An Audit Reconsideration May Prevent You From Disputing the Tax Through a CDP Hearing

By | April 25, 2020

On March 12, 2020, the Tax Court in the case of Lander v. Commissioner, 154 T.C. No. 7 adopted the opinion of Special Trial Judge Guy, holding that a taxpayer who had not received a notice of deficiency (NOD) could not litigate the merits of his tax liability in a Collection Due Process (CDP) hearing because he requested an audit reconsideration. He also received an Appeals hearing as a part of that process.  Moreover, this is the first case to hold that a taxpayer who did not receive a notice of deficiency could be denied the opportunity to litigate the merits of the liability. 

The IRS does not have current addresses for many taxpayers.  If the IRS mailed the NOD to the taxpayer’s last known address but the taxpayer did not receive it, Congress seemed to address that situation in IRC 6330(c)(2)(B) which provides:

“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.”

In the Lander case the parties stipulated to the non-receipt of the NOD.  Consequently, at issue was whether action subsequent to the assessment created a prior opportunity to meet with Appeals and whether the opportunity to meet with Appeals meant that the failure to receive the NOD no longer mattered for purposes of interpreting 6330(c)(2)(B).

Congress provided the right to come to Tax Court to litigate the merits of the tax liability – even where the IRS properly sent a NOD to the taxpayer’s last known address provided the taxpayer did not receive the notice of deficiency.

What if I Never Received an Notice of Deficiency?

If the IRS has failed to send the NOD to your last known address, the can attack the assessment by filing a petition in Tax Court even after the 90 days had run when you became aware of the existence of the IRS notice of deficiency.  Thereafter, the Tax Court would be required to make a determination regarding whether it lacked jurisdiction.  If the Tax Court determined that it lacked jurisdiction because the IRS sent the NOD to someplace other than the taxpayer’s last known address then, pursuant to cases such as King v. Comm’r, 857 F.2d 676 (9th Cir. 1988), the Tax Court would hold the NOD invalid. The IRS would then abate the assessment and in cases where the statute of limitations on assessment had expired, the IRS would simply lose its right make an assessment.

Prior Opportunity to Dispute the Tax Liability

In Landers the Tax Court held that because a taxpayer can have an Appeals hearing on audit reconsideration and because the regulations say a hearing in Appeals serves as a prior opportunity within the meaning of IRC 6330(c)(2)(B), the taxpayer cannot litigate the merits of the liability in Tax Court. 

If you have not had an opportunity to dispute the tax liability via an audit reconsideration, you might have the opportunity to dispute your tax liability through the CDP process.

Should I file an Audit Reconsideration?

Therefore, an audit reconsideration provides a situation that requires attentive consideration for the taxpayer who did not receive a NOD but may later want to go to Tax Court.  If you have a tax liability and have not had the opportunity to appeal it, contact a tax attorney today to discus your options.

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