Our Country Home Enterprises, Inc. v. Commissioner
2017 U.S. App. LEXIS 7891
| 7th Cir. | 2017Background
- Our Country Home (OCH) participated in the Sterling Plan and failed to file Form 8886; the IRS assessed a $200,000 §6707A reporting penalty for a listed transaction.
- OCH accepted and participated in a preassessment administrative conference with the IRS Office of Appeals, which sustained the §6707A penalty and closed the case.
- The IRS later assessed the penalty, issued a final notice of intent to levy, and OCH requested a Collection Due Process (CDP) hearing to challenge liability again.
- At the CDP hearing the Appeals officer concluded OCH’s liability challenge was precluded because OCH had already had an opportunity to dispute liability before the Appeals Office; the officer dismissed the challenge and sustained the levy.
- OCH petitioned the Tax Court; the Tax Court granted summary judgment for the government, holding §6330(c)(2)(B) barred OCH’s CDP liability challenge. OCH appealed to the Seventh Circuit.
- The Seventh Circuit affirmed, rejecting mootness/collateral-estoppel arguments and holding (1) §6330(c)(2)(B)’s “opportunity to dispute” includes prior administrative Appeals conferences and (2) §6330(c)(4)(A)’s “issue” covers liability issues previously raised and meaningfully litigated.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Mootness / collateral estoppel | Prior Tax Court deficiency ruling makes this CDP appeal irrelevant; outcome already determined | Collateral estoppel cannot moot the case; the CDP hearing included distinct challenges (e.g., penalty calculation) that tax-court deficiency proceedings did not resolve | Appeal not moot; collateral estoppel did not bar review because distinct issues remained and estoppel is an affirmative defense |
| Meaning of §6330(c)(2)(B): whether a prior “opportunity to dispute” requires a prior judicial (tax-court) opportunity | “Opportunity to dispute” means a prior judicial opportunity (ensures prepayment judicial review is preserved for nondeficiency penalties) | It includes prior administrative opportunities (Appeals conferences), as reflected in Treasury Regulation §301.6330–1(e)(3) Q&A–E2; Chevron deference applies | Held for defendant: statute ambiguous; IRS regulation reasonably interprets “opportunity to dispute” to include prior Appeals Office conferences (excluding preassessment conferences for deficiency procedures) |
| Scope of §6330(c)(4)(A): does “issue” include liability challenges previously raised administratively? | “Issue” does not encompass liability; reading §6330(c)(4)(A) to include liability conflicts with regulation protecting preassessment review for deficiency-related taxes | The plain text of §6330(c)(4)(A) covers issues raised and considered in prior administrative or judicial proceedings; OCH participated meaningfully previously | Held for defendant: §6330(c)(4)(A) bars relitigation—liability is an “issue” and OCH meaningfully participated in the earlier Appeals proceeding |
Key Cases Cited
- Gyorgy v. Commissioner, 779 F.3d 466 (7th Cir.) (describing CDP process and de novo tax-court review of liability)
- Laing v. United States, 423 U.S. 161 (U.S.) (definition of a tax deficiency)
- Flora v. United States, 362 U.S. 145 (U.S.) (rationale for prepayment judicial review of deficiencies)
- Murray v. Commissioner, 24 F.3d 901 (7th Cir.) (notice of deficiency and access to tax court)
- Dalton v. Commissioner, 682 F.3d 149 (1st Cir.) (description of informal nature of CDP hearings)
- Iames v. Commissioner, 850 F.3d 160 (4th Cir.) (interpreting §§6330(c)(2)(B) and (c)(4)(A) to preclude repeated liability challenges)