In an ABA Tax Section Court Procedure Virtual meeting on Wednesday, there was a one-hour discussion of ethical issues in handling a matter in the Tax Court. The participants in the discussion were:
• Judge L. Paige Marvel, United States Tax Court, Washington, D.C.
• Elizabeth G. Chirich, Chief, Branch 1, Procedure & Administration, IRS Office of Chief Counsel, Washington, D.C.
• Guinevere Moore, Moore Tax Law Group, LLC, Chicago, IL
• Kandyce Korotky, Covington & Burling, Washington, D.C. (Moderator)
• Mitchell I. Horowitz, Buchanan Ingersoll & Rooney P.C., Tampa, FL
1. Question : What if the IRS sets up only one issue in the notice of deficiency and the IRS never spotted a big issue involving omitted income. There is no real gray area in the unspotted issue; the taxpayer clearly would owe tax if the unspotted issue were fully litigated (indeed taxpayer’s counsel did not think she could even make a nonfrivolous argument that the omitted income should not have been included). After filing the petition, IRS Counsel offers to concede that one issue (the spotted issue in the NOD) and sends a stipulated decision document saying that the deficiency is $0. Because the taxpayers’ counsel knows that stipulation that there is no deficiency is not true, can the taxpayers’ counsel sign the stipulated decision?
2. Question: This may be a philosophical question rather than one you can answer here: What good are ethical rules when they don’t provide answers — i.e., when different ethical lawyers acting ethically can reach different conclusions — does that simply reward the aggressive attorney (who may even be a lawyer who charges for the benefit offered to the taxpayer by being aggressive within the ambiguities — even creative ambiguities — in the ethical rules) and the taxpayer engaging this ethically aggressive attorney? And would about the more conservative ethical attorney and his client? Is the ethically conservative attorney providing less than ethically aggressive representation then not zealously representing the client? There is more but I’ll stop there?
1. As I note in my Federal Tax Procedure Book, § 6211(a) defines a deficiency in part here relevant as: “the taxpayer’s correct tax liability less the amount the IRS has previously assessed.”
2. Decision documents in a deficiency case state either that “there is a deficiency in income tax due from petitioner” in a stated amount for a taxable year(s) or “there is no deficiency in income tax due from petitioner” for the taxable year.
Let me illustrate in an example. Let’s say that the taxpayer is audited and the IRS sets up a single issue that results in a notice of deficiency for $100,000. You counsel the taxpayer that, in your best judgment as a seasoned tax litigator, you can win that issue in whichever court the taxpayer chooses to litigate it. However, since you handled that audit, you also know that the auditing agent did not spot an even larger issue that, in your judgment, the taxpayer would lose in any court that the taxpayer chooses to litigate it. That issue would create a tax liability larger than the dollars that would be saved on the issue that you believe the taxpayer could win. One of the traditional gambits is to preserve the refund statute of limitations, let the assessment statute expire, and the file the claim for refund. For example, assume that the Year 01 return was filed on April 15 of Year 02, the audit deficiency was proposed on September 1 of Year 04, your client signs a Form 870 waiver of the restrictions on assessment for Year 01 on September 5 of Year 04, the IRS assesses the tax on February 1 of Year 5, the taxpayer pays on February 10 of Year 05, and the statute of limitations on further assessment expires on April 15 of Year 5. You will recall that, although the statute of limitations on further assessment has expired, the taxpayer still has 2 years from the date of the February 10 payment to claim a refund. So, on June 1 of Year 05, the taxpayer files a claim for refund alleging that the IRS erred on the one audit issue (the only issue the IRS knows about). In that claim for refund, the taxpayer does not mention the issue the IRS did not audit and is not otherwise aware of, despite the fact that, in his attorney’s judgment, he would lose that issue and his taxes for the year are therefore not overpaid. Can the taxpayer lawfully sign the amended return (the claim for refund) with the jurat? Can the attorney counsel or otherwise assist the taxpayer in filing the return?