Tax Court in Brief | Chavis v. Commissioner | Collection Due Process and Trust Fund Recovery Penalty

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The Tax Court in Brief – June 13th – June 17th, 2022

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Tax Litigation:  The Week of June 13th, 2022, through June 17th, 2022

Chavis v. Comm’r, 158 T.C. No. 8 | June 15, 2022 | Lauber, J. | Dkt. No. 11835-20L

Short Summary: During the relevant tax periods, Angela Chavis (“Petitioner”) and her then husband were associated with a C corporation—Oasys Information Systems, Inc. (“Oasys”). Oasys withheld payroll taxes from its employees’ wages; however, those taxes were not paid to the government. Accordingly, the IRS determined trust fund recovery penalties (“TFRPs”) against Petitioner and her then husband, pursuant to Section 6672. On July 13, 2015, the IRS issued to Petitioner a Notice of Trust Fund Recovery Penalty (Letter 1153) and attached Proposed Assessment of Trust Fund Recovery Penalty (Form 2751). Petitioner did not appeal the proposed assessment, and the IRS assessed the TFRPs against Petitioner on November 16, 2015. Petitioner and her husband divorced in 2016.

On May 16, 2019, the IRS issued to Petitioner a Notice of Federal Tax Lien Filing and Your Right to a Hearing (Letter 3172). Petitioner timely requested a CDP hearing on May 29, 2019, and specifically requested currently not collectible status, innocent spouse relief, and/or lien withdrawal. Petitioner separately submitted a Request for Innocent Spouse Relief (Form 8857) in July 2019; however, the IRS denied the Petitioner’s request for failing to meet the eligibility requirements for innocent spouse relief under Section 6015.

On November 19, 2019, Petitioner participated in the CDP hearing with the assigned IRS settlement officer. The settlement officer stated that Section 6015 relief was not available for TFRP liabilities, Petitioner could not challenge her TFRP liabilities because she had a previous opportunity to challenge them, and Petitioner would need to provide a completed Form 433-A to determine if she was eligible for CNC status. Upon furnishing the Form 433-A, the settlement officer determined that she was not eligible and closed the case. Petitioner timely filed a petition with the Tax Court. The IRS subsequently filed a motion for summary judgment.

Key Issues:

Primary Holdings:

Key Points of Law:

Insight: Chavis serves as a warning to taxpayers facing potential TFRP assessments. Taxpayers should not ignore a Letter 1153 (and attached Form 2751) in the hopes of addressing the TFRP assessments later in a CDP hearing or in Tax Court. As the Petitioner here learned the hard way, taxpayers who are given the opportunity to dispute a tax liability (and don’t pursue it) cannot later challenge the tax liability in a CDP hearing. Moreover, taxpayers cannot simply make arguments in a CDP hearing or in Tax Court without providing documentation that supports their position. In particular, when evaluating collection alternatives, documentation is key. Finally, TFRP assessments are not subject to innocent spouse relief—even when they are related to a business a taxpayer operated with his/her (former) spouse.

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