On July 7 the Treasury Inspector General for Tax Administration (TIGTA) issued a report on the timeliness of the IRS in sending out notice to taxpayers and to their representatives after it files the notice of federal tax lien (NFTL). Section 6320, creating Collection Due Process (CDP) rights following the filing of the NFTL, requires that the IRS send notice of the filing of the NFTL within 5 business days after the filing of the NFTL. IRS procedures and seemingly Section 6304 require that notice of the NFTL also go to the taxpayer’s representative. If the IRS fails to send out the notice of the NFTL to the taxpayer who is the subject of the lien or to the taxpayer’s representative, the failure can have consequences to the taxpayer in the effort to pursue rights.
During the past year, I had two cases in which I represented taxpayers against whom the IRS filed an NFTL. In those cases, the notice of the filing was not sent to me until several days after it was mailed to the taxpayer. By the time I received the notice, 10 days or more of the 30 day period to request a CDP hearing had run. Because of my experience, I read the TIGTA report with interest. As discussed below, the Tax Court has held that the failure to notify the representative does not extend the time period within which the taxpayer must exercise their CDP rights. This makes the study of the IRS effectiveness in providing notice to representatives all the more important.
TIGTA found that of a sample of “162 undelivered lien notices identified nine cases for which lien notices were not timely sent to the taxpayers last known addresses because the lien notices were sent to the taxpayers’ old addresses even though IRS systems reflected their new addresses.” With respect to the notice sent to representatives, TIGTA found that for “six of the 37 sample cases for which the taxpayer had an authorized representative, the IRS did not notify the taxpayers’ representatives of the NFTL filings. TIGTA estimated that 22,866 taxpayers may have been adversely affected.”
What happens when the representative does not receive a copy of the Notice of Deficiency and the taxpayer fails to timely petition the Tax Court? The failure to send the notice to the representative does not give the taxpayer a basis for getting into the Tax Court after the 90-window has closed, see McDonald v. Commissioner, Bond v. Commissioner (a CDP case refusing to allow taxpayers to raise the merits of a liability based on the failure of the IRS to send the statutory notice of deficiency to petitioner’s representative), Houghton v. Commissioner, and Allen v. Commissioner.
What happens when the representative does not receive a copy of the CDP notice? Unlike the Notice of Deficiency which deals with examination issues, the CDP notice concerns collection. In 2015, the Tax Court in Godfrey said the failure to provide notice to the authorized representative in a CDP case has the same consequences as the failure to provide notice when sending the notice of deficiency, which is to say that no consequences to the IRS result from that failure. We posted on Godfrey here, here, and here. Godfrey does not appear to have appealed the decision.
IRC 6304(a)(2) provides that the IRS “Without the prior consent of the taxpayer given directly to the Secretary or the express permission of a court of competent jurisdiction, the Secretary may not communicate with a taxpayer in connection with the collection of any unpaid tax . . . if the Secretary knows the taxpayer is represented by any person authorized to practice before the Internal Revenue Service with respect to such unpaid tax and has knowledge of, or can readily ascertain, such person’s name and address, unless such person fails to respond within a reasonable period of time to a communication from the Secretary or unless such person consents to direct communication with the taxpayer…”
In a 2001 Chief Counsel Advisory opinion discussed in the Godfrey post, Chief Counsel’s office takes the position in footnote 7 that the 6320 (or 6330) notice must go to the taxpayer by statute and that Section 6304 prohibition on communication with the taxpayer without the consent of the representative does not does not alter that requirement. A more nuanced argument exists concerning the impact of using the IRS power of attorney form and whether the language of the POA form gives the Service additional rights.
The TIGTA report contains a chart of NFTL filings in the five year period running from 2011 through 2015. NFTLs have dropped by almost half during that period. The biggest drop resulted from the change in the threshold for filing as a result of the Fresh Start initiative from $5,000 to $10,000. That change is not hard and fast, as the IRS can file the NFTL at any dollar level and it is not required to file the NFTL at any dollar level; however, in general, IRS employees will follow the manual guidance to the extent they have the ability to work a case. The dropoff in the most recent years probably reflects some reduced enforcement action due to the reduced staff.
The TIGTA report on providing notice to taxpayers after the filing of the NFTL is one of a number of reports Congress required TIGTA to perform on an annual basis in the Restructuring and Reform Act of 1998 (RRA 98). TIGTA notes that over the past five years it has found that the IRS almost always complies with the requirement to provide timely notice to the taxpayer but has not always met internal guidelines with respect to practitioner notice. The report does not address the legal requirement provided in IRC 6304 concerning practitioner notice probably because of the Chief Counsel guidance that IRC 6304 does not create a requirement here.
The error rate for providing notice to authorized representatives in 2016 was consistent with the error rate over the past five years and shows that one in five notices of the filing of the NFTL does not get sent to the authorized representative despite internal guidance and a statute that specifically provide that the notice must be sent to the representative. TIGTA did not make any recommendations concerning the failure to notify authorized representatives this year because it had made them in the past and the IRS system for fixing the problem did not get implemented until after the sample period. TIGTA indicated that it would revisit the issue next year.
If you do not receive notice as a representative on any collection case in which you have a power of attorney on file with the IRS and have checked the box that you want copies of correspondence, then the IRS has failed to meet its statutory, not internal, requirement. We have posted about IRC 6304 before here, here, and here. Given the relatively high percentage of cases in which the IRS has not sent out the notice to the POA, a number of these cases should exist. TIGTA does not address the timeliness of sending out the copy of the notice to the representative. My impression from the report was the significantly delayed notices I received would count toward the 84% of the cases in which the IRS complied and were not measured by TIGTA as a form of IRS non-compliance. Yet, a significant delay when the taxpayer has only 30 days to act can have a significant influence on the outcome of a matter.
If you are concerned about receipt of the notice of the filing of an NFTL either by yourself as the representative or by your client, you may want to read this report and possibly some of the prior reports. If Congress is going to require TIGTA to provide us with this information, we should find ways to use it in situations in which the IRS fails to comply with the requirements. The failure to comply with notice requirements in collection cases may eventually lead to a different outcome than the failure to comply in examination cases. Godfrey may not be the final word in this litigation. IRC 6304 does not come with any directions about the remedy for failure to comply with its provisions and little litigation exists in the tax context. If you seek a remedy because of a violation of IRC 6304, you might look to litigation in the consumer debt collection area after which the statute is patterned.