Opinion
14749-17L
03-14-2022
JERRY J. SUN & SUN N. SUN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Patrick J. Urda, Judge.
This collection-due-process (CDP) case was partially tried at the Court's February 2020 session in Houston, Texas. After two witnesses testified, the Commissioner suggested that he might seek the testimony of the trial attorney representing petitioners Jerry and Sun Sun. The Court adjourned the trial so that the parties might address the requirements of Rule 24(g)(2)(A), which governs situations where an attorney might be needed as a witness. The parties subsequently set forth their positions. [Docs. 35, 36.]
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
The Commissioner also has filed a motion for summary judgment, asserting that that the undisputed facts show that the settlement officer did not abuse his discretion in that he complied with the relevant provisions of the Internal Revenue Manual in rejecting the Suns' settlement offer and sustaining the collection actions at issue. [Doc. 34.] We will deny summary judgment and direct the parties to contact Chambers for the purpose of scheduling a conclusion to trial.
The following facts are derived from the parties' pleadings, motion papers, and declarations and exhibits attached thereto. They are stated solely for the purpose of deciding the instant motions for summary judgment and not as findings of fact in this case. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
The IRS has assessed against the Suns (1) a deficiency of $5,605,787, a penalty under section 6662(a) of $1,121,157, and statutory interest for their 2008 tax year, (2) a deficiency of $1,161,443, a section 6662(a) penalty of $232,289, and statutory interest for 2009, and (3) a deficiency of $2,454,806, an addition to tax under section 6651(a) of $19,556, and statutory interest for 2015. [Doc. 29 at ¶¶ 8, 10.] To collect these liabilities, the IRS issued both a notice of intent to levy and a notice of federal tax lien filing. [Id. at ¶¶ 11, 14.] The Suns requested a CDP hearing in the IRS Office of Appeals, which culminated in the issuance of a notice of determination upholding the proposed collection actions. [Id. at ¶¶ 18, 50.]
After the Suns timely petitioned this Court, we remanded the case (at the Commissioner's behest) for a second CDP hearing. [Docs. 1, 7.] The assigned settlement officer thereafter had two meetings with the Suns' representatives, Mr. Patrick Cantrell, Ms. Carol Cantrell, and Mr. Derek Matta. [Doc. 29 at 391-92.]
At the second meeting, the Suns expressed their interest in a 72-month installment agreement to fully pay their liability. [Doc. 29 at 392.] Noting the Suns' significant equity in a multi-million-dollar residence, the settlement officer took the position that the Suns were required to "borrow against or liquidate the asset" before any installment agreement could be considered. [Id.]
The settlement officer thereafter issued a supplemental notice of determination in which he rejected the Suns' proposed installment agreement and again sustained the collection actions. [Doc. 29 at 395-404.] The settlement officer rested his rejection on his view that "the IRM requires the taxpayer to first borrow against or liquidate the assets." [Id. at 400.] The settlement officer further stated that an installment agreement was not viable because the Suns submitted inaccurate information on Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, failing to disclose the sources of income that would be used for the hefty proposed monthly payments. [Id. at 401.]
DISCUSSION
I. Motion for Summary Judgment
As an initial matter, we will deny the motion for summary judgment. This Court has recognized that Internal Revenue Manual part 5.14.1.4(5) confers discretion on a settlement officer "to consider whether liquidating and borrowing against assets should be required;" it does not "state[] that [taxpayers] must liquidate all of their assets before respondent will accept a proposed installment agreement." Kirkley v. Commissioner, T.C. Memo. 2020-57, at *12. We concluded in Kirkley that the settlement officer, laboring under the misapprehension that she lacked discretion under Internal Revenue Manual part 5.14.1.4(5), abused her discretion by failing to properly balance the need to collect tax with the legitimate concern that the collection be no more intrusive than necessary. Id. at *12-14.
There remains a genuine dispute of material fact whether the settlement officer appreciated that he had discretion under Internal Revenue Manual part 5.14.1.4(5). The mandatory language used in the supplemental notice of determination (and in his case activity record) suggests that he might have misunderstood his authority, while at least one portion of his trial testimony could be read to suggest otherwise. [Compare Doc. 29 at 400 ("I explained the IRM requires the taxpayer to first borrow against or liquidate the assets."), with Doc. 30 at 60 ("[The IRM] doesn't require him to sell [the assets], no.").] Construing factual materials and inferences in the light most favorable to the Suns as the non-moving parties, we must deny summary judgment. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
The Commissioner further contends that the settlement officer's conclusion that there were "inaccurate income figures" on the Form 433-A provides a sufficient basis for his rejection of the installment agreement. Drawing facts and inferences in the Suns' favor, we cannot say that any such inaccuracy necessarily establishes that the settlement officer acted within his discretion in this regard. .
II. Rule 24(g)(2)
Having decided that summary judgment is not appropriate, we turn to whether Rule 24(g)(2) precludes the Suns' trial attorney from continuing to represent them when trial resumes. The Commissioner indicated at trial that he might call the trial attorney to testify regarding discussions during the supplemental CDP hearing in light of questions put to the settlement officer.
Rule 24(g)(2)(A) does not bar the Suns' trial counsel from continuing to represent them. Rule 24(g)(2)(A) provides:
Counsel may not represent a party at trial if the counsel is likely to be a necessary witness within the meaning of the ABA Model Rules of Professional Conduct unless: (i) the testimony relates to an uncontested issue; (ii) the testimony relates to the nature and value of legal services rendered in the case; or (iii) disqualification of counsel would work substantial hardship on the client.
We do not believe that current trial counsel is likely to be a necessary witness. Three attorneys appeared on the Suns' behalf at the CDP hearing, two of whom are available to testify and were listed as potential witnesses in the Suns' pretrial memorandum. [Doc. 22 at 2.] Even if we were to conclude that the Suns' trial counsel was likely to be a necessary witness after the settlement officer's testimony at trial, we would nonetheless permit continued representation given that disqualification in the middle of trial would work substantial hardship on the Suns (especially since their other representatives have not participated in the trial so that they might be available to testify).
We note that the Commissioner did not list any of the attorneys as potential witnesses in his pretrial memorandum. [Doc. 21.]
If it becomes clear after the testimony of either or both of the Suns' other attorneys that testimony from a third attorney is necessary and not merely cumulative, the Court will take appropriate action. Accordingly, it is
ORDERED that the Commissioner's motion for summary judgment, filed August 10, 2020, is denied. It is further
ORDERED that the parties contact shall the undersigned's Chambers at (202) 521-0800 to schedule a further trial.