Collection Due Process Rights Begin When IRS Mails the Notice, Not When It Dates the Notice

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The case of Weiss v. Commissioner holds that the time period for making a Collection Due Process (CDP) request runs from the date the IRS mails the notice and not from the date on the notice.  This is not a surprising result.  The Weiss case raises the issue in a surprising context, which I will discuss below, but the Tax Court’s decision is consistent with the statute and with prior case law in similar contexts.  The case serves as a good reminder to check the date of mailing when receiving correspondence from the IRS if the correspondence is the type that triggers a response by a specific date.  My experience is that the IRS almost always gets the mailing date and the date on the correspondence right (meaning the date on the letter and the date the letter is mailed are the same) with certified mailing and does not often get the date right on regular correspondence.  In the Weiss case, the date of the CDP notice was earlier than the date on which it mailed the letter and that made a crucial difference in the outcome.

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Background Thoughts

The taxpayer owed over $500,000 for income taxes for some very old years going back into the 1980s. He filed bankruptcy trying to discharge the liabilities and was one of the few people who could not discharge the liabilities because of a determination by the bankruptcy court that he attempted to evade the payment of his taxes. Citing to B.C. 523(a)(1)(C), the bankruptcy court, determined that most of the taxes were excepted from discharge because of his attempt to evade payment. The bankruptcy court opinion lays out the facts and the law. On appeal to the district court for the Eastern District of Pennsylvania, 2000 WL 1708802 and then to the 3rd Circuit, 276 F.3d 582 (opinion amended and superceded 32 Fed. Appx. 32 (2002)) the IRS ultimately prevailed in excepting all years from discharge. I have discussed this exception to discharge, which is rare, here.

The fact that the bankruptcy court denied a discharge citing B.C. 523(a)(1)(C) helps to explain the argument made by the petitioner in this Tax Court case.

Because of the amount owed, the IRS assigned the case to a revenue officer for collection. The statute of limitation on collection was nearing its end. It seems very odd that so many years after the IRS assessed this liability it had never issued a CDP notice. When the liability was assessed, the notice stream would not have contained a CDP notice; however, it had still been many more years before the statute ran out. The revenue officer (RO) drove to petitioner’s home to personally deliver the CDP notice; however, “he was deterred by a dog blocking the driveway” and “left without delivering” the notice. He worked on other cases and did not return to his office until the next day. The opinion says that he conferred with a colleague – perhaps the fraud coordinator in the Criminal Investigation Division – to determine whether a criminal investigation should be opened and received a negative answer.

This is another oddity in the case. Criminal prosecution trumps civil action. If the RO had any concerns that the case should receive the attention of Criminal Investigation, it would be normal for him to do that before giving the taxpayer CDP rights. To do this after he tried to deliver the CDP notice and not before suggests that the criminal referral was very much an afterthought. (Did his confrontation with the dog change his opinion about the case?) So, having decided not to pursue the case criminally, a potentially viable option given the bankruptcy court decision on discharge which follows the same analysis though with a lesser burden of proof standard, the RO went back to work on the CDP matter. Even though the same elements would form the core proof as in the bankruptcy discharge case, the bankruptcy case had ended over a decade before the brief check for the possibility of criminal prosecution. To successfully prosecute, the IRS would need to show acts of evasion of payment within the statute of limitations for prosecution of that crime at the time of the referral.

The opinion says nothing about bringing a suit to reduce the assessment to judgment. I would have expected the RO to give serious consideration to this option. If the statute is about to run out, reducing the assessment to judgment would extend it indefinitely as discussed here. The case seems like the type of case in which the IRS would go to the trouble to do that but the case has not taken that course yet. Based on the decision of the Tax Court, the IRS may still play that card. It is a much more likely course of action than prosecution.

Because of petitioner’s bankruptcy cases, the statute of limitations on collection was set to expire in July 2009 unless further prolonged. As we have discussed before, a valid CDP request suspends the statute of limitations on collection.

The IRS Action in CDP Case

Two days after the failed personal delivery of the CDP notice, on February the 13th (same date though different year as the mailing of the CDP petition by Mr. Guralnik’s lawyer in another full T.C. opinion CDP case this year), the RO sends the notice to the taxpayer; however, the RO did not create a new CDP notice but rather placed the one he created for personal delivery into the mail. The result was that the date on the notice was two days earlier than the date of mailing.

Now comes the weird part of the case. Petitioner’s wife opened the letters and tossed the envelopes. Petitioner saw the date on the CDP notice of February 11, 2009. Petitioner is an attorney. He had read about CDP notices and testified that he knew the difference between CDP requests and equivalent hearing requests. He filled out Forms 12153 for each of the two CDP notices he received. When he did so, he checked the box for a CDP hearing and not for an equivalent hearing. He dated both requests on March 13, 2009. The envelope in which he sent one was postmarked on March 13 and the other envelope was postmarked March 14. Petitioner filled out the requests with incorrect years which the IRS asked him to correct. The IRS separated the two requests from their envelopes so it became impossible to determine which of the two requests came in an envelope postmarked March 13 and which came in an envelope postmarked March 14.

By the time the settlement officer in Appeals began to review the case and to verify the items required by statute, it was after July 2009 and the statute of limitations on collection had run if it was not suspended by the filing of the CDP cases. She determined that the CDP cases were timely filed because she relied on the date of mailing – February 13. Thirty days after that date fell on a weekend, making March 16 the last date to file the CDP requests. Both requests were received by the IRS on March 16. So, she determined that there was no timeliness problem. She communicated with petitioner three times during this period and in none of those conversations did he say that he wanted an equivalent hearing rather than a CDP one.

In February 2010, petitioner retained an attorney and his attorney raised the issue that the CDP request was untimely. In doing so, he made several arguments, all of which were rejected by the Court. In reviewing the arguments, the Court noted, as we have noted before, that “there is some uncertainty in our precedents as to whether a de novo standard of review applies where (as here) the controversy concerns a challenge to the 10 year collection period of limitations.” The Court went on to note that the assignment of the burden of proof in this case was unnecessary, leaving that issue for another day. The Court found that the 30 day period for requesting a hearing begins on the date of mailing the notice and not the date of the notice. In doing so, it reviewed prior relevant case law in related situations. Perhaps the most important case was Bongam v. Commissioner 146 T.C. No. 4, in which the Court held that the 30 day period for filing a Tax Court petition begins on the date of mailing the notice of determination and not on the date on the notice of determination.

Petitioner argued that the Settlement Officer did not properly determine the date of mailing because she relied on the transcript. The Court found that she looked at appropriate underlying evidence and agreed with her determination as to the date of mailing.

Petitioner argued that the CDP notice was “fatally defective because it violated what he calls the information requirement of section 6330(a)(3).” Essentially, petitioner argued that because the date on the notice was wrong, the notice failed to contain essential information. The Court found that the validity of the notice was unaffected by the fact that the date on the notice did not match the date of mailing.

Petitioner ended with an argument that the IRS was equitably estopped from arguing that the applicable date of the notice differed from the date on the notice. The Court rejected this argument on both legal and factual grounds. First, it found that the IRS did not seek to conceal the mailing date. The date was clearly marked on the envelope. So, an element of estoppel was lacking. Then, it found that petitioner’s testimony that he intended his request to be a request for an equivalent hearing lacked credibility. It cited several reasons for the lack of credibility, including his own markings on both of his requests that he sought a CDP hearing. His argument, which takes the opposite tack that 99% of taxpayers arguing about the validity of a CDP notice will take, lacked credibility because of several actions he took at the time he made the request. It appeared that he changed his tune once he hired a lawyer who pointed out to him the benefit of not timely filing the CDP request.

Conclusion

The outcome of the case was predictable. The case does, however, point out that the IRS must be careful if it is relying on the CDP request to extend the statute of limitations. Here, the Settlement Officer did not even review the case until after the statute of limitations had passed if the CDP request was untimely. If the taxpayer here had wanted to make an equivalent hearing request, he could easily have waited a few more days to make sure that he fell outside the 30 days window. If my client received a CDP notice so close to the statute of limitations expiration date, I would think long and hard before making the CDP request just as I would not generally request an offer in compromise so close to the statute expiration. If he had clearly requested an equivalent hearing, the IRS should have gone on high alert for the statute and done things like bringing a suit to reduce the assessment to judgment. I would have expected it to do that instead of the CDP notice. Making a request for an equivalent hearing might have opened the taxpayer up to levy or the bringing of a suit against him to reduce the liability to judgment but it might have lulled the IRS into a transfer of the case from the RO to Appeals without careful notation of the imminent statute. It would have been a reasonable gamble concerning the alertness of the IRS. Petitioner tried to have it both ways. The Court correctly found he could not.

Comments

  1. Ron Wiener says:

    IRS Notice Date vs. IRS Mailing Date: Over the past couple of years, I’ve noticed some significant changes in the relationship between the notice date and the mailing date of IRS non-Certified mailings. In the past, most IRS notices sent out by the IRS computer system seemed to be both dated and received on a Monday. So, I assume they must have been mailed on an earlier date. I attributed this to the longstanding IRS practice of having notices initiated by entering code into a computer tape, trucking the computer tapes on Thursdays down to the IRS Martinsburg, WV computer facility, processing the tapes on Fridays, and generating notices dated the following Monday and mailed so as to be received by taxpayers on that Monday. I admit that I never tried to get confirmation of the accuracy of this theory, but it seemed to make sense.
    More recently, I’ve seen many IRS notices dated LATER than the date I or the taxpayer actually received the notices. My new assumption [which I also haven’t tried to confirm] is that the IRS computer system still uses the old programming practice of delaying the Notice date to account for the delay between processing and mailing . However, with the partially modernized IRS computer processes, at least some of the notices are getting mailed closer to the date of inputting into the system.
    In this type of situation, the taxpayer gets a break if the Notice requires a response “within __ days after the date of this Notice.” However, if such a notice happens to be one where the statute requires a response within __ days after the date the notice was MAILED, it would be easy for the taxpayer/practitioner to be fooled and mail the response AFTER the required date. It seems to me that would present a sympathetic case for equitable relief, but that’s above my grade level.

    • I’ve noticed the same, Ron. I have assumed I would be safe relying on the notice date on the notice, and when I read Weiss, my mind went right to the post dating, and the ways in which I could inadvertently be stuck in a bad position. I have seen the post dating so much, I assume it was an intentional change in policy, but you know far more than I do about the system, so I would assume your theory is correct.

  2. I am about to go through an equivalence hearing and have requested a face to face meeting. The settlement officer seems ok with that and I’ve sent in my 433A as she requested. I indicated I am disputing the CSED(s) in my file as they don’t seem to make any sense. I have 3 years in question all with the same assessed dates which have passed. The settlement officer said I “must have requested a payment plan” according to the codes. I left her a message indicating that I did indeed had spoken to several collection agents over time and had once sent in a 433 form but had not requested a payment plan but rather asked for uncollectible status. My question is do the collection agents decide the codes and can they be challenged in an equivalence hearing?

    • Brad Howell says:

      The revenue officer does not “decide the codes.” You can order your account transcripts from the I.R.S. and see the codes that have been entered. There will be a brief description of the action taken, but sometimes that description isn’t very revealing, and so you may need to look up the associated code to determine what happened on that date.

      To my knowledge, requesting Currently Not Collectible (CNC) status does not suspend or extend the Collection Statute Expiration Date (CSED). Requesting an installment agreement does suspend the CSED. So can requesting a Collection Due Process (CDP) hearing, challenging the rejection of an installment agreement, filing for an Offer In Compromise (OIC), etc. The Internal Revenue Manual details when the CSED is extended or suspended: https://www.irs.gov/irm/part5/irm_05-001-019.html#d0e475

      I think your first step should be to order your account transcripts and review them to determine what is reflected in your account history. If you see no actions that would extend or suspend the CSED, then the appeals officer should be able to assist with getting the assessments written off as noncollectable due to the expiration of the CSED.

  3. Steven Kassel says:

    Have a case with some similar circumstances. 1999 through 2003 were late filed and have balances due of over $3,000,000. Collection statute about to expire on those years so IRS levied everything possible. We opted to let those levies remain in place until statutes expired. However, there were other periods that would remain open and because there were considerable problems with the levies, I decided to file a 911, Request for Taxpayer Assistance Order and a CDP Hearing Request, but only on the years that would remain open after the statutes expire. By doing so, I did not disturb the pending expiring statutes (which just expired) & was still able to have my objections heard by Appeals and the Advocate.

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