Post Conviction Collateral Consequences - Payment of the Tax and CDP Proceedings (3/12/16)

Tax crimes enthusiasts will recall the case of Boulware v. United States, 552 U.S. 421 (2008), here.  The Supreme Court opinion in Boulware reaffirmed some key tax crimes sound bites such as (i) the Spies holding that tax evasion is the capstone of the federal tax crimes regime and (ii) no tax evasion without a "tax deficiency" (really evaded tax due and owing *).  The Supreme Court remanded to the Ninth Circuit to deal with the nettlesome issue of E&P and return of capital.  On remand, Boulware lost in the Ninth Circuit.  United States v. Boulware, 558 F.3d 971 (9th Cir. 2009), here.  (See Boulware Wins the Battle Only to Lose the War (Federal Tax Crimes Blog 3/9/09), here.)

Since that time, Mr. Boulware has popped up again in the case reporters.  E.g., HIE Holdings v. Commissioner, 521 F. App'x 602, 2013 U.S. App. LEXIS 6952 (9th Cir. 2013), here, cert. denied 134 S. Ct. 712 (2013). (HIE is Boulware's company, and his personal case was consolidated on appeal, see Boulware Redux - Attorneys Fees from Shareholder's Criminal Case Not Deductible by Corporation (Federal Tax Crimes Blog 4/14/13), here.

Just yesterday, Mr. Boulware showed up again in a Collection Due Process ("CDP") case on appeal.  Boulware v. Commissioner, ___ F.3d ___, 2016 U.S. App. LEXIS 4502 (D.C. Cir. 2016), here. The issues in the case are not tax crimes issues per se, but the case does serve as a reminder that there are civil tax consequences that attend criminal tax prosecutions.  I will briefly address the case to illustrate that point.

After HIE Holdings and Boulware lost on the merits in the prior Tax Court case and failed to post bond while appealing, the IRS was permitted assess the tax determined by the Tax Court while the appeal was pending.  § 7485(a)(1).  The IRS did so and moved to collect.  § 7485(a)(1).  Boulware filed a CDP request in issue here.

In the CDP proceeding, the Settlement Officer ("SO") placed the following conditions on an installment payment agreement for Boulware:

First, Boulware would have to agree to pay $29,000 per month, which Martin calculated was his "ability to pay" based upon Boulware's most recent tax returns and other financial documents. Second, Boulware would have to become compliant with all current tax obligations, including his estimated taxes for 2012. Finally, he would have to liquidate various personal assets, including a 401K account and two life insurance policies all together worth approximately $950,000, and put the proceeds toward his deficiency.

Boulware then counteroffered (on counteroffers, see My Cousin Vinny, here)

Boulware then mailed Martin a counter-offer in which he proposed paying $12,500 per month n2 and waiting until he had exhausted his appeals to liquidate his retirement account and life insurance policies. His offer did not address his delinquent estimated taxes for 2012.
   n2 Boulware indicated that he planned to divert much of his salary from his companies to pay back monies he had borrowed from them, which in turn would significantly reduce his taxable income and therefore his "ability to pay." Boulware had not made any payments on his officer loan accounts since 1987, and did not explain why he wanted to do so then. 

The Settlement Officer "rejected Boulware's proposal because it failed to meet any of the three requirements she had set. "

The DC Circuit held that:

1) the Settlement Officer did not abuse her discretion in setting the conditions of the offer she made and denying the counteroffer.

2) the IRS may require, as a condition of an installment agreement. the taxpayer to liquidate available assets, including specifically 401K account and insurance policies, to pay a delinquent tax.  The Court was not sympathetic with the claim that irreparable harm would occur from the liquidation while the appeal was pending.

3) the Court said:

Third, Boulware argues that Martin improperly considered his criminal conviction for tax evasion in rejecting his proposed installment agreement. Nothing in the record supports this contention, however.

4) finally, the Court held that he was not entitled to a face-to-face meeting with the SO.

* on this issue, see For Tax Evasion, Is the Element "Tax Deficiency" or "Tax Due and Owing" (Federal Tax Crimes Blog 10/14/13), here, and Is the Spies Element for Evasion (i) Tax Deficiency or (ii) the Criminal Tax Number? (Federal Tax Crimes Blog 9/17/13), here.