Proposed Tax Levy Sustained to Collect from Non-Compliant Former Harvard Professor

Eli Noff, Esq., Partner
Mary F. Lundstedt, Esq., Associate

On November 19, 2019, in Sullivan v. Commissioner,[1] the Tax Court held that the IRS settlement officer (SO) did not abuse discretion in sustaining levies for Harvard law professor (Taxpayer) who had not filed tax returns from 2005-2013, and who subsequently neglected to provide the IRS with any financial documents. Taxpayers should learn from this case that filing compliance and maintaining communication with the IRS are essential in order to prevent IRS levies and achieve a satisfactory resolution instead.

Facts

Taxpayer, already notorious for having been dismissed from his Harvard faculty role after representing Harvey Weinstein, did not file tax returns for tax years 2005-2013. As expected, using third-party information reporting, the IRS eventually prepared substitutes for returns (SFRs) on his behalf for tax years 2012 and 2013.

Subsequently, based on the SFRs, the IRS issued statutory notices of deficiency for tax years 2012 and 2013. These notices were sent via certified mail to Taxpayer's last known address. The 2013 notice of deficiency was returned to the IRS as "undeliverable." Taxpayer failed to petition the Tax Court about either notice. Thus, the IRS proceeded to assess the tax as determined in each SFR.

In May of 2017, the IRS issued to Taxpayer a Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice). At the time of the levy notice, the liability for tax years 2012 and 2013 was over $1 million dollars.

Petitioner timely filed the appropriate Form 12153, Request for a Collection Due Process or Equivalent Hearing, indicating that he could not pay the balance. He specified that, particularly regarding tax year 2013, he had not earned enough money to account for a $1.2 million tax.

In July of 2017, the IRS sent him a letter advising Taxpayer that he must file federal income tax returns for tax years 2012-2015 in order to be eligible for a collection alternative. Additionally, the IRS letter indicated that he would need to provide a completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals. Taxpayer neither responded to this letter, nor did he provide the requested documents.

Ultimately, the case was assigned to an SO in the IRS Appeals Office. The SO confirmed that the liabilities had been properly assessed and sent a letter to Taxpayer-scheduling a telephone Collection Due Process (CDP) hearing that November. The SO's letter also reminded Taxpayer that returns must be filed and financial information submitted in order for the SO to consider any collection alternative.

Taxpayer did not call for the scheduled hearing, and he did not provide any returns or other requested materials.

The SO sent a so-called "last chance" letter, providing an additional 14 days from the date of the previously scheduled hearing for Taxpayer to provide returns and financial information. This last chance letter was clear that if Taxpayer failed to provide information, then SO would make her determination on the basis of the administrative file. Petitioner did not respond to this letter either.

In February of 2018, the SO closed the matter and issued a notice of determination sustaining the levy.

Taxpayer timely petitioned the Tax Court for redetermination and stated that he disagreed with the determination because he: (1) didn't receive notice of hearings or meetings, (2) didn't receive notice that SFRs were filed or notice of a way to correct that, and (3) could not have earned enough to owe that much tax.

In April of 2019, the Tax Court directed Taxpayer to provide the IRS with a statement showing income received for tax years 2012 and 2013, as well as the dollar amount of deductions to which Taxpayer claims he was entitled. The Taxpayer was given until June 15, 2019, to provide the information-but he failed to provide anything.

When the IRS notified Taxpayer that it intended to file a motion for summary judgment, Taxpayer replied that he would provide documents by June 28, 2019-but he didn't.

The IRS filed a motion for summary judgment on July 31, 2019. Taxpayer filed no response.

Applicable Law and Analysis

Per Internal Revenue Code (IRC) §6330(c)(2)(B), a taxpayer may raise a CDP challenge pertaining to the underlying tax liability if taxpayer did not receive a statutory notice of deficiency for the liability or otherwise lacked the opportunity to challenge it.

The Tax Court noted that Taxpayer claimed he didn't receive the notices of deficiency, and, indeed, the notice for 2013 was returned as "undeliverable." As such, the Tax Court proceeded with its analysis under the assumption that Taxpayer did not receive either notice of deficiency.[2]

However, even working under this assumption, the Tax Court emphasized that Taxpayer's right to dispute his underlying liabilities at the CDP hearing "carried with it certain obligations on his part."[3] Specifically, the court stated that a taxpayer can not challenge his underlying liability in Tax Court if it had not already been properly raised in the CDP hearing.[4] Additionally, the Tax Court clarified that if a taxpayer doesn't present any relevant evidence to Appeals, then the issue is not considered properly raised.[5]

The Tax Court considered that Taxpayer acknowledged the hearing request, and thereafter the IRS offered him multiple opportunities to provide returns to show what Taxpayer believed to be correct tax liabilities. Taxpayer failed to provide returns or any information or communications whatsoever. The Tax Court stated that:

Because he supplied no evidence relevant to his underlying tax liabilities despite being given multiple opportunities to do so, he did not advance a proper challenge to those liabilities at the Appeals Office. He is thus precluded from advancing that challenge in this Court.[6]

Furthermore, the Tax Court found no abuse of discretion on the SO's part, noting that she properly carried out all of her IRC §6330(c) responsibilities. The Tax Court was clear that even if Taxpayer had proposed a collection alternative, she could have rejected it simply because Taxpayer was not in compliance with filing obligations.

The Tax Court concluding by explaining that Taxpayer is still able to propose a payment plan or offer-in-compromise - but, again, Taxpayer must become compliant with his filing obligations and provide necessary financial information.

Conclusion

Taxpayers who find themselves in a predicament comparable to that of the former Harvard law professor, here, are encouraged to seek help from an experienced tax attorney. Remember, if you are not compliant with filing obligations and if you fail to actively engage in communications with the IRS, you will only make your situation worse.

A skilled tax attorney can help you fulfill your compliance obligations, effectively advocate on your behalf when communicating with the IRS, and guide you through the financial disclosure process, if necessary.

If you have tax questions or concerns, call Frost & Associates, LLC today at 410-497-5947.


1 T.C. Memo 2019-153 (Nov. 19, 2019).

2 Note that a taxpayer who receives a statutory notice of deficiency, and does nothing about it, will not even be able to challenge that liability in a CDP hearing.

3 Id. at 8.

4 Id. at 8, citing Thompson v. Commissioner, 140 T.C. 173, 178 (2013).

5 Id. at 9, citing Moriarty v. Commissioner, T.C. Memo. 2017-204, 114 T.C.M. (CCH) 441, 443.

6 Id. at 10.

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