Is Sending A Form Taxpayer Self-Assessment?

 

There are times we need to remember that we are working with law.

Words in law can have very specific meanings.

Let’s look at three Code sections.

Code § 6201 - Assessment authority

(a) Authority of Secretary 

 

The Secretary is authorized and required to make the inquiries, determinations, and assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title, or accruing under any former internal revenue law, which have not been duly paid by stamp at the time and in the manner provided by law. Such authority shall extend to and include the following:

(1)  Taxes shown on return

The Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists (or payments under section 6225(c)(2)(B)(i) are made under this title.

Code § 6211 - Definition of a deficiency

(a) In general

For purposes of this title in the case of income, estate, and gift taxes imposed by subtitles A and B and excise taxes imposed by chapters 41, 42, 43, and 44 the term "deficiency" means the amount by which the tax imposed by subtitle A or B, or chapter 41, 42, 43, or 44 exceeds the excess of—

(1) the sum of

(A) the amount shown as the tax by the taxpayer upon his return, if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon, plus

(B) the amounts previously assessed (or collected without assessment) as a deficiency, over—

(2) the amount of rebates, as defined in subsection (b)(2), made.

Code § 6213 - Restrictions applicable to deficiencies; petition to Tax Court

(a) Time for filing petition and restriction on assessment

Within 90 days, or 150 days if the notice is addressed to a person outside the United States, after the notice of deficiency authorized in section 6212 is mailed  (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the last day), the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. Except as otherwise provided in section 6851, 6852, or 6861 no assessment of a deficiency in respect of any tax imposed by subtitle A, or B, chapter 41, 42, 43, or 44 and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 90-day or 150-day period, as the case may be, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 7421(a), the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court, including the Tax Court, and a refund may be ordered by such court of any amount collected within the period during which the Secretary is prohibited from collecting by levy or through a proceeding in court under the provisions of this subsection. The Tax Court shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for a redetermination of the deficiency has been filed and then only in respect of the deficiency that is the subject of such petition. Any petition filed with the Tax Court on or before the last date specified for filing such petition by the Secretary in the notice of deficiency shall be treated as timely filed.

Let’s talk about Ken and Juli Walker.

They filed a joint tax return for 2018.They reported adjusted gross income of approximately $110 grand, requesting a federal refund of approximately $2,100.

They left something out, however: Marketplace insurance for which they had received advance premium payments of $20,904.

COMMENT: The Marketplace refers to the Affordable Care Act, also known as Obamacare. One guesstimates his/her income for the upcoming year, and - if income is low enough - one is entitled to a subsidy. The subsidy can be handled one of two ways: first, as a monthly reduction of any premium otherwise due; second, as additional tax paid-in when filing the return next year. The advantage to the first is immediate reduction of premiums due now. The advantage to the second is dry powder in case one is over-subsidized. I do not immediately recall a client electing the second option.   

There is a potential problem, though. The subsidy is based on your income, and you are guessing at your income when you request the subsidy. Eventually you have to settle-up this guess by attaching a reconciliation to your tax return - Form 8962 – calculating what your subsidy should have been had you used the actual, final numbers on your tax return. If actual income is lower, you probably have a refund coming. If actual income is higher, you are probably writing a check to the IRS.

In September 2019 the IRS sent a notice requesting Form 8962.

In December 2019 the Walkers sent the 8962.

The IRS processed the form and in March 2020 sent a notice of assessment for $20,904, fully attributable to the ACA subsidy.

By October 2021 interest and penalties had swelled the balance to $27,297. The IRS issued a Notice of Intent to Levy.

The Walkers requested a Collection Due Process hearing.

COMMENT: The Notice of Intent to Levy starts a 30-day calendar on the taxpayer’s ability to stop the lien, which the Walkers did by requesting a CDP hearing.  Mind you, a CDP hearing is not an end-all. For example, one generally cannot contest the existence of the liability itself in a CDP. One would have gone through numerous notices to get to this point, and the IRS would have lost patience. If the taxpayer wants to contest the liability, he/she will have to consider alternatives such as audit reconsideration or an offer in compromise. The IRS wants a payment program as the product of a CDP hearing.

The Walkers requested an installment agreement. The reason they gave was as follows:

Taxpayers do not believe that they agreed to this assessment and do not understand it. If the assessment is correct, taxpayers dispute the penalties because of the IRS’s inactivity on the matter during the pandemic. If there is a liability, taxpayers request an installment agreement.”

There was back and forth, and in January 2024 the (IRS) Settlement Officer decided that the Walkers owed the tax. She did allude to the need for the taxpayers to do something more if they wanted to contest the tax liability itself:

Beside your general statement, you did not submit an amended return or a substantive reconsideration request.”

The taxpayers – surprisingly – withdrew their request for an installment agreement.

At this point, I would normally lose hope for the Walkers. I do not see an immediate way to avoid repaying the excess subsidy, but I nonetheless would have pressed for a payment plan. I would also have requested penalty abatement, as you won’t receive one without asking.

But there is a major technical issue here: had the IRS checked all the boxes to be able to collect the tax?

Let’s go back to the Code sections at the beginning of this post.

Section 6201 addresses what happens when you send in a return showing a tax liability: the system self-assesses. The IRS will ride piggyback on that assessment. Easy. Makes sense.

That is not what happened with the Walkers. The return as originally filed showed a refund, not a liability. The Walkers never filed a return that showed a liability. The Walkers sent a Form (8962) to the IRS, which the IRS processed and somehow generated a liability.

Question: did sending that 8962 create a liability that could be assessed?

We need to be careful with words here. No question the 8962 created a number that – when combined with other numbers on the return – resulted in a liability. What it did not do is show a liability on its own power. Somebody had to do math.

Here is an example: what if the taxpayer had inadvertently omitted estimated tax payments exceeding the subsidy recapture shown on Form 8962? There would be no additional tax, and there would be an additional refund instead.

Here is the Court:

However, we reject respondent’s additional contention that petitioners’ completion of Form 8962 reflects additional tax due which may be assessed under section 6201.”

If this is not an assessment under Section 6201, what is it?

It is a deficiency under Section 6211.

So what?

Look at the italicized portion of Section 6213 above.

… no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer,….

A deficiency presumes that the IRS is matching, changing, moving, eliminating numbers. The IRS is doing math.

And the Code wants a notice mailed to the taxpayer alerting him/her of what the IRS is doing.

There are procedures for enforcing a deficiency, and one is key. We have called it many names over the years - a statutory notice of deficiency, a NOD, a SNOD, a 90-day letter. These are all terms for the following notice:

Code section 6213 requires the IRS to issue a SNOD before it can enforce a deficiency.

What did the IRS fail to do with the Walkers?

Yep, it failed to send a SNOD.

Here is the Court:

With respect to the proposed levy action before us - and having determined the IRS failed to issue a Notice of Deficiency despite … being legally required to do so - we hold that the IRS may not proceed with the collection of the Assessment.”

Howaboutthat?

The Walkers won their case on an especially narrow technical point. Still, a win is a win.

Our case this time was Walker v Commissioner, T.C. Memo 2026-4.

Odd Reason To Be In Tax Court

 

Not all accountants practice tax.

To the contrary, I suspect most accountants do not. The confusion, I suspect, has to do with the CPA license. One associates the license with practicing at a CPA firm, but that is not necessarily true. Most accountants do not practice at a firm, and just practicing at a firm does not mean that one works tax. I have worked with a firm my entire career, and there have been many CPAs – auditors, forensics, valuation experts and so on – who have little crossover with tax. Step outside a firm – say internal audit or accounting at a corporate employer – and those numbers only increase.

I am looking at a pro se case in the Tax Court.

We have discussed pro se many times. It is commonly described as a taxpayer representing himself/herself before the Court. That technically is not true. A taxpayer can have professional representation and still be considered pro se. What it means is that the representative does not have a license to independently practice before the Court. The representative can act as an agent, advocating for and advising a taxpayer, but without that license the taxpayer is still considered pro se.

That license requires one to pass an exam, and the Tax Court exam is commonly considered one of the more challenging exams in tax practice. The exam BTW is not about tax law; rather it is about rules and procedures at the Tax Court. I have been involved in this area for decades, and I admit that those rules and procedures can be a bit … arcane.

Eva Zaczek finds herself in Tax Court. There is only one issue: how much does she owe? The answer in turn depends on how much of her Affordable Care (that is, Obamacare) subsidy was overpaid and now has to be returned. The concept is straightforward: make little money and the subsidy might fully pay for the premiums; make too much money and there is no subsidy at all. The rub is that someone is applying for the subsidy early in the tax year, before knowing what income for the year will be. Take a promotion or job change or marriage – or just ignore the too-much-income issue altogether - and the numbers can swing hard.

The IRS sent Eva a Notice of Deficiency for $2,418.

COMMENT: Eva sent a handwritten tax return, and the IRS made mistakes reading her writing.  

To its credit, the IRS admitted its mistake and revised the balance due to $900.

Eva challenged the calculation.

The rub was line 11 of Form 8962 Premium Tax Credit.

Both Eva and the IRS agreed that the number in box 11(b) should be $7,294.

This box represents the maximum premium that can be subsidized.

Both agreed that box 11(c) should be $9,057.

This amount represents the amount of premium the taxpayer is expected to pay himself/herself, without subsidy.

Eva calculated box 11(d) as $1,763 ($9,057 - $7,294).

Eva got the numbers reversed. Box 11(d) should be minus $1,763 ($7,294 - $9,057).

So?

If you read the instructions, box 11(d) cannot go below zero ($-0-).

Eva was convinced she owed the IRS $1,763.

The IRS said no, no: you only owe us $900.

And Eva was in Court arguing that she owed the $1,763 and not the $900 the IRS was seeking.

Here is the Court:

      

I will spare both of us the difference in tax law between a “deficiency” and a “balance due,” other than to point out the IRS notice that got Eva into Tax Court is called a Notice of Deficiency.

Pro se cases have a reputation for being entertaining, and we have looked at a number of them over the years.

But to go to Tax Court to argue that one owes more than the IRS wants? And this action from an accountant?

I consider this to be shade: 

I truly, truly hope that Eva doesn’t practice anywhere near a tax return.

This time we talked about Eva Zaczek v Commissioner, docket 4667-25S, filed 7/15/26.