TAX COURT OPINION

Case: L. A. Horn Excavating & Construction, Inc.
Docket Number: 23866-13L
Judge: Gustafson
Opinion Type: bench
Filed: 12/04/2014
Pages: 14

RS UNITED STATES TAX COURT WASHINGTON, DC 20217 L. A. HORN EXCAVATING & CONSTRUCTION, INC., Petitioner, v. ) ) ) ) ) Docket No. 23866-13 L. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to the opinion of the Court as set forth in the pages of the transcript of the proceedings before Judge David Gustafson at Cincinnati, Ohio, on November 18, 2014, containing his oral findings of fact and opinion, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Gustafson at Cincinnati, Ohio, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, an order directing remand will be issued. (Signed) David Gustafson Judge Dated: Washington, D.C. December 4, 2014 SERVED Dec 05 2014 Capital Reporting Company 3 1 2 3 4 5 6 7 Bench Opinion by Judge David Gustafson November 18, 2014 L.A. Horn Excavating & Construction, Inc. v. Commissioner Docket No. 23866-13L THE COURT: The Court has decided to render the following as its oral Findings of Fact and 8 Opinion in this case, which shall not be relied on as 9 precedent in any other case. This Bench Opinion is 10 11 12 13 14 made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Rule 152 of the Tax Court Rules of Practice and Procedure. This "collection due process" ("CDP") case is an appeal by petitioner L.A. Horn Excavating & 15 Construction, Inc. ("L.A. Horn"), through its 16 17 18 19 20 21 officers and sole shareholders Lucas and Lynn Horn, pursuant to 26 U.S.C. section 6330(d). The Horns ask this Court to review the IRS's determination to sustain a proposed levy to collectéee petitioner's unpaid employment tax for most of the quarters in the years 2002 through 2010. Trial was held in 22 Cincinnati, Ohio, on November 17, 2014. The Horns 23 24 25 represented the petitioner corporation, and Gary R. Shuler, Jr., represented respondent. The Horns allege that IRS Appeals abused its discretion by 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 denying an installment agreement they proposed and sustaining the notice of proposed levy. The IRS defends Appeals' handling of the L.A. Horn case. We are unable to determine the basis for Appeals' determination. We will therefore remand the case to Appeals for appropriate consideration of L.A. Horn's proposal of an installment agreement. FINDINGS OF FACT The parties' stipulation of facts is incorporated herein by this reference. At the time L.A. Horn's petition was filed, it was an Ohio corporation. We further find the following facts: The liabilities at issue In January and February 2012, L.A. Horn filed untimely employment tax returns on Forms 941, "Employer's Quarterly Federal Tax Return", for most of the calendar quarters in the years 2002 through 2010 but did not pay the liabilities it reported. (Stip. 4-5.) The IRS's attempted collection By March 2014, the liabilities with penalties and interest totaled more than $230,000. (Stip. 7.) To attempt to collect these liabilities, the IRS issued to L.A. Horn a notice of proposed levy in June 2012. (Stip. 8, Ex. 2-J.) 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 Request for a hearing On June 26, 2012, L.A. Horn timely requested a CDP hearing and requested an installment agreement, proposing a payment of $500 per month. (Stip. 9, Ex. 3-J.) Mrs. Horn made that proposal after being advised by IRS personnel to be sure to propose a monthly payment amount that she could be absolutely certain to fulfill. Since L.A. Horn's business is seasonal, with some months being very 10 lean, she proposed $500 as a safe number, but she 11 12 13 14 15 16 17 18 would have been able to pay more in many months and would have been willing to consider agreeing to a larger amount, but Appeals never requested or suggested a larger number. Compliance with Appeals' first request for information On August 15, 2014, the IRS sent L.A. Horn a letter explaining the qualifications that must be 19 met for an installment agreement. (Stip. 11, Ex. 5- 20 21 22 23 24 25 J.) The letter advised that L.A. Horn needed to file Forms 940, "Employer's Annual Federal Unemployment (FUTA) Tax Return", Forms W-2, "Wage and Tax Statement", and Forms W-3, "Transmittal of Wage and Tax Statements", for the years 2003 through 2011, and the IRS does not deny that L.A. Horn thereafter 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 complied with these requirements. We therefore find that the Horns complied with the IRS's first request for information. Appeals' second request for information More than 5 months later, on February 4, 2013, IRS Appeals sent L.A. Horn another letter that, among other things, requested that L.A. Horn provide 8 within 14 days "A completed Collection Information 9 Statement (Form 433-A for individuals and Form 433-B 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 for businesses)". Appeals later allowed additional time for the response. We note that the letter requested a singular "Statement" and made it seem that only a Form 433-B, "Collection Information Statement for Businesses", was required in this case because the taxpayer is a business. The letter also requested that L.A. Horn make certain delinquent federal tax deposits. The letter also requested other information such as bank statements and lists of properties owned. Compliance with the second request for information On March 30, 2013, Mrs. Horn sent the IRS a letter (Ex. 10-J) transmitting copies of returns (Ex. 11-J), bank statements (Ex. 13-J), a Form 433-B for L.A. Horn (Ex. 14-J), and a list of properties that 25 Mr. and Mrs. Horn owned personally. The letter 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 showed that L.A. Horn had made the federal tax deposits the IRS had requested. (Stip. 23, Ex. 12- J.) The Form 433-B was not completely filled out, though some of the information requested appeared on attachments and on information apparently provided by L.A. Horn's bank. IRS Appeals sent no follow-up request for Forms 433-A for Mr. and Mrs. Horn, nor for any other information that had not been provided. Appeals did not propose a larger installment payment than $500 per month. 12 Notice of determination 13 14 15 16 17 18 19 20 21 22 23 24 25 Rather, on September 16, 2013, Appeals sent a notice of determination sustaining both the proposed levy and the denial of the proposed installment agreement. The notice of determination itself does not explain why Appeals reached this conclusion. The notice's "Summary of Determination" simply states, "It has been determined; the issuing of the Notice of Intent to Levy balances the need for effective collection of taxes with the legitimate concern that any collection action be no more intrusive than necessary. Collection is sustained." The pertinent part of the attachment to Appeals' letter made only two points: 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 First, Appeals' attachment states: "[Y]ou did not submit a copy of [1] your investment statement, [2] a Form 433-A nor [3] a completed Form 433-B." However, (1) it is not clear what an "investment statement" might report beyond what the Horns had provided. (2) If Appeals wanted a Form 433-A for the Horns personally, that request was never clearly made. And, (3) as we noted, despite the Horns' provlslon of substantial information in response to Appeals' requests, Appeals made no follow-up request for the particular items that were 12 missing. 13 14 15 16 17 18 19 20 21 22 23 24 25 Second, Appeals' attachment states, " [Y] ou have enough equity in your assets to fully satisfy your tax liability." However, respondent was unable to point us to any paper in the administrative record that showed an analysis of positive equity. A possible component of such an analysis might have been Mrs. Horn's round and dubious estimate on Form 433-B (not based on any appraisal) that L.A. Horn's real property was worth $300,000 and had a mortgage of only $150,000, but so far as our record shows Appeals did not mention or rely on this fact, and had they raised the question the Horns would have explained that no sale of the property at that price 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 | 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 was possible in the then-current economy. The Horns timely mailed their petition to this Court. OPINION I. "Collection due process" principles If a taxpayer fails to pay any Federal income tax liability after notice and demand, section 6331(a) authorizes the IRS to collect the tax by levy on the taxpayer's property. However, Congress has added to chapter 64 of the Code certain provisions (in subchapter C, part I, and in subchapter D, part I) as "Due Process for Collections", and those provisions must be complied with before the IRS can proceed with a levy: The IRS must first issue a final notice of intent to levy and notify the taxpayer of the right to an administrative hearing before the Office of Appeals. Sec. 6330(a) and (b)(1). At the CDP hearing, the appeals officer 20 must make a determination whether the proposed 21 22 23 24 25 collection action may proceed. The appeals officer is required to take into consideration several things: First, the Appeals Officer must verify the requirements of any applicable law and administrative 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 procedure have been met by IRS personnel (see sec. 6330(c)(3)(A)). The Horns do not contend that Appeals failed to verify the IRS's compliance with this requirement. Second, the Appeals Officer must consider any collection alternatives proposed by the taxpayer (see sec. 6330(c)(3)(B), citing sec. 6330(c)(2)). The Horns contend that Appeals did not give adequate consideration to their proposal of an installment agreement, which we discuss below in part III. And third, the Appeals Officer must determine "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary" (see sec. 6330(c)(3)), an issue the Horns have not distinctly raised. Pursuant to section 6330(c)(2)(B) a taxpayer may challenge the underlying tax liability in a CDP hearing, but the liabilities at issue here were self-reported by L.A. Horn and the Horns do not dispute them. If, after the CDP hearing, the Office of Appeals then issues a notice of determination to proceed with the proposed levy, the taxpayer may 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 10 11 12 13 appeal that determination to this Court within 30 days, as the Horns have done, and we now "have jurisdiction with respect to such matter." Sec. 6330(d)(1). II. Burden of proof and standard of review As petitioners, the Horns bear the burden of proof. See Rule 142(a)(1). The Horns make no contention that the burden has shifted for any reason, and we see no basis in the record for such a contention. Where (as here) issues other than the validity of the underlying tax liability are at issue in the appeal of a collection determination, the Tax 14 Court reviews the administratien determination for 15 16 17 18 19 20 21 22 23 24 25 abuse of discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000). III. Collection alternative The Horns fault Appeals for failing to adequately consider their proposed alternative to a levy--i.e., an installment agreement. We discuss each of the grounds that the Commissioner advances to defend Appeals' determination. A. Failure to provide information While it certainly is not an abuse of discretion to decline to accept a collection 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 8 9 alternative when a taxpayer fails to provide financial information to support the alternative, see Huntress v. Commissioner, T.C. Memo. 2009-161, the evidence before us does not show such a failure. There is no dispute that much of the information that Appeals requested was provided. As for the remainder, we find either that it was substantially provided (such as the "list of investments"), or that it was not clearly requested (such as the Form 433- 10 11 A), or that a clarifying follow-up request by Appeals n9 The Horns were manifestly cooperative was warranted. 12 with Appeals, and the issuance of the notice of 13 14 15 16 17 18 19 20 21 22 23 24 25 determination cut off prematurely a process that should have continued. B. Ability to pay more 1. Ability to make greater installment payments At trial the Commissioner defended Appeals' determination by arguing that L.A. Horn was capable of making monthly installment payments larger than the $500 it offered. $500 is indeed a modest payment against so large a liability, and it is not an abuse of discretion for Appeals to reject a collection alternative because Appeals determines that the proposed amount does not correspond to the taxpayer's 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 true "reasonable collection potential" ("RCP"). See Fargo v. Commission, 447 F.3d 706, 709-710 (9th Cir. 2006), aff'g T.C. Memo. 2004-13; Rev. Proc. 2003-71, sec. 4.02(2). However, the record here does not show that Appeals actually made a determination that the 6 monthly amount should have been larger than what L.A. 7 8 9 10 11 12 13 14 15 16 17 Horn had proposed. Neither the determination letter nor its attachment says any such thing, and the record includes no analysis or calculation showing an appropriate installment figure. We decline to attempt our own analysis of the financial information in order to compute the amount that L.A. Horn should have proposed. Our role under section 6330(d) is to review actions that Appeals took, not actions that it could have taken. As the Supreme Court stated in SEC v. Chenery Corp., 318 U.S. 80, 93-95 (1943), "[The agency's] action 18 must be measured by what the * by what it might have done. * 19 20 21 22 23 24 25 * * * [agency] did, not * The * * * [agency's] action cannot be upheld merely because findings might have been made and considerations disclosed which would justify its order as an appropriate safeguard for the interests protected by the Act. There must be such a responsible finding. * * *" Here there is no finding by Appeals of L.A. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 Horn' s RCP or of an appropriate monthly installment amount. 2. Equity in assets The finding that Appeals did make was stated very summarily in the attachment to Appeals' determination: (Y] ou have enough equity in your assets to fully satisfy your tax liability." However, this conclusion is not supported by analysis or calculations anywhere in the record, and we are therefore virtually incapable of reviewing it. We cannot tell what assets Appeals had in mind. An order will be issued that remands this case to the IRS's Office of Appeals for consideration of collection alternatives. This concludes the Court's oral Findings of Fact and Opinion in this case. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Capital Reporting Company 15 THE CLERK: All rise. (Whereupon, at 11:40 a.m., the above- entitled matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com