Court Opinion

ID: 9899502
Source: CourtListenerOpinion
Date Created: 2023-11-16 20:02:46.047487+00
Date Added: 2024-06-11T09:20:30.750796
License: Public Domain

United States Tax Court

                               T.C. Memo. 2023-138

                            GEORGE E. KOSMIDES,
                                 Petitioner

                                           v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                     —————

Docket No. 15941-17L.                                    Filed November 16, 2023.

                                     —————

Stephen P. Kauffman and Terry L. Goddard, Jr., for petitioner.

David A. Indek, for respondent.

                          MEMORANDUM OPINION

       PUGH, Judge: In this collection case petitioner seeks review
pursuant to sections 6320(c) 1 and 6330(d)(1) of determinations by the
Internal Revenue Service (IRS) to uphold a Notice of Intent to Levy (levy
notice) and the filing of a Notice of Federal Tax Lien (lien notice). The
issue for decision is whether the IRS Office of Appeals abused its
discretion in sustaining these collection actions. 2 We conclude that it did
not.

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

Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the
Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and
Rule references are to the Tax Court Rules of Practice and Procedure. We round all
monetary amounts to the nearest dollar.
        2 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). We will use the name in effect at the times relevant to this case, i.e., the
Office of Appeals or Appeals.

                                 Served 11/16/23
                                         2

[*2]                               Background

       This case was submitted fully stipulated under Rule 122. The
stipulated facts are incorporated by this reference. Petitioner resided in
Maryland when he timely filed his Petition.

       Petitioner did not collect, account for, and pay over employment
taxes reportable on Form 941, Employer’s Quarterly Federal Tax
Return, for the second quarter of 2009 through the fourth quarter of
2012. 3 The IRS assessed civil penalties against him under section 6672
(commonly called trust fund recovery penalties).

       To collect these outstanding liabilities from petitioner, in early
2016 the IRS issued first the levy notice, which covered the second
quarter of 2009 through the third quarter of 2011, and then the lien
notice, which covered the second quarter of 2009 through the fourth
quarter of 2012.

       Petitioner timely submitted Form 12153, Request for a Collection
Due Process or Equivalent Hearing, for each notice. In both hearing
requests, petitioner indicated that he wanted a collection alternative,
checking the boxes for “Installment Agreement,” “Offer in Compromise,”
and “I Cannot Pay Balance.”

       Appeals Officer Wade (AO Wade) was assigned petitioner’s
administrative hearing requests. Petitioner provided numerous
documents to AO Wade, including Form 433–A, Collection Information
Statement for Wage Earners and Self-Employed Individuals. He offered
to enter into an installment agreement under which he would pay $400
per month but would not liquidate any portion of his retirement account.
This offered amount would not pay petitioner’s liability by the collection
period expiration date (CPED) and therefore was considered a partial
payment installment agreement (PPIA).

       AO Wade did not accept petitioner’s offered PPIA. She noted an
inability to separate his business and personal expenses. On the basis
of her review of the documents petitioner provided, she determined that
petitioner could make monthly payments of $3,375, and offered him an
installment agreement for that amount; this agreement would have
satisfied his outstanding tax liability within 72 months. AO Wade
determined that he was not eligible for an offer-in-compromise because

       3 Section 6672(a) imposes the requirement to “collect, truthfully account for,

and pay over any tax imposed by this title.”
                                    3

[*3] he could pay the liability in full by the CPED (and he never
submitted a Form 656, Offer in Compromise). Petitioner rejected AO
Wade’s proposed installment agreement.

       After AO Wade issued a notice of determination (original notice)
sustaining both collection actions, petitioner timely petitioned this
Court for review. The case then was remanded to Appeals for further
consideration of documents that petitioner provided after the original
notice.

      Appeals Officer Teti (AO Teti) was assigned both the levy notice
and the lien notice on remand. Petitioner gave AO Teti updated
documents, including an updated Form 433–A. These documents
showed that he had monthly income of $12,482 and a retirement account
balance of $117,839.

       During an in-person conference with AO Teti, petitioner asked
whether he was eligible for an offer-in-compromise and offered to enter
into a PPIA of $450 per month. In calculating this PPIA amount, he
estimated monthly expenses of (1) $994 for vehicle ownership expenses
for two vehicles (his monthly loan payments for the vehicles were $611
and $381, respectively); (2) $1,586 for health insurance expenses, which
included $1,077 in premiums for a secondary health insurance plan;
(3) $1,380 for home equity line of credit payments, which were in
addition to the standard monthly housing expense for two people in his
locale ($1,982); and (4) $950 for credit card payments. His offer did not
include a downpayment from his retirement account.

        After an initial review of the documents and information
petitioner provided, AO Teti determined that he could afford an
installment agreement of $4,400 per month which could fully pay his
liability by the CPED. AO Teti initially proposed an installment
agreement with monthly payments of $4,400 and a $40,000
downpayment from petitioner’s retirement account. In the light of AO
Teti’s initial determination that petitioner could fully pay the liability
by the CPED, AO Teti determined that he was not eligible for an offer-
in-compromise.

        Petitioner rejected AO Teti’s initial proposal and again offered to
enter into a PPIA of $450 per month with no downpayment, providing
additional supporting documents. He did not challenge his underlying
liability in the supplemental hearing with AO Teti or during the first
administrative hearing with AO Wade.
                                          4

[*4] In the supplemental notice of determination (supplemental
notice), AO Teti did not accept petitioner’s PPIA offer because he
determined that petitioner could pay a substantially higher amount
under collection guidelines set forth in the Internal Revenue Manual
(IRM). 4 AO Teti made a final determination that petitioner could afford
a monthly payment of $4,059 and a downpayment of at least $9,197 from
his retirement account.

       To calculate the downpayment that petitioner could afford to
make, AO Teti referenced IRM 5.15.1.27 (Nov. 17, 2014). Because
petitioner had an individual retirement account, was close to
retirement, and was over age 59½, AO Teti followed IRM 5.15.1.27(3),
which instructed him to:

              Determine if the taxpayer will need the income from
       the plan to provide for necessary living expenses. If so,
       consider the impact on income and expenses when the
       taxpayer is expected to retire. If income from the plan will
       not be needed when the taxpayer retires, determine if the
       plan should be liquidated now or at the time the taxpayer
       retires to avoid the early withdrawal penalty. If the plan is
       liquidated early, equity is the cash value less any expense
       for liquidating the account and early withdrawal penalty.

       AO Teti calculated the income shortfall that the plan would need
to cover using petitioner’s and his spouse’s joint life expectancy, while
also taking into account additional contributions over the subsequent
years, and determined that petitioner could liquidate $13,728 of his
retirement account and still have sufficient funds to cover living
expenses. AO Teti then reduced the $13,728 by one-third for state and
federal taxes to come up with a downpayment of $9,197 that would be
required for an acceptable installment agreement.

       In calculating the expenses that petitioner could claim for vehicle
ownership, AO Teti allowed petitioner the standard amount under IRM
5.15.1.9 (Nov. 17, 2014) for the first vehicle ($497) and the actual loan
payment for the second vehicle ($381), resulting in a total allowed
vehicle ownership expense of $878 per month.

        4 Unless otherwise indicated, all IRM references are to the version of the IRM

that was in effect on the date of petitioner’s supplemental administrative hearing and
the date the supplemental notice was issued.
                                   5

[*5] AO Teti allowed petitioner monthly expenses of $509 for his
primary, employer-provided health insurance plan premiums; $1,982 for
his housing expense, which was the standard monthly housing expense
for two people in petitioner’s locale; and a miscellaneous amount of
$1,202 which can be applied to credit card debt. See IRM 5.15.1.10(3)
(Nov. 17, 2014).

       AO Teti noted that because petitioner requested a PPIA he was
allowed only “necessary expenses” under IRM 5.15.1.7(1) (Oct. 2, 2012).
AO Teti did not allow petitioner’s claimed monthly expenses for excess
vehicle ownership expenses, secondary health insurance premiums,
non-housing-standard home equity line of credit payments, and non-
miscellaneous credit card payments because they were not “necessary
expenses.”

       Petitioner contended that the $1,077 expense for secondary
health insurance premiums was necessary because a previous medical
condition might return and he was unsure whether his primary health
insurance would cover it. AO Teti determined that this argument was
too speculative because it anticipated that his medical condition would
return and his primary health insurance provider would refuse
coverage. Petitioner also argued that existing federal law mandating
coverage of preexisting conditions may be repealed or struck down and
if that happened and he lost his job (the source of his primary health
insurance) he might not be able to acquire health insurance covering his
preexisting medical condition. AO Teti determined that this argument
was too speculative because it hinged on federal law changing and
petitioner losing his primary health insurance coverage.

       Petitioner contended that the $1,380 expense for home equity line
of credit payments and the $950 expense for credit card payments were
necessary because if he stopped making these payments his credit score
could be harmed which could affect his security clearance at his
employment which could affect his ability to earn income. AO Teti noted
that petitioner provided no supporting information for this credit-score
argument and that outstanding tax debts also might be an issue for his
security clearance. AO Teti also noted that allowing the home equity line
of credit payments solely because of their potential effect on his credit
score would “render the housing standard . . . meaningless.” Finally,
AO Teti noted that IRM 5.15.1.10(3) states that “[c]redit cards are
generally considered a method of payment, rather than a specific
expense” and that only the miscellaneous amount referenced in that
                                     6

[*6] section can be applied to credit card debt—to allow an additional
amount expressly for credit card debt in effect would duplicate expenses.

       Petitioner rejected AO Teti’s installment agreement and urged
AO Teti to accept his offered PPIA of $450 per month with no
downpayment. Petitioner did not dispute his underlying tax liability in
the first or supplemental administrative hearing.

      The supplemental notice sustained both collection actions, stating
that petitioner’s offered PPIA was too low considering his financial
information and the IRM.

                                Discussion

I.    Standard of review

        In a collection case our standard of review depends on whether
the underlying tax liability is in issue. Where the taxpayer’s underlying
liability is properly at issue, we review the IRS’s determination de novo.
Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner,
114 T.C. 176, 181–82 (2000). Section 6330(c)(2)(B) permits taxpayers to
challenge the existence or amount of their underlying tax liability only
if they did not receive a notice of deficiency or otherwise have a prior
opportunity to contest that liability.

      Where the underlying tax liability is not properly at issue, we
review the IRS’s determinations for abuse of discretion. Hoyle v.
Commissioner, 131 T.C. 197, 200 (2008), supplemented by 136 T.C. 463
(2011); Goza, 114 T.C. at 182. Abuse of discretion exists when a
determination is arbitrary, capricious, or without sound basis in fact or
law. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469
F.3d 27 (1st Cir. 2006). The burden is on the taxpayer to prove that the
Appeals officer abused his discretion. Rules 122(b), 142(a); see Woodral
v. Commissioner, 112 T.C. 19, 23 (1999).

       Petitioner’s underlying liability is not at issue (nor does he assert
otherwise); therefore we review the IRS’s determination for abuse of
discretion.

II.   Abuse of discretion

       In deciding whether an Appeals officer abused his discretion in
sustaining a collection action, we consider whether he (1) properly
verified that the requirements of applicable law or administrative
                                     7

[*7] procedure have been met, (2) considered any relevant issues the
taxpayer raised, and (3) considered “whether any proposed collection
action balances the need for the efficient collection of taxes with the
legitimate concern of the [taxpayer] that any collection action be no more
intrusive than necessary.” §§ 6320(c), 6330(c)(3).

       When this Court remands a case to Appeals and a supplemental
determination is issued, we review the supplemental determination.
Hoyle, 136 T.C. at 468. Our review of the record establishes that AO Teti
properly discharged his statutory responsibilities in the supplemental
determination.

      A.     Verification

      AO Teti reviewed and confirmed that all legal and procedural
requirements were followed and that the collection actions were
appropriate under the circumstances. Our review of the record confirms
that AO Teti satisfied the verification requirement.

      B.     Issues raised

       Petitioner’s primary contention is that AO Teti abused his
discretion by rejecting petitioner’s proposed PPIA of $450 per month
with no downpayment. Petitioner argues that AO Teti acted arbitrarily
by considering petitioner’s retirement account as an asset and by
disallowing various expenses.

        Section 6159 authorizes the Commissioner to enter into written
agreements allowing taxpayers to pay tax in installment payments if he
deems that the “agreement will facilitate full or partial collection of such
liability.” Subject to exceptions not relevant here, the decision to accept
or reject installment agreements lies within the discretion of the
Commissioner. See Thompson v. Commissioner, 140 T.C. 173, 179
(2013); Treas. Reg. § 301.6159-1(a), (c)(1)(i). In reviewing an Appeals
officer’s determinations we do not make an independent evaluation of
what would be an acceptable collection alternative. See Thompson, 140
T.C. at 179; Murphy, 125 T.C. at 320. Rather, our review is limited to
determining whether he abused his discretion. See Thompson, 140 T.C.
at 179.

       The installment agreement petitioner proposed was a PPIA
because he offered to pay some but not all of his outstanding liabilities
by the CPED. AO Teti considered petitioner’s collection alternative and
rejected it because it was not in compliance with the IRM guidelines for
                                           8

[*8] granting a PPIA. See, e.g., id.; IRM 5.14.2.1 (Mar. 11, 2011). This is
not an abuse of discretion; we have repeatedly held that an Appeals
officer does not abuse his discretion when he adheres to published IRM
collection guidelines. See, e.g., Eichler v. Commissioner, 143 T.C. 30, 39
(2014); Kelly v. Commissioner, T.C. Memo. 2022-73, at *9. 5 Petitioner
does not claim that the IRM guidelines are wrong. Rather, petitioner
claims AO Teti misapplied the guidelines in making his determination.
We therefore examine the IRM guidelines. See Wadleigh v.
Commissioner, 134 T.C. 280, 294 n.13 (2010).

                1.      Equity in assets: petitioner’s retirement account

         We begin with petitioner’s argument that his retirement account
is off limits. The IRM states that “[b]efore a PPIA may be granted, equity
in assets must be addressed and, if appropriate, be used to make
payment,” IRM 5.14.2.1(2), and “[f]unds held in a retirement . . . plan
are considered an asset,” IRM 5.15.1.27(1).

       AO Teti followed IRM 5.15.1.27(3) by calculating the amount of
petitioner’s retirement account that would be needed to pay living
expenses and reducing the amount that could be withdrawn to take into
account federal and state taxes. Citing Gurule v. Commissioner, T.C.
Memo. 2015-61, petitioner contends that AO Teti abused his discretion
by not following the procedures under IRM 5.11.6.3 (Aug. 16, 2017),
which provide instructions for levying against a retirement account.

       But AO Teti was not levying against petitioner’s retirement
account. Cf. Wadleigh, 134 T.C. at 294–95 (reviewing IRM guidelines
outlining the Commissioner’s ability to levy on retirement income and
accounts when the Commissioner sought to levy on those assets).
Rather, he was evaluating petitioner’s proposed PPIA, and under IRM
5.15.1.27(3) as part of his evaluation he considered petitioner’s
retirement account as an asset. We conclude AO Teti did not abuse his
discretion in determining that petitioner could liquidate at least part of
his retirement account to make a downpayment towards an installment
agreement.

        5 However, the provisions of the IRM do not carry the force and effect of law or

confer rights on taxpayers. Eichler, 143 T.C. at 39 (citing Fargo v. Commissioner, 447
F.3d 706, 713 (9th Cir. 2006), aff’g T.C. Memo. 2004-13).
                                   9

[*9]         2.    Monthly expenses

       Additionally, “[t]he taxpayer must agree to pay the maximum
monthly payment based upon the taxpayer’s ability to pay.” IRM
5.14.2.1.1(7) (Sept. 19, 2014). The Commissioner generally determines a
taxpayer’s ability to pay by subtracting allowable monthly expenses
from the taxpayer’s monthly income. For purposes of a PPIA, the
taxpayer is allowed his “necessary expenses.” See, e.g., Thompson, 140
T.C. at 179–80. Necessary expenses are those “necessary to provide for a
taxpayer’s and his or her family’s health and welfare and/or production
of income.” IRM 5.15.1.7(1).

                   a)     Vehicle ownership

       The applicable standard for vehicle ownership expenses is $497
per month per vehicle. Petitioner requested $994 per month in vehicle
ownership expenses for two vehicles. Petitioner’s monthly loan
payments for his two vehicles were $611 and $381, respectively. AO Teti
properly followed IRM 5.15.1.9 by allowing petitioner the standard
vehicle ownership expense ($497) for the vehicle with an auto loan above
the standard and the actual vehicle ownership expense ($381) for the
second vehicle.

       IRM 5.15.1.9(1)(b.), Example 3, contemplates a similar factual
scenario. The IRM states that “[i]f the loan payment for one vehicle
exceeds the standard allowable amount for one car and the second loan
payment is less than the standard allowable amount for one car, the
allowable amounts are calculated separately.” Id. The IRM example
uses a standard of $478, a claimed amount for Car 1 of $550, and a
claimed amount for Car 2 of $460. Id. The IRM explains that the
taxpayer is allowed the standard for Car 1 ($478) and the actual amount
for Car 2 ($460). Id. AO Teti applied the same reasoning in this case,
and he did not abuse his discretion in disallowing excess amounts
petitioner requested.

                   b)     Secondary health insurance plan

       AO Teti allowed petitioner’s claimed monthly expenses for his
primary health insurance plan but disallowed petitioner’s claimed
secondary health insurance plan expenses. In reviewing for abuse of
discretion, the Court does not substitute its judgment for that of the
Appeals officer. Gurule, T.C. Memo. 2015-61, at *28.
                                   10

[*10] Petitioner raised various arguments as to why the secondary
health insurance expenses should qualify as necessary; however, AO
Teti determined that petitioner’s arguments were too speculative. He
therefore concluded that secondary health insurance plan premiums did
not meet the necessary expense test because petitioner failed to
demonstrate that his secondary health insurance plan would provide for
his and his family’s health and welfare and/or production of income. See
IRM 5.15.1.7(1). AO Teti did not abuse his discretion in concluding that
petitioner’s secondary health insurance plan premiums did not satisfy
the relevant test in the IRM.

                    c)    Home equity line of credit

       AO Teti allowed petitioner monthly expenses in accordance with
the IRM housing standard guidelines. IRM 5.15.1.9(1). IRM 5.15.1.10(3)
states that other secured debts are allowed only if they meet the
necessary expense test. AO Teti concluded that the payments for
petitioner’s home equity line of credit were not necessary expenses
because petitioner failed to demonstrate that the payments were
necessary for his and his family’s health and welfare and/or production
of income. AO Teti’s determination that allowing a home equity line of
credit payment would defeat the purpose of the housing and other
expense standards was a reasonable application of the IRM. It also was
reasonable to reject petitioner’s unsupported argument that his credit
score could be damaged if he failed to make this payment, which could
affect his security clearance, which could affect his employment.

                    d)    Credit cards

       AO Teti allowed petitioner only a miscellaneous expense for credit
card debt pursuant to IRM 5.15.1.10(3) (stating that credit cards are
considered a method of payment and that “payments for the portion of
the credit card debt reflecting necessary living expenses are provided for
as allowable expenses under the national and local standards”). AO Teti
reasonably concluded that the payments for credit card debt were not
necessary expenses because petitioner failed to demonstrate that the
payments were necessary for his and his family’s health and welfare
and/or production of income. Once again, he reasonably rejected
petitioner’s unsupported argument that his credit score could be hurt if
he failed to make this payment, which could affect his security
clearance, which could affect his employment.
                                    11

[*11] C.     Balancing

       The record indicates that AO Teti considered whether the
collection actions balanced the need for the efficient collection of taxes
with petitioner’s legitimate concern that any collection action be no more
intrusive than necessary. Because petitioner did not establish his
eligibility for a collection alternative, AO Teti did not err in concluding
that the collection actions were “no more intrusive than necessary.” See
Kelly, T.C. Memo. 2022-73, at *11. We conclude that AO Teti satisfied
the balancing requirement.

III.   Conclusion

       We hold that Appeals did not abuse its discretion in sustaining
the proposed levy notice and filing of the lien notice. We have considered
all arguments made and, to the extent not mentioned above, we conclude
that they are moot, irrelevant, or without merit.

       To reflect the foregoing,

       An appropriate decision will be entered.