Faisal Ahmed v. Commissioner of IRSFaisal Ahmed v. Commissioner of IRS
* Honorable Thomas L. Ambro assumed senior status on February 6, 2023.
Frank Agostino
Phillip Colasanto [Argued]
Agostino & Associates
14 Washington Place
Hackensack, NJ 07601
Counsel for Appellant
David Hubbert
Michael J. Haungs
Carl D. Wasserman [Argued]
Tax Division
Department of Justice
950 Pennsylvania Avenue, N.W.
Post Office Box 502
Washington, D.C. 20044
Counsel for the Appellee
AMBRO, Circuit Judge.
In 2017, the Internal Revenue Service (IRS) moved to penalize Faisal Ahmed for his company‘s delinquent trust fund taxes. It first attempted to notify Ahmed of its proposed penalties. Whether he received that notification is unclear. There is no doubt, however, that the IRS went ahead and assessed the penalties anyway. And when it later filed liens against his property to secure the penalties, Ahmed took note and immediately sought Collection Due Process review with the IRS Independent Office of Appeals.
While Ahmed‘s petition for review was pending, he sent a large amount of money to the IRS along with instructions that it be treated as a “deposit” to freeze the running of interest on his disputed penalties. But rather than treat Ahmed‘s remittance
We now turn back the clock. Ahmed‘s petition was moot only if the IRS properly treated his remittance as a рayment. That, in turn, depends on whether he sent money to the IRS after it validly assessed his penalties. Because we identify ambiguity in the record on this latter issue, we vacate the Tax Court‘s ruling and remand to the agency for further factfinding.
I. BACKGROUND
A. Aspen Construction‘s tax troubles
Ahmed, a New Jersey resident, was President of Aspen Construction Corporation. Like any employer, Aspen had to pay to the IRS withheld federal income, Social Security, and Medicаre taxes from the wages of its employees—also known as “trust fund taxes” because they are “held to be a special fund in trust for the United States.” See
B. Section 6672 of the Internal Revenue Code
Section 6672‘s “basic purpose is the protection of governmental revenue.” Thomsen v. United States, 887 F.2d 12, 17 (1st Cir. 1989). It was enacted by Congress to address concerns “that corporate employers might collect [trust fund] taxes and fail to pay them over” to the IRS. In re Goldston, 104 F.3d 1198, 1200 (10th Cir. 1997). Guarding against this delinquency,
TFRPs sought by the IRS must be “equal to the total amount of the unpaid taxes,” Brounstein v. United States, 979 F.2d 952, 954 (3d Cir. 1992), and must generally be paid after notice and demand by the IRS if not in dispute, see Kazmi, 2022 WL 601078, at *4. They are “presumptively correct and the burden is on the taxpayer to overcome this presumption by countervailing proof.”2 Psaty v. United States, 442 F.2d 1154, 1161 n.13 (3d Cir. 1971) (addressing § 2707(a) оf the Internal Revenue Code of 1939, the predecessor statute to § 6672).
Because holding an individual liable for a corporation‘s nonpayment of trust fund taxes is strong medicine,
However, when the IRS fails at the outset to send a Letter 1153 to a taxpayer‘s last known address (or otherwise fails to provide a valid
also deliver notice of proposed TFRPs “in person,”
C. The IRS‘s § 6672(b) notice to Ahmed
The IRS sent Ahmed a Letter 1153, but perhaps not to his last known address. The record is too inconsistent to say for sure. See App. 13 (Tax Court Op. 12 n.8) (observing that Ahmed‘s Letter 1153 and photocopied envelope list his street number as “5B” whereas the address Ahmed included on his Form 12153 lists his street number as “58,” along with a different zip code); App. 384 (Ahmed Collection Due Process Supplement) (noting that “Taxpayer‘s address was improperly recorded,” as his street number was listed as “5” rather than “5B.“); Transcript of Oral Argument at 9 (“I know that in оne of [the IRS‘s] records, they had [the street number as “5“] and another one they had 5B, 5B being the proper [street number].“). Adding to the confusion, Ahmed‘s Letter 1153 was returned to the IRS stamped “RETURN TO SENDER, UNCLAIMED, UNABLE TO FORWARD,” App. 272, and Ahmed stated in his declaration that he “does not remember ever receiving the notice required by section 6672(b).” App. 12-13 (Tax Court Op. at 11–12 & n.6). Finally, there is no indication that he ever received correspondence from the IRS аt the address to which the Letter 1153 was mailed. See App. 104–05, 112 (showing that the IRS‘s other communications were sent to Ahmed‘s retained CPA).
D. Subsequent Administrative Action and Proceedings
After Ahmed failed to respond to his Letter 1153, the IRS filed Notices of Federal Tax Liens (NFTLs) against him. Those got Ahmed‘s attention, such that he requested and participated in a Collection Due Process hearing with the IRS Independent Office of Appeals. His efforts were too little, too latе; the Commissioner issued a Notice of Determination in May 2018 sustaining the NFTLs.
Ahmed next petitioned the Tax Court for a review of the Notice of Determination. He claimed a host of procedural errors, including the IRS‘s failure to “provide verification that the requirements of any applicable law and/or procedure were satisfied.” App. 42. After the IRS moved for summary judgment, the Tax Court sustained the Notice of Dеtermination in part and remanded in part. It determined, among other things, that the agency‘s Settlement Officer had failed to verify properly that the IRS mailed notice of the proposed TFRPs to Ahmed‘s last known address per
In May 2020, the IRS Independent Office of Aрpeals conducted a supplemental Collection Due Process hearing following the Tax Court‘s remand. But before the Office of Appeals could issue a new ruling, Ahmed remitted $625,000 to the United States Treasury accompanied by a letter from his counsel styling the amount as a “Deposit in the Nature of a Cash Bond Under IRC § 6603.” App. 297. The letter stated that the amount should be treated as “a deposit . . . within the meaning of Rev. Proc. 2005-18,” an IRS procedure pertaining to the treatment of remittances. App. 298. It requested that the IRS continue to verify that the agency had satisfied the conditions for assessment of the TFRP under Section 6672. And it made one thing especially clear: the remittance “should not be posted as a final payment to Taxpayer‘s account.” Id.
The IRS did not heed Ahmed‘s instructions. It deemed him ineligible for a depоsit under
Ahmed objected to the proposed dismissal of his petition before the Tax Court, arguing that his remittance was merely a deposit and that, in any event, he remained entitled to certain procedural verification requirements. The Tax Court disagreed. It found that the Collection Due Process statute,
II. DISCUSSION
A. If Ahmed‘s June 2020 remittance was a deposit rather than a payment, the case is not moot.
The IRS bears a heavy burden of establishing mootness. See Duncan v. Governor of Virgin Islands, 48 F.4th 195, 204-05 (3d Cir. 2022). It seems to acknowledge, as it must, that if Ahmed‘s June 2020 remittance was an interest-freezing deposit made pending the outcome of the Parties’ litigation, his case is not moot. See, e.g., IRS Br. 23 (“Taxpayer‘s case rests on the central premise that his collection due process suit is ‘alive’ because he merely ‘deposited’ the $625,000 with the Treasury rather than actually paying the tax.“); id. at 16 (“[T]axpayer got the relief he sought when he paid his bill. Case closed. But taxpayer will not take ‘yes’ for an answer.“).
The threshold question, then, is whether Ahmed‘s remittance was a deposit or a payment.
B. To distinguish a tax deposit from a payment of tax, we look primarily for statutory guidance before resorting to the common law.
Historically, the common law served as the exclusive means by which courts classified taxpayer remittances like Ahmed‘s.
More than a half-century later, Congress began to enact provisions specifying situations in which taxpayers can (or cannot) suspend the running of interest on potential tax underpayments by paying a deposit. See, e.g., American Jobs Creation Act of 2004, Pub. L. No. 108-357 § 842, 118 Stat. 1418, 1598 (codified as
C. No statute governs definitively, so we must apply the common law “facts and circumstances” test to evaluate Ahmed‘s remittance.
Based on the spotty record bеfore us, no statutory provision conclusively frames Ahmed‘s remittance as a deposit or a payment. Although Ahmed styled his remittance as a “Deposit in the Nature of a Cash Bond Under IRC § 6603,” App. 297, that Section does not apply to TFRPs.7 Alternatively,
But if Ahmed did not receive a
D. If the IRS failed to provide a § 6672(b) notice to Ahmed, he made a deposit, not a payment, under the “facts and circumstances” test.
There have been many statements of the facts and circumstances test
In a dispute like this one, where a taxpayer responds to a purported assessment with a remittance styled as a deposit, it strikes us that the taxpayer‘s intent will always conflict with the IRS‘s treatment of the remittance. Likewise, we think it plain that a taxpayer contesting liability will invariably submit an orderly remittance that approximates the amount in controversy based on a “good faith estimate.”9 See Huskins v. United States, 75 Fed. Cl. 659, 673 (2007).
That leaves the decisive first factor: the timing of the assessment. On this point, the IRS contends that Ahmed‘s remittance was a payment because it was made “in response to a tax assessment . . . .” See IRS Br. 21. But Ahmed disagrеes. Reply Br. 19 (“A valid assessment is a statutory prerequisite for collection of a tax liability and for treating a deposit as a payment ....“).
As we have discussed, it is not apparent from the record that the IRS gave a legally sufficient
E. If the IRS provided a valid § 6672(b) notice to Ahmed, much of his case is moot.
Importantly, ambiguity in the record can cut both ways. Much like we cannot conclude that Ahmed‘s disputed liabilities were resolved properly, we also cannot say for certain that the IRS was wrong to treat his remittance as a payment. If his Letter 1153 was sent to an appropriate address such thаt he received a valid
If Ahmed made a payment, his case is moot with one possible exception: he may be entitled to request an interest abatement under
have held that “a petition ostensibly filed under [
The Tax Court offered no view on whether Ahmed raised the issue of interest abatement in his Collection Due Process hearing. If he did, the Tax Court had concurrent jurisdiction under
III. CONCLUSION
The Internal Revenue Code sensibly implements procedural safeguards that channel the IRS‘s enormous power to proceed administratively to collect taxes. When those safeguards are set in sequence by statute, the IRS must take care nоt to skip steps. Given our concern that it may have done so with a deficient