An earlier version of this post appeared on the Forbes PT site on February 23, 2015.
In this post I will discuss Congressional testimony from over fifteen years ago from Michael Saltzman and Nina Olson. The testimony sheds light on some of the still-current issues that courts are confronting in collection due process (CDP) cases, a process that has its origins in some of the testimony that led up to the last comprehensive procedural reform legislation that dealt with the IRS. I will also offer some more personal thoughts on Michael, who was a huge figure in the field of tax procedure and someone who had a major impact on my life.
We are rewriting much of the treatise IRS Practice and Procedure, originally authored by the late great Michael Saltzman. With Steve and some others, I have been updating the book after Michael’s untimely passing. To help with the task, I have brought in some expert chapter authors; for example former DOJ Senior Litigation Counsel (and current editor of Tax Notes International) Stu Gibson and I co-wrote the new chapter on the IRS summons powers. Jack Townsend (who writes the premier criminal tax blog Federal Tax Crimes) took the lead on an amazing chapter on criminal tax that comes out next month. Steve took the lead on a new chapter on interest that came out last year.
Keith is taking on the lion’s share of the initial drafting in the collection chapters. Last year, we published an outstanding chapter on priority of tax claims; later this year, there will be new chapters detailing the general tax collection function, minimizing the effect of liens and levies, and a standalone chapter on CDP.
In working on the CDP chapter, it reminded me of the testimony on procedural reform that Michael Saltzman gave before the Senate Finance Committee in 1998, and I decided to go back and re-read that testimony. We have not written much about Michael in this blog, but he is a giant in the field of tax procedure. I appreciate that more and more as we wrestle with the breadth and depth of the book, and as we work to ensure that it meets the high standards that Michael himself had and demanded of others.
Michael and Collection Rights
Allow me to say a few words about Michael. Circumstances drew me to Michael. Back in 1994, I was a student in NYU’s graduate tax program and attended his Tax Procedure class one night. I remember his talking about the Administrative Procedure Act and the IRS, and how general principles of administrative law were crucial to understanding the IRS’s adjudication and rulemaking functions. In his class, he often brought the perspective of other areas of the law in to tax procedure; he was an early advocate of moving away from a tax exceptionalism approach to tax procedure.
I had the nerve one night after class to talk with him about his lecture. In his lecture, he had talked passionately about the at the time recent Supreme Court decision in the US v James Daniel Good Real Property case. That case involves civil forfeiture and in particular whether the due process clause requires the government to provide pre-seizure notice and a meaningful opportunity to be heard. It was not a tax case, but the Supreme Court in James Daniel Good in finding that the due process clause does require pre-seizure notice and hearing rights looked to cases where the Supreme Court had moved away from defaulting to a blanket assertion of the primacy of the government’s interest. Instead, it looked to the more nuanced balancing test set forth in Matthews v Eldridge:
The Mathews analysis requires us to consider the private interest affected by the official action; the risk of an erroneous deprivation of that interest through the procedures used, as well as the probable value of additional safeguards; and the Government’s interest, including the administrative burden that additional procedural requirements would impose.
The balancing test allowed courts to consider the possibility that the government’s seizure might be wrong and also allowed a court to consider the individual’s potential interest in less invasive ways of satisfying a debt.
Michael felt that the growing trend of interposing procedural protections in the form of notice and hearing rights prior to seizure should likewise find its way into tax law. In fact, he was an early advocate of what would expand into the CDP provisions in his testimony before the Senate Finance Committee in the legislative run up to what would become the IRS Restructuring and Reform Act of 1998 (RRA 98):
Seizures of property, I know that this is an area of particular interest. I agree that high-level review of seizures will prevent abuse. I think any time you move up in the collection division, for example, that the level of abuse will decrease. But I also recommend another procedure for review of seizures. The Supreme Court has ruled that taxpayers are entitled to a pre-deprivation hearing or a prompt post-deprivation hearing as a matter of due process. This led in 1976 to the enactment of section 7429 of the code where jeopardy assessments are in fact reviewed in a probable cause type hearing. I recommend that that be done also for seizures. (page 128)
In written testimony he expanded a bit:
Accordingly, I respectfully recommend that a study be conducted with respect to the efficacy of pre-deprivation administrative review of significant seizures of tax- payer property. This could be accomplished by establishing field offices where administrative judges or U.S. Tax Court special trial judges could make determinations as to whether seizure of significant taxpayer property in any given situation is an appropriate remedy. In addition to this task, many other actions could be heard in these field offices, such as issues surrounding jeopardy assessments, John Doe summonses, and similar matters. This alternative will allow for the quick handling of these issues at a local level and at a considerably lesser expense than resort to the district courts. (page 374)
The legislative process that led to RRA has often been criticized as unfairly singling out phony IRS abuses. But in reading through some of the testimony in these hearings, I am struck by the amount of thoughtful commentary that rings as true today as it did over 15 years ago. More from Michael, this time about the importance of treating taxpayers fairly in the collection process:
In setting about reforming the operations of the Internal Revenue Service, it is worth keeping in mind, as one historian has observed, that taxes, including penalties, ‘‘must not merely be imposed; they must be justly imposed. Their efficient, comprehensive, and equitable collection is the foundation of a healthy and stable government.’’ P. Johnson, A History of the English People, p.47 (1989). It is not enough that taxpayers subject to various tax obligations, penalties, and interest, are also protected by a range of remedies in an effort to ensure that the IRS treats them fairly. Unless structural reforms and protections added to the Code result in taxpayers’ feeling that they have been treated fairly, popular attitudes toward the IRS will not change and statutory changes will do nothing more than add sterile complexity to an already complex law. I suggest that if the IRS shares the goal of fostering taxpayer trust that the IRS will treat them fairly, the need for structural reforms of the IRS will be reduced (page 368)
I smile at the thought of Michael injecting a reference from an historian into his testimony; he loved books and was a voracious reader, drawing on sources far and wide to animate his thinking on what might seem a technical procedural issue.
This broader point Michael made was echoed by testimony that current National Taxpayer Advocate Nina Olson made in the same hearings (at the time she was executive director of the Community Tax Law Project and Keith’s regular opponent in Tax Court as well as administrative cases). Nina’s testimony covers lots of ground but she started by talking about problems with the collection function and how taxpayers often felt they were getting treated unfairly:
Collections is the branch of the IRS with which low income taxpayers have the most contact. Many low income taxpayers attempt to bring up substantive issues in Collections because they have not understood their opportunities to dispute a proposed assessment at earlier stages of the examination process. Collections is, of course, a most inappropriate place to attempt to clear up matters of substantive tax law. My clients do not understand why the revenue officer is not willing to listen to their protestations that they do not owe the tax being collected. A recognition of this misconception is fundamental to an understanding of the problems low income taxpayers have with the collections branch and their resentment toward the Internal Revenue Service. This resentment goes beyond the general feeling of not wanting to pay over any of one’s hard-earned money; rather, it generates from the belief that no one is interested in learning whether the tax was correctly assessed. (page 330)
As we know, Congress in RRA 98 did quite a major overhaul of the tax collection laws. CDP in my view while far from perfect reflects Congressional recognition that the scales in collection cases had tipped too far in the government’s interest. Additional notice and hearing rights following the filing of a notice of federal tax lien and prior to levy reflected Congressional belief that taxpayers were entitled to protections similar to what other debtors enjoy. Fifteen years on and we are still struggling with calibrating the balance of these rights. In the second part of this post, I will discuss the case of Ding v Commissioner, a recent Tax Court case that brings us back to some of the points Nina and Michael raised in testimony before the Senate Finance Committee
Some Final Thoughts on Michael
What happened after I talked to Michael about the James Daniel Good case? It was late. As we were talking, I asked if we could continue the talk in a taxi home. The taxi ride changed my life. Michael took an interest in me. I had the nerve to ask if he was looking for an associate. He gave me the chance to interview at Baker and McKenzie, and I persuaded him and his partners to hire me. That began for me a three-year run learning as his associate, and getting the chance to work with him and his talented partner Barbara Kaplan on tax controversy matters. It led to me being hired as a director of a low-income taxpayer clinic and ultimately as successor author to Michael on the treatise IRS Practice and Procedure. So, thank you Michael, for your passion for the law and for your willingness to take a chance on me.