Taxpayer's Bill of Rights Does Not Provide Grounds for Challenging a Notice of Deficiency

(Parker Tax Publishing April 2019)

The Tax Court held that a taxpayer could not challenge deficiencies resulting from the disallowance of her Schedule C deductions on the ground that the IRS deprived her of rights guaranteed to all taxpayers by the Taxpayer's Bill of Rights (TBOR). The Tax Court concluded that, even if the IRS violated the TBOR, the court would not invalidate the notice because (1) the TBOR did not add to the taxpayer's rights and remedies, and (2) any missteps by the IRS would not relieve the taxpayer of her burden of proving error in the IRS's determinations of deficiencies in her tax. Moya v. Comm'r, 152 T.C. No. 11 (2019).

Background

Maria Ivon Moya filed Forms 1040 for 2011, 2012, and 2013 reporting wages she earned from her job as a college professor. She also included with each return a Schedule C, Profit or Loss from Business, for her workforce training/manual development/translation business. On the Schedules C, Moya reported expenses in excess of gross income, resulting in net losses of between $5,000 and $6,000 for each of the years at issue.

The IRS began examining Moya's 2011 return in 2012. By early 2014, the examination was being conducted from the IRS's Las Vegas, Nevada, office. In February 2014, Moya sent a letter to the Las Vegas office asking that the examination be transferred to Santa Cruz, California, where Moya had moved. She wrote again in March 2014, reiterating her request and stating that she had received no reply to her earlier letter. In July 2014, the IRS's Denver, Colorado, office informed Moya that her Form 1040 had been sent to the IRS's Santa Cruz office. Moya wrote again to the Las Vegas office in November 2014 to acknowledge a letter scheduling a hearing in Las Vegas and to again reiterate her request for a hearing in Santa Cruz.

The IRS sent Moya a notice of deficiency in February 2015. Almost all of the adjustments to Moya's reported income for the years at issue related to the disallowance of deductions she claimed on Schedule C due to her failure to establish that the expenses were ordinary and necessary to her business. The IRS also increased Moya's income for 2013 for taxable social security benefits that she failed to report on her Form 1040.

Moya filed a petition in the Tax Court. She challenged the notice on the grounds that, although she requested the examination of her returns to be set in Santa Cruz, it was set in Las Vegas; that her phone calls to the IRS went unreturned; that she received contradictory information as to where the examination of her returns would take place; and that she received inconsistent requests for information. Moya added that it was her understanding from the Taxpayer's Bill of Rights (TBOR), announced by the IRS in a 2014 news release, that she had the right to have her questions answered and the right to meet with an IRS representative at a time and place convenient to her.

Observation: Code Sec. 7803(a)(3), which now requires the IRS to ensure that its employees are familiar with and act in accord with taxpayer rights afforded by other provisions of the Code, including, specifically, the rights enumerated in the TBOR, became effective in December 2015, after Moya's notice was issued.

The IRS responded that Moya's allegations impermissibly attempted to look behind the notice of deficiency in violation of Greenberg's Express, Inc. v. Comm'r, 62 T.C. 324 (1974). In Greenberg's Express, the Tax Court explained that, because a Tax Court trial is a proceeding de novo, the court's determination as to a taxpayer's tax liability must be based on the merits of the case and not any previous record developed at the administrative level. The IRS argued that, even in cases involving substantial evidence of unconstitutional conduct by the IRS, the Tax Court has not declared a notice void as a sanction for such conduct. The IRS also contended that, although there is no caselaw specifically addressing the application of Greenberg's Express to rights enunciated in the TBOR, the TBOR does not embody constitutional rights, and consequently a violation of it does not provide an exception to the Greenberg's Express rule.

Analysis

The Tax Court sustained the deficiencies. The court held that Moya was deemed to have conceded the adjustments underlying the deficiencies because she failed to challenge or present any evidence with respect to them. The Tax Court also held that a proceeding to redetermine a deficiency in tax involves a trial de novo, and Moya failed to persuade the court to deviate from Greenberg's Express and look behind the notice of deficiency.

The Tax Court found that that the TBOR was not intended to accord taxpayers any rights or remedies they did not already possess. Rather, the court found that the TBOR articulated rights and obligations generally derived from provisions that were already part of the tax laws or procedures. In the court's view, when introducing the TBOR, the IRS had no more in mind than consolidating and articulating in 10 easily understood expressions rights enjoyed by taxpayers and found in the Code and in other IRS guidance.

Moreover, the Tax Court found no grounds to deviate from Greenberg's Express because any missteps by the IRS in conducting Moya's examination did not deprive Moya of her right to challenge the deficiency determination in the Tax Court. The court found that Moya used her opportunity to have a hearing in the Tax Court not to dispute the adjustments to her income but to challenge the IRS's right to make those determinations due to its alleged violations of her unspecified statutory rights. In the court's view, Moya had provided no basis for invalidating the notice or imposing on the IRS some sanction for its missteps. The court concluded that, to the extent the notice overstated the deficiencies in Moya's tax, her remedy was not to be excused from liabilities imposed by the Code but to prove the correct liabilities before the Tax Court.

For a discussion of the rules for filing a petition with the Tax Court, see Parker Tax ¶263,510.

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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