Seminole Nursing Home, Inc. v. Comm'r of Internal Revenue

• Decision Date: 02 September 2021
• Docket Number: No. 20-9005,20-9005
• Citation: 12 F.4th 1150
• Parties: SEMINOLE NURSING HOME, INC., Petitioner - Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent - Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

12 F.4th 1150

SEMINOLE NURSING HOME, INC., Petitioner - Appellant,

v.COMMISSIONER OF INTERNAL REVENUE, Respondent - Appellee.

No. 20-9005

United States Court of Appeals, Tenth Circuit.

FILED September 2, 2021

David J. Looby, Conner & Winters, LLP, Oklahoma City, Oklahoma for the Petitioner-Appellant.

Kathleen E. Lyon, Attorney, Tax Division (Richard E. Zuckerman, Principal Deputy Assistant Attorney General and Michael J. Haungs, Attorney, Tax Division, with her on the brief), Department of Justice, Washington, D.C., for Respondent-Appellee.

Before HARTZ, SEYMOUR, and MURPHY, Circuit Judges.

HARTZ, Circuit Judge.

The Internal Revenue Service (IRS) may levy on the property of a taxpayer who fails to pay delinquent taxes after notice and demand. See 26 U.S.C. § 6331(a). But the Tax Code provides that the levy may be released on grounds of economic hardship. See id. § 6343(a)(1)(D). A regulation issued by the Secretary of the Treasury restricts that economic-hardship exception to individual taxpayers. See 26 C.F.R. § 301.6343-1(b)(4)(i). Seminole Nursing Home, Inc. challenges the validity of the regulation, contending that the economic-hardship exception must be applied to all taxpayers, including corporations. The United States Tax Court rejected the contention on the ground that the regulation was a reasonable interpretation of an ambiguous statute. See Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc. , 467 U.S. 837, 842–43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Seminole appeals. Exercising jurisdiction under 26 U.S.C. § 7482(a)(1), we agree with the Tax Court and affirm.

I. BACKGROUND

When Seminole failed to pay $61,916.19 in federal employment taxes due for 2013, the IRS provided notice to Seminole of its intent to issue a levy to collect these unpaid taxes plus penalties and interest. See 26 U.S.C. § 6330(a) (requiring notice). After receiving a levy notice the taxpayer has the right to request a collections due-process hearing before the IRS Office of Appeals. See id. § 6330(b). The request temporarily suspends the levy. See id. § 6330(e)(i). At the hearing the taxpayer may raise "any relevant issue" relating to the tax or levy, including challenges to the appropriateness of the collection action and offers of collection alternatives, such as an installment agreement. Id. § 6330(c)(2)(A). The Office of Appeals issues a determination that takes into consideration the "issues raised" and whether the proposed collection action "balances the need for the efficient collection of taxes with the legitimate concern of the [taxpayer] that any collection action be no more intrusive than necessary." Id. §§ 6330(c)(3)(B) and (c)(3)(C).

Seminole requested a collection due-process hearing. Before the hearing it proposed an installment agreement permitting it to pay off its debt through monthly payments of $6,000 to the IRS. And on August 25, 2014, one day before the hearing, Seminole submitted a three-paragraph letter to the Office of Appeals stating that, "[i]n addition to seeking a collection alternative ... [, it] also seeks to challenge the appropriateness of the proposed levy on the grounds of economic hardship." Aplt. App., Vol. 1 at 86. Seminole acknowledged that its assets included "an outstanding accounts receivable balance of $313,112.98 due to nonpayment of monies billed to Medicare and Medicaid"—more than four times what it owed the IRS in taxes, penalty, and interest at that time. Id. at 86. It asserted, however, that a levy would cause economic hardship because it could not sustain a levy "and still provide essential care services to the patients residing at [its] nursing facility." Id . Seminole quoted the language of the economic-hardship exception, stating that the plain language of the statute indicated "Congress’ intent ... to mandate the release of a levy if it creates a financial economic hardship on a taxpayer." Id. It observed that the text of the statute "does not distinguish between businesses and individuals," and that "the term ‘taxpayer’ is defined in [the Tax Code] ... to mean and include an individual, a trust, estate, partnership, association, company or corporation " subject to tax. Id. at 86–87. It said that it was "[c]learly" eligible for the economic-hardship exception because it is a corporation experiencing economic hardship. Id. at 87. It did not mention the Treasury Regulation limiting the economic-hardship exception to individuals.

At the hearing, which was conducted by telephone, Seminole did not dispute the amount owed. The Office of Appeals rejected the proposed installment agreement on two grounds: (1) Seminole had sufficient assets to pay its tax debt in full; and (2) it was ineligible for an installment agreement because it had not made all its required federal tax deposits for 2014. The Office also rejected Seminole's economic-hardship argument, explaining that Treasury Regulation § 301.6343-1(b)(4) limits economic-hardship relief to individual taxpayers. And it determined that "[i]n balancing the least intrusive method of collection with the need to efficiently administer the tax laws and the collection of revenue, ... the balance favors issuance of the levy, and is no more intrusive than necessary." Id. at 94. The Office issued a Notice of Determination sustaining the levy.

Seminole petitioned the Tax Court for relief. The court rejected Seminole's economic-hardship argument because Treasury Regulation § 301.6343-1(b)(4)(i) limited that relief to individual taxpayers, and it had previously held in Lindsay Manor Nursing Home, Inc. v. Comm'r , 148 T.C. 235, 261 (2017), that the regulation was entitled to Chevron deference. It also affirmed that Seminole was ineligible for an installment agreement, although it found that the Office of Appeals had made a calculation error when determining Seminole's monthly income. The court explained that the calculation error did not affect Seminole's installment-plan eligibility, but it could have affected how the Office "balance[d] the need for the efficient collection of taxes" against the intrusiveness of a collection action. 26 U.S.C. § 6330(c)(3)(C). It therefore remanded the matter to the Office of Appeals to reconsider its balancing analysis.

On remand the Office of Appeals issued a letter to Seminole scheduling a second hearing and requesting that Seminole submit updated financial statements and proof that Seminole was current with its federal tax deposits in advance of the hearing. Seminole did not attend the hearing, nor did it provide the requested documents. The Office issued a second letter providing Seminole with additional time to submit the requested documents, but Seminole still did not respond.

On November 3, 2017, the Office issued a supplemental notice of determination sustaining the levy. In April 2018 Seminole filed motions for reconsideration and summary judgment with the Tax Court. The motions argued, among other things, that the Tax Court should apply the economic-hardship exception to Seminole because, while the case was on remand, this circuit, on the taxpayer's appeal of the Tax Court decision in Lindsay Manor , had vacated the Tax Court decision on the ground that the controversy had been "moot when the Tax Court published its decision." Lindsay Manor Nursing Home, Inc. v. Comm'r , 725 F. App'x 713, 717 (10th Cir. 2018) (unpublished). But the Tax Court rejected this argument and explained that reconsideration was unnecessary because the Tenth Circuit "only vacated ... Lindsay Manor for procedural purposes (i.e., mootness), not for substantive reasons." Aplt. App., Vol. 2 at 447. The Tax Court denied relief.

Seminole appeals both the Tax Court's affirmance of the IRS's determination sustaining the levy and its denial of the request for reconsideration.

II. DISCUSSION

For better or worse, "taxes are the lifeblood of government, and their prompt and certain availability an imperious need." Bull v. United States , 295 U.S. 247, 259, 55 S.Ct. 695, 79 L.Ed. 1421 (1935). The Secretary of the Treasury, generally acting through the IRS, has a powerful toolkit to serve that need. Under 26 U.S.C. § 6321, "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount ... shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." And the IRS need not tarry to pursue collection: "If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax ... by levy upon all property and rights to property [other than certain exempt property] belonging to such person or on which there is a lien ...." Id. § 6331(a).

The Internal Revenue Code, however, recognizes five exceptional circumstances in which the Secretary must release a levy, at least in part:

Under regulations prescribed by the Secretary, the Secretary shall release the levy upon all, or part of, the property or rights to property levied upon and shall promptly notify the person upon whom such levy was made (if any) that such levy has been released if—

(A) the liability for which such levy was made is satisfied or becomes unenforceable by reason of lapse of time,

(B) release of such levy will facilitate the collection of such liability,

(C) the taxpayer has entered into an agreement under section 6159 to satisfy such liability by means of installment payments, unless such agreement provides otherwise,

(D) the Secretary has determined that such levy is creating an economic hardship due to the financial condition of the taxpayer, or

(E) the fair market value of the property exceeds such liability and release of the levy on a part of such property could be made without hindering the collection of such liability.

For purposes of subparagraph (C), the Secretary is not required to release such levy if such release would jeopardize the secured creditor status of the

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