"Tax controversy topic" needed for term research paper ..

The most current one is "North Dakota State Univrsity v. United States" which may be an exercise in futility.

There is a case "U.S. v. Roland Harry Macher" where the Bankruptcy ordered the IRS to process Macher's Chapter 11 plan as though it was an offer in compromise.

The reason I recall this case is that the Commissioner went to the House Ways and Means Committee about it. The issues that come to mind are:

1) Given the Bankruptcy Court has the authority to tell the IRS that it has voided the tax liability, why wouldn't it also have the authority to tell the IRS to process a reduction in the tax liability? 2) Given a conflict between the IRS and the Bankruptcy Court, why would Congress side with the IRS especially since this appears to be a "you can't tell me what to do" argument? 3) Given the controversity and the IRS taking a nonacquiesce position, has the Bankruptcy Court issued any directives on future matters of this nature? 4) Has a similar case occurred since Macher? 5) What procedures does the IRS want followed in such cases?

It is my unresearched opinion that nonacquiescence is the Service's way of saying "Let's not fight this issue because it may not arise again" or "Let's keep going to court until we win."

I suspect the Service nonacquiest on the home office issue until it got to Dr. Soliman's home office deduction.

Dick

Go to irs.gov and type "nonacquiesce" in the search box. I received 67 hits.

-- Drew Edmundson, CPA Cary, NC

Go to a law library and look at the CCH or PH tax materials. You'll see citations to cases, and also notes for acquiescenses and non-acquiescenses. There might be something at the IRS website at irs.gov, but I'm not aware of it if there is. Stu

That doesn't really surprise me. Google is your friend.

Try Googling for: nonacquiescence AOD or: nonacquiescence AOD

Alternatively,

through a Google similar to the above) is probably adecent place to start, although you'll have to click throughthe recent AODs.

Phoebe :)

Dick Adams wrote:

I think it does. In Macher it looks like the tax claim was a priority claim and non-dischargeable. So the court discharge the tax liability, or even order a reduction. But the court thought it was unreasonable for the IRS to refuse to process an offer in compromise simply because the taxpayer was in bankruptcy. Note that the court did not require the IRS to compromise the tax due - only to process it under its normal procedures. The IRS had taken the position that it would not even consider an offer in compromise from anyone in bankruptcy.

Several bankruptcy courts (and at least one or two district courts in bankruptcy appeals) have ruled on this. Some agree with Macher, others do not. Those who disagree with Macher say that the bankruptcy code has specific rules for dealing with tax claims, so those should be followed in preference to ordering the IRS to process an offer in compromise. I'm not sure I agree with that - at this point I agree with Macher. But I haven't taken the time to research it in detail.

Unlike the tax court, there are many separate bankruptcy courts. The only "directives" would be decisions of higher courts. There is one district court case I found on this point, and it agreed with Macher. But on my brief research I could find no appellate cases.

There have been several. The bankruptcy court in Georgia agreed with Macher in the Holmes case in 2003. This decision was affirmed by the federal district court in 2004. Also in 2004 the bankruptcy court in Nebraska agreed with Holmes. The bankruptcy court in DC disagreed in 2005 in the case of

1900 M Restuarant Associates, Inc. In 2006 the Pennsylvania bankruptcy court also disagreed with Macher. That same year the bankruptcy court in Ohio followed suit and agreed with 1900 M Restaurant.

I think you're right. In general the IRS will look at the court cases and determine if they think other courts will go along. Sometimes they acquiesce right away. Sometimes they go all the way to the Supreme Court - sometimes they win and sometimes they lose. But I think most of the time they're trying to be reasonable. In my opinion one of the worst examples of this was the Crown case in 1977, affirmed by the 7th Circuit (in Chicago) in 1978. In that case a rich guy made a large loan to a relative. The terms were that no interest would be due, but the lender could demand repayment at any time. The donor was basically passing taxable income from himself to a relative in a lower tax bracket. The IRS went after these guys for gift tax. The court (and others afterward) held that under §2512, "the value thereof at the date of the gift shall be considered the amount of the gift." If the value is based on the date of the gift, an interest free loan that had to be repaid at any time had a value of zero, because there was no way to determine in advance how long the borrower would be able to keep the money. Eventually the Supreme Court overturned Crown. I believe the Court was wrong and Crown was right based on a strict construction of the statute. But they just couldn't stand the fact that something of real value could be given without a gift tax being incurred. The real stupid part about all this, though, is that it was completely unnecessary. Under the Grantor Trust rules in §671 etc., the IRS could have treated the donor as the owner of all taxable income from the gift, thus increasing income tax collections every year, not just one time as the gift tax would be. This would have been a much stronger case, and would not have caused the Supreme Court to enter such a bad (in my opinion) decision. The effect continues to this day to create a loophole that didn't have to exist. Now someone can make a no-interest loan that is gift-tax free as long as the effective value (e.g. interest earned) is less than the annual exemption amount. And he will apparently be able to transfer that taxable income from his higher bracket to a lower bracket. If the IRS had gone after income tax rather than gift tax in Crown, we wouldn't have that loophole today. Stu