Tax Procedure: Tenth Circuit Upholds Limits on the Scope of Collection Due Process Hearings

IRS, Collection due processAs part of the 1998 IRS Restructuring and Reform Act, Congress provided every taxpayer with an opportunity for an administrative hearing before the IRS files a tax lien or levies against the taxpayer’s property. I.R.C. §§ 6320; 6330. The hearing, which is known as a collection due process hearing, is conducted by an IRS appeals officer who is required to determine whether the IRS has complied with all procedural requirements for the lien filing or levy. I.R.C. § 6330(c)(1). In addition, the appeals officer should consider any innocent spouse issue, any specific challenge that the taxpayer raises to the collection action, and any collection alternative that the taxpayer offers, such as an installment agreement.… Read More

Collection Due Process Triggers Tax Court Review of Section 6707A Penalties.

Section 6707A imposes significant penalties for the failure to report on the taxpayer’s return any listed or reportable transactions, which are transactions that the IRS has determined are tax shelters. The penalty is significant, seventy-five percent of the tax reduction associated with the undisclosed tax shelter. I.R.C. § 6707A(b)(1).

To make matters worse, the Tax Court has ruled that it does not have jurisdiction to redetermine the penalty because it does not fit the definition of a deficiency and can be assessed and collected without a notice of deficiency. Smith v. Comm’r, 133 T.C. 424, 429 (2009).

Recently, the court addressed another method of invoking its jurisdiction: a petition following a collection due process hearing.… Read More

Offers In Compromise Following Criminal Tax Cases.

Ron Isley, the musician, has apparently had his share of problems, including bankruptcies and a criminal tax prosecution. Recently, the Tax Court issued an interesting opinion dealing with the question whether back taxes that were the subject of a criminal tax prosecution can be reduced through an offer in compromise when the defendant cannot pay in full. Isley v. Comm’r, 2013 U.S. Tax Ct. LEXIS 31 (Nov. 6, 2013).

To provide the context, Isley was convicted for several counts of tax evasion and one count of willful failure to file a tax return in a case involving tax years 1997-2002. 2013 U.S.Read More

No Relief: A Collection Due Process Hearing Cannot Be Used to Review a Returned Offer in Compromise.

Under Section 6330 of the Internal Revue Code, taxpayers have the right to a collection due process hearing upon receipt of notice of intent to levy. The same hearing is also available when a tax lien is filed. I.R.C. § 6320. Among the issues that can be addressed at the hearing is a collection alternative, such as an offer in compromise. I.R.C. § 6330(c)(2)(A)(iii).

The tax court recently addressed a novel question: can a taxpayer use a collection due process hearing as a forum to obtain approval of an offer in compromise that was previously returned as nonprocessable? In Reed v.Read More

A Second Bite at the Apple-Can You Ask for Innocent Spouse Relief Twice?

Section 6015 of the Internal Revenue Code provides three different forms of innocent spouse relief, which permit a qualified taxpayer to limit his liability for taxes due under a joint return. While innocent spouse relief can be a terrific remedy, many taxpayers attempt to proceed on their own, which is often a mistake due to the complexity of the relevant standards. Frequently, taxpayers fail to present sufficient evidence, or they only apply under one of the three operative standards.

Making matters worse, successive applications are generally barred by the Treasury Regulations, which provide that a taxpayer seeking relief under Section 6015 is entitled to “only one final administrative determination of relief.” Treas.Read More