Spousal Support Agreements in Collections Analysis – Designated Orders – March 30 – April 3, 2020

This week is somewhat light, but one order from Judge Panuthos in a CDP case breaks new ground. Additionally, the Court continues to make accommodations due to the fallout from the COVID-19 pandemic; Judge Gale and Petitioners’ counsel had to figure out how to accommodate a document that couldn’t be e-filed while the Court’s mailroom was shut down. I cover this issue in a separate post here.

The other major order came in Cannon Corp. v. Commissioner, where Judge Holmes denied summary judgment for Respondent in a 6751 penalty approval case. Keith previously covered this order here. Take a look at Keith’s post for details on this order from Judge Holmes (another order that I, again, must question why it doesn’t appear in an opinion).

Judge Kerrigan also issued an order granting Respondent’s motion for entry of decision where Petitioner tried to unwind previously filed stipulations.


Docket No. 11337-19L, Behn v. C.I.R. (Order Here)

Judge Panuthos’s order in Behn breaks, I think, some new ground on what expenses Appeals might permissibly consider in crafting a collection alternative for a taxpayer who cannot afford to pay their outstanding liability in full.  The procedural background here is somewhat complex—only one year is properly before the Tax Court, but the Petitioner owes on 12 different tax years (some of which were previously resolved in a CDP case in the Tax Court by placing Petitioner’s accounts into currently not collectible status).

Here again, Petitioner received a Notice of Intent to Levy for multiple tax years and requested a CDP hearing. With the Form 12153, Petitioner included a direct debit installment agreement request, with a proposed monthly payment of $300. Petitioner participated in the telephone hearing that the Settlement Officer scheduled, but didn’t submit financial information ahead of the hearing. Nevertheless, the SO determined that he qualified to claim nearly $1,800 in monthly expenses. Set against his $4,300 in monthly pension income, this left him about $2,500 in net monthly income—far more than the $300 per month he’d proposed.

However, Petitioner raised in the CDP hearing the $1,800 per month he pays his spouse in “spousal support.” But there was no court order mandating this payment, which the IRS requires when proving monthly child support or spousal support payments, see I.R.M. (“If alimony and child support payments are court ordered and being paid, they are allowable.”). Because of this, the SO stuck with the $2,500 proposed monthly payment, after review from her manager. Ultimately, the SO issued a Notice of Determination upholding the levy, for the reason that Petitioner failed to come into filing compliance for tax year 2012.

Judge Panuthos appears to find the issue of legal liability controlling—not whether the obligation is specified in a written court order. Apparently, under California law, one can potentially be liable for spousal support if the parties agree to provide support. He cites California Family Code § 4302, and the cases of Verdier v. Verdier, 36 Cal. 2d 241, 245 (1950) and In re Caldwell’s Estate, 67 Cal. App. 2d 652 (1945). Both of these cases suggest a court could find that the parties independently established a legally binding support agreement.

However, not all legal obligations qualify as necessary expenses under the Internal Revenue Manual. Credit card and personal loan expenses, for example, are not considered “necessary” and do not offset income, because they represent payment for a previous obligation incurred to buy some other expense (necessary or otherwise). See I.R.M. Of course, those payments would be deemed as necessary under the IRM if a taxpayer fails to make those payments, and an unsecured creditor obtains a court judgment and the court then orders payments. Id. Still, these spousal payments are somewhat different, as they’re not as easily excluded as a policy matter as unsecured debts, given that they represent an independent payment obligation and don’t raise the “double counting” concern that likely excludes unsecured debts under the IRM.  

Even if this expense were included, Petitioner’s net monthly income would still not be reduced to the $300 per month payment he proposed. It would, however, substantially reduce it to about $700 per month. And perhaps that would be agreeable.

Finally, I’ll note too that Judge Panuthos did not issue summary judgment because of the reason stated in the Notice of Determination: that Petitioner had failed to file his 2012 tax return. While not discussed in the order (I also haven’t reviewed Respondent’s motion), 2012 should not be, at this point, required to come into compliance under the Internal Revenue Manual, as the IRS generally only requires the past 6 years to be filed. See I.R.M. This was also true at the time Appeals issued the Notice of Determination in July 2019, but not at the time of the Appeals hearing itself.

This will certainly be an interesting case to watch when it comes back to the Court.

Docket No. 22864-18, Minnig v. C.I.R. (Order Here)

This relatively uncomplicated bench opinion comes from Judge Kerrigan in a deficiency case. The facts here are simple. The taxpayer earned income reported on a Form W-2, but they filed a federal income tax return that reported $0 of income. So, the IRS issued a notice of deficiency.

Respondent apparently conceded the 6662 penalty and the 6651(a)(2) penalty, but won on the underlying tax liability and 6651(a)(1) penalty for failure to timely file the tax return. Aside from that, this is an easy win for Respondent. Apparently, Petitioner put forth numerous frivolous arguments, both as to the tax liability and the failure to file penalty, which Judge Kerrigan did not substantively address.

I defer to Judge Kerrigan’s view of the case and the situation at trial. But I do wonder if the section 6673 penalty was considered in this case—either by IRS counsel or by the Court.

Ultimately, the opinion does note that Respondent conceded two of the penalties at issue. The section 6651(a)(2) penalty doesn’t seem appropriate in any case; the taxpayer didn’t report anything as “tax on the return”, which is the only thing to which section 6651(a)(2) can apply. Rest assured that if the taxpayer continues to fail to pay, the IRS will swiftly assess the section 6651(a)(3) penalty for failure to pay after notice and demand.

It does not seem like there’s anything immediately wrong with imposing a section 6662(a) penalty for negligence. Indeed, Petitioner’s position seems to rise well above negligence. Perhaps Chief Counsel had a 6751 problem? Although hard to tell from the opinion itself, this might be a reason it would make sense not to impose the 6673 penalty. After all, multiple positions of the Commissioner in the Notice of Deficiency were, in fact, erroneous.

Docket No. 3057-19S, Nixon v. C.I.R. (Order Here)

Our last order comes from Judge Gale on Respondent’s motion to dismiss for lack of jurisdiction as to joint petitioners in a deficiency case.

Prior to filing the Tax Court petition, Mr. Nixon filed a bankruptcy petition. A review of both dockets reveals that Mr. Nixon filed a Chapter 13 petition on January 21, 2019 and filed the Tax Court petition on February 27, 2019, at which time the bankruptcy case was still open. That bankruptcy case was dismissed in October 2019, but Mr. Nixon refiled in November 2019, and that case still remains open.

The automatic stay provision of Bankruptcy Code section 362(a)(8) divests the Tax Court of jurisdiction until the bankruptcy case ends. Specifically, section 362(a)(8) says that “[a bankruptcy petition] operates as a stay . . . of . . . the commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability . . . of a debtor who is an individual for a taxable period ending before the date of the [bankruptcy discharge order].”

Such bankruptcy debtors aren’t without recourse, however, in disputing the IRS’s determination in the Notice of Deficiency. The bankruptcy court itself could review determine the taxes owed for the disputed year—though see Bush v. United States, 939 F.3d 839 (7th Cir. 2019) (which Keith covered here)for some significant limitations on when the bankruptcy court might exercise its discretion to do so.

Alternatively, section 6213(f) contemplates this scenario, and provides that the 90 day period within which to petition the Tax Court is tolled from the time the bankruptcy petition is filed until the case is discharged or dismissed, plus 60 days. Helpfully, Judge Gale includes a citation to this corollary provision that for Mr. Nixon’s benefit.

In any case, Mr. Nixon had no ability to commence a case in his own right when he did. So, Respondent filed its motion to dismiss the case as to Mr. Nixon—but not as to Mrs. Nixon, who was not a party to either bankruptcy case. Judge Gale explains the law above and grants Respondent’s motion. He also notes that Mrs. Nixon and Respondent had agreed to settle the case; the stipulated decision reveals the parties settled for a deficiency of $3,000 and $4,500 for 2015 and 2016, respectively. They also agreed that no penalties would be imposed. I don’t have access to the underlying Notice of Deficiency, but this sounds like a reduction to the amounts the IRS proposed.

So, what happens to Mr. Nixon? The IRS cannot assess the amount proposed in the Notice of Deficiency against Mr. Nixon because of (1) the automatic stay and (2) the 6213 prohibition that is now continued under 6213(f). But because the tax is joint and several for a jointly filed return under section 6013(d)(3), and because Mrs. Nixon has agreed to waive the restrictions on assessment under 6213 as to herself, the IRS will assess the settled amount against her.

Let’s say that she pays it, Mr. Nixon agrees with that result, and then doesn’t petition the Tax Court as Judge Gale suggests he could. Could the IRS assess the (likely larger) tax contemplated in the Notice of Deficiency against Mr. Nixon? I think it could. Will it? No. The Service’s policy is to provide the same assessment amount for jointly filed tax returns, even if only one party to the joint assessment invoked the Tax Court’s jurisdiction.

I had a similar case involving a taxpayer’s widow, who did not want to open an estate for the mere purpose of ratifying the petition.  Counsel assured me that the IRS would assess the tax on both accounts based on the Tax Court settlement; that is indeed what occurred.

One interesting counterfactual question: let’s say that Mr. Nixon’s bankruptcy case had concluded by the time the Tax Court was ready to rule on Respondent’s motion to dismiss. Would the Tax Court have allowed Mr. Nixon to ratify the Petition? 

No. The automatic stay bars the ability of a taxpayer to petition the Tax Court in the first instance. Those were also the facts in McClamma v. Commissioner, which Judge Gale cites in his order. The taxpayer would need to file a new petition, within the extended time frame under section 6213(a) & (f).

But what if by the time the motion was ready for review, Mr. Nixon’s time to file the Petition under 6213(f) had expired? Same story. As above, his time to file a petition in the Tax Court would have expired, and the IRS would proceed to assess the tax—albeit in the reduced amount noted above. As readers are aware, the Tax Court has taken a stringent view of its jurisdictional grants and while judges often write that they are “sympathetic” to the taxpayer’s situation, they nevertheless dismiss the case for lack of jurisdiction. Equity plays little role. See, e.g., Zimmerman v. Commissioner, 105 T.C. 220 (1995) (dismissing where the bankruptcy court notified petitioners of the discharge 137 after it was entered—leaving petitioner with only 13 days to file); Drake v. Commissioner, 123 T.C. 320 (2004) (dismissing a standalone innocent spouse case, even though section 6015 lacks a tolling provision similar to section 6213(f)); Prevo v. Commissioner, 123 T.C. 326 (2004) (same for CDP petitions).

Payment Alternatives in the Covid Era: A Humble Plea for Easier Access to Installment Agreements

Much of the focus in the low-income tax sphere has been focused on CARES Act provisions, and especially ensuring that low-income individuals receive the full “Economic Impact Payment” (EIP) they are entitled to. This is obviously an imminent issue, especially because the IRS has largely stopped collection activities until at least mid-July as part of the “people-first” initiative. Eventually, however, with the aftershocks to the economy I anticipate the focus will shift to collection issues.

To that end, I’d like to focus on an issue that practitioners come across frequently: frustration with installment agreements (IAs) (see PT posts here and here). Specifically, I want to look at how the IRS can systematically make the process easier and more affordable by expanding access to “streamlined” 84-month IAs.

read more…

Even before the pandemic the IRS was not exactly renowned for its response time at its service centers. A cocktail of poisons can be cited for the delays that often ensued -foremost to my mind are budget cuts, technology woes, and constant changes in tax law. I think it is fair to say that even with a Congressional fix to one or more of these issues in the short-to-medium term the IRS is going to be struggling to deal with the mountain of paperwork that has piled up over the last few months. To ameliorate this situation, the IRS should focus on systemic fixes wherever possible. Increasing access to streamlined installment agreements could provide a small but important win for all parties: bringing taxpayers to the table and dollars to the fisc.

Why Installment Agreements?

An IA may seem like a fairly modest avenue of relief for those in bad financial shape. And, when compared to an Offer in Compromise (OIC) or Currently Not Collectible (CNC), it certainly is. However, in my experience there is a fairly significant pool of low-income taxpayers that do not have a viable OIC/CNC route, and are left with IAs as their only option. Most of the individuals I work with insist on the lowest monthly payment amount, even if it increases the term of the agreement (and thus total amount paid through interest and penalties).

Frequently, even when paid over 72 months the terms seem unaffordable to the taxpayer -although they technically might not experience what the IRS would consider a “hardship” in agreeing to it. This is to say nothing of the multitude of taxpayers that enter into IAs that are unaffordable even by the IRS’s own standards (see 2019 NTA Report “Most Serious Problem #15”)

Many taxpayers simply want to know what their rights and obligations are -often, they just want to know if they should worry about coming home to a cleaned-out bank account one day. Where the IRS has already issued a Collection Due Process letter (and the vast majority are not responded to (See Keith’s article in Tax Notes here (subscription required)), I cannot say with any real level of certainty whether a levy may be imminent. Entering an IA is one way to get taxpayers back on a track where their rights and obligations are known. Apart from reducing the failure to pay penalty rate (see IRC 6651(h)), putting the taxpayer in compliance (potentially allowing for “First Time Abatement” relief), the biggest benefit to an IA may be the reduction in taxpayer anxiety: when you’re in an IA, no levy can be made on the tax years covered (see IRC 6331(k)(2)(C)). Anecdotally, I’d say this is the driving factor for the majority of IAs that I assist clients with.

Why 84 Month Installment Agreements?

I’m betting there are a few practitioners out there reading this and thinking, “if your client legitimately cannot afford to pay over 72 months, it is your duty as their attorney to prove that to the IRS. If you’re doing your job well, you’d get them into a PPIA or some sort of resolution with the IRS.” The point that you should advocate zealously for your client is certainly well-taken. Still, taxpayers are (mostly) living in the IRS’s world with IAs and if the IRS employee isn’t buying what you’re selling you don’t have a whole lot of recourse. Yes, you can go to the Tax Court if the IA is part of a CDP hearing, but the discretion to accept or reject mostly remains with the IRS. And in my experience working with the low-income taxpayers, exercise of that discretion can be fairly rigid. Oftentimes that discretion isn’t much more than a look at “what does the IRM say” with a default of “reject if I can’t find a clear answer.” A clear answer of “accept if it will full-pay in 84 months” would speed up and simplify the process for many taxpayers.

Further, and more importantly, a streamlined 84-month IA would obviate the need for submitting financials (generally a Form 433-A or Form 433-F). There are any number of reasons why not having to submit such financials would be appealing to a taxpayer, but there is one rather big one that, as a practitioner, I can vouch for: the frequent difficulty in getting that information from many low-to-moderate income taxpayers in a timely manner. Not having to submit such financials would greatly speed up the process and result in more case closings.

84 months might seem like an arbitrary number, but it would build on an existing IRS program -hopefully making it easier for the IRS to implement in the process. In what seems like ages ago (2018), the IRS provided “expanded criteria” for who could get a “streamlined” IA. The expanded criteria allowed streamlined IAs for individual taxpayers that owed between $50,000 and $100,000 who would agree to pay over 84 months, or the duration of the CSED, whichever was shorter.

But somewhat mind-bogglingly, for taxpayers that owe less than $50,000 (which are likely to be lower-income taxpayers) the expanded criteria doesn’t apply. However, and in a strange twist, if your tax liability was being serviced by a Private Debt Collection Agency (PDCA) you could enter an 84-month plan regardless of the size of your debt (note that this was only made possible because of a the “Taxpayer First Act.” See H.R. 3151 at sec 1205). In other words, there was a benefit to working with a PDCA rather than the IRS to settle your debts. This seemingly arbitrary distinction was noted by TIGTA in a report here (at page 26 of the report). I note in passing that the TIGTA report cites to the Taxpayer Bill of Rights as one reason why this arrangement should be changed.

Certainly, the IRS may have legitimate concerns about entering IAs that span so long a period of time -remember, the CSED is still ticking away while you’re in an IA (see IRC 6331(k)(3)(B)). There is the serious chance that as the CSED nears, the taxpayer will just default and disappear. But that problem exists with equal or greater force for the relatively large tax debts that the IRS already allows 84-month plans for. If anything, a tax debt of $10,000 that may run out the clock with $2,000 remaining should be of less concern than a tax debt of $100,000 with $20,000 remaining. 

The IRS is going to have to make some changes, as we all are, to adapt to the realities of the pandemic and post-pandemic world. The first changes should be the easy ones. And this change, to me, represents extremely low-hanging fruit for the IRS. There is no statutory reason why they cannot include liabilities below $50,000 to be allowed streamlined 84-month IAs. There is no policy reason why the IRS should make it easier for PDCAs to collect than the IRS itself. There is no reason why the IRS should disadvantage taxpayers that are not assigned to PDCAs, or those with debts less than $50,000. There is, in short, no reason that I can think of not to expand the 84-month IA to smaller debts.

Unpacking the Collection Due Process Case of Melasky v. Commissioner Part 3: The Installment Agreement

As discussed in three prior posts, the Tax Court issued two opinions in the Collection Due Process (CDP) case involving the Melaskys. In 151 T.C. No. 8 it issued a precedential opinion holding that a challenge to the crediting of payment is reviewed pursuant to an abuse of discretion standard and not de novo. In 151 T.C. No. 9 it issued a fully reviewed precedential opinion addressing the collection issues raised in the case before sustaining the determination of the Appeals employee and allowing the IRS to move forward toward levy. See our prior posts on the case here, here and here.  In this third and final post on the second opinion, the issue discussed concerns the taxpayers proposed collection alternative. Even though the IRS rejected the taxpayers’ attempt to make a voluntary payment, they could still have reached an agreement had the IRS accepted their proposed partial pay installment agreement. The majority decided that the Appeals employee did not abuse his discretion in refusing to accept the proposed agreement.


From the prior posts you know that the Melaskys owe taxes for many years dating back to 1995. Over the years from 1996 until they filed their CDP request in 2011, they made various attempts to settle the debt through offers in compromise (OIC) and installment agreements (IA). When they filed their CDP request, they asked the IRS to give them a partial pay installment agreement. This type of IA allows the taxpayers to achieve a result similar to an OIC because it involves resolving the tax debt for less than full payment.

Appeals rejected the proposed IA because the Melaskys “have not paid over the equity in all of their assets” and because they declined to commit all of their monthly income to the IA. Either the failure to pay all assets or the failure to commit available income could provide a basis for rejecting the IA. The Tax Court concluded that Appeals had a sound basis based on both grounds. IRM (March 11, 2011) provides that “Before a [partial payment installment agreement] may be granted, equity in assets must be addressed and, if appropriate, be used to make payment.” Generally, once the taxpayer gives the IRS all of their assets, the IA can be reached if the taxpayer will commit to paying the maximum monthly payment based on the taxpayer’s ability to pay taking into account the taxpayer’s necessary expenses and their income.

Before going into CDP the Melaskys had previously had two installment agreements. After meeting with Appeals in the CDP hearing, they were again told they had to provide the IRS with the equity in all of their assets. On December 2, 2011, they were given until December 16, 2011 to do this. By this point they had been in CDP 10 months. They came back on December 11 and said that they needed to use some of the assets to pay for the medical expense of their daughter. The Settlement Officer agreed to this as long as they provided proof and extended the time to provide payment from the assets until the first week of January 2012. On January 24, the Melaskys as for a further extension and the SO agreed while again requesting proof of the use of the funds for medical expenses. On February 9 they asked for another extension but this time they did not mention the need to use the funds for medical expenses. On April 4, the SO extended the deadline again to April 11. On April 20, 2012, the SO issued the determination letter and at that time the Melaskys still had not provided the equity in four of their assets: an IRA; a 401(k); a life insurance cash value and jointly owned stock.

The Tax Court found that in giving the taxpayers four and one-half months the SO gave them enough time to perform with respect to the assets and did not abuse his discretion in sending out the determination letter rejecting the IA. This is an unremarkable basis for sustaining a CDP determination.

With respect to the income side of the equation, the facts become more difficult because Mrs. Melasky had become the beneficiary of a trust under the will of her father. Based on the facts here it appears that her father died not long before petitioners made their CDP request. This raises strategy issues for individuals who stand to inherit property and who owe taxes. If you find yourself in that situation and you want to make a deal with the IRS either through an OIC or a partial pay installment agreement, you should strive to do so before the person dies. Her father’s death makes it hard for the Melaskys to get to the income number that they seek since the trust could provide funds for their support.

The court looked at the trust instrument and agreed with Appeals that it provided a source of funds which the IRS could use in calculating the Melaskys’ ability to pay a monthly amount to the IRS. The Melaskys disagreed with the IRS and the Court on this point but the Court goes through the trust document and determines what it allowed. If you represent someone with a trust who faces collection issues, you might the Court’s analysis helpful in deciding how much your client can pay.

As with the voluntary payment issue, Judge Holmes dissents. His dissent on this issue does not draw the same level of push back he received regarding his analysis of the voluntary payment issue but footnote 26 of the majority opinion does push back concerning the full payment issue. Judge Holmes again cites the Chenery rule because he finds that the majority have “saved” the SO by finding reasons for sustaining the determination that were not in the Appeals determination. Judge Holmes points out that partitioning the stock Mr. Melasky owned with his former spouse could have created real practical problems in terms of value. This is an issue that arises regularly when a taxpayer owns a partial interest in an asset of marginal value. How much effort and expense should the taxpayer expend to break free their fractional equity? Similarly with the cash value of the life insurance, its small value may have been outweighed by the fact it might cause the taxpayers to lose life insurance coverage altogether.

Because the SO did not consider, or did not record how he considered the difficulty in liquidation of certain assets, Judge Holmes would send the case back. On this point I think the taxpayers’ delays hurt them together with a failure to build out the record with proof of the difficulties. Judge Holmes makes good points about the difficulties with the two specific assets but the fact that the taxpayers changed their tune about the need to use the assets for medical expense and that after four and one-half months they still had not liquidated their IRA and 401(k) plans, something that should not take very long to do, left the taxpayers in a bad situation to defend against the decision of Appeals.

On the income side Judge Holmes does not agree with the way in which the Court sustained the decision of Appeals regarding Mrs. Melasky’s rights under the trust instrument. The SO had to determine what the trust instrument allowed her to withdraw in order to determine how much the couple could pay the IRS each month. Judge Holmes point here is one of administrative law and what role the Tax Court plays in the review of a determination by Appeals of the meaning of a trust instrument governed by state law. He states:

We have instead [instead of doing a full analysis of the intent of the trust document] a fact-intensive subsidiary (or “preludal”) legal issue that presented itself in a CDP hearing, before an SO incapable as a matter of training of deciding it as a trial judge would; and, more importantly, deprived of all the extensive and expensive fact finding weapons a trial judge could wield. This may harm taxpayers in some cases, while the lower cost of informal adjudication benefits them in others. It’s up to Congress to decide which is best; and here congress has opted for informal adjudication. That makes our review of such mixed questions an appropriate place to depart from the stricter standard that we would apply on purely legal issues. Doing so would also nudge us closer to the mainstream of administrative law.

In the end Judge Holmes states that he would not hold that the SO reached the right conclusion in deciding that the trust would allow the Melaskys to pay more money than they offer but that the SO “acted reasonably in answering this question and therefore did not abuse his discretion in rejecting the Melaskys’ proposed collection alternative on this ground. This makes good sense to me. Although it reaches the same result as the majority, I like this framing of the role of the Tax Court in these cases.


Designated Orders: 8/21 – 8/25/2017

PT returns from a long holiday weekend as Professor Patrick Thomas discusses some recent Tax Court designated orders. Les

Substantively, last week was fairly light. In this post, we discuss an order in a declaratory judgment action regarding an ESOP revocation and a CDP summary judgment motion. Judge Jacobs also issued three orders, which we won’t discuss further.


Additionally, Judge Panuthos, in his first designated order of this series, discusses a recalcitrant petitioner (apparently, a Texas radiologist) whose representative, without clear reason, rejected an IA of $10,000 per month—notwithstanding that the petitioner’s current net income totaled nearly $45,000 per month. In related news, I appear to have chosen the wrong profession.

Avoid Sloppy Stipulations – Adverse Consequences in a Declaratory Judgment Proceeding

Dkt. # 15988-11R, Renka, Inc. v. C.I.R. (Order Here)

This is not Renka’s first appearance on this blog (see Stephen’s prior post here, order here). Renka initially filed a petition for a declaratory judgment in 2011 regarding the Service’ revocation of its ESOP’s tax-exempt status, which resulted from events occurring in 1998 and 1999.

The current dispute before Judge Holmes involved the administrative record. In cases involving qualified retirement plans (of which ESOPs are but a subset), a few different standards apply. If a declaratory judgment action involves an initial or continuing qualification of the plan under section 401(a), Tax Court Rule 217(a) ordinarily constrains the court to consider only evidence in the Service’s administrative record. However, as Judge Holmes notes, a revocation of tax-exempt status, as occurred in Renka, allows a broader consideration of evidence. Stepnowski v. C.I.R., 124 T.C. 198, 205-7 (2005).

But in Renka, the parties stipulated to the administrative record, and so when Renka attempted to introduce evidence outside the record, the Service objected. While Renka complained that they didn’t specifically state that the stipulated records constituted the entire administrative record, Judge Holmes wasn’t having it. Indeed, Tax Court Rule 217(b) requires the parties to file the entire administrative record—which, the parties purportedly did.

Where justice requires, the court may use its equitable authority to allow evidence not ordinarily contemplated by the Rules. Such a rule includes Rule 91(e), which treats stipulations as conclusive admissions. Renka’s equitable argument is, unfortunately, fairly weak; it merely argues that the documents it proposes to introduce fall under the definition of “administrative record” under Rule 210(b)(12). But they don’t even do that—the documents related to an “entirely different ESOP”, which was not at issue in this declaratory judgment action.

In the end, Judge Holmes keeps the evidence out. Take-away point here: while parties are required to stipulate under Rule 91(a) (and indeed, sanctions exist for failing to do so under Rule 91(f)), they must craft and qualify their stipulations carefully. Otherwise, important evidence could remain outside the case, as here.

CDP Challenge – Prior Opportunities and Endless Installment Agreements

Dkt. # 11046-16L, Helms v. C.I.R. (Order Here)

Here’s a typical pro se CDP case with a few twists. The petitioner owed tax on 2007 and 2008, though had also owed on prior years that were not part of this case. After filing his tax returns late, the petitioner began a Chapter 13 bankruptcy in 2012. The Service filed proofs of claim for both the 2007 and 2008 years; 2008 was undergoing an audit, so the liability wasn’t fixed at the time. Ultimately, the bankruptcy plan was dismissed for failure to make payments, and the Service resumed collection action (the liabilities were not dischargeable in bankruptcy).

Three years after the bankruptcy’s dismissal, the Service issued a Notice of Intent to Levy and the Petitioner requested a CDP hearing. In the Appeals hearing, the Petitioner more or less explained that he wanted both an accounting of the liability and to settle the liability. The Service requested a Form 433-A and other delinquent returns, which he did submit.

Instead of an Offer in Compromise, the Service offered an Installment Agreement of approximately $2,000 per month; after the Petitioner submitted additional expenses, the Service lowered the amount to about $800 per month. But after that, the Petitioner didn’t respond, the Service issued a Notice of Determination, and the Petitioner timely filed a Petition.

The Service filed for summary judgment and, while the Petitioner didn’t formally respond, he did serve the Service with a response, which they incorporated into their reply. The Court incorporated these arguments as those raised by the Petitioner, which the Court interpreted as arguments (1) challenging the liability and (2) challenging the Installment Agreement because the Petitioner believed it would last “indefinitely.”

Judge Gustafson held that the Petitioner wasn’t eligible to challenge the liability because he already had a prior opportunity during his Chapter 13 bankruptcy proceeding to dispute the liability, but chose not to do so. Though unmentioned by Judge Gustafson, the Petitioner may have also had an opportunity to dispute the 2008 liability, since it arose from an examination. Regardless, the bankruptcy proceeding, once the Service filed its proofs of claim, provided this prior opportunity. See IRM

Finally, Judge Gustafson held that the Service had committed no abuse of discretion in proceeding with the levy. Even though Petitioner potentially had valid concerns regarding an indefinite Installment Agreement, he did not raise that issue with Appeals, and so forfeited that argument in the Tax Court. The Service really didn’t have another choice but to issue the Notice of Determination, failing communication from the taxpayer (here, the taxpayer was silent for 3 weeks). Moreover, Installment Agreements ordinarily last only until the liability is satisfied, the taxpayer defaults on the plan, or the statute of limitations on assessment expires.

You Can’t Get There From Here: Tax Court Rejects Partial Pay Installment Agreement Request

Last week in Heyl v Commissioner the Tax Court rejected a taxpayer’s request for a partial pay installment agreement (PPIA). We have not discussed that collection tool and the case provides a chance to do so.

Heyl filed returns for three years but failed to pay the tax; he owed about $15,000, including penalties. After receiving a notice of intent to levy and a notice of federal tax lien filing, he requested a CDP hearing. In the hearing request he stated that he could not pay the balance; there was no issue as to the amount he owed. There was a telephone hearing and correspondence; the settlement office requested (and received) other delinquent income tax returns, and Heyl submitted a collection information statement. The collection information statement (the Form 433 series) showed negative monthly income as well as few assets, with one exception: an unoccupied and unleveraged house in Maine that was worth $87,500. It was Heyl’s hope that he could live in retirement at the Maine house, and continue to keep it unleveraged despite the federal tax debt.

IRS had different views, and the order in this case discusses generally what a taxpayer with equity in an asset must demonstrate to keep that asset out of the collection mix.


In one of the letters to the settlement officer (SO), Heyl requested to pay IRS about $100/year for five years. The SO recognized this as a partial pay installment agreement request. A PPIA allows for IRS to accept essentially on a payment plan a series of payments that will result in IRS receiving less than the full amount of the assessed liability. Congress amended the installment agreement and offer statutes in 2004 to allow IRS and taxpayers to enter into those. They are in effect offers in compromise which use the installment agreement process for a mutually agreed upon lesser amount than both the taxpayer and IRS agree is owed. The idea behind the PPIA is that it is better to get something rather than nothing.

The SO rejected the request based on the view that Hoyle should liquidate or leverage the Maine house and use those proceeds to fully pay the tax. Heyl appealed to Tax Court, and the Tax Court sustained the determination on summary judgment. Here’s how the court got there.

As with most installment agreements and with all offers, the IRS has wide discretion in granting an alternative to enforced collection. The discretion is not absolute, however.

The Internal Revenue Manual provides guidance:

[b]efore a PPIA may be granted, equity in assets must be addressed and, if appropriate, be used to make payment. In some cases taxpayers will be required to use equity in assets to pay liabilities.” IRM (Sept. 19, 2014).

Taxpayers can push back on a request to use the equity in assets and withstand requests to leverage or liquidate assets if liquidating or selling would cause “economic hardship.” That is a term of art, and sweeps in standards in the regs under Section 6343 and the IRM. To show economic hardship Heyl would have to demonstrate that the sale or leveraging of the asset would render him unable to meet his necessary living expenses. Those relate to the health, welfare or production of income.

The order in Heyl provides some detail on those concepts:

Necessary expenses are those representing “the minimum a taxpayer and family needs to live.” See Thompson v. Commissioner 140 T.C. 173 (2013) (PPIA only allows for necessary expenses); IRM pt. (Oct. 2, 2009). The regulations and administrative guidance reflect an understanding of economic hardship placing the taxpayer into “dire circumstances,” not merely being forced to change one’s accustomed to or desired lifestyle. See Speltz v. Commissioner, 454 F.3d 782, 786 (8th Cir. 2006) affg 124 T.C. 165 (2005).

Heyl argued that his was a hardship case because “his future retirement will bring a meager social security check, and that living rent or mortgage free upon retirement may make the difference between ‘misery and subsistence.’”

The Tax Court disagreed, though in so doing suggested ways that a taxpayer might be able to show hardship in differing circumstances:

Petitioner failed to allege any specific fact suggesting the sale or leveraging of the unoccupied Maine home will alter his income expense estimates and render him unable to meet his current necessary living expenses…

We also note that petitioner’s filing status is single and he has no dependents. Petitioner is in his early sixties and operates a sole proprietorship. In addition, he does not allege any disability or extraordinary circumstance prevents him from working, or continuing to operate his business. Petitioner argued that the economic downturn impeded his earning potential, but expresses a belief that his “piece of the economy won’t be weak forever.”

Parting Thoughts

The case reminds me that while this did not work out for Heyl, installment agreements generally are a good tool for taxpayers who may have equity in assets but who wish to avoid enforced collection, especially if there are circumstances that support economic hardship. For example, Keith previously discussed the power of installment agreements in our last discussion of the Antioco case in Appeals Fumbles CDP Case and Resulting Resolution Demonstrates Power of Installment Agreement. The PPIA can be a good option, though when there is an asset that can satisfy the liability the taxpayer will have to offer specific evidence as to why selling or borrowing against the asset jeopardizes the taxpayer’s ability to meet current or likely future necessary expenses. The taxpayer will have to put in evidence on, for example, health issues for the taxpayer or a dependent, or an imminent down the road downturn in income. General statements about the difficulties of a future life in retirement are insufficient. Given that in some circuits (as here) the taxpayer was bound to the record below, the offering of that specific evidence has to be done at Appeals, and not at Tax Court. Even with those good bad facts, when a taxpayer has a history of noncompliance, the IRS still has significant discretion to reject the alternative.



Loading Installment Agreements — Comments

Occasionally, we write a post that seems to touch a nerve with our readers, and today’s post by Keith, Loading Installment Agreements, was one such post.  It has been heavily viewed, and there has already been numerous comments.  Many of the comments echo Keith’s thoughts in the post, and I have recreated the current comments below.  We would suggest that readers who enjoyed the post also review the comments, as they provide additional context and practitioner suggestions.  As there may be additional comments after this is posted, you can find all the comments to Keith’s post here, or by clicking on the “Comments” link below the title of the original post.

Here are the comments as of 2:30PM EST on August 23rd.

  1. This is widespread. It happens to me and fellow practitioners I talk to all the time. I usually advise clients to make direct pay payments and then I follow up 3 months after I send in the installment agreement with direct withdrawal information. If it still isn’t auto-processed, I call in and the person in collections or priority practitioner will usually enter it in herself. This has increased the cost to clients since I usually need to call in 2-3 times on a file instead of just once.

  2. How many keystrokes does it take to “load” (what a heavy word) an instalment agreement? Routing number, account number, SSN, tax periods — I just paid a credit card bill over the phone, using an automated keypad system, and it took maybe three minutes.

    IRS remains one of the best tax collection agencies of the 1960s.

  3. I have had several instances where IRS employees warned me about how long it may take for the installment agreement direct debits to kick in, and some advised my clients to begin voluntarily paying the monthly installment amounts until they saw a direct debit. I have followed that advice.

  4. I give clients multiple vouchers for a specific year and desired $$ amount, and instructions to write Apply to 1040 tax for 201x per Rev Proc 2002-26, copy it and the check and mail it certified mail return receipt requested.
    The check gets cashed and applied, thus reducing the interest when the installment agreement actually kicks in.

  5. Your client could be anyone of mine. In my experience Offers in Compromise, Installment Payment plans, Lien Releases, CP2900 responses, Entity Selection, anything that goes into centralized processing takes an inordinate amount of time and that time is increasing. You are right to point out the financial costs to all parties. However, the poor performance by the Service is discouraging to practitioners who really want their clients to get back on the tax rolls, comply with federal and state law, and leave the anxiety and stress behind. I have had several clients revert to “off the radar, cash only” lives when encountering delays and/or nonsensical communications from the Service. I don’t fault individual employees at the IRS. Congress needs to fund a major overhaul of computer systems and recruitment of additional staff. Amen.

  6. Installment Agreements have been so bad for so long that I typically advise clients, like Steve, to mail in a monthly payment with instructions to apply it to the unpaid tax.

    In most cases the tax, interest and penalty are paid prior to when the IA, that they would have had to pay for, would have taken effect.

    Less is better.

Loading Installment Agreements

I wrote a couple of months ago about my travails in trying to assist a “friends and family members” client to obtain an installment agreement.  The process took five separate phone calls culminating in a very pleasant call in May with someone in Collection who accepted the installment agreement.  We set up an automated withdrawal from their bank account on the 16th of each month and he told me that the first one would occur on July 16.  I thought that July 16 seemed a little far out since it was only May at the time but did not complain.

I returned from vacation in early August and called my client to see how the first withdrawal went.  I was informed that there was no withdrawal and no communication of any kind from the IRS.  I thought this odd but as I mentioned in the prior post I do not set up many installment agreements.  To find out if it was odd, I contacted someone I knew at the IRS.  I learned that the failure to withdraw the installment agreement amount from my client on the first date set for such a withdrawal happens to others as well because the IRS is behind in loading the installment agreements into its system.  I have now learned that the IRS did not withdraw the money for the installment agreement in August either.  This seems bad for the IRS, a little troubling from the client’s perspective, and worth writing about to a group that probably encounters this more than me.  Unrelated to the story here but connected to the general issue of installment agreements the IRS has recently proposed a new fee schedule for installment agreements.  Like a lot of businesses, the IRS schedule rewards parties that create the installment agreement online without requiring human intervention and they reward parties who allow automatic withdrawals from their bank each month.


The root problem here belongs to the clients because they failed to file returns for several years.  People who do that put a lot of pressure on the system.  They get charged some hefty penalties to compensate the system for their behavior and to financially incentivize them to change their habits, but we know that many, many people do not timely file and that causes a fair amount of work for the IRS.  These clients started having four years of past due returns prepared last fall and finished them just before the filing season began in full swing.  The returns were filed about the time the first rush of 2015 filings occurred.

I waited until March to call the IRS to give it time to process their returns, and learned on my first call that it had not processed two of those returns.  I am confident that they were properly mailed and mark the failure to process the returns as the first of several system failures here by the IRS.  The situation here, and others I have observed, made me wonder if late filed returns should go somewhere different than current year returns in order to avoid confusion.  Maybe that’s too much trouble but processing returns from multiple years during the filing season must create some difficulties for the IRS.  Here, it lost two of four returns which caused delays in the IRS getting payment since I could not enter into the installment agreement until the returns were processed.  Of course, the clients could have started sending in payments while waiting for the installment agreement but also, of course, they did not.

The second and third of my calls last Spring failed because the IRS had not processed all of the returns and the collection officials with whom I spoke did not want to set up an installment agreement until everything was assessed and in their system.  The clients were motivated by me and others last fall to get their taxes in order.  They did it and they were motivated to pay (not quite motivated enough to send in payments without an agreement) and now they are just a couple of months short of one year  from the time they started the process without reaching the finish line of having the installment agreement kick in.  I see their motivation to follow through to solve the problem waning.  I feel like it would be much better if the process of the IRS entering into and starting the installment agreement had begun in March or April instead of sometime in the future.

As I mentioned above, my contact at the IRS indicated that the failure of the IRS to take the money from my clients’ account for the first month (and the second month) happens to others as well.  The IRS wants taxpayers to have installment agreements that provide for withdrawals from their bank accounts; however, it is very slow in loading those installment agreements into its system.  The IRS also does not inform taxpayers that it will miss the deadline for loading the installment agreement and will not take their money.  This leaves taxpayers someone anxious because they fear they may have done something wrong and that the IRS will take the more serious collection action it was threatening that led to the creation of the IA in the first place.  The failure to take the money also leaves the taxpayers somewhat less motivated to keep making sure the money is there to be taken in future months and leaves the IRS without revenue it could have had very easily if it had taken the time to load the installment agreement into the system.

I have not seen a Treasury Inspector General (TIGTA) or Government Accountability Office (GAO) report on this and do not know how widespread the issue is or if it is the result of understaffing, bad staffing allocation, or other factors.  I only know that it was much harder to enter into this installment agreement than I expected and now I am shocked that the IRS is not bothering to gather up the money sitting there for it.  Of course, the clients will pay slightly more interest and penalties because of this delay.  It also pushes back the point at which they can seek lien withdrawal.  Mostly, it just seems like a really bad business plan not to load the installment agreements as quickly as possible and get the money that taxpayers have set aside to pay their taxes at a point at which they are motivated to do so.  Many installment agreements will fall by the wayside as life events overtake the ability of some taxpayers to follow through with payments for several years but the payments at the beginning of the installment agreement would seem like the most likely ones to be there and those are the ones the IRS is not bothering to pick up.




Trying to Give Money to the IRS

I am the only lawyer in my family. From the moment I was accepted to law school I began to accumulate friends and family clients who were convinced that I knew off of the top of my head the answers to any and all legal questions and problems they had.  The accumulation of friends and family clients has not abated in the over 40 years since I started law school.  On rare occasion a friends and family client will actually have a problem I might possibly be competent to resolve.  I am involved in one such case now and am beginning to question my competence.

This friends and family client suffered in the recession like many of my regular low income clients. It is interesting to me how many clients I continue to have whose root problems with the IRS can trace directly to the recession.  In this case the friends and family client had a side business dependent on discretionary spending of relatively wealthy individuals.  Even the relatively wealthy were impacted by the recession which meant his business went south in a hurry which meant he needed money to cover the expenses which meant he did not make his estimated tax payments from his day job because he needed that money which caused him to not file his returns which landed him eventually in a big hole with the IRS.  This friends and family client makes a fair amount of money placing this family well outside my normal low income client experience.  I pointed them to a return preparer who could get them current.  They already had some problems based on returns they did file early in the lifespan of the recession.  With the assistance of the preparer, all back returns were prepared and filed and now an installment agreement needed to be set up.


I thought setting up an installment agreement would be within my competency level. So far, that has proven not to be the case.  About six weeks after the filing of the four back returns bringing this client into compliance, I called the IRS.  The amount owed exceeded $100,000 and the clients had few assets of value but an income stream that produced a reasonable collection potential (RCP) of over $10,000 per month.  My first call to the IRS began well with a wait time in early March of less than five minutes.  The IRS employee was pleasant but firm that there were two missing returns.  I was not involved in mailing the returns to the IRS so I am unsure whether they traveled together in one envelope or in four separate ones.  Somehow two of the four returns did not make it into the returns processing system.  So, I contacted my clients and had them reexecute the two missing returns, send them in separate envelopes and try the filing process again.

I then waited another four weeks. I did not want to wait too long because the first two returns were now assessed and the collection process underway.  In my second phone call, I again reached the IRS quickly and I reached the most helpful of the IRS employees I have encountered on this case.  He said that one of the returns had processed but the other had not so he could not enter into an installment agreement with me yet.  I questioned him about the amount that would be necessary to set up an installment agreement under the general facts of the case.  He told me about a program the IRS had under which it would accept an installment agreement from my clients if they could pay within six years.  He placed the account in suspense for 60 days and told me to call back in a few weeks after the last return had time to process.

On my third call in an effort to pay the IRS, I again reached the IRS employee quickly. After we went through the obligatory five minute Q&A session to identify me and my clients, this employee began to take the asset and income information that could lead to an installment agreement.  I began to get my hopes up that I might finally close the deal and get the IRS to take their money; however, she had some questions about their expenses that I had not anticipated and could not answer.  Since the answers to these questions would only change the amount of their monthly RCP from one high number to another high number and since I was prepared to offer an installment agreement that would pay off the liability in less than six years, I questioned the employee concerning the need for this information.  If the IRS had a program to accept an installment agreement that would pay off the liability within six years, and if it were convinced there were no assets to liquidate to satisfy the liability (the clients had already sold their house and paid down most of the originally assessed debt through that closing), why did it need details that would only result in changing the amount of their monthly income available to pay an installment agreement when I was offering to enter into an installment agreement to satisfy the liability more quickly than their guidance permitted?  I did not receive a satisfactory answer to that question but ended the conversation and went to the clients to get the additional information.

On Friday the 13th of May (I should have known better), I placed my fourth call to the IRS to try to give them money.  This time I had to wait 25 minutes to get through.  I was not expecting that amount of wait time because it had gone so quickly in the prior three calls but I had plenty to do while waiting.  When the IRS employee answered the phone and I shook off the lobotomy that the IRS music had performed on my brain, we went through the obligatory five minute Q&A session at the end of which he said that he could not handle this case and that he needed to transfer me to someone in collection.  I thought I was in collection because I had pressed the number for ACS but I then waited another couple of minutes before another person answered the phone.  This person gave their name and ID# in the quick fashion that many IRS employees do when they first answer the phone.  I was writing down the name and number as I do when I am speaking to someone on these calls.  Before I said anything the person stated, “I have had no answer and am terminating this call.”  And she did.  She had no answer because she had asked no question.  I started speaking as soon as she said she had not heard an answer but it was too late.  She had already hung up.  Another half hour of my life semi wasted.  Add it to the list.

Almost immediately another call came in which I needed to take so the hang up may have been fortunate. If the IRS employee behaves that way perhaps that was not the employee I wanted to deal with anyway.  I can think of several glass half full reasons why the termination of the call after 6:00 PM on a Friday afternoon was not the worst thing to happen to me but it was frustrating.  So, I will call again one day when I am free to work on my friends and family case and try once more to give the IRS money.  Who knew it would be so hard to give them money.  Most of my clients have little money and my calls involve trying not to give them money.  I understand when the IRS is not so responsive to my requests to give them less than is owed.  When I am trying to full pay, I did not think I would be so incompetent in sealing the deal.