Opinion
Docket No. 20675-19
04-05-2021
Kennith Lee & Cathy Lee, Petitioners v. Commissioner of Internal Revenue, Respondent.
ORDER
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph W. Nega in Chicago, Illinois, containing his oral Finding of Fact and Opinion rendered on November 18, 2020, at the remote hearing at which the case was heard.
In accordance with the oral Findings of Fact and Opinion, an appropriate decision will be entered.
(Signed) Joseph W. Nega
Judge Pages: 1 through 16 Place: Chicago, Illinois (Remote Proceeding) Date: November 18, 2020 Kluczynski Federal Building
230 S. Dearborn Street
Room 3908, 39th Floor
Chicago, Illinois 60604
(Remote Proceeding) November 18, 2020
The above-entitled matter came on for bench opinion, pursuant to notice at 9:55 a.m.
BEFORE: HONORABLE JOSEPH W. NEGA Judge
APPEARANCES:
For the Petitioner:
No Appearance
For the Respondent:
No Appearance
PROCEEDINGS
(9:55 a.m.)
THE CLERK: Calling from the calendar docket number 20675-19L, Kennith Lee and Cathy Lee.
(Whereupon, a bench opinion was rendered.) Bench Opinion by Judge Joseph W. Nega November 18, 2020 Kennith Lee and Cathy Lee v. Commissioner Docket No. 20675-19L
THE COURT: The Court has decided to render oral findings of fact and opinion in this case, and the following represents the Court's oral findings of fact and opinion. This Bench Opinion is made pursuant to section 7459(b) and Rule 152, and it shall not be relied upon as precedent in any other case. Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
This case arises from a petition filed in response to respondent's five Notices of Determination Concerning Collection Action Under Section 6320 and/or 6330 (Notices of Determination) that sustained the Notices of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 for taxable years 2008, 2009, 2010, 2011, 2013, 2014, 2015, 2016, and 2017, and Final Notices of Intent to Levy and Your Right to a Hearing for taxable years 2012, 2013, 2014, 2015, 2016, and 2017 (collectively, the years at issue). The issue for decision is whether the settlement officer (SO) from the Internal Revenue Service (IRS) Office of Appeals (Appeals Office) abused her discretion in sustaining the proposed collection actions.
This case was tried remotely on November 16, 2020. John J. Nagle, II, appeared on behalf of petitioners. Hannah E. Miller appeared on behalf of respondent.
FINDINGS OF FACT
Some of the facts are stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by reference. At the time petitioners filed the petition, petitioners resided in Illinois.
On April 12, 2017, an information was filed with the United States District Court for the Northern District of Illinois charging Kennith Lee (petitioner-husband) with one count of filing a false tax return for the 2008 taxable year, in violation of 26 U.S.C. sec. 7206(1). On May 4, 2017, petitioner-husband entered into a plea agreement in which he pled guilty to filing a false tax return for the 2008 taxable year and admitted that he underreported his income for the 2008, 2009, 2010, and 2011 taxable years. The District Court ordered petitioner-husband to pay restitution to respondent. Petitioners' underlying tax liabilities in this case arose from their failure to pay the entire income tax reported for the 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, and 2017 taxable years and restitution-based assessments for the 2008, 2009, 2010, and 2011 taxable years.
In 2018, respondent mailed to petitioners three Notices of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 (lien notices) regarding unpaid income taxes owed for taxable years 2008 through 2011 and taxable years 2013 through 2017. Two of these lien notices were addressed to petitioners collectively, and the other was addressed to petitioner-husband individually. In 2018 and 2019, respondent also mailed to petitioners five Final Notices of Intent to Levy and Notice of Your Right to a Hearing (levy notices) regarding unpaid income taxes owed for taxable years 2012 through 2017. Three of these levy notices were addressed to petitioner Cathy Lee (petitioner-wife) individually, and two were addressed to petitioner-husband individually.
In response to each of these notices, petitioners timely submitted Forms 12153, Request for a Collection Due Process (CDP) or Equivalent Hearing (CDP hearing request), for the years at issue. On the CDP hearing requests that petitioner-husband submitted, he checked the box marked "I Cannot Pay Balance." On the CDP hearing requests that petitioner-wife submitted, she requested Innocent Spouse relief and attached Forms 8857, Request for Innocent Spouse Relief. In support of their requests for a CDP hearing, petitioners submitted Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and bank statements detailing the months of February 2018 through September 2018.
SO McDermott from respondent's Appeals Office was assigned to petitioner-husband's case on March 5, 2019, and to petitioner-wife's case on July 1, 2019. The SO sent to petitioner-husband two letters dated May 7, 2019, acknowledging receipt of his Forms 12153, scheduling a telephone CDP hearing for June 20, 2019, regarding taxable years 2008, 2009, 2010, 2011, 2012, and 2017, and requesting that he submit Form 433-A. The SO sent to petitioner-wife a letter dated July 30, 2019, acknowledging receipt of her Forms 12153, scheduling a telephone CDP hearing for September 5, 2019, regarding taxable years 2012 through 2017, and requesting that petitioner-wife submit Form 433-A. In response to the letters, on June 13, 2019, petitioner-husband submitted bank statements detailing the months of February 2019 through May 2019, and, on September 4, 2019, he submitted an updated Form 433-A, reporting monthly income of $18,376 and monthly expenses of $13,379. The Form 433-A indicated that petitioners' remaining monthly income was $4,997.
On June 20, 2019, petitioner-husband's representative called the SO for the scheduled CDP hearing. At the hearing, the representative informed the SO that petitioner-husband was interested in an installment agreement. On the basis of the financial information provided, the SO determined that petitioners could make monthly payments and recommended a tiered installment agreement of $4,900 per month for the first year and $6,100 per month for subsequent years on the condition that petitioners pay the estimated taxes for the current year - i.e., the 2019 taxable year. The representative requested that petitioners' estimated tax liabilities for the 2019 taxable year be included in the installment agreement. The SO explained that she could not recommend that petitioners' estimated taxes for the 2019 taxable year be included in the installment agreement because petitioner-husband failed to make estimated tax payments for the last ten years and he defaulted on previous installment agreements. The representative stated that he would accept or reject the recommended installment agreement by September 9, 2019. The SO reported that she has not received any further contact from petitioner-husband or his representative.
On September 5, 2019, petitioner-wife's representative called the SO for the scheduled CDP hearing. Petitioner-wife requested relief through an Innocent Spouse claim or, alternatively, an installment agreement. The SO determined that petitioner-wife was ineligible for Innocent Spouse relief for the years at issue because she failed to meet the requirements under section 6015(f). With respect to the installment agreement, the SO again determined that the provided financial information showed an ability to make monthly payments and recommended the same tiered installment agreement that she had recommended to petitioner-husband on the condition that petitioners pay the estimated taxes for the current year - i.e., the 2019 taxable year. Petitioner-wife's representative stated that he would accept or reject the recommended installment agreement by September 9, 2019. The SO reported that she has not received any further contact from petitioner-wife or her representative.
Respondent issued to petitioners five Notices of Determination Concerning Collection Actions Under Section 6320 and/or 6330, dated October 28, 2019, sustaining the proposed levy and lien actions for the years at issue. On November 20, 2019, petitioners filed the petition with this Court.
OPINION
I. Standard of Review
Sections 6320 (pertaining to Federal tax liens) and 6330 (pertaining to levies) establish procedures for administrative and judicial review of certain collection actions. Sections 6320 and 6330 require the Commissioner to provide the taxpayer with written notice of a lien filing or the proposed levy action. The notice must inform the taxpayer of his or her right to request a CDP hearing to challenge the filing of a lien or a proposed levy. Sec. 6320(a), 6330(a). At the CDP hearing, the taxpayer may raise any relevant issue relating to the collection of the unpaid tax or the proposed levy, including a request for consideration of a collection alternative. See sec. 6330(c)(2)(A). A taxpayer is expected to provide all relevant information requested by the Appeals Office for its consideration of the facts and issues involved in the hearing. See sec. 301.6320-1(e)(1), Proced. & Admin. Regs. After the CDP hearing, the taxpayer may seek judicial review of a determination sustaining a lien filing or a proposed levy by filing a petition with this Court. Sec. 6330(d)(1).
Where the taxpayer's underlying liability is properly at issue, the Court reviews any determination regarding the underlying liability de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). Where the taxpayer's underlying liability is not properly at issue, the Court reviews the SO's determination for abuse of discretion. See Swanson v. Commissioner, 121 T.C. 111, 119 (2003).
Abuse of discretion is found where a determination is arbitrary, capricious, or without sound basis in fact or law. Giamelli v. Commissioner, 129 T.C. 107, 111 (2007); Woodral v. Commissioner, 112 T.C. 19, 23 (1999).
Petitioners do not challenge their underlying tax liability for the years at issue. The Court briefly notes that petitioner-wife's claim for Innocent Spouse relief was not raised in the petition or otherwise argued before the Court; thus, it is deemed conceded. Accordingly, because petitioners' underlying liabilities are not at issue, we will review the SO's determinations for abuse of discretion.
II. Abuse of Discretion
Section 6159 authorizes the Commissioner to enter into written agreements allowing taxpayers to pay a tax liability in installment if he deems that the "agreement will facilitate full or partial collection of such liability." Thompson v. Commissioner, 140 T.C. 173, 179 (2013) (citing sec. 6159(a)). The decision to accept or reject an installment agreement lies within the discretion of the Commissioner. Id. (citing sec. 301.6159-1(a) and (c)(1)(i), Proced. & Admin. Regs.) If an SO follows all statutory and administrative guidelines and provides a reasoned and balanced decision, the Court will not reweigh the equities. Lipson v. Commissioner, T.C. Memo. 2012-252, at *9.
When evaluating whether an SO abused her discretion, the Court reviews the record to determine whether the SO: (1) verified that the requirements of applicable law and administrative procedure have been met; (2) considered any relevant issues that petitioners raised; and (3) considered "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." Sec. 6330(c)(3).
Our review of the record establishes, and petitioners do not dispute, that the SO properly verified that the requirements of applicable law and administrative procedure had been met. Therefore, we turn to petitioners' contentions relating to the second and third requirements.
Petitioners argue that the SO's determinations to sustain the proposed lien and levy actions were an abuse of discretion on the grounds that the SO failed to consider a financially manageable collection alternative that would have been no more intrusive than necessary and denied petitioners' requested installment agreement that corresponded with their submitted financial information. Petitioners assert that the SO improperly conditioned the recommended installment agreement on petitioners paying in full their estimated tax liabilities for the 2019 taxable year, even though the financial information that petitioners submitted indicated that their available equity was not adequate to pay the estimated taxes for 2019.
Petitioners further assert that the SO improperly denied petitioners' request to include petitioners' estimated tax payments for the 2019 taxable year in the recommended installment agreement. In support of their position, petitioners cited the Internal Revenue Manual (IRM) for the proposition that "unassessed liabilities" for current-year tax returns can be included in installment agreements, IRM pt. 5.19.1.6.4.15(2) (Oct. 18, 2017), and in Partial Pay Installment Agreements, IRM pt. 5.19.1.6.5.1(1)(A) (Sept. 26, 2018). Finally, petitioners contend that, if the collection actions are sustained, petitioner-husband will not be able to continue operating his business and would not be able to maintain his necessary living expenses.
Petitioners' argument here is similar to the taxpayers' arguments that we rejected in Scanlon v. Commissioner, T.C. Memo. 2018-51, Boulware v. Commissioner, T.C. Memo. 2014-80, aff'd, 816 F.3d 133 (D.C. Cir. 2016), and Lipson v. Commissioner, T.C. Memo. 2012-252. In each of those cases, the Court explained that, while the IRM authorized the SO to include the taxpayer's current estimated tax liabilities, it did not require the SO to do so. Scanlon v. Commissioner, T.C. Memo. 2018-51, at *21; Boulware v. Commissioner, T.C. Memo. 2014-80, at *22; Lipson v. Commissioner, T.C. Memo. 2012-252, at *8; see also IRM pt. 5.14.1.4.2(18) (Sept. 19, 2014) ("If it appears a taxpayer will have a balance due at the end of the current year, the accrued liability may be included in an agreement") (emphasis added). The Court in each of those cases held that the SO did not abuse her discretion in declining to include the taxpayer's current estimated tax liabilities in the installment agreement. Scanlon v. Commissioner, T.C. Memo. 2018-51, at *21; Boulware v. Commissioner, T.C. Memo. 2014-80, at *22; Lipson v. Commissioner, T.C. Memo. 2012-252, at *8. Moreover, this Court has consistently held that an SO does not abuse her discretion in denying a taxpayer's request for an installment agreement when the taxpayer is not in compliance with his or her current tax obligations as of the date of the CDP hearing. See Giamelli v. Commissioner, 129 T.C. at 111-112 (sustaining rejection where the taxpayer was not in compliance with his estimated tax payments).
Based on the circumstances in this case and the testimony proffered at trial, we find no abuse of discretion in the SO declining to include petitioners' estimated tax liabilities for the 2019 taxable year in the proposed installment agreement and conditioning her acceptance of the agreement on petitioners' payment of those liabilities, especially given petitioners' history of noncompliance in paying their estimated taxes for the last ten years and defaults on previous installment agreements. See Simone's Butterfly v. Commissioner, T.C. Memo. 2011-187, at *14 (stating that the taxpayer's failure to pay estimated taxes illustrates one of the reasons for requiring current compliance before acceptance of an installment agreement; namely, the risk of pyramiding tax liabilities, where the taxpayer's failure to pay current tax liabilities increases the total liability). Furthermore, we find no abuse of discretion in the SO also predicating her decision to sustain the proposed collection actions on petitioners' failure to inform her by the agreed-upon date of their acceptance or rejection of the installment agreement. See Bullock v. Commissioner, T.C. Memo. 2017-161, at *10-*11 (concluding that the SO did not abuse his discretion in closing the case after the taxpayers "failed to submit a counteroffer by * * * [the SO's] deadline and ceased further communications with him").
The Court concludes that the SO considered all issues that petitioners raised and properly balanced the need for the efficient collection of petitioners' taxes with the legitimate concern that any collection action be no more intrusive than necessary.
III. Conclusion
Accordingly, a decision will be entered for respondent. This concludes the Court's oral findings of fact and opinion in this case. In reaching our holdings herein, the Court considered all arguments made, and, to the extent not mentioned above, the Court concludes that they are moot, irrelevant, or without merit.
(Whereupon, at 10:15 a.m., the above-entitled matter was concluded.)
CERTIFICATE OF TRANSCRIBER AND PROOFREADER
CASE NAME: Kennith Lee and Cathy Lee v. Commissioner DOCKET NO.: 20675-19L
We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 16 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Eva Walsh on November 18, 2020 before the United States Tax Court at its remote session in Chicago, IL, in accordance with the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording.
/s/_________
Meribeth Ashley, CET-507
Transcriber
__________
12/3/20
Date
/s/_________
Lori Rahtes, CDLT-108
Proofreader
__________
12/3/20
Date