In Katz v. Commissioner, n1 the Tax Court held that a taxpayer had the opportunity for, and received, a meaningful Appeals hearing within sections 6320 and 6330 and that the Service had a valid right to collect tax previously assessed against the taxpayer. The court rejected the taxpayer's contention that he was denied the opportunity for a Collection Due Process Appeals hearing, and the right to examine witnesses, because he gave no explanation why his one-hour commute to the hearing location was an undue burden on him or witnesses. n2 The court held that a Collection Due Process hearing to contest the Service's determination and lien through telephone conversations with an Appeals officer was an adequate hearing and that the Appeals officer did not abuse his discretion in upholding the interest imposed on the assessed tax. n3

Part I of this Note discusses the Code's procedures for allowing taxpayers to be heard when threatened with collection actions, and states the facts of Katz v. Commissioner. Part II summarizes the Tax Court's decision and reasoning. Part III examines the congressional intent of the enabling legislation, the Internal Revenue Service Restructuring and Reform Act of 1998 ("RRA"), n4 and argues the Tax Court's clarification of the standards falls short of the rights Congress intended to convey to taxpayers in Collection Due Process hearings.

I. BACKGROUND

Under section 6321, if a person liable for taxes neglects or refuses to pay upon demand, the amount assessed is a lien in favor of the United States on all property and rights to property belonging to that person. n5 Under section 6323 the lien does not become valid until a Notice of Federal Tax Lien ("NFTL") has been filed pursuant to state law. n6 Upon filing the NFTL, the Service must notify the taxpayer of the lien in writing within five days. n7 This notice must inform this taxpayer of the opportunity to request an administrative review of the action with an I.R.S. Appeals officer within thirty days, beginning after the five-day period. n8

The hearing, known as a Collection Due Process ("CDP") hearing, although it limits the issues considered, gives taxpayers a significant chance to raise substantive arguments. n9 The hearing requires an Appeals officer, uninvolved in the case, to verify that Code procedures relating to the lien have been satisfied. n10 At the CDP hearing, the taxpayer may raise any issue relevant to the lien or levy action, including innocent spousal defenses, challenges to the appropriateness of collection actions, collection alternatives, and choice of assets levied. n11 In general, the taxpayer may not challenge the underlying tax liability with respect to which collection is sought, except when the taxpayer did not receive statutory notice of deficiency or did not have an opportunity to dispute the liability. n12 The Appeals officer must consider the following when making a decision: verification of procedural requirements, issues raised by the taxpayer, and balancing the need for efficiency against intrusions on taxpayers. n13

Following the CDP hearing, the Appeals officer must send the taxpayer a Notice of Determination containing specific findings. n14 The Notice of Determination must address the statutory requirements, indicating the officer's basis for determination. n15 Additionally, if the parties agree upon relief or other actions, the Notice of Determination will state the terms of the agreement. n16 A taxpayer who receives an adverse ruling may appeal the findings in the Notice of Determination to the Tax Court or a district court n17 for review under an abuse of discretion standard. n18

Katz v. Commissioner arises from Scott Katz's 1990 tax liability and his 1990 personal bankruptcy matter. In September 1996, the Service issued a notice of deficiency for the taxpayer's 1990 taxes and the taxpayer filed a petition with the Tax Court seeking redetermination of his deficiency and additions to tax. n19 In February 1998, the taxpayer moved to reopen his 1990 bankruptcy case n20 in an attempt to settle his disputed 1990 liability outside of the Tax Court. n21 The bankruptcy court denied the request, ruling that his tax liabilities for 1990 had not been discharged. n22 The Tax Court then entered a decision, stipulated to by Katz and the Commissioner, setting forth the taxpayer's deficiency, additions, and statutory interest, which the Service assessed accordingly. n23

On February 23, 1999, the Service filed a valid NFTL for the 1990 assessment. In February 1999, the Service sent Katz "Notice of Federal Tax Lien Filing and Your Right to a Hearing under the IRC 6320 and/or 6330." n24 The taxpayer requested a CDP hearing from the Service's Appeals office, pursuant to section 6320(b). n25 His request contested the amount of the lien, alleging the 1990 taxes were discharged in bankruptcy and no interest should have accrued during the bankruptcy proceeding. n26

An Appeals officer for South Florida sent the taxpayer a letter, scheduling the hearing for June 8 at an Appeals office in Sunrise, Florida. n27 The letter instructed Katz to notify the officer within five days if he could not attend. n28 The letter noted that, because conferences were not often held in the taxpayer's area, special arrangements had to be made, and he should try to keep the appointment. n29 The officer also noted that an earlier conference might be possible if held in the I.R.S. office or by telephone, n30 and the letter outlined the hearing procedures. n31

The taxpayer sent a letter to the Appeals officer, reasserting his request for a CDP hearing. n32 Katz asked that the hearing be in West Palm Beach, as his witnesses lived and worked there. n33 The taxpayer sent another letter on June 7, after receiving the Service's letter, stating that he would not attend the June 8 conference. n34 Katz reiterated his request for a hearing in West Palm Beach, because he and his witnesses could not appear at a Service location one hour away from West Palm Beach. n35

On June 21, the taxpayer and an Appeals officer spoke on the telephone regarding the 1990 liability. n36 The officer told Katz that hearings were only available in Sunrise, Florida. n37 Two days later the Appeals officer sent a letter stating there was no basis for recommending abatement of his 1990 liability. n38 The letter stated that the taxpayer could petition the court to review the lien, following the Notice of Determination, or could settle. n39 The Service sent Katz a letter telling him if he did not meet with an officer to resolve his case or request a hearing by August 30, a determination letter would be issued. n40 On August 30, the taxpayer called the Appeals officer stating that he had indeed requested a hearing and had no intention of withdrawing his request, that he wanted a conference in West Palm Beach, and his correspondence would be sent to that effect. n41 In September, the Service issued a Notice of Determination, declining to withdraw the lien as it was not dischargeable under bankruptcy law and the taxpayer had signed a stipulation in the Tax Court waiving the restrictions prohibiting the assessment and collection of the deficiency and additions for his 1990 taxes. n42

The taxpayer then petitioned the Tax Court under section 6330 to review the Service's determination. n43 He contended that he was denied the opportunity for a meaningful CDP hearing as well as making substantive claims under the bankruptcy laws. The Service moved for partial summary judgment, claiming the taxpayer was afforded the opportunity for and received a meaningful Appeals hearing, and the Tax Court granted the motion. n44

II. THE TAX COURT'S DECISION

The general issued the court faced was how to balance fairly the convenience of the taxpayer with the limited resources available to the Service, in order to achieve proportionate fairness in applying the language and intent of the collection due process rules. The development and exposition of the taxpayer's side of the case appears not to have been substantially aided by the fact that the taxpayer appeared pro se against the Service. His basic position was that he was improperly denied a meaningful CDP lien hearing under sections 6320 and 6330. n45

In response, the Commissioner contended that the taxpayer had been offered an opportunity for an in-person hearing, but had declined; hence the resulting interchange by telephone and correspondence between the taxpayer and the Appeals officer was adequate and appropriate to constitute a full CDP hearing in the circumstances of this case. n46 In analyzing that argument, the court considered the following factors: the location of the proposed hearing and distance involved, the taxpayer's opportunity to call witnesses, and the substance of the communications between the taxpayer and the Appeal's officer. n47

The Commissioner argued that CDP hearings for the taxpayer's location are generally held at the Appeals office in Sunrise, Florida. n48 The court assumed the taxpayer's argument was that he is entitled to a hearing in West Palm Beach, where his home and witnesses were located. n49 Because the Code does not provide guidance on the CDP hearing locations, the court looked for analogy to section 7605 and its regulations, which govern the location of taxpayer audits. n50 Those regulations consider the distance the taxpayer must travel to submit information, balanced with the Service's limited resources. n51 The court held that a similar framework should apply to a CDP hearing, n52 but found this taxpayer had given no reason why commuting an hour was an undue burden on him or his witnesses. n53 Consequently, the court found the Sunrise hearing location provided a fair opportunity for a CDP hearing. n54

Next, the taxpayer argued that he was denied an opportunity for a meaningful CDP hearing because his witnesses would have to travel to the Appeals office. The court considered Davis v. Commissioner, decided three months earlier, which held that a CDP hearing is of an administrative nature and so does not give a taxpayer the right to take testimony under oath or examine witnesses. n55 Consequently, the court discounted Katz's arguments based on his alleged inability to call witnesses who would be required to travel to Sunrise. n56

Next, the court considered the contention that a face-to-face meeting was a necessary component of a CDP hearing. n57 The record indicated the taxpayer and the Appeals officer discussed the case over the phone and the Service considered Katz's arguments to the extent they were put forth in telephone conversations and in written correspondence. n58 The court held that the Appeals officer had sufficiently heard and considered the taxpayer's argument, and consequently, the taxpayer had received an adequate CDP hearing as required by section 6320(b). n59

In addition to his challenge to the integrity of the CDP hearing, the taxpayer attempted to use the section 6330 process to require the court to revisit the underlying tax liability and the question of partial abatement of statutory interest on that liability. n60 To deal with that contention, the court felt it first had to determine that it had appropriate jurisdiction to address the tax liability as provided by section 6330(d). Concluding that is did have that jurisdiction as to the tax liability, the court properly refused to look behind the jointly stipulated entry of decision in the taxpayer's earlier case on the merits. n61 In contrast, on the authority of its decision in Moore v. Commissioner, n62 the court held it did not have jurisdiction to review the Appeals officer's denial of the taxpayer's request to abate interest on the underlying deficiency while the taxpayer's bankruptcy matter was pending. n63 As a result, the court recharacterized the Service's partial summary judgment motion as a motion for summary judgment and entered judgment for the Service. n64

This case involved the not-unusual situation of a taxpayer who apparently felt that the tax collection process should not inconvenience him, and a determined Appeals officer who probably had limited time and resources at his disposal in working with the taxpayer. Although at first glance the scenario seems mundane, the case goes to the broader issue of determining the quality of administrative dispute resolution the Service must afford taxpayers in the wake of the 1998 RRA. The remainder of this Note suggests that, against the backdrop, the Tax Court arrived at the wrong result with respect to the CDP hearing.

Congress enacted the RRA to give taxpayers a fair chance to receive a meaningful review of the Service's tax collection procedures as applied to them. n65 The determination of whether that sort of review actually occurs in any particular case must be gauged not only by the statutory language, but also by and particularly in the context of the sweeping reform of the Service's functions, which culminated in the RRA. Factors the court should have considered include the nature of the RRA as a sweeping reform, the due process function of CDP hearings, the accessibility of an appeal, and the formality of communications between the taxpayer and the Service. Thus, when measured, it appears that the taxpayer in this case was short-changed and Congress has identified this problem. n66

The court's ruling appears not to take into account Congress's intent to significantly reform the Service and its procedures, and relies on inappropriate law in reaching the result in this case. Following a year of congressional investigations, uncovering abuses in Service procedures and collection methods, President Clinton signed the RRA into law. n67 The RRA was characterized as "a historic opportunity to make some far-reaching changes in the operation of the Internal Revenue Service to strengthen taxpayers' rights." n68 The intended impact was to "effectively change the way that the Internal Revenue Service does business." n69 As part of Congress's general plan to reform the Service, it enacted specific provisions to afford taxpayers adequate notice of collection activities and meaningful hearings before the IRS deprives them of property. n70 Prior to the enactment of sections 6320 and 6330, the Code did not provide an opportunity for a CDP hearing. n71

The Tax Court, however, seems not to have given weight to this change in the way the Service does business, particularly when it derived elements of a CDP hearing from other Code provisions, which predated the RRA. Because Congress did not specifically address the location of a CDP hearing, the court used section 7605 and the accompanying Regulations, governing the time and place of an audit examination. n72 The analog seems inappropriate as CDP hearings concern the taxpayer's property, which will be taken by lien or levy if the taxpayer is unsuccessful, whereas audits serve somewhat more benign purposes. Consequently, the court should have permitted more flexibility over time and place of a hearing than section 7605 permits in its different context. Even if section 7605 is an appropriate analogy, the court failed to give weight to the phrase in section 7605(a), which states that an examination "shall be [at] such time and place . . . as are reasonable under the circumstances." n73 Courts have permitted on-premises audit examinations when appropriate. n74 Thus it would appear that, with the RRA's emphasis on taxpayer service, the hearing procedure of section 6330 should require more flexibility in the location of a CDP hearing before a taxpayer is denied the benefit of the right to an in-person hearing. Indeed, under the Tax Court's audit analogy, Katz could have argued that the Appeals officer should have come to him as revenue agents do for taxpayers under audit. n75 By giving ample weight to the congressional intent of the RRA, the court would have given more deference to Katz's argument.

The Tax Court did not give adequate weight to the due process element of Appeals hearings when determining standards for the hearing. In the RRA, Congress emphasized that the purpose of CDP hearings is to provide due process protections for taxpayers in collection matters. n76 The legislative history shows that taxpayers are entitled to generalized protections in dealing with the Service. n77 The Senate Finance Committee believed that CDP hearings were necessary to ensure that taxpayers received due process protections in collections, in order to increase fairness. n78 For instance, sections 6320 and 6330 require notice to taxpayers before they are deprived of money or property in order to permit them to raise defenses to the collection action. n79

Although Congress intended CDP hearings to provide due process to taxpayers, the Tax Court failed to extend customary due process protections to the taxpayer in Katz. The Tax Court has held that taxpayers are not entitled to subpoena or examine witnesses at CDP hearings. n80 The Davis court held that Congress was aware of the Appeals office's nature and did not intend to alter it to allow witnesses in the new CDP hearing. n81 However, Congress clearly intended to make significant changes to the appeals process in adding the CDP hearing to the Appeals process. n82 In order for taxpayers to receive a meaningful collection due process hearing pursuant to the Code, taxpayers should be afforded conventional due process protections, such as the right to examine witnesses or subpoena documents, before the deprivation of property by the government. The due process function of hearings, intended by Congress, does not reconcile with the court's holding against testimony under oath, and that taxpayers do not have the right to call witnesses or subpoena documents at a CDP hearing. n83 Based on the general congressional purpose in the RRA, the court should have inferred that such protections would be included in a due process hearing.

The court should have taken into account the RRA's purpose to make the Appeals process more accessible to taxpayers when it arrived at the procedural parameters for the CDP hearing. From its inception, the RRA has had a goal of making the Service more "user-friendly." "Appeals officers will be made available in every state, and they will be better able to work with taxpayers who proceed through the appeals process." n84 The regulations regarding CDP hearings include question and answer sections "to illustrate the provisions of each paragraph" thus putting legalese into layman's terms. n85 In addition, the regulations make hearings more accessible to taxpayers. Thus, even when taxpayers fail to make a written request for a CDP hearing, the regulations provide for an "equivalent hearing" in place of the CDP hearing. n86

The Katz decision, however, does not seem to take into account the legislative intent to make the appeals process more accessible to taxpayers. The court dismissed Katz's argument that an hour was a burdensome distance to go to attend his due process hearing. n87 This followed the Service telling that CDP hearings are not often available at the scheduled location and that an earlier hearing could only be arranged via phone or by coming to the Appeals officer's office. n88 The facts of Katz do not seem to show how the Service and the court attempted to make the process more available and officers better able to work with taxpayers. Even though Congress' goal was to make at least one Appeals officer accessible in each state, it would seem reasonable that the Service would allocate substantial resources to make officers available throughout a state as populous as Florida.

The Tax Court goes down a slippery slope in permitting informal communication to constitute a CDP hearing. Congress intended a certain degree of formality to take place at a CDP hearing, as the Code requires the Appeals officer to prepare a written determination addressing the issues presented by the taxpayer and considered at the hearing. n89 Additionally the legislative history indicates that an Appeals officer must use a three-part process in assessing taxpayer claims at a CDP hearing: verifying requirements for the collection action, n90 examining the relevant issues raised by the taxpayer, and making a determination based upon a balance between the concerns of the taxpayer with the need to efficiently collect taxes. n91 Congress' goal in enacting the RRA was to "establish formal procedures to ensure due process for any liens or levies placed on the taxpayer." n92

In addition, the Appeals officer needs formality in communications to make findings and record the hearing. Although a full stenographic record is not required, there must be enough information in the Service's documentation for a court to draw conclusions on the Service's compliance. n93 Additionally, specific determinations, in the form of the three-part test, must be made and documented. The provisions show that Congress intended a certain degree of formality in communications to ensure due process.

Katz and similar cases demonstrate how the courts have found meaningful CDP hearings took place even when the communications between the Service and taxpayer were very informal. Although the court notes that hearings "at the Appeals level have historically been conducted in an informal setting," n94 telephone conversations discussing the taxpayer's options are beyond what Congress intended a hearing to be. Unlike an in-person CDP hearing, it is unclear from the opinion whether the taxpayer was aware that his phone conversations would be considered his hearing; the Service admits that it only "considered petitioner's arguments, to the extent that the petitioner put them forth in telephone conversations . . . and through written correspondence." n95 It is doubtful that this level of informality enables the taxpayer to offer his arguments and to challenge the Service's three-part determination. Congress laid out a specific scheme for achieving due process: filing an NFTL, explaining rights to the taxpayer, and providing a meaningful hearing. The type of due process inherent in formal, in-person hearings is greater than that of "equivalent" written and oral communications. In short, a hearing by telephone is intrinsically not the same, nor does it offer the same fundamental protections as an in-person hearing. Even if these hearings are equivalent, the taxpayer's phone calls were not sufficient to constitute a CDP hearing. As a result, the rights Congress imbued taxpayers with have been abrogated.

Commentators have noted that CDP hearings have the "prospect of a meaningful opportunity for the taxpayer to resolve most of his concerns in relation to the lien and levy process." n96 However the courts have eroded the taxpayer's chance at receiving a meaningful hearing by permitting procedures that undercut congressional intent. Taxpayers may have to travel even an hour away from home, their long-distance communications with the Service may be considered a hearing, taxpayers do not have the right to call witnesses or subpoena documents, and the hearing does not have to have the typical formality associated with the term "due process." Courts have rarely found a taxpayer has been denied the right to a meaningful CDP hearing, except in cases of egregious behavior--for example, where no hearing was actually held n97 or where no record of the hearing was kept. n98 Furthermore, Congress has received testimony that the Service has not consistently implemented the due process provisions of the RRA. n99 One-third of the cases reviewed involved potential violations of legislative or procedural requirements. n100 In light of that finding that taxpayers' rights have not been respected, courts should not further lower the benchmark for taxpayer protections.

IV. CONCLUSION

In Katz, the Tax Court held that a taxpayer had received the opportunity for and had received a meaningful CDP hearing despite the inconvenience of the location and the informal communications constituting the hearing. Though this represents a clarification by the court of the requirements of a CDP hearing, the result falls below the standard for privileges Congress intended to afford to taxpayers. The court should have considered the nature of the RRA as a sweeping reform, the due process function of CDP hearings, the accessibility of an appeal, and the formality of communications between the taxpayer and the Service.