Collection Due Process (CDP) cases have the ability to remind you of the axiom often associated with military service “hurry up and wait.” Carl Smith and I wrote about this several years ago in a pair of articles for Tax Notes, in which we looked at the amount of time it took for a CDP case to get through Appeals and the amount of time it took a CDP case to get through Tax Court. While Congress seemed to have the idea that CDP cases would move swiftly so they did not slow down collection and created a very short period of time, only 30 days, for the taxpayer to request a CDP hearing and to petition the Tax Court after a determination, Congress placed no restrictions on the amount of time a CDP case could sit in Appeals or sit in Tax Court. So, the taxpayer must hurry up and request an Appeals hearing only to wait quite some time in many cases before the hearing occurs and then hurry up and request a CDP hearing only to have the case sit in the Tax Court inventory longer than a deficiency case.
Some taxpayers may not mind the slow movement of their cases in Appeals and the Tax Court. Taxpayers in receipt of a notice of intent to levy who have no real plan for payment of the tax and no desire to start making payments may rejoice in the slow process. Taxpayers in receipt of a notice of federal tax lien who would like to address the lien and remove the notice through withdrawal, or remove the lien by showing the underlying liability does not exist, or some other meaningful remedy may want a much more expedited hearing schedule.
In a designated order recently issued by Judge Gustafson in an S case, Petitioner Keith Brown got through Appeals with lightning speed only to see his case come to a halt after filing his Tax Court petition. The facts are not too unusual, but the outcome is. I will set out the Judge’s take on this fact pattern and how it has resulted in a trial in which the taxpayer will have the opportunity to explain his situation.
Mr. Brown owed taxes and the IRS filed a notice of federal tax lien (NFTL). The NFTL prevented him from borrowing money which he needed to do in order to make money – he is in the construction business. He timely requested a CDP hearing and about two months later Appeals sent him a letter scheduling a telephonic hearing on January 13, 2016. The letter explained that if he wanted an offer in compromise he needed to become compliant with his tax filing and file his 2014 return. The telephone conference took place on the appointed date; however, he had not yet filed his 2014 return. He asked the Settlement Officer to give him 30 additional days to file it but she said she would “have to issue a determination letter sustaining the lien [meaning sustaining the filing of the notice of federal tax lien].” She issued the determination letter 14 days later. This is really fast and could have been just what Mr. Brown wanted if he had been ready with his 2014 return.
Mr. Brown filed his 2014 return on February 25th and his Tax Court petition on the same day. The case slowed down considerably as it was scheduled for trial in June of 2017. The IRS attorney filed a motion for summary judgment on April 13 the last day based on the Tax Court Rule 121(a) for filing such a motion. The judge noted that Mr. Brown had elected small case status and that motions for summary judgement were permitted but less common.
The judge noted that when he received the letter from Appeals setting the CDP conference, he was told to produce his late return less than one month later. He was denied a requested extension. The Settlement Officer did not provide any reasons for denying his request for additional time. So, the court had no basis for understanding its reason and no indication of unresponsiveness or other delays on the part of Mr. Brown.
“Setting unreasonable deadlines can constitute an abuse of discretion.” Ang v. Commissioner, T.C. Memo. 2014-53. The judge noted that the month-and-a half duration of the CDP case from the date of the opening letter to the date of the determination letter seemed very short but invited the IRS to correct his impression at trial. He noted not only the speed of the action by Appeals but the slowness of the action by IRS Counsel in determining that the failure to grant Mr. Brown more time in this circumstance was an abuse of discretion.
The denial of summary judgment does not signify a victory for Mr. Brown. He must go to trial. Assuming that at the trial the court determines that Appeals did abuse its discretion, he is not relieved of the liability nor is the lien withdrawn. He simply receives a chance for a remand and a further discussion with Appeals about the best way to resolve his collection case. During all of this time, Mr. Brown has had to live with the NFTL tying up his credit.
I applaud Appeals for giving him such a quick conference. While the title of this post suggests the taxpayer received the bum’s rush, I wish all CDP lien cases were heard this quickly by Appeals. I know when I file the request that all returns must be filed. I have the taxpayer working on return preparation of any past due returns from the time we plan to file the CDP request. I hope that by the time of letter from the Settlement Officer setting the hearing that all past due returns have been filed, the offer form (if that is the requested remedy) has been completed and the package of materials is ready and waiting by the time Appeals reaches out. The Settlement Officer could have waited another couple of weeks and avoided the concern expressed here of abusing discretion. I often think that the refusal of additional time stems from a need for the IRS employee to meet internal deadlines for case processing. That could not have been the reason here.
Perhaps the IRS would better position itself if it put some warning on the Form 12153 or sent out an early letter alerting taxpayers to the need to be compliant in their tax filing if they wanted to request a collection alternative. Practitioners know that filing compliance must pre-date a successful request for a collection alternative but pro se petitioners may not. Had the IRS proven, or if at trial it does prove, that it had told Mr. Brown about this requirement prior to the short time span between the initial Appeals letter and the hearing, perhaps the Court would have found or will find the failure to grant a request for more time reasonable.
CDP lien cases should move quickly because the lien ties up the taxpayer’s credit as Mr. Brown alleges here. It would be nice if the Court could develop some system to hear lien cases quickly. Having to wait 14 months after the petition for a trial is not unreasonable in most cases but can really hurt someone trying to get relief from the impact of a NFTL. I do not have any wonderful suggestions but do see this as one type of case where the taxpayer is harmed by the normal rhythm of Tax Court case processing.
The decision showcases the need for Appeals to be reasonable when a petitioner requests more time in a CDP case or at least to document the record if it is denying a request for additional time. Although this opinion provides no precedent, it does provide a good reminder of another circumstance in which a taxpayer can argue abuse of discretion.