Opinion
13065-19L
01-11-2023
JAMES R. WATERS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth Crewson Paris Judge
This case is before the Court on respondent's Motion for Summary Judgment filed December 31, 2020, docket entry 6. On March 15, 2021, docket entry 11, petitioner filed Petitioner's Objection to Respondent's Motion for Summary Judgment, and concurrently filed Exhibits. On April 2, 2021, docket entry 13, respondent supplemented its Motion by adding as exhibits certified transcripts of petitioner's record of accounts for tax years 2010 through 2014. Petitioner did not object to the filing of the supplement. This Motion seeks to have the Court sustain respondent's Notice of Determination Concerning Collection Actions Under Sections 6320 or 6330 of the Internal Revenue Code dated June 12, 2019, sustaining a proposed levy for unpaid income tax liabilities for tax years 2010 through 2014.
Respondent's Motion states that counsel of record has reviewed the administrative file and, on the basis of the review of the file and the pleadings, concludes that there remains no genuine issue of material fact for trial.
On the basis of the following, the Court will deny respondent's Motion for Summary Judgment, as supplemented, without prejudice and remand this case to the IRS Independent Office of Appeals.
Background
The following facts are drawn from respondent's Motion for Summary Judgment, with the attached supporting Declaration, Exhibits, and First Supplement to the Motion for Summary Judgment, petitioner's Objection to Respondent's Motion for Summary Judgment, and petitioner's Exhibits. They are stated solely for purposes of deciding respondent's Motion. See Sundstrand Corp. v. Commissioner, 98 T.C. 518,520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). Petitioner resided in Oklahoma when he timely filed his Petition with this Court.
On April 6, 2018, respondent sent petitioner a Letter 1058, Final Notice, Notice of Intent to Levy and Notice of Your Rights to a Hearing, dated April 6, 2018, advising petitioner that respondent intended to levy to collect the unpaid income tax liabilities for tax years 2010 through 2014, and that petitioner could receive a hearing with the IRS Independent Office of Appeals. The Notice contained delinquent amounts for tax years 2010 through 2014, including additional applicable penalties and additional interest, totaling $1,523,744.47.
On April 9, 2018, respondent filed a Notice of Federal Tax Lien for the same tax years. The Notice of Federal Tax Lien is not the subject of this case.
On May 3, 2018, petitioner's counsel met with Revenue Officer (RO) Dada and provided the RO with petitioner's Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and a letter in which petitioner proposed a collection alternative of an installment agreement with a monthly payment of $3,000, and a request for additional time to liquidate assets to make payments.
There was no response to petitioner's settlement proposal and petitioner treated that as being rejected. Petitioner timely filed Form 12153, Request for a Collection Due Process or Equivalent Hearing, on May 4, 2018. On Form 12153, petitioner marked the boxes requesting collection alternatives of an installment agreement or offer in compromise and wrote, "The taxpayer is unable to make full payment on his tax delinquencies and needs an alternative form to resolve those amounts such as an installment agreement or offer in compromise." Petitioner did not challenge the outstanding liabilities of his self-assessed returns or the subsequent deficiency assessments for tax years 2010 through 2014.
On May 4, 2018, the RO requested an extensive list of documents from petitioner with a due date of June 8, 2018. On June 1, 2018, as reflected on Form 14461, Transmittal of CDP/Equivalent Hearing Request, petitioner's CDP hearing request was forwarded to the IRS Independent Office of Appeals. The RO's request was made after petitioner timely filed his Form 12153 requesting a CDP hearing and the requested documents were due after the CDP request was forwarded to the IRS Independent Office of Appeals.
On October 15, 2018, Settlement Officer (SO) Howe sent petitioner Letter 4837 informing petitioner that his case had been received in the Independent Office of Appeals and that a telephonic hearing was set for November 13, 2018. The letter requested updated financial information and set a due date of October 29, 2018, for petitioner's documentation. By the hearing date, SO Howe received petitioner's financial documents that still needed to be verified and postponed the hearing until the information could be verified and referred the case back to RO Dada for a recommendation of petitioner's collection proposals.
By March 2019, RO Dada requested more documentation from petitioner, and specifically questioned credit card charges that appeared to be personal in nature and sought clarification from petitioner. Based on the financial information provided, the RO's preliminary determination was that petitioner had the ability to make monthly payments of $21,763.50 (based upon the assets of JW Oilfield Equipment LLC, a company wholly owned by petitioner).
The RO scheduled a conference for April 11, 2019. At the conference, petitioner's counsel gave the RO the following: (1) a proposal that the tax liabilities be classified as "currently not collectible," and that petitioner be given one year to sell his real estate and apply the proceeds to his tax debt and also included the computation of petitioner's monthly net income (loss). At the conference the documents were reviewed and discussed, and the conference concluded with petitioner's counsel agreeing to send the RO the documents discussed in the conference and additional documents. Additional documents were sent to the RO on April 12, 2019, including bank statements and petitioner's 2017 Form 1040 income tax return, including Schedules A and E attached thereto. On April 15, 2019, the RO informed petitioner that his proposal was rejected and that, based on petitioner's available but incomplete financial information, the minimum acceptable monthly installment amount was raised to $30,473.53, and noting the payment would increase to $35,730.00 after the first year. Further, the RO informed petitioner the case would now go back to the IRS Independent Office of Appeals with the RO's recommendations for the increased amount, that petitioner was not insolvent, and not eligible for currently non collectible status.
Petitioner's case was sent to SO Penny as SO Howe had retired. By letter dated April 24, 2019, SO Penny scheduled a hearing for May 16, 2019. The letter requested petitioner "provide [his] proposed alternative resolution to the proposed levy action to resolve the outstanding liability in the amount of approximately $1,674,000.00." Petitioner's counsel wrote several letters to SO Penny prior to the hearing date requesting, among other things, copies of notes/documentation as to how RO Dada arrived at his computations of $30,000 per month for an installment agreement.
SO Penny compiled documents that were added to the administrative record after he was assigned the case and received the investigation file from RO Dada. Among the documents he received included a copy of Form 1120S for the LLC for tax year 2017, and a copy of petitioner's Form 1040 individual income tax return for tax year 2017.
During the in-person hearing on May 16, 2019, the Case Activity Record reflects SO Penny shared the basis of the proposed monthly payment amount of $30,000.00, which was based upon the LLC's 2017 Form 1120S for petitioner's business which reflected a cash distribution to petitioner in the amount of $322,343.00, coupled with petitioner's wage income from the LLC, providing a monthly income of $27,804.00 which was the basis for the $30,000.00 monthly installment amount. SO Penny pointed out, the information came from petitioner's returns. The SO offered an alternative amount of $22,627.00 per month as a Direct Debit Installment Agreement (DDIA). The SO and petitioner's counsel agreed to a deadline of May 24, 2019, for petitioner's response to a DDIA of $22,627. SO Penny cautioned that failure of a timely response "would prompt the decision sustaining the proposed levy action with a Determination letter."
On May 24, 2019, petitioner's counsel responded to SO Penny. The letter stated he failed to understand how RO Dada computed the taxpayer's income and how a proposal for an Installment Agreement was determined.
Petitioner contested the proposed monthly payment amount of $22,627.00, as follows:
You supported your claim that the taxpayer could pay $22,627.00 a month by showing me a 2017 tax return from JW Oilfield Equipment Company, LLC. It contained a Schedule M-2 indicating that the LLC distributions to the taxpayer in the amount of $322,343.00 two years ago, a slightly outdated barometer.
On June 4, 2019, the Case Activity Record reflected, "A collection alternative to the proposed levy action could not be determined . . . . The decision to propose levy action is sustained."
On June 12, 2019, respondent issued a Notice of Determination Concerning Collection Actions Under Sections 6320 or 6330 of the Internal Revenue Code stating in part from SO Penny's Report:
Compliance determined you had the ability to pay $30,473.00 per month with an increase to $35,730.00 per month after 1 year for the liquidation/ reduction of unnecessary monthly expenses. You declined Compliances [sic] proposed resolution. The financial statement you provided reflected equity in assets of approximately $450,000.00, which will need to be applied toward the outstanding liability before consideration of the suspension of collection action. These liabilities date back to the 2010 tax year, which should have provided enough time to get your finances in order.
In addition, internal resources reflect you are the sole shareholder for JW Oilfield Equipment LLC. The last Form 1120 filed for the LLC was for the 2017 tax year, which reflects a cash distribution to you in the amount of $322,343.00. The 2018 Form 1120 is currently on extension making it impossible to determine your 2018 distribution amount.
The parties disagreed as to the Form 1120S analysis. The Schedule K-1 categorized the amount on Line 16D as an item affecting shareholder basis.
Discussion
Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). When there is no genuine dispute as to any material fact, the Court may grant summary judgment 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). The moving party must prove that no genuine dispute as to any material fact exists and that he is entitled to judgment as a matter of law. FPL Grp., Inc. v. Commissioner, 115 T.C. 554, 559 (2000). In deciding whether to grant summary judgment, the Court considers the facts, and the inferences drawn from the facts, in the light most favorable to the nonmoving party. See id.
When a taxpayer has had a prior opportunity to dispute the underlying taxes in question, he will not be allowed to dispute the liability during the Collection Due Process (CDP) hearing. Goza v. Commissioner, 114 T.C. 176, 182 (2000). Petitioner has not challenged the self-assessed tax returns or the subsequent deficiency assessments for tax years 2010 through 2014. Accordingly, respondent's determination will be reviewed for an abuse of discretion. Id. Abuse of discretion occurs when respondent's determination is arbitrary, capricious, or without a sound basis in fact or law. Giameli v. Commissioner, 129 T.C. 107, 111 (2007).
The Court remands a collection due process case to the IRS Independent Office of Appeals when the Court determines that a further hearing would be "helpful," "necessary," or "productive." Kelby v. Commissioner, 130 T.C. 79, 86 n.4 (2008); Lunsford v. Commissioner, 117 T.C. 183, 189 (2001); Churchill v. Commissioner, T.C. Memo. 2011-182. "[T]he further hearing is a supplement to the taxpayer's original . . . hearing, not a new hearing." Kelby, 130 T.C. at 86. After the further hearing, the Commissioner issues a supplemental notice of determination, which constitutes the position of the Commissioner for purposes of the Court's subsequent review. Id.
In a motion for summary judgment, the moving party bears the burden of proving there is no genuine dispute of material fact. See Naftel v. Commissioner, 85 T.C. 527, 529 (1985). Viewing the facts and drawing inferences from them in the light most favorable to petitioner, we conclude that a genuine dispute of material fact exists with respect to the distribution of $322,343 reported on petitioner's 2017 Form 1120S, Schedule K-1, Line 16D, as an item affecting shareholder basis (property distributions). SO Penny, in sustaining the levy action, has relied on this material fact and has so characterized it as a "cash distribution." While petitioner has not denied that this is indeed a "distribution," he has included enough information to suggest that this amount could be characterized as something other than a "cash distribution." This amount now becomes a question of (material) fact.
After due consideration, and for cause, it is
ORDERED that respondent's Motion for Summary Judgment, filed December 31, 2020, docket entry 6, as supplemented on April 2, 2021, docket entry 13, is denied without prejudice to refile. It is further
ORDERED that this case is remanded to the IRS Independent Office of Appeals to consider petitioner's collection alternatives. It is further
ORDERED that respondent shall offer petitioner a supplemental CDP hearing at the IRS Independent Office of Appeals location closest to petitioner's residence (or at such other place as may be mutually agreed upon) at a reasonable and mutually agreed upon date and time but no later than April 10, 2023. It is further
ORDERED that, on or before May 25, 2023, the parties shall file a Joint Status Report (or, if not expedient, separate status reports) with the Court as to the then-present status of this case.