Passport Revocation

Posted on by katemley

IRC Section 7345

The United States Court of Appeals for the Fifth Circuit in James Franklin v. United States et al., Case No. 21-11104, handed down an opinion on September 15, 2022 in which it affirmed the United States District Court for the Northern District of Texas as it relates to revocation of the taxpayer’s passport for seriously delinquent taxes.  Plaintiff, James Franklin was found by the IRS to have not filed accurate tax returns and had not reported a foreign trust for which he was a beneficial owner.  Penalties were assessed against the taxpayer and enforcement action in the form of filing a federal tax lien, levying Social Security benefits and notifying the Department of State that the taxpayer was seriously delinquent ensued. The taxpayer ultimately sued the government over these issues and argued that the passport revocation scheme of the statute violated his rights under the Fifth Amendment because it affected his fundamental right to travel internationally.   This Court reviewed several Supreme Court rulings and provided the following guidance: the right to international travel can be regulated within the bounds of due process. The Court analyzed the passport revocation statute’s goals, protections and objectives…ultimately deeming the statute to be constitutional.  This decision is at least the second decision of a Court of Appeals on this topic in the last year.  In Jeffrey T. Maehr v. United States Department of State, Case No. 20-1124, handed down on July 20, 2021, the United States Court of Appeals for the Tenth Circuit ruled the statute to be constitutional also.

Passport: Seriously Delinquent Taxes

Posted on by katemley

IRC 7345

The Tax Court ruled in Ifeoma Ezekwo v. Comm’r of Internal Revenue, T.C. Memo 2022-54 filed May 31, 2022 that there was no error in the Commissioner’s certification to the Department of State that the taxpayer had a “seriously delinquent tax debt,” and that her passport could be revoked, limited, or an application for the same could be denied.  IRC Section 7345 provides that if the IRS certifies that a taxpayer has a “seriously delinquent tax debt,” that certification is transmitted to the Department of State for action relating to a taxpayer’s passport.  A “seriously delinquent tax debt” is one that is unpaid, legally enforceable, and in excess of the current threshold adjusted for inflation – currently, $55,000. It is important to note that if a taxpayer is on an installment agreement, or in currently not collectible status, they are not seriously delinquent for this purpose.  This case is a straightforward fact pattern with a taxpayer seemingly in denial that they still owed the government money after levy.  As such, the Court disposed of the matter quickly.  Of note, the Court stated that the only determination they are allowed to make under the statute is whether the Commissioner’s certification of a taxpayer as seriously delinquent was “erroneous.”  They made this point to illustrate the fact that they cannot review the underlying liabilities in a review of the certification.  The Court also pointed out a couple of exclusions for debts that could be certified.  One was relating to a pending Collection Due Process hearing. If timely filed, the debt associated with the periods that triggered the hearing rights would not be included in the total debt for certification purposes.  Also, the Court explained that a debt for which innocent spouse relief is requested will not be part of the certification.   Taxpayers who have disagreements with the government, and are close to the threshold, could pay down the liability below the current amount that triggers the certification and de-certify.  Additionally, this author would note that if a case is assigned to a field Revenue Officer, there are provisions that allow them to expedite a request for decertification if a taxpayer meets an exemption – such as the placement of an installment agreement. During the pandemic, the certification process was paused.  That has since restarted and taxpayers are being certified at this time. 

Innocent Spouse Relief: Relief while married

Posted on by katemley

Taxpayer obtains relief while still married

In Hudson v. Comm’r T.C. Summary Opinion 2017-7, filed February 8, 2017, the Tax Court granted equitable relief from joint and several liability under section 6015(f).  It is a rare case that the IRS grants relief to a taxpayer that requests innocent spouse relief, unless that individual is legally separated or divorced from the jointly liable taxpayer. The taxpayer and her husband remained legally married, but were essentially estranged.  Petitioner remained in the marriage because she “regards the vow of marriage as sacrosanct and does not believe in divorce.” The liability reported on the face of the return was largely from the early withdrawal penalty associated with Petitioner’s husband taking a distribution from his retirement account to finance the purchase of a piece of residential real estate – in his name alone. Though petitioner resided at this residence, the Tax Court did not believe she enjoyed a lavish lifestyle.  Petitioner held a bachelors degree and, while she was out of the workplace caring for their children during the year at issue, she later became employed in her field. At the time of filing the Petition in the Tax Court, she was unemployed and struggled with reasonable living expenses. The Court could not provide “streamlined” relief because the Petitioner remained married.  That triggered a facts and circumstances analysis where economic hardship and lack of significant benefit factored heavily into the Court’s grant of liability relief. 

Missouri Legislature Overrides Vetoes on Taxpayer Friendly Bills

Posted on by katemley

Missouri Legislature Overrides Vetoes on Taxpayer Friendly Bills: An Overview of Senate Bills 829 & 727

This past week the Missouri Legislature voted to override the governor’s veto on several bills including Senate Bill 829 regarding the burden of proof in taxpayer liability cases, and Senate Bill 727 regarding sales taxes for farmer’s markets. Both of these bills are effective retroactively beginning August 28, 2014.

Senate Bill 829 repeals and replaces section 136.300 of the Missouri Revised Statutes, amending the burden of proof requirements in taxpayer liability cases. Although Senate Bill 829 was signed by both the house and senate earlier this year, it was vetoed by Governor Jay Nixon on June 11. While the governor’s veto was in place, the Department of Revenue (DOR) only had the burden of proof in tax liability disputes if the taxpayer met certain threshold requirements. Such requirements included whether (1) the taxpayer was a partnership, corporation, or trust, (2) the taxpayer’s net worth did not exceed $7 million and (3) the taxpayer had less than 500 employees.

On September 10 the legislature overturned the governor’s veto, enacting Senate Bill 829. The bill replaces the threshold requirements mentioned above, and places the burden of proof on the DOR with respect to any factual issue relevant to ascertaining the liability of the taxpayer as long as the taxpayer has (1) produced evidence that shows that there is a reasonable dispute with respect to the issue and (2) has adequate records of its transactions and provides the DOR reasonable access to the records. Now because the burden of proof is on DOR, they have to prove liability for claims stating that a taxpayer owes additional taxes (this act includes issues regarding the applicability of an exemption but excludes issues regarding the applicability of any tax credit). In addition, by placing the burden of proof on DOR, the bill mirrors current Internal Revenue Service procedure concerning federal tax liability. Overall the bill is favorable to the taxpayer and creates consistency between the state and federal tax liability procedures.

Senate Bill 727 amends Chapters 144 and 208 of the Missouri Revised Statutes by adding three new sections, the first of which, section 144.527, is related to sales taxes at farmer’s markets.

Section 144.527, specifically exempts “all sales of farm products sold at farmer’s markets” from sales and use taxes as defined in Chapter 144. In addition, the section states that in order to qualify as a “farmer’s market,” the individual farmer, group of farmers, nonprofit, or cooperative must (1) consistently occupy a given site throughout the season, (2) operate as a “common marketplace” for farmers to sell farm products directly to consumers, and (3) be a marketplace where the sole intent and purpose of the farmers is to generate a portion of their household income. While section 144.527 limits farmer’s markets to the “sale of farm products,” it defines “farm products” very broadly so as to encompass almost any type of food that one might find at a farmer’s market (including baked goods made with farm products). However, the term “farm products” would exclude any third party goods or other non-farm product goods that a farmer may want to sell. Lastly, the exemption does not apply to persons or entities with total annual sales of $25,000 or more from farmer’s markets participating in the tax exempt program. 

If you have any questions regarding how these bills may affect your tax matter or farmer’s market, please feel free to contact our office.

Professional Assistance With Long-Term Tax Delinquencies Can Be Key To A Turn Around

Posted on by katemley

If you have experienced a continuing struggle with handling your ongoing employment and income tax filings and payments, you may be facing the stark reality that managing these obligations is getting more and more difficult.  Some businesses have operated off the premise that the federal and state government will perpetually respond to their tax problems in a certain way.  That response by the government, through a series of notices, delayed responses, and payment plans, is changing faster than ever.  This is especially true at the state level.  Businesses should not make what was once predictability of tax collections by the government a part of how they manage their ongoing business expenses.

While the government may not upgrade their technologies as quickly as the private sector, the actions being taken are making a difference in closing the Tax Gap. This is true at the federal level and even more so at the State level.  As Bloomberg Business Week reports, states are taking much more aggressive action to capture lost sources of tax revenue.  States are using better resources of data collection along with other enforcement tools to prevent businesses, large and small, from operating in a non-compliant tax status.

From a business perspective, the stark reality is that there are some businesses on the fringe of existence that may simply be forced to cease operations as the tax collection activity described here intensifies.  It’s my opinion that this is not necessary.  Rather, if these businesses spend less time juggling some of these obligations and direct their time towards the expertise they have related to their primary business function, their likelihood of success is much greater.  We have seen the most success for clients who have long-term tax delinquencies when that client acquires proper legal and accounting assistance.  For a long-term problem, a long term solution is necessary. 

Certified Public Accountants and other tax return specialists can provide a level of service that is invaluable to any business.  Assistance from a tax lawyer can be an important tool which allows for a delinquent taxpayer to create a long term plan for tax debt resolution which is then executed upon by the taxpayer, its accountant and lawyer.  Most clients find that the support of professionals that can readily provide expert guidance on stressful tax matters are invaluable.  The relief provided to the business owner typically gives them the breathing room they finally need from a stressful situation to focus on the reason they entered their business to begin with.  It is highly rewarding for the tax lawyer and accounting professional to observe this process.  No business operation will ultimately succeed with the passion of its owners for the services or products it provides. 

As a tax lawyer I have observed that the combination of a Certified Public Accountant or other tax return professional with the guidance of a tax lawyer is a highly beneficial combination for a delinquent business taxpayer.  The reality is that the Certified Public Accountant or tax return professional likely has all the expertise to resolve these issues, but due to the reality of the tax season, that person lacks the time to provide the level of assistance demanded from a Revenue Officer or other collection agent.  Without the obligations of providing return preparation services for clients, I have found the ongoing demands of dealing with delinquent tax matters for clients to be manageable. 

Ideally, the long term is a viable business with a plan to manage ongoing tax obligations while addressing delinquencies in a manner that does not effectively shut down the business.  Once that plan is in place, the taxpayer’s Certified Public Accountant or return preparation professional can provide services to manage current tax filing and payment obligations.  Should the government return for review of the client’s ability to address the tax delinquencies, the tax lawyer can return to representation to assist with that issue. 

As a business owner with a long term delinquency a critical perspective to have when acquiring professional assistance is that there is no “quick fix.”  A multi-year problem will likely take many months, if not years, to resolve.  But it can, and does, happen.  Feel free to contact us to discuss these issues if you have them.