Practice and Procedure

1. Practice and Procedure Robert R. Oliva, Ph.D. U.A.L.R.

2. Agenda • I. Primary Authorities within Executive Branch • II. Practice and Procedure • III. Follow a return

3. Primary Authorities: Executive • U.S. Treasury • Internal Revenue Service

4. 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

5. Judicial review • INTERPRETATIVE • “ACU” • QUASILEGISLATIVE • Settle • RE-ENACTMENT DOCTRINE • Settle • RETROACTIVITY

6. Retroactivity • Unless superseded by specific section in the law, • If 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

7. IRS • REVENUE RULINGS/PROCEDURES • PLR’s; DETERMINATION LETTERS • TAM’s • ACQUIESCENCES AND NONACQUIESCENCES • IRM • AOD’s; GCM’s

8. REVENUE RULINGS/PROCEDURES • DIFFERENCES • SIMILARITIES • RETROACTIVITY: • Yes • Limitations: as announced by IRS

9. PLR’S AND DETERMINATION LETTERS • DIFFERENCES • SIMILARITIES

10. TAM’S • DEFINITION/EFFECT • TIME AND PLACE

11. ACQUIESCENCES AND NONACQUIESCENCES • US TAX COURT • REGULAR OPINIONS • ISSUES AGAINST IRS • MEMORANDUM OPINIONS • PERMANENCY • Other courts

12. II. Practice & Procedure • A. Penalties • B. Circular 230

13. Taxpayers’ penalties: IRC 6662 • Negligence • Disregard • Substantial understatement or a variation

14. Defenses to negligence: • “reasonable basis”

15. Defenses to disregard for rulings • Realistic possibility of being sustained on the merits (RPOBS)

16. Defenses to disregard of IRC/REGS • “Substantial authorities”

17. Defenses to substantial understatement • “Substantial authorities” (S/A): If no tax shelters • S/A + MLTN: if tax shelter and t/p not a corp.

18. Generic defense • Against all of the above taxpayer penalties: • RCGF: IRC 6664(c)(1)

19. “substantial authority” • Objective “analysis” of the law and application of the law to the relevant facts

20. 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

21. Relevance • Material facts at issue are similar to those in the authority (not distinguishable) • Authority is still applicable to the facts at issue

22. Persuasiveness • Authority cogently relates applicable law to the facts

23. Type of document • Rev. Rul. > PLR • Recent authorities > older authorities • PLR, TAM, GCM, or AOD > 10 years old accorded very little weight

24. Type of substantial authorities • Legislative • Executive • Judicial

25. 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.

26. The following are not considered “s/a” • Treatises • Legal periodicals • Legal opinions

27. Preparers’ minimum standards • Ethical • Legal

28. 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

29. 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)

30. 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.

31. Legal obligations • Circular 230 • IRC 6694: standard to avoid preparers’ penalties

32. 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

33. “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

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

35. 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

36. 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

37. 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

38. 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

39. III. Follow a return • Defining a “return” • Statute of limitations • Phases: audit; examinations; appeals; assessment; collection

40. 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

41. Elements of a return • Sufficient data • Intent • Reasonable attempt to comply • Executed under penalty of perjury

42. Statute of limitations • Civil tax cases: 3; 6; forever • Criminal tax cases: 6 years

43. 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

44. 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.

45. Audit phase • Correspondence; office; field

46. Examinations phase • Form 870 • 30 days letter: extended if exigency circumstances

47. Appeals phase • Oral requests; brief written statement; protests • Form 870-AD

48. Advantages of appeals • Review opportunity • Hazards of litigation • Exhaust administrative remedies • Revenue enhancement

49. Disadvantages of appeals • “New issues” • Substantial grounds • Material tax liability • Time and expense • Relative finality of form 870-AD

50. Assessment phase • Preceding condition to liens, levy or court proceedings • Levy • W/i 6 years of assessment • Administrative or Judicial • Sale • Redemption