In Uncategorized on 03/19/2014 at 17:40

In our house, I predominantly do the cooking ( “if you can call it that”, as some might add; still, my cooking sustains life, if it doesn’t ennoble it). So very often when I return home after a hard day of blogging and doing as little as reasonably possible, I might reach into the fridge for remnants of a previous repast, mess with it some, and serve it out. With enough wine, it’s always good.

So today I do likewise in the blogosphere, although I do have a new T. C. Memo. to blog as well, under separate cover.

This is an opinion filed yesterday, 3/18/14, which I didn’t have time to get to. It’s the story of an ETA OIC. No, that has nothing to do with aircraft. It’s short for “Effective Tax Administration Offer in Compromise”. OICs are the delight of continuing ed. instructors and appellants.

The story told in Stacey L. Bogart and Timothy P. Bogart, 2014 T. C. Memo. 46, filed 3/18/14 is simple. I’ll let Judge Kroupa tell it: “Petitioners are a married couple with four children. They operated a construction business during the relevant times. Petitioners treated the construction business as an S corporation for Federal income tax purposes. Petitioners were not wealthy, but they had accumulated $225,478 in assets in the form of real property equity, personal property, retirement accounts and other investments.

“Before 2006 petitioners relied on Teresa Sanak to prepare Federal income tax returns on their behalf. Petitioners expanded Ms. Sanak’s role in 2006 to serve as the bookkeeper for the construction business. Unbeknownst to petitioners, Ms. Sanak was a gambling addict.” 2014 T. C. Memo. 46, at p. 3.

You can guess the rest. It would seem Ms. Sanak’s ponies did about as well as mine, but I at least didn’t have to steal $116K from people who trusted me to make up for their slowness of foot (or hoof). Ms. Sanak played the old game of running money through her employers’ various accounts and out onto the track.

IRS audits hapless Stace and Tim, and in doing so discovers Ms. Sanak’s defalcations. The forces of justice put Ms. Sanak away and order her to pay back what she stole. Good luck with that, Stace and Tim.

Meanwhile, back at the office, IRS hits Stace and Tim with a SNOD for $69K plus interest. Stace and Tim claim they can’t pay because Ms. Sanak’s ponies are Ken-L-Ration, the money is gone with them, and Ms. Sanak hasn’t paid them back yet.

IRS hits them with a NIL (Notice of Intent to Levy, etc.), and Stace and Tim ask for a CDP.

Now here’s something that shows why Doug Shulman and Dave Williams were right in spirit, although short on legal authority. “Petitioners at first were represented by so-called Tax Resolution Services, Co. [sic](TRS). TRS twice requested additional time for petitioners to provide information. It appears that TRS never submitted information on petitioners’ behalf. Petitioner wife then contacted the settlement officer. Petitioner wife indicated that she would provide the information that her representative did not provide. Petitioners then represented themselves until counsel from the tax clinic at the University of Washington School of Law appeared in this matter.” 2014 T. C. Memo. 46, at p. 4, Footnote 3.

Judge Kroupa doesn’t state what Stace and Tim paid TRS, or what TRS undertook to do on their behalf; and as I don’t know whether any principals of TRS were CPAs, attorneys or EAs, I can’t say that that specific organization requires other or further regulatory oversight. But the late-night television ads I see, which promise speedy and successful resolution of all fights with IRS, make me seriously advocate for expansion of Circular 230 (by Congressional enactment if necessary) and stronger enforcement of its disciplinary sanctions.

Howbeit, three (count ‘em, three) Appeals SOs look over Stace’s and Tim’s OIC and deposits (Stace and Tim offer $10K), and all the requested information that Stace, Tim and the Washington tax clinicians provide. And one of the SOs does not “perceive” (the SO’s word) that there’s a public policy effective tax administration issue. After all, Stace and Tim have that quarter-million in assets, so no economic hardship for them to produce the $69K plus interest.

So Appeals gives IRS the NOD, and the Washingtonians petition.

Now before Judge Kroupa knocks out the NOD and sends Stace, Tim and the Washingtonians back to Appeals, I’d like to say a word in defense of the SO. While the Washingtonians argue for equity (after all, Stace and Tim were robbed), so was Ray Fouche, in the same way and for plenty; see my blogposts “The Cover-Up”, 11/23/11, and “The Cover-up Uncovered”, 4/24/13. Second Circuit didn’t care that Ray was robbed.

And although Nina (“The Big O”) Olson, the Taxpayer Advocate, claims Appeals too rarely uses equity, the examples in the relevant regulation aren’t in point, and the IRM provides that the SO must ask him/herself whether other taxpayers would think the OIC fair and reasonable.

So the SO, with however many other cases s/he has, must play King Solomon. And if s/he gets it wrong, somebody else in Appeals gets the case back.

Now I’m not arguing the SO shouldn’t do his/her job, and follow the regulations and the IRM. But remember, Stace and Tim have more than enough assets to pay in full, and after hearing an endless number of hard-luck stories (and as lenders’ foreclosure counsel in a former lifetime I heard them all), it is rarely the wrong choice to twist blasphemously a famous statement: “Sell all thou hast, give it to the IRS, take up thy cross, and get out of here”.

Judge Kroupa, assisted by the zeal of the Washingtonians (a hearty Taishoff “good try”, guys!), remands. “But at the administrative level respondent did not consider whether the theft loss constituted exceptional circumstances–even though petitioners requested relief on public policy and equity grounds. The administrative record indicates that respondent did not consider those grounds but focused solely on economic hardship grounds. He merely concluded that the ETA OIC did not merit consideration under public policy or equity grounds. Respondent did not adequately consider this issue.” 2104 T. C. Memo. 46, at p. 11.

Of course, the Washingtonians want to score from first base on a bloop single. Why not? I would: “…petitioners claim that they satisfied the requirements as a matter of law for respondent to accept the ETA OIC. See IRM pt. We disagree. It is undeniable that Ms. Sanak perpetrated a fraud against petitioners. The Commissioner maintains, however, wide discretion when evaluating an OIC and determining whether a taxpayer demonstrated exceptional circumstances. The record does not establish as a matter of law that respondent was obligated to accept the ETA OIC.” 2104 T. C. Memo. 46, at p. 12.

Neither was the SO obliged to send the OIC to the OIC-NEH (non-economic hardship) squad. That’s in the SO’s discretion.

But the SO didn’t consider equity and public policy, so Judge Kroupa bounces IRS’ and the Washingtonian’s requests for summary judgment (without prejudice, so they can try again) and remands to Appeals.


The following was received by e-mail 7/14/14:

Name: Teresa Sanak Comment: I would like you to remove the post about me dated in March of this year. Your fact's are not correct and can cause personal harm to me. This is the post regarding The Bogart's. These are the incorrect facts. 1)The judge added and additional $10,000.00 to the judgment for their time and trouble, judgment amount incorrect. 2) I repaid over $7,000.00 to the Bogart's prior to going the prison. 3) I have made my monthly, court ordered restriction payment to them since I was released."

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