There are quite a few rights taxpayers have, that are disregarded by the IRS, and there is no remedy when it happens. As noted in Butti v. Commissioner, TC Memo. 2008-82, the IRS collection due process hearing is not one of those circumstances.
The Facts & Procedural History
Butti is a former chiropractor that is serving a criminal sentence in a New York prison.
While Butti was serving his sentence, the IRS issued notices of deficiency, assessed tax liabilities, and commenced collections activities. As required, the IRS notified Butti of these actions by sending written correspondence to Butti’s prison address.
After the tax was assessed and when the IRS began collection efforts for the tax, Butti timely-filed a collection due process hearing request alleging that he was never given the opportunity to contest the underlying tax liability.
The IRS settlement officer assigned to the case, knowing that Butti was incarcerated, scheduled the hearing to be held at the IRS Appeals office and asked the taxpayer to let the officer know if the hearing was not “convenient.”
Butti responded with a letter indicating that he could not attend the meeting due to his being incarcerated. The appeals officer subsequently issued a determination upholding the IRS’s collection activities, without affording Butti a hearing–even though the officer knew that the prior hearing was not “convenient” for Butti.
Butti brought a pro se action in the U.S. Tax Court to secure his right to a collection due process hearing.
The Collection Due Process Hearing
Collection due process hearings temporarily halt the IRS collection efforts and afford taxpayers a hearing prior to the government resuming collections activity. Congress afforded taxpayers the right to this type of hearing after the abuses that Congress learned of in the late 1990’s.
Collection due process hearings are conducted by settlement officers who are employed by the IRS Office of Appeals. The settlement officers are tasked with verifying that the IRS followed the law before the IRS is allowed to proceed with collections. This can include allowing the taxpayer the right to contest the underlying tax liability if the taxpayer had not been afforded a prior opportunity to contest the liability.
IRS Appeals Must Accommodate Taxpayers
How far does IRS Appeals have to go to afford hearings? Does Appeals actually have to hold the hearing at the prison? What if Butti had been at a prison located in a remote area where the IRS does not have an office?
Unfortunately this is a common problem. The IRS is not set up to have these types of hearings. The IRS is not even set up to have audits or appeals of the audits in this situation either. Even verifying that the taxpayer is incarcerated can be a challenge–as the IRS will often not even accept records showing that the taxpayer is the person who is incarcerated.
The court concluded that IRS Appeals held that Butti was entitled to a hearing and that the IRS had not afforded him a hearing. The tax court remanded the case to the IRS Appeals to have a hearing. Thus, the IRS will likely have to send a settlement officer to the prison to have the hearing.