Professor Caleb Smith discusses Toney Jr. v. C.I.R., Dkt. # 25496-16SL, a designated order from a few weeks ago. Rather than embed the discussion in Caleb’s DO Post, we have split this off to discuss issues surrounding waiving CDP rights, with Caleb looking for input from readers who may have considered what is the best practice when reaching an agreement with a Settlement Officer in a CDP case . Les
The order in Toney v Commissioner actually deals with the oft questioned “prior chance to argue the underlying tax” blogged about hereand here among others. The case is a pretty clear loser on that point, since Mr. Toney had previously had Appeals conferences and argued the tax. But it got me thinking about a different issue that I have had with the IRS: specifically, how to approach Form 12257 “Waiver of CDP Rights and Summary Notice of Determination” from both legal and tactical perspectives.
read more...In Toney, the taxpayer and the IRS settlement officer came to an agreement to full-pay the liability within 60 days. The settlement officer prepared the 60-day extension form and a Form 12257 “Summary Notice of Determination” and sent it to Mr. Toney. A Notice of Determination (and the judicial review it affords) seemed unwarranted, since both parties agreed on the proper outcome.
But for reasons unknown Mr. Toney did not full pay and did not sign the Form 12257. The IRS settlement officer got tired of waiting and sent a Notice of Determination sustaining the lien instead.
From the outset it is important to note that Form 12257 is likely NOT a determination for IRC 6330(d)(1)purposes, despite having the phrase “Summary Notice of Determination” as its header. It is really more of a contract, and in any case too contingent to be a “determination.” For one, the taxpayer has to sign it to give it force, and for two even if the taxpayer signs it, it still requires secondary approval by an IRS Appeals manager. See Fine v. C.I.R., T.C. Memo. 2016-217. In any event, the IRS does not treat it as a Notice of Determination (and no Tax Court decision has either): if the taxpayer does not sign and return Form 12257, the IRS sends an actual Notice of Determination to the taxpayer later.
Because it is not a Notice of Determination, it neither starts the clock running on petitioning Tax Court nor gives the Tax Court jurisdiction on such a petition. In other words, nothing much happens until you sign and have the Form 12257 approved or the IRS gets tired of waiting and sends an actual Notice of Determination.
And that is where the question of tactics arises. After a CDP hearing in which there appears to be a meeting of the minds on the correct outcome, a friendly IRS Appeals/Settlement officer will often suggest signing a Form 12257 to “speed up the process.” For example, if both parties agree that the taxpayer should be eligible for a payment plan of $100/month, why even retain judicial review? Why not just enter into the plan and waive the right to review?
One might be concerned that after waiving the right to judicial review the IRS will take some action that seems inconsistent with (or just completely reneges on) the agreement the parties came to. Not to worry, the IRS Appeals/Settlement Officer may retort: the very terms of Form 12257 provide “I [the taxpayer] do not waive my right under Appeals’ retained jurisdiction to receive another hearing with Appeals if I disagree with the IRS over how it followed Appeals’ determination.” In other words, Appeals still has your back if the IRS doesn’t follow through on its apparent promises.
Yet believe it or not, having Appeals retain jurisdiction but without Court review is likely cold comfort for many practitioners. Generally, I give fairly high marks to IRS Appeals… when it is localIRS Appeals. When the IRS Appeals/Settlement officer is at a “campus” (Fresno comes to mind) my experiences have been, shall we say, less encouraging. It is in precisely those situations that I am reluctant to sign away the right to judicial review.
Perhaps because of this the best practice is to insist on an ACTUAL Notice of Determination. On the downside, this slows things down and creates more work for the IRS which in turn might not make for the most collegial relationship with the Appeals/Settlement officer. On the plus side, you’re here to look out for your client’s interests not the workload of the IRS, and frankly because part of the problem stems from impersonal IRS campus officers, developing relationships with them might be close to impossible. I can think of exactly one campus AO that I’ve had twice, and I’m not positive she remembered me. Of course, some consideration hinges on just how valuable Tax Court review of a collection action is under the fairly permissive “abuse of discretion” standard of review.
But assuming (as I do) that having access to Tax Court review is better than not, a problem remains. In the hypothetical I’ve proposed, you have reached a meeting of the minds with the IRS after a CDP hearing. Say both parties agree to an Installment Agreement and that the IRS will release a lien after three monthly payments are made. You nonetheless insist on a Notice of Determination, since you’d rather have the option of court review than not: you trust the Appeals/Settlement Officer but want to be sure the IRS follows through.
What good is the Notice of Determination in that instance? If three months later the IRS does not withdraw the lien what judicial review do you have? Your ticket has expired by the time you have cause to use it. I suppose one could argue on some sort of contract theory ground that failure of the IRS to properly follow through with the Form 12257 terms should be litigable. But I’d rather not mess around with that, and I’m not sure that in any case the Tax Court (which, lest we forget, is of eminently limited jurisdiction) would be amenable to the argument.
And so I end with a humble question to the readers of PT on this conundrum: what are the best practices you’ve found for working with Form 12257? Has it been an issue? Have you had post-CDP actions taken by the IRS that have caught you off-guard (either from Form 12257 or a Notice of Determination)?
About Caleb Smith
The IRS feels free to renege on settlements that the IRS wrote and which both the petitioner and the IRS’s attorney signed, including settlements that were entered by Tax Court. So it seems to me that a taxpayer should be free to renege on a settlement that the IRS wrote and which both the taxpayer and the IRS’s settlement officer signed, and proceed with a Tax Court petition.
When the IRS reneges on a contract I think it’s litigable in Court of Federal Claims but the absence of a jury is a formidable problem in that court. I hope it’s litigable in District Court.
I don’t know why my comment on last Friday’s designated orders article is rejected, so I’ll try here before giving up. US Court of Appeals for the District of Columbia Circuit ruled that when the IRS issues a different notice instead of the kind of notice that is statutorily required, it is not a ticket to Tax Court. As far as I can find, this is a case of first impression overturning Craig v. CIR at the appellate level.
Based upon too much bad experience, I think the only way to zealously protect your client is to file Tax Court petitions even when a favorable Notice of Determination has been received. For example, I had a case in which, after initial NFTL, IRS and taxpayer entered into a Partial Pay Installment Agreement, taxpayer satisfied the terms of the Installment Agreement, but eventually the IRS refiled NFTL after the statute expired. This left the taxpayer with no CDP rights. In theory, the taxpayer can request the Tax Court to retain jurisdiction to enforce the Notice of Determination and to order other relief if things go off the rails.
In practice, just as you say the refusal to sign Form 12257 creates extra work for Appeals, a seemingly unnecessary Tax Court case creates extra work for the Tax Court. But, just as Appeals has created the problem discussed in your blog post, the Tax Court has created its own problem with unnecessary Tax Court cases by acceding to the IRS’s “One Bite At the Apple” regulation.
Thanks for the comment, and I share your frustration. Your idea of filing a petition asking the Tax Court to retain jurisdiction even though the Notice of Determination is not, on its face, something either party disagrees with is an interesting tactic I have never tried. I do wonder how receptive the Court would be to it, on some sort of “ripeness” argument -though when the case would actually be ripe jurisdiction would probably be long-gone.
I also wonder if the Court may say that the case would only be ripe when the IRS fails to live up to its end of the deal, and then there would be cause for a remedy not in Tax Court, but in district court on some sort of quasi-contract or wrongful collection damage action. To me, the Tax Court loves to point out that “there are other venues” (a refund suit in district court being the most common but not always earnestly available option) when the taxpayer seems to be left in the cold and the Tax Court says it has no jurisdiction. Then again, I’ve never brought any of those sorts of suits, so I’m not particularly confident they would have much of a chance…
“In theory, the taxpayer can request the Tax Court to retain jurisdiction to enforce the Notice of Determination and to order other relief if things go off the rails.”
It sounds like EVERYONE should request Tax Court to retain jurisdiction. Ordinarily the IRS only has to wait more than 90 days after Tax Court’s ruling became final, so that Tax Court loses jurisdiction, and then the IRS can freely violate the ruling.