Opinion
17621-22L
08-10-2023
LOUIS AGI & ESTA-DARA AGI, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
Joseph W. Nega Judge
This collection due process (CDP) case was previously calendared for an in-person trial at the session of the Court that commenced on Monday, June 12, 2023, in Anchorage, Alaska. On April 13, 2023, pursuant to Rule 121, respondent filed a Motion for Summary Judgment (respondent's motion) and Declaration of Anita Subia in Support of Motion for Summary Judgment. By Order issued April 17, 2023, the Court directed petitioners to respond to respondent's motion by May 5, 2023.
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.
On May 5, 2023, petitioners filed a Motion for Extension of Time (to File Response to Motion for Summary Judgment), which was granted by an Order issued May 8, 2023. On June 6, 2023, petitioners filed a Motion for Extension of Time and a Motion for Continuance, both of which the Court granted by Order issued June 9, 2023. On June 27, 2023, petitioners filed an Opposition to Respondent's Motion for Summary Judgment and Cross-Motion for Summary Judgment (petitioners' motion).
For the reasons set forth below, we will grant respondent's motion and deny petitioners' motion.
I. Background
The following facts are drawn from the parties' pleadings and motion papers, including the attached declarations and exhibits. See Rule 121.
Petitioners filed income tax returns for the 2014, 2015, 2016, and 2017 tax years (the tax years at issue).
On July 8, 2019, respondent sent to petitioners a Form CP77, Intent to seize your assets and notice of your right to a hearing (levy notice), regarding petitioners' outstanding tax liability for the tax years at issue. The levy notice indicated an amount due immediately of $57,526.06, including penalty and interest.
On July 31, 2019, petitioners and their Power of Attorney, David Rohlfing (petitioners' POA), completed a Form 12153, Request for a Collection Due Process or Equivalent Hearing (hearing request), which was timely received by respondent on August 6, 2019.. On the second page of the hearing request, petitioners indicated "Proposed Levy or Actual Levy" as the basis for the request and checked the boxes for "Installment Agreement" and "Offer in Compromise" as collection alternatives. Also on the second page of the hearing request, petitioners stated the reason for the request was because:
[w]e initially entered into an installment agreement in July 2018, but it was suspended or canceled. This may have been related to our September 2018 bankruptcy filing. We have received conflicting information in communication with the Service as to the status of our account and believe it would violate due process if a levy were to be assessed. During the CDP hearing, we wish to revise our application for an installment agreement and reestablish a plan to resolve the liability.
Settlement Officer Anita Subia (SO Subia) was assigned to petitioners' CDP case. On June 4, 2020, SO Subia sent to petitioners and petitioners' POA a letter, stating that she had received petitioners' hearing request and scheduling a telephonic hearing for July 10, 2020. The hearing was subsequently rescheduled for August 11, 2020.
On August 11, 2020, SO Subia conducted a CDP hearing by telephone with petitioners' POA, at which time petitioners' POA indicated that petitioners were not challenging the underlying liability and that petitioners requested to enter into either an installment agreement or an offer in compromise (OIC). Petitioners' POA stated that he would fax to SO Subia Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals (Form 433-A), along with supporting documentation.
On August 12, 2020, SO Subia received a Form 433-A and supporting documents from petitioners' POA regarding petitioners' current financial status. SO Subia analyzed the documents and, based on local and national standards and petitioners' household information, calculated petitioners' allowable expenses. Using Gross Monthly Income of $8,969, as reported by petitioners on the Form 433-A, and using the calculated Total Allowable Expenses of $5,702, SO Subia determined a Minimum Monthly Payment Amount of $3,267.
On August 14, 2020, SO Subia compared the computations from the allowable expense calculator with the expenses listed on Form 433-A, along with the supporting documents provided. Petitioners claimed $2,930 for food, clothing, and miscellaneous, and the allowed amount was $1,298. Petitioners claimed $3,187 for housing and utilities, and the allowed amount was $2,372. Finally, petitioners claimed $928 for secured debt involving petitioners' daughter's student loans (for which petitioners cosigned), and the allowed amount was $0.
On September 24, 2020, SO Subia called petitioners' POA, during which they discussed the monthly expenses listed on Form 433-A. Petitioners' POA indicated that he would discuss expenses with petitioners and provide more substantiation to allow some of the disallowed expenses.
On September 28, 2020, petitioners' POA called SO Subia and stated that petitioners would submit a Form 656, Offer in Compromise (Form 656). SO Subia explained to petitioners' POA that, if the information was not provided by October 13, 2020, SO Subia would issue a determination letter and close the case.
On October 13, 2020, SO Subia received from petitioners' POA the Form 656 and sent the OIC package to the Centralized Offer in Compromise Unit (COIC) for review of the OIC. The Form 656 did not have a box checked for Reason for Offer, but petitioners wrote that they "are far from able to pay the cumulative amount of all delinquent taxes." The Form 656 proposed a total offer amount of $3,000, with $600 due as initial payment.
On September 14, 2021, SO Subia received a response from COIC with a preliminary decision rejecting the OIC. By letter dated September 28, 2021, SO Subia informed petitioners of the preliminary decision to reject their OIC and scheduled a telephonic CDP hearing for October 28, 2021.
On October 28, 2021, petitioners' POA called SO Subia, requesting to reschedule the CDP hearing, and the hearing was rescheduled for December 2, 2021. Also on October 28, 2021, petitioners' POA asked SO Subia what would be the minimum monthly payment for a streamline installment agreement (SLIA). SO Subia conducted an Integrated Automated Technology payment computation and calculated that the minimum payment petitioners would owe for a SLIA was $631 per month, to be paid within 72 months. Petitioners' POA indicated that he would speak with petitioners regarding the computed SLIA as a collection alternative.
On December 2, 2021, SO Subia held a telephonic CDP hearing with petitioners' POA. At that time, petitioners' POA indicated that he spoke with petitioners regarding the SLIA and stated that petitioners could not afford the proposed $631 monthly payment. Petitioners' POA stated that he would provide a current Form 433-A with supporting documentation by December 8, 2021.
On December 15, 2021, after receiving from petitioners' POA a revised Form 433-A (Revised Form 433-A), SO Subia reviewed the Revised Form 433-A regarding petitioners' current financial status. SO Subia analyzed petitioners' submitted documents and prepared an updated allowable expenses calculation based on the current local and national standards. The revised Gross Monthly Income, as reported on petitioners' Revised Form 433-A, was $9,075, which less the calculated Total Allowable Expenses of $6,038, resulted in a Minimum Monthly Payment Amount of $3,037. Based on her analysis of the updated calculations, SO Subia determined that petitioners had "disposable income and ability to pay."
On January 10, 2022, SO Subia further reviewed the expenses listed on the Revised Form 433-A and determined what expenses were allowed and disallowed. Petitioners claimed $2,930 for food, clothing, and miscellaneous, and the allowed amount was $1,298. Petitioners claimed $3,187 for housing and utilities, and the amount allowed was $2,372. Petitioners claimed $928 for secured debt attributable to petitioners' daughter's student loans, and the allowed amount was $0.
On February 18, 2022, at petitioners' request, petitioners' POA provided SO Subia with additional substantiation information, including narrative statements regarding the circumstances of the petitioners, as well as specific elements of their claimed expenses. Petitioners' POA asked that SO Subia review the new documents along with the previously sent expense and asset information.
On March 25, 2022, petitioners' POA called SO Subia to follow up regarding the expenses listed on the Revised Form 433-A, as well as the additional substantiation information provided by petitioners' POA on February 18, 2022. SO Subia analyzed the documents and prepared an updated allowable expenses calculation based on the current local and national standards. The revised Gross Monthly Income, based on the Revised Form 433-A and the additional substantiation information, was $9,075, and calculated Total Allowable Expenses were $5,604, resulting in a Minimum Monthly Payment Amount of $3,471. SO Subia explained to petitioners' POA that, based on her analysis, petitioners had an ability to pay and that respondent would be sustaining the rejection of petitioners' OIC. Petitioners' POA and SO Subia also discussed other collection alternatives, and SO Subia explained that petitioners met the requirements for a SLIA, with a minimum monthly payment of $631.
On April 12, 2022, SO Subia received additional substantiation information from petitioners' POA regarding petitioners' monthly expenses.
On April 22, 2022, petitioners' POA called SO Subia to discuss the additional documentation provided to substantiate the disallowed expenses. Based on the additional documentation, some of the expenses previously disallowed were allowed and adjusted. Specifically, the monthly expense for housing and utilities was increased, and the health and life insurance expenses were adjusted. The expense claim for future home improvement was disallowed, and the total amount disallowed for future vehicle purchase was $1,506. SO Subia explained that, based on the updated computations, the Gross Monthly Income was $9,075, and the Total Allowable Expenses were $7,052, resulting in a Minimum Monthly Payment Amount of $2,023. SO Subia indicated that petitioners had the ability to fully pay the liability within the time allowed by law and that the OIC's rejection would be sustained.
Also on April 22, 2022, petitioners' POA stated that he disagreed with the expenses that were disallowed. SO Subia explained that, if petitioners' POA did not agree with the decision, petitioners' POA could request a manager call him to discuss the decision. Petitioners' POA requested a manager call back. Petitioners' POA indicated that he understood that petitioners had not been able to demonstrate the definite necessity of all home repairs due to the difficulty of receiving quotes and estimates at that time.
Also on April 22, 2022, petitioners' POA stated that he wished to discuss the disallowed student loan expense. SO Subia referenced Internal Revenue Manual (IRM) 5.15.1.11, regarding student loan expenses and explained that a student loan expense is necessary if it is guaranteed by the Federal government and only for the taxpayer's (i.e., petitioners') post-high school education. In this case, the student loan expense was due to petitioners cosigning for their daughter's student loan.
Also on April 22, 2022, petitioners' POA inquired about other options, should no resolution be reached with management. SO Subia explained that the previously discussed SLIA could be set up as a collection alternative or a determination letter could be issued and petitioners could petition this Court for judicial review.
On May 2, 2022, SO Subia asked petitioners' POA to provide petitioners' decision regarding the SLIA discussed on April 22, 2022, as a collection alternative by May 10, 2022. As of May 13, 2022, no response had been received from petitioners or petitioners' POA.
On July 12, 2022, respondent issued to petitioners a Notice of Determination Concerning Collection Actions under IRS Sections 6320 or 6330 of the Internal Revenue Code (notice of determination), sustaining the proposed levy to collect the liabilities for the tax years at issue. On August 10, 2022, petitioners timely filed a Petition with this Court.
II. Discussion
A. Summary Judgment Standard
The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1998). 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). In deciding whether to grant summary judgment, we construe factual materials and draw inferences therefrom in the light most favorable to the nonmoving party. Sundstrand Corp., 98 T.C. at 520. However, the nonmoving party may not rest upon mere allegations or denials of his pleadings but, rather, must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see Sunstrand Corp., 98 T.C. at 520.
B. Standard of Review
Section 6330(d)(1) grants this Court jurisdiction to review the SO's determination in connection with a CDP hearing. Section 6330(c)(2) prescribes the matters that a taxpayer may raise at a CDP hearing, including spousal defenses, challenges to the appropriateness of the collection action, and collection alternatives. The existence or amount of the underlying tax liability may be contested at a CDP hearing only if the taxpayer did not receive a notice of deficiency or did not otherwise have an opportunity to dispute the tax liability. See § 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176, 180- 81 (2000).
If the validity of the underlying tax liability is properly at issue, the Court will review the taxpayer's liability de novo. See Sego, 114 T.C. at 609-10. Where the validity of the underlying tax liability is not properly at issue, the Court will review the SO's administrative determination for abuse of discretion. Id. at 610. Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006).
Petitioners' underlying liability was not raised during the CDP proceeding and is not at issue in this proceeding. We thus review respondent's determination only for abuse of discretion.
C. Abuse of Discretion
Petitioners assert that SO Subia abused her discretion in sustaining the collection action and rejecting their proposed collection alternative. In deciding whether SO Subia abused her discretion, we consider (1) the verification that the requirements of applicable law and administrative procedure have been met; (2) issues raised by the taxpayer; and (3) whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection be no more intrusive than necessary. § 6330(c)(3); Thompson v. Commissioner, 140 T.C. 173, 178-79 (2013).
In reviewing the determination, we do not substitute our judgment for that of the SO or make an independent determination of what would be an acceptable collection alternative. Id. at 179. If the SO "followed all statutory and administrative guidelines and provided a reasoned, balanced decision," we "will not reweigh the equities." Id.
Our review of the record establishes that SO Subia satisfied all of these requirements.
1. Issues Raised
Throughout the CDP proceedings and before this Court, petitioners' principal arguments have centered on the rejection of their OIC based on SO Subia's calculation of petitioners' ability to pay and her disallowance of claimed expenses for future home improvement, future vehicle payments, and payments toward petitioners' daughter's student loans from that calculation. We will now address these issues.
Section 7122(a) provides the Commissioner with delegated authority to compromise any civil or criminal tax liability. Generally, the "decision to entertain, accept or reject an offer in compromise is squarely within the discretion of the appeals officer and the [Commissioner]." Kindred v. Commissioner, 454 F.3d 688, 696 (7th Cir. 2006); see Treas. Reg. § 301.7122-1(c)(1). There are three grounds for an OIC: (1) doubt as to liability, (2) doubt as to collectibility, and (3) the promotion of effective tax administration. See Speltz v. Commissioner, 124 T.C. 165, 172 (2005), aff'd, 454 F.3d 782 (8th Cir. 2006); see also Treas. Reg. § 301.7122-1(b)(1)-(3). Here, petitioners failed to specify which ground served as the basis for their OIC on the Form 656; however, from review of the record, it is clear that the parties understood petitioners' OIC to be brought due to doubt as to collectibility.
The regulations direct the Commissioner to make an initial determination of a taxpayer's ability to pay as part of its determination to accept or reject an OIC for doubt as to collectibility. See Treas. Reg. § 301.7122-1(c)(2)(i). Generally, the Commissioner will only accept an OIC for doubt as to collectibility if the taxpayer's liability exceeds his or her ability to pay. See Murphy, 125 T.C. at 309; Rev. Proc. 2003-71, § 4.02(2), 2003-2 I.R.B. 517, 517. If the taxpayer's liability exceeds his or her ability to pay, then the Commissioner will calculate an appropriate offer amount, based on the taxpayer's reasonable collection potential (RCP), a figure comprised of the sum of future net income and net equity in assets. Murphy, 125 T.C. at 309. As part of both the ability to pay and RCP calculations, the Commissioner is guided by national and local expense standards. See § 7122(d)(2)(A). The standards provide a maximum allowance for a taxpayer's monthly expenses, and the Commissioner will generally only allow expenses that do not exceed the applicable standards. Section 7122(d)(2)(B) provides that the Commissioner must determine, based on the facts and circumstances of each taxpayer, "whether the use of the schedules . . . is appropriate."
This Court has generally sustained the Commissioner's reliance on the national and local standards in determining a taxpayer's allowed expenses for purposes of evaluating an OIC. See, e.g., Perrin v. Commissioner, T.C. Memo. 2012-22, 103 T.C.M. (CCH) 1150, 1151 ("The use of local and national standards is expressly authorized by Congress and does not constitute an abuse of discretion even if it forces a taxpayer such as petitioner to change his lifestyle."). The taxpayer bears the burden of submitting information to the settlement officer that justifies a departure from the standards. See, e.g., Dean v. Commissioner, T.C. Memo. 2009-269, 98 T.C.M. (CCH) 488, 492. Finally, it is well settled "that the IRM does not have the force of law, is not binding on the Commissioner, and does not confer any rights on the taxpayer." Barnes v. Commissioner, 130 T.C. 248, 255-56 (2008).
Petitioners argue that SO Subia abused her discretion by disallowing possible future home expenses as "necessary maintenance and repair" under IRM 5.15.1.10.1. Similarly, petitioners argue that SO Subia abused her discretion by disallowing expenses for the possible future purchase of a vehicle under IRM 5.15.1.10.2. In calculating petitioners' monthly expenses, SO Subia applied the national and local standards. Before disallowing the home and vehicle expenses, SO Subia determined that both categories were only planned and expected, rather than costs presently incurred. Indeed, the record reflects that petitioners had taken very little action toward making these expenses concrete. Throughout the CDP proceeding, SO Subia repeatedly reviewed the provided substantiating documents and financial information. At each recalculation, SO Subia determined that petitioners had the ability to pay and that rejection of the OIC was appropriate. We find that SO Subia did not abuse her discretion by following the national and local expense standards and disallowing the future potential expenses.
Finally, petitioners argue that SO Subia abused her discretion by disallowing student loan payment expenses, as cosigners of their daughter's loan, through applying IRM 5.15.1.11. However, student loan expenses are only allowable if the loan "is guaranteed by the federal government and only for the taxpayer's post-high school education." IRM 5.15.1.11 (emphasis added). In making her decision on whether to accept an OIC, a settlement officer is "supposed to follow regulations and policies." Brombach v. Commissioner, T.C. Memo. 2012-265, at * 5. We cannot find that SO Subia abused her discretion by doing exactly that.
2. Verification and Balancing Obligations
Finally, we briefly address whether SO Subia satisfied her statutory obligations (1) to verify that the requirements of applicable law and administrative procedure were met and (2) to consider whether the proposed levy balanced the need for the efficient collection of taxes with the concern that the collection be no more intrusive than necessary. We are satisfied that she did so.
In both her case activity notes and the notice of determination, SO Subia determined that she verified: (1) assessments were properly made for the tax years at issue; (2) the notice and demand for payment was mailed to petitioners' last known address within 60 days of the assessment; (3) that there was a balance due when the levy notice was issued; and (4) as the SO assigned to the case, she had no prior involvement with petitioners. Likewise, in the notice of determination, SO Subia conducted a balancing analysis and concluded that the proposed levy was appropriate. Accordingly, we find that SO Subia complied with section 6330(c)(1) and (3).
III. Conclusion
We thus conclude that SO Subia did not abuse her discretion in rejecting petitioners' OIC and sustaining the levy notice in full. We have considered all remaining arguments the parties made and, to the extent not addressed, we conclude they are irrelevant, moot, or meritless.
Accordingly, and upon due consideration, it is
ORDERED that respondent's Motion for Summary Judgment, filed April 13, 2023, is granted. It is further
ORDERED that petitioners' Opposition to Respondent's Motion for Summary Judgment and Cross-Motion for Summary Judgment, filed June 27, 2023, is denied. It is further
ORDERED and DECIDED that the Notice of Determination Concerning Collection Actions under IRS Sections 6320 or 6330 of the Internal Revenue Code, dated July 12, 2022, for taxable years 2014, 2015, 2016, and 2017, is sustained.