Opinion
11643-20L
09-02-2021
Chad Cassiday & Kelly Cassiday Petitioners v. Commissioner of Internal Revenue Respondent
ORDER
Ronald L. Buch Judge.
This case is calendared for trial at the Court's October 4, 2021, Detroit, Michigan remote trial session. On July 20, 2021, the Commissioner filed a Motion to Remand, requesting the Court to remand this collection case to the Commissioner's Office of Appeals for further consideration. The Cassidays filed a Response to the Motion to Remand objecting to the suggested remand. On August 31, 2021, the Court held a conference call with the parties. On the basis of the information provided by the parties through their motion papers and the information provided on that call, we will grant the Commissioner's motion to remand. However, the purpose of the remand merits explanation.
We begin with background facts, largely taken from the Cassidays' response to the motion to remand and its supporting affidavit and exhibits. As the non-moving party, we resolve any factual disputes in favor of the Cassidays. Naftel v. Commissioner, 85 T.C. 527, 529 (1985). On April 16, 2018, Mr. Cassiday went to his bank and withdrew approximately $2.8 million to pay the Cassidays' 2017 taxes. The money was withdrawn from their account on that day to create three separate cashier's checks: two made payable to the Internal Revenue Service (one for $2,500,000 and the other for $326,316) and one made payable to the State of Michigan. (There were two separate checks to the IRS because the branch manager at the bank could not approve a single check in excess of $2.5 million.) Because the money was withdrawn from the Cassidays' accounts for the bank to prepare the cashier's checks, the Cassidays received no further benefit (such as interest) from those funds. Mr. Cassiday put the two checks that were payable to the IRS in a single envelope and mailed it to the IRS. The IRS cashed the smaller check, but the IRS never cashed the check for $2,500,000. Instead, the IRS imposed interest and penalties because of the apparent shortfall. The IRS then began its collection efforts.
That brings us to this case, which on its surface is a collection case. The IRS issued both a Final Notice of Intent to Levy and a Notice of Federal Tax Lien. The Cassidays made timely collection due process requests in which (according to their petition) they argued that "the taxpayers are not responsible for failure to pay penalties and interest asserted for the 2017 tax year." They apparently also submitted to the IRS a Form 843, Claim for Refund and Request for Abatement. On August 10, 2020, the Commissioner issued a notice of determination denying any collection alternatives but not addressing the Cassidays' challenge to the underlying liability. A section of the notice of determination captioned "Challenges to the Liability" provided, in whole:
You submitted requests for both abatement of penalties and interest prior to the filing of the requests for Collection Due Process (CDP). Typically, any determination made on a liability issue for the same tax period while a CDP is open will be incorporated into the determination of the CDP. Penalty issues are frequently involved in CDP case determinations[.] Interest abatement determinations are to be incorporated into CDP determinations per Internal Revenue Manual (IRM) 8.7.7.18.6(3) and 8.22.9.4.1 which discusses closing a CDP with an associated interest abatement issue raised.
Procedure wasn't followed precisely, and you were provided responses on the liability issues, both penalty and interest, prior to addressing the CDP. In order to correct the issue your CDP was held until the tax court rights on the interest abatement issue either lapsed or you petitioned. Had the interest abatement issue been property addressed within CDP you would have been limited to the same scope of time to appeal and the same net worth eligibility requirements specific to the interest abatement issue. The deviation from standard procedure technically did not harm your circumstances, though it did prevent consideration of the liability issues within the CDP.
Emphasis added. As the notice of determination makes clear, the underlying liability was not considered as part of the Commissioner's collection determination, despite having been raised by the Cassidays.
This brings us to the Commissioner's motion. The Commissioner's motion focuses heavily on the Cassidays' request for abatement of interest. The motion states that the request for abatement was denied as to the interest but granted as to the failure to pay penalty. The Commissioner's motion then proceeds to address the net worth restrictions for bringing a judicial action for abatement of interest. See sec. 6404(h)(1); T.C. Rule 281(b)(7); Vercel v. Commissioner, T.C. Memo. 2014-20. The Commissioner goes on to state: "Respondent believes that in this instance IRM 8.22.8.11 requires the Notice of Determination to include a determination as to the request for abatement of interest." From this, we infer that the primary motivation for the remand is for the Commissioner to address the net worth requirements for bringing an interest abatement action.
We agree with the Commissioner insofar as this case must be remanded for the Commissioner to address the underlying liability, but remand should not be limited to a claim for abatement or the net worth requirements of section 6404(h)(1). The Commissioner's focus appears to be on a claim for abatement under section 6404(e), which can give rise to an abatement of interest where there has been an unreasonable error or delay. But before getting to the issue of whether interest should be abated, the Commissioner must address whether interest should have accrued at all.
The Cassiday's claim, at least according to their petition, is that interest was improper in the first instance. Their position, simply stated, is that they timely mailed their tax payment to the IRS. While we are not deciding the facts or law in this order, the Cassidays' argument is that the liability was timely paid. Section 6601 imposes underpayment interest beginning on the last date prescribed for payment until the "date paid." Section 7502(a)(1) provides that "if any * * * payment required to be made * * * on or before a prescribed date * * * is, after such * * * date, delivered by United States mail to the agency, * * * the date of the United States postmark stamped on the cover in which such * * * payment * * * is mailed shall be deemed to be the * * * date of payment." We understand the Cassidays' position to be that, because they timely mailed their payment, they do not owe any interest. Before considering whether the interest can or should be abated under section 6404(e) because of an unreasonable error or delay, the Commissioner must first consider whether the interest was properly imposed in the first instance.
For the reasons set forth above, ORDERED that the Commissioner's Motion to Remand filed July 20, 2021, is granted, and this case is remanded to the Commissioner's Office of Appeals for further consideration consistent with this order. It is further
ORDERED that the hearing shall take place at a reasonable and mutually agreed upon date and time, but no later than October 29, 2021. It is further
ORDERED that this case is stricken from the Court's October 4, 2021, Detroit, Michigan remote trial session. It is further
ORDERED that the parties shall file a joint status report by November 24, 2021, attaching any supplemental determination resulting from the hearing on remand. In lieu of a joint status report, either party may file a status report stating that the other party has reviewed and agreed to the content of the report. It is further
ORDERED that jurisdiction of this case is retained by the undersigned.