TAX COURT OPINION

Case: Sarah Kurko
Docket Number: 24040-13L
Judge: Gustafson
Opinion Type: bench
Filed: 12/30/2014
Pages: 13

JRN UNITED STATES TAX COURT WASHINGTON, DC 20217 SARAH KURKO, Petitioner, v. ) ) ) ) Docket No. 24040-13 L. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER To give effect to the opinion of the Court as set forth in the pages of the transcript of the proceedings before Judge David Gustafson at Boston, Massachusetts, on December 16, 2014, containing his oral findings of fact and opmlon, 1t 1s 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 Boston, Massachusetts, 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 30, 2014 SERVED Dec 30 2014 Capital Reporting Company 3 1 2 3 4 5 6 Bench Opinion by Judge David Gustafson December 16, 2014 Sarah Kurko v. Commissioner Docket No: 24040-13L THE COURT: The Court has decided to render the following as its oral Findings of Fact and 7 Opinion in this case. This Bench Opinion is made 8 9 pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Rule 152 of the Tax 10 Court Rules of Practice and Procedure, and it shall 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 not be relied on as precedent in any other case. This "collection due process" ("CDP") case is an appeal by petitioner Sarah Kurko pursuant to 26 U.S.C. section 6330(d), asking this Court to review the determination by the Office of Appeals of the Internal Revenue Service ("IRS") to sustain a notice of Federal tax lien to collect petitioner's unpaid income tax for the years 2008, 2009, and 2011. The IRS filed and served a motion for summary judgment, and the Court's order of November 12, 2014, granted the IRS's motion in part and held (1) that Ms. Kurko is barred from challenging her underlying liability as to 2009 and 2011, and (2) that the IRS did not abuse its discretion in denying a collection alternative where Ms. Kurko failed to show herself in 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 compliance with filing requirements and did not provide financial information to document her entitlement to a collection alternative. However, by our order of December 5, 2014, we denied respondent's 5 motion in part, and ordered that the case would 6 7 8 9 10 11 12 13 14 proceed to trial on the issue of whether IRS Appeals abused its discretion by failing to consider adequately Ms. Kurko's claim that her 2008 overpayment--not disputed by the IRS on its merits-- was not untimely by virtue of section 6511(h) and that it should have been applied against her 2009 liability, pursuant to her "credit elect" on the Form 1040 for 2008. The case was tried in Boston, 15 Massachusetts, on December 15, 2014. Ms. Kurko 16 17 18 19 20 21 22 23 24 25 represented herself, .and Michael E. D'Anello represented respondent. We hold that IRS Appeals abused its discretion, and we will remand the case for further consideration of Ms. Kurko's claim of "financial disability" and her 2008 credit elect overpayment. FINDINGS OF FACT Returns and liabilities For 2008 and 2009 Ms. Kurko failed to file timely returns, and the IRS prepared substitutes for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 return ("SFRs") pursuant to section 6020(b) and assessed the resulting tax. For 2011 Ms. Kurko filed an untimely return, and the IRS assessed the tax reported thereon. (Ex. 1-J at 3.) When Ms. Kurko did not pay those liabilities, the IRS filed a notice of Federal tax lien and served on Ms. Kurko a notice of that filing and of her right to a CDP hearing. (Ex. 2 J.) CDP hearing Ms. Kurko duly requested a CDP hearing on Form 12153 (Ex. 3-J). On that form, as the "Reason", she stated: "I am in the process of seeking legal assistance and psychiatric assistance. I told agents unemployed and am applying for SSDI" (i.e., Social 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Security Disability Insurance). When the IRS 16 17 18 19 20 initiated the matter on its records, it quoted Ms. Kurko's reference to "psychiatric assistance". (Ex. 4-J, p. 18.) The settlement officer ("SO") in IRS Appeals assigned to Ms. Kurko's case was Ms. Nicole 21 Mullin. She had been an SO for more than 10 years. 22 23 24 25 She estimates that she has handled 450 cases per year (i.e., more than 4,500 cases by the current time) and states that she cannot recall the details of the cases. At trial several of her answers to questions 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 about what was said on a given subject in Ms. Kurko's case were in the nature of "Nothing that I can recall" or "Nothing that I can remember", and she appeared to indicate that in fact she had no recall of Ms. Kurko's hearing. For each case the SO prepares a "Case Activity Record" on which she makes dated entries of her contacts with the taxpayer, but it is clear that she does not attempt thereby to give a transcript of her conversations nor even to note every specific subject that is discussed. Consequently, some of what we find Ms. Kurko said over the telephone does not appear in the SO's case 13 activity record or other documents in the IRS's 14 record for this case. The SO believes that, in her 15 more than 10 years on this job with more than 4,500 16 17 18 19 20 21 22 23 24 25 taxpayers, no taxpayer has ever requested in a CDP hearing that he be found "financially disabled" for purposes of the statute of limitations on refund claims (see section 6511(h)). The SO spoke with Ms. Kurko by telephone on May 28, 2014. (Ex. 13-J at 47). In that conversation, among other things, Ms. Kurko explained that she is bi-polar, for which she had been hospitalized in 1998 and in October 2009, and that for much of the time after that October 2009 hospitalization she had been 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 in a major depression, which rendered her unable to 2 maintain employment or to handle paperwork. She 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 stated that she was applying for "disability" benefits from the Social Security Administration (an application that was granted after the CDP hearing was over (Ex. 17 P)), but she did not explicitly name the concept of "financial disability" from section 6511(h), of which she was unaware. Ms. Kurko explained that her tax liability for 2008 was less than had been assessed pursuant to the SFR and that in fact she had overpaid her taxes. She asked whether she would be able to get the benefit of that refund if she filed her now-long-overdue 2008 return, and the SO replied, "We'll see." Ms. Kurko prepared a 2008 return and submitted it to the IRS no later than June 17, 2013. (Ex. 10-J.) As Ms. Kurko had foretold, it reported an overpayment and made a credit elect to 2009. She left several voicemail messages with the SO to confirm her receipt of the return (along with several other returns). The SO did see the 2008 return and noted that it claimed a refund of $8,570. However, the SO made entries in her notes for 6/21/2013 that "the refund will be lost due to RSED" (i.e., refund statute expiration date) and for 8/5/2013 that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 "refund lost due to RSED (expired 4/15/12)" --i.e., evidently invoking section 6511--apparently without recalling (or without perceiving the significance of) subsection (h) of section 6511, to which Ms. Kurko's claimed disability was relevant. The SO attempted to phone Ms. Kurko on August 5, 2014, as she had previously offered to do, but her call did not go through. She sent a letter to Ms. Kurko that reported that failed attempt, invited any additional information Ms. Kurko wanted to provide, and promised to issue a notice of determination promptly. 13 Notice of determination 14 15 16 17 18 19 20 21 22 23 24 25 On September 3, 2013, IRS Appeals issued its final notice of determination upholding the filing of the notice of lien. The attachment to the notice mentioned the 2008 return, stated that it had been processed and that the assessment of tax for 2008 had been adjusted, and that "[t]he current balance" of Ms. Kurko's 2008 income tax account was zero. The notice of determination made no mention of Ms. Kurko's claim of a 2008 overpayment that should be applied to the subsequent liabilities at issue. Ms. Kurko timely submitted her petition to this Court. At that time she resided in 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 Massachusetts. Her petition includes the contention, 9 "2008 should have been listed as a $8,540 credit not zeroed out." Her other contentions were resolved by summary judgment, and this contention remains. OPINION I. Collection Due Process principles When a taxpayer fails to pay any Federal income tax liability after demand, section 6321 imposes a lien in favor of the United States on all the property of the delinquent taxpayer, and section 6323 authorizes the IRS to file notice of that lien. However, the IRS must provide written notice of a tax lien filing to the taxpayer within five business days. After receiving such a notice, the taxpayer may request an administrative hearing before Appeals. Sec. 6320(a) (3)(B), (b)(1). Administrative review 1s carried out by way of a hearing before IRS Appeals pursuant to section 6330(b) and (c); and, if the taxpayer is dissatisfied with the outcome there, she can appeal that determination to the Tax Court under section 6330(d), as Ms. Kurko has done. For the agency level CDP hearing before IRS Appeals, the pertinent procedures are set forth in section 6330(c). 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 Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 II. Burden of proof and standard and scope of review As petitioner, Ms. Kurko bears the burden of proof. See Rule 142(a)(1). Ms. Kurko makes no contention that the burden has shifted for any reason, and we see no basis in the record for such a contention. In considering IRS Appeals' consideration of collection issues, the Court reviews the administrative determination for an abuse of discretion. See Sego v. Commissioner, 114 T.C. 604, 610 (2000). The IRS contends that our review is confined to the administrative record. The IRS says that an appeal in this case would lie in the United States Court of Appeals for the First Circuit, and that the First Circuit has adopted the "record rule" and has held that, in such a review, we are confined, 17 with "limited exceptions", to the administrative 18 19 record developed in the CDP hearing before IRS Appeals. Murphy v. Commissioner, 469 F.3d 27, 31 (1st 20 Cir. 2006). This position involves two difficulties-- 21 22 23 24 25 first, that it is unclear whether a contention (explained below) that a credit elect overpayment should be applied to the liability is an "issue relating to the unpaid tax" (sec. 6330(c)(2) (A)) that would be subject to the record rule; and second, that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 it is unclear whether a taxpayer seeking a credit elect is "seeking redetermination of tax liability" for purposes of section 7482(b) (1) (A) or whether instead appeal would be to the D.C. Circuit (sec. 7482(b) (flush language)). However, we assume for present purposes that the "record rule" does govern this case, but we find applicable one of the exceptions that the First 9 Circuit noted--i.e., that "[a] reviewing court may 10 11 12 13 14 15 16 17 18 accept evidence outside the administrative record ... where there is a 'failure to explain administrative action [so] as to frustrate effective judicial review,' Camp v. Pitts, 411 U.S. 138, 142-43, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973) (per curiam)." We think that the silence of the notice of determination about IRS Appeals' resolution of Ms. Kurko's credit elect claim and the absence from the record of the information she gave about her 19 disability combines to fit this exception. Whether 20 21 22 23 24 25 from overwork or inattention, the SO failed to record Ms. Kurko's insistence that her disability accounted for her late 2008 return, and in its determination IRS Appeals failed to address that contention, which we now explain. III. Application of credit elect to 2009 liability 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 A. Credit elect Ms. Kurko asserted that her 2008 overpayment--not disputed by the IRS--should have been applied against her 2009 liability, pursuant to her "credit elect" on the Form 1040 for 2008, made under section 6402(b) and 26 C.F.R. section 301.6402- 3(a)(5). This contention could be characterized as "relating to the unpaid tax [for 2009]", sec. 6330(c) (2) (A), or as a "challenge[] to the appropriateness of [the] collection action[]", sec. 6330(c) (2)(A) (ii). As we stated in Weber v. Commissioner, 138 T.C. 348, 360 (2012): "'[W]here a credit elect overpayment is claimed on the return for the year at issue-we have held that "the validity of the underlying tax liability, i.e., the amount unpaid after application of credits to which * * * [the taxpayer) is entitled, is properly at issue' in a CDP case. See Landry v. Commissioner, 116 T.C. 60, 62 (2001)." B. Limitation of section 6511(b) IRS Appeals did not grant Ms. Kurko's request for the application of the 2008 overpayment to her 2009 liability. The notice of determination does not say why; but the SO's notes refer to the statute of limitations, and the apparent reasoning 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 Capital Reporting Company 13 1 2 3 4 5 6 7 would be as follows: Under section 6513(a), Ms. Kurko's withheld tax for 2008 is deemed to have been paid on April 15, 2009. Under section 6511(b) (2) (A), her claim for refund (i.e., her Form 1040 reporting an overpayment) filed in June 2013 can reach back only 3 years (to June 2010). Thus, her 2008 return was arguably filed 14 months too late to reach her 8 withholding, and the refund of the admitted 9 overpayment is barred. 10 C. Tolling of statute during "financial 11 disability" 12 13 14 15 16 However, there is no indication that IRS Appeals gave any consideration to section 6511(h), which provides that the "[r]unning of periods of limitation [is] suspended while [the] taxpayer is unable to manage [her] financial affairs due to 17 disability." If Ms. Kurko's "major depression" fits 18 within section 6511(h)(2)(A) and lasted for more than 19 20 21 22 23 24 25 14 months between April 2009 and June 2013, then the statute of limitations would not bar the credit she requests. And if it would not, then the admitted 2008 overpayment should apparently have been applied as a "credit elect" against her 2009 liability. Ms. Kurko did not cite section 6511(h) nor use the phrase "financial disability", but we do not 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 4 5 6 7 8 9 hold that she was required to do so. It was enough that she complained about the inequity of cutting off her refund because of a lapse of time attributable to her depression, which she did refer to as a "disability" (when she stated that she was applying for disability benefits). Ms. Kurko did not make mere vague allegations of being depressed; rather, she informed IRS Appeals of her hospitalization and of periods of unemployment. Her alleged disability is 10 among the circumstances that Congress surely had in 11 mind when enacting section 6511(h). When Ms. Kurko 12 13 14 15 16 17 18 19 made that contention in the CDP hearing (even without citing the statute or mentioning the magic words "financial disability"), it was incumbent on Appeals to entertain the contention and request the information that would have substantiated it. We will therefore order that the case be remanded to IRS Appeals, so that adequate consideration may be given to Ms. Kurko's credit 20 elect overpayment claim and her claim of financial 21 disability under section 6511(h). 22 23 24 25 This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 10:10 a.m., the above- entitled matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com