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July 2, 2017


Collections due process and corporate tax payers

In several high-profile decisions in recent years, the U.S. Supreme Court has affirmed and strengthened the rights of corporations as legal persons.

In Citizens United (2010), the Court held in favor of the free speech rights of corporate entities. In Hobby Lobby (2014), the Court found in favor of closely-held businesses’ religious freedom rights.

But can a corporate taxpayer experiencing economic hardship get the same type of relief of IRS debt collection that is available to individuals?

In a case decided last month, the Tax Court said no. The court ruled that non-individual taxpayers cannot challenge a proposed tax levy in a collection due process hearing based on financial hardship.

The case concerned a company from which the IRS was seeking to collection employment taxes. The IRS sent a Letter 1058, a final notice of intent to levy and right to a hearing.

In the collection due process hearing in the IRS Appeals office, the corporate taxpayer argued that the levy should be released due to the financial hardship it would cause for the taxpayer.

The IRS collections’ division argued that the economic hardship exception applied to individuals, but not to corporations. The IRS Appeals office ruled for the IRS and the taxpayer brought a challenge in Tax Court.

Formally, at issue was the Treasury Department regulation that grants relief from collection action based on financial hardship. The key term in that regulation, the Tax Court said, was “individual taxpayer.” The court reasoned that this term, in this context, does not allow for economic hardship relief for corporations.

Tax Controversy