TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, June 22, 2012

First Circuit Sides With IRS, Reverses Tax Court on Collection Due Process Standard of Review

National Law Journal:  Taxpayers Lose as First Circuit Defers to IRS in Reviewing Collection Proceedings:

The U.S. Court of Appeals for the First Circuit has adopted a deferential standard for reviewing IRS Service collection due process proceedings — one based on reasonableness, not necessarily correctness.

On June 20, a unanimous panel reversed a 2008 U.S. Tax Court judgment [Dalton v. Commissioner, T.C. Memo. 2008-165 and 135 T.C. 393 (2010)] that overruled the IRS's rejection of two taxpayers' offer to settle their tax bill for "pennies on the dollar." It also reversed the Tax Court's award of attorney fees to the taxpayers [T.C. Memo. 2011-136].

Senior Judge Bruce Selya wrote the opinion in Dalton v. Commissioner [No. 11-2217] joined by Chief Judge Sandra Lynch and Judge Michael Boudin. Selya noted that no court has previously parsed the standard a court should apply when examining the IRS's conclusions following a collection due process hearing. The First Circuit found that the "Tax Court employed an improper standard of review with respect to the IRS's subsidiary determinations. Applying a more deferential standard to these determinations consistent with the nature and purpose of the CDP process, we conclude that the IRS did not abuse its discretion when it rejected the taxpayers' offer in compromise."

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The first circuits conlcusion was inevitible when the courts of appeals fundamentally misderstood the CDP process and purpose - notably with the the first blow by the 8th circuit in robinette. the circuit courts had no fundamental understanding of RRA98, nor the difference between what happens at appeals in the course of a deficiency case vs a CDP case. all the precedent that the 1st circuit relies on is a fall out of the misguided holding of the 8th circuit in robinette.

most taxpayers would not understand, or believe, that if they send their attorney to meet with an appeals officer for the CDP hearing that they, as the petitioner can offer no evidence as he/she was not present at the hearing. but that is a very very very hypothetical situation. the irs learned that it did not have to use appeals officers at all to conduct cdp hearings. the its learned it did not have to conduct face to face hearings unless asked for and most taxpayers do not ask for it or know that the irs has to come to them rather than they go to the irs (sometimes very far away). the irs learned it could use summary judgement to dispose of these cases even though my limited understanding of amdin law (which we are all goingto have to learn a lot more about after hme concrete) they cannot do. however, the tax court i willing to dispose of the cases via summary judgment regardless of whether or not it is or is not procedurally proper in a CDP case.

that sad fact is something we all know: that bad facts make bad law. and CDP was openly called collection DELAY process by almost everyone when it first started other than the tax protestors bringing the cases. and when the court is forced to write precedential cases on whether or not testimony of others is allowed at the hearing and the petitioner is your run of the mill protestor, there is no testimony allowed. a lot of bad fall out for the CDP people now (as the statute provides that protestor filings are not CDP filings and do not get CDP roights). same for transcription of cases. same for just about everything for the first couple of years. go and look at the precedential CDP cases from appro 2000 to 2004 and they virtually all involve protestors and the results come down to shut down protestor activity. well, those precedents bound the hands that tied them.

so now, basically if a taxpayer messed up the irs comes in says it is going to collect and the taxpayer has an almost insurmountable burden. and if the irs flubbed it is remanded to appeals. yes, the irs gets a second bite at the apple to get it right. the court remands instead of find that the irs cannot proceed with collection. i fail to see why the outcome is not an up or down: the irs gets to proceed with collection or it does not, rather than the irs gets to proceed with collection or the case is remanded to appeals.

so in the end, the taxpayer gets the process that he is due: the irs collects.

Posted by: tax guy | Jun 24, 2012 9:24:13 AM