The Tax Court issued two opinions in the Collection Due Process (CDP) case involving the Melaskys. In 151 T.C. No. 8 it issued a precedential opinion holding that a challenge to the crediting of payment is reviewed pursuant to an abuse of discretion standard and not de novo. See our post on the case here. In 151 T.C. No. 9 it issued a fully reviewed precedential opinion addressing the collection issues raised in the case before sustaining the determination of the Appeals employee and allowing the IRS to move forward toward levy. As discussed more fully below, this case took way too long to resolve. We suggest that it serve as a sign that the process needs to change in order to go back to its original design.
I acknowledge that by suggesting the system move more quickly some low income taxpayers who gather information slowly may be disadvantaged. The IRS already closes cases based on lack of taxpayer responsiveness – and it should. Except for taxpayer who seek to use CDP to delay, I think that quicker movement by Appeals and the Court actually benefits most low income taxpayers because they stay engaged in the process. When their case goes on the shelf for six months or a year, they disengage. At the Appeals stage taxpayers generally have a relatively short time to reengage and that hurts low income taxpayers. I would rather see early engagement with a slightly longer time to respond.
The Melaskys filed their Tax Court petition on May 21, 2012. The Tax Court rendered its opinion on October 10, 2018. That’s way too long. When Congress created CDP it only gave taxpayers 30 days to file their request for a CDP hearing after the mailing of the CDP notice and only gave taxpayers 30 days to file their Tax Court petition after mailing of the CDP determination. The extremely short time frame provided to taxpayers in CDP cases reflected Congressional intent that these cases move quickly because delay in collection often proves fatal to successful collection. Congress placed no time limits on either Appeals or the Tax Court even though it placed these tight time frames on taxpayers. Carl Smith and I wrote about the disparity in a pair or articles, here and here, back in 2009 and 2011 analyzing that both Appeals and the Tax Court took longer to resolve CDP cases than deficiency cases. This could not have been what Congress intended. Since our articles, my non-empirical observation is that CDP cases may be moving faster in Tax Court because IRS counsel is filing more motions for summary judgment, the court rules require that they be filed earlier and the Tax Court disposes of most of the cases slightly quicker. The Melasky case shows the opposite side of the coin.
The Tax Court has decided not to adopt procedures that would move CDP cases on a faster track than deficiency cases. This case provides a perfect demonstration of why Bryan Camp calls CDP the 11th Taxpayer Bill of Rights provision – the right to delay. Appeals also has not created procedures that fast track CDP cases. Maybe it’s time to rethink the process and move these cases through the system with the speed Congress anticipated. Congress would not have anticipated it created a process that caused a case to take almost six and ½ years to work its way through the Tax Court to the point of an opinion.
Can it be so hard to move CDP case quickly through the system of Appeals and Tax Court review? In addition to the six plus years this case has spent in Tax Court to this point, the case spent 14 months in Appeals. Taxpayers filed their CDP request on February 9, 2011. Appeals held the initial hearing over six months later on August 25, 2011. The hearing occurred back in a bygone era when taxpayers could obtain a face to face hearing. I read that part of the opinion with nostalgia wondering how they received a face to face meeting until I looked at the dates. Appeals issued the notice of determination on April 20, 2012.
These taxpayers were no strangers to collection by the time they made their CDP request. They have liabilities going back to 1995 with multiple proposals for offers in compromise and installment agreements strewn along the way. Maybe it took six months just to send their undoubtedly voluminous collection file over to the Appeals Office but it seems that Appeals could create a system of moving these cases quickly into hearing. CDP was loosely modeled on CAP appeals which are to take place within five business days after the request. That time frame would not allow Appeals to perform the verification required by the statute but it should not take months to engage in the verification and the evaluation of taxpayer’s collection proposal.
The Appeals employee working this case gave the taxpayers months to liquidate their assets. As will be discussed in Part 3, taxpayers failed to liquidate all of their assets and that ultimately led to the determination to sustain the levy. The taxpayers here were able to actively delay the case because Appeals lacks a triage system. Appeals needs to adopt a triage system that gets to the taxpayer quickly to engage in a conversation about what is expected and necessary for a successful outcome. Then it can perform its verification and balancing while the taxpayer provides the necessary information to support its request. Treat the initial hearing like a CAP hearing to get the process going. By waiting six months just to hold the initial hearing, the CDP process will necessarily move slowly. In our article from nine years ago Carl and I made the following proposals:
To carry out the intent of the creators of CDP for an expedited process, the authors propose that the tolling of the statute of limitations on collection end six months after the CDP notice is sent if the taxpayer makes a timely CDP request. However, the authors would not propose altering one current protection of the CDP statute that in no event can the collection period expire before the 90th day after the date on which there is a final determination by the IRS or the courts) in that hearing….
To address the issue of mounting interest and time sensitive penalties, another possible avenue for revision of the statue is to adopt a provision similar to section 6404 (b) to stop the further accrual of interest and penalties once the administrative portion of the hearing exceeds six months.
The Tax Court also could adopt procedures to move these cases faster. It could give the IRS 30 days to file the answer instead of 60 days. It does not take very long to deny everything. It could schedule a telephonic conference within 30 days of the case coming at issue and encourage summary judgment motions from the parties at that point. In our article seven years ago Carl and I made the following proposals:
We recommend that the Tax Court amend its rules and adopt procedures that foster the early movement of CDP cases through the court. Under a new rule in Title XXXII of the Tax Court Rules (perhaps Rule 335) Chief Counsel should be required to file within 14 days after the case is at issue (1) the administrative record and (2) a current literal transcript of the taxpayer’s account for the years at issue.
Following this filing, the court should either issue an order to show cause or an order for the filing of a report by the parties. This would require the taxpayer to state how the administrative record might be inaccurate or incomplete, and it would require both parties to state why the case should not be decided on the administrative record. This order should also note that supplementing the administrative record may be possible on a party’s request and any needed discovery should be raised with the court at that time. The parties should be given a relatively short time to identify any additional evidence they think is needed to supplement the record or to convince the court that additional discovery is necessary We recommend that the period for the parties to respond to the Court’s order be no more than 30 days.
This case should be a wake-up call that the CDP process is broken and that in 20 years the players have not taken steps to avoid making it Collection Delay Process instead of Collection Due Process. Of course a fraction of the cases will take more time to resolve but none should take six and ½ years and the vast majority should be resolved within months and not years allowing collection to proceed when needed and stop when appropriate. Cases involving a merits or an innocent spouse determination would obviously move on a slower track more in line with regular cases of those types while pure collection cases would get resolved quickly to allow the process to work as intended.