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

Heading: Merits Review

Text: The CDP hearing procedure requires that the Appeals Officer verify the IRS has satisfied (1) all legal and procedural requirements to proceed with a levy/lien, (2) consider any defenses and collection alternatives offered, and (3) determine whether the “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.” 26 U.S.C. § 6330(c)(3) (the “balancing test”). Living Care Utica and Living Care Kirkersville both argue that the Appeals Officers abused their discretion in upholding the collection actions against them. As analyzed hereinabove, Living Care Utica is collaterally estopped from presenting all its claims except the claim concerning its ability to refinance. Collateral estoppel does not apply to Living Care Kirkersville’s claims, which include the same ability to refinance argument. On appeal to this Court, Living Care Kirkersville also protests that the Appeals Officer, in affirming the tax lien, abused his discretion in conducting the balancing test. It maintains that the Officer failed to give appropriate weight to the fact that there were other, senior liens to the IRS lien that exceeded receivables, meaning that the IRS would take nothing, and that -23- imposing the lien would essentially close the business, with no resulting funds for the IRS. Living Care Kirkersville further argued on appeal that viable collection alternatives, including sale of the business, refinancing, or an offer in compromise, do exist and were proposed yet not appropriately considered. Finally, it submits that the collection due process hearing system is inherently flawed because there is no recording required, which results in a lack of an adequate administrative record below for effective appellate review. Living Care Kirkersville’s last argument – regarding the informal nature of the proceedings and the lack of a sufficient administrative record – relates to the first factor of the CDP Appeals Officer’s duties to ensure all legal and procedural requirements are met.3 This same argument was also posed by Living Care Utica in cases Living Care Utica I/II and rejected by this Court in Living Care Alternatives of Utica. Appellant’s reliance upon Mesa Oil, Inc. v. United States, 86 A.F.T.R.2d 7312 (D. Colo. 2000) is misplaced, given the distinctions in the notice of determination in that case compared with those in these appeals. The notice in Mesa Oil contained no factual details, legal analysis, or discussion of the balancing test. Id. at 7315-16. As this Court previously noted, “Mesa Oil’s remand is an exception to the general practice of reviewing courts showing deference to the Appeals Officers’ conclusions regarding the balancing analysis.” Living Care Alternatives of Utica, 411 F.3d at 627-28. While the lack of a formal administrative record could make abuse of discretion review problematic, given the historically broad discretion in tax collection proceedings, appropriate due process is afforded unless the reviewing court is 3 Arguably also included as part of this first factor is Living Care Kirkersville’s argument on appeal that courts have rendered meaningless Congress’s intent in enacting the Tax Reform Act; that is, to curb the excesses of the IRS. This policy argument is more appropriately left for Congress to consider, not us. See footnote 2. -24- “convinced that the type of taxpayer abuse that Congress sought to remedy has occurred in the case.” Id. at 629. As in Living Care Alternatives of Utica, the Notices of Determination here fall short of the exceptional circumstances presented in Mesa Oil and “provide a sufficient basis for an abuse of discretion review, as that standard is applied in tax levy and lien appeals.” Id. The second and third factors addressed by the Appeals Officer can be reviewed together, given that the assessment and viability of proposed collection alternatives dovetails into consideration of whether the collection action is no more intrusive than necessary. Living Care Kirkersville argues that the Appeals Officer abused his discretion because he did not include the existence of senior lienholders in the balancing analysis and failed to consider that the net effect of the lien would be to shut down the business without generating any tax revenue for the Service. The Government counters that the district court properly concluded that the Appeals Officers did not abuse their discretion because the IRS is not required to consider whether it will receive revenue from the collection or whether the collection will negatively impact the taxpayer’s business. As this Court has noted, there is little about this requirement in Sixth Circuit case law and, in most cases, a reviewing court affirms the Appeals Officer’s determination that the balancing test was correctly applied. Living Care Alternatives of Utica, 411 F.3d at 627. Current case law supports the Government’s argument that the IRS is not required to include in its balancing analysis whether it “will receive any revenue from a levy or sale, or whether the business will have to close down due to the levy and sale.” Living Care Alternatives of Utica, 411 F.3d at 628; Medlock v. United States, 325 F. Supp. 2d 1064, -25- 1079 (C.D. Cal. 2003) (holding that the appeals officer was not required to consider the impact of a levy on the taxpayer’s customers). Appellants also complain that the Appeals Officers abused their discretion by preventing them from refinancing so as to pay the taxes, not allowing them to conduct a private sale to maximize proceeds, or refusing to accept an offer in compromise. The Appeals Officers reviewed each of these contentions, and it cannot be said that their rejection of each as a collection alternative was irrational or unreasonable. Each proposed alternative was presented by Appellants in general terms only, lacking the requisite specificity to permit the Appeals Officers to give informed consideration. Offers in compromise require specific, detailed submissions, which was not done by Appellants. Withdrawing liens as a prerequisite to refinancing was only presented by Appellants as being required by their particular bank, with no details about the rate and return to the IRS if the refinancing were provided. Nor did Appellants address whether refinancing was actually available, given that other liens would still be in place. Any expected increased revenue and return to the IRS from permitting a private sale were also not provided. As the Appeals Office noted, if the tax liens were to be withdrawn, given the particular circumstances of these taxpayers, the IRS would be placed in a precarious situation with respect to competing creditors and collection of any of the unpaid taxes. The aforementioned consideration, deliberation, and conclusions by the Appeals Officers do not evidence the “abuse of discretion in the sense of clear taxpayer abuse and unfairness by the IRS.” Living Care Alternatives of Utica, 411 F.3d at 631. That Appellants disagree with the results from the exercise of the Appeals Officers’ discretion does not correlate with that discretion thereby being abused. To second-guess the considerations -26- and rationale articulated by the Officers necessitates delving into the details of tax enforcement that reviewing courts should not do, as explained by this Court in Living Care Alternatives of Utica.