When you petition the Tax Court after a Collection Due Process hearing, you are not starting fresh. You are asking a judge to review a decision already made by an Appeals settlement officer. The judge's job, and the standard the judge applies, depend on what kind of issue you are raising.

Understanding that standard before the hearing is what separates a reviewable case from a hopeless one.

Jurisdiction comes from the determination

IRC 6330(d)(1) gives the Tax Court jurisdiction to review a determination under the CDP statutes when a petition is filed within 30 days. Lien hearings are covered through IRC 6320(c). The Tax Court Rules have a dedicated title for these lien and levy actions, beginning at Rule 330, and Rule 331 sets out what the petition must contain.

The determination is the ticket. A Decision Letter from an equivalent hearing generally is not, under Treas. Reg. 301.6330-1(i), Q&A-I6. If Appeals mislabeled a timely request, though, the Tax Court looks at substance. Have the file reviewed before you assume the courthouse is closed.

Two standards of review

De novo for the underlying liability

When the underlying tax liability is properly at issue, meaning you did not receive a notice of deficiency or otherwise have an opportunity to dispute it under IRC 6330(c)(2)(B), the Tax Court reviews the liability de novo. The court decides it fresh. The Tax Court laid out this framework in Sego v. Commissioner, 114 T.C. 604 (2000), and Goza v. Commissioner, 114 T.C. 176 (2000). See challenging the underlying liability for when that door is open.

Abuse of discretion for everything else

Collection issues are reviewed for abuse of discretion. That includes the rejection of an installment agreement or offer in compromise, the refusal to withdraw a lien, and the balancing determination under IRC 6330(c)(3)(C). Under that standard, the court asks whether Appeals' determination was arbitrary, capricious, or without sound basis in fact or law. The judge does not substitute their own judgment about what a reasonable payment plan would be.

That is a deferential standard. It is not a rubber stamp. Determinations get overturned when the settlement officer ignored evidence, misapplied the IRS's own procedures, failed to consider an issue properly raised, or skipped required verification.

Verification gets a close look

IRC 6330(c)(1) requires the Appeals officer to obtain verification that the requirements of applicable law and administrative procedure were met. The Tax Court reviews whether that verification actually happened. Common problems include assessments not properly made, notice and demand not sent, a defective CDP notice, and missing written supervisory approval for penalties that require it under IRC 6751(b). A determination that rests on unverified assumptions is vulnerable, even under a deferential standard.

You can only argue what you raised

Treas. Reg. 301.6330-1(f)(2), Q&A-F3, says the Tax Court can consider only issues properly raised at the CDP hearing. An issue is not properly raised if you never asked Appeals to consider it, or if you asked but failed to present evidence after a reasonable opportunity. The Tax Court enforced this rule in Giamelli v. Commissioner, 129 T.C. 107 (2007), declining to consider an issue the taxpayer had not raised with Appeals.

In practice, this means the CDP hearing is where your Tax Court case is built. A great argument first made in your petition is usually too late.

The administrative record

Treas. Reg. 301.6330-1(f)(2), Q&A-F4, defines the record for Tax Court review: your hearing request, your written communications and submissions, the Appeals officer's notes of oral communications, the officer's memoranda, and any other materials the officer relied on.

Whether the court is limited to that record on collection issues has been litigated. The Eighth Circuit in Robinette v. Commissioner, 439 F.3d 455 (8th Cir. 2006), and the Ninth Circuit in Keller v. Commissioner, 568 F.3d 710 (9th Cir. 2009), held that review of abuse-of-discretion issues is confined to the administrative record. Here's the part most people miss: regardless of which circuit your case would go to, the safest assumption is that the record is all you will have. Put everything in writing, and make sure it reaches the settlement officer before the determination issues.

Building a record a judge can use

Because review usually turns on the record, think about the record while the hearing is still open. A few habits make a real difference:

  • Put every proposal in writing. An installment agreement offered only on a phone call may appear in the officer's notes as a single line, or not at all.
  • Answer every document request in writing, even if the answer is that a document does not exist and why.
  • Object in writing. If the officer disallows an expense or values an asset in a way you dispute, send a short letter explaining why, with support.
  • Ask for the computation. Request a copy of the officer's financial analysis so you can respond to it before the determination issues.
  • Confirm the close. If the officer signals that a determination is coming, make sure everything you want considered is already in the file.

Remand: the second chance that is not a do-over

When the Tax Court finds that Appeals did not adequately consider an issue, failed to verify something it should have, or that circumstances have materially changed, it may remand the case to Appeals for a supplemental hearing. The supplemental determination then comes back to the court for review.

Remand is useful. It is not automatic, and it is not a way to start the hearing over because you did not submit financial information the first time. Courts are more receptive when the problem lies with the hearing, not with the taxpayer's failure to participate.

Separately, IRC 6330(d)(3) says Appeals retains jurisdiction over its determination, including later hearings on collection actions taken under it and on changed circumstances after you have exhausted administrative remedies.

Levy during the appeal

IRC 6330(e)(1) keeps the levy suspension in place while the hearing "and appeals therein" are pending. IRC 6330(e)(2) creates an exception: if the underlying liability is not at issue in the appeal, the court may allow levy to proceed when the IRS shows good cause not to suspend it. That motion is not common, but it exists, and it is one more reason to raise liability issues properly when you have them.

Small case option

IRC 7463(f)(2) allows a CDP appeal to proceed as a small tax case when the unpaid tax does not exceed $50,000. Small case procedures are simpler and the decision cannot be appealed. For many collection disputes, that trade is worth considering.

What wins and what loses

  • Usually loses: arguing that a payment plan should have been more generous without having submitted the financial documents Appeals requested.
  • Usually loses: arguments first raised in the petition.
  • Can win: a settlement officer who ignored documents in the record or misapplied the Collection Financial Standards to facts you documented.
  • Can win: a verification failure, such as an assessment that was never properly made.
  • Can win: a properly raised liability challenge reviewed de novo.

Let's talk

The Tax Court reviews the hearing you had, so the hearing has to be built for review. If you have a CDP hearing coming up, or a determination in hand, call (813) 229-7100. Let's talk.