Estate of Wash. v. Comm'r of Internal Revenue

• Decision Date: 02 February 2022
• Docket Number: 20410-19L
• Parties: ESTATE OF ANTHONY K. WASHINGTON, DECEASED, LENDA WASHINGTON, PERSONAL REPRESENTATIVE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

T.C. Memo. 2022-4

ESTATE OF ANTHONY K. WASHINGTON, DECEASED, LENDA WASHINGTON, PERSONAL REPRESENTATIVE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 20410-19L

United States Tax Court

February 2, 2022

Charles A. Ray, Jr., for petitioner.

Jacob Russin and Jeffrey E. Gold, for respondent.

MEMORANDUM OPINION

TORO Judge

This is a collection due process (CDP) case. The estate of Anthony K Washington, deceased, Lenda Washington, personal representative (Estate), seeks review pursuant to section 6330(d)(1)^[1] of a determination by the Internal Revenue Service (IRS) Independent Office of Appeals (IRS Appeals) dated October 18, 2019, as supplemented on June 17, 2021. That determination, as supplemented, sustained a notice of intent to levy to collect Mr. Washington's unpaid income tax liabilities for the taxable years 2008 to 2010, 2014, and 2015 (Relevant Tax Years) and rejected the Estate's offers-in-compromise. The Commissioner of Internal Revenue has moved for summary judgment under Rule 121, contending that no material facts remain in dispute and that IRS Appeals' determination was proper as a matter of law. We agree and will therefore grant the Commissioner's motion.

Background

The following facts are based on the parties' pleadings and motion papers, including the declarations and exhibits attached thereto. See Rule 121(b). The facts are stated solely for the purpose of ruling on the Commissioner's motion and not as findings of fact in this case. See Whistleblower 769-16W v. Commissioner, 152 T.C. 172, 173 (2019). Ms. Washington resided in Washington D.C., when the petition in this case was filed.^[2]

I. Mr. and Ms. Washington's Marriage and Divorce

The decedent, Mr. Washington, whose income tax liabilities for the Relevant Tax Years are the subject of this case, married Ms. Washington in 1981. The couple had one son. In 2006, Mr. and Ms. Washington were divorced.

A. The Divorce Decree

The divorce was finalized by the Superior Court of the District of Columbia, which issued its Findings of Fact, Conclusions of Law and Judgment of Absolute Divorce (Divorce Decree) on June 6, 2006.

Two provisions of the Divorce Decree are relevant to this case. The first is the Judgment entered by the court, and the second is a Finding of Fact with respect to a Marital Settlement Agreement (MSA) entered into by the parties as of June 2, 2006.

The Judgment section of the Divorce Decree provided as follows:

JUDGMENT

WHEREFORE, it is by the Court, this 6th day of June, 2006,

ORDERED, ADJUDGED AND DECREED, that the Plaintiff, Lenda P. Washington, be and hereby is, awarded an absolute divorce from the Defendant, Anthony Washington, on the ground that the parties have lived separate and apart, without cohabitation and without interruption, for at least one year next preceding the filing of the Complaint for Absolute Divorce.

PROVIDED, HOWEVER, that pursuant to D.C. Code Section 16-920 (Suppl., 2004) this Judgment shall become effective to dissolve the bonds of matrimony thirty (30) days after the docketing of this Judgment unless either party applies for a Stay with the Superior Court or the Court of Appeals of the District of Columbia, and

FURTHER PROVIDED, that the Court reserves jurisdiction for the entry of the appropriate retirement order.^[3]

Paragraph 7 of the Findings of Fact of the Divorce Decree explained:

The parties entered into a comprehensive Marital Settlement Agreement dated June 2, 2006 . . ., which resolved all issues between the parties. There are no issues remaining to be resolved by the Court, other than the granting of the divorce and entry of the Order with respect to Defendant's retirement plan.

B. The MSA

The MSA, in turn, stated that the parties had separated and lived apart since on or about January 12, 2002, and,

In view of the separation, the parties . . . [were] desirous of settling and determining their obligations to each other and all of their property rights; the custody and support of their son, the maintenance and support of each of the parties by the other; as well as all other rights, claims, relationships or obligations between them arising out of [Mr. and Ms. Washington's] marriage or otherwise.

Three provisions of the MSA are particularly relevant to this case. They relate to (1) Mr. and Ms. Washington's retirement plans, (2) a life insurance policy provided to Mr. Washington through his employer, and (3) Mr. and Ms. Washington's intentions concerning the interaction of the MSA and the Divorce Decree.

1. Provision Regarding Retirement Plans

With respect to the retirement plans, section 4.6(c) of the MSA provided:

Waiver of Pension and Retirement Rights. Except as otherwise set forth herein, each party hereby expressly waives any legal right he or she may have under any federal or state law as a spouse or former spouse, or person with an insurable interest, or otherwise, to participate as a "spouse" or "former spouse" or payee or alternate payee or beneficiary or otherwise under the other party's pension, profit sharing, retirement, . . . 401(k), . . . or other similar plans, programs or accounts, including, but not limited to, the right to receive any benefit whether in the form of a lump sum distribution or a lump sum death benefit, or a single and/or joint and/or joint and survivor annuity, or a pre-retirement survivor annuity, or a survivor annuity, or otherwise. . . . Each party agrees to execute all documents necessary to implement the provisions of this paragraph.

In an effort to comply with the intent of this article; (i) if a party is unable for any reason to change the beneficiary or the death benefits of his or her pension, profit sharing, or other form of retirement or deferred income plan, or any other plan referred to in the paragraph above, or (ii) if a party files an election subsequent to the date of execution of this Agreement but such election is for any reason ineffective and the benefits are, in fact, paid to the surviving party contrary to the intention of this paragraph, or, (iii) if a party fails to designate a beneficiary and the plan provides for payment to the "spouse" or "former spouse," then in any of such events the surviving party shall, and except as otherwise provided in this Agreement, at the direction of and at the sole discretion of the decedent's personal representative, either: (A) disclaim any entitlement to any benefits received or receivable; or (B) assign all rights to receive such benefits to the estate of the deceased party or the person designated by the decedent or the decedent's personal representative to receive such benefits; or (C) pay the . . . [net] after-tax benefits over to the estate of the deceased party or to the person designated by the decedent or by the decedent's personal representative.

2. Provision Regarding Life Insurance

With respect to the life insurance policy, section 5.0 and 5.1 of the MSA provided:

LIFE INSURANCE

The parties' son is currently named as the beneficiary of the Husband's life insurance through his employment with a face amount of $100, 000.^[4] The Husband agrees to irrevocably elect the Wife as the beneficiary of this coverage on his life for so long as he is employed, and further agrees not to borrow against or otherwise encumber such life insurance proceeds. The Husband agrees that his notarized signature on page 12^[5] of this Agreement constitutes his irrevocable designation of the Wife as such beneficiary, and directs Radio One, upon receipt of a copy of this paragraph and the signature page, . . . to effectuate the intent of this paragraph by so listing the Wife as the irrevocable beneficiary.

3. Provision Regarding Interaction with Divorce Decree

Finally, with respect to the interaction of the MSA and the Divorce Decree, section 11.0 and 11.1 of the MSA provided:

MERGER OF AGREEMENT IN DECREE OF DIVORCE

The parties shall be bound by all the terms of this Agreement in resolving the pending divorce case . . . between them in the District of Columbia. The parties further agree that this Agreement shall be independent of and shall not be merged in or otherwise affected thereby.

II. The Estate's Tax Liabilities and IRS Collection Efforts

A. Federal Income Tax Returns for 2008, 2009, and 2010 and Mr. Washington's Death

Mr. Washington had substantial earnings in 2008, 2009, and 2010, but did not file timely federal income tax returns for those years. The IRS inquired about Mr. Washington's failure to file timely returns and eventually received his late-filed returns in 2014. Although the returns showed that income tax was due for each year, Mr. Washington did not pay the outstanding balances shown on the returns. The IRS assessed the tax shown on the returns together with certain additions to tax and penalties. The IRS also entered into an installment agreement with Mr. Washington permitting him to pay the outstanding balances for these years over time.

Unfortunately, on November 10, 2015, about a year after entering into the installment agreement, Mr. Washington died intestate, terminating the installment agreement, and leaving a significant portion of his federal tax liabilities for 2008, 2009, and 2010 unpaid.

Just over two years later, on December 22, 2017, the IRS recorded a lien with respect to the outstanding liabilities for these years. The IRS timely notified the Estate of the lien filing and of the right to a CDP hearing, but the Estate did not seek a hearing.

B. Federal Income Tax Returns for 2014 and 2015

Mr Washington also had substantial earnings in 2014 and 2015. He failed to file a timely return for 2014, and the Estate failed to file a timely return for 2015. In 2017, Ms. Washington, as personal representative of the Estate, caused the...