Lindsay Manor Nursing Home, Inc. v. Comm'r

• Decision Date: 23 March 2017
• Docket Number: 148 T.C. No. 9,Docket No. 24596-14L.
• Parties: LINDSAY MANOR NURSING HOME, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: United States Tax Court

LINDSAY MANOR NURSING HOME, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

148 T.C. No. 9

Docket No. 24596-14L.

UNITED STATES TAX COURT

March 23, 2017

At its CDP hearing P, a corporate taxpayer, challenged the appropriateness of a proposed levy on the grounds that the levy would create economic hardship because of the financial condition of P. R's settlement officer (SO) did not consider P's economic hardship argument because P is a corporate taxpayer and sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs., limits economic hardship relief to individual taxpayers.

P asserts in a motion for summary judgment that sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs., is invalid because it conflicts with I.R.C. sec. 6343(a)(1)(D) and that because the regulation is invalid the SO abused her discretion when she did not consider whether a levy would create economic hardship for P, a corporate taxpayer. I.R.C. sec. 6343(a)(1)(D) requires the Secretary to release a levy if "the Secretary has determined that such levy is creating an economic hardship due to the financial condition of the taxpayer." Sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs., defines economic hardship as certain circumstances suffered by individual taxpayers.

Held: I.R.C. sec. 6343(a)(1)(D) is silent or ambiguous on this issue, and sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs., is based upon a permissible interpretation of the statute. Sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs., is a valid regulation.

Held, further, I.R.C. sec. 6330(c)(3)(C) sets forth a balancing test which properly takes into account for all taxpayers the economic realities and consequences of proposed collection actions.

Held, further, P's motion for summary judgment will be denied in part.

David J. Looby, for petitioner.

Ann Louise Darnold, for respondent.

OPINION

PARIS, Judge: This case is before the Court on petitioner's motion for summary judgment under Rule 121.¹ The issue for decision is whether section 301.6343-1(b)(4)(i), Proced. & Admin. Regs., is valid.

Background

The record reflects or the parties do not dispute the following. Petitioner's principal place of business was in a rural community of fewer than 3,000 residents in Oklahoma at the time the petition was filed. Petitioner operates a nursing home facility.

I. Employment Tax at Issue

Petitioner timely filed its Form 941, Employer's Quarterly Federal Tax Return, for the quarterly period ended December 31, 2013, but failed to pay its tax liability for that quarter. On April 14, 2014, respondent assessed the tax of $108,911 reported on the return.

II Proposed Levy on Petitioner's Property

On April 24, 2014, respondent issued to petitioner a Letter 1058, Final Notice--Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice). The levy notice reflected respondent's intent to levy on petitioner's property and rights to property to collect the employment tax liability assessed against it. The levy notice also informed petitioner of its right to a collection due process hearing (CDP hearing) with the Internal Revenue Service Appeals Office (IRS Appeals) before respondent levies on petitioner's property.

III. Petitioner's Request for Economic Hardship Relief

Petitioner timely submitted a Form 12153, Request for a Collection Due Process or Equivalent Hearing (CDP request), on May 7, 2014. IRS Appeals assigned petitioner's case to Settlement Officer Alcorte (SO Alcorte). SO Alcorte issued to petitioner a letter dated July 28, 2014, scheduling a CDP hearing for August 21, 2014. On August 20, 2014, petitioner faxed to SO Alcorte a Form 433-B, Collection Information Statement for Businesses, and supporting documentation which demonstrated that petitioner had not received a total of $306,598.61 in accounts receivable due from Medicare, Medicaid, insurance, and private pay for the period April 30 through June 30, 2014.²

Also on August 20, 2014, petitioner faxed a letter to SO Alcorte challenging the appropriateness of the proposed levy on the ground of economic hardship. In the letter petitioner claimed respondent was required to release the proposed levy pursuant to section 6343 because the levy would create economic hardship on account of the financial condition of petitioner. Specifically, the letter stated:

Taxpayer also seeks to challenge the appropriateness of the proposed levy on the grounds of economic hardship. As demonstrated by Taxpayer's Form 433-B, Collection Information Statement, Taxpayer has an outstanding accounts receivable balance of $306,598.61 due tononpayment of monies billed to Medicare and Medicaid and is currently operating at a net loss. Taxpayer cannot survive an all source levy of the available funding that it does have and still provide essential care services to the patients residing at Taxpayer's nursing facility. Taxpayer has a mandatory obligation, under federal and state law, to provide food, medicine, physical therapy services, linens and bedding, supplies, equipment and certified healthcare providers for its patients. Failure to provide adequate care to these patients can subject Taxpayer to a loss of its license among numerous other civil and criminal penalties.

* * * * * * *

[T]he proposed levy on Taxpayer's accounts receivables, Medicaid and Medicare funding, private pay and bank accounts should be released. Such a levy on Taxpayer's essential business property would prevent it from being able to carry on its trade or business (i.e., to provide adequate care and treatment to its patients). Taxpayer would not be able to meet its payroll and other basic necessities, which in turn would result in patients not receiving the needed care from qualified healthcare providers that the law mandates Taxpayer must provide. Simply put, Taxpayer cannot survive or provide essential care services to its patients if the IRS is able to file a levy against every available source of income. As such, Taxpayer asserts that the hardship relief provisions of § 6343 apply to this situation and mandate the release of the proposed levy issued against it.

IV. The CDP Hearing

On August 21, 2014, a telephone CDP hearing was held between SO Alcorte and petitioner's representative. During the hearing petitioner again challenged the appropriateness of the proposed levy on the ground of economic hardship. SO Alcorte explained to petitioner's representative that she would not consider petitioner's economic hardship argument because economic hardship relief is not available to corporations.

On September 17, 2014, IRS Appeals issued a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 to petitioner sustaining the proposed levy for petitioner's taxable quarter ended December 31, 2013 (notice of determination). In the notice of determination SO Alcorte noted petitioner's continuously maintained position that it should be entitled to economic hardship relief pursuant to section 6343(a)(1)(D). SO Alcorte explained that "economic hardship was denied based on the financial statement and supporting documents provided." SO Alcorte quoted from section 6343(a)(1)(D) and section 301.6343-1(b)(4)(i), Proced. & Admin. Regs., which provide for levy relief on the basis of economic hardship; she explained that "[t]his condition applies if satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses." SO Alcorte did not provide any further explanation as to why petitioner was denied economic hardship relief.³ Petitioner timely petitioned the Court for review of the notice of determination. See sec. 6330(d).

Petitioner moves the Court for summary judgment on the grounds that: (1) section 301.6343-1(b)(4)(i), Proced. & Admin. Regs., is invalid because it conflicts with section 6343(a)(1)(D) by redefining the term "taxpayer" to include only individuals and (2) because section 301.6343-1(b)(4)(i), Proced. & Admin. Regs., is invalid, SO Alcorte abused her discretion by failing to consider petitioner's request for levy relief on the basis of economic hardship.⁴

Discussion

Summary judgment serves to "expedite litigation and avoid unnecessary and expensive trials." Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). The Court may grant summary judgment upon all or any part of the legal issues in controversy if there is no genuine dispute of material fact. Rule 121(b); see Naftelv. Commissioner, 85 T.C. 527, 529 (1985). The moving party bears the burden of proving that no genuine issues of material fact exist and that it is entitled to judgment as a matter of law. Bond v. Commissioner, 100 T.C. 32, 36 (1993); Naftel v. Commissioner, 85 T.C. at 529. In deciding whether to grant summary judgment, the Court considers the facts and the inferences drawn from those facts in the light most favorable to the nonmoving party. Bond v. Commissioner, 100 T.C. at 36; Naftel v. Commissioner, 85 T.C. at 529. Because the issue of statutory construction involves a pure question of law and because the parties agree on all facts relevant to the Court's analysis, the Court concludes that summary adjudication is appropriate.

I. Collection of Federal Tax by Levy

If a taxpayer liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, the Secretary may collect the tax by levy upon all property and rights to property (except any property that is exempt under section 6334) belonging to the taxpayer.⁵ Sec. 6331(a).

Section 6343(a)(1)(D) requires the IRS to release a levy upon a taxpayer's property if the Secretary determines that the levy is creating economic hardship because of the financial condition of the taxpayer. As applicable here, section 6343(a)(1)(D) provides:

SEC. 6343(a). Release of Levy and Notice of Release.--

(1) In general.--Under regulations prescribed by the Secretary, the Secretary shall release the levy upon all, or part of, the property or rights to property levied

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