U.S. Tax Court Has Jurisdiction To Review An IRS Denial Of Use Of Settlement Program

The U.S. Tax Court concluded in Treece Financial Svcs. Group, 158 TC No 6 (4/19/2022) that it has jurisdiction to review an IRS determination that a taxpayer wasn't eligible to participate in the Voluntary Classification Settlement Program (VCSP).

Treece Financial Services Group, a corporation, petitioned for review of a notice of employment tax determination under Code Sec. 7436. Both Treece and the IRS agreed that the agency had properly determined that someone working for Treece was an employee but disputed the proper amount of employment tax under that determination.

Treece asserted that the amount should be computed using Ann 2012-45, 2012-51 IRB 724, i.e., the VCSP.

The IRS Said Treece Couldn't Use The VCSP And
 Argued That The Tax Court Lacked Jurisdiction
To Review That Determination.

The court noted that the VCSP provides partial relief from federal employment taxes for eligible taxpayers that agree to treat workers prospectively as employees for future tax periods. To be eligible for the VCSP, a taxpayer must: 

1. Have consistently treated the workers as nonemployees; 
2. Have filed all required Forms 1099, consistent with the nonemployee treatment, for the previous three years; and 
3. Not currently be under employment tax audit by the IRS.

Generally, the Tax Court said, it has jurisdiction under Code Sec. 7436(a) to determine: 

1. Whether an individual providing services to a person is that person's employee for purposes of subtitle C; 
2.  Whether the person, if an employer, is entitled to relief under section 530 of the Revenue Act of 1978; and 
3. The proper amounts of employment taxes which relate to the IRS's determination concerning worker classification.

The Court's Deficiency Jurisdiction Includes Reviewing Administrative Determinations That Are Necessary To Determine The Merits Of The Deficiency Determinations. (Trimmer, 148 TC 334 (2017))

In addition, Trimmer held that there is a strong presumption that an act of administrative discretion is subject to judicial review. Further, in 2000, Code Sec. 7436(a) was amended to provide the Tax Court jurisdiction to "determine whether such a determination by the [Treasury secretary] is correct and the proper amount of employment tax under such determination."

The court concluded that, pursuant to statute and case law, the Tax Court has jurisdiction to determine whether the liability is correct in proceedings for determination of employment status. Because the denial of a taxpayer's eligibility for VCSP directly affects the amounts of tax, the procedures that Congress has established for judicial review of the IRS's determinations logically contemplate review of such a denial as one element of the determination.

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