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Nominee Lien

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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

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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

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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 

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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

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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.

Installment Agreement 

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IRC 6159

The Tax Court held that an IRS Settlement Officer did not abuse her discretion in sustaining collection action against a taxpayer in Michael J. Stevens and Alexis M. Stevens v. Comm’r of Internal Revenue, Docket No. 15761-21L, filed July 24, 2023.  The IRS filed notices of intent to levy against the taxpayers for tax years 2015 and 2016 to collect over $100,000 owed in income taxes.  As a result, the taxpayers requested a Collection Due Process hearing.  During the course of the hearing, the Settlement Officer explained to the taxpayers that she would need a Collection Information Statement disclosing assets, income and expenses, in order to entertain an installment agreement or Offer in Compromise.  While the taxpayers attended the hearing, they never provided complete financials.  Rather, they provided an incomplete financial with little supporting documentation that showed they could pay $93 per month.  The IRS then used information they had to make adjustments to the financials, which ultimately showed the taxpayers could pay $746 per month.  This was offered as an installment agreement a couple of times, but the taxpayers refused to accept it or respond with more documentation to support their proposal.  IRC Section 6159 authorizes the Secretary of the Treasury to enter into a written agreement to pay tax in installments if it determines it will ultimately facilitate collection of the liability.  The IRS generally has discretion to accept or reject an installment agreement proposal.  The Court ruled there was no abuse of discretion by the IRS since the Settlement Officer based many of her calculations on IRS standardized expenses and income on tax returns and a paystub that was provided by the taxpayers.  

Levy on Right to Property in Trust 

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IRC 6331

The United States District Court for the District of Massachusetts ruled in Marshall F. Newman, trustee of the Angelo C. Todesca, Jr. Family Trust II v. United States of America v. Albert M. Todesca, filed August 9, 2023 as Civil Action No. 20-10632-FDS, that pursuant to IRC 6331, a Trustee’s failure to subdivide property in accordance with trust terms does not impair the IRS’s ability to levy taxpayer’s right to distribution. In 2009, Albert Todesca pleaded guilty to tax evasion for failing to remit taxes withheld from employee wages to the IRS.  He was then assessed the trust fund recovery penalty, along with assessments for personal income tax liabilities. The IRS then placed two levies on family trust assets for which he was a beneficiary held at Santander Bank, N.A. The trustee of the trust, Marshall F. Newman, then sued the bank and the U.S. government arguing the levies were illegal.  The trust at issue was established by the taxpayer’s father, who was now deceased. Taxpayer and his brother were beneficiaries. The trustee was to divide the trust into two separate trusts at the death of taxpayer’s father.  However, he never did so. Both trusts were to provide net income, or principal distributions, at the beneficiary’s request or at the trustee’s discretion. The trust held cash and real property, primarily. The IRS ultimately issued levies to the bank for the approximate total of $379,000.00  The bank froze the funds in the accounts and turned them over to the Court. Pursuant to IRC section 6331, after notice and demand, the IRS may collect tax by “levy upon all property and rights to property,” of the taxpayer who owes the government taxes. The Court took up the issue of whether or not the lien attached to an interest of the taxpayer, in the Trust. The Court explained that the language of the statute is broad and that Congress meant to reach every interest in property that a taxpayer might have.  In this case, the Court applied Massachusetts law to determine what interest the taxpayer has in the trust, and ultimately what interest the federal tax lien attaches to. This was a fact specific analysis that looked at the following factors: transferability, pecuniary value, control and enjoyment. While this may not be the rule in all jurisdictions, it is extremely difficult for a trust to protect assets from the reach of the federal tax lien, while the beneficiary retains some level of control. The Court even comments on spendthrift provisions…generally used to protect beneficiaries from creditors. Fundamentally, the Court explained that a beneficiary’s interest is not immunized from the federal tax lien by using this common tool. Ultimately, the Court allowed the government to succeed on its relevant actions in this matter. 

Trust Fund Recovery Penalty

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IRC 6672

The United States Court of Appeals for the Fifth Circuit held that the taxpayer was a responsible person who willfully failed to pay over employment taxes on behalf of her employer in Pamela Cashaw v. Comm’r of Internal Revenue, filed May 31, 2023, and as such was liable for the Trust Fund Recovery Penalty (TFRP). The TFRP is equal to 100% of the unpaid income taxes, Social Security and Medicare withheld from employee’s paychecks, but not paid over to the government.  In this case, the employer was Riverside General Hospital.  The person held liable was initially hired as a pharmacist, but ultimately took over as hospital administrator after the chief administrative officer of the hospital was indicted for Medicare fraud. Cashaw, the taxpayer in this matter, was directed to take over as administrator temporarily by a federal judge.  She was given nonexclusive signatory authority and oversaw the functionality of the hospital.  That included payroll and operations.  During her time, the hospital had serious financial distress as Medicare and Medicaid funding had been withdrawn due to the prior administrator’s alleged fraud. During this time, the hospital failed to pay its payroll taxes.   The law at issue, set out in IRC Section 6672, states in summary that a penalty equal to the unpaid portion of the trust fund taxes may be assessed against “any person,” required to collect, account for, or pay over the withheld taxes who “willfully” fails to do so.  The Court ultimately ruled that Capshaw “falls within the sweeping net of Section 6672 responsibility.” The record showed she was presented with checks to sign, reviewed them to see what they were for and even declined to sign one when she disagreed with the purpose of the check.  While the Court indicated that she may not be the most responsible for payment of the taxes, she need only be “a” responsible person under the statute.  For the “willful” component, the Court explained that the statute requires only a “voluntary, conscious, and intentional act, not a bad motive or intent.”  The taxpayer’s testimony at trial established that she was aware the hospital was not paying its taxes and she made a choice to prioritize essential patient services above paying payroll taxes.  The Court ruled that once she was aware the hospital was paying other creditors before the IRS, then she reached the standard of willfulness under the statute.  This is a tough conclusion, but given the very broad nature of this statute, the correct conclusion. 

Innocent Spouse Relief

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IRC 6015

The Tax Court in Keri A. deGuzman and Brian deGuzman v. Comm’r of Internal Revenue, at Docket No. 13230-20, issued an opinion after trial on May 2, 2023 finding that it was appropriate to grant Innocent Spouse Relief under IRC section 6015 (c). In this case, Brian deGuzman was a cardiothoracic surgeon. He met his wife, Keri, at a hospital where she was a nurse.  They married in 2004.  They ultimately adopted four children and Ms. deGuzman ceased working.   Dr. DeGuzman was not only a surgeon, but also the co-founder of two medical device related companies and the chief medical officer of one of the companies.  The DeGuzman’s lived a “lavish,” lifestyle per the Court. Ms. DeGuzman enjoyed as much of the lavish lifestyle as her husband. During the 2013 to 2018 time period, the taxpayers either failed to timely file their income tax returns, or failed to properly pay their taxes.  They ultimately owed hundreds of thousands of dollars to the IRS. Interestingly, it was also Ms. DeGuzman who regularly communicated with the CPA regarding preparation of the family tax returns…including at least some information about Dr. DeGuzman’s businesses. She also participated in meetings with the CPA about the tax issues.  While the 2016 and 2017 returns were filed late, 2018 was timely filed.  All were examined by the IRS and ultimately adjusted.  Ms. DeGuzman requested relief from the exam assessments under the Innocent Spouse statutory sections and the IRS allowed it. Ultimately, Dr. DeGuzman disagreed and the matter ended up before the Tax Court.   All of the above is mentioned because it normally negates the success of a taxpayer seeking innocent spouse relief.  However, in this case, the IRS had granted the relief and the Appeals division sustained it.  In this case, the spouse has brought the matter before the Court.  The statute indicates that it is the requirement of the government to prove that the requesting spouse (Ms. DeGuzman) had actual knowledge of the items that gave rise to the deficiency.  Remember, it wasn’t the IRS arguing that Ms. DeGuzman should be held liable here, it was her husband.  As such, nothing before the Court reflected the IRS arguing that Ms. DeGuzman had actual knowledge of these items giving rise to the deficiency. Because of that issue, the Court could not conclude that Ms. DeGuzman had actual knowledge of the understatement items and therefore the relief granted under the Innocent Spouse provisions of Section 6015(c) stood.  Regardless of the reasons, this case is a bit of an outlier when it comes to relief for someone that seemingly benefited so much personally from non-payment of tax deficiencies. 

Frivolous Return Penalty

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IRC 6702(a)

The Tax Court ruled in Srbislav B. Stanojevich, 160 T.C. No. 7, filed April 10, 2023 that the Petitioner, in his capacity as trustee of a grantor-type trust, filed frivolous income tax returns for four tax periods.  As such, he was held liable for penalties because the law provides at IRC 6702(a) that a penalty is imposed on a “person [who] files what purports to be a return of the tax imposed by this title,” and Petitioner’s filing of the frivolous returns on behalf of the trust falls within the meaning of that provision.  The IRS assessed a $5,000 per return penalty in this case.  In January of 2013, Petitioner submitted a request to the IRS for an employer tax identification number for the Source Financial Trust (SFT) and represented that the trust was a grantor-type trust and that he was the trustee. Petitioner later filed a Form 1041, U.S. Income Tax Return for Estates and Trusts for each relevant year. The total taxable income on each return was from interest income. Each return also reported that SFT had federal income tax withheld in an amount equal to the amount of interest/total taxable income reported on the return.  The total tax on each return was then put at zero and an overpayment equal to the amount of tax withheld was claimed.  Forms 1099 were attached reflecting income paid to SFT. Some of the 1099s reflected tax withholdings.  The IRS determined the 1099s were false. The IRS deemed the returns to be frivolous and assessed the Petitioner with the penalty referenced above.  The Petitioner argued that he should not be assessed the penalty because these were not his personal returns. This was the issue the Court decided – could a taxpayer be assessed a section 6702(a) penalty for filing a frivolous return that is not his personal return?  The Court indicated that it was appropriate for the IRS to make this assessment.  The Court saw nothing in the statute that prevented its application in this instance and cited IRC section 6102(b)(4) as further support because it has a mandate that the return of a trust “shall be made by the fiduciary thereof.”  So, its trustee. The Court explained that the fact that Congress placed on the trustee the duties and responsibilities associated with the filing of the trust’s income tax return supports its conclusion that Congress considered it appropriate to impose section 6702(a) liability on a trustee who files a frivolous income tax return on behalf of a trust.