CCA 1211014: Taxpayers could dispute divisible § 6701 penalties in a CDP hearing

Plain-English summary

Chief Counsel advice addresses whether taxpayers had a prior opportunity to dispute § 6701 penalties during a collection due process hearing. The advice concludes that the penalties were divisible because each assessment related to erroneous stimulus payments, and Exam should have considered the taxpayers' refund claims. Under § 6703(c)(2), the taxpayers could not file a refund suit until their claims were denied or six months had passed. Because neither claim-disallowance letters nor the six-month period had occurred before the hearing, the opportunity to dispute the liabilities had not expired before the hearing. The advice cites Mason v. Commissioner for the rule that a simultaneous opportunity is not a prior opportunity under § 6330(c)(2)(B).

Ruling snapshot

• Question: Did taxpayers have a prior opportunity to dispute divisible § 6701 penalties before their collection due process hearing?
• Outcome: Advice given.
• Key authorities: IRC §§ 6330, 6330(c)(2)(B), 6701, and 6703(c)(2); Mason v. Commissioner, 132 T.C. 305 (2009)

Full text (IRS public release)

ID: CCA_2012021016291364 Number: 201211014
Release Date: 3/16/2012
Office: --------------
UILC: 6330.00-00, 6701.00-00, 6703.00-
00

From: -----------------
Sent: Friday, February 10, 2012 4:29:23 PM
To: -------------
Cc: ------------------
Subject: Request for opinion concerning consideration of IRC 6701 penalty during CDP hearing

Based on the facts you provided, the taxpayers did not receive a prior opportunity under
section 6330(c)(2)(B) to dispute the liability for the section 6701 penalties assessed against
them (section 6330(c)(4) does not apply to this case). First, the section 6701 penalty is
imposed on a per document basis and is divisible so long as the entire penalty assessment
for a single year relates to the same scheme. Because the assessment against each
taxpayer relates to erroneous stimulus payments, the 6701 penalty assessments are
divisible. Therefore, Exam should have considered both taxpayers' claims for refund,
because each taxpayer included a payment for a divisible portion of a single section 6701
penalty with their refund claims.

Under section 6703(c)(2), the taxpayers could not file a refund suit in district court until the
earlier of the day after the refund claims were denied or after the expiration of 6 months
after the filing of the refund claims. Because Exam did not consider the taxpayers' claims
for refund and did not issue claim disallowance letters, the taxpayers could not file a suit in
district court until the expiration of 6 months after the filing of the refund claims. At that
time the CDP hearing had already commenced. Thus, the opportunity to file a suit in district
court and dispute the section 6701 penalty liabilities did not expire prior to the CDP
hearing. See Mason v. Commissioner, 132 T.C. 305 (2009) (a simultaneous opportunity to
dispute an underlying liability is not a prior opportunity under section 6330(c)(2)(B)).

Please let me know if you have any further questions.

-------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------

\f