In Uncategorized on 05/17/2012 at 18:54

So holds Judge Gustafson in Bilal Salahuddin and Monique Salahuddin, 2012 T. C. Mem. 141, filed 5/17/12. Bil and Monique owe taxes based on their filed returns, but can’t pay, so when they get the Final Intent letter, they ask for a CDP and proffer a Form 433-A. The SO asks for supporting documents and offers a phonecall CDP hearing; Monique asks for time to gather documents in support of her already-submitted Form 433-A, and this is granted.

Before the due date, Monique calls the Appeals Team Manager (ATM). ATM tells her the file has sufficient information, so Monique need not send any more, and enters the conversation in the case activity file. Monique confirms this phone conversation by letter to the SO, which letter is also in the file.

Finally, three months later, having never told Monique or Bil anything or held a phone hearing, the SO shoots down the proposed installment agreement, and sends a NOD, which gets the facts wrong, claiming Bil and Monique didn’t submit the supporting documents and dodged a phone hearing. Unhappily, based on their own, ultimately unsupported figures, Bil and Monique’s offer is way low.

IRS moves for summary judgment. And loses.

Judge Gustafson: “The Commissioner argues that because the Salahuddins offered an amount ($900 to $1,000 per month) that was less than their own reckoning of their surplus monthly income (about $5,800 more income than living expenses), it could not be an abuse of discretion for Appeals to reject such an offer. This might be a winning argument, except for two problems that arise under the facts as we are required to assume them for purposes of deciding a motion for summary judgment.” 2012 T. C. Mem. 141, at pp. 14-15.

IRS said that what Bil and Monique had submitted was “sufficient.” So Appeals could not deny Bil and Monique on the ground they had not submitted information, when Appeals told them they didn’t need to. And the NOD didn’t discuss the low-ball with sufficient particularity to constitute an independent ground for the denial.

While IRS might have tossed Bil and Monique based on the low-ball offer (see my blogpost “Give It Your Best Number”, 4/9/12) Judge Gustafson finds IRS didn’t: “We can easily imagine a denial of an installment agreement based on two clear alternative grounds–i.e., (1) that the taxpayer failed to provide documentation to substantiate his financial information, and separately (2) that the amount offered by the taxpayer was inadequate even assuming accurate the taxpayer’s unsupported financial information. If the notice of determination stated such grounds, then the Commissioner could well argue that the first was harmless error, because the second was independent and sufficient. However, our role under section 6330(d) is to review actions that the IRS took, not actions that it could have taken. As the Supreme Court stated in SEC v. Chenery Corp., 318 U.S. 80, 93-95 (1943):

“[The agency’s] action must be measured by what the * * *[agency] did, not by what it might have done. * * * The * * *[agency’s] action cannot be upheld merely because findings might have been made and considerations disclosed which would justify its order as an appropriate safeguard for the interests protected by the Act.

“There must be such a responsible finding. * * *” 2012 T. C. Mem.141, at p. 16.

Judge Gustafson does take pains not to go too far; Bil and Monique don’t get a free pass: “We do not by any means hold that a notice of determination must be error-free in order to be sustained. However, in this circumstance, the error suggesting that the Salahuddins had failed to respond to Appeals’ letter has an unfortunate resonance with the unfair determination that they had failed to provide supporting information; and the error suggesting that a telephone conference had been scheduled raises the question whether the SO was confusing two different cases–the Salahuddins case and another case in which other taxpayers had made a material failure to produce information that was requested. Under Rule 121 we cannot hold that there is no genuine issue as to the reason for Appeals’ determination to deny an installment agreement and the absence of an abuse of discretion in that determination.” 2012 T. C. Mem. 141, at pp. 17-18.

Judge Gustafson goes even further,  warning Bil and Monique to get serious: “We do not hold that these facts constitute offer (by the Salahuddins) and acceptance (by Appeals), giving rise to a contract. Nor do we hold that Appeals was barred in any way from rejecting the proposal and demanding more. We hold rather that there is a genuine issue of material fact as to whether Appeals induced the Salahuddins to believe that their information was “sufficient” and that their proposal would be accepted–i.e., whether Appeals thus misled the Salahuddins by inducing them to leave their proposal pending and unrevised–and whether it was an abuse of discretion for Appeals to terminate the CDP hearing by rejecting that proposal, rather than soliciting a satisfactory substitute proposal.” 2012 T. C. Mem. 141, at p. 18.

In short, as I said in my earlier blogpost, Give It Your Best Number. That goes for both taxpayer and IRS.


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