The Tax Court ruled in Warren Keith Jackson and Barbara Ann Jackson v. Comm’r of Internal Revenue, T.C. Memo 2022-50, filed May 12, 2022 that it is not an abuse of discretion for IRS Appeals to sustain a proposed levy and deny a proposal of an installment agreement for a taxpayer that has failed to make required estimated tax payments. Taxpayers timely filed and failed to pay multiple years of 1040 income tax liabilities that totaled $128,095 as of 2018. Taxpayers submitted a proposal for an installment agreement. A field Revenue Officer rejected the proposal of $556 per month for the installment agreement and cited that the taxpayers had “sufficient cash or equity in assets to fully or partially pay the balance owed.” Further, that rejection stated that taxpayers needed to make estimated tax payments to qualify for an installment agreement. Given the amount of the debt and monthly proposal, this was a Partial Payment Installment Agreement which requires the IRS to address equity prior to establishment of the payment agreement. After the IRS rejected the agreement, a levy notice with appeal rights was issued. On Appeal, the IRS noted that the taxpayers did not appear to be current on estimates and that they had equity equal to $98,000 in real property. Ultimately Appeals sustained the levy because of non-response. The Tax Court in its review made clear that it has consistently held that an Appeals officer does not abuse their discretion by declining a collection alternative for taxpayers that fail to remain compliant with current taxes. The fundamental take away is that the taxpayer must fix the problem by showing they are capable of paying their current taxes, prior to seeking a collection alternative.
Federal Tax Lien Valid in Collection Due Process
I.R.C. Section 6320
The United States Tax Court handed down an opinion on July 30, 2020 at Docket No. 15274-17L, Carol Joy Biggs-Owen v. Comm’r of Internal Revenue, in which it ruled that a Notice of Federal Tax Lien (NFTL) was properly upheld where underlying tax liabilities were not properly challenged and the IRS Settlement Officer (SO) didn’t abuse her discretion in sustaining the NFTL filing. The Taxpayer owned two home healthcare businesses during the years at issue – 2013 and 2014. In both years the tax withholdings were not enough to cover the liabilities. The taxpayer established an installment agreement that defaulted. The IRS then issued a NFTL, which triggers appeal rights in the form of a Collection Due Process (CDP) hearing. When setting the CDP hearing, the SO requested copies of the 2015 and 2016 returns and proof of estimated tax payments, among other things. After reviewing financial information and documentation submitted by the taxpayer, the SO said she would sustain the NFTL filing because the taxpayer was not in compliance with her estimated tax obligations and her withholdings were insufficient. Further, the taxpayer did not accept the SO’s calculation of ability to pay. With no collection alternative deemed acceptable by the taxpayer, the SO closed her case. The Court ruled that it was not an abuse of discretion for the SO to reject a proposal for a collection alternative where a taxpayer fails to comply with current estimated tax obligations. The taxpayer argued she did not have enough time to fix her estimated tax issues and propose actual terms of a collection alternative. The Court disagreed. The Court said that the SO provided an opportunity in both her initial letter and call, along with two extensions of time to address the issue. This was a two-month time period. The Court ruled that the SO had not abused her discretion in upholding the NFTL and returning the case to IRS collections.
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