Freeman Law’s “Tax Court Brief” covers all of the Tax Court’s substantive opinions, providing a weekly summary of its decisions in clear, concise prose.
Tax litigation: The week of April 4, 2022 to April 8, 2022
- Middleton v. Comm’r, TC Memo. 2022-28 | April 4, 2022 |Kerrigan, J. | Dekt. No. 8158-19L
- Scholz v. Comm’r, TC Summary Notice 2022-5 | April 4, 2022 | Panuthos, J. | Dekt. No. 20743-19S
- Salter c. Comm’r, TC Memo. 2022-9 |April 5, 2022 |Lauber, J. | Dekt. No. 10776-20
- Continuing Life Communities Thousand Oaks LLC v. Comm’r, TC Memo. 2022-31 |April 6, 2022 |Holmes, J. | Dekt. No. 4806-15
- Metz v. Comm’r, TC Memo. 2022-33 | April 7, 2022 | Weiler, J. | Dekt. No. 16784-19
- Webert v. Comm’r, TC Memo. 2022-32 | April 7, 2022 | Gustafson, J. | Dekt. No. 15981-17
Norberg v. Comm’r, | April 5, 2022 | Lauber, A. | Dekt. No. 12638-20L
Short summary: Robert and Debra Norberg (the Norbergs) filed their 2016 tax return in 2019 and did not pay the balance owing shown on the return. In time, the IRS sent the Norbergs a CDP levy notice. During the hearing, the Norbergs raised only one issue, which was that paying their unpaid tax would cause financial hardship. They wanted their 2016 tax bill to be designated as currently uncollectible (CNC). In support of their claim, they submitted a Collection Information Statement (Form 433-A). Based on the income and expenses reported on the form, the Appeals Resolution Officer (SO) determined that the Norbergs could pay the IRS $62 per month and were not eligible for hardship assistance. By calculating how much the Norbergs could afford, for example., the excess of their monthly income over their allowable monthly expenses, the ER reduced the expenses claimed by the Norbergs to conform to the allowable expenses for their county of residence. The Norbergs made no effort to show why current “local standards” should not apply. The AS offered them a Partial Salary Installment Agreement (PPIA) with payments of $62 per month, which they declined. After verifying that the IRS had met all legal and administrative requirements, the appeals issued a Notice of Determination supporting the proposed levy, and the Norbergs filed a petition. In the petition, they alleged that their cost of living exceeded their income and that a levy would cause financial hardship. Shortly after the petition was filed, the Norbergs filed for bankruptcy, resulting in a discharge. The discharge did not cover the Norbergs’ 2016 tax liability (except for tax additions) because they filed their 2016 return late and within two years of the date they filed for bankruptcy. After the bankruptcy stay was lifted, the Commissioner (IRS) filed a motion for summary judgment. Accepting the motion, the Court observed that the Norbergs were free to pursue another collection alternative (apart from the CDP), such as an installment agreement or an offer in compromise.
- The underlying liability of the Norbergs was not at issue in this case. Therefore, the appropriate standard of judicial review was abuse of discretion.
- The ER did not abuse its discretion in denying the Norbergs’ request to place their 2016 tax account under CNC status and upholding the proposed levy to recover their 2016 tax liability.
Main points of law:
- To qualify for CNC status, a taxpayer must demonstrate that, based on its assets, equity, income, and allowable expenses, the taxpayer has no apparent ability to make payments on its tax to pay. To see Foley v. Commissioner, Memo TC. 2007-242.
- A taxpayer’s “ability to pay” is determined by calculating the excess of the taxpayer’s monthly income over necessary living expenses. Rosendale v. Commissioner, Memo TC. 2018-99.
- Some expenses taken into account in the calculation of “ability to pay” are dictated by national or local standards. Maximum monthly allowances for housing, utilities and transportation, known as local standards, vary by location (usually where the taxpayer lives). In most cases, the taxpayer is entitled to the amount actually spent, or the local standard, whichever is lower. To see ITN 220.127.116.11.
- If the IRS determines that the facts and circumstances of a taxpayer’s situation indicate that the use of the standards is insufficient to cover basic living expenses, the IRS may authorize the actual expenses. However, taxpayers must provide documentation to support a determination that the use of state and local expense standards leaves them with an inadequate means of meeting basic expenses. To see ITN 18.104.22.168.
- Where the taxpayer’s underlying liability is in issue, the Court reviews the RE’s decision de novo. If the underlying liability is not duly submitted to the court, the court reconsiders the decision for abuse of power. Goza v. Commissioner114 TC 176, 182 (2000).
- There is abuse of discretionary power when a decision is arbitrary, capricious or without solid basis in fact or in law. To see Murphy v. Commissioner125 TC 301, 320 (2005), aff’d469 F.3d 27 (1st 2006).
- A PR does not abuse his discretion when using local and national spending standards to calculate the taxpayer’s spending and ability to pay. See Friedman v. Commissioner, Memo TC. 2013-44 (only on the taxpayer to justify a departure from local standards).
- When considering an abuse of discretion, the Court does not substitute its judgment for that of the RE or recalculate a ratepayer’s ability to pay. See O’Donnell v. Commissioner, Memo TC. 2013-247.
- A PPIA is an installment agreement in which the taxpayer agrees to pay only a portion of the total debt. IRC §§ 6159(a), 7122.
- Under a PPIA, the taxpayer must agree to pay the maximum monthly payment based on their ability to pay. IRM 22.214.171.124.1(9) (April 26, 2019). A taxpayer’s ability to pay is reassessed every two years. IRC § 6159(d).
- If a debtor files a late federal tax return within two years of filing the bankruptcy petition, the tax liability associated with the late filing is non-dischargeable. To see 11 USC § 523(a)(1)(B)(ii); Washington v. Commissioner120 TC 114, 121-22 (2003).
Knowledge: The key to remember here is – don’t look a gift horse in the mouth. By accepting the ER’s PPIA offer, the Nordbergs would have avoided a levy and reduced their 2016 tax liability in exchange for paying $62 per month for a certain number of months. If the Tax Court had cooperated and the Nordbergs had achieved their goal of CNC status, they would still owe the amount of tax shown on their return, plus interest and penalties; although collection efforts would have been postponed. As Judge Lauber observed, the Nordbergs remain free to seek alternatives to forced collection. But there’s no guarantee that taxpayers will get the same bargain, so to speak.