The IRS consumes information about taxpayers. By and large, that is what the IRS is–a vacuum for information. It then processes the information and applies statutorily mandated processes to evaluate the information.
The processes are geared toward evaluating whether additional tax is owed and then recording that balance on the IRS’s books, so that the IRS can collect the tax.
Knowing this, taxpayers often find themselves in a situation where the IRS is asking for information and the taxpayers know, or come to know, that the information will result in additional tax due. So the question is whether to comply with the request for information, which is often required, or not.
Assuming the taxpayer complies, then the question is whether the IRS can just take the information and record the larger balance and move on. The IRS does do this in some cases. But when? And how? These are the questions answered by the court in the Walker v. Commissioner, T.C. Memo. 2026-4 case.
Contents
Facts & Procedural History
The taxpayers were husband and wife. This involved their joint 2018 federal income tax return that was filed in September 2019. The tax return showed adjusted gross income of $110,599 for their family of four and claimed a refund of $2,143.
The taxpayers had purchased health insurance through a health insurance marketplace and received advance premium tax credit (“APTC”) payments during 2018. However, their original return did not include Form 8962, Premium Tax Credit, or Form 1095-A, Health Insurance Marketplace Statement.
In September 2019, the IRS sent the taxpayers a Letter 12C requesting these missing forms. Letter 12C is a standard IRS notice informing taxpayers that the Health Insurance Marketplace reported making advance payments on their behalf, but the taxpayer didn’t include Form 8962 to reconcile those payments when filing their return. The taxpayers responded in December 2019 by submitting the requested forms.
Form 8962 reported household income in excess of 401% of the federal poverty line for their family size. This income level made them ineligible for the premium tax credit. The form also showed they had received $20,904 in APTC payments during 2018, which now had to be repaid in full because they exceeded the income threshold.
In March 2020, the IRS processed this information and made an additional assessment of $20,904 for the 2018 tax year. The IRS did not issue a Satutory Notice of Deficiency before making this assessment. The balance then accrued penalties and interest and eventually the IRS issued a Notice of Intent to Levy. The taxpayers responded by filing a collection due process (“CDP”) hearing request.
During the CDP hearing, the taxpayers challenged the underlying assessment. Their tax attorney argued that the assessment was invalid because the IRS had not issued a Statutory Notice of Deficiency before assessing the tax. The taxpayers proposed an IRS installment agreement as an alternative to the levy, though they later withdrew this request.
The IRS Appeals Settlement Officer concluded that no Statutory Notice of Deficiency was required. She determined the assessment was proper because the taxpayers had submitted Form 8962 showing the additional tax due. The IRS Office of Appeals upheld the proposed IRS levy action. The taxpayers then petitioned the U.S. Tax Court for review.
How Does the IRS Assess Tax Liabilities?
Section 6201 of the tax code grants the IRS authority to assess all taxes imposed by the code. Assessment is the formal recording of a taxpayer’s tax liability on the IRS’s books. This is what records that there is a tax debt owed to the IRS. Once the IRS makes an assessment, it can then use its collection tools to try to collect the tax.
While we often write about tax assessments on this site, we don’t usually stop to note that there are different types of assessments. The most straightforward is when the IRS simply assesses the tax shown on a taxpayer’s return. Section 6201(a)(1) is where you find the authority for this. It authorizes the IRS to assess taxes based on the taxpayer’s own return. This makes sense. When a taxpayer files a tax return showing they owe an amount to the IRS, the IRS doesn’t need to go through additional procedures to record that $10,000 liability and collect it.
This is different than an assessment for a correction for a math error. Section 6213(b)(1) allows the IRS to make summary assessments for mathematical or clerical errors without issuing a Statutory Notice of Deficiency. But this exception is narrowly defined. Section 6213(g)(2) lists what constitutes a mathematical or clerical error. This includes errors in addition, subtraction, multiplication, or division shown on the return, and omissions of information required to substantiate an entry on the return. Even with math assessments, the IRS still has to provide notice of the error assessment and give the taxpayer 60 days to request abatement. That didn’t happen in this case.
So what happens when the IRS believes a taxpayer owes more tax than shown on the return? This is where deficiency procedures come into play. These procedures protect taxpayers from arbitrary assessments and give them an opportunity to dispute the IRS’s determination before paying.
The IRS Deficiency Procedures
Congress created an assessment process the IRS can use to assess additional tax over and above what the taxpayer reported to the IRS. With these rules, the IRS generally cannot immediately assess that additional amount. The IRS has to follow the deficiency procedures. These rules are found in Sections 6211 through 6215.
Section 6211 defines a deficiency as the amount by which the tax imposed exceeds the sum of the amount shown as tax on the taxpayer’s return plus any previously assessed amounts, minus any rebates. In simpler terms, a deficiency is the amount the IRS calculates that is more than the taxpayer reported.
Section 6213(a) requires the IRS to send the taxpayer a Statutory Notice of Deficiency before assessing the deficiency. This notice, commonly called a “90-day letter” or “SNOD,” informs the taxpayer of the proposed deficiency and gives them 90 days to file a petition in U.S. Tax Court to challenge the determination. During this 90-day period, and while the case is pending in the tax court, the IRS cannot assess the deficiency or pursue collection.
This pre-payment right to challenge an assessment in tax court is significant. Taxpayers can have their day in court without first paying the disputed tax. They can present evidence, cross-examine IRS witnesses, and obtain a judicial determination of their correct tax liability. If they lose in tax court, they pay the tax. If they win, they owe nothing. If the judge decides something in the middle, they owe whatever that amount is.
Can Submitting a Form Be a Self-Assessment?
This brings us to the issue in this case. The question was whether the taxpayers submission of Form 8962 constituted a self-assessment that authorized the IRS to immediately assess the additional tax under Section 6201(a)(1).
The IRS argued that when the taxpayers submitted Form 8962 showing excess advance premium tax credit, they were effectively reporting additional tax due. According to the IRS, this was no different than assessing tax shown on an original return.
The tax court did not agree with the IRS. The tax court recognized that Form 8962 does require reconciliation of advance payments with the actual credit. The form does show whether a taxpayer received excess advance payments. But the tax court emphasized that Form 8962 itself “does not ultimately determine an amount of tax due from petitioners.”
This distinction matters. A tax return filed under Section 6001 shows the taxpayer’s calculation of their complete tax liability for the year. Form 8962, by contrast, is a schedule that provides information about one component of that liability. The taxpayers’ original return failed to account for the premium tax credit at all. When they later submitted Form 8962, this created a situation where the IRS needed to determine whether they had a deficiency in tax.
The tax court found it telling that the IRS itself had to make a determination about the taxpayers’ tax liability. The IRS received Form 8962, analyzed it, determined that the taxpayrs owed additional tax, and then assessed that amount. This determination by the IRS is exactly what constitutes a deficiency under Section 6211.
The tax court held that the assessment was a deficiency within the meaning of Section 6211(a). Because the assessment was a deficiency, the IRS was required to issue a Statutory Notice of Deficiency before making the assessment. Since it did not, the assessment was invalid. The taxpayers did not owe the tax.
And because the taxpayers challenged this via a collection method, the CDP hearing, the IRS likely cannot reassess this tax now. The IRS had their chance to follow proper deficiency procedures during the statute period and failed to do so. So the taxpayers not only got the invalid assessment thrown out, but the IRS is now likely barred from properly assessing the tax they actually owe.
The Takeaway
This case highlights an important aspect of IRS procedure that comes up in IRS audits and in cased before the IRS Office of Appeals. Taxpayers routinely provide additional information to the IRS during these proceedings. Sometimes this information reveals errors or omissions that increase the tax liability. When it does, this case explains that the IRS cannot simply make an assessment. The IRS has to issue a 90-day letter or SNOD first. If the IRS fails to do so, the assessment is invalid and the taxpayer then has to challenge the invalid assessment to get it corrected on the IRS’s books.
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