TAX COURT OPINION

Case: Allied Adjustment Services Inc.
Docket Number: 12037-13L
Judge: Marvel
Opinion Type: bench
Filed: 04/28/2014
Pages: 19

CMS UNITED STATES TAX COURT WASHINGTON, DC 20217 ALLIED ADJUSTMENT SERVICES INC., Petitioner(s), v. ) ) ) ) Docket No. 12037-13 L COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ORD ER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of the proceedings in the above case before Judge L. Paige Marvel at Atlanta, Georgia, on March 27, 2014, containing the Court's oral findings of fact and opinion rendered at the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, an order directing remand will be issued. (Signed) L. Paige Marvel Judge Dated: Washington, D.C. April 28, 2014 SERVED Apr 29 2014 Capital Reporting Company 3 1 Bench Opinion by Judge L. Paige Marvel 2 March 27, 2014 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ALLIED ADJUSTMENT SERVICES INC. v. COMMISSIONER, Docket No. 12037-13L THE COURT: THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE, AND THE FOLLOWING REPRESÉNTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BEIRELIED UPON 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 of 1986 as amended and Rule 152 of the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, subsequent section references made in this bench opinion are to the Internal Revenue Code of 1986 ·as amended and in effect for the relevant periods. Christine Stone, an officer, appeared on behalf of petitioner Allied Adjustment Services, Inc. Brianna Taylor appeared on behalf of respondent. Pursuant to sections 6320(c) and 6330(d)(1), petitioner seeks review of respondent's determination to proceed with the collection by lien t or levy of unpaid Federal employment tax liabilities 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 for the quarters ended December 31, 2011, and June 30, 2012. The issue; for decision is whether the Appeals Office abused its discretion in upholding the collection actions. FINDINGS OF FACT Some of the facts have been stipulated. ,The stipulations of fact and facts drawn from stipulated documents are incorporated herein by this ,reference. When it petitioned this Court, 10 petitioner's principal place of business was located 11 12 13 14 15 16 17 18 'in Marietta, Georgia. Petitioner is an S corporation that was organized in approximately 2000 to repossess property for customers. It is owned and operated by Christine Stone, the company's ;president. During the early years of petitioner's existence, Ms. Stone spent most of her time in the field working on repossessions for customers. 19 Petitioner's tax filings and Federal tax payments and 20 21 22 23 deposits were supposed to be handled by petitioner's then bookkeeper. Unfortunately, the bookkeeper failed to prepare and file timely returns, including quarterly Forms 941, Employer's Quarterly Federal Tax 24 Return, and to make r|equired tax payments and 25 deposits. At some point, Ms. Stone learned of those 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 filing and payment problems and began to take steps to address them by filing delinquent returns and 3 making tax deposits as petitioner's financial 4 5 6 7 8 9 10 11 situation permitted. Petitioner's financial situation, however, had deteriorated during the third quarter of 2004 due to its loss of a very substantial client that accounted for a significant amount of petitioner's cashflow. In March 2011, Ms. Stone obtained the services of Deborah McGinn-Tytler, doing business as Business Master Consulting, to help petitioner deal 12 with its tax problems. Ms. McGinn-Tytler researched 13 14 15 16 17 petitioner's tax filings, payments and deposits, and discovered that certain payments made by petitioner for earlier quarters than the ones at issue in this case had not been properly credited by the IRS. Both Ms. Stone and Ms. McGinn-Tytler have worked 18 diligently to resolve petitioner's filing and payment 19 20 21 22 23 24 25 problems but have beeh frustrated by the lack of centralization with respect to petitioner's unpaid tax liabilities and by what they perceive to be the general unwillingness' of IRS personnel to listen to their concerns about the misapplication of deposits and the levies issued to petitioner's customers. Because of petitioner's failure to make 1 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 timely deposits for a number of quarters that precede the quarters at issue here, the IRS began to levy on petitioner's customers and to file liens. As a result of the collection activity, petitioner lost 5 most of its customers and its financial condition 6 7 8 9 10 11 12 13 14 15 16 17 steadily 'worsened. In February 2013, petitioner ceased operations as,a repossession business. However, it still owns a partial interest in some real estate that is encumbered by a mortgage and is rented. The rent payments are used to make the required mortgage payment. On March 19, 2012, petitioner filed its delinquent Form 941 for the quarter ending December 31, 2011. The Form 941 reported a tax liability of $5,283.31, but petitSoner had only made one Federal tax deposit of $1,194.16 with respect to the reported tax liability at the .time the Form 941 was filed. On 18 April 23, 2012, respondent assessed the tax plus 19 20 21 22 23 24 25 interest and various additions to tax. As of March 4, 2014, the approximate balance due for this period was $6,439.40. On June 4, .2012, respondent filed a notice of Federal tax lien (NFTL) with respect to the unpaid employment tax liabil'ity for the quarter ended December 31, 2011. On June 5, 2012, respondent sent 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 to petitioner a Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC 6320. On June 6, 2012, petitioner filed a timely Form 12153, Request for a Collection Due Process or Equivalent Hearing (June 6 hearing request) with respect to the NFTL in 6 which petitioner asked for a lien discharge and for 7 8 9 an installment agreement. In a letter dated June 6, 2012, which is attached to the June 6 hearing request, petitioner stated that the IRS' collection 10 activity over several years had caused it to lose 11 customers and has resulted in severe financial 12 difficulties. 13 14 15 16 17 18 19 20 21 22 23 On July 31, 2012, petitioner filed Form 941 for the quarter ended June 30, 2012. The Form 941 reported a tax liability of $3,062.96, but petitioner had only made Federal tax deposits of $865.62, $819.23, and $533 as of the filing date. On September 24, 2012, despondent assessed the tax plus interest and various additions to tax. As of March 4, 2014, the approximate balance due was $1,068.98. On October 23, 2012, respondent filed a NFTL with respect to the unpaid employment tax liability for the quarter ended June 30, 2012. On 24 October 25, 2012, respondent sent petitioner a Notice 25 of Federal Tax Lien Filing and Your Right to a i 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 Hearing under IRC 6320 with respect to the liability. 2 3 4 5 6 7 8 On or about October 29, 2012, petitioner timely filed a Form 12153 (October 29 hearing request). Although petitioner checked the levy box on the request form, the request appears to relate to the NFTL described above that was issued with respect to the quarter ended,June 30, 2012, and not to a notice of intent to levy. In the hearing request, 9 petitioner asked thai the lien be withdrawn and that 10 11 12 13 14 15 16 17 18 respondent enter intö an installment agreement with respect to the unpaid liability. Petitioner also stated that the continued collection actions had created severe finandial problems and, in a letter dated October 29, 2012, addressed to Revenue Officer N. Saunders who appatently processed the hearing request, petitioner equested hardship relief. On January 29, 2013, the IRS Appeals Office located at 401 West Peachtree Street, NW, Atlanta, 19 Georgia, sent petitioner letters with respect to its 20 21 22 23 24 25 requests for a hearing concerning the NFTLs and the proposed levy. On March 5, 2013, Settlement Officer T.W. Duvall sent peti)tioner a letter on letterhead bearing the same Atlahta address advising petitioner that its hearing requests had been assigned to him. In that letter, Mr. Duvall asked petitioner to 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 provide several documents including a completed Form 433-B, Collection Information Statement for Businesses, petitioner's most recent Form 1120, and other financial information so that he could consider collection alternatives. On March 18, 2013, petitioner sent by certified mail to the IRS Appeals Office at 401 West Peachtree Street, NW, Atlanta, Georgia, a package of documents consisting of (1) a copy of a letter sent on October 29, 2012, to N. Saunders, the revenue officer who was appa ently involved in ongoing collection activity with respect to petitioner despite the pendency of the section 6320/6330 proceedings, which bore a reference to petitioner's CDP hearing request with respect to the NFTL dated 16 October 25, 2012; (2); a copy of the Form 12153 that t 17 18 19 20 21 petitioner had submitted for the quarter ended June 30, 2012; (3) copies of the NFTL, the notice of right to a hearing, and related correspondence; (4) copies of various expense inpoices and bank statements; (5) a copy of an information document request (IDR) dated 22 March 11, 2013, from N. Saunders and a copy of 23 24 25 petitioner's response to the IDR, which stated among other things, that petitioner is an S corporation that had lost its line of credit in October 2008, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 that the IRS has liens on the only real property owned by petitioner, that petitioner has no equity in the real property and no accounts receivable, and that petitioner has no customers or employees; (6) Form 1120S, U.S. Income Tax Return for an S 6 Corporation, for 2011; (7) a completed Form 433-B on 7 behalf of petitioner,; signed by Ms. Stone and dated 8 March 13, 2013; and (8) an amortization schedule with 9 respect to the "Holly Springs Property". 10 Although the Appeals Office received the 11 March 18, 2013, packkge on March 19, 2013, the 12 13 14 15 16 17 18 19 20 21 22 23 24 package was never delivered to Mr. Duvall and he did not consider it before he made his recommendation to sustain the collectio'n actions. As Mr. Duvall explained at trial, he did not consider petitioner's financial situation nor did he consider whether to put petitioner's account in currently not collectible status because he never received the information he had requested from petitioner to evaluate collection alternatives. Mr. Duvall did send a follow-up letter dated April 11, 2013,iin which he stated that he did not receive the inforhation he had requested and gave petitioner 14 days to provide the information. By letter dated April 16, 2013, petitioner advised Mr. 25 Duvall that it had been forced to cease business 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 operations on February 13, 2013, due to financial 2 difficulties caused by the continuing IRS problems 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 and the resulting loss of its customers. Petitioner stated in that lette that it no longer had any employees and that it had no funds available to meet its obligations. Petitioner apologized for not calling on the date Mr. Duvall had scheduled for a telephone conference and requested forbearance due to its lack of resources. By notice öf determination dated May 8, 2013, the Appeals Office sustained the NFTLs and the proposed levy. The dotice states that although financial information was requested, the requested information was not received and consequently, no collection alternatives or hardship relief were considered. Petitioner timely petitioned this Court for a review of the Appeals Office's determination. On 19 March 24, 2014, we held a trial in this case at which 20 21 22 23 24 25 Ms. Stone testified on behalf of petitioner. I. Sections 6320 and 6330 DISCUSSION Section 6321 imposes a lien on all property and property rights of a taxpayer liable for taxes where a demand for the payment of the taxes has been 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 made and the taxpayer fails to pay. The IRS is authorized to file an NFTL with respect to taxpayers who have outstanding tax liabilities and fail to pay after notice and demand. Sec. 6323. Section 6320(a) requires the Secretary to send written notice to the taxpayer of the filing of an NFTL and of the taxpayer's right to an administrative hearing on the 8 matter. The conduct and scope of section 6320 9 hearings are governed by section 6330(c), (d) (other 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 than paragraph (2)(B)), (e), and (g). Sec. 6320(c). Section 6331(a) provides that if any person liable to pay any tax refused to pay the tax within 10 days after notice and demand, the Commissioner may collect the tax by levying upon the person's property or rights to property. Section 6330(a)(1), however, provides that the Commissioner may not levy unless he has first informed the taxpayer in writing of his right to a hearing. If the taxpayer timely requests a hearing, the hearing shall be held before an impartial officer or employee of the Internal Revenue Service (IRS) Appeals Office. Sec. 6330(b)(1) and (3). At the sec¢ion 6320/6330 hearing, the taxpayer may raise any relevant issue, including appropriate spousal defenses, challenges to the 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 22 23 appropriateness of collection action, and collection alternatives. Sec. 6330(c)(2)(A). The taxpayer may also dispute the existence or amount of the underlying tax liability, but only if the taxpayer did not receive a notice of deficiency or did not have a prior opportunity to dispute the liability. Sec. 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609 (2000). A taxpayer who presents a relevant, nonfrivolous reason for objecting to a proposed levy ordinarily will be offered a face-to-face hearing at the Appeals Office closest to the taxpayer's residence. Sec. 301.6330-1(d)(2), Q&A-D7, Proced. & Admin. Regs. Following he section 6330 hearing, the Appeals Office must determine whether the proposed levy may proceed. In making the determination, the Appeals Office must consider three elements: First, the Appeals Office mdst verify that the Commissioner followed all applicable laws and administrative procedures. Sec. 6330(c)(1), (3) (A). Second, the Appeals Office must consider all relevant issues raised by the taxpayer at the hearing. Sec. 6330(c)(2) and (3) (B). Third, the Appeals Office 24 must consider whether the proposed collection action 25 balances the need for efficient collection of taxes I 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 1 with the legitimate concern of the taxpayer that any 14 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 collection action bei no more intrusive than necessary. Sec. 6330(c)(3)(C). Pursuant to sections 6320(c) and 6330(d)(1), we have jurisdiction to review the Appeals Office's determination. See Murphy v. Commissioner, 125 T.C. 301, 308 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006). Where the validity of the underlying tax liability is properly at issue, we review the determination regarding the underlying tax liability de novo. Sego v. Commissioner, 114 T.C. at 610. Where the validity of the underlying tax liability is not properly at issue, we review the Appeals Office's determination for abuse of discretion. Id. In|reviewing for abuse of discretion, we must uphold the Appeals Office's determination unless it is arbitrary, capr1clous, or 18 without sound basis in fact or law. See, e.g., 19 Murphy v. Commissioner, 125 T.C. at 320. However, we 20 21 are not limited to the administrative record in reviewing the Appeals Office's determinations. See 22 Robinette v. Commissioner, 123 T.C. 85, 101 (2004), 23 24 25 rev'd, 439 F.3d 455 (8th Cir. 2006). Additionally, we can uphold the Appeals Office's determination only on grounds actually relied upon by the Appeals 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 15 1 2 3 4 5 officer in the notice of determination. See SEC v. Chenery Corp., 318 U.S. 80, 93-95 (1943); Jones v. Commissioner, T.C. Memo. 2012-274, at *22-*23. Petitioner did not, and does not, dispute the underlying liabilities in this case. 6 Accordingly, we review the Appeals Office's 7 8 9 determination for abuse of discretion. The parties stipulated that this case is appealable to the Court of Appeals for the Eleventh 10 Circuit, which has not yet adopted the record rule in 11 section 6320 and 6330 cases. See Commissioner v. 12 Neal, 557 F.3d 1262, 1275-1276 (11th Cir. 2009), 13 aff'g T.C. Memo. 2005-201. Moreover, even in 14 15 16 17 18 19 20 21 22 23 24 25 circuits that have adopted the record rule in section 6320 and 6330 cases, the rule is clear that, "where a record created in informal proceedings does not adequately disclose the basis for the agency's decision, then it may be appropriate for the reviewing court to deceive evidence concerning what happened during the agency proceedings." Robinette v. Commissioner, 439 F.3d at 461 (citing Citizens to Pres. Overton Park v. Volpe, 401 U.S. 402, 420 (1971)). We conclude that even if the record rule were to apply, the package petitioner mailed to the Appeals Office on March 18, 2013, should have been a ! 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 16 1 2 3 4 5 part of the administrative record in this case and we may consider it in reaching our conclusion regarding respondent's determination with respect to the collection action at issue here. The record shows that, on March 18, 2013, 6 petitioner sent to respondent's Appeals Office the 7 8 9 10 11 12 financial information that Settlement Officer Duvall requested. Through no fault of petitioner or Settlement Officer Duvall, Settlement Officer Duvall did not receive the information petitioner sent. It is possible that the information was forwarded to Revenue Officer Saunders instead of Settlement 13 Officer Duvall, but whatever happened, it is beyond 14 15 16 17 18 dispute that Settlement Officer Duvall never considered the financial information in the first instance. Because petitioner is no longer operating as a repossession business and has no customers, it is essential that the Appeals Office analyze 19 petitioner's ability to pay and its request for 20 21 22 23 hardship relief. Although petitioner is no longer repossessing property, it does own an interest in real estate according to Ms. Stone and it is collecting rent and making mortgage payments. 24 Petitioner's ability to pay is therefore dependent at 25 least in part on the rental activity and its 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 17 1 2 3 4 5 ownership of the real estate must be analyzed to determine if the property or the net income from the property is a source of payment. If the property generates no net income for petitioner and there is no realistic possibility that a sale of the property 6 would generate substantial funds to satisfy 7 8 9 10 11 12 petitioner's unpaid employment tax liabilities, then it would appear that the Appeals Office should give serious consideration to placing petitioner's account in currently not collectible status. Because Settlement Officer Duvall never received the package of financial information that petitioner sent in 13 March 2013, no financial analysis was conducted by 14 the Appeals Office. We believe that this problem 15 must be rectified to complete the section 6320/6330 16 17 18 19 20 21 22 23 24 25 hearing record. We have held that, under Chenery, 318 U.S. at 93-95, we cannot uphold a notice of determination I on grounds other than those actually relied upon by the Appeals Office. See Jones v. Commissioner, at *22-*23. We may remand a case to the Appeals Office when the taxpayer did not have a proper or complete hearing and the new hearing is necessary or will be productive even if the hearing officer did not abuse his or her discretion. See Lunsford v. Commissioner, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 18 1 2 3 4 5 6 7 8 9 117 T.C. 183, 189 (2001). Accordingly, we shall issue an order remanding this case to respondent's Appeals Office so that the Appeals Office can consider petitioner's financial information in the first instance. Anyi analysis of petitioner's financial situation and its ability to pay should be based on current financial information and should include information regarding the fair market value of the property, the current balance owed on the 10 mortgage, the rental income generated by the 11 property, and rental expenses so that the Appeals 12 Office can properly determine petitioner's reasonable 13 14 15 16 17 18 collection potential. Petitioner is cautioned that it must take reasonable and timely steps to provide the Appeals Office with relevant information so that the Appeals Office may complete the hearing process on remand. Finally, this Court reserved ruling on 19 Exhibits 26-P through 43-P, and 46-R. Exhibits 26-P 20 21 22 23 24 25 through 33-P and 35-P through 40-P consist of copies of Forms 941, checks used to make Federal tax deposits and related documents for various quarters ended in 2009, 2010, 2011, and 2012. Although the liabilities owed by petitioner for many of these quarters are not at lissue in this case, the unpaid 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 tax liabilities for other taxable periods, and any payment arrangements with respect thereto, are arguably relevant in determining what if anything petitioner can pay toward the tax liabilities at issue here. In addition, respondent introduced into evidence without objection from petitioner IRS account transcripts for all quarters ending March 31, 2004 through December 31, 2013. Because Exhibits 26- P through 33-P and 35-P through 40-P relate to the information contained in Exhibit 47-R, which purports to quantify the Federal employment tax liabilities owed by petitioner, we shall admit these exhibits into evidence. We shall also overrule respondent's relevance objections and admit Exhibits 34-P, 41-P, and 43-P as these exhibits demonstrate petitioner's ongoing efforts to resolve its tax filing and payment problems. We sustain respondent's relevance objection to Exhibit 42-P, which is not admitted. 19 Finally, we overrule a relevance objection by 20 21 22 23 24 25 petitioner to Exhibit 46-R, which is an IRS account transcript for the taxable period ended December 31, 2012, that purports to show that petitioner has not filed its Form 940 for 2012. This exhibit appears to conflict with Settlement Officer Duvall's conclusion, contained in his case activity report which is a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 20 1 2 3 4 stipulated exhibit, that petitioner was current on its return filings and with Ms. Stone's testimony that petitioner had filed its returns. Upon remand, petitioner and the Appeals Office should clarify 5 whether petitioner häs filed its Form 940 for 2012. We have considered the parties' remaining arguments and, to the extent not discussed above, conclude that those arguments are irrelevant, moot, or without merit. To reflect the foregoing, an appropriate order will be issued. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION. (Whereupon, at 10:17 a.m., the bench opinion was concluded.) 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