A recent collection due process (CDP) case, Johnson v. Commissioner puts a pro se taxpayer in a tough situation when he failed to petition based on his first CDP hearing. Mr. Johnson wanted to raise the merits of the underlying tax liability. He was told, perhaps erroneously, he could not do so in his first CDP hearing for the tax year. He chose not to petition the determination in that case. He got a second bite at the CDP apple and tried to raise the merits argument again only to learn that he may have lost his opportunity when he failed to petition following the initial CDP determination. It’s a tough result and one of the few summary opinions we have featured on the blog.
read more...Mr. Johnson filed his 2005 return and got examined. The IRS determined he owed more tax and sent him a notice of deficiency to his last known address. The notice was returned unclaimed after three failed attempts. This raises the possibility that he could argue the merits of the underlying tax liability in a subsequent CDP case but also raises the possibility that he would be denied that opportunity by the application of the rule set out in the Onyango opinion (Be sure to visit the comments on this blog post).
So, it is a “known unknown” to Judge Lauber in the Johnson case whether Mr. Johnson could raise the merits of the underlying liability in his subsequent CDP case or whether his failure to act regarding these notices may have barred him. It turns out not to matter.
When Mr. Johnson failed to pick up the notice of deficiency, the IRS assessed the liability and began sending him collection notices ending with the CDP notice. He received the CDP notice and requested an appeal. The SO told him that he could not challenge the 2005 liability through the CDP process because he did not file a Tax Court petition when the IRS sent the notice of deficiency. While this advice may have missed the mark, Mr. Johnson chose not to file a petition with the Tax Court in response to the notice of determination. [The opinion does not say whether he received the notice of determination. If he did not receive the notice of determination for a reason that would not upset the Onyango rule and if he did not receive the notice of deficiency for a reason that would not create a bar based on Onyango, he might have had an interesting argument in his second CDP case. Being unrepresented, Mr. Johnson probably did not think about this too much. The case highlights the difficulties facing an unrepresented litigant.]
While Mr. Johnson did not win his CDP case either on the merits or in seeking a collection alternative, if he sought one, he also did not pay the tax after the CDP hearing causing the IRS to take further collection action. The opinion does not provide the amount of the assessment against Mr. Johnson but the timing would place the collection sometime near the issuance of the Fresh Start rules in May 2012, increasing the amount of deficiency needed to trigger the filing of the notice of federal tax lien from $5,000 to $10,000 (of course the IRS could file the notice at any amount if it decided to do so).
In its further collection efforts, the IRS decided to file a notice of federal tax lien with respect to Mr. Johnson’s 2005 liability. By filing the notice of federal tax lien, the IRS triggered a new round of CDP rights for Mr. Johnson under IRC 6320. He received the notice giving him those rights. He requested a hearing. He again asked that the SO consider the underlying merits of the tax claiming that he did not owe the tax. He was again told that he could not raise the merits in his CDP hearing but this time the SO, SO2, pointed to both the failure to petition when the notice of deficiency was sent and the failure to petition when the first notice of determination was sent. The SO2 sent a determination letter upholding the filing of the notice of federal tax lien and Mr. Johnson petitioned the Tax Court choosing the Small Tax Case Procedure.
Judge Lauber noted that the original SO may have made a mistake in refusing to allow Mr. Johnson to raise the merits of the underlying liability. In a footnote he explains that the record contains no evidence concerning Mr. Johnson’s failure to claim the notice of deficiency despite three failed attempts to deliver it. Because of the incomplete record, the decision of the initial SO to deny Mr. Johnson the right to raise the merits may have correctly stated the legal situation or may not have. Either way, Mr. Johnson had the opportunity to contest that determination and he would have had the opportunity to litigate the underlying merits of the liability, had he petitioned the determination and asked the Tax Court to determine that the failure of receipt did not bar him from raising the merits.
Unfortunately, Mr. Johnson’s failure to petition following the first notice of determination sealed his fate with respect to his ability to raise the merits. The Court assumes that he received that notice of determination and nothing in the record appears to suggest he did not. Since he had the opportunity to contest the merits by petitioning from that notice of determination, assuming the right still existed, he lost his right to contest the merits at that point.
The case not only points to the difficulties facing a pro se taxpayer in navigating the system, it provides a lesson about petitioning from a notice of determination. Mr. Johnson’s receipt of two notices of determination separated in time does not present a common situation but also does not present a unique one. This situation can arise. A taxpayer who wants to raise the merits of the liability must seize the first opportunity or see the CDP process cleanse the system of any rights to pursue the merits that might have existed after a failure to receive the notice of deficiency.
I believe we’ve discussed the Johnson CDP case before, but I welcome the opportunity to provide further comment because the case raises an important issue.
The Tax Court got the matter backward. The law did not require Mr. Johnson to petition the Tax Court on his first CDP notice and then argue he did NOT receive a notice of deficiency.
First, the administrative record showed Johnson did not receive the NOD; the law therefore entitled him to challenge his liability; regardless,
Second, a prior opportunity to challenge a tax liability does not include a foregone Tax Court proceeding. As used in 26 U.S.C. 6330(c)(2)(B), the term “opportunity” means a chance to challenge the liability with the IRS Office of Appeals alone; and
Third, liability can be a precluded issue only if it was raised AND considered at an administrative or judicial hearing. For good measure, it’s not even enough that the taxpayer participated in his hearing(s). No, he must have participated “meaningfully.” In Johnson’s case, he participated in his first CDP hearing, but Appeals did not consider the liability issue. Mr. Johnson did not petition the Tax Court from the adverse determination; thus he did not participate in a judicial proceeding at all, let alone participate in one meaningfully.
So we come to “what goes around, comes around.” When Mr. Johnson returned for another CDP hearing, he was still entitled to challenge his tax liability. This time, he petitioned the Tax Court to hear the issue. The Tax Court therefore should have afforded Mr. Johnson a de novo hearing.
In sum, the Johnson outcome in no way resembles the collection “due process” that Congress intended.
It has long been my belief (as stated in articles in Tax Notes) that the CDP provisions are essentially equitable and that (based, in part on Committee report legislative history that the Tax Court has mysteriously always ignored and never cited), the 30-day period in which to file a CDP appeal in the Tax Court under 6330(d)(1) is non-jurisdictional and is subject to the judicial doctrines of waiver and equitable tolling. One classic situation for tolling is where the defendant (here, the IRS) misled the plaintiff. If I were the judge (despite having to try to overturn Tax Court precedent), I would propose a Division opinion in this case that allowed the Tax Court petition to be considered a belated (but tolled) filing with respect to the NOIL and a timely petition with respect to the NFTL. Then, I would consider the issue of whether he had received the notice of deficiency — taking such testimony and other evidence on the subject as could be provided. If I held that he had not received the notice of deficiency, I would not hold that the first or second CDP hearings at Appeals constituted a prior opportunity to contest the underlying liability, as the SOs misled him in telling him he could not contest the liability at either of those hearings.
Carl Smith’s tolling/waiver argument deserves exploration. He had me at CDP is essentially equitable. I can’t see, though, how his conclusion follows from his premise.
Consider our subject, Mr. Johnson. Yes, Appeals tells him that he cannot challenge his liability. But it finally does so in a Notice of Determination, which informs Mr. Johnson that he can “dispute this determination in court” by filing a Tax Court petition within 30 days from the date of the notice. He does not do so. Could we then seriously argue that Appeals’ incorrect liability decision misled Mr. Johnson into not petitioning the Tax Court within 30 days–when the Notice plainly told him the contrary?
Perhaps another situation, whether or not a classic one, would be a better vehicle?
Jason,
Mr. Johnson’s case is not the first one I would want to have as the factual base for getting equitable tolling into CDP. I would rather have a simple case where a person, say, was temporarily incapacitated in the hospital through the entire 30 days to file for a CDP hearing or to file in Tax Court.
Under current Supreme Court case law in the non-tax area, time periods in which to file are quintessential “claims processing rules” that are presumed not to be jurisdictional unless Congress makes very clear that it wants those periods to be jurisdictional. (Jurisdictional time periods can never be tolled.) I see nothing indicating that Congress meant either time period to be jurisdictional (and it is not enough, according to the Supreme Court, that the jurisdictional grant appears near the specification of the time period to render the time period jurisdictional).
Even if the time periods were not jurisdictional, that is no guarantee that they are subject to tolling, but under a 1991 Supreme Court case named Irwin v. Dept. of Veterans Affairs, there is a presumption that such time periods are subject to tolling — one that, again can be rebutted. But, typically, short time periods that have no stated exceptions are usually found to have an implicit judicial equitable tolling exception. In a case named Holland from 2010, the Supreme Court held that the Irwin presumption is “reinforced” when the statute is in an equitable area or when the statute was drafted after the Court issued its Irwin opinion. CDP, even if not called equitable, was drafted after Irwin, so Congress is presumed to have had the Irwin rule in mind when it was drafted.
I know that many people are aware of the Brockamp case, in which the Supreme Court in 1997 held that the 6511 refund claim time periods were not tollable and so think that there is no equitable tolling anywhere in the tax area. But, the Court never said that in Brockamp. The Court focused on what rebutted the presumption in 6511: (1) the very detailed language of the statute, (2) the numerous exceptions already written into the statute (for example, for carrybacks), (3) the unique “substantive” amount limitations in 6511(b), and (4) the administrative nightmare of inserting tolling into what were then 90 million refund claims filed each year (mostly through original returns). None of those features applies to CDP. There are only between 50,000 and 100,000 CDP hearing filings each year, many of which are given equivalent hearings. If equitable tolling were allowed, essentially, the IRS would simply have to convert a few equivalent hearings to regular CDP hearings. There were (last I saw statistics) only about 2,000 to 3,000 CDP Tax Court petitions filed each year. It would not be a big burden on the Tax Court to have a hearing in which the few late-filers could explain why they filed late.
Last week (on Oct. 7), oral argument was held in the 9th Cir. on the Volpicelli case, where I am an amicus. In that case, the government is arguing (relying in part on a post-Brockamp 3d Cir. opinion) that the 6532(c) 9-month period in which to file a wrongful levy suit is jurisdictional or, if not jurisdictional, fails the Irwin presumption so can’t be equitably tolled in the period the plaintiff was a minor. The oral argument is posted on the 9th Cir. website. The judges were extremely skeptical of the government’s argument — with two saying that they found Brockamp clearly distinguishable, with the only similarity between the 6511 and 6532(c) periods being that they are both in the Tax Code, which the judges felt was not enough. There are only about 40 wrongful levy suits filed each year nationwide, so one judge noted how the administrative problems were orders of magnitude smaller. Indeed, the presiding judge, before letting the DOJ lawyer speak, joked (in a not so joking statement), “Why don’t you just give the kid his money?’ I have posted blogs about Volpicelli before and explained why I believe it will get to the Supreme Court to resolve the Circuit split. The only serious question that the 9th Cir. judges posed the pro bono plaintiff’s lawyer was whether it would be wise for them to wait for the opinions out of the Supreme Court in the two Federal Tort Claims Act equitable tolling cases, Wong and June, that will be argued to the Supreme Court on Dec. 10 (and which I have previously blogged on). It is clear the judges will wait, though it is hard to see how the FTCA ruling will ever be able to hurt the 6532(c) ruling, since the SG in Wong and June is only trying to make a stare decisis argument tying the FTCA time periods to the 28 usc 2501 period in which to file in the Ct. of Fed. Cl. that the Supreme Court in John R. Sand & Gravel Co. (2008) held was jurisdictional only through stare decisis to over 100 years of the Court’s calling that statute or it predecessors jurisdictional. There has never before been a ruling from the Supreme Court that 6532(c) or the CDP time periods were jurisdictional.
There is even language in the Committee reports for CDP indicating that, at least, the 30-day period to request a CDP hearing after mailing of the NOIL is not jurisdictional. In the following passage, note the fourth sentence. It seems to provide that if the IRS sends a NOIL to the taxpayer’s last known address, but the taxpayer does not actually receive it in time to file within the 30 days, the levying must stop and a real CDP hearing must be given if the taxpayer belatedly files a CDP hearing request. The IRS regs., at §301.6330-l(a)(3)(A-A10), have misconstrued this sentence to state that it only applies to a mis-addressed NOIL, but that can’t be what Congress intended: Of course, invalidly-addressed CDP notices don’t start the 30 days running. The Committee report passage (which the Tax Court has never addressed) is as follows:
“If a return receipt is not returned, the Secretary may proceed to levy on the taxpayer’s property or rights to property 30 days after the Notice of Intent to Levy was mailed. The Secretary must provide a hearing equivalent to the pre-levy hearing if later requested by the taxpayer. However, the Secretary is not required to suspend the levy process pending the completion of a hearing that is not requested within 30 days of the mailing of the Notice. If the taxpayer did not receive the required notice and requests a hearing after collection activity has begun, then collection shall be suspended and a hearing be
provided to the taxpayer.” H.R. Rep. (Conf.) 105-599 (105th Cong., 2nd Sess. 1998) at 266, 1998-3 C.B. at 1020.
If anyone has been thrown out of the Tax Court for missing the 30-day CDP time periods and has a very good excuse, I would be happy to assist in any challenge to the Tax Court’s ruling and, if appropriate, the IRS CDP reg.