35.2.1. Tax Court Petitions

(1) Promptly upon receipt of an unanswered case, the attorney should review the petition and the statutory notice. Additional information may be needed to file a motion or answer.

(2) If no notice of deficiency is attached to the petition, the attorney should determine whether a notice of deficiency has in fact been issued. If a notice of deficiency has not been issued because the tax year is still under examination, the petition is premature. Generally, Appeals Account and Processing Support (APS) will send Field Counsel a Form 15022, IRS Certification - Income/Gift/Estate Tax Statutory Notice of Deficiency NOT Issued, when APS discovers that a petition is premature for any year upon its attempt to locate an administrative file. See CCDM 35.2.1.1.6, Premature Petitions. For any such year, the attorney should file a motion to dismiss for lack of jurisdiction. See CCDM 35.3.2.5, Absence of a Valid Statutory Notice. Field Counsel should also remind Examination personnel that the statute of limitations on assessment is not tolled by a premature petition, and the ASED must be protected by extending the statute of limitations with Form 872, Consent to Extend the Time to Assess Tax, or other appropriate form, or by issuing a notice of deficiency. See CCDM 35.2.1.1.6, Premature Petitions.

(3) The statutory notice attached to the petition should be cross-checked against the statutory notice shown in the administrative file to insure that the petitioner has attached a correct and a complete copy of the statutory notice. If not, it will be necessary to make a denial in the answer and allege that a correct and complete copy of the statutory notice is attached to the answer.

(4) The statutory notice and petition must be examined to determine that the party to whom the statutory notice was sent is the same as the petitioner. If there is a variance, it will be necessary to determine whether the petitioner is legally the party entitled to file a petition. If not, a motion to dismiss for lack of jurisdiction may be necessary. Similarly, it will be necessary to determine that the years petitioned are years that are contained in a statutory notice. If not, a jurisdictional motion may be required.

(5) The notice of deficiency should also be reviewed to ensure that there are no jurisdictional defects. If the notice is not valid as a result of some defect, immediate consideration should be given to issuing a valid statutory notice, assuming the statute of limitations has not expired. Factors to consider in reviewing the validity of a statutory notice include:

1. That the statutory notice was sent to the proper party and to the last-known address. See CCDM 35.3.2.3, Motions to Dismiss for Lack of Jurisdiction, and CCDM 35.3.2.4, Timeliness of Petition, at http://publish.no.irs.gov/getpdf.cgi?catnum=29843.

2. If an individual petitioner is incompetent or deceased, that the person to whom the notice was sent properly qualifies as the representative.

3. If the addressee is a transferee, that transferee liability is properly asserted.

4. If the addressee is a corporation, that the notice is properly addressed, that the corporation is still in existence, and that the officers have the authority to institute suit.

5. That the statutory notice was sent to the petitioner by certified mail or registered mail.

6. If the addressee is an estate or a trust, that the notice is properly addressed, that the estate or trust is still in existence, and that the representative has the authority to institute suit.

(6) If the petition is executed other than by the petitioner and the circumstances suggest a question as to the authority of the representative to act on behalf of the petitioner, further information should be solicited to determine the authority to act for the petitioner. One such circumstance would be a representative who has been identified as either not admitted to practice before the Tax Court or whose representation has not been recognized by the court.

(7) IRC section 7602(e) prohibits the service from using financial status or economic reality techniques to determine the existence of a petitioner's unreported income unless the Service has a"reasonable indication that there is a likelihood of unreported income." Section 7602(e) concerns the use of indirect methods to reconstruct the taxpayer's income through circumstantial evidence. The statutory notice should be reviewed to determine whether the Service used an indirect method. If an indirect method was used, the attorney must review the administrative file to ascertain whether the Service had a reasonable indication that the petitioner was underreporting his or her income prior to utilizing the financial status or economic reality audit techniques. If there is no evidence in the administrative file to show the Service had such an indication, serious consideration should be given to conceding the case. The attorney should contact the revenue agent to determine if the agent had any evidence of unreported income not contained in the administrative file before conceding the case, and should consider seeking legal advice to confirm the proposed position in the case.

(8) The statutory notice should also be reviewed to verify that the notice states the last day on which the taxpayer may file a petition with the Tax Court. If the petition is filed on or before the date specified on the statutory notice, the petition will be treated as timely even though it would be untimely under the normal 90 or 150 day rule. The notice of deficiency should also advise taxpayers of the right to contact the local Taxpayer Advocate and provide the location and telephone number of that office, although failure to do so does not render the notice invalid.

(9) The attorney should verify that the statutory notice of deficiency was issued by the Service within three years after the due date for filing the tax return for each year raised in the Tax Court petition. If the statutory notice was issued more than three years after the due date, the attorney should review the administrative file to see if the statute of limitations for assessment was extended or whether a statute of limitations other that the usual three-year statute applies. See CCDM 35.2.2.4.3, Collateral Estoppel and Res Judicata. If the statutory notice was issued late as to any particular year and no exception applies to keep the statute open, the attorney should concede that year in the answer, even if the petition does not plead a statute of limitations defense. See CCDM 35.2.1.1(3). It is the longstanding policy of the Office of Chief Counsel to notify the taxpayer or representative of the existence of an expired statute of limitations even if it has not been assigned as error in the petition (and thus deemed conceded under the court's rules), notwithstanding the lack of any duty under the ABA Model Rules of Professional Conduct to make such a disclosure.

(10) In worker classification cases under IRC section 7436, a Notice of Employment Tax Determination Under IRC Section 7436 (Letter 3523) is used, rather than a notice of deficiency. The Service sends the Letter 3523 by certified or registered mail. The Letter 3523 advises taxpayers of the opportunity to seek Tax Court review and provides information on how to do so. The Letter 3523 should include a schedule identifying the workers the Service has determined should be classified as employees and/or a list of workers for which the Service determined that Section 530 of the Revenue Act of 1978 does not apply. The Letter 3523 should also show each kind of tax with its proposed employment tax adjustment by taxable period.

(11) The above considerations also apply to other types of determination letters issued by the Service, including adverse determination letters in interest abatement, spousal relief, administrative costs, collection due process, and transferee liability cases. Careful research of the statutory requirements for each type of determination letter should be conducted to determine that the Service has satisfied all jurisdictional requirements for the respective cases. See also CCDM 35.2.1.1.15, Initial Review of Certain Declaratory Judgment Cases Under TEGEDC’s Jurisdiction and Section 7436 Cases, for other notices of determination issued by the Service that can be petitioned to the Tax Court.

(12) In cases where a federal district court has ordered restitution for the tax periods covered by the statutory notice of deficiency, the attorney should review the statutory notice to make sure the liabilities listed on the statutory notice of deficiency are not based on the restitution order. Assessment of the amount of restitution ordered by a federal district court is not subject to deficiency procedures under IRC section 6213(b)(5), and therefore, is not reviewable by the Tax Court. The Service, however, may conduct a civil examination for the same periods for which restitution was ordered. For those tax periods covered by the restitution order, only those tax liabilities and penalties determined by the Service as a result of a civil examination are subject to deficiency procedures. Thus, the statutory notice should only cover the amounts determined by the civil examination and, with respect to the penalties, only to the extent they are based on a deficiency. See CCDM 33.1.2.8.11, Statutory Notices in Cases Having Criminal Aspects. See also CCDM 35.2.1.1.5.1, Criminal Cases.

(1) A petition should be examined immediately to determine whether each of the tax periods/years in the notice of deficiency or Letter 3523 have been petitioned. If a tax period/year has not been petitioned, Appeals should immediately be requested to initiate assessment of the tax for that tax period/year because the statute of limitations continues to run as to any tax period/year for which no Tax Court petition is filed. The Service may have less than 60 days remaining on the statute of limitations on assessment by the time a petition has been received by the Field Counsel office, so prompt action is critical. As an administrative rule, the assessment of the tax period/year(s) not petitioned should be made within 60 days from the date of the filing of the original petition with the Tax Court to ensure that it is timely made within the suspension period of section 6503. Additional pleadings or motions by petitioner or respondent will not extend the period within which an assessment must be made. Similarly, when a joint and several determination of a deficiency is made against a husband and wife and only one party petitions from the statutory notice, a timely assessment of the deficiency or liability must be made against the party not petitioning. First, consideration should be given to informally contacting the petitioner to see if the omission was inadvertent. If so, petitioners should be asked to file an amended petition before the limitations period would otherwise expire. If the omission of the spouse was not inadvertent, Appeals should be requested to make an assessment of the deficiency against the nonpetitioning spouse. Appeals should also be asked to request that collection activity be withheld during the pending litigation. If there is any doubt whether a particular year or party is before the court, the doubt should be resolved in favor of making the assessment. An improper assessment can be reversed and corrected but a missed assessment cannot be cured after the statute has expired.

(2) There are circumstances in which collection against a nonpetitioning spouse might be appropriate: for example, if the petitioning spouse is seeking relief solely as an innocent spouse; if it is anticipated that the nonpetitioning spouse may file a bankruptcy petition (although in this situation the filing of a federal tax lien may be sufficient to protect the government's interest); if the majority of assets are held in the name of the nonpetitioning spouse; or if there is any other reason to believe a jeopardy situation exists against the nonpetitioning spouse.

(3) If collection is not withheld because it is anticipated that the nonpetitioning spouse may file a bankruptcy petition, extreme care must be taken to avoid violation of the automatic stay provisions of 11 U.S.C. § 362(a)(6), which expressly prohibits any act to collect, assess, or recover a prepetition claim against the debtor. Section 362(h) provides for damages, in the nature of costs, attorneys' fees, and actual and punitive damages, for violation of the automatic stay provisions. Accordingly, all efforts to assess or collect after a petition in bankruptcy is filed must be immediately terminated. Additionally, it is possible that transfers received by the Service from the nonpetitioning spouse will be considered preferential transfers subject to avoidance by the trustee in bankruptcy. 11 U.S.C. § 547. If so, it is likely that the Service's interest in any property returned to the estate will be protected by the filing of a notice of federal tax lien since the notice is not considered a preference item. However, to be a nonpreference item, the notice of federal tax lien must be properly filed so as to be perfected and enforceable against a bona fide purchaser at the time of the commencement of the nonpetitioning spouse's bankruptcy case. 11 U.S.C. § 545. Accordingly, Appeals should be instructed to take steps to file a notice of federal tax lien, when appropriate, as soon as possible.

(4) If it comes to the attention of the attorney that the Service is continuing collection activity against the nonpetitioning spouse although requested by Appeals to withhold such activity, the attorney should consult with representatives of Collection to determine why they believe collection activity is necessary when the litigation concerning the amount of the deficiency is pending. If an agreement cannot be reached on withholding collection activity, the matter should be reconciled through the appropriate management officials of the respective organizations.

(5) If, for a particular tax period/year, the taxpayer petitions from a notice of deficiency or Letter 3523 that includes both tax and penalties, and it is clear from the petition that the taxpayer assigns error only with respect to the penalties, no assessment of the tax deficiency or employment taxes should be made for that tax period/year since all matters relating to that tax period/year are still pending before the court and assessment continues to be restricted. Sections 6213(a), 6512. The case should be treated in the same manner as a case in which the statutory notice recites that certain adjustments were agreed to by the petitioner before the notice was issued. The taxpayer's concession should be confirmed in the answer and will be accounted for in the stipulation of facts or the Rule 155 computation, since the court's decision must recite a determination of both the conceded tax and redetermined penalty amounts. Care must also be taken in preparing the answer where specific adjustments from the statutory notice have not been assigned as error. As a general rule, that portion of the deficiency or employment tax attributable to the issues that were either not raised or conceded by the petitioner should not be assessed, absent the execution of a waiver of the restrictions on assessment.

(6) The petition and statutory notice should also be examined for adjustments over which the deficiency or 7436 procedures may not be applicable. This applies particularly to those penalties under section 6651 (including section 6651(f)), which are based upon amounts shown on the taxpayer's return. See section 6665. These amounts should not be included in the statutory notices but should be immediately assessed if the statute of limitations has not expired.

(1) Unaudited returns may be requisitioned by the attorney in connection with trial preparation, or such returns may be contained in the administrative files in cases which are referred to the attorney by Appeals for trial preparation. As a general rule, such returns should be immediately photocopied and the original returns sent back to the appropriate administrative official. Regardless of the method by which an unaudited return comes into the possession of the attorney, appropriate control records must be maintained. Such control records, however, do not relieve the attorney assigned the case of the responsibility of protecting the government against the running of the statute of limitations on such returns. For returns which are included in administrative files forwarded to Field Counsel offices by Appeals, extra care must be used in determining that no unaudited returns are included therein without specific control records being made thereon. Unaudited returns should be returned to Appeals or to the Area Director, as appropriate, in sufficient time to secure appropriate waivers and, in the absence of waivers, to effectuate assessments or issue any necessary statutory notices within the statutory period. If it becomes absolutely necessary for the attorney to retain an unaudited return for a period of time, such return must be released to the appropriate administrative official, preferably six months and in no event later than 90 days prior to the expiration of the statute of limitations.

(1) Jeopardy assessments are not subject to the usual restrictions on assessment imposed by deficiency procedures, and may be made prior to the mailing of a notice of deficiency or during the pendency of a Tax Court proceeding. In such situations, a notice of deficiency allowing Tax Court review, or a notification to the Tax Court in a pending case, is sent subsequent to the making of the jeopardy assessment.

(1) Generally speaking, a related case for coordination purposes is any pending case or matter which could be materially affected by a proposed action in a particular Tax Court case, or any pending case or matter in which a proposed action would materially affect a particular Tax Court case. The cases may be related because they involve the same petitioner, either for the same or for different taxes or taxable years or for different aspects of the same tax liability; or because they involve the same or similar issues arising out of the same or similar transactions; or because they involve different petitioners whose relationship is such that action taken with respect to one may materially affect the action to be taken with respect to the other. The case or matter related to the Tax Court case may be another Tax Court case or one pending before another court or at some other stage in its development; it may be pending at various administrative levels within the Service, or before any Associate or Field Counsel office, Treasury, or the Department of Justice. All related circumstances cannot be precisely described, nor can the extent of the coordination appropriate in every instance be specifically detailed. Attorneys and managers should exercise judgment in determining the relationship of related cases or other matters.

(1) Petitions to the Tax Court in deficiency cases require the issuance of a valid notice of deficiency, or the petitions are subject to dismissal for lack of jurisdiction. If a notice of deficiency has not been issued because the tax year is still under examination, the petition is premature.

(2) Appeals Account and Processing Support (APS) reviews Tax Court petitions when researching docket lists to determine the location of the administrative files. When APS cannot locate a notice of deficiency in a deficiency case, APS sends a Form 15022, IRS Certification - Income/Gift/Estate Tax Statutory Notice of Deficiency NOT Issued, to the manager of the Examination group controlling the taxpayer’s return. The manager will complete Form 15022, certifying that the notice of deficiency in question has not been issued and including his or her contact information. A Form 15022 reviewer will then check IRS systems to confirm that no other notice of deficiency or notice of determination has been issued to the taxpayer and, once confirmed, will send the Form 15022 back to APS. APS will forward the Form 15022 to Field Counsel in lieu of the administrative file. See IRM 8.20.5.5.1.5.1, Premature Petition Carding and Certification Procedure.

(3) The suspension of the period of limitations on assessment in IRC section 6503(a) does not apply if the Service did not issue a notice of deficiency. Examination personnel will continue to work the case even while the year remains docketed in Tax Court. Counsel will be available to assist Examination personnel in ensuring that the period of limitations on assessment does not expire, including reviewing deficiency notices.

(4) Attorneys should move to dismiss the case for lack of jurisdiction. For a discussion of jurisdictional motions in premature petition cases, see CCDM 35.3.2.4(3).

(1) [Reserved]

(1) For a discussion of duplicate petitions, see CCDM 35.3.2.9, Duplicate Petition.

(1) The Bankruptcy Code gives bankruptcy courts primary jurisdiction under 11 U.S.C. § 505 to hear and decide the merits of any unpaid tax, fine or penalty relating to a tax or any addition to the tax of the debtor or the bankruptcy estate.

(2) In controversies between the Service and taxpayers in bankruptcy, the bankruptcy court may abstain from determining the merits of a tax controversy in favor of the Tax Court. The bankruptcy court cannot determine a tax if the tax was already contested before and adjudicated in another court, including contested cases resulting in a default judgment or settlement. 11 U.S.C. § 505(a)(2)(A). The bankruptcy court’s jurisdiction is also limited with regard to determining refund claims; a claim for refund must be filed with the Service and the Service must be given 120 days to examine it before the bankruptcy court can make the determination. 11 U.S.C. § 505(a)(2)(B). See Rev. Proc. 81-18, 1981-1 C.B. 688.

(3) If , a Tax Court case was filed before the bankruptcy case was filed and the bankruptcy court lifts the stay to allow a Tax Court case to proceed, the trustee may intervene under section 7464 to protect the interests of the bankruptcy estate. Intervention, however, is not mandatory. Attorneys should be concerned about questions such as:

1. Whether the trustee must be substituted as a party for the debtor under T.C. Rule 63 because the trustee is in a fiduciary capacity; and

2. Whether the trustee can file a petition on the taxpayer's behalf.

(4) The jurisdiction of the bankruptcy court extends to both dischargeable and nondischargeable taxes. If the Service filed a proof of claim listing the tax at issue, the bankruptcy court has jurisdiction to determine the merits of the tax. That court also exercises subject matter jurisdiction over a Chapter 11 corporate debtor’s tax liabilities that arise during the administration of the bankruptcy case (prior to confirmation of the Chapter 11 plan). Once the bankruptcy court lifts the stay to allow the Tax Court to proceed, both courts have jurisdiction. Res judicata will apply to the first decision entered. See McQuade v. Commissioner, 84 T.C. 137 (1985); Florida Peach Corp. v. Commissioner, 90 T.C. 678 (1988).

(5) When a bankruptcy case is filed, an automatic stay of certain acts arises by operation of law. The automatic stay applies to any act

• To commence or continue any judicial, administrative, or other action or proceeding against the debtor (11 U.S.C. § 362(a)(1))

• To enforce any judgment obtained against the debtor prior to bankruptcy (11 U.S.C. § 362(a)(2))

• To exercise control over property of the estate (11 U.S.C. § 362(a)(3))

• To create, perfect or enforce any lien against the debtor or the debtor's property (11 U.S.C. § 362(a)(4) and (5))

• To collect, assess, or recover any claim against the debtor (11 U.S.C. §362(a)(6))

• To set off any debt owing the debtor against any claim against him (11 U.S.C. § 362(a)(7))

(6) The automatic stay also prohibits the commencement or continuation of certain proceedings before the Tax Court. 11 U.S.C. 362(a)(8). For bankruptcy cases commenced prior to October 17, 2005, section 362(a)(8) stayed all Tax Court proceedings concerning the debtor. For bankruptcy cases of individuals filed on or after October 17, 2005, the automatic stay applies only to the Tax Court proceedings for tax periods/years that ended before the bankruptcy case was commenced. For bankruptcy cases of nonindividuals (corporations), the stay typically applies to all Tax Court proceedings for tax periods/years ending before the confirmation of a Chapter 11 plan or during the administration of a Chapter 7 case.

(7) Where a petition in bankruptcy is filed after a case is docketed in the Tax Court, the Tax Court must be notified of the bankruptcy by filing of a notice of the bankruptcy proceeding so the court can stay the proceedings. See Exhibit 35.11.1-71, Notice of Proceeding Under Bankruptcy Code; CCDM 35.3.9.2.2(2), Bankruptcy While in Tax Court.

(8) If a statutory notice of deficiency/Letter 3523 is issued after a bankruptcy case was commenced, the taxpayer is prohibited from petitioning the Tax Court during the time the automatic stay is in effect under section 362(a)(8). A party in interest in the bankruptcy case may request that the bankruptcy court lift the stay to permit the filing of a petition in the Tax Court. 11 U.S.C. § 362(d). If the court does so, the bankruptcy court and the Tax Court will have concurrent jurisdiction and, as stated above, the trustee may choose to intervene in the Tax Court proceeding. Section 7464. Where the bankruptcy court lifts the stay, it also may reserve the right to rule on the Service’s tax claim.

(9) Even though the Service may issue a notice of deficiency/Letter 3523 while a stay is in effect without violating the stay, the taxpayer-debtor cannot petition the Tax Court while the stay is in effect. Consequently, where the taxpayer files a Tax Court petition in violation of the stay, the Tax Court case must be dismissed on jurisdictional grounds. The appropriate motion to be filed by the Service would be a motion to dismiss for lack of jurisdiction. If the stay is not lifted and a Tax Court petition is filed in violation of the stay, a motion to dismiss for lack of jurisdiction should be filed, not a notice of proceeding in bankruptcy. See Exhibit 35.11.1-40, Motions to Dismiss for Lack of Jurisdiction: Violation of Bankruptcy Code Stay Provision.

(10) If the debtor is not an individual (such as a corporation), notices of deficiency/Letters 3523 for tax periods that end during the administration of the bankruptcy case should be issued to the trustee (if one has been appointed). If the debtor is an individual and the tax year ends after the bankruptcy case was commenced, the notice of deficiency/Letter 3523 should be issued to the debtor.

(11) The automatic stay provisions under 11 U.S.C. § 362(a)(8) continue until the happening of the earliest of certain specific events.

1. Approval by the bankruptcy court of a motion by the debtor to lift the stay to permit the debtor to petition the Tax Court (11 U.S.C. § 362(d)).

2. The bankruptcy court concludes the proceeding and closes the bankruptcy case (11 U.S.C. § 362(c)(2)(A)).

3. The bankruptcy court dismisses the case (11 U.S.C. § 362(c)(2)(B)).

4. The bankruptcy court grants or denies a discharge (11 U.S.C. §362(c)(2)(C)).

(12) The attorney should assemble complete factual information , including the dates the bankruptcy petition was filed, the statutory notice was issued, the stay was lifted, the discharge was granted or denied, and the bankruptcy case was dismissed or closed. The reason is that jurisdictional questions may still arise as to the timeliness of the Tax Court petition and whether the petitioner is the proper party.

(13) Section 6213(f) suspends the running of the 90-day or 150-day period while the stay is in effect plus an additional 60 days. The application of section 6213(f) in the context of various scenarios involving the relative timing of issuance of a notice of deficiency and the commencement of bankruptcy is discussed in Rev. Rul. 2003-80, 2003-29 I.R.B. 83. When respondent files a motion to dismiss for lack of jurisdiction because the Tax Court petition was filed during the automatic stay, the Tax Court has asked that respondent calculate the time under section 6213(f) during which the taxpayer may still (or could have) file(d) a timely petition to the Tax Court. The attorney, as an officer of the court and public servant, should notify the petitioner-taxpayer of the jurisdictional defect when discovered and apprise the petitioner of the remaining number of days to timely file a new Tax Court petition before the time expires. It is particularly important that the attorney determine whether a Tax Court petition was filed on a day when the automatic stay was in effect. It is equally important that the attorney verify the exact status of the bankruptcy proceedings in order to properly inform the Tax Court of the specific dates on which relevant events took place that might affect the stay.

(14) If a debtor receives a statutory notice of deficiency/Letter 3523 after the bankruptcy case was dismissed, closed, or a discharge has been granted or denied, the automatic stay provisions do not apply and the taxpayer has the usual 90-day or 150-day statutory period within which to petition the Tax Court. This will be a fairly common occurrence where the taxes determined in the statutory notice/Letter 3523 are nondischargeable and neither the Service nor the debtor requested the bankruptcy court to rule on the merits of the government's claim while the case was pending in that court.

(15) In a collection due process case, the taxpayer has 30 days to file an appeal of the notice of determination to the Tax Court, pursuant to section 6330(d). The running of this 30-day appeal period, unlike the running of the normal 90-day or 150-day period for filing a Tax Court petition from a notice of deficiency, is not suspended during bankruptcy. Thus, a taxpayer who files bankruptcy after the IRS issues a notice of determination but before the taxpayer files an appeal to the Tax Court must obtain relief from the stay to obtain review of the notice of determination, as otherwise the filing period may expire before the appeal can be filed.

(16) The Tax Court has held that the issuance of a notice of determination in a CDP levy case is the continuation of an administrative collection action against the petitioner that was or could have been commenced pre-petition and, thus, a violation of the automatic stay under section 362(a)(1) that renders the notice void. Smith v. Commissioner, 124 T.C. 36 (2005). Therefore, when the taxpayer files for bankruptcy prior to issuance of the notice of determination, and then files a Tax Court petition, the Tax Court will dismiss the case for lack of jurisdiction on the ground that the notice of determination is void because the Tax Court petition was filed in violation of 11 U.S.C. § 362(a)(8). Counsel should contact the Associate Chief Counsel (Procedure and Administration) for advice as to the proper jurisdictional motion upon learning that the notice of determination was issued during the automatic stay.

(17) It is of critical importance that the Tax Court be apprised of the precise party or parties involved in a bankruptcy proceeding. Quite frequently, the caption in a bankruptcy case itself will be misstated. For example, if a case is styled "John Jones and the J. Jones Corp." or "The J. Jones Corp., John Jones, President," it is critical to determine whether both John Jones (the individual) and J. Jones have filed for bankruptcy or whether only the corporation has filed. Similarly, the caption involving a parent and subsidiaries may be erroneously stated in the bankruptcy court pleadings. It is critical to confirm exactly which person or entity has filed and whether the particular filing affects the jurisdiction of the Tax Court.

(18) If the bankruptcy judge decides that the bankruptcy court, rather than the Tax Court, should determine the tax liability, such litigation is to be handled by the attorney as a general litigation case. Conversely, if the Tax Court is to determine the amount of tax liability, the litigation will continue to be handled by the attorney as a tax litigation case.

(19) If litigation had commenced in the Tax Court and in that action the merits of any tax liability had been tried prior to the date of bankruptcy, the attorney may seek to have the stay modified or terminated so that the Tax Court may proceed to determine the tax controversy. If the stay is lifted or terminated, the Tax Court and bankruptcy court may have concurrent jurisdiction. It may be preferable for the same attorney to handle both the tax litigation aspect of the case as well as the general litigation aspect (the attorney might also handle the bankruptcy case directly if he or she is a Special Assistant United States Attorney).

(20) When an affiliated group of corporations files consolidated returns, Treas. Reg. § 1.1502-77(a) provides that any Tax Court petition for members of the group must be filed by the common parent as the agent for the group. If the common parent is in bankruptcy, however, the automatic stay in 11 U.S.C. § 362(a)(8) prohibits the common parent from filing a Tax Court petition. See J & S Carburetor Co. v. Commissioner , 93 T.C. 166 (1989). If solvent subsidiaries are actually barred from obtaining a preassessment adjudication of the tax liability, a court might prohibit the Service from initiating collection efforts against the subsidiaries. Accordingly, in appropriate circumstances, the Department of Justice should be asked to file a motion for modification of the automatic stay in bankruptcy court under 11 U.S.C. § 362(d) to permit the common parent to file the Tax Court petition. Alternatively, in appropriate circumstances, the appropriate official may be advised to notify the common parent that the Service will deal with each member of the group on a separate basis with respect to the consolidated tax liability so as to permit the filing of a Tax Court petition by the individual solvent subsidiaries. SeeTreas. Reg. § 1.1502-77(a).

(1) [Reserved]

(1) Interest abatement cases no longer must be automatically coordinated with the Associate Chief Counsel (P&A). Such cases remain subject, however, to Exhibits 31.1.1-1 and 35.11.1-1, Issues Requiring Associate Office Review. For example, any docketed abatement cases involving an issue of first impression must be coordinated with the Associate Chief Counsel (P&A), Branch 3 or 4 beginning when the trial attorney first receives service of a Tax Court petition.

(2) The trial attorney should review the petition for review of failure to abate interest to be sure it contains the information required under T.C. Rule 281(b) or (c), and, as in any case where a Tax Court petition is filed, either answer the petition or file an appropriate motion in accordance with T.C. Rules 36 and 37. See also CCDM 35.1.1.9, Interest Abatement Claims.

(3) The abatement of interest provisions are applicable in the context of a TEFRA partnership audit. During the partnership level proceeding, the action of the person(s) representing the partnership will be attributed to all partners for purposes of section 6404(e). Similarly, a Service error or delay in relation to an act at the partnership level can properly give rise to a request for abatement of interest by the partners. The partnership, as a fiduciary of a partner, may file an administrative claim on behalf of a partner. The partnership must comply with all of the requirements of Treas. Reg. §301.6404-1 when filing the claim. Each partner must file a separate petition for review with the Tax Court because section 6404(h) only grants to the Tax Court jurisdiction over cases brought by taxpayers and a partnership is not a taxpayer. Further, the Tax Court rules do not generally allow joinder of multiple petitioners in a single petition. For interest abatement cases arising in the context of a partnership proceeding under the Bipartisan Budget Act of 2015, the trial attorney should contact P&A Branch 6 or 7 for any needed assistance.

(4) To ensure that interest abatement cases are handled properly and petitions are reviewed thoroughly, the trial attorney must take the following steps within 30 days of service of the petition:

1. Identify jurisdictional issues such as: no Notice of Final Determination and no qualification under the 180 day waiting period rule of section 6404(h)(1)(A)(ii); abatement request denied prior to July 31, 1996; petition seeks abatement of tax or penalties; or no statement that petitioner meets requirements of section 7430(c)(4)(A)(ii);

2. Identify summary judgment issues such as: the tax year begins on December 31, 1978 or earlier; the petition seeks abatement of interest on employment taxes; or interest is attributable to an error on delay in the performance of a managerial act and the tax year begins prior to July 31, 1996; and

3. Ensure that the case has the AI TLCATS subtype.

(1) Sections 6320 and 6330 establish formal procedures giving taxpayers rights to administrative hearings and judicial review when the Service engages in collection action by filing a notice of federal tax lien or proposing a levy (in limited situations, taxpayers only have hearing rights after an actual levy). The Tax Court has jurisdiction to review notices of determination issued by the Office of Appeals in CDP cases.

(2) The Tax Court has promulgated rules that set forth the procedures for review of an Appeals notice of determination under sections 6320(c) and 6330(d). T.C. Rules 330 through 334. The attorney should review the petition to be sure it contains the information required by T.C. Rule 331 and either answer the petition or file an appropriate motion in accordance with T.C. Rules 36 and 37. See CCDM 35.3.23 on CDP motions.

(3) The Tax Court will address only those issues raised in the petition and in the trial memorandum, and issues not raised will be deemed conceded. T.C. Rule 331(b)(4). General allegations are not sufficient to raise an issue under T.C. Rule 331(b)(4), which has been most strictly applied in cases involving frivolous arguments.

(4) The Small Tax Case procedures under section 7463 apply to CDP cases. See CCDM 35.1.3.2.1 on determining S case status in CDP cases.

(5) In any CDP proceeding in which the petitioner raises a claim for relief from joint and several liability and the other spouse is not a party to the litigation, the trial attorney must serve notice on the other individual who filed the joint return for the years at issue. See CCDM 35.2.2.12.2, Notification of Nonpetitioning Spouse.

(1) [Reserved]

(1) See CCDM 31.2.1 for Significant Case Procedures.

(1) Prior to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), separate proceedings were required for each partner in a partnership. Now, pursuant to sections 6221 through 6233, the tax treatment of partnership items is determined at the partnership level in a unified partnership proceeding. T.C. Rules 240 through 251 contain specific procedures for readjustment of partnership items under section 6226 and adjustments to partnership items under section 6228.

(2) Upon receipt of a petition or complaint in a partnership action, the attorney must determine if other actions have been filed and, if more than one petition or complaint has been filed, which one must be dismissed. The attorney should also review the petition to determine whether it was timely filed. For a discussion of various jurisdictional motions that may need to be filed in TEFRA proceedings, see CCDM 35.3.7.2, Jurisdictional Motions.

(3) It is the responsibility of the assigned attorney to compute the amount in dispute and have that amount entered on TLCATS no later than the time that the case is answered. The amount in dispute in TEFRA cases is computed by multiplying the amount shown as the total adjustments on the FPAA/FSAA by the highest marginal rate for individuals under section 1. The formula for calculating the amount in dispute is as follows: (total net adjustments in FPAA/FSAA * highest marginal rate) + credits disallowed in FPAA/FSAA = amount in dispute.

(4) Upon completion of a TEFRA entity level proceeding, the Service is required to follow the standard deficiency procedures with respect to additions to tax or additional amounts. Section 6230(a)(2)(A); Temp. Treas. Reg. § 301.6231(a)(6)-1T(c).

(5) Following a TEFRA partnership or subchapter S corporation proceeding, affected item notices of deficiency are sometimes issued for penalties or other affected items attributable to partnership/subchapter S item adjustments. Frequently, when a decision is entered in these affected item proceedings, no reference is made to the TEFRA entity. This leads to confusion regarding the application of section 6212(c) which generally prohibits the issuance of second notices of deficiency in non-TEFRA cases.

(6) Section 6230(a)(2)(C) overrides section 6212(c) allowing affected item notices of deficiency to be issued notwithstanding that an earlier non-TEFRA notice of deficiency has been issued. Conversely, it also allows non-TEFRA notices of deficiency to be issued notwithstanding that an affected item notice of deficiency has previously been issued for the same taxable year.

(1) This section discusses review of declaratory judgment cases under sections 7428, 7476, and those involving governmental obligations along with workers classification cases under section 7436, all of which are under the jurisdiction of the office of Division Counsel (TEGEDC).

(1) In Munro v. Commissioner, 92 T.C. 71 (1989), the Tax Court upheld the validity of a statutory notice of deficiency that disallowed net partnership losses instead of eliminating them from the return before doing the statutory notice computation. The court ruled that it was impermissible for the Service to disallow the partnership losses in the statutory notice even if this was done solely for computational purposes and was not intended to be a substitute for issuing a notice of final partnership administrative adjustment (FPAA) as required by section 6225. More importantly, the court held that the partnership items (whether income, loss, deduction or credits) included on a taxpayer's return should be completely ignored in determining whether a deficiency exists that is attributable to nonpartnership items. Hence, the Service may not assume the correctness of its proposed adjustments to partnership items for computational purposes in determining a deficiency, and taxpayers may not offset net partnership losses against their taxable income for purposes of deficiency proceedings.

(2) A literal application of Munro, would require recomputing tax liability without taking any partnership items into account. Where the partnership items are losses, such a computation can artificially raise taxable income into a higher bracket and correspondingly increase the deficiency. Should the petitioner ultimately prevail as to any of the partnership losses, he or she would receive a refund but in the meanwhile the petitioner has had all of the tax shifted into the deficiency procedure.

(3) While it is preferable to avoid the inflated deficiency problem for nonoversheltered cases, a subsequent statute of limitations claim could adversely affect the Service if the differential deficiency is not sought.

1. With regard to settled cases, the problem can be resolved by a stipulation between the parties, incorporated in the decision document, stating that for purposes of computing the deficiency the petitioner's partnership items have been treated as if they were correctly reported on the return, and any change to the deficiency liability caused by resolution of the TEFRA proceeding could be assessed at the conclusion of the TEFRA proceeding as a computational adjustment. The Tax Court has indicated that it will accept stipulated decision documents incorporating the language contained in Exhibit 35.11.1-7. The stipulated language contained in Exhibit 35.11.1–7 is to be incorporated verbatim in the decision document. Any deviation from this language must have the prior approval of the Associate Chief Counsel (P&A), Branch 6 or 7.

2. With regard to all other cases that are currently in the system to which the Munro opinion applies, the attorney should contact petitioner's counsel to apprise them of the computational problem. Moreover, the attorney should attempt to obtain a letter from petitioner's counsel that when a stipulated decision or T.C. Rule 155 computation is filed with the Tax Court, the decision document will include the stipulation language contained in Exhibit 35.11.1-7. Petitioner's counsel should also be notified of our intention to seek an increased deficiency and increased penalties if petitioner's counsel does not agree to the stipulation. This discussion should be held with petitioner's counsel as early in the case as possible so as to avoid any claim of surprise, and all discussions with petitioner's counsel concerning this matter should be documented.

3. If a written agreement cannot be secured from petitioner's counsel within a reasonably short period of time, the attorney should file a motion for leave to file an amendment to the answer, together with the amendment to the answer, seeking an increased deficiency and increased penalties under section 6214(a). The motion should indicate that the increase is solely attributable to a recomputation that was required in order to comply with the Tax Court's opinion in Munro. See Exhibit 35.11.1-8. Such motions should be forwarded to the Associate Chief Counsel (P&A), Branch 6 or 7 for review prior to being filed with the Tax Court. Attorneys should not wait until the eve of trial to file the motion for leave.

4. A Munro stipulation may be used (at the discretion of the attorney) to include in the deficiency computation before the court carryovers/carrybacks of net losses from other taxable years which include unresolved partnership losses, but only if all nonpartnership items have been resolved for the years generating the carryover/carryback losses. The Munro stipulation does not allow the Service to assess changes to carryover/carryback amounts attributable to the subsequent resolution of nonpartnership items for other years. Consequently, the parties must resolve the nonpartnership items for a year generating the carryover/carryback amount before the Munro stipulation can be used to include in the deficiency computation unresolved partnership items originating from that same year. Failure of the petitioner to resolve the portion of the net losses from other years attributable to nonpartnership items forecloses the use of the Munro stipulation for these other years.

5. The above procedures are also applicable to cases that have been tried and are either awaiting the opinion of the Tax Court or are at the T.C. Rule 155 stage. Once again, attorneys should not wait until the opinion is rendered or the T.C. Rule 155 computation is being submitted to file the motion for leave. Such unexplained delay in raising the issue may result in the court denying the motion.

6. If the petitioner is willing to sign a stipulation including the language contained in Exhibit 35.11.1-7, and an agreement to this effect can be obtained in writing, it may be possible to file an agreed T.C. Rule 155 computation with the court in lieu of filing a motion for leave to seek an increased deficiency and increased penalties. If this is done, however, it is important for the attorney to make certain that the stipulation is expressly incorporated by reference into the decision that is entered by the court.

(4) Since at the time that a statutory notice of deficiency is issued it is unknown whether the case will be settled, tried or defaulted, it is necessary to prepare such notices in accordance with Munro. Otherwise, if a case is defaulted and Munro computations were not used in preparing the statutory notice of deficiency, the Service will only be permitted to assess the amount of the deficiency and penalties that are reflected in the notice. Section 6213(c). Moreover, the Service may be precluded from assessing and collecting the differential deficiency at the completion of the TEFRA proceeding if the petitioner subsequently challenges the assessment or collection of said differential deficiency on the ground that it is barred by the expiration of the statute of limitations.

(5) Whenever non-TEFRA adjustments are to be made to a petitioner's return that contains TEFRA items and a Munro computation must be made, deficiencies shall be computed as follows:

1. All TEFRA items that have been reported on the petitioner's return shall be removed to determine the modified taxable income.

2. However, if the treatment of any TEFRA item has been finally determined, e.g., by reason of a no change, a settlement or a completed TEFRA proceeding, those TEFRA items whose treatment have been finally determined shall not be removed.

3. Similarly, if there is no ongoing TEFRA proceeding with respect to the TEFRA items at the time that the computation is being made, those TEFRA items shall not be removed.

4. The non-TEFRA adjustments that are contained in the statutory notice will be added. The result will be the modified taxable income as corrected.

5. The tax on the amount in step (a) (the modified taxable income) will be calculated.

6. The tax on the amount in step (d) (the modified taxable income as corrected) will be calculated.

7. The amount in step (c) will be subtracted from the amount in step (d). The difference will be the deficiency that should be reflected in the statutory notice.

(6) The Munro computations apply to all years ending after the enactment of TEFRA on September 3, 1982. For years ending after August 5, 1997, the Munro computations continue to apply without change, except in the case of the oversheltered returns.

(1) If a corporate petitioner that is classified as a Coordinated Industry Case is a partner in one or more TEFRA partnerships, special care must be taken to assure that the statute of limitations for assessment of tax attributable to the partnership items flowing from the TEFRA partnership(s) is properly protected. For a discussion of this issue, see CCDM 35.9.3.5, Closing TEFRA Cases. Moreover, if this issue is encountered, legal advice should be sought from the Associate Chief Counsel (P&A), Branch 6 or 7 so that all steps necessary to timely and adequately protect the respective statutes of limitations can be taken.

(2) Special care must also be taken when issuing affected item notices of deficiency to assert penalties, etc. against the partners following the conclusion of a partnership proceeding. Since the issuance of such a notice to a taxpayer who is subject to a CIC audit can potentially create statute of limitations problems, such notices should not be issued without the knowledge and consent of the CIC examiner. If this should occur, however, the attorney should contact the Associate Chief Counsel (P&A), Branch 6 or 7 immediately upon finding out about it.

(1) See CCDM 35.3.2, Jurisdictional Defects, for a discussion of jurisdictional motions concerning untimely petitions, the absence of a valid statutory notice, jurisdiction over parties, taxpayers and tax years, invalid petitions and payments on deficiencies made before issuance of the statutory notice. For jurisdictional issues in declaratory judgment cases under sections 7428, 7476, and 7478, and worker classification cases under section 7436, see CCDM 35.3.8, Motions in Declaratory Judgment Cases and Section 7436 Worker Classification Cases, and CCDM 35.2.1.1.15.

(1) See CCDM 35.3.3, Motions Pertaining to Pleadings, for a discussion of motions to strike, motions for a more definite statement and motions to dismiss for failure to state a claim upon which relief can be granted.

(1) The Bipartisan Budget Act of 2015 (BBA) repealed the TEFRA partnership procedures, including the electing large partnership provisions, and replaced them with a new centralized partnership audit regime. For taxable years beginning January 1, 2018, the tax treatment of all items in a partnership return is governed by rules established by BBA. Partnerships may also elect to have BBA rules apply for taxable years beginning after November 2, 2015. T.C. Rules 255.1 through 225.7 contain specific procedures for partnership actions under section 6234(a)(1).

(2) Upon receipt of a petition or complaint in a partnership action, the attorney must determine whether other actions have been filed and, if more than one petition or complaint has been filed, which one must be dismissed. The attorney should also review the petition to determine whether it was timely filed, and whether the petition was filed by the properly designated partnership representative. This step is important because, unlike in TEFRA proceedings, only the designated partnership representative has the authority to act on behalf of a partnership and bind the entity to any final decision made in the proceeding. For a discussion of various jurisdictional motions that may need to be filed in BBA proceedings, see CCDM 35.3.7.2, Jurisdictional Motions.

(3) The amount of any deficiency that is being disputed - known under BBA as the imputed underpayment (IU) as determined in the FPA - should be entered on TLCATS no later than the time that the case is answered.

(1) All docketed passport cases must be coordinated with the Associate Chief Counsel (P&A), Branch 3 or 4, beginning at the time the trial attorney first receives service of a Tax Court petition contesting the Service's certification of the taxpayer as an individual having a seriously delinquent tax debt.

(2) The attorney should review the petition to be sure it contains the information required under T.C. Rule 351, and, as in any case where a Tax Court petition is filed, either answer the petition or file an appropriate motion in accordance with T.C. Rules 36 and 37.

(3) The attorney should review the transcripts for the periods included in the seriously delinquent tax debt to ensure that all elements of the seriously delinquent tax debt have been met and that the certification has not been reversed.