Post Bankruptcy Collection Action

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11 U.S.C. 522(c)(2)(B)


The United States Tax Court in Mongogna v. Comm’r of Internal Revenue, Docket No. 18651-23L, filed August 18, 2025, sustained a levy decision from a Collection Due Process hearing after it determined that a Settlement Officer had not abused her discretion. This case presents a good explanation of the effect of a bankruptcy discharge on a pre-petition tax lien filing. Taxpayers are a married couple that owed income taxes for many years. They filed a chapter 7 bankruptcy after the filing of a Notice of Federal Tax lien affecting several tax periods.  They owed total taxes of $288,476 at the time of filing their bankruptcy. A discharge was ultimately issued. Post-bankruptcy, the IRS sent the taxpayers a notice of intent to levy with a right for an Appeal, which the taxpayers took advantage of. The taxpayers were advised that in order to proceed with the Appeals hearing, they would have to provide financials and disclose if they had any exempt or abandoned property from the bankruptcy. Their lawyer argued that it was not their duty to provide this information to the IRS. He further argued that because much of the debt was discharged, it was not necessary to provide financials as they wanted a streamlined payment agreement. That is available when a taxpayer owes less than $50,000. The Appeals officer disagreed and indicated that it was necessary to address the exempt and abandoned property so that the IRS insolvency unit could determine what was discharged and whether or not the pre-petition lien filing attached to the exempt and abandoned assets. The Court agreed with the Appeals Officer that failure to disclose this information prohibited a collection alternative, such as an installment agreement, from being established. It is worth repeating the rule relating to the effect of the lien in this matter. A chapter 7 bankruptcy may discharge a person from personal liability for the federal taxes owed in some cases, however, it does not extinguish a pre-bankruptcy petition federal tax lien. See 11 U.S.C. 522(c)(2)(B). Therefore, collections can be enforced against taxpayers exempt or abandoned property, post-bankruptcy.

Collection Due Process

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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.

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.  

Offer in Compromise 

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IRC 7122

The Tax Court ruled in Duane Whittaker and Candace Whittaker v. Comm’r of Internal Revenue, T.C. Memo 2023-59, filed May 15, 2023 that an IRS Settlement Officer had abused her discretion when calculating the Reasonable Collection Potential (RCP) of the taxpayers while reviewing an Offer in Compromise as a collection alternative in the context of a Collection Due Process hearing. The Court remanded the matter to the Appeals Office to consider updated financials and other directives of the Court in resolution of the matter. Taxpayers owed approximately $50,000 at submission of the Offer in Compromise.  The issue before the Court was whether the IRS abused its discretion by failing to adequately consider: 1) the taxpayers’ reliance on their retirement account for income, 2) the special circumstances that they raised – specifically that they were near retirement and unable to borrow against their home, and 3) the change in their financial situation due to the pandemic.  In regards to the retirement income, the taxpayers argued that under the Internal Revenue Manual (IRM) and under Treasury Regulation section 301.7122-1(c)(3)(iii)(example 2), that the IRS may characterize retirement funds as income, rather than equity, when the taxpayer is within one year of retirement and they need the funds for necessary living expenses.  The Court indicated that even though the Settlement Officer made reference to this issue in the administrative record, the analysis did not make it into the determination notice from the Settlement Officer.  On the issue of home equity, the taxpayers indicated they would have problems borrowing because the assessed value was not reflective of the appraised value based on the condition of the home. They offered to obtain more information for the Settlement Officer,  but instead of asking for that information, the Settlement Officer merely indicated that she would not remove the equity in the home from the calculation of RCP. The Court concluded that the Settlement Officer’s conclusion that the taxpayers could tap the equity of the home was erroneous as their evidence was not, in fact, reviewed. And therefore, the Settlement Officer’s reliance on the equity to calculate the Reasonable Collection Potential was an abuse of discretion. Though the Court did not necessarily indicate that the taxpayers had sound positions on the issues they raised, this opinion should have a beneficial effect on how closely Settlement Officers address Reasonable Collection Potential in that it would be detrimental to the IRS to not inquire further about issues like these and document the provision, or lack of provision, of further evidence by the taxpayer.  

Penalty Abatement

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IRC Section 6651(a) 

The United States Tax Court in George Anton Remisovsky and Ellen Jones-Remisovsky, T.C. Memo 2022-89, filed on August 30, 2022, entered judgment in favor of the government because the taxpayer had not proved that their failure to file and pay their return was due to reasonable cause and not due to willful neglect per IRC Sections 6651(a)(1) and (2).  The tax return at issue in this matter is the taxpayers’ form 1040 for tax year 2013.  Taxpayer husband was a medial doctor and taxpayer wife was a retail manager. On May 25, 2016, taxpayers filed their 2013 return, after the government prepared a substitute for return for them.  Ultimately, the taxpayers requested a Collection Due Process hearing after a final notice of intent to levy was issued. While reviewing a collection alternative with the Appeals Officer, the taxpayer husband alleged that alcoholism and depression was reasonable cause for failing to satisfy their 2013 tax obligations. The husband said he had been hospitalized for alcoholism in 1990 and suffered a relapse in 2012.  He stated he was able to continue practicing medicine because he was a “binge drinker while active.” He also supplied a letter from a psychiatrist who was treating him for depression.  The letter stated that he had a “history of being alcoholic, although he has had periods of sobriety,” and that “his cognitive capacity to comply with his financial obligations and to pay his taxes in timely fashion were severely diminished.”  The Tax Court went through the standard review associated with their review of a Collection Due Process hearing.  Regarding the penalty abatement issue, the court stated that to prove reasonable cause for failure to pay and file, the taxpayer must generally prove that he acted with ordinary business care and prudence and was nevertheless unable to file or pay. The Court stated that the evidence showed a generalized struggle with depression and alcoholism, but there was no testimony that the taxpayer suffered from these at the relevant times – such as early 2014 when the return was due, or in May 2016 when the return was filed without payment.  Fundamentally, taxpayer husband managed to practice medicine during this time, and his spouse presented no evidence that she was unable to file or pay.  As this case illustrates, abatement analysis always includes a review of when the relevant issues affected the taxpayer.  

Liability Review by IRS

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IRC Section 6330

The Tax Court ruled in Edgerton Mighty and Eulalee Mighty v. Comm’r of Internal Revenue, T.C. Memo 2022-44, filed on May 4, 2022 that a taxpayer may dispute his underlying liability in a Collection Due Process case only if he did not receive a valid notice of deficiency or otherwise have a prior opportunity to contest his liability.  This is a common ruling by the Tax Court and illustrates the fact that there are limited opportunities for liability review.  It is highly advised that the taxpayer take advantage of the Appeals process post IRS Exam. Alternatively, this practitioner has found that the Offer in Compromise – Doubt as to Liability works very well to work through the issues if an opportunity to review liability has been missed. In the instant case, the taxpayers were examined and under exam the IRS made three changes to their return: 1) adjusted taxpayers’ itemized deductions by $35,923, 2) adjusted deductions on schedule C by $12,605 and 3) adjusted income to account for $28,296 of other income from cancellation of debt.  The IRS issued a notice of deficiency for $17,304 plus penalties and interest.  Shortly after, the taxpayers filed an amendment of the return and substantiated that Chase Bank had issued duplicate 1099-C documents – one to their daughter and one to them as guarantors, for the cancellation of debt.  The IRS agreed and removed this item of income from their assessment. The IRS then filed a notice of federal tax lien on the remaining debt and the taxpayers filed a request for Collection Due Process hearing in response to that notice.  The taxpayers never seemed to understand why they owed the government.  In spite of discussions with IRS Appeals and proceeding to Tax Court, they continued to argue that the cancellation of debt was not appropriate.  Both IRS Appeals and the Court explained that they owed for other reasons.  Ultimately, the ruling was going to be the same no matter what.  The underlying liability could not be addressed in Appeals because they had had an opportunity to review the liability at the time the notice of deficiency was issued.  The Tax Court ruled that Appeals had not abused its discretion.

Appeal Rights and Trust Fund Recovery Penalty

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Letter 1153

The United States Tax Court in Mohammad A. Kazmi v. Comm’r of Internal Revenue, T.C. Memo 2022-13 filed March 1, 2022, ruled in favor of the IRS that a properly served and received Letter 1153 constitutes a prior opportunity to challenge the underlying liability and therefore a failure to appeal it prohibits the same challenge at a Collection Due Process hearing (CDP hearing). The taxpayer was issued a Letter 1153, Proposed Trust Fund Recovery Penalty, after interview by a Revenue Officer in his capacity as part-time hourly bookkeeper for his employer who had failed to pay over employment taxes.  A taxpayer has 60 days to challenge a Letter 1153 by submitting a written appeal.  Taxpayer did not make any effort to appeal and as such the IRS assessed him with the penalty.  After issuance of a Notice of Federal Tax Lien, taxpayer filed a timely CDP request and attempted to argue that he should not be held liable for the trust fund recovery penalty.  The settlement officer determined the taxpayer was prohibited from challenging the underlying liability in the CDP hearing.  Taxpayer argued that a Letter 1153 does not constitute a prior opportunity to address the liability because there is no ability to seek judicial review before the Tax Court if appeals would deny the requested relief. The Court agreed that it is correct there is no opportunity to seek Tax Court relief in this instance, but under the law, the taxpayer could get judicial review by paying the tax and seeking review in the Federal District Court.  As such, this does constitute a prior opportunity to seek judicial review.  Lesson  – always seek Appeal review after issuance of Letter 1153 if there are arguments to be made for relief from assessment.

Installment Agreements and Tax Liens

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I.R.C. Section 6320

Federal Tax liens may remain in place where a taxpayer’s liability during her installment agreement period is above the amount the IRS requires in the Internal Revenue Manual (IRM), the U.S. Tax Court ruled in Jill Beth Savedoff v. Comm’r of Internal Revenue, filed August 31, 2020 at Docket No. 4346-18L. The taxpayer created liabilities from self-employment on two different tax periods. She established a payment agreement, but defaulted. The IRS filed a Notice of Federal Tax Lien (NFTL). The taxpayer filed a Collection Due Process (CDP) hearing request on the basis that her installment agreement was wrongfully terminated and the lien notice was not properly served. Apparently, the taxpayer moved and did not receive a notice of the filing of the lien. The Court ruled that the taxpayer did not provide the IRS with a clear and concise notification of a different address. As for the lien withdrawal, the Court reviewed the guidelines allowing for the withdrawal of a NFTL. The taxpayer essentially argues that the lien should have been withdrawn if a second installment agreement was established. Both the Tax Court and Treasury Regulations provide that nothing requires the IRS to withdraw the NFTL because of the establishment of an installment agreement. While there are provisions to withdraw the NFTL if the balance is less than $25,000 and the taxpayer establishes a direct debit installment agreement, the taxpayer in this situation simply owed more and when offered to establish a direct debit installment agreement, passed on that option. 

Offer in Compromise

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I.R.C. Section 7122

The United States Tax Court in Swanberg v. Comm’r of Internal Revenue handed down an opinion on August 25, 2020, as docket No. 10266-19L, in which it ruled that the IRS had properly included taxpayer’s Veterans Affairs benefit and excluded his life insurance premium in calculating an ability to pay for Offer in Compromise purposes. This matter was started in a Collection Due Process hearing filed as a result of the issuance of a Final Notice of Intent to Levy. The taxpayer submitted a collection information statement reflecting monthly income of $6,352 and expenses of $6,854. On review, the Settlement Officer noted that the taxpayer’s bank statements reflected a disability benefit from the VA. The Officer increased his income by the amount of this benefit. Further, she disallowed a $600 per month expense for whole life insurance. The Taxpayer argued that his VA benefit should not be included since it was not taxable. The Court ruled that the Settlement Officer had abided by the provisions of the Internal Revenue Manual (IRM) regarding these issues. The IRM provides that all household income will be used to determine taxpayer’s ability to pay. Income is included even if not subjected to taxation. Furthermore, the IRM supports disallowance of the whole life insurance expense. No abuse of discretion was found by the Court.