On March 31 Judge Gustafson entered an order in the case of Garavaglia v. Commissioner remanding a Collection Due Process (CDP) case to Appeals. In the course of remanding the case, he brought up the uncertainty of a successful outcome for a taxpayer arguing that the IRS should not proceed with levy action. Although issued in a non-binding setting and ordering a remand agreed to by the parties, the order nonetheless raises interesting and important questions about the ultimate impact of a taxpayer’s victory in a CDP case. We continue to marvel at the unanswered questions in the CDP process considering the statute will reach the age of majority, if it were an individual in the United States, on July 21 of this year.
The Garavaglias brought a CDP case challenging proposed levy action against them. During their hearing with Appeals, they proposed that an offer in compromise (OIC) would be a nice way to resolve the pending collection matter. They actually submitted three OICs during the course of their dealings with Appeals. The Appeals employee did not agree that an OIC would best resolve the collection of this case and issued a notice of determination sustaining the proposed levy. On April 14, 2015, the IRS filed a motion for summary judgement, as it routinely does in CDP cases, and on July 23, 2015, Judge Nega, then assigned to the case, denied the motion holding that genuine disputes of material fact existed. The Court pointed out that petitioners are elderly and in poor health. When my students talk about their elderly clients, I often discover the clients are younger than me. Judge Nega described as elderly petitioners who were 75 and 78. Perhaps even more important than their age is the fact that Mr. Garavagilia’s doctor had given him “3 months to 9 months to get his affairs in order.” Both were described as having failing health. The Court expressed concern that the Appeals employee may have abused his discretion in failing to give adequate consideration to the medical facts and their financial consequences. Perhaps this is code for an OIC seems appropriate here in the eyes of the Court.
After due consideration of the statement of the Court in denying the motion of summary judgment, the IRS requested that the Court remand the case to Appeals “for the purpose of addressing factual issues not addressed during the petitioner’s” CDP hearing. At this point petitioners probably sensed that the IRS was on the run and perhaps they should push their advantage. They opposed the motion to remand the case. Judge Gustafson held a conference call between the parties and he spells out in his order why he suggested to petitioners they might be better off with a remand than with a decision simply holding that the IRS abused its discretion. His three reasons bear consideration by anyone pursuing a CDP case and hoping for total victory on a case involving collection alternatives.
First, he states that only Appeals can agree to an OIC (or presumably an installment agreement or currently not collectible status) and the Court does “not have authority to compel Appeals to do so.” The remand gives Appeals the chance to provide a collection alternative as it corrects any prior defects in the hearing process.
Second, a decision from the Tax Court not to sustain the determination made by the Appeals employee may provide little relief to the taxpayer because he says, citing to Tucker v. Commissioner, 135 T.C. 114, 164 (2010), aff’d 676 F.3d 1129 (D.C. Cir. 2012), a CDP hearing involves “only a particular collection episode.” A ruling for petitioners declining to sustain a particular collection activity “does not bar the IRS from subsequent collection attempts.” The IRS could come back later and propose another levy. The petitioners may be better off with a remand that resolves the matter at this point rather than rolling back into the collection system. I have not seen a case where the IRS has issued a second CDP notice and the taxpayer has come back into Tax Court to argue again that the CDP determination is incorrect and that leads to the Court’s third point.
Third, if the taxpayer declines the remand and forces the Court to rule that the proposed levy action cannot be sustained, the taxpayer takes a risk because IRC 6330(b)(2) limits a person to only one hearing for each period. If the Tax Court rules for the taxpayer, perversely, that may open the door for the IRS to do what it wants in any subsequent attempt to levy since the statute has no provision opening the Tax Court’s doors to consideration of that proposal. The Court does not say that the taxpayer cannot come back to Tax Court in such a circumstance but says it is an open question. Because of the uncertainty of what would happen should the taxpayer prevail in Tax Court on the initial CDP case and the IRS issue a subsequent not of intent to levy, the Court suggests that it might be better to take the path that leads to a known, or at least better knowable outcome, than to take the path that could lead to the taxpayers standing at the door of the Tax Court asking to come in and the Court finding that it lacks the authority to open the door.
After the conference call, the Garavaglias decided that they would agree to a remand of the case to Appeals. I expect that a taxpayer who wins their CDP case getting a Tax Court decision that does not permit the IRS to levy would fight hard against a later attempt by the IRS to levy. Despite the seemingly limiting language of the statute, the result suggested by the Court seems inappropriate. If correct, we may see the IRS make little effort in defending CDP cases so it can lose the first one and move on to an unimpeded collection status; however, Judge Gustafson’s reading of the statute certainly follows the literal language of the provision. Perhaps, no case has crossed this bridge yet because the IRS has never issued a second notice of intent to levy after losing the right to levy in Tax Court. One day it will probably issue such a second notice and then we will have an interesting procedural case to report. Until them, taxpayers may to choose the prize behind door number 1 that they think they understand rather than trying for the possibly bigger but more uncertain prize that lies behind the other doors.