In Uncategorized on 12/22/2022 at 19:25

Any lawyer who cannot find an ambiguity in any document or situation should find another way to make a living. Judge David Gustafson should not worry he chose the wrong profession: he has found plentiful ambiguities in Form 656 (OIC), when a single-member disregarded LLC and its member try to compromise the obligations of both member and  LLC.

One-size-fits-all doesn’t work very well for Appeals or for All Is Well Homecare Services, LLC, Docket No. 21210-19L, filed 12/22/22, or for sole member Dinah Opoku-Manu. AIW and DOM try to compromise both the $360K FICA/FUTA that AIW owes, plus DOM’s TFRPs and personal income tax debts, covering some nine (count ’em, nine) separate tax years.

DOM’s rep filled out both Sections 1 and 2 of the 656, although the instructions say not to.

At the same time DOM’s rep requested a CDP for the NITL IRS gave DOM and AIW. The NFTL/NITL issue I covered in my blogpost “Judge Gustafson’s Punt,” 12/15/22.

The one-size-fits-all Form 656 causes Appeals any amount of confusion. They treat the OIC as being for DOM only, not AIW, and it goes downhill from there. COIC gets into the act, and the result is a communications tangle that ends with Appeals claiming that the 656 was unprocessable and sustaining the NITL. AIW and DOM petition.

“The Commissioner is certainly correct in asserting that ‘the Court is unable to order the IRS to process and accept an otherwise deficient OIC.’ (Doc. 25 at 5.) We do not contemplate ordering IRS Appeals to accept an OIC. But we do have authority to evaluate IRS Appeals’ process and to determine whether IRS Appeals has abused its discretion not by declining to accept an OIC but by failing even to process an OIC,  which is the issue now before us.” Order, at p. 9.

Note that IRS wants summary J, so all DOM and AIW have to do is raise a question for trial, not prove their case.

Now complexity invites ambiguity, and imperfections in a form designed to cover the multiplex problems of individuals and disregardeds perforce must have ambiguities. But Form 656 is the lawyer’s delight.

“The instructions on Form 656 use ‘should’ and ‘must’ in a manner that may be misleading. When an individual (with a Social Security number (‘SSN’)) who owns an LLC (with an employer identification number (‘EIN’)) proposes to compromise her individual income tax issues and trust fund recovery penalties associated with her SSN and the employment tax liabilities associated with the EIN, she sees the apparently non-mandatory instructions in Section 1 telling her that she ‘should‘ fill out Section 1 (which does include lines for employment tax liabilities); but she also sees the apparently mandatory instruction in Section 2 telling her, ‘If your business is a[n] . . . LLC, . . . and you want to compromise those debts, you must complete this section.’ (Emphasis added.) When Ms. Opoku-Manu did what the instructions in Section 2 of the form said she “must” do (i.e., complete that Section 2 for the LLC), IRS Appeals deemed the form unprocessable.

“The Commissioner maintains that the instructions above Section 1 should govern (‘but not both’), but even that might be unclear: First, those instructions, too, are apparently non-mandatory (saying, ‘You should fill out either Section 1 or Section 2, but not both’). Second, the “but not both” instruction may appear to be contingent, since it says ‘but not both, depending on the tax debt you are offering to compromise’. A reader might construe the form to mean that the ‘not both’ instruction ‘depend[s]’ on whether one is offering to compromise just business liabilities or individual liabilities (in which case, fill out only the relevant section) or instead is offering (like petitioner here) to compromise both business and individual (in which case, do fill out both?). Third, the Section 2 instructions for a business remind the taxpayer to include ‘a separate $186 application fee’, perhaps suggesting an application fee ‘separate’ from the application submitted for the individual named in Section 1.” Order, at p. 12.

Actually, COIC deemed the 656 unprocessable, but I don’t blame Judge Gustafson for being confused at this point.

If Appeals or COIC had a flexible attitude, the ambiguities might be resolved, at least to the extent of letting the form be processed. But Appeals claimed the form was unprocessable, bounced it, demanded a second set of fees for a resubmission, and offered no defense for this double whammy.

That’s enough for Judge Gustafson to deny summary J without prejudice, and send the parties off to decide whether to remand or try the case.

What a wonderful blueprint for wits, wags, and wiseacres this order provides, to bombard Appeals and COIC with internally contradictory Forms 656, and tell ’em Judge Gustafson sent them.


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