151 T.C. No. 7
UNITED STATES TAX COURT
JAMES LOVELAND, JR., AND TINA C. LOVELAND, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10482-17L. Filed September 25, 2018.
R issued a notice of intent to levy to Ps. Ps submitted an offer- in-compromise that included all requested financial information. R’s collections officer rejected the offer. Ps chose to forgo an Appeals Office hearing so that they could continue negotiations over an installment agreement. Those negotiations faltered.
Later, R filed a notice of Federal tax lien against Ps’ property. Ps requested a collection due process (CDP) hearing under I.R.C. sec. 6320. They requested that R consider the previously rejected offer- in-compromise. Ps also requested an installment agreement and requested relief due to economic hardship. Ps did not submit financial information beyond what they had provided with the previously rejected offer-in-compromise.
R declined to review the offer-in-compromise because Ps had had a prior opportunity for a hearing. Without reviewing the financial information that Ps had previously provided, R also declined -2-
to review the installment agreement and the claim of economic hardship because Ps did not submit financial information.
Under sec. 301.6320-1(e)(1), Proced. & Admin. Regs., a “taxpayer may not raise an issue that was raised and considered at a previous CDP hearing under section 6330 or in any other previous administrative or judicial proceeding if the taxpayer participated meaningfully in such hearing or proceeding.”
Held: A meeting with a collections officer is not a prior administrative proceeding under I.R.C. sec. 6330(c)(4)(A)(i) and sec. 301.6320-1(e)(1), Proced. & Admin. Regs.
Held, further, the Commissioner abused his discretion by failing to consider the proposed offer-in-compromise.
Held, further, the Commissioner abused his discretion by failing to consider the proposed installment agreement.
Held, further, the Commissioner abused his discretion by failing to consider the claim of economic hardship.
Held, further, we will remand this case to the Appeals Office for further consideration consistent with this Opinion.
James Loveland, Jr., and Tina C. Loveland, pro sese.
Samuel M. Warren, for respondent. -3-
OPINION
BUCH, Judge: This collection case comes before the Court on the
Commissioner’s motion for summary judgment. In that motion the Commissioner
argues that he is entitled to a judgment in his favor because Mr. and Mrs.
Loveland did not submit the necessary financial information during their appeal to
allow the Commissioner to consider their proposed installment agreement. The
Lovelands contend that they submitted the necessary financial information. They
also argue that the Commissioner did not consider the issues that they raised in
their CDP hearing including an offer-in-compromise, an installment agreement,
and economic hardship that reduced their ability to pay. We find that the
Commissioner abused his discretion when he failed to consider the offer-in-
compromise, the proposed installment agreement, and the claim of economic
hardship.
Background
Mr. Loveland is a retired boilermaker, and Mrs. Loveland is a retired
teacher. The last decade has held more than its share of challenges for the
Lovelands. In the wake of the recent recession and housing crisis the Lovelands
lost their home to foreclosure. At around the same time Mr. Loveland became -4-
disabled as a result of a heart condition and had to leave the workforce. Mrs.
Loveland survived breast cancer. During this tumultuous time the Lovelands
stopped paying their taxes, resulting in outstanding tax liabilities for 2011, 2012,
2013, and 2014 totaling over $60,000.
In 2015 the Commissioner issued a notice of intent to levy, in response to
which the Lovelands entered into negotiations with a collections officer. As a part
of those negotiations the Lovelands made an offer-in-compromise. To submit the
offer they completed a Form 433-A (OIC), Collection Information Statement for
Wage Earners and Self-Employed Individuals, and appended a range of financial
information including bank statements, pension and income documentation, and
information about expenses and assets. As a part of that offer-in-compromise, the
Lovelands argued that their health problems and the foreclosure constituted
special circumstances that limited their ability to pay.
The collections officer rejected the offer-in-compromise. She found, on the
basis of the financial information provided, that the Lovelands could pay the full
amount and that the “special circumstances * * * [the Lovelands] raised * * * did
not warrant a decision to accept * * * [the] offer.” The Lovelands initially
appealed the decision. They also wanted to pursue an installment agreement, but
they were informed that a proposed installment agreement would not be -5-
considered if they had a pending appeal of the rejected offer-in-compromise. As a
result, the Lovelands withdrew their appeal so that they could continue
negotiations with the collections officer.
As a part of those negotiations over the installment agreement, the
Lovelands agreed to make voluntary payments of $800 each month. Mr. Loveland
believed that the agreement constituted an accepted installment agreement. The
Lovelands made at least two $800 payments.
While they were working on the installment agreement with the collections
officer, the Lovelands were also working to borrow money, secured by an
additional mortgage against a property they owned. They planned to use the
proceeds from the loan to make an $11,500 payment to bring their tax liability
below $50,000, which would qualify them for streamlined processing of their
installment agreement. They submitted a loan application on October 21, 2016.
On the same day the Commissioner filed a notice of Federal tax lien on the
property. With the Federal tax lien having been filed, the Lovelands were unable
to secure the loan and the settlement negotiations came to a halt.
The Commissioner issued a notice of Federal tax lien filing on October 25,
2016, and the Lovelands timely requested an Appeals Office hearing under section -6-
6320.1 As part of that appeal, the Lovelands requested that the lien be released
and argued that the lien “disrupted a mortgage refinance and has caused economic
hardship.”
On January 23, 2017, an Appeals officer sent the Lovelands a letter
scheduling a hearing for March 2, 2017, and informing them that, for a collection
alternative to be considered, they would need to submit a “completed Collection
Information Statement Form 433-A for individuals” as well as supporting
documents.
In response to the January 23, 2017, letter Mr. Loveland sent a letter
requesting that the Appeals officer take “a second look at * * * [the] offer in
compromise.” He attached several documents to the letter including the
completed Form 433-A (OIC), the Lovelands’ earlier letter requesting an appeal of
the previous decision to reject the offer-in-compromise, and a Form 433-D,
Installment Agreement, for $800 per month. In the letter he stated: “Paying any
amount at this time will result in economic hardship or hasten my demise.” He
called the Commissioner’s attention to his health problems and specifically asked
what would be classified as exceptional circumstances.
1 All section references are to the Internal Revenue Code in effect for all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. -7-
The Appeals officer declined to review the offer-in-compromise and the
proposed $800-per-month partial-pay installment agreement. In declining to
review either the offer-in-compromise or the proposed installment agreement, the
Appeals officer concluded that the offer-in-compromise was not properly appealed
and that the Lovelands had not submitted the necessary financial information for
the proposed partial-pay installment agreement.
Although the Appeals officer did not review the Lovelands’ partial-pay
installment agreement, she did calculate a monthly payment amount that would
allow the Lovelands to fully pay the liability in 84 months. She determined on the
basis of the amount the Lovelands owed that they would qualify for an 84-month
installment agreement of $853 per month to fully discharge the liability.
On March 2, 2017, the Appeals officer conducted a hearing over the phone
with Mr. Loveland. During the hearing the Appeals officer explained the hearing
process to Mr. Loveland and asked whether Mr. Loveland had appealed the
rejection of his offer-in-compromise. Mr. Loveland explained that he had not
appealed because he had hoped to work out an installment agreement. Mr.
Loveland informed the Appeals officer that the Lovelands had been working to
secure a loan against their property and that the filing of the notice of Federal tax -8-
lien had halted the loan application. He said that he wanted the lien removed so
that he could continue the refinancing process.
The Appeals officer rejected the Lovelands’ proposed $800-per-month
partial-pay installment agreement. There is no evidence in the administrative
record that the Appeals officer considered the financial information that the
Lovelands had provided.
On April 7, 2017, the Appeals officer closed the Lovelands’ appeal. On
April 11, 2017, a notice of determination was sent to the Lovelands informing
them of the Commissioner’s determination and their right to appeal the decision to
the Tax Court. The notice states that the Lovelands requested the withdrawal of
the lien and an installment agreement. The notice also states that the Appeals
officer did not consider their proposed installment agreement because the
Lovelands “did not provide any financial information.” Neither the notice of
determination nor the case history notes discussed Mr. Loveland’s medical
condition or the effect of his disability on the Lovelands’ ability to pay the tax
liability.
On May 11, 2017, while residing in Michigan, the Lovelands filed a petition
for redetermination of the decision to sustain the lien. In that petition the
Lovelands stated that they disagreed with the determination because it caused -9-
economic hardship, their “Due Process rights were violated”, and their “[s]pecial
circumstances [were] not truly considered.”
On January 17, 2018, the Commissioner filed a motion for summary
judgment, arguing that the Lovelands had not submitted the requested paperwork
and financial information and that it was not an abuse of discretion to refuse to
consider the offer-in-compromise or to refuse to withdraw the lien. In the motion
for summary judgment the Commissioner stated that the declaration of the
Appeals officer that conducted the hearing would be forthcoming.
Meanwhile the Court ordered the Lovelands to respond to the motion. They
submitted a response stating that they “disagree with the Commissioner and the
facts he has provided.” They argued that they did submit financial information
when they submitted the Form 433-A (OIC) and substantiating documents and that
the lien has caused economic hardship. They also cited regulations that detail
compromises to promote effective tax administration related to taxpayers with
medical conditions or disabilities that limit their ability to pay.
It wasn’t until after the Lovelands filed their response that the
Commissioner submitted the declaration of the Appeals officer. The Court
continued the case to give the Lovelands the opportunity to respond to the
declaration. -10-
In their response the Lovelands again argue that they provided financial
information. Their response included the list of documents they submitted. The
Lovelands also attached to the response copies of the Form 433-A (OIC) and the
substantiating documents as well as the rejected loan application and their 2015
Form 1040, U.S. Individual Income Tax Return.
Discussion
The question before the Court is whether the Commissioner is entitled to
summary judgment in his favor as a matter of law. To answer that, we must first
answer three questions: first, whether the Commissioner abused his discretion by
failing to consider the Lovelands’ proposed offer-in-compromise; second, whether
the Commissioner abused his discretion by failing to consider the financial
documents submitted with the Form 433-A (OIC) when considering the
Lovelands’ proposed installment agreement of $800 per month; and third, whether
the Commissioner abused his discretion when he failed to consider whether the
Lovelands’ “special circumstances” and claim of economic hardship warranted an
installment agreement or some other collection alternative as a compromise to
promote effective tax administration as described in section 301.7122-
1(c)(3)(i)(A), (B), or (C), Proced. & Admin. Regs. -11-
I. Summary Judgment
Under Rule 121(a), either party may move for summary judgment regarding
all or any part of the legal issues in controversy. The purpose of summary
judgment is to expedite litigation and avoid unnecessary and expensive trials. Fla.
Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). We may grant summary
judgment only if there is no genuine dispute as to any material fact. Rule 121(b);
Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The party moving for summary
judgment bears the burden of demonstrating that there is no genuine dispute as to
any material fact. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992),
aff’d, 17 F.3d 965 (7th Cir. 1994).
In deciding whether to grant summary judgment, the Court must consider
the factual materials and the inferences drawn from them in the light most
favorable to the nonmoving party. FPL Grp., Inc. v. Commissioner, 115 T.C. 554,
559 (2000). When a motion for summary judgment is made and properly
supported, the nonmoving party may not rest on mere allegations or denials but
must set forth specific facts showing that there is a genuine dispute for trial. Rule
121(d). -12-
II. Judicial Review of Appeals Determinations
In a CDP hearing, a taxpayer may raise any issue that is relevant to an
unpaid tax, notice of Federal tax lien, or proposed levy, including challenges to the
appropriateness of the collection action and offers of collection alternatives. Secs.
6320(c), 6330(c)(2)(A). In addition, a taxpayer may challenge the existence or
amount of the underlying tax liability if the taxpayer did not have the opportunity
to dispute the liability. Sec. 6330(c)(2)(B).
When the underlying liability is not at issue, we review the Commissioner’s
collection determination for abuse of discretion. Sego v. Commissioner, 114 T.C.
604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). In
reviewing for abuse of discretion we do not conduct an independent review of the
collection alternatives. We do not substitute our judgment for that of the
Commissioner; we only ensure that the Commissioner’s decision was not
arbitrary, capricious, or without sound basis in fact or law. See Klein v.
Commissioner, 149 T.C. __, __ (slip op. at 12) (Oct. 3, 2017); Murphy v.
Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).
Generally, the Commissioner’s determination must take three things into
consideration: (1) verification that the requirements of applicable law and
administrative procedure have been met; (2) issues raised by the taxpayer; and (3) -13-
whether any proposed collection action balances the need for efficient tax
collection with the legitimate concern of the taxpayer that any collection action be
no more intrusive than necessary. Secs. 6320(c), 6330(c)(3); Lunsford v.
Commissioner, 117 T.C. 183, 184 (2001). If the Commissioner “has not
considered all relevant factors * * * the proper course, except in rare
circumstances, is to remand * * * for additional investigation or explanation.” Fla.
Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985).
The Lovelands raised three issues. In their formal request for a hearing, the
Lovelands sought to have the lien released and to have an $800-per-month partial-
pay installment agreement considered. In his letter, Mr. Loveland requested that
the Commissioner review the offer-in-compromise and explain the term
“exceptional circumstance” with respect to offers-in-compromise. The
Commissioner did not consider the installment agreement or the offer-in-
compromise and made no mention of exceptional circumstances in the
administrative record.
A. Consideration of the Lien Release and Offer-in-Compromise
Section 7122(a) authorizes the Secretary to “compromise any civil or
criminal case arising under the internal revenue laws prior to reference to the
Department of Justice”. Section 301.7122-1, Proced. & Admin. Regs., sets out the -14-
grounds for compromise as well as the rules for evaluating proposed compromises.
The sections governing CDP hearings provide that taxpayers may offer collection
alternatives, “which may include * * * an offer-in-compromise.” Secs.
6330(c)(2)(A)(iii), 6320(c). We are faced with a unique question here: whether
negotiations with a collections officer constitute a previous administrative
proceeding under section 6330(c)(4)(A)(i) and section 301.6320-1(e)(1), Proced.
& Admin. Regs. The Lovelands made an offer-in-compromise in a separate
collection proceeding that is not before us. Then, in the CDP hearing underlying
this case, they renewed their offer-in-compromise. In response to a January 23,
2017, letter from the Commissioner, the Lovelands resubmitted their previously
rejected offer-in-compromise along with their financial information.2
Section 6330(c)(4)(A)(i) precludes an issue from being raised if “the issue
was raised and considered at a previous hearing under section 6320 or in any other
previous administrative or judicial proceeding”. But what constitutes a previous
administrative proceeding? Section 301.6320-1(e)(1), Proced. & Admin. Regs.,
states that “the taxpayer may not raise an issue that was raised and considered at a
previous CDP hearing under section 6330 or in any other previous administrative
2 Contrary to the Lovelands’ submission, the Commissioner stated that they “did not provide any financial information.” The record is clear that they did. -15-
or judicial proceeding if the taxpayer participated meaningfully in such hearing or
proceeding.” Whether a previously rejected collection alternative can be raised at
a CDP hearing does not hinge on whether the taxpayer had a prior opportunity to
challenge the rejection; it hinges on whether the rejected collection alternative was
actually considered at a previous administrative or judicial proceeding. In other
words it is not a question of whether there was a prior opportunity, but whether
there was a prior proceeding.
Unlike the standard for review of an underlying liability, which hinges on
the mere prior opportunity to challenge the liability, the standard for whether a
collection issue can be raised at a CDP hearing is whether the issue was actually
considered in a previous administrative or judicial proceeding. Sec. 301.6320-
1(e)(1), Proced. & Admin. Regs. The Lovelands had a prior opportunity for a
CDP hearing regarding their offer-in-compromise, but they never availed
themselves of that opportunity. Because they only negotiated with the collections
officer and did not have a CDP hearing regarding her rejection of their offer-in-
compromise, they never had a prior hearing. Accordingly, they may request
consideration of the same offer-in-compromise in a subsequent CDP hearing on
the same tax for the same period. -16-
The regulations under section 6320 confirm this analysis. In the question
and answer section of the regulations the Commissioner specifically contemplates
what can and cannot be raised at a CDP hearing under section 6320 when a
taxpayer has received a prior notice under section 6330 for the same period and
tax and did not request a CDP hearing regarding that notice.
Q-E7. What issues may a taxpayer raise in a CDP hearing under section 6320 if the taxpayer previously received a notice under section 6330 with respect to the same tax and tax period and did not request a CDP hearing with respect to that notice?
A-E7. The taxpayer may raise appropriate spousal defenses, challenges to the appropriateness of the NFTL filing, and offers of collection alternatives. The existence or amount of the underlying liability for any tax period specified in the CDP Notice may be challenged only if the taxpayer did not have a prior opportunity to dispute the tax liability. If the taxpayer previously received a CDP Notice under section 6330 with respect to the same tax and tax period and did not request a CDP hearing with respect to that earlier CDP Notice, the taxpayer had a prior opportunity to dispute the existence or amount of the underlying liability.
Sec. 301.6320-1(e)(3), Q&A-E7, Proced. & Admin. Regs. While this regulation is
explicit that a prior opportunity to dispute the underlying liability in a CDP
hearing precludes its consideration in a subsequent CDP hearing, the regulation is
noticeably silent as to “spousal defenses, challenges to the appropriateness of the
NFTL filing, and offers of collection alternatives.” Id. This leaves open the
opportunity for a taxpayer to raise a previously rejected collection alternative if -17-
that taxpayer did not have a CDP hearing on the issue. In failing to consider the
Lovelands’ offer-in-compromise, the Commissioner abused his discretion.
B. Consideration of the Installment Agreement
Section 6159(a) gives the Secretary discretionary authority “to enter into
written agreements with any taxpayer under which such taxpayer is allowed to
make payment on any tax in installment payments if the Secretary determines that
such agreement will facilitate full or partial collection of such liability.” The
Commissioner has the discretion to accept or reject an installment agreement
proposed by a taxpayer. See sec. 301.6159-1(c)(1)(i), Proced. & Admin. Regs.
We review the Commissioner’s rejection of an installment agreement for abuse of
discretion. See Orum v. Commissioner, 123 T.C. 1, 12-13 (2004), aff’d, 412 F.3d
819 (7th Cir. 2005). As with an offer-in-compromise, we do not conduct an
independent review of what would be an acceptable installment agreement, nor do
we substitute our judgment for that of the Appeals officer. See Murphy v.
Commissioner, 125 T.C. at 320.
The Lovelands submitted a proposal for an $800-per-month partial-pay
installment agreement in anticipation of their CDP hearing and explicitly asked the
Commissioner to consider their proposal. The Commissioner refused to review
the installment agreement proposal because the Lovelands “did not provide any -18-
financial information.” The Lovelands argue that they provided financial
information in the form of their completed Form 433-A (OIC).
We have previously held that it is not an abuse of discretion for the Appeals
officer to reject a collection alternative when the taxpayer does not provide the
financial information necessary to evaluate the merits of the collection alternative.
Chandler v. Commissioner, T.C. Memo. 2005-99, 89 T.C.M. (CCH) 1133, 1135
(2005). The Commissioner requested that the Lovelands provide a completed
Form 433-A, Collection Information Statement, to have their proposed installment
agreement considered. The question before us now is whether the Lovelands’
Form 433-A (OIC) and accompanying documents satisfied that request.
We have previously held that it is not an abuse of discretion to decline to
consider a collection alternative when the Commissioner has requested but not
received updated financial information when that information is out of date. Long
v. Commissioner, T.C. Memo. 2010-7. And Internal Revenue Manual pt.
5.8.5.3(2) (Sept. 30, 2013) states that, if financial information becomes older than
12 months and it appears that significant changes have occurred, a request for
updated information may be appropriate. But here, the administrative record does
not indicate that the Commissioner ever considered the financial information, the
age of that information, or whether significant changes had occurred. The stated -19-
reason for the Commissioner’s rejection of the Lovelands’ proposed installment
agreement was that the Lovelands did not provide financial information. But they
did. The Commissioner abused his discretion in failing to consider that
information.
C. Consideration of Economic Hardship
Throughout the negotiations within the administrative process and this
Court proceeding, the Lovelands have argued that their poor health affects their
ability to pay. While the Lovelands did not raise the issue of a compromise using
the words “effective tax administration” until this Court proceeding, they argued
that collection of the full liability would cause economic hardship. In their
attachments to the offer-in-compromise the Lovelands explicitly argued that
paying the liability in full would cause economic hardship.
There is no evidence in the record showing that the Commissioner
considered the Lovelands’ claim of economic hardship or whether a compromise
to promote effective tax administration was appropriate. While the Commissioner
noted the Lovelands’ economic hardship argument in the administrative record
and the notice of determination, he never evaluated that claim.
It is an abuse of discretion for the Commissioner to neglect to consider all
of the issues raised by a taxpayer. Secs. 6320(c), 6330(c)(3). The Lovelands -20-
explicitly raised the issue of economic hardship, and the Commissioner abused his
discretion in failing to consider it.
Conclusion
On the basis of the administrative record, the Commissioner abused his
discretion when he refused to consider the Lovelands’ offer-in-compromise,
refused to consider their installment agreement, and refused to consider whether
full payment of the liability would cause economic hardship. We will remand this
case to the Appeals Office for further consideration consistent with this Opinion.
An appropriate order will be issued.