The Tax Court in Brief – March 14th – March 18th, 2022

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation:  The Week of March 14, 2022, through March 18, 2022

Hamilton v. Comm’r, T.C. Memo. 2022-21 | March 15, 2022 |Urda, J. | Dkt. No. 139-19L


Short Summary: In this collection due process (CDP) case, the Hamiltons, individuals, sought review of the determination of the Office of Appeals to uphold the filing of a notice of federal tax lien (NFTL) for income tax liability, interest, and additional taxes. The Hamiltons did not challenge the liability. They challenged primarily that the hearing officer found (and the Office of Appeals upheld) that the Hamiltons were not eligible for collection alternatives to a NFTL.

Primary Holdings:

  • The settlement officer abused its discretion in upholding the NFTL. The officer failed to give proper consideration to points the Hamiltons raised during the CDP hearing, which undermined each of the grounds that the hearing officer relied upon in denying the collection relief requested by the Hamiltons. The settlement officer was plain wrong about hearing matters, and the administrative record was void of important documents. Finally, the officer’s denial of a brief extension for the Hamiltons to submit additional information was also arbitrary and capricious. A supplemental hearing was ordered.

Key Points of Law:

  • Section 6331(a) authorizes the Treasury Secretary (who acts through the IRS) to levy upon property and property rights of a taxpayer liable for tax if the taxpayer fails to pay the tax within 10 days after notice and demand for payment is made. The IRS is first required to notify the taxpayer in writing of his or her right to a pre-levy hearing with the Office of Appeals on the issue of whether the levy is appropriate. § 6330(a)(1), (b)(1). If a taxpayer requests a hearing, such hearing shall be held. § 6330(b)(3).
  • Section 6330(c)(2) prescribes the matters that a taxpayer may raise at a CDP hearing, including spousal defenses, challenges to the appropriateness of the collection action, and collection alternatives. The existence or amount of tax liability may be contested at the CDP hearing only if the taxpayer did not receive a notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute the liability. § 6330(c)(2)(B).
  • A “hearing” under Treas. Reg. § 301.6330-1(d)(2), Q&A-D6, does not require a face-to-face meeting; it can consist of an exchange of written communications.
  • Before the IRS can assess and collect a tax deficiency, it must first mail the taxpayer a notice of deficiency to the taxpayer’s last known address. § 6212(a), (b)(1); Reg. §§ 301.6212-2(a). If the taxpayer does not receive the notice of deficiency, the taxpayer can contest the liability at a CDP hearing. The fact that a notice of deficiency is mailed does not mean it is received by the taxpayer. However, the taxpayer bears the burden of proof to support an assertion that it did not receive the notices.
  • In reviewing a determination under section 6330(c)(2), the Court considers only issues properly raised during the CDP hearing. Treas. Reg. § 301.6320-1(f)(2), Q&A-F3, 301.6330-1(f)(2); Q&A-F3. IRC § 6330(c)(2)(B) bars a taxpayer from raising in a CDP hearing an underlying liability challenge if he had a prior opportunity to challenge the liability.
  • A taxpayer dissatisfied with a § 6330 determination of the Office of Appeals may file a petition with the Tax Court. If the existence or amount of tax liability is properly at issue, the Tax Court applies a de novo review. If the existence or amount of tax liability is not properly at issue, the Tax Court reviews the matter under an abuse of discretion standard, meaning that the decision of the Office of Appeals will be sustained unless it was made arbitrarily, capriciously, or without sound basis in fact or law.
  • When making the determination whether to sustain a collection action, a settlement officer must (1) verify that the requirements of any applicable law or administrative procedure have been met, (2) consider any relevant issues the taxpayers raised, including offers of collection alternatives, and (3) consider whether “any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the [taxpayers] that any collection action be no more intrusive than necessary.” § 6330(c)(3).
  • The Office of Appeals, during CDP hearings, must give adequate consideration to all meritorious issues the taxpayer raised during the hearing.
  • The failure of the administrative record to capture some documents can serve as grounds for the Tax Court to question the completeness of the administrative record that the settlement officer considered, thus giving rise to the possibility that the officer’s decision was arbitrary.
  • A settlement officer’s unreasonable denial of a request for more time for a taxpayer to submit financial information or other evidence may be an abuse of discretion, depending on the facts and circumstances of the proceeding, including the taxpayer’s demonstration “through word and deed” of a sincere commitment to meet their obligations in order to be eligible for a collection alternative.
  • Section 6330(c)(1) requires the Office of Appeals to obtain verification that the requirements of any applicable law or administrative procedure have been met. The Office of Appeals must verify that a valid notice of deficiency was mailed to the taxpayer.

Insights:  Taxpayers are wise to remain communicative with IRS officials during a CDP hearing process that seeks collection alternatives to a NFTL. The settlement officer abuses its discretion (i.e., acts arbitrarily, capriciously, or not in compliance with law) by failing to consider each legitimate or meritorious issue or fact presented by the taxpayer in the CDP hearing. And, a taxpayer should ensure that the administrative record is complete or otherwise does not lack important documentation that was considered during the CDP hearing. The lack of records in an administrative record is also grounds for the Tax Court to remand the matter for a supplemental hearing. In sum, a taxpayer should keep the settlement officer informed about the taxpayer’s grounds for collection alternatives as well as efforts to submit documentary evidence, including records that the settlement officer might request.


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