Tuesday, December 30, 2008

Favorable Innocent Spouse case under section 615 of the Code. A widowed taxpayer was entitled to equitable innocent spouse equitable relief under Code Sec. 6015(f) with respect to two tax years, but not for two other years. Since the taxpayer knew or had reason to know that the tax liabilities for two tax years were unpaid, the court applied the list of factors contained in Section 4.03 of Rev. Proc. 2003-61, 2003-2 C.B. 296, to determine whether equitable relief was appropriate.

Factors favoring equitable relief included: (1) the taxpayer's single status at the time relief was requested; (2) that economic hardship would be caused by payment of the outstanding tax liability as evidenced by her modest income and overall precarious financial circumstances; (3) she received no significant benefit from the unpaid taxes; (4) all tax returns due after her husband's death were filed and the related taxes paid; and (5) the taxpayer's mental health was under great strain while caring for her dying husband.

Moreover, certain other factors also favored equitable relief. The taxpayer appeared to have paid an unnecessary 10 percent penalty for an early distribution from her husband's retirement account made during her husband's illness. The distribution should have been penalty-free due to her husband's medical condition. Furthermore, it appeared that the taxpayer failed to itemize deductions for her husband's medical expenses. The unnecessary taxes paid would have offset or nearly offset one year's tax liability for which equitable relief was sought.
Finally, the taxpayer's good faith effort to resolve the issue was demonstrated by the fact that she had already paid more than $35,000 in installment payments over an eight-year period that represented approximately 75 percent of all unpaid tax liabilities for the 1992 through 2000 tax years. Back reference: 2008FED ¶35,192.25.
Cynthia M. Martinez v. Commissioner. Docket No. 12652-06S . Filed December 29, 2008.
A widowed taxpayer was entitled to equitable innocent spouse equitable relief under Code Sec. 6015(f) with respect to two tax years. Factors favoring equitable relief included: (1) the taxpayer's single status at the time relief was requested; (2) that economic hardship would be caused by payment of the outstanding tax liability as evidenced by financial statements provided to the IRS; (3) no significant benefit resulted from the unpaid taxes; (4) all tax returns due since her husband's death were filed along with the required tax payments; and (5) the taxpayer's mental health was under great strain while caring for her dying husband. In addition, the taxpayer may have unnecessarily overpaid her taxes by failing to itemize medical expenses and by paying an unnecessary penalty for a distribution from her husband's retirement account. The taxpayer also made a good-faith effort to pay her back taxes through installment payments over an eight-year period. Equitable relief was not available for two other tax years because the unpaid tax liability for those years was entirely attributable to her own wages. --CCH.

GOLDBERG, Special Trial Judge: This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time the petition was filed. Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. Unless otherwise indicated, subsequent section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Respondent issued a notice of determination dated May 4, 2006, denying petitioner's request for innocent spouse relief from joint and several liability for 1992, 1995, 1998, and 1999, which as of April 17, 2007, had remaining balances due of $7,038, $1,914, $4,882, and $5,965, respectively, for a total of $19,799. The issue for decision is whether petitioner is entitled to innocent spouse relief for any or all of the years at issue.

Some of the facts have been stipulated and are so found. The stipulations of facts and the attached exhibits are incorporated herein by this reference. Petitioner resided in California when she filed her petition.

Petitioner married Frank Martinez in 1971 when they were both young, and they remained loving partners until his death 30 years later on April 2, 2001, at age 47. Mr. Martinez died after struggling since 1985 with worsening pancreatic problems, which compounded quickly with diabetes and then diabetes II. Later, doctors discovered a hole in his colon. These deteriorating conditions required frequent doctor's care, hospital stays, many operations, removal of two-thirds of his colon, four shots per day of insulin, and spending every night at home pumping fluids out of his body. Petitioner nursed him at home. The medical problems remained unanswerable, and despite everyone's efforts, Mr. Martinez died, as noted above, on April 2, 2001. 1

Mr. Martinez started out serving in the U.S. Air Force for 8 years. After an honorable discharge he eventually secured a job as a telephone service representative for Pacific Bell, a telephone company. He worked there from 1981 until July 28, 1995, when he had to stop working because of his declining health.

Petitioner has 13 years of education. She at first stayed at home as a housewife raising their two children, and then she worked in different jobs: Marketing, graphic artist, and later as a secretary for Ingersoll Dresser Pump Co., which was her employer during the years at issue.

The Martinezes' financial arrangement was that their bank account was in petitioner's name, but Mr. Martinez decided which bills to pay and when to pay them. The record is not clear as to whether Mr. Martinez had signatory authority over the account. Petitioner did not review the monthly bank statements, did not balance the checkbook, and did not pick up or open the mail. Regarding their tax returns, Mr. Martinez would show her a preliminary draft, then had her sign a blank original so that he could complete and mail the return.

Before the years at issue the Martinezes had a balance due for their Federal income tax for 1988, 3 years after the medical problems began. The Internal Revenue Service (IRS) collected the unpaid balance by means of a levy in 1994. At trial petitioner acknowledged that she was aware of the 1994 levy, but thought that Mr. Martinez went back to paying the balance due on the income tax returns that they filed afterwards.

The couple's tax problems began in earnest in 1991. By then Mr. Martinez's health had been deteriorating significantly for about 6 years to the point where he was in and out of work frequently for short-and long-term disability to take care of his medical problems. Below is a table showing for the years at issue the balances due, attribution, and other pertinent information:
IRS Balance Applic. Balance Bal. Due On Of Date IRS Attrib. Pet.'s Due Received Tax To As Of Year Return Return Petitioner Payments 4/17/07 1992 11/4/98 $3,054 $1,680 $3,207 $7,038 1995 11/4/98 6,851 4,316 11,666 1,914 1998 4/15/99 2,822 12,794 775 4,882 1999 9/22/00 2,650 2,645 -0- 5,965 Total 15,377 11,435 15,648 19,799 1Of the couple's 1999 adjusted gross income of $37,611, only $71 of dividend income, or less than 1 percent, was attributable to Mr. Martinez. The record is silent on attribution for 1998, but because Mr. Martinez had been drawing down his investments and retirement funds since he stopped working in 1995, we estimate that he had a small investment residual in 1998 that continued shrinking into 1999. As a consequence, we find petitioner was 99 percent liable for the 1998 liability and 100 percent for the 1999 liability.

In 1992 petitioner and Mr. Martinez earned equivalent wages, had equivalent withholdings, earned $4,967 in investment income, and withdrew $485 from petitioner's retirement fund. The draw of retirement funds at her age, late thirties, is an indication of the Martinezes' worsening financial condition. Petitioner was 55 percent responsible for the 1992 underpayment.

By 1995 the Martinezes were experiencing significant troubles. In July of 1995 Mr. Martinez, at only age 41, had to stop working because of his health problems, and he was never able to return. Their two children were still dependents. To make ends meet, the Martinezes withdrew $21,809 from their retirement plans: $18,840 from Mr. Martinez's plan and $2,969 from petitioner's plan. In calculating their tax liability for 1995 their preparer properly included the withdrawals in the Martinezes' gross income. The preparer also reported a 10-percent additional tax of $2,181 for premature distributions from retirement plans: $1,884 attributable to Mr. Martinez, and $297 attributable to petitioner.

The IRS mistakenly attributed only 8 percent responsibility to petitioner for the 1995 underpayment because the IRS failed to give Mr. Martinez credit for the 20 percent withholding on his retirement plan withdrawal. After crediting Mr. Martinez with the proper withholdings, the correct attribution to petitioner is 63 percent. The reason for petitioner's higher percentage is that although she and Mr. Martinez had similar amounts of taxes withheld from their wages, she earned about twice as much pay because Mr. Martinez stopped working around mid-1995.

In 1996 the Martinezes moved from southern to northern California where they hoped they could live a less stressful life. They had read that adrenalin in the fight-or-flight response to stress worsened diabetes. Mr. Martinez told petitioner he was going to transfer to a Pacific Bell office up north, but he had in fact already stopped working on July 28, 1995. He hid this fact from petitioner.

Shortly after the move in 1996 petitioner learned that Mr. Martinez had not filed their 1992 and 1995 tax returns. To prepare their delinquent returns the Martinezes engaged a regional law firm that specialized in taxes. After 2 years the law firm completed the returns and dated its preparer signature October 19, 1998. The Martinezes dated their signatures October 30, 1998, and they promptly filed the returns such that respondent recorded receiving the returns on November 4, 1998.

Regarding the final 2 years at issue, 99 percent of the 1998 underpayment and 100 percent of the 1999 underpayment were attributable to petitioner, except for some minor interest income, as her job was the couple's only source of income. In 1998 petitioner's withholdings of $212 were less than 1 percent of her earnings, and in 1999 her withholdings were less than 3 percent of her earnings.

For all 4 years at issue, 1992, 1995, 1998, and 1999, the Martinezes claimed the standard deduction and accordingly did not itemize their deductible expenses.

By the end of 1998 or 1999, the couple had no financial resources other than petitioner's paycheck. Mr. Martinez had stopped working in 1995, and they had exhausted their retirement accounts and emptied their after-tax investments and savings. On petitioner's salary in the low-to mid-thirty thousands, they lived in California, a high cost-of-living State, and had to contend with medical bills while Mr. Martinez was in and out of doctors' offices and hospitals. Petitioner later discovered that because of pride, or financial concern, or the mental effect of diabetes, Mr. Martinez was not filling some of his prescriptions, was ignoring certain medical devices, and was not requesting medical reimbursements. Petitioner stated that if Mr. Martinez had purchased better medicines and better equipment and sought health care reimbursements, they might have lessened some of their problems.

Sometime in 1999 or 2000 petitioner found Mr. Martinez at home, unconscious, in a coma. Paramedics rushed him to a hospital. He revived but felt numbness in his feet. He died, as noted above, on April 2, 2001.

Shortly before Mr. Martinez's death, while she was looking for medical supplies, petitioner discovered shoe boxes full of unopened letters from the IRS and tax returns that she had signed but Mr. Martinez had not mailed. Petitioner reengaged the same law firm that had prepared the prior delinquent returns to resolve the matter. The firm determined that the Martinezes had outstanding balances for each of the 8 years 1992 to 2000, except for 1996 where they had a refund due. The total amount due, including additions, was $48,684. On behalf of the Martinezes the law firm prepared an offer-in-compromise, offering $1,000 to settle the entire debt. The firm submitted the offer to the IRS during the summer of 2001 after Mr. Martinez's death in April 2001.

By February 2002 for unclear reasons but perhaps because the IRS indicated that it was going to reject the offer, petitioner notified the law firm that she had decided to enter into an installment agreement with the IRS instead of pursuing the offer-in-compromise. Petitioner signed a Form 433-D, Installment Agreement, dated it March 27, 2002, and agreed to pay $775 per month to resolve the entire accumulated debt of $48,684 for 1992 through 2000.

Petitioner began making the installment payments in May 2002. Although the record is not entirely clear, it appears that she kept making the monthly payments until November 2005 and then made about four additional monthly payments of $775 in 2006 (February through May 2006). Petitioner stopped making payments in 2005 because the IRS stopped sending her monthly payment coupons. In total petitioner paid approximately $35,650 in installment payments ($775 times 46 months). The IRS applied the couple's 1996 refund to the 1993 underpayment. The record is silent on the amount of that refund.

Petitioner's payments of approximately $35,650 represent 73 percent of the entire $48,684 debt. The IRS applied the installment payments in a seemingly haphazard manner, extinguishing in full the balances owing on 1993, 1994, 1997, and 2000 while leaving balances due on 1992, 1995, 1998, and 1999.

In July 2002 the IRS sent a Final Notice, IRS Intent to Levy, for 1994 despite, as noted above, having entered into an installment contract just a few months earlier and where petitioner was complying with the payment arrangement. Similarly, in a letter dated April 7, 2004, the IRS requested that petitioner execute a new installment agreement solely for the year 2000 even though petitioner was still performing under the existing installment agreement that included the year 2000.

To help prepare her 2004 tax return in early 2005 petitioner retained a national tax preparation firm, which, when reviewing her records, questioned her regarding the installment payments. After a discussion the firm suggested that she apply to the IRS for innocent spouse relief, which she did around August 2005 for years 1992, 1995, 1998, 1999, and 2000. Petitioner's application included a Form 12510, Questionnaire for Requesting Spouse. The form includes a worksheet for monthly income and expenses, upon which petitioner reported a monthly net income of $2,636 and expenses of $2,480 (including the $775 monthly installment payment to the IRS) for a surplus of $156 per month. In a letter dated December 13, 2005, the IRS compliance division formally denied petitioner's request for innocent spouse relief.

Petitioner timely appealed the denial to the IRS's Office of Appeals. The Appeals officer determined that petitioner was in tax compliance and that petitioner satisfied the IRS threshold requirements for relief on the portion of the liability attributable to her deceased husband. However, the Appeals officer rejected petitioner's request for relief because of the following factors: (1) Reason to know: petitioner did not meet her duty of inquiry because the checking account was in her name, and as noted above, petitioner should have been on alert after a 1994 levy paid off their 1988 tax debt; (2) attribution: in 1999 and 2000 nearly all or all of the underpayments were attributable to petitioner's earnings (the 1998 return was not available, and therefore the officer did not base the decision for 1998 on attribution); (3) economic hardship: paying the debt would not cause petitioner economic hardship because the $156 monthly surplus that petitioner reported on Form 12510 in August 2005 already included a provision of $775 for the monthly repayment of back taxes; (4) Mr. Martinez did not abuse petitioner; and (5) petitioner had no health problems. The officer did not take into account or did not find relevant the total amount of money and the percentage of the overall income tax debt that petitioner had paid through installment payments. The Appeals officer also did not talk with petitioner, although the officer did send a preliminary notice of determination to which petitioner never responded.

The IRS sent a notice of determination dated May 4, 2006, to petitioner formally denying innocent spouse relief for all remaining open years: 1992, 1995, 1998, and 1999. The IRS had been applying most of petitioner's final installment payments during 2005 and 2006 to year 2000 such that by the time of the IRS's notice, year 2000 had a zero balance.

Petitioner received no money or property from her deceased husband's estate. Petitioner moved to Southern California, and doing so was expensive. Petitioner received a small death benefit resulting from the death of her first husband; however, she spent the sum on transporting his body to Southern California and on funeral expenses.

The record does not indicate that the parties conducted a pretrial settlement conference. At trial a little more than 2 years after her initial submission of Form 12510, petitioner presented a new Form 12510 that showed a monthly cashflow shortfall of $322, based on net income of $2,448 and monthly expenses of $2,770. The expenses did not include a provision for the repayment of outstanding taxes. Petitioner remarried on November 7, 2006. Petitioner's worsened financial condition is due to the financial arrangement that she has with her new husband. He has limited income from which he pays the mortgage (the home is solely in his name), and he pays for child support for his child from a prior relationship. She pays the rest of their expenses, including food, utilities, telephone, insurance, and his car payment. She owns a 1992 Honda; however, she drives his car to work because it is newer and more reliable. Petitioner's employer is downsizing, and to retain her job, she drives a long, expensive commute to a new location.
I. Overarching Considerations
A. Joint and Several Liability

When two individuals file a joint Federal income tax return, they are each responsible for the accuracy of the return and both are liable together and separately for the entire tax liability. Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000); sec. 1.6013-4(b), Income Tax Regs.

B. Section 6015(f) Equitable Relief

Section 6015 provides relief from joint and several liability in certain circumstances. As relevant here, if the taxpayer does not qualify for relief under section 6015(b) or (c), then the taxpayer may seek an equitable remedy under section 6015(f), which provides relief if, after taking into account all the facts and circumstances, it would be inequitable to hold the taxpayer liable for the unpaid tax or any portion thereof. Sec. 6015(f)(2); Butler v. Commissioner, supra at 287-292. Petitioner does not qualify for relief under section 6015(b) or (c) because the joint tax returns reported the full amount of tax due, and therefore the liabilities are due to underpayment of tax, and not deficiencies. Accordingly, petitioner's sole avenue of relief is through section 6015(f).

C. Jurisdiction

In 2006 Congress amended section 6015(e) to expressly grant the Tax Court jurisdiction over the Commissioner's denial of relief under section 6015(f) "'with respect to liability for taxes arising or remaining unpaid on or after the date of the enactment of this Act [December 20, 2006]'." Christensen v. Commissioner, 523 F.3d 957, 959 (9th Cir. 2008) (quoting Tax Relief and Health Care Act of 2006, Pub. L. 109-432, div. C., sec. 408(c), 120 Stat. 3062), affg. T.C. Memo. 2005-299. Petitioner's liabilities remain unpaid after December 20, 2006, and accordingly, we have jurisdiction.

D. Standard of Review

Respondent requested in his pretrial memorandum that we limit our review to the administrative file. In the past, we applied abuse of discretion as the standard of review for the Commissioner's denial of equitable relief under section 6015(f). See Washington v. Commissioner, 120 T.C. 137, 146 (2003); Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th Cir. 2002). However, in a recent case we focused specifically on this issue, and we ruled that when seeking section 6015(f) relief, it is permissible for a taxpayer to introduce evidence at trial that was not in the administrative record. Porter v. Commissioner, 130 T.C. ___ (2008). Further, we need not decide the standard of review because we would reach the same result.

E. Burden of Proof

To gain joint and several liability relief under section 6015(f), the taxpayer bears the burden of proof. Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).
II. Applying the Law to the Facts and Circumstances of Petitioner's Case
The Commissioner has promulgated a review process that IRS employees should follow when determining whether a spouse qualifies for equitable relief under section 6015(f). Rev. Proc. 2003-61, 2003-2 C.B. 296, modifying and superseding Rev. Proc. 2000-15, 2000-1 C.B. 447. 2 This Court employs those factors when reviewing the Commissioner's denials. Washington v. Commissioner, supra at 147-152.

A. Rev. Proc. 2003-61, Sec. 4.01 --Threshold Criteria for Granting Relief

The review process begins with seven threshold criteria that a taxpayer must satisfy before the Commissioner will consider equitable relief. Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297. The Court will not address the criteria for 1992 and 1995 because the Court agrees with respondent's determination that petitioner has met the threshold requirements on the portion of the liability that is attributable to her deceased husband.

The Court agrees further that on the basis of the attribution factor of Rev. Proc. 2003-61, sec. 4.01(7), respondent will not consider relief for 1999 because at the threshold, nearly all or all of the unpaid balance is attributable to petitioner. We reach the same conclusion for 1998. We note for completeness the importance of the attribution criterion. One of the changes that the Commissioner made in revising the revenue procedure from 2000 to 2003 was to move up the attribution factor from being one of many considerations to being a threshold factor. Compare Rev. Proc. 2003-61, sec. 3.01, 2003-2 C.B. at 297 with Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 449. Accordingly, petitioner's request for relief from joint and several liability for 1998 and 1999 is not appropriate because the liability is her own.

B. Rev. Proc. 2003-61, Sec. 4.02 --Circumstances Under Which the IRS Will Ordinarily Grant Relief

Where a requesting spouse has satisfied the threshold requirements of Rev. Proc. 2003-61, sec. 4.01, the Commissioner will ordinarily grant equitable relief under section 6015(f) if the requesting spouse's circumstances satisfy all three elements of Rev. Proc. 2003-61, sec. 4.02, 2003-2 C.B. at 298: (1) Marital status, (2) knowledge or reason to know, and (3) economic hardship.

Petitioner satisfies the first element because Mr. Martinez's death in April 2001 was before her application for relief in August 2005. Regarding the second and third elements, knowledge or reason to know and hardship, Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at 298, incorporates those two elements as part of its analysis. Because petitioner does not satisfy at least one of the tests, to reduce redundancy we reserve our discussion of the two elements until the section immediately below.

C. Rev. Proc. 2003-61, Sec. 4.03 --Factors for Determining Whether To Grant Equitable Relief

For requesting spouses who fail to qualify under Rev. Proc. 2003-61, sec. 4.02, the revenue procedure provides a list of nonexclusive factors that the Commissioner will consider to determine whether to grant full or partial equitable relief under section 6015(f). Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at 298. The revenue procedure provides further that no single factor is determinative, and the reviewer shall weigh all relevant factors, regardless of whether Rev. Proc. 2003-61, sec. 4.03, lists the factor.

1. Marital Status

Mr. Martinez died in April 2001, before petitioner requested relief in August 2005. Thus, this factor favors relief.

2. Economic Hardship

The Commissioner determines economic hardship relying on rules that the Secretary promulgated in section 301.6343-1(b)(4), Proced. & Admin. Regs. Rev. Proc. 2003-61, sec. 4.03(2)(a)(ii) (referencing Rev. Proc.2003-61, sec. 402(1)(c)). The regulation defines economic hardship as the condition where a taxpayer is "unable to pay his or her reasonable basic living expenses". Sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs. In determining a reasonable amount for basic living expenses, the Commissioner shall consider information such as: (1) The taxpayer's age, employment status, history, and ability to earn; (2) the amount reasonably necessary for living expenses such as food, clothing, housing, medical expenses, insurances, tax payments, and child support; (3) the cost of living in the geographic area in which the taxpayer resides; and (4) any extraordinary circumstances such as a medical catastrophe. Sec. 301.6343-1(b)(4)(ii), Proced. & Admin Regs. The requesting spouse bears the burden of proving economic hardship. Monsour v. Commissioner, T.C. Memo. 2004-190.

In determining that petitioner would not suffer economic hardship from denial of relief, the Appeals officer properly relied on the Form 12510 that petitioner filed with her August 2005 request for relief, where petitioner self-reported monthly income of $2,636 and expenses of $2,480 which included a provision of $775 per month to pay the back taxes, for a monthly surplus of $156 in her basic living expenses. Petitioner subsequently corroborated respondent's determination by: (1) Stating that the main reason she stopped making installment payments in November 2005 was that the IRS stopped sending her payment coupons, not that she was suffering from financial need, and (2) recommencing the payments in 2006 and paying the IRS $775 per month from February through May 2006.

Normally our analysis of the economic hardship factor would end at this point with an affirmation of the Appeals officer's determination. However, section 6015(f) requires that we take into account "all the facts and circumstances". At trial in October 2007 more than 2 years after petitioner submitted the original Form 12510 in August 2005, petitioner provided a new Form 12510 that showed monthly income of $2,448 and expenses of $2,770, for a monthly deficit of $322. The expenses do not include a provision for payment of back taxes or for housing. Petitioner did not explain why her net income decreased by $188 per month, and respondent challenged the accuracy of the expense amounts that petitioner reported.

We are not required to accept a taxpayer's self-serving and unsubstantiated statements at trial. Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). However, we do find credible that petitioner, whose lifestyle was already modest, did suffer a diminution in her financial circumstances. We note that she received no assets as a result of the death of Mr. Martinez, she incurred expenses to relocate to Southern California, she lives in an expensive State in a home that she does not own, and she drives and pays for an automobile that is also not her own. The car that she does own is 16 years old. She emptied her after-tax and retirement savings to provide for her children and to care for her dying husband. Her new husband has modest income and pays court-ordered child support.

Further, petitioner is now in her mid-fifties, has 13 years of education, works as a secretary, and earns in the mid-thirty thousands from a company that is downsizing and requires a long, expensive commute. Her combination of age, education, and work situation suggests limited earnings prospects. Moreover, if petitioner had to pay for housing or buy a new car, or if the couple suffered a significant financial or medical setback, then they or petitioner would be hard pressed to pay for their basic living expenses.

On similar grounds in Washington v. Commissioner, 120 T.C. at 150, we disagreed with the Commissioner and found that the requesting spouse would suffer economic hardship if we did not grant her relief. Although the taxpayer was supporting two children and earned less than petitioner here, the requesting spouse's financial circumstances were similar in that she received no assets from the marriage, did not own a house, did not take vacations, and did not own the automobile she drove, and the IRS liens harmed her credit rating and limited her ability to borrow. Id.

We will not go as far here as we did in Washington to disagree with respondent because petitioner no longer has dependent children, her income is higher than that of the taxpayer in Washington, and petitioner did not substantiate her expenses. However, even without precise numbers detailing the family's or petitioner's current financial condition, we find that petitioner is in a precarious financial circumstance: Living paycheck to paycheck, maintaining a low standard of living, and having no significant savings or other financial cushion. For the foregoing reasons, we find the economic hardship factor is neutral.

3. Knowledge or Reason To Know

Respondent contends that petitioner fails this test because she knew or had reason to know at the time she signed the returns that Mr. Martinez would not pay the 1992 and 1995 tax liabilities. In a case such as this where the couple accurately reported but did not pay the balances due, the relevant standard is whether the taxpayer requesting relief did not know and had no reason to know that her spouse would not pay the income tax liability. Rev. Proc. 2003-61, sec. 4.03(2)(a)(iii)(A); see Washington v. Commissioner, supra at 150-151; see also Feldman v. Commissioner, T.C. Memo. 2003-201, affd. 152 Fed. Appx. 622 (9th Cir. 2005). As is pertinent here, in making a determination whether the requesting spouse had reason to know of the nonpayment, the IRS will consider the requesting spouse's level of education, any deceit or evasiveness of the nonrequesting spouse, the requesting spouse's involvement in household financial matters, and any lavish or unusual expenditures compared with past spending levels. Rev. Proc. 2003-61, sec. 4.03(2)(a)(iii)(C); see also Price v. Commissioner, 887 F.2d 959, 965 (9th Cir. 1989) (specifying the factors).

To establish that she had no reason to know, the alleged innocent spouse must establish that: (1) When she signed the return, she had no knowledge or reason to know that her spouse would not pay the tax reported on the return; and (2) it was reasonable for her to believe that the nonrequesting spouse would pay the tax shown as due. Collier v. Commissioner, T.C. Memo. 2002-144.

In making his determination to deny relief to petitioner, respondent noted that: (1) The family's sole checking account was in petitioner's name; (2) the IRS collected a 1988 tax debt in 1994 through a levy; and (3) after engaging a law firm to prepare the returns, petitioner signed the 1992 and 1995 returns in October 1998 with the returns showing balances due. Petitioner on the other hand argues that Mr. Martinez handled the family's finances and that he was not forthcoming with her. For example, he did not tell her he had quit his job, he did not seek reimbursement for medical expenses, and he hid from her correspondence from the IRS. She said that she thought the checking account had sufficient funds and that he would pay the balances due. She added that she believes diabetes contributed to his mental state.

Because we find that petitioner is a smart and responsible person, and given her situation, we find that her lack of knowledge is improbable. We believe that sometime after Mr. Martinez became ill in 1985, she assumed sufficient responsibility over their delinquent tax filings so as to encourage seeking help from a law firm, which they did in 1996. We find that Mr. Martinez lack of a separate or joint bank account suggests a certain degree of evasiveness on his part, and his deteriorating medical condition probably required her greater involvement in the household finances. In this regard, the awareness petitioner gained from the 1994 tax levy is significant. If simple compliance was the only objective, an ordinary tax preparation firm would have sufficed. We suspect that they specifically sought a law firm because petitioner knew that they had unfiled returns and unpaid balances from 1992 to 1995, and she wanted legal advice on how best to resolve the situation.

Even if we were to assume that petitioner was unaware until October 1998, by the time she or they sat down in the law firm's conference room and the attorney presented them with up to five delinquent returns (1992 to 1997) with four showing a balance due (1996 showed a refund), we find it is likely that petitioner and Mr. Martinez had had several conversations discussing how they would pay the balances due that then aggregated to several thousands of dollars. Moreover, even if the above speculation is wrong and petitioner was still unaware, we find that it strains credibility to believe that, at the time petitioner signed the 1992 and 1995 returns on October 30, 1998, she did not know that the returns would not include payment checks. The checking account was solely in her name. Given all the opportunities that petitioner had to discover the problem, if she was still unaware, then we would have to apply our consistent holding that Congress designed the provisions for relief from joint and several liability "'to protect the innocent, not the intentionally ignorant'". Morello v. Commissioner, T.C. Memo. 2004-181 (quoting Dickey v. Commissioner, T.C. Memo. 1985-478).

One last comment on petitioner's knowledge. The main reason for the balances due for 1992 to 2000 was that petitioner had her employer withhold too little tax from her paycheck. To cause this result petitioner must have claimed too many withholding allowances at work. We speculate that petitioner maintained this situation year after year because it helped pay her family's daily living expenses, especially after Mr. Martinez stopped working. Significantly, only petitioner, and not Mr. Martinez, could have filed the withholding certificate with her employer.

For all the foregoing reasons, we find that petitioner knew or had reason to know that she and Mr. Martinez would not pay the balances due when they filed the 1992 and 1995 tax returns. In summary, this test strongly disfavors relief.

Regarding the significance of this factor, the prior revenue procedure stated that the knowledge factor was "an extremely strong factor" in determining whether to grant relief. Rev. Proc. 2000-15, sec. 4.03(2)(b), 2000-1 at 449. However, in promulgating the new revenue procedure the Commissioner explicitly downgraded the factor's significance to one of the many criteria where "No single factor [is] determinative of whether to grant equitable relief in any particular case." Rev. Proc. 2003-61, secs. 3.03, 4.03, 2003-2 C.B. 297-298. Even under the former, stronger weighting, we have granted relief where we found that "'the factors in favor of equitable relief are unusually strong, it may be appropriate to grant relief under section 6015(f) in limited situations where the requesting spouse knew or had reason to know that the liability would not be paid'". Washington v. Commissioner, 120 T.C. at 151.

4. Legal Obligation

This factor comes into effect only when "the nonrequesting spouse has a legal obligation to pay the outstanding income tax liability pursuant to a divorce decree or agreement." Rev. Proc. 2003-61, sec. 4.03(2)(iv). This factor is inapplicable because the Martinezes did not divorce.

5. Significant Benefit

In Washington v. Commissioner, supra at 151-152, we held that the requesting spouse did not significantly benefit from the unpaid taxes because during and after the marriage she did not receive expensive jewelry, drive a luxurious car, wear designer clothes, take expensive vacations, own a home, receive assets from the marriage, or own the automobile that she drove.

Petitioner suffered from a similar lack of benefits. During and after the marriage she did not receive jewelry, luxury cars, or designer clothes. She did not receive and does not own a home, and does not own the car she drives. Further, she drained her savings and retirement assets trying to support her family and help her dying husband, and she incurred costs in moving to Southern California after his death. We hold this factor significantly favors relief.

6. Compliance With Federal Tax Laws

With respect to compliance with Federal tax laws, the Martinezes filed their 1988 return on time, but respondent stated they filed their 1999 return "a few months late" (in September 2000 with no information on extensions). However, since Mr. Martinez's death, the Appeals officer noted that petitioner has been in compliance. This factor is neutral or in favor of relief.

7. Abuse

Because we find that petitioner was not abused, this factor is neutral.

8. Mental or Physical Health

We believe petitioner was under great mental strain dealing with her long-suffering and dying husband while supporting her family solely on her modest wages. This factor strongly favors relief.

9. Other Factors

Rev. Proc. 2003-61, sec. 4.03(2), states that the Commissioner will "consider and weigh all relevant factors, regardless of whether the factor is listed in this section 4.03." We find four additional factors merit consideration.

First, with respect to the 1995 tax return, on the basis of the requirement of section 72(t)(1), petitioner's attorney included a 10-percent additional tax of $2,181 because of the Martinezes' premature retirement plan distributions totaling $21,809. Mr. Martinez's withdrawal of $18,840 accounted for $1,884 of the additional tax. The record does not indicate that petitioner, her attorney, or respondent considered section 72(t)(2)(A)(iii), which provides an exception to the additional tax if the distribution was attributable to the employee's being disabled within the meaning of section 72(m)(7). Section 72(m)(7) provides that "an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determined physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration." See sec. 1.72-17(f)(1), Income Tax Regs.; see also Dwyer v. Commissioner, 106 T.C. 337, 340 (1996). Because Mr. Martinez stopped working permanently in 1995 and because his illness was progressively degenerative and ultimately resulted in his death, he was a good candidate for section 72(t)(2)(A)(iii) relief. Consequently, if one were to reduce the original 1995 balance due by $1,884 to remove the 10-percent additional tax attributable to Mr. Martinez and remove the related accumulation of interest and the other additions to tax (for late filing and late payment), the result would be that respondent's application of petitioner's payments would have paid the entire remaining liability for 1995.

Likewise, we consider the possibility that in the years after Mr. Martinez stopped working in 1995 and until his death in 2001 the couple might have been able to reduce their balances due by itemizing their deductions instead of claiming the standard deduction. We observe that because Mr. Martinez likely had high medical expenses as a result of his illness, and the couple's income was low because petitioner's earnings were their only income, they might have qualified for a medical expense deduction. We do not know whether they owned a home for which they paid mortgage interest and property taxes. Our point in analyzing the possible itemized deductions and the exception to the 10-percent additional tax is that we need to consider that the liabilities may have been higher than necessary; i.e., that there was doubt as to liability.

The second supplemental consideration is petitioner's installment payments. Petitioner has paid $35,650 or 73 percent of the entire liability for 1992 through 2000, which includes a portion that was attributable to her deceased husband. We suspect that in 2001, when petitioner first proposed an offer-in-compromise for $1,000, respondent would have accepted an offer-in-compromise or other collection alternative that would yield 73 cents on the dollar, especially considering Mr. Martinez's then-recent death in April 2001. Additionally, by paying 73 percent petitioner has already paid an amount that in one analytical sense, reimburses the Treasury in full for the unpaid taxes and the interest. In other words, from one viewpoint, the Government has received back its entire principal and the time value of money for all years 1992-2000. This factor is not dispositive, but it indicates petitioner's good faith effort to resolve the problem.

We noted earlier that respondent's application of payments seems haphazard. Because petitioner's payments under the installment agreement were voluntary, she had the right to direct the application as she chose. See Muntwyler v. United States, 703 F.2d 1030, 1032 (7th Cir. 1983). However, because petitioner did not instruct the IRS where to apply her payments, the option is moot now because "'In the absence of a designation, it is well settled that the IRS enjoys the right to apply payments in the manner it chooses.'" Isley v. United States, 272 Fed. Appx. 640, 641 (9th Cir. 2008) (quoting United States v. Plummer 174 Bankr. 284, 286 (Bankr. C.D. Cal. 1992)).

Nonetheless, in reexamining the table supra page 5, we note that even accepting respondent's application as given, petitioner has paid more than her share of the liabilities for 1992 and 1995. Further, if one were to double petitioner's share as an approximation to incorporate additions to tax and accrued interest, the table still would show that petitioner is within $153 of fully paying the doubled amount for 1992 and has overpaid for 1995. 3

The third additional factor is that the 1992 and 1995 liabilities are old, particularly the 1992 liability, where the IRS has strangely applied less of the payments. We would be remiss in an equity situation not to point out that the debt has already aged 16 years and is imposed on a widow and petitioner has made a good faith effort to repay the obligation.

Fourth, a review of the conference report accompanying the enactment of section 6015 shows that the conferees agreed to include the provision in the House bill "expanding the circumstances in which innocent spouse relief is available" and that Congress enacted section 6015 as part of the broader Title III, "Taxpayer Protection and Rights". H. Conf. Rept. 105-599, at 238, 249 (1998), 1998-3 C.B. 747, 992, 1005. Thus, to the extent the legislative history is significant here, we find that the history favors an expansive interpretation of relief.

For the foregoing reasons, the other factors strongly favor relief.

D. Summary of the Factors

To aid the reader we summarize below the results of the above analysis:

1. Marital status --favors relief.

2. Economic hardship --neutral.

3. Knowledge or reason to know --strongly disfavors relief.

4. Legal obligation --inapplicable or neutral.

5. Significant benefit --significantly favors relief.

6. Compliance with Federal tax laws --neutral or favors relief.

7. Abuse --neutral

8. Mental health --strongly favors relief

9. Other factors --strongly favor relief.

Accordingly, one factor strongly disfavor relief, three or four are neutral, and four or five favor or strongly favor relief. "No single factor [is] determinative of whether to grant equitable relief in any particular case." Rev. Proc. 2003-61, sec. 4.03.

This case is admittedly a close call. In favor of denying relief, more than half of the couple's unpaid balances in 1992 and 1995 were attributable to petitioner's underwithholdings. Also, after experiencing the 1994 levy petitioner knew, or had reason to know there was a problem at the time of engaging a law firm in 1996, or she knew or had reason to know that Mr. Martinez was not going to pay the balances due for the 1992 and 1995 returns at the time she signed the returns on October 30, 1998. The checking account was in her name. Further, petitioner has not met her burden of proving that a denial of relief will cause her to suffer economic hardship.

In favor of granting relief, we are particularly compelled by the following factors. Petitioner remained loyal to Mr. Martinez throughout his illness, and after discovering the tax problem she promptly engaged a law firm to resolve the matter. Petitioner has made an enormous effort through her installment payments to satisfy the debt. From one point of view, the amount that respondent has applied to 1992 and 1995 is already sufficient for petitioner to have paid her share of the debt for 1992 and 1995, or alternatively, petitioner has already paid an amount in total that is sufficient to pay all of the principal and interest from 1992 to 2000, including the amounts attributable to Mr. Martinez. Moreover, petitioner accomplished these payments on modest income. The underlying tax liabilities may have been overstated because of the medical exception to the 10-percent additional tax on premature retirement distributions, and perhaps because of the couple's failure to itemize their deductions. Though she did not prove economic hardship, petitioner's financial situation is clearly not strong. She lives in expensive California, and at least since 1992 she has lived only a modest lifestyle. She exhausted her savings and her retirement assets caring for her children and Mr. Martinez, and she has left herself in a precarious financial position. The 1992 debt is 16 years old and is imposed on a widow who in good faith has done her best to meet her tax obligations.

Balancing the equities, on the basis of the foregoing analysis we hold that for 1992 and 1995 the factors in favor of relief outweigh the factors disfavoring relief, with no single factor being determinative. We deny relief for years 1998 and 1999 because petitioner's request for relief failed at the threshold test of attribution.

We end by noting petitioner and her situation are highly sympathetic and credible. Because we grant relief for 1992 and 1995 and deny relief for 1998 and 1999, petitioner will still owe respondent around $12,000 for debts from long ago. 4 If petitioner is truly suffering from economic hardship, or is unable to pay the debt, then she may want to approach the IRS with a request for relief under a different principle, such as an offer-in-compromise or other collection alternative, where the parties can further explore petitioner's ability to pay on the basis of her new financial situation.

To reflect our disposition of the issues,

An appropriate decision will be entered.
1 The death certificate shows that his immediate causes of death were cardiorespiratory arrest and a ruptured aortic aneurysm, with contributing factors of diabetes mellitus and renal insufficiency.2 The later revenue procedure applies to requests for relief, such as this one, that taxpayers file on or after Nov. 1, 2003, or those pending on Nov. 1, 2003, for which no preliminary determination letter has been issued as of that date. Rev. Proc. 2003-61, sec. 7, 2003-2 C.B. 296, 299.3 For 1992 petitioner's share of the balance due was $1,680. Multiplying that by 2 as an approximation for additions and interest yields $3,360, minus her payments applied of $3,207, results in a shortfall of $153.4 By the time the parties receive this opinion, the $10,847 (= $4,882 + $5,965) aggregate balance for 1998 and 1999 as of April 17, 2007, will have grown with interest to a figure around $12,000.

Friday, December 26, 2008

Section 7122(f)[(g)] deals with frivolous submissions of an Offer in Compromise and provides that notwithstanding any other provision of section 7122, if the Secretary determines that any portion of an application for an offer-in-compromise or installment agreement submitted under section 7122 or section 6159 meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review.

In short, an OIC will not be accepted if it is a frivolous submission. Just as important is the fact that the penalty for a frivolous submission is $5,000.

6702(a) CIVIL PENALTY FOR FRIVOLOUS TAX RETURNS. --A person shall pay a penalty of $5,000 if --

6702(a)(1) such person files what purports to be a return of a tax imposed by this title but which --

6702(a)(1)(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or

6702(a)(1)(B) contains information that on its face indicates that the self-assessment is substantially incorrect, and

6702(a)(2) the conduct referred to in paragraph (1) --

6702(a)(2)(A) is based on a position which the Secretary has identified as frivolous under subsection (c), or

6702(a)(2)(B) reflects a desire to delay or impede the administration of Federal tax laws.


6702(b)(1) IMPOSITION OF PENALTY. --Except as provided in paragraph (3), any person who submits a specified frivolous submission shall pay a penalty of $5,000.

6702(b)(2) SPECIFIED FRIVOLOUS SUBMISSION. --For purposes of this section --

6702(b)(2)(A) SPECIFIED FRIVOLOUS SUBMISSION. --The term "specified frivolous submission" means a specified submission if any portion of such submission --

6702(b)(2)(A)(i) is based on a position which the Secretary has identified as frivolous under subsection (c), or

6702(b)(2)(A)(ii) reflects a desire to delay or impede the administration of Federal tax laws.

6702(b)(2)(B) SPECIFIED SUBMISSION. --The term "specified submission" means --

6702(b)(2)(B)(i) a request for a hearing under --

6702(b)(2)(B)(i)(I) section 6320 (relating to notice and opportunity for hearing upon filing of notice of lien), or

6702(b)(2)(B)(i)(II) section 6330 (relating to notice and opportunity for hearing before levy), and

6702(b)(2)(B)(ii) an application under --

6702(b)(2)(B)(ii)(I) section 6159 (relating to agreements for payment of tax liability in installments),

6702(b)(2)(B)(ii)(II) section 7122 (relating to compromises), or

6702(b)(2)(B)(ii)(III) section 7811 (relating to taxpayer assistance orders).

6702(b)(3) OPPORTUNITY TO WITHDRAW SUBMISSION. --If the Secretary provides a person with notice that a submission is a specified frivolous submission and such person withdraws such submission within 30 days after such notice, the penalty imposed under paragraph (1) shall not apply with respect to such submission.

6702(c) LISTING OF FRIVOLOUS POSITIONS. --The Secretary shall prescribe (and periodically revise) a list of positions which the Secretary has identified as being frivolous for purposes of this subsection. The Secretary shall not include in such list any position that the Secretary determines meets the requirement of section 6662(d)(2)(B)(ii)(II).

6702(d) REDUCTION OF PENALTY. --The Secretary may reduce the amount of any penalty imposed under this section if the Secretary determines that such reduction would promote compliance with and administration of the Federal tax laws.

6702(e) PENALTIES IN ADDITION TO OTHER PENALTIES. --The penalties imposed by this section shall be in addition to any other penalty provided by law.

Monday, December 22, 2008

Section 6334 of the Code limites the mount the IRS can levy from any taxpayer. Section 6343 of the Code prohibits any levy if it creates an "economic hardship."

Notice 2008-114December 22, 2008Code Sec. 6334Levies : Exempt property : Tables : 2009 .Tables for Figuring Amount Exempt From Levy on Wages, Salary, and Other IncomeNotice 2008-1141. Table for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income (Forms 668-W(c), 668-W(c)(DO), 668-W(ICS)) 2009Publication 1494, shown below, provides tables that show the amount of an individual's income that is exempt from a notice of levy used to collect delinquent tax in 2009.(Amounts are for each pay period.) __________________________________________________________________________________ Filing Status: Single __________________________________________________________________________________ Number of Exemptions Claimed on Statement _______________________________________________________________________Pay Period 1 2 3 4 5 6 More Than 6 __________________________________________________________________________________ Daily 35.96 50.00 64.04 78.08 92.12 106.1521.92 plus 14.04 for each exemption __________________________________________________________________________________ Weekly 179.81 250.00 320.19 390.38 460.58 530.77 109.62 plus 70.19 for each exemption __________________________________________________________________________________ Biweekly 359.62 500.00 640.38 780.77 921.15 1061.54 219.23 plus 140.38 for each exemption __________________________________________________________________________________ Semi 389.58 541.67 693.75 845.83 997.92 1150.00 237.50 monthly plus 152.08 for each exemption __________________________________________________________________________________ Monthly 779.17 1083.33 1387.50 1691.67 1995.83 2300.00 475.00 plus 304.17 for each exemption __________________________________________________________________________________
__________________________________________________________________________________ Filing Status: Unmarried Head of Household __________________________________________________________________________________ Number of Exemptions Claimed on Statement _______________________________________________________________________Pay Period 1 2 3 4 5 6 More Than 6 __________________________________________________________________________________ Daily 46.15 60.19 74.23 88.27 102.31 116.3532.12 plus 14.04 for each exemption __________________________________________________________________________________ Weekly 230.77 300.96 371.15 441.35 511.54 581.73 160.58 plus 70.19 for each exemption __________________________________________________________________________________ Biweekly 461.54 601.92 742.31 882.69 1023.08 1163.46 321.15 plus 140.38 for each exemption __________________________________________________________________________________ Semi 500.00 652.08 804.17 956.25 1108.33 1260.42 347.92 monthly plus 152.08 for each exemption __________________________________________________________________________________ Monthly 1000.00 1304.17 1608.33 1912.50 2216.67 2520.83 695.83 plus 304.17 for each exemption __________________________________________________________________________________
__________________________________________________________________________________ Filing Status: Married Filing Joint Return (and Qualifying Widow(er)s) __________________________________________________________________________________ Number of Exemptions Claimed on Statement _______________________________________________________________________Pay Period 1 2 3 4 5 6 More Than 6 __________________________________________________________________________________ Daily 57.88 71.92 85.96 100.00 114.04 128.0843.85 plus 14.04 for each exemption __________________________________________________________________________________ Weekly 289.42 359.62 429.81 500.00 570.19 640.38 219.23 plus 70.19 for each exemption __________________________________________________________________________________ Biweekly 578.85 719.23 859.62 1000.00 1140.38 1280.77 438.46 plus 140.38 for each exemption __________________________________________________________________________________ Semi 627.08 779.17 931.25 1083.33 1235.42 1387.50 475.00 monthly plus 152.08 for each exemption __________________________________________________________________________________ Monthly 1254.17 1558.33 1862.50 2166.67 2470.83 2775.00 950.00 plus 304.17 for each exemption __________________________________________________________________________________
__________________________________________________________________________________ Filing Status: Married Filing Separate Return __________________________________________________________________________________ Number of Exemptions Claimed on Statement _______________________________________________________________________Pay Period 1 2 3 4 5 6 More Than 6 __________________________________________________________________________________ Daily 35.96 50.00 64.04 78.08 92.12 106.1521.92 plus 14.04 for each exemption __________________________________________________________________________________ Weekly 179.81 250.00 320.19 390.38 460.58 530.77 109.62 plus 70.19 for each exemption __________________________________________________________________________________ Biweekly 359.62 500.00 640.38 780.77 921.15 1061.54 219.23 plus 140.38 for each exemption __________________________________________________________________________________ Semi 389.58 541.67 693.75 845.83 997.92 1150.00 237.50 monthly plus 152.08 for each exemption __________________________________________________________________________________ Monthly 779.17 1083.33 1387.50 1691.67 1995.83 2300.00 475.00 plus 304.17 for each exemption __________________________________________________________________________________
2. Table for Figuring Additional Exempt Amount for Taxpayers at Least 65 Years Old and/or Blind
Additional Exempt Amount
_________________________________________________________________________________Filing Status * Daily Weekly Biweekly Semimonthly Monthly _________________________________________________________________________________Single or Head 1 5.38 26.92 53.85 58.33 116.67 of Household 2 10.77 53.85 107.69 116.67 233.33 _________________________________________________________________________________Any Other 1 4.23 21.15 42.31 45.83 91.67 Filing Status 2 8.46 42.31 84.62 91.67 183.33 3 12.69 63.46 126.92 137.50 275.00 4 16.92 84.62 169.23 183.33 366.67 _________________________________________________________________________________ * ADDITIONAL STANDARD DEDUCTION claimed on Parts 3, 4, & 5 of levy.
These tables show the amount exempt from a levy on wages, salary, and other income. For example:1. A single taxpayer who is paid weekly and claims three exemptions (including one for the taxpayer) has $320.19 exempt from levy.2. If the taxpayer in number 1 is over 65 and writes 1 in the ADDITIONAL STANDARD DEDUCTION space on Parts 3, 4, & 5 of the levy, $347.11 is exempt from this levy ($320.19 plus $26.92).3. A taxpayer who is married, files jointly, is paid biweekly, and claims two exemptions (including one for the taxpayer) has $719.23 exempt from levy.4. If the taxpayer in number 3 is over 65 and has a spouse who is blind, this taxpayer should write 2 in the ADDITIONAL STANDARD DEDUCTION space on Parts 3, 4, & 5 of the levy. Then, $803.85 is exempt from this levy ($719.23 plus $84.62).SEC. 6334. PROPERTY EXEMPT FROM LEVY.
6334(a) ENUMERATION. --There shall be exempt from levy --

6334(a)(1) WEARING APPAREL AND SCHOOL BOOKS. --Such items of wearing apparel and such school books as are necessary for the taxpayer or for members of his family;

6334(a)(2) FUEL, PROVISIONS, FURNITURE, AND PERSONAL EFFECTS. --So much of the fuel, provisions, furniture, and personal effects in the taxpayer's household, and of the arms for personal use, livestock, and poultry of the taxpayer, as does not exceed $6,250 in value;

6334(a)(3) BOOKS AND TOOLS OF A TRADE, BUSINESS, OR PROFESSION. --So many of the books and tools necessary for the trade, business, or profession of the taxpayer as do not exceed in the aggregate $3,125 in value.

6334(a)(4) UNEMPLOYMENT BENEFITS. --Any amount payable to an individual with respect to his unemployment (including any portion thereof payable with respect to dependents) under an unemployment compensation law of the United States, of any State, or of the District of Columbia or of the Commonwealth of Puerto Rico.

6334(a)(5) UNDELIVERED MAIL. --Mail, addressed to any person, which has not been delivered to the addressee.

6334(a)(6) CERTAIN ANNUITY AND PENSION PAYMENTS. --Annuity or pension payments under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act, special pension payments received by a person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of Honor roll (38 U. S. C. 562), and annuities based on retired or retainer pay under chapter 73 of title 10 of the United States Code.

6334(a)(7) WORKMEN'S COMPENSATION. --Any amount payable to an individual as workmen's compensation (including any portion thereof payable with respect to dependents) under a workmen's compensation law of the United States, any State, the District of Columbia, or the Commonwealth of Puerto Rico.

6334(a)(8) JUDGMENTS FOR SUPPORT OF MINOR CHILDREN. --If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.

6334(a)(9) MINIMUM EXEMPTION FOR WAGES, SALARY, AND OTHER INCOME. --Any amount payable to or received by an individual as wages or salary for personal services, or as income derived from other sources, during any period, to the extent that the total of such amounts payable to or received by him during such period does not exceed the applicable exempt amount determined under subsection (d).

6334(a)(10) CERTAIN SERVICE-CONNECTED DISABILITY PAYMENTS. --Any amount payable to an individual as a service-connected (within the meaning of section 101(16) of title 38, United States Code) disability benefit under --

6334(a)(10)(A) subchapter II, III, IV, V, or VI of chapter 11 of such title 38, or

6334(a)(10)(B) chapter 13, 21, 23, 31, 32, 34, 35, 37, or 39 of such title 38.

6334(a)(11) CERTAIN PUBLIC ASSISTANCE PAYMENTS. --Any amount payable to an individual as a recipient of public assistance under --

6334(a)(11)(A) title IV or title XVI (relating to supplemental security income for the aged, blind, and disabled) of the Social Security Act, or

6334(a)(11)(B) State or local government public assistance or public welfare programs for which eligibility is determined by a needs or income test.

6334(a)(12) ASSISTANCE UNDER JOB TRAINING PARTNERSHIP ACT. --Any amount payable to a participant under the Job Training Partnership Act (29 U.S.C. 1501 et seq.) from funds appropriated pursuant to such Act.


6334(a)(13)(A) RESIDENCES IN SMALL DEFICIENCY CASES. --If the amount of the levy does not exceed $5,000 --

6334(a)(13)(A)(i) any real property used as a residence by the taxpayer; or

6334(a)(13)(A)(ii) any real property of the taxpayer (other than real property which is rented) used by any other individual as a residence.

6334(a)(13)(B) PRINCIPAL RESIDENCES AND CERTAIN BUSINESS ASSETS. --Except to the extent provided in subsection (e) --

6334(a)(13)(B)(i) the principal residence of the taxpayer (within the meaning of section 121); and

6334(a)(13)(B)(ii) tangible personal property or real property (other than real property which is rented) used in the trade or business of an individual taxpayer.

6334(b) APPRAISAL. --The officer seizing property of the type described in subsection (a) shall appraise and set aside to the owner the amount of such property declared to be exempt. If the taxpayer objects at the time of the seizure to the valuation fixed by the officer making the seizure, the Secretary shall summon three disinterested individuals who shall make the valuation.

6334(c) NO OTHER PROPERTY EXEMPT. --Notwithstanding any other law of the United States (including section 207 of the Social Security Act), no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a).


6334(d)(1) INDIVIDUALS ON WEEKLY BASIS. --In the case of an individual who is paid or receives all of his wages, salary, and other income on a weekly basis, the amount of the wages, salary, and other income payable to or received by him during any week which is exempt from levy under subsection (a)(9) shall be the exempt amount.

6334(d)(2) EXEMPT AMOUNT. --For purposes of paragraph (1), the term "exempt amount" means an amount equal to --

6334(d)(2)(A) the sum of --

6334(d)(2)(A)(i) the standard deduction, and

6334(d)(2)(A)(ii) the aggregate amount of the deductions for personal exemptions allowed the taxpayer under section 151 in the taxable year in which such levy occurs, divided by

6334(d)(2)(B) 52.

Unless the taxpayer submits to the Secretary a written and properly verified statement specifying the facts necessary to determine the proper amount under subparagraph (A), subparagraph (A) shall be applied as if the taxpayer were a married individual filing a separate return with only 1 personal exemption.

6334(d)(3) INDIVIDUALS ON BASIS OTHER THAN WEEKLY. --In the case of any individual not described in paragraph (1), the amount of the wages, salary, and other income payable to or received by him during any applicable pay period or other fiscal period (as determined under regulations prescribed by the Secretary) which is exempt from levy under subsection (a)(9) shall be an amount (determined under such regulations) which as nearly as possible will result in the same total exemption from levy for such individual over a period of time as he would have under paragraph (1) if (during such period of time) he were paid or received such wages, salary, and other income on a regular weekly basis.



6334(e)(1)(A) APPROVAL REQUIRED. --A principal residence shall not be exempt from levy if a judge or magistrate of a district court of the United States approves (in writing) the levy of such residence.

6334(e)(1)(B) JURISDICTION. --The district courts of the United States shall have exclusive jurisdiction to approve a levy under subparagraph (A).

6334(e)(2) CERTAIN BUSINESS ASSETS. --Property (other than a principal residence) described in subsection (a)(13)(B) shall not be exempt from levy if --

6334(e)(2)(A) a district director or assistant district director of the Internal Revenue Service personally approves (in writing) the levy of such property; or

6334(e)(2)(B) the Secretary finds that the collection of tax is in jeopardy.

An official may not approve a levy under subparagraph (A) unless the official determines that the taxpayer's other assets subject to collection are insufficient to pay the amount due, together with expenses of the proceedings.

6334(f) LEVY ALLOWED ON CERTAIN SPECIFIED PAYMENTS. --Any payment described in subparagraph (B) or (C) of section 6331(h)(2) shall not be exempt from levy if the Secretary approves the levy thereon under section 6331(h).


6334(g)(1) IN GENERAL. --In the case of any calendar year beginning after 1999, each dollar amount referred to in paragraphs (2) and (3) of subsection (a) shall be increased by an amount equal to --

6334(g)(1)(A) such dollar amount, multiplied by

6334(g)(1)(B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, by substituting "calendar year 1998" for "calendar year 1992" in subparagraph (B) thereof.

6334(g)(2) ROUNDING. --If any dollar amount after being increased under paragraph (1) is not a multiple of $10, such dollar amount shall be rounded to the nearest multiple of $10.

Sunday, December 21, 2008

Treasury Decision 8829, filed with the Federal Register on July 19, 1999., I.R.B. 1999-32, 235, provided termporary t Offer in Compromise Regulations

These regulations have important historical significance

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains temporary regulations that provide additional guidance regarding the compromise of internal revenue taxes. The temporary regulations reflect changes to the law made by the Internal Revenue Service Restructuring and Reform Act of 1998 and the Taxpayer Bill of Rights II. The text of these temporary regulations serves as the text of the proposed regulations set forth in the notice of proposed rulemaking on this subject in the Proposed Rules section of this issue of the Federal Register.

DATES: Effective date. These temporary regulations are effective July 21, 1999.

Applicability date. For dates of applicability, see §301.7122-1T(j) of these regulations.

FOR FURTHER INFORMATION CONTACT: Carol A. Campbell, (202) 622-3620 (not a toll-free number).



This document contains temporary regulations amending the Procedure and Administration Regulations (26 CFR part 301) under section 7122 of the Internal Revenue Code (Code). The regulations reflect the amendment of section 7122 by section 3462 of the Internal Revenue Service Restructuring and Reform Act of 1998 ("RRA 1998") Public Law 105-206, (112 Stat. 685, 764) and by section 503 of the Taxpayer Bill of Rights II Public Law 104-168, (110 Stat. 1452, 1461).

As amended by RRA 1998, section 7122 provides that the Secretary will develop guidelines to determine when an offer to compromise is adequate and should be accepted to resolve a dispute. The legislative history accompanying RRA 1998 explains that Congress intended that factors such as equity, hardship, and public policy be evaluated in the compromise of individual tax liabilities, in certain circumstances, if such consideration would promote effective tax administration. H. Conf. Rep. 599, 105th Cong., 2d Sess. 289 (1998).

The current regulations under Treasury regulation §301.7122-1 permit the compromise of cases on only the grounds of doubt as to collectibility, doubt as to liability, or both. These regulations are being removed. Like the current regulations, the temporary regulations provide for compromise based on doubt as to liability and doubt as to collectibility; however, they also provide for compromise based upon specific hardship and/or equitable criteria if such a compromise would promote effective tax administration. The inclusion in these regulations of a standard that will allow compromise on grounds other than doubt as to liability or doubt as to collectibility represents a significant change in the IRS' exercise of compromise authority.

Section 7122 of the Code provides broad authority to the Secretary to compromise any case arising under the internal revenue laws, as long as the case has not been referred to the Department of Justice for prosecution or defense. Although the statutory language of Section 7122 does not explicitly place limits on the Secretary's authority to compromise, opinions of the Attorney General and the regulations issued under section 7122 prior to RRA 1998 authorized the Secretary to compromise a liability under the revenue laws only when there was doubt as to liability (uncertainty as to the existence or amount of the tax obligation) or doubt as to collectibility (uncertainty as to the taxpayer's ability to pay). The opinion of the Attorney General most often cited as the principal source of these limitations is the 1933 opinion of Attorney General Cummings that was issued in response to an inquiry from then Acting Secretary of the Treasury Acheson.

In requesting an opinion from the Attorney General, Acting Secretary of the Treasury Acheson expressed concern that the country was trying to recover from the depression. He suggested that the public interest required compromise of tax claims where collection of the tax would "destroy a business, ruin a tax producer, throw men out of employment, or result in the impoverishment of widows or minor children of a deceased taxpayer." The Secretary expressed the belief that in ordinary times, compromise of cases on public policy grounds should be rare but that, in light of the current state of the country, public policy should play a significantly greater role. Expressing the belief that it was more important that "the business of the taxpayer be preserved and not destroyed," Acting Secretary Acheson suggested that cases should be compromised where the taxpayer is insolvent, even though the tax is fully collectible, and that penalties and certain interest charges should be "compromisable wherever justice, equity, or public policy seems to justify the compromise...." Letter from Treasury Department, XIII-47-7137 (July 31, 1933).

Attorney General Cummings replied that "[t]here is much to be said for the proposition that a liberal rule should exist, but my opinion is that if such a course is to be taken it should be at the instance of Congress. I conclude that where liability has been established by a valid judgment or is certain, and there is no doubt as to the ability of the Government to collect, there is no room for 'mutual concessions,' and therefore no basis for a 'compromise.' " Op. Atty. Gen. 6, XIII-47-7138 (October 24, 1933). See also Op. Atty. Gen. 7, XIII-47-7140 (October 2, 1934), wherein Attorney General Cummings stated that "[t]here appears to be no statutory authority to compromise solely upon the ground that a hard case is presented, which excites sympathy or is merely appealing from the standpoint of equity, but the power to compromise clearly authorizes the settlement of any case about which uncertainty exists as to liability or collection."

Although the 1933 opinion of Attorney General Cummings is the most often cited opinion regarding the limits of the IRS' compromise authority (prior to RRA 1998), the conclusion he reached mirrored conclusions reached by a number of his predecessors. Thus, since 1868, a number of Attorneys General opined that when liability is not at issue, the Secretary's compromise authority permitted compromise only when "the full amount of the debt" could not be collected. See, e.g., 12 Op. Atty. Gen. 543 (1868); 16 Op. Atty. Gen. 617 (1879) (the Secretary's authority to compromise does not permit the "voluntary relinquishment" of any part of a lawfully assessed tax from a solvent person or corporation).

Following the issuance of Attorney General Cummings' 1933 opinion, Commissioner Helvering established a policy that IRS tax collectors should make every endeavor to secure offers that represent the taxpayer's "maximum capacity to pay." Commissioner's Statement of Policy with Respect to the Compromise of Taxes, Interest, and Penalties, July 2, 1934. Commissioner Helvering recognized that the Attorney General's opinion did not specify or quantify the amount of doubt necessary to compromise, but concluded that "... the Treasury Department does not propose to compromise when there is merely the possibility of doubt. The doubt as to liability or collectibility must be supported by evidence and must be substantial in character, and when such doubt exists, the amount acceptable will depend upon the degree of doubt found in the particular case." Id. Implementing the policy established by Commissioner Helvering, the IRS concluded that an offer premised upon doubt as to collectibility should be accepted only when the amount offered represented the maximum amount the taxpayer could pay, taking into account net equity in assets and both current and future income.

The interpretation of section 7122 adopted by Attorney General Cummings (and reflected in Treasury reg. §301.7122-1(a) ), together with the "maximum capacity to pay" policy established by Commissioner Helvering, have been the fundamental guiding principles for IRS offer in compromise programs for the past 65 years. From the 1930's to the early 1990's, offers to compromise were not widely used to resolve tax cases. In the early 1990s, however, the IRS determined that expanded use of offers to compromise could contribute to more effective tax administration in two important respects. First, the IRS determined that compromise could be used as a technique to enhance overall compliance by providing taxpayers with a reasonable avenue to resolve past difficulties. Second, the IRS determined that it should make more effective use of offers to compromise to help manage the inventory of delinquent tax accounts. Accordingly, while still operating within the basic legal and policy guidelines established in the 1930's, the IRS initiated two significant changes intended to enhance the compromise program.

In 1992, the IRS adopted a new compromise policy and issued revised compromise procedures. The policy provides that an offer to compromise will be accepted when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. As set forth in the new policy statement, the goal of the compromise program is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the government while providing taxpayers with a fresh start toward future voluntary compliance. Policy Statement, P-5-100. In administering its policies under the offer program, the threshold question of "doubt as to liability or doubt as to collectibility" set forth in the regulations constituted a legal requirement that must be followed; once that threshold was met, however, the IRS could legally accept less than the taxpayer's maximum capacity to pay. References in the offer procedures to "maximizing collection" and "maximum capacity to pay" were replaced with "reasonably reflects collection potential." Id.

In determining whether an offer reasonably reflects collection potential, the IRS takes into consideration amounts that might be collected from (1) the taxpayer's assets, (2) the taxpayer's present and projected future income, and (3) third parties (e.g., persons to whom the taxpayer had transferred assets). Although most doubt as to collectibility offers only involve consideration of the taxpayer's equity in assets and future disposable income over a fixed period of time, the IRS on occasion also will consider whether the taxpayer should be expected to raise additional amounts from assets in which the taxpayer's interest is beyond the reach of enforced collection (e.g., interests in property located in foreign jurisdictions or held in tenancies by the entirety). IRM 57(10)(10).1.

The compromise program was also affected by a 1995 IRS initiative designed to ensure uniform treatment of similarly situated taxpayers. In administering its collection operations, including both the installment agreement program and the compromise program, the IRS has always permitted taxpayers to retain sufficient funds to pay reasonable living expenses. Certain commentators had asserted that there were wide variances in the type and amount of such reasonable expense allowances within and between districts. In September of 1995, the IRS adopted and published national and local standards for determining allowable expenses, designed to apply to all collection actions, including offers to compromise. National expense standards derived from the Bureau of Labor Statistics Consumer Expenditure Survey were promulgated for expense categories such as food, clothing, personal care items, and housekeeping supplies. Local expense standards derived from Census Bureau data were promulgated for housing, utilities, and transportation.

The IRS allowable expense criteria play an important role in determining whether taxpayers are candidates for compromise or installment agreements. Although offers to compromise and installment agreements are separate mechanisms for resolving outstanding tax liabilities, there often is a significant interplay between the two programs, because a taxpayer's income available to satisfy the tax liability is determined after the deduction of allowable expenses. In some cases, the allowable expense criteria may be the determining factor in whether the taxpayer receives an installment agreement or a compromise. An installment agreement must provide for payment in full of the amount of the outstanding liability through regular, periodic payments (generally monthly). I.R.C. §6159 . An offer to compromise, by contrast, reflects the fact that the taxpayer has no ability to pay the liability in full. Accordingly, taxpayers entering into compromise agreements can pay an amount less than the full amount due in satisfaction of the liability.

Congress now has directed the Secretary to consider factors other than doubt as to collectibility and doubt as to liability in determining whether to accept an offer to compromise. Under §7122(c) , added by RRA 1998, factors such as equity, hardship, and public policy will be considered in certain circumstances where such consideration will promote effective tax administration. The legislative history of this provision (H. Conf. Rep. 599, 105th Cong., 2d Sess. 289 (1998)) states that--

... the conferees expect that the present regulations will be expanded so as to permit the IRS, in certain circumstances, to consider additional factors (i.e., factors other than doubt as to liability or collectibility) in determining whether to compromise the income tax liabilities of individual taxpayers. For example, the conferees anticipate that the IRS will take into account factors such as equity, hardship, and public policy where a compromise of an individual taxpayer's income tax liability would promote effective tax administration. The conferees anticipate that, among other situations, the IRS may utilize this new authority, to resolve longstanding cases by forgoing penalties and interest which have accumulated as a result of delay in determining the taxpayer's liability. The conferees believe that the ability to compromise tax liability and to make payments of tax liability by installment enhances taxpayer compliance. In addition, the conferees believe that the IRS should be flexible in finding ways to work with taxpayers who are sincerely trying to meet their obligations and remain in the tax system. Accordingly, the conferees believe that the IRS should make it easier for taxpayers to enter into offer-in-compromise agreements, and should do more to educate the taxpaying public about the availability of such agreements.

Another consideration for compromise cases is Chief Counsel review. Since its enactment in section 102 of the Act of July 20, 1868 (15 Stat. 166), the statute authorizing the Secretary to compromise liabilities has contained a requirement that Counsel issue opinions regarding certain of those compromises. Section 7122(b) of the Code requires that the opinion of Counsel, with the reasons therefor, be placed on file whenever a compromise is made by the IRS. Chief Counsel opinions assess both whether the offer meets the legal requirements for compromise and whether the offer conforms to IRS policy and procedure. The opinion provided by Chief Counsel, however, does not have to be in favor of compromise. Pursuant to delegated authority, district directors, service center directors, and regional directors of Appeals have the authority to accept an offer that Counsel has opined does not conform to IRS policy.

Until passage of the Taxpayer Bill of Rights II (TBOR 2), Chief Counsel review was required in all cases in which the liability compromised was $500 or more. Under TBOR 2, such an opinion is required only in cases where the compromised liability is $50,000 or more.

Explanation of Provisions

The temporary regulations continue the traditional grounds for compromise based on doubt as to liability or doubt as to collectibility. In addition, to reflect the changes made in RRA 1998, the temporary regulations allow a compromise where there is no doubt as to liability or as to collectibility, but where either (1) collection of the liability would create economic hardship, or (2) exceptional circumstances exist such that collection of the liability would be detrimental to voluntary compliance. Compromise based on these hardship and equity bases may not, however, be authorized if it would undermine compliance. Although the temporary regulations set forth the conditions that must be satisfied to accept an offer to compromise liabilities arising under the internal revenue laws, they do not prescribe the terms or conditions that should be contained in such offers. Thus, the amount to be paid, future compliance or other conditions precedent to satisfaction of a liability for less than the full amount due are matters left to the discretion of the Secretary.

The temporary regulations also add provisions relating to the promulgation of requirements for providing for basic living expenses, evaluating offers from low income taxpayers, and reviewing rejected offers, as required by RRA 1998. The temporary regulations also add provisions relating to staying collection, modifying the dollar criteria for requiring the opinion of Chief Counsel in accepted offers, and setting forth the requirements regarding waivers and suspensions of the statute of limitations. Except for the provision related to dollar criteria for Chief Counsel review, all of the additional provisions of §301.7122-1T are authorized by RRA 1998. The modification of dollar criteria for Chief Counsel review is authorized by section 503(a) of the Taxpayer Bill of Rights II.

As required by §7122(c)(2)(A) and (B) , added by RRA 1998, the temporary regulations provide for the development and publication of national and local living allowances that permit taxpayers entering into offers to compromise to have an adequate means to provide for their basic living expenses. The determination whether the published standards should be applied in any particular case must be based upon an evaluation of the individual facts and circumstances presented. The Secretary will determine the appropriate means to publish these national and local living allowances.

In accordance with §7122(c)(3)(A) , the temporary regulations also require the development of supplemental guidelines for the evaluation of offers from "low income" taxpayers. The temporary regulations permit the Secretary to determine which taxpayers qualify as "low income" taxpayers based upon current dollar criteria applied by the U.S. Department of Health and Human Service under authority of section 673(2) of the Omnibus Budget Reconciliation Act of 1981, or any other measure reasonably designed to identify such taxpayers.

In accordance with §7122(d)(1) , the temporary regulations provide that all proposed rejections of offers to compromise will receive independent administrative review prior to final rejection. Section 7122(d)(2) requires and the temporary regulations also provide that the taxpayer has the right to appeal any rejection of an offer to compromise to the IRS Office of Appeals. The temporary regulations provide, however, that when the IRS returns an offer to compromise because it was not processable under IRS procedures, because the offer was submitted solely to delay collection or because the taxpayer failed to provide requested information required by the IRS to evaluate the offer, such a return of the offer does not constitute a rejection and thus, does not entitle the taxpayer to appeal rights under this provision. In the event that an offer to compromise is returned under these circumstances and the IRS institutes collection action, the taxpayer may have the right to consideration of the whole of his or her collection case under other provisions of the Code.

Pursuant to section 6331(k) of the Code , as amended by section 3462 of RRA 1998, the temporary regulations also provide that for offers pending on or submitted on or after January 1, 2000, no enforced collection activity may be taken by the IRS to collect a liability while an offer to compromise is pending, or for the 30 days following any rejection of an offer to compromise, or during any period that an appeal of any rejection, when such appeal is instituted within the 30 days following rejection, is being considered. Collection activity will not, however, be precluded in any case where collection is in jeopardy or the offer to compromise was submitted solely to delay collection.

Effective through December 31, 1999, the temporary regulations continue to require the taxpayer to waive the running of the statutory period of limitations on collection as a condition of acceptance of an offer to compromise. Effective January 1, 2000, waivers of the statute of limitations on collection will no longer be required for the acceptance of an offer to compromise. Instead, the statute of limitations for collection will be suspended during the period the offer to compromise is under consideration by the IRS. This provision of the temporary regulations implements section 3461 of RRA 1998.

The temporary regulations also implement section 503(a) of the Taxpayer Bill of Rights II by specifying that Chief Counsel review of an accepted offer to compromise is required only for offers in compromise involving $50,000 or more in unpaid liabilities.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It also has been determined that sections 553(b) & (d) of the Administrative Procedure Act (5 U.S.C. chapter 5) do not apply to these regulations. Please refer to the cross-referenced notice of proposed rulemaking published elsewhere in this issue of the Federal Register for the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6). Pursuant to section 7805(f) of the Internal Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal