credeX, Inc. v. Commissioner ( 2017 )

T.C. Memo. 2017-241UNITED STATES TAX COURT
CREDEX, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13736-12L. Filed December 5, 2017.
Robert E. Kovacevich, for petitioner.
Fred Edward Green, Jr., and Ric D. Hulshoff, for respondent.
MEMORANDUM OPINION
FOLEY, Judge: The issues for decision are whether respondent’s Appeals
officer abused his discretion in sustaining a levy notice regarding petitioner’s
Federal Insurance Contributions Act (FICA) tax liabilities relating to the periods
ending March 31 and June 30, 1996; March 31, June 30, September 30, and
December 31, 1997; June 30, September 30, and December 31, 1998; and March
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[*2] 31, 1999 (periods in issue), and whether petitioner is entitled to challenge the
underlying liability. The parties submitted this case fully stipulated pursuant to
Rule 122.1
Background
On February 12, 2008, respondent issued petitioner, a subchapter C
corporation, a notice of determination of worker classification relating to the June
30, 1995, through March 31, 1999, tax periods.2 In the notice respondent
determined that Robert E. Kovacevich was petitioner’s employee for Federal
employment tax purposes and that petitioner was not entitled to relief pursuant to
section 530 of the Revenue Act of 1978. On April 28, 2008, petitioner timely filed
a petition with the Court relating to the notice of determination of worker
classification. W. Mgmt., Inc. v. Commissioner, T.C. Dkt. No. 9745-08 (filed
Apr. 28, 2008). The Court, on June 11, 2009, filed two stipulations of settled
issues in which the parties resolved the issues raised in the notice of determination
of worker classification and agreed that respondent would credit $195,708 to
1
Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
2
Petitioner’s name was Western Management, Inc., when the notice was
issued. Petitioner changed its name to Credex, Inc., sometime thereafter.
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[*3] petitioner’s 1995, 1996, 1997, 1998, and 1999 income tax withholding.3 On
August 25, 2009, the Court granted respondent’s motion for entry of decision and
entered a decision in accordance with the parties’ stipulations. Shortly thereafter,
petitioner appealed the Tax Court’s decision to the U.S. Court of Appeals for the
Ninth Circuit, and respondent assessed the taxes and additions to tax reflected in
the decision. Respondent did not, however, take into account the $195,708 of
stipulated income tax withholding.
As the parties awaited the Court of Appeals’ ruling, respondent issued
petitioner, on February 25, 2011, a levy notice relating to petitioner’s FICA tax
liabilities for the periods in issue. On March 15, 2011, petitioner filed a timely
request for a collection due process (CDP) hearing in which it alleged, among
other things, that respondent had failed to take into account the stipulated credits.
On June 20, 2011, the Court of Appeals affirmed the Tax Court’s decision.
W. Mgmt., Inc. v. Commissioner, 438 F. App’x 619 (9th Cir. 2011). In its opinion
the court recounted respondent’s assurance that “any credits due to * * *
[petitioner] will be administratively applied to * * * [its] tax accounts after the
[Tax Court’s] [d]ecision becomes final.” Id. at 621.
3
Respondent agreed to credit $34,860 relating to 1995, $45,316 relating to
1996, $51,132 relating to 1997, $51,625 relating to 1998, and $12,775 relating to
1999.
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[*4] During petitioner’s CDP Hearing, Appeals Officer Charles Duff failed to
consider the stipulated credits. On May 7, 2012 (i.e., after the Tax Court’s
decision became final), he issued a notice of determination sustaining the levy
notice. Petitioner, whose principal place of business was Spokane, Washington,
timely filed a petition with the Court on May 30, 2012. The Court, on October 1,
2014, remanded petitioner’s case to allow an Appeals officer’s consideration of
“any credits, specifically credits for income tax withholding, to which [p]etitioner
may be entitled.” Steve Lerner, the Appeals officer assigned to the remand,
determined that petitioner was entitled to $195,708 of credits but applied only
$125,084 to petitioner’s accounts.4 On April 16, 2015, Appeals Officer Lerner
issued petitioner a supplemental notice of determination that again sustained the
levy notice.
Discussion
Petitioner had a prior opportunity to dispute his FICA taxes and thus cannot
challenge the underlying liability. See sec. 6330(c)(2)(B); Baltic v.
Commissioner, 129 T.C. 178, 183 (2007); sec. 301.6330-1(e)(3) Q&A-E2, Proced.
4
Appeals Officer Lerner credited $11,620 to the March 31, 1996, period;
$11,232 to each of the June 30, 1996, and March 31, 1997, periods; $13,300 to
each of the June 30, September 30, and December 31, 1997, periods; and $12,775
to each of the June 30, September 30, and December 31, 1998, and March 31,
1999, periods.
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[*5] & Admin. Regs. We must therefore ascertain whether Appeals Officer Lerner
abused his discretion. See sec. 6330(c); Pough v. Commissioner, 135 T.C. 344,
351 (2010); Giamelli v. Commissioner, 129 T.C. 107, 111 (2007); Goza v.
Commissioner, 114 T.C. 176, 182 (2000); Woodral v. Commisisoner, 112 T.C. 19,
23 (1999).
On remand Appeals Officer Lerner agreed petitioner was entitled to
$195,708 of income tax withholding but inexplicably credited petitioner only
$125,084. By not taking into account $70,624 (i.e., $195,708 less $125,084) of
stipulated credits, he reneged on respondent’s assurances to the Court of Appeals;
failed to consider relevant issues relating to the unpaid tax; inappropriately
balanced respondent’s need for the efficient collection of taxes with petitioner’s
concern regarding the levy’s intrusiveness; and contravened applicable law and
administrative procedure (i.e., section 3402(d) and Internal Revenue Manual pt.
4.23.8.4.3 (Dec. 11, 2013)) requiring respondent to abate an employer’s
employment tax liability to the extent it is paid by an employee. See sec. 6330(c);
Mescalero Apache Tribe v. Commissioner, 148 T.C. ___, ___ (slip op. at 2-3)
(Apr. 5, 2017); Dixon v. Commissioner, 141 T.C. 173, 178-179 (2013); Freije v.
Commissioner, 125 T.C. 14, 27-28 (2005) (stating that the Court can consider
facts and issues relating to nondetermination years in evaluating a taxpayer’s
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[*6] claim that the liability has been paid). The administrative record belies
respondent’s contention that Appeals Officer Lerner applied all of the stipulated
credits to petitioner’s accounts. Because his determination lacked a sound basis in
law and fact, Appeals Officer Lerner abused his discretion. See Giamelli v.
Commissioner, 129 T.C. at 111. Accordingly, the levy notice is not sustained.
Contentions we have not addressed are irrelevant, moot, or meritless.
To reflect the foregoing,
Decision will be entered for
petitioner.