We welcome back frequent guest blogger, Carl Smith, who discusses a recent 7th Circuit case that rejects a line of cases decided by the Tax Court concerning the scope of its authority when dismissing a Collection Due Process case. Keith
In a precedential opinion issued on November 18 in Adolphson v. Commissioner, the Seventh Circuit affirmed the Tax Court’s dismissal of a Collection Due Process (CDP) petition under section 6330(d)(1) for lack of jurisdiction. The Tax Court dismissed the petition because the IRS had never issued a notice of determination after a CDP hearing – a ticket to the Tax Court. But, the Seventh Circuit was unhappy that the Tax Court also went on to consider (though, ultimately reject) the taxpayer’s argument that there had been no CDP hearing and no notice of determination (NOD) only because the IRS failed to send a notice of intention to levy (NOIL) to the taxpayer at the taxpayer’s last known address. In effect, the Seventh Circuit said that where the Tax Court lacks jurisdiction because of the lack of an NOD, the Tax Court should keep quiet about other potential collection issues – such as, in this case, whether the IRS had issued an NOIL to the taxpayer’s last known address before it had started levying. The Seventh Circuit particularly rejected a line of Tax Court opinions beginning with Buffano v. Commissioner, T.C. Memo. 2007-32 – which, according to the Seventh Circuit, the Tax Court has only intermittently followed – in which the Tax Court has considered as part of its jurisdictional dismissals, issues going to the validity of NOILs.
This post will discuss Buffano, the unpublished order issued by Judge Carluzzo in Adolphson, and the Seventh Circuit opinion in Adolphson.
read more...Readers are no doubt aware that before the IRS issues a CDP NOD (a ticket to the Tax Court), the IRS Office of Appeals must hold a CDP hearing. CDP hearings can only be requested after the IRS validly issues an NOIL or NFTL. One way for the IRS to validly issue an NOIL or NFTL is to send it by certified or registered mail to a taxpayer’s last known address. Sections 6320(a)(2)(C) and 6330(a)(2)(C). If certified or registered mail is used for an NOIL, levy is prohibited for the 30-day period in which a taxpayer can request a CDP hearing. Section 6331(d)(1) and (2). If a CDP hearing is requested, no levy is allowed and the collection statute of limitations is suspended until the CDP hearing (and any judicial appeals) are over. Section 6330(e)(1).
Buffano
In Buffano, the first the taxpayer knew about collection was when the IRS sent a levy to his employer. The taxpayer was upset that he had not, before then, received an NOIL. The taxpayer sent a Form 12153 requesting a CDP hearing with respect to the taxes being levied, and the IRS decided that, since it had sent an NOIL to what it had thought was the taxpayer’s last known address (even though the NOIL was returned by the USPS undelivered), the IRS had done all it needed to do to commence levy. Since the request for a CDP hearing was made more than 30 days after the IRS mailed the NOIL, the IRS instead gave the taxpayer an equivalent hearing. At the end of the equivalent hearing, the taxpayer was unsatisfied with the equivalent letter, and, within 30 days, filed a petition in the Tax Court under section 6330(d)(1).
The IRS moved to dismiss the case for lack of jurisdiction on the ground that no NOD following a CDP hearing had been issued. Thus, the taxpayer had not received a ticket to the Tax Court. The taxpayer cross-moved to dismiss for lack of jurisdiction on a different ground: No NOIL had validly been sent to his last known address. The court decided that it had to determine the reason for the jurisdictional dismissal that was inevitable in the case. The Tax Court held that the NOIL had not been sent to the taxpayer’s last known address. Thus, it was invalid, and the dismissal was predicated on the NOIL’s invalidity. Presumably, the Tax Court expected that this holding would mean that the IRS had to send a new NOIL to the taxpayer for the same taxes before the IRS could commence any levy.
In subsequent cases presenting the same fact pattern as Buffano, the Tax Court has sometimes (but not always) followed Buffano and issued a ruling on whether or not the NOIL was mailed to the last known address. If the NOIL was mailed to the last known address, then the Tax Court has dismissed for lack of jurisdiction on the basis of a lack of an NOD. If the NOIL was not mailed to the last known address, the Tax Court has dismissed for lack of jurisdiction on the basis of a lack of a validly-mailed NOIL. See, e.g., Anson v. Commissioner, T.C. Memo. 2010-119; Space v. Commissioner, T.C. Memo. 2009-230; Kennedy v. Commissioner, T.C. Memo. 2008-33.
Adolphson Tax Court Order
Mr. Adolphson’s fact pattern was quite similar to Buffano – i.e., he first learned of collection from an actual levies on third parties who held his funds, but he had never before received an NOIL. Unlike Buffano, he did not thereafter ask for and get an equivalent hearing, but went straight to the Tax Court. In the Tax Court, Mr. Adolphson first moved to restrain further levies and for the Tax Court to order the IRS to refund what had already been levied – arguing that the IRS had not sent an NOIL to his last-known address and citing Buffano. Then, the IRS cross-moved to dismiss for lack of jurisdiction because of the absence of an NOD. The IRS, however, attempted to show it had mailed an NOIL to his last known address. Since Mr. Adolphson had not filed returns for many years, there was a serious issue as to which address was his last known address.
In an unpublished order at Docket No. 21816-14L, issued on February 3, 2015, Special Trial Judge Carluzzo granted the government’s motion, first stating:
Petitioner agrees that the Court is without jurisdiction in this matter. That being so, his motion to restrain must be denied as our authority to grant the relief he seeks arises only in cases where our jurisdiction under section 6330(d) has properly been invoked. See sec. 6330(e). Petitioner, however, disagrees with respondent’s ground for the dismissal.
Then, the judge distinguished Buffano as follows (footnote omitted):
Petitioner’s reliance upon Buffano is misplaced. The record in Buffano contained information showing the address shown on the taxpayer’s relevant Federal income tax return, the starting point for purposes of establishing a taxpayer’s last known address. See sec. 301.6212-2(a) Proced. & Admin. Regs.; Kennedy v. Commissioner, 116 T.C. 255 (2001); Abeles v. Commissioner, 91 T.C. 1019 (1988). Petitioner has not established what, if any, address was shown on his Federal income tax return(s) most recently filed before the relevant notices of intent to levy were issued. Furthermore, under the circumstances before us and contrary to petitioner’s suggestion, the address shown on respondent’s November 5, 2012, letter to him is hardly determinative as to his “last known address” for purposes of section 6330.
Because of the paucity of information as to petitioner’s last known address, we decline to make any finding on the point in resolving the jurisdictional motion before us. To the extent that there are any irregularities in the assessment process giving rise to the above-mentioned liabilities, or to the collection of those liabilities, petitioner’s remedies, if any, lie in a different Federal court.
Adolphson Seventh Circuit Opinion
The Seventh Circuit affirmed the Tax Court, but using a lot of words criticizing both the Tax Court’s rulings and the DOJ lawyers’ briefs and oral argument. In a 16-page opinion, the panel took apart Judge Carluzzo’s barely 3-page order.
Initially, the panel stated that, if it were going to apply the Buffano line of cases, it disagreed that the IRS had shown that it mailed an NOIL to the taxpayer’s last known address. In particular, the panel noted that some of the IRS evidence of mailing consisted of improperly-authenticated transcripts that only indicated the issuance of one or more NOILs, but there was no evidence in the record of any mailing or evidence of even the address used. The panel accused Judge Carluzzo of improperly shifting the burden of proof on mailing to the taxpayer and wrote: “In other words, had the tax court followed Buffano and required the Commissioner to prove proper mailing, the ‘paucity of information’ should have led to a win for Adolphson.” Slip op. at 10-11.
The panel was also critical of the DOJ lawyers for, among other things, (1) not taking a position on whether the Buffano line of cases was correct, (2) not taking a position on whether Judge Carluzzo correctly distinguished Buffano, (3) making no attempt to justify the IRS collection behavior in the case, and (4) unhelpfully arguing that “Adolphson, proceeding pro se, erred by asking the tax court to enjoin further collection efforts and refund money already collected, rather than asking the court to invalidate the levies.” Id. at 11. “Instead, the Commissioner insists that Adolphson is relegated either to an administrative claim before the IRS or a refund suit in district court, while maintaining that ‘whether the IRS mailed a Notice of Intent to Levy to taxpayer’s last known address is not relevant in this case.’” Id.
Turning to the law, the panel wrote:
Notwithstanding this unwillingness to confront the salient issue, the Commissioner is correct that, absent a notice of determination, the tax court lacks jurisdiction under 26 U.S.C. § 6330(d). A decision invalidating administrative action for not following statutory procedures is a quintessential merits analysis, not a jurisdictional ruling. The Buffano line of cases therefore represents an improper extension of the tax court’s statutorily defined jurisdiction.
Id. at 12 (citations omitted).
The panel blamed the Tax Court’s error in Buffano on its uncritically importing into CDP, from its deficiency jurisdiction case law, the practice of allowing a taxpayer who files a late deficiency petition to ask that the court determine that the notice of deficiency was not sent to the last known address, and, so, the Tax Court lacked deficiency jurisdiction because of an invalid notice. Calling the deficiency jurisdiction practice “less problematic”, the panel distinguished it from determining whether an NOIL was properly sent to a last known address, since the challenged notice in a deficiency case is the ticket to the Tax Court (the “jurisdictional hook”), whereas an NOIL is not. In a passage I find confusing, the panel wrote:
Although calling this ground for dismissal [of an improperly-mailed notice of deficiency] “jurisdictional” is a misnomer, the logical underpinning is the same: The tax court is determining whether the IRS has met statutory requirements to proceed with collection, but there isn’t a question of whether or not the jurisdictional hook exists (were there no deficiency, there would be nothing to collect).
Id. at 14. Earlier in the opinion, the panel had written:
This [Buffano] practice of invalidating collection activity [in a CDP case] where the tax court lacks statutory authority to proceed also violates the Tax Anti‐Injunction Act, 26 U.S.C. § 7421(a), which (with exceptions inapplicable here) provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” This statute deprives courts of jurisdiction to enter pre‐collection injunctions and “protects the Government’s ability to collect a consistent stream of revenue” by ensuring that “taxes can ordinarily be challenged only after they are paid, by suing for a refund” under 28 U.S.C. § 1346(a)(1). By invalidating levies despite the absence of a notice of determination under § 6330—a taxpayer’s jurisdictional hook to enter tax court—decisions such as Buffano stand in direct opposition to the Act.
Id. at 12-13 (citations omitted).
Ultimately, the panel concluded that a taxpayer in Mr. Adolphson’s position is left only the remedy of a refund suit. I would call that remedy completely useless, since one can only get a court to order a refund in such a suit if one has overpaid one’s taxes. Lewis v. Reynolds, 284 U.S. 281 (1932). It is of no relevance in a refund suit whether the IRS improperly forced all or part of the tax payments by a procedurally-improper levy.
The panel regretted that it saw no statutory remedy for Mr. Adolphson’s plight:
The framework used in Buffano to scrutinize the IRS’s compliance with its statutory obligations does have equitable appeal; a taxpayer to whom the IRS fails to mail a Final Notice of Intent to Levy and, through no fault of her own, misses the 30-day window to request a CDP hearing might otherwise be left without an opportunity to petition the tax court prior to seizure of her assets. This is the system devised by Congress, however . . . . Troubling though this [refund suit] “remedy” may be, given the expense and potential delays inherent in such a suit, there is no lawful basis for expanding the tax court’s jurisdiction to resolve the perceived problem. Absent a notice of determination, the tax court simply has no lawful authority to hear a taxpayer’s claim under § 6330(d).
Adolphson, at 15-16.
Observations
Because Mr. Adolphson was pro se and the DOJ’s briefing was so unhelpful, the panel may have misunderstood certain things about tax procedure when it wrote the opinion. The opinion conspicuously fails to mention three possible avenues for relief for him.
First, section 6330(e)(1) suspends the collection statute of limitations if a person requests a CDP hearing. In this case, no CDP hearing was requested because no NOIL was issued to the last known address (probably). Section 6330(e)(1) goes on to provide:
Notwithstanding the provisions of section 7421(a), the beginning of a levy or a proceeding during the time the suspension under this paragraph is in force may be enjoined by a proceeding in the proper court, including the Tax Court. The Tax Court shall have no jurisdiction under this paragraph to enjoin any action or proceeding unless a timely appeal has been filed under subsection (d)(1) and then only in respect of the unpaid tax or proposed levy to which the determination being appealed relates.
Since there was no NOD here to which an appeal under subsection (d)(1) could be timely, the Tax Court lacked that injunctive power under subsection (e)(1). I don’t see the district court having injunctive power under (e)(1), either, since the injunctive power is provided during the period of the suspension. Since no CDP hearing was requested (probably, since no NOIL was issued to the last known address), no suspension period is in effect.
Second, the Supreme Court acknowledged a judicial, equitable exception to the anti-injunction act in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1 (1962). To succeed under that exception, a taxpayer must show (1) that under no circumstance could the government prevail, and (2) that there is equity jurisdiction – i.e., that the taxpayer would suffer irreparable harm if the government’s actions were not enjoined. While I think that an IRS levy made without previously sending a proper NOIL might meet the first requirement, merely being forced to pay money would doubtless not be considered irreparable injury. However, there might be irreparable injury if, say, the levies would end up forcing the taxpayer’s business into bankruptcy.
Short of injunctive relief, though, Congress has provided in section 7433 a suit for money damages on account of negligent wrongful collection actions. But, under this section, a taxpayer is limited to actual damages – and I am not sure merely paying taxes prematurely constitutes actual damages. However, collateral damage – such as the levies ending up causing the taxpayer to lose clients or to go into bankruptcy – would seem to be compensable damages.
I also don’t think the Adolphson court appreciated how the dismissal of a deficiency petition for lack of jurisdiction because of an invalid notice doesn’t amount to an injunction against the IRS. The Tax Court has jurisdiction to find facts necessary to its jurisdiction. When the Tax Court determines that a notice of deficiency wasn’t valid, that is a jurisdictional fact found by the court that could be used by a taxpayer in later litigation to collaterally estop the IRS from, say, judicially foreclosing on the tax lien that arose from the deficiency. By contrast, if the Tax Court holds an NOIL was invalid, the court would be deciding an issue not necessary to its CDP jurisdiction, so the discussion would be dicta. A taxpayer could not use this dicta to collaterally estop the IRS in later litigation from arguing that the NOIL was valid. The result of a ruling in a Buffano-type case that the NOIL wasn’t properly mailed is simply an advisory opinion to the IRS not to pursue collection under that NOIL. The IRS usually follows that advice. But, since the Tax Court shouldn’t be issuing advisory opinions, perhaps that is part of why I agree with the Seventh Circuit that Buffano is incorrect.
Finally, Adolphson may also call into question Craig v. Commissioner, 119 T.C. 252 (2002), where the Tax Court held that it has jurisdiction under section 6330(d)(1) to hear a case where the IRS mistakenly issued an equivalent hearing letter, rather than an NOD. In Craig, the Tax Court said it would treat the equivalent hearing letter as an NOD. Adolphson seems to suggest that when no NOD was actually issued, the Tax Court should just keep quiet about any other merits issue, as it lacks jurisdiction under section 6330(d)(1).
About Carlton Smith
Hi Carl, Nice post. One quibble. You write: “When the Tax Court determines that a notice of deficiency wasn’t valid, that is a jurisdictional fact found by the court that could be used by a taxpayer in later litigation to collaterally estop the IRS from, say, judicially foreclosing on the tax lien that arose from the deficiency.”
That’s not quite true. Tax liens do not arise from deficiencies. They arise from assessed tax liabilities. When the Tax Court decides that a Notice of Deficiency was not valid and therefore dismisses the case, that prevents the IRS from entering an assessment of the claimed deficiency. With no assessment, no lien arises—Sec. 6321—and so the IRS cannot even attempt to foreclose on that which does not exist. It would be very strange for the IRS to assess a deficiency after the Tax Court has dismissed a petition for want of a valid NOD.
That said, your underlying point is a good one. Perhaps a better example would be to imagine two NOD’s—one for Year X and one for Year Z—sent at the same time to the same address and the TP petitions the Tax Court only for Year X. If the Tax Court finds the NOD for Tax Year X invalid because it was not sent to the last known address, that would prevent the IRS from assessing any additional tax liability for Year X, but not Year Z (assuming the IRS did not administratively apply the Tax Court decision and DID assess Year Z). However, if taxpayer later challenged Year Z (either through CDP or by paying and filing a refund claim) the Tax Court’s decision about the last known address would bind the IRS in any future litigation.
Carl Smith doesn’t need me to defend him, but I know exactly what he meant. The issue of “last known address” doesn’t arise in timely-filed petitions, because the finding is always, “Well, you obviously got it in time anyway.” It’s only when an incorrectly-addressed Notice of Deficiency is mailed to an incorrect address, as discovered by the taxpayer months or years later, that the Tax Court must rule. Is the case dismissed because it was brought too late and the tax has already been assessed, or is it dismissed because there was never a valid Notice in the first place?
When the taxpayer wins, IRS has already assessed the tax, but it must abate that assessment because it was procedurally incorrect.
Thanks, Bob. Yes, I was thinking of the typical taxpayer who first learns of a notice of deficiency (wrongly-addressed) after getting a post-collection assessment notice for the amount of the deficiency, plus interest. But, Bryan is right that I elided a few steps in my description of the IRS judicially seeking foreclosure of the “lien that arose from the deficiency”. Obviously, the non-contested deficiency notice would give rise to a deficiency assessment, and, after a notice and demand was not complied with, a lien.
The conclusion that the IRS can violate the law, either by issuing NOIL to the wrong address, or by not issuing a NOIL at all, see Chocallo v. CIR, TC Memo 2004-152, leaving the taxpayer without any remedy at all to “fix” the violation and prevent illegal collection activity, is an absurd result. That is particularly so in light of the fact that, by not following the law, the IRS will be depriving at least some taxpayers of the right to determine the merits of the liability under 6330(c)(2)(B) and will be depriving taxpayers of any judicial review of IRS collection action, whether contemplated (levy) or already taken (lien).
Review of the appropriateness of IRS collection action in the context of refund suit relating to a non-divisible tax liability is no remedy at all, as you point out. And where no request for an equivalent hearing is made within 12 months of the date of an invalid NOIL, the taxpayer won’t even get an equivalent hearing.
A section 7433 wrongful collection suit is worthless to a taxpayer who owes significant money to the IRS and lacks the ability to pay an attorney to bring such an action. (Lack of funds to pay an attorney to pursue a major league damage suit usually goes hand in hand with lack of funds to pay taxes.) No attorney can take such a case on a contingency because the IRS will simply offset any judgment against the tax liability. The superpriority provision in 6323(b) for attorney liens on recoveries in suits brought by the taxpayer does not apply to suits brought against the United States.
While I have not researched seeking writ of mandamus as a potential remedy, my memory is telling me that taxpayers and tax litigators should look carefully at mandamus as a possible remedy if Adolphson is correct. Any thoughts on whether seeking a writ of mandamus may work?
Lavar,
I don’t know enough about mandamus writs to comment. Adolphson may have revealed a hole in the taxpayer protections brought in with the 1998 Act. The real issue here is violation of 6331(d) — no levy until 30 days after a properly-issued NOIL. Perhaps CDP is not the fix for this violation. I would hope that Nina Olson brings this hole to the attention of Congress quickly for a legislative fix, as we don’t need or want a decade of litigation over existing law.