Tax Court Reviews Only Final Supplemental Notice of Determination

The Tax Court held that where a collection due process challenge results in the issuance of one or more supplemental notices of determination, the Tax Court is required to review only the final supplemental determination.

Background

The IRS made assessments against Richard and Mabel Kelby for the tax years 1989, 1993, 1995, 1996, and 1999 and later filed a lien on their property based on those assessments. The Kelbys requested a collection due process hearing under Sec. 6330. The IRS Appeals Office (Appeals) held the hearing and issued a notice of determination allowing the collection action to proceed.

The Kelbys challenged the notice of determination in Tax Court. On the IRS’s motion, the Tax Court remanded the case to Appeals, which issued a supplemental notice of determination denying the Kelbys relief. The Kelbys then challenged the supplemental notice of determination in Tax Court. The Tax Court again remanded the case on the IRS’s motion to Appeals, which issued a second supplemental notice of determination. The Kelbys challenged that second notice in Tax Court. For a third time, the Tax Court remanded the case to Appeals on the IRS’s motion. At this point, the Service conceded that the Kelbys did not owe tax for 1989. Appeals issued a third supplemental notice of determination, which included an installment plan agreed to by the IRS and the Kelbys but did not release the lien on the Kelbys’ property.

The Kelbys challenged the third supplemental notice of determination in Tax Court. Having substantially settled the underlying case, the primary issue remaining was whether the Tax Court should separately review each notice of determination or should review only the final supplemental notice of determination. The Kelbys argued that the Tax Court should review each notice separately with respect to abuse of discretion by the Service.

The Tax Court’s Decision

The Tax Court held that in a collection due process case where one or more supplemental notices of determination are issued, it should review the positions taken by the IRS only in the last supplemental notice of determination, not each notice of determination separately. The Tax Court stated (citing Freije, 125 TC 14 (2005)) that it was well settled that a taxpayer is entitled to only one collection due process hearing for the year to which an unpaid liability relates and that, as a corollary, Appeals makes a single determination that may or may not be supplemented. Therefore, the Tax Court held that when Appeals issues one or more supplemental notices of determination, the Tax Court reviews only the positions taken in the last supplemental determination issued. The Tax Court noted that this limitation of its review did not imply a finding of abuse of discretion on the part of the Service, as the Kelbys suggested, but rather that supplemental notices of determination are revisions of the original notice of determination, not separate determinations.

Reflections

In a footnote to the decision, the Tax Court distinguished the Kelby case from another decision it entered on the same day (Ginsberg, 130 TC No. 7 (2008)). In Ginsberg, the court held that it did not have jurisdiction over a supplemental notice of determination where it did not have jurisdiction over the original notice of determination. This rule did not apply in the Kelby case because the Tax Court had jurisdiction over the Kelbys’ original notice of determination.

Kelby, 130 TC No. 6 (2008)