The IRS did not abuse its discretion in upholding a taxpayer’s proposed levy on a tax debt that the taxpayer did not properly dispute, the Tax Court held.

Facts: Elizabeth White filed a delinquent Form 1040, US personal income tax returnfor 2019. On December 14, 2020, the IRS sent White a “math error” notice, informing her that her 2019 tax liability was adjusted upward because of two errors on her return: an overstatement of credits withheld at source and a miscalculation of the taxable portion of his social security benefits. The notice advised White of her right to contest these adjustments, but she did not do so. As of August 2021, her unpaid tax for the 2019 tax year was $6,924, including interest and penalties.

In August 2021, the IRS sent White a tax notice. White timely requested a Collection Process Hearing (CDP) by checking a box requesting an Offer to Include (OIC). She listed the tax periods in question as 2017–2019, although the charging notice only referred to 2019.

White also indicated that he made payments totaling $7,141 between September 2019 and January 2020 to “pay off any fees owed.” However, the IRS informed her in a letter dated January 23, 2020 that the first $2,141 of the $7,141 payments were applied to her 2017 tax liability, with the remaining $5,000 reducing but not eliminating her 2018 liability. None of the $7,141 payments did not reduce his 2019 tax liability.

In October 2022, the IRS sent White a letter acknowledging receipt of his request and stating that it would be forwarded to the IRS’s Independent Appeals Office. In December 2022, the case was assigned to a Resolution Officer (SO) in Appeals, who verified that: (1) fiscal year 2019 was properly assessed; (2) the notice and demand for payment were properly sent to White’s last known address; (3) the $7,141 payments made by White between September 2019 and January 2020 were properly applied to the 2017 and 2018 tax years; and (4) her 2019 balance remained unpaid.

In December 2022, SO sent White a letter scheduling a conference call for early 2023. The letter also stated that Appeals could only consider a collection alternative if she completed Form 433-A, Information collection statement for employees and self-employed personsaccompanied by supporting financial information. The letter also stated that if he wanted to propose an OIC, he had to file Form 656, Offer in compromise.

A few days before the conference call, White spoke with the SO supervisor, requesting copies of her administrative file and other documents, and requested a face-to-face hearing. The supervisor noted that a face-to-face hearing could be called if White submitted a completed Form 433-A “to permit consideration of a collection alternative.” White indicated that she was not interested in a collection alternative, at which point the supervisor informed her that the conference would be held by telephone, to which she agreed. That same day, the supervisor forwarded the request to the SO, who sent White the documents.

The conference call has been rescheduled for April 13, 2023. To date, White has not indicated an intention to contest the underlying 2019 tax liability or propose a collection alternative, and has not provided any financial information to OS. During the April 13 call, White said he was “going to file another (hearing request) to cover all the years that have balances owed.” The CO explained to him that the current hearing was limited to 2019 and that before requesting another CDP hearing, he “must receive final notices for the fiscal years he wishes to discuss.”

On May 8, 2023, the CO decided to close the case because White had not contested her 2019 tax liability, was not interested in a collection alternative, and refused to provide financial information to support her claim. On May 23, 2023, the CO sent White a notice of determination of support for the proposed fee, explaining that although he had checked the box for an OIC, Appeals could not consider it because he had not submitted an offer.

In a timely petition to the Tax Court, White requested that, while he did not contest the underlying tax liability, “the current tax year (2019) be suspended until all tax years in which a hearing has been requested are brought into before the Court.” She also argued that the CO abused his discretion by denying her request for a face-to-face hearing and neglecting to send her a copy of the administrative record she had requested. The IRS filed a motion for summary judgment to dismiss the case.

Problems: If a taxpayer’s underlying tax liability is not in dispute, the Tax Court reviews the IRS’s decision in a CDP case only for abuse of discretion (Jones338 F.3d 463 (5th Cir. 2003)). Taxpayers may contest their underlying tax liability at a CDP hearing only if they have not received a statutory notice of deficiency or had no prior opportunity to contest the liability (Sec. 6330(c)(2)(B)).

Even though White did not receive a statutory notice of deficiency for her 2019 tax liability, she did receive a notice of math error, which the court generally does not have jurisdiction to review (Sec. 6213(b)(1) )). However, the court noted in the opinion that it held that in a CDP case, it may “reexamine underlying obligations arising from adjustments not subject to (its) deficiency jurisdiction” (McNeil, 148 TC 481 (2017)).

To preserve an underlying tax liability challenge in tax court, a taxpayer must properly raise that challenge during the CDP hearing. For an issue to be properly raised, the taxpayer must provide the appellants with any evidence on that issue after being given a reasonable opportunity to do so (in other words, the taxpayers must explain what the correct tax liability is and provide the objections) SO with some evidence to support that position).

The Tax Court found that White presented no evidence on appeal to dispute the existence or amount of her tax liability for 2019. Rather, she referred to the $7,141 payments made from September 2019 through January 2020 as settlement of any taxes which he owed. However, a dispute as to whether a payment has been credited to a taxpayer’s account for a tax year is not a challenge to the taxpayer’s underlying tax liability for that year (Melasky, 151 TC 9 (2018), aff’d, 803 F. App’x 732 (5th Cir. 2020)).

Additionally, because there was no conflicting evidence to the contrary, the Tax Court found that the IRS account transcripts were sufficient evidence to establish that the $7,141 payments were not applied to White’s 2019 tax liability. Therefore, the court only considered whether CO Appeals abused its discretion in handling White’s case.

Abuse of discretion exists “when a determination is arbitrary, capricious, or lacking a solid basis in fact or law” (Murphy125 TC 301 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006)). In determining whether a SO abused its discretion, the Tax Court considers whether the SO: (1) adequately verified that the requirements of applicable law and administrative procedure were met; (2) considered any relevant issues raised by the taxpayer; and (3) considered “whether any proposed collection action balances the need for effective tax collection with the (taxpayer’s) legitimate concern that any collection action be no more intrusive than necessary” (Sec. 6330(c) (3) )). The Court held that the SO in White’s case properly performed its duties under these three provisions.

White claimed, however, that the CO abused his discretion by failing to provide him with the administrative file and copies of documents he requested. However, the SO’s case activity file showed that he mailed those items to White on January 12, 2023. White also claimed that the SO abused his discretion by failing to provide him with a face-to-face hearing . The Tax Court, however, held that it has repeatedly held that Sec. 6330 does not require a face-to-face hearing. Furthermore, the court found that a face-to-face meeting was unwarranted once White did not show interest in a collection alternative for 2019 because no financial information was submitted to the CO.

Holding: Because there were no disputes of material fact in issue and the CO did not abuse its discretion in upholding the proposed tax, the Tax Court granted the IRS’s motion for summary judgment. The court noted that White was still free to submit an OIC or installment agreement at any time if supported by adequate financial information and that such an offer could cover its obligations for multiple tax years.

■ WhiteTC Memo. 2024-53

— John McKinley, CPA, CGMA, JD, LL.M., is professor of the practice of accounting and taxation in the SC Johnson College of Business; Matthew Geiszler, Ph.D., is a lecturer in accounting at the Brooks School of Public Policy; and Isaac Chasen is a doctoral candidate at Cornell Law School, all at Cornell University. To comment on this column, contact Paul BonnerTHE of JofA fiscal editor.