Tax Court in Brief | Jackson v. Commissioner | What’s at Issue in Reviewing the Determination of a Collection Due Process Hearing?

The Tax Court in Brief – May 9th – May 13th, 2022

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Tax Litigation:  The Week of May 9th, 2022, through May 13th, 2022

• Lewis v. Commissioner, TC Memo. 2022-47| May 9, 2022 | Greaves, J. | Dkt. No. 10007-20W
• Rogerson v. Commissioner, TC Memo. 2022-49| May 12, 2022 | Toro, J. | Dkt. No. 5848-20
• Evert v. Comm’r, T.C. Memo. 2022-48| May 9, 2022 | Marshall, A | Dkt. No. 12901-19
• Harrison v. Comm’r, T.C. Memo 2022-6 | May 12, 2022 | Panuthos, J | Dkt. No. 12170-19S

Jackson v. Comm’r, T.C. Memo. 2022-50 | May 12, 2022 | Vasquez, J. | Dkt. No. 19634-18L

• Opinion

Short Summary:  Petitioners, a married couple residing in Kansas, timely filed their Forms 1040, Individual Income Tax Returns, for 2012, 2013, 2014, 2015, and 2016 but did not fully pay the tax shown on those returns.  The Internal Revenue Service (“IRS”) assessed the balance of the unpaid tax, plus additions to tax and interest.

In January 2017, petitioners submitted a Form 9465, Installment Agreement Request, and Form 433-F, Collection Information Statement.  Petitioners requested a monthly installment payment of $556.  The IRS rejected this request on the grounds that petitioners had enough cash or equity to pay at least part of the balance due. The IRS also told petitioners that they would need to make all required estimated tax payments in order to become eligible for an installment agreement.

In July 2017, the IRS issued petitioners a notice of federal tax lien for 2012 through 2016. In November 2017, the IRS also issued a notice of federal tax lien for 2016. Both notices informed petitioners of their right to request a collection due process (“CDP”) hearing within 30 days of the date of the notices.  Petitioners did not request a CDP hearing within that timeframe.

In February 2018, the IRS issued petitioners a notice of intent to levy for 2012 through 2016. Petitioners’ authorized representative submitted a Form 12153, Request for a Collection Due Process or Equivalent Hearing, for 2006 through 2016. The Form 12153 indicated that petitioners were seeking 1) review of the notices of federal tax lien and the levy notice, 2) an installment agreement as a collection alternative, and 3) innocent spouse relief. Petitioners did not attach a Form 8857, Request for Innocent Spouse Relief, as instructed by the Form 12153.

Appeals found that the Form 12153 was timely as to the proposed levy but untimely as to the notices of federal tax lien. Thus, petitioners were granted a CDP hearing with respect to the proposed levy and an equivalent hearing with respect to the notices of federal tax lien.[1] Appeals also found that the only years properly at issue in these hearings were 2012 through 2016.

The assigned settlement officer (“SO”) found that the tax liabilities had been properly assessed and that all other legal requirements had been met. The SO also determined that petitioners were not current on their estimated tax payments and that their previously filed financial statement showed that the petitioners had equity in real property of around $98,000.

On May 2018, the SO sent petitioners and petitioners’ authorized representative a letter scheduling a telephone conference for June 14, 2018. This letter also informed petitioners that within 14 days of the date of the letter, they needed to submit 1) a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, 2) a list of their assets with current fair market values, 3) bank statements for the last three months, 4) proof that they had made all required estimated tax payments for 2017 and 2018, and 5) a proposed resolution.

Petitioners did not submit anything in response to this letter. During the scheduled telephone conference, petitioner’s authorized representative confirmed that petitioners had not submitted any of the requested documents and did not dispute the appropriateness of the assessments or liens. Their authorized representative only raised the issue of the rejected installment agreement and stated that petitioners were attempting to obtain a loan. The SO told the authorized representative that the petitioners were not eligible for an installment agreement. The SO and advised the authorized representative that petitioners make their estimated tax payments for 2018, continue the process of obtaining a loan, and then contact the IRS for further consideration. The SO received no further communication from the petitioners after this telephone call.

On September 5, 2018, Appeals issued a notice of determination sustaining the proposed levy and a decision letter upholding the notices of federal tax lien.[2] Petitioners timely filed a petition with the Tax Court. In their petition, petitioners stated only that they would like interest and penalties to be abated and an installment plan for the taxes due. The IRS filed a motion for summary judgment.

Key Issues

• Was there no genuine dispute of material fact and could decision be rendered for the IRS as a matter of law?
  • Was the validity of petitioners’ underlying tax liability at issue?
  • Did the SO properly verify that all requirements of applicable law and administrative procedure were met?
  • Did the SO properly consider any relevant issues that petitioners had raised?
  • Did the SO properly consider whether the proposed collection action balanced the need for the efficient collection of tax with petitioners’ legitimate concern that collection action be no more intrusive than necessary?

Primary Holdings

• Yes, there was no genuine dispute of material fact and decision could be rendered for the IRS as a matter of law.
  • No, the validity of petitioners’ underlying tax liability was not at issue. Petitioners did not contest the underlying tax liability during the CDP hearing and could not challenge this liability before the Tax Court. Moreover, because the validity of the underlying tax liability was not at issue, the SO’s determination was reviewable for abuse of discretion.
  • Yes, the SO properly verified that all requirements of applicable law and administrative procedure were met. Petitioners did not allege that the SO failed to meet this requirement, thereby conceding the issue, and the record showed that the SO conducted a thorough review of the transcripts for the years in question.
  • Yes, the SO did not abuse his discretion by declining to consider petitioners’ collection alternative when petitioners had failed to pay required estimated tax payments and had failed to provide required financial information.
  • Yes, the SO’s conclusion that the proposed levy action balanced the need for efficient tax collection with petitioners’ legitimate concerns about intrusiveness was sustained. Petitioners did not allege that the SO failed to meet this requirement, thereby conceding the issue.

Key Points of Law

• The purpose of summary judgment is to expedite litigation and avoid unnecessary trials. Peach Corp. v. Comm’r, 90 T.C. 678, 681 (1988).
• The Tax Court may grant summary judgment when there is no genuine dispute of material fact and a decision may be rendered as a matter of law. See Tax Court Rule 121(b), Sundstrand Corp. v. Comm’r, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994).
• The Tax Court construes facts and inferences drawn from them in the light most favorable to the nonmoving party when deciding whether to grant a motion for summary judgment. Sundstrand Corp., 98 T.C. at 520.
• However, the nonmoving party may not rest upon the mere allegations or denials in their pleadings but must set forth specific facts showing that there is a genuine dispute for trial. Tax Court Rule 121(d); see Sundstrand Corp., 98 T.C. at 520.
• Where the validity of a taxpayer’s underlying liability is properly at issue, the Tax Court reviews an SO’s determination de novo. Sego v. Comm’r, 114 T.C. 604, 610 (2000).
• Where there is no dispute as to the taxpayer’s underlying liability, the Tax Courts reviews the SO’s determination for abuse of discretion. Cropper v. Comm’r, 826 F.3d 1280, 1284 (10th Cir. 2016), aff’gC. Memo. 2014-139; Goza v. Comm’r, 114 T.C. 176, 182 (2000).
• Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. See Murphy v. Comm’r, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).
• A taxpayer may challenge their underlying tax liability during a CDP hearing if the taxpayer did not receive a statutory notice of deficiency or any other prior opportunity to dispute the underlying tax liability. I.R.C. § 6330(c)(2)(B).
• “Underlying tax liability” in this context means the tax due, any additions to tax, plus interest. Katz v. Comm’r, 115 T.C. 329, 338–39 (2000).
• The Tax Court considers a challenge to the underlying tax liability in a collection action only if the taxpayer properly raised the challenge at the administrative hearing. Giamelli v. Comm’r, 129 T.C. 107, 115 (2007).
• An issue is not properly raised at an administrative hearing if the taxpayer fails to request consideration of the issue or requests consideration but fails to present any evidence after receiving a reasonable opportunity to do so. Giamelli, 129 T.C. at 115–16; Gentile v. Comm’r, T.C. Memo. 2013-175, at *6–7, aff’d, 592 F. App’x 824 (11th Cir. 2014).
• In deciding whether an SO abused their discretion in sustaining a collection action, the Tax Court considers whether they: (1) properly verified that the requirements of applicable law or administrative procedure have been met, (2) considered any relevant issues petitioners raised, and (3) considered whether the proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. SeeR.C. § 6330(c)(3); Ludlam v. Comm’r, T.C. Memo. 2019-21, at *9–10, aff’d per curiam, 810 F. App’x 845 (11th Cir. 2020).
• The Tax Court may review satisfaction of the verification requirement regardless of whether the taxpayer raised the issue at the CDP hearing. See Hoyle v. Comm’r, 131 T.C. 197, 202–03 (2008), supplemented by 136 T.C. 463 (2011).
• Any issue not raised in assignments of error is deemed to be conceded. Tax Court Rules 121(d), 331(b)(4).
• An SO does not abuse their discretion by declining to consider a collection alternative for taxpayers who have failed to make required estimated tax payments. See Giamelli, 129 T.C. at 111–12.
• “Compliance with filing . . . [and] paying estimated taxes . . . must be current from the date the installment agreement begins.” Internal Revenue Manual 5.14.1.4.2(19) (July 16, 2018).
• It is not an abuse of discretion for an SO to reject collection alternatives where taxpayers refuse to supply the required financial information. See, e.g., Solny v. Comm’r, T.C. Memo. 2018-71.

Insights: This case underscores the importance of at least attempting to meet all requirements for the relief requested from the IRS, including submitting all required forms, documentation, and estimated tax payments.  This case also is an object lesson in what happens when taxpayers challenge the underlying tax liability before the Tax Court without having done so in their CDP hearing—the Tax Court may not be too keen on entertaining the challenge and could apply a heightened standard of review to other issues. Finally, this case demonstrates that if a taxpayer does not raise an issue in a petition, the taxpayer may be deemed to have conceded that issue. In short, taxpayers should maintain diligence throughout all stages of a tax controversy in order to best protect their position.

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[1] The main difference between a CDP hearing and an equivalent hearing is that a CDP hearing is subject to judicial review while an equivalent hearing is not. See Craig v. Comm’r, 119 T.C. 252, 258–59 (2002); Treas. Reg. § 301.6320-1(i)(2), Q&A-I6.

[2] Since the decision letter for the notices of federal tax lien related to an equivalent hearing, the decision letter was not before the Tax Court. See Craig, 119 T.C. at 258–59; Treas. Reg. § 301.6320-1(i)(2), Q&A-I6.