Opinion
12791-20L
07-11-2022
CANDACE HELLYAR and STEPHEN HELLYAR, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
David Gustafson, Judge
This is a "collection due process" ("CDP") case brought by petitioners Candace Hellyar and Stephen Hellyar under section 6330(d)(1) to review a determination by the Internal Revenue Service ("IRS") Independent Office of Appeals ("IRS Appeals") sustaining the filing of a notice of Federal tax lien ("NFTL") covering their unpaid Federal income tax liabilities for the years 2010, 2011, 2012, 2013, 2014, and 2015. Respondent, the Commissioner of Internal Revenue, filed his motion for summary judgement (Doc. 6), to which the Hellyars filed their response (Doc. 9), and the Commissioner filed his reply (Doc. 15). We will grant the Commissioner's motion.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., as in effect at the relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), as in effect at the relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure. Dollar amounts are rounded. Parenthetical references to "Doc." are to documents as they are numbered in the docket record of this case, and the page numbers cited in those references are according to the numbering in the portable document format ("PDF") of the digital file.
Background
The following facts are derived from the parties' pleadings (Docs. 1 & 3) and declarations attached to their briefs (Docs. 7 & 10). For the purposes of this order, we assume these facts to be true because they are uncontested by the Hellyars.
IRS collection attempts
The Hellyars owe unpaid Federal income tax, interest, and penalties for the six years 2010-2015 totaling approximately $289,000. (Doc. 1 at 11). The Hellyar's liabilities are the result of filing delinquencies, insufficient Federal income taxes withholdings, and failure to make estimated tax payments. (Doc. 7 at 242.) After these liabilities were assessed, the IRS sent to the Hellyars notices and demands for payment. (Doc. 1 at 12.)
The Hellyars also owe approximately $171,000 for the years 2016, 2017, and 2018, which are not included in this CDP case. (Doc. 1 at 11.)
The IRS then filed in September 2018 a "Notice of Federal Tax Lien" (Doc. 7 at 7) in Columbia, MD, and sent to the Hellyars a Letter 3172, "Notice of Federal Tax Lien Filing and your Right to a Hearing Under IRC 6320" (Doc. 7 at 5), notifying them of their right to request a CDP hearing with IRS Appeals within 30 days. See § 6320(a)(3)(B). The Hellyars timely submitted in October 2018 a Form 12153, "Request for a Collection Due Process or Equivalent Hearing", upon which they identified the filed NFTL as the basis for their hearing. In an attachment to their Form 12153, the Hellyars requested consideration of collection alternatives of an offer in compromise and an installment agreement. (Doc. 7 at 10-13.)
On their Form 12153 the Hellyars also requested consideration for currently-not-collectible status ("CNC") and withdrawal of the NFTL under section 6323(j). (Doc. 7 at 10-13.) In the notice of determination SO Roggeveen considered whether withdrawal of the NFTL was appropriate under section 6323(j) and determined that the Hellyars did not meet any of the four circumstances necessary for lien withdrawal. (Doc. 1 at 13.) The Hellyars do not maintain their requests for CNC status and lien withdrawal in their response to the Commissioner's motion, so we will not further address these issues in this order.
CDP hearing
The Hellyar's CDP request was assigned to Settlement Officer Rebecca S. Roggeveen ("SO Roggeveen"), who sent to the Hellyars an appointment letter scheduling a telephone hearing on April 17, 2019, and requesting that the Hellyars provide the following information before the hearing: (1) a completed Form 433-A, "Collection Information Statement for Wage Earners and Self-Employed Individuals"; (2) a completed Form 656, "Offer in Compromise" ("OIC"); and (3) proof of estimated tax payments for 2019. (Doc. 7 at 14-15.) Before the hearing the Hellyars provided a completed Form 433-A and proof of estimated tax payment for 2019. (Doc. 7 at 18-77.)
The CDP hearing was held on April 17, 2019, with SO Roggeveen and the Hellyars' representative attending by phone. (Doc. 7 at 79.) The Hellyars' representative indicated their intention to submit an OIC, and SO Roggeveen set a deadline of May 10, 2019, by which to do so. (Doc. 7 at 79.) When the Hellyars' OIC was not submitted by that deadline, SO Roggeveen extended the deadline to May 17, then again to May 24. (Doc. 7 at 79.) On May 24, 2019, the Hellyars submitted an OIC that was based on doubts as to collectability and that requested that their tax liabilities of $289,000 be settled for $10,954 (which we hereafter round up to $11,000)-i.e., a payment of 4% of what they owed. (Doc. 7 at 86-148.)
On October 10, 2019, the IRS COIC Unit (responsible for reviewing submitted OICs and making determinations whether to accept or reject them) made a preliminary decision to reject the Hellyars' OIC because, based on its analysis of their financial information, the IRS determined that the Hellyars could pay their liabilities in full before expiration of the statutory period for collection. (Doc. 7 at 195.) In making its preliminary determination to reject the Hellyars' OIC, the IRS determined the Hellyars' "reasonable collection potential" ("RCP") to be $602,158. (Doc. 7 at 198.)
SO Roggeveen then sent to the Hellyars on January 23, 2020, a Form 433-D, "Installment Agreement", proposing a monthly payment of $4,950, and requested that it be signed and returned by February 6, 2020. (Doc. 7 at 200-201.) The Hellyars' representative contacted SO Roggeveen requesting to present additional information regarding the OIC, and was given two weeks in which to do so. (Doc. 7 at 80.) However, the additional information provided by the Hellyars consisted of disagreements with the IRS's calculation of their RCP, and ultimately IRS Appeals sustained rejection of the OIC on March 6, 2020. (Doc. 7 at 81.) Shortly thereafter, in response to the COVID-19 pandemic, the IRS suspended all collection activity from April 1 to July 15, 2020, so SO Roggeveen did not issue a notice of determination at that time.
See I.R.S. News Release IR-2020-59 (March 25, 2020).
On July 14, 2020, SO Roggeveen contacted the Hellyars' representative to follow up on the proposed installment agreement before issuing a determination in their CDP hearing. (Doc. 7 at 82.) The Hellyars' representative called SO Roggeveen back that same day and left her a voicemail message. (Doc. 9 at 12.) However, there was no further communication between the parties until more than two months later on September 30, 2020, when SO Roggeveen issued to the Hellyars a notice of determination sustaining the filing of the NFTL based on their high balance of tax due, the rejection of their offer in compromise, and their failure to agree to an installment agreement. (Doc. 7 at 82.) The notice of determination notified the Hellyars of their right to file a petition in the United States Tax Court within 30 days. (Doc. 1 at 7-13.)
Tax Court proceedings
The Hellyars filed their timely petition with the Tax Court. (Doc. 1 at 2.) The Commissioner filed his motion for summary judgement (Doc. 6). The Hellyars filed their response (Doc. 9), and the Commissioner filed his reply (Doc. 12).
Discussion
I. Summary Judgment
The purpose of summary judgment is to expedite litigation and avoid unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). The Court may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). The moving party (here, the Commissioner) bears the burden of showing that no genuine dispute of material fact exists, and the Court will draw factual inferences in the light most favorable to the nonmoving party (here, the Hellyars). See Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985).
II. Collection Due Process Procedures
When a taxpayer fails to pay any Federal income tax liability within 10 days after notice and demand, section 6321 imposes a lien in favor of the United States on all the property of the delinquent taxpayer, and section 6323(f) authorizes the IRS to file notice of that lien. However, no later than five business days after filing an NFTL, the IRS must provide written notice of that filing to the taxpayer. § 6320(a). After receiving such a notice, the taxpayer may request an administrative CDP hearing before IRS Appeals. § 6320(b)(1).
At the CDP hearing, IRS Appeals must determine whether the proposed collection action may proceed. In making that determination, the appeals officer must consider: (1) whether the requirements of any applicable law or administrative procedure have been met; (2) any issues raised by the taxpayer, including (relevant here) challenges to the appropriateness of the collection action and proposed collection alternatives; 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. §§ 6320(c), 6330(c).
Once IRS Appeals issues its determination, the taxpayer "may, within 30 days of a determination . . . petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter)." § 6330(d)(1).
III. Tax Court Review
In CDP cases where (as in this case) the underlying liability is not in dispute, we review IRS Appeals' determination for abuse of discretion. Downing v. Commissioner, 118 T.C. 22, 30-31 (2002). Applying that abuse-of-discretion standard, we decide whether IRS Appeals' determination to sustain the NFTL 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).
IV. Analysis
A. The Commissioner has shown that IRS Appeals did not abuse its discretion
The Commissioner's motion shows that SO Roggeveen verified that the requirements of applicable law and administrative procedure for filing an NFTL were met. SO Roggeveen confirmed that, for each year shown on the CDP lien notice, (1) there was an assessment of Federal income tax, (2) notice and demand for payment had been issued, (3) there remained a balance due at the time the CDP lien notice was issued, and (4) she had no prior involvement with the Hellyars with respect to the years at issue. (Doc. 1 at 12.) See §§ 6320(c), 6321, 6330(c)(3)(A).
The Commissioner's motion also shows that SO Roggeveen considered the Hellyars' proposed collection alternatives of an OIC (by which the Hellyars proposed to pay only 4% of their liability) and an installment agreement (in which they expressed an interest but which they did not themselves propose). See §§ 6320(c), 6330(c)(3)(B). SO Roggeveen upheld the rejection of the Hellyar's OIC because, based on their initial offer and additional documentation, the Hellyars' RCP exceeded their tax liability. (Doc. 1 at 12.) It is not an abuse of discretion for IRS Appeals to uphold a rejection of an OIC because the amount of the offer is less than the taxpayer's RCP. See, e.g., Murphy v. Commissioner, 125 T.C. 301, 320-321 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006); Brombach v. Commissioner, T.C. Memo. 2012-265 at *21. SO Roggeveen also considered an installment agreement, and sent to the Hellyars a Form 433-D proposing terms that would have paid the Hellyars' liability in full before the expiration of the statutory period for collection. However, the Hellyars neither signed and returned the provided Form 433-D nor proposed an alternative installment agreement. It is not an abuse of discretion by IRS Appeals to issue a determination and sustain the filing of an NFTL if a taxpayer fails, within a reasonable time, to sign and return an installment agreement proposed by IRS Appeals. See, e.g., Shanley v. Commissioner, 97 T.C.M. (CCH) 1062 (2009).
The Commissioner's motion further shows that SO Roggeveen considered whether the proposed collection action balanced the need for efficient collection of taxes with the legitimate concern of the taxpayer that any collection be no more intrusive than necessary, and determined that the balance favored sustaining the NFTL due to the Hellyars' high unpaid balance and their substantial RCP. See §§ 6320(c), 6330(c)(3)(C).
The Commissioner's motion establishes that IRS Appeals did not abuse its discretion in determining to sustain the filing of the NFTL, and his motion should be granted unless the Hellyars' response were to show a genuine dispute of material fact. See Rule 121(b).
B. The Hellyars have not shown any genuine dispute of material fact
In their response to the Commissioner's motion, the Hellyars argue that there is a dispute of material fact regarding the communications between SO Roggeveen and the Hellyars' representative in the CDP hearing. The Hellyars have shown that their representative returned SO Roggeveen's call of July 14, 2020, on the same day, presumably to further discuss collection alternatives (Doc. 9 at 10-120), and they contend that SO Roggeveen's failure thereafter to call back "failed to afford [the Hellyars] a sufficient opportunity to raise offers of collection alternatives, which they clearly and repeatedly indicated their intention of doing, before closing their case and issuing a determination." (Doc. 9 at 6.) The Hellyars further allege that the notice of determination "makes no mention of alternatives to collection other than the rejected [OIC]" (Doc. 9 at 6), and that it was an abuse of discretion by IRS Appeals to issue a notice of determination that failed to address all the proposed collection alternatives identified in their Form 12153 (specifically, an installment agreement) (Doc. 9 at 4-5).
The Hellyar's theory is that, had SO Roggeveen returned their representative's callback on July 14, 2020, then they would have had the opportunity to propose further alternatives to collection before IRS Appeals issued the notice of determination sustaining the NFTL, and that failure to afford them this extra opportunity rises to an abuse of discretion. We do not agree with the Hellyars' characterization of the events for multiple reasons: First, they were afforded sufficient opportunities to raise collection alternatives in the CDP hearing. The Hellyars chose to submit an OIC, and that OIC was considered by both an IRS Offer Specialist and (later) SO Roggeveen. (Doc. 7 at 80-82.) Their 4% offer was rejected because the IRS determined that their RCP was greater than their balance owed, which determination was (as stated above) not an abuse of discretion. See, e.g., Murphy, 125 T.C. at 320-321. Agreeing with the Offer Specialist's determination of the Hellyars' RCP, SO Roggeveen proposed an installment agreement and sent to the Hellyars a completed Form 433-D for signature on January 23, 2020 (thereby reasonably following up their request on Form 12153 for consideration of an installment agreement). (Doc. 7 at 200-201.) In response to SO Roggeveen's installment agreement proposal, the Hellyars chose to submit further information to her regarding the IRS Offer Specialist's calculation of their RCP, which they considered excessive. (Doc. 7 at 205.) By the time SO Roggeveen reviewed the supplemental information and determined that it did not change her decision to sustain the denial of the Hellyars' OIC, the IRS had suspended all collection activity until July 15, 2020, in response to the COVID-19 pandemic. Then on July 14, 2020, just as collection activity was scheduled to resume, she initiated contact with the Hellyars' representative to potentially enter into an installment agreement. The Hellyars have shown that their representative responded to this communication (with a voicemail message), but they have not shown that they either accepted SO Roggeveen's prior installment agreement proposal or proposed an installment agreement of their own that would merit consideration by her and subsequent discussion in the notice of determination.
Implicit in the IRS's calculation that the Hellyars had positive reasonable collection potential is a determination that they were not eligible for currently-not-collectible status, thereby obviating the need to specifically address that collection alternative. See IRM 5.16.1.2.9(1) ("An account should not be reported as CNC if the taxpayer has income or equity in assets, and enforced collection of the income or assets would not cause hardship [defined as an inability to pay reasonable basic living expenses]."). "It is a well-settled principle that the Internal Revenue Manual does not have the force of law, is not binding on the IRS, and confers no rights on taxpayers." See, e.g., McGaughy v. Commissioner, T.C. Memo. 2010-183, 100 T.C.M. (CCH) 144, 148 (2010) (citations omitted). We cite its provisions to inform our analysis of whether IRS Appeals abused its discretion in making its determination.
The Hellyars are correct that taxpayers are entitled to a determination on all their proposed alternatives to collection. However, the taxpayer must affirmatively raise the offer of a collection alternative in the CDP hearing, see § 6330(c)(2)(A). The record in this case does not show any attempt by the Hellyars to formally propose an installment agreement (merely indications of their intent to do so), and no further attempt to do so prior to the issuance of the notice of determination on September 30, 2020 (nearly two months after their last contact). We see no abuse of discretion by IRS Appeals in issuing a determination to sustain a lien where a taxpayer fails, within a given reasonable timeframe, to either sign and return an installment agreement that Appeals proposed or propose an alternative installment agreement of their own.
The crux of the Hellyars' opposition to the Commissioner's motion is that "SO Roggeveen did not respond to Mr. Heller's voicemail message [left July 14, 2020]. Instead, she closed the case" without any further communication when she issued the notice of communication two and a half months later on September 30, 2020. It may be that a "best practice" would always be to return every phone call, but we cannot say that the SO's failure to do so in this instance constituted an abuse of discretion. The CDP hearing is an opportunity for the delinquent taxpayer to request forbearance by the IRS in its discharge of its obligation to collect taxes that are due. The taxpayer does not always fulfill his role in that hearing simply by trying to return a call and then leaving it to IRS Appeals to initiate further communication. IRS Appeals had given due consideration to the Hellyars' 4% OIC and had, in the absence of any specific proposal by the Hellyars, made its own proposal of an installment agreement to which it would agree. It was then incumbent on the Hellyars to make a substantive response to IRS Appeals' proposal. Instead, they simply left a voicemail message that (as the Hellyars describe it) "request[ed] an opportunity to discuss the appeal". This may have been a reasonable first step. But when that communication stalled and IRS Appeals did not reply, the Hellyars were not entitled to sit back for weeks on end, leaving it to IRS Appeals to move the matter forward. IRS Appeals had already given its suggestion of the way forward-i.e., the installment agreement it had proposed. The ball was in the Hellyars' court, not IRS Appeals's. It was not an abuse of discretion for IRS Appeals to determine after the passage of two more months that the Hellyars would not be accepting the proposal of an installment agreement nor making a counter-proposal.
VI. Conclusion
The Commissioner's motion shows that IRS Appeals did not abuse its discretion in issuing the notice of determination sustaining the NFTL covering the Hellyars' Federal income tax liabilities for the years 2010-2015 years, and the Hellyars have not shown any dispute of material fact that would require trial in this case. Therefore, decision may be rendered for the Commissioner as a matter of law.
In view of the foregoing, it is
ORDERED that respondent's motion for summary judgment is granted. It is further
ORDERED AND DECIDED that respondent may proceed with collection of petitioners' unpaid income tax liabilities for the 2010, 2011, 2012, 2013, 2014, and 2015 tax years, as described in the "Notice of Determination Concerning Collection Actions Under Sections 6320 or 6330 of the Internal Revenue Code" dated September 30, 2020.