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Bishop v. Commissioner (T.C. Memo. 2020-36)

On March 17, 2020, the Tax Court issued a Memorandum Opinion in the case of Bishop v. Commissioner (T.C. Memo. 2020-36). The issues presented in Bishop were whether the petitioner could raise underlying tax liabilities before the Tax Court, and whether the IRS abused its discretion in upholding a proposed levy.

Background

The petitioner filed delinquent Federal income tax returns for 2013 and 2014 reporting self-employment income. For each year she failed to pay, through estimated tax payments or otherwise, the tax shown as due on her return. The IRS assessed the tax shown as due and additions to tax for failure to timely file, failure to pay, and failure to make estimated tax payments. See IRC § 6654, IRC §6651(a)(1), and IRC § 6651(a)(2).

Subsequent to a notice of intent to levy, petitioner requested a CDP hearing and sought collection alternatives. The petitioner failed to make the required estimated tax payments and failed to make the proposed installment agreement payment. The IRS issued a notice of determination sustaining the proposed levy.

The petitioner timely petitioned this Court, and the IRS filed a motion for summary judgment in which it asserted that the Tax Court lacked jurisdiction to hear the petitioner’s argument regarding her underlying liabilities. The petitioner opposed the motion, contending that her underlying liabilities were properly raised in the CDP hearing and that the IRS abused its discretion in declining to consider a collection alternative.

Challenging Underlying Tax Liabilities in CDP Proceeding

A taxpayer may challenge the existence or amount of her underlying liabilities in a CDP proceeding only if she “did not receive any statutory notice of deficiency for such tax liabilities or did not otherwise have an opportunity to dispute them.” IRC § 6330(c)(2)(B). The petitioner was entitled at the CDP hearing to dispute the tax liabilities as reported on her 2013 and 2014 returns because she did not have a prior opportunity to do so. Id.; Montgomery v. Commissioner, 122 T.C. 1, 8-9 (2004).

That said, a taxpayer must properly present an underlying liability challenge to the settlement officer in order to preserve the challenge for judicial review. See Thompson v. Commissioner, 140 T.C. 173, 178 (2013); Giamelli v. Commissioner, 129 T.C 107, 113-114 (2007); Treas. Reg. § 301.6330-1(f)(2), Q&A-F3. Even if the taxpayer argues that the liability is improper, an issue is not properly raised if the taxpayer fails to present any evidence with respect to that issue after being given a reasonable opportunity to do so. Moriarty v. Commissioner, T.C. Memo. 2017-204; Obeirne v. Commissioner, T.C. Memo. 2018-210, *9.

Failure to be in Current Compliance for Consideration of Collection Alternatives

Although a taxpayer at a CDP hearing may propose a collection alternative, such as an offer-in-compromise (OIC) or an installment agreement (IA), the taxpayer must make a “concrete” proposal; Appeals is not obligated to make one for the taxpayer. See Gentile v. Commissioner, T.C. Memo. 2013-175, aff’d, 592 F. App’x 824 (11th Cir. 2014); Veneziano v. Commissioner, T.C. Memo. 2011-160. Nevertheless, in this case, Appeals did propose an IA, but the petitioner never responded.

The Tax Court has consistently held that the IRS does not abuse its discretion when it declines to consider collection alternatives for a taxpayer who has failed to comply with current estimated tax obligations. See Giamelli, 129 T.C. at 111-112; Starkman v. Commissioner, T.C. Memo. 2012-236. This is echoed by the Internal Revenue Manual (IRM) which observes that compliance with filing and paying estimated taxes must be current from the date the installment agreement begins. IRM 5.14.1.4.2(19). The requirement of current compliance as a condition of executing an installment agreement ensures that current taxes are paid and avoids the risk of “pyramiding” tax liability. Hull v. Commissioner, T.C. Memo. 2015-86, 109; Schwartz v. Commissioner, T.C. Memo. 2007-155, *8); see also Orum v. Commissioner, 412 F.3d 819 (7th Cir. 2005), aff’g 123 T.C. 1 (2004).

Financial Hardships not Sufficient to Challenge Underlying Liability

Petitioner contends that she implicitly challenged her underlying tax liabilities during the hearing by describing the financial hardships that she faced, such as the cost of her husband’s medical care. While financial hardship may be relevant to consideration of collection alternatives, it has no bearing on whether a taxpayer owes the tax as reported on his or her return. See Baptiste v. Commissioner, T.C. Memo. 2016-4.

Original opinion: (T.C. Memo. 2020-36) Bishop v. Commissioner

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