Tax Court Admits Administrative Record From Remand Hearing Into Evidence

Hoyle, (2011) 136 TC No. 22

In a supplemental opinion, and over various objections raised by the taxpayers, the Tax Court has determined that the administrative records from a remanded Appeals Office hearing can be admitted into evidence. It also determined that IRS properly refiled its notice of federal tax lien while the suit was pending.

Background. Code Sec. 6320(a)(1) requires IRS to give a taxpayer written notice of the filing of a tax lien on his property. The notice must inform him of the right to request a hearing in IRS's Appeals Office. (Code Sec. 6320(a)(3)(B), Code Sec. 6320(b)(1))

At the hearing, the taxpayer may raise any relevant issues including appropriate spousal defenses, challenges to the appropriateness of collection actions, and collection alternatives. (Code Sec. 6330(c)(2)(A)) However, the taxpayer may challenge the underlying tax liability only if he did not receive a statutory notice of deficiency for the tax liability and did not otherwise have an opportunity to dispute the tax liability. (Code Sec. 6330(c)(2)(B))

In addition to considering issues raised by the taxpayer under Code Sec. 6330(c)(2), the Appeals officer must verify that the requirements of any applicable law or administrative procedure have been met. (Code Sec. 6330(c)(1), Code Sec. 6330(c)(3)) Where the validity of the underlying tax liability is properly in issue, the Tax Court will review the matter de novo (i.e., a fresh review). Otherwise, the Tax Court will review IRS's determination for abuse of discretion. (Sego, (2000) 114 TC 604, Goza, (2000) 114 TC 176)

Under Code Sec. 6321, a tax lien arises in favor of the U.S. upon a taxpayer's failure to pay after a demand for payment has been made. The lien covers all property and rights to property belonging to the person, and it arises when the tax is assessed and continues until the underlying liability is satisfied or otherwise becomes unenforceable.

In order for a notice of lien to remain in force, the IRS must refile the notice within the required refiling period. (Reg. §301.6323(g)-1(a)(1)) The required refiling period is a one-year period ending 30 days after ten years has expired from the date of tax assessment, and a one-year period ending with the expiration of ten years after the last refiling period closes. (Code Sec. 6323(g)(3); Reg. §301.6323(g)-1(c))

However, neither the failure to refile before the expiration of the refiling period, nor the release of the lien, shall alter or impair any right of the U.S. to property or its proceeds that is the subject of a levy or judicial proceeding commenced prior to the end of the refiling period or the release of the lien, except to the extent that a person acquires an interest in the property for adequate consideration after the commencement of the proceeding and does not have notice of, and is not bound by, the outcome of the proceeding. (Reg. §301.6323(g)-1(a)(3)(i))

Facts. In '96, IRS assessed a deficiency for the joint return filed for '93 by Martin Hoyle and his wife. In 2002, it issued them a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 with respect to their unpaid tax liability for '93. The NFTL stated that unless it was refiled by Sept. 25, 2006, it would operate as a certificate of release of lien. The Hoyles timely submitted a Form 12153, Request for a Collection Due Process Hearing. They raised their underlying tax liability and questioned whether offsetting overpayments were properly reflected in the lien amount.

By letter dated Dec. 9, 2003, IRS's Appeals officer informed the Hoyles that they were precluded from raising the underlying tax liability because they had a previous opportunity to dispute the underlying tax. By letter dated Mar. 31, 2004, IRS sent them a notice of determination upholding the filing of a Federal tax lien. On Apr. 30, 2004, they filed with the Tax Court a timely petition for review of IRS's determination.

In Hoyle I, (2008) 131 TC 197, the Court was faced with these issues: (1) Whether the Hoyles could raise the issue of whether a notice of deficiency for their '93 tax year was mailed to them; (2) if they could raise that issue, whether IRS's Appeals officer properly verified that the notice was sent; and (3) if the Appeals officer did not properly verify that the notice was sent, whether the Tax Court should review the underlying tax liability de novo.

After concluding that it had jurisdiction to review whether IRS's Appeals officer verified that a notice of deficiency was sent to the Hoyles preceding the assessment, the Court held that if no notice of deficiency was mailed, it would not review the underlying tax liability de novo. That's because, if no notice of deficiency was mailed, the assessment of the '93 tax liability would be invalid, the lien would be improper, and collection could not proceed. However, it was unclear what the Appeals officer relied on to verify that the assessment was preceded by a duly mailed notice of deficiency. Consequently, the Tax Court sent the case back to the Appeals Office to clarify the record as to the basis for the Appeals officer's verification that all requirements of applicable law were met.

Intervening events. The settlement officer who was assigned the case following Hoyle I determined, with IRS's counsel, to give the Hoyles a face-to-face conference to determine whether the notice of deficiency was sent to their last-known address, whether the assessment was valid, and whether they could challenge the underlying ability based on not receiving the deficiency notice. IRS's counsel then reviewed the settlement officer's supplemental notice of determination to ensure that all issues that the Court required to be addressed in fact were.

On Feb. 19, 2009, the settlement officer discovered that the refiling date stated on the original NFTL had passed. Accordingly, on Mar. 3, 2009, IRS filed Form 12474-A, Revocation of Certificate of Release of Federal Tax Lien, then subsequently filed the NFTL for the '93 tax year.

Issues in Hoyle II. In Hoyle II, (2011), 136 TC No. 22, the Tax Court considered: (i) whether IRS's proposed supplemental stipulation of facts and exhibits, including the administrative record of the remand hearing and a certified mail list showing the mailing of the original deficiency notice to the Hoyles' representative, could be admitted into evidence; and (ii) whether IRS could refile its NFTL during the pendency of these proceedings.

Supplemental opinion. The Tax Court held that the administrative record on remand was in fact admissible to show the information that was available to the Appeals Office during its administrative consideration of the case. The Court reasoned that a hearing on remand is intended to supplement the original Code Sec. 6320 hearing. A taxpayer is only entitled to a single Code Sec. 6320 hearing for the tax year to which the unpaid liability relates, and when a case is remanded to Appeals, the supplemental determination is accordingly what the Court reviews.

The Court rejected the Hoyles' argument that the administrative record on remand was inadmissible because it raised matters not considered at the original hearing, noting that the settlement officer was specifically ordered to consider whether a notice of deficiency was property sent to the Hoyles. The administrative record on remand contained much evidence relevant to the determination, and to the Court's review of it, such as the certified mail list. Consequently, so long as the administrative record on remand was authenticated, it was admissible.

The Court also rejected the Hoyles' claim that the settlement officer and IRS counsel had improper ex parte contact. Rather, their conversations were solely procedural, ministerial, or administrative. The Hoyles' final objection, that the administrative record on remand lacked trustworthiness and thus constituted inadmissible hearsay, also failed. The Court noted that its consideration of this record was for the limited purpose of establishing what information was available to Appeals in preparing the supplemental notice of determination, not the truth of such information.

Finally, the Tax Court determined that, contrary to the Hoyles' argument, IRS was permitted to refile its lien. The '93 tax was assessed on Aug. 26, '96, and the Hoyles timely requested an administrative review of the original NFTL, which stated that it would operate as a certificate of release unless it was refiled by Sept. 25, 2006. Under Reg. §301.6323(g)-1(a)(3)(i), even though the NFTL wasn't refiled during the refiling period, it nonetheless remained effective because the underlying property was the subject matter of a suit to which the government was a party that was filed before that period expired. Further, since no final decision on the '93 tax had been issued, the period of limitations on collection remained suspended. Thus, IRS's filing of a revocation of certificate of release of federal tax lien and refiling of the NFTL were proper.

References: For collection due process hearings with regard to liens, see FTC 2d/FIN ¶V-6000; United States Tax Reporter ¶63,204; TaxDesk ¶911,002; TG ¶71971. For collection due process hearings with regard to levies, see FTC 2d/FIN ¶V-5255; United States Tax Reporter ¶63,304; TaxDesk ¶902,505; TG ¶71945.