Court Opinion

ID: 6350124
Source: CourtListenerOpinion
Date Created: 2022-06-15 19:01:40.102826+00
Date Added: 2024-06-11T09:16:09.641630
License: Public Domain

United States Tax Court

                            158 T.C. No. 8

                        ANGELA M. CHAVIS,
                            Petitioner

                                  v.

           COMMISSIONER OF INTERNAL REVENUE,
                       Respondent

                             —————

Docket No. 11835-20L.                              Filed June 15, 2022.

                             —————

            During 2011–2014 P and her then husband were of-
     ficers of a corporation that withheld payroll taxes from its
     employees’ wages but did not pay those taxes over to the
     Government. R issued a Letter 1153, Notice of Trust Fund
     Recovery Penalty, informing P that he intended to assert
     trust fund recovery penalties (TFRPs) against her and her
     husband under I.R.C. § 6672. P did not challenge the pro-
     posed assessment, as she was entitled to do, and R there-
     after assessed TFRPs totaling $146,682. In an effort to col-
     lect this unpaid liability R issued P a Letter 3172, Notice
     of Federal Tax Lien Filing and Your Right to a Hearing. P
     timely requested a collection due process (CDP) hearing.

             During the CDP hearing P sought to challenge her
     underlying liability for the TFRPs. R explained that P
     could not challenge her underlying liability because she
     had, but declined to take advantage of, a prior opportunity
     to challenge the TFRPs upon receipt of the Letter 1153. P
     requested “innocent spouse” relief under I.R.C. § 6015, but
     R determined that such relief is unavailable for TFRP lia-
     bilities. Finally, P requested that her account be placed in
     “currently not collectible” status and that the lien be with-
     drawn. R considered these collection alternatives but de-
     termined that P did not qualify for either one. R issued a

                          Served 06/15/22
                                           2

        notice of determination sustaining the lien filing, and P
        timely petitioned this Court.

              Held: Because P had a prior opportunity to challenge
        her TFRP liability upon receipt of the Letter 1153, she was
        not entitled to challenge her underlying tax liability at the
        CDP hearing or in this Court.

               Held, further, R correctly determined that P was not
        eligible for “innocent spouse” relief under I.R.C. § 6015 be-
        cause her TFRP liability did not arise from any liability
        shown on a joint Federal income tax return.

              Held, further, R did not abuse his discretion in sus-
        taining the collection action.

                                     —————

Angela M. Chavis, pro se.

Catherine S. Tyson, for respondent.

                                      OPINION

       LAUBER, Judge: In this collection due process (CDP) case peti-
tioner seeks review pursuant to sections 6320(c) and 6330(d)(1) of the
determination by the Internal Revenue Service (IRS or respondent) to
uphold the filing of a Notice of Federal Tax Lien (NFTL). 1 Petitioner
challenges her underlying tax liability, seeks “innocent spouse” relief,
and contends that the IRS improperly denied her request to have her
account placed in “currently not collectible” (CNC) status. Respondent
has moved for summary judgment, contending that petitioner’s under-
lying liability is not properly before us, that section 6015 does not apply
to the tax liability at issue, and that the settlement officer did not abuse
her discretion in sustaining the collection action. We agree and accord-
ingly will grant the motion.

        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.
                                     3

                               Background

       The following facts are derived from the parties’ pleadings and
motion papers, including a declaration that attached the administrative
record. Petitioner resided in Missouri when she timely petitioned this
Court.

       Petitioner received a B.A. in economics and an M.A. in business
administration, having completed coursework in finance, accounting,
marketing, management, and organizational behavior. At the relevant
times she and her then husband were associated with Oasys Infor-
mation Systems, Inc. (Oasys), a C corporation established in 2008. Her
then husband was the president of Oasys, and she held the office of sec-
retary. According to IRS records, Oasys listed petitioner’s home address
as its business address.

       Oasys withheld payroll taxes from its employees’ wages but did
not pay those taxes over to the Government. Having no success in col-
lecting these taxes from Oasys, the IRS determined penalties against
petitioner and her then husband under section 6672. That section pro-
vides that “[a]ny person required to collect, truthfully account for, and
pay over” payroll taxes, who willfully fails to do so, shall be liable for a
penalty “equal to the total amount of the tax evaded . . . or not accounted
for and paid over.” § 6672(a). Penalties determined under section 6672
are commonly called trust fund recovery penalties (TFRPs).

       On July 13, 2015, the IRS issued petitioner Letter 1153, Notice of
Trust Fund Recovery Penalty. The IRS sent this letter by certified mail
to petitioner at her home address. Respondent has supplied a copy of
U.S. Postal Service (USPS) Form 3811, Domestic Return Receipt, show-
ing that petitioner received and accepted delivery of the Letter 1153 on
July 16, 2015. Petitioner does not dispute that the signature on the
Form 3811 is her signature.

       Attached to the Letter 1153 was Form 2751, Proposed Assess-
ment of Trust Fund Recovery Penalty. This form advised petitioner that
Oasys had failed to pay over employment taxes totaling $146,682 for
nine calendar quarters during 2011–2014. The IRS proposed to assess
that sum against petitioner, determining that she, “[a]s Secretary, . . .
had the responsibility of paying the employment taxes [but] paid other
creditors over the US Gov’t.” The IRS proposed to assess joint and sev-
eral liability for the same amount against her then husband,
                                     4

determining that he, “[a]s President, . . . had the responsibility of paying
the employment taxes [but] paid other creditors over the US Gov’t.”

       The Letter 1153 informed petitioner: “You may appeal your case
to the local Appeals Office.” The letter included detailed instructions
about the steps petitioner needed to take in order to appeal the proposed
assessment and the issues that would be considered during the appeal.
The letter warned: “If we do not hear from you within 60 days from the
date of this letter . . . , we will assess the penalty and begin collection
action.”

       Petitioner did not appeal the notice of proposed assessment. On
November 16, 2015, the IRS accordingly assessed the TFRPs against
her. Petitioner and her husband divorced in 2016, and the IRS was ap-
parently successful in collecting a portion of the unpaid tax from him.
In an effort to collect the balance of the liability, the IRS on May 16,
2019, issued petitioner a Letter 3172, Notice of Federal Tax Lien Filing
and Your Right to a Hearing. This letter showed an aggregate unpaid
balance of $126,919 on account of Oasys’s payroll tax liability.

       On May 29, 2019, petitioner timely requested a CDP hearing. In
her hearing request she checked the boxes, “I cannot pay balance” and
“Innocent Spouse Relief,” and she requested withdrawal of the NFTL.
She urged that her ex-husband was responsible for Oasys’s payroll
taxes, asserted that she “never received a notice for these taxes before,”
and contended that she “d[id] not make enough income to put a dent in
the amount presented.”

      In July 2019 petitioner submitted Form 8857, Request for Inno-
cent Spouse Relief. She sought relief from the TFRPs, alleging that she
“had no dealings with Oasys.” She stated that she “agreed to sign our
1040 tax return jointly [but] never signed any returns from Oasys.” She
did not request relief from any joint Federal income tax liability.

       The IRS Cincinnati Centralized Innocent Spouse Operation
(CCISO) processed petitioner’s Form 8857 on July 26, 2019. On August
14, 2019, CCISO informed petitioner that she did not “meet the basic
eligibility requirements” for relief under section 6015. CCISO explained
that she did not qualify for relief because “[s]ection 6015 applies to
jointly filed income tax returns,” not payroll tax liabilities.

      Petitioner’s CDP case was then assigned to a settlement officer
(SO) in the IRS Independent Office of Appeals (Appeals) in Houston,
Texas. The SO reviewed CCISO’s file, verified that the TFRPs had been
                                   5

properly assessed, and confirmed that all other legal and administrative
requirements had been met. The SO scheduled a telephone conference
for November 19, 2019. Petitioner participated in the telephone confer-
ence as scheduled.

       During the conference the SO explained that section 6015 relief
was not available for TFRP liabilities. The SO also advised that peti-
tioner could not now challenge her liability for the TFRPs because she
had, but declined to take advantage of, a prior opportunity to challenge
them upon receipt of the Letter 1153. Although petitioner said she did
not recall receiving that letter, the SO drew her attention to her signa-
ture on the USPS Form 3811, which confirmed her receipt of the pro-
posed assessment.

      The SO and petitioner then discussed collection alternatives. The
SO advised that, if petitioner wished to pursue CNC status, she needed
to supply a completed Form 433–A, Collection Information Statement
for Wage Earners and Self-Employed Individuals, together with sup-
porting financial information. Petitioner submitted this information,
and the SO referred it to an IRS collection specialist for analysis.

       On January 30, 2020, the SO received a response from the collec-
tion specialist, who concluded that petitioner could pay $2,831 per
month toward her TFRP liability and thus did not qualify for CNC sta-
tus. The SO called petitioner that same day and went over the results
of the specialist’s computations. Petitioner disputed those calculations,
urging that her income had been reduced and that home mortgage pay-
ments of $1,611 should be included in her monthly expenses. Petitioner
supplied copies of her current pay stubs and mortgage statement to sup-
port her position.

        On April 7, 2020, the SO recomputed petitioner’s ability to pay.
The SO calculated her revised monthly income as $5,361, including child
support payments of $1,400. Employing an “allowable expense calcula-
tor,” the SO adjusted petitioner’s claimed monthly expenses, conforming
those costs to the expenses allowable for the Missouri county in which
she lived. See Internal Revenue Manual (IRM) 5.15.1.10 (Nov. 17, 2014).
In calculating expenses the SO did not allow mortgage expenses because
petitioner supplied no proof that she lacked equity in the property. Sub-
tracting her allowable monthly expenses from her revised monthly in-
come, the SO informed petitioner that she still did not qualify for CNC
status because she had the ability to pay $1,685 a month.
                                    6

       Because petitioner sought no collection alternative apart from
CNC status and lien withdrawal, the SO decided to close the case. On
August 19, 2020, the IRS issued petitioner a notice of determination sus-
taining the NFTL filing. The notice explained that petitioner could not
challenge her underlying liability for the TFRPs because she had a prior
opportunity, upon receiving the Letter 1153, to challenge those penalties
at Appeals. The notice determined that petitioner did not meet the cri-
teria for lien withdrawal under section 6323(j) and that, for the reasons
discussed previously, CNC status was not available as a collection alter-
native.

        Petitioner timely petitioned this Court, challenging her underly-
ing liability for the TFRPs and the propriety of the collection action. Re-
spondent filed a Motion for Summary Judgment, to which petitioner
timely responded. She concedes receiving the Letter 1153 in 2015 but
urges that she was undergoing stress at that time in connection with
her divorce proceedings. She alleges that she “had no involvement with
the business operations of Oasys . . . and did not sign any tax filings
associated with the company.” She challenges the tax lien placed on her
home and the SO’s calculation of her ability to pay, urging that the
“monthly amount that was determined is unreasonable and not econom-
ically feasible.”

                               Discussion

A.    Summary Judgment Standard

       Absent stipulation to the contrary, our decision in this case is ap-
pealable to the U.S. Court of Appeals for the Eighth Circuit. See
§ 7482(b)(1)(G). That court has held that, where de novo review is not
applicable, the scope of review in a CDP case is confined to the adminis-
trative record. See Robinette v. Commissioner, 439 F.3d 455, 461 (8th
Cir. 2006), rev’g 123 T.C. 85 (2004). Petitioner has supplied no reason
to believe that the administrative record in this case is incomplete. Ac-
cordingly, in a case such as this, “summary judgment serves as a mech-
anism for deciding, as a matter of law, whether the agency action is sup-
ported by the administrative record and is not arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law.” Belair v.
Commissioner, 157 T.C. 10, 17 (2021) (quoting Van Bemmelen v. Com-
missioner, 155 T.C. 64, 79 (2020)).
                                     7

B.    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
for such review are marked out by our precedents. Where the validity
of the taxpayer’s underlying liability is properly at issue, we review the
IRS’s determination de novo. Goza v. Commissioner, 114 T.C. 176, 181–
82 (2000). Where the taxpayer’s underlying liability is not properly at
issue, we review the IRS’s decision for abuse of discretion only. Id.
at 182. Abuse of discretion exists when a determination is arbitrary,
capricious, or without sound basis in fact or law. See Murphy v. Com-
missioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).

C.    Underlying Liability

       A taxpayer may challenge the existence or amount of her under-
lying tax liability in a CDP case only if she “did not receive any statutory
notice of deficiency for such tax liability or did not otherwise have an
opportunity to dispute” it. § 6330(c)(2)(B). TFRPs are “assessable pen-
alties” and thus are not subject to deficiency procedures. See Chadwick
v. Commissioner, 154 T.C. 84, 91 (2020). However, a taxpayer has the
opportunity to dispute her liability for a TFRP by filing an appeal with
the IRS when she receives a Letter 1153. See Mason v. Commissioner,
132 T.C. 301, 317–18 (2009); Lewis v. Commissioner, 128 T.C. 48, 61
(2007); Thompson v. Commissioner, T.C. Memo. 2012-87, 103 T.C.M.
(CCH) 1470, 1472; Treas. Reg. § 301.6320-1(e)(3), Q&A-E2.

       The IRS sent petitioner a Letter 1153 in July 2015. She acknowl-
edges having received that letter, and the USPS Form 3811 bears her
signature. The Letter 1153 informed petitioner of her right to appeal
the proposed TFRP assessment and outlined the steps she needed to
take. Because she had an opportunity to dispute her TFRP liability
upon receipt of the Letter 1153 but declined to do so, she was not entitled
to challenge her underlying tax liability at the CDP hearing and may
not advance such a challenge in this Court. See Chadwick, 154 T.C.
at 89. Accordingly, we review the SO’s actions for abuse of discretion
only.

D.    Abuse of Discretion

       In deciding whether the SO abused her discretion we consider
whether she: (1) properly verified that the requirements of any applica-
ble law or administrative procedure have been met; (2) considered any
                                          8

relevant issues petitioners raised; and (3) determined whether “any pro-
posed collection action balances the need for the efficient collection of
taxes with the legitimate concern of [petitioner] that any collection ac-
tion be no more intrusive than necessary.” § 6330(c)(3); see § 6320(c).
Our review of the record establishes that the SO properly discharged all
of her responsibilities under the statute.

       1.      Innocent Spouse Relief

       During the CDP hearing petitioner urged that she was entitled to
“innocent spouse” relief under section 6015. The SO advised petitioner
that she was not eligible for such relief because her TFRP liabilities
arose from Oasys’s unpaid payroll taxes, not from a joint Federal income
tax return. The SO made this determination after reviewing petitioner’s
Form 8857 and the correspondence from CCISO. 2

        Section 6015 is captioned “Relief from joint and several liability
on joint return.” Section 6015(a)(1) provides that “an individual who has
made a joint return may elect to seek relief under the procedures pre-
scribed under subsection (b),” which sets forth procedures “applicable to
all joint filers.” Section 6015(a)(2) provides that an individual may “elect
to limit [her] liability for any deficiency with respect to such joint return
in the manner prescribed under subsection (c),” which sets forth proce-
dures applicable for spouses who are legally separated or no longer liv-
ing together.

        Subsections (b) and (c) both specify rules for obtaining relief from
liabilities that are shown on (or should have been shown on) a joint Fed-
eral income tax return. See § 6015(b)(1)(A) and (B) (presupposing that
“a joint return has been made” and that “on such return there is an un-
derstatement of tax”); § 6015(c)(1) (providing that a person “who has
made a joint return” may be partially relieved of “liability for any defi-
ciency which is assessed with respect to the return”).

         2 Although petitioner is precluded from challenging her underlying liability,

“[t]he limitations imposed under section 6330(c)(2)(B) do not apply to spousal defenses
. . . [because] the taxpayer is not disputing the amount or existence of the liability
itself, but asserting a defense to the liability.” Treas. Reg. § 301.6320-1(e)(3), Q&A-
E3. We need not decide whether the SO’s resolution of petitioner’s spousal defense
challenge should be reviewed de novo rather than for abuse of discretion. We would
decide this issue the same way under either standard because (as explained in the text)
it presents a purely legal question.
                                      9

        Petitioner’s TFRP liabilities were not shown on, and did not arise
from the filing of, a joint Federal income tax return. Rather, her TFRP
liabilities arose from her failure to discharge her duty, as an officer of
Oasys, to ensure that payroll taxes collected from the company’s workers
were properly paid over to the Department of the Treasury. Petitioner
was therefore not eligible for relief under section 6015(b) or (c).

        Subsection (f) provides that “equitable relief” may be afforded to
a taxpayer if “relief is not available to such individual under subsection
(b) or (c).” § 6015(f)(1). “Under procedures prescribed by the Secretary,”
such relief may be available if, “taking into account all the facts and
circumstances, it is inequitable to hold the individual liable for any un-
paid tax or any deficiency (or any portion of either).” Ibid. The SO de-
termined that petitioner was likewise ineligible for relief under subsec-
tion (f).

        The Commissioner has specified, in Rev. Proc. 2013-34, 2013-43
I.R.B. 397, the procedures governing equitable relief. These procedures
confirm that subsection (f), like subsections (b) and (c), applies only to
joint income tax liabilities. See Rev. Proc. 2013-34, § 1.01, 2013-43 I.R.B.
at 397 (“This revenue procedure provides guidance for a taxpayer seek-
ing equitable relief from income tax liability . . . .”). Indeed, the IRS will
not consider a taxpayer’s request for equitable relief unless she meets
seven “threshold conditions,” one of which is that the “income tax liabil-
ity from which the requesting spouse seeks relief” is attributable to the
non-requesting spouse. Id. § 4.01(7), 2013-43 I.R.B. at 399. Another
condition is that “[t]he requesting spouse [must have] filed a joint return
for the taxable year” for which relief is sought. Id. § 4.01(1).

        The IRS assessed TFRPs against petitioner and her ex-husband
upon determining that they were both responsible for Oasys’s failure to
remit payroll taxes to the Government. The IRS did not determine any
income tax deficiencies against petitioner and has not attempted to col-
lect any unpaid tax shown on any joint return that she signed. Although
a TFRP liability is a form of “unpaid tax,” section 6015(f) applies only to
unpaid taxes or deficiencies arising from joint income tax returns. See
Treas. Reg. § 1.6015-1(a)(1)(iii) (stating that section 6015(f) applies only
to “joint and several liability for Federal income tax”); H.R. Rep. No. 105-
599, at 254 (1998) (Conf. Rep.), reprinted in 1998-3 C.B. 747, 1008 (stat-
ing that section 6015(f) applies only to “any unpaid tax or deficiency
arising from a joint return”). The SO therefore did not err when she
advised petitioner that innocent spouse relief was not available to her.
                                   10

      2.     Collection Alternatives

       Having rejected petitioner’s underlying liability and spousal de-
fense challenges, the SO proceeded to consider collection alternatives.
The principal issue petitioner raised was her entitlement to have her
account placed in CNC status. To be entitled to this collection alterna-
tive taxpayers must demonstrate that, on the basis of their assets, eq-
uity, income, and expenses, they have no apparent ability to make pay-
ments on the outstanding tax liability. See Foley v. Commissioner, T.C.
Memo. 2007-242, 94 T.C.M. (CCH) 210, 212; IRM 5.16.1.1 (Sept. 18,
2018).

       A taxpayer’s ability to make payments is determined by calculat-
ing the excess of income over necessary living expenses. Rosendale v.
Commissioner, T.C. Memo. 2018-99, 116 T.C.M. (CCH) 4, 6; IRM
5.16.1.2.9 (Sept. 18, 2018). An SO does not abuse her discretion when
she employs local and national standards to calculate the taxpayer’s ex-
penses and ability to pay. See Friedman v. Commissioner, T.C. Memo.
2013-44, 105 T.C.M. (CCH) 1288, 1290 (noting that burden is on tax-
payer to justify departure from local standards). In reviewing for abuse
of discretion, the Court does not substitute its judgment for that of the
SO or recalculate a taxpayer’s ability to pay. See Norberg v. Commis-
sioner, T.C. Memo. 2022-30, at *5; O’Donnell v. Commissioner, T.C.
Memo. 2013-247, 106 T.C.M. (CCH) 477, 481.

       The collection specialist to whom the SO initially referred peti-
tioner’s request concluded that she did not qualify for CNC status be-
cause she could pay $2,831 per month toward her TFRP liability. The
SO agreed that petitioner’s income should be adjusted downward and
recalculated her ability to pay as $1,685 per month. In determining this
figure, the SO calculated allowable monthly expenses by reference to lo-
cal standards prevailing in the Missouri county where petitioner re-
sided. This caused a downward adjustment to certain expenses that pe-
titioner reported on her Form 433–A.

       Petitioner contends that “the calculated monthly amount that
was determined was unreasonable and not economically feasible.” This
contention is based in part on the expenses petitioner claimed on her
Form 433–A, without reference to prevailing local standards. The SO
was authorized to rely on those standards in assessing petitioner’s abil-
ity to pay, and it was her burden to justify a departure from the local
standards. Friedman, 105 T.C.M. (CCH) at 1290. Petitioner has not
satisfied that burden.
                                    11

      Petitioner challenges two aspects of the SO’s calculation apart
from the use of prevailing local expense standards. First, she urges that
the SO should have included home mortgage expenses of $1,611 per
month. The SO did not allow this expense because petitioner supplied
no proof “that there was no equity in the home.” See IRM 5.16.1.2.9(1)
(“An account should not be reported as CNC if the taxpayer has income
or equity in assets, and enforced collection of the income or assets would
not cause hardship.”).

       In her response to the summary judgment motion, petitioner says
that she “do[es] not have access” to any equity in the property. Although
the meaning of this statement is not entirely clear, we find it beside the
point. Petitioner does not dispute that she neglected to provide any ev-
idence to the SO regarding her possession of equity in the property. The
SO was obligated to make a decision based on the evidence that peti-
tioner submitted during the CDP hearing. The SO did not abuse her
discretion by neglecting to consider evidence petitioner did not submit.

       Petitioner also alleges that the monthly child support she receives
from her ex-husband was recently reduced, as of July 2021, from $1,400
to $1,000 per month. Again, this information was not available to the
SO when she made her decision in August 2020. In any event a $400
reduction in her monthly income would not have altered the SO’s deter-
mination that petitioner was not entitled to CNC status.

        The other collection alternative petitioner proposed was with-
drawal of the NFTL. Section 6323(j)(1) authorizes that relief if (1) “the
filing of such notice was premature or otherwise not in accordance with
administrative procedures,” (2) the taxpayer has entered into an install-
ment agreement that renders the NFTL unnecessary, (3) withdrawal of
the NFTL “will facilitate the collection of the tax liability,” or (4) with-
drawal of the NFTL “would be in the best interests of the taxpayer (as
determined by the National Taxpayer Advocate) and the United States.”

      The notice of determination correctly concluded that petitioner
had failed to establish the existence of any of these conditions. The sec-
ond and fourth factors are inapplicable here. Petitioner did not contend
that the NFTL filing was premature or improper. And she offered no
evidence that withdrawal of the NFTL would facilitate collection of the
TFRP liability.

      The only collection alternatives petitioner proposed, in her CDP
hearing request or subsequently, were to have her account placed in
                                   12

CNC status and to have the NFTL withdrawn. The SO did not abuse
her discretion in denying those forms of relief. In her response to the
summary judgment motion petitioner suggests that she might be able to
make some payment toward her tax liability, albeit in a monthly amount
smaller than the SO calculated. If so, petitioner is free to submit to the
IRS at any time, for its consideration and possible acceptance, a collec-
tion alternative in the form of an installment agreement or an offer-in-
compromise, supported by up-to-date financial information (including
any relevant information about equity in her home and reduced child-
support payments).

      To implement the foregoing,

      An appropriate order and decision will be entered for respondent.