ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – THE DUTIES IMPOSED ON THE SETTLEMENT OFFICER IN A CDP PROCEEDING – THE MIDDLETON CASE
By Robert S. Schriebman
This article should be read in conjunction with Articles 636 through 638.
The Collection Due Process (CDP) has afforded protection to taxpayers for over twenty years. I am proud to have been the father of this revolutionary legislation. Prior to the enactment of CDP, taxpayers who owed the IRS had no prepayment rights to challenge IRS assessments or to work out solutions to their IRS debt. Taxpayers were at the mercy of Revenue Officers who had total discretion to issue liens and levies and even closing a taxpayer’s business.
IRC §§ 6220 and 6230 prevent the IRS from engaging in enforced collection action without first affording taxpayers the ability to challenge the assessment, remove a lien, negotiate an installment payment arrangement or take advantage of the Offer in Compromise process. Millions of taxpayers have taken advantage of this revolutionary legislation, including the right to have a hearing before the US Tax Court or US District Court without first having to pay what was demanded by the IRS. I worked hand-in-hand with the late Senator William Roth (Roth IRA) to create this process and make it a permanent part of American tax law.
Having said the above, taking advantage of the CDP process requires affirmative action on the part of the taxpayer. Not only must one timely file the appropriate paperwork requesting a CDP hearing, but one must also take the steps not to blow his/her right to the advantages afforded by this process. For example, one must communicate and cooperate with the assigned Settlement Officer (SO). More importantly, one should know when and how to challenge the underlying tax assessment.
For example, if one is on the receiving end of a Trust Fund Recovery Penalty assessment (TFRP), there are procedures for challenging the assessment that are unique to the TFRP process. If one fails to exercise one’s rights during this process, one does not get a second bite at the apple that allows contesting the assessment during a CDP hearing. CDP rights are limited to establishing an installment payment arrangement, offer in compromise, or hardship suspension. One may also challenge the appropriateness of the IRS filing a tax lien. But one cannot contest the merits of the underlying assessment. Mohammad A. Kazmi learned this the hard way.
The Kazmi Case
The recent case of Mohammad A. Kazmi v. Commissioner, (TC Memo 2022-13, March 1, 2022)
serves as an example of the disaster awaiting a taxpayer who fails to challenge the deficiency at the right time and the right place. Mr. Kazmi was not allowed to contest the TFRP assessment in the CDP hearing. The Kazmi case is discussed in detail in Articles 637 and 638.
The Middleton Case
Luke J. Middleton v. Commissioner, T.C. Memo, 2022-028, T.C.M. US Tax Court, (April 4, 2022). There is much similarity between the Kazmi case and the Middleton case. Both cases involved the assessment of the TFRP and the failure to file a timely Protest with IRS Appeals. The Protest is the only administrative vehicle for challenging the potential TFRP assessment. Failure to file a Protest does not usually give the targeted taxpayer the right to challenge the merits of the proposed assessment in a CDP hearing. However, under limited circumstances, a CDP hearing may be the appropriate forum if the taxpayer can show that the IRS did not follow internal procedures in making the initial TFRP assessment. This is what the Middleton case is all about – following the internal IRS rules.
CDP hearings are conducted by Settlement Officers (SO). An SO cannot summarily deny a hearing on the merits of a TFRP assessment merely because the taxpayer received prior notice and failed to timely file a Protest. The SO must determine if the taxpayer was properly notified by certified mail sent to his/her last known address. The SO must also verify that written approval was obtained from the Revenue Officer’s supervisor prior to the assessment of the TFRP. This means that the IRS must send Form Letter 1153 properly. There must also be US Postal Service Forms 3800, Certified Mail Receipt. The SO must also examine the Certified Mailing List to see if all Post Office forms were sent. The SO may rely upon any particular document in order to verify that all applicable laws and administrative procedures were followed.
If the SO determines that the IRS followed all proper authorizations and notices, but the taxpayer did not file a timely Appeals Protest, the SO must refuse to grant the taxpayer a hearing on whether or not the taxpayer was a responsible person for TFRP purposes. If on the other hand, the IRS failed to observe proper procedures, the taxpayer may be entitled to a hearing during the CDP process. Otherwise, the CDP process must be devoted to establishing collection alternatives, such as an installment agreement, offer in compromise, or hardship suspension.
It is never wise to disregard any IRS notice especially a notice granting hearing rights. If the taxpayer is denied a CDP hearing on the merits, the taxpayer has no choice except to follow the refund procedure rules discussed Articles 637 and 638. You ignore an IRS notice at your peril.
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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