122 T.C. No. 1
UNITED STATES TAX COURT
NIELD AND LINDA MONTGOMERY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16864-02L. Filed January 22, 2004.
Ps filed a joint Federal income tax return for the
taxable year 2000 reporting total tax of $2,831,360
and tax due of $196,006. Ps failed to remit the latter
amount with their tax return. R accepted Ps’ tax
return as filed and assessed the tax reported therein.
Sec. 6201(a)(1), I.R.C. R issued to Ps a final notice
of intent to levy, and Ps filed with R a request for a
collection due process hearing under sec. 6330, I.R.C.
In a subsequent telephone conversation between Ps’
counsel and R’s Appeals officer, Ps asserted that they
had overstated the total tax on their original return
for 2000 and indicated that they intended to submit an
amended return showing that they were due a refund for
that year. R issued to Ps a final notice of
determination in which he determined that Ps were not
entitled to challenge the amount of their tax liability
in the administrative proceeding, citing sec.
6330(c)(2)(B), I.R.C. Ps filed with the Court a timely
petition for review of R’s determination. R filed a
Motion for Summary Judgment. Ps opposed R’s motion.
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Held: R’s Motion for Summary Judgment will be
denied. Sec. 6330(c)(2)(B), I.R.C., permits Ps to
challenge the existence or amount of the tax liability
reported on their original tax return because Ps have
not received a notice of deficiency and have not
otherwise had an opportunity to dispute the tax
liability in question.
Duncan C. Turner and Brian G. Isaacson, for petitioners.
Glenn P. Thomas and Julie L. Payne, for respondent.
OPINION
DAWSON, Judge: This case was assigned to Chief Special
Trial Judge Peter J. Panuthos, pursuant to the provisions of
section 7443A(b)(4) and Rules 180, 181, and 182.1 The Court
agrees with and adopts the opinion of the Special Trial Judge,
which is set forth below.
OPINION OF THE SPECIAL TRIAL JUDGE
PANUTHOS, Chief Special Trial Judge: This matter is before
the Court on respondent’s Motion for Summary Judgment, filed
pursuant to Rule 121. As explained in detail below, we shall
deny respondent’s motion.
Background
On or about October 18, 2001, petitioners filed a timely
1
Section references are to the Internal Revenue Code, as
amended. Rule references are to the Tax Court Rules of Practice
and Procedure.
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joint Federal income tax return for the taxable year 2000 on
which they reported total tax of $2,831,360, total payments of
$2,636,723, and tax due of $194,637 plus an estimated tax penalty
of $1,369, interest due on the unpaid balance of $9,704, and a
penalty for failure to pay of $7,785, for a total amount due of
$213,495. Petitioners failed to remit the amount due with their
tax return. Respondent accepted the tax return as filed and
assessed the amount reported therein. Respondent did not audit
petitioners’ tax return for 2000 and did not send petitioners a
notice of deficiency for 2000.
On March 19, 2002, respondent issued to petitioners a Final
Notice-–Notice of Intent to Levy and Notice of Your Right to a
Hearing with regard to their unpaid tax for 2000. The notice
stated that petitioners owed tax, penalties, and interest
totaling $222,315.34.
On April 18, 2002, petitioners submitted to respondent a
Form 12153, Request for a Collection Due Process Hearing.
Petitioners’ request for an administrative hearing stated in
pertinent part:
The taxpayer has a good track record of paying his
taxes timely in appropriate amounts, as evidenced by
the 1997—1999 tax returns * * *. However, in tax year
2000, the taxpayer had an extraordinary tax liability
($2,831,360) due to his exercise of several incentive
and nonqualified stock options and the application of
the AMT rates. The taxpayer was able to pay $2,636,723
of the tax liability, but, unfortunately, the value of
the stock received plummeted before year-end 2000 and
is now essentially worthless. Thus, the remaining tax
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liability is currently thousands of times higher that
the value of the asset received. The taxpayer is
working diligently and in good faith with various
professional advisors to evaluate the situation and
remedy the outstanding tax liability.
Petitioners also stated that (1) they intended to prepare and
submit an amended income tax return for 2000 that would reflect
that they were entitled to a refund for that year; and (2) in any
event, the parties should explore alternatives to the proposed
levy including an installment agreement, an offer in compromise,
posting a bond, or substitution of other assets.
On July 2, 2002, Appeals Officer Jerry L. Johnson wrote to
petitioners to inform them that he had scheduled their Appeals
Office hearing for July 25, 2002. Appeals Officer Johnson’s
letter stated in pertinent part:
As explained in the above mentioned code sections and
related documents, a taxpayer may dispute the
underlying liability in a collection due process
hearing only when a notice of deficiency was not
provided to the last known address of the taxpayer, or
where the taxpayer did not otherwise have an
opportunity to dispute the tax. Since that is the case
here, you will have the opportunity to discuss the
liability at the hearing. In that regard, if you plan
to present or discuss new material, please send me
copies at least five days before our meeting.
On July 22, 2002, Appeals Officer Johnson had a telephone
conversation with petitioners’ representative. During the
conversation, petitioners’ representative stated that, through
the misapplication of complex statutory provisions, petitioners
had overstated their tax liability for 2000 on their original
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return and that they intended to submit an amended income tax
return for 2000. Although the parties agreed that petitioners
would be permitted to submit an amended return, the parties did
not set a deadline for the submission of such amended return.
On September 26, 2002, without any further communication
between the parties, the Appeals Office issued to petitioners a
Notice of Determination Concerning Collection Action(s) Under
Section 6320 and/or 6330. The notice of determination, signed by
Appeals Team Manager Debra M. Brush, stated in pertinent part:
“The Taxpayer has indicated he would file amended returns to
mitigate the liability, but such has not been done in a
reasonable time, and the mere filing of such claim does not
guarantee that the claim should be paid. Therefore, the levy
should be allowed to proceed.” As of September 26, 2002,
petitioners had not submitted to respondent an amended income tax
return for 2000. However, on October 11, 2002, petitioners
submitted to respondent an amended income tax return for 2000
which reflects that petitioners are due a refund of $519,087.
On October 28, 2002, petitioners filed with the Court a
Petition for Lien or Levy Action Under Section 6320 and/or 6330.2
The sole issue raised in the petition is a challenge to the
amount of petitioners’ underlying tax liability for 2000.
2
The petition was timely mailed to the Court on Oct. 25,
2002. Secs. 6330(d), 7502(a).
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After filing an answer to the petition, respondent filed a
Motion for Summary Judgment. Respondent maintains that there is
no dispute as to a material fact and the Court should enter
judgment as a matter of law sustaining the notice of
determination dated September 26, 2002. Respondent argues that
petitioners are barred from challenging the existence or amount
of their underlying tax liability for 2000 in this collection
review proceeding on the ground that the tax liability in
question was “self-assessed” on petitioners’ original tax return
pursuant to section 6201(a)(1). Petitioners filed an Objection
to respondent’s motion.
This matter was called for hearing at the Court’s motions
session held in Washington, D.C. Counsel for both parties
appeared at the hearing and made oral argument.
Discussion
Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials. See Florida Peach Corp.
v. Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may
be granted with respect to all or any part of the legal issues in
controversy “if the pleadings, answers to interrogatories,
depositions, admissions, and any other acceptable materials,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that a decision may be
rendered as a matter of law.” Rule 121(b); Sundstrand Corp. v.
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Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th
Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988);
Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The moving
party bears the burden of proving that there is no genuine issue
of material fact, and factual inferences will be read in a manner
most favorable to the party opposing summary judgment. See
Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v.
Commissioner, 79 T.C. 340, 344 (1982).
We are satisfied from our review of the record that there is
no genuine issue as to any material fact. However, we conclude,
contrary to respondent’s position, that petitioners may challenge
the amount of their underlying tax liability in this proceeding.
Consequently, we shall deny respondent’s motion.
Section 6331(a) provides that if any person liable to pay
any tax neglects or refuses to pay such tax within 10 days after
notice and demand for payment, the Secretary is authorized to
collect such tax by levy on the person’s property. Section
6331(d) provides that at least 30 days before enforcing
collection by levy on the person’s property, the Secretary is
obliged to provide the person with a final notice of intent to
levy, including notice of the administrative appeals available to
the person.
Section 6330 generally provides that the Commissioner cannot
proceed with collection by levy until the person has been given
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notice and the opportunity for an administrative review of the
matter (in the form of an Appeals Office hearing) and, if
dissatisfied, with judicial review of the administrative
determination. See Davis v. Commissioner, 115 T.C. 35, 37
(2000); Goza v. Commissioner, 114 T.C. 176, 179 (2000). Section
6330(d) provides for judicial review of the administrative
determination in the Tax Court or a Federal District Court, as
may be appropriate.
Section 6330(c) prescribes the matters that a person may
raise at an Appeals Office hearing. Section 6330(c)(2)(A)
provides that a person may raise collection issues such as
spousal defenses, the appropriateness of the Commissioner’s
intended collection action, and possible alternative means of
collection. See Sego v. Commissioner, 114 T.C. 604, 609 (2000);
Goza v. Commissioner, supra. In addition, section 6330(c)(2)(B)
establishes the circumstances under which a person may challenge
the existence or amount of his or her underlying tax liability.
Section 6330(c)(2)(B) provides:
SEC. 6330(c)(2). Issues at Hearing.--
* * * * * * *
(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.
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Respondent has promulgated interpretative regulations
related to section 6330(c)(2)(B). Section 301.6330-1(e), Proced.
& Admin. Regs., provides in pertinent part:
(e) Matters considered at CDP hearing--(1) In general.
* * * The taxpayer also may raise challenges to the
existence or amount of the tax liability specified on
the CDP Notice for any tax period shown 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.
Section 301.6330-1(e)(3), Proced. & Admin. Regs., provides in
pertinent part:
(3) Questions and answers. The questions and
answers illustrate the provisions of this paragraph (e)
as follows: * * *
Q-E2. When is a taxpayer entitled to challenge
the existence or amount of the tax liability specified
in the CDP Notice?
A-E2. A taxpayer is entitled to challenge the
existence or amount of the tax liability specified in
the CDP Notice if the taxpayer did not receive a
statutory notice of deficiency for such liability or
did not otherwise have an opportunity to dispute such
liability.
Notably, respondent’s regulations do not expressly bar a person
from challenging the existence or amount of tax previously
reported due on a tax return.
In any event, respondent’s position in this case is
articulated in his motion as follows:
Respondent interprets section 6330(c)(2)(B) to
mean that a taxpayer can challenge only those
liabilities asserted by respondent that differ in
amount from the taxpayer’s self-determination. By
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granting taxpayers a right to contest the existence or
amount of an underlying tax liability, Congress was
concerned with tax liabilities asserted by respondent,
rather than those originally computed and reported by
the taxpayers themselves. This concern is evident in
the phrasing of section 6330(c)(2)(B), which permits a
taxpayer to contest an underlying tax liability in the
event that he or she has been denied a prior
opportunity to contest that liability in the form of a
“statutory notice of deficiency” or “otherwise.” It is
nonsensical to permit taxpayers whose tax liabilities
are self-determined to contest under section 6330 the
liabilities they computed, voluntarily reported and
declared to be correct under penalty of perjury.
Respondent further asserts that there is no suggestion in the
legislative history underlying section 6330 that Congress
intended to permit taxpayers to challenge taxes that were “self-
assessed” on a tax return. Finally, respondent maintains that,
inasmuch as section 6330 constitutes a waiver of sovereign
immunity, the provision should be narrowly construed in the
Commissioner’s favor.
Before proceeding, we briefly review the principles of
statutory construction that guide our analysis. It is well
settled that in interpreting a statute, we start with the
language of the statute itself. Consumer Prod. Safety Commn. v.
GTE Sylvania, Inc., 447 U.S. 102, 108 (1980). If the language of
the statute is plain, clear, and unambiguous, we generally apply
it according to its terms. United States v. Ron Pair Enters.,
Inc., 489 U.S. 235, 241 (1989); Burke v. Commissioner, 105 T.C.
41, 59 (1995). In Huntsberry v. Commissioner, 83 T.C. 742, 747-
748 (1984), we stated that “where a statute is clear on its face,
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we would require unequivocal evidence of legislative purpose
before construing the statute so as to override the plain meaning
of the words used therein.” However, if a statute “is ambiguous
or silent, we may look to the statute’s legislative history to
determine congressional intent.” Ewing v. Commissioner, 118 T.C.
494, 503 (2002) (citing Burlington N. R.R. v. Okla. Tax Commn.,
481 U.S. 454, 461 (1987)); see Wells Fargo & Co. v. Commissioner,
120 T.C. 69, 89 (2003); Allen v. Commissioner, 118 T.C. 1, 7
(2002).
Turning to section 6330(c)(2)(B), the provision plainly
states that a person may challenge “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.” The term “underlying tax liability” is not
defined in section 6320 or 6330, nor is there any specific
reference to that term in the legislative history of the
provisions. Taken in context, it is reasonable to interpret the
term “underlying tax liability” as a reference to the amounts
that the Commissioner assessed for a particular tax period. In
this regard, the term “underlying tax liability” may encompass an
amount assessed following the issuance of a notice of deficiency
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under section 6213(a), an amount “self-assessed” under section
6201(a), or a combination of such amounts.
Consistent with the foregoing, the plain language of section
6330(c)(2)(B) bars a person who has received a notice of
deficiency from challenging his or her underlying tax liability
for that year (whether the liability was self-assessed or
assessed as a deficiency) in a collection review proceeding
inasmuch as the person was afforded a prior opportunity to
challenge such liability under the deficiency procedures.3 In
contrast, where a person has not received a notice of deficiency
and has not had a prior administrative or judicial opportunity to
challenge the amounts the Commissioner assessed, section
6330(c)(2)(B) provides that such person may challenge the
liability as part of the collection review procedure.
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. It is clear
that petitioners did not receive a notice of deficiency for 2000.
Indeed, respondent was not obliged to issue a notice of
deficiency to petitioners because the assessment in question was
3
See Naftel v. Commissioner, 85 T.C. 527, 531 (1985),
where we observed that in a deficiency proceeding brought under
sec. 6213(a), the Court may also consider the taxpayer’s claim of
an overpayment for the year(s) in issue under sec. 6512(b)(1).
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entered under section 6201(a)(1).4 Moreover, the tax that
petitioners reported due on their return is excluded from the
definition of a deficiency under section 6211(a).
The question that remains under section 6330(c)(2)(B) is
whether petitioners “did not otherwise have an opportunity to
dispute such tax liability” for 2000. Respondent contends that
the phrase quoted above should be interpreted to exclude persons,
such as petitioners, who have reported their tax liability on a
duly filed tax return. However, respondent’s proposed
interpretation would have the effect of adding terms and
conditions to section 6330(c)(2)(B) that are inconsistent with
the plain language of the provision. As we see it, if Congress
had intended to preclude taxpayers from challenging in a
collection review proceeding taxes that were assessed pursuant to
section 6201(a)(1), the statute would have been drafted to
clearly so provide. Simply put, the plain language of the
statute as enacted, with an emphasis on whether there was an
earlier opportunity to dispute the tax liability, provides a
broader remedy than respondent’s interpretation would allow.
4
Sec. 6201(a)(1) provides:
(1) Taxes shown on return.-–The Secretary shall
assess all taxes determined by the taxpayer or by the
Secretary as to which returns or lists are made under
this title.
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To date petitioners have not had an opportunity to “dispute”
their tax liability for the taxable year 2000 in any sense of the
term. Although petitioners reported the tax liability that is
the subject of respondent’s proposed levy on their original tax
return, they now contend (and would like the opportunity to show)
that they erred in computing the tax attributable to certain
stock options that Mr. Montgomery exercised in 2000. The record
does not reflect whether respondent has given consideration to
petitioners’ amended tax return for 2000 and their claim that
their original return contained an error. In sum, we hold that
section 6330(c)(2)(B) permits petitioners to challenge the
existence or amount of the tax liability reported on their
original income tax return because they have not received a
notice of deficiency for 2000 and they have not otherwise had an
opportunity to dispute the tax liability in question.5
5
We also observe that carving out self-assessed amounts
from the term “underlying tax liability” under sec.
6330(c)(2)(B), as respondent would have us do, does not comport
with the use of that term in sec. 6311 which deals with the
payment of tax by commercially acceptable means. Like sec. 6330,
it is another provision of the Code relating to collection.
Specifically, sec. 6311(d)(3)(A) provides in relevant part 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”. Similarly, sec. 6311(d)(3)(C)
provides in relevant part that “a payment of internal revenue
taxes * * * by use of a debit card shall not be subject to
section 908 of the Electronic Fund Transfer Act * * * if the
error alleged by the person is an error relating to the
underlying tax liability”. In both instances, use of the term
(continued...)
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Respondent asserts that it is nonsensical to permit
petitioners to challenge in a collection review proceeding the
very tax that they reported to be due (or “self-determined”) on
their original income tax return. We would not characterize an
opportunity for respondent to review the correct amount of
petitioners’ tax liability as nonsensical. As discussed above,
the controlling statutory language focuses on whether the person
had a prior opportunity to dispute the tax liability--and
petitioners have not had any such opportunity. Read in context,
and as applied in this case, section 6330(c)(2)(B) extends the
substantive and procedural protections of sections 6320 and 6330
to taxpayers who may have erred (in the Government’s favor) in
preparing and filing their tax returns. Given the complexity of
the Federal income tax laws, such taxpayer errors may well be
common. We conclude that section 6330(c)(2)(B) is fairly read as
providing a remedy to such taxpayers.
Respondent also urges that the legislative history of
section 6330(c)(2)(B) and principles of sovereign immunity
require that the provision be construed narrowly in the
Commissioner’s favor. We disagree. We see no ambiguity in the
plain language of section 6330(c)(2)(B) that would justify resort
to the legislative history for guidance in interpreting the
5
(...continued)
“underlying tax liability” in sec. 6311 patently includes self-
assessed amounts.
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provision. Moreover, we are not aware of any specific expression
of congressional intent in the legislative history that would bar
persons, such as petitioners, from raising a valid challenge to
the existence or amount of tax previously reported due on a tax
return. See Huntsberry v. Commissioner, 83 T.C. at 747-748.
Considering the plain language of the statute, we find
respondent’s reliance on principles of sovereign immunity equally
unavailing.
Our holding in this case advances the policies underlying
sections 6320 and 6330. Those sections were enacted to provide
taxpayers who have been notified that the Commissioner has filed
a lien or intends to collect unpaid taxes by levy with a final
opportunity to raise a spousal defense, offer an alternative
means of collection, and/or challenge the appropriateness of the
proposed collection action. Moreover, as pertinent herein,
Congress provided taxpayers who are confronted with a lien or
proposed levy, but who have not had a prior opportunity to
challenge the existence or amount of the tax liability in
question, with the opportunity to do so. In view of the
statutory scheme as a whole, we think the substantive and
procedural protections contained in sections 6320 and 6330
reflect congressional intent that the Commissioner should collect
the correct amount of tax, and do so by observing all applicable
laws and administrative procedures.
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To reflect the foregoing,
An order will be issued
denying respondent’s motion for
summary judgment.
Reviewed by the Court.
WELLS, COHEN, SWIFT, LARO, FOLEY, VASQUEZ, THORNTON, HAINES,
WHERRY, and KROUPA, JJ., agree with this majority opinion.
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WELLS, C.J., concurring: Respectfully, I write separately
to respond to the suggestion, raised by Judge Chiechi in her
opinion dissenting and concurring in part, that respondent’s
Motion for Summary Judgment should be denied on the narrow ground
that section 301.6330-1(e), Proced. & Admin. Regs., 67 Fed. Reg.
2555 (Jan. 18, 2002), is dispositive of the issue in the instant
case. The issue before us is whether section 6330(c)(2)(B)
permits a taxpayer to challenge in a lien and levy action in this
Court the existence or amount of tax that the taxpayer previously
reported due on his or her income tax return. The majority
concludes, and I believe correctly so, that the plain language of
section 6330(c)(2)(B) permits a taxpayer to raise such a
challenge.
Judge Chiechi, however, agrees with the result reached by
the majority only insofar as petitioners may challenge the
existence or amount of the tax liability specified in the “final
notice”. I believe the majority, based on its interpretation of
section 6330(c)(2)(B), correctly holds that petitioners may
challenge the entire amount of tax, penalties, and interest that
respondent assessed against them for the taxable year 2000.1
Section 301.6330-1(e), Proced. & Admin. Regs., quoted in
1
Petitioners not only challenge the $222,315.34 amount
specified in respondent’s final notice of intent to levy, but
they also contend that they overpaid their taxes in the amount of
$519,087.
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full in the majority opinion, is an interpretative regulation
that does nothing more than state a general proposition, to wit:
A taxpayer may challenge in a collection review proceeding the
existence or amount of the tax liability set forth in a final
lien or levy notice if the taxpayer did not receive a notice of
deficiency for such liability or did not otherwise have an
opportunity to dispute such liability. The regulation largely
tracks the language of section 6330(c)(2)(B), with the exception
that the term “underlying tax liability” contained in the statute
is in the regulation replaced by the phrase “the tax liability
specified on the CDP Notice”.
Nowhere in the parties' motion or opposition or written and
oral arguments have they cited or relied upon section 301.6330-
1(e), Proced. & Admin. Regs. I suggest that the reason for the
parties' failure to cite that regulation is that the proper
disposition of respondent’s motion depends upon the Court’s
statutory construction of section 6330(c)(2)(B).
In any event, the general rule espoused in the regulation is
in no way dispositive of the specific question whether section
6330(c)(2)(B) permits a taxpayer to challenge the existence or
amount of tax that was reported due on the taxpayer’s return. It
is respondent’s position in the instant case that tax reported
due on a return and assessed by respondent under section 6201
represents a unique assessment that Congress never intended to be
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subject to challenge under section 6330(c)(2)(B) (and by
implication section 301.6330-1(e), Proced. & Admin. Regs.).
Under the circumstances, I believe that it is incumbent upon this
Court to resolve the question the parties raised and argued by
analyzing the controlling statutory provision, as opposed to
relying upon a general statement appearing in an interpretative
regulation.
FOLEY, THORNTON, and KROUPA, JJ., agree with this concurring
opinion.
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LARO, J., concurring: I agree with the majority opinion.
I write separately to emphasize two points underlying that
opinion.
1. The Term “Underlying Tax Liability” Is Unambiguous
The relevant term, “underlying tax liability”, is clear and
unambiguous and is read easily to mean the tax liability
underlying the proposed levy. The beginning and end of our
inquiry, therefore, must be the statutory text, and we must apply
the plain meaning of that text. TVA v. Hill, 437 U.S. 153, 185
n.29 (1978); United States v. Am. Trucking Associations, 310 U.S.
534, 543 (1940). Only when text is “inescapably ambiguous” may
we resort to the legislative history to discern its meaning.
Garcia v. United States, 469 U.S. 70, 76 n.3 (1984). The meaning
of the relevant term is not inescapably ambiguous. Whereas
respondent essentially reads the relevant term to mean
“underlying tax deficiency”, Congress obviously knew how to use
the word “deficiency” and presumably would have used that word in
the relevant term had it intended the reading advocated by
respondent.
2. Legislative History Supports the Majority Opinion
Even if we were permitted to consult the legislative history
of section 6330(c)(2) to discern the meaning of the relevant
term, the legislative history supports interpreting the term in
accordance with its plain meaning. The history to section 6330,
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as stated in the committee reports and as discerned from the
setting in which that section was enacted, reveals that Congress
intended that a taxpayer be allowed under that section to dispute
a tax liability underlying a proposed levy whenever the taxpayer
did not have a prior opportunity to dispute that liability either
through the receipt of a notice of deficiency or otherwise.
The enactment of section 6330 followed more than a year of
Congressional investigations and hearings over the future of the
Internal Revenue Service (IRS), resulting in highly publicized
criticisms of the agency’s collection methods. Mesa Oil, Inc. v.
United States, 86 AFTR 2d 2000-7312, 2001-1 USTC par. 50,130 (D.
Colo. 2000). We know from the Senate report that the Senate
Finance Committee intended that section 6330 would establish
“formal procedures designed to insure due process where the IRS
seeks to collect taxes by levy”. S. Rept. 105-174, at 67 (1998),
1998-3 C.B. 537, 603. We also know from that report that the
committee believed that the addition of section 6330 would afford
to taxpayers in dealing with the IRS rights which were similar to
the rights afforded to all persons in dealing with any other
creditor. S. Rept. 105-174, supra at 67, 1998-3 C.B. at 603. To
this end, the committee declared, the Commissioner would by
virtue of section 6330 need henceforth to “afford taxpayers
adequate notice of collection activity and a meaningful hearing
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before the IRS deprives them of their property.” Id. The
committee believed that these procedures would “increase fairness
to taxpayers.” Id.
The history of section 6330(c)(2) also reveals that the
Administration had during the legislative process voiced its
concern to two Members of Congress that the relevant term
included self-assessed liabilities and that those liabilities
should not be included within the breadth of that section. See
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 Tax Notes Today, 98 TNT 112-41 (June 11, 1998);
letter from 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 Tax Notes
Today, 98 TNT 112-40 (June 11, 1998); cf. Statement of
Administration Policy, Office of Management and Budget (May 5,
1998), reprinted in Tax Notes Today, 98 TNT 87-18 (May 6, 1998).
The Administration wrote those letters after the Senate passed
the Senate’s version of section 6330, H.R. 2676, sec. 3401(b),
105th Cong., 2d Sess. (May 5, 1998), but before the conference
committee amended that version to read as enacted. The
conferees, however, opted not to change the relevant term to
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address the Administration’s stated concern. The Senate version
of section 6330(c)(2), see id., 144 Cong. Rec. S4163 (daily ed.
May 4, 1998), provided (emphasis added):
SEC. 6330(c)(2). Issues at hearing.--The person
may raise at the hearing any relevant issue relating to
the unpaid tax or the proposed levy, including--
(A) challenges to the underlying tax
liability as to existence and amount.
(B) appropriate spousal defenses,
(C) challenges to the appropriateness of
collection actions, and
(D) offers of collection alternatives,
which may include the posting of a bond, the
substitution of other assets, an installment
agreement, or an offer-in-compromise.
Section 6330 as enacted provided (emphasis added):
SEC. 6330(c)(2). Issues at hearing.
(A) In general. The person may raise at the
hearing any relevant issue relating to the unpaid tax
or the proposed levy, including
(i) appropriate spousal defenses;
(ii) challenges to the appropriateness
of collection actions; and
(iii) offers of collection alternatives,
which may include the posting of a bond, the
substitution of other assets, an installment
agreement, or an offer-in-compromise.
(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.
- 25 -
As to the emphasized language, the conference report states:
The conference agreement includes a modified form
of the Senate amendment. The IRS would be required to
provide the taxpayer with a “Notice of Intent to Levy,”
formally stating its intention to collect a tax
liability by levy against the taxpayer’s property or
rights to property. * * *
* * * In general, any issue that is relevant to the
appropriateness of the proposed collection against the
taxpayer can be raised at the pre-levy hearing. For
example, the taxpayer can request innocent spouse
status, make an offer-in-compromise, request an
installment agreement or suggest which assets should be
used to satisfy the tax liability. 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. [H. Conf. Rept.
105-599, at 265 (1998), 1998-3 C.B. 1019; emphasis
added.]
The conferees’ use of the term “tax liability” in both places is
consistent with a plain meaning application and is inconsistent
with the position taken by respondent in this case.
FOLEY, J., agrees with this concurring opinion.
- 26 -
GALE, J., concurring: I agree with result reached by the
majority. I write separately to address respondent’s contention
that the legislative history supports an interpretation of
section 6330(c)(2)(B) that precludes a taxpayer’s ability to
dispute a tax liability reported on the return (a self-reported
or “self-assessed” liability) in a section 6330 proceeding.
Assuming that the language of section 6330(c)(2)(B) contains
sufficient ambiguity to justify resort to the legislative
history, that history offers little support for respondent’s
position and indeed suggests the contrary.
Section 6330 originated in section 3401 of the Senate
version of H.R. 2676, the bill that, after amendment, was enacted
as the Internal Revenue Service Restructuring and Reform Act of
1998, Pub. L. 105-206, 112 Stat. 747. The predecessor of section
6330(c)(2)(B) in the Senate version provided without limitation
that a taxpayer could raise in a section 6330 proceeding
“challenges to the underlying tax liability as to existence or
amount”. H.R. 2676, sec. 3401(b), 105th Cong., 2d Sess. (1998),
144 Cong. Rec. S4163 (daily ed. May 4, 1998).
The expansive Senate version provoked a critical response
from the Treasury Department and other representatives of the
executive branch concerned with its overbreadth. An OMB
Statement of Administration Policy issued after the Senate
Finance Committee reported the Senate version, and a letter from
- 27 -
the Treasury Secretary sent to the Chairman of the House Ways &
Means Committee (after Senate passage, with respect to the House-
Senate conference on the legislation), both identified two
principal concerns of overbreadth; namely, that under the Senate
version a taxpayer could dispute, in a section 6330 proceeding,
(i) tax liabilities that had been previously litigated or (ii)
tax liabilities that had been self-assessed. See Statement of
Administration Policy, Executive Office of the President (Office
of Management and Budget), on H.R. 2676 – Internal Revenue
Service Restructuring and Reform Act (Reported by the Senate
Committee on Finance)(May 5, 1998),1 reprinted in Tax Notes
Today, 98 TNT 87-18 (May 6, 1998); letter from Robert E. Rubin,
Secretary of the Treasury to William Archer, Chairman, Committee
1
The OMB Statement of Administration Policy states:
However, some of the new procedural provisions in the
reported bill may unintentionally make it easier for
noncompliant taxpayers to avoid paying their fair share
of taxes. For example, the bill would allow additional
appeals and court challenges before the IRS can collect
tax from a taxpayer who refuses to pay, even if the
taxpayer has voluntarily self-assessed the amount due
or a court has held that the taxpayer owes the tax.
[Emphasis added.]
- 28 -
on Ways & Means, U.S. House of Representatives (June 2, 1998),2
reprinted in Tax Notes Today, 98 TNT 112-40 (June 11, 1998).
The final version of the legislation devised by the
conference committee added the following (emphasized) limiting
language in section 6330(c)(2)(B):
SEC. 6330(c)(2). Issues at hearing.
* * * * * * *
(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. [Emphasis added.]
I would submit that it is clear that the conferees, in adding
this limiting language to the statute, intended to address the
expressed concern about a taxpayer’s ability to dispute
previously litigated tax liabilities in a section 6330
proceeding. The new language is directed specifically at a
taxpayer’s previous opportunities for dispute, either by having
been afforded an opportunity for a deficiency proceeding or
2
Treasury Secretary Rubin’s letter states:
The Senate bill provides taxpayers with additional
advance notification and appeal rights prior to levy
* * *. * * * The appeal right in levy cases would
enable taxpayers to litigate the same tax liability
repeatedly * * *. The provision would change the
entire collections process, including the process for
many taxpayers who have self-assessed their tax
liability but not paid in full * * *. [Emphasis added.]
- 29 -
otherwise (as, for example, in the case of taxes not eligible for
deficiency proceedings). But one cannot as readily infer from
the statutory modifications an intention to foreclose
consideration of self-assessed liabilities in a section 6330
proceeding. The report of the conference committee is similarly
opaque, lacking any specific indication that the conferees
intended to address the concern expressed about allowing
taxpayers to dispute self-assessed liabilities in a section 6330
proceeding. The only reference in the report to the newly added
limiting language of the statute is a single sentence that
closely tracks the statute.
In general, any issue that is relevant to the
appropriateness of the proposed collection against the
taxpayer can be raised at the pre-levy hearing. * * *
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.
[H. Conf. Rept. 105-599, at 265 (1998), 1998-3 C.B.
747, 1019; emphasis added.]
These aspects of the legislative history, rather than
offering any support for respondent’s position, give rise to a
negative inference concerning Congress’s intention to foreclose
review of self-assessed liabilities in section 6330 proceedings.
Having been advised of the executive branch’s concern about
allowing taxpayers to dispute self-assessed liabilities in
section 6330 proceedings, the conferees’ failure to refer to
self-assessed amounts when modifying the provision at issue, in
- 30 -
either the statute itself or the conference report, suggests that
they chose not to address this particular concern.
SWIFT, LARO, FOLEY, MARVEL, and WHERRY, JJ., agree with this
concurring opinion.
- 31 -
MARVEL, J., concurring: I agree with the majority that
respondent’s motion for summary judgment must be denied in this
case. There are several reasons for doing so, including the
reasons set forth in the majority opinion. I believe, however,
that the facts of this case raise a serious factual issue as to
whether the taxpayers received the hearing mandated by section
6330, and on this ground alone, I would deny respondent’s motion.
The majority opinion states that, on April 18, 2002,
petitioners submitted a request for an administrative hearing.
In the letter accompanying the request, petitioners’
representative advised the Internal Revenue Service that
petitioners intended to file an amended income tax return to
“more appropriately report the exercise of the incentive and
nonqualified stock options” that gave rise to petitioners’ unpaid
tax liability for 2000. Petitioners’ representative also
challenged the appropriateness of the proposed levy, indicated
that the levy would cause irreparable harm to petititoners, and
stated that there were reasonable collection alternatives.
Appeals Officer Johnson had a conversation with petitioners’
representative on July 22, 2002, in which he agreed that
petitioners would be permitted to submit the amended return, but
he did not set any deadline for doing so. On September 26, 2002,
without any further notice to petitioners and apparently without
holding the required hearing, the Appeals Office issued to
- 32 -
petitioners a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330.
These facts raise a material issue of fact regarding whether
or not petitioners received the hearing to which they were
entitled under section 6330. Section 6330 requires that a
taxpayer who timely requests a hearing receive a hearing. In
this case, petitioners were not only challenging the underlying
tax liability, but they were also challenging the reasonableness
of the proposed levy and had clearly stated their desire to
explore collection alternatives at the section 6330 hearing. The
issuance of the notice of determination without any warning to
petitioners and without any hearing deprived petitioners of the
opportunity to present, and receive a determination on, all
relevant issues as required by section 6330(c)(2) and (3).
If, instead of precipitously issuing the notice of
determination, the Appeals Office had notified petitioners that
it was rescheduling the hearing that was originally scheduled for
July 25, 2002, petitioners would have had fair warning and could
have prepared to present all of their issues at the hearing,
including those related to the underlying tax liability. As it
turned out, petitioners submitted their amended return,
reflecting that they were due a refund of $519,087, on October
11, 2002.
Taxpayers who assert that they intend to file an amended
- 33 -
return for the first time in connection with a hearing under
section 6320 or 6330 should not take solace from the majority
opinion. The majority opinion addresses a case in which the
petitioners apparently demonstrated to the Appeals Office that
they were serious about filing an amended return and that they
had substantial reasons for doing so, because the Appeals Office
agreed to give petitioners time to file their amended return. A
taxpayer who procrastinates and seeks to rely solely on his
announced intention to file an amended return as a defense to a
proposed levy or lien in a section 6320/6330 hearing or in a
section 6320/6330 proceeding before this Court proceeds at his
peril as his undocumented intention is not likely to be viewed as
a credible challenge to the underlying tax liability.
HAINES, GOEKE, and WHERRY, JJ., agree with this concurring
opinion.
- 34 -
GOEKE, J., concurring in result: I agree with the result
reached by the majority and its interpretation of the term
“underlying tax liability”. I write separately to clarify the
significance of petitioners’ amended return.
Under section 6330(c)(2)(B), petitioners were permitted to
raise at the hearing challenges to the existence or amount of
their underlying tax liability. Petitioners raised a challenge
to the amount of their underlying liability and the parties
agreed that petitioners would be permitted to submit an amended
return reflecting their position. The Appeals officer abruptly
issued the notice of determination. Petitioners subsequently
submitted an amended return. I believe that if petitioners had
been given a reasonable opportunity to challenge the amount of
their underlying liability during the hearing process (e.g., by
filing an amended return) and they had failed to do so, then we
should not review the underlying tax liability because it was not
properly raised at the hearing, but in this case they were not
given the opportunity to challenge their underlying liability, so
the hearing was inadequate.
This situation is analogous to offers in compromise (OIC).
Before an OIC can be considered, the taxpayer must submit current
financial information. Moorhous v. Commissioner, T.C. Memo.
2003-183; see also Rodriguez v. Commissioner, T.C. Memo. 2003-153
(finding that the Appeals officer did not abuse his discretion in
- 35 -
not considering OIC where all required returns had not been
filed). Without this information, the Appeals officer cannot
properly consider the OIC. Likewise, a taxpayer desiring to
challenge the existence or amount of the underlying tax liability
who has not previously filed an amended return should generally
be required to file an amended return in conjunction with the
hearing if such amended return is requested by the Appeals
officer in order to satisfy the requirement that the liability be
at issue at the hearing.
Although petitioners’ amended return reflects that they are
due a refund of $519,087, I do not interpret the majority as
implying that we have the authority to order a refund if
petitioners establish that they have overpaid their 2000 taxes.
Our jurisdiction under section 6330 is limited to deciding
whether respondent can proceed with the proposed collection
action. Accordingly, we would need only decide whether
petitioners’ 2000 tax liability is equal to or less than the
amount they previously paid for the year.
HAINES and WHERRY, JJ., agree with this concurring opinion.
- 36 -
GERBER, J., dissenting: With due respect, I dissent from
the holding of the majority. I agree that the majority’s literal
reading of the phrase, “underlying tax liability”, is one
possible way to interpret that phrase. It is my view, however,
that the phrase “underlying tax liability”, when considered in
the context of section 6330 and specifically in context of
section 6330(c)(2)(B), could also be read to not include a tax
liability that a taxpayer has reported and admitted was owing.
The intent of the statute was to give a taxpayer the right
to challenge the “underlying tax liability * * * if the
[taxpayer] * * * did not otherwise have an opportunity to
dispute such tax liability.” Sec. 6330(c)(2)(B)(emphasis added).
That phrase should not be interpreted to mean that a person could
contest their own judgment as to the correct tax. The
opportunity to contest tax liabilities is, without exception,
granted by statute.1 If a person files a tax return and self-
assesses or admits to owing a tax liability, but fails to pay the
admitted liability, the statutory opportunity to contest such
liability has traditionally been through a refund suit.2
1
It is well established that the United States is immune
from suit except where Congress by specific statute has waived
its sovereign immunity. See, e.g., United States v. Sherwood,
312 U.S. 584, 586 (1941).
2
We must distinguish the circumstances we consider from
deficiency proceedings where we have authority to consider
overpayments. See sec. 6512(b). A proceeding under section 6330
(continued...)
- 37 -
Normally, with respect to an income tax liability, the right to
sue for a refund requires full payment of the disputed liability.
Under the majority’s reading of section 6330(c)(2)(B), there
would be no such requirement for payment prior to being able to
contest the underlying merits of a self-assessed amount in the
context of a section 6330 hearing before this Court.
The majority’s interpretation results in a dramatic and
improbable change from more than 75 years of established tax
litigation procedure and precedent. If Congress had intended
such a dramatic change, it certainly would have made some
reference or modification to the existing statutory framework for
refund claims and/or suits.
Finally, I find it inconceivable that Congress intended that
taxpayers who filed returns admitting that they owed tax are to
be given the opportunity to contest their own “assessment” of the
tax due, when the respondent seeks to collect it. It is my view
that Congress intended to ensure that taxpayers had certain
rights with respect to the collection process and to permit them
to contest any changes respondent proposed,3 if they had not
already had the opportunity to do so.
CHIECHI, J., agrees with this dissenting opinion.
2
(...continued)
is not a deficiency proceeding.
3
Including respondent’s proposed changes from a taxpayer’s
self-assessed tax liability.
- 38 -
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. 11. 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.
1
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.
- 39 -
II. Section 301.6330-1(e), Proced. & Admin. Regs.
Before proceeding, it is necessary to comment on the
majority’s disposition of section 301.6330-1(e), Proced. & Admin.
Regs., set forth in pertinent part on page 9 of the majority’s
opinion. Subsection (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
subsection (e)(3), Q&A-E2 (similar).2 The pertinent language of
subsection (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
2
Sec. 301.6320-1(e)(1), (3), Q&A-E2, Proced. & Admin.
Regs., is similar but relates to liens rather than levies.
- 40 -
$222,315.34. Majority op. p. 3. 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 dispositive 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
3
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.
- 41 -
resolve the dispute in front of us on the basis of section
301.6330-1(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. 7-8. Putting aside section
301.6330-1(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
4
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).
5
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
(continued...)
- 42 -
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
5
(...continued)
“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).
6
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. 301.6330-1(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.
- 43 -
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. 11-12.7
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
7
On p. 12, 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.
- 44 -
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
8
For an example of a composite liability where the
taxpayer did not ignore the notice of deficiency, see Fayeghi v.
Commissioner, supra.
- 45 -
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. 12. 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
9
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.”
- 46 -
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
10
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).
- 47 -
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.
11
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. 301.6330-1(e)(1), (3), Proced. & Admin. Regs.), then such
interpretation presents similar ambiguities to those discussed in
the text.
12
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.
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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.
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
13
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.
14
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
(continued...)
- 49 -
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
14
(...continued)
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.
15
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).
- 50 -
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
16
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).
- 51 -
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 provides: “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
- 52 -
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,
17
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”).
18
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
redetermination 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.
19
I 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);
(continued...)
- 53 -
putting aside section 301.6330-1(e)(1), (3), Proced. & Admin.
Regs., the reported but unpaid tax here in question is not
properly at issue.20
19
(...continued)
Hoffman v. Commissioner, 119 T.C. 140, 145 (2002) (same in the
context of interest and penalties attributable to a self-assessed
liability).
20
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.
- 54 -
CHIECHI, J., dissenting in part and concurring in part: I
dissent from the holding and rationale of the majority opinion.
I concur with the majority opinion only to the extent that the
majority opinion results in allowing petitioners to challenge the
existence or the amount of the tax liability specified in the
final notice--notice of intent to levy and notice of your right
to a hearing (notice of intent to levy) with respect to their
taxable year 2000.1 The foregoing result is the only proper
result in the instant case because the following regulations,
which bind respondent, require it:
(e) Matters considered at CDP hearing--(1) In
general. * * * The taxpayer also may raise challenges
to the existence or amount of the tax liability
specified on the CDP Notice for any tax period shown 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. * * *
* * * * * * *
(3) Questions and answers. The questions and
answers illustrate the provisions of this paragraph (e)
as follows:
* * * * * * *
1
The notice of intent to levy specified that petitioners had
a total tax liability for 2000 of $222,315.34. That liability
consisted of the tax due, penalties, and interest thereon,
totaling $213,495, which petitioners reported in their Federal
income tax return for 2000 that they filed on or about Oct. 18,
2001, and which respondent assessed, plus any penalties as well
as interest on the total liability accruing after Oct. 18, 2001,
and before Mar. 19, 2002, the date on which respondent issued the
notice of intent to levy with respect to petitioners’ taxable
year 2000.
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Q-E2. When is a taxpayer entitled to challenge
the existence or amount of the tax liability specified
in the CDP Notice?
A-E2. A taxpayer is entitled to challenge the
existence or amount of the tax liability specified in
the CDP Notice if the taxpayer did not receive a
statutory notice of deficiency for such liability or
did not otherwise have an opportunity to dispute such
liability. * * * [Sec. 301.6330-1(e)(1), (3) Q&A-E2,
Proced. & Admin. Regs.; emphasis added.]
HOLMES, J., agrees with this dissenting in part and
concurring in part opinion.