When CDP is Separate From Process That is Due

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A recent Tax Court order in the case of Zapata v Commissioner reminds me that there are still a number of issues unresolved with Collection Due Process (CDP) and that the value of the CDP hearing itself is often dependent on how much effort an Appeals employee puts in to the proceedings.

Zapata’s facts are not that uncommon for people down on their luck or health and who sometimes ignore or are unable to meet their tax obligations. Zapata filed a 2002 tax return reflecting a liability; eventually IRS began enforced collection in the form of a notice of intent to levy which triggered his CDP rights. The proposed levy also triggered him in 2009 to file a 2004 tax return; that return had an overpayment that Zapata sought to apply to the 2002 liability. At the CDP hearing, the Appeals sustained the levy, and Zapata filed a petition to Tax Court.


The statute of limitations under Section 6511(b)(2) would normally serve to bar the claim, but the financial disability rules can serve to toll the statute. When the Tax Court had the matter originally it “remanded the case so that the Commissioner could conduct a supplemental CDP hearing to consider whether Mr. Zapata’s medical condition tolled the statute on his claimed 2004 overpayment, which could possibly free the overpayment to satisfy the 2002 liability.” Carl Smith wrote a pair of post slast year, here and here, involving the CDP case of Sarah Kurko where Judge Gustafson remanded her case for a determination of financial disability. Both Keith and Carl have written on financial disability and links to their articles can be found in Carl’s posts.

The recent Tax Court order in Zapata that followed the remand of the case notes that “[a]fter a second hearing, the Commissioner stuck to his initial determination to go forward with the levy. The Commissioner has now moved for summary judgment and Mr. Zapata has not responded.”

One of the interesting issues raised in the order is what was the appropriate standard of review that the Tax Court should use. In CDP cases, liability questions are reviewed de novo; collection matters are reviewed on an abuse of discretion basis. What about questions of the proper crediting of a liability or the statute of limitations applicable to a refund claim? Are those matters where the liability is at issue? The order notes that is an unsettled area:

This has turned out to be a difficult question that remains unsettled in our Court, Estate of Adell v. Commissioner, 107 T.C.M. (CCH) 1463, 1466 (2014) (delicately noting “lack of uniformity” in cases). If the proper crediting of one year’s overpayment is an issue of the “underlying liability,” the standard would be de novo. If it isn’t, the standard would be abuse of discretion. See, e.g., Kovacevich v. Commissioner, 98 T.C.M. (CCH) 1, 4-5 (2009). This would mean that we look to see if the Commissioner’s decision was based on an error of law, rested on a clearly erroneous finding of fact, whether he ruled irrationally, or otherwise acted arbitrarily or capriciously. Antioco v. Commissioner, 105 T.C.M. (CCH) 1234, 1237 (2013); Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

In any event, the order avoids that muck because it states that the answer to that question makes no difference to the resolution. To the Tax Court the key issue was that Appeals “must verify that the requirements of applicable law and administrative procedures were met, consider issues properly raised by the taxpayer, and determine if the collection action fairly balances the need for efficient tax collection with the taxpayer’s legitimate concerns. See IRC 6330(c)(3).” (emphasis in original)

The order notes that the administrative record reflected a note from Zapata’s doctor that Zapata submitted at the supplemental hearing; unfortunately, as we have discussed before, IRS has set out detailed rules as to what information those notes should contain and the letter Zapata’s doctor issued, under any standard of review, was lacking:

It did not, for example describe Mr. Zapata’s impairment, link it to an inability to manage his financial affairs, or provide any specific time period when he could not manage his affairs.

As a result, the Tax Court granted the IRS’s motion for summary judgment, and presumably the IRS levy will proceed at this point. Despite sustaining the collection action, the order implicitly criticizes Appeals for failing to do more to inform Zapata as to why it felt that he was not entitled to take advantage of the financial disability tolling provision:

We are somewhat concerned that the Appeals officer appears to have barely acknowledged the subject during her communication with Mr. Zapata’s power of attorney, and even told the power of attorney that the “only concern” for the hearing was the 2002 tax debt and that the 2004 refund should be addressed with another department. The CDP hearing might have been a helpful time to discuss the medical condition and the highly specific requirements for a doctor’s note, but we acknowledge that the Appeals officer is obligated only to consider the issue.

This to me is a crucial part of the problem with the CDP procedures, and many IRS compliance actions (let alone the possible unfairness of the rules restricting the use of the financial disability provisions). Compliance is not only about getting to the right answer; it can be a chance to educate taxpayers and hopefully engender a better sense of understanding about tax obligations. By failing to discuss the reasons why it was rejecting the letter Appeals missed an opportunity with Zapata. Part of the underlying concern with due process is ensuring that someone gets an adequate explanation as to why the government may be taking his property. Even if the result is correct but the government fails to explain itself then the outcome is really not an IRS victory but just one more lost opportunity to treat taxpayers with the respect that they should receive when challenging in good faith the actions of their government.

Keith offered the observation that the issue of providing strong notice is especially present in financial disability cases because those taxpayers are the most vulnerable. Keith continued, noting that “they qualify, or potentially qualify, for financial disability status specifically because of their inability to navigate life’s vicissitudes. If any taxpayers deserve a better explanation it is taxpayers seeking financial disability.”





Avatar photo About Leslie Book

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


  1. I thought the tax court did not determine whether an agency complied with the APA because it did a de novo review The ninth and 10th circuit require the tax court to consider the APA

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