Practice and Procedure

Robert R. Oliva, Ph.D.

U.A.L.R.

Agenda

• I. Primary Authorities within Executive Branch

• II. Practice and Procedure

• III. Follow a return

Primary Authorities: Executive

• U.S. Treasury

• Internal Revenue Service

U.S. Treasury

• “TD PROCESS”– PROPOSED

• shall also be issued as a proposed regulation

– TEMPORARY • shall expire within 3 years after the date of

issuance

– FINAL: TD #

• Judicial review

Judicial review

• INTERPRETATIVE– “ACU”

• QUASILEGISLATIVE – Settle

• RE-ENACTMENT DOCTRINE – Settle

• RETROACTIVITY

Retroactivity

• Unless superseded by specific section in the law, – If > 18 months since enactment

• Not earlier than: filing date or substantial notice

– If <18 months since enactment:• To date of enactment

IRS

• REVENUE RULINGS/PROCEDURES

• PLR’s; DETERMINATION LETTERS

• TAM’s

• ACQUIESCENCES AND NONACQUIESCENCES

• IRM

• AOD’s; GCM’s

REVENUE RULINGS/PROCEDURES

• DIFFERENCES

• SIMILARITIES

• RETROACTIVITY: – Yes – Limitations: as announced by IRS

PLR’S AND DETERMINATION LETTERS

• DIFFERENCES

• SIMILARITIES

TAM’S

• DEFINITION/EFFECT

• TIME AND PLACE

ACQUIESCENCES AND NONACQUIESCENCES

• US TAX COURT– REGULAR OPINIONS

• ISSUES AGAINST IRS

– MEMORANDUM OPINIONS– PERMANENCY

• Other courts

II. Practice & Procedure

• A. Penalties

• B. Circular 230

Taxpayers’ penalties: IRC 6662

• Negligence

• Disregard

• Substantial understatement or a variation

Defenses to negligence:

• “reasonable basis”

Defenses to disregard for rulings

• Realistic possibility of being sustained on the merits (RPOBS)

Defenses to disregard of IRC/REGS

• “Substantial authorities”

Defenses to substantial understatement

• “Substantial authorities” (S/A): If no tax shelters

• S/A + MLTN: if tax shelter and t/p not a corp.

Generic defense

• Against all of the above taxpayer penalties:

• RCGF: IRC 6664(c)(1)

“substantial authority”

• Objective “analysis” of the law and application of the law to the relevant facts

Nature of the “analysis”

• Weight of authority depends on– Relevance – Persuasiveness – Type of document

• Absence of authority ok if position supported by well-reasoned IRC construction

Relevance

• Material facts at issue are similar to those in the authority (not distinguishable)

• Authority is still applicable to the facts at issue

Persuasiveness

• Authority cogently relates applicable law to the facts

Type of document

• Rev. Rul. > PLR

• Recent authorities > older authorities– PLR, TAM, GCM, or AOD > 10 years old

accorded very little weight

Type of substantial authorities

• Legislative

• Executive

• Judicial

Exceptions:

• Above authorities will not be considered “s/a” if they are , implicitly or explicitly, – Overruled– Modified

• But TC opinion is not overruled or modified if a COA from another CIR holds otherwise.

The following are not considered “s/a”

• Treatises

• Legal periodicals

• Legal opinions

Preparers’ minimum standards

• Ethical

• Legal

Ethical

• Principles: integrity; due care

• Rules: contingent fees

• Section on Taxation: – Do not recommend, prepare, or sign return if

tax position has no realistic possibility of being sustained administratively or judicially (RPOBS).

– Exception: not frivolous and adequately disclosed

Authorities satisfying RPOBS standard:

• All primary and substantial authorities, plus

• Broader than “primary authorities” and “substantial authorities” standard – Articles, treatises (neither primary nor

substantial)– JCT’s general explanation of a revenue act

(not primary)– Prop. Treas. Regs. (Not primary)

RPOBS

• Good faith belief position – Is warranted in existing law – Can be supported by extension, modification,

or reversal of existing law

• Cannot be expressed in terms of percentage odds:– Cir. 230 and IRC 6694 use percentage odds

to define RPOBS.

Legal obligations

• Circular 230

• IRC 6694: standard to avoid preparers’ penalties

Circular 230: tax return positions

• May sign return when – There is a realistic possibility of being

sustained, or – It is not frivolous and is adequately disclosed

• Must inform clients as to penalties and how to avoid by disclosure

“Realistic possibility”

• Knowledgeable person conclude that position has a one in three, or greater, likelihood of being sustained

• May use “substantial authorities”

• May not figure chances of being audited

Disciplinary actions

• Violations due to willfulness, reckless, or gross incompetence will subject practitioner to suspension or disbarment from practice before the IRS

Other sections in Circular 230

• Definitions: CPA; practice

• Who may practice: Form 2848; limited practice

• Others: knowledge of client’s omission; notaries; fees; conflicts of interest; negotiation of taxpayer refund check

IRC 6694(a)

• If any part of any understatement ... is due to a position for which there was no realistic possibility of being sustained (RPBS) ....

• ITRP shall pay a penalty of $250

IRC 6694(a): defenses

• ITRP did not know or could not have reasonably known that the position lacked “RPBS”

• Position lacking RPOBS – Was not frivolous – Was adequately disclosed

• RCGF– Reas. Cause for understatement– ITRP acted in good faith

IRC 6694(b): willful or reckless conduct

• ITRP shall pay $1,000 (and referral to director of practice) if

• Any part of any understatement is due to ITRP’s – Willful attempt to understate liability, or – Reckless or intentional disregard of rules or

regulations

III. Follow a return

• Defining a “return”

• Statute of limitations

• Phases: audit; examinations; appeals; assessment; collection

Defining a “return”

• Why should there be a return?– Statute of limitations to issue 90 days letter

• Self-assesment system• IRS’ assessment requires 90 days notice

Elements of a return

• Sufficient data

• Intent

• Reasonable attempt to comply

• Executed under penalty of perjury

Statute of limitations

• Civil tax cases: 3; 6; forever

• Criminal tax cases: 6 years

Extensions of the statute of limitations

• Form 872: specific date

• Form 872-a: extension until 90 days after – IRS mails 872-t or 90 days letter– IRS receives 872-t

• Limited issue extension:

• Appeals not allowed if < 180 days

Stopping the statute of limitations

• Mailing of 90 days letter

• Submission of offer in compromise

• T/P outside the USA for > 6 months

• Filing amended return w/i 60 days of expiration extends for additional 60 days.

Audit phase

• Correspondence; office; field

Examinations phase

• Form 870

• 30 days letter: extended if exigency circumstances

Appeals phase

• Oral requests; brief written statement; protests

• Form 870-AD

Advantages of appeals

• Review opportunity

• Hazards of litigation

• Exhaust administrative remedies

• Revenue enhancement

Disadvantages of appeals

• “New issues”– Substantial grounds– Material tax liability

• Time and expense

• Relative finality of form 870-AD

Assessment phase

• Preceding condition to liens, levy or court proceedings

• Levy – W/i 6 years of assessment – Administrative or Judicial

• Sale– Redemption