Court Opinion

ID: 9298348
Source: CourtListenerOpinion
Date Created: 2022-12-01 20:00:56.700354+00
Date Added: 2024-06-11T17:13:32.730967
License: Public Domain

United States Tax Court

                        T.C. Memo. 2022-116

            KEVIN T. LIPKA AND SHELLY Z. LIPKA,
                         Petitioners

                                  v.

           COMMISSIONER OF INTERNAL REVENUE,
                       Respondent

                             —————

Docket No. 11455-20L.                          Filed December 1, 2022.

                             —————

             As early as July 2016, Ps were facing an
     investigation by the State of New Jersey, in which P–H was
     formally indicted on July 12, 2018. Ps reported, but did not
     pay, a federal income tax liability of $466,076 for 2017. R
     issued to Ps notice and demand for payment of the 2017
     liability and, when the balance remained unpaid, issued to
     Ps a Notice CP 90, “Intent to seize your assets and notice
     of your right to a hearing”, in July 2019. Ps mailed to R a
     request for a collection due process hearing.           They
     requested either that their 2017 liability be deemed
     currently not collectible or that they be granted an
     installment agreement; and they further asserted that the
     levy would impose economic hardship on them because of
     P–H’s ongoing criminal case and associated legal expenses
     (which they did not quantify). R determined to deny Ps
     requested collection alternatives and to sustain the
     proposed levy, and Ps filed their petition for review in this
     Court.

           Held: P–H’s pending criminal case and the
     associated unquantified legal expenses did not create
     economic hardship within the meaning of Treas. Reg.
     § 301.6343-1(b)(4).

                          Served 12/01/22
                                          2

[*2]         Held, further, R did not abuse his discretion in
       denying Ps’ requested collection alternatives and
       determining to sustain the proposed levy.

                                    —————

Matthew T. Eyet, for petitioners.

Jonathan Bartolomei, for respondent.

                          MEMORANDUM OPINION

       GUSTAFSON, Judge: This is a collection due process (“CDP”)
case brought by petitioners, Kevin and Shelly Lipka, pursuant to
section 6330(d) 1 to review a determination by the Internal Revenue
Service (“IRS”) Independent Office of Appeals (“IRS Appeals”) denying
the Lipkas’ request for a collection alternative and sustaining a notice
of intent to levy to collect their unpaid federal income tax liability for
the year 2017. Respondent, the Commissioner of Internal Revenue, filed
a motion for summary judgment. We will grant the Commissioner’s
motion.

                                    Background

      The Commissioner’s motion establishes the following facts, which
the Lipkas do not dispute. For reasons we explain below, we conclude
that there is no genuine dispute of material fact and that this case is
appropriate for summary adjudication.

Petitioners’ 2017 liability

      The Lipkas filed their federal income tax return for tax year 2017
reporting an income tax liability of $466,076. They did not pay that
reported liability. The IRS sent them notice and demand for payment,
but they did not pay their 2017 liability.

        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] The IRS’s proposed levy

       On July 1, 2019, the IRS sent to the Lipkas a Notice CP 90,
“Intent to seize your assets and notice of your right to a hearing”,
advising them of their right to request a CDP hearing with IRS Appeals
within 30 days. The Lipkas submitted a timely Form 12153, “Request
for a Collection Due Process or Equivalent Hearing”. On that
Form 12153, the Lipkas checked the boxes for “Installment Agreement”,
“Offer in Compromise”, and “I Cannot Pay Balance”. They also checked
the box marked “Other”, and in the corresponding space for the “Reason”
for requesting a hearing, the Lipkas stated: “A collection alternative is
necessary in furtherance of effective tax administration given
Taxpayers’ unusual financial circumstances”.

CDP hearing

      On December 9, 2019, IRS Appeals sent to the Lipkas an
appointment letter scheduling their CDP hearing to be conducted as a
telephone hearing on January 16, 2020, and stating that, in order for
Appeals to consider alternative collection methods, the Lipkas must
provide: (1) a completed Form 433–A, “Collection Information Statement
for Wage Earners and Self-Employed Individuals”; (2) proof that
estimated tax payments are paid in full for the year to date; and (3) a
completed Form 656, “Offer In Compromise”.

      On January 7, 2020, the Lipkas requested that the CDP hearing
be held face to face. IRS Appeals responded that if the Lipkas wished to
have a face-to-face conference, then they needed to submit past-due
estimated tax payments for tax year 2019 and a complete Form 433–A
by January 15, 2020.

       The Lipkas failed to provide the requested documentation to IRS
Appeals by the January 15 deadline and never submitted Form 656.
Instead, on January 16, 2020, they submitted an unsigned, partially
completed Form 433–A. During the January 16 CDP hearing, they
represented that Mr. Lipka was under criminal indictment by the State
of New Jersey, that their real estate properties were being held by the
State of New Jersey, and that they had neither money nor access to their
assets to pay their 2017 tax liability. They also stated that they were
currently unable to secure employment because of the criminal matter.
The IRS Appeals officer asked the Lipkas to submit a completed
Form 433–A and additional documentation substantiating their
purported inability to pay and their lack of access to their assets.
                                       4

[*4] The Lipkas thereafter submitted a completed Form 433–A and
attached financial information containing six months of partial bank
statements. On the basis of this information, the IRS Appeals officer
determined that the Lipkas had gross monthly income of $66,934 and
necessary monthly expenses of $17,954, thereby leaving them an
approximate net monthly income of $48,980 to satisfy their outstanding
tax liability for 2017.

       The Lipkas subsequently presented additional documentation
indicating (1) that they were defendants in a criminal matter and
(2) that they held $685,918 in stocks and retirement accounts, which
they alleged were pledged as security for a loan. Their additional
documentation also indicated that they owned six real estate properties,
all of which they alleged had lis pendens recorded against them by the
State of New Jersey in connection with the criminal matter.

       On February 20, 2020, the IRS Appeals officer and the Lipkas
participated in another telephone conversation. During that call, the
Lipkas maintained that their monthly income would soon decrease and
mentioned that they were incurring significant legal expenses relating
to their criminal matter. At the close of the conversation, the IRS
Appeals officer requested that the Lipkas produce records verifying
their decreasing income and the amount of their legal expenses, and
gave them a deadline of February 26, 2020, to submit those documents.

        On March 5, 2020, the Lipkas provided IRS Appeals with
additional financial documentation, which the IRS Appeals officer used
to recalculate their ability to pay. On the basis of their additional
documents, the IRS Appeals officer removed from her calculation certain
large deposits reflecting refunded overpayments of health insurance
premiums, as well as a $40,000 deposit that the Lipkas thereafter paid 2
to the IRS and the State of New Jersey from their income. However,
their additional documents did not include any substantiation of the
amounts of their current legal expenses related to the pending criminal
matter. The IRS Appeals officer accordingly redetermined the Lipkas’
gross monthly income to be $28,275 and their allowable monthly
expenses to remain $17,954; thereby leaving them an approximate net
monthly income of $10,321 available to satisfy their outstanding tax
liability for 2017. Because of the Lipkas’ positive net monthly income,

       2 The Lipkas’ bank statements show that they received a $40,000 deposit in

September 2019, about $32,000 of which was paid to the IRS that same month, and
the remainder of which was paid to the State of New Jersey.
                                    5

[*5] the IRS Appeals officer concluded that they were not eligible for
currently not collectible (“CNC”) status and proposed an installment
agreement (“IA”) with monthly payments of $10,000 over a period of 72
months. The Lipkas responded that they would not be accepting the
proposed IA because they would be unable to pay it.

Notice of determination

       On July 20, 2020, IRS Appeals issued its “Notice of Determination
Concerning Collection Actions under IRC Sections 6320 or 6330 of the
Internal Revenue Code”, denying the Lipkas the requested collection
alternatives and sustaining the IRS’s notice of intent to levy. The notice
of determination stated in part:

      Letter dated December 9, 2019 . . . requested Form 433–A,
      Form 656 and verification of estimated tax payments to be
      received within 14 days . . . . Telephone conference was
      held with authorized representative Mr. Eyet. Some of the
      requested information was received, and the account was
      not current with estimated tax payments. Additional time
      was granted for the additional supporting documentation.
      It was determined that there were monthly average
      deposits into their bank accounts that total $28,275.45 a
      month, so a payment plan in the amount of $10,000.00
      could be established to full pay the balance. The taxpayers
      stated they could not fund the payment plan in the amount
      of $10,000.00. Since the required installment agreement
      in the amount of $10,000.00 could not be accepted and
      based on the information available to us, the levy collection
      activity will be sustained.

The notice of determination advised the Lipkas of their right to
challenge the determination by filing a petition in the U.S. Tax Court.

Tax Court proceedings

      On August 20, 2020, the Lipkas timely filed their petition with
this Court, seeking our review of IRS Appeals’ determination to deny
them collection alternatives and sustain the proposed levy. The petition
shows a New Jersey address, and we assume that is the state in which
they resided. Respondent filed his motion for summary judgment; the
Lipkas filed an opposition to that motion; and respondent filed a reply.
                                      6

[*6]                              Discussion

I.     General legal principles

       A.    Summary judgment

       The purpose of summary judgment is to expedite litigation and
avoid unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678,
681 (1988). The Court may grant summary judgment when no genuine
dispute of material fact exists and a decision may be rendered as a
matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C.
518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994). The moving party
(here, the Commissioner) bears the burden of showing that no genuine
dispute of material fact exists, and for purposes of the motion, the Court
will draw inferences in the light most favorable to the nonmoving party
(in this case, the Lipkas). See Dahlstrom v. Commissioner, 85 T.C. 812,
821 (1985). However, the nonmoving party may not rest upon the mere
allegations or denials of its pleading but instead must set forth specific
facts showing that there is a genuine dispute for trial. Rule 121(d);
see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). The Lipkas
have not demonstrated any material fact in dispute, and we therefore
determine that this case is appropriate for summary adjudication.

       B.    Agency-level review in levy cases

       At the CDP hearing, IRS Appeals must determine whether the
proposed collection action may proceed. In the case of a notice of levy,
the procedures for the agency-level CDP hearing before IRS Appeals are
set forth in section 6330(c). IRS Appeals is required to take into
consideration several things:

       First, IRS Appeals must verify that the requirements of any
applicable law and administrative procedure have been met by IRS
personnel. § 6330(c)(1), (3)(A). The attachment to the notice of
determination sets forth the IRS Appeals officer’s compliance with these
requirements, and the Lipkas make no challenge as to verification in
their petition or in their opposition to the motion for summary judgment.
Consequently, no verification issues under section 6330(c)(1) are at
issue, and we do not discuss this requirement further.

       Second, the taxpayer may “raise at the hearing any relevant issue
relating to the unpaid tax or the proposed levy, including” challenges to
the appropriateness of the collection action and offers of collection
alternatives. § 6330(c)(2)(A). The Lipkas indicated interest in collection
                                    7

[*7] alternatives of an offer-in-compromise (“OIC”), an IA, or CNC
status; and their main contention here—that Appeals abused its
discretion sustaining the levy notwithstanding their financial hardship
situation—pertains to “the appropriateness of the collection action”,
which we will discuss below.

       Additionally, the taxpayer may contest the existence and amount
of the underlying tax liability, but only if the taxpayer did not receive a
notice of deficiency or otherwise have a prior opportunity to dispute the
tax liability. § 6330(c)(2)(B). The tax liability that the IRS proposes to
collect is the liability that the Lipkas reported on their return (plus
penalties and interest); and in their requests for CDP hearing, they did
not contest their underlying tax liability. Consequently, we do not
discuss further the underlying liability.

       Finally, 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). The Lipkas did not
raise intrusiveness in their request for a CDP hearing, in their petition
to this Court, or in their opposition to the Commissioner’s motion for
summary judgment, so no issues as to “balancing” under
section 6330(c)(3)(C) are before us, and we do not discuss this
requirement further.

      C.     Tax Court review

       Where, as here, the underlying tax liability is not at issue, we
review determinations of IRS Appeals for abuse of discretion. Goza v.
Commissioner, 114 T.C. 176, 181–82 (2000). Applying that abuse-of-
discretion standard, we decide whether IRS Appeals’ determination to
deny the Lipkas a collection alternative and to sustain the proposed levy
action was 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). We do not, however, substitute our judgment for that
of IRS Appeals, and we do not decide independently whether we believe
that the levy should be withdrawn. See id.

II.   Analysis

      As we noted above in Part I.B, 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). We hold that IRS Appeals
                                      8

[*8] adequately addressed the issues that the Lipkas raised in the CDP
hearing and did not abuse its discretion, for the reasons we now explain.

       A.     “[E]conomic hardship” as a ground for releasing a levy

       Section 6343(a)(1)(D) provides that “the Secretary shall release
the levy . . . if . . . the Secretary has determined that such levy is creating
an economic hardship due to the financial condition of the taxpayer”;
and the regulations provide that a levy creates “economic hardship”
when the taxpayer is rendered “unable to pay his or her reasonable basic
living expenses.” Treas. Reg. § 301.6343-1(b)(4)(i). Any circumstance
that would call for a levy to be “release[d]” would be a reason that a
proposed levy would not be “appropriate[]” for purposes of
section 6330(c)(2)(A)(ii), so “economic hardship” is a potential issue in a
CDP case concerning a proposed levy. See Vinatieri v. Commissioner,
133 T.C. 392, 402 (2009).

              1.     Whether hardship was raised and addressed

       The Lipkas assert in their petition that the IRS Appeals officer
ignored their claim that sustaining the levy would cause them “financial
hardship”; and their opposition to the Commissioner’s motion for
summary judgment similarly alleges “hardship” and cites section 6343.
Although the Lipkas’ request for a CDP hearing did not explicitly refer
to “hardship”, it did mention “financial circumstances”; and IRS
personnel who referred the request to IRS Appeals and indicated
“Collection alternatives . . . that apply” did check a box for “hardship”;
so we deem that the Lipkas adequately raised the issue of economic
hardship in their CDP hearing.

        Like the Lipkas’ request for a CDP hearing, IRS Appeals’ notice
of determination did not explicitly refer to “economic hardship” under
section 6343. However, “hardship” is one of the considerations that IRS
collections personnel consider in determining whether a taxpayer’s
liability is “currently not collectible”, see Internal Revenue Manual
5.16.1.2.9 (Sept. 18, 2018); and in her consideration of CNC status, the
Appeals Officer’s analysis in this case plainly evaluated the Lipkas’
circumstances to identify such hardship (and found none), as we set out
below. We therefore hold that “economic hardship” as a ground for
releasing a levy—and for rejecting a proposed levy—was both raised by
the Lipkas and considered by IRS Appeals, and we now review that
consideration for abuse of discretion.
                                      9

[*9]          2.     Whether IRS Appeals abused its discretion regarding
                     hardship

       Under the pertinent regulation implementing section 6343, IRS
Appeals is to consider any information provided by the taxpayer,
including the following: (1) the taxpayer’s age, employment status and
history, ability to earn, number of dependents, and status as a
dependent of someone else; (2) the amount reasonably necessary for
food, clothing, housing, medical expenses, transportation, current tax
payments, or other court-ordered payments; (3) the cost of living in the
geographic area in which the taxpayer resides; (4) the amount of
property exempt from the levy which is available to pay the taxpayer’s
expenses; (5) any extraordinary circumstances such as special education
expenses, a medical catastrophe, or a natural disaster; and (6) any other
factor that the taxpayer claims bears on economic hardship. Treas. Reg.
§ 301.6343-1(b)(4)(ii). Reasonable basic living expenses are based on the
taxpayer’s circumstances but do not include amounts needed to
maintain an affluent or luxurious standard of living. Treas. Reg.
§ 301.6343-1(b)(4)(i).

        The record shows that the IRS Appeals officer did not ignore the
financial information that the Lipkas submitted. The case activity
report reflects that they complained during a telephone conference of “a
large bill” associated with the impending criminal matter against them.
The IRS Appeals officer subsequently asked them for documentation
regarding their legal expenses, but the supplemental documentation
they provided did not include any legal bills. Their documentation did
reveal that a portion of their deposits (originally treated by Appeals as
available to pay tax) were in fact re-deposits of the same funds rather
than real receipts, and that another portion had been used to pay the
IRS and the State of New Jersey. However, IRS Appeals accepted the
Lipkas’ additional financial information, accepted their explanations
about their deposits and, on the basis of their information, recomputed
their ability to pay in their favor (i.e., reduced it). But even the favorably
revised computation showed that the Lipkas could fully pay their total
liability for 2017 over the remaining period of collections. Accordingly,
we conclude that they put forward financial information concerning
economic hardship and that IRS Appeals reasonably reviewed and fully
accounted for this information in making its determination. Although
the Lipkas may have disagreed with the IRS Appeals officer’s judgment,
this Court “do[es] not recalculate a taxpayer’s ability to pay and
substitute our judgment for that of the settlement officer.” O’Donnell v.
Commissioner, T.C. Memo. 2013-247, at *15.
                                   10

[*10] In their opposition the Lipkas identify no error in the IRS Appeals
officer’s calculation of their allowable expenses or their gross monthly
income. Instead, they highlight that they are parties to a state law
criminal matter. But taxpayers cannot rely on an unsubstantiated,
unquantified claim that they would suffer economic hardship; rather,
“taxpayers must submit complete and current financial information.”
Rehn v. Commissioner, T.C. Memo. 2016-54, at *13. Accordingly, the
Lipkas’ claim that they should be granted relief from the proposed levy
based solely on account of hardship arising from their being defendants
in a criminal matter has no merit.

      B.     Collection alternatives

       The Lipkas requested three collection alternatives on their
Form 12153—i.e., that their account be placed in CNC status, or that
they be allowed to enter an IA, or that IRS Appeals consider an OIC—
and the notice of determination acknowledged these requests. The
petition refers to the IA option (by mentioning the “payment plan in the
amount of $10,000” that was “not feesable” [sic]) but otherwise does not
mention these collection alternatives, and the Lipkas’ opposition to the
motion for summary judgment mentions none of them (instead relying
solely on the contention as to “economic hardship”). However, all three
required the same financial information that was relevant to assessing
“economic hardship” under section 6343; the Lipkas had failed to
provide that information; and we can very briefly address these
overlapping requests.

             1.    OIC and IA

        During the CDP process and thereafter, the Lipkas never
submitted a Form 656, as is requisite for an OIC, see Treas. Reg.
§ 301.7122-1(d)(1) (“An offer to compromise a tax liability pursuant to
section 7122 must be submitted according to the procedures, and in the
form and manner, prescribed by the Secretary”), and never proposed
terms for an IA in response to IRS Appeals’ proposed terms (which the
Lipkas rejected). Consequently, IRS Appeals did not abuse its discretion
by not entertaining the Lipkas’ supposed desire for an IA or an OIC. See
James A. Walker, P.A. v. Commissioner, T.C. Memo. 2014-187, at *10
(“[I]t is not an abuse of discretion where the taxpayer does not propose
any terms for an installment agreement or propose a specific collection
alternative”).
                                     11

[*11] Moreover, even if the Lipkas had properly submitted an OIC or
offered concrete terms for an IA, this fact would not change the result.
As noted above, the IRS Appeals officer concluded that the Lipkas could
pay their 2017 tax liability in full and, indeed, the record supports this
determination. The financial information before IRS Appeals reflected
a gross monthly income of $28,275 and allowable expenses of only
$17,954, leaving a net difference of $10,321. On the basis of this
information, the Appeals officer proposed a reasonable installment
agreement calling for monthly payments of $10,000. Nevertheless, the
Lipkas did not accept or counter IRS Appeals’ offer and, despite ample
opportunity to do so, never presented additional evidence of increased
expenses to enable Appeals to further evaluate their financial situation
and warrant a different determination. See Pough v. Commissioner,
135 T.C. 344, 351 (2010) (“[I]t is not an abuse of discretion to move ahead
if the taxpayer fails to submit the requested items”); Bullock v.
Commissioner, T.C. Memo. 2017-161, at *10 (“[A]n SO is not required to
negotiate with a taxpayer indefinitely”).

             2.     CNC status

       Because the Lipkas failed to offer anything new about their
purported increased expenses, the same analysis of the evidence that
supports IRS Appeals’ non-acceptance of an OIC or an IA also supports
its conclusion that they had not demonstrated entitlement to have their
account placed in CNC status. See Sullivan v. Commissioner, T.C.
Memo. 2012-337, at *19 (“Appeals must of course have information that
enables it to evaluate the taxpayer’s financial situation.”); Willis v.
Commissioner, T.C. Memo. 2003-302 (finding that taxpayers’ ability to
make some payments toward their liability made them ineligible to have
the liability classified as currently not collectible). The Lipkas’ financial
information demonstrated that they were currently able to pay toward
their liability, so it was not “not collectible”.

      C.     Face-to-face hearing

      Next, the Lipkas seem to suggest in their petition that the IRS
Appeals officer erred in denying their request for an in-person CDP
hearing. Though a CDP hearing can consist of a face-to-face conference,
a proper section 6330 hearing can also occur by telephone or by
correspondence under certain circumstances. See Katz v. Commissioner,
115 T.C. 329, 337–38 (2000). As relevant here, face-to-face CDP
hearings to consider collection alternatives need not be granted where
the taxpayer has failed to provide requested information or to comply
                                    12

[*12] with filing and payment obligations.             See Campbell v.
Commissioner, T.C. Memo. 2013-57, at *17 (holding that it is not an
abuse discretion for a settlement officer to deny a taxpayer’s face-to-face
hearing request when the taxpayer fails to supply proof of estimated tax
payments); see also Treas. Reg. § 301.6330-1(d)(2), Q&A-D8. Here, the
Lipkas repeatedly failed to timely satisfy the IRS Appeals officer’s
requests to submit a completed Form 433–A. Further, they were not
current with their 2019 estimated tax payments when they requested
the face-to-face CDP hearing, and nothing in the record indicates that
they made any deposits of estimated tax to make themselves eligible for
a face-to-face CDP hearing. The IRS Appeals officer therefore did not
abuse her discretion in denying the Lipkas a face-to-face CDP hearing.

       D.    “Multi-agency collaboration”

       In their opposition the Lipkas also contend for the first time that
IRS Appeals “fail[ed] to explore the opportunity of multi-agency
collaboration which could result in the removal of encumbrances on
assets that could be sold with proceeds used to satisfy the tax debt.” Any
contention that they advance in the Tax Court, however, must first have
been raised in the CDP hearing before IRS Appeals, and nothing in the
record indicates that they ever suggested such “multi-agency
collaboration”. See Magana v. Commissioner, 118 T.C. 488, 493 (2002)
(“[G]enerally we consider only arguments, issues, and other matter that
were raised at the collection hearing or otherwise brought to the
attention of the [IRS] Appeals Office”); see also Giamelli v.
Commissioner, 129 T.C. 107, 115–16 (2007) (holding that review of
collection determinations for abuse of discretion must be limited to
issues raised before Appeals); Treas. Reg. § 301.6330-1(f)(2), Q&A-F3.
Because the Lipkas failed to raise this purported issue at the CDP
hearing, we can hardly say that IRS Appeals abused its discretion by
not considering it, so we will not consider it for the first time here.

III.   Conclusion

      IRS Appeals did not abuse its discretion in denying a collection
alternative to the Lipkas and sustaining the proposed levy to collect
their unpaid income tax for 2017. As a result, the Commissioner’s
motion for summary judgment will be granted.

       To reflect the foregoing,

       An appropriate order and decision will be entered.