FROM THE COMMISSIONER OF INTERNAL REVENUE (CIR No. 11611-14
Lavar Taylor, A. Lavar Taylor Law Offices, Santa Ana,
California (Jonathan T. Amitrano, A. Lavar Taylor Law
Offices, Santa Ana, California; Allen J. White, Allen J.
White & Associates, Downers Grove, Illinois; and William
Wise, Wise & Stracks, Chicago, Illinois, with him on the
briefs), appearing for Appellant.
Jennifer M. Rubin, Attorney, Tax Division (Caroline D.
Ciraolo, Principal Deputy Assistant Attorney General; Diana
L. Erbsen, Deputy Assistant Attorney General; Gilbert S.
Rothenberg, Attorney, Tax Division; and Michael J. Haungs,
Attorney, Tax Division, with her on the brief), United States
Department of Justice, Washington, DC, appearing for
HOLMES, MATHESON, and McHUGH, Circuit Judges.
MATHESON, Circuit Judge.
appeal, we address whether a taxpayer may challenge a tax
penalty in a Collection Due Process hearing ("CDP
hearing") after already having challenged the penalty in
the Appeals Office of the Internal Revenue Service
Tank Services II, Inc. ("Keller"), the taxpayer,
participated in an employee benefit plan and took deductions
for its contributions to the plan. The IRS notified Keller of
(1) a tax penalty of $57, 782 for failure to report its
participation in the plan as a "listed transaction"
on its 2007 tax return, and (2) an income tax deficiency and
related penalties for improper deductions of payments to the
plan. This case is about the $57, 782 penalty and
Keller's efforts to challenge it.
fully described below, Keller protested the tax penalty at
the IRS Appeals Office. It then attempted to do so in a CDP
hearing but was rebuffed because it already had challenged
the penalty at the Appeals Office. Keller appealed the CDP
decision to the Tax Court, which granted summary judgment to
the Commissioner of Internal Revenue
("Commissioner"). Keller appeals that decision
here. Exercising jurisdiction under 26 U.S.C. §
7482(a)(1), we affirm.
the reader, we provide definitions of various terms, set
forth the pertinent statutes and regulation, and offer a
brief overview of the relevant tax enforcement process and
administrative structure. We then turn to the factual and
procedural history of this case.
Terms, Statutes, and Regulation
following terms are used throughout the opinion and first
appear in the order presented here.
• Commissioner: the Commissioner of Internal
Revenue is nominated by the President and confirmed by the
Senate, and has the duty to administer, manage, conduct,
direct, and supervise the execution and application of
internal revenue laws. Lawsuits by and against the IRS are
conducted in the name of the Commissioner, and are litigated
by counsel of the IRS.
• Liability: amount owed by a taxpayer under
the tax laws. As used in this opinion, a liability may be a
penalty or deficiency.
• Deficiency: the amount by which the tax value
imposed by the IRS exceeds the amount reported by the
taxpayer on its return. The IRS's determination of a
deficiency is a provisional determination. Accordingly, a
notice of deficiency affords the taxpayer a right to
prepayment judicial review by the Tax Court before the IRS
assesses and collects the liability. The IRS cannot attempt
to collect the deficiency until the notice of deficiency has
been mailed to the taxpayer and the taxpayer has been given
90 days to file a petition in the Tax Court. 26 U.S.C. §
• Penalty: imposed on taxpayers by the IRS to
encourage compliance with tax laws. Certain penalties are
considered assessable, which means the IRS may assess them
without providing an opportunity for prepayment judicial
review by the Tax Court. The penalty provision relevant to
this case is § 6707A, which imposes a penalty for
failing to report transactions classified as
"reportable, " including "listed"
transactions. 26 U.S.C. § 6707A(b)(2). A § 6707A
penalty may be imposed for failure to report regardless of
whether a deficiency results. Internal Revenue Manual
220.127.116.11.1 ¶ 3.
• Reportable Transaction: a transaction that
must be disclosed on a taxpayer's return because the
Secretary of Treasury ("Secretary") has determined
that type of transaction has potential for tax avoidance or
evasion. The maximum penalty for failure to report a
reportable transaction, other than a listed transaction, is
$50, 000 for a corporation. 26 U.S.C. § 6707A(b)-(c).
• Listed Transaction: a type of reportable
transaction that is the same as, or substantially similar to,
a transaction specifically identified by the Secretary as a
tax avoidance transaction. The Secretary identifies listed
transactions in notices or other published guidance. The
maximum penalty for failing to report a listed transaction is
$200, 000 for a corporation. 26 U.S.C. § 6707A(b)-(c).
• Assessment: the formal recording and
establishment of a taxpayer's liability, fixing the
amount owed by the taxpayer. The assessment is effectively a
judgment and triggers the IRS's ability to collect on the
liability via lien or levy.
• Levy: after a liability has been assessed,
certain procedural requirements have been met, and the
taxpayer has neglected or refused to pay the assessed tax,
the IRS may attach, or encumber, the taxpayer's property
to seize and sell it as "a prompt and convenient method
for satisfying delinquent tax claims." United States
v. Nat'l Bank of Commerce, 472 U.S. 713, 736 (1985)
(quotations omitted). This process is called a
• Rescission Request: the taxpayer may request
the Commissioner to rescind all or part of a penalty imposed
under § 6707A for a non-listed reportable transaction if
doing so would promote compliance with the tax laws and
effective tax administration. The Commissioner, however, may
not rescind a penalty for a listed transaction. The IRS
Appeals Office hears a taxpayer's request to rescind. No
judicial review is available for the decision to grant or
deny rescission. 26 U.S.C. § 6707A(d)(2).
• IRS Appeals Office: the administrative
dispute resolution body of the IRS that resolves tax
controversies without litigation. The 1998 IRS Restructuring
and Reform Act emphasized that the Appeals Office must be an
independent bureau of the IRS and be impartial to the
government and taxpayer. See Robert v. United
States, 364 F.3d 988, 990 (8th Cir. 2004).
• Collection Due Process ("CDP")
Hearing: the procedure created by the 1998 IRS
Restructuring and Reform Act to control overreaching in the
IRS's collection activities. When the IRS decides to
collect a liability through a lien or levy, taxpayers first
receive an opportunity to contest the collection through an
administrative CDP hearing before a CDP hearing officer (an
independent employee of the Appeals Office). The CDP hearing
officer must have had no prior involvement with the taxpayer.
Section 6330 outlines the CDP hearing procedures required
before a levy may be made. 26 U.S.C. § 6330.
• Tax Court: a specialized court established by
Congress under Article I of the Constitution to conduct
prepayment judicial review of deficiencies. The Tax Court
also may review certain other administrative determinations
by the IRS. See, e.g., 26 U.S.C. § 6330.
• Refund suit: a lawsuit brought by a taxpayer
seeking a refund of a paid liability alleged to be unlawfully
collected. To challenge the IRS's assessment in a refund
suit, the taxpayer must first pay the full amount of the tax
liability and file a claim for refund with the IRS. If the
IRS issues an adverse decision, the taxpayer may then
institute a tax refund suit in either a federal district
court or the U.S. Court of Federal Claims.
Key Statutes and Regulation
following statutes and regulation are the primary legal
materials applicable to this appeal.
26 U.S.C. § 6707A: Penalty for failure to include
reportable transaction information with return
Any person who fails to include on any return or statement
any information with respect to a reportable transaction
which is required under section 6011 to be included with such
return or statement shall pay a penalty in the amount
determined under subsection (b).
(b) Amount of penalty
(1) In general Except as otherwise provided in this
subsection, the amount of the penalty under subsection (a)
with respect to any reportable transaction shall be 75
percent of the decrease in tax shown on the return as a
result of such transaction (or which would have resulted from
such transaction if such transaction were respected for
Federal tax purposes).
(2) Maximum penalty
The amount of the penalty under subsection (a) with respect
to any reportable transaction shall not exceed-
(A) in the case of a listed transaction, $200, 000 ($100, 000
in the case of a natural person), or
(B) in the case of any other reportable transaction, $50, 000
($10, 000 in the case of a natural person).
(3) Minimum penalty
The amount of the penalty under subsection (a) with respect
to any transaction shall not be less than $10, 000 ($5, 000
in the case of a natural person).
For purposes of this section:
(1) Reportable transaction
The term "reportable transaction" means any
transaction with respect to which information is required to
be included with a return or statement because, as determined
under regulations prescribed under section 6011, such
transaction is of a type which the Secretary determines as
having a potential for tax avoidance or evasion.
(2) Listed transaction
The term "listed transaction" means a reportable
transaction which is the same as, or substantially similar
to, a transaction specifically identified by the Secretary as
a tax avoidance transaction for purposes of section 6011.
(d) Authority to rescind penalty
(1) In general
The Commissioner of Internal Revenue may rescind all or any
portion of any penalty imposed by this section with respect
to any violation if-
(A) the violation is with respect to a reportable transaction
other than a listed transaction, and
(B) rescinding the penalty would promote compliance with the
requirements of this title and effective tax administration.
(2)No judicial appeal
Notwithstanding any other provision of law, any determination
under this subsection may not be reviewed in any judicial
b. 26 U.S.C. § 6330: Notice and opportunity for [a
CDP] hearing before levy
• 26 U.S.C. § 6330(c)(2)(B) ("¶
(c)(2)(B)"): (c) Matters considered at hearing In
the case of any hearing conducted under this section-
(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;
(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.
• 26 U.S.C. § 6330(c)(4)(A) ("¶
(c) Matters considered at hearing
In the case of any hearing conducted under this ...