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Kirkley v. Commissioner (T.C. Memo. 2020-57)

On May 13, 2020, the Tax Court issued a Memorandum Opinion in the case of Kirkley v. Commissioner (T.C. Memo. 2020-57). The primary issue before the court in Kirkley was whether the IRS’s determination that petitioners must liquidate all of their property, including their residence, as a condition for the IRS’s acceptance of an installment agreement, was a (rather egregious) abuse of discretion.

Statement of Facts

The common perception of IRS agents and appeals officers is not, on the whole, a particularly favorable one. Case in point: I have never seen a bumper sticker that says “If 10% is good enough for God, it’s good enough for [enter any other profession here, other than the IRS].” Having worked with some lovely people at the IRS over the years, I have a rather higher opinion of them than Joe Taxpayer, who regards the employees of the IRS as heartless automatons who just want to say “no” to requests for clemency or appeals toward human decency.

Though it is true that revenue officers and appeals officers live in a world bounded on all sides by the Code, Treasury Regulations, and the IRM, this is a hazard of the job, not a personal predilection. As in every field, there are exceptions. These exceptions are asshats. The settlement officer in Kirkley was just such an asshat. She may very well be an outlier, but she is most certainly a certified member of the selfsame class of asshats that give any bureaucratic workplace a bad name. We don’t know her name, but you know it’s Karen.

Procedural Background

In December 2015, the IRS issued a NFTL to the petitioners. In January 2015, the IRS issued a notice of intent to levy to the petitioners. The petitioners exercised their right to a CDP hearing – 17 days after the levy notice and 48 days after the lien notice. The petitioners noted that they were interested in entering into an installment agreement (IA) and further stated that they were attempting diligently to borrow against their home equity. Ten days after requesting a CDP hearing and the IA, the petitioners sent completed Forms 433-A and 433-B to the IRS, as well as a collection information statement for businesses, and six months of personal bank account records.

Enter asshat, stage left.

In June 2016, Karen, the settlement officer (SO) explained (whether orally or in writing is unclear) that in order for her to consider an installment agreement the petitioners must complete a Form 9465 (Installment Agreement Request) within 15 days, and if their applications for a home equity loan were denied, they must submit copies of the loan applications and two loan denial letters. Fair enough. Documentation is always needed.

Had Karen the Asshat stopped there, then she would have not made my list of top asshats of 2020. But she didn’t stop there. Karen also stated that, if the petitioners did not receive loan approval, they would be required to sell [all of] their assets and pay over the equity before the IRS would even consider entering into an IA for the remaining unpaid balance. See, e.g., Karen is an Asshat v. Internal Revenue Manual at *1.

The petitioners, not wise to the ways of the IRS or the IRM, took Karen at her word, and they diligently (and timely) sent Karen the Asshat a package containing the Form 9465 (IA Application), one loan denial letter, and a Form 433-F (Collection Information Statement). They also politely explained that one other loan application had been denied by phone, so they didn’t have a written denial, and they were still diligently pursuing loans elsewhere.

Not good enough, thought Karen the Asshat. In October 2016, Karen sent a letter to the peasants…rather, the petitioners, reiterating that she needed TWO loan denial letters. Further, Karen noted that, if petitioners could not obtain a loan, they were “expected to sell all assets,” with the exception of their two vehicles, and they must provide evidence that all of these assets have been placed up for sale. To make sure that she was crystal clear this time, Karen the Asshat included a list of property that she “expected” the petitioners to sell, including their principal residence and the real property used by their business.

In December 2016, the petitioners and Karen the Asshat discussed an installment agreement, whereby the petitioners would pay $50,000/month and a lump sum from the equity in real estate and property that they sold. Karen sent the petitioners a Form 433-D (IA) and a Form 12257 (Summary Notice of Determination, Waiver of Right to Judicial Review of a Collection Due Process Determination, Waiver of Suspension of Levy Action, and Waiver of Periods of Limitation in Section 6330(e)(1)).

It is unclear what motivated Karen the Asshat to do so, but she filled out the 433-D for the petitioners stating that the petitioners would pay a lump sum of $1m by June 2017, and $50,000/month beginning in February 2017. Agreeing that they “probably” could make the lump-sum payment by June 2017, the petitioners signed the Form 433-D. Upon advice of counsel, they did not sign Form 12257 waving their appeal rights.

The petitioners’ sheer gall in refusing to give up substantive due process rights sent Karen the Asshat over the freaking edge, which she had been, apparently, straddling for much of her adult life. Eight days after receiving the signed Form 433-D, Karen summarily rejected the installment agreement.

But why she rejected it is the real kicker.

Karen the Asshat informed the petitioners that the IRS could not accept the proposed installment agreement because, in part, (1) the IRM did not permit the IRS to enter into an installment agreement before petitioners liquidated their assets and paid the proceeds to the IRS, (2) the petitioners had insufficient liquid assets to pay the proposed monthly payments, and (3) petitioners had “significant equity in assets that must first be liquidated.” Karen also stated that no collection alternative was available to petitioners and that a Notice of Determination was going to be issued.

True to her word, Karen the Asshat issued a notice of determination exactly two weeks later rejecting the proposed installment agreement and sustaining the lien notice and the levy notice. The notice of determination includes an attachment, which the Tax Court notes “appears to have been written by the [Asshat].” The attachment states that petitioners’ proposed installment agreement had been rejected “because [the petitioners’] equity is required to be paid over first.”

The Notice of Determination’s attachment also states that petitioners could not meet the $50,000/month payment amount necessary to fully pay off the liability, and, consequently, “liquidation of [the petitioners’] asset equity is mandatory in accordance with IRM 5.14.2.1.2(3)-(6).” Once again, Karen threw petitioners a bone, and stated that although they could not keep the house or their business property, they could keep two vehicles.

The Easiest Abuse of Discretion Case Judge Colvin Had Ever Seen

The Tax Court did not accept Karen the Asshat at her word, and so the Tax Court looked to the text of the IRM to verify its sneaking suspicion that she was coloring just a bit outside of the lines with her “requirements” of the petitioners. The Tax Court noted that neither IRM 5.14.1.4(5) nor IRM 5.14.2.1.2(3)-(6) actually “mandates” the liquidation of all of a taxpayer’s property as a precondition of entering into an installment agreement.

Apparently, Karen the Asshat interpreted the instruction of the IRM that she should “explore the possibility of liquidating or borrowing against assets” as “must mandate liquidation.” Further, the qualifier that liquidation is inappropriate if “the asset is necessary for the production of income or the health and welfare of the family” was mere surplusage in her book. Oh, and she had a book, like the Burn Book in Mean Girls, but pettier and all about her least favorite petitioners, which, of course, is all of them.

Judge Colvin exercises quite a bit of restraint when he notes that the record “does not show whether the [Asshat] considered whether [the petitioners’ home and business property] were ‘assets necessary for the production of income or the health and welfare of the family.’” With respect to IRM 5.14.2.1.2, the Tax Court observes that the IRM provisions Karen cited instruct IRS personnel to consider whether liquidating and borrowing against assets should be required. Neither provision states that petitioners must liquidate all of their assets before the respondent will accept a proposed installment agreement.

The IRS must consider whether any proposed collection action (e.g., a levy) balances the need for the efficient collection of taxes with the legitimate concern that any collection action be no more intrusive than necessary. IRC § 6330(c)(3)(C). In Budish v. Commissioner, T.C. Memo. 2014-239, *24, Karen gave “little, if any, consideration” to the taxpayer’s arguments (read: pleas) and, instead, decided a notice of lien should be filed because of her mistaken belief that she lacked discretion to do otherwise under the IRM.

In Budish, therefore, the SO failed to properly balance the need for the efficient collection of the taxpayer’s tax liability with the taxpayer’s legitimate concern that the collection action be no more intrusive than necessary as required by IRC 6330(c)(3)(C). Having not performed the required analysis under IRC § 6330(c)(3)(C), the SO committed an abuse of discretion. Id.

The fact that Budish exists as precedent proves one important fact, which is that Karen the Asshat is not alone in her asshattery. Though, true, the IRS is not chock-a-block with Karens, and many, if not most of the IRS RAs, ROs, and SOs (and certainly Counsel) are lovely folks, beware of the Karens of the world.  Caveat asshat, if you will…

Original opinion: (T.C. Memo. 2020-57) Kirkley v. Commissioner

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