The Collection Due Process (“CDP”) hearing is often viewed as a last resort for taxpayers facing IRS Tax Collections. While these hearings provide important taxpayer protections, one of the most misunderstood aspects is when a taxpayer can challenge their underlying tax liability. Many taxpayers assume they can always dispute how much they owe during a CDP hearing. The reality is more nuanced. The Tax Court’s recent decision in Besore v. Commissioner, T.C. Memo. 2025-10, provides an opportunity to examine when taxpayers can – and cannot – challenge their underlying tax liability during CDP proceedings.
Facts and Procedural History
The collection case began with IRS Adjustments to Income through the Automated Underreporter Program, which identified discrepancies between the taxpayer’s reported income and information returns filed by third parties. The IRS sent notices proposing adjustments for tax years 2014 and 2015. When the taxpayer failed to respond to these initial notices, the IRS issued statutory notices of deficiency. The taxpayer did not petition the Tax Court in response to these notices, leading to default assessments of the additional tax.
After receiving Notices of Intent to Levy, the taxpayer requested a CDP hearing with the IRS Independent Office of Appeals. During the hearing process, she attempted to dispute her underlying tax liabilities and argued that the IRS had improperly applied various payments and credits to her account.
The matter eventually reached the Tax Court after the taxpayer disagreed with the Appeals Office’s determination to sustain the proposed levy action. The case went through multiple stages, including a remand to Appeals for a supplemental hearing, as the taxpayer continued to dispute both the underlying liabilities and the application of payments to her account.
The Collection Due Process Framework
The CDP provisions, found in Sections 6320 and 6330 of the tax code, establish important taxpayer rights in the collection context. These provisions require the IRS to provide taxpayers with notice and an opportunity for a hearing before proceeding with certain collection actions, such as federal tax liens and levies.
The CDP hearing serves as a procedural checkpoint where taxpayers can raise various issues, including challenges to the underlying tax liability in appropriate circumstances.
Section 6330(c)(2)(B) specifically addresses when taxpayers can dispute their underlying tax liability during a CDP hearing. This provision states that taxpayers may raise challenges to the underlying tax liability only if they “did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.”
Prior Opportunities to Challenge Tax Liability
The key question in analyzing whether a taxpayer can challenge their underlying liability in a CDP hearing is whether they had a prior opportunity to dispute the liability. The Tax Court has previously established that receipt of a statutory notice of deficiency constitutes a prior opportunity, regardless of whether the taxpayer actually took advantage of that opportunity by petitioning the Tax Court.
In Besore, the taxpayer received statutory notices of deficiency for tax years 2014 and 2015 but did not petition the Tax Court within the 90-day period allowed under Section 6213(a). This prior opportunity precluded her from challenging those liabilities in the CDP hearing, even though she never actually presented her arguments to any court or administrative body.
The situation differed for tax years 2009, 2016, and 2017, where the liabilities were self-reported on the taxpayer’s original returns. For these years, the taxpayer’s arguments centered on the application of payments rather than the underlying liability itself.
The Court’s Analysis of CDP Liability Challenges
The Tax Court’s analysis focused on the distinction between years where the taxpayer had received notices of deficiency and years involving self-reported liabilities. For 2014 and 2015, the court held that Section 6330(c)(2)(B) barred the taxpayer from challenging the underlying liabilities because she had received notices of deficiency but failed to petition the Tax Court.
For the self-reported years, the court determined that the taxpayer’s arguments about payment application did not constitute proper challenges to the underlying liability. This highlights an important distinction between disputing the fundamental tax liability versus disagreeing with how payments were applied to that liability.
The Takeaway
This case shows why taxpayers must act promptly when receiving statutory notices of deficiency. Failing to petition the Tax Court will permanently foreclose their ability to challenge those liabilities in a subsequent CDP hearing. Also, taxpayers who miss this deadline have to distinguish between true liability challenges and disputes over payment application. Payment application disputes, while important, do not constitute challenges to the underlying liability and are reviewed under a different standard.