In Uncategorized on 09/12/2012 at 17:31

Means no Section 7430 relief. That’s the story of Terry L. Worthan, T. C. Memo. 2012-263, filed 9/12/12.

The fight started over a defunct machine tool company. Trust fund taxes were paid late, with a request to allocate the payment to trust fund taxes (employees’ share), per Rev. Proc. 2002-26. IRS, of course, applied the payment to non-trust fund payroll taxes (employer’s share), and presents Terry with a NFTL.

Judge Marvel recounts the lengthy saga, wherein William Holman, Terry’s representative duly admitted to practice before IRS, runs up $11K in fees getting IRS to straighten out the payment, which finally happens.

Bill wants the money under Section 7430, because he prevailed in an administrative proceeding. IRS says “no, collection is not administrative, and anyway, you didn’t prevail.”

Judge Marvel doesn’t rule on who prevailed.  “Section 7430(c)(5) defines the term ‘administrative proceeding’ as ‘any procedure or other action before the’ IRS. Pursuant to section 301.7430-3(a), Proced. & Admin. Regs., an administrative proceeding does not include ‘[p]roceedings in connection with collection actions (as defined in paragraph (b) of this section)’. A collection action includes any action that the IRS takes to collect a tax or any action a taxpayer takes in response to the IRS’ act or failure to act in connection with collection of a tax. See sec. 301.7430-3(b), Proced. & Admin. Regs. Specifically, collection actions include actions taken by the IRS to collect a tax through the filing of a notice of lien with respect to a taxpayer and actions the taxpayer takes in response to the IRS’ filing of a notice of lien.” T. C. Memo 2012-263, at pp. 13-14.

Here there was a notice of lien, and everything took place without litigation. Thus, no recovery of administrative costs.

Hope the client paid you, Bill.

Next is a reminder to taxpayers offering collection alternatives, from The Judge Who Writes a Like a Human Being, The Great Dissenter, Judge Mark Holmes. The case is Thomas W. Brombach, T. C. Memo. 2012-265, filed 9/12/12. Tommy owes IRS $150K, accumulated over years; he said he would pay when the number was $60K, but never did, and the interest kept mounting.

Tommy had already lost in Tax Court on the $60K many moons ago, so abuse of discretion is the issue here.

Tommy offers IRS $28K on an OIC, but IRS says his RCP (reasonable collection potential, after applying the manual number for living expenses) is $113K, and tells Tommy no-go, and serves a levy.

I’ll skip Judge Holmes’ lengthy assurance to Tommy that his present wife will not lose her share of marital property, and his unpacking, at great length, of the differences between Tommy’s RCP and IRS’ (for Judge Holmes doing his best unpacking, see my blogpost “The Sum of Its Parts”, 3/12/12).

Tommy is still way light on the numbers, despite Judge Holmes’ massage thereof.

The issue is whether the IRS had any obligation to respond to Tommy’s $28K with anything but a flat rejection and a levy. “The Appeals officer credibly testified that ‘We were so far apart that we didn’t get into * * * the negotiation of one or two particular items [that] would have brought us together.’ Citing this refusal, Brombach makes one final procedural argument–that the Commissioner failed to give him an opportunity to negotiate or amend his offer before issuing the notice of determination, and that this was itself an abuse of discretion.” T. C. Memo. 2012-265, at p. 26.

Now “…Brombach doesn’t point us to, and we have not found, any legal authority that  mposes a duty on the IRS to negotiate a collection alternative in any particular way. He does point to one source that seems to impose a lesser duty on the Appeals officer–a duty to give the taxpayer a chance to match the RCP before outright rejection. Brombach says the Commissioner’s offer-in-compromise explanation packet states: ‘The examiner may decide that a larger offer amount is necessary to justify acceptance. You will have the opportunity to amend your offer.’ Form 656-B, Offer in Compromise Booklet (March 2009), at 15. This language suggests that if the examiner finds that a higher offer might be accepted, he’ll at least give the taxpayer a chance to take it or leave it. This is not what happened in Brombach’s case. He sent in an offer and received a rejection. While it’s understandably frustrating to Brombach that the guidelines weren’t followed in his case, instructions and other IRS publications are not authoritative sources of federal tax law. Taxpayers must look to authoritative sources of Federal tax law such as statutes, regulations, and judicial decisions and not to informal publications provided by the IRS.” T. C. Memo. 2012-265, at pp.26-27 (citations omitted).

So Tommy is out. “Brombach hasn’t shown that an opportunity to amend his offer is required by the Constitution or by any statute, regulations, or caselaw. The opportunity to amend an offer is not a taxpayer’s right but is within the Commissioner’s discretion, and the Commissioner has no binding duty to negotiate with a taxpayer before rejecting his offer.” T. C. Memo. 2012-265, at p. 28.

But see my blogpost “A Busy Day”, 9/10/12, with the sad story of Marcius J. Scaggs and Andrea L. Scaggs. “Don’t Ambush the Taxpayers”,  IRS. Your booklet is misleading. Why not make it clear that “you may have a chance to amend your offer, but maybe not, if you’re too low or play games”?

Still, the better path is “Agree with thine adversary whilst thou art in the way, lest the judge hand thee to the bailiff, and ye be cast into prison. Truly I tell thee, thou shalt not be let out until thou hast paid the last farthing.”  See my blogpost “Give It Your Best Number”, 4/9/12.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: