Today we welcome guest blogger, Charles R. Markham, EA, USTCP. I referred to Charles in an earlier post. He has assisted me as I settled into the Harvard clinic this year both as a valued member of our pro bono panel and with issues involving the state of Massachusetts taxes. He has passed the difficult test to become a non-attorney Tax Court practitioner and regularly represents clients in Tax Court as well as during the administrative process. In this post he brings attention to an apparent inconsistency in the Collection Due Process (CDP) regulations concerning equivalent hearings. Because equivalent hearings do not cause an extension of the statute of limitations on assessment and because so few CDP cases in Tax Court result in a reversal of the Appeals employees determination, I sometimes purposefully counsel clients to choose this option and, with those clients who do not appear within 30 days, I am often left with only this option. Charles points out that perhaps there is a greater opportunity for the equivalent hearing than just the one year window. Keith
How much does it matter when the IRS commits an oversight when they amend a regulation? Can the IRS just overlook the plain language of the resulting regulations because they think they know that’s really not what they meant? Well, in the case of the regulations governing equivalent hearing that appears to be what’s happening.
The equivalent hearing is not a creature of statute but purely a creature of regulation, and most practitioners will tell you that while not appealable to Tax Court they still serve a valuable safety value that can be used to get a “fresh set of eyes” and hopefully a “cooling off period” (or maybe just a “time out”) when attempting to resolve a taxpayer’s collection matter.read more...
In Craig v. Commissioner the Tax Court provides an overview of equivalent hearings and their legislative history:
“Whereas the rules for [Collection Due Process] hearings are provided explicitly in the statute, the rules for an equivalent hearing have their genesis in the statute’s legislative history and the regulations implementing Congressional intent as gleaned from that history. See H. Conf. Rept. 105-599, at 266 (1998); 1998-3 C.B. 1020 (in the event that a taxpayer does not timely request a Hearing, “The Secretary must provide a hearing equivalent to the hearing if later requested by the taxpayer”); cf. Johnson v. Commissioner, 86 AFTR 2d 2000-5225, 2000-2 USTC par. 50,591 (D. Or. 2000) (“‘equivalent hearing’ is provided for only by regulation and is not mandated by Section 6330 itself”). The scheme of the regulations as they apply to equivalent hearings generally follows the statutory scheme for Hearings. Under the regulations, any taxpayer who fails to timely request a Hearing may receive an equivalent hearing. Sec. 301.6330-1(i)(1), Proced. & Admin. Regs. The equivalent hearing (like the Hearing) is held with Appeals, and the Appeals officer considers the same issues which he or she would have considered had the equivalent hearing been a Hearing. Id. The Appeals officer also generally follows the same procedures at an equivalent hearing which he or she would have followed had the equivalent hearing.”
When the first equivalent hearing regulations were published on January 18, 2002, (T.D. 8980, 2002-1 C.B. 477) in the Federal Register (67 FR 2549) along with the 2002 final regulations under section 6320they contained no time limit for requesting an equivalent hearing. Such a hearing could be requested anytime after the 30 day window for requesting a Collection Due Process (“CDP”) hearing had expired. This could occur years after the CDP notice was issued. In 2006, the IRS amended the 6330 regulations and one of the primary changes was to introduce a strict one year time frame for requesting an equivalent hearing.
Under the new regulations, an equivalent hearing could only be requested during the eleven months after the 30 day window for the CDP request period has expired.
This timeframe is stated at §§ 301.6320-1(i)(2)A-I7 and 301.6330-1(i)(2)A-I7:
Q-I7. When must a taxpayer request an equivalent hearing with respect to a CDP Notice issued under section 6330?
A-I7. A taxpayer must submit a written request for an equivalent hearing within the one-year period commencing the day after the date of the CDP Notice issued under section 6330. This period is slightly different from the period for submitting a written request for an equivalent hearing with respect to a CDP Notice issued under section 6320. For a CDP Notice issued under section 6320, a taxpayer must submit a written request for an equivalent hearing within the one-year period commencing the day after the end of the five- business-day period following the filing of the NFTL.
However, when the regulations were amended in 2006, it seems that another passage of the CDP regulations was overlooked and went unchanged. This passage leaves an alternative window to request equivalent hearings. The sentence is in the following section (author’s emphasis at end):
§301.6330-1(b)(2) speaks to this in Q&A B2.
Q-B2. Is the taxpayer entitled to a CDP hearing when the IRS, more than 30 days after issuance of a CDP Notice under section 6330 with respect to the unpaid tax and periods, provides subsequent notice to that taxpayer that the IRS intends to levy on property or rights to property of the taxpayer for the same tax and tax periods shown on the CDP Notice? A-B2. No. Under section 6330, only the first pre-levy or post-levy CDP Notice with respect to the unpaid tax and tax periods entitles the taxpayer to request a CDP hearing. If the taxpayer does not timely request a CDP hearing with Appeals following that first notification, the taxpayer foregoes the right to a CDP hearing with Appeals and judicial review of Appeals’ determination with respect to levies relating to that tax and tax period. The IRS generally provides additional notices or reminders (reminder notifications) to the taxpayer of its intent to levy when no collection action has occurred within 180 days of a proposed levy. Under such circumstances, a taxpayer may request an equivalent hearing as described in paragraph (i) of this section.
This sentence survived the 2006 amendments and remains in the regulations today. Overlooked, it remains there like a vestigial organ. But the author argues that this phrasing still has meaning and does not contradict the rest of the regulations and perhaps is not that vestigial after all. In fact, is could be read to create a whole new class of equivalent hearings–which this article will term as “B-2” hearings, triggered by the 180 day notices that the IRS frequently issues pursuant to IRM 22.214.171.124.3.8 (2) .
When these B-2 sentences are read in the context of the original regulations (written when there was no deadline on requesting equivalent hearings), their original purpose seems to be simply advisory. Many times a taxpayer is confronted when the IRS has issued a CDP notice on an account years in the past so the taxpayer’s appeal rights have long lapsed. Perhaps years ago the situation was actually resolved in the taxpayer’s favor. Maybe the IRS placed the account in currently non collectible status. Now circumstances have changed and the IRS is back at the door step, but now the taxpayer no longer has their “once in a lifetime” CDP rights. The first step in the sequence is for the IRS to issue a 180 day reminder notice. The purpose of this regulatory passage was simply to note that (at the time) the taxpayer could avail themselves of their equivalent hearing rights since there weren’t any time limits. In fact in the case of a resolved balance due where the IRS had placed the taxpayer in non-collectible status, the author would argue the taxpayer really isn’t appealing the original CDP notice at all (the balance due had been previously resolved at the time) so much as the taxpayer is appealing the renewed efforts of the IRS to collect on them.
If we now read the regulations as they stand, is there an inherent conflict between this B-2 passage and the section of the regulations that describe an equivalent hearing? Moreover, is the conflict so great that the 2006 regulations and the deadline stated in I-7 override the lack of a deadline in B-2? The author would argue these two that these passages can live in harmony. Unanticipated harmony, perhaps, but harmony nonetheless.
Two Types of Equivalent Hearing
For the two passages to live in peace there must be conceptually two different equivalent hearings. The equivalent hearings all practitioners are heretofore familiar with for the purposes of this discussion would be “I-7 hearings”, the classic (or regular) hearing (and the hearing the IRS will routinely give you). Section (i) of the 6330 regulations describes the conduct of all equivalent hearings. What is different is the triggering event. An “I-7 hearing” is an “equivalent hearing with respect to a CDP Notice issued under section 6330″. Thus, there is a direct nexus between the classic “I-7” hearing and the CDP Notice. Since by definition, there has only been less than a year of time, it is practically impossible for the situation to become “stale” and enter into a “B-2” situation. However, the language of B-2 is much broader. While recognizing that a CDP Notice has been issued at some point (and it could have been issued years before), the trigger event is a more recent IRS notice. Just to review and more carefully read the language of B-2.
If the taxpayer does not timely request a CDP hearing with Appeals following that first notification, the taxpayer foregoes the right to a CDP hearing with Appeals and judicial review of Appeals’ determination with respect to levies relating to that tax and tax period. The IRS generally provides additional notices or reminders (reminder notifications) to the taxpayer of its intent to levy when no collection action has occurred within 180 days of a proposed levy. Under such circumstances, a taxpayer may request an equivalent hearing as described in paragraph (i) of this section.
Let’s revisit my earlier non-collectible example now with just a few more details. This is very typical fact pattern that could arise under a “B-2” type scenario, a scenario many practitioners might be familiar with. The balance due at this point is now perhaps eight years old. The original CDP notice was issued over five years ago. In fact the balance due has been classified as currently not collectible by the IRS. But this status can always be changed. In fact it recently was, as a recently filed tax return did show an unusually higher level of income than usual but this was actually due to a one time forgiveness of indebtedness. This “increase” in income is arguably illusory and caused the account to be removed from uncollectible status and the 180 day “reminder notice” to be issued. The author would argue that the purpose of the equivalent hearing would not be to argue the original CDP Notice from five years ago but really to argue the recent IRS determination to remove the account from non-collectible status. The purpose of the hearing is “why is the IRS cancelling my non-collectible status?” Other B-2 type hearing issues might be “Why does the IRS now want to levy my social security?” or “I thought this bill has been paid” or “Hasn’t the collection statute expired?”
As we see, for the two passages to live together without I-7’s deadline trumping a B-2 hearing request, a B-2 hearing must be seen as not “in respect of the original CDP levy notice” but the later six month reminder notice. And if the original levy notice was more than several years prior, is this really a problem? It’s really the current threat (and why it has occurred) that the taxpayer is concerned about.
In drafting the B-2 Question and Answer, it seems the authors were keenly aware of this context, and in fact, the more one considers this, the more it begins to seem that there is a place for the “B-2” equivalent hearings along side the “I-7” (regular) equivalent hearings and perhaps there wasn’t any oversight in leaving this section of the regulations alone in 2006.
Several sidebar observations
This entire logic would only apply to notices that are advising of the potential for levy not a lien. So this really has no counterpart in 6320. Also, the section the regulations that speaks to “no collection action within 180 days” would appear to be critical as well as receipt of the notice. The regulations state, “in these circumstances”, (note use of the plural) thus the circumstances seem to be both (a) receipt of the appropriate notice and (b) no collection action in the prior 180 days. Finally, when a Revenue Officer commences a case, they will frequently issue CDP notices on all the relevant periods and six month reminder notices on everything else. Being able to invoke this will allow everything to be considered by the same settlement officer versus having some periods before a Revenue Officer and some periods before a Settlement Officer in a CDP appeal.
Raising the issue with the IRS
The correct way to raise this issue would be to request an equivalent hearing and to specifically request a “Separate Timeliness Determination” because the equivalent hearing will be inevitably determined to be outside the one year jurisdiction upon initial review. Occasionally, the author has been occasionally successful in getting someone in the Separate Timeliness Determination unit to actually rule in his client’s favor on the basis of this argument, but generally the argument falls on deaf ears. (One is never granted an actual hearing with the Separately Timeline Determination unit. This is all done behind the scenes and the practitioner simply learns of the result.) The author’s batting average is only about 15% of the time successful.
Nevertheless, it doesn’t appear at this time that many in the IRS are particularly aware of the B-2 equivalent hearing regulation or will adhere to them when advised of them. After all, what is written doesn’t matter, because that’s really not what we meant!