One recurring lesson I educate in Tax Follow and Process is that you simply usually serve your consumer higher by resolving their points on the lowest degree.  That requires serving to them be practical in understanding the vary of potential outcomes.  It requires an understanding that IRS workplaces, such because the Workplace of Appeals, usually have extra discretion than does the Tax Court docket to resolve issues.  It additionally requires understanding that when the Tax Court docket evaluations an IRS discretionary motion, it can solely change that motion when it’s satisfied the IRS choice was bonkers or, within the dry technical phrases of the regulation, the choice was an “abuse of discretion.”  And, no, the Tax Court docket won’t make a taxpayer’s argument for them, as we not too long ago discovered in Lesson From The Tax Court docket: The Tax Court docket Is Not Your Advocate, TaxProf Weblog (Feb. 6, 2023).

Right now I current a case the place professional se taxpayers discovered that lesson the exhausting manner.  In Ronald Powell and Cynthia Powell, T.C. Memo. 2023-48 (Apr. 17, 2023) (Choose Lauber), the taxpayers didn’t just like the Installment Settlement provided them by Appeals.  They thought they might do higher in Tax Court docket.  They thought flawed.  Particulars beneath the fold.

Background: The Position of Workplace of Appeals
The Workplace of Appeals has existed in a single type or one other, since 1927.  For a nonetheless worthwhile learn, see Howard T. Martin, “IRS Appeals Division – 60 Years Previous,” 39 The Tax Government 341 (Summer season 1987) (sorry however I couldn’t discover a free hyperlink; that one is to HeinOnline, which has a paywall).

Within the 2019 Taxpayer First Act, P.L. 116-25, Congress codified the existence of the IRS Workplace of Appeals in §7803(e)(3).  It’s formally titled “Unbiased Workplace of Appeals” however I’ll simply name it “Appeals.”  To the extent that the phrase “Unbiased” means that Appeals shouldn’t be a part of the IRS, it’s deceptive.  I defined why in Lesson From The Tax Court docket: Appeals Is Nonetheless Half Of The IRS, Actually!, TaxProf Weblog (Aug. 5, 2019).  Taxpayer who’ve tried to argue in any other case have been unsuccessful.  See e.g. Tucker v. Commissioner, 135 T.C. 114 (2010), aff’d 676 F.3d 1129 (D.C. Cir. 2012).

Appeals explains on its web site that its “independence” is from the Examination and Assortment features inside the IRS:  Appeals is separate and impartial from the IRS Examination and Assortment features that make tax assessments and provoke assortment actions. Our mission is to resolve tax controversies—With out litigation; On a foundation which is honest and neutral to each the Authorities and also you, and; In a fashion that can improve voluntary compliance and your confidence within the integrity and effectivity of the Service.”

Whereas its mission stays largely the identical, the method Appeals makes use of to hold out that mission has modified over time.  The largest change was the prohibition on one thing known as “ex parte” contacts. See Moore v. Commissioner, T.C. Memo. 2006-171, the place Choose Swift provides the historical past of that change, noting that “in prior years, and with an excessive amount of effectiveness and propriety, respondent’s Appeals officers usually have been allowed to speak with respondent’s income brokers and officers regarding a taxpayer’s excellent taxes.”  That case teaches a great lesson in what constitutes an improper ex parte contact.  The IRS then issued this Motion on Resolution explaining why it was disagreeing with the opinion.

These modifications in process have turned Appeals right into a quasi-judicial workplace.  Appeals doesn’t work a case the best way it used to.  Whereas earlier than the ex parte guidelines Appeals would settle for data from a taxpayer and work out the consequence, now Appeals Officers will usually kick the can again to the originating features (Examination or Assortment) to do the work.  For instance, if a taxpayer in a CDP listening to desires the IRS to just accept an Provide In Compromise (OIC), Appeals won’t resolve whether or not the IRS ought to settle for the OIC.  As an alternative, Appeals sends the OIC to the IRS unit that processes all OICs they usually make the choice.  Provided that the taxpayer then disagrees with that call does Appeals “evaluate” it.  See Lesson From The Tax Court docket: The Distinction Between Rejecting An OIC And Reviewing A Rejection, TaxProf Weblog (July 18, 2022).

Nonetheless, Appeals nonetheless considers hazards of litigation in resolving points.  That’s one purpose many people like CDP as a result of, once you catch the CDP Butterfly, it’s simpler to play the hazards of litigation card.  Besides, when the litigation is a really gentle abuse of discretion evaluate, that could be a fairly low-value card.

And, as related for in the present day’s lesson, Appeals can and can nonetheless generally work some features of a case.  We be taught in the present day that your greatest wager is to try to work out a cope with Appeals as a result of simply because the Tax Court docket shouldn’t be your advocate, neither is the Tax Court docket going to re-do the work Appeals did to substitute its judgment for that of Appeals.  Let’s have a look.

Details
Mr. and Ms. Powell had issue submitting their 2016 tax return.  They didn’t submit it till till prompted by receipt of a Substitute for Return from the IRS.  The IRS accepted the late-filed return and assessed the tax legal responsibility proven, in addition to the extra quantities for curiosity (nach) and failure to file.  Additional, for the reason that Powells didn’t pay the tax mirrored on their very own return, the IRS hit them with a failure to pay penalty as nicely.

Apparently the Powells had comparable unpaid tax liabilities for his or her 2017-2019 tax years.  But it surely was for the 2016 tax 12 months that they ultimately acquired a levy CDP discover in April 2020.  They well timed requested a CDP Listening to someday.

Keep in mind, the official function of a CDP listening to is to permit taxpayers to pause assortment to allow them to clarify why they’re turnips and can’t totally and instantly pay the assessed tax.  Taxpayers can ask for “assortment options,” which embrace an Provide In Compromise (OIC), an Installment Settlement (IA), a Partial Pay Installment Settlement (PPIA), or relegation to At the moment Not Collectible (CNC) standing.  See Lesson From The Tax Court docket: No Second Chunk In CDP For Rejected OIC, TaxProf Weblog (Mar. 1, 2021).

And bear in mind, the unofficial function of a CDP listening to is … delay.  And bear in mind too that 2020 was the 12 months of COVID, in order that was slowing the whole lot much more.

Of their April 2020 CDP request the Powells requested for an Installment Settlement (IA).  Since their tax liabilities totaled underneath $50,000, they have been eligible for what is named a “Streamlined” IA, which mainly means they didn’t need to submit detailed financials on Kind 433-A.  See IRM 5.14.5.2 (10-14-2021) (“Streamlined Installment Agreements”)

In Might 2021 the Settlement Officer (SO) assigned to the case despatched the Powells a letter that provided them a Streamlined IA to repay their whole excellent liabilities for all years, which at the moment amounted to about $30,500.  The Powells would wish to comply with pay $424/month for 92 months, some 7.5 years.  If me and my calculator are working, I believe that involves $39,000 whole.  So I’m considering it’s like a 6.2% price of curiosity?  I invite of us higher at numbers than I’m to appropriate me.  The SO ‘s letter mentioned if they didn’t assume they might afford the $424/month then they might submit detailed monetary statements on Kind 433-A (with supporting documentation) and the SO might recalculate the IA phrases.

Apparently the Powells discovered somebody to symbolize them and ultimately, after a number of delays, submitted the financials in late October 2021.  Nonetheless, it seems that the disclosures on their unsupported Kind 433-A “confirmed a web distinction of $1,449 per thirty days accessible to pay their excellent ta liabilities—considerably greater than the $424 cost required underneath the SO’s streamlined IA proposal.”  Op. at 3.  Whoops.

In early November the SO gave the Powells the choice of a second Streamlined IA the place they’d pay $350/month for 109 months and requested for a response by mid-November.  The explanations for that aren’t revealed within the Opinion.  However except my fats fingers tousled on my calculator that totals $38,150 .  I admit I’m confused!  I don’t perceive why there could be much less accrual of curiosity, and so forth., over a 109 month interval than over a 92 month interval.  I invite these higher at numbers than I’m to elucidate.  Regardless, am I loopy to assume that the $350/month deal looks as if a a lot better deal than the $424/month deal?

The Powells made no response by the mid-November deadline so the SO closed the case on the finish of November and the IRS creaked out the SO’s Discover of Dedication to green-light assortment on February 1, 2022.  No IA in any respect.  Full-steam forward on assortment.

The Powells—now continuing pro-se—petitioned the Tax Court docket, arguing that the SO tousled all of the numbers.  Appears they actually did need an IA in any case.  Our lesson teaches us, nevertheless, that it was too late.

Lesson: Take The Offers In Appeals
Choose Lauber notes that the Powells’ did not make any response in Court docket to the IRS’s Movement for Abstract Judgment.  That was, in and of itself, adequate grounds to maintain the SO’s choice to greenlight assortment.  See Tax Court docket Rule 121(d).  He nonetheless provides that call an abuse-of-discretion evaluate, from which we get our lesson.

First, Choose Lauber notes that the SO right here went above and past what the statute requires: “it’s not an abuse of discretion for an SO to say no to think about a set different the place the taxpayer doesn’t put a proposal on the desk. In different phrases, it’s the obligation of the taxpayer, not the reviewing officer, to start out negotiations by making a selected proposal. Petitioners by no means made one.” Op. at 5-6.  (emphasis equipped).

Second, Choose Lauber explains that in conducting an abuse-of-discretion evaluate, “we don’t recalculate a taxpayer’s capacity to pay or substitute our judgment for the SO’s.” Op. at 6.  Particularly, it’s not an abuse of discretion for the SO “to maneuver ahead with a willpower” when the taxpayers had a number of alternatives to offer data and gave solely radio silence.  Right here, the SO gave affordable deadlines, even waited some two weeks after the ultimate one, after which solely s…l…o…w…l…y moved to situation the Discover of Dedication some three months later.

Lastly, Choose Lauber notes the massive issue the Powells confronted in making an attempt to argue that the SO abused discretion by providing them an IA that was some 4 occasions much less per thirty days than what  their very own, unsupported, Kind 433-A confirmed as the surplus of their month-to-month earnings over month-to-month bills.  Op. at 7.

Backside line:  You’re unlikely to get a greater deal in Tax Court docket than in Appeals.  So work it out in Appeals.

Remark:  SOs and different Appeals Officers do certainly mess up.  They’re human.  They get fatigued and annoyed and commit errors.  Nonetheless, even when a taxpayer succeeds in convincing the Tax Court docket that the Workplace of Appeals abused its discretion, the reduction given is sort of all the time a remand.  And that’s … simply one other likelihood to work it out in Appeals!  See Lesson From The Tax Court docket: CDP Win Is Not All the time A Victory, TaxProf Weblog (Might 28, 2019)

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Bryan Camp is the George H. Mahon Professor of Regulation at Texas Tech College Faculty of Regulation.  He invitations readers to return every Monday (or Tuesday if Monday is a federal vacation) to TaxProf Weblog for an additional Lesson From The Tax Court docket.

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