Guest blogger Carl Smith provides insight on unhelpful court of appeals opinion in a case of first impression at the Circuit Court level. Keith
Quite a few PT posts have mentioned the expected D.C. Circuit ruling in Onyango v. Commissioner. Well, it finally arrived on March 22 and can be found here. Stephen first mentioned the Tax Court’s opinion at 142 T.C. 425 (2014) in a SumOp post here, and Keith did a longer post on the Tax Court opinion here. Onayango has been mentioned in the following seven additional PT posts: here, here, here, here, here, here and here. One could reasonably conclude we had a thing going about Onyango.
Onyango is a Collection Due Process (CDP) case, where the taxpayer wanted to challenge his underlying tax liability – income tax deficiencies. The notice of deficiency had been mailed to his last known address, but Mr. Onyango often was staying with friends during this period, so did not regularly pick up his mail at his last known address. The USPS left two notifications to sign for a certified mail envelope (the one containing the notice) before it would deliver that notice to him, but the taxpayer only came across the notifications a few months later. By the time he went to the Post Office in response thereto, the certified envelope containing the notice of deficiency had been returned to the IRS unclaimed. So, he never actually, physically obtained possession of the notice. He argued that in a CDP hearing, section 6330(c)(2)(B) allows him to challenge his underlying tax liability, so long as he never physically received the notice of deficiency. The Tax Court, however, found that, under these circumstances, even though he did not deliberately evade receipt, he constructively received the notice, so he was barred from contesting his underlying liability.
We were hoping that the opinion of the D.C. Circuit in this case might explain what it thought Congress meant by using the words “receive a notice of deficiency” in section 6330(c)(2)(B). But, the appeals court simply issued a brief unpublished order of affirmance, not explaining why it thought the circumstances in this case involved receipt of the notice.
My research indicates that, over the years, section 6330(c)(2)(B) has been cited in 96 different Court of Appeals opinions. The vast majority of those opinions are non-precedential. I have looked at all of the precedential opinions to confirm what is apparent from the Tax Court’s opinion and the DOJ’s brief in Onyango: Even almost 18 years after CDP was enacted, there is still no Court of Appeals precedential opinion addressing a situation where a party litigated the issue of whether a taxpayer “did not receive a notice of deficiency” and so was entitled to contest the underlying liability in a CDP hearing. In all precedential opinions where a notice of deficiency was issued, it was uncontested either that the notice of deficiency had or had not been received. So, I had hoped that the D.C. Circuit in Onyango might give the first appellate guidance on the meaning of “receive” in section 6330(c)(2)(B).
The Tax Court’s precedent in this area is a mixed bag. The Tax Court has now held only that people who deliberately or carelessly avoided picking up their certified mail are also deemed to have received their notices of deficiency and so are unable to challenge the underlying liability in CDP. Compare Onayango and Sego v. Commissioner, 114 T.C. 604, 610-612 (2000) (taxpayer’s deliberate refusal to pick up certified mail deemed receipt), with Tatum v. Commissioner, T.C. Memo. 2003- 115 (taxpayers did not receive notice of deficiency, since postal service only attempted delivery once and taxpayers credibly testified that they were not avoiding delivery). I have seen a few hearings where judges have been put into the position of deciding whether the taxpayer deliberately, carelessly, or by accident did not pick up the notice of deficiency. I don’t envy the judges having to decide this receipt issue – usually only based on the taxpayer’s testimony. The Tax Court can’t simply hold that mailing a notice of deficiency to the last known address always is constructive receipt or that would write the words “did not receive a notice of deficiency” out of the statute, since the notice of deficiency would have to have been sent to the last known address for the underlying assessment to be valid.
As to legislative history guidance, the Conference Committee report on CDP that created 6330(c)(2)(B) went beyond the word “receive” in the statute to “actually receive” in containing the following identical sentence twice (once under the notice of federal tax lien section of the report and once under the notice of intention to levy section of the report): “[T]he validity of the tax liability can be challenged only if the taxpayer did not actually receive the statutory notice of deficiency or has not otherwise had the opportunity to dispute the liability.” H.R. Rep. (Conf.) 105-599 at 265, 1998-3 C.B. at 1019 (Emphasis added). But, does “actual” receipt require physical receipt of the notice?
In the D.C. Circuit, Onyango also complained that the Tax Court refused to consider certain sealed medical evidence that he attempted to bring before the Tax Court in a motion for reconsideration. But, the Circuit court affirmed the Tax Court in a two-paragraph opinion, which simply reads:
“The court must give great deference to the Tax Court’s determination pertaining to the credibility of witnesses.” 106 Ltd. v. C.I.R., 684 F.3d 84, 92 (D.C. Cir. 2012) (quoting Pasternak v. Commissioner, 990 F.2d 893, 900 (6th Cir. 1993)). Appellant has not shown that the Tax Court clearly erred in discrediting portions of his trial testimony and finding that he “received” a notice of deficiency as that term is used in 26 U.S.C. § 6330(c)(2)(B). Because he received the notice of deficiency and did not file a timely challenge to that notice, appellant was barred from challenging his underlying tax liability. See 26 U.S.C. § 6330(c)(2)(B).
Nor was the Tax Court’s denial of appellant’s motion for reconsideration an abuse of discretion. See Ark Initiative v. Tidwell, 749 F.3d 1071, 1075 (D.C. Cir. 2014) (“This court’s review of the denial of reconsideration is typically limited to abuse of discretion . . . .”). Appellant has not demonstrated that his medical records could not have been obtained prior to trial, and his failure to exercise reasonable diligence in attempting to obtain them does not render them “newly discovered evidence.” See Bain v. MJJ Prods., 751 F.3d 642, 647-48 (D.C. Cir. 2014) (noting that evidence that could have been discovered prior to trial with “reasonable diligence” is not “newly discovered”).
It appears that we will have to wait for other cases to get precedential appellate court guidance on what it means to “receive” a notice of deficiency for purposes of section 6330(c)(2)(B) when a taxpayer carelessly does not pick up his certified mail.