Summary
affirming IRS Appeals decision not to extend installment plan on the basis that company was not current on its tax obligations
Summary of this case from Rodger v. U.S.Opinion
Case No. C2-02-0285
March 11, 2003
ORDER
Plaintiff Stop 26-Riverbend, Inc. ("Stop 26") is an Ohio Subchapter S Corporation, engaged in the business of radio broadcasting. Stop 26 owns or operates five radio stations in Youngstown and Columbus, Ohio. Plaintiffs Percy Squire ("Squire") and Frank Halfaker ("Halfaker") are officers of Stop 26, and each is a forty-two percent shareholder of the corporation.
Stop 26 requested and received an IRS collection due process hearing with respect to a notice of federal tax lien filing and notice of intent to levy arising out of its unpaid employment tax liabilities for the years 1996 through 2000, which total in excess of $1 million. Stop 26 did not contest its underlying liability, rather it proposed an installment agreement as a collection alternative in lieu of the IRS lien and levy.
In their complaint for declaratory and injunctive relief, plaintiffs allege that prior to the enactment of the Telecommunications Act of 1996, Stop 26 was current on its payroll taxes, but that the passage of the Act resulted in the rapid consolidation of the radio broadcasting industry with disastrous consequences for small, independent companies, such as Stop 26. Plaintiffs further allege that Stop 26 has recently improved its cash position and has prospects for acquiring new investment, and that it proposed to enter into an installment agreement with the IRS to liquidate its tax liability as provided under 26 U.S.C. § 6330 (c)(2)(A) (iii). Plaintiffs allege that they are entitled to this consideration from the government by reason of the impact of the Telecommunications Act of 1996, and its impact on minority owned companies. Plaintiffs allege that it was an abuse of discretion for the United States to deny plaintiffs' request for an installment agreement.
A taxpayer who receives notice of a federal tax lien has the right to request a collection due process hearing. At the hearing, the taxpayer may propose collection alternatives. See 26 U.S.C. § 6320 (c) and § 6330(c) (iii). These collection alternatives may include posting a bond, substitution of other assets, installment agreements, and offers in compromise. Id. These sections also provide for a limited judicial review of the collection due process hearing. See 26 U.S.C. § 6330 (d). While § 6230 is silent on the standard of review, the courts that have addressed the issue have been guided by the legislative history of § 6330 which states:
[w]here the validity of the tax liability is not properly part of the appeal, the taxpayer may challenge the determination of the appeals officer for abuse of discretion. In such cases, the appeals officer's determination as to the appropriateness of collection activity will be reviewed using an abuse of discretion standard of review.
H.Rep. No. 105-599 at 266 (1988). Thus, most courts agree that the standard of review of the appeals officer's determination in a collection due process hearing where, as here, the taxpayer is not challenging the underlying liabilities, is whether the appeals officer abused his discretion in deciding the issue before him. See Jon H. Berkey, P.C. v. Dep't of Treasury, No. 00-75149, 2001 WL 1397680, at *3 (E.D. Mich. Sept. 20, 2001); AJP Mgmt. v. United States, No. 99-1541, 2000 WL 33122693, at *1 (C.D. Cal. Nov. 27, 2000); Mesa Oil v. United States, No. 00-851, 2000 WL 1745280, at *2 (D. Colo. Nov. 21, 2000); TKK Mgmt. v. United States, No. 99-1542, 2000 WL 33122706, at *1 (C.D. Cal. Nov. 21, 2000); Konkel v. Comm'r, No. 99-1026, 2000 WL 1819417, at *3 (M.D. Fla. Nov. 6, 2000); Goza v. Comm'r, 114 T.C. 176, 181-82 (2000); Sego v. Comm'r, 114 T.C. 604, 609-10 (2000). Under this standard, the court cannot substitute its judgment for that of the appeals officer. See generally, Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971); Cellnet Communications, Inc. v. Federal Communications Comm'r, 149 F.3d 429 (6th Cir. 1998). Instead, the issue is whether there is an adequate basis in law or fact for the appeals officer's decision. See MRCA Info. Servs. v. United States, No. 99-1360, 2000 WL 33320199, at *4 (D. Conn. Aug. 1, 2000). Accordingly, the court will review the decision of the IRS appeals officer for an abuse of discretion.
The collection due process hearing was held on February 1, 2002. At the time of the hearing, Stop 26's outstanding liabilities were in excess of $1 million, and it was continuing to accrue unpaid federal tax liabilities. The IRS appeals officer denied Stop 26's request for an installment agreement and, on February 25, 2002, the IRS issued a notice of determination which included the following summary of determination
I have determined that no relief is to be granted in this case. Your request to work out an arrangement to satisfy the tax liability cannot be granted as the company is not current with respect to employment taxes. In addition, you indicate that you are attempting to sell a radio station or stations and full [sic] pay the tax liability. You have been attempting to sell a station or stations since 1998 or 1999 and no sale has materialized. Accordingly, it is not in the Government[']s interests to withhold or suspend collection action. Appeals believes that the need for efficient collection of taxes has been balanced with your concerns.
Attached to the notice of determination was a document entitled "Attachment 3194", which included the following:
Relevant Issues Presented
The sole issue raised on the Form 12153 is that the company would like to satisfy the tax liability at issue with an installment agreement.
This argument was considered but not accepted due to the amount of the tax liability and the fact that the company is not current on its tax obligations.
Appeals believes that the need for efficient collection of taxes as [sic] been balanced with the intrusiveness of the proposed levy and lien action.
Doc. 8, Exh. B. Attached to attachment 3194 was a document entitled Summary of Issue, which contains further information about the IRS hearing officer's analysis of the issues and the reasons for his decision. This document indicates that Squire spoke to the appeals officer on several occasions in January, 2002, about the possibility of obtaining funds to pay Stop 26's tax liability by selling one or all of its radio stations or obtaining additional financing. Squire also told the appeals officer that, on February 1, 2002, he would know conclusively whether the sale and/or loan refinancing was successful. The hearing officer scheduled the due process hearing for February 1, 2002, and it is apparent that Squire had not succeeded in consummating a sale or refinancing. It is also noted in the summary of issue that Stop 26 had continued to accrue unpaid liability for employment taxes for several periods in 2001, which were not included in the proposed federal tax lien.
Decisions by appeals officers to reject collection alternatives may be based upon a number of factors, including, but not limited to:
(1) whether the taxpayer had previously agreed to a collection alternative, but failed to fulfill the obligations under the alternative; (2) whether the taxpayer supported a collection alternative with relevant financial information to show that payments could be made under the alternative; (3) whether the taxpayer is current on its tax obligations; (4) the escalating amount of the outstanding tax liability; and (5) the IRS's need to collect the tax liability.See Treas. Req. § 301.6330-1(e)(1); Kitchen Cabinets, Inc. v. United States, No. 00-599, 2001 WL 237384, at *3 (N.D. Tex. March 6, 2001); MRCA Info. Servs., 2000 WL 33320199, at *5, Here, Stop 26 had an employment tax liability in excess of $1 million, was not current on its tax obligations, was having financial problems, and its outstanding tax liability was escalating. There is nothing in the record to suggest that the taxpayer supported its proposed installment agreement with financial information to show that the payments could be made. Congress, in allowing for installment agreements for past due tax liabilities, did so on the theory that they would be allowed only when the taxpayer has paid its current tax liabilities. It was noted in the Conference Report accompanying the original enactment of 26 U.S.C. § 6159 that "[t]he IRS is not required to enter into installment payment agreements with taxpayers, but generally does so if a taxpayer who is unable to pay the delinquency in full is able to make payments on the delinquency and pay current taxes as they become due." H.R. Conf. Rep. 105-599, at 289 (1989) (emphasis supplied).
Section 6159 of the Internal Revenue code authorizes "[t]he Secretary to enter into written agreements with any taxpayer under which such taxpayer is allowed to satisfy the liability for payment of any tax in installment payments if the Secretary determines that such agreement will facilitate collection of such liability." 26 U.S.C. § 6159 (a).
The appeals officer determined that an installment agreement was not appropriate here given "the amount of the tax liability and the fact that the company is not current on its tax obligations." The decision of the appeals officer was not an abuse of discretion. See AJP Mgmt. v. United States, No. 99-1541, 2000 WL 33122693 (C.D. Cal. Nov. 27, 2000); see also Jon H. Berkey, P.C. v. Dep't. of Treasury, No. 00-75149, 2001 WL 1397680 (E.D. Mich. Sept. 20, 2001); and TTK Mgmt. v. United States, No. 99-1542, 2000 WL 33122706, at *1 (C.D. Cal. Nov. 21, 2000).
The appeals officer was also justified in rejecting the taxpayer's suggestion that the IRS withhold collection proceedings pending a sale or refinancing. Stop 26 was unable to provide the appeals officer with any assurances that a sale or refinancing could be accomplished within a reasonable period of time. Stop 26 provided no evidence that it had entered into a contract to sell one or more of its stations, or that an application for refinancing had been approved, or that Stop 26 had received commitments for additional capital investments. Squire's statements to the appeals officer regarding a sale or additional financing were expressions of his hopes, which have not been fulfilled even to this day.
The Government's motion for summary judgment is granted. The Clerk shall enter final judgment in favor of the defendant United States of America, and against the plaintiffs, denying plaintiffs claims for injunctive and declaratory relief.
It is so ORDERED.