Three Circuit Courts to Consider the Issue of When a Challenge to an Underlying IRS Liability can be Raised in a Collection Due Process Appeal

taylorlaw | 11/17/2016

Docketed in the Fourth, Seventh, and Tenth Federal Circuit Courts are cases which address the ability of a taxpayer in a Collection Due Process (CDP) appeal to challenge the merits of the underlying tax liability when the taxpayer previously had the opportunity to challenge the liability administratively. Iames v. Commissioner, Docket No. 16-1154, (4th Cir.), Our Country Home Enterprises, Inc. v. Comissioner, Docket No. 16-1279, (7th Cir.), Keller Tank Services II, Inc. v. Commissioner, Docket No. 16-9001 (10th Cir.). At issue in all three cases is I.R.C. §6330(c)(2)(B), and what exactly the phrase “otherwise have an opportunity to dispute such tax liability” means. Our firm, The Law Offices of A. Lavar Taylor, represents the taxpayers in each of the three pending Circuit Court cases.

These three cases present an issue of first impression for the Courts of Appeal. At issue is the language of §6330(c)(2)(B) which allows for the challenge to the amount of an underlying liability if “the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability”.  In these three cases a notice of deficiency was not, and could not, have been issued to the taxpayers.  As such the issue before the Courts of Appeal is what exactly constitutes an “opportunity to dispute such tax liability”.

In each of the three briefs submitted by our firm on behalf of the taxpayers, we argue for an expansive reading of §6330(c)(2)(B), a reading which maximizes the protection of taxpayers and ensures that taxpayers who dispute an unpaid tax liability have a full and fair opportunity to dispute a liability in court if they are not able to resolve their case with the IRS.  Our position is that, unless the taxpayer received a Notice of Deficiency or a document that is the functional equivalent of a Notice of Deficiency, the taxpayer may challenge the merits of the underlying liability in a CDP case.  Both the language of the statute as a whole and the purpose of the statute support this conclusion, and the IRS regulation which seeks to limit the ability of taxpayers to challenge a disputed liability in Court should be disregarded. 

Oral argument in the 7th and 10th Circuits occurred earlier this month, while oral argument in the 4th Circuit is scheduled for January, 2017.  This issue will affect thousands of taxpayers, and if we are successful, taxpayers will be able to challenge underlying liabilities through a CDP hearing, without having to first pay the liability, if they did not previously litigate, or have the right to litigate, the underlying assessment in Court.

Our firm represents many clients in Collection Due Process appeal.  If you have received a Final Notice of Intent to Levy or Notice of Federal Tax Lien, you have the right to a Collection Due Process appeal.  Please contact our office if you have any questions regarding your right to a Collection Due Process appeal. 

Learn more about Jonathan T. Amitrano.