IRS Did Not Abuse its Discretion in Rejecting Installment Agreement

Posted on July 22, 2018

In a recent case before the United States Tax Court, the taxpayers incurred nearly $300,000.00 in unpaid assessed Form 1040 liability for 2011, 2012 and 2013. In response to an IRS Notice of Federal Tax Lien filing and a Final Notice of Intent to Levy, the taxpayers filed two requests for a Collection Due Process Hearing. Both requests for a Collection Due Process Hearing asked the IRS to grant an installment agreement in the amount of $3,000.00 per month. The Collection Due Process Hearing cases were heard by an IRS Settlement Officer who reviewed the Form 433A, Financial Statement, filed by the taxpayers. The financial statement listed $645,000.00 in a retirement account. During the hearing with the Settlement Officer, the IRS suggested that the taxpayers liquidate their retirement assets to fully pay their outstanding liability for the years in issue. The taxpayers’ representative rejected this suggestion because withdrawing money from their retirement account would create a new liability for the taxpayers. However, the IRS correctly pointed out that the taxpayers could withhold income tax on any withdrawals to pay for any new liability and still have substantial assets in their retirement account. The Settlement Officer also learned that the taxpayers had accrued additional unpaid assessed liability for 2014 and had not made any estimated tax payments for 2015. The IRS sent a determination letter to the taxpayers rejecting the installment agreement and the taxpayers filed a Petition in the United States Tax Court. The Court held in favor of the IRS because the taxpayers had sufficient equity in their assets to pay the liability in full and because the taxpayers were not current with their estimated tax payment obligations for 2015. Although the IRS could have granted an installment agreement, it was within its authority to demand the liquidation of the taxpayers’ retirement account to pay the liability in full, especially because they incurred additional unpaid liability for 2014 and did not make any estimated tax payments for 2015. Do you have unpaid liability due to the IRS? Call us, we can help.