rs at issue.Thereafter, the IRS issued a levy notice to collect the Section 6038 penalties, and the Taxpayer timely requested a collection due process (CDP) hearing pursuant to Section 6330. As a result of the CDP hearing, the IRS issued a Notice of Determination Concerning Collection Actions under IRC Sections 6320 or 6330 of the Code (Notice of Determination) sustaining the liabilities for the Section 6038 penalties.The Taxpayer timely petitioned the USTC for review of the Notice of Determination. The sole issue before the USTC was whether the IRS had statutory authority to assess Section 6038(b) penalties.The Taxpayer argued that the Code lacks any provision authorizing the IRS to assess Section 6038(b) penalties but that liabilities for such penalties may be collected in a civil action under Title 28 (and not under the Code). The IRS argued, among other contentions, that "assessable penalties" includes any penalties in the Code not subject to deficiency procedures and, pursuant to Section 6201(a), the IRS (by delegation from the Secretary of the U.S. Department of the Treasury) is authorized and required to make assessments of all taxes (including interest, additional amounts, additions to tax and assessable penalties) imposed by the Code.The DecisionIn concluding the Taxpayer's reading of the Code is correct, the USTC held that the IRS lacks statutory authority to assess Section 6038(b) penalties. In doing so, the USTC analyzed the Code and relevant Title 28 provisions and made the following determinations:Congress has explicitly authorized the IRS to assess penalties pursuant to numerous provisions under Chapter 68 of Subtitle F of the CodeCode Sections outside of Chapter 68 of Subtitle F for which violations are specifically penalized commonly: contain their own express provision specifying the treatment of penalties or other amounts as a "tax" or an "assessable penalty" for purposes of assessment and collectioncontain a cross-reference to a provision within Chapter 68 of

axpayer, such reliance on an information return implicates section 6201(d), which provides:In any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return . . . and the taxpayer has fully cooperated with the Secretary (including providing, within a reasonable period of time, access to and inspection of all witnesses, information, and documents within the control of the taxpayer as reasonably requested by the Secretary), the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return.See, e.g., Cabirac v. Commissioner, 120 T.C. 163, 166–67 (2003), aff’d per curiam without published opinion, 2004 WL 7318960 (3d Cir. Feb. 10, 2004). If a taxpayer “asserts a reasonable dispute” as to an income item reported on such a return, the IRS must “produc[e] reasonable and probative information . . . in addition to such information return.” 26 U.S.C. § 6201(d).Lifetime Learning Credit. Section 25A(a)(2) provides for a “Lifetime Learning Credit” equal to 20% of as much as $10,000 of certain education-related expenses, 26 U.S.C. § 25A(c)(1)—i.e., a credit of up to a maximum of $2,000. This credit is claimed on Form 8863, “Education Credits (American Opportunity and Lifetime Learning Credits)”, attached to Form 1040. Section 25A(d), as in effect for 2017, limited and reduced the amount of the otherwise available credit—by the amount . . . which bears the same ratio to the amount which would be so taken into account as—(A) the excess of—(i) the taxpayer’s modified adjusted gross income for such taxable year, over (ii) $40,000 ($80,000 in the case of a joint return), bears to (B) $10,000 ($20,000 in the case of a joint return).Form 8863, as prescribed for 2017, implemented this limitation on lines 13–18, which began to phase out the credit for a single taxpayer with AGI of $56,000 or more and phased it out entirely when AGI equals $66,000 or mor

eless, given the reversal in the D.C. Circuit, it is likely that the government will appeal the Mukhi decision to establish controlling precedent in that circuit as well. In the event the Eighth Circuit were to side with the USTC, the issue would be set up for potential review by the U.S. Supreme Court. In addition, the issue is currently before the USTC and federal district courts in several other circuits. As such, a future split among circuits would not be surprising.TakeawaysObservations from the Farhy reversal include:The USTC and the D.C. Circuit found the language in Section 6038(b) to have different meanings. The USTC applying traditional statutory construction found the language of Section 6038(b) to be clear and refused to infer assessment authority where Congress otherwise omitted such authority. The D.C. Circuit, agreeing with the government, found to the contrary and made inferences as to how the statute should read based, in part, on a broad reading of the application of Section 6201 and policy considerations favorable to the government.Based on Mukhi, it is unlikely that the USTC will reverse its position as it did in Valley Park Ranch, LLC v. Commissioner.Unless and until the issue is conclusively decided by the Supreme Court, taxpayers and practitioners should challenge the IRS authority to assess Section 6038(b) penalties in USTC cases falling outside the jurisdiction of the D.C. Circuit.For additional information or questions regarding tax and information return penalties, compliance and litigation, please contact the authors.Notes Unless otherwise indicated, all "Section" references are to the Internal Revenue Code of 1986, as amended. In Valley Park Ranch, LLC v. Commissioner, 162 T.C. No. 6 (Mar. 28, 2024), the USTC held that the conservation easement "proceeds regulation" under Treas. Reg. § 1.170A-14(g)(6)(ii) was procedurally invalid under the Administrative Procedure Act, thereby reversing its prior position that upheld the validity of such regulation

t make them like that anymore.) S. Comm. on Gov’t. Operations & H.R. Comm. on Gov’t. Operations, 94th Cong., Legislative History of the Privacy Act of 1974 S. 3418 (Public Law 93-579): Source Book on Privacy at 4 (Comm. Print 1976) [hereinafter Source Book], https://www.justice.gov/opcl/paoverview_​sourcebook. Pub. L. 94-455. IRC Sec. 6103. Over time, the disclosures allowed under this provision have been amended; they have also been fleshed out by regulation. IRC Sec. 6103(b)(2). The TRA also permitted disclosure to members of a partnership, shareholders holding one percent of the outstanding stock of a corporation, heirs and estate administrators, trustees, and specified Congressional committees (provided identifying information is removed if such committees are not in executive session), among others. Compare taxes that are collected by withholding at a prescribed rate at the source. The IRS is directed to assess the tax liability that a taxpayer shows as owing on their tax return. IRC Sec. 6201(a)(1). This tax is said to have been “self-assessed.” Reg. Sec. 601.103. I’m referring to the income tax. Reg. Sec. 601.105(b)(4),For example, some folks will post on the internet photos of their expensive vacations, of their boats and second homes, and of the lavish parties or dinners they attend decked out in all their sparkling finery. Meanwhile, these same folks file tax returns under penalty of perjury that belie the economic wherewithal that finances their lifestyles.Remember the scene from the film American Gangster in which Denzel Washington’s character, Frank Lucas, scolds his brother for his flashy clothes and warns him that he should avoid drawing attention to himself?https://www.irs.gov/compliance/whistleblower-office.https://www.npr.org/2022/09/04/1121061081/irs-data-mistake-public-congress. The mistake was repeated two months later. In general, it takes effect on January 1, 2024. This post will not consider the regulations. With respect to a U.S. individual, such documents inc

rt, Mr. Fahry had to wait for collections notices, attend a collections due process hearing, and then file a petition with the US Tax Court . Mr. Fahry’s only other option would be to pay the penalty in full and file a refund suit in District Court or the Court of Federal Claims.Mr. Fahry argued that the IRS did not actually have the ability to assess tax because Congress didn’t specifically authorize the IRS to assess tax under IRC § 6038. Generally, penalties are either those subject to deficiency procedures (i.e. penalties subject to statutory notices of deficiency and corresponding Tax Court review) or assessable penalties not subject to deficiency procedures (i.e. not subject to Tax Court review). The IRS argued that penalties under IRC § 6038 (which also include penalties for failure to file Forms 5472, 8865, 926, and 3520) are assessable penalties since all penalties are assessable penalties unless the Code states they are subject to deficiency procedures. The IRS contends that IRC § 6201 provides it with broad authority to assess penalties, even when there is no specific statutory grant of authority from Congress with respect to a particular penalty.The Tax Court disagreed with the IRS. The Court pointed to a number of Code Sections where Congress specifically described penalties as assessable penalties. Thus, Congress is clear in identifying which penalties are assessable penalties. Since Congress did not state that the IRS has the ability to assess the IRC § 6038 penalty, the IRS does not have authority to assess such penalties.The Tax Court’s opinion highlights a major gap in the Code. IRC § 6038 provides penalties for failure to file certain informational returns, such as Forms 5471 (for certain filers), 5472, 8865, 926, and 3520 to name a few, but does not provide the IRS with the ability to actually assess such penalties. What does mean for taxpayers who have been assessed penalties under IRC § 6038? The opinion is fresh and the IRS has not yet made a public ann

he Court, the Court reviews the IRS’s determination for abuse of discretion only. Jones v. Commissioner, 338 F.3d 463, 466 (5th Cir. 2003). Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006). A taxpayer may challenge the underlying tax liability at a CDP hearing only if the taxpayer “did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity” to dispute it. 26 U.S.C. § 6330(c)(2)(B). And a taxpayer is precluded from advancing an underlying liability challenge in the Tax Court “if it was not properly raised in the CDP hearing.” Thompson v. Commissioner, 140 T.C. 173, 178 (2013). In an RBA matter, the amount of restitution may not be challenged by the person against whom assessed on the basis of the existence or amount of the underlying tax liability in any authorized proceeding. See 26 U.S.C. § 6201(a)(4)(C).Factors to Consider in Abuse of Discretion Review. In deciding whether the IRS settlement officer (SO) abused discretion in sustaining the proposed collection actions, the Court considers whether the SO (1) properly verified that the requirements of applicable law or administrative procedure were met, (2) considered relevant issues the taxpayer raised, and (3) considered whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. See id. at §§ 6330(c)(3), § 6320(c); see alsoMiccosukee Tribe of Indians of Fla. v. Commissioner, T.C. Memo. 2015-216, 110 T.C.M. (CCH) 446, 448 (“Minor defects may be overlooked where the taxpayer knows of and pursues the right to administrative and judicial review.”); Stein v. Commissioner, T.C. Memo. 2004-124, 87 T.C.M. (CCH) 1358, 1364 (“Because the [CDP] hearing had been timely requested within the prescribed 30-d

IR.C. § 61(a)(1).In any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return filed with the IRS by a third party and the taxpayer has fully cooperated with the IRS, the IRS shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return. I.R.C. § 6201(d).All wages are included in gross income for purposes of determining federal income tax liability, and any argument otherwise is frivolous. Rev. Rul. 2006-18; see also IRS, The Truth About Frivolous Tax Arguments 9, 13 (2022), https://www.irs.gov/pub/irs-utl/2022-the-truth-about-frivolous-tax-arguments.pdf.Frivolous arguments need not be refuted with “somber reasoning and copious citation of precedent.”

Rather, restitution is assessed in the same manner as if such amount were such tax. I.R.C. §6201(a)(4)(A). The Tax Court explained that the IRS was not thereby disabled from collecting such sums.

Primary Holdings: The taxpayers were entitled to a review of merits of the OIC by the Settlement Officer during their CDP hearing.Key Points of Law:When someone fails to pay tax, the IRS will assess the liability against her and send a notice and demand letter. I.R.C. §§6201, 6303(a). After that, things only get worse for the taxpayer: his or her tax liability will become a lien in favor of the IRS against all of his or her property, see 6321, and then he or she will receive a notice of intent to levy (a politely phrased letter that is nevertheless a threat to seize property to collect the tax owed).

Assessment is the determination of liability and the administrative act that allows collection when payment is not made. IRC Sec. 6201. IRC Sec. 11(a). “A tax is hereby imposed for each taxable year on the taxable income of every corporation.”