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CDP and Installment Agreements: Sometimes Court Review is Crucial; Other Times Not So Much

Posted on Dec. 12, 2014

This past week the Tax Court issued an opinion in a collection due process (CDP) case, Hosie v Commissioner. The case is a bad case for those who support CDP. The taxpayers in Hosie are lawyers with lots of income who did not file tax returns for a bunch of years. Two of the years ended up in Tax Court, and the unpaid tax in those years was over $800,000 in one year and over $700,000 in another.  The taxpayers had previously defaulted on four installment agreements. The unpaid liabilities triggered notices of intent to levy, and the  filing of a request for a CDP hearing. At the hearing, the taxpayers sought another installment agreement, this time for $15,000 per month.

The taxpayers had lots of assets, including a personal residence with a fmv of over $6.5 million and a vacation home with a fmv of over $3.8 million (and over $9 million in equity in the houses). Appeals rejected the request and the taxpayers petitioned to Tax Court. I’ll talk more about the particulars below. What is more interesting to me is what the case represents.

Controversy Over CDP

CDP was and is pretty controversial. I have commented before about how I think CDP injects needed rule of law principles into what had largely been an area where IRS had more or less unfettered discretion. The opportunity for judicial review, albeit a limited review, is in my view an important opportunity for checking against agency abuse. Moreover, the very threat of court review, with the judicial attention on agency practice, is itself a lever to ensure better agency practice in the first place.

Others have commented that CDP, with its potential to delay collection, was more or less just a symbolic piece of IRS-bashing legislation that places lots of costs on the courts and IRS, and allows taxpayers to stall without meaningful review of agency action anyway. (If you have an appetite for more on this debate, Professor Bryan Camp and I had an exchange on this point and related points in the Indiana Law Review a few years ago; Bryan’s article The Failure of Adversarial Process in the Administrative State; my article A Response to Professor Camp: The Importance of Oversight)

CDP: What is it Good For?

CDP supporters can point to cases where the Tax Court has remanded matters to Appeals when collection determinations are patently unfair or contrary to established procedures. A few weeks ago, for example, Keith wrote about installment greements and the sad tale of Ms. Antioco in his post Appeals Fumbles CDP Case and Resulting Resolution Demonstrates Power of Installment Agreements:

The order [that Keith wrote about in the post-Les] entered on November 17 came as a response to the third visit of this case before the Tax Court. The first time this case came to the Tax Court Ms. Antioco represented herself.  She argued that the Settlement Officer in Appeals never asked her to submit a revised Form 433-A (Collection Information Statement) and that she would experience great economic hardship if she could not obtain an installment agreement.  Before the case went to trial, the IRS asked that the Court remand the case because the SO’s failure to request the updated Collection Information Statement created an abuse of discretion.  The Court granted the motion and remanded the case to Appeals.

On February 4, 2013, Judge Holmes issued a memorandum opinion on the case when it came back to him after the remand.  Because Appeals had not followed his instructions in remanding the case, Judge Holmes was not kind in his evaluation of the work of the SO who handled the remand.  In the order issued on November 17, 2014, Judge Holmes returns to his criticism of the handling of the case: “The Court has already detailed the poor conduct of the Commissioner and his agent . . . .  Suffice it to say that [the SO] behaved very badly.”

CDP: Good for Nothing?

Antioco and others like it show CDP’s value as a safety valve when the IRS’s actions are wrong and potentially can cause real damage. On the other hand Hosie is the kind of case that makes the point that Professor Camp and others have made. Here are some more of the facts from the opinion:

On March 29, 2013, the parties held a CDP hearing. Petitioners’ representative did not contest petitioners’ underlying tax liability for either 2006 or 2011 but instead proposed an installment agreement with a payment of $15,000 per month. By this time petitioners had defaulted on four previous installment agreements, all involving their 2006 tax liability. These prior agreements, executed in July 2009, April 2010, March 2011, and December 2011, required monthly payments ranging between $10,000 and $50,000 plus certain lump-sum payments. In each case, petitioners had made no payments or quickly reneged on their promises.

The SO indicated that any new installment agreement would have to include all outstanding tax liabilities and would be considered only if petitioners made a substantial upfront payment. The SO directed petitioners’ attention to the $9.3 million of equity in their real estate as a source of funds to pay their tax liabilities. Petitioners stated their intention to sell their personal residence but requested that sale of their vacation home be delayed. They had previously informed the IRS of plans to sell their personal residence in order to pay their tax liabilities but had never followed through on those plans.

After the hearing the taxpayers’ representative said they would get back to Appeals; over 3.5 months passed and there was no follow up and Appeals issued a determination sustaining the collection action and rejecting the installment agreement.

On summary judgment, the Tax Court sustained the determination. The guts of the opinion talks of how the court is not supposed to substitute its judgment for the IRS’s when it comes to the particulars of accepting or rejecting a collection alternative like an installment agreement. There is a fairly concise statement of relevant authorities when it comes to court review of rejected installment agreements:

The SO rejected petitioners’ proposed installment agreement after determining that their tax liabilities could be fully or partially satisfied by liquidating or borrowing against their assets ($9.3 million of equity in their residence and vacation home). See Internal Revenue Manual (IRM) pt. (5) and (6) (June 1, 2010) (“Taxpayers do not qualify for installment agreements if balance due accounts can be fully or partially satisfied by liquidating assets[.]”); Boulware v. Commissioner, T.C. Memo. 2014-80 (finding that settlement officer’s reliance on this IRM provision was not an abuse of discretion). Petitioners made no showing of ill health, economic hardship, or other circumstance warranting an exception from this general rule. See Eichler v. Commissioner, 143 T.C. __, __ (slip op. at 16-17) (July 23, 2014); IRM pt. (Apr. 1, 2011); id. pt. and (6). Between 2009 and 2013 petitioners had defaulted on four previous installment agreements, one of which involved lower monthly payments than the $15,000 they now promised to make. The SO did not abuse his discretion in rejecting this offer.


CDP is an important tool for practitioners and taxpayers facing enforced collection. Consideration of collection alternatives sits in an uneasy place in tax administration and procedure. Taxpayers can obtain limited court review of agency rejections of collection alternatives if the determination is made in the context of CDP. If the request is outside CDP, then there is no court review. Cases like Hosie suggest that there is limited or no benefit to court review and highlight CDP’s costs. Cases like Antioco suggest otherwise. In the right hands and with the right taxpayers, CDP can prevent erroneous and devastating deprivations of property. In the wrong hands and with the wrong taxpayers, CDP does little systemic good and allows for delays for taxpayers who do not deserve the extra time.

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