Opinion ID: 2975680
Heading Depth: 3
Heading Rank: 1

Heading: The Living Care Utica Proceedings

Text: Living Care Utica has initiated four district court actions challenging tax liens and levies for unpaid employment taxes and unemployment tax liabilities.1 The first two district court cases were consolidated by this Court. Case No. 04-3194 (Living Care Utica I) involved annual payments for tax year 1999 and quarterly payments in 1999 and 2001. Case No. 04-3554 (Living Care Utica II) involved annual payments for tax years 1995, 1998, and 2000, and quarterly taxes for various quarters in 1995, 1996, 1999, 2000 and 2001. That consolidated appeal culminated in this Court’s decision in Living Care Alternatives of Utica v. United States, 411 F.3d 621 (6th Cir. 2005). The later two district court appeals, Case No. 06-3163 (Living Care Utica III) and Case No. 06-3166 (Living Care Utica IV), were consolidated by both the district court and this Court. Living Care Utica III involves quarterly employment taxes for fourth quarter 2001 and first quarter 2002 and annual unemployment taxes for 2001. Living Care Utica IV involves quarterly employment taxes for the second quarter of 2002. On July 31, 2002, the IRS, in Living Care Utica III, sent Living Care Utica a final notice of intent to levy with respect to certain taxes, with a notice of federal tax lien filing for these liabilities subsequently sent on August 15, 2002. The IRS on September 25, 2002, sent Living Care Utica a final notice of intent to levy with respect to the remaining taxes at issue in that case, with a notice of federal tax lien filing for these liabilities subsequently sent on October 4, 2002. 1 There was a fifth Living Care Utica district court case, but that action was voluntarily dismissed upon recognition that it challenged an IRS notice duplicating that issued in Sixth Circuit Case No. 06-3163. -3- On April 17, 2003, the IRS, in Living Care Utica IV, sent Living Care Utica a notice of federal tax lien with respect to the taxes at issue in that case. Pursuant to 26 U.S.C. § 6320, each of the various IRS notices advised Living Care Utica of its right to a collection due process (“CDP”) hearing with respect to the proposed levy and/or federal tax lien filings identified in the notices. Living Care Utica timely submitted forms requesting CDP hearings in both Living Care Utica III and Living Care Utica IV. In submitting those forms, Living Care Utica also identified by attachment the grounds upon which it was seeking further review. In Living Care Utica III, the Appeals Officer conducted the CDP hearing on March 13, 2003, via telephone, after which on June 18, 2003, he issued a Summary and Recommendation addressing the various challenges raised by Living Care Utica and concluding that the levy and federal tax lien filings should be sustained. (Utica J.A. 280-85). His Summary and Recommendation was attached to the July 9, 2003, Notice of Determination sent by the IRS to Living Care Utica. (J.A. 279). More particularly, Living Care Utica protested that its failure to pay payroll taxes was the result of decreased funding from government sources with no corresponding decrease in operating expenses. The Appeals Officer concluded that this calculated business decision to pay other debts instead of turning over withheld taxes was neither justification nor reasonable cause. Living Care Utica pointed to prior dealings with the IRS wherein an installment agreement was reached. However, the Officer concluded the prior dealings did not involve the tax periods at hand and were therefore not relevant to providing a basis for present relief. Living Care Utica pointed out various factors contributing to its overall negative cash flow and consequent lack of funds to cover operating expenses. The Officer -4- concluded these circumstances merely evidenced that an installment agreement was not a viable collection alternative, rather than providing a basis to grant Living Care Utica relief from the liens. Living Care Utica also complained that the existing IRS liens prevent it from refinancing its real and personal property, the funds from which could be used to pay the taxes. But the Officer concluded that none of the circumstances of 26 U.S.C. § 6323(j) were present to sustain withdrawing the liens, and that since Living Care Utica reported there were other liens senior to those of the IRS, leaving its liens in place was reasonable to ensure preserving the Service’s claim in the event of private sale. Living Care Utica also suggested that its Medicare and Medicaid payments may be exempt from levy. The Officer disagreed. Finally, the Summary and Recommendation noted that, at hearing, Living Care Utica proposed filing an offer in compromise or private sale of the business as collection alternatives. But the Officer concluded that private sale was not a viable alternative, since the business had been for sale over two years at that point with no buyers. And as to the offer in compromise, the Officer concluded this was not a realistic alternative, since the required forms had been sent to Living Care Utica with no specific follow up by either the designated submission deadline or the time thereafter within which Living Care Utica stated that a formal offer would be forthcoming. The report concluded with the Officer’s brief discussion of whether the need for efficient tax collection had been balanced with Living Care Utica’s concern that the proposed collection action be no more intrusive than necessary. He found this requirement met, since Living Care Utica had not provided proper documentation to evaluate proposed collection alternatives. -5- In Living Care Utica IV, the Appeals Officer conducted the CDP hearing on October 16, 2003, via telephone, after which she issued a report recommending that the subject federal tax lien filing be sustained. Her report and recommendation was attached to the November 24, 2003, Notice of Determination sent by the IRS to Living Care Utica. The Officer’s report concluded Living Care Utica raised no relevant challenges to the collection action and that none of the grounds for withdrawal of the lien pursuant to § 6323(j) had been shown. Although not outlined in the same detail as the Officer’s report in Living Care Utica III, the challenges raised by Living Care Utica and rejected mirror those it raised in the prior proceeding. Namely, its attachment to its CDP hearing request identified it intended to propose an offer in compromise or sale or refinance as a collection alternative; that the lien was obstructing it from procuring refinancing; that the IRS would receive no revenue due to senior lienholders; and that it was unable to meet its tax obligations due to financial problems from over-regulation and under-funding by the government. In balancing the need for efficient collection with Living Care Utica’s concern that the collection action be no more intrusive than necessary, the Appeals Officer noted that the lien was filed because Living Care Utica’s tax liability was accruing, and therefore protection of the tax liability was necessary. She noted that Living Care Utica had failed to submit sufficient documentation to establish that withdrawing the lien would facilitate a viable collection alternative nor was it compliant with current tax filing and deposit requirements to qualify to submit an offer in compromise. The Officer’s report reflects that she attempted but was unsuccessful in reaching Living Care Utica to discuss the fact that an offer in compromise was not processable. -6- Following the IRS’s issuance of Notices of Determination in Living Care Utica III and IV, Living Care Utica appealed each of these determinations to the district court for the Southern District of Ohio, challenging the IRS Appeals Office determinations. The district court consolidated the two appeals and stayed a ruling pending this Court’s decision in Living Care Alternatives of Utica. Living Care Utica did not object to this stay. This Court subsequently held in Living Care Alternatives of Utica v. United States that Living Care Utica failed to challenge its underlying tax liability at the collection due process hearing, and therefore, the standard of review was abuse of discretion; the Appeals Officer did not violate his statutory duty to balance the equities; the IRS did not have a duty to investigate existing liens on property prior to a collection due process hearing; the Appeals Officer’s Notice of Determination provided sufficient notice for an abuse of discretion standard; and the Appeals Officer did not abuse his discretion in rejecting Living Care Utica’s offer of compromise. 411 F.3d 621. Following the issuance of that decision, the Southern District of Ohio on November 14, 2005, entered its Memorandum and Order in Living Care Utica III/IV. The district court found that all nine of the claims raised by Living Care Utica in Living Care Utica III/IV were barred by collateral estoppel because they had been raised, litigated, and decided in Living Care Alternatives of Utica, with the exception of claim two regarding Living Care Utica’s purported inability to refinance due to the presence of the IRS liens. And as to the second claim, the district court found that the Appeals Officers did not abuse their discretion in rejecting Appellant’s contention, when there was nothing in the record to support a finding that removing the liens and refinancing the property would have facilitated the collection of the tax liability. -7- The Government’s motions for summary affirmance in Living Care Utica III and IV were therefore granted by the district court. Appeals 06-3163 and 06-3166 followed.