The Judge Who Writes Like A Human Being, a/k/a The Great Dissenter, Mark V. Holmes, is a great fan of the remand to Appeals. See my blogpost “Back To The Future”, 8/1/11; although IRS isn’t happy with Judge Holmes’ liberal views. See my blogpost “Demand For Remand”, 12/3/12.
But that inveterate tax dodger William B. Meyer gets some judicial largesse from Judge Holmes in 2013 T. C. Memo. 268, filed 11/25/13.
Bill got nailed twice for frivolous filings, each time to the tune of $15K. Judge Holmes: “But for his 2000 tax year, Meyer decided not to file a return at all. Meyer told us at trial that he would not file a 2000 tax return unless he had a notice of deficiency and accompanying papers ‘to work from,’ because his records were ‘chaotic at best.’ The Commissioner believes Meyer earned more than more than $1 million in taxable income for 2000.” 2013 T. C. Memo. 268, at p. 2.
IRS gave Bill a SFR and a SNOD. But the USPS Form 3877 attesting to the certified mailing of the SNOD is dubious, and the SNOD itself is nowhere to be found. At least, not yet.
Bill never petitions the SNOD (which he claims he never got), but does petition the levy notice. Those things generally attract the notice even of persons whose view of the Code is somewhat casual.
The AO ordered a Form 4340 Certificate of Assessments, Payments And Other Specified Matters, but never finds the SNOD. “The Form 4340 had an entry which indicated that a $465,390 tax had been ‘assessed by examination’ and that there was an ‘audit deficiency per default of 90 day letter.’ Although that form apparently satisfied the Appeals Officer that a notice of deficiency existed, he was unable to find a copy of the notice before the CDP hearing.” 2013 T. C. Memo. 268, at p. 4.
When the AO asked Bill at the face-to-face CDP if there were any irregularities in the procedures IRS used, Bill said IRS never gave him a copy of the SNOD, even though he repeatedly asked and even filed a Freedom of Information request to get it.
“The Appeals officer was clearly aware that if he did not get verification that the Commissioner properly mailed a notice of deficiency to Meyer’s last known address, the assessment would be invalid; he wrote in his case activity record, ‘it is potentially possible that account will have to be abated & a new SNOD issued.’” 2013 T. C. Memo. 268, at p. 5.
Leaving out the tautological locution “potentially possible”, there’s a problem here. No SNOD, no mailing, no deficiency, no case.
The AO let Bill dispute his liability, but closes the case based on the dubious 3877 (the details of which you can read for yourself: a doubtful postmark, an illegible signature, and no number of items mailed filled in), that Bill discussed no collection alternatives (and couldn’t avail himself of any, as he hadn’t paid subsequent years’ taxes), and that the Form 4340 was close enough for jazz.
No, says Judge Holmes. While the Form 4340 is presumptive evidence, the taxpayer can identify any irregularity. Unless taxpayer does so, the Form 4340 is sufficient.
“Here, however, Meyer plainly did identify an irregularity in the assessment procedure–he argued that he never received the notice of deficiency. See Hoyle v. Commissioner, 131 T.C. at 205 n.7 (‘[W]here a taxpayer alleges no notice of deficiency was mailed he has * * * “[identified] an irregularity”, thereby requiring the Appeals officer to do more than consult the computerized records’ (quoting Chief Counsel Notice CC-2006-19 (Aug. 18, 2006))). Thus, the Appeals officer could not rely on ‘computerized records’ like the Form 4340. Instead, we have said that ‘[t]he Appeals officer may be required “to examine underlying documents in addition to the tax transcripts, such as the taxpayer’s return, a copy of the notice of deficiency, and the certified mailing list.’” Id. (quoting Chief Counsel Notice CC-2006-19). Therefore, the Appeals officer had a duty to dig deeper; at the very least, he had to examine other evidence to verify that the notice was properly mailed.” 2013 T. C. Memo. 268, at pp. 15-16. (Footnotes omitted, but read them: Judge Holmes’ best lines are in the footnotes).
And here’s the gist of one omitted footnote. “The Commissioner argues that Meyer disputed only his receipt of the notice of deficiency, and not its existence, during the CDP hearing. Thus, says the Commissioner, since the challenge to the existence of the notice is not part of the administrative record, it was never in dispute before the Appeals officer and we should not consider it. We think that’s splitting hairs a bit too fine–especially in a pro se setting. As an initial matter, we think Meyer did put the existence of the notice at issue at the CDP hearing. The declaration he gave to the Appeals officer at the CDP hearing says not only that he didn’t receive a notice of deficiency, but also that he had been unable to obtain a copy from the IRS after several requests. And that was on top of the fact that the Appeals officer himself was unable to find a copy of it. Even if Meyer’s declaration didn’t say the magic word ‘existence’, we have indicated that challenging receipt is also a challenge to a notice’s existence.” 2013 T. C. Memo. 268, at p. 15, footnote 10.
But is the dicey USPS Form 3877 a stronger a ledge for IRS to stand on? Even though this is a CDP and not a deficiency case, deficiency case principles rule.
“In deficiency cases, we have acknowledged that a failure to precisely comply with the Form 3877 mailing procedures may not be fatal if the Commissioner can come forward with other evidence that the mailing procedures were followed. See Clough, 119 T.C. at 188; Coleman, 94 T.C. at 91-92. Likewise, in a CDP case we want to stress that an Appeals Officer’s reliance on a defective Form 3877 to verify that the IRS had fulfilled its requirements to mail out a notice of deficiency is not an abuse of discretion per se–if the administrative record shows that he relied on other evidence that corrects or explains the defects, he could meet his verification obligation regarding the mailing issue.” 2013 T. C. Memo. 268, at pp. 25-26.
Except the AO didn’t. “The Appeals officer could’ve sought a declaration or some other kind of verification from an IRS employee involved in preparing the Form 3877 (or, if there was one, the USPS employee signing off on that form)…or obtained other habit or documentary evidence…to verify proper mailing. The administrative record, however, doesn’t indicate he sought any of these alternatives.” 2013 T. C. Memo. 268, at pp. 26-27. (Citations omitted).
And the administrative record is what governs here, where Ninth Circuit is the forum for appeals.
So does Judge Holmes toss IRS or send the case back to Appeals?
It’s close call, but Judge Holmes remands. Several Tax Court opinions came down between the CDP and the Tax Court trial, which the AO couldn’t have known about, showing what he should have done. So the case goes back to Appeals, not merely on the present administrative record but to complete it.
Especially to come up with the SNOD and proof that it was properly mailed.
Takeaway- If you dispute receipt, dispute existence (unless, of course, the SNOD is attached to the IRS’ answer).