William Schmidt of the Legal Aid Society of Kansas brings us this week’s designated order post. The case discussed involves a mystery regarding how the IRS made the assessment that led to the filing of the notice of federal tax lien that led to the collection due process case. There may be more orders yet to come in this case. Because the case is scheduled for trial next month in Denver, perhaps Samantha Galvin, another writer of designated order posts and one of the clinicians working in Denver, will have personal knowledge of the case. Keith
For the week of August 6 to 10, there were two designated orders from the Tax Court so this posting will be briefer than usual. It is unclear if this is a week where summer vacations took their toll. Both orders examined are from the same case so the analysis will include all the orders for the week.
read more...Docket No. 6161-17 L, Debra L. March v. C.I.R.
The Court provided 2 orders in this case starting from IRS Appeals issuing a determination to sustain the filing of the notice of lien for the collection of income tax for tax years 2009 and 2010.
- Order 1 here.
Petitioner had a prior collection due process (CDP) case, Docket No. 10223-14, resulting from a notice of intent to levy. In the prior case the IRS issued a notice of determination sustaining the levy and the petitioner filed a Tax Court petition in which it challenged the validity of the assessment. The parties to that case entered into a stipulated decision on June 25, 2015, that did not sustain Appeals’ determination. The decision document stated that the IRS would abate the liability for tax year 2009 on the basis that the IRS failed to send the statutory notice of deficiency (SNOD) to the petitioner’s last known address. The Court, in the current case, states that it assumes the IRS complied with the decision entered in the prior case and made the abatement.
At issue in this week’s designated order is how the IRS came to have an assessment against the petitioner after the abatement of the prior assessment. The case presents a very curious situation; however, the order does not resolve the mystery but rather seeks to have the parties, particularly the IRS, explain how to resolve it.
At some point after the “presumed abatement” of the 2009 assessment following the first CDP case in Tax Court, the IRS appears to have reassessed the 2009 liability and filed a notice of lien on that 2009 liability. Appeals issued a notice of determination on February 6, 2017. The notice of determination states that the original assessment was abated (due to the wrong address on the notice of deficiency) and the taxpayer was given additional time to file an original tax return. Since the taxpayer continued not to file the return for 2009, the IRS reinstated the assessment. The problem with the verification is that how the IRS reinstated the assessment remains entirely unclear. It seems clear that the taxpayer did not consent to the reassessment by filing a tax return. What remains unclear is what the IRS did to acquire authority to reassess.
The language of the Settlement Officer in the notice of determination contains only a vague statement regarding the basis for the new assessment. For verification, the notice of determination states: “The Settlement Officer verified through transcript analysis that the assessment was properly made per IRC section 6201 for each tax and period listed on the CDP notice.” Ms. March timely petitioned the Tax Court on March 6, 2017 with the new CDP case again contesting the assessed liability.
The Court then analyzes code section 6201. Section 6201(a)(1) authorizes the IRS to assess “taxes…as to which returns…are made” though Ms. March has yet to file a return for 2009. The Court states that the other provisions for making an assessment do not seem to apply beyond the authority for the IRS to determine a deficiency, mail the taxpayer a SNOD, and assess the deficiency upon the passage of 90 days following the mailing (unless the taxpayer files a timely petition with Tax Court). But, the parties stipulated in that prior case that no SNOD was properly mailed, and the notice of determination appears to indicate no SNOD was mailed subsequent to the conclusion of the first Tax Court case.
The Court would like an explanation for the authority the IRS had to “restore the tax assessment.” The Court’s order is for the IRS to file a status report explaining the position about the validity of the 2009 income tax underlying the lien filing at issue in the case.
Takeaway: The IRS looks to have been caught making another bad assessment and then providing an alleged verification that fails to verify the proper statutory procedure for making an assessment. Perhaps they will have a suitable explanation or be able to cite different authority. Either the IRS “reinstated” the assessment without statutory authority for doing so or the Settlement Officer did not know how to write the verification section of the CDP determination and explain a statutory basis for the new assessment. In either case the IRS does not look good but if the IRS simply “reinstated” the assessment as the Settlement Officer describes, it appears the IRS is headed for its second CDP loss with respect to the same taxpayer for the same year for the same problem. Under the circumstances, the IRS attorney might also have noticed this issue before it got in front of a judge a second time. Tough.
- Order 2 here.
The Court discusses an IRS motion to show cause regarding why proposed facts and evidence should not be accepted as established. This order relates to a routine Rule 91(f) motion requiring a party to stipulate. Because the petitioner is unrepresented, the judge explains in the order how stipulations can be used to include evidence that a self-represented petitioner such as Ms. March would otherwise have to introduce at trial on her own. The judge also explained that Ms. March would not be prevented from introducing additional evidence beyond what was including in the stipulated evidence. The order provides an example of a typical Tax Court order to a pro se taxpayer in which the Court provides a simple, straight-forward explanation of the rules and why the unrepresented individual should comply for their own best interest. While this order uncoupled from Order 1 discussed above would not deserve designated order status, it offers a glimpse of a routine order issued in Tax Court cases to pro se petitioners uncomfortable with the stipulation process for fear of stipulating themselves out of court.
After providing the careful explanation for the benefit of the petitioner, the Court granted the IRS motion to show cause and ordered that the petitioner file a reply on or before August 27. If no response is provided, the Court will issue an order accordingly.
Takeaway: While the Court is reasonable in explaining to an unrepresented petitioner the process of stipulations, the Court also does not stray from the rules or let that delay the upcoming trial (September 24 in Denver).
About William Schmidt
William,
Regarding Order 1, I suspect that the Settlement Officer just used a boiler-plate comment but that Counsel was able to demonstrate that there was authority for the assessment. The order was issued on 8/10, directing Respondent to file a status report by 8/27. Respondent actually filed the status report (with exhibits) only 6 days later, on 8/16. With trial approaching soon, I would expect the judge to have reviewed the status report and – if not satisfied – asked for more information. Instead, the judge issued a subsequent order following up on Order #2 and Respondent filed a pre-trial memorandum on 9/6.
From what little we’ve seen, it sounds like a Substitute for Return under section 6020(b). Section 6201(a)(1) provides assessment authority for “taxes determined by the taxpayer or by the Secretary.” Taxes determined by the taxpayer, by filing a return, can of course be assessed without a SNOD. But that doesn’t apply to a SFR, for which a SNOD is still required. Millsap v. Comm’r, 91 T.C. 926 (1988). My guess would be that the exhibits in Respondent’s status report include documentation showing that an SNOD was issued to the correct address.
Maybe Samantha Galvin will be at the calendar call on 9/24 and be able to give us the scoop.
For the latest development see court order at https://www.ustaxcourt.gov/UstcDockInq/DocumentViewer.aspx?IndexID=7425228
In which Petitioner is asking the case to be decided on the record, because health reasons make it difficult for her to attend a trial.
If no return was filed, the statute had not expired after the first Tax Court case, so IRS could have (and probably should have) issued another SNOD. Or could IRS have used the first case, as proof of delivery of the original SNOD to petitioner? It could have been handed to her when she showed up to sign the stipulation of dismissal (which, incidentally, was in Hawaii, where as we know there is no low-income taxpayer clinic). Not much time elapsed from the June 2015 dismissal of the first case, and the March 2017 initiation of this case.
It also appears that the 2010 return is involved in this second case. The first case only concerned 2009.