In the next couple of years, tax practitioners should get used to hearing the terms arbitrary and capricious. These terms comes from the Administrative Procedures Act (APA). Under the APA, courts can set aside agency actions that are arbitrary, capricious, or are otherwise not in accordance with the law.
In John Drew v. Comm, TC Memo 2016-97, this issue came up in regards to a levy. The courts founds that in order to not be arbitrary and capricious, the Revenue Officer must: "(1) properly verified that the requirements of any applicable law or administrative procedure have been met; (2) considered any relevant issues petitioners raised; and (3) considered whether 'any proposed collection action balances the need for the efficient collection of taxes with a legitimate concern of **** that any collection action be no more intrusive than necessary.'" These are the requirements set out in IRC 6330.
While this is not new or groundbreaking. Practitioners should be reminded of the second prong in this test: that the IRS needs to consider any relevant issues taxpayers raise. It would seem that if not considering relevant facts is arbitrary and capricious for a levy, then it would also be arbitrary and capricious in most tax decisions. Often Revenue Agents (in unagreed cases) or Revenue Officers (in rejections) will not properly discuss relevant issues brought up during the investigation. In these situations, it appears the final agency decision should be set aside.
Relevant Cites:
Drew v. Commish TC 2016-97
IRC 6330
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