Jeffrey Davis is my new hero. From the record in Judge Ruwe’s Tax Court opinion, it appears that he got the IRS to back down on their notice of deficiency, but he didn’t stop there. He went on to recover $154.98 in costs.
But that is not the heroic part. He also sought to have the Tax Court order the IRS to not jerk other people around in the way that he was jerked around. In that quixotic quest he failed, because as the mantra goes the Tax Court is a court of “limited jurisdiction. Here is the story.
The issue was one of my favorites, the convoluted taxation of social security disability benefits. If you receive workman’s comp and social security disability, it is like turning gold into lead. The otherwise non-taxable workman’s comp becomes taxable. I’m not going to dive into explaining that, because actually the issue was not the issue.
Mr. Davis had received an SSA-1099 for 2014 showing $14,055.60 in workman’s comp offset. The problem was that he actually had not received any workman’s comp in 2014 and had a Department of Labor transcript to prove it.
So his joint return with David Wagstaff excluded the $14,055.60 and attached an explanation. What I would have done was include the social security on the line for social security and back it out down below with the statement explaining that. Like many tax preparers, I will tie myself in knots to avoid a document mismatch.
Computers Don’t Read Attached Statements
Mr. Davis’s method did not work in avoiding a mismatch. It looks like the IRS was on autopilot from there on.
In October 2016 respondent notified petitioners of certain proposed changes to their tax return, including the inclusion ofthe SSA-1099 income. Between October 2016 and October 2017 petitioners supplied multiple items to respondent from other Federal agencies that showed that the SSA-1099 may have been incorrect. Respondent, based on the position that the SSA-1099 was accurate, issued a notice of deficiency on July 31, 2017, determining a $3,763 deficiency in petitioners’ tax for the 2014 tax year.
Mr. Davis contacted Senator Cory Booker’s office. They got the Taxpayer Advocate Service involved. Since the ninety day clock was ticking, there was also a Tax Court petition filed.
Thanks to the Taxpayer Advocate, the IRS backed down – “… respondent reversed his position, issued a “no change” certification that petitioners’ 2014 tax return was accepted as filed, and mailed petitioners a proposed decision document reflecting his concession of the deficiency.”
Thinking About The Next Guy
Admit it. You or I would have been happy with that and stopped. But not Mr. Davis. He wanted his expenses of $154.98, but more importantly – here is the heroic quixotic part – he wanted the Tax Court to order the IRS to not ever jerk anybody around the way that he was jerked around.
Petitioners additionally requested that this Court adopt a rule that would be applied when two or more Federal agencies provide conflicting information to a taxpayer, the taxpayer discloses the conflict in his or her return, the taxpayer provides documentation supporting his or her position, and the taxpayer continues to respond timely to respondent. Under petitioners’ proposed rule, if all of these requirements are met, respondent would be prevented from seeking a deficiency,
Whatever the merits of such a rule might be, it will not be coming from the Tax Court, because of its oft mention “limited jurisdiction”. Congress has not given it the authority to create operating rules for the IRS. It’s too bad, but I have to congratulate Mr. Davis on the effort. Thinking about how to help the next person avoid the aggravation you have experienced is one of the things that helps make the world a better place.
Theresa Schliep has Tax Court Says It Can’t Impose Conflicting Advice Rule behind the Law360 paywall.
Lew Taishoff is quite eloquent with PORE L’IL OLE TAX COURT.
“Compared to the sweeping jurisdiction that the Constitution has vested in USDCs, CCAs and the Supremes, namely, viz., and to wit, the judicial power of the United States of America, Tax Court stands, like the aged man in the poem, ‘a paltry thing, a tattered coat upon a stick.’ ” …….
“OK, no jurisdiction. But how about a wee whispered suggestion to Treasury that such a reg. might be a good idea, when the amount at issue is less than ten times the filing fee in USDC?”
I’m sure you recognized the poetic reference is to William Butler Yeats Sailing to Byzantium, but I had to look it up. Following Mr. Taishoff is a literary education.