Taxpayer Attending Rodeo Misses Receiving Collection Letter And Denied Chance to Challenge Liability in CDP Case

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Hammock v Commissioner is a relatively straightforward Tax Court CDP bench opinion involving the assessment of responsible person penalties under Section 6672. The case makes its way to Tax Court because the taxpayer attempted to challenge the sizable underlying liability. Appeals, and then Tax Court, refused to allow the challenge because she neglected to file a timely administrative appeal following notice of a proposed assessment. This brief blog post considers Appeals refusal to exercise its inherent discretion to consider the underlying liability.

In Hammock, the facts are somewhat sympathetic. The bench opinion discusses how the taxpayers’ parents had founded and run a successful auto parts business that had over 35 employees. The taxpayer witnessed her parents’ death in an automobile accident, which resulted in her unexpectedly assuming her mother’s formal role as treasurer and finding someone to replace her father’s job in running the business.


To run the day to day auto parts business Hammock turned to a family friend who had been involved before the parents’ death and became more so after their passing. Hammock also hired a formal CFO to assume some of the responsibilities that her parents previously performed. Hammock herself seems to have been largely absent, though she drew a salary and signed the occasional check.

It seems that the family friend used the business as a personal piggy bank, and what was once a very successful enterprise ran up hundreds of thousands of dollars in delinquent employment taxes, leading to its eventual bankruptcy.

With the employment tax delinquency came an IRS investigation into trust fund liabilities. After some communication from IRS, Hammock hired a tax attorney; he was the same attorney who was representing the CFO, who IRS was also investigating as a potentially responsible person.

Here is where things get dicey for Hammock. Unfortunately, the POA that counsel submitted did not specify the year or tax at issue. The IRS had the same POA problem with the CFO’s POA. IRS returned them both. Hammock and the CFO’s attorney submitted a new one that specified the tax and periods. Unfortunately the POA counsel resubmitted for Hammock did not have her signature; in contrast, the POA for the CFO was properly signed.

When IRS concluded its responsible person audit, it sent Form 1153 informing both Hammock and the CFO of its intent to assess a trust fund recovery penalty. That letter gives potential responsible persons 60 days to protest the proposed assessment. IRS sent the CFO’s proposed assessment to both him personally and to the attorney. Because the IRS never received Hammock’s perfected POA, it properly did not send her proposed assessment letter to her counsel, though did send it to her residence.

Hammock claimed to not have received the 1153 because she was out of town at a rodeo. All of this led to Hammock not filing a protest within 60 days. In contrast, the attorney did file a timely protest with respect to the CFO’s proposed assessment.

During a phone call counsel had with the RO concerning the CFO’s proposed assessment, the RO told the attorney that it had not received a perfected POA from Hammock and that it had in fact sent a 1153 to her. That led to the attorney’s submission of a belated perfected POA and a protest submitted after the 60 days had passed. Appeals declined to consider Hammock’s objections to the what became an assessment of over $579,000 in trust fund penalties.

The trust fund penalty assessment with respect to Hammock led to the IRS mailing her and her now properly authorized attorney a notice of federal tax lien and notice of intent to levy, triggering the CDP case.

Hammock’s attorney timely filed a request for a CDP hearing that only sought to consider the underlying trust fund liability and did not raise a request for a collection alternative.

For CDP purposes, unless there is actual receipt of the notice concerning the proposed assessment, the mailing of the notice to the last known address will not prevent a challenge to the underlying liability. If a person did not actually receive the notice allowing for an administrative appeal of the proposed assessment, they can challenge the amount or existence of the liability. (For more on when taxpayers can challenge the underlying liability, see Keith’s recent post discussing the issue, one we have covered quite often on PT).

Yet, as the opinion discusses, case law properly establishes that the absence of receiving a properly mailed notice does not automatically allow the right to challenge the amount or existence of a liability. To determine whether there is actual receipt when the IRS establishes that it has properly mailed the document, the cases consider whether there is enough evidence to overcome a presumption of receipt.

For these purposes, it is usually not enough to rely just on taxpayer testimony. Here, the opinion notes that Hammock claimed to be out of town attending a rodeo when the Form 1153 was delivered. She also testified that she had no recall of ever seeing it.  That testimony was contradicted by her counsel actually attaching the 1153 to the late-filed protest and an admission to Appeals at a supplemental hearing that she had in fact received the 1153.

The opinion helpfully contrasts Lepore v Comm’r, where a taxpayer was able to establish nonreceipt even when the IRS properly mailed a document to a taxpayer’s residence. In Lepore, there was testimony from a family member who did not live at the residence but said he received the document and did not give it to the taxpayer. Lepore had other positive facts, including a history of responding to IRS correspondence and proof of receiving a high volume of mail.

So Hammock was essentially out of luck in her efforts to automatically having the underlying liability as part of the CDP hearing. 

The opinion then focuses on the issue of ensuring that Appeals verified that the Commissioner met all requirements of applicable law and administrative procedure for collecting the trust fund recovery penalties. It quickly determines that there was no issue there, emphasizing that IRS had no obligation to inform counsel about Hammock’s 1153, especially given Section 6103 and the absence of a perfected POA.

Abuse of Discretion to Not Exercise Discretion?

So this case breaks no new ground yet I feel it worthy of a post for an ancillary issue. The regulations clarify that even if a taxpayer does not have a statutory right to challenge liability in a CDP hearing, Appeals has inherent discretion to consider liability.

The opinion notes that Hammock had requested that Appeals consider the liability as part of its discretionary CDP power.  In counsel’s pretrial memorandum, counsel asked the following:

“[D]id the appeals officer abuse her discretion by failing to consider all the evidence and refusing to hear Hammock’s challenge to the underlying liability” or whether “the IRS properly assess[ed] Hammock given it failed to conduct investigation or make factual findings to support the underlying liability determination.”

The opinion rejects this as the “taxpayer’s attempt to go to the merits of the underlying liability and not the question of whether all administrative steps were taken.” Fair enough but why did Appeals fail to consider liability as part of its administrative discretionary power?

The regulations clarify that Appeals could consider liability, even if the taxpayer had a prior opportunity and was unable to overcome the presumption of receipt. § 301.6330-1(e)(3), AE-11

In relevant part that reg states that

“[i]n the Appeals officer’s sole discretion, however, the Appeals officer may consider the existence or amount of the underlying  tax liability, or such other precluded issues, at the same time as the CDP hearing. Any determination, however, made by the Appeals officer with respect to such a precluded issue shall not be treated as part of the Notice of Determination issued by the Appeals officer and will not be subject to any judicial review.

When a taxpayer, like Hammond, requests that Appeals consider liability as part of a CDP request shouldn’t Appeals explain why it chose not to do so? Would any reason Appeals gives ever amount to an abuse of its discretion? Can the regulatory directive that “any determination” about this discretionary power not be subject to judicial review overcome the presumption in administrative law that agency actions are subject to judicial review?

Now there may be perfectly valid reasons why Appeals failed to exercise its discretion to consider liability in this case. And it may be that it is generally inappropriate for the Tax Court to order Appeals to consider the liability. But it seems to me that Appeals should explain its reasons for declining to exercise its discretion, and the Tax Court should play a role in ensuring that Appeals exercise its discretion in a way that fairly considers a good faith request to challenge a liability. To be sure, Hammock could have her day in district court, but the opportunity to raise and possibly resolve liability questions administratively is of some moment, and the Tax Court can play a more proactive role in that process.

Avatar photo About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.


  1. Orrin Tilevitz says

    Aren’t you assuming that if the POAs had been properly filled out and executed, but the IRS had disregarded them nonetheless, Hammock would have been permitted to challenge the liability? The Tax Court has repeatedly stated that a POA is a mere “courtesy extended to taxpayers”, and the IRS’s failure to honor one is perfectly OK.

    • I’m not sure I’ve seen a CDP case with a failure to send the notice to a validly authorized rep though I would hold that failure as sufficient to remand to have Appeals at least explain why it should not exercise discretion to consider liability

    • S. Singh says

      I think an equitable estoppel argument would be warranted if the IRS, in its sole discretion, decides not to forward the NOD to the POA but did not notify him or her of its decision, leading to justifiable and detrimental reliance.

  2. Michelle Wynn says

    As we work through cases arising due to notices that give rise to potential for Appeals review which were issued during the pandemic, I think we will see a lot of cases where the IRS has properly mailed to the last known address and the taxpayer will have trouble trying to prove that they didn’t receive it. Especially in the early days of the pandemic, the postal service was just leaving certified mail notices in mailboxes and marking that they were delivered – and the ones I saw didn’t include any indication that they weren’t left with an individual. I have also seen some where the postal carrier signed the certified mail receipt themselves without any notation that they were doing so. Rarely, but I’ve also seen where the postal carrier indicates that the envelope was delivered to an individual in the tracking for one of the circumstances described above (indeed, it happened once with a certified letter delivered to my home).

    Combine that with the postal delays and the differences in dates on IRS letters versus when they were actually mailed this situation will be filled with litigation in future years. I mean I have had some important notices where I didn’t even receive the notice until well after the 30-45 day window specified in the letter had passed and the taxpayer never received their copy at all. Thankfully that only seemed to happen with setting cases for Appeals hearings or scheduling due dates to submit audit documents, but the Appeals Officers and auditors were very understanding of the situation and rescheduled the relevant dates but I think it is an area we will see more and more over the next few years.

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