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Strashny v. Commissioner (T.C. Memo. 2020-82)

On June 11, 2020, the Tax Court issued a Memorandum Opinion in the case of Strashny v. Commissioner (T.C. Memo. 2020-82). The issue before the court in Strashny was whether Appeals abused its discretion in sustaining the proposed collection action.

Background

The petitioners timely filed their 2014 Form 1040 but did not pay the tax shown as due. The IRS assessed the tax and an addition to tax for failure to pay. The petitioners sent (by certified mail) a Form 9465 (Installment Agreement Request) proposing to pay their 2017 liability ($1.1m as of December 2018) in installments over a six-year period. The petitioners attached a completed Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals).

The IRS sent petitioners a Notice CP90 (Intent to Seize Your Assets and Notice of Your Right to a Hearing). Petitioners timely requested a CDP hearing, expressing interest in an installment agreement (IA) and attaching a copy of their previously submitted Form 433-A and Form 9465. The petitioners did not check the box indicating that they could not pay the balance, and they did not dispute their underlying liability for 2017.

The Form 433-A showed that they owned substantial investment assets, consisting chiefly of cryptocurrency (valued at over $7m). Appeals informed the petitioners that they did not qualify for an IA if they had the current ability to pay their tax liability in full and simply chose not to do so. The petitioners argued that the IRS should not have issued the notice of intent to levy while their Form 9465 request was pending.

During a second call with Appeals, the petitioners insisted that they would still qualify for an IA by agreeing to pay off their liability over a six-year period. Appeals confirmed, however, that this six-year rule applies only where a taxpayer lacks the ability to pay the entire liability currently. The IRS issued a notice of determination sustaining the proposed levy, rejecting the IA, and noting that levy action was permitted 30 days after rejection. The petitioners timely petitioned the Tax Court for review.

Authorization of IRS to Enter into Installment Agreement

The IRS may enter into an IA if it determines that the IA will facilitate full or partial collection of a taxpayer’s unpaid liability. See IRC § 6159; Thompson v. Commissioner, 140 T.C. 173, 179 (2013). Although there are a few limited (and not applicable to this case) exceptions to the general rule, the decision to accept or reject an IA lies within the IRS’s discretion. 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’s review of a rejected IA is circumscribed. The Tax Court will not substitute its judgment for Appeals’ judgment, will not recalculate the taxpayer’s ability to pay, and will not independently determine what would be an acceptable offer. See Thompson, 140 T.C. at 179; Lipson v. Commissioner, T.C. Memo. 2012-252.

Appeals may rely on the IRM’s guidelines in considering a taxpayer’s qualification for an IA, and, if such reliance is reasonable, Appeals will not be found to have abused its discretion. See Orum v. Commissioner, 123 T.C. 1, 13 (2004), aff’d, 412 F.3d 819 (7th Cir. 2005); Miss Laras Dominion Inc. v. Commissioner, T.C. Memo. 2012-203. The IRM provides that, in the absence of special circumstances such as old age, ill health, or economic hardship, a taxpayer must liquidate assets (with reasonable exceptions like the primary residence or business property) in order to qualify for an IA. IRM 5.14.1.4(5); see Hosie v. Commissioner, T.C. Memo. 2014-246. Certainly, cryptocurrency is not “essential” like a home or an office building used in the petitioners’ business. Further, the IRM confirms that a taxpayer will be eligible for an IA under the six-year rule if, and only if, the taxpayer is unable to full pay immediately.

Why “Levy” Does not Mean “Notice”

Relying on IRC § 6331(k)(2) and IRM pt. 5.14.1.5, which provide that no levy may be made while a taxpayer’s request for an IA is pending with the IRS or (if such IA request is rejected) during the 30 days thereafter, the petitioners argue that the Notice CP90 (Notice of Intent to Levy) was inappropriately issued while the Form 9465 was under consideration. The Tax Court dismisses this argument rather efficiently by observing that although the IRS may not make a levy, neither IRC § 6331(k)(2) nor IRM 5.14.1.5 bar the IRS from issuing a notice of intent to levy. Eichler v. Commissioner, 143 T.C. 30, 37 (2014).

The notice, observes the Tax Court is like a golfer yelling “FORE!” while a levy itself is the golfer’s act of driving the ball in the general direction, that is, an actual attempt to collect from you (or to maim you because you’ve been lining up your freaking 2 foot putt for six freaking minutes, and your freaking gaudy Hawaiian shirt and trail of empty Michelob Ultra cans belies the seriousness of your round).

(T.C. Memo. 2020-82) Strashny v. Commissioner

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