T.C. Memo. 2004-238
UNITED STATES TAX COURT
HECTOR CASTILLO AND MOONEEM CASTILLO, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2557-03L. Filed October 14, 2004.
Ps filed a petition for judicial review pursuant to
sec. 6330, I.R.C., in response to a determination by R to
proceed with collection by levy of assessed income tax
liabilities plus penalties and interest for 1992, 1993,
1994, 1996, 1997, 1998, and 1999.
Held: R’s rejection of an installment agreement
proposed by Ps did not constitute an abuse of
discretion, and R’s determination that Ps could pay
$5,243 per month was reasonable.
Held, further, R may proceed with collection of
balances due as determined in a “NOTICE OF
DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER
SECTION 6320 and/or 6330”.
Frank Agostino and Julia F. Moore, for petitioners.
Joseph J. Boylan, for respondent.
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MEMORANDUM OPINION
NIMS, Judge: This case arises from a petition for judicial
review filed in response to a “NOTICE OF DETERMINATION CONCERNING
COLLECTION ACTION(S) UNDER SECTION 6320 and/or 6330” (Notice).
Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the years in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure. The parties do not challenge the Court’s jurisdiction
over this case. Petitioners do not dispute their liability for
underlying taxes, interest, and penalties. The sole issue for
decision is whether respondent’s rejection of petitioners’
proposed installment agreement constitutes an abuse of
discretion.
Background
The parties submitted this case without trial pursuant to
Rule 122. The stipulations of the parties, with accompanying
exhibits, are incorporated herein by this reference. At the time
the petition was filed in this case, petitioners resided in
Oakland, New Jersey.
Petitioner Hector Castillo is a physician with investments
in real estate and other business ventures. Petitioner Mooneem
Castillo is not employed outside the home. Petitioners filed
joint Forms 1040, U.S. Individual Income Tax Returns, for the
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taxable years 1992, 1993, 1994, 1996, 1997, 1998, and 1999.
As of April 22, 2002, petitioners’ total unpaid income tax
liability, including penalties and interest, for the foregoing
taxable years was $605,330.
On April 22, 2002, respondent issued to petitioners a letter
entitled “FINAL NOTICE–-NOTICE OF INTENT TO LEVY AND NOTICE OF
YOUR RIGHT TO A HEARING” relating to petitioners’ unpaid income
tax liabilities plus penalties and interest for the
aforementioned years. Thereafter, on April 26, 2002, petitioners
sent Form 12153, Request for a Collection Due Process Hearing, to
respondent’s Appeals Office. Petitioners disagreed with
respondent’s decision to levy and indicated they were unable to
pay the assessments in full at that time. Petitioners also
assured the Appeals Office that they would use the proceeds from
the sale of two listed real estate properties to pay respondent
in the future.
Petitioners later submitted personal financial information
that reflected $343,842 in liquid assets and $811,408 equity in
real estate.
Petitioners’ counsel contacted the respondent’s Appeals
Office and requested a $1,500 monthly installment agreement under
section 6159. Petitioners also offered to pay the balance of the
liability when they managed to sell some of their properties.
After reviewing petitioners’ financial information, respondent
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determined that petitioners had the ability to pay $5,243 per
month and could fully pay or provide a significant partial
payment through the liquidation of their assets.
Section 6502(a)(1) provides a 10-year period of limitations
on collection after assessment of tax, but section 6502(a)(2)(A)
also provides that respondent may extend the collection period in
connection with granting installment agreements. Respondent’s
policy limits Collection Statute Expiration Date (CSED)
extensions to 5 years beyond the original CSED for each tax
account. 2 Administration, Internal Revenue Manual (CCH), sec.
5.14.2.1, at 17,523. Thus, the Appeals officer correctly advised
petitioners that a $1,500 monthly installment agreement would not
satisfy petitioners’ $605,330 liability within the original CSED
plus 5 years for each tax account.
Respondent rejected the proposed $1,500 monthly installment
agreement in the aforementioned Notice. The Appeals officer
based his decision on the period of limitations and respondent’s
Internal Revenue Manual which provides:
If taxpayers have the ability to fully or
partially satisfy * * * [their] accounts by:
• using cash;
• withdrawing cash from bank or other accounts;
• borrowing on equity in real or personal property;
or,
• selling real or personal property, then:
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a. request full or partial payment * * * .
* * * * * * *
c. installment agreements will be
recommended for rejection if there is
sufficient equity or cash available to:
• fully pay the taxes, and full payment is not
received by a set date. [2 Administration,
Internal Revenue Manual, sec. 5.14.1.4(6),
at 17,508.]
Subsequent to the administrative hearing, petitioners made a
$100,000 payment to respondent and listed more properties for
sale with a real estate broker. Petitioners contend that these
factors demonstrate their willingness to pay the tax liability
and respondent’s rejection of the installment agreement was an
abuse of discretion.
Discussion
I. Standard of Review
Because the underlying tax liability is not in dispute, we
review the Appeals officer’s actions under an abuse of discretion
standard. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).
Under the abuse of discretion standard, a determination will be
affirmed unless the respondent took action that was arbitrary or
capricious, lacks sound basis in law, or is not justifiable in
light of the facts and circumstances. Mailman v. Commissioner,
91 T.C. 1079, 1084 (1988).
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II. The Administrative Hearing
Before a levy may be made on any property or right to
property, a taxpayer is entitled to notice of intent to levy and
notice of the right to a fair hearing before an impartial officer
of the IRS Appeals Office. Secs. 6330(a) and (b), 6331(d).
Taxpayers may raise challenges to “the appropriateness of
collection actions” and may make “offers of collection
alternatives, which may include the posting of a bond, the
substitution of other assets, an installment agreement, or an
offer-in-compromise”. Sec. 6330(c)(2)(A). The Appeals officer
must consider those issues, verify that the requirements of
applicable law and administrative procedures have been met, and
must consider “whether any proposed collection action balances
the need for the efficient collection of taxes with the
legitimate concern of the person [involved] that any collection
action be no more intrusive than necessary.” Sec. 6330(c)(3)(C).
Here, petitioners stipulate that all administrative
procedures have been met so the sole issue for our consideration
is whether respondent’s rejection of petitioners’ collection
alternative was an abuse of discretion.
III. The Proposed Installment Agreement
The rejection of the proposed $1,500 monthly installment
agreement and determination that petitioners can pay $5,243 per
month was not arbitrary in light of petitioners’ financial
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situation. Respondent’s calculation was based on a financial
analysis of petitioners’ monthly net income generated by Dr.
Castillo’s medical practice and real estate investments.
Respondent has the discretion to accept or reject an
installment agreement proposed by a taxpayer under section 6159.
Sec. 301.6159-1(b)(1)(i), Proced. & Admin. Regs. Section 6159
requires respondent to enter into installment agreements in
certain circumstances not applicable to the facts before us. See
sec. 6159(c). Respondent’s rejection of the proposed installment
agreement on the grounds that it would not satisfy petitioners’
liability within the period of limitations on collection after
assessment contained in section 6502, plus allowable extensions,
is not an abuse of discretion. See McCorkle v. Commissioner,
T.C. Memo. 2003-34.
IV. Section 6330(c)(3)(C) Balancing Test
Petitioners argue that respondent failed to balance the
Government’s need for the efficient collection of taxes with the
concern of the “person”, i.e., petitioners in this case, that any
collection action be no more intrusive than necessary.
Petitioners also assert that respondent’s reliance on 2
Administration, Internal Revenue Manual, sec. 5.14.1.4(6), at
17,508, was a violation of section 6330(c)(3)(C). We are
unpersuaded by these arguments.
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Petitioners claim they cannot fully pay the liability, but
the financial information submitted to the Appeals officer shows
assets and equity exceeding $1.15 million. The liabilities date
back to April 15, 1993, and petitioners have had a number of
years to liquidate part or all of their assets or borrow against
their equity. It is not an abuse of discretion for respondent to
require that taxpayers with sufficient assets to satisfy their
liabilities pay them off more rapidly than would be accomplished
by the proposed installment agreement. See Clawson v.
Commissioner, T.C. Memo. 2004-106.
Petitioners claim that they are entitled to an installment
agreement so that they can sell their properties in an “orderly
fashion”, but the Appeals officer was not given any assurances
that the sales would occur within a reasonable period of time,
and in light of petitioners’ apparent indifference to their past
income tax liabilities in this case, the action of the Appeals
officer is fully justified. Moreover, petitioners’ $100,000
payment subsequent to the Appeals hearing does not change our
holding, even if indeed it is relevant to our consideration of
this case. See Robinette v. Commissioner, 123 T.C. 85 (2004).
In any event, the $100,000 payment leaves a balance of at least
$500,000, a sum too large to be discharged within the collection
period by monthly installments of $1,500.
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We have considered all of the contentions and arguments of
the parties that are not discussed herein, and we find them to be
without merit, irrelevant, or moot.
We hold that respondent correctly determined that collection
efforts should proceed.
To reflect the foregoing,
Decision will be entered
for respondent.