The Tax Court in Brief – June 6th – June 10th, 2022
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Tax Litigation: The Week of June 6th, 2022, through June 10th, 2022
- Musselwhite v. Commissioner, T.C. Memo. 2022-57 | June 8, 2022 | Ashford, J.| Dkt. No. 14380-16
- Spencer v Commissioner, T.C. Memo. 2022-8 | June 7, 2022 | Marshall, J.| Dkt. No. 17106-19S
- Pocock v. Commissioner, T.C. Memo. 2022-55 | June 6, 2022 | Vasquez, J.| Dkt. No. 12558-17 Consolidated with Dkt. No. 23569-17L
Chinweze v. Comm’r, T.C. Memo 2022-56 | June 7, 2022 | Urda, J. | Dkt. No. 29940-15L
Short Summary: Innocent Chinweze worked at his own firm as a tax attorney. Chinweze organized the firm as an S corporation under the Code. He failed to timely file his tax returns from 2008-10 and 2012. The firm filed delinquent returns for 2008-10. The IRS adjusted his personal tax liability to reflect the firm’s net ordinary income for that time period. The IRS sent the notice via certified mail to his address in Florida on March 4, 2014. Chinweze did not protest the deficiency in the Tax Court, and the IRS assessed the amounts that it had determined. The IRS sent a notice of intent to levy on March 6, 2015. The IRS shortly followed up with a notice of federal tax lien (NFTL) filing. He requested a collection due process (CDP) hearing and expressed that the liability was incorrect. He then failed to attend two different CDP hearings. The Office of Appeals issued a NFTL filing. Chinweze timely filed a petition which the Tax Court remanded to the Office of Appeals. On remand Chinweze failed to provide any of the requested information. At the hearing, he claimed that he never received the notice of deficiency. The settlement officer informed him the notice was sent to his last known address and that he had until June 20, 2018 to submit all requested information. The officer confirmed the notice was sent to his last known address. Chinweze failed to file the information after three extensions of time. On September 18, 2018, the Office of Appeals issued a supplemental determination sustaining the NFTL filing without regard to Chinweze’s challenges because the IRS concluded that it sent a notice of deficiency to him. Thus, he already had a prior opportunity to challenge the liabilities. Furthermore, the IRS stated it did not receive the requested documents to consider any alternatives.
Key Issues:
- Did the settlement officer abuse her discretion in sustaining the collection action?
- Could Chinweze dispute the liabilities for the years 2008-10?
Primary Holdings:
- No. The settlement officer properly verified that the requirements of applicable law or administrative procedure were met, she considered relevant issues Chinweze raised and whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern that any collection action be no more intrusive than necessary.
- No. Chinweze was precluded from disputing the underlying tax liabilities because he received notice of his deficiency and notice of intent to levy a lien which already provided him an opportunity to contest the tax liability declared by the IRS.
Key Points of Law:
- Jurisdiction/Standard of Review: The Tax Court has jurisdiction to review the determinations of the Office of Appeals under §§ 6320(c) and 6330(d)(1). The Court reviews the validity of underlying tax liabilities de novo. Sego v. Comm’r, 114 T.C. 604, 610 (2000). The Court reviews all other determinations for abuse of discretion. Id. The operative rule for abuse of discretion is to uphold the determination unless it is arbitrary, capricious, or without sound basis in fact or law. Murphy v. Comm’r, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).
- Notice Challenge: The assessment of an income tax liability is generally valid if the IRS properly mails the taxpayer a notice of deficiency; however, the taxpayer may challenge the liability if he did not actually receive the notice of deficiency or did not otherwise have an opportunity to dispute it. §§ 6320(c), 6330(c)(2)(B); Treas. Reg. § 301.6320-1(e)(3), Q&A-E2.
- Prior Opportunity to Dispute Notice: A taxpayer has had a prior opportunity to dispute the liability where he previously received a CDP Notice under § 6330 with respect to the same tax and tax period and did not request a CDP hearing with respect to that earlier CDP Notice.
- Notice of Deficiency/Presumption of Official Regularity: A properly completed PS Form 3877 – Firm Mailing Book For Accountable Mail, Guide to Firm Mailers (usps.com) is sufficient, absent evidence to the contrary, to establish that notice was properly mailed to the taxpayer when the existence of the notice is undisputed. Coleman v. Comm’r, 94 T.C. 82, 91 (1990). Exact compliance with the Form 3877 mailing procedures raises a presumption of official regularity in favor of the IRS, which the taxpayer must rebut. Portwine v. Comm’r, T.C. Memo 2015-29, at *9. However, an incomplete certified mailing list that does not contain all of the information required is insufficient to create a presumption, but it still holds probative value. Id. at *11. Even without the presumption, the IRS can prevail if it provides otherwise sufficient evidence of mailing. Ruddy v. Comm’r, T.C. Memo 2017-39, at *11.
- Mailing Presumption/Rebuttal: The mailing of a properly addressed letter creates a presumption that it reached its destination and was actually received by the person to whom it was addressed. BM Constr. V. Comm’r, T.C. Memo 2021-13, at *12. The taxpayer may rebut that presumption with credible evidence. Id. However, merely providing self-serving testimony that the taxpayer did not receive the notice is insufficient to rebut the presumption. Campbell v. Comm’r, T.C. Memo 2013-57, at *9.
- Rule 331(b)(4): Any issue not raised in the assignments of error shall be deemed to be conceded.
- 6330(c)(3)(A)-(C): The IRS must consider the following for the basis of its determination: (A) the verification of the requirements for the investigation; (B); the issues raised at the hearing; (C) whether the proposed collection action balances the need for efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary. § 6330(c)(3)(A)-(C). If the taxpayer does not raise the issue in § 6330(c)(3)(A), then the taxpayer concedes the point at trial. Rule 331(b)(4).
Insights: This case highlights the importance of following IRS audit measures to protect substantive tax-related rights. Ignoring notices and CDP hearings will in most cases preclude a taxpayer from disputing the deficiencies declared by the IRS. This case also provides insight into the mailing rules the Tax Court follows. If the IRS properly mails a deficiency, then the taxpayer must rebut with something more than self-serving testimony. The Court looks to three points to see if the IRS abused its discretion in a CDP proceeding. First, if the IRS thoroughly reviews account transcripts and verifies all applicable requirements were met, then it meets the standard of §6330(c)(3)(A). Secondly, the IRS does not abuse its discretion under § 6330(c)(3)(B) if the taxpayer requests consideration of lien withdrawal and collection alternatives, and then fails to provide any information the IRS requires to substantiate the taxpayer’s alleged reasoning. Lastly, pursuant to § 6330(c)(3)(C), the IRS must balance the needs of efficient tax collection with being more intrusive than necessary when it proposes a collection action.
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