On December 28, 2021, the Tax Court issued a Memorandum Opinion in the case of Bunton v. Commissioner (T.C. Memo. 2021-141). The primary issue presented in Bunton was whether the IRS office of Appeals abused its discretion by sustaining a levy upon the taxpayers’ (read: tax protesters) state tax refund.

Held: Not so much.

Background to Bunton v. Commissioner

The petitioners are tax protesters, who adopted the good ol’ “we’re not federal workers or them foreigners, so we don’t owe no [sic] taxes” argument.

And I quote:

We are private sector workers. We do not live or work in Washington, D.C., Puerto Rico, Guam or any Federal territory. We do not work for the U.S. Federal Government. We do not make any income from foreign transactions and we are not foreigners living in the United States who derive any income. Therefore, payments made to us by these private sector companies did not result from any taxable activity and do not constitute any taxable income under relevant law.

That’s really all you need to know about the Buntons, but for giggles, let’s dive a bit deeper into the sea of crazy.

In September 2017, the IRS issued a notice of deficiency in the amount of $80,500. The USPS returned the certified mailing stamped “unclaimed” to the IRS. The petitioners did not file a petition with the Tax Court disputing the notice of deficiency, and so a year later, the IRS sent the petitioners a Notice of Intent to Levy and Notice of Rights to a Hearing, which informed the petitioners of their right to request a CDP hearing. The petitioners exercised their right; however, on their completed Form 12153, they failed to include their phone number and did not check any box requesting a collection alternative. Instead, they checked the “Other” box on their Form 12153 and stated as follows:

We are disputing the alleged taxes and penalties associated with these taxes. We would like verification that the IRS performed all the procedures that are required by law. We would like to request a face-to-face hearing closes[sic] to where we live, which we intend to record. If at the end of the hearing it is found that we owe the tax, then we would like to discuss all the available collection alternatives available to us.

On March 5, 2019, the IRS sent petitioners a letter requesting that they file their overdue Form 1040 for tax year 2017. To no one’s surprise, the petitioners did not submit a tax return for 2017.

In July 2019, Appeals sent a letter to petitioners scheduling a telephone hearing for August 2019, and it offered a face-to-face conference or written correspondence hearing as an alternative. The letter further stated that the settlement officer intended to contact petitioners’ representative and provided her telephone number in case petitioners’ representative needed to reschedule the conference. In addition, the letter included a copy of the previously issued notice of deficiency and stated that petitioners would not be able to dispute the underlying tax liability because the IRS had properly issued the notice of deficiency and mailed it to their last known address.

In response (likely in scrawled red Crayola marker—I’m just guessing here) the petitioners asked the IRS to “please [a]bate these taxes which have been imposed in violation of certain Internal Revenue Code”. In the letter petitioners cited Treas. Reg. § 301.6330-1(d), and they requested a face-to-face meeting with Appeals in an office location closest to their residence.

Although they did not dispute the fact that the notice of deficiency was “sent” to their last known address, they contended that the IRS never sent notice and demand and that the notice of deficiency was “void as a matter of law” because it did not contain a written declaration under penalty of perjury. The petitioners also questioned whether the person who signed the SNOD had delegated authority to issue such notices.

Spoiler alert. He did.

On the date of the CDP hearing, the settlement officer called the petitioners’ representative, who inform the settlement officer that he (mercifully) no longer represented the petitioners. The settlement officer informed the representative that she intended to call the petitioners directly, but they had failed to include a telephone number on their Form 12153. (It’s unclear why the representative did not simply provide a number for the petitioners, but the opinion is silent on this point.)

Five days later, the settlement officer sent the petitioners a letter stating that they had missed their CDP conference. In response, the petitioners sent Appeals a second letter (this time in Sharpie) stating their desire for a face-to-face meeting to “go over all of the issues [the petitioners] brought up in [their] August 2019 letter.” However, the petitioners furnished no additional documentation or information with this second letter, which the settlement officer had asked for no less than three times at this point. A month later, Appeals issued a Notice of Determination.

The Notice of Determination stated that the settlement officer reviewed the records and information petitioners had furnished to ensure that the assessment was properly made for the 2016 tax liability; notice and demand for payment was properly mailed to their last known address; there was a balance due when the notice of intent to levy was issued; and the settlement officer had no prior involvement with respect to the specific tax period in Appeals.

The notice of determination concluded that a face-to-face meeting was not allowed because petitioners were barred under IRC § 6330(c)(2)(B) from challenging the underlying tax liability during the CDP hearing. Moreover, because petitioners failed to request a collection alternative, the notice of determination concluded that the levy was appropriate.

Challenging the Underlying Liability in a CDP Hearing

IRC § 6330(c) prescribes the matters that the taxpayer may raise at a CDP hearing—namely, “any relevant issue relating to the unpaid tax” including “the appropriateness of collection actions.”^[1] However, the taxpayer may not raise issues relating to the existence or amount of the underlying tax liability if the taxpayer either received a notice of deficiency, or the taxpayer otherwise had an opportunity to dispute the tax liability.^[2] Therefore, the Tax Court needed to first determine whether petitioners received an notice of deficiency or otherwise had an opportunity to challenge the underlying tax liability.

The IRS generally has prevailed in foreclosing challenges to the underlying liability under IRC § 6330(c)(2)(B) where it establishes that a notice of deficiency was mailed to the taxpayer’s last known address, and the taxpayer fails to offer credible evidence to rebut the presumption of official regularity and of delivery.^[3] If a notice of deficiency is mailed to the taxpayer at the taxpayer’s last known address, actual receipt of the notice is immaterial; the notice is valid.^[4]

The Tax Court has also held that the IRS was justified in believing that a notice of deficiency was mailed to the correct address and that the taxpayer simply failed to claim it, when the notice was returned to the IRS marked “unclaimed” and there was no evidence in the record that the IRS was aware either before or immediately after the mailing of the notice of deficiency that the address of record was incorrect.^[5]  Consequently, the petitioners could not challenge their underlying liability.

No Abuse of Discretion in Denying Face-to-Face Hearing

The Tax Court in Bunton v. Commissioner found that the settlement officer did not abuse her discretion in denying the petitioners a face-to-face meeting, because throughout the CDP proceeding, the petitioners only sought to improperly challenge the underlying liability. They did not request a collection alternative, and the record shows that they never submitted the financial information, Form 433-A, that was required for evaluation of their ability to pay the liabilities. The settlement officer also requested that they submit their 2017 and 2018 Forms 1040, but they failed to submit the outstanding tax returns by the deadline without explanation. Consequently, Appeals properly determined that they were not entitled to a face-to-face hearing.

Although they argue that no hearing was held, the petitioners were given opportunities to participate in a telephone conference and to provide any evidence for Appeals to consider, and they failed to take advantage of these opportunities. On the basis of these facts, we find that the correspondence between the parties constituted a CDP hearing in this case.^[6] Thus, the Tax Court held that the settlement officer did not abuse her discretion in denying the petitioners’ request for a face-to-face hearing and that she considered all relevant issues as required under IRC § 6330(c)(3).

(T.C. Memo. 2021-141) Bunton v. Commissioner

Footnotes:

1. IRC § 6330(c)(2)(A)(ii). ↑
2. See IRC § 6330(c)(2)(B). ↑
3. See, e.g., Klingenberg v. Commissioner, T.C. Memo. 2012-292, at *14-*15, aff’d, 670 F. App’x 510 (9th Cir. 2016); Rivas v. Commissioner, T.C. Memo. 2012-20, *5; Cyman v. Commissioner, T.C. Memo. 2009-144, *4-*5; Casey v. Commissioner, T.C. Memo. 2009-131, *4; Bailey v. Commissioner, T.C. Memo. 2005-241, *5. ↑
4. See, e.g., United States v. Zolla, 724 F.2d 808, 810 (9th Cir. 1984). ↑
5. See Thomas v. Commissioner, T.C. Memo. 1998-438, aff’d without published opinion, 194 F.3d 1305 (4th Cir. 1999). ↑
6. See Kipp v. Commissioner, T.C. Memo. 2015-7. ↑

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