Unprepared TP Goes To Court

[Nikki]

While you're at it, make sure you look for cases where there was a cooperative taxpayer who followed all the rules, thereby putting the burden of proof on the Commissioner.

Heh, I've looked at a lot, and I mean a lot, of cases. Unfortunately not many, probably in the less than one percentile category, "wins" for people challenging the IRS. Of course I mainly look at district and circuit court cases, it may be different in tax court but I doubt it.

The vast majority of senior court cases involving taxes result from a taxpayer's loss in Tax Court. The only taxpayer "wins" you will find there are reversals of the TC decisions.

Taxpayers have a much better record in Tax Court.

Take a look at http://www.ustaxcourt.gov/InOpHistoric/ ... CM.WPD.pdf

[Famspear]

I was talking about 1099's or W2's in general, doesn't have to be where the company no longer exists.

Fine, you were intending to talk about "in general," but that's not what you wrote.

I've seen so many court cases where the court has given the IRS such wide latitude on the presumption of correctness or just flat out allowing them to ignore the regs and their documented internal procedure (IRM) on a myriad of issues, NoD, Assessments etc., its almost impossible to win if the court thinks you're likely to owe the tax.

No, you haven't found "so many court cases" where the courts allow the IRS to ignore Treasury regs.

Regarding the Internal Revenue Manual (IRM), I don't recall for sure, but I believe some courts may have ruled that the IRS is not legally bound by the IRM in dealing with taxpayers, just as the taxpayer is not bound by the IRM in dealings with the IRS. The IRM is not on the same level of authority as a Treasury reg. Other courts may have said otherwise. Just keep in mind that the IRM is definitely a lower level of authority than a Treasury reg.

Yes, the IRS is given wide latitude on the presumption of correctness. And I would assume that the IRS wins the vast majority of court cases. The party afforded the presumption of correctness will win most of the time.

Anyway, I'll take some time and find some cases. It shouldn't be hard to find a few where the court put the onus on the taxpayer to prove he didn't make the income and all the IRS had was a 1099 or W2. I'll make sure there is no mention in the case of the IRS getting supporting documentation, other than the 1099 or W2, from the issuing company. [ . . . ]

Before you do to the trouble of doing that, can you reiterate or state exactly are you trying to demonstrate?

[OnceSane]

In order for it to have any meaning today, limit your research to cases decided since Portillo was issued. It appears that the Portillo decision made some impact on how the IRS handles 1099 and W-2 cases

[SteveSy]

I was talking about 1099's or W2's in general, doesn't have to be where the company no longer exists.

Fine, you were intending to talk about "in general," but that's not what you wrote.

I've seen so many court cases where the court has given the IRS such wide latitude on the presumption of correctness or just flat out allowing them to ignore the regs and their documented internal procedure (IRM) on a myriad of issues, NoD, Assessments etc., its almost impossible to win if the court thinks you're likely to owe the tax.

No, you haven't found "so many court cases" where the courts allow the IRS to ignore Treasury regs.

Let's put it this way. Many people have sued the IRS trying to show they failed to follow the regulations. The courts have, on many occasions, allowed the IRS to avoid proving they followed them. The reasoning in all of those cases is that unless their is evidence they didn't follow them you don't get to force them to prove they did or did not follow them. Of course the evidence can only be discovered if you can force the IRS to show their records making it nearly impossible to expose violations. For instance there was a case discussed here several years ago where an individual repeatedly requested proof a valid assessment had taken place. They were even ordered to produce the documentation and failed to timely submit it. The court let them off anyway. I believe it was related to a bankruptcy.

Regarding the Internal Revenue Manual (IRM), I don't recall for sure, but I believe some courts may have ruled that the IRS is not legally bound by the IRM in dealing with taxpayers, just as the taxpayer is not bound by the IRM in dealings with the IRS. The IRM is not on the same level of authority as a Treasury reg. Other courts may have said otherwise. Just keep in mind that the IRM is definitely a lower level of authority than a Treasury reg.

You're right...but, using the reasoning of the court on other issue related to taxpayers. The IRM is evidence of a known legal duty is it not? I mean they didn't create internal procedure for nothing did they?

Yes, the IRS is given wide latitude on the presumption of correctness. And I would assume that the IRS wins the vast majority of court cases. The party afforded the presumption of correctness will win most of the time.

Agreed

Anyway, I'll take some time and find some cases. It shouldn't be hard to find a few where the court put the onus on the taxpayer to prove he didn't make the income and all the IRS had was a 1099 or W2. I'll make sure there is no mention in the case of the IRS getting supporting documentation, other than the 1099 or W2, from the issuing company. [ . . . ]

Before you do to the trouble of doing that, can you reiterate or state exactly are you trying to demonstrate?

I will demonstrate that 1099's and W2's are presumed correct unless you the taxpayer can show evidence that they're not.

[Famspear]

Let's put it this way. Many people have sued the IRS trying to show they failed to follow the regulations. The courts have, on many occasions, allowed the IRS to avoid proving they followed them. The reasoning in all of those cases is that unless their is evidence they didn't follow them you don't get to force them to prove they did or did not follow them. Of course the evidence can only be discovered if you can force the IRS to show their records making it nearly impossible to expose violations. For instance there was a case discussed here several years ago where an individual repeatedly requested proof a valid assessment had taken place. They were even ordered to produce the documentation and failed to timely submit it. The court let them off anyway. I believe it was related to a bankruptcy.

Not sure I can respond to the above without more information.

[ . . . ]The IRM is evidence of a known legal duty is it not? I mean they didn't create internal procedure for nothing did they?

No, not exactly. The IRM is generally binding only with respect to disputes between and among IRS employees. You are my supervisor at the IRS. I did not follow the IRM. I can get into trouble with you, because you are my IRS supervisor.

In general, the IRM does not create rights or duties as between the IRS and the taxpayer. The taxpayer generally does not have the right to have the IRS follow the "IRM rules" merely because those "rules" are stated in the IRM, and the IRS does not generally have the right to insist that the taxpayer follow the "IRM rules" merely because they are stated in the IRM. Neither the taxpayer nor the IRS generally has a legal duty to follow the IRM in dealings with the other party. There is/are exception(s) to this general rule, though. See, e.g., United States v. Toussaint, 456 F. Supp. 1069, 78-2 U.S. Tax Cas. (CCH) paragr. 9793 (S.D. Tex. 1978).

I will demonstrate that 1099's and W2's are presumed correct unless you the taxpayer can show evidence that they're not.

Ah, but that's different from what you seemed to be saying before. That's all you're trying to say, now?

Again, that's pretty much a "given" where the IRS contends that the 1099 or W-2 is correct and that the taxpayer is wrong. Where the IRS makes that contention, the IRS is, by definition, using that 1099 or W-2 in computing its proposed assessment. By law, the proposed IRS assessment is presumed to be correct, which means that the burden of proof is on the taxpayer in a court of law. On these facts, that means (in effect) that the 1099s and W-2s are presumed correct unless you the taxpayer can show evidence that they're not.

Bingo! We actually agree.

I think I may have saved you a lot of work.

[Quixote]

The IRM is evidence of a known legal duty is it not?

No, it is evidence of internal procedures. Because the IRS is not required by law to follow the IRM, following it is at best only a contractual duty, not a legal one.

Many people have sued the IRS trying to show they failed to follow the regulations.

I doubt that. I know that you have brought up a number of cases in which you believed the that the issue before the court was whether or not IRS followed regulations. It's possible that the taxpayer believed that also. In each of those cases the issue was something else. Several times, for example, you have confused the regulatory requirement to provide a taxpayer with the relevant portions of the record of an assessment, and the statutory requirement to verify the existence of an assessment prior to a CDP hearing. The two are unrelated.

[Quixote]

Again, that's pretty much a "given" where the IRS contends that the 1099 or W-2 is correct and that the taxpayer is wrong. Where the IRS makes that contention, the IRS is, by definition, using that 1099 or W-2 in computing its proposed assessment. By law, the proposed IRS assessment is presumed to be correct, which means that the burden of proof is on the taxpayer in a court of law. On these facts, that means (in effect) that the 1099s and W-2s are presumed correct unless you the taxpayer can show evidence that they're not.

Portillo says otherwise. Mr. Portillo did not prove that his 1099 was wrong. He only contended that it was wrong.

Therefore, before we will give the Commissioner the benefit of the presumption of correctness, he must engage in one final foray for truth in order to provide the court with some indicia that the taxpayer received unreported income. The Commissioner would merely need to attempt to substantiate the charge of unreported income by some other means, such as by showing the taxpayer's net worth, bank deposits, cash expenditures, or source and application of funds. See Weimerskirch, 596 F.2d at 362. In these types of unreported income cases, the Commissioner would not be able to choose to rely solely upon the naked assertion that the taxpayer received a certain amount of unreported income for the tax period in question.

[SteveSy]

Again, that's pretty much a "given" where the IRS contends that the 1099 or W-2 is correct and that the taxpayer is wrong. Where the IRS makes that contention, the IRS is, by definition, using that 1099 or W-2 in computing its proposed assessment. By law, the proposed IRS assessment is presumed to be correct, which means that the burden of proof is on the taxpayer in a court of law. On these facts, that means (in effect) that the 1099s and W-2s are presumed correct unless you the taxpayer can show evidence that they're not.

Portillo says otherwise. Mr. Portillo did not prove that his 1099 was wrong. He only contended that it was wrong.

Thanks, but I'll still look because I doubt Portillo is the status quo, in fact I'm pretty confident it's rare if not the only case of its kind, we'll see.

[SteveSy]

[ . . . ]The IRM is evidence of a known legal duty is it not? I mean they didn't create internal procedure for nothing did they?

No, not exactly. The IRM is generally binding only with respect to disputes between and among IRS employees. You are my supervisor at the IRS. I did not follow the IRM. I can get into trouble with you, because you are my IRS supervisor.

In general, the IRM does not create rights or duties as between the IRS and the taxpayer. The taxpayer generally does not have the right to have the IRS follow the "IRM rules" merely because those "rules" are stated in the IRM, and the IRS does not generally have the right to insist that the taxpayer follow the "IRM rules" merely because they are stated in the IRM. Neither the taxpayer nor the IRS generally has a legal duty to follow the IRM in dealings with the other party. There is/are exception(s) to this general rule, though. See, e.g., United States v. Toussaint, 456 F. Supp. 1069, 78-2 U.S. Tax Cas. (CCH) paragr. 9793 (S.D. Tex. 1978).

Well then how is previously filing evidence of a known legal duty? I agree its not binding but its certainly evidence that they think they should be doing something especially when it relates to assessments and such.

I will demonstrate that 1099's and W2's are presumed correct unless you the taxpayer can show evidence that they're not.

Ah, but that's different from what you seemed to be saying before. That's all you're trying to say, now?

At first you thought I was only going to find a case where someone worked for a company that no longer existed and a 1099 was created. I'm giving even more and saying even when the company exists the court will, except in rare cases like Portillo, presume the 1099 is correct.

[Gregg]

I just want to get a free post in so we can get to 100 and make it stop

[Dr. Caligari]

I'm giving even more and saying even when the company exists the court will, except in rare cases like Portillo, presume the 1099 is correct.

Presumptions are rebuttable. If the taxpayer swears it's false, the court will look for some kind of evidence. If the company is in existence, it will have books and records that will either support or contradict the claim that it paid the taxpayer (a cancelled check, for instance). Those books and records can be subpoenaed by either party to a Tax Court case. If the company can't show a check to the taxpayer for the amount of the 1099, or a notation in its cash disbursements journal, the court would no longer presume it's correct.

[SteveSy]

Let's put it this way. Many people have sued the IRS trying to show they failed to follow the regulations. The courts have, on many occasions, allowed the IRS to avoid proving they followed them. The reasoning in all of those cases is that unless their is evidence they didn't follow them you don't get to force them to prove they did or did not follow them. Of course the evidence can only be discovered if you can force the IRS to show their records making it nearly impossible to expose violations. For instance there was a case discussed here several years ago where an individual repeatedly requested proof a valid assessment had taken place. They were even ordered to produce the documentation and failed to timely submit it. The court let them off anyway. I believe it was related to a bankruptcy.

Not sure I can respond to the above without more information.

Amazingly I found the case thanks to good organization on my part.

In re Larsen, No. 90-2076 (9th Cir. 1991)

In short Larsen knew there wasn't a proper assessment completed. He submitted interrogatories requesting the assessment documents, this is of course discovery and the party is required to respond with at least an objection. The IRS failed to object and failed to provide the documentation requested. An IMF record was submitted instead and not even authenticated properly. Instead of making the IRS submit the correct documents the court allows the IRS to submit an improperly authenticated IMF, which just contains an entry and no more, relating to a properly completed assessment. I believe the original case shows that Larsen repeatedly requested the proper documents all the way through and at every turn the IRS failed to provide them giving a strong indication no such documentation existed and at the last minute produced an IMF instead. The improper authentication at best indicated that it was indeed the taxpayers IMF but nothing to authenticate that the information contained within was accurate.

Review the case if you wish and we'll discuss.

EDIT:
1. What more could Larsen have done to prove the IRS failed to follow the regulation and the statutes or even case law concerning assessments, such as a 4340 submitted under penalties of perjury.

2. How can anyone overcome the presumption of correctness if the only evidence obtainable to prove a violation exists is by retrieving documents stored at the IRS which are unobtainable unless there is evidence of a violation?

Maybe a new thread in R&R if you care to respond this is at 7 pages.

[Gregg]

Review the case if you wish and we'll discuss

I'm almost positive I'd rather set my head on fire and let someone put it out with a hammer....

[Nikki]

Was there an underlying tax court case regarding Larsen?

If not, you still haven't found an apposite case.

[SteveSy]

Was there an underlying tax court case regarding Larsen?

If not, you still haven't found an apposite case.

I believe it was related to a bankruptcy court proceeding, and then appealed to circuit. Its in the case I cited.

Debtor Rex Larsen appeals from an order of the bankruptcy court granting the United
States' motion for dismissal, or in the alternative, summary judgment, denying Larsen's
motion to strike certain exhibits offered as evidence by the United States, and denying
Larsen's motion to defer consideration of the United States' motion until further discovery
could be conducted. We affirm.

[Nikki]

Did Larsen ever go through the appropriate channels and court processes, or was he going through bankruptcy following tax levies which he never bothered to appeal or challenge?

Again, Bankruptcy Court or Appellate Court cases are not apposite to the discussion of what happens in TAX COURT.

And, since you have the case at your fingertips, why not post it?

[SteveSy]

Did Larsen ever go through the appropriate channels and court processes, or was he going through bankruptcy following tax levies which he never bothered to appeal or challenge?

Again, Bankruptcy Court or Appellate Court cases are not apposite to the discussion of what happens in TAX COURT.

And, since you have the case at your fingertips, why not post it?

I don't have the original case and my subscriptions are expired. What does it matter anyway, the request was part of his discovery.

Identify any and all "assessment" documents and "supporting list or record", "which set
forth the name of the taxpayer, the date of the assessment, the character of the liability
assessed, the taxable period, if applicable, and the amounts assessed", which were created,
as provided for by Treasury Regulation, 26 C.F.R. § 301.6203-1, to formally record
plaintiff's alleged tax liability.

Larsen did not file tax returns for the years in question and the IRS created substitute returns instead and promptly places liens on his retirement account. Larsen files Chapter 7 and tries to discharge his tax debt.

[Nikki]

I thought we were talking about specific situations in tax cases regarding rebutting 1099s. What you are bringing up here is an out-of-context quote from an appeal of a bankruptcy court case which doesn't reference a 1099 or a W2.

Even by your standards, that's pretty lame.

[SteveSy]

I thought we were talking about specific situations in tax cases regarding rebutting 1099s. What you are bringing up here is an out-of-context quote from an appeal of a bankruptcy court case which doesn't reference a 1099 or a W2.

Even by your standards, that's pretty lame.

That discussion was based on the presumption of correctness which the thread was about except it was related to NoD. You must have missed half the thread. The case is an example of the court gone awry with the concept. The bankruptcy has little to do with what the case in the 9th was about. It shows what I've been saying all along. The courts have given such wide latitude with the concept of the presumption of correctness to the IRS its nearly impossible to prove they violated the law or regulations.

[Quixote]

In short Larsen knew there wasn't a proper assessment completed.

And you found that information where? Certainly not in the published opinion.

He submitted interrogatories requesting the assessment documents, ...

Not exactly. He requested that IRS 'Identify any and all "assessment" documents and "supporting list or record", "which set forth the name of the taxpayer, the date of the assessment, the character of the liability assessed, the taxable period, if applicable, and the amounts assessed", which were created, as provided for by Treasury Regulation, 26 C.F.R. § 301.6203-1, to formally record plaintiff's alleged tax liability.'

The Bankruptcy Court, the Bankruptcy Appeals Panel of the 9th Circuit and, most important, Larsen himself, decided that the requirements of Treasury Reg 26 C.F.R. § 301.6203-1 were irrelevant. So everyone ignored them and argued about Form 4340 instead.

Larsen apparently concedes introduction by the United States of 4340 forms for the disputed years would indeed have evidenced valid assessments.

In re Larsen, 1991 Bankr. LEXIS 699, Page 9.