Section 6512 does not bar refund suit after collection case

Plain-English summary

The IRS considered whether section 6512(a) prevents a taxpayer from disputing a liability in a refund suit after the Tax Court determined that liability in a collection proceeding. It advised that the statutory bar applies only after a timely Tax Court petition following a notice of deficiency under section 6212, not a collection notice of determination under section 6330. A later refund suit therefore is not barred by section 6512(a). However, if the underlying liability was or could have been contested in the collection case and the Tax Court entered a decision on the merits, res judicata may prevent the taxpayer from litigating the same claim again.

Ruling snapshot

• Question: Does IRC § 6512(a) bar a refund suit after the Tax Court determines a liability in a collection proceeding?
• Outcome: Advice given
• Key authorities: IRC §§ 6212, 6320, 6330, 6512; Treas. Reg. § 301.6512-1(a)

Full text (IRS public release)

ID:         CCA_2016032910191110
UILC:       6512.00-00

Number: 201617007
Release Date: 4/22/2016
From:
Sent: Tuesday, March 29, 2016 10:19:11
To:
Cc:
Bcc:
Subject: RE: 6512 Question


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Both § 6512(a) and § 301.6512-1(a) are limited by their plain language to petitions
timely filed after the Service issues a statutory notice of deficiency under § 6212(a). A
notice of determination under § 6330 for a lien or levy action under §§ 6320 or 6330 is
not the same as a notice of deficiency under § 6212(a). Therefore, § 6512(a) does not
prevent a litigant from disputing in a refund suit a tax liability determined in a collection
proceeding in Tax Court.

However, the law of the case doctrine would prevent the relitigation of the underlying
liability. The law of the case doctrine is "part of a related set of preclusion principles that
includes stare decisis, res judicata, and collateral estoppel." Gonzalez v. Arizona, 624
F.3d 1162, 1185 n.16 (9th Cir. 2010).

           The law of the case doctrine generally precludes a court from "reconsidering an
           issue previously decided by the same court, or a higher court in the identical
           case." Milgard Tempering, Inc. v. Selas Corp. of Am., 902 F.2d 703, 715 (9th Cir.
           1990) (citing Richardson v. United States, 841 F.2d 993, 996 (9th Cir. 1988),
           amended, 860 F.2d 357 (9th Cir. 1988)). For the law of the case doctrine to
           apply, "the issue in question must have been 'decided explicitly or by necessary
           implication in [the] previous disposition.'" Id. (quoting Liberty Mut. Ins. Co. v.
           EEOC, 691 F.2d 438, 441 (9th Cir. 1982)).

Bedrosian v. Comm'r, 143 T.C. 83, 121 (2014, Vasquez, J. dissenting)

           Under res judicata, a final judgment on the merits of an action precludes the
           parties or their privies from relitigating issues that were or could have been raised
           in that action. * * * Under collateral estoppel, once a court has decided an issue
           of fact or law necessary to its judgment, that decision may preclude relitigation of
           the issue in a suit on a different cause of action * * *.

Allen v. McCurry, 449 U.S. 90, 94, 101 S. Ct. 411, 66 L. Ed. 2d 308 (1980).

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       The rule of collateral estoppel provides that "[w]hen an issue of fact or law is
       actually litigated and determined by a valid and final judgment, and the
       determination is essential to the judgment, the determination is conclusive in a
       subsequent action between the parties, whether on the same or a different
       claim." 1 Restatement, Judgments 2d, sec. 27 (1982) (emphasis added); see
       also Montana v. United States, 440 U.S. 147, 153-154, 99 S. Ct. 970, 59 L. Ed.
       2d 210 (1979).

Koprowski v. Comm'r, 138 T.C. 54, 61-62 (2012)

       Under the Supreme Court's explication of res judicata in Commissioner v.
       Sunnen, 333 U.S. at 597-598, four conditions must be met to preclude relitigation
       of a claim: (1) the parties in each action must be identical (or at least be in
       privity); (2) a court of competent jurisdiction must have rendered the first
       judgment; (3) the prior action must have resulted in a final judgment on the
       merits; and (4) the same cause of action or claim must be involved in both suits.
       See United States v. Shanbaum, 10 F.3d 305, 310 (5th Cir. 1994). Once these
       conditions are met, each party is prohibited from raising any claim or defense
       that was or could have been raised as part of the litigation over the cause of
       action in the prior case. Id.

Koprowski v. Comm'r, 138 T.C. 54, 62 (2012)

A Tax Court decision in a on the merits in a CDP case that includes petitioner’s
underlying tax liability (e.g., no preclusion under § 6330(c)(2)(B)) would permit the
Service to raise res judicata and collateral estoppel as affirmative defenses against the
taxpayer’s raising a challenge to the underlying liability in a refund suit. Res judicata
(claim preclusion) would be the more appropriate defense than collateral estoppel
(issue preclusion), because the same claim (challenging the existence or amount of the
underlying liability) that was litigated in Tax Court is what the taxpayer is trying to
relitigate in the refund suit. (In fact, if a petitioner in a CDP suit could have challenged
the existence or amount of the underlying liability, then res judicata would apply whether
she challenged it or not; but collateral estoppel would not apply in that case, because
collateral estoppel is limited to issues actually litigated and determined and necessary to
the judgment, even if they come up again in a different cause of action.)

Please let me know if you have further questions.

Thanks,
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