Premature Assessment Announcement from Tax Court

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On August 16, 2021, the Tax Court issued the following press release regarding premature assessments:

UNITED STATES TAX COURT

Washington, D.C. 20217

August 16, 2021

PRESS RELEASE

On July 23, 2021, the United States Tax Court issued a press release regarding the significantly increased number of petitions received this year. To date, the Court has received more than 26,000 petitions.

On July 26, 2021, and August 2, 2021, the Court met with various stakeholders, including representatives from the American Bar Association’s Section of Taxation, the Internal Revenue Service, low income taxpayer clinics, and bar-sponsored pro bono programs, to address concerns relating to the increased number of petitions being filed. The Court continues to process petitions expeditiously. It has also begun notifying the IRS of those petitions the Court has received prior to service in order to limit the potential for premature assessment and enforcement action against petitioners.

As a reminder, the IRS created a dedicated email address in October 2020 for petitioners to reach out with concerns about premature assessments or enforcement action: taxcourt.petitioner.premature.assessment@irs.gov.

If you have questions about whether the Court has received your petition, you can contact the Public Affairs Office at (202) 521-3355 or email publicaffairs@ustaxcourt.gov.

The press release primarily provides information we reported in a post on July 28, 2021.  While there is not a lot of new information in the latest press release, the press release itself is a hopeful sign that the Tax Court has set a path to keep the public better informed about the ongoing problem in processing petitions and the efforts to ensure that the problem has the least possible impact on petitioners.

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The most important sentence is the one stating that the Court is notifying the IRS of petitions prior to formal service of the petitions so that the IRS has the opportunity to mark its system and input the proper codes in the computer to prevent assessment and collection barred by the filing of the petition.  Perhaps the system devised by the Court will eliminate or substantially eliminate the problem caused by late notification of the filing of a Tax Court petition.

In the prior post on this subject and in most prior discussions, we have focused on premature assessments.  In the majority of premature assessment cases, the assessment triggers a notice to the taxpayer, the notice and demand letter, but not enforced collection, which will not occur for a few more months while the IRS goes through the collection notice stream.  For most taxpayers in deficiency proceedings who experience a premature assessment, there is time to fix the premature assessment prior to actual collection.  For those taxpayers where the timing of the premature assessment precedes the payment of a refund, the collection issue will occur when the IRS offsets the refund based on the premature assessment.  Offset is the most likely collection damage to occur in the premature assessment situation.

We have not focused our discussion on the taxpayers filing Collection Due Process petitions in response to a notice of intent to levy under IRC 6330.  For these taxpayers the threat of immediate enforced collection action is very real based on the failure of the IRS to input freeze codes resulting from the filing of the Tax Court petition.  CDP levy cases represent less than 5% of the petitions filed, but for taxpayers in these cases, the prospect of significant negative consequences as a result of the late transmittal of information to the IRS is the most urgent.

Stand-alone innocent spouse cases represent another vulnerable group of taxpayers.  Many of these taxpayers have gone through the collection notice stream prior to filing the innocent spouse petition.  The filing of the innocent spouse request puts a hold on collection action, but that hold ends if the IRS rejects their innocent spouse claim and they do not petition the Tax Court.  These cases could go immediately back into the collection stream, resulting in enforced collection prior to the fix of the notification of the petition.

CDP lien cases do not present the same type of urgency.  In CDP lien cases it is the taxpayer who hopes the Court will act quickly to grant relief.  The IRS, by filing the notice of federal tax lien, has already placed itself in the position it needs in order to protect its interest.  So, late notification of the filing of a CDP lien petition is unlikely to have direct adverse consequences on the taxpayer.  It simply delays the date on which the taxpayer might receive some form of relief from the lien filing.

In the stakeholder meetings, which Christine and Caleb attended, the Tax Court indicated that it is processing petitions based on a FIFO system. It is unclear whether the Court will be able to provide pre-service information to the IRS for petitions that were in its backlog at the time the Court’s petition acceptance procedures changed. As the Court works through the petition backlog, it might consider triaging cases to identify the CDP levy cases and stand-alone innocent spouse cases in which taxpayers are most vulnerable.  These CDP levy and innocent spouse petitioners could benefit the most from getting the information about their petitions over to the IRS in time to stop enforced collection.

As the IRS returned to more normal operation last fall, it produced a surge of notices that caused the significant uptick in Tax Court filings in the first half of 2021.  If we are past that surge, and I cannot say if we are with certainty, the balance of the year should return to a more normal filing pattern for the Tax Court and allow the Tax Court clerk’s office to catch up and catch its breath.  If you are filing a petition, lots of reasons exist for filing the petition electronically, but one of those reasons is that it will make it easier for the clerk’s office to process the petition, which should help to more quickly reduce and eliminate the premature assessment problem.  Consider filing your petitions electronically if you haven’t done so previously.

Comments

  1. Bob Kamman says

    To illustrate the problem: Today the Tax Court served IRS the petition in Docket No. 19300-21. It was received on May 24 – more than 12 weeks ago.

  2. Richard Stack says

    When the Tax Court closed and didn’t accept any mail deliveries from March 18, 2020, till July 10, 2020, due to the COVID-19 pandemic, I handled two cases in which premature assessments ultimately were made because the IRS wasn’t aware that the taxpayers had timely filed petitions (based on the postmark dates on the transmittal envelopes) during the period that mail directed to the Tax Court went unopened. Once the Tax Court resumed accepting mail on July 10, 2020, it stamped my clients’ Petitions as filed on that date, although they had remained unopened outside of the Tax Court Building in a semi-tractor trailer for 2-3 months. In an effort to prevent the IRS from making premature assessments and to alert the Tax Court and IRS Chief Counsel of the timely filing of the Petitions, shortly after the deemed July 10, 2020 filing of the Petitions, I filed “Petitioners Status Reports,” explaining that the Petitions had been timely filed and attached date-stamped certified mail receipts to that document. Unfortunately, my efforts to prevent the making of premature assessments were only successful for 1 of the 4 tax years at issue in those cases. In his answers, the Commissioner at least didn’t assert that the Petitions were filed untimely.

  3. What about an unrelated issue with similar consequences: when clients are facing potential lien or levy actions and ever-increasing penalties (ex., 6651, which increase monthly) and the client files an amended return, which will wipe out all the liability but is stuck in the backlog?

  4. Bob Kamman says

    As a further example of what is happening because of Tax Court delays in serving IRS petitions, see Docket No. 8079-21S, a case that was filed March 11 but not served until May 21. Earlier this week, the petitioner – who is a lawyer in Detroit representing himself – filed a “Motion to Restrain Assessment or Collection or to Order Refund of Amount Collected.” Today, Judge Foley ordered “that, on or before September 20, 2021, respondent shall file an Objection, if any, to petitioner’s above-described motion. Failure to file an objection may result in the granting of petitioner’s motion.”

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