T.C. Memo. 2005-206
UNITED STATES TAX COURT
RICHARD T. AND CATHERINE L. LITES, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19906-03L. Filed August 30, 2005.
Robert E. McKenzie and Kathleen M. Lach, for petitioners.
Thomas D. Yang, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
THORNTON, Judge: Pursuant to section 6330(d), petitioners
seek review of an Appeals Office determination sustaining a
proposed levy.1
1
Unless otherwise indicated, section references are to the
Internal Revenue Code, as amended.
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FINDINGS OF FACT
The parties have stipulated some facts, which we incorporate
herein by this reference. When they petitioned the Court,
petitioners resided in Homewood, Illinois.
Background
Petitioner husband (hereinafter, Richard) is the primary
wage earner for petitioners’ family of four. Petitioner wife
(hereinafter, Catherine) has had very limited work experience.
At the time of trial, petitioners’ children were 15 and 18 years
old.
Until 1997, Richard worked as a municipal bonds salesman at
various investment banking firms in Chicago, Illinois. According
to his testimony, he was a “very, very good salesman” and in the
early 1990s made “tremendous amounts of money”. At some point,
due to changes in the financial services industry, his income
began to fall. In 1997, at age 53, Richard went into business
with a friend providing management, consulting, and training
services. Before making this job change, he had been earning
about $120,000 a year. By 1998, his earnings had dropped to
$54,173.
In January 1999, Richard had quintuple bypass surgery. He
was unable to return to work until July 1999; he worked only
about 10 weeks that year, earning $49,067. He did not return to
work full time until May 2001, when he took a job with a trust
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company. He was terminated from that position in April 2002; he
did not secure full-time employment again until October 2002,
making about $9,500 per month. As of the time of trial, Richard
was earning about $10,000 per month; i.e., about the same as
before his 1997 job change.
After his 1997 job change, Richard began liquidating his
Individual Retirement Account (IRA). Between 1998 and 2000, he
took out $382,577 in early distributions.2 He used these IRA
distributions partly to cover living expenses and partly for
things such as making payments of about $700 per month on a
recreational boat.3 In 1999, petitioners refinanced their
residence and used the $37,500 proceeds principally to pay off
credit card debts.
1999 and 2000 Federal Tax Returns
Petitioners’ 1999 Federal income tax return was due, after
extensions, on October 15, 2000; petitioners filed it on
October 24, 2000. Petitioners’ 2000 Federal income tax return
was due, after extensions, on October 15, 2001; petitioners filed
it on November 14, 2001.
2
Richard withdrew $198,107 from his IRA in 1998, $107,735
in 1999, and $76,735 in 2000. He elected to have Federal income
taxes withheld (in the amounts of $48,207 and $8,300,
respectively) from the 1998 and 1999 withdrawals but not from the
2000 withdrawal.
3
Richard testified that he had continued making payments on
the boat until some 3 months before the trial in this case.
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Petitioners’ 1999 and 2000 returns reported amounts due but
included no remittances. Petitioners made no estimated tax
payments with respect to their 1999 and 2000 tax years.
Respondent assessed the amounts reported on petitioners’
returns plus statutory additions to tax as follows:
Additions to Tax
Sec. Sec. Sec.
Year Tax 6651(a)(1) 6651(a)(2) 6654
1999 $38,074 $858 $763 $814
2000 28,776 1,036 1,036 1,204
Petitioners’ Default on 1999 Installment Agreement
On December 5, 2000, petitioners entered into an installment
agreement to pay their 1999 income tax liability. Throughout
2001 they made sporadic payments totaling $3,394 before
defaulting.
Proposed Collection Action
On October 24, 2002, respondent issued petitioners a Final
Notice of Intent to Levy and Notice of Your Right to a Hearing
(the Final Notice) with respect to their income tax liabilities
for 1999 and 2000.
The Final Notice showed that petitioners owed the following
tax liabilities:
Amount due Statutory
Year on return additions Total
1999 $19,214.29 $5,077.31 $24,291.60
2000 26,947.19 2,707.37 29,654.56
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In response, petitioners timely filed a Form 12153, Request for
Collection Due Process Hearing. Petitioners requested abatement
of the statutory additions on the basis of reasonable cause and
further requested an offer-in-compromise or, in the alternative,
an installment agreement.
Appeals Officer’s Conclusions
During the Appeals process, the parties conducted a hearing
through written correspondence and telephone conversations. As
requested, petitioners submitted a completed Form 433-A,
Collection Information Statement for Wage Earners and Self-
Employed Individuals. On the Form 433-A, petitioners listed
their assets and included an analysis showing total gross monthly
income of $10,499 (including $500 wages for Catherine) and total
monthly living expenses of $9,611. On the basis of this
analysis, petitioners initially requested an installment
agreement whereby they would pay $750 per month. The Appeals
officer rejected this offer. By letter to petitioners’ counsel
dated August 25, 2003, the Appeals officer stated that on the
basis of the financial information petitioners had submitted, she
had determined that petitioners had “excess monthly income” of
$2,732 per month. The letter also stated that the Appeals
officer had determined that petitioners would need to pay $2,700
per month if they wished to enter into an installment agreement.
The letter further stated: “This amount would allow the
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liabilities to be paid in full prior to the time Mr. Lites would
be expected to retire and there would be no requirement that the
collection statute expiration date (CSED) be extended.”
Petitioners increased their installment agreement offer to
$1,000 per month. The Appeals officer also rejected this offer.
In a letter to petitioners’ counsel dated September 5, 2003, the
Appeals officer stated:
Regarding your request for an installment
agreement of $1,000/mo., I do not feel the amount
requested is adequate. Based on Mr. Lites’ age, health
concerns and the likelihood that he could retire prior
to full payment, I do not feel that it would be in the
best interest of the taxpayer or the Government to
accept this amount. If Mr. Lites were to retire at 65,
it is extremely unlikely that Mrs. Lites would be able
to maintain this agreement based on what appears to be
limited work experience. In addition, the taxpayers
would be required to extend the collection statute
expiration date (CSED) to at least the year 2014. It
is my opinion that the granting of an installment
agreement in the amount requested would place an undue
burden on both of the taxpayers when the liabilities
can be paid in full by 2007 if the taxpayers were to
enter into an agreement in the amount indicated in my
letter of August 25, 2003. Based on this discussion I
will be unable to honor your request for the agreement
in the amount of $1,000/mo.
If the taxpayers do not wish to accept an
installment agreement for $2,700/mo. please advise me
no later than September 12, 2003.
In her September 5, 2003, letter, the Appeals officer agreed
to abate the section 6651(a)(1) addition to tax for failure to
timely file for 1999. The Appeals officer declined to consider
petitioners’ request to abate the section 6651(a)(1) addition to
tax for 2000 on the ground that petitioners had “presented no
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information explaining why the 2000 return was not filed timely”.
In her letter, the Appeals officer stated that she would be
unable to recommend abating the section 6651(a)(2) addition to
tax for failure to pay for either 1999 or 2000 for several
reasons: (1) Because petitioners had presented no evidence to
support their claim that Richard’s heart surgery had diminished
his mental ability to function at his business; (2) because
petitioners had failed to submit evidence that the funds taken
from their savings were used for living expenses; and (3) because
petitioners had not shown ordinary care and prudence with respect
to the requirement to make estimated tax payments.
Shortly after receiving this letter, petitioners proposed an
installment agreement of $1,200 per month. Apparently, the
Appeals officer rejected this counteroffer.
The Appeals Office issued a Notice of Determination
Concerning Collection Action(s) Under Section 6320 and/or 6330
(the Notice of Determination), dated October 29, 2003, sustaining
the proposed levy and denying petitioners’ request for an
installment agreement.4 The Notice of Determination refers to
4
The Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 (Notice of
Determination) states as its “Summary of Determination” simply
that “Based on all information available, the proposed collection
enforcement action is appropriate in this case.” An attachment
to the Notice of Determination, however, states that the Appeals
officer had recommended abating the sec. 6651(a)(1) addition to
tax for failure to timely file for 1999. Respondent’s proposed
(continued...)
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and adopts the Appeals officer’s reasons for rejecting
petitioners’ initial installment agreement proposal of $750 per
month and subsequent proposal of $1,000 per month.5 The Notice
of Determination states in part:
The Appeals Officer reviewed previous and subsequent
information submitted by the representative and
determined that at a minimum you have excess available
income of $2,732/mo.
* * * * * * *
The Appeals Officer sent your representative a letter
dated August 25, 2003 advising that consideration was
given to your age and health issues and it was
4
(...continued)
findings of fact Number 18 states in part: “The Notice of
Determination recommended abatement of the failure to timely file
penalty with respect to petitioners’ 1999 income tax liability”.
The transcripts of petitioners’ account, as included in the
record, do not appear to reflect any abatement of the sec.
6651(a)(1) addition to tax for 1999. We treat respondent’s
proposed finding of fact as a concession that the sec. 6651(a)(1)
addition to tax for 1999 should be abated, if it has not been
already.
5
The Notice of Determination does not specifically address
petitioner’s counteroffer of an installment agreement of $1,200
per month or the reasons why it was rejected. The Notice of
Determination does address, however, what was apparently a later-
in-time proposal that is not otherwise alluded to in the record:
Your representative contacted the Appeals Officer by
telephone on September 11, 2003 and stated that you
were willing to increase the monthly amount to $1,300
or $1,400/mo. The Appeals Officer advised that it
would not be in the best interest of the Government to
accept this amount because you have not demonstrated
that you are attempting to avoid balance due returns by
increasing your withholding. However, since the
Appeals Officer had not required that the withholding
be increased, the installment agreement would only be
granted in the amount of $2,700/mo. * * *
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determined that an installment agreement would be
granted in the amount of $2,700/mo. because this amount
was available monthly. In addition, payment of this
monthly amount would ensure that the liabilities would
be paid in full prior to the expected retirement date
of Mr. Lites and there would be no requirement for
extension of the collection statute expiration date
(CSED). This determination was also contingent upon
whether there was no balance due on the 2002 return
that is due to be filed by October 15, 2003.
OPINION
If a person fails to pay any Federal income tax liability
within 10 days of notice and demand, the Secretary is authorized
to collect the tax by levy on the person’s property. Sec.
6331(a). First, however, the person must be notified of the
right to an administrative hearing. Sec. 6330(a). If one is
requested, the administrative hearing is before the Appeals
Office of the Internal Revenue Service. Sec. 6330(b)(1). At the
hearing, the person may generally raise “any relevant issue
relating to the unpaid tax or the proposed levy”; the person may
also challenge the “existence or amount of the underlying tax
liability” if the person received no statutory notice of
deficiency or otherwise had no opportunity to dispute the tax
liability. Sec. 6330(c)(2)(A) and (B). In addition, the person
may raise at the hearing offers of collection alternatives, which
may include, among other things, an installment agreement or
offer in compromise. Sec. 6330(c)(2)(A)(iii).
In making a determination, the Appeals officer is required
to take into consideration issues properly raised, the
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verification that the requirements of applicable law and
administrative procedures have been met, and whether 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). Within 30 days after the Appeals Office issues a
notice of determination, the person may appeal the determination
to the Tax Court, if we have jurisdiction over the underlying tax
liability, sec. 6330(d)(1), as we do in the instant case. For
purposes of these provisions, “underlying tax liability” includes
additions to tax. Katz v. Commissioner, 115 T.C. 329, 339
(2000).
De Novo Review of Additions to Tax
In this proceeding, petitioners seek abatement of the
section 6651(a)(1) additions to tax for late filing and of the
section 6651(a)(2) additions to tax for failure to pay.6
Petitioners were issued no notice of deficiency and have
otherwise had no opportunity to dispute the underlying tax
liability. Accordingly, petitioners may challenge the additions
to tax. See sec. 6330(c)(2)(B); Downing v. Commissioner, 118
T.C. 22 (2002). Respondent has conceded that the section
6
At trial and on brief, petitioners have made no argument
and presented no evidence concerning the sec. 6654 additions to
tax for failure to pay estimated income tax. We consider
petitioners to have conceded the sec. 6654 additions to tax. See
Rybak v. Commissioner, 91 T.C. 524, 566 (1988).
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6651(a)(1) addition to tax for late filing should be abated for
petitioner’s 1999 tax year. We review de novo whether
petitioners are liable for the remaining additions to tax under
section 6651. See Downing v. Commissioner, supra at 29.
Section 6651(a)(1) Addition to Tax for Late Filing for 2000
Section 6651(a)(1) imposes an addition to tax for failure to
file a return by the prescribed date (taking into account any
extension of time for filing), unless it is shown that the
failure is due to reasonable cause and not due to willful
neglect. A showing of reasonable cause requires petitioners to
demonstrate they exercised “ordinary business care and prudence”
but were nevertheless unable to file the return within the
prescribed time. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs.
For illness to constitute reasonable cause for failure to file,
petitioners must show that the surgery so incapacitated Richard
that they could not file their 2000 return on time.
Petitioners contend that Richard’s cardiac surgery in
January 1999 and consequent employment hiatus constitute
reasonable cause for petitioners’ failure to timely file their
2000 return. Petitioners do not assert, and the record does not
indicate, that Richard’s illness would have prevented Catherine
from tending to petitioners’ filing obligations. Moreover,
petitioners’ 2000 tax return was due (after extensions) on
October 15, 2001--about 2 years and 9 months after Richard’s
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cardiac surgery and well after he had returned to work full time.
Moreover, petitioners’ 1998 tax return, which was due October 15,
1999 (only about 9 months after Richard’s cardiac surgery), was
timely filed on October 8, 1999. We are not persuaded that
Richard’s health problems prevented petitioners from filing their
2000 tax return on time.7 See, e.g., Ramirez v. Commissioner,
T.C. Memo. 2005-179.
We conclude that petitioners are liable for the section
6651(a)(1) addition to tax for failure to timely file their
Federal income tax return for tax year 2000.
Section 6651(a)(2) Addition to Tax for Failure To Pay
Section 6651(a)(2) imposes an addition to tax for failure to
pay the amount of taxes shown on a return on or before the date
prescribed (taking into account any extension of time for
filing), unless it is shown that the failure is due to reasonable
cause and not due to willful neglect. A taxpayer has reasonable
cause for failure to timely pay a tax if:
the taxpayer has made a satisfactory showing that he
exercised ordinary business care and prudence in
providing for payment of his tax liability and was
nevertheless either unable to pay the tax or would
suffer an undue hardship * * * if he paid on the due
date. * * * Thus, for example, a taxpayer who incurs
lavish or extravagant living expenses in an amount such
7
We further note that petitioners’ Forms 2688, Application
for Additional Extension of Time to File U.S. Individual Income
Tax Return, did not assert Richard’s illness or purported
resultant financial distress as a reason requiring an additional
extension for 1999 or 2000.
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that the remainder of his assets and anticipated income
will be insufficient to pay his tax, has not exercised
ordinary business care and prudence in providing for
the payment of his tax liability. * * * A taxpayer will
be considered to have exercised ordinary business care
and prudence if he made reasonable efforts to conserve
sufficient assets in marketable form to satisfy his tax
liability and nevertheless was unable to pay all or a
portion of the tax when it became due. [Sec. 301.6651-
1(c)(1), Proced. & Admin. Regs.]
Petitioners contend that Richard was unable to return to his
former level of productivity after his surgery, thus limiting his
ability to work and earn income. Richard, however, did return to
employment in July 1999 and earned $49,067 in wages–-almost as
much as he had earned in the year before his surgery. When asked
on direct examination why petitioners had not paid their 1999 and
2000 taxes, Richard did not mention his illness. Instead, he
spoke at length about changes in the financial services industry
that had made it a “long, steady climb” for him to regain his
former income-earning potential.
From 1998 through 2000, Richard withdrew about $385,000
from his IRA; in 1999, petitioners refinanced their residential
mortgage, taking out $37,500 in proceeds. Petitioners have not
shown that they attempted to conserve these or other assets to
meet their tax obligations or that they curtailed unnecessary
expenses. To the contrary, as Richard conceded at trial: “I
pretty much did not curtail things. * * * I also used some
dollars for some frivolous things”. For example, Richard
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testified that he continued, until some 3 months before trial, to
make payments of about $700 per month on a recreational boat.
We conclude that petitioners are liable for the section
6651(a)(2) additions to tax for failure to pay the amounts shown
on their Federal income tax returns for 1999 and 2000.
Installment Agreement
On brief, petitioners argue that the Appeals officer abused
her discretion in rejecting their installment agreement
proposals. They requested an installment agreement whereby they
would pay $1,200 per month in full discharge of their tax
liabilities.8 We review this matter for abuse of discretion.
See Orum v. Commissioner, 123 T.C. 1, 12-13 (2004), affd. 412
F.3d 819 (7th Cir. 2005). An abuse of discretion occurs when
respondent takes action that is 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).
Pursuant to section 6159(a), as in effect during the period
covering the administrative proceedings in this case, the
8
In their request for an administrative hearing,
petitioners requested an offer in compromise based on doubt as to
collectability, and, in the alternative, an installment
agreement. In the administrative hearing, however, petitioners
pursued only an installment agreement. Consequently, the Appeals
officer did not consider petitioners’ eligibility for an offer in
compromise. In this Court proceeding, petitioners have not
argued that they should be entitled to an offer in compromise.
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Secretary was authorized to enter into installment agreements
with any taxpayer “to satisfy liability for payment of any tax in
installment payments if the Secretary determines that such
agreement will facilitate collection of such liability.” The
applicable regulations contemplated that an installment agreement
would require the taxpayer to make scheduled periodic payments
until the tax liability is fully paid.9 Sec. 301.6159-1(a),
Proced. & Admin. Regs. Respondent generally has the discretion
9
In the American Jobs Creation Act of 2004 (AJCA 2004),
Pub. L. 108-357, sec. 843(a)(1), 118 Stat. 1418, 1600, Congress
amended sec. 6159 to authorize the Secretary to enter into
installment agreements “under which such taxpayer is allowed to
make payment on any tax in installment payments if the Secretary
determines that such agreement will facilitate full or partial
collection of such liability.” The amendment is effective for
installment agreements entered into on or after Oct. 22, 2004.
AJCA 2004 sec. 843(c). The legislative history describes the
reason for this amendment as follows:
The Committee believes that clarifying that the IRS is
authorized to enter into installment agreements with
taxpayers that do not provide for full payment of the
taxpayer’s liability over the life of the agreement
will improve effective tax administration.
The Committee recognizes that some taxpayers are
unable or unwilling to enter into a realistic offer-in-
compromise. The Committee believes that these
taxpayers should be encouraged to make partial payments
toward resolving their tax liability, and that
providing for partial payment installment agreements
will help facilitate this. [H. Rept. 108-548, at 307
(2004).]
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to accept or reject an installment agreement proposed by a
taxpayer.10 Sec. 301.6159-1(b)(1)(i), Proced. & Admin. Regs.
Eligibility for an installment agreement is based on the
taxpayer’s current financial condition. Internal Revenue Manual
(I.R.M.) sec. 5.14.1.4(1) (effective July 1, 2002). In
requesting an installment agreement, a taxpayer must provide
specific information, including a proposed monthly payment or
other periodic payment amount. I.R.M. sec. 5.14.1.3(4)
(effective July 1, 2002). The amount of the taxpayer’s payment
depends on his or her ability to pay. I.R.M. sec. 5.14.1.4.3(1)
(effective July 1, 2002). For an installment agreement to be
approved, a taxpayer must be in compliance with all filing
requirements. I.R.M. sec. 5.14.1.4.1(5) (effective July 1,
2002).
At the time of the administrative process in this case, the
Internal Revenue Service generally limited the length of
installment agreements to the 10-year statutory collection period
as provided in section 6502(a)(2)(A), “except in instances when a
reasonable extension of the statutory period for collection will
allow an agreement to be accepted.” I.R.M. sec. 5.14.2.1(2)
(effective Mar. 30, 2002). Extensions were limited to no more
10
As an exception to this general rule, sec. 6159 requires
the Commissioner to enter into installment agreements in certain
circumstances (generally involving tax liabilities of less than
$10,000) not presented by the instant case. See sec. 6159(c).
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than 5 years, plus up to 1 year to account for changes in the
agreement (such as payment skips, interest rate changes, etc.).
I.R.M. sec. 5.14.2.1(6) (effective Mar. 30, 2002).11
Petitioners initially requested an installment agreement
that would require them to pay $750 per month, having submitted a
Form 433-A that indicated they had $888 excess monthly income
after taking into account monthly living expenses. After the
Appeals officer rejected this proposal, petitioners counter-
offered, first proposing to pay $1,000 per month and then
proposing to pay $1,200 per month. The Notice of Determination
addresses--and rejects--petitioners’ proposals to pay $750 per
month and $1,000 per month but does not expressly address
petitioners’ proposal to pay $1,200 per month.12
11
Current Internal Revenue Service policy is to extend the
collection statute expiration date only in conjunction with
partial payment installment agreements and only in certain
situations. I.R.M. sec. 5.14.2.1 (effective July 12, 2005).
12
As previously noted, the Notice of Determination refers
to an apparently last-in-time proposal by petitioners to pay
$1,300 to $1,400 per month. The Notice of Determination
indicates that the $1,300 to $1,400 per month offer was rejected
because petitioners had failed to show that they were currently
making adequate withholdings. At the same time, however, the
Notice of Determination acknowledges that “the Appeals Officer
had not required that the withholding be increased” and concludes
that an installment agreement would be granted only in the amount
of $2,700 per month. Such reasoning strikes us as a nonsequitur:
It is not apparent why petitioners’ failure to increase their tax
withholding should doom their offer when that had not been made a
precondition for an installment agreement, or indeed why it
should be a precondition for petitioners’ offer but not for the
Appeals Office’s counteroffer.
(continued...)
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The Notice of Determination adopts the Appeals officer’s
finding that petitioners had excess monthly income of $2,732.
The record does not reveal the basis for this finding. We need
not linger long over this matter, however, for on brief
respondent concedes that petitioners’ monthly income and expenses
were identical to the amounts listed on their Form 433-A.13
Effectively, then, respondent has conceded that petitioners’
excess monthly income was $888, rather than $2,732 as found by
the Appeals officer. Respondent argues that the Notice of
Determination should be sustained, however, because petitioners’
installment agreement offers exceeded what petitioners could
afford. Respondent states on brief: “petitioners’ overall
financial situation indicated that they would be unable to comply
with their proposed installment agreement until their liabilities
are paid in full.”
We are confused and perplexed by respondent’s position. In
the first instance, by respondent’s admission, petitioners had
12
(...continued)
Neither party has addressed this aspect of the Notice of
Determination. In this proceeding, petitioners seek a $1,200 per
month installment agreement; they have not complained about, and
respondent has not sought to defend, the Appeals Office
determination regarding any $1,300 to $1,400 per month proposal.
Consequently, we give this matter no further consideration.
13
Citing petitioners’ Form 433-A, respondent proposes as a
finding of fact: “As of May 28, 2003, petitioners [sic] then
current monthly wage income was $10,499.00 and their then current
total monthly living expenses was [sic] $9,611.00.”
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available excess monthly income of $888, which would have more
than covered their offer of $750 per month. Moreover, the
Internal Revenue Manual does not appear to contemplate rejecting
an installment agreement merely because the taxpayer has offered
more than the Commissioner believes the taxpayer can afford.14
Finally, and most fundamentally, respondent’s position on brief
conflicts directly with the rationale articulated in the Notice
of Determination. The Appeals Office rejected petitioners’
installment agreement proposals largely on the basis that
petitioners could afford to pay much more than they had offered.
Now, apparently, respondent seeks to defend this action on the
opposite ground that petitioners could not afford to pay as much
as they had offered. Respondent cannot have it both ways.
The finding that petitioners could afford to pay $2,732 per
month appears central to the decision in the Notice of
Determination to reject petitioners’ installment agreement
14
I.R.M. sec. 5.14.1.4(9) (effective July 1, 2002) states:
If an analysis of the taxpayer’s financial
condition shows taxpayers cannot pay:
• but they insist on installment agreements;
• amounts proposed will fully pay the bal
[sic] due account(s) within the collection
statute (and waiver period if appropriate);
• but the possibility remains that payments
cannot be made;
then prepare a backup Form 53 along with the
installment agreement in case of eventual default
and termination. * * *
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proposals. For instance, having found that petitioners have
excess monthly income of $2,732 per month, the Appeals officer
concluded that petitioners’ offers to pay $750 per month and
$1,000 per month (and ostensibly their offer to pay $1,200 per
month, although the Appeals officer’s reasons for rejecting this
offer are not explicitly documented in the record) would not be
in the best interests of either petitioners or the Government,
reasoning that, in light of Richard’s age and health and other
factors, petitioners and the Government both would be better off
if the liabilities were paid off sooner rather than later. If,
however, as respondent now asserts, petitioners could not afford
to pay the lesser amounts that they had offered, then it would
not appear to serve either petitioners’ or the Government’s
interests to require petitioners to pay the much higher amount of
$2,700 per month, as the Appeals Office insisted.15
15
In addition, the Appeals officer indicated that
petitioners’ payment proposals would require extending the
collection statute expiration date to at least the year 2014,
whereas if petitioners accepted the Appeals officer’s offer of a
$2,700 per month installment agreement, the tax liabilities could
be paid in full by 2007. The record does not reflect the basis
for the Appeals officer’s conclusion that accepting petitioners’
installment proposals would require extending the collection
statute expiration date to 2014, or to what extent this
conclusion was meant to apply to petitioners’ offer to pay $1,200
per month (which is not expressly addressed in the Appeals
officer’s letters or in the Notice of Determination). Simple
math shows that petitioners’ proposal to pay $1,200 per month
would result in total payments of $72,000 over 5 years.
Considering that petitioners’ unpaid tax liabilities for 1999 and
2000 (after taking into account respondent’s concession of the
sec. 6651(a)(1) addition to tax for 1999, but without taking into
(continued...)
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As support for the Appeals Office decision to reject
petitioners’ installment agreement proposals, respondent points
to petitioners’ default on a prior installment agreement.
Granted, such a circumstance might appropriately be considered by
the Appeals Office as a ground for rejecting an installment
agreement proposal. See, e.g., Orum v. Commissioner, 123 T.C. 1
(2004). In the instant case, however, the Appeals Office
apparently did not regard petitioners’ prior default as a reason
to deny them a new installment agreement. To the contrary, it
offered petitioners a new installment agreement (of $2,700 per
month), notwithstanding their prior default. A consideration
that played no part in the Appeals Office determination--and in
fact is controverted by it--cannot provide the basis for
sustaining that determination.16
15
(...continued)
account interest accruals) totaled $53,088, it is not apparent
that petitioners’ $1,200 per month proposal would require
extending the 10-year collection statute expiration date at all,
much less to 2014.
16
For similar reasons, we do not find persuasive
respondent’s argument on brief that the Appeals officer’s
rejection of petitioners’ installment agreement should be
sustained on the ground that petitioners “continued to live
beyond their means as petitioners failed to curb their credit
card debt.” We find no indication in the record that such a
consideration played any part in the Appeals officer’s
determinations, and we are not persuaded that respondent’s
apparent afterthought in this regard suffices to sustain the
Notice of Determination. In reaching this conclusion, we do not
mean to suggest that respondent is invariably confined strictly
to the four corners of the Notice of Determination or to the
evidence compiled during the administrative proceeding. Cf.
(continued...)
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Conclusion
The Notice of Determination rejected petitioners’
installment agreement proposals (without expressly referring to
petitioners’ $1,200 per month proposal) largely on the basis of a
finding that petitioners had excess income of $2,732. Respondent
has effectively conceded that this finding was erroneous and
thereby inadvertently convinced us that, insofar as it relates to
petitioners’ proposed installment agreements, the Notice of
Determination was not justifiable in light of the facts and
circumstances. Accordingly, we hold that it was an abuse of
discretion to issue the Notice of Determination in these
circumstances.
In their petition, petitioners request as relief that they
“be granted an installment agreement in an amount they will
reasonably be able to afford.” On brief, petitioners request
that “a proposed payment plan of $1,200 per month be accepted to
fully address the tax liability.” We have no basis, however, for
evaluating the amount petitioners can now reasonably afford or
for deciding whether an installment payment plan of $1,200 per
month--or of any other particular amount--is an appropriate
collection alternative in light of petitioners’ current financial
condition and circumstances, whatever those might be.
Accordingly, we believe that it is “necessary and productive” to
16
(...continued)
Robinette v. Commissioner, 123 T.C. 85 (2004).
- 23 -
remand this case to the Commissioner, whom the law authorizes to
make installment agreements. Lunsford v. Commissioner, 117 T.C.
183, 189 (2001); see Harrell v. Commissioner, T.C. Memo. 2003-271
(concluding that the issuance of a notice of determination was an
abuse of discretion and remanding the matter to the Commissioner
for the sole purpose of allowing the taxpayer to pursue
collection alternatives), motion for reconsideration denied T.C.
Memo. 2003-312.
We shall remand this matter to the Commissioner for the sole
purpose of reconsidering petitioners’ $1,200 per month
installment agreement proposal or such other collection
alternatives as petitioners might now wish to offer. In
evaluating any such collection alternatives, the Commissioner
should consider petitioners’ current financial circumstances,
petitioners’ current paying and filing compliance, and any other
relevant factors. The Commissioner should also take into
account, to the extent relevant, applicable amendments to section
6159(a), which authorize partial payment installment agreements.
Petitioners may not further challenge the imposition of the
section 6651(a)(1) and (2) additions to tax or raise any new or
additional issues beyond offering collection alternatives.
To reflect the foregoing,
An appropriate order
will be issued.