12360373.1

ORAL ARGUMENT SCHEDULED FOR MARCH 19, 2015

No. 14-1004

IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

LISA A. EDWARDS and JOSEPH P. THOMAS,

Petitioners-Appellants

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee

ON APPEAL FROM THE ORDER OF THE UNITED STATES TAX COURT

FINAL BRIEF FOR THE APPELLEE

CAROLINE D. CIRAOLO Principal Deputy Assistant Attorney General BRUCE R. ELLISEN (202) 514-2929 JANET A. BRADLEY (202) 514-2930 Attorneys, Tax Division Department of Justice Post Office Box 502 Washington, D.C. 20044

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CERTIFICATE OF PARTIES,RULINGS, AND RELATED CASES

A. Parties and Amici. The parties in the Tax Court and in this

Court are Lisa A. Edwards and Joseph P. Thomas (“taxpayers”), and

the Commissioner of Internal Revenue. There are no amici curiae.

B. Rulings under Review. The ruling under review is the order

of the Tax Court (Special Trial Judge Lewis R. Carluzzo), entered

December 16, 2013, dismissing the case for lack of jurisdiction, denying

taxpayers’ motion for litigation costs, and holding that the parties’

motions to dismiss were moot. (Doc. 29; JA 150.)1

C. Related Cases. This case was not previously before this

Court or any other appellate court.

1 “JA” references are to the separately bound deferred joint appendix. “Doc.” references are to the documents in the original Tax Court record, as numbered by the Clerk of the Tax Court.

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TABLE OF CONTENTS

Page

Certificate of parties, rulings, and related cases ....................................... i Table of contents ....................................................................................... ii Table of authorities .................................................................................. iv Glossary ................................................................................................... xii Statement of jurisdiction ........................................................................... 1 Statement of the issues ............................................................................. 4 Statutes and regulations ........................................................................... 4 Statement of the case ................................................................................ 5

A. The Tax Court proceedings ..................................................... 5

1. IRS Notice CP504 and taxpayers’ petition .................... 5

2. The parties’ motions to dismiss ................................... 10

3. Taxpayers’ motion to vacate and motion for litigation costs .............................................................. 13

4. The Tax Court’s order and order of dismissal ............. 15

B. Taxpayers’ appeal to this Court ............................................ 17

Summary of argument ............................................................................ 17 Argument:

I The Tax Court correctly dismissed taxpayers’ petition for lack of jurisdiction ........................................................... 20

Standard of review ................................................................ 20

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Page

A. Introduction: Tax Court jurisdiction ................................... 20

1. Deficiency jurisdiction under I.R.C. § 6213 ................. 21

2. CDP jurisdiction under I.R.C. § 6330(d) ...................... 24

B. The Tax Court correctly held that it lacked deficiency jurisdiction under I.R.C. § 6213 ............................................ 27

C. The Tax Court correctly held that it lacked CDP jurisdiction under I.R.C. § 6330(d) ....................................... 41

II The Tax Court did not abuse its discretion in denying taxpayers’ motion for an award of administrative and litigation costs ....................................................................... 46

Standard of review ................................................................ 46

Conclusion ............................................................................................... 51 Certificate of compliance ......................................................................... 52 Certificate of service ................................................................................ 53 Addendum ............................................................................................... 54

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TABLE OF AUTHORITIES

Cases: Page(s)

Abrams v. Commissioner, 787 F.2d 939 (4th Cir. 1988) ................................................. 23

Anson v. Commissioner, T.C. Memo. 2010-119, 2010 WL 2195283 (2010) .................. 42

Arias v. Dyncorp, 752 F.3d 1011 (D.C. Cir. 2014) ............................................. 33

*Armstrong v. Commissioner, 15 F.3d 970 (10th Cir. 1994) ..................................... 24, 28, 31

Bartman v. Commissioner, 446 F.3d 785 (8th Cir. 2006) ................................................. 20

Bob Jones Univ. v. Simon, 416 U.S. 725 (1974) ............................................................... 29

Bouterie v. Commissioner, 36 F.3d 1361 (5th Cir. 1994) ........................................ 2, 48-49

Boyd v. Commissioner, 124 T.C. 296 (2005), aff’d,

451 F.3d 8, 10 (1st Cir. 2006) ..................................... 25-27, 43 *Boyd v. Commissioner,

451 F.3d 8 (1st Cir. 2006) .................................................. 6, 27 Bussen v. Commissioner,

T.C. Memo. 2014-185, 2014 WL 4473846 (2014) ......... 3, 48-49 Byers v. Commissioner,

740 F.3d 668 (D.C. Cir. 2014) ............................................... 25 Cassuto v. Commissioner,

936 F.2d 736 (2d Cir. 1991) .............................................. 49-50 Commissioner v. McCoy,

484 U.S. 3, 108 S.Ct. 217 (1987) ........................................... 20 Correia v. Commissioner,

58 F.3d 468 (9th Cir. 1995) ....................................... 24, 28, 31 Cox v. Commissioner,

514 F.3d 1119 (10th Cir. 2008) ....................................... 26, 43

*Authorities on which we chiefly rely are marked with asterisks.

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Cases (cont’d): Page(s)

Craig v. Commissioner, 119 T.C. 252 (2002) ............................................................... 27

Dang v. Commissioner, 259 F.3d 204 (4th Cir. 2001) ................................................. 46

Davis v. Commissioner, T.C. Memo. 2008-238, 2008 WL 4703706 (2008) ............ 24, 29

*DiCindio v. Commissioner, 265 F. App’x 138 (3d Cir. 2008) ............................................ 42

Downing v. Commissioner, 118 T.C. 22 (2002) ................................................................. 30

*Drake v. Commissioner, 511 F.3d 65 (1st Cir. 2007) ............................................... 49-50

Estate of Baird v. Commissioner, 416 F.3d 442 (5th Cir. 2005) ................................................. 46

Estate of Branson v. Commissioner, 264 F.3d 904 (9th Cir. 2001) ................................................. 20

Estate of Wall v. Commissioner, 102 T.C. 391 (1999) ............................................................... 48

Flora v. United States, 362 U.S. 145, 80 S.Ct. 630 (1960) .................................... 29-30

Freytag v. Commissioner, 501 U.S. 868, 111 S.Ct. 2631 (1991) ..................................... 20

Gadsden v. Commissioner, 81 F. App’x 250 (9th Cir. 2003) ............................................. 42

Gardner v. United States, 211 F.3d 1305 (D.C. Cir. 2000) ............................................. 21

*Gaw v. Commissioner, 45 F.3d 461 (D.C. Cir. 1995) ................................................. 22

Gorospe v. Commissioner, 451 F.3d 966 (9th Cir. 2006) ................................................. 20

*Gray v. Commissioner, 723 F.3d 790 (7th Cir. 2013) ...................................... 20, 25-26

Grover v. Commissioner, T.C. Memo. 2007-176, 2007 WL 1932993 (2007) ....... 26-27, 43

*Authorities on which we chiefly rely are marked with asterisks.

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Cases (cont’d): Page(s)

Hazim v. Commissioner, 82 T.C. 471 (1984) ................................................................. 21

Horne v. United States, 519 F.2d 51 (5th Cir. 1975) ................................................... 29

Huffman v. Commissioner, 978 F.2d 1139 (9th Cir. 1992) ............................................... 46

In re Long-Distance Telephone Service Federal Excise Tax Refund Litigation,

751 F.3d 629 (D.C. Cir. 2014) ............................................... 49 Indian Lake Estates, Inc.,

428 F.2d 319 (5th Cir. 1970) ................................................. 22 Investment Annuity, Inc. v. Blumenthal,

609 F.2d 1 (D.C. Cir. 1979) ................................................... 29 Jones v. Horne,

634 F.3d 588 (D.C. Cir. 2011) ............................................... 33 Joy v. Commissioner,

437 F. App’x 537 (9th Cir. 2011) ..................................... 27, 42 Kamholz v. Commissioner,

94 T.C. 11 (1990) ............................................................. 24, 29 Kamps v. Commisioner,

T.C. Memo. 2011-287, 2011 WL 6220044 (2011) .................. 35 Keado v. United States,

853 F.2d 1209 (5th Cir. 1988) .................................... 22, 38-39 Keeton v. Commissioner,

74 T.C. 377 (1980) ................................................................. 32 *Khadr v. United States,

529 F.3d 1112 (D.C. Cir. 2008) ............................................. 21 Laing v. United States,

423 U.S. 161, 96 S.Ct. 473 (1976) ......................................... 22 Landes v. Commissioner,

371 F. App’x 694 (8th Cir. 2010) ........................................... 21 Lujan v. Defenders of Wildlife,

504 U.S. 555, 112 S.Ct. 2130 (1992) ..................................... 21

*Authorities on which we chiefly rely are marked with asterisks.

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Cases (cont’d): Page(s)

Marks v. Commissioner, 947 F.2d 986 (D.C. Cir. 1991) ................................... 36, 40, 45

Martin v. Commissioner, 436 F.3d 1216 (10th Cir. 2006) ............................................. 23

Monge v. Commissioner, 93 T.C. 22 (1989) ................................................................... 32

Nicholson v. Commissioner, 60 F.3d 1020 (3d Cir. 1995) ................................................... 48

O’Brien v. Commissioner, 62 T.C. 543 (1974) ................................................................. 32

*Offiler v. Commissioner, 114 T.C. 492 (2000) ............................................................... 25

O’Neill v. United States, 44 F.3d 803 (9th Cir. 1995) ................................................... 23

O’Rourke v. United States, 587 F.3d 537 (2d Cir. 2009) ................................................... 38

*Orum v. Commissioner, 412 F.3d 819 (7th Cir. 2005) ....................................... 8, 27, 42

Page v. Commissioner, 297 F.2d 733 (8th Cir. 1962) ................................................. 21

Petrulis v. Commissioner, 938 F.2d 78 (7th Cir. 1991) ............................................. 24, 28

Phillips v. Commissioner, 851 F.2d 1492 (D.C. Cir. 1988) ............................................. 46

Pickell v. Commissioner, T.C. Memo. 2008-60, 2008 WL 648511 (2008) ................. 45-46

Pierce v. Underwood, 487 U.S. 552, 108 S.Ct. 2541 (1988) ..................................... 47

Pietanza v. Commissioner, 92 T.C. 729 (1989), supp. op., T.C. Memo. 1990-524,

1990 WL 141908 (1990), aff’d without pub. op., 935 F.2d 1282 (3d Cir. 1991) ............... 11, 16, 31-32, 34-36, 39 Pugsley v. Commissioner,

749 F.2d 691 (11th Cir. 1985) ............................................... 24

*Authorities on which we chiefly rely are marked with asterisks.

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Cases (cont’d): Page(s)

Pyo v. Commissioner, 83 T.C. 626 (1984) ........................................................... 21, 32

Raft v. Commissioner, 147 F. App’x 458 (6th Cir. 2005) ........................................... 27

Rappaport v. United States, 583 F.2d 298 (7th Cir. 1978) ................................................. 22

Redman v. Commissioner, 820 F.2d 209 (6th Cir. 1987) ................................................. 24

Robinson v. Commissioner, 920 F.2d 1157 (3d Cir. 1990) ................................................. 23

Sanders v. Commissioner, 813 F.2d 859 (7th Cir. 1987), supp. op. 89 T.C. 779 (1987),

rev’d, 850 F.2d 111 (2d Cir. 1988) ........................................... 3 Sego v. Commissioner,

114 T.C. 604 (2000) ............................................................... 43 Shelton v. Commissioner,

63 T.C. 193 (1974) ............................................................ 31-32 Shepard v. Commissioner,

147 F.3d 633 (7th Cir. 1998) ................................................. 23 Sherbo v. Commissioner,

T.C. Memo. 1999-367, 1999 WL 997874 (1999) ...................... 3 *Shockley v. Commissioner,

686 F.3d 1228 (11th Cir. 2012) ............................................. 23 Smith v. Lanier,

726 F.3d 166 (D.C. Cir. 2013) ............................................... 20 Sparling v. Commissioner,

T.C. Memo. 1990-661, 1990 WL 212859 (1990) .................... 40 Spector v. Commissioner,

790 F.2d 51 (9th Cir. 1986) ................................................... 23 Spivey v. Commissioner,

81 T.C.M. (CCH) 1117, 2001 WL 103450 (2001), aff’d, 29 F. App’x 575 (11th Cir. 2001) .................................. 34 *Starling v. Commissioner,

522 F. App’x 683 (11th Cir. 2013) ................................... 26, 43

*Authorities on which we chiefly rely are marked with asterisks.

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Cases (cont’d): Page(s)

Thornberry v. Commissioner, 136 T.C. 356 (2011) ............................................................... 26

*United States v. Ahrens, 530 F.2d 781 (8th Cir. 1976) ...................................... 37-39, 41

United States v. Bisbee, 245 F.3d 1001 (8th Cir. 2001) ............................................... 48

United States v. Navolio, 334 F. App’x 204 (11th Cir. 2009) ......................................... 37

*United States v. O’Callaghan, 500 F. App’x 843 (11th Cir. 2012) ......................................... 40

*United States v. Zolla, 724 F.2d 808 (9th Cir. 1984) ................................................. 37

Vivenzio v. Commissioner, 283 F. App’x 40 (3d Cir. 2008) .............................................. 26

Webb v. Commissioner, T.C. Memo. 1996-449, 1996 WL 558320 (1996) .................... 36

Weiss v. Commissioner, 88 T.C. 1036 (1987) ................................................................. 3

Welch v. United States, 678 F.3d 1371 (Fed. Cir. 2012) ......................................... 38-39

Wilfong v. United States, 991 F.2d 359 (7th Cir. 1993) ................................................. 48

Wilkerson v. United States, 67 F.3d 112 (5th Cir. 1995) .............................................. 49-50

*Zigmont v. Commissioner, T.C. Memo. 2009-48, 2009 WL 564949 (2009) ........... 24, 28-29

Statutes:

Internal Revenue Code (26 U.S.C):

§ 6201(a)(1) .............................................................................. 5 § 6211(a) ................................................................................ 22 § 6212 ............................................................................... 18, 22

*Authorities on which we chiefly rely are marked with asterisks.

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Statutes (cont’d): Page(s)

Internal Revenue Code (26 U.S.C): § 6212(a) ..................................................................... 11, 22-23 § 6212(b) ................................................................................ 22 § 6213 ............................................................................... 21, 27 *§ 6213(a) .................................. 3-4, 7, 11-12, 18, 21-24, 28-31 § 6213(c) ................................................................................... 7 § 6214(a) ................................................................................ 30 § 6330 ....................................................................... 6, 8, 19, 24 § 6330(a) ............................................................................ 5, 24 § 6330(a)(3)(B) ....................................................................... 25 § 6330(b) .................................................................................. 9 § 6330(c)(2)(B) ....................................................................... 25 § 6330(c)(3) ............................................................................ 25 *§ 6330(d) ............................................. 4, 12, 17, 24-25, 41, 43 § 6330(d)(1) .............................................................. 4, 8, 27, 43 § 6330(e) ................................................................................ 26 § 6330(e)(1) ...................................................................... 26, 43 § 6330(f)(2) ......................................................................... 8, 43 § 6402(a) .................................................................................. 6 § 6503(a) ............................................................................ 7, 22 § 6532(a) ................................................................................ 30 § 7422(a) ................................................................................ 30 § 7428 ..................................................................................... 30 *§ 7430 .............................................. 2, 4, 13, 17, 19, 46-47, 49 § 7430(c)(1)(B)(iii) .................................................................. 47 § 7430(c)(4) ............................................................................ 16 § 7430(c)(4)(A)(i) .............................................................. 47, 49 § 7430(c)(4)(B)(i) .................................................................... 47 § 7430(c)(7) ............................................................................ 48 § 7476 ..................................................................................... 30 § 7477 ..................................................................................... 30 § 7478 ..................................................................................... 30 § 7482(a)(1) .............................................................................. 4

*Authorities on which we chiefly rely are marked with asterisks.

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Statutes (cont’d): Page(s)

Internal Revenue Code (26 U.S.C): § 7483 ....................................................................................... 4 § 7979 ..................................................................................... 30

28 U.S.C.:

§ 1346(a)(1) ............................................................................ 30 § 1491(a)(1) ............................................................................ 30 § 2201(a) ................................................................................ 29

*Declaratory Judgment Act, 28 U.S.C. § 2201(a) ..................... 29-30

Regulations:

Treasury Regulations (26 C.F.R.):

§ 301.6330-1(i) ................................................................... 8, 27 § 301.6330-1(i)(1) ............................................................ 8-9, 27 § 301.6330-1(i)(2) (Q&A-I6) ................................................... 27 § 301.6330-1(b)(1) .................................................................. 25 § 301.6330-1(c)(1) .................................................................. 25 § 301.6330-1(e)(3) (Q&A-E8) ................................................. 25 § 301.6402-2........................................................................... 30 § 301.7430-3(a)(4) .................................................................. 47 § 301.7430-3(b) ...................................................................... 47

Miscellaneous:

Fed. R. App. P. 13(a) ........................................................................ 4

Fed. R. App. P. 13(a)(2) .................................................................... 3

*Authorities on which we chiefly rely are marked with asterisks.

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Miscellaneous (cont’d): Page(s)

Tax Court Rule 34 ............................................................................ 2 Tax Court Rule 34(b)(2) ................................................................. 23 Tax Court Rule 34(b)(8) ................................................................. 23

Tax Court Rule 162 .......................................................................... 2 Tax Court Rule 231(a)(2).................................................................. 2

*Authorities on which we chiefly rely are marked with asterisks.

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GLOSSARY

Br. References to appellants’ opening brief CDP Collection due process Code or I.R.C. Internal Revenue Code (26 U.S.C.) Commissioner Commissioner of Internal Revenue IRS Internal Revenue Service Taxpayers Lisa A. Edwards; Joseph P. Thomas Treas. Reg. Treasury Regulation (26 C.F.R.)

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IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 14-1004

LISA A. EDWARDS and JOSEPH P. THOMAS,

Petitioners-Appellants

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee

ON APPEAL FROM THE ORDER OF THE UNITED STATES TAX COURT

FINAL BRIEF FOR THE APPELLEE

STATEMENT OF JURISDICTION

On September 17, 2012, Lisa A. Edwards and Joseph P. Thomas

(taxpayers) filed a petition in the Tax Court alleging violations of their

due process rights for the 2007 and 2008 tax years because, allegedly,

they did not receive a notice of deficiency and the Commissioner did not

issue a final notice of intent to levy and notice of their right to a CDP

hearing. (Doc. 1; JA 1.) Taxpayers did not allege a statutory basis for

the court’s jurisdiction. (Doc. 1; JA 1.) On November 28, 2012, the

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Commissioner filed a motion to dismiss for lack of jurisdiction (Docs. 6,

7; JA 13, 21), which taxpayers opposed (Doc. 9; JA 25). On January 17,

2013, taxpayers cross-moved to dismiss their own petition for lack of

jurisdiction (Doc. 10; JA 85), which the Commissioner opposed (Docs.

12, 14; JA 141, 145). On June 13, 2013, the Tax Court entered an order

granting taxpayers’ cross-motion. (Doc. 18; JA 171.) That order was a

final, appealable order that disposed of all claims of all parties.

Pursuant to Tax Court Rule 231(a)(2), a claim for attorney’s fees,

if not settled or waived by the submission of a stipulated decision, must

be made by motion filed within 30 days after the written opinion or

findings of fact.2 On July 11, 2013, within 30 days after entry of the

dismissal order (see Tax Ct. R. 162), taxpayers filed a timely motion to

vacate the dismissal order to request an award of administrative and

litigation costs under I.R.C. § 7430, and, at the same time, lodged their

motion for costs. (Docs. 19, 20, 22, 26; JA 173, 176, 203.) See, e.g.,

Bouterie v. Commissioner, 36 F.3d 1361, 1366-67 (5th Cir. 1994) (court

entertained fee motion after taxpayer filed timely motion to vacate);

2 Cf. Tax Ct. Rule 34 (“[a] claim for reasonable litigation . . . costs shall not be included in the petition in a deficiency of liability action”).

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Bussen v. Commissioner, T.C. Memo. 2014-185, 2014 WL 4473846, at *1

(2014); Sherbo v. Commissioner, T.C. Memo. 1999-367, 1999 WL

997874, at *1 (1999). The timely motion to vacate tolled the time for

filing a notice of appeal. Fed. R. App. P. 13(a)(2). On August 9, 2013,

the Tax Court vacated its order of dismissal and filed taxpayers’ motion

for costs (Docs. 24, 25; JA 201), which the Commissioner opposed (Doc.

28; JA 222). See Weiss v. Commissioner, 88 T.C. 1036 (1987) (holding

that court may entertain motion for attorney’s fees where case is

dismissed on jurisdictional grounds, and rejecting contrary ruling in

Sanders v. Commissioner, 813 F.2d 859 (7th Cir. 1987)), supp. op. 89

T.C. 779 (1987) (denying fees because taxpayer was not prevailing

party), rev’d, 850 F.2d 111 (2d Cir. 1988).

On December 16, 2013, the Tax Court, sua sponte, dismissed the

case for lack of jurisdiction, denied taxpayers’ motion for litigation costs,

and held that the parties’ motions to dismiss were moot. (Doc. 29; JA

250.) As explained infra at Argument I, the Tax Court correctly held

that it had no jurisdiction to (1) re-determine taxpayers’ deficiencies for

2007 and 2008 or enjoin the tax assessments because their petition was

not timely filed within 90 days of the notices of deficiency (I.R.C.

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§ 6213(a)) or (2) review or enjoin IRS collection action for 2007 and 2008

because no notice of determination existed (I.R.C. § 6330(d)(1)). (Doc.

29; JA 250.)

On January 6, 2014, within 90 days of the December 16, 2013

order, taxpayers filed a notice of appeal. (Doc. 30.) Taxpayers’ appeal is

timely pursuant to I.R.C. § 7483 and Fed. R. App. P. 13(a). This Court’s

jurisdiction rests on I.R.C. § 7482(a)(1).

STATEMENT OF THE ISSUES

1. Whether the Tax Court correctly held that it lacked

deficiency jurisdiction under I.R.C. § 6213(a) because taxpayers’

petition was not timely filed from the notices of deficiency.

2. Whether the Tax Court correctly held that it lacked CDP

jurisdiction under I.R.C. § 6330(d) because a notice of determination

with respect to collection activity has not been issued.

3. Whether the Tax Court did not abuse its discretion in

denying taxpayers’ motion for an award of administrative and litigation

costs under I.R.C. § 7430.

STATUTES AND REGULATIONS

Pertinent statutes and regulations are included in an addendum

bound with the brief.

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STATEMENT OF THE CASE

A. The Tax Court proceedings

1. IRS Notice CP504 and taxpayers’ petition On March 10, 2008, taxpayers filed a joint federal income tax

return for the 2007 tax year. (Doc. 1, ¶5; JA 2.) After taxpayers

separated in 2008, Thomas filed a return for 2008 as married filing

separately on June 22, 2009.3 (Doc. 1, ¶6; JA 2.) A balance was owed

for 2008 based on insufficient withholdings for the tax amount shown as

due on Thomas’s return. (Doc. 28, Ex. C, p. 2; JA 248.) Accordingly, the

IRS assessed the self-reported taxes due (Doc. 9, Ex. 11, pp. 1-2; JA 67-

68), which assessment did not require the issuance of a notice of

deficiency (see I.R.C. § 6201(a)(1)).

Before collecting unpaid taxes via administrative levy, the IRS is

generally required to notify the taxpayer of his right to a pre-levy

“collection due process” (CDP) hearing with the IRS Office of Appeals.

I.R.C § 6330(a). On October 26, 2009, the IRS sent Thomas a notice of

intent to levy and notice of his right to a CDP hearing under I.R.C.

3 For the 2008 tax year, Edwards filed a return as head of household. (Doc. 9, Ex. 19; JA 81.)

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§ 6330 with respect to the initial assessment of Thomas’s self-reported

tax for 2008. (Doc. 28, Ex. C; JA 248.) IRS records indicate that the

balance due was fully paid by a credit “offset” as authorized by I.R.C.

§ 6402(a). (Doc. 28, ¶16, Exs. B, C; Doc. 9, Ex. 8; JA 62, 226, 245, 248.)

See generally Boyd v. Commissioner, 451 F.3d 8, 12-13 (1st Cir. 2006)

(discussing the crediting of overpayments as offsets under § 6402(a).)

The IRS selected taxpayers’ 2007 return and Thomas’s 2008

return for audit, and scheduled an appointment for June 30, 2009.

(Doc. 9 at 2, 7, Ex. 2; JA 26, 31, 49.) On November 9, 2009, the IRS sent

taxpayers an Audit Letter 950 (known as a 30-day letter) (Doc. 9, Ex. 3;

JA 51), along with Form 4549-A (Income Tax Discrepancy

Adjustments), proposing increased liabilities for 2007 of $12,489.24 (tax

of $9,606, penalties of $1,921.20 and interest of $964.04) and for 2008 of

$19,204.80 (taxes of $15,592, penalties of $3,118.40, and interest of

$494.40). (Doc. 9 at 2, 7, Exs. 3, 12; JA 26, 31, 54, 70.) The letter gave

taxpayers instructions to follow if they agreed with the adjustments; if

they did not agree, they were directed to request an audit appeal with

the Appeals Office no later than December 9, 2009. (Doc. 9, Ex. 3; JA

51.) In the event that the parties did not reach an agreement, the letter

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explained that the IRS “w[ould] send [them] another letter that will tell

[them] how to obtain Tax Court Review of [their] case.” (Doc. 9, Ex. 3;

JA 52.) On March 11, 2010, the IRS issued a notice of deficiency to

taxpayers asserting deficiencies in their joint 2007 tax liability, and a

notice of deficiency to Thomas for his 2008 tax liability. (Doc. 6, ¶9, Ex.

A; JA 15, 23.) A notice of deficiency explains a taxpayer’s right to

challenge a proposed deficiency in the Tax Court. Taxpayers failed to

petition the Tax Court for any of the tax years (see I.R.C. § 6213(a)),

and, accordingly, the IRS was permitted to assess the taxes due. See

I.R.C. §§ 6213(c), 6503(a).

On August 16, 2010, the IRS made additional tax assessments for

2007 and 2008. (Doc. 28, Exs. B, C; Doc. 1, ¶¶h, aa; JA 4, 7, 245, 248.)

On the same day, the IRS sent taxpayers CP22E Examination

Adjustment Notice stating that for 2007 they owed $12,836.13, and for

2008 Mr. Edwards owed $19,737.25. (Doc. 9 at 3, 8, Exs. 1, 4, 11; JA 27,

32, 47, 55-57, 67-68.)

On September 20, 2010, the IRS sent taxpayers a CP504 notice of

intent to levy on their state tax refund in order to collect their 2007 tax

liability. (Doc. 28, ¶14, Ex. A; JA 225-26, 241.) The IRS is not required

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to give a taxpayer a pre-levy CDP hearing where it levies on a state tax

refund. I.R.C. § 6330(f)(2). On September 24, 2010, taxpayers

requested a CDP hearing under I.R.C. § 6330 regarding 2007 and 2008.

(Doc. 28, Ex. C; Doc. 1, ¶¶k, dd; JA 4, 7, 248.) In the cover letter,

taxpayers questioned the August 16, 2010 assessments. (Doc. 9, ¶24,

Ex. 6; JA 28, 60.) On April 21, 2011, the IRS advised taxpayers that the

CP504 notice did not entitle them to a CDP hearing with the IRS Office

of Appeals. (Doc. 28, ¶15; JA 226.) By letter dated October 13, 2011,

the Office of Appeals further advised taxpayers that the request for a

CDP hearing was untimely with respect to the October 26, 2009 notice

of levy regarding the original assessment of Thomas’s 2008 self-reported

tax, and, consequently, that the Office of Appeals would provide an

“equivalent hearing.”4 (Doc. 28, ¶16, Ex. B; Doc. 1, ¶¶r, nn; JA 6, 9,

226, 244.) The letter additionally advised taxpayers that they were not

entitled to a CDP hearing regarding the August 16, 2010 assessments 4 When a taxpayer makes an untimely request for a CDP hearing, the Office of Appeals grants the taxpayer an “equivalent hearing.” Treas. Reg. 301.6330-1(i). An equivalent hearing, unlike a CDP hearing, results not in a “determination” within the meaning of I.R.C. § 6330(d)(1), but in a “decision letter” that is not subject to any judicial review. See Orum v. Commissioner, 412 F.3d 819, 821 (7th Cir. 2005); Treas. Reg. § 301.6330-1(i)(1).

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for 2007 and 2008 because no notice of levy, which would have entitled

them to such a hearing under I.R.C. § 6330(b), had been issued. (Doc.

28, ¶16, Ex. B; JA 226, 245.) As such, the letter explained that they

only could request audit reconsideration. (JA 226, 245.)

On November 22, 2011, the Office of Appeals held the equivalent

hearing with taxpayers who, by then, were represented by attorney

Bruce E. Gardner. At the hearing, Gardner stated that he understood

the scope of the equivalent hearing and that the August 16, 2010

assessments could not be considered. (Doc. 28, Ex. C; JA 248.) He

further stated that taxpayers were not contesting Thomas’s liability for

the original assessment of his 2008 tax, and that he understood that the

IRS was closing the case. (Doc. 28, Ex. C; JA 248.) On December 15,

2011, the Office of Appeals issued a “decision letter,” which after noting

that Thomas “did not dispute” the liability for the original assessment,

sustained the levy. (Doc. 28, Ex. C; JA 248.) In addition, the letter

stated that it could not consider the August 16, 2010 assessments

because no notice requiring a CDP hearing had been issued. (Doc. 28,

Ex. C; JA 249.) Because a decision letter cannot be judicially reviewed

(Treas. Reg. § 301.6330-1(i)(1)), taxpayers were advised that they could

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seek audit reconsideration outside of the Office of Appeals. (Doc. 28,

Ex. C; JA 248-49.)

On September 17, 2012, taxpayers filed a petition in the Tax

Court, alleging that their “due process” rights were violated for 2007

and 2008, because, allegedly, the Commissioner (1) did not issue a final

notice of intent to levy, and (2) did not “mail” a notice of deficiency.

(Doc. 1; JA 1; see Br. 3, n.1.) In later declarations, taxpayers claimed

only that they “never received a notice of deficiency.” (Doc. 9, Exs. 19,

20; JA 81-84.) As relief, taxpayers sought a declaration that the August

16, 2010 assessments were void, an injunction barring future collection

actions, and the return of all money collected on the assessments. (Doc.

1 at 11-12; JA 11-12.) Taxpayers did not claim that they did not owe

the asserted liabilities. Taxpayers did not attach any notice (i.e., either

a notice of determination or notice of deficiency) from the Commissioner

and did not state a basis for jurisdiction.

2. The parties’ motions to dismiss

On November 28, 2012, the Commissioner filed a motion to

dismiss for lack of jurisdiction on the ground that the petition was not

timely filed within 90 days after the notices of deficiency as required by

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I.R.C. § 6213(a). (Doc. 6; JA 13.) The Commissioner asserted that,

pursuant to I.R.C. § 6212(a), the deficiency notices were duly sent by

certified mail to taxpayers’ last known address as evidenced by the

March 11, 2010 postmark date stamped on the attached copy of

Certified Mail Receipts, U.S. Postal Service (“PS”) Forms 3877. (Doc. 6,

¶9; Doc. 7, Ex. A; JA 15, 23-24A.) The PS Forms further showed that

the certified mailings were sent from Baltimore, Maryland, to both

taxpayers for 2007 and 2008 as indicated by the notations “7” or “8”

after the certified mailing numbers. (Doc. 6, ¶¶9-10; Doc. 7, Ex. A; JA

15, 23-24A.) In addition, the Commissioner presented an affidavit of

IRS Supervisor McCune in the IRS Technical Services office in

Baltimore, who in detail explained the “standard procedures for issuing

notices of deficiency” out of that office, including the preparation of the

PS Forms 3877, and stated that such procedures were followed for the

certified mailing of the deficiency notices sent to taxpayers here. (Doc.

7; JA 19-22.) Taxpayers opposed the Commissioner’s motion arguing,

based on Pietanza v. Commissioner, 92 T.C. 729 (1989), aff’d without

pub. op., 935 F.2d 1282 (3d Cir. 1991), that the Commissioner had not

established the proper mailing of the deficiency notices. (Doc. 9; JA 25.)

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On January 17, 2013, taxpayers filed a cross-motion to dismiss

their own petition for lack of deficiency jurisdiction under I.R.C.

§ 6213(a) on the ground that the Commissioner had failed to mail the

notices of deficiency. (Doc. 10; JA 85.) The Commissioner opposed

taxpayers’ motion on the grounds that their petition was not timely

filed in response to the deficiency notices. (Docs. 12, 14; JA 141, 145.)

The Commissioner explained that after receiving taxpayers’ motion he

had requested the IRS’s administrative files, which should have

contained copies of the notices of deficiency, and that on February 8,

2013, such files were sent to him. (Doc. 14 at 2; JA 146.)

Unfortunately, however, the Commissioner explained that his office had

no record of receiving the files and they could not otherwise be located.

(Doc. 14 at 2; JA 146.)

On May 15, 2013, the Tax Court held a hearing on the motions.

(Doc. 17; JA 148.) With respect to whether the Tax Court had CDP

jurisdiction under I.R.C. § 6330(d), taxpayers admitted that there was

no requisite notice of determination. (Doc. 17 at 15-17; JA 163-65.) The

Tax Court rejected, as “beyond” its jurisdictional powers, taxpayers’

argument that the IRS’s failure to issue a notice of levy was

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“tantamount to a Notice of Determination” so that the Tax Court had

CDP jurisdiction to enjoin further collection. (Doc. 17 at 15-17, 19; JA

163-65, 167.) On June 13, 2013, the Tax Court entered an order

granting taxpayers’ cross-motion to dismiss their petition. (Doc. 18; JA

171.)

3. Taxpayers’ motion to vacate and motion for litigation costs

On July 11, 2013, taxpayers filed an unopposed motion to vacate

the June 13 dismissal order for the “sole purpose” of requesting an

award of litigation costs. (Doc. 19; JA 173.) At the same time,

taxpayers’ lodged a motion for an award of administrative and litigation

costs under I.R.C. § 7430. (Doc. 20; JA 176.) At a hearing on the

motion (Doc. 26; JA 203), the Tax Court explained that because it had

ordered the case dismissed, it could only consider taxpayers’ motion for

costs if its entire order were vacated. (Doc. 26 at 3, 5; JA 206, 208.) In

considering a motion to vacate, the Tax Court explained that one of the

things that it “take[s] into account is the relative merits of what is going

to come next,” which here was the costs motion. (Doc. 26 at 6; JA 209.)

The court rejected taxpayers’ argument that it would be unfair to allow

the Commissioner to revisit the merits in his response to their costs

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motion. (Doc. 26 at 9; JA 212.) Because of the “unusual circumstances

of this case,” where the parties did not agree on the whether deficiency

notices were properly mailed, the Tax Court explained that it could

reconsider the underlying merits of the dismissal in ruling on the costs

motion. (Doc. 26 at 7-9; JA 210-21.) That being said, taxpayers agreed

to proceed with the motion to vacate so that the court could consider the

costs motion. (Doc. 26 at 10; JA 213.) Accordingly, the Tax Court

vacated its order of dismissal and ordered the parties’ motions to

dismiss to be “held in abeyance.” (Doc. 24; JA 201-02.)

On August 9, 2013, the Tax Court filed taxpayers’ motion for

administrative costs of $7,257.25 and litigation costs of $29,098.63 (Doc.

25; JA 176), which the Commissioner opposed (Doc. 28; JA 222). The

Commissioner argued that taxpayers could not recover the

administrative costs related to their invalid and untimely request for a

CDP hearing because they did not substantially prevail. (Doc. 28 at 4-

13; JA 225-34.) In addition, the Commissioner argued that such costs

were not recoverable because they were incurred in a proceeding in

connection with IRS collection actions, rather than in an administrative

proceeding. (Doc. 28 at 9-13; JA 230-34.) At all events, the

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Commissioner argued that taxpayers’ claimed costs were not

reasonable. (Doc. 28 at 13-18; JA 234-39.)

4. The Tax Court’s order and order of dismissal

On December 16, 2013, the Tax Court, sua sponte, dismissed the

case for lack of jurisdiction, held that the parties’ motions to dismiss

were moot, and denied taxpayers’ motion for costs. (Doc. 29; JA 250.)

The Tax Court found that despite alleging that “no such determinations

have been made,” i.e., a notice of deficiency or notice of determination,

taxpayers were not deterred in filing their petition. (JA 250.) The court

found that taxpayers were not challenging a determination “as that

term is used in a jurisdictional context, but the validity of certain

assessments.” (JA 250.) The court determined that the Commissioner

had produced evidence that “strongly suggest[ed]” that he had properly

issued and mailed notices of deficiency to taxpayers (JA 252), and that

it lacked deficiency jurisdiction over taxpayers’ untimely petition (Doc.

29 at 2; JA 251). In addition, the court noted that the Commissioner

had not issued any other notice to support its jurisdiction. (JA 251.) As

such, the court concluded that it was “clear” that it “had no

jurisdiction.” (JA 251.)

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With respect to taxpayers’ motion for costs, the court noted that

under I.R.C. § 7430(c)(4), only a “prevailing party” is entitled to recover

reasonable litigation expenses, and a party is not treated as a

prevailing party if the Commissioner establishes that his position in the

proceeding is substantially justified. (JA 251.) The court “disagree[d]”

with taxpayers’ argument that they were the prevailing party based on

its June 13 order. (JA 251.) The court determined that the

Commissioner’s position in the litigation was substantially justified

because his jurisdictional motion and accompanying evidence indicated

that deficiency notices had been issued to taxpayers. (JA 252.) Indeed,

the court held that “such evidence is routinely submitted and relied

upon in cases in which a party has raised a jurisdictional issue.” (JA

252.) The Tax Court held that taxpayers’ were “mistaken” to rely on

Pietanza because the Pietanza court had expressly limited its holding to

“‘the unusual facts present’ in that case.” (JA 252, quoting Pietanza, 92

T.C. at 736.)

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B. Taxpayers’ appeal to this Court

After the instant appeal was docketed, taxpayers filed, among

other documents, a motion for partial summary reversal and a motion

to remand to the Tax Court to accept jurisdiction under I.R.C. § 6330(d),

which the Commissioner opposed. On July 14, 2014, this Court (Circuit

Judges Rogers and Brown, and Senior Circuit Judge Ginsburg) denied

the motions and ordered the Clerk to calendar the case for presentation

to a merits panel.

SUMMARY OF ARGUMENT

The Tax Court is a court of limited jurisdiction that possesses only

those powers expressly prescribed by Congress. In this case, taxpayers

filed a petition complaining of due process violations for the 2007 and

2008 tax years because, allegedly, (1) they did not receive a notice of

deficiency, and (2) the Commissioner did not issue a notice of intent to

levy. In their petition, taxpayers did not allege any statutory basis for

the Tax Court’s jurisdiction. The Tax Court correctly held that the

petition fell outside its jurisdiction and therefore must be dismissed. At

the same time, the Tax Court correctly denied taxpayers’ motion for

litigation costs under I.R.C. § 7430.

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1. The Tax Court correctly held that it lacked deficiency

jurisdiction under I.R.C. § 6213(a). When the IRS determines a

deficiency in tax, it must send a notice of deficiency to the taxpayer

before it attempts to assess or collect the tax. Under I.R.C. § 6212 the

notice must be sent by certified or registered mail to a taxpayer’s “last

known address.” Actual receipt of the notice is not required. I.R.C.

§ 6213(a) provides that a taxpayer has 90 days after the mailing of the

notice to file a petition in the Tax Court, and during that time the IRS

is prohibited from attempting to assess or collect the deficiency until the

decision of the Tax Court becomes final. Jurisdiction under I.R.C.

§ 6213(a) to re-determine an asserted deficiency (and to enjoin the IRS

from attempting to assess or collection a deficiency) is predicated upon

both the issuance of a notice of deficiency and a timely petition for

redetermination. The Commissioner established proper mailing of the

deficiency notices here by presenting copies of the PS Forms 3877, and

an affidavit of an IRS supervisor explaining that office procedures were

followed in mailing the deficiency notices. Having found that the

Commissioner had properly mailed the notices of deficiency to

taxpayers, the Tax Court properly dismissed their petition as untimely.

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2. The Tax Court correctly held that it lacked CDP jurisdiction

under I.R.C. § 6330. Jurisdiction under that provision is dependent

upon the issuance by the IRS Office of Appeals of a notice of

determination following a timely-requested CDP hearing and a timely

petition for review. Here, it is undisputed that no notice of

determination under I.R.C. § 6330 was issued to taxpayers with respect

to their liabilities for 2007 and 2008, and, indeed, that no CDP hearing

was held with respect to those years. Accordingly, the Tax Court lacked

CDP jurisdiction.

3. The Tax Court correctly denied taxpayers’ motion for litigation

costs under I.R.C. § 7430, which provides for an award of litigation costs

to the prevailing party in a tax case if certain conditions are met.

Taxpayers were not the prevailing party because the Tax Court denied

their motion to dismiss. In addition, the Tax Court correctly found that

the Commissioner’s position that he had properly mailed notices of

deficiency to taxpayers was substantially justified.

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ARGUMENT

I

The Tax Court correctly dismissed taxpayers’ petition for lack of jurisdiction

Standard of review

Dismissals by the Tax Court for lack of jurisdiction are reviewed

de novo. See Gorospe v. Commissioner, 451 F.3d 966, 968 (9th Cir.

2006); Bartman v. Commissioner, 446 F.3d 785, 787 (8th Cir. 2006).

This Court may affirm on any basis supported by the record. Smith v.

Lanier, 726 F.3d 166, 169 (D.C. Cir. 2013).

A. Introduction: Tax Court jurisdiction

The Tax Court is a court of limited jurisdiction and may exercise

jurisdiction only as expressly provided by statute. See Freytag v.

Commissioner, 501 U.S. 868, 870-71, 111 S.Ct. 2631, 2634 (1991);

Commissioner v. McCoy, 484 U.S. 3, 7, 108 S.Ct. 217, 219 (1987); Gray

v. Commissioner, 723 F.3d 790, 792 (7th Cir. 2013); Gorospe, 451 F.3d

at 968; Bartman, 446 F.3d at 787. “The Tax Court’s jurisdiction is

defined and limited by Title 26 and it may not use general equitable

powers to expand its jurisdictional grant beyond this limited

Congressional authorization.” Estate of Branson v. Commissioner, 264

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F.3d 904, 908 (9th Cir. 2001). The burden is on the taxpayer to show

that the Tax Court has jurisdiction. See Khadr v. United States, 529

F.3d 1112, 1115 (D.C. Cir. 2008); Page v. Commissioner, 297 F.2d 733,

734 (8th Cir. 1962); Landes v. Commissioner, 371 F. App’x 694, 695 (8th

Cir. 2010); see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 561,

112 S.Ct. 2130, 2136 (1992) (“The party invoking Federal jurisdiction

bears the burden of establishing [it].”) The Tax Court has jurisdiction

to determine whether it has jurisdiction. Pyo v. Commissioner, 83 T.C.

626, 632 (1984); Hazim v. Commissioner, 82 T.C. 471, 474 (1984).

The jurisdictional provisions relevant here are found in I.R.C.

§ 6213(a) regarding deficiency jurisdiction and I.R.C. § 6330(d)

regarding CDP jurisdiction. The Tax Court correctly held that

taxpayers failed to meet their burden of establishing jurisdiction, and

properly dismissed their petition. (JA 250.)

1. Deficiency jurisdiction under I.R.C. § 6213

When the IRS determines a deficiency in tax, it must send a notice

of deficiency to the taxpayer before it attempts to assess or collect the

tax. I.R.C. § 6213(a); see Gardner v. United States, 211 F.3d 1305, 1311

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(D.C. Cir. 2000). 5 Section 6212(a) authorizes the Commissioner to

notify a taxpayer by certified or registered mail that a deficiency has

been determined against him. Under § 6212(b), the notice of deficiency

“shall be sufficient” if it is mailed to the taxpayer at his “last known

address.” Thus, § 6212 does not require actual receipt by the taxpayer

for the notice of deficiency to be valid. See Gaw v. Commissioner, 45

F.3d 461, 465 (D.C. Cir. 1995); Keado v. United States, 853 F.2d 1209,

1211-12 & n.9 (5th Cir. 1988); Rappaport v. United States, 583 F.2d 298,

301 (7th Cir. 1978).

If the taxpayer timely petitions the Tax Court within 90 days after

the mailing of the notice of deficiency, the IRS is prohibited from

attempting to assess or collect the deficiency in tax until the decision of

the Tax Court becomes final. I.R.C. § 6213(a); see Matter of Indian Lake

Estates, Inc., 428 F.2d 319, 323 (5th Cir. 1970). At the same time,

I.R.C. § 6503(a) provides for a suspension of the statute of limitations

on assessment and collection during the period in which the taxpayer

5 For purposes relevant here, a deficiency is defined as the amount of tax imposed by the Code less the amount of tax shown on the taxpayer’s return. See I.R.C. § 6211(a); Laing v. United States, 423 U.S. 161, 96 S.Ct. 473 (1976).

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may petition the Tax Court (and for 60 days thereafter), and, if the

taxpayer files a petition in the Tax Court, until 60 days after the Tax

Court’s decision becomes final. 6

Section 6213(a) grants the Tax Court jurisdiction to re-determine

an asserted deficiency, and to enjoin the IRS from attempting to assess

or collect a deficiency and to refund amounts erroneously collected in

certain situations. The Tax Court’s jurisdiction under I.R.C. § 6213(a)

is predicated upon both the issuance of a notice of deficiency pursuant

to I.R.C. § 6212(a) – which has been described as the taxpayer’s “ticket”

to the Tax Court – and a timely petition for redetermination. Shockley

v. Commissioner, 686 F.3d 1228, 1238 n.9 (11th Cir. 2012); see Shepard

v. Commissioner, 147 F.3d 633, 634 (7th Cir. 1998); Spector v.

Commissioner, 790 F.2d 51, 52 (9th Cir. 1986); Robinson v.

Commissioner, 920 F.2d 1157, 1160 (3d Cir. 1990); Abrams v.

Commissioner, 787 F.2d 939, 941 (4th Cir. 1988); see also Tax Court

Rules 34(b)(2), (8) (taxpayer’s petition must state date of notice of 6 The filing of a Tax Court petition suspends the running of the statute of limitations for assessment even when the petition is defective and is subsequently dismissed for lack of jurisdiction. See Martin v. Commissioner, 436 F.3d 1216, 1222 (10th Cir. 2006); O’Neill v. United States, 44 F.3d 803, 805 (9th Cir. 1995).

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deficiency and have copy of notice attached). Section 6213(a) provides

that, in the absence of a timely petition for redetermination, “[t]he Tax

Court shall have no jurisdiction to enjoin any action or proceeding or

order any refund.” See Zigmont v. Commissioner, T.C. Memo. 2009-48,

1205, 2009 WL 564949, at *4-5 (2009); Davis v. Commissioner, T.C.

Memo. 2008-238, 2008 WL 4703706, at *5 (2008); Kamholz v.

Commissioner, 94 T.C. 11, 15 (1990).

The failure to file a timely petition is a fatal jurisdictional defect.

Where, as here, the petition is untimely, the case must be dismissed for

lack of jurisdiction. See Armstrong v. Commissioner, 15 F.3d 970, 973

n.2 (10th Cir. 1994); Correia v. Commissioner, 58 F.3d 468, 469 (9th Cir.

1995); Petrulis v. Commissioner, 938 F.2d 78, 79 (7th Cir. 1991);

Redman v. Commissioner, 820 F.2d 209, 210 n.1 (6th Cir. 1987); Pugsley

v. Commissioner, 749 F.2d 691, 692 (11th Cir. 1985).

2. CDP jurisdiction under I.R.C. § 6330(d)

Section 6330 of the Code provides certain procedural safeguards

for taxpayers in connection with tax collection by levy. Under I.R.C.

§ 6330(a), before making a levy, the IRS must notify a taxpayer of his

right to a collection due process (CDP) hearing before the IRS Office of

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Appeals. See Byers v. Commissioner, 740 F.3d 668, 671-72 (D.C. Cir.

2014). The taxpayer then has 30 days in which to submit a written

request for a CDP hearing with respect to the unpaid tax and tax period

covered by the notice. I.R.C. § 6330(a)(3)(B); Treas. Reg. § 301.6330-

1(b)(1), (c)(1).

At the hearing, the taxpayer may raise any issue relevant to

collection of the unpaid tax, including “challenges to the existence or

amount of the underlying tax liability for any tax period if the

[taxpayer] did not receive the notice of deficiency,” or did not otherwise

have an opportunity to dispute such tax liability.” I.R.C.

§ 6330(c)(2)(B); see Gray, 723 F.3d at 793.

After the CDP hearing, the Office of Appeals sends the taxpayer a

notice of determination regarding the proposed collection activity.

I.R.C. § 6330(c)(3); see Treas. Reg. § 301.6330-1(e)(3) (Q&A E-8). The

Tax Court’s jurisdiction under I.R.C. § 6330(d) is dependent upon both

the issuance of a notice of determination, the “ticket” to the Tax Court

in CDP proceedings, and a timely petition for review. Offiler v.

Commissioner, 114 T.C. 492, 498 (2000); see Gray, 723 F.3d at 793;

Boyd v. Commissioner, 124 T.C. 296 (2005), aff’d, 451 F.3d 8, 10 n.1 (1st

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Cir. 2006); Vivenzio v. Commissioner, 283 F. App’x 40, 42-43 (3d Cir.

2008); Thornberry v. Commissioner, 136 T.C. 356, 363 (2011). The Tax

Court lacks jurisdiction in the absence of a notice of determination. See

Gray, 723 F.3d at 793; Starling v. Commissioner, 522 F. App’x 683, 683-

84 (11th Cir. 2013); Cox v. Commissioner, 514 F.3d 1119, 1124 (10th

Cir. 2008).

The IRS is prohibited from proceeding with a proposed levy until

the CDP proceeding, including all appeals, are completed. I.R.C.

§ 6330(e)(1). Section 6330(e) grants the Tax Court jurisdiction to enjoin

the IRS from attempting to levy during the pendency of a CDP

proceeding over which it otherwise has jurisdiction. Section 6330(e),

however, specifically provides that “[t]he Tax Court shall have no

jurisdiction under this paragraph to enjoin any action or proceeding

unless a timely appeal has been filed under subsection (d)(1) and then

only in respect of the unpaid tax or proposed levy to which the

determination being appealed relates.” See Boyd, 124 T.C. at 303;

Grover v. Commissioner, T.C. Memo. 2007-176, 2007 WL 1932993, at

*1-2 (2007). Accordingly, injunctive relief is not available in the Tax

Court where the taxpayer contends that the IRS did not give him an

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opportunity to request a CDP hearing. Boyd, 124 T.C. at 303; Grover,

T.C. Memo. 2007-176, 2007 WL 1932993, at *1-2. As the First Circuit

explained, despite the “equitable appeal” of an argument for injunctive

relief in such circumstances, the Tax Court lacks “authority for

equitably expanding” its jurisdiction. Boyd, 451 F.3d at 11.

In situations where a taxpayer does not timely request a CDP

hearing, as was the case here with the original assessment of Thomas’s

self-reported 2008 tax, the Office of Appeals grants the taxpayer an

equivalent hearing. See Craig v. Commissioner, 119 T.C. 252, 258

(2002); Treas. Reg. § 301.6330-1(i). An equivalent hearing, unlike a

CDP hearing, results not in a “determination” within the meaning of

I.R.C. § 6330(d)(1), but in a “decision letter” that is not subject to any

judicial review. See Orum v. Commissioner, 412 F.3d 819, 821 (7th Cir.

2005); Joy v. Commissioner, 437 F. App’x 537, 538 (9th Cir. 2011); Raft

v. Commissioner, 147 F. App’x 458, 461 (6th Cir. 2005); Treas. Reg.

§§ 301.6330-1(i)(1), 301.6330-1(i)(2) (Q&A-I6).

B. The Tax Court correctly held that it lacked deficiency jurisdiction under I.R.C. § 6213

1. In this case, taxpayers did not allege that the Tax Court had

deficiency jurisdiction and did not argue that they did not owe the

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asserted taxes. To the contrary, taxpayers argued that because they did

not receive a notice of deficiency the Commissioner had not issued the

required notice, which deprived the Tax Court of deficiency jurisdiction.

As relief, they sought a declaration that the assessments were invalid,

an injunction barring the collection of the liabilities, and a refund of

amounts collected. (Doc. 1; Doc. 9, Exs. 19, 20; JA 11-12, 81-84.) The

Commissioner countered that he had complied with the statutory

deficiency procedures by mailing taxpayers a notice of deficiency on

March 11, 2010, and that taxpayers’ petition, which was not filed until

more than two years later, was untimely. (Docs. 6, 7, 12, 14; JA 13, 19,

141, 145.)

The Tax Court correctly dismissed taxpayers’ petition for lack of

deficiency jurisdiction. (Doc. 29; JA 250.) To the extent that the court

found the Commissioner’s records “strongly suggest[ed] that notices of

deficiency” had been issued to taxpayers, it properly dismissed

taxpayers’ untimely petition for lack of jurisdiction under I.R.C.

§ 6213(a). (Doc. 29 at 3; JA 252.) See Armstrong, 15 F.3d at 973 n.2;

Correia, 58 F.3d at 469; Petrulis, 938 F.2d at 79; Zigmont, T.C. Memo.

2009-48, 2009 WL 564949, at *4-5.

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To the extent that taxpayers sought to enjoin the IRS from

collecting the deficiency and to refund amounts erroneously collected,

the Tax Court correctly held that this was “beyond” its jurisdictional

powers in I.R.C. § 6213(a)(Doc. 17 at 19; JA 167), because they failed, as

required by that statute, to file a timely petition for a redetermination

of the deficiency. See Zigmont, T.C. Memo. 2009-48, 2009 WL 564949,

at *4-5; Davis, T.C. Memo. 2008-238, 2008 WL 4703706, at *5; Kamholz,

94 T.C. at 15. The Tax Court has jurisdiction to restrain the

assessment and collection of tax by the IRS only if the tax is the subject

of a timely filed petition pending before that court. I.R.C. § 6213(a).

Moreover, taxpayers’ request that the Tax Court declare the

August 16, 2010 assessments invalid is barred by the tax exception to

the Declaratory Judgment Act, 28 U.S.C. § 2201(a), which generally

prohibits courts from issuing declaratory judgments with respect to

federal taxes. See Bob Jones Univ. v. Simon, 416 U.S. 725, 732 n.7

(1974); Flora v. United States, 362 U.S. 145, 164, 80 S.Ct. 630 (1960);

Investment Annuity, Inc. v. Blumenthal, 609 F.2d 1, 4 (D.C. Cir. 1979);

see also Horne v. United States, 519 F.2d 51, 52 (5th Cir. 1975) (finding

that a taxpayer’s request that an assessment of tax deficiency be

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declared void was impermissible under the Declaratory Judgment Act).7

And, to the extent that taxpayers requested a tax refund they have an

available remedy in a refund suit. If they pay the balance due (see

Flora, 362 U.S. at 145-77), they may file an administrative claim for

refund with the IRS (see Treas. Reg. § 301.6402-2 (26 C.F.R.)). If the

IRS denies the claim, they may then bring a refund suit in district court

or the Court of Federal Claims. I.R.C. §§ 6532(a), 7422(a); 28 U.S.C.

§§ 1346(a)(1), 1491(a)(1). The purpose of the tax exception to the

Declaratory Judgment Act is to prevent taxpayers from circumventing

the “pay first, litigate later” requirement by means of a declaratory

judgment. Flora, 362 U.S. at 175, n.37. 8

7 Although several provisions of the Code grant the Tax Court jurisdiction to enter declaratory judgments in certain types of cases, none of those provisions is applicable here. See I.R.C. §§ 7428, 7476, 7477, 7478, 7979; see generally 14 Mertens Law of Federal Income Taxation §§ 49E:59, 50:140 at p. 48E-267 (2014). 8 Taxpayers’ reliance (Br. 9) on I.R.C. § 6214(a) is misplaced. Section 6214(a) provides that the Tax Court shall have jurisdiction to redetermine additional amounts or additions to the tax asserted by the Commissioner at or before the hearing in a suit over which the Tax Court already has jurisdiction under I.R.C. § 6213(a). Section 6214(a) does not grant the Tax Court jurisdiction over additional amounts or additions to the tax that are not related to a deficiency. Downing v. Commissioner, 118 T.C. 22, 27 (2002).

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2. On appeal, taxpayers do not challenge the Tax Court’s holding

that it did not have deficiency jurisdiction (Br. 12-19). Rather, they

argue (Br. 16) that the Tax Court erred in not further articulating

whether it lacked jurisdiction because (as they maintained) no statutory

notice of deficiency had been issued (meaning that the assessments are

invalid) or because (as the Commissioner argued) a valid notice was

issued but the petition was not timely (meaning that the assessments

are valid). Where, as here, the Tax Court petition is not filed within 90

of the issuance of a notice of deficiency, the Tax Court has no

jurisdiction over the case under § 6213(a). See Armstrong, 15 F.3d at

973; Correia, 58 F.3d at 469. The Tax Court has held that “[t]he

validity of a notice of deficiency upon which a petition is based is a

jurisdictional question that, when brought to the Court’s attention,

should be answered before the Court considers whether the petition was

timely filed.” Shelton v. Commissioner, 63 T.C. 193, 198 (1974).

Accordingly, the Tax Court has long held that its “task is to decide

whether we lack jurisdiction because no statutory notice of deficiency

has been issued or because a valid notice was issued but the petition

was not timely filed.” Pietanza v. Commissioner, 92 T.C. 729, 735

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(1989), supp. op., T.C. Memo. 1990-524, 1990 WL 141908 (1990), aff’d

without pub. op., 935 F.2d 1282 (3d Cir. 1991). Accord Monge v.

Commissioner, 93 T.C. 22, 27 (1989); Pyo, 83 T.C. at 632; Keeton v.

Commissioner, 74 T.C. 377, 378-79 (1980); Shelton, 63 T.C. at 198;

O’Brien v. Commissioner, 62 T.C. 543, 548 (1974).

Taxpayers contend that the Tax Court here, sub silentio, ignored

its own long-established line of precedent and decided this case without

“‘decid[ing] whether we lack jurisdiction because no statutory notice of

deficiency has been issued or because a valid notice was issued but the

petition was not timely filed.’” (Br. 16, quoting Pietanza, 92 T.C. at

735.) To be sure, the Tax Court’s order dismissing taxpayers’ petition

for lack of deficiency jurisdiction (JA 250) could have been clearer. But

we think the best reading of the order, which concluded that the

Commissioner “routinely” establishes the proper mailing of a notice of

deficiency by submitting a PS Form 3877 and an IRS affidavit

concerning mailing procedures, and that the Commissioner’s

presentation of these records here “strongly suggest[ed] that notices of

deficiency” had been properly issued to taxpayers (JA 252), is that the

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Tax Court held that valid notices were issued and that the petition was

not timely filed.

Indeed, taxpayers’ argument that the Tax Court failed to decide a

crucial issue appears to be something of a makeweight. Taxpayers’

assertion that the Tax Court here did “not comply with established

precedent set by the Tax Court” (Br. 1) could (and should) have been

brought to the Tax Court’s attention in a motion asking that the court

reconsider or vacate and revise the order. See T.Ct. Rs. 161 and 162; cf.

Arias v. Dyncorp, 752 F.3d 1011, 1016 (D.C. Cir. 2014) (“a party must

preserve an issue for appeal even if the only opportunity was a post-

judgment motion”) (citing Jones v. Horne, 634 F.3d 588, 603 (D.C. Cir.

2011)). Taxpayers filed no such motion but, instead, pursued an appeal

to this Court. After the instant appeal was docketed, taxpayers filed a

motion for partial summary reversal and a motion to remand to the Tax

Court. But neither motion made any mention of taxpayers’ assertion,

raised for the first time in their opening brief, that the Tax Court failed

properly to articulate the ground for dismissing their asserted

deficiency claim. Accordingly, taxpayers should not be heard to

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complain where they failed to bring the matter to the Tax Court’s

attention.

3. Taxpayers also argue in the alternative that the Tax Court was

required, based on Pietanza, to hold that the notices of deficiency here

were invalid. (Br. 24-27.) The Tax Court correctly rejected taxpayers’

reliance on Pietanza noting that the Pietanza court had expressly

limited its holding to “‘the unusual facts present’ in that case.” (JA 252,

quoting Pietanza, 92 T.C. at 736.) See Spivey v. Commissioner, 81

T.C.M. (CCH) 1117, 2001 WL 103450 (2001) (Pietanza should be limited

to its unique facts), aff’d, 29 F. App’x 575 (11th Cir. 2001) (table).

In Pietanza, a divided Tax Court held, by a vote of 12 to 6, that no

presumption of mailing arose, despite the fact that the Commissioner

produced a PS Form 3877, duly signed and postmarked by a postal

clerk, where a copy of the notice of deficiency could not be located by the

time the case was originally submitted for decision. Pietanza involved

unique facts, and while we maintain the decision is misconceived, it is

not applicable here. In Pietanza, the Commissioner presented evidence

of a draft notice of deficiency that was markedly different from the final

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notice of deficiency that the Commissioner claimed to have issued to the

taxpayer. While the Commissioner presented evidence as to the

preparation of the draft notice, the Commissioner presented no evidence

as to the preparation of the final notice of deficiency. 92 T.C. at 737-38.

Moreover, as the Tax Court observed in a subsequent case, in Pietanza

“[c]ommunications between the taxpayers and the IRS raised doubts as

to the accuracy of the date of mailing shown on the Form 3877.” Kamps

v. Commissioner, T.C. Memo. 2011-287, 2011 WL 6220044, at * 4 (2011)

(citing Pietanza, 92 T.C. at 739). Thus, taxpayer’s assertion that “the

material facts in Pietanza also exist in this case” (Br. 25) is wrong. The

“unusual facts” (92 T.C. at 736) of Pietanza – evidence of a draft notice

of deficiency that was different from the final notice of deficiency, and

communications between the taxpayers and the IRS that raised doubts

as to the accuracy of the date of mailing shown on the PS Form 3877 –

are not present here.

Moreover, in Pietanza, the Tax Court held that a PS Form 3877,

along with some corroborating evidence such as evidence of how the

Commissioner prepared and mailed the notice of deficiency, would be

sufficient to prove the notice of deficiency. See 92 T.C. at 741 (“This

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Court simply requires the respondent to establish his procedure for the

mailing of such notices and to introduce evidence showing that such

procedure was followed in the case before it”).9 Following Pietanza the

Tax Court has held that the Commissioner established proper mailing

of a notice of deficiency with a PS Form 3877 and testimony of an IRS

supervisor “who described the established procedures surrounding the

preparation and mailing of the notices of deficiency.” Webb v.

Commissioner, T.C. Memo. 1996-449, 1996 WL 558320, at *5 (1996).

Here, the Commissioner established proper certified mailing of the

deficiency notices by presenting (i) copies of the PS Forms 3877, dated

March 11, 2010, the date of the deficiency notices (Doc. 6, Ex. A; JA 23-

24), and (ii) corroborating evidence to show how the notices of deficiency

9 Taxpayer attributes significance to the fact “the Commissioner specifically cites the Pietanza case” in the portion of the Internal Revenue Manual that states that a copy of the notice of deficiency should be kept in the case file. (Br. 26, citing IRM 4.8.9.11.) Since Pietanza recognized that the Commissioner can prove the mailing of a notice of deficiency even where a copy cannot be located (92 T.C. at 738-741), neither Pietanza nor the Manual supports taxpayers’ assertion (Br. 15, 24) that the Commissioner was required to produce copies of the notices of deficiency here. At all events, “the provisions of the manual are directory rather than mandatory, are not codified regulations, and clearly do not have the force and effect of law.” Marks v. Commissioner, 947 F.2d 983, 986 n.1 (D.C. Cir. 1991).

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were prepared and mailed, viz., the affidavit of IRS Supervisor McCune

in the IRS Technical Services office in Baltimore, who in detail

explained the “standard procedures for issuing notices of deficiency” out

of that office, including the preparation of the PS Forms 3877, and

stated that such procedures were followed for the certified mailing of

the deficiency notices sent to taxpayers here. (Doc. 7; JA 19-22.) As the

Tax Court here recognized, “such evidence [viz., a PS Form 3877,

together with an affidavit or testimony from an IRS employee in the

office that issued the deficiency notice setting forth mailing procedures]

is routinely submitted and relied on in cases in which a party has raised

a jurisdictional issue.” (JA 252.) See United States v. Zolla, 724 F.2d

808, 810 (9th Cir. 1984) (notice duly mailed (even though copies of it

were routinely destroyed past IRS retention period) where Government

produced PS Form 3877, which is “highly probative” and taxpayer failed

to offer “contrary evidence”); United States v. Ahrens, 530 F.2d 781, 784-

85 (8th Cir. 1976) (notice duly mailed where properly completed PS

Form 3877 and testimony indicating existence of notice even though

copies of notices lost); United States v. Navolio, 334 F. App’x 204, 208-09

(11th Cir. 2009) (notice duly mailed where Government presented IRS

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transcripts and testimony of IRS employee regarding IRS’s mailing

procedures). Indeed, other cases have recognized that the PS Form

3877 is highly probative, and, in the absence of contrary evidence,

establishes the mailing of a deficiency notice to taxpayers by certified

mail. See O’Rourke v. United States, 587 F.3d 537, 540-41 (2d Cir.

2009); Keado, 853 F.2d at 1213.

Taxpayers’ reliance on Welch v. United States, 678 F.3d 1371,

1382 (Fed. Cir. 2012), to denigrate the evidentiary value of IRS

Supervisor McCune’s affidavit (Br. 25-26) is misplaced. In Welch,

where a PS Form 3877 was not in evidence, the Federal Circuit rejected

the Government’s reliance on the declaration of an IRS employee

explaining “office procedures” to establish the mailing of the 1995

deficiency notice. 678 F.3d at 1380-81. Here, by contrast, the

Commissioner produced the PS Forms 3877 to establish mailing, which

the McCune affidavit corroborated. See Ahrens, 530 F.2d at 786-87

(where PS Form 3877 produced Government was not required to

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produce affidavit of IRS employee who completed specific form in

question); Keado, 853 F.2d at 1214 (same). 10

There is no merit to taxpayers’ attempt (Br. 24-25), raised for the

first time on appeal, to undermine the presumption of official regularity

raised by the PS Forms 3877 by pointing out that they lack the

inscription called for by Internal Revenue Manual § 4462.2. Because

the PS Forms 3877 in the record (Doc. 6, Ex. A; JA 23) are photocopies,

which have been heavily redacted to eliminate tax return information of

other taxpayers, it is quite possible that the inscription “Notice of

deficiencies for the year(s) indicated have been sent to the following

taxpayers” was inadvertently eliminated. In any event, Manual 10 To the extent that Welch requires the Government to come forward with an affidavit of IRS personnel having actual personal knowledge of the notice of deficiency and its mailing, we submit that the Federal Circuit has set an unattainable administrative standard. It is simply asking too much to require IRS employees to keep track of their personal involvement in the preparation and mailing of each and every deficiency notice, and to require Government counsel years later to locate such employee who may or may not still work for the IRS. Because the preparation and mailing of deficiency notices are within the scope of IRS duties, an affidavit detailing such should be accorded the presumption of official regularity. See Ahrens, 530 F.2d at 786-87; Pietanza, 92 T.C. at 748 (Ruwe, J., dissenting) (where PS Form 3877 produced it did not make sense to require “testimony by the envelope stuffer” lest it be presumed that “employees might otherwise think it acceptable to mail empty envelopes”).

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provisions are direction, not mandatory (see Marks, 947 F.2d at 986 n.1)

and the failure to include the inscription is “immaterial.” Sparling v.

Commissioner, T.C. Memo. 1990-661, 1990 WL 212859, at *4 (1990).

Taxpayers seek to cast doubt regarding the proper certified

mailing of the deficiency notices based only on their assertion that they

“never received a notice of deficiency.” (Doc. 9, Exs. 19, 20; JA 82, 84.)

Significantly, however, taxpayers like any other postal customer, need

not accept delivery of a certified mailing from the US Postal Service.

Taxpayers’ self-serving allegation is suspect given that they had

received numerous other notices and correspondence from the IRS both

before and after the March 10, 2010 deficiency notices.11 Indeed, they

have offered no contrary evidence that the IRS failed to properly

discharge its official statutory obligation in sending the deficiency

notices and have not uncovered anything sinister. See United States v.

11 The other notices and correspondence received by taxpayers included: notice of levy dated October 26, 2009 (JA 247); audit letter 950 and income tax discrepancy adjustments dated November 9, 2009 (JA 26, 31, 51, 69); CP22E examination adjustment notice (JA 27, 32, 47, 55, 67); notice of intent to seize your state tax refund dated September 20, 2010 (JA 225, 240); Office of Appeals letters dated April 21, 2011 and October 13, 2011 (JA 6, 9, 226, 244); and decision letter dated December 15, 2011 (JA 247).

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O’Callaghan, 500 F. App’x 843, 849 (11th Cir. 2012) (taxpayer offered

no “direct” or “clear evidence” contradicting Government’s position that

it mailed deficiency notice); Ahrens, 530 F.2d at 785 (taxpayers offered

no “rebuttal proof” that Government’s position that it mailed deficiency

notice, and district court erred in holding that Government should have

provided the testimony of IRS personnel that had handled deficiency

notice).

No doubt the IRS should strive to keep track of all taxpayer files.

That being said, given the volume of records that the IRS is charged

with maintaining, there may be times when records get accidentally

misplaced, mis-delivered, or lost. Where a copy of a notice of deficiency

cannot be located, the Commissioner is allowed to prove mailing of the

notice with appropriate evidence. The Tax Court properly determined

here, based on the PS Forms 3877 and the McCune affidavit, that the

notices of deficiency were properly mailed to taxpayers. (JA 252.)

C. The Tax Court correctly held that it lacked CDP jurisdiction under I.R.C. § 6330(d)

Here, taxpayers did not allege that the IRS issued a notice of

determination following a CDP hearing regarding either the original

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assessment of Thomas’s self-reported 2008 tax or the August 16, 2010

assessments of taxpayers’ liability for 2007 and Thomas’s additional

liability for 2008, or attach any such notice their petition. Because the

original assessment was properly the subject of a non-reviewable

decision letter after an equivalent hearing, it is not properly the subject

of this appeal. See Orum, 412 F.3d at 821; Joy, 437 F. App’x at 538.

With respect to the August 16, 2010 assessments, taxpayers argued

that the Commissioner failed to issue a final notice of intent to levy, and

that such failure was “tantamount to a Notice of Determination.” The

Tax Court correctly rejected this theory. (Doc. 17 at 19; JA 167.)

Contrary to taxpayer’s claim (Br. 23), the Tax Court does not have

jurisdiction over the absence of a final notice of intent to levy. See

DiCindio v. Commissioner, 265 F. App’x 138, 139 (3d Cir. 2008); Anson

v. Commissioner, T.C. Memo. 2010-119, 2010 WL 2195283, at *3 (2010)

(“If the IRS fails to issue such a valid final notice of intent to levy . . . ,

then there can be no CDP hearing and no determination, and the Tax

Court lacks jurisdiction.”); see also Gadsden v. Commissioner, 81 F.

App’x 250 (9th Cir. 2003) (Tax Court lacks jurisdiction to review a final

notice of intent to levy without a notice of determination). Moreover,

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the CP504 Notice taxpayers received with respect to a proposed levy on

a state tax refund did not provide taxpayers with the right to a CDP

hearing. See I.R.C. § 6330(f)(2). And there is no merit to taxpayers’

claim (Br. 22-23) that they were entitled to injunctive relief because

they were not given the opportunity to request a CDP hearing. Boyd,

124 T.C. at 303; Grover, T.C. Memo. 2007-176, 2007 WL 1932993, at *1-

2. Because no notice of determination had been made by the

Commissioner with respect to the challenged assessments, the Tax

Court correctly held that it lacked CDP jurisdiction under I.R.C.

§§ 6330(d)(1) or 6330(e)(1). (Doc. 17 at 15-17, 19; JA 163-65, 167.) See

Starling, 522 F. App’x at 683-84; Cox, 514 F.3d at 1124.

On appeal, taxpayers argue (Br. 15) that the Tax Court erred

when it sua sponte dismissed the entire case for lack of jurisdiction

without stating the grounds for the CDP dismissal. Contrary to

taxpayers’ claim, because the parties were in agreement that no notice

of determination had issued (Doc. 17 at 15-17; JA 163-65), there was no

CDP jurisdiction under I.R.C. § 6330(d). Taxpayers’ reliance (Br. 21) on

Sego v. Commissioner, 114 T.C. 604, 610 (2000), is misplaced. In Sego,

unlike here, the Tax Court had CDP jurisdiction because the Segos had

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filed a timely petition in response to notices of determination issued by

the Commissioner after a CDP hearing. Id. at 604-05. Gardner

(taxpayers’ counsel) understood that the untimely CDP request (dated

September 24, 2010, in response to an October 26, 2009 notice of intent

to levy) pertained only to the original assessment of taxes on Thomas’s

2008 return. (Doc. 28, Ex. C, p. 2; JA 248.) Consequently, Thomas

received an equivalent hearing – not a CDP hearing – which resulted in

a non-reviewable decision letter dated December 15, 2011 – not a notice

of determination. (Doc. 28, ¶16, Ex. C, pp. 2-3; JA 248-49.) In turn,

with regard to the August 13, 2010 additional assessments, no notice of

intent to levy had been issued – despite taxpayers’ claims on appeal (Br.

23) – and Gardner indicated that he understood that there could be no

CDP hearing or notice of determination. (Doc. 28, Ex. C, p. 2; JA 248.)

Taxpayers also complain (Br. 21-22) that no notice of

determination was issued in connection with a much later alleged CDP

hearing request dated September 21, 2012, and a CDP hearing on

March 19, 2013. But these events post-date their Tax Court petition

(filed September 7, 2012 (Doc. 1; JA 1)), and were not alleged in any of

their substantive pleadings. Rather, in connection with their motion for

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costs, Gardner merely identified these events in billing invoices. (Doc.

25; JA 187-200.) Moreover, as taxpayers acknowledge (Br. 21), the

Office of Appeals properly stayed issuing a notice of determination in

that CDP proceeding pending the resolution of this Tax Court

proceeding. And, contrary to taxpayers’ claim (Br. 21), the Internal

Revenue Manual does not afford them any rights in this regard. See

Marks, 947 F.2d at 986 n.1.

In any event, there is no support for taxpayers’ argument (Br. 22-

23) that the Tax Court had jurisdiction to review the Office of Appeals’

alleged decision not to issue a notice of determination in connection

with their September 21, 2012 post-petition CDP request. Taxpayers’

reliance (Br. 23) on Pickell v. Commissioner, T.C. Memo. 2008-60, 2008

WL 648511, at *1-2 (2008) is misplaced. In that case, the Tax Court

rejected Pickell’s argument that the Commissioner’s levy was invalid

because he had not received a notice of intent to levy. Id. Having

determined that the notice of intent to levy was properly mailed to

Pickell’s last known address (and that he did not receive it either

because of his “deliberate refusal to accept the letter or his failure for

other reason to claim his mail”) and that Pickell did not timely request

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a CDP hearing, the Tax Court held that it lacked CDP jurisdiction in

the absence of a notice of determination. Id. Here, by contrast,

taxpayer admitted having received the post-petition notice of intent to

levy. Nothing in Pickell supports taxpayers’ claim that the Tax Court

should have found the earlier 2008 levy to be “invalid.”

II

The Tax Court did not abuse its discretion in denying taxpayers’ motion for an award of administrative and litigation costs

Standard of review

The denial of an award of costs under I.R.C. § 7430 is reviewed for

an abuse of discretion. See Estate of Baird v. Commissioner, 416 F.3d

442 (5th Cir. 2005); Dang v. Commissioner, 259 F.3d 204, 208 (4th Cir.

2001); Huffman v. Commissioner, 978 F.2d 1139, 1143 (9th Cir. 1992).

1. Section 7430 of the Code is a limited waiver of sovereign

immunity that provides the exclusive authorization for a discretionary

award of reasonable litigation and administrative costs, including

attorneys’ fees, in tax cases. Phillips v. Commissioner, 851 F.2d 1492,

1498 (D.C. Cir. 1988) (addressing prior version of § 7430). Costs

incurred in connection with collection proceedings, as opposed to

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administrative proceedings, are not recoverable. Treas. Reg.

§§ 301.7430-3(a)(4), 301.7430-3(b).

Under I.R.C. § 7430, a taxpayer must satisfy several conditions

before a court may allow an award of litigation costs including, among

others, that (1) he is the “prevailing party,” that is, that he has

“substantially prevailed” with respect to either the amount in

controversy or the most significant issue or set of issues

(§ 7430(c)(4)(A)(i)); and (2) the amount of costs is reasonable and does

not exceed the maximum allowable under § 7430(c)(1)(B)(iii). Section

7430(c)(4)(B)(i) sets forth an exception that a party “shall not be treated

as the prevailing party” under the statute if the Commissioner

establishes that his position in the case was “substantially justified.” A

position is substantially justified if it is “‘justified in substance or in the

main’ – that is, justified to a degree that could satisfy a reasonable

person” or has a “‘reasonable basis both in law and fact’.”12 Pierce v.

12 For purposes of establishing the reasonableness of the Commissioner’s position in the administrative proceedings, his position is considered to be that articulated in the notice of deficiency or the notice of decision from the Office of Appeals (whichever is issued earlier), and the Commissioner’s position in court proceedings is

(continued...)

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Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541 (1988); United States v.

Bisbee, 245 F.3d 1001, 1007 (8th Cir. 2001); Nicholson v. Commissioner,

60 F.3d 1020, 1025-26 (3d Cir. 1995). The Commissioner’s position may

be justified even if it is ultimately rejected by the Court. Estate of Wall

v. Commissioner, 102 T.C. 391, 393 (1999) (citing Wilfong v. United

States, 991 F.2d 359, 364 (7th Cir. 1993)).

2. Taxpayers filed an unopposed motion to vacate the Tax Court’s

initial June 13, 2013 dismissal order for the “sole purpose” of requesting

an award of litigation costs. (Doc. 19; JA 173.) See Bouterie v.

Commissioner, 36 F.3d 1361, 1366-67 (5th Cir. 1994) (Tax Court

entertained fee motion after taxpayer filed timely motion to vacate);

Bussen v. Commissioner, T.C. Memo. 2014-185, 2014 WL 4473846, at *1

(2014) (same). At a hearing on the motion to vacate (Doc. 26; JA 203),

the Tax Court detailed the “unusual circumstances” of the case where

the parties did not agree on the merits (Doc. 26 at 7; JA 210), and

explained that it could reconsider the underlying merits of the dismissal

(…continued) considered to be that which is set forth in the answer, or, as here, the motion to dismiss. See I.R.C. § 7430(c)(7).

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(Doc. 26 at 7-9, 12-14; JA 210-12, 215-17).13 In these circumstances,

where taxpayers agreed to proceed with their motion to vacate the June

13 order to allow the Tax Court to consider their costs motion (Doc. 26

at 10; JA 213), they should not be heard to complain (Br. 18-20) about

the Tax Court’s order vacating the June 13 dismissal order (Doc. 24; JA

210). See Bouterie, 36 F.3d at 1367; Bussen, 2014 WL 4473846, at *1.

Because the Tax Court’s order now before the Court denied

taxpayers’ dismissal motion (Doc. 29; JA 250), they did not prevail in

the litigation, and, therefore, were not the “prevailing party” under

§ 7430(c)(4)(A)(i). See In re Long-Distance Telephone Service Federal

Excise Tax Refund Litigation, 751 F.3d 629, 634 (D.C. Cir. 2014)

(parties who did not obtain any “judicial relief” were not the “prevailing

party” for purposes of § 7430); Drake v. Commissioner, 511 F.3d 65, 71

(1st Cir. 2007) (party who did not prevail in the final outcome of the

case is not a prevailing party for purposes of § 7430); Wilkerson v.

United States, 67 F.3d 112, 120 (5th Cir. 1995) (same); Cassuto v.

Commissioner, 936 F.2d 736, 741 (2d Cir. 1991) (same). As such,

13 Taxpayers’ misquote the Tax Court (Br. 20). The court stated that “[m]aybe” it was “not going to revisit what I’ve already ordered . . . .”

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contrary to taxpayers’ claim (Br. 23), the Commissioner’s earlier

concession on this point was overcome by events.

Moreover, the Tax Court correctly found that the Commissioner’s

position that he had properly mailed notices of deficiency to taxpayers

was “substantially justified” because, as explained above at pp. 32-33,

his reliance on the PS Form 3877 and McCune’s affidavit was sufficient

proof of proper mailing (Doc. 29 at 3; JA 252.) Accordingly, the Tax

Court correctly denied taxpayers’ motion for costs. See Drake, 511 F.3d

at 71; Wilkerson, 67 F.3d at 120; Cassuto, 936 F.2d at 741.

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CONCLUSION

The order of the Tax Court dismissing taxpayers’ petition and

denying their motion for costs is correct and should be affirmed.

Respectfully submitted,

CAROLINE D. CIRAOLO Principal Deputy Assistant Attorney General

/s/ JANET A. BRADLEY

BRUCE R. ELLISEN (202) 514-2929 JANET A. BRADLEY (202) 514-2930

Attorneys Tax Division Department of Justice Post Office Box 502 Washington, D.C. 20044

FEBRUARY 2015

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Certificate of Compliance With Type-Volume Limitation,

Typeface Requirements, and Type-Style Requirements

Case No. 14-1004

1. This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because:

[X] this brief contains 10,502 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii), or

[ ] this brief uses a monospaced typeface and contains [state

the number of] lines of text, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because:

[X] this brief has been prepared in a proportionally spaced typeface using Microsoft Word 2010 in 14-point Century Schoolbook, or

[ ] this brief has been prepared in a monospaced typeface

using [state name and version of word processing program] with [state number of characters per inch and name of type style].

(s) /s/ JANET A. BRADLEY _ Attorney for the Commissioner of Internal Revenue Dated: February 4, 2015

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CERTIFICATE OF SERVICE

I hereby certify that on the 4th day of February, 2015, I

electronically filed the foregoing final answering brief with the Clerk of

the Court for the United States Court of Appeals for the District of

Columbia Circuit by using the appellate CM/ECF system. I further

certify that counsel for the appellants, identified below, is a registered

CM/ECF user and he will be served by the appellate CM/ECF system:

Bruce E. Gardner, Esquire The Gardner Law Firm, P.C. 1100 Pennsylvania Avenue, N.W. Suite 600 Washington, D.C. 20004

/s/ JANET A. BRADLEY

JANET A. BRADLEY Attorney

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ADDENDUM

Table of Contents

Page

I.R.C. § 6212 ........................................................................................... 55 I.R.C. § 6213 ............................................................................................ 55 I.R.C. § 6330 ............................................................................................ 56 I.R.C. § 7430 ............................................................................................ 60

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Internal Revenue Code (I.R.C.):

I.R.C. § 6212. NOTICE OF DEFICIENCY

(a) In general.–If the Secretary determines that there is a deficiency in respect of any tax imposed by subtitles A or B or chapter 41, 42, 43, or 44 he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail. Such notice shall include a notice to the taxpayer of the taxpayer's right to contact a local office of the taxpayer advocate and the location and phone number of the appropriate office.

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SEC. 6213. RESTRICTIONS APPLICABLE TO DEFICIENCIES; PETITIONS TO TAX COURT.

(a) Time for filing petition and restriction on assessment.–Within 90 days, or 150 days if the notice is addressed to a person outside the United States, after the notice of deficiency authorized in section 6212 is mailed (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the last day), the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. Except as otherwise provided in section 6851, 6852, or 6861, no assessment of a deficiency in respect of any tax imposed by subtitle A, or B, chapter 41, 42, 43, or 44 and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 90-day or 150-day period, as the case may be, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 7421(a), the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court, including the Tax Court, and a refund may be ordered by such court of any amount collected within the period during which the Secretary is prohibited from collecting by levy or through a proceeding in court under the provisions of this subsection. * * *

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SEC. 6330. NOTICE AND OPPORTUNITY FOR HEARING BEFORE LEVY.

(a) Requirement of notice before levy.–

(1) In general.–No levy may be made on any property or right to property of any person unless the Secretary has notified such person in writing of their right to a hearing under this section before such levy is made. Such notice shall be required only once for the taxable period to which the unpaid tax specified in paragraph (3)(A) relates.

(2) Time and method for notice.–The notice required under paragraph (1) shall be–

(A) given in person;

(B) left at the dwelling or usual place of business of such person; or

(C) sent by certified or registered mail, return receipt requested, to such person's last known address,

not less than 30 days before the day of the first levy with respect to the amount of the unpaid tax for the taxable period.

(3) Information included with notice.–The notice required under paragraph (1) shall include in simple and nontechnical terms–

(A) the amount of unpaid tax;

(B) the right of the person to request a hearing during the 30-day period under paragraph (2); and

(C) the proposed action by the Secretary and the rights of the person with respect to such action, including a brief statement which sets forth–

(i) the provisions of this title relating to levy and sale of property;

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(ii) the procedures applicable to the levy and sale of property under this title;

(iii) the administrative appeals available to the taxpayer with respect to such levy and sale and the procedures relating to such appeals;

(iv) the alternatives available to taxpayers which could prevent levy on property (including installment agreements under section 6159); and

(v) the provisions of this title and procedures relating to redemption of property and release of liens on property.

(b) Right to fair hearing.–

(1) In general.–If the person requests a hearing in writing under subsection (a)(3)(B) and states the grounds for the requested hearing, such hearing shall be held by the Internal Revenue Service Office of Appeals.

(2) One hearing per period.–A person shall be entitled to only one hearing under this section with respect to the taxable period to which the unpaid tax specified in subsection (a)(3)(A) relates.

(3) Impartial officer.–The hearing under this subsection shall be conducted by an officer or employee who has had no prior involvement with respect to the unpaid tax specified in subsection (a)(3)(A) before the first hearing under this section or section 6320. A taxpayer may waive the requirement of this paragraph.

(c) Matters considered at hearing.–In the case of any hearing conducted under this section–

(1) Requirement of investigation.–The appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.

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(2) Issues at hearing.–

(A) In general.–The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including–

(i) appropriate spousal defenses;

(ii) challenges to the appropriateness of collection actions; and

(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.

(B) Underlying liability.–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.

(3) Basis for the determination.–The determination by an appeals officer under this subsection shall take into consideration–

(A) the verification presented under paragraph (1);

(B) the issues raised under paragraph (2); and

(C) whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.

(4) Certain issues precluded.–An issue may not be raised at the hearing if–

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(A)(i) the issue was raised and considered at a previous hearing under section 6320 or in any other previous administrative or judicial proceeding; and

(ii) the person seeking to raise the issue participated meaningfully in such hearing or proceeding; or

(B) the issue meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A). This paragraph shall not apply to any issue with respect to which subsection (d)(2)(B) applies.

(d) Proceeding after hearing.–

(1) Judicial review of determination.–The person may, within 30 days of a determination under this section, appeal such determination to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter).

(2) Jurisdiction retained at IRS Office of Appeals.–The Internal Revenue Service Office of Appeals shall retain jurisdiction with respect to any determination made under this section, including subsequent hearings requested by the person who requested the original hearing on issues regarding–

(A) collection actions taken or proposed with respect to such determination; and

(B) after the person has exhausted all administrative remedies, a change in circumstances with respect to such person which affects such determination.

(e) Suspension of collections and statute of limitations.–

(1) In general.–Except as provided in paragraph (2), if a hearing is requested under subsection (a)(3)(B), the levy actions which are the subject of the requested hearing and the running of any period of limitations under section 6502 (relating to collection after assessment), section 6531 (relating to criminal prosecutions), or section 6532 (relating to other suits) shall be suspended for the period during which such hearing, and appeals therein, are

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pending. In no event shall any such period expire before the 90th day after the day on which there is a final determination in such hearing. Notwithstanding the provisions of section 7421(a), the beginning of a levy or proceeding during the time the suspension under this paragraph is in force may be enjoined by a proceeding in the proper court, including the Tax Court. The Tax Court shall have no jurisdiction under this paragraph to enjoin any action or proceeding unless a timely appeal has been filed under subsection (d)(1) and then only in respect of the unpaid tax or proposed levy to which the determination being appealed relates.

(2) Levy upon appeal.–Paragraph (1) shall not apply to a levy action while an appeal is pending if the underlying tax liability is not at issue in the appeal and the court determines that the Secretary has shown good cause not to suspend the levy.

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SEC. 7430. AWARDING OF COSTS AND CERTAIN FEES.

(a) In General.–In the case of any civil proceeding which is brought by or against the United States in connection with the determination, collection, or refund of any tax, interest, or penalty under this title, the prevailing party may be awarded a judgment or a settlement for–

(1) reasonable administrative costs incurred in connection with such administrative proceeding within the Internal Revenue Service, and

(2) reasonable litigation costs incurred in connection with such court proceeding.

(b) Limitations.–

(1) Requirement that administrative remedies be exhausted.–A judgment for reasonable litigation costs shall

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not be awarded under subsection (a) in any court proceeding unless the court determines that the prevailing party has exhausted the administrative remedies available to such party within the Internal Revenue Service. Any failure to agree to an extension of the time for the assessment of any tax shall not be taken into account for purposes of determining whether the prevailing party meets the requirements of the preceding sentence.

(2) Only costs allocable to the United States.–An award under subsection (a) shall be made only for reasonable litigation and administrative costs which are allocable to the United States and not to any other party. (3) Costs denied where party prevailing protracts proceedings.–No award for reasonable litigation and administrative costs may be made under subsection (a) with respect to any portion of the administrative or court proceeding during which the prevailing party has unreasonably protracted such proceeding. (4) Period for applying to IRS for administrative costs.– An award may be made under subsection (a) by the Internal Revenue Service for reasonable administrative costs only if the prevailing party files an application with the Internal Revenue Service for such cots before the 91st day after the date on which the final decision of the Internal Revenue Service as to the determination of the tax, interest, or penalty is mailed to such party.

(c) Definitions.–For purposes of this section–

(1) Reasonable litigation costs.–The term “reasonable litigation costs” includes–

(A) reasonable court costs, and

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(B) based upon prevailing market rates for the kind or quality of services furnished–

(i) the reasonable expenses of expert witnesses

in connection with the court proceeding, except that no expert witness shall be compensated at a rate in excess of the highest rate of compensation for expert witnesses paid by the United States.

(ii) the reasonable cost of any study, analysis,

engineering report, test, or project which is found by the court to be necessary for the preparation of the party’s case, and

(iii) reasonable fees paid or incurred for the

services of attorneys in connection with the court proceeding, except that such fees shall not be in excess of $125 per hour unless the court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys for such proceeding, the difficulty of the issues presented in the case, or the local availability of tax expertise, justifies a higher rate.

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(2) Reasonable administrative costs.—The term “reasonable administrative costs” means—

(A) any administrative fees or similar charges

imposed by the Internal Revenue Service, and (B) expenses, costs, and fees described in paragraph

(1)(B), except that any determination made by the court under clause (ii) or (iii) thereof shall be made by the Internal Revenue Service in cases where the determination under paragraph (4)(C) of the awarding of reasonable

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administrative costs is made by the Internal Revenue Service.

Such term shall only include costs incurred on or after whichever of the following is the earliest: (i) the date of the receipt by the taxpayer of the notice of the decision of the Internal Revenue Service Office of Appeals; (ii) the date of the notice of deficiency; or (iii) the date on which the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals is sent.

(3) Attorneys’ fees.–

(A) In general.–For purposes of paragraphs (1) and (2), fees for the services of an individual (whether or not an attorney) who is authorized to practice before the Tax Court or before the Internal Revenue Service shall be treated as fees for the services of an attorney.

(B) Pro bono services.–The court may award

reasonable attorney’s fees under subsection (a) in excess of the attorneys’ fees paid or incurred if such fees are less than the reasonable attorneys’ fees because an individual is representing the prevailing party for no fee or for a fee which (taking into account all the facts and circumstances) is no more than a nominal fee. This subparagraph shall apply only if such award is paid to such individual or such individual’s employer.

(4) Prevailing party.–

(A) In general.–The term “prevailing party” means

any party to any proceeding described in subsection (a) (other than the United States or any creditor of the taxpayer involved)–

(i) which–

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(I) has substantially prevailed with respect to the amount in controversy, or

(II) has substantially prevailed with respect to the most significant issue or set of issues presented, and

(ii) which meets the requirements of the 1st

sentence of section 2412(d)(1)(B) of title 28, United States Code (as in effect on October 22, 1986) except to the extent differing procedures are established by rule of court and meets the requirements of section 2412(d)(2)(B) of such title 28 (as so in effect).

(B) Exception if United States establishes that its

position was substantially justified.– (i) General Rule.–A party shall not be treated

as the prevailing party in a proceeding to which subsection (a) applies if the United States establishes that the position of the United States in the proceeding was substantially justified.

(ii) Presumption of no justification if Internal

Revenue Service did not follow certain published guidance.–For purposes of clause (i), the position of the United States shall be presumed not to be substantially justified if the Internal Revenue Service did not follow its applicable published guidance in the administrative proceeding. Such presumption may be rebutted.

(iii) Effect on losing on substantially similar

issues.–In determining for purposes of clause (i) whether the position of the United States was substantially justified, the court shall take into account whether the United States has lost in courts of appeal for other circuits on substantially similar issues.

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(iv) Applicable published guidance.–For purposes of clause (ii), the term “applicable published guidance” means–

(I) regulations, revenue rulings, revenue

procedures, information releases, notices, and announcements, and

(II) any of the following which are issued

to the taxpayer: private letter rulings, technical advice memoranda, and determination letters.

(C) Determination as to prevailing party.–Any

determination under this paragraphs as to whether a party is a prevailing party shall be made by agreement of the parties or–

(i) in the case where the final determination

with respect to the tax, interest, or penalty is made at the administrative level, by the Internal Revenue Service, or

(ii) in the case where such final determination

is made by a court, the court. * * * *

(5) Administrative proceedings.–The term “administrative proceeding” means any procedure or other action before the Internal Revenue Service.

(6) Court proceedings.–The term “court proceeding” means

any civil action brought in a court of the United States (including the Tax Court and the United States Court of Federal Claims).

(7) Position of United States.–The term “position of the

United States” means–

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(A) the position taken by the United States in a judicial proceeding to which subsection (a) applies, and

(B) the position taken in an administrative

proceeding to which subsection (a) applies as of the earlier of–

(i) the date of the receipt by the taxpayer of the

notice of the decision of the Internal Revenue Service Office of Appeals, or

(ii) the date of the notice of deficiency.

(d) Special rules for payments of costs.– (1) Reasonable administrative costs.–An award of

reasonable administrative costs shall be payable out of funds appropriated under section 1304 of title 31, United States Code.

(2) Reasonable litigation costs.–An award for reasonable

litigation costs shall be payable in the case of the Tax Court in the same manner as such an award by a district court.

* * * * (f) Right of appeal.–

(1) Court proceedings.–An order granting or denying (in whole or in part) an award for reasonable litigation or administrative costs under subsection (a) in a court proceeding, may be incorporated as a part of the decision or judgment in the court proceeding and shall be subject to appeal in the same manner as the decision or judgment.

(2) Administrative proceedings.–A decision granting or

denying (in whole or in party) an award of reasonable administrative costs under subsection (a) by the Internal Revenue Service shall be subject to the filing of a petition for review with

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the Tax Court under rules similar to the rules under section 7463 (without regard to the amount in dispute). If the Secretary sends by certified or registered mail a notice of such decision to the petitioner, no proceeding in the Tax Court may be initiated under this paragraph unless such petition is filed before the 91st day after the date of such mailing.

(3) Appeal of Tax Court decision.–An order of the Tax

Court disposing of a petition under paragraph (2) shall be reviewable in the same manner as a decision of the Tax Court, but only with respect to the matters determined in such order.