Let’s go
hard procedural on this post.
He played
defensive end in the NFL with the Tennessee Titans and Philadelphia Eagles from
1999 to 2010. At 6’4”, 260 pounds, 86-inch wingspan and 4.43 forty, NFL fans
remember him as “The Freak.”
Jevon Kearse
is in the tax literature.
It looks
like a business deal went bad, because in 2010 he claimed a $1,359,000 bad debt
deduction.
The IRS
bounced it. The IRS
now wanted over $430 thousand in tax. They issued a Notice of Deficiency (NOD) on
May 11, 2012.
COMMENT: Procedurally, the IRS issues a NOD (also known as a SNOD) before it can officially assess the additional tax. Once assessed, the IRS can bring all its collection powers to bear.
Problem:
Kearse says he never received the NOD.
Let us start
our walk through IRS procedure.
Once
assessed, the IRS sent Kearse a Notice of Federal Tax Lien.
COMMENT: One has the right to request a hearing (called a Collection Due Process hearing) in response.
Kearse
requested a CDP hearing, at which he asserted that he never received the NOD
and presented an offer in compromise (liability – for the home gamers) for $1.
COMMENT: There are three flavors of offer in compromise. The one we are talking about is when there is substantial doubt that the assessed tax is correct. At $1, that is exactly the point Kearse was making.
IRS Appeals tuned him down, and off to Tax
Court they went.
A taxpayer
has the right to challenge the underlying tax liability in a CDP hearing IF he/she never received the NOD or
otherwise never had a chance to dispute the proposed assessment. This is a procedural
requirement, and the Court can bring it up even if the taxpayer fails to.
Responsibility
now shifted to the IRS. The Appeals officer had to prove that the IRS properly
mailed the NOD. There are two general ways to do this:
(1) Reviewing an internal IRS document
management system
(2) Reviewing a postal Form 3877 or an equivalent
mailing list with date stamps and/or initials.
The IRS said
they did the first option: they reviewed the internal system.
Kearse’s tax
attorneys also got the Appeals officer to stipulate that she could not produce
a Form 3877 or otherwise prove the mailing of the NOD.
NOTE: We will come back to the importance of a “stipulation” in a moment.
There is a
second procedural issue here: the IRS can rely on its internal system unless
the taxpayer alleges that the NOD was not properly mailed.
Which is
what Jevon Kearse had done. The IRS could not rely on option (1).
Incredibly,
the IRS finally found the Form 3877, explaining that the eventual success had
resulted from an update to their systems.
The Court
bounced the Form 3877.
What ….?
It has to do
with the stipulation. You see, a stipulated fact is treated as conclusive
evidence. It cannot be changed, barring extraordinary circumstances.
The IRS had
to argue extraordinary circumstances.
And we have
the third procedural issue: the IRS failed to do so.
Meaning the
IRS was bound by its stipulation that it could not prove the mailing of the
NOD.
The IRS
attorney flubbed.
Jevon Kearse
won.
What a freak
case.
