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Etoty v. Commissioner (T.C. Memo. 2020-49)

On April 20, 2020, the Tax Court issued a Memorandum Opinion in the case of Etoty v. Commissioner (T.C. Memo. 2020-49). The issue before the court in Etoty was whether the levy on the petitioner’s New York State tax refund should not [sic] be sustained.

A Lesson to Judge Lauber on When “Less is More” Should be Ignored

Petitioner filed a timely Federal income tax return for 2008. Because of insufficient withholding, her return showed a balance due, which she failed to pay. Ugh, another easy CDP case to summarize. I’m on my fifth one this evening. Then Judge Lauber just drops the following sentence into the opinion without another thought:

“Petitioner was incarcerated from 2009-2015; upon her release her poor health prevented her from resuming her previous work as a docketing clerk.”

Wait. What?

Judge Lauber packs so much into that sentence, and nowhere else in the opinion does he give us a shred of the only real questions we have about the case, with why Paulette Etoty was sent to prison for six years being chief amongst them. Her poor health, did it result from an infection from taking a shank between her left fourth and fifth rib during a prison riot? Inquiring people need to know, Judge Lauber. You don’t just dangle a worm out there and yank it up when the fish is about to strike. I imagine this is how Tantalus felt when all he wanted was a damn apple.

In September 2016, at least 9 months since being released from the hoosegow, the petitioner sought currently not collectible status with regard to her 2008 tax liability, which she was granted. Thus, as of September 2016, the petitioner’s account was placed into CNC status. Despite the petitioner’s best laid plans, in April 2018 the IRS sent the petitioner a Notice CP92 (Seizure of State Tax Refund and Right to Hearing). Damn right, I want a hearing, the Ms. Etoty thought to herself. This aggression will not stand, man.

The petitioner timely requested a CDP hearing and indicated that she sought a collection alternative – either an OIC or CNC status. She did not challenge her underlying liability for 2008. The IRS agreed that she could not pay and told her that she needed to withdraw her request for a hearing, and they would defer the levy. Having developed a certain distrust of authority while being locked up, the petitioner told the IRS where they could put their Form 12256 (Withdrawal of CDP Hearing Request), and her case was sent to Appeals.

Her distrust of the IRS turned out to be the petitioner’s undoing. Appeals told her to file an OIC so that the IRS wouldn’t “take” her Federal refunds, and the petitioner said that she would consider that option. She didn’t. What she did, however, was call Appeals in February 2018 and asked (read: told with an edge to her voice that only those who’ve spent on the inside can pull off) the IRS to not withhold the refund that she hoped to receive for 2018. Appeals explained that she needed to file her return for a refund to be given, and that the IRS could not stop a potential refund from being applied to her 2008 liability until she filed the return. She smelled a trap.

Nonetheless, when Appeals closed the case, the IRS issued a notice of determination in which it did not sustain the levy. Victory for the little person, right? Not so fast, Skippy. The petitioner did not wish to go quietly, and having become somewhat of a jailhouse tax controversy expert, she knew that she could file a petition with the Tax Court for redetermination, and that is precisely what she did.

Judge Lauber did not quite know what to do with this petition. That much is clear. He noted that he was “sympathetic to petitioner’s situation,” but the law was clear. She had won in Appeals when they did not sustain the levy. The law of the case, however, was in favor of the IRS, and so Judge Lauber granted the IRS’s motion for summary judgment, with the end result being, the notice of determination was sustained, and the levy remained un-sustained.

So, everybody’s a winner? I honestly don’t know. Something tells me that petitioner was righteously pissed off leaving the courtroom, and the Judge and IRS counsel made sure that she was out of the building before they asked each other what the bloody hell just happened.

Original opinion: (T.C. Memo. 2020-49) Etoty v. Commissioner

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