The Tax Times: TC Ruled That IRS is Correct in Denying a Noncompliant Taxpayer Collection Alternatives after a CDP Hearing

Tuesday, September 22, 2020

TC Ruled That IRS is Correct in Denying a Noncompliant Taxpayer Collection Alternatives after a CDP Hearing

The Tax Court has held that an IRS settlement officer (SO) did not abuse their discretion by denying an individual’s request for a collection alternative because she failed to meet her estimated tax payment obligations and, therefore, she was not eligible for an installment agreement (IA). Further, the SO's rejection of the individual’s offer in compromise (OIC) was justified because the individual failed to propose specific terms for her OIC.

During a collection due process (CDP) hearing, an IRS settlement officer (SO) should: (1) verify that the requirements of applicable law or administrative procedure were met; (2) consider any relevant issues raised by the taxpayer, including collection alternatives; and (3) consider whether the proposed collection action balanced the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. (Code Sec. 6330(c)(3))

It is not an abuse of discretion for an SO to reject a taxpayer's collection alternative when the taxpayer does not propose any terms for an IA or OIC. (Walker, TC Memo 2014-187)

It is not an abuse of discretion when an SO rejects a collection alternative for a taxpayer who fails to comply with current estimated tax obligations. (Ransom, TC Memo 2018-211)

Carol Biggs-Owen owned two home healthcare businesses during 2013 and 2014. She failed to pay all of the tax due, and IRS assessed the reported tax, additions to tax for failure to timely pay and failure to pay estimated tax, and interest. Biggs-Owen entered into an IA with IRS, but it was terminated six months later.

When IRS filed a notice of federal tax lien, Biggs-Owen requested a CDP hearing, checking the box for “installment agreement” but identifying no further issues.

At the hearing, Biggs-Owen inquired about an OIC, and the SO gave her 14 days to submit an OIC and supporting financial information. She submitted some financial information but not an actual OIC.

After reviewing Biggs-Owen's financial information, the SO found that that Biggs-Owen had over $17,000 per month to pay her tax obligations. Further, the SO explained to Biggs-Owen she was not eligible for an IA because she was not in compliance with her estimated tax payment obligations. On July 5, 2017, the SO sustained IRS's lien filing.

The Tax Court found that Biggs-Owen’s noncompliance with her estimated tax payment obligations justified the SO's rejection of her proposed IA. Also, the SO did not abuse their discretion by refusing Biggs-Owen's OIC because Biggs-Owen failed to propose specific terms for the OIC.

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