CDP: When is a Document Establishing Liability Received?

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I have recently been rewriting the portion of Chapter 4 in Saltzman & Book IRS Practice & Procedure that addresses what is the last known address for purposes of receipt of a statutory notice of deficiency and select other IRS correspondence. The issue is frequently litigated, and the stakes can be high. If, for example, the statutory notice is not sent to the last known address, the IRS’s ability to assess may run into statute of limitations problems. In today’s transient times, the issue is far from straightforward.

A somewhat related issue comes up in the context of collection due process (CDP) cases. A recent case explores and arguably expands the contours of when taxpayers can challenge an underlying liability in those cases. Lepore v. Commissioner, T.C. Memo. 2013-135

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The issue gets us into a somewhat deep procedural thicket, but relates to an important right so I will give some context. As a brief review, CDP cases allow a taxpayer in a case subject to the deficiency procedures the opportunity to dispute the amount or existence of an underlying liability if the taxpayer does not receive a deficiency notice. For taxes not subject to deficiency procedures, the ability to challenge the underlying liability hinges upon whether the person otherwise had an opportunity to dispute the liability. In the context of the responsible person penalty, the right to challenge the underlying liability turns upon receipt of a Letter 1153, which advises the potentially responsible person of the right to appeal the proposed assessment and request an Appeals conference.

Challenges to the amount or existence of a liability in CDP cases can arise even if the statutory notice or Letter 1153 is sent to what would constitute the last known address, but for some reason (such as the person having moved), the taxpayer or potentially responsible person did not receive the letter or notice.

Other cases provide that taxpayers cannot preserve liability challenges by failing to accept delivery of the notice and then claim that they did not receive it. Lepore considers a situation where a Letter 1153 was sent and delivered to a person’s residence but the person claimed to not actually receive the letter or otherwise know of its delivery. Lepore and his adult son testified that the son received the IRS notice and Lepore himself did not know of or have opportunity to become aware of the IRS action. The son testified that he placed the letter in the father’s basement home office that had many other papers and files, and that he did not talk to his father about the letter. The father also credibly testified that he had no knowledge of the letter, and that he had a pattern of regularly responding to other IRS correspondence.

In light of the above, the Tax Court concluded “that Lepore never saw the letter and that he was not otherwise notified of its arrival. We also conclude that he did not deliberately contrive to avoid its receipt.” The Tax Court had previously not considered whether there could be imputed receipt in the context of the actual receipt required for CDP cases. Because the court found that Lepore did not have prior opportunity to dispute the liability (the hearing at Appeals Office had notified Lepore that the son’s receipt of the Letter 1153 was prior opportunity to contest the liability), the Tax Court remanded the matter back to Appeals to consider the liability issues.

Even though Lepore considers the responsible person penalty, and not income taxes subject to the deficiency procedures, its reasoning applies to cases involving the supposed receipt of deficiency notices.

The lesson of Lepore is that in CDP cases you should be mindful of the circumstances relating to the supposed receipt of a statutory notice or Letter 1153, and that even in circumstances where the notice or letter was delivered to a taxpayer’s residence or otherwise sent to a last known address, there may be facts supporting a right to review of the underlying liability.

About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Comments

  1. A freedom of information act request could be a useful way to obtain not only the statutory notice of deficiency, but also a copy of the certified mail record. That will show whether the taxpayer actually received the notice and thus whether the taxpayer may argue the merits in the CDP context.

  2. Thanks; that is a helpful tip.

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