151 T.C. 93 (T.C. 2018), 12777-12L, Melasky v. Commissioner of Internal Revenue

Docket Nº:12777-12L
Citation:151 T.C. 93, 151 T.C. No. 9
Opinion Judge:THORNTON, Judge:
Party Name:David H. MELASKY and Audrey Melasky, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Juan F. Vasquez, Jr., and Renesha N. Fountain, for petitioners. Susan Kathy Greene, for respondent.
Judge Panel:GALE, GUSTAFSON, PARIS, KERRIGAN, LAUBER, NEGA, PUGH, and ASHFORD, JJ., agree with this opinion of the Court. FOLEY, CJ., did not participate in the consideration of this opinion. LAUBER, J., concurring: THORNTON, MARVEL, GUSTAFSON, KERRIGAN, BUCH, NEGA, PUGH, and ASHFORD, JJ., agree with this co...
Case Date:October 10, 2018
Court:United States Tax Court
 
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Page 93

151 T.C. 93 (T.C. 2018)

151 T.C. No. 9

David H. MELASKY and Audrey Melasky, Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 12777-12L

United States Tax Court

October 10, 2018

This CDP case involves Ps’ 2006, 2008, and 2009 income tax liabilities. Ps gave R a check which they asked to have applied against their 2009 income tax liability. Before the check was deposited, R levied on Ps’ bank account (against which the check had been drawn) with respect to other tax liabilities Ps owed. Ps’ check subsequently failed to clear. R applied the proceeds of the levy against Ps’ 1995 income tax liability. Ps contend that the proceeds of the levy should be applied against their 2009 income tax liability.

Ps also requested a partial payment installment agreement but failed to pay over their equity in certain assets after three deadline extensions over about 4.5 months. R determined that Ps would be able to rely on distributions from a trust to pay a portion of their necessary expenses and that Ps could therefore afford a greater monthly payment than they had proposed. For these reasons, R denied the installment agreement Ps had proposed.

Held : Because Ps’ check was dishonored, it was not a payment. The levy proceeds were an involuntary payment, and therefore R did not abuse his discretion in applying the levy proceeds against Ps’ 1995 income tax liability.

Held,

further, R’s determination to deny Ps’ installment agreement proposal was not an abuse of discretion.

Juan F. Vasquez, Jr., and Renesha N. Fountain, for petitioners.

Susan Kathy Greene, for respondent.

OPINION

THORNTON, Judge:

In this collection due process (CDP) case, petitioners seek review pursuant to section 6330(d)(1) of respondent’s determination to sustain a proposed levy to collect unpaid income tax for 2006, 2008, and 2009.1 Respondent has moved for summary judgment under Rule 121. Petitioners object to respondent’s motion and have filed a cross-motion for summary judgment. The issues remaining for decision are (1) whether respondent abused his discretion in denying petitioners’ request to apply certain proceeds of a

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prior levy against their 2009 income tax liability and (2) whether respondent abused his discretion in rejecting the installment agreement petitioners proposed during the CDP hearing.

Background

The following undisputed facts are derived from the parties’ filings. Petitioners resided in Texas when they petitioned this Court.

Petitioners filed joint returns for their 1995, 1996, 1999, 2000, 2001, 2002, 2003, 2004, 2006, 2008, and 2009 income tax years, and on the basis of those returns respondent has assessed, at different times, various amounts, including interest and additions to tax, with respect to each tax year.2 Petitioners have not disputed that they are liable for the amounts assessed for these years.

Since 1997 petitioners have submitted several proposed collection alternatives with respect to certain years, and respondent has attempted in various ways to collect the unpaid amounts. As described more fully below, this case concerns respondent’s attempts to collect petitioners’ income tax for 2006, 2008, and 2009, but certain facts relating to other years are relevant to this case and are therefore described as necessary.

Between 1997 and 2006 petitioners submitted four successive offers-in-compromise (OIC): on June 5, 1997 (with respect to their 1995 and 1996 income tax liabilities); on November 4, 1997 (with respect to their 1995 and 1996 income tax liabilities); on April 6, 2004 (with respect to their 1995, 1996, 1999, 2000, 2001, and 2002 income tax liabilities); and on May 17, 2006 (with respect to their 1995, 1996, 1999, 2000, 2001, 2002, 2003, and 2004 income tax liabilities). Respondent initially accepted petitioners’ November 4, 1997, offer but later determined that they had failed to meet its terms.3 Respondent denied petitioners’ other three offers.

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Meanwhile, respondent initiated collection activities with respect to these years on various occasions. Respondent issued Letters 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing, to petitioners on November 6, 2001 (with respect to their 1999 income tax liability), on January 18, 2002 (with respect to their 2000 income tax liability), on June 20, 2002 (with respect to their 1995 income tax liability), and on September 19, 2005 (with respect to their 1996, 2001, 2002, and 2003 income tax liabilities).

In 2006 petitioners proposed and respondent accepted an installment agreement, which was established on November 6, 2006 (with respect to their 1995, 1996, 1999, 2000, 2001, 2002, 2003, and 2004 income tax liabilities). The record reflects that petitioners began paying on this plan in December 2006. On April 13, 2009, respondent determined that petitioners were no longer in installment agreement status.[4] On April 23, 2009, respondent issued a notice of intent to levy with respect to petitioners’ 1995, 1996, 1999, 2000, 2001, 2002, 2003, and 2004 income tax liabilities.

On August 28, 2009, the parties entered into a second installment agreement (or perhaps a revision of their earlier agreement5 ), this time with respect to petitioners’ 1995, 1996, 1999, 2000, 2001, 2002, 2003, 2004, and 2006 income tax liabilities.6 The record reflects that petitioners ceased paying on this agreement after January 2010.7 On March 15, 2010, respondent determined that petitioners were no longer in installment agreement status.

In addition to the foregoing, petitioners made a $22,899 payment on January 29, 2010 (i.e., at roughly the same time they ceased paying on their installment agreement); this payment, which does not appear to have been associated with

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their installment agreement, was applied against their 2008 income tax liability, apparently in accord with their instructions (but did not fully satisfy that liability).

Similarly, on January 27, 2011 (i.e., roughly one year later), petitioners hand-delivered to the Internal Revenue Service (IRS)--at the IRS office in Houston, Texas--an $18,000 check from their account at JP Morgan Chase, NA. They requested that the check be applied against their 2009 income tax liability (slightly more than $18,000). Respondent initially applied the check against petitioners’ 2009 income tax liability.

On January 31, 2011, respondent issued a notice of intent to levy with respect to petitioners’ 2001, 2002, 2004, 2006, 2008, and 2009 income tax liabilities.8 Also on January 31, 2011, respondent issued to petitioners’ bank, JP Morgan Chase, NA, a notice of levy with respect to petitioners’ 1995, 1996, 1999, 2000, 2001, 2002, 2003, and 2004 income tax liabilities; 9 respondent simultaneously issued to petitioners Form 8519, Taxpayer’s Copy of Notice of Levy, which informed petitioners of the levy on their bank account.10 As a result of the notice of levy, petitioners’ bank placed a hold on their account.

On February 9, 2011, petitioners submitted to respondent a Form 12153, Request for a Collection Due Process or Equivalent Hearing, with respect to their unpaid income tax liabilities for 1995, 1996, 1999, 2000, 2001, 2002, 2003, 2004, 2006, 2008, and 2009. Petitioners checked the boxes for "Installment Agreement", "Offer in Compromise", and "Other". In the space provided next to the "Other" box, petitioners referred respondent to an attachment. In their attachment, petitioners contended that the period of limitations on collection had expired with respect to their tax liabilities for 1995 and 1996. Petitioners also noted that their January 27, 2011, check had not been deposited as of January 31, 2011, and that JP Morgan Chase had placed a hold on their checking account upon receipt of the January

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31, 2011, notice of levy. Petitioners requested that the levy proceeds be applied against their 2009 income tax liability.

On February 28, 2011, respondent applied against petitioners’ 1995 income tax liability the proceeds of the levy upon their bank account, $21,182.11 At some point on or before March 7, 2011, respondent attempted to deposit petitioners’ January 27, 2011, check. The check did not clear, either because of the hold on petitioners’ account (before February 28, 2011) or because the funds in the account had been transferred to the IRS (after February 28, 2011). Because petitioners’ check did not clear, respondent reversed application of the check against their 2009 income tax liability.

On July 15, 2011, after a series of preliminary exchanges between the settlement officer (SO) and petitioners counsel, the SO issued petitioners a letter noting that Appeals had received their request for a CDP hearing and scheduling a face-to-face CDP hearing for August 25, 2011. On or about July 27, 2011...

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