Last week, National Taxpayers Union filed an amicus brief in the case of PBBM-Rose Hill v. Commissioner of Internal Revenue on the side of the appellants PBBM-Rose Hill. The case concerns a substantive but under-publicized issue in which the IRS is running roughshod over a key protection for taxpayers in audits that Congress contained in sweeping reform legislation over 20 years ago. NTU believes that the Fifth Circuit Court of Appeals should grant a rehearing en banc in order to allow further deliberation of the Court’s earlier decision essentially nullifying this protection for hundreds of thousand of taxpayers.
Although the underlying issue of PBBM-Rose Hill concerns the application of the longstanding federal tax deduction for conservation easements -- an issue NTU has increasingly monitored -- the amicus brief focuses on one aspect of the case. Namely, NTU contends that the Court gave license to the tax agency’s failure to follow statutory law enacted in 1998 requiring the personal written approval of a supervisor before government audit personnel can assess certain penalties (Section 6751 of the Internal Revenue Code). NTU served on the Congressionally mandated panel whose recommendations later became the basis for that law, and therefore has direct experience with the legislative intent behind it. Our counsel writes that the IRS has largely overstepped its bounds and is disregarding specific guidance that they have been given on how to properly administer penalties:
Members of Congress expressed concern that IRS examiners were inflating initial penalty determinations to serve as “bargaining chip[s]” in settlement negotiations…” To stem this practice, § 6751 states that “[n]o penalty” under the Internal Revenue Code can be assessed “unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination.” … The panel’s recent decision … reads these key words out of the statute. ...
The panel’s published opinion will carry outsized influence on how the IRS handles hundreds of thousands of penalty cases.
To read NTU's full amicus brief, click here.
This case is important both on the topic of easement adjudication and because these kinds of penalties assessed by the IRS affect taxpayers in all kinds of situations.
NTU has addressed the issue of conservation easements in the past, noting that the tactics the IRS has been honing against this accepted, decades-old tax policy have troubling implications for the entire system of tax administration. As NTU President Pete Sepp wrote recently:
From a practical, fiscal standpoint, the deduction is more efficient than government-driven spending programs. A fundamental driving principle of the charitable contributions tax deduction is that it recognizes the value of private sector initiatives for the betterment of society, often at a far greater return for every dollar spent than government programs could possibly achieve. … [I]n the tax world, what’s arcane today can become commonplace tomorrow: doctrines, theories, and enforcement tactics developed for one area of the tax system have a way replicating themselves.
To speak with NTU President Pete Sepp on NTU’s amicus brief, the IRS’s ignorance of Congressional guidance when issuing penalties, or conservation easement policy, please contact NTU Vice President of Communications Kevin Glass at 703-299-8670 or kglass@ntu.org.