Tax Court in Brief | Chinweze v. Commissioner | Collection Due Process and IRS Form 3877 Mailing Requirements

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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

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.

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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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