One of the pleasures of working on the blog the last few years has been to engage more directly with my principal co-bloggers, Steve and Keith. In addition to working collaboratively on PT, we also work on updating and rewriting the Thomson Reuters Saltzman and Book IRS Practice and Procedure treatise. Keith has taken the lead oar in revising the collection chapters, and in the next month or so we will release a new chapter on collection due process and a revised chapter on liens and levies to accompany the 2014 rewrite of the chapter on priority of tax claims. In the new year we will also release a revised chapter on transferee liability.
While we were in the last stages of finalizing the CDP chapter, Congress made us scramble. This month’s PATH legislation directly addressed the venue of CDP (and innocent spouse) appeals. The legislation reverses the Byers case out of the DC Circuit in new Section 7482(b)(1)(G) effective for petitions filed on or after December 19, 2015. The upshot of the PATH legislation with respect to CDP appeals is to push CDP and innocent spouse appeals into the same general rule as deficiency cases, that is the venue on appeal is tied to an individual’s residence (or principal place of business for other taxpayers) of the petitioner at the time of petition filing unless the parties stipulate otherwise. Byers had held that in collection cases the proper venue on appeal for those cases was the DC Circuit. For more on this issue see in PT Carl Smith, Chief Counsel Rejects Byers v Comm’r DC Circuit Appellate Venue Ruling
The legislation brings some certainty to an area that needed it. Following Byers, as Carl discussed in the guest post linked above, the IRS in CC 2015-006 had indicated that it thought the DC Circuit was wrong in its venue analysis, and the issue likely would have been subject to additional litigation.
Why does venue matter apart from the practical reason that parties need to know where to file an appeal? There are I think two main reasons.
Why Venue Matters
The first reason relates to how the 1st 8th and 9th circuits have taken the position that the Tax Court is limited to the administrative record in CDP cases not considering the amount or existence of a liability. The Tax Court had held otherwise in Robinette v Commissioner. The DC Circuit had not addressed that issue, so at least until there was a DC Circuit opinion on the issue pre-PATH the Tax Court could in cases not appealable to the 1st 8th or 9th circuits continue to follow its Robinette caseand allow in evidence that was not part of the record in disputes irrespective of whether the CDP case involved a liability question.
Second, by overturning Byers Congress has lost a chance to have the IRS treated in a way similar to other agencies. The DC Circuit is the most important appellate court (other than the Supreme Court) when it comes to administrative law, and most other agencies routinely have their decisions appealed to the DC Circuit. To the extent that CDP cases are more in line with the spirit of traditional judicial review of agency error (and I think that is what CDP is essentially really about), by diluting the appellate review of IRS collection actions Congress has lessened the chance for a more focused judicial review of IRS collection actions.
Berglund: Verifying Assessments and Venue
As to the first reason, the Tax Court Berglund case from a couple of weeks ago is a good example of why venue matters. Berglund is one of the many CDP cases that some point to as why CDP cases are a drag on resources. I will spare the details on this but essentially it involves protestor-type arguments including that the 1040 was an “outlaw form” and a request for proof that Mr. Berglund was a “taxpayer.”
Embedded in the nonsense was a challenge relating to the IRS’s requirement to verify that it followed appropriate procedures in assessing the tax. For those that want a primer on assessment procedures, and the ways IRS can prove assessment, I recommend Berglund but for these purposes I point to the case because in Tax Court the IRS wished to supplement the record to put into evidence at trial the Form 4340 Certificate of Assessment Certificate of Assessments, Payments, and Other Specified Matters.
Appeals had not relied on that form in determining that the assessment procedures had been followed; instead it looked to a transcript of account which the Tax Court in Berglund found to not be helpful (in fact it called it “indecipherable”) in proving that the assessment was kosher. Berglund argued that Appeals’ reliance on the computerized transcript was insufficient to prove that it satisfied its verification procedures, a point that the Tax Court seemed to be sympathetic with in light of the court’s inability to make sense of the transcript.
By attempting to put in evidence the Form 4340 which showed that the assessment had been signed on a certain date IRS was arguing that any remand to Appeals to consider the issue further would have been unproductive. The issue the Tax Court faced in Berglund was whether IRS could supplement the record with the 4340. Berglund resided in the Minnesota at the time he filed his petition, so an appeal under the new venue rules would lie in the 8th Circuit, a circuit that disagrees with (and reversed) the Tax Court Robinette decision and holds that the parties are tied to the record at Appeals in CDP collection cases.
As the case was not covered by the PATH law, in Berglund the Tax Court allowed into evidence the Form 4340, in part because in light of Byers it felt that it need not be bound by the 8th Circuit and also because there was a 2007 Tax Court case Bowman v Commissioner that allowed the Tax Court to consider the Form 4340 even if the form itself was not part of the administrative record and even if the parties were bound to the record.
Bowman essentially holds that the information represented in the Form 4340 itself was part of the record and the form itself is just a way of showing what IRS had done:
That Form 4340 is generated on a stated date does not mean that the information reflected in such form regarding assessments, payments, and other specified matters did not appear in the official computer records of the IRS, or that such assessments, payments, and other specified matters did not occur, before such stated date.
Though I have a hard time reconciling Bowman with the verification requirement and the record rule, it does provide a way out for these cases and is analogous to the notion of harmless error. Nonetheless if Berglund had involved a post-PATH petition the Tax Court likely could not have as easily disregarded the record rule and it would have been more difficult for IRS to prove that it properly assessed.
Berglund is somewhat unusual as the record rule generally works to restrict taxpayers (and not the IRS) from introducing evidence that they would like the Tax Court to consider. It is more likely that the record rule will prevent unrepresented taxpayers from bringing into evidence information that would help the court get to the right answer. Perhaps as frequent guest poster Carl Smith has recommended Congress should consider adding to the CDP statute a provision that all Tax Court CDP proceedings are to operate on a de novo scope of review approach, thus avoiding the Bowman issue on the Form 4340 question and more importantly allowing taxpayers to get a fair shake in cases they take to court.