The IRS has long taken the position, and the Tax Court has agreed, that a taxpayer is not permitted to challenge an assessed tax in a Collection Due Process (CDP) hearing if the taxpayer had a prior opportunity to contest the tax before IRS Appeals. That position reads the controlling statute, 6330(c)(2)(B), “conjunctively”, not “disjunctively”:
The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability. [Emphasis added.]
Taking the opposite position, tax practitioners have long viewed (reasonably) that 6330(c)(2)(B) is a disjunctive provision – using the word “or”. It is critically important because if read disjunctively, then a taxpayer may get a second bite of the apple if he or she did not (1) receive any statutory notice of deficiency or (2) did not otherwise have an opportunity to dispute such tax liability. The statute’s interpretation is again before the courts, this time in the Sixth Circuit. It sets to decide whether a taxpayer can contest an underlying liability if the taxpayer did not receive a notice of deficiency but had an opportunity to contest the underlying liability before IRS Appeals. The hope is that the Sixth Circuit will arrive at the correct result: that a taxpayer who has not received a notice of deficiency can contest the underlying liability in a CDP hearing even if the taxpayer had a prior opportunity to contest the liability before IRS Appeals. Tax practitioners, and taxpayers, should carefully monitor this case, and good practice suggests making the disjunctive argument before the Tax Court if you find yourself there.