By: Leandra Lederman
In QinetiQ v. Commissioner, the Court of Appeals for the Fourth Circuit refused to invalidate a Notice of Deficiency that simply stated “that QinetiQ ‘ha[d] not established that [it was] entitled’ to a deduction ‘under the provisions of [26 U.S.C.] § 83.’” The taxpayer had argued that the Notice “failed to provide a reasoned explanation for the agency’s final decision, as required by the Administrative Procedure Act (APA), 5 U.S.C. §§ 701-06.” The court’s analysis of this issue focuses on the distinction between court review that is subject to the APA and court review that is not. The QinetiQ court found that review of IRS deficiency actions, which predates the APA, falls into the latter category.
The QinetiQ case can readily be grouped with Mayo Foundation and the post-Mayo cases focused on the intersection of administrative law with federal tax law. In a recent post on the Procedurally Taxing blog, Bryan Camp does a nice job of analyzing the case in that context. But another perspective on the case is that the APA argument in QinetiQ is the latest packaging of some taxpayers’ complaints about uninformative Notices of Deficiency. In fact, QinetiQ also argued that the Notice violated Code section 7522, which requires various IRS notices, including Notices of Deficiency, to “describe the basis for, and identify the amounts (if any) of, the tax due, interest, additional amounts, additions to the tax, and assessable penalties included in such notice.”
As I wrote over two decades ago, in one of my first articles, “‘Civil’izing Tax Procedure: Applying General Federal Learning to Statutory Notices of Deficiency,” 30 U.C. Davis L. Rev. 183 (1996), the conflicts and confusion over the validity of Notices of Deficiency stem from two issues. The first is that courts often focus on only one of the Notice’s functions in isolation, such as its jurisdictional role as the “ticket to Tax Court” in deficiency cases. My 1996 article argued that the Notice of Deficiency not only plays that role, it also provides notice to the taxpayer (like civil process) and acts as an inchoate complaint, helping to frame the issues if a Tax Court case ensues. As I explain there, less content should be required for jurisdictional purposes than to frame the content of the litigation. Code section 7522 arguably reflects this idea, as I’ll explain further below. Continue reading “Deficient Notices of Deficiency and the Remedy Question”