Monthly Archives: May 2022

According to Procedurally Taxing, in Golden v. United States (In re Golden), Bankr. E.D. Cal. Adv. Proc. No. 21‑2012, Docket No. 60 (Golden), the taxpayer‑debtors Nicole Golden and Stephen Alter (the Taxpayers) argued successfully that their return was an honest and reasonable attempt to satisfy the requirements of the tax law.  

The bankruptcy court discharged their tax obligation even though the Taxpayers had filed their return after the IRS initiated the substitute‑for‑return process, issued a notice of deficiency (NOD), and assessed tax based on the NOD.  (Hereinafter - SFR assessment)

Golden marked only the second time a court using a subjective‑test analysis discharged tax due on a return filed after an SFR assessment (and was not reversed on appeal).  

Golden also extended the IRS’ streak of unsuccessfully arguing that the tax due on a document filed after an SFR assessment is per se nondischargeable.

At Golden p.20‑21, the Court explained why it thought the Taxpayers had made an honest and reasonable attempt to comply with the tax law. 

• The Taxpayers did not “belatedly” accept responsibility for filing a return, and they did not “attempt to present inaccurate or fabricated information.”
• Taxpayers “provided solid and accurate information” to the IRS.  Taxpayers used the “assistance of a tax professional” to present accurate information.
• Taxpayers did not try to “walk away” from the debt.  They spent five years in “bankruptcy purgatory” in order to obtain a discharge.
• The Taxpayers’ “corrective actions were not merely filing a ‘me too’” 2008 return that “parroted the assessed tax” with a goal of two years later filing for bankruptcy and asserting the tax debt should be discharged.
• The IRS presented “no identifiable bad faith reason for the failure to file” the 2008 return sooner.
• Although “beset” with financial and marital problems, the Taxpayers acted properly to substantially pay their tax obligations.

Without discussion, the Court rejected the per se rule.  Golden at p.3 (where the government argument is set forth) and p.19 (where the Court makes clear that the Hatton rule applies; the Court looked at the totality of circumstances to determine whether the Taxpayers acted honestly and reasonably in the filing of their return).

Read more at: Tax Times blog

According to Law360, a woman whose ex-husband owes nearly $5 million in taxes can't get spouse relief from his liabilities, as the U.S. Tax Court found on May 5, 2022 that the IRS' lead attorney can deny her relief despite another agency office's contradictory recommendation.

Michelle DelPonte isn't entitled to innocent spouse relief for the liabilities owed by her ex-husband, William Goddard, an attorney who earned large sums of money from selling tax avoidance schemes but ended up owing the Internal Revenue Service after hiding his income, the Tax Court said in Michelle DelPonte v. Commissioner of Internal Revenue, docket numbers 1144-05, 1334-06, 20679-09, 20680-09 and 20681-09, in the U.S. Tax Court.

Read more at: Tax Times blog

Staffing challenges at the IRS continue to hurt its ability to sort through 8.4 million unprocessed returns, a backlog that has only worsened since years prior, according to TIGTA in a report released on May 2, 2022, analyzing this year's filing season.

During Calendar Year 2022, the IRS expects to receive 160.7 million individual incometax returns. 

As of March 4, 2022, the IRS received 54.7 million tax returns, of which 53.2 million (97.2 percent) were electronically filed. Refunds totaling $129.2 billion have been issued. As of March 4, 2022, 1.2 million Free File returns were received, which is a 30.3 percent decrease as of the same period last year.

However, significant staffing shortages continue to hamper the IRS’s efforts to address backlog inventories and affect the IRS’s ability to ensure that currentyear tax returns are processed timely. 

More Than 8.4 Million Individual Tax Returns and Transactions Remained To Be Processed
as of the End Of Calendar Year 2021.

In addition, more than 8 million cases remained in Accounts Management. This represents a 33 percentincrease in the number of unprocessed tax returns and a 61 percent increase in the number of amended tax returns that remained to be processed.

• As of March 15, 2022, the IRS onboarded 521 Submission Processing employees, which is 9.5 percent of its hiring goal of 5,473. 
• The IRS also continuesto experience shortfalls in hiring in the functional area responsible for providing taxpayer tax account assistance. 
• For example, as of March 17, 2022, the IRS onboarded 3,827 Accounts Management employees, which is 76.5 percent of its hiring goal of 5,000 for the 2022 Filing Season.

The IRS continues to offer self-assistance options that taxpayers can access at any time, including its IRS2Go app, YouTube videos, and interactive self-help tools on IRS.gov. In addition, the IRS offers Instagram, Twitter, and Facebook. 

As of March 4, 2022, taxpayers made 35.9 million total attempts to contact the IRS by calling the various customerservice toll-free telephoneassistance lines. 

The IRS reports that 

• 7.4 million calls were answered with automation, and 
• telephone assistors answered 2.7 millioncalls and 
• provideda 19.5 percent Level of Servicewith a 24-minute Average Speed of  Answer.

Read more at: Tax Times blog

We previously posted on July 22, 2021 that the Increased Willful FBAR Statutory Penalty Overrides Prior Regulations Maximum $100,000 Per Account Penalty, where we discussed that a DC Magistrate Ruled That Willful FBAR Regulations are Invalid, where we discussed that on July 31, 2018 in Norman v. United States, Ct. Fed. Cl. Dkt 15-872, the Court held that the taxpayer Norman was liable for the FBAR willful penalty and this Court rejected the Colliot holding that the FBAR willful penalty was limited to a maximum of $100,000, because the regulations had not been changed to reflect the statutory amendment increasing the maximum FBAR willful penalty and that another DC court has also rejected Colliot & Wadhan and concluded that the Willful FBAR Penalty Not Limited to $100,000 in Rum, (DC FL 8/2/2019) 124 AFTR 2d ¶2019-5113.

Now according to Law360, the 1st Circ. Affirms that there is no $100,000 annual Cap on woman's $3.1M FBAR Penalty and when Congress passed the 2004 amendment "to permit the IRS to impose a penalty in excess of $100,000, the 1987 regulation was superseded because the regulation, as merely a regulation parroting a then-operative statutory maximum, could have no effect once a new statutory maximum had been set," the opinion said.

The IRS Can Collect $3.1 Million For A Woman's Failure To Disclose Her Swiss Account After The First Circuit Joined Other Appeals Courts Friday In Rejecting Assertions That A 1987 Regulation Is Active And Caps Her Penalty At $100,000.

A Massachusetts federal court correctly affirmed the $3.1 million penalties and interest initially assessed by the Internal Revenue Service against Monica Toth for her failure to disclose her Swiss bank account for 2007, the First Circuit said in a unanimous, published opinion. It rejected her argument that a 1987 regulation from the U.S. Department of the Treasury that had capped the penalty amount is still valid, saying a 2004 statutory amendment increased the maximum penalty and takes priority over the decades-old regulation.

When Congress passed the 2004 amendment "to permit the IRS to impose a penalty in excess of $100,000, the 1987 regulation was superseded because the regulation, as merely a regulation parroting a then-operative statutory maximum, could have no effect once a new statutory maximum had been set," the opinion said.

Toth didn't comply with deadlines in those proceedings or with discovery requests and was sanctioned by the court, filings said. It eventually determined that the 2004 amendment to increase the amount of penalties for violating the foreign bank account reporting requirements, created by the Bank Secrecy Act was in effect, rather than that 1987 regulation capping the willful penalty for failing to file a report of foreign bank account, or FBAR.

That 2004 amendment increased the maximum penalty to $100,000 or half of the value of the bank account, whichever is greater, according to filings. The agency's initial $2.1 million assessment was half of the $4.3 million balance of her UBS account when she committed the FBAR violation, according to filings.

The First Circuit on Friday affirmed that penalty, finding that the 1987 regulation was "clarifying rather than substantive," meaning the rule wasn't intended to depart from whatever Congress intended to be the maximum penalty at any given point in time, according to its opinion. The rule was instead intended to replicate whatever Congress intended the penalty to be, the appeals court said.

The First Circuit also cited a recent Second Circuit decision that also found the 1987 regulation was no longer in effect, saying that Treasury didn't even have the authority to issue a regulation setting a more modest penalty than the one dictated by Congress.

Toth's constitutional challenges to the penalty amount also don't pass muster, the First Circuit found. That penalty doesn't count as a fine that can be challenged under the Eighth Amendment's excessive fines clause, according to the court, which also tossed her due process arguments under the Fifth Amendment.

Read more at: Tax Times blog