A Day Late and a Chance For Wise Tax Administration Wasted

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Collection due process gives taxpayers chance to pause the wheels of collection. It gives the Tax Court the chance to consider even under a fairly permissive abuse of discretion standard collection issues that were previously subject to absolute agency discretion, and still are when brought outside CDP. One interesting aspect of CDP is its giving taxpayers an opportunity to challenge the merits if the taxpayer did not receive a stat notice or otherwise have an opportunity to contest the liability. We have discussed the challenges that Tax Court judges have been facing in determining what is a “prior opportunity” for these purposes. There are a few cases that are teeing up that issue, and we are watching them.

Last week in Cox v Commissioner (summary opinion) the Tax Court considered an issue that we have not discussed before but it is one that used to bother me when I directed a tax clinic and had taxpayers in similar circumstances. In Cox, a potential responsible person had an opportunity prior to the CDP hearing to raise a challenge to the trust fund liability so the liability challenge was technically not part of the CDP determination. Nonetheless the potential responsible person had compelling evidence that suggested the liability was wrong; despite that evidence neither Appeals nor Counsel considered the merits and argued that Cox could not raise the issue. The regulations and the IRM provide that Appeals can but is not required to consider liability issues in such cases, and any decision regarding the liability is outside the collection determination and not subject to court review. In Cox, the Tax Court reluctantly sustained the determination, and in so doing implicitly criticizes IRS for kicking this one down the road.

I will describe the case and why it makes for bad tax administration below.



In early 2014, IRS sent Cox a proposed trust fund recovery penalty on Form 1153 for the last quarter in 2010 and the first two in 2011 for employment tax liabilities relating to a construction company that Cox used to own. Form 1153 implements the legislative change from 1996 that is found in Section 6672(b) that gives the potential responsible officer 60 days to file a protest and request a hearing with Appeals on the proposed assessment (Keith discussed some of this in his post on the 11th Circuit case of Romano-Murphy v Comm’r earlier this year). The 60th day for responding fell on a Saturday. Unfortunately for Cox, he hand-delivered the protest to the IRS and sent a copy by certified mail on the following Tuesday; had he hand-delivered it or mailed it on Monday it would have been timely.

No timely protest meant no hearing for Cox. IRS, moving quickly, assessed the tax a few weeks later and soon thereafter issued a notice of intent to levy. Cox timely filed a 12153 and requested a chance to present evidence showing that in fact he sold the business before the last quarter in 2010. The Appeals Settlement Officer stated that even though he did not have a chance to present that evidence to Appeals previously (since Appeals did not hold a pre-assessment hearing) the Form 1153 gave him the opportunity to have IRS consider the liability “but [Cox] had failed to timely perfect that opportunity.” Cox petitioned to Tax Court and he case went to trial (though I wonder why it was not disposed of with a summary judgment motion).

At trial, Cox testified that he sold the construction company “before the last quarter of 2010 and that the new owner, not petitioner, would have been the responsible person.” Moreover Cox testified that “he had paid the employment tax liabilities for all quarters that ended before he sold the company. Petitioner adduced written evidence at the trial showing when he had sold the company, and he further indicated that the buyer’s testimony would support his position.”

The opinion recounted that the Tax Court has previously held that the receipt of the 1153 amounts to an opportunity to dispute the liability, and that IRS was not authorized to waive the time limits to respond to that notice. While the opinion does not cite to the CDP regulations, the regulations provide that Appeals can consider liability issues in these circumstances but it removes those considerations from the CDP proceeding (and thus judicial inquiry) and with no guidance gives Appeals absolute discretion over the consideration:

In the Appeals officer’s sole discretion, however, the Appeals officer may consider the existence or amount of the underlying tax liability, or such other precluded issues, at the same time as the CDP hearing. Any determination, however, made by the Appeals officer with respect to such a precluded issue shall not be treated as part of the Notice of Determination issued by the Appeals officer and will not be subject to any judicial review. Because any decisions made by the Appeals officer on such precluded issues are not properly a part of the CDP hearing, such decisions are not required to appear in the Notice of Determination issued following the hearing. Even if a decision concerning such precluded issues is referred to in the Notice of Determination, it is not reviewable by the Tax Court because the precluded issue is not properly part of the CDP hearing.

Reg 301.6330-1(e) Q&A11 (emphasis added).

The opinion concludes that Cox did not have the right to challenge the merits of the assessment given his failure to take advantage of his prior opportunity reflected in his receipt of the Form 1153. Yet, the opinion reflected some unease given that the evidence suggested that the assessment was likely wrong:

So we are faced with (1) an anomalous circumstance where petitioner might have been able to successfully contest the underlying liabilities and (2) the resulting question of whether it was an abuse of respondent’s discretion not to permit him to attempt to do so.

The opinion noted that Cox could pay a portion of the assessment in the separate quarters and bring a refund claim and if necessary a refund suit in federal district court or the Court of Federal Claims. Yet, the opinion implicitly criticizes Appeals and Counsel for failing to consider the merits even though it was not required to do so:

We understand that respondent was precluded from considering petitioner’s appeal of the proposed assessment because it was untimely, but respondent is not otherwise statutorily prohibited from considering petitioner’s arguments during the CDP hearing (after an assessment has already been made).

Nevertheless, this Court’s role is to review what has transpired and to decide whether there has been an abuse of discretion. Because respondent was not required to consider petitioner’s underlying liabilities as part of the CDP hearing, respondent’s failure to do was not an abuse of discretion.

Parting Thoughts

Allowing a collection action to proceed when there seems to be compelling evidence that the assessment is wrong makes little sense. This seems especially like a bad outcome when there may be evidence that could easily dispose of the case and where the person at issue appears to have previously been compliant and barely missed the deadline. The outcome of this case is more costs to Cox and IRS and possibly DOJ if Cox pursues his remedy via a refund proceeding. That does not make sense for any party.

On the other hand, many taxpayers who miss their opportunity to raise the merits of the underlying issue want to do so in the CDP context. Appeals and Counsel have a difficult job drawing the line when to allow someone to present this evidence. Where the evidence seems clear and straightforward as it does in Cox, it is hard not to fault the government employees for refusing to recognize the obvious and taking the necessary steps to fix the problem with the least amount of effort for everyone. Knowing when to exercise this administrative authority is often difficult. The easier path for IRS employees is to view this as someone else’s problem. Perhaps the answer is a little more guidance to the employees on when they should exercise this discretion and a little more leeway from supervisors to allow them to do it because it may result in the right answer and less work for the taxpayers and others downstream in the process who otherwise have to deal with the case.






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Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.


  1. I think Keith and I are going to have to win our cases over whether the time period to file a 6015(e) case in Tax Court is not jurisdictional before the IRS might later concede that, even though Congress established the 60-day period for contesting the Form 1153, that period is not jurisdictional and is subject to waiver and equitable tolling. Statutes of limitations (of which the 60-day period is likely one) are normally subject to the judicial doctrines of waiver, estoppel, and equitable tolling. There are no facts here justifying equitable tolling, as far as I know. But, I don’t see why the IRS couldn’t have waived the 60-day period, if it wanted to. Maybe in this case, if the taxpayer had attached a lot of proof of his non-liability to his late filing, the IRS should have just waived the 60-day period and proceeded to decide the liability issue in response to the Form 1153.

  2. Frank Agostino says

    Our next line of attack in these cases is that the recent incorporation of the bill of rights into the Code by Section 7803(a)(1)(3) requires the Commissioner to rethink some of these procedural barriers to getting to the correct tax. Specifically, we intend that argue that 6330(c)(1) requires the appeals officer to evaluate whether both procedurally and substantively compliance conducted itself so as to guarantee “the right to pay no more than the correct amount of tax” & “the right to challenge the position of the Internal Revenue Service and be heard.” The right to a fair and just tax system should be interpreted to require the IRS to provide a meaningful substantive and procedural pre-payment/pre-seizure review of whether the tax the IRS proposes to collect is the correct amount tax.

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