Nina Olson, in her annual report to Congress, provides an interesting list of the 10 most litigated federal tax issues from June 1, 2008 to May 31, 2009 for which the court issued an opinion. The top 10 are (listed in order of most to least cases):
- Collection due process hearings;
- Summons enforcement;
- Trade or business expenses;
- Gross income;
- Accuracy-related penalties;
- Frivolous issue penalties;
- Actions to enforce federal tax liens or to subject property to payment of tax;
- Failure to file penalty and estimated tax penalty;
- Family status issues; and
- Relief from joint and several liability for spouses.
As one can see, most of these heavily litigated issues are not "sexy" but typically relate only to procedural matters. Some other interesting highlights of the report include:
- The list is substantially similar to the list from the prior year, except for a marked decrease in gross income cases.
- The top 10 list is made up of 923 cases.
- Bad news for tax litigators - 71% of these cases involved pro se taxpayers who represented themselves.
- Generally, taxpayers have a higher chance of prevailing in litigation if they were represented by counsel. However, pro se taxpayers experienced a substantially higher rate of success than represented taxpayers in litigation over frivolous issue penalties and family status issues.
- Taxpayers prevailed in whole or in part in 14.3% of the cases.
The report also highlights what the IRS considered to be the "significant cases" for the covered period. The following is a list of those cases and the IRS’ description of them:
- In In re Bilski, the Court of Appeals for the Federal Circuit held that a process is not a patentable subject matter unless it is either (1) tied to a particular machine or apparatus, or (2) transforms an article into a different state or thing.
- In RadioShack Corp. v. United States, the Court of Appeals for the Federal Circuit held that the taxpayer’s statute of limitations period for filing a telephone excise tax refund claim began to run when the taxpayer’s telephone service provider filed a return.
- In Keller v. Commissioner, the Court of Appeals for the Ninth Circuit held that a taxpayer was not liable for the 40 percent gross valuation misstatement penalty because his understatement of tax was attributable to improperly claiming a deduction rather than overvaluing a deductible item.
- In the Estate of Rosen, the Tax Court held that the IRS could not reverse its erroneous application of the decedent’s income tax payment to his estate tax liability after the three-year statute of limitations on assessment had expired with respect to the income tax return, and thus, the income tax overpayment offset the decedent’s estate tax liability.
- In Countryside L.P. v. Commissioner, the Tax Court held that the exception to the tax practitioner privilege applicable to written communications promoting a corporate tax shelter did not apply to handwritten notes or meeting minutes because (1) they were not a “written communication” and (2) the routine advice provided by the practitioner did not “promote” a shelter.
- In Mayo Foundation for Medical Education and Research v. United States, the Court of Appeals for the Eighth Circuit reversed the District Court by holding that (1)a hospital’s medical residents were not eligible for the student exemption from Federal Insurance Contributions Act (FICA) taxes because they were full-time employees, and (2) the applicable Treasury Regulations were valid.
- In Williams v. Commissioner, the Tax Court held that it lacked jurisdiction to redetermine the taxpayer’s liability for the foreign bank account report penalties(FBAR).
In Morrison v. Commissioner, the Court of Appeals for the Ninth Circuit held that a taxpayer can recover fees from the government under IRC § 7430 even if a third party pays the fees, provided the taxpayer agrees to repay to the third party any fees reimbursed by the government.
- In United States v. McFerrin, the Court of Appeals for the Fifth Circuit extended the “Cohan rule” to hold that a taxpayer who establishes the existence of qualified expenses for purposes of the IRC § 41 research credit, is entitled to rely on rough estimates, rather than contemporaneous documentation, to determine the amount of those expenditures.
- In Bakersfield Energy, the Court of Appeals for the Ninth Circuit held that an overstatement of basis was not an omission of gross income for purposes of extending the statute of limitations on assessment under IRC § 6501(e).