Notice of Federal Tax Lien
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.
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.
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.
I.R.C. 6323(j)
The United States Tax Court in Martin Washington Brown v. Comm’r, Docket No. 8999-17L, filed December 9, 2019, held that the IRS Appeals Settlement Officers had not abused their discretion in declining to withdraw a Notice of Federal Tax Lien (NFTL), and sustained the collection action in this matter. Taxpayer owed multiple years of 1040 income tax liabilities that totaled $35,436. In September 2016, the IRS established a Partial Payment Installment Agreement (PPIA) for the sum of $300 per month. The IRS determined that the filing of an NFTL was necessary because the unpaid balances exceeded $10,000. Taxpayer timely sought a Collection Due Process (CDP) hearing after the filing of the NFTL. He alleged that he would lose his job if the NFTL was not withdrawn. The settlement officer advised that the taxpayer could meet the standards for lien withdrawal if he converted the PPIA to a Direct Debit Installment Agreement (DDIA) paying the debt in less than 60 months. He would then have to apply for lien withdrawal on Form 12277 after three months of successful auto debits. The taxpayer would not alter the terms of his PPIA to comply and so Appeals sustained the NFTL filing. The taxpayer filed a Petition in Tax Court for review. The Tax Court remanded to a new Settlement Officer to address whether a lump sum payment made to bring down the balance had been accounted for in the initial conference. The Settlement Officer found that the payments calculated by the first Settlement Officer were correct and requested documentation that his employment was in jeopardy. The taxpayer declined and decided to continue in Court. Ultimately, the Taxpayer failed to substantiate any information regarding possible loss of employment. The Court ruled that the Settlement Officer had not abused his discretion in sustaining the lien. Furthermore, even if the taxpayer had established the DDIA, the Officer would not have abused his discretion by refusing to withdraw the lien as there is no requirement under the law to withdraw the lien because of an installment agreement. This is a voluntary procedure of the Service, not a mandatory one. Taxpayer again presented no evidence in Court regarding possibly loss of employment. The Court entered judgment for the government.
Caraker Law Firm, P.C. 