T.C. Memo. 2007-242
UNITED STATES TAX COURT
KEVIN F. FOLEY AND SHULA K. FOLEY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11602-06L. Filed August 23, 2007.
Mark A Pridgeon, for petitioners.
Trent D. Usitalo, for respondent.
MEMORANDUM OPINION
SWIFT, Judge: This matter is before us under Rule 121 on
the parties’ cross-motions for summary judgment. The underlying
issue in this collection case is whether respondent’s Appeals
Office abused its discretion in sustaining respondent’s proposed
levy action against petitioners’ residence.
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Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
Background
At the time of filing the petition, petitioners resided in
Afton, Minnesota.
In 1999, petitioners earned $359,378 in short-term capital
gains.
On September 7, 2000, petitioners purchased a new residence
for $140,000 with a $40,522 cash down payment and a contract for
deed for the balance with a balloon payment due on June 1, 2007.
On or about February 21, 2005, petitioners filed late their
1999 joint Federal income tax return showing a tax liability of
$99,548. Petitioners included no payment with the return, and in
1999 petitioners paid no withholding taxes and no estimated
taxes.
On or about April 4, 2005, respondent assessed the above
$99,548 tax liability reported on petitioners’ 1999 Federal
income tax return, along with interest and penalties and mailed
to petitioners a notice and demand for payment.
On or about October 10, 2005, respondent mailed to
petitioners a notice of intent to levy relating to petitioners’
1999 Federal income taxes, plus penalties and interest in the
total amount of $197,202.22.
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On October 28, 2005, respondent filed a Federal tax lien in
Washington County, Minnesota, relating to petitioners’ 1999
outstanding Federal income taxes.
On or about November 2, 2005, petitioners timely requested
an Appeals Office hearing, seeking to avoid or at least to
postpone respondent’s proposed levy.
In their Appeals Office hearing, petitioners requested that
respondent designate their outstanding 1999 Federal income taxes
as currently not collectible. Petitioners also represented that
because of the balloon payment due on their contract for deed in
June of 2007 they intended to sell or refinance their residence
and that funds therefrom would be used by petitioners to pay
their outstanding 1999 Federal income taxes. Petitioners also
represented that they had several business deals that at some
point might provide funds to pay their 1999 Federal income taxes.
In the Appeals Office hearing petitioners did not challenge
their underlying 1999 Federal income tax liability. Per
respondent’s request, petitioners filed Form 433-A, indicating
that petitioners’ monthly living expenses exceeded their monthly
earned income and showing their residence as their only
significant asset.
On or about April 26, 2006, respondent’s Appeals officer
advised petitioners’ representative that the proposed levy action
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was sustained and that petitioners should consider either
refinancing or selling their residence to pay their 1999 Federal
income taxes.
The Appeals officer further determined that it was not
appropriate to levy on petitioners’ bank accounts because
petitioners had no funds in their bank accounts.1
The Appeals officer on his own initiative considered other
collection alternatives. In particular, the Appeals officer
determined that an installment agreement would not be appropriate
because petitioners’ monthly necessary living expenses exceeded
their monthly income. The Appeals officer further determined
that an offer-in-compromise would not be appropriate because of
the amount of equity in petitioners’ residence.
The Appeals officer determined that it was appropriate to
levy on petitioners’ residence because there was sufficient
equity in the residence to satisfy petitioners’ entire
outstanding tax liability.
On or about May 11, 2006, respondent’s notice of
determination was mailed to petitioners, sustaining respondent’s
proposed levy.
In the notice of determination, the Appeals officer
determined, and petitioners do not dispute, that as of May 2006,
1
The record does not explain what disposition petitioners
made of the $359,378 in short-term capital gains they realized in
1999.
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petitioners had a balance due on the contract for deed relating
to their residence of $67,836, and petitioners’ residence had a
fair market value of approximately $460,000.
On June 19, 2006, petitioners timely filed a petition with
this Court.
In their petition, petitioners alleged only the following
error:
The Respondent erred in determining that a short-term
extension of time to June 2007 for the petitioners to
refinance or sell their home pursuant to a balloon
payment on their Contract for Deed and thereby raise
the funds to pay the liabilities was not an appropriate
collection alternative * * *.
Discussion
Summary judgment is appropriate where the pleadings, answers
to interrogatories, depositions, admissions, and other material
show there is no genuine issue as to any material fact and that a
decision may be rendered as a matter of law. Rule 121(b); Beery
v. Commissioner, 122 T.C. 184, 187 (2004).
Under section 6330(d)(1), where a taxpayer’s underlying tax
liability is not at issue, we generally review respondent’s
Appeals Office notice of determination for an abuse of
discretion. Sego v. Commissioner, 114 T.C. 604, 609-610 (2000).
In an Appeals Office hearing, generally respondent is
required to consider issues raised by a taxpayer including
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collection alternatives and challenges to the appropriateness of
the collection action. Sec. 6330(c).
A taxpayer may request that his Federal income tax liability
be designated as currently not collectible. Such status may be
available where, based on the taxpayer’s assets, equity, income,
and expenses, the taxpayer has no apparent ability to make
payments on the outstanding tax liability. 2 Administration,
Internal Revenue Manual (CCH), sec. 5.16.1.2.9, at 17,810. See
also Willis v. Commissioner, T.C. Memo. 2003-302.
In a number of situations, courts have held that it will not
be regarded as an abuse of discretion where an Appeals officer
refuses to delay a proposed collection action to allow a taxpayer
to sell an asset. See Castillo v. Commissioner, T.C. Memo. 2004-
238; Clawson v. Commissioner, T.C. Memo. 2004-106; Medlock v.
United States, 325 F. Supp. 2d 1064, 1077-1079 (C.D. Cal. 2003).
Herein, the record establishes that respondent’s Appeals
officer did not abuse his discretion in sustaining the proposed
levy. The Appeals officer considered petitioners’ request to
designate their liability as currently not collectible and
correctly determined that it was not merited because of the
equity in petitioners’ residence. Further, the Appeals officer
did not abuse his discretion in rejecting petitioners’ request to
postpone the levy until after June 2007 to allow petitioners to
refinance or sell their residence.
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We note that petitioners purchased a new residence with
$40,522 in cash at a time when they owed a substantial tax
liability. See Steinberg v. Commissioner, T.C. Memo. 2006-217
(no abuse of discretion in rejecting an offer-in-compromise where
taxpayers spent $100,000 on a residence down payment).
We are not aware of any reason why petitioners did not
attempt to refinance or to sell their residence before June 2007
as recommended by respondent’s Appeals officer to pay their
outstanding 1999 Federal income tax liability. If respondent’s
tax lien inhibited petitioners from refinancing or selling their
residence, petitioners could have requested respondent to
subordinate the tax lien under section 6325(d) to facilitate the
refinancing or sale. There is no indication that petitioners
made such a request.
For the first time in their summary judgment motion,
petitioners allege that respondent’s Appeals officer abused his
discretion by failing to properly balance the need for efficient
collection of taxes with the concern that a collection action be
no more intrusive than necessary. Petitioners’ argument fails.
As stated, petitioners never requested an installment agreement
nor did they make an offer-in-compromise, yet the Appeals officer
considered these collection alternatives and correctly concluded
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that a levy on petitioners’ residence was the only viable
alternative.2
Petitioners contend that the filing of respondent’s tax lien
alone was sufficient to protect respondent’s interest. The lien
itself, however, does not collect taxes owed but simply enhances
respondent’s priority position vis-a-vis other creditors.
Regardless of our opinion, herein, petitioners effectively
obtained much of what they wanted--namely--a postponement of
respondent’s levy until 2007. By requesting an appeal with
respondent’s Appeals Office and subsequently filing a petition
with this Court, respondent was temporarily stayed from levying
on petitioners’ residence. Sec. 6330(e); Davis v. Commissioner,
115 T.C. 35, 37 (2000).
We hold that respondent’s Appeals Office did not abuse its
discretion. We will deny petitioners’ motion for summary
judgment, and we will grant respondent’s motion for summary
judgment.
2
Our opinion here does not necessarily mean that
respondent may in fact levy on petitioners’ residence. Pursuant
to sec. 6334(e), a taxpayer’s principal residence is exempt from
levy absent the written approval of a Federal district court
Judge or Magistrate. We note that, in connection with a proposed
levy on a taxpayer’s residence, our jurisdiction under sec.
6330(c)(2)(B) to consider whether an Appeals officer properly has
balanced the need for efficient collection of taxes with the
concern that a collection action be no more intrusive than
necessary would appear to be somewhat duplicative of the Federal
district courts’ jurisdiction under sec. 6334(e) also to review
and approve respondent’s levy on a taxpayer’s residence.
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To reflect the foregoing,
An appropriate order and
decision will be entered for
respondent.