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

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Tax Litigation:  The Week of June 13th, 2022, through June 17th, 2022

Phillips v. Comm’r, T.C. Memo. 2022-58 | June 13, 2022 | Lauber, J. | Dkt. No. 18553-21L

Short Summary:  Anthony Phillips (Anthony) failed to pay all of his federal tax liabilities and penalties for the tax years 2008, 2012, 2013, 2015, and 2016.  Accordingly, the IRS filed a notice of federal tax lien (NFTL), and Anthony filed a request for a Collection Due Process (CDP) hearing.  In his CDP request, Anthony did not challenge the amount or existence of the taxes and penalties, nor did he challenge the NFTL filing itself.  Rather, Anthony only offered a collection alternative through a proposed offer in compromise (OIC).

The IRS Settlement Officer (SO) rejected the OIC but informed Anthony that he qualified for an installment agreement of $443 per month.  Anthony expressed interest in an installment agreement but communicated to the SO that he could only pay $333 per month.  To resolve this impasse, the SO agreed to accept an installment agreement of $333 per month for the first 12 months with $475 per month for the final 60 months.  Anthony agreed to the terms of the installment agreement and executed a Form 433-D, Installment Agreement.  The Form 433-D specifically indicated that the NFTL would not be withdrawn while the agreement was in effect.

The SO issued a Notice of Determination (NOD), concluding that the NFTL should not be withdrawn because the parties entered into an installment agreement.  However, the NOD incorrectly stated the terms of the installment agreement, indicating that Anthony would be required to pay $650 per month (rather than the $475 per month agreed upon) for the final 60 months of the agreement.

Anthony timely filed a petition with the Tax Court, alleging that the OIC “should have been approved” and that the “outstanding balance is inaccurately high.”  The IRS filed a motion for summary judgment, and Anthony failed to respond.

Key Issues:

  • Whether the SO abused his discretion in concluding that the NFTL filing was appropriate.

Primary Holdings

  • First, Anthony did not properly challenge the amount of the taxes and penalties during the CDP hearing, barring judicial review of that issue.  Second, the record supported the SO’s determination that the NFTL should not be withdrawn because the parties had entered into an installment agreement, the terms of which permitted the IRS to maintain the NFTL.

Key Points of Law:

  • The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Peach Corp. v. Comm’r, 90 T.C. 678, 681 (1988).  Under Rule 121(b), the Tax Court may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law.  Sundstrand Corp. v. Comm’r, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994).
  • Section 6330(c) and section 6330(d)(1) do not prescribe the standard of review that the Tax Court should apply in reviewing an IRS administrative determination in a CDP case. However, Tax Court case law provides that where the validity of a taxpayer’s underlying liability is properly at issue, the Court reviews the IRS determination de novo.  Goza v. Comm’r, 114 T.C. 176, 181-82 (2000).  Alternatively, where the taxpayer’s underlying liability is not properly at issue, the Court reviews the IRS decision for abuse of discretion only.  See id. at 182.  An abuse of discretion occurs when a determination is arbitrary, capricious, or without sound basis in fact or law.  See Murphy v. Comm’r, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).
  • An issue is not properly raised—and is therefore precluded from judicial review—if the taxpayer fails to request consideration of the issue during the CDP hearing. Reg. § 301.6320-1(f)(2), Q&A-F3; see also Giamelli v. Comm’r, 129 T.C. 107, 115 (2007).
  • In deciding whether the SO abused his or her discretion in sustaining the collection action, the Tax Court considers whether the SO: (1) properly verified that the requirements of applicable law or administrative procedure have been met; (2) considered any relevant issues raised by the taxpayer; and (3) considered “whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary.”  6330(c)(3); Sec. 6320(c).
  • Section 6323(j)(1)(B) authorizes the withdrawal of an NFTL filing if the taxpayer has entered into an installment agreement “unless such agreement provides otherwise.” See IRM pt. (Sept. 6, 2019).  If “[t]he installment agreement provided for the NFTL,” then “[a] request for withdrawal may not be granted.”  at; see also Treas. Reg. § 301.6323(j)-1(b)(2).
  • A Notice of Determination is not required to be “error-free in order to be sustained.” See Salahuddin v. Comm’r, T.C. Memo. 2012-141.  And a CDP case should be remanded only when a supplemental hearing would be “necessary or productive.”  See Lunsford v. Comm’r, 117 T.C. 183, 189 (2001).

Insights During a CDP hearing, taxpayers should carefully preserve all issues that they may need to raise in the Tax Court proceedings.  To the extent a taxpayer fails to do so, the decision in Phillips demonstrates that the issue is, in most instances, lost.

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