IRS Collection Process and Taxpayer Rights: A Comprehensive Guide

Posted on Aug 8, 2024 in Law & Jurisprudence

Tax 9889: Current Problems in Taxation

Class #8

Baruch College

Summer 2017

Room 5-165-VC

Overview of IRS Collection Process

After an assessment is made establishing a liability for taxes, penalties, and/or interest, a taxpayer is sent a bill for the amount due.

The IRS is authorized to take collection enforcement actions if necessary to recover any amounts due.

While a taxpayer is expected to pay the full amount before the due date, the IRS does provide alternate payment options.

Alternate Payment Options

• Apply for an installment agreement
  • Smaller periodic payments over time
  • Must file all required tax returns
  • May be asked to complete a Collection Information Statement and provide proof of financial status
• Apply for an Offer in Compromise
  • Request to settle unpaid taxes for less than the full amount that is owed. Available if:
    • The accuracy of the tax debt is in dispute, and/or
    • Paying the amount due would cause economic hardship

Installment Agreements

Section 6159 authorizes the Commissioner to enter into written agreements allowing taxpayers to pay tax in installment payments if he deems that the “agreement will facilitate full or partial collection of such liability.”

The decision to accept or reject installment agreements lies within the discretion of the Commissioner.

Installment Agreements

Installment Agreements are arrangements by which the Internal Revenue Service allows taxpayers to pay liabilities over time.

If full payment cannot be achieved by the Collection Statute Expiration Date, and taxpayers have some ability to pay, Partial Payment Installment Agreements may be granted.

During the course of agreements, penalties and interest continue to accrue.

Generally, no levies may be served during installment agreements.

Installment Agreements

Installment agreements must reflect taxpayers’ ability to pay on a monthly basis throughout the duration of the agreement.

Taxpayers do not qualify for installment agreements if balance due accounts can be fully or partially satisfied by liquidating assets, unless:

• factors such as advanced age, ill-health, or other special circumstances are determined to prevent the liquidation of the assets

Installment Agreements

Filing and paying compliance must be considered prior to determining that the best manner of paying delinquent taxes is through an installment agreement.

Agreement may be terminated without advance notice if the IRS believes that collection of the tax covered by the installment agreement is in jeopardy.

The Internal Revenue Service may also propose termination of an installment agreement (place in default) if taxpayers:

• fail to pay an installment payment when due under the terms of an agreement;
• fail to pay another tax liability at the time such liability is due;
• fail to provide an updated financial statement upon request;
• provided information prior to the date such agreement was entered into that was inaccurate or incomplete; or,
• fail to pay a modified payment amount based upon updated financial information.

Installment Agreements

When a taxpayer does not meet the terms of an installment agreement, she or he will be notified in writing and given 30 days to comply with the terms of the agreement before the agreement is terminated.

Upon default or termination of an installment agreement, the IRS may take appropriate enforcement action by filing a lien or levying property.

Offers in Compromise

The Secretary of the Treasury is granted broad authority to compromise tax liabilities in IRC Section § 7122.

The Commissioner of Internal Revenue, under Treasury Regulation § 301.7122-1, is authorized to compromise a liability on any one of three grounds:

• Doubt as to Collectibility (DATC),
• Doubt as to Liability (DATL), or,
• To promote Effective Tax Administration (ETA).

The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential.

An OIC is a legitimate alternative to declaring a case currently not collectible or a protracted installment agreement.

The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.

Offers in Compromise

Process is governed by Revenue Procedure 2003-71, 2003-2 C.B. 517

Offers accepted based on DATC or ETA should include all unpaid tax liabilities and periods for which the taxpayer is liable.

Offers accepted based on DATL should only include the tax years or periods in question. Liabilities for other tax periods should not be included in the offer.

An OIC is effective for the entire assessed liability for tax, penalties, and interest for the years or periods covered by the offer.

All questions of tax liability for the years or periods covered by the agreement are considered conclusively settled.

Neither the taxpayer nor the government can reopen a compromised tax year or period unless there was falsification of information or documents, concealment of ability to pay and/or assets, or a mutual mistake of a material fact that would be sufficient to cause the agreement to be set aside or reformed.

Offers in Compromise

Taxpayers submitting requests for lump sum cash offers must include with the offer a payment equal to 20% of the offer amount. The payment is treated as a payment of tax and is nonrefundable.

If the IRS does not make a determination on an OIC within 24 months, the OIC will be deemed accepted.

OIC requests are submitted on Form 656, Offer in Compromise.

Offers in Compromise

Taxpayer’s financial condition is reviewed to determine reasonable collection potential (RCP).

Collection Information Statements (CIS) and related documentation submitted with an OIC should reflect information no older than the prior six months from the date of the OIC submission.

If, during the investigation, the financial information becomes older than 12 months and it appears significant changes have occurred, a request for updated information may be appropriate.

Assets, future income and expenses are evaluated.

Offers in Compromise

Allowable expenses consist of necessary and conditional expenses.

Once allowable expenses are determined, they are used to calculate the amount that can be collected from the taxpayer’s future income.

A necessary expense is one that is necessary for the production of income or for the health and welfare of the taxpayer’s family.

• Taxpayers are allowed the National Standard Expense amount for their family size, without questioning the amount actually spent. If the total amount claimed is more than the total allowed by the National Standards, the taxpayer must provide documentation to substantiate and justify that the allowed expenses are inadequate to provide basic living expenses

Conditional expenses are those that may be allowed when the tax will be paid in full by an installment agreement within 6 years.

In DATL requests, the administrative file is secured and reviewed to examine the evidence that supported the assessment.

Effective Tax Administration

The Service may also accept an OIC after considering

• Taxpayer Hardship,
• Public policy, and
• Equity

Treasury Regulation § 301.7122-1 authorizes the Service to consider OIC’s raising these issues.

These offers are called Effective Tax Administration (ETA) offers.

Enforcement Actions

Federal tax lien: A legal claim against all current and future property, such as a house or car, and rights to property, such as wages and bank accounts. The lien automatically comes into existence if you don’t pay the amount due after receiving your first bill.

Notice of Federal Tax Lien (NFTL): A public notice to creditors. It notifies them that there is a federal tax lien that attaches to all your current and future property and rights to property.

Levy: A legal seizure of property or rights to property to satisfy a tax debt. When property is seized (“levied”), it will be sold to help pay your tax debt. If wages or bank accounts are seized, the money will be applied to your tax debt.

Seizure: There is no legal difference between a seizure and a levy.

Notice of Intent to Levy: Generally, before property is seized, we have to send you this notice. If you don’t pay your overdue taxes, make other arrangements to satisfy the tax debt, or request a hearing within 30 days of the date of this notice, we may seize your property.

Collection Due Process

Prior to enactment of CDP provisions, the IRS was able to levy against a taxpayer without an opportunity for a hearing or due process.

Taxpayers now have a statutory right to a CDP hearing upon receipt of a Notice advising of this right.

A timely request for a hearing is required.

Taxpayers are limited to one hearing:

• IRC § 6320 (Notice and opportunity for hearing upon filing of notice of lien), and
• IRC § 6330 (Notice and opportunity for hearing before levy)

Applies for each tax assessment within a tax period. IRC § 6320(b)(2); 6330(b)(2).

Collection Due Process

Procedures are generally governed under IRC § 6330 for both liens and levies. IRC § 6320(c).

Taxpayers are notified the first time a Notice of Federal Tax Lien is filed for each tax and period. IRC § 6320(a).

The IRS must notify the TP within 5 business days after the lien filing. The notice may be mailed, given in person, or left at the taxpayer’s home or office. IRC § 6320(a)(2).

Taxpayers have 30 days, after that 5-day period, to request a hearing with Appeals. The lien notice received will indicate the date this 30-day period expires. IRC § 6320(a)(3).

Collection Due Process

For levies, taxpayers are also issued a notice. IRC § 6330(a).

The notice is mailed, given in person, or left at the taxpayer’s home or office. IRC § 6330(a)(2).

During the 30-day period from the date of the notice, taxpayers may request a hearing with Appeals. IRC § 6330(a)(3).

You may contest the CDP determination in the United States Tax Court.

Collection Due Process

If the collection of the tax is in jeopardy or in other limited circumstances, the taxpayer may be provided notice of a hearing opportunity after the levy. IRC § 6330(f).

If the request for a CDP hearing is not timely, taxpayers may request an “equivalent hearing”.

• The request must be postmarked on or before the end of the one-year period after the date of the levy notice or on or before the end of the one-year period plus 5 business days after the filing date of the Notice of Federal Tax Lien. Treas. Reg. § 301.6330-1(i).

Collection Due Process

The CDP hearing is held with the IRS Office of Appeals. IRC § 6330(b)(1).

The hearing officer must be impartial and had no prior involvement with respect to the unpaid tax. IRC § 6330(b)(3).

A conference with Appeals may be held by telephone, correspondence, or, in a face-to-face conference at the Appeals office closest to the taxpayer’s home, school or place of business.

If a collection alternative is proposed, it may be necessary for the taxpayer to submit financial information or tax returns.

Collection Due Process

As part of a Collection Due Process hearing, the Appeals Officer is required to “obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met”. Sections 6330(c)(1); 6330(c)(3)(A).

Any relevant issue may be raised as part of the CDP or equivalent hearing. IRC § 6330(c)(2).

Collection Due Process

Alternatives or reasons for disagreeing may include any relevant issue such as:

• Collection alternatives such as installment agreement or offer in compromise. IRC § 6330(c)(2)(A)(iii)
• Subordination, discharge or release of lien. IRC § 6330(c)(2)(A)(ii)
• Withdrawal of Notice of Federal Tax Lien. IRC § 6330(c)(2)(A)(ii)
  • Does not mean it has been released only that it is abandoned.
• Appropriate spousal defenses. IRC § 6330(c)(2)(A)(i)
• The existence or amount of the tax, but only if TP did not receive a notice of deficiency or did not otherwise have an opportunity to dispute the tax liability. IRC § 6330(c)(2)(B)
• Collection of the tax liability is causing or will cause an economic or other hardship.

Collection Due Process

Unless one of the exceptions in section 6330(f) applies, (Jeopardy situations, State Income Tax levies, Federal Contractor levies or Disqualified Employment Tax levies), a levy action is not permitted for the subject tax and periods during the 30 days after the levy notice and during the timely requested CDP hearing process.

Normally, there will be no levy action during the period you have to request a hearing from a lien notice and during the related CDP hearing process.

Collection Due Process

If a request for a CDP hearing is timely, the 10-year period the IRS has to collect taxes will be suspended until the date Appeals’ determination becomes final or the request for a hearing is withdrawn. IRC § 6330(e).

If a request for a CDP hearing is not timely and a an equivalent hearing is requested, the law does not prohibit levy and the collection statute is not suspended.

Taxpayers cannot go to court if you disagree with Appeals’ decision in an equivalent hearing.

Appeals will retain jurisdiction over its determination.

TP may return to Appeals if the Collection function did not carry out Appeals’ determination as it was stated or if there is a change in circumstances that affects Appeals’ determination.

Collection Due Process

At the conclusion of the CDP hearing, Appeals will issue a determination letter unless the hearing request has been withdrawn.

The determination is based upon proper verification, issues raised by the taxpayer and balancing the need for efficient collection of taxes with taxpayer’s concern that any collection action be no more intrusive than necessary. IRC § 6330(c)(3).

Taxpayers may request judicial review of the Appeals determination by petitioning the United States Tax Court within 30 days of the Appeals’ determination. IRC § 6330(d)(1).

A case may be remanded back to Appeals by the Tax Court:

• when Appeals has abused its discretion
• when taxpayer wasn’t given a proper hearing
• when court determines a new hearing will be productive in refining and resolving issues.

Collection Due Process

Abuse of discretion has been defined by the Tax Court as:

• Arbitrary
• Capricious
• Clearly unlawful
• Without sound basis in fact or law

Collection Due Process

Taxpayers are not able to raise issues in the Tax Court if not raised during the Appeals hearing.

• The Tax Court limits the evidence a taxpayer may present to the evidence submitted to Appeals during the hearing (i.e. the administrative record).
• Taxpayers should raise all issues and present all evidence during the Appeals hearing, in order to preserve the right to raise issues and have evidence considered in subsequent court proceedings.

Authority to Levy

Section 6331(a) grants the Secretary authority to levy upon a taxpayer’s property or rights to property.

Various subsections of section 6331 however, prohibit the Secretary from levying under certain circumstances.

• See, Sec. 6331(f) (g), (i), (j), (k).

Thompson v. Commissioner, 140 T.C. 173 (2013)

TP petitioned for review CDP hearing. TP also requested a partial payment installment agreement.

Included in the total monthly expenses were “other expenses” of $5,294, which consisted of: (1) Church tithing expenses of $2,110; (2) Church service expenses of $232; and (3) college expenses of $2,952

In evaluating a taxpayer’s ability to pay, the Commissioner classifies a taxpayer’s expenses into two categories: (1) necessary expenses and (2) conditional expenses. Pixley v. Commissioner, 123 T.C. 269, 272, (2004); IRM 5.14.2.1.1(4).

Thompson v. Commissioner

The necessary expense test is defined as expenses that are necessary to provide for a taxpayer’s and his or her family’s health and welfare and/or production. IRM 5.15.1.7(1).

If a taxpayer requests a partial payment installment agreement, then the taxpayer is allowed only necessary expenses; conditional expenses are not allowed.

Thompson v. Commissioner

Issue: Did the Appeals officer properly treat religious tithing and college expenses as conditional expenses?

Application: IRS has a compelling interest to collect taxes and administer the tax system. An inability to tithe which will result in resignation as a church minister does not violate the Free Exercise Clause First Amendment. Expenses that are necessary as a condition of employment are limited to compensated employment. Necessary expenses for “health and welfare” do not include spiritual health and welfare. College expenses are also considered a conditional expense.

Conclusion: IRS did not abuse its discretion in treating the expenses as conditional.

Thompson v. Commissioner

Important Principles:

• If the taxpayer’s underlying liability is at issue, the determination is reviewed de novo.
• The “abuse of discretion” standard means does not mean a Court will make an independent determination of collection alternatives.
• Expenses classified into two categories: necessary and conditional.
  • Only primary and secondary school (not college) expenses are “necessary”, and only if no public institutions were available.
• Although IRM was followed, court took care to note that IRM was not binding on IRS, does not have force of law and confers no rights on taxpayers. Neither do IRS tax forms.

Moosally v. Commissioner 142 T.C. 183 (2014)

TP was assessed a Trust Fund Recovery Penalty under IRC § 6672

• Penalty is imposed on a responsible person for a failure to pay over taxes – usually employment taxes

TP was also assessed for additional income taxes

TP submitted an OIC and appealed the rejection of the OIC to the IRS Appeals Office

Appeals Officer was assigned the OIC rejection and began working the case and requested additional information

IRS later filed a NFTL and TP filed a request for a CDP hearing which was assigned to a second Appeals Officer

Moosally v. Commissioner

CDP case was transferred to the first Appeals Officer

• Likely for efficiency reasons

The NFTL was sustained and the OIC was rejected by the first Appeals Officer

A CDP hearing in response to an NFTL must be conducted by an impartial officer or employee of the Appeals Office. IRC § 6320(b)(1), (3).

Moosally v. Commissioner

An impartial officer or employee is one “who has had no prior involvement with respect to the to the unpaid tax” subject to the NFTL. IRC § 6320(b)(3).

Prior involvement includes participation or involvement in a matter (other than a CDP hearing) that the taxpayer may have had with respect to the tax and tax period shown on the CDP notice. Treas. Reg. § 301.6230-1(d)(2).

IRS relied on the fact that since the Appeals had not yet made a final determination on the OIC, there was no prior involvement.

Moosally v. Commissioner

In this case, AO’s prior involvement was a separate administrative proceeding involving the same tax periods and not a previous CDP hearing

Case distinguished circumstances where the OIC review was within the context of a CDP hearing

• CDP hearing issues may include collection alternatives. IRC § 6330(c)(2)(A)(iii).

Moosally v. Commissioner

IRS argued that IRC § 6320(b)(3) was to prevent an AO from examining the underlying liability during the examination function and then handling the CDP hearing involving the same liability during the collection enforcement function.

• Basically argued that concurrent handling of petitioner’s rejected OIC and CDP hearing does not run afoul of the section 6320(b)(3) prohibition against prior involvement because both matters involved an evaluation of petitioner’s ability to pay the unpaid tax liabilities for the periods in issue.

Held: The language of the statute must be regarded as conclusive. Agencies have no authority to modify a statute’s unambiguous meaning.

IRS also argued that combining the appeals was a benefit for taxpayers and would allow for judicial review

• In effect, the IRS was asking the court to legislate changes which is the exclusive power of Congress and not of the Tax Court

Eichler v. Commissioner, 143 T.C. (2015)

The IRS assessed trust fund recovery penalties against TP.

TP requested a partial pay installment agreement.

Before the request was input into the IRS computer system or acted upon, IRS sent a Notice of Intent to Levy (Letter CP 90).

TP timely requested a collection due process (CDP) hearing, renewing his request for an installment agreement.

TP asserted that the Letters CP 90 should be withdrawn as invalid pursuant to IRC sec. 6331(k)(2).

Eichler v. Commissioner

IRC sec. 6331(k)(2), prohibits the IRS from making a levy while an offer for an installment agreement is pending.

Section 6331(k)(2) provides:

(2) Installment agreements.—No levy may be made under subsection (a) on the property or rights to property of any person with respect to any unpaid tax—
(A) during the period that an offer by such person for an installment agreement under section 6159 for payment of such unpaid tax is pending with the Secretary; and
(B) if such offer is rejected by the Secretary, during the 30 days thereafter (and, if an appeal of such rejection is filed within such 30 days, during the period that such appeal is pending)

Eichler v. Commissioner

IRM part 5 directs the IRS Collection Division to rescind notices of intent to levy in certain circumstances, one of which is when a notice of intent to levy is issued while levy action is prohibited and the taxpayer timely requests an Appeals hearing.

By contrast, IRM part 8 states that Appeals should not rescind a notice of intent to levy that was issued during the pendency of an installment agreement, even where levy is prohibited.

Eichler v. Commissioner

TP argued that these two provisions are inconsistent and that IRM Part 5 should be treated as controlling.

Tax Court observed that provisions of the IRM do not carry the force and effect of law or confer rights on taxpayers.

In addition, found that the IRM is not necessarily inconsistent in directing the Collection Division and Appeals to take different actions.

Eichler v. Commissioner

By its terms the statute bars the IRS, while a taxpayer’s offer for an agreement request is pending, from making a levy; it does not bar the IRS from issuing notices of intent to levy.
Held: I.R.C. sec. 6331(k)(2) did not preclude R from issuing the Letters CP 90 after P submitted his offer for an installment agreement.

Buffano v. Commissioner, T.C. Memo. 2016-122

TP did not file federal income tax returns for the 2000 through 2003 taxable years.

The IRS mailed a notice of deficiency to him. The U.S.P.S. returned the notice of deficiency as undeliverable.

Because TP did not respond to the notice of deficiency, the IRS assessed the liabilities.

The IRS filed a notice of federal tax lien against TP and sent him a CDP lien notice.

TP timely submitted a Form 12153, Request for a Collection Due Process or Equivalent Hearing, with respect to the NFTL filing.

In his CDP request, Buffalo challenged whether “the IRS followed proper procedures to ensure that this ‘liability’ is authentic or even owed.”

Buffano v. Commissioner

During the CDP hearing, TP said that he did not owe the taxes.

The Appeals settlement officer told Buffalo that he could not challenge the liabilities. TP did not raise any other arguments.

Appeals obtained a copy of the notice of deficiency but not the certified mailing list.

Appeals mailed a notice of determination to TP sustaining the NFTL filing and TP timely filed a petition to the Tax Court.

Buffano v. Commissioner

After the case was docketed, respondent moved to remand the case for Appeals to establish that the requirements of applicable law and administrative procedure were met and to allow Buffalo to challenge the merits of the liabilities.

The court granted the motion and remanded the case.

On remand, the settlement officer sent a letter to TP allowing him the opportunity to challenge the liability but the TP neither responded to the letter nor called for a conference.

The settlement officer issued a supplemental notice of determination that stated (in part):

Buffano v. Commissioner

Appeals mailed you a copy of the notice of deficiency for 2002 and 2003. The Service was unable to obtain a copy of the certified mailing list and could not show that a statutory Notice of Deficiency was issued to you at the correct address.

It is Appeals’ determination not to grant you relief from the filing of the Notice of Federal Tax Lien (NFTL) covering your unpaid liability for the taxes and tax periods shown above [2000 through 2003]. You have not met any conditions for withdrawal of the NFTL. You did not provide any information so the matter of the underlying liability could be considered. You also did not provide any financial information so collection alternatives could be considered. You would not qualify for any collection alternatives at the present time because you are not in compliance with all of your filing requirements.

Buffano v. Commissioner

TP testified that he had not received a notice of deficiency and claimed that the IRS did not properly mail one.

Respondent asserted that a notice of deficiency for each year was mailed to petitioner’s last known address but did not introduce any additional evidence on this issue.

Respondent conceded that TP did not receive the notice of deficiency for any of the years.

Held: Assessments were invalid.

The Tax Court held that, because the IRS did not meet its burden of proving that the notice of deficiency was properly mailed to petitioner’s last known address, the assessments were invalid and the collection action was improper.

Buffano v. Commissioner

The Tax Court followed Hoyle v. Commissioner, 131 T.C. 197 (2008).

In a deficiency case, if the Service can’t verify that a deficiency notice was sent to the taxpayer’s last known address, the Court will find the assessment invalid.

This generally requires production of a certified mailing list and a copy of the notice of deficiency.

However, if one or both of these documents are missing, it may be possible to introduce other evidence to establish that the documents existed.

Buffano v. Commissioner

For example, in Casey v. Commissioner, T.C. Memo. 2009-131, the IRS produced a certified mailing list, but could not produce the actual notice of deficiency that was sent to the taxpayer, because the file was lost after the CDP hearing.

However, the settlement officer’s contemporaneous notes in the file indicated that the lost file had contained the original notice of deficiency with its mailing envelope attached.

The envelope bore U.S. Postal Service (USPS) markings indicating that it had been returned unclaimed after three attempts at delivery were made. The Tax Court held that the settlement officer had verified that the assessments were properly made.

Buffano holds that if one or both of these documents are missing, without any other evidence the Tax Court will find the assessment invalid.

Buffano v. Commissioner

For two other years, copies of the SND and “Track and Confirm” printouts from the U.S. Postal Service were introduced confirming delivery to the last known address.

A substitute Form 3877 was also provided which constitutes proof of mailing of the notices of deficiency absent contrary evidence.

Tax Court concluded that TP received notices of deficiency and was precluded from challenging the underlying tax liabilities for those years.

Buffano v. Commissioner, T.C. Memo. 2016-121.

Synergy Environmental, Inc. v. Commissioner, T.C. Memo. 2016-99

TP made an offer of $600 to compromise unpaid Federal income tax liabilities of $1.6 million.

The Appeals settlement officer issued a notice of determination rejecting the OIC.

IRS Policy Statement P–5–89 states that that offers may be rejected on the basis of public policy “[i]f the acceptance of an offer might in any way be detrimental to the Government’s interests, it may be rejected even though it is shown conclusively that the amounts offered are greater than could reasonably be collected in any other manner.”

Note: This should not be confused with Public Policy or Equity Grounds, under ETA offers.

Synergy Environmental, Inc. v. Commissioner

The notice of determination stated that:  

“The proposed offer is rejected based on Policy Statement P-5-89.   Taken as a totality, the taxpayer shows a pattern of moving or eliminating his assets, all the while hotly contesting tax issues during the prolonged (10 year) audit and Tax Court processes. The taxpayer, therefore, meets * * * [offer-in-compromise] rejection criteria, as per Internal Revenue Manual (IRM) 5.8.7.7.2. “

•Synergy Environmental, Inc. v. Commissioner

•The Tax Court sustained the rejection of the offer based on IRS Policy Statement P–5–89. 

•Although the court itself did not describe the taxpayer’s egregious behavior, it noted that the settlement officer’s notice of determination met the legal requirements.

•Under section 301.6320–1(e)(3), Q & A–E8, Proced. & Admin. Regs., the notice of determination will:

–(1) state whether the IRS met the requirements of any applicable law or administrative procedure;

–(2) respond to any offers by the taxpayer for collection alternatives; and

–(3) address “whether the continued existence of the filed * * * [notice of Federal tax lien] represents a balance between the need for the efficient collection of taxes and the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary.”

•Synergy Environmental, Inc. v. Commissioner

•IRM 5.8.7.7.2. allows offers to be rejected on the basis of IRS Policy Statement P–5–89 and outlines the criteria for rejecting offers-in-compromise on such grounds.

•For example, an offer-in-compromise may be rejected on the basis of a public policy decision in a situation where “[t]he taxpayer engaged in a pattern of conduct suggesting intentional dissipation of assets.” IRM 5.8.7.7.2(3).

•The notice stated that the totality of the facts reflected a pattern of moving or eliminating assets.

•It is likely that the administrative record before the court contained detailed documentation of the taxpayer’s long history of non-compliance. 

•Synergy Environmental, Inc. v. Commissioner

•This is the first published opinion that reviewed a rejection of an offer based on public policy grounds. 

•IRS does not typically use Policy Statement P–5–89 as the basis for rejecting an offer except in the most egregious cases.  In most circumstances, the offer can be rejected because it is not legally sufficient or based on the failure to provide financial information or providing false financial information. 

•However, the Synergy case does demonstrate that under the right set of facts, the court will uphold a rejection by the IRS under Policy Statement P–5–89.

•Offer acceptance reports are open to public inspection in accordance with Internal Revenue Code § 6103(k)(1), so the general public may be aware of any offer acceptance. A decision to reject an offer for public policy reason(s) should be based on the fact that public reaction to the acceptance of the offer could be so negative as to diminish future voluntary compliance by the general public. Decisions to reject offers for this reason should be rare.

•Guralnik v. Commissioner,
146 T.C. No. 15 (2016)

•Tax Court petition involving a CDP determination

•On the last date for timely filing of the petition, Tuesday, February 17, 2015, all Federal Government offices in the District of Columbia, including the Tax Court, were officially closed on account of Winter Storm Octavia.

•For that reason, P’s petition could not be delivered to the Court on that day. P’s petition was delivered to the Court and filed on Wednesday, February 18, 2015, when the Court reopened for business.

•Petitioner sent his petition to the Court via Federal Express (FedEx) First Overnight service in an envelope showing a “ship date” of February 13, 2015.

•Guralnik v. Commissioner,

•The court found that the timely mailed, timely filed rule in section 7502(f) didn’t apply because the petition was mailed using FedEx First Overnight, which wasn’t a private delivery service for purposes of section 7502 at the time of the mailing.

•The IRS added FedEx First Overnight service to the list of designated private delivery services effective May 6, 2015, approximately three months after the petition in this case was filed. See Notice 2015-38, 2015-21 I.R.B. 984.

•The last date for filing the petition in this case was February 17, 2015, a day on which all Federal offices in the District of Columbia, including the Tax Court, were officially closed for business because of Winter Storm Octavia.

•The Tax Court does not maintain an after-hours “drop box” for filing documents. And the petition could not be filed electronically that day because the Court, at the time, did not permit petitions to be filed electronically.

•Guralnik v. Commissioner,

•The Court’s Clerk’s Office was thus “inaccessible” for the entire day.

•Federal Civil Rule 6(a)(3)(A) provides that, “if the clerk’s office is inaccessible * * * on the last day for filing * * *, then the time for filing is extended to the first accessible day that is not a Saturday, Sunday, or legal holiday.”

•Tax Court Rule 25(a), dealing with computation of time, does not address how time shall be computed when the Clerk’s Office is inaccessible.

•Rule 1(b) does, however, provide: “Where in any instance there is no applicable rule of procedure, the Court or the Judge before whom the matter is pending may prescribe the procedure, giving particular weight to the Federal Rules of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand.”

•Guralnik v. Commissioner,

•Civil Rule 6(a)(3) is “suitably adaptable to govern the matter at hand.”

•We conclude that the time for filing the petition should be “extended to the first accessible day that is not a Saturday, Sunday, or legal holiday.”

•The Clerk’s Office first became accessible following Winter Storm Octavia on February 18, 2015, when the Court reopened for business.

•Because the petition was filed on that day, the Tax Court concluded that it was timely filed.

•Guralnik v. Commissioner,

•We reaffirm our rulings that the 30-day filing period prescribed by section 6330(d)(1) is jurisdictional and accordingly hold that equitable tolling does not apply.

•Section 7503

•”When the last day prescribed under authority of the internal revenue laws for performing any act falls on Saturday, Sunday, or a legal holiday, the performance of such act shall be considered timely if it is performed on the next succeeding day which is not a Saturday, Sunday, or a legal holiday.”

•Guralnik v. Commissioner,

•The IRS mailed the notice of determination to petitioner on January 16, 2015. The 30th day thereafter was Sunday, February 15. The following day, Monday, February 16, was Washington’s Birthday, a legal holiday in the District of Columbia.

•TP argued that the “snow emergency” rendered February 17, in practical effect, as a legal holiday in the District of Columbia.

•The regulations provide that, “[f]or the purpose of section 7503, the term legal holiday includes the legal holidays in the District of Columbia as found in D.C. Code. Ann. 28-2701.”

•Guralnik v. Commissioner,

•Although “snow emergency days” and “legal holidays” are generally treated similarly for purposes of local government operations, the D.C. Code and Municipal Regulations explicitly distinguish between them.

•The Mayor is authorized to declare a “legal holiday,” but that authorization appears in a different section of the D.C. Code from that which authorizes her to declare a state of emergency. See D.C. Code sec. 1-612.02(b) (2014).

•Guralnik v. Commissioner,

•And when the terms “snow emergency” and “holiday” appear together, they are invariably used in the disjunctive. See, e.g., D.C. Mun. Regs. tit. 31, sec. 102.3 (2016)

•This implies that “snow emergency days” are distinct from “legal holidays” under District of Columbia law.

–Petitioner urges that we give these provisions a practical rather than a technical construction.

•Guralnik v. Commissioner,

•IRS Arguments:

–If a “snow emergency day” in the District of Columbia were treated as a “legal holiday,” it would extend the time, not only for filing documents in the Tax Court, but also “for performing any act” required to be performed anywhere in the country under the internal revenue laws. Sec. 7503.

•Guralnik v. Commissioner,

•Tax Court’s Rules do not address how time should be computed when the Clerk’s Office is inaccessible because of government closures, inclement weather, or other reasons.

•The parties have advanced reasonable arguments on both sides of this question but the Tax Court found it did not need to resolve it.

•Tax Court was thus free to apply the principles of Civil Rule 6(a) except to the extent sections 7502 and 7503 explicitly specify a different method for computing time.

•Neither of those statutes precludes the Tax Court from adopting Civil Rule 6(a)(3), a rule of procedure specifying how time shall be computed when the Clerk’s Office is inaccessible.