Designated Orders, 9/11 – 9/15

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This week’s designated orders were written by Caleb Smith who directs the tax clinic at the University of Minnesota. With respect to the first order, you might think of other installment agreement problems we have highlighted in prior posts such as the difficulty of entering into an installment agreement, the difficulty of convincing the IRS to accept an installment agreement and the problems with loading an installment agreement. Keith

There were seven designated orders from the Tax Court from 9/11 – 9/15. Here is a look at the highlights:

Just Take My Money, Already”: Lingering Problems of Failing to File

Lewis v. C.I.R., Dk # 20410-16L (order here)

One would think that getting into an installment agreement (IA) would be an extremely easy route to take for resolving most collection controversies. At least, if the IA terms are such that the debt will be full paid within a fairly short period of time, it should be all-but-automatic. See IRC § 6159(c). In my experience (and apparently the experience of many others), that isn’t always the case. These administrative problems, as well as the frequency that taxpayers enter into IAs they can’t afford (see TAS blog here and report here), are problems that should be addressed by the IRS.

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In other circumstances, however, the IRS is well within its right to be skeptical (or at least more demanding) of taxpayers requesting an IA. Though the publicly available record is sparse, it is likely that the above designated order involves just such a case.

The facts presented in the designated order are simple. Through a Collection Due Process hearing, taxpayer requests an IA to settle his debts. The IRS, in turn, requires that taxpayer submit his missing tax returns and Form 433-A to confirm his ability to pay. Taxpayer provides neither. IRS denies the IA. Taxpayer petitions Tax Court, and Judge Gustafson has no difficulty in finding that the IRS did not abuse its discretion. About as routine as these things go, it would seem.

I don’t have access to, and Judge Gustafson does not discuss, any proposed IA terms that may have come about over the CDP process. It actually appears that the pro se taxpayer was waiting for the IRS to propose the terms of a monthly payment plan (“I am ready to start a monthly payment plan as soon as IRS can offer me such.” And “[…] all I have requested from the IRS is to establish a payment plan with me to pay the tax debt in question.”) Although the taxpayer frequently gives the appearance of wanting to pay the debt, it is not an abuse of discretion of the IRS to suggest levy under the circumstances. The taxpayer simply hasn’t given the IRS anything to work with.

Perhaps the IRS would have proposed IA terms if the taxpayer had just submitted Form 433A (the taxpayer would not because he found the form “invasive.”) To me, the real problem is that the taxpayer is a non-filer. If not for that fact, the taxpayer could (assuming his debt is less than $50K) apply for a payment plan online on his own without financial disclosures. Of course, this supposes that the payment plan system would work as it is advertised to, which the beginning paragraph of this article casts doubt on…

The takeaway point is that failing to file a tax return seriously ties your hands when working with the IRS (or asking the Court to review an IRS action. Another unsurprising order promptly denying relief for another non-filer in a CDP case can be found here. Even when the unfiled returns seem to be for years that shouldn’t matter, if you want the IRS to play ball on a collection issue compliance is key.

More Consequences of Failing to Take Action

Calica v. C.I.R., Dk. # 304-17 (order here)

As far as litigation goes, the Tax Court is one of the less “adversarial” venues a lawyer can find themselves in. From the requirement of attempting to use informal discovery, to the focus on stipulating as many facts as possible, the Tax Court is essentially set up to encourage the parties to work things out amongst themselves as much as possible before getting the court involved.

When one fails to work with the other party, however, the court does not take kindly to it. In Calica, the IRS “invited” the petitioner to conferences on two separate occasions to exchange documents. Both times the petitioner was a no-show. Because the IRS had earnestly tried and exhausted its attempts to get information through informal means, it was forced to rely on formal discovery with a motion to compel documents from the petitioner. This order grants that motion, and gives a warning in bold to the petitioner at the order’s end.

The order makes clear that a petitioner can’t just ignore the IRS, then hope to show up at trial and make their case. Judge Jacobs warns that if petitioner doesn’t respond the court may (1) treat the SNOD as accurate to the extent the IRS requested documents pertain to the items on the SNOD, and (2) strike the assignments of errors the petition alleges. Mathematically, “IRS SNOD is accurate + your assignments of error are stricken = complete IRS win.” If this was a particularly bad actor, the Court could even go further, treating failure to comply as contempt of court. It is highly doubtful the Tax Court would do so if the petitioner’s sin was merely failure to respond. Nonetheless, if petitioner has a substantive case, she will have to begin to make it now.

Loose Ends

The final three orders of the week will not be gone into detail. For those wanting to remind themselves of the horrors of TEFRA, an order from Judge Holmes briefly outlining how the Court treats partnership and non-partnership items in a deficiency proceeding can be found here. The order is also notable for its word-of-the-day quality, characterizing the usual TEFRA proceedings as “tohubohu.” The other two orders were notice of a case being calendared (here) and a whistleblower case set for trial largely to determine the administrative record (here).

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