Court Opinion

ID: 4664451
Source: CourtListenerOpinion
Date Created: 2021-03-03 16:00:52.023128+00
Date Added: 2024-06-11T08:02:35.992503
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                File Name: 21a0116n.06

                                        Case No. 20-1772

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

                                                                                    FILED
                                                                              Mar 03, 2021
PATRICK’S PAYROLL SERVICES, INC.,                      )
                                                                          DEBORAH S. HUNT, Clerk
                                                       )
       Petitioner-Appellant,                           )
                                                       )        ON APPEAL FROM THE
v.                                                     )        UNITED STATES TAX COURT
                                                       )
COMMISSIONER OF INTERNAL REVENUE,                      )
                                                       )                             OPINION
       Respondent-Appellee.                            )
                                                       )

BEFORE:        COLE, Chief Judge; STRANCH and THAPAR, Circuit Judges.

       COLE, Chief Judge.       Patrick’s Payroll Services appeals the Tax Court’s summary

judgment, arguing that it had the right to challenge its tax liability under I.R.C. § 6330. Section

6330 allows taxpayers to challenge the existence or amount of their tax liability only if they “did

not receive any statutory notice of deficiency for such tax liability or did not otherwise have an

opportunity to dispute such tax liability.” I.R.C. § 6330(c)(2)(B). Patrick’s Payroll argues that it

is entitled to contest its liability even though it had a prior opportunity to dispute its liability

because paragraph (c)(2)(B) should be read disjunctively to allow taxpayers to dispute liability

anytime the taxes in issue are not the type of taxes for which deficiency notices are issued. After

de novo review, we reject that interpretation of Section 6330 and affirm the Tax Court’s decision.

Golden v. Commissioner, 548 F.3d 487, 492 (6th Cir. 2008).
Case No. 20-1772, Patrick’s Payroll Servs., Inc. v. Comm’r of Internal Revenue

                                       I. BACKGROUND

   A. Factual Background

       Patrick’s Payroll was an employee leasing company that provided payroll services to a

private security company in 2010 and 2011. Patrick’s Payroll paid its employees’ wages and

issued W-2 forms to them in 2010 and 2011. It did not, however, pay employment taxes to the

IRS or file the required employment tax returns.

       In a tax audit, an IRS revenue agent determined that Patrick’s Payroll owed $985,627 in

taxes and penalties based on the wages it reported on its W-2 forms. The revenue agent sent

Patrick’s Payroll a “30-day letter” which proposed employment tax liabilities and informed the

taxpayer that it could contest the liability by requesting a conference with the Appeals Office

within 30 days. Taxpayer did not request a conference, so the IRS assessed the proposed amounts.

       The IRS then issued a notice of intent to levy, which notified Patrick’s Payroll of its right

to a collection due process hearing pursuant to Section 6330(a). The taxpayer requested a hearing

and contested the amount of liability assessed, claiming that it had begun operations in September

2010 and was not responsible for employment taxes assessed before that time. The Appeals Office

determined that the proposed collection action could proceed. Patrick’s Payroll then petitioned

the Tax Court for review of that determination.

       In front of the Tax Court, the taxpayer again contested the amount assessed and the

Commissioner moved for summary judgment. In its motion, the Commissioner explained that the

taxpayer may contest the underlying tax liability only if it “did not receive any statutory notice of

deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax

liability.” The Commissioner noted that Patrick’s Payroll was mailed a 30-day letter and given an

opportunity to dispute the underlying liability and therefore could not contest the liability at the

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Case No. 20-1772, Patrick’s Payroll Servs., Inc. v. Comm’r of Internal Revenue

collection hearing. Patrick’s Payroll argued in response that an “opportunity to dispute” required

judicial review, not simply review by the IRS. The Tax Court rejected the taxpayer’s argument,

holding that a conference with the Appeals Office constitutes an opportunity to dispute, as it had

already established in a 2007 opinion and as every court of appeals to consider the issue has since

agreed. The Tax Court granted summary judgment and the taxpayer filed a motion to reconsider.

       In its motion to reconsider, the taxpayer raised a new argument—even if it had a prior

opportunity to dispute, it still had the right to dispute its tax liability in the collection hearing

because it had not received a notice of deficiency.          Patrick’s Payroll argued that I.R.C.

§ 6330(c)(2)(B) must be read disjunctively to allow taxpayers to challenge liability either when

they do not receive a notice of deficiency or when they do not have an opportunity to dispute. The

Tax Court denied the motion to reconsider and the taxpayer appealed the final decision to this

court, making the same statutory interpretation argument.

   B. Statutory Background

       The Internal Revenue Code directs the Secretary of Treasury to assess and collect federal

taxes. Under that authority, the IRS has established procedures to collect tax deficiencies and

associated penalties and has established processes for taxpayers to dispute their liabilities. See

26 U.S.C. § 6011. Deficiency notices are sent to taxpayers whose taxes are subject to deficiency

procedures. These include income taxes, estate and gift taxes, and some excise taxes. I.R.C.

§§ 6211-13. Other taxpayers do not receive deficiency notices, such as those that owe employment

taxes, some excise taxes, or tax penalties. I.R.C. §§ 6696(b), 6703(b). In those cases, the tax

examiner issues a “30-day letter,” but not a notice of deficiency, before assessing the liability.

That letter gives the taxpayer the opportunity to contest its liability to the Appeals Office. The

Appeals Office may choose to approve or abate the liability.

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Case No. 20-1772, Patrick’s Payroll Servs., Inc. v. Comm’r of Internal Revenue

       If the IRS decides to levy against property to collect, it must notify the taxpayer of its right

to a hearing known as a “collection due process hearing.” I.R.C. § 6330(a)-(d). Collection

hearings are conducted by the IRS Appeals Office. The Appeals Officer must consider whether

the IRS has met all legal and procedural requirements, consider defenses, and ensure that the

collection is no more intrusive than necessary. I.R.C. § 6330(c)(3). The taxpayer may raise other

relevant issues at the hearing, but Congress limited the taxpayer’s ability to contest the amount or

existence of the underlying tax liability at the hearing. A taxpayer may challenge the amount or

existence of its tax liability only where the taxpayer “did not receive any statutory notice of

deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax

liability.” I.R.C. § 6330(c)(2)(B).

                                          II. ANALYSIS

       Because Patrick’s Payroll raised its interpretation of Section 6330 for the first time in a

motion for reconsideration, we need not consider it on appeal. Evanston Ins. Co. v. Cogswell

Properties, LLC, 683 F.3d 684, 692 (6th Cir. 2012) (“Arguments raised for the first time in a

motion for reconsideration are untimely and forfeited on appeal.”).              Notwithstanding its

untimeliness, we conclude the argument would fail anyway.

       Our analysis can begin and end with the text of Section 6330. The statute specifies that a

taxpayer may challenge underlying tax liability in a collection hearing if it “did not receive any

statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to

dispute such tax liability.” I.R.C. § 6330(c)(2)(B). Patrick’s Payroll argues that it needs to meet

only one of the two conditions. In other words, because it did not receive a notice of deficiency,

it may contest its tax liability despite otherwise having had an opportunity to dispute its liability

in a prior hearing. That is not a natural reading of the statute.

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Case No. 20-1772, Patrick’s Payroll Servs., Inc. v. Comm’r of Internal Revenue

       Sometimes the word “or” creates a set of independent conditions. See, e.g., United States

v. Mitchell, 743 F.3d 1054, 1058–59 (6th Cir. 2014) (“taking . . . goods . . . by violence or putting

the person in fear”). Sometimes it doesn’t. See, e.g., United States v. Woods, 571 U.S. 31, 45

(2013) (“Vienna or Wein”) (synonyms); De Sylva v. Ballentine, 351 U.S. 570, 573 (1956) (“the

word ‘or’ is often used as a careless substitute for the word ‘and’”); Valadez-Lara v. Barr, 963

F.3d 560, 567 (6th Cir. 2020) (reading the word “or” as “and” where “the statute requires proof of

a negative”).

       Here the word “or” does not create disjunctive qualifications. Instead, the phrase “or does

not otherwise” identifies a single operative criterion: not having a prior opportunity to dispute.

And the statute provides one of the most common examples of such an opportunity: receiving a

notice of deficiency. An example easily illustrates the plain meaning and ordinary usage of the

phrase “or did not otherwise.” See Oyer v. Commissioner, T.C. Memo 2003-178, 2003 WL

21384834, at *6 n.8. Imagine a child is told that she may have dessert “if she did not eat a cookie

on the schoolbus or did not otherwise have sweets after school.” Id. The clever child admits to

eating sweets after school but claims that she is entitled to dessert because she did not eat a cookie

on the bus. Eating sweets after school clearly violates the terms of the agreement and no parent

would allow the child dessert. If the child were raised by lawyers, she might protest that her

parents had unfairly made disjunctive criteria conjunctive: unreasonably requiring that she not eat

a cookie on the bus and not eat any sweets after school. Her parents might explain that there never

were two criteria, only one: to not eat sweets after school, not eating a cookie on the bus being a

good example of the key directive.

       Interpreting the statute in line with its plain meaning is also supported by Treasury

regulations, the Tax Court’s interpretation, and this court’s previous explanations of Section 6330.

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Case No. 20-1772, Patrick’s Payroll Servs., Inc. v. Comm’r of Internal Revenue

See 26 C.F.R. § 301.6330-1(e)(4) (explaining that after receiving an opportunity to dispute but no

notice of deficiency, “[t]he taxpayer is precluded from challenging the existence or amount of the

tax liability in a subsequent CDP hearing”); Oyer, 2003 WL 21384834, at *6 (“[T]he person

seeking to challenge the underlying tax liability in a collection proceeding must not have had

another opportunity to raise the challenge.”); Agility Network Servs., Inc. v. United States, 848

F.3d 790, 794 (6th Cir. 2017) (“[I]f a taxpayer has not already had the opportunity to challenge his

underlying tax liability, he may do so at the [collection] hearing.”). We therefore reject the

taxpayer’s proposed interpretation of Section 6330.

                                      III. CONCLUSION

       We affirm the Tax Court’s decision granting summary judgment to the Commissioner of

Internal Revenue.

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