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BM Construction v. Commissioner (T.C. Memo. 2021-13)

On February 8, 2021, the Tax Court issued a Memorandum Opinion in the case of BM Construction v. Commissioner (T.C. Memo. 2021-13). The primary issue presented in BM Construction was whether the IRS had satisfied its burden to prove that the letter in question was mailed and actually received for CDP purposes.

Background

IRC § 3406 requires a payor to deduct and withhold tax from certain payments not otherwise subject to withholding if the payee taxpayer fails to cooperate with the information reporting scheme (e.g., failure to furnish his taxpayer identification number to the payor).  The owner of the company failed to obtain the TIN of certain subcontractors.

In an effort to collect the backup withholding tax liability, the IRS issued to the company a Notice of Intent to Levy and Notice of Your Right to a Hearing. In response, the company submitted to the IRS a timely Form 12153, Request for a Collection Due Process or Equivalent Hearing. On that form the company indicated that it wished to dispute the underlying backup withholding tax liability and additions to tax.

The CDP hearing was subsequently held between the settlement officer and the CPA. During the hearing, the CPA attempted to dispute Construction’s underlying liability. The settlement officer reiterated that his review of the backup withholding tax file showed that Construction received a backup withholding 30-day letter and was therefore precluded from challenging its underlying liability.

Underlying Liability

A taxpayer may challenge the existence or amount of its underlying liability in a CDP proceeding only if it did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability. IRC § 6330(c)(2)(B); see also Bell v. Commissioner, 126 T.C. 356, 358 (2006). For this purpose, the phrase “underlying tax liability” includes the backup withholding tax, any penalties and additions to tax, and statutory interest. See Katz v. Commissioner, 115 T.C. 329, 339 (2000). As to whether a taxpayer had an opportunity to dispute its liability, the regulations distinguish between liabilities that are subject to deficiency procedures and those that are not subject to deficiency procedures. Hampton Software Dev., LLC v. Commissioner, T.C. Memo. 2016-38, at *11.

Employment tax liabilities, such as the backup withholding tax in question, are not subject to deficiency procedures. See Romano-Murphy v. Commissioner, 152 T.C. 278, 292 (2019); see also Durda v. Commissioner, T.C. Memo. 2017-89, at *6-*7. With respect to such liabilities, Treas. Reg. § 301.6330-1(e)(3), Q&A-E2, provides that an opportunity to dispute the underlying liability includes a prior opportunity for a conference with Appeals that was offered either before or after the assessment of the liability.

The receipt of a Letter 950-D provides a taxpayer with a prior opportunity for a conference with the Office of Appeals of the sort described in the regulations. See Patrick’s Payroll Servs., Inc. v. Commissioner, T.C. Memo. 2020-47, at *11-*13. Whether the company was precluded from contesting its underlying liabilities during the CDP hearing thus hinges upon its receipt of the backup withholding 30-day letter, which provided it with such an opportunity. In Kuykendall v. Commissioner, 129 T.C. 77, 80 (2007), the Tax Court explained that in the context of a notice of deficiency, IRC § 6330(c)(2)(B) contemplates actual receipt by the taxpayer.

Mailing Issue

The mailing of a properly addressed letter creates a “presumption that it reached its destination and was actually received by the person to whom it was addressed”, which a taxpayer must rebut with “credible” evidence. Rivas v. Commissioner, T.C. Memo. 2017-56, at *20. The act of mailing, in turn, “may be proven by documentary evidence of mailing or by evidence of the Commissioner’s mailing practices corroborated by direct testimony.” Campbell v. Commissioner, T.C. Memo. 2013-57, at *10. The Court’s determination of whether a taxpayer properly received a letter that would preclude a challenge to the underlying liability under IRC § 6330(c)(2)(B) is made on the preponderance of the evidence. See Rivas v. Commissioner, at *21; see also Sego v. Commissioner, 114 T.C. at 611. A taxpayer’s self-serving claim that he did not receive the notice of deficiency will generally be insufficient to rebut the presumption. Klingenberg v. Commissioner, T.C. Memo. 2012-292, at *12, aff’d, 670 F. App’x 510 (9th Cir. 2016).

(T.C. Memo. 2021-13) BM Construction v. Commissioner

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