Tax Court In Brief | Serna v. Commissioner | Collection Due Process, Offer In Compromise, And Hardship – Tax Authorities – United States


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The Tax Court in Brief – June twenty seventh – July
1st, 2022

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Tax Litigation: The Week of June twenty seventh, 2022, by means of July 1st,

Serna v Commissioner, T.C. Memo.
2022-66 | June 27, 2022 | Urda, J.| Dkt. No.



Short Summary: In this assortment due course of
(CDP) case Alejandro Serna sought overview pursuant to sections 63201
and 6330 of a dedication by the IRS Office of Appeals upholding
the submitting of a discover of federal tax lien (NFTL) with respect to
an unpaid federal earnings tax legal responsibility for Serna’s 2016 tax
12 months. Serna earned $38,990 in wages in 2016. He additionally obtained
throughout that 12 months a retirement distribution of $322,970. Serna used
a portion of the funds to purchase a house for his estranged spouse and
4 kids. Based on his late-filed 2016 federal earnings tax
return, the IRS assessed the tax reported, in addition to curiosity and
penalties for the late submitting (approx. complete, $70,000). The IRS
despatched Serna a discover and demand for fee. In response Serna
submitted a proposal in compromise (OIC), proposing to settle the
legal responsibility for $10,000 primarily based on doubt as to collectability.
Serna’s OIC was assigned to an appeals officer who analyzed his
property, earnings, and liabilities. The IRS rejected the OIC on the
grounds that (1) his tax liabilities had been lower than his cheap
assortment potential and (2) the particular circumstances Serna famous
didn’t warrant acceptance. Serna appealed the OIC rejection,
asserting—as he did earlier than—that the OIC certified for
acceptance as a result of two of his 4 kids suffered from
developmental disabilities and that the home was important to
them. The IRS issued a discover of NFTL. Serna requested a CDP
listening to, once more on grounds referring to his kids’s medical
challenges. Later, Serna submitted his 2018 return, which claimed
solely considered one of his sons as a dependent. On September 12, 2019, the
settlement officer issued to Serna each a rejection memorandum
referring to his attraction and a discover of dedication sustaining the
NFTL submitting. The IRS knowledgeable Serna that the account can be
positioned in presently-not-collectible standing. The settlement officer
determined, nonetheless, that rejection was applicable as a result of Serna had
adequate fairness ($152,000) to completely pay his legal responsibility. No
info warranted the withdrawal of the NTFL submitting, however the
case—primarily based on extra bills of Serna—nonetheless
was returned “for no additional motion.”

Key Issues:

  • Whether the Office of Appeals abused its discretion in
    rejecting Serna’s OIC of $10,000, which was premised upon the
    specific hardship that the lien would work on Serna’s

Primary Holdings:

  • The Office of Appeals didn’t abuse its discretion both in
    rejecting the OIC or in sustaining the NFTL submitting. Nothing within the
    file justified disturbing the settlement supply’s conclusion
    that the IRS might acquire greater than the $10,000 OIC with out
    imposing financial hardship. While the Tax Court might have reached a
    totally different end result, that doesn’t justify a discovering of an abuse of

Key Points of Law:

  • Abuse of Discretion. Where the underlying tax
    legal responsibility is just not at challenge, the Tax Court evaluations the settlement
    officer’s determination for abuse of discretion. Sego v.
    , 114 T.C. 604, 610 (2000); Goza v.
    , 114 T.C. 176, 182 (2000). The Tax Court should
    uphold the settlement officer’s dedication until it’s
    arbitrary, capricious, or with out sound foundation actually or legislation.
    See Murphy v. Commissioner, 125 T.C. 301, 320 (2005),
    aff’d, 469 F.3d 27 (1st Cir. 2006). The Tax Court
    evaluations the file to find out whether or not the settlement officer (1)
    correctly verified that the necessities of relevant legislation or
    administrative process have been met; (2) thought of any related
    points the taxpayer raised; and (3) thought of whether or not any proposed
    assortment motion balances the necessity for the environment friendly assortment of
    taxes with the authentic concern of the taxpayer that any
    assortment motion be no extra intrusive than obligatory. See
    26 U.S.C. § 6330(c)(3).

  • IRS Manual on Collections. The calculation of
    a taxpayer’s cheap assortment potential is central to the
    analysis of an OIC. Churchill v. Commissioner, T.C.
    Memo. 2011-182, 2011 WL 3300235, at *3; see Internal Revenue Manual (IRM)8.5.1.

  • Conceding Issues. If a taxpayer doesn’t
    allege in his or her petition that the settlement officer did not
    fulfill a requirement and has set forth no particular details to that
    impact, the difficulty is deemed conceded. See Rule 331(b)(4);
    Rockafellor v. Commissioner, T.C. Memo. 2019-160, at

  • Offer In Compromise. 26 U.S.C. 7122(a) authorizes the IRS to
    compromise an impressive tax legal responsibility on grounds that embody the
    promotion of efficient tax administration. See Treas. Reg. § 301.7122-1(b)(3), (c)(3).
    The determination to simply accept or reject an OIC is inside the IRS’s
    discretion. See 26 U.S.C. § 7122(a). The Tax Court
    will uphold that call if the idea subsequently could also be fairly
    discerned. See Melasky v. Commissioner, 151 T.C.
    93, 106 (2018), aff’d, 803 F. App’x 732 (fifth Cir.
    2020); Kasper v. Commissioner, 150 T.C. 8, 24–25

  • Effective Tax Administration. A settlement to
    promote efficient tax administration is justified (i) when it’s
    decided that full assortment could possibly be achieved however would
    “trigger the taxpayer financial hardship inside the that means of [Treas. Reg.] § 301.6343-1,” or (ii)
    when distinctive circumstances exist such that assortment of the
    full legal responsibility would undermine public confidence that the tax legal guidelines
    are being administered in a good and equitable method. See
    Reg. § 301.7122-1(b)(3)(i), (ii).

  • Economic Hardship. “An supply to
    compromise primarily based on financial hardship usually will likely be thought of
    acceptable when, regardless that the tax could possibly be collected in full,
    the quantity provided displays the quantity the [IRS] can acquire
    with out inflicting the taxpayer financial hardship.” Proc. 2003-71, § 4.02(3)(a), 2003-2 C.B.
    517, 517. Treasury Regulation part 301.6343-1(b)(4) defines
    financial hardship as the shortcoming to pay cheap primary dwelling
    bills. When making this evaluation, a settlement officer might
    take into consideration the taxpayer’s use of month-to-month earnings to
    help dependents who don’t have any different means, the taxpayer’s
    potential to borrow towards the fairness of property, and the
    taxpayer’s potential to fulfill primary dwelling bills had been property
    liquidated to pay excellent tax liabilities. See Treas.
    Reg. § 301.7122-1(c)(3).

  • Public Policy. A compromise primarily based on public
    coverage or fairness issues will likely be justified solely the place,
    due to distinctive circumstances, assortment of the total
    legal responsibility would undermine public confidence that the tax legal guidelines are
    being administered in a good and equitable method. See
    Reg. § 301.7122-1(b)(3)(ii). A taxpayer proposing a compromise
    on this foundation should display circumstances that justify a
    compromise regardless that a equally located taxpayer might have paid
    his legal responsibility in full. Id.; see Garber v.
    , T.C. Memo. 2015-14, at *14–15. The
    related laws don’t set forth a selected customary for
    evaluating an OIC on these grounds. See Treas. Reg. §
    301.7122-1(c)(3)(iv). The Commissioner thus should weigh a
    taxpayer’s details and circumstances, and he has broad discretion
    in deciding whether or not to simply accept such a proposal. Mason v.
    , T.C. Memo. 2021-64, at *17–18.

  • NFTL Protection, Not Collection. An NFTL
    submitting principally protects the IRS’s curiosity in a property
    towards different collectors. See Balsamo v. Commissioner, T.C.
    Memo. 2012-109, 2012 WL 1231985, at *3. The IRS should levy on that
    submitting to gather the tax legal responsibility. See 26 U.S.C. § 6330(a),
    (b). When an account is positioned within the
    “presently-not-collectible” standing, no levy motion will be
    taken. “Such standing could also be accessible the place, primarily based on the
    taxpayer’s property, fairness, earnings, and bills, the taxpayer
    has no obvious potential to make fee on the excellent tax
    legal responsibility.” Foley v. Commissioner, T.C. Memo.
    2007-242, 2007 WL 2403732, at *2. Currently-not-collectible standing
    doesn’t impinge on the IRS’s entitlement “to take steps
    to guard IRS pursuits, akin to by submitting an NFTL.”
    Reynolds v. Commissioner, T.C. Memo. 2021-10, at *34.

Insights: This case is an instance of what might
be deemed a hardship within the thoughts of the taxpayer is just not a hardship
that may overturn an IRS settlement officer’s determination to not
settle for a proposal in compromise of a federal tax legal responsibility. The IRS
settlement officers reviewed the documentation submitted by Serna
and acknowledged his delicate state of affairs involving his estranged spouse
and kids-in-want. But, Serna unquestionably had fairness in actual
property that would have been used to fulfill his tax liabilities,
and he didn’t assist his trigger with the IRS or the Tax Court by
presenting conflicting proof to help his declare of
non-collectability.2020). No public coverage or fairness grounds had been
introduced that will persuade the Tax Court that the settlement
officer abused her discretion in rejecting the OIC.

The content material of this text is meant to supply a normal
information to the subject material. Specialist recommendation must be sought
about your particular circumstances.

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