Galloway v. Comm'r
| Decision Date | 24 February 2021 |
| Docket Number | Docket No. 18722-18L.,T.C. Memo. 2021-24 |
| Parties | CRAIG L. GALLOWAY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
Jason M. Smith, for petitioner.
Lynn M. Barrett and Timothy A. Lohrstorfer, for respondent.
URDA, Judge: In this collection due process (CDP) case Craig L. Galloway seeks review pursuant to sections 6320(c) and 6330(d)(1)1 of the determination bythe Internal Revenue Service (IRS) Office of Appeals2 to uphold the filing of a notice of Federal tax lien (NFTL) with respect to an unpaid Federal income tax liability for 2014, as well as associated interest and additions to tax. Mr. Galloway asserts that, during his CDP hearing, he was improperly barred from resuscitating an offer-in-compromise (OIC) that had been rejected before the NFTL filing.
Respondent has moved for summary judgment, asserting, inter alia, that Mr. Galloway failed to propose an OIC and that the determination to uphold the NFTL filing was proper. Mr. Galloway objected and filed a cross-motion for summary judgment. We will grant respondent's motion and deny Mr. Galloway's.
The following facts are based on the parties' pleadings and motion papers, including the attached declarations and exhibits.3 See Rule 121(b). Mr. Galloway lived in Indiana when he timely filed his petition.
Mr. Galloway is a car salesman. On his 2014 Federal income tax return he reported taxable income of $249,718, and Federal income tax of $95,293. Mr. Galloway's income tax withholding for 2014 was $32,998, which did not fully cover his reported tax obligation. The IRS accordingly assessed the reported tax, an addition to tax under section 6651(a)(2) for failure to timely pay, an addition to tax under section 6654 for failure to pay estimated tax, and statutory interest.
Mr. Galloway submitted two OICs to the IRS Centralized Offer in Compromise (COIC) unit in an attempt to settle his 2014 tax liability. First, in2016, he offered $9,138, which was rejected on the ground that he could pay the full amount due. Rather than appealing that rejection to the Office of Appeals, Mr. Galloway submitted Form 656, Offer in Compromise, in January 2017 (2017 OIC), proposing to settle for $8,900.
Mr. Galloway asserted that exceptional circumstances justified acceptance of the 2017 OIC. He recounted struggles with alcoholism, which led to his termination from work in 2012 and to a sustained period of unemployment. He asserted that, during this time, he liquidated retirement savings for living expenses, which resulted in the tax liability at issue. Mr. Galloway further explained that despite his holding a job as a car salesman since October 2015, his salary was commission based and subject to significant fluctuations. Finally, he requested that the COIC unit not consider certain assets when determining his ability to pay, including his personal residence and a car used by his daughter.
Mr. Galloway also submitted Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals. He reported monthly income and monthly expenses of $2,400,4 as well as a variety of personal assets including his residence, two 2007 Toyotas, one 1997 Toyota, a motorcycle, and$297 in a checking account. Mr. Galloway proposed settling his tax debt for $8,900, the purported value of two of his cars (those not used by his daughter) and his motorcycle. He stated that he could pay his full offer within two years.
On September 20, 2017, the COIC unit sent a letter rejecting the 2017 OIC on the grounds that Mr. Galloway had the ability to fully pay his liability and that he had offered less than his reasonable collection potential (RCP).5 IRS computations attached to the letter reflected that Mr. Galloway's gross monthly income was $4,902 and his monthly allowable expenses were $3,217, leaving $1,685 of disposable income per month that could be devoted toward his liability (at that time) of $81,507. The computations noted that 110 months still remained in the statutory collection period and that Mr. Galloway could pay off his liability in 53 months using his monthly disposable income alone.
Mr. Galloway timely appealed the rejection to the Office of Appeals, asserting that the IRS had inflated his likely future earnings given his commission-based job and uncertain income prospects. Specifically he explained that his income fluctuated with the commissions he received. He further suggested that the $4,902 salary amount determined by the COIC unit was taken out of context, noting that a "one-month snap shot of Mr. Galloway's income will not accurately reflect his monthly income over the course of the year". He concluded by asserting that he had no disposable income to devote to his liability and that the IRS had erred in concluding otherwise.
On February 1, 2018, the Office of Appeals sustained the rejection of the 2017 OIC, explaining that the "amount you are able to pay exceeds the amount of your offer."
The next month the IRS issued Mr. Galloway a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320. Mr. Galloway responded by filing a timely Form 12153, Request for a Collection Due Process or Equivalent Hearing, on which he checked the boxes for "Offer in Compromise" and "I Cannot Pay Balance". Mr. Galloway urged reconsideration of the 2017 OIC and attached to the Form 12153 the COIC rejections of his previous OICs (and related correspondence).
The settlement officer assigned to Mr. Galloway's case scheduled a telephone CDP hearing for July 19, 2018, requesting certain financial information including Form 656 and Form 433-A. Mr. Galloway neither responded to this letter nor returned the requested financial information, but the hearing went ahead as scheduled. During the hearing Mr. Galloway criticized the COIC unit for assessing his ability to pay on the basis of his disposable income over the remaining statutory period of collection rather than over 12 months. The settlement officer took the position that the COIC unit acted properly, explaining that the first step in evaluating an OIC was to determine on the basis of a taxpayer's likely future income whether the taxpayer could fully pay the liability before the collection period expired.
Although the settlement officer invited Mr. Galloway to submit a new offer if he had experienced a change in his monthly income, she noted that the submission of the same offer would lead to the same result. The settlement officer also noted her willingness to consider a longer term installment agreement with lower monthly payments of $975. She asked Mr. Galloway to advise her by July 30, 2018, if he wanted to pursue either option.
Mr. Galloway did not respond by the due date. On August 2, 2018, the settlement officer called Mr. Galloway's representative and left a message, asking him to advise her by August 6, 2018, whether Mr. Galloway wished to accept the installment agreement of $975 per month. Neither Mr. Galloway nor his representative replied, and the settlement officer accordingly closed the case.
On August 16, 2018, the Office of Appeals issued a notice of determination sustaining the filing of the NFTL for 2014. The notice explained that although Mr. Galloway had raised the issue of an OIC, he neither provided requested documentation nor submitted an OIC, and that he had not responded to the settlement officer's installment agreement overture.
The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Under Rule 121(b) the Court may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Id.
Here, both parties have moved for summary judgment with respect to the Office of Appeals' determination. Since we will grant respondent's motion, we draw factual inferences in favor of Mr. Galloway. See Palmolive Bldg. Inv'rs, LLC v. Commissioner, 152 T.C. 75, 82 (2019). The nonmoving party, however, may not rest upon the mere allegations or denials of its pleadings but instead must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
We have jurisdiction to review the Office of Appeals' determination pursuant to sections 6320(c) and 6330(d)(1). Where, as here, the underlying tax liability is not at issue, we review the determination of the Office of Appeals for abuse of discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 182 (2000). In reviewing for abuse of discretion, we must uphold the Office of Appeals' determination unless it is arbitrary, capricious, or without sound basis in fact or law. See, e.g., Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006); Taylor v. Commissioner, T.C. Memo. 2009-27, 97 T.C.M. (CCH) 1109, 1116 (2009).
Mr. Galloway contends that the Office of Appeals abused its discretion in sustaining the rejection of his 2017 OIC. We consider whether the settlement officer: (1) properly verified that the requirements of any applicable law or administrative procedure have been met; (2) considered any relevant issues Mr. Galloway raised; and (3) considered whether "any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of * * * [Mr. Galloway] that any collection action be no more intrusive than necessary." Sec....
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