Court Opinion

ID: 4474522
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:10:59.268294+00
Date Added: 2024-06-11T07:55:53.794213
License: Public Domain

Halpern, J., dissenting: I. Introduction I cannot agree with the majority that the term “underlying tax liability”, as used in section 6330(c)(2)(B), is to be interpreted “as a reference to the amounts that the Commissioner assessed for a particular tax period.” Majority op. p. 7. What I believe to be a mistaken interpretation of the term leads the majority to a “plain language” reading of section 6330(c)(2)(B) that would allow a taxpayer, at a section 6330 hearing, to challenge the Government’s right to collect from her the portion of any tax that she had reported but failed to pay. The meaning of the term “underlying tax liability” in section 6330(c)(2)(B) is ambiguous. Because it is ambiguous, we are entitled to examine extrinsic evidence to discern its meaning. The legislative history of section 6330(c)(2)(B) leads me to agree with respondent that, as used in that section, the term “underlying tax liability” refers to liabilities asserted by the Commissioner that differ in amount from liabilities self-assessed by the taxpayer.1 I conclude, therefore, that, at a section 6330 hearing, a taxpayer may not challenge the Government’s right to collect from her any reported but unpaid tax. For the reasons stated, I dissent. II. Section 301.6330-l(e), Proced. & Admin. Regs. Before proceeding, it is necessary to comment on the majority’s disposition of section 301.6330-l(e), Proced. & Admin. Regs., set forth in pertinent part on page 6 of the majority’s opinion. Paragraph (e)(1) of that regulation states quite clearly that, at a section 6330 (collection due process (CDP) hearing), the taxpayer “may raise challenges to the existence or amount of the tax liability specified on the CDP Notice * * * if the taxpayer did not receive a statutory notice of deficiency for that tax liability or did not otherwise have an opportunity to dispute that tax liability.” (Emphasis added.) See also par. (e)(3), Q&A-E2 (similar).2 The pertinent language of paragraph (e)(1) of the regulation is essentially the same as the language of section 6330(c)(2)(B) except that, in the regulation, the term “tax liability specified on the CDP Notice” is substituted for the term “underlying tax liability”. Thus, the drafters of the regulation fixed the meaning of the term “underlying tax liability” as “the tax liability specified on the CDP Notice”. As the majority recites, on March 19, 2002, respondent issued to petitioners a final notice (CDP notice) stating that petitioners owed tax, penalties, and interest (for 2002) totaling $222,315.34. Majority op. p. 2. The dispute here is over whether petitioners could challenge respondent’s right to collect that debt (or at least the tax portion of it) at the section 6330 hearing they subsequently requested. The regulations under section 6330(c)(2)(B) cited above appear to be disposi-tive of that issue in petitioners’ favor. Surprisingly, however, neither party mentioned those provisions in their papers or oral argument with respect to respondent’s motion for summary judgment, and the majority treats the provisions almost as an afterthought, proceeding to consider whether the term “underlying tax liability” means something quite different than the meaning given the term in the regulations. If respondent’s position in this case is that the term “underlying tax liability” means liabilities in excess of self-assessed liabilities, then that position is directly contradicted by the meaning fixed for that term in the regulations; i.e., “the tax liability specified on the CDP Notice”. The majority has not even asked respondent to explain that contradiction. To me, the best course would be to ask respondent to explain the contradiction and, perhaps, say: “Oops!”3 As a matter of judicial economy, we should attempt to resolve the dispute in front of us on the basis of section 301.6330-l(e), Proced. & Admin. Regs., if at all possible. I continue with my dissent because the ambiguity that afflicts the statute also afflicts the regulation, and respondent may say “Oops!” only because the regulation does not say what he wants it to say, and the Secretary may try to amend it, in which case the majority’s analysis becomes relevant. III. Section 6330 A. Introduction The majority adequately describes the general operation of section 6330. Majority op. pp. 5-6. Putting aside section 301.6330-l(e), Proced. & Admin. Regs., the question presented is whether respondent’s Appeals Office could, pursuant to section 6330(c)(2)(B), refuse to allow petitioners to challenge their obligation to pay the amount of tax that they had reported but not paid (the unpaid tax).4 It is clear (and respondent does not suggest otherwise) that petitioners did not receive a statutory notice of deficiency with respect to the unpaid tax.5 Nor does respondent argue that petitioners otherwise had an opportunity to dispute the unpaid tax within the meaning of section 6330(c)(2)(B).6 Rather, respondent’s contention that petitioners’ obligation to pay the unpaid tax is not properly at issue is based on his position that, as used in section 6330(c)(2)(B), the term “underlying tax liability” is properly interpreted to refer only to amounts asserted by the Internal Revenue Service (IRS) in excess of the amount of tax reported by the taxpayer on her return. In the context of the income tax, that amount would generally correspond to the amount of any deficiency assessed by the Commissioner and would exclude any amount of self-assessed tax (such as the unpaid tax here in issue). As previously discussed, the majority interprets the term “underlying tax liability” in section 6330(c)(2)(B) to mean “the amounts that the Commissioner assessed for a particular tax period” (sometimes, simply, assessed amounts). Thus, for the majority, in the context of a tax that is subject to the deficiency procedures (such as the income tax), the term “underlying tax liability” means the sum of (1) any self-assessed tax plus (2) any deficiency assessment. Id. pp. 7-8.7  I agree with the majority that the term “underlying tax liability” must be interpreted “in context”, id. p. 11, and only add, as stated by the Court of Appeals for the Fifth Circuit: However, even apparently plain words, divorced from the context in which they arise and in which their creators intended them to function, may not accurately convey the meaning the creators intended to impart. It is only, therefore, within a context that a word, any word, can communicate an idea. [Leach v. FDIC, 860 F.2d 1266, 1270 (5th Cir. 1988).] B. Language of Section 6330(c)(2)(B) Section 6330(c)(2)(B) provides: (B) Underlying liability. — The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability. Having determined as a first step that the term “underlying tax liability” means assessed amounts, the majority proceeds as a second step to find the plain meaning of section 6330(c)(2)(B) without adequately considering whether the phrasing of that provision contradicts such meaning. Thus, consider the meaning of section 6330(c)(2)(B) with respect to the following hypothetical taxpayer if, as the majority would have it, the term “underlying tax liability” means assessed amounts. The taxpayer files a return but fails to pay the $100 tax shown on that return, which tax is assessed by the Commissioner (the return assessment). Subsequently, the Commissioner determines that additional tax of $50 is due and sends the taxpayer a notice of deficiency in that amount, which the taxpayer receives and ignores, resulting in a subsequent assessment of $50 (the notice assessment). The taxpayer’s total (composite) liability is $150.8 If, at a section 6330 hearing, the taxpayer attempts to challenge the Commissioner’s right to collect the $150 liability, and if the taxpayer’s underlying tax liability equates to the assessed amounts, then does not the plain language of section 6330(c)(2)(B) dictate that the taxpayer can challenge both the return assessment and the notice assessment ($150) (i.e., because the taxpayer did not receive a notice of deficiency “for” the composite liability of $150)? Yet the majority would reach the opposite conclusion, i.e., the hypothetical taxpayer could challenge neither assessment, on the basis that the hypothetical taxpayer “was afforded a prior opportunity to challenge such [the composite] liability under the deficiency procedures.” Majority op. p. 8. It is not clear to me how, under the deficiency procedures, a taxpayer can challenge a return assessment that she has not paid. See, e.g., O’Connor v. Commissioner, T.C. Memo. 1992-410 (Tax Court cannot enter a decision determining an overpayment of assessed tax where the assessed tax has not been paid; section 6404(b) forestalls forced abatement of any assessed income tax, and “we know of no basis upon which we could hold that petitioner is entitled to credits for any amounts assessed but not paid”). Alternatively, the majority could stick with its interpretation of the term “underlying tax liability” as assessed amounts and interpret the term “if” in section 6330(c)(2)(B) to mean “to the extent”.9 That, however, would be an abandonment of its “plain language” claim. Finally, the majority might decide that the meaning of the term “underlying tax liability” is not fixed; i.e., it does not always mean all assessed amounts. Thus, e.g., in the case of a composite liability, the underlying tax liability might be exclusive of the deficiency if the deficiency was the subject of a notice assessment (or the taxpayer otherwise had an opportunity to dispute the deficiency10) and inclusive of the deficiency in all other instances. Under that argument, in the example used above, the underlying tax liability would be $100, since the deficiency of $50 was the subject of a notice assessment. If, instead, the taxpayer had not received the notice of deficiency and did not otherwise have an opportunity to dispute the deficiency, then the underlying tax liability would be $150. The result under that alternative approach is similar to the result reached under respondent’s interpretation in that (at least in some circumstances) the term “underlying tax liability” means something other than the total assessments made by the Commissioner for the taxable period. From a “plain meaning” standpoint, such a reading of the statute would seem to be no more preferable than respondent’s interpretation. Indeed, the benefit of respondent’s interpretation (i.e., that the term “underlying tax liability” in section 6330(c)(2)(B) refers only to that portion of the underlying tax liability that the taxpayer failed to report) is that it does not in most cases require mental gymnastics to square such term with the remaining language of the section.11  Based on the foregoing, I am satisfied that the term “underlying tax liability”, as used in section 6330(c)(2)(B), is susceptible to more than one reasonable interpretation.12 We may therefore look beyond the language of the provision in our endeavor to discern Congress’s purpose. C. Extrinsic Interpretive Aids 1. Use of the Term Elsewhere in the Section Besides appearing in section 6330(c)(2)(B), the term “underlying tax liability” appears in section 6330(d)(1).13 Section 6330(d)(1) provides: SEC. 6330(d)(1). — Judicial review of determination. — The person [the subject of a section 6330 determination] may, within 30 days of a determination under this section, appeal such determination— (A) to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter); or (B) if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States. [Emphasis added.] We have interpreted section 6330(d)(1) to mean that we have jurisdiction in section 6330 cases involving the types of taxes, e.g., income, estate, and gift taxes, that we normally may consider, regardless of whether the section 6330 case in front of us involves a deficiency in such taxes. See Landry v. Commissioner, 116 T.C. 60, 62 (2001). Under that interpretation, the term “underlying tax liability” means “the type of tax at issue”.14 Neither petitioner nor respondent argues for that meaning in this case; indeed, such interpretation makes little sense in the context of section 6330(c)(2)(B). Accordingly, we cannot resolve this case on the basis of the meaning of the term “underlying tax liability” as used in section 6330(d)(1)(B) (which, in any event, the majority does not mention).15  2. Legislative History of Section 6330(c)(2)(B) Section 6330 was added to the Internal Revenue Code by the Internal Revenue Service Restructuring and Reform Act of 1998 (the Act), Pub. L. 105-206, sec. 3401(b), 112 Stat. 747. H.R. 2676, 105th Cong., 2d Sess. (1998) (H.R. 2676), is the bill that, when enacted, became the Act. As passed by the House of Representatives, H.R. 2676 did not contain any version of section 6330. Section 6330 was added by a Senate amendment to H.R. 2676 (the Senate amendment). See H.R. 2676, sec. 3401(b), 105th Cong., 2d Sess. (1998), 144 Cong. Rec. S4163 (daily ed. May 4, 1998). The Senate amendment provides without qualification that, at a CDP hearing, taxpayers can raise “challenges to the underlying tax liability as to existence or amount”. Id. In response to the Senate amendment, Administration officials expressed concern over the breadth of the proposed appeal rights, noting, among other concerns, that, under the Senate amendment, taxpayers could challenge even self-assessed (i.e., reported) amounts at CDP hearings. See Statement of Administration Policy, Office of Management and Budget (May 5, 1998), reprinted in Tax Notes Today, 98 TNT 87-18 (May 6, 1998); letter from the Hon. Robert E. Rubin, Secretary of the Treasury, to the Hon. William Archer, Chairman, Committee on Ways and Means, U.S. House of Representatives (June 2, 1998), reprinted in Daily Tax Report, 112 DTR at L-3 (June 11, 1998) (Department of Treasury views).16  The limiting language found in section 6330(c)(2)(B) originated in the conference agreement on H.R. 2676. While the accompanying committee report (the conference report), H. Conf. Rept. 105-599, at 265-266 (1998), 1998-3 C.B. 747, 1019-1020, reveals neither the impetus for, nor the intended effect of, the change to the Senate amendment reflected in section 6330(c)(2)(B), it is reasonable to infer that the conferees were responding, at least in part, to the stated concerns of Administration officials and did not intend the result reached by the majority. The foregoing inference is supported by other language in the conference report. Regarding the scope of the section 6330 hearing, the report states: “However, the validity of the tax liability can be challenged only if the taxpayer did not actually receive the statutory notice of deficiency or has not otherwise had an opportunity to dispute the liability.” Id. at 265, 1998-3 C.B. at 1019 (emphasis added). That language suggests that Congress did not intend to allow challenges to the Commissioner’s right to collect the unpaid tax liability in those instances in which the taxpayer’s nonreceipt of a statutory notice of deficiency is solely attributable to the fact that the Commissioner did not determine a deficiency in the first place. Rather, the reference to “actual” receipt of “the” notice of deficiency suggests that, in the case of taxes subject to the deficiency procedures, such as the income tax, Congress was targeting the situation in which, although the Commissioner determined a deficiency and properly issued a statutory notice of deficiency, the taxpayer did not actually (or constructively, see Sego v. Commissioner, 114 T.C. 604, 611 (2000)) receive that notice17 and therefore did not have a realistic opportunity to challenge the proposed deficiency in the Tax Court.18 That interpretation is consistent with respondent’s position that the term “underlying tax liability”, as used in section 6330(c)(2)(B), does not include self-assessed amounts. IV. Conclusion I conclude that section 6330(c)(2)(B), describing the limited circumstances in which a taxpayer may challenge the existence or amount of the underlying tax liability at a section 6330 hearing, does not allow the taxpayer to challenge her obligation to pay any reported but unpaid tax.19 Accordingly, putting aside section 301.6330-l(e)(l), (3), Proced. & Admin. Regs., the reported but unpaid tax here in question is not properly at issue.20    The term “self-assessed” is somewhat of a misnomer in that tax reported on a return is actually assessed by the Commissioner. See sec. 6201(a)(1). I use the term in the colloquial sense.    Sec. 301.6320-l(e)(l), (3), Q&A-E2, Proced. & Admin. Regs., is similar but relates to liens rather than levies.    Recently, by Chief Counsel Notice (CC-2002-043), reprinted in Tax Notes Today, 2002 TNT 206-13, attorneys working in the Office of Chief Counsel, Internal Revenue Service, were reminded that the office does not take positions in litigation that are inconsistent with positions that the Commissioner has taken in published guidance, including regulations.    Generally, when a return of tax is made and an amount of tax is shown on the return, the person making the return shall, without assessment or notice and demand, pay such tax at the time and place the return is filed. Sec. 6151(a).    As used in sec. 6330(c)(2)(B), the term “statutory notice of deficiency” refers to the means by which, in the case of certain taxes (including the income tax), the IRS notifies a person that it has determined a deficiency in that person’s tax. See sec. 6212. In the context of those taxes, the term “deficiency” essentially means the amount by which a person’s tax liability exceeds the tax shown on the person’s return. See sec. 6211(a).    Respondent’s regulations provide: “An opportunity to dispute a liability includes a prior opportunity for a conference with Appeals that was offered either before or after the assessment of the liability.” Sec. 301.6330-l(e)(3), Q&A-E2, Proced. & Admin. Regs. Without regard to sec. 6330(c)(2)(B), a taxpayer’s subsequent disavowal of a reported and assessed, but unpaid, income tax liability amounts to an informal claim for abatement. See Fayeghi v. Commissioner, T.C. Memo. 1998-297, affd. 211 F.3d 504 (9th Cir. 2000). Because such a claim has no formal procedural significance, see sec. 6404(b), presumably it is not subject to the Appeals process.    On p. 8, the majority states: “In the present case, petitioners’ underlying tax liability consists of the amount that petitioners reported due on their tax return along with statutory interest and penalties.” Since petitioners paid a portion of the amount they reported due on their return, it would seem that, for the majority, the term "underlying tax liability” includes both paid and unpaid assessments of tax. The majority does not say whether, under sec. 6330(d)(1), we have the authority to order a refund. I do not see how we do, since our jurisdiction under that section is to review the Commissioner’s determination to proceed with collection of a given amount. To the extent that Chief Judge Wells, in his concurring opinion, suggests to the contrary, I disagree.    Por an example of a composite liability where the taxpayer did not ignore the notice of deficiency, see Fayeghi v. Commissioner, supra.    Viz, “The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period to the extent [as opposed to “if”] the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.”    A taxpayer would have “otherwise had an opportunity to dispute” (and would therefore be precluded from challenging at a sec. 6330 hearing) such amount without having received a notice of deficiency if, for example, following the Commissioner’s examination of her income tax return and determination of a deficiency in tax, the taxpayer had executed a waiver of restrictions on assessment and collection, thus making it unnecessary for the Commissioner to mail to her a notice of deficiency. See Aguirre v. Commissioner, 117 T.C. 324, 327 (2001).    Of course, if it turns out that respondent’s interpretation is actually that the term equates to “the tax liability specified on the CDP Notice” (which is the term used in sec. 301.6330-l(e)(l) and (3), Proced. & Admin. Regs.), then such interpretation presents similar ambiguities to those discussed in the text.    In Washington v. Commissioner, 120 T.C. 114, 127 (2003) (Halpern, J., concurring), without benefit of a consideration of the legislative history discussed below, I concluded that the term “underlying tax liability”, as used in sec. 6330(c)(2)(B), means the tax on which the Commissioner based his assessment (whether shown on the return or determined by the Commissioner). I have since changed my mind.    As pertinent to this proceeding, both provisions originated with the addition of sec. 6330 to the Internal Revenue Code by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3401(b), 112 Stat. 747.    In Katz v. Commissioner, 115 T.C. 329, 339 (2000), we interpreted the term “underlying tax liability” in sec. 6330(d)(1)(B) as including “any amounts owed by a taxpayer pursuant to the tax laws”. As that statement was not necessary to resolve the case (the case did not involve self-assessed amounts), it is dicta that does not control this case.    The term “underlying tax liability” also appears in sec. 6311, which deals with the payment of taxes by commercially acceptable means. In relevant part, sec. 6311(d)(3)(A) provides that “a payment of internal revenue taxes * * * by use of a credit card shall not be subject to section 161 of the Truth in Lending Act * * * if the error alleged by the person is an error relating to the underlying tax liability’. Sec. 6311(d)(3)(B) provides a similar rule with respect to payments made by debit cards. Those provisions were added to the Internal Revenue Code by the Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 1205(a), 111 Stat. 995. It is by no means apparent that Congress intended the same meaning to apply for purposes of sec. 6311(d)(3) and sec. 6330(c)(2)(B).    See also letter from L. Anthony Sutin, Acting Assistant Attorney General, to the Hon. William V. Roth, Jr., Chairman, Committee on Finance, U.S. Senate, and the Hon. William Archer, Chairman, Committee on Ways and Means, U.S. House of Representatives (June 8, 1998), reprinted in Daily Tax Report, 112 DTR at L-7 (June 11, 1998) (Department of Justice views).    In informal remarks, one Treasury official specifically identified that situation as the proper focus of any expanded appeal rights. See Holmes, “Proposed Taxpayer Rights Changes Questioned by Treasury Attorney Rizek”, 74 Daily Tax Rept. at G-3 (Apr. 17, 1998); see also Donmoyer, “Treasury Still Ignoring IRS Reform Bill's Controversial Elements,” 78 Tax Notes 411 (describing Associate Tax Legislative Counsel Rizek as “one of Treasury’s chief negotiators during the drafting of the IRS reform bill”).    A notice of deficiency mailed to a taxpayer’s “last known address” is sufficient to commence the usual 90-day period during which the taxpayer may petition the Tax Court for a redeter-mination of the deficiency, regardless of whether the taxpayer actually receives the notice. See, e.g., Frieling v. Commissioner, 81 T.C. 42, 52 (1983); Tatum v. Commissioner, T.C. Memo. 2003-115 n.4; see also sec. 6212(b); sec. 301.6212-2, Proced. & Admin. Regs.    1 acknowledge that such conclusion is at odds with dicta appearing in prior reports of the Court, which reflect concessions made by the Commissioner. See Craig v. Commissioner, 119 T.C. 252, 261 (2002) (Commissioner conceded that taxpayer was entitled to dispute self-assessed liability at CDP hearing); Hoffman v. Commissioner, 119 T.C. 140, 145 (2002) (same in the context of interest and penalties attributable to a self-assessed liability).    That is not to say that, at a sec. 6330 hearing, a taxpayer may not show that she has no liability (or a reduced liability) for a deficiency properly before the Appeals Office pursuant to sec. 6330(c)(2)(B) on account of erroneous items on her return (or, indeed, items, e.g., overlooked deductions, not on her return). The question is whether, during a sec. 6330 hearing, a taxpayer has the right to challenge her obligation to pay any amount shown on her return but remaining unpaid (she does not). The absence of such a right, however, does not foreclose the taxpayer from submitting an amended return or, upon payment, filing a claim for refund.