In Uncategorized on 08/01/2011 at 18:45

Or, Your Wish Is Our Remand

It was John Churchill’s wish that Appeals reconsider his reduced circumstances in fixing his RCP (Reasonable Collection Potential). John’s wife had divorced him between his Collection Due Process hearing and the determination his Rule 122 motion in Tax Court  contested. Judge Holmes grants John’s wish in John L. Churchill, 2011 T.C. Mem. 182, filed 8/1/11.

John was a California real estate agent in the boom-and-bust market of the early years of this millennium. John claimed he married Sharon halfway through the series of years at issue as a marriage of convenience, to gain access to her health insurance. In fact, John had heart attack number three while Appeals was considering his OIC, 2011 T.C. Mem. 182, at p.3.

Judge Holmes tells the story of John’s marital and tax woes: “John Churchill offered to settle thirteen years of tax debts totaling more than $250,000 for only $2,500. The Commissioner rejected this offer because it was based on his income alone, even though his bride had a good and steady income, and it’s IRS policy in community-property states to consider both spouses’ incomes even if only one has a tax debt. This made the bride unhappy, and she told Churchill that if he didn’t solve his tax problems, she would leave. He didn’t, and she did.” 2011 T.C. Memo. 182, at pp. 1-2.

John never contested liability, so no trial de novo and it’s all about abuse of discretion.

Appeals considered the bride’s income because she and John were married at the time of the hearing, and California, that famous community-property state, holds spouses liable for each other’s debts, even those contracted pre-nuptial. John attempted to argue his medical condition and health-insurance costs were not considered by Appeals, but the record shows Appeals considered whatever John brought before them.

John’s argued that the marriage was one of “convenience,” and should have been disregarded; he and bride filed separate tax returns. But Judge Holmes isn’t buying it: “Churchill claims that Schwarz’s [bride’s] assets and income should not be included because their marriage was one of convenience. The Commissioner does not distinguish among motivations for marriage: for income-tax purposes, married is married.” 2011 T.C. Mem. 182, at p. 10, footnote 5.

And an Appeals hearing is a snapshot in time. Appeals cannot abuse its discretion by not considering events that had not yet taken place at the time of the hearing.

But the intervening divorce does give Judge Holmes sufficient rope to rescue hapless John. “At one time, we thought we could consider new information where it became available after the CDP hearing–at least when it wasn’t the taxpayer’s fault that he didn’t raise the issue before. See Magana, 118 T.C. at 494 (“This case does not involve an allegation of recent, unusual illness or hardship * * * that might cause us to make an exception to the general rule set forth herein and to consider petitioner’s new hardship argument”). A few years later, however, we firmly limited our review of section 6330(c)(2) issues to those presented in the CDP hearing. See Giamelli v. Commissioner, 129 T.C. 107, 115 (2007). Accordingly, the Court cannot now update Churchill’s snapshot and make our own determination. But can we remand?” 2011 T.C. Mem. 182, at p. 11.

Yes, says Judge Holmes. First, courts can remand under their general powers to resolve disputes expeditiously. Second, remand is available where the party whose determination is being reviewed has abused its discretion. Finally, “(E)ven more compelling is that the Supreme Court has held that when there is a question of  ‘changed circumstances’ raised on appeal, well-established principles of administrative law will generally require the issue be remanded back to the agency for its consideration. INS v. Ventura, 537 U.S. 12, 14-18 (2002); see also SKF USA, Inc. v. United States, 254 F.3d 1022, 1028 (Fed. Cir. 2001) (remand generally required when subsequent events may affect the validity of the agency action). It is clear that remand doesn’t ‘encroach upon administrative functions.’ Ford Motor Co. v. NLRB, 305 U.S. 364, 374 (1939).

“We therefore hold that we do have authority to remand a CDP case for consideration of changed circumstances when remand would be helpful, necessary, or productive. This standard is satisfied in this case. This means that the answer to the question with which we began–did the Commissioner abuse his discretion in declining Churchill’s offer in compromise–is that we can’t say yet.” (footnotes omitted) 2011 T. C. Mem. 182, at pp. 13-14.

So John goes back to Appeals. His medical insurance and state of health are not for reconsideration, as John introduced no evidence of changed circumstances there.


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