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.

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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.

“Refunds” and CDP Review

In a post months ago, I wrote that if the IRS improperly levied on a state tax refund by failing to give required notice, I would ask for the money back in the CDP hearing. In the comments to my post, I was promptly reminded of the Tax Court’s lack of “refund jurisdiction” as well as its (possible) lack of injunctive power to order a return of the improperly levied funds.

In response, I started writing about why I don’t think that the lack of refund jurisdiction or lack of injunctive power ends the conversation or dooms my argument: in other words, that even without a Tax Court order, I still think I’d have a decent chance of getting my money back if the IRS (clearly) improperly levied and I raised that issue in a CDP hearing. Then life happened and the post got put on the back burner. In the interim, however, another CDP case caught my eye: Schwartz v. Commissioner, T.C. Memo. 2022-125. The opinion is interesting for a number of reasons, but for me it really drives home two points: the power of framing the issue, and the functional ability of the Tax Court to fix problems in CDP even if it cannot “order” certain relief from the IRS. More below the fold:

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The Power of Framing

In CDP review, quite a lot hinges on how you frame the issue (and your proposed relief) to the Tax Court. Frequently this comes up in the context of disputing the underlying liability. Depending on exactly how you frame your issue (more accurately, how the Tax Court interprets the issue), you may get de novo review instead of abuse of discretion: that’s the crux of the precedential Melasky case covered here (with links to additional coverage therein). (Note also that if it is a pure merits issue you may not even be able to raise it at all (see, for example posts here and here).

Context matters in determining the proper way to frame an issue. I’ve posted on this previously, with regards to summary judgment motions. But I’ve also posted about how in CDP the seemingly straightforward argument “I don’t owe the tax” can be framed in different ways. The Tax Court could look at that as a “merits” argument (disagreeing with the calculation of the tax) or a “procedure” argument (disagreeing with the IRS books for continuing to show an outstanding liability).

Which brings us to Schwartz, which is something of a hybrid between the two.

In Schwartz, the taxpayer (led by estimable counsel Karen Lapekas) essentially argued that they “don’t owe” for the years at issue because they had a credit-elect under IRC § 6402(b) that would wipe out each liability. For more on the many nuances of credit-elects, see posts here, here, and here. For our purposes, all that you need to know is that the taxpayer claimed they overpaid for 2005, applied that overpayment to the next year (i.e. the “credit elect”), and that resulting overpayment for 2006 was applied to the next year… and so on and so on in a cascade, that effectively resulted in no balance due for any of the years before the Tax Court.

I highly recommend reading the opinion for details both on the metaphysics of credit-elects, and the “informal claim doctrine” (see posts here and here). Those were the substantive issues that Judge Vasquez spent most of his time wrestling with. I’m going to largely ignore them to focus on a procedural issue that Judge Vasquez… didn’t quite ignore, but definitely sidestepped.

When a taxpayer says “I don’t owe” in a CDP case, and the reason they “don’t owe” is a credit elect, what is the standard of review? There are definite undertones of merits issues/challenges to the liability (it is a “credit” that is claimed on a tax return after all) and procedure (that “credit” happens to be in Subtitle F, which covers procedure and it really is just the application of a payment).

The Tax Court hasn’t quite made up its mind on how that works with credit-elects. Judge Vasquez notes that in one case (Landry v. Commissioner, 116 T.C. 60 (2001)) the Tax Court applied de novo review to a credit elect issue. However, later in the aforementioned Melasky case, the Tax Court applied abuse of discretion review to the dispute over whether a payment was properly credited to the taxpayers account -which is pretty fundamentally similar to a credit elect. What to do here…

Fortunately, Judge Vasquez determined that he didn’t need to reach that question because the IRS would lose on abuse of discretion or de novo review… that tends to happen, I suppose, where the judge finds that IRS Appeals erred on a consequential matter of law.

Ultimately, Judge Vasquez finds that Mr. Schwartz had a valid credit-elect for some years (2006 and 2007) but that the record wasn’t sufficient to show that the carryforward “cascaded” to later years (2010 – 2012). Because of this, the IRS proposed levy action is “not sustained” for 2006 and 2007, but is for 2010 – 2012.

Why Schwartz Matters: A Refund By Any Other Name?

I think it is important to consider what the Tax Court functionally did in this case. Effectively, it determined an overpayment for multiple years. I really don’t think you can get around that conclusion for the concept of a cascading credit-elect to make any sense.

Maybe that’s no big deal: the Tax Court even hinted as much in Greene-Thaepedi that it might determine overpayments in some circumstances (see footnote 19). Also, one could say that in Schwartz the Tax Court was only looking at the timing of an overpayment, and didn’t determine the amount. Further, in Schwartz, the Tax Court didn’t order a “refund,” which is what we really care about.

(It’s also worth highlighting that it was Judge Vasquez (with Judge Swift joining) who dissented in Greene-Thapedi, believing that the Tax Court did, in fact, have something akin to refund jurisdiction. In that regard, Schwartz may have had had a “good draw” on the judge deciding his case.)

But Schwartz definitely doesn’t conflict with Greene-Thapedi, and I’d suggest the most important reason why is this: a refund is different from a determination of overpayment. An “overpayment” is a determination that the taxpayer had more credits/payments than tax. A “refund” occurs when the excess is sent to the taxpayer. See IRC § 6402(a). A lot of people have “overpayments” but still don’t end up with “refunds.” That’s because they owe other back taxes, child support, student loans… or perhaps choose a credit-elect rather than a refund.

(For more on the contours of overpayments and refunds, I would recommend an older article from Professor Bryan Camp found here. I have returned to it again and again when dealing with the metaphysics of refunds, assessments, and all other forms of tax procedure geekery ordinary people dare not dream of.)

But even if there was only the determination of an “overpayment” and not the order of a “refund,” in Schwartz, I think it holds another important lesson. And that lesson is this:

Court opinions have consequences.

Well duh, you reply. But what I’m getting at is that an “opinion” can carry consequences even if it isn’t followed by a particularly useful “order.”  In other words, even if the Tax Court doesn’t have “refund jurisdiction” in CDP to “order” refunds, it may nonetheless have a functionally equivalent power when it determines that the IRS erred as a matter of law.

To illustrate, imagine that the Tax Court issues an opinion finding that the IRS erred in failing to credit $5,000 to a taxpayer’s $2,000 liability. As we’ve seen in Schwartz, even in CDP cases the Tax Court can clearly make such a determination. What the Tax Court (arguably) cannot do is follow that opinion with an order that the IRS refund the taxpayer $3,000. But the Tax Court can remand for abuse of discretion on proposed collection of a non-existent liability.

And what happens next?

In my next two posts I’ll explore that question and dive again into just how close to getting a “refund” you can get in CDP even without “refund jurisdiction” in Tax Court.

Suspending the CSED by Pursuing Litigation or Is This the Final Stop for the Weiss Case?

We have written about the Weiss case on several previous occasions as it wound its way to the Supreme Court and then started anew in the Tax Court.  You can find those posts here with links in the first sentence of that post to the prior three posts on the cases and appeals brought by Mr. Weiss regarding the calculation of the collection statute of limitations.  I write today to briefly discuss the Third Circuit’s affirmance of the District Court for the Eastern District of Pennsylvania’s most recent decision.  Of course, it’s possible that Mr. Weiss will want to try again to go to the Supreme Court.  The government is collecting filing fees from him if not taxes.

The issue here is the effect of the appeal to the Supreme Court in his first stream of litigation, in which he was arguing about whether he made a Collection Due Process (CDP) request, on the statute of limitations on collection.


The IRS brought a collection suit against Mr. Weiss at the last minute before the statute of limitations on collection expired for the year at issue.  Mr. Weiss argues in his defense against the collection suit that the statute of limitations expired prior to the time of the filing of the collection suit.  He to convince the district court that the IRS improperly calculated the statute of limitations just as he failed in the first round of litigation to show that he had not made a CDP request.  His frustration is no doubt driven in part by the fact that it was his actions that extended the statute. 

Had he not taken the actions suspending the statute, it is possible that the suit would have been brought earlier.  My observation is that the DOJ trial attorneys who bring these suits calculate the time from for bringing them, or rely on the IRS calculation of that time in the referral letter, and wait until near the last minute to bring suit probably because they have too many cases in their inventory and because hopes springs eternal that the taxpayer will pay the liability eliminating the need for the suit.

Mr. Weiss first extended the statute by filing a CDP request.  He argued that he only filed a request for an equivalent hearing which did not extend the statute of limitations but the Tax Court and the subsequent courts found that he filed within 30 days of the issuance of the CDP notice and that resulted in a CDP request rather than a request for an equivalent hearing.  Since he requested a CDP hearing, he suspended the statute of limitations on collection.  He appealed the determination that he had filed a CDP request up to the Supreme Court.  In this second round of cases, he contests that the request for certiorari in the first round of litigation suspended the statute of limitations on collection.

The post linked above discusses his loss at the district court level arguing this issue.  Now, he has an opinion from the Third Circuit affirming the lower court decision that the cert request further extended the collection statute of limitations (CSED).  While the outcome here may impact only a few taxpayers, the analysis provides important insight for those concerned about calculating the CSED.

The Third Circuit described the important facts as follows:

The material facts are undisputed. After the D.C. Circuit issued the mandate, no less than 129 days remained of the ten-year statute of limitations. Weiss filed a petition for a writ of certiorari 62 days later, and 40 days after that, the Supreme Court denied his petition. The date on which government commenced this action was 64 days after the Supreme Court’s denial of Weiss’s petition for a writ certiorari and 166 days after the D.C. Circuit’s mandate.

Using those dates, the timeliness of this case turns on questions of law. If the statute of limitations, which had no less than 129 days remaining, is tolled for either the time between the D.C. Circuit’s mandate and Weiss’s petition (62 days) or the time from Weiss’s filing of that petition to its denial (40 days), then the government’s filing of this case 166 days after the D.C. Circuit’s mandate would be timely. But if both of those increments associated with Weiss’s petition fail to suspend the statute of limitations, then the government’s filing would be too late. As elaborated below, the time associated with Weiss’s petition (a combined total of 102 days) tolls the statute of limitations, and that renders this action timely — without the need to address the applicability of the ‘final determination’ provision relied upon by the District Court.

The Third Circuit points out that Congress “did not define two relevant terms — ‘appeals therein’ and ‘pending.’” It searches for their ordinary meaning finding:

The first of those, ‘appeal,’ had two common meanings when § 6330 was enacted in 1998. Contemporary dictionaries reveal that it could be used, in a general sense, to mean a “[r]esort to a superior (i.e. appellate) court to review the decision of an inferior (i.e. trial) court.” Appeal, Black’s Law Dictionary (6th ed. 1990). Under that general meaning, the term ‘appeal’ would include both appeals and petitions — those filed in court and those filed administratively. See id. But as evidenced by a number of federal statutes and court rules, the term ‘appeal’ could also refer to a narrower class within that larger class: it could mean a method of seeking review of an order that is distinct from other such methods, such as a petition. As used more narrowly, appeals are typically initiated in the court that issued the order,2 while petitions are often commenced through a filing with the reviewing body.3 Cf. Garland v. Ming Dai, 141 S. Ct. 1669, 1677-78 (2021).

The court also found that the word therein had to common meanings creating four possible combinations for the phrase “appeals therein.”  Because it finds that three of those combinations would create a meaningless result, it finds:

The fourth combination, however, does not offend the canon against superfluity. If the term ‘appeals’ receives its broader meaning (to include petitions) and the word ‘therein’ means ‘in such matter,’ then the phrase ‘appeals therein’ refers to any appeals or petitions from a Collection Due Process hearing. That understanding accounts for the entire judicial review process: the Tax Court reviews petitions from the Collection Due Process hearing, see 26 U.S.C. § 6330(d)(1); see also 26 C.F.R. § 301.6330-1(b)(2), (f)(1); the appellate courts review appeals from the Tax Court as well as petitions for panel rehearing and en banc rehearing, see 26 U.S.C. § 7482(a)(1); Fed. R. App. P. 35, 40; and petitions for certiorari from the appellate courts may be filed with the Supreme Court, see 28 U.S.C. § 1254(1).

The court then examines the word “pending.”  It finds two definitions of this word but says

For purposes of § 6330(e)(1), only the second definition works. The tolling clause identifies a singular ‘period’ of suspension. The first definition of ‘pending,’ however, would involve several distinct periods of piecemeal tolling. The statute of limitations would be suspended for the hearing and every appeal, but not for the interim periods between resolution and appeal. If Congress had intended to account for such intermittent tolling, it could have used the word ‘periods.’ But by instead using the singular term, ‘period,’ the statute allows only the second meaning of ‘pending,’ such that it describes a continuous period inclusive of not only the hearing and ‘appeals therein’ but also any intervening periods of indeterminacy during which an appeal or petition could be filed.

Applying the second definition here, the statute of limitations remained tolled for the 62 days between the D.C. Circuit’s mandate and Weiss’s petition for a writ of certiorari.

It then holds that the suit to foreclose brought by the IRS was timely because of the time remaining on the CSED as a result of the statute of limitations suspensions. 

Mr. Weiss got his money’s worth out of filing the appeal from the perspective that the Third Circuit gives an extensive analysis of the impact of bringing litigation on the collection statute of limitations.  Whether this extensive analysis will give Mr. Weiss pause before seeking cert a second time is unknown.  It might also give future taxpayers pause in bringing appeals if they seek to ride out the CSED as their path to defeating payment of the tax.  Of course, just because the IRS can move forward with this suit does not mean it will ultimately collect from Mr. Weiss.  Assuming it wins the foreclosure case, it will have an almost unlimited time period within which to collect but that does not mean it will be able to do so.  Mr. Weiss has lost another battle but until the IRS actually collects, he has not lost the war.

Seeking First Time Abatement Through Collection Due Process

In Kelly v. Commissioner, TC Memo 2022-73 petitioner sought to use Collection Due Process (CDP) as a means to obtain first time abatement.  First time abatement was not the only issue in the case but seeking to have the Tax Court decide that the IRS had improperly administered its policy granting relief seemed a stretch.  We have talked about the issue of first time abatement in prior posts here and here.  These were some of the first posts written for this blog.  The policy has been around for many years.  It is a popular policy but one that leaves taxpayers dissatisfied when the IRS uses it instead of using another basis for abatement, like reasonable cause, so that the taxpayer can preserve the first time abatement for another filing.  I wrote a post about reversing first time abatement where the IRS later realized it had granted abatement in derogation of its policy.

I did not look at the underlying pleadings filed but was struck that the case did not involve a discussion of prior opportunity.  With penalties, the IRS often gives the taxpayer an opportunity to go to Appeals if the first line denies the request for penalty abatement.  If the IRS gives that opportunity, the taxpayer cannot raise the merits of penalty abatement in a CDP case.  Here, there was no discussion of prior opportunity but just a discussion of the merits of the penalty request.


During the years at issue, 2013-2015, Mr. Kelly was a securities broker in New York City making over $1 million each year.  He did not timely file his returns for these years.  At the end of 2017 he filed his 2013 and 2014 returns reporting tax of more than $500k each year without remittance to which the IRS added failure to file, failure to pay and estimated tax penalties.  In early 2018 he filed his 2015 return without remittance but reporting a tax due of more than $400,000 to which the IRS added penalties.

The IRS sent CDP notices of intent to levy and filed notices of federal tax lien (NFTL) which also triggered CDP notices.  He timely requested a hearing seeking an installment agreement, withdrawal of the liens and abatement of the penalties.  The Settlement Officer explained during the CDP hearing that first time abatement was a non-starter because he had been delinquent before including in 2012.  Mr. Kelly also requested abatement based on reasonable cause.  He explained that his wife spent money lavishly and he went through a divorce in 2015 which caused him experience financial hardship, emotional problems and depression.  The SO rejected this request as well citing to his history of non-filing, his high income and his lack of a payment protocol.

Mr. Kelly also ask for lien withdrawal because the NFTL put a mark on his securities license which might impact his business.  The SO was not moved by this argument either.

Finally, Mr. Kelly proposed a partial pay installment agreement; however, he was not current on his 2019 liability causing the SO to reject this request and issue the notice of determination.  In the Tax Court case the IRS sought summary judgment. 

The Tax Court agreed with the SO that he did not qualify for first time abatement because he had unreversed additions to tax within three years of the year for which he sought the application of this policy.  I was a bit surprised that the Court ruled on the first time abatement issue and consider that a victory for taxpayers even if it did not help Mr. Kelly in this instance.

Next, the Court looked at the alternate argument of reasonable cause.  The Court said he faces a “decidedly uphill battle in attempting to show reasonable cause.”  It noted that his excuses, the initiation by his wife of a divorce and resulting depression, only occurred at an unspecified time near the end of the three year period of non-payment.  Mr. Kelly provided no explanation for his history of non-compliance while making over $1 million each year.  His high income also made his other excuse, financial hardship, difficult to understand.  Despite the fact the Court sees little chance of success on these arguments, they present factual issues in dispute and not ones suitable for summary judgment.

The Court then found the SO satisfied the statutory requirements of 1) verification – concluding the IRS properly notified Mr. Kelly of the NFTL filing; 2) rejection of the partial pay installment agreement – concluding the rejection met the IRM guidelines due to his ongoing failure to comply and history of non-compliance; 3) lien withdrawal – concluding that Mr. Kelly’s allegations that the liens would adversely impact his future income were “entirely speculative”  and even if not speculative reflected decisions within the control of the IRS not the Court; and 4) balancing – concluding that the size of the liabilities, his repeated failure to file returns or even to make modest estimated tax payments supported the conclusion the SO did not abuse his discretion.

The outcome here is unremarkable, but the number of different arguments made by Mr. Kelly give others an opportunity to see the many ways a taxpayer can attempt to attack a collection action.  His long period of non-compliance and high dollar liabilities make Mr. Kelly an unsympathetic figure for the relief he requests.  Still, he provides us with a roadmap to the many types of arguments available.  The Court’s careful look at both the statute and the IRM shows that the IRS needs to take care to follow its internal procedures as well as Congressional instructions if it hopes to prevail in support of its collection decisions when faced with a well-funded and well-crafted argument attacking those procedures.  Most petitioners in this circumstance will not have the resources Mr. Kelly had to attack the IRS actions, but his unsuccessful attempts show others with better cases where they might go to find relief.

Boechler Works

In Boechler v. Commissioner, 142 S. Ct. 1493 (2022) the Supreme Court held that the time period for filing a petition in Tax Court in a Collection Due Process (CDP) case is not jurisdictional.  The Supreme Court also held that the statute is subject to equitable tolling; however, we have predicted in many blog posts that based on historical patterns the most likely application of  the decision would occur when the IRS did not affirmatively raise late filing as a defense.  An order entered yesterday in Ahmad v. Commissioner, Dk. No. 37926-21L appears to be the first order holding that the IRS waived the right to raise late filing as a defense and allowing the case to move forward for a merits determination.

In Ahmad the IRS issued a CDP determination letter on November 23, 2021, sustaining the decision to file a notice of federal tax lien (NFTL).  He filed a petition challenging the filing of the NFTL because he is unemployed and on public assistance.  The IRS filed a motion for summary judgment which the Tax Court grants; however, in doing so it notes that he filed his petition on December 30, 2021.  This date is more than 30 days after the notice and appears to create a late filed petition. 

In footnote 7 of the order the Court notes that the IRS waived any potential objection based on the timeliness of the petition.  In the motion for summary judgment the IRS apparently expressly conceded that he filed the petition on time.  The Court states:

Therefore, the timeliness requirement in section 6330(d)(1) poses no bar to the Court’s jurisdiction in this case.

Earlier in footnote 7 the Court explained the impact of Boechler on the jurisdiction of the Court with regard to timely filing and made clear that the IRS must affirmatively raise timeliness in order to have the Court rule on this issue.

Prior to the Boechler decision the Tax Court did not merely rely on the IRS to raise the timeliness of the filing of a petition but it affirmatively analyzed the filing to determine timeliness.  Based on the research of the Tax Court’s show cause orders in these situations, Carl Smith determined that the Tax Court raised the timeliness issue in over 200 cases each year where the IRS never objected to the taxpayer’s case as late filed.  We predicted that far more taxpayers would benefit from the lack of Tax Court policing timeliness than would benefit from equitable tolling.  The Ahmad case doesn’t predict the number of times this will happen but it makes clear that absent an affirmative objection by the IRS the case will move forward to whatever disposition it deserves on the merits.

Here, the Court grants the summary judgment motion so the failure of the IRS to raise timeliness in the filing of the petition serves as a mere pyrrhic victory.  Nonetheless, the Ahmad case lets us know that a new era has begun.  I blogged earlier about this change in the whistleblower cases because of the DC Circuit’s decision in Myers v. Commissioner, 928 F.3d 1025.  Now it happens in CDP cases.  Depending on the outcome of Hallmark and other cases challenging the timeliness issue in deficiency cases, it could happen in deficiency cases where 95% of the cases exist.

Another Update on Boechler Follow-on Litigation – Part 1

On June 28, 2022, I did a post summarizing the status of post-Boechler litigation over whether the IRC 6213(a) deficiency petition filing deadline is still jurisdictional and not subject to equitable tolling after Boechler.  There have been a few developments in the two cases discussed in the post, and I wanted to update you and provide links to recent filings.  The short update is that (1) all briefing has been completed in the Hallmark case before Judge Gustafson, and he is presumably already actively working on a Tax Court opinion, and (2) the Culp case in the Third Circuit survived the government’s motion for summary affirmance, and the Culps have filed their opening brief.  The Third Circuit also denied the government’s motion to strike the merits amicus brief of The Center for Taxpayer Rights that had been filed shortly after the government moved for summary affirmance. 

I also wanted to do an initial post on what has been happening after Boechler with CDP cases that present the questions resolved by the Supreme Court.  The short update here is that the courts have not yet issued any rulings in CDP cases about whether equitable tolling applied on the facts of a particular case, and I don’t expect we will see the first such ruling until 2023.  

Because of the length of the update, I am breaking it into two parts.  Part 1 discusses the deficiency litigation.  Part 2 will discuss the CDP litigation.



In my June 28 post, I wrote that, a few days after Boechler was decided, a taxpayer named Hallmark Research Collective had moved to vacate the Tax Court’s dismissal for lack of jurisdiction of its one-day-late deficiency petition.  Even before the Supreme Court decided Boechler, Hallmark had argued that the deficiency filing deadline is no longer jurisdictional and is subject to equitable tolling.  Hallmark is seeking COVID-related equitable tolling. 

The motion to vacate was assigned to Judge Gustafson, and the Tax Court promptly stopped issuing orders of dismissals for lack of jurisdiction in all other cases where the IRS moved to dismiss a deficiency case for lack of jurisdiction, pending the ruling in Hallmark.  In a post Keith did on Hallmark on May 3, 2022, Keith provided links to the taxpayer’s motion to vacate and its 51-page memorandum of law that accompanied the motion.  In my July 28 post, I provided a link to the IRS’ 18-page response objecting to granting the motion.  On July 15, 2022, the taxpayer filed a 32-page reply to the IRS’ response, which you can find here.

As to why the reply was so long, the main reason is that the taxpayer chose to expand upon its argument that the filing deadline in IRC 6213(a) is not jurisdictional by presenting a more detailed analysis of how the Board of Tax Appeals acquired its deficiency jurisdiction in 1924 and 1926. 

The original Board filing deadline for income tax deficiency petitions was in the second sentence of sec. 274(a) of the Revenue Act of 1924.  The taxpayer argues that the actual jurisdictional grant to the Board to hear deficiency cases was at sec. 900(e) of that act, though neither provision used the word “jurisdiction”.

In the Revenue Act of 1926, sec. 274(a)’s second sentence was amended to prohibit Sundays from being the end of the filing deadline, but Congress did not, when redrafting the sentence, include the word “jurisdiction”.  By contrast, Congress first used the word “jurisdiction” in multiple provision of that act (which made the Board more court-like and provided for Circuit Court direct review of Board rulings).  Congress also enacted in that act the predecessors of IRC 6214(a) and (b) and 6512(b)(2), in each case using the word “jurisdiction”.

Hallmark’s reply also contains several pages of quotes from opinions by Tax Court judges (most currently sitting) calling IRC 6214(a) the source of the Tax Court’s deficiency jurisdiction.  In its response, the IRS had simply ignored the argument that IRC 6214(a) is the source of the Tax Court’s deficiency jurisdiction, not IRC 6213(a).  The IRS argues that IRC 6213(a) is the source of the Tax Court’s deficiency jurisdiction, except in cases where a larger deficiency is sought than is set out in the notice of deficiency, in which case IRC 6214(a) is merely the source of the Tax Court’s jurisdiction for the excess.

Hallmark is now fully briefed.  My expectation is that Judge Gustafson will be drafting an opinion that the Chief Judge will send to the full court for review.  I would love to be proved wrong and see an earlier opinion, but my guess is that the opinion of the full court in Hallmark will not come out before Christmas, even though hundreds of motions to dismiss are probably already currently sitting in limbo pending the opinion and more will be filed in the interim.


In my June 28 post, I wrote about a pro se appeal of a Tax Court dismissal of a late-filed deficiency case, Culp, that is before the Third Circuit.  The Culps argue that they filed a late Tax Court petition both (1) because before they filed they had never received the original or a copy of the notice of deficiency and (2) because TAS, purporting to help them fight levies, bamboozled them into not going to court.  TAS never told them that a notice of deficiency had been sent.  The Culps seek equitable tolling and a refund of monies taken by (1) levies on their Social Security benefits and (2) an offset of a later-year overpayment against the deficiency.

In my post, I mentioned the DOJ’s motion for summary affirmance.  I also mentioned and provided a link to the merits amicus brief that The Center for Taxpayer Rights filed in the case a few days after the DOJ motion for summary affirmance, but before the Third Circuit had ruled on the motion.  The DOJ had also moved to strike the amicus brief as premature.  On July 6, 2022, a 3-judge motions panel of the Third Circuit denied both DOJ motions, so the case proceeds to regular briefing.

On July 29, 2022, the Culps filed their opening brief for the appellants, which can be found here.  Although the Culps are retired lawyers in their 70s, their specialty was employment discrimination law.  Their pro se brief may disappoint some of us who are tax procedure specialists.

The DOJ’s brief for appellee is due in late August or early September.  (I am not sure the exact date because the Culps filed their brief a few days early, and I don’t know if that impacts the date that the DOJ’s brief is due.)  However, I anticipate that the DOJ will, as usual, ask for and be granted a 21- or 30-day extension to file its brief.

I expect oral argument in Culp will occur in the Third Circuit early next year and an opinion will be issued in the spring.  I expect that the Tax Court’s ruling in Hallmark (1) will precede the Third Circuit’s ruling in Culp and (2) will be brought to the attention of the Third Circuit before it rules.

Other Deficiency Cases

Of course, once an opinion in Hallmark is issued, the Tax Court will likely promptly issue hundreds of similarly-ruling orders in cases in which either the IRS had moved to dismiss a late-filed deficiency petition for lack of jurisdiction or the Tax Court had issued an order to show cause why the deficiency case should not be dismissed for lack of jurisdiction on account of late filing. 

If the Tax Court in Hallmark rules against the taxpayer, those hundreds of orders will be final and immediately appealable to nearly every Circuit Court of Appeals, except the Federal Circuit.  However, I don’t expect many taxpayers to appeal such dismissals.  It would only make sense to appeal such a dismissal if the taxpayer thought he or she had good ground for equitable tolling.  And, I suspect that only about 5% of such dismissals would involve even a plausible argument for equitable tolling. 

Hallmark is appealable to the Ninth Circuit, and I expect that it would be the first case to be appealed.  I would be surprised if more than 5-8 deficiency cases got appealed in 2023 to Circuits other than the Ninth Circuit.  Over time, though, new orders of dismissal in other case would be issued.  If any Circuit disagreed with another Circuit in a post-Boechler ruling, I would anticipate a new Supreme Court opinion to resolve the issue, unless Congress (hopefully) stepped in to resolve the dispute.  I do not look forward to so much future appellate litigation.

If the Tax Court in Hallmark holds that the deficiency filing deadline is no longer jurisdictional and is subject to equitable tolling, the court will deny all of the held-up IRS motions to dismiss and discharge any held-up orders to show cause.  Such rulings allowing the cases to go forward would be interlocutory rulings, not ordinarily subject to immediate review.

IRC 7482(a)(2)(A) states:

When any judge of the Tax Court includes in an interlocutory order a statement that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation, the United States Court of Appeals may, in its discretion, permit an appeal to be taken from such order, if application is made to it within 10 days after the entry of such order.  Neither the application for nor the granting of an appeal under this paragraph shall stay proceedings in the Tax Court, unless a stay is ordered by a judge of the Tax Court or by the United States Court of Appeals which has jurisdiction of the appeal or a judge of that court.

Tax Court Rule 193(a) provides, in part:

For the purpose of seeking the review of any order of the Tax Court which is not otherwise immediately appealable, a party may request the Court to include, or the Court on its own motion may include, a statement in such order that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation.  Any such request by a party shall be made by motion which shall set forth with particularity the grounds therefor and note whether there is any objection thereto.  

Perhaps being over-confident that it will win the Hallmark case, the IRS has not yet filed any motion under Rule 193(a).  It is unclear whether a pro-taxpayer ruling in Hallmark will, without such a motion, contain a statement “that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation.”

It is my hope that, if the Tax Court rules that IRC 6213(a)’s deficiency filing deadline is not jurisdictional and is subject to equitable tolling, both the IRS and DOJ would accept that ruling and would argue in support of that ruling in any appellate court that, on its own, decides to consider the issue.  Perhaps my hope is naïve, but one can always hope.

I am aware of only one other late-filed deficiency case in which the taxpayer is already arguing that the IRC 6213(a) filing deadline is not jurisdictional and is subject to equitable tolling, Gruis v. Commissioner, Tax Court Docket No. 11951-22.  I mentioned Gruis in my June 28 post.  On May 27, 2022, a lawyer for an LITC who is aware of the Boechler opinion late-filed the petition, which asked for equitable tolling.  The case involves HOH status and disallowed EITC and CTC.  It will be appealable to the Eighth Circuit – the same Circuit that got the law wrong on CDP in Boechler.  As an update, surprisingly, on July 15, 2022, the IRS filed an answer in the case.  The IRS has not (yet) moved to dismiss for lack of jurisdiction.  I don’t know where this case might be going.  It may get resolved a different way, though, since the taxpayer also argues that the IRS sent the notice of deficiency to an address that was no longer her last known address (hence, she did not receive the notice in time to timely petition).

Taxpayer Attending Rodeo Misses Receiving Collection Letter And Denied Chance to Challenge Liability in CDP Case

Hammock v Commissioner is a relatively straightforward Tax Court CDP bench opinion involving the assessment of responsible person penalties under Section 6672. The case makes its way to Tax Court because the taxpayer attempted to challenge the sizable underlying liability. Appeals, and then Tax Court, refused to allow the challenge because she neglected to file a timely administrative appeal following notice of a proposed assessment. This brief blog post considers Appeals refusal to exercise its inherent discretion to consider the underlying liability.

In Hammock, the facts are somewhat sympathetic. The bench opinion discusses how the taxpayers’ parents had founded and run a successful auto parts business that had over 35 employees. The taxpayer witnessed her parents’ death in an automobile accident, which resulted in her unexpectedly assuming her mother’s formal role as treasurer and finding someone to replace her father’s job in running the business.


To run the day to day auto parts business Hammock turned to a family friend who had been involved before the parents’ death and became more so after their passing. Hammock also hired a formal CFO to assume some of the responsibilities that her parents previously performed. Hammock herself seems to have been largely absent, though she drew a salary and signed the occasional check.

It seems that the family friend used the business as a personal piggy bank, and what was once a very successful enterprise ran up hundreds of thousands of dollars in delinquent employment taxes, leading to its eventual bankruptcy.

With the employment tax delinquency came an IRS investigation into trust fund liabilities. After some communication from IRS, Hammock hired a tax attorney; he was the same attorney who was representing the CFO, who IRS was also investigating as a potentially responsible person.

Here is where things get dicey for Hammock. Unfortunately, the POA that counsel submitted did not specify the year or tax at issue. The IRS had the same POA problem with the CFO’s POA. IRS returned them both. Hammock and the CFO’s attorney submitted a new one that specified the tax and periods. Unfortunately the POA counsel resubmitted for Hammock did not have her signature; in contrast, the POA for the CFO was properly signed.

When IRS concluded its responsible person audit, it sent Form 1153 informing both Hammock and the CFO of its intent to assess a trust fund recovery penalty. That letter gives potential responsible persons 60 days to protest the proposed assessment. IRS sent the CFO’s proposed assessment to both him personally and to the attorney. Because the IRS never received Hammock’s perfected POA, it properly did not send her proposed assessment letter to her counsel, though did send it to her residence.

Hammock claimed to not have received the 1153 because she was out of town at a rodeo. All of this led to Hammock not filing a protest within 60 days. In contrast, the attorney did file a timely protest with respect to the CFO’s proposed assessment.

During a phone call counsel had with the RO concerning the CFO’s proposed assessment, the RO told the attorney that it had not received a perfected POA from Hammock and that it had in fact sent a 1153 to her. That led to the attorney’s submission of a belated perfected POA and a protest submitted after the 60 days had passed. Appeals declined to consider Hammock’s objections to the what became an assessment of over $579,000 in trust fund penalties.

The trust fund penalty assessment with respect to Hammock led to the IRS mailing her and her now properly authorized attorney a notice of federal tax lien and notice of intent to levy, triggering the CDP case.

Hammock’s attorney timely filed a request for a CDP hearing that only sought to consider the underlying trust fund liability and did not raise a request for a collection alternative.

For CDP purposes, unless there is actual receipt of the notice concerning the proposed assessment, the mailing of the notice to the last known address will not prevent a challenge to the underlying liability. If a person did not actually receive the notice allowing for an administrative appeal of the proposed assessment, they can challenge the amount or existence of the liability. (For more on when taxpayers can challenge the underlying liability, see Keith’s recent post discussing the issue, one we have covered quite often on PT).

Yet, as the opinion discusses, case law properly establishes that the absence of receiving a properly mailed notice does not automatically allow the right to challenge the amount or existence of a liability. To determine whether there is actual receipt when the IRS establishes that it has properly mailed the document, the cases consider whether there is enough evidence to overcome a presumption of receipt.

For these purposes, it is usually not enough to rely just on taxpayer testimony. Here, the opinion notes that Hammock claimed to be out of town attending a rodeo when the Form 1153 was delivered. She also testified that she had no recall of ever seeing it.  That testimony was contradicted by her counsel actually attaching the 1153 to the late-filed protest and an admission to Appeals at a supplemental hearing that she had in fact received the 1153.

The opinion helpfully contrasts Lepore v Comm’r, where a taxpayer was able to establish nonreceipt even when the IRS properly mailed a document to a taxpayer’s residence. In Lepore, there was testimony from a family member who did not live at the residence but said he received the document and did not give it to the taxpayer. Lepore had other positive facts, including a history of responding to IRS correspondence and proof of receiving a high volume of mail.

So Hammock was essentially out of luck in her efforts to automatically having the underlying liability as part of the CDP hearing. 

The opinion then focuses on the issue of ensuring that Appeals verified that the Commissioner met all requirements of applicable law and administrative procedure for collecting the trust fund recovery penalties. It quickly determines that there was no issue there, emphasizing that IRS had no obligation to inform counsel about Hammock’s 1153, especially given Section 6103 and the absence of a perfected POA.

Abuse of Discretion to Not Exercise Discretion?

So this case breaks no new ground yet I feel it worthy of a post for an ancillary issue. The regulations clarify that even if a taxpayer does not have a statutory right to challenge liability in a CDP hearing, Appeals has inherent discretion to consider liability.

The opinion notes that Hammock had requested that Appeals consider the liability as part of its discretionary CDP power.  In counsel’s pretrial memorandum, counsel asked the following:

“[D]id the appeals officer abuse her discretion by failing to consider all the evidence and refusing to hear Hammock’s challenge to the underlying liability” or whether “the IRS properly assess[ed] Hammock given it failed to conduct investigation or make factual findings to support the underlying liability determination.”

The opinion rejects this as the “taxpayer’s attempt to go to the merits of the underlying liability and not the question of whether all administrative steps were taken.” Fair enough but why did Appeals fail to consider liability as part of its administrative discretionary power?

The regulations clarify that Appeals could consider liability, even if the taxpayer had a prior opportunity and was unable to overcome the presumption of receipt. § 301.6330-1(e)(3), AE-11

In relevant part that reg states that

“[i]n the Appeals officer’s sole discretion, however, the Appeals officer may consider the existence or amount of the underlying  tax liability, or such other precluded issues, at the same time as the CDP hearing. Any determination, however, made by the Appeals officer with respect to such a precluded issue shall not be treated as part of the Notice of Determination issued by the Appeals officer and will not be subject to any judicial review.

When a taxpayer, like Hammond, requests that Appeals consider liability as part of a CDP request shouldn’t Appeals explain why it chose not to do so? Would any reason Appeals gives ever amount to an abuse of its discretion? Can the regulatory directive that “any determination” about this discretionary power not be subject to judicial review overcome the presumption in administrative law that agency actions are subject to judicial review?

Now there may be perfectly valid reasons why Appeals failed to exercise its discretion to consider liability in this case. And it may be that it is generally inappropriate for the Tax Court to order Appeals to consider the liability. But it seems to me that Appeals should explain its reasons for declining to exercise its discretion, and the Tax Court should play a role in ensuring that Appeals exercise its discretion in a way that fairly considers a good faith request to challenge a liability. To be sure, Hammock could have her day in district court, but the opportunity to raise and possibly resolve liability questions administratively is of some moment, and the Tax Court can play a more proactive role in that process.

Prior Opportunity and Other Collection Due Process Information

At the Court Practice and Procedure committee during recent ABA Tax Section meeting there was a panel on Collection Due Process (CDP.)  The panel put up some statistics on CDP from a few years ago that I will put into this post.  It also discussed a 15 year old case precedential CDP case, Perkins v. Commissioner, 129 T.C. 58 (2007) to highlight the narrow path it presents for obtaining a hearing on the merits of the underlying tax in contrast to most prior opportunity cases.  The panel also discussed the very recent case of Jackson v. Commissioner, T.C. Memo 2022-50 regarding the issue of variance in CDP cases.  In addition to providing the statistics, I will discuss the two cases.


The first slide depicts the number of CDP cases filed in the past two fiscal years:

The second slide provides data from 2018 regarding the percentage of taxpayers who make CDP requests:

The third and fourth slides provides information about the taxpayers most likely to make CDP requests:

In addition to discussing characteristics of typical CDP petitioners, the panel discussed the narrow path to getting the Tax Court to look at the merits of an assessable penalty provided by the Perkins case.  As we have blogged about in some depth, the Tax Court takes the view that having the opportunity to go to Appeals counts as a prior opportunity for purposes of determining if a taxpayer may raise the merits of the underlying liability in a CDP case.  Here is a link to a post discussing prior opportunity and linking to several other posts on this issue.  The concern arises regularly in assessable penalty cases such as the three cases Lavar Taylor took to the circuit courts and discussed in posts found in the linked post; however, it arises in other contexts as well. 

I find it unsatisfactory that a visit to Appeals qualifies as a prior opportunity.  Taxpayers had that type of opportunity prior to the passage of the CDP legislation.  Why would Congress have passed a statute giving taxpayers an opportunity to contest the merits of their liability that they already had?  The tenor of the statute seemed to be one of a broad exception to the Flora rule but which has now been interpreted to create a very narrow exception to the Flora rule and one which is almost impossibly narrow of the case of Lander v. Commissioner, 154 T.C. No. 7 (2020) is taken to its logical extreme since every taxpayer who does not receive their notice of deficiency has the opportunity to seek audit reconsideration.

A long introduction to reach the narrow exception provided by Perkins for obtaining a merits hearing in a CDP case.  In Perkins the IRS sent a math error notice and Mr. Perkins did not respond within 60 days allowing the math error assessment to stand without requiring the IRS to send a notice of deficiency; however, he appealed the increase in a letter that was forwarded to Appeal. While the case was pending in Appeals, the IRS sent a notice of intent to levy and he requested a CDP hearing in which he sought to contest the merits of the assessment.

Before Mr. Perkins had his CDP hearing, Appeals held a hearing on his original request treating it as a request for abatement and denying the request. In his CDP case Appeals declined to hear his merits request again stating he had a prior opportunity to contest it.  The Tax Court held that because his first request for an Appeals hearing was still pending at the time of his CDP request he had not had a prior opportunity.  The panelist at the ABA took the position that the same situation that faced Mr. Perkins could occur in other setting, such as assessable penalties, if the appeal of the merits of the assessable penalty was still pending at the time the taxpayer received the CDP notice.  Given the delays at Appeals caused by the pandemic, the chance that Appeals might take a long time to resolve an administrative appeal of an assessed liability may exist now to a greater extent than might ordinarily be true.

I don’t know how often collection of the tax gets out in front of an administrative appeal on the merits of an assessed liability.  Keeping Perkins in mind for those situation is important but may provide a benefit only in rare situations.

In the Jackson case the Court granted a summary judgment motion filed by the IRS.  In the Jackson case the taxpayers did not remit full payment with the return and the unpaid balance was high enough that the IRS filed a notice of federal tax lien (NFTL.)  The Jacksons did not file a CDP request in response to the NFTL.  They sought an installment agreement which the IRS rejected after which it sent a notice of intent to levy.  They did request a hearing in response to this CDP notice.  Petitioners sought an installment agreement in the CDP hearing; however, the Settlement Officer informed them that because they had failed to make necessary estimated tax payments their lack of compliance rendered them ineligible for this relief.  Appeals issued a notice of determination sustaining the proposed levy.

In Tax Court petitioners continued to seek an installment agreement but also abatement of interest and penalties.  The Court viewed this additional request as a variance from the issue raised in their CDP request.  It pointed to its prior decisions requiring taxpayers to raise issues with Appeals if they wanted to raise them with the Tax Court:

This Court considers a taxpayer’s challenge to an underlying liability in a collection action case only if he or she properly raised that challenge at the administrative hearing. Giamelli v. Commissioner, 129 T.C. 107, 115 (2007). An issue is not properly raised at the administrative hearing if the taxpayer fails to request consideration of that issue or if the taxpayer requests consideration but fails to present any evidence after receiving a reasonable opportunity to do so. Id. at 115-16; Gentile v. Commissioner, T.C. Memo. 2013-175, at *6-7, aff’d, 592 F. App’x 824 (11th Cir. 2014).

The Petition in this case appears to assign error to respondent’s assessments of section 6651(a)(2) additions to tax and statutory interest for the years in issue. However, respondent asserts that petitioners never challenged their underlying liabilities at the CDP hearing, and we agree. The record of the CDP hearing includes no evidence that petitioners challenged their liability for the additions to tax or sought an abatement of interest. Neither petitioners’ Form 12153 nor the attached cover letter references additions to tax or interest. Furthermore, SO Melcher’s case activity record indicates that Mr. Bolton specifically disclaimed a challenge to the assessments in issue during their telephone conference. According to SO Melcher’s notes, the only issue Mr. Bolton raised during their telephone conference was the rejected installment agreement. Petitioners have not set forth any evidence suggesting otherwise.

The Jackson case does not raise new issues. It merely serves as a reminder to raise all issues when requested a CDP hearing.