Opinion
22745-22L
06-06-2024
DULCE M. ROBLES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
Joseph W. Nega Judge
This collection due process (CDP) case was calendared for an in-person trial at the session of the Court scheduled to commence on June 3, 2024, in Honolulu, Hawaii. On April 1, 2024, respondent filed a Motion for Summary Judgment (respondent's motion). By Order issued April 2, 2024, the Court directed petitioner to respond to respondent's motion on or before April 30, 2024. On April 29, 2024, petitioner filed a response to respondent's motion. On May 17, 2024, the Court continued the case from the Honolulu calendar to further consider respondent's motion.
I. Background
On February 1, 2022, respondent issued to petitioner Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 ("CDP Lien Notice"), which corresponded to petitioner's federal income tax liability for tax years 2016, 2017, and 2018. The unpaid income tax liabilities arise from self-reported income on petitioner's late filed federal income tax returns for tax years 2016 and 2017 and from an agreed assessment for tax year 2018. In response to the CDP Lien Notice, petitioner timely submitted Form 12153, Request for a Collection Due Process or Equivalent Hearing, which was received by respondent on March 7, 2022. Petitioner attached a sheet explaining petitioner's reasons for requesting a CDP hearing, including that "[t]he [t]axpayer may owe less taxes, penalties, and interest than stated in the [CDP Lien Notice]." Petitioner also requested an installment agreement.
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.
For tax year 2018, petitioner signed Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment.
On March 1, 2022, respondent issued to petitioner Letter 1058, Final Notice, Notice of Intent to Levy and Notice of Your Rights to a Hearing ("CDP Levy Notice"). In response to the CDP Levy Notice, petitioner timely submitted a second Form 12153, which was received by respondent on March 28, 2022. Petitioner attached a sheet explaining petitioner's reasons for requesting a CDP hearing, including that "[t]he [t]axpayer may owe less taxes, penalties, and interest than stated in the [CDP Levy Notice]." Petitioner also requested an installment agreement.
Petitioner's CDP case was assigned to Appeals Officer Gary Chapman (AO Chapman). On May 31, 2022, AO Chapman mailed to petitioner a letter scheduling a telephonic CDP conference for July 20, 2022. In the May 31, 2022, letter, AO Chapman requested additional information to be submitted by July 1, 2022, including amended returns for tax years 2016 and 2017; Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals; petitioner's proposal for an installment agreement; and federal income tax returns for tax years 2019, 2020, and 2021.
Petitioner submitted to respondent a letter dated July 28, 2022, that contained petitioner's 2019 and 2020 tax returns along with a $20,000 check that was designated as partial payment of taxes for the 2019 tax year. Petitioner's 2019 return showed an unpaid tax liability of $1,102,598. Petitioner's 2020 return showed an unpaid tax liability of $954,475.
The parties rescheduled the CDP conference call to August 3, 2022, and then to August 10, 2022. On August 8, 2022, petitioner's representative requested that the conference be delayed until August 17, 2022; AO Chapman refused this request because the conference had already been postponed twice. On August 10, 2022, petitioner's representative faxed a completed Form 433-A to AO Chapman and participated in the conference call with AO Chapman. The Form 433-A showed two real properties with $0 loan balances and total equity of $4,826,608 as well as two vehicles with total equity of $168,479 and $0 loan balances. The Form 433-A also showed total monthly income of $89,230.31 and total monthly expenses of $23,312 for a net difference of $65,978.31. As of August 10, 2022, petitioner had still not filed a tax return for tax year 2021.
During the CDP conference call, AO Chapman informed petitioner's representative that petitioner was not in compliance due to failure to pay taxes for 2019 and 2020 in addition to the unfiled return for tax year 2021. AO Chapman informed petitioner's representative that, in order to qualify for an installment agreement, petitioner would need to file a 2021 tax return, become current on estimated tax payments for tax year 2022 (approximately $470,000 based on the most recent tax return filed by petitioner), and address the equity in her properties. AO Chapman also explained the potential for lien subordination if petitioner secured a mortgage against the real properties.
On August 10, 2022, AO Chapman mailed to petitioner a letter requesting that petitioner submit a tax return for tax year 2021 by August 24, 2022. In this letter, AO Chapman did not demand estimated tax payments for 2022, despite having insisted on such payments during the conference call. Petitioner sent a letter to AO Chapman dated August 24, 2022, that contained petitioner's 2021 tax return and a payment of $150,000 towards the taxes owed on the 2021 tax return.
Respondent contends that AO Chapman sent an additional letter also on August 10, 2022, that explicitly requested estimated tax payments for tax year 2022 and requested that petitioner present a proposal related to her equity in assets. Such a letter was not produced as part of the administrative record and so cannot be considered by the Court. Nonetheless, the record reflects that AO Chapman demanded estimated tax payments for tax year 2022 during the August 10, 2022 and August 31, 2022 calls with petitioner's representative.
On August 31, 2022, AO Chapman called petitioner's representative and informed him that an installment agreement could not be considered due to petitioner's ongoing noncompliance with estimated tax payments for tax year 2022. AO Chapman explained that petitioner owed more than $300,000 in estimated tax payments for tax year 2022. Petitioner's representative did not indicate that petitioner intended to come into compliance with estimated tax payments for tax year 2022. AO Chapman informed petitioner's representative that AO Chapman was planning on concluding the CDP hearing and sustaining the collection actions due to petitioner's noncompliance in addition to petitioner's unencumbered equity in property.
On September 27, 2022, respondent issued to petitioner Notice of Determination Concerning Collection Actions under IRS Sections 6320 or 6330 of the Internal Revenue Code (notice of determination), sustaining the notice of federal tax lien and proposed levy for unpaid tax liability for tax years 2016, 2017, and 2018. In the notice of determination, AO Chapman upheld the proposed collection activities based on petitioner's unencumbered equity in real property as well as petitioner's noncompliance with current-year estimated tax payments. Petitioner timely filed a Petition with this Court on October 25, 2022. In the Petition, petitioner does not dispute the underlying liability.
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 Sundstrand Corp., 98 T.C. at 520.
B. Standard & Scope of Review
Section 6330(d)(1) grants this Court jurisdiction to review the AO'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 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). In cases appealable to the U.S. Court of Appeals for the Ninth Circuit, such as this one, we limit our review in CDP cases to the administrative record in existence at the time the determination was made. See Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff'g in part T.C. Memo. 2006-166, and aff'g in part, vacating in part decisions in related cases.
C. Underlying Liability
A taxpayer may challenge the existence or amount of underlying tax liability in a CDP proceeding only "if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." § 6330(c)(2)(B). The phrase "underlying tax liability" includes the tax due, any additions to tax or penalties, and statutory interest. See Katz v. Commissioner, 115 T.C. 329, 339 (2000).
In addition to the requirement that a taxpayer did not have a prior opportunity to challenge the underlying liability, to preserve such a challenge, a taxpayer must actually raise the issue of the underlying liability during the CDP proceeding and before the Court. See Giamelli v. Commissioner, 129 T.C. 107, 112-16 (2007); Treas. Reg. § 301.6330-1(f)(2) Q&A-F3.
Here, regardless of the extent to which petitioner may have raised a challenge to the underlying liability during the CDP proceeding, petitioner has not disputed the underlying liability before this Court. Accordingly, we find that petitioner's underlying liability is not in dispute, and we will review AO Chapman's determination for abuse of discretion only. See Lowery v. Commissioner, T.C. Memo. 2019-151, at *7.
D. Abuse of Discretion
Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. Murphy, 125 T.C. at 320. In determining whether AO Chapman's determinations to sustain the proposed collection actions were an abuse of discretion, we turn to section 6330(c)(3), which requires the AO to (1) verify that the requirements of applicable law and administrative procedure have been met; (2) consider issues raised by the taxpayer; and (3) consider whether the proposed collection actions balance the need for efficient collection of taxes with the taxpayer's legitimate concern that any collection actions be no more intrusive than necessary. Thompson v. Commissioner, 140 T.C. 173 178-79.
In reviewing the determination, we do not substitute our judgment for that of the AO or make an independent determination of what would be an acceptable collection alternative. Id. at 179. If the AO "followed all statutory and administrative guidelines and provided a reasoned, balanced decision," we "will not reweigh the equities." Id.
1. Issues Raised
We now turn to the issues raised by petitioner, which we review for abuse of discretion. Petitioner raises two primary issues supporting petitioner's contention that AO Chapman abused his discretion by refusing to consider an installment agreement. Petitioner argues (1) AO Chapman abused his discretion by refusing to consider an installment agreement because petitioner was not in compliance with tax payments and estimated tax payments; (2) AO Chapman abused his discretion by not characterizing petitioner's payment of $150,000 as a partial payment of estimated taxes for tax year 2022.
As to the first issue, on the record before us, we see no abuse of discretion. Petitioner owed more than $300,000 of estimated tax payments for tax year 2022 at the time of the CDP hearing. Even if AO Chapman had characterized the $150,000 payment that accompanied petitioner's tax return for tax year 2021 as a partial payment of estimated taxes for tax year 2022, that would not have satisfied petitioners outstanding estimated tax obligation. It is not an abuse of discretion for an appeals officer to refuse to consider an installment agreement for a taxpayer who is not in payment compliance for the current tax year. See Prater v. Commissioner, T.C. Memo. 2007-241, 94 T.C.M. (CCH) 209, 210.
With respect to the second issue, petitioner designated the $150,000 payment as a partial payment of 2021 taxes, and it was not an abuse of discretion for AO Chapman to respect petitioner's designation of the payment. In a cover letter accompanying petitioner's tax return for tax year 2021 and the cashier's check for $150,000, petitioner stated: "The check is in partial payment of the taxes due on the return[]" and "[w]e hereby designate this check in payment of 2021 estimated taxes." In the light of these statements, it was not an abuse of discretion for AO Chapman to characterize the check as partial payment of taxes for tax year 2021. There is nothing in the record to indicate that petitioner informed AO Chapman of an intent to treat the $150,000 check as partial payment of estimated taxes for tax year 2022.
Finally, petitioner argues that AO Chapman abused his discretion by imposing unreasonably short deadlines in this case. Specifically, petitioner contends that the 21 days in between the August 10, 2022, telephonic CDP conference and the August 31, 2022, follow-up call was too short of a time period for petitioner to file a return for tax year 2021 and become compliant with tax payments for 2022. We disagree with petitioner's framing of the timeline. Petitioner's obligation to file tax returns and pay taxes did not spring into existence when AO Chapman requested petitioner file unfiled tax returns and come into compliance with tax payments for the current year. Rather, petitioner has an ongoing obligation to file tax returns and be compliant with tax payments for the current year. See § 6012. Moreover, the relevant dates for evaluating the timeframe during which petitioner could have compiled documents to comply with the deadlines imposed by AO Chapman are May 31, 2022 (the date of the letter scheduling a CDP conference and requesting documentation), and September 27, 2022 (the date that respondent issued the notice of determination).
When there is a short deadline, an appeals officer's unreasonable denial of a request for more time to make estimated tax payments might constitute an abuse of discretion. See Shanley v. Commissioner, T.C. Memo. 2009-17, 97 T.C.M. (CCH) 1062, 1065. In this case, however, petitioner did not request more time to come into compliance with her payment obligations for tax year 2022 on the August 31, 2022, call. It was not an abuse of discretion for AO Chapman to refuse to grant petitioner more time when petitioner did not request more time to make estimated tax payments and to propose a plan for her equity in assets.
On the administrative record before us, we see no abuse of discretion. See Belair v. Commissioner, 157 T.C. 10, 17 (2021) ("It is not an abuse of discretion for Appeals to move ahead with its final determination after an Appeals officer gives a taxpayer an adequate timeframe to submit requested items and the taxpayer fails to submit those items."); see also Shanley, 97 T.C.M. (CCH) at 1066 (holding that it was not an abuse of discretion to close the case after allowing the taxpayer approximately 50 days to provide the requested documents).
In Shanley, the Settlement Officer sent the taxpayer a letter on November 29, 2007, requesting documentation and setting the date of the CDP hearing; the notice of determination was issued on January 15, 2008-a timeframe of approximately 47 days that the Court upheld. Shanley, 97 T.C.M. (CCH) at 1066.
2. Verification & Balancing Obligations
We finish with the issues of verification and balancing, which we generally review regardless of whether raised by the taxpayer in the CDP proceeding. See Hoyle v. Commissioner, 131 T.C. 197, 202-03 (2008), supplemented by 136 T.C. 463 (2011). Sections 6330(c)(1) and (3) require that the AO: (1) properly verify that the requirements of applicable law or administrative procedure have been met and (2) consider 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. On the record before us, we are satisfied that AO Chapman verified that petitioner's liability was properly assessed and that other relevant legal requirements were met. Finally, we conclude that AO Chapman's determination to sustain the levy appropriately balanced the statutorily-prescribed interests, given petitioner's failure to address the equity in her assets and lack of compliance with tax year 2022 estimated tax payments. See Belair, 157 T.C. at 19; Pough v. Commissioner, 135 T.C. 344, 352 (2010).
III. Conclusion
Finding no abuse of discretion, we will grant respondent's motion.
We have considered all the arguments that the parties made, and to the extent they are not addressed herein, we find the arguments to be moot, irrelevant, or without merit.
Upon due consideration and for cause, it is
ORDERED that respondent's Motion for Summary Judgment, filed April 1, 2024, is granted. 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 September 27, 2022, upon which this case is based, is sustained, and respondent may proceed with the collection action as determined for tax years 2016, 2017, and 2018.