As a result of recent IRS and Tax Court administrative delays, IRS has erroneously closed cases and assessed taxes because it was not aware that, before IRS took those actions, the taxpayer had petitioned the Tax Court with regard to the taxes at issue. The National Tax Advocate (NTA) has provided details on this situation and what steps taxpayers can take if they find themselves in that situation.
Background.
Subject to certain exceptions, under the Code’s deficiency procedures and “restrictions applicable to deficiencies,” IRS can’t assess a deficiency in most taxes until the taxpayer has gotten a 90-day letter (150 days if IRS’s letter is addressed to a person outside the United State) and has been given an opportunity to have the issues decided by the Tax Court. (Code Sec. 6213(a))
The problem.
The NTA notes that, upon the filing of a petition to the Tax Court, the Tax Court assigns a docket number to the petition, processes it, and serves a copy on IRS. This notification process makes IRS aware that a petition has been filed and ensures that IRS takes the appropriate action in preparation for litigation. Unagreed examination deficiency cases that are not petitioned within the prescribed time frame (90 day or 150 days) can be legally assessed, closed, and the collection process initiated. To ensure that petitioned cases are not inadvertently or “prematurely assessed,” IRS holds all unagreed examination cases for an extra 15 days beyond the 90- or 150-day petition period, to ascertain whether a petition has been received.
In the latter part of 2020, IRS started working through a large backlog of returns, etc. that had accumulated as a result of the COVID-19 pandemic. IRS subsequently started issuing a high volume of statutory notices of deficiency that were previously held during the pandemic. This volume of notices caused an ensuing increase in the number of petitions filed. This surge in petitions has resulted in processing delays and backlogs for the Tax Court, as it has been unable to timely process the sudden and unanticipated increases in the volume of petitions received.
The Taxpayer Advocate Service (TAS) has determined that in 2021 it is taking approximately 75 days for the Tax Court to process most of the petitions it receives and serve notice on IRS – a period that exceeds the 15-day period IRS procedures have allotted for this notification process. Unaware that petitions have been filed, IRS has been following its procedures, closing many of these petitioned cases and assessing these unagreed examination deficiencies. Some petitioning taxpayers may be receiving bills or experiencing IRS collection actions as a product of these erroneous, premature assessments.
Many taxpayers may not understand the prohibition against assessment and collection while their case is pending in the Tax Court and are now dealing with collection issues.
Solutions to the problem.
First, the NTA suggests that taxpayers contact IRS for assistance.
Taxpayers who have filed a petition with the Tax Court and have been notified of an IRS assessment or collection action, can email IRS at taxcourt.petitioner.premature.assessment@irs.gov for help abating the assessment. When emailing such an inquiry, taxpayers should include the petitioner’s full name and address; the date the petition was filed with the Tax Court; the name of the other parties to the petitioner’s Tax Court case; and the Tax Court docket number if known.
For taxpayers who have not been contacted by an IRS collection office or received a tax due notice, the goal is to have IRS abate these assessments before any collection actions begin or the taxpayer is even notified. Once this process in place, the taxpayer should not have to do anything to correct this issue, but it may take some time to remove all of the premature assessments. In the meantime, a taxpayer who has timely filed petition and who has received a tax due notice, can be proactive and reach out to IRS to request an abatement of the premature assessment.
Taxpayers who have questions about whether the Tax Court has received their petition can use the Tax Court’s docket search feature and search by name to see if their petition has been filed. After a reasonable period of time, if it is not reflected on the Court’s docket, they can contact the Tax Court’s Public Affairs Office at (202) 521-3355 or email publicaffairs@ustaxcourt.gov.
Collaborative efforts between IRS, the Tax Court, and practitioners have resulted in a plan of action to reverse the premature assessments that previously occurred and to prevent continued premature assessments going forward – at least until the Tax Court’s backlog is resolved. The NTA understands that the Tax Court has agreed to electronically provide IRS with the limited data needed to quickly and systemically identify petitioned cases solely for the purpose of preventing and reversing premature assessments. Further, this systemic indicator will assist IRS in identifying those cases that have already been erroneously assessed so these premature assessments can be reversed systemically.
And TAS says that it stands ready to assist taxpayers that aren’t successful in working with IRS.
To continue your research on the limit on IRS assessments during the 90-day period, see FTC2d ¶T-3601.
Subscribe to our Checkpoint Daily Newsstand email to get all the latest tax, accounting, and audit news delivered to your inbox each weekday. It’s free!
