Charlie Dickens’s 1854 serial gives me the title for Kevin T. Lipka and Shelly Z. Lipka, T. C. Memo. 2022-116, filed 12/1/22, as Judge David Gustafson, fresh off his Herculean Hallmark opinion, dives into Reg. Section § 301.6343-1(b)(4) and finds that Kev comes up short in the hardship stakes.

Kev reported, but did not pay tax on, $466K of income in year at issue, because Kev was under criminal indictment in NJ, and available assets were tied up. He also said he was facing heavy-duty legal fees (bit did not quantify same). IRS had given Kev and Shelly a NITL, which they appealed, and when Appeals sustained, they petitioned.

Want of supporting documentation torpedoes a lot of what Kev and Shelly claim, so I’ll focus on economic hardship as basis for release of lien.

“Under the pertinent regulation… IRS Appeals is to consider any information provided by the taxpayer,  including the following: (1) the taxpayer’s age, employment status and history, ability to earn, number of dependents, and status as a dependent of someone else; (2) the amount reasonably necessary for food, clothing, housing, medical expenses, transportation, current tax payments, or other court-ordered payments; (3) the cost of living in the geographic area in which the taxpayer resides; (4) the amount of property exempt from the levy which is available to pay the taxpayer’s expenses; (5) any extraordinary circumstances such as special education expenses, a medical catastrophe, or a natural disaster; and (6) any other factor that the taxpayer claims bears on economic hardship. Treas. Reg.  § 301.6343-1(b)(4)(ii). Reasonable basic living expenses are based on the taxpayer’s circumstances but do not include amounts needed to maintain an affluent or luxurious standard of living. Treas. Reg. § 301.6343-1(b)(4)(i).” T. C. Memo. 2022-116, at p. 9.

Kev and Shelly wanted Appeals to consider the legal fees they would incur in defending the criminal case. “The case activity report reflects that they complained during a telephone conference of ‘a large bill’ associated with the impending criminal matter against  them.  The IRS Appeals officer subsequently asked them for documentation regarding their legal expenses, but the supplemental documentation they provided did not include any legal bills.” T. C. Memo. 2022-116, at p. 9.

I have yet to hear of a criminal defense lawyer who deferred billing when her/his client might go down.  

Takeaway: Defense lawyers bill; if your client is situated as Kev and Shelly, put in the retainer agreement and any invoices you have.