Day 2 of Collection Due Process Summit Initiative

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Yesterday, we reported on the discussions of the the communication and administrative process issues related to Collection Due Process (CDP) that occurred in the 2019 CDP Summit.  Today, we continue the series with a report on the litigation issues presented by CDP as discussed in that summit.

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Breakout: Exploring CDP Rights and Procedures within Judicial Proceedings

Panelists: Keith Fogg, Christine Speidel

Focused on improving effectiveness and efficiency for all participants in Tax Court matters, this session will analyze common petitioner and respondent approaches to litigating CDP in Tax Court. The session will explore opportunities to increase the number of taxpayers who exit litigation with a sustainable plan to collect the correct amount of tax due. Participants will discuss the Tax Court’s authority and limits to achieving a result satisfactorily resolving the issues between the parties; typically, a collection solution for taxpayers litigating in good faith.

Jurisdiction

Filing the CDP Request.

  • LITCs encountered the problem of the IRS offering an equivalent hearing where the taxpayer timely filed a CDP request with the IRS but sent it to the wrong address. In both cases, the jurisdictional issue was not litigated because the taxpayer’s OIC was accepted.
  • In Webber v. Commissioner, the IRS conceded that the taxpayer who accidentally used the wrong IRS address was entitled to a CDP hearing.
    • IRS Chief Counsel reported that they are working on an administrative solution within the IRS. They are working on two fronts: (a) changing the CDP notice to be more clear; and (b) granting CDP hearings if the taxpayer sends the request timely to any IRS office.
  • Question raised, could IRS accept CDP requests by e-file?
    • Clinicians should continue to litigate the issue presented in Webber, and also look out for good equitable tolling cases, where the CDP request was made late but for a very good reason.
      • E.g., reliance on bad advice from the IRS. The merits of the underlying case must also be good in order for it to make a compelling equitable tolling case.

Filing the Tax Court petition

  • Clinicians should continue to litigate equitable tolling in the circuit courts (only the 9th Circuit has conclusively ruled against equitable tolling here). The case must have compelling equitable circumstances and good merits.

Timing; Motions for Summary Judgment

IRS may expedite currently not collectible cases where a CDP hearing is requested.

  • Attendees mentioned instances in which an IRS employee (not from Appeals) responds to CDP requests by offering currently not collectible status if the taxpayer withdrew their request for a hearing. However, taxpayers do not always understand what they’re giving up (i.e., CDP hearing, Tax Court review).
    • Some attendees believe this practice continues, others thought it had stopped.
    • The working group should investigate whether this still happens and whether it violates taxpayer rights.

The group considered whether there should be an expedited track for certain CDP cases in Tax Court.

  • May be based on economic harm, including taxpayers expecting refunds and IRS concerns about pyramiding.
  • The group considered proposing criteria in the context of the Tax Court’s docket, which includes other cases that might merit expedition, like passport cases.
    • If there were a Tax Court rule allowing either party to request expedited review on economic harm grounds, could that include passport cases?
    • Is this a legislative issue rather than a Tax Court rules issue?

Could the Office of Chief Counsel review CDP petitions earlier and would that expedite these cases?

  • Some Counsel offices do review the case thoroughly as they prepare the Answer, and they do reach out to taxpayers to suggest a remand where appropriate. It would be good to ensure that is nationally uniform practice.
  • Although some in the Office of Chief Counsel are proactive at the Answer stage, in many cases the IRS does not file a motion for summary judgment until shortly before the deadline (60 days prior to the calendar call). The Tax Court could amend its rule to move up the motion for summary judgment filing deadline in CDP cases. The Office of Chief Counsel could also make a policy change to encourage earlier filling of motions for summary judgment.

Could petitioners’ counsel file early motions for summary judgment? What would need to happen for this to be possible?

  • The parties would need to agree on the administrative record and identify if there are any disputes about what evidence the Court can consider.
  • Something to keep in mind regarding an early motion for summary judgment is how the Tax Court works its cases. When a case is not on a trial calendar yet, the case is not assigned to a trial judge. The Special Trial Judges take turns reviewing motions that come in on those cases. If it appears that a hearing is needed, they need to ask permission from the judge presiding over the next calendar in the petitioner’s city whether they can add the case to their calendar.

Could expedited CDP cases be heard by video conference?

  • Some Tax Court judges may prefer in-person hearing/testimony.
  • Though no one in the group could recall seeing video conferences used, petitioners might prefer a virtual method that was expedited over waiting for trial.

The group briefly discussed the use of FOIA versus requesting the administrative file from Counsel.

  • Several clinicians use both tools and get different results from each.
  • Counsel does not like taxpayer representatives using FOIA while a case is pending, but if they want to stop the practice they need to address the problems that exist with getting the full administrative file from them.
  • Concerns about obtaining the administrative file by members of the group include inappropriate redaction by Counsel of the record produced; difficulty in obtaining the administration file from Counsel’s office; failure by Counsel’s office to provide a complete administrative record to settlement officers; and Counsel’s office including hearsay in the administrative record, such as in the settlement officer’s declaration.

How could the administrative record be established early in CDP cases?

  • Petitioners’ counsel could send a Branerton letter soon after the pleadings close, requesting the administrative record and a conference to reach agreement on the contents of the record.
  • Tax Court judges could individually implement a standing order requiring the parties to agree on the administrative record and jointly certify it to the court by X date, or otherwise file their proposals/objections.
    • Judge Leyden has a standing order that she uses to efficiently handle 6751(b) issues in deficiency cases that include a 6662 penalty: 60 days prior to trial, she asks the IRS to let her know if they have proof of supervisory approval and, if not, to explain why it’s not needed. This clears out many issues prior to calendar call. A standing order akin to Judge Leyden’s in the context of administrative records would also streamline the trial process. 
  • The Tax Court could adopt a rule requiring Respondent to propose the administrative record within 30 days of filing the answer and giving a period of time for Petitioner to respond.
    • This could parallel or draw from the procedures that US district courts have implemented to manage litigation.
    • This process would set up either party to make a motion for summary judgment as the next step in the case.

Verification vs Merits

  • Petitioner’s counsel should ensure they raise any potential verification issues in the petition.
    • The group did not see the verification issues in petitions very often.
    • Include manager approval of penalties.
    • Include the Marlow issue – IRS cannot rely solely on its computer system when taxpayer raises a credible dispute to the information contained in the system (e.g., that Statutory Notice of Deficiency was correctly mailed).

Remands

Keith brought up the Brown v. Commissioner case, in which there were 3 remands to a settlement officer to consider a merits issue that the settlement officer did not understand how to handle.

  • Why couldn’t the Office of Chief Counsel simply resolve the merits of the liability?
    • There was a general consensus among attendees that Chief Counsel’s office could settle the underlying liability in CDP as they do in deficiency cases, as detailed within the Chief Counsel Directives Manual.

In addition to settling the merits when they are properly at issue, many attendees thought it would be helpful if the Office of Chief Counsel were empowered to settle CDP collection alternative cases.

  • The IRS is not currently set up to do this and it would take quite a lot of effort to accomplish. However, the Department of Justice is a model that the Office of Chief Counsel could use. The Department of Justice consults with the IRS but it makes the settlement decision/offer.
  • There is some limited authority for Counsel to facilitate a collection solution, but they seem reluctant to use it.

A potential suggestion for change was that the IRS develop a 1-page flyer explaining what a remand means, which Counsel could send to pro se taxpayers alongside the motion to remand. The IRS did a great job with this in the deficiency Answer context.

  • It was suggested that the Court develop an FAQ on remands as well.

Breakouts: Other Issues Raised

  • Increased funding is necessary for IT services at the IRS;
  • Creating secure portals and QR codes which will provide a web link in the notice explaining in the Taxpayer Roadmap where the taxpayer is in process with the IRS;
  • Adding confirmation language to the CDP withdrawal form that the taxpayer is in currently not collectible status;
  • Adjust account transcripts to reflect the CDP notice and hearing activity (also, general transcripts information could be improved).

Updates

  • Previously, the IRS position was to treat timely requested CDP hearings as those mailed only to the proper address as listed in the CDP notice.  The problem was that there may be two or more addresses listed on the CDP notice mailed to the taxpayer.  It was IRS policy that if there was a delay in routing a request mailed to the wrong address, that request would likely be treated as not timely filed.  Some of these issues came to a head in the Webber v. Commissioner case as Judge Gustafson criticized this IRS practice in a designated order as discussed here.  Later in the year, Keith wrote about changes to IRS policy regarding the request of a CDP hearing here.  Now, A CDP hearing request mailed to any address on the CDP notice with a postmark by the 30th day after the notice will be treated as timely filed.  This change comes from Chief Counsel technical advice memorandum PMTA-2020-02, dated December 12, 2019.  The memo SBSE-05-0720-0049, dated July 6, 2020, provides that IRM 5.1.9.3.2 will be updated within 2 years from the date of the memo to reflect that change.  I credit Procedurally Taxing and the CDP Summit Initiative for bringing attention to this issue and helping to foster this IRS solution for taxpayers.
  • One of the breakout issues raised regarding QR codes has partially been implemented by the IRS.  IR 2020-233 (October 9, 2020) gives details about how taxpayers can use the QR codes on CP14 notices to find information on the IRS website.  Starting in 2021, the taxpayers will be able to access their account, set up a payment plan or contact the Taxpayer Advocate Service.

We appreciate those of you interested in CDP reform and those of you who have taken the time to read these reports.  For those of you interested in taking part in a CDP committee, please contact my email address, schmidtw at klsinc.org.

About William Schmidt

William Schmidt joined Kansas Legal Services in 2016 to manage cases for the Kansas Low Income Taxpayer Clinic and became Clinic Director January 2017. Previously, he worked on pro bono tax cases for the 3 Kansas City metro area Low Income Taxpayer Clinics. He records and edits a tax podcast called Tax Justice Warriors and is now an adjunct professor for Washburn University School of Law.

Comments

  1. The post reports on the CDP summit, which, of course, occurred some months ago. One of the points in the post states: “Filing the Tax Court petition: Clinicians should continue to litigate equitable tolling in the circuit courts (only the 9th Circuit has conclusively ruled against equitable tolling here).” This is no longer true.

    In Duggan, the 9th Cir. had held that the 30-day filing deadline for filing a Tax Court CDP petition is jurisdictional (and, it follows, therefore not subject to equitable tolling). On July 24, 2020, in Boechler (see https://procedurallytaxing.com/eighth-circuit-holds-tax-court-cdp-filing-deadline-jurisdictional-under-scotus-case-law/), the 8th Cir. agreed with the 9th Cir. and disagreed with the D.C. Cir. that had held, in Myers, that the similarly-worded filing deadline for whistleblower award petitions is not jurisdictional and is subject to equitable tolling.

    As an update, yesterday, the 8th Cir., with the active judges voting 8 to 3, declined to rehear the Boechler case en banc. It is unknown at this time whether Boechler will ask for cert.

    It is good advice to continue to litigate this issue in other Circuits. Indeed, in Castillo, the 2d Cir. is currently considering the identical issue.

  2. Jennifer Gellner says

    Jennifer Gellner. The biggest issue I am having with Collection Due Process appeals is the issue of the impartiality of the Appeals Office. Lately every Settlement Officer assigned to my CDP cases is a former revenue officer and they appear to be “working the case” for the IRS instead of an impartial review as required by the statute. I have some very good examples of this if anyone wants to talk about what can be done – if others are having the same experience and concerns.

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