On July 9, 2020, the Tax Court issued a Memorandum Opinion in the case of Dodson v. Commissioner (T.C. Memo. 2020-106). The primary issue before the court in Dodson v. Commissioner was whether the IRS abused its discretion by denying the petitioners’ proposed installment agreement.
Petitioners in Dodson v. Commissioner Not Paragons of Tax Compliance
The petitioners are in the real estate business, earning income from real estate brokerage and from rental of properties that they own. They filed delinquent Federal income tax returns for 2013, 2014, 2015, and 2016. They did not pay, by estimated tax or otherwise, the full amounts of tax shown as due on those returns.
The IRS assessed the amounts shown as due along with additions to tax for failure to file, failure to timely pay, and failure to pay estimated tax. As a part of the collection efforts, the IRS sent the petitioners a Notice CP92 (Seizure of Your State Tax Refund and Notice of Your Right to a Hearing). The petitioners timely requested a CDP hearing and indicated they were interested in pursuing an installment agreement (IA). They did not challenge their underlying tax liability for 2013.
The IRS Meant Business
Next, the IRS sent petitioners a Notice CP90 (Intent to Seize Your Assets and Notice of Your Right to a Hearing), which notice informed the petitioners of its intent to levy to collect their outstanding liabilities for 2014-2016, which exceeded $163,000 in the aggregate. The petitioners timely requested a CDP hearing, expressing interest in an IA or an offer-in-compromise (OIC). They did not dispute the tax liabilities they had reported for these years.
When Requesting an Installment Agreement, Fill in All the Blanks, Especially the One that Reads “Signature”
Appeals instructed the petitioners to submit a completed Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) in order for Appeals to consider a collection alternative. When the petitioners submitted the Form 433-A (which they submitted through their tax “representative,” which makes it a thousand times worse), along with bank statements to support the figures on the Form 433-A, they failed to sign the Form 433-A or to list the value of the equity in their seven rental properties.
Ability to Pay Liability in Full Kiboshes Installment Agreement
Appeals explained that the petitioners were not eligible for an IA because they had sufficient assets to pay their liabilities in full. Appeals also noted that the petitioners needed to pay their estimated tax for 2018 in order to qualify for any relief. Ultimately, the petitioners were unwilling to full-pay, and Appeals closed the cases.
Shortly thereafter, the IRS issued separate notices of determination sustaining the two collection actions and concluding that petitioners did not qualify for first-time abatement of the additions to tax. The petitioners timely petitioned for redetermination, contending that an IA was an appropriate collection alternative and that the levy would cause them financial harm.
No Abuse of Discretion Denying Installment Agreement
The IRS may agree to enter into an IA if it determines that the IA will facilitate full or partial collection of a taxpayer’s unpaid liability. IRC § 6159; Thompson v. Commissioner, 140 T.C. 173, 179 (2013). Subject to certain exceptions not relevant here, the decision to accept or reject an IA lies within the IRS’s discretion. See Rebuck v. Commissioner, T.C. Memo. 2016-3; Kuretski v. Commissioner, T.C. Memo. 2012-262, aff’d, 755 F.3d 929 (D.C. Cir. 2014); Treas. Reg. § 301.6159-1(a); Treas. Reg. § 301.6159-1(c)(1)(i). The Tax Court will not substitute its judgment for Appeals’, will not recalculate the taxpayer’s ability to pay, and will not independently determine what would be an acceptable offer. See Thompson, 140 T.C. at 179; Lipson v. Commissioner, T.C. Memo. 2012-252.
In considering a taxpayer’s eligibility for an IA, Appeals does not abuse its discretion by following guidelines set forth in the IRM. See Orum, 123 T.C. at 13; Miss Laras Dominion Inc. v. Commissioner, T.C. Memo. 2012-203. The IRM provides that, in the absence of special circumstances such as old age, ill health, or economic hardship, a taxpayer must liquidate assets in order to qualify for an IA. IRM pt. 5.14.1.4(5); see Hosie v. Commissioner, T.C. Memo. 2014-246; Mootz v. Commissioner, T.C. Memo. 2007-303. Because the taxpayers could borrow against the equity in their home and pay in full, Appeals in no way abused its discretion in denying the IA.
(T.C. Memo. 2020-106) Dodson v. Commissioner
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