IRS Collection Appeals “Dead Ends”– Collection Due Process Procedural Traps for the Unwary by Cory Stigile
In Keller Tank Services II Inc. v. Commissioner, 848 F.3d 1251 (10th Cir. 2017), the Tenth Circuit affirmed the Tax Court’s holding that a taxpayer could not challenge a Section 6707A penalty during a collection due process hearing or in a subsequent Tax Court proceeding because it already challenged the penalty with the IRS Appeals Office.
This holding illustrates how challenges to IRS liabilities that are not subject to the familiar tax deficiency procedures may have multiple pathways to IRS Appeals, but not all of those pathways allow for the Appeals determination to be further appealed to the Tax Court. Two liabilities that present this issue are assessable penalties (i.e. Section 6707A in Heller) and interest.
As set forth in Keller, after the IRS proposes a Section 6707A penalty, the taxpayer has 30 days to agree to or protest the penalty to the Appeals Office. Keller filed such a protest with IRS Appeals to seek rescission of the penalty under Section 6707(d). Keller received a telephonic conference with an Appeals Officer, but the penalty was ultimately sustained and the Appeals Officer closed the case. Congress did not provide for this type of determination in appeals be further appealed by filing a Petition the Tax Court. While there could be benefits to this type of appeal, namely a pre-collection opportunity to have a second independent IRS employee review the same issue, this may be the end of the road for disputing the substantive liability. Contrast this with the taxpayer in Yari v. Commissioner, Yari, were the taxpayer first appealed an IRC Section 6707A Penalty in the context of a CDP proceeding instead of through an administrative appeal. See Yari v. Comm’r, 143 TC 157 (2014), affd without discussion of this issue, 118 AFTR 2d 2016-6096 (9th Cir. 2016). In Yari, unlike in Keller, the Tax Court had jurisdiction to review the dispute of the underlying liability.
Similarly, after the IRS assesses interest, if the taxpayer wishes to seek interest abatement for IRS delays in the audit or the IRS improperly computes interest suspension, a statutory right to appeal exists in IRC Section 6404. Despite this appeal right being present, the taxpayer should still consider waiting to dispute the liability in a CDP Appeal so that they are not faced with a dead end appeal if they exceed the net worth limitations set forth in IRC Section 6404.
In practice, presenting arguments to or negotiating with a final decision maker presents a different dynamic than making an argument to someone who can be overruled as a matter of law (or for abusing their discretion in collection situations). As such, a taxpayer should be well informed so that the taxpayer does not take an appeal pathway that results in a dead end with no further pre-collection appeal rights to the Tax Court.
CORY STIGILE – For more information please contact Cory Stigile – firstname.lastname@example.org Mr. Stigile is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., a CPA licensed in California, the past-President of the Los Angeles Chapter of CalCPA and a Certified Specialist in Taxation Law by The State Bar of California, Board of Legal Specialization. Mr. Stigile specializes in tax controversies as well as tax, business, and international tax. His representation includes Federal and state civil and criminal tax controversy matters and tax litigation, including sensitive tax-related examinations and investigations for individuals, business enterprises, partnerships, limited liability companies, and corporations. His practice also includes complex civil tax examinations. Additional information is available at www.taxlitigator.com