Paul L. Caron

Thursday, September 28, 2017

Tax Code Statutes With No Hammer?

Generally, the Tax Code contains statutory consequences for taxpayers who fail to obey statutory commands.   Most of those statutory consequences are in the form of: "Additions to Tax" found in sections 6651-6658; "Accuracy-Related and Fraud Penalties" found in sections 6662-6664; "Assessable Penalties" found in sections 6671-6725; and, of course, all the various criminal and forfeiture statutes found in 7201-7345.

But what about statutory commands imposed on the IRS?  It turns out not all such commands carry a statutory hammer.  Let me give one example.  When the IRS assesses a tax and the tax is unpaid, section 6303 requires the IRS to send the taxpayer notice and demand for the unpaid tax within 60 days of the assessment.  But the statute is silent as to what consequence, if any, should occur if the IRS sends the notice and demand later than 60 days.  Treas. Reg. 301.6303-1 provides "the failure to give notice within 60 days does not invalidate the notice."

You might think that if the statute is silent on the consequences, then there are no consequences.  Most courts agree.  For example, the court in Friedman v. United States, 739 F.2d 252, 256 (9th Cir. 1984) said that "it is clear that section 6303 is to be given a practical and not technical construction" and so most courts decide that if the taxpayer receives actual notice of the unpaid liability even after the 60 days, the purpose of the statute is fulfilled.  E.g. Ramos v. United States, 99–2 USTC par. 50,878 (N.D.Cal.1999). 

Some courts, however, believe that the statutory silence about consequences give permission for the court to impose consequences on its own authority.  For example, in Behren v. United States, 764 F. Supp. 180 (S.D. Fla. 1991) the court found that the IRS had not sent an initial notice and demand for payment within the 60 days required by the statute.  The court decided that, as a consequence, the IRS should not be able to collect the tax administratively.  Specifically, the court held that for want of timely notice, the tax lien did could not arise. 

The majority view on 6303 seems right to me.  The purpose of the statute is to ensure that the IRS cannot set in motion its awesome collection machinery without giving the taxpayer warning and an opportunity to pay.  The IRS does that not only by issuing the first notice and demand for payment---which is usually done via a CP501 notice.  But it also sends out multiple other notices, each one a little more insistent.  And there are statutory consequences for failure to give later notices.  For example, section 6330 prohibits the IRS from using its levy powers until after it gives taxpayers notice of their opportunity for a "Collection Due Process" hearing.  Given the plethora of notices and other statutory consequences downstream, the Behren court's judicially created remedy seems unwarranted. 

I would welcome any comments that pointed out other statutory requirements imposed on the IRS that carry no statutory consequences.

Bryan Camp, Tax, Tax Practice And Procedure | Permalink


You mention 6330. If the IRS tries to enforce a levy while a CDP hearing is pending or levies without sending a notice of intent to levy at all, at least in the Seventh Circuit the taxpayer has no remedy because he hasn't gotten a ticket to Tax Court. Adolphson v. Commissioner, 842 F.3d 478 (7th Cir. 2016). Unlike the case of the IRS's assessing income tax without first sending a deficiency notice, the Code does not provide for an injunction in this case.

Posted by: Orrin Tilevitz | Sep 28, 2017 8:37:05 AM

It is an example of poor legislative drafting, pure and simple. An illustration of why real tax reform is needed. The Congress should be working on points of the tax code that need fixing. However, this is politically not sexy, takes time, and is in many cases nonideological. Ideological politicians are not interested in this.

Posted by: Victor Thuronyi | Sep 28, 2017 10:04:46 AM

@ Orirrn, thanks for pointing out Adolphson. Would such a taxpayer have a remedy in 7433?

Posted by: Bryan Camp | Sep 28, 2017 10:14:35 AM