T.C. Memo. 2014-168
UNITED STATES TAX COURT
MISTY S. DOONIS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10877-13L. Filed August 18, 2014.
Glen E. Frost and Melanie A. Fenzel, for petitioner.
Michael A. Raiken, Nancy M. Gilmore, and Elizabeth C. Mourges, for
respondent.
MEMORANDUM OPINION
LAUBER, Judge: In this collection due process (CDP) case, petitioner
seeks review pursuant to section 6330(d)(1) of the determination by the Internal
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[*2] Revenue Service (IRS or respondent) to uphold a notice of intent to levy.1
Respondent has moved for summary judgment under Rule 121, contending that
there are no disputed issues of material fact and that his action in sustaining the
proposed levy was proper as a matter of law. We agree and accordingly will grant
the motion.
Background
The following facts are based on the parties’ pleadings and motion papers,
including attached exhibits and affidavits. See Rule 121(b). Petitioner is a self-
employed individual engaged in the business of recruiting medical professionals
and placing them at various companies. She resided in Maryland when she filed
her petition.
Petitioner did not file a Federal income tax return for 2007 or 2008. The
IRS prepared substitutes for returns for those years that met the requirements of
section 6020(b) and, in separate notices of deficiency, determined deficiencies in
petitioner’s Federal income tax and related additions to tax. Petitioner did not
petition this Court for review of either notice. The IRS subsequently assessed the
tax.
1
All statutory references are to the Internal Revenue Code in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all monetary amounts to the nearest dollar.
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[*3] On July 24, 2012, in an effort to collect these outstanding liabilities, the IRS
sent petitioner a Final Notice of Intent to Levy and Notice of Your Right to a
Hearing. Petitioner timely submitted Form 12153, Request for a Collection Due
Process or Equivalent Hearing. In her request, petitioner asked that her account be
placed in currently not collectible (CNC) status or, alternatively, that the IRS
consider a collection alternative in the form of an installment agreement or offer-
in-compromise.
On February 20, 2013, a settlement officer (SO) from the IRS Appeals Of-
fice wrote petitioner to schedule a telephone CDP hearing. The SO informed her
that, in order for him to consider a collection alternative, she needed to submit a
completed Form 433-A, Collection Information Statement for Wage Earners and
Self-Employed Individuals, together with supporting financial information. The
SO also told petitioner that he could not consider a collection alternative unless
she was in compliance with and current in all of her Federal tax return filing
obligations. Petitioner had neglected to file Federal income tax returns, not only
for 2007 and 2008, but also for 2005, 2006, 2009, 2010, and 2011. The SO
accordingly informed petitioner that she needed to file a tax return for each of
these years in order for him to consider her requests for relief.
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[*4] Before the CDP hearing petitioner submitted Form 433-A with supporting
financial information. She also filed, with the appropriate IRS service center, tax
returns for 2006-2011. On these returns she reported business income on Sche-
dules C, Profit or Loss From Business, of $100,799, $22,407, $80,029, $91,756,
$60,578, and $93,403, respectively. Each return showed a substantial balance due.
Petitioner subsequently filed a tax return for 2012 reporting Schedule C business
income of $99,048.
On April 4, 2013, the parties held the scheduled CDP hearing. Petitioner’s
representative told the SO that petitioner had filed all of her past-due returns. The
SO replied that petitioner had not filed a tax return for 2005. One week later, peti-
tioner’s representative sent the SO copies of petitioner’s 2006-2011 tax returns
with proof of mailing to the IRS service center. Petitioner’s representative sub-
mitted no evidence that petitioner had filed a tax return for 2005.
The SO determined that petitioner was not eligible for an installment agree-
ment or offer-in-compromise because she had not filed her 2005 income tax return
and hence was not in full compliance with her Federal tax obligations. The SO
determined that petitioner was not eligible for CNC status because her income
significantly exceeded her allowable expenses according to national and local
standards. On the basis of petitioner’s 2012 tax return, the SO determined that she
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[*5] had monthly income of $9,000 and allowable expenses of $5,104, which
indicated that she could pay $3,896 per month toward her delinquent tax obliga-
tions.
Consistently with the SO’s determinations, the IRS issued on April 23,
2013, a Notice of Determination Concerning Collection Action(s) under Section
6320 and/or 6330 that denied petitioner’s requests for collection relief. Petitioner
timely petitioned this Court for review. On February 25, 2014, respondent filed a
motion for summary judgment, and petitioner responded to that motion on April 7,
2014.
Discussion
A. Summary Judgment and Standard of Review
The purpose of summary judgment is to expedite litigation and avoid costly,
time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90
T.C. 678, 681 (1988). Under Rule 121(b) the 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. Commissioner, 98 T.C. 518, 520
(1992), aff’d, 17 F.3d 965 (7th Cir. 1994). The moving party bears the burden of
proving that there is no genuine dispute of material fact, and the Court views all
factual materials and inferences in the light most favorable to the nonmoving
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[*6] party. See Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). Rule
121(d) provides that, where the moving party properly makes and supports a
motion for summary judgment, “an adverse party may not rest upon the mere
allegations or denials of such party’s pleading.” Rather, the nonmoving party
must set forth specific facts, by affidavits or otherwise, “showing that there is a
genuine issue for trial.” Id. Petitioner has not identified any material facts that are
in genuine dispute, and we accordingly conclude that this case is appropriate for
summary adjudication.
Where (as here) there is no challenge to the amounts of a taxpayer’s under-
lying tax liabilities for the years at issue, the Court reviews the IRS determination
for abuse of discretion. Goza v. Commissioner, 114 T.C. 176, 182 (2000). An
abuse of discretion exists when a determination is arbitrary, capricious, or without
sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. 301, 320
(2005), aff’d, 469 F.3d 27 (1st Cir. 2006).
B. Analysis
The only question is whether the IRS properly sustained a levy to collect
petitioner’s liabilities. We review the record to determine whether: (1) the SO
properly verified that the requirements of any applicable law or administrative
procedure have been met; (2) any issues raised by the taxpayer have merit; and (3)
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[*7] “any proposed collection action balances the need for the efficient collection
of taxes with the legitimate concern of the person that any collection action be no
more intrusive than necessary.” Sec. 6330(c)(3).
It is clear from our review of the record that the SO conducted a thorough
review of petitioner’s account transcripts and verified that the requirements of
applicable law and administrative procedure were followed. The SO properly
balanced the need for efficient collection of taxes with petitioner’s legitimate
concern that collection action be no more intrusive than necessary.
Petitioner requested an installment agreement or an offer-in-compromise.
Both collection alternatives require that the taxpayer be in full compliance with
filing required tax returns. See Giamelli v. Commissioner, 129 T.C. 107, 111-112
(2007); sec. 301.6320-1(d)(2), Q&A-D8, Proced. & Admin. Regs. Petitioner
concedes that she did not file a tax return for 2005.
Petitioner first argues that the SO should have excused her failure to file this
return because “she did not have sufficient records to file a tax return for 2005.”
This excuse is unavailing. Taxpayers are required to keep and produce adequate
records that enable the Commissioner to determine the correct tax liability. Sec.
6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540
F.2d 821 (5th Cir. 1976). This is an affirmative duty placed on the taxpayer, and
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[*8] an unexplained failure to maintain adequate records is no defense to the duty
to file a required return. See Smith v. Commissioner, T.C. Memo. 1998-143, 75
T.C.M. (CCH) 2155, 2157 (citing DiLeo v. Commissioner, 96 T.C. 858, 867
(1991), aff’d, 959 F.2d 16 (2d Cir. 1992)); Wolfington v. Commissioner, T.C.
Memo. 2014-45, at *7.
Petitioner next contends that she had “no reported income for tax year 2005
per the IRS wage and income transcripts.” Petitioner is a self-employed medical
recruiter who earned Schedule C business income averaging in excess of $78,000
for 2006-2012. On her Schedule C for 2006 she did not check the box for
designating that she “started or acquired this business during 2006.” This implies
that she was engaged in her medical recruiting business during 2005. Petitioner
has set forth no specific facts, by affidavit or otherwise, tending to show that she
did not work in her business during 2005; that she earned no income in 2005; or
that the income she earned in 2005 was below the threshold requiring her to file a
tax return. See sec. 6012(a).
The fact that the IRS transcript of petitioner’s 2005 account shows no third-
party reporting of payments to her does not imply that she received no income for
2005. Self-employed individuals are not subject to reporting on Form W-2, Wage
and Tax Statement, and they often are not subject to reporting on Form 1099-
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[*9] MISC, Miscellaneous Income, either. Petitioner has set forth no specific
facts, by affidavit or otherwise, indicating how many clients she had, how those
clients paid her, and whether those clients generally supplied the IRS with Forms
1099-MISC reporting the income that she received.
Petitioner next argues that she was not required to submit a 2005 tax return
because an IRS policy statement provides that the IRS will generally solicit returns
going back only six years. See Internal Revenue Manual (IRM) pt. 1.2.14.1.18
(Aug. 4, 2006) (Policy Statement 5-133). We have previously found no abuse of
discretion when an SO required a taxpayer to file returns going back more than six
years. See Gregg v. Commissioner, T.C. Memo. 2009-19, 97 T.C.M. (CCH) 1070,
1073 (2009) (rejecting taxpayer’s reliance on Policy Statement 5-133); Corona
Pathology Servs., Inc. v. Commissioner, T.C. Memo. 2003-120. The IRM, which
includes Policy Statement 5-133, does not have the force and effect of law but
provides only direction and guidance. See Gregg, 97 T.C.M. at 1073; accord
Thoburn v. Commissioner, 95 T.C. 132, 141-142 (1990) (IRM provisions are not
binding on the Commissioner and confer no rights on taxpayers.). The SO did not
abuse his discretion in requiring petitioner to submit a tax return for 2005 as well
as for the later years for which she was delinquent.
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[*10] Petitioner alternatively requested that her account be placed in CNC status.
To be entitled to this relief, the taxpayer must demonstrate that, on the basis of her
assets, equity, income, and expenses, she has no apparent ability to make payments
on the outstanding tax liability. See Foley v. Commissioner, T.C. Memo. 2007-
242. Here, the SO determined that petitioner, far from being unable to pay
anything at all, could afford to pay $3,896 per month toward her delinquent tax
obligations.
In reviewing for abuse of discretion, the Court does not recalculate a tax-
payer’s ability to pay or substitute its judgment for that of the SO. See O’Donnell
v. Commissioner, T.C. Memo. 2013-247, at *15. An SO does not abuse his
discretion when he employs local and national standards to calculate the
taxpayer’s expenses and ability to pay, as the SO did here. See Friedman v.
Commissioner, T.C. Memo. 2013-44, at *9; Aldridge v. Commissioner, T.C.
Memo. 2009-276 (burden on taxpayer to justify departure from local standards).
We find no abuse of discretion in the SO’s conclusion that petitioner had not
demonstrated her entitlement to have her account placed in CNC status.
Finding no abuse of discretion in any respect, we will grant summary
judgment for respondent and affirm the proposed collection action.
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[*11] To reflect the foregoing,
An appropriate order and decision
will be entered.