We welcome back frequent guest blogger Carl Smith. Today, Carl discusses a recent decision on appeal from dismissal by the Tax Court for untimely filing a CDP request. The taxpayer timely filed the request after receipt but not within the applicable time from mailing. The facts make for a compelling case and maybe the next person with this problem now has a basis for winning this argument. We also wish to thank Tax Notes for allowing us to link to an comments to proposed regulations referred to at the bottom of this post. Keith
Here’s something you don’t see every day: The Eleventh Circuit faced two CDP arguments that it held were raised too late for it to consider on appeal. Yet the court was so bothered by the possible correctness of the arguments that it deliberately wrote a published opinion explaining the arguments. Here’s the penultimate paragraph of the opinion:
We do not reach the due process or legislative history arguments because Mr. Berkun did not properly raise them in the tax court. Given the lack of any substantive ruling on our part, this may seem like an opinion “about nothing.” Cf. Seinfeld: The Pitch (NBC television broadcast Sept. 16, 1992). And maybe it is. But we have chosen to publish it because the issues that Mr. Berkun attempts to raise on appeal may deserve attention from the bench and bar.
Berkun v. Commissioner, 2018 U.S. App. LEXIS 13910 (11th Cir. May 25, 2018) (slip op. at 12). This post will set out the arguments to publicize them – in hopes that practitioners and Tax Court judges dealing with pro se petitioners will consider raising the arguments timely in future Tax Court cases. For the Tax Court to accept one of the arguments, though, it will have to overrule one of its prior T.C. opinions.
In a nutshell, the first argument is that when the IRS puts a person in prison for tax fraud, Due Process requires that any notice of intention to levy (NOIL), if mailed, be mailed to him or her in prison and not merely to the residential address shown on the most recent tax return (where the IRS knows he or she is not currently living).
The second argument is one that has come up a number of times. In the innocent spouse case of Mannella v. Commissioner, 132 T.C. 196, 200 (2009), rev’d and remanded on other issue, 631 F.3d 115 (3d Cir. 2011), the Tax Court wrote:
If the [NOIL] is properly sent to the taxpayer’s last known address or left at the taxpayer’s dwelling or usual place of business, it is sufficient to start the 30-day period within which an Appeals hearing may be requested. Sec. 301.6330-1(a)(3), A-A9, Proced. & Admin. Regs. Actual receipt of the notice of intent to levy is not required for the notice to be valid for purposes of starting the 30-day period. Id. We see no reason the notice of intent to levy, including information about her right to section 6015 relief, mailed to petitioner at her last known address but not received by her should start the 30-day period to request an Appeals hearing but not start the 2-year period to request relief under section 6015(b) or (c).
In Berkun, the second argument was that both the structure of CDP and a sentence from its legislative history (one that was not discussed in the pro se case of Mannella), indicate that, contrary to Mannella, a NOIL mailed to a last known address but not actually received by the taxpayer in the 30-day period in which to request a CDP hearing does not cut off the right of the taxpayer to later request a CDP hearing (i.e., not an equivalent hearing), and the CDP regulation cited in Mannella is either distinguishable or invalid.
Alan Berkun had been convicted in New York of securities and tax fraud. The judge imposed restitution both to his victims and to the IRS. The IRS assessed the restitution under section 6201(a)(4). At the time of his incarceration, Berkun had been living with his girlfriend and their three mutual children in a house he owned in Florida, so he was incarcerated in Florida for a number of years.
While in jail, he wrote the IRS a letter asking that all correspondence concerning his tax issues be sent to him in jail. However, the income tax returns that he filed for the last two years prior to his release showed his address as the Florida house in which his girlfriend and children lived. He expected to move back into that house when he got out of prison, but shortly before release, his girlfriend ended the relationship and refused to let him move back in.
Shortly before Berkun’s release, a Revenue Officer (RO) was assigned to try to collect the restitution assessment. The RO learned that Berkun was in jail, but wanted to issue a NOIL. The RO decided to mail the NOIL to Berkun’s Florida house, without even copying Berkun in jail. Berkun’s girlfriend got the NOIL and threw it in the garbage, not telling Berkun about it.
A few months later, Berkun was released to live in his mother’s house. The RO visited him there and brought a copy of the NOIL, which he gave to Berkun. This was the first Berkun heard of the NOIL. Berkun promptly hired an attorney, who got a Form 12153 requesting a CDP hearing into the IRS’ possession within 30 days after the meeting. Berkun was not seeking to deny the correctness of the restitution assessment, but just to arrange for a collection alternative to immediate full payment through levy. One of the arguments that Berkun made was that his former girlfriend had converted a large amount of his property (including a valuable stamp collection) shortly after she learned of the NOIL, and he wanted the IRS to pursue her for collection of part of the liability.
Appeals held a hearing in which it did not agree to the collection alternative proposed or to pursue the former girlfriend. After the hearing, Appeals issued a decision letter, taking the position that the hearing was an equivalent hearing, not a CDP hearing, since Berkun had not filed his Form 12153 within 30 days of the mailing of the NOIL to his Florida house.
Tax Court Proceedings
Berkun’s lawyer filed a petition with the Tax Court and argued, under Craig v. Commissioner, 119 T.C. 252 (2002), that the decision letter should be treated as a CDP notice of determination giving the right to Tax Court review because Berkun had timely requested a CDP hearing within 30 days of actually receiving the NOIL. Berkun’s lawyer argued that, based on prior cases involving prisoners put in jail by the IRS, the last known address for Berkun on the day that the NOIL was mailed was prison, not the Florida house; thus, the NOIL that was mailed was invalid, and the NOIL that was hand-delivered was the first valid NOIL, as to which a timely Form 12153 had been filed.
In an unpublished order, Judge Carluzzo dismissed the petition for lack of jurisdiction, holding on these facts that the NOIL was mailed to Berkun’s last known address, since it was mailed to the address shown on his most recent tax return.
Keith and I read the unpublished order and realized that Berkun had a second argument for why the Tax Court had jurisdiction that Judge Carluzzo had not discussed (naturally, since Berkun’s then-lawyer did not know about the argument). We contacted Berkun and his lawyer and made them aware of the argument. Berkun’s lawyer moved to vacate the order of dismissal, making this new argument – that, even if the NOIL was mailed to Berkun’s last known address, because he did not actually receive it during the 30-day period, he was entitled to a CDP hearing by requesting one within 30 days after actual receipt. A copy of a 51-page memorandum of law that accompanied the motion to vacate can be found here.
The memorandum was so long because it takes a lot of time to explain this argument. I will not go into the argument in great detail. Instead, the reader may read the memorandum or a more detailed summary of it in a prior post I did on it here in connection with unpublished orders in a case named Godfrey v. Commissioner, Tax Court Docket No. 21507-13L. As noted in the post, Godfrey was a case where the NOIL, although mailed to the taxpayer’s last known address, was not actually received during the 30-day period. The post noted that the same had happened in Mannella and in Roberts v. Commissioner, T.C. Summary Op. 2010-21. In each case, the Tax Court cited the CDP regulation saying that an NOIL that was mailed to the last known address was valid, even if not received. But, the court did not discuss the structure of CDP or the legislative history that suggests that the regulation is distinguishable or invalid as to cutting off the right of a taxpayer in such a case to get a CDP hearing if the taxpayer did not file a hearing request within 30 days of the NOIL’s mailing.
Just to whet the reader’s appetite, here is from the Conference Committee report, where Congress 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.
The second and third sentences of the above-quoted language are the origin of the equivalent hearing, discussed in detail at Reg. § 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 section 6330(e)(1). Thus, while it is true that an NOIL that is not received in the 30-day period is valid for some purposes (e.g., to allow the IRS to start collection), it should not be valid for purposes of cutting off a right to a CDP hearing when one is requested later, after the NOIL is actually received.
Moreover, Congress was clearly concerned that nonreceipt of important IRS notices could deprive a taxpayer of prepayment Tax Court review. For that reason, Congress explicitly provided that, in a CDP hearing, the taxpayer may raise a challenge to the underlying liability if the taxpayer did not actually receive a notice of deficiency. Section 6330(c)(2)(B). It would be inconsistent with the purposes of CDP to allow Tax Court prepayment challenges to happen when a notice of deficiency was not actually received, but not when a NOIL was not actually received.
Judge Carluzzo wanted no part of this argument, so he denied the motion to vacate in a brief paragraph in an unpublished order, as follows:
In the face of seemingly plain statutory language and even plainer regulations”, Andre v. Commissioner, 127 T.C. 68, 71 (2006), petitioner, in his motion to vacate filed May 12, 2016, challenges our order of dismissal for lack of jurisdiction, entered April 15, 2016, that is supported by that plain statutory language, even plainer regulations, and numerous opinions of this Court. In support of his motion petitioner relies upon certain legislative history that his memorandum of authorities, also filed May 12, 2016, shows to raise more questions than it answers. Otherwise if, as in this case, the notice referenced in I.R.C. §6330(a)(1) & (2) is properly mailed to the taxpayer, we are aware of no authority for petitioner’s argument that the period referenced in I.R.C. §6330(a)(3)(B) should take into account the date the notice is received by the taxpayer rather than the date the notice is mailed by the Commissioner.
On appeal to the Eleventh Circuit, Berkun retained Joe DiRuzzo, who was admitted to that Circuit and had extensive appellate experience. Joe made the decision not to argue that the NOIL was not mailed to the last known address, but Joe incorporated into his brief the argument that an NOIL that is not timely received can still give rise to a CDP hearing and a new Due Process argument.
The Due Process argument was based on non-tax case law from forfeiture cases that holds that a notice of forfeiture, to satisfy Due Process, must be sent to an incarcerated person in jail. See, e.g., Dusenbery v. United States, 534 U.S. 161, 164-69 (2002) (Due Process satisfied by mailing a notice of forfeiture to a claimant by certified mail to the prison where he was incarcerated, to the residence where the claimant’s arrest occurred, and to the home where the claimant’s mother lived); United States v. McGlory, 202 F.3d 664, 672, 674 (3d Cir. 2000); Weng v. United States, 137 F.3d 709, 714 (2d Cir. 1998). Joe argued that these Due Process cases should be extended to serving NOILs, as well.
As noted above, the Eleventh Circuit held that both the legislative history and Due Process arguments should have been raised in the Tax Court before Judge Carluzzo’s order of dismissal, and the judge was within his rights not to consider the legislative history argument in a motion for reconsideration (though, query whether the judge actually considered it and rejected it on the merits?). But, the Eleventh Circuit was obviously troubled by the possible merit of these two arguments. So, it wrote it published opinion “about nothing” to make the bench and bar aware of the arguments.
The legislative history argument is not a new one to the IRS. As noted in my prior Godfrey post, 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. § 1.6015-5(b)(3)(ii) to “clarify” that the 2-year period of section 6015(b) or (c) 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 explicitly proposed 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.