Caudle v. IRS, T.C. Memo. 2014-196 (Sept. 24, 2014).
The Tax Court clerks must have put in overtime last weekend because several opinions were released last week. One of these, Caudle v. IRS is a portrayal of what might happen if a taxpayer decides not to file a 1040 at all. There, the taxpayer (from Front Royal, Virginia) failed to file in both 2005 and 2006. Id. at p. 2. Consequently, the IRS calculated what it expected the taxpayer to have paid based on W-2s, 1099s, and other income reporting documents filed by her employers (a Substitute for Return). It then mailed the taxpayer this information via certified mail. She did not respond, so the IRS began the process of levying her tax debt against her property (Letter 1058). Id. at p. 3.
At that point, the taxpayer requested a Collection Due Process hearing, which is actually possible by phone. However, the hearing officer required the taxpayer to identify sources of income and wealth from which to pay what the IRS had determined to be her tax debt, 1040s from the four years surrounding the two tax years at issue (from 2004 to 2009) as well as estimated payments in 2010. The taxpayer was unable to comply prior to the phone hearing, at an in-person hearing, or by means of mail correspondence. Ultimately, the Settlement Officer sent the taxpayer a Notice of Determination Concerning Collection Action. Id. at p. 4.
The Tax Court has the power to review these collection determinations, which was invoked by the taxpayer in this case. However, the standard of review is highly deferential where the taxpayer has failed to properly place the underlying tax debt at issue. Id. at pp. 5-6. That is, the Court reviews the IRS administrative determination for an “abuse of discretion.” After reviewing the steps taken by the IRS for compliance with the procedural due process requirements of federal tax law, the taxpayer’s tax debt was affirmed. Id. at pp. 10-11.
This case is not very legally significant, but it is instructive for anyone who has ever wondered what could happen if one simply failed to file a 1040. Strategically, this case demonstrates one of the worst ways to get to the Tax Court.
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