Court Opinion

ID: 7804938
Source: CourtListenerOpinion
Date Created: 2022-08-30 19:03:34.076331+00
Date Added: 2024-06-11T16:29:55.475506
License: Public Domain

United States Tax Court

                               T.C. Memo. 2022-89

        GEORGE ANTON REMISOVSKY AND ELLEN JONES-
                      REMISOVSKY,
                        Petitioners

                                           v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                     —————

Docket No. 11945-20L.                                       Filed August 30, 2022.

                                     —————

George Anton Remisovsky and Ellen Jones-Remisovsky, pro sese.

Brian S. Jones and David D. Lee, for respondent.

         MEMORANDUM FINDINGS OF FACT AND OPINION

       LAUBER, Judge: In this collection due process (CDP) case peti-
tioners seek review pursuant to sections 6320(c) and 6330(d)(1) of deter-
minations by the Internal Revenue Service (IRS or respondent) to up-
hold collection actions. 1 Petitioners dispute respondent’s determination
of additions to tax for 2013, contending that their failures timely to file
an income tax return and pay tax were “due to reasonable cause and not
due to willful neglect.” § 6651(a)(1) and (2). Finding that petitioners
have not carried their burden of proving their entitlement to this de-
fense, we will enter judgment for respondent sustaining the collection
actions.

        1 Unless otherwise indicated, all statutory references are to the Internal Reve-

nue Code, Title 26 U.S.C., in effect at all relevant times, and all regulation references
are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant
times. We round all monetary amounts to the nearest dollar.

                                 Served 08/30/22
                                          2

[*2]                          FINDINGS OF FACT

      The following facts are derived from the parties’ pleadings, the
administrative record of the CDP proceeding, and the other documents
and testimony admitted into evidence at trial. Petitioners resided in
New Jersey when they timely petitioned this Court.

       During 2013 petitioner husband was a medical doctor and peti-
tioner wife was a retail manager. They did not file a timely Federal
income tax return for 2013. On the basis of third-party reporting the
IRS prepared a substitute for return as authorized by section 6020(b).

       On May 25, 2016, petitioners filed a delinquent return for 2013,
reporting wages of $234,912. Most of these wages were earned by peti-
tioner husband for performing services as a physician. The return
showed a tax liability of $57,197 and a balance due of $19,690, but peti-
tioners enclosed no payment with the return. On February 20, 2017, the
IRS assessed the tax shown as due on the return, plus additions to tax
of $4,413 and $3,432 under section 6651(a)(1) and (2), respectively.

        On February 25, 2019, in an effort to collect petitioners’ unpaid
liability for 2013, the IRS sent them Letter 1058, Final Notice of Intent
to Levy and Your Right to a Hearing (levy notice). Two weeks later the
IRS sent them Letter 3172, Notice of Federal Tax Lien Filing and Your
Right to a Hearing (lien notice), also for 2013. On March 22, 2019, peti-
tioners timely requested a CDP hearing for 2013, disputing the levy and
lien notices, challenging their liability for additions to tax, and express-
ing interest in a collection alternative. 2

        The case was assigned to a settlement officer (SO) in the IRS Of-
fice of Appeals (Appeals). 3 The SO verified that petitioners’ 2013 tax
liability, including the additions to tax, had been properly assessed and

       2  On their Form 12153, Request for a Collection Due Process or Equivalent
Hearing, petitioners also challenged IRS collection action for 2012, 2016, and 2017.
But they supplied no evidence that the IRS had taken collection action against them
for 2017, and their hearing request with respect to 2012 and 2016 was untimely. They
were afforded an “equivalent hearing” for 2012 and 2016; the outcome of an equivalent
hearing is not subject to judicial review. See Weiss v. Commissioner, 147 T.C. 179, 188
(2016), aff’d per curiam, No. 16-1407, 2018 WL 2759389 (D.C. Cir. May 22, 2018); Craig
v. Commissioner, 119 T.C. 252, 258–59 (2002); Treas. Reg. § 301.6330-1(i)(2), Q&A-16.
        3 On July 1, 2019, the IRS Office of Appeals was renamed the IRS Independent

Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981,
983 (2019).
                                    3

[*3] that all other requirements of law and administrative procedure
had been met. The SO convened a telephone conference during which
petitioners requested abatement of the 2013 additions to tax. The SO
explained that they did not qualify for “first time abatement” under an
IRS administrative policy. That was because additions to tax had like-
wise been determined against them for 2011 and had not been reversed.
See Internal Revenue Manual (IRM) 20.1.1.3.3.2.1 (Nov. 21, 2017).

      Petitioner husband then alleged alcoholism and depression as
supplying “reasonable cause” for petitioners’ failures to satisfy their
2013 tax obligations. He stated that he had been hospitalized for alco-
holism in 1990, that he suffered “a relapse of [his] alcoholism in 2012,”
and that he was able to continue practicing medicine because he was “a
binge drinker while active.” He submitted a letter dated July 23, 2019,
from a psychiatrist who was then treating him for depression. The letter
stated that petitioner husband “also has a history of being alcoholic,
although he has had periods of sobriety,” and that “his cognitive capacity
to comply with his financial obligations and to pay his taxes in timely
fashion were severely diminished.”

       The SO determined that petitioners were ineligible for penalty
abatement for reasonable cause because they did not meet the condi-
tions set forth in the IRM. See IRM 20.1.1.3.2.2.1 (Nov. 25, 2011). The
SO offered them an installment agreement calling for payments of $654
per month, with the additions to tax being included in the liability on
which the payments were calculated. Petitioners declined to accept that
agreement. Because they declined her offer of an installment agreement
and sought no other collection alternative, the SO decided to close the
case. On September 2, 2020, after a hiatus related to the COVID-19
pandemic, Appeals issued petitioners a notice of determination sustain-
ing the levy and lien notices for 2013.

       Petitioners timely petitioned this Court. The Petition contends
that the SO erred in declining to abate the 2013 additions to tax and
that she “arbitrarily refused to grant an installment agreement.” We
tried the case remotely on June 13, 2022.

                               OPINION

A.    Standard of Review

      Neither section 6320(c) nor section 6330(d)(1) prescribes the
standard of review that this Court should apply in reviewing an IRS
administrative determination in a CDP case. The general parameters
                                     4

[*4] for such review are marked out by our precedents. Where the va-
lidity of a taxpayer’s underlying liability is properly at issue, we review
the IRS determination de novo. Sego v. Commissioner, 114 T.C. 604,
610 (2000); Goza v. Commissioner, 114 T.C. 176, 181–82 (2000). Where
the taxpayer’s underlying liability is not in dispute, we review the IRS
decision for abuse of discretion only. Jones v. Commissioner, 338 F.3d
463, 466 (5th Cir. 2003); Goza, 114 T.C. at 182. Abuse of discretion ex-
ists when a determination is arbitrary, capricious, or without sound ba-
sis in fact or law. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005),
aff’d, 469 F.3d 27 (1st Cir. 2006).

        “A taxpayer’s underlying tax liability includes penalties and ad-
ditions to tax that are part of the unpaid tax that the Commissioner
seeks to collect.” Dykstra v. Commissioner, T.C. Memo. 2017-156, 114
T.C.M. (CCH) 183, 187. Nothing in the record indicates that petitioners
had a prior opportunity to dispute their underlying liability for the 2013
additions to tax. See Montgomery v. Commissioner, 122 T.C. 1, 9 (2004).
They timely raised this issue before the SO, and respondent agrees that
it is properly before us. We thus review de novo petitioners’ challenge
to this portion of their 2013 liability. See Love v. Commissioner, T.C.
Memo. 2019-92, 118 T.C.M. (CCH) 94, 96.

B.    Underlying Liability

       Petitioners contend that they had “reasonable cause” for failing
timely to file their 2013 return and pay their 2013 tax. A delay in filing
is due to reasonable cause if the taxpayer “exercised ordinary business
care and prudence and was nevertheless unable to file the return within
the prescribed time.” Treas. Reg. § 301.6651-1(c)(1). To prove reasona-
ble cause for failure to pay timely, the taxpayer must show that he “ex-
ercised ordinary business care and prudence in providing for payment
of his tax liability and nevertheless was either unable to pay the tax or
would suffer undue hardship if he paid the tax on the due date.” Hardin
v. Commissioner, T.C. Memo. 2012-162, 103 T.C.M. (CCH) 1861, 1863
(citing Treas. Reg. § 301.6651-1(c)(1)). Financial hardship “generally
does not affect a person’s ability to file.” IRM 20.1.1.3.3.3(1)(a) (Aug. 5,
2014). Petitioners bear the burden of proving “reasonable cause.” See
Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

      Petitioners do not allege that financial hardship prevented them
from discharging their 2013 tax obligations timely. At trial they con-
tended that petitioner husband suffered from alcoholism and depression
and that these conditions are recognized as “diseases” by medical
                                    5

[*5] authorities. Accepting the latter proposition as true, petitioners
were required to prove that petitioner husband suffered from these dis-
eases at the relevant times and that his condition was so severe as to
preclude timely filing and payment. Petitioners submitted no credible
evidence on either point.

        “Where a taxpayer’s disability is raised as part of a reasonable
cause defense, we have looked to the severity of the disability and the
impact it had on the taxpayer’s life . . . .” Jones v. Commissioner, T.C.
Memo. 2006-176, 92 T.C.M. (CCH) 168, 170. “For illness or incapacity
to constitute reasonable cause, [the taxpayer] must show that she was
incapacitated to such a degree that she could not file her returns.”
Thomas v. Commissioner, T.C. Memo. 2005-258, 90 T.C.M. (CCH) 477,
478. Illness or incapacity “generally does not prevent the taxpayer from
filing returns where the taxpayer is able to continue his business affairs
despite the illness or incapacity.” Hazel v. Commissioner, T.C. Memo.
2008-134, 95 T.C.M. (CCH) 1528, 1530; see also Watts v. Commissioner,
T.C. Memo. 1999-416, 78 T.C.M. (CCH) 1207, 1208 (“[A] taxpayer’s se-
lective inability to perform his or her tax obligations, while performing
their regular business, does not excuse failure to file.”).

         Petitioner husband offered generalized testimony that he had
struggled with depression and alcoholism. But at trial he supplied no
testimony that he suffered from these conditions at the relevant times—
i.e., in early 2014, when the 2013 return should have been prepared and
filed, or in May 2016, when the delinquent return was submitted with
no payment enclosed. See Hazel, 95 T.C.M. (CCH) at 1530 (noting that
the taxpayer must submit “evidence of his incapacity during the period
when th[e] return should have been filed”). The doctor’s letter that he
submitted to the SO does not help him over this hurdle. That letter,
dated July 2019, indicated that petitioner husband had suffered from
alcoholism at unspecified times but also had “periods of sobriety.”

       Assuming arguendo that petitioner husband was ill at the rele-
vant times, he offered no evidence whatever concerning the severity of
his conditions. This is not a case where the taxpayer’s mental incapacity
was evidenced by confinement in hospitals for severe mental illness. Cf.
Carnahan v. Commissioner, T.C. Memo. 1994-163, 67 T.C.M. (CCH)
2689, 2691, aff’d, 70 F.3d 637 (D.C. Cir. 1995). Nor is it a case where
the taxpayer was admitted to a drug and alcohol treatment center at the
time his tax return was due. Cf. Harbour v. Commissioner, T.C. Memo.
1991-532, 62 T.C.M. (CCH) 1083, 1084–85.
                                     6

[*6] There is no evidence that petitioner husband after 1990 was hos-
pitalized for his illness or that his illness in any sense incapacitated him
during 2013–2014. He simply failed to establish “that he was so ill he
was unable to file.” Joseph v. Commissioner, T.C. Memo. 2003-19, 85
T.C.M. (CCH) 786, 789–90. Quite the contrary; he practiced medicine
throughout 2013 and received substantial wages from that work. We
have regularly rejected “reasonable cause” defenses based on alcohol-
ism, depression, and other illnesses where the taxpayer continued to
perform his or her regular business duties at the relevant times. See
Hazel, 95 T.C.M (CCH) at 1530; Thomas, 90 T.C.M. (CCH) at 478; Jo-
seph, 85 T.C.M. (CCH) at 790; Watts, 78 T.C.M. (CCH) at 1208; Gardner
v. Commissioner, T.C. Memo. 1982-542, 44 T.C.M. (CCH) 1168, 1172.

       Assuming arguendo that petitioner husband was too ill to file, pe-
titioners presented no evidence that petitioner wife (who did not testify
at trial) was unable to discharge this obligation. Petitioner wife was
employed in 2013 as a retail manager and had an independent filing
obligation. Each taxpayer has a nondelegable duty to file. See United
States v. Boyle, 469 U.S. 241, 252 (1985). The incapacity of one’s spouse
does not constitute a per se excuse for failure to file a return. See Fam-
brough v. Commissioner, T.C. Memo. 1990-104, 58 T.C.M. (CCH) 1541,
1542 (holding that tending to spouse’s illness did not give taxpayer rea-
sonable cause for failure to file when “he was able to continue perform-
ing his daily business operations”). Indeed, petitioners at the relevant
times appear to have had an established relationship with an account-
ant, who prepared their 2012 return and hand-delivered it to the IRS in
mid-November 2013. Petitioners did not explain why one of them could
not have telephoned the accountant to set the wheels in motion for the
preparation and filing of a 2013 return.

C.    Abuse of Discretion

       In deciding whether the SO abused her discretion in sustaining
the collection action, we consider whether she: (1) properly verified that
the requirements of applicable law and administrative procedure have
been met, (2) considered any relevant issues petitioners raised, and
(3) considered “whether any proposed collection action balances the need
for the efficient collection of taxes with the legitimate concern of [peti-
tioners] that any collection action be no more intrusive than necessary.”
§§ 6320(c), 6330(c)(3). Our review of the record establishes that the SO
properly discharged all of her statutory responsibilities.
                                    7

[*7] Petitioners expressed interest in an installment agreement. After
reviewing their financial information, the SO determined that they
qualified for an installment agreement with a $654 monthly payment.
In calculating this monthly payment, the SO correctly determined that
the 2013 additions to tax, not qualifying for abatement, should be in-
cluded in petitioners’ balance due. Petitioners refused to accept that
offer and made no concrete counterproposal. An SO is not obligated to
pursue a collection alternative where no such proposal is made.
McLaine v. Commissioner, 138 T.C. 228, 243 (2012); Nimmo v. Commis-
sioner, T.C. Memo. 2020-72, 119 T.C.M. (CCH) 1504, 1506.

       Petitioners do not challenge the SO’s determination that they did
not meet the standards for withdrawal of the tax lien. See § 6323(j).
Because they sought no other collection alternative, the SO did not
abuse her discretion in closing the case and sustaining the collection ac-
tions.

      To implement the foregoing,

      An appropriate decision will be entered.