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American Limousines Inc. v. Commissioner (T.C. Memo. 2021-36)

On March 24, 2021, the Tax Court issued a Memorandum Opinion in the case of American Limousines, Inc. v. Commissioner (T.C. Memo. 2021-36). The primary issues presented in American Limousines were whether the IRS abused its discretion in rejecting an installment agreement (that the petitioner could not fund) and whether the IRS abused its discretion in refusing to classify the petitioner’s account as currently not collectible.

Background

Limo Am. LimosThe petitioner is liable for unpaid employment taxes exceeding $1 million for numerous periods. The IRS notified the petitioner of its intent to levy to collect the unpaid taxes. The petitioner requested as a collection alternative an installment agreement, and Appeals determined that the petitioner’s reasonable collection potential (RCP) allowed for monthly installment payments of approximately $23,000.

In calculating its RCP, Appeals gave the petitioner no credit for principal payments the petitioner made on vehicle loans, apparently because the petitioner had chosen to increase the size of its fleet rather than make payments of past-due employment taxes. Taking into account its vehicle loan payments, the petitioner computed that it had a monthly cashflow deficit. Nevertheless, to avoid a levy, the petitioner represented that it was optimistic about its prospects and proposed monthly installment payments of $2,000 as a “sign of good faith.” Appeals rejected the petitioner’s offer because, on the basis of the petitioner’s own evaluation, the petitioner was unable to fund it. Appeals also determined the petitioner’s account was not eligible for currently not collectible status because, although the petitioner had a negative cashflow, it had assets that could be liquidated to make payments on its past-due taxes.

Levy and CDP Appeal

In June 2017, the IRS issued a Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing to the petitioner regarding the petitioner’s $1.1 million employment tax liability. In response, petitioner filed a Form 12153 (Request for a Collection Due Process or Equivalent Hearing). On the Form 12153, the petitioner checked boxes requesting the following collection alternatives: “Installment Agreement,” “Offer in Compromise,” and “I cannot pay balance at this time.” Numerous administrative proceedings followed, culminating in a Supplemental Notice of Determination.

The CDP Process

IRC § 6320 and IRC § 6330 provide a taxpayer the right to notice and the opportunity for an Appeals hearing before the IRS can collect unpaid tax by means of a lien or a levy against the taxpayer’s property. If a taxpayer requests a CDP hearing, the Appeals officer conducting the hearing must verify that the requirements of any applicable law or administrative procedure have been met. IRC § 6320(c); IRC § 6330(c)(1). The taxpayer may raise at the hearing any relevant issue relating to the unpaid tax or the collection action, including challenges to the appropriateness of collection actions and offers of collection alternatives. See IRC § 6330(c)(2)(A). IRC § 6330(d)(1) allows a taxpayer to petition the Tax Court for review of a determination under IRC § 6320 or IRC § 6330.

Installment Agreements

IRC § 6159(a) authorizes the IRS to enter into a written agreement allowing a taxpayer to pay tax in installments if the IRS determines the “agreement will facilitate full or partial collection of such liability.” The decision to accept or reject an installment agreement lies within the discretion of the IRS. Treas. Reg. § 301.6159-1(a), (c)(1)(i). If an Appeals officer follows all statutory and administrative guidelines and provides a reasoned and balanced decision, the Court will not reweigh the equities. Rebuck v. Commissioner, T.C. Memo. 2016-3, *15.

It is not an abuse of discretion for a SO to reject a proposed installment agreement when a taxpayer’s monthly income does not support the proposed payment. W. Hills Residential Care, Inc. v. Commissioner, T.C. Memo. 2017-98, at *14; see also Lipson v. Commissioner, T.C. Memo. 2012-252, at *9-*10 (finding it is not an abuse of discretion for settlement officer denying taxpayer’s proposed installment agreement to rely on collection information provided by taxpayer that showed inability to pay proposed monthly installments).

Appeals, in rejecting the proposed installment agreement noted that even if the taxpayer’s principal payments on vehicle loans were allowed, its proposed installment agreement would still not be acceptable, because, based on the petitioner’s own evaluation, it would be unable to fund it.” As such, Appeals did not abuse its discretion in rejecting petitioner’s proposed installment agreement. See, e.g., W. Hills Residential Care, Inc., T.C. Memo. 2012-252 at *14; see also IRM pt. 5.14.1.4(4).

Currently Not Collectible Status

The Commissioner has determined that he will remove from his active inventory accounts that are currently not collectible. See IRM pt. 1.2.1.6.14(2) (Policy Statement 5-71). Accounts will be reported as currently not collectible when the taxpayer has no assets or income which are, by law, subject to levy. Id. at (4). The account of a business corporation that remains in business and is current in its tax obligation but is unable to pay back taxes may be classified as currently not collectible if enforcement cannot be taken because the business has no distrainable accounts receivable or other receipts or equity in assets. See IRM pt. 5.16.1.2.7(1).

The Tax Court has held in a number of cases that a settlement officer’s denial of currently not collectible status is not an abuse of discretion where the taxpayer lacks sufficient income to pay its tax debt but owns assets that could be liquidated to provide funds to satisfy that debt. See, e.g., Clues v. Commissioner, T.C. Memo. 2015-209, at *26-*27; Riggs v. Commissioner, T.C. Memo. 2015-98, *13.

A Parting Shot

The Tax Court observed that the government “is not required to continue subsidizing failing businesses by foregoing tax collection.” W. Hills Residential Care, Inc., T.C. Memo. 2012-252at *16 n. 9 (quoting Living Care Alts. of Utica, Inc. v. United States, 411 F.3d 621, 628 (6th Cir. 2005)).

Ouch.

(T.C. Memo. 2021-36) Am. Limousines, Inc. v. Commissioner

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