My August week of designated orders brought four orders in different areas. The topic range includes innocent spouse (with the question of application under the Taxpayer First Act), collection due process and remands. One of the remands has an abuse of discretion issue.
Taxpayer First Act and Innocent Spouse
Docket No. 12498-16, Beverly Robinson v. C.I.R., Order available here.
In her first designated order, Judge Copeland brings up how the Taxpayer First Act affects a pending innocent spouse case. Carlton Smith blogged about this issue in Procedurally Taxing previously here. Carlton’s article discusses the implications of the Taxpayer First Act section concerning innocent spouse cases, specifically IRC section 6015(f) cases.
This order concerns a case that already went to trial on February 5, 2018. The parties filed a joint stipulation of facts and a joint first supplemental stipulation of facts. The petitioner moved to admit Exhibit 58-P and it was admitted into evidence. Each party called witnesses in support of their arguments. The entire administrative record was not presented or received into evidence. The trial was before Judge Chiechi, who has since retired. The case was reassigned to Judge Copeland. After trial, on July 1, 2019, the Taxpayer First Act was signed into law. The relevant portion to this case is below.
Section 1203(a)(1) of the Taxpayer First Act of 2019 (TFA) amended IRC section 6015(e) to add a new paragraph (7):
(7) STANDARD AND SCOPE OF REVIEW. — Any review of a determination made under this section shall be reviewed de novo by the Tax Court and shall be based upon —
(A) the administrative record established at the time of the determination, and
(B) any additional newly discovered or previously unavailable evidence.
TFA section 1203(b) states those sections apply to “petitions or requests filed or pending on or after the date of the enactment of this Act.”
Judge Copeland issued this order, stating that the parties shall file a response to the order addressing the effect of sections 1203(a) and (b) of the TFA on this case.
At first, I thought the judge wanted the parties to do research on the TFA and how its innocent spouse provision applied in general to their case so I would have directed them to Carlton’s article. However, I reread the order and realized just what she meant concerning the TFA’s application to their case.
The case was pending on the date the TFA was enacted. Now, normally the Tax Court would review the innocent spouse determination de novo based upon (A) and (B) listed above. However, the administrative record was not introduced or received into evidence, which is part of subsection (A) above. What to do in this case? Let the parties make their arguments about the matter. Thus, the judge ordered the parties to submit their responses on or before September 4, 2019.
As a follow-up – on August 30, the IRS filed an unopposed motion for an extension of time. That motion was granted to give the IRS an extension of time to October 4.
Takeaway: Applying the Taxpayer First Act will open up several questions for years to come. Since the Taxpayer First Act specifically discusses Tax Court review of innocent spouse cases, this may be a prominent issue moving forward in designated orders. They should still read Carlton’s article.
More Innocent Spouse
Docket No. 10341-18, Jeffrey C. Elliott v. C.I.R., Order available here.
Pamela Elliott filed a motion for leave to file a notice of intervention in this innocent spouse case. Normally, she could have intervened as a matter of right. However, she filed the motion after the 60-day window during which she could intervene and requests leave to do so at this late time. Her reasoning is that “she was not represented by counsel and did not understand her procedural rights,” adding that the “interests of justice favor allowing her request.”
The Court reviews factors regarding Ms. Elliott’s motion for leave to file a notice of intervention. The first factor is the length of time she knew or should have known of her interest. Ms. Elliott waited a year so that factor weighs against her. The second factor is the prejudice the parties may suffer by her failure to intervene earlier. Mr. Elliott did not provide proof of additional fees he would suffer, the docket in this case has been inactive, and the parties have sufficient time to prepare for an October 2019 trial so it is determined that the parties will not suffer prejudice from her failure to intervene earlier so that factor weighed in her favor. The third factor is the prejudice she will suffer from a denial of her motion. Because she will be affected by the decision on innocent spouse relief, she would suffer prejudice by not being able to participate in the trial and that factor weighs in favor of granting the motion. The fourth and final factor is any unusual factors weighing in favor of finding timeliness. There are no issues affecting timeliness, but the parties are involved in another Tax Court proceeding (2957-19) involving similar issues. On balance, the factors allow for Ms. Elliott to be granted the relief she sought.
The Court grants her motion for leave to file a notice of intervention, ordering to amend the caption and serve her with the proper notice and pretrial order so she may prepare for trial.
Takeaway: It is not recommended to file documents after a deadline has passed. However, factors may allow for the Court to grant an individual the relief sought.
Abuse of Discretion for Installment Agreement Notice
Docket No. 2018-17L, Don R. Means v. C.I.R., Order here.
The petitioner is a retired airline pilot who claimed deductions based on participation in tax shelter programs. Audits of those schemes resulted in the IRS disallowing the deductions and deficiencies for 7 tax years. The Tax Court entered final judgments in 2013 regarding the aggregated assessed tax and associated accrued interest to be, respectively, $102,765 and $76,498. Mr. Means entered into a $500 monthly installment agreement in February 2014. The IRS terminated the agreement in May 2016. In July 2016, the IRS issued a Notice of Intent to Levy. Mr. Means filed a Form 12153 to request a Collection Due Process hearing. In the form and also by request to the settlement officer, Mr. Means requested an explanation of the termination of the installment agreement.
Termination of an installment agreement must be preceded by a 30-day notice that provides an explanation to the taxpayer. There were inconsistencies in the administrative record so it was unclear that the notice requirement under IRC section 6159(b)(5) was met or that such notice was provided to Mr. Means (though there is an indication that Mr. Means, his ex-wife, or both, failed to provide the IRS updated financial information, which led to the termination).
The Court cannot agree with the settlement officer’s determination that legal and administrative procedures were met. Therefore, the conclusion is that the determination sustaining the proposed levy was an abuse of discretion. The Court remands the case to Appeals for a supplemental hearing. On remand, if Mr. Means did not have proper notice, he should either be allowed to continue the installment agreement or receive the proper notice due, with the right to appeal.
Takeaway: Consistent procedure is necessary for the IRS so that a taxpayer receives proper due process. If the administrative record is inconsistent about notices, it is more likely for the Court to decide there was abuse of discretion.
Collection Due Process, Remand, and Summary Judgment
Docket No. 25904-16SL, Chinyere Egbe & Sheila Daniels Egbe v. C.I.R., Order and Decision available here.
To begin, petitioners received an IRS notice of deficiency for tax years 2012 and 2013. They did not petition the Tax Court based on that notice.
Next, the IRS issued to the petitioners a Final Notice of Intent to Levy and Notice of Your Right to Hearing for the 2013 tax year. The petitioners submitted a form 12153 to request a collection due process (CDP) hearing.
The settlement officer assigned to the case worked with the petitioners and their representative. The officer granted them an extension of time and did not receive any requested financial documents. However, he told their representative that they qualified for a streamlined installment agreement of $275 per month. The representative agreed to get back with the settlement officer after discussing with the petitioners. The petitioners made two payments before realizing the agreement was not in effect and then terminated their relationship with the representative because of not communicating acceptance of the installment agreement to the IRS.
The IRS issued a notice of determination to the petitioners not to grant relief from the proposed levy action. The petitioners filed a timely petition to the Tax Court concerning the notice of determination, also checking the box for a notice of determination concerning innocent spouse relief (which did not apply) and indicating the notice was for tax years 2012 and 2013 (when it was only for 2013).
The IRS filed a motion for summary judgment, which the Court denied. The Tax Court remanded the case to IRS Appeals for a further administrative hearing so the IRS could provide petitioners a supplemental CDP hearing. The Court dismissed tax year 2012 and the innocent spouse claim from the case.
The same settlement officer held a further CDP hearing. He informed the petitioners they could not challenge the liability for tax year 2013 because they received a valid notice of deficiency and that they had accrued an additional liability. The settlement officer proposed an increased installment agreement and they accepted, signing form 433D.
The IRS issued to the petitioners a supplemental notice of determination related to tax year 2013, determining that the proposed levy is not sustained because they agreed to a $600 per month installment agreement.
Following the supplemental notice of determination, both parties were to file status reports but only the IRS filed one. The Court scheduled the case for trial on the September 23, 2019, docket for New York, New York. The IRS filed a motion for summary judgment, with the settlement officer’s statement in support. The petitioners filed their objection to the motion for summary judgment.
In the Court’s analysis, the petitioners did not show there was a genuine issue for trial. Since the petitioners were in an installment agreement, the IRS did not sustain the proposed levy. The Court granted the motion for summary judgment because there was no genuine issue of material fact and removed the case from the September calendar.
Takeaway: To some degree, I think the petitioners had bad representation, but I think the biggest problem was a lack of understanding of IRS and Tax Court procedure. What are some indicators? They did not petition the Tax Court regarding the liabilities for 2012 and 2013 from the notice of deficiency. They (or their representative) did not respond or communicate with the settlement officer for the CDP hearing. They did not fill out their Tax Court petition correctly based on the original notice of determination.
I find that clients do not understand the difference between the various notices that provide them access to the Tax Court. Generally, the notice of deficiency allows them to contest the liability while a notice of determination concerning collection action is about abuse of discretion in a CDP hearing. It is critical to know what lane you are in to argue correctly and find success in the Tax Court.
About William Schmidt
Comment Policy: While we all have years of experience as practitioners and attorneys, and while Keith and Les have taught for many years, we think our work is better when we generate input from others. That is one of the reasons we solicit guest posts (and also because of the time it takes to write what we think are high quality posts). Involvement from others makes our site better. That is why we have kept our site open to comments.
If you want to make a public comment, you must identify yourself (using your first and last name) and register by including your email. If you do not, we will remove your comment. In a comment, if you disagree with or intend to criticize someone (such as the poster, another commenter, a party or counsel in a case), you must do so in a respectful manner. We reserve the right to delete comments. If your comment is obnoxious, mean-spirited or violates our sense of decency we will remove the comment. While you have the right to say what you want, you do not have the right to say what you want on our blog.