TAX COURT OPINION

Case: Anthony M. Rachal, III & Beverly G. Lewis-Rachal
Docket Number: 17016-11L
Judge: Gustafson
Opinion Type: bench
Filed: 03/20/2013
Pages: 14

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 ANTHONY M. RACHAL, III & BEVERLY G. LEWIS-RACHAL, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) Docket No. 17016-11 L. ) ) ) ) OR D E R Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it IS 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 Washington, D.C., on March 5, 2013, 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, an order directing remand will be issued. (Signed) David Gustafson Judge Dated: Washington, D.C. March 20, 2013 SERVEDMar202013 Capital Reporting Company 3 1 Bench Opinion by Judge David Gustafson 2 March 5, 2013 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Anthony M. Rachal, III & Beverly G. Lewis-Rachal Docket No. 17016-11L THE COURT: The Court has decided to render in this case the following as its oral Findings of Fact and Opinion, which shall not be relied on as precedent in any other case. This Bench Opinion is 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 petitioners Anthony M. Rachal III and Beverly G. Lewis-Rachal ("the Rachals") 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 proposed levy and a notice of Federal tax lien to collect petitioners' unpaid income tax, penalties, and interest for the years 2007 and 2009. 21 Trial was held March 4 and 5, 2013. Mr. Rachal 22 23 24 25 represented petitioners, and William Gregg and Logan Kincheloe representéd respondent. We find no abuse of discretion in Appeals' determination as to the year 2009, but as to the year 2007 we will remand the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 4 5 6 7 8 9 case to IRS Appeals in order to permit Appeals to obtain verification of an April 2010 assessment and to permit the Rachals to make a challenge to their underlying liability. FINDINGS OF FACT Mr. Rachal is an attorney, and Ms. Lewis-Rachal is an employee of IBM. At the time they filed their petition in this case, they resided in Washington, D.C. 10 Petitioners' returns and payments 11 12 For the year 2007, the Rachals filed their Federal income tax return in October 2008, reporting 13 more than $56,000 in tax liability. The IRS 14 15 16 17 18 19 20 21 22 23 24 25 corrected a math error on the return and assessed tax in the lower amount of $55,941. The Rachals had prepaid some of that liability by withholding, and they paid another portion of it at the time they requested an extension of the filing deadline; but they did not fully pay the tax at the time they filed their return, and in fact a check for $13,547 that they submitted with their return bounced, leaving their liability underpaid. Penalties and interest consequently accrued on their account. But they made a series of payments thereafter, and by February 2010 their 2007 income tax account had a zero balance due. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 However, in April 2010 the IRS assessed additional tax for 2007 against the Rachals in the amount of $2,933 (Ex. 21-P), and this liability went unpaid. This additional assessment may have been made as a correction of a mathematical error (see sec. 6213(b) (1)) and may have occurred because of income that was reported late to the IRS by a payor on a Form 1099 and that the IRS concluded the Rachals did not report on their return. However, our record is unclear on this point, and respondent admits he cannot document the correction. .For the year 2008 (not directly at issue here), the Rachals did not show at trial that they filed their Federal income tax return at any time relevant to this 'suit. For the year 2009, the Rachals filed their Federal income tax return in October 2010, reporting 18 more than $21,000 in tax liability. The Rachals had 19 20 21 22 23 24 25 prepaid some of that liability by withholding, and they sent a check for a portion of the liability at the time they requested an extension of the filing deadline, but that check bounced. They sent another check with the return when they filed it in October 2010, but that check also bounced, leaving most of their 2009 liability underpaid. Penalties and 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 interest consequently accrued on their account, and the bulk of the Rachals' 2009 liability went unpaid. IRS collection notices and CDP request By February 2011 the IRS computed the Rachals' balance due on their 2007 account as $3,328 and their balance due on their 2009 account as $16,388. (Ex. 4-J). The IRS therefore sent the Rachals a notice of proposed levy (Ex. 4-J) and a notice of the filing of a tax lien (Ex. 6-J, 7-J). The Rachals then filed 10 with the IRS a Form 12153, "Request for a Collection 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Due Process or Equivalent Hearing" (Ex. 9-J). On that form the Rachals checked boxes indicating an interest in both an installment agreement (for 2009) and an offer in compromise (for 2007), and stated, "The total tax and interest was paid for 2007 with last payment per installment." CDP hearing In response to the Rachals' CDP hearing request, the Settlement Officer ("S.O.") from IRS Appeals sent the Rachals a letter dated May 5, 2011 (Ex. 11-J), that scheduled the CDP hearing for June 9, 2011, as a telephone hearing and that stated, inter alia: "For me to consider alternative collection methods such as an installment agreement or offer in compromise, you must provide any items 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company listed below. In addition, you must have filed all federal tax returns required to be filed. (cid:16)042 A completed Collection Information Statement (Form 433-A for individuals and/or Form 433-B for businesses.) (cid:16)042 Signed tax return(s) for the following tax periods. Our records indicate they have not been filed: Type of Tax: 1040 Period or Periods: 2008 and 2010 Please send me the items requested above within 14 days from the date of this letter. I cannot consider collection alternatives at your conference without this information. I am enclosing the applicable forms and a return envelope for your convenience." The Rachals did not provide the requested returns for 2008 and 2010 nor the Form 433-A "Collection Information Statement". When the telephone hearing took place on June 9, 2011, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Mr. Rachal repeated that the Rachals had fully paid 22 23 24 25 their liability for the year 2007. The S.O. agreed that he had at one point but said that there had been a subsequent tax assessment (i.e., the April 2010 assessment) that the Rachals had not responded to. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 Mr. Rachal replied that he had received forms he did 2 3 not understand. The S.O. evidently did not explain further the 2007 liability nor entertain further the 4 Rachals' challenge to that liability. (Ex. 13-J.) 5 6 7 8 9 10 11 12 13 14 15 16 17 18 On June 20, 2011, IRS Appeals issued its "Notice of Determination" (Ex. 1-J) sustaining the lien and levy notices. On July 20, 2011, the Rachals filed their petition in this Court. Post-CDP hearing events After receiving IRS Appeals' notice of determination and filing their petition, the Rachals had further communication with IRS collection personnel. The Rachals learned an amount that they could pay for 2009 that they believed would cover the tax liability but would leave the penalties and interest unpaid, and they wrote a check to the IRS for that amount in February 2012 (Ex. 16-J). At the same time, they submitted an application for 19 withdrawal of the lien (Ex. 15-J), on which they 20 21 22 23 24 25 stated, "See Offer in Compromise in Settlement of Appeal 2009"; but there is no evidence, testimonial or documentary, to suggest that the Rachals actually submitted a Form 656 "Offer in Compromise" at any time. IRS collection personnel did not enter into any agreement with the Rachals. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 During the course of this litigation, the Rachals proposed to respondent's counsel that they reach a compromise, but they believe that their proposal received no serious attention. This case was called from this Court's trial calendar on March 4, 2013, and was tried March 4 and 5. OPINION I. Collection Due Process principles If 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; and section 6331(a) authorizes the IRS to collect the tax by levy on the taxpayer's property. However, the IRS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 must first provide written notice of a tax lien 18 19 20 21 22 23 24 25 filing to the taxpayer within five business days, 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. 6320(a), 6330 (a) and (b) (1). After receiving such a notice, the taxpayer may request an administrative hearing before IRS Appeals. Sec. 6320 (a) (3) (B), (b) (1). At the CDP hearing, the appeals officer must 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 make a determination whether the proposed collection action may proceed. The appeals officer is required to take into consideration several things: First, the appeals officer must obtain verification that the requirements of any applicable law and administrative procedure have been met by IRS personnel (see sec. 6330 (c) (3) (A)). The Rachals raise no verification issue as to 2009, but as to 2007 they raise it implicitly in connection with the 10 April 2010 assessment. Second, the appeals officer 11 must consider any collection alternatives proposed by 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the taxpayer (see sec. 6330 (c) (3) (B), citing sec. 6330 (c) (2)). The Rachals contend that the IRS erred in this regard. 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 Rachals have not distinctly raised. In addition, pursuant to section 6330 (c) (2) (B) a taxpayer may challenge the underlying tax liability in a CDP hearing, but only if he "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 such tax liability." The Rachals attempted no challenge to the 2009 liability, either at the CDP hearing nor in this Court, but they do challenge the liability asserted for 2007. There is no evidence that the IRS ever issued or the Rachals ever received a statutory notice of deficiency for 2007 or 2009, and respondent admits that the Rachals were entitled to challenge their 2007 liability. II. Burden of proof and standard and scope of review As petitioners, the Rachals bear the burden of proof in this litigation. See Rule 142(a) (1). The Rachals make no contention that the burden has shifted for any reason, and we see no basis in the record for such a contention. In considering Appeals' denial of a collection alternative (such as an Offer in Compromise), the Court reviews the administrative determination for an abuse of discretion. See Sego v. Commissioner, 114 T.C. 604, 610 (2000). III. Collection alternatives The Rachals contend that IRS Appeals abused its discretion by failing to accept their proposals of collection alternatives (i.e., an Offer in Compromise for 2007 and an Installment Agreement for 2009). However, it is not an abuse of discretion for Appeals 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 12 to decline to accept a collection alternative when the taxpayer fails to provide financial information to support the alternative, see, e.g., Huntress v. Commissioner, T.C. Memo. 2009-161, nor when the taxpayer fails to be in compliance with his return- filing obligations, see Giamelli v. Commissioner, 129 T.C. 107, 111 (2007). Therefore, since the Rachals failed to submit either a Form 433 "Collection Information Statement" or their 2008 return, IRS Appeals did not abuse its discretion by declining to consider and agree to either of these collection alternatives. At trial Mr. Rachal sought to prove that the IRS was unreasonable in declining to agree to collection alternatives that he proposed to IRS collection personnel and to respondent's counsel in February 2012--i.e., eight months after IRS Appeals issued its notice of determination in June 2011. However, in this suit we have jurisdiction to review only the determination of IRS Appeals, see sec. 6330 (d) (1), and we do not review actions or non-actions of other IRS personnel. IV. Challenge to underlying liability Section 6330 (c) (2) (B) provides that a taxpayer may challenge the underlying tax liability in a CDP 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 8 9 10 11 12 13 14 15 16 17 18 19 20 21 hearing only if he "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." Respondent admits that the Rachals did not have such a prior opportunity and that they were therefore entitled to dispute their 2007 liability, as they attempted to do. We discern that attempt in ·their contention that they had fully paid their 2007 liability--an understandable contention since in February 2010 they had been told (correctly) that their account was fully paid. On these facts, the IRS's form letter of May 5, 2011 (Ex. 11-J), and the telephone conversation of June 9, 2011 (see Ex. 13-J), did not give the Rachals a genuine opportunity to make their challenge. We will therefore remand the case for a supplemental hearing as to 2007 only, during which they can make that liability challenge. V. Instructions for 2007 remand At the supplemental hearing, IRS Appeals should obtain verification, pursuant to section 6330(c) (1), that all requirements of law and procedure have been 22 met as to the April 2010 assessment. If a statutory 23 24 notice of deficiency was issued pursuant to section 6212, then that fact should be verified. If a 25 mathematical correction was made pursuant to section 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 6213(b) (1), then that fact should be verified, and in particular it should be demonstrated that the occasion for the assessment was a mathematical or clerical error (see sec. 6213(g) (2)) and that notice was given as required by section 6213(b) (1). The IRS should provide to the Rachals, at least 2 weeks before the supplemental hearing, whatever information the agency has to explain the April 2010 assessment of additional tax for 2007. IRS Appeals should then consider any challenge the Rachals make as to that liability. The Rachals should prepare to present documentation to show their actual 2007 liability as reported on their return (or as corrected). If the Rachals intend to propose at the supplemental hearing any collection alternative for 2007, then they should work promptly to (a) assure their eligibility (by demonstrating that they are current in their filing and payment obligations), (b) make specific proposals 20 on the prescribed IRS forms (i.e., Form 656 for an 21 Offer in Compromise, and Form 9465 for an Installment 22 23 24 25 Agreement), and (c) provide financial information on Form 433-A. CONCLUSION IRS Appeals did not abuse its discretion when it 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 declined collection alternatives for 2007 and 2009. However, it erred in failing to provide an adequate opportunity for petitioners to challenge their underlying liability for 2007. We will therefore order that the case be remanded to IRS Appeals as to the year 2007 only. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 4:44 p.m. the above- entitled matter was concluded.) 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