SCOTUS Reports

Tag: IRS Appeals

  • Brown v. Commissioner, 158 T.C. No. 9 (2022): Deemed Acceptance of Offers-in-Compromise Under I.R.C. § 7122(f)

    Brown v. Commissioner, 158 T. C. No. 9 (2022)

    In Brown v. Commissioner, the U. S. Tax Court ruled that an Offer-in-Compromise (OIC) submitted during a Collection Due Process (CDP) hearing is not automatically accepted if not rejected within 24 months, as per I. R. C. § 7122(f). The court held that the rejection period ends when the IRS returns the OIC, not when Appeals issues a notice of determination. This decision clarifies the application of the “deemed acceptance” rule in the context of CDP proceedings, ensuring that the IRS can promptly address OICs without being pressured by the 24-month deadline during ongoing CDP cases.

    Parties

    Michael D. Brown, as the petitioner, sought review of the Commissioner of Internal Revenue’s decision to reject his OIC. The Commissioner of Internal Revenue served as the respondent in this case, which was heard in the U. S. Tax Court.

    Facts

    Michael D. Brown, with a tax liability exceeding $50 million, received a Notice of Federal Tax Lien Filing and his right to a CDP hearing from the IRS on November 9, 2017. He timely requested the hearing and submitted an OIC on April 19, 2018, offering $320,000 to settle his liabilities for the tax years 2009 and 2010. The OIC was forwarded to the IRS’s Centralized Offer in Compromise Unit (COIC unit), which determined the offer to be processable. Subsequently, the offer was referred to a collection specialist in the Laguna Niguel branch (Laguna Group). On November 5, 2018, the Laguna Group returned the OIC to Brown, closing the file on his offer due to pending investigations that might affect the liability. Despite Brown’s efforts to have the decision overturned during the CDP hearing, the IRS Appeals officer upheld the Laguna Group’s decision and closed the case, issuing a notice of determination on August 12, 2020.

    Procedural History

    Following the IRS’s notice of determination on August 12, 2020, Brown timely petitioned the U. S. Tax Court for review. He filed a Motion for Summary Judgment on July 22, 2021, arguing that his OIC should be deemed accepted under I. R. C. § 7122(f). The court heard oral arguments on March 28, 2022, and issued its opinion on June 23, 2022, denying Brown’s motion. The court’s decision was based on the precedent set in Brown II and Brown III, where similar arguments were rejected.

    Issue(s)

    Whether an OIC submitted during a CDP hearing is deemed accepted under I. R. C. § 7122(f) if the IRS does not issue a notice of determination within 24 months of the offer’s submission.

    Rule(s) of Law

    I. R. C. § 7122(f) states that an OIC “shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer. ” Treasury Regulation § 301. 7122-1(d)(2) clarifies that an OIC is deemed pending only between the date it is accepted for processing and the date it is returned to the taxpayer. Notice 2006-68, § 1. 07, further explains that the 24-month period does not include time spent by the IRS Office of Appeals reviewing a rejected OIC.

    Holding

    The U. S. Tax Court held that Brown’s OIC was not deemed accepted under I. R. C. § 7122(f) because it was returned by the Laguna Group within 24 months of submission, specifically in November 2018. The court emphasized that the rejection period terminates upon the return of the OIC, not upon the issuance of the notice of determination by Appeals.

    Reasoning

    The court’s reasoning was grounded in the plain language of I. R. C. § 7122(f) and the applicable regulations and notices. It relied on previous decisions in Brown II and Brown III, which established that the 24-month period ends when the COIC unit returns the OIC. The court rejected Brown’s argument that the notice of determination by Appeals should be the terminating event, noting that such a rule would conflict with the statutory purpose of ensuring prompt IRS action on OICs. The court also addressed policy concerns, stating that requiring Appeals to issue a notice of determination within 24 months could lead to premature closures of CDP cases, potentially resulting in reversals and remands. Additionally, the court considered the practical implications of Brown’s theory, suggesting it could encourage delay tactics by taxpayers.

    Disposition

    The court denied Brown’s Motion for Summary Judgment, upholding the IRS’s decision to return his OIC within the 24-month period specified in I. R. C. § 7122(f).

    Significance/Impact

    The Brown decision clarifies the application of the “deemed acceptance” rule under I. R. C. § 7122(f) in the context of CDP proceedings. It reinforces the IRS’s ability to manage OICs efficiently without being constrained by the 24-month deadline during ongoing CDP cases. This ruling is significant for practitioners and taxpayers, as it sets a clear precedent that the return of an OIC by the IRS, rather than the issuance of a notice of determination by Appeals, is the critical event for determining whether an OIC is deemed accepted. The decision also underscores the importance of the IRS’s administrative procedures in handling OICs and may influence future legislative or regulatory adjustments to the tax collection process.

  • Offiler v. Commissioner, 114 T.C. 492 (2000): Jurisdictional Requirements for Tax Court Review of IRS Collection Actions

    Offiler v. Commissioner, 114 T. C. 492 (2000)

    The Tax Court lacks jurisdiction to review IRS collection actions unless the taxpayer receives a notice of determination from the IRS Appeals Office following a timely requested hearing.

    Summary

    Lucielle Offiler failed to request a collection due process hearing within 30 days of receiving an IRS notice of intent to levy for her 1994 and 1995 tax liabilities. Without a timely request, the IRS was not required to issue a determination, which is necessary for the Tax Court to have jurisdiction over the case. The court dismissed Offiler’s petition for lack of jurisdiction, emphasizing that the absence of an IRS Appeals determination precludes judicial review. This case underscores the importance of adhering to statutory deadlines when challenging IRS collection actions.

    Facts

    Lucielle Offiler received notices of deficiency for her 1993, 1994, and 1995 tax years but did not file timely petitions with the Tax Court. On February 1, 1999, the IRS sent Offiler a Final Notice-Notice of Intent to Levy for her 1994 and 1995 tax liabilities, informing her of her right to a collection due process hearing. Offiler did not request a hearing within the required 30 days. She later submitted a Collection Appeal Request on June 3, 1999, which was denied by the IRS on September 30, 1999. Offiler then filed a petition with the Tax Court on October 29, 1999.

    Procedural History

    The IRS sent Offiler a notice of deficiency for her 1993 tax year on October 13, 1995, and for her 1994 and 1995 tax years on July 25, 1997. Offiler did not timely petition these deficiencies. On February 1, 1999, the IRS issued a notice of intent to levy for the 1994 and 1995 tax years. Offiler failed to request a collection due process hearing within 30 days. After her subsequent Collection Appeal Request was denied, Offiler filed a petition with the Tax Court, which the IRS moved to dismiss for lack of jurisdiction.

    Issue(s)

    1. Whether the Tax Court has jurisdiction to review the IRS’s collection action when the taxpayer did not request a collection due process hearing within 30 days of receiving the notice of intent to levy.

    Holding

    1. No, because the Tax Court’s jurisdiction under section 6330(d) is dependent upon the issuance of a determination by the IRS Appeals Office, which requires a timely request for a hearing by the taxpayer.

    Court’s Reasoning

    The court applied section 6330 of the Internal Revenue Code, which mandates that a taxpayer must request a collection due process hearing within 30 days of receiving a notice of intent to levy. Offiler’s failure to request a hearing within this timeframe meant that the IRS was not required to issue a determination, which is a prerequisite for Tax Court jurisdiction under section 6330(d). The court likened the absence of a determination to the absence of a notice of deficiency, which similarly results in a lack of jurisdiction. The court emphasized the statutory requirement for a timely request as a condition for judicial review, stating that without a valid determination, there was no basis for its jurisdiction. The court’s decision underscores the strict adherence to statutory deadlines and the procedural nature of the Tax Court’s jurisdiction in collection due process cases.

    Practical Implications

    This decision reinforces the importance of timely action by taxpayers in response to IRS collection notices. Practitioners should advise clients to request collection due process hearings within the 30-day window to preserve their right to judicial review. The ruling highlights the procedural nature of the Tax Court’s jurisdiction in such matters, indicating that failure to follow these procedures results in dismissal for lack of jurisdiction. For businesses and individuals, this case serves as a reminder to monitor and respond promptly to IRS notices to avoid losing the opportunity for administrative and judicial review. Subsequent cases have cited Offiler in dismissing petitions where taxpayers failed to request hearings within the statutory period, further solidifying the precedent set by this decision.

  • Swope v. Commissioner, 51 T.C. 442 (1968): When Taxpayers Cannot Change Theories on Appeal

    Swope v. Commissioner, 51 T. C. 442 (1968)

    The IRS cannot introduce new theories or change its position on appeal that are inconsistent with its original determination of deficiency.

    Summary

    In Swope v. Commissioner, the Tax Court ruled that the IRS could not introduce a new argument on appeal that contradicted its original deficiency determination. The case involved Jones & Swope, Inc. , which purchased properties from Consolidation Coal Company and later tried to allocate income to two other corporations, Itmann and Pocahontas. The IRS initially allocated all income to Jones & Swope, Inc. , but on appeal, attempted to argue that certain payments were not interest but adjustments to the purchase price. The court rejected this new theory, stating it was inconsistent with the original determination and akin to an “about-face. ” The court upheld the IRS’s original allocation of income to Jones & Swope, Inc. , as supported by the facts.

    Facts

    Jones & Swope, Inc. (J&S) entered into a contract with Consolidation Coal Company (Consol) to purchase real and personal properties. J&S paid a down payment and executed a promissory note for the remaining purchase price. J&S managed the properties and collected income, which it reported as 20% commissions on its tax return, allocating the remaining 80% to Itmann and Pocahontas Realty Companies, which were later formed. The IRS determined that all income should be allocated to J&S, and on appeal, attempted to argue that certain payments were not interest but adjustments to the purchase price.

    Procedural History

    The IRS issued a statutory notice of deficiency to J&S, allocating all income from the properties to J&S. J&S petitioned the Tax Court, arguing that the income should be allocated to Itmann and Pocahontas. During the appeal, the IRS introduced a new argument that certain payments were not interest but adjustments to the purchase price. The Tax Court rejected this new argument and upheld the IRS’s original determination.

    Issue(s)

    1. Whether the IRS can introduce a new theory on appeal that is inconsistent with its original determination of deficiency.

    2. Whether the income from the properties should be allocated to Jones & Swope, Inc. , or to Itmann and Pocahontas Realty Companies.

    Holding

    1. No, because the IRS’s new theory on appeal was inconsistent with its original determination and amounted to an “about-face,” which is not permitted.

    2. Yes, because the income from the properties was attributable to Jones & Swope, Inc. , as it was the sole owner and operator of the properties during the relevant period.

    Court’s Reasoning

    The court reasoned that the IRS’s new argument on appeal regarding the nature of certain payments was inconsistent with its original determination and could not be considered. The court emphasized that this was not a case where the determination was inherently supportable by multiple theories, but rather an instance where the IRS was attempting to change its position entirely. The court cited previous cases where similar attempts by the IRS were rejected. Regarding the allocation of income, the court found that J&S was the sole owner and operator of the properties and that the attempted assignments of income to Itmann and Pocahontas were invalid. The court relied on the fact that J&S had executed the contract with Consol, paid the down payment, and managed the properties, while Itmann and Pocahontas had no active role in the properties during the relevant period.

    Practical Implications

    This decision reinforces the principle that the IRS cannot change its theories or positions on appeal in a way that contradicts its original deficiency determination. Taxpayers and practitioners should be aware that they can challenge such attempts by the IRS and that the Tax Court will not permit the IRS to introduce new, inconsistent arguments on appeal. The decision also serves as a reminder that income must be allocated to the entity that has actual ownership and control over the income-producing assets, and that attempted assignments of income to other entities will be scrutinized closely by the courts. This case may be cited in future cases where the IRS attempts to change its position on appeal or where the allocation of income between related entities is at issue.