Tax Court in Brief | Bunton v. Comm’r | Collection Due Process and “Last Known Address”

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Tax Court in Brief | Bunton v. Comm’r | Collection Due Process and “Last Known Address”

The Tax Court in Brief – March 7th – March 11th, 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 7, 2022, through March 11, 2022

Bunton v. Comm’r, T.C. Memo. 2022-20| March 10, 2022 | Morrison, E. | Dkt. No. 5770-19L

Short Summary: For tax years 2013, 2014, 2015, and 2016, the Buntons timely filed applicable Form 1040s and in them, reported gross income of zero and tax of zero and claimed significant refunds. In each instance, the IRS paid the refund. Then, in 2016, the IRS issued a notice of deficiency for tax years 2013 and 2014, mailed to the Buntons by certified mail. In 2017, the IRS did the same for tax year 2015. With respect to either notice, the Buntons did not file a petition with the Tax Court disputing the liability. The Buntons timely submitted a request for hearing but did not select a basis for disagreement or position to the intent to levy. Instead, the Buntons disputed the taxes owed, requested verification that the IRS followed all applicable rules, and requested a face-to-face hearing. The IRS informed the Buntons that the proposed levy was proper, all requirements for the levy had been met, and that a face-to-face hearing would not be allowed. The Buntons petitioned the Tax Court challenging the liability and the other determinations of the Office of Appeals.

Primary Holdings:

  • The Office of Appeals did not abuse its discretion in regard to any matter. The record showed that notices of deficiencies were mailed to the Buntons’ last known address, the Buntons are not entitled to contest liability, and a face-to-face meeting is not mandatory.

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 before an “officer or employee [of the Office of Appeals] who has had no prior involvement with respect to the unpaid tax.” § 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 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.
  • 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.
  • 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.
  • 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.
  • 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.

Insights:  This case reminds us that the Tax Court is a court of limited jurisdiction. If a determination of tax liability is not properly and timely contested at the collection due process hearing stage, a taxpayer will likely be barred from challenging that liability. If a taxpayer disputes receiving a notice of deficiency or other notice from the IRS, the taxpayer must be prepared to show, with credible evidence, that the IRS’s mailing of the notice was in error or should be set aside.