Lesson From The Tax Court: The Long And Short Of CDP

I call it Collection Delay Process for a reason.  Two recent cases are bookend lessons on the speed of CDP.  These two cases suggest that the fastest CDP resolution one can reasonably expect is 2 years, but one can push that to 7-8 years depending on the complexity of the case and persistence of the taxpayer. 

First, Do S. Wong v. Commissioner, T.C. Memo 2020-32 (March 5, 2020) (Judge Lauber) is one of the shorter CDP timelines I’ve seen, with a correspondingly short opinion of 12 pages.  There, the taxpayer was able to stop active collection for about 2 years.

Second, Ronald M. Goldberg v. Commissioner, T.C. Memo 2020-38 (April 2, 2020) (Judge Morrison) is one of the longer CDP timelines I’ve seen, with a correspondingly long opinion of 163 pages.  There, the taxpayer was able to stop active collection for 7.5 years.

What each of these taxpayers gained in delay, however, is somewhat offset by the simultaneous extension of the collection limitations period.  As a result Mr. Wong's 2013 liability and Mr. Goldberg's much older 2004 liability are both now likely collectible through 2029.  The IRS may continue with enforced collection for both but one taxpayer will owe more in penalties and interest because of the longer delay.  Next week we will consider a lesson that Goldberg teaches on interest (unless a more interesting lesson comes up).  Today, however, I just present these cases to illustrate what practitioners might expect in the CDP process.

The Short One: TP's Radio Silence Earns a 2 Year Delay 

 Mr. Wong timely filed his 2013 returns.  The IRS selected the return for audit and sent the NOD in June 2016.  Mr. Wong did not petition Tax Court and the IRS assessed the deficiency in February 2017. 

 In February 2018 the IRS filed a Notice of Federal Tax Lien and then timely sent Mr. Wong his CDP notice.  The CDP notice suspended further active collection until resolution of a timely CDP request.  He made a timely CDP request.  The Settlement Officer (SO) asked for the usual information including (1) copies of signed returns for post 2013 because the IRS had no record of his filing returns and (2) Form 433-A Collection Information Statement.  The SO set a hearing date for June 2018.  With no word as to why, Mr. Wong did not appear (by phone) on his hearing date.  About 2 weeks after the hearing date, Mr. Wong faxed the SO to ask for an extension, basically saying “I’m working on it.”  The SO left a voice mail saying no extension, but still waited about another month to see if Mr. Wong submitted anything.  He did not.  The SO issued a Notice of Determination in August 2018.

 Mr. Wong timely petitioned for Tax Court review but otherwise made no further submission to the Tax Court.  In March 2020 Judge Lauber wrote a 12 page opinion granting the IRS’s Motion for Summary Judgment, which it had filed in October 2019.   

 The Long One: TP’s Dogged Persistence Earns a 7.5 Year Delay 

 Trigger Warning: The Goldberg case is messy.  Really messy.  Judge Morrison and his staff deserve a huge amount of credit for crafting a extremely well-structured and readable 163 page opinion.  I’m going to simplify quite a bit of it because it’s the timeline that is the lesson for today, not the substance of Mr. Goldberg’s large number of losing arguments.

Mr. Goldberg and his wife timely filed their 2003 and 2004 returns.  The IRS selected the returns for audit in 2007 and, in May 2011, the Goldbergs signed a Form 4549, thus agreeing to an immediate assessment of the tax liabilities for 2003 and 2004 listed on the form, plus whatever interest and penalties would attach.  There was no amount of interest listed on the Form 4549.

By August 1, 2011 the IRS apparently had assessed the liabilities and accrued interest of $20,000 because that is the date it sent the Goldbergs a notice of the assessment and, presumably, a demand for payment. The opinion is silent on what notice was sent on August 1st but it sounds like the CP501, issued to comply with §6303.  If so that means the assessment was made on August 1st which was a Monday and that is when most assessments are made.

On August 23, 2011, the Goldbergs threw $50,000 at the IRS.  That apparently eliminated the non-interest component of their 2003 liabilities (although I think Judge Morrison’s opinion on page 22 says 2004 but I think that was a typo).  It also satisfied part of the non-interest component for 2004, and part of the total assessed interest.

On September 5, 2011, the IRS mailed Goldberg Letter 1058, which is the notice the IRS uses to comply with §6330.  It is the notice telling taxpayers that the IRS really is going to levy and taxpayer can get a CDP hearing if they act quickly.  It is usually sent after the CP501, CP502, CP503 and CP504.  So there’s a bit of a mystery here on precisely what notices were sent when.  It is all the more mysterious because this is the one period of time for which the IRS conceded it should not charge interest.  That was Mr. Goldberg's partial win here, a concession by the IRS.

In response to this first CDP notice Mr. Goldberg acted quickly, but instead of asking for a CDP hearing he filed a Form 843 asking for a refund and an abatement of both the underlying liability for 2004 and the assessed interest (claiming examination delays were the fault of the IRS).  In other words, having paid $50,000 towards his liabilities, Mr. Goldberg wanted to now contest them.  Someone should have told him about the Flora Rule!  You know, that’s the rule that a taxpayer must fully pay the tax owed before the taxpayer can seek a refund.  Some courts say that full payment also means paying accrued interest and penalties.  See this excellent post by Carl Smith on Procedurally Taxing. 

His Form 843 refund claim basically disappeared into the bowels of the IRS.  All Mr. Goldberg received were various letters from the IRS, each confirming his submission but stating that the IRS would need 45 more days to process the Form 843.  After about a year of that, Mr. Goldberg sought help from the Taxpayer Advocate Service who connected him with the Interest Abatement Group.  Since his Form 843 also contested liabilities but he had not fully paid them, the IRS employee sent his Form 843 over to the Audit Reconsideration Group.  Apparently the IRS declined to change the examination results and apparently Mr. Goldberg took that to Appeals and lost.  This is definitely not a taxpayer who slept on his rights!

Meanwhile, the IRS Collection function continued trying to collect the balance due on the 2004 tax year.  In October 2012 it filed an NFTL listing an amount owed of $17,000.  That action generated a second CDP opportunity for Mr. Goldberg.   He grabbed it.

On November 14, 2012, Mr. Goldberg successfully requested a CDP hearing.  He raised various arguments, apparently similar to the ones he had asserted as part of his Form 843 request, including the argument that the interest should be abated because the IRS improperly delayed the examination and, in addition, improperly delayed acting on his Form 843 request.

On May 28, 2013, Appeals issued a Notice of Determination sustaining the NFTL filing.  That is pretty darned quick work for Appeals.  Here, it may have been a little too quick.  Mr. Goldberg timely petitioned the Tax Court on June 26, 2013, and IRS Office of Chief Counsel soon saw some problems and asked the Court to remand the case back to Appeals.  The Court did so on December 17, 2013.  Meanwhile, thanks to his diligence and the Freedom of Information Act, Mr. Goldberg obtained all the records concerning the audits of his 2003 and 2004 liabilities.  He used those to construct a matrix of some 22 separate periods of time that he claimed were “delays” by the IRS.  The periods ranged from 3 days to 673 days.  You begin to see why Judge Morrison needed 163 pages.

At a time not provided in the Court’s Opinion, Appeals issued a supplemental determination, again denying all of Mr. Goldberg’s claims and rejecting all his arguments.  While the Opinion does not say when Appeals sent the case back to the Tax Court, it had to be well before July 2016 because that is when Mr. Goldberg asked for a second remand to Appeals.  The Court denied the motion and held trial on October 26, 2016.   Judge Morrison issued his opinion in April 2020, carefully considering and meticulously rejecting all of Mr. Goldberg’s arguments.

Lesson: Assiduous Taxpayers Get More Delay But At What Cost?

Most of the delay inherent in the CDP process comes from Tax Court review.  That is no cut on the Court whose personnel work hard to process cases.  And it is no cut on Office of Chief Counsel, whose personnel also work hard to process cases.  It’s just the nature of the beast.  In an adversarial process both parties must get the time they need to prepare and present their case to the Court.  The Court then needs time to process the arguments and evidence.  In contrast, an inquisitorial process like an IRS exam or an Office of Appeals review cuts out the adversary; it just the taxpayer who needs time to present the information and the decision-maker who needs time to process.

Still, look at the huge difference in these cases.  Mr. Wong was in and out of Tax Court in 18 months.  Mr. Goldberg was there for 7.5 years.  The biggest difference is that Mr. Wong basically abandoned his case but Mr. Goldberg fought tooth and nail, earning a remand to Appeals where it took that office about the same amount of time that it eventually took Judge Morrison to process through Mr. Goldberg's multifarious arguments.  It is perhaps something of an irony that each and every plausible argument Mr. Goldberg shoveled onto the wheelbarrow also added to the delay.  The Office of Appeals needed time to digest them, the IRS Office of Chief Counsel needed time to prepare a response, and the Court needed time to consider the evidence and evaluate the arguments of both parties.

Mr. Goldberg’s reward for his considerable efforts is thus...an extended time for the IRS to collect.  That is because the §6502 10 year period for the IRS to collect the assessed taxes was suspended during the period he was invoking his CDP rights.  So, if my calculations are correct, it would seem that the IRS has until sometime in 2029 to collect Mr. Goldberg’s 2004 tax liability and its ever-accruing interest.

Here is a chart I made to illustrate the cases.  Again, let me emphasize what I see: you can expect a minimum of a 2 year delay in CDP if you properly exercise your appeal rights and everything goes smoothly.  Any further delay is primarily due to the complexity of the case and arguments made by the taxpayer.  I welcome any comments folks have about their experiences support or undercut that point.

Taxpayer (Tax Year At Issue)	Wong (2013)	Goldberg (2004)
Assessment	02/2017	05/2011
Relevant CDP Notice	02/2018	09/2012
Appeal’s Notice of Determination	08/2018	05/2013
TP Petitions Tax Court	timely	timely
TC Decision and Opinion	03/2020	04/2020
Time in Tax Court	18 months	almost 7 years
Time CSED Suspended	2 years	7.5 years
Likely New CSED	2029	2029

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Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law