The Tax Times: CDP Is Not a Do‑Over: Diversified Group Learns That An Appeals Opportunity Can Be Fatal To a Tax Court Case If Ignored

Friday, February 27, 2026

CDP Is Not a Do‑Over: Diversified Group Learns That An Appeals Opportunity Can Be Fatal To a Tax Court Case If Ignored

In The Diversified Group Incorporated, 166 T.C. No. 2, 2/23/2026), the court held that an IRS post-assessment offer of an Appeals conference regarding assessable penalties is a prior “opportunity to dispute” the liability under section 6330(c)(2)(B), which bars later challenges to the underlying liability in CDP hearings and in Tax Court.

Core holding

· Diversified Group and its president James Haber were assessed section 6707 penalties (about 41.2 million dollars) for failing to register “Son-of-BOSS”–type tax shelters under section 6111 for 1999–2002.

· After assessment, the IRS sent letters (Dec. 2013 and Feb. 2014) expressly offering a conference with IRS Appeals and explaining how to protest the penalties.

· Petitioners declined to pursue Appeals and later tried to contest the penalties in CDP proceedings and then in Tax Court under section 6330(d).

· The Tax Court (Judge Toro) held that the offered Appeals conference was an “opportunity to dispute” the liability within the meaning of section 6330(c)(2)(B) and Treas. Reg. § 301.6330-1(e)(3) Q&A–E2.

· Because petitioners had that opportunity and chose not to use it, they were precluded from challenging the underlying section 6707 liabilities in their CDP hearings and thus in Tax Court, following Lewis v. Commissioner, 128 T.C. 48 (2007).

Key reasoning points

· An Appeals “opportunity” need not be a formal in‑person meeting; correspondence or calls with Appeals satisfy the regulation.

· Taxpayers cannot refuse to engage with the offered administrative remedy and then argue that the remedy was not “meaningful” or was “precooked.”

· A mere offer of Appeals review, when accompanied by clear instructions on how to obtain that review, is enough to trigger section 6330(c)(2)(B)’s bar, even for post‑assessment, non–deficiency penalties like section 6707.

Other issues

· The court granted the Commissioner partial summary judgment on the section 6330(c)(2)(B) issue and on the Appointments Clause argument; it held the Appeals settlement officer was properly appointed.

· The court did not reach the Eighth Amendment excessive fines argument because petitioners were entirely barred from disputing the underlying liability; that issue was therefore moot.

· A due process (Fifth Amendment) claim was not clearly raised and did not alter the result.

Practical takeaway for practice

For assessable penalties, if the IRS issues a post‑assessment letter offering Appeals review and explaining how to request it, that documented offer can permanently foreclose later liability challenges in CDP and Tax Court under section 6330(c)(2)(B) if the taxpayer does nothing. This makes it critical to calendar and respond to any Appeals‑offer letters in penalty cases, including section 6707 and similar promoter or information‑return penalty contexts.

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