The US Tax Court remanded the case for Appeals to reconsider petitioners’ ability to pay, and to afford petitioners a final opportunity to submit a legible 2021 tax return.
The bench of Judge Pugh observed that in the collection case petitioners seek review pursuant to section 6330(d)(1) of a determination by the Internal Revenue Service (IRS) Independent Office of Appeals (Appeals) to uphold a proposed levy for tax years 2010 and 2012–16 (years in issue). Currently pending before the Court are petitioners’ Motion to Remand, filed February 14, 2024, and respondent’s Motion for Summary Judgment, filed February 20, 2024.
The IRS assessed the balances shown on petitioners’ returns filed for the years in issue as well as interest. Petitioners partially satisfied these balances through credits and subsequent payments. To collect the unpaid balances, the IRS sent petitioners Notice LT11, Notice of Intent to Levy and Your Collection Due Process Right to a Hearing. Petitioners’ representative timely submitted Form 12153, Request for a Collection Due Process or Equivalent Hearing, indicating petitioners sought a collection alternative and checking the boxes for “Installment Agreement” and “Offer in Compromise.”
Appeals assigned Settlement Officer Sonya Hart (SO Hart) to petitioners’ administrative hearing request. SO Hart requested a completed Form 433–A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and Form 656, Offer in Compromise.
Read More: https://jurishour.in/us-tax-court-failure-dept-deficiency-notice-mailed/
Shortly before the administrative hearing, petitioners’ representative faxed SO Hart a completed Form 433–A, petitioners’ bank statements, and a copy of petitioners’ 2018 tax return. The fax cover sheet stated: “Mr. and Mrs. Keith informed that they periodically borrow money from their son. You will notice a withdrawal of $24,000 that they used to pay their son back.” The fax cover sheet also included petitioners’ request for a tiered installment plan of $500 per month for 24 months and $1,000 per month.
At the administrative hearing, SO Hart noted the 2018 tax return was signed only by the return preparer. She asked for a copy signed by petitioners and a completed Form 433–D, Instalment Agreement. Petitioners’ representative faxed a 2018 tax return signed by petitioners but not the requested Form 433–D. After the 2018 tax return was processed, SO Hart asked the representative (in two separate phone calls) for the Form 433–D. And she later asked for petitioners’ 2021 tax return. The representative faxed the 2021 return to her, but it was illegible.
Months later petitioners informed SO Hart that their representative had left the firm she was working for and they wanted to proceed unrepresented. Petitioners requested an installment agreement of $1,000 per month for 12 months, increasing to $1,500 per month thereafter. SO Hart submitted petitioners’ request (along with all the documentation she had) to IRS Collections Operations (Collections) to determine petitioners’ ability to pay. Collections determined an ability to pay of $4,217 per month, rejecting petitioners’ installment agreement request.
Petitioners then hired a new representative, who explained to SO Hart that Collections had calculated petitioners’ ability to pay incorrectly because it added a $24,000 loan to their income. The new representative sought more time to submit additional documentation and was given until June 30, 2023. Petitioners did not submit additional documentation (including a legible copy of their 2021 return) by that date. On July 14, 2023, Appeals issued the Notice of Determination upon which this case is based, and petitioners timely petitioned to challenge it.
Petitioners seek remand for four reasons. First, they claim that SO Hart did not provide them with a detailed breakdown of how Collections calculated their ability to pay and that Collections miscalculated their ability to pay. They further claim that SO Hart and Collections knew that Mrs. Keith was a real estate agent, but Collections included incorrectly a one-time real estate commission check in its calculation of petitioners’ monthly income. They also claim that Collections erred in including the $24,000 loan from their son in their monthly income calculation. Second, SO Hart delayed handling their case. Third, she erred in not considering their challenge to the underlying liability. Finally, they claim that between the administrative hearing and the filing of their Motion, their personal and financial circumstances have changed.
Respondent counters that SO Hart did not need to provide a detailed breakdown. He asserts that Collections’ calculations did not significantly differ from petitioners’ calculations of monthly income on their Form 433–A and Collections simply adjusted petitioners’ monthly income to reflect their bank statements. Respondent also points out that the administrative record does not show petitioners ever informed SO Hart that Mrs. Keith was a real estate agent or that she received a commission check.3 Nor does the record show that they ever challenged their underlying liability. Respondent blames petitioners for the delays in their case because they did not provide SO Hart with the Form 433–D and their 2021 tax return despite multiple requests and ample time to do so. Petitioners’ failure to provide those documents means it was not an abuse of discretion for Appeals to sustain the proposed levy. The petitioners have not shown how their personal and financial circumstances have changed.
The court concluded that petitioners have identified enough evidence in the administrative record to question whether the calculation of their ability to pay was flawed.
Case Details
Case Title: James E. Keith And Julie Keith Versus Commissioner Of Internal Revenue
Citation: T.C. Memo. 2024-81
Decision date: 08/28/24