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Spagnoletti v. Commissioner (T.C. Memo. 2020-140)

On October 8, 2020, the Tax Court issued a Memorandum Opinion in the case of Spagnoletti v. Commissioner (T.C. Memo. 2020-140). The issue before the court in Spagnoletti was whether the IRS abused its discretion in sustaining the proposed levy when it denied the petitioner’s request, who requested to full pay his liability in four payments but failed to submit financial documentation.

Background

The petitioner (an attorney) filed delinquent Federal income tax returns for 2015 and 2016 and did not pay the full amount of tax shown as due on either return. The IRS assessed the tax shown as due plus additions to tax for failure to timely file, failure to timely pay, and failure to pay estimated tax.  The IRS sent the petitioner a Notice of Intent to Levy and Notice of Your Rights to a Hearing. Petitioner timely requested a CDP hearing, indicating that he was interested in an installment agreement (IA).  However, the petitioner failed to attend the CDP hearing, nor did he submit Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals or provide proof that he had made all required estimated tax payments.  Shortly after the IRS issued a “last chance” letter, the petitioner faxed Appeals a letter stating that he wished to pay off his balance (now nearly $2m), and explaining that he was not providing financial information because he planned to full pay in four monthly installments.

The IRS explained that the petitioner was ineligible for an IA because he had submitted no financial information and was not in compliance with his estimated tax obligations. It stated that it would close the case but noted that, if petitioner paid his balance within 120 days as he proposed, his account would likely be fully paid before any levy actually occurred.

The IRS never received from the petitioner a Form 433-A or proof that he had paid estimated tax…and he made no payments toward his balance due. More than five weeks after his proposed 120-day payment plan would have been completed, the IRS issued him a notice of determination sustaining the proposed levy.

No Deficiency means no Notice of Deficiency

The old “self-assessment” bug bit the petitioner on the ass in the present case.  The petitioner contended that the IRS erred in issuing the levy notice without first issuing a notice of deficiency. However, as the Tax Court correctly points out, the IRS was not required to issue a notice of deficiency, because it assessed the tax that petitioner himself had shown as due on his returns. See IRC § 6211(a) (defining “deficiency” to exclude tax reported on a return).

Separate Hearings for Separate Liabilities Unnecessary

The petitioner next contended that the levy notice improperly combined two tax years and that he was entitled to a separate hearing for each year. He cited no authority for either proposition.  Both are false. The IRS routinely includes multiple tax years in a single notice of levy. Though taxpayers are limited to one CDP hearing per tax period, IRC § 6330(b)(2), there is no impediment to addressing multiple tax periods in one CDP proceeding. See, e.g., Cosio v. Commissioner, T.C. Memo. 2020-90; Nimmo v. Commissioner, T.C. Memo. 2020-72; Kirkley v. Commissioner, T.C. Memo. 2020-57.

Compliance with Installment Agreement Prerequisites Necessary

Finally, petitioner contends that the SO should have accepted his request to pay his tax liabilities in four monthly installments. We have consistently held that the IRS does not abuse its discretion when it declines to consider a collection alternative for a taxpayer, like petitioner, who has failed to make required estimated tax payments. See Giamelli, 129 T.C. at 111-112. Compliance with filing and paying estimated taxes must be current from the date the installment agreement begins. Internal Revenue Manual § 5.14.1.4.2(19).

Failure to Supply Financial Information

Likewise, it is not an abuse of discretion for the IRS to reject collection alternatives where the taxpayer has declined, as petitioner did, to supply the requisite financial information. See, e.g., Solny v. Commissioner, T.C. Memo. 2018-71, *10.

(T.C. Memo. 2020-140) Spagnoletti v. Commissioner

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