This is a summary judgment case where the facts presented by the IRS were "equivocal" on the factual issues.
Bilal Salahuddin v. Commissioner, TC Memo 2012-141 , Code
Sec(s) 6330; 6404.
UNITED STATES TAX COURT BILAL SALAHUDDIN AND MONIQUE
SALAHUDDIN, Petitionersv. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Case Information:
Code Sec(s):
6330; 6404
Docket: Docket
No. 7050-11L.
Date Issued:
05/17/2012
HEADNOTE
XX.
Reference(s): Code Sec. 6330; Code Sec. 6404
Syllabus
Official Tax Court Syllabus
Ps owed outstanding Federal income tax liabilities for tax
years 2004, 2005, and 2006. R issued to Ps a levy notice to collect those
unpaid liabilities. Ps requested a collection due process (CDP) hearing before
IRS Appeals pursuant to I.R.C. sec. 6330, during which they sought an
installment agreement. Ps submitted a Form 433-A, Collection Information Statement
for Wage Earners and Self- Employed Individuals, without supporting
documentation. An Appeals team manager informed Ps that R's Philadelphia
Service Center had calculated Ps' acceptable amount for an installment
agreement to be $900 to $1,000 monthly and advised Ps that their prior
submission would be "sufficient". Without further communication with
Ps, the Appeals settlement officer closed the CDP hearing and sustained the
proposed levy on the ground that Ps had not provided sufficient financial information
and Ps' ability to pay exceeded the proposed $900 to $1,000 per month. Ps filed
a timely petition for review of that determination with this Court, and R moved
for summary judgment.
Held : There is a genuine issue of material fact as to
whether Appeals, having advised Ps that their submission was
"sufficient", abused its discretion in terminating the CDP hearing
and rejecting Ps' proposal for an installment agreement, rather than soliciting
a satisfactory substitute proposal. R's motion for summary judgment will be
denied.
Counsel
Bilal Salahuddin and Monique Salahuddin, for themselves.
Melissa Ellen Avrutine, for respondent.
MEMORANDUM OPINION
GUSTAFSON, Judge: This is a collection due process
("CDP") appeal pursuant to section 6330(d), 1 in which petitioners
Bilal and Monique Salahuddin ask this Court to review the determination by the
Office of Appeals ("Appeals") of the Internal Revenue Service
("IRS") to deny the Salahuddins' request for a collection alternative
and to proceed with a levy to collect their unpaid Federal income tax for tax
years 2004, 2005, and 2006. The issue is whether Appeals abused its discretion
in making that determination. Respondent, the Commissioner of the IRS, moved
for summary judgment pursuant to Rule 121, and the Salahuddins filed an
opposition. We hold that there is a genuine issue of material fact as to
whether Appeals abused its discretion in rejecting their request for an
installment agreement and determining to proceed with the proposed levy. We
will therefore deny the Commissioner's motion.
Background
The Commissioner's motion establishes the following facts,
which the Salahuddins did not dispute. Events before the CDP process The
Salahuddins filed tax returns reporting income tax liabilities for the years
2004, 2005, and 2006; but they did not pay those liabilities. On March 12,
2010, the IRS sent the Salahuddins a "Final Notice of Intent to Levy and
Notice of Your Right to a Hearing," advising them that the IRS intended to
levy to collect those unpaid tax liabilities, and advising that they could
receive a hearing with Appeals. On April 6, 2010, the Salahuddins timely filed
a Form 12153, "Request for a Collection Due Process or Equivalent
Hearing". 2
In July 2010, before their CDP hearing was scheduled (and in
circumstances not clear in our record), the Salahuddins submitted to the
Automated Collection System Support unit of the IRS a Form 433-A,
"Collection Information Statement for Wage Earners and Self-Employed
Individuals", stating their income, expenses, assets, and liabilities. The
Salahuddins failed to provide the accompanying financial documents called for
by the instructions, but the form showed that their monthly living expenses
were $11,737 and that their monthly income was $17,568 (i.e., a surplus of over
$5,800). Dealings with IRS Appeals On September 26, 2010, an Appeals settlement
officer ("SO") mailed the Salahuddins a letter, offering a telephone
CDP hearing on October 19, 2010. The SO's letter requested that, by October 14,
2010, the Salahuddins provide the SO with: (1) a completed Form 433-A, along
with proof of income and expenses for the past three months, and (2) a Form
656, "Offer in Compromise" and the $150 application fee. (The
Salahuddins never submitted a Form 656. See note 2 above.)
On October 13, 2010, the Salahuddins sent the SO a letter
requesting additional time to gather the information and requesting that the
hearing be conducted through correspondence. By letter dated October 19, 2010,
the SO gave the Salahuddins until November 2, 2010, to provide any additional
information for Appeals to consider during the hearing. On October 26,
2010--i.e., before the November 2 deadline--Mrs. Salahuddin telephoned Appeals
and spoke with the SO's supervisor, an Appeals team manager ("ATM").
In the case activity record, the ATM described the call as follows: ATM
received call from Mrs TP [i.e., taxpayer] requesting answers to specific
questions. I pulled the case file and talked with SO. After reviewing the TPs
letter I returned her call and advised her that the information in the case file
was sufficient and that we would continue based on the 433A and their figures
which show disposable income and assets for an I/A [installment agreement]. The
tp will keep the co[r]respondence hearing date of 11-2. She will also send her
requ[es]t by fax. On October 31, 2010, the Salahuddins sent the SO a letter
that similarly described the call as follows: [The ATM] was kind enough to
provide a brief review of my case and clarify that the 433 form we submitted in
July 2010 would be sufficient. He also indicated that no further documentation
would be needed in support of said form. Additionally, [the ATM] said that we
would not be eligible for and [sic] Offer in Compromise. It was conveyed that
the office in Philadelphia, Pennsylvania, determined that we could pay
approximately $900 to $1,000 monthly. I would like to request that all payments
made by us be applied to the most recent tax year first. That being 2006, 2005,
and 2004, in this order. Also, please confirm the order of how payments are
posted ... i.e.--principle [sic], penalties then interest. The SO never
responded to this letter by telephone or in writing. For purposes of the
Commissioner's motion for summary judgment, and entertaining all reasonable
inferences in favor of the non-movants (i.e., the Salahuddins) pursuant to Rule
121, we assume that in that telephone conversation, the Salahuddins were
informed (or reasonably believed that they were informed) that the information
they had already submitted was "sufficient" to justify an installment
agreement under which they would pay "approximately $900 to $1,000
monthly". The record does not show that anyone in Appeals ever asked the
Salahuddins to submit a formal proposal for an installment agreement. The SO's
deliberations After three and a half months, the SO came to a conclusion that
she described as follows in her case activity record on an entry dated February
17, 2011: [I]t appears TP may want an IA in the amount of $900-$1000 monthly
per this same letter [of October 31, 2010]. S/O reviewed and analyzed the CIS
to determine the taxpayer's ability to pay. Tp's monthly income is $17567.88
per Form 433A. TP has not provided any supporting documentation. Tp's monthly
actual expenses were $11736.85 per F433A. Tp's monthly allowable expenses were $9,345.
Tp does have the ability to full pay by income. ***
Tp currently owes $54,894.17. Tp can full pay this liability
within 7 months using their monthly disposable income. Net Equity in assets is
$68,217 per AET [asset equity table on the Form 433-A]. *** No supporting
documentation was provided by the taxpayer to determined if these amounts are
accurate. Based on financial analysis, the taxpayer has the ability to full pay
their liability by liquidating their assets or monthly payments within 7 months.
Therefore, S/O will recommend rejection of IA per review of information in the
case file as it appears TP has the ability to pay more than their proposed
amount and without supporting documen[t]ation full payment is the only ,
alterative that could be considered. Determination is to sustain the proposed
levy action. Although, TP indicated PSC [Philadelphia Service Center]
convey[ed] that they could pay $980 per five year rule. 3 TP did not propose an
amount. No collection alternative could be reached since TP did not verify CIS
and the amount owed was over $25K. [Emphasis added.] For purposes of the
Commissioner's motion for summary judgment, and entertaining all reasonable
inferences in favor of the Salahuddins, we assume that the SO's determination
not to allow an installment agreement was based in part on the Salahuddins'
failure to provide documentation to support the information on the Form 433-A.
Appeals' determination and Tax Court proceedings On February 24, 2011, Appeals
sent to the Salahuddins a "Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330", with respect to their income
tax liabilities for 2004, 2005, and 2006. The notice of determination sustained
the proposed levy action and stated, among other things, that the Salahuddins
did not qualify for an installment agreement. An attachment to the notice of
determination stated in part:
On September 26, 2010, the Settlement Officer mailed you a
letter offering a conference by telephone, face-to-face or correspondence. This
letter gave fourteen (14) days to respond if a face-to-face or correspondence
conference was preferred. There was no response to this letter. Therefore, a
telephone conference was scheduled January 6, 2011 at 10:00 AM Central time.
This letter also requested for a Collection Information Statement along with
supporting documents by October 14, 2010. The Collection Information was
provided; however, there were [sic] no supporting documentation . [Emphasis
added.] We note that this paragraph (1) was incorrect in stating that
"[t]here was no response to this letter [of September 6, 2010]",
since the Salahuddins responded by their letter of October 13, 2010, (2) was
incorrect in stating that "a telephone conference was scheduled January 6,
2011", since no such conference was scheduled, and (3) was correct in
stating that "there were [sic] no supporting documentation" but
evidently overlooked the ATM's assurances to the Salahuddins that the
information they had provided was "sufficient".
On March 25, 2011, the Salahuddins timely filed their
petition with this Court. The petition stated, among other things: [W]e have
proposed alternative method of paying our federal tax liability and this
alternative was positively conveyed to us by the settlement officers'
supervisor verbally. *** *** [The ATM] indicated that the Pennsylvania Office
already determined the petitioner's could pay between $900-$1000, per month and
that he concurred and would update the settlement officer our [sic] this
conversation. We drafted a follow up letter recanting [sic] this conversation
and sent to the settlement officer to include in the file. This information
runs contrary to the notice of determination. On March 8, 2012, the
Commissioner filed his motion for summary judgment, in which he contends:
"Because, based on the financial information submitted by petitioners,
petitioners have the ability to fully pay their income tax liability, the
settlement officer properly rejected petitioners' request for an installment
agreement."
Discussion
I. General legal principles A. Summary judgment Under Rule
121 (the Tax Court's analog to Rule 56 of the Federal Rules of Civil
Procedure), the Court may grant summary judgment where there is no genuine
issue of any material fact and a decision may be rendered as a matter of law.
The moving party (here, the Commissioner) bears the burden of showing that no
genuine issue of material fact exists, and the Court will view any factual
material and inferences in the light most favorable to the nonmoving party.Dahlstrom
v. Commissioner, 85 T.C. 812, 821 (1985); cf. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 255 (1986) (same standard under Fed. R. Civ. P. 56). "The
opposing party is to be afforded the benefit of all reasonable doubt, and any
inference to be drawn from the underlying facts contained in the record must be
viewed in a light most favorable to the party opposing the motion for summary
judgment."Espinoza v. Commissioner, 78 T.C. 412, 416 (1982).
In this case we assume the facts as shown by the Commissioner,
but viewed in the light most favorable to the Salahuddins. In that light, the
Commissioner's motion must be denied. B. Collection review procedure 1. In
general If a taxpayer fails to pay any Federal income tax liability after
notice and demand, section 6331(a) authorizes the IRS to collect the tax by
levy on the taxpayer's property. However, Congress has added to chapter 64 of
the Code certain provisions (in subchapter C, part I, and in subchapter D, part
I) as "Due Process for Collections", and those provisions must be
complied with before the IRS can proceed with a levy: The IRS must first issue
a final notice of intent to levy and notify the taxpayer of the right to an
administrative hearing before Appeals.
Sec. 6330(a) and (b)(1). After receiving such a notice, the taxpayer may
request an administrative hearing before Appeals. Sec. 6320(a)(3)(B), (b)(1).
Administrative review is carried out by way of a hearing before Appeals
pursuant to section 6330(b) and (c);
and, if the taxpayer is dissatisfied with the outcome there, he can appeal that
determination to the Tax Court under section 6330(d), as the Salahuddins have
done. 2. Agency-level review in levy cases At the CDP hearing, the Appeals
Officer must make a determination whether the proposed collection action may
proceed. In the case of a notice of levy, the procedures for the agency-level
CDP hearing beforeAppeals are set forth in
section 6330(c). The Appeals Officer is required to take into consideration
several things:
First, the Appeals Officer must verify that the requirements
of any applicable law and administrative procedure have been met by IRS
personnel. See sec. 6330(c)(3)(A). The
attachment to the notice of determination set forth the Appeal Officer's
compliance with these requirements, and the Salahuddins make no challenge as to
verification in their petition (or in their response to the motion for summary
judgment), so no verification issues under
section 6330(c)(1) are at issue.
Second, the taxpayer may "raise at the hearing any
relevant issue relating to the unpaid tax or the proposed levy, including"
challenges to the appropriateness of the collection action and offers of
collection alternatives. Sec.
6330(c)(2)(A). The Salahuddins' contentions pertain to a collection alternative
(i.e., an installment agreement), which we will discuss below.
Additionally, the taxpayer may contest the existence and
amount of the underlying tax liability, but only if he did not receive a notice
of deficiency or otherwise have a prior opportunity to dispute the tax
liability. Sec. 6330(c)(2)(B). In their
opposition to the motion for summary judgment, the Salahuddins "ask the
court to require the Respondent to re-access any penalty and interest that has
accrued on our tax account from the original date of our request for a payment
plan." We construe this as a request for an abatement of interest and
penalty pursuant to section 6404(e) and (f) and as a challenge to the existence
of an underlying liability. It appears that the Salahuddins did not raise this
issue before Appeals and that we therefore lack jurisdiction to entertain
it,see Giamelli v. Commissioner, 129 T.C. 107, 113-114 (2007); but we need not
reach this issue to decide the Commissioner's motion.
Finally, the Appeals Officer must determine "whether
any proposed collection action balances the need for the efficient collection
of taxes with the legitimate concern of the person that any collection action
be no more intrusive than necessary." Sec. 6330(c)(3)(C). The notice of
determination found that "the proposed levy action balances the need for
efficient collection of taxes with your concern that any collection action be
no more intrusive than necessary"; but the Salahuddins' petition and their
opposition to the motion for summary judgment assert that the levy would impose
a financial hardship on them, and we consider that argument as an assertion of
undue intrusiveness. But again, it appears that the Salahuddins did not raise
this issue before Appeals and that we therefore lack jurisdiction to entertain
it, but that we do not need to reach it in order to decide the Commissioner's
motion. 3. Tax Court review When Appeals issues its determination, the taxpayer
may "appeal such determination to the Tax Court", pursuant to section
6330(d)(1), as the Salahuddins have done. In such an appeal, where the
underlying liability is at issue, we review the determination of Appeals de
novo. Goza v. Commissioner, 114 T.C.
176, 181- 182 (2000). As to issues other than the underlying liability, we review
the determination for abuse of discretion. That is, we decide whether the
determination was arbitrary, capricious, or without sound basis in fact or law.
See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 [98
AFTR 2d 2006-7853] (1st Cir. 2006). Here we review Appeals' denial of an
installment agreement, to determine whether it involved an abuse of discretion.
II. Denial of the Salahuddins' request for an installment
agreement The Commissioner argues that because the Salahuddins offered an
amount ($900 to $1,000 per month) that was less than their own reckoning of
their surplus monthly income (about $5,800 more income than living expenses),
it could not be an abuse of discretion for Appeals to reject such an offer.
This might be a winning argument, except for two problems that arise under the
facts as we are required to assume them for purposes of deciding a motion for
summary judgment. A. Apparent reliance on failure to produce information IRS
personnel in Philadelphia had suggested to the Salahuddins that their
information would justify an installment agreement calling for payment of $900
to $1,000 monthly, and the ATM told the Salahuddins that the information they
had submitted was "sufficient". We have consistently held that it is
not an abuse of discretion for Appeals to reject collection alternatives and
sustain the proposed collection action on the basis of the taxpayer's failure
to submit requested financial information. See Huntress v. Commissioner, T.C.
Memo. 2009-161 [TC Memo 2009-161]; Prater v. Commissioner, T.C. Memo. 2007-241
[TC Memo 2007-241]; Roman v. Commissioner, T.C. Memo. 2004- 20 [TC Memo
2004-20]. However, for purposes of this summary judgment motion, we hold that
because Appeals had thus advised the Salahuddins that their financial
information was "sufficient", Appeals could not thereafter terminate
the CDP process on the grounds that the Salahuddins had followed the very
advice that Appeals had given them. To the extent that Appeals' determination was
based on a supposed failure to submit information, we cannot say that that
determination did not involve an abuse of discretion.
We can easily imagine a denial of an installment agreement
based on two clear alternative grounds--i.e., (1) that the taxpayer failed to
provide documentation to substantiate his financial information, and separately
(2) that the amount offered by the taxpayer was inadequate even assuming
accurate the taxpayer's unsupported financial information. If the notice of
determination stated such grounds, then the Commissioner could well argue that
the first was harmless error, because the second was independent and
sufficient. However, our role under
section 6330(d) is to review actions that the IRS took, not actions that
it could have taken. As the Supreme Court stated in SEC v. Chenery Corp., 318
U.S. 80, 93-95 (1943): [The agency's] action must be measured by what the ***
[agency] did, not by what it might have done. *** The *** [agency's] action
cannot be upheld merely because findings might have been made and
considerations disclosed which would justify its order as an appropriate
safeguard for the interests protected by the Act. There must be such a
responsible finding. *** In this case, we cannot say with certainty that the SO
proceeded on two independent grounds. The Commissioner admits that "the
Notice of Determination does not fully explain the settlement officer's denial
of petitioners' installment agreement" but argues that "the
settlement officer's case activity records do." However, those records
emphatically show a reliance on the fact that the Salahuddins supposedly failed
to provide information to substantiate their financial condition. In statements
addressing the possibility of an installment agreement, the SO said: "TP
has not provided any supporting documentation"; "No supporting
documentation was provided"; "without supporting documen[t]ation, full
payment is the only alterative that could be considered"; and "No
collection alternative could be reached since TP did not verify CIS". We
find that the record before us is equivocal about the reasoning for Appeals'
denial of the installment agreement.
The situation is made even more unclear by the factual
errors in the attachment to the notice of determination. We do not by any means
hold that a notice of determination must be error-free in order to be
sustained. However, in this circumstance, the error suggesting that the
Salahuddins had failed to respond to Appeals' letter has an unfortunate
resonance with the unfair determination that they had failed to provide
supporting information; and the error suggesting that a telephone conference
had been scheduled raises the question whether the SO was confusing two
different cases--the Salahuddins case and another case in which other taxpayers
had made a material failure to produce information thatwas requested. Under
Rule 121 we cannot hold that there is no genuine issue as to the reason for
Appeals' determination to deny an installment agreement and the absence of an
abuse of discretion in that determination. B. Apparent misleading of the
taxpayers For purposes of summary judgment, the evidence shows that the
Salahuddins were led to believe that their $900-to-$1,000-per-month proposal
for an installment agreement was agreeable to the IRS, and they gratefully
submitted a proposal for how their upcoming payments could be applied to their
outstanding liabilities. Until it issued the adverse determination, Appeals did
not correct their impression or solicit a different proposal. We do not hold
that these facts constitute offer (by the Salahuddins) and acceptance (by
Appeals), giving rise to a contract. Nor do we hold that Appeals was barred in
any way from rejecting the proposal and demanding more. We hold rather that
there is a genuine issue of material fact as to whether Appeals induced the
Salahuddins to believe that their information was "sufficient" and
that their proposal would be accepted--i.e., whether Appeals thus misled the
Salahuddins by inducing them to leave their proposal pending and unrevised--and
whether it was an abuse of discretion for Appeals to terminate the CDP hearing
by rejecting that proposal, rather than soliciting a satisfactory substitute
proposal.
In light of the foregoing, the Commissioner's motion for
summary judgment will be denied.
An appropriate order will be issued.
1
Unless otherwise indicated, all section references are to the
Internal Revenue Code of 1986 as in effect at all relevant times (codified in
26 U.S.C., and referred to herein as "the Code"), and all Rule
references are to the Tax Court Rules of Practice and Procedure.
2
The Salahuddins' request for a CDP hearing indicated that
they desired an offer-in-compromise ("OIC") as a collection
alternative. However, they later effectively retracted this proposal in favor
of a request for an installment agreement. Since the Salahuddins do not contend
that Appeals abused its discretion in denying them an OIC, we do not address
the Commissioner's arguments in defense of that denial.
3
The "five year
rule" to which the SO's notes refer is evidently Internal Revenue Manual
("IRM") pt. 5.15.1.2(5) (Oct. 2, 2009), which provides that, in
determining a taxpayer's ability to pay, expenses will be allowed above the
national and local standards if (A) taxpayer establishes that he or she can
stay current with all paying and filing requirements; (B) the tax liability,
including projected accruals, can be paid within five years; and (C) expense
amounts are reasonable. In this particular case, even taking the five-year rule
into account, the Salahuddins' disposable income based on actual income and
expenses would exceed $5,800 per month, which is much more than the $900 to
$1,000 suggested by the Philadelphia Service Center. As a result, the
Philadelphia Service Center apparently erred in suggesting a monthly
installment amount that was less than the Salahuddins' actual ability to pay. See
IRM pt. 5.15.1.2(6).
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