Friday, June 22, 2012
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."