Tax Court Opinion on Various Aspects of Collection Activity for RBAs and Coordination with DOJ (1/28/21)

In Reynolds v. Commissioner, T.C. Memo. 2021-10, TC Dkt entry #20 here * and TN here, in a collection due process (“CDP”) case, the Court (Judge Thornton) discussed restitution-based assessment (“RBA”) under § 6201(a)(4).  In the prior criminal case preceding, the sentencing judge (i) imposed tax restitution of $193,812, but waived interest on the restitution based on a finding that the Reynolds could not pay; (ii) ordered payments during imprisonment of $25 per quarter and during supervised release of the greater of $100 or 10% of his monthly income; and (iii) ordered that Reynolds apply income tax refunds and “anticipated or unexpected financial gains.”

The IRS made the RBA in the amount of $193,812 restitution and also assessed interest for the period.  The IRS audited the years 2002 and 2003 and determined deficiencies and civil fraud penalty.  Reynolds petitioned the Tax Court to redetermine the deficiencies.  The decision document reduced the deficiencies and assessed the civil fraud penalty but noted (Slip Op. 5 n. 2) that the civil fraud penalty had been discharged in a bankruptcy proceeding (although there is no further explanation).

In this CDP case, Reynolds complained about the IRS’s collection activity with regard to the RBA.  I will just bullet point some of the key discussion / holdings rather than have a further narrative.

• The opinion discusses the IRS Collection Advisory Group’s role in RBAs which interfaces with IRS Collections.  The opinion describes this group (Slip Op. 6 n 2): 

The IRS Collection Advisory Group coordinates and monitors probation and restitution cases; the advisor serves as a liaison for coordinating such cases with IRS field offices and the Department of Justice (DOJ). See Internal Revenue Manual (IRM) pt. 5.1.5.16 (Oct. 6, 2017); IRM pt. 5.19.23.1(5) (Oct. 27, 2017); IRM pt. 25.26.1.5.2 (Mar. 24, 2014). 

• The opinion discusses the Revenue Officers’ collection activity over a number of years in some detail, mostly after the NFTL.

• Reynolds attorneys apparently believed that once an RBA was made, only the IRS could collect.  However, the IRS position was that there were two separate debts:  the restitution debt that DOJ’s financial unit can collect; and the RBA that the IRS can collect.  Of course, to the extent that restitution and RBA are the same, payments against one are credited against the other so that there is not double payment.  But, DOJ and the IRS can proceed on separate tracks to collect, although there must be some coordination.

• The IRS and the Reynolds tilted during much of the period over Reynolds’ ability to pay more than he was paying.  In the final analysis, the IRS concluded that "this appeal is being maintained primarily for delay."  (Slip Op. 17.)

• The IRS eliminated the restitution interest and failure to pay penalties per Klein v. Commissioner, 149 T.C. 341 (2017 ).

• The Court rejects Reynolds’ claim that the IRS could not take administrative action to collect the RBAs.  (Slip Op. 22-23.)  Relatedly, the Court held that the DOJ’s payment plan with Reynolds did not prohibit the IRS from making its own collection determinations and taking action to collect the RBAs.

• The Court rejected Reynolds' claim that the IRS abused its discretion by not coordinating with DOJ, finding that the IRS had coordinated to the extent required.  (Slip. Op. 25-30.)

• The Court rejected Reynolds’ claim that the IRS abused its discretion by not placing the liability in “Currently Not Collectible” (“CNC”) status.  (Slip Op. 33-38.) The opinion offers a good discussion of CNC in the context of deciding this issue.  

* Note:  The Tax Court has a new web site that, so far as I can tell, requires opinions (Slip Ops) to be accessed through the docket sheet for the cases.  (Under the prior web site, opinions could be easily accessed through a database requiring only the entry of the taxpayer’s name.)  Accordingly, I link above to the Slip Op by linking to the docket entries with the docket number that can be linked to the case.

This blog post is cross-posted on my Federal Tax Procedure Blog, here.