2017 U.S. Tax Ct. LEXIS 10
T.C.2017Background
- Lindsay Manor Nursing Home, a corporate nursing facility in rural Oklahoma, failed to pay employment taxes for Q4 2013; IRS assessed $108,911 and issued a notice of intent to levy.
- Petitioner timely requested a Collection Due Process (CDP) hearing and submitted a Form 433-B showing significant unpaid receivables and an assertion that a levy would prevent it from providing mandated patient care.
- At the CDP hearing, Settlement Officer Alcorte refused to consider petitioner's economic-hardship argument, stating the applicable regulation limits "economic hardship" relief to individual taxpayers.
- IRS Appeals issued a notice of determination sustaining the proposed levy; petitioner petitioned the Tax Court and moved for summary judgment, arguing the regulation (Treas. Reg. §301.6343-1(b)(4)(i)) is invalid as inconsistent with I.R.C. §6343(a)(1)(D).
- The core legal question: whether the regulation lawfully narrows §6343(a)(1)(D)’s requirement to release a levy when it is creating “economic hardship due to the financial condition of the taxpayer” to apply only to individuals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of Treas. Reg. §301.6343-1(b)(4)(i) — whether "taxpayer" in §6343(a)(1)(D) includes corporations for economic-hardship relief | "Taxpayer" is a defined term (IRC §7701) that includes corporations; the regulation unlawfully redefines "taxpayer" to mean only individuals | "Hardship" conceptually refers to individual deprivation; limiting relief to individuals is a permissible reading of §6343(a)(1)(D) | §6343(a)(1)(D) is silent/ambiguous on scope; regulation is a permissible construction under Chevron and therefore valid |
| Whether the regulation improperly denied petitioner consideration of economic-hardship relief at the CDP hearing | Because the regulation is invalid, SO abused discretion by not considering corporate economic hardship | Even if regulation stands, §6330(c)(3)(C) balancing obligates consideration of economic consequences for all taxpayers in the CDP process | The regulation is valid, so no automatic entitlement to "economic hardship" relief for corporations; but §6330(c)(3)(C) requires Appeals officers to consider the collection intrusiveness for all taxpayers |
| Scope of §6343(a)(1)(D) relief — prospective vs. post-levy relief | §6343 should permit prospective relief where a proposed levy would cause inability to operate (as claimed) | Statute’s text references release of a levy that "is creating" hardship, suggesting post-levy relief; regulations sensibly provide prospective protection for individuals | §6343(a)(1)(D) is ambiguous on prospective application; the regulation reasonably provides prospective relief for individuals and is permissible |
| Availability of alternative relief for nonindividuals | Corporations are entitled to the same "economic hardship" protection under §6343(a)(1)(D) | Nonindividuals can seek other relief (installment agreements, offers-in-compromise, doubt as to collectibility, public policy) and CDP balancing addresses intrusiveness | Limiting regulatory "economic hardship" to individuals does not foreclose other relief avenues for businesses; Appeals must still weigh intrusiveness under §6330(c)(3)(C) |
Key Cases Cited
- Vinatieri v. Commissioner, 133 T.C. 392 (2009) (Tax Court recognized that mandatory release for economic hardship under the regulation applies only to individuals and that proceeding with levy after such a finding is unreasonable)
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984) (framework for judicial review of agency statutory interpretation)
- Mayo Foundation for Medical Education & Research v. United States, 562 U.S. 44 (2011) (application of Chevron deference principles)
- United States v. Locke, 471 U.S. 84 (1985) (statutory construction gives effect to plain and ordinary meaning in context)
- Chickasaw Nation v. United States, 534 U.S. 84 (2001) (statute is ambiguous if it admits of two or more reasonable interpretations)
- Sego v. Commissioner, 114 T.C. 604 (2000) (standard of abuse-of-discretion review when underlying liability is not in dispute)
- Murphy v. Commissioner, 125 T.C. 301 (2005) (abuse of discretion defined as arbitrary, capricious, or without sound basis)