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

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

4. Primary Authorities: Executive U.S. Treasury Internal Revenue Service

5. U.S. Treasury “TD PROCESS” –PROPOSED shall also be issued as a proposed regulation –TEMPORARY shall expire within 3 years after the date of issuance –FINAL: TD # Judicial review

6. INTERPRETATIVE –“ACU” QUASILEGISLATIVE –Settle RE-ENACTMENT DOCTRINE –Settle RETROACTIVITY

7. Retroactivity Unless superseded by specific section in the law, –If > 18 months since enactment Not earlier than: filing date or substantial notice –If <18 months since enactment: To date of enactment

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

9. REVENUE RULINGS/PROCEDURES DIFFERENCES SIMILARITIES RETROACTIVITY: –Yes –Limitations: as announced by IRS

10. PLR’S AND DETERMINATION LETTERS DIFFERENCES SIMILARITIES

11. TAM’S DEFINITION/EFFECT TIME AND PLACE

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

13. II. Practice & Procedure A. Penalties B. Circular 230

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

15. Defenses to negligence: “reasonable basis”

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

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

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

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

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

21. Nature of the “analysis” Weight of authority depends on –Relevance –Persuasiveness –Type of document Absence of authority ok if position supported by well-reasoned IRC construction

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

23. Persuasiveness Authority cogently relates applicable law to the facts

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

25. Type of substantial authorities Legislative Executive Judicial

26. Exceptions: Above authorities will not be considered “s/a” if they are, implicitly or explicitly, –Overruled –Modified But TC opinion is not overruled or modified if a COA from another CIR holds otherwise.

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

28. Preparers’ minimum standards Ethical Legal

29. Ethical Principles: integrity; due care Rules: contingent fees Section on Taxation: –Do not recommend, prepare, or sign return if tax position has no realistic possibility of being sustained administratively or judicially (RPOBS). –Exception: not frivolous and adequately disclosed

30. Authorities satisfying RPOBS standard: All primary and substantial authorities, plus Broader than “primary authorities” and “substantial authorities” standard –Articles, treatises (neither primary nor substantial) –JCT’s general explanation of a revenue act (not primary) –Prop. Treas. Regs. (Not primary)

31. RPOBS Good faith belief position –Is warranted in existing law –Can be supported by extension, modification, or reversal of existing law Cannot be expressed in terms of percentage odds: –Cir. 230 and IRC 6694 use percentage odds to define RPOBS.

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

33. Circular 230: tax return positions May sign return when –There is a realistic possibility of being sustained, or –It is not frivolous and is adequately disclosed Must inform clients as to penalties and how to avoid by disclosure

34. “Realistic possibility” Knowledgeable person conclude that position has a one in three, or greater, likelihood of being sustained May use “substantial authorities” May not figure chances of being audited

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

36. Other sections in Circular 230 Definitions: CPA; practice Who may practice: Form 2848; limited practice Others: knowledge of client’s omission; notaries; fees; conflicts of interest; negotiation of taxpayer refund check

37. IRC 6694(a) If any part of any understatement... is due to a position for which there was no realistic possibility of being sustained (RPBS).... ITRP shall pay a penalty of $250

38. IRC 6694(a): defenses ITRP did not know or could not have reasonably known that the position lacked “RPBS” Position lacking RPOBS –Was not frivolous –Was adequately disclosed RCGF –Reas. Cause for understatement –ITRP acted in good faith

39. IRC 6694(b): willful or reckless conduct ITRP shall pay $1,000 (and referral to director of practice) if Any part of any understatement is due to ITRP’s –Willful attempt to understate liability, or –Reckless or intentional disregard of rules or regulations

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

41. Defining a “return” Why should there be a return? –Statute of limitations to issue 90 days letter Self-assesment system IRS’ assessment requires 90 days notice

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

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

44. Extensions of the statute of limitations Form 872: specific date Form 872-a: extension until 90 days after –IRS mails 872-t or 90 days letter –IRS receives 872-t Limited issue extension: Appeals not allowed if < 180 days

45. Stopping the statute of limitations Mailing of 90 days letter Submission of offer in compromise T/P outside the USA for > 6 months Filing amended return w/i 60 days of expiration extends for additional 60 days.

46. Audit phase Correspondence; office; field

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

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

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

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

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