TAX COURT OPINION

Case: David West
Docket Number: 1273-13L
Judge: Buch
Opinion Type: bench
Filed: 02/03/2014
Pages: 16

UNITED STATES TAX COURT WASHINGTON, DC 20217 DAVID WEST, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) Docket No. 1273-13L. ) ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit with this order to both petitioner and respondent a copy of the pages of the transcript of the trial in this case that contain the oral findings of fact and opinion that was rendered at the trial session at Boston, Massachusetts. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. February 3, 2014 SERVED FEB D 6 2014 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Bench Opinion by Judge Ronald L. Buch January 8, 2014 David West v. Commissioner Docket No. 1273-13L THE COURT: The following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion may not be relied upon as precedent in any other case. This opinion is in conformity with Internal Revenue Code section 7459(b) and Rule 152(a) of the Tax Court Rules of Practice and Procedure. Any section references refer to the Internal Revenue Code or the Treasury regulations in effect during the year at issue, and Rule references are to the Tax Court Rules of Practice and Procedure. Background Most of the facts are taken from the record in this case; some additional facts are taken from the 18 Court's opinion in Mr. West's prior case T.C. Memo. 19 20 21 2010-250. Mr. West's current case relates back to when he failed to file a timely return for 1999. Respondent 22 mailed him a notice of deficiency for 1999 on 23 April 16, 2003. In response, Mr. West submitted a 24 25 Form 1040, U.S. Individual Income Tax Return, for 1999 and reported a tax liability of $90,519.56, and 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company . 4 1 2 3 4 5 a balance due of $81,625.32. Mr. West's tax liability stemmed principally from large capital gains on the sale of stock during the last week of 1999. On August 25, 2003, respondent assessed the $90,519.56 as well as additions to tax for failure to 6 make estimated tax payments, failure to timely file a 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 return, and failure to timely pay the tax. On February 10, 2004, respondent issued Mr. West a Notice of Intent to Levy and Notice of Your Right to a Hearing Under Section 6330 for the 1999 tax liability. Mr. West did not timely request a hearing and was thus provided with an equivalent hearing. An equivalent hearing is an administrative hearing provided to a taxpayer who fails to make a timely request for a collection hearing with the Commissioner's Appeals Office. See Sec. 6330- 1(i)(1), Proced. & Admin. Regs. An equivalent hearing is conducted similarly to a regular collection hearing; however, it does not result in a notice of determination, but rather a decision letter. Id. Mr. West submitted an offer in compromise for $8,974.02 on the basis of effective tax administration and a doubt as to liability with respect to the addition to tax for failure to make estimated tax payments, which he believed had been 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 5 1 miscalculated. Mr. West arrived at the amount of his 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 offer by first calculating the tax he would have owed if he were able to offset his large capital gains for 1999 with the large capital losses from the sale of stock during 2000 and certain interest expenses. He then adjusted that amount to give himself a credit for the alternative minimum tax he paid in an earlier year on the exercise of his stock options used to acquire the stock that generated the 1999 capital gains. The offer examiner rejected Mr. West's offer and he appealed the rejection to respondent's Office of Appeals. The Appeals officer upheld the rejection of Mr. West's offer because an amount larger than his offer appeared collectible and the appeals officer found no exceptional circumstances in Mr. West's case. On January 20, 2005, respondent issued Mr. West a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under Section 6320 for the 1999 tax liability. Mr. West timely submitted a Form 12153, Request for Collection Due Process or Equivalent 22 Hearing, and through correspondence he requested that 23 24 25 his previously rejected offer 4 - reconsidered. The hearing officer refused to reconsider the offer that had, up to that point, been rejected twice and issued 866.488.DEPO www.CapitalReportingCompany.com I Capital Reporting Company 6 1 a Notice of Determination Concerning Collection 2 Actions Under Section 6320 and/or 6330 sustaining the 3 lien. Mr. West timely filed a petition disputing the 4 Notice of Determination. In West v. Commissioner, 5 6 7 8 9 T.C. Memo. 2010-250, the Court granted summary judgment for respondent, concluding that the hearing officer properly determined that the offer had previously been adequately considered and rejected and thus need not be reconsidered. Further, although 10 Mr. West professed a precarious financial position, 11 12 13 the hearing officer determined that at the time of the hearing that Mr. West was no longer unemployed and had a net realizable equity of $208,486. 14 Ultimately, the Court agreed with the hearing 15 16 17 18 19 20 21 22 23 24 25 officer's statements in the Appeals case memo and that an offer based on effective tax administration is not authorized when it would not cause an economic hardship. Also, the Court agreed that the IRS need not accept an offer that is based "solely on the taxpayer's claim that the tax law itself is unfair." (Mr. West's fairness argument is based on section 1212(b) that provides for a capital loss carryforward, but Congress has not provided for a capital loss carryback. See Merlo v. Commissioner, 126 T.C. 205 (2006), aff'd. 492 F.3d 618 (5th Cir. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2007)). The United States Court of Appeals for the 2 First Circuit affirmed our decision via a mandate 3 4 5 6 issued on March 12, 2012, stating the "IRS properly rejected the offer, because it had already been raised and considered at a prior administrative proceeding where Mr. West meaningfully participated." 7 West v. Commissioner, No. 11-1008 (1st Cir. 8 October 3, 2011). 9 10 11 12 13 14 15 16 17 18 Mr. West timely filed his 2005, 2006, and 2007 Federal income tax returns, each showing an overpayment. Respondent applied those overpayments toward Mr. West's 1999 tax liability. Mr. West timely filed his 2009 Federal income tax return after extension and reported a total tax due of $5,165.71, a prepayment credit of $5,352.10, and a refund due of $186.39. Mr. West appears to have arrived at the $5,352.10 figure by adding his overpayments from 2005, 2006, and 2007, except for a $98.25 credit 19 which is not at issue. However, at the time he filed 20 21 22 23 24 25 his 2009 return, the overpayments from Mr. West's 2005, 2006, and 2007 returns had already been applied to his assessed 1999 tax liability and thus were not available to satisfy his 2009 liability. Respondent assessed Mr. West's reported 2009 liability. On June 8, 2012, respondent issued a Notice of 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 8 1 Intent to Levy and a Notice of Your Right to a 2 Hearing for Mr. West's 2009 tax liability. Mr. West 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 timely filed a request for hearing, but he did not request a collection alternative. Rather, Mr. West attached a letter to the request for hearing stating that he has already paid his 2009 liability through his 2005-2007 overpayments, but that the IRS improperly applied those overpayments while his previous Tax Court case was before the Tax Court in violation of the stay of collection under section 6330(e). Further he stated he'd been "denied a hearing on the 'original case' on appeal, and the IRS is simply trying to collect on that case by indefinitely denying him a hearing." On August 7, 2012, respondent issued Mr. West a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 for his 2009 tax liability. With respect to the 2009 lien, Mr. West submitted a request for a hearing 19 with attachments, all of which was substantially 20 21 22 23 24 25 similar to the request for hearing and attachments that he submitted in response to the 2009 notice of intent to levy. He indicated no proposed collection alternative and stated that he had already paid the 2009 tax through his 2005 through 2007 overpayments. During a telephone conversation on September 18, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2012, Mr. West requested a face-to-face hearing in 2 Manchester, New Hampshire and requested statistics on 3 4 5 accepted offers in compromise on the basis of effective tax administration. Both the lien and the levy hearing requests were reassigned to Settlement 6 Officer Maria Russo. As an aside, we note that 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Ms. Russo was also the settlement officer whose determination was in dispute in West v. Commissioner, T.C. Memo. 2010-250. In the Case Activity record, she declares "In accordance with RRA 98, I confirm I have had no prior involvement with this taxpayer in either Appeals or any other IRS function for the types of taxes and tax years associated with this CDP request." This declaration is correct because the liability at issue in this case is the 2009 liability. Further, for the reasons more fully set forth below, we find her involvement with Mr. West's previous case did not affect the notices of determination at issue because Mr. West did not provide the requested financial information and did not propose any new collection alternatives. On October 15, 2012, the settlement officer sent Mr. West a letter scheduling a face-to-face hearing on November 8, 2012 in the Office of Appeals in Portsmouth, New Hampshire. In that letter, the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 settlement officer also requested documentation that 2 Mr. West had paid his 2009 taxes, a complete 3 4 5 6 7 8 9 10 11 12 collection information statement, 2012 year-to-date income and expenses, Mr. West's most recent pay stubs, an explanation of the sources of the regular $653 deposits into his bank account, and copies of bank statements from June 2012 through September 2012. The face-to-face hearing was rescheduled and ultimately held on November 13, 2012. The settlement officer explained that the 2005 through 2007 overpayments were applied to the 1999 year but that she would not discuss the 1999 underlying liability. 13 Mr. West questioned the settlement officer about the 14 15 16 17 18 19 20 21 22 23 24 25 acceptance rate of offers in compromise based on effective tax administration and attempted to address the 1999 underlying liability and his previously rejected offer. Although Mr. West indicated during the hearing that he would lose his house if the IRS collected, he did not provide any of the financial information that the settlement officer requested in her October 15, 2012 letter that could be used to verify that claim. On December 7, 2012, respondent issued to Mr. West two Notices of Determination, sustaining the proposed levy and the lien filing for his 2009 tax liability. Mr. West timely filed a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 petition disputing the notices of determination. Respondent filed a motion for summary judgment and 3 Mr. West filed an objection. We held a hearing, and 4 5 6 7 8 based on the motion, objection, and the information provided at the hearing, we conclude that there are no genuine disputes of material fact and respondent is entitled to summary judgment as a matter of law, and thus we will grant respondent's motion. 9 Analysis 10 11 12 13 14 15 16 Either party may move for summary judgment regarding any or all of the legal issues in controversy. See Rule 121(a). We grant summary judgment only if there are no genuine issues of fact. See Naftel v. Commissioner, 85 T.C. 527, 529 (1985). Respondent, as the moving party, bears the burden of proving that no genuine issue exists as to any 17 material fact and that respondent is entitled to 18 19 20 21 22 23 24 25 judgment as a matter of law. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary judgment, the factual materials and the inferences drawn from them must be considered in the light most favorable to the non-moving party. See FPL Group, Inc. v. Commissioner, 115 T.C. 554, 559 (2000); Bond v. Commissioner, 100 T.C. 32, 36 (LG94); \993 nut 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 Naftel v. Commissioner, 85 T.C. at 529. When a 2 motion for summary judgment is made and properly 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 supported, the non-moving party may not rest on mere allegations or denials, but must set forth specific facts showing that there is a genuine dispute for trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986); Sundstrand Corp. v. Commissioner, 98 T.C. at 520; see also Rule 121(d). The 1999 liability In October of 1990, the statute of limitations on collection under section 6502 was amended to provide a 10-year period from the date of assessment for the collection of Federal taxes (extended from 6 years). Omnibus Budget Reconciliation Act of 1990, Public Law 101-508, sec. 11317(a)(1), 104 Stat. 1388- 458; see also Magana v. Commissioner, 118 T.C. 488, 489 (2002). However, the 10-year period is tolled during the pendency of an offer in compromise, a collection hearing, a Tax Court case, or any appeal. Secs. 6330(e)(1), 6331(i)(5). Mr. West's 1999 liability was assessed on August 25, 2003, and since then he has submitted an offer in compromise for the 1999 year and had a Tax Court case regarding the collection of the 1999 tax, which he appealed to the 25 First Circuit. Taking into consideration all of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 those periods, the period of limitations on collection for the 1999 tax has not yet been exhausted. Thus, Mr. West had an outstanding tax for 1999 when his 2005-2007 tax returns were filed. Additionally, Mr. West argues that respondent's application of his 2005 through 2007 overpayments to his 1999 liability constituted a collection action in violation of section 6330(e)(1). Section 6402(a) provides that in the case of an overpayment, the IRS may apply the overpayment to any outstanding tax liability of the taxpayer. In Greene-Thapedi v. Commissioner, 126 T.C. 1 (2006), the Court noted that an offset under section 6402 does not constitute a levy action and accordingly is not a collection action subject to review in a section 6330 proceeding. Id. At 7-8; see also Boyd v. Commissioner, 124 T.C. 296, 300, (2005), aff'd, 451 F.3d 8 (1st Cir. 2006); sec. 301.6330-1(g)(2), Q&A-G3, Proced. & Admin. Regs. (an offset is a non- levy collection action that the IRS may take during the suspension period provided in section 6330(e)(1)). Accordingly, because the period of limitations remained open on Mr. West's 1999 tax liability, section 6402 allows the IRS to apply his 2005 through 2007 overpayments to that liability, and 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.Capita1ReportingCompany.com Capital Reporting Company 14 therefore applying the overpayments was not in violation of the stay on collection. Collection alternatives Mr. West self reported his 2009 tax liability of $5,165.71, but did not propose a collection alternative. There can be no abuse of discretion for failure to consider a collection alternative that was never proposed. See Veneziano v. Commissioner, T.C. Memo 2011-160 (citing Kendricks v. Commissioner, 124 T.C. 69, 79 (2005)). Instead, Mr. West continued to assert at his hearing that the IRS should have accepted his previously-rejected offer for 1999, and if the IRS would accept that offer, the 2005-2007 overpayments would have been available to fully pay his 2009 liability. With respect to his previously rejected offer, we need only look to West v. Commissioner, T.C. Memo. 2010-250. The Tax Court found and the Court of Appeals for the First Circuit agreed that it was not an abuse of discretion for the hearing officer to refuse to reconsider the offer that was adequately considered and rejected both by the offer examiner and the Appeals officer. It follows, then, that the settlement officer in this case did not abuse her discretion in again refusing to consider that same 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 15 offer. Mr. West makes much of the IRS's failure to account to him how often it has accepted offers in compromise based on effective tax administration. He notes that the IRS requires that a prerequisite to such an offer is that the taxpayer must be able to pay the liability in full. Indeed, an offer based on doubt as to liability or doubt as to collectability should be made under the established procedures for those criteria. Effective tax administration must be predicated on something else. Examples might include where someone can afford to pay the tax liability but the money is otherwise needed to pay medical expenses. See sec. 301.7122-1(c)(3)(i) (A), Proced. & Admin. Regs. Whether Mr. West is entitled to relief based on effective tax administration turns on his own facts. At its core, Mr. West's claim for effective tax administration turns on the idea that he should be able to offset certain gains against certain losses in a situation where the law, as written, does not allow it. An offer in compromise based on effective tax administration is not a means by which to circumvent the law. Mr. West has also alleged that he was 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 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 experiencing financial hardship and that collection of the 1999 liability would cause him to lose his home. The IRS may not proceed with a levy if it would cause financial hardship. See Vinatieri v. Commissioner, 133 T.C. 392 (2009). However, Mr. West was given multiple opportunities to provide financial information or documents to the settlement officer that would allow her to verify his claim of hardship, but he did not do so. It is not an abuse of discretion for the settlement officer to deny a collection alternative if the taxpayer did not provide financial information during the administrative hearing. See Olsen v. United States, 414 F.3d 144 (1st Cir. 2005); Shebby v. Commissioner, T.C. Memo. 2011-125; Lance v. Commissioner, T.C. Memo 2009-129. 17 Conclusion 18 19 20 21 22 23 24 25 It was not an abuse of discretion for the settlement officer to sustain the lien and proposed levy when Mr. West did not propose a collection alternative and did not provide any documents to verify his claim of financial hardship. Further, it was not an abuse of discretion to refuse to review the previously rejected offer for the 1999 liability. We conclude that there are no genuine disputes of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 material fact and respondent is entitled to summary 17 judgment as a matter of law, thus we will grant respondent's motion. An appropriate order will be forthcoming. (Whereupon, at 9:48 a.m., the above- entitled matter was concluded..). 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