Court Opinion

ID: 4632430
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:11:47.501093+00
Date Added: 2024-06-11T07:57:53.765593
License: Public Domain

CRESCENT MANOR, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Crescent Manor v. Comm'rDocket No. 24582-14L United States Tax Court2017 U.S. Tax Ct. LEXIS 28; May 31, 2017, FiledDecision text below is the first available text from the court; it has not been editorially reviewed by LexisNexis. Publisher's editorial review, including Headnotes, Case Summary, Shepard's analysis or any amendments will be added in accordance with LexisNexis editorial guidelines.Docket No. 24582-14L. Filed May 31, 2017.David J. Looby, for petitioner.Ann Louise Darnold, for respondent.MEMORANDUM OPINIONPARIS, Judge: In this collection due process (CDP) case, petitioner seeksreview pursuant to section 6330(d)(1)1 of the determination by the Internal1Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended and in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.- 2 -[*2] Revenue Service (IRS or respondent) to uphold a notice of intent to levy.Petitioner timely petitioned this Court with respect to the notice of determination,and petitioner and respondent have each filed motions for summary judgmentunder Rule 121. The questions for decision are whether IRS Settlement OfficerAlcorte (SO Alcorte) abused her discretion in rejecting petitioner's proposed in-stallment agreement and sustaining the collection action and whether she had priorinvolvement with respect to the unpaid tax. For the reasons explained below, theCourt will grant respondent's motion for summary judgment and deny petitioner's.BackgroundThe following facts are based on the parties' pleadings and motion papers,including the attached exhibits and affidavits.2 SeeRule 121(b). Petitioner oper-ates a nursing home facility in a rural community of fewer than 2,000 residents.Its principal place of business was in Oklahoma at the time the petition was filed.2Each party requests that certain of the other's affidavits and exhibits be stricken from the record because they were not part of the original administrative record. Although there exists conflicting authority as to whether the Court's review in CDP cases is limited to the administrative record, neither the U.S. Court of Appeals for the Tenth Circuit nor the U.S. Court of Appeals for the D.C. Circuit has specifically ruled on the issue. The Court denies both requests.- 3 -[*3] Petitioner has a history of noncompliance with its Federal employment taxobligations dating back a decade.3 On a prior occasion petitioner entered into aninstallment agreement which the IRS revoked for petitioner's noncompliance withits Federal tax filing and payment obligations. The case at issue relates topetitioner's outstanding tax liability from Form 941, Employer's Quarterly FederalTax Return, for the period ending December 31, 2013.Petitioner timely filed its Form 941 for the quarterly period endingDecember 31, 2013, but failed to pay its reported tax liability of $41,439.56 forthat quarter. On April 14, 2014, respondent assessed the tax reported on the returnand began collection efforts.On April 24, 2014, respondent issued to petitioner a Letter 1058, FinalNotice--Notice of Intent to Levy and Notice of Your Right to a Hearing. Inresponse petitioner timely submitted a Form 12153, Request for a Collection DueProcess or Equivalent Hearing, seeking to enter into a $6,000-per-monthinstallment agreement for its unpaid employment tax liability. The CDP hearingrequest stated that if respondent were permitted to levy, petitioner's difficulty withMedicare and Medicaid collections would render it unable to pay either its3Contained within respondent's administrative file for petitioner is an Integrated Collection System history transcript. Petitioner disputes neither its authenticity nor the contents of the statements within.- 4 -[*4] employment tax balance or its current taxes. Petitioner's CDP hearingrequest, however, did not dispute the underlying employment tax liability;petitioner checked the collection alternative boxes for "Installment Agreement"and "I Cannot Pay Balance".Respondent mailed petitioner a letter dated June 6, 2014, acknowledgingreceipt of petitioner's CDP hearing request, and SO Alcorte subsequently mailedpetitioner a letter scheduling a CDP hearing for August 14, 2014. SO Alcorte'sletter advised petitioner that it did not qualify for consideration of an installmentagreement because it was not in compliance with its employment tax depositrequirements for the taxable period ending June 30, 2014. The letter furtheradvised petitioner that to qualify for a collection alternative it had to provide to SOAlcorte the following items: (1) a completed Form 433-B, Collection InformationStatement for Businesses, and (2) evidence that petitioner had made the requiredFederal employment tax deposits for the current taxable period. SO Alcorteinformed petitioner that collection alternatives could not be considered without theinformation requested. Petitioner's counsel requested the telephone conference berescheduled, and SO Alcorte confirmed the new date of August 21, 2014.Petitioner submitted the requested Form 433-B on August 1, 2014, assertingthat the proposed levy would result in "economic hardship" and, therefore, "this- 5 -[*5] situation * * * mandate[s] the release of the proposed levy". The Form 433-Bwas signed by petitioner's president, Sam Jewell, and listed among petitioner'sassets accounts receivable from Private Pay, Medicaid Oklahoma, and Medicare--with a combined balance of $152,712.59--for the period October 31, 2013,through June 30, 2014.4 The Form 433-B also listed petitioner's monthly incomeand expenses of $121,993.51 and $120,571.28, respectively, with a net monthlyincome of $1,422.23.In preparation for the CDP hearing SO Alcorte reviewed the administrativerecord and noted in her case activity report that petitioner did not appear to qualifyfor an installment agreement because its assets were sufficient to pay the out-standing liability in full. She also noted that petitioner's proposal offered monthlyinstallment payments of $6,000 but offered no explanation of how it would fundthe proposed agreement when its net monthly income was only $1,422.23.The administrative record details a previous installment agreement betweenrespondent and petitioner that was revoked because of noncompliance. Petitionerattempted on multiple occasions to reenter into the installment agreement, but each4The record reflects that $91,218.80 of petitioner's total accounts receivable was owed by the Federal and State Government agencies referenced above.- 6 -[*6] attempt was denied for its continued noncompliance with its Federal tax filingand payment obligations.On August 21, 2014, the parties held the CDP hearing. Petitioner'srepresentative did not contest petitioner's underlying tax liability but insteadreiterated that it would suffer economic hardship if the proposed collection actionwas sustained. SO Alcorte explained that she would not consider petitioner'seconomic hardship argument because the economic hardship exception undersection 6343(a)(1)(D) does not apply to corporations. She also explained that shecould not consider its proposed installment agreement to be in good faith becausepetitioner's self-reported net monthly income was less than the amount of theproposed installment payments. SO Alcorte noted that because (1) petitioner'saccounts receivable were sufficient to pay its liability in full, (2) petitioner was notin compliance with its Federal employment tax deposit obligations, and (3) theeconomic hardship exception was inapplicable to corporations, she would besustaining the proposed collection action and closing the case.SO Alcorte verified that the assessment was properly made and that all otherrequirements of applicable law and administrative procedure had been met. Shethereupon closed the case and, on September 17, 2014, issued to petitioner a- 7 -[*7] notice of determination sustaining the notice of intent to levy for petitioner'semployment tax liability for the tax period ending December 31, 2013.DiscussionI. Summary Judgment and Standard of ReviewThe purpose of summary judgment is to expedite litigation and avoidunnecessary and time-consuming trials. Fla. Peach Corp. v. Commissioner, 90T.C. 678, 681 (1988). The Court may grant summary judgment when there is nogenuine dispute as to any material fact and a decision may be rendered as a matterof law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518">98 T.C. 518, 520 (1992),aff'd, 17 F.3d 965">17 F.3d 965 (7th Cir. 1994). If a moving party properly makes and supportsa motion for summary judgment, "an adverse party may not rest upon the mereallegations or denials of such party's pleading" but must set forth specific facts, byaffidavit or otherwise, showing that there is a genuine dispute for trial. Rule121(d).Upon due consideration of the parties' motions, supporting declarations,and responses thereto, the Court concludes that no material facts are in dispute andthat judgment may be rendered for respondent as a matter of law.Where the validity of the underlying tax liability is properly at issue in acollection case, the Court will review the matter on a de novo basis. Sego v.- 8 -[*8]Commissioner, 114 T.C. 604">114 T.C. 604, 610 (2000). Where, as here, there is no disputeconcerning the underlying tax liability, the Court reviews the Commissioner'sadministrative determination to proceed with collection for abuse of discretion.5Id. Abuse of discretion exists when a determination is arbitrary, capricious, orwithout sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. 301">125 T.C. 301,320 (2005), aff'd, 469 F.3d 27">469 F.3d 27 (1st Cir. 2006).II. Collection Due ProcessIn deciding whether the SO abused her discretion in sustaining the proposedcollection action, the Court considers whether she: (1) properly verified that therequirements of any applicable law or administrative procedure have been met;(2) considered any relevant issues petitioner raised; and (3) determined whether"any proposed collection action balances the need for the efficient collection oftaxes with the legitimate concern of * * * [petitioner] that any collection action beno more intrusive than necessary." Seesec. 6330(c)(3).5Regardless of whether petitioner could have contested its underlying liability at the CDP hearing, this Court may consider a challenge to such a liability only if the taxpayer properly raised it before the SO, Giamelli v. Commissioner, 129 T.C. 107">129 T.C. 107, 115 (2007), and again in its petition to this Court, seeRule 331(b)(4) ("Any issue not raised in the assignments of error shall be deemed to be conceded."). Petitioner did not raise this issue with SO Alcorte or in its petition. The Court accordingly deems it conceded.- 9 -[*9] Review of the record reveals that SO Alcorte conducted a thorough reviewof petitioner's account, determined that the tax had been properly assessed, andverified that other requirements of applicable law and administrative procedurewere followed.Petitioner's primary contention is that section 301.6343-1(b)(4)(i), Proced.& Admin. Regs. (defining economic hardship only with respect to individual taxpayers), is invalid and that SO Alcorte abused her discretion in failing to consider its request for relief under the economic hardship provision of section 6343(a)(1)(D). This contention is incorrect. This Court recently released its Opinion in Lindsay Manor Nursing Home, Inc. v. Commissioner (Lindsay ManorI), 148 T.C. __ (Mar. 23, 2017), finding that section 301.6343-1(b)(4)(i), Proced.& Admin. Regs., is valid and that the economic hardship relief provided by section 6343(a)(1)(D) is available only to individual taxpayers. And in a companion Memorandum Opinion, Lindsay Manor Nursing Home, Inc. v. Commissioner, T.C. Memo 2017-50">T.C. Memo. 2017-50, the Court concluded that the SO did not abuse her discretion in failing to consider a request for economic hardship relief made by a corporate taxpayer. SO Alcorte did not abuse her discretion in declining this request either.Petitioner argues alternatively that SO Alcorte abused her discretion in rejecting its installment agreement request and in failing to adequately consider its- 10 -[*10] "economic hardship" in the balancing analysis required by section6330(c)(3).6 Finally, petitioner suggests that SO Alcorte was not impartial asrequired by section 6330(b)(3).A. Petitioner's Installment Agreement RequestIn its discretion, the IRS may accept an installment agreement if itdetermines that doing so will facilitate full or partial collection of a tax liability.Seesec. 6159(a). The IRS also has discretion to reject a proposed installmentagreement (subject to certain restrictions not applicable here). See Thompson v.Commissioner, 140 T.C. 173">140 T.C. 173, 179 (2013); sec. 301.6159-1(a), (c)(1)(i), Proced. &Admin. Regs. Consequently, in reviewing this determination, the Court does notsubstitute its judgment for that of Appeals and decide whether in its opinionpetitioner's installment agreement should have been accepted.See Woodral v.Commissioner, 112 T.C. 19">112 T.C. 19, 23 (1999); Keller v. Commissioner, T.C. Memo.2006-166, aff'd in part, 568 F.3d 710">568 F.3d 710 (9th Cir. 2009). Instead, the Court reviewsthis determination for abuse of discretion.6In Lindsay Manor I, this Court found that sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs., is valid; accordingly, the economic hardship exception is available only to individuals. To the extent that petitioner's other arguments attempt to rehash this issue, they are summarily disregarded. The Court will, however, address petitioner's economic position with respect to SO Alcorte's sec. 6330(c)(3)(C) balancing analysis.- 11 -[*11] Petitioner argues that it was an abuse of discretion for SO Alcorte to rejectits proposed installment agreement. The record, however, demonstrates that SOAlcorte's rejection of petitioner's installment agreement was proper for either ofher reasons: (1) the value of petitioner's assets exceeded the underlying liabilityand (2) petitioner was not in compliance with its Federal employment tax depositobligations.71. Petitioner's AssetsSO Alcorte rejected petitioner's proposed installment agreement afterdetermining that it could fully or partially satisfy its tax liability--$41,439.56--byliquidating or borrowing against its assets--$152,712.59 in accounts receivablealone. SeeInternal Revenue Manual (IRM) pt. 5.14.1.4(5) and (6) (June 1, 2010)("Taxpayers do not qualify for installment agreements if balance due accounts canbe fully or partially satisfied by liquidating assets[.]"); see also Boulware v.Commissioner, T.C. Memo. 2014-80 (finding that settlement officer's reliance onthis IRM provision was not an abuse of discretion), aff'd, 816 F.3d 133">816 F.3d 133 (D.C. Cir.2016). And other than its argument for economic hardship relief, petitioner does7The Court finds disingenuous petitioner's argument that SO Alcorte's notes in her case activity report constituted a predetermination. The notes indicate SO Alcorte's preparation for petitioner's CDP hearing and reflect a thorough review of the Form 433-B and its attachments. This is not an abuse of discretion.- 12 -[*12] not suggest that any exception to the general rule applies. Petitioner haddefaulted on at least one previous installment agreement for noncompliance, andthe record does not show any abuse of discretion by SO Alcorte in rejecting thisoffer.2. Compliance With Federal Tax ObligationsIn rejecting petitioner's proposed installment agreement, SO Alcorte alsonoted that petitioner was not in compliance with its current Federal employmenttax deposit obligations. Established IRS policy requires taxpayers to be incompliance with current filing and estimated tax payment requirements to beeligible for collection alternatives. See Reed v. Commissioner, 141 T.C. 248">141 T.C. 248, 256-257 (2013). Generally, current compliance with tax laws is a prerequisite to beingeligible for collection alternatives. See Cox v. Commissioner, 126 T.C. 237">126 T.C. 237, 257(2006), rev'd on other grounds, 514 F.3d 1119">514 F.3d 1119 (10th Cir. 2008). And despitepetitioner's contention, SO Alcorte was well within her discretion to requirecompliance with current tax obligations. See Giamelli v. Commissioner, 129 T.C.107, 111-112 (2007); cf. Christopher Cross, Inc. v. United States, 461 F.3d 610">461 F.3d 610,613 (5th Cir. 2006) (finding no abuse of discretion when settlement officerrejected collection alternative because taxpayer was not in compliance with its taxpayment obligations); Reed v. Commissioner, 141 T.C. at 257 (same).- 13 -[*13] Petitioner argues that SO Alcorte abused her discretion because--eventhough it was not in compliance--she failed to consider that its inability to remaincurrent with its Federal tax deposits was a result of its nonreceipt of Medicare andMedicaid funding from the Federal and State Governments. For support,petitioner cites Alessio Azzari, Inc. v. Commissioner, 178">136 T.C. 178 (2011).In Alessio Azzari, Inc., a lender stopped lending money to the taxpayer afterthe Commissioner's settlement officer erroneously determined that theCommissioner did not need to subordinate his lien on the taxpayer's accounts tothe lender's lien on the same accounts. Id. at 181-183. As a result, the taxpayerwas unable to stay current with its employment tax deposits after being incompliance for six consecutive quarters. Id. at 183. The Commissioner denied thetaxpayer's installment agreement request because the taxpayer was no longer incompliance. Id. at 183-184. The Court held that it was an abuse of discretion forthe Commissioner to deny the taxpayer's request for an installment agreement onthe basis of the taxpayer's failure to stay current on its tax deposits because thesettlement officer's erroneous interpretation of law led to the lender's decision tostop lending money to the taxpayer, which led to the taxpayer's not being incompliance. Id. at 194.- 14 -[*14] Unlike the taxpayer in Alessio Azzari, Inc., petitioner was indisputably notin compliance when it requested an installment agreement. And because section301.6343-1(b)(4)(i), Proced. & Admin. Regs., is valid, SO Alcorte's interpretationwas not erroneous. See Lindsay Manor I. Accordingly, SO Alcorte did not abuseher discretion in rejecting petitioner's installment agreement request on thegrounds that petitioner was not in compliance.B. SO Alcorte's Balancing AnalysisPetitioner next argues that SO Alcorte either did not conduct the requiredstatutory balancing test or did not explain her reason for concluding that itsrequirements were met. Petitioner suggests that it "proposed a viable collectionalternative that it could afford to pay on a monthly basis while staying current onits federal tax deposit payments that was less intrusive than enforced levy action".This Court also found in Lindsay Manor I that the section 6330(c)(3)(C)balancing test properly takes into account a taxpayer's specific economic realitiesand the consequences of a proposed collection action. On the basis of the Court'sthorough analysis of the record in this case, the Court concludes that there is nomaterial issue of fact regarding whether SO Alcorte properly balanced "the needfor the efficient collection of taxes" with the legitimate concern of petitioner that"any collection action be no more intrusive than necessary." Seesec. 6330(c)(3).- 15 -[*15] At the time petitioner requested this installment agreement, it had defaultedon a previous installment agreement, and reinstatement was denied because ofnoncompliance with its Federal tax filing and payment obligations. Althoughpetitioner has argued that a levy would render it unable to meet its payroll andpatient obligations, the administrative record shows that when petitionercomplained of being unable to meet its payroll and patient obligations because of alevy, it found the requisite funding after respondent refused to release the levy.Petitioner's Form 433-B showed that its monthly income exceeded itsmonthly expenses for a net monthly income of $1,422.23. Although there was anongoing dialogue between petitioner's counsel and SO Alcorte, petitioner gave noindication of how it would make proposed installment payments that were greaterthan its monthly revenue. SO Alcorte noted petitioner's accounts receivable,which together were sufficient to pay the outstanding liability in full. Theseaccounts included delayed payments from Medicare and Medicaid, but petitionerdid not suggest that they would be unpaid.Although petitioner complains of the possibility of being forced to close itsdoors to its patients and employees, the record indicates that petitioner expressedsimilar concerns with its earlier installment agreement and that those concerns didnot prove true--petitioner displays resilience despite its habitual noncompliance- 16 -[*16] with the internal revenue laws. On the basis of petitioner's consistenthistory of noncompliance and its continual ability to find and remit sufficientpayment despite the balance sheet, this Court finds that SO Alcorte gave dueweight to petitioner's specific circumstances. The Government's interest inefficiently collecting petitioner's liability simply tipped the scale the other way.Furthermore, it is well established that rejecting a collection alternativebecause of noncompliance with estimated tax payment requirements does notviolate the proper balancing requirement. See, e.g., Orum v. Commissioner, 123T.C. 1 (2004), aff'd, 412 F.3d 819">412 F.3d 819 (7th Cir. 2005); Friedman v. Commissioner,T.C. Memo. 2015-196; Schwartz v. Commissioner, T.C. Memo. 2007-155. Inpreparation for the CDP hearing SO Alcorte discovered that petitioner was not incompliance with its current employment tax deposit obligations for the taxableperiod ending June 30, 2014, and that it did not provide proof of making itsrequired September 30, 2014, deposit. Upon consideration of petitioner'sfinancial position and its failure to remain in compliance with its employment taxrequirements, SO Alcorte determined that there was no alternative to sustainingthe notice of intent to levy; she explained the reasoning behind her decision in thenotice of determination. Accordingly, the undisputed material facts establish that- 17 -[*17] SO Alcorte did not abuse her discretion in conducting the section6330(c)(3)(C) balancing test.C. SO Alcorte's ImpartialityNext, petitioner argues that SO Alcorte's review of the documents itprovided before the CDP hearing violates its section 6330(b)(3) right to a CDPhearing by an Appeals officer who had no prior involvement with respect to theunpaid tax.Section 6330(b)(3) requires a CDP hearing to be "conducted by an officer oremployee who has had no prior involvement with respect to the unpaid tax * * *before the first hearing". Prior involvement exists only when (1) the taxpayer, thetax, and the tax period at issue in the CDP hearing also were at issue in the priornon-CDP matter and (2) the Appeals officer or employee actually participated inthe prior matter. Sec. 301.6330-1(d)(2), Q&A-D4, Proced. & Admin. Regs.Petitioner does not argue that SO Alcorte had prior involvement in anearlier, non-CDP matter; rather, it argues that, because she had reviewedpetitioner's documents before the CDP hearing, SO Alcorte was not impartial.Petitioner is incorrect. The regulations clearly state that prior involvement meansthat an Appeals officer actually participated in an earlier, non-CDP matter. Id.- 18 -[*18] Because petitioner does not assert that SO Alcorte participated in a priornon-CDP matter, its argument must fail.SO Alcorte verified that she had not had any prior involvement with respectto the specific tax period at issue. Because SO Alcorte did not participate in aprior non-CDP matter concerning the same tax, taxpayer, and tax period at issue,she was an eligible Appeals officer to preside over the CDP hearing. Accordingly,the undisputed material facts establish that SO Alcorte did not abuse her discretionby reviewing the information petitioner had provided before its CDP hearing.III. ConclusionFinally, petitioner argues that the Court should remand this case foradditional consideration. The Court is not convinced that a remand is necessary orwould be productive. See Lunsford v. Commissioner, 117 T.C. 183">117 T.C. 183, 189 (2001);Kakeh v. Commissioner, T.C. Memo. 2015-103, at *13. The purpose of a remandis not to afford a "do over" for a taxpayer whose missteps during the CDP processresulted in its collection alternative's being rejected. See Kakeh v. Commissioner,at *13. It appears to the Court that petitioner is seeking a "do over" here.Finding no abuse of discretion in any respect, the Court will grantrespondent's motion for summary judgment and deny petitioner's. The Court hasconsidered all of the arguments made by the parties, and to the extent they are not- 19 -[*19] addressed herein, they are considered unnecessary, moot, irrelevant, orwithout merit.To reflect the foregoing,An appropriate order and decisionwill be entered.