On January 23, 2020, the Tax Court issued a Memorandum Opinion in the case of Northside Carting Inc. v. Commissioner (T.C. Memo. 2020-18). The primary issue presented in Northside Carting Inc. v. Commissioner was whether the IRS abused its discretion by rejecting collection alternatives (an installment agreement) raised in an equivalent hearing.
Background to Northside Carting Inc. v. Commissioner
The petitioner’s business is garbage and has been garbage since 1996. At the time the petition was filed, the company had approximately 50 garbagemen on its payroll. The trouble was, although the petitioner filed its Forms 941 (quarterly Federal employment tax return), it did not, technically, pay the taxes that it reported. If we’re splitting hairs, it paid some of the taxes due, but not enough to satisfy Uncle Sam, who commenced a collection action in 2016.
With due deference to Judge Lauber, this case could have (and should have) been decided in less than a paragraph – a page or two at most. The IRS filed a motion for summary judgment pursuant to Tax Court Rule 121. The Tax Court warned the petitioner (who had been wholly unresponsive after filing the petition) that it could enter a judgment against the petitioner on the basis of failing to respond alone. The petitioner decided to call the Tax Court’s bluff and failed to respond. Feeling generous (or having a canned opinion on the shelf for just such an occasion), the Tax Court decided the case on its merits rather than summarily granting the IRS’s summary judgment motion.
The IRS sent petitioner levy notices and lien notices, and the petitioner responded to them at his own pace, including only some of the documents and other information that the IRS had asked for at each juncture. This went on for months until the IRS said enough was enough, closed the case, and issued a decision letter and a notice of determination. This was appropriate, the Tax Court later observes, because the IRS is not obligated to negotiate indefinitely. Kreit Mech. Assocs., Inc. v. Commissioner, 137 T.C. 123, 134 (2011); Rayle v. Commissioner, T.C. Memo. 2019-119, *12.
In the notice of determination, the IRS explained that the collection alternatives proposed by the petitioner had been rejected because the petitioner had failed to submit the information requested that was necessary to support the collection alternatives and because the petitioner was not in compliance with its current employment tax filing requirements. Further, the IRS rejected the petitioner’s request to abate the asserted penalties, which request, to no one’s shock, was dilatory as hell. The only thing that the petitioner did timely was to file its petition with the Tax Court. In its petition, the petitioner sought redetermination on the basis that the IRS did not properly consider the proposed collection alternatives or the penalty abatement request (neither of which were submitted timely).
Preliminary Tax Court Proceedings
The IRS filed a motion for summary judgment in August 2018. The Tax Court warned the petitioner that failure to answer could result in a decision against it. Unfazed by the warning, petitioner failed to respond. Notwithstanding the fact that the petitioner had not filed a response, the Tax Court denied the IRS’s motion, noting gaps in the record. The parties again attempted negotiations, but a year passed, and nothing came of it. The IRS again filed a motion for summary judgment under Tax Court Rule 121, and the Tax Court again beseeched the petitioner to file a timely response (hell, any response at that point). The petitioner again failed to answer.
Tax Court Jurisdiction to Consider Challenges to Decision Letter (Equivalent Hearing)
In a CDP case, the Tax Court’s jurisdiction depends on the issuance of a notice of determination following a timely request for a CDP hearing and the filing of a timely petition for review. IRC § 6330(d)(1); Orum v. Commissioner, 123 T.C. 1, 8, 11-12 (2004), aff’d, 412 F.3d 819 (7th Cir. 2005). The petitioner’s hearing request with respect to the 2016 levy notices was untimely. The petitioner, therefore, was not entitled to a CDP hearing and was instead provided with the opportunity to air its grievances in an equivalent hearing. Instead of a determination and a notice of deficiency, which are appropriate as a consequence of a CDP hearing, when the IRS permits only an equivalent hearing, the IRS’s decision document is a “decision letter,” which, importantly, is not a “determination” within the meaning of IRC § 6330(d). Because the decision letter is not a determination, there is nothing for the Tax Court to “redetermine,” and the Tax Court has no jurisdiction to review the IRS’s decision. See Kennedy v. Commissioner, 116 T.C. 255, 263 (2001).
Abuse of Discretion
The Tax Court reviews the IRS’s determinations under an abuse of discretion standard pursuant to the factors set forth in IRC § 6330(c)(3). The Tax Court considers whether the IRS: (1) properly verified that the requirements of applicable law or administrative procedure have been met, (2) considered any relevant issues petitioner raised, and (3) considered “whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the petitioner that any collection action be no more intrusive than necessary. See IRC § 6330(c)(3).
With respect to the offer in compromise proposed by the petitioner, the IRS did indeed fail to consider the offer, because the petitioner failed to consider the “deadline” to file the required documents, including a Form 656 (OIC request) to be something that needed to be observed. The Tax Court previously held that there is no abuse of discretion when the IRS fails to consider an offer-in-compromise when a Form 656 was not submitted. Gentile v. Commissioner, T.C. Memo. 2013-175, aff’d, 592 F. App’x 824 (11th Cir. 2014).
With respect to the petitioner’s penalty abatement request, the petitioner failed to submit a formal request for penalty abatement on a Form 843, “despite being given repeated opportunities to do so.” Therefore, the IRS did not abuse its discretion in declining to consider the penalty abatement request. See Pough v. Commissioner, 135 T.C. 344, 351 (2010).
Finally, with respect to the installment agreement (IA), the decision whether to accept or reject an IA lies within the IRS’s discretion (subject to exceptions not relevant here). 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 the IRS’s, recalculate the taxpayer’s ability to pay, or independently determine what would be an acceptable offer. See Thompson v. Commissioner, 140 T.C. 173, 179 (2013); Lipson v. Commissioner, T.C. Memo. 2012-252.
It is not an abuse of discretion, therefore, for the IRS officer to reject collection alternatives and sustain collection action where the taxpayer has failed, after being given sufficient opportunities, to supply the necessary information. See, e.g., Solny v. Commissioner, T.C. Memo. 2018-71, *10. Further, the IRS may reject an IA for failing to be currently in compliance with filing and payment obligations. This is so because the requirement of current compliance as a condition of executing an IA ensures that current taxes are paid and avoids the risk of pyramiding liability. Hull v. Commissioner, T.C. Memo. 2015-86; Schwartz v. Commissioner, T.C. Memo. 2007-155, *8; Cox v. Commissioner, 126 T.C. 237, 258 (2006), rev’d on other grounds, 514 F.3d 1119 (10th Cir. 2008); Cmty. Law Firm, Inc. v. Commissioner, T.C. Memo. 2018-198, *8-*9.Add to favorites