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Shepherd v. Commissioner (T.C. Memo. 2020-45)

On April 13, 2020, the Tax Court issued a Memorandum Opinion in the case of Shepherd v. Commissioner (T.C. Memo. 2020-45). The issue properly before the court in Shepherd was whether Appeals correctly determined that the petitioner was barred from challenging his liability for the TFRPs even though he did not receive a notice of deficiency, because he had a prior opportunity to challenge his liability but failed to do so during his first administrative hearing on the notice of intent to levy.

Background to TFRP

Although petitioner’s company filed Forms 941 (Employer’s Quarterly Federal Tax Return), it failed to remit the full amount of employment taxes due with those returns. Exam issued a Letter 1153 (TFRP Letter) to petitioner, a “responsible person,” after receiving supervisory approval to assess the TFRP against the petitioner.

The Letter 1153 provided notice that the petitioner could request an administrative appeal. The Letter 1153, mailed to the petitioner’s last known address, was returned undeliverable. The IRS assessed the TFRP five months later and sent the petitioner a notice and demand for payment. He did not remit payment.

Notice of Intent to Levy and Administrative Proceedings

The IRS mailed a notice of intent to levy to the petitioner regarding the unpaid TFRPs and informing him of the right to request a CDP hearing. This time, the petitioner received the message, and he responded by timely submitting a Form 12153 (Request for a Collection Due Process or Equivalent Hearing).

During the hearing, the petitioner proposed an installment agreement (IA) and submitted financial information in support of the IA on grounds of economic hardship. Appeals was caught in a good mood, and agreed with the petitioner, placing his account into currently not collectible (CNC) status. Critically, however, the petitioner did not raise the issue of his underlying liability for the TFRP.

Offer in Compromise and Further Administrative Proceedings

Three years later, the petitioner submitted an offer-in-compromise (OIC) to the IRS asserting that there was doubt as to his liability and offering $1 in full satisfaction of the TFRPs. The IRS rejected the offer and informed petitioner that the IRS had no doubt as to his liability. The petitioner requested that Appeals review the rejection, and Appeals sustained the decision.

In a letter to the petitioner explaining why the OIC had been rejected and the decision sustained, Appeals noted that it had determined that part of the liability [for taxable periods ending in 2010] could be reduced, but doing so would require the petitioner to sign an OIC withdrawal form. The petitioner did not withdraw his OIC.

The petitioner’s account was removed from CNC status in early 2019, filed a notice of Federal tax lien (NFTL) with respect to the unpaid TFRPs, and sent the petitioner a notice of lien and right to a CDP hearing. At the hearing, the petitioner asserted that he should not be liable for the TFRPs, but he did not raise any other issues or collection alternatives.

The IRS concluded that petitioner had a prior opportunity to challenge his liability for the TFRPs and was barred from reasserting that claim in accordance with IRC § 6330(c)(2)(B). Thus, in the absence of any other issue for review, the IRS issued a notice of determination to the petitioner sustaining the lien. Petitioner timely filed a petition for redetermination.

The petitioner filed a motion to remand the case to Appeals for consideration of whether the IRS had properly asserted the TFRPs against him. Begrudgingly, Appeals reviewed the merits of the claim and issued a “detailed” supplemental notice of determination, ultimately concluding that the TFRPs were appropriate. The case went back to the Tax Court, and the IRS filed a motion for summary judgment arguing that the Tax Court lacked jurisdiction to hear the sole issue in the case – the petitioner’s underlying liability.

Challenge to Underlying Liability

A taxpayer may challenge the existence or amount of the underlying tax liability in a collection review proceeding if the person did not receive a notice of deficiency or did not otherwise have an opportunity to dispute such tax liability. IRC § 6330(c)(2)(B). Although petitioner did not receive a notice of deficiency, the Appeals Office determined that he nevertheless had an earlier opportunity to challenge his liability for the TFRPs within the meaning of IRC § 6330(c)(2)(B) and consequently was barred from reasserting that claim in the administrative proceeding concerning the lien at issue.

Although the phrase “opportunity to dispute” is not actually defined in the Code, the Treasury Regulations regarding IRC § 6330(c)(2)(B) shed light on its meaning. See Treas. Reg. § 301.6330-1(e)(3), Q&A-E2. In Lewis v. Commissioner, 128 T.C. 48, 61 (2007), the Tax Court upheld the regulation (an earlier but substantively similar version) as a reasonable interpretation of IRC § 6330 in the context of the assessment and collection of a tax, which tax is not subject to the deficiency procedures.

Thus, the Tax Court in Lewis found it had been the Congressional intent to preclude taxpayers who were previously afforded a conference with the Appeals Office from raising the underlying liabilities again in a collection review hearing and before this Court. Lewis, 128 T.C. at 60-61. Other courts that have reviewed the regulation have reached the same conclusion. See Our Country Home Enters., Inc. v. Commissioner, 855 F.3d 773, 787 (7th Cir. 2017); Keller Tank Servs. II, Inc. v. Commissioner, 854 F.3d 1178, 1199 (10th Cir. 2017); Iames v. Commissioner, 850 F.3d 160, 164 (4th Cir. 2017).

Bright Line Rule

The petitioner was previously afforded a conference with the Appeals Office when he requested and obtained an administrative hearing regarding the notice of intent to levy issued to him in 2013. Though he argued economic hardship, he did not argue that he was not liable for the TFRPs; therefore, under these circumstances the IRS correctly determined that petitioner had an earlier opportunity to challenge the TFRPs within the meaning of IRC § 6330(c)(2)(B). See Bland v. Commissioner, T.C. Memo. 2012-84, *7-*8.

Original opinion: (T.C. Memo. 2020-45) Shepherd v. Commissioner

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