Opinion
10995-21L
11-30-2022
RYAN MICHAEL STERLING, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Ronald L. Buch, Judge.
On October 24, 2022, the Court rendered oral findings of fact and opinion in this case. In doing so, the Court took judicial notice of information available from various U.S. Government websites. The following are the URLs of those websites, and the respective sources are available as part of the record in this case.
1. Robin Bailey and Kevin McIver, New work at home directive begins March 30 (only employees directed by their supervisor to perform mission essential work may work from an IRS POD), IRS.GOV (Mar. 28, 2020), https://www.irs.gov/newsroom/new-work-at-home-directive-begins-march-30-only-employees-directed-by-their-supervisor-to-perform-mission-essential-work-may-work-from-an-irs-pod (last visited Oct. 20, 2022).
2. Treasury Inspector General for Tax Administration, Report No. 2021-46-023, Results of the 2020 Filing Season and Effects of COVID-19 on Tax Processing Operations at 10 (Mar. 22, 2021), https://www.treasury.gov/tigta/auditreports/2021reports/202146023fr.pdf (last visited Oct. 20, 2022).
3. National Taxpayer Advocate, Objectives Report to Congress: Fiscal Year 2021 at 10, 25, 30, 96 (June 29, 2020), https://www.taxpayeradvocate.irs.gov/reports/2021-objectives-report-to-congress/full-report/ (last visited Oct. 20, 2022).
4. IRS Operations During COVID-19: Mission-critical functions continue, IRS.GOV (Oct. 27, 2020), https://www.taxnotes.com/research/federal/otherdocuments/other-irs-documents/irs-announces-updates-to-appeals-officeoperations/2d44t (last visited Oct. 20, 2022).
5. Government Accountability Office, GAO-21-251, Tax Filing: Actions Needed to Address Processing Delays and Risks to the 2021 Filing Season (Mar. 01, 2021), https://www.gao.gov/products/gao-21-251 (last visited Oct. 20, 2022).
6.Treasury Inspector General for Tax Administration, Report No. 2021-40-038, Interim Results of the 2021 Filing Season (May 6, 2021), https://www.treasury.gov/tigta/auditreports/2021reports/202140038fr.pdf (last visited Oct. 20, 2022).
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit with this order to petitioner and respondent a copy of the pages of the transcript of the trial in this case before Judge Ronald L. Buch, containing his oral findings of fact and opinion rendered at the San Francisco, California trial session at which the case was heard.
In accordance with the oral findings of fact and opinion, the Court will issue a separate order remanding this case to the Independent Office of Appeals.
Bench Opinion by Judge Ronald L. Buch
October 24, 2022
Ryan Michael Sterling & Jessica Lea Kunz v. Commissioner of Internal Revenue
Docket No. 10995-21L
THE COURT: The following represents the Court's oral findings of fact and opinion in this case and may not be relied upon as precedent in any other case. The oral findings of fact and opinion are made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, in effect at all relevant times.Mr. Sterling has an outstanding tax liability for 2018. The Commissioner issued a notice of intent to levy with respect to that liability, and Mr. Sterling tried to avail himself of the collection due process procedures. In response to a request from the assigned Appeals Officer, Mr. Sterling mailed a Form 433-A, Collection Information Statement, and a Form 656, Offer in Compromise, to the IRS. He never heard back until the IRS sent him a notice of determination upholding it's notice of intent to levy.
In the meantime, a worldwide pandemic occurred. When the IRS instructed Mr. Sterling to mail those forms, it had an extraordinary backlog of mail. It is unsurprising that, although Mr. Sterling mailed the information to the IRS, the appeals officer never received it. Notably, notwithstanding the known mail processing problems, the Commissioner took no steps to confirm whether Mr. Sterling sent the requested information. That failure was an abuse of discretion. As a result, we will remand this case for further consideration.
Findings of Fact
As Mr. Sterling understands it, he owes a tax debt as a result of issues relating to the premium tax credits under the Affordable Care Act. We recount his understanding as to the source of the liability. He received a pay raise in late 2014 that had the effect of reducing or eliminating his eligibility for premium tax credits. He contacted Covered California to provide his updated income information, but his information was not properly updated in the system. The result was that insurance premiums were paid on his behalf, and the law treats those as advance tax credits. See McGuire v. Commissioner, 149 T.C. 254 (2017). Ultimately, Mr. Sterling was not entitled to the full amount of those credits resulting in unexpected tax liabilities.
Mr. Sterling's account transcripts with the Internal Revenue Service show that for 2015 through 2018, he filed his returns showing a balance due. He did not pay that balance with his returns. Because Mr. Sterling's returns are not part of the record in this case, whether any part of his tax liability is actually attributable to premium tax credits is not clear from the documentary record. But the precise nature of the underlying liability does not affect the result in this case.
On December 13, 2019, the Commissioner sent Mr. Sterling a notice of intent to levy. That notice showed a total outstanding liability for 2018 of $5,844. That notice also informed Mr. Sterling that he could appeal the proposed collection action by mailing a Form 12153, Request for a Collection Due Process or Equivalent Hearing (which I will refer to as a CDP request), by January 12, 2020. The notice instructed that the CDP request should be mailed to an IRS office in Fresno, California.
Mr. Sterling acted promptly. He completed the Form 12153 and promptly sent it to the IRS on December 18, 2019. The IRS both noted on the document that it was received on December 23, 2019, and also stamped on the document that it was received on December 26, 2019. This discrepancy is immaterial; either date was timely. Although the notice of intent to levy related only to 2018, Mr. Sterling listed 2015 through 2018 in his CDP request. He checked boxes indicating that he was interested in an installment agreement and also that he could not pay the balance. He did not dispute the underlying liability.
The IRS responded with a letter offering an installment agreement of $254 per month. That offer, however, was predicated on the condition that Mr. Sterling withdraw his CDP request before any such installment agreement could be entered into. In addition to requiring that Mr. Sterling withdraw his CDP request, the letter informed Mr. Sterling that he would also be required to pay two different "user fees" totaling $332 if he wanted to enter into this proposed installment agreement. Mr. Sterling did not respond to this offer.
On March 27, 2020, Mr. Sterling's CDP request was assigned to Ms. Salinas, an Appeals Officer with the IRS's Independent Office of Appeals. She reviewed the file and confirmed that she had no prior involvement with the matter. She confirmed that the liabilities were self-reported and that Mr. Sterling did not challenge the underlying liabilities in his CDP request.
Ms. Salinas attempted to reach Mr. Sterling by phone and followed up with a letter. In her letter, she informed Mr. Sterling that she had scheduled a hearing for July 23, 2020, and she requested that Mr. Sterling provide collection information. She provided a Form 433-A for that purpose.
On the date of the hearing, Ms. Salinas prepared herself for the hearing by reviewing the account transcripts and other information. She specifically noted that she had not received the collection information, writing in her case activity record: "I requested financial information but none was received by fax. Since I have not been to the office I do not know if the taxpayer mailed the requested information. I will ask him during the hearing." After some phone tag, the hearing was held by telephone later that same day.
Although her notes of that call do not indicate whether Ms. Salinas in fact asked Mr. Sterling if he had mailed the collection information, following that call, Ms. Salinas sent another letter requesting the information. She prepared a letter dated July 24, 2020, and she included with the letter a Form 433-A, a Form 656, and a return envelope for Mr. Sterling to send the information back to her.
Mr. Sterling specifically recalls receiving the forms and the return envelope. He completed the forms and made copies of some of his financial records, like bank statements, pay stubs, and bills. The total package was between 1/4 and 1/2 inch thick. He recalls promptly mailing the information back to Ms. Salinas. He did not retain a copy for his records, but we find his testimony credible.
From July 23, 2020, until February 2, 2021, there are only two entries in the case activity record. On September 30, 2020, Ms. Salinas noted that Mr. Sterling showed up on a California disaster list, and then on January 26, 2021, Ms. Salinas noted that she had been "out of office" from December 23, 2020, through January 26, 2021. In light of her previous entry indicating that she had been working remotely, it is unclear when, if ever, during this timeframe she had physically been to her office.
On February 2, 2021, Mr. Sterling's case was reassigned to Ms. Morales. That same day, she reviewed various documents and records and concluded that she would proceed with issuing a notice of determination. In doing so, she did not reach out to Mr. Sterling to see if he had sent his financial information. Eight days later, she prepared the necessary closing documents. On February 24, 2021, the Appeals Team Manager issued the notice of determination to Mr. Sterling, sustaining the notice of intent to levy. While residing in California, Mr. Sterling filed a petition challenging the Commissioner's notice of determination.
At the same time these events were unfolding, a pandemic was breaking out in the United States. After the President declared a national emergency on March 13, 2020, the IRS significantly modified its operations. See Robin Bailey and Kevin McIver, New work at home directive begins March 30th (only employees directed by their supervisor to perform mission essential work may work from an IRS POD), IRS.GOV (Mar. 28, 2020). Worksite closures and work from home directives created a significant backlog of unopened and unprocessed mail. See Treasury Inspector General for Tax Administration, Report No. 2021-46-023, Results of the 2020 Filing Season and Effects of COVID-19 on Tax Processing Operations at 10 (March 22, 2021); see also National Taxpayer Advocate, Objectives Report to Congress: Fiscal Year 2021 at 10, 25, 30, and 96 (June 29, 2020). For IRS employees, "some assignments were impossible to perform at home (e.g., receiving or sending taxpayer correspondences by mail . . .)." National Taxpayer Advocate, Objectives Report to Congress: Fiscal Year 2021 at 13. These problems persisted throughout the year. At the end of October, the IRS announced that certain services, including telephone assistance and responses to correspondence, remained "extremely limited." IRS Operations During COVID-19: Mission-critical functions continue, IRS.GOV (Oct. 27, 2020). As of mid-November 2020, the IRS had more than 2.9 million pieces of unopened mail. Treasury Inspector General for Tax Administration, Report No. 2021-46-023, at 7. And while the IRS reported that it opened all mail by the end of the year, millions of opened taxpayer correspondence items still required IRS review and response. Government Accountability Office, GAO-21-251, Tax Filing: Actions Needed to Address Processing Delays and Risks to the 2021 Filing Season (Mar. 1, 2021) at 14. This cycle carried over into 2021 and repeated itself (for example, unopened mail volumes climbed to over a million as of March 20, 2021). Treasury Inspector General for Tax Administration, Report No. 2021-40-038, Interim Results of the 2021 Filing Season (May 6, 2021), at 7. The foregoing information was made publicly available on various United States government websites, and accordingly, we have taken judicial notice of it. See Fed. R. Evid. 201; see also Jordan v. Commissioner, T.C. Memo. 2019-15, at *3, n.2. The URLs for these documents will be provided in the order serving this bench opinion.
Discussion
In a collection case, where the underlying liability is properly at issue, we review the Commissioner's determination de novo. See Sego v. Commissioner, 114 T.C. 604, 610 (2000). But, where the underlying liability is not properly at issue, we review the Commissioner's determination for an abuse of discretion. Id.
The underlying liability may be properly at issue in a collection proceeding if a taxpayer has not received a notice of deficiency or has not otherwise had a prior opportunity to dispute the liability. See section 6330(c)(2)(B). Because Mr. Sterling's liability arises from amounts he self-reported on his return, he could have challenged his underlying liability. Montgomery v. Commissioner, 122 T.C. 1, 8-10 (2004). He failed to do so. Although both at trial and in his petition, he expressed his view that the Commissioner's disallowance of Affordable Care Act prepaid credits was unfair, he did not preserve this issue as part of his CDP request. And even if he had, we apply the law as written. See McGuire v. Commissioner, 149 T.C. 254 (2017) (rejecting fairness arguments regarding the disallowance of Affordable Care Act prepaid credits). In this case, the underlying liability is not at issue.
Because Mr. Sterling's underlying liability is not at issue, we review the Commissioner's collection determination for an abuse of discretion. Sego v. Commissioner, 114 T.C. at 610. An abuse of discretion occurs if the Commissioner exercises his discretion "arbitrarily, capriciously, or without sound basis in fact or law." Woodral v. Commissioner, 112 T.C. 19, 23 (1999). To answer the question of whether the Commissioner abused his discretion, we consider whether Ms. Morales: (1) properly verified that the requirements of applicable law and administrative procedure had been met, (2) considered any relevant issues petitioner raised, and (3) considered whether the proposed collection action is no more intrusive than necessary. See section 6330(c).
Our discussion will focus on the second factor. Here, Mr. Sterling raised the issue of a collection alternative. Generally, it is not an abuse of discretion for a settlement officer to refuse to consider collection alternatives if the taxpayer failed to submit requested financial information. Lance v. Commissioner, T.C. Memo. 2009-129, 97 T.C.M. (CCH) 1670, 1672. The settlement officer's failure to follow up with the taxpayer regarding missing information before sustaining a collection action, however, might be considered an abuse of discretion. See, e.g., Lewis v. Commissioner, T.C. Memo. 2012-138, 103 T.C.M. (CCH) 1758, 1761.
In Lewis, a settlement officer sent Mr. Lewis a letter requesting a Form 433-A for the consideration of a collection alternative. Id. at 1759. After that, Mr. Lewis and the settlement officer spoke once on the phone about his desire for a collection alternative, and the settlement officer again requested collection information. Id. Mr. Lewis testified that he mailed an assortment of documents to the settlement officer. Id. at 1759, 1761 n. 4. The settlement officer never received them and never followed up. Id. at 1759. Months later, the settlement officer issued a notice of determination sustaining collection action based solely on the taxpayer's failure to provide the requested documents. Id. We held that the settlement officer acted arbitrarily and capriciously. Id. at 1761.
The facts of this case provide a clearer example of an abuse of discretion than Lewis. Ms. Salinas sent Mr. Sterling a letter scheduling a hearing and requesting collection information. Going into the telephonic hearing, Ms. Salinas was unaware whether Mr. Sterling had mailed the requested information because she had not been to the office. Ms. Salinas again requested financial information. Mr. Sterling testified that he promptly mailed the information to Ms. Salinas. The case activity record does not show that anyone followed up with Mr. Sterling, even after his case was reassigned to a new settlement officer, Ms. Morales. She received the case and immediately proceeded to issue a notice of immediately determination in February 2021.
But the Commissioner's mail processing issues at this time are well documented by the IRS, the Treasury Inspector General for Tax Administration, the Taxpayer Advocate, and the Government Accountability Office. Given the circumstances, it was unreasonable for Ms. Morales to close Mr. Sterling's case without following up with him about the missing information. The settlement officer acted arbitrarily and capriciously, and accordingly, we hold that the Commissioner abused his discretion in sustaining the proposed collection action.
To reflect the foregoing, an appropriate order remanding this case to the Independent Office of Appeals will be entered. This concludes the Court's oral findings of fact and opinion in this case.
(Whereupon, at 9:01 a.m., the above-entitled matter was concluded.)