Sometimes I
read a case and I wonder if the most interesting part was not included.
There is a couple
– a doctor and a financial consultant - who are not keen on paying their taxes.
Here is a quick recap:
Year Tax Withheld Due
2014 $70,018 $24,148 $45,870
2015 $58,293 $11,677 $45,995
2016 $52,474 $20,230 $32,244
2017 $37,001 $11,720 $25,281
This is not rocket science. Chances
are that one person has withholdings and the other person is supposed to pay
estimated taxes. No estimated taxes were paid. The solution? Simple: (1) pay
estimated taxes, or (2) increase the other spouse’s withholdings to compensate
for the lack of estimated taxes.
On November, 2016 the IRS sent a
Notice of Intent to Levy.
COMMENT: This tells you the taxpayers had been in the system for a while.
The taxpayers requested for a
Collection Due Process Hearing.
COMMENT: Good step. The CDP is a chance to halt the IRS automated machinery and allow the taxpayers an opportunity to speak with an Appeals Officer about their specific situation.
The taxpayers were interested in
collection alternatives, including:
(a) an installment agreement
(b) an offer in compromise
(c) a “cannot pay balance” status
Seems to me they covered the bases.
They did not submit financial data
with the CDP request, but they did later when the Appeals Officer requested.
Their information showed monthly income of $25,317 and monthly living expenses
of $17,217, leaving a monthly net of $8,100.
The IRS wanted the $8,100.
Surprise factor: zero.
The taxpayers balked, arguing that it
was beyond their means.
COMMENT: How can the $8,100 be beyond their means, if that is the amount they calculated? The likely reason is that the IRS has tables for certain expense categories, such as transportation. Say that you have an expensive monthly car payment. You will bump up against that limit, and good luck getting the IRS to spot you more. Mind you, the IRS says that it will consider specific circumstances, but they do not consider them for long. You may find yourself having to trade-down on your car or pulling your kid from private school.
The taxpayers indicated they were
going to file an offer in compromise.
They did – eight months later.
COMMENT: Folks, seriously, do not do this. If you are hip deep in a CDP hearing with the IRS, it is a very poor decision to stall.
The Appeals Officer – not willing to
wait the better part of a year – sustained the proposed levy.
Next stop: Tax Court.
From the Court we learn that the
taxpayers withdrew the offer in compromise because they were “unable” to make
estimated tax payments.
Huh?
Folks, this act is fatal. Here is a
requirement for an offer:
“Proof of sufficient withholding or estimated tax payments”
The Tax Court’s purview can be broad
or narrow, depending on the issue. If there is an issue of tax law, the Court
generally has broad powers. This case was not an issue of tax law; rather it
was an issue of IRS procedure. Did the IRS follow its own rules? To phrase it
another way, did the IRS abuse its authority?
This narrows the Court’s reach – a lot.
It means the Court is not reviewing
whether the taxpayers should have received an installment plan, an offer in compromise
or whatnot. Rather, the Court is reviewing whether the IRS abused its authority
by not allowing said installment plan, offer in compromise or whatnot.
The Court decided the IRS had not.
Why?
“Proof of sufficient withholding or estimated tax payments”
To me, the take-away question is:
what are these people doing with their money?
Our case this time was Reid v Commissioner.
