Carl Smith concludes the Godfrey trilogy with an argument that parts of the regulations under Section 6330 that consider the issuance of a valid nonreceived NOIL are inconsistent with legislative history. Les
In two prior posts on the Tax Court’s unpublished order in Godfrey v. Commissioner, Keith’s post and my post discussed one issue in the case – the consequences of the IRS’ failure to send a copy of a notice of intention to levy (“NOIL”) to the holder of a POA, in seeming violation of section 6304(a)(2)’s prohibition on direct communications with a represented taxpayer on collection matters. But, the order in the case presents a second, equally consequential issue. In Godfrey, the IRS sent the NOIL directly to the taxpayer at the taxpayer’s last known address, but she did not actually receive the NOIL. The NOIL was returned by the Post Office to the IRS unclaimed, and the taxpayer says she was never alerted to a certified letter waiting for her at the Post Office. By the time the taxpayer and her attorney realized that an NOIL had been issued, over a year had passed. The next day, the POA filed with the IRS a Form 12153 requesting a Collection Due Process (“CDP”) hearing. The IRS then sent a letter denying any CDP hearing because the Form 12153 was filed too late – beyond the 30-day period provided in section 6330(a)(2) and (3)(B) for requesting a hearing. Within 30 days of that letter, the taxpayer petitioned the Tax Court. In addition to holding that the mailing of an NOIL to a POA was not required to make an NOIL valid, in its order, the Tax Court dismissed the case for lack of jurisdiction on the ground that simple mailing to the last known address of the taxpayer is enough to make an NOIL valid for commencing the 30-day period in which to request a CDP hearing – even in a case where the taxpayer never received the notice in the 30-day period so that she could file a timely request. For the proposition of the NOIL’s validity for commencing the 30-day period, even in the absence of receipt, the court relied on a Treasury regulation under section 6330.
The taxpayer in Godfrey has moved to vacate the dismissal order, citing the violation of section 6304(a)(2) as one of two grounds. The second ground for vacating the order is that the regulation is invalid as contrary to the legislative history of the CDP NOIL provisions. This argument had not previously been made in the Godfrey case before the court ruled to dismiss the case. So, it is problematic whether the regulation invalidity issue will be considered by the court now. However, since this issue doubtless come up with frequency – indeed, the same fact pattern of non-receipt of an NOIL and dismissal of the ensuing Tax Court suit came up in Roberts v. Commissioner, T.C. Summary Op. 2010-21 (citing the regulation, but not considering its validity) – I thought it would be useful to go over the argument that the regulation is invalid and that the taxpayer is entitled to a CDP hearing, belatedly, if she does not receive the NOIL in the 30-day period. I find the regulation invalidity argument quite compelling. Disclosure note: Because I thought I could help Ms. Godfrey’s current counsel, John Genova, Esq., in presenting this argument, I recently entered my co-appearance in the case with Mr. Genova and helped draft the motion.
When Congress enacted CDP in 1998, one of its concerns was the situation of the IRS having mailed a notice of deficiency to the taxpayer at her last known address, but of her not having received it in sufficient time to initiate a prepayment contest to it by filing a timely Tax Court petition under section 6213(a) (as opposed to a post-payment contest of it in district court or the Court of Federal Claims). It was well-settled that the 90-day period in which to file a Tax Court deficiency petition is commended when the notice of deficiency is mailed to the taxpayer’s last known address, regardless of its non-receipt. If no petition is filed during the 90-day period, the IRS is permitted to assess the deficiency – again, despite the taxpayer’s non-receipt of the notice of deficiency. To mitigate the harshness of this situation, CDP was constructed to allow a taxpayer to challenge an assessed underlying liability – again, prepayment – in cases where the taxpayer “did not receive any statutory notice of deficiency . . . or did not otherwise have an opportunity to dispute such tax liability”. Section 6330(c)(2)(B).
There has been considerable litigation about what constitutes receipt of a notice of deficiency for purposes of section 6330(c)(2)(B) and what constitutes receipt of a Letter 1153 proposing assessment of section 6672 trust fund penalties for purposes of having a prior opportunity to dispute such “taxes” under the same subsection. Under the case law, the Tax Court often finds non-receipt by crediting taxpayer testimony that he or she did not deliberately refuse to receive mail, but may hold that there was constructive receipt in a case, say, where the taxpayer rarely checked his mailbox and had a pattern of not opening envelopes and ignoring certified mail notices. Compare Swanton v. Commissioner, T.C. Memo. 2010-140 (finding non-receipt), with Onyango v. Commissioner, 142 T.C. No. 24 (June 24, 2014) (finding constructive receipt) – Onyango being a case that Keith did a blog post on September 10, 2014. Without citing to that case law (but apparently following it), the court in Godfrey held that the taxpayer had not actually received the NOIL, though it had been properly mailed to her at her last known address.
Essentially like section 6212(a) and (b)(1) for notices of deficiency, section 6330(a)(2) requires that, not less than 30 days before the day of the first levy concerning the taxes shown in the NOIL, the NOIL be either served in person, left at the taxpayer’s dwelling place or usual place of business, or sent by certified mail to the taxpayer’s last known address. Section 6330(a)(3)(B) requires that the NOIL contain language informing the taxpayer of “the right . . . to request a hearing during the 30-day period under paragraph (2)”. The statute does not say what happens if the NOIL, if properly mailed to the taxpayer’s last known address, is not received in the 30-day period such that, like the rule of section 6213(a), the Tax Court could not hold a deficiency proceeding. But, is the taxpayer in such situation required to lose her right to a pre-enforced-payment CDP hearing? It hardly seems likely that the same Congress that enacted section 6330(c)(2)(B) would want that result. But, Congress wrote nothing in the statute about this situation of non-receipt of a properly-mailed NOIL.
However, Congress did say something about this situation of a non-received NOIL in the Conference Committee report. It wrote:
If a return receipt [for mailing the NOIL by certified mail] is not returned, the Secretary may proceed to levy on the taxpayer’s property or rights to property 30 days after the Notice of Intent to Levy was mailed. The Secretary must provide a hearing equivalent to the pre-levy hearing if later requested by the taxpayer. However, the Secretary is not required to suspend the levy process pending the completion of a hearing that is not requested within 30 days of the mailing of the Notice. If the taxpayer did not receive the required notice and requests a hearing after collection activity has begun, then collection shall be suspended and a hearing provided to the taxpayer.
H.R. Rep. (Conf.) 105-599, 105th Cong., 2nd Sess. (1998) at 266, 1998-3 C.B. at 1020 (emphasis added).
The second and third sentences of the above-quoted language are the origin of the so-called “equivalent hearing” in CDP, discussed in detail at Reg. sec. 301.6330-1(i). The last sentence, though, appears to be a command to hold a regular CDP hearing when a properly addressed NOIL was not received within the 30-day period. Only in a real CDP hearing must the IRS suspend collection action under section 6330(e)(1).
Reg. sec. 301.6330-1(a)(3), on which the Godfrey order relied, states:
Q-A9. What are the consequences if the taxpayer does not receive or accept the notification which was properly left at the taxpayer’s dwelling or usual place of business, or properly sent by certified or registered mail, return receipt requested, to the taxpayer’s last known address?
A-A9. Notification properly sent to the taxpayer’s last known address or left at the taxpayer’s dwelling or usual place of business is sufficient to start the 30-day period within which the taxpayer may request a CDP hearing. See paragraph (c) of this section for when a request for a CDP hearing must be filed. Actual receipt is not a prerequisite to the validity of the CDP Notice.
Q-A10. What if the taxpayer does not receive the CDP Notice because the IRS did not send that notice by certified or registered mail to the taxpayer’s last known address, or failed to leave it at the dwelling or usual place of business of the taxpayer, and the taxpayer fails to request a CDP hearing with Appeals within the 30-day period commencing the day after the date of the CDP Notice?
A-A10. When the IRS determines that it failed properly to provide a taxpayer with a CDP Notice, it will promptly provide the taxpayer with a substitute CDP Notice and provide the taxpayer with an opportunity to request a CDP hearing. Substitute CDP Notices are discussed in Q&A-B3 of paragraph (b)(2) and Q&A-C8 of paragraph (c)(2) of this section.
A-A9 provides that the NOIL is valid in the absence of actual receipt. In my view, that is a reasonable inference from the logic of the first quoted sentence of the Committee Report, since the Committee Report allows levy to begin after 30 days where a return receipt is not returned. But the Committee report first sentence simply makes the unreceived NOIL valid for purposes of beginning levying under section 6331 – not valid for purposes of cutting off a hearing right under section 6330(a) in cases of non-receipt of the NOIL during the 30-day period. The Committee report’s emphasized fourth sentence quoted above shows that Congress wanted a properly-addressed NOIL that was not received and responded to during the 30-day period to still give a right to a CDP hearing if the NOIL was received after the 30-day period. That fourth sentence only makes sense if the NOIL it is referring to is one that was properly addressed. If the NOIL was not properly addressed in the first place, the NOIL would be invalid under section 6330(a)(2). Congress would not have wasted its time on writing the fourth sentence if it was only considering misaddressed, invalid notices. Holding a properly-mailed, but not received NOIL valid for purposes of commencing levy, but not for cutting off a CDP hearing right is similar to holding a properly-mailed, but not received notice of deficiency valid for purposes of assessing the deficiency, but not cutting off the right to challenge the underlying liability in a CDP hearing.
In my view, A-10 of the regulation garbles the intent of Congress in the fourth sentence from the Committee report by providing that the NOIL needs to be reissued in the case of non-receipt only if the NOIL was not sent to the last known address and was therefore invalid ab initio. There is no such limitation in the language of the Committee report to non-receipt of invalid notices. Congress was clearly concerned with non-receipt of valid notices, since only a valid notice could have commenced the right of the IRS to start levying after 30 days or could have prohibited levy during the hearing process.
Although the Committee report does not specifically say so, a logical corollary to what is said in the report is that in the case of non-receipt within the 30-day period, the taxpayer still must file a CDP hearing request no later than 30 days after actual receipt. In Godfrey, the taxpayer only got a copy of the NOIL during the Tax Court proceeding (attached to the IRS motion to dismiss), but she requested a CDP hearing within a day after she learned (through her lawyer) that IRS transcripts showed an NOIL had been sent to her. That should be enough for the IRS to be forced to give her a CDP hearing.
If, as I believe, the regulation is invalid or can be distinguished, then the IRS’ letter to Ms. Godfrey stating that it would not give her either a CDP hearing or an equivalent hearing should be treated as a notice of determination that can form the basis of Tax Court jurisdiction under section 6330(d)(1). See Craig v. Commissioner, 119 T.C. 252 (2002) (incorrect letter at the end of what should have been a CDP hearing, but what was erroneously said to have been an equivalent hearing, is treated as a notice of determination that can underpin Tax Court jurisdiction). Since she filed her Tax Court petition within 30 days of that letter, her petition in the Tax Court is timely, and the Tax Court should remand the matter to Appeals to afford her a CDP hearing. If she disagrees with the supplemental notice of determination issued after that hearing, the case should return to the Tax Court for it to hear her appeal of that notice. Her case should not have been dismissed on the ground that the NOIL was valid to terminate her hearing rights, when the NOIL was not timely received.
As a final note, there is a published Tax Court opinion in which the Tax Court relied on the regulation that I here call invalid. In Mannella v. Commissioner, 132 T.C. 196, 199-200 (2009), rev’d on other grounds, 631 F.3d 114 (3d Cir. 2011) – which was cited in the Godfrey order with a “see also” cite – one issue was when the periods to elect innocent spouse relief under section 6015(b) and (c) begin to run. By statute, the 2-year periods to elect such relief start “after the date the Secretary has begun collection activities”. Citing to the 6330 regulation, the Tax Court in Mannella held that the issuance of the NOIL started the 2-year period running – even though the NOIL was not received by the taxpayer (because, her husband said, he had received it and hidden it from her). Mannella was tried pro se, and there is no discussion in the case of any challenge to the validity of the 6330 regulation – or of the 6330 legislative history that I cite above. Accordingly, Mannella is not precedent that the Tax Court needs to overrule to find the regulation invalid. To this day, the validity of the regulation on the issue of non-receipt of an NOIL is a case of first impression in any court.
Further, if this whole blog post sounds familiar, it should. This is not the first time Keith or I have complained of the invalidity of the CDP regulation and the incorrectness of the Mannella holding as both not reflective of legislative history and bad policy. In August 2013, the IRS proposed changes to the innocent spouse regulations under section 6015. See REG-132251-11, 78 F.R. 49242-49248, 2013-37 I.R.B. 191. Among the proposed changes was one to Reg. sec. 1.6015-5(b)(3)(ii) to “clarify” that the 2-year period starts irrespective of an electing spouse’s actual receipt of the NOIL, if it was sent by certified or registered mail to the electing spouse’s last known address. This proposal was to align the regulations to the holding in Mannella. On January 30, 2014, a number of low-income taxpayer clinicians (including Keith and I) submitted combined comments on the proposed regulations that, among other things, argued that Mannella was wrongly decided and the CDP regulation about non-receipt of NOILs was inconsistent with the legislative history. We recommended that, if an NOIL is considered a collection activity, the 2-year period start from the date of actual receipt of the NOIL. Our comments were published in Tax Notes Today, where they can be found at 2014 TNT 22-64. The proposed regulations are still outstanding, and the IRS has not responded to our comments. So, a taxpayer victory in Godfrey on this NOIL receipt issue would not only have an impact on CDP litigation, but, no doubt, affect the pending innocent spouse regulation changes currently proposing to adopt the Mannella holding.