There are cases where the administrative process does not reach the right conclusion. There are also cases where the administrative process isn’t available or fully completed. This can happen with tax disputes handled by the IRS. When it does, does this mean that the taxpayer cannot litigate the tax dispute? The record rule comes into play. The court in Hinerfeld v. Commissioner, T.C. Memo. 2019-47, suggests that all is not lost in these cases.

About the Record Rule

Courts cite the record rule for the proposition that the reviewing court cannot look beyond the administrative record. In applying the record rule, the court does not consider additional evidence. It does not hear testimony or admit records into evidence. The court simply reviews the information submitted by the agency. The record rule applies to IRS disputes as well as disputes with other government agencies.

The rule encourages people to use the administrative agency process. Absent the records rule, some might opt not to participate in the administrative process for disputes. The administrative process could be sidestepped if new issues could be raised in court having not been raised at the administrative level.

The Problem With the Record Rule

The problem with the record rule is that it can deny claimants their day in court. This is particularly true where the record may be incomplete, inaccurate, or otherwise tainted with defamatory or inadmissible evidence.

Appeals in cases like this can leave claimants with a feeling that their claim was not really heard or that the court system is broken.

This brings us to the case that is the subject of this post. In the case, the U.S. Tax Court considers whether it is subject to the record rule.

The Record Rule in U.S. Tax Court

The U.S. Tax Court is only granted authority to hear specific types of tax litigation cases. This consists of deficiency cases and collection due process hearing cases, primarily.

Deficiency cases are those where liability for the underlying tax is in question. These cases are de novo–meaning, the U.S. Tax Court hears the case without regard to the administrative process. So the record rule does not apply to these cases. But what about collections due process hearing cases.

Collections due process hearing cases are those where the taxpayer has an unpaid tax debt and files a timely request for a hearing for an IRS lien or levy.

Hinerfeld is a collection due process hearing case. The IRS argued that the record rule applies as the taxpayer is not challenging the underlying liability. The court considered its prior case law whereby it concluded that the records rule does not apply. The appeals courts had rejected this position. This includes the 1st, 8th, and 9th Circuit courts.

In Hinterfeld, the U.S. Tax Court suggests that it does not agree with the courts of appeal. This appears to left the issue open for future litigants. This can be particularly useful for collection due process hearing cases where the record was not adequately developed.

Tax problem or dispute?

Call today, (713) 909-4906

  • Former IRS attorneys
  • Deep tax knowledge
  • Reasonable rates
Start the Conversation