Collection due process hearing regs. upheld.

• Author: Barton, Peter C.

In Lewis, 128 TC 48 (2007), the Tax Court held, in a case of first impression, that Regs. Sec. 301.6330-1(e)(3), Q&A-E2, is valid. This regulation interprets Sec. 6330(c)(2)(B), which specifies when taxpayers can raise their underlying tax liability in a Sec. 6330 collection due process hearing on unpaid taxes.

Background

The statutory scheme regarding collection due process hearings is complicated. In 1998, in the IRS Restructuring and Reform Act, P.L. 105-206, Congress enacted Secs. 6320 and 6330, which provide statutory appeal rights to taxpayers subject to IRS liens and levies. Secs. 6330(a) and (b) provide, in general, that the Service cannot collect unpaid taxes by levy before giving taxpayers notice and the opportunity for an IRS Appeals Office hearing. Sec. 6330(b)(3) requires an impartial hearing officer who has had no prior involvement with the underlying tax liability. Sec. 6330(c)(2)(A) allows taxpayers to raise any issue relevant to the proposed collection activity at this hearing, including innocent spouse stares, offers in compromise, installment agreements, and assets used to satisfy the tax liability.

Sec. 6330(c)(2)(B) also allows taxpayers to raise "the underlying tax liability" as an issue at a collection due process hearing if the taxpayer "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability" Sec. 6330, the rest of the Code, and the legislative history do not define the phrase "otherwise have an opportunity to dispute such tax liability." Sec. 6330(d) allows the taxpayer to appeal to the Tax Court the Service's determination in a collection due process hearing. (For determinations made after October 16, 2006, all appeals are to the Tax Court; before October 17, 2006, certain appeals were to federal district court.) The language of Secs. 6330(c) and (d) clarifies that if the underlying tax liability cannot be raised at the hearing under Sec. 6330(c)(2)(B), it cannot be raised in an appeal of the hearing's results to the Tax Court.

The IRS Restructuring and Reform Act also added Sec. 7123, which requires the Service to prescribe procedures allowing taxpayers to request early referrals of unresolved issues from the examination or collection division to the IRS Office of Appeals, where an informal conference is held with the taxpayer. This appeal is separate from and occurs prior to the Sec. 6330 Appeals Office hearing; taxpayers...