Tenth Circuit Finds IRS Followed Procedures and Could Proceed with Levy Action Cropper v. Comm., (CA 10 6/22/2016) 117 AFTR 2d 2016-794 The Court of Appeals for the Tenth Circuit concluded that because IRS's evidence of proper mailing was both competent and persuasive, the IRS Office of Appeals didn't abuse its discretion in determining that IRS properly mailed the deficiency notices to the taxpayer's last known address and that IRS met all applicable requirements to proceed with its levy action. Code Sec. 6320(a)(1) and Code Sec. 6330(a)(1) require IRS to give a taxpayer written notice when a Federal tax lien is filed upon the taxpayer's property or IRS intends to levy upon the taxpayer's property. The notices must inform the taxpayer of the right to request an administrative Collection Due Process (CDP) hearing in the Appeals Office. If one is timely requested, that hearing is held before an impartial officer or employee of IRS, and the taxpayer may raise any relevant issue. ( Code Sec. 6320(a)(3)(B), Code Sec. 6330(a)(3)(B) ) However, a taxpayer is precluded from contesting the existence or amount of the underlying tax liability at such a hearing unless the taxpayer didn't receive a deficiency notice or otherwise have an opportunity to dispute the liability. ( Code Sec. 6330(c)(2)(B) ) After the administrative hearing is completed, the Appeals Office issues a written notice of determination indicating whether the notice of Federal tax lien should remain in effect and/or whether the proposed levy may proceed. ( Code Sec. 6330(c)(3), Reg. 301.6320-1(e)(3), Q&A E8, Reg. 301.6330-1(e)(3), Q&A E8) The written notice must be sent by certified or registered mail ( Reg. 301.6330-1(e)(3), Q&A E8) to the taxpayer's last known address. (Weber, (2004) 122 TC 258 ) 1
A taxpayer may appeal the Appeals Office determination to the Tax Court within 30 days of the determination, and if an appeal is timely filed, the Court will have jurisdiction with respect to the matter. ( Code Sec. 6330(d)(1), Reg. 301.6330-1(f)(1) ) James Cropper failed to file returns for 2006, 2007, and 2008. IRS prepared substitute returns for each tax year and mailed three separate deficiency notices via certified mail to his last known address. After Cropper failed to respond, IRS assessed tax liabilities against Cropper for each of the three tax years and subsequently mailed him: (1) a lien notice informing him that his property was subject to a federal tax lien; and (2) a levy notice informing him of IRS's intent to levy on his property. In response, Cropper timely requested a CDP hearing. Before the scheduled telephone CDP hearing, the settlement officer obtained documents from IRS, reviewed Cropper's IRS account transcripts, verified that IRS followed all applicable administrative and legal procedures before proceeding with the proposed levy, confirmed that IRS sent all required notices to Cropper's last known address, and determined that the tax assessments were therefore valid. After Cropper failed to participate in the scheduled CDP hearing and failed to respond to the officer's requests to reschedule it, the officer informed Cropper that she would conduct the CDP hearing through written correspondence. Over the next two months, Cropper responded to the officer's letters by asserting that he never received the deficiency notices and never had an opportunity to challenge the underlying tax liabilities. However, he failed to submit any documents the officer requested for purposes of the CDP hearing, any evidence to support his assertion that he never received the deficiency notices, or any information to dispute the amount of the underlying tax liabilities. The Office of Appeals subsequently issued a Notice of Determination concluding 2
that: (1) IRS followed all legal and administrative requirements to proceed with the levy action, (2) the amounts of the underlying liabilities were valid and Cropper failed to submit any evidence to the contrary despite being provided the opportunity to do so, and (3) the levy action balanced the need for the efficient collection of taxes with the legitimate concerns of the taxpayer. Cropper timely sought judicial review in the Tax Court. The Tax Court sustained the Office of Appeals' determination, reasoning that regardless of whether Cropper received the deficiency notices, he failed to make any specific contentions or proffer any evidence before the Court showing why IRS's liability determinations were incorrect. The Court also found that the Office of Appeals didn't abuse its discretion in determining that: (a) Cropper wasn't entitled to a face-to-face CDP hearing; (b) IRS properly mailed deficiency notices to Cropper's last known address; and (c) IRS met all applicable requirements before proceeding with the levy action. (Cropper, TC Memo 2014-139 ) The Tenth Circuit concluded that IRS sufficiently proved that it mailed the deficiency notices and that it was therefore entitled to a presumption that Cropper received those notices. Cropper's mere assertion that he didn't receive them didn't rebut that presumption. Further, even if he didn't receive the notices, he was mistaken that Code Sec. 6330 entitled him to have the tax assessments set aside. The Court reasoned that IRS was entitled to a rebuttable presumption of proper mailing if it establishes the existence of a notice of deficiency and produces a properly completed PS Form 3877 certified mail log. If the presumption applied, the burden shifted to the taxpayer to rebut the presumption by "clear and convincing evidence." But IRS wasn't entitled to the presumption if it didn't show the existence of a deficiency notice or if it relies on an improperly completed PS 3
Form 3877. (O'Rourke v. U.S., (CA 2 2009) 104 AFTR 2d 2009-7508 The Tenth Circuit found that here IRS provided the Office of Appeals with copies of all three deficiency notices, thus proving the notices existed. IRS also provided copies of three corresponding PS Forms 3877, each containing (i) an entry showing IRS sent a notice to Cropper's last known address via certified mail, (ii) a certified tracking number corresponding with the tracking number on the deficiency notice, and (iii) a date stamp from the U.S. Postal Service indicating when IRS delivered the notice to the post office. While IRS wasn't entitled to the presumption of mailing in this case (as IRS acknowledged) because the PS Forms 3877 weren't signed by a postal service employee and didn't indicate how many pieces of mail the postal employee received, the Tenth Circuit concluded that IRS's proof of mailing was otherwise sufficient here because it produced copies of all three deficiency notices, the defects in the PS Forms 3877 were minor, and the Forms 3877 were datestamped with the date they were submitted to the Postal Service for mailing. Further, the Court noted that the Office of Appeals didn't rely only on the incomplete PS Forms 3877 to verify that IRS mailed the notices to Cropper's last known address. Instead, it appropriately reviewed and considered other corroborating information. Specifically, the settlement officer reviewed Cropper's IRS account transcripts to verify that IRS had issued deficiency notices before assessing tax liabilities against him. The officer also confirmed that IRS had used Cropper's last known address not only for mailing the deficiency notices, but also to mail the lien notice, the levy notice, and all correspondence relating to the CDP hearing. And, the officer noted that Cropper's IRS account transcripts didn't reflect that the Postal Service returned as undeliverable any correspondence mailed to that address. In addition, the administrative record included three "Certificates of 4
Assessments, Payments, and Other Specified Matters" (Forms 4340) indicating that IRS created or issued the deficiency notices roughly 10 days before the mailing dates indicated on the PS Forms 3877. The deficiency amounts on the Forms 4340 mirrored the amounts shown on the deficiency notices. In light of the other evidence in the administrative record, the Court viewed these forms as further evidence supporting the Office of Appeals' determination that IRS properly mailed the deficiency notices to Cropper. The Court determined that since the record demonstrated that IRS properly mailed the deficiency notices to Cropper's last known address, it could presume that Cropper received them. To rebut the presumption that he received the deficiency notices, Cropper produced only his own repeated, unsworn statements that he didn't receive them. The Tenth Circuit found this insufficient. The Court also concluded that even if Cropper's denials were sufficient to rebut the presumption that he received the deficiency notices, he had misconstrued the remedy. Under Code Sec. 6330, when a taxpayer didn't actually receive a deficiency notice, the taxpayer could challenge the underlying tax liability through a CDP hearing but wasn't entitled to have the tax assessment set aside. And while the record here indicated that Cropper actually received the deficiency notices and thus wasn't entitled to challenge the underlying tax liability, he nevertheless had been given the opportunity to do so through the CDP hearing. He failed to take advantage of that opportunity, and he was entitled to no further relief under Code Sec. 6330(c)(2)(B). 5