When is a Collection Due Process Case Over

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I have written twice before, here and here, about the case of Matthew Vigon.  Mr. Vigon, representing himself, has now moved from the Tax Court order pages into its fully bound volumes of opinions with a full T.C. opinion, Vigon v. Commissioner, 149 T.C. No. 4 (July 24, 2017).  Judge Gustafson continues to use Mr. Vigon’s case to teach us about Collection Due Process (CDP) issues that had previously gone unanswered.  Today’s lesson concerns when does a CDP case end and what effect does an IRS concession on part of the case have on the whole.

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The IRS filed a notice of federal tax lien (NFTL) against Mr. Vigon because he did not pay the penalties assessed against him for frivolous tax submissions.  He filed a CDP request and then a CDP petition contesting the penalties.  When we first saw his case early in 2017 with an order linked in the blog above, Judge Gustafson raised the concern that the IRS had not proven that it got the appropriate supervisor approval under IRC 6751 prior to making the assessment.  Now, the IRS has abated the penalties, released the lien and moved to dismiss this case because of mootness.  The IRS does not concede, however, that Mr. Vigon is not liable for the frivolous tax submissions and takes the position that it has the right to reassess the penalties at the conclusion of the case.  The matter before the Court is whether the position of the IRS keeps the case open.  The Court finds that it does and that has a significant impact on the meaning of merits litigation in CDP cases which causes the Court to designate this opinion as one with precedent.

Mr. Vigon lives in Canada and is a citizen of Canada.  He filed nine returns the IRS deemed frivolous.  He argued to Appeals in the CDP case that he filed the returns because he was trying to purchase property in the US and a man named Peter told him he needed to file these returns.  Appeals did not agree with his reason for abating the penalty but when the case moved into Tax Court the Chief Counsel attorney asked to return the case to Appeals for it to make a determination that the penalties were properly authorized.  The Court granted that request.  Appeals determined that the penalties were properly authorized in a supplemental determination.  The IRS then told the Court it had decided to abate the penalties and submitted the motion dismissing the case based on mootness but the Court issued an order stating “It is less clear how a liability challenge under 6330(c)(2)(B) becomes moot merely upon an announced concession, which would not seem to have any res judicata or collateral estoppel effect.  Perhaps a CDP petitioner who makes a liability challenge that the IRS concedes is entitled to decision in his favor on the liability issue.”

In its response the IRS acknowledges that the abatement of the frivolous penalty assessment and the release of the notice of federal tax lien related to the assessment and the dismissal of the CDP case for mootness does not have a res judicata effect.  The IRS argued that could hypothetically reassess the penalties at any time as these penalties do not have a statute of limitations on assessment but that if it did reassess the taxpayer would have the opportunity for another CDP hearing concerning the assessment.  Since, if this were to occur (and the IRS does not indicate that it intends to reassess), petitioner would have the chance to come back to the Tax Court the petitioner’s interests are adequately protected even without res judicata or collateral estoppel.  The IRS argues that “no current case or controversy exists for the Court to adjudicate.”

Before I get to the Court’s response, I want to pause and point out that I am not certain why Mr. Vigon has been able to contest the merits of his IRC 6702 penalty in this CDP case.  If he had been offered a conference with Appeals in conjunction with the assessment of the penalties, the IRS would take the position that the pre-assessment conference with Appeals forecloses the opportunity to raise the merits of the liability in his CDP case and that only by paying the penalty and suing for refund could he contest the merits of the penalty.  Three circuit courts, upholding the decisions of the Tax Court, have recently sustained the regulation on this point and we have discussed the issue in several posts here, here, here and here. So, while Mr. Vigon has the opportunity to contest the IRC 6702 penalty in the current CDP case (“the IRS acknowledges that Mr. Vigon was entitled to challenge the penalty liabilities at the CDP hearing.”), his ability to do so in a future CDP he might bring does not seem clear.

The Court notes that Mr. Vigon did not respond to the motion to dismiss on the grounds of mootness.  He had informed the Court previously of his incarceration in Canada.  The Court speculates that his incarceration may continue and then moves forward with its discussion of the case without the benefit of his input.  The Court also notes that it is not yet called upon to decide whether he is liable for the IRC 6702 penalties and so it will not discuss the principles and standards that apply to the penalty.

The Court points out that Mr. Vigon did not raise a challenge to the appropriateness of collection action but focused his CDP request on the challenge to the liability.  The Court describes the basis for its jurisdiction to decide the merits of a tax liability in the CDP context and notes that “the liability issue may remain even after the collection issues have been resolved or become moot.”  The Court states that “the question now before us is whether the liability issue may remain even after the assessment has been abated.”

The IRS argues that once the collection action goes away the basis for any merits determination goes away with it.  The Court quotes the IRS argument:

In order for the Court to determine a liability in a CDP case notwithstanding the lack of a proposed collection action, the Court must find a specific jurisdictional grant under I.R.C. 6330.  However, section 6330(d)(1) only gives the Tax Court jurisdiction to review the determination referred to in section 6330(c)(3).  Section 6330(c)(3) directs Appeals to determine, inter alia, whether the [“]proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.”  Without an assessment, there can be no collection action and accordingly no valid determination for the Tax Court to review under section 6330(d)(1).  This does not constitute a specific grant of jurisdiction to conclusively determine petitioner’s liability irrespective of the collection action.

The Court points out that 6330(c)(3) is not confined to balancing collection issues but in (B) also permits jurisdiction of the issues raised “under paragraph (2).”  Paragraph (2) allows the petitioner in a CDP case “to raise challenges to the existence or amount of the underlying tax liability for any tax period.”  The Court finds that “having obtained jurisdiction of a liability challenge when the petition was filed, the Tax Court does not lose jurisdiction over it if the IRS releases a lien and ceases collection.”  The Court notes that even if it has jurisdiction it could still dismiss a case if it becomes moot as many CDP cases do.  The Court discusses how CDP cases involving only collection issues typically become moot when the collection issue is resolved.  CDP cases involving a merits challenge typically do not offer the IRS the opportunity to reassess because of the statute of limitations on assessment which has normally run by the time the case gets decided.  If the IRS explicitly disclaims intention to pursue a liability, that could also cause a case to become moot.

This case offers a different situation because of the IRS position that the 6702 penalty has no statute of limitations on assessment.  The Court finds that “here, abatement is a tactical retreat but not a surrender.”  The IRS has not, in Mr. Vigon’s case, disclaimed its interest in making another assessment even while saying such as assessment is unlikely.  The Court asked the IRS to comment on the case of Hotel Conquistador, Inc. v. United States, 597 F.2d 1348 (Ct. C. 1979) and did not like its response.  That case, like this one, involved a party who wanted to shut down a suit but who had the possibility of reopening the same litigation at a later point.  The Court decides that the motion to dismiss the case on the grounds of mootness fails.

This may not be altogether good news for Mr. Vigon.  While the IRS did not promise that it would not reassess the penalties, it signaled that it was unlikely to do so.  Moving forward with a trial on the merits, Mr. Vigon will need to make his case that the penalties do not apply to his actions.  He has been ably “represented” by the Court in three written opinions/orders thus far but he may need more than the Court’s assistance on legal issues to actually win his case on the merits.  The Court’s assistance involves placing checks on IRS actions and not on putting evidence on during a trial.  If the IRS does not file a statement conceding that it will never reassess the frivolous filing penalties, there is more yet to come in this case and that may not be to Mr. Vigon’s advantage.  If he had responded, he might have asked the Court to dismiss the case and let him take his chances with the IRS not assessing again.  I realize the parties do not confer or necessarily terminate the Court’s jurisdiction but worry that Mr. Vigon will lose on the merits unless he steps up his activity in the case or receives representation.

 

Comments

  1. Lavar Taylor says:

    I’m wondering if and how the Greene-Thapedi opinion comes into play here. I would love to see that opinion overruled. If my memory is correct, the Court dismissed the petition in Greene-Thapedi on grounds of “mootness”, when the case was not in fact moot. Rather, the taxpayer’s liability was paid in full while the CDP case was pending. There was still a dispute remaining over whether a tax was owed, but it had turned into a potential refund situation. I believe that Greene-Thapedi was a very poorly thought-out opinion, and perhaps Judge Gustafson shares my sentiment.

  2. Bob Kamman says:

    Speaking of statutes of limitation, here is one that IRS apparently is having problems figuring out. Anticipating some important tax administration news this fall, I did a Google search for “when does Koskinen term expire.” I was directed to an official IRS website page that tells us:

    “John Koskinen is the 48th Commissioner of the Internal Revenue Service. Official end date of Commissioner Koskinen’s term ends November 12, 2017. (Note: given calendar, last day in office is November 9, 2017.) Next Commissioner 5 year term begins then on November 13, 2017.”

    https://www.irs.gov/uac/the-commissioners-section

    Are we headed for a Constitutional crisis for three days in November, when the identity of the Commissioner will be disputed? Will the understaffed IRS find a website maintenance worker who can understand the difference between comments and questions inserted in proposed text by someone on the Fourth Floor? Stay tuned.

    You can’t tweet this stuff. “Official end date ends” just takes up too many characters.

  3. Norman Diamond says:

    “The IRS then told the Court it had decided to abate the penalties and submitted the motion dismissing the case based on mootness but the Court issued an order stating “It is less clear how a liability challenge under 6330(c)(2)(B) becomes moot merely upon an announced concession”

    It didn’t in Bowman v. CIR, 17 TC 681 (USTC 1951), citing Last Chance Min. Co. v. Tyler Min. Co., 157 U.S. 683 (1895).

    “Before I get to the Court’s response, I want to pause and point out that I am not certain why Mr. Vigon has been able to contest the merits of his IRC 6702 penalty in this CDP case. If he had been offered a conference with Appeals in conjunction with the assessment of the penalties, the IRS would take the position that the pre-assessment conference with Appeals forecloses the opportunity to raise the merits of the liability in his CDP case”

    You answered your own question, with the word “If” ahead of “he had been offered a conference with Appeals”.

    It sounds like Mr. Vigon didn’t owe any tax. It sounds like the first appealable notice the IRS sent him was notice of lien. It’s not clear if the settlement officer let him challenge the merits of the liability during the CDP hearing or if she interrupted his first two efforts and then outright refused his third effort. The settlement officer might even have refused to tell him what the merits were, and the IRS might not even have told him what his frivolous position was until after he petitioned Tax Court. Luckily it sounds like Tax Court is starting to learn how the IRS operates. By the way, the IRS does the same thing to people who aren’t in jail, when we live in states that don’t have Low Income Tax Clinics.

    “and that only by paying the penalty and suing for refund could he contest the merits of the penalty.”

    Which would of course be none at all, because Court of Federal Claims or a District Court would deny having jurisdiction because, after all, Mr. Vigon was frivolous. He might not ever get to learn what his frivolous position was.

    “CDP cases involving a merits challenge typically do not offer the IRS the opportunity to reassess because of the statute of limitations on assessment”

    As far as I can tell there’s no statute of limitations when we live outside the US.

    “If the IRS explicitly disclaims intention to pursue a liability, that could also cause a case to become moot.”

    The IRS can renege on a concession at any time.

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