The IRS did not abuse its discretion in a collection due process (CPD) case by:
– applying the proceeds from a prior levy on married taxpayers’ bank account against their income tax liability for an earlier tax year; or
– denying the taxpayers’ proposal for a partial payment installment agreement.
The taxpayers had unpaid federal income tax for several years, and they submitted several proposed collection alternatives for certain tax years. The IRS denied the taxpayers’ offers and initiated collection activities on various occasions. At one point, the taxpayers gave the IRS a check which they asked the IRS to apply against their income tax liability for a particular year. Before the check was deposited, the IRS levied on the taxpayers’ bank account (against which the check had been drawn) regarding other tax liabilities the taxpayers owed. The taxpayers’ check failed to clear, however, and the IRS applied the proceeds of a levy against their income tax liability for an earlier year, not the year they had requested.
The taxpayers also asked for a partial payment installment agreement, but the IRS denied the request. The taxpayers failed to pay over their equity in certain assets after three deadline extensions over about 4 1/2 months. The IRS determined that the taxpayers would be able to rely on distributions from a trust to pay a portion of their necessary expenses, and that they could therefore afford a greater monthly payment than they had proposed.
Application of Levy Proceeds
The IRS did not abuse its discretion in applying the proceeds from the prior levy on the taxpayers’ bank account. The check that the taxpayers had given the IRS was not honored due to insufficient funds, so it was not a payment. There was no evidence of an agreement that the IRS’s acceptance of their check would be treated as absolute payment, so the taxpayers’ check was subject to the condition of payment upon presentation to their bank, which was not satisfied. Amounts received as a result of levy are involuntary payments, and the IRS commissioner may apply involuntary payments as he or she sees fit.
Further, it was not unreasonable or inappropriate for the IRS to proceed to levy, and the IRS had no legal obligation to ensure that the taxpayers’ check was deposited before the levy occurred. The IRS levied on the taxpayers’ bank account and applied the funds against their income tax liability for an earlier tax year after approximately 15 years of collection activity.
Rejection of Installment Agreement
It was reasonable for the IRS settlement officer to reject the taxpayers’ installment agreement requests, because:
– the taxpayers had not paid over the equity in all of their assets; and
– the wife was unwilling to take any distributions from a trust created in her father’s will for her own support and maintenance.
The taxpayers claimed that they would use the equity in their assets to pay medical expenses. However, their reason for delay in paying over funds from liquidating their assets did not explain their failure to begin liquidating those assets to pay medical expenses.
Further, it was not unreasonable for the settlement officer to ask the husband to liquidate his interest in certain stock which he claimed was owned jointly with his former spouse. The taxpayers did not claim that the husband would have been unable to liquidate his interest by communicating with his former spouse, initiating a partition action in the appropriate court, or borrowing against his interest in the stock.
Additionally, it was not an abuse of discretion for the IRS to reject the installment agreement proposals after determining that the taxpayers would be able to rely on distributions from the wife’s father’s trust to pay a portion of their nontax expenses. The father’s will allowed the wife to distribute funds to pay at least her share of the necessary expenses determined by the settlement officer. Nothing in the will barred the wife from making distributions to cover her share of nontax expenses, even if she had other resources available to pay these expenses, and she was not required to refrain from distributing the entire corpus to herself to provide for her health, maintenance, support, and education.
D.H. Melasky, 151 TC —, No. 9, Dec. 61,286
Code Sec. 6159
CCH Reference – 2018FED ¶37,181.16
Code Sec. 6330
CCH Reference – 2018FED ¶38,184.14
Code Sec. 6331
CCH Reference – 2018FED ¶38,187.12
Tax Research Consultant
CCH Reference – TRC FILEIND: 21,154.40
CCH Reference – TRC IRS: 51,050