In a recent US Tax Court decision, Renald Eichler v. IRS (“Eichler”), Docket Number 725-12L, the Tax Court affirmed that IRC 6331(k)(2) does not preclude the IRS from issuing the Final Notice of Intent to Levy after the taxpayer submitted an installment agreement request. The Tax Court further held that the IRS did not abuse its discretion under the Internal Revenue Manual, an IRS employee handbook, when it decided to sustain the Final Notice of Intent to Levy.
The Taxpayer’s Partial Payment Proposal to Resolve a Payroll Tax Matter Did Not Stop the IRS Threat to Levy
In Eichler, the IRS utilized IRC 6672 to assess the Trust Fund Recovery Penalty (TFRP). The TFRP is a weapon the IRS uses to collect delinquent payroll taxes from responsible and willful individuals who do not remit an employee’s wages (income tax, social security, and Medicare taxes). The IRS found that the taxpayer was a responsible and willful party and assessed $189,374 in back payroll taxes.
The taxpayer proposed a partial payment installment agreement (“PPIA”) of $350 per month to resolve the delinquent payroll taxes. A PPIA is a proposal to pay less than what is owed through a payment plan. If the IRS approves the partial pay installment agreement, it will monitor the taxpayer’s ability to pay throughout the 10 year collection statute. Generally speaking, the IRS has 10 years to collect back taxes unless it seeks a judgment which can extend the statute based on a time prescribed by state law.
While the taxpayer’s PPIA was pending, the IRS sent three Letters CP 90, Final Notice of Intent to Levy and Notice of Your Right to a Hearing pertaining to the taxpayers unpaid payroll taxes. In response to the Final Notice of Intent to Levy, the taxpayer requested an appeals hearing and stated that the Final Notice of Intent to Levy should be withdrawn pursuant to IRC 6331(k) and IRM 5.11.1.2.2.8 (Jan. 1, 2006).
The Collection Due Process Hearing
At the hearing, the taxpayer argued that the Notices of Intent to Levy had been issued prematurely because he had submitted an installment agreement request that was pending prior to the notices being issued. The Settlement Officer disagreed and determined that the issuance of the notices of intent to levy was not premature and that these notices should not be rescinded.
US Tax Court Held that Issuing a Final Notice of Intent to Levy is not the Same as a Tax Levy
The Tax Court reviewed the IRS’s determination under an abuse of discretion standard. An abuse of discretion standard is asking whether it was arbitrary, capricious, or without sound basis in fact or law for the IRS to refuse to rescind the Intent to Levy Notice.
The taxpayer argued that IRC 6331(k)(2) precludes the IRS from issuing a notice of intent to levy while an installment agreement offer is pending. The taxpayer further argued that the IRS should have rescinded the notices of intent to levy pursuant to IRM 5.11.1.2.2.8 and IRM 5.14.1.3.
The US Tax Court reviewed IRC 6331(k)(2), which provides, in pertinent part, that:
- No levy may be made while an installment agreement to pay unpaid taxes is pending
- If the installment agreement is rejected by the IRS, then the IRS is precluded from enforcement action during the 30 days thereafter or while an appeal is pending.
The US Tax Court held that the provisions of the IRM do not carry the force and effect of law or confer rights on taxpayers. The Tax Court confirmed that the tax regulations expressly provide that a levy is prohibited while an installment agreement proposal is pending. However, the Court further held that an installment agreement request does not bar the IRS from issuing notices of intent to levy.
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