that it does not have jurisdiction to redetermine the penalty because it does not fit the definition of a deficiency and can be assessed and collected without a notice of deficiency. Smith v. Comm’r, 133 T.C. 424, 429 (2009).

Recently, the court addressed another method of invoking its jurisdiction: a petition following a collection due process hearing.… Read More

Tax Court Jurisdiction Reaches A Dispute Over Foreign Tax Credits.

U.S. taxpayers receive a credit for foreign taxes under Section 903 of the Internal Revenue Code. If the taxpayer subsequently receives a refund of foreign taxes, under Section 905, she is supposed to notify the IRS, which will then adjust the tax determination. The resulting adjusted tax is then payable on notice and demand. I.R.C. § 905(c)(1), (3). This means that the normal deficiency procedure is bypassed.

On Monday, the Tax Court issued an interesting opinion dealing with its jurisdiction over a disputed adjustment to foreign tax credits. Sotiropoulus v. Comm’r, 2014 U.S. Tax Ct. LEXIS 16 (May 5, 2014). Here, the taxpayer was employed in London and her employer withheld taxes from her pay.… Read More