Individual May Not Have Had Opportunity to Challenge Tax Liability

Individual May Not Have Had Opportunity to Challenge Tax Liability

U.S. Tax Court

The Tax Court denied the IRS summary judgment in a collection review case regarding the filing of a notice of federal tax lien to collect trust fund recovery penalties from an individual, finding that there is a genuine issue of material fact regarding whether the individual had a prior opportunity to challenge the underlying tax liability. Ricky B. Barnhill was a director at Iron Cross Inc., which failed to pay its employment taxes for 10 quarters. Barnhill received a Letter 1153, “Trust Fund Recovery Penalty Letter,” from the IRS proposing the assessment of penalties against him for failing to pay over Iron Cross’s trust fund taxes. He mailed a timely protest to Appeals but claimed he did not receive the letter from the IRS setting an appeals conference. When he did not participate in the conference, the liability was assessed and sent to collections. The IRS filed a notice of federal tax lien and informed Barnhill of his right to a collection due process hearing, which he requested. When he attempted to challenge his liability in the CDP hearing, the Appeals officer found that he could not because he had a prior opportunity to do so. The IRS sustained the lien filing, and Barnhill petitioned the Tax Court for review, claiming that he was not a responsible person under section 6672 and that the penalty amounts were overstated. The IRS sought summary judgment, arguing that Barnhill was precluded under section 6330(c)(2)(B) from challenging the underlying tax liability because he received a Letter 1153. David Gustafson, writing for the Tax Court, considered whether Barnhill was barred from challenging his liability for the trust fund taxes. Gustafson noted that the court has not previously addressed the question whether a taxpayer who pursues an appeals conference but, through no fault of his own, is prevented from participating in it is precluded under section 6330(c)(2)(B) from later challenging the liability. The court explained that the Letter 1153 itself did not constitute an opportunity to challenge but made available the opportunity to challenge. Gustafson wrote that “someone who has received a Letter 1153 but is waiting for his scheduled hearing is still awaiting his opportunity and has not yet gotten it.” The court found that Barnhill’s case was different from situations in which an individual received a Letter 1153, requested a hearing, and participated in it and when an individual received the Letter 1153 but failed to challenge the liability. Gustafson also explained that the receipt of a Letter 1153 regarding trust fund recovery penalties is not the same bar to challenging an underlying liability as the receipt of a statutory notice of deficiency. The Tax Court rejected the IRS’s claim that any error in not providing Barnhill with a hearing was harmless because the Appeals officer would have considered his arguments prior to making a decision. The court found that the Appeals officer may have considered his initial appeal but did not consider additional information that would have been provided in response to the letter setting up his conference. The court concluded that it was not clear that Barnhill had an opportunity to challenge the underlying tax liability and denied the IRS summary judgment.

The Tax Court denied the IRS summary judgment in a collection review case regarding the filing of a notice of federal tax lien to collect trust fund recovery penalties from an individual, finding that there is a genuine issue of material fact regarding whether the individual had a prior opportunity to challenge the underlying tax liability.

The Tax Court denied the IRS summary judgment in a collection review case regarding the filing of a notice of federal tax lien to collect trust fund recovery penalties from an individual, finding that there is a genuine issue of material fact regarding whether the individual had a prior opportunity to challenge the underlying tax liability. Ricky B. Barnhill was a director at Iron Cross Inc., which failed to pay its employment taxes for 10 quarters. Barnhill received a Letter 1153, “Trust Fund Recovery Penalty Letter,” from the IRS proposing the assessment of penalties against him for failing to pay over Iron Cross’s trust fund taxes. He mailed a timely protest to Appeals but claimed he did not receive the letter from the IRS setting an appeals conference. When he did not participate in the conference, the liability was assessed and sent to collections. The IRS filed a notice of federal tax lien and informed Barnhill of his right to a collection due process hearing, which he requested. When he attempted to challenge his liability in the CDP hearing, the Appeals officer found that he could not because he had a prior opportunity to do so. The IRS sustained the lien filing, and Barnhill petitioned the Tax Court for review, claiming that he was not a responsible person under section 6672 and that the penalty amounts were overstated. The IRS sought summary judgment, arguing that Barnhill was precluded under section 6330(c)(2)(B) from challenging the underlying tax liability because he received a Letter 1153. David Gustafson, writing for the Tax Court, considered whether Barnhill was barred from challenging his liability for the trust fund taxes. Gustafson noted that the court has not previously addressed the question whether a taxpayer who pursues an appeals conference but, through no fault of his own, is prevented from participating in it is precluded under section 6330(c)(2)(B) from later challenging the liability. The court explained that the Letter 1153 itself did not constitute an opportunity to challenge but made available the opportunity to challenge. Gustafson wrote that “someone who has received a Letter 1153 but is waiting for his scheduled hearing is still awaiting his opportunity and has not yet gotten it.” The court found that Barnhill’s case was different from situations in which an individual received a Letter 1153, requested a hearing, and participated in it and when an individual received the Letter 1153 but failed to challenge the liability. Gustafson also explained that the receipt of a Letter 1153 regarding trust fund recovery penalties is not the same bar to challenging an underlying liability as the receipt of a statutory notice of deficiency. The Tax Court rejected the IRS’s claim that any error in not providing Barnhill with a hearing was harmless because the Appeals officer would have considered his arguments prior to making a decision. The court found that the Appeals officer may have considered his initial appeal but did not consider additional information that would have been provided in response to the letter setting up his conference. The court concluded that it was not clear that Barnhill had an opportunity to challenge the underlying tax liability and denied the IRS summary judgment.

Sec. 6330 Notice and opportunity for hearing before levy

Sec. 6320 Notice and opportunity for hearing upon filing of notice of lien

Sec. 6672 Failure to collect and pay over tax, or attempt to evade or defeat tax

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Individual May Not Have Had Opportunity to Challenge Tax Liability