Tax Court in Brief | Jackson v. Commissioner | What’s at Issue in Reviewing the Determination of a Collection Due Process Hearing?

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The Tax Court in Brief – May 9th – May 13th, 2022

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Tax Litigation:  The Week of May 9th, 2022, through May 13th, 2022

Jackson v. Comm’r, T.C. Memo. 2022-50 | May 12, 2022 | Vasquez, J. | Dkt. No. 19634-18L

Opinion

Short Summary:  Petitioners, a married couple residing in Kansas, timely filed their Forms 1040, Individual Income Tax Returns, for 2012, 2013, 2014, 2015, and 2016 but did not fully pay the tax shown on those returns.  The Internal Revenue Service (“IRS”) assessed the balance of the unpaid tax, plus additions to tax and interest.

In January 2017, petitioners submitted a Form 9465, Installment Agreement Request, and Form 433-F, Collection Information Statement.  Petitioners requested a monthly installment payment of $556.  The IRS rejected this request on the grounds that petitioners had enough cash or equity to pay at least part of the balance due. The IRS also told petitioners that they would need to make all required estimated tax payments in order to become eligible for an installment agreement.

In July 2017, the IRS issued petitioners a notice of federal tax lien for 2012 through 2016. In November 2017, the IRS also issued a notice of federal tax lien for 2016. Both notices informed petitioners of their right to request a collection due process (“CDP”) hearing within 30 days of the date of the notices.  Petitioners did not request a CDP hearing within that timeframe.

In February 2018, the IRS issued petitioners a notice of intent to levy for 2012 through 2016. Petitioners’ authorized representative submitted a Form 12153, Request for a Collection Due Process or Equivalent Hearing, for 2006 through 2016. The Form 12153 indicated that petitioners were seeking 1) review of the notices of federal tax lien and the levy notice, 2) an installment agreement as a collection alternative, and 3) innocent spouse relief. Petitioners did not attach a Form 8857, Request for Innocent Spouse Relief, as instructed by the Form 12153.

Appeals found that the Form 12153 was timely as to the proposed levy but untimely as to the notices of federal tax lien. Thus, petitioners were granted a CDP hearing with respect to the proposed levy and an equivalent hearing with respect to the notices of federal tax lien.[1] Appeals also found that the only years properly at issue in these hearings were 2012 through 2016.

The assigned settlement officer (“SO”) found that the tax liabilities had been properly assessed and that all other legal requirements had been met. The SO also determined that petitioners were not current on their estimated tax payments and that their previously filed financial statement showed that the petitioners had equity in real property of around $98,000.

On May 2018, the SO sent petitioners and petitioners’ authorized representative a letter scheduling a telephone conference for June 14, 2018. This letter also informed petitioners that within 14 days of the date of the letter, they needed to submit 1) a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, 2) a list of their assets with current fair market values, 3) bank statements for the last three months, 4) proof that they had made all required estimated tax payments for 2017 and 2018, and 5) a proposed resolution.

Petitioners did not submit anything in response to this letter. During the scheduled telephone conference, petitioner’s authorized representative confirmed that petitioners had not submitted any of the requested documents and did not dispute the appropriateness of the assessments or liens. Their authorized representative only raised the issue of the rejected installment agreement and stated that petitioners were attempting to obtain a loan. The SO told the authorized representative that the petitioners were not eligible for an installment agreement. The SO and advised the authorized representative that petitioners make their estimated tax payments for 2018, continue the process of obtaining a loan, and then contact the IRS for further consideration. The SO received no further communication from the petitioners after this telephone call.

On September 5, 2018, Appeals issued a notice of determination sustaining the proposed levy and a decision letter upholding the notices of federal tax lien.[2] Petitioners timely filed a petition with the Tax Court. In their petition, petitioners stated only that they would like interest and penalties to be abated and an installment plan for the taxes due. The IRS filed a motion for summary judgment.

Key Issues

Primary Holdings

Key Points of Law

Insights: This case underscores the importance of at least attempting to meet all requirements for the relief requested from the IRS, including submitting all required forms, documentation, and estimated tax payments.  This case also is an object lesson in what happens when taxpayers challenge the underlying tax liability before the Tax Court without having done so in their CDP hearing—the Tax Court may not be too keen on entertaining the challenge and could apply a heightened standard of review to other issues. Finally, this case demonstrates that if a taxpayer does not raise an issue in a petition, the taxpayer may be deemed to have conceded that issue. In short, taxpayers should maintain diligence throughout all stages of a tax controversy in order to best protect their position.

[1] The main difference between a CDP hearing and an equivalent hearing is that a CDP hearing is subject to judicial review while an equivalent hearing is not. See Craig v. Comm’r, 119 T.C. 252, 258–59 (2002); Treas. Reg. § 301.6320-1(i)(2), Q&A-I6.

[2] Since the decision letter for the notices of federal tax lien related to an equivalent hearing, the decision letter was not before the Tax Court. See Craig, 119 T.C. at 258–59; Treas. Reg. § 301.6320-1(i)(2), Q&A-I6.