Tax Court Narrowly Sides with IRS in Rejecting CDP Hearing for Canadian Taxpayer

(Parker Tax Publishing August 2024)

In an issue of first impression, a closely divided Tax Court held that, because a United States treaty with Canada requires the United States to collect an accepted Canadian revenue claim as it would a United States tax assessment for which the taxpayer's right to a Collection Due Process (CDP) hearing (among other rights) has lapsed or been exhausted, a Canadian taxpayer living in the United States has no additional rights under Code Sec. 6320 or Code Sec. 6330 with respect to the IRS's collection of her Canadian tax liability. The Tax Court further held that it lacked jurisdiction over a petition filed by the taxpayer requesting a CDP hearing because the IRS did not issue a determination letter to her that would invoke its jurisdiction under Code Sec. 6330(d)(1), and the IRS had no obligation to issue such a letter. Ryckman v. Comm'r, 163 T.C. No. 3 (2024).

Facts

According to the Canada Revenue Agency (CRA), J.E. Ryckman owes approximately $200,000 in Canadian tax for tax years 1993 and 1994. In 2017, when Ryckman was living in Arizona, the CRA sent the IRS a Mutual Collection Assistance Request (MCAR) in accordance with Article XXVI A (Assistance in Collection) of the Canada-U.S. Income Tax Treaty (Treaty). Once the U.S. Competent Authority granted the MCAR, the IRS filed a notice of federal tax lien (NFTL) against Ryckman.

Code Sec. 6320 and Code Sec. 6330 (collection due process (CDP) statutes) specify CDP rights for taxpayers against whom the IRS has made an NFTL filing or proposes a levy to collect an assessed tax liability. The IRS notified Ryckman that she had no right to a CDP hearing under Code Sec. 6320 and Code Sec. 6330. Ryckman nonetheless requested a CDP hearing within 30 days of the IRS's notice. When the IRS sent a letter denying her request, Ryckman petitioned the Tax Court for review of that denial. Ryckman argued that the Tax Court had jurisdiction over her case under Code Sec. 6330(d)(1), which provides that a person may, within 30 days of a determination under Code Sec. 6330, petition the Tax Court for review of such determination.

The Tax Court found that, under Code Sec. 6330(d)(1), it had jurisdiction to review the IRS's determination and that it could decide whether the IRS's denial letter constituted a determination under Code Sec. 6330 (and, by cross-reference, Code Sec. 6320). If that were the case, the court said, it would mean that in making such a determination, the IRS was subject (or purported itself to be subject) to one or more obligations imposed (whether expressly or implicitly) by Code Sec. 6320 or Code Sec. 6330. The Tax Court granted the petition, noting that the case raised a question of first impression: specifically, whether the Tax Court has jurisdiction to review an IRS denial of a hearing request regarding the collection of taxes pursuant to an MCAR made by Canada under the Treaty.

Analysis

In a 7-6 decision, the Tax Court held that it did not have jurisdiction under Code Sec. 6330(d)(1) to review the IRS's denial of Ryckman's hearing request. The Tax Court further concluded that the Treaty requires the United States to collect an accepted Canadian revenue claim as it would a U.S. tax assessment for which the taxpayer's right to a CDP hearing (among other rights) has lapsed or been exhausted. Consequently, the court said, Ryckman had no additional rights under Code Sec. 6320 or Code Sec. 6330 with respect to the IRS's collection of her Canadian tax liability, and those statutes imposed no obligations on the IRS with respect to Ryckman's hearing request.

Additionally, the court said, it lacked jurisdiction over Ryckman's petition because the IRS did not issue her a determination letter that would invoke the court's jurisdiction under Code Sec. 6330(d)(1), and the IRS had no obligation to do so.

In a dissenting opinion, six judges argued that the court's opinion presented an irreconcilable conflict with later-enacted statutory CDP provisions. The majority agreed that the CDP statutes would trump the Treaty in the case of an irreconcilable conflict (because they were enacted later in time), but the majority did not see any such conflicts. Where the dissenting opinion cited a nonprecedential 1999 Chief Counsel memorandum as evidence that the IRS has interpreted the Treaty provisions as not foreclosing CDP rights for U.S. taxpayers subject to IRS collection activity for Canadian revenue claims, the majority found that the dissent failed to mention that since at least 2005, the Internal Revenue Manual -- another nonprecedential IRS publication -- has consistently reflected the position that CDP rights do not attach to MCARs under tax treaties.

According to the Tax Court, Ryckman's situation was analogous to that in which the IRS denies a CDP hearing request for a tax period and collection action for which the taxpayer already had a hearing opportunity. Absent a determination made by the IRS under Code Sec. 6320 or Code Sec. 6330, the court concluded that Ryckman lacked the jurisdictional hook to enter the Tax Court.

For a discussion of IRS collection due process procedures under Code Sec. 6320 and Code Sec. 6330, see Parker Tax ¶260,500.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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