TAX COURT DOESN'T LET IRS PROCEED WITH COLLECTION OF TAXPAYER'S UNPAID TAXES BY LEVY

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TAX COURT DOESN’T LET IRS PROCEED WITH COLLECTION OF TAXPAYER’S UNPAID TAXES BY LEVY

Posted by Kim Chen on February 2nd, 2016

Allen, TC Memo 2016-13TC Memo 2016-13
In reviewing a determination by the IRS Appeals Office to proceed with collection of the taxpayers’ unpaid Federal income tax by levy, the Tax Court concluded that there were genuine questions of material fact to be decided at trial with regard to the taxpayers’ receipt of a notice of deficiency and the adequacy of the opportunity provided at the Appeals hearing to challenge their tax liability.
Background. Code Sec. 6320(a)(1) and Code Sec. 6330(a)(1) require IRS to give a taxpayer written notice when a notice of Federal tax lien (NFTL) is filed upon the taxpayer’s property or IRS intends to levy upon the taxpayer’s property. The notices must inform the taxpayer of the right to request an administrative hearing (i.e. a Collection Due Process, or CDP, hearing) in the Appeals Office. When making such a request, the taxpayer must state the grounds for the requested hearing. (Code Sec. 6320(b)(1), Code Sec. 6330(b)(1) ) If a taxpayer makes a timely written request and states the grounds for the requested hearing, he is entitled to a fair hearing conducted by an impartial officer from the Appeals Office. (Code Sec. 6320(a)(3)(B), Code Sec. 6330(a)(3)(B))
At that hearing, the taxpayer can challenge the existence or amount of his underlying tax liability for any period only if the taxpayer did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability. (Code Sec. 6330(c)(2)(B))
After the administrative hearing is completed, the Appeals Office issues a written notice of determination indicating whether the NFTL should remain in effect and/or whether the proposed levy may proceed. (Code Sec. 6330(c)(3), Reg. § 301.6320-1(e)(3), Q&A E8, Reg. § 301.6330-1(e)(3), Q&A E8)
A taxpayer may appeal the Appeals Office determination to the Tax Court within 30 days of the determination, and if an appeal is timely filed, the Court will have jurisdiction with respect to the matter. (Code Sec. 6330(d)(1), Reg. § 301.6330-1(f)(1)) In seeking Tax Court review of a notice of determination, the taxpayer can only ask the Court to consider an issue, including a challenge to the underlying tax liability, that was properly raised in the taxpayer’s CDP hearing. An issue is not properly raised if the taxpayer fails to request consideration of the issue by Appeals, or if consideration is requested but the taxpayer fails to present to Appeals any evidence with respect to that issue after being given a reasonable opportunity to present such evidence. (Reg. § 301.6330-1(f)(2), Q&A F3)
Facts. Cornelius and Amye Allen requested an Appeals hearing after receiving a notice of intent to levy for their 2011 tax year. In their request for a CDP hearing, they stated: “We have not had another opportunity to disagree and dispute the deficiency notice.”
The IRS Appeals Office determined to proceed with collection of their unpaid Federal income tax for that year, and the taxpayers petitioned for review of that determination.
IRS’s position. IRS moved for summary judgment on the grounds that the taxpayers weren’t entitled to challenge their underlying tax liability and they had raised no other issue regarding IRS’s determination.
IRS claimed that the taxpayers couldn’t challenge their underlying tax liability for 2011 because they: (1) received a statutory notice of deficiency; and (2) failed to properly challenge the merits of that liability during the CDP hearing.
Court’s conclusion. The Tax Court found that the taxpayers’ denial of receipt of a notice of deficiency presented a genuine question of material fact sufficient to require denial of IRS’s motion for summary judgment.
The Court refused to accept IRS’s claim that, by asserting that they disagreed with the notice of deficiency for the 2011 tax year, the taxpayers implicitly admitted that they received the notice of deficiency. The Tax Court viewed the taxpayers’ statement of dispute with the notice of deficiency as ambiguous, reasoning that the statement need not be read as an admission of having received the notice. The taxpayers may have meant to express their disagreement not with the notice of deficiency as such but, instead, with the liability asserted in the notice.
Further, the Court found that any inference that might be drawn from the taxpayers’ statement of dispute with the notice of deficiency was outweighed by their unambiguous claim, in response to IRS’s motion for summary judgment, that they “have not had an opportunity to challenge their underlying liability in this case.” Accordingly, the Court concluded that the issue of whether the taxpayers received a notice of deficiency for their 2011 tax year presented a genuine question of material fact.
And the Court noted that although IRS didn’t explicitly invoke the presumption that items mailed were received by the addressee, relying instead on the taxpayers’ alleged admission of receipt, the taxpayers’ denial of receipt in any event would have been sufficient to rebut the presumption and raise a genuine issue of material fact.
The Court further held that the taxpayers’ claim that the IRS settlement officer who conducted their Appeals hearing refused to consider their underlying liability and would not discuss the issue raised a genuine question of material fact regarding the adequacy of the opportunity provided to them to challenge their liability. Such provided an additional ground for denial of IRS’s motion. While IRS contended that the taxpayers failed to submit any evidence to the settlement officer with respect to their underlying liability and that their attorney expressly admitted that the taxpayers could not raise the issue of their underlying liability in the Appeals hearing, the taxpayers’ attorney on the other hand claimed that the settlement officer refused to consider the underlying liability and would not discuss the issue. The Court determined that the parties apparently disagreed on whether the settlement officer provided the taxpayers with a reasonable opportunity to present evidence regarding their underlying tax liability.
Further, the adequacy of the opportunity provided to the taxpayers to challenge their tax liability was also a genuine issue of material fact that required denial of IRS’s motion.