Tax professionals encounter cases involving collection due process (CDP) and the Internal Revenue Service’s (IRS) determination to uphold collection actions. A recent Tax Court memorandum, Schwartz v. Commissioner, T.C. Memo. 2025-64, provides valuable insights into the criteria the IRS Independent Office of Appeals (Appeals Office) considers when evaluating collection alternatives, particularly installment agreements, and the Tax Court’s standard of review for such determinations. This article will delve into the facts, the taxpayer’s request, the court’s legal analysis, and its application to the specific circumstances, concluding with the implications for tax professionals.

Case Background and Taxpayer’s Liabilities

The case centered on Steven J. Schwartz, who sought review of an Appeals Office determination upholding notices of intent to levy for his and his wife’s unpaid federal income tax liabilities for the 2013 through 2015 tax years. Dr. Schwartz and his wife had previously challenged a notice of deficiency for these years in Tax Court, resulting in a stipulated decision for the determined amounts. While Mrs. Schwartz was granted relief from liability under section 6015(b), Dr. Schwartz’s tax liabilities, as of July 8, 2019, totaled $331,472.

Collection Efforts and Initial Collection Due Process Hearing

To collect these unpaid liabilities, the IRS issued notices of intent to levy for each tax year. Dr. Schwartz, through counsel, filed a timely request for a CDP hearing, indicating interest in an "Installment Agreement," "Offer in Compromise," and stating "I Cannot Pay Balance".

During 2020 and 2021, the CDP request was handled by several Appeals officers. These officers consistently requested documentation such as Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, his 2018 and 2019 income tax returns, and proof of estimated tax payments. Dr. Schwartz provided and updated his Form 433-A, supporting documents, and tax returns. He proposed an installment agreement of $1,500 per month. After discussions failed to find common ground, the Appeals Office issued a notice of determination on September 13, 2021, rejecting the proposed installment agreement and sustaining the levy.

Tax Court Proceedings and Supplemental CDP Hearing

Dr. Schwartz timely petitioned the Tax Court to challenge this initial determination. The Court remanded the case to the Appeals Office, expressing concerns about the original Appeals officer’s gross income calculation, the relevance of Mrs. Schwartz’s income, and the disallowance of expenses.

On remand, a new Appeals officer scheduled a supplemental CDP hearing for May 9, 2023, specifically to address the Court’s concerns. The Appeals officer requested updated Form 433-A, financial information, and importantly, proof that Dr. Schwartz was current with estimated tax payments. Dr. Schwartz provided his 2020 tax return, documentation of his 2021 filing, and an extension for his 2022 return, along with other financial documents. He committed to submitting an updated Form 433-A, reiterating his desire for a $1,500 per month installment agreement.

Appeals Officer’s Findings and Supplemental Notice of Determination

Following the supplemental hearing and review of the submitted information, the Appeals officer identified several critical issues. The Appeals officer determined that Dr. Schwartz was not in payment compliance with his estimated tax obligations for 2022 and 2023, concluding he would have an approximate $55,877 tax shortfall. This noncompliance was deemed to make him ineligible for an installment agreement.

Beyond estimated taxes, the Appeals officer also noted $491,241 in equity in the Schwartzes’ primary residence, suggesting it should be used to substantially satisfy the liability before considering an installment agreement. Finally, the Appeals officer found that Dr. Schwartz had failed to disclose the correct value of his retirement holdings, preventing an accurate determination of his ability to pay, despite significant payments into the account. Although the Appeals officer did not request a statement for the retirement account, he believed the estimated tax issue and home equity alone precluded an installment agreement.

Consequently, the Appeals Office issued a supplemental notice of determination, denying the installment agreement and sustaining the proposed levy based on these three independent reasons: noncompliance with estimated tax obligations, significant home equity, and failure to properly disclose the retirement account’s fair market value.

Tax Court’s Standard of Review and Summary Judgment Principles

The Commissioner moved for summary judgment, asserting that the undisputed facts established Dr. Schwartz’s ineligibility for a collection alternative due to multiple independent reasons. The purpose of summary judgment is to expedite litigation and avoid unnecessary trials. The Tax Court may grant summary judgment if there is no genuine dispute as to any material fact and a decision can be rendered as a matter of law. While facts and inferences are construed most favorably to the nonmoving party, that party "may not rest upon the mere allegations or denials of his pleadings but instead must set forth specific facts showing that there is a genuine dispute for trial". The Court found the case ripe for summary adjudication.

In CDP cases, when the validity of the underlying tax liability is not at issue (as here), the Tax Court reviews the Appeals Office’s determination for abuse of discretion. An abuse of discretion exists if the determination is arbitrary, capricious, or without sound basis in fact or law. When a case is remanded and a supplemental determination is issued, the Court reviews the supplemental notice.

Court’s Analysis: Abuse of Discretion

In determining whether the Appeals Office abused its discretion, the Court considers three factors under I.R.C. § 6330(c)(3): (1) proper verification of legal and administrative procedures, (2) consideration of relevant issues raised by the taxpayer, and (3) whether the collection action balances the need for efficient tax collection with the taxpayer’s concern for minimal intrusiveness. The Court concluded that the Appeals officer satisfied all requirements.

Verification

The Court has authority to review the satisfaction of the verification requirement even if the taxpayer did not raise it at the CDP hearing. In this case, Dr. Schwartz did not challenge the verification requirement, and the Court found that the Appeals officer conducted a thorough review of Dr. Schwartz’s account transcripts and verified that all applicable requirements were met.

Issues Raised: The Pivotal Role of Estimated Tax Obligations

The sole issue Dr. Schwartz raised in Appeals and before the Court was his entitlement to a $1,500 installment agreement. The Tax Court found that no genuine issues of material fact existed, and there was no abuse of discretion.

Crucially, the Court emphasized that the supplemental notice of determination provided three independent reasons for its conclusion, but the first reason—Dr. Schwartz’s lack of compliance with his estimated tax obligations—was sufficient on its own. The Court reiterated established precedent that an Appeals officer does not abuse their discretion by rejecting collection alternatives when a taxpayer is not compliant with estimated tax obligations. This principle is supported by cases such as Giamelli v. Commissioner, 129 T.C. 107, 111–12 (2007), and Hartmann v. Commissioner, T.C. Memo. 2024-46, which state that a "taxpayer’s failure to make estimated tax payments, standing alone, is sufficient to justify an Appeals officer’s rejection of an [installment agreement]". Requiring compliance ensures current taxes are paid and avoids "the risk of pyramiding liability".

The Appeals officer specifically noted Dr. Schwartz’s non-compliance with his estimated tax obligations for 2022 and 2023, identifying it as part of a "pattern of significant underwithholding of tax stretching back to at least 2017". Dr. Schwartz did not dispute his non-compliance but argued for an interpretation of the Internal Revenue Manual (IRM) that would require the Appeals officer to include delinquent estimated tax payments in an installment agreement.

The Court firmly rejected this argument, citing prior cases like Scanlon v. Commissioner, T.C. Memo. 2018-51, and Boulware v. Commissioner, T.C. Memo. 2014-80. The Court underscored that the IRM "does not confer rights on taxpayers" and does not require an Appeals officer to include estimated taxes in an installment agreement. While an Appeals officer could include such payments, they commit no abuse of discretion by refusing to do so and rejecting a proposed installment agreement due to a taxpayer’s non-compliance.

Balancing

Dr. Schwartz also sought a remand to consider whether the proposed collection action balanced the need for efficient tax collection with his concern for minimal intrusiveness. The Appeals officer had expressly concluded in the supplemental notice of determination that the proposed levy appropriately balanced these competing concerns. Given Dr. Schwartz’s failure to respect his estimated tax obligations and his long pattern of "flouting the payment of his proper tax liability," the Court found no basis in the record to disturb the Appeals officer’s conclusion regarding the balancing factor.

Conclusion

The Tax Court found no abuse of discretion in the Appeals officer’s decisions. Accordingly, the Court granted summary judgment for the Commissioner and affirmed the Appeals officer’s determination to sustain the levy action. This case serves as a crucial reminder for tax professionals that current tax compliance, particularly with estimated tax obligations, is a fundamental prerequisite for securing collection alternatives like installment agreements, and failure in this regard can independently justify the rejection of such proposals by the Appeals Office, even in the presence of other financial considerations. The Tax Court consistently upholds the IRS’s discretion in such matters when taxpayers are not compliant with ongoing tax responsibilities.

Prepared with assistance from NotebookLM.