TAX COURT OPINION

Case: Tommy J. & Carla M. DeZeeuw
Docket Number: 25171-08L
Judge: Colvin
Opinion Type: bench
Filed: 12/28/2009
Pages: 20

UNITED STATES TAX COURT WASHINGTON, DC 2021 7 TOMMY J . AND CARLA M . DEZEEUW, Petitioner s V . ) Docket No . 25171-08L . COMMISSIONER OF INTERNAL REVENUE, Respondent O R D E R I Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall . transmit herewith .to Petitioners and to respondent a copy of the pages of the transcript of the trial in the'above case before Judge David Gustafson at Houston, Texas, on December 9, 2009, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance with the oral findings of fact and opinion, decision will be entered for respondent . (Signed ) David Gustafson Judge Dated : Washington, D .C . December 28, 2009 SERVED DEC 2 9 2009 e 3 1 Bench Opinion by Judge David Gustafso n 2 TOMMY J . & CARLA M . DeZEEUW 3 Docket No . 25171-08L December 9, 200 9 4 The Court has decided to render ora l 5 Findings of Fact and Opinion in this case, and th e 6 following represents the Court's oral Findings of Fact 7 and Opinion . The oral Findings of Fact and opinio n 8 shall not be relied on as precedent in any other case . 9 This Bench Opinion is made pursuant to the 10 authority granted by section 7459(b) of the Internal 11 Revenue Code of 1986, as amended, and Rule 152 of the 12 Tax Court Rules of Practice and Procedure . 13 By a "Notice of Determination" date d 14 September 18, 2008 (Ex . 15-J), the IRS gave notice to 15 petitioners Tommy and Carla DeZeeuw, that the IRS's 16 Office of Appeals had sustained the determination to 17 file a Notice of Federal Tax Lien and to proceed with 18 a levy, in order to collect the income tax plu s 19 interest that they owed . We will affirm that 20 determination . 21 Trial of this case was conducted o n 22 December 8, 2009, in Houston, Texas . The parties ' 23 "Stipulation of Facts", with Exhibits 1-J through 26-J 24 was admitted into evidence, and Ms . DeZeeuw gave her 25 testimony and offered Exhibit 27-P, which was also Heritage Reporting Corporation (202) 628-4888 4 1 admitted into evidence . 2 FINDINGS OF FACT 3 Petitioners' income tax liabilitie s 4 This suit involves the IRS's attempt t o 5 collect income tax from the DeZeeuws for eight years . .6 For seven of those years--1997, 1998, 2001, 2002 , 7 2003, 2004, and 2005--the DeZeeuws filed their federal 8 income tax returns late ; and for 2000 they did no t 9 file a return at all . For three of the years--1997, 10 1998, and 2000--the IRS issued a notice of deficiency, 11 and the DeZeeuws did not challenge those deficiencies 12 in the Tax Court ; and for the other five years--2001 13 through 2005--the DeZeeuws did not pay the tax 14 liabilities that they reported on their returns . 15 (Stip . 3-49 .) By February 2008 they owed more than 16 $100,000 in tax, penalties, and interest . 17 The DeZeeuws' income and expense s 18 In 2006, while their tax liabilities were 19 mounting, the DeZeeuws signed a 5-year lease on a 20 2,400-square-foot house in a nice neighborhood . It 21 was the community that they had lived in for some 22 time, and where they had raised their two children , 23 now both over the age of 18--a son who is currently in 24 the military (having served in Iraq and expecting to 25 be sent to Afghanistan) and a daughter who i s Heritage Reporting Corporation (202) 628-4888 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 5 currently a pre-med student in college . The monthl y rent expense for their house was $1,750 . The hous e has three bedrooms and a den that can be used as a bedroom . Also in 2006, Ms . DeZeeuw's car (a Tahoe on which the loan was not yet paid off) developed seriou s transmission trouble . She traded it in and borrowe d $23,933 to purchase a 2006 Cadillac . In 2007 the DeZeeuws' daughter was accepte d at her "dream" college, the University of Texas a t Austin . . (She had not applied to local Houston colleges .) She was awarded a partial scholarship, bu t in order to attend she had to incur the expense o f living away from home . Ms . DeZeeuw testified tha t they then began paying her monthly rent of $470, he r monthly utilities of about $50, and her cell phon e charges of under $100 per month . She did not substantiate these expenditures with documentation , but we assume her testimony to be true for purposes o f this decision . In 2008 Mr . DeZeeuw had a job that pai d $90,000 (plus a $2,500 bonus) . (Ex . 17-J .) In Jun e 2008 Ms . DeZeeuw lost her job . She has not been abl e to find a job since then, and she testified that thi s is because of the tax lien that prospective employer s Heritage Reporting Corporation (202) 628-4888 6 1 find when they do a credit check on her . She 2 testified that one job offer she received was later 3 rescinded for this reason . She did not provide any 4 corroboration of these allegations (by testimony of or 5 correspondence from prospective employers), but fo r 6 purposes of this decision we assume it is true . 7 IRS Collection Activit y 8 On February 7, 2008, the IRS sent to the 9 DeZeeuws a notice of intent to levy (Ex . 10-J, Stip . 10 52), and on February 14, 2008, the IRS sent them a 11 notice of lien filing (Ex . ll-J, Stip . 53) . Both 12 notices tallied the DeZeeuws' federal income ta x 13 liabilities for the eight years at issue (totaling 14 over $100,000) and notified them of their right t o 15 request a collection due process (CDP) hearing before 16 the IRS Office of Appeals . Such a request wa s 17 submitted on Form 12153 on behalf of the DeZeeuws by a 18 representative they had hired . (Ex . 13 .) The form 19 referenced only the levy notice . The box to be 20 checked as to a lien notice was not checked . Th e 21 reason for their request that was stated on the form 22 was, "The proposed Levy would cause financia l 23 hardship . Alternate collection methods ar e 24 available ." The DeZeeuws did not challenge thei r 25 liability for the taxes either on the form, or in the Heritage Reporting Corporatio n (202) 628-4888 7 1 subsequent CDP proceedings, or in this lawsuit . 2 The appeals officer assigned to their CDP 3 case sent a letter to the DeZeeuws and thei r 4 representative, scheduling a telephone CDP hearing for 5 August 14, 2008 . (Ex . 15-J, Stip . 61-62 .) The 6 appeals officer placed a telephone call to the 7 representative's number on that date, but th e 8 representative was not available to speak with him . 9 (Stip . 63 . ) 10 Ms . DeZeeuw testified that thei r 11 representative had not made them aware that they could 12 participate in the hearing, and did not tell them that 13 he failed to participate in it . Later that day th e 14 representative phoned the appeals officer and induced 15 him to reschedule the CDP hearing, which took place 16 the next day (Stip . 64-65) . The DeZeeuws were no t 17 informed of the hearing or invited by thei r 18 representative to participate . During the hearing , 19 the representative provided some financial information 20 about the DeZeeuws, undertook to send some documentary 21 information, and stated that the collectio n 22 alternative that petitioners wanted was an installment 23 agreement under which they would pay $200 to $300 per 24 month to the IRS . (Stip . 65 . ) 25 Ability to Pa y Heritage Reporting Corporation (202) 628-4888 8 1 Petitioners then sent the appeals officer a 2 Form 433-A, Collection Information Statement, giving 3 financial information about themselves . (Ex . 16-J , 4 Stip . 66 .) The Form 433-A listed Mr . DeZeeuw' s 5 monthly income as $7,500 . However, they also sent 6 earnings statements from Mr . DeZeeuw's job, whic h 7 showed a monthly salary of $7,500 and a $2,500 bonus . 8 On the Form 433-A (at page 4) the DeZeeuws listed nine 9 monthly expenses . In determining the DeZeeuws ' 10 ability to pay their tax liability, the appeal s 11 officer adopted five of those expenses unchanged in 12 his own analysis of their expenses . We state first 13 those five agreed expenses, their subtotal, then the 14 four disputed expenses, their subtotal, and then the 15 DeZeeuws' total claimed living expenses : 16 Food, Clothing and Misc . 1,151 17 Health Insurance 16 6 18 Out of Pocket Health Care Costs 30 0 1 9 2 0 2 1 2 2 2 3 2 4 25 Life Insurance 8 Taxes (Income and FICA) 1,683 Subtotal of the agreed expenses 3,308 Housing and Utilities 2,58 1 Vehicle Ownership Costs 1,319 Vehicle Operating Costs 838 Other Secured Debts 5 5 Heritage Reporting Corporation (202) 628-4888 9 1 Subtotal of the disputed expenses 4,793 2 Total Living Expenses 8,10 1 3 For the last four of those expenses , the appeals 4 officer arrived at a different number : 5 First, the DeZeeuws ' Housing and Utilities 6 amount of $2,581 included, according to Ms . DeZeeuw' s 7 testimony, the amounts of rent and utilities on their house plus the rent, utilities, and cell phone expens e 9 of their daughter at college ; but no substantiation of 10 the daughter's expenses was given to the appeal s 11 officer . For purposes of this decision, we assum e 12 that the actual amounts do total $2,581 . However, the 13 appeals officer did not attempt to reconstruct actual .14 expenses but instead used the IRS's local standar d 15 allowance for housing and utilities for three people 16 in a household in Harris County, Texas, which wa s 17 $1,458 per month . (Stip . 81 . ) 18 Second, the DeZeeuws' Vehicle ownershi p 19 Costs of $1,319 were the sum of their actual monthly 20 loan payments for their two vehicles . (Stip . 70 .) 21 However, a billing statement from the lender o n 22 Ms . DeZeeuw's Cadillac (Ex . 20-J, p . 1) showed that 56 23 of 60 payments had been received as of July 15, 2008 ; 24 and if monthly payments were made every mont h 25 thereafter, payment,60 would be made on November 15, Heritage Reporting Corporation (202) 628-4888 1 0 1 2008 . Consequently, the appeals officer allowe d 2 vehicle ownership costs for only one vehicle, and he 3 allowed not the actual loan payment amounts bu t 4 instead used the local standard allowance for vehicle 5 ownership costs in Harris County, Texas, which wa s 6 $489 per month per vehicle . 7 Third, the DeZeeuws' Vehicle Operating Costs 8 of $838 is presumably an estimate of the actual cos t 9 of operating their two vehicles, but the record does 10 not show detail or corroboration . The appeals officer 11 did not compute or allow actual costs but instead used 12 the local standard allowance for vehicle operatin g 13 costs in Harris County, Texas, which was $263 per 14 month per vehicle--i .e ., $526 for two vehicles . 15 Fourth, the DeZeeuws' Other Secured Debts 16 amount of $55 was not substantiated at the CD P 17 hearing, so the appeals officer allowed zero for that 18 item . At trial the DeZeeuws offered a statemen t 19 showing that Mr . Deleeuw still owes school loans , 20 which are apparently not secured loans but for which 21 he is obliged to pay $55 per month . 22 Three of the four disputed expense item s 23 involved the appeals officer's use of IRS national and 24 local standard amounts rather than the actual amounts 25 that the DeZeeuws alleged . However, the DeZeeuw s Heritage Reporting Corporation (202) 628-4888 11 1 stipulated that they "did not provide documentation to 2 support a determination that using the local expens e 3 standards leaves them an inadequate means of providing 4 for basic living expenses" . (Stip . 84 .) Thei r 5 explanation for this state of affairs is that their 6 representative did not provide information to th e 7 appeals officer, but at trial the only additiona l information they offered was the substantiation o f 9 Mr . DeZeeuw's $55 student loan payment . 10 The amounts that the appeals officer allowe d 11 for these four disputed items are as follows : 12 Housing and Utilities 1,45 8 13 Vehicle Ownership Costs 489 14 Vehicle Operating Costs 526 15 Other Secured Debts 0 16 Subtotal of the disputed expenses 2,47 3 17 Using those figures, the appeals officer's grand total 18 for their monthly living expenses should have bee n 19 $5,781 . However, for reasons we cannot tell from the 20 record, he allowed instead a larger total of $5,885 . 21 (Ex . 1, p . 5 .) He then reckoned that the difference 22 between that expense amount and the monthly income he 23 had computed at $7,635 represented the money they had 24 above their living expenses which was available to pay 25 taxes--to wit, $1,750 . The appeals officer therefor e Heritage Reporting Corporation (202) 628-4888 12 1 telephoned the DeZeeuw's representative and left a 2 voicemail message saying that he was willing to grant 3 the DeZeeuws an installment agreement of $1,750 per 4 month and requested the representative to call hi m 5 back . The representative did not do so . (Stip . 88 .) 6 The appeals officer then sent the representative a 7 telefacsimile asking whether petitioners wanted to 8 agree to a $1,750 payment and informing him that a 9 notice of determination would be issued . (Ex . 25-J .) 10 The record does not show that the representative ever 11 responded . 12 On September 18, 2008, the IRS's Office of 13 Appeal issued its "Notice of Determination Concerning 14 Collection Action(s) under Section 6320 and/or 6330 ." 15 (Ex . 1-J .) The notice reported the conclusion that 16 "[t]he assessments, notice and demand issuance an d 17 balance due as of the final and lien notice dates were 18 verified using computer account transcripts" . 19 (Ex . 1-J, p . 4 .) The notice advised the DeZeeuws that 20 the filing of a Notice of Federal Tax Lien and th e 21 decision to proceed with a levy were both sustained by 22 the Office of Appeals . 23 Mr . and Ms . DeZeeuw timely filed thei r 24 petition in this Court on October 15, 2008 . At that 25 time they resided in Texas . (Stip . 1 . ) Heritage Reporting Corporation (202) 628-4888 1 3 1 OPINION 2 I . "Collection Due Process" revie w 3 If a taxpayer fails to pay any Federa l 4 income tax liability after notice and demand, section 5 6321 imposes a lien in favor of the United States on 6 all the property of the delinquent taxpayer, an d 7 section 6323(f) authorizes the IRS to file notice of 8 that lien . However, Congress has added to chapter 64 9 of the Code certain provisions as "Due Process fo r 10 Collections", and those provisions must be complied 11 with after the IRS files a tax lien, and before the 12 IRS can proceed with a levy : The IRS must provide 13 written notice of that filing to the taxpayer . Secs . 14 6320(a), 6330(a) . After receiving such a notice, the 15 taxpayer may request an administrative hearing before 16 the office of Appeals . Secs . 6320(b)(1), 6330(b)(1) . 17 At that CDP hearing, the taxpayer may generally raise 18 relevant issues relating to the unpaid tax, including 19 offers of collection alternatives . Such collection 20 alternatives may include, among other things, a n 21 installment agreement . Sec . 6330(c)(2)(A) . Th e 22 appeals officer must make a determination whether or 23 not the IRS should release the lien, and whether it 24 should proceed with the levy . The appeals officer is 25 required by section 6330(c)(3) to take int o Heritage Reporting Corporation (202) 628-4888 1 4 1 consideration : (1) "verification from the Secretary 2 that the requirements of any applicable law an d 3 administrative procedure have been met" ; (2) relevant 4 issues raised by the taxpayer ; and (3) "whether any 5 proposed collection action balances the need for the 6 efficient collection of taxes with the legitimat e 7 concern of the person that any collection action be no 8 more intrusive than necessary" . If the Office o f 9 Appeals then issues a notice of determination t o 10 uphold the lien and proceed with the levy, then the 11 taxpayer may appeal the determination to this Court 12 within 30 days ( see secs . 6320(c), 6330(d)(1)), as 13 Mr . and Ms . DeZeeuw have done . 14 II . Application of CDP principles to this case 15 A . Verification under section 6330(c)(1 ) 16 Mr . and Ms . DeZeeuw do not dispute that the 17 IRS verified that the requirements of applicable law 18 and administrative procedure have been met . 19 B . Underlying liability issues under 20 section 6330 (c) (2) (B ) 21 Mr . and Ms . DeZeeuw have not disputed their 22 underlying liability for the eight years at issu e 23 here--neither in their request for a CDP hearing, nor 24 through their representative in the hearing, nor in 25 their petition filed in this Court, nor at the trial . Heritage Reporting Corporation (202) 628-4888 15 1 C . Collection issue s 2 Where the underlying liability is not a t 3 issue, we review the appeals officer's determinations 4 regarding the collection action for an abuse o f 5 discretion . Goza v . Commissioner , 114 T .C . 176 6 (2000) . Accordingly, we review the IRS' s 7 determination for abuse of discretion ; that is , 8 whether the determination was arbitrary, capricious, 9 or without sound basis in fact or law . See Murphy v . 10 Commissioner , 125 T .C . 301, 320 (2005), affd . 469 F .3d 11 27 (1st Cir . 2006) ; Sego v . Commissioner , 114 T .C . 12 604, 610 (2000) . We do not substitute our ow n 13 judgment for the appeals officer's and attempt t o 14 decide how, in our opinion, he might best have handled 15 the DeZeeuw's situation . Rather, we decide whether he 16 abused his discretion in making the determination that 17 he made . 18 Mr . and Ms . DeZeeuw's principal contention 19 is that the appeals officer abused his discretion by II 20 (1) using the IRS's local standards rather than their 21 actual expenses, (2) disallowing vehicle ownership 22 expense for Ms . DeZeeuw's Cadillac, and (3) allowing 23 zero for Other Secured Debts (i .e ., Mr . DeZeeuw' s 24 college loan payments) . However, while thos e 25 contentions are by no means irrelevant, there is a Heritage Reporting Corporatio n (202) 628-4888 16 1 sense in which they miss the forest for the trees . 2 The appeals officer's determination that we review is 3 his rejection of the DeZeeuws' offer of an installment 4 agreement of $200 to $300 per month . Only as thes e 5 issues bear on that question are they material . 6 1 . Standard Allowance s 7 For housing and utilities, vehicl e 8 ownership, and vehicle operation, the appeals officer 9 used standard amounts rather than actual amounts . 10 Petitioners do not contend that the settlement officer 11 misapplied these standard allowances . Rather, they 12 argue that the use of these allowances is unfair and 13 presumes a level of spending that woul d 14 inappropriately disrupt their standard of living . 15 Because of the dollar effect of this issue, it is the 16 major issue in this case . 17 In 1998 Congress directed the Secretary of 18 the Treasury to prescribe guidelines for calculating 19 allowable living expenses when determining th e 20 taxpayer's current financial condition and ability to 21 pay delinquent taxes . See Internal Revenue Service 22 Restructuring and Reform Act of 1998, Pub . L . 105-206, 23 sec . 3462, 112 Stat . 764 ; sec . 7122(d) . The Secretary 24 was directed to "develop and publish schedules o f 25 national and local allowances designed to provide that Heritage Reporting Corporatio n (202) 628-4888 17 1 taxpayers entering into a compromise have an adequat e 2 means to provide for basic living expenses ." Sec . 3 7122(d)(2)(A) . The IRS has thus developed collection 4 financial standards that include national standard s 5 for general living expenses and local standards for 6 housing, utilities, and transportation . Loca l 7 standards for housing are established for each county 8 within a state . See Internal Revenue Manual (IRM) pt . 9 5 .15 .1 .7 . Subsequent Congressional amendments t o 10 section 7122 have implicitly vindicated thes e 11 standards . See Dean v . Commissioner , T .C . Memo . 2009- 12 269 . 13 This Court has sustained use of the IR S 14 published national and local allowances as guidelines 15 for basic monthly living expenses in evaluating th e 16 adequacy of proposed installment agreements and offers 17 in compromise . See, e .g ., Speltz v . Commissioner , 124 18 T .C . 165, 179 (2005), affd . 454 F .3d 782 (8th Cir . 19 2006) ; Fernandez v . Commissioner , T .C . Memo . 2008-210 . 20 Generally, this Court has found no abuse of discretion 21 where appeals officers used the housing and utilities 22 standard allowances rather than the taxpayer's actual 23 expenses . See, e .g ., Marks v . Commissioner , T .C . 24 Memo . 2008-226 . The taxpayer has the burden to submit 25 information to Appeals to justify a departure from the Heritage Reporting Corporation (202) 628-4888 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 18 local standards . See Lindley v . Commissioner , T .C . Memo . 2006-229, affd . sub nom . Keller v . Commissioner , 568 F .3d.710 (9th Cir . 2009) . Mr . and Ms . DeZeeuw have not shown that the settlement officer did not properly apply th e provisions of the Code, the regulations, or th e Internal Revenue Manual with respect to the loca l standard allowance for housing and utilities, vehicl e ownership, and vehicle operation expenses . There was , therefore, no abuse of discretion in regard to tha t element of the determination . 2 . Second Vehicl e Because he concluded that the loan o n Ms . DeZeeuw's car would be paid off imminently, the appeals officer did not allow vehicle ownershi p expense for that vehicle . Ms . DeZeeuw contends tha t this was an error on his part, and a careless error . However, even if she were right, an allowance for a second vehicle would have been only $489 . Such an allowance would have reduced the monthly amount tha t he computed they were able to pay from his figure o f $1,750 down to $1,261 . Since the DeZeeuws had offere d only $200 to $300, this allowance would not hav e affected his judgment that the IRS should reject thei r offer . Heritage Reporting Corporation (202) 628-4888 1 9 1 Moreover, the CDP hearing record reflects 2 ambiguity about when Ms . DeZeeuw's car loan would be 3 paid off . If there was an error in the appeal s 4 officer's calculation or assumptions, it was incumbent 5 on the DeZeeuws to cure that ambiguity and justify the 6 determination they were seeking . Instead, they and 7 their representative made no response to the appeals 8 officer when he communicated his $1,750 proposal, nor 9 when he made a follow-up inquiry . 10 3 . Student Loan Paymen t 11 The DeZeeuws failed to document their $55 12 "Other Secured Debt" (actually an unsecured student 13 loan), and as a result the appeals officer did not 14 abuse his discretion by disregarding it . But again, 15 even if his calculation of their ability to pay had 16 been reduced by that $55, their offer of $200 to $300 17 was so wide of the mark that the reduction would not 18 have affected his rejection of that offer . 19 D . Intrusivenes s 20 Under section 6330(c)(3), the office of 21 Appeals is supposed to ensure that the "propose d 22 collection action balances the need for the efficient .23 collection of taxes with the legitimate concern of the 24 person that any collection action be no more intrusive 25 than necessary" . The DeZeeuws' complaint about Heritage Reporting Corporation (202) 628-4888 2 0 1 intrusiveness that was most pointed (though not 2 corroborated by any additional evidence) wa s 3 Ms . DeZeeuw's testimony at trial that the filing o f 4 the notice of lien was interfering with her ability to 5 get a job . This is the sort of assertion that a n 6 appeals officer should take into account in balancing 7 intrusiveness ; and where a taxpayer has made such a 8 complaint, the CDP hearing record should show that it 9 was taken into account . However, in this case the CDP 10 record is silent about this issue . It shows that th e 11 DeZeeuws had informed the appeals officer tha t 12 Ms . DeZeeuw had lost her job, but it says nothing 13 about the lien interfering with her re-employment . 14 fact, at the CDP hearing the DeZeeuws and thei r 15 representative said virtually nothing about the lien 16 and argued only about the levy . It is not an abuse of 17 discretion for an appeals officer to fail to consider 18 issues that were not raised by the taxpayer ; and in 19 our CDP review we consider only issues that wer e 20 raised with the appeals officer . See Magana v . 21 Commissioner , 118 T .C . 488, 493 (2002) . 22 In this and other particulars, the DeZeeuws 23 complain that they were poorly represented by their 24 representative . For this purpose we assume, a s 25 Ms . DeZeeuw testified, that the representative was to Heritage Reporting Corporatio n (202) 628-4888 2 1 1 blame for major lapses and failures to communicate, 2 resulting in prejudice to their participation in the 3 CDP process . However, the DeZeeuws and not the IRS 4 chose their representative . It was not the IRS' s 5 place to question their choice and go over the head of 6 the representative . The Office of Appeals does no t 7 abuse its discretion when it deals with a 8 representative duly appointed by the taxpayer . 9 Since the DeZeeuws and their representative 10 made no contention in the CDP hearing about the effect 11 of the lien on Ms . DeZeeuw's employment, we canno t 12 find that the appeals officer abused his discretion by 13 not considering an issue that was never raised . 14 An appropriate order will be issued, 15 sustaining the IRS's determination to uphold the 16 filing of the notice of tax lien and to proceed with a 17 levy . 18 This concludes the Court's oral Findings of 19 Fact and opinion in this case . 20 (Whereupon, at 9 :59 a .m ., the bench opinion 21 was concluded . ) 22 2 3 24 25 Heritage Reporting Corporation (202) 628-4888