Limiting the Right to Contest the Underlying Tax Liability in a Collection Due Process Case

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Earlier this summer, we mentioned the Tax Court case Onyango v. Commissioner in Summary Opinions and almost a year ago Professor Book wrote about Collection Due Process and When is a Document Establishing Liability Received. The Tax Court in Onyango v. Commissioner, 142 T.C. No. 24 has placed a new limitation on the ability of taxpayers to contest the underlying tax liability. The decision draws a logical distinction between someone who does not receive the notice of deficiency and someone who does not bother to retrieve their mail. Making this distinction will create more contests when a taxpayer seeks to litigate the merits of a tax liability through collection due process (CDP). Up to this point the ability to contest the underlying tax liability turned mostly on the taxpayer saying/proving that he did not receive the notice in time to petition the Tax Court. Now, the government has an additional argument it can make to prevent the taxpayer from arguing the merits.


The IRS sent Mr. Onyango a notice of deficiency. They sent it to his last known address and, as required by statute, sent it by certified mail. The postal service made several attempts to deliver the certified correspondence. Mr. Onyango did not pick up his mail and did not follow the instructions on the certified mail delivery cards to come to the post office and sign for the notice of deficiency. The evidence suggested that he eventually reacted to the certified mail and checked with the post office but by that time the post office had returned the notice to the IRS. He lived at the address to which the notice was mailed and could have picked up the notice had he sought to do so.

Because he did not pick up the notice of deficiency, he did not file a Tax Court petition within 90 days of the notice. Because he did not file a Tax Court petition, the IRS assessed the liability against him and eventually began the collection process. Because he did not pay the liability after receiving notices from the IRS regarding the outstanding liability, the IRS eventually sent a notice of intent to levy in which he received CDP rights. He timely filed a CDP request with Appeals and subsequently received a notice of determination sustaining the proposed levy. From the notice of determination he timely filed a petition with the Tax Court challenging the merits of the assessed liability pursuant to IRC 6330(c)(2)(B) asserting that he did not receive the notice of deficiency within 90 days.

Section 6330 (c)(2)(B) provides that a taxpayer in a CDP hearing may “raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.” The IRS argued that this provision did not give a taxpayer the right to challenge the merits of the underlying liability on the basis of non-receipt of the notice of deficiency if the taxpayer chose not to pick up his mail. It argued that here the failure in receipt resulted directly from the taxpayer’s choice and not any failure of delivery and that any of his testimony contrary to that conclusion was not credible and “should be given no weight.”

The Court agreed with the IRS that Mr. Onyango’s testimony lacked credibility in certain respects. It accepted his testimony that he did not know about the certified mail notices and that when he went to the post office the certified mail had already been returned to the IRS. It found that he stayed at the residence to which the notice was mailed approximately 30-40% of the time and simply declined to check for his mail.

Without going to the record, I remain unclear as to the aspects of Mr. Onyango’s testimony contradicting the conclusion that he failed to pick up the mail despite having the opportunity to do so. Enough testimony came out on direct or cross to make it clear that he lived a fair percentage of the time at the address where the certified mail was delivered and that he did not present the certified mail to the post office until too late. Denying a CDP petitioner the opportunity to argue the merits of tax liability seems consistent with the original intention of the statute. It seems odd that it has taken over 15 years since the first CDP case became a possibility to get to this case. The Court issued the opinion as a “full” Tax Court opinion indicating that the Tax Court felt the opinion broke new ground. This case will no doubt get used regularly in the future to bar petitioners seeking to argue the merits of their tax liability in CDP cases.

The area of lack of receipt of the notice has come up in a number of cases. In Montgomery v. Comm’r, 122 T.C. 1 (2004), the Tax Court concluded that the underlying tax liability described in § 6330(c)(2)(B) includes self-assessed amounts and therefore the statute supports a taxpayer challenge from a taxpayer filing a balance due return because such a taxpayer has not received a notice of deficiency in connection with the liability and the taxpayer has not had an opportunity to dispute the liability (See also, Cooley v. Comm’r, 2004 T.C. 49 (2004)). In Sherer v. C.I.R., T.C. Memo. 2006-29, the Tax Court allowed the taxpayer to contest underlying tax liability at pre-levy collection due process hearing, based on the fact that he did not receive the notice of deficiency because he did not live at either of two addresses where the notice had been sent, rather than being due to deliberate refusal of delivery. In Tatum Jr. v. Comm’r, T.C. Memo 2003-15, where the taxpayers did not deliberately refuse service and the Post Office made only one attempt to deliver a deficiency notice, the Tax Court held that the taxpayers should have been allowed to challenge their underlying tax liabilities at the CDP hearing. Frequently, the IRS or the Court faces the issue of why the taxpayer did not receive it but no previous case took head on the taxpayer’s own failure as the basis for non-receipt and the consequences of the taxpayer’s inaction.

The ability of taxpayers to get another bite at the tax merits apple through the CDP process exists because Congress heard complaints from numerous taxpayers in the period leading up to the legislation in 1998 that the IRS sought to collect from them and they never had the opportunity to contest the underlying liability. Based on the legislative history, the reason for the change was that the Senate Finance Committee believed that “taxpayers are entitled to protections in dealing with the IRS that are similar to those they would have in dealing with any other creditor. . . . [T]he Committee believe[d] that the IRS should afford taxpayers adequate notice of collection activity and a meaningful hearing before the IRS deprives them of their property.”  S. Rep. No. 105-174, at 67 (1998). Additionally, Nina Olson and tax procedure expert Michael Saltzman testified in support of introducing a third party to protect both the government’s and the taxpayers’ rights in the tax collection process.

The goal behind (c)(2)(B) had to be to help those taxpayers to whom the IRS had properly mailed the notice of deficiency to their last known address but the notice never made its way to the taxpayer. I say this because if the notice was not mailed to the taxpayer’s last known address the taxpayer could obtain redress by attacking the validity of the assessment. So, Congress must have put (c)(2)(B) into the code with the thought that properly mailed notices did not reach the intended recipient frequently enough for this to warrant a statutory exception.

Cases such as this, where the taxpayer alleges non-receipt despite the fact the IRS properly sent the notice have always seemed troublesome because the “why” of the non-receipt always left one wondering. Taking the issue head on and putting some of the responsibility for the non-receipt on the taxpayer as a necessary predicate to obtaining the ability to contest the merits makes great sense. Otherwise, taxpayers have a path to gaming the system. This issue will almost always turn on the taxpayer’s credibility and makes for a slightly uncomfortable hearing. The IRS will never know why a taxpayer did not act with the 90 days of the notice of deficiency. I expect more push back on the taxpayer’s credibility on this issue after the Tax Court’s opinion in this case.


  1. I must respectfully, yet emphatically, disagree with Professor Fogg. The Tax Court’s Onyango opinion requires taxpayers to check their Postal Service mail at all times because one day the IRS might mail them a statutory notice of deficiency. That requirement is absurd.

    First things first. For years the Tax Court has read I.R.C. § 6330(c)(2)(B) out of an IRS Restructuring and Reform Act that Congress intended to benefit even inattentive taxpayers. When it applies remedial legislation such as I.R.C. § 6330(c)(2)(B), however, the Tax Court is required to construe it to effect the remedy Congress intended. The plain Congressional intent in enacting that law was to secure the taxpayer’s right to a pre-payment forum in which he may dispute his tax liability. But Onyango wrongly turns that statutory right into a judicial privilege.

    Initially, it’s nonsensical for the Tax Court to hold (as it has in several other cases) that the taxpayer “refused” or “declined” to claim his mail. The holding implies that the taxpayer knows the IRS is attempting to “serve” him but he is refusing service. But, as it did in Onyango, the Postal Service regularly neglects to include the sender’s identity on its certified mail notices. So the taxpayer generally has no clue that the certified mail notice he receives is from the IRS.

    Mr. Onyango was one of the clueless taxpayers. Yes, the IRS Office of Appeals sent him two letters. But did Mr. Onyango realize the significance of what Appeals said when it informed him that it would send him a “notice of deficiency?” Probably not. Even if he did, the IRS did not send the NOD until three months later. And even a very vigilant Mr. Onyango would have by then figured the IRS had changed its mind.
    Additionally, the Tax Court found that Mr. Onyango regularly fell behind on his bills. Therefore, his failure to regularly pick up his mail was his general habit, not his “gaming the [tax] system,” as Prof. Fogg (and likely the Tax Court) sees it.

    Further, Mr. Onyango had the facts on his side. For one, within the 90 day statutory period he attempted to claim his deficiency notice. For two, he timely claimed his Final Notice of Intent to Levy and requested a CDP levy hearing. For three, he timely claimed his Notice of Federal Tax Lien Filing and requested a CDP lien hearing. Given those facts, isn’t Mr. Onyango’s unsuccessful attempt to claim his deficiency notice merely happenstance?

    Regardless, Mr. Onyango had the law on his side. The Tax Court record includes an envelope that shows his 2006 NOD was not “Refused” but rather was “Unclaimed.” That means Mr. Onyango did not receive the NOD in time to petition the Tax Court. And that means he had the statutory right to challenge his tax liability at a CDP hearing.

    Despite Prof. Fogg’s view, these I.R.C. § 6330(c)(2)(B) cases are not troublesome. They are straightforward because “the ‘why’ of the non-receipt” is irrelevant. The fact is Congress did not place “some of the responsibility for the non-receipt on the taxpayer.” It also did not authorize an administrative or judicial inquiry into the taxpayer’s “credibility.” Instead, it said a person could challenge his tax liability at a CDP hearing if he “did not receive any statutory notice of deficiency for such tax liability.” And the I.R.C. § 6330(c)(2)(B) legislative history uses the phrase “did not actually receive….” Case closed.

    The Tax Court has a long-standing rule that it will not “look behind” a notice of deficiency to ascertain the Commissioner’s reasons for sending it. Similarly, the Tax Court may not “look behind” the Postal Service’s “Unclaimed” certified mail delivery designation to ascertain the taxpayer’s reasons for not having received his deficiency notice. Any other construction of I.R.C. § 6330(c)(2)(B) defeats its purpose.

    From his Tax Court docket entries, it appears Mr. Onyango is a tough litigation customer. On Monday, after much post-decision wrangling, the Tax Court denied his timely motion to vacate his decision. May Mr. Onyango take an appeal to the D.C. Circuit. I certainly would.

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