I wrote about this issue last August following the DC Circuit’s decision upholding the Tax Court’s interpretation of its jurisdiction to review Collection Due Process (CDP) cases in which the IRS makes a determination that the taxpayer’s request for a CDP hearing was frivolous. On April 4, 2016, Chief Counsel Notice 2016-008 provides the government’s reaction to the DC Circuit’s opinion. My prediction that the government would give up on this issue following that opinion proves partially, but not completely, correct. The Notice indicates that the government will mostly not make the argument any further in light of its lack of success but notes that it still disagrees with the views of the Tax Court and the DC Circuit and it may take another shot if a case goes to another Circuit.
This post will briefly review the issue and then examine the conclusions and reasoning in the Notice.
read more...After Congress created the CDP procedure in 1998, concern arose that some taxpayers used the process solely for purposes of delaying the IRS from collecting their taxes. The use by some taxpayers of clearly frivolous arguments, such as the unconstitutionality of the federal taxes, made the issue of delay even more of a concern. The address this concern, Congress amended the CDP statutes to add subparagraph (g) which provides that “[n]otwithstanding any other provision of this section, if the Secretary determines that any portion of a request for a hearing under this section or section 6320 meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review.” Strong language.
Section 6702(b)(2)(A) defines the term specified frivolous submission. The IRS has issued, in its most recent listing, Notice 2010-33 which sets out a non-exclusive list of issues the IRS deems frivolous. In the Tax Court and in the DC Circuit, the IRs took the non-frivolous position that the strong language of 6330(g) meant that the IRS was the sole arbiter of what was frivolous in a CDP submission and that its decision was not subject to judicial review. The Tax Court and the DC Circuit disagreed with good reasons discussed in Thornberry and Ryskamp decisions. So, the ball was back in the court of the IRS to decide whether to submit to these decisions, go back to Congress for even stronger language if such language exits or make a statement of its litigating position going forward. It chose the third option in Notice 2016-008.
The Notice points out that following its loss in Thornberry, the advice to Chief Counsel lawyers was to continue to argue to the Tax Court that its view was incorrect and that it did not have authority to review the IRS decision regarding frivolous CDP submissions. In the Notice the IRS cites to another case in this line, Buczek v. Commissioner, 143 T.C. 301 (2014) where the Tax Court held the taxpayer raised no relevant issues and found the IRS properly treated the CDP submission as if it had “never been submitted.”
After going through the state of the law, the Notice states that the IRS continues to maintain its position that the Tax Court does not have jurisdiction to review the determination that a CDP submission was frivolous. The Notice also takes exception with the DC Circuit’s decision that the rejection of a CDP request based on frivolous grounds must articulate the bases for rejection rather than issue a boilerplate rejection. The August blog post touches on this issue with detail because the allegedly frivolous arguments made by Mr. Ryskamp did not appear on the IRS list of frivolous arguments in Notice 2010-33. It is one thing for the IRS to respond to a taxpayer’s boilerplate listing of protester arguments stating taxes are unconstitutional pulled off of the internet with a boilerplate letter of its own saying “no.” It is another thing when a taxpayer, like Mr. Ryskamp, makes unusual arguments not mentioned in the notice to which the IRS simply sends the same boilerplate letter designed to respond to the cookie cutter tax protestor. As I mentioned in the previous post, I think the IRS goes off track here and loses its moral argument about frivolousness. Mr. Ryskamp’s arguments may have been frivolous but the boilerplate letter did not address them leaving courts in the very uncomfortable position of being told they have no authority to review a determination of frivolousness that looks somewhat frivolous itself. If they taxpayer makes a frivolous argument not covered by the appropriate IRS notice, the IRS should take the trouble to explain why this argument is frivolous and stand behind 6330(g) saying it can decide whatever it wants and no one can question it. That attitude will cause it to lose these cases. Its pronunciation in CC Notice 2016-008 makes clear that such an attitude still persists.
Having stated that it continues to disagree with the Tax Court and the DC Circuit, the IRS then acknowledges the real politiks of the situation and states “it would be a waste of Counsel’s resources to continue to contest the Tax Court’s jurisdiction to review the Service’s denial “ in the Tax Court and the DC Circuit. So, it advises its attorneys to review the CDP requests determined by Appeals to be frivolous and, if there is at least one legitimate issue, Counsel should not file a motion to dismiss but should request a remand to Appeals to address the legitimate issue. On the other hand, if Counsel determines that the request raises no legitimate issues, it should file a motion to dismiss for lack of jurisdiction in reliance on Buczek or a motion to dismiss for failure to state a claim or a motion for summary judgment. This approach certainly makes sense given the case precedent.
The Notice does, however, state that the IRS will ask the Department of Justice, who represents it in matters before the Circuit Courts, to argue in Circuits other than the DC Circuit that the Tax Court has no jurisdiction to review denials of hearings. So, it is possible that in the future a conflict will exist between the DC Circuit and another Circuit and this matter could work its way to the Supreme Court. For Tax Court cases filed before December of 2015 the appellate venue provision allows informed taxpayers to seek review of CDP cases not contesting the merits of the liability in the DC Circuit. However, for recently filed cases, CDP appellate venue operates similarly to appellate venue in deficiency cases and it is certainly possible that these cases could be appealed to Circuit Courts other than the DC Circuit. Since taxpayers making frivolous arguments appear to like to get their full measure of court review, this is a personal observation not based on empirical study, it is likely that one of these cases will land in another Circuit in the next year or two. It is not known if the Department of Justice will make this argument again because it is not bound by the position taken in the CC Notice and will make its own decision on what to argue on appeal.
Great Post Keith. I cannot think of why Tax Court would not be able to review a finding of frivoulousness and dismiss on that basis. The danger of not allowing judicial review is that the Service gets a bit carried away in defining the scope of “frivolous.” When I was a docket attorney in IRS Office of Chief Counsel I saw a perfect example of this. There was a fellow who was up in years and had been a partner at a major law firm. Congress had recently decided to start treating Social Security distributions as gross income, under certain circumstances. This fellow objected and raised very arcane and intricate constitutional arguments. For some reason I had a connection with the case (I think it was to give advice about whether he was truly categorized as a tax protester — this was back in the day when the Service did that) and while his arguments were weak, they were not frivolous.
It should not be up to an agency to decide whether a reviewing court has subject matter jurisdiction over a case. That is for the reviewing court. It would be like someone filing a Petition after the 30 day notice, or petition the Tax Court for review of a Decision Letter from an equivalent hearing. If the Service determines a CDP hearing request is frivolous , it should so find and commence collection actions, just as it would go ahead and assess if someone filed a Petition after the 30 day notice but failed to file a petition after the NOD (or file a motion objecting to dismissal within 90 days of the NOD,(see Weiss v. CIR, posted in an earlier blog). For an epic goof up on the 30 day issue see Kirch v. US, 99-1 USTC P50,452 (D.C. Ohio 1999). Or just as the Service would go ahead with collection even if someone tries to petition a court from review of a Decision Letter.