Mescalero Case Does Not Require IRS to Disclose Information on Returns Filed Outside of Tax Court Proceeding

Earlier this year we analyzed the Tax Court's decision in Mescalero Apache Tribe v. Commissioner, 148 TC No. 11 (See Taxpayer Can Obtain Information on Payment of Tax By Contractors From the IRS in Employment Tax Dispute).  In that case, a taxpayer facing potential liability for failing to withhold taxes from individuals reclassified as employees was able to convince the Tax Court that the IRS needed to provide the taxpayer with information regarding whether individuals they had been unable to located had reported the income on their return.  If that was the case, the tribe was not liable for the income taxes it had failed to withhold from those individuals.

The IRS Chief Counsel’s office reacted shortly after the Mescalaro decision in an email (Chief Counsel Email 201723020), indicating that in its view this case does not grant taxpayers facing such liability may not require the IRS to provide worker tax information during the exam.  Rather the agency’s position is that the case only holds that such disclosure may be required by the Court during discovery, not that employers facing potential liability have the right to obtain that information directly from the service immediately upon the issue being raised in exam.

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Taxpayer Can Obtain Information on Payment of Tax By Contractors From the IRS in Employment Tax Dispute

In the case of the Mescalero Apache Tribe v. Commissioner, 148 TC No. 11 the Tax Court had to consider the taxpayer’s request to obtain information from the IRS regarding other taxpayers, specifically if those taxpayers had reported income received from the Tribe on their income tax returns.  Or, as the IRS claimed, did the law (specifically IRC §6103) prevent the agency from disclosing such information about other taxpayers.

The question arose because the IRS had decided in an examination that the Tribe had failed to treat certain individuals as employees that were, in the agency’s view, truly employees.  While the Tribe is still contesting that fact, the Tribe sought information from the IRS to reduce the amount due. Specifically, the Tribe wished to know if contractors they had been unable to contact had paid their taxes.

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Partnership That Could Only Obtain Known Unreliable Information on Income Flowing to It from Its Only Investment Had Reasonable Cause for Late Filing

Filing partnership returns late now subjects the partnership to significant penalties.  Under IRC §6103 the partnership is penalized $195 per month per partner, up to a maximum of ten months, for each month or fraction of a month the partnership return is filed after the due date (including extensions actually granted).  However, no penalty applies if the partnership can show the failure is due to reasonable cause. [IRC §6698(a)]

In the case of In re: Refco Public Community Pool LP, Banktruptcy Court for the District of Delaware, Case No. 14-11216, 118 AFTR 2d ¶ 2016-5085 the bankruptcy plan administrator challenged the IRS’s claim for late filing penalties of $3,662,000 for the years 2005-2007.

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A Head of Household Return is Not a Separate Return for Purposes of Applying Tax Court Filing Bar to Electing Married Filing Joint

Reversing the Tax Court, the Eighth Circuit in the case of Ibrahim v. CommissionerDocket No. 14-2070reversing and remanding TC Memo 2014-8, the Eighth Circuit found that filing as “head of household” by a taxpayer did not qualify as filing a “separate return” for purposes of IRC §6013(b)(2)(B).

IRC §6013(b) generally provides that a married taxpayer that had previously filed a “separate return” can revise their filing and, with the consent of their spouse, file a married filing joint return.  However such an option is not available if the taxpayer had previously filed a “separate return,” received a notice of deficiency and filed a petition before the Tax Court. [IRC §6013(b)(2)(B)]

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