Ambiguous Notice of Deficiency Invalid; Tax Court Case Dismissed

Ambiguous Notice of Deficiency Invalid; Tax Court Case Dismissed

U.S. Tax Court

A divided Tax Court held that a notice of deficiency that the IRS sent to a company that included information regarding another related company was ambiguous and invalid, and dismissed the petition challenging the notice of deficiency for lack of jurisdiction. U.S. Auto Sales Inc. is a Georgia corporation that is related to and shares an address with U.S. Auto Finance Inc. However, the corporations filed separate income tax returns for their 2003, 2007, and 2008 tax years. In May 2012 the IRS sent a notice of deficiency to U.S. Auto Sales for 2003 and 2007, but some pages of the notice were related to U.S. Auto Finance. In August 2012 the IRS sent another notice for the 2007 and 2008 tax years. U.S. Auto Sales filed separate petitions with the Tax Court challenging both notices. The IRS sought dismissal of the petition regarding the May 2012 notice for lack of jurisdiction, arguing that the notice was invalid because it failed to make a determination as to U.S. Auto Sales as required under section 6212(a). U.S. Auto Sales opposed dismissal, claiming that the notice was valid. Judge L. Paige Marvel, writing for a divided Tax Court, pointed to the court’s decision in <a href="/lr/resolve//1q4zp" target="_blank">Dees v. Commissioner</a>, 148 T.C. 1 (2017), which clarified the standard that the court applies in determining whether an ambiguous notice of deficiency is valid. Under Dees, the court applies a two-part test. First, the court considers whether, objectively, the notice would inform a reasonable taxpayer that the IRS has determined a deficiency regarding that taxpayer. If the notice doesn’t satisfy step one, then the party seeking to invoke the court’s jurisdiction must show that the IRS made a determination regarding the taxpayer and that the taxpayer wasn’t misled by the ambiguous notice. Marvel found that the notice was ambiguous on its face, finding it “fatally inconsistent as to the identity of the taxpayer against whom the deficiencies are determined.” The court found that the documents included in the notice of deficiency made it impossible to determine which entity owed the deficiency. The court then considered whether step two of the Dees test was satisfied, and found that U.S. Auto Sales could not show that the notice of deficiency reflected a determination regarding that corporation. Marvel found that the IRS’s introduction of U.S. Auto Sales returns showed that the notice of deficiency could not relate to it. The court also noted U.S. Auto Sales' admission that the notice reflected determinations regarding U.S. Auto Finance. Marvel rejected U.S. Auto Sales’ arguments that precedent supported its position that the notice was valid and that the IRS’s later notice of deficiency supported its position that a deficiency had been determined against it in the May notice of deficiency. The Tax Court concluded that the notice of deficiency was invalid and that, without a valid notice, the Tax Court lacks jurisdiction. In a concurring opinion, Judges Marvel and Albert G. Lauber responded to the dissent of Chief Judge Maurice B. Foley and Judge Patrick J. Urda, who claimed that the court’s opinion in <a href="/lr/resolve//1pfzq" target="_blank">Scar v. Commissioner</a>, 81 T.C. 855 (1983), controls. That decision was reversed by the Ninth Circuit. Marvel and Lauber noted that the taxpayer will still have an opportunity to challenge the adjustments that the IRS made in the August notice of deficiency. Judge Ronald L. Buch wrote a separate concurring opinion, also addressing the dissent’s argument that the court should have considered Scar, calling a reconciliation with Scar a needless exercise because that case didn’t involve an ambiguous notice of deficiency. In Foley and Urda’s dissent, they argued that there only need be a notice of deficiency that apprises a taxpayer of deficiency determinations for specific tax years to exercise jurisdiction. According to them, the court’s decision contradicts its prior decision in Scar and raises the code’s low jurisdictional bar. Judge Tamara W. Ashford also dissented, arguing that the court has jurisdiction over the case and pointing out her concurrence in Dees that disagreed with the two-part test set forth in that opinion. According to Ashford, “the Commissioner’s sloppiness with respect to the May notice should not be rewarded.”

A divided Tax Court held that a notice of deficiency that the IRS sent to a company that included information regarding another related company was ambiguous and invalid, and dismissed the petition challenging the notice of deficiency for lack of jurisdiction.

A divided Tax Court held that a notice of deficiency that the IRS sent to a company that included information regarding another related company was ambiguous and invalid, and dismissed the petition challenging the notice of deficiency for lack of jurisdiction. U.S. Auto Sales Inc. is a Georgia corporation that is related to and shares an address with U.S. Auto Finance Inc. However, the corporations filed separate income tax returns for their 2003, 2007, and 2008 tax years. In May 2012 the IRS sent a notice of deficiency to U.S. Auto Sales for 2003 and 2007, but some pages of the notice were related to U.S. Auto Finance. In August 2012 the IRS sent another notice for the 2007 and 2008 tax years. U.S. Auto Sales filed separate petitions with the Tax Court challenging both notices. The IRS sought dismissal of the petition regarding the May 2012 notice for lack of jurisdiction, arguing that the notice was invalid because it failed to make a determination as to U.S. Auto Sales as required under section 6212(a). U.S. Auto Sales opposed dismissal, claiming that the notice was valid. Judge L. Paige Marvel, writing for a divided Tax Court, pointed to the court’s decision in Dees v. Commissioner, 148 T.C. 1 (2017), which clarified the standard that the court applies in determining whether an ambiguous notice of deficiency is valid. Under Dees, the court applies a two-part test. First, the court considers whether, objectively, the notice would inform a reasonable taxpayer that the IRS has determined a deficiency regarding that taxpayer. If the notice doesn’t satisfy step one, then the party seeking to invoke the court’s jurisdiction must show that the IRS made a determination regarding the taxpayer and that the taxpayer wasn’t misled by the ambiguous notice. Marvel found that the notice was ambiguous on its face, finding it “fatally inconsistent as to the identity of the taxpayer against whom the deficiencies are determined.” The court found that the documents included in the notice of deficiency made it impossible to determine which entity owed the deficiency. The court then considered whether step two of the Dees test was satisfied, and found that U.S. Auto Sales could not show that the notice of deficiency reflected a determination regarding that corporation. Marvel found that the IRS’s introduction of U.S. Auto Sales returns showed that the notice of deficiency could not relate to it. The court also noted U.S. Auto Sales' admission that the notice reflected determinations regarding U.S. Auto Finance. Marvel rejected U.S. Auto Sales’ arguments that precedent supported its position that the notice was valid and that the IRS’s later notice of deficiency supported its position that a deficiency had been determined against it in the May notice of deficiency. The Tax Court concluded that the notice of deficiency was invalid and that, without a valid notice, the Tax Court lacks jurisdiction. In a concurring opinion, Judges Marvel and Albert G. Lauber responded to the dissent of Chief Judge Maurice B. Foley and Judge Patrick J. Urda, who claimed that the court’s opinion in Scar v. Commissioner, 81 T.C. 855 (1983), controls. That decision was reversed by the Ninth Circuit. Marvel and Lauber noted that the taxpayer will still have an opportunity to challenge the adjustments that the IRS made in the August notice of deficiency. Judge Ronald L. Buch wrote a separate concurring opinion, also addressing the dissent’s argument that the court should have considered Scar, calling a reconciliation with Scar a needless exercise because that case didn’t involve an ambiguous notice of deficiency. In Foley and Urda’s dissent, they argued that there only need be a notice of deficiency that apprises a taxpayer of deficiency determinations for specific tax years to exercise jurisdiction. According to them, the court’s decision contradicts its prior decision in Scar and raises the code’s low jurisdictional bar. Judge Tamara W. Ashford also dissented, arguing that the court has jurisdiction over the case and pointing out her concurrence in Dees that disagreed with the two-part test set forth in that opinion. According to Ashford, “the Commissioner’s sloppiness with respect to the May notice should not be rewarded.”

Sec. 6212 Notice of deficiency

Sec. 6213 Restrictions applicable to deficiencies; petition to Tax Court

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Ambiguous Notice of Deficiency Invalid; Tax Court Case Dismissed