Keller Tank Services II, Inc. v. Commissioner

FILED
United States Court of Appeals
PUBLISH Tenth Circuit

UNITED STATES COURT OF APPEALS April 20, 2017

Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________

KELLER TANK SERVICES II, INC.,

Petitioner - Appellant,

v. No. 16-9001

COMMISSIONER OF INTERNAL
REVENUE,

Respondent - Appellee.
_________________________________

ORDER
_________________________________

Before HOLMES, MATHESON, and McHUGH, Circuit Judges.
_________________________________

This matter is before us on Appellee’s Motion to Amend Opinion to Clarify

Authority of IRS Office of Appeals over Rescission of I.R.C. § 6707A Penalties. Upon

careful consideration, the motion is granted. The court’s February 21, 2017 opinion is

withdrawn and replaced by the attached revised opinion.

Entered for the Court,

ELISABETH A. SHUMAKER, Clerk

by: Chris Wolpert
Chief Deputy Clerk
 FILED
United States Court of Appeals
PUBLISH Tenth Circuit

UNITED STATES COURT OF APPEALS February 21, 2017

Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT
Clerk of Court
_________________________________

KELLER TANK SERVICES II, INC.,

Petitioner - Appellant,

v. No. 16-9001

COMMISSIONER OF INTERNAL
REVENUE,

Respondent - Appellee.
_________________________________

APPEAL FROM THE COMMISSIONER OF INTERNAL REVENUE
(CIR No. 11611-14 L)
_________________________________

A. Lavar Taylor, A. Lavar Taylor Law Offices, Santa Ana, California (Jonathan T.
Amitrano, A. Lavar Taylor Law Offices, Santa Ana, California; Allen J. White, Allen J.
White & Associates, Downers Grove, Illinois; and William Wise, Wise & Stracks,
Chicago, Illinois, with him on the briefs), appearing for Appellant.

Jennifer M. Rubin, Attorney, Tax Division (Caroline D. Ciraolo, Principal Deputy
Assistant Attorney General; Diana L. Erbsen, Deputy Assistant Attorney General; Gilbert
S. Rothenberg, Attorney, Tax Division; and Michael J. Haungs, Attorney, Tax Division,
with her on the brief), United States Department of Justice, Washington, DC, appearing
for Appellee.
_________________________________

Before HOLMES, MATHESON, and McHUGH, Circuit Judges.
_________________________________

MATHESON, Circuit Judge.
_________________________________
 In this appeal, we address whether a taxpayer may challenge a tax penalty in a

Collection Due Process hearing (“CDP hearing”) after already having challenged the

penalty in the Appeals Office of the Internal Revenue Service (“IRS”).

Keller Tank Services II, Inc. (“Keller”), the taxpayer, participated in an employee

benefit plan and took deductions for its contributions to the plan. The IRS notified Keller

of (1) a tax penalty of $57,782 for failure to report its participation in the plan as a “listed

transaction” on its 2007 tax return, and (2) an income tax deficiency and related penalties

for improper deductions of payments to the plan. This case is about the $57,782 penalty

and Keller’s efforts to challenge it.

As more fully described below, Keller protested the tax penalty at the IRS Appeals

Office. It then attempted to do so in a CDP hearing but was rebuffed because it already

had challenged the penalty at the Appeals Office. Keller appealed the CDP decision to

the Tax Court, which granted summary judgment to the Commissioner of Internal

Revenue (“Commissioner”). Keller appeals that decision here. Exercising jurisdiction

under 26 U.S.C. § 7482(a)(1), we affirm.

I. BACKGROUND

To aid the reader, we provide definitions of various terms, set forth the pertinent

statutes and regulation, and offer a brief overview of the relevant tax enforcement process

and administrative structure. We then turn to the factual and procedural history of this

case.

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 A. Terms, Statutes, and Regulation

1. Key Terms

The following terms are used throughout the opinion and first appear in the order

presented here.1

 Commissioner: the Commissioner of Internal Revenue is nominated by the
President and confirmed by the Senate, and has the duty to administer, manage,
conduct, direct, and supervise the execution and application of internal revenue
laws. Lawsuits by and against the IRS are conducted in the name of the
Commissioner, and are litigated by counsel of the IRS.

 Liability: amount owed by a taxpayer under the tax laws. As used in this
opinion, a liability may be a penalty or deficiency.

 Deficiency: the amount by which the tax value imposed by the IRS exceeds
the amount reported by the taxpayer on its return. The IRS’s determination of
a deficiency is a provisional determination. Accordingly, a notice of
deficiency affords the taxpayer a right to prepayment judicial review by the
Tax Court before the IRS assesses and collects the liability. The IRS cannot
attempt to collect the deficiency until the notice of deficiency has been mailed
to the taxpayer and the taxpayer has been given 90 days to file a petition in the
Tax Court. 26 U.S.C. § 6213.

 Penalty: imposed on taxpayers by the IRS to encourage compliance with tax
laws. Certain penalties are considered assessable, which means the IRS may
assess them without providing an opportunity for prepayment judicial review
by the Tax Court. The penalty provision relevant to this case is § 6707A,
which imposes a penalty for failing to report transactions classified as
“reportable,” including “listed” transactions. 26 U.S.C. § 6707A(b)(2). A
§ 6707A penalty may be imposed for failure to report regardless of whether a
deficiency results. Internal Revenue Manual 4.32.4.1.1 ¶ 3.

 Reportable Transaction: a transaction that must be disclosed on a taxpayer’s
return because the Secretary of Treasury (“Secretary”) has determined that type
of transaction has potential for tax avoidance or evasion. The maximum
penalty for failure to report a reportable transaction, other than a listed
transaction, is $50,000 for a corporation. 26 U.S.C. § 6707A(b)-(c).
1
Unless otherwise specified, all definitions are from Michael I. Saltzman and
Leslie Book, IRS Prac. & Proc. (2016).
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 Listed Transaction: a type of reportable transaction that is the same as, or
substantially similar to, a transaction specifically identified by the Secretary as
a tax avoidance transaction. The Secretary identifies listed transactions in
notices or other published guidance. The maximum penalty for failing to
report a listed transaction is $200,000 for a corporation. 26 U.S.C.
§ 6707A(b)-(c).

 Assessment: the formal recording and establishment of a taxpayer’s liability,
fixing the amount owed by the taxpayer. The assessment is effectively a
judgment and triggers the IRS’s ability to collect on the liability via lien or
levy.

 Levy: after a liability has been assessed, certain procedural requirements have
been met, and the taxpayer has neglected or refused to pay the assessed tax, the
IRS may attach, or encumber, the taxpayer’s property to seize and sell it as “a
prompt and convenient method for satisfying delinquent tax claims.” United
States v. Nat’l Bank of Commerce, 472 U.S. 713, 736 (1985) (quotations
omitted). This process is called a “levy.”

 Rescission Request: the taxpayer may request the Commissioner to rescind all
or part of a penalty imposed under § 6707A for a non-listed reportable
transaction if doing so would promote compliance with the tax laws and
effective tax administration. The Commissioner, however, may not rescind a
penalty for a listed transaction. No judicial review is available for the decision
to grant or deny rescission. 26 U.S.C. § 6707A(d)(2).

 IRS Appeals Office: the administrative dispute resolution body of the IRS that
resolves tax controversies without litigation. The 1998 IRS Restructuring and
Reform Act emphasized that the Appeals Office must be an independent
bureau of the IRS and be impartial to the government and taxpayer. See
Robert v. United States, 364 F.3d 988, 990 (8th Cir. 2004).

 Collection Due Process (“CDP”) Hearing: the procedure created by the 1998
IRS Restructuring and Reform Act to control overreaching in the IRS’s
collection activities. When the IRS decides to collect a liability through a lien
or levy, taxpayers first receive an opportunity to contest the collection through
an administrative CDP hearing before a CDP hearing officer (an independent
employee of the Appeals Office). The CDP hearing officer must have had no
prior involvement with the taxpayer. Section 6330 outlines the CDP hearing
procedures required before a levy may be made. 26 U.S.C. § 6330.

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  Tax Court: a specialized court established by Congress under Article I of the
Constitution to conduct prepayment judicial review of deficiencies. The Tax
Court also may review certain other administrative determinations by the IRS.
See, e.g., 26 U.S.C. § 6330.

 Refund suit: a lawsuit brought by a taxpayer seeking a refund of a paid
liability alleged to be unlawfully collected. To challenge the IRS’s assessment
in a refund suit, the taxpayer must first pay the full amount of the tax liability
and file a claim for refund with the IRS. If the IRS issues an adverse decision,
the taxpayer may then institute a tax refund suit in either a federal district court
or the U.S. Court of Federal Claims.

2. Key Statutes and Regulation

The following statutes and regulation are the primary legal materials

applicable to this appeal.

a. 26 U.S.C. § 6707A: Penalty for failure to include reportable transaction
information with return

(a) Imposition of penalty
Any person who fails to include on any return or statement any information
with respect to a reportable transaction which is required under section 6011 to
be included with such return or statement shall pay a penalty in the amount
determined under subsection (b).

(b) Amount of penalty
(1) In general
Except as otherwise provided in this subsection, the amount of the
penalty under subsection (a) with respect to any reportable transaction
shall be 75 percent of the decrease in tax shown on the return as a result
of such transaction (or which would have resulted from such transaction
if such transaction were respected for Federal tax purposes).
(2) Maximum penalty
The amount of the penalty under subsection (a) with respect to any
reportable transaction shall not exceed—
(A) in the case of a listed transaction, $200,000 ($100,000 in the
case of a natural person), or
(B) in the case of any other reportable transaction, $50,000
($10,000 in the case of a natural person).
(3) Minimum penalty
The amount of the penalty under subsection (a) with respect to any
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 transaction shall not be less than $10,000 ($5,000 in the case of a
natural person).

(c) Definitions
For purposes of this section:
(1) Reportable transaction
The term “reportable transaction” means any transaction with respect to
which information is required to be included with a return or statement
because, as determined under regulations prescribed under section 6011,
such transaction is of a type which the Secretary determines as having a
potential for tax avoidance or evasion.
(2) Listed transaction
The term “listed transaction” means a reportable transaction which is
the same as, or substantially similar to, a transaction specifically
identified by the Secretary as a tax avoidance transaction for purposes
of section 6011.

(d) Authority to rescind penalty
(1) In general
The Commissioner of Internal Revenue may rescind all or any portion
of any penalty imposed by this section with respect to any violation if—
(A) the violation is with respect to a reportable transaction other
than a listed transaction, and
(B) rescinding the penalty would promote compliance with the
requirements of this title and effective tax administration.
(2) No judicial appeal
Notwithstanding any other provision of law, any determination under
this subsection may not be reviewed in any judicial proceeding.

b. 26 U.S.C. § 6330: Notice and opportunity for [a CDP] hearing before levy

 26 U.S.C. § 6330(c)(2)(B) (“¶ (c)(2)(B)”):
(c) Matters considered at hearing
In the case of any hearing conducted under this section—
****
(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
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 (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.

 26 U.S.C. § 6330(c)(4)(A) (“¶ (c)(4)(A)”):
(c) Matters considered at hearing
In the case of any hearing conducted under this section—
****
(4) Certain issues precluded
An issue may not be raised at the hearing if—

(A)(i) the issue was raised and considered at a previous
hearing under section 6320 or in any other previous
administrative or judicial proceeding; and
(ii) the person seeking to raise the issue participated
meaningfully in such hearing or proceeding; or

(B) the issue meets the requirement of clause (i) or (ii) of
section 6702(b)(2)(A).

 26 U.S.C. § 6330(d):
(d) Proceeding after hearing

(1) Petition for review by Tax Court
The person may, within 30 days of a determination under this
section, petition the Tax Court for review of such determination (and
the Tax Court shall have jurisdiction with respect to such matter).
****
(3) Jurisdiction retained at IRS Office of Appeals
The Internal Revenue Service Office of Appeals shall retain
jurisdiction with respect to any determination made under this
section, including subsequent hearings requested by the person who
requested the original hearing on issues regarding—
(A) collection actions taken or proposed with respect to such
determination; and
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 (B) after the person has exhausted all administrative
remedies, a change in circumstances with respect to such
person which affects such determination.

c. 26 C.F.R. § 301.6320-1(“Treas. Reg. § 301.6320-1”): Notice and opportunity
for [a CDP] hearing upon filing of notice of Federal tax lien

 Treas. Reg. § 301.6320-1(e)(3):
(e) Matters considered at CDP hearing—(1) In general. . . . Appeals has the
authority to determine the validity, sufficiency, and timeliness of any CDP
Notice given by the IRS and of any request for a CDP hearing that is made
by a taxpayer. . . . The taxpayer may raise any relevant issue relating to the
unpaid tax at the hearing, including appropriate spousal defenses,
challenges to the appropriateness of the [proposed levy], and offers of
collection alternatives. The taxpayer also may raise challenges to the
existence or amount of the underlying liability, including a liability
reported on a self-filed return, for any tax period 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 the tax
liability. Finally, the taxpayer may not raise an issue that was raised and
considered at a previous CDP hearing under section 6330 or in any other
previous administrative or judicial proceeding if the taxpayer participated
meaningfully in such hearing or proceeding. Taxpayers will be expected to
provide all relevant information requested by Appeals, including financial
statements, for its consideration of the facts and issues involved in the
hearing.
****
(3) Questions and answers.
****

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 underlying liability for any tax period specified
on 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. Receipt of a
statutory notice of deficiency for this purpose means receipt
in time to petition the Tax Court for a redetermination of the
deficiency determined in the notice of deficiency. An
opportunity to dispute the underlying liability includes a prior
opportunity for a conference with Appeals that was offered
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 either before or after the assessment of the liability. An
opportunity for a conference with Appeals prior to the
assessment of a tax subject to deficiency procedures is not a
prior opportunity for this purpose.

B. Legal and Administrative Background

The Internal Revenue Code (“Code” or “IRC”) requires taxpayers to file returns in

the manner prescribed by the IRS. 26 U.S.C. § 6011(a). The Code directs the

Secretary—acting through the IRS—to determine, assess, and collect federal taxes. See

id. §§ 6201(a), 6301. Under this authority, the Secretary has established a procedure for

the IRS to assess and collect penalties and deficiencies, and methods for the taxpayer to

dispute these liabilities.

1. Section 6707A Penalty and Administrative Procedure

Section 6707A of the Code, titled “Penalty for Failure to Include Reportable

Transaction Information with Return,” authorizes the imposition of a penalty on

taxpayers who fail to disclose information on their tax returns regarding “reportable”

transactions, including “listed” transactions. Id. § 6707A.

Penalties under § 6707A are not subject to the procedures the IRS has afforded for

deficiencies because they do not depend upon a deficiency; they are imposed solely for

the failure to disclose, even in cases involving an overpayment of tax. Smith v. Comm’r,

133 T.C. 424, 428-29 (2009). Because § 6707A penalties are not subject to deficiency

procedures, the taxpayer may not directly appeal a penalty to the Tax Court. See

Bartman v. Comm’r, 446 F.3d 785, 787 (8th Cir. 2006) (stating “[a] notice of deficiency

issued by the IRS pursuant to § 6212 is the taxpayer's jurisdictional ‘ticket to the Tax

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Court.’” (citations omitted)); Spector v. Comm’r, 790 F.2d 51, 52 (8th Cir. 1986) (citing

Laing v. United States, 423 U.S. 161, 165 n.4 (1976)) (stating “the determination of a

deficiency and the issuance of a notice of deficiency is an absolute precondition to tax

court jurisdiction”).

Thus, contesting a § 6707A penalty takes a different course. Once an IRS

examiner proposes and receives approval from the IRS Territory Manager to impose a

penalty for failing to report a reportable transaction, the examiner issues a “30-day

Letter” before formally assessing the penalty. Internal Revenue Manual at 4.32.4.4. The

taxpayer has 30 days to agree to or protest the penalty to the Appeals Office after

receiving the “30-day Letter.” Id. In response to the taxpayer’s protest, the IRS offers

the taxpayer a pre-assessment review of the proposed § 6707A penalty by an IRS

Appeals Officer “[i]f possible.” See id. at 4.32.4.6. If a pre-assessment review is not

possible, the taxpayer is offered a post-assessment review. Id. The Appeals Officer may

decide to abate or approve collection of the penalty. Id. at 4.32.4.8, 4.32.4.9.

2. Collection Due Process (“CDP”) Hearings

Once the IRS decides to levy to collect a penalty, it must notify the taxpayer in

writing of the right to a hearing under § 6330(a)(1), called a CDP hearing. Congress

created the CDP process as part of the 1998 IRS Restructuring and Reform Act, a

“Taxpayer Bill of Rights” aimed to curb abuse of taxpayers. See Dalton v. Comm’r, 682

F.3d 149, 154 (1st Cir. 2012); Tucker v. Comm’r, 676 F.3d 1129, 1131 (D.C. Cir. 2012).

a. The 1998 IRS Restructuring and Reform Act and the CDP Process

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 Before 1998, the IRS could reach a taxpayer’s assets by lien or levy without

providing the taxpayer any process before the amount owed by the taxpayer was assessed

and collected. Dalton, 682 F.3d at 154. Congress created the CDP process to afford

taxpayers a pre-deprivation opportunity to contest the lien or levy before the IRS

proceeded with collection. Id. at 154-55. At the CDP hearing, the taxpayer may

challenge the propriety of a pending lien or levy, verify that collection is appropriate, and

offer alternatives to collection. Tucker, 676 F.3d at 1131.

CDP hearings take place in the Appeals Office. Id.; Gyorgy v. Comm’r, 779 F.3d

466, 472 (7th Cir. 2015). The Appeals Officer presiding over the hearing represents the

IRS and must have had no prior involvement with the liability at issue. Tucker, 676 F.3d

at 1131. CDP proceedings “are informal and may be conducted via correspondence, over

the phone or face to face.” Living Care Alts. of Utica, Inc. v. United States, 411 F.3d

621, 624 (6th Cir. 2005). No transcript, recording, or other direct documentation of the

proceeding is required. Id.

At the hearing, the Appeals Officer must do three things:

1) conduct a verification that the IRS has met all legal requirements and fulfilled
its procedural obligations to move forward with the lien or levy, 2) consider
defenses and collection alternatives proffered by the taxpayer and [] 3) make a
determination that the “proposed collection action balances the need for the
efficient collection of taxes with the legitimate concern of the person that any
collection action be no more intrusive than necessary.”

Id. at 624-25 (emphasis omitted) (quoting 26 U.S.C. § 6330(c)(3)).

b. Matters Raised at the CDP Hearing

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 The 1998 IRS Restructuring and Reform Act lists the issues the taxpayer may

raise at the CDP hearing. The taxpayer may challenge its 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.” 26 U.S.C. § 6330(c)(2)(B)

(“¶ (c)(2)(B)”). Notably, the taxpayer need only have received an opportunity to dispute

its tax liability. Whether it took advantage of that opportunity is irrelevant. Thus, a

taxpayer is precluded from challenging liability at a CDP hearing when the taxpayer was

afforded, but failed to take advantage of, a prior opportunity to dispute the liability. See,

e.g., Chandler v. Comm’r, 327 F. App’x 763, 766 (10th Cir. 2009) (unpublished),2 Abu-

Awad v. United States, 294 F. Supp. 2d 879, 887-88 (S.D. Tex. 2003), Pelliccio v. United

States, 253 F. Supp. 2d 258, 261-62 (D. Conn. 2003).

The taxpayer may raise any other relevant “issue” relating to the unpaid tax—

including, but not limited to, challenges to the appropriateness of collection actions, and

alternative collection options—so long as the issue was not raised and considered in a

prior administrative or judicial proceeding where the taxpayer meaningfully participated.

26 U.S.C. § 6330(c)(4)(A) (“¶ (c)(4)(A)”).

c. Appealing the CDP Hearing’s Findings and Conclusions

After the CDP hearing, the Appeals Office decides whether it is reasonable to

proceed with the intended collection action and issues a notice of determination

2
Although not precedential, we find the reasoning of the unpublished cases
cited in this opinion instructive. See 10th Cir. R. 32.1 (“Unpublished decisions are
not precedential, but may be cited for their persuasive value.”); see also Fed. R. App.
P. 32.1.
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containing its findings and conclusions. Dalton, 682 F.3d at 155; Gyorgy, 779 F.3d at

472 (citing Treas. Reg. § 301.6330–1(e), Q & A–E8).

A taxpayer who is dissatisfied with the findings or conclusions of the CDP hearing

can appeal the determination to the Tax Court. Gyorgy, 779 F.3d at 472 (citing 26 U.S.C.

§ 6330(d)(1)). The Tax Court may review a § 6707A penalty when it is appealed from a

CDP proceeding under § 6330(d). Yari v. Comm’r, 143 T.C. 157, 162 (2014).

When the Tax Court receives an appeal from the CDP hearing, however, its

review is limited to issues that were properly raised during the CDP hearing. See Goza v.

Comm’r, 114 T.C. 176, 182-83 (2000); Perkins v. Comm’r, 129 T.C. 58, 67 (2007);

Konkel v. Comm’r, 2000 WL 1819417, at *3 (M.D. Fla. Nov. 6, 2000); see also Treas.

Reg. § 301.6330–1(f), Q & A–F3. Because liability challenges precluded by ¶ (c)(2)(B)

and issues precluded by ¶ (c)(4)(A) cannot be heard at a CDP hearing, the taxpayer may

not present them to the Tax Court on appeal from the CDP hearing. See Goza, 114 T.C.

at 182-83. If the taxpayer still wishes to contest those issues, it must instead pay the

asserted liability and file a refund suit in federal district court. See Gorospe v. Comm’r,

451 F.3d 966, 968 (9th Cir. 2006).

3. Tax Court

Congress established the Tax Court, an Article I court within the Executive

Branch, Samuels, Kramer & Co. v. Comm’r, 930 F.2d 975, 991 (2d Cir. 1991), to give

taxpayers a method to challenge IRS liability assessments without first having to pay an

alleged liability. Without this forum, the taxpayer’s only alternative would be to pay the

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asserted liability and initiate a refund suit in federal district court. Bartman, 446 F.3d at

787.

The Tax Court’s jurisdiction is limited and is generally conferred by § 7442, but

other specific grants are interspersed throughout the Code. Internal Revenue Manual

35.1.1.1. Specifically, § 6213(a) confers jurisdiction on the Tax Court to redetermine

deficiencies and § 6330(d) confers jurisdiction to review penalties challenged at a CDP

hearing. As noted above, the Tax Court may only review issues that were properly

before the CDP proceeding.

Because CDP hearings typically produce a “scant record,” the Tax Court generally

conducts a deferential review of CDP determinations. See Olsen v. United States, 414

F.3d 144, 150 (1st Cir. 2005). If the underlying tax liability was properly at issue in the

CDP hearing, the Tax Court reviews that issue de novo. Tucker v. Comm’r, 135 T.C.

114, 139 (2010). But the Tax Court reviews all other CDP determinations for an abuse of

discretion. Id.

The Tax Court’s decision is subject to review in the appropriate circuit court of

appeals. See 26 U.S.C. § 7482(a)(1).

C. Factual and Procedural History

Keller participated in an employee benefit plan called the Sterling Benefit Plan

(“Plan”), but did not report its participation on its tax return. The IRS alleges Keller’s

failure to report violated § 6707A. The IRS also claims Keller took improper deductions

on its income tax returns related to its participation in the Plan, resulting in a deficiency.

As a result, Keller has faced two parallel proceedings in which the IRS has sought: (1) a

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penalty under § 6707A for Keller’s failure to report its participation in the Plan,3 which

the IRS considers a listed transaction (“penalty proceeding”); and (2) the income tax

deficiency from and resulting penalty for Keller’s alleged improper deduction of

payments to the Plan (“deficiency proceeding”).4 This case concerns the first penalty

proceeding and Keller’s efforts to challenge its liability for the § 6707A penalty. We

outline the relevant factual and procedural history below.

1. Section 6707A Penalty and Appeals Office Administrative Proceedings

The Commissioner proposed a $57,781.50 penalty against Keller under

§ 6707A for the 2007 tax year for Keller’s failure to disclose its participation in a

listed transaction. Keller filed a protest with the Appeals Office to seek rescission of

the penalty under § 6707A(d). On June 20, 2013, the Appeals Officer, Ms. Espinoza,

held a telephone conference with Keller. Keller sent no materials beyond its protest

to Ms. Espinoza for consideration before the conference but faxed three forms during

the conference. At the conference, Ms. Espinoza heard Keller’s liability arguments,

concluded Keller’s participation in the Plan was a “listed transaction,” and decided

the penalty should be sustained. She sent a fax to Keller stating, “If taxpayer

3
As noted above, § 6707A penalties do not depend on an underlying
deficiency.
4
The asserted penalties fall under § 6662(a) (“Imposition of Accuracy-Related
Penalty on Underpayments”) and § 6662A (“Imposition of Accuracy-Related Penalty
on Understatements with Respect to Reportable Transactions”). When determining
penalties for deficiencies stemming from reportable transactions, including listed
transactions, under § 6662A, the terms “reportable transaction” and “listed
transaction” have the respective meanings given to such terms by § 6707A(c). 26
U.S.C. § 6662A(d).
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disagrees with the penalty and/or Appeals doesn’t hear from [Keller] by 7/9/2013,

Appeals will process the case for closure.” J. App. at 35. Because the Appeals

Office did not hear from Keller by July 9, 2013, it sustained the penalty and closed

the case.

2. CDP Hearing

The IRS sent Keller a final notice of its intent to levy and of Keller’s right to a

CDP hearing under § 6330. The letter stated that Keller must pay the assessed

penalty, make payment arrangements, or appeal the levy by requesting a CDP

hearing. Keller requested a CDP hearing, arguing the penalty was assessed “without

the opportunity to protest the determination of the underlying transaction . . . [to be] a

listed transaction.” J. App. at 45. Keller did not seek any collection alternatives or

propose payment arrangements.

A CDP Officer, Elizabeth DeAngelis, granted Keller’s request for a hearing

and sent a letter scheduling a telephone conference. Ms. DeAngelis explained that

the call would provide an opportunity to discuss the reasons Keller disagreed with the

collection action or alternatives to the collection action. She explained that she must

consider any legitimate issues Keller wished to discuss. But, tracking the language

of ¶ (c)(2)(B), the letter stated: “You are not able to dispute the [underlying tax]

liability in your CDP hearing because: Our records show you had a prior opportunity

to dispute the penalty when you had a 6707A Appeals hearing for this tax period.” J.

App. at 47. The letter also outlined how Keller could raise the issue of alternative

collection methods at the CDP hearing and said that if Keller did not agree with the

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CDP’s determination, “[it] may appeal the case to the United States Tax Court.” J.

App. at 47.

Keller participated in a phone conference with Ms. DeAngelis on March 18,

2014. Keller attempted to contest its tax liability, but Ms. DeAngelis informed

Keller’s counsel that Keller was precluded from challenging its liability because Ms.

Espinoza had reviewed and sustained liability at the Appeals Office hearing. Keller

raised no other issues during the hearing. Ms. DeAngelis sustained the penalty. The

IRS sent Keller a Notice of Determination, which specified that Keller’s only

arguments at the CDP hearing attempted to dispute its liability for the penalty,

“however, you are unable to raise the liability within this hearing since you had a

prior opportunity to dispute the liability when you had the IRC 6707A Appeals

hearing for this same tax period. You raised no other issues.” J. App. at 52-53, 55.

3. Tax Court

Keller filed a petition with the Tax Court to challenge its liability for the

penalty.5 The Commissioner filed a motion for summary judgment, arguing that

Keller was precluded from contesting its liability for the penalty in its CDP hearing

under ¶ (c)(2)(B) because of its previous opportunity to challenge liability at the

Appeals Office hearing. After the Tax Court allowed the parties to supplement their

5
In its petition to the Tax Court, Keller also argued that § 6707(d)(2), which
precludes judicial review of the Commissioner’s determination to rescind a penalty,
is unconstitutional as a deprivation of due process. Keller raised this argument again
in its Objection to the Commissioner’s Motion for Summary Judgment. The Tax
Court noted the argument in its decision, but did not address its merits. Keller has
not raised this argument on appeal.
- 17 -
filings, the Commissioner amended its motion for summary judgment to challenge

Keller’s ability to challenge its liability under both ¶ (c)(2)(B) and ¶ (c)(4)(A).

The Tax Court granted summary judgment to the Commissioner on June 16,

2015. It determined that ¶ (c)(2)(B) precluded Keller from challenging its underlying

liability because Keller was afforded a prior opportunity to dispute its liability in its

hearing before the Appeals Office.6 The Tax Court further held that Treas. Reg.

§ 301.6320-1(e)(3) is a reasonable interpretation of ¶ (c)(2)(B) and applies to Keller

based on Lewis v. Commissioner, 128 T.C. 48 (2007). Because Keller did not raise

any non-liability challenges, the Tax Court sustained the levy.7 Keller filed two

motions for reconsideration, which the Tax Court denied.

Keller timely appealed the Tax Court’s June 16, 2015 order to this court.

6
As noted above, ¶ (c)(2)(B) precludes liability challenges at the CDP hearing
when the taxpayer had a prior opportunity to dispute liability. See supra, note 4.
Although the taxpayer need not have taken advantage of that opportunity to be
precluded from re-litigating its liability before the CDP hearing, we note, as the Tax
Court did, that Keller availed itself of that opportunity and contested its penalty
liability before Ms. Espinoza.
7
The Tax Court also distinguished Keller’s case from Yari v. Comm’r of
Internal Revenue, 143 T.C. 157 (2014). In Yari, the taxpayer’s previous Appeals
Office consideration of its liability was not considered a “prior opportunity” to
challenge its liability under ¶ (c)(2)(B) because an amendment to § 6707A, which
established the proper method for computing penalties, intervened after the
administrative hearing and before the Tax Court hearing. Without any intervening
change to the statute giving rise to Keller’s liability in this case, the Tax Court held
the Appeals Office had considered Keller’s liability before the CDP hearing, and
Keller therefore had a prior opportunity to challenge the existence or the amount of
the underlying liability, as required by ¶ (c)(2)(B).
- 18 -
 II. DISCUSSION

The Commissioner argues that Keller’s appeal is moot because Keller is

collaterally estopped from challenging its liability. Keller argues that Treas. Reg.

§ 301.6320-1(e)(3) unreasonably interprets ¶ (c)(2)(B) to preclude liability

challenges at the CDP hearing—and ultimately before the Tax Court—when the

taxpayer had a prior opportunity to dispute its liability before the Appeals Office.

We disagree with the Commissioner’s mootness arguments and with Keller’s

arguments regarding the scope of the CDP hearing and affirm the Tax Court’s grant

of summary judgment.

A. Mootness and Collateral Estoppel

The Commissioner’s mootness argument, as more fully explained below, stems

from Keller’s stipulation to be bound in its deficiency proceeding by the Tax Court’s

decision in a related case called Our Country Home Enterprises Inc., et al. v.

Commissioner, 145 T.C. 1 (2015). In Our Country Home, the Tax Court addressed

another taxpayer’s participation in the same Sterling Benefit Plan and determined

that participation in the Plan was a listed transaction. Based on Keller’s stipulation,

the Commissioner contends that the Tax Court’s decision in Our Country Home that

participation in the Plan was a listed transaction resolved all of Keller’s issues in this

appeal and that Keller is thereby collaterally estopped from challenging its liability,

mooting this case. We disagree for three reasons: (1) The Commissioner’s collateral

estoppel argument concerns the merits of Keller’s arguments, not our jurisdiction;

(2) Keller’s stipulation is binding only in Keller’s deficiency proceeding, not the

- 19 -
§ 6707A penalty proceeding at issue in this appeal; and (3) even if Keller’s

participation in the Plan is a listed transaction, Keller contests other issues related to

this appeal.

1. Additional Procedural Background

In the second parallel proceeding mentioned above—the deficiency

proceeding—the Commissioner issued a notice of deficiency to Keller for its alleged

improper deductions based on payments to the Plan between 2006-2008 and assessed

penalties for that deficiency under § 6662(a) and § 6662A. Keller stipulated with the

IRS that its liability for any deficiency based on improper income deductions for the

tax years 2006, 2007, and 2008 would be resolved “on the same basis that similar

issues are resolved by the final decision . . . of Our Country Home.” Supp. App. at

16.

On July 13, 2015, the Tax Court published its decision in Our Country Home,

concluding that participation in the Plan was a listed transaction, any deductions

taken for payments to the Plan resulted in a deficiency, and this deficiency was

subject to a penalty under § 6662A. The Tax Court entered its final order on

February 8, 2016.

2. Additional Legal Background

a. Mootness

The “[c]onstitutional mootness doctrine is grounded in the Article III requirement

that federal courts may only decide actual ongoing cases or controversies.” Prier v.

Steed, 456 F.3d 1209, 1212 (10th Cir. 2006) (citations and quotations omitted); see Lewis

- 20 -
v. Cont’l Bank Corp., 494 U.S. 472, 477 (1990). This court lacks subject matter

jurisdiction if a case is moot. Brown v. Buhman, 822 F.3d 1151, 1165 (10th Cir. 2016).

The parties must continue to have a “personal stake in the outcome” of the lawsuit at all

stages of the litigation so the question decided affects the rights of the litigants in the case

before the court. Id. (citations and quotations omitted). The question is whether granting

relief for the issues before the court “will have some effect in the real world.” Id. at

1165-66 (citations and quotations omitted).

A case may become moot while pending, including on appeal. United States v.

De Vaughn, 694 F.3d 1141, 1157 (10th Cir. 2012) (quoting Church of Scientology v.

United States, 506 U.S. 9, 12 (1992)). An “actual controversy must be extant at all stages

of review, not merely at the time the complaint is filed . . . . If an intervening

circumstance deprives the plaintiff of a personal stake in the outcome of the lawsuit, at

any point during litigation, the action can no longer proceed and must be dismissed as

moot.” Brown, 822 F.3d at 1165 (citations and quotations omitted). ‘“Put another way, a

case becomes moot when a plaintiff no longer suffers actual injury that can be redressed

by a favorable judicial decision.”’ Id. at 1166 (quoting Ind v. Colo. Dep’t of Corr., 801

F.3d 1209, 1213 (10th Cir. 2015)). When a case is on appeal,

[I]t is proper for a party to provide additional facts when that party has an
objectively reasonable, good faith argument that subsequent events have
rendered the controversy moot. Indeed, we depend on the parties for such
information, and it is axiomatic that subsequent events will not be reflected
in the [lower] court record.

- 21 -
See Morganroth & Morganroth v. DeLorean, 213 F.3d 1301, 1309 (10th Cir. 2000),

overruled on other grounds by TW Telecom Holdings, Inc. v. Carolina Internet Ltd., 661

F.3d 495 (10th Cir. 2011).

We review mootness de novo as a legal question. Brown, 822 F.3d at 1168.

b. Collateral Estoppel

Collateral estoppel, or issue preclusion, concerns the merits of a case. It is an

affirmative defense that bars the re-litigation of an issue of law or fact after it is

determined by a valid, final judgment. Stan Lee Media, Inc. v. Walt Disney Co., 774 F.3d

1292, 1297 (10th Cir. 2014).

The party invoking collateral estoppel must prove four elements: (1) the issue

previously decided is identical to the present one; (2) the prior action was finally

adjudicated on the merits; (3) the party against whom the doctrine is invoked was a party

or in privity with a party to the previous adjudication; and (4) the party against whom the

doctrine is raised had a full and fair opportunity to litigate the issue in the previous

adjudication. Id. Regarding the third element, the Supreme Court generally holds that

collateral estoppel does not apply to nonparties in the prior action. Taylor v. Sturgell, 553

U.S. 880, 893 (2008). But “the [general] rule against nonparty preclusion is subject to

exceptions,” including that “[a] person who agrees to be bound by the determination of

issues in an action between others is bound in accordance with the [agreement’s] terms.”

Id. (quoting 1 Restatement (Second) of Judgments § 40, p. 390 (1980)). The litigated

issue must also be “essential to the judgment.” Stan Lee Media, 774 F.3d at 1297

(quoting Arizona v. California, 530 U.S. 392, 414 (2000)).

- 22 -
3. Analysis

This case is not moot for three reasons.

First, the Commissioner’s attempt to base mootness on collateral estoppel is

misplaced. Unlike mootness, an Article III jurisdictional bar, collateral estoppel is an

affirmative defense. See United States v. Simons, 86 F. App’x 377, 380 (10th Cir. Jan.

22, 2004) (unpublished) (citing Kenmen Eng’g v. City of Union, 314 F.3d 468, 479 (10th

Cir. 2002)) (“the[] invocation of . . . collateral estoppel to support [a] position on the

merits does not introduce any jurisdictional element into the case; these are mere

affirmative defenses.”)); see also Fed. R. Civ. P. 8(c) (listing res judicata and estoppel as

affirmative defenses). When a collateral estoppel defense defeats a claim, it does so on

the merits, not by displacing jurisdiction. The Sixth Circuit’s explanation of the

interaction between the doctrines of mootness and collateral estoppel is instructive:

[T]he possibility that a party is collaterally estopped from pursuing a cause
of action does not entail that that cause of action is moot. . . . The doctrine
of mootness . . . in no way depends on the merits of the plaintiff’s
contention . . . . Stated differently, the court assumes that the plaintiff will
receive the relief that he requests in this litigation, and then proceeds to
determine whether there is a substantial likelihood that that relief will
redress his asserted injury.

Smith v. SEC, 129 F.3d 356, 363-64 (6th Cir. 1997) (quotations omitted). The

Commissioner cites no authority to the contrary.

Second, Keller’s stipulation was limited to its deficiency proceeding and did not

cover its § 6707A penalty proceeding, which is the only proceeding pertinent to this

appeal. Applying collateral estoppel to a nonparty on the basis of its agreement to be

bound by an action between others is limited to “the [agreement’s] terms,” Taylor, 553

- 23 -
U.S. at 893. The terms of Keller’s stipulation in the deficiency proceeding do not extend

to its liability in the penalty proceeding.

Third, even if the decision in Our Country Home were to collaterally estop Keller

from challenging that its participation in the Plan constituted a listed transaction, other

issues remain that the outcome of this appeal could affect. The Commissioner argues that

if Keller’s participation in the Plan is a listed transaction, this appeal is moot because

Keller would be “collaterally estopped from challenging its liability for the reporting

penalty on remand.” Aplee. Br. at 25.8 But Keller’s appeal contests the scope of the

CDP hearing, not the merits of its liability challenge. And the Commissioner’s argument

overlooks that Keller seeks to contest at the CDP hearing not only whether a penalty

should be imposed but also its proper calculation under § 6707A. Aplt. Br. at 8 (“Among

the issues considered by the Appeals Officer in this initial administrative appeal was

whether the IRS erred in computing the amount of the penalty for the year 2007 . . . .

Keller contended (and still contends) that any penalty assessed under § 6707A for the

2007 tax year should be [calculated differently.]”). The Our Country Homes stipulation

does not reach the calculation issue.

8
We question whether this appeal is the proper forum for the Commissioner to
raise a collateral estoppel argument. At the CDP, Keller would challenge whether it
should be subject to a penalty under § 6707A and how any such penalty should be
calculated. These issues are not before us on this appeal, which is limited to determining
whether Keller should be able to present those challenges at the CDP hearing. The
Commissioner argues that the Tax Court’s decision in Our Country Home establishes by
collateral estoppel that Keller’s participation in the Plan is a listed transaction and that the
penalty therefore cannot ultimately be rescinded. But that issue is not before us. The
collateral estoppel argument seems more appropriate for the CDP hearing or the Tax
Court.
- 24 -
 For the reasons stated, this case is not moot.

B. Keller’s Liability Challenges

Keller argues that ¶ (c)(2)(B) should not preclude liability challenges in a CDP

hearing or the Tax Court when the taxpayer’s prior opportunity to dispute its liability

arose, as it did here, in an administrative setting.9 Keller contends that ¶ (c)(2)(B)’s

interpretive regulation, Treas. Reg. § 301.6330-1, which specifies that a conference

with the Appeals Office is a prior opportunity under ¶ (c)(2)(B), is an unreasonable

interpretation of ¶ (c)(2)(B).10 We disagree. The Tax Court properly held Keller

was precluded from challenging its liability at the CDP hearing under ¶ (c)(2)(B).

1. Standard of Review

“We review tax court decisions ‘in the same manner and to the same extent as

decisions of the district courts in civil actions tried without a jury.’” Katz v. Comm’r,

335 F.3d 1121, 1125-26 (10th Cir. 2003) (quoting Kurzet v. Comm’r, 222 F.3d 830,

833 (10th Cir. 2000); 26 U.S.C. § 7482(a)(1)). Thus, like our review of a district

court’s grant of summary judgment, we review the Tax Court’s grant of summary

9
Because the Tax Court’s decision was based on ¶ (c)(2)(B) and we conclude
Keller was precluded from raising its liability challenges at the CDP hearing under
that paragraph, we need not reach whether Keller was similarly precluded from doing
so under ¶ (c)(4)(A).
10
Keller also proposes a new interpretation of ¶ (c)(2)(B): unless the taxpayer
received a notice of deficiency, or a functional equivalent, the taxpayer may
challenge the merits of the underlying liability in a CDP case. Because we conclude
Treas. Reg. § 301.6330-1 reasonably interprets ¶ (c)(2)(B), we reject Keller’s
proposed, alternative interpretation.
- 25 -
judgment de novo. Scanlon White, Inc. v. Comm’r, 472 F.3d 1173, 1174 (10th Cir.

2006).

2. Additional Legal Background

This section outlines the legal framework for analyzing treasury regulations,

highlights the relevant portions of ¶ (c)(2)(B) and Treas. Reg. § 301.6330-1, and

summarizes the Tax Court’s analysis of Treas. Reg. § 301.6330-1 in Lewis v.

Commissioner.

a. Chevron deference

We defer to an agency’s regulation that reasonably interprets an ambiguous

statute. Chevron, U.S.A., Inc. v. Nat’l Res. Def. Council, Inc., 467 U.S. 837, 841-44

(1984). “[C]onsiderable weight should be accorded to an executive department’s

construction of a statutory scheme it is entrusted to administer.” Id. at 844; see also

Hydro Res., Inc. v. EPA, 608 F.3d 1131, 1145-46 (10th Cir. 2010) (en banc)

(“[C]ourts afford considerable deference to agencies interpreting ambiguities in

statutes that Congress has delegated to their care, including statutory ambiguities

affecting the agency’s jurisdiction.” (citations omitted)).

This deference applies to Treasury regulations. See Mayo Found. for Med.

Educ. & Research v. United States, 562 U.S. 44, 55 (2011) (clarifying that Chevron

applies “with full force in the tax context”). Here, the Secretary promulgated Treas.

Reg. § 301.6330-1 pursuant to express general authority under 26 U.S.C. § 7805(a)

after notice and comment. Id. § 7805(a) (“Secretary shall prescribe all needful rules

and regulations for the enforcement of this title, including all rules and regulations as

- 26 -
may be necessary by reason of any alteration of law in relation to internal revenue.”).

It follows that Treas. Reg. § 301.6330-1 is entitled to Chevron deference unless it is

“arbitrary or capricious in substance, or manifestly contrary to the statute.” Mayo

Found., 562 U.S. at 53 (quotations omitted).

The Chevron-deference analysis proceeds in two steps. Zen Magnets, LLC v.

Consumer Prod. Safety Comm’n, 841 F.3d 1141, 1160 (10th Cir. 2016). First,

“[w]hen Congress has spoken to the precise question at issue, we must give effect to

the express intent of Congress.” Id. (citations and quotations omitted). Second, “[i]f

the statute is silent or ambiguous, however, we defer to the agency's interpretation, if

it is a permissible one.” Id. (quotations omitted); see also Sierra Club, Inc. v.

Bostick, 787 F.3d 1043, 1056-57 (10th Cir. 2015).

In the first step, we employ the “traditional tools of statutory construction” to

determine whether the intent of Congress is clear from the statutory text and

“whether the [statutory] language . . . has a plain and unambiguous meaning with

regard to the particular dispute.” INS v. Cardoza-Fonseca, 480 U.S. 421, 446

(1987); Chevron, 467 U.S. at 842-43; Robinson v. Shell Oil Co., 519 U.S. 337, 340

(1997). The “plainness or ambiguity of statutory language is determined by reference

to the language itself, the specific context in which that language is used, and the

broader context of the statute as a whole.” Robinson, 519 U.S. at 341. If the statute

is not ambiguous, our inquiry ends there. Id. at 340. But if the statute is “capable of

being understood by reasonably well-informed persons in two or more different

- 27 -
senses,” we proceed to the second step of Chevron. McGraw v. Barnhart, 450 F.3d

493, 498 (10th Cir. 2006) (quotations omitted).

In the second step, if the statute is silent or ambiguous on the specific issue,

we defer to the agency’s interpretation if it is based on a permissible construction of

the statute. Chevron, 467 U.S. at 842-43; Sierra Club, 787 F.3d at 1057. For a

construction to be permissible, we need not conclude it was the only one the agency

could reasonably have adopted or that we would have rendered the same

interpretation if the question arose initially in a judicial context. Chevron, 467 U.S.

at 843 n.11. We look only to whether the implementing agency’s construction is

reasonable. Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S.

967, 980 (2005).

b. Paragraph (c)(2)(B)

The Tax Court relied on ¶ (c)(2)(B) to determine that Keller was precluded

from challenging its liability at the CDP hearing. As outlined above, ¶ (c)(2)(B)

precludes a taxpayer from challenging the existence or amount of the underlying tax

liability at a CDP hearing if the taxpayer had a prior “opportunity to dispute” that

liability—i.e., the taxpayer received a statutory notice of deficiency or otherwise had

an “opportunity to dispute” the underlying tax liability. When ¶ (c)(2)(B) precludes a

taxpayer from challenging its liability at the CDP hearing, the Tax Court accordingly

lacks authority to review the liability determination because that issue was not

properly before the CDP hearing. Goza, 114 T.C. at 182-83.

- 28 -
 c. Treas. Reg. § 301.6330-1

In Treas. Reg. § 301.6330-1, the IRS explained that ¶ (c)(2)(B)’s reference to

“opportunity to dispute” “includes a prior opportunity for a conference with Appeals that

was offered either before or after the assessment of the liability.” This clarification was

promulgated in response to public comment about the proposed regulation.

Miscellaneous Changes to Collection Due Process Procedures Relating to Notice and

Opportunity for Hearing Prior to Levy, 71 Fed. Reg. 60827-02, 60830 (Oct. 17, 2006) (to

be codified at 26 C.F.R. pt. 301) (“For liabilities not subject to deficiency procedures, the

offer of an Appeals conference prior to assessment constitutes an opportunity to dispute

the liability under section 6330(c)(2)(B).”). The IRS rejected the suggestion to limit this

restriction to prior judicial proceedings:

According to the comments, the only opportunity to dispute the tax liability
that is sufficient to prevent the taxpayer from challenging the liability in a
CDP hearing is the prior opportunity to dispute the liability in a judicial
forum. The IRS and the Treasury Department believe that the existing
regulations correctly include an opportunity for an Appeals conference as a
preclusive prior opportunity. The text of section 6330(c)(2)(B) does not
contain language limiting prior opportunities to judicial proceedings.
Moreover, it is consistent for a taxpayer who has had an opportunity to
obtain a determination of liability by Appeals in one administrative hearing
to be precluded from obtaining an Appeals determination in a subsequent
CDP administrative hearing with respect to the same liability. This
interpretation of section 6330(c)(2)(B) has been upheld by the courts. See,
e.g., Pelliccio v. United States, 253 F. Supp. 2d 258, 261-62 (D. Conn.
2003). Accordingly, the final regulations do not adopt this suggestion.

Id. (emphasis added).

- 29 -
 d. Tax court interpretation

The Tax Court applied Chevron deference to Treas. Reg. § 301.6330-1 in Lewis v.

Commissioner and held the regulation was a reasonable interpretation of ¶ (c)(2)(B). In

Lewis, like here, the Tax Court affirmed summary judgment for the Commissioner

because the taxpayer had a prior opportunity to dispute his underlying tax liability in a

conference with the Appeals Office. 128 T.C. at 62.

Applying the first step of Chevron, the Tax Court held that ¶ (c)(2)(B)’s

“otherwise have an opportunity to dispute” language is ambiguous. See id. at 55. It

noted that neither the 1998 IRS Restructuring and Reform Act nor the Code defined the

phrase. Id. Moreover, the court said that the phrase could fairly be read to suggest

different possible meanings, each finding support in the context of the statute: (1) it

could include only judicial review or (2) it could also include challenges before the

Appeals Office. Id. at 55-56.

Moving to Chevron step two, the Tax Court examined the possible meanings of

the statute outlined above and concluded that Treas. Reg. § 301.6330-1’s interpretation of

¶ (c)(2)(B) was reasonable. Id. at 61. Addressing the contrary view that ¶ (c)(2)(B)

could be read to include only judicial review, the Tax Court said:

As we see it, if Congress had intended to preclude only those taxpayers
who previously enjoyed the opportunity for judicial review of the
underlying liability from raising the underlying liability again in a
collection review proceeding, the statute would have been drafted to clearly
so provide. The fact that Congress chose not to use such explicit language
leads us to believe that Congress also intended to preclude taxpayers who
were previously afforded a conference with the Appeals Office from raising
the underlying liabilities again in a collection review hearing and before
this Court.

- 30 -
Id.

The Tax Court also offered several rationales to justify including administrative

proceedings in the definition of prior “opportunities” that would bar a subsequent

challenge of the underlying tax liability at a CDP hearing and thus found Treas. Reg.

§ 301.6330-1 to be a reasonable interpretation of ¶ (c)(2)(B).11

3. Analysis

The Tenth Circuit has not addressed whether ¶ (c)(2)(B) precludes a challenge

to liability at a CDP hearing when the taxpayer’s prior opportunity to dispute liability

occurred at an administrative, non-judicial proceeding.12

a. Applying Chevron

Applying the two-step Chevron test, we conclude, as the Tax Court did in

Lewis, that ¶ (c)(2)(B)’s reference to a prior “opportunity to dispute” is ambiguous

11
The Eighth Circuit and Tax Court have similarly precluded liability
challenges at CDP hearings under ¶ (c)(2)(B) when the taxpayer had a prior
opportunity to dispute its liability before the Appeals Office. See, e.g., Hassell
Family Chiropractic, DC, PC v. Comm’r, 368 F. App’x 695, 696 (8th Cir. 2010)
(unpublished) (barring taxpayer from challenging liability before Tax Court under ¶
(c)(2)(B) where it had a prior conference with an IRS Appeals Officer); Bishay v.
Comm’r, T.C. Memo. 2015-105, at *6 (2015) (holding that a taxpayer had an
“opportunity” to dispute his liability when he received a Letter 1153 and had a
subsequent conference with the Office of Appeals, “precluding [the taxpayer] from
re-raising that argument at his CDP hearing” under ¶ (c)(2)(B)).
12
In Shaffer v. Comm’r, 55 F. App’x 532, 535 (10th Cir. 2003) (unpublished),
we applied ¶ (c)(2)(B) and barred reconsideration of the taxpayer’s liability when it
had previously raised the issue of liability in a Tax Court proceeding. We made no
comment in Shaffer about the statute’s application to a prior administrative
opportunity to dispute liability.
- 31 -
and that Treas. Reg. § 301.6330-1 is a reasonable interpretation of ¶ (c)(2)(B). We

therefore affirm the Tax Court’s grant of summary judgment.

i. Step one

In step one of the Chevron analysis, we determine whether the statute is

ambiguous. Here, ¶ (c)(2)(B) is ambiguous on its face and when analyzed within the

context of § 6330.

Keller and the Commissioner agree that the language of ¶ (c)(2)(B) does not

define which prior “opportunities” to dispute tax liability Congress intended to

include. The Tax Court in Lewis found that ¶ (c)(2)(B) was subject to competing

interpretations. 128 T.C. at 55. Looking at the language of ¶ (c)(2)(B), we agree that

what constitutes an “opportunity to dispute” is subject to more than one reasonable

interpretation: it may refer only to judicial review, only to administrative review, or

both.

Paragraph (c)(2)(B)’s surrounding text contributes to this ambiguity.

Paragraph (c)(4)(A) expressly precludes consideration of issues at a CDP hearing that

were raised and considered at any other “administrative or judicial proceeding”

(emphasis added). In contrast, ¶ (c)(2)(B) refers to prior “opportunity to dispute” but

is silent on what type of opportunity the phrase includes.

Paragraph (c)(2)(B)’s text is thus ambiguous. Neither the surrounding text of

§ 6330 nor the rest of the Code define what Congress intended by “otherwise have an

opportunity to dispute.” Accord Lewis, 128 T.C. at 55.

- 32 -
 ii. Step two

In step two of the Chevron analysis, we determine whether the agency’s

interpretation is based on a permissible construction of the statute. Here, we

conclude that Treas. Reg. § 301.6330-1(e)(3)’s explanation that a prior ¶ (c)(2)(B)

“opportunity to dispute” includes “a prior opportunity for a conference with Appeals

that was offered either before or after the assessment of the liability” is a reasonable

interpretation of ¶ (c)(2)(B).

First, focusing on the text, ¶ (c)(2)(B) states:

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.

The word “hearing” refers to the CDP hearing. Because the tax liability in this

case is a penalty and not a deficiency, the key language is “did not otherwise have an

opportunity to dispute such tax liability.” Nothing on the face of this text excludes

an administrative proceeding from an “opportunity to dispute” a tax penalty. And

nothing suggests that reading “opportunity to dispute” to include an administrative

proceeding is unreasonable. The text of the statute therefore supports the

reasonableness of Treas. Reg. § 301.6330-1(e)(3)’s interpretation of ¶ (c)(2)(B).

Second, considering the key language in the statute’s broader context,

¶ (c)(4)(A) bars taxpayers from raising an issue at a CDP hearing that was raised and

considered in a judicial or administrative forum. It is reasonable to conclude that

- 33 -
Congress regarded an administrative hearing as adequate to preclude CDP hearing

consideration under ¶ (c)(2)(B) as well.13

Third, we find the Tax Court’s reasoning in Lewis persuasive. There, the court

said it would be “possible to interpret ‘otherwise have an opportunity to dispute’ to refer

to those situations where a taxpayer was afforded one of the other, nondeficiency,

avenues for prepayment judicial review.” 128 T.C. at 56. But, after pointing out several

problems with this interpretation, the court concluded it was “unlikely that this was

Congress’s intent.” Id. at 61.

For example, the Tax Court observed that if Congress had intended to limit

¶ (c)(2)(B) to prior judicial review, it could simply have said “opportunity to seek

judicial review.” Id. at 57. Moreover, the judicial-only interpretation Keller proposes

would “encourage a taxpayer to wait until a collection action begins before disputing [a

nondeficiency] liability” to obtain judicial, rather than administrative, review of liability.

Id. at 58. But this would minimize the role of the Appeals Office and contradict the

purpose of the 1998 IRS Restructuring and Reform Act. Congress intended to provide

the taxpayer a means to seek review of a liability through an informal conference with the

Appeals Office, id. at 59—“a meaningful process, short of litigation, in which [the

taxpayer] could resolve tax disputes,” id. at 60; see also Giamelli v. Comm’r, 129 T.C.

107, 114 (2007).

13
See Bankers Life and Cas. Co. v. United States, 142 F.3d 973, 983 (7th Cir.
1998) (“In the second step [of Chevron], the court determines whether the regulation
harmonizes with the language, origins, and purpose of the statute.”).
- 34 -
 We agree with these points and the Tax Court’s conclusion that “it is reasonable”

to read ¶ (c)(2)(B) “to conclude that Congress intended not only to address those

taxpayers who were previously provided an opportunity to litigate their liability, but also

those provided an opportunity to dispute the liability short of litigation.” 128 T.C. at 60.

Thus, under ¶ (c)(2)(B), “[a] conference with the Appeals Office provides a taxpayer a

meaningful opportunity to dispute an underlying tax liability.” Id. at 61. It follows that

the regulation interpreting ¶ (c)(2)(B) in this manner is a reasonable construction of the

statute.

b. Keller’s arguments

Keller argues Treas. Reg. § 301.6330-1 is an unreasonable interpretation of

¶ (c)(2)(B) because it (1) impermissibly limits the jurisdiction of the Tax Court and

the federal courts; and (2) is internally inconsistent. These arguments do not

persuade us that the regulation is unreasonable or “arbitrary, capricious, or manifestly

contrary to the statute,” Chevron, 467 U.S. at 844.

i. Limiting jurisdiction

Keller argues that Treas. Reg. § 301.6330-1 impermissibly limits the

jurisdiction of the Tax Court through a regulation and thus should not receive

Chevron deference. We disagree.

Treas. Reg. § 301.6330-1 does not diminish the jurisdiction of any court.

Section 6330(d) establishes the Tax Court’s jurisdiction to review CDP proceedings.

Treas. Reg. § 301.6330-1 limits only the scope of what may be heard at the agency’s

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administrative CDP proceedings.14 Although the Tax Court has jurisdiction only to

hear matters that were properly before the CDP hearing, see Goza, 114 T.C. at 182-

83, Treas. Reg. § 301.6330-1 does not address the Tax Court. It addresses matters

that may be raised before an administrative CDP hearing.

Moreover, Treas. Reg. § 301.6330-1 has no impact on the taxpayer’s ability to

file a refund suit in federal district court. The jurisdiction of federal courts remains

available for a taxpayer to contest its liability.

ii. Inconsistencies

Keller argues that Treas. Reg. § 301.6330-1 contains internal inconsistencies

and is thus unreasonable. We disagree.

First, Keller contends Treas. Reg. § 301.6330-1 is inconsistent because it

precludes liability challenges at a CDP hearing even when the taxpayer failed to exercise

its opportunity to dispute liability at the Appeals Office and was therefore not actually

heard. But this is not an inconsistency. As explained previously, the statute and the

regulation refer only to an “opportunity,” not to an opportunity that was exercised. See

Chandler, 327 F. App’x at 766 (holding taxpayer was properly precluded from

challenging liability at a CDP hearing when it had a prior opportunity to dispute liability

and did not exercise it). Not only is the regulation internally consistent, it comports with

the purpose of encouraging taxpayers to use the Appeals Office process.

14
We agree with the IRS’s Office of Chief Counsel, who explained: “This
preclusive effect does not define the scope of the reviewing court’s jurisdiction but
defines only when a taxpayer can challenge his or her liability.” Collection Due
Process Cases, Office of Chief Counsel Notice, CC-2003-016, Internal Revenue
Service at 16 (May 29, 2003).
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 Second, Keller argues Treas. Reg. § 301.6330-1 is inconsistent because it

precludes liability challenges at a CDP hearing for some, but not all, prior administrative

opportunities. For example, Keller notes that Treas. Reg. § 301.6330-1’s explanation of a

prior “opportunity” does not include liability challenges previously heard at a conference

with the Examination Division of the IRS or by the Appeals Office in a pre-assessment

hearing for a liability subject to deficiency procedures. But again, Keller fails to show an

internal inconsistency. Nothing in the regulation mentions conferences with the

Examination Division or is inconsistent with allowing challenges at the CDP hearing for

liabilities subject to deficiency procedures. Moreover, Keller fails to show that drawing

distinctions among different administrative processes is unreasonable or arbitrary or that

it is inconsistent to treat different administrative proceedings differently. See Mayo

Found., 562 U.S. at 59 (“Regulation, like legislation, often requires drawing lines.”). In

particular, Keller has not shown that the prior Appeals Office opportunity addressed in

Treas. Reg. § 301.6330-1 is similar to or serves similar purposes as the other

administrative proceedings Keller cites as falling outside the regulation.

In short, Keller’s internal inconsistency arguments fall short of showing that

Treas. Reg. § 301.6330-1 is arbitrary, capricious, or manifestly contrary to the statute.

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 III. CONCLUSION

For the foregoing reasons, we affirm the Tax Court’s grant of summary

judgment.15

15
Keller and the Commissioner have each filed an unopposed motion
requesting judicial notice of certain materials. Keller’s motion tenders a document
regarding calculation of its penalty. Because we do not, and need not, reach this
issue, we deny Keller’s motion. The Commissioner’s motion provides a
supplemental appendix containing documents from Tax Court decisions relevant to
Keller’s appeal and comporting with Fed. R. Evid. 201(b)(2). See Estate of
McMorris v. Comm’r, 243 F.3d 1254, 1259 n.8 (10th Cir. 2001). Accordingly, we
grant the Commissioner’s motion.
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