Tax Court Lacked Jurisdiction Because No Notice of Determination Was Issued

(Parker Tax Publishing July 2019)

The Tax Court held that it lacked jurisdiction to consider whether the IRS should have given a taxpayer a collection due process (CDP) hearing because the taxpayer, after receiving a notice of federal tax lien filing, failed to timely request a CDP hearing and the IRS closed the case without conducting a hearing or issuing a notice of determination. The court rejected the taxpayer's argument that under Buffano v. Comm'r, T.C. Memo. 2007-32, the court should dismiss for lack of jurisdiction on the grounds that the IRS failed to satisfy the requirements for issuing a valid notice of federal tax lien filing, finding that this case was distinguishable because the taxpayer did not show that its last known address was one other than the address used by the IRS. Atlantic Pacific Management Group, LLC v. Comm'r, 152 T.C. No. 17 (2019).

Background

Atlantic Pacific Management Group, LLC (Atlantic) is a partnership whose principal place of business is outside the United States. The IRS assessed penalties against Atlantic under Code Sec. 6698(a) for late partnership information return filings for 2014 and 2015 and a penalty under Code Sec. 6038(b) for failing to file an information return with respect to certain foreign corporations and partnerships for 2014.

On June 13, 2017, the IRS mailed Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing under Code Section 6320, to Atlantic's New York address with respect to the 2014 and 2015 assessments. The Letter 3172, delivered and signed for on June 16, 2017, notified Atlantic of its right to file a request for a collection due process (CDP) or equivalent hearing on or before July 20, 2017. Atlantic's tax matters partner and managing member, David Chu, was not in the United States at the time and did not sign for the Letter 3172.

On July 28, 2017, Atlantic mailed a Form 12153, Request for a Collection Due Process or Equivalent Hearing, to the IRS. The Form 12153 listed Atlantic's New York address as its current address, and that address was also the return address on the envelope in which the form was mailed. The IRS received the request on July 31, 2017. On August 28, 2017, the IRS sent a letter to Atlantic's New York address stating that Atlantic's CDP hearing request was being denied as untimely and giving Atlantic until September 1, 2017, to request an equivalent hearing. On September 7, 2017, the IRS's automated collection system support closed the case without a hearing. Atlantic updated its last known address in October of 2017.

On December 19, 2017, Atlantic's attorneys sent a follow up request for a CDP or equivalent hearing. The request included a Form 2848, Power of Attorney and Declaration of Representative, which listed Atlantic's New York address as the taxpayer's address. The IRS did not respond to the request. On May 2, 2018, Atlantic filed a petition seeking the Tax Court's review and attached the August 28, 2017, letter received from the IRS. No CDP or equivalent hearing was ever conducted.

Under Code Sec. 6321, a lien in favor of the United States is imposed on all property and rights to property of a person liable for tax when a demand for the payment of taxes has been made and the person fails to pay. Code Sec. 6323 requires the IRS to file a notice of federal tax lien (NFTL) if the lien is to be valid against certain creditors. Under Code Sec. 6320(a)(1), the IRS must notify in writing any person against whose property an NFTL is filed. The notice must include the right of the person to request a hearing within 30 days following the fifth business day after the lien is filed. If the taxpayer makes a timely request, he or she is entitled to a hearing with the IRS Office of Appeals, and the Appeals officer must make a "determination" following the hearing. The taxpayer may petition the Tax Court within 30 days of the determination, and the Tax Court has jurisdiction to review it under Code Sec. 6330(d)(1). If no written determination is issued, the absence of such a determination is grounds for the Tax Court's dismissal of the petition.

The Tax Court generally will not look behind a notice of determination, or lack of notice, to determine whether a hearing was fair or whether the taxpayer was given an appropriate hearing opportunity. However, in Buffano v. Comm'r, T.C. Memo. 2007-32, where a taxpayer failed to timely request a CDP hearing and did not appear at an equivalent hearing, resulting in no notice of determination being issued, the Tax Court examined the IRS's compliance with the requirement that a levy notice be mailed to the taxpayer's last known address and held that the levy notice on which a notice of determination would have been based was invalid since it was not mailed to an appropriate address. Accordingly, the Tax Court invalidated the underlying levy notice. But in Adolphson v. Comm'r, 2016 PTC 483 (7th Cir. 2016), a case with facts similar to those in Buffano, the Seventh Circuit held that a decision invalidating administrative action for not following statutory procedures is a quintessential merits analysis, not a jurisdictional ruling.

Atlantic argued that under Buffano, the Tax Court should dismiss the case for lack of jurisdiction on the grounds that that the IRS failed to satisfy the requirements for issuance of a valid NFTL filing. Atlantic also contended that Code Sec. 7803(a)(3), which gives taxpayers a right to be heard and to appeal IRS decisions in an independent forum, conferred jurisdiction on the Tax Court. The IRS contended that the Tax Court should overrule Buffano and adopt the Seventh Circuit's approach in Adolphson.

Analysis

The Tax Court determined that it did not need to resolve the conflict between Buffano and Adolphson because it could clearly distinguish the instant case from Buffano. The court explained that, in Buffano, there was information showing the address appearing on the taxpayer's most recently filed federal income tax, which the court noted is the starting point for establishing a taxpayer's last known address. In addition, the taxpayer in Buffano did not even become aware of the IRS's levy filing until the IRS served a notice of levy on the taxpayer's employer. The Tax Court said that, by contrast, Atlantic did not show that its last known address was one other than the New York address used by the IRS. The court found that Atlantic in fact admitted that it received the notice at its New York address and filed a request, albeit untimely, for a CDP hearing based on the notice. The court also noted that Atlantic listed its New York address as its current address on Form 12153 and that Atlantic's attorneys listed the New York address as Atlantic's address on the Form 2848. Consequently, the court concluded that the IRS was not required to provide Atlantic with a hearing and, absent a determination letter, the Tax Court lacked jurisdiction over Atlantic's petition.

The Tax Court also rejected Atlantic's argument that Code Sec. 7803(a)(3) gave the court jurisdiction. The court found that that Code Sec. 7803(a)(3) provides no independent relief or additional rights to taxpayers but applies only to rights already guaranteed. In the court's view, Atlantic failed to explain how Code Sec. 7803(a)(3) would confer jurisdiction on the Tax Court when the taxpayer failed to timely request such a hearing.

For a discussion of the rules for IRS levies, see Parker Tax ¶260,540.

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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