Ask The California Employment Tax And Payroll Tax Attorney – Failure To Issue A Notice Of Deficiency Means The IRS Can’t Collect – The Jolly Case
By Robert S. Schriebman
2021
Introduction
There are essentially two ways in which the IRS is legally entitled to collect money from you. The first way is when an income tax return is filed but not paid in full, or the return is filed and the IRS finds there have been computational errors. This is by far the most common way the IRS collects money. The second way involves the issuance of a Notice of Deficiency, commonly known as a 90-Day Letter or a “Ticket to the Tax Court.” Deficiency notices usually result from audit assessments.
As a result of an income tax audit, showing that the taxpayer owes money, the IRS is required by law to issue a deficiency notice in a timely fashion. When the notice is issued, the taxpayer has 90 days to file a petition in the US Tax Court. The US Tax Court is unique in that it is the only federal court where a taxpayer can get a judge hearing without first having to pay what the IRS says is owed. Filing a timely petition stops all IRS collection activities. If the taxpayer fails to timely file a petition, the proposed assessment becomes final and is subject to collection.
What happens if and when the IRS demands payment from a taxpayer but cannot prove that it ever issued a deficiency notice? On May 26, 2021, the US Tax Court of Federal Claims (Claims Court), issued a decision in the case of M.S. Jolly (Jolly, FedCI., May 26, 2021).
The Jolly Case
The IRS claimed that Jolly owed them money. Jolly, on the other hand, claimed that she overpaid and was entitled to a refund. Jolly demanded that the IRS produce a deficiency notice. The IRS could not produce any deficiency notice and had no record that one had ever been issued to Jolly. Yet, the IRS demanded that Jolly pay what the IRS claimed was owed. Jolly, on the other hand, said, ‘Nuts …I overpaid and want my refund.”
The Claims Court ruled in Jolly’s favor. The IRS was not entitled to anything because it could not be proven that a deficiency notice was issued prior to its demand for payment. Jolly was entitled to a refund.
Conclusion
The Jolly case is rare. The IRS takes great care in seeing to it that each step of the assessment process is carefully observed and documented. This case is an exception. If you find yourself in Jolly’s position, you can request a copy of any deficiency notice allegedly issued to you by making a “Freedom of Information Act (FOIA) request.
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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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