While taxpayers have a right to take disputes to the U.S. Tax Court and payment of the amount due is delayed until the proceeding is complete, under IRC §6673 the Court is authorized to impose up to a $25,000 penalty if it appears the Court was being used primarily to delay payment. In the case of The Community Law Firm Inc. v. Commissioner, TC Memo 2018-198 the taxpayer was warned that their history suggested they were filing in the Tax Court principally to delay action and that continuing this practice could lead to the imposition of the penalty.
IRC §6673(a) provides:
(a) Tax court proceedings
(1) Procedures instituted primarily for delay, etc.
Whenever it appears to the Tax Court that--
(A) proceedings before it have been instituted or maintained by the taxpayer primarily for delay,
(B) the taxpayer's position in such proceeding is frivolous or groundless, or
(C) the taxpayer unreasonably failed to pursue available administrative remedies,
the Tax Court, in its decision, may require the taxpayer to pay to the United States a penalty not in excess of $25,000.
In this case, the issue involved a collection due process action. The taxpayer had unpaid payroll taxes of $2,000 that the IRS had served a levy notice on the taxpayer with regard to. The taxpayer filed for a collection due process hearing in response. The taxpayer did not dispute the liability but claimed there were collection alternative available and indicated it wanted the agency to consider an installment agreement or offer in compromise. Specifically, the taxpayer requested the IRS reinstated a prior installment agreement upon which the taxpayer had previously defaulted.
A settlement officer (SO) was assigned to the case. The SO investigated the taxpayer’s account and discovered the taxpayer had failed to file its payroll tax returns for the five quarters after the period at issue in the CDP hearing. The SO scheduled a CDP hearing at this point.
The Court noted the taxpayer’s actions in response to this opportunity to seek relief:
The SO scheduled a telephone CDP hearing for July 6, 2017. The SO informed petitioner that, in order for her to consider a collection alternative, petitioner must provide: (1) a completed Form 433-B, Collection Information Statement for Businesses, (2) signed copies of delinquent Forms 941 for all quarters from March 31, 2015, to March 31, 2016, and (3) Form 656, Offer in Compromise. Petitioner submitted none of these documents and did not otherwise communicate with the SO before the hearing.
Petitioner's representative failed to call in for the CDP hearing on July 6, 2017.
The SO continued to attempt to give the taxpayer a chance to resolve the issue:
That same day the SO sent petitioner a second letter requesting the financial information she had requested previously. The SO extended to July 20 the deadline for submitting that information.
The taxpayer did respond this time, but simply repeated the outcome desired:
On July 18, 2018, petitioner sent the SO a fax requesting that the IRS reinstate the installment agreement on which petitioner had defaulted. But it provided no financial information to support that request and no evidence that it had filed the delinquent employment tax returns. The SO concluded that she could not consider reinstating the prior installment agreement because petitioner was not in compliance with its ongoing tax obligations and because it had not provided the necessary financial information. The SO accordingly closed the case and on August 4, 2017, issued petitioner a notice of determination sustaining the proposed levy.
Now that administrative remedies had been exhausted, the taxpayer took up the matter with the Tax Court.
The Tax Court noted that installment agreements are made at the discretion of the IRS and that, since the underlying liability wasn’t in dispute, the Court could only review the SO’s decision for an abuse of discretion. The Court noted that, despite being clearly asked for financial data and even being given an extension of time to provide it, the taxpayer had never done anything but continue to state the relief it wanted:
Although petitioner indicated a desire for an installment agreement, it did not provide the SO with any financial or other information that would justify granting its request. Petitioner failed to participate in the CDP hearing and failed to participate meaningfully in the overall administrative process. The SO gave petitioner ample time to submit the required documentation and did not abuse her discretion by closing this case when she did. We have consistently held that it is not an abuse of discretion for an Appeals officer to reject collection alternatives and sustain collection action where the taxpayer has failed, after being given sufficient opportunities, to supply the required forms and information. See Huntress v. Commissioner, T.C. Memo. 2009-161, 98 T.C.M. (CCH) 8, 10-11; Prater v. Commissioner, T.C. Memo. 2007-241, 94 T.C.M. (CCH) 209, 210; Roman v. Commissioner, T.C. Memo. 2004-20, 87 T.C.M. (CCH) 835, 838.
As well, the taxpayer’s failure to be current on liabilities for quarters after the ones involved in this dispute also provided a reasonable ground for the IRS to reject the request to reinstate the prior installment agreement.
In any event IRS records show that petitioner was not current in its tax filing obligations for at least five calendar quarters subsequent to the quarters at issue when the SO made her determination. The SO could properly have rejected a collection alternative on this ground alone. See Cox v. Commissioner, 126 T.C. 237, 257-258 (2006), rev'd on other grounds, 514 F.3d 1119 (10th Cir. 2008); Hull v. Commissioner, T.C. Memo. 2015-86, 109 T.C.M. (CCH) 1438, 1441.
The Court held, not surprisingly, that there was no abuse of discretion on the part of the SO and upheld her decision to deny relief.
The fact that this Court action would fail should have been clear to the taxpayers, who were attorneys. As the opinion notes:
Petitioner is a law firm. We presume that its principals are conscious of their Federal tax obligations and their responsibility to participate meaningfully in administrative proceedings they have commenced.
As well, this wasn’t the first time the taxpayer had been in Court with similar conduct and results:
Petitioner was before this Court in a previous CDP case, Community Law Firm, Inc. v. Commissioner, T.C. Dkt. No. 11498-14SL (Feb. 11, 2015) (bench opinion). In that case, as in this case, we sustained the SO's determination because petitioner had “failed to provide any financial information in support of a collection alternative and otherwise failed to engage in the administrative review process.” Ibid.
The Court therefore concluded:
Petitioner's track record in this Court suggests that it may be invoking the CDP process “primarily for delay,” see sec. 6673(a), wasting the resources both of the Government and this Court. Petitioner is warned that it may face penalties if it continues to do this.