A Proposal to Amend Flora or Collection Due Process for Individuals Examined by Correspondence Who Do Not Pick Up or Process Their Mail

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I recently wrote about the Tax Court’s decision in Onyango v. Commissioner, 142 T.C. No. 24 (2014) in which the Court held that an individual who received the certified mail notification that would/should have led that individual to go to the post office and pick up the notice of deficiency had, for purposes of I.R.C. 6330(c)(2)(B), received the notice of deficiency. Instead of timely going to the post office, the individual made no effort, or no timely effort, to go to the post office to pick up the notice and the Court, properly in my view, determined that this failure precluded the individual from contesting the merits of his tax liability through the CDP statute even though he never “had” the opportunity to do so prior to the assessment. 

Because this individual’s behavior mirrors the behavior of many clients who come to my clinic and who come to clinics around the country, I want to talk about the current system and how it could change to address the situation created by fairly large class of individuals who do not either pick up, open or deal with their mail. As someone who has previously confessed to having some misgivings about CDP, my suggestion here may be too radical and may foster behavior we want to discourage but the current system fails many individuals. If we really want CDP to work, it may be worth examining taxpayer behaviors matched against statutory requirements. 


The traditional system of tax assessment, as it has morphed over the past three to four decades, does not work for a large class of citizens. With the advent of correspondence examination (Corr Exam) and automated collection sites (ACS) in the 1980s, the IRS makes no personal touch on a segment of the population most in need of a personal touch in order to understand their rights. 

Instead, we have created a system that sends correspondence to the least competent taxpayers rather than giving them an individual in their community assigned to their case. So, the current system of examining the poorest individuals consists of sending 2-3 letters, which a high percentage of individuals ignore or misplace and then granting the IRS permission through the statute to assess an additional tax liability. We follow up the first letter writing campaign, which was so successful, with another one, consisting of 3-4 letters before the statute gives the IRS the right to levy. 

The IRS levies and takes the taxpayer’s wages or bank account or social security payments. It now has the attention of the taxpayer who now has almost no statutory rights to contest either the liability or the collection process. It is too late to go to Tax Court either to contest the underlying merits of the assessment or to use the CDP process. Just when these taxpayers are ready to address their problem, they have a limited, almost entirely administrative path remaining. The nicely paved road to Tax Court has given way to a goat path up the hill to administrative relief. 

To its credit, the IRS did not even need to create the goat path but it does make it possible for the taxpayer to address the merits through audit reconsideration, the collection through an equivalent hearing or a CAP appeal or an offer in compromise based on doubt as to liability. Still, the taxpayer has lost all rights to go to court should the administrative path prove unsuccessful. The inventories of low income taxpayer clinics are filled with these taxpayers because the impersonal Corr Exam and ACS process to which low income people are assigned does not meet their needs. 

Perhaps we say they get what they deserve because they are making the decision to ignore their mail. We might say that we tried in 1998 by creating CDP to take care of the problem created by the 1980s development of Corr Exam and ACS. I think there is another way to look at the situation. 

When the current procedures for tax administration were built, the rich or upper middle class were the ones interfacing with the tax system. The refund process served as the relief valve everyone thought existed when a bad assessment occurred. The Flora rule, which goes back to ancient times before Corr Exam and ACS, effectively bars low income taxpayers, as well as many others, from using the Courts through the refund process to redress a bad assessment (See Flora v. U.S., 362 U.S. 145 (1960) (holding that a taxpayer generally must pay the full amount of income tax deficiency assessed by IRS before he or she may challenge its correctness by suit in federal district court or Court of Federal Claims for refund under 28 U.S.C. § 1346(a)(1)); see also 26 U.S.C. § 7422 (requiring taxpayers to file claim with IRS prior to commencing refund suit)). The less friendly confines of the District Court compared to the Tax Court also makes the refund route an uphill procedural battle for the unrepresented or poorly represented taxpayer. 

The creation of the CDP remedy and the potential relief valve of tax merits litigation during the collection period, may have seemed like an idea that would provide relief to many who missed the initial opportunity to contest the tax – for whatever reason, but for most taxpayers the CDP opportunity which wraps the notice of intent to levy in a package that can result in litigation on the collection activity if not the underlying merits, comes in yet another envelope, usually number 7 or 8, that the taxpayer will toss or set aside not knowing or understanding the importance of their actions. 

The decision in Onyango v. Commissioner and a recent post on the low income taxpayer listserv (published at the end of this post) by a relatively new tax clinician struggling through the possibilities for remedial action made me think about the problem and possible solutions. For a client who has squandered the statutory opportunities for merits relief something other than the illusive opportunity for such relief through CDP needs to happen. The necessary relief should provide a meaningful opportunity for a group of taxpayers, by and large but not exclusively low income, who are now a part of the tax procedure system which developed its procedures before they joined the party. 

What might be done to rethink how this group of individuals who did not participate in the tax system when the procedures developed and who only get examination or collection contacts from a unit of IRS employees but never receive an individual case assignment? My first facetious thought was to just levy first. If you go ahead and take their money at the front you have their attention. Then give them rights instead of waiting until all of their statutory rights are gone, as a result of correspondence, before taking their money and getting their attention. While this idea is relatively simple in concept, I cannot put it forward with any sense that it represents the right thing to do. 

Instead, we might rethink Flora or rethink CDP. 

Suppose we were building the refund rule at a time when the highest number of examinations, by a long shot, were done by Corr Exam and most of the people ending up with tax liabilities had no ability to fully pay the taxes. Would we have ended up with the Flora rule? Would the Supreme Court have required the low income taxpayers now caught up in the tax system because we have decided to use the tax system to deliver social benefits to fully pay the tax in order to get into court? I do not think it would. I think the Flora decision reflects the times. At that time people who chose not to go to Tax Court generally were middle class or upper class citizens or entities that missed the Tax Court without the systemic impediments facing low income taxpayers. Once they missed the Tax Court, they generally, but not always, had the means to go after the liability by paying and suing in district court. 

What if we changed Flora or changed 6330(c)(2)(B) to allow a taxpayer to raise the merits of the underlying liability in Tax Court after a levy had occurred if the taxpayer was examined by Corr Exam instead of by an individual examiner assigned specifically to their case? If the change occurred by revoking Flora in Corr Exam cases, taxpayers could file a claim for refund after the collection of any amount of the taxes assessed as a result of the Corr Exam and not just after full payment. Such a change would acknowledge that examining taxpayers through correspondence often fails to meaningfully engage them in the process and allowing them to go through the full refund claim process, including the opportunity to go to Court if agreement were not reached, provides on the back end the full consideration of their case that Corr Exam does not offer. I would also open the doors to Tax Court in this type of litigation because the Tax Court has developed that type of procedures and culture that works better for low income taxpayers than the current procedures in District Court. 

Alternatively, and less satisfactorily in my view, CDP could change to allow taxpayers to address the merits in the CDP process if they did not receive the notice using the current test or if they were examined by Corr Exam. This option still limits relief to those who open and process their incoming mail and does not address my concern that many taxpayers do not react to mail but react to a taking of their property. The merits litigation, if allowed, would follow the traditional rules. The Tax Court would examine that aspect of the CDP determination consistent with its deficiency jurisdiction, i.e., de novo. The taxpayer would have the burden of raising the amount or existence of the liability in the request for CDP relief. I note that CDP cases could initially go to either Tax Court or District Court but now go exclusively to Tax Court which I think is a good result. 

I doubt that either of the changes I am proposing would result in a massive opening of litigation on the merits of taxes but it would have the effect of saying to a group of people who were not around when the current tax procedures were developed that we value them. We want to give them an opportunity to contest their liability in a court proceeding if it cannot be resolved administratively and even though we, as a government, do not have the resources to examine their returns individually rather than on a group basis, we still want them to have every opportunity to contest the liability if they feel they do not owe it. 

CDP sought to relieve the pressure created by Corr exam and ACS. I think it has provided some relief but fails in the area of underlying merits for the reasons identified by the Tax Court in its recent opinion. The IRS seeks to relieve the pressure through its creation of the audit reconsideration process but without the opportunity for court that does not offer full relief when administrative resolution fails. The tax procedure system needs to adapt to the inclusion in the process of a group of individuals not contemplated when it was built. We can say that those individuals need to adapt to the system but that ignores reality. Making a change will cost very little compared to the fairness it would provide. 

Here is the recent post on the low income taxpayer listserv that highlights the dilemma clinicians representing low income taxpayers regularly face: 

For some reason, although 26 USC 6330(c)(2)(b) and the instructions to a CDP request form state that you can’t raise the underlying liability in a CDP hearing if the taxpayer had received the Statutory Notice of Deficiency, I had been thinking that the taxpayer could still submit an Offer In Compromise based upon doubt as to liability in the CDP context. 

Upon further reflection and reading of the Internal Revenue Manual, I now think that if I submit an OIC-DATL in this situation it is just going to get rejected. 

But, I would still like to challenge the underlying liability.  

It strikes me that the options are either (a) withdraw the CDP and file the OIC-DATL outside of the CDP context, or (b) to file a Request for Audit Reconsideration, which as I understand it would also be separate and apart from the CDP process, and not entitled to any judicial review – if we went this route, client would lose the CDP opportunity, and then if the Audit Reconsideration was rejected, client wouldn’t have recourse to CDP and attendant judicial review 

Alternatively, even though it doesn’t directly attack the underlying liability, could we file an OIC-ETA based upon Public Policy/Equity (assuming that the debt will be determined collectible or not otherwise addressable as an ETA Hardship), which could be done in the CDP hearing context and which would be subject to judicial review if rejected? 

Does anyone have any thoughts about whether it would be better to pursue the Audit Reconsideration/OIC-DATL and forgo the CDP opportunity, or to pursue an OIC-ETA Public Policy/Equity in the CDP context?  




  1. When I ran the Cardozo clinic, we frequently got involved when a low-income taxpayer, who had ignored or not received both the notice of deficiency and the NOIL, had come to us because either the IRS was collecting the assessed deficiency either passively by offset or actively by levy. These taxpayers wanted to contest the not-fully-paid underlying liability, but using audit reconsideration was not always feasible, since, in some cases, the taxpayers were missing third-party documents (e.g., a school letter on residence for the dependency exemption and related credits), so audit reconsideration would never be granted. Some court testimony (or at least administrative interviews of the taxpayer and others) would lead them to win them their cases, but it was too late to go to the Tax Court. I had not seriously considered Keith’s idea of amending CDP to allow challenges to underlying liability if a taxpayer had only undergone a correspondence audit. That’s an interesting idea. But, I thought about amending the Flora rule to allow taxpayers who had had any amount taken from them in payment of the deficiency (i.e., not full payment) to bring suit in the district court under 1346(a)(1) so long as the taxpayer was in currently not collectible status or was on an installment agreement making as much payment toward the deficiency as the IRS thought the taxpayer could afford. After all, the purpose of the full-payment rule is to force taxpayers to pay as much as they can first, before litigation.

    I wrote an article on my idea, published in Tax Notes (and Tax Notes Today), “Let the Poor Sue For a Refund Without Full Payment,” 2009 TNT 191-4 (Oct. 6, 2009). My idea was to amend 7422 to add a provision like current 7422(j), which allows estates paying estate taxes in installments over 10 years under a 6166 election to sue for refund before full payment so long as they are current on their installment payments. I thought the poor deserved a similar provision. The text of my proposed 7422(k) was as follows:

    (k) Special rule for actions when there is an agreement
    in effect with the taxpayer under section 6159 or
    when the taxpayer is in currently not collectible

    1. In general. The district courts of the United States
    and the United States Court of Federal Claims shall
    not fail to have jurisdiction over any action brought
    by an individual taxpayer for credit or refund solely
    because the full amount of such liability has not been
    paid if there is in effect between the taxpayer and
    the Secretary an agreement under section 6159 or the
    Secretary considers the taxpayer to be in currently
    not collectible status.

    2. Actions to which subsection applies. This subsection
    shall apply to any action if, as of the date the action
    is filed —

    A. all installments under any agreement under section
    6159 the due dates for which are on or before the
    date the action is filed have been paid;

    B. if there is no agreement under section 6159 in
    effect, the Secretary considers the taxpayer to be
    in currently not collectible status;

    C. there is no case pending in the Tax Court with
    respect to the same tax period involved in the action;

    D. if a notice of deficiency under section 6212 with
    respect to such tax period has been issued, the time
    for filing a petition with the Tax Court with respect
    to such notice has expired;

    E. there is no hearing pending in the Internal Revenue
    Service Office of Appeals with respect to such tax
    period under section 6320 in which the underlying
    tax liability may be challenged under section 6330(c)(2)(B);

    F. if a notice under section 6320(a) or 6330(a) with
    respect to such tax period has been issued, the time
    for requesting a hearing under section 6320(a)(3)(B)
    or section 6330(a)(3)(B) with respect to such notice
    in which the underlying tax liability may be challenged
    under section 6330(c)(2)(B) has expired;

    G. if a notice of determination has been issued under
    section 6330(c)(3) in a proceeding under section
    6320 or 6330 with respect to such tax period in which,
    at the hearing, the underlying tax liability was
    raised as an issue, the time within which the taxpayer
    may appeal such determination to the Tax Court under
    section 6330(d)(1) has expired; and

    H. to the extent that an issue in the action involves
    relief with respect to such tax period under subsection
    (b) or (f) of section 6015, the time within which
    the taxpayer may petition the Tax Court under section
    6015(e) has expired.

    3. Permissive dismissal. If the court is notified during
    the pendency of the action that the taxpayer is no
    longer in compliance with an installment agreement
    or is no longer in currently not collectible status,
    the court may, with or without taking any evidence
    or holding a hearing, dismiss the action with leave
    to refile when either the full amount of such liability
    has been paid or the conditions in paragraph (2) are
    met at the time of refiling. In deciding whether to
    dismiss the action, the court may consider the extent
    to which the action has proceeded, the extent to which
    full payment has been made, any hardship that may result
    to the taxpayer or the United States from such dismissal,
    and any other reason relating to the policy of the
    full payment rule. A dismissal under this paragraph
    shall not be reviewed by any other court.

    4. Prohibition on collection of disallowed liability.
    If the court determines that a credit or refund is
    due in a decision of such court that has become final,
    no part of such uncollected liability for the period
    may be collected by the Secretary, and amounts paid
    in excess of the amount determined by the court as
    correctly paid shall be refunded.

    I was told that my proposal was read on the Hill by the Staff of the Joint Committee, but since no member was interested in it, it died. Further, Nina Olson did not support my proposal, since she was concerned that the IRS would tighten the rules for granting streamlined installment agreements so as to avoid giving taxpayers the opportunity to take advantage of being able to sue if on an installment agreement. I later asked then Director of IRS Collection Policy, Fred Schindler, if he would have any problem with my proposal or thought the IRS would want to make it harder to get installment agreements if my proposal was enacted. Fred said that he had no problem with my proposal, and that he would not tighten installment agreement rules, since the IRS benefits tremendously by getting people on installment agreement. He would not be concerned with the few people who might take advantage of my proposal.

    I wonder if anyone knows a member who might be interested in my proposal and/or Keith’s proposal to amend 6330(c)(2)(B)? It would be nice to put this into the next Taxpayer Bill of Rights section of the next tax bill.

  2. The 6330(c)(2)(B) discussion thus far makes a mountain out of a molehill. Here is a far better proposed law:

    “…the following sentence is added to the end of Code section 6330(c)(2)(B):

    ‘If the taxpayer has not actually received any statutory notice of deficiency or other opportunity to dispute the tax liability, neither the Internal Revenue Service nor any court may inquire into the reasons for that non-receipt.’


    In enacting Code section 6330(c)(2)(B) the Congress intended to provide the taxpayer, to the maximum extent possible, with a pre-payment forum in which he may dispute his tax liability. Both the IRS and the Tax Court, however, compel the taxpayer to furnish reasons why he did not receive a statutory notice. But that compulsion erroneously applies a remedial statute.

    The new provision, conforming to Congress’s original intent, bars the current administrative and judicial practice. If the record before the IRS or any court shows that the taxpayer did not actually receive the statutory notice, then the taxpayer may challenge his tax liability at his CDP hearing. As one illustration, if the administrative or judicial record contains a statutory notice mailing envelope that bears the U.S. Postal Service’s mark “Unclaimed,” then the taxpayer has not actually received the statutory notice. He therefore is entitled to challenge his tax liability at his CDP hearing.

    The Committee expects that the IRS and the courts will liberally construe Code section 6330(c)(2)(B) in the taxpayer’s favor.”

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