I don’t know if Judge Patrick J (“Scholar Pat”) Urda adds an understanding of Nineteenth Century French political philosophy to his many accomplishments, but it wouldn’t surprise me if he did. And certainly the anonymous SO who applies the doctrine in Alejandro Serna, T. C. Memo. 2022-66, filed 6/27/22 is a strong partisan thereof, knowing or unknowing.

Al took a big draw from his 401-whatever in year at issue, to buy a house in the appropriate school district, so that his four children, two of whom are developmentally-disabled, can attend the right school. Also his ex-wife resides therein. Also Al only claims one of the four as a dependent on year-at-issue return; filing status not stated. Return is late and $68K self-reported short. Al claims he didn’t know about the Section 72(t) youth add-on (tax? chop? Pick ’em), and always paid on time. Al wants an OIC, but the equity in said house is north of $150K, so he doesn’t get the $10K OIC he wants even though his expenses for his disabled son are big (and the SO recognizes this). But Al does get a NFTL with CNC thrown in at no extra charge.

And Judge Scholar Pat is down with that.

Al’s trusty attorney petitions the NOD on the NFTL and CNC, and throws in much “somber reasoning and copious citation of precedent.” Judge Scholar Pat finds none of it on point. The SO looked at all the facts and circumstances Al and trusty attorney put before her, and, like Billy Yeates’ Irish fighter pilot “balanced all, brought all to mind.”

Trusty attorney seems to think NFTL means IRS will grab on the spot, tossing disabled kids to the cliché. Judge Scholar Pat: “As an initial matter, Mr. Serna insinuates over and again that the collection action at issue, i.e., the NFTL filing, will necessarily result in an immediate sale of the house. An NFTL filing, however, principally protects the IRS’s interest in a property against other creditors. Had the IRS sought to collect the tax liability by levy against the house, Mr. Serna would have had an opportunity to request a CDP hearing to challenge such action as improper. See § 6330(a), (b).” T. C. Memo. 2022-66, at p. 12. (Citation omitted).

And while filing late or not at all in the past and currently will defeat an OIC and maybe other CAlts, filing and paying on time in all other years doesn’t guarantee a free pass on an OIC. “Mr. Serna additionally emphasizes his prior tax compliance in arguing the settlement officer abused her discretion. While we have no reason to doubt his history of compliance, lack of tax compliance is a bar to acceptance of an offer on effective-tax-administration grounds; compliance, conversely, does not alone justify acceptance. See Treas. Reg. § 301.7122-1(b)(3)(ii)–(iii), (c).” T. C. Memo. 2022-66, at p. 10, footnote 8.

So justifying the headline first set forth at the head hereof (as my already-on-their-third-Grey-Goose-Gibson colleagues would say), Judge Scholar Pat gives the anonymous SO a gold star.

“The settlement officer here, acting of her own volition, put Mr. Serna’s account in currently-not-collectible status, effectively ending further collection efforts unless his income increases substantially. Her decision to do so was not required in light of Mr. Serna’s equity in the house. See Am. Limousines, Inc. v. Commissioner, T.C. Memo. 2021-36, at *15 (‘[A] settlement officer’s denial of currently not collectible status is not an abuse of discretion where the taxpayer lacks sufficient income to pay its tax debts but owns assets that could be liquidated to provide funds to satisfy that debt.’). We see her action in sustaining the NFTL filing, while placing the account in currently-not-collectible status, as striking a sensible balance between the IRS’s need to efficiently collect the liability and Mr. Serna’s concern that any collection action be no more intrusive than necessary.” T. C. Memo. 2022-66, at pp. 12-13.

For the Am. Limousines story, see my blogpost “When You’re Down and Out – Part Deux,” 3/25/21.