Dalton, Jr. v. Commissioner of IRS
2012 U.S. App. LEXIS 12602
| 1st Cir. | 2012Background
- Taxpayers offered to settle their tax debt for $10,000 at a CDP hearing; IRS rejected the offer based on ownership findings of the Property.
- Taxpayers claimed they did not own the Property; IRS treated trust as nominee holder and considered equity in the Property.
- Tax Court on remand held the trust was not a Maine-law nominee and ordered the IRS to accept the offer; later awarded attorneys’ fees to taxpayers.
- On appeal, court held the Tax Court used an improper standard of review for IRS’s subsidiary determinations and affirmed the IRS’s rejection of the offer.
- Court concluded the IRS reasonably concluded the taxpayers owned the Property for purposes of the offer, reversing the Tax Court and the fee award.
- Trust is not a party to the CDP proceeding, and the court found it would be improper to adjudicate third-party ownership de novo in this context.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standard of review for CDP subsidiary determinations | Dalton argues de novo review for legal questions; seeks per se abuse for legal error | IRS argues for a tailored, deferential standard focusing on reasonableness | Reasonableness standard; not de novo review for subsidiary determinations |
| Whether the IRS reasonably treated the Property ownership as nominees | Taxpayers contend the trust owns the Property; no nominee relationship | IRS reasonably balanced factors showing nominee relationship | IRS determination reasonable; ownership issue within its discretion |
| Attorneys’ fees following the decision | Taxpayers prevailed; fees appropriate | Tax Court ruling on fees erroneous given IRS not abused | Reversed; taxpayers are not prevailing parties; fee award reversed |
Key Cases Cited
- Murphy v. Comm'r, 469 F.3d 27 (1st Cir. 2006) (abuse of discretion review in CDP context; reasonableness standard emphasized)
- Olsen v. United States, 414 F.3d 144 (1st Cir. 2005) (CDP review tailored to non-de Novo scrutiny; deference to agency discretion)
- Living Care Alternatives of Utica, Inc. v. United States, 411 F.3d 621 (6th Cir. 2005) (CDP process features limited record; no discovery; review for reasonableness)
- Christopher Cross, Inc. v. United States, 461 F.3d 610 (5th Cir. 2006) (contextualized reasonableness of agency determinations in CDP)
- Robinette v. Comm'r, 439 F.3d 455 (8th Cir. 2006) (emphasizes tailored review to avoid de novo perfectionism in CDP)
- Oxford Capital Corp. v. United States, 211 F.3d 280 (1st Cir. 2000) (nominee doctrine factors and balancing approach)
- Cruz v. Melecio, 204 F.3d 14 (1st Cir. 2000) (principles on third-party rights and non-binding effect of court decisions on trusts)
- United States v. Walker, 665 F.3d 212 (1st Cir. 2011) (deference to agency determinations within CDP framework)