Tax Lien Reduced to Judgment

Posted on by katemley

IRC 6321

So, why does the government bother to reduce a federal tax lien to judgment in the federal court? The case of United States of America v. Wardle, case CV-23-20-BU-BMM handed down September 30, 2024 by the United States District Court for the District of Montana illustrates one major benefit. The USA filed suit to reduce the federal tax liens to judgment against the taxpayer, Christopher F. Wardle. Mr. Wardle owed in excess of $1 million in taxes. Mr. Wardle contended that the liens were unenforceable due to the passage of time. The taxpayer cited the general premise that the IRS has 10 years from the date a tax was assessed to collect the tax, interest and penalties. However, the Court ruled that a federal tax judgment is never subject to a time limit. Once the assessment has been reduced to judgment, the liability merges into the judgment and that liability cannot become unenforceable due to lapse of time. The Internal Revenue Manual actually describes this at Section 5.17.4.8.2.3 wherein it states that “[w]here the Internal Revenue Service has reduced assessments to judgment, it may bring a lien foreclosure action after the statutory period.” It was not part of the case, but the manual continues in this section as follows: “[w]hile obtaining a judgment extends the life of the lien for the purpose of bringing a lien foreclosure action, in order to maintain the priority of the lien in relation to other creditors, the Internal Revenue Service must refile the Notice of Federal Tax Lien as provided in IRC 6323(g).” 

Innocent Spouse Relief

Posted on by katemley

IRC 6015 (c) & (f)

The Tax Court in Jurries v. Comm’r of Internal Revenue, Docket No. 2786-20S filed May 22, 2024 held that the taxpayer failed to establish fraud as a threshold requirement for Equitable Innocent Spouse relief in this matter. The taxpayers filed a joint income tax return for 2016 as they always had, by the wife preparing the return on Turbo Tax. The wife did not show the husband the return prior to, or after preparing it, as they were separated. On the return, she deducted $42,181 as unreimbursed business expenses. On the return, she attributed some of this to herself and some to the husband. The IRS issued a refund of $12,500 which she deposited part of into her own account and part into the husband’s account. The IRS examined and disallowed the expense. After receiving this notification, the husband then filed for Innocent Spouse Relief under IRC 6015 (c), which allocates the expense as if the taxpayers filed the return separately. The IRS agreed to this allocation. Husband then wanted to pursue full equitable relief from all liability through the use of IRC 6015(f) as an affirmative defense in this case. Equitable relief requires overcoming seven threshold conditions, one of which requires the item to be attributable to the nonrequesting spouse’s income, (it isn’t), and if not, then the requesting spouse could establish fraud. Mr. Jurries contended that the fraud exception applied in this matter. Ultimately, the Court did not think fraud was established because Mr. Jurries could have accessed the return in turbo tax. Most damaging was that upon receipt of the refund, his wife deposited a portion of the refund into his checking account, rather than keeping it for herself. And, he testified that he knew he could not take this deduction on this tax return. 

Collections Statute 

Posted on by katemley

IRC 6502


The United States District Court for the Northern District of Ohio held in United States of America v. Sherri Tenpenny, Case NO. 1:24-cv-00838, entered August 9, 2024, that the statute of limitations on debt collection had not run due to the multiple Offers in Compromise filed by the taxpayer. This practitioner believes that it is critically important to know and understand the statute of limitations on collections when dealing with outstanding balances at the IRS. It should guide the decision-making process when looking at collection alternatives. In the instant case, the taxpayer owed the IRS for outstanding balances for form 1040’s from long-ago assessments. Some were assessed 15 years ago. The general rule, as set forth in IRC 6502(a) is that the IRS has ten years after an assessment to collect a tax debt. However, there are actions that will toll the statute and effectively extend it. One such action is the filing of an Offer in Compromise. The limitations for collections is tolled for the time period that the Offer is pending, plus 30 days. In this case, the taxpayer had filed four separate Offers in Compromise over the years, tolling the collection statute many times. Despite her motion to dismiss the IRS collection action based on the running of the statute, the Court allowed the IRS to pursue the debt. In any analysis of IRS debt, it is important to know whether the collection statute is currently running and what the Collection Statute Expiration Date (CSED) is for each year. When tax periods only have a few years remaining on the CSED, it many times makes more sense to either substantiate Currently Not Collectible, or set up a Partial Payment Installment Agreement. Once these collection alternatives are established, the statute continues to run and frequently that results in debt being written off by the IRS as the CSED runs. An Offer in Compromise may be the right proposal, but it should only be made in the context of the above analysis. 

Offer in Compromise

Posted on by katemley

IRC 7122


The Tax Court held in Estate of Ralph W. Baumgardner, Jr v. Comm’r of Internal Revenue, Docket No. 11343-19L, filed August 22, 2024, that the IRS Office of Appeals had not abused its discretion by rejecting an Offer in Compromise submitted by the taxpayer given the Reasonable Collection Potential (RCP) exceeded their tax debt. Taxpayers owed approximately $114,504 in tax debt. Collection efforts from the IRS resulted in the taxpayers filing an Offer in Compromise based on Effective Tax Administration (ETA). Taxpayers offered $1,825 to settle the debt. Through much procedure, the IRS adjusted its calculation of equity downwards, but continued to believe that taxpayers RCP was higher than the debt. Frankly, the taxpayers were asking for too much. This case is heavy on detail, but the primary issue relates to a couple of rental houses the taxpayers owned. In this instance, an income production issue becomes relevant as it relates to equity in the houses. In other words, should the taxpayer be expected to liquidate or otherwise account for the equity in an asset that produces income, or simply calculate the income into the financial analysis? In argument, counsel for taxpayers attempted to support their argument for negating the RCP by proposing that they would have foreseeable economic consequences relating to their future increased out of pocket health care expenses, vehicle replacement expenses and real estate considerations…including property maintenance items for their rentals that encompassed everything from plumbing and boiler repairs and maintenance to storm door replacement, vinyl siding and trim replacement, and downspout repairs.  The taxpayers’ counsel made good progress with the IRS on health care expenses, as the IRS is generally sympathetic to provable expenditures. The IRS even gave up some ground on the transportation expenses. As for future expenditures associated with the rentals, the IRS deemed them too speculative and the Tax Court agreed. This was a fairly predictable outcome.

Collection Due Process

Posted on by katemley

IRC 6320 & 6330


The United States Tax Court in J.E. Ryckman v. Comm’r of Internal Revenue, Docket No. 750-21L, filed August 1, 2024 held that it lacked jurisdiction because a Canadian citizen whose Canadian tax liability had been accepted by the IRS as a tax assessment, lacked Collection Due Process hearing rights. This is a case of first impression. This case is more relevant than it may first appear given the fact that approximately a million Canadian citizens permanently reside in the United States. The taxpayer owed the Canadian Revenue Agency about $200,000. In an effort to collect, Canada sent the IRS a mutual collection assistance request pursuant to the Canada-US Income Tax Treaty. Upon receipt, the IRS filed a notice of federal tax lien. The Treaty requires the IRS to collect an accepted Canadian revenue claim as it would a U.S. Tax assessment for which the taxpayer’s right to a Collection Due Process (CDP) hearing has lapsed. At submission of the lien to the taxpayer, the IRS notified the taxpayer that is had no right to a CDP hearing. In this case, the taxpayer filed the request anyway. The Tax Court reviewed the treaty and concluded that its provisions foreclosed the administrative and judicial protections of the CDP statutes in the case of Canadian revenue claims. While arguments were made that the CDP statute should override the Treaty because Congress adopted the CDP statues later, the Court found that argument unpersuasive. The Treaty simply dictates rights of Canadian citizens and the US statutes do not expand those rights. The Court also commented that it would be “untenable for the IRS to grant a collection alternative, such as an installment payment arrangement or an offer-in-compromise,” on behalf of the Canadian Revenue Agency. In fact, the face of the lien in this matter indicated that payments should be made to the “Receiver General of Canada, not the IRS.” The practical conclusion of the above is that clients in this situation should seek a collection alternative with their home government.

Nominee Lien

Posted on by katemley

IRC 6321

The United States District Court, S.D. California in United States of America v. Charles Le Beau, et al. signed January 30, 2024 at 2024 WL 347918 explores the application of liens, nominee liens and fraudulent conveyances.  This case reviews the many transfers of property between the husband, who is a lawyer, his wife, and his business.  The government is seeking to enforce its tax lien against the wife, who holds legal title to the property.  Among other arguments, the government argues that she is a nominee lienholder.   The Court explains that there are six factors to be reviewed in this type of analysis: 1) whether inadequate or no consideration was paid by the nominees; 2) whether the properties were placed in the nominees’ names in anticipation of a lawsuit or other liability while the transferor remains in control of the property; 3) whether there is a close relationship between the parties; 4) failure to record the conveyances; 5) whether the transferor retained possession; and 6) whether the transferor continues to enjoy the benefits of the transferred property. In this matter, five of the six factors favored treating the wife as nominee lienholder of the husband, which allowed the government to enforce the lien filing. 

Trust Fund Recovery Penalty—Assessment Statute

Posted on by katemley

IRC 6501

The United States District Court in Dawn D. Lagerkvist v. USA, 2024 WL 869548, N.D. Indiana, signed February 29, 2024, ruled in favor of the Government on its Motion for Summary Judgment and against the taxpayer’s argument that the statute of limitations for assessment of the Trust Fund Recovery Penalty (TFRP) had expired. In this case, upon application for a tax id number, the taxpayer advised the IRS that it was qualified to file a Form 944, rather than a Form 941 for its beginning tax year of 2012.  In reality, the taxpayer attempted to file a 1st Quarter Form 941 in early 2012 that was rejected in a return letter by the IRS. The taxpayer was advised it must change its filing to 941’s by proper request, or file a timely Form 944 annually. The taxpayer did neither, but in this case argues that the statute of limitations for collection of the TFRP has expired.  The law in Section 6501 states that the IRS is required to assess a tax within 3 years after the return was filed. If the taxpayer fails to file a return, the IRS may assess the tax (TFRP in this instance) at any time.  In other words, no return, no statute on assessment. The taxpayer argued that there was a dispute as to whether or not she actually filed the returns because she provided employee testimony that all filings were handled the same way. She argued the attempted filing of the First Quarter 941, along with other documents, such as her filed 1120-S, W-2s and W-2, should be sufficient to meet her annual return filing requirements and therefore the TFRP assessment was untimely. For multiple reasons, and through several pages of analysis, the Court rejected this premise as not only undermining the statute, but also imposing an unworkable administrative burden on the IRS. 

Tax Lien Filing ­—Location

Posted on by katemley

IRC 6321


The United States Tax Court ruled in Robert A. Zienkowski v. Comm’r, T.C. Memo 2024-039 filed April 8, 2024 that a Notice of Federal Tax Lien was valid even though it was not filed in the taxpayer’s county of residence. The Taxpayer in this case had an unpaid balance of $57,873 on his 2016 Form 1040.  The IRS filed a Notice of Federal Tax Lien, correctly stating the taxpayer’s address in Bryn Mawr, Pennsylvania, in Montgomery County.  The taxpayer timely filed a request for Collection Due Process (CDP) hearing in response to the lien notice.  Among other resolutions, he sought a withdrawal of the tax lien.  During processing of the CDP request, the IRS noticed that the taxpayer actually resided in a part of Bryn Mawr that was in Delaware County, Pennsylvania. As such, the IRS filed another lien notice in Delaware county and captured the 2016 balance, along with a balance on 2017 and 2018.  The IRS ultimately held the CDP hearing and upheld the lien determination. The Taxpayer filed this action before the Tax Court.  The Court reviewed the applicable law at Section 6321 which generally states that if a taxpayer doesn’t pay his or her taxes upon demand, then a lien arises that is attached to all property automatically at the assessment of tax.  A Notice of Federal Tax Lien (NFTL) filed in the land records per the Regulations at section 301.6323(f)-1(d) must be on Form 668, Notice of Federal Tax Lien and must identify the taxpayer, the tax liability giving rise to the lien and the date the assessment arose. Citing caselaw, the Court explained that notwithstanding any other provision of the law regarding the form or content of a notice of lien, including State law, the lien is valid if it meets these requirements. In this situation, it clearly met those requirements and was valid even though it was originally filed in a county that was not where the taxpayer resides. 

Collection Due Process Hearing—Abuse of Discretion Standard 

Posted on by katemley


IRC 6330


The United States Tax Court ruled on April 17, 2024 in Hartmann v. Comm’r, T.C. Memo 2024-46 that the IRS Appeals office did not abuse its discretion when it denied the taxpayer a collection alternative and sustained the IRS collection levy action. The taxpayer is a lawyer that has practiced for many years. He filed his 2016 Form 1040 with a balance due. Ultimately, the IRS issued a Final Notice of Intent to Levy.  The taxpayer filed a request for Appeal and indicated that he could not pay and either wanted an installment agreement or a settlement.  On receipt, the Appeals office requested financial information from the taxpayer. In order to take advantage of any collection alternative, it is necessary for a taxpayer to be compliant with their return filings. He needed to file his 2018, 2019, 2020 and 2021 tax returns. Through a series of interactions, the taxpayer indicated that he was filing, or had filed his returns, though he did not provide them to the Appeals Officer. He provided a collection information statement without documentation that showed the ability to pay at least $6,000 per month, so the Appeals Officer noted he did not qualify for Currently Not Collectible.  The Appeals Officer also noted that due to unfiled returns and failure to make estimated tax payments, he did not qualify for a payment agreement or a settlement.  The taxpayer represented that the returns were in the mail to her, but the Appeals Officer indicated that she was sustaining collection enforcement. Even though she represented this, she ultimately checked the system again in 6 weeks to see if any returns were filed or other information was received.  It was not.  She closed her case and sustained enforcement action.  The taxpayer filed a Petition for review with the Tax Court. In matters such as this, the Court reviews the actions of Appeals based on an Abuse of Discretion standard.  This standard includes reviewing the following factors: 1) did Appeals properly verify that the requirements of any applicable law or administrative procedure were met, 2) did Appeals consider any relevant issues raised by the taxpayer, and 3) did Appeals consider whether the proposed collection actions balance the needs for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. Appeals properly followed all procedure and in regards to collection alternatives, Appeals applied proper guidance regarding the need to be in return and payment compliance prior to entering into a collection alternative.  A taxpayer must have all returns filed and must be paying current year’s taxes, or all collection alternatives fail. The Court indicated that Appeals had offered the taxpayer multiple opportunities to come into compliance, including six separate calls with the Appeals Officer.  Ultimately, there was deemed to be no abuse of discretion and the enforcement action was sustained.  

Innocent Spouse Relief

Posted on by katemley

IRC 6015(b)

This newsletter has traditionally reviewed Innocent Spouse relief under the equitable provisions of IRC 6015(f), as that is the most common basis for relief.  The case of Kraszewska v. Comm’r, filed February 28, 2024 at TC Memo 2024-026 provides an opportunity to review a Tax Court case where the Court granted relief under IRC 6015(b). In order to qualify for relief under this provision, it is necessary to meet all of the following provisions: a joint return has been filed; establishes that in signing the return he or she did not know, and had no reason to know, that there was such an understatement; it is inequitable to hold the other individual liable for the deficiency of tax attributable to such understatement; and the election is made within 2 years of collection activity beginning. The fundamental difference of 6015(b) versus 6015(f) is that there is an understatement of tax on the return, as opposed to simply an underpayment.  In the instant case, the IRS issued a notice of deficiency for the taxpayers 2017 Form 1040 for a tax amount of $6,931.  In other words, no balance was due on filing the return, rather, the IRS made adjustments and created a balance due. The Petitioner, who ultimately succeeds in this matter, was gainfully employed in her home country, prior to joining and marrying the Respondent in the United States. At that point, she ceased working.  The taxpayers maintained separate bank accounts and the Respondent was very secretive about his finances.  Due to lack of income and the secretive nature of the finances, Respondent controlled the financial aspects of their lives together. For the year in question, Petitioner had become employed, but turned over her income information to Respondent for tax return preparation as he told her she would not be familiar with the American tax system.  Once the return was completed, Respondent only showed Petitioner the signature page of the return to file electronically.  Though the case does not explain what adjustments were made by the IRS, the return did reflect itemized deductions that were almost half of the reported income and included large sums as unreimbursed employee expenses – a heavily examined area of late.  The Court applied the facts to the law and determined that the Petitioner met all factors for relief and as such granted her relief from the deficiency.  Again, a rather rare opportunity to review a case based on this type of Innocent Spouse Relief.