Fraud, the standard for the 10-year ban, isn’t applied often — it’s a high standard with a strong definition, said John Plecnik of Cleveland State University’s Cleveland-Marshall College of Law. The issue is with the standard for reckless or intentional disregard of the rules, he said. The IRS treats that standard “like the Supreme Court treats pornography — we know it when we see it,” he said.

There are no regulations under section 32(k) defining the standard for recklessness or intentional disregard of the rules, case law is sparse, and the IRS has not issued any guidance on the point, Plecnik wrote in a 2014 Tax Notes article about the EITC ban (“Reckless Means Reckless: Understanding the EITC Ban,” Tax Notes, Feb. 24, 2014, p. 847 (Doc 2014-2409)).

“We have not essentially figured out as a tax bar how to apply 32(k) and its ban appropriately to the earned income tax credit,” Plecnik told Tax Analysts. “And to extend it to the child tax credit and the American opportunity tax credit before we’ve agreed on the definition of reckless — the standard of conduct that triggers the penalty — I think it’s irresponsible.”

Absent IRS action, the best option clinics and taxpayers have for challenging application of the bans and the definition of recklessness is in Tax Court, Plecnik said. He said he would want a clinic to file a regular case, not a small case, when making a challenge. There have been small cases on these issues, but not a regular case with all issues being raised to the court so that the judge on the case or the full court can address the really significant issue of when applying the ban is appropriate, he said.

A clinic could win a challenge based solely on legislative history of section 32(k) from 1997, Plecnik said. He said that based on that history, he believes Congress intended the same definition of reckless or intentional disregard in section 6662 to apply to section 32(k), which contains the EITC ban.

“I would be shocked if the Tax Court did not agree with the legislative history,” he said. “It’s a pretty clear-cut case.”

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Under the new law, the IRS will also have math error authority to use in reviewing returns of taxpayers who have been banned from claiming any of the three refundable credits for the length of the taxpayer’s ban, Plecnik said. While taxpayers can appeal an IRS determination to revise their return based on math error authority under section 6213, many low-income taxpayers don’t read or understand mail they get from the IRS, and so they may lose their 60-day appeal window, Plecnik said. In that case, he said, the only way they can get their money back is to sue for a refund, which requires them to pay the tax upfront. For many poorer taxpayers, that’s “functionally impossible,” he said.

“So many taxpayers are never even going to get to Tax Court, particularly because of this math error authority,” he said.

The full article is available here:  Tax Notes Today, 12.28.15, Plecnik