In Williams v. Commissioner, T.C. Memo. 2009-159, the U.S. Tax Court concluded that the IRS did not abuse its discretion by failing to hold open a collection due process or CDP hearing request pending the assessment of tax in and consolidation of other tax years with the current CDP hearing request.
Facts & Procedural History
The Hoyt family organized, promoted, and operated numerous cattle and sheep-breeding partnerships, which the Williams referred to as tax shelters.
Michael and Sheryl Williams participated in Shorthorn Genetic Engineering 1982-1 (SGE) in 1996. GSE was a Hoyt partnership that owned partnership interests in operating-tier Hoyt partnerships.
The Williams’ joint Federal income tax return for 1996 included a Schedule E, Supplemental Income and Loss, reporting a partnership loss of $216,497 from SGE.
The IRS determined that SGE was subject to provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and disallowed the partnership’s claimed loss for 1996.
The Williams submitted a Form 12153, Request for a Collection Due Process Hearing (section 6330 hearing), to review the levy action. In their request, the Willaims asserted that a levy would be improper because of equity and hardship concerns and that an offer-in-compromise was warranted.
The Willaims informed the settlement officer that they had additional TEFRA-related assessments that involved Hoyt partnerships pending for other years as a result of court proceedings. They proposed that an offer-in-compromise encompassing all their assessments would be an appropriate resolution.
The IRS held the CDP hearing open for two months, but cautioned that he would not hold the case indefinitely.
The IRS closed the case after the two month period, noting that a review of their financial documents showed that petitioners had the ability to pay in full this tax liability.
The IRS also granted petitioners a 120-day extension to pay before collection actions would resume.
The Williams asked the tax court to review the IRS’s determination.
The tax court described the dispute and its reasoning as follows:
Petitioners argue that the settlement officer abused his discretion in not holding their case open until the pending liabilities from other years were assessed. Petitioners, however, present neither evidence nor authority that supports their view. To the contrary, the Appeals Office shall “attempt to conduct a [section 6330] hearing and issue a Notice of Determination as expeditiously as possible under the circumstances.” Sec. 301.6330-1(e)(3), Q&A-E9, Proced. & Admin. Regs.; see Murphy v. Commissioner, 125 T.C. 301, 322 (2005) (citing Clawson v. Commissioner, T.C. Memo. 2004-106), affd. 469 F.3d 27 (1st Cir. 2006). The settlement officer held petitioners’ Appeals case open for over 2 months in a cooperative effort regarding the tax liabilities outside of the section 6330 hearing. The settlement officer did not abuse his discretion by declining to delay further his determination.
One is left wondering why the Williams wanted the additional years included in the current year CDP hearing when the IRS employee had already determined that they could full pay the liability. It may have been that they intended to propose an offer in compromise based on effective tax administration rather than doubt as to collectiblity, and needed all years included in one offer. At the same time, they probably needed to stay collection actions on the current year.