The SO thought that a NFTL was cast in bronze when sculptor Jim Budish wanted an installment agreement to pay off the $200K he owed Oom Sam, but Judge Halpern says not so, in James B. Budish, 2014 T. C. Memo. 239, 11/24/14.
Jim is a sculptor, and successful. He “works in cast bronze and sells his artwork through his wholly owned S corporation, Jim Budish Sculptor, Ltd. (Sculptor, Ltd.), for which he is a salaried employee. Over the years, petitioner has relied on a particular Arizona foundry (Metalphysic Sculpture Studio, Inc.) (foundry) to provide the material he uses in his sculptures and to do the actual casting. Typically, the sculptures are commissioned by the buyers who pay for them before casting. Thus, petitioner does not maintain an inventory from which he regularly sells his sculptures.” 2014 T. C. Memo. 239, at p. 4.
Jim doesn’t contest he owes big time, but claims he has zero assets, and whatever will pay the installment agreement must come from sales of his castings. The SO agrees with Jim’s staff of attorneys on the number for the installment agreement.
SO says IRM 126.96.36.199.2 mandates a NFTL because of all the money Jim owes.
Jim’s attorneys (all three of them) claim the foundry will cause Jim to founder if there’s a NFTL, because they won’t grant him the usual credit but will demand cash up front, the buyers will run because they’ll be afraid whatever they pay and their precious bronzes will be grabbed by IRS. Finally, American Express will cut off Jim’s ability to pay for stuff with his trusty “don’t-leave-home-without-it”.
Since Jim admits he owes, it’s abuse-of-discretion.
Whatever the IRM says, Section 6330(c)(3)(C) requires IRS to legitimately balance and weigh the interests of efficient governmental collection of taxes against the taxpayer’s legitimate concern that collection action be no more intrusive than necessary.
What ultimately bails out Jim is that lovely phrase “in general”. I love that phrase, because what invariably follows is any number of exceptions, waffles, wriggle-room and definite maybes.
Judge Halpern: “In IRM pt. 188.8.131.52.1, the term ‘in general’ in describing the circumstances, including the existence of large, outstanding liabilities, under which a notice of lien ‘should be filed’ clearly indicates that there may be occasions in which it is not necessary to file a notice of lien, even where such circumstances exist.
“As petitioner suggests, the filing of a notice of lien might not be in the Government’s best interests in this case if, as petitioner argues, the lien would hamper rather than foster collection of his outstanding liability. In arguing that this case presents one of those occasions in which a notice of lien would be counterproductive for respondent, petitioner points to the nominal amount of his net assets as compared with that liability and also to the fact that a notice of lien filing would put him out of business, thereby cutting off the only source of funds sufficient to discharge his liability and making it impossible for him to honor his commitment under the installment agreement.” 2104 T. C. Memo. 239, at pp. 18-19.
“It is also clear that IRM pt. 184.108.40.206 (Oct. 30, 2009) lists circumstances under which an ‘NFTL filing determination must be made’, not circumstances under which a notice of lien must be filed. Thus, pursuant to IRM pt. 220.127.116.11, the Appeals officer was required to make a lien filing ‘determination’, which petitioner does not dispute; but she was not required, by that provision, to determine that a notice of lien be filed.” 2014 T. C. Memo. 239, at p. 19.
The record isn’t sufficiently clear for Judge Halpern, so he remands.
But because this is an interesting case, he can’t resist telling counsel, both IRS’s and Jim’s Gang of Three, how to try the remand.
“On remand we anticipate that the Appeals officer assigned the case will want to investigate, facilitated by petitioner’s furnishing supporting documentation or affidavits where necessary, petitioner’s representations that the mere filing of a notice of lien will cause the foundry to drastically and unfavorably alter its working relationship with him and cause his customers to do the same, both resulting in a sharp decrease or stoppage of his income from the production and sale of sculptures, thereby causing him to default on the proposed installment agreement. In that connection we agree with respondent that counsel, in a letter to the Appeals officer, overstated the foundry’s reaction to the possibility of a Federal tax lien against petitioner’s assets. The foundry did not cite that possibility as ‘the impetus’ for its proposed changes in its business relationship with petitioner. Rather, it cited the actual suspension or delay of payments due it as the linchpin of those changes.
“We also anticipate that the Appeals officer will make a judgment as to the accuracy of petitioner’s representations regarding the value of his assets and the amount of his cashflow that might be subject to a Federal lien. In that connection, petitioner might want to make further arguments or submissions concerning whether the foundry work in process and/or the finished products are assets belonging to him, to Sculptor, Ltd., or, by virtue of their advance payments, to his customers. Presumably, a notice of lien against petitioner’s assets would not attach to the assets of either Sculptor, Ltd., or its (petitioner’s) customers.
“Petitioner might also want to explain why his rejection of a bond in lieu of a notice of lien, because of cost or otherwise, is reasonable under the circumstances.
“Lastly, we think it advisable that the Appeals officer, with the assistance of his or her counsel, if needed, consider the impact, if any, on his or her determination of section 6323(b)(3), which provides that a Federal notice of lien ‘shall not be valid’ against a purchaser of tangible personal property purchased at retail in the ordinary course of the seller’s trade or business unless, at the time of purchase, the purchaser actually intends the purchase to (or knows that it will) ‘hinder, evade, or defeat’ the collection of tax. Section 301.6323(b)-1(c)(2), Proced. & Admin. Regs., defines ‘retail sale’ to mean ‘a sale, made in the ordinary course of the seller’s trade or business, of tangible personal property of which the seller is the owner. That definition would appear to cover the sculptures sold on petitioner’s behalf by Sculptor, Ltd. Should it be determined that section 6323(b)(3) does apply herein, its application would appear to weaken both parties’ positions. On the one hand, the Government’s lien would not be valid as against a purchaser’s interest in petitioner’s sculptures, which would mean, assuming petitioner’s representations with respect to his lack of other valuable assets are true, that a lien would do little to protect the Government’s interests and, therefore might not be necessary. On the other hand, the failure of the lien to have priority over a purchaser’s interest in the sculptures would negate petitioner’s argument that it would effectively put him out of business.” 2014 T. C. Memo. 239, at p. 25-27.
In any case, let Appeals consider Section 6323(b)(3).
I can’t help thinking that Jim’s counsel should ask Judge Halpern if they should go home and let him try the case.
Takeaway–If you offer an installment alternative, and Appeals wants a NFTL or NOTL, tell them Section 6323(b)(3) trumps IRM 18.104.22.168.