T.C. Memo. 2013-232
UNITED STATES TAX COURT
J & S AUTO PAINTING, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23029-11L. Filed October 21, 2013.
Mark Frederick Werblood, for petitioner.
James G. Hartford, for respondent.
MEMORANDUM OPINION
DAWSON, Judge: This case is before the Court on a petition for review of
a Notice of Determination Concerning Collection Action(s) Under Section 6320
and or 6330,1 dated August 26, 2011, to proceed with the levy on petitioner’s
1
Unless otherwise indicated, all subsequent section references are to the
(continued...)
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[*2] property to collect petitioner’s unpaid Federal employment tax liabilities
(notice of determination). The issues for decision are: (1) whether the settlement
officer abused her discretion by rejecting petitioner’s proposal to pay $400 per
month under an installment agreement as a collection alternative; and (2) whether
the settlement officer abused her discretion by not holding a face-to-face
collection due process hearing (CDP hearing) with petitioner.
Background
This case was submitted fully stipulated under Rule 122, and the stipulated
facts are so found. We incorporate by reference the parties’ stipulation of facts
and accompanying exhibits.
Petitioner is a family-owned corporation operating an automobile painting
franchise. At the time the petition was filed, petitioner’s principal place of
business was in Falls Church, Virginia. At all relevant times, petitioner was
required to make biweekly deposits of Federal employment taxes.
1
(...continued)
Internal Revenue Code as amended and in effect at all relevant times. All Rule
references are to the Tax Court Rules of Practice and Procedure.
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[*3] Petitioner filed its Forms 941, Employer’s Quarterly Federal Tax Return,
reporting the following employment taxes owed for the quarters and years at issue:
Form Quarter ending Reported employment tax owed
941 3/31/08 $16,237.94
941 6/30/08 17,085.52
941 9/30/08 16,825.96
941 12/31/08 13,040.36
941 3/31/09 14,101.08
941 6/30/09 12,636.26
941 9/30/09 14,726.00
On January 4, 2010, respondent assessed the employment tax liabilities petitioner
reported on its Forms 941, late payment additions to tax, failure to deposit
penalties, and interest for each of the taxable quarters at issue. On February 8,
2010, respondent assessed additional Federal tax deposit penalties as follows:
Quarter ending Additional penalties
3/31/08 $811.90
6/30/08 854.27
9/30/08 841.30
12/31/08 652.02
3/31/09 705.05
6/30/09 631.81
9/30/09 736.30
Respondent sent petitioner a Final Notice of Intent to Levy and Notice of
Your Right to a Hearing (final notice) on July 26, 2010, reflecting petitioner’s
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[*4] unpaid employment tax liabilities, including assessed penalties and interest,
as follows:2
Taxable periods Total liability
Mar. 31, 2008 $27,420.51
June 30, 2008 28,259.89
Sept. 30, 2008 27,270.52
Dec. 31, 2008 20,689.96
Mar. 31, 2009 21,947.64
June 30, 2009 18,716.02
Sept. 30, 2009 19,348.44
Total 163,652.98
On August 25, 2010, petitioner timely filed a Form 12153, Request for a
Collection Due Process or Equivalent Hearing, requesting a CDP hearing and
consideration of a collection alternative.
By letter dated December 11, 2010, respondent acknowledged receipt of
petitioner’s CDP hearing request. On January 18, 2011, respondent informed
petitioner that its CDP hearing request had been assigned to Settlement Officer
E.J. Frazier (SO Frazier) in the Internal Revenue Service’s (IRS) Memphis,
Tennessee, Appeals Office. SO Frazier had not had any prior involvement with
petitioner either in Appeals or in any other IRS function for the employment tax
2
When the final notice was issued on July 26, 2010, petitioner had unpaid
employment taxes for each of the taxable quarters at issue and no bankruptcy
proceeding was pending.
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[*5] and tax years at issue. On March 1, 2011, SO Frazier sent petitioner a letter,
stating: (1) she had received petitioner’s Form 12153, (2) she had scheduled a
telephone hearing for March 29, 2011, and (3) petitioner had to be in compliance
with its Federal tax filing obligations in order to qualify for a collection
alternative. As of March 1, 2011, petitioner had not filed Forms 941 for tax
quarters ended September 30 and December 30, 2010, or a Form 940, Employer’s
Annual Federal Unemployment (FUTA) Tax Return, for the taxable year ended
December 31, 2010. SO Frazier requested that petitioner submit the following by
March 15, 2011: (1) the delinquent Forms 941 and 940, (2) a Form 433-B,
Collection Information Statement for Businesses, with the required supporting
documentation, and (3) a Form 656, Offer in Compromise, with a $150
nonrefundable application fee.
By facsimile (fax) dated March 15, 2011, petitioner’s counsel requested a
face-to-face CDP hearing and requested that the scheduled March 29, 2011,
hearing be postponed to a later date because he was ordered to be in Court the
same day. On March 25, 2011, petitioner’s counsel faxed to SO Frazier the
following documents: (1) petitioner’s Forms 941 for the quarters ended June 30,
September 30, and December 31, 2010, (2) petitioner’s Form 1120, U.S.
Corporation Income Tax Return, for the tax year ending December 31, 2009, (3) a
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[*6] completed Form 433-B,3 and (4) some of petitioner’s records for its Wachovia
business checking account and its Capital One general ledger and loan accounts.
The Wachovia records included only the first pages of the statements--page
1 of the 12-page December 2010 statement, page 1 of the 14-page January 2011
statement, and page 1 of the 15-page February 2011 statement. The Wachovia
records show the following account summaries for those periods:
Dec. 2010 Jan. 2011 Feb. 2011
Opening balance $4,991.66 $2,755.26 $16,917.62
Deposits and credits 41,255.64 50,311.06 38,663.21
Checks (40,143.43) (31,390.86) (38,959.00)
Automated checks -0- (46.99) -0-
Other withdrawals/fees (3,348.61) (4,710.85) (2,976.61)
Closing balance 2,755.26 16,917.62 13,645.22
The Wachovia records showed only the account summaries, a few of the deposits
and credits, and none of the checks or other withdrawals or fees for the account for
those periods.
3
Although the parties have stipulated that “on July 11, 2011, petitioner
submitted a Form 433-B and supporting documents to Ms. Munson” and that “on
August 1, 2011, petitioner’s counsel faxed a Form 433-B”, these documents are
not in the record before us. We base our analysis only on the record before this
Court. There is no indication that the figures in the “other” Forms 433-B are
different from those in the Form 433-B in the record.
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[*7] The Capital One general ledger account records are the complete statements
for December 2010, January 2011, and February 2011 and show the following
account summaries:
Dec. 2010 Jan. 2011 Feb. 2011
Opening balance ($2,088.20) ($2,040.18) $78.68
Deposits and credits 4,387.87 7,357.78 48,027.42
Checks and debits (4,339.85) (5,288.96) (48,034.21)
Service charge -0- -0- -0-
Ending balance (2,040.18) 28.64 71.87
The Capital One February 2011 statement shows, inter alia, customer
deposits of $15,500 and $20,000, respectively, made on February 10 and 15 and
two withdrawals each for $15,500 made on February 14 (designated as “ACH
Withdrawal CHASE EPAY * * * MURTAGH, COLM”) and 16 (designated
“Customer withdrawal”).
Petitioner stated claimed monthly income of $51,188 and monthly expenses
of $52,461.45 on the Form 433-B but stated on the form that the “Business has
steadily increased sales over the past 3 years” and that it expected its income to
increase by more than $70,000.
On March 29, 2011, respondent transferred petitioner’s CDP hearing to the
Richmond, Virginia, Appeals Office and assigned the matter to Settlement Officer
Ahn Munson (SO Munson), who had had no prior involvement with petitioner in
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[*8] Appeals or any other IRS function for the employment taxes or tax years
involved in this case.
SO Munson reviewed the case file and determined that petitioner was not
current with its required Federal employment tax deposits. In an April 26, 2011,
telephone call, SO Munson informed petitioner’s counsel that for that reason,
petitioner did not qualify for a face-to-face CDP hearing.4 Petitioner’s counsel
stated that petitioner had reduced its labor force and was in the process of
obtaining a loan to fund an offer-in-compromise. SO Munson requested that
petitioner provide by May 2, 2011, proof that it had filed Form 941 for the taxable
quarter ended March 31, 2011, and proof of payment of the required Federal
employment tax deposits. SO Munson stated that she would sustain the levy if
petitioner did not comply. Petitioner’s counsel agreed to provide the requested
information but as of May 9, 2011, had not done so.
On May 16, 2011, petitioner’s counsel provided SO Munson with (1) proof
that petitioner had filed for an extension of time for filing the 2010 Form 1120, (2)
a copy of the Form 941 for the taxable quarter ended March 31, 2011, and (3)
proof that petitioner paid the taxes shown on the March 31, 2011, Form 941 on
4
The parties stipulated that as of April 26, 2011, petitioner did not qualify
for a face-to-face CDP hearing because it was not current with its Federal
employment tax deposits.
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[*9] May 2, 2011. He also left SO Munson a voice mail message stating that he
had to travel out of town for a family emergency but that he believed petitioner to
be in full compliance.
SO Munson agreed to schedule a CDP hearing in the IRS’ Richmond,
Virginia, Appeals Office for June 29, 2011, provided petitioner submitted at the
hearing proof of full compliance with filing and payment requirements.
On June 24, 2011, petitioner’s counsel called and informed SO Munson that
he would be unable to attend the June 29, 2011, CDP hearing. His father had
passed away that morning, and he had to go to Florida to coordinate funeral
arrangements and then travel to New York for his father’s burial. SO Munson, in
response, offered petitioner’s counsel a telephone hearing as an alternative, but
petitioner’s counsel stated that he preferred a face-to-face hearing. SO Munson
agreed to reschedule the face-to-face hearing to July 13, 2011, but informed
petitioner’s counsel that, having given petitioner many extensions and
opportunities to comply and become current with its tax obligations, if it did not
provide proof of compliance and submit a collection alternative by July 11, 2011,
she would sustain the levy.
On July 11, 2011, SO Munson called petitioner’s counsel and left a voice
mail message informing him that her office was in the process of moving and that
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[*10] she had to reschedule the July 13, 2011, face-to-face hearing to August 2,
2011. SO Munson provided petitioner’s counsel with the new Appeals Office
address.
On August 2, 2011, SO Munson called petitioner’s counsel and left him a
voice mail message, informing him that the August 2, 2011, face-to-face hearing
would be canceled because petitioner had not provided the promised collection
alternative. The same day, petitioner’s counsel returned the call, informing SO
Munson that he would be submitting the requested Form 433-D, Installment
Agreement, and an updated collection information statement. SO Munson granted
petitioner’s counsel a further extension until August 5, 2011, to do so. SO
Munson reminded petitioner’s counsel that if he did not comply, she would sustain
the levy.
On August 5, 2011, petitioner’s counsel faxed a Form 433-D dated August
1, 2011, to SO Munson, offering to pay installments of $400 per month. By letter
dated August 5, 2011, SO Munson acknowledged receipt of the offer but informed
petitioner it would not be accepted because petitioner’s bank statements and Form
433-B showed that petitioner could pay more than $400 monthly. She further
stated that, in order for petitioner’s tax liability to be fully satisfied within the
statutory collection period, petitioner would need to make monthly payments of
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[*11] about $5,000. She advised petitioner’s counsel to submit a completed Form
433-D to her by August 15, 2011, if petitioner wanted to offer a new collection
alternative. SO Munson informed petitioner’s counsel that she would close the
case and sustain the levy if she did not receive the updated Form 433-D by August
15, 2011. As of August 19, 2011, petitioner had not submitted an updated Form
433-D or other collection alternative to SO Munson, and SO Munson closed the
file. On August 26, 2011, respondent issued the notice of determination,
sustaining the levy.5 The notice stated:
The Appeals Office rejected this proposed * * * [installment
agreement] since the taxpayer’s financial records indicate the
taxpayer has ability to pay much more than the proposed amount.
Appeals advised the representative and the taxpayer to increase the
payment to at least $5,000 per month before it is considered as an
acceptable collection alternative. So far the taxpayer has not
responded to the Appeals Office; therefore, the proposed levy action
is fully sustained.
Discussion
Section 6331(a) authorizes the Commissioner to levy upon property and
rights to property of a taxpayer who is liable for taxes and who fails to pay those
5
As of February 14, 2013, petitioner had not made any payment of Federal
employment taxes and penalties assessed or interest accrued for the taxable
quarters and years at issue. As of February 15, 2013, petitioner had not filed its
Form 941 for the taxable quarter ended September 30, 2012, and was not current
with its Federal employment tax deposits for the taxable quarter ended December
31, 2012.
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[*12] taxes within 10 days after notice and demand for payment is made. Section
6331(d) provides that the levy authorized in section 6331(a) may be made only if
the Commissioner has given notice to the taxpayer no less than 30 days before the
day of the levy.
Section 6330(a) grants the taxpayer the right to request a prelevy CDP
hearing to be conducted by the IRS Appeals Office. Sec. 6330(a)(3)(B), (b)(1);
see Davis v. Commissioner, 115 T.C. 35, 37 (2000); Goza v. Commissioner, 114
T.C. 176, 179 (2000). The Appeals Office must verify that the requirements of
any applicable law or administrative procedure have been met and consider the
issues raised by the taxpayer and whether any proposed collection action balances
the need for the efficient collection of taxes with the legitimate concern that any
collection action be no more intrusive than necessary. Sec. 6330(c)(3); Lunsford
v. Commissioner, 117 T.C. 183, 184 (2001).
Pursuant to section 6330(d)(1), this Court may review a determination to
sustain a proposed levy made by the Appeals Office. See Rules 330-334. Where
the underlying tax liability is properly in dispute, we review the determination de
novo. Goza v. Commissioner, 114 T.C. at 181-182. Petitioner does not challenge
either the amounts or the validity of the outstanding employment tax liabilities,
additions to tax, penalties, and/or interest for the taxable quarters at issue. Where,
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[*13] as in this case, the underlying tax liability is not at issue, we review the
Commissioner’s determination for abuse of discretion. Id. at 182; see also Hoyle
v. Commissioner, 131 T.C. 197, 200 (2008); Sego v. Commissioner, 114 T.C.
604, 610 (2000). An abuse of discretion occurs if the Appeals Office exercises its
discretion “arbitrarily, capriciously, or without sound basis in fact or law.”
Woodral v. Commissioner, 112 T.C. 19, 23 (1999); see Giamelli v. Commissioner,
129 T.C. 107, 111 (2007).
Petitioner asserts that SO Munson abused her discretion by rejecting
petitioner’s offer to pay the unpaid employment taxes in monthly installments of
$400 and not holding a CDP hearing with petitioner. This Court does not
independently review whether a collection alternative is acceptable but rather
focuses on whether the settlement officer’s rejection of the offer was arbitrary,
capricious, or without sound basis in fact or law. Murphy v. Commissioner, 125
T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006). The taxpayer bears the
burden of proving abuse of discretion. Rules 122(b), 142(a); see also Titsworth v.
Commissioner, T.C. Memo. 2012-12, 2012 WL 86670, at *6 (holding that the
taxpayer bears the burden even in cases submitted fully stipulated).
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[*14] Rejection of Installment Agreement
Section 6159 authorizes the Commissioner to enter into written agreements
allowing taxpayers to pay tax in installment payments if he deems that the
“agreement will facilitate full or partial collection of such liability.” The
Commissioner in general has the discretion to accept or reject any proposed
installment agreement. See sec. 301.6159-1(c)(1)(i), Proced. & Admin. Regs.
This Court has generally held that there is no abuse of discretion when the
settlement officer relies on guidelines published in the Internal Revenue Manual
(IRM) to evaluate a proposed installment agreement. See, e.g., Orum v.
Commissioner, 123 T.C. 1, 13 (2004), aff’d, 412 F.3d 819 (7th Cir. 2005);
Aldridge v. Commissioner, T.C. Memo. 2009-276; Etkin v. Commissioner, T.C.
Memo. 2005-245. The IRM guidelines state that the procedures for processing an
installment agreement for a business are applicable only if taxpayers can pay
operating expenses as well as current and delinquent taxes and are current with
their filing and deposit requirements. See IRM pts. 5.14.7.2 (Aug. 5, 2010),
5.14.7.4 (Mar. 11, 2011).
SO Munson rejected petitioner’s offer to pay $400 monthly installments
because petitioner’s bank statements and Form 433-B showed that petitioner could
pay monthly installments much greater than $400. SO Munson determined that
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[*15] petitioner would need to pay monthly installments of approximately $5,000.
The Capital One February 2011 statement shows, inter alia, customer deposits of
$15,500 and $20,000, respectively, made on February 10 and 15 and two
withdrawals each for $15,500 made on February 14 (designated as “ACH
Withdrawal CHASE EPAY * * * MURTAGH, COLM”) and 16 (designated
“Customer withdrawal”). Therefore, it was not unreasonable or arbitrary for SO
Munson to conclude that petitioner could pay much more that the $400 monthly
payments offered. Additionally, although on the Form 433-B petitioner claimed
monthly income of $51,188 and monthly expenses of $52,461.45, it did not
reconcile the claimed net loss with the deposits on its bank records. Moreover,
petitioner stated on the Form 433-B that sales had steadily increased over the
previous three years and that it expected its income to increase by more than
$70,000. Finally, SO Munson advised petitioner’s counsel to submit a new
completed Form 433-D to her by August 15, 2011, if petitioner wanted to offer a
new collection alternative. Petitioner did not do so.
Petitioner contends that SO Munson did not provide any further explanation
to the August 5, 2011, letter. We note, however, that petitioner did not attempt to
contact SO Munson or follow up in any way. Accordingly, after receiving no
response from petitioner, SO Munson closed the file and issued a notice of
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[*16] determination sustaining the proposed levy. SO Munson’s rejection of
petitioner’s installment agreement offer was not arbitrary or capricious.
Face-to-Face Hearing
Petitioner argues that it was not afforded a face-to-face hearing and that, in
fact, a CDP hearing never occurred. We disagree.
A section 6330 CDP or other prelevy hearing is not a formal adjudication,
and a face-to-face hearing is not required under section 6330. Katz v.
Commissioner, 115 T.C. 329, 337-338 (2000) (finding a combination of telephone
calls and one or more written communications between a taxpayer and a settlement
officer is sufficient to constitute a hearing); Radeke v. Commissioner, T.C. Memo.
2012-319, at *9 (“An informal telephone conference which gives the taxpayer the
opportunity to discuss the merits of her case, settlement alternatives, and other
issues related to the proposed levy is a proper CDP hearing.”); Jackson v.
Commissioner, T.C. Memo. 2010-180, 2010 WL 3119253, at *2 (and cases cited
therein); Williamson v. Commissioner, T.C. Memo. 2009-188; see sec. 301.6330-
1(d)(2), Q&A-D6, Proced. & Admin. Regs.
SO Munson and petitioner’s counsel communicated through letters, faxes,
and telephone conversations. These communications constituted a proper CDP
hearing. Petitioner argues that it was unaware that the telephone conversations its
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[*17] counsel had with SO Munson constituted a CDP hearing. This argument
lacks merit because SO Munson repeatedly cautioned petitioner’s counsel that
there would not be a face-to-face hearing if certain forms, returns, or records were
not provided or if petitioner did not bring its required filings and deposits into
compliance. The clear implication was that, if a “face-to-face” hearing was not
allowed, the telephone conversations and other communications constituted the
hearing. Thus, SO Munson did not abuse her discretion by denying petitioner a
face-to-face hearing.
We conclude that petitioner would have needed to offer to pay more than
$400 per month to satisfy its outstanding tax liabilities. At no time did petitioner
express an indication (or made any revised offer) to do so. In addition, petitioner
has failed to establish current compliance and is thus not eligible for a collection
alternative.
Conclusion
SO Munson verified that all requirements of applicable law and
administrative procedure had been met and considered the relevant issues
petitioner raised. Therefore, on the record presented, we hold that SO Munson did
not abuse her discretion by sustaining the proposed levy action to collect
petitioner’s outstanding employment tax liabilities for 2008 and 2009, and we
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[*18] sustain respondent’s determination to proceed with the proposed levy. We
also hold that SO Munson did not abuse her discretion by not holding a face-to-
face CDP hearing with petitioner.
To reflect the foregoing,
Decision will be entered for
respondent.