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IRS ISSUES TAX COURT MEMO DENYING CHALLENGE TO COLLECTION DUE PROCESS HEARING FOR TAX LIEN

Our practice receives many calls dealing with collection due process hearings. The hearing is an opportunity for a Taxpayer to contest a tax assessment by the IRS. Recently, on April 18, 2013, the Tax Court issued a Memo (an opinion) regarding a collection due process hearing sought by two individuals. This memo serves as another reminder as to why it is often advantageous to get an experienced tax attorney involved when dealing with the state taxing agency or the IRS.

In this case, Kenneth Taggart, the Taxpayer and a Pennsylvania resident, worked as a real estate appraiser and broker. He owned two S-Corps, through which he conducted his businesses, and four rental properties. In September of 2007, the Petitioner timely filed his a zero 2006 Federal Income Tax Return, and then mailed an amended 2006 return in 2008 showing income of just over $100,000. Filing a zero return can be a useful tool to start the ticking of the statute of limitations even if the return shows 0. In addition, the Taxpayer filed a return for $133,000 in 2008 but failed to include the proper tax payment. The IRS ultimately assessed him $31,000 in tax due plus penalties and interest of about $2,000 as it is able to do under section 6651, IRC.

In 2009, an offer in compromise was received from the Taxpayer, which was rejected in early 2010 because the offer was less than reasonable in the IRS’ view. The Taxpayer missed its 30-day appeal period but was afforded an opportunity to resubmit a new offer in compromise in March 2010. Before the appeal period had run, the IRS filed a notice of tax lien accompanied with a Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC 6320. The Taxpayer submitted Form 12153 to challenge the premature Tax Lien filing. Following a conference and several correspondences with the IRS, the Taxpayer lost the challenge and his offers in compromise were denied.

The case ended up in Tax Court. The Tax Court opened its opinion by stating the additional tax and penalties was never challenged at any time by the Taxpayer. Therefore, he could not raise those challenges in Court.
Second, the Taxpayer believed the offer in compromise was wrongfully denied. The Court found that the appeal to the offer in compromise was not timely brought, and, even if it had been, the Taxpayer failed to re-submit a new offer.

Finally, the Taxpayer contended that the IRS could not file a Tax Lien during the pendency of an offer in compromise. Citing Phillips v. Commissioner, 283 U.S. 589 (1931), the Court ruled that the IRS can file a lien and do so even without affording a Taxpayer its 5th Amendment right to a hearing.

The case seems like an overall loss to the Taxpayer, and, without having read the complete record, it appears the Taxpayer took many missteps along the way. Having an experienced tax attorney may have been able to save this unfortunate taxpayer a significant amount of time, energy, and money. If you have any IRS tax issues please do not hesitate to call us for a free consultation.

About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini is also a co-author in the CCH Expert Treatise Library, an author for SalesTaxSupport.com, and he is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email or phone listed on this page.