Linda J. Romano-Murphy v. Commissioner

152 T.C. No. 16
UNITED STATES TAX COURT
LINDA J. ROMANO-MURPHY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent*
Docket No. 27236-09L. Filed May 21, 2019.
On July 26, 2006, R (or the IRS) mailed a Letter 1153, Trust
Fund Recovery Penalty Letter, to P, notifying her that she would be
subject to the assessment of a penalty under I.R.C. sec. 6672(a). That
section imposes a penalty on any person who is responsible for
withholding amounts of federal tax and paying them over to the
United States and who willfully fails to fulfill these obligations. The
penalty is referred to as the trust-fund-recovery penalty.
In response to the Letter 1153, P sent the IRS a timely protest
of the proposed assessment and a request for a conference with the
IRS Office of Appeals. The IRS’s Office of Appeals did not hold a
conference with P. Nor did the IRS make a final administrative
determination with respect to the protest.
*
This Opinion supplements our previously filed opinion Romano-Murphy v.
Commissioner, T.C. Memo. 2012-330, vacated and remanded, 816 F.3d 707 (11th
Cir. 2016).
-2-
On Oct. 15, 2007, the IRS assessed the trust-fund-recovery
penalty against P. Then the IRS engaged in actions to collect the
penalty. In particular, it sent P a notice of intent to levy and filed a
notice of lien on P’s property. These actions triggered P’s right to a
collection-review hearing under I.R.C. sec. 6330. At this collection-
review hearing, the Office of Appeals determined that P was liable for
the trust-fund-recovery penalty. The Office of Appeals also
determined to sustain the collection actions.
P petitioned the Tax Court for review of the determination of
the Office of Appeals. We held that P was liable for the penalty.
Romano-Murphy v. Commissioner, T.C. Memo. 2012-330, vacated
and remanded, 816 F.3d 707 (11th Cir. 2016). We also determined
that the IRS was not required to make a final administrative
determination regarding the protest before assessing the penalty
against P.
P appealed our decision to the U.S. Court of Appeals for the
Eleventh Circuit. The Court of Appeals held that the IRS was
required to make a final administrative determination regarding P’s
protest before assessing the penalty. Romano-Murphy v.
Commissioner, 816 F.3d at 717. The Court of Appeals held that the
source of this requirement is I.R.C. sec. 6672(b). I.R.C. sec.
6672(b)(1) provides that the trust-fund-recovery penalty cannot be
imposed on a person until the IRS notifies that person that he or she
will be subject to an assessment of the penalty. It is the IRS’s
practice to give this preliminary penalty notice using Letter 1153, the
notice it used in this case. I.R.C. sec. 6672(b) alters the three-year
period during which the IRS is entitled to assess the trust-fund-
recovery penalty. It does so in two ways. First, under I.R.C. sec.
6672(b)(3)(A), the three-year period is held open for 90 days after the
mailing of the preliminary penalty notice. Second, under I.R.C. sec.
6672(b)(3)(B), if the person makes a timely protest of the proposed
assessment in response to the preliminary penalty notice, the three-
year period is held open until the date that is 30 days after the IRS
makes a final administrative determination with respect to the protest.
The Court of Appeals held that I.R.C. sec. 6672(b)(3)(B) requires the
-3-
IRS to make a final administrative determination in response to a
timely protest before it can assess the penalty. The requirement so
identified by the Court of Appeals was violated in this case because
the IRS assessed the penalty against P without making a final
administrative determination.
The Court of Appeals remanded the case for us to determine
what action, if any, should be taken to remedy the IRS’s error in
assessing the penalty against P before making a final administrative
determination.
1. Held: The requirement identified by the Court of Appeals is
one of the “requirements of applicable law or administrative
procedure”, compliance with which must be verified by the Office of
Appeals in an I.R.C. sec. 6330 collection-review hearing.
2. Held, further, the assessment of the trust-fund-recovery
penalty is invalid and we do not sustain the determination of the
Office of Appeals.
Linda J. Romano-Murphy, pro se.
Kimberly A. Daigle and John T. Arthur, for respondent.
CONTENTS
SUPPLEMENTAL OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Discussion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1. Relevant principles of federal tax procedure . . . . . . . . . . . . . . . . . . . . . . . . 21
-4-
a. From the filing of the return to assessment . . . . . . . . . . . . . . . . . . . . 21
b. Collection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
c. The trust-fund-recovery penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
d. 1998 collection-review provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 34
e. Tax-refund litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2. Our analysis on remand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
a. The requirement identified by the Eleventh Circuit, that the IRS
must make a final administrative determination before assessing
the trust-fund-recovery penalty, should be considered a
requirement of applicable law or administrative procedure that
must be verified as part of a collection-review hearing. . . . . . . . . . . 40
b. The assessment of the trust-fund-recovery penalty against
Romano-Murphy is invalid, and the Office of Appeals erred in
sustaining actions to collect the assessment.. . . . . . . . . . . . . . . . . . . 51
c. Our holding is consistent with the harmless-error principle. . . . . . . 55
d. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
3. Romano-Murphy’s request for an injunction under section 6330(e)(1) . . . 76
4. Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
-5-
SUPPLEMENTAL OPINION
MORRISON, Judge: The Internal Revenue Service (“IRS”) sent the
petitioner, Linda J. Romano-Murphy, a notice that it would assess a section 6672
trust-fund-recovery penalty against her.1 The penalty related to the failure of
Nurses PRN, LLC (“NPRN”), to withhold Federal Insurance Contributions Act
(“FICA”) taxes and income tax from its employees’ wages for the second quarter
of 2005. Although Romano-Murphy timely protested the penalty administratively,
the IRS did not make a final administrative determination regarding her protest.
Instead, the IRS assessed the penalty. It then took actions to collect the penalty,
i.e., a notice of proposed levy and a filing of a notice of lien. These actions
triggered Romano-Murphy’s right to a collection-review hearing (also known as a
collection-due-process hearing or a CDP hearing) with the Office of Appeals. At
the hearing she challenged her liability for the penalty. The Office of Appeals
determined that she was liable for the penalty and sustained the proposed levy and
the filing of the notice of lien. The Tax Court reviewed the determination of the
Office of Appeals; we held that she was liable for the penalty. Romano-Murphy v.
Commissioner, T.C. Memo. 2012-330, at *107, vacated and remanded, 816 F.3d
1
Unless otherwise indicated, all section references are to the Internal
Revenue Code of 1986, as amended.
-6-
707 (11th Cir. 2016). We also determined that the IRS was not required to make a
final administrative determination regarding her protest before assessing the
penalty. In the appeal of our decision, the U.S. Court of Appeals for the Eleventh
Circuit held that section 6672(b)(3)(B) required the IRS to make a final
administrative determination before assessing the penalty. Romano-Murphy v.
Commissioner, 816 F.3d at 714. The Eleventh Circuit remanded the case for us to
determine what corrective action should be taken to remedy the IRS’s violation of
this requirement. Id. at 721. On remand, we hold that the assessment is invalid
and that the Office of Appeals abused its discretion in upholding the proposed
levy and the filing of the notice of lien to collect the assessment. We do not
sustain the determination of the Office of Appeals.
Background
Romano-Murphy was the chief operating officer and the corporate secretary
of NPRN. NPRN was a nurse-staffing company.
On July 29, 2005, NPRN filed a Form 941, “Employer’s Quarterly Federal
Tax Return”, for the second quarter of 2005. NPRN reported that $403,019.72
was the amount of its liability to the IRS for FICA and income tax that it was
required to withhold from its employees’ wages. FICA taxes and income tax must
be withheld from wages by the employer and paid over to the United States. Secs.
-7-
3102(a), 3402(a)(1), 7501; Lee v. Commissioner, 144 T.C. 40, 46 (2015). These
withholding obligations are among the types of taxes called trust-fund taxes. See
Pollock v. Commissioner, 132 T.C. 21, 25 n.10 (2009).
On July 26, 2006, the IRS mailed Romano-Murphy a Letter 1153, “Trust
Fund Recovery Penalty Letter”. The letter stated that NPRN had failed to pay
$346,732.38 of trust-fund taxes for the second quarter of 2005. The letter stated
that the IRS proposed to assess that amount against Romano-Murphy as a trust-
fund-recovery penalty under section 6672. The letter stated that she could appeal
the proposed assessment by mailing a written protest to the IRS within 60 days
along with a request for a conference with the Office of Appeals.
In the meantime, NPRN’s operations had been taken over by another
company, Nurses Onsite Corp. Romano-Murphy worked for the new company
until August 7, 2006.
On September 6, 2006, Romano-Murphy wrote the IRS a letter appealing
the proposed assessment of the penalty and requesting a conference with the
Office of Appeals. The parties agree that this letter was a timely protest. The IRS
did not take any action in response to the letter.
On December 27, 2006, Nurses Onsite Corp. went into bankruptcy.
-8-
On October 15, 2007, the IRS assessed the trust-fund-recovery penalty of
$346,732.38 against Romano-Murphy for NPRN’s unpaid trust-fund taxes for the
second quarter of 2005. The IRS sent her a notice of the assessment with a
demand for payment within 60 days of the assessment.
On August 25, 2008, the IRS served Romano-Murphy a notice that it
proposed to levy to collect from her the trust-fund-recovery penalty for NPRN’s
trust-fund taxes for the second quarter of 2005. The record does not reveal what
amount was reflected on this notice, if any.
On September 5, 2008, the IRS served Romano-Murphy with a notice that
on that day it had filed a notice of lien to facilitate the collection from her of the
trust-fund-recovery penalty for NPRN’s trust-fund taxes for the second quarter of
2005. The notice stated that the amount the IRS sought to collect was
$346,668.23. The record does not explain why this amount is slightly less than the
$346,732.38 amount assessed on October 15, 2007.
On September 9, 2008, Romano-Murphy mailed the IRS a timely request for
a collection-review hearing with the IRS’s Office of Appeals. The request was
timely as a response to both the notice of proposed levy and the notice of the filing
of a notice of lien.
-9-
On September 12, 2008, the IRS received Romano-Murphy’s request for a
collection-review hearing.
On September 12, 2008, the IRS placed a “litigation freeze” notation in its
records for Romano-Murphy’s liability for the trust-fund-recovery penalty.
On February 24, 2009, the Office of Appeals held a face-to-face conference
with Romano-Murphy. Romano-Murphy challenged her liability for the trust-
fund-recovery penalty.
On October 29, 2009, the Office of Appeals mailed Romano-Murphy a
letter attaching a Form 12257. The letter stated:
Attached please find Form 12257, Summary Notice of Determination,
Waiver of Right to Judicial Review of a Collection Due Process
Determination, and Waiver of Suspension of Levy Action discussed
during our telephone conference of 10/28/09. Once reviewed, please
sign and date and submit both pages of the form by November 13,
2009. If the Form 12257 is not received, a Notice of Determination
will be issued.
We refer to the Form 12257 as the summary notice of determination. The
summary notice of determination stated that, after a face-to-face hearing, the
determination of the Office of Appeals was that the assessment of a trust-fund-
recovery penalty was valid, that the Office of Appeals had verified that all
requirements of applicable law and administrative procedure had been met, that
collection of the assessment should proceed, that the proposed collection action
-10-
balanced the need for the efficient collection of taxes and the legitimate concern of
Romano-Murphy that any collection action be no more intrusive than necessary,
and that the notice of proposed levy and the filing of the notice of lien were
sustained. In addition, the summary notice of determination had a section for
Romano-Murphy to sign that stated: “I understand that IRC Sections 6320 and
6330 require the Office of Appeals to issue a Notice of Determination after a CDP
Hearing. Those sections also allow me 30 days to file a lawsuit with the
appropriate court if I disagree with Appeals’ determination.”
On November 17, 2009, Romano-Murphy filed a petition with the Tax
Court attaching the summary notice of determination dated October 29, 2009.
On November 20, 2009, the Office of Appeals mailed a notice of
determination to Romano-Murphy. We refer to the notice of determination as the
final notice of determination. The final notice of determination stated that the
notice of proposed levy and the filing of the notice of lien were sustained.
The parties have agreed that the Office of Appeals determined that the
amount of the trust-fund-recovery penalty Romano-Murphy owed for the second
quarter of 2005 was $346,732.38.
After a trial, the Tax Court issued a Memorandum Opinion. Romano-
Murphy v. Commissioner, T.C. Memo. 2012-330. The Tax Court held that
-11-
Romano-Murphy is liable for the trust-fund-recovery penalty for the second
quarter of 2005 in the same amount determined by the Office of Appeals--
$346,732.38. Id. at *107. The Tax Court decided to sustain the Office of
Appeals’ determination. The decision was entered December 13, 2012.
Romano-Murphy then moved for reconsideration of the Tax Court opinion
and to vacate the decision. She argued that the October 15, 2007 IRS assessment
of the penalty was invalid because the IRS failed to give her a hearing regarding
her September 6, 2006 protest of the proposed assessment. The Tax Court denied
her motion by order. The order stated that Romano-Murphy’s motions were
premised on the theory that the assessment was invalid because it was made before
the IRS had made a final administrative determination. In the order, the Tax Court
held that the IRS was not required by section 6672(b)(3) to delay assessment until
it had made a final administrative determination with respect to a protest of a
proposed assessment.
Romano-Murphy appealed the decision of the Tax Court to the U.S. Court
of Appeals for the Eleventh Circuit.
On March 7, 2016, the Eleventh Circuit issued its opinion. Romano-
Murphy v. Commissioner, 816 F.3d 707. The Eleventh Circuit explained that
Romano-Murphy’s argument on appeal was that the assessment of the penalty was
-12-
invalid because the IRS did not hold a hearing or make a final administrative
determination before the assessment. Id. at 714. The government’s appellate brief
took the position that section 6672(b)(3) does not confer a right to a pre-
assessment hearing or a pre-assessment final administrative determination.
Instead, the government argued, the function of section 6672(b)(3) is to extend the
period for the IRS to assess the penalty. The Eleventh Circuit held that the IRS
erred in not making a pre-assessment determination of Romano-Murphy’s section
6672 liability. Romano-Murphy v. Commissioner, 816 F.3d at 714. The Eleventh
Circuit recognized that section 6672 “does not contain a subsection concerning a
pre-assessment hearing or determination of the liability”. Romano-Murphy v.
Commissioner, 816 F.3d at 715. However, the Eleventh Circuit stated, section
6672(b)(3) “does presuppose that there will be a pre-assessment determination at
some point if a taxpayer files a timely protest.” Romano-Murphy v.
Commissioner, 816 F.3d at 715. It also stated that section 6672(b)(3), in particular
subparagraph (B), “contemplates that there will be a pre-assessment determination
of liability and notice thereof to the taxpayer if a timely protest has been filed.”
Romano-Murphy v. Commissioner, 816 F.3d at 716. It concluded that “Romano-
Murphy was entitled to a pre-assessment determination of her § 6672 liability.”
Id. at 714.
 -13-
The Eleventh Circuit also stated that even if section 6672 were assumed to
be “ambiguous”, regulations (section 301.7430-3(d), Examples (5) and (7),
Proced. & Admin. Regs.) require the Office of Appeals to make a pre-assessment
determination of section 6672 liability when a timely protest is filed. Romano-
Murphy v. Commissioner, 816 F.3d at 716-718. The Eleventh Circuit opinion
held that these regulations and another regulation, section 301.6320-1(e)(4),
Example (3), Proced. & Admin. Regs., “require the IRS to make a pre-assessment
determination (though not necessarily through the provision of a hearing) about a
taxpayer’s § 6672(a) liability when timely protest is made.” Romano-Murphy v.
Commissioner, 816 F.3d at 717.
The Eleventh Circuit also stated that its interpretation of section 6672(b)(3)
was consistent with section 601.106(a)(1)(iv), Statement of Procedural Rules.
Romano-Murphy v. Commissioner, 816 F.3d at 718-719. Section
601.106(a)(1)(iv), Statement of Procedural Rules, provides that the taxpayer may
appeal certain penalties to the Office of Appeals after assessment. According to
the statement, the trust-fund-recovery penalty is not such a penalty “because the
taxpayer has the opportunity to appeal this penalty prior to assessment.” Id.
-14-
The Eleventh Circuit also stated that its interpretation of section 6672(b)(3)
was consistent with certain parts of the Internal Revenue Manual. Romano-
Murphy v. Commissioner, 816 F.3d at 719.
The Eleventh Circuit opinion next discussed the potential consequences of
its holding that the IRS had “violated § 6672(b)” in failing to make the required
pre-assessment determination of liability following Romano-Murphy’s timely
protest. Id. The Eleventh Circuit observed that the Tax Court had not yet in this
case addressed whether the IRS’s error required invalidation of any agency action.
Id. The Eleventh Circuit opinion stated that Romano-Murphy had alleged that she
was prejudiced by the IRS’s failure in that
! she had to pay more interest (because interest accrues from the date of
assessment),
! she was unable to obtain information from NPRN’s online system
because of the IRS’s delay in making a determination, and
! the filing of the lien notice harmed her credit.
Id. at 720. The Eleventh Circuit opinion stated that the Tax Court “may need to
determine the existence, and extent, of these harms before figuring out whether the
IRS’ error was harmless.” Id.
-15-
The Eleventh Circuit opinion also stated that “aside from the specific
prejudice claimed by Ms. Romano-Murphy, there is the difficult question of what
happens when the IRS violates a statutory and regulatory command that exists for
the benefit of the taxpayer.” Id. The Eleventh Circuit opinion stated that there are
“reasonable arguments on both sides of that question.” Id. In discussing
considerations against imposing a remedy against the IRS for violating the
requirement it identified, the Eleventh Circuit recognized that Romano-Murphy
“eventually did receive a pre-levy opportunity to be heard” when she was given a
collection-review hearing in 2009. Romano-Murphy v. Commissioner, 816 F.3d
at 720. The Eleventh Circuit opinion also explained that in “other contexts, where
an agency’s failure to follow its own process and procedures does not ‘implicate[ ]
basic due process rights,’ we have reviewed that failure for harmless error.” Id.
(citing Ala. Hosp. Ass’n v. Beasley, 702 F.2d 955, 958 nn. 6 & 8 (11th Cir. 1983),
R.R. Concrete Crosstie Corp. v. R.R. Ret. Bd., 709 F.2d 1404, 1407 n.3 (11th Cir.
1983), and Howell v. United States, 164 F.3d 523, 526 (10th Cir. 1998)).
The Eleventh Circuit opinion then discussed considerations in favor of
imposing a remedy against the IRS for failure to comply with the requirement it
had identified. Romano-Murphy v. Commissioner, 816 F.3d at 720-721. The
Eleventh Circuit discussed the following considerations.
-16-
! The principle that executive agencies must comply with procedural
requirements imposed by statute. Id. at 720 (citing Gonzales v. Reno,
212 F.3d 1338, 1349 (11th Cir. 2000)).
! The principle that executive agencies must respect their own
procedural rules and regulations. Id. (citing Gonzales, 212 F.3d at
1349).
! The principle that the IRS may not treat two similarly situated
taxpayers differently. Id. (citing Powell v. United States, 945 F.2d
374, 378 (11th Cir. 1991)).
! The principle that assessments can be rendered invalid by IRS error.
Id. (citing Phila. & Reading Corp. v. Beck, 676 F.2d 1159, 1164 (7th
Cir. 1982)).
! A case in which the court had refused to presume that an agency error
was harmless. Id. (citing U.S. Steel Corp. v. EPA, 595 F.2d 207, 215
(5th Cir. 1979)).
The Eleventh Circuit remanded the case so that the Tax Court “can address
whether the IRS’ error, under the circumstances, is harmless or requires setting
aside the 2007 assessment (or some lesser form of corrective action).” Id. at 721.
 -17-
As the Eleventh Circuit opinion explained, the parties had addressed the questions
of harmless error and potential remedies in their appellate briefs. Id. at 719-720.
On March 7, 2016, the Eleventh Circuit entered a judgment consisting of its
opinion. The Eleventh Circuit did not issue an order shortening or extending the
time for filing a petition for panel rehearing. No petition for panel rehearing was
filed.
On April 29, 2016, the appellate mandate issued.
On June 6, 2016, the Tax Court ordered the parties to “file written reports
stating their views as to the actions this Court should take on remand.”
On June 15, 2016, the IRS removed the “litigation freeze” notation it had
made in its records on September 12, 2008.
In its report on remand, the IRS makes four points:
First, the IRS contends that the assessment was valid because the IRS
complied with section 6672(b)(1) and (2). Recall that on July 26, 2006, the IRS
sent Romano-Murphy a preliminary penalty notice, i.e., the Letter 1153. On
September 6, 2006, Romano-Murphy sent the IRS a timely protest. On October
15, 2007, the IRS assessed the penalty--and issued a notice of the assessment and
demand for its payment. The IRS observes that section 6672(b)(1) and (2)
requires that the preliminary penalty notice precede the notice of assessment by 60
-18-
days. The IRS further states that because notice of assessment “is not given until
the assessment is made”, section 6672(b)(1) and (2) prohibits it from assessing the
trust-fund-recovery penalty until 60 days after it issued the preliminary penalty
notice (i.e., the Letter 1153).2 Because the date of assessment, October 15, 2007,
was more than 60 days after the date of the preliminary penalty notice, July 26,
2006, the IRS says the assessment satisfied section 6672(b)(1) and (2).
Second, the IRS contends that although the Eleventh Circuit opinion held
that the final administrative determination with respect to a protest must be made
before assessment, this does not mean that an assessment without such a
determination is invalid. As the IRS explains its argument: “Congress did not
specifically prohibit assessment until after a final administrative determination
was made after a protest.” The IRS observes that section 6213(a) prohibits an
2
The text of the IRS’s argument is:
Because the notice of the making of an assessment and demand for
payment, as required by section 6303, is not given until the
assessment has been made,1 section[ ] 6672(b)(1) and (2) prohibit[s]
the assessment of the TFRP for 60 days after giving the notice of
proposed assessment.
1
Normally, assessment of a federal tax and mailing of notice
and demand for payment of the assessed tax balance due occur
simultaneously, as part of an automated process. See IRM
3.17.63.2.4.9.
-19-
assessment before a notice of deficiency is issued and allows a court to enjoin such
an assessment. The absence of an analogous provision in section 6672 with
respect to an assessment of a trust-fund-recovery penalty before the IRS has made
a final administrative determination with respect to a protest, the IRS suggests,
means that Congress did not intend to prohibit such an assessment.
Third, the IRS says that Romano-Murphy did get an opportunity to contest
the penalty in the collection-review hearing and the subsequent Tax Court
proceeding. Therefore, the IRS argues, she “has not been prejudiced by the
procedural errors that respondent committed by not providing her with a pre-
assessment hearing and determination.”
Fourth, the IRS states that if it were to abate the assessment in this case for
failure to provide a pre-assessment determination, the period for making a new
assessment would still be open.
In her report on remand, Romano-Murphy states that the Court should order
two things. First, it should abate the assessment made on October 17, 2007.
Second, it should withdraw the notice of lien filed September 5, 2008. Her
remand report also contains many wide-ranging arguments. She argues that the
Eleventh Circuit opinion held that she had a right to a pre-assessment hearing with
the Office of Appeals and that she did not receive this hearing. She argues that
-20-
had the IRS offered her such a hearing, it might not have been necessary for the
IRS to file a notice of lien against her. She contends that a pre-assessment hearing
would have occurred earlier than her collection-review hearing (her face-to-face
conference, which was part of the collection-review hearing, took place February
24, 2009) and she therefore would have had better evidence at a pre-assessment
hearing. In particular, she contends that she would have been able to produce
documents showing that NPRN directed its second-quarter-2005 employment tax
payments to trust-fund taxes. She also contends that she would have been able to
produce a letter from an attorney directing a separate $1.6 million payment to
trust-fund taxes. She argues that she was harmed by the filing of the notice of lien
through increased interest charges, refusals of banks to lend to her, and limitations
on access to apartment housing.
Neither Romano-Murphy nor the IRS urges the Court to hold an evidentiary
hearing on remand, and we did not hold such a hearing.
On May 8, 2017, the IRS issued to Romano-Murphy a notice of intent to
levy on her property to collect the second-quarter-2005 trust-fund-recovery
penalty.
On May 15, 2017, Romano-Murphy filed a motion asking the Court to
restrain the IRS from collection activities. Upon receiving a copy of Romano-
-21-
Murphy’s motion, the IRS requested that the Office of Appeals re-establish the
“litigation freeze” notation.
By May 24, 2017, the IRS’s internal records showed that the “litigation
freeze” notation had been re-established.
Discussion
Our holding, which is set forth infra part 2, relies on principles of federal
tax procedure that are explained generally infra part 1.
1. Relevant principles of federal tax procedure
a. From the filing of the return to assessment
Taxpayers are required to file returns reporting their tax liabilities, sec.
6011(a), and are required to pay their tax liabilities when their returns are due, sec.
6151(a). There are monetary penalties for failing to file a return, sec. 6651(a)(1),
for filing a return reporting the incorrect amount of tax, see sec. 6662(a), and for
failing to pay the correct amount of tax (whether the correct tax is reported on the
return, sec. 6651(a)(2), or is not reported, sec. 6651(a)(3)). Many taxpayers file
their returns, report their correct tax liabilities on these returns, and pay these
liabilities to the federal government. Some taxpayers do not. It falls to the IRS to
collect the unpaid taxes.
-22-
To administratively collect taxes that are not paid, the IRS must as a general
rule first assess the taxes. See sec. 6502(a) (assessment is precondition for
imposing levy); sec. 6322 (assessment results in lien); Jordan v. Commissioner,
134 T.C. 1, 12 (2010), supplemented by T.C. Memo. 2011-243; Gerald A. Kafka
& Rita A. Cavanagh, 1 Litigation of Federal Civil Tax Controversies, para. 3.01,
at 3-2 (2016) (“No tax may be collected by the Service until after it has been
assessed.”); 1 Laurence F. Casey, Federal Tax Practice, sec. 2.01, at 2-3 to 2-4
(2017). Assessment consists of the IRS’s making an entry in its books of the
amount of the taxpayer’s liability. Sec. 6203. As a general rule, the IRS cannot
assess the tax more than three years after the return was filed. Sec. 6501(a).3 If a
return is filed and three years pass without an assessment, the IRS cannot collect
the tax administratively. Sec. 6501(a); see Ewing v. United States, 914 F.2d 499,
503-504 (4th Cir. 1990).
Taxes reported on returns are assessed by the IRS summarily. Sec.
6201(a)(1); Murray v. Commissioner, 24 F.3d 901, 903 (7th Cir. 1994). There is
usually no lag between the filing of a return and assessment. However, in
3
Sec. 6501(a) provides: “Except as otherwise provided in this section, the
amount of any tax imposed by this title shall be assessed within 3 years after the
return was filed * * * and no proceeding in court without assessment for the
collection of such tax shall be begun after the expiration of such period.” If no
return is filed, the IRS can assess tax at “any time”. Sec. 6501(c)(3).
-23-
instances in which the IRS assesses an amount of tax greater than the amount
reported on a return, there is a period between the filing of the return and that
assessment. During this period, the activities conducted by the IRS include
(1) selecting the return for examination; (2) examining the return; (3) handling an
administrative appeal--if the taxpayer is dissatisfied with the results of the
examination; and (4) in the case of income tax, issuing a notice of deficiency to
the taxpayer entitling the taxpayer to a pre-assessment determination by the Tax
Court. We describe these activities in greater detail below.
The IRS selects which returns to examine “by computerized mathematical
techniques * * * developed by the Service and by personnel who manually identify
returns for examination.” Michael I. Saltzman & Leslie Book, IRS Practice &
Procedure, para. 8.03[1], at 8-17 (rev. 2d ed. 2017). Once selected, returns are
examined through correspondence, office interviews, or field examinations. Id.
para. 8.01[2], at 8-8. After examining the return, the examiner may accept the
return as filed or may assert there is a deficiency. Id. para. 8.01[2], at 8-9. A
deficiency is generally the excess of the correct tax over the tax reported on the
return. See sec. 6211(a). If the taxpayer agrees with the examiner’s assertion that
there is a deficiency, the taxpayer signs a form agreeing to the immediate
assessment of the deficiency. Saltzman & Book, supra, para. 8.01[2], at 8-9. If
-24-
the taxpayer does not agree, the IRS typically sends a letter giving the taxpayer 30
days to request a conference with the IRS’s Office of Appeals. Id.; Jeffrey E.
Quijano & Rodney P. Mock, “I.R.C. § 7430 Attorneys’ Fees: Navigating Section
7430 and a Call for the Final Act”, 15 Fordham J. Corp. & Fin. L. 731, 737
(2010). In some instances the 30-day letter requires the taxpayer to send a protest,
which is a written document explaining why the taxpayer is contesting the
examiner’s findings. Saltzman & Book, supra, para. 9.05, at 9-60 (citing section
601.106(a)(1)(ii), Statement of Procedural Rules). As a general rule, the three-
year period for assessment continues to run during the examination and Appeals
processes.4 There are exceptions to this general rule. One exception, which is
4
Michael I. Saltzman & Leslie Book, IRS Practice & Procedure, para.
8.08[4], at 8-70 (rev. 2d ed. 2017), explains that for this reason the taxpayer and
the IRS often agree to extend the period (as is permitted by sec. 6501(c)(4)):
Extensions of the period of limitations are common in the
examination of a return, so it is necessary for the representative to
know the Code provisions and the Service’s procedures in requesting
extensions, as well as the taxpayer’s options where a request is made.
Section 6501(c)(4) provides that the time within which assessment of
any tax other than an estate tax must be made may be extended for
any period agreed on in writing by the taxpayer and the Service, as
long as the agreement is entered into before expiration of the
assessment period. No assessment of a tax may be made after the
period of limitations on assessment has expired, even if the tax was
determined before expiration of the statute. Therefore, to ensure a
timely assessment, the Service does not permit a taxpayer to appeal an
(continued...)
-25-
applicable to the trust-fund-recovery penalty, is found in section 6672(b)(3). This
exception is discussed later in this Opinion.
Another exception is the deficiency procedure. The deficiency procedure is
a pre-assessment procedure mandated by statute for income tax (and for certain
other taxes, but not employment taxes or the trust-fund-recovery penalty). This
procedure is set forth in sections 6211-6215. Section 6212(a) authorizes the IRS
to mail the taxpayer a notice of deficiency informing the taxpayer that the IRS has
determined there is a deficiency. Section 6213(a) authorizes the taxpayer, within
90 days after the notice of deficiency is mailed, to file a petition with the Tax
Court asking the Court to redetermine the deficiency. Section 6214(a) authorizes
the Tax Court to redetermine the deficiency.
Three statutory provisions adjust the procedure for assessing tax to
accommodate the deficiency procedure. First, section 6213(a) bars the IRS from
assessing a deficiency until it has issued a notice of deficiency to the taxpayer.
This bar on assessing the deficiency remains in place until 90 days after the notice
of deficiency is mailed unless the taxpayer files a petition for redetermination of
4
(...continued)
adjustment in tax from the district to the Appeals Office unless there
is sufficient time for both the appeal and assessment. An extension
thus serves the interests of both the Service and the taxpayer by
avoiding revenue loss and permitting administrative appeal.
-26-
the deficiency in the Tax Court, in which event the bar on assessment remains in
place until the decision of the Tax Court becomes final. Id.5 Second, section
6503(a)(1) suspends the running of the three-year period for assessing tax while
the IRS is barred from assessing the deficiency, and, if the taxpayer files a petition
for redetermination of the deficiency, continues to suspend the running of the
period of assessment until the 60th day after the decision of the Tax Court
becomes final.6 Third, section 6215(a) provides that the amount of the deficiency
5
Sec. 6213(a) provides:
[N]o assessment of a deficiency in respect of any tax imposed by
subtitle A or B, chapter 41, 42, 43, or 44 and no levy or proceeding in
court for its collection shall be made, begun, or prosecuted until such
notice has been mailed to the taxpayer, nor until the expiration of
such 90-day * * * period * * * [the 90-day period beginning with the
mailing of the notice of deficiency], nor, if a petition has been filed
with the Tax Court, until the decision of the Tax Court has become
final. * * *
Additionally, sec. 6213(a) provides that “the making of such assessment or the
beginning of such proceeding or levy during the time such prohibition is in force
may be enjoined by a proceeding in the proper court, including the Tax Court”.
6
Sec. 6503(a)(1) provides:
The running of the period of limitations provided in section 6501
* * * on the making of assessments or the collection by levy or a
proceeding in court, in respect of any deficiency as defined in section
6211 (relating to income, estate, gift and certain excise taxes), shall
(after the mailing of a notice under section 6212(a)) be suspended for
(continued...)
-27-
as redetermined by the Tax Court “shall be assessed and shall be paid upon notice
and demand from the Secretary.” The deficiency procedure has been described by
a treatise as follows:
Under deficiency procedures, the Service is required to (1) give the
taxpayer notice of the proposed assessment [citing section 6212], and
(2) wait the statutorily prescribed period of 90 days (150 days for
taxpayers outside the country) before assessing the tax and taking
collection action [citing section 6213]. If the Service attempts to
collect a deficiency without sending the required statutory notice, or
during the ninety-day waiting period, the taxpayer may request that a
district court or the Tax Court enjoin the Service from assessing and
collecting the assessed tax [citing section 7421]. If the taxpayer
chooses to file a petition in the Tax Court, no collection action may
be taken until the Tax Court has reached a final decision. Thus, a
deficiency assessment subject to such restrictions may not be assessed
until the taxpayer has had an opportunity for Tax Court review before
payment of any additional tax. Once the Tax Court has entered its
decision that a deficiency exists, the amount of the deficiency may be
assessed [citing section 6215]. At the expiration of the ninety-day
period following the sending of a notice of deficiency, a tax
determined to be due from a taxpayer may be assessed. Once
assessment has been made, the taxpayer is debarred from Tax Court
review and must make payment of assessed tax.
Saltzman & Book, supra, para. 10.01[2][b], at 10-6.
6
(...continued)
the period during which the Secretary is prohibited from making the
assessment or from collecting by levy or a proceeding in court (and in
any event, if a proceeding in respect of a deficiency is placed on the
docket of the Tax Court, until the decision of the Tax Court becomes
final), and for 60 days thereafter.
-28-
b. Collection
Thus far, we have described the procedure up to the point of assessment.
We now discuss the procedure after assessment. As explained above, the IRS
makes an assessment by making an entry in its books that the taxpayer owes tax.
Sec. 6203. Section 6303(a) requires that, contemporaneously with the assessment
of the tax, the IRS notify the person liable for the unpaid tax and demand
payment.7 If the person liable for the tax fails to pay the tax after being notified of
the assessment, a lien is imposed in favor of the government on all of that person’s
property by operation of section 6321. Section 6322 provides that such a lien
arises when the assessment is made. The combined effect of sections 6321 and
6322 is that an assessment is a precondition to a lien. See United States v.
Potemken, 841 F.2d 97, 102 (4th Cir. 1988) (assessment is a prerequisite to the
creation of a lien); Principal Life Ins. Co. v. United States, 95 Fed. Cl. 786, 791
(2010) (“Whereas the IRS may enforce a taxpayer’s tax obligations in various
ways, its broadest enforcement powers, such as the use of liens and levies, are
available only when an assessment is made.” (citing section 6322 and other
authorities)). A lien does not transfer custody of the property to the federal
7
In particular, sec. 6303(a) requires the IRS to make the notice and demand
as soon as practicable after the assessment (and not more than 60 days after the
assessment).
-29-
government. William D. Elliott, Federal Tax Collections, Liens, and Levies, para.
9.05, at 9-13 (2d ed. 2014); Saltzman & Book, supra, para. 14A.04, at 14A-30 to
14A-31. Rather, the lien establishes the priority of the government’s right to
property over the rights of the taxpayer and of certain types of competing
creditors. See Superpumper, Inc. v. Nerland Oil, Inc. (In re Nerland Oil, Inc.), 303
F.3d 911, 915, 917 (8th Cir. 2002) (federal tax lien based on assessments made in
1993 and 1994 took priority over claim of private creditor whose lien was
perfected only in 1996). The lien is not valid against four types of persons
(purchasers, security-interest holders, mechanic’s lienholders, and judgment-lien
creditors) until the IRS files a notice of lien. Sec. 6323(a). The IRS files the
notice of lien with the office of the clerk or recorder of the county in which the
property is located or with another governmental office. Sec. 6323(f). The notice
of lien is a public document. Elliott, supra, para. 10.01, at 10-2. It warns
subsequent purchasers or lenders that those persons’ interests in the property will
have less priority than the interest of the IRS. Id.; Saltzman & Book, supra, para.
14A.04, at 14A-31. Section 6323(j)(1) provides that the IRS may “withdraw” a
filed notice of lien in various circumstances, one of which is if the IRS determines
that “the filing of such notice was premature or otherwise not in accordance with
administrative procedures”. Sec. 6323(j)(1)(A). The IRS withdraws a notice of
-30-
lien by filing a notice of lien withdrawal with the same governmental office with
which it filed the notice of lien. Sec. 6323(j)(1). The withdrawn notice of lien is
treated as if it had never been filed. Id.
In addition to these lien powers, the IRS also has the power to collect tax by
levy. Sec. 6331(a). Section 6331(a) provides that generally if the taxpayer fails to
pay the tax within 10 days of the section 6303(a) notice and demand, the IRS may
collect the tax by levy. However, as described infra part 1.d, section 6330(a)(1)
generally prohibits the IRS from levying until it sends the taxpayer a notice of the
taxpayer’s right to request a collection-review hearing and, if the taxpayer requests
the hearing, while the hearing is pending. See sec. 6330(e)(1). In general, the
period within which the IRS can make a levy ends 10 years after assessment. Sec.
6502(a).
c. The trust-fund-recovery penalty
An employer is required to withhold from wages amounts for (1) the
employee’s share of FICA tax and (2) the employee’s income tax. Sec. 3102(a)
(FICA tax); sec. 3402(a)(1) (income tax).8 The withheld taxes are required to be
held in trust for the government until the employer pays the amounts to the
8
FICA taxes consist of two components: the Social-Security tax and the
Medicare tax. Sec. 3101(a) and (b); see Gerstenbluth v. Credit Suisse Sec.
(U.S.A.) LLC, 728 F.3d 139, 143 (2d Cir. 2013).
-31-
government. Sec. 7501; Lee v. Commissioner, 144 T.C. 46. Thus, the withheld
taxes are referred to as “trust fund taxes”. Pollock v. Commissioner, 132 T.C.
25 n.10. The employer is liable to the government for the payment of amounts
required to be withheld. Sec. 3102(b) (FICA tax); sec. 3403 (income tax). If an
employer fails to withhold the amounts required to be withheld or withholds the
amounts but fails to pay them to the IRS, a person responsible for the failure (such
as a corporate officer of the employer) may be personally liable for a penalty under
section 6672(a). See Newsome v. United States, 431 F.2d 742, 745 (5th Cir.
1970). This penalty is sometimes referred to as the trust-fund-recovery penalty.
See Weber v. Commissioner, 138 T.C. 348, 357 (2012).
The trust-fund-recovery penalty is assessed and collected in the same
manner as a tax. Sec. 6671(a). Thus, the deadline for assessing a tax, generally
three years from the filing of the return, see sec. 6501(a), also controls the
assessment of the trust-fund-recovery penalty, Stallard v. United States, 12 F.3d
489, 493 (5th Cir. 1994). For the trust-fund-recovery penalty, the three years
starts with the filing of Form 941. Jones v. United States, 60 F.3d 584, 589-590
(9th Cir. 1995). The Form 941 is filed by an employer to report its employment-
tax obligations for the quarter, including the trust-fund taxes. Secs. 31.6011(a)-
4(a)(1), 31.6011(a)-1, Employment Tax Regs. The Form 941 is generally due one
-32-
month after the end of the quarter. Sec. 31.6071(a)-1(a)(1), Employment Tax
Regs. For purposes of the deadline for assessing tax, if the Form 941 is filed on or
before April 15 of the year after the quarter in question, then the Form 941 is
deemed filed on that April 15. Sec. 6501(b)(2). Thus, in such a situation the
deadline for assessing the trust-fund-recovery penalty is three years after April 15
of the year after the relevant Form 941 is filed. See, e.g., Jarrett v. Commissioner,
T.C. Memo. 2018-73, at *45.
-33-
In 1996, Congress amended section 6672 to add section 6672(b). Taxpayer
Bill of Rights 2, Pub. L. No. 104-168, sec. 901(a), 110 Stat. at 1465-1466 (1996).9
After another amendment in 1998,10 section 6672(b) provides:
SEC. 6672(b). Preliminary Notice Requirement.--
(1) In general.--No penalty shall be imposed under
subsection (a) unless the Secretary [of Treasury] notifies the
taxpayer[11] in writing by mail to an address as determined
9
The legislative history of the enactment of sec. 6672(b) in 1996 stated:
Reasons for change. Some employees may not be fully aware of their
personal liability under section 6672 for the failure to pay over trust
fund taxes. The Committee believes that IRS could make additional
efforts to assist the public in understanding its responsibilities.
Explanation of provision. The bill requires the IRS to issue a notice
to an individual the IRS had determined to be a responsible person
with respect to unpaid trust fund taxes at least 60 days prior to issuing
a notice and demand for the penalty. The statute of limitations shall
not expire before the date 90 days after the date on which the notice
was mailed. The provision does not apply if the Secretary finds that
the collection of the penalty is in jeopardy.
H.R. Rept. No. 104-506, at 39-40 (1996), 1996-3 C.B. 49, 87-88.
10
The 1998 amendment permitted the IRS to personally deliver the notice
instead of mailing it. IRS Restructuring and Reform Act of 1998, Pub. L. No.
105-206, sec. 3307, 112 Stat. at 744.
11
The “taxpayer” referred to in sec. 6672(b) is the person against whom the
IRS seeks to impose the liability of sec. 6672(a), not the employer who is liable for
the underlying trust-fund tax. See Lee v. Commissioner, 144 T.C. 40, 46-47
(2015).
-34-
under section 6212(b) or in person that the taxpayer shall be
subject to an assessment of such penalty.
(2) Timing of notice.--The mailing of the notice
described in paragraph (1) (or, in the case of such a notice
delivered in person, such delivery) shall precede any notice and
demand of any penalty under subsection (a) by at least 60 days.
(3) Statute of limitations.--If a notice described in
paragraph (1) with respect to any penalty is mailed or delivered
in person before the expiration of the period provided by
section 6501 for the assessment of such penalty (determined
without regard to this paragraph), the period provided by such
section for the assessment of such penalty shall not expire
before the later of--
(A) the date 90 days after the date on which such
notice was mailed or delivered in person, or
(B) if there is a timely protest of the proposed
assessment, the date 30 days after the Secretary makes a
final administrative determination with respect to such
protest.
(4) Exception for jeopardy.--This subsection shall not
apply if the Secretary finds that the collection of the penalty is
in jeopardy.
d. 1998 collection-review provisions
In 1998, Congress amended the Internal Revenue Code to bar the IRS from
levying on a person’s property unless the IRS notifies the person of a right to
request a collection-review hearing at the IRS’s Office of Appeals. Internal
Revenue Service Restructuring Act of 1998, Pub. L. No. 105-206, sec. 3401(b),
-35-
112 Stat. at 747-748 (enacting section 6330(a)(1), (b)(1)). The bar on the levy
ordinarily continues while the hearing, if requested, is pending. Sec. 6330(e)(1).
The IRS must give the notification of the right to the hearing not less than 30 days
before the day of the levy. Sec. 6330(a)(1) and (2). Section 6330(c) sets forth
rules about what should be done at the hearing. Section 6330(c)(1) requires the
Appeals officer to “obtain verification from the Secretary [of the Treasury] that the
requirements of any applicable law or administrative procedure have been met.”
The caselaw that interprets this provision has concluded that among the
requirements that must be verified are: (1) the requirement (in section 6213(a))
that a notice of deficiency be issued before assessment of an income-tax
deficiency, see Freije v. Commissioner, 125 T.C. 14, 36 (2005), and (2) the
requirement (in section 6672(b)(1) and (2) and section 6303) that the IRS send a
preliminary penalty notice before assessing the trust-fund-recovery penalty, see
Lee v. Commissioner, 144 T.C. 49. This caselaw is discussed in greater detail
infra part 2.a. Section 6330(c)(2)(A) provides that the taxpayer may raise at the
hearing any relevant issue related to the unpaid tax or the proposed levy, including
spousal defenses, challenges to the appropriateness of collection actions, and
offers of collection alternatives (including an installment agreement or an offer-in-
compromise). Section 6330(c)(2)(B) provides that the taxpayer “may also raise at
-36-
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.” Section 6330(c)(3) provides that the determination after the hearing
must consider the verification presented under section 6330(c)(1), the issues raised
under section 6330(c)(2), and “whether any proposed collection action balances
the need for the efficient collection of taxes with the legitimate concern of the
person that any collection action be no more intrusive than necessary.”
As explained above, a person may challenge the existence or amount of the
underlying tax liability at a collection-review hearing. Sec. 6330(c)(2)(B). If the
levy is intended to collect the trust-fund-recovery penalty, then the person may
challenge the existence or amount of the trust-fund-recovery penalty. See Mason
v. Commissioner, 132 T.C. 301, 321 (2009). As explained above, in order for a
challenge to the existence or amount of the underlying tax liability to be
considered by the Office of Appeals in a collection-review hearing, section
6330(c)(2)(B) requires the person not to have had a prior opportunity to challenge
the liability for the penalty. By regulation, an opportunity to challenge the
underlying tax liability includes “a prior opportunity for a conference with
Appeals that was offered either before or after the assessment of the liability.”
-37-
Sec. 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs. An example in the
regulation provides that if, after the IRS assesses a trust-fund-recovery penalty, the
IRS offers the person the opportunity for a conference with the Office of Appeals
at which the person would have the opportunity to dispute the assessed liability,
and the person declines the opportunity to participate in such a conference, then
the person is precluded from challenging the existence or amount of the liability.
Sec. 301.6330-1(e)(4), Example (3), Proced. & Admin. Regs.; see also sec.
301.6320-1(e)(4), Example (3), Proced. & Admin. Regs. (identical example
regarding lien hearing).
The 1998 amendments also require the IRS to offer a collection-review
hearing after it files a notice of lien. Sec. 6320. The collection-review hearing
after a lien-notice filing is similar to the collection-review hearing held before the
imposition of a levy, except that the reference in section 6330(c)(2)(A) to the
proposed levy is read as a reference to the lien. Sec. 6320(c); see Thompson v.
Commissioner, 140 T.C. 173, 178 (2013).
After the Office of Appeals has made its determination in a collection-
review proceeding, the taxpayer can petition the Tax Court for review of the
determination. Sec. 6330(d)(1). In the resulting judicial proceeding, the Tax
Court has the authority to review the determination of the Office of Appeals. Sec.
-38-
6330(d)(1). As part of this review, the Tax Court considers challenges by the
taxpayer to the existence or amount of the underlying tax liability (including the
trust-fund-recovery penalty) if the taxpayer properly raised those challenges at the
collection-review hearing with the Office of Appeals. Sec. 6330(c)(2)(B); sec.
301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.; sec. 301.6320-1(f)(2),
Q&A-F3, Proced. & Admin. Regs.; Mason v. Commissioner, 132 T.C. 321.
e. Tax-refund litigation
Besides deficiency cases and collection-review cases, there are other means
by which liability for a trust-fund-recovery penalty can come before a court. The
original way in which a taxpayer litigated his or her tax liability with the IRS was
to file a suit for a refund. See Harold Dubroff & Brant J. Hellwig, The United
States Tax Court: An Historical Analysis 29-37 (2d ed. 2014). This procedure
still exists. To file a refund suit, the taxpayer must first pay the tax and file a
refund claim with the IRS. Sec. 7422(a) (timely refund claim required); sec.
6511(a) (rules for filing claim, including payment requirement); Flora v. United
States, 362 U.S. 145, 177 (1960). If the IRS denies the claim or does not act on
the claim within six months, the taxpayer can then file suit in the U.S. District
Court or the U.S. Court of Federal Claims. 28 U.S.C. sec. 1346(a)(1) (2018)
(conferring jurisdiction on U.S. District Court over suits for refunds of federal
-39-
taxes or federal tax penalties); 28 U.S.C. sec. 1491(a)(1) (2018) (conferring
jurisdiction on U.S. Court of Federal Claims over claims against the federal
government under federal statutes).
The trust-fund-recovery penalty can be contested through this refund-suit
procedure. For example, if the Office of Appeals considers and rejects a person’s
protest in response to a Letter 1153, the person can bring a tax-refund suit through
the procedure described. See Harris v. United States, 175 F.3d 1318, 1319 (11th
Cir. 1999); Bishay v. Commissioner, T.C. Memo. 2015-105, at *17 n.9. To meet
the requirement that the amount must be paid to file suit, the person need not pay
the entire amount of the trust-fund-recovery penalty. Weber v. Commissioner, 138
T.C. 363 n.12. The person need only pay the amount for one employee for one
calendar quarter. Id.
2. Our analysis on remand
The Eleventh Circuit opinion is binding in this remand proceeding under the
“mandate rule”, which is an aspect of the law-of-case doctrine. Pelletier v.
Zweifel, 987 F.2d 716, 718 (11th Cir. 1993).12 The error identified by the
12
Furthermore, because the Eleventh Circuit opinion is a published opinion,
in Tax Court cases for which appellate venue would be the Eleventh Circuit and
for which the opinion is “squarely in point” we would follow that opinion. Golsen
v. Commissioner, 54 T.C. 742, 756-757 (1970), aff’d, 445 F.2d 985 (10th Cir.
(continued...)
-40-
Eleventh Circuit opinion is that the IRS failed to satisfy the requirement that it
make a final administrative determination with respect to a timely filed protest
before assessing the trust-fund-recovery penalty. Romano-Murphy v.
Commissioner, 816 F.3d at 714. Below, we explain that the requirement identified
by the Eleventh Circuit opinion should be considered a “requirement of any
applicable law” within the meaning of section 6330(c)(1), see infra part 2.a, and
that the IRS’s failure to meet this requirement means that the assessment is invalid
and that the Office of Appeals erred in upholding actions to collect the assessment,
see infra part 2.b.
a. The requirement identified by the Eleventh Circuit opinion, that the
IRS must make a final administrative determination before assessing
the trust-fund-recovery penalty, should be considered a requirement
of applicable law or administrative procedure that must be verified as
part of a collection-review hearing.
In this case we are reviewing the determination of the IRS Office of
Appeals after a collection-review hearing. See sec. 6330(d)(1); see also sec.
6320(c). The conduct of the Office of Appeals in handling a collection-review
hearing is governed by section 6330(c). See also sec. 6320(c). Section 6330(c)
requires the Office of Appeals to obtain various verifications at the hearing: “In
12
(...continued)
1971); cf. Bennett Land Co. (A Wash. Corp.) v. Commissioner, 70 T.C. 904, 907
n.3 (1978) (stating that an unpublished appellate opinion is not binding).
-41-
the case of any hearing conducted under this section--(1) * * * The appeals officer
shall at the hearing obtain verification from the Secretary [of the Treasury] that the
requirements of any applicable law or administrative procedure have been met.”
Section 6330(c)(3) requires the Office of Appeals to consider these verifications in
making its determination after the hearing: “The determination by an appeals
officer under this subsection shall take into consideration--(A) the verification
presented under paragraph (1)”. The statute itself does not identify the specific
“requirements of any applicable law or administrative procedure” that must be
verified under section 6330(c)(1). However, caselaw interpreting section
6330(c)(1) has identified certain requirements that must be verified. For purposes
of this remand, there are two specific such requirements that are relevant by
analogy.
One verification requirement is that a notice of deficiency be issued. See
sec. 6213(a). Two cases that consider this requirement are informative: Freije v.
Commissioner, 125 T.C. 36, and Hoyle v. Commissioner, 131 T.C. 197, 200
(2008), supplemented by 136 T.C. 463 (2011). In Freije v. Commissioner, 125
T.C. 34-35, the IRS failed to issue a notice of deficiency before assessing a
deficiency for tax year 1999. The taxpayers had filed an income-tax return
showing a tax due of $12,507. Id. at 32. The IRS determined that the correct tax
-42-
was $15,265. Id. It assessed the $15,265 first without mailing a notice of
deficiency to the taxpayer. Although the IRS sent the taxpayer a notice that the
correct tax was $15,265, the IRS conceded that this notice was not a notice of
deficiency, but a notice that the amount of tax on the return was incorrect purely
because of a mathematical or clerical error. Id.; see also sec. 6213(b)(1). We held
that some of the adjustments in the notice were not related to mathematical or
clerical errors, and we held that by assessing tax related to these adjustments
without first mailing a notice of deficiency, the IRS had “violated section 6213(a),
which generally prohibits the assessment of a deficiency without affording the
taxpayer the opportunity to petition for redetermination of the deficiency in this
Court.” Freije v. Commissioner, 125 T.C. 35. We characterized the IRS’s
failure to issue a notice of deficiency as “fatal” to the relevant part of the
assessment. Id. We rejected the IRS’s argument that the remedy for the failure
should be for the Tax Court itself, sitting in review of the Office of Appeals, to
determine the correctness of the deficiency assessment under section
6330(c)(2)(B) (allowing a taxpayer to raise at a collection-review hearing
challenges to the existence or amount of the underlying tax liability if the taxpayer
did not receive any statutory notice of deficiency or otherwise have an opportunity
to dispute the liability). We stated:
-43-
Under the interpretation of section 6330(c)(2)(B) urged by
respondent, de novo review in a section 6330 proceeding could
substitute for the taxpayer’s right to a deficiency proceeding under
sections 6211-6216. A taxpayer’s rights in the former proceeding are
more circumscribed than in the latter. Moreover, such a construction
would conflict with other provisions of section 6330. Section
6330(c)(1) and (3) requires, in connection with the hearing provided
under section 6330, that the Appeals officer obtain verification “that
the requirements of any applicable law or administrative procedure
have been met” and that he take such verification into account in
determining whether the levy should proceed. One requirement of
applicable law is the mandate of section 6213 that, except in certain
cases, including those involving termination or jeopardy assessments,
an opportunity for preassessment judicial review precede the
assessment or collection of any deficiency, generally defined to
encompass income tax in excess of the amount reported on a return.
Thus, the requirement of section 6330(c)(1) that the Appeals officer
verify compliance with applicable law cannot be reconciled with an
interpretation of section 6330(c)(2)(B) that allows the Commissioner
to avoid compliance with section 6213(a).
We accordingly hold that petitioner’s opportunity in a section
6330 proceeding to dispute the underlying tax liability does not cure
an assessment made in derogation of his right under section 6213(a)
to a deficiency proceeding. [Fn. ref. omitted.]
Freije v. Commissioner, 125 T.C. 36. Freije was a collection-review case
triggered by a notice of proposed levy (as opposed to the filing of a notice of lien).
Id. at 19. As a result of the IRS’s failure to issue a notice of deficiency before
assessing the relevant portion of the deficiency, we held that the levy to collect the
deficiency “may not proceed” and that assessment of that portion was “invalid.”
Id. at 37.
 -44-
In Hoyle v. Commissioner, 131 T.C. 198, the taxpayer filed an income-
tax return for tax year 1993. It was disputed whether the IRS mailed a notice of
deficiency. Id. at 200. The IRS alleged that it did mail a notice of deficiency and
that the mailing took place in March 1996. Id. at 203. In August 1996, the IRS
assessed the deficiency. Id. at 198. In 2002 the IRS notified the taxpayer that it
had filed a notice of lien to collect the assessment. Id. at 199. This notification
triggered the taxpayer’s right to request a collection-review hearing. See sec.
6320(b)(1). The taxpayer requested such a hearing. Hoyle v. Commissioner, 131
T.C. 199. After conducting the hearing the Office of Appeals determined that
the IRS had sent the notice of deficiency. Id. at 203. The Office of Appeals
upheld the filing of the lien notice. Id. at 199. However, the Tax Court, in
reviewing the Office of Appeals’ determination, found insufficient documentation
in the administrative record to conclude that the notice of deficiency had been
sent. Id. at 204. Therefore, the Tax Court stated, it was “unable to ascertain the
basis for the Appeals officer’s verification that all requirements of applicable law
were met.” Id. at 205. The Tax Court remanded the case to the Office of Appeals
for it to “clarify the record as to what the Appeals officer relied upon in
determining that the notice of deficiency was properly sent to petitioner.” Id. The
Tax Court explained the consequences if the Appeals Office failed to verify that
-45-
the notice of deficiency was sent. Id. The assessment would be “invalid”; “no lien
would have arisen with respect to that tax liability”; “collection could not
proceed”; and “the determination to proceed with collection was error as a matter
of law.” Id.
Another requirement that must be verified under section 6330(c)(1) is that
the section 6672(b) preliminary penalty notice be given before the assessment of a
trust-fund-recovery penalty. Sec. 6303; Lee v. Commissioner, 144 T.C. 46-47
(“[T]he Service must give the responsible person notice of the proposed
assessment of the trust fund recovery penalty at least 60 days before assessing the
penalty[.]” (citing section 6672(b))); see also S. Rept. No. 105-174, at 66 (1998),
1998-3 C.B. 537, 602. In Lee v. Commissioner, 144 T.C. 50, a collection-
review case, the IRS assessed a trust-fund-recovery penalty. It was disputed
whether the IRS had given the person a Letter 1153 (the preliminary penalty
notice) before assessment. Id. We held that the requirement of pre-assessment
notice was “a requirement of law and administrative procedure”. Id. at 49.13 We
13
We stated:
[A]ssessment of the trust fund recovery penalties in the instant case
requires prior notice to petitioner. Sec. 6672(b). Because the Service
uses Letter 1153 to provide the required notice, the proper issuance of
the Letter 1153 to petitioner is a requirement of law and
(continued...)
-46-
concluded that the summary-judgment papers in that case did not establish that a
Letter 1153 had been given. Id. at 50. Therefore, we denied the motion for
summary judgment by the IRS, which had sought a determination by the Court
that the Office of Appeals had verified that the requirements of any applicable law
or administrative procedure had been met. Id. at 51. Lee involved both a notice of
proposed levy and a notice of the filing of a lien notice. Id. at 41. In Lee we did
not reach the issue of what the remedy would be for the failure of the IRS to issue
a Letter 1153. The importance of Lee for our purposes is that it establishes that
the requirement that a preliminary penalty notice be given before assessment is a
verification matter.
The requirement identified by the Eleventh Circuit opinion is that the IRS
make a final administrative determination that the person is liable for the trust-
fund-recovery penalty (if that person makes a timely protest) before it can assess
the penalty. Romano-Murphy v. Commissioner, 816 F.3d at 714, 716, 721.14 The
13
(...continued)
administrative procedure whose execution the Appeals officer must
verify.
Lee v. Commissioner, 144 T.C. 49 (citation omitted).
14
As described above, the first argument the IRS made in its remand report
was that it had satisfied sec. 6672(b)(1) and (2), which requires the IRS to give the
(continued...)
-47-
IRS takes the position that--despite the Eleventh Circuit’s holding--an assessment
can be made before a final administrative determination. The IRS says:
“Congress did not specifically prohibit assessment until after a final administrative
determination was made after a protest”.15 We disagree with the IRS’s analysis of
the Eleventh Circuit opinion. The Eleventh Circuit opinion held that the IRS must
make a determination before it makes the assessment. Id. at 716. It said that “the
IRS must make a pre-assessment determination of liability for taxpayers who have
filed timely protests.” Id.; see also id. at 719 (holding that the IRS violated section
6672 by “failing to make a pre-assessment determination of liability following Ms.
Romano-Murphy’s timely protest”). To say that the IRS must make a
determination before it makes an assessment is the same thing as saying that the
14
(...continued)
preliminary penalty notice. It is true that the IRS met this notice requirement. It
issued the preliminary penalty notice on July 26, 2006. It assessed the penalty
later, on October 15, 2007. That the IRS complied with the notice requirement of
sec. 6672(b)(1) and (2) is irrelevant to our task on remand. The Eleventh Circuit
opinion held that there is a separate requirement--found in sec. 6672(b)(3)--that
the IRS make a final administrative determination with respect to a timely protest
before it can assess the penalty. Romano-Murphy v. Commissioner, 816 F.3d at
716. The Eleventh Circuit opinion held that the IRS violated this requirement. Id.
at 719.
15
This is the second argument the IRS made in its remand report.
-48-
IRS cannot make an assessment before it makes a determination. We reject the
IRS’s position described above.
The no-assessment-before-determination requirement identified by the
Eleventh Circuit opinion should be considered one of the “requirements” that must
be verified under section 6330(c)(1). We draw an analogy to the requirement that
the IRS must mail a notice of deficiency before it assesses an income-tax
deficiency. This requirement is found in section 6213(a). In Freije we held that
this requirement was one of the requirements the Office of Appeals must verify
under section 6330(c)(1). Freije v. Commissioner, 125 T.C. 36 (“One
requirement of applicable law is the mandate of section 6213 that * * * an
opportunity for pre-assessment judicial review precede the assessment or
collection of any deficiency[.]”). The Eleventh Circuit opinion held that the IRS
must make a final administrative determination regarding a timely filed protest
before it assesses the trust-fund-recovery penalty. Romano-Murphy v.
Commissioner, 816 F.3d at 714, 716. According to that opinion, this requirement
is found in section 6672(b)(3). Romano-Murphy v. Commissioner, 816 F.3d at
716. The opinion referred to this requirement as a “statutory * * * command”. Id.
at 720. Similarly, section 6213(a) is a statutory command.
-49-
Also analogous is the requirement of section 6672(b)(1) and (2) that the IRS
notify a person of an impending assessment of a trust-fund-recovery penalty. As
we held in Lee v. Commissioner, 144 T.C. 49, this requirement is “a
requirement of law and administrative procedure whose execution the Appeals
officer must verify.” The requirement can be analogized to the requirement,
identified by the Eleventh Circuit opinion, that the IRS make a final administrative
determination with respect to a timely protest before assessing the trust-fund-
recovery penalty.
More generally we have explained that one of the requirements that must be
verified is that a “proper assessment” was made. Id. at 48; see also Ron Lykins,
Inc. v. Commissioner, 133 T.C. 87, 97 (2009) (holding that one of the “legal and
procedural requirements” that an Appeals officer must verify under section
6330(c)(1) is “that a valid assessment was made”). Under the Eleventh Circuit
opinion, an assessment of a trust-fund-recovery penalty without a final
administrative determination with respect to a timely protest is not a “proper
assessment”.
In conclusion, the requirement identified by the Eleventh Circuit opinion,
that a final administrative determination in response to a timely protest precede the
assessment of the trust-fund-recovery penalty, should be considered “a
-50-
requirement of any law and administrative procedure” within the meaning of
section 6330(c)(2).
In the Eleventh Circuit’s view, this requirement is found in the
unambiguous wording of section 6672. That the Eleventh Circuit considered
section 6672 unambiguous is evidenced by its statement later in the opinion that
even if section 6672 were assumed to be ambiguous, certain regulations (sections
301.7430-3(d), Examples (5) and (7), and 301.6320-1(e)(4), Example (3), Proced.
& Admin. Regs.) require the Office of Appeals to make a pre-assessment
determination of trust-fund-recovery-penalty liability when a timely protest is
filed. Romano-Murphy v. Commissioner, 816 F.3d at 716-718.
The Eleventh Circuit opinion held that section 6672(b)(3)--even without
considering any regulations--established that the IRS must make a final
administrative determination with respect to a timely protest before assessing the
trust-fund-recovery penalty. Romano-Murphy v. Commissioner, 816 F.3d at 716.
That section 6672(b)(3) established this requirement is sufficient for our
conclusion that it is a “requirement[ ] of any applicable law or administrative
procedure” within the meaning of section 6330(c)(1).
-51-
b. The assessment of the trust-fund-recovery penalty against Romano-
Murphy is invalid, and the Office of Appeals erred in upholding
actions to collect the assessment.
We now address the significance of the IRS’s failure to make a final
administrative determination with respect to Romano-Murphy’s protest of the
trust-fund-recovery penalty before it assessed the penalty. Because it is apparent
that the requirement of making a pre-assessment determination was not met--not
merely that the Office of Appeals neglected to verify whether the requirement was
met--there is no reason for us to remand the case to the Office of Appeals to verify
whether the requirement was met. Cf. Peterson v. Commissioner, T.C. Memo.
2016-17, at *7-*8 (remanding case to Office of Appeals for it to conduct
verification where (1) Office of Appeals had originally failed to properly verify
that notice of deficiency had been mailed and (2) Tax Court thought it possible
that notice of deficiency had been mailed). Rather, the appropriate disposition of
this case is for us to (1) hold that the assessment is invalid and (2) not sustain the
Office of Appeals’ determination to uphold the proposed levy and the filing of a
notice of lien. The Eleventh Circuit opinion held that a final administrative
determination in response to a timely protest is a precondition for an assessment.
Romano-Murphy v. Commissioner, 816 F.3d at 714-719. An assessment without
the required final administrative determination is invalid, just as an assessment
-52-
without the required notice of deficiency is invalid. See Hoyle v. Commissioner,
131 T.C. 205; Freije v. Commissioner, 125 T.C. 36-37. When an assessment
is invalid for lack of the required notice of deficiency, it is an abuse of discretion
for the Office of Appeals to uphold a proposed levy to collect the assessment,
Freije v. Commissioner, 125 T.C. 37, or to uphold a filing of a notice of lien to
collect the assessment, Hoyle v. Commissioner, 131 T.C. 205; see also Buffano
v. Commissioner, T.C. Memo. 2016-122, at *8 (holding an assessment invalid for
lack of mailing of notice of deficiency, and not sustaining Office of Appeals’
determination to uphold (1) proposed levy and (2) filing of notice of lien). By
analogy, it was an abuse of discretion for the Office of Appeals to uphold a
proposed levy and filing of notice of lien to collect from Romano-Murphy the
assessed trust-fund-recovery penalty.
The IRS argues that the requirement of section 6213(a)--that no assessment
of an income-tax deficiency be made before the notice of deficiency is mailed
--is distinguishable from the requirement that the Eleventh Circuit opinion held to
be imposed by section 6672(b)(3)--that no assessment of the trust-fund-recovery
penalty can be made before the final administrative determination is made with
respect to a timely protest. These two requirements are different, in the IRS’s
view, because the requirement of section 6213(a) is enforced by a rule, also found
-53-
in section 6213(a), allowing the taxpayer to file suit to enjoin the making of an
assessment during the time the assessment is prohibited. In this way the IRS
would distinguish Freije v. Commissioner, 125 T.C. 35-37, in which we held
that an assessment of income tax without a notice of deficiency was invalid and
actions to collect the assessment could not proceed. The IRS is correct that the
section 6213(a) injunction provision has no counterpart in section 6672(b)(3); that
is, section 6672(b)(3) does not supply an injunction remedy under which a person
can enjoin the IRS from assessing the trust-fund-recovery penalty if it has not
made a final administrative determination. However, Freije did not rely on the
section 6213(a) injunction provision in concluding that the assessment was invalid
and the actions to collect the assessment should not proceed. It relied instead on
the provision in section 6213(a) that bars the IRS from assessing tax until it has
issued a notice of deficiency. Freije v. Commissioner, 125 T.C. 35-36. The
Eleventh Circuit’s opinion interprets section 6672(b)(3) as imposing an analogous
rule--that there can be no assessment until a final administrative determination is
made in response to a timely filed protest. Romano-Murphy v. Commissioner, 816
F.3d at 716.
The idea that an improperly timed assessment could somehow still be valid
and collectible is inconsistent with the Internal Revenue Code provisions
-54-
governing assessment and collection. Assessment opens the door to
administrative collection: It is a condition precedent to administrative collection.
See sec. 6502(a) (assessment a precondition for imposing a levy); sec. 6322
(assessment results in a lien); Jordan v. Commissioner, 134 T.C. 12; Kafka &
Cavanagh, supra, para. 3.01, at 3-2 (“No tax may be collected by the Service until
after it has been assessed.”); Casey, supra, sec. 2.01, at 2-3 to 2-4. The timing of
assessment also determines when the IRS must stop collecting tax: The IRS
generally has 10 years from the date of assessment to collect the tax.16 Sec.
6502(a). In other verification cases involving mistimed assessment (Freije and
Hoyle), we declared the assessment invalid without considering whether the
taxpayer was specifically harmed by the timing error. It was enough in these
16
Bryan T. Camp, “The Failure of Adversarial Process in the Administrative
State”, 84 Ind. L.J. 57, 62 (2009), explains the significance of the timing of the
assessment:
An assessment marks the end of one process--tax
determination--and the beginning of another--administrative tax
collection. A proper assessment enables the tax lien created by §
6321 to arise. It allows the IRS to begin seizing taxpayer property
under its levy authority in § 6331. Finally, and most critically, a
proper assessment opens up the § 6502 collection period, which gives
the IRS a whopping ten years to collect the tax administratively. The
corollary is that if no proper assessment is made within the applicable
assessment limitations period in § 6501 (generally three years) the
liability itself is extinguished. The assessment limitations period acts
as a statute of repose. [Fn. ref. omitted.]
-55-
cases, and it is enough here, that the IRS made an assessment in a sequence other
than that permitted by Congress.
c. Our holding is consistent with the harmless-error principle.
Our conclusion that the assessment of the penalty against Romano-Murphy
is invalid and that the collection actions we have identified should be halted
is consistent with general principles of law regarding harmless error. An example
of the harmless-error rule is 5 U.S.C. sec. 706 (2018), a provision of the
Administrative Procedure Act that generally provides that, when a court reviews
an agency action, “due account shall be taken of the rule of prejudicial error.” See
Ala. Hosp. Ass’n, 702 F.2d at 958. It has been said that the rule of harmless error
means the following: If an agency’s mistake that does not affect the outcome, and
if the error was not prejudicial, it would be senseless for a court to vacate and
remand to the agency for reconsideration. See PDK Labs. Inc. v. U.S. Drug
Enforcement Admin., 362 F.3d 786, 799 (D.C. Cir. 2004). In Ala. Hosp. Ass’n,
702 F.2d at 956, the State of Alabama developed a plan to reimburse hospitals in
the State for the services they provide under the Medicaid program. The plan was
intended to comply with a federal statute that required states to develop plans to
reimburse hospitals for the reasonable costs of Medicaid services and to have
those plans approved by the Department of Health and Human Services (HHS).
-56-
Id. at 956 & n.2. HHS approved the Alabama plan under this statutory standard.
Id. at 956. But shortly before HHS approved the plan, Congress had altered the
statutory standard used to assess reimbursement rates devised by the states. Id. at
956-957. Under the new standard, states were not required to reimburse hospitals
for all reasonable costs, only “efficient cost[s]”. Id. at 957-958. The Alabama
Hospital Association filed suit against HHS, contending that HHS’s approval of
the State of Alabama plan was invalid because the approval had evaluated the plan
under the old statutory standard. Id. The court held that the reasonable-cost
provision in the old statute was more generous (i.e., allowed greater
reimbursements) than the new standard. Id. at 958. Therefore, the court held,
HHS would not have reached a different result under the new standard. Id. at 959.
The court held that HHS’s alleged error in failing to adequately apply the new
standard was a harmless error. Id. at 960. The court cited 5 U.S.C. sec. 706
(2018) (providing that a court reviewing an agency action shall take “due account
* * * of the rule of prejudicial error”) as an example of the harmless-error rule.
Ala. Hosp. Ass’n, 702 F.2d at 958. The court stated that most courts formulate the
harmless-error rule as follows:
[P]rocedural errors are deemed harmless unless the court has a
“substantial doubt” that the agency would not have reached the result
it did. See, e.g., Consolidated Gas Supply, supra [606 F.2d 323, 328-
-57-
329 (D.C. Cir. 1979)]; Kurzon v. U.S. Postal Service, 539 F.2d 788,
796 (1st Cir. 1976). Cf. U.S. Steel Corp., supra [595 F.2d at 215]
(harmless error rule applies only if error “clearly” did not affect
outcome of agency’s decision); Arnold v. Morton, 529 F.2d 1101,
1105 (9th Cir. 1976) (where agency failed to consider issues legally
relevant to issues at stake, agency’s decision may be affirmed only if
court is “subjectively certain” that outcome is correct).
Id. at 958 n.8. The court also explained that the harmless-error rule does not apply
to agency action that “implicates basic due process rights.” Id. at 958 n.6.
The rule of harmless error “is to be used only ‘when a mistake of the
administrative body is one that clearly had no bearing on the procedure used or the
substance of decision reached.’” U.S. Steel Corp., 595 F.2d at 215 (quoting
Braniff Airways, Inc. v. CAB, 379 F.2d 453, 466 (D.C. Cir. 1967)). In U.S. Steel
Corp., 595 F.2d at 210-213, the Environmental Protection Agency (“EPA”) had
promulgated a rule in March 1978 designating certain areas in Alabama as
nonattainment areas for suspended-particulate pollution pursuant to section 107(d)
of the Clean Air Act, 42 U.S.C. sec. 7407(d) (2018). Before promulgating the
rule, the EPA did not give notice of the rule or give interested parties an
opportunity to comment on the rule as it was obligated to do under 5 U.S.C. sec.
553 (2018). U.S. Steel Corp., 595 F.2d at 212-213. The EPA argued that its
failure to give notice and an opportunity for comment before making the
designations was cured because it had accepted comments from affected parties
-58-
for 60 days after the March 1978 promulgation and because it considered these
comments in September 1978 when it repromulgated the designations. Id. at 212-
214. The court rejected the EPA’s argument, reasoning that an agency is more
likely to give real consideration to comments it receives before promulgating a
rule. Id. at 214-215. The court held that accepting the EPA’s argument would
“lead in the long run to depriving parties affected by agency action of any way to
enforce their § 553 rights to pre-promulgation notice and comment.” Id. at 215.
Furthermore the court held that the EPA could not “rest on the doctrine of
harmless error.” Id. It held that the doctrine “is to be used only ‘when a mistake
of the administrative body is one that clearly had no bearing on the procedure used
or the substance of decision reached.’” Id. (quoting Braniff Airways, Inc., 379
F.2d at 466). The court continued: “Here the Agency’s error plainly affected the
procedure used, and we cannot assume that there was no prejudice to petitioners.
Absence of such prejudice must be clear for harmless error to be applicable.” Id.
(citation omitted).
As explained supra part 2.b, the timing of assessment affects the “procedure
used” for collecting a tax liability. Here we cannot be sure when the assessment of
the trust-fund-recovery penalty would have taken place had the IRS made a final
administrative determination before the assessment. Therefore, its error
-59-
potentially had a bearing on the “procedure used” for collecting Romano-
Murphy’s penalty. See id. Furthermore, Romano-Murphy had a right, under the
Eleventh Circuit opinion, to a pre-assessment administrative determination of her
liability. A pre-assessment determination is fundamentally different from a post-
assessment determination. A person seeking a post-assessment determination may
be simultaneously dealing with collection actions, such as proposed levies and
notices of liens. The harmless-error rule therefore does not apply.17
As the Eleventh Circuit opinion observed, Romano-Murphy v.
Commissioner, 816 F.3d at 720, even though the IRS did not respond to Romano-
Murphy’s protest of the trust-fund-recovery penalty by making a final
administrative determination, the Office of Appeals eventually reviewed her
17
In its remand report, the IRS contends that it has not yet made a final
administrative determination with respect to Romano-Murphy’s protest of the
assessment of her trust-fund-recovery penalty. (This is the fourth argument the
IRS made in its remand report.) Therefore, according to the IRS, the period for
assessing the penalty is still open by the operation of sec. 6672(b)(3). Although
the IRS did not explain the significance of this point further, we think the IRS
means that even if its October 2007 assessment of the penalty were invalid, it can
make a final administrative determination in the future and then assess the penalty
again. Even if the IRS is right that it can re-assess the penalty in the future, this
would not change our view that the first assessment is invalid and the collection
actions based upon it should not be upheld. If a future assessment would be valid,
then it is the future assessment that should determine the timing of the procedure
for collecting the penalty against Romano-Murphy (for example, the start of the
10-year period during which the IRS could take collection actions).
-60-
liability for the trust-fund-recovery penalty during the collection-review hearing.
The Office of Appeals determined she was liable for the penalty. That her liability
was reviewed by the Office of Appeals in its collection-review hearing also
suggests that the “procedure used” may have been affected by the IRS’s error. See
U.S. Steel Corp., 595 F.2d at 215. Had the IRS made a final administrative
determination regarding Romano-Murphy’s protest, it is possible that the only
administrative consideration of her liability would have taken place then--and not
at the collection-review hearing in 2009. This is because a taxpayer is not entitled
to assert a challenge to the underlying tax liability at a collection-review hearing if
the IRS has afforded a prior opportunity to make such a challenge. Sec.
6330(c)(2)(B). Had the IRS made a pre-assessment final administrative
determination regarding Romano-Murphy’s penalty liability, it could have then
taken the position that she had had a prior opportunity to challenge the liability
and could not make such a challenge at the collection-review hearing.
In Rosenberg v. Commissioner, 450 F.2d 529, 533 (10th Cir. 1971), aff’g
T.C. Memo. 1970-201, the Court of Appeals for the Tenth Circuit appeared to
employ harmless-error analysis to excuse the failure of the Office of Appeals to
grant a taxpayer’s request for a conference. The IRS had sent the taxpayer a notice
of deficiency, and then shortly afterwards sent the taxpayer a “30-day letter”, a
-61-
document inviting the taxpayer to file a protest and request a conference with the
Office of Appeals. Id. at 531. Although the taxpayer filed a protest and requested
a conference, the Office of Appeals did not afford her a “prelitigation
administrative review”. Id. She filed a Tax Court petition. Id. The Tax Court
sustained the deficiency. Id. In the appeal of that deficiency case, the Court of
Appeals for the Tenth Circuit stated that the IRS had violated section 601,
Statement of Procedural Rules, in not granting the taxpayer a conference before
the Office of Appeals. Rosenberg v. Commissioner, 450 F.2d at 531. However,
the court held that section 601, Statement of Procedural Rules, was merely a
guideline for internal administration and did not confer rights on the taxpayer.
Rosenberg v. Commissioner, 450 F.2d at 533. Additionally, the court observed:
“No showing is made as to what, if anything, would have been gained by
conference with the Appellate Division. The facts are stipulated. The taxpayer
had a full hearing and determination de novo in the Tax Court.” Id. This sounds
like a harmless-error analysis. Even if it is, Rosenberg is distinguishable because
the court did not hold that the taxpayer had a right to be offered a conference with
the Office of Appeals. Id. By contrast, the Eleventh Circuit opinion held that
Romano-Murphy “was entitled to a pre-assessment determination of her § 6672
liability.” Romano-Murphy v. Commissioner, 816 F.3d at 714.
-62-
In Ellis v. Commissioner, 346 F. App’x 346, 350-352 (10th Cir. 2009), aff’g
in part, rev’g in part on other grounds T.C. Memo. 2007-207, the court appeared to
employ harmless-error analysis to excuse the failure of the Office of Appeals to
issue a 30-day letter before mailing a notice of deficiency. The court stated that
the failure violated part 601, Statement of Procedural Rules. Ellis v.
Commissioner, 346 F. App’x at 350. However, the court held that part 601,
Statement of Procedural Rules, did not confer rights on a taxpayer. Ellis v.
Commissioner, 346 F. App’x at 351. Furthermore, the court held that the taxpayer
“has failed to show he was prejudiced by the failure to receive * * * a 30-day
letter” because the tax liability was determined by the Tax Court, which sustained
the deficiency. Id. at 351-352. Ellis is distinguishable because the court did not
hold that the taxpayer had a right to a 30-day letter. Id. at 351. By contrast, the
Eleventh Circuit opinion considered that Romano-Murphy was entitled to a pre-
assessment determination of her section 6672 liability. Romano-Murphy v.
Commissioner, 816 F.3d at 714.
In re Vaughn, 2011-2 U.S. Tax Cas. (CCH) para. 50,681, at 87,320 to
87,321, 108 A.F.T.R.2d (RIA) 6847, 2011 Bankr. LEXIS 4438 (E.D.N.C. 2011),
was a case in which the bankruptcy court appeared to employ harmless-error
analysis to excuse the failure of the Office of Appeals to “hear” a taxpayer’s
-63-
“appeal” of a trust-fund-recovery penalty. On August 24, 2004, the IRS had
issued a preliminary penalty notice under section 6672(b)(1) (i.e., a Letter 1153) to
Corletta Vaughn, the CEO of a nonprofit organization. In re Vaughn, 2011-2 U.S.
Tax Cas. (CCH) at 87,320. On November 4, 2004, the IRS sent Vaughn a
corrected preliminary penalty notice. Id. On November 17, 2004, she sent the IRS
a protest of the penalty. Id. The protest was timely if the 60-day period for
sending the protest is considered to have started with the November 4, 2004
corrected preliminary penalty notice, but untimely if the 60-day period is
considered to have started with the August 24, 2004 original preliminary penalty
notice. Id. The opinion stated: “[The] IRS deemed the notice untimely under 26
U.S.C. § 6672(b). Despite * * * the IRS deeming the notice untimely, the IRS
nevertheless considered Ms. Vaughn’s protest.” Id. On November 29, 2004, “the
IRS denied Ms. Vaughn’s protest and referred it to the Service’s Appeals Office
for review.” Id. On February 7, 2006, the Office of Appeals asked Vaughn to
agree to extend the assessment period to permit the Office of Appeals additional
time to consider the appeal. Id. She did not respond to the request for an
extension. Id. On February 23, 2006, the Office of Appeals informed her that her
protest had been denied. Id. On March 27, 2006, the IRS assessed a trust-fund-
-64-
recovery penalty against her. Id. In September 2009, she filed a bankruptcy
petition. Id. at 87,314.
After Vaughn filed for bankruptcy protection, the bankruptcy court had a
formal judicial hearing on whether she was liable for the trust-fund-recovery
penalty and determined that she was. Id. at 87,320. She argued, however, that the
penalty was improperly assessed because the Office of Appeals had “refused to
hear her administrative appeal”. Id. She argued that the original preliminary
penalty notice issued on August 24, 2004, had been withdrawn, that her protest
was timely because it was made within 60 days of the amended preliminary
penalty notice, that the period for assessment did not expire until 30 days after the
final administrative determination under section 6672(b)(3)(B), and that therefore
the Office of Appeals presumably would have had time to consider the protest. In
re Vaughn, 2011-2 U.S. Tax Cas. (CCH) at 87,321.
The bankruptcy court held:
[Even] if the IRS did not follow its procedures, Ms. Vaughn has not
been deprived of any procedural rights. Ms. Vaughn’s remedy for the
IRS’s failure to follow its procedures, would be to have a hearing to
challenge the assessment. This proceeding, has given Ms. Vaughn
the opportunity to challenge the assessment through discovery, pre-
trial and post-trial briefs and a formal hearing.
-65-
Id. at 87,321 (punctuation as in original). Thus, the bankruptcy court declined to
correct any error of the IRS in failing to give a pre-assessment conference
regarding a trust-fund-recovery penalty in violation of what the court referred to as
“its [i.e., the IRS’s] procedures”. The court reasoned that the subsequent
bankruptcy proceeding afforded Vaughn an opportunity to challenge her liability
for the penalty. In re Vaughn is distinguishable because it is not apparent that the
court held that the IRS violated the law. By contrast, the Eleventh Circuit opinion
stated that the IRS had “violated § 6672(b)”. Romano-Murphy v. Commissioner,
816 F.3d at 719.
An instance in which the IRS’s refusal to hear an administrative appeal is
not fatal to the IRS’s collection efforts occurs when the Office of Appeals in a
section 6330 proceeding wrongfully refuses to consider a question as to the
existence or amount of the underlying tax liability. When that occurs, the Tax
Court (in the appeal from the determination of the Office of Appeals) determines
the existence or amount of the underlying tax liability itself. See, e.g., Obiakor v.
Commissioner, T.C. Memo. 2015-112, at *4, *16, *18-*20 (Tax Court heard
challenges to existence and amount of liability for trust-fund-recovery penalty in
collection-review case where taxpayer did not receive properly mailed Letter 1153
and Office of Appeals improperly did not consider challenges). This scenario is
-66-
distinguishable because the collection-review hearing with the Office of Appeals
under section 6330 is not a precondition to assessment. The hearing takes place
after assessment. By contrast the final administrative determination regarding a
timely protest of the trust-fund-recovery penalty is a precondition for assessing
that penalty, according to the Eleventh Circuit opinion. Romano-Murphy v.
Commissioner, 816 F.3d at 718.
R.R. Concrete Crosstie Corp., a case discussed in the Eleventh Circuit
opinion, is also distinguishable. In that case, the Railroad Concrete Crosstie Corp.
challenged a decision by the Railroad Retirement Board classifying it as an
employer. R.R. Concrete Crosstie Corp., 709 F.2d at 1406. Title 20 C.F.R. sec.
258.6(a) (2018) provides that when the Board has designated an examiner to
conduct a hearing with respect to a matter before the Board, the examiner will
preside over the hearing. Upon conclusion of the proceedings before him or her,
the examiner will submit to the Board a report recommending a decision. Id. The
report is advisory only and may be adopted or rejected by the Board in making its
decision. 20 C.F.R. sec. 258.6(d). Before the Board had issued its decision
regarding the Railroad Concrete Crosstie Corp., the Board had first appointed an
examiner to hear the case. R.R. Concrete Crosstie Corp., 709 F.2d at 1407 n.3.
However, the corporation waived any hearing and the examiner never issued a
-67-
report. Id. The corporation contended that the examiner’s failure to issue a report
violated 20 C.F.R. sec. 258.6. R.R. Concrete Crosstie Corp., 709 F.2d at 1407 n.3.
The court held that the examiner’s failure to issue a report was harmless. Id.
The case is distinguishable. For one thing, R.R. Concrete Crosstie Corp.
suggested that the requirement that the examiner issue a report was not mandatory.
Id. (stating that examiner’s failure to issue report was harmless because Board’s
initial decision to appoint examiner was not mandatory, but discretionary). In our
case, by contrast, the Eleventh Circuit held that it was mandatory for the IRS to
make a final administrative determination regarding Romano-Murphy’s protest.
Romano-Murphy Commissioner, 816 F.3d at 714 (“Ms. Romano-Murphy was
entitled to a pre-assessment determination of her § 6672 liability.”).
Howell, a case discussed in the Eleventh Circuit opinion, is also
distinguishable. In Howell, 164 F.3d at 524, the IRS assessed the trust-fund-
recovery penalty against Ronald Howell. Howell then requested from the IRS a
copy of the record of assessment. Id. at 525. Section 6203 provides: “Upon the
request of the taxpayer, the Secretary [of the Treasury] shall furnish the taxpayer a
copy of the record of assessment.” Section 301.6203-1, Proced. & Admin. Regs.,
further provides: “If the taxpayer requests a copy of the record of assessment, he
shall be furnished a copy of the pertinent parts of the assessment which set forth
-68-
the name of the taxpayer, the date of assessment, the character of the liability
assessed, the taxable period, if applicable, and the amounts assessed.” In a
proceeding in U.S. District Court regarding the penalty, Howell had argued that
the information the IRS gave him in response to his request for a copy of the
assessment was indecipherable to a layperson. Howell, 164 F.3d at 525 n.2. The
District Court held that the assessment was invalid because the IRS did not
provide a copy of the record of assessment upon request. Id. at 524-525. The
District Court held that the information given to him was indeed indecipherable to
a layperson as to the character of the liability assessed and the date of assessment.
Id. at 525 n.2.
But the Court of Appeals for the Tenth Circuit reversed, holding that “any
failure by the IRS to comply with its duty to provide the information * * * did not
render the assessment in this case invalid.” Id. at 526. It reasoned that section
6203 does not suggest that the validity of the assessment is affected by the failure
of the IRS to furnish a copy of the record of assessment. Id.
Howell is distinguishable. The Eleventh Circuit opinion in our case held
that the Internal Revenue Code required the IRS to make a final administrative
determination as a precondition of making an assessment. Romano-Murphy v.
Commissioner, 816 F.3d at 718. Such a requirement means that making an
-69-
assessment without a final administrative determination is premature and, as we
have explained, invalid.
Another case referred to by the Eleventh Circuit opinion is Philadelphia &
Reading Corp., 676 F.2d at 1164. See Romano-Murphy v. Commissioner, 816
F.3d at 720. In that case the IRS had completed an audit of the taxpayer’s returns
for five tax years. Phila. & Reading Corp., 676 F.2d at 1161. The results of the
audit were as follows: (1) for three of the years there were deficiencies totaling
over $10.5 million and (2) for two of the years there were overpayments totaling
almost $6.5 million. Id. Thus over all five tax years there was a net deficiency of
over $4 million (i.e., $10.5 million minus $6.5 million). Id. The taxpayer and the
IRS reached a conditional closing agreement whereby they agreed to the
correctness of the deficiencies and overpayments and the taxpayer agreed to waive
the statutory requirement that the IRS issue a notice of deficiency before assessing
the $10.5 million of deficiencies. Id.; sec. 6213(a). The closing agreement was
conditional on an IRS official’s signing a schedule authorizing the overpayments.
Phila. & Reading Corp., 676 F.2d at 116. Thus, the closing agreement was drafted
such that the IRS could back out. The relevant IRS official could decline to sign
the overpayment schedule, and then the IRS would have to issue a notice of
deficiency for the three deficiency years (if it wanted to assess the deficiencies),
-70-
thus allowing the taxpayer to challenge the deficiencies in the Tax Court. Id.; sec.
6213(a).
In June 1973, without sending a notice of deficiency and before its official
signed the overpayment schedule, the IRS assessed the $10.5 million in
deficiencies. Phila. & Reading Corp., 676 F.2d at 1162. In August 1973, the IRS
official signed the overpayment schedule for the first overpayment year. Id. at
1161. In October 1973, the IRS official signed the overpayment schedule for the
second overpayment year. Id. at 1161. The IRS then demanded the taxpayer pay
the $4 million net deficiency. Id. at 1163. The taxpayer filed an injunction suit
against the IRS under section 6213(a) (giving the Tax Court the power to enjoin
an assessment of a deficiency made before the mailing of a notice of deficiency).
The taxpayer contended that the entire June 1973 assessment was premature
because the IRS had not then signed the overpayment schedule (and therefore had
not yet fulfilled the conditions of the waiver of the requirement that the IRS mail a
notice of deficiency before assessing a deficiency) and had failed to issue a notice
of deficiency with respect to the three deficiency years. Phila. & Reading Corp.,
676 F.2d at 1163. The District Court enjoined the IRS from collecting
deficiencies in excess of the $4 million net deficiency. Id. at 1164. The taxpayer
-71-
appealed, arguing that the District Court should have enjoined the collection of the
entire $10.5 million of deficiencies. Id. at 1163.
The Court of Appeals held that although the assessment of the $10.5 million
of deficiencies was premature and invalid, the District Court was correct in
refusing to enter an injunction against the collection of the $10.5 million
assessment. Id. at 1163-1164. The court reasoned that, under traditional rules of
equity, an injunction is available only if the person seeking it shows irreparable
harm will occur if the injunction does not issue. Id. at 1163; see also Lovell v.
United States, 795 F.2d 976, 977-978 (11th Cir. 1986) (same). The court held that
the failure of the IRS to issue a notice of deficiency did not harm the taxpayer
because the taxpayer had no interest in contesting the deficiencies in Tax Court.
Phila. & Reading Corp., 676 F.2d at 1163. Philadelphia & Reading Corp. is
distinguishable because there the District Court was exercising its power to issue
an injunction. In this case the Tax Court is reviewing an administrative
determination of the IRS Office of Appeals under section 6330(d).
The Eleventh Circuit opinion cited Gonzales, 212 F.3d at 1349, for the
principles that (1) agencies must comply with procedural requirements imposed by
statute and (2) agencies must respect their own procedural rules and regulations.
Romano-Murphy v. Commissioner, 816 F.3d at 720. In Gonzales, 212 F.3d at
-72-
1349-1351, the Court of Appeals for the Eleventh Circuit held that Chevron
deference was owed to the Immigration and Naturalization Service’s policy for
determining the validity of asylum applications by foreign minors. In discussing
the principle of Chevron deference, the court observed:
That the courts owe some deference to executive policy does
not mean that the executive branch has unbridled discretion in
creating and in implementing policy. Executive agencies must
comply with the procedural requirements imposed by statute. See
Morton v. Ruiz, 415 U.S. 199, 94 S. Ct. 1055, 1073, 39 L. Ed. 2d 270
(1974). Agencies must respect their own procedural rules and
regulations. See id. at 1074; see also Hall v. Schweiker, 660 F.2d
116, 119 (5th Cir. 1981).
Gonzales, 212 F.3d at 1349. This is the passage cited in Romano-Murphy v.
Commissioner, 816 F.3d at 720. We need not consider the application of these
principles to this case because, even without applying them, we conclude that the
assessment of the trust-fund-recovery penalty is invalid and that the Office of
Appeals erred in upholding a proposed levy and a filing of tax lien to collect the
penalty.
In Romano-Murphy v. Commissioner, 816 F.3d at 720, the Eleventh Circuit
cited Powell, 945 F.2d at 378, for the proposition that the IRS may not treat two
similarly situated taxpayers differently. In Powell, 945 F.2d at 375, the taxpayer
made payments to the Church of Scientology in exchange for religious benefits.
-73-
The taxpayer alleged that because the IRS permitted taxpayers of other religions to
deduct payments in exchange for religious benefits, he was entitled to a deduction
for his payments to the Church of Scientology. Id. at 376. For the purpose of
evaluating the government’s motion to dismiss the lawsuit for failing to state a
claim upon which relief could be granted, Powell assumed to be true the
taxpayer’s allegation that the IRS permitted taxpayers of other religions to deduct
payments in exchange for religious benefits. Id. at 377 (“[W]e must assume that
individuals in other religions are permitted deductions for quid pro quo
payments.”). Powell stated that under that assumption, the taxpayer would be
entitled to a deduction. Id. at 378. It reasoned: “The IRS is not allowed to treat
two similarly situated taxpayers differently.” Id.
Powell, 945 F.2d at 378, distinguished Mid-Continent Supply Co. v.
Commissioner, 571 F.2d 1371, 1376 (5th Cir. 1978), aff’g 67 T.C. 37 (1976), in
which the Court of Appeals for the Fifth Circuit held that a taxpayer has no right
to the same erroneous treatment afforded to a similarly situated taxpayer. Powell,
945 F.2d at 378, held that the deductions granted to taxpayers of other religions
had not been established to be erroneous. It is difficult to see how the facts in
Powell can be analogized to those of this case. While it may be that the IRS has
made administrative determinations in response to Letters 1153 submitted by
-74-
persons similarly situated to Romano-Murphy, it has not been established that the
IRS has issued favorable determinations to these taxpayers that were not
erroneous. See id.18 And as for the general principle stated by Powell, 945 F.2d at
378,--“The IRS is not allowed to treat two similarly situated taxpayers
differently”--the Court of Appeals for the Eleventh Circuit in Baker v. United
States, 748 F.2d 1465, 1469 n.9 (11th Cir. 1984), acknowledged that the principle
of equal treatment of taxpayers does not govern all situations. In any event, even
without considering the principle of equal treatment, we conclude that the
assessment of the trust-fund-recovery penalty is invalid and that the Office of
Appeals erred in upholding a proposed levy and a filing of tax lien to collect the
penalty.
Finally, we explain why we did not have an evidentiary hearing, as part of
this remand proceeding, to gather evidence on the question of whether Romano-
Murphy was specifically harmed by the IRS by the error identified by the Eleventh
Circuit opinion. The Eleventh Circuit’s opinion did not specifically direct us to
18
In other words, if the IRS had made a determination that a person similarly
situated to Romano-Murphy was not liable for a trust-fund-recovery penalty, and
if this determination was erroneous, then Romano-Murphy cannot rely on this
determination because in the words of Mid-Continent Supply Co. v.
Commissioner, 571 F.2d 1371, 1376 (5th Cir. 1978), aff’g 67 T.C. 37 (1976), “a
taxpayer has no right to insist upon the same erroneous treatment afforded a
similarly situated taxpayer in the past.”
-75-
hold an evidentiary hearing on remand. Thus, the question of whether to hold a
hearing is left to our discretion. Neither the IRS nor Romano-Murphy requested
that the Court hold an evidentiary hearing when they filed reports stating their
views as to what action the Court should take on remand. In our view, an
evidentiary hearing is unnecessary. The error identified by the Eleventh Circuit
opinion is the type of error that should be judicially corrected even if Romano-
Murphy did not suffer some specific harm. Thus it is not necessary to determine
the existence or degree of the specific harm.
d. Summary
The Eleventh Circuit opinion held that the Internal Revenue Code
commands that a final administrative determination with respect to a timely protest
be made before assessment of the trust-fund-recovery penalty. Romano-Murphy
v. Commissioner, 816 F.3d at 714-716. Under the law of the Eleventh Circuit, the
IRS handled Romano-Murphy’s case contrary to the command of Congress. In
analogous circumstances we have held that the assessment was invalid and that the
Office of Appeals erred in upholding the collection action. Freije v.
Commissioner, 125 T.C. 35-37. That is the appropriate disposition of this case.
An order and decision will be entered that the notice of determination by the IRS
Office of Appeals is not sustained.
-76-
3. Romano-Murphy’s request for an injunction under section 6330(e)(1)
During our consideration of this case on remand, Romano-Murphy filed a
motion seeking an injunction against further actions by the IRS to collect the
penalty. Section 6330(e)(1) provides that when a taxpayer requests a collection-
review hearing, “the levy actions which are the subject of the requested hearing
* * * shall be suspended for the period during which such hearing, and appeals
therein, are pending.” Section 6330(e)(1) also provides:
[T]he beginning of a levy or proceeding during the time the
suspension under this paragraph is in force may be enjoined by a
proceeding in the proper court, including the Tax Court. The Tax
Court shall have no jurisdiction under this paragraph to enjoin any
action or proceeding unless a timely appeal has been filed under
subsection (d)(1) [allowing a person dissatisfied with the
determination of the Office of Appeals after a collection-review
hearing to appeal the determination to the Tax Court] and then only in
respect of the unpaid tax or proposed levy to which the determination
being appealed relates.
The background of Romano-Murphy’s request for an injunction is as follows.
Romano-Murphy mailed her request for a collection-review hearing on
September 9, 2008. The Office of Appeals received her request three days later
on, September 12, 2008. On that same day the IRS made a “litigation freeze”
notation in its records as to Romano-Murphy’s liability for the trust-fund-recovery
penalty. On February 24, 2009, the Office of Appeals held a conference with
-77-
Romano-Murphy as part of its collection-review hearing; on October 29, 2009, it
issued its summary notice of determination; and on November 20, 2009, it issued
its final notice of determination. Romano-Murphy appealed to this Court. We
issued our opinion on November 29, 2012. Romano-Murphy v. Commissioner,
T.C. Memo. 2012-330. We entered the decision on December 13, 2012. Romano-
Murphy appealed the decision to the Court of Appeals for the Eleventh Circuit.
The Eleventh Circuit issued an opinion on March 7, 2016, vacating our
decision. Romano-Murphy v. Commissioner, 816 F.3d 707. The Eleventh Circuit
opinion, together with a judgment entered by the Eleventh Circuit on that same
day, constitutes the mandate of the Eleventh Circuit. See Fed. R. App. P. 41(a)
(providing that unless the Court of Appeals directs that a formal mandate issue,
the mandate consists of a copy of the judgment and a copy of the opinion). The
mandate is functionally the direction that the lower court must follow. 3 Moore’s
Manual--Federal Practice & Procedure, sec. 28.94[1] (2004) (“A mandate is the
appellate court’s order to the lower court following the determination of the
appeal.”).
The date the mandate issues is the date the lower court may resume taking
actions in the case. Zaklama v. Mount Sinai Med. Ctr., 906 F.2d 645, 649 (11th
Cir. 1990) (holding that District Court generally is without jurisdiction to rule in
-78-
case on appeal until mandate has issued); Ostrer v. United States, 584 F.2d 594,
598 (2d Cir. 1978) (“The effect of the mandate is to bring the proceedings in a
case on appeal in our Court to a close and remove it from the jurisdiction of this
Court, returning it to the forum whence it came.”). The Eleventh Circuit’s
mandate issued on April 29, 2016.19 Thus, on that day the Tax Court regained
jurisdiction over the case. The judicial appeal from the collection-review hearing
was still pending and therefore levy actions by the IRS were still statutorily
suspended under section 6330(e)(1). Despite this, on June 15, 2016, the IRS
removed the “litigation freeze” notation it had made in its records on September
12, 2008. And on May 8, 2017, the IRS issued to Romano-Murphy a notice of
intent to levy on her property to collect the second-quarter 2005 trust-fund-
recovery penalty. The letter stated:
This is a notice of intent to levy your * * * property. * * * If you
don’t call us immediately to make payment arrangements or pay the
19
The judgment was entered on March 7, 2016. The deadline for filing a
petition for rehearing was 45 days later, on April 22, 2016. See Fed. R. App. P.
40(a)(1) (providing that in a civil case in which one of the parties is the United
States, unless an order shortens or extends the time, the petition for panel
rehearing may be filed within 45 days after entry of judgment), id. R. 35(c)
(providing that a petition for rehearing en banc must be filed within the time
prescribed by rule 40 for filing a petition for panel rehearing). The mandate issued
seven days after that, on April 29, 2016. See id. R. 41(b) (providing that the
mandate generally must issue seven days after the time to file a petition for
rehearing expires).
-79-
amount due, we may levy your property or rights to property and
apply it to the $317,976.88 you owe.
The notice stated that it satisfied the requirement of section 6331(d). Section
6331(d)(1) provides: “Levy may be made * * * upon the salary or wages or other
property of any person with respect to any unpaid tax only after the Secretary has
notified such person in writing of his intention to make such levy.”
On May 15, 2017, Romano-Murphy filed her motion asking this Court to
restrain the IRS from collection activities.20 Upon receiving a copy of her motion,
the IRS requested that the Office of Appeals re-establish the “litigation freeze”
notation. By May 24, 2017, the IRS’s internal records showed that the “litigation
freeze” notation had been re-established.
The Court has the authority to enjoin a levy during the pendency of the
collection-review hearing at the IRS Office of Appeals and during the pendency of
the judicial proceedings to review the Office’s determinations from the hearing.21
However, we are not convinced that an injunction is justified merely by the
issuance of a notice of proposed levy such as the May 8, 2017 notice issued by the
20
She cited as authority sec. 6213.
21
The authority to make such an injunction comes from sec. 6330(e)(1), not
sec. 6213, the provision Romano-Murphy cited. The authority of the Court to
enjoin a levy is conditional upon the taxpayer’s filing a timely appeal under sec.
6330(d)(1). Sec. 6330(e)(1) (last sentence).
-80-
IRS to Romano-Murphy. See Springer v. IRS ex rel. United States, 231 F. App’x
793, 798 (10th Cir. 2007) (holding that notice of intent to levy does not justify
injunction under section 6330(e)(1)); see also Hart v. United States, 291 F. Supp.
2d 635, 645 (N.D. Ohio 2003). Although Romano-Murphy alleged that the IRS
engaged in other collection activities besides the notice of proposed levy, the only
proof of other collection activities she submitted was a copy of an April 3, 2017
letter from the IRS that merely requested payment of the penalty. And even if an
injunction could be justified by the mere issuance of a notice of proposed levy, an
injunction is not necessary in this case for two reasons: (1) the IRS has re-
established a “litigation freeze” notation to stop its collection activities, see
Humphries v. IRS, 2010-2 U.S. Tax Cas. (CCH) para. 50,583, at 85,500 (S.D. Fla.
2010) (holding injunction unnecessary, despite IRS bank levy allegedly violating
section 6330, because IRS did not intend to issue any new levies), and (2) we are
entering a decision in this case in which we do not sustain the Office of Appeals
determination to uphold the levy proposed to collect the trust-fund-recovery
penalty. Because an injunction is not necessary, we will deny Romano-Murphy’s
May 15, 2017 motion to restrain the IRS from collection activities.
-81-
4. Jurisdiction
On July 31, 2018, we issued an order concerning the timing of Romano-
Murphy’s petition in this case. Observing that the petition preceded the final
notice of determination, we ordered the parties to explain why, despite this fact,
the Court has jurisdiction over the case. In response to the order, Romano-
Murphy and the IRS both took the position that the Tax Court has jurisdiction.
They postulated that the summary notice of determination, which preceded the
petition, was the “determination” of the Office of Appeals for purposes of section
6330(d)(1), which allows a taxpayer to petition the Tax Court within 30 days of “a
determination” under section 6330. Under the particular circumstances of this
case, we agree with this proposition.
The Tax Court is a court of limited jurisdiction, and the Court may exercise
jurisdiction only to the extent authorized by Congress. Naftel v. Commissioner,
85 T.C. 527, 529 (1985). Section 6330(c)(3) sets forth the issues that must be
considered by the Office of Appeals in making its “determination” after a
collection-review hearing. Section 6330(d)(1) provides that the taxpayer may,
within 30 days of the determination, file a Tax Court petition for review of the
determination and that the Tax Court has jurisdiction “with respect to such
matter”. The Tax Court’s jurisdiction under section 6330 depends on the issuance
-82-
of a notice of determination and the filing by the taxpayer of a timely petition.
Sec. 6330(d)(1); see Sarrell v. Commissioner, 117 T.C. 122, 125 (2001). On
November 17, 2009, Romano-Murphy filed a petition with this Court and attached
a copy of the summary notice of determination dated October 29, 2009. Although
the petition was filed before the November 20, 2009 final notice of determination,
the summary notice of determination is a valid determination under section
6330(d) for purposes of determining the timeliness of the petition under the facts
of this case.
By way of background, the IRS informs us that it issued the summary notice
of determination in error. It states that pursuant to IRS procedures, a summary
notice of determination is issued “to a taxpayer who has reached an agreement
with Appeals on the resolution of a case and has agreed to waive its right to
judicial review.” According to the IRS, the Office of Appeals should not have
issued the Form 12257 to Romano-Murphy because no agreement had been
reached between her and the Office of Appeals. Therefore, the IRS states, the
Office of Appeals did not follow IRS procedures when it issued the summary
notice of determination to her on October 29, 2009. The IRS states that instead of
mailing a summary notice of determination on that date, the Office of Appeals
should have mailed Romano-Murphy a notice of determination.
-83-
In spite of this error, the summary notice of determination in this case is a
determination for purposes of section 6330(d) because the notice meets all of the
requirements of a valid notice of determination as set forth in the regulations under
section 6330. As contemplated by section 6330(c)(3), the summary notice of
determination was issued at the conclusion of the collection-review hearing
provided by the Office of Appeals after Romano-Murphy submitted timely hearing
requests. On August 25 and September 5, 2008, the Office of Appeals mailed to
Romano-Murphy the required notices under sections 6320 and 6330 regarding her
right to request a collection-review hearing. On September 9, 2008, she mailed to
the IRS a timely request for a collection-review hearing. On February 24, 2009,
the IRS Office of Appeals conducted a face-to-face hearing with her. At the
hearing, the Appeals Officer reviewed the issues she raised and determined that
she was liable for the trust-fund-recovery penalty for the taxable period at issue.
Moreover, the summary notice of determination mailed to her on October 29,
2009, met the requirements to be considered a valid determination under section
301.6330-1(e)(3), Proced. & Admin. Regs. The description of a notice of
determination is found in section 301.6330-1(e)(3), Q&A-E8(i), Proced. & Admin.
Regs., which provides:
Q-E8. How will Appeals issue its determination?
-84-
A-E8. (i) Taxpayers will be sent a dated Notice of Determination by
certified or registered mail. The Notice of Determination will set
forth Appeals’ findings and decisions. It will state whether the IRS
met the requirements of any applicable law or administrative
procedure; it will resolve any issues appropriately raised by the
taxpayer relating to the unpaid tax; it will include a decision on any
appropriate spousal defenses raised by the taxpayer; it will include a
decision on any challenges made by the taxpayer to the appropriate-
ness of the collection action; it will respond to any offers by the
taxpayer for collection alternatives; and it will address whether the
proposed collection action represents a balance between the need for
the efficient collection of taxes and the legitimate concern of the
taxpayer that any collection action be no more intrusive than
necessary. The Notice of Determination will also set forth any
agreements that Appeals reached with the taxpayer, any relief given
the taxpayer, and any actions the taxpayer or the IRS are required to
take. Lastly, the Notice of Determination will advise the taxpayer of
the taxpayer’s right to seek judicial review within 30 days of the date
of the Notice of Determination.
See also sec. 301.6320-1(e)(3), Q&A-E8(i), Proced. & Admin. Regs.
Like the final notice of determination issued three weeks later, the summary
notice of determination set forth the Office of Appeals’ findings and decision to
proceed with collection of the liability at issue. The summary notice of
determination stated that the IRS had met the requirements of any applicable law
or administrative procedure. It addressed the issues appropriately raised by
Romano-Murphy, including her challenge to the trust-fund-recovery-penalty
liability. The summary notice of determination stated that after the face-to-face
hearing, the Appeals Officer determined that the trust-fund-recovery penalty was
-85-
appropriate. Finally, the summary notice of determination stated that the Appeals
Officer’s determination--that the proposed collection action represented a balance
between the need for the efficient collection of taxes and Romano-Murphy’s
legitimate concern that any collection action be no more intrusive than necessary--
was proper. In addition, the summary notice of determination stated: “I
understand that IRC Sections 6320 and 6330 require the Office of Appeals to issue
a Notice of Determination after a CDP Hearing. Those sections also allow me 30
days to file a lawsuit with the appropriate court if I disagree with Appeals’
determination.” As evidenced by Romano-Murphy’s filing of a petition after
receiving the summary notice of determination, she interpreted the summary notice
of determination as her right to seek judicial review within 30 days of the date of
its issuance.
The Court has jurisdiction to decide this case. We explained in Andre v.
Commissioner, 127 T.C. 68, 70 (2006): “[I]f a taxpayer makes a timely request for
a CDP hearing, but the Commissioner sends him something other than a notice of
determination at its conclusion, we don’t just say ‘no notice of determination, no
jurisdiction’, but we look to see whether what the IRS sent out should be treated as
a notice of determination.” For this proposition we cited Craig v. Commissioner,
119 T.C. 252, 258-259 (2002), which stated:
-86-
Although the Appeals officer concludes an equivalent hearing by
issuing a decision letter, as opposed to a notice of determination, the
different names which are assigned to these documents are merely a
distinction without a difference when it comes to our jurisdiction over
this case, where a Hearing was timely requested. The decision letter
contains all of the information required by section 301.6330-1(e)(3),
Q&A-E8, Proced. & Admin. Regs., to be included in a notice of
determination but for the fact that the decision letter ordinarily states
in regard to most issues that a taxpayer may not (as opposed to may)
seek judicial review of the decision. * * * [Fn. ref. omitted.]
In Ballard v. Commissioner, T.C. Memo. 2007-159, aff’d, 310 F. App’x 177
(9th Cir. 2009), the taxpayer contended that IRS Letter 2081(CG) constituted a
valid notice of determination that conferred jurisdiction on the Court under section
6330. The Court disagreed because none of the events described in section 6330
that lead to a determination over which the Court has jurisdiction had occurred.
The taxpayer had not received a notice of a right to a hearing, there had been no
timely request for a hearing, and there had been no determination with respect to
the hearing or request for hearing as required under section 6330. The Letter
2081(CG) did not meet the description of a notice of determination found under
section 301.6330-1(e)(3), Proced. & Admin. Regs. By contrast, the record in
Romano-Murphy establishes that a notice of a right to a collection-review hearing,
a timely request for a collection-review hearing, and a determination with respect
to the hearing or request for hearing as required by sections 6320 and 6330 had
-87-
occurred. All of these findings and decisions were set forth in the summary notice
of determination. Therefore, the Court has jurisdiction to decide this case.
To reflect the foregoing,
An appropriate order and decision
will be entered.