Contesting Liability in a CDP Hearing (11/23/12)

Judge Halpern has an interesting opinion in JAG Brokerage, Inc. v. Commissioner, T.C. Memo. 2012-315, here.  The case apparently involves John Gotti, reported to be an American mobster (Wikipedia, here),  who appears in the case along with Kim Gotti for the petitioner corporation.  Mr. Gotti was an officer of the petitioner and appears to have been incarcerated in solitary confinement when the notice of deficiency was issued to the corporate taxpayer, an artificial entity.  The notice of deficiency was copied to Mr. and Ms. Gotti (in her case under a different last name).  No Tax Court case was filed in response to the notice of deficiency.  The tax was assessed.  The IRS instituted collection procedures.  The corporate taxpayer sought to contest liability in a Collection Due Process process (CDP), in which the corporation was represented by Mr. and Ms. Gotti.  In a CDP hearing, the Appeals Office Employee (Appeals Officer or Settlement Officer) will not consider any issue previously disposed of in a CDP hearing or in a prior administrative or judicial proceeding in which the taxpayer could have contested liability and participated meaningfully.  As to the underlying liability, the taxpayer can only contest in the CDP hearing if he “did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.”  § 6330(c)(2)(B).  So the question was a nuanced one over whether the IRS's proof of mailing the notice of deficiency was adequate to establish that this receipt requirement was met, so as to preclude the taxpayer from contesting the liability.

Judge Halpern rejects the IRS's motion for summary judgment based on its mailing the notice to the petitioner at its last known address and to the two Gottis.  Judge Halpern reasons:

1.  This case turns upon receipt by a corporation, an artificial entity.  "Respondent does not explicitly address the first question; i.e., what, for purposes of section 6330(c)(2)(B), constitutes receipt by a corporation."

2.  "But petitioner is a corporation, an artificial person, and the question remains whether, for petitioner to be precluded by section 6330(c)(2)(B) from raising a challenge to its underlying tax liability, someone (an individual) employed by, or acting for, petitioner must have received the deficiency notice in time for it to have acted on it.  The mailbox rule does not answer that question."

3.  The only guidance is in regulations that state:  "Receipt of a statutory notice of deficiency * * * means receipt in time to petition the Tax Court for a redetermination of the deficiency determined in the notice of deficiency."

4.  "If we assume that the term "receipt" in section 6330(c)(2)(B) means actual receipt so as to accord the taxpayer a meaningful (and not just a hypothetical) opportunity to challenge the Commissioner's determination of a deficiency, then timely receipt on behalf of a corporation by someone (an individual) authorized to act for the corporation would seem to be required before the corporation is precluded from raising a challenge to its underlying tax liability at its Appeals hearing."

Judge Halpern then concludes:

Both our own analysis and respondent's position with respect to the adequacy of receipt of the deficiency notice by Mr. Gotti suggest that there is an unresolved question of law as to whether a corporate taxpayer has actually received a deficiency notice for purposes of section 6330(c)(2)(B) if it can show that the notice was not timely received by an individual authorized to act for the corporation. And while the inference of receipt to be drawn from the mailbox rule may, if unrebutted, be sufficient to carry respondent's burden of showing receipt by petitioner of the deficiency notice, we do have the fact, admitted by respondent, that Mr. Gotti was incarcerated when the notice was mailed. He is an officer of petitioner, and we assume that he could have acted for petitioner. Petitioner did not respond to the motion and has not established that (1) Mr. Gotti lacked timely knowledge of the notice (and was, therefore, precluded from acting on it) and (2) there was no one else knowledgeable of the notice and able to act on it.2 While for those reasons we might conclude that petitioner has failed to rebut the inference to be drawn from the mailbox rule (and, thus, has failed to show a dispute as to a material issue of fact), given the uncertainty as to the relevance of receipt by someone authorized to act for the corporation, we are hesitant to, and will not, grant the motion. If the case proceeds to trial, the parties can assist us in resolving the uncertainties.

For review, note that this inquiry is not whether the notice of deficiency was valid ab initio.  All that is required for a valid notice of deficiency is that it be sent to the last known address.  § 6212(b)(1), here.  Here, the inquiry presumed a valid notice of deficiency and was whether the notice of deficiency was received so as to provide the taxpayer a prior real opportunity to contest.