In Ryckman v. Commissioner, the U.S. Tax Court tackled an issue of first impression: whether it has jurisdiction over a case challenging the denial by the Internal Revenue Service (“IRS”) of a collection due process (“CDP”) hearing request in connection with the IRS’s collection actions on behalf of Canada pursuant to a mutual collection assistance request (“MCAR”) under the Canada-U.S. Income Tax Treaty ( the “Treaty”).
The Canada Revenue Agency (“CRA”) claimed that the taxpayer owed around $200,000 in Canadian tax for tax years 1993 and 1994. The CRA sent the IRS an MCAR in accordance with Treaty Article XXVI A(2), stating that the 1993 and 1994 tax liabilities were “finally determined” within the meaning of the Treaty. The U.S. Competent Authority granted the MCAR under Treaty Article XXVI A(3) and forwarded it to an IRS collection office.
On January 25, 2021, the IRS mailed the taxpayer a letter informing her that a notice of federal tax lien (“NFTL”) had been filed “and that you have the right to a hearing to discuss collection options.” However, the letter indicated that a CDP hearing under section 6320(b) of the Internal Revenue Code was “NOT available to you as a Canadian taxpayer in the United States.”
On February 4, 2021, the taxpayer’s representative faxed the IRS a Form 12153, Request for a Collection Due Process or Equivalent Hearing, requesting a CDP hearing on the NFTL filing under section 6320(b) and indicating that taxpayer could not fully pay the balance and would like the IRS to consider an installment agreement.
On February 8, 2021, the IRS mailed the taxpayer letter titled “Request for Collection Due Process Hearing – Denied” (denial letter). In the denial letter, the IRS stated could that taxpayer’s request for a CDP hearing could not be granted for the following reason:
Because the foreign tax liability is treated as a finally determined U.S. tax liability, your procedural rights to restrain collection under U.S. law through a CDP hearing under Internal Revenue Code Sections 6320 or 6330 are treated as lapsed or exhausted.
On February 18, 2021, the taxpayer filed a petition with the Tax Court asking for a determination that the IRS had erred in denying her a CDP hearing and for a remand of her case to the IRS Independent Office of Appeals (“IRS Appeals”) for a CDP Hearing.
The Tax Court found that it lacked jurisdiction over the taxpayer’s case. Generally, the IRS is required to notify taxpayers upon the filing of a NFTL.[1] The taxpayer may then request a CDP hearing conducted by IRS Appeals objecting to the filing of the NFTL.[2] After receiving a determination on their request for a CDP hearing, a “person may, within 30 days of a determination . . . , petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter).” As such, the Tax Court concluded that its jurisdiction to review CDP cases hinges on: (1) the IRS issuing a determination and (2) the taxpayer timely petitioning for review.
The Tax Court noted, however, that not all responses to a request for a CDP hearing are determinations. The Tax Court observed that generally a response to a request for a CDP hearing is a determination when the IRS is either required to provide a CDP hearing in response to the request or purports to make a determination pursuant to the statutes authorizing a CDP hearing.
The Tax Court found that the Treaty required that taxes subject to an MCAR “shall be collected by the requested State as though such revenue claim were the requested State’s own revenue claim finally determined in accordance with the laws applicable to the collection of the requested State’s own taxes.” The Treaty provided that a revenue claim “a revenue claim is finally determined when the applicant State has the right under its internal law to collect the revenue claim and all administrative and judicial rights of the taxpayer to restrain collection in the applicant State have lapsed or been exhausted.” As such, the Tax Court found that these Treaty provisions caused any CDP hearing rights that the taxpayer may have had to be exhausted. Thus, the Tax Court held that the taxpayer had no right to a CDP hearing, that the IRS’s denial letter was not a determination letter, and the court lacked jurisdiction to hear the case.
The Tax Court opinion was written by Judge Copeland, with Judges Kerrigan, Foley, Nega, Jones, Greaves, and Marshall concurring.
A dissenting opinion written by Judge Urda and joined by Judges Buch, Pugh, Ashford, Toro, and Weiler argued that the CDP statutes prevailed over the Treaty under the later-in-time rule. According to the later-in-time rule, a later-in-time statute prevails over a treaty provision if there is an irreconcilable conflict between the two. The CDP statutes were enacted in 1998, while the Treaty was signed in 1995. The dissent also argued that the Treaty and the CDP statutes could be read harmoniously so as to allow for CDP hearing rights in connection with collection actions under the Treaty.
[1] I.R.C. § 6320(a)(1).
[2] I.R.C. § 6320(b)(1).
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