T.C. Summary Opinion 2007-188
UNITED STATES TAX COURT
KENNETH HOLTEN BLACK AND MARIE K. MORILUS BLACK, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8251-06S. Filed November 5, 2007.
Kenneth Holten Black and Marie K. Morilus Black, pro sese.
John M. Janusz, for respondent.
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect when the petition was filed. Pursuant to section 7463(b),
the decision to be entered is not reviewable by any other court,
and this opinion shall not be treated as precedent for any other
case. Unless otherwise indicated, subsequent section references
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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
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits received into evidence
are incorporated herein by reference. At the time the petition
was filed, petitioners resided in Williamsville, New York.
Petitioners filed a joint Form 1040, U.S. Individual Income
Tax Return, for 2004. The Internal Revenue Service (IRS)
assessed the $24,143 tax shown on the return. The IRS assessed
the following additional amounts: (1) A $143 addition to tax for
failure to pay estimated tax; (2) a $115.96 addition to tax for
failure to pay timely; and (3) $86.09 in accrued interest. After
the application of a $12,547 credit for withholding taxes, the
additional assessments resulted in an $11,941.05 unpaid balance.
The IRS sent petitioners a notice and demand for payment
within 60 days of the assessment. In response, petitioners
submitted an offer-in-compromise (OIC) on September 13, 2005,
which the IRS rejected, and petitioners appealed. While
petitioners’ appeal was pending, the IRS filed a Notice of
Federal Tax Lien (NFTL) at the Erie County Clerk, Buffalo, New
York, on October 20, 2005. The IRS issued to petitioners a
Letter 3172(DO), Notice of Federal Tax Lien Filing and Your Right
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to a Hearing under IRC 6320, on October 21, 2005. In response,
petitioners submitted a timely Form 12153, Request for a
Collection Due Process Hearing, on November 9, 2005.
Petitioners’ hearing was held on January 18, 2006. Pursuant
to the parties’ discussions, petitioners signed a Form 433-D,
Installment Agreement, on February 10, 2006. Petitioners, via a
letter dated February 9, 2006, requested that the NFTL be
withdrawn because the lien’s filing would adversely affect their
credit rating and could cause them financial hardship.
Additionally, petitioners expressed their concern that a lien
could affect their ability to secure college loans on their son’s
behalf. In response, the IRS sent petitioners a Letter 3193,
Notice of Determination Concerning Collection Action(s) Under
Section 6320 (notice of determination), on March 28, 2006. The
Notice of Determination sustained the NFTL and rejected
petitioners’ withdrawal request. Thereafter, petitioners timely
filed a petition with the Court.
The issues for decision are whether the Appeals officer
abused his discretion in: (1) Sustaining the NFTL; and (2)
determining that the NFTL should not be withdrawn.
Discussion
Section 6321 imposes a lien in favor of the United States on
all property and rights to property of a person liable for any
tax, additions to tax, penalties, interest, and costs that may
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accrue in addition thereto if there has been a demand for payment
and the person has failed to pay. The lien arises at the time of
assessment. Sec. 6322. In order for the Federal tax lien to
have priority over other liens or security interests, the IRS
must file an NFTL. Sec. 6323(a); Behling v. Commissioner, 118
T.C. 572, 575 (2002).
Generally, section 6320(a) states that the IRS must give the
person against whom a Federal tax lien is filed written notice of
the lien’s filing within 5 days after the date of its filing.
Section 6320(b) also provides the taxpayer with an opportunity
for a hearing before the Office of Appeals. The hearing is
conducted pursuant to subsections (c), (d), and (e) of section
6330. Sec. 6320(c).
At the hearing, the taxpayer may raise any relevant issue
relating to the unpaid tax including: (1) Challenges to the
appropriateness of the IRS’s collection actions; and (2) offers
of collection alternatives (i.e., an installment agreement,
offer-in-compromise, the posting of a bond, or the substitution
of other assets). Sec. 6330(c)(2)(A)(ii) and (iii); sec.
301.6330-1(e)(3), Q&A-E6, Proced. & Admin. Regs. The Appeals
officer must consider the following in his determination:
(1) Whether any applicable law or administrative procedure has
been followed; (2) the issues properly raised by the taxpayer;
and (3) whether the proposed collection action balances the need
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for the efficient collection of taxes with the taxpayer’s
legitimate concern that the collection action be no more
intrusive than necessary. Sec. 6330(c)(3).
A taxpayer may appeal the IRS’s determination with this
Court within a 30-day period starting on the day after the date
of the Notice of Determination. Secs. 6320(c), 6330(d)(1). In
reviewing the IRS’s determination, the Court applies an abuse of
discretion standard when the underlying tax liability is not at
issue. Sego v. Commissioner, 114 T.C. 604, 610 (2000). Pursuant
to this standard, petitioners must prove that the filing of the
NFTL and the rejection of their withdrawal request was arbitrary,
capricious, or without sound basis in fact or law. See Woodral
v. Commissioner, 112 T.C. 19, 23 (1999).
1. Filing of the NFTL
Petitioners contend that respondent’s Appeals officer abused
his discretion by sustaining the NFTL.
The applicable laws and administrative procedures were
satisfied. The parties agree that petitioners received the
required notice and demand for payment within the 60-day
timeframe mandated by section 6303. And the record shows that
petitioners received notice of the lien’s filing and their right
to request a hearing within the 5-day period prescribed by
section 6320.
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The Appeals officer considered petitioners’ challenge to the
appropriateness of the NFTL, noting that petitioners requested
that the NFTL be withdrawn and not reinstated unless they
defaulted on their installment agreement. They were concerned
about the negative effect the NFTL might have on their credit
rating and the impact it might have on their ability to secure
college loans for their son. The Appeals officer concluded that
petitioners’ reasons for withdrawal did not satisfy the
conditions authorizing withdrawal. The NFTL’s filing was not
premature because “[an] overpayment or [other] credit was not
available” and the NFTL could be maintained in conjunction with
the installment agreement without hindering collection of the
liability. See sec. 6323(j); sec. 301.6323(j)-1(b), Proced. &
Admin. Regs.
The Appeals officer also considered petitioners’ prior
submission of a collection alternative. The record shows that an
OIC had been submitted and was determined to be unacceptable.
Petitioners did not meet the criteria for an OIC because they had
the ability to pay the liability in full. The Commissioner had
also determined that petitioners could obtain an installment
agreement that would pay the liability in full within the time
prescribed by section 6502(a) and would not impose a financial
hardship on petitioners. Cf. secs. 301.6343-1(b)(4), 301.7122-
1(b) and (c), Proced. & Admin. Regs.
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The Appeals officer balanced the need for efficient
collection of taxes against petitioners’ concern over the NFTL’s
intrusiveness. The Appeals officer testified that the lien was
filed to protect the Government’s interest: his research
indicated that petitioners were subject to the claims of
competing creditors and petitioners could become liable to the
State of New York for additional tax for the same year. The
Appeals officer testified that since petitioners’ OIC had been
rejected, he concluded that an installment agreement was in their
best interest because penalties and interest were accruing during
the pendency of the IRS’s acceptance, and the installment
agreement would forestall the IRS’s proposed levy action.
Finally, Form 656, Offer in Compromise, which petitioners
signed, specifically states that an NFTL “may be filed at any
time while your offer is being considered”.
Therefore, the Court concludes that respondent’s Appeals
officer did not abuse his discretion in upholding the NFTL.
Accordingly, respondent’s determination is sustained.
2. Withdrawal of the NFTL
In pertinent part, section 6323(j) provides that the IRS may
withdraw an NFTL if it determines: (1) The filing of the NFTL
was premature or not in accordance with administrative
procedures; (2) the taxpayer has entered into an installment
agreement, unless the agreement provides otherwise; (3)
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withdrawal will facilitate collection; or (4) with the taxpayer’s
consent the lien’s withdrawal “would be in the best interests of
the taxpayer * * * and the United States.”
Petitioners contend that respondent’s Appeals officer abused
his discretion when he refused to withdraw the NFTL because: (1)
The NFTL’s filing was premature; (2) an installment agreement was
subsequently agreed to; and (3) it would be in petitioners’ and
the United States’ best interests to remove the NFTL due to the
damage it would cause to petitioners’ credit rating.
The NFTL was not filed prematurely. Petitioners’ tax
liability was assessed, and notice and demand for payment was
mailed to petitioners within 60 days of the assessment. The IRS
issued a Notice 504, Balance Due-Urgent; a Letter 1058, Final
Notice of Intent to Levy; as well as A Notice of Federal Tax Lien
and Your Right to a Hearing under IRC 6320. The lien’s filing
occurred after assessment and notice and demand; at each step,
petitioners were properly notified.
Entering into an installment agreement does not preclude the
filing of an NFTL, nor is the IRS required to withdraw an NFTL
after an installment agreement has become effective. Sec.
6323(j)(1); see also Ramirez v. Commissioner, T.C. Memo.
2005-179; Stein v. Commissioner, T.C. Memo. 2004-124. Section
6323(j)(1) is permissive: the IRS “may” withdraw an NFTL, but
failure to do so is not an abuse of discretion. Sec. 6323(j)(1);
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sec. 301.6323(j)-1(c), Proced. & Admin. Regs.; see also Crisan v.
Commissioner, T.C. Memo. 2007-67.
Finally, petitioners did not submit any evidence to
demonstrate that the withdrawal would facilitate collection or
would be in the best interests of the taxpayer and the United
States. Petitioners testified that the NFTL may cause their
interest rates to increase on their other debts so withdrawal of
the NFTL would help them and in turn the United States. But
petitioners’ assertion that the withdrawal of the lien would
facilitate collection and would be in the United States’ best
interest is only conjectural. There has been no showing that the
filing of the lien has in fact caused the interest rates on their
other obligations to increase sufficiently to impair collection.
The Court concludes that respondent’s Appeals officer did
not abuse his discretion in refusing to withdraw the NFTL.
Accordingly, respondent’s determination is sustained.
To reflect the foregoing,
An appropriate decision will
be entered.