I am off to the ABA Tax Section meeting in San Francisco, where I will be moderating a panel looking at developments in CDP. Carl Smith, Mary Gillum and Nina Olson will be on my panel Saturday morning, and it will be good fun and I am sure to learn lots from my panelists.
One interesting issue that IRS and courts are wrestling with and that our panel will discuss is when the Tax Court can retain jurisdiction in CDP cases and remand the matter back to Appeals. As with many procedural issues we describe in this blog, it is best to have some statutory context before getting into some of the challenges IRS and the Tax Court are facing.read more...
Jurisdiction in CDP cases is generally limited to a review of CDP “determinations.” Sec. 6330(d)(1). Following a CDP determination, a taxpayer can raise consideration of a new collection alternative for the years implicated in the CDP determination for example, with the collection function directly. That will not spawn new CDP hearing and review rights. The CDP provisions also provide a separate venue for review of a new collection alternative or to address a material change in a taxpayer’s financial circumstance, an appeal to the Appeals Office under Appeals’ retained jurisdiction provided in section 6330(d)(2). These so called retained jurisdiction hearings are not a continuation of the original CDP proceeding, and only give taxpayers administrative rights (thus there is no right to court review or any suspension of limitations periods, as in normal CDP hearings)
In CDP cases, the Tax Court has on occasion kept jurisdiction and remanded CDP cases back to Appeals, when, for example, the record is incomplete or there has been some other failing in the process that essentially amounts to a determination that Appeals has abused its discretion. That happened, for example, just the other day in Dickes v Comm’r, when the Tax Court remanded back to Appeals when the Settlement Officer left the taxpayer with the impression that he would have an opportunity to submit an OIC if his request for penalty abatement were denied in the hearing. In fact Carl Smith and my colleague and co-blogger Keith Fogg wrote an article in Tax Notes a couple of years ago detailing how common that practice is. See Smith and Fogg, “Tax Court Collection Due Process Cases Take Too Long” 130 Tax Notes 403, 410 (Jan. 24, 2011) (out of 154 CDP cases studied randomly, 13 had remands granted – often at the request of the IRS).
There have been other situations warranting a remand and retained court jurisdiction, including cases where there has been a change in circumstances following the hearing and determination but prior to the time of the court decision. An example is in Churchill v Commissioner, T.C. Memo 2011-182, where following submission of an offer in compromise and Appeals CDP determination, the taxpayer got divorced. In Churchill, at Appeals, the ex wife’s income was relevant in determining his reasonable collection potential. Not so after the divorce. To deal with the changed circumstances, the Tax Court remanded the case to Appeals to consider his new and reduced ability to pay that arose due to his changed marital circumstances.
Not every change in circumstances following a determination and prior to a court decision will justify a remand. In a Chief Counsel Notice issued at the end of 2012, that is in large part a response to Churchill, the IRS attempted to provide a standard, limiting remand to “when there has been a change in circumstances that is material and affects the core issues in the case that, if known at the time of the Appeals hearing, would likely have altered Appeals’ determination.” CC-2013-002 According to the IRS, changes must be material, and relate to core issues in the case that are likely to impact resolution. The IRS takes a restrictive view of this; in CC 2013-002 the IRS notes the general one bite at the CDP apple rule and that it expects this remands to arising from changed circumstances to be attributable to “rare and unusual” circumstances.
I suspect that there will be differing views on what will justify a remand. For one, the Tax Court has suggested a broader ability to remand and retain jurisdiction beyond matters where there has been an abuse or in changed circumstances, in matters where a remand might be helpful, necessary or productive. See Van Camp v Comm’r, T.C. Memo 2012 -336
Even assuming a more limited remand right tethered to changed circumstances, given the possible changes that taxpayers may encounter following an initial CDP determination, including possible job loss, and health challenges to dependents (to name just two), it is likely that well-served advocates will press for remands to allow IRS to take those into account if the IRS has previously rejected the taxpayer’s collection alternative. In fact in Churchill, which spawned the IRS response, it is hard to say that the underlying circumstances warranting the changed ability to pay (a divorce) are “rare and unusual.” Stay tuned as the IRS and courts likely clarify this further, with the IRS arguing for a narrow band of cases justifying a remand and at least some Tax Court judges sympathetic to a more robust remand power.