Remand of a CDP Case

In Whittaker v. Commissioner, T.C. Memo 2023-59 the Tax Court remanded the Collection Due Process (CDP) back to Appeals because it found that the Settlement Officer (SO) abused her discretion in rejecting the couple’s offer. In reaching this conclusion it found clear error in the SOs analysis. Cases get remanded to Appeals occasionally. When they do they offer a glimpse at how the judicial process can shape the administrative process. The Whittaker case also provides a reminder of the value of bringing an offer case to the Court in the context of a CDP hearing since the taxpayer would otherwise have no path to judicial review of a rejected offer.


The Whittakers owe about $33,000 and offer to pay $1,629 to resolve their liability.

They could hardly ask for a better start to the opinion: “The Whittakers are hardworking people…” Seeking an offer, you worry that the applicants come across as deadbeats or people trying to gain an unfair advantage on the system. Those type applicants certainly exist. When the Court starts off the opinion with this statement, it bodes well for the Whittakers because it means they have crossed an important threshold in making their case. Just because they are hardworking does not mean they deserve the offer in compromise they have requested but this finding definitely moves their case forward in a positive way.

The Whittakers are in their mid-60s. The opinion says that Ms. Whittaker is only one year away from retirement as a family and community-empowerment specialist for a local school district. Mr. Whittaker is a veteran and a self- employed personal trainer. The opinion does not discuss how long he intends to continue working. The length of future employment can be a sticking point. I recently had a client in his mid-70s and the offer examiner projected his income for the next 10 years. President Biden may have moved the bar on expectations of how long someone will/should work but for many individuals working after full Social Security retirement age should not be something that the IRS expects in my opinion.

The CDP case only involves the tax year 2015. So, that is the only year before the Tax Court. The offer, however, covers 2004-2006, 2015 and 2018. While the Court only addresses 2015, the decision regarding the offer necessarily implicates the whole offer and not just one of the years in the offer. So, the taxpayers get the benefit of a decision covering their whole liability even though it nominally relates just to one year.

The Whittakers submitted a doubt as to collectability offer saying, in effect, that they had no ability to fully pay the debt owed to the IRS. The IRS responded that based on its calculation of their assets they had the ability to fully pay the outstanding liabilities. The IRS could still accept the offer even if the Whittakers had the ability to full pay, but the IRS offer examiner and Appeals employee did not want to accept the offer. The value of the house, the ability of the Whittakers to pull money out of the equity in the house, the value of retirement accounts, the need to use the money in those accounts to pay basic living expenses and the change in their circumstances due to the pandemic were the source of the dispute on how to calculate the correct offer amount.

Because the Whittakers live in Minnesota, the Eighth Circuit decision in Robinette v. Commissioner, 439 F.3d at 459 controls the Tax Court’s actions with respect to scope of review. The Robinette case held that the Tax Court must limit what it considers to the administrative record and not take new evidence.

The Court looked at each of the disputed issues in turn. With respect to the retirement account it stated:

The Whittakers argue that, because they are nearing retirement, the money in those accounts should be viewed as generating income over time, not as an asset to be liquidated to pay their tax debt….

They specifically cite IRM (Mar. 23, 2018), which states that a taxpayer within one year of retirement may have his retirement accounts treated as income; and IRM (Sept. 30, 2013), which states that taxpayers who are retiring may have their future income and expenses adjusted in calculating their RCP. They think these parts of the IRM should have made the IRS increase their projected income a bit, but taken the value of the accounts entirely off the asset-side of the RCP computation — changes that they also say would make their OIC more reasonable. They also point to an authority higher than the IRM that both the IRS and we have to follow — there’s a Treasury Regulation that says that the IRS may compromise a tax debt if a taxpayer has a retirement account with sufficient funds to fully pay his liability, but who would be unable to pay for basic living expenses afterwards if he did so. Treas. Reg. § 301.7122-1(c)(3)(iii) (example 2)

The IRS counters that neither the IRM nor the regulation requires the IRS to treat the retirement account strictly as a source of income. In a situation in which the taxpayers argue for special circumstances, the IRS should consider additional factors such as age, employment status, medical issues, number and health of dependents and ability to earn a living. The Settlement Officer in Appeals states in her report that the special circumstances were considered but did not provide a basis for accepting the offer since the Whittakers had no long-term illnesses and were not living on a fixed income.

The Court acknowledges that reasoning does not create an erroneous view of the law or facts but also notes a problem for the IRS:

this reasoning [the information in the report] didn’t make it into the notice of determination, no matter that it is reasonably clear in the administrative record as a whole. There is some ambiguity in the law here — we typically say that we confine our review to the reasoning in the notice of determination, but administrative-law cases more generally do let a reviewing court “uphold a decision of less than ideal clarity if the agency’s path may reasonably be discerned.”

The Court then moves on to look at the home equity situation.

The [OIC] Unit adopted the county’s assessed value of the Whittakers’ home in its analysis of the OIC. It figured that the quick sale value12 of the home was $194,400. The Whittakers had a mortgage for $85,237, and so a net equity of $109,163. This analysis, however, ignored the Whittakers’ contention that the home was worth less than its assessed value due to its condition as well as their contention that they are unable to tap that equity because of the restrictive terms of their mortgage. The settlement officer did not address these arguments, but disregarded them and adopted the Unit’s valuation.

The Whittakers argue that the home was not worth its assessed amount because it was in bad shape. They further argue that they cannot borrow against the home both because they lack the ability to make the loan payments that would result and because the existing loan documents prohibit such a borrowing. The Court takes the IRS to task for not following up on the Whittakers claims regarding their inability to refinance the house:

The IRS does need to take problems with possible refinancing a home seriously. For example, in Antioco, 105 T.C.M. (CCH) at 1236, [see post here and prior posts] the taxpayer submitted proof of her attempts to refinance after the settlement officer asked for such documents to help the officer make her determination. Here, although the Whittakers didn’t submit such proof, [*12] they said that they would and could if the settlement officer had only asked. The Whittakers have a point — there’s nothing in the administrative record that states or even suggests that the examiner at the Unit or the settlement officer during the CDP hearing asked for any information in addition to the appraised value. The settlement officer noted that she “advised [the Whittakers’ lawyer] that the special circumstances were considered; but did not warrant acceptance of the offer” and that she “was not going to remove the equity for the investment because the taxpayers can fully pay with one of the retirement accounts; plus, the taxpayers have over $100,000 in equity in the home.” There’s no evidence in the record of any consideration of the Whittakers’ arguments on this point.

This is where the CDP process provides a very tangible benefit to all taxpayers because it interjects a judicial overview on a process otherwise completely within the control of the IRS, as Les discussed recently in the Pitt Tax Review.  This does not mean the taxpayer will always win, see e.g. this post discussing a loss by the taxpayer, but it does mean that all taxpayers win by getting a window into the thinking about what is appropriate.

The Court finds that the Settlement Officer’s conclusion regarding the equity in the home and the Whittakers ability to tap into that equity was clearly erroneous. Because of that finding the SOs use of that equity in calculating their reasonable collection potential was an abuse of discretion.

The Court then moved on to the impact of the pandemic. The pandemic impacted many taxpayers. Many had offers pending based on one set of projections only to have those projects smashed by the economic disruption caused by the pandemic. Of course, the disruption impacted taxpayers in different ways depending on their circumstances. It’s easy to image that a self-employed person engaged in personal training would have had little or no work for a significant period of time and then would almost need to start the business from scratch. Given his age, this disruption caused Mr. Whittaker to leave the workforce. The pandemic also caused a major downward shift in the amount of work Mrs. Whittaker had. The SO’s response to this significant change in circumstances was not to recalculate the offer but rather to offer a hold on collection.

The SO also miscalculated Mr. Whittaker’s military pension by almost $1,000 a month. The IRS argues the error is harmless because enough equity still existed to satisfy the liability. The IRS attempted to put in the record at trial information not in the administrative file in order to support its conclusion. The Court rejected this attempt stating:

Upholding the rejection of the Whittakers’ offer because Mrs. Whittaker’s mall job may have resumed or Mr. Whittaker might be able to run a training business using potential clients’ possible pandemic purchases is entirely speculative. These post hoc rationalizations are precisely what Chenery bars. See Antioco, 105 T.C.M. (CCH) at 1240.

The Court notes that the Whittakers lost their jobs in the middle of the CDP hearing. This materially changed their circumstances since their income was critical to the calculation regarding their ability to pay. Rather than compel the IRS to accept the offer that the Whitakers made, the Court sends the case back to Appeals to consider their updated information. This limited remedy does not guarantee the Whittakers will receive the offer in compromise they seek but does give them a good chance for a favorable outcome. Unlike most tax cases, CDP cases provide a moving target. Income and expenses are dynamic. This case demonstrates how their dynamic nature can change outcomes and show how the IRS must be flexible during the CDP process to adapt to changes in a taxpayer’s financial circumstances. One wonders whether the absence of judicial review that accompanies IRS consideration of most collection alternatives reinforces a decision-making process that fails to consider taxpayers’ changing financial circumstances and encourages a more generic IRS approach to evaluating a taxpayer’s true ability to pay. CDP, while not without some problems, injects a needed judicial check on the IRS’s still considerable collection powers.

Old Habits Die Hard

For almost a quarter century the Tax Court dismissed late filed petitions in Collection Due Process (CDP) cases because it viewed the 30-day time period for filing these petitions as jurisdictional with no exceptions for failed delivery, late delivery, illness or other bases for equitable tolling.  An order issued on May 15, 2023, in the case of Floyd v. Commissioner shows the almost Pavlovian need to continue dismissing these cases for lack of jurisdiction when filed late despite the Supreme Court’s decision a year ago in Boechler v. Commissioner, 142 S. Ct. 1493 (2022).  The order was immediately rescinded by a second order also issued on May 15, 2023, indicating that someone in the Court is watching and paying attention to Supreme Court decisions.  Still, the two orders provide an interesting sequence and a basis for discussing the benefit to the Court of the Boechler decision, and, I hope, the benefit of the reversal of the Court’s Hallmark decision regarding deficiency cases in the coming months or years.


The Floyds filed their CDP petition late.  The notice of determination in their case was dated February 4, 2022.  The IRS has a receipt for certified mailing on that date.  The postal records show the notice was delivered on February 10, 2022.  The 30-day period for filing a petition expired on March 7, 2022, after an extension caused by IRC 7503 because the 30th day fell on the weekend.  Their petition arrived at the Tax Court on April 1, 2022, showing a postmark date of March 22, 2022.  (Keep in mind that when you mail documents to the Tax Court it takes some time for delivery to occur because of the precautions still in effect caused by the anthrax mailing incident.)

The first order issued by the Tax Court in the Floyds’ case notes the Boecher opinion but then goes on to say:

ORDERED that, on or before June 15, 2023, petitioner shall show cause, in writing, why the Court, on its own motion, should not dismiss this case for lack of jurisdiction on the ground the petition was not timely filed and if petitioner asserts equitable tolling include all applicable facts.

Well, that’s a problem since after Boechler filing late is not a jurisdictional issue.  But for many years the Tax Court has policed late filing of petitions.  On its own motion it dismisses about 12 deficiency cases a month according to the research of Carl Smith.  These dismissals typically occur near a calendar call or when a decision document is submitted.  The Court refuses to sign the decision document in these cases having made its own independent determination that it lacks jurisdiction.  In order to make that determination, it must police each case taking time an effort to insure it has proper jurisdiction of the case.  The Supreme Court mentions these in its regular opinions on jurisdiction as one of the reasons for not finding statutes jurisdictional since doing so wastes the time of the court and the parties.

The Boechler case acts as a time saving device much like the advent of washing machines or vacuum cleaners freeing up the Court’s time for other pursuits.  It no longer needs to police the timeliness of the filing of CDP cases (or whistleblower cases) but can ignore the timing of the filing of the petition unless the IRS timely raises a concern.  If the IRS timely raises a concern about the timeliness of a petition, then the Tax Court will spring into action to determine if the petitioner has a good reason.  Otherwise, the Tax Court is free to focus on the merits of the petitions without worrying about timeliness.

The almost immediate vacatur of the first order in the Floyd case indicates that someone in the Tax Court is paying attention to the time savings benefit of the Boechler decision but old habits die hard.  Seeing a late filed petition and doing nothing must be hard for some of the Tax Court judges.  The adjustment will take time.  The cases of Carroll v. Commissioner and Ahmad v. Commissioner show how the post-Boechler process should work.

This year the Supreme Court has issued three more opinions regarding cases raising the issue of jurisdiction.  You can find these three cases here in the most recent Rule 28(j) letter filed in the case of Culp v. Commissioner pending in the Third Circuit.  As it has done in every case since 2004, the Supreme Court found the statutes at issue in these three cases not to create a jurisdictional barrier to filing.  Like the Tax Court with its 17-0 holdings in Guralnik and Hallmark, other courts also struggle with the “new” thinking of the Supreme Court on jurisdiction.  The first order in the Floyd case reminds us that the struggle does not end with the issuance of a Supreme Court opinion.

Play It Again, Sam: The Perils of (Incorrectly) Established Court Analysis

According to the American Film Institute, Casablanca has the most memorable quotes of any film in the 20th Century. Among the ones I can remember are: “Here’s looking at you, kid,” “We’ll always have Paris,” and, of course, “Play it again, Sam.”

Except, as many people know, no one in Casablanca actually says, “Play it again, Sam.” One of the film’s more famous and repeated quotes is, in fact, not one of the film’s quotes. It’s catchy and it’s close to what the characters actually say, but it’s not quite accurate.

Nonetheless, it has been essentially incorporated into Casablanca’s lore, and is part of its enduring appeal. I think that something very similar happens in the law sometimes. A court repeats a (close, but inaccurate) statement enough that it just becomes accepted. Only unlike apocryphal film quotes, which carry little consequence and can be fairly easily corrected, getting a court to revisit an “accepted” truth is a very tall order.


As you’ve possibly guessed, I’m talking about the Tax Court’s (mis)understanding of TIPRA payments. But it surely matters in many more contexts. When one case sets bad precedent or one court mischaracterizes the legislative history, undoing the damage gets successively harder each time the original error is repeated. At some point it may just become implacable.

As quick background, in 2006 Congress amended the Offer in Compromise statute (IRC § 7122) to require that a partial payment be included with most Offers. These partial payments are commonly referred to as “TIPRA” payments after the law (Tax Increase Prevention and Reconciliation Act) that created them.

In a series of posts, I laid out why I thought there was a good argument to be made that TIPRA payments were refundable deposits. Those arguments included (1) the ambiguous statutory language, (2) the equally ambiguous legislative history, and (3) the plain language of the Treasury Regulations. So imagine my surprise when, after having spent all that time, I come to learn that:

“The law is clear that a TIPRA payments are not refundable deposits but rather are non-refundable payments of tax.” So says the 9th Circuit in Brown v. Commissioner, 58 F.4th 1064, 1066 (9th Cir., 2023)). 

But you don’t have to just take the 9th Circuit judges’ word for it. In fact, they cite to (1) a precedential case, (2) the statute, and (3) the legislative Conference Report on point, all saying that the TIPRA payments are non-refundable payments of tax. You don’t get clearer than that!

Until, that is, you actually look at each of the sources. Let’s start with the Conference Report.  

Actually… let’s not start with the Conference Report, because Brown doesn’t quote the Conference Report, but rather to a case that cited to the Conference Report. So let’s start by looking at that case, Isley v. Commissioner, 141 T.C. 349 (2013) and its analysis.

In Isley, the Tax Court directly addresses whether the taxpayer (famous musician Ron Isley) is entitled to a refund of his TIPRA payment on a rejected Offer. The Tax Court found that Mr. Isley was not entitled to a refund of the TIPRA payment because it was a payment towards the underlying tax liability, rather than a deposit. To reach this conclusion, the Tax Court draws on the TIPRA Conference Report, and goes on to say:

“The report’s explanation of the new provision refers to the 20% payment as a ‘partial payment’ or ‘down payment’ of the taxpayer’s liability.”

Case closed, as they say on TV. Except…

What the Conference Report Actually Says

The good news is that the words the Tax Court put in quotes (“partial payment” and “down payment”) are, in fact, words used in the Senate Amendment. The bad news is that the Conference Report doesn’t refer to those as being “applied to the taxpayer’s liability.” Which of course is exactly what the Tax Court is using the Conference Report to argue for.

Maybe a less selective quote from the Conference Report would be helpful:

Senate Amendment:

“The provision requires a taxpayer to make partial payments to the IRS while the taxpayer’s offer is being considered by the IRS. For lump-sum offers, taxpayers must make a down payment of 20 percent of the amount of the offer with any application. […] The provision eliminates the user fee requirement for offers submitted with the appropriate partial payment.” [Emphasis added]

Conference Agreement:

“The conference agreement includes the Senate amendment provision, with the following modifications. Under the conference agreement, any user fee imposed by the IRS for participation in the offer-in-compromise program must be submitted with the appropriate partial payment. The user fee is applied to the taxpayer’s outstanding tax liability.” [Emphasis added.]

It is important to note that a “user fee” is undeniably separate from the partial (i.e. “TIPRA”) payment. The Senate Amendment originally proposed getting rid of the user fee so long as there was a TIPRA payment. The Conference Agreement said, “no, let’s keep the user fee in addition to the TIPRA payment.” Treating the user fee and TIPRA payment distinct is also how the statute operates.

So the Conference Report only makes clear that the user fee must be applied to the outstanding tax. But the Conference Report says absolutely nothing about whether the TIPRA payment must be applied to the outstanding tax. (Somewhat perversely, the IRS has since decided that it will refund the user fee but not the TIPRA payment if the Offer isn’t processed: see Offer terms of Form 656 Section 7 provision (c).)

What about the “down-payment” language that the Tax Court quotes? To me, understood in its proper context, describing TIPRA payments as a “down-payment” makes much more sense if it is thought of as a “down-payment” on the Offer and not on the underlying tax (as Isley claims the report requires). You don’t make “down payments” on tax that is already assessed and owed for prior years. You make a “down payment” on the proposed Offer settling that underlying tax for a lower amount. If I was making a “down payment” on the underlying liability, I would not be making an Offer at all: I’d be fully paying the tax.

But wait, there’s more. Let’s take a look at how the Conference Report characterizes the “Present Law” (i.e. the law prior to TIPRA):

Present Law:

“Taxpayers are permitted (but not required) to make a deposit with their offer; if the offer is rejected, the deposit is generally returned to the taxpayer.” [Emphasis added]

What TIPRA changed from the present law was that it required a partial payment rather than just “permitting” one. That’s it. It did not say a word about changing the character of that partial payment from a refundable deposit to a non-refundable payment of tax. Indeed, since the law prior to TIPRA was “optional deposit” and the only explicit change was to remove the word “optional,” I’d argue that the Conference Report supports a reading that it remains a deposit. Note also IRC § 7809(b), reinforcing the general understanding that Offer payments are deposits.  

Of course, the 9th Circuit in Brown also says the statutory language is clear, and courts focus on the text of the statute rather than a Conference Report. So just how clear is the statute?

Apparently clear enough that the Court doesn’t need to analyze it. Brown doesn’t quote the language of the statute, but parenthetically describes IRC § 7122(c)(2)(A – C) as “establishing that any TIPRA payment goes to the taxpayers liabilities.”

We’ll see if that is a fair characterization in a moment. But note that the same lack of statutory analysis is apparent in Isley. Further, in a twist of fate, petitioner’s counsel in Isley is the same as petitioner’s counsel in Brown, and never appears to have raised the issue of the ambiguous statutory language in either case. Per Isley:

“Thus, it is clear that, in the normal circumstances of a taxpayer’s submission of an OIC to the IRS, the section 7122(c) payment constitutes a nonrefundable, partial payment of the taxpayer’s liability, and petitioner does not argue to the contrary.” 141 T.C. 349, 372. [Emphasis added.]

What the Statute Actually Says

We are told in Brown that IRC § 7122(c)(2)(A – C) establishes “that any TIPRA payment goes to the taxpayers liabilities.” Maybe. But just for fun, let’s look at what the statutory language actually says:

(A) Use of payment

The application of any payment made under this subsection to the assessed tax or other amounts imposed under this title with respect to such tax may be specified by the taxpayer.

(B) Application of user fee

In the case of any assessed tax or other amounts imposed under this title with respect to such tax which is the subject of an offer-in-compromise to which this subsection applies, such tax or other amounts shall be reduced by any user fee imposed under this title with respect to such offer-in-compromise.

(For present purposes, Subparagraph (C) is mostly irrelevant and gives the Treasury the authority to waive the TIPRA payment requirement via regulation. Why that might matter in a different context will be discussed in my next post, which deals with admin law.)

The statute breaks down two different types of payments: (1) Subparagraph A pertaining to TIPRA payments and (2) Subparagraph B pertaining to user fees. They are distinct, and clearly lay out different standards: (A) sets out flexibility for taxpayers on TIPRA payments, whereas (B) gives no flexibility. Subsection (A) never says a word about TIPRA payments being nonrefundable, or otherwise required to be applied to taxpayer liabilities.

So while the statute (like the Conference Report) is clear on user fees, it is decidedly ambiguous on TIPRA payments. All it really says is that the taxpayer can specify how TIPRA payments are applied if they want to.

If I wanted to go further down the statutory interpretation rabbit-hole, I’d note that the Supreme Court has said that when “Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Russello v. United States, 464 U.S. 16, 23 (1983). The Tax Court has frequently quoted this language approvingly in precedential decisions. See, e.g., Whistleblower 21276-13W v. Commissioner, 147 T.C. 111 (2016); Grajales v. Commissioner, 156 T.C. 55 (2021); and most recently, Thomas v. Commissioner, 160 T.C. No. 4 (2023). Applied here, one might argue that Congress specifically said underlying tax is reduced by user fees but did then omits that language with regards to TIPRA payments.


Play It Again, Sam

So the statute doesn’t clearly say, “TIPRA is non-refundable payment towards the liability.” Nor does the Conference Report. And yet here we are, told again and again that both the statute and Conference Report make “clear” that TIPRA is non-refundable. Play it again, Sam: if we just say it enough, it becomes part of the lore.

But for posterity’s sake, let’s be clear: the law is not clear that TIPRA payments are non-refundable payments of tax. And the 9th Circuit and Tax Court are, I think, clearly wrong about that. Changing that understanding, however, will not come easy.

How Much Does Brown Limit Tax Court Refund Jurisdiction in CDP?

In my previous post, I discussed how the 9th Circuit appears dismissive of the notion that Boechler affects “refund jurisdiction” in Tax Court CDP cases. However, because the 9th Circuit didn’t directly address Boechler (despite the taxpayer’s urging), we don’t know exactly how or if Boechler interfaces with the Tax Court’s determination that it “lacks jurisdiction” to issue refunds in CDP cases.

Even disregarding Boechler, I have argued that the Tax Court may have jurisdiction to order some types of refunds. Summarizing my prior posts in a nutshell, I argued that the Tax Court could/should order money be returned to petitioners so long as the money was not a “rebate” refund resulting from an overpayment of tax. See IRC § 6401(a). As something of an oversimplification, a non-rebate refund is one that does not result from an “overpayment” of tax.

A good example of a “non-rebate” refund would be returning the “TIPRA” payment, which can be thought of as a “down payment” sent in by a taxpayer on an Offer in Compromise. And it just so happens that refunding TIPRA payments is exactly what the Tax Court said it lacks the jurisdiction to do in Brown. So much for my theory.

Or perhaps there is still hope… Indeed, perhaps Brown actually strengthens my theory! Read on to see for yourself if I am delusional.


At this point, there are four separate Brown opinions from the Tax Court and 9th Circuit, so it may be helpful to reorient ourselves with the procedural posture. That should also help us to determine exactly what is (or should be) at issue on the jurisdictional question.

In Brown I (T.C. Memo. 2019-121), the Tax Court found that there was no abuse of discretion in the IRS’s refusal to return a TIPRA payment on a rejected/returned Offer. The 9th Circuit affirmed that there was no abuse of discretion in Brown II (826 Fed. Appx. 673, (9th Cir., 2020)), but remanded the case to the Tax Court solely on the question of “whether it has jurisdiction over Brown’s TIPRA payment.” Apparently, the Tax Court hadn’t “meaningfully” addressed the foundational, jurisdictional question so the 9th Circuit wanted to know.

Which brings us to Brown III, where the Tax Court (in T.C. Memo. 2021-112) “shockingly” determining that it is a “court of limited jurisdiction.” Accordingly, the Tax Court found that it had no jurisdiction over the TIPRA issue. The 9th Circuit blessed this determination in Brown IV (58 F.4th 1064 (9th Cir. 2023)) and in a sentence that made me cringe, approvingly reiterated that the Tax Court “is a court of limited jurisdiction.”

Ok. So the question addressed on remand (“is there Tax Court CDP jurisdiction over the TIPRA payment”) was answered with a resounding “no.” How is that possibly a win in my “Tax Court might have jurisdiction over some refunds” argument?

It is a (possible) win because of the analysis leading to the conclusion, and the fact that the courts thought it necessary to analyze exactly what a TIPRA payment “is.” Allow me to explain…

Questions Presented, Answers Provided

Both the 9th Circuit and Tax Court frame the issue solely on jurisdictional grounds: does the Tax Court have jurisdiction to order a refund of a TIPRA payment? This is not a merits issue (i.e. “Should Mr. Brown get his TIPRA payment back?”) because that was already decided “no” in Brown I. Thus, it is a question of whether the Tax Court ever has the power to order a TIPRA payment be refunded.

If Greene-Thapedi were interpreted broadly (as it all too often is), it wouldn’t really matter what the “character” of a TIPRA payment is. All that would matter is that the taxpayer is asking for “money back” in a CDP hearing. The TIPRA payment could be a deposit, it could be a non-rebate refund, it could be, well anything and the Tax Court would say “no jurisdiction” if Greene-Thapedi is interpreted expansively enough.

But here, the parties wrestle with that exact issue (“what is a TIPRA payment?”) in their briefing, and the courts continue to wrestle with that issue in their opinion. That the courts find that question to be relevant to their jurisdictional inquiry is (I’d say) a win for team “Tax Court can sometimes issue refunds in CDP.”
I’ve argued that the character of the payment you’re asking for back (and the reason for its return) does or should matter to CDP “refund” jurisdiction questions. Arguably, Brown could be seen as support for that proposition, for the very reason that the court thinks the character of TIPRA payments matters to its jurisdictional inquiry. Or I could just be engaging in wishful thinking.

Tightening the Jurisdictional Straitjacket?

In my previous post I lamented how the Tax Court seems to read its jurisdictional grant in CDP cases as a straitjacket, preventing it from doing essentially anything to remedy an abusive IRS action if that remedy that isn’t explicitly stated in the statute. Since the statute just says that a person can petition the Tax Court to “review” CDP determinations (see IRC § 6330(d)(1)), any step beyond “reviewing” the action (say, ordering the IRS to remedy the problem identified) would fly in the face of the jurisdictional mandate. End snarky depiction of Greene-Thapedi.

Still, on occasion the Tax Court will subtly move beyond the role of observer in the sky to actual arbiter of outcomes in CDP cases. For example, we saw in Schwartz that the Tax Court may determine that there were overpayments that, via “credit elects,” wipe out other liabilities. In other words, the Tax Court may functionally determine an overpayment, and even functionally apply that overpayment to a back year… just don’t ask them to take one further leap and put that money in the petitioner’s pocket.

I worry that Brown may represent further needless tightening of the straitjacket because the decision can (and probably will) be cited as another example of how little the Tax Court will do when “getting money back” is at issue in CDP. Undeniably, the Tax Court holds that does not have the jurisdiction to return TIPRA payments. To some degree, that must be a tightening of the jurisdictional straitjacket, since a TIPRA payment is not your traditional “overpayment/refund” case. And yet, to conclude the straitjacket metaphor, there may yet be some wiggle room due to how the Tax Court characterizes TIPRA payments in reaching its determination.

The Tax Court characterizes TIPRA payments as “non-refundable payments” that must be applied to the “underlying tax liability.” On this understanding, the ability to get TIPRA payments is more restrictive than writing a general check to the IRS on a potential underpayment (in a deficiency proceeding), because under normal circumstances you could designate the payment as a “deposit.” See IRC § 6603. Not so with TIPRA payments.

Brown may require that I narrow my suggestion from “Tax Court can order non-rebate refunds in CDP,” to “Tax Court can order return of deposits in CDP.” That would be really cold comfort: I’d bet deposits are very rare in CDP contexts.

Oddly enough, however, one of the few collection statutes that deals directly with deposits strongly suggests that a TIPRA payment would be a deposit and that, on rejection of an Offer, the deposit should be returned to the taxpayer. See IRC § 7809(b)(1) and the hanging paragraph at the end of 7809(b). In any event, if the Tax Court can’t at the very least order the return of deposits in CDP jurisdiction I have no idea why it had to explain that a TIPRA payment isn’t a deposit before determining it lacked jurisdiction to refund it.

Perhaps, however, I can also read Brown in a more optimistic (perhaps delusional) way. On my optimistic reading, the reason the Tax Court can’t refund TIPRA payments is because they are explicitly “nonrefundable payments on the underlying liability.” Surely there are other nonrebate refunds that are not explicitly “nonrefundable,” such that the Tax Court wouldn’t be thumbing its nose at Congress if it ordered that they be refunded. At least one can hope.

Of course, I’ve saved the badnews for last: the Tax Court (and 9th Circuit) analysis of what TIPRA payments “are” is extremely weak. Why is that bad news? I guess you’ll just have to read my next post.

Does Boechler Change Tax Court Refund Jurisdiction in CDP?

I’ve written quite a bit (posts here, here and here) about how I think you should be able to get some “refunds” in CDP cases, despite the holding of Greene-Thapedi and its progeny. One thing I didn’t touch on in those posts was whether the Supreme Court decision in Boechler changed the jurisdictional equation.

Fortunately, that argument was recently raised. Unfortunately, it was effectively ignored by the 9th Circuit. More unfortunate still, it was raised in the Brown v. Commissioner saga, which has yielded a well-spring of taxpayer adverse decisions. And the hits keep coming…


They say bad facts make bad law, and I’d say something similar about “bad taxpayers.” I don’t know who exactly this particular Michael D. Brown is but owing approximately $50 million in back taxes usually doesn’t play well. I can’t help but see that as a backdrop to some of the opinions that have been rendered in his line of cases… but more on that later.

As a brief refresher, Mr. Brown submitted an Offer in Compromise (Offer) to settle his back taxes for a lump-sum payment of $400,000. Because he is over 250% of the Federal Poverty Line, his Offer had to be accompanied with a 20% payment -commonly referred to as a “TIPRA” payment, after the bill that enacted it.

The IRS “rejected” (or “returned,” his Offer… maybe the distinction matters?) but pocketed the 20% TIPRA payment. Now Mr. Brown wants his $80K back. The Tax Court had already found that the return/rejection of the Offer was not an abuse of discretion, and the 9th Circuit agreed. But there was still an open question as to whether the Tax Court had jurisdiction to order a refund of the TIPRA payment. The 9th Circuit remanded to the Tax Court on exactly that issue.

Of course, on that question the Tax Court found that it is “a court of limited jurisdiction.” (T.C. Memo. 2021-112.) Hence, no jurisdiction over refunding the TIPRA payment. Everyone can mark that off on their bingo sheet.

As an aside, I’d note that the Tax Court also makes a determination about the character of the TIPRA payment (i.e. “not a deposit”) and whether on the merits it should be refunded. The 9th Circuit blesses that determination as well, which I take issue with and will go into more detail on in my next post.

For now, let’s focus on how heavily Boechler, a decision explicitly covering jurisdictional statutes issued five months prior to the Tax Court ruling in Brown figured into the equation. How did the Tax Court address this monumental Supreme Court decision explicitly dealing with the Tax Court’s CDP jurisdiction in its opinion regarding the Tax Court’s CDP jurisdiction?

[Alec Trebek Voice]: “Answer: Not at all.”

Well, you might say, maybe the issue wasn’t raised. And indeed it wasn’t. The brief for Brown had already been submitted prior to Boechler. You can’t fault the Tax Court for not considering an issue that wasn’t raised.

But what about with the 9th Circuit on appeal?

Brown explicitly did raise the Boechler issue in its briefing with the 9th Circuit via FRAP Rule 28j and also as part of oral arguments. How much did the 9th Circuit address this monumental Supreme Court decision explicitly dealing with the Tax Court’s CDP jurisdiction in its opinion regarding the Tax Court’s CDP jurisdiction?

[Alec Trebek Voice]: “Answer: Not at all.” Daily double!

Thus, the request for an en banc hearing to revisit the issue. And the rather terse shut-down of that request: a one-page denial noting that of the entire bench “no judge has requested a vote on whether to rehear the matter en banc.”

So we don’t really know how the 9th Circuit thinks Boechler applies to the question of the Tax Court’s refund jurisdiction. Though I suppose we can infer that the 9th Circuit simply thinks that Boechler doesn’t apply at all. Is that the correct reading of Boechler?

Read narrowly, Boechler looks at the distinction between claims processing rules and jurisdictional rules. It deals with procedural questions of jurisdiction: when you can get into court, not what powers a court can exercise once you’re there. On this reading, it is fair to say that Boechler is wholly irrelevant to the issues in Brown.

That is my Cliff’s Notes version of Boechler and jurisdiction. It would likely get you a D- on any law school exam. You’d be better off reading the actual opinion (it isn’t that long), or better yet Carl’s multiple posts on the topic.

Counsel for Brown urges a broader reading. Per the motion for rehearing, Brown argues that Boechler “changed the jurisdictional inquiry. The old platitude stated that Tax Court lacked jurisdiction over a matter unless some statute expressly granted it. Boechler establishes the new standard that Tax Court has jurisdiction if a predicate notice has been issued unless some statute eliminates that jurisdiction.”

Maybe. I’m not sure I agree that Boechler goes that far. But I do think that the Tax Court genuinely needs to wrestle with Boechler in ways it does not yet appear ready to. At the very least, I’d ask the Tax Court to look at jurisdictional issues with fresh eyes and retire the opening sentence of so many opinions: “We are a court of limited jurisdiction.” This favorite refrain of the Tax Court has never really done any legwork because, as Judge Posner aptly remarked in Flight Attendants v. Commissioner, 165 F.3d 572, 578 (7th Cir. 1999) “All federal courts are courts of limited jurisdiction.” (Hat tip to Bryan Camp’s article for highlighting that quote.) The inquiry is to the scope of that jurisdiction.

On that note, it genuinely confounds me that that Tax Court continues to interpret the scope of its CDP jurisdiction as if Congress placed it in a straitjacket. CDP was created by Congress precisely as a judicial check against IRS abuse. Thus, it rings a bit hollow when the petitioner demonstrates in a CDP case that the IRS did something abusive (like keep money it shouldn’t) and the Tax Court retorts, “We’re an Article I Court. If only Congress gave us power to remedy such abuses… alas.”

But the Tax Court decision in Brown (upheld by the 9th Circuit) is even worse than being just one more notch on the Thapedi-Thumper’s belt. As I’ll discuss in my next posts, Brown potentially represents the Tax Court tightening the straitjacket even further.

Equitable Tolling Case Moving Forward in Tax Court

The case of Amanasu Environment Corp. v. Commissioner, Dk. No. 5192-20L is moving forward towards a determination of equitable tolling.  This is a Collection Due Process (CDP) case involving a Canadian Corporation that received its CDP determination letter seven days after the 30 day window to file the petition.  Carl reported on it in a post here after Judge Carluzzo invoked the Boechler decision and refused to dismiss the case as untimely filed.  The facts basically mirror those in Atuke v. Commissioner discussed here.  The difference between the treatment of the two cases is Boechler.


After Judge Carluzzo refused to dismiss Amanasu, the IRS filed an answer in the case and then it filed a motion for summary judgement in December.  The most recent order, issued by Judge Marvel, denies the motion for summary judgment and sets the case up for a hearing on the facts necessary to prove equitable tolling.  Describing the motion the court states:

Respondent argues that he is entitled to summary judgment because petitioner failed timely to file a petition in this case as required by sections 6320(c) and 6330(d) and failed to plead facts sufficient to demonstrate entitlement to equitable tolling that would overcome petitioner’s untimely filing. See Boechler, P.C. v. Commissioner, 142 S. Ct. 1493, 1500-01 (2022). Petitioner makes a number of arguments in response, but we need only address two of them here.

There was a small, but potentially significant error in the typing of petitioner’s address on the notice of determination:

Respondent does not argue that the address to which the Notice of Determination was mailed, 4503 Bellevue Drive, Vanclover BC V6R1E4, Canada (emphasis added), is the same as petitioner’s last known address, 4503 Bellevue Drive, Vancouver BC V6R1E4, Canada. Instead, respondent argues that “the minor typographical error did not stop (or even appear to impede) delivery of the Notice of Determination, as delivery of the Notice of Determination to Petitioner’s last known address was attempted on January 8, 2020, and was successfully completed on January 18, 2020.” Nonetheless, viewed in the light most favorable to petitioner, the fact that the Notice of Determination appears to have taken over a month to be delivered to petitioner supports an inference that the error impeded delivery of the notice and that the notice may have been invalid.

The court then discussed its case law on notices delivered where there was some problem with the address.  It went on to point out that the mistake with the address was not the only problem here:

We could also construe respondent’s argument as one that petitioner actually received the Notice of Determination and that the notice is therefore valid notwithstanding whether it was properly sent to petitioner’s last known address. See Bongam v. Commissioner, 146 T.C. 52, 57 (2016) (“[A] notice . . . need not be sent to the taxpayer’s last known address in order to be valid. Rather, the notice will be valid if it is actually received by the taxpayer ‘without prejudicial delay,’ that is, generally in time to file a timely petition in this Court.”). However, our cases only support deeming a notice to be properly addressed upon actual receipt of the notice if the taxpayer has sufficient time to file a petition with this Court. See id. Here, the record discloses facts indicating that petitioner actually received the Notice of Determination after the 30-day statutory deadline to file a petition with this Court had already passed. Even assuming for the sake of argument that attempted delivery was properly made to petitioner’s correct address on January 8, 2020, this attempt was made a mere five days before the statutory deadline for filing a petition with this Court on January 13, 2020, and without any indication in the record that petitioner could have retrieved it from the carrier after the failed delivery.

If the CDP notice of determination (NOD) wasn’t sent to the taxpayer’s last known address, then it is invalid, the case should be dismissed for lack of jurisdiction, and the IRS should have to send a new NOD, allowing the taxpayer to file a new Tax Court petition.  On the other hand, if the court finds that the NOD was mailed to the last known address, then the Tax Court keeps jurisdiction and considers the merits issue of whether equitable tolling should forgive the late filing.

The two problems give rise to two issues that doom the granting of the IRS summary judgment motion.  The first problem is one that played out before the Boechler decision and the second involves equitable tolling which is now at play in CDP cases.  With respect to the first problem the court states:

“Whether a taxpayer has been prejudiced by an improperly addressed notice is a question of fact.” McKay v. Commissioner, 89 T.C. 1063, 1068 (1987), aff’d, 886 F.2d 1237 (9th Cir. 1989). Viewed in the light most favorable to petitioner, the short period between attempted delivery and the statutory deadline gives rise to an inference that there was insufficient time for petitioner to file a petition in this Court, even if the attempted delivery was properly made.

With respect to equitable tolling, the court states:

viewing the facts and inferences therefrom in the light most favorable to petitioner, we find that there is a genuine issue of material fact concerning whether or how equitable tolling may be applied. We agree with respondent that the undisputed facts in the record show that petitioner filed its Petition in this case after the 30-day deadline imposed by sections 6320(c) and 6330(d), assuming that the deadline is not equitably tolled. We also agree that the Petition did not set forth any facts concerning whether equitable tolling is warranted, which raises the question of whether the issue of equitable tolling should be deemed conceded. See Rule 331(b)(4). However, concurrently with this Order, we have granted petitioner’s Motion for Leave to File Amended Petition. The Amended Petition pleads facts that, if proven, might entitle petitioner to equitable tolling depending on the entirety of the record developed at trial, so the issue of equitable tolling is not deemed conceded. Petitioner has also submitted a Declaration of Lina Lei in Support of Objection to Motion for Summary Judgment containing facts that, viewed in the light most favorable to petitioner, could support the application of equitable tolling. Therefore, respondent is not entitled to judgment as a matter of law on the issue of equitable tolling.

Because of the factual disputes, the court denies the motion for summary judgment.  I am a bit surprised that a petitioner would be required to set forth facts in a petition concerning equitable tolling.  I would expect the IRS to have the burden to raise the issue of late filing in its answer as affirmative allegations and then the petitioner to file a response explaining its reason(s) for filing late and how those reasons support a finding of equitable tolling.

Judge Marvel seems to suggest that non-receipt might be a good ground for equitable tolling in the Tax Court.  This shows the impact of Boechler. No Tax Court opinion yet so holds, and the Tax Court, pre-Boechler, had said that if a taxpayer is sent an NOD to the last known address, but the taxpayer doesn’t get the notice until after the filing deadline expires, so files late, too bad, no jurisdiction.  Weber v. Commissioner, 122 T.C. 258, 261-262 (2004) and Atuke linked above and several other decisions.  In Castillo the tax clinic at Harvard filed an amicus brief in which it argued that the pre-Boechler precedent on non-receipt of NODs is no longer good law.  Maybe we have reached the point where the Tax Court agrees with that argument.

The Castillo case we have discussed previously where the petitioner did not receive her CDP notice until after the 30 day period for filing a Tax Court petition ended with a concession by the IRS.  Where taxpayers can show non-receipt due to no fault of their own until some point past the due date of the petition, it’s hard to believe that equitable tolling would not open the court’s doors.  Events beyond the taxpayer’s control is one of the three bases for equitable set out in Mannella v. Commissioner, 631 F.3d 115, 125 (3d Cir. 2011) and discussed here, would seem to apply where the facts support it.

The Court has remanded the case to Appeals at least for now to consider some of the merits issues raised by Amanasu.  The remand may turn out to be unnecessary to the resolution of this case if the Tax Court will end up lacking jurisdiction because the NOD wasn’t mailed to the taxpayer’s last known address; however, it might help with the overall resolution of the case.

We are young yet in how equitable tolling will play out in Tax Court cases.  I was also a bit surprised given the factual issues the court discusses that the IRS would seek summary judgement in this case but again this is something that will shake out as more of these cases move forward.  This is a case to watch as it may be the first or one of the first to provide insight into the Tax Court’s take on equitable tolling. 

Tax Court Denies Attorney’s Racing Car Costs Claimed To Be Advertising Expenses For Legal Practice

This one is not so much a procedure case but its facts jumped out at me and is worthy of a blog. In Avery v Commissioner, the Tax Court sustained the IRS’s denial of over $300,000 of a lawyer’s claimed advertising expenses that the taxpayer allegedly incurred during 2008–2013.  

This is a different twist on cases where taxpayers try to overcome the Section 183 hobby loss limitations which shoehorn nonprofit related hobby type expenses into a narrow category of expenses that can (at least prior to 2018) offset that activity’s income, if any. Here, the taxpayer argued that his car racing was essentially done to promote his legal practice.

read more…

Avery is a CDP case where the underlying liability was at issue because the IRS agreed that he had not received the stat notice even though it was sent to his last known address. As readers may recall, and as we have discussed before (see Carl Smith discussing Godfrey v Comm’r),  CDP differs from deficiency cases where the 90-day period in which to file a Tax Court deficiency petition begins when the notice of deficiency is mailed to the taxpayer’s last known address, regardless of its non-receipt. In CDP cases, as here, a taxpayer can challenge an assessed underlying liability where the taxpayer “did not receive any statutory notice of deficiency . . . or did not otherwise have an opportunity to dispute such tax liability”

After overcoming that hurdle, the Avery case turns to the merits. The opinion notes that Avery moved to Indiana starting in around 2005 and did not practice in Indiana. But he did have a practice in Colorado that ramped up when he returned there in 2010.

Part of the costs that Avery claimed as advertising included his purchase price for a Dodge Viper (actually depreciation), as well as parts and labor associated with maintaining the car. IRS essentially agreed that about $50,000 of expenses were substantiated but claimed that the expenses were personal non deductible expenses under Section 262.

The taxpayer argued that car racing would help him meet people who could help his career, and claimed that it would help him obtain personal injury clients who may have seen his law firm decal on the car that he occasionally raced.

The Tax Court, while also noting that Avery failed to race the car much when he returned to Colorado, found that he failed to introduce sufficient evidence that connected the racing to his law practice:

Petitioner allegedly believed that being involved in car racing would enable him to meet lawyers, doctors, and other professionals who could help his career. But he could identify only one instance–involving a Pizza Hut franchisee–in which his racing activity actually intersected with his law practice. And that relationship did not lead to any personal injury litigation, but only to “consultation” about a vendor dispute. 

Petitioner testified that he found car racing to be a good “conversation starter” when meeting with other professionals. But innumerable sports and hobbies could serve the same function–a pastime that a person might enjoy and share with other people, possibly leading to eventual business relationships. That possibility does not convert the costs of pursuing a hobby into deductible advertising expenses.


This case joins one of my favorites in my tax class, Henry v Commissioner, which Paul Caron blogged about a couple of years ago. In that case an accountant attempted to deduct insurance and maintenance costs from his purchase of a yacht on which he flew a red, white, and blue pennant with the numerals ‘1040‘ on it. Henry, like Avery, failed to provide enough evidence to sustain the connection between obtaining clients for his accounting practice and his yachting, and the Tax Court disallowed those expenses as personal nondeductible expenses under Section 262.

All is not lost for some professionals who might want to deduct racing expenses–and maybe even the costs of yacht ownership. Avery notes that the case “is distinguishable from prior cases—e.g., involving car dealerships, construction companies, and companies engaged in the sale and leasing of aircraft—in which we found car or motorcycle racing expenses to be deductible advertising costs.” In those case the taxpayer, through more than vague testimony, established a proximate relationship between the expenses and the business of the taxpayer.

This case reminded me of my and Keith’s late colleague at Villanova, Michael Mulroney. Michael raced his classic British Morgan sports car for his one-man Phlexed Sphincter Racing Team. I recall Michael festooning a bumper sticker on an old Karmann Ghia that he occasionally raced that said “Villanova Graduate Tax Program: Not A Passive Activity.” I do not believe Michael attempted to deduct any of his car racing expenses, but I know he would have enjoyed reading this opinion and sharing it with his students.

Getting a Refund in CDP: Don’t Call it a (Rebate) Refund

In my previous post I discussed how the Tax Court can effectively find there was an “overpayment” in CDP jurisdiction, even if it doesn’t (or can’t) order a “refund” thereafter. This, I argued, is essentially what happened in the recent case of Schwartz v. Commissioner. In this post I’ll take things a step further by arguing that the Tax Court can (effectively) order a refund in CDP, even if it can’t quite use those exact words.

read more…

Imagine that the IRS levied on your state tax refund when it has not properly followed the procedures (that is, the law) prior to doing so. Fortunately, under IRC § 6330(f) you are provided a CDP hearing after the levy. You are pretty upset: indeed, you want the money back for the IRS’s improper levy.

Months ago, I wrote about this exact scenario with the IRS CP504 “Notice of Intent to Levy.” I argued if the IRS does not properly send the CP504 (for example, it isn’t sent to the “last known address”), the IRS should have to return the levied proceeds to the taxpayer. I suggested that this be done at the CDP hearing.

Carl Smith noted in the comments section that you probably wouldn’t be able to get these proceeds returned in CDP because the Tax Court does not (believe itself to) have “refund jurisdiction.” See Greene-Thapedi. And I completely agree with Carl that if you ask the Tax Court to “order” a “refund” in CDP it isn’t going to happen.

But I don’t think that ends the inquiry or addresses the actual hypothetical I laid out. And it is important to understand why.

It is fair to say that the Tax Court has tended to take a rather narrow view of its ability to order refunds in CDP litigation. The posts here and here detail multiple cases where the Tax Court (and affirming appellate courts) say “sorry, but if you’re asking for a refund you’re in the wrong place.”

One could therefore be excused for looking at these decisions and saying “if you’re asking for money back, it isn’t going to happen in CDP.” In a likely ill-advised effort of providing a mnemonic device, I’m going to refer to this approach as being a “Thapedi-Thumper,” since a broad reading of Greene-Thapedi really forms the backbone of this belief.

I see two fundamental problems with the Thaepdi-Thumper approach. The first problem is focusing too much on the need for the Tax Court’s jurisdictional power to order a refund. The second, related problem, is a failure to focus on the actual people and actual processes that resolve the bulk of CDP controversies.

I will cover the second problem in my next post. For now, let’s look at if and when you really need “refund jurisdiction” in CDP to get the remedy you’re asking for.

Overpayments and Refunds – Keep Them Separate

In my previous post I noted the distinction between an “overpayment” and a “refund.” Namely, that an “overpayment” is what happens when you have more credits/payments than tax, and a “refund” is when the IRS actually sends that excess money to you. It is important to keep those notions separate.

Let’s start with the Tax Court and overpayments in CDP. I think it’s clear that the Tax Court is actually less averse to making determinations about the existence or amount of overpayments than Thapedi-Thumpers may believe. Indeed, Greene-Thapedi itself suggests this in the oft-cited and tantalizing “Footnote 19,” which provides:

We do not mean to suggest that this Court is foreclosed from considering whether the taxpayer has paid more than was owed, where such a determination is necessary for a correct and complete determination of whether the proposed collection action should proceed. Conceivably, there could be a collection action review proceeding where (unlike the instant case) the proposed collection action is not moot and where pursuant to sec. 6330(c)(2)(B), the taxpayer is entitled to challenge “the existence or amount of the underlying tax liability”. In such a case, the validity of the proposed collection action might depend upon whether the taxpayer has any unpaid balance, which might implicate the question of whether the taxpayer has paid more than was owed.

To me, the footnote suggests that the Tax Court may consider overpayments when relevant to a proposed (i.e. not mooted) collection action. The Schwartz case is consistent with this: there was still outstanding tax on multiple years (i.e. no refund would result), but the “validity of the proposed collection action” on the years where there was an overpayment would obviously not be upheld. That’s why Judge Vasquez said it didn’t matter if he looked at the issue from abuse of discretion or de novo: the levy wouldn’t be sustained either way.

The problem is that so many taxpayers (understandably) want to take it a step further: they have an overpayment, so why not also order a refund? That’s what the taxpayer in McLane v. Commissioner (T.C. Memo. 2018-149) wanted, and that’s what the Tax Court resisted. As far as collection went, the “overpayment” tax year at issue (2008) was already fixed by the parties, with the IRS abating the assessment.

So let’s move to when, if ever, you might get a refund in CDP litigation. On that question I’d say that it is clear the Tax Court will not order a refund of an overpayment. But the Tax Court may order a refund of other ill-gotten funds.

What does that mean? It means that if you are saying you “paid more tax” than you have due (i.e. an overpayment) you are out of luck in CDP litigation. But if instead you are saying the IRS took money they shouldn’t have (say, by failing to follow proper procedures), you may just get your money back.

If you want to put a technical spin on it, I’d say that the Tax Court is averse to ordering “rebate refunds,” and perhaps less averse to “non-rebate refunds.” Again, I commend Professor Camp’s article to those who want to learn more about the distinction between the two. For present purposes (and possibly in contravention of what Professor Camp himself would agree to), I’m going to classify any disbursement of money to the taxpayer that doesn’t result from an overpayment as a “non-rebate refund.”

You may say I’m a dreamer, but I’m not the only one: Chocallo v. C.I.R., T.C. Memo. 2004-152.

The Chocallo opinion involves a disgruntled pro se petitioner asking the Tax Court to exercise all sorts of powers it does not have in CDP: namely, criminal prosecution of IRS employees and other monetary compensation. The Tax Court pretty easily determines it doesn’t have jurisdiction to do so. But you might ask why the petitioner was so upset in the first place…

And that’s where things get interesting.

The Tax Court found that the IRS had levied on Chocallo’s bank account (for approx. $23,000) prior to offering her a statutorily required CDP hearing. (The IRS later discovered that the underlying assessment was invalid too… oops.) Because the levy improperly occurred prior to being offered a CDP hearing the Tax Court, in Judge Ruwe’s words, “ordered that the amount collected by levy be returned to petitioner with interest.”

Wow. Ordering money being returned in a CDP hearing… How are we to unpack this?

The Chocallo opinion was issued before Greene-Thapedi, which is important. The Tax Court was aware of Chocallo when it gave its opinion… and in approximately three paragraphs discussing Chocallo, gave no indication that it disagreed with the return of the improperly levied proceeds. Indeed, the court thought it an important distinction that Chocallo dealt with an improper levy rather than offset, as was the case in Greene-Thapedi.

This is all to suggest that Chocallo is in fact consistent with Greene-Thapedi. The Court doesn’t find it necessary to explain why Chocallo is consistent, but I can think of a couple reasons it might have latched on to.

First, one could argue that what the Tax Court did in Chocallo was not to order a “refund” or even to determine an “overpayment.” Instead, it ordered the IRS to “return” certain levy proceeds. Note, importantly, that as I define it, these would be “non-rebate refunds.” The return of money in this case has nothing to do with whether there was an “overpayment” or not: it just has to do with the propriety of the collection action.

(As an aside, note that this is exactly the remedy I’d be asking for in the hypothetical involving an invalid CP504 Notice and levy on state tax refund I posted on, which Carl seemed to disagree with me about. Because I can’t let it go, more on why, regardless of Chocallo, I think I’d have a good chance of getting the levied proceeds back in CDP in my next post.)

Second, one could read Chocallo as merely addressing a procedural wrong (levy prior to CDP hearing), that in a very real sense has nothing to do with the “underlying liability” of the tax, and everything to do with the levy action itself. And what exactly is the Tax Court given jurisdiction over if not a review of the propriety of levy actions?

Indeed, PT has covered something quite similar before in Cosner v. Commissioner. Strangely enough, the Tax Court seems to care when the IRS improperly levies in CDP litigation reviewing the propriety of levy actions…

Reasons to Doubt My Optimism

Yet despite everything I’ve written, one could still be excused for wondering how much a “non-precedential” (reasons for scare quotes in this post) memorandum opinion from 2004 can really open the door to getting money back in CDP. Similarly, is the Tax Court really going to be swayed by arcane (and questionable) distinctions between “rebate” and “non-rebate” refunds?

I think the issue has yet to be determined. The case that actually worries me the most isn’t Greene-Thapedi or any of the other “please give me a refund of overpayment” cases. Rather, it is the much-maligned Brown v. Commissioner saga (as written about here, here and here among other places).

It appears that the litigious Mr. Brown asked the Tax Court to provide a refund of his TIPRA payment on his returned Offer in Compromise… and the Tax Court said it has no such jurisdiction. That would very plainly be a “non-rebate” refund. A big strike against the distinction I’ve attempted to draw, albeit in a non-precedential opinion. I’ve also previously complained about the Brown’s case failure to raise administrative law arguments, and I seriously doubt that it raised the rebate/non-rebate distinction here, so perhaps the argument could still persuade a judge. But the existence of this opinion makes the fight a little more uphill.

Nonetheless, I’d note that Brown had relatively bad facts for the taxpayer. I’d also note that Greene-Thapedi, McLane, and others tend to have extremely convoluted fact patterns. It is possible that when the issue is a bit more clear-cut (IRS didn’t follow proper procedures) the Tax Court may be willing to order appropriate relief, short of a “rebate refund.” The Tax Court does, I believe, want to fix obvious wrongs so long as it has the jurisdictional “power” to do so.

So long as there is an obvious inequity and the remedy doesn’t violate refund jurisdiction, the Tax Court can help. Note that Greene-Thapdedi references (without criticizing) Chocallo’s return of the improperly levied proceeds as an exercise of the “Tax Court’s inherent equitable powers.” The precedential case Zapara v. Commissioner (126 T.C. 215 (2006)) is also a very clear exercise of inherent equitable powers. And again in 2006 (albeit in the non-precedential Sampson-Gray v. Commissioner, T.C. Summ. Op. 2006-19), the Tax Court (1) references its inherent equitable powers, (2) cares about whether there was a procedural defect to be remedied, and (3) “expects” the IRS to do the right thing and credit the taxpayer with the money that is due to them (see footnote 5).

Put together, this means that you may not be out of luck in Tax Court during CDP litigation when you’re asking for money back, so long as you aren’t asking for an “order” of a (rebate) “refund.” But beyond that, as I’ll detail in my next post, even if what you want is undeniably a rebate refund, CDP may still help get you where you want to go.