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Tax Litigation:  The Week of May 2nd, 2022, through May 6th, 2022

• DelPonte v. Comm’r, 158 T.C. No. 7 | May 5, 2022 | Holmes, J. | Dkt. Nos. 1144-05, 1334-06, 20679-09, 20680-09, 20681-09
• Mazzei v. Comm’r, T.C. Memo 2022-43 | May 2, 2022 | Thornton, J. | Dkt. No. 16702-09.
• Podlucky v. Commissioner, TC Memo. 2022-45| May 5, 2022 | Lauber, J. | Dkt. No. 453-17
• Wolfson v. Comm’r, T.C. Memo. 2022-46 | May 5, 2022 | Lauber, Judge | Docket No. 21343-21L

Mighty v. Comm’r, TC Memo. 2022-44| May 4, 2022 | Lauber, J. | Dkt. No. 19064-21L

Opinion

Summary: Edgerton Mighty and Eulalee Mighty (together, Mighty) sought review of the determination by the IRS to uphold the filing of a Notice of Federal Tax Lien for 2014. The back story begins when Mighty filed a timely income tax return for 2014, which the IRS selected for examination. In 2016, the IRS concluded that Mighty (1) failed to substantiate itemized deductions and (2) failed to report “other income” based on a Form 1099–C, Cancellation of Debt, issued by a JPMorgan Chase Bank, N.A. (Chase) for cancellation of indebtedness, being an amount includible in 2014 gross income. On March 22, 2016, the IRS issued Mighty a timely notice of deficiency via certified mail. Mighty failed to timely petition the U.S. Tax Court for review. About a year later, Mighty filed an amended return for 2014 wherein they explained that the Chase Form 1099–C amount should not be attributed to Mighty. The IRS agreed, so the IRS abated the portions of the deficiency and the penalty attributable to cancellation-of-indebtedness income; the deficiencies for itemized deductions remained. Another year later, Mighty signed Form 4549, Income Tax Examination Changes, which reflected the IRS’s modifications. Another year later, the IRS issued Mighty a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing. Mighty timely submitted Form 12153, Request for a Collection Due Process or Equivalent Hearing. Mighty continued—for whatever reason—to dispute supposed liability relating to the Chase Form 1099-C. The settlement officer (SO) verified that Mighty’s tax liability for 2014 had been properly assessed, that the accuracy-related penalty had received the requisite supervisory approval, and that all other legal and administrative requirements had been satisfied. Another year later (now September 2020), the SO acknowledged Mighty’s hearing request. The SO advised Mighty that, if they were requesting a collection alternative, they would need to submit Form 433–A, Collection Information Statement for Wage Earners and Self-Employed Individuals. They did not do so, but later the SO offered them another chance to do so. Mighty then submitted Form 433–D, Installment Agreement, offering to make monthly payments. Mighty later telephoned the SO, again asking about the cancellation-of-indebtedness income. No installment payment agreement was reached. On April 27, 2021—1,862 days after the IRS’s initial notice of deficiency—the IRS issued the notice of determination sustaining the NFTL filing. Mighty timely petitioned the U.S. Tax Court, listing the Chase Form 1099–C as the reason they “disagreed with the IRS determination in this case.”

Key Issue:

• What standard of review must the U.S. Tax Court apply to Mighty’s petition and the underlying IRS’s determination of deficiency?
• Whether, pursuant to that standard, the IRS settlement officer properly discharged her responsibilities under sections 6320(c) and 6330(c)?

Primary Holdings:

• Because there was no dispute as to the receipt of the notice of deficiency, and because Mighty had a prior opportunity to challenge their 2014 liability by petitioning the U.S. Tax Court in response to the notice of deficiency, Mighty was not entitled to challenge their 2014 tax liability, and the underlying deficiency determination is reviewed for abuse of discretion only.
• The SO properly discharged all of her responsibilities under sections 6320(c) and 6330(c)—the SO confirmed that all applicable legal and administrative requirements had been met; she verified that the notice of deficiency was sent to Mighty’s last known address and that their tax liability was properly assessed; and she confirmed that the accuracy-related penalty for 2014 received the requisite supervisory approval under section 6751(b)(1).

Key Points of Law:

• Summary Judgment Procedure. The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). The U.S. Tax Court may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994). Where the moving party properly makes and supports a motion for summary judgment, “an adverse party may not rest upon the mere allegations or denials of such party’s pleading” but must set forth specific facts showing a genuine dispute for trial. Rule 121(d).
• Standard of Review. Where the validity of a taxpayer’s underlying liability is properly at issue, the Tax Court reviews the IRS determination de novo. Goza v. Commissioner, 114 T.C. 176, 181–82 (2000). Where the taxpayer’s underlying liability is not properly at issue, the Court reviews the IRS decision for abuse of discretion only. See id. at 182.
• Abuse of Discretion.  Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006). A taxpayer may dispute an underlying liability in a collection due process case, but only if the taxpayer did not receive a valid notice of deficiency or otherwise have a prior opportunity to contest the liability. 26 U.S.C. § 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609 (2000).
• A notice of deficiency is valid if it was properly mailed to the taxpayer at the taxpayer’s last known address. 26 U.S.C. § 6212(b)(1); Treas. Reg. § 301.6212-2(a).
• In deciding whether an IRS settlement officer (SO) abused his or her discretion in sustaining the collection action, the Court considers whether the SO (1) properly verified that the requirements of applicable law or administrative procedure have been met, (2) considered any relevant issues the taxpayer raised, and (3) considered “whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of [taxpayers] that any collection action be no more intrusive than necessary.” 26 U.S.C. § 6330(c)(3); see at § 6320(c); Hartmann v. Commissioner, T.C. Memo. 2018-154, 116 T.C.M. (CCH) 301, 304 (“[A]n SO is not required to negotiate indefinitely or wait any specific time before issuing a determination.”), aff’d, 785 F. App’x 906 (3d Cir. 2019).

Insights: This case illustrates the numerous opportunities that a taxpayer may have to dispute a notice of tax deficiency or to arrive at a reasonable resolution with the IRS once that notice of deficiency becomes a firm determination of tax liability. But, the taxpayer must act on those opportunities. Failing to timely petition the U.S. Tax Court upon receipt of a notice of deficiency will place the taxpayer at a severe disadvantage, assuming the IRS complied with its procedural requirements in making and issuing the notice of deficiency. In Mighty, the IRS explained over and over and over that the cancellation-of-indebtedness income had already been remedied. Basically, Mighty continued to dispute what was not in dispute or assessed. And, despite multiple opportunities, Might failed to submit and follow through with a proposal to enter into a collection alternative. The IRS—as well as a taxpayer’s tax liability—is many times bound by certain statutory deadlines and procedures. By not timely taking advantage of those procedures, a taxpayer’s dispute of the underlying tax liability may become futile, if not prohibited, as a matter of law.

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