When is the Statutory Notice of Deficiency Issued by an Authorized Delegate of the Treasury Secretary

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Earlier this month, the 8th Circuit, in the case of Leroy Muncy v. Commissioner, vacated the memorandum and order entered in the case by the Tax Court and remanded the case to the Tax Court with instructions to get proof to support the opinion that it issued.  What is somewhat remarkable about the remand is that it appears Mr. Muncy made tax protestor type arguments yet convinced the 8th Circuit to issue the remand.  The reason for the remand was basically lack of proof which I suspect resulted from the presumption that the type of proof now being required by the 8th Circuit was unnecessary.  This type of situation is much more likely to occur in a tax protestor type case where the taxpayer is challenging a basic premise that the IRS and the Tax Court see as a given.  Because cases of this type do not arise with frequency, the reminder that having a simple case remanded for lack of proof will impact the way the IRS and the Tax Court approach the next case in which a tax protestor challenges something basic in the tax process.

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The taxpayer received a notice of deficiency signed by Judith Miller, IRS Technical Services Manager, on Treasury Department letterhead.  I suspect that to the IRS and to the Tax Court the notice looked very ordinary.  To Mr. Muncy it did not, and he challenged whether Ms. Miller was duly authorized to sign the notice.  The Tax Court made relatively quick work of his argument.  It no doubt did so because it was comfortable that Ms. Miller was an authorized Treasury official.  Chief Counsel’s office apparently offered little proof of who Ms. Miller was or more precisely how the delegation order from the Secretary of Treasury worked its way down through the Commissioner to the IRS Technical Services Manager.  The lack of proof presented to the Tax Court documenting the chain of authority from the Secretary of Treasury, who is authorized under the statute to send out notices of deficiency, to Judith Miller left the 8th Circuit unsatisfied that the Tax Court had a basis to rule against Mr. Muncy.  In the per curiam opinion the Court ended with “Accordingly, we vacate the December 2014 memorandum and order, and remand this case to the tax court with instructions to determine whether Miller had authority to issue the NOD that is the subject of this case, and for further proceedings consistent with that determination. Cf. Schweiss v. Chrysler Motors Corp., 922 F.2d 473 (8th Cir. 1990) (noting benefit of having trial court address disputed factual issues in first instance).”

I expect the case to go back to the Tax Court where the Chief Counsel attorney will place into the record of the Tax Court the delegations of authority linking the Secretary to IRS Technical Services Managers.  The nswer appears clear.  The IRM, in Delegation Order 4-8, provides precisely who has the authority to issue and rescind notices of deficiency. Delegation Order 4-8 lists many Service employees, including a number of positions in Technical Services.

Is this a waste of time?  Most likely.  Was the Eighth Circuit wrong?  Probably not.  This is why going to trial is time consuming and tedious.  Things must be proven that almost everyone has confidence exist.  The IRS does not need to prove the sky is blue or other matters on which the Tax Court can take judicial notice, but it must prove something like a delegation order chain of authority even when doing so is something that the Tax Court knows is a waste of time.  I have not looked at the record to see exactly what was entered.  Maybe Chief Counsel’s office already provided the necessary information and it simply did not make it into the opinion.  I view the 8th Circuit’s opinion as one saying to the Tax Court you cannot ignore the need for proof of the delegation of authority, or a citation to it, even on a routine matter such as the the chain of authority to issue this notice.  You must have something in the record or the opinion to support your conclusion even if you are confident that the litigant is simply raising this argument to frustrate the IRS and the Court.

The case serves as a good reminder to the parties of the proof they need to present to aid the Court in what seems like a slam dunk decision.  I suspect that the case will move swiftly through the Tax Court during the remand stage and eventually get back to the 8th Circuit because Mr. Muncy will not be satisfied with the Tax Court decision in round two.

 

 

 

 

 

 

Comments

  1. As a former member of the Senior Executive Service (although not in Treasury) I can say confidently that many things assumed correct (such as designations/delegations) are in fact not and could be worthy of investigation. On a CDP matter I raised the issue of proper review and approval of a NFTL; and while it was not resolved, I felt it moved the matter to a very speedy resolution through other ways.

  2. Carl Smith says:

    It wasn’t for many years after CDP was implemented that the IRS delegated to Appeals Officers, Settlement Officers, and Appeals Team Managers the authority to hold CDP hearings and issue notices of determination. Appeals Del. Order 8-a (Mar. 17, 2003), quoted in Elmore v. Commissioner, T.C. Memo. 2003-123 at n. 4, concluded as follows: “To the extent that authority previously exercised consistent with this order may require ratification, it is hereby affirmed and ratified.” So, no CDP notice of determination was properly authorized to be issued in more than the first four years of CDP.

    • Jason T. says:

      A tax defier’s dream:

      “Renowned Tax Professor Admits Four Years Of IRS Levies Illegal!”

      Great. Carl, I’m surprised at you. If what you say is true, I wonder why you (and others in concert with you) permitted the IRS to violate the law? Did you ever litigate, or cause anyone to litigate, a “no CDP delegation of authority” issue? Did you ever reveal this lack of CDP delegation of authority issue to the tax practitioner community?

      If Carl Smith (and others?) knew that the IRS was violating the CDP laws then, the tax defiers are no doubt asking themselves now what laws does he (and others?) know that the IRS is violating today.

      The times beg for Carl to retract, or to explain, his irresponsible statement

      • Carl Smith says:

        Jason,

        Here’s my very temperate, factual response to what I take to be an uniformed personal attack on me (and not for the first time):

        In January 1999, I retired from private practice (where I represented clients who did not have problems paying tax). For most of the next four years, I focused on my family, not law. I next took on a legal job at Cardozo (heading its Tax Clinic) in January 2003. And I did not see my first CDP matter until 2004. When I got my first letter from a “Settlement Officer” in May 2005, scheduling CDP hearings for two of my clients, I immediately wondered: “Who are these Settlement Offices and who authorized their use in CDP?” I had been a tax lawyers doing controversy matters since 1983, and I had never heard of these employees.

        But, by then, the March 2003 Delegation Order was old news. My Settlement Officer had held her hearings in 2005, clearly then authorized by the Delegation Order.

        I ended up contesting both clients’ notices of determination in the Tax Court in February 2006. But, in one of the client cases that did not settle, Tucker v. Commissioner, Docket No. 3165-06L, after the IRS confessed that the notice of determination raised no valid reason to deny my client his requested OIC and asked for a remand, I asked the Judge to direct the remand to an Appeals Officer — not a Settlement Officer — since I did not think Congress ever intended to have these people called Settlement Officers do the hearings. After doing my own research and some discovery against the IRS in the summer of 2006 on who these Settlement Officers were and how they were authorized, I discovered that Settlement Officers hardly existed in 1998, and the first mention of them in the Manual was after the 1998 Act passed, and the first mention of their existence to Congress was in testimony of Commissioner Rossotti several years after 1998. So, Congress in 1998 could not have contemplated that Settlement Officers should hold the CDP hearings. I thought Congress intended real Appeals Officers, who had great experience in settling matters and who were generalists in the tax area, should hold the hearings. Indeed, at that time, some Appeals Officers were still doing some CDP hearings, until the IRS could train up enough Settlement Officers to take over the job.

        On September 11, 2006, I submitted a lengthy motion in the Tucker case setting forth my concerns about Settlement Officers having statutory authority to hold CDP hearings, even if by that point the IRS had issued the Delegation Order. On September 18, 2006, Judge Haines denied my motion in an unpublished two-page order that did not address my many concerns. I then told the public about my concerns in Tax Notes Today on Nov. 4, 2008, in a lengthy article entitled “Settlement Officers Shouldn’t Hold Collection Due Process Hearings”, 2008 TNT 214-26. Here’s a sentence from the article where I mentioned the Delegation Order:

        On March 17, 2003, the chief of appeals belatedly issued Appeals Delegation Order No. 8-a, which (a) delegated to Appeals officers and settlement officers the authority “to conduct hearings and make determinations” under sections 6320 and 6330, (b) delegated to Appeals team managers “the authority to review and approve” such determinations, and (c) affirmed and ratified any authority previously exercised consistent with the order, to the extent ratification was required.

        In the summer of 2008, cross motions for summary judgment were pending in the Tucker case involving the Supplemental Notice of Determination (which at least gave a reason to deny the OIC — not that I thought that reason valid). Thinking harder about the issue, I realized that a very serious argument could be made under Freytag v. Commissioner, 501 U.S. 868 (1991), that Settlement Officers and their Appeals Team Managers needed to be appointed in order to constitutionally hold CDP hearings and issue notices of determination. After doing some discovery on the IRS to confirm that no Settlement Officer or Appeals Team Manager had ever been appointed, I made that constitutional argument by another motion presented to the Tax Court. I also told the public of my argument before the Tax Court ruled in two articles: “Does The Failure to Appoint Collection Due Process Hearing Officers Violate the Constitution’s Appointments Clause?”, Vol. 10, No. 5 J. Tax Practice & Procedure 35 (Oct.-Nov. 2008), and “Does Collections Due Process Violate the Appointments Clause?”, 126 Tax Notes 777 (Feb. 8, 2010). The second article was an update on the multiple memoranda of law called for by Judge Gustafson on the constitutional question.

        The constitutional argument was very serious, and Judge Gustafson took 88 pages in a slip opinion rejecting it at 135 T.C. 114 (2010). When my client and I decided to appeal, for lack of space, we did not make the argument that Settlement Officers are not authorized by statue to hold CDP hearings. We argued the constitutional issue and simply that it was still an abuse of discretion to deny my client his OIC.

        The D.C. Circuit affirmed the Tax Court on the constitutional issue, finding no problem, but for different reasons than those articulated by Judge Gustafson. See 676 F.3d 1129 (D.C. Cir. 2012), cert. denied 133 S. Ct. 646 (2012).

        No court thought that what I was arguing was a simple tax protestor argument.

        With all due respect to the courts, I still think I am right about both of the motions I made in Tucker. But, I am now retired from representing clients, except in cases where I am working pro bono. I have concluded that it is so far not in the interest of the one CDP client I currently represent as a co-counsel to raise n the client’s case the issues I raised in Tucker’s case.

        Jason, why didn’t you notice any of these things you incorrectly accuse me of not telling the public about? I assume you are a tax lawyer or could publish. You are obviously smart. Why didn’t you litigate the issues I litigated?

        • Carl, I appreciate that you were (again) temperate with this intemperate.
          Do know that I have no quarrel with your Appointments Clause argument as applied to IRS Appeals Officers and Settlement Officers, et. al.

          Your lengthy comment, though, does not tell us what facts, or legal theory, caused you to tell us:

          “So, no CDP notice of determination was properly authorized to be issued in more than the first four years of CDP.”

          Among others, the tax defiers await an explanation–or a retraction.

          • Carl Smith says:

            OK, Jason. Maybe I was a little unclear about the argument, but let me say that my argument is a very simple one — that a person who has not had the authority delegated to him or her, either by statute or written delegation order, cannot perform the important discretionary acts contemplated by the statute of holding a CDP hearing and issuing a notice of determination. Section 6330(a) requires the Secretary to issue a NOIL. The “Secretary” is defined in 7701(a)(11) to mean the Treasury Secretary or his delegate. 7701(a)(12) defines “or his delegate” as “any officer, employee, or agency of the Treasury Department duly authorized by the Secretary of the Treasury directly, or indirectly by one or more redelegations of authority, to perform the function mentioned or described in the context”. The IRS takes this definition, I believe, correctly, to indicate that important decisions must be delegated to individuals or offices in written delegation orders. That seems to be what the 8th Cir. believes in the Muncy case, as well, in the context of notices of deficiency.

            6330(b)(1) instructs that the CDP hearing be held by the “Office of Appeals” — i.e., an office, not an officer or employee. By contrast, 6330(b)(3) says a the hearing should be conducted by an impartial “officer or employee” of Appeals, but does not indicate who at Appeals in particular should do the hearing. Then, even differently, 6330(c)(1) and (3) mention “appeals officers” holding the hearing and issuing the notice of determination.

            I am not sure whether a written delegation order would be necessary for a true Appeals Officer to hold the hearings and issue a CDP notice, since they are mentioned in the statute, but the IRS decided not to administer CDP that way. The IRS decided that Appeals Team Managers should issue the notices of determination and that Settlement Officers should also be able to hold the CDP hearings. Neither of those two kinds of IRS employees was named in the statute as being able to perform those functions. But, as far as I know, all CDP notices of determination issued prior to the 2003 Delegation Order were actually issued by the Appeals Team Manager — even in cases where an Appeals Officer held the hearing, as opposed to a Settlement Officer. So, I agree with what the IRS, at a minimum, did in Appeals Delegation Order 8-a in having the Office of Appeals formally say which of its people could hold CDP hearings. The receptionist in a an Appeals Office can’t hold such a hearing.

            I do not agree that Congress contemplated this delegation, and so objected to it in Tucker — at least the part where Settlement Officers were included in the delegation order. Frankly, I think the IRS also had no business delegating to the Appeals Team Manager (who never even is in the conferences or on the phone with the taxpayer) the authority to issue notices of determination under the statute, but there are only so many arguments that I can make in a case before I dilute all of them, so I focused only on the problem of Settlement Officers holding the hearings, and then. later, the constitutional issue.

            I suggest that you go read Elmore v. Commissioner, T.C. Memo. 2003-123. Elmore involved a pro se petitioner who was issued a notice of determination in 2002 — i.e., before the Delegation Order was issued. Elmore moved to dismiss the case on the grounds that the Appeals Officer who held his CDP hearing did not sign the notice of determination, so it was invalid. Who signed it was rather convoluted: The Appeals Officer in the case worked in a San Antonio office. The Appeals Officer’s Appeals Team Manager in San Antonio was out of the office and had delegated to an acting Appeals Team Manager the right to approve a CDP notice of determination, but not to sign one. Pursuant to the practices of the Austin and San Antonio Appeals Offices, since there was concern that an acting Appeals Team Manager couldn’t properly sign a notice of determination, the notice of determination was actually signed by an Appeals Team Manager in Austin on the recommendation of the acting Appeals Team Manager in San Antonio.

            Special Trial Judge Armen was sufficiently concerned that the taxpayer might be right that the motion was heard at a motions session at the Tax Court in Washington, D.C. Apparently still concerned, a second oral argument was later held on the motion. At the second oral argument, the IRS informed the court that the IRS Appeals Office had just issued Delegation Order 8-a, which purported to also apply retroactively to Elmore’s case in authorizing an Appeals Team Manager to sign a notice of determination. Only because of this did Judge Armen deny the taxpayer’s motion. The judge wrote, in part:

            As indicated, petitioner challenges the validity of the notice of determination on the ground that it was not properly signed. In addressing petitioner’s contention, we note as an initial matter that section 6330 does not require that a notice of determination be signed. Cf. Pendola v. Commissioner, 50 T.C. 509, 513-514 (1968) (a notice of deficiency need not be signed in order to be valid); Fox v. Commissioner, T.C. Memo. 1993-277, affd. without published opinion 69 F.3d 543 (9th Cir. 1995) (holding that section 6212 does not require that a notice of deficiency be signed).

            Although the provisions cited above reflect the prominent role that Appeals officers are assigned in collection review cases, we reject the premise underlying petitioner’s position; i.e., that only the Appeals officer who conducted the administrative hearing may sign a notice of determination. To the extent that the Commissioner and/or the Office of Chief Appeals has decided that notices of determination under sections 6320 and 6330 should be reviewed, approved, and signed by Appeals Team Managers (as was the case here), such decision is not in derogation of section 6330 but rather constitutes an internal agency matter that we are not inclined to question. fn5
            ________________________________
            5. Indeed, by interposing a layer of review between the determination by an Appeals officer and the issuance of a notice of determination, the taxpayer protections afforded by sec. 6330 are strengthened, which is consistent with the enactment of that section by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3401(b), 112 Stat. 685. See S. Rept. 105-174, at 67-69 (1998), 1998-3 C.B. 537, 603-605; H. Conf. Rept. 105-599, at 263-266 (1998), 1998-3 C.B. 755, 1017-1020; cf. sec. 7122(d)(1) (requiring procedures for an independent administrative review of any rejection of a proposed offer-in-compromise or installment agreement made by a taxpayer before such rejection is communicated to the taxpayer).

            I am not sure Elmore was correctly decided, but he never appealed. I don’t have too much trouble accepting a retroactive delegation order, though. Often, the law allows people to ratify acts taken on their behalf by someone else — e.g., filing a Tax Court petition on behalf of a spouse, who did not initially sign the petition. But, I would still maintain that absent the retroactive written delegation order, an Appeals Team Manager prior to March 2003 had no authority to issue the notice of determination, rendering it invalid. Those pre-March 2003 notices may have become valid after March 2003, however, by virtue of the delegation order.

  3. Norman Diamond says:

    This can work against taxpayers too, in particular against innocent taxpayers. A Notice of Deficiency provides an opportunity to prove overpayments in Tax Court. If the IRS proves that the Notice of Deficiency was signed by an unauthorized employee acting in error, the IRS isn’t bound by it and the taxpayer loses this opportunity.

  4. Barry Goldwater says:

    Keith says:

    “The reason for the remand was basically lack of proof which I suspect resulted from the presumption that the type of proof now being required by the 8th Circuit was unnecessary.”

    Spoken like a true former IRS attorney. Proof is not necessary unless it is a taxpayer in an exam being asked for proof for deductions or an abatement of penalties or, in a collection case, proof of income and expenses.

    I, for one, have no problem with lazy IRS attorneys, who think statutes do not apply to them, having to work for their taxpayer funded paychecks.

  5. Jason T. says:

    Carl, I appreciate your explaining your theory that “no CDP notice of determination was properly authorized to be issued in more than the first four years of CDP.” I doubt that any tax defier could decipher it; I know that he can take no comfort from it.

    The tax defiers may rest easy because your theory contains two serious flaws. One, it misreads the CDP statutes. Two, when it descends from statute to delegation order it misses a middle step: regulation. I find comfort in these facts:

    1. I.R.C. §§ 6330(b)(1) and (b)(3) do not “contrast.” The first law says that the IRS Office of Appeals will hold the CDP hearing; the second law says that an impartial IRS Office of Appeals officer or employee will conduct the CDP hearing. The office holds the hearing, an officer or employee conducts it. Likewise, the Tax Court holds a motion hearing, a judge conducts it. I see no “contrast” in either subject or example.

    2. The CDP laws need not identify “who at Appeals in particular should do the hearing.” The CDP laws direct only that the individual must be an impartial Appeals “officer or employee.” Whether “the receptionist” at Appeals would qualify to conduct a CDP hearing, only the Appeals Office could judge. Further, if Congress meant that Appeals could use only “a true” Appeals Officer to conduct CDP hearings, then it would not have also used the term “employee.” An Appeals Settlement Officer is an IRS Appeals “employee.” Ergo, a Settlement Officer may conduct a CDP hearing.

    3. I.R.C. § 6330(c)(3) says nothing about a “notice of determination.” That law refers merely to a “determination…under this SUBsection.”

    4. Appeals Team Managers have never issued Notices of Determination. See DO App. 193-1, DO App. 8-a (superseded). Appeals Team Managers merely “review and approve determinations” that IRS officers and employees make. Id. Instead, “(f)ollowing the [CDP] hearing, Appeals will issue a Notice of Determination.” Treas. Reg. § 301.6330-1(b)(2)A-B3.

    In view of the above, I hope you do not “still maintain that absent the retroactive written delegation order, an Appeals Team Manager prior to March 2003 had no authority to issue the notice of determination, rendering it invalid.”

    Return to your sleep, tax defiers.

    • Carl Smith says:

      Jason,

      You repeat the argument of the Tax Court in Tucker that “officer or employee” can only be given meaning if it means any individual Appeals wants can hold the hearing and issue the notice. I don’t buy that argument. There is a serious language problem. If, to give the phrase “officer or employee” meaning, you say it indicates that Appeals can have any individual employee other than “appeals officers” mentioned elsewhere in the statute holding the hearings and issuing the notices of determination, then “appeals officer” is begin written out of the statute. The statue does not say “appeals officer or employee”. There is inevitable conflict between parts of the statute as written. So, I then move to the legislative history for a guide in resolving that conflict. The legislative history contains, if I recall, about a dozen mentions of the “appeals officer”, and a few mentions of the “appellate officer”, but not a single mention of the word “employee”. So, I conclude that Congress really had only Appeals Officers in mind to do the hearings and sign the determinations, not just any other employee that the IRS picks. And I would effectively write “or employee” out of the statute, since I have to resolve the conflict somehow.

      But, for purposes of my argument that the notices of determination shouldn’t have been signed by Appeals Team Managers, I am even conceding that “officer or employee” and “appeals officer” could include Appeals Team Managers. In my view, that still doesn’t authorize Appeals Team Managers to sign notices of determination absent some delegation order.

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