More on the Muddle of CDP

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On August 6, 2019, I wrote about what I called the muddle that has been created in Collection Due Process (CDP) merits litigation.  Maybe because of the muddle of the litigation or maybe because I too am muddled, I kept thinking about the problem and I feel the need to write more about my concerns with the proposed decision in the Landers case that the prior post addressed.


The ability to litigate the merits of a tax liability during the collection phase of a case came into the code in 1998 with the advent of CDP.  Among the opportunities provided to taxpayers by a CDP hearing is the opportunity to contest the merits of the liability in certain circumstances.  IRC 6330(c)(2)(B) provides:

The person may also 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.

At least one part of the muddle is the meaning of “or” in this provision, as it separates the clause discussing the failure to receive the notice of deficiency from the clause concerning prior opportunity.  At the ABA Tax Section meeting this fall, a panel on October 5 in the Pro Bono and Tax Clinics Committee will discuss prior opportunity as a part of the CDP summit.  Understanding how to interpret this clause and how the proposed Landers decision fits into the jurisprudence around this clause will take up some of the panel’s time.  It seems that the IRS and the Tax Court do not pay much attention to this “or”.

In 1998, Congress created the CDP to give taxpayers an opportunity to talk to the IRS before it levied on property and after it filed a notice of federal tax lien.  Although the focus of CDP centers on collection action, Congress included in the legislation a provision allowing taxpayers to litigate the merits of their tax liability if they had not previously had such an opportunity.  Congress did not provide an unlimited opportunity to contest the merits of a liability included in a CDP.  The statute rests on two separate requirement that the taxpayer “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 first basis for contesting the merits of a tax liability in the CDP context arises if the taxpayer did not actually receive the statutory notice of deficiency. In the hearings leading up to the 1998 legislation, Congress heard from many taxpayers who said that they never received a statutory notice of deficiency and the first time they learned that they owed the IRS occurred when the IRS began collection action against them.  Taxpayers who do not receive a statutory notice of deficiency because of some snafu in the mailing or receipt did have an opportunity to contest the liability in a judicial forum.  The statutory notice of deficiency would only have legal effect if sent to their last known address.  Whatever prevented these taxpayers from filing a timely petition in the Tax Court, they had a valid opportunity to seek review in the Tax Court.

The language of the statute permits these taxpayers to get back to the Tax Court to litigate their liability as long as they can prove non-receipt of the notice of deficiency.  Proof usually consists of their testimony that they never received the notice.  Assuming that the taxpayer meets the burden of proving non-receipt, the statute arguably places no limitations on the taxpayer’s ability to contest the merits the taxpayer failed to contest when the IRS sent the notice of deficiency.

In contrast to those CDP cases in which the taxpayer can contest the taxes reflected on a notice of deficiency, the statute creates a second less well-defined group of taxpayers who can contest the merits of the liability in CDP.  This group of taxpayers are ones “who did not otherwise have an opportunity to dispute such liability.”  This language leaves room for interpretation in looking at the words opportunity and dispute.  The IRS provided definition in its regulations with respect to this statute.  The regulation provides that the term “opportunity to dispute” includes “a prior opportunity for a conference with Appeals that was offered either before or after the assessment of the liability.”

Landers ignores the “or” and proposes that if the taxpayer actually has a meeting with Appeals, in this case through the audit reconsideration process, then this prior opportunity prevents the taxpayer from having a merits hearing in the Tax Court.  Landers does not talk about whether the failure to receive a notice of deficiency provides a stand-alone basis for a merits hearing as the statute seems to suggest but, without discussion, treats the “or” as an “and”.

This treatment would be the first case to hold that even though the taxpayer did not receive a notice of deficiency the actual meeting with Appeals overrides the language of the statute stating that the failure to receive the notice is the basis for a merits hearing.  It would not be the first Tax Court case to overlook the “or”.

In discussing the case within PT as I tried to work through the muddle, Christine provided the following comments:

I think the IRS view is that both conditions must be satisfied, since they felt the need to clarify in the reg. that an appeals conference offered before the issuance of a SNOD does not count as a prior opportunity, notwithstanding their general position that it does count. If the two grounds for merits review were wholly independent, the opportunity for an appeals administrative hearing would never matter in a case where a SNOD was issued but not received. 

I looked through a few of the income tax opinions on this, and noticed that in Montgomery and Tatum the judge changes the “or” to “and” when rephrasing the rule. The IRS acquiescence to Montgomery quotes the “and” rephrasing. 

That said, Tatum (and Sherer) are all about receipt & the taxpayer’s knowledge of the SNOD, and don’t discuss what opportunities for appeals review may have existed in between the SNOD and the CDP notice.

It’s puzzling to me in Onyango that the discussion is all about receipt of the SNOD, and the court does not talk about the “prior opportunity” language or use that language to find for the IRS. The D.C. Circuit’s affirmance says “Appellant has not shown that the Tax Court clearly erred in … finding that he ″received″ a notice of deficiency as that term is used in 26 U.S.C. § 6330(c)(2)(B).” In contrast, the Sego case does find that the petitioner wife who deliberately refused certified mail had a “prior opportunity” to dispute, in addition to citing caselaw saying that taxpayers can’t defeat actual notice by refusing mail. So the Sego court took care to eliminate both prongs for merits review, while the Onyango court did not. 

It will be interesting to see what happens to the “or” as Landers moves forward.  The Tax Court has not yet fully embraced the regulation, and its expansive view of opportunity has the effect of eliminating most CDP merits hearings.  So far, having an actual Appeals hearing seems important to the Tax Court making the provision a trap for the unwary, as discussed in the previous post.  That interpretation, which traces back to Lewis v. Commissioner, shows a gap between the Tax Court and the regulation, even if the Lewis case otherwise provides little comfort to taxpayers seeking merits relief.  The court now seems poised to accept the IRS interpretation of “or” in deciding that it really means “and”.  (It’s also not clear and not discussed in Landers how, if at all, IRC 6330(c)(4) has a role here if the taxpayer has an actual Appeals hearing.)


  1. Hi Keith, good post. One solution would be to change the language of 6330 to match how the Court is sensibly construing it: “if the person did not receive any statutory notice of deficiency for such tax liability or, for tax liabilities for which a statutory notice of deficiency is not required, did not otherwise have an opportunity to dispute such tax liability.”

    The idea is that Congress wants TPs to get TC review for any deficiency. So that is why a pre-NOD opportunity in Appeals is not sufficient. The CDP merits opportunity to to reach those situations where the TP missed out on an otherwise available opportunity for the KIND of admin. review that would be subject to TC review. In contrast, when the liability that has been assessed is NOT from a deficiency, the Flora rule kicks in and so the CDP opportunity for merits review is denied so long as the TP had the chance to get any administrative review.

    My 2 cents. -bryan

  2. Moving past the normal meanings of “or” and “and,” I think there is some law that a complete written thought, when read in context, can require that “or” be interpreted as “and” and vice-versa. (As to the vice versa where “and” is read as “or,” see United States v. Sertich, 879 F.3d 558 (5th Cir. 2018) (interpreting § 7202, the criminal analog of the TFRP, § 6672).

    The key interpretive signal (for me) that either of the nominally disjunctive conditions in this statute can deny CDP merits review is the word “otherwise” which is clearly referring to the first condition (nonreceipt of the SNOD). Receipt of the SNOD would give an opportunity to dispute, so it is the opportunity to dispute that is disqualifying (whether in SNOD or otherwise). So, as thus interpreted, merits review is disallowed if the taxpayer had an opportunity to dispute (including for this purpose, by receipt of an SNOD). That Congress could have been more clear, does not mean that it is not clear enough.

    Otherwise (if I may use that word), the complete sentence makes less sense.

  3. Another reason that the meaning needs to be preserved as “or” rather than “and” in the statute is because many times we have challenged the non-receipt of a Letter 1153 regarding a proposed trust fund recovery penalty, and there would not be a statutory notice for the other half of the “and.” Also, I seem to recall that the real purpose of limiting the challenges to liability were to restrict the overuse by “tax protestors,” and I feel very strongly that non-protestor taxpayers are getting swept into inaccurate liabilities where the right result is to let them prove the correct liability – an audit reconsideration is not as effective in protecting the taxpayers’ right to pay no more than the correct tax under the Taxpayers’ Bill of Rights.

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