Tax Court Ruling on Installment Agreement Cancellation by IRS
The US Tax Court has ruled in a recent case, Rosenbloom v. Commissioner of Internal Revenue, (U.S.T.C. 2011), that the IRS cannot arbitrarily decide to cancel an Installment Agreement, and criticized their “Heavy Handed” collection action levy after the cancellation of the Installment Agreement as an “abuse of discretion”. The tax court held that the statute of limitations to collect had expired, and the IRS determination to continue collection was an abuse of discretion.
The taxpayer, an attorney, had entered into one or possibly two installment agreements (the opinion acknowledged confusion over this point). Then, at a point when the IRS decided the installment agreement was canceled, it persuaded the taxpayer to sign an extension of the statute of limitations.
Several years later, the IRS commenced collection again on the ground that the taxpayer had agreed to extend the statute of limitations on collection. The taxpayer argued that the request was made while his installment agreement was still in effect, and was therefore void. Thus, there had been no extension of the period of limitations.
The taxpayer persuaded the court that when the IRS requested an extension of the statute, he was still in a valid installment agreement. The court agreed that a request that a taxpayer extend the statute while he/she is in an installment agreement violates IRS CSED policy, and that there is no authority permitting termination of an agreement because the taxpayer refuses to extend the statute.
The procedure requires that the IRS give notice of its intention to terminate an installment agreement. 26 U.S.C. ? 6159(b)(5).
The IRS had sent a notice threatening to cancel because of the taxpayer’s failure to provide requested financial information, one of the statutory grounds for termination. 26 U.S.C. ? 6159(b)(4). But, they could not establish that they sent the other required notice.
The court noted that the “transcripts” (which appear to be TXMOD or similar format) failed to indicate, as they would, that a termination had occurred.
The court said “These transcripts are troves of information, but they are also almost completely incomprehensible to one not skilled at interpreting the various numerical codes ?”
Notwithstanding, the court found that had the installment agreement been terminated, it would have been indicated on the transcripts by Collection Status Code 064, “Defaulted Installment Agreement,” which did not appear on the transcripts.
Accordingly, the signed extension of the statute of limitations was invalid, and the IRS attempt to collect after expiration of the period was invalid.
The court concluded “We find ? that the bank levy is better explained as another example of the heavy-handed manner in which that particular revenue officer was pursuing [the taxpayer].”
The footnotes in the case indicate that under the RRA 1998, Congress added section 6304 to the Code requiring that the IRS not communicate with a taxpayer who has representation.