Post Bankruptcy Collection Action

Posted on by katemley

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.

Innocent Spouse Relief

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IRC 6015 (c) 


The United States Tax Court in Smith (Petitioner) and Hodge (Intervenor) v. Comm’r of Internal Revenue Service, Docket No. 372-23S, filed June 12, 2025, agreed with the Petitioner and the IRS in a rare case of review associated with a non-requesting spouse’s objection to provision of Innocent Spouse relief. The relevant tax period is 2017. However, the return was filed in July 2021. The return was prepared by Petitioner, wife. The couple legally separated in October 2021. Petitioner had W-2 income. Intervenor husband had W-2 income, 1099 income and cancelled debt income. Neither of the last two items were included on the return, so the IRS later issued a notice adjusting the liability. It was after this that Petitioner filed for Innocent Spouse relief under IRC 6015(c). Under this type of relief, the requesting party can have the liability limited to their income only. This particular provision states that relief is not available if the requesting spouse “had actual knowledge, at the time such individual signed the return, of any item giving rise to a deficiency (or portion thereof) which is not allocable to such individual…” In this case, the IRS agreed that requesting spouse should receive relief. However, the Intervenor (husband), submitted a response indicating that Petitioner must have been aware of the unreported income because she prepared the return and had access to his bank account, so she could not have been “completely oblivious,” as he stated it. The Court deemed his testimony to be self-serving and unverified. During the relevant period, the parties lived apart. The 1099 for self-employment and cancelled debt were addressed to the husband, Intervenor. The 1099 income was deposited into his sole account. Furthermore, the Court pointed out that throughout their marriage they always maintained separate bank accounts. Relief was granted to Petitioner because of the inability to meet the burden of the statute. 

Civil Fraud Penalty

Posted on by katemley

IRC 6663


The United States Tax Court in Remus Beleiu and Naomi J. Beleiu v. Comm’r of Internal Revenue, Docket No. 16518-19, Filed July 2, 2025 ruled that the IRS had carried its burden to prove civil fraud against Mrs. Beleiu and therefore she would incur $100,000 of fraud penalties. The taxpayers are a married couple. It appears that Mr. Beleiu owned two separate businesses – an IT business and a consulting business. Mrs. Beleiu is a financial analyst for a Hospital System. She has an undergraduate degree in accounting and an MBA with a concentration in accounting. She self-prepared the returns. While her education was a factor, other actions she took mattered a good deal to the Court. Three tax periods were picked for Exam. Mrs. Beleiu attended an office conference with the Examiner without representation, and without many documents requested. In particular she excluded all documentation from one business. The Examiner set another appointment and though the taxpayer appeared, she still did not present information requested. At that point, Exam subpoenaed bank records from two banks and performed a deposit analysis. While it was clear that the Schedule C from the first business, (there was no Schedule C’s filed for the second business), didn’t reflect enough gross revenue as compared to 1099-Misc’s and 1099-K’s, it became apparent to the Examiner was that there were other bank accounts referenced on bank statements associated with another business owned by the taxpayers. Prior to issuing a report, the IRS had a third meeting, with newly hired counsel and accountants for the taxpayer. At that meeting the IRS attempted to reconcile the bank statements with the documents provided by the taxpayer and their representatives. This failed because Mrs. Beleiu had not disclosed the existence of all bank accounts, or the second business. The opinion proceeds to review the 11 badges of fraud. Two factors were neutral, or against the fraud determination – that the taxpayer had not filed a return, and that the taxpayer operated an illegal business. Nine factors weighed against taxpayer: understating income, keeping inadequate records, giving implausible or inconsistent explanations of behavior, concealing income or assets, failing to cooperate with the tax authorities, supplying incomplete or misleading information to a tax return preparer, providing testimony that lacks credibility, and dealing in cash. It certainly didn’t help the taxpayer’s case for her to testify that she didn’t really hide the other business, since providing bank statements that showed transfers to that businesses’ accounts were provided! 

Penalty Abatement: Reasonable Cause 

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IRC 6724


While the taxpayer failed to succeed on its reasonable cause arguments for abatement of penalties in Dealers Auto Auction of Southwest LLC v. Comm’r, at T.C. Memo 2025-38, filed April 28, 2025, the case provides some insight regarding IRS denials of abatements based on nondelegable duty arguments.  This practitioner has had many information return penalty cases over the past few years, so it is not surprising to see a case related to a penalty associated with filing an information return. In this case, the return at issue was a Form 8300 which is required to be filed to report cash payments received by a trade or business when the cash payment is over $10,000.  The taxpayer regularly sells automobiles through an auction house and regularly receive over $10,000 cash payments from buyers.  The case explains all of their processes and filings.  Unfortunately for the taxpayer, they had a bumpy filing history.  They seem well aware of the requirement to file, but for a variety of reasons, could not completely comply.  Of interest in this summary is the Court’s commentary on the IRS position that the duty to file an information return is a nondelegable duty and thus essentially no abatement of penalties can be had.  The Court found the IRS’s argument to be “unpersuasive.” The taxpayers in this case had some facts associated with reliance on software.  The IRS argued that even if the taxpayer relied on software, it would not qualify for reasonable cause because the duty to file information returns is not delegable.  While the taxpayer ultimately failed to obtain relief, the Court made an effort to illustrate that the IRS conclusion was incorrect.  The Court stated that software malfunctions can qualify as a failure beyond the filer’s control when it is shown the taxpayer used the software correctly.  Additionally, there is no preclusion in Treasury Regulation Section 301.6724-1(c)(1)(ii) to find that a software malfunction could be a failure beyond the filer’s control, and further, the Internal Revenue Manual provides at 20.1.7.12.1(24) that failures related to software and hardware can be failures beyond the filer’s control for purposes of a reasonable cause defense. It may take effort, but the point of this is that it is possible to overcome the U.S. Supreme ruling of United States v. Boyle, 469 U.S. 241(1985) that is the IRS go to for the premise that a taxpayer cannot be excused for timely filing by relying on an agent. 

Innocent Spouse Relief

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IRC 6015


The Tax Court in Vanover v. Comm’r filed April 22, 2025 at T.C. Memo 2025-37 held that the requesting spouse should be granted partial relief under Section 6015(c) with respect to an understatement of the non-requesting spouse, but be denied relief under section 6015(b)(c) and (f) for all other items.  Seems like all of the Innocent Spouse cases are lengthy, and this one is no different at 16 pages plus 2 pages of footnotes. Most times this is due to the lengthy analysis of factors for equitable relief under 6015(f). This case is no different in format to others in that regard. What is of interest and highlighted here is the analysis under 6015(b) and (c). This case is fact heavy, from a nasty divorce that included a physical altercation, to financial mismanagement on behalf of all taxpayers, the Court did a good job of setting the scene. What’s key to know about 6015(b) and 6015(c) is that they both require understatements of income.  Whereas 6015(f) can be used if there is an underpayment of tax.  Under 6015(b), if an additional assessment arises, relief from joint liability can be had if the item is attributable to the other spouse. The requesting spouse must establish that when they signed the return, they did not know and had no reason to know that there was a possible understatement. This is the “traditional,” original form of innocent spouse relief. Under 6015(c), a requesting spouse shall be relieved from liability for deficiencies allocable to the nonrequesting spouse.   In other words, they separate the liability.  Under this provision, in order to obtain relief, you must be divorced, legally separated, or living apart for at least 12 months. The case carefully sorts through all factors of each statute, ultimately denying most relief for the requesting spouse.  Regardless, it is much more common to see equitable relief cases under 6015(f), so this review is rather helpful. 

Passports & Tax Debt

Posted on by katemley

IRC 7345


Affecting a taxpayer’s passport is a powerful tool to force filing and payment compliance, in many instances.  The Tax Court in Pfirrman v. Comm’r, filed March 18, 2025 at T.C. Memo 2025-22 walks us through the analysis.  This particular taxpayer was attempting to inappropriately challenge his underlying liability. But the case details how a passport can be used to motivate taxpayers to comply with filing and paying requirements.  This practitioner has dealt with many clients who have a high level of interest in meeting the statutory goals of IRC 7345.  Under this Code provision, if the Commissioner certifies that a taxpayer has “seriously delinquent tax debt,” then that certification is transmitted to the Secretary of State for action with respect to denial, revocation, or limitation of the taxpayer’s passport. Generally, a seriously delinquent tax debt is a federal tax liability that has been assessed, exceeds $64,000 (2025 inflation adjusted), and is unpaid and legally enforceable.  It should be kept in mind that it is entirely possible to either avoid certification, or have a taxpayer decertified as seriously delinquent, even if they owe over this amount, if they move into a compliant filing and paying status. In other words, once on a valid installment agreement, partial payment installment agreement, or placed into Currently Not Collectible, a taxpayer will no longer be deemed seriously delinquent, no matter how much they owe.  Much of the remaining part of the opinion was an explanation by the Court of the limitations of their jurisdiction under the statute. The Court may reverse certification if it is erroneous, or determine whether the IRS has failed to reverse the certification.  Should the Court find such facts to exist, it is limited to ordering the Treasury Secretary to notify the Secretary of State of such determination.  The Court lacks any further power.  In sum, find a compliant outcome and the matter will automatically be decertified to the Department of State. 

Statute of Limitations on Refunds­

Posted on by katemley

Statute of Limitations on Refunds­—IRC 6511


The Tax Court in the case of Applegarth v. Comm’r, filed December 10, 2024 at T.C. Memo 2024-107, does a good job of exploring the various statutes associated with entitlement to refunds and whether or not equitable tolling has any effect on those statutes. The IRS issued Notices of Deficiencies on two periods – 2014 and 2015, causing the Taxpayer to petition the Court.  Seems the taxpayer in this case did nearly everything correctly, except file his return timely.  For both years, he filed extensions.  And, for both years, he paid significant sums of money towards his tax debt before the due date of the extended return.  He just didn’t file his returns and ultimately the IRS sent him notices of deficiencies based on estimated taxes.  For 2014, the IRS determined there was a $4,465 deficiency, but his return reflected an overpayment of $78,472.  For 2015 the IRS determined there was a deficiency of $25,576 and the return showed an overpayment of $9,603.  While the Court explored many statutes, it is worth highlighting this one in part: 6511(a): “[c]laim for refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer within 2 years from the time the tax was paid.”  All payments of tax were beyond the statutory time frames of this provision.  The taxpayer conceded that if these rules applied, he was out of luck. However, he attempted to argue that equitable tolling should apply. The common law concept that allows a statute to stop running for equitable reasons. The opinion is short on explanation of the taxpayer’s rationale, but through its analysis of the statutes concludes that: “in our view neither statutory provision permits equitable tolling.” 

Offer in Compromise—Deemed Acceptance

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IRC 7122(f) 


Bauche v. Comm’r, filed May 20, 2025 at T.C. Memo 2025-48 allows the Court to explore the possibility that the IRS has waited too long to review an Offer in Compromise, and thus under the statute, it is deemed accepted.  The rule in IRC 7122(f) states in part: “[a]ny Offer in Compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of submission of such offer.”  The taxpayer landed in a Collection Due Process hearing after issuance of a lien notice.  During that proceeding, it was determined that filing an Offer in Compromise made sense.  The taxpayer argued that the IRS did not reject its Offer in Compromise until the Settlement Officer issued its Notice of Determination, which was more than 24 months later.  The IRS argued that the Offer had been rejected when Appeals mailed the taxpayer a letter saying the IRS was rejecting the Offer, in spite of the fact that a final Notice of Determination associated with the conclusion of the Collection Due Process hearing had not been sent out.  The Court indicated that if it agreed with the taxpayer, it would have created a dilemma for Appeals because they may not have resolved all issues associated with the Collection Due Process hearing, but could be forced to issue a Notice of Determination to meet the 24 month deadline.  The Court felt that the letter issued by the IRS through Appeals regarding its rejection of the Offer, even though the Appeals hearing was not fully resolved, clearly indicated to the taxpayer that the Offer was rejected.  This illustrates the premise that part of the Collection Due Process hearing process is to entertain collection alternatives, but that is not the entire purpose. 

Administrative File Rule

Posted on by katemley

RRA98 section 1001(a)(4)

The United States Court of Appeals for the Eighth Circuit ruled on June 8, 2021 in Jason Stewart, Kristy Stewart v. Comm’r of Internal Revenue at Docket No. 19-3786 that the taxpayer was not entitled to a new Appeals hearing because the Revenue Officer included notes and correspondence about a meeting with the taxpayers’ attorney in the official file that was later made available to the Appeals Settlement Officer who ultimately reviewed the case. Over time there has been an attempt to “preserve” the independence of settlement officers in appeals from other parts of the IRS, the Court explains. The IRS Restructuring and Reform Act of 1998 (RRA98), further attempted to secure this goal. Independence generally includes separation of investigation and adjudicative functions. It has been ruled that certain comments and statements, particularly about the credibility or demeanor of a taxpayer or their representative and their level of cooperation, are generally prohibited. In this case, the Revenue Officer appeared unannounced at the taxpayers’ attorney’s office. Notes about the meeting, including comments from the lawyer that he would not supply financial information to the Revenue Officer on request, but would only supply it to IRS Appeals, were included in the file for Appeal’s review. A letter from the Revenue Officer was placed in the administrative file the same day indicating that the lawyer refused to provide financial information and directed the IRS Officer to leave. The taxpayers argued that they should have a new hearing and further that the Collections Division should have ceased any continued pursuit of financial information once the Appeal’s request was submitted. The Court disagreed. Relying on an exception set out in Rev. Proc. 2012-18, the Court ruled that the inclusion of the notes was allowed because they were contemporaneous statements pertinent to consideration of the case. These statements were deemed reminders of the need to get financials and what kind of effort might be required to do so. Additionally, the Court ruled that it was not inappropriate to continue investigation after the filing of a due-process hearing. Rather, the Court ruled that even though Appeals was involved, it would be necessary for the field Revenue Officer to continue to gather financial information and work with the taxpayer, so that the IRS could properly evaluate matters during the Appeal’s hearing.

Just filed a tax return and have a balance due you can’t pay?

Posted on by katemley

You have many opportunities to deal with this situation – but the most important thing to remember is that taking action sooner is better than waiting.  Your timely response can provide you with an opportunity to review your financial situation and determine if it is best to use other resources to retire your tax debt.  Tax liens are not filed right away and as such, it may be in your best interest to borrow against the equity in your real estate.  Once a tax lien is filed, which happens in many cases, your likelihood of getting a loan is greatly reduced.

 Should you not have the ability to borrow money to pay off the tax debt, the time immediately after filing your return is the best time to analyze your financial situation to determine what options you have.  Once the IRS begins to send you notices, they will ultimately issue a Final Notice of Intent to Levy and then they have the right to seize assets and levy income.

 If a professional is assisting you with your financial analysis, they are working to put together a Collection Information Statement.  This document will allow the person assisting you to determine if you are a candidate to submit a settlement proposal to the IRS – known as an Offer in Compromise.  Nobody can tell you that you are a good candidate for a settlement unless they complete a full financial analysis and know how much you owe in taxes, interest and penalties.

 The Collection Information Statement is not only utilized to determine if you are a candidate for an Offer in Compromise settlement, but this document is also used to determine what you can pay on an Installment Agreement, a Partial Payment Installment Agreement, or if you are a candidate for the Currently Not Collectible Status.

 An Installment Agreement is an agreement to full pay your outstanding balance plus interest and penalties over a period of time.  There are instances where you do not have to disclose all of your financials in order to set up an Installment Agreement.  This is typically based on the amount you owe the IRS and the amount of time remaining for the IRS to collect the debt – the statute of limitations on collections.

 A Partial Payment Installment Agreement is an agreement where you will pay the IRS a monthly payment, but that payment amount would not pay off the entire debt before the IRS statute of limitations to collect runs out.  Because there is a possibility that the IRS will not collect all of the tax liability from you, they reserve the right to review your financial situation every couple of years.

 In addition to the above, many taxpayers qualify for placement in Currently Not Collectible status.  This status is given when you substantiate to the IRS through financial disclosure on a Collection Information Statement that you do not have any equity in assets, nor do you have the ability to make a monthly payment.  When placed in this status your debt continues to grow from accrual of interest and penalties.  The IRS will review your financial situation from time to time to determine if you can begin paying something toward the tax debt.

 Given the fact that the IRS has the power to levy your wages or seize assets if they issue a Final Notice of Intent to Levy, it is important to be aware of the status of collections of your tax debt.  When the Final Notice of Intent to Levy is issued, the taxpayer has the right to have the matter reviewed by Appeals Division of the IRS.  This review is independent of the Collection Division and the reviewing officer has the ability to establish one of the plans above.  Sometimes this is advantageous as the taxpayer’s matter is assigned to a single caseworker rather than a service center where the taxpayer has less of an opportunity to work directly with an IRS employee.

 As can be seen from the above, there are many options to deal with your tax obligations.  The situation can only get better by dealing with it sooner.  If you have tax liabilities you can’t pay, please contact us.  We would be happy to provide you with guidance to determine how best to proceed.