On August 31, 2020, the Tax Court issued a Memorandum Opinion in the case of Savedoff v. Commissioner (T.C. Memo. 2020-125). The primary issues before the court in Savedoff were whether the petitioner received proper notice of the Notice of Federal Tax Lien filing and whether the IRS abused its discretion in its ultimate determination against the petitioner.

Background to Savedoff v. Commissioner

The petitioner is a self-employed attorney. Although she filed income tax returns for 2013 and 2014 reporting over $20,000 and tax each year, she failed to pay her reported tax obligations. Therefore, the IRS asserted a failure to timely pay under IRC § 6651(a)(2) and a failure to pay estimated tax penalty under IRC § 6654. The petitioner thereafter entered into installment agreement with the IRS under which she paid $600 per month. The IRS terminated the installment agreement in February 2017.

In September 2017 the IRS issued a notice informing the petitioner that a notice of federal tax lien (NFTL) had been filed with respect to the unpaid 2013 and 2014 liabilities the notice also informed the petitioner of her right to request a CDP hearing pursuant to IRC § 6320.  The petitioner thereafter entered into a second installment agreement and timely filed a Form 12153 (Request for a Collection Due Process or Equivalent Herein), in which she requested a lien withdrawal, in part, because the lien notice was not properly served.

Appeals reviewed the CDP case which now also showed a tax liability for 2016. As a consequence, the petitioner had defaulted on the second installment agreement and was not current with estimated tax payments. Nevertheless, Appeals provided the petitioner 14 days to submit proof that she was in compliance with her 2017 estimated tax obligations. As an utter shock to everyone involved, the petitioner failed to submit any requested estimated tax information or otherwise communicate with Appeals before the CDP hearing date.

Receipt of Notice of Filing Notice of Federal Tax Lien

During the CDP hearing, the petitioner argued that the notice of the NFTL filing had been incorrectly sent to her previous address and then delivered to her by the then-current residents.  Shortly thereafter, Appeals issued a notice of determination sustaining the NFTL.

The petitioner argued that Appeals failed to verify that the IRS satisfied the notice requirements of IRC § 6320(a)(2). However, IRC § 6320(a)(2)(C) provides that a NFTL must be sent to the taxpayer’s last known address. See also Treas. Reg. § 301.6320-1(a)(1).  The last known address of the taxpayer is the address that appears in the taxpayer’s most recently filed and properly processed federal tax return – unless the taxpayer provides clear and concise notification to the IRS of the different address.  See Treas. Reg. § 301.6212-2(a). Because the IRS mailed the notice of the filing of the NFTL to the taxpayer’s last known address, Appeals did not abuse their discretion by failing to verify that the IRS satisfied the notice requirements.

In a footnote, Judge Urda notes that even assuming ad arguendo that the notice was mailed incorrectly, any error was harmless, because the petitioner actually received the NFTL filing in time to request a CDP hearing, and she did in fact request and receive a hearing. See, e.g., Med. Practice Sols., LLC v. Commissioner, T.C. Memo. 2010-98; Estate of Brandon v. Commissioner, 133 T.C. 83, 87 (2009) (holding that “the intent of section 6320 was fulfilled because the estate received notice, made a timely request for, and received, a hearing relating to the NFTL”).

Denial of Withdrawal of NFTL

The IRS may withdraw a NFTL in certain enumerated circumstances, including where a taxpayer enters into installment agreement.  See IRC § 6323(j).  However, this section is permissive and nothing in it requires the IRS to withdraw a NFTL because of an installment agreement. Berkery v. Commissioner, T.C. Memo. 2011-57 (2011); see Treas. Reg. § 301.6323(j)-1(c) (noting that “[i]f the IRS determines conditions for withdrawal [of an NFTL] are present, the IRS may (but is not required to) authorize the withdrawal”).

As a general matter, the Internal Revenue Manual (IRM) provides that an NFTL should be withdrawn where, inter alia, a taxpayer has entered into a direct debit installment agreement and her aggregate unpaid balance of assessments on the installment agreement is $25,000 or less at the time of the request. See IRM pt. 5.12.9.3.2.1(3), (4). The petitioner plainly did not qualify. She declined the opportunity to enter into a direct deposit installment agreement. A taxpayer making payments under any other type of installment agreement is not eligible for consideration for withdrawal unless they convert to a direct debit installment agreement. See IRM pt. 5.12.9.3.2.1 (10); see also Brown v. Commissioner, T.C. Memo. 2019-157, at *10. Furthermore, the petitioner’s balance for 2013 and 2014 exceeded $25,000 at the time. See IRM pt. 5.12.9.3.2.1(4).

As a consequence of the foregoing, the Tax Court found that the IRS had not abused its discretion in denying the petitioner’s request for withdrawal of the NFTL.

(T.C. Memo. 2020-125) Savedoff v. Commissioner

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