LINDSAY MANOR NURSING HOME, INC., Pеtitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24596-14L.
UNITED STATES TAX COURT
Filed March 23, 2017.
148 T.C. No. 9
At its CDP hearing P, a corporate taxpayer, challenged the appropriateness of a proposed levy on the grounds that the levy would create economic hardship because of the financial condition of P. R‘s settlement officer (SO) did not consider P‘s economic hardship argument because P is a corporate taxpayer and
P asserts in a motion for summary judgment that
Held, further,
Held, further, P‘s motion for summary judgment will be denied in part.
David J. Looby, for petitioner.
Ann Louise Darnold, for respondent.
OPINION
PARIS, Judge: This case is before the Court on petitioner‘s motion for summary judgment under Rule 121.1 The issue for decision is whether section
The record reflects or the parties do not dispute the following. Petitioner‘s principal place of business was in a rural community of fewer than 3,000 residents in Oklahoma at the time the petition was filed. Petitioner operates a nursing home facility.
I. Employment Tax at Issue
Petitioner timely filed its Form 941, Employer‘s Quarterly Federal Tax Return, for the quarterly period ended December 31, 2013, but failed to pay its tax liability for that quarter. On April 14, 2014, respondent assessed the tax of $108,911 reported on the return.
II. Proposed Levy on Petitioner‘s Property
On April 24, 2014, respondent issued to petitioner a Letter 1058, Final Notice--Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice). The levy notice reflected respondent‘s intent to levy on petitioner‘s property and rights to property to collect the employment tax liability assessed against it. The levy notice also informed petitioner of its right to a collection due process hearing (CDP heаring) with the Internal Revenue Service Appeals Office (IRS Appeals) before respondent levies on petitioner‘s property.
Petitioner timely submitted a Form 12153, Request for a Collection Due Process or Equivalent Hearing (CDP request), on May 7, 2014. IRS Appeals assigned petitioner‘s case to Settlement Officer Alcorte (SO Alcorte). SO Alcorte issued to petitioner a letter dated July 28, 2014, scheduling a CDP hearing for August 21, 2014. On August 20, 2014, petitioner faxed to SO Alcorte a Form 433-B, Collection Information Statement for Businesses, and supporting documentation which demonstrated that petitioner had not received a total of $306,598.61 in accounts receivable due from Medicare, Medicaid, insurance, and private pay for the period April 30 through June 30, 2014.2
Also on August 20, 2014, petitioner faxed a letter to SO Alcorte challenging the appropriateness of the proposed levy on the ground of economic hardship. In the letter petitioner claimed respondent was required to release the proposed levy pursuant to
Taxpayer also seeks to challenge the appropriateness of the proposed levy on the grounds of economic hardship. As demonstrated by Taxpayer‘s Form 433-B, Collection Information Statement, Taxpayer has an outstanding accounts receivable balance of $306,598.61 due to
nonpayment of monies billed to Medicare and Medicaid and is currently operating at a net loss. Taxpayer cannot survive an all source levy of the available funding that it does have and still provide essential care services to the patients residing at Taxpayer‘s nursing facility. Taxpayer has a mandatory obligation, under federal and state law, to provide food, medicine, physical therapy services, linens and bedding, supplies, equipment and certified healthcare providers for its patients. Failure to provide adequate care to these patients can subject Taxpayer to a loss of its license among numerous other civil and criminal penalties. * * * * * * *
[T]he proposed levy on Taxpayer‘s accounts receivables, Medicaid and Medicare funding, private pay and bank accounts should be released. Such a levy on Taxpayer‘s essential business property would prevent it from being able to carry on its trade or business (i.e., to provide adequate care and treatment to its patients). Taxpayer would not be able to meet its payroll and other basic necessities, which in turn would result in patients not receiving the needed care from qualified healthcare providers that the law mandates Taxpayer must provide. Simply put, Taxpayer cannot survive or provide essential care services to its patients if the IRS is able to file a levy against every available source of income. As such, Taxpayer asserts that the hardship relief provisions of § 6343 apply to this situation and mandate the release of the proposed levy issued against it.
IV. The CDP Hearing
On August 21, 2014, a telеphone CDP hearing was held between SO Alcorte and petitioner‘s representative. During the hearing petitioner again challenged the appropriateness of the proposed levy on the ground of economic hardship. SO Alcorte explained to petitioner‘s representative that she would not
On September 17, 2014, IRS Appeals issued a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 to petitioner sustaining the proposed levy for petitioner‘s taxable quarter ended December 31, 2013 (notice of determination). In the notice of determination SO Alcorte noted petitioner‘s continuously maintained position that it should be entitled to economic hardship relief pursuant to
Petitioner moves the Court for summary judgment on the grounds that: (1)
Discussion
Summary judgment serves to “expedite litigation and avoid unnecessary and expensive trials.” Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). The Court may grant summary judgment upon all or any part of the legal issues in controversy if there is no genuine dispute of material fact. Rule 121(b); see Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The moving party bears the burden of proving that no genuine issues of material fact exist and that it is entitled to judgment as a matter of law. Bond v. Commissioner, 100 T.C. 32, 36 (1993); Naftel v. Commissioner, 85 T.C. at 529. In deciding whether to grant summary judgment, the Court considers the facts and the inferences drawn from those facts in the light most favorable to the nonmoving party. Bond v. Commissioner, 100 T.C. at 36; Naftel v. Commissioner, 85 T.C. at 529. Because the issue of statutory construction involves a pure question of law and because the parties agree on all facts relevant to the Court‘s analysis, the Court concludes that summary adjudication is appropriate.
I. Collection of Federal Tax by Levy
If a taxpayer liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, the Secretary may collect the tax by levy upon all property and rights to property (except any property that is exempt under section 6334) belonging to the taxpayer.5
SEC. 6343(a). Release of Levy and Notice of Release.--
(1) In general.--Under regulations prescribed by the Secretary, the Secretary shall release the levy upon all, or part of, the property or rights to property levied upon and shall promptly notify the person upon whom such levy was made (if any) that such levy has been released if--
* * * * * * *
(D) the Secretary has determined that such levy is creating an economic hardship due to the financial condition of the taxpayer * * *
Section 301.6343-1(b)(4)(i), Proced. & Admin. Regs., provides that a levy is creating economic hardship because of the financial condition of an “individual taxpayer” if “satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses.” When
determining a taxpayer‘s “reasonable basic living expenses“, the Secretary considers any information that the taxpayer claims bears on economic hardship. See id. subdiv. (ii).
II. Section 6330 Hearing
At least 30 days before making a levy, the Commissioner must give notice to the taxpayer of the proposed levy and of the taxpayer‘s right to a CDP hearing to appeal it.
During the CDP hearing the taxpayer may raise any relevant issue relating to the unpaid tax or the proposed levy, including challenges to the appropriateness of the collection action and collection alternatives such as an installment agreement or an offer-in-compromise.
In connection with the CDP hearing the Appeals officer must verify that the requirements of applicable law and administrative procedure have been met, consider issues properly raised by the taxpayer, and consider whether any proposed collection action balances the need for the efficient collection of taxes
Following the CDP hearing the Appeals officer must determine whether to sustain the proposed collection action. Once a determinatiоn is made, the taxpayer may petition the Tax Court for review.
Where the validity of the underlying tax liability is properly at issue, the Court will review the matter de novo. Sego v. Commissioner, 114 T.C. 604, 610 (2000). Where, as here, there is no dispute concerning the underlying tax liability, the Court reviews the Commissioner‘s administrative determination for abuse of discretion.6 Id. 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).
III. Petitioner‘s Request for Economic Hardship Relief
When a “taxpayer” establishes in a prelevy collection hearing under section 6330 that the proposed levy would create an economic hardship, it is unreasonable
for the settlement officer to determine to proceed with the levy, which
A. Parties’ Arguments
Petitioner reads
Respondent argues that the regulation is valid by pointing to the phrase “economic hardship” in
B. Judicial Review of Agency Statutory Construction--Chevron Review
A court reviews an agency‘s authoritative construction of a statute under the two-step test first articulated in Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842 (1984). See Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44, 55-58 (2011). Chevron step 1 requires the Court to determine whether the statute clearly expresses the intent of Congress. Chevron, 467 U.S. at 843. If Congress’ intent is clear, the Court‘s anаlysis ends and the congressional intent is given effect. Id. at 842-843. If the statute is silent or ambiguous with respect to the specific issue before the Court, Chevron step 2 requires the Court to determine whether the regulation is based upon a permissible construction of the statute. Id. at 843.
1. Chevron Step 1
The first issue is whether
As applicable here, section 6343(a) provides:
SEC. 6343(a). Release of Levy and Notice of Release.--
(1) In general.--Under regulations prescribed by the Secretary, the Secretary shall release the levy upon all, or part of, the property or rights to property levied upon * * * if--
* * * * * * *
(D) the Secretary has determined that such levy is creating an economic hardship due to the financial condition of the taxpayer * * *
The parties dispute whether Congress intended section 6343(a)(1)(D) to require the Secretary to release a levy if the levy will create an economic hardship for a nonindividual taxpayer on account of its financial condition (as determined by the Secretary). Petitioner‘s argument hinges on the defined term “taxpayer” while respondent‘s hinges on the definition of “hardship“.
Petitioner is correct that “taxpayer” is a defined term and that Congress could have provided a more restrictive definition. See
In construing the term “taxpayer” with reference to the context in which it is used--and looking specifically for clear congressional intent that this provision applies to petitioner‘s specific situation--the Court notes several points of inquiry arising from the wording of section 6343. The first involves the other instances of the term “taxpayer” in section 6343. The second involves the use of the phrase “economic hardship” in section 6343(a)(1)(D). And the third involves the grammatical structure of section 6343(a). The Court‘s inquiry on these points leads to the Court‘s conclusion that section 6343(a)(1)(D) is silent or ambiguous on the crucial issue of whether “taxpayer” includes nonindividuals.
i. Use of “Taxpayer” in Section 6343
Section 6343 uses the word “taxpayer” eight times. An examination of the contexts of the seven uses apart from that in section 6343(a)(1)(D) does not
ii. Definition of “Economic Hardship”
Even if “taxpayer” were clearly understood to include individuals and nonindividuals, the words surrounding “taxpayer” in section 6343(a)(1)(D) render Congress’ intent unclear. The second point of inquiry is with respect to the definition--or lack thereof--of “economic hardship“. There are instances in the Code where Congress saw fit to provide a definition of “significant hardship“, e.g.,
Webster‘s Third New International Dictionary Unabridged 1033 (1986) defines “hardship” as:
1 a : SUFFERING, PRIVATION <years of danger and ~[hardship]> <inflation was a cause of ~[hardship]> <a life of ~[hardship]> b : a particular instance or type of suffering or privation <the losses and
[hardship]s . . . entailed by war — Bertrand Russell> <enduring cold, hunger, and other ~[hardship]s> 2 : something that causes or entails suffering or privation <cannot help thinking it a ~[hardship] that more indulgence is allowed to men than to women — James Boswell> <one of the ~[hardship]s of town life . . . is the absence of spring water — Amer. Guide Series: N. C.> <all the ~[hardship]s of the northern passage — head winds, fog — L.B.Schmidt>
Under these definitions there are two reasonable interpretations of
Webster‘s Third New International Dictionary Unabridged 720 (1986) defines “economic” as:11
3 a : of or relating to the science of economics <rejected the ~[economic] doctrines of Ricardo> : of, relating to, or concerned with the production, distribution, and consumption of commodities <a program to prevent inflation and ~[economic] collapse> <a council of ~[economic] advisers> : MATERIAL <moved exclusively by ~[economic] motives> b : having practical or industrial significance, uses, or application <the ~[economic] plants of a region> : affecting or liable to affect material resources or welfare <two ~[economic] pests were intercepted by . . . inspectors during recent weeks —Farm Chemicals> c : operated or produced on a profitable basis : producing an excess of returns over expenditures <reactor types which might be developed to produce ~[economic] power —U.S. Code> : capable of or liable to profitable exploitation <~[ecоnomic] beds of phosphate are found only under marine conditions —A.M. Bateman> : PROFITABLE <barely ~[economic], since she paid a nurse almost as much as she made herself —Elizabeth Janeway>
These definitions are similarly unhelpful in deciphering congressional intent in the context of the Court‘s inquiry. Although hardship is limited to only the economic
Regardless of whether “taxpayer” is as defined in
iii. An Existing Levy Versus a Future Levy
The third inquiry arises in determining the scope of relief that Congress intended. Petitioner contends that it is entitled to relief under a plain rеading of
This reading is in contrast to both petitioner‘s position and the Commissioner‘s established practice of considering an individual taxpayer‘s economic hardship argument during the CDP hearing. Petitioner received a notice of intent to levy and timely requested a CDP hearing. Following its CDP hearing, petitioner received a notice of determination upholding the proposed levy and timely petitioned this Court to review that determination. Presently the levy at issue is merely proposed; petitioner has suffered no economic hardship as a result
Petitioner believes that “taxpayer” should be defined as it typically is in
b. Legislative History
As originally enacted in the Internal Revenue Code of 1954, ch. 64, 68A Stat. at 789,
It shall be lawful for the Secretary or his delegate, under regulations prescribed by the Secretary or his delegate, to release the levy upon all or part of the property or rights to property levied upon where the Secretary or his delegate determines that such action will facilitate the collection of the liability, but such release shall not operate to prevent any subsequent levy.
Although there were several amendments to this section between 1954 and 1988, there was no substantial alteration of the grant of discretion to the Secretary to issue regulations and determine whether to release a levy.15 In 1988, however, the
The first version of
SEC. 6343(a) Release of Levy.— (1) In general.—Under regulations prescribed by the Secretary, the Secretary shall release the levy upon all, or part of, the property or rights to property levied upon if—
* * * * * * *
(E) the taxpayer can substantiate that the levy prevents the taxpayer from meeting necessary living expenses * * *
As drafted, this provision likely limits “taxpayer” to individuals by its use of the phrase “living expenses“—something nonindividuals cannot have. Congress was therefore aware that the use of the term “taxpayer” could be limited by the context of the sentence. The bill was referred to the Senate Committee on Finance (Finance Committee), and a public hearing was held at which the committee acknowledged the absence of a definition of “necessary living expenses“.17
The 98th Congress concluded without final action on S. 2400. Subsequently S. 579 and S. 604, 100th Cong. (1987), were introduced, each proposing to improve taxpayers’ rights and each containing, word for word, the
In October of 1987 the Individual Provision reflected in S. 579 and S. 604 was included without change in the new version of TBOR, S. 1774, 100th Cong. (1987).20 Members of the committee met with—and invited comments from—former Commissioners, representatives from the American Bar Association (ABA)
The IRS submitted further comments opposing the Individual Provision, which stated that the financial condition of a taxpayer had no bearing on the enforceability of a levy and, to avoid interpretation disputes regarding “hardship” and “necessary living expenses“, suggested that the bill be amended to state: “where the Secretary otherwise determines the levy should be released“.21 Service Position on Provisions of The “Omnibus Taxpayers’ Bill of Rights Act“, IRS, National Archives Document of S. Comm. on Finance, 100th Cong. (1987).22
On December 4, 1987, the Omnibus Budget Reconciliation Act of 1987, S. 1920, 100th Cong. (1987), was introduced on behalf of the Budget Committee. Although it proposed an amendment to
Both S. 1774 and S. 1920 were referred to the Finance Committee for reconciliation. The Finance Committee held a public markup hearing where Senator Pryor proposed numerous amendments seeking to ease the most controversial provisions—including those related to levy and distraint—and address most of the IRS’ concerns.25 After further debate, the Finance Committee
The reconciled bill‘s text with respect to the levy provisions included two relevant changes. First, the Unenforceability Provision of
The revised bill, S. 2223, was unanimously approved by the Finance Committee and was introduced in the Senate. The accompanying Financе Committee report, S. Rept. No. 100-309 (1988), detailed the provisions and provided “Reasons for change“. With respect to the levy provisions, the report stated: “The committee believes that it is appropriate to extend the time period between the date notice of intent to levy is provided to taxpayers and the date that levy can be made. The committee also believes that it is appropriate to expand the scope of property exempt from levy.” Id. at 9-10. No other substantive explanation was provided.
The Senate amendment to H.R. 4333 included all of the S. 2223 provisions. The House bill did not include a similar provision. The conference agreement followed the Senate amendment in whole in regard to levy provisions that created an economic hardship because of the taxpayer‘s financial condition, and the provision as reflected in the current version of
In any event, neither the text of the statute nor its legislative history proves clearly Congress’ intent regarding the applicability of
2. Chevron Step 2
When a statute is ambiguous, step 2 of Chevron, 467 U.S. at 843, requires the Court to determine whether the regulation is based on a permissible construction of the statute. Under Chevron step 2, the Court may not disturb an agency rule unless it is “arbitrary or capricious in substance, or manifestly contrary
a. Wording of Section 301.6343-1(b)(4)(i)
Congress saw fit to enact
In October 1991 the Secretary issued proposed regulations providing guidance concerning the implementation of
In January 1995 the Secretary promulgated final regulations under
The director must release the levy upon all or a part of the property or rights to property levied upon if he or she determines that * * * [t]he levy is creating an economic hardship due to the financial condition of an individual taxpayer. This condition applies if satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses. * * *
To determine an amount for reasonable basic living expenses, the regulations require the Secretary to “consider any information provided by the taxpayer“, including: (1) the taxpayer‘s age, employment status and history, ability to earn, number of dependents; (2) the amount reasonably necessary for food, clothing, housing, medical expenses, transportation, and tax payments; (3) the cost of living in the geographic area in which the taxpayer resides; (4) property exempt from levy that is available to pay the taxpayer‘s expenses; (5) any extraordinary circumstances; and (6) any other factor that bears on economic hardship. See id. subdiv. (ii).
With respect to whether
Accordingly, insofar as the statute is silent or ambiguous, to that extent (and because of the specific grant of authority) it has left room for the Secretary to exercise his discretion in promulgating the disputed regulation, which is based on a “permissible construction of the statute“. Chevron, 467 U.S. at 843. As a permissible construction, the regulation is ipso facto not manifestly contrary to the statute.
b. History of Section 301.7122-1
Petitioner cites
When originally issued, sectiоn 301.7122-1T(b)(4)(iv), Example (4), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39025 (July 21, 1999), included an economic hardship example involving a business. However, the final version excluded this example; the preamble discussed this removal in detail. T.D. 9007, 2002-2 C.B. 349. It explained that “economic hardship” applies only to individuals and that the business example was originally included in the temporary regulation in the event that a standard for “business economic hardship” could be developed. Id. However, the IRS concluded that such a standard for nonindividuals would not necessarily promote effective tax administration because it might result in the Government‘s determining whether and when to forgo the collection of taxes to support a nonviable business.29 Id. Nonetheless, the preamble states that there are numerous other avenues for nonindividuals to seek relief from liability, such as doubt as to collectibility or public policy considerations. Id.
Accordingly, the Court finds that the discretion provided to the Secretary by
c. Relief Provided by Section 301.6343-1(b)(4)(i)
Finally, the Court finds
It appears, however, that in prescribing the accompanying regulations, the Secretary deemed it appropriate to provide relief to individual taxpayers if “satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses.”
Given Congress’ intent to provide additional protection and relief to taxpayers, the Court finds reasonable the regulation‘s additional protection of
Regardless of whether petitioner or respondent has the better interpretation of
C. Conclusion
Because the Court finds that
This conclusion, however, does not foreclose nonindividual taxpayers from relief in circumstances where the proposed collection action, if sustained, could result in some form of economic difficulty. These economic realities and consequences of the Commissioner‘s proposed collection action are properly
The remainder of the case—including the Court‘s analysis of the
To reflect the foregoing,
An appropriate order
will be issued.
Notes
The Court of Appeals for the District of Columbia Circuit held in Byers v. Commissioner, 740 F.3d 668, 675-677 (D.C. Cir. 2014), aff‘g T.C. Memo. 2012-27, that under
Following the Byers decision, the IRS issued Chief Counsel Notice 2015-006 (June 30, 2015), taking the position that appellate venue in CDP cases properly lies “to the circuit of the petitioner‘s legal residence, principal place of business, or principal office or agency.” It advised Chief Counsel attorneys not to object to venue--whether it was the D.C. Circuit or the proper regional circuit--in these cases. Congress amended
In the light of Byers, the Court will be applying the same legal principles to the issues in this case whether the venue for appeal is the Court of Appeals for the D.C. Circuit or the Tenth Circuit. As this Court has previously held: “For us to undertake to resolve the correct appellate venue, inasmuch as it would not affect the disposition of this case, ‘would, at best, amount to rendering an advisory opinion. This we decline to do.‘” CNT Invs., LLC v. Commissioner, 144 T.C. at 185 (quoting Greene-Thapedi v. Commissioner, 126 T.C. 1, 13 (2006)).