Opinion
21210-19L
12-22-2022
ALL IS WELL HOMECARE SERVICES, LLC, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
David Gustafson Judge.
This is a Acollection due process@ ("CDP") case brought under section 6330(d),in which petitioner challenges a notice of intent to levy issued by the Internal Revenue Service ("IRS") and sustained by its Office of Appeals ("IRS Appeals") in a notice of determination, in which IRS Appeals sustained both the proposed levy and the non-acceptance of an Offer In Compromise ("OIC"). Respondent, the Commissioner of Internal Revenue, has filed a motion for summary judgment, which we will deny as to the levy determination.
Unless otherwise indicated, statutory references are to the Internal Revenue Code ("the Code", Title 26 of the United States Code) as in effect at the relevant times; and Rule references are to the Tax Court Rules of Practice and Procedure.
In addition to the notice of intent to levy and the related notice of determination, the IRS issued to petitioner a "Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320" ("NFTL"; Doc. 11 at 29), dated March 7, 2019, and IRS Appeals sustained the NFTL in a "Decision Letter on Equivalent Hearing" (Doc. 11 at 6), dated November 1, 2019. We do not address the lien activity in this order. In a separate order (Doc. 29) we have directed the parties to make additional submissions addressing a jurisdictional issue.
For some of the liabilities at issue here, petitioner previously submitted to the IRS an "Offer in Compromise" ("OIC") dated October 17, 2016. (Doc. 19 at 2.) The IRS rejected that previous OIC in November 2018. (Doc. 19 at 2; Doc. 21 at 49; see also Docket No. 25756-18.) This previous OIC and the IRS's rejection thereof are not at issue here.
Background
Petitioner, its owner, and its liabilities
Petitioner is identified in the petition as All Is Well Homecare Services, LLC. (Petitioner sometimes refers to itself by the shorter name "All Is Well LLC", Doc. 11 at 37, and sometimes the longer name "All Is Well Home Health Care Services, LLC", Doc. 21 at 9.) Its sole member and owner is Dinah Opoku-Manu who sometimes calls herself "petitioner". (See Doc. 19 at 13 ("Petitioner is a 1040 filer and operates her business as a single member LLC or a disregarded entity taxed as a sole proprietorship"); Doc. 20, para. 1.) We refer to the LLC and the owner collectively as "petitioner", and when they must be referred to distinctly we refer to them as "the LLC" and "Ms. Opoku-Manu".
The liabilities and the levy notice
As of March 2019, petitioner had reported, but had not paid, employment tax liabilities on Form 940, "Employer's Annual Federal Unemployment (FUTA) Tax Return", for the year 2013, and on Form 941, "Employer's Quarterly Federal Tax Return", for eight calendar quarters in 2014-2016. The liabilities at issue were assessed as reported by petitioner (Doc. 10 at 8), and not as the result of IRS audits and determinations. The unpaid liabilities totaled over $360,000.
On March 18, 2019, respondent issued to petitioner a "Final Notice / Notice of Intent to Levy and Notice of Your Rights to a Hearing" ("the levy notice", Doc. 22 at 34) for those liabilities. The levy notice came from the IRS's Small Business / Self Employed Division ("SBSE") in Fredericksburg, Virginia, and it identified the "Person to Contact" as Revenue Officer "T. Tilden". The levy notice instructed that, if the taxpayer wanted to request an Appeals hearing, it should send the request "to the above address"-i.e., to SBSE in Fredericksburg.
April 2019 OIC
Petitioner's representative spoke with RO Tilden and expressed a desire to submit an OIC. RO Tilden instructed him to send the OIC to her attention and "advised that a separate OIC must be filed for business and one for personal. [The representative] advised he is aware." (Doc. 22 at 81; Doc. 18, paras. 1-2.) On April 11, 2019, petitioner submitted to the IRS a Form 656, "Offer in Compromise". (Doc. 20, para. 13.) The OIC proposed to compromise not only the LLC's employment tax liabilities that were the subject of the IRS's collection notices that we review here but also additional liabilities-i.e., Ms. Opoku-Manu's liabilities for income taxes for the years 2010-2018 and Trust Fund Recovery Penalty for 2012-2016 (Doc. 21 at 8). That is, Ms. Opoku-Manu wanted to settle not only the LLC's employment tax liabilities but also her own individual income tax liabilities.
Ms. Opoku-Manu's affidavit states that the OIC was submitted April 11, 2019 (Doc. 20, para. 13). However, her representative's transmittal letter (Doc. 21 at 4) was dated March 18, 2019 (the mailing date of the levy notice). Two checks for $186 filing fees were dated 3/22/19, and a cashier's check for $14,000 was dated 1/23/19 (months before the levy notice). The Form 656 (Doc. 21 at 14) and its associated Forms 433-A (OIC), "Collection Information Statement for Wage Earners and Self-Employed Individuals" (Doc. 21 at 25), and 433-B, "Collection Information Statement for Businesses" (Doc. 21 at 33), have signature dates of 4/2/19. For purposes of the Commissioner's motion, we assume the April 11 date that Ms. Opoku-Manu alleges.
The OIC checks a box for "Trust Fund Recovery Penalty" (i.e., under section 6672(a)) and identifies Ms. Opoku-Manu as "a responsible person of" the LLC. It would seem that, because the LLC and its owner are a single taxpayer, a section 6672(a) penalty against the owner is redundant of her liability for the employment taxes in the first instance. Presumably the Commissioner will not collect the liability more than once, and petitioner does not assign any error to this anomaly.
Petitioner's OIC included the following documents: a cover letter (Doc. 21 at 4), the Form 656 itself (Doc. 21 at 8), Form 433-A (OIC), "Collection Information Statement for Wage Earners and Self-Employed Individuals" (Doc. 21 at 25), and Form 433-B, "Collection Information Statement for Businesses" (Doc. 21 at 33). Petitioner's submission also included two checks for the $186 filing fees (intended as one for the LLC and one for Ms. Opoku-Manu) and a cashier's check for $14,000 to pay the offered tax amount (Doc. 21 at 6).
The Commissioner's reply in support of his motion states: "Respondent does not stipulate to or concede the authenticity of these exhibits, but for the limited purposes of respondent's MSJ, will proceed under the assumption that they are authentic and accurate so as to construe the facts in a manner most favorable to the non-moving party (petitioner). Sundstrand Corp. v. Commissioner, 98 T.C. at 520". The statement reflects a correct understanding of summary judgment procedure (i.e., that we construe facts in the non-movant's favor).
The Form 656 has a Section 1 for "Individual Information (Form 1040 filers)" and a Section 2 for "Business Information (Form 1120, 1065, etc. filers)". Instructions near the top of the form state (Doc. 21 at 8):
Include the $186 application fee and initial payment . . . with your Form 656. You must also include the completed Form 433-A (OIC) and/or 433-B (OIC) and supporting documentation. You should fill out either Section 1 or Section 2, but not both, depending on the tax debt you are offering to compromise.
The instructions at the beginning of Section 1 (for individuals) state (Doc. 21 at 8):
If you are a 1040 filer, an individual with personal liability for Excise tax, individual responsible for Trust Fund Recovery Penalty, self-employed individual, individual personally responsible for partnership liabilities, and/or an individual who operated as a disregarded single member Limited Liability Company (LLC) taxed as a sole proprietor prior to 2009 you should fill out Section 1.
In Section 1 a taxpayer can check boxes to include in her offer "1040 income tax" (i.e., individual income tax reported on Form 1040), TFRP, and employment taxes-all of which petitioner wanted to compromise.
The instructions at the beginning of Section 2 (for businesses) state (Doc. 21 at 9):
If your business is a Corporation, Partnership, LLC, or LLP and you want to compromise those tax debts, you must complete this section. You must also include all requested documentation including the Form 433-B (OIC), and a separate $186 application fee, and initial payment.
In Section 2 a taxpayer can check boxes to include in her offer "1120 income tax" (i.e., corporate income tax reported on Form 1120) and employment taxes, but no checkbox specifies individual income tax or TFRP. (There is, however, a box for "Other Federal Tax(es)".)
Despite the form's initial instructions ("but not both"), petitioner filled out both Section 1 and Section 2. Because she filled out both, she included (as the Section 2 instructions require) "a separate $186 application fee". (Petitioner's June 2019 correction of the Form 656 is described below.)
Section 4 of the Form 656 proposed a "Total Offer Amount" of $14,000 for all of the listed liabilities of the LLC and Ms. Opoku-Manu (evidently intended to be allocated $10,000 for the LLC and $4,000 for Ms. Opoku-Manu; see Doc. 22 at 81; but see Doc. 21 at 43); and section 5 indicated that (as the form invited) $2,800 would be a "payment" of tax, and the remaining $11,200 would "be held as a deposit". Petitioner checked the box indicating that, if the OIC were rejected, the "deposit" should be returned.
An "ICS History Transcript" confirms that the IRS received and recorded petitioner's OIC on April 12, 2019. It notes that petitioner "combined the IMF/BMF [i.e., individual and business] offer on one Form 656." (Doc. 22 at 82.) Apparently the IRS treated the OIC as having been submitted not for the LLC but for Ms. Opoku-Manu only (see Doc. 22 at 27-28, 87)-perhaps because Section 1 on page 1 of the form is filled out with her information, and the information for the LLC comes second, in Section 2 on page 2.
CDP request
On April 17, 2019 (see Doc. 22 at 40), i.e., six days after submitting the OIC, petitioner submitted a Form 12153, "Request for a Collection Due Process or Equivalent Hearing" ("the CDP hearing request"; Doc. 22 at 38). Petitioner checked a box on Form 12153 to indicate interest in a "Collection Alternative"-in particular, an "Offer in Compromise". Consistent with the instructions on Form 12153, petitioner sent its Form 12153 to the address appearing on its levy notice-i.e., SBSE in Fredericksburg. The CDP hearing request was timely with respect to the proposed levy. On May 8, 2022, the relevant office in IRS Appeals received the CDP request (Doc. 22 at 25), and Settlement Officer Catherine Ficco Glauda ("SO Glauda") was assigned.
Supposed defects in the OIC
On April 18, 2019, the day after the CDP request had been submitted,RO Tilden contacted petitioner's representative and confirmed her receipt of the OIC. (Doc. 19 at 8.) She stated that the OIC had been "forwarded to the OIC unit [called "COIC"] for review and processability determination". She explained to petitioner's representative that "he should have completed 2 F656 [i.e., two separate Forms 656, one for Ms. Poku-Manu and one for the LLC]. . . . [She] advise[d] the COIC unit may not take issue with the matter but in the event they do he will be contacted and needs to respond immediately. . . . [She] advised at this time [she] will be taking no further action on the case except processing the F12153 [i.e., the CDP hearing request] unless the offer [the OIC] is returned." (Doc. 22 at 85.) RO Tilden noted that the collection alternative requested in the CDP hearing request is the "OIC that has been submitted prior to [the IRS's] receipt of this CDP [hearing request]." (Doc. 22 at 86.) RO Tilden gave petitioner's representative the name of Specialist Frank Thompson as the person in COIC assigned to the case. (Doc. 19 at 8.)
Petitioner asserts that this call took place "a month later", but the IRS's "History Transcript" shows the call on "04/18/2019". (Doc. 22 at 85-86.)
Sometime on or before May 21, 2019, petitioner received a letter (evidently from COIC) indicating that the office "believes that the OIC is only for [Ms. Opoku-Manu] and not for [the LLC]." (Doc. 22 at 87.)
On May 23, 2022, as SO Glauda began working the case, she noted that the taxpayer had "submitted an OIC through COIC prior to the CDP having been filed." (Doc. 22 at 26.)
On June 4, 2019, SO Glauda spoke with petitioner's representative and told him that "there is no indication of any OIC having been received by COIC under the name and EIN of this LLC" (Doc. 22 at 27-28), and she "attempt[ed] to explain why 2 forms 656 are required" (Doc. 22 at 28). She told him that "the previously submitted OIC package is under consideration for the cross ref (IMF) [i.e., Ms. Opoku-Manu] and as such [sic] a new package would need to be put together and payments submitted in order for the OIC to be processed." Petitioner's representative explained that petitioner "lacks the funds to submit payment of the user fee or the OIC down payment because the checks intended for the BMF OIC were applied with the 656 remitted and processed for" Ms. Opoku-Manu. They scheduled a conference for July 12, 2019. (Doc. 22 at 28.)
Around this time petitioner's representative was also contacted by OIC Specialist Thompson, "who introduced himself as the Specialist assigned to the case. . . . Officer Thompson . . . advised Undersigned Counsel to complete another Form 656, skip Section 1 of the form, and return the form to his attention". (Doc. 18, paras. 15-16; Doc. 19 at 9.)
Petitioner's representative alleges that Mr. Thompson contacted him, but the fax transmittal sheet by which he thereafter submitted the corrected Form 656 stated that he was contacted a "Mr. Rutherford". In the transmittal to Mr. Thompson, the representative attributes the advice to Mr. Rutherford and states: "You may advise me if this is not acceptable to you, so that I can redo it precisely the way you prefer it done." (Doc. 21 at 40.)
Corrected June 2019 OIC
Petitioner's representative "complied with Mr. Thompson's instructions and completed the subsequent Form 656 by skipping Section 1 of the Form and completing Section 2 of the form and resubmitting the completed form to Mr. Thompson."(Doc. 18, paras. 15-17; Doc. 21 at 40-47.) The corrected Form 656 was transmitted to Mr. Thompson on June 13, 2019 (Doc. 21 at 40), but it evidently took some time before the relevant personnel had awareness of it or access to it.
The Commissioner complains that petitioner's representative sent the corrected OIC straight to Mr. Thompson at the COIC, rather than routing it through SO Glauda, who "could have guided petitioner's POA through the process, which would have helped increase the likelihood of processability". (Doc. 25 at 4.) In deciding the Commissioner's motion, we cannot criticize petitioner's approach. SO Glauda's office in IRS Appeals "does not investigate offers" (Doc. 22 at 30), and petitioner sent its OIC to the responsible office. Moreover, however helpful SO Glauda may have intended to be, the sticking on processability turned out to be IRS Appels' requirement that petitioner resubmit payment, a point on which SO Glauda agreed with COIC. Routing the corrected OIC through her would apparently have made no difference.
On July 12, 2019 (Doc. 22 at 28-29), SO Glauda and petitioner's representative held the conference as scheduled. SO Glauda stated that "the previously submitted OIC package is under consideration for the cross ref (IMF)"-i.e., Ms. Opoku-Manu, not the LLC. (Doc. 22 at 28.) They discussed various aspects of the case; but as to the OIC, she explained that the Form 656 he had submitted in April was not processable (apparently meaning not processable as to the LLC) because it purported to address two taxpayers, and she stated that petitioner would need to submit another entire OIC. They agreed (as SO Glauda described it) that "If there is no current OIC under consideration the taxpayer will submit an OIC to be considered as a Collection Alternative. If a pending OIC is located then the CDP will be placed in suspense pending the outcome." (Doc. 22 at 29.) On July 31, 2019, SO Glauda "received an email from the OIC Unit. They confirmed that there is an OIC that has been submitted. Once the processability has been determined a copy of the date stamped F 656 will be forwarded". (Doc. 22 at 29.)
Petitioner's representative alleges (and for purposes of summary judgment we assume) that OIC Specialist "Thompson acknowledged receipt of the revised Form 656 in subsequent phone calls and confirmed that the Offer was processable having received the revised form and all fees and deposits having been paid." (Doc. 19 at 9; see id. at 13.)
Non-acceptance of the corrected June 2019 OIC
On September 24, 2019, SO Glauda "received an email from OIC Specialist Thompson. He confirmed that there is no processable OIC. Both the original 656 (where he included both the IMF and the Corporate BMF and submitted 2 checks) and the subsequent 656 for just the BMF for which no check was submitted are being returned." (Doc. 22 at 30.) SO Glauda told petitioner's representative of this development, and she solicited a new OIC. "I advised POA that he could send the OIC to Appeals and I would forward it to COIC because appeals does not investigate offers. I agreed to forego issuing a determination letter for 30 days to allow a processable OIC to be submitted. . . . If there is none a determination letter will be issued". (Doc. 22 at 30.)
On October 25, 2017 (i.e., after those 30 days), SO Glauda determined to sustain the levy notice because petitioner had never submitted a processable OIC. (Doc. 22 at 30.) The Notice of Determination (Doc. 22 at 14) was issued on November 1, 2019. Petitioner alleges that the OIC and the payments have never been returned (Doc. 19 at 9); and as far as we can tell, the Commissioner has made no showing that the OIC has been rejected or its payments returned.
Tax Court proceedings
On Monday, December 2, 2019, petitioner timely filed its petition, which stated petitioner's address as being in Virginia. It asked the Tax Court to review the notice of determination sustaining the proposed levy.
The Commissioner filed a motion for summary judgment (Doc. 10). Petitioner filed an opposition (Doc. 18, with supporting evidence in Docs. 19-20), disputing the motion on the basis of both facts and law. The Commissioner's reply narrows his position to the issue of the processability of the OIC. The Commissioner's contention is that the OIC "contains both business and employment tax periods as well as numerous personal, individual federal income return periods; it contains two separate tax identification numbers on the same form." (Doc. 25 at 3.)
The Commissioner's reply adds: "It is possible there were additional problems with the submissions rendering them not processable (i.e. Federal Tax Deposit ["FTD"] compliance); but we need not delve into them". (Doc. 25 at 3.) We take the Commissioner's cue and do not consider these other "possible" defects. As to FTD compliance, the record that the Commissioner presents includes several instances in which IRS personnel seem to say that petitioner was in "compliance". (See, e.g., Doc. 22 at 81.)
Discussion
I. Applicable legal principles
A. Summary judgment standard
The purpose of summary judgment is to expedite litigation and avoid unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). We may grant a motion for summary judgment when there is no genuine dispute of material fact and a decision may be rendered as a matter of law. Rule 121(b); Electronic Arts, Inc v. Commissioner, 118 T.C. 226, 238 (2002). The moving party bears the burden of showing that no genuine issue of material fact exists, and the Court will construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). If the movant makes the showing required by Rule 121(b), then the opposing party "must set forth specific facts showing that there is a genuine dispute for trial", in contrast to "mere allegations or denials". Rule 121(d).
B. CDP procedures
If a taxpayer fails to pay any tax liability within 10 days after notice and demand, section 6331(a) authorizes the IRS to collect the tax by levy upon the taxpayer's property and rights to property. Before issuing such a levy, the IRS must send the taxpayer a written notice informing the taxpayer that levy may commence in 30 days and that the taxpayer has the right to request an administrative hearing ("the CDP hearing") with respect to the levy. Secs. 6330(a), 6331(d). If the taxpayer requests such a hearing in writing and states the grounds for the requested hearing, the hearing shall be held by IRS Appeals. Sec. 6330(a)(3)(B), (b)(1), (b)(3).
In order to determine at the CDP hearing whether the IRS's proposed collection action may proceed, the appeals officer shall consider the following: (1) the verification obtained from the Secretary that the requirements of applicable law or administrative procedure have been met; (2) the issues raised by the taxpayer, including appropriate spousal defenses, challenges to the appropriateness of collection action, offers of collection alternatives, and the underlying liability; and (3) 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. Sec. 6330(c). The taxpayer may challenge the underlying liability if the taxpayer "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." Sec. 6330(c)(2)(B).
Once IRS Appeals issues its determination, the taxpayer may, within 30 days of a determination, "petition the Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter)." Sec. 6330(d)(1).
C. Tax Court review: abuse of discretion
In reviewing a determination by IRS Appeals in a CDP case when the taxpayer's underlying tax liability is properly before us (as here), we review the IRS's determination de novo. Goza v. Commissioner, 114 T.C. 176, 181-82 (2000). Petitioner has the burden of proof regarding his underlying liabilities. See Thompson v. Commissioner, 140 T.C. 173, 178 (2013). In other respects, we review IRS Appeals' action for abuse of discretion. Id. at 182. This abuse-of-discretion standard applies, in particular, as to our review of IRS Appeals's decisions concerning OICs. As we stated in Pazzo Pazzo, Inc. v. Commissioner, 113 T.C.M. (CCH) 1049 (T.C. 2017):
Section 7122(a) authorizes compromise of a taxpayer's Federal income tax liability. "The decision to entertain, accept or reject an offer in compromise is squarely within the discretion of the appeals officer and the IRS in general." Gregg v. Commissioner, T.C. Memo. 2009-19 (quoting Kindred v. Commissioner, 454 F.3d 688, 696 (7th Cir. 2006)). Consequently, in reviewing this determination, we do not substitute our judgment for that of Appeals and decide whether in our opinion petitioner's OIC should have been accepted. See Keller v. Commissioner, T.C. Memo. 2006-166, aff'd in part, 568 F.3d 710 (9th Cir. 2009). Instead, we review this determination for abuse of discretion.See also Cunningham v. Commissioner, T.C. Memo. 2014-200, 108 T.C.M. 348, 351 n.6 (2014) ("we do not substitute our judgment for that of Appeals and decide whether in our opinion an OIC should have been accepted here").
The Commissioner is certainly correct in asserting that "the Court is unable to order the IRS to process and accept an otherwise deficient OIC." (Doc. 25 at 5.) We do not contemplate ordering IRS Appeals to accept an OIC. But we do have authority to evaluate IRS Appeals' process and to determine whether IRS Appeals has abused its discretion not by declining to accept an OIC but by failing even to process an OIC, which is the issue now before us.
II. Collection alternative: OIC
A. Denial of a collection alternative
As to "verification", petitioner makes only a passing assertion that "the Respondent abused her discretion as the letter failed to note the verification of any administrative laws and procedures under IRS Code § 6330(c)(3)(A)"; but in fact the notice of determination was explicit on the subject. As to "balancing" issues under section 6330(c)(1), (c)(3)(A), (c)(3)(C), petitioner makes only contentions equivalent those by which it criticizes the denial of the OIC, so we need not address them separately. Petitioner's opposition states that it challenges the liabilities (and that it did challenge them before IRS Appeals), but it points to no amount that is supposedly incorrect, and no assignment of error on this issue was raised in the petition (and thus is "deemed to be conceded" under Rule 331(b)(4)).
The attachment to the notice of determination states: "I, Catherine R Ficco Glauda, verified the requirements of any applicable law or administrative procedure were met. IRS records confirmed the proper issuance of the notice and demand, Notice of Intent to Levy and/or Notice of Federal Tax Lien (NFTL) filing, and notice of a right to a Collection Due Process (CDP) hearing." (Doc. 22 at 17.)
The single contention that petitioner seriously advances in its opposition is that IRS Appeals abused its discretion in denying it the collection alternative that petitioner requested-i.e., an OIC.
B. Looking for a "genuine dispute" as to an abuse of discretion
As we have noted, in a CDP case we review for "abuse of discretion" a decision by IRS Appeals to reject a collection alternative. That is, we sustain IRS Appeals' determination to deny a collection alternative unless that determination was arbitrary, capricious, or without sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006). At trial this is a challenging standard for the taxpayer and a rather forgiving standard for the Commissioner.
However, this case has not been to trial. Rather, we resolve now a motion for summary judgment, where (as we have noted) the movant must show that there is no "genuine dispute of material fact" that would require a trial, and in so deciding we draw inferences in favor of the non-movant. Thus, today we decide not whether IRS Appeals abused its discretion but rather only whether petitioner has put forward sufficient evidence to raise the question whether IRS Appeals abused its discretion.
C. Form 656 problems and ambiguities
The IRS must be allowed to compose and promulgate the form by which a taxpayer makes an OIC. Of course, it would be an abuse of discretion for IRS Appeals to require a taxpayer who seeks a collection alternative to use a form that is utterly unintelligible or self-contradictory-but Form 656 cannot be fairly so characterized. For a complex subject, no form can be entirely without difficulty, so mere imperfection does not equate to abuse of discretion. A form that is merely ambiguous or unclear might or might not implicate an abuse of discretion, depending on (1) how serious the problems are and (2) how IRS Appeals administers the use of the form. We observe these potential problems:
Treas. Reg. § 301.7122-1(d)(1) ("An offer to compromise a tax liability pursuant to section 7122 must be submitted according to the procedures, and in the form and manner, prescribed by the Secretary").
1. Sections to be left blank
The IRS does not propound one form for an OIC for individuals and another form for business taxpayers. Rather, Form 656 does double duty for individual taxpayers and business taxpayers. This means when an offeror has the correct form in front of him, he must not complete the entire form but is instructed to leave an entire section blank. For a business, it must leave blank the very first section (which is for individuals) and begin with Section 2. The instructions above Section 1 so state ("You should fill out either Section 1 or Section 2, but not both"); but this might be easy to overlook; and even someone who sees this apparently non-mandatory instruction might not suppose that gratuitously filling out the additional information (just to be safe?) would render the OIC unprocessable.
2. "Should" vs. "must"
The instructions on Form 656 use "should" and must" in a manner that may be misleading. When an individual (with a Social Security number ("SSN")) who owns an LLC (with an employer identification number ("EIN")) proposes to compromise her individual income tax issues and trust fund recovery penalties associated with her SSN and the employment tax liabilities associated with the EIN, she sees the apparently non-mandatory instructions in Section 1 telling her that she "should fill out Section 1 (which does include lines for employment tax liabilities); but she also sees the apparently mandatory instruction in Section 2 telling her, "If your business is a[n] . . . LLC, . . . and you want to compromise those debts, you must complete this section." (Emphasis added.) When Ms. Opoku-Manu did what the instructions in Section 2 of the form said she "must" do (i.e., complete that Section 2 for the LLC), IRS Appeals deemed the form unprocessable.
The Commissioner maintains that the instructions above Section 1 should govern ("but not both"), but even that might be unclear: First, those instructions, too, are apparently non-mandatory (saying, "You should fill out either Section 1 or Section 2, but not both"). Second, the "but not both" instruction may appear to be contingent, since it says "but not both, depending on the tax debt you are offering to compromise". A reader might construe the form to mean that the "not both" instruction "depend[s]" on whether one is offering to compromise just business liabilities or individual liabilities (in which case, fill out only the relevant section) or instead is offering (like petitioner here) to compromise both business and individual (in which case, do fill out both?). Third, the Section 2 instructions for a business remind the taxpayer to include "a separate $186 application fee", perhaps suggesting an application fee "separate" from the application submitted for the individual named in Section 1.
D. IRS Appeals' administration of the form
The significance of these possible ambiguities with Form 656 might depend on how IRS Appeals administers the form. The problems might be insignificant if IRS Appeals administered Form 656 with flexibility but might be very problematic to the taxpayer if IRS Appeals enforced its interpretation of the form with rigor.
1. Rigor in enforcing its construction
At least for purposes of the CDP hearing (proceeding under the name of the LLC), IRS Appeals seems to have chosen rigor. It did not process the form by simply overlooking a repetitive and unnecessary Section 2 (which, on petitioner's form, simply repeated under the LLC's name the employment tax liabilities that petitioner had (correctly) attributed to Ms. Opoku-Manu). Instead, IRS Appeals treated the completion of Sections 1 and 2 as disqualifying. The Commissioner has not explained why that should be disqualifying, nor has he outlined any problems that might arise from simply ignoring one of the sections.
On the record before us, we simply see IRS Appeals demanding adherence to its debatable view of what Form 656 requires, without giving an explanation that would help us to understand why its approach is not arbitrary, capricious, or without sound basis in fact or law.
2. Requiring double payment
Nor did IRS Appeals simply permit the taxpayer to submit a revised form in the manner that IRS Appeals preferred without also requiring the taxpayer to make a second set of payments (of fees and initial payment of tax). The Commissioner's motion makes much of IRS Appeals having invited revised forms and given time for submission of them, but the invitation was for a revised form with repayment of the application fee and of the initial payment of the offered settlement amount for the liability. A taxpayer who is attempting to get the IRS to compromise a liability can ill afford to pay twice in order to try to achieve that compromise. The Commissioner has not explained any defense of IRS Appeals' requirement of double payment.
3. Individuals and businesses
a. The unity of the individual and the single-member LLC
As IRS Appeals and COIC personnel in this case regarded the form, they seem to have presumed-wrongly, in petitioner's case-that a Section 1 "Individual" and a Section 2 "Business" must be two separate taxpayers or persons. The Commissioner criticizes petitioner's OIC because it "contains both business and employment tax periods as well as numerous personal, individual federal income return periods; it contains two separate tax identification numbers on the same form." (Doc. 25 at 3.)
But in the CDP context, it is at least sometimes true that "the LLC and its sole member are a single taxpayer or person". Med. Practice Solutions, LLC v. Commissioner, 132 T.C. 125, 127 (2009); see also Med. Practice Solutions, LLC v. Commissioner, T.C. Memo. 2010-98, 99 T.C.M. (CCH) 1392, 1396-97 (2010). The appearance of an LLC's name on a collection notice does not necessarily exclude the identity of its sole owner, and vice versa. Id.
But in this instance IRS Appeals assigned dispositive importance to the name stated on the OIC and, wittingly or unwittingly, insisted that the (one and only) taxpayer name on the OIC must be identical to the name on the collection notice ("All Is Well LLC"). In effect, IRS Appeals treated the presence of the name "Dinah Opoku-Manu" on the OIC as foreign to a proceeding about collection of tax from All Is Well LLC-but in fact it and she are one and the same taxpayer.
b. Combining individual and LLC liabilities on an OIC
A taxpayer who receives a levy notice and requests a CDP hearing may propose (as petitioner did) an OIC that includes additional liabilities beyond those in the levy notice. When a taxpayer does so, the Tax Court would not have jurisdiction to review the IRS's collection activity for those additional liabilities, but our jurisdiction to determine whether IRS Appeals abused its discretion in rejecting the OIC permits us to take into account all the liabilities that the OIC proposed to compromise. See Sullivan v. Commissioner, T.C. Memo. 2009-4, 97 T.C.M. 1010, 1015 (2009). Ms. Opoku-Manu received a levy notice directed to her LLC and addressing its employment taxes; and as Form 656 explicitly permits, she proposed an OIC as to both those employment taxes and her income tax and TFRP liabilities. This is a permissible request in a CDP hearing, and the question is how that request may be made.
c. The inadequacy of Section 2 for individual income tax
The Commissioner plainly assumes (though he does not explicitly state) that the OIC must have been made in the name of the LLC, presumably because it was the LLC to which the levy notice had been issued. But the LLC is a disregarded entity, and the taxpayer who would bear the consequence of any levy is Ms. Opoku-Manu. Filling out Section 1 on Form 656 (for the individual) was an appropriate proposal in this CDP case involving a single-member LLC-especially since only Section 1 provided check boxes for all the liabilities on the levy notice and all the liabilities that petitioner wanted to compromise (i.e., not only employment taxes but also individual income tax and TFRP). The Commissioner contends, however, that filling out both Section 1 and Section 2 rendered the form unprocessable and that the petitioner should have filled out only Section 2-but Section 2 provides no check-box for Form 1040 individual income tax or TFRP; and filling out only Section 2 would have left the Form 1040 taxpayer unnamed and would have left her SSN off the form.
4. The processing as to Ms. Opoku-Manu
Notwithstanding its position that filling out Sections 1 and 2 rendered the Form 656 unprocessable for purposes of the CDP hearing, IRS Appeals seems to have acknowledged the sufficiency (or at least the possible sufficiency) of petitioner's Form 656 for purposes of an OIC for Ms. Opoku-Manu. If so, then the supposed rule against completing both Section 1 and Section 2 on Form 656 is not as absolute as IRS Appeals' determination in this case would suggest. More important, we are unable to rule out the possibility that IRS Appeals is still considering the OIC as to Ms. Opoku-Manu. SO Glauda told petitioner's representative that "the previously submitted OIC package is under consideration for the cross ref (IMF)"-i.e., for Ms. Opoku-Manu-even though not for the LLC. As far as our record discloses, the OIC was not ruled unprocessable as to Ms. Opoku-Manu. The Commissioner has not shown that the $14,000 remitted with the OIC (or any portion of it) has been refunded. If IRS Appeals were to accept the OIC as to Ms. Opoku-Manu (thus compromising her income tax, the TFRP, and the LLC's employment taxes), then it would clearly be an abuse of discretion for the IRS to proceed with collection against the LLC; and if IRS Appeals is still considering such an OIC, then proceeding with collection would be premature.
III. Conclusion
If we draw inferences and resolve doubts in petitioner's favor, as Rule 121 requires, we see these assumed facts: Petitioner made reasonable judgments in attempting to make an Offer in Compromise on an ambiguous form. When IRS Appeals considered the form unprocessable, petitioner submitted a revision that complied with IRS Appeals' instructions-except that petitioner reasonably declined to repeat the payment that it had already made with the first form and that IRS Appeals had not returned. The insistence on a duplicate payment as a precondition to processing an OIC for the LLC would have been an abuse of discretion. IRS Appeals continued to consider the OIC in connection with Ms. Opoku-Manu, and acceptance of the OIC with respect to her would have called for IRS Appeals to determine not to proceed with collection against the LLC, so the issuance of a contrary determination was premature and therefore would have been an abuse of discretion. We therefore hold that there is a genuine dispute of fact as to whether IRS Appeals abused its discretion in determining to sustain the notice of intent to levy; and it is therefore
ORDERED that the Commissioner's motion for summary judgment is denied without prejudice as to the determination sustaining the notice of intent to levy. (The motion remains pending in part as to the NFTL and the decision letter sustaining it, as to which we have ordered further filings. See Doc. 29.) It is further
ORDERED that, no later than January 20, 2023, the parties shall submit a joint status report (or, if that is not expedient, then separate reports) proposing schedule for further proceedings. If either or both parties believe that a trial is necessary to resolve the disputes of fact articulated here, or that this case should be remanded to IRS Appeals for further consideration of the OIC, then the status report shall so state.