The IRS has Released Recommendations in Two Cases in an Actions Relating to Court Decisions Document Released in The Internal Revenue Bulletin

[Originally Published in the California Journal of Tax Litigation (August 2013)]

By Joseph P. Wilson

Wilson Acquiescence

The recommendation has been made that the IRS acquiesce in K.M. Wilson, U.S. Court of Appeals, Ninth Circuit; 10-72754, January 15, 2013, affirming the Tax Court, 99 TCM 155, TC Memo. 2010-134. The acquiescence relates to the appellate court’s holding that affirmed that the Tax Court properly considered new evidence and proceeded de novo to determine that an individual was eligible for equitable innocent spouse relief. The taxpayer requested equitable relief under Code Sec. 6015(f) from joint and several tax liabilities with her former husband. The Tax Court applied both a de novo scope of review and a de novo standard to grant the taxpayer relief. The de novo scope of review allowed the taxpayer to introduce evidence outside the administrative record, and the de novo standard allowed the court to determine whether the taxpayer was entitled to relief without regard to the IRS’s determination.

The Ninth Circuit interpreted Code Sec. 6015(e)(1) in conjunction with the mandate in Code Sec. 6015(f) “to consider the totality of the circumstances before making an equitable relief determination,” which the court noted would be impossible if the Tax Court limited its review to the administrative record. The IRS disagrees that Code Sec. 6015(e)(1) provides both a de novo scope of review and a de novo standard; however, it will no longer argue that the Tax Court should review Code Sec. 6015(f) cases for an abuse of discretion or that the court should limit its review to the administrative record.

Acquiescence was recommended by the IRS Chief Counsel in AOD 2012-07.

Media Space Nonacquiescence

The recommendation has also been made that the IRS not acquiesce to Media Space, Inc., 135 TC 424 (2010), vacating and remanding, 477 Fed Appx 857 (2nd Cir. Sep. 13, 2012). In that case, the Tax Court had characterized the taxpayer’s forbearance payments to its shareholders as Code Sec. 162 business expenses. The court held the forbearance payments were not required to be capitalized under Code Sec. 263(a) in one of the tax years at issues. The court further found that there was neither a reacquisition nor an exchange of stock to which either Code Secs. 162(k) or 361(c)(1) applied. The court also found the payments were not distributions under Code Sec. 301.

The IRS had appealed the decision but the Court of Appeals for the Second Circuit dismissed the appeal as moot, after the taxpayer in the case conceded that the payments for the tax year at issue were required to be capitalized, and vacated the Tax Court’s decision. The IRS had argued that the legal questions presented in the appeal should be addressed but the court declined to do so.

Nonacquiescence was recommended by the IRS Chief Counsel in AOD 2012-08.