Mark Allison Quoted in Tax Notes, Self-Serving Concessions And Penalty Avoidance
Excerpt taken from article.
Most lawyers want to see their clients fully acquitted of allegations of improper behavior. But in civil tax cases, sometimes simply avoiding penalties is good enough.
In alleged tax sheltered cases, the penalties can be significant, so some taxpayers attempt to minimize the financial damage by conceding the underlying tax issue.
Unfortunately for taxpayers, the IRS is not a softhearted adversary content to let taxpayers pay the minimum amount of taxes owed when it believes abusive behavior was involved. Indeed, it has indicated in recent legal memoranda that it intends to be more aggressive in forcing tax shelter participants to pay for their misdeeds by refusing to allow concessions in penalty cases.
It is hard to fault the IRS for wanting to settle cases without losing the ability to argue for penalties that it believes are appropriate. But as the Ninth Circuit observed in Keller, IRS complaints of tax-payers opportunistically avoiding a possibly higher valuation penalty by making a concession are less forceful when the taxpayer's action leads to collection of the full asserted unpaid tax liability. In a note, the circuit court said that "the Commissioner agreed to the stipulation at the time and must live with the consequences of that agreement now." (For Keller v. Commissioner, No. 556 F.3d 1056 (9th Cir. 2009), see Doc 2009-4282 or 2009 TNT 37-17.)
Mark D. Allison of Caplin & Drysdale said that although the IRS is making a big deal about taxpayers trying to avoid valuation penalties, the agency shouldn't make it seem as if it has been caught unaware by taxpayers making concessions. "The IRS can understand the choices being made by a taxpayer in structuring a concession, and it should come as no surprise that conceding on one specific ground is made to obtain a benefit in another fashion," he said. "This is not a new development in how settlements in tax litigation are negotiated."
The government's arguments for applying the gross valuation penalty are stronger when a court determines that complete disallowance of a tax benefit inherently implies an overvaluation, Allison said. "But where a court renders a decision in response to multiple theories posited by the government and it is not evident that there is any one justification relied on by the court to implicated the gross valuation penalty, the argument is less forceful," he said. "The taxpayer is giving up the tax entirely for some perceived benefit on the penalty. If that's not appropriate, courts would have to conduct mini-trials at the penalty phase simply to determine how various disallowance rationales apply or correlate to the penalty, and that kind of approach belies judicial efficiency."
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