Tax Court in Brief | Phillips v. Commissioner | Due collection process and no abuse of discretionary power | law of the free man


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Tax litigation: The week of June 13, 2022 to June 17, 2022

  • Hatfield vs. Comm’r, Memo TC. 2022-59 | June 13, 2022 | Lauber, J. | Dekt. Nos. 7327-20, 1500-21
  • Chavis v. Comm’r, 158 TC No. 8 | June 15, 2022 | Lauber, J. | Dekt. No. 11835-20L
  • Howland v. Commissioner, TC Memo. 2022-60 | June 13, 2022 | Weiler, J. | Dekt. No. 17526-19
  • Romana v. Commissioner, TC Summary Notice 2022-9 | June 16, 2022 | Carluzzo, J.| Dekt. No. 1156-21S
  • Kellet c. Comm’r, TC Memorandum 2022-62 | June 14, 2022 | Greaves, J. | Dekt. No. 21518-18
  • Walker vs. Commissioner, Memo TC. 2022-63 | June 15, 2022 |Nega, J.| Dekt. No. 16958-18L

Phillips v. Comm’r, TC Memo. 2022-58 | June 13, 2022 | Lauber, J. | Dekt. No. 18553-21L

Short summary: Anthony Phillips (Anthony) has not paid all of his federal tax liabilities and penalties for the 2008, 2012, 2013, 2015, and 2016 tax years. As a result, the IRS has filed a Notice of Federal Tax Lien (NFTL ) and Anthony filed for a Collection Due Process (CDP) hearing. In his CDP request, Anthony did not dispute the amount or existence of the taxes and penalties, nor the NFTL filing itself. On the contrary, Anthony only offered a collection alternative through an Offer in Compromise (OCI) proposal.

The IRS Settlement Officer (SO) rejected the OCI but advised Anthony that he was eligible for a $443 per month installment arrangement. Anthony expressed interest in an installment deal but informed the ER that he could only pay $333 per month. To resolve this impasse, the ER agreed to accept an installment arrangement of $333 per month for the first 12 months and $475 per month for the final 60 months. Anthony agreed to the terms of the installment agreement and signed a Form 433-D, installment agreement. Form 433-D specifically stated that the NFTL would not be withdrawn while the agreement was in effect.

The ER issued a Notice of Determination (NOD), finding that the NFTL should not be withdrawn because the parties had entered into an installment agreement. However, the NOD incorrectly stated the terms of the installment agreement, stating that Anthony would be required to pay $650 per month (instead of the agreed $475 per month) for the final 60 months of the agreement.

Anthony timely filed a motion with the Tax Court, alleging that the OIC “should have been approved” and that “the outstanding balance is inaccurately high”. The IRS filed a motion for summary judgment and Anthony did not respond.

Key questions:

  • Whether the ER abused its discretion in concluding that the NFTL record was appropriate.

Main holdings:

  • First, Anthony failed to properly challenge the amount of taxes and penalties at the CDP hearing, preventing judicial review of this issue. Second, the record supported the ER’s decision that the NFTL should not be withdrawn because the parties had entered into an installment agreement, the terms of which allowed the IRS to maintain the NFTL.

Main points of law:

  • The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming and unnecessary trials. Peach Corp. against Comm’r, 90TC 678, 681 (1988). Under rule 121(b), the Tax Court can grant summary judgment where there is no real dispute as to a material fact and a decision can be made at law. Sundstrand Corp. against Comm’r98 TC 518, 520 (1992), aff’d17 F.3d 965 (7th Cir. 1994).
  • Section 6330(c) and Section 6330(d)(1) do not prescribe the standard of review that the Tax Court should apply when reviewing an IRS administrative decision in a CDP case. However, Tax Court jurisprudence provides that where the validity of a taxpayer’s underlying liability is in issue, the Court reviews the IRS’ decision de novo. Goza vs. Comm’r, 114 TC 176, 181-82 (2000). Alternatively, where the taxpayer’s underlying liability is not properly in issue, the Court reviews the IRS decision solely for abuse of power. See id. at 182. An abuse of discretion occurs when a determination is arbitrary, capricious or without solid basis in fact or law. See Murphy v. Comm’r125 TC 301, 320 (2005), aff’d469 F.3d 27 (1st Cir. 2006).
  • An issue is not properly raised – and therefore excluded from judicial review – if the taxpayer fails to seek consideration of the issue at the CDP hearing. Reg. § 301.6320-1(f)(2), Q&A-F3; see also Giamelli v. Comm’r129 TC 107, 115 (2007).
  • In deciding whether the RE abused its discretion in supporting the collection action, the Tax Court considers whether the RE: (1) properly verified that the requirements of applicable law or administrative procedure have been complied with; (2) considered all relevant issues raised by the taxpayer; and (3) considered “whether any proposed collection action balances the need for effective tax collection with the taxpayer’s legitimate concern that any collection action be no more intrusive than necessary”. 6330(c)(3); Second. 6320(c).
  • Section 6323(j)(1)(B) permits the withdrawal of an NFTL deposit if the taxpayer has entered into an installment agreement “unless that agreement provides otherwise”. See MRI pt. (6 September 2019). Whether “[t]the installment agreement provided for the NFTL”, then “[a] the withdrawal request may not be granted. at; see also Treasures. Reg. § 301.6323(j)-1(b)(2).
  • A Notice of Determination does not have to be “error-free to stand”. See Salahuddin v. Comm’r, Memo TC. 2012-141. And a CDP case should only be adjourned when an additional hearing would be “necessary or productive”. See Lunsford v. Comm’r117 TC 183, 189 (2001).

Knowledge: During a CDP hearing, taxpayers should carefully curate any issues they may have in the course of the proceedings before the Tax Court. To the extent that a taxpayer fails to do so, the decision in Phillips demonstrates that the problem is, in most cases, lost.

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