LG Kendrick, LLC v. Commissioner
684 F. App'x 744
10th Cir.2017Background
- LG Kendrick, LLC (LGK), a single‑member LLC operating a UPS Store in New Mexico, was assessed employment and unemployment taxes for various quarters/years (2009–2012).
- IRS prepared returns and sent notice letters giving LGK 30 days to respond or request a conference; LGK either did not respond or submitted noncompliant requests for information.
- IRS assessed taxes, issued notices of intent to levy and to file liens, and LGK timely requested collection due process (CDP) hearings, opting for correspondence hearings.
- Appeals provided documentation used to prepare the IRS returns and repeatedly invited LGK to submit its own returns or evidence; LGK did not meaningfully contest the liabilities or produce evidence that it had no employees.
- Appeals issued notices of determination sustaining collection actions (and finding LGK precluded from contesting underlying liabilities because it had a prior opportunity to dispute them); Tax Court affirmed.
- Tenth Circuit review: Appeals’ determinations about underlying liability reviewed de novo; other administrative determinations reviewed for abuse of discretion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Appeals’ dual findings (preclusion to contest liability and, alternatively, that LGK failed to adequately dispute liability) are arbitrary and capricious | LGK: The two conclusions are mutually exclusive and thus arbitrary | IRS/Appeals: Appeals may find preclusion yet still exercise discretion to consider the liability and find LGK failed to dispute it | Not arbitrary; Appeals may permissibly make alternative findings and consider liability despite preclusion (no APA de novo review) |
| Whether LGK had a prior opportunity to dispute the underlying tax liabilities before CDP hearings | LGK: It lacked a prior opportunity to contest existence/amount of liability | IRS: Treasury Regulation and prior offers of a conference with Appeals constitute a prior opportunity | LGK had a prior opportunity via offers of conference and related correspondence; preclusion proper under § 6330(c)(2)(B) and relevant regulation |
| Whether Appeals abused its discretion by sustaining collection actions absent adequate opportunity or evidence | LGK: Appeals abused discretion by relying on assertedly inadequate evidence and by not allowing contest | IRS: Appeals provided opportunities and reviewed records; LGK failed to present evidence or timely dispute liabilities | No abuse of discretion; LGK failed to present evidence and did not raise the issues properly in CDP |
| Whether LGK preserved an argument about allocation of withheld taxes to employees | LGK: IRS lacked evidence that withheld taxes were credited to specific employees | IRS: Argument not raised properly below | Argument waived on appeal for failure to identify where raised and ruled on in Tax Court; Court declines to address it |
Key Cases Cited
- Cropper v. Comm’r, 826 F.3d 1280 (10th Cir. 2016) (distinguishes de novo review of underlying liability issues from abuse‑of‑discretion review of administrative determinations)
- Keller Tank Servs. II, Inc. v. Comm’r, 848 F.3d 1251 (10th Cir. 2017) (upholds Treasury Regulation treating an offered conference with Appeals as a prior opportunity to dispute liability)
- BWP Media USA, Inc. v. Clarity Dig. Grp., LLC, 820 F.3d 1175 (10th Cir. 2016) (briefing requirements; appellate waiver for issues not shown to have been raised below)
- Tele‑Communications, Inc. v. Comm’r, 104 F.3d 1229 (10th Cir. 1997) (issue must be presented and decided by trial court before raised on appeal)