SCOTUS Reports

Tag: Internal Revenue Manual

  • James Anthony Ransom v. Commissioner of Internal Revenue, T.C. Memo. 2018-211: Collection Due Process and Taxpayer Compliance

    James Anthony Ransom v. Commissioner of Internal Revenue, T. C. Memo. 2018-211 (U. S. Tax Court, 2018)

    In Ransom v. Commissioner, the U. S. Tax Court upheld the IRS’s decision to sustain a levy notice against a taxpayer who failed to comply with current estimated tax obligations. The court ruled that the IRS settlement officer did not abuse discretion by denying the taxpayer’s request for a collection alternative, emphasizing the need for taxpayers to remain current on tax liabilities to prevent pyramiding of debt. This decision underscores the importance of taxpayer compliance in negotiating collection alternatives with the IRS.

    Parties

    James Anthony Ransom, the petitioner, proceeded pro se. The respondent was the Commissioner of Internal Revenue, represented by William J. Gregg and Bartholomew Cirenza.

    Facts

    James Anthony Ransom, a contractor for nonprofit organizations, filed Federal income tax returns for 2012, 2013, and 2015. The IRS issued notices of deficiency for 2012 and 2013, which Ransom did not contest within the statutory period, resulting in the IRS assessing his tax liabilities for those years. For 2015, the IRS assessed the tax shown on Ransom’s return, which remained unpaid. As of March 2017, Ransom’s total outstanding liability was $88,418. In response to a notice of intent to levy, Ransom requested a Collection Due Process (CDP) hearing, seeking an installment agreement and claiming he did not owe the full amount for 2012 due to an unprocessed amended return. During the CDP process, Ransom failed to submit required financial information and make full payment toward his 2017 estimated tax liability, despite multiple extensions and opportunities provided by the IRS settlement officer.

    Procedural History

    The IRS mailed Ransom a notice of intent to levy on March 16, 2017, prompting his timely request for a CDP hearing. The IRS Appeals Office settlement officer (SO) reviewed Ransom’s case, confirming the proper assessment of tax liabilities and compliance with applicable laws. After a telephone hearing on August 18, 2017, and despite extensions to September 16, 2017, Ransom failed to fully comply with the SO’s requirements. Consequently, the SO issued a notice of determination on September 28, 2017, sustaining the proposed levy. Ransom petitioned the U. S. Tax Court, where the Commissioner moved for summary judgment, which was granted based on the absence of disputed material facts and the legality of the IRS’s actions.

    Issue(s)

    Whether the IRS settlement officer abused discretion in sustaining the proposed levy action against James Anthony Ransom due to his non-compliance with current estimated tax obligations and failure to provide required financial information?

    Rule(s) of Law

    The IRS’s determination in a CDP case is reviewed for abuse of discretion if the taxpayer’s underlying liability is not at issue. The IRS may deny collection alternatives if the taxpayer fails to comply with current tax obligations, as per Internal Revenue Manual pt. 5. 14. 1. 4. 1(19). The requirement of current compliance helps prevent the pyramiding of tax liabilities.

    Holding

    The U. S. Tax Court held that the IRS settlement officer did not abuse discretion in sustaining the proposed levy action against Ransom. Ransom’s failure to comply with current estimated tax obligations and provide required financial information justified the IRS’s denial of a collection alternative.

    Reasoning

    The court’s reasoning focused on the standard of review for CDP cases, which is abuse of discretion when the underlying tax liability is not contested. Ransom could not challenge his liabilities for 2012, 2013, and 2015 due to prior opportunities to contest them. The court emphasized that the SO properly verified compliance with applicable laws and considered Ransom’s issues. The key factor was Ransom’s non-compliance with his 2017 estimated tax obligations, which the court found to be a legitimate basis for denying a collection alternative. The court cited consistent precedents affirming that non-compliance with current tax obligations can justify the IRS’s refusal to consider collection alternatives. The court rejected Ransom’s argument about the termination of a consulting contract, as it occurred after the CDP hearing and did not excuse his earlier non-compliance. The court’s decision aligned with policy considerations to prevent the pyramiding of tax liabilities and ensure efficient tax collection.

    Disposition

    The U. S. Tax Court granted summary judgment to the Commissioner, affirming the IRS’s proposed collection action through the levy.

    Significance/Impact

    Ransom v. Commissioner reinforces the IRS’s authority to deny collection alternatives to taxpayers who fail to comply with current tax obligations. The decision underscores the importance of taxpayer compliance during the CDP process and the IRS’s discretion in managing tax collection efforts. It serves as a reminder to taxpayers of the need to remain current on tax liabilities when seeking to negotiate collection alternatives. This case may influence future CDP hearings and taxpayer negotiations with the IRS, emphasizing the critical role of compliance in preventing the pyramiding of tax debt.

  • George Thompson v. Commissioner of Internal Revenue, 140 T.C. No. 4 (2013): Classification of Tithing and College Expenses in Partial Payment Installment Agreements

    George Thompson v. Commissioner of Internal Revenue, 140 T. C. No. 4 (2013)

    In George Thompson v. Commissioner, the U. S. Tax Court upheld the IRS’s decision to classify tithing and college expenses as conditional, not necessary, in determining a partial payment installment agreement. The court found no abuse of discretion or violation of religious freedom laws, reinforcing the IRS’s authority to collect taxes efficiently while allowing only necessary expenses in such agreements.

    Parties

    George Thompson, the petitioner, filed a petition for review against the Commissioner of Internal Revenue, the respondent, in the U. S. Tax Court. Thompson sought a partial payment installment agreement for his tax liabilities and penalties, while the Commissioner assessed and sought collection of these liabilities.

    Facts

    George Thompson, a member of the Church of Jesus Christ of Latter-Day Saints, had unpaid tax liabilities including trust fund recovery penalties under I. R. C. sec. 6672 and income tax liabilities for multiple periods. Thompson requested a partial payment installment agreement, proposing a monthly payment of $3,000, which included tithing to his church and college expenses for his children. The IRS settlement officer calculated Thompson’s ability to pay based on the Internal Revenue Manual, classifying tithing and college expenses as conditional rather than necessary expenses.

    Procedural History

    Thompson received notices of intent to levy and notices of federal tax lien filing, leading him to request a collection due process (CDP) hearing. During the CDP hearing, Thompson contested the classification of his tithing and college expenses as conditional expenses. The settlement officer offered a partial payment installment agreement with a higher monthly payment than Thompson proposed. Thompson petitioned the U. S. Tax Court, which reviewed the case for abuse of discretion by the settlement officer.

    Issue(s)

    Whether the classification of Thompson’s tithing as a conditional expense under the Internal Revenue Manual was an abuse of discretion?

    Whether classifying Thompson’s tithing as a conditional expense violated his rights under the Free Exercise Clause of the First Amendment?

    Whether classifying Thompson’s tithing as a conditional expense violated the Religious Freedom Restoration Act of 1993?

    Whether the classification of Thompson’s children’s college expenses as conditional expenses under the Internal Revenue Manual was an abuse of discretion?

    Rule(s) of Law

    The Internal Revenue Manual (IRM) provides guidelines for determining a taxpayer’s ability to pay in a partial payment installment agreement, categorizing expenses into necessary and conditional. Necessary expenses must meet the “necessary expense test,” which requires the expense to provide for the taxpayer’s health and welfare or production of income. Conditional expenses, including tithing and college expenses, are not allowed in partial payment installment agreements.

    The Free Exercise Clause of the First Amendment prohibits the government from interfering in a church’s selection of its ministers but does not exempt taxpayers from tax obligations due to religious beliefs.

    The Religious Freedom Restoration Act (RFRA) prohibits the government from substantially burdening a person’s exercise of religion unless it furthers a compelling government interest through the least restrictive means.

    Holding

    The U. S. Tax Court held that the settlement officer did not abuse her discretion by classifying Thompson’s tithing as a conditional expense under the Internal Revenue Manual. The court also held that this classification did not violate Thompson’s rights under the Free Exercise Clause or the RFRA. Similarly, the court upheld the classification of Thompson’s children’s college expenses as conditional expenses, finding no abuse of discretion.

    Reasoning

    The court reasoned that Thompson’s tithing did not meet the necessary expense test because it was not for the production of income and did not provide for his health and welfare. The court interpreted the term “employment” in the Internal Revenue Manual to mean compensated employment, thus rejecting Thompson’s argument that his uncompensated church positions qualified as employment.

    Regarding the Free Exercise Clause, the court found that the settlement officer’s decision did not interfere with the church’s selection of its ministers, as the church, not the IRS, required Thompson to resign his positions if he did not tithe. The court also emphasized that paying taxes is a common burden and does not violate the Free Exercise Clause.

    Under the RFRA, the court acknowledged the government’s compelling interest in collecting taxes efficiently. It found that allowing Thompson’s proposed partial payment installment agreement would not further this interest, as it would delay tax collection. The court concluded that the settlement officer’s decision was the least restrictive means to further the government’s interest.

    The court upheld the classification of college expenses as conditional, noting that the Internal Revenue Manual specifically addresses college expenses and requires that the taxpayer be able to pay the liability within five years for these expenses to be considered necessary.

    Disposition

    The U. S. Tax Court sustained the IRS’s determination to proceed with collection action, affirming the settlement officer’s decision to classify Thompson’s tithing and college expenses as conditional expenses in the partial payment installment agreement.

    Significance/Impact

    This case reinforces the IRS’s authority to classify expenses as necessary or conditional in determining partial payment installment agreements. It clarifies that tithing and college expenses are generally not considered necessary expenses under the Internal Revenue Manual. The decision also upholds the government’s compelling interest in efficient tax collection, even when religious freedom claims are involved, and provides guidance on the application of the RFRA in tax collection contexts. The case may influence future IRS decisions on similar issues and underscores the balance between religious freedom and tax obligations.