The Tax Court, in a Regular Opinion, held that taxpayer, who was the subject of collection activity through notices of levy, had been deprived of neither his right to (i) meaningful judicial review, despite the fact that no written or audio record of the CDP conference was made; nor his right to (ii) an impartial administrative adjudication, despite the fact that the Appeals Officer had prior involvement in his case. Cox v. Com’r, 126 T.C. No. 13 (May 3).

[The taxpayer was a consultant and software developer who operated a sole proprietorship. He failed to pay any portion of his 1999 and 2000 reported tax liability of approximately $252,000. In December of 2002, the IRS issued a Final Notice of Intent to Levy. A Collection Due Process (CDP) hearing was held in August of 2003. A Notice of Determination denying penalty abatement and release of the levy was issued. An appeal followed. The Appeals Officer was later assigned to a new case involving tax liabilities for 2001 and 2002. Following a CDP hearing, a Determination was issued stating that the taxpayer’s assertion of an inability to pay had not been established and relief from levy was denied. The cases were consolidated for appeal.]

The Tax Court, first addressing the adequacy of the administrative record, stated that hearings conducted under sections 6320 and 6330 are “informal proceedings, not formal adjudications,” with no right to subpoena witnesses or documents. Katz v. Com’r, 115 T.C. 329. Although taxpayers are entitled to record 6330 hearings, the court had “never held or implied that any particular type of record is a necessary prerequisite for meaningful review.” The Appeals Office administrative file contained “extensive contemporaneous notes” which provided a “singularly clear portrayal of administrative developments as they occurred.” Therefore, the administrative record was held to be sufficient to support judicial review.

The court then addressed the taxpayer’s concerns regarding the impartiality of the Appeals Officer. Section 6330(b)(3) requires that a CDP conference be held by an officer who has “no prior involvement with respect to the unpaid tax.” In interpreting the term “prior involvement,” the court quoted from the legislative history, which provides: “[i]f multiple hearings are held . . . the same appellate officer will hear the taxpayer with regard to the lien and levy issues.” Noting the lack of case law authority, the court stated that since multiple CDP hearings with respect to one period may be conducted by the same Appeals Officer, “[l]ogically, it is difficult to argue that an appreciably greater or different harm could ensue where a period is first considered informally and then becomes the direct subject of a subsequent proceeding.”

Having found no statutory bar to the same Appeals Officer conducting all CDP conferences, the court next considered whether section 6330(b)(3) incorporates a “general requirement of impartiality.” The court found it unnecessary to answer this question, as the taxpayer’s allegations of bias “were not borne out by the totality of the record.”

Although the court’s interpretation of “prior involvement” may be a reasonable reading of “Question and Answer 4” of Treas. Regs. § 301.6330-1(d)(2), which addresses “prior involvement,” it is not a reasonable reading of the statute itself, which unambiguously provides that the hearing shall be conducted by an hearing officer “with no prior involvement.” In the end, the Tax Court’s decision may have been informed by what it referred to as the “practical realities” that “Appeals Offices are small with limited staff, [and that] a construction that would progressively disqualify an entire office . . . would be unworkable.” Whether or not this observation is true is irrelevant, since the statutory language is clear. Moreover, meaningful judicial review without a written or audio record of the CDP hearing appears impossible where judicial review is entirely predicated on contemporaneous notes of an Appeals Officer who has adversely decided the taxpayer’s case. The decision appears flawed.

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