The term ‘standard of review’ refers to how the court looks at various types of cases, what it will be looking for and what evidence it will consider in examining the case. The court applies different standards in examining different types of cases. It considers petitions for deficiency notices “de novo,” which means “from the beginning.” That means the judge considers the case based on the evidence presented at the trial, without reference to the administrative record.[1] Naturally, either party may seek to place documents from that record into evidence, but it is not a requirement and either party may oppose the introduction of parts of the administrative record based on the “de novo” principle of a new examination of the facts.
For example, should the IRS attempt to place into evidence a letter you wrote to them during your audit that makes an argument you later learn is flawed or that you will not be making in your case, you may exclude that letter because it is not relevant to the issues in your petition. You will present new evidence to the court and not rely on what has gone before.
When petitioning a lien or levy action on a Notice of Determination, the standard of review is for “abuse of discretion” by the IRS appeals office that held the CDP hearing. Generally the court considers only the administrative record. In this type of case, if you didn’t raise an issue in your hearing, you won’t be able to raise it in Tax Court.
If you win on the standard of “abuse of discretion” your victory will mean you go back to the same people who abused their discretion in the first place. This time they will be under instructions from the court to treat you properly.
Notices of Determination come out of Collections Due Process (CDP) hearings. These are administrative hearings to determine how you are going to pay and whether a lien or levy is justified, not whether you owe the money. If you lost a Tax Court case, for example, and are trying to negotiate how you will pay the resulting assessment, you will be granted a CDP hearing for that purpose. But since you already had a chance to dispute the liability and lost, or if you lost by default by missing the petition deadline in Tax Court, you may not dispute it again without paying it.
Your Notice of Deficiency was your opportunity to challenge the liability. If you miss that opportunity but still want to challenge the tax, you must pay it, then sue to get it back in district court. You may not challenge liability at a CDP hearing unless you have not had a previous opportunity to do so.
If you have never had the opportunity to challenge the underlying liability for the tax the IRS is trying to collect by lien or levy, the standard of review changes. In such cases, the standard is “de novo” and new evidence may be presented that did not appear in the administrative record.
This situation applies generally to civil penalties for filing frivolous returns. In those cases the IRS assesses penalties and starts collections without a deficiency notice. (See § 6703(b). In that situation when you petition the Tax Court …
[1] The “administrative record” is the collection of all the correspondence, notices, assessments, records of meetings, financial records, phone calls, notes and e-mails that have anything to do with the case. It includes the IRS’ computer records and internal documents as well, which you can get through FOIA (Freedom of Information Act) requests.
