Introduction

The historically broad powers given to the Internal Revenue Service n2 to enforce the tax laws and collect unpaid tax liabilities n3 were significantly limited by the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998). n4 The tone of the 1997 and 1998 Senate Finance Committee hearings preceding enactment of RRA 1998 reflected some constituencies' extreme dissatisfaction with the functioning of the IRS. n5 [*52] These hearings and the inflammatory testimony detailing the alleged abuses of the IRS in its collections activities n6 led to reform of the IRS and its practices, including the creation of a taxpayer's right to a collection due process hearing (CDP hearing) prior to enforced collection. (Much of the testimony presented at the hearings has since been either disputed or entirely discredited. n7)

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RRA 1998 restructured the IRS and resulted in significant reforms to the tax collection system. n8 RRA 1998 created the third Taxpayer Bill of Rights. n9 Among the "rights" RRA 1998 created is the right to a "collection due process hearing." n10 This is a new and potentially powerful post- assessment and pre-collection right for taxpayers. Although some conclude that these rights create unwarranted delay, others have concluded that "the Collection Due Process . . . hearing was one of RRA 98's more significant improvements to IRS collection procedures." n11

Part I of this article discusses enforced tax collection generally and then examines the statutory requirements and legislative history of the collection due process provisions. n12 This section also considers the approach that is currently used to conduct CDP hearings and explores current judicial and administrative interpretation of the CDP provisions. n13

Part II proposes a model for the conduct of CDP hearings. The proposed model would require direct communication during the hearing, establish procedures to be used during the hearing, and establish explicit remedies for frivolous claims raised by taxpayers and inadequate CDP hearing rights afforded by the IRS.

Part III demonstrates how the proposed model will further the congressional intent of the CDP provisions. This section also explores the potential consequences of real or perceived unfairness in the methods used [*54] to collect taxes, which may have consequences for tax compliance generally. In addition to increasing perceived fairness, the proposed changes should reduce the need for judicial review and increase the meaningfulness of the right to a CDP hearing.

This article concludes that the CDP provisions as currently applied provide few taxpayer rights, require significant administrative and judicial resources, delay the collection of unpaid tax liabilities, and may adversely impact the public's perception of the fairness of the tax system. CDP hearing rights and procedures must be clarified by Congress.

I. Enforced Tax Collection: Procedures and Rights

Congress has the power to lay and collect taxes. n14 Congress has delegated the authority to collect taxes and enforce the tax laws to the IRS. Although the judiciary's function with respect to tax is to interpret the law, it is not within the province of the judiciary to make tax law. n15

This Part first considers the historic approach to tax assessment and collection, focusing on lien and levy procedures. This includes discussion of the due process considerations relating to tax collection. Next, this Part addresses the requirements of the CDP provisions and how CDP changes lien and levy procedures. Finally, this Part addresses the cases that have interpreted and, in some cases, changed the requirements of the CDP provisions.

A. Liens and Levies Generally

Assessment is the first step in tax collection. n16 Assessment can be made either after a taxpayer files a tax return showing taxes due without payment, n17 or after a determination of deficiency in income, gift, estate, or certain excise taxes becomes final. n18

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After assessment, the IRS must send the taxpayer a notice informing her of the amount due and demanding payment-a "notice and demand." n19 If the assessed tax remains unpaid ten days after the notice and demand, a lien in favor of the government arises on all of the taxpayer's assets. n20 Although a lien arises automatically on notice, demand, and non-payment, it does not have priority over bona fide purchasers and certain other creditors until a Notice of Federal Tax Lien (NFTL) is filed. n21

In addition, after notice, demand, and nonpayment of assessed taxes, the IRS can levy on the taxpayer's property and property rights. n22 The taxpayer must be notified of the intent to levy at least thirty days before levy. n23 The notice must include a brief statement in "simple and nontechnical terms" explaining the proposed collection action. n24

A balancing test is used to determine the amount of process constitutionally required before a person is deprived of rights or property in a particular case. n25 When a creditor levies on a debtor's property to collect [*56] a debt, the debtor is usually entitled to pre-deprivation notice and a meaningful opportunity to be heard. n26

Effective and efficient collection of taxes is necessary to finance the operations of a sovereign government. Prompt, effective, and efficient collection of taxes may be viewed as especially important in times of mounting government deficits and enormous unpaid tax liabilities. n27 Because of the government's need to efficiently collect taxes, the IRS has been given extraordinarily broad collection and enforcement powers. n28

Historically, due process has not entitled a taxpayer to pre-deprivation review of IRS decisions to collect assessed, unpaid taxes. n29 Summary tax [*57] collection by the Government is permitted under traditional notions of constitutional due process n30 because of the significant hardship the government would suffer without the ability to promptly collect taxes owed. n31 Summary power to levy is necessary to "protect the Government against diversion or loss . . . . 'The underlying principle' . . . is 'the need of government promptly to secure its revenues.'" n32

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Traditionally, a taxpayer's right to judicial review was limited to post- collection refund claims. n33 However, in some instances, including redetermination of deficiencies in income, gift, estate, and certain excise taxes, a taxpayer may seek pre-assessment review of a tax liability by petitioning the Tax Court. n34 Post-deprivation review is sought by making an administrative claim for a refund and, if the refund claim is denied or not answered, filing a suit for refund in the United States District Court or in the United States Court of Federal Claims. n35

Post-assessment, pre-collection review is generally prohibited by the Anti- Injunction Act and the Declaratory Judgment Act. n36 Together, these acts prohibit most legal challenges that would delay or interfere with the prompt collection of unpaid taxes. n37

Although there are often multiple fora with jurisdiction over the review of a tax liability, res judicata and collateral estoppel prevent a taxpayer from relitigating claims or issues. n38 Thus, a taxpayer generally cannot make multiple attempts to challenge the same tax liability.

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B. CDP Rights

The CDP provisions provide taxpayers with additional procedural safeguards. n39 Collection actions subject to the CDP provisions include both the filing of an NFTL and levy on the taxpayer's property. Only the person liable for the unpaid tax is given a CDP notice and opportunity for a CDP hearing. n40

These previously unavailable rights have caused some controversy. Some commentators have criticized the CDP rights claiming, in part, that they divert IRS resources from more productive uses. n41 CDP rights, without question, have changed the face of tax liability collection. n42 Other commentators have supported the new rights: "CDP's administrative hearings and judicial review of those IRS collection hearings are not [*60] necessarily unwarranted, wasteful or dangerous to the very existence of our government, but a step in the progression of the rule of law principles that came to permeate the 20th century legal culture." n43

The IRS must inform a taxpayer of the availability of a CDP hearing within five days after filing a NFTL. n44 The notice must, in "simple and nontechnical terms," inform the taxpayer of the following: the amount of unpaid tax; the right to request a CDP hearing within thirty days of the beginning of the end of the five-day post-NFTL filing period; available administrative appeals and applicable procedures; and Internal Revenue Code (IRC) provisions and procedures relating to the release of tax liens. n45

A similar CDP notice must be given, in "simple and nontechnical terms" before most federal tax levies. n46 The pre-levy CDP notice must inform the taxpayer of the following: the amount of unpaid tax; the right to request a CDP hearing within thirty days of the notice; the proposed collection action; the IRC provisions, procedures, and administrative appeals relating to levy and sale of property; and alternatives that could prevent levy. n47 Finally, the notice must explain the IRC provisions and procedures relating to redemptions of property and release of liens. n48

As will be more fully developed in this article, the CDP provisions place a significant burden on the tax collection system, yet provide taxpayers with few, if any, additional rights. The IRS is required to provide only limited process and its determinations are generally upheld by the courts. n49

During fiscal years 1999 through 2002, more than 38,000 CDP determinations were issued and, at the end of fiscal year 2002, the IRS had more than 18,600 pending CDP hearing requests. n50 Through fiscal year [*61] 2002, the courts disposed of 1,085 CDP appeals. n51 The number of CDP requests and applications for judicial review continue to rise. n52 Most CDP hearing requests and judicial appeals of the CDP determinations are made by pro se taxpayers. n53

Two types of non-meritorious claims create a significant burden on the tax collection system and have attracted the attention of critics: requests raising only frivolous arguments and requests made by taxpayers seeking solely to delay collection of their tax liabilities. n54 However, the National Taxpayer Advocate, Nina E. Olson, has expressed concern that the early cases, many of which involved only frivolous issues, would obscure later "good cases" that "are represented by 'competent, serious professionals' who are trying to work within the system." n55 Although the CDP provisions may allow taxpayers an opportunity to delay collection, CDP hearings have value and allow taxpayers to present relevant issues related to the collection of assessed taxes before collection is complete.

Understandably, the courts, the IRS, the Treasury Inspector General for Tax Administration (TIGTA), and commentators have expressed concerns about the possibility that unnecessary delay may occur as a result of taxpayers' CDP rights. n56 Potential delay may be compounded by the CDP [*62] provisions' failure to provide a time frame for the hearing process. n57 Although most CDP hearings occur within six months of the CDP request, the IRS, when asked to specify a time frame for the conduct of a CDP hearing, responded that all CDP cases are different and the time required to properly handle a CDP hearing request depends on the complexity of the issues raised by that case. n58

The CDP provisions contain ambiguities that raise a number of questions. n59 The questions include the type of hearing required, the issues that may be presented, the Appeals officer's duties, and the remedy or remedies available when a CDP hearing is deficient. These questions will be addressed in the following sections.

C. CDP Hearing

A CDP hearing request must be made in writing within thirty days of either the first notice of intent to levy n60 or the end of the five-day period following the filing of a NFTL. n61 When a CDP hearing is timely requested, [*63] both the proposed levy and the statute of limitations are suspended. n62 A taxpayer is generally entitled to only one CDP hearing for each taxable period. n63

CDP hearings are conducted by the IRS Office of Appeals pursuant to IRC section 6330. n64 Although the statute does not specify whether CDP hearings are to be formal or informal hearings, n65 most reviewing courts have concluded that Congress intended that CDP hearing procedures be similar to the procedures used in other appeals proceedings, which have historically used informal procedures and in a variety hearing of formats. n66 The informality of Appeals Office procedures is used to justify minimal process in the CDP context. n67 In many cases, informal procedure has resulted in inadequate protection of taxpayer rights. n68

The CDP hearing must be conducted by an Appeals officer "who has had no prior involvement with respect to the unpaid tax specified." n69 "Prior [*64] involvement . . . includes participation or involvement in an Appeals hearing (other than a CDP hearing held under either section 6320 or section 6330) that the taxpayer may have had with respect to the unpaid tax and tax periods shown on the NFTL." n70

Moreover, RRA 1998 confirmed and increased the independence of the Appeals Office. n71 Ensuring that a previously uninvolved Appeals officer considers the matter before summary collection occurs, coupled with the increased independence of the Appeals Office, should increase both the real and perceived fairness of CDP hearings.

The Appeals officer must verify at the hearing that all applicable laws and administrative procedures have been satisfied. n72 Because IRC section 6330 does not specifically require that the verification be provided to the taxpayer, the courts have only required that the Appeals officer perform the verification, rejecting claims that the taxpayer is entitled to receive a copy [*65] of the verification. n73 To increase the real and perceived fairness of the CDP hearing, the means of verification should be clarified. n74

1. Type of Hearing

The statute requires, n75 the legislative history speaks of, n76 and the regulations acknowledge that a "collection due process hearing" must occur if requested. n77 What then does "collection due process" mean? Few commentators have argued that due process in this context rises to the level of a constitutional mandate. n78 However, the little explanation Congress provided indicates that the choice of the words "due process" was both significant and intentional. In practice, the CDP hearings may not provide the "due process" Congress envisioned.

The regulations authorize Appeals to conduct CDP hearings face-to-face, telephonically, by correspondence, and by a combination of these methods. n79 The courts have also approved of these methods of conducting CDP hearings. n80 In some instances, the courts have even upheld nothing [*66] more than a review of the administrative record by the Appeals officer. n81 Not all forms of CDP hearing afford taxpayers adequate notice and a meaningful opportunity to be heard.

The regulations acknowledge the superiority of face-to-face hearings. Face-to- face hearings are scheduled with the taxpayer and conducted in the Appeals Office nearest the taxpayer's residence. n82 Face-to-face hearings provide the taxpayer with adequate notice and an opportunity to be heard. n83 Thus, face-to-face hearings satisfy the requirement that the taxpayer be afforded a CDP hearing.

Even before final regulations were promulgated, the IRS Chief Counsel concluded that a taxpayer who requested a CDP hearing was to be offered a face-to-face hearing whenever possible. n84 The right to a face-to-face CDP hearing was to be extended to a taxpayer "even if he will raise only frivolous or constitutional arguments because the Appeals officer must cover the statutory requirements of sections 6330(c)(1) and (3)(C) of verification and balancing." n85 This position, according to the Advisory, was agreed to by Chief Counsel, the U.S. Department of Justice, and the Appeals Office. n86 This interpretation was based on the fact that the CDP provisions did not require that the taxpayer present arguments that were likely to succeed.

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Although containing contradictory provisions, the regulations seem to provide a narrow right to a face-to-face hearing. The regulations first state that:

CDP hearings are much like Collection Appeal Program (CAP) hearings in that they are informal in nature and do not require the Appeals officer or employee and the taxpayer, or the taxpayer's representative, to hold a face-to-face meeting. A CDP hearing may, but is not required to, consist of a face-to-face meeting, one or more written or oral communications between an Appeals officer or employee and the taxpayer . . . or some combination thereof. n87

However, the regulations also provide that "If a taxpayer wants a face-to-face CDP hearing . . . [t]he taxpayer must be offered an opportunity for a hearing at the Appeals Office closest to taxpayer's residence or, in the case of business taxpayers, the taxpayer's principal place of business." n88

Further clouding the issue, the IRS Chief Counsel revised its position in 2003 and stated that face-to-face hearings should be granted only if the taxpayer was raising non-frivolous issues. n89 Allowing face-to-face hearings only if non-frivolous issues are raised is contrary to the regulations' requirement that if the taxpayer requests a face-to-face hearing, such a hearing must be offered. However, this position is consistent with one Tax Court judge's conclusion that the position articulated in the June 2001 Chief Counsel Advisory was "a goal, not a mandate." n90 Allowing face-to-face hearings only if non-frivolous issues are raised provides taxpayers with significantly fewer rights than if taxpayers are provided a face-to-face hearing if requested and practicable. If the taxpayer truly raises only frivolous issues, this may result in a burden on the Appeals Office and delay collection of the taxes owed. However, without conducting a hearing it is impossible to know what issues the taxpayer will raise. To deny a hearing based solely on the request may disadvantage less-educated taxpayers. n91

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CDP hearings are also frequently conducted by telephone. n92 The regulations and the IRS's procedures allow telephonic CDP hearings. n93 Telephone conversations may also constitute a component of the hearing. n94 In addition, even before the final regulations were promulgated, the Tax Court appeared to sanction the use of hearings that were not conducted face-to- face. n95

A telephonic hearing allows the taxpayer to communicate directly with the Appeals officer, albeit in a more limited fashion than in a face-to-face hearing. Because telephonic hearings are generally conducted after notice to the taxpayer, telephonic hearings satisfy Congress's intent that taxpayers be given additional rights, particularly if the call is recorded to preserve the record in case of appeal. Simultaneous discussion is available and questions can be promptly addressed. In addition, telephonic hearings also comport with the historic approach used by the IRS in Appeals Office proceedings and may be less administratively burdensome than a face-to-face hearing.

In an early case, Meyer v. Commissioner, the Tax Court concluded that a CDP determination was invalid because the taxpayer was not offered a face-to-face or telephonic hearing. n96 In Meyer, the Appeals officer issued a determination based solely on the request for a hearing because he believed the taxpayers would only raise constitutional challenges. n97 The Tax Court, despite its lack of jurisdiction over the underlying tax, concluded that the CDP determination was invalid because no hearing was held and that collection could therefore not proceed- explicitly rejecting the IRS's position that the case should be dismissed because the Tax Court would not have had jurisdiction over the underlying tax. n98

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Just over a year later, after considering the role of stare decisis and the results of the analysis from Meyer, which was issued during the "nascent stages of . . . section 6330 jurisprudence," the Tax Court concluded that it would not look behind a facially valid notice of determination to consider whether an appropriate CDP hearing had been conducted. n99 The overruling of Meyer could result in much more informality in the conduct of CDP hearings, because reviewing courts will not require a CDP hearing unless the court considers it necessary or productive in the individual case, as long as a CDP determination that includes all of the required statements is issued.

Correspondence hearings are also permitted by the regulations and have been upheld by the courts. n100 Some taxpayers have requested correspondence hearings. n101 In other cases, courts have found the correspondence between the taxpayer and the Appeals officer to constitute a correspondence hearing. n102 The question is: what constitutes a correspondence hearing? Is a correspondence hearing simply a review of the administrative file or is more required? To provide the taxpayer with a meaningful opportunity to be heard the correspondence between the taxpayer and the Appeals officer must, at a minimum, provide the taxpayer with the opportunity to understand and respond to the Appeals officer's questions and concerns about the taxpayer's CDP request.

A hearing should involve a dialogue between the taxpayer and the Appeals officer, allowing development of the taxpayer's position and to address the Appeals officer's specific concerns. However, in some cases when a CDP hearing request appears to raise frivolous issues, the Appeals officer reviews the administrative file, conducts the verifications, and issues a CDP determination without further input from the taxpayer. n103 The assertion of CDP rights followed immediately by a determination does not [*70] create an adequate record for review should the taxpayer seek judicial review of the CDP determination. In addition, it is impossible to know with certainty what the taxpayer might have raised at the hearing. n104 Thus, nothing more than a terse warning that a CDP determination would be issued unless the taxpayer supplemented the CDP request does not satisfy the statutory hearing requirement because the taxpayer is not given a meaningful opportunity to raise relevant issues and address the Appeals officer's concerns. Reviewing the CDP hearing request and the administrative file, without more, is inconsistent with the hearing envisioned by Congress. n105

On the other hand, when a taxpayer is offered a face-to-face or telephonic hearing and refuses to participate in the hearing, it may not be possible for the Appeals officer to do more than review the administrative record or correspondence. In these cases, the courts have upheld determinations made after a review of the administrative record. n106 These cases are distinguishable from cases where no opportunity to be heard is provided and should continue to be dealt with in this fashion. However, it should also be clear that these cases are the exception, rather than the rule, and that the taxpayer must be provided with a meaningful opportunity to be heard.

2. No Hearing Conducted

The CDP provisions require that, if requested, a taxpayer must receive a "fair hearing." n107 Specifically, IRC sections 6320(b) and 6330(b), relating to liens and levies respectively, require that "[i]f the [taxpayer] requests a hearing . . . such hearing shall be held . . . ." n108 The regulations contain [*71] a similar requirement. n109 In addition, IRC section 6330(e) provides that "if a hearing is requested . . . 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." n110 If a CDP hearing is requested, the IRS, through the Appeals Office, must conduct a hearing and no collection by levy may occur until such hearing (along with any appeals) is concluded.

Despite the plain language of the statute requiring that a hearing occur and that certain actions be taken by the Appeals officer at the hearing, n111 the courts have not universally concluded that a CDP hearing must be conducted in all cases. n112 In a number of cases, the Tax Court has concluded that it would be "neither necessary or productive" to send a case back for a hearing, concluding that, on the record before the court, the Appeals officer's CDP determination was justified even though no hearing had occurred. n113 This approach began with the Tax Court's decision in the [*72] first opinion in Lunsford v. Commissioner (hereinafter, Lunsford I). n114

In Lunsford I, the taxpayer questioned the validity of the determination. n115 After receiving the CDP hearing request, the Appeals officer sent a letter to the taxpayers, which included a copy of the verification of the assessment, and informed the taxpayers that if they wanted to raise additional issues they should contact the Appeals officer by a certain date. n116 The taxpayers did not contact the Appeals officer by that date, and the Appeals officer proceeded to issue a CDP determination. n117 At trial, the judge asked whether the taxpayers had received a hearing. n118 The trial judge was concerned that the court did not have jurisdiction because, without a hearing, there could be no valid notice of determination, and thus no jurisdiction. n119 The taxpayers' representative replied that the taxpayers had not received a hearing. n120 The IRS asserted that a correspondence hearing had been conducted. n121

Without addressing whether the taxpayer received the statutorily mandated CDP hearing, the majority concluded that the court had jurisdiction because the CDP determination contained all the required findings. n122 The majority, analogizing the CDP determination to a Notice of [*73] Deficiency for jurisdiction purposes, refused to look behind what it considered to be a facially valid CDP determination. n123 Requiring a hearing or even considering whether a hearing had occurred, the majority reasoned, would require the court to "look behind" the CDP determination. n124 To reach this conclusion, the court overruled its prior decision in Meyer v. Commissioner n125 to the extent that it required the court to "look behind the determination to see whether a proper hearing was offered" before determining the jurisdictional issue. n126 The Tax Court has since acknowledged that the Lunsfords were not afforded a CDP hearing. n127 Thus, the Tax Court has jurisdiction if a CDP determination is issued and a timely petition is filed regardless of whether the taxpayer received a CDP hearing. n128

However, the reasoning of Judge Foley's dissent was correct. Judge Foley reasoned that IRC section 6330(c) required issuance of a determination after the hearing, and that without the hearing there could be no valid determination. n129 According to Judge Foley, "[i]n order to assert jurisdiction, deny petitioners their statutorily mandated hearing, and expedite the collection process, the majority have bifurcated this case into two opinions, both of which obfuscate the issues, ignore an unambiguous statute, and avoid addressing the most critical issue:" whether a [*74] correspondence hearing occurred. n130 For a determination to be valid, the determination must be issued after a CDP hearing. n131 It was improper for the court to refuse to address the hearing issue.

Contrary to the Tax Court's majority holding in Lunsford I, without a hearing there cannot be a valid Notice of Determination. In a separate dissent in Lunsford I, Judge Vasquez noted that stare decisis should play an even greater role for cases of statutory construction. n132 Judge Foley's dissent noted that neither the IRS nor the taxpayer questioned the rule in Meyer. n133 While concerns that the CDP hearing procedures can be used for delay are valid, the regulations allow the taxpayer to raise only issues presented at the CDP hearing on appeal. n134 Thus, if no hearing was conducted, little if anything can be raised on appeal. n135 This eviscerates the rights Congress intended to give to taxpayers.

In addition, as noted in Judge Laro's dissent in Lunsford II, there is little for the court to review if no hearing is conducted. Because the taxpayer was not given an opportunity to raise any relevant issues if no hearing was conducted, the Appeals officer cannot have considered the issues to have been raised at a hearing. n136 Judge Laro concluded that such a failure is a "per se abuse of discretion." n137 If for no other reason, Judge Laro believed that the Appeals officer abused his discretion by concluding that all applicable laws had been complied with when the Appeals officer had failed to provide the taxpayer with the statutorily mandated hearing. n138 Judge Laro noted that he wrote "separately in this important case to stress [*75] the importance of an appeal to a higher court." n139 However, no appeal was taken.

Requiring a hearing only when deemed "necessary or productive" after the fact is dangerous. Even Judges Colvin and Gale, who were in the majority that found jurisdiction in Lunsford I, dissented in Lunsford II, reasoning that "the fact that [the Tax Court has] jurisdiction does not relieve respondent of the duty to provide an opportunity for a hearing as required by section 6330(b)." n140 Today this standard may only be used to deny tax protesters with frivolous claims a CDP hearing, but will it end there? Could such a standard be applied to prevent a hearing to taxpayers with whom the Appeals officer or court would rather not deal because the taxpayer is difficult or unpleasant in some way?

A further problem with a CDP determination issued without a hearing relates to judicial review. The legislative history directs the courts to apply an abuse of discretion standard of review to most CDP determinations. n141 If no hearing was conducted, the reviewing court can only look to the taxpayer's arguments and assume that the taxpayer would not have raised anything not articulated in the CDP hearing request at the hearing. Because there is no hearing, the court cannot review the Appeals officer's application of discretion. The court will have to "substitute judgment for that of the Appeals officer." n142

Tax statutes are ordinarily strictly construed. The Tax Court has repeatedly noted that courts "must apply the law as written; it is up to Congress to address questions of fairness and to make improvements to the law." n143 The Lunsford line of cases, allowing collection activity to continue without the required CDP hearing, violates this principle by allowing the [*76] IRS to ignore the statutory mandate that, if requested, a CDP hearing shall be conducted. The CDP provisions do not have ambiguities that would permit any interpretation that does not require that the Appeals Office conduct a CDP hearing if requested.

As noted in Judge Foley's dissent:

The majority's only explicit justification for ignoring the doctrine of stare decisis is that Meyer v. Commissioner . . . "has resulted in unjustified delay in the resolution of cases." "Unjustified delay" from whose perspective? The "delay" was created by the Appeals officer's failure to follow the section 6330(b)(1) mandate to hold a hearing. Moreover, in a case where a taxpayer maintains a proceeding in the Court primarily for delay, we are authorized to impose a penalty . . . . n144

The courts are not to rewrite statutes that do not operate as Congress intended. n145 If Congress disliked the result in Meyer, Congress could change the law.

When it comes to interpreting unambiguous language, the U.S. Supreme Court stated:

In any event, canons of construction are no more than rules of thumb that help courts determine the meaning of legislation, and in interpreting a statute a court should always turn first to one, cardinal canon before all others. We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then, this first canon is also the last: "judicial inquiry is complete." n146

Further complicating the issue, in some cases it is difficult to tell whether a CDP hearing took place, the correspondence was sufficient to constitute a correspondence hearing, or it was deemed unnecessary to consider whether a hearing had occurred. In some cases, the Tax Court has either refused to consider whether a hearing occurred or simply concluded [*77] that no hearing was held. n147 In Nichols v. Commissioner, the court noted that "[n]o hearing was held with petitioners. Instead, on the basis of petitioners' letter and attached document, Appeals issued to petitioners . . . a Notice of Determination . . . ." n148 The opinion moves from the assertion in the facts that there was no hearing to an analysis of the taxpayer's substantive arguments, without considering the consequences flowing from the absence of a hearing. n149

It appears that the court in Nichols could have found a correspondence hearing, at least if review of the CDP request is sufficient to constitute a correspondence hearing. n150 In addition, the Tax Court might have concluded that, pursuant to Tax Court Rule 331, n151 the hearing issue was conceded because the taxpayer had not raised the issue. However, the opinion does not address either of these issues.

Similarly, in Robinson v. Commissioner, the Appeals officer "did not hold an Appeals Office hearing with [the taxpayer]. That is because the Appeals officer determined that the matters advanced in [the taxpayer's] attachments to Form 12153 did not require [the IRS] to hold a hearing to discuss those matters." n152 The taxpayer was notified that the Appeals [*78] officer would "examine any information that [the taxpayer] wished to submit . . . . [The taxpayer] did not provide any information in response . . . ." n153 The Tax Court did not address the fact that no meaningful hearing was held beyond this factual description. The taxpayer in Robinson was at least offered the opportunity to provide additional information and to discuss the matter with the Appeals officer in some fashion. Perhaps this is analogous to the situation where a taxpayer is offered the opportunity to schedule a CDP hearing and fails or refuses to do so. When a taxpayer fails or refuses to schedule a hearing, the Appeals officer has no choice but to issue a determination based on the available record so that collection can continue. If Mr. Robinson unreasonably failed or refused to schedule a hearing, the court could have concluded that a correspondence hearing was conducted, assuming that correspondence hearings are proper CDP hearings. Once again, the court did not address this issue.

In Nichols and Robinson, the court did not even consider whether holding such a hearing would be "necessary or productive." Because the Tax Court acknowledges that it has upheld CDP determinations issued without a CDP hearing, n154 it seems unlikely that the Tax Court was concerned about whether a hearing occurred in these cases. This is even more dangerous to taxpayer rights and the perception of fairness than the approach adopted in the Lunsford line of cases, which at least attempts to determine the likelihood that any relevant issues would be raised at a hearing.

After a CDP determination upholding the proposed collection action is issued and any judicial appeals are exhausted, collection action may continue. Given the cases allowing issuance of a CDP determination without a CDP hearing, when is a taxpayer entitled to a CDP hearing? What arguments must be raised by the taxpayer to ensure that a CDP hearing will be offered? Requiring a CDP hearing in all cases would eliminate the uncertainty. Moreover, it is hard to understand why, given limited resources, the IRS would offer or conduct CDP hearings before a court ordered it to do so? Fortunately, some courts have not been willing to ignore the statutory mandate that a CDP hearing occur. n155

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Contrary to the conclusion reached by the Tax Court, a CDP hearing must be conducted if timely requested. Without conducting a CDP hearing, the Appeals officer cannot perform the tasks assigned by the CDP provisions. Collections cannot continue until after the CDP hearing. n156 In addition, a proper record cannot be created without conducting a hearing. Therefore, collection actions taken without a proper CDP hearing are invalid and contrary to the statute.

Cases where no hearing was offered should be distinguished from cases where the Appeals officer offered the taxpayer a CDP hearing and the taxpayer chose not to avail him or herself of that opportunity. In many instances, the Appeals officer has worked to accommodate the taxpayer and schedule a hearing to no avail. n157 Unlimited delay, particularly when all evidence suggests that the taxpayer's position is frivolous, was not the intent of Congress. Ultimately the collection process must move forward. After a taxpayer requests a CDP hearing, a CDP determination must be issued for collection to continue. Congress envisioned that notice and a meaningful opportunity to be heard would be offered taxpayers. n158 Neither due process nor the CDP provisions require that the taxpayer take advantage of the opportunity to be heard.

When the taxpayer refuses to schedule a CDP hearing within a reasonable time, the Appeals officer is left no alternative but to review the administrative record, perform the statutorily required verification, n159 and issue a CDP determination so that collection is not forever delayed by the intransigence of the taxpayer. In these cases, the courts have correctly upheld the Appeals officer's decision to make a determination based on the correspondence from the taxpayer and the administrative file. n160

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The cases demonstrate that the IRS has generally attempted to comply with the CDP provisions requiring a hearing upon request. n161 Overall, the Appeals Office is satisfying its statutory obligations. TIGTA's 2004 report concluded that the Appeals Office "substantially complied with" the CDP provisions when conducting CDP hearings in 98.5 percent of the cases reviewed. n162

The Appeals Office is the most efficient forum in which to conduct the CDP hearings: the Appeals officers are trained to conduct such hearings; the procedures may be informal; and there will be less delay in collection if the Appeals Office conducts hearings rather than the courts. However, if the Appeals Office does not conduct a CDP hearing, and the court does not send a case back for a proper hearing, courts will be required to hold a hearing, weighing the information that would have been considered at the Appeals Office. In at least some cases, if a hearing is properly conducted at the Appeals Office, judicial oversight will not be required. Given limited resources, judicial willingness to accept inadequate procedure, and the absence of an effective penalty for faulty administrative action, the number of instances in which the Appeals Office does not offer or conduct CDP hearings may increase.

3. Hearing Procedures

Failing to conduct a hearing at all is not the only way in which taxpayers may receive a less meaningful CDP hearing than Congress intended. While it is essential that a hearing be conducted to satisfy the requirements of the CDP provisions and due process, simply conducting a hearing is not enough. Congress also intended that the hearing afford the taxpayer a meaningful opportunity to be heard. n163

A number of issues have arisen relating to the conduct of the hearing. For instance, as a result of the conclusion that CDP hearings can be informal, the IRS and the courts have concluded that a taxpayer does not have a right to subpoena or cross-examine witnesses. n164

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a. Taxpayers' Right to Create a Verbatim Record of a CDP Hearing

A recurring procedural issue is whether a taxpayer has a right to record or transcribe a CDP hearing. n165 Whether the taxpayer is entitled to record a CDP hearing remains an open question. Neither the CDP provisions nor the regulations address a taxpayer's right to record or transcribe a CDP hearing. Courts and the IRS have arrived at different conclusions. n166

Initially, the IRS took the position that a taxpayer's right to obtain a transcript or record an Appeals hearing, including a CDP hearing, was within the discretion of the Appeals officer assigned to that taxpayer's case. n167 Subsequently, the Appeals Office decided not to allow a taxpayer to record a CDP hearing or have a stenographer present. n168 Taxpayers [*82] whose CDP hearings had not yet been conducted were sent notices informing them of the change in policy, which would prohibit them from recording the CDP hearing. n169 The primary rationale for prohibiting recording is the concern that tampering with the recording may create an appearance of improper conduct by the Appeals officer. n170

Even before the policy change in the Appeals Office, the courts used different approaches to a taxpayer's right to record the CDP hearing. Some courts allowed recording, n171 some provided a limited right, n172 and others have found recording to be unnecessary. n173

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In Keene v. Commissioner, the Tax Court took an intermediate position, giving taxpayers a limited right to record the CDP hearing. n174 In Keene, the taxpayer, after being informed that no recording would be allowed, refused to continue with the hearing. n175 A CDP determination was then issued. n176 The Tax Court concluded that a taxpayer has a right to record a CDP hearing "pursuant to [IRC] section 7521(a)(1)." n177 The Court concluded that, although IRC section 7521(a)(1) did not define "in-person interview," that term included CDP hearings.

Where a term is not defined in the statute, it is appropriate to accord the term its "ordinary meaning". And when there is no indication that Congress intended a specific legal meaning for the term, courts may look to sources such as dictionaries for a definition. See also Huntsberry v. Commissioner, 83 T.C. 742, 747-748 (1984), in which the Court stated that "where a statute is clear on its face, . . . we would require unequivocal evidence of legislative purpose before construing the statute so as to override the plain meaning of the words used therein." n178

The majority concluded there was little distinction between the term "interview" in IRC section 7521(a)(1) and the term "hearing" in the CDP provisions. n179 The Appeals Office allowed taxpayers to record Appeals Office proceedings at the time the CDP provisions were enacted. Congress was aware of this and chose not to address this issue when the CDP provisions were enacted, indicating an expectation of the right to record the hearing. n180 The majority rejected the argument that recording was allowed as a matter of right only when the process was inquisitory, as in [*84] proceedings before Examinations or Collections, and was not available as a matter of right when the proceedings were voluntary, as in the case of CDP hearings. n181 Further, the CDP hearings relate to the collection of tax. n182 The court also noted the inconsistency of permitting recording of examination interviews that are not subject to judicial review, but not CDP hearings. n183 In addition, the court noted that judicial review would be complicated by refusing to allow taxpayers to record CDP hearings and therefore "undermine" the intended protections of RRA 1998. n184

The dissent in Keene countered that a CDP hearing was not an "interview" under IRC section 7521 and that CDP hearings were not available at the time IRC section 7521 was enacted. n185 The dissent reasoned that, although under the Administrative Procedure Act (APA) a person compelled to participate in an administrative proceeding is entitled to a transcript of the proceedings, n186 CDP hearings are not mandatory procedures; the taxpayer voluntarily requests the hearing. n187 The requirement in the APA that a witness be allowed to record or receive a copy of a transcript is inapplicable in the context of CDP hearings because CDP hearings are voluntary. n188

While the dissent in Keene may be correct that a CDP hearing is not an interview under IRC section 7521, CDP hearings do relate to collection of taxes. In addition, because judicial review is available following a CDP hearing, allowing taxpayers to record the proceeding will create a better, more accurate record for review. n189 That the record might be used out of context is not enough to deny taxpayers the right to record their CDP hearings. In addition, denying taxpayers the opportunity to record a CDP hearing is unlikely to reduce allegations of abuse or improper conduct by [*85] the Appeals officer.

Similarly, in Mesa Oil v. United States, the court remanded the case for further proceedings and the development of the record. n190 The court held that a more complete record was needed to facilitate judicial review of the CDP determination. n191

In other cases, courts have denied the taxpayer the right to record the CDP hearing. n192 Many of these cases are distinguishable, at least from Keene, because the taxpayer participated in the CDP hearing despite the Appeals officer's refusal to allow recording of the hearing. n193 However, a number of courts have concluded that IRC section 7521, the basis for allowing the recording in Keene, is inapplicable to CDP hearings. n194

The IRS suffers little, if any, harm by allowing CDP hearings to be recorded at the taxpayers' expense. In some cases, taxpayers or their representatives have made unauthorized recordings of the CDP hearing. n195 Unauthorized recordings increase the risk that the recordings will be altered or used improperly by depriving the IRS of the opportunity to insure that the recording accurately represents the hearing. Creating an air of secrecy makes it more difficult for the Appeals Office and the IRS to demonstrate [*86] that they are following the Internal Revenue Code and Treasury Regulations. n196 The IRS can record the hearing as well to ensure that the record made is accurate, as is currently done in other collection contexts. n197

Preventing taxpayers from recording a CDP hearing may also have a significant cost to the taxpaying public's perceptions of the tax collection system. Such secrecy is unnecessary. Ensuring that there is a complete and adequate record of the proceedings should increase confidence that Appeals officers properly perform their duties and that taxpayers receive a fair opportunity to present their cases. Preventing the creation of a record increases the risk that these matters will be taken out of context and used improperly. The matter then truly becomes "he said, she said." n198 Thus, taxpayers should be permitted to record CDP hearings at their own expense, even though CDP hearings may not be "interviews" under the meaning of IRC section 7521. In addition, allowing taxpayers to record CDP hearings is consistent with the congressional intent underlying the CDP provisions.

Although it should not be necessary to amend the statute to allow recording, the conflicting administrative and judicial approaches to recording make statutory changes important to provide a consistent rule. Allowing taxpayers to record their CDP hearings will also increase the perception of fairness, furthering one of Congress' concerns in adopting the CDP provisions.

b. Issues that May Be Raised at a CDP Hearing

Another recurring issue relates to which issues can be raised at the CDP hearing. Under IRC section 6330, a taxpayer is allowed to raise "any relevant issue relating to the unpaid tax or the proposed levy." n199 The CDP provisions provide two important limitations to the right to raise any relevant issue. n200 First, challenges to the amount or existence of the underlying liability may be raised only if the taxpayer did not receive a statutory notice of deficiency or otherwise have a prior opportunity to challenge the underlying liability. n201 Second, the taxpayer may not raise [*87] any other issue that was considered in any prior CDP hearing, administrative proceeding, or judicial proceeding in which the taxpayer meaningfully participated. n202 The statute and regulations identify "relevant" issues to "includ[e] appropriate spousal defenses, challenges to the appropriateness of the proposed collection action, and offers of collection alternatives." n203

Among the collection alternatives that a taxpayer may raise are proposals for offers in compromise and installment payment agreements. n204 Both offers in compromise and installment payment agreements have significant restrictions on when they will be accepted by the IRS. Among the restrictions are current compliance with the tax laws and compliance with the terms of the agreement. The courts have generally upheld an Appeals officer's determination not to accept proposed collection alternatives. n205

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The existence or amount of the underlying deficiency cannot be challenged unless "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." n206 The legislative history helps to clarify when Congress intended to allow taxpayers to challenge the underlying deficiency, stating that "the validity of the tax liability can be challenged only if the taxpayer did not actually receive the statutory notice of deficiency or has not otherwise had an opportunity to dispute the liability." n207 Thus, the standard for when the underlying liability may be challenged is actual receipt of the notice of deficiency. n208 If a notice of deficiency was issued, the taxpayer must demonstrate non-receipt of the notice of deficiency to challenge the underlying liability. n209 A taxpayer may not challenge the underlying liability if the taxpayer purposefully avoided receipt of the notice of deficiency. n210 However, taxpayers may challenge the amount or existence of a self-assessed liability. That is, a taxpayer may challenge the accuracy of the amount due shown on a self-filed return if reported but not paid and a notice of deficiency was not issued. n211 In many, if not most cases, issues relating to the existence or [*89] amount of the underlying liability will not be permitted, particularly if a notice of deficiency was issued. n212

The list of issues that can be raised during a CDP hearing contained in CDP provisions is not exhaustive. n213 Although the courts have interpreted the list narrowly, this interpretation is contrary to the use of "including" in the Internal Revenue Code. For purposes of the Internal Revenue Code, "including" "shall not be deemed to exclude other things otherwise within the meaning of the term defined." n214 In addition, the legislative history of the CDP provisions makes clear that this is not a limited list of issues. n215

In addition, an issue that was raised in a prior proceeding in which the taxpayer meaningfully participated cannot be considered at the CDP hearing. n216 This is the correct result where a taxpayer had a prior opportunity to challenge, or in fact did challenge, the existence of the underlying liability, the taxpayer should not be given another bite at the proverbial apple. Moreover, once the liability is paid, the taxpayer may be able to seek a refund, which, if denied, allows the taxpayer the opportunity to challenge that denial in the U.S. District Court or the U.S. Court of Claims. n217 However, repeated litigation of the same issue is generally barred by the doctrines of res judicata and collateral estoppel. When the IRS seeks to collect a tax liability, allowing the taxpayer to challenge the existence of the liability after having sought a redetermination would be unreasonably costly to the system and would undermine the finality of tax liability determinations.

c. Appeals Officer's Verification

The CDP provisions require the Appeals officer to verify at the hearing that all of the requirements of applicable law and administrative procedure [*90] have been satisfied. n218 The form of this verification is not specified. n219 In addition, the legislative history and regulations are silent on this issue. n220 Although many taxpayers have challenged the Appeals officer's method of verification, n221 the courts have minimized the importance of the verification. n222 However, in one instance the Tax Court remanded a case to the Appeals Office to conduct further investigation because the Appeals officer failed to properly verify that all the requirements of applicable law and administrative procedure had been satisfied. n223

Whether proper verification occurred is frequently questioned in connection with the taxpayer's receipt of verification of a valid assessment. n224 The Appeals officer is generally not required to provide the verification to the taxpayer, n225 and most courts have allowed the Appeals officer to use a variety of forms to verify proper assessment, even when questioned by the taxpayer. n226

However, the regulations under IRC section 6203 require that, upon request, the IRS provide the taxpayer with a summary of the assessment record. n227 In the CDP context, the Tax Court has held that the requirement that assessment records be provided is satisfied if the taxpayer receives a copy of the assessment record at or before trial, even if after the hearing, as [*91] long as the taxpayer has not demonstrated irregularities in the assessment procedures. n228 Because the regulations require that the taxpayer be provided with proof of the assessment, it is difficult to understand how the Appeals officer, without providing a copy of the verification or document used to verify the assessment, can certify that he or she has verified that the requirements of all applicable laws and administrative procedures have been satisfied if the challenge raised by the taxpayer is, in effect, a challenge to the assessment. n229

Even though the CDP provisions do not specifically require that the taxpayer receive a copy of the verification, it would be helpful for the verification to be communicated to the taxpayer before the hearing. n230 That is, the verification should help narrow the issues the taxpayer raises at the hearing. n231 Moreover, the verification could also help the taxpayer prepare for and participate in the hearing because the taxpayer would know whether to challenge the assessment procedure or whether the amount the IRS asserted was due had been paid. Providing this information at the hearing is consistent with the rights that Congress intended to give taxpayers. In fact, the language of IRC section 6330 requires that "[t]he appeals officer shall at the hearing obtain verification . . . that the requirements of any applicable law or administrative procedure have been met." n232 As Judge Laro noted in his dissent in Lunsford II, "The mere fact that the verification may have come at a time other than 'at the hearing' is of no concern. Congress obviously believed it important to require explicitly and unambiguously that this verification occur 'at', rather than before or after, the hearing." n233 If no hearing is conducted the verification cannot occur at the hearing.

The statute requires that the CDP notice include information about the procedures of the CDP hearing, however, taxpayers are simply informed that Appeals Office hearings are informal. The taxpayeris provided with little further guidance. Given the difficulty that even seasoned tax professionals sometimes have navigating the tax system, taxpayers should be provided with clear information about the hearing process. The number [*92] of cases challenging the procedures and arriving at different conclusions demonstrates the need for clearly articulated procedures. If no further procedural information is given to the taxpayer, it is difficult for the Appeals officer to properly make a determination of compliance with all applicable laws and administrative procedures.

4. Addressing CDP Hearing Failures

The CDP provisions do not provide taxpayers a remedy for violations of the CDP provisions, other applicable law, or administrative procedure. In fact, the only remedial provision in the CDP provisions is the bar on collection activity after the CDP-hearing request is made. n234 However, the effect of a failure to give notice of CDP rights is unclear. n235 It is also unclear what remedy a taxpayer may seek when an invalid CDP determination is issued. The only remedy available under the CDP provisions is judicial review of the CDP determination, n236 which is limited to abuse of discretion in most cases. n237 In many instances, the courts have placed little importance on the verification. n238 However, in a few cases, the matter has been remanded for further proceedings where it appears that the verification was incomplete. n239 Given that the importance of verification has been minimized, judicial review may not be meaningful in cases where the primary claim involves the propriety of the Appeals officer's verification.

The Administrative Procedure Act (APA) might be used to guide the application of remedies in this area. n240 Under the APA:

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The reviewing court shall-

(1) compel agency action unlawfully withheld or unreasonably delayed; and

(2) hold unlawful and set aside agency action, findings, and conclusions found to be-

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;

. . . .

(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory rights;

(D) without observance of procedure required by law;

. . . .

In making the foregoing determinations, the court shall review the whole record or those parts of it cited by a party, and due account shall be taken of the rule of prejudicial error. n241

Adopting the APA standards would provide a consistent approach, the same approach used to review most agency actions. n242 Although the APA is not generally applied in tax matters, a case for applying the APA in CDP cases can be made, in part, because CDP determinations are made by the agency, i.e., the IRS, and judicial review is deferential, unlike many other cases [*94] where review of IRS determinations is made de novo by the Tax Court. n243 This would provide a certainty of result, because a large body of law relating to the remedies for administrative failure already exists under the APA. Adopting specific remedies is necessary as the courts have generally refused to apply the APA to CDP cases.

Adopting the APA or similar remedies would also address concerns about whether the courts should remand cases to the Appeals Office for further proceedings. n244 The District Court for the District of Connecticut concluded that, where the Appeals officer had been previously involved in the case, it was necessary to remand a case back to the Appeals Office "for a new CDP hearing conducted by an 'impartial officer' within the meaning of IRS Treasury Regulation § 301.6330-1T." n245 In another case, although the District Court for the District of Nevada agreed that an unscheduled telephone conversation was not a hearing, the court concluded that it was not empowered to remand the case for further proceedings before the Appeals Office. n246 The court declared the CDP determination invalid, granted the taxpayer his costs, and allowed the IRS to "proceed as authorized by the law." n247 It is not clear what the IRS could then do. Under the circumstances, specific remedies for administrative failings are needed to ensure that CDP hearings are meaningful.

D. CDP Determination

After the CDP hearing, the Appeals officer makes a written determination. n248 The determination must be based on the Appeals officer's [*95] conclusions about the following:

(A) the verification presented under [section 6330(c)(1)];

(B) the issues raised under [section 6330(c)(2)]; and

(C) 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. n249

The statute provides no guidance on how the balancing is to be performed or even the factors that should be considered. n250 In addition, the regulations and judicial opinions have given little attention to balancing, nor was it addressed in the legislative history. Since the basis for determination requires the Appeals officer to take into consideration several factors, it is likely that Congress intended that the Appeals officer do something more than was required by other parts of the statute when the Appeals officer balances the need for efficient collection of taxes and the individual interest of the taxpayer. n251 Given the regulatory and judicial failure to address the question, further guidance is necessary to make this balancing meaningful.

The CDP provisions do not address what should happen when a CDP hearing is not conducted but a determination is issued. n252 Nor does the statute create a remedy for such an invalid determination. The statute needs to address whether cases should be sent back for hearing or rehearing. In addition, the statute should also address what the Appeals officer may consider at a subsequent hearing. To the extent that remand is available, provision must be made to ensure that the subsequent hearing is fair. This may require the appointment of a new Appeals officer to the case.

Perhaps an analogy can be drawn between the failure to conduct a CDP hearing and the instances where an IRC section 6303 notice and demand is not provided. n253 When a section 6303 notice is not provided administrative collection is barred, but judicial collection is still available. n254 Perhaps in [*96] cases where a CDP hearing has not been offered or conducted the courts could similarly oversee the use of enforced collection techniques. However, this is an inefficient result. Requiring judicial oversight would make the collection process become much longer and more expensive both for the taxpayers and for the IRS. Therefore, the CDP provisions should provide adequate incentives to ensure that the CDP hearings will be properly conducted and that taxpayer rights will be protected by providing a significant remedy for the taxpayer in the event that a cure of any procedural deficiency is not possible.

At a minimum, the CDP provisions require that a hearing be conducted and that the taxpayer be provided with an opportunity to raise any relevant issues. These requirements exceed what the Tax Court requires for a valid CDP determination. However, Congress intended that taxpayers receive due process, not just a determination. In addition, the statute should provide a remedy to taxpayers when the IRS fails or refuses to hold a hearing, or a fair hearing is not possible.

E. Judicial Review

A taxpayer has thirty days from the date of issuance to appeal a CDP determination with which the taxpayer disagrees. n255 The thirty-day period in which the taxpayer may file an appeal is not extended if the taxpayer does not receive a CDP determination that was mailed to the taxpayer's last known address. n256

The Tax Court has jurisdiction over the appeal if it would have had jurisdiction over the underlying liability. n257 The district courts have [*97] jurisdiction over the appeal if the Tax Court would not have had jurisdiction over the underlying liability, such as in the case of transferee liability, trust fund recovery penalty liability, or frivolous return penalty liability. n258 This jurisdictional grant may bifurcate some appeals. n259

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Generally, the CDP determination informs the taxpayer of which court has jurisdiction of an appeal. n260 A taxpayer is given thirty days to refile after dismissal if the appeal is initially filed with the wrong court. n261

Although the statute does not address the standard of review, the legislative history provides that de novo review will be conducted where the tax liability is part of the appeal, and abuse of discretion review will be conducted where the validity of the liability is not at issue. n262 Both the district courts and the Tax Court have adopted these standards of review when considering CDP determinations. n263 The regulations prohibit a taxpayer from raising any issue in court that was not raised at the hearing. n264 To the extent that an abuse of discretion standard of review is applied, this is the correct approach, as only the CDP determination is being reviewed. However, if de novo review occurs there is no reason to limit the issues available for review.

F. Equivalent Hearings

While a CDP hearing is not available when the taxpayer does not file a timely written request for a CDP hearing, in keeping with the expectation expressed in the legislative history, a taxpayer is given an "equivalent hearing." n265 An equivalent hearing addresses the same issues as a CDP hearing. n266

There are several important differences between a CDP hearing and an [*99] equivalent hearing. First, during the pendancy of an equivalent hearing, the statute of limitations is not suspended and collection activity may continue. n267 Whether collection activity in fact continues is "determined on a case-by-case basis." n268

Although the procedure for an equivalent hearing is similar to the procedure for a CDP hearing, at the conclusion of an equivalent hearing, the Appeals officer issues a decision letter, which contains the same general information as a Notice of Determination. n269

II. CDP Hearings: A Proposed Model

As the prior section demonstrated, a number of significant issues relating to the conduct of CDP hearings must be addressed to make CDP rights meaningful. Providing certainty with respect to CDP hearing procedures should also reduce the number of instances in which taxpayers seek judicial review of CDP determinations.

If the issues that may be raised during a CDP hearing are to be limited, those limitations must be clearly identified. Similarly, if the circumstances under which a CDP hearing is available are to be limited, such limiting circumstances must also be clearly identified. Currently the CDP provisions entitle all taxpayers subject to collection activity to a CDP hearing at which they may raise any relevant issue that is not prohibited. n270 Because the CDP provisions require a hearing if a taxpayer is subject to collection action and requests one, any limitation on the right to a hearing must be created by amending the CDP provisions.

Further, a single approach to the conduct of CDP hearings should be adopted. Clearly defined CDP procedures will help taxpayers to understand [*100] their rights and obligations. In addition, consistent procedures for CDP hearings will help ensure that all taxpayers are afforded similar rights. The CDP hearing procedures should have, at a minimum, the following five elements.

First, there must be an opportunity for direct communication between the taxpayer and the Appeals officer, unless otherwise requested by the taxpayer. This could easily be accomplished through a face-to-face hearing, but might also be accomplished by a telephonic hearing. Use of a correspondence hearing should only be permitted when requested by the taxpayer, or when such a hearing is otherwise unavoidable.

Second, there must be an opportunity for a recording or transcript of the CDP hearing to be made at the taxpayer's request and expense. If deemed necessary, the IRS could also make its own recording or transcript of the hearing.

Third, in addition to the verification that the IRS has complied with all applicable laws and regulations, there must be a meaningful verification of the amount and existence of the liability. To make the verification meaningful, the contours of what constitutes the verification must be more fully defined. In addition, the verification must be communicated to the taxpayer in a manner and at a time that will allow the taxpayer to raise any relevant challenges to the verification.

Fourth, there must be a real opportunity for the taxpayer to challenge the proposed collection action. In addition, the nature of the hearing must be such that the taxpayer will have a meaningful opportunity to respond to the Appeals officer's concerns and questions. The taxpayer must be given an opportunity to explain his or her position to the Appeals officer.

Finally, there must be an explicit remedy for both frivolous claims raised by taxpayers seeking to delay the collection process, as well as for taxpayers who are afforded insufficient rights in the CDP hearing process.

The following section discusses each of these elements and how, together, they further the purposes of the CDP provisions and create a fairer and more effective tax collection system.

III. Effect of Proposed Model on Tax System

Only about five percent of the CDP requests raise frivolous arguments. n271 However, these cases use a disproportionate amount of time and resources. Frivolous claims are disproportionately represented in the [*101] requests for judicial review. n272 Moreover, the courts generally uphold the Appeals officer's CDP determination. n273

Congress intended to "afford taxpayers adequate notice of collection activity and a meaningful hearing before the IRS deprives them of their property." n274 That is, Congress intended to provide taxpayers with a new right, the right to a hearing that will be subject to judicial review prior to enforced collection. n275 In providing these rights, Congress chose to use the emotionally charged words "due process." Calling these hearings collection "due process" hearings may raise the level of importance taxpayers will attribute to the right. n276 In addition, the legislative history suggests that the common notion of "due process" was intended. n277 The hearings should afford a process that is consistent with our notions of due process: the hearing should provide the taxpayer with notice and a meaningful opportunity to be heard. n278 In fact, the legislative history indicates Congress intended that taxpayers be given "adequate notice of collection activity and a meaningful hearing before the IRS deprives them of their property." n279 Thus, a taxpayer requesting a CDP hearing must be afforded some type of hearing. n280 The grants of a pre-deprivation hearing and judicial review, rights which were not previously available, demonstrate that Congress viewed the private interest being protected as outweighing the government's burden of providing the hearing. [*102] Presumably, Congress considered providing a pre-collection hearing to be of greater importance than maintaining or increasing the speed with which unpaid taxes are collected. "Where Congress has created an administrative avenue for hearing and relief, the IRS cannot justify abridgment of the right to that hearing on formalistic or workload grounds." n281

The circumstances surrounding enforced collection of unpaid taxes have changed; taxpayers are to be afforded a meaningful post-lien or pre-levy hearing, conducted by an impartial Appeals officer, with a right of judicial review. Upon request, a taxpayer must receive an actual CDP hearing.

Without a consistent process that comports with our notions of "due process," public confidence in the fairness, equality, and effectiveness of the tax collection system may be reduced. This risk may pose a significant threat to our system of tax collection. Taxpayers are far less likely to comply with the tax law if they believe that the tax law is unfair or that they are not afforded the same rights as others. n282

Despite the concern that CDP hearings and judicial review may open the floodgates to frivolous suits and allow significant delay in tax collection, the CDP provisions do not specify which taxpayers may request CDP hearings and seek judicial review. As enacted, all taxpayers against whom the IRS has filed a NFTL or intends to levy are entitled to a CDP hearing.

Cases raising only frivolous arguments pose serious concerns for the tax collection system; creating delay and using disproportionate resources. n283 However, unrepresented taxpayers, who make up the majority of taxpayers asserting CDP rights, are far less likely to fully understand the complex workings of the tax code and the tax system. These taxpayers should be afforded an adequate opportunity to present their case. If the taxpayers' rights to raise relevant issues are to be limited, the limitations must be clearly spelled out. Once commonly used frivolous positions are raised with no legitimate issues, summary disposition should be possible.

The cost to the tax collection system should be minimized. Thus, informal hearing procedures should be used. However, a preference should [*103] be given to face-to-face hearings to address concerns relating to the perceived fairness of these proceedings. Because of the number of cases challenging the hearing format, statutory clarification is desirable to reduce the number of judicial appeals made to challenge just this issue.

Currently, taxpayers are afforded different types of process depending on nothing more than the area in which the taxpayer lives, the type of tax that is subject to collection action, and the perceived positions of the taxpayer. This is contrary to the goal of uniformity in the administration of the tax laws. n284 Standardizing the CDP hearing process should increase the public perception of fairness in the tax collection system and address concerns that taxpayers may receive different treatment in similar situations. n285

A taxpayer should be permitted to record a CDP hearing, if the taxpayer is willing to bear the expense. To increase the accuracy of the record created and reduce the likelihood of tampering, the IRS could limit the taxpayer to selecting from among authorized court reporters, as it currently does with taxpayer representatives and stenographers. n286 This would minimize concerns about accuracy. In addition, the cost to the IRS of making its own recording should be minimal, as the IRS already records [*104] other collection proceedings. n287 Moreover, allowing the creation of an audio or stenographic record of the hearing is consistent with the intent to allow the creation of a record in collection proceedings and would create a better record for the court if the taxpayer seeks judicial review of the Appeals officer's determination. Transcripts of the CDP hearings could make the process of judicial review easier. n288

The CDP provisions also need to provide a penalty for a failure by the Appeals Office to conduct a hearing. A CDP hearing is required by statute, which means that the failure to conduct a hearing should not be harmless error. At a minimum, the matter should be sent back for a proper hearing before an impartial hearing officer.

The regulations take the position that administrative collection actions are not barred by the IRS's failure to comply with the CDP provisions relating to notice. n289 Instead, upon discovery of the failure to provide notice, a substitute notice is to be provided and if a CDP hearing is requested by the taxpayer within thirty days of the notice, collection must cease and a regular CDP hearing provided. n290 This is not authorized by the CDP provisions and the legislative history does not indicate that Congress considered this problem, much less this result.

Remedies for the IRS's failure to provide notice or otherwise comply with the CDP provisions need to be clearly addressed. Options for remedies include: delaying or barring collection, providing additional process, or requiring the IRS to start at the beginning-complying with the CDP provisions at each step of its efforts to collect the unpaid tax liability. Providing a remedy will avoid the possibility that procedural errors are without remedy, as is the case when the IRS fails to provide the last day to file a petition for redetermination on a notice of deficiency. n291 Providing no remedy for serious administrative failings is contrary to the congressional intent of the RRA 1998. Congress intended to give taxpayers rights similar to those they have with other creditors. This cannot be accomplished [*105] without a remedy for administrative failings. Further, it is within the IRS's and Appeals Office's power to ensure compliance with the law and administrative procedures. Holding the IRS to a strict standard is not unreasonable and should increase confidence in the fairness of the system.

"If . . . the taxpayer demands a hearing, the proposed collection action may not proceed until the hearing has concluded and the Appeals officer has issued his or her determination." n292 Inherent in this requirement is a delay of the collection process. This is contrary to the notion that collection of tax revenues is to proceed without interference. n293 This also counters the effects of the common law and the anti-injunction and declaratory judgment acts. n294 Some delay will occur in all CDP cases, however, unnecessary delay should be minimized or avoided.

Intentional delay of the collection process burdens the tax collection system. Taxpayers may delay collection by responding slowly to the Appeals Office's attempts at resolution. Additional delay may result from requests to reschedule the CDP hearing. n295 Frivolous cases and cases pursued solely for delay have been summarily dealt with by the IRS and the courts. n296 Clarifying the nature, type, and procedures of CDP hearings will [*106] increase their efficiency and reduce the likelihood that frivolous requests and appeals will result in significant delay.

Although the courts often impose sanctions on taxpayers who have raised only frivolous issues, made only frivolous arguments, or acted solely to create delay, n297 imposing more substantial or automatic penalties could reduce the incidence of these delay tactics. One proposal would allow the IRS to impose a $ 5,000 penalty on a taxpayer that files a frivolous request for a CDP hearing under section 6320 or 6330. n298 This proposal may [*107] alleviate some of the problems associated with frivolous CDP hearing requests and appeals, but will not address all of the problems. Further action is required.

With respect to those taxpayers that raise frivolous arguments and have the means to pay, substantial or escalating penalties could be applied. For those taxpayers who do not have the means to pay, the limited resources of the IRS and the courts should not be expended on accounts that are unlikely to be collected.

Where different taxpayers are afforded different rights based on arbitrary factors, such as the area in which they live or whether they have been assessed income tax deficiencies or penalties that require consideration by the district court, the notion of due process is lessened. The perception of unfairness of the tax law may be exacerbated. Compliance may be lessened where there is a perception that the system is unfair. n299 Compliance is essential to the operation of a system such as ours, which relies on "voluntary" reporting and payment for the majority of its revenues.

Conclusion

Without a hearing and a record of the issues raised, information provided, and factors considered by the Appeals officer, the CDP hearing is rendered meaningless. The statistics reported by the IRS indicate that only a small percentage of CDP requests are frivolous. n300 Unfortunately, but perhaps predictably, appeals of CDP determinations issues on frivolous requests make up a disproportionate number of the requests for judicial review. n301 The fact that taxpayers who raise frivolous arguments may be more likely to seek judicial review of their determination does not mean that all cases are frivolous. However, frivolous cases may make courts less willing to consider whether taxpayers in other cases are raising meritorious arguments, as is demonstrated by their willingness to determine that simply requiring appeals to conduct the hearing required by sections 6320 and 6330 is "neither necessary or productive." To cure the procedural inadequacies being allowed by the courts, statutory change is required.

The fact that in some instances taxpayers have not been afforded a [*108] hearing, as prescribed by Congress, particularly in the Tax Court, creates a disparity between taxpayers. Some taxpayers are afforded the hearing and others are not. While this may not be unreasonable from a theoretical standpoint, it is contrary to the statutory language and the intent of Congress. This statute was not intended to improve the efficiency of the tax collection system; it was designed to create additional taxpayer rights, which inherently cause collection delays.

The courts' interpretation of the CDP hearing requirement has left the taxpayer, in many cases, with little more recourse or process than he or she had prior to enactment of RRA 1998. As a result, the CDP hearing requirement must be reconsidered and reinterpreted to reflect the statutory language, the legislative history, and the purpose of the CDP provisions.

Statutory or regulatory change must occur to ensure that the approach taken by the courts is consistent. As previously discussed, five elements need to be included in revised CDP hearing procedural requirements:

1. An opportunity for direct communication between the taxpayer and the Appeals officer;

2. An opportunity to record or transcribe a CDP hearing at the taxpayer's expense;

3. A meaningful verification of the amount and existence of the liability and compliance with all applicable laws and regulations;

4. A real opportunity for the taxpayer to challenge the proposed collection action; and

5. An explicit remedy for both frivolous claims made by taxpayers solely for delay and for IRS failure to provide sufficient rights to the taxpayer during the CDP hearing process.

A process containing these elements will allow taxpayers to clearly understand their rights and obligations with respect to CDP hearings. This will further congressional intent by ensuring that taxpayers receive additional pre-deprivation process before enforced collection of tax liabilities. Proper CDP procedures should increase the perceived fairness of the tax collection system. Proper CDP procedures will also make a taxpayer's right to a CDP hearing more meaningful.