TAX COURT REMANDS CDP CASE TO DEVELOP A RECORD

Judicial Review Impossible Without an Adequate Record

The recent Tax Court case of Bickel v. Commissioner, Docket No. 22038-22L, provides great insight into the manner in which the IRS is to conduct Collection Due Process (CDP) appeals. Specifically, the case addresses how Appeals Officers are to perform their duties under Code § 6330(c)(3).

Section 6330(c)(3) lays out the so-called “Big Three” affirmative duties placed on the Appeals Office in CDP hearings. The law states that the Appeals Officer (AO) assigned to the case must: (1) verify that the requirements of any applicable law or administrative procedure were met, (2) consider any relevant issues raised by the taxpayer, including any request for collection alternatives, and (3) perform the required “balancing test.”

The balancing test under § 6330(c)(3)(C) states that the AO must consider “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.” In this regard, the AO has to weigh the equities, as it were, in an effort to strike a reasonable balance between the IRS’s demand that all the tax be paid now, and the citizen’s need that tax collection not grind him into powder.

In evaluating whether these three factors were met, the Tax Court reviews the Notice of Determination (NOD) issued by the Appeals Office. The NOD is the required statutory notice that expresses the final determination of the Appeals Office, and which gives the Tax Court the jurisdiction to review the decision. The Tax Court reviews the determination for abuse of discretion. The Court does not substitute its own judgment for that the Appeals Officer, but rather, considers whether the AO applied all applicable rules and procedures, and evaluated the facts property. As the Bickel Court stated, “An abuse of discretion exists when a CDP determination is arbitrary, capricious, or without sound basis in law or fact,” citing Murphy v. Commissioner, 125 T.C. 301 (2005), and Woodral v. Commissioner, 112 T.C. 19 (1999).

The NOD, as the formal decision of the AO, must spell out the basis of the IRS’s decision. As the Tax Court stated in Serna v. Commissioner, T.C. Memo. 2022-66, “We judge the propriety of the …determination … on the grounds invoked by the Office of Appeals.” Said another way, the reasoning expressed in the NOD it the key factor the Court looks to in deciding whether the IRS abused its discretion or not. The Bickel Court noted that a court “cannot uphold a notice of determination on grounds other than those actually relied upon by the Appeals Officer.” Bickel, pg 11.

In connection with this analysis, the Court looks at the contemporaneous memorandum included with…

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