What is Collection Activity?

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I mentioned in my last blog post that Drita Tonuzi spoke at the Pro Bono and Tax Clinic committee meeting of the ABA Tax Section meeting on September 20, 2013.  In addition to asking the audience for feedback on the issue of representation, she solicited comments on collection activity related to the newly proposed regulation on the innocent spouse provisions. See the proposed regulation here. As with the issue of representation, this is a positive development.

The issue of collection activity drives the timing of requests for innocent spouse relief.  Section 6015(b) and (c) relief is restricted to those who request relief within two years of the beginning of collection activity.  The proposed regulation continues taking the view that sending a notice of intent to levy, or at least sending some versions of that notice, begins  collection activity for purposes of starting the two year period to request innocent spouse relief.  The proposed regulation goes further than the prior regulation on this subject to provide that sending the notice of intent to levy required by IRC 6330 in collection due process cases (CDP) starts the collection period even if the intended recipient does not receive it.  In adopting this position, the regulation cites to the case of Manella v. Commissioner, 631 F.3d 115 (3d Cir. 2011).


I believe that in selecting certain notices of intent to levy as triggers for the running of the two-year period to request relief, the proposed regulation mistakes correspondence for collection.  Additionally, I believe that even if sending certain letters labeled notice of intent to levy constitutes collection activity, holding that the mailing of the CDP notice meets this test even if the taxpayer does not receive the notice undercuts the very purpose of CDP.

First, the IRS has more than one letter that it sends entitled Notice of Intent to Levy.  The requirement to send such a notice predates CDP and stems from IRC 6331(d).  The purpose behind the statute draws from the administrative authority given to the IRS to levy without obtaining court approval.  Congress felt that a specific notice to the taxpayer alerting the taxpayer of the potential forthcoming levy action should occur prior to this significant administrative action.  In 1998 Congress created the CDP process and added another notice requirement prior to levy.  The notice requirement in 6330 and the requirement in 6331 can, and usually are, satisfied by the same letter.  The title of the letter is Notice of Intent to Levy.  While the IRC 6331 letter simply gave the taxpayer notice that the IRS might levy, the CDP letter gives the taxpayer additional rights including the right to request a hearing with the Appeals Division and the right to go to Tax Court.

The IRS monitors the effectiveness of its correspondence in generating payments.  The notice of intent to levy has traditionally raised a fair amount of money because the taxpayer reading this letter becomes rightfully concerned that bad things will happen soon.  Since the letter works to raise money, I presume the IRS decided at some point to use the same title in other circumstances than just the required notice under IRC 6331 and 6330.  It now uses this faux notice of intent to levy to notify taxpayers that it may take their state refund.  Nothing requires the IRS to send such a notice of intent to levy but I can tell from my client’s reactions to this letter that it does effectively raise concerns in many people.

The proposed regulation does not state whether faux notice of intent to levy letters also start the two year period for requesting innocent spouse relief.  I suspect the faux letters do not.  I also suspect that few if any taxpayers would know the difference between a real and a faux notice of intent to levy letter.  The decision of the IRS to use the effective fund raising title “Notice of Intent to Levy” on letters not required by the statute raises concerns about using certain letters with that title to trigger the collection activity time frame in IRC 6015(b)&(c).  While I am concerned about the way the IRS titles its letters, my bigger concern is that a letter, whether a real of faux notice of intent to levy, is not collection activity.

The IRS sends out many letters.  The “real” notice of intent to levy letter is generally the fourth collection letter in a stream of letters.  I have no statistics but suspect that only a small fraction of the people receiving the notice of intent to levy letter actually become the subject of a levy.  While letters with this title raise concerns with some taxpayers, many others simply treat this letter like all of the other dunning notices they receive.  Nothing on the letter alerts them to the fact that it starts a time period running for requesting innocent spouse relief.  Few taxpayers would realize that one of the letters in a series of letters (more than one of which might carry this title) would have that effect.  For this reason I think that the IRS should not treat a letter as collection activity.  I think that it should treat the levy as collection activity (or an offset or a suit).

Even if the IRS should treat one of its many letters as collection activity, the proposed regulation raises a second issue – whether mere mailing of the letter without receipt – triggers the running of the two-year period to request relief.  While a decent argument exists that the taxpayer will not know that certain of the letters sent labeled “Notice of Intent to Levy” will trigger the running of the period to request innocent spouse relief so it does not really matter if the taxpayer receives the letter that does trigger the running of the time period, it still seems perverse to determine that not receiving the letter will start this period.

When Congress created CDP, it did so in large part to address the concerns that many complaints received in Congressional offices about the IRS stated that the IRS engaged in collection activity when the taxpayer did not even know they owed the tax.  In essence, these taxpayers told their representatives that they did not receive the notice of deficiency giving them the right to contest a proposed deficiency in Tax Court prior to the assessment and the beginning of collection activity.  In response to those concerns, Congress placed into the CDP statute a second opportunity to go to Tax Court to contest the underlying liability for those who never received the notice of deficiency even though mailing the notice of deficiency to the taxpayer’s last known address gives the IRS the right to make the assessment.  Congress knew that many taxpayers did not actually receive the correspondence sent to their last known address for a variety of reasons.

In the proposed regulation, the IRS now takes the position that the very statute created to provide a safety valve for those who did not receive the notice of deficiency mailed to their last known address will serve as a trigger for the running of the period to request innocent spouse relief even if the taxpayer does not receive the notice of intent to levy.  It seems wrong to use the non-receipt of the CDP notice of intent to levy as a trigger mechanism when the sending of this particular notice exists in large part to give an opportunity to correct the non-receipt of the notice of deficiency.   But that is not the worst part of the proposed regulation.

The proposed regulation, in support of its position that non-receipt provides sufficient notice, cites to one of the saddest cases the IRS could have found: Mannella v. Commissioner.  The Manella case involves an abused spouse.  One of the ways her husband abused her was to prevent her from seeing the incoming mail.  So, Ms. Manella never saw her CDP notice because of an abusive situation and the proposed regulation holds that case up as the authority for cutting off innocent spouse relief.  Instead of choosing an abusive situation to support cutting off the right to relief, the IRS should have taken the opportunity to acknowledge the abusive situation as a circumstance where the letter would not serve as a trigger.

Ms. Manella, and others, benefit from the position taken by the IRS in 2011 and continued in the proposed regulation that IRC 6015(f) does not have a two-year time frame.  I do not want to lose sight of the change in position by the IRS in (f) cases that provides a safety valve for individuals in her position.  Still, citing the Manella case as support for the position that non-receipt of the notice of intent to levy still triggers the running of the period for certain innocent spouse relief highlights the inappropriateness of using correspondence as a collection activity triggering the cut off of relief.


  1. Carl Smith says

    I completely agree with Keith. But, here are some additional points:

    Interestingly enough, the 6015 legislative history concerning which notice should constitute the commencement of collection activity is confusing and ambiguous. One could read the Senate and Conference Committee reports to have collection activity begin either (a) at the point of the notice of intention to levy or (b) at the point of an actual levy. The report lists both events (calling the actual levy, “wage garnishment”). The regs. under 6015 proposed in 2001 took the view that only an actual levy commenced the 2-year election period, not a notice of intention to levy. That is, the proposed 2001 regs. took the position for which Keith is arguing. But, in the final regs. issued in 2002, without any comment, the IRS switched the beginning of the 2-year period instead to the date the notice of intention to levy was issued. That switch alone (without explanation or the opportunity to comment on it in proposed form) may invalidate the current reg. under State Farm and Chevron principles of administrative law.

    The newly proposed reg. merely compounds the 2002 error by bringing in the Mannella holding that actual receipt of a notice of intention to levy is not needed to start the period running. That makes the rule even less friendly to the taxpayer. Why did the IRS propose to adopt this harsher rule at the very time that it is in all other areas of the proposed regs. trying to liberalize the time period in which to obtain innocent spouse relief?

    At the time that the Mannella opinion was tried in the Tax Court, Mrs. Mannella was pro se. So, she did not know to point out the problems with the IRS 6015 reg. Nor did she know to point out, as well, some legislative history under the CDP provisions that states that a notice of intention to levy, if not received, should allow a taxpayer to get a late [CDP] hearing. Thus, even IRS regs. under CDP, which hold that receipt of the notice is unnecessary to have the time for a CDP hearing to run, is also invalid.

    Sadly, the Tax Court — not being shown this problematic legislative history — simply pointed in Mannella to the CDP reg. and said that if a person can be denied a CDP hearing as a result of never receiving the notice of intention to levy, the same rule should apply under 6015 — i.e., an unreceived notice of intention to levy starts the 2-year period to elect (b) or (c) relief. Since the initial premise is wrong, obviously the “therefore” parallel holding under 6015 is wrong, as well.

    And, if I were arguing for Mrs. Mannella, I would also have argued that, even if the CDP reg. about unreceived notices starting the 30-days-to file CDP hearing deadline were valid, there are good reasons not to import the same rules over to 6015. Since in 6015, the nonrequesting spouse has an incentive to hide the mail from his or her spouse, 6015 is different from CDP — where normally there is only one taxpayer (an individual or corporation) that is getting the notice, and no one at the address has an incentive to hide it from the taxpayer.

    I think the reg. incorporating the Mannella rule — which is only the rule of the Tax Court (no appellate court having faced the issue) — reflects Counsel’s reflexive instinct always to incorporate into regs. court rulings favorable to the IRS. Someone should have thought harder here before incorporating Mannella. I know Keith and I will help to point this out to the IRS in comments that hopefully will go in under the ABA Tax Section’s imprimatur. I am looking forward to hearing from the IRS in the preamble to the final regs. its answers to Keith and my arguments.

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