Northside Carting, Inc. v. Commissioner ( 2020 )

T.C. Memo. 2020-18UNITED STATES TAX COURT
NORTHSIDE CARTING, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1117-18L. Filed January 23, 2020.
Jeff Thomson (an officer), for petitioner.
Marie E. Small, for respondent.
MEMORANDUM OPINION
LAUBER, Judge: In this collection due process (CDP) case, petitioner
seeks review pursuant to sections 6320(c) and 6330(d)(1)1 of the determination by
1
All statutory 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. We round all monetary amounts to the nearest dollar.
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[*2] the Internal Revenue Service (IRS or respondent) to uphold collection actions
with respect to unpaid employment taxes for three calendar quarters during 2015
and 2016. Respondent has moved for summary judgment under Rule 121,
contending that there are no disputed issues of material fact and that his
determination to sustain the proposed collection actions was proper as a matter of
law. We agree and accordingly will grant the motion.
Background
The following facts are based on the parties’ pleadings and respondent’s
motion papers, including the attached declarations and exhibits. See Rule 121(b).
Petitioner had its principal place of business in Massachusetts when it petitioned
this Court.
Petitioner was incorporated in Massachusetts in 1996 and is engaged in the
trash removal and recycling business. The company is family run and has about
50 employees. Petitioner filed Forms 941, Employer’s Quarterly Federal Tax Re-
turn, reporting payroll taxes due for the quarters ending September 30 and Decem-
ber 31, 2015 (2015 quarters), and June 30, 2016 (2016 quarter). But it did not pay
the full balance of the taxes shown as due on those returns. In an effort to collect
these unpaid liabilities the IRS proceeded with collection actions.
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[*3] A. Collection Actions
On June 20 and September 12, 2016, the IRS mailed petitioner Notices
CP297A, Notice of Seizure and Notice of Your Right to a Hearing (2016 levy
notices), for the 2015 quarters. The levy notices informed petitioner that it could
request a CDP hearing within 30 days of each notice. Petitioner did not submit a
hearing request by the dates prescribed.
The IRS subsequently mailed petitioner a notice of Federal tax lien filing
(lien notice) for the 2015 quarters, informing petitioner that it could request a CDP
hearing by January 6, 2017. In a letter postmarked December 30, 2016, petitioner
requested a hearing for the 2016 levy notices and the lien notice, checking the
boxes indicating its interest in an “Installment Agreement” and an “Offer in
Compromise.” This hearing request was timely with respect to the lien notice but
not with respect to the 2016 levy notices.
On March 13, 2017, respondent mailed petitioner a Notice CP297A (2017
levy notice) for the 2016 quarter. The 2017 levy notice informed petitioner that it
could request a CDP hearing by April 12, 2017. Petitioner timely requested a
hearing, checking the box for “Installment Agreement.”
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[*4] B. CDP and Equivalent Hearing
On April 3, 2017, petitioner’s hearing request regarding the 2015 quarters
was assigned to a settlement officer (SO) in the IRS Appeals Office in Boston,
Massachusetts. The SO reviewed petitioner’s account transcripts and determined
that the requirements of applicable law and administrative procedure had been
met. The SO observed that, in addition to its unpaid tax liabilities for the 2015
quarters, petitioner had unpaid employment taxes for other periods totaling more
than $700,000.
On April 4, 2017, the SO mailed petitioner a letter scheduling a hearing for
May 4, 2017. The SO informed petitioner that, in order for him to consider an in-
stallment agreement (IA) or an offer-in-compromise (OIC), petitioner needed to
supply: (1) a completed Form 433-B, Collection Information Statement for Busi-
nesses, with supporting documentation; (2) signed copies of unfiled tax returns for
2015 and 2016; (3) a Form 656, Offer in Compromise, or a proposal for an IA; and
(4) proof of timely deposit of all Federal employment taxes for the current quarter.
Petitioner did not submit any of the requested information before the hearing.
On May 4, 2017, the hearing was held as scheduled with petitioner’s corpo-
rate officer, Jeff Thomson. The SO explained that he would be conducting a CDP
hearing with respect to the NFTL filing only, since petitioner’s hearing request
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[*5] with respect to the levy notices was untimely. As to them petitioner would be
given an “equivalent hearing.”2
During the call the SO noted that petitioner’s outstanding tax liabilities
totaled $783,272. Mr. Thomson acknowledged that petitioner owed the taxes.
But he stated that petitioner wished to execute an IA as a collection alternative and
sought additional time to supply the necessary financial information. The SO
agreed and asked petitioner to provide by May 9, 2017, a completed Form 433-B,
three months of bank records, a current profit and loss statement, a proposed IA,
signed quarterly tax returns for the two most recent calendar quarters, and a list of
assets, accounts receivable, and accounts payable.
On May 9, 2017, Mr. Thomson sent the SO petitioner’s quarterly tax return
for the period ended March 31, 2017; a Form 940, Employer’s Annual Federal
Unemployment (FUTA) Tax Return, for 2016; and a Form 433-B with attached
lists of assets. Mr. Thomson did not include a proposed IA, a profit and loss
statement, or a list of accounts receivable and accounts payable.
2
An equivalent hearing resembles a CDP hearing in that it is held with the
IRS Appeals Office, the SO considers the same issues that would have been con-
sidered at a CDP hearing, and the SO generally follows the same procedures. See
Craig v. Commissioner, 119 T.C. 252, 258 (2002). The chief difference is that the
SO’s decision following an equivalent hearing is embodied in a “decision letter”
as opposed to a “notice of determination.” Ibid.-6-
[*6] On May 22, 2017, the SO called Mr. Thomson to discuss the information
that had been provided and the documents that were still missing. Mr. Thomson
stated that petitioner now hoped to pay its tax liabilities in full after selling an
asset and collecting a large account receivable. Several days later Mr. Thomson
faxed to the SO documents indicating that petitioner might soon receive $550,000
from these sources. The SO determined on the basis of these documents that a
45-day extension of time to pay was reasonable.
Accordingly, on May 30, 2017, the SO sent petitioner, and asked that peti-
tioner sign and return to him, a Form 12257, Summary Notice of Determination,
Waiver of Right to Judicial Review of a Collection Due Process Determination,
Waiver of Suspension of Levy Action, and Waiver of Periods of Limitation in
Section 6330(e)(1). Mr. Thomson signed the Form 12257 and returned it to the
SO on June 12, 2017. Petitioner thereby agreed that “the Notice of Federal Tax
Lien was properly filed,” that petitioner was being granted an extension of time to
pay its liability in full, and that petitioner’s “payment of $827,633.40 [wa]s due by
July 17, 2017.”
On June 30, 2017, the SO received from petitioner a Form 2848, Power of
Attorney and Declaration of Representative, authorizing Philip McCoy to repre-
sent petitioner. During a subsequent telephone conference Mr. McCoy stated that
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[*7] petitioner was unable to meet its payment commitment as set forth in the
Form 12257 but instead wished to negotiate a collection alternative. Mr. McCoy
indicated that petitioner would propose an IA with a large downpayment. The SO
expressed willingness to consider this request, provided that petitioner promptly
supplied a three-month profit and loss statement with supporting bank records.
On August 4, 2017, the SO received from Mr. McCoy a proposal for an IA
with a $400,000 initial payment followed by monthly installments of $10,000.
The letter mentioned that petitioner was gathering information to request abate-
ment of penalties on the basis of reasonable cause. On August 23, 2017, Mr.
McCoy transmitted petitioner’s financial statements for the first half of 2017 but
without supporting bank records. The financial statements showed that petitioner
experienced losses in excess of $800,000 during this period.
On September 14, 2017, the CDP case involving the levy notice for petition-
er’s 2016 quarter was transferred to the SO. He reviewed petitioner’s account and
verified that the tax and penalty for that period had been properly assessed. As of
September 29, 2017, petitioner’s outstanding liability for the 2016 quarter was
$87,779.
On October 25, 2017, the SO called Mr. McCoy and expressed doubt that
petitioner, given its substantial losses, could meet the terms of the proposed IA.
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[*8] Mr. McCoy replied that petitioner had jettisoned several unprofitable
contracts and that some of its employees were family members who would be
willing to take pay cuts. The SO gave petitioner two weeks to supply a profit and
loss statement for the third quarter of 2017 and a salary reduction analysis.
On October 27, 2017, Mr. McCoy informed the SO that petitioner wished to
request penalty abatement. The SO agreed to consider that relief if petitioner sub-
mitted Form 843, Claim for Refund and Request for Abatement, by November 9,
2017, a deadline that the SO later extended to November 15, 2017.
On December 11, 2017, having received none of the requested documents or
any further communication from Mr. McCoy or petitioner, the SO decided to close
the case. On December 20, 2017, the SO issued a decision letter (sustaining the
2016 levy notices) and a notice of determination (sustaining the NFTL filing for
the 2015 quarters and the 2017 levy notice). The notice of determination ex-
plained that petitioner did not qualify for an IA because it “did not submit all the
requested financial information to support * * * [its] collection information
statement” and because it was not in compliance with its current filing and
payment obligations. At that time IRS records indicated that petitioner “ha[d] not
filed Form 941 for the tax quarter 09/30/2017” and was “not current with * * *
[its] Federal Tax Deposits for the payroll tax quarter ending 12/31/2017.”
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[*9] Petitioner’s request for penalty abatement was not considered because
petitioner failed to submit a formal written request for abatement by the SO’s
deadline.
C. Court Proceedings
On January 22, 2018, petitioner timely petitioned this Court, attaching both
the decision letter and the notice of determination. Petitioner stated that it dis-
agreed with the IRS determination because the SO “did not calculate the proper
amount of tax due” or “apply payment to outstanding balances,” “did not fully
consider an offer in compromise,” “did not consider * * * [petitioner’s] penalty
abatement request,” and “agreed to a settlement and then issued a decision without
following through with the agreement.”
On August 7, 2018, respondent filed a motion for summary judgment. The
Court directed petitioner to respond to that motion by August 31, 2018, warning
that failure to respond could result in a decision against it. See Rule 121(d). Peti-
tioner filed no response. On September 17, 2018, the Court denied respondent’s
motion for summary judgment, noting possible gaps in the record then before the
Court.
The parties subsequently conferred and expressed hope that the case could
be resolved without trial. But a year passed and they were unable to reach agree-
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[*10] ment. On October 3, 2019, respondent filed a second motion for summary
judgment and an accompanying declaration, which supplemented the
administrative record. We directed petitioner to respond to the motion by
November 6, 2019, warning that “under Tax Court Rule 121(d), judgment may be
entered against a party who fails to respond to a Motion for Summary Judgment.”
Petitioner filed no response.
Discussion
A. Jurisdiction
The Tax Court is a court of limited jurisdiction, and we must first ascertain
whether a case before us is one that Congress has authorized us to consider. Sec.
7442; Estate of Young v. Commissioner, 81 T.C. 879, 881 (1983). In a CDP case
such as this, our jurisdiction depends on the issuance of a notice of determination
following a timely request for a CDP hearing and the filing of a timely petition for
review. Sec. 6330(d)(1); Orum v. Commissioner, 123 T.C. 1, 8, 11-12 (2004),
aff’d, 412 F.3d 819 (7th Cir. 2005). A decision letter ordinarily does not consti-
tute a “determination” within the meaning of section 6330(d), and we normally
lack jurisdiction to consider a taxpayer’s challenge to the outcome of an equiva-
lent hearing. See Kennedy v. Commissioner, 116 T.C. 255, 263 (2001).
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[*11] Petitioner’s hearing request with respect to the 2016 levy notices was
untimely. Petitioner therefore was not entitled to a CDP hearing and was instead
given an equivalent hearing. See supra note 2. The SO’s decision reflected in the
decision letter was not a “determination” within the meaning of section 6330(d),
and it is not subject to our review. See Kennedy, 116 T.C. at 263.
However, petitioner’s hearing requests were timely with respect to the
NFTL filing for the 2015 quarters and the 2017 levy notice. Accordingly, peti-
tioner was appropriately given a CDP hearing with respect to those matters, and
we have jurisdiction to review the notice of determination sustaining those pro-
posed collection actions.
B. Summary Judgment Standard
The purpose of summary judgment is to expedite litigation and avoid costly,
time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90
T.C. 678, 681 (1988). Under Rule 121(b) we may grant summary judgment when
there is no genuine dispute as to any material fact and a decision may be rendered
as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992),
aff’d, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary judg-
ment, we construe factual materials and inferences drawn from them in the light
most favorable to the nonmoving party. Ibid. However, the nonmoving party may
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[*12] not rest upon the mere allegations or denials in his pleadings, but instead
must set forth specific facts showing that there is a genuine dispute for trial. Rule
121(d); see Sundstrand Corp., 98 T.C. at 520.
Because petitioner did not respond to the motion for summary judgment, we
could enter decision against it for that reason alone. See Rule 121(d). We will
nevertheless consider the motion on its merits. We conclude that no material facts
are in genuine dispute and that this case is appropriate for summary adjudication.
C. Standard of Review
Neither section 6320(c) nor section 6330(d)(1) prescribes the standard of
review that we should apply in reviewing an IRS administrative determination in a
CDP case. The general parameters for such review are marked out by our prece-
dents. Where the validity or amount of the taxpayer’s underlying liability is at is-
sue, we review the Commissioner’s determination de novo. Goza v. Commission-
er, 114 T.C. 176, 181-182 (2000). Where the taxpayer’s underlying liability is not
properly before us, we review the IRS action for abuse of discretion. Id. at 182.
Abuse of discretion exists when a determination is 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 (1st Cir. 2006).
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[*13] D. Underlying Liability
A taxpayer may raise a CDP challenge to the existence or amount of his
underlying tax liability only if he “did not receive any statutory notice of defi-
ciency for such tax liability or did not otherwise have an opportunity to dispute” it.
Sec. 6330(c)(2)(B); see sec. 6320(c). However, a taxpayer is precluded from
challenging his underlying liability in this Court “if it was not properly raised in
the CDP hearing.” Thompson v. Commissioner, 140 T.C. 173, 178 (2013); see
Giamelli v. Commissioner, 129 T.C. 107, 114 (2007). “An issue is not properly
raised if the taxpayer fails * * * to present to Appeals any evidence with respect to
that issue after being given a reasonable opportunity.” Moriarty v. Commissioner,
T.C. Memo. 2017-204, 114 T.C.M. (CCH) 441, 443 (quoting section 301.6330-
1(f)(2), Q&A-F3, Proced. & Admin. Regs.), aff’d, 122 A.F.T.R.2d (RIA) 2018-
5984 (6th Cir. 2018); see Obeirne v. Commissioner, T.C. Memo. 2018-210, at *9.
During the CDP hearing neither Mr. Thomson nor Mr. McCoy disputed
petitioner’s employment tax liabilities for the three quarters in question. Although
petitioner asserted in its petition that the SO “did not calculate the proper amount
of tax due” or “apply payment to outstanding balances,” petitioner is precluded
from advancing those arguments in this Court because it failed to raise an under-
lying liability challenge at the IRS Appeals Office. See Thompson, 140 T.C.
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[*14] at 178; Giamelli, 129 T.C. at 114; secs. 301.6330-1(f)(2), Q&A-F3,
301.6320-1(f)(2), Q&A-F3, Proced. & Admin. Regs. We accordingly review the
SO’s action for abuse of discretion only. Goza, 114 T.C. at 182.
E. Abuse of Discretion
In reviewing the SO’s determinations we consider whether he: (1) properly
verified that the requirements of applicable law or administrative procedure have
been met, (2) considered any relevant issues petitioner raised, and (3) considered
“whether any proposed collection action balances the need for the efficient collec-
tion of taxes with the legitimate concern of * * * [petitioner] that any collection
action be no more intrusive than necessary.” See sec. 6330(c)(3). Our review of
the record establishes that the SO properly discharged all of his responsibilities
under section 6330(c).
Petitioner urged in its petition that the SO “did not fully consider an offer in
compromise” and “did not consider * * * [its] penalty abatement request.” But
petitioner did not submit a completed Form 656 or otherwise pursue an OIC with
the SO, advancing an IA as its sole collection alternative. “There is no abuse of
discretion when Appeals fails to consider an offer-in-compromise when a Form
656 was not submitted to Appeals.” Gentile v. Commissioner, T.C. Memo.
2013-175, 106 T.C.M. (CCH) 75, 77, aff’d, 592 F. App’x 824 (11th Cir. 2014).
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[*15] Nor did Mr. McCoy submit a written request for penalty abatement on a
Form 843 despite being given repeated opportunities to do so. The SO did not
abuse his discretion in declining to consider penalty abatement under these
circumstances. See Pough v. Commissioner, 135 T.C. 344, 351 (2010).
Finally, petitioner asserts that the “IRS agreed to a settlement and then is-
sued a decision without following through with the agreement.” But the SO did
not agree to a settlement. Petitioner executed a Form 12257, agreeing to pay its
tax liabilities in full, but later said it was unable to fulfill that commitment. In-
stead it proposed an IA with a downpayment of $400,000 and monthly install-
ments of $10,000. The SO requested additional financial information to support
the feasibility of that proposal, but petitioner never supplied that information.
Section 6159 authorizes the Commissioner to enter into an IA if he deter-
mines that it will facilitate full or partial collection of a taxpayer’s unpaid liability.
See Thompson v. Commissioner, 140 T.C. at 179. Subject to exceptions not
relevant here, the decision to accept or reject an IA lies within the Commissioner’s
discretion. See Rebuck v. Commissioner, T.C. Memo. 2016-3; Kuretski v. Com-
missioner, T.C. Memo. 2012-262, aff’d, 755 F.3d 929 (D.C. Cir. 2014); sec.
301.6159-1(a), (c)(1)(i), Proced. & Admin. Regs. We will not substitute our
judgment for the SO’s, recalculate the taxpayer’s ability to pay, or independently
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[*16] determine what would be an acceptable offer. See Thompson, 140 T.C.
at 179; Lipson v. Commissioner, T.C. Memo. 2012-252.
We have consistently held that it is not an abuse of discretion for an Ap-
peals officer to reject collection alternatives and sustain collection action where
the taxpayer has failed, after being given sufficient opportunities, to supply the
necessary information. See, e.g., Solny v. Commissioner, T.C. Memo. 2018-71,
at *10; Gentile, 106 T.C.M. at 77. Here, the SO expressed doubt that petitioner
could meet the terms of its proposed IA given the losses of $800,000 during the
first half of 2017. Mr. McCoy replied that petitioner’s financial condition might
be turning the corner, stating that it had jettisoned unprofitable contracts and that
its employees were willing to take pay cuts. On October 25, 2017, the SO gave
petitioner two weeks to validate that prognosis by supplying a profit and loss
statement for the third quarter of 2017 and a salary reduction analysis. Having
received neither of those documents during the ensuing seven weeks--a period in
which petitioner missed three deadlines to supply documents--the SO did not
abuse his discretion in closing the case.
The SO indicated in the notice of determination that petitioner was not in
compliance with its current filing and payment obligations, having failed to file
Form 941 for the third quarter of 2017 and having failed to make required tax de-
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[*17] posits during the final quarter of that year. The requirement of current
compliance as a condition of executing an IA “ensures that current taxes are paid
and avoids ‘the risk of pyramiding liability.’” Hull v. Commissioner, T.C. Memo.
2015-86, 109 T.C.M. (CCH) 1438, 1441 (quoting Schwartz v. Commissioner, T.C.
Memo. 2007-155, slip op. at 8); see Orum, 412 F.3d 819. The SO was justified in
declining to execute an IA for that reason alone. See Cox v. Commissioner, 126
T.C. 237, 258 (2006), rev’d on other grounds, 514 F.3d 1119 (10th Cir. 2008);
Cmty. Law Firm, Inc. v. Commissioner, T.C. Memo. 2018-198, at *8-*9; Hull,
109 T.C.M. (CCH) at 1441.
The SO in this case worked constructively with petitioner and its representa-
tives for more than six months in an effort to achieve a collection alternative. But
an SO is not obligated to negotiate indefinitely. Kreit Mech. Assocs., Inc. v. Com-
missioner, 137 T.C. 123, 134 (2011); Rayle v. Commissioner, T.C. Memo. 2019-
119, at *12. Given petitioner’s nonresponsiveness toward the end of the process,
the SO was justified in closing the case when he did on the basis of the informa-
tion before him at that time. We note that petitioner is free to propose to the IRS
at any time, for its consideration and possible acceptance, an IA supported by the
necessary financial information.
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[*18] In consideration of the foregoing,
An appropriate order and decision
will be entered for respondent.