Application of Ex Parte Provisions in Collection Due Process Hearing

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We have not written much about the ex parte provisions that entered the code in 1998.  We have a couple of posts on the topic here and here.  In the recent case of Stewart v. Commissioner, T.C. Memo. 2019-116 the taxpayer alleges that material in the administrative file created an ex parte communication.  The Tax Court decided that the material did not violate the provision prohibiting ex parte communications between Appeals and other parts of the IRS that might improperly influence Appeals. 

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The Stewarts received a CDP notice of intent to levy for 2015 and a CDP notice of the filing of a notice of federal tax lien for 2015 and 2016.  Although the court doesn’t write about the amount that the Stewarts owe the IRS, my guess is that they owe a fair amount because their case was being handled by a Revenue Officer.  The clients in my clinic usually do not owe enough to have a revenue officer (RO) assigned to their cases.  I prefer cases in which a revenue officer works the case because then I have only one person to deal with and I do not have to contact the Automated Collection Site.  Because ROs have their boots on the ground in the community where the taxpayer lives, it’s also possible for them to understand local issues in a way that someone sitting in a windowless room on the other side of the country might not.  Of course, the down side of a revenue officer is that they see things someone on the other side of the country might not see.

In this case the Stewarts’ representative seems not to have formed a favorable relationship with the revenue officer.  In fact, he invited the RO to leave his office in what the RO describes as a brusque manner.  The RO put his interactions with the representative into his case notes.  When the representative decided he could not achieve his goals for the case with the RO, he let the RO know that his next stop was Appeals.  That stop came as a result of a CDP request.  Unfortunately for the Stewarts the Settlement Officer (SO) in Appeals seemed to see the case similar to the way the RO saw the case.  The representative believes that the RO improperly influenced the SO and raises that issue in the context of ex parte and how the alleged ex parte actions of the RO tainted the CDP hearing.  Here’s how the court characterized the argument:

Petitioners contend that the ICS history transmitted to SO Wert as part of the administrative file was an ex parte communication. They contend that they were not aware that RO Wagner’s “gratuitous characterization” of petitioner’s counsel was part of the administrative record. Petitioners request that their case be remanded to the Appeals Office and assigned to a different settlement officer who has not been exposed to the alleged ex parte communication. Respondent contends that the alleged ex parte communication was a permissible transmittal of petitioners’ administrative file between the revenue officer and the settlement officer during the CDP process.

Congress created restrictions on ex parte communications in the IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, sec. 1001(a)(4), 112 Stat. at 689 but the provisions did not make it into the Internal Revenue Code.  Instead, the IRS flushed out the rules regarding CDP in a pair of Revenue Procedures, Rev. Proc. 2000-43, 2000-2 C.B. 404, amplified, modified, and superseded by Rev. Proc. 2012-18, 2012-10 I.R.B. 455. Rev. Proc. 2012-18, sec. 2.01(1), 2012-10 I.R.B. at 456.  The 2012 revenue procedure defines ex parte communication as “a communication that takes place between any Appeals employee * * * and employees of other IRS functions, without the taxpayer * * * [or her] representative being given an opportunity to participate in the communication.” The “communication” referred to in the revenue procedure includes oral and written communications.

The court notes that transmitting the administrative file to Appeals from the appropriate function does not normally create an ex parte communication.  If it did, Appeals employees would operate almost totally in the blind; however, the court also notes that the 2012 revenue procedure provides some guidance about what should not be included in the administrative file such as material “if the substance of the comments would be prohibited if they were communicated to Appeals separate and apart from the administrative file.”  In essence, taxpayers’ representative here argues that the RO by including in his field notes that the representative impolitely asked the RO to leave the office of the representative prejudiced the SO improperly making the communication an ex parte communication.  Stated differently, the representative felt the RO put this into his notes for the purpose of communicating to the SO something other than “just the facts.”

The court is not buying what the representative is selling.  It finds that the RO’s notes were contemporaneous.  They were made according to his duties as an RO.  As such they were an appropriate part of the administrative file and not something the RO created for the purpose of improperly prejudicing the taxpayers in Appeals.  Since this was the only argument the taxpayers made in their CDP case, the court sustained the determination by Appeals to allow the IRS to levy on the taxpayers and to leave in place the notice of federal tax lien.  The outcome here seems appropriate on the facts described.  Certainly, circumstances could exist in which the IRS employee seeks to improperly influence Appeals by putting material into the files that does not belong there, and the court cited to some cases of that type, but this does not appear to fit those circumstances due to the timing of the RO’s notes and the fact that his characterization does not appear challenged.

In the Taxpayer First Act Congress made a brief return to the issue seeks to make Appeals even more independent than it was previously.  To the extent it has even more perceived independence, perhaps the ex parte rules have more importance.  Like the provisions providing taxpayer rights, the ex parte provisions contain no specific remedy for the failure to follow the rules.  Although the Tax Court finds no ex parte violation here and, therefore, fashions no remedy, perhaps its willingness to fashion a remedy for violation of this provision has something to say about remedies it might fashion for a violation of TBOR.  So, far the Tax Court has not looked to fashion remedies for TBOR violations as discussed in prior posts here and here and an article I wrote here.

Comments

  1. I had a similar reaction to this case as Keith does. I blogged about it at https://taxprof.typepad.com/taxprof_blog/2019/09/lesson-from-the-tax-court-administrative-file-notes-are-not-ex-parte-contact-.html.

    Here’s one interesting idea that neither I nor Keith really focused on. The Judge was careful to note that the RO sent the taxpayer’s rep. a letter in which the RO repeated basically the information that he wrote in the case notes. I was expecting the Judge to later say something like “well, if the RO sends the taxpayer essentially the same information as he puts in the file, then that information cannot be an ex part contact.” But the court did not go there.

  2. Keith, good post. Just some quick comments:

    1. Taxpayers should be able to learn of ex parte communications in the operating division’s administrative file by requesting access under § 7803(e)(7), added by Taxpayer First Act of 2019, § 1101(a), P.L. 116-25, 133 Stat 981 (July 1, 2019).

    2. Communications outside the administrative file will be harder to discover, but perhaps that should be a standard question asked to the Appeals Officer as the Appeals proceeds. I doubt that many Appeals Officers would lie about that.

    3. As to remedy, see

    – Ratke v. Commissioner, 2016 U.S. App. LEXIS 20430 (9th Cir. 2016), the taxpayer sought sanctions under § 6673(a)(2) on the basis that the administrative appeal had been tainted by an improper ex parte communication with an IRS attorney; the Court held that “[e]ven assuming” an ex parte communications violation (which it did not decide), sanctions are not the appropriate remedy”; rather, “[t]he proper remedy would be remand for an unbiased CDP hearing.”

    – In Robert v. United States 364 F.3d 988 (8th Cir. 2004), the Appeals Officer had an ex parte communication with the examining auditor suggesting that the auditor obtain an outside appraisal. The IRS issued summonses for information for the outside appraisal. The taxpayer moved to quash the summons on the ground that the communication violated the ex parte communication prohibition. The IRS conceded the violation, but the Court held that the summonses were nevertheless enforceable under the Powell standard. The Court said: “[W]e generally will not fashion a remedy where Congress creates a right but fails to create an accompanying remedy.” In denying relief, however, the Court did consider whether the taxpayer had been harmed beyond the fact of the violation of the ex parte communication prohibition, suggesting that it might fashion some appropriate relief if the taxpayer were really harmed.

  3. The most recent information I could find on the taxpayers’ home in Hastings, Minnesota is that the foreclosure sale was scheduled for September 17 (earlier this week). The 2015 mortgage was for $980,000 and the current amount owed was $1,015,762.

    There is someone with the same name in Hastings who is described online as a “cattle buyer” and owner of a cattle trucking company. The price of cattle in southern Minnesota (steers per cwt) dropped from $162 in January 2015, the first of the years involved in this case, to $112 in July 2018 when the Notices of Determination were issued. The taxpayers’ beef with IRS may be that the RO and SO don’t understand the ups and downs of their business.

    Correct me if I’m wrong – aren’t most SO’s these days, former RO’s who may have worked along side the person whose case file they now have forwarded to them? But that shouldn’t get in the way of a good kabuki dance. I believe Appeals now prefers to have “Independent Office” included in its name. It’s sort of like “People’s Republic” for a country.

    • William Clayton says

      All settlement officers who conduct CDP hearings are former RO’s. I equate that with all settlement officers being auditors or Revenue Agents prior to CDP hearings. No more or less independence can really be inferred by this. In my experience there is a fairly good measure of independence reflected in Appeals CDP work. For example, they are no longer allowed to demand higher payments as a result of errors by collection in the taxpayers favor. That is one huge step management took to try to level the field for taxpayers. Please note, I haven’t practiced in about five years so this may have changed.

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