I would like to thank you for being able to appear before your Subcommittee on May 20, 1983.

Congressman Leon E. Panetta of the sixteenth California district is sponsoring a bill, HR1540, which would allow Enrolled Agents and Certified Public Accountants to practice before the small case part of the United States Tax Court. Representative Panetta introduced this bill because he felt that taxpayers needed to be afforded additional relief when they had a tax dispute with the government.

Most taxpayers who obtain outside assistance in the preparation of the their tax returns employ Certified Public Accountants or Enrolled Agents who are authorized to practice before the Internal Revenue Service. However, if they get involved in a dispute with the Internal Revenue Service they must hire an attorney if they wish to take their case before the Tax Court. Our Association believes that enabling the taxpayer to make use of the individual who prepared his return would greatly expedite many cases before the Tax Court. The Commissioner of Internal Revenue and the Chief Counsel of Internal Revenue stated in their 1981 Annual Report that the number of small tax cases before the Court increased from 3,700 in 1977 to 10,500 in 1981. For your edification, I am enclosing page 75 of the 1981 report. In 1982, the Court received 9,800 small tax case petitions. Judge Tannewald only recently testified that the Court is straining under its current work load and is falling behind in its ability to dispose of docketed cases. It is the hope of our Association that your committee will join in the sponsoring of legislation to afford the taxpayer with a small case tax dispute the opportunity for expeditious representation.

Very truly yours,

David J. Silverman

Committee Chairman
New York State Society of Enrolled Agents
Government Relations Committee
Suite 4050
866 United Nations Plaza
New York, NY 10017
(212) 752-6983

Tax Litigation

The Tax Litigation Division determines and coordinates the legal position of the IRS in order to assure consistency in all cases litigated in the United States Tax Court and all cases for refund of taxes and certain suits for declaratory judgment instituted by taxpayers in the United States district courts and the Court of Claims. If the IRS loses a case, the division determines, and advises the IRS with respect to Tax Court cases, whether to acquiesce or nonacquiesce in the decision and, with respect to other adversely decided cases, advises the Department of Justice whether or not to appeal.

During the fiscal year, a number of significant were decided.

In Rowan Companies, Inc. v. United States, the Supreme Court ruled against the IRS, holding that Congress intended the definition of "wages" to be interpreted in the same manner for FICA and FUTA withholding as for income tax withholding, and, therefore, when meals and lodging provided by the employer are excluded from income tax withholding, they are also excluded from FICA and FUTA withholding.

In United Slates v. Darusmont, the Supreme Court held that the application of an income tax statute to the entire calendar year in which the statute was enacted did not per se violate the Due Process Clause of the Fifth Amendment.

The Supreme Court ruled for the IRS in HCSC-Laundry v. United States, holding that hospital-shared service organizations cannot qualify for exempt status under subsection 501(c)(3), but must qualify, if at all, under subsection 501(e) which governs cooperative hospital service organizations.

The Supreme Court ruled for the Government in Commissioner v. Portland Cement Co. of Utah, holding that for purposes of computing gross income from mining by the proportionate profits method which, in turn, governs a taxpayer's depletion deduction, the first marketable product is finished cement, whether sold in bulk or bags, and that the costs of bags, bagging, storing, shipping, and selling should be included in the proportionate profits computation as non- mining costs.

The Supreme Court ruled against the Government in United States v. Swank holding that a provision in a coal mining lease permitting termination by either party or 30-days notice did not preclude the lessees from having an "economic interest" in the coal in place which would entitle them to a depletion allowance under sections 611 and 613.

In Diedrich v. Commissioner, the Eighth Circuit ruled for the IRS, holding in direct conflict to previous net-gift holdings in the Fourth, Fifth, and Sixth Circuits, that a donor realized income on the gift of property to his children, who agreed to pay the donor's gift tax liability, to the extent of the excess of the donor's tax liability over his adjusted basis in the property transferred, an issue involving approximately 20 pending cases and between 4 and 5 million dollars.