On March 12, 2020, the Tax Court in a precedential opinion in the case of Lander v. Commissioner, 154 T.C. No. 7 adopted without change the opinion of Special Trial Judge Guy, holding that a taxpayer who failed to receive a notice of deficiency (NOD) could not litigate the merits of his tax liability in a Collection Due Process (CDP) hearing because he requested audit reconsideration and received an Appeals hearing as a part of that process. This is the first case to determine that a taxpayer who failed to receive their NOD could also be denied the opportunity to litigate the merits of the liability. Almost certainly the Court issued the case as a precedential opinion because it breaks new ground in holding that the failure to receive a notice of deficiency does not serve as a basis for a merits hearing in the Tax Court. We have discussed the case previously here, and here. The decision continues a pattern of so limiting the ability to litigate the merits of a tax liability that the promise of doing so when the CDP statute passed in 1998 seems almost eliminated through regulations and court decisions. This cannot be what Congress intended.
Many taxpayers fail to properly notify the IRS of a change in their last known address with a clear and concise notification. If the IRS mailed the NOD to the taxpayer’s last known address but the taxpayer did not receive it, Congress seemed to address that situation in IRC 6330(c)(2)(B) which provides:
The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.
In the Lander case the parties stipulated to the non-receipt of the NOD. At issue was whether action subsequent to the assessment created a prior opportunity to meet with Appeals and whether the opportunity to meet with Appeals meant that the failure to receive the NOD no longer mattered for purposes of interpreting 6330(c)(2)(B).
In 1998 Congress allegedly heard lots of stories from individuals who were totally shocked to learn that they owed a liability to the IRS. These individuals apparently never knew they were being audited or, if they knew they were being audited, they thought the IRS had resolved the issues in the audit in their favor because they never received a NOD and only learned of the additional assessment when the IRS took some collection action against them. While I may have some skepticism that multitudes of people were in this circumstance, Congress apparently felt this way, and that belief drove the passage of the right to come back into Tax Court to litigate the merits of the tax liability – even where the IRS properly sent a NOD to the taxpayer’s last known address.
If the IRS had failed to send the NOD to the taxpayer’s last known address, the taxpayer already had a remedy to attack the assessment by filing a petition in Tax Court after the 90 days had run when the taxpayer became aware of the existence of the NOD. Such a petition would cause the Tax Court to make a determination regarding the reason it lacked jurisdiction. If the Tax Court determined that it lacked jurisdiction because the IRS sent the NOD to someplace other than the taxpayer’s last known address then, pursuant to cases such as King v. Comm’r, 857 F.2d 676 (9th Cir. 1988), the Tax Court would hold the NOD invalid, the IRS would abate the assessment and either the IRS would issue another NOD to the taxpayer’s last known address or, in cases where the statute of limitations on assessment had expired, the IRS would simply lose the right to assess.
So, the remedy in 6330(c)(2)(B) did not need to cover NODs sent to someplace other than the taxpayer’s last known address because the taxpayer already had a remedy for that. Similarly, the remedy would assist no one if unavailable to taxpayers who failed to receive a properly addressed NOD who had the administrative right to seek reconsideration of the assessment through audit reconsideration. This is because the administrative right to seek audit reconsideration after assessment already existed – and existed for all taxpayers assessed after an audit who did not consent to the assessment. IRM 4.13.1 describes audit reconsideration, which allows taxpayers who failed to convince the IRS prior to assessment following an audit to come back and show the IRS new information that would allow the IRS to abate the assessment down to the correct amount of tax. IRM 4.13.1 allows taxpayers who request audit reconsideration whose request is rejected by the Examination Division of the IRS to take their case to the IRS Office of Appeals to further their chances for success. What a taxpayer loses when seeking audit reconsideration is the right to go to Tax Court after an unsuccessful request. It seemed Congress sought to remedy the situation for taxpayers who failed to receive a NOD even though the NOD was correctly sent. Yet, the Tax Court in Landers says no.
In an effort to address the assessment they felt incorrectly reflected their tax liability, the taxpayers in Landers approached their Local Taxpayer Advocate (LTA). The LTA guided them to request audit reconsideration, and they did. Their effort to reduce their liability through audit reconsideration failed, and it included a trip to Appeals. At some point thereafter they received a CDP notice, timely mailed in a CDP request, obtained a hearing with Appeals and sought to raise the merits of their liability because they had not received the properly mailed NOD. Appeals denied them the right to raise the merits saying that they had done so during the audit reconsideration.
In Landers the Tax Court, for the first time and 22 years after the passage of CDP, holds that because a taxpayer can have an Appeals hearing on audit reconsideration and because the regulations say a hearing in Appeals serves as a prior opportunity within the meaning of IRC 6330(c)(2)(B) the taxpayer cannot litigate the merits of the liability in Tax Court. Because every taxpayer who fails to receive a validly mailed NOD has the opportunity to seek audit reconsideration and in the audit reconsideration process has the right to go to Appeals, the logical extension of the decision effectively renders the ability to go to Tax Court in a CDP case following the failure to receive a NOD meaningless.
Unquestionably, the Tax Court in upholding the decision to deny the Landers the right to raise the merits of their tax liability in the CDP case holds that audit reconsideration provides a trap for the unwary taxpayer who has failed to receive a NOD but may later want to go to Tax Court. As mentioned above, the logical extension of its decision means that the language of 6330(c)(2)(B) offering the right to go to Tax Court in a CDP case is an illusory right, since every taxpayer has the right to go into audit reconsideration and then the opportunity to go to Appeals if the examination division does not grant the requested relief.
Can this really be what the statute means?