T.C. Memo. 2006-20
UNITED STATES TAX COURT
JOHN F. AND CAROLYN J. JOSEPH, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6799-04L. Filed February 8, 2006.
John F. Joseph, pro se.
Paul Butler, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
JACOBS, Judge: Respondent sent petitioners a Notice of
Determination Concerning Collection Action(s) Under Section 63201
and/or 6330 in which respondent determined to proceed with
collection by levy of petitioners’ income taxes for 1998-2001.
1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect at relevant times. Rule
references are to the Tax Court Rules of Practice and Procedure.
- 2 -
Pursuant to section 6330(d), petitioners seek our review of
respondent’s determination. The issue for decision is whether
respondent’s determination was an abuse of discretion.
FINDINGS OF FACT
Some of the facts have been deemed stipulated pursuant to
Rule 91(f). The deemed stipulations, with accompanying exhibits,
are incorporated herein by this reference.
Petitioners, John F. Joseph and Carolyn J. Joseph,2 husband
and wife, resided in Silver Spring, Maryland, when they filed
their petition in this case. John F. Joseph (petitioner) is 69
years of age and has a master’s degree. He is a chemical
engineer employed by the U.S. Department of Energy at a grade of
GS-15.
Petitioners began to experience financial difficulties when
their son was diagnosed with a terminal illness. Petitioners’
son died in December 2000.
Petitioners filed joint income tax returns for 1998 through
2001 but did not pay the balances due shown on the returns. In
November 2000, petitioners entered into an installment agreement
with respondent with respect to their 1998 and 1999 income tax
liabilities. Petitioners agreed that during the term of the
2
Carolyn J. Joseph did not appear at trial. The Court sua
sponte will dismiss the case for lack of prosecution with respect
to her and enter a decision for respondent with respect to her
consistent with the decision entered with respect to John F.
Joseph.
- 3 -
installment arrangement they would (1) make monthly payments of
$400, (2) timely file all tax returns, and (3) timely pay all
Federal taxes that become due. Petitioners paid $400 monthly
from January through July 2001. They did not make an installment
payment in August 2001.
After petitioners failed to make the August 2001 payment,
the installment agreement was revised to include unpaid taxes for
2000, and the amount of the monthly payments was increased to
$700. Petitioners paid $676 in September 2001 and made monthly
payments of $700 from October 2001 through July 2002 and in
October 2002.3 They did not make a payment in August or September
2002 or after October 31, 2002.
On January 4, 2003, the Internal Revenue Service (IRS)
mailed to petitioners a Final Notice of Intent to Levy and Notice
of Your Right to a Hearing (the levy notice) with respect to
petitioners’ liability for income taxes for 1998-2001. The levy
notice reflects the following unpaid tax liabilities for 1998-
2001:
3
Petitioners made two payments of $700 each in January 2002
but did not make a payment in February 2002.
- 4 -
Year Income Tax Statutory Additions Total
1998 $5,026.51 $2,416.16 $7,442.67
1999 6,688.98 3,015.57 9,704.55
2000 4,569.00 764.60 5,333.60
2001 3,709.99 143.13 3,853.12
On January 27, 2003, petitioners filed a Form 12153,
Request for a Collection Due Process Hearing.
On May 21, 2003, the IRS Appeals Office sent a letter to
petitioners that acknowledged receipt of their request for a
hearing and explained the appeal process. On June 18, 2003, the
IRS Appeals Office sent petitioners a letter requesting that they
submit certain information, including a completed collection
information statement. On July 14, 2003, the Appeals officer
assigned to conduct the administrative hearing sent a letter to
petitioners requesting that they call her to schedule the
hearing.
Petitioners submitted a Form 433-A, Collection Information
Statement for Wage Earners and Self-Employed Individuals
(collection statement). On the collection statement, petitioners
stated that the value of their residence was $280,000, subject to
a $79,000 mortgage, and that they owned other real property
valued at $260,000. The value of the real property stated on the
collection statement was based on the assessed value of the
property for property tax purposes. On the collection statement,
- 5 -
petitioners stated that they had a combined monthly income of
$8,924 and total expenses of $7,546.
On January 21 and February 26, 2004, the Appeals officer
spoke by telephone with petitioner concerning payment of
petitioners’ outstanding tax liabilities. Petitioner requested
that he be allowed to pay petitioners’ tax liability in monthly
installments of $700.
The Appeals officer advised petitioner that she could not
consider an installment agreement calling for monthly payments of
$700 unless the balance due for all years was reduced to $25,000
or less. Petitioner told the Appeals officer that he could not
pay the $4,000 required to reduce the balance to $25,000. The
Appeals officer informed petitioner that since he could not bring
the balance to $25,000, any new installment agreement would
require petitioners to pay monthly installments in an amount
equal to the amount of their available income after necessary
expenses. The Appeals officer suggested that petitioners borrow
against the equity in their real property and/or other assets to
pay the balance in full. Petitioner did not agree to the
alternatives suggested by the Appeals officer.
Petitioners did not raise any spousal defenses.
The IRS Appeals Office issued a notice of determination
dated April 2, 2004, sustaining the proposed collection by levy.
- 6 -
On April 23, 2004, petitioners filed a petition in this Court
challenging respondent’s determination.
OPINION
Section 6330 entitles a taxpayer to notice and an
opportunity for a hearing before the IRS can proceed with tax
collection by levy. Upon request, a taxpayer is entitled to a
fair hearing before an impartial Appeals officer. Sec.
6330(b)(1), (3). At the hearing, the Appeals officer is required
(1) to verify that the requirements of any applicable law or
administrative procedure have been met, and (2) to consider any
relevant issue the taxpayer raises relating to the unpaid tax or
the proposed levy. Sec. 6330(c)(1) and (2)(A). Relevant issues
include an appropriate spousal defense, challenges to the
appropriateness of the collection action, and offers of
collection alternatives. Sec. 6330(c)(2)(A). The taxpayer may
challenge the existence or amount of the underlying tax liability
if he/she did not receive a statutory notice of deficiency for
the tax liability or did not have an opportunity to dispute it.
Sec. 6330(c)(2)(B).
Following the hearing, the Appeals officer must determine
whether the collection action is to proceed, taking into account
the issues raised by the taxpayer at the hearing and whether the
proposed collection action balances the need for the efficient
collection of taxes with the taxpayer’s legitimate concern that
- 7 -
the collection action be no more intrusive than necessary. Sec.
6330(c)(3). If the Commissioner issues a determination letter to
the taxpayer following an administrative hearing, the taxpayer
may file a petition for judicial review of that determination.
Sec. 6330(d)(1); Davis v. Commissioner, 115 T.C. 35, 37 (2000);
Goza v. Commissioner, 114 T.C. 176, 179 (2000). We have
jurisdiction over this matter because petitioners filed a timely
petition for review in response to respondent’s valid notice of
determination to proceed with collection of their income tax
liabilities. See sec. 6330(d)(1); Lunsford v. Commissioner, 117
T.C. 159 (2001); Sarrell v. Commissioner, 117 T.C. 122 (2001);
Sego v. Commissioner, 114 T.C. 604, 610 (2000); Offiler v.
Commissioner, 114 T.C. 492, 498 (2000).
Petitioners do not dispute the existence or amount of the
underlying tax liabilities for 1998-2001. Thus, we must
determine whether the determination to proceed with collection of
those tax liabilities by levy was an abuse of respondent’s
discretion.
The Internal Revenue Manual (IRM), together with section
301.6159-1, Proced. & Admin. Regs., establishes the IRS’s
procedures for determining whether an installment agreement will
facilitate collection of the liability. See Orum v.
Commissioner, 123 T.C. 1, 13 (2004), affd. 412 F.3d 819 (7th Cir.
2005); Etkin v. Commissioner, T.C. Memo. 2005-245; McCorkle v.
- 8 -
Commissioner, T.C. Memo. 2003-34; Schulman v. Commissioner, T.C.
Memo. 2002-129. When determining whether an installment
agreement will facilitate the collection of tax, the IRS
considers the taxpayer’s ability to pay the tax by analyzing the
taxpayer’s assets, liabilities, and monthly income and expenses.
Schulman v. Commissioner, supra. In determining the amount a
taxpayer is able to pay, the IRS allows the taxpayer to offset
income with certain necessary or conditional expenses, provided
the taxpayer substantiates them. Id. (citing 2 Administration,
IRM (CCH), secs. 5.15.1 to 5.15.1.4, at 17,653-17,660).
“Necessary” expenses are those that provide for a taxpayer’s
health and welfare and/or the production of income. 2
Administration, IRM (CCH), sec. 5.15.1.3(2), at 17,655.
“Conditional” expenses are any expenses other than “necessary”
expenses. Id. secs. 5.15.1.7(6), at 17,661, 5.15.1.3(3), at
17,655. An Appeals officer may allow “excessive necessary” and
“conditional” expenses, provided that the tax liability,
including all accruals, will be paid within 5 years. Id. sec.
5.15.1.3(4).
On the collection statement submitted to the Appeals
officer, petitioners stated that they had a combined monthly
income of $8,924 and total expenses of $7,546.4 Thus, without
4
The IRS determined that petitioners had a combined gross
monthly income of $14,382. Moreover, petitioners were unable to
(continued...)
- 9 -
eliminating any expense as unnecessary or unsubstantiated,
petitioners had at least $1,378 of monthly income available to
pay their tax liabilities. Additionally, petitioners stated that
the current value of their residence was $280,000, subject to a
$79,000 mortgage, and that they owned other real property valued
at $260,000.
On the basis of the entirety of the record, we conclude that
respondent did not abuse his discretion in determining that
petitioners’ proposed installment agreement did not reflect their
ability to pay. Petitioners’ tax liability, including projected
accruals, would not be fully paid within 5 years under an
installment agreement permitting monthly payments of $700.
Petitioners have sufficient equity in their real property and
other assets to pay the tax liability. Consequently, we are
satisfied that respondent did not abuse his discretion in denying
petitioners’ proposed installment agreement.
This case was set for trial on June 10, 2005. During that
proceeding petitioner gave respondent’s counsel a check for
$4,000, and the parties and the Court agreed to continue the case
until August 30, 2005, to allow petitioner time to attempt to
make arrangements to pay the balance of the tax liabilities for
the years at issue.
4
(...continued)
verify to the satisfaction of the IRS the amount claimed as their
monthly expenses.
- 10 -
On August 30, 2005, this case was recalled. At that
hearing, petitioner informed the Court that he had been unable to
borrow from his thrift savings account, obtain a home equity
loan, or otherwise arrange to pay the balance of the tax
liabilities. He asked that respondent give him “a few months
more and then I can pay off the entire thing”.5
While we sympathize with petitioners over the loss of their
son and the financial burden it placed upon them, during the
administrative proceedings petitioners made no offers of
collection alternatives other than to reinstate an installment
agreement that does not reflect their ability to pay, nor did
they raise any spousal defenses or challenges to the
appropriateness of the levy.
In conclusion, we hold that respondent’s determination to
proceed with collection by levy of petitioners’ income taxes for
5
In petitioners’ answering brief, filed with the Court on
Jan. 13, 2006, petitioner requests that he be allowed to postpone
payment of his tax liabilities until January 2007 to allow time
to process a new loan from his thrift savings account after the
existing loan is repaid in full in October 2006. Petitioner asks
the Court to remand the case to respondent’s Appeals Office to
consider that proposal. We will not consider a proposal not made
during the administrative proceedings. Moreover, petitioners
have over $1,000 of monthly income available to pay their tax
liabilities and/or to pay down the outstanding loan from the
thrift savings plan. Yet during the 21 months since they filed
the petition in this case, petitioners have not increased the
monthly payments on the existing loan from petitioner’s thrift
savings account and have paid only $4,000 toward their tax
liabilities. Under these circumstances, petitioner’s request is
unreasonable.
- 11 -
1998-2001 was not an abuse of discretion. To reflect the
foregoing,
An appropriate order of
dismissal and decision will be
entered.