number release date date gl-123744-00 cc pa cbs uil december bulletin no ’ cid cid dollar_figure cid 105’5 cid dollar_figure ’6 department of the treasury office_of_chief_counsel internal_revenue_service first circuit weighs in on equitable_tolling joining with the third seventh eighth ninth and tenth circuits the first circuit agreed with the government that the three-year statutory priority period of b c sec_507 should be automatically tolled for those periods in which the debtor was in a prior bankruptcy young v united_states u s app lexis 1st cir date three other circuits the fifth sixth and eleventh have permitted equitable_tolling on a case-by-case basis under b c sec_105 the debtors filed for chapter bankruptcy on date owing taxes this bankruptcy was voluntarily dismissed on date on date the debtors filed a no-asset chapter bankruptcy and received a discharge on date when the service sought to collect on the taxes the debtors moved to have the taxes discharged because the return was filed on date more than three years before their chapter petition was filed the government countered by arguing that the three-year priority period should be tolled for the time the debtors spent in chapter both the bankruptcy court and the district_court agreed and the debtors appealed affirming the first circuit initially discussed discharge provisions under the old bankruptcy act which included a amendment limiting previously nondischargeable priority taxes to a three year period the court next considered the legislative_history of b c sec_507 concluding that congress had not meant to change the pre-code priority structure although it is not explicit in the statute the appellate court felt that congress intended a tolling provision to protect the government acknowledging that it could not re-write the bankruptcy code to make explicit this intent of congress the court sought to provide guidance when dealing with what it viewed to be a statute_of_limitations issue in order to strike the right balance and preserve what congress intended when it adopted the three-year lookback period in sec_507 the first circuit decided that automatic tolling of the period best insured that the service received the benefit of the full three-year collection_period bankruptcy code cases priorities income taxes december bulletin no cases bankruptcy code cases exceptions to discharge no late or fraudulent_returns in re weiss u s dist lexis e d pa date - debtor failed to file returns for until underpaying his taxes for those years the bankruptcy court granted debtor a discharge of his taxes but the district_court reversed the court found the debtor had a duty to file tax returns and admitted that he knew he had that duty the debtor’s claim that his ex-wife took his financial records in did not excuse the debtor from not filing his returns for those years because the debtor could have obtained duplicate financial information or prepared the returns once the information was returned to him in the district_court found the clear weight of the evidence supported it’s finding that the debtor willfully evaded his tax_liabilities and so his taxes for were nondischargeable under b c a c bankruptcy code cases liens determination of secured status in re 255_br_285 e d va - service’s lien against taxpayer’s property was third in priority but the property only had enough equity to pay the first two liens when the taxpayers filed for chapter relief then converted to chapter the bankruptcy court concluded that the service’s lien could be stripped from the property reversing the district_court held that under 502_us_410 the lien was both allowed under b c sec_502 and secured_by the collateral because the federal_tax_lien is indivisible and because it remained secured_by the debtors’ personal_property a component of the collateral retained value the bankruptcy court thus erred in voiding the lien as unsecured bankruptcy code cases liens determination of secured status united_states v kogan in re herreras u s dist lexis c d cal date - service had tax_liens against attorney who filed for chapter bankruptcy the trustee objected to the service’s secured claim arguing that the tax_liens did not attach to the attorney’s work-in-progress the bankruptcy court agreed guided by in re 27_f3d_365 9th cir where an unconditional pre-petition right to receive payments was held a sufficient property interest to which a tax_lien could attach applying connor the bankruptcy court decided that a conditional pre-petition right as represented by the work-in-progress was not a property right the district_court reversed looking to california domestic law the court found that work performed by a lawyer before a bankruptcy filing is considered valuable property since state law determines that property exists the court held federal_law then establishes that property is subject_to lien although the trustee argued that payment for the work in progress was conditional such as with contingent_fee cases the court held that federal_law broadly interprets the reach of the tax_lien unlike a truly conditional interest such as an intended bequest when the testator was still alive the court found that in this case the attorney would have been entitled to at least quantum meruit even if he did not complete the work-in- progress december bulletin no bankruptcy code cases setoff sums due from other federal entities united_states v fleet national bank in re calore express inc aftr2d d mass date - chapter debtor borrowed money from bank in exchange for senior lien the service subsequently filed a proof_of_claim which stated that there was no right of setoff the debtor continued to borrow money without objection by the service but accrued post-petition taxes and the service filed an administrative claim the debtor objected and the service’s response for the first time indicated a potential right of offset the government requested gsa freeze payments owed to the debtor the debtor successfully objected to this as a violation of the stay so the government moved to lift the stay and setoff the gsa payments the bankruptcy court denied the government’s motion and on appeal the district_court affirmed under a clear error standard the court determined that it had jurisdiction over the setoff issues even though the accounts_receivable against which the setoffs were asserted were no longer property of the estate because even though the assets were no longer subject_to the automatic_stay the proposed setoff would impact the administration of the debtor’s estate next the court found contrary to the government’s position that the automatic_stay applied to setoff of post-petition debts finally because the government repeatedly failed to assert its setoff rights to the bank’s detriment the bankruptcy court was not clearly wrong in finding the government waived its setoff rights bond for taxes stay of collection peterson v united_states u s dist lexis d minn date - court refused taxpayer’s request to grant stay of enforcement of judgment without posting of a supersedeas bond the court determined that in this case where the taxpayer only paid a good_faith estimate of their tax_liability the bond requirement would not be waived collection_due_process loadholt trust v commissioner t c memo date - the companion case is boone trust v commissioner t c memo these were cases involving fraudulent trusts that had no income they received an erroneous refund because the trusts filed income_tax return form sec_1041 claiming prepayment_credits that did not actually exist the proposed levies at issue in those cases were not intended to obtain the recovery_of any_tax on income under subtitle a of the code because there was no income there was no income_tax involved instead the service was attempting to recover a tax unique to sec_6201 not a subtitle a provision because the tax_court does not have jurisdiction over a tax assessed under a the court did not have jurisdiction in the boone and loadholt cases collection_due_process pierson v commissioner t c no date - taxpayer did not challenge notice_of_deficiency but did request hearing under sec_6330 after receiving notice_of_intent_to_levy taxpayer argued he had no income subject_to december bulletin no tax and appeals issued a notice_of_determination upon appeal to the tax_court taxpayer argued that he was not an official or employee of the united_states and so was not subject_to income_tax the tax_court found this position was frivolous and groundless and considered imposition of sanctions and costs pursuant to sec_6673 although the court ultimately declined to award a penalty it issued fair warning that in future cdp appeal cases a taxpayer whose position is frivolous or groundless or who institutes proceedings primarily for delay will be subject_to sanctions under sec_6673 in the future damages suits for against u s unauthorized collection sec_7433 shwarz v united_states u s app lexis 9th cir date - after discussions regarding the terms of an offer_in_compromise broke down the service applied to the district_court to execute a levy against the taxpayers’ home and business after the seizure the taxpayers responded with a suit alleging unlawful disclosure under sec_6103 sec_7431 and sec_5 u s c sec_552a privacy_act unlawful collection under sec_7433 and a bivens claim for constitutional violations by the revenue officers the ninth circuit found the plain language and legislative_history of sec_7433 makes that section the exclusive remedy thus barring the sec_7431 action where the alleged disclosure occurred in connection with tax collection activity the sec_7433 action in turn was barred because the taxpayers only alleged that the service violated irm provisions and policy statements not code provisions or regulations the appellate court also found no constitutional violations or disclosures of tax information and so dismissed the bivens and privacy_act claims damages suits for against u s unauthorized collection sec_7433 western center for journalism v cederquist u s app lexis 9th cir date - nonprofit organization claimed tax audit was politically motivated so brought bivens claim on first and fourth_amendment grounds against revenue_agent and irs commissioner on date the district_court dismissed the suit finding no bivens remedy available the ninth circuit affirmed but on different grounds the court_of_appeals found that the applicable_state_statute of limitations was one year since a bivens_action accrues when the plaintiff knows or has reason to know of the injury the statute_of_limitations began to run on date when the plaintiff published an editorial accusing the service of unconstitutional harassment thus the suit was time-barred innocent spouse in re hinckley aftr2d bankr m d fla date - bankruptcy court grants innocent spouse relief under sec_6015 although the wife had knowledge of her husband’s understatement of income due to unusual circumstances including the husband’s domineering personality and december bulletin no mental instability following an accident she was unable to resist his demands that she sign the erroneous returns innocent spouse miller v commissioner t c no date - service granted innocent spouse relief to wife in under former sec_6013 in after service began collection action against husband he requested a collection_due_process_hearing to contest the relief previously granted to his wife after an adverse notice_of_determination was issued the husband filed with the tax_court the court refused to apply the provisions of current sec_6015 retroactively and held that under former sec_6013 the husband had no right to be notified of or participate in an award of innocent spouse tax relief given to his wife levy wrongful labonte v united_states u s app lexis 7th cir date - service levied on sale proceeds of property owned by taxpayer and her son who claimed a interest in the property some months after the levy discussions between the son and the service broke down and the son filed a wrongful_levy action under sec_7426 affirming the district_court the 7th circuit held the suit untimely filed because the suit was not filed within the nine-month statute_of_limitations the son relied on a time extension under sec_6532 given for a proper request for the return of property however the letter relied on by the son did not meet the specific requirements of sec_301_6343-2 further the appellate court denied the son’s request for equitable_estoppel finding no affirmative misconduct on the part of the service due to the failure to advise the son of the statutory deadline penalties failure to collect withhold or pay over responsible_officer in re clifford 255_br_258 d mass date - service alleged that taxpayer vice president and owner of the company who ran the daily business with the authority to hire and fire employees and pay creditors was a responsible_person liable for the trust fund recovery penalty the district_court disagreed upholding the conclusion of the bankruptcy court under a clear error standard the court found that the taxpayer did not have access to the corporate books_and_records did not handle payroll and was kept in the dark by the majority owner summonses issuance contents of summons united_states v production plated plastics inc aftr2d w d mich date - taxpayer requested protective_order arguing the government needed to show extraordinary circumstances to summons confidential documents held by trustee the court found the extraordinary circumstances standard applicable only when the government was a collateral litigant seeking duplicative discovery not where a summons was properly issued pursuant to the standards set december bulletin no out by united_states v powell 379_us_57 the court also discounted the taxpayer’s argument that the documents had been provided to the trustee with an expectation of confidentiality noting that the service was limited to obtaining only those documents relevant to its investigation and that further dissemination of the information was restricted by sec_6103 transferees fraudulent_conveyances fraud united_states v paradise aftr2d e d ill date - taxpayer subject_to trust fund recovery penalties transferred real_property into a_trust the court found the transfer fraudulent because the united_states though the taxpayer retained assets slightly in excess of the tax_liability effectively could not have collected from him thus the transfer impaired the government’s rights as a creditor and the taxpayer was guilty of fraud in law december bulletin no 6jg cid hqnnqykpi cid ocvgtkcn cid ycu cid tgngcugf cid rtgxkqwun cid wpfgt cid cid cid cid h cid cid cid cid cid cid cid cid 2qtvkqpu cid oc cid dg cid tgfcevgf cid htqo cid vjg cid qtkikpcn cid cfxkeg cid chief_counsel_advice tolling of priority periods in bankruptcy date cc pa cbs br2 gl-610806-99 uilc memorandum for associate area_counsel sb_se area nashville from kathryn a zuba chief branch collection bankruptcy summonses subject determination of priority in bankruptcy cases pursuant to 219_f3d_580 6th cir this responds to your request for advice dated date this document is not to be cited as precedent issue in the sixth circuit can the service continue to claim taxes as priority on proofs of claim based on tolling of priority periods prior to a bankruptcy court determination pursuant to b c sec_105 conclusion yes taxes can be claimed as priority based on tolling so long as the service determines that tolling is justified on a case-by-case basis background four circuit courts have agreed with the government’s position that the priority periods of b c sec_507 ii are automatically tolled while the service could not collect during prior bankruptcy cases 109_f3d_489 8th cir cert_denied 522_us_823 81_f3d_20 3rd cir in re 5_f3d_423 965_f2d_554 7th cir three circuit courts on the other hand have declined to adopt this majority rule and have instead held that tolling is permitted on a case-by-case basis where it is equitable to do so under b c sec_105 219_f3d_580 6th cir in re 182_f3d_775 december bulletin no 11th cir 19_f3d_163 5th cir in the most recent appellate case on this issue the sixth circuit in palmer held that priority periods are not automatically tolled during prior bankruptcy cases but can be equitably tolled by the bankruptcy court pursuant to sec_105 if the equities favor the service based on the facts of a given case the court affirmed the bankruptcy court’s decision not to permit tolling where the service failed to show that the debtor was guilty of any misconduct or manipulation of the bankruptcy system you have requested our advice on how to file proofs of claim in the sixth circuit in light of palmer the past procedure in the tennessee districts was to list taxes as priority on proofs of claim based on the assumption that tolling during the pendency of the automatic_stay in prior bankruptcy cases was automatic you ask whether pursuant to palmer the service should change its procedures and cease claiming taxes on proofs of claim as priority prior to obtaining a court determination as to tolling you suggest a procedure where collection personnel in the service must first refer a case to counsel to file a motion with the court to determine priority if the court rules in the service's favor then the service can amend its claim to reclassify the taxes and seek appropriate modification of the chapter or plan discussion our position is that as a general matter in the sixth circuit it is not necessary that the service obtain a court determination as to tolling before claiming a tax as priority for purposes of filing a proof_of_claim the general_rule is that a claim is deemed allowed unless a party in interest objects b c sec_502 see also b r f properly filed proof_of_claim is prima facie evidence of the validity and amount of the claim see generally in re landmark equity corp 973_f2d_265 4th cir it is the debtor trustee or other party-in-interest who has the responsibility to object to the classification of a tax on a proof_of_claim although pursuant to palmer the government is not entitled to automatic tolling we nonetheless believe it is appropriate to require the debtor or other parties to object to a proof_of_claim to contest tolling in a particular case and bring the issue before the bankruptcy court we do not view this as any different than other situations where parties may contest the service’s proof_of_claim by for example disputing the valuation of the service’s secured claim or contesting the tax_liability on the merits the service is not prohibited from asserting its position regarding the amount of the secured tax claim or the amount of the tax_liability on the proof_of_claim even where the service’s position is subject_to dispute although the tenth circuit relied under on a for tolling in 994_f2d_763 10th cir the court strongly suggested that such tolling occurs automatically as a matter of law since the standards in the circuits differ this advice only applies to claims filed with bankruptcy courts in the sixth circuit december bulletin no such as where the value of the collateral may be uncertain or where tax returns have not been filed and the tax is not yet assessed it is by an objection to the proof_of_claim that disputes over the proper amount and classification of claims are normally resolved we do not believe that this procedure is inconsistent with palmer rule f places the burden of coming forward with evidence to dispute a claim on the party who contests the claim a debtor or trustee fulfills this burden by objecting to the claim on the ground that the facts do not justify tolling once the objection is made the burden of production drops out and the service must establish that the facts justify tolling pursuant to sec_105 as required by palmer see 120_sct_1951 n landbank equity corp supra we accordingly conclude that if the service wishes to take the position that tolling should be applied in a particular case it can do so by claiming a tax as priority this will give the debtor trustee or another creditor if they disagree with the service’s classification the opportunity to file an objection to the classification of the claim if an objection is filed and the parties cannot reach an agreement as to the proper classification the bankruptcy court will then decide whether tolling is warranted pursuant to sec_105 see eg 224_br_879 bankr n d ill reconsideration denied 237_br_672 bankr n d ill where the court rejected the debtor’s claim for injunctive relief under b c sec_105 against a lender of automobile loans to prohibit the lender from overvaluing its secured claim on proofs of claim the court held that such valuation issues should be resolved through the objection to claim process the court stated code sec_502 and bankruptcy rule contemplate a process in which both debtor and creditor may be heard with respect to the amount and validity of a claim the submission of a proof_of_claim is only one step in the claims allowance process with unresolved issues ultimately determined at a evidentiary hearing br pincite similarly the seventh circuit in adair v sherman u s app lexis 7th cir date held that the district_court properly dismissed a debtor’s suit against a lender of an automobile loan brought under the fair debt collection practices act fdcpa the debtor accused the lender of overvaluing its secured claim in the debtor’s chapter case the court held that the fdcpa claim was barred because the debtor should have objected to the valuation of the claim in the bankruptcy case prior to confirmation of the plan but see in re offshore diving salvaging 242_br_897 bankr e d la aff’d u s dist lexis e d la in which the bankruptcy court noted that the correct way to request equitable_tolling under sec_105 is to file an adversary proceeding as discussed infra we believe this is the case only if the service is contemplating collection action december bulletin no however the service must ensure that it is filing a correct claim in good_faith pursuant to bankruptcy rule pursuant to rule b the filing of a paper represents to the court that to the best of the person’s knowledge information and belief formed after an inquiry reasonable under the circumstances -- it is not being presented for any improper purpose such as to harass or to cause unnecessary delay or needless increase in the cost of litigation the claims defenses and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension modification or reversal of existing law or the establishment of new law the allegations and other factual contentions have evidentiary support or if specifically so identified are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery b r b sanctions can be awarded for a violation of rule b b r c pursuant to rule b the service must make a reasonable inquiry prior to filing a proof_of_claim for taxes and must believe that the claim is well grounded in fact in re 104_br_525 bankr m d ga imposing sanctions against service for overstating taxes on claim 123_br_393 bankr d or oregon tax authority sanctioned for failing to make reasonable inquiry as to debtor’s tax_liability before filing claim see also in re 231_br_662 bankr n d ill the standard under rule to determine whether a party made a reasonable inquiry before filing a claim is the reasonableness of its conduct under the circumstances adair v sherman u s app lexis n 7th cir date rule b explicitly requires all filings with the court to present only facts which the party reasonably believes to have evidentiary support debtors facing fraudulent proofs of claim could seek sanctions under that section in order to comply with rule b we conclude that prior to listing a tax as priority on a proof_of_claim based on tolling the service should examine each case to identify one or more facts indicating that the equities favor the government such as evidence of misconduct by the debtor or abuse of the bankruptcy system under palmer the mere fact that the debtor filed a prior bankruptcy case which was dismissed and that the service could not collect the tax_liability during the prior bankruptcy case may be insufficient to establish that tolling is justified courts have found that the following facts favor the service under sec_105 the debtor filed a bankruptcy petition shortly after the service commenced collection efforts the service is the primary creditor of the debtor the debtor filed a new bankruptcy case soon after dismissal of the prior bankruptcy case the debtor december bulletin no filed more than two bankruptcy cases with little time lapsing between cases the debtor has a history of not filing timely tax returns or paying taxes on time the debtor did not pay his or her obligations under the chapter or plan in the prior case and the taxpayer continued to pyramid unpaid tax_liabilities during the pendency of the prior bankruptcy case see in re 240_br_247 bankr w d tex 216_br_556 bankr e d tex in re 199_br_631 bankr s d tex in re 184_br_728 bankr n d tex we believe that the precise factors relied upon to select cases for which tolling will be claimed should be developed by your office based on local case law and other relevant considerations where the service’s claim of priority is based on tolling a notation should be added to the claim stating that the tax is being claimed as priority based on tolling of the priority periods during a prior bankruptcy or bankruptcies this will ensure that other parties and the court are put on notice that the service is relying on tolling in claiming a tax as priority and will establish that the service is filing the claim in good_faith pursuant to rule b although the court in palmer emphasized the behavior of the taxpayer courts have also examined the behavior of the service in weighing the equities under sec_105 in particular courts have found that the fact that the service engaged in normal collection activities during the periods when the automatic_stay was not in effect weigh in favor of the service see bair supra if on the other hand the service did not take any collection activity during a lengthy period between bankruptcy cases while it had the opportunity to do so this may weigh against the service where the service must rely on an additional six-month period pursuant to sec_6503 or h to obtain priority we also recommend that the notation on the proof_of_claim state that the additional six month period pursuant to sec_6503 or h is being relied upon office however to decide under what circumstances relying on the additional six month period will be appropriate we leave it to your you also ask whether pursuant to palmer the service has the obligation to review all proofs of claim filed in the last five years in open chapter cases to identify those cases where taxes were claimed as priority based on tolling we conclude that the service does not have this obligation prior to the sixth circuit’s decision in palmer it was appropriate for the service based on the case law in effect at that time to file claims with the presumption that tolling was automatic consistent with our discussion december bulletin no to summarize pursuant to palmer the service may continue to claim taxes as priority on proofs of claim based on tolling but only after performing an investigation identifying the existence of facts that justify equitable_tolling under sec_105 additionally such claims should contain a notation stating that the service is relying on tolling we believe that this procedure complies with the service’s responsibilities under rule b we finally note that our position has been that if pursuant to the law of the circuit tolling is not automatic but occurs on a case-by-case basis pursuant to sec_105 then the service should not take collection action based on the theory that a tax is nondischargeable due to tolling without first obtaining a determination as to dischargeability from the bankruptcy court otherwise the service risks being subject_to damages and attorney’s fees for violating the injunction against collecting discharged taxes see b c a additionally the fact that the service took unilateral collection action may influence a court to rule against the service in determining whether tolling is justified under sec_105 in the sixth circuit collection action should not be taken based on the assumption that priority periods will be tolled supra we believe that it is the obligation of the debtor trustee or other party-in-interest to object to the service’s claim to seek reconsideration of a previously allowed or disallowed claim or to seek modification of a plan december bulletin no bankruptcy equitable_tolling date cc pa cbs br2 gl-121121-00 uilc memorandum for associate area_counsel sbse area cleveland from kathryn a zuba chief branch collection bankruptcy summonses subject determination of priority in bankruptcy cases pursuant to 219_f3d_580 6th cir this responds to your request dated date requesting our review of your draft memorandum to the cleveland insolvency group containing recommended guidelines for applying tolling to bankruptcy cases filed in the northern district of ohio in light of the sixth circuit’s decision in 219_f3d_580 6th cir palmer held that priority periods are not tolled automatically during prior bankruptcy cases but are only tolled on a case-by-case basis pursuant to b c sec_105 this document is not to be cited as precedent we concur with your draft memorandum insofar as it addresses the classification of taxes on proofs of claim our position is that under palmer taxes can be claimed as priority on proofs of claim based on tolling so long as the service determines that tolling is justified on a case-by-case basis and the service’s reliance on tolling is indicated on the proof_of_claim we believe that the precise factors relied upon to select cases for which tolling will be claimed should be developed by the local counsel offices based on local case law and other relevant considerations your draft memorandum is consistent with our position we make the following suggestions regarding your proposed guidelines for selecting tolling cases regarding number debtor has filed two or more prior bankruptcy petitions we believe that additional criteria establishing that debtor is abusing the bankruptcy system by filing multiple bankruptcy petitions within certain time periods will be helpful for example the two prior bankruptcy petitions were filed within the past x years or only x months lapsed between each dismissal or refiling we also suggest that you may want to consider an additional criteria for identifying tolling cases to include cases where a bankruptcy petition is filed shortly after the service issues collection notices or commences collection action we also suggest that it might be helpful to add to add a general catch-all criteria such as other facts exist which establish that the debtor is using bankruptcy solely to evade his or her federal tax responsibilities december bulletin no we do not concur in your memorandum insofar as it suggests that the service can collect a tax based on the administrative determination that the tax is nondischargeable due on tolling our position has been that if pursuant to the law of the circuit tolling is not automatic but occurs on a case-by-case basis pursuant to sec_105 then the service should not take collection action based on the administrative determination that a tax is nondischargeable due to tolling without first obtaining a ruling as to dischargeability from the bankruptcy court otherwise if the court disagrees with the service the service risks being subject_to damages and attorney’s fees for violating the injunction against collecting discharged taxes see b c a additionally the fact that the service took unilateral collection action may influence a court to rule against the service in determining whether tolling is justified under sec_105 in the sixth circuit collection action should not be taken based on the assumption that priority periods will be tolled collection_due_process trust fund recovery penalty destroyed administrative files cc pa cbs br3 gl-603611-00 date uil memorandum for ronald d pinsky associate area_counsel sbse - washington d c cc sb was from subject lawrence h schattner chief branch collection bankruptcy summonses trust fund recovery penalty tfrp - different service responses to destroyed files recommending the tfrp this responds to your request of date on the above subject you requested general guidance on how the appeals function should handle collection_due_process cdp hearings and equivalent hearings challenging a_trust fund recovery penalty tfrp assessment pursuant to sec_6672 when the service has destroyed the administrative file that it created with respect to assertion of the tfrp for the reasons described further below it is not clear to us that different handling by the service of the tfrp assessments at issue in your examples involving the customer service collection and appeals functions was not appropriate under the circumstances background your request for assistance attached a prior memorandum of date now reproduced pincite irs cca lexi sec_172 which suggested that it would not be appropriate for the customer service function as part of its project to clean up aged non-master file december bulletin no accounts which include many tfrp assessments to investigate whether the service’s administrative file recommending assertion of the tfrp in each case had been destroyed or abate the unpaid portion of every tfrp assessment on the service’s books where the service’s tfrp file recommending assessment should have or has been destroyed pursuant to the service’s ordinary document retention policy the prior memorandum cited appropriate legal authority for the proposition that the service need not be able to produce the original documentation for all of its actions in a taxpayer’s case that a certified copy of an irs form_4340 certificate of assessments and payments constitutes prima facie proof that a timely and proper assessment was made we stand by the above-described advice offered in the prior memorandum consistent with the prior memorandum of date and footnote in particular from that memorandum you note that your office has recently advised a collection offer-in- compromise oic manager in a particular collection oic case that the service was not obliged to abate the unpaid portion of a tfrp assessment merely because the service has now destroyed its original file recommending that the tfrp be asserted next you indicate that the appeals function in your district also recently considered a taxpayer’s old tfrp assessment in an equivalent_hearing case under temp sec_301_6330-1t i part of the collection_due_process regulation and the service had also destroyed the tfrp recommendation file for this taxpayer before the taxpayer requested the equivalent_hearing as part of the service’s ordinary record retention policy however in the appeals function case you understand that the ultimate decision made by the service was to abate the unpaid portion of the tfrp assessment and that a part of the basis for this decision was the destruction of the tfrp recommendation file because the service does ordinarily retain its tfrp recommendation files for a number of years after making a tfrp assessment none of the examples discussed above involves a challenge to a tfrp assessment that could even arguably be covered by the burden_of_proof provisions of sec_7491 and this should remain true for many more years to come in any tfrp cases where the service’s tfrp recommendation files have been destroyed as part of the service’s record retention policy again because the sec_7491 applies only in court proceedings arising in connection with examinations that commenced after date which would mean that trfp assessments arising from investigations opened before date should clearly be unaffected by the burden_of_proof provision added in for tfrp investigations begun after date there is no case authority as yet on whether the tfrp may in substance be treated as a tax other than a tax imposed by subtitle a or b and therefore not covered by sec_7491 or whether the tfrp may be considered a penalty covered by sec_7491 see sotelo v 436_us_268 tfrp is not a penalty for purposes of bankruptcy act chief_counsel notice n burden_of_proof and sec_7491 date also taking the position that the tfrp is not a penalty for purposes of sec_7491 december bulletin no service does ordinarily retain its tfrp recommendation files for a number of years after making a tfrp assessment the appeals function and the other examples discussed above also did not involve challenges to tfrp assessments where the taxpayer received the preliminary day notices for proposed tfrp assessments made after date described in sec_6672 however we do discuss the day notice requirement below because it is relevant to whether the appeals function should in future cases consider the merits of a tfrp assessment in a cdp or equivalent_hearing case brought under the collection_due_process regulation as more fully discussed below in cdp or equivalent hearings where the file recommending assertion of the tfrp is unavailable we do not expect the merits of the tfrp to be an appropriate issue in most cases because the taxpayer will have received notice from the service of a prior opportunity to dispute the merits of the tfrp in an appeals function hearing issues conclusions issue is it appropriate for the appeals function to consider the merits of a challenged tfrp assessment in a collection_due_process cdp hearing or in an equivalent_hearing under the collection_due_process regulation temp sec_301_6330-1t conclusion it is appropriate for the appeals function to consider the merits if the taxpayer has not had a previous opportunity to contest the liability if a taxpayer received the day preliminary notice of the service’s proposed tfrp assessment required by sec_6672 after date or received another prior opportunity pre- or post-assessment for a conference with appeals to dispute liability for the tfrp then the existence or amount of the tfrp assessment may not be raised by a taxpayer in a cdp hearing or equivalent_hearing under the collection_due_process regulation similarly if the taxpayer was a party in or otherwise participated meaningfully in a judicial proceeding in which the taxpayer’s liability for the tfrp was at issue eg a tax_refund suit regarding the tfrp a suit or counterclaim by the united_states to reduce the tfrp to judgment or the service filed a proof_of_claim for the tfrp in the taxpayer’s bankruptcy case then the existence or amount of the tfrp assessment may not be raised by the taxpayer anew in a cdp hearing or equivalent_hearing under the collection_due_process regulation issue in a proper merits challenge of a tfrp assessment in a cdp hearing or in an equivalent_hearing under the collection_due_process regulation is it appropriate for an appeals officer to consider the service’s hazards_of_litigation on the merits conclusion yes if a taxpayer is permitted to and does properly contest the existence or amount of a tfrp assessment in a cdp hearing it is appropriate for the appeals officer to consider the service’s hazards_of_litigation on these issues including the destruction of the service’s file recommending the tfrp although december bulletin no a taxpayer has no right to obtain judicial review of an adverse appeals function determination resulting from an equivalent_hearing under the collection_due_process regulation an appeals officer should consider the same issues at an equivalent_hearing that the appeals officer would have considered in a timely requested cdp hearing including consideration of the service’s hazards_of_litigation on the merits of the tfrp where appropriate issue is it appropriate for an appeals officer to give substantial weight to an irs form_4340 certificate of assessments and payments in considering various types of taxpayer challenges to a tfrp assessment conclusion yes in a cdp hearing or equivalent_hearing under the collection_due_process regulation an appeals officer may rely on an irs form_4340 as presumptive evidence that the tfrp has been validly assessed by the service against a taxpayer and to otherwise verify the service’s compliance with the requirements of applicable law and administrative procedures for purposes of sec_6330 davis v commissioner t c no date the case law cited in davis and in the prior memorandum illustrate many circumstances where the courts have given substantial weight to irs forms in considering taxpayer challenges to various tax_liabilities but the service does not ordinarily rely solely on forms to defend a permissible merits challenge by a taxpayer to a tfrp assessment issue when a taxpayer makes a permissible merits challenge of a tfrp assessment is the destruction or missing_status of the service’s administrative file regarding the tfrp recommendation against that taxpayer necessarily fatal to the service’s case conclusion no the destruction of the service’s administrative file regarding a tfrp assessment in merits challenge circumstances may sometimes lead a court to consider whether the service has only a naked assessment for the tfrp which is not entitled to a presumption of validity however most courts will first allow the service an opportunity to conduct discovery or otherwise develop or reconstruct probative evidence regarding the tfrp liability such that the burden_of_proof remains on the taxpayer by the time of trial the employer’s form_941 and other returns secretary of state records bank signature cards and the testimony of other employees or officers may often still be available to the service as a more than adequate substitute for the destroyed or lost administrative file on various challenged elements of the tfrp liability issue when the service’s administrative file regarding a tfrp assessment has been destroyed and the merits of the tfrp assessment are being considered in the appeals function are there mandatory internal guidelines or tolerances as to how much time appeals should give the collection function to reconstruct or gather evidence supportive december bulletin no of the tfrp assessment or how many hours the collection function should expend on this task of reconstructing or gathering evidence before concluding the effort is not likely to be cost effective or otherwise worthwhile conclusion no the appeals function should generally attempt to conduct all cdp hearings or equivalent hearings under the collection_due_process regulation as expeditiously as possible but there are no time limits by law on how soon appeals must hold the hearing or issue its notice_of_determination for a cdp hearing or its decision letter for an equivalent_hearing if a tfrp case requires further factual development when the tfrp assessment is first proposed the appeals function may retain jurisdiction of the case but send it back to the collection function for at least days to take any necessary action with extensions possible through mutual agreement of the two functions see irm in a cdp hearing or equivalent_hearing context where the service is similarly stayed by law from levying in the case of a cdp hearing or where the appeals function may ask the collection function to stay its levy activity if it wants further time to reconstruct or develop the facts in the case of an equivalent_hearing the appeals function should also first afford the collection function at least days subject_to mutually agreed extensions to attempt to reconstruct or develop facts that may support the tfrp assessment which was the subject of the destroyed or lost administrative file if the taxpayer has brought a proper merits challenge to the liability however the local collection function after coordinating the matter appropriately within the new sbse structure may agree in advance with the local appeals function that cases within certain tolerances eg total dollar amounts of a certain age and or with minimal known levy sources are not cost effective for the service to attempt to reconstruct or support after the administrative file has been destroyed discussion not less than days before the day of the service’s first levy after the effective date of sec_6330 with respect to a particular tax and a particular tax period the service is required to give a taxpayer the notice described in sec_6330 a cdp_notice among other things a cdp_notice advises a taxpayer that the taxpayer may request a hearing a cdp hearing in the service’s appeals function to consider the proposed levy and other related matters by making a written request to the office which issued the cdp_notice within days sec_6330 if the taxpayer makes a request for an appeals function hearing with respect to a cdp_notice more than days after the cdp_notice was issued then the taxpayer may not obtain a cdp hearing but may receive an equivalent_hearing pursuant to temp sec_301_6330-1t i in an equivalent_hearing case with the appeals function under the collection_due_process regulation the appeals function considers the same issues that it would have considered in a cdp hearing case on the same matter but the service’s collection limitation period is not suspended while an equivalent_hearing case is in the appeals function the service is not december bulletin no automatically stayed but may choose to stay its proposed levy activity while the equivalent_hearing case is pending and the taxpayer has no right to judicial review of an adverse decision by the appeals function arising from an equivalent_hearing see temp sec_301_6330-1t i q ai1-5 issue considering the merits of tfrp assessments in a cdp hearing in a cdp hearing a taxpayer may be allowed to challenge the existence or amount of the underlying liability the merits but only if the taxpayer did not receive a statutory_notice_of_deficiency for such tax_liability not applicable in tfrp cases or did not otherwise have an opportunity to dispute such liability further a taxpayer may not raise an issue including the merits at a cdp hearing if the issue was raised and considered in any previous administrative or judicial proceeding in which the taxpayer participated meaningfully sec_6330 and c the collection_due_process regulation explains that an opportunity to dispute such liability includes a prior opportunity for an appeals function conference either before or after assessment of the liability one of the examples in the collection_due_process regulation of this principle specifically concerns a tfrp assessment it explains that when the service offers the taxpayer an opportunity to request an appeals function conference to dispute a tfrp liability and the taxpayer fails to take advantage of that opportunity then the taxpayer is precluded from challenging the existence or amount of the tfrp at a subsequent cdp hearing or equivalent_hearing see temp sec_301_6330-1t e q ae8 and e ex for proposed tfrp assessments made after date the service has been required except in jeopardy situations to give the taxpayer a day preliminary notice which generally informs the taxpayer of the proposed tfrp assessment and offers the taxpayer an opportunity to request an appeals function conference within days to dispute the proposed tfrp liability the service uses a letter do to provide this day notice of proposed tfrp assessments to taxpayers the service has generally decided to send the letter do to a taxpayer by certified mail to the taxpayer’s last_known_address sec_6672 irm the examples discussed in your memorandum requesting our assistance did not involve tfrp assessments made after date but we believe it is useful here to discuss the day preliminary notice requirements of sec_6672 effective after that date because the service’s prior compliance with this provision should ordinarily satisfy the prior opportunity to dispute exception in sec_6330 with regard to the merits of a tfrp assessment and thereby preclude consideration of the merits of the tfrp liability in a cdp hearing or certified mailing of the day notice return receipt requested is not required_by_law but is the preferred mailing method selected by the collection function for these notices in part so that mailing and receipt of the day notice may be more easily proven by the service if these matters are ever later contested the day notice may also now be delivered in person to the taxpayer december bulletin no equivalent_hearing conducted by the appeals function for that taxpayer this issue preclusion in turn should alleviate some of the complications that may otherwise be caused to the service in old tfrp cases by the service’s document retention policy of destroying some of its older files recommending tfrp assessments before the collection limitation period for the tfrp has expired prior to date we understand that it was also the service’s general policy to offer taxpayers an opportunity either before or after assessment of the tfrp to obtain an appeals function conference regarding the merits of their tfrp liability however since appeals function conferences regarding proposed tfrp assessments were not a matter of right before the effective date of sec_6672 it may generally be more difficult for the service to show whether or not a particular taxpayer was offered an appeals function conference to discuss a proposed or assessed tfrp if the tfrp recommendation file with respect to that taxpayer no longer exists nevertheless if the service can show that the taxpayer received notice of a prior opportunity to request an appeals function conference on the tfrp liability then the taxpayer would be precluded from challenging the merits of the tfrp liability in a cdp or equivalent_hearing for tfrp assessments made after date however a taxpayer who was properly mailed a notice of his her opportunity to request an appeals function conference to consider the merits of a tfrp assessment by the service may still be able to avoid preclusion of the underlying liability as an appropriate subject for a cdp hearing or equivalent_hearing if the taxpayer shows that he she did not receive the notice see temp sec_301_6330-1t e q ae2 and e ex discussing the consequences of a taxpayer’s failure to receive a statutory_notice_of_deficiency on the taxpayer’s ability to contest the underlying liability in a cdp hearing regardless of whether the tfrp assessment was made prior to or after date the service and the courts are not obliged to accept without question a taxpayer’s statement that he she does not recall having received such notice in the absence of clear evidence to the contrary the tax_court has found in a cdp hearing context that presumptions of official regularity and of delivery justify the conclusion that a notice by the service was sent and that delivery was attempted by the post office at the address the service used in its notice in the same cdp hearing case the tax_court also held that a taxpayer may not defeat actual notice of an opportunity to contest a tax_liability by refusing to accept delivery of mail from the service sego v commissioner t c no date dollar_figure the service may enhance the likelihood of showing that a taxpayer received a particular document by maintaining a centralized register of receipts for outgoing certified mail and by maintaining the register for years as the service is now doing for cdp notices with respect to liens see irm alternatively for recent tfrp assessments the service may rely on information found in the automated trust fund recovery penalty program atfrpp the atfrpp now reportedly allows the collection function to enter a textual history note on the date it receives a certified december bulletin no in light of the foregoing discussion of the issue preclusion effect for the merits of a tax_liability of a taxpayer having been given and received prior notice of an opportunity to contest the tfrp with the service’s appeals function it would be prudent for the collection function to document prior notice and receipt before referring future cdp hearing or equivalent_hearing cases to the appeals function and to note these facts in its transmittal to appealsdollar_figure it may also be prudent for a revenue_officer newly assigned to collect an older tfrp assessment to ask the taxpayer before issuing a cdp_notice what types of prior notices the taxpayer has received from the service regarding the tfrp liability and to document the taxpayer’s response issue weighing litigation hazards on tfrp merits in equivalent_hearing if the merits of a tfrp liability eg responsibility and willfulness are properly at issue in a cdp hearing the appeals function may be required to weigh the taxpayer’s and the service’s respective hazards_of_litigation in deciding whether to sustain compromise or concede the amount of the unpaid tfrp assessment see h_r conf_rep no 105th cong 2d sess validity of tax_liability reviewed de novo see also irm the destruction of the service’s file recommending assertion of the tfrp at issue against the taxpayer may affect the service’s hazards_of_litigation on the merits of the taxpayer’s challenge to the tfrp liability but the destruction of this tfrp file is not necessarily fatal to the service’s case as discussed further below in a cdp hearing context where the merits of the tfrp liability are properly at issue the appeals function gives the taxpayer a written notice_of_determination at the end of the hearing process which should address the tfrp merits issues and the other issues the taxpayer was allowed to and did raise a notice_of_determination also advises the taxpayer of the taxpayer’s right to seek judicial review of the appeals function’s determinations within days by filing a complaint in u s district_court in the case of a tfrp liability see temp sec_301_6330-1t e q ae7 in this manner a taxpayer’s cdp hearing challenge to an unpaid tfrp liability that is no longer supported by the service’s original file recommending assertion of the tfrp may be brought to court to consider the merits of the unpaid tfrp liability mailing receipt of delivery eg the customary green card for a letter do indicating that delivery of the day notice of proposed tfrp assessment to the taxpayer by the post office has occurred since atfrpp records for recent tfrp liabilities may not be readily available to the appeals function in every city it would be prudent for the collection function to include any atfrpp information which may exist with respect to delivery of the letter do in the summary statement portion of the transmittal for a cdp or equivalent_hearing case involving the tfrp liability to the appeals function a form_3210 is the transmittal form used for this purpose and the summary statement attached to it should contain information of this type that would assist the appeals function in its determination see irm and december bulletin no the service issues a decision letter rather than a notice_of_determination at the conclusion of an equivalent_hearing process and the taxpayer has no right to judicial review of the appeals function’s resolution of the issues in a decision letter nevertheless even though the equivalent_hearing process in the appeals function may not lead directly to a taxpayer’s right to litigate the outcome in court the service has decided that it is appropriate for the appeals function to consider the same issues that it would have considered at a cdp hearing on the same matter including the hazards_of_litigation to the service’s position see temp sec_301_6330-1t i this policy decision reflected in the regulation also makes good practical sense in the case of an unpaid tfrp liability if the service goes forward with its proposed levy action the service’s levy activity may then easily result in the collection of enough of the tfrp liability the trust_fund_taxes owed with respect to one employee for one quarter to entitle the taxpayer to make a request for a refund of the liability paid and to put the merits of the previously unpaid tfrp liability with its attendant hazards_of_litigation before a u s district_court for decision alternatively a taxpayer denied an opportunity to discuss the parties’ hazards_of_litigation with respect to the merits of a tfrp liability in an equivalent_hearing by the appeals function could file bankruptcy and obtain an opportunity to litigate his her liability for the tfrp in the bankruptcy case if the service files a bankruptcy proof_of_claim for the unpaid tfrp liabilitydollar_figure issue reliance on forms to establish elements of tfrp liability in a cdp hearing or equivalent_hearing case the appeals function is required prior to issuing a notice_of_determination or notice of decision to obtain general verification from the collection function that the requirements of applicable law or administrative procedure have been met by the service in addition to considering the issues properly raised by the taxpayer sec_6330 temp sec_301_6330-1t e and e a-e1 i in davis v commissioner t c no date the tax_court held that it wa sec_12 see 280_f2d_89 8th cir wherein the united_states confessed error and stipulated that the full_payment_rule for income_tax refund actions discussed in 357_us_63 does not apply to assessments of divisible taxes such as the tfrp these practical alternative opportunities for a taxpayer to obtain judicial review with respect to the merits of an unpaid tfrp liability may also admittedly exist with respect to the merits of the liability in some of the issue preclusion circumstances when the taxpayer receives prior notice of an opportunity for a prior appeals function conference discussed in relation to issue above nevertheless as a policy matter it is not appropriate for the appeals function to consider the service’s hazards_of_litigation on the merits in these issue preclusion circumstances otherwise there would be no limit to the number of appeals function conferences a taxpayer might seek on the same tax or issue and taxpayers would not be appropriately encouraged to seek timely conferences with the appeals function december bulletin no not an abuse_of_discretion for an appeals function hearing officer in a cdp case to rely on an irs form_4340 certificate of assessments and payments for purposes of complying with sec_6330 indeed as you have concluded and the prior memorandum you attached with your request for assistance suggests it is highly appropriate and proper for an appeals function hearing officer and for other service employees to rely on a form_4340 first to satisfy the requirements of sec_6330 and second to overcome a variety of arguments a taxpayer may raise with respect to a tfrp assessment at a cdp or equivalent_hearing pursuant to sec_6330 even when the service’s file recommending the tfrp assessment against the taxpayer has been destroyed however an irs form_4340 alone does not overcome all potentially proper challenges eg a factually supported merits challenge to the underlying liability that a taxpayer may raise to a tfrp assessment in a cdp or equivalent_hearing case further if there are material discrepancies between the information reflected on an irs form_4340 and other available evidence or if the irs form_4340 does not contain relevant entries that address the issues raised by the taxpayer then an appeals function hearing officer or a reviewing court may seek or receive further explanations from the interested parties rather than give conclusive weight to the information reflected on the form_4340 even when the merits of the tfrp liability are not properly at issue in the davis case the taxpayer failed to allege that he did not receive a statutory_notice_of_deficiency for the income_tax deficiencies in issue nor did he allege that he did not have a prior opportunity to contest the service’s deficiency determinations accordingly the tax_court opinion started with the conclusion that the taxpayer’s underlying tax_liability the merits was not properly before the court in this cdp review case the procedural argument raised by the taxpayer in davis was that the appeals function hearing officer should not have relied on a form_4340 in the cdp hearing to establish the date and amount of assessments made by the service against him that the hearing officer should instead have attempted to go behind the form_4340 to verify from personal inspection of the original documents that irs form sec_23c summary records of assessment were actually signed by an irs service_center assessment officer on the dates and for the amounts shown in the service’s certified records the tax_court rejected this frivolous procedural argument citing several prior circuit_court decisions on the issue the tax_court correctly observed that irs forms provide presumptive evidence that a tax has been validly assessed under sec_6203 and noted that the taxpayer did not demonstrate any irregularity in the assessment procedure the prior memorandum you referred to and the davis opinion each cite a number of court decisions decided outside the context of a cdp hearing in which the service and the courts have relied upon irs forms as presumptive proof of the regularity of various procedural matters such as whether the service properly made a record of the assessment under sec_6203 whether the service properly gave notice_and_demand for payment under sec_6303 whether the service’s records reflect the actual assessment_date of a tax to measure the timeliness of a suit by the united_states december bulletin no to reduce the tax to judgment before the collection limitation period expired under sec_6502 or whether the service’s records reflect the actual amount of a non-divisible tax_assessment made by the service to evaluate the taxpayer’s compliance with the flora full_payment_rule so that the taxpayer could properly initiate a refund_suit for the tax under sec_7422 three circuit_court cases involved quiet title challenges by taxpayers pursuant to u s c to the procedural regularity of the service recording its assessments and or the service giving the taxpayer proper notice_and_demand for payment under sec_6203 and sec_6303 respectively challenges to the merits of a federal tax_liability are not permitted in a quiet title action in each case the circuit_court relied upon irs forms as presumptive proof of the service’s proper compliance with sec_6203 and or and the taxpayers failed to show any discrepancies between the forms and any of the available evidence see 961_f2d_1 1st cir cert_denied 506_us_891 3_f3d_1297 9th cir cert_denied 511_us_1030 962_f2d_555 6th cir two other circuit_court cases involved suits by the united_states to reduce unpaid assessed taxes to judgment the taxpayer raised non-merits objections to the assessed taxes and the courts relied on the information reflected on irs forms to resolve the disputes in the service’s favor in 871_f2d_1015 11th cir cert_denied 493_us_975 the taxpayer challenged whether the service had properly recorded a tfrp assessment against him and whether the service had made proper notice_and_demand for payment on the taxpayer for purposes of sec_6203 and sec_6303 in 318_f2d_637 7th cir an heir to a decedent argued that an estate_tax liability had been assessed by the service earlier than the date shown on an irs form_4340 so as to make the suit by the united_states to reduce the unpaid tax to judgment untimely ie outside of the collection limitation period two other circuit_court cases involved tax_refund suits brought by taxpayers the taxpayers were not permitted to or did not contest the merits of the taxes in their appeals and the courts again relied upon the information shown on forms to resolve the disputes in the service’s favor in 8_f3d_1169 7th cir the merits of the tax_liabilities contested by the taxpayer could not be contested because the taxes had been previously determined in prior tax cases that were then res_judicata so the taxpayer’s challenge was limited to a bare allegation the service had failed to comply with sec_6203 in making its assessments of the tax in 933_f2d_991 fed cir the lower court dismissed the taxpayer’s refund case for a federal estate_tax because the taxpayer had not fully paid the tax before filing the suit and the taxpayer alleged that the irs form_4340 overstated the amount of the estate_tax assessment that the executor was required to pay in full in order to bring the refund action december bulletin no while the eight circuit_court cases described above showcase procedural challenge circumstances where the service has prevailed by offering certified forms in evidence other procedural challenges to the service’s actions have not been fully resolved by irs forms when the courts have found there was some evidence of material discrepancies or of data missing from the forms in 970_f2d_66 5th cir a suit by the united_states to reduce unpaid income_tax deficiency assessments to judgment the court relied on certified forms to defeat the taxpayer’s allegation that the taxes were not properly recorded for purposes of sec_6303 but the court remanded the case for proof that a statutory_notice_of_deficiency had been properly mailed to the taxpayer by the service and that the taxpayer defaulted before the deficiencies were assessed because the taxpayer denied that he received a notice_of_deficiency and the irs forms did not address this procedural issue in 10_f3d_1440 9th cir cert_denied 512_us_1219 the taxpayers filed a quiet title action challenging the procedural regularity of the service’s tax_liens and the court accepted certified forms as evidence the service made proper notice_and_demand for payment for sec_6303 purposes but the ninth circuit found the forms in the case were defective for purposes of sec_6203 because the documents did not show a 23c date that indicated when the irs form sec_23c were signed earlier in 990_f2d_451 9th cir cert_denied 510_us_1023 the ninth circuit also stated that while forms are proper evidence of the propriety of the assessment procedures followed by the service the forms are not necessarily conclusive evidence the farr court suggested that the united_states could rely on irs forms in a summary_judgment proceeding to show that a notice_of_deficiency was mailed by the service to the taxpayer’s last_known_address but that the taxpayer was first entitled to conduct discovery on the issue and that the taxpayer’s case could not be dismissed at the outset for an alleged failure to state a claim on the basis of the information reflected on irs forms dollar_figure finally in a recent district_court case where the united_states was seeking to reduce an old tfrp assessment to judgment and the service had destroyed a form_941 return of the taxpayer’s former employer the court was unwilling to conclude that no material issue of fact remained for trial for one of the tfrp quarters at issue a certified irs form_4340 showed that the tfrp assessment against the taxpayer for that quarter was made for an amount that was about dollar_figure larger than the service had asserted that the see also 997_f2d_335 7th cir in godfrey the service argued that it mailed the taxpayers a timely refund check the taxpayers alleged that they did not receive the check a new refund check was issued by the service and the taxpayers sued the service for interest that was due them on the tax_refund amount only if the service failed to mail the taxpayers the original check on the date shown with the notation refund of overpayment on an irs transcript other than a form_4340 without explanatory testimony the seventh circuit was unwilling to interpret the transcript notation as meaning the refund check was mailed on that date december bulletin no corporate employer owed for that same quarter in an amended bankruptcy proof_of_claim that the service filed a few months after the tfrp assessment was made when the issue of the correct amount owed for this quarter is brought to trial the court indicated that the initial burden of proving by a preponderance_of_the_evidence that the tfrp assessment for this quarter was arbitrary and erroneous would lie with the taxpayer 102_fsupp2d_351 s d tex issue defending tfrp liability on the merits when files were destroyed in 428_us_433 the supreme court was primarily concerned with whether the exclusionary rule a criminal_law deterrent to improper police conduct should be applied to prohibit a federal_agency the service from using evidence that was improperly seized by california state police from a taxpayer’s business in support of the federal agency’s civil assessment of the federal wagering tax against the taxpayer the supreme court ultimately decided that the exclusionary rule should not be extended to these circumstances that the service was not barred from using the evidence of gambling activity by the taxpayer that it received from the california state police in support of its civil federal wagering tax assessments against the taxpayer if the evidence improperly seized by the state police could not have been used by the service then it had conceded that it would not have had any admissible evidence other than forms to support its federal wagering tax assessments against the taxpayer moreover if the service had been barred from using the evidence improperly seized by the state police any later efforts by the service to reconstruct or supplement the same type of evidence on its own could have been construed as tainted fruits of the improper search and also deemed inadmissible before it considered the historical policies behind the exclusionary rule and announced its decision on that issue the supreme court first discussed in dicta janis pincite what the status of the service’s naked assessments would have been if the exclusionary rule had been applied as follows what we have is a naked assessment without any foundation whatsoever if what was seized by the los angeles police cannot be used in the formulation of the assessment the determination of tax due then may be one without rational foundation and excessive and not properly subject_to the usual rule with respect to the burden_of_proof in tax cases there appears indeed to be some debate among the federal courts of appeals in different factual contexts as to the effect upon the burden_of_proof in a tax case where there is positive evidence that an assessment is incorrect however that may be the debate does not extend to the situation where the assessment is shown to be naked and without any foundation certainly proof that an assessment is utterly without foundation is proof that it is arbitrary and erroneous we are willing to assume that if the district_court was correct in ruling that the evidence seized by the los angeles police may not be used in formulating the assessment on which both the levy and the counterclaim were based then the district_court was also correct in granting judgment for janis in december bulletin no both aspects of the present suit this assumption takes us then to the primary issue seven years after janis the sixth circuit considered a federal_income_tax refund action where the government conceded that it no longer had in its possession any reports workpapers or other documents to support the notice_of_deficiency the service had issued to the individual taxpayers a little over years before the refund_suit was commenced 704_f2d_326 6th cir in the coleman case the court also found that the taxpayers had delivered their relevant financial records to the service in the course of the audit many years before that the service’s notice_of_deficiency to the taxpayers was returned as unclaimed by the post office that the taxpayers sought to learn the basis for the assessment from the service relatively soon after they discovered the service was trying to collect it and that as early as three years after the assessment was made the service admitted to the taxpayers that it could not locate the financial records the taxpayers had given them during the audit nor could the service locate it own files to explain the basis for its assessment in these circumstances the sixth circuit relied on the above-described dicta from janis and held that the taxpayers had established that the service’s naked assessments were arbitrary and could not be enforced however the sixth circuit clarified coleman pincite that it was not saying that the service in another case involving missing original records could not have preserved the presumption of correctness for its assessment by the use of non-original records it should be noted that reversing the district_court here does not strip the irs of the ability to collect taxes in the absence of original records had such secondhand records been available in the matter sub judice or any demonstrably reasonable methodology of estimation it is likely that even the destruction of the colemans’ original returns would not have precluded reliance upon the assessment’s presumption of correctness seven years after coleman the seventh circuit considered the meaning of a naked assessment in a case involving a tfrp liability that the service admitted before the second_phase of a trial that it had miscalculated 900_f2d_1144 7th cir in schroeder the service originally miscalculated the tfrp owed by two responsible persons by failing to account for part of a prior payment by the employer that was applied to the trust_fund_taxes it owed when the service originally made the tfrp assessment the total amount assessed was excessive by about as the collection limitation period for the tfrp approached the service believed that it had collected about of the total tfrp but it had in fact collected about of the liability not including a large interest accrual since assessment due to its original calculation error the united_states then brought suit to reduce the unpaid portion of the tfrp liability and the unpaid accrued interest to judgment due to the service’s original miscalculation of the tfrp and considering the amounts collected and applied toward the total tfrp since assessment the united_states eventually admitted that it had sought judgment against the december bulletin no taxpayers for an unpaid tfrp amount that was overstated by about not including the large interest accruals the service’s witness in the computation phase of the trial was also unable to provide the court with revised interest computations that accounted for the corrected tfrp amount in these circumstances the district_court found the service had an arbitrary erroneous and invalid assessment for the tfrp and that the united_states was liable to the taxpayers for attorney fees the seventh circuit reversed explaining schroeder pincite as follows when a court is faced with an incorrect but otherwise valid assessment the proper course is not to void the assessment as did the district_court but to determine what if anything the taxpayer owes the government see 293_us_507 55_sct_287 79_led_623 this course should be followed whenever a taxpayer’s liability is capable of being determined by some approved method of calculation even when the original assessment was arbitrarily computed and excessive in amount the district_court apparently believed this was a case like janis where the circumstances are such that the government’s assessment is without effect it is not a n assessment excessive in amount without more is not void under janis for the assessment to be void it must be more than incorrect for the correctness of the amount assessed is quite irrelevant it must be arbitrary in the sense that the calculation has no support and the true amount of tax owed is incapable of being ascertained thus where records supporting an assessment are excluded from evidence see janis supra or are nonexistent see 704_f2d_326 6th cir so that the basis upon which an assessment is calculated is beyond the knowledge of the court the assessment is arbitrary and erroneous it is beyond saving such an assessment however does not exist here there are plenty of records documents and other foundational items upon which a correct determination of the defendants’ liability may be made consequently there was no need to void the assessment there was at most a need to calculate the correct amount of tax due the government by the time that tax_refund and other suits involving the merits of a tfrp assessment are sometimes brought to court by the taxpayers or the united_states it is not uncommon for the service to have destroyed or lost some portion of its original records that might potentially be relevant to some aspect of the liability challenged by the taxpayers in these circumstances the united_states is ordinarily able to show - through the original records it may still have such as the employer’s tax returns or files documents obtained from neutral third parties eg secretary of state information bank signature cards or the testimony and other information obtained from witnesses related to the employer through discovery - that it has some foundation for its assessment and that the burden_of_proof should remain upon the taxpayer in 805_fsupp_1062 d p r the taxpayers argued that the tfrp assessment against them was naked because the service had apparently lost its file with respect to the employer who failed to pay the trust_fund_taxes at issue nevertheless the district_court in morales found that the december bulletin no united_states presented considerable evidence in that case to show that the tfrp assessments were not lacking an evidentiary foundation so the burden_of_proof remained on the taxpayers in united_states v tarlow u s t c big_number e d n y the taxpayers sought to dismiss a tfrp assessment as invalid and lacking a rational foundation because the service had apparently destroyed its original administrative file recommending the tfrp assessment against the taxpayer and the service’s revenue_officer who made the tfrp recommendation had since retired and could not be located since the taxpayers and or the united_states had apparently earlier made and retained copies of some of the pertinent records from the later destroyed tfrp file and the service was going to provide the taxpayers either with a certificate of destruction or with an affidavit explaining the efforts it had made to locate the missing tfrp file the district_court concluded that it was not presented with a naked assessment case and it held that the presumption of correctness for the tfrp assessment remaineddollar_figure in another recent tax_refund case involving a tfrp assessment and a missing administrative file of the service with respect to the tfrp recommendation judge francis allegra of the u s court of federal claims provided a thoughtful analysis of the meaning of the janis and coleman cases and the possible effect of a naked assessment on the burden_of_proof in the taxpayer’s case in chief for refund of the paid portion of the tfrp assessment and on the counterclaim of the united_states for the unpaid balance of the tfrp see 46_fedclaims_110 fed cl in the cook case the court found that it could not determine whether the service’s loss of the tfrp recommendation file for the taxpayer gave rise to a naked assessment until the time of trial when the united_states would first be given an opportunity to show a foundation for the tfrp assessment judge allegra noted cook pincite that the government’s evidence to establish a foundation for a tfrp assessment need not include any documents or information that were originally in its possession when the tfrp assessment was made as follows as described in janis and its progeny however an assessment is not naked simply because the administrative file supporting its entry is lost - what is critical given the de novo nature of the proceedings before this court is that admissible evidence exists to support the assessment citations omitted if such evidence exists and is admitted by the court it is irrelevant whether it is the same evidence that the service relied upon in originally making its assessment indeed consistent with the no-look doctrine courts have repeatedly held that the government may support a tax_assessment based on any admissible evidence including that first disclosed in discovery and conversely need not rely solely or at all on the evidence reviewed administratively by the service at the eventual trial of the tarlow case the government was ultimately unsuccessful see united_states v tarlow u s t c big_number e d n y december bulletin no issue appeals collection coordination re missing tfrp information in a taxpayer’s cdp hearing or equivalent_hearing case where the merits of an unpaid tfrp liability are properly at issue because the issue was timely raised by the taxpayer and consideration of the merits is not precluded the appeals function should be no less deferential than the courts have been in affording the service an opportunity to reestablish an appropriate foundation for a tfrp liability where all or part of the service’s original file recommending the tfrp assessment has been destroyed in keeping with the independent review mission of the appeals function however it is not the responsibility of the appeals function to attempt to reassemble or gather the information necessary to provide a foundation for a tfrp assessment when the service’s file recommending the tfrp has been destroyed instead as with other appeals function hearing matters where further factual development of a collection function case is necessary to make a full and fair determination the appeals function should retain jurisdiction of the case but refer the matter back to the collection function for an appropriate time perioddollar_figure the collection function may then determine under the particular circumstances of the case whether it would be a cost effective use of its resources in that case to attempt to gather foundational evidence to support the unpaid tfrp liabilitydollar_figure an appropriate model of appeals collection function coordination may be found where a taxpayer protests a proposed tfrp assessment to the appeals function when the collection function issues day preliminary notices of proposed tfrp assessments to taxpayers pursuant to sec_6672 the service’s original file recommending the tfrp should almost always be readily available for consideration by the appeals function if a taxpayer files a timely protest to such a day notice the appeals function still may decide that it is appropriate to retain jurisdiction of a case but to hold its consideration in suspense while matters requiring further factual development are referred back to the collection function in these cases of timely protests from day notices the time allowed by the appeals function to the collection function for further factual development is ordinarily at least days with extensions possible by mutual agreement of the parties see irm a form_2209 or another locally acceptable form may be used for this purpose see irm and whether or not the service has retained the tfrp recommendation file for older tfrp liabilities should be an issue of lessening importance in a cdp context in future years first most taxpayers who were issued day notices of proposed tfrp assessments pursuant to sec_6672 after date should find that consideration of the merits of the tfrp liability is precluded in a cdp hearing or equivalent_hearing second most taxpayers who are liable for a tfrp liability in future year cases should be receiving their one cdp hearing notice per period much earlier in the collection process and therefore be precluded from receiving a cdp hearing or equivalent_hearing for the same liability when collection activity is again contemplated closer to the expiration of the collection limitation period for the liability december bulletin no while these day notice tfrp cases are being further developed by the collection function the service does not assess the tfrp and therefore the taxpayer should not be prejudiced by the delay while it is generally desirable for the appeals function to conduct and conclude its cdp hearings and equivalent hearings as expeditiously as possible there are no time limits by law or regulation on when the appeals function must issue its notice_of_determination or decision letter in a case see temp treas reg 301-6330-1t e q ae8 moreover while a cdp hearing case is pending with the appeals function the proposed levy action by the collection function that was the subject of the requested hearing is generally suspended sec_6330 and f when a taxpayer properly requests an equivalent_hearing the service’s proposed levy action is not automatically suspended but the appeals function may also request on a case-by-case basis that the collection function suspend its proposed levy action in appropriate circumstances see temp treas reg 301-6330-1t i q ai-3 when the merits of a tfrp liability are properly at issue in a taxpayer’s equivalent_hearing request and the collection function wants further time to reestablish the foundation for a tfrp liability because its original file recommending assertion of the tfrp has been destroyed it would generally be appropriate absent jeopardy circumstances for the collection function to agree to suspend its proposed levy action while an equivalent_hearing case is pending with the appeals function accordingly while these cdp hearing or equivalent_hearing tfrp cases with missing files are being further developed by the collection function the prejudice caused to the taxpayer by reasonable delays in the hearing process should be minimaldollar_figure therefore as with day notice cases involving the tfrp it is appropriate for the appeals function in a cdp hearing or equivalent_hearing case to allow the collection function no less than days to decide whether to and to complete reconstruction of any necessary foundation evidence for a tfrp liability that is properly challenged by a taxpayer on the merits when the service’s original file recommending assertion of the tfrp has been destroyed when the collection function decides that it is cost effective for the service to reconstruct the evidence supportive of the unpaid tfrp liability in these circumstance but more than days are required by the collection function for this task we believe the appeals function should generally agree to reasonable extensions of the initial day period in some cases of this type we expect the collection function will decide that attempting to reconstruct the evidence is not a cost effective use of the service’s resources the collection function alone or the collection and appeals functions together may recommend advance selection tolerances to apply in these circumstances with appropriate coordination and approval through the new sbse structure such tolerances may be varied locally with appropriate approval from the new sbse structure because workload and general deterrence considerations may differ in various parts of the country during hearing process delays of this type interest will admittedly continue to accrue on the assessed tfrp liabilities that are unpaid december bulletin no offer_in_compromise - joint and separate liabilities date gl-809174-99 uilc memorandum for district_counsel pacific-northwest district seattle from kathryn a zuba chief branch collection bankruptcy and summonses subject offers-in-compromise - forms and conjunction language this memorandum responds to your memorandum electronically mailed date asking questions about the number of offers that should be accepted from spouses who seek to compromise joint and separate liabilities this document is not to be cited as precedent issue when spouses owe both joint and separate liabilities and submit separate offers at the same time should the service require that the offers include a clause stating that the offers are submitted in conjunction with each other and that failure to pay the entire amount of both offers will result in a default of both offers conclusion when spouses owe both joint and separate liabilities and submit separate offers at the same time the service should not require that the offers include a clause stating that the offers are submitted in conjunction with each other and that failure to pay the entire amount of both offers will result in a default of both offers discussion in your memorandum you raise questions regarding offers in compromise from spouses who wish to compromise joint and separate tax_liabilities you state that in these situations it is sometimes necessary for the spouses to submit one two or three form_656 offers in compromise you noted manual provisions that specify how many forms should be filed the irm provides that if the taxpayer is solely responsible for one liability and jointly responsible for another and both joint parties are submitting the offer two offers must be december bulletin no submitted one for the separate liability and one for the joint liability irm cdollar_figure you stated that you understood such provisions to be general in nature and are not intended to cover every taxpayer in every situation you have advised the service to require the number of forms as are appropriate in their judgment under the circumstances of each case and in light of the irm the service has asked for purposes of consistency and clarity for more specific guidance in this regard you ask us if such guidance is possible and if so what should that guidance be similarly you were concerned that when more than one offer is required the amount offered on each form_656 may not reflect the reasonable collection potential of the offeror s because the amount the couple offers to compromise all their liabilities is divided among the offers this would be the case where the couple submits a joint offer for joint liabilities and separate offer s for separate liabilities as directed by irm c you also state that in this situation there is a potential that taxpayers could selectively default on one offer eg an old or small liability and satisfy another eg a new or large liability dollar_figure thus taxpayers could escape certain liabilities without paying the full amount the service would otherwise require in a compromise to minimize this potential problem and so that each offer reflects reasonable collection potential your office has advised that the following language be added to each form this offer is submitted in conjunction with an offer submitted by the other taxpayer dated date in the amount of dollar_figurex the sum of these offers in dollar_figurey failure to pay the entire amount of dollar_figurey will result in a default of both offers finally you raised concerns arising from community_property law in some community_property states the income of one spouse may sometimes be used to satisfy the liabilities of the other also in some community_property states the entire amount of community_property rather than just the spouse’s share may be used to satisfy joint liabilities thus were the couple to submit multiple offers the sum of the acceptable amounts of the offers would exceed the amount the couple could pay we have advised the service against the use of conjunction clauses when such clauses are used the service makes one spouse’s compromise dependant upon the other spouse’s payment from separate assets and or income this is plainly inconsistent with section d of the irs restructuring and reform act of that section instructed the service to notify taxpayers of their right to the continued benefits of a compromise when the other party to the compromise has breached the agreement see also irm and directing the service to seek corrected offers if a joint offer is submitted for both joint liability and separate liability similarly one liability could be dischargeable in bankruptcy and the other not december bulletin no further there is effectively no difference between two offers with conjunction clauses and one joint offer that compromises both joint and separate liabilities the service does not usually require spouses to submit joint offers even when only joint liabilities are at issue see irm a if there is a joint liability and both parties wish to make the offer both names must be shown irm taxpayers who are jointly liable for the same tax_liabilities may submit a joint offer emphasis added a better solution that could be used in cases where selective default could be a problem irm c notwithstanding would be to require separate offers from each spouse in compromise of all of his or her liabilities service procedures already allow a spouse to make a separate offer compromising both joint and separate liabilities when only that spouse is submitting an offer and effectively require separate offers in situations where the service has decided not to consider joint offers see irm b irm dollar_figure when separate offers are made for separate liabilities the service determines each spouse’s share in the value of jointly owned property see irm irm and irm there is a presumption that the value of the spouse’s interest in joint or tenancy_by_the_entirety property i sec_50 though the service will use a different allocation if taxpayers can demonstrate otherwise id when determining one spouse’s income the service will generally not consider the other spouse’s income except where state law allows such as community_property states irm household expenses are allocated based on the spouse’s percentage of household_income unless the taxpayer can demonstrate a different allocation is appropriate id this calculation could be used when spouses are making separate offers in compromise of joint and or separate liabilities at the same time of course the sum of the couple’s separate offers should equal the total amount collectible from the couple when both spouses seek to compromise tax_liabilities at the same time in community_property states the acceptable amount of each offer can be calculated in much the same way the service could start with the presumption that each is entitled to of community_property but allow the taxpayers the opportunity to show that there should be some other division of assets and income under community_property law and the facts of the case for example there could be a pre-nuptial agreement that changes the property rights of the spouses the sum of the offers should again total the reasonable collection potential of the couple the service’s rights under community_property law are adequately protected in most cases if one spouse defaults the service can still in its discretion irm b directs that if only one spouse is seeking to compromise both joint and separate liabilities he or she should submit one offer irm states that a joint offer will not be considered when taxpayers are no longer maintaining a marital relationship one taxpayer is asserting that he or she is not liable for all or some portion of the tax_liability the taxpayers are attempting to allocate responsibility for portions of the tax or payment of the compromise amount or the taxpayers have elected separate or proportionate liability subsequent to the filing of their joint_return december bulletin no exercise its right to collect that spouse’s taxes from the other spouse’s assets and income under community_property law a provision could be added to the respective offers clarifying this point by accepting separate offers from each of the spouses that reflect the assets and income of each neither spouse will get the benefit of a compromise of any_tax liability until they have paid an amount the service has determined to be collectible from that spouse this would seem to us to resolve the problem of selective default we should also address your concern that when the service considers two offers from the same taxpayer as when there is one offer for joint liabilities and one offer for separate liabilities neither offer reflects the reasonable collection potential of that spouse policy statement p-5-100 states that the service will accept an offer when it is unlikely that the tax_liability can be collected in full and the amount offered reasonably reflects collection potential if the service were to consider the other spouse’s income and share in community_property in both offers the sum of separate offers from the spouses in community_property states would also exceed the couple’s ability to pay in these situations the same assets and income could be collected in satisfaction of liabilities underlying both offers and therefore could be considered in each offer however the service can only collect the same assets and income once thus we think that where both the offers together reflect all the assets and income that can reasonably be collected from the taxpayers each offer reasonably reflects collection potential bankruptcy automatic_stay refunds date cc pa cbs br2 gl-604422-00 uilc memorandum for associate area_counsel sbse area cc sb nas from kathryn a zuba chief branch collection bankruptcy summonses subject retention of refunds in chapter cases this is in response to the request for advice dated date from district_counsel kentucky-tennessee district issue whether the failure to pay a claimed refund for a prepetition tax period pending examination of the return for which the refund is claimed during a chapter case violates the automatic_stay b c sec_362 december bulletin no conclusion the service’s failure to pay a refund for a prepetition tax period which is under examination and for which the service has not yet determined there is an overpayment does not violate the automatic_stay background you have presented two hypothetical example sec_22 which we will summarize as follows example taxpayer filed a chapter case in date the service filed a priority claim for dollar_figure for and an unassessed priority claim for for dollar_figure after the petition is filed taxpayer submitted a claim_for_refund for dollar_figure for as part of his return the service does not issue the refund because of problems identified in the return and instead selects the return for examination a tc code is input on taxpayer’s account to prevent issuance of the refund pending the examination pursuant to normal procedures this examination may take more than a few months example taxpayer filed a chapter case in date the service filed a priority claim for dollar_figure for and an unassessed priority claim for for dollar_figure prior to the time the bankruptcy petition was filed taxpayer submitted a claim_for_refund for for dollar_figure which the service did not issue because it selected the return for examination shortly after the bankruptcy petition is filed the service completes the examination for and two weeks after the bankruptcy petition the service issues a thirty-day notice_of_deficiency for dollar_figure the service continues to retain the refund by use of the tc code you state that pursuant to the authority of 717_f2d_767 3d cir and 516_us_16 an indefinite retention of a refund may violate the automatic_stay you thus conclude that in example the service must expedite the examination since the retention of the claimed refund for the extended period that it normally takes to complete an examination may constitute a violation of the automatic_stay you request our assistance in establishing guidelines for how long examination should have to complete an audit before being required to release a claimed refund to ensure that the automatic_stay is not violated you conclude that in example after the notice_of_deficiency is issued the service is not violating the automatic_stay because it has completed the examination and has determined that no refund is due you ask however whether the automatic_stay is violated during the period from the filing of the bankruptcy petition to the date the thirty day notice is issued discussion we conclude that the service’s decision not to immediately honor a claim for a refund based on a return the service has selected for examination is not a violation of the automatic_stay thus the service does not violate the automatic_stay in both examples we will not separately address your third hypothetical since we do not believe it raises any issues which are not already raised by example sec_1 and december bulletin no depending on the facts of the case the following provisions of the automatic_stay may arguably be implicated by the retention of a refund sec_362 prohibiting an act to obtain possession of property of the estate or to exercise control_over property of the estate sec_362 prohibiting any act to collect or recover a prepetition claim against the debtor and sec_362 the setoff of any prepetition debt owing to the debtor against any claim against the debtor as a preliminary matter we note that even after the service determines that there is an overpayment and that a refund is due to the taxpayer neither sec_362 nor a would be violated by the retention of such refund the supreme court in citizens bank held that a bank’s freeze of the debtor’s bank account did not violate sec_362 and because the bank did not exercise dominion over property belonging to the debtor the court explained that a bank account is only a promise to pay from the bank to the depositor and thus the bank’s temporary refusal to pay was not an exercise of control_over debtor’s property but merely a refusal to perform its promise 516_us_21 based on the analysis in citizens bank the retention of a tax_refund will arguably never violate either sec_362 or because the service is not exercising control_over the taxpayer’s claim to a refund and is not taking any act to collect or recover a claim against the debtor rather the service is merely withholding payment of the taxpayer’s refund claim see in re 247_br_633 bankr w d va sec_362 not violated by failure to pay debt owed to the bankruptcy_estate but even if the retention of a refund owed to the debtor can be considered a violation of sec_362 or there cannot be a violation of those provisions until the service first determines that there is an overpayment the service is entitled to take all income deductions credits and other adjustments into account before determining the tax due for a particular taxable_period for the income_tax and if based on such computations the taxpayer has not made an overpayment_of_tax under sec_6402 the taxpayer is not entitled to a refund see 284_us_281 an overpayment must appear before refund is authorized while the service is performing the examination to determine whether there is an overpayment it is not taking an act to obtain possession of property of the estate or to control property of the estate under sec_362 and is not taking an act to collect or recover a prepetition debt under sec_362 because it is merely in the process of making a determination as to the correct_tax due to determine whether the taxpayer is in fact entitled to a refund under the internal_revenue_code additionally the service is not making a setoff or a retention of a refund amounting to a setoff under sec_362 under these circumstances because it is not seeking to set off a prepetition debt owed to the debtor against a claim against the debtor instead the service is computing the tax for one taxable_period to determine whether or not it owes a prepetition debt eg a refund or has a prepetition claim for that period see lewis v reynolds supra december bulletin no we finally note that once the service has completed the examination and determined that there is an overpayment for a prepetition taxable_period if the service were to indefinitely retain such overpayment to preserve its right to set off the overpayment against a tax_liability due for another tax period such as the earlier tax years in both examples then such retention could possibly violate sec_362 pursuant to citizens bank in addition there is case authority for the proposition that the service cannot exercise setoff rights to collect a prepetition tax debt which is provided for in full in a confirmed chapter plan that is not in default norton supra 764_f2d_1004 4th cir due to litigation hazards presented by this case authority our position is that after confirmation of a chapter plan if the service does not wish to release a refund to preserve its setoff rights with respect to a tax_liability provided for in the plan the service should either promptly file for relief from the stay or if the plan is in default and taxpayer will not cure the default seek dismissal of the case ccdm irm thus in example if the service ultimately determines that a refund is due it should not retain the refund to preserve its setoff rights with respect to the earlier tax_year after confirmation of the plan assuming that the plan provides in full for the earlier tax_liability and is not in default without seeking relief from the stay offers in compromise collection_due_process date cc pa cbs br1 gl-123270-00 uilc memorandum for sbse associate area_counsel st paul from alan c levine chief branch collection bankruptcy summonses cc pa cbs br1 subject processing of offers in compromise during collection_due_process proceedings this responds to your date memorandum requesting advice on the above- cited subject this document is not to be cited as precedent december bulletin no the purpose of this memorandum is to provide further clarification of a position first set forth in a date memorandum for your office on the above-cited topic the position taken in the date memorandum was that once a collection_due_process cdp proceeding was pending in the office of appeals appeals a revenue_officer should not separately evaluate an offer_in_compromise submitted by a taxpayer rather the offer should be referred to appeals for consideration in conjunction with the cdp proceeding in a recent request for advice you have received from your local territory manager it was suggested that this position was inconsistent with prior advice from the national_office indicating that a revenue_officer should continue to work a collection case including consideration of an offer after the taxpayer has requested a cdp hearing as long as the taxpayer is willing to attempt to reach a resolution with the revenue_officer if a satisfactory resolution is reached the taxpayer may withdraw the cdp hearing request our position is consistent with this advice we concluded that a revenue_officer should not be independently evaluating an offer submitted by a taxpayer whose cdp case is pending in appeals by pending we meant that the case file had been transferred to appeals for appeals to conduct the cdp hearing after a taxpayer has requested a cdp hearing but before the case has been transferred to appeals a revenue_officer can and should attempt to work with a taxpayer to resolve his or her case if a case can be resolved prior to appeals consideration it expedites the process for the taxpayer if a taxpayer submits an offer to a revenue_officer after the case file has been forwarded to appeals for a cdp hearing however the offer should be referred to appeals for consideration as a part of the cdp process specific procedures for coordination of cdp cases with appeals may be found in irm currently undergoing review by this office these procedures provide that once a taxpayer submits a written request for a cdp hearing the revenue_officer should generally attempt to contact the taxpayer and resolve the issue if the taxpayer is willing to cooperate the revenue_officer should attempt to reach a resolution within days after receipt of the taxpayer’s cdp request if the issue is not resolved within days but the taxpayer is willing to continue to negotiate an agreement with the revenue_officer and a manager concurs that resolution is likely in the near term the revenue_officer may continue to attempt to resolve the case with the taxpayer for up to days after receipt of the taxpayer’s cdp request if the issue is resolved the taxpayer may withdraw in writing the request for a cdp hearing if the issue is not resolved or the issue is resolved but the taxpayer is unwilling to withdraw the cdp hearing request the revenue_officer should forward the case to appeals the date memorandum was subsequently modified by an date memorandum for your office with respect to an issue not relevant to the present discussion december bulletin no as a final note communications between revenue officers and appeals employees with respect to cdp cases will be subject_to the new ex_parte requirements which were referenced in the date memorandum sec_1001 of the internal_revenue_service restructuring and reform act of pub_l_no 112_stat_685 requires the internal_revenue_service service to develop a plan to prohibit ex_parte communications between appeals officers and other service employees that appear to compromise the independence of appeals officers guidance concerning the ex_parte provisions including their applicability in cdp proceedings has now been finalized in revproc_2000_43 2000_43_irb_404