In Reinhart v. Commissioner the Tax Court addressed, in the CDP context, the statute of limitations provision of IRC 6503(c), which provides that “the running of the period of limitations on collection after assessment prescribed in section 6502 shall be suspended for the period during which the taxpayer is outside the United States if such period of absence is for a continuous period of at least 6 months.” This provision does not get much play. The case deserves attention for that fact alone but it brings along a host of other procedural issues that also deserve mention.
In this two part post, the first post will focus on the procedural issues surrounding the lien refiling and CDP lien notices. The discussion primarily raises questions because the facts here do not fit any norms for federal tax liens. The description of what happened raises more questions than it answers but working through those questions can provide some insight into the process. A second post will follow in order to discuss the burden of proof issue and the facts in this case as they related to proof of Ms. Reinhart’s residence and how it could have extended the statute of limitations on collection.read more...
As mentioned, the case raises a host of procedural issues concerning the federal tax lien and CDP. First, the IRS did not issue Ms. Reinhart a determination letter. Rather, it issued her a decision letter. When a taxpayer requests a CDP hearing, a timely request results in a “regular” CDP hearing with full appeal rights to the Tax Court while an untimely request for a CDP hearing – one filed more than 30 days after the issuance of the CDP notice but less one year thereafter – results in an “equivalent” hearing. At the conclusion of a regular CDP hearing the IRS issues a determination letter giving the taxpayer the right to petition the Tax Court. After an equivalent hearing the IRS issues a decision letter giving the taxpayer the final answer since no rights to the Tax Court exist following the decision of Appeals in an equivalent hearing
In this case Ms. Reinhart received a decision letter and she filed a Tax Court petition in response to that letter. The sending of the decision letter appears simply to have been a mistake by the settlement officer but it might have created some concern for Ms. Reinhart and her representatives since the decision letter would have contained language to the effect that the decision was final and that she could not go to Tax Court. Nonetheless, she filed what was accepted as a timely petition and the Court, citing Craig v. Commissioner, accepted the petition as appropriate following the determination of Appeals since the parties stipulated that she had timely submitted her CDP request.
I have never had a client who received a decision letter when Appeals should have sent a determination letter. This case makes clear that going immediately to Tax Court is a valid option. The case does not discuss what happens if the taxpayer does not go to Tax Court within 30 days after receiving the erroneous decision letter. My research assistant could find no cases or IRS pronouncements on this issue. If a taxpayer properly invoked the CDP procedures within 30 days of receiving the CDP Notice and Appeals mistakenly sends out a decision letter instead of a determination letter, could that taxpayer fail to file a Tax Court petition within 30 days of the decision letter and later insist on a determination letter from Appeals giving the taxpayer a ticket to Tax Court? What is the effect of a decision letter on the running of the opportunity to go to Tax Court where Appeals should have sent a determination letter. What is the effect of a decision letter in this circumstance on the statute of limitations on collection which is suspended during the CDP case? Is the CDP case concluded if it should be concluded by a determination letter and no determination letter gets sent?
This case and the Craig case provide a clear answer where the taxpayer takes the improperly issued decision letter and petitions the Tax Court within 30 days. With that type of certainty available, the best advice should you have this issue is file the petition but a case will come where the wrong letter is issued and no petition is filed within 30 days thereafter. The outcome will be interesting to observe.
The trust fund recovery penalty here arose from a company in which Ms. Reinhart had an interest and which did not pay over the trust fund taxes for the period ending June 30, 1992. The assessment occurred on July 15, 1993, and the first notice of federal tax lien was filed on July 26, 1993. Filing a notice of federal tax lien only 11 days after making an assessment does not follow normal IRS practice in 1993 or today. The opinion does not say why the IRS filed the notice so quickly, and it does not matter to the outcome but it does raise my interest. Absent jeopardy or some serious concerns, I would not expect the notice of federal tax lien filing to occur so shortly after assessment. Given the slow pace of the apparent efforts by the IRS to collect from her thereafter, this action stands in stark contrast.
Usually my curiosity on matters such as this remains unsatisfied; however, Les found an article that probably satisfies my curiosity on the unbelievably quick filing of the notice of federal tax lien and on the refiling issue discussed below. His discovery does not satisfy my curiosity about what the IRS did for 10 years following the filing of the notice of federal tax lien. In 2009, the Department of Justice filed a civil injunction lawsuit against Ms. Reinhart, alleging that she helped individuals hide assets and income through sham trusts and corporations under the guise of asset protection planning. The complaint noted that Ms. Reinhart operated the tax scheme from Florida and the Bahamas and during the period 2000-2005 she helped participants disguise approximately $28 million of assets and income. The information in this article aptly explains why the IRS was paying careful attention to her when it filed the notice of federal tax lien and why it decided to take a closer look at Ms. Reinhart’s tax history and the applicable statute of limitations several years after the lien was released.
The original notice of federal tax lien filed against Ms. Reinhart occurred prior to the passage of RRA 98 and the creation of IRC 6320. At the time of this filing, she would not have received an opportunity for a hearing with Appeals. This brings up the issue of what causes a taxpayer against whom the notice of federal tax lien was filed prior to the creation of IRC 6320 to get the opportunity to go to Appeals and that raises interesting questions about how she got her CDP opportunity. Fortunately, the regulations shed some light on this issue. “Under section 6320(b)(2), the taxpayer is entitled to a CDP hearing under section 6320 for each tax period with respect to the first filing of a NFTL on or after January 19, 1999, with respect to an unpaid tax, whether or not a NFTL was filed prior to January 19, 1999, for the same unpaid tax and tax period or periods.” Treas. Reg. §301.6320-1(b)(2) (providing questions and answers).
The IRS did not refile the notice of federal tax lien within the time required by IRC 6323(g)(3)(A). Based on the assessment date reported in the opinion, I calculate the required refiling date as August 14, 2003. The I.R.M. also supports this conclusion. The Court states that August 14, 2002, marked the last refiling date for this notice of federal tax lien. I cannot reconcile that date with the assessment date. The statute provides that the IRS must refile the notice of federal tax lien during the “required refiling period” defined as “the one-year period ending 30 days after the expiration of 10 years after the date of the assessment of the tax.” The refiling period should have opened on August 15, 2002 and ended on August 14, 2003. The precise date does not matter in this case because the IRS did not actually refile before either date. The failure to refile triggered the release language in the filed notice and caused the federal tax lien to cease to exist at the end of the refile period.
At some point after, apparently long after, the normal statute of limitations on collection of the TFRP liability ended, the IRS came to the realization that the Ms. Reinhart’s departure from the United States before the statute of limitations expired caused a suspension of the statute of limitations. The opinion does not say how the IRS came to that conclusion so long after the statute expired. The awakening almost certainly resulted from the investigation linked above.
Having discovered the possibility that the statute of limitations on collections had not expired, the IRS had to deal with the fact that it had released the federal tax lien. To address this issue the IRS filed Form 12474-A, Revocation of Certificate of Release of Federal Tax Lien on or about December 30, 2010. The filing of the revocation reinstated the federal tax lien and came after the passage of IRC 6320. The filing of this form did not trigger the issuance of a CDP notice to Ms. Reinhart; however, revoking the release put the IRS in a position to file a new notice of federal tax lien which would be the first notice filed after 1998 for this liability. The IRS filed the notice of federal tax lien shortly after filing the revocation and the IRS mailed the CDP lien notice on February 8, 2011.
The facts get very jumbled and suggest that the Court did not quite understand tax lien filing. The Court states as though it matters “this NFTL was not recorded in the county of petitioner’s last known address.” Many notices of federal tax lien get recorded in a county where the taxpayer does not reside because to perfect the federal tax lien notice it must be filed in every locality where the taxpayer has property. This is just another part of the description of this case that leaves me wondering if the Court totally understood the lien laws with which it was working. The description here also baffles me because it says that the IRS sent a second CDP lien notice on March 14, 2011, “(this time, in the county of petitioner’s last known address)” yet the IRS should send only one CDP lien notice per period. If the IRS sends more than one CDP lien notice for a period, the notices sent after the first notice should not give rise to a CDP hearing or a trip to the Tax Court. The Tax Court has opined on this issue with respect to both liens and levies.
Adding more confusion to the situation, the Court indicates that the taxpayer “timely” submitted the CDP request on April 18, 2011 – a date more than 30 days after the second CDP lien notice. How can a CDP request be submitted more than 30 days after the CDP notice? The likely answer is that the request was postmarked prior to April 14th. The decision does not make that clear but no one seems concerned that the IRS sent more than one CDP lien notice, and that petitioner did not respond to the first. In a case with a very weird original notice of federal tax lien filing date and an extremely unusual revocation more than seven years after the expiration of the statute based on a rarely used statute of limitation extension provision the bizarre sending of multiple CDP lien notices followed by a very late filed CDP request keeps pushing the case toward the twilight zone.
If you ignore all of the little procedural issues, then comes the meat of the case – who has the burden of proving that the statute of limitations has held open the collection statute and what proof exists? I will discuss those issues in the next segment of this case.