Tax Court Upholds IRS Collection Action Despite Late Petition, But Grants Equitable Tolling in CDP Case

Taxpayer Faces $75K in Liabilities as Tax Court Navigates Late Petition and Equitable Tolling

The U.S. Tax Court has carved out fresh authority to bypass jurisdictional hurdles in collection disputes, handing taxpayers a rare lifeline in Salazar v. Commissioner (T.C. Memo. 2026-9). In a ruling that underscores the court’s willingness to assert power over IRS procedural missteps, the court granted equitable tolling to a taxpayer who filed a petition 15 days late, then proceeded to uphold the IRS’s levy determination under an abuse-of-discretion standard. The decision; issued against a backdrop of $75,000 in unpaid tax liabilities for tax years 2014–2017; signals a potential shift in how courts treat late-filed petitions in Collection Due Process (CDP) cases, particularly where IRS errors or taxpayer incapacity are alleged. By sidestepping the strict 30-day deadline under § 6330(d)(1); which governs the jurisdictional window for CDP petitions; the court not only preserved its own authority but also expanded the scope of judicial review in collection matters, a domain historically deferential to the IRS. The ruling arrives amid growing taxpayer frustration with automated IRS collection actions and sets the stage for future challenges to late filings, provided petitioners can demonstrate extraordinary circumstances.

From Delinquent Returns to a $75K Tax Bill: The Story of Diego Salazar

The saga began with Vilsaint St. Louis of Victory Tax Services, who prepared Diego Salazar’s 2014–2017 returns. Salazar filed delinquent returns for 2014 and 2015 on December 27, 2016, but his 2016 and 2017 returns were timely filed. The IRS later examined these returns and found that Salazar had claimed excessive deductions without substantiation. The court would later describe Salazar’s conduct as “mistakes were made” in filing his returns but urged that these mistakes were ‘honest sins of omission only.’”

On January 30, 2019, the IRS issued Salazar a Notice of Deficiency (Notice) for 2014–2017. The Notice determined:

• Tax deficiencies totaling $47,560,
• 20% accuracy-related penalties under § 6662(a) totaling $9,512,
• A § 6651(a)(1) addition to tax for failure to timely file for 2015 only totaling $657.

The Notice informed Salazar of his right to dispute these adjustments by petitioning the Tax Court within 90 days under § 6213(a). Salazar conceded that he “significantly overreported deductions” on his 2014–2017 returns and that he failed to retain records and properly document his deductions.”

The IRS assessed the liabilities as determined in the Notice on August 12, 2019, shortly after Salazar failed to petition the Tax Court. The deficiencies were timely assessed under § 6501(a), and the period of limitations on collection, which runs for 10 years after the date of assessment under § 6502(a)(1), had not yet expired.

On October 27, 2021, the IRS issued Salazar a Notice of Intent to Levy and Your Collection Due Process Right to a Hearing (levy notice). The liabilities appearing on the levy notice included:

• The original deficiencies ($47,560),
• § 6601(a) interest totaling $5,802,
• § 6651(a)(2) additions to tax for failure to pay totaling $11,890.

The levy notice was mailed to Salazar’s last known address in Davie, Florida, where he appeared to have resided in October 2021. Salazar timely requested a CDP hearing by submitting Form 12153, Request for a Collection Due Process or Equivalent Hearing. He checked the box requesting a collection alternative in the form of an installment agreement (IA). Salazar did not challenge his underlying tax liabilities for 2014–2017 in his request.

The Dispute: Salazar Challenges Penalties and Interest, IRS Defends Collection Action

The levy notice Salazar received in October 2021; totaling $11,890 in failure-to-pay additions under § 6651(a)(2); was the IRS’s final warning before pursuing collection action. By the time Salazar timely requested a CDP hearing via Form 12153, he had already conceded that his 2014–2017 returns were inaccurately prepared by Vilsaint St. Louis of Victory Tax Services, resulting in significantly overstated deductions. What Salazar did not concede, however, was the legality of the penalties and interest that the IRS had assessed alongside his underlying tax liabilities. The IRS, in turn, argued that Salazar’s challenges lacked merit and that the Settlement Officer’s (SO) actions were entirely proper.

Salazar’s arguments centered on fairness and alleged misconduct by the IRS or a third party. He claimed that the IRS improperly assessed penalties and interest and that the tax preparer’s fraudulent activities should justify a 50% abatement of penalties and interest under a theory of fundamental fairness. He also argued that the proposed $1,645 monthly installment agreement (IA) was financially untenable, given his inability to pay such a high amount. The IRS, however, maintained that Salazar’s challenges were procedurally barred and that the SO had not abused her discretion in denying collection alternatives.

The IRS contended that Salazar’s penalties and interest were properly assessed under § 6662(a) (accuracy-related penalties) and § 6601 (interest on unpaid tax). The IRS also pointed out that Salazar had a prior opportunity to dispute penalties when he received the Notice of Deficiency (Notice) on January 30, 2019, but he failed to petition the Tax Court in response. The IRS further argued that Salazar did not provide financial information or complete Form 433-A to support his request for a lower IA payment amount. Without this information, the IRS claimed, it could not consider collection alternatives under § 6320(c).

The stakes for Salazar were $75,000 in total liabilities, including penalties and interest, but the broader issue at play was the Tax Court’s authority to review IRS collection actions and the jurisdictional limits of late petitions. The IRS’s refusal to abate penalties and interest raised questions about the IRS’s discretion in collection actions and whether the Tax Court would defer to the IRS’s determinations.

Court Grants Equitable Tolling for Late Petition, Sidestepping Jurisdictional Hurdle

The Tax Court’s decision to grant equitable tolling in Salazar v. Commissioner marks a significant exercise of judicial authority over IRS collection procedures, reinforcing the Supreme Court’s holding in Boechler, P.C. v. Commissioner that the 30-day filing deadline under § 6330(d)(1) is not jurisdictional. The court’s ruling hinged on the IRS’s failure to assert a timeliness defense, effectively waiving its right to challenge Salazar’s late petition and allowing the case to proceed despite the procedural misstep.

The dispute arose when Salazar filed his petition 35 days after the IRS issued a Notice of Determination on June 29, 2023, well beyond the 30-day window prescribed by § 6330(d)(1). That section governs the filing deadline for petitions challenging IRS collection actions under the Collection Due Process (CDP) regime, which provides taxpayers with a limited window to seek judicial review of Appeals’ determinations. The IRS’s Notice explicitly warned Salazar that he had 30 days to file a petition, yet his submission arrived on September 2, 2023; more than a month late.

The court’s analysis began with a critical distinction: § 6330(d)(1) is not a jurisdictional rule but rather a claims-processing statute, meaning its deadlines are subject to equitable tolling under Boechler. The Supreme Court’s 2022 decision upended decades of IRS and lower-court precedent by holding that such deadlines are not absolute bars to judicial review unless Congress explicitly labels them as jurisdictional. The Tax Court seized on this precedent to sidestep Salazar’s late filing, noting that the IRS had waived any timeliness defense by failing to raise it in its Answer or subsequent filings.

The IRS’s failure to assert the untimeliness defense was particularly glaring given its proactive posture in the case. Three months after Salazar filed his petition, the IRS filed a Motion to Remand, urging the court to return the case to Appeals for further consideration. The court seized on this inconsistency, reasoning that the IRS’s conduct amounted to an implicit acquiescence to Salazar’s tolling argument; that he had not received the Notice of Determination; and thus waived any right to challenge the petition’s timeliness. The court’s implicit acceptance of Salazar’s equitable tolling argument underscored its willingness to exercise judicial power over IRS collection procedures, even when the stakes involved a $75,000 tax liability.

The implications of this ruling are profound for future CDP cases. Taxpayers who miss the 30-day deadline may now argue for equitable tolling based on IRS misconduct, failure to receive notices, or other extraordinary circumstances, forcing the IRS to either contest the argument or risk waiving its jurisdictional defense. The court’s decision also signals a broader trend of Tax Court assertiveness in reviewing IRS collection actions, particularly where the agency’s procedural lapses could prejudice taxpayers. For practitioners, the case serves as a reminder that timeliness defenses are not automatic; and that the IRS’s silence on procedural defects can have costly consequences.

Summary Judgment Granted: No Genuine Dispute Over IRS's Discretion in Collection Action

The court’s ruling on summary judgment in Salazar v. Commissioner underscores the Tax Court’s willingness to wield its procedural tools to streamline litigation; while simultaneously reinforcing the IRS’s broad discretion in collection matters. The decision arrives at a pivotal moment, as the court navigates the tension between judicial efficiency and taxpayer protections in collection due process (CDP) cases.

The court granted summary judgment in favor of the IRS after determining that Salazar failed to raise a genuine dispute of material fact regarding the agency’s collection determination. Summary judgment, governed by Rule 121(a)(2), serves as a procedural shortcut to avoid unnecessary trials when the facts are undisputed and the law favors one party. The Tax Court has long embraced this mechanism, as articulated in FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001), where it emphasized that summary adjudication is appropriate when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Here, the court applied this standard rigorously, construing all factual inferences in Salazar’s favor but ultimately finding that his arguments lacked legal or evidentiary support.

The court’s analysis hinged on the dual-track standard of review for CDP cases, as established in Goza v. Commissioner, 114 T.C. 176, 181–82 (2000). Where the taxpayer challenges the underlying tax liability, the court reviews the IRS’s determination de novo. However, where the challenge pertains to the IRS’s collection action itself; such as the appropriateness of penalties, interest, or the terms of an installment agreement; the court defers to the agency’s discretion, reviewing only for abuse of discretion. This bifurcated approach, first articulated in Sego v. Commissioner, 114 T.C. 604, 610 (2000), ensures that the Tax Court does not micromanage the IRS’s collection decisions while still providing taxpayers a meaningful opportunity to contest procedural or substantive errors.

Salazar’s attempt to challenge penalties and interest ran headlong into this framework. The court held that his arguments constituted a challenge to the underlying tax liability, triggering the de novo standard; but only for the penalties, not the interest. The court reasoned that a request to abate penalties under § 6404(f) or interest under § 6404(e) is treated as a challenge to the underlying liability, as seen in Salahuddin v. Commissioner, T.C. Memo. 2012-141, 103 T.C.M. (CCH) 1764, 1767. However, the court also clarified that Salazar had no prior opportunity to dispute the penalties because he received a statutory notice of deficiency (SNOD) for tax years 2014–2017 and failed to petition the Tax Court in response. Under § 6330(c)(2)(B), a taxpayer may challenge the underlying liability in a CDP hearing only if they did not receive a SNOD or otherwise lack a prior opportunity to dispute it. The court found that Salazar’s failure to challenge the SNOD in Tax Court precluded him from raising the penalties later.

The interest issue presented a different wrinkle. While Salazar argued for abatement of interest, the court noted that he had no prior opportunity to dispute it because interest is not determined in the SNOD but arises automatically upon assessment. However, the court held that Salazar failed to properly raise the interest challenge during the CDP hearing, as required by Treas. Reg. § 301.6330-1(f)(2), Q&A-F3 and Giamelli v. Commissioner, 129 T.C. 107, 113 (2007). The regulation mandates that a taxpayer must present evidence to Appeals to preserve an issue for judicial review. Salazar’s argument; grounded in “fundamental fairness” rather than statutory grounds; did not meet this standard. The court emphasized that taxpayers cannot avoid their duty to review returns for accuracy by blaming a preparer, citing Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662 (1987).

The court’s ruling on summary judgment also highlights the Tax Court’s assertive use of its procedural tools to rein in litigation where taxpayers fail to meet their evidentiary burdens. The decision signals that the court will not hesitate to grant summary judgment when a taxpayer’s arguments are legally or factually unsupported, even in complex collection matters. This trend aligns with the court’s broader approach to streamline cases and reduce the backlog of CDP disputes, as seen in recent opinions where the court has shown little tolerance for vague or unsupported claims.

For practitioners, the case serves as a cautionary tale: challenges to penalties and interest must be properly preserved in the CDP hearing, or they risk being deemed waived. The court’s strict application of Treas. Reg. § 301.6330-1(f)(2) and its progeny; Thompson v. Commissioner, 140 T.C. 173, 178 (2013), and Giamelli; demonstrates that the Tax Court will not entertain new arguments on summary judgment if they were not raised before Appeals. This reinforces the importance of thorough and strategic advocacy during the CDP process, where the record is often the sole basis for judicial review.

The Salazar decision also underscores the Tax Court’s deference to the IRS’s collection discretion when the taxpayer fails to meet their burden. The court’s refusal to second-guess the IRS’s determination; absent clear abuse; reinforces the agency’s authority in collection matters, a point of particular significance for taxpayers facing aggressive collection actions. The court’s analysis of the abuse of discretion standard under § 6330(c)(3) aligns with Murphy v. Commissioner, 125 T.C. 301 (2005), where it held that the IRS’s decision will stand unless it is arbitrary, capricious, or without sound basis in fact or law.

In granting summary judgment, the court did not mince words: Salazar’s arguments were either legally foreclosed or factually unsupported. The decision is a stark reminder that the Tax Court’s procedural tools; summary judgment chief among them; are not merely theoretical but actively deployed to resolve disputes efficiently. For the IRS, the ruling is a validation of its collection determinations when taxpayers fail to mount a credible challenge. For taxpayers and practitioners, it is a call to action: meticulous record-keeping, timely challenges, and strategic advocacy are essential to preserving rights in CDP cases.

Abuse of Discretion Standard: Court Upholds IRS's Collection Determination

The Tax Court’s deference to the IRS’s collection determinations in Salazar v. Commissioner underscores the formidable hurdle taxpayers face when challenging the agency’s discretion. The court’s analysis hinged on the abuse of discretion standard, a deferential framework that requires taxpayers to demonstrate the IRS’s decision was arbitrary, capricious, or without sound basis in fact or law. This standard, first articulated in Murphy v. Commissioner, 125 T.C. 301 (2005), grants the IRS broad latitude in collection matters, leaving taxpayers with a high bar to clear.

The IRS’s settlement officer, Aliza Cohen, had verified that Salazar’s tax liabilities for 2014–2017 were properly assessed and that all legal and administrative requirements were satisfied. Her decision to sustain the proposed levy was not merely perfunctory; it was the product of a structured process that included multiple attempts to obtain financial information from Salazar, culminating in an installment agreement (IA) offer of $1,645 per month. The court emphasized that Cohen’s actions were consistent with the IRS’s obligations under Section 6330(c)(3), which requires settlement officers to consider the taxpayer’s ability to pay and explore collection alternatives before pursuing levy action.

Salazar’s argument that Cohen abused her discretion by failing to abate penalties and interest under Section 6404(e) and (f) fell flat. The court noted that Salazar had not submitted a Form 843, the required form for penalty abatement requests, and his belated arguments; raised nearly three years after the penalties were assessed; were untimely and impermissible. The IRS’s refusal to abate penalties was not arbitrary; it was grounded in Salazar’s failure to substantiate his claims or provide any documentation supporting reasonable cause. The court reiterated that taxpayers bear the burden of proving entitlement to abatement, a principle reinforced in Lee v. Commissioner, 155 T.C. 12 (2020), where the Tax Court held that the IRS must abate interest only in cases of unreasonable delay attributable solely to the agency.

The court’s analysis also highlighted the IRS’s generosity in offering an IA despite Salazar’s lack of financial documentation. Cohen’s willingness to propose an IA; even without a completed Form 433-A; demonstrated her consideration of collection alternatives, a requirement under Section 6330(c)(2)(A)(iii). The fact that Salazar ultimately accepted the IA, albeit "under protest," further undermined his claim that the levy action was necessary. The IRS’s Supplemental Notice of Determination correctly concluded that the levy, though appropriate when issued, was no longer justified given the resolution of the underlying liabilities through the IA.

The court’s deference to the IRS’s discretion was not absolute but was tempered by its recognition that Cohen had properly balanced the need for efficient collection with Salazar’s concerns. The IRS’s collection determinations are not subject to second-guessing unless they lack a rational basis, a standard Salazar failed to meet. The court’s ruling reaffirms that the Tax Court will not substitute its judgment for that of the IRS in collection matters, a principle that reinforces the agency’s authority in this domain. For taxpayers, the lesson is clear: challenges to the IRS’s discretion in collection actions are an uphill battle, and meticulous record-keeping and timely advocacy are essential to preserving rights in CDP cases.

What This Case Means for Taxpayers: Key Takeaways from Salazar v. Commissioner

The Salazar decision underscores that while the Tax Court may exercise equitable discretion in rare cases, taxpayers cannot treat late filings as a reliable strategy. The court’s willingness to grant equitable tolling in Salazar was an exception driven by IRS misconduct; not a license for taxpayers to gamble on missed deadlines. Practitioners should advise clients that the Tax Court’s tolerance for late petitions is narrow and fact-specific, and the burden of proving extraordinary circumstances remains high. The case serves as a cautionary tale: even when equitable tolling is granted, it does not guarantee success on the merits.

For challenges to underlying tax liabilities in Collection Due Process (CDP) hearings, Salazar reaffirms the Goza and Sego framework. Taxpayers may only contest the underlying liability if they never received a statutory notice of deficiency or lacked a prior opportunity to dispute it. Salazar’s attempt to challenge penalties and interest failed because he did not raise these arguments during the CDP hearing with sufficient evidence. The court’s summary judgment ruling makes clear that taxpayers must substantiate their positions in real time; not after the fact; when seeking relief from penalties or interest.

The decision also reinforces the IRS’s broad discretion in collection matters, including the authority to reject installment agreements or propose alternative collection methods. The court deferred to the IRS’s determination that Salazar’s proposed payment plan was insufficient, highlighting that the agency’s collection decisions are subject to second-guessing only if they lack a rational basis. This deference extends to penalty assessments, where the IRS’s burden of production is relatively low, and taxpayers bear the heavy lift of proving reasonable cause. Salazar’s attempt to shift blame to his tax preparer for missed filings and unpaid taxes carried no weight, as courts consistently reject such arguments absent extraordinary circumstances.

For practitioners, Salazar’s lessons are clear: meticulous record-keeping, timely responses to IRS notices, and proactive advocacy in CDP hearings are non-negotiable. Taxpayers should treat statutory deadlines as absolute, document every interaction with the IRS, and raise all potential defenses; including penalty abatement and collection alternatives; during the hearing phase. The Tax Court’s deference to the IRS in collection matters means that challenges to discretionary decisions are an uphill battle, and taxpayers who wait until litigation to present new arguments will likely find themselves without recourse. In an era of heightened IRS enforcement, Salazar is a reminder that compliance and diligence are the most effective tools for avoiding liability.