Tax Court in Brief | Addis v. Commissioner | Collection Due Process and Frivolous Positions

The Tax Court in Brief – March 28th – April 1st, 2022

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation:  The Week of March 28, 2022, through April 1, 2022

• Porter v. Comm’r, T.C. Memo. 2022-25 | March 28, 2022 |Greaves, J. | Dkt. No. 3544-21
• Golditch v. Comm’r, T.C. Memo. 2022-26 | March 29, 2022 |Lauber, J. | Dkt. No. 7726-20L
• Villanueva v. Comm’r, T.C. Memo. 2022-27 | March 31, 2022 |Goeke, J. | Dkt. No. 19781-18

Addis v. Comm’r, T.C. Memo. 2022-24 | March 28, 2022 |Urda, J. | Dkt. No. 12140-20L

Short Summary: Taxpayer, Jonah Addis (“Addis”) filed a delinquent tax return for his 2014 tax year. He reported zero dollars of income and a refund due. Third-party reporting showed that Addis had received income of $42,795 in 2014. The IRS assessed a $5,000 penalty for his taking a frivolous position. A notice of intent to levy was issued. Addis requested a hearing, which was conducted by correspondence. Addis claimed, among other things, that the federal tax laws did not apply to him. Addis’s request for relief from levy was denied. Addis sought review of the determination of the IRS’s Office of Appeals that upheld a notice of intent to levy.

Primary Holdings:  

• The record showed that the settlement officer conducted a thorough review of the materials relevant to Addis’s Collection Due Process (“CDP”) request and verified that applicable requirements were met. Addis neither alleged in his petition nor argued that the settlement officer failed to consider “whether any 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.” See 26 U.S.C. § 6330(c)(3)(C). Addis’s frivolous arguments are not relevant, and he failed to raise a meaningful challenge. Thus, the settlement officer did not abuse his discretion in not considering them.

Key Points of Law:

• A taxpayer may dispute liability for a frivolous return penalty under section 6702 at a CDP hearing and on review of the CDP determination in the Tax Court, in the absence of any other opportunity to contest it. In that instance, the section 6702 penalty is the underlying liability, and the taxpayer is entitled to de novo review of the penalty so long as the taxpayer has raised a meaningful challenge to the penalty at the CDP hearing. But if the taxpayer fails to make a meaningful challenge to the penalty, the Tax Court reviews for abuse of discretion.
• Section 6330(c)(4)(B) provides that an “issue may not be raised at the [CDP] hearing if . . . the issue meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A).” Those clauses bar a taxpayer from raising an issue that is based on a position that the Secretary has identified as frivolous. See 26 U.S.C. § 6702(b)(2)(A). Where a taxpayer relies exclusively upon arguments that the IRS has identified as frivolous, the taxpayer will not be deemed to have raised a meaningful challenge. In that instance, the Tax Court must determine whether the settlement officer committed an abuse of discretion.
• To determine whether the IRS settlement officer abused his or her discretion, the Tax Court evaluates whether the officer (1) properly verified that the requirements of applicable law or administrative procedure have been met, (2) considered any relevant issues the taxpayer raised, and (3) considered whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. 26 U.S.C. § 6330(c)(3).
• Section 6673(a)(1) gives the Tax Court discretion to require a taxpayer to pay the Government a penalty of up to $25,000 when the taxpayer, among other things, takes a frivolous or groundless position in proceedings before the Court.

Insights: Taxpayers should refrain from taking frivolous positions in CDP proceedings. What is “frivolous” might be in the eyes of the beholder, based on the facts and circumstances of the case. However, the IRS has issued—and taxpayers should be aware of—notices on positions that the IRS deems are frivolous. See I.R.S. Notice 2010-33, 2010-17 I.R.B. 609. By taking a frivolous position, the taxpayer then sets himself or herself up for additional penalty of up to $25,000, which is determined by the discretion of the Tax Court. It is advisable to avoid that.

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