Court Opinion

ID: 9893866
Source: CourtListenerOpinion
Date Created: 2023-10-30 19:04:34.147867+00
Date Added: 2024-06-11T09:06:43.077077
License: Public Domain

United States Tax Court

                        T.C. Memo. 2023-130

                          KEVIN F. LONG,
                            Petitioner

                                   v.

           COMMISSIONER OF INTERNAL REVENUE,
                       Respondent

                              —————

Docket No. 16285-21L.                            Filed October 30, 2023.

                              —————

             P owes federal income tax liabilities for the years
     2012–18. R filed a “Notice of Federal Tax Lien” (“NFTL”)
     covering P’s 2018 liability and sent to P a “Notice of Federal
     Tax Lien Filing and Your Right to a Hearing Under IRC
     6320”. P subsequently requested a collection due process
     (“CDP”) hearing with the Internal Revenue Service
     Independent Office of Appeals (“IRS Appeals”) to review
     the NFTL filing and requested as collection alternatives an
     offer-in-compromise (“OIC”) or an installment agreement
     (“IA”).

            During the CDP hearing P submitted an OIC which
     R determined to reject on the basis that P’s reasonable
     collection potential (“RCP”) exceeded the amount of P’s
     offer. R’s rejection of P’s OIC was thereafter reviewed by
     IRS Appeals as part of P’s CDP hearing. Although IRS
     Appeals calculated P’s RCP to be less than what R’s
     personnel had previously determined, IRS Appeals and P
     were unable to agree on the extent of P’s allowable
     expenses for court-ordered payments and therefore
     disagreed on P’s RCP. IRS Appeals accordingly sustained
     R’s rejection of P’s OIC and invited P to instead propose an
     IA. IRS Appeals did not give P a deadline to propose an IA,
     and it closed the case after not receiving a response in two
     days. When P responded to IRS Appeals one week later, he

                          Served 10/30/23
                                          2

[*2]   was informed by IRS Appeals that his CDP case had been
       closed. IRS Appeals thereafter issued to P a notice of
       determination sustaining the NFTL filing. P timely filed a
       petition for review in this Court.

              Held: IRS Appeals abused its discretion by abruptly
       ending P’s CDP hearing two days after it decided to sustain
       R’s rejection of P’s OIC and requested that P propose an IA.

                                    —————

Gerard J. Levins, for petitioner.

Ian T. Rossi and Nina P. Ching, for respondent.

         MEMORANDUM FINDINGS OF FACT AND OPINION

       GUSTAFSON, Judge: This is a collection due process (“CDP”)
case brought pursuant to sections 6320(c) 1 and 6330(d), in which
petitioner, Kevin F. Long, asks this Court to review the determination
by the Internal Revenue Service (“IRS”) Independent Office of Appeals
(“IRS Appeals”) to sustain the filing of a notice of federal tax lien
(“NFTL”) with respect to his unpaid federal income tax liability for 2018.
By joint motion of the parties, this case was submitted fully stipulated
under Rule 122. The facts stated below are based on the pleadings and
the parties’ stipulations, in which they stipulated the facts of the
administrative CDP hearing and the documents generated during it to
produce its record. We are therefore able to follow “the administrative
record rule”, Murphy v. Commissioner, 469 F.3d 27, 31 (1st Cir. 2006),
aff’g 125 T.C. 301 (2005), in our review in this case. For the reasons
detailed below, we hold that IRS Appeals abused its discretion because
it did not give Mr. Long a meaningful opportunity to propose an
installment agreement (IA) to pay his outstanding liabilities, and we
will remand the case to IRS Appeals for further consideration.

        1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C., as in effect at the relevant times, regulation references are to
the Code of Federal Regulations, Title 26 (Treas. Reg.), as in effect at the relevant
times, and Rule references are to the Tax Court Rules of Practice and Procedure. Dollar
amounts are rounded.
                                     3

[*3]                         FINDINGS OF FACT

       When he timely filed his petition, Mr. Long resided in Maine.

Petitioner’s federal income tax liabilities

        For 2012 through 2018 Mr. Long has unpaid federal income tax
liabilities totaling $963,398. As of May 27, 2019, his liability for 2018—
the year at issue—was $133,357.89.

Notice of federal tax lien

      On June 20, 2019, the Commissioner filed an NFTL with the
Registry of Deeds in Cambridge, Mass., covering Mr. Long’s unpaid 2018
income tax liability. On June 27, 2019, the Commissioner sent to
Mr. Long a “Notice of Federal Tax Lien Filing and Your Right to a
Hearing under IRC 6320”. The notice advised Mr. Long of his right to
request a CDP hearing with IRS Appeals by August 5, 2019, to review
the NFTL filing and discuss collection alternatives.

       Mr. Long timely submitted Form 12153, “Request for a Collection
Due Process or Equivalent Hearing”. On the Form 12153, Mr. Long
checked boxes indicating that he was requesting as a collection
alternative an IA or an offer-in-compromise (“OIC”). Along with his CDP
hearing request, Mr. Long submitted a completed Form 656, “Offer in
Compromise”, based on doubt as to collectibility, by which he offered to
settle his total outstanding income tax liability—$963,398—for $5,494.

       As part of his OIC Mr. Long submitted Form 433–A, “Collection
Information Statement for Wage Earners and Self-Employed
Individuals”, detailing his monthly income and expenses as well as his
present assets and liabilities for the purposes of calculating his
reasonable collection potential (“RCP”). Mr. Long reported that he had
a total monthly income of $33,924, consisting of $20,100 in wages and
$13,824 of net business income. Mr. Long further reported that he had
total monthly living expenses of $33,936, including total court-ordered
payments of $22,601 per month consisting of “Child Support” of $3,818,
“Alimony” of $5,366, and a third item labeled “Court Ordered-
Separation Agreement” of $13,416. Mr. Long further reported that he
had $100 cash on hand and that he maintained a checking account with
a total balance of $5,214.

      Mr. Long’s OIC was initially reviewed by IRS Offer Examiner
Rose Ingrassia. Ms. Ingrassia reviewed Mr. Long’s financial information
                                   4

[*4] and determined that Mr. Long had monthly income of $33,869
(instead of the $33,924 that Mr. Long had reported on his Form 433–A)
and monthly expenses of $10,122 (instead of the $33,936 that Mr. Long
had reported). Ms. Ingrassia determined Mr. Long’s net monthly income
to be approximately $23,747. She also calculated Mr. Long’s available
equity in assets to be $27,397. Consequently, she rejected Mr. Long’s
proposed OIC on the ground that the amount offered was less than his
RCP, which she determined to be $2,517,225. In her computation
Ms. Ingrassia apparently disallowed all of Mr. Long’s court-ordered
expenses.

CDP hearing

       Administration of Mr. Long’s CDP hearing was assigned to
Settlement Officer Susan Bradford. Ms. Ingrassia forwarded Mr. Long’s
OIC to Ms. Bradford to conduct the CDP hearing and to consider the
collection alternatives that Mr. Long raised in his Form 12153.
Thereafter, Mr. Long sent a letter to Ms. Bradford asserting that the
offer specialist had overstated Mr. Long’s net monthly income by at least
$22,601. He also attached a copy of a marital settlement agreement
between Mr. Long and his ex-wife which imposed financial obligations
on Mr. Long. According to the settlement agreement, Mr. Long was
ordered to make alimony payments of $1,248 per week and child support
payments of $888 per week. Mr. Long’s bank statements also showed
that he was paying $4,533 in monthly tuition for his children to attend
private school.

       Ms. Bradford then separately considered Mr. Long’s OIC and on
April 29, 2021, communicated to Mr. Long an initial determination that
his RCP was $714,489 (not the $2,517,225 that Ms. Ingrassia had
previously determined). Ms. Bradford’s initial calculation allowed the
private school tuition expenses and also allowed a portion of Mr. Long’s
court-ordered alimony ($2,584) and child support obligations ($1,871).
However, Ms. Bradford indicated to Mr. Long that “[m]ore review may
be needed” to allow the foregoing expenses. She requested a response by
May 6, 2021.

      On May 6, 2021, Mr. Long provided Ms. Bradford with a
spreadsheet containing a revised calculation of his RCP. According to
the spreadsheet, Mr. Long revised his RCP to $511,929 (i.e., less than
Ms. Bradford’s $714,489, but more than Mr. Long’s original offer of
$5,494).
                                   5

[*5] On May 11, 2021, Ms. Bradford prepared and sent to Mr. Long an
“Appeals Offer in Compromise Memorandum” (“OIC Memo”). The OIC
Memo reflected that IRS Appeals had further recalculated Mr. Long’s
RCP to be $594,709 (i.e., more than Mr. Long’s $511,929 but less than
Ms. Bradford’s previous $714,489), having allowed several expenses in
its calculation, including $4,455 for combined alimony and child support
and $4,533 for private school tuition. However, the OIC Memo also
indicated that IRS Appeals preferred a partial payment installment
agreement (“PPIA”) as a collection alternative for Mr. Long and
requested additional substantiation of certain expenses.

       On May 17, 2021, Mr. Long responded to the OIC Memo with
additional information regarding his expenses and insisted that IRS
Appeals had overestimated his business income each month.
Ms. Bradford was out of the office teaching from May 10 through May
21, and then out of the office on vacation from May 24 to May 31. On
June 4, 2021, having not received a reply to his response of May 17,
2021, Mr. Long sent a follow-up letter to Ms. Bradford requesting an
update on the status of his OIC.

       Ms. Bradford promptly replied to Mr. Long on June 7, 2021, with
another OIC Memo showing, among other things, that IRS Appeals had
disallowed Mr. Long’s reported monthly expense for private school
tuition and had recalculated his RCP to be greater than previously
calculated—i.e., $1,078,114. The revised OIC Memo indicated, however,
that it was a “Draft”. In her cover letter to the revised OIC Memo
Ms. Bradford stated:

      There is still a CDP Lien case open, so we can discuss another
      collection alternative, such as an Installment Agreement.

      Let me know if you want to set up a time to discuss.

Ms. Bradford’s June 7 memo did not set a specific deadline for Mr. Long
to “let me know”.

        Two days later, on June 9, 2021, Ms. Bradford prepared an
“Appeals Offer in Compromise Rejection Memorandum”. The following
day, on June 10, 2021, Ms. Bradford noted in her case activity record
that there had been “[n]o contact from [Mr. Long] regarding setting up
an IA based on the OIC rejection being sustained” and that she was
“[c]losing case accordingly”.
                                    6

[*6] On June 15, 2021 (i.e., one week after receiving Ms. Bradford’s
“let me know” and her revised OIC Memo showing the disallowed
private school tuition expense and an accordingly higher RCP), Mr. Long
responded to Ms. Bradford, urging that calculation of his RCP should
include the full amount of court-ordered alimony and child support that
he initially reported. That same day, however, Ms. Bradford replied
“[t]he offer case has already been closed as a rejection” and that “[t]he
CDP case has been written up to issue a Notice of Determination.”

Notice of determination

       On that same day—June 15, 2021—IRS Appeals issued its
“Notice of Determination Concerning Collection Actions under IRC
Sections 6320 or 6330 of the Internal Revenue Code”, sustaining the
NFTL. Specifically, the notice of determination stated in part that IRS
Appeals was rejecting Mr. Long’s OIC and could not consider an IA as a
collection alternative because there had been no response from Mr. Long
as of June 10, 2021. The notice of determination, mailed June 28, 2021,
advised Mr. Long of his right to challenge the determination by filing a
petition in the United States Tax Court.

Tax Court proceedings

       On July 28, 2021, Mr. Long timely filed his petition with this
Court seeking our review of IRS Appeals’ determination to deny him
collection alternatives and sustain the NFTL. The parties filed
stipulations of fact and supporting exhibits, and they filed a Joint
Motion for Leave to Submit Case Under Tax Court Rule 122, which we
granted on July 5, 2022. They then filed briefs, in which the
Commissioner contended we should sustain IRS Appeals’
determination, and Mr. Long contended that we should remand the case
for further consideration by IRS Appeals.

                                 OPINION

I.    General legal principles

      A.     Collection due process procedures

       When a taxpayer fails to pay any federal income tax liability
within 10 days after notice and demand, section 6321 imposes a lien in
favor of the United States on all the property of the delinquent taxpayer,
and section 6323(f) authorizes the IRS to file notice of that lien.
However, no later than five business days after filing an NFTL, the IRS
                                    7

[*7] must provide written notice of that filing to the taxpayer. § 6320(a).
After receiving such notice, the taxpayer may request an administrative
CDP hearing before IRS Appeals. § 6320(b)(1). At the CDP hearing, IRS
Appeals must determine whether the collection action may proceed. In
making that determination, the Appeals officer must consider several
things specified in section 6330(c) (and made applicable to lien cases by
section 6320(c)):

       First, IRS Appeals must verify that the requirements of any
applicable law and administrative procedure have been met by IRS
personnel. § 6330(c)(3)(A). The attachment to the notice of
determination sets forth Ms. Bradford’s compliance with these
requirements, and Mr. Long makes no challenge as to the verification
requirement in his Petition. Consequently, no verification issues under
section 6330(c)(1) are at issue, and we need not discuss this requirement
further.

       Second, IRS Appeals must consider any issues raised by the
taxpayer, including proposed collection alternatives. § 6330(c)(2)(A).
This case focuses on this second requirement, which we will discuss
below.

       Third, IRS Appeals 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.” § 6330(c)(3)(C). Mr. Long did not
raise intrusiveness in his request for a CDP hearing, in his Petition, or
in his briefing to this Court; therefore, no issues as to “balancing” under
section 6330(c)(3)(C) are at issue, and we do not discuss this requirement
further.

      Once IRS Appeals issues its determination, the taxpayer “may,
within 30 days of a determination . . . , petition the Tax Court for review
of such determination (and the Tax Court shall have jurisdiction with
respect to such matter).” § 6330(d)(1).

      B.     Tax Court Review

        Where, as here, a taxpayer does not challenge his underlying tax
liability, we review determinations of IRS Appeals for abuse of
discretion. See Goza v. Commissioner, 114 T.C. 176, 181–82 (2000).
Applying that abuse-of-discretion standard, we decide whether IRS
Appeals’ determination to sustain the NFTL was arbitrary, capricious,
or without sound basis in fact or law. See Murphy v. Commissioner, 125
                                    8

[*8] T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006). We do not
substitute our judgment for that of IRS Appeals but consider “whether,
in the course of making its determination, the Appeals Office complied
with the legal requirements of an administrative hearing.” Charnas v.
Commissioner, T.C. Memo. 2015-153, at *7.

II.   Analysis

      As we noted above in Part I.A, IRS Appeals is required to consider
at a CDP hearing any “relevant issue” raised by the taxpayer, including
“the appropriateness of collection actions” and “offers of collection
alternatives”. § 6330(c)(2)(A), (3)(B). For the reasons we now explain, we
hold that IRS Appeals failed to adequately address the collection
alternatives that Mr. Long raised in the CDP hearing and therefore
abused its discretion by prematurely closing his CDP hearing and
issuing its notice of determination.

      A.     Conduct of the CDP hearing

       Mr. Long contends that IRS Appeals abused its discretion because
it ended his CDP hearing without providing him a meaningful
opportunity to propose an IA. The relevant regulations do not provide a
period within which a CDP hearing must be concluded, but they do
instruct the IRS to complete the hearing “as expeditiously as possible
under the circumstances.” Treas. Reg. § 301.6320-1(e)(3), Q&A E-9.
Nevertheless, “[t]he reasonableness of the appeals officer’s decision to
terminate a CDP hearing must be determined in light of the entire
context of the proceeding.” Murphy v. Commissioner, 469 F.3d at 32.
Because CDP hearings are designed to be a forum for considering the
taxpayer’s legitimate disagreement with collection actions, IRS Appeals
must give “proper and fair consideration to [the] issues that [the
taxpayer] raised.” Hamilton v. Commissioner, T.C. Memo. 2022-21,
at *7.

       The context of this case reflects that IRS Appeals’ remarkably
hasty termination of the CDP hearing was arbitrary and unreasonable
and therefore constitutes an abuse of discretion. As the record reflects,
Mr. Long requested two collection alternatives in his Form 12153: an
OIC (which he formally submitted on Form 656) and an IA. However,
the correspondence in the CDP hearing between Mr. Long and IRS
Appeals focused almost exclusively on Mr. Long’s OIC and the
computation of his RCP, and under the facts and circumstances of this
case, IRS Appeals and Mr. Long followed a clear pattern of responding
                                           9

[*9] between five and seven days after receiving communications from
each other.

       However, IRS Appeals’ communication of its “Draft” revised OIC
Memo dated June 7, 2021, did not include a specific deadline within
which Mr. Long should respond but rather made the casual and non-
urgent request to “Let me know if you want to set up a time to discuss.”
We think that Mr. Long and his representative had no reason to suppose
that an unmentioned 2-day deadline existed. Furthermore, IRS Appeals’
June 7 communication represented a significant crossroads in the CDP
hearing for Mr. Long, because he needed to make a strategic decision
either to continue pursuing his OIC or to instead propose an IA.
Mr. Long’s decision to continue discussing his OIC and RCP was not
unreasonable in its context, because IRS Appeals’ “Draft” revised OIC
Memo disallowed a large monthly expense (private school tuition for his
children) which had previously been allowed and further refused to
allow the full amount of his court-ordered expenses for child support and
alimony, which can be allowable expenses according to Internal Revenue
Manual (“IRM”) 5.8.5.22.4 (Sept. 24, 2021). 2 Mr. Long therefore had
plausible arguments—even if not winning arguments—that his RCP
was less than what IRS Appeals had determined it to be, and that
accordingly he might still qualify for an OIC. Had Mr. Long instead
chosen to propose an IA, he would have signaled to IRS Appeals that he
was giving up on his pursuit of an OIC (a decision that he was
apparently not ready to make).

       However, despite IRS Appeals’ not communicating to Mr. Long
any final (non-“Draft”) rejection of the possibility of an OIC nor any
deadline within which to propose an IA, he was given only two days to
make this significant decision. Under the facts and circumstances of this
case, two days was not an adequate amount of time for Mr. Long to make
this significant decision. He himself works as an employee in addition to
running his own business, and he was communicating with IRS Appeals
through an attorney with whom Mr. Long would have needed to consult
before responding to IRS Appeals’ revised OIC Memo. Furthermore, IRS
Appeals’ revised OIC Memo stated that it was a “Draft”, thereby
indicating that its determinations were not final and were potentially

        2 “We note that it ‘is a well-settled principle that the Internal Revenue Manual

does not have the force of law, is not binding on the IRS, and confers no rights on
taxpayers.’” Thompson v. Commissioner, 140 T.C. 173, 190 n.16 (2013) (quoting
McGaughy v. Commissioner, T.C. Memo. 2010-183, slip op. at 17). We cite its provisions
to inform our analysis of whether IRS Appeals abused its discretion in following the
relevant provisions of the IRM in making its determination.
                                   10

[*10] subject to further revision. In the absence of a stated deadline,
Mr. Long’s taking one week to consult with his attorney about how to
proceed and whether to continue discussing his RCP with IRS Appeals
for the purposes of qualifying for an OIC or to instead abandon the OIC
as a collection alternative and propose an IA was not unreasonable given
the history of both his and IRS Appeals’ taking approximately one week
to respond to communications. Accordingly, under the facts and
circumstances of this case, it was unreasonable for IRS Appeals to close
Mr. Long’s CDP hearing after not hearing back from him for two days
after sending its revised OIC Memo and inviting him to discuss an IA.

       The present situation is materially different from that in Shanley
v. Commissioner, T.C. Memo. 2009-17. In that case we held that IRS
Appeals did not abuse its discretion when it denied a taxpayer’s request
for more time to submit requested financial information. IRS Appeals
had set a 14-day deadline for the taxpayer to submit required
information, but the taxpayer failed to meet that due date, and IRS
Appeals issued its notice of determination sustaining collection. The
IRS’s responsibility to collect taxes is a critically important government
function; and where a taxpayer exercises his statutory right to interrupt
that collection and receive the benefits of administrative review of it,
IRS Appeals must be able to set reasonable deadlines. We do not even
hold today that there are no circumstances in which an announced two-
day deadline could be a proper exercise of IRS Appeals’ discretion. In
this case, however, Mr. Long had demonstrated commitment to
cooperating with IRS Appeals, and on multiple occasions he had
promptly responded to IRS Appeals’ communications with requested
information within the time that Appeals had given. The parties had
clearly established a pattern of responding between five and seven days
after receiving communications from each other, and Mr. Long had
never failed to meet any deadline set by IRS Appeals for providing
financial information and substantiation. IRS Appeals’ last
communication before closing the CDP process set no deadline for
response, stated that “we can still discuss another collection
alternative”, and invited Mr. Long to “[l]et me know if you want to set
up a time to discuss”. Mr. Long responded in seven days, but
unbeknownst to him, IRS Appeals had closed his case five days earlier.
In the context of Mr. Long’s prompt and responsive communication, we
conclude that IRS Appeals’ abrupt closure of the case was an abuse of
its discretion.
                                        11

[*11] B.       The Commissioner’s arguments

       The Commissioner counters that Mr. Long did not “propose an
installment agreement during the CDP hearing”. He highlights that
Mr. Long’s communications with IRS Appeals about collection
alternatives during the CDP hearing focused solely on his proposed OIC
and that Mr. Long never submitted a written proposal for an IA. The
record reflects, however, that Mr. Long did indeed indicate in his Form
12153 that he was interested in either an IA or an OIC. Moreover, it
might not be efficient for a taxpayer to pursue both an OIC and an IA
simultaneously, since an OIC proposes to settle a taxpayer’s entire
outstanding liability for less than the full amount whereas an IA
generally pays the entire liability 3 over time. Sometimes it may make
sense for a taxpayer to make a specific proposal for an IA only after the
parties have been unable to agree about an OIC. It is possible that a
taxpayer might make cynical use of this seriatim approach simply to
stretch out the CDP process (but the record here shows no indication of
such an abuse), and IRS Appeals could explicitly foreclose this
approach—but it did not do so here.

       The Commissioner cites Pough v. Commissioner, 135 T.C. 344
(2010), for the proposition that “[t]he petitioner is expected to meet
reasonable deadlines set by Appeals to submit requested information,
and it is not an abuse of discretion to issue the determination if the
petitioner fails to submit the requested items within the reasonable
timeframe given by Appeals.” We agree with this proposition, but it does
not apply to this case for two reasons. First, no “timeframe” was in fact
“given by Appeals” for Mr. Long to propose an IA. Second, the two-day
window that IRS Appeals gave Mr. Long was not “reasonable”,
considering his need to evaluate, with his representative, IRS Appeals’
responses to his criticisms of its calculation of his RCP. As we have
shown, IRS Appeals did not provide Mr. Long a meaningful opportunity
to propose IA terms, as IRS Appeals decided to close the case just two
days after providing Mr. Long a revised OIC Memo stating that it would
no longer consider an OIC as a collection alternative.

III.   Conclusion

      IRS Appeals abused its discretion by closing Mr. Long’s CDP
hearing without providing him a meaningful opportunity to propose an

        3 A PPIA, unlike the more common IA, does involve an agreement to pay, over

time, an amount less than the entire liability, i.e., a “partial payment”.
                                   12

[*12] IA. The facts and circumstances of this case show that both Mr.
Long and IRS Appeals routinely took about one week to respond to
substantive communications from the other party. Furthermore, IRS
Appeals’ revised OIC Memo to Mr. Long indicated that it was a draft.
Mr. Long was therefore not unreasonable in assuming that he would
have another week to respond. IRS Appeals’ decision to close Mr. Long’s
CDP hearing and issue a notice of determination after receiving no
response in two days was an arbitrary action with no sound basis in law
or fact. Therefore, IRS Appeals abused its discretion by issuing a notice
of determination without adequately addressing all collection
alternatives that Mr. Long raised in his CDP hearing.

      To reflect the foregoing,

      An order will be issued remanding the case to IRS Appeals for
further consideration.