IRS Tax Collection Efforts

Since the tax-filing deadline is approaching and most of us are writing checks to the government, perhaps it is a good time to think about how the government chooses to exercise its finite tax collections resources. Take the recent example of Butti v. Commissioner.

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. Butti timely filed a collection due process hearing request, alleging that he was never given the opportunity to contest the underlying tax liability. Collection due process hearings temporarily halt the IRS collection efforts and afford taxpayers a hearing prior to the government resuming collections activity. Our law affords taxpayers the right to this type of hearing.

Collection due process hearings are conducted by the IRS appeals office. The IRS appeals officer assigned to this 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.” Of course, 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 tax court to secure his right to a collection due process hearing. As could be expected, the tax court held that Butti was entitled to a hearing and that the IRS had not afforded Butti a hearing. The tax court remanded the case to the IRS appeals office so that they could afford Butti a hearing.

This case leaves me wondering why Butti had to go though all of this and taxpayers had to pay for the exercise. Taxpayers paid for the appeals officer’s time, the IRS attorneys time, and even the tax court special magistrates time. Had Butti secured legal representation, Butti’s attorney would probably have asked the court to order the government to pay Butti’s attorney fees and possibly damages (due to the government taking an unsupportable position), and taxpayers would have had to pay that as well.

Another reason why I wonder if the investment of taxpayer funds was worth while in this case is that it appears the collections period for two of the three years may have already expired and the last year may expire soon. If this is the case, there is a strong chance that the government will not be able to collect the tax debt. Even if the collections periods have not already expired, I wonder if Butti has any real assets upon which the IRS can levy. The opinion does not indicate whether Butti has significant assets, but there is a very good chance that he does not.

So what is the point? Why could the appeals officer not simply afford Butti the hearing that he was entitled to, assess (or not assess) the tax, and collect the tax (or put the tax on uncollectible status)? Why does the IRS have to put Butti though the motions of going to court to get a hearing that Butti is so obviously entitled to and why do the taxpayers have to foot the bill? Most importantly, when I think about all of the tax debts that go uncollected each year, I wonder how the government decides to expend its limited tax collection resources trying to collect a tax in cases like this one?

Related Posts: