On August 12, 2021, the Tax Court issued a Memorandum Opinion in the case of Kidz University Inc. v. Commissioner (T.C. Memo. 2021-101). The primary issues presented in Kidz University Inc. v. Commissioner were whether the settlement officer: (1) properly verified that the requirements of applicable law or administrative procedure were met; (2) considered any relevant issues Kidz University raised; and (3) considered whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of Kidz University that any collection action be no more intrusive than necessary.
Initial Impressions of the Kidz University Inc. v. Commissioner
How in the hell does an institution of higher learning, shaping the fragile minds of our youth, think that it’s alright to use a “z” in lieu of an apostrophe and a damn “s” to form a freaking possessive? True, it’s a daycare conglomerate, and true, it’s based in Arkansas…
You know what…them Arkansans spelled “university” correctly, so I’m going to give them this one. Five is a lot of syllables.
Fingerpainting Late 941s
Kidz University belatedly filed Forms 941 (2 quarters for 2012, and 4 quarters for 2013). On the basis of the amounts reported on those returns, the IRS assessed $29,526 for the two quarters in 2012 and $73,321 for 2013. The IRS also assessed additions to tax under IRC § 6651(a)(1) for failure to timely file tax returns and under IRC § 6651(a)(2) for failure to timely pay the taxes, penalties under IRC § 6656(a) for failure to deposit taxes, and statutory interest.
Levying the Razorback Youth
The IRS issued to Kidz University a notice of intent to levy, which apprised it of its right to request a CDP hearing. In response Kidz University timely submitted Form 12153 (Request for a Collection Due Process or Equivalent Hearing). On Form 12153 Kidz University indicated that it was challenging both a lien and a proposed levy and requested a CDP hearing or an equivalent hearing to the extent that a CDP hearing was not available.
In addition, it sought collection alternatives of an installment agreement or an offer-in-compromise, as well as lien subordination “if a lien is processed so it can sell the property.” What property Kidz University had in mind was anyone’s guess.
The CDP Saga
The settlement officer informed Kidz University that she required a Form 940 (Employer’s Annual Federal Unemployment (FUTA) Tax Return) for 2016 and Forms 941 for the fourth quarter of 2016 and the first and third quarters of 2017, none of which had been filed (allegedly). The settlement officer also asked for a completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and Form 433-B, Collection Information Statement for Businesses.
The CDP hearing was scheduled for late March 2018, delayed until early April. The taxpayer’s representative sought an extension to May 2018, but the SO balked. The SO stated that if the financial information and tax returns were provided, she would transfer the case to another settlement officer for further consideration.
On April 3, 2018, the Kidz University representative faxed the settlement officer copies of the requested Forms 940 and 941. The fax cover sheet stated that the taxpayer was “in the process of having the 941’s and 940 filed but my firm is not handling that.” The representative also noted that the taxpayer was “working to complete the 433-A and B.” The telephone hearing ultimately was held on April 10, 2018, but the Forms 433-A and 433-B were incomplete.
The taxpayer was given until April 16th to provide completed forms, which they did, except that they provided Forms 433-A(OIC) and 433-B(OIC). Nevertheless, the SO transferred the case to another SO. Perhaps she was a spiteful grammar snob, too?
The settlement officer attempted to reach the Kidz University representative in August and September 2018 to discuss these matters. After failing to reach the representative on both occasions, the settlement officer left a voicemail that Kidz University’s noncompliance precluded consideration of collection alternatives and that he would close the case if he did not receive further information by September 24, 2018. The settlement officer received no response to this voicemail.
On October 26, 2018, the IRS mailed a notice of determination to Kidz University sustaining the proposed levy. The notice identified collection alternatives as the only issue raised by Kidz University but explained that “[s]ince you did not respond to Appeals, nor are you current on making adequate federal tax deposits, you do not qualify for any collection alternatives at this time.”
Abuse of Discretion? Hardly
In the CDP proceeding Kidz University raised only the issue of collection alternatives. A taxpayer, however, must be “in compliance with current filing and estimated tax payment requirements to be eligible for collection alternatives.” Coastal Luxury Mgmt. Inc. v. Commissioner, T.C. Memo. 2019-43, at *9 (citing Reed v. Commissioner, 141 T.C. 248, 256-257 (2013), supplemented by T.C. Memo. 2014-41).
It is not an abuse of discretion for a settlement officer to reject collection alternatives on the ground that a taxpayer has a history of noncompliance with tax laws or is not in compliance with current tax obligations. Giamelli v. Commissioner, 129 T.C. 107, 111-112 (2007). Nor is it an abuse of discretion to reject a collection alternative for failure to provide proof of required tax deposits or payments. See Friendship Creative Printers Inc. v. Commissioner, T.C. Memo. 2021-19, at *17-*18; Silvercrest Manor Nursing Home, Inc. v. Commissioner, T.C. Memo. 2017-96, slip op. at *11.
Kidz University did not allege in its petition or argue at any later point that the settlement officer failed to consider “whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.” IRC § 6330(c)(3)(C). It thus has conceded this issue. See Rules 121(d), 331(b)(4); see also Ansley v. Commissioner, T.C. Memo. 2019-46, slip op. at *19.
In any event, the Tax Court saw nothing to disturb the settlement officer’s express conclusion in the notice of determination that the proposed levy action balanced the need for efficient tax collection with any legitimate concerns of Kidz University about intrusiveness.Add to favorites