T.C. Memo. 2014-234
UNITED STATES TAX COURT
RONALD L. KIRKPATRICK, SR., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6525-13L. Filed November 17, 2014.
Donald W. Pemberton, for petitioner.
Beth A. Nunnink, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: This proceeding was commenced in response to a notice of
determination concerning collection action(s) under section 6320 and/or 6330 with
respect to petitioner’s Federal income tax liability for 2010 and unpaid trust fund
recovery penalties under section 6672 for quarters ended September 30 and
December 31, 2006, March 31, 2007, December 31, 2008, March 31 and June 30,
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[*2] 2009 (collectively, quarters in issue), and December 31, 2010. The Court
granted respondent’s motion to dismiss on the ground of mootness and to strike as
to the income tax liability for 2010. Within that motion, however, respondent
stated that “[t]he trust fund recovery penalty liability for the 4th Quarter of 2010
was mistakenly included on the Notice of Determination. No such liability exists,
and no Notice of Intent to Levy for the 4th Quarter of 2010 was issued.” On the
basis of the record, this quarter appears moot; accordingly, this case will be
dismissed sua sponte as to petitioner’s trust fund recovery penalty liability for the
quarter ended December 31, 2010. As to the (remaining) quarters in issue, the
issue for decision is whether the settlement officer abused her discretion in
sustaining the proposed levy. Unless otherwise indicated, all section references
are to the Internal Revenue Code in effect at all relevant times.
FINDINGS OF FACT
Material facts are contained in the administrative record of the exchanges
between petitioner and the Internal Revenue Service (IRS) Office of Appeals
(Appeals Office). That record has been stipulated. The stipulated facts are
incorporated in this opinion by this reference. Petitioner resided in Tennessee at
the time he filed his petition.
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[*3] Petitioner served as the chairman of the board of directors for Accurate
Communications Corp. (Accurate). For the quarters in issue, Accurate failed to
pay income and employment taxes related to Forms 941, Employer’s Quarterly
Federal Tax Return.
Petitioner and his wife jointly filed a personal 2010 Federal income tax
return, which showed tax of $19,716. However, he did not pay his 2010 tax
liability by October 15, 2011, the date the return was due. On December 7, 2011,
petitioner entered into an installment agreement with the IRS to pay off his 2010
tax liability.
By February 15, 2012, Accurate owed Form 941 tax liabilities of
$448,688.50. In Letter 2850, Approval of Request to Pay Taxes in Installments
(Accurate IA letter), dated February 23, 2012, the IRS informed Accurate that its
request to pay its Form 941 tax liabilities through an installment agreement had
been approved. The Accurate IA letter addressed only Accurate and not
petitioner.
Determining petitioner to be a responsible person of Accurate, the IRS
assessed trust fund recovery penalties against him on March 12, 2012, with respect
to the quarters in issue. Because of these additional assessments, the IRS
terminated petitioner’s installment agreement for his 2010 income tax liability on
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[*4] or around July 28, 2012. On September 17, 2012, the IRS sent to petitioner
Notice CP 90, Final Notice--Notice of Intent to Levy and Notice of Your Right to
a Hearing, informing him that he owed trust fund recovery penalties of over
$160,000 and advising him that the IRS intended to levy to collect these taxes.
In response, petitioner timely submitted Form 12153, Request for a
Collection Due Process or Equivalent Hearing (section 6330 hearing request). In
the section 6330 hearing request, petitioner indicated, among other things, that he
wanted an installment agreement and that he disagreed with the proposed levy
action because an installment agreement was in place but was “terminated for no
reason” as he was “not in default on the installment agreement”. Petitioner later
expressed to the Appeals Office settlement officer assigned to his case that he
wanted an installment agreement for his 2010 income tax liability but would like
for the collection of the trust fund recovery penalties to be suspended because
Accurate was paying off those liabilities through its own installment agreement.
The settlement officer sent to petitioner a letter dated November 14, 2012,
scheduling a telephone conference for December 18, 2012. This conference
would be the primary opportunity of the section 6330 hearing for petitioner to
explain why he disagreed with the collection action and to discuss possible
collection alternatives. One paragraph of the November 14, 2012, letter stated:
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[*5] On your request for a [section 6330] hearing, you indicated your
installment agreement terminated for no reason. Our records
indicated your installment agreement was established on December 7,
2011 and only included your outstanding tax liability for your Form
1040 for calendar year 2010. One of the terms of an installment
agreement is that while the installment agreement is in effect, you
will pay any federal taxes you owe on time. On March 12, 2012, you
were assessed civil penalties for failing to pay the withheld taxes for
Accurate Communications * * *. When the civil penalties were not
paid, you did not meet terms of your installment agreement and your
installment agreement defaulted.
The letter requested that petitioner complete and return, within 21 days, Form
433-A, Collection Information Statement for Wage Earners and Self-Employed
Individuals, and Form 433-B, Collection Information Statement for Businesses.
Petitioner timely provided Form 433-A but did not include any of the
required financial documentation. However, he later provided a revised Form
433-A and included three months of bank records and other documents prior to the
telephone conference, which had been rescheduled for January 15, 2013.
Petitioner also provided the first page of the Accurate IA letter for the settlement
officer’s consideration.
On January 15, 2013, the telephone conference took place between the
settlement officer and petitioner’s representative. The representative indicated
that petitioner was not challenging the underlying tax liabilities and agreed to the
civil penalties assessment. The settlement officer explained that petitioner’s
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[*6] financial information was incomplete due to, in part, omissions of property
seemingly owned by petitioner and missing bank records from an apparent
additional account. She also questioned petitioner’s claim that he had monthly
income of $7,688, because the three months of bank records showed average
monthly deposits of $12,163.38. These concerns prevented her from making a
determination regarding the appropriateness of an installment agreement.
From her review of the provided financial information, the settlement
officer projected that petitioner had the ability to make monthly payments of at
least $4,063. Petitioner’s representative indicated that petitioner could not pay
that much. The settlement officer concluded the conference by requesting that
additional financial information be supplied by January 29, 2013. Otherwise, the
settlement officer would make a determination based upon the provided
documentation, which would result in her sustaining the proposed levy action.
On January 16, 2013, petitioner’s representative called the settlement officer
and indicated that petitioner wanted to pay in full the balance of his 2010 income
tax liability in order to suspend collection of the trust fund recovery penalties. The
settlement officer explained that even if the 2010 income tax liability was
resolved, collection of the trust fund recovery penalties against petitioner would
not be suspended simply because Accurate was paying off those liabilities
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[*7] pursuant to its own installment agreement. Petitioner’s representative alleged
that some other tax account--similarly situated to petitioner’s circumstances--had
been placed in suspense. The settlement officer replied that petitioner would need
to provide an Internal Revenue Manual (IRM) or Internal Revenue Code section
addressing how his account should be resolved; otherwise, she would not make a
recommendation to suspend collection.
The deadline for getting the additional financial information submitted to
the settlement officer was extended to February 13, 2013. By the day of the
deadline, however, petitioner had failed to provide any of the requested additional
financial information. Instead, petitioner’s representative notified the settlement
officer that he was sending funds to fully pay the 2010 income tax liability. He
also wanted the settlement officer to provide her determination of the section 6330
hearing so that petitioner would be able to petition the Court. The settlement
officer received petitioner’s check for the full amount of the 2010 income tax
liability on February 14, 2013.
Before making her determination, the settlement officer verified that the
requirements of all applicable laws and administrative procedures had been met.
In reviewing the provided financial documentation, the settlement officer
determined that petitioner had the ability to pay his outstanding liabilities through
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[*8] a collection alternative, but he would not agree to do so. On February 27,
2013, the Appeals Office sent to petitioner a notice of determination concerning
collection actions(s) under section 6320 and/or 6330 sustaining the proposed levy
action.
OPINION
Section 6330 generally provides that the Commissioner cannot proceed with
levy on a taxpayer’s property until the taxpayer has been given notice of and the
opportunity for a section 6330 hearing and, if dissatisfied, an opportunity for
judicial review of the administrative determination. At a section 6330 hearing, a
taxpayer may raise any relevant issue relating to the collection action, including
challenges to the appropriateness of the collection actions and possible collection
alternatives. Sec. 6330(c)(2)(A). A taxpayer may contest the validity of the
underlying tax liability, but only if the taxpayer did not otherwise have a prior
opportunity to dispute the tax liability. Sec. 6330(c)(2)(B); see Hoyle v.
Commissioner, 131 T.C. 197, 199 (2008).
The underlying liabilities in this case were assessed under section 6672,
which imposes penalties for failure to collect, account for, and pay over income
and employment taxes of employees--commonly referred to as trust fund recovery
penalties. Petitioner does not dispute these underlying tax liabilities. Where there
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[*9] is no dispute as to the underlying liabilities, we review the actions of the
Appeals Office for abuse of discretion. See Swanson v. Commissioner, 121 T.C.
111, 119 (2003); Sego v. Commissioner, 114 T.C. 604, 610 (2000). Abuse of
discretion may be found if an action is arbitrary, capricious, or without sound basis
in fact or law. Giamelli v. Commissioner, 129 T.C. 107, 111 (2007); Woodral v.
Commissioner, 112 T.C. 19, 23 (1999).
Petitioner does not argue that he was wrongfully denied a collection
alternative or that his prior installment agreement was wrongfully terminated.
Instead, petitioner’s position is that he was originally covered under the
installment agreement entered into by Accurate for the trust fund recovery
penalties, and, now that he is in compliance with his 2010 income tax obligation,
he should be “recovered” under Accurate’s installment agreement. Petitioner
appears to have raised this concern during his section 6330 hearing. He did not,
however, produce the Accurate installment agreement or any documentary
corroboration of this position. Cf. Freeman v. Commissioner, T.C. Memo. 2011-
38, slip op. at 6-7 (distinguishing the taxpayer’s section 6672 liability from the
employer’s tax withholding liability and holding that an employer’s installment
agreement covers only its own tax liability and does not justify the release of a
collection action against the taxpayer for his trust fund recovery penalties).
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[*10] Petitioner instead attempts to support his position by arguing that the
settlement officer failed to consider relevant parts of IRM pt. 5.14.7.4.1. He
asserts that this IRM part “clearly” states that the collection of trust fund recovery
penalties “from responsible persons should be suspended so long as the primary
business entity has an Installment Agreement and is current.” The relevant parts
of IRM pt. 5.14.7.4.1 (March 11, 2011), relied upon by petitioner, are as follows:
6. In general, do not request assessment of Trust Fund Recovery
Penalties (TFRPs) if business taxpayers meet the terms of installment
agreements. However, TFRPs must be considered on the potentially
responsible persons of the business entity based on the following
procedures.
7. If the agreement will not fully pay all balances due at least a year
before the earliest Assessment Statute Expiration Date (ASED), then:
A. Assemble all documentation for completion of the penalty
to the point of proposing assessment;
B. Complete interviews for all potentially responsible persons,
and any other interviews necessary to determine responsibility and
willfulness;
C. Secure 433A (Collection Information Statement) from all
potentially responsible persons. Conduct financial analysis to
determine whether the penalty, if assessed would be collectible;
D. Request signature of Form 2750, “Waiver Extending
Statutory Period for Assessment of Trust Fund Recovery Penalty”
from all potentially responsible officers. See IRM 5.14.7.4.1(1)
through (4); and
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[*11] E. If a potentially responsible officer refuses to extend the
ASED, and the trust fund recovery penalty is determined collectible,
complete and recommend assessment of the TFRP for that
responsible person.
Petitioner neither explains how he arrives at his interpretation of the IRM
part nor provides any authority that supports his interpretation. However, even a
liberal reading of IRM pt. 5.14.7.4.1(6) and (7) does not suggest that collection
should be “suspended” on previously assessed trust fund recovery penalties of a
responsible person. As respondent points out, IRM pt. 5.14.7.4.1 is procedural
guidance for initiating a business taxpayer, trust fund-related installment
agreement. IRM pt. 5.14.7.4.1(6) addresses a general rule of nonassessment of
trust fund recovery penalties when commencing such an installment agreement.
But see IRM pt. 5.14.7.4.1(7) and (8) (providing circumstances when assessment
of trust fund recovery penalties should be advanced against responsible persons
related to “in-business” trust fund installment agreements). It does not address
suspension of collection after assessment with respect to an already established
installment agreement.
Section 6330 provides due process protections for taxpayers in tax
collection matters. See Sego v. Commissioner, 114 T.C. at 608. IRM pt.
5.14.7.4.1(6) and (7) pertains only to assessment of trust fund recovery penalties.
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[*12] As petitioner did not challenge his underlying tax liabilities, there is no
reason the settlement officer would need to consider the IRM with regard to
assessment.
Moreover, the settlement officer acknowledged and considered petitioner’s
argument. While petitioner does not appear to have raised specifically IRM pt.
5.14.7.4.1(6) and (7) during the section 6330 hearing, the settlement officer
nonetheless looked at relevant IRM parts in reviewing petitioner’s case. In view
of the record, we cannot conclude that her determination was arbitrary, capricious,
or without sound basis in fact or law, which is the test to be applied. Whether or
not other resolutions could have been reached by the settlement officer or by the
Court is not the applicable test. The settlement officer did not abuse her discretion
in sustaining the proposed levy.
We have considered the other arguments of the parties, but they are
irrelevant, unsupported by the record or by authority, or otherwise without merit.
To reflect the foregoing,
An appropriate order will be
issued, and decision will be entered
for respondent.