FTP2019 Update 03 - Minimum Payments and Voluntary Payments with OICs (9/25/19)

I have posted Update 03, here, dealing with minimum and voluntary payments required with OICs.  A listing of updates (with links) through today is here.

The update deals principally with Section 7122(c) dealing with minimum payments upon submission of OICs.

The page for the book editions and updates is at the right, titled 2019 Federal Tax Procedure Book & Updates, here.

Contesting Liability -- CDP, Audit Reconsideration and OICs for Doubt as to Liability (10/19/13)

Last week in my Tax Procedure Class, we covered Collections generally.  Subsets of collections that were covered were (i) audit reconsideration, (ii) offers in compromise and (iii) Collection Due Process (CDP) hearings.  Today, I write on a Tax Court order in Seifert v. Commissioner (T.C. No. 24735-12) Order dated 10/18/13, here, that in a short order covers key concepts for these three topics.

The taxpayers were assessed taxes in amounts that they claimed they did not owe.  Essentially, the IRS based its assessment on Form 1099 information of gross sales without reducing the gain for basis.   The taxpayers failed to contest the amounts after receiving a notice of deficiency.  So, the assessment on the allegedly excessive amounts was made.  When the IRS tried to collect, the taxpayers invoked the CDP procedures.  The Court rejected the taxpayers attempt to contest the merits of the amounts as follows:

Mr. Seifert asserts that "the sole subject" of this case is his contention that he does not actually owe the tax that the IRS is attempting to collect from him for 2007. That is, he challenges the asserted liability. We observe that it is a very plausible challenge, since gain on a sale must take into account the seller's cost. 

When Mr. Seifert received the notice of deficiency, he had an opportunity to challenge that liability in Tax Court. He could have presented evidence of his cost basis in the securities and, depending on his proof, could have seen his liability reduced or eliminated. But he did not do so. Consequently, the IRS's determination went unchallenged, and the IRS therefore had the right and the responsibility to assess and collect the tax it had determined. When the IRS undertook to collect the tax, then Mr. Seifert attempted for the first time to challenge that liability -- in the CDP hearing. 

However, under section 6330(c)(2)(B), Mr. Seifert may raise a challenge to the underlying liability as part of the CDP hearing only 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." But Mr. Seifert does not dispute that he did receive a notice of deficiency with respect to his 2007 liability. As a result, he is not permitted in the agency-level CDP hearing (nor in this judicial review of it) to challenge that liability.

But, as the IRS conceded and the Tax Court specifically observed, all is not lost to these taxpayers to achieve a fair result.  The Tax Court specifically said (emphasis supplied by JAT)

ORDERED that the Commissioner's motion for summary judgment is granted. However, Mr. Seifert is strongly encouraged to consider accepting the invitation of the Commissioner (made at pages 2-7 of his reply filed September 30, 2013) either to request audit reconsideration or to submit an Offer in Compromise based on Doubt as to Liability, outside of the CDP context.