In Uncategorized on 04/23/2014 at 22:13

That’s Judge Wherry’s answer to Bruce M. Kraft, in 142 T. C. 14, filed 4/23/14. Bruce was petitioning off a NOD in a levy CDP.

Bruce admitted he owed the taxes he reported for the year at issue, but claimed that invading his irrevocable grantor trust to pay the tax plus interest and penalties would cost him less in interest than IRS taking his distributions.

Now self-reported tax liabilities can be contested “generally” at a CDP, but Bruce didn’t raise that issue, so it’s off the table.

So are years which Bruce wants considered but for which SNODs or NODs haven’t yet been issued, and also whether Bruce wanted an installment agreement (although at the hearing before Judge Wherry he said he didn’t, he did check that box on his Form 12153), because that’s irrelevant now.

Bruce’s spendthrift trust is the issue. Applicable law (DC) says a creditor can reach the maximum amount the beneficiary-spendthrift could reach. Here, the trustee could give Bruce the entire trust corpus, so it’s all up for grabs.

Except IRS doesn’t have to grab it, and it isn’t an abuse of discretion for a SO not to try.

“Petitioner [Bruce] asserts that respondent [IRS] should levy the Kraft Trust because it is a quicker and a more efficient way to satisfy his tax deficiency; however even if respondent were to levy upon the Kraft Trust there is a very real possibility that the trustees of the Kraft Trust could feel that their fiduciary duties require them to oppose such a levy, which could cause even more litigation and additional delay.” 142 T. C. 14, at pp. 14-15, footnote 5.

“Even if the Commissioner was inclined to specifically levy on the Kraft Trust, there would first need to be a ‘thorough investigation’ into the status of the specific property. See sec. 6331(j)(1). There is no evidence in the record that a ‘thorough investigation’ of the Kraft Trust has occurred. Caselaw has made clear that while there must be an inquiry of whether, inter alia, there is enough equity in property owned by the taxpayer, such matters occur later in the collection process.” 142 T. C. 14, at p. 15 (Footnote omitted).

And there is no statutory requirement for IRS to make such an investigation. The statutory lien for taxes encompasses everything a taxpayer owns.

So Bruce’s distributions will be grabbed until he’s paid up in full.


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