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RECENT CASES
Du Toit v. Comm'r of Internal Revenue (T.C. 2022)
August 5, 2022
ORDER & DECISION
L. Paige Marvel, Judge.
This case arises under our jurisdiction pursuant to sections 6320(c) and
6330(d) and is before the Court on respondent's motion for summary judgment,
filed August 25, 2021. Petitioner, Nicolette A. Du Toit, filed a reply in opposition
of respondent's motion for summary judgment on September 23, 2021. Ms. Du
Toit resided in Switzerland when she petitioned this Court.
Ms. Du Toit presently seeks review of two notices issued by respondent: (1)
a Supplemental Notice of Determination Concerning IRS Collection Actions Under Internal Revenue Code Sections 6320 or 6330 issued on January 11, 2021, which sustained the proposed levy for tax years 2010, 2012, 2013, and 2014 and (2) a Supplemental Notice of Determination Concerning IRS Collection Actions Under Internal Revenue Code Sections 6320 or 6330 issued on April 1, 2021, which sustained the filing of a notice of federal tax lien for tax year 2011.
Ms. Du Toit argues that, when respondent issued the supplemental notices of determination, respondent erred in calculating her reasonable collection potential, abused his discretion in rejecting her proposed collection alternative of an offer-incompromise (OIC), and failed to properly balance the government's interest in efficient tax collection with Ms. Du Toit's concern that the collection action be no more intrusive than necessary. For the reasons set forth below, we will grant respondent's motion.
Background
The following facts are drawn from the parties' pleadings and motion
papers, including accompanying declarations and exhibits, and are not in
dispute.
Ms. Du Toit is a dual citizen of the United States and Switzerland, and she
lived and worked in Switzerland throughout tax years 2010, 2011, 2012, 2013, and
2014 (years at issue). During the years at issue, Ms. Du Toit paid taxes in both the
United States and Switzerland, but she filed delinquent Forms 1040, U.S.
Individual Income Tax Return, for the years at issue. Each return reported tax due
for its respective tax year, but Ms. Du Toit failed to pay the liabilities in full on the
dates she filed the returns.
Respondent assessed Ms. Du Toit's self-reported tax
liabilities as well as additions to tax for failure to timely file, failure to timely pay,
and failure to pay estimated tax. Ms. Du Toit fully paid her liability for tax year
2010 on April 5, 2018. As of August 23, 2021, Ms. Du Toit's outstanding liabilities
for tax years 2011, 2012, 2013, and 2014 were $41,186, $10,105, $17,145, and
$42,623, respectively.The Internal Revenue Service (IRS) issued several lien and levy notices to
Ms. Du Toit for the years at issue. On December 2, 2014, respondent issued a
Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing,
for tax year 2011 (2011 levy notice). Ms. Du Toit did not timely file a Form 12153,
Request for a Collection Due Process or Equivalent Hearing (hearing request)
with respect to the 2011 levy notice. On July 28, 2015, respondent issued a Notice
of Federal Tax Lien Filing and Your Right to a Hearing (NFTL) for tax year 2011
(2011 NFTL).
Ms. Du Toit timely submitted a hearing request with respect to the
2011 NFTL on September 1, 2015. On September 8, 2015, respondent issued a
Letter 1058, Final Notice-Notice of Intent to Levy and Notice of Your Right to a
Hearing, for tax year 2010 (2010 levy notice). Ms. Du Toit timely filed a hearing
request with respect to the 2010 levy notice on September 22, 2015.[3] On January
28, 2016, respondent issued a Letter 1058, Final Notice-Notice of Intent to Levy
and Notice of Your Right to a Hearing, for tax year 2014 (2014 levy notice). Ms. Du
Toit timely submitted a hearing request with respect to the 2014 levy notice on
February 25, 2016. Finally, on April 28, 2016, respondent issued a Letter 1058,
Final Notice- Notice of Intent to Levy and Notice of Your Right to a Hearing, for
tax years 2012 and 2013 (2012 and 2013 levy notice). Ms. Du Toit timely submitted
a hearing request with respect to the 2012 and 2013 levy notice on May 27, 2016.
In these initial hearing requests, Ms. Du Toit checked boxes indicating that she
was requesting an installment agreement or an OIC as possible collection
alternatives with respect to all years at issue, and that she was requesting
withdrawal of the 2011 NFTL.
2
I. First Hearing
Ms. Du Toit's hearing requests were assigned to Settlement Officer P.
Salinger (SO Salinger) at the IRS Office of Appeals[4] (Appeals Office) in Tampa,
Florida. Ms. Du Toit, through her counsel, requested a face-to-face hearing at the
Philadelphia, Pennsylvania Appeals Office.
On February 1, 2016, SO Salinger sent a letter to Ms. Du Toit and her counsel requesting that they provide a completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and copies of Ms. Du Toit's six most recent monthly bank
statements to Revenue Officer A. Cordero (RO Cordero) by February 22, 2016. On February 23, 2016, Ms. Du Toit's counsel faxed a partially completed Form 433-A to RO Cordero, along with statements relating to Ms. Du Toit's bank accounts, stocks, and mortgage. On March 15, 2016, Ms. Du Toit's counsel faxed a letter to SO Salinger and RO Cordero requesting an additional 30 to 45 days to submit an OIC and to file her federal income tax return for tax year 2015.
On April 29, 2016, SO Salinger mailed a letter to Ms. Du Toit's counsel scheduling a telephonic hearing for May 18, 2016. In the letter, SO Salinger stated that he had not received Ms. Du Toit's Form 433-A or bank statements and requested that information be provided by May 16, 2016.
On June 13, 2016, Ms. Du Toit's counsel faxed an unsigned copy of her 2015 federal income tax return to SO Salinger and RO Cordero. On June 30, 2016, SO Salinger faxed Ms. Du Toit's counsel a letter acknowledging receipt of the unsigned 2015 return and advised Ms. Du Toit to make her estimated tax payments. SO Salinger also stated that he still had not received Ms. Du Toit's financial information and set a final due date of July 6, 2016. Ms. Du Toit's counsel replied to SO Salinger, again via fax, on July 6, 2016, and stated that RO Cordero had advised Ms. Du Toit that he had forwarded her financial information to SO Salinger. As of July 7, 2016, SO Salinger noted that the requested financial information had not been received by RO Cordero.
On August 4, 2016, SO Salinger issued a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination), which fully sustained the proposed levy action for the levy for
2010, 2012, 2013, and 2014. The notice of determination stated that the Appeals Office was not able to consider any collection alternatives because Ms. Du Toit did not provide the necessary financial information and was not in compliance with her estimated tax payment obligations for tax year 2016. Also on August 4, 2016, SO Salinger issued a Decision Letter Concerning Equivalent Hearing Under
Section 6320 and/or 6330 of the Internal Revenue Code (decision letter), which
sustained the NFTL and proposed levy action for tax year 2011. The decision letter stated that Ms. Du Toit's hearing request was not timely and that the Appeals Office was unable to consider any collection alternatives for the same reasons given in the notice of determination.
II. First Supplemental Hearing
On September 1, 2016, Ms. Du Toit filed her petition in this case, contesting
the determinations set forth in both the notice of determination and the decision
letter. Ms. Du Toit alleged that the Appeals Office failed to fully consider her
economic situation and the financial information she provided, erred in
determining that her 2011 hearing request was not timely, failed to issue a notice
of intent to levy to her last known address for tax year 2011, and abused its
discretion in denying her request for a face-to-face hearing. After reviewing the
case, respondent's counsel noted that the financial records Ms. Du Toit had
submitted to RO Cordero were not in respondent's administrative file and likely
had not been considered by SO Salinger before issuing the 2011 notice of
determination and decision letter. Respondent's counsel also agreed that Ms. Du
Toit had timely filed a hearing request with respect to the 2011 NFTL. As a result,
on July 20, 2017, respondent filed a motion to remand the case to the Appeals
Office so that a supplemental hearing could be held to correct these defects. We
granted the motion to remand on July 27, 2017.
SO Salinger was assigned to conduct the supplemental hearing. SO Salinger
scheduled a telephonic supplemental hearing for October 10, 2017, and requested
that Ms. Du Toit provide an updated Form 433-A and copies of her six most recent
bank statements by October 2, 2017. On October 10, 2017, SO Salinger spoke to
Ms. Du Toit's counsel and explained that Ms. Du Toit did not qualify for a face-toface
hearing because she had not provided all of the financial information needed
to determine whether she qualified for collection alternatives. Ms. Du Toit's
counsel provided the requested financial documents to SO Salinger via three
faxes sent on October 18, 19, and 20, 2017. On October 26, 2017, Ms. Du Toit
faxed SO Salinger an updated Form 433-A and a Form 656, Offer in Compromise.
On January 8, 2018, Ms. Du Toit faxed an updated Form 433-A and Form 656. Ms.
Du Toit's OIC was $9,800 in total for tax years 2009 through 2015, and the reason
given for the offer was "exceptional circumstances".
Ms. Du Toit's OIC was referred to the IRS's Centralized Offer in Compromise
(COIC) unit for investigation and assigned to Offer Specialist C. Libey (OS Libey).
After investigation, OS Libey determined that Ms. Du Toit had sufficient equity in
assets to fully pay her tax liabilities and recommended rejection of Ms. Du Toit's
OIC to her manager, COIC Manager J. Harrell (COIC Manager Harrell). COIC
Manager Harrell approved OS Libey's recommendation, and on August 9, 2018, he
sent a letter to Ms. Du Toit and her counsel informing them that her OIC was
rejected. On September 6, 2018, Ms. Du Toit sent a letter protesting the rejection
of her OIC and requesting a face-to-face conference at the Philadelphia,
Pennsylvania Appeals Office. Ms. Du Toit objected to several items on the
Asset/Equity Table (AET) and Income/Expense Table (IET) that OS Libey had
prepared as part of her investigation into Ms. Du Toit's OIC.
4
On November 6, 2018, SO Salinger received Ms. Du Toit's case from the
COIC unit. SO Salinger determined that the COIC unit should not have rejected
Ms. Du Toit's OIC; instead, because the OIC was submitted as a collection
alternative, the COIC unit should merely have made a recommendation to the
Appeals Office to reject the OIC. Ms. Du Toit provided additional documents to
SO Salinger to support her objections to the AET and IET that OS Libey prepared,
and she offered to increase her OIC from $9,800 to $18,500. After considering the
additional documents, SO Salinger made numerous adjustments to the AET and
IET. SO Salinger then calculated Ms. Du Toit's reasonable collection potential
(RCP) using the updated AET and IET: he multiplied Ms. Du Toit's calculated
monthly ability to pay by 12 months and then added to that Ms. Du Toit's equity in
assets to arrive at an RCP of $62,203. Because Ms. Du Toit's RCP was greater
than her OIC, SO Salinger determined to reject the OIC.
During the supplemental hearing, SO Salinger also reviewed Ms. Du Toit's
claims regarding the 2011 levy notice and 2011 NFTL. SO Salinger obtained a
copy of the 2011 levy notice and the accompanying Postal Service Form 3877 (PS
3877), which showed that the notice was sent to Ms. Du Toit's last known address
via registered mail on December 2, 2014. With respect to the 2011 NFTL, SO
Salinger confirmed that the IRS had timely received Ms. Du Toit's hearing request
on September 4, 2015, before the September 13, 2015, deadline.
On October 31, 2019, the Appeals Office issued two supplemental notices of
determination, one regarding the 2011 NFTL and one regarding the proposed
levies for tax years 2010, 2012, 2013, and 2014. The supplemental notices
sustained the proposed levies and the NFTL in full because Ms. Du Toit's OIC of
$18,500 was less than her RCP of $62,203, as calculated by the Appeals Office.
Each supplemental notice of determination was signed by SO Salinger's
manager, Appeals Team Manager R. Warren (ATM Warren).
On November 20, 2019, this case was restored to the Court's docket. On or about January 9, 2020, Ms. Du Toit informed respondent's counsel that she agreed with the RCP of $62,203 and requested to amend her OIC to that amount. On February 27, 2020, respondent filed a motion to remand the case to the Appeals Office to allow Ms. Du Toit to submit an amended OIC of $62,203.
OnMarch 2, 2020, we granted the motion to remand.
III. Second Supplemental Hearing
Ms. Du Toit's case was remanded back to the Appeals Office in Tampa,
Florida for a second supplemental hearing and assigned to Settlement Officer N.
Diaz (SO Diaz).
5
On August 19, 2020, Ms. Du Toit faxed SO Diaz a Form 14640, Addendum to
Form 656 (amended OIC). The amended OIC was for $62,300 in total, including
amounts already paid, and the reason for the offer was doubt as to collectibility.
SO Diaz initially noted that she would recommend accepting Ms. Du Toit's
amended OIC.
On September 9, 2020, ATM Warren instructed SO Diaz to verify SO Salinger's computation of Ms. Du Toit's RCP. To verify the RCP calculated by SO Salinger, SO Diaz began by analyzing whether Ms. Du Toit could pay her liabilities in full under an installment agreement. SO Diaz determined that the collection statute expiration date (CSED) for the latest tax year at issue, 2014, expired on July 11, 2030, and she inputted December 1, 2020, as the beginning date for an installment agreement. SO Diaz determined that there were 116 months remaining until the latest CSED and that, using the number calculated by SO Salinger as Ms. Du Toit's monthly ability to pay, Ms. Du Toit would be able to pay $2,178 per month to pay her liabilities in full in 89 months. SO Diaz noted that SO Salinger had only used a multiplier of 12 months rather than the number of months remaining until the CSED.[5] Accordingly, SO Diaz concluded that Ms. Du Toit's true RCP was significantly higher than the $62,203 previously calculated by SO Salinger.
SO Diaz prepared a new AET and IET using the 116-month multiplier, and she calculated Ms. Du Toit's RCP to be $359,177. SO Diaz sent her calculations to ATM Warren for review, who instructed her to contact Ms. Du Toit's counsel with the corrected AET and IET. On September 28, 2020, SO Diaz spoke to Ms. Du Toit's counsel and informed him that ATM Warren had declined to approve the amended OIC.[6] On September 30, 2020, SO Diaz mailed a letter to Ms. Du Toit and her counsel explaining that ATM Warren had declined to approve her recommendation to approve the amended OIC because Ms. Du Toit's RCP, as recalculated after SO Diaz had made her initial recommendation, indicated that Ms. Du Toit had the ability to pay in full. SO Diaz requested that Ms. Du Toit reply
within 30 days from the date on the letter to inform SO Diaz of any items she
disagreed with.
SO Diaz also informed Ms. Du Toit that she could request an installment agreement as a collection alternative. On October 29, 2020, Ms. Du Toit's counsel sent SO Diaz a fax expressing his disagreement with ATM Warren's rejection of the amended OIC, but he did not indicate any specific items in the AET or IET with which he disagreed.
On January 11 and April 1, 2021, the Appeals Office issued the two
supplemental notices of determination presently at issue: (1) a Supplemental
Notice of Determination Concerning IRS Collection Actions Under Internal
Revenue Code Sections 6320 or 6330, for tax years 2010, 2012, 2013, and 2014, which sustained the proposed levy action for those years in full and (2) a Supplemental Notice of Determination Concerning IRS Collection Actions Under Internal Revenue Code Sections 6320 or 6330, for tax year 2011, which sustained the filing of the 2011
NFTL. Each notice stated that the Appeals Office could not approve an OIC
because Ms. Du Toit's financial records indicated that she had the ability to pay
her liabilities in full.
Each notice also stated that SO Diaz verified that the
requirements of any applicable law or administrative procedure were met and that
the sustaining the proposed lien or levy action balanced the IRS's need for
efficient collection with Ms. Du Toit's concern that the collection action be no
more intrusive than necessary.
On August 25, 2021, respondent filed a motion for summary judgment. Ms.
Du Toit filed a reply in opposition of respondent's motion on September 23, 2021.
On October 25, 2021, we held a hearing on respondent's motion. At that hearing,
Ms. Du Toit's counsel indicated that she was interested in pursuing an installment
agreement.
We granted the parties time to discuss the possibility of an
installment agreement and took respondent's motion under advisement.
However, Ms. Du Toit later decided that she did not want to enter an installment
agreement. Because the parties have not been able to reach an agreement, we
now address respondent's motion for summary judgment.
Discussion
Summary adjudication is designed to expedite litigation and avoid
unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678,
681 (1988). Under Rule 121(b), we may grant summary judgment "if the pleadings,
answers to interrogatories, depositions, admissions, and any other acceptable
materials, together with the affidavits or declarations, if any, show that there is no
genuine dispute as to any material fact and that a decision may be rendered as a
matter of law." See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992),
aff'd, 17 F.3d 965 (7th Cir. 1994).
In resolving a motion for summary judgment, we
view the facts and draw inferences therefrom in the light most favorable to the
nonmoving party. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). The
nonmoving party, however, may not rest on mere allegations or denials but must
set forth specific facts showing that there is a genuine dispute for trial. Rule
121(d); see Sundstrand Corp., 98 T.C. at 520.
This Court has jurisdiction to review the Appeals Office's determinations
concerning collection actions when the taxpayer timely petitions for review.[7]
§§ 6320(c), 6330(d)(1). Where the validity of the taxpayer's underlying liability is
properly at issue, we review the underlying liability de novo. Sego v.
Commissioner, 114 T.C. 604, 610 (2000). We review the Appeals Office's
determinations respecting any nonliability issues for abuse of discretion. Goza v.
Commissioner, 114 T.C. 176, 181-82 (2000).
I. The Underlying Liabilities
A taxpayer may challenge his or her underlying tax liability in a lien or levy
hearing if the taxpayer did not receive a notice of deficiency or otherwise have a
prior opportunity to challenge the liability. § 6330(c)(2)(B); Pough v.
Commissioner, 135 T.C. 344, 349-50 (2010). Ms. Du Toit's underlying liabilities are
self-reported, and she did not challenge their validity during any of her hearings
or in her petition to this Court, but she did indicate in her initial hearing requests
that she was seeking abatement of the additions to tax. However, Ms. Du Toit did
not advance this argument beyond her hearing requests and has not raised the
issue of abatement to the Court. We therefore conclude that she has abandoned
this argument.
See, e.g., Nicklaus v. Commissioner, 117 T.C. 117, 120 n.4 (2001)
(finding that the taxpayers abandoned arguments that they did not advance in
their brief). Because Ms. Du Toit has abandoned the only contention that might
have been construed as raising a challenge to any portion of her underlying
liabilities, we will review the Appeals Office's determinations for abuse of
discretion.
II. First Hearing
In her petition, Ms. Du Toit contended that the 2011 levy notice was not mailed to her last known address and that she was thereby denied the opportunity to request a hearing with respect to that notice. She further argued that the Appeals Office erred in issuing a decision letter concerning collection equivalent rather than a notice of determination concerning collection action with respect to the 2011 tax year because she timely requested a hearing with respect to the 2011 NFTL and that the Appeals Office abused its discretion in failing to
consider the financial information Ms. Du Toit provided. We address each of
these arguments in turn.
The IRS is required to issue a final notice of intent to levy to a taxpayer by
certified or registered mail, return receipt requested, to the taxpayer's last known
address. § 6330(a)(2)(C). A rebuttable presumption of official regularity arises
when the IRS can show that such a notice exists and that it was properly mailed
to the taxpayer. See Sego, 114 T.C. at 611; see also Cropper v. Commissioner, 826
F.3d 1280, 1285 (10th Cir. 2016), aff'g T.C. Memo. 2014-139.
A notice is "properly mailed" if the Commissioner can demonstrate exact compliance with the mailing procedures of U.S. Postal Service Form 3877 (PS Form 3877). Coleman v.
Commissioner, 94 T.C. 84, 91 (1990). During the first supplemental hearing, SO
Salinger obtained a copy of the 2011 levy notice and a facsimile PS Form 3877,
which show that the notice was sent to Ms. Du Toit via registered mail at her last known address on December 2, 2014.
The record does not contain any indication that the notice was returned or
otherwise not delivered. Accordingly, respondent is entitled to the presumption
of official regularity.
We agree with Ms. Du Toit that the Appeals Office erred during the first
hearing in issuing a decision letter concerning collection equivalent rather than a
notice of decision concerning collection action and in failing to consider the
financial information that she had provided. However, when we remand a case to
the Appeals Office and the Appeals Office issues a supplemental notice of
determination, we review the determination as supplemented. LG Kendrick, LLC
v. Commissioner, 146 T.C. 17, 36 (2016), aff'd, 684 Fed.Appx. 744 (10th Cir. 2017).
When more than one supplemental notice of determination is issued for the same
taxable period, the Court reviews the determination in the most recently issued
supplemental notice of determination. Kelby v. Commissioner, 130 T.C. 79, 86-87
(2008). These defects in Ms. Du Toit's first hearing were corrected during the
supplemental hearings. Accordingly, we now turn our attention to the
supplemental hearings and the corresponding notices.
III. Supplemental Hearings
In her reply in opposition of respondent's motion for summary judgment,
Ms. Du Toit argues that the Appeals Office abused its discretion in denying her
request for a face-to-face hearing, in rejecting her amended OIC after
recalculating her RCP during the second supplemental hearing, and in failing to
properly balance the government's need for the efficient collection of tax with Ms.
Du Toit's concern that the collection action be no more intrusive than necessary.
A. Request for Face-to-Face Hearing
Ms. Du Toit requested a face-to-face hearing in her initial hearing requests,
and she renewed this request when her case was remanded to the Appeals Office
for the first supplemental hearing. The Appeals Office denied these requests, and
Ms. Du Toit did not request a face-to-face conference during the second
supplemental hearing.
Hearings conducted under sections 6320 and 6330 are informal
proceedings, not formal adjudications. Treas. Reg. §§ 301.6320-1(d)(2), Q&A-D6,
301.6330-1(d)(2), Q&A-D6; Davis v. Commissioner, 115 T.C. 35, 41 (2000).
Although a face-to-face conference will "ordinarily" be offered to a taxpayer,
Treas. Reg. §§ 301.6320-1(d)(2), Q&A-D7, 301.6330-1(d)(2), Q&A-D7, a face-to-face
meeting is not required. Treas. Reg. §§ 301.6320-1(d)(2), Q&A-D6, 301.6330-
1(d)(2), Q&A-D6; see Williams v. Commissioner, 718 F.3d 89, 92 (2d Cir. 2013).
No face-to-face conference will be granted to a taxpayer who wishes to make an OIC
but has not fulfilled return filing obligations or made certain required deposits of
tax. Treas. Reg. §§ 301.6320-1(d)(2) Q&A-D8, 301.6330-1(d)(2) Q&A-D8; see, e.g.,
Williams v. Commissioner, 718 F.3d at 93 (denial of face-to-face conference not
an abuse of discretion where taxpayer failed to submit tax return and other relevant documentation). Taxpayers are also "expected to provide all relevant information requested by Appeals, including financial statements, for its consideration of the facts and issues involved in the hearing." Treas. Reg. § 301.6320-1(e)(1); see Peter D. Dahlin Attorney at Law, P.S. v. Commissioner, T.C. Memo. 2007-310, 94 T.C.M. (CCH) 388, 390 (denial of faceto-face conference not an abuse of discretion where taxpayer failed to submit Form 433-B and other relevant documentation despite IRS request).
Regarding the first hearing, the information that Ms. Du Toit sent to RO Cordero on February 23, 2016, was incomplete and untimely submitted and would not have supported a face-to-face hearing even if SO Salinger had received and reviewed it when it was submitted, This information remained incomplete as of July 6, 2016, after two requests by SO Salinger for additional information.
Ms. DuToit also was not in compliance with her estimated tax payment obligations and
had only submitted an unsigned copy of her 2015 Federal income tax return as of
June 30, 2016, over three months after she requested an additional 30 to 45 days
to submit her 2015 Federal income tax return. The undisputed facts therefore
establish that the Appeals Office did not abuse its discretion in not providing Ms.
Du Toit with a face-to-face hearing to discuss collection alternatives during the
first hearing.
Regarding the first supplemental hearing, SO Salinger scheduled a
supplemental hearing for October 10, 2017, and requested that Ms. Du Toit
provide an updated Form 433-A and copies of certain recent bank statements by
October 2, 2017. SO Salinger did not receive all of the requested information until
October 20, 2017, and did not receive an updated Form 433-A until October 26,
2017. The Appeals Office did not abuse its discretion in declining to offer a faceto-
face meeting to Ms. Du Toit since the undisputed facts establish her repeated
failures to timely provide the requested information.
B. Rejection of Amended OIC
Ms. Du Toit argues that the Appeals Office abused its discretion in rejecting
her amended OIC. Specifically, she avers that the Appeals Office improperly
recalculated the RCP that applied to her amended OIC during the second
supplemental hearing. Section 7122(a) authorizes the Secretary to compromise
any civil or criminal case arising under the internal revenue laws. Section 7122(d)
provides that the Secretary shall prescribe guidelines for determination of
whether an OIC should be accepted, and thus the decision whether to accept or
reject an OIC is left to the Secretary's discretion. Treas. Reg. § 301.7122-1(c)(1).
Accordingly, we generally uphold the rejection of an OIC when the Appeals Office
has followed the Internal Revenue Manual (IRM). See, e.g., Churchill v.
Commissioner, T.C. Memo. 2011-182, 102 T.C.M. (CCH) 116, 117; Atchison v.
Commissioner, T.C. Memo. 2009-8, 97 T.C.M. (CCH) 1034, 1036.
10
The regulations under section 7122 set forth three grounds for compromise
of a taxpayer's liability: doubt as to liability, doubt as to collectibility, and the
promotion of effective tax administration. Treas. Reg. § 301.7122-1(b). The
amended OIC sought a compromise based on doubt as to collectibility. The
Secretary may compromise a tax liability based on doubt as to collectibility where
the taxpayer's assets and income are less than the full amount of the liability.
Treas. Reg. § 301.7122-1(b)(2).
Under the IRS's administrative procedures, doubt as to collectibility exists
where the taxpayer's assets and income cannot satisfy the full amount of the
liability. Rev. Proc. 2003-71, § 4.02(2), 2003-2 C.B. 517. An OIC based on doubt as
to collectibility will generally be acceptable if it is unlikely that the tax can be
collected in full and if the OIC reflects the taxpayer's RCP. Id. In other words, two
evaluations generally need to be performed in the case of an OIC based on doubt
as to collectibility: an evaluation of whether it is likely that the tax can be
collected in full and, if it cannot, an evaluation of whether the OIC reflects the
taxpayer's RCP.
The IRM provides more specific rules to guide these evaluations.[8] IRM
5.8.5.2(2) (Mar. 23, 2018) generally requires IRS employees evaluating an OIC
based on doubt as to collectibility first to complete an initial calculation to
determine if the taxpayer can pay the outstanding liability in full under installment
agreement guidelines. An OIC should be rejected if the tax can be paid in full as a
lump sum under an installment agreement, unless special circumstances are
identified that warrant consideration of a lesser amount. IRM 5.8.4.3(3) (Sept. 24,
2020).
The installment agreement guidelines generally take into account equity in
assets and the taxpayer's ability to make payments over the period remaining
until the CSED. See generally IRM 5.19.1.6.4(12) (Nov. 30, 2020) (providing
guidelines for non-streamlined installment agreements); IRM 25.6.1.12 (Nov. 19,
2019) (providing guidance on determining CSED). If the initial calculation
indicates the taxpayer cannot pay in full based on installment agreement
guidelines, or if the taxpayer indicates that special circumstances or effective tax
administration criteria may apply, then the IRS employee evaluating the OIC will
continue the investigation to determine the taxpayer's RCP. IRM 5.8.5.2(2) and (3)
(Mar. 23, 2018).
Even if a taxpayer is not able to pay in full via an installment agreement, an OIC that aligns with a taxpayer's RCP may nonetheless be rejected if a partial payment installment agreement (PPIA) would be appropriate. IRM 5.8.4.3(4) (Sept. 24, 2020). The IRS's administrative guidance therefore generally promotes the evaluation of installment agreement arrangements before acceptance of an OIC based on doubt as to collectibility.
The calculation of RCP, if the IRS proceeds to that step, consists of the taxpayer's net realizable equity in assets (as well as any amounts collectible from third parties and any assets or income that are available to the taxpayer but are beyond the reach of the government), together with the taxpayer's expected future income (less necessary living expenses) projected over a given period of time. IRM 5.8.4.3.1 (Apr. 30, 2015).
For lump sum cash offers, the taxpayer's income (less necessary living expenses) is projected over the lesser of 12 months or the remaining statutory collection period; for periodic payment offers, it is projected over the lesser of 24 months or the remaining statutory collection period. Id.
This limitation provides a factor weighing in favor of the use of an installment agreement instead of an OIC in cases where the period remaining until the CSED significantly exceeds the applicable 12- or 24-month period. See IRM 5.8.4.3(4) (Sept. 24, 2020) (providing an example in which an OIC should be rejected even though the taxpayer's OIC and RCP match because 9 years remain until the CSED and the government could recover substantially more under a PPIA).
In connection with the second supplemental hearing, Ms. Du Toit submitted
an amended OIC for $62,300, which approximated the RCP of $62,203 that was
previously calculated by SO Salinger in connection with her first OIC. The reason
given for the amended OIC was doubt as to collectibility. IRM 5.8.5.2(2) (Mar. 23,
2018) therefore required the Appeals Office first to complete an initial calculation
to determine if Ms. Du Toit could pay the outstanding liability in full under
installment agreement guidelines. SO Diaz therefore properly undertook to
analyze whether Ms. Du Toit could pay her liabilities in full under an installment
agreement before calculating Ms. Du Toit's RCP. Ms. Du Toit objects to the
projection of her income over 116 months (the number of months remaining until
the CSED) by SO Diaz rather than over 12 months as under the calculation
performed by SO Salinger.
However, acceptance of her amended OIC on the basis that it reflected her RCP would only be appropriate if SO Diaz determined both that Ms. Du Toit did not have the ability to pay the liability in full and, if she did not, that a PPIA was not advisable. The undisputed facts in the record do not disclose any abuse of discretion in the Appeals Office's determination that Ms.
Du Toit could pay her liabilities in full by the CSED under an installment agreement.
It also was not an abuse of discretion for the Appeals Office to revisit SO
Salinger's calculation of Ms. Du Toit's RCP. A settlement officer lacks authority to
accept an OIC without supervisory approval, and in any case, SO Salinger neither
purported to accept Ms. Du Toit's initial OIC nor evaluated her amended OIC
(which, unlike the first OIC, was based on doubt as to collectibility grounds). See
Johnson v. Commissioner, 136 T.C. 475, 490, 496 (2011) (noting that a settlement
officer lacks authority to accept an OIC and finding no abuse of discretion where the Appeals Office declined an OIC based on a settlement officer's calculation of a taxpayer's ability to pay that was higher than a prior settlement officer's calculation), aff'd, 502 Fed.Appx. 1 (D.C. Cir. 2013).
The Appeals Office therefore did not abuse its discretion in determining that Ms. Du Toit could pay her liabilities in full under an installment agreement and in rejecting her amended OIC.
C. Balancing of Interests Under Section 6330(c)(3)(C)
Finally, Ms. Du Toit generally alleges that the Appeals Office failed to
properly conduct the balancing test required by section 6330(c)(3)(C), which
requires it to take into consideration whether a proposed collection action
balances the need for efficient tax collection with petitioner's legitimate concern
that any collection action be no more intrusive than necessary.
Contrary to Rule 121(d), which provides that the nonmoving party may not
rest on mere allegations or denials but must set forth specific facts showing that
there is a genuine dispute for trial, see Sundstrand, 98 T.C. at 520, Ms. Du Toit
leaves the nature of respondent's alleged error unexplained. Each notice of
determination in connection with the second supplemental hearing contained a
statement that sustaining the proposed lien or levy action balanced the IRS's
need for efficient collection with Ms. Du Toit's concern that the collection action
be no more intrusive than necessary.
Our review of the record also does not disclose any grounds for
disagreement with that conclusion. Ms. Du Toit has substantial unpaid tax
liabilities. In the second supplemental hearing, she proposed only an OIC. Even
though SO Diaz informed Ms. Du Toit in her September 30, 2020, letter that she
could request an installment agreement as a collection alternative, Ms. Du Toit
never made that request. Because no other collection alternatives were proposed,
there weren't any less intrusive means for respondent to consider.
See Lindley v. Commissioner, T.C. Memo. 2006-229, 92 T.C.M. (CCH) 363, 368-69, aff'd sub nom. Keller v. Commissioner, 568 F.3d 710 (9th Cir. 2009). We conclude that Appeals
properly balanced the need for efficient collection of taxes with Ms. Du Toit's
legitimate concern that collection be no more intrusive than necessary.
Because the material facts are not in dispute and respondent is entitled to a
decision as a matter of law, it is hereby
ORDERED that respondent's Motion for Summary Judgment, filed August
25, 2021, is granted.
It is further
ORDERED AND DECIDED that respondent's determination as set forth in the
Supplemental Notice of Determination Concerning IRS Collection Actions Under Internal Revenue Code Sections 6320 or 6330 issued January 11, 2021, is sustained in full, except that it is moot with respect to petitioner's 2010 taxable year.
It is further
ORDERED AND DECIDED that respondent's determination as set forth in the
Supplemental Notice of Determination Concerning IRS Collection Actions Under Internal Revenue Code Sections 6320 or 6330 issued April 1, 2021, is sustained in full.
14
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Notes:
[1] Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
[2] All monetary amounts have been rounded to the nearest dollar.
[3] In her 2010 hearing request, Ms. Du Toit also indicated that she was requesting a collections due process hearing with respect to the 2011 levy notice, but this portion of the request was not
timely.
[4] On July 1, 2019, the IRS Office of Appeals was renamed the IRS Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981, 983 (2019). We will use the name in effect at the times relevant to this case, i.e., the Office of Appeals or Appeals.
[5] SO Diaz also adjusted Ms. Du Toit's RCP by including in her assets a private retirement account with a value of $58,081 that SO Salinger had previously excluded from her AET.
[6] SO Diaz's notes indicate that she offered to allow Ms. Du Toit's counsel to speak with ATM Warren, but he declined the invitation. Ms. Du Toit's counsel disputes this, saying that he requested to speak to ATM Warren but was denied the opportunity. However, whether Ms. Du Toit was offered or denied the chance to speak with ATM Warren is not relevant to the resolution of the motion before us.
[7] Generally, our jurisdiction under section 6330 is limited to reviewing whether the proposed lien or levy action is proper. Chocallo v. Commissioner, T.C. Memo. 2004-152, 87 T.C.M. (CCH) 1432.
Respondent has stated that the proposed levy for tax year 2010 is no longer being pursued because the liability for that year has been paid in full. Since there is no longer any liability upon which a levy may be based, and respondent has conceded the levy is no longer necessary to protect his interests, the first supplemental notice is moot with respect to tax year 2010. See Greene-Thapedi v. Commissioner, 126 T.C. 1 (2006).
[8] Unless otherwise noted, the Court cites to the provisions of the IRM that were in effect on January 11, 2021, and April 1, 2021, the dates when the Appeals Office issued the two supplemental notices of determination presently at issue.
[9] The investigation of the OIC can also be continued without completing the initial calculation if the taxpayer indicates that special circumstances or effective tax administration criteria may apply. IRM 5.8.5.2(2) (Mar. 23, 2018).
