The Failure of Adversarial Process in the Administrative State

Abstract

In a series of hearings in 1997 and 1998, Congress heard allegations that the Internal Revenue Service (IRS or Service) was abusing taxpayers during the process of collecting taxes. The resulting distrust of the tax bureaucracy led Congress to create a special adversary proceeding providing for judicial review of IRS collection decisions. The proceeding is beguilingly titled Collection Due Process (and commonly referred to as CDP). My study of CDP's structure, operation, and of 976 court decisions issued through the end of 2006 demonstrates that it has not fulfilled its promise. It is instead an outstanding regulatory failure. Of the over 15 million collection decisions made since 2000, courts have reviewed at most 3,000 and have reversed only 16. That is a reversal rate of about one in a million. Adversary process is not an effective regulatory mechanism to check government abuses in the modern administrative state. This article pursues two goals. First, it documents and explains CDP's failure to provide a meaningful external check on tax collection abuses. In fact, CDP most likely hurts those who most need its promised protection from arbitrary agency action: the working poor who risk seeing their Earned Income Tax Credit subsidies snatched away by the over-reaching tax collector. Second, the article links CDP's failure to larger questions of the proper role for adversary process in the administrative state. Some commentators contend there can be no proper of without adversarial This study of CDP proves the opposite claim: adversarial process, used in the wrong place and the wrong time, becomes a rule of deception rather than a rule of law. CDP is a failure on many levels, but an instructive one for it tells much about the problem of using adversarial process in the administrative state. This article proceeds in four parts. Because Administrative Law is breathtakingly parochial, the reader needs to understand the particular context of this regulatory program in order to understand the larger point it illustrates. Thus, Part I gives the conceptual overview of tax administration necessary to understand both the evaluation and critique of CDP. Part II then explains the origins and operations of CDP. Part III applies the theory of tax administration developed in Part I to larger administrative law concepts to show how CDP fails to serve its promised purpose, and how it actually harms both taxpayers and the cause of good tax administration. Part IV sketches out some ideas about how tax collection might be structured along the lines of what I term inquisitorial due process.