Tax Court in Brief | Knight v. Commissioner | Collection Due Process and No Abuse of Discretion

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Tax Litigation:  The Week of July 11th, 2022, through July 15th, 2022

Knight v. Comm’r, T.C. Memo. 2022-76| July 14, 2022 | Lauber, A. | Dkt. No. 11719-20L


Short Summary: Petitioner has unpaid income tax liabilities for 2011-2017. Over the course of five years, the IRS issued to Petitioner five CDP notices, three of which resulted in CDP hearings. Petitioner requested one hearing in response to a levy notice issued for the tax years 2014-2016, and the other hearing in response to levy and lien notices issued with respect to 2017 and 2011-2017, respectively. In the latter hearing, Petitioner disputed his underlying liabilities for 2015-2017, and sought a payment plan for the other outstanding tax liabilities. The settlement officer (SO) advised Petitioner that he could not dispute his 2015 and 2016 liabilities. She also estimated that $1,620 would be an acceptable monthly payment but was told Petitioner probably could not pay that amount. The representative did not make a counter-proposal. The SO directed Petitioner to submit an amended return for 2017 and a completed Form 433-A “promptly.” No documents were forthcoming. After verifying that all requirements of applicable law and administrative procedures had been met and performing the “collection vs. intrusiveness” test under I.R.C. § 6330(c)(3)(C) (the “balancing test”), the SO was ready to close the case. Five months later, Appeals issued Notices of Determination sustaining the NFTL filing and the proposed levy for 2017. Petitioner timely petitioned. The only issue raised in the petition was a dispute over the correct amount of his underlying liability for 2015. The IRS moved for summary judgment on the ground that petitioner’s underlying liability was not at issue and because the settlement officer did not abuse her discretion. The Tax Court granted the government’s motion.

Key Issues:

  • Whether Petitioner was entitled to challenge his underlying income tax liability for the tax year 2015.
  • Whether the SO abused her discretion in sustaining the collection actions at issue.

Primary Holdings:

  • Petitioner was precluded from raising a challenge to his underlying liability for 2015 pursuant to sections 6320(c) and 6330(c)(2)(B).
  • The SO discharged all her duties and responsibilities under sections 6320(c) and 6330(c)(1); namely, she performed the verifications required under I.R.C. § 6330(c)(1); she considered the valid issues raised by the taxpayer pursuant to sections 6320(c) and 6330(c)(2); and she performed the ‘balancing test” under sections 6320(c) and 6330(c)(3)(C).

Key Points of Law:

  • A taxpayer may challenge his underlying liability at a CDP hearing only if he did not receive a notice of deficiency for that liability or did not otherwise have a prior opportunity to dispute it. I.R.C. §§ 6320(c), 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609 (2000).
  • An earlier CDP hearing is considered a “prior opportunity” for purposes of sections 6320(c) and 6330(c)(2)(B) if the tax and tax period(s) at issue in the CDP hearing at issue was/were at issue in the earlier hearing. See Reg. §§ 301.6320-1(e)(3), Q&A–E2, 301.6330-1(e)(3), Q&A–E2.
  • A prior CDP hearing will be considered a “prior opportunity” without regard to whether or not the taxpayer actually raised his underlying liability at the prior hearing. See 6330(c)(4)(A); Bell v. Commissioner, 126 T.C. 356, 358 (2006); Treas. Reg. §§ 301.6320-1(e)(1), 301.6330-1(e)(1)..
  • Because Petitioner only raised his underlying liability for 2015 as an issue in the petition, he waived any challenge to his underlying liability for 2017 or other years.
  • Where the validity of a taxpayer’s underlying liability is properly at issue, the Court reviews IRS determinations under sections 6320 and 6330 de novo. Sego, 114 T.C. at 610; Goza v. Commissioner, 114 T.C. 176, 181–82 (2000).
  • Where the taxpayer’s underlying liability is not in dispute, as in this case, the Court reviews the IRS determinations for abuse of discretion only. Jones v. Commissioner, 338 F.3d 463, 466 (5th Cir. 2003); Goza, 114 T.C. at 182.
  • Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. SeeMurphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d469 F.3d 27 (1st Cir. 2006).
  • A SO is not obligated to pursue a collection alternative where no proposal is made. McLaine v. Commissioner, 138 T.C. 228, 243 (2012); Nimmo v. Commissioner, T.C. Memo. 2020-72.
  • A SO does not abuse her discretion in sustaining a collection action after a taxpayer fails to submit requested financial information. McLaine v. Commissioner, 138 T.C. at 243.

Insights:   The holding in this case is based on well settled law. Petitioner’s interests – time and resources — would have been better served by requesting an audit reconsideration for 2015.

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