Opinion
12326-22L
02-07-2024
PATRICK CUNNINGHAM, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
COURTNEY D. JONES, JUDGE
In this collection due process (CDP) case, petitioner, Patrick Cunningham, asks the Court to review a Notice of Determination Concerning Collection Actions under IRS Sections 6320 or 6330 of the Internal Revenue Code (notice of determination), issued by the Internal Revenue Service (IRS) Independent Office of Appeals (Appeals) on May 2, 2022. The notice of determination sustained the filing of a federal tax lien to collect unpaid federal income taxes for taxable years 2015, 2017, 2018, and 2019 (taxable years at issue).
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
This matter is before the Court on respondent's Motion for Summary Judgment pursuant to Rule 121, filed December 8, 2023. Respondent contends that there are no disputed issues of material fact and that the notice of determination to sustain the collection action was proper as a matter of law. Concurrent with the filing of the Motion, respondent also filed the Declaration of Ryan J. Lonergan in Support of Motion for Summary Judgment and the exhibits attached thereto. On January 3, 2024, Mr. Cunningham filed an Opposition to Motion for Summary Judgment, a Memorandum in Support of Opposition to Motion for Summary Judgment, the Declaration of Patrick Cunningham in Support of Opposition to Motion for Summary Judgment; and the Declaration of Michael Wallace in Support of Opposition to Motion for Summary Judgment.
The issue for decision is whether Appeals abused its discretion by denying Mr. Cunningham's request for currently not collectible (CNC) status, rejecting his proposed installment agreement (IA), and sustaining the filing of the federal tax lien. For the reasons elaborated upon below, we cannot conclude that respondent did not abuse his discretion in the instant case. Therefore, we will deny respondent's Motion.
Background
At the outset we must note that the record presented to the Court is less than clear, especially on exactly what issues were raised before Appeals and are now properly before this Court. Nevertheless, we set forth below the background information that we have been able to draw from the parties' pleadings, motion papers, declarations with accompanying exhibits, and the Administrative Record of the CDP hearing conducted pursuant to section 6320. See Rules 93, 121(c). This background is stated solely for the purpose of resolving the present Motion and is not stated as findings of fact in this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). Mr. Cunningham resided in Illinois when he filed his Petition.
As discussed, infra, part II, the record is also incomplete.
I. Deficiency, Notice, and Request for a CDP Hearing
This matter arises from Mr. Cunningham's assessed but unpaid federal income taxes for the taxable years at issue. Mr. Cunningham is an entrepreneur and he owns interests in several athletic clubs located throughout the Chicago metropolitan area. Mr. Cunningham also owns several residential properties in Chicago, Illinois, and Los Angeles, California.
The parties dispute the amount of Mr. Cunningham's assessed but unpaid federal income tax liability for the taxable years at issue. In his Petition, Mr. Cunningham asserts that respondent has assessed a balance of $1,203,055 for the taxable years at issue, which is also the same amount that appears in the Letter 3172, Notice of Federal Tax Lien and Your Right to a Hearing Under IRC 6320, dated December 26, 2020. However, in the Answer respondent asserts that the amount assessed against Mr. Cunningham is $1,182,920, which is the same amount that appears in the notice of determination. The parties' dispute about this material fact could constitute a separate basis for the Court to deny respondent's Motion.
On December 26, 2020, the IRS issued Mr. Cunningham Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 (NTFL) concerning the taxable years at issue. Mr. Cunningham, through his authorized representatives, requested a CDP hearing by filing a Form 12153, dated January 29, 2021, and received by the IRS on February 1, 2021. On his Form 12153, Mr. Cunningham checked the boxes for the "Offer in Compromise" and "I Cannot Pay Balance" collection alternatives. Mr. Cunningham's January 29, 2021, CDP request also included a letter dated the same day that outlined and quoted significant portions of various CDP related statutes, regulations, and Internal Revenue Manual (IRM) provisions. In his January 29, 2021, letter, Mr. Cunningham raised a multitude of issues, including, inter alia, a request for a face-to-face hearing, a request for the CDP case file, a request for CNC status, and a "request for a de novo review of tax, interest and interest assessed and the penalties."
On December 14, 2020, the IRS also issued Mr. Cunningham Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing concerning the taxable years at issue. Mr. Cunningham filed Form 12153, Request for a Collection Due Process or Equivalent Hearing, dated January 12, 2021. A combined CDP hearing under section 6320 and 6330 was held on May 14, 2021. On May 2, 2022, Appeals issued a notice of determination sustaining the proposed levy action. Mr. Cunningham did not file a petition contesting the notice of determination sustaining the proposed levy action.
II. The CDP Hearing
Mr. Cunningham's CDP hearing was assigned to Appeals Officer Marcus Morgan (AO Morgan). On April 8, 2021, AO Morgan verified that he had no prior involvement with this taxpayer for the types of taxes and tax years at issue, reviewed the case file, and verified that the requirements of any applicable law or administrative procedure were met. On April 13, 2021, AO Morgan issued Letter 4837, Substantive Contact Letter, and scheduled a section 6320 telephonic CDP hearing for May 14, 2021. The letter also requested that, within 14 days, Mr. Cunningham submit: (1) a completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals (CIS); (2) proof of current estimated tax payment for the current year to date; and (3) all required attachments for the CIS, including but not limited to the last six months of bank statements for all accounts, the last six months of income and wage statements, proof of expenses for the last three months, the most recent loan statement on all real and personal property (including vehicles), a copy of the most recent income tax return, and verification of your valuation for all listed assets. AO Morgan did not receive any of the requested information in advance of the scheduled CDP hearing.
On May 14, 2021, AO Morgan held a telephonic CDP hearing with Mr. Cunningham's authorized representatives. The parties discussed Mr. Cunningham's ownership interest in the chain of athletic clubs, the impact of COVID-19 on his businesses, and the corresponding effect on his personal finances. Mr. Cunningham explained that his monthly expenses exceeded his income, that he was currently receiving unemployment compensation, and that the mortgages on each of his residential properties exceeded their fair market value. Accordingly, Mr. Cunningham explained that he was "seeking CNC [status] until things clear[ed] up."
At the end of the CDP hearing, Mr. Cunningham explained that his accountant was assisting in the preparation of the CIS. Given that the CIS was not provided in advance of the CDP hearing, AO Morgan set a final deadline of May 28, 2021, to provide the CIS. AO Morgan then "affirmed that there [were] no other issues outside of [Mr. Cunningham's] ability to pay," and the call was concluded.
On May 26, 2021, Mr. Cunningham's representative left a voicemail for AO Morgan inquiring about extending the CIS deadline until June 4, 2021. Later that day, AO Morgan called Mr. Cunningham's representative and explained that Appeals does not extend deadlines multiple times, although he would consider any information received beyond the deadline but before the case was closed.
On May 28, 2021, AO Morgan received a fax from Mr. Cunningham's representative that included a CIS and supporting documents, a letter discussing various aspects of the case, and a cover sheet stating that supplemental information may be forthcoming. The CIS and supporting documents stated that Mr. Cunningham had a total monthly income of $7,868, comprised of $5,200 of net rental income and $2,668 of unemployment compensation. Mr. Cunningham also claimed monthly expenses of $45,752, including $1,000 for food, clothing, and miscellaneous expenses, $8,500 for housing and utilities, $2,000 for current year tax payments, and $34,252 for secured debts related to his ownership of various residential properties. According to his CIS, Mr. Cunningham's expenses exceeded his monthly income by approximately $37,900 per month.
The record is inconsistent on the amount of unemployment compensation that Mr. Cunningham received. Some parts of the record state that Mr. Cunningham received $2,668 per month, while other parts of the record state that Mr. Cunningham received $784 per week (which would extrapolate to $3,371 per month under the instructions found on the CIS).
The NFTL, notice of determination, CIS (box 1b), several bank statements, several mortgage statements, and Mr. Cunningham's Petition list an address that appears to be the location of one of his athletic clubs. The address listed on those documents is different than the addresses of the two Chicago, Illinois, residential properties owned by Mr. Cunningham. The record contains a copy of a residential lease evidencing that Mr. Cunningham was renting out one of his two residential properties located in Chicago, Illinois, but the record is unclear on whether he was living at the other property.
The letter attached to Mr. Cunningham's CIS stated that "based on his financial condition he cannot pay the liabilities." The letter reproduced the IRM policy statement regarding CNC status, see IRM 1.2.1.6.14 (Nov. 19, 1980), and stated that COVID-19 related athletic club closures caused a downturn in the industry that has continued to affect Mr. Cunningham's finances and his ability to pay his taxes and current living expenses. Therefore, Mr. Cunningham argued that in light of his current financial situation, as detailed in his CIS and supporting documents, the proposed collection action would cause economic hardship and accordingly his account should be placed in CNC status and reevaluated in one year.
On June 3, 2021, AO Morgan sent a letter to Mr. Cunningham notifying him that Appeals was issuing an Appeals Referral Investigation (ARI) and retaining jurisdiction of his case during that time. In the referral, AO Morgan stated that the "ARI is necessary because the taxpayer provided a new CIS to Appeals that requires verification and proposes an IA or CNC." See IRM 8.22.7.4 (Aug. 26, 2020). AO Morgan set a deadline to complete the ARI by July 19, 2021, although a 30-day extension was subsequently granted, and the deadline revised to August 18, 2021.
III. Appeals Referral Investigation
On June 4, 2021, the ARI was assigned to Revenue Officer Sean Shaw (RO Shaw). On June 15, 2021, RO Shaw called Mr. Cunningham's representative and explained that he had been tasked with verifying Mr. Cunningham's CIS as part of his request for CNC status. RO Shaw continued, stating that he reviewed the CIS and supporting documents but he needed additional information to complete his investigation. Accordingly, later that same day RO Shaw issued Mr. Cunningham a Form 9297, Summary of Taxpayer Contact, and requested that, on or before July 15, 2021, that Mr. Cunningham provide the following information: (1) six months of bank statements for all bank accounts; (2) six months of TD Ameritrade brokerage statements; (3) the statements of mortgages and revocable balances for all properties from May 2021; (4) an explanation of the balance due to the Lincoln Park Athletic Club, LLC; (5) values of Mr. Cunningham's interest in the athletic clubs; (6) six months of credit card statements for all credit cards; and (7) a breakdown of the secured debt listed on the CIS.
In the interim, on June 28, 2021, RO Shaw received a fax from internal IRS sources that showed Mr. Cunningham received wages from CAC Payroll Company, Inc., of $34,615.44 and $11,538.48 for the March and June quarters of 2020, respectively. Additionally, the information also showed that Mr. Cunningham was receiving weekly unemployment benefits in the amount of $784. RO Shaw also conducted a search of various real property and mortgage records related to the various residential properties that Mr. Cunningham owned.
The record is inconsistent on the amount of unemployment compensation that Mr. Cunningham received. See supra note 5.
On July 29, 2021, Mr. Cunningham's representative sent RO Shaw the documents requested in the June 15, 2021, Form 9297. On August 23, 2021, RO Shaw completed his analysis of the additional information that had been provided. RO Shaw observed that Mr. Cunningham had bank account deposits totaling approximately $200,000 between December, 2020 and May, 2021. More than half of the deposits were from various brokerage or savings accounts, although other funds were received from the Illinois Department of Employment Security (IDES), and, beginning in March 2021, monthly deposits of $8,049 from a then-unidentified source. RO Shaw noted that Mr. Cunningham's brokerage account now had a remaining balance of less than $600. Additionally, RO Shaw observed that despite the fact that Mr. Cunningham did not list any vehicles or boats on his CIS, he nevertheless incurred approximately $3,000 per month in expenses at a utility vehicle dealer, $2,300 for boating and marina expenses, and approximately $3,000 per month at a local luxury car dealership.
Further, RO Shaw conducted an analysis of Mr. Cunningham's residential properties. Regarding the two properties in Los Angeles, California, RO Shaw concluded that Mr. Cunningham had no equity and was behind on payments for one property, and that he had sold the other property on or around May 6, 2021, although he did not receive any funds from the sale. Regarding the two properties in Chicago, Illinois, RO Shaw observed that they had a combined fair market value of $2,872,800, but that Mr. Cunningham had only provided proof of $1,685,839 of outstanding mortgages, and thus there was conceivably equity of $1,186,961 available to satisfy the outstanding tax liability. Mr. Cunningham claimed an additional mortgage of $1,299,338 on one of the Chicago properties, but he did not provide any statements evidencing such indebtedness.
Based on his bank deposits, RO Shaw calculated that Mr. Cunningham had monthly income of $10,717 per month, compromised of unemployment compensation of $2,668, and deposits from the unidentified source of $8,049. Additionally, RO Shaw found, based on the national and local allowable living expense standards, that Mr. Cunningham had monthly expenses of $3,649. Accordingly, RO Shaw concluded that Mr. Cunningham had the ability to pay $7,068 per month towards his outstanding income tax liabilities.
The record is inconsistent on the amount of unemployment compensation that Mr. Cunningham received. See supra note 5.
In his analysis, RO Shaw observed that Mr. Cunningham's "current expenses and life style (sic) are far above the [allowable living expense] standard." Additionally, RO Shaw continued, stating that Mr. Cunningham needed to explain the routine deposits of $8,049 per month, the monthly expenses incurred at the utility vehicle dealer, marina, and luxury car dealership, and he also needed to provide a statement regarding the claimed but unsupported mortgage of $1,299,338. RO Shaw concluded that "[w]ithout additional clarification from [Mr. Cunningham], a CNC should not be granted."
IV. The CDP Hearing, Continued
On August 25, 2021, SO Morgan received the results of the completed ARI from RO Shaw, which recommended that Mr. Cunningham should not be granted CNC status. On September 1, 2021, AO Morgan forwarded the results of the ARI to Mr. Cunningham, and stated that any disagreement should be noted by October 1, 2021. Thereafter, AO Morgan received a sequence of three letters from Mr. Cunningham that detailed specific matters and provided additional documentation.
On September 30, 2021, AO Morgan received the first letter from Mr. Cunningham. Therein, Mr. Cunningham explained that the deposits of $8,049 were inheritance distributions from his deceased father's trust (Cunningham Family Trust) and that those payments would conclude by December 2021. Additionally, the letter explained that the payments to the luxury car dealership were payments for Mr. Cunningham's personal vehicle that he intended to sell at the end of 2021, the payments made for the utility vehicle were for repairs to a business asset, and that the payments to the marina were for past due bills related to an asset that Mr. Cunningham no longer owned. Additionally, Mr. Cunningham included a mortgage statement evidencing the additional claimed but previously unsupported indebtedness of $1,299,339 on one of the Chicago properties.
Thereafter, on October 8, 2021, AO Morgan held a call with Mr. Cunningham's representative and they discussed his income. AO Morgan asked for verification of Mr. Cunningham's income sources and also inquired how he was satisfying the mortgage on his personal residence of approximately $9,000 per month. Mr. Cunningham's representative said that he would look into the matters and send any additional information at a later date.
On October 18, 2021, AO Morgan received the second letter from Mr. Cunningham's representative with the following documents attached: (1) a second mortgage statement for the previously claimed but unsupported mortgage on one of the Chicago, Illinois properties; (2) an email from IDES stating that Mr. Cunningham's unemployment benefits ran out on September 4, 2021; and (3) an email from the trustee of the Cunningham Family Trust stating that the checks have been issued for Mr. Cunningham's portion of the trust and that there were no additional funds to be paid out.
Subsequently, on November 1, 2021, AO Morgan had a phone call with Mr. Cunningham's representative and explained that the email from the trustee was insufficient to dispute the analysis by RO Shaw, and to properly consider the ability to pay he would need "trust doc[uments] to include list of assets, schedule of disbursements, subject entitlements, etc."
On November 23, 2021, AO Morgan received the third letter from Mr. Cunningham's representative with the following documents attached: (1) the last three months of bank statements, (2) an illegible copy of the trust register of funds disbursed to Mr. Cunningham, and (3) a semi-legible copy of the trust instrument. Afterwards, on January 13, 2022, AO Morgan held a call with Mr. Cunningham's representative and discussed various aspects of Mr. Cunningham's ability to pay, and also noted that various trust-related documents were illegible.
After several unsuccessful attempts, AO Morgan was unable to procure legible versions of some of the trust-related documents. However, seemingly relying on the illegible trust register, AO Morgan stated that it "looks like there is a balance of $124,563.60 left to distribute." AO Morgan also noted in the Case Activity Record that Mr. Cunningham's bank statements show him spending money in Hawaii and a foreign country, no overdraft fees were incurred, and that he was sending hundreds of dollars to other individuals each month. Further, AO Morgan noted that Mr. Cunningham's unemployment benefits had run out and that no deposits had occurred after September 23, 2021.
On February 1, 2022, AO Morgan held a phone call with Mr. Cunningham's representative. During the call, AO Morgan explained his analysis: Mr. Cunningham omitted his estate income from his CIS, that there were still funds in the estate to be paid out, and that he was traveling to expensive places such as Hawaii and foreign countries. Thus, AO Morgan asked "[i]n essence, where is the economic hardship? How are bills being paid? What is [the] true ability to pay?" AO Morgan stated that Mr. Cunningham needed to be more forthcoming.
On February 11, 2022, AO Morgan received a phone call from Mr. Cunningham's representative who stated that Mr. Cunningham was willing to pay $1,000 per month under an IA. Because Mr. Cunningham's request satisfied the requirements for an IA, see IRM 5.14.1.3(4) (Sept. 22, 2021), AO Morgan requested that Appeals' Account and Processing Support (APS) input the pending installment request. However, because Mr. Cunningham's representative was unable to address the same concerns expressed in their February 1, 2022, phone call, AO Morgan stated that the "failure to disclose assets and income sources, coupled with unexplained (and expensive) travel do not bode well for the proposed payment plan." Accordingly, AO Morgan explained he could not support the IA request and that a notice of determination was now necessary. On February 14, 2022, AO Morgan received confirmation from APS that the pending IA was completed.
On May 2, 2022, Appeals Team Manager Jon M. Sustarich issued the notice of determination sustaining the filing of the federal tax lien. In relevant part, the notice of determination stated:
We explained to your representative that you omitted estate income from CIS (sic). Also, you are traveling to expensive places (like Hawaii and another country). And there are still funds in [the] estate. No overdraft fees are shown in your bank account. The bank statements also show thar (sic) you are sending hundreds of dollars to other individuals each month. In essence, where is the economic hardship? How are bills being paid? What is your true ability to pay? You did not conclusively answer these questions, and you failed to fully disclose assets and income sources (such as your partial ownership in a number of other businesses). As a result, we are unable to make an affirmative determination with respect to an economic hardship given this analysis.
On June 1, 2022, Mr. Cunningham filed a Petition with this Court seeking review of the notice of determination.
Discussion
I. Summary Judgment Standard
Summary judgment serves to "expedite litigation and avoid unnecessary and expensive trials." Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). We 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 Rule 121(b); Sundstrand Corp., 98 T.C. at 520. In deciding whether to grant summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Sundstrand Corp., 98 T.C. at 520 . The nonmoving party may not rest upon mere allegations nor denials in their pleadings and must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). Based on the record before the Court, we find that this case is not appropriate for summary adjudication.
V. The Administrative Record
The parties did not stipulate to the Administrative Record in this case, and therefore, pursuant to Rule 93(a), respondent filed the Administrative Record on November 20, 2023. That same day, respondent also filed a Notice of Filing of the Administrative Record and a Certificate as to the Genuineness of the Administrative Record signed by Supervisory AO Jon M. Sustarich. Mr. Cunningham has not argued that the Administrative Record is incomplete or should be supplemented, and he has not filed a motion to complete or supplement the Administrative Record pursuant to Rule 93(b).
However, during consideration of respondent's Motion for Summary Judgment, the Court conducted a thorough review of the Administrative Record filed on November 20, 2023, and has identified certain deficiencies therein. Namely, during the ARI, RO Shaw identified additional information necessary to verify Mr. Cunningham's CIS and detailed his request on Form 9297, dated June 15, 2021. An August 25, 2021 entry in the Case Activity Record reflects that Mr. Cunningham's representative sent approximately 107 pages of material to RO Shaw on June 29, 2021, but that information does not appear anywhere in the record. AO Morgan's September 1, 2021, entry in the Case Activity Record does, however, offer some explanation and states the following in relevant part: "I rec'd ARI response at 1030am on 8/25. I prepared [a] quick note sharing response and asking for comment by 10/1. . . . All documents placed in WUNO [work unit number] ending 0030 (not enough paper at home)." It appears to the Court that these items were not printed, and thus not included in the Administrative Record.
The term "administrative record" generally refers to "all documents and materials received, developed, considered, or exchanged in connection with the administrative determination." Rule 93(c). Indeed, respondent's own internal guidance recognizes that the record should include "[a]ll documents and correspondence sent to or received from the Service (such as in response to an ARI, or an IS, OIC, PENAP or other CDP related issue)." IRM 8.22.9.2(2) (Aug. 26, 2020). Accordingly, given the deficiencies in the Administrative Record, we will remand this case to Appeals so the Administrative Record can be compiled in its entirety. See Hoyle v. Commissioner, 131 T.C. 197, 204-05 (2009), supplemented by 136 T.C. 463 (2011). Because a remand would be "helpful," "necessary," or "productive," we will remand this case to respondent's Independent Office of Appeals for further consideration and clarification. Gurule v. Commissioner, T.C. Memo. 2015-61, at *39; see also Kelby v. Commissioner, 130 T.C. 79, 86 n. 4 (2008); Lunsford v. Commissioner, 117 T.C. 183, 189 (2001); Churchill v. Commissioner, T.C. Memo. 2011-182.
VI. Additional Items for Appeals' Review
Based on the deficiencies in the Administrative Record, we will remand this case. However, given that the record in this case is less than clear, especially on exactly what issues were raised before Appeals and are now properly before this Court, on remand the parties may see it appropriate to address other matters to clarify the record in the event of subsequent review by this Court. Our review of the record highlighted various issues presented in this case that may be ripe for disposition or clarification on remand.
A. Mr. Cunningham's Challenge to the Underlying Liability & Penalty Abatement
In his Opposition to Motion for Summary Judgment, Mr. Cunningham asserts that he challenged, and that respondent did not address, the assessed penalties or his request for abatement. In the notice of determination, respondent stated that "[i]n this hearing, only ability to pay (and specifically claims of economic hardship) were sought. There is no need to address any other of the original proposed alternatives or issues, other than as stated above." However, given the necessity of remand, the parties could address this issue if they deemed it helpful or necessary to provide additional clarity to the Court.
B. Mr. Cunningham's Ability to Pay
The primary issue raised in this case, which is central to both Mr. Cunningham's request for CNC status and an IA, concerns his "ability to pay." The Court does not substitute its own judgment for that of Appeals, and we do not conduct an independent determination of what would be an acceptable collection alternative. See, e.g., Johnson v. Commissioner, 136 T.C. 475, 488 (2011), aff'd, 502 Fed.Appx. 1 (D.C. Cir. 2013). If Appeals follows all statutory and administrative guidelines and provides a reasoned and balanced decision, the Court will not reweigh the equities. Bero v. Commissioner, T.C. Memo. 2017-235, at *10-11 (citing Thompson v. Commissioner, 140 T.C. 173, 179 (2013)).
1. CNC Status Overview
CNC status is a collection alternative that the taxpayer may propose, and that if proposed, the settlement officer must consider. See § 6330(c)(2)(A)(iii); Norberg v. Commissioner, T.C. Memo. 2022-30, at *5. The IRM states that a taxpayer's account may be declared "currently not collectible" in cases of "hardship." IRM 1.2.1.6.14(4); 5.16.1.2.9(1) (Apr. 13, 2021). Hardship exists if, based on his assets, equity, income, and expenses, the taxpayer "has no apparent ability to make payments on the outstanding tax liability." See Fangonilo v. Commissioner, T.C. Memo. 2008-75, at *4. A taxpayer's ability to pay is determined by calculating the excess of income over necessary living expenses. See Norberg, T.C. Memo. 2022-30, at *5; IRM 5.16.1.2.9. A settlement officer does not abuse his discretion by adhering to such standards, even if doing so would force a taxpayer to change his lifestyle. See Bradley v. Commissioner, T.C. Memo. 2024-7 at *6; see also Speltz v. Commissioner, 124 T.C. 165, 179 (2005), aff'd, 454 F.3d 782 (8th Cir. 2006); Friedman v. Commissioner, T.C. Memo. 2013-44, at *9-10 (noting that the burden is on the taxpayer to justify departure from local standards).
2. Installment Agreement Overview
Section 6159(a) authorizes the Commissioner to enter into a written agreement allowing a taxpayer to pay a liability in installments if the "agreement will facilitate full or partial collection of such liability." The decision to accept or reject an IA lies within the discretion of the Commissioner. See Thompson v. Commissioner, 140 T.C. at 179 (citing Kuretski v. Commissioner, T.C. Memo. 2012-262, at *9; Treas. Reg. § 301.6159-1(a), (c)(1)(i)). Generally, IAs "should reflect taxpayers' ability to pay on a monthly basis throughout the duration of agreements." IRM 5.14.1.4(4) (Sept. 22, 2021). Namely, the appeals officer should analyze a taxpayer's income and allowable expenses to determine the amount of disposable income the taxpayer has available for payment under an IA; this is the minimum amount that a settlement officer may accept under an IA. See Boulware v. Commissioner, T.C. Memo. 2014-80, at *29; IRM 5.14.1.4(4).
3. Analysis
In the notice of determination, AO Morgan concluded that Mr. Cunningham was not eligible for CNC status because Appeals was unable to determine his ability to pay and therefore could not make an affirmative determination with respect to economic hardship. Similar reasoning also led to rejection of Mr. Cunningham's proposed IA of $1,000 per month. However, the basis for rejection is not particularly clear to the Court.
The Court "will uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned," but the Court "may not supply a reasoned basis for the agency's action that the agency itself has not given." See Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 285-286 (1974) (citing SEC v. Chevery Corp., 332 U.S. 194, 196 (1947)). As discussed further below, the basis for Appeals' determination is inscrutable.
Mr. Cunningham submitted a CIS that was subsequently examined by RO Shaw during the ARI. During that review Mr. Cunningham provided additional documents clarifying certain aspects of his ability to pay, although given the additional questions outstanding at the close of the ARI, RO Shaw concluded that "[w]ithout additional clarification from [Mr. Cunningham], a CNC should not be granted." In subsequent weeks, Mr. Cunningham provided additional clarifying documents to AO Morgan, including, inter alia: (1) an email from IDES showing that he was no longer receiving unemployment compensation; and (2) an email from the trustee of the Cunningham Family Trust stating that checks have been issued for Mr. Cunningham's portion of the trust and that there were no additional funds to be paid out. Nevertheless, AO Morgan did not recalculate Mr. Cunningham's ability to pay despite the fact that his unemployment compensation had been depleted, and he also concluded that there were additional funds remaining in the trust to be paid out.
In the current procedural posture, the Court must construe all factual inferences in favor of Mr. Cunningham, the nonmoving party. Sundstrand Corp., 98 T.C. at 520. Based on the subsequent documents provided, the Court must conclude that Mr. Cunningham's sources of income were exhausted when he stopped receiving unemployment compensation and the funds from the trust had been depleted, or at a minimum that there is a genuine dispute as to this material fact. The documents provided lend support to the conclusion that Mr. Cunningham had an inability to pay, absent some alternate explanation.
In the notice of determination, AO Morgan posed various questions, but the exact basis for the determination is unclear. AO Morgan's determination was not based on a calculation of Mr. Cunningham's ability to pay, as outlined in the Financial Analysis Handbook, see IRM 5.15.1.2(20) (Nov. 22, 2021), and AO Morgan's reliance on expenses incurred while Mr. Cunningham still had the aforementioned sources of income does not speak directly to the nonexistence of economic hardship in the absence of those sources of income. Additionally, it is not immediately apparent to the Court that the basis for AO Morgan's decision to reject Mr. Cunningham's request for CNC status was for the failure to provide the requested financial information. See, e.g., Pough v. Commissioner, 135 T.C. 344, 351 (2010). Given the necessity of remand because of the deficiencies in the Administrative Record, the parties may wish to consider any collection alternatives that Mr. Cunningham may propose.
VII. Conclusion
Because of the deficiencies in the Administrative Record, namely the missing files submitted by Mr. Cunningham during the ARI, we find that it would be "helpful," "necessary," or "productive" to remand this case to respondent's Independent Office of Appeals to complete the Administrative Record and address any other necessary issues. Upon due consideration and for cause, it is
ORDERED that respondent's Motion for Summary Judgment, filed December 8, 2023, is denied. It is further
ORDERED that this case is stricken from trial at the session of the Court scheduled to commence on February 26. 2024, in New York City, New York, and jurisdiction is retained by the undersigned. It is further
ORDERED that, on the Court's own motion, this case is remanded to respondent's Independent Office of Appeals for a supplemental administrative hearing in accordance with the Court's order. It is further
ORDERED that respondent shall offer petitioner an administrative hearing at such place as may be mutually agreed upon (or by teleconference, if preferable) and at a reasonable and mutually agreed upon date and time, but not later than April 29, 2024. It is further
ORDERED that each party, on or before July 29, 2024, shall file with the Court and serve on the other party, a report regarding the then-present status of this case.