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Brown v. Commissioner (T.C. Memo. 2021-112)

On September 23, 2021, the Tax Court issued a Memorandum Opinion in the case of Brown v. Commissioner (T.C. Memo. 2021-112). The sole issue presented in Brown was whether the Tax Court has jurisdiction to order the refund of a TIPRA payment.

What is a TIPRA Payment?

The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), Pub. L. No. 109-222, § 509(a), enacted new IRC § 7122(c), effective for offers-in-compromise (OICs) submitted on or after July 16, 2006. IRC § 7122(c)(1)(A)(i) requires that the submission of any lump-sum OIC “be accompanied by the payment of 20% percent of the amount of such offer.” See also IRS Notice 2006-68.

Background to Brown v. Commissioner

The petitioner was issued two notices of federal tax lien, and he timely requested a CDP hearing.  Ultimately, the liens were upheld and notices of determination were issued in August 2017.  Petitioner timely requested a CDP hearing under IRC § 6320 and/or IRC § 6330 in response to respondent’s administrative collection activities for his 2007 and 2014 tax years.

Brown v. CommissionerHe submitted Form 656, OIC as to doubt as to collectability. The OIC covered years 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2009, 2010, and 2014. Petitioner included a TIPRA payment of $80,000 and an application fee of $186 with the OIC. Critically, petitioner did not request the TIPRA payment be applied against a specific year’s tax liability. The IRS applied the $80,000 TIPRA payment against petitioner’s 2001 tax liability on, or about, November 21, 2016.

In August 2017, petitioner commenced a timely CDP case before the Tax Court challenging the notices of determination. He contended that it was an abuse of discretion for respondent to decline petitioner’s OIC request and not refund the TIPRA payment included with his Form 656 submission. Petitioner attempted to characterize the TIPRA payment as a 20% “deposit”.

TIPRA Payments, Revisited

IRC § 7122(c)(1)(A)(i) requires that the submission of any lump-sum OIC be accompanied by a payment of 20% of the offer amount. Any OIC paid in five or fewer payments is considered a lump-sum OIC. IRC § 7122(c)(1)(A)(ii). The legislative history of IRC § 7122(c) refers to the 20% payment as a “partial payment” or “down payment” of the taxpayer’s liability. H.R. Conf. Rept. No. 109-455, at 234 (2006).

The 20% payment of the offer amount is treated as a payment of tax rather than a refundable deposit under IRC § 7809(b) or Treas. Reg. § 301.7122-1(h). See IRS Notice 2006-68, § 1.02.

Under IRC § 7122(c)(2)(A), the taxpayer may specify how he or she wants the TIPRA payment applied by making a request in writing when he or she submits the OIC. See Id. at § 1.04. If no such specification is made, the IRS will apply the TIPRA payment in the best interest of the Government. Id. The Tax Court has held that the TIPRA payment “constitutes a nonrefundable, partial payment of the taxpayer’s liability” in normal circumstances. Isley v. Commissioner, 141 T.C. 349, 372 (2013).

As such, the Tax Court was faced with the need to decide whether it had jurisdiction to consider the request for refund of petitioner’s TIPRA payment. The Tax Court is a court of limited jurisdiction and has only such jurisdiction as is granted it by the Code. IRC § 7442; Medeiros v. Commissioner, 77 T.C. 1255, 1259 (1981).

Questions of Jurisdiction

IRC § 6320(c) and IRC § 6330(d)(1) provide for judicial review of an adverse CDP determination. See Davis v. Commissioner, 115 T.C. 35, 37 (2000). Therefore, the Tax Court has jurisdiction in this case pursuant to IRC § 6320(c) and IRC § 6330(d)(1). Petitioner contends that, pursuant to IRC § 6512(b), the Tax Court has express refund jurisdiction in a case in which the Tax Court has already acquired jurisdiction.

The Tax Court, however, agreed to disagree.

Brown JurisdictionIRC § 6512(b) does not grant the Tax Court refund jurisdiction in all cases in which the Court has already acquired jurisdiction. Rather, IRC § 6512(b)(2) is an express grant of jurisdiction “to order the refund of such overpayment and interest.”

For a refund to be governed under IRC § 6512(b), a notice of deficiency is required. The Tax Court’s jurisdiction in this case, however, does not derive from the mailing of a notice of deficiency. This Court’s jurisdiction under IRC § 6512 cannot be invoked in this matter with respect to the TIPRA payment because this proceeding is not based on a post-decision action to modify a decision in a deficiency case under IRC § 6213 or IRC § 7481(c), (d).

Rather, the Tax Court’s jurisdiction in this case derives from IRC § 6320 and IRC § 6330. These Code sections do not grant the Tax Court jurisdiction to refund any payment of tax under IRC § 6512(b) or any other Code section. The Tax Court and the U.S. Court of Appeals for the District of Columbia Circuit have held that IRC § 6330 does not give the Court jurisdiction to determine an overpayment or order a refund or credit of taxes paid. Willson v. Commissioner, 805 F.3d 316 (D.C. Cir. 2015); Greene-Thapedi v. Commissioner, 126 T.C. 1 (2006); see McLane v. Commissioner, T.C. Memo. 2018-149.

The Tax Court observes that petitioner would not be able to invoke the Tax Court’s refund jurisdiction under IRC § 6512 even if he had challenged the underlying tax liabilities in this matter. See Greene-Thapedi, 126 T.C. at 8-9. Stated simply, putting your tax liability at issue in a CDP proceeding does not convert the proceeding to a deficiency proceeding under IRC § 6213 or IRC § 7481(c) or (d).

(T.C. Memo. 2021-112) Brown v. Commissioner

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