Administrative Law in Practice: Deemed Offer Acceptance and IRS Notice 2006-68

I’ve been spending a lot of time and spilling a lot of virtual ink on how and when an Offer in Compromise may be “deemed” accepted by the service. This happens when the IRS fails to reject an Offer within 24 months after submission. It is, as far as I can tell, an extremely rare occurrence -possibly it has never happened. It may well seem like I am tilting at windmills. (Disclosure: I only finished about a quarter of Don Quixote so I’m not sure that metaphor holds.)

And yet, I persist.

And that is because I see it as my chivalric duty to right a wrong in tax administration… or because I have numerous clients facing extremely long Offer wait times. I also think that this particular issue gives a chance to see how the (sometimes academic) debate on the APA and tax rules can play out in real time on issues that affect low-income taxpayers. More on that under the fold…


In the past few posts, I’ve written about the procedural difference between “returned” and “rejected” Offers. I discussed how the Tax Court may have muddied the water a bit in the recent Brown case, and how IRS guidance in the form of Notice 2006-68 may make things even worse. It is that Notice which I will put squarely at issue here. But before getting into the admin law issues, let’s reiterate fact pattern:

Your client submits an Offer, and wisely does so through a Collection Due Process (CDP) hearing. The Offer Unit incorrectly makes a preliminary determination to “return” the Offer as non-processible. Maybe the Offer Unit did this only a few days after submission, maybe it took them seven months. Doesn’t matter for now.

You challenge the non-processible determination in your CDP hearing and, lo-and-behold, Appeals agrees with you and kicks the Offer back to the Offer Unit for processing.

A couple years pass without hearing anything else.

One day you stumble across a statute that seems straightforward: IRC § 7122(f). That statute says that unless the IRS “rejects” your Offer within 24 months of submission, it is deemed accepted. Do you have good news for your client?

Not without fighting the IRS first. Take a look at the IRM:

“Note: Notice 2006-68 states that an offer will not be deemed accepted under section 7122(f) if the offer is rejected, returned, or voluntarily or involuntarily withdrawn within the 24-month period. Thus, if a case is reopened for any reason, including IRS error, after one of these events occurred (rejection, return, withdrawal), the IRS will have already acted on the offer within the 24 months, and the offer will not be deemed accepted if it is not worked within the 24 months.”

IRM (06-23-2022) [emphasis added]. This provision explicitly provides that even if the IRS erroneously returns an Offer they are done with ever having to worry about getting things done if it goes back to the Offer unit. It no longer needs to be “worked” for the next 24 months.

I’m not sure that’s what Congress had in mind with IRC § 7122(f). Note that this IRM section was updated right after Brown… though it isn’t clear the actual update had anything to do with that decision. Let’s charitably say that it didn’t, and that this IRM section is strictly relying on the authority of Notice 2006-68. If you want to argue for deemed acceptance, you are going to have to argue against the authority of the Notice. Your only possible chance of success on this is in litigation.

(Side Note: this is yet again a reason why CDP is critical to tax administration. Without CDP you are stuck with what I am fairly convinced is an incorrect IRS Notice binding you, because there is no chance that Appeals or any other lower level of the IRS bureaucracy can or will go against it. But I digress.)

The Authority of Notice 2006-68

In Feigh v. Commissioner I represented a taxpayer directly challenging IRS Notice 2014-17. The IRS needed the Notice’s interpretation of IRC § 131 to hold some water for its position to prevail. The Tax Court found that the Notice was entitled to, at best, Skidmore deference on that question… which I would call “worthless” deference. We won the case.

Should we expect the same to a challenge of Notice 2006-68? Hard to say, but there are some serious vulnerabilities.

I want to avoid wading into the recent PT admin law exchange about “interpretative” and “legislative” rules, but I do think Notice 2006-68 can raise some practice points to consider. I side with Prof. Hickman on this question, but my focus in this post is from the practical orientation of someone litigating against the IRS on a regular basis rather than on purely academic merits.

Though last month’s Procedurally Taxing administrative law posts focused mostly on Treasury Regulations, and Notice 2006-68 is assuredly not that, the issue really is more about “rules.” As Prof. Hickman notes, you will have a hard time convincing a court that a Treasury Regulation is not a legislative rule -the real debate is what to call other sub-regulatory guidance. Guidance like IRS Notice 2006-68…

As a litigator, I am convinced that no matter what you call Notice 2006-68 (“interpretative,” “legislative,” a “banana”), in litigation the IRS would argue that it is entitled to a high degree of deference -something akin to Chevron deference. Under that framework, the IRS brief would read, “there is a gap in the statute, we’ve filled it, and what we’ve filled it with is good enough.” (Students: please don’t use this as your Chevron step-analysis on any administrative law tests.) Representing the taxpayer, even if I come up with a “better” interpretation of the statute (that is, an interpretation that the Court finds slightly more plausible), I can still lose to the IRS. That’s the value of deference to their litigating position. I have trouble imagining the IRS conceding it.

So where does “interpretative” and “legislative” come into play?

As I understand it, “interpretative” rules don’t need to go through notice and comment procedures. See 5 USC § 553(b). I am less clear on what happens thereafter (I don’t say that sarcastically). Do they still get some level of deference? Should they? If not, what value do they really have? If interpretative rules don’t get the same deference as legislative rules than, quite frankly, I think most practitioners would be happy to call any rule the Treasury wants to “interpretative.” The flashpoint for the practitioner is really just how much the court is going to defer (or consider itself bound by) the rule.

If the IRS (miraculously) conceded that Notice 2006-68 shouldn’t be given the force of law, or should only be given Skidmore deference, then really I’ve won my battle against without firing a shot. But since I don’t expect the IRS to roll over like that, and I fully expect the IRS to argue that taxpayers are bound by Notice 2006-68, we need to attack Notice 2006-68 head-on. This would entail both procedural and substantive attacks. And this is why, in practice, it would be important to characterize (I think correctly) Notice 2006-68 as “legislative” rather than “interpretative.” I lose my ability to really argue against the procedure if Notice 2006-68 is just interpretative.

Procedural Issues with Notice 2006-68

The first question to ask is whether Notice 2006-68 went through Notice and Comment. As far as I can tell, it looks as if Notice 2006-68 was the notice… but that there were never any final regulations promulgated thereafter. Indeed, the bottom of Notice 2006-68 solicits comments by October 9, 2006. In that respect, Notice 2006-68 is really more of a “proposed” regulation… which really isn’t entitled to much deference at all. See Tedori v. United States, 211 F.3d 488 (9th Cir. 2000) and Laglia v. CIR, 88 T.C. No. 44 (1987) [sorry, no free link].

It is unclear what, if anything, the IRS actually did with any comments it received. If the IRS didn’t properly consider the comments it did receive then it is in trouble -this is the thrust of Altera. It’s hard to imagine that they did consider them, if they never really did anything after promulgating the request for comments itself.

This is where the IRS could, possibly, draw comfort from the “minority view” of determining legislative vs. interpretative rules. The IRS argument would be that no notice and comment was even required, because Notice 2006-68 derives from the “express authority” of the statute rather than the general authority of IRC § 7805. There certainly could be some room for the IRS on that position, given the language of IRC § 7122(d)(1) and (e) (broadly giving the Secretary the authority to prescribe procedures for Offer evaluation). This is an argument that I could see devolving bogging down over statutory language that, frankly, has little to do with the issue at play. Fortunately, it is an argument that can be avoided.

Under the majority view, the inquiry is whether the IRS intends to bind the taxpayer with the rule. And there can be little doubt that the IRS does in this case: likely, reliance on the Notice is the only thing that keeps the Offer from being “deemed accepted” in the first place.

I have much less issue with Notice 2006-68 carrying force of law or a high level of deference if it was finalized after non-government stakeholders were able to weigh in and be meaningfully heard -some sort of procedure whereby individuals were given “notice” of a rule and a chance to “comment” on it…

Had a final rule been issued after comments, perhaps it would have addressed some of the issues I am about to outline. In the absence of that, it’s hard for me to see why the extremely IRS-friendly interpretation in Notice 2006-68 of a taxpayer-friendly statute in IRC § 7122(f) should be given much weight.

Substantive Issues with Notice 2006-68

Putting to the side the procedural issues with Notice 2006-68, just how reasonable of an interpretation is it? Let’s start, as we always should, with the words of the statute. IRC § 7122(f) provides:

Any offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer. For purposes of the preceding sentence, any period during which any tax liability which is the subject of such offer-in-compromise is in dispute in any judicial proceeding shall not be taken into account in determining the expiration of the 24-month period.

Pretty simple, right? If after 24 months of submitting an Offer the IRS doesn’t reject the Offer it is deemed accepted. Apart from liabilities “in dispute in any judicial proceeding,” there are no statutory exceptions to the 24-month period.

And yet, here we are.

The reasonableness of Notice 2006-68 hinges on what it means to “reject” for purposes of IRC § 7122(f). The IRS interprets “reject” to include a range of preliminary actions (return, reject, withdraw) that don’t need to be final. So long as the IRS proposes one of those things within 24 months, even if it doesn’t resolve the Offer, the IRS never has to worry about timeliness again because it “rejected” the Offer within 24 months.

In that reading if my client sends an Offer that is immediately (and erroneously) determined “non-processible” IRC § 7122(f) no longer applies… even if the Offer is promptly returned to the Offer Unit to reverse their error and move forwards.

Maybe that’s what Congress intended with IRC § 7122(f). I am skeptical. I don’t think there is any “plain meaning” of IRC § 7122(f) that requires such an interpretation, so context may be helpful.

What Did Congress Intend with IRC § 7122(f)?

Admittedly, there is not much to work with legislative history. Judge Lauber characterizes the Congressional intent as the “expectation that the IRS would respond fairly promptly to OICs, rather than letting them sit in a pile for two years or more. See H.R. Rep. No. 109-455, at 234 (2006) (Conf. Rep.).” Brown at 7.

I looked over the legislative history a bit, hoping it would provide some illumination. Alas, there is no smoking gun. First off, the Conference Report cited to in Brown doesn’t really say anything useful about Congressional intent: go ahead and read it for yourself if you don’t believe me. It did, however, drop a footnote to the case Olsen v. United States, 326 F. Supp. 2d 184 (D. Mass. 2004) for the proposition that it can take the IRS “12 – 18 months to evaluate an offer.”

Let’s assume Congress didn’t like that it takes the IRS 12 – 18 months to evaluate an offer and didn’t like what came out of Olsen. Though the footnote is to the district court decision, Olsen did result in a precedential First Circuit opinion (Olsen v. United States, 414 F.3d 144 (1st Cir. 2005)), so there is a chance that Congress (or Congressional staffers) had the issue on their radar.

Strangely, Olsen isn’t a case that shows bad or even significantly dilatory IRS behavior in reviewing an Offer (I’d fault the taxpayer on that point). Rather, the issue was in how long it took the IRS to give the CDP hearing… in this instance, 16 months after it was requested (apparently because the IRS Appeals Officer originally assigned left).

After the CDP hearing was finally held and an Offer was submitted things moved comparatively quickly. The taxpayer submitted an Offer in July 2002. In November 2002 the (new) Appeals officer started looking over the Offer, and had some processibility concerns -namely, unfiled tax returns. The Appeals Officer sent pretty specific requests to the taxpayer and taxpayer’s counsel but didn’t get the response he was looking for. By May 2003, Appeals had waited long enough and decided to deny the Offer.

From cradle-to-grave, the Offer was rejected in less than a year after submission. However, if we add in the time where the case sat on the shelf without being assigned to an Appeals Officer (which is before an Offer was submitted), it took well over two years. At best, Olsen is a case that shows how painfully long things can drag on with the IRS when Collection Due Process is invoked before any sort of “final” IRS decision comes.

But here is where the pay-off comes: IRS Notice 2006-68 interprets IRC § 7122(f) in a way that only reaffirms the problems of Olsen. Under IRS Notice 2006-68, the IRS can take as long as it wants to reach a determination on an Offer in CDP, so long as a preliminary (non-binding) determination is made before then. If Congress didn’t like what happened in Olsen, resulting in IRC § 7122(f), the IRS Notice 2006-68 seems to say, “we don’t care.”

I know this is giving Olsen too much due -it was merely a footnote on a Conference Report, after all. But breadcrumbs are really all we have to work with. Another crumb in the legislative record is a GAO report relied on (GAO 06-525).

That report indicates how concerned Congress was with the timeliness of Offer resolution. Note, however, that in the report the average time for evaluating Offers was a remarkably prompt 5 months for “first time Offers” and a remarkably slow 22 months for “repeat Offers.” It isn’t immediately clear to me if “repeat Offers” are brand new Offers sent by the taxpayer after a full rejection, or if they would include Offers that are winding through Appeals.

Either way, and importantly, the GAO report specifically notes that one problem is how the IRS does not measure timeliness “from the perspective of the taxpayer” which is “the overall time to resolve the taxpayer’s liability.” GAO Report at 2. Rather, the IRS just measures the time it takes to reach a (preliminary) determination. That is not what the GAO wants.

It seems like the problem Congress was aware of, via both Olsen and the GAO Report, was the very long cradle-to-grave Offer submission to Offer conclusion time-frame. Yet Notice 2006-68 effectively shields the IRS from this concern in toto: just make a first move and you’re done.

If the end-goal of Congress in IRC § 7122(f) was just to ensure that the IRS take any initial action within 24 months, then erroneous processability determinations certainly fit the bill. Yes, those unresolved offers may sit on the shelves (go “unworked”) for years, but at least over two years ago the IRS made an incorrect (and preliminary) determination!

That seems crazy. But it reflects the current IRS interpretation of IRC § 7122(f).

It doesn’t need to be this way. I’ll go into more detail on how to get there in my next post.

Aging Offers into Acceptance: When Does the Clock Stop?

It is pretty much a rite of passage for my students to file at least one Offer in Compromise for their clients. A lot of those Offers are presently accumulating dust in Brookhaven, New York. The length of inaction, as well as the precedential Tax Court case Brown v. Commissioner, has had me thinking more about operation of IRC § 7122(f) “deemed acceptance of offer not rejected within certain period.”  

In my last post I discussed when the clock “starts” for IRC § 7122(f) and noted that the other two pressing questions are when (or if) the clock “tolls” and when the clock “stops.” I think there are some open questions as to when or if the clock could ever toll, but I’ll leave them tantalizingly unsaid for now. Instead, I will discuss when the clock “stops” in IRC § 7122(f). The answer to this question, I believe, is the key to whether we will see an influx of “deemed accepted” Offers in this pandemic-backlogged world of tax administration.


To recap the statute at play, in a nutshell IRC § 7122(f) provides that any Offer that isn’t rejected within 24 months of submission is deemed accepted. The only exception is for tax liabilities in an Offer that are “in dispute in a judicial proceeding.” This seems straightforward: hooray for easy statutes!

Of course, lawyers can always make things more difficult if we choose to. And by writing this post (and others to come) I have clearly chosen to make this statute tricky.

But, I believe, with good reason. Bear with me.

It isn’t hard to imagine how things can get complicated with IRC § 7122(f). A slight twist on the facts of Brown illustrates how this could happen. To quickly recap:

In Brown, the petitioner submitted an Offer that was returned as non-processible in six or seven months. Brown submitted the Offer as part of a Collection Due Process (CDP) hearing, so he was able to effectively appeal the “non-processible” determination. The Offer was held “open” pending the CDP determination on that issue. Much later (well over a year) the Appeals Settlement Officer upholds the preliminary determination to return the Offer.

Here is where I’d like to add a twist to the facts: what if the CDP determination was that the Offer was processible, and kicked back to the Offer Unit? In that case, how would we calculate the remaining time left for the IRS Offer Unit to reject the Offer under IRC § 7122(f)?

Post-Brown, there are at least three different answers to this question that I can see.

First, one could argue that the IRS Offer Unit has unlimited time remaining to reject the Offer under IRC § 7122(f). This is because they already rejected the Offer within 24 months via the preliminary determination to return the Offer, so IRC § 7122(f) has already been met.

This seems wrong. But in fact it is the IRS’s current position and arguably consistent with the Brown opinion. Let’s hold that thought for now.

A second answer is that the IRS Offer Unit has 24 months from the date of the Settlement Officer reversing the “non-processible” determination. This is because the Offer Unit did, in fact, reject the Offer by returning it, but the clock is re-starting now that they need to make a new determination.

This seems a little less wrong… but I still don’t like it. Let’s look at one more option.

A third answer is that the IRS Offer Unit has 17 or 18 months left from the date of the Settlement Officer reversing the “non-processible” determination. This is because the IRS Offer Unit already ate up six or seven months of the clock before reaching their (incorrect) preliminary determination to return the Offer.

This is the only option that really allows for tolling. But I’d actually say the best answer is one that may be foreclosed by Brown: the IRS Offer Unit only has however much time is left from the original submission date, including the time that elapsed during Appeals review.

But am I being just too taxpayer friendly? Let’s look at the authorities…

The Law After Brown and Tax Court Confusion

The “deemed acceptance” statute has precious little case law outside the Brown progeny. From the multiple Brown decisions, however, we can glean the following:

First, a “returned” Offer is a “rejected” Offer for IRC § 7122(f).

I think that is generally defensible, with a caveat: if the preliminary determination to return an Offer is overturned by Appeals, the Offer has not been (and never was) rejected. The Courts have not directly addressed that issue since it did not come up in Brown.

Second, Appeals can take as long as they want to reach a determination on an Offer so long as there was a preliminary determination made by the Offer unit within 24 months.

I don’t think that is correct, but that’s the lesson of the most recent Brown case, since it took Appeals over 24 months to uphold the original decision to return the Offer. I think facts and arguments exist that would likely lead a Circuit Court to finding otherwise, depending on how much that Circuit Court defers to IRS/Treasury guidance.

Treasury Regulations and IRC § 7122(f)

Allow me say something that shouldn’t be controversial: there really aren’t any Treasury Regulations (or at least no final Treasury Regulations) on point for IRC § 7122(f). The Brown court cited to Treas. Reg. § 301.7122-1, but it is mostly irrelevant to IRC § 7122(f). It was finalized 4 years before IRC § 7122(f) even existed and has not been updated since. It provides little if any real guidance on the later-enacted statute at play (this is also true of Rev. Proc. 2003-71, for the same reasons).

In fact, importing Treas. Reg. § 301.7122-1 and Rev. Proc. 2003-71 to the IRC § 7122(f) analysis just muddies the water. To the extent they deal with when (or whether) an Offer is rejected or returned, they do so only in determining if there is a right to administrative appeal or if the Offer is “pending.” Again, these are both non-issues to the statutory language of IRC § 7122(f) which only cares about the date the Offer is “submitted” and whether it is subject to a “judicial proceeding.”

The Tax Court appears to have been confused on this point, with the confusion culminating in the phrase, “for the purpose of IRC § 7122(f) an Offer is pending if…” As I have stated before, there simply is no “pending” for the “purpose of IRC § 7122(f).” There are two questions for IRC § 7122(f): when the Offer was “submitted” and when it was “rejected.” If I mail an Offer to the IRS and someone in Brookhaven locks it away in a dusty trailer my Offer will never be “pending.” But two years later you better believe my Offer is accepted under IRC § 7122(f).

“Clarity” From Notice 2006-68

Instead of Treas. Reg. § 301.7122-1, however, we do have Notice 2006-68, which is directly on point. Notice 2006-68 provides that:

the “period during which the IRS Office of Appeals considers a rejected offer in compromise is not included as part of the 24-month period because the offer was rejected by the Service within the meaning of section 7122(f) prior to consideration of the offer by the Office of Appeals.”

How to make sense of this…

One way to read this is that it supports our least satisfactory interpretation of IRC § 7122(f): once the IRS Offer Unit decides to return or reject an Offer the 24-month cap goes out the window never to return “because the offer was rejected by the Service within the meaning of 7122(f) prior to consideration of the Offer by the Office of Appeals.” All the IRC § 7122(f) requires is that the IRS make some sort of preliminary determination on the offer within 24 months, and the Offer unit did exactly that. Case closed.

Again, this was the least satisfying answer to the hypothetical. I am also convinced that it is wrong, though it appears to be the position of the IRS in the IRM. See IRM (08-26-2020) (specifically providing that a decision to “return” by the Offer Unit will end the 24-month clock even if Appeals determines that the decision was “erroneously made.”)

You could also read Notice 2006-68 as supporting the second or third answer to our hypothetical: the clock stops only for “the period during which the IRS Office of Appeals” considers the Offer. If the IRS Office of Appeals kicks the Offer back to the Offer Unit, the clock either starts anew (our second answer) or picks back up from where it left off (our third answer).

Again, I think that the correct answer is that the clock never stopped with the preliminary determination. But failing that, and particularly if IRS Notice 2006-68 is given the force of law (more on why that’s wrong in my next post), I’d say tolling is the least-bad alternative. Using all the traumatic wisdom gained through the submission of hundreds of Offers, here is why:

IRS Appeals does not send “rejected” Offers back to the Offer Unit: the decision ends with Appeals. See IRM (08-26-2020). However, IRS Appeals does send “returned” Offers back to the Offer Unit if the processing determination was incorrect. See IRM (08-26-2020).

In other words, if the Offer is “rejected” the Offer Unit’s work is done forever and ever amen, even if Appeals ends up reversing that determination. But if the Offer is “returned” it might go back to the Offer Unit if they were wrong. Tolling can only even present itself as an issue (with the Offer Unit) if it is an erroneously “returned” Offer in a CDP hearing, because you normally don’t get Appeal rights unless it is actually “rejected.” See Treas. Reg. § 301.7122-1(f)(5)(ii).

It doesn’t make sense to me that the IRS Offer Unit can quickly make an incorrect decision (“non-processible Offer”), which usually takes place well before reviewing the substance of the Offer itself, and then can take as long as it wants to review the Offer after that error is reversed. The statute certainly doesn’t seem to require that reading.

A Better Understanding of Returned Vs. Rejected Offers

It may be problematic to always equate “returned” Offers with “rejected” Offers. The IRS doesn’t even treat them as the same thing. The issue is that “rejecting” was a term-of-art in Offer parlance prior to IRC § 7122(f) being enacted. A rejected Offer was one that allowed for Appeal rights, had tolled the statute of limitations on collection, and had been determined to be processible. Not all Offers that the IRS didn’t agree to were “rejected” as a term of art.

In contrast, “returning” an Offer is just one way of many that the IRS can decide not to agree to an Offer. Indeed, Notice 2006-68 lists out the myriad ways an Offer can find an ending without acceptance, including if it is:

“rejected by the Service, returned by the Service to the taxpayer as nonprocessable or no longer processable, withdrawn by the taxpayer, or deemed withdrawn under section 7122(c)(1)(B)(ii) because of the taxpayer’s failure to make the second or later installment due on a periodic payment offer.”

What Notice 2006-68 does, I think quite sensibly, is to say that each of these means of resolutions is a “rejection” under IRC § 7122(f). Thus, Notice 2006-68 defines “rejection” in IRC § 7122(f) as it would be used in common parlance or contract law as an umbrella term for failing to accept an Offer, rather than solely the IRS term-of-art that generally gives appeal rights.

Ultimately, however, the bigger issue is the question of finality. Brown sees no distinction between a preliminary determination to return or to reject and a final decision. Perhaps this is an example of bad facts making bad law: $50 million at issue for an Offer of a few hundred thousand just doesn’t look good, especially for a repeat player. It would have been far more defensible for the Tax Court to say that the 24-month period tolled, rather than finding that the Offer was conclusively “rejected” when the Offer unit made the preliminary determination to return the Offer.

But to understand why we will need to dive into administrative and even contract law… Which will require at least one more post on this deceptively simple statute.

The Age of Offers: Pitfalls and Possibilities for “Aging Into” Offer Acceptance

As Keith posted, the Tax Court recently issued a precedential opinion discussing when an Offer in Compromise might “age” into default acceptance under IRC § 7122(f). As someone with numerous Offers that are nearing the two-year default mark, I read the opinion (Brown v. C.I.R., 158 T.C. No. 9 (2022)) closely. 

And from those 13 pages, though there is essentially never any doubt that the taxpayer would lose, I have found a wellspring of interest in “deemed acceptance” Offers. My goal over the course of several following posts is to inspire your interest as well, even if you don’t much care about Offers. There is something for everyone: as but a taste of what’s to come, we have (I believe) Tax Court and 9th Circuit errors, contract law, and regulatory challenges -I will even dip my toe ever so daintily into the Procedurally Taxing “interpretative vs. legislative” rule debate.


As I stated earlier, I have multiple Offers that are over a year old. I think that the issue of aging Offers is only likely tobecome more common soon. Offers can only be sent on paper. Whether the IRS is on top of processing paper (albeit in the form of tax returns) is all the rage: Commissioner Rettig says “yes” and NTA Collins says “no.” The pandemic certainly has not helped, and who knows what direction that will take in the future.

Under IRC § 7122(f) the IRS has 24 months to “reject” an Offer or it will be deemed accepted… two years may seem like a long time in most contexts. But with matters of geology or tax, it sometimes can feel like the blink of an eye.

Nonetheless, there are presently very few cases that even reference IRC § 7122(f). My Westlaw search brings up only 14, of which most are irrelevant and three are for the same taxpayer (Brown). A brief recap of most recent Brown decision is in order:

The taxpayer submitted an Offer in April or May of 2018. The Offer was preliminarily “returned” as non-processible in November. 2018. However, since it was submitted as part of a Collection Due Process (CDP) hearing, Brown was able to raise the argument that it actually should be considered processible. The Settlement Officer didn’t immediately reach a decision on that issue but agreed to keep the case open.

A lot of time passed between the IRS Offer Unit “returning” the Offer as non-processible and the Settlement Officer doing anything. In fact, more than two years passed. So, after patiently biding his time, Brown does what anyone with +$50 million in tax owed would do: he tells the Settlement Officer that the IRS has accepted the Offer by default since they didn’t reject it within 24 months.

The prospect of having +$50 million written off appears to get the Settlement Officer in motion: he determines that the Offer unit was right to return the Offer and issues a Notice of Determination upholding the lien since Brown provided no other collection alternative. Brown petitions the Tax Court, and among many other things, this post ensues.

There are at least three questions that need to be answered in applying IRC § 7122(f): (1) what starts the clock, (2) what (if anything) tolls the clock, and (3) what stops the clock. 

The main issue in Brown was a question of what stops the clock.Specifically, whether an initial determination by the Offer Unit to “return” the Offer was sufficient, or if it was not until the Notice of Determination upholding that decision. The taxpayer wanted to argue that the return was not a rejection until the Notice of Determination was issued… which was more than 24 months after the Offer was submitted.

The Tax Court says “no” to this argument, I think for the wrong reasons. But I’ll get to that later. For this post, I want to focus on what appears to be the easiest question: when the clock starts. It is, nonetheless, an inquiry with some pitfalls that I think the Tax Court opinion illustrates.

Starting the Clock: “Submitted” vs. “Pending” Offers

There are two main reasons why you want to lock in an “early” date for your Offer. As suggested, the first reason is to get the clock ticking for aging into “deemed acceptance” under IRC § 7122(f). The second reason is to stop the IRS from initiating a levy on you under IRC § 6331(k)(1). Because I know of exactly zero people that have had an Offer “deemed accepted,” but a lot of clients that have relied on the levy restriction, it may be easy for practitioners to assume that the “deemed accepted” clock starts at the same time as the levy restrictions clock since that is the clock they are most familiar with. But as it turns out, they aren’t the same.

The statutory language is different for IRC § 6331(k)(1) levy restriction than it is for IRC § 7122(f) deemed acceptance. Notably, the levy restriction is triggered “during the period that an offer-in-compromise […] is pending with the Secretary[.]”IRC § 6331(k)(1)(A) [emphasis added]. However, an Offer is deemed accepted if “any offer-in-compromise submitted […] is not rejected by the Secretary within 24 months after the date of submission of such offer.” IRC § 7122(f) [emphasis added].

An Offer is “pending” when it is “accepted for processing.” Treas. Reg. § 301.7122-1(d)(2). That only happens after the IRS makes a processibility determination, which can take some time since it requires background research. Among other things, to determine if an Offer is processible an IRS employee needs to check if the taxpayer is in bankruptcy, included the filing fee or is eligible for a fee waiver, and has filed all required tax returns and current year payments. The pending date is the date that the delegated IRS employee signs the Form 656. See Rev. Proc. 2003-71.

Because processability is a fairly substantive inquiry a lot of time can pass from the date you mailed the Offer to the date it is “pending.” And because the levy restriction also pauses the collection statute in some cases you may want to double-check that pending date to determine if it actually should be later. See IRC § 6331(k)(3)(B). But whether an Offer is pending (or even considered processible) is not what we’re concerned with when looking to “age” an Offer into acceptance.

In fact, I’d venture to say that when an Offer is “pending” is completely irrelevant for determining if an Offer ages into acceptance under IRC § 7122(f). Both the Tax Court and 9thCircuit appear to be confused on this point. 

The Tax Court in Brown states “For the purposes of section 7122(f), petitioner’s Offer was deemed pending […]” only for the period of time between when the Offer was accepted for processing and when it was returned. Brown at 8. 

Similarly, the 9th Circuit (in a non-precedential opinion) states that the Brown’s “offer was not accepted by operation of law under 26 U.S.C. § 7122(f).” and references that “An offer returned … is deemed pending only for the period between the date the offer is accepted for processing and the date the IRS returns the offer to the taxpayer.” Brown v. CIR, 826 Fed. Appx. 673 (9th Cir., 2020) (sorry, couldn’t find a free link).

The problem is that there is no “pending” status “for the purposes of section 7122(f).” Pending doesn’t exist for the purposes of section 7122(f): it doesn’t start the clock, toll the clock, or stop the clock. What matters is when the Offer was “submitted,” and that is quite a different inquiry. The Tax Court and 9th Circuit would appear to have “pending” status play some role where it clearly shouldn’t.

When Is an Offer Considered “Submitted?”

There is a simple answer to this question: an Offer is submitted when it is received by the IRS. That is what IRS Notice 2006-68says, and in this instance I’d agree with it. As that Notice further details, the date on the envelope (i.e. the date the Offer was mailed) is “irrelevant” for determining when the Offer was submitted. What matters is when the IRS actually received it.

Some people (also known as tax geeks) might immediately think to themselves “what about the statutory mailbox rule at IRC § 7502? Doesn’t that mean that we should look at the day the Offer was mailed, not received?” Unfortunately, that rule doesn’t apply here.

IRC § 7502 only applies when you mail (certain) documents before a deadline prescribed by law and the document is received after that deadline. In those instances, IRC § 7502 provides that the mailing is “timely” and treats the effective date as the mailing date. The problem here is that there is no deadline “prescribed by law” for filing an Offer that comes into play. Yes, there is a deadline prescribed by law that the IRS must accept or reject the Offer within 24 months… but that isn’t a deadline prescribed by law to for you to “file” an Offer, it is a deadline for the IRS to act. 

So, no statutory mailbox rule. The submission date is the date received by the IRS. Nonetheless, filing by certified mail would be strongly encouraged as a way to prove receipt. Indeed, I have submitted Offers that take three to four months before they are looked at by the IRS, and then another two to three months before they are determined “processible” and thus “pending.” But because “pending” status really doesn’t matter to the inquiry of IRC § 7122(f), the date that matters to me isn’t the date the IRS employee signs the Form 656, but the date my return receipt says the Offer was delivered. That can be a pretty big difference.Another reason I wish the Tax Court would have ignored the word “pending” in its Brown opinion.

Back to Brown: Questions to Come

The Tax Court didn’t spend much time determining when the Offer was submitted: April or May 2018 would work, since the critical event Brown is arguing for took place in August 2020 (Notice of Determination). Understandably, Judge Lauber spends most of the opinion analyzing whether the clock stopped with the initial Offer unit determination to return the Offer -which was two years later upheld by the Settlement Officer.However, under facts very similar to Brown I can easily see the submission date becoming a point of contention.

And that is where there some questions come up that I think may need to be wrestled with in future cases. To me, the biggest question is whether a preliminary IRS determination stops the clock “forever.” The Brown opinion (and particularly the 9thCircuit opinion) makes it seem as if it does.

I will get into more on why I think that is incorrect in a later post, but for now I would just invite you to consider this hypothetical: Imagine the IRS Settlement Officer determines that the Offer should be processed, and it gets kicked back to the Offer unit. How much longer should Brown have to wait before the 24 month “deemed acceptance” period hits? Is it 24 months from that determination? Is it impossible to age into acceptance if any preliminary rejection (even one that isn’t upheld) is issued within 24 months? 

These are tough questions. They aren’t ones that the Tax Court had to address in Brown, but the scenarios track close enough to some of my actual cases so that I don’t feel as if I’m being an academic or frustrating 1L in raising them. I will get into more detail on them in my next posts.

Speeding Up Settlement: Some ABA Conference Inspired Thoughts

An infant with black hair, dark eyes, and pink skin lies swaddled on his back in a crib, gazing into the distance.

Welcome, baby Henrick! While the arrival of Henrick Bruce Smith prevented Caleb’s in-person attendance at the ABA Tax Section’s May Meeting, thanks to the hybrid meeting format Caleb was able to participate remotely and today he offers a blog post spurred by the discussion. Those who registered for the meeting can watch recordings of the sessions for 90 days on the Cvent platform. Related to today’s post, the Pro Bono & Tax Clinics session also included a panel discussing pleadings and possibilities for earlier settlement of cases.

For the first time in two years, the ABA Tax Section had its annual May meeting in-person. Nonetheless, as my son was approximately two days old at the start of the conference, I opted to attend virtually.

In the Pro Bono & Tax Clinics panel, “Tax Court Updates: The View from the Bench,” I recall hearing a comment about how the Tax Court doesn’t know when “settlement days” are occurring, and that there isn’t really much of an opportunity for the Tax Court to play a larger role in that process. It is entirely possible that in the throes of sleep deprivation I misconstrued something that was said: feel free to fact-check me with the recordings of the panels as they are made available. In any event, dreamt or not, the comment got me thinking: are there ways the Tax Court could get more involved with facilitating settlement?


Let’s begin with a statement of the issue. The issue isn’t that Tax Court cases don’t often settle. The issue is that Tax Court cases don’t often settle as quickly as they could or should. Quick and efficient settlement is key to tamping down the rather large number of docketed cases the Tax Court is presently wrestling with.

As detailed in Keith’s post and the NTA statistics, it is possible that IRS Appeals shares some blame for cases that should have been settled much earlier but linger on the docket. It is also likely that the parties, absent the Tax Court’s prodding, could do more to speed up resolution of the cases. But since people (myself included) are generally loathe to take on extra work, Tax Court prodding may just be what’s needed. How might the Tax Court prod parties into engaging in settlement talks at an earlier stage?

In thinking over this issue, I thought about my experience with other courts.

I have been tax-focused pretty much from day one of my legal career (it’s why I went to law school). However, one day in my 2L year I was pulled from my tax clinic work and asked to step in on an eviction case. I had made the mistake of showing up to clinic despite approximately two inches of snow being on the ground which, being from Minnesota, I failed to recognize is an extinction-level event in Oregon.

Since no other students were around, I had to show up in housing court on a case I knew essentially nothing about. I was about as helpful as you may expect a law student to be in that circumstance. And yet… the case settled favorably for the client.

How did this happen?

I can assure you it wasn’t through any of my efforts, but rather because of the judge. After the parties announced themselves, the very first thing the judge did was to order the parties to talk things over in the hallway and try to settle, if possible. And when all you’ve seen of the other party is a name on a sheet of paper, it is amazing what a little face-time can do. Opposing counsel was (somewhat) sympathetic to the plight of our retired client, and an agreement was reached.

It is clear that the Tax Court is operating from different parameters than state courts are, especially in terms of frequency of court dates and potential remedies (eviction cases being largely issues between private parties). But to me this gets at the power of the judge simply saying, “go talk things over.” Infantilizing though it may be, I really do think that the parties often need that directive before they’ll actually do it.

Again, however, the Tax Court is not in the same position as state courts are. There needs to be a different window for the Tax Court to say “go talk it over” apart from physically being in the court, since Tax Court rides circuit and infrequently visits most locations in the country. Where might we find that window? I can think of two options.

Option One: Pretrial Conferences

I’ve only been a party to about five or six federal district court cases, and all have settled fairly quickly. The most striking difference between federal district court and tax court, in my opinion, is the formality: more formal scheduling, more formal discovery, more formal everything.

Another difference is in pre-trial conference procedures. FRCP 26(f) generally requires that the parties confer about the case (and the possibilities for settling) prior to the court’s scheduling order or conference. The Tax Court has no such requirement under the rules, as there are no required “initial disclosures,” and formal discovery is generally the last resort rather than a given.

Both the US Tax Court Rules and the Federal Rules of Civil Procedure also have specific rules covering pre-trial conferences. See FRCP 16(a) and Tax Court Rule 110. Both rules provide that pre-trial conferences are discretionary, but in my (albeit limited) district court experience they tend to come up as a matter of course: discussions of settlement being raised by the judge during what is technically a “scheduling conference.” Again, it is amazing what can happen when a judge simply tells the parties to talk with each other for a bit.

I see this occasionally in Tax Court as well, though it appears to be largely a matter of the individual judge’s tastes. Judge Holmes, for example, seems to take a more hands-on approach to his docket. It generally isn’t (and doesn’t need to be) a particularly formal conference: I’ve seen that oftentimes just the “threat” of a call with the judge ends up moving the case forwards, especially when it was mostly languishing due to administrative inertia.

There is, however, a pretty big impediment to the Tax Court using pre-trial conferences as a way to resolve cases (or encourage settlement) earlier in the process. Namely, that in many locations Tax Court cases remain on the “general docket” and don’t have a judge assigned to them until late in the game. In Minnesota, for example, there is no trial session set on either the fall or spring 2022 calendars. So if I filed a petition today I could be pretty confident that it would not be calendared until 2023… and even then, likely not until March or April (the Tax Court for some reason tends to avoid Minnesota in January and February).

So maybe pretrial conferences aren’t always a way for the Tax Court to initiate settlement at an earlier stage. But they could still be a way for practitioners to get the ball moving. Rule 110(c) provides that parties can move for pretrial conferences even when they are not calendared, with the pretrial conference taking place anywhere “convenient.” Since there are now virtual trials, and weeks set off for virtual trial dates, they may well make for convenient pretrial conference “locations.”

Option Two: Status Reports 

There are a few advantages that the Tax Court may have over federal district court in encouraging early settlement, despite its later (and less formal) involvement in most cases. And these advantages spring largely from the different infrastructure of Tax Court controversies, for both respondent and petitioners. Whereas the federal district court deals with a range of parties, the Tax Court always deals with the IRS. Tax Court judges are generally very familiar with IRS procedures.

But there is also the infrastructure that has been built up (in no small part due to the efforts of numerous PT editors and contributors, and the ABA) for petitioners. While there are certainly pro bono referral programs with federal district courts, I don’t believe any are as formalized or robust as those in the Tax Court. There has been buy-in from all parties, resulting in the Tax Court calendar call program and the IRS push for settlement days from on-high. And while the nationwide LITC program isn’t limited to Tax Court disputes, it is clear that Tax Court is the preferred venue of LITC practitioners (see LITC program report at page 24).

All of this is to say that perhaps this infrastructure can be better exploited for early settlement in Tax Court. My pitch would be to put certain cases on “status report track” before trial dates are even set. I imagine these to be generic orders asking the parties to file a status report say, four months after the petition is filed, where the parties address (1) whether any effort to work toward settlement has taken place, and (2) whether Appeals has contacted the Petitioner. For pro se petitioners, it could also include a question about whether they have reached out to LITCs for assistance.

In jurisdictions where the Tax Court infrequently holds trial, I think this approach could work where others fail. A few thoughts on why:

First, status reports are fairly informal and not particularly time consuming. A lot of the joint status reports I’ve filed with IRS counsel are two or three paragraphs. Nonetheless, they serve a purpose: in the passive-aggressive parlance of the Midwest, they are a “gentle reminder” to parties to get things done. I have found that many cases that have been languishing on purely administrative grounds suddenly get resolved when a status report is on the horizon.

Second, you don’t really need to have the Tax Court judge acting on status reports, the way you do with motions. In fact, you’re not supposed to ask the Tax Court to “do” anything in a status report. That’s the role of a motion (see designated order post on point here). Because of this, it is much less of a problem to require status reports where the case remains on the general docket: incoming Chief Judge Kerrigan presumably wouldn’t be overwhelmed with additional work.

Third, Tax Court litigation already utilizes informal processes that this could potentially tie into. The Branerton process is one that comes to mind, suggested to me by Les and written about a bit in a “PT Classic” guest-post from Prof. Scott Schumacher in 2015. Sad to say, I have seen numerous cases where the Branerton process never really occurs, and as trial looms the parties struggle to contact each other and do what they can to stipulate. Note that petitioners can also initiate Branerton, so there is equal blame to share when this occurs.

Lastly, when a trial date is set and the case is assigned to a specific judge, they can look over the record and see if the parties have communicated. At calendar calls there are invariably multiple motions to dismiss for lack of prosecution that the Tax Court judge must reach a determination on. Some of the inefficiencies in Tax Court cases resolving quickly surely falls on petitioners: this practice may help the Tax Court in reaching their decision on where the blame should fall.

Boilerplate Provisions in Stipulated Decisions May Have “Interesting” Consequences

In my last post, I ran through the arguments a taxpayer may have against interest accruing when the IRS is “dilatory” in assessing tax that was assessed through a Tax Court decision. It was a fun and exciting jaunt through IRC § 6404(e) marred by a rather unfulfilling conclusion: IRC § 6404(e) interest abatement for “dilatory” IRS assessment might not get you where you want to go if your client is poor.

That seems unfair. But as my parents undoubtedly told me when I was a child, life is unfair.

Still, as lawyers we like to believe that we can mitigate some of that cosmic unfairness. Or, failing that, we like to believe we are just cleverer than we really are. I’ll let you be the judge which of those two buckets my following argument falls into…


Let’s get away from IRC § 6404 for a moment. As Professor Bryan Camp recently detailed, there are a lot of different ways to lose on IRC § 6404 arguments.

Instead of the rocky, uninviting terrain of IRC § 6404(e), let us turn to the lush paradise that is IRC § 6601. Specifically, let us gaze upon IRC § 6601(c).

The provisions of IRC § 6404(e) were full of mushy terms like “ministerial or managerial act,” and “dilatory performance.” IRC § 6601(c), however, gives us nice, bright lines to work with. If the taxpayer waives the restrictions to assessment under IRC § 6213(d), the interest on the deficiency is suspended when the IRS fails to send “Notice and Demand for payment” within 30 days of the waiver.

Note that this code section generally comes up in examination, and not in litigation. In fact, the waiver of interest is commonly referred to as an “870 Waiver” by those in the know (i.e., Bob Probasco, to whom I am indebted on all issues relating to interest), because it is traditionally done through Form 870.

But we’re dealing with people that have decisions entered in Tax Court, not administratively with the IRS. Is there any way to get to IRC § 6601(c) without Form 870?

Maybe. Bear with me on this one.

One of the standard, boilerplate (and IRS insisted upon) provisions on the stipulated Tax Court decisions I enter into reads as follows:

“It is stipulated that, effective upon the entry of this decision by the Court, petitioner waives the restrictions contained in IRC § 6213(a) prohibiting assessment and collection of the deficiency (plus statutory interest) until the decision of the Tax Court becomes final.”

In other words, my Tax Court decisions enter into a section 6213(a) waiver. Am I out of luck because IRC § 6601(c) requires a waiver “under section 6213(d)” and my waiver occurs a mere three sub-paragraphs above that?

We should probably look at IRC § 6213(d) to get an idea. It is a short and fairly straightforward code provision:

“The taxpayer shall at any time (whether or not a notice of deficiency has been issued) have the right, by a signed notice in writing filed with the Secretary, to waive the restrictions provided in subsection (a) on the assessment and collection of the whole or any part of the deficiency.”

Arguments For and Against Tax Court IRC 6213(a) Waiver as IRC 6213(d) Waiver

IRC § 6213(d) really just asks two things:

(1) did the taxpayer waive the restrictions on assessment and collection in IRC § 6213(a), and

(2) did the taxpayer sign and file that waiver with the IRS?

The answer to the first question is an unequivocal “yes” in my Tax Court decision documents. The answer to the second question is not so clear.

Any time I enter into a stipulated decision to some degree I “sign and file” a document with the IRS. I definitely “sign” the document. But I much-less-definitely “file it” with the IRS. As an agreement (a signed stipulation between the parties) it is always countersigned by the IRS. So, I always “send” it to the IRS for them to take further action. Nonetheless, it is debatable whether I’m “filing” it with the IRS. Some would say I am only “filing it” with the Tax Court. But that term is not particularly well defined.

One other wrinkle. I somewhat-subtly substituted “IRS” for the word “Secretary” in the statute (e.g., “file with the Secretary”). Does that matter?

Generally, “Secretary” means the actual secretary of the Treasury (presently Janet Yellen), or their “delegate.” A delegate, in turn, means “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[.]” See IRC § 7701(a)(11)(B).

In other words, the word “Secretary” refers to a really broad group of people within the IRS. That’s good news for my argument.

Bad news for my argument (maybe) is the Treasury Regulation on point: Treas. Reg. § 301.6601-1(d). That regulation provides that the suspension occurs after a “district director” determines a deficiency and the taxpayer files an agreement “with such internal revenue officer.” Those may well be more restrictive terms. At the very least, they seem to imply that the waiver must be filed in the administrative proceeding, since it is requiring that I file “with such internal revenue officer” (i.e., those involved in determining a deficiency). IRS Counsel is definitely not involved in determining the deficiency for my taxpayers. They come into play only after I’ve filed a petition challenging that prior determination.

What is one to do when the statutory language and regulations leave wiggle room? Look to the case law.

While contemplating the merits of my argument, one case in particular caught my attention: Corson v. C.I.R., T.C. Memo. 2009-95. In Corson the taxpayer apparently executed a section 6213(d) waiver as part of a stipulated settlement in litigation. The Tax Court found that this waiver, which was part of a stipulated settlement, did indeed suspend interest when the IRS took half-a-year to get around to sending a Notice and Demand letter.

That seems pretty much on all-fours with my argument, right?


It isn’t immediately clear to me how the waiver was executed. Was it just in the stipulated decision document? Was it an added Form 870 filed with the decision documents? Does that matter? I’d say it is at least enough of an opening to make an argument. And that opening expands in reading other cases on the topic. For example, in a later case the Tax Court specifically references Corson for the proposition “[g]enerally, the waiver is executed by filing a designated form, but the restrictions on assessment may be waived in other ways.” Hull v. C.I.R., T.C. Memo. 2014-36. So maybe no “designated form” was filed in Corson. Maybe the generic (but explicit) waiver of restrictions in IRC § 6213(a) is enough…

The Takeaways

I referred to the IRC § 6213(a) waiver as “boilerplate” and, in the title of this post, alluded to them being something of an afterthought for most practitioners. But what does the waiver really do?

The most obvious consequence of the waiver is that it speeds up the process for the IRS to assess and collect, by speeding up the “finality” of the Tax Court decision. Usually, the decision is not final until appeal rights have passed or been exhausted. See IRC § 7481. Since I don’t plan on appealing stipulated settlements, I have no problem bumping up the “finality” date of a Tax Court decision by waiving IRC § 6213(a) restrictions.

But shouldn’t there be some trade-off for this waiver of restrictions? What does the taxpayer get by letting the IRS assess and collect more quickly? Conceptually, it seems to me like the IRC § 6213(a) waiver filed in Tax Court is doing basically the same thing the Form 870 waiver is doing in examinations: speeding things up for the IRS. And when the IRS doesn’t act in a (remotely) timely manner on that taxpayer concession, it seems to me that the consequence should mirror that of the Form 870 waiver: a suspension of the accrual of interest for the IRS’s dilatory behavior.

The beauty of the argument, as I see it, is that I no longer have to prove “causation” when I import IRC § 6601(c) as my means for interest abatement: if the IRS doesn’t send the Notice and Demand on time, interest should be suspended, full-stop. This helps low-income taxpayers that can’t afford to just send blind-interest payments to the IRS. Maybe it will also help the IRS in getting those payments more quickly, too.

Losing Interest: Delayed IRS Assessments

Over the last two years I cannot count the number of times I’ve had to give extraordinarily unsatisfying advice to my clients. That advice being, “please wait.” Wait for the IRS to process your return. Wait for the refund to be issued. Wait for your Collection Due Process hearing.

Of course, waiting can carry a price. I’ve previously posted a bit about the time-value of money, and (especially for low-income taxpayers) the opportunity costs of waiting on a refund. Here, I’ll write about the potential costs to the government and potential arguments taxpayers may have against paying interest. To keep things (relatively) simple, I will be focusing only on IRS delays after Tax Court decisions.


I’ve come across a lot of practitioners voicing concern about IRS delays in issuing refunds after a Tax Court decision. In those instances, practitioners are well-advised to review Tax Court Rule 260.

Less common (though not unheard of) is the complaint for those that end up owing after their trip to Tax Court. What happens when the parties settle on a deficiency, but the IRS never gets around to actually assessing that (agreed upon) amount? Bob Kamman experienced and posted on something close to this phenomenon (with a bit of a twist), giving the advice to reach out to the IRS counsel’s office to sort things out. In terms of getting the IRS to actually take action, that advice likely still holds, but what about a remedy for all the time you spent waiting?

From the outset, some may see this all as a non-issue. Regardless of the IRS delay in assessment, you can still send payment for the deficiency and maybe throw a little extra on top for the interest accrual you estimate to be due.

But it is important to remember how many people out there don’t have that “little extra” to throw on top. In 2016, approximately 63% of Americans couldn’t cover a $500 emergency. This is not just a problem in the abstract: I have clients that are living on such tight margins that the accrual of interest makes a big difference in their lives. This is all the more true given inflation and the (slight, but real) uptick in interest rates for tax. Perhaps there should also be some relief from the interest that accrues during a delay in assessment…

And perhaps there is…

Rule 260 Redux?

A quick note on where you won’t find relief.

Mere paragraphs above, I advised practitioners to review Tax Court Rule 260 when their clients are waiting on refunds from a Tax Court decision. Some of you no doubt found that Rule so engrossing that you read on to Rule 261… which deals directly with “proceedings to redetermine interest.” Is that where we should look for relief from interest where the IRS fails to assess and send a notice and demand for payment in a timely fashion?

Probably not.

Rule 261 pertains to cases where the Tax Court decision found an overpayment. Imagine two different taxpayers: one we’ll call “Flush” and one we’ll call “Strapped.” Both have identical tax issues, and both bring identical cases to Tax Court. Eventually, both Flush and Strapped reach a settlement with the IRS, agreeing to a deficiency amount less than what was in the Notice of Deficiency.

But here is where things diverge.

Prior to filing the petition, Flush sent in a deposit under IRC § 6603 for the amount listed on the Notice of Deficiency. Strapped, on the other hand, did not. In their stipulated decision documents, Flush will agree to both a deficiency and an overpayment (i.e., the amount by which the deposit for the original deficiency exceeds the agreed upon deficiency). Strapped, on the other hand, will only agree to a deficiency.

It is for taxpayers like Flush that Rule 261 (and IRC § 7481(c)) applies (you can see that situation in action in Hill v. C.I.R., T.C. Memo. 2021-121). But I am concerned with taxpayers like Strapped. What interest-related arguments might Strapped have?

Unreasonable Delay: The Seemingly Obvious Argument

When the Tax Court redetermines a deficiency, the IRS has to assess it. This seems pretty uncontroversial and is enshrined in IRC § 6215(a). If you double-checked my code citation, please note and underline the phrase “shall be assessed.”

If the IRS takes literally over a year to get around to assessing the tax after a final Tax Court decision, it has followed the statutory mandate… but in a sluggish way that perhaps ought to carry consequences. And a fitting consequence for wasting time would be forgoing the time-value of money during that wasteful period. In other words, abating interest.

And it so happens there is a code provision exactly on point for those sorts of issues: IRC § 6404(e), “Abatement of Interest Attributable to Unreasonable Errors and Delays by the Internal Revenue Service.” That sounds promising, particularly the provisions at IRC § 6404(e)(1)(B). What exactly do they entail?

First, the “unreasonable error or delay” has to involve an IRS employee “in performing a ministerial or managerial act.” Since we’re only focusing on assessing tax, let’s call this the “non-discretionary act” test.

Second, the delay in payment has to be “attributable” to the IRS employee being “dilatory” or erroneous. Let’s call this test the “causation” test.

Third, the taxpayer can’t have played a “significant” role in the error or delay. Let’s call this the “clean-hands” test.

Lastly, the period of abatement must come after the IRS has contacted the taxpayer, in writing, with respect to the deficiency. This is mostly a computational test that we don’t really need to worry about here. It will always be met where the interest at issue has accrued after a Tax Court decision finding a deficiency.

“Non-Discretionary Act” Test

The Treasury Regulations define a “ministerial act” as an act that “does not involve the exercise of judgment or discretion, and that occurs during the processing of a taxpayer’s case after all prerequisites to the act, such as conferences and review by supervisors, have taken place.” Treas. Reg. § 301.6404-2(b)(2). I’d say inputting the assessment of a deficiency, after a Tax Court decision has found that deficiency and is final, meets that test. This is especially true since the IRS is mandated to enter the assessment (the “shall be assessed” language of IRC § 6215(a)).

First test = passed.

“Clean-Hands” Test

What does it mean for a taxpayer (or someone sufficiently related to the taxpayer) to play a “significant role” in the delay? Most of the cases I found involved taxpayers filing incorrect forms or taking other actions that would make the IRS “ministerial or managerial” acts more difficult. There are also some cases where the taxpayers renege (or attempt to renege) on settlements, and generally contradict themselves while trying to vie for interest abatement. In other words, cases where the taxpayer did not have clean hands. See Mitchell v. C.I.R., T.C. Memo. 2004-277.

Assuming the taxpayer has done everything right up to the point of the Tax Court entering the decision document, they probably meet this test too…

“Causation” Test

Here is where things get tricky. The biggest obstacle is something that was alluded to earlier: arguably, you could have paid the tax (and stopped the interest) even without the IRS taking the ministerial acts to assess it. In other words, it was not the failure to perform a ministerial act that caused the interest accrual. It was simply the taxpayers’ failure to send in money.

There are at least a few cases that look at the causation issue and cut against the taxpayer. The worst (and in my opinion, least fair) line of Tax Court cases provide that there will be no abatement if there is no evidence that an earlier payment would have been made… for example, because the taxpayer is cash-strapped.

The Tax Court has expressly found that the IRS has the “discretion” not to abate tax if the taxpayer fails “to establish that he had the financial resources to satisfy the tax liability when the claimed error occurred.” See Hancock v. C.I.R., T.C. Memo. 2012-31, listing off cases supporting this proposition. In other words, extremely low-income taxpayers may be the least able to get interest abatement under this line of argument.

This may not always be the case and would likely be fact specific. But it is enough for me to have serious concerns about arguing under IRC § 6404(e) for interest abatement when the IRS delays in assessing tax for my clients.

Fortunately, there may be different line of argument that will get my clients relief. My next post will cover that proposition.

Making the IRS Answer to Taxpayer Inquiries…By Making the IRS Reasonably Inquire (Part Two)

Lately I’ve been obsessing over how to remedy “bad answers” from the IRS). In my last post, I detailed how IRS counsel’s failure to “reasonably inquire” under Rule 33 before filing a “bad answer” may make them more susceptible to awards of litigation costs under IRC § 7430. Of course, litigation costs come at the end of the ligation process, so that might not seem like a useful remedy for more quickly resolving a case when the IRS files a “bad answer.”

Fortunately, the consequences for failing to reasonably inquire before filing an answer include more than just the heightened possibility of litigation costs. Indeed, far more immediate consequences may ensue. Read on for two more examples, from two more Tax Court orders.


Remedies for Bad Answers: Motion for More Definite Statement

There are a great many lessons that can be gleaned from the case of Patrick McCabe and Zine Magubane v. C.I.R. (Dkt. # 23862-05). I sincerely hope that the Tax Court considers returning to the practice of issuing “designated orders” at some time in the future. I have no idea if the order I am about to cover in detail was “designated” by Judge Panuthos when he issued it in 2006… but it is exactly the sort of order that practitioners would benefit from reading.

For everyone else, the Readers Digest version is as follows:

Petitioners were audited for Schedule C income and deduction issues. The petitioners engaged in the audit process, providing (they allege) adequate substantiation for each issue that ended up on the Notice of Deficiency. Importantly, they alleged that they had adequately substantiated everything and complied with the audit as part of their petition to the Tax Court. Keep my earlier discourse on the limits of burden shifting under IRC § 7491 in the back of your mind…

IRS Counsel asked for more time to file its answer because they didn’t have the administrative file. No one objected, and more time was granted.

Days passed. Again, the IRS can’t find a way to get the administrative file to IRS Counsel. At this point the facts are fairly similar to Vermouth v. C.I.R., 88 T.C. 1488 (1987).

Only now the parties diverge. Rather than file another motion asking for additional time to answer, IRS Counsel decides they’ll just file a “bad answer” instead. In response to all the facts alleged by petitioner, IRS Counsel “denies for lack of sufficient information or knowledge.”

Judge Panuthos and the petitioner are not impressed. Everything from my prior two posts now comes full circle… The interplay of Vermouth and responsive pleadings under Rule 36, as well as the post on reasonable inquiry requirements under Rule 33(b). What a payoff!

Petitioners file a “Motion for More Definite Statement” under Tax Court Rule 51. In that motion, they argue that the IRS’s answer is too vague to allow a reply and that the burden of proof should shift under IRC § 7491.

Note that this burden shift is critical to the Rule 51 motion. You really can’t argue “I need more clarity in order to reply!” (i.e., Rule 51) if a reply doesn’t make sense in the first place, because the burden is on you to prove something you affirmatively alleged. That is your prototypical deficiency case: petitioner alleges facts needed to show no deficiency, etc. When IRS Counsel denies those facts, you do not have to (indeed, shouldn’t) file a “reply.” If there was something more at play than IRS Counsel just saying, “we deny those facts, please uphold the deficiency,” however, Rule 51 might come in handy. From my look over the Tax Court orders, this most often arises with the assertion of fraud, but it could be any number of things (see, e.g., Rule 39). Here, it appears that the only way petitioners can get to Rule 51 is if there is a burden shift for the deficiency.

Whether or not a Rule 51 motion is appropriate in the McCabe/Magubane case isn’t really touched on – though Judge Panuthos seems to think Rule 51 isn’t the way to go in a footnote (that is, no “reply” is needed in this case). In any event, Judge Panuthos is willing to entertain the general notion that the IRS’s answer is deficient. And IRS Counsel’s argument for why the answer is fine is… not impressive. 

In a nutshell, IRS Counsel thinks they should be able to deny everything for lack of sufficient information because they still can’t find the administrative file. Not their fault that someone else at the IRS isn’t doing their job. And this mistake from some other person at the IRS is the reason they (truthfully) don’t have “sufficient information or knowledge.” Things should just be left at that.

But Judge Panuthos doesn’t leave things at that. Instead, he (literally) underscores the requirement of Rule 33(b) that provides the signer’s knowledge or belief should be “formed after a reasonable inquiry.”

And here things go an important step further. It isn’t enough to just say “I don’t have the file, and it’s not my fault it can’t be found.” Judge Panuthos writes:

“The Commissioner’s knowledge includes that of the revenue agent and other IRS personnel involved in the examination in this case. Thus, although the absences of the administrative file may be a direct impediment to the filing of a proper answer, counsel for respondent must avail himself of the other sources of information that would allow him to prepare a proper responsive pleading.”


This is, I think, a fair position to take. Note that it isn’t quite “imputing” full knowledge from one disparate wing of the IRS to another. Rather, it is something of a middle road: if you know that some other wing of the IRS has information/knowledge of the issues at hand, you have to reasonably inquire of those sources.

Similarly, I’d say Judge Panuthos’s ultimate ruling on the motion is also a fair position. He grants the motion, but with (for the time being at least) a less severe remedy than what was asked for by petitioner: the burden doesn’t shift, but the IRS has to file an amended (better) answer in less than a month.

Note that Judge Panuthos’s analysis was squarely on Rule 33, the violation of which allows for a range of sanctions. In other words, you need not go the route of “Motion for More Definite Statement” if the IRS answer has the type of shortfalls outlined above. More thoughts on other options at the conclusion of this post.

So How Far Does an Inquiry Need to Be for it to be Reasonable?

Ultimately, and perhaps unhelpfully, the “test” of reasonable inquiry is one of facts and circumstances. The Supreme Court has said as much with regards to FRCP 11, which is very similar to TC Rule 33. (For the Supreme Court take on Rule 11, see Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., 498 U.S. 533 (1991).

At one extreme, IRS counsel failing to do much of any inquiry after failing to timely receive the administrative file is not good enough. To see something of the opposite extreme, it may be instructive to review the case of Wilmington Partners, L.P., v. C.I.R., Dkt. # 15098-06.

Wilmington was a TEFRA case involving a 65-page petition and 48-page IRS answer. The attorneys in Wilmington didn’t much appreciate that the IRS frequently denied portions of their meticulously laid-out petition for “lack of sufficient information or knowledge.” In particular, they were of the opinion that many of the facts were known to the Commissioner in some capacity or another, over the lifespan of the many exams and hours spent on the myriad partners comprising the case. Since IRS Counsel would have known these facts if they “reasonably inquired,” their denials (“lack of sufficient information”) should be stricken… or perhaps less dramatically, IRS Counsel should have to provide a more definite response.

To this, Judge Carluzzo said “no.” IRS Counsel contended that it reviewed literally thousands of pages contained in the administrative file before filing its 48-page answer. This might be enough to be considered a “reasonable inquiry,” but Judge Carluzzo doesn’t want to go too far down the road of defining that term (and resolves the matter without doing so).

Nonetheless, wading through over a thousand pages of administrative file is likely to be a reasonable inquiry – or at least enough to keep the Tax Court from imposing tough sanctions like striking an allegation. But simply throwing up your hands when the administrative file doesn’t come your way is not.

Moving Forward: Lessons Learned

I hope you’ve enjoyed these last few posts at least as much as I’ve enjoyed writing them during my spring break… We’ve covered a lot of ground, to the extent that I think some recap is in order. For me, the lessons I’ve pulled and plan on incorporating in my practice are as follows:

First and foremost, engage with the IRS during the administrative phase (i.e., exam), even if you are not sanguine on your prospects for success at that level. You cannot expect IRS Counsel to have knowledge of information you allege in your (eventual) petition if you haven’t sent it to the IRS exam or Appeals previously. You also can’t possibly expect to either burden shift or get attorney’s fees if you come late to the game.

Second, and relatedly, think strategically in crafting the facts portion of your petition. Can you allege facts that the IRS should be well aware of from information previously provided? Can you make a case for a burden shift? Can you phrase things in a way that would make it awkward for the IRS to “deny for lack of sufficient information?”

In deficiency cases, there are times where I allege and reference facts that should clearly be in the administrative file (e.g., “Taxpayer responded to the IRS CP2000 Notice on [x] date by sending a letter.”) But these are generally relevant to penalty issues only. (In the above example, it is relevant under IRC § 6751 and Walquist’s take on IRC § 6662 as being “automated” which I take issue with.) I have yet to argue for a burden shift in the petition, though that may change someday soon.

Third, emphasize when the administrative file is directly relevant (perhaps dispositive) to the issue at play in the petition. This is very easily done in most collection cases. Frankly, in my opinion the IRS shouldn’t file an answer to an “abuse of discretion” collection issue before at least reviewing the administrative file. I am almost certain to push back on any answer that denies for “lack of sufficient information” facts that are (1) directly relevant to the merits of the case and (2) necessarily found in the administrative file. The IRS has (indeed, created and maintains) the administrative file that is directly on point for those issues. It really just delays dispositive motion practice to answer a petition before reviewing that file.

Fourth, and finally, genuinely try to work with IRS Counsel before filing some sort of motion in response to a “bad answer.” It is important to keep things collegial before burning bridges, and moving for sanctions is a great way to poison the well (please hold all your “mixed metaphor” comments until the end). Respecting the things that are truly beyond IRS Counsel’s control means suggesting (and freely agreeing to) motions for additional time to file an answer. And although the Tax Court frowns on submitting “exhibits in the nature of evidence” with a petition, there is no reason why you cannot send documents directly to IRS Counsel supporting your petition after you’ve filed and they’ve been served. This isn’t to say that area Counsel will accept those documents… but it can’t hurt.

There are ways to be pro-active, and ways to have a “bad-answer” haunt the IRS. The increased chance of an attorney’s fees award is certainly one negative incentive for the IRS to do better. But another thought is to speed up the discovery process. Petitioners can be the ones to send (and initiate) the Branerton conference. Informally asking IRS Counsel to admit to the obvious facts previously listed on the petition can put them in an awkward space: do they deny and then deal with more formal admissions requests thereafter? Or do they admit to the facts alleged in the petition, thereby essentially conceding that they should have never denied in their answer to begin with?  (Note that this would not come after the IRS had received additional information not already available to them at the answer stage.)

The point of all of this isn’t to catch IRS Counsel on a technicality or punish them for other branches of the IRS failing to send them the administrative file. The point is to make litigation more efficient. The pleading stage should narrow down issues and agree on facts to the greatest extent possible. Presently, at least in low-income cases, it is little more than a perfunctory “I Allege” and “We Deny” dance.

While many low-income cases involve thorny questions of fact, just as often they resolve on documentary evidence that both parties would agree to, if only they looked it over. I have had precious few cases where I’ve ultimately relied on the finder of fact (i.e., Tax Court judge) to make a determination based on testimony. I dream of a day that one of my deficiency cases may be ripe for summary judgment because both parties properly engaged before the case was set for trial…

Making the IRS Answer to Taxpayer Inquiries…By Making the IRS Reasonably Inquire

In my last post, I piqued your interest by mentioning ways to remedy “bad answers” from the IRS – the sorts of answers where IRS Counsel blandly denies every factual allegation for lack of sufficient information. Then, I proceeded to discuss instances where the IRS either doesn’t answer at all or doesn’t answer sufficiently on instances where it has the burden of proof.

What gives?

I maintain that it wasn’t a bait-and-switch, but rather a delectable and necessary build-up to today’s post. In particular, it was important to showcase the need for the administrative file (that is, facts IRS Counsel should have access to) and the distaste the Tax Court has shown for “bureaucratic inertia” as an excuse for Counsel failing to ascertain facts known by the IRS more broadly. Today, I promise to (actually) discuss remedies to the ubiquitous “deny for lack of sufficient information” answers plaguing the low-income taxpayer docket.


When I file a petition, Tax Court Rule 33 ensures that I can’t just allege facts without reasonably inquiring into their veracity. It stands to reason that if I am bound by Rule 33 in alleging facts, the IRS is bound by Rule 33 in denying knowledge of those same facts. Of course, as the taxpayer/petitioner, I generally have both the burden of proof and better access to the “facts alleged” than the IRS. And because the IRS (usually) need only respond to my factual allegations, they usually deny and move on.

The question is how much of a “reasonable inquiry” IRS Counsel needs to do before they can throw up their hands and say, “we deny that fact for lack of sufficient knowledge or information.” For example, can IRS Counsel in Minnesota “deny for lack of sufficient knowledge” what IRS Appeals in Utah knows fully well about the case?

It is an issue of how much knowledge should be imputed from one area of the IRS to another. But it is also an issue of how much effort IRS Counsel must expend in actually trying to learn what IRS Appeals or Exam already knows. The first issue is with regards to knowledge. The second issue is with regards to effort.

Knowledge and Effort: You’ve Got to Try to Learn the Facts

Let’s begin with the lesson from my last post. IRS Counsel cannot just blame the “bureaucratic inertia” of other IRS functions (e.g., Appeals) for its failures to act in a timely manner. Recall the case of Vermouth v. C.I.R., 88 T.C. 1488 (1987). While Vermouth dealt with the IRS’s failure to timely file an answer (rather than timely filing a “bad” answer) under Tax Court Rule 36, it should remain relevant under Rule 33 concerns.

Exactly how hard IRS Counsel needs to try for the effort to be a “reasonable inquiry” may be subject to debate. At a minimum, I’d say that if the IRS (somewhere) has access to the facts alleged, IRS Counsel can’t (or shouldn’t) be able to just lamely deny for “lack of sufficient knowledge” because that other function hasn’t been on the ball in sending the information to IRS Counsel.

But you don’t have to take my word for it…

The Importance of the Answer: Litigation Costs

In perusing the US Tax Court’s orders, I came across the interesting case of Dudley Joseph & Myrna Dupuy Callahan v. C.I.R., Dkt. # 6999-09. One particular order caught my eye, which granted the pro se petitioners litigation costs for their troubles… generally a sign that the IRS didn’t do a great job in the case.

My suspicions proved correct.

In this case, the petitioners received a CP2000 Notice for their 2006 taxes for (allegedly) failing to report gambling winnings, social security, and $27 in interest. The problem was that the petitioners did, in fact, report all those things (except the interest, which they denied receiving altogether). They just didn’t report all those things in exactly the place the IRS AUR computer wanted them to.

Most of the confusion boiled down to the treatment of the gambling winnings. Petitioners did, in fact, report their winnings, but as Schedule C (i.e., self-employment/business) income. Generally, one could dispute that tax treatment, but in petitioner’s case they had already been audited on exactly that issue in the past, and apparently the IRS had agreed it was Schedule C income.

After being unable to resolve the issue by responding to the CP2000 (surprise!) petitioners received a Notice of Deficiency (NOD). They took the belt-and-suspenders approach by both petitioning the tax court and replying (again) to the IRS office in Philadelphia that had issued the CP2000.

Somewhat surprisingly, this time the CP2000 response worked. The IRS issued a “CP2005” closing letter agreeing with the return as filed. The closing letter went so far as to say, “If you have already filed a petition, the Office of the District Counsel will contact you on the final closing of this case.”

And yet, here we are in Tax Court. What went wrong?

Basically, IRS Counsel didn’t really look into things. Rather than conceding the case, they filed an answer that continued to assert the full deficiency as well as an accuracy penalty for good measure. When they were (eventually) presented with the CP2005 closing letter the IRS conceded… but by then significant time and effort had been wasted. Enough so that the Tax Court found that the petitioners should be awarded the costs of their tax court filing fee and mileage for driving to court.

For present purposes I want to focus on whether the IRS’s position (as framed in its answer) was substantially justified. If it was, then under IRC § 7430(c)(4)(B) no award of fees would be forthcoming. Here is where Judge Gale hits on that Rule 33 requirement I began with:

“Respondent has not asserted, and there is no evidence to support, the proposition that respondent undertook any investigation before filing his answer of petitioners’ claim that the disputed gambling and social security income had in fact been reported. We believe that only a modest amount of investigation of the averments in the petition would have confirmed petitioners’ claims and/or revealed the existence of the Closing Notice, issued more than 3 months before the answer.” (Emphasis added.)

Judge Gale then drops a footnote to Rule 33(b). It is in no small part because of the failure to really investigate the facts that the position of the IRS was not, in this case, substantially justified. 

Of course, this was all in an order and is not part of a precedential opinion. Nonetheless, it is worth noting that Judge Gale’s position could open up a lot of opportunity for litigation costs if the IRS doesn’t start doing a better job with its answers. Usually, practitioners need to rely on the “qualified offer rule” (IRC § 7430(g)) to get fees because the “substantially justified” exception is such a low bar for the IRS to meet. But maybe not, if the IRS doesn’t meet its Rule 33(b) requirements when filing an answer.

As far as remedies go, my bet is that the awarding of litigation costs would be enough to get IRS Counsel’s attention next time they have to file an answer. But the fun doesn’t stop with the greater potential for litigation costs. In my next post, I’ll cover still more possible remedies for answers that do not appear to meet the requirements of Rule 33(b).