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Individual Tax

Settlement Officer did not abuse her discretion in not withdrawing NFTL

Richards, TC Memo 2019-89

The Tax Court has held that a settlement officer (SO) did not abuse her discretion by sustaining the filing of a notice of Federal tax lien (NFTL).

Background. The IRS can impose a lien in favor of the US on all property and rights to property of a taxpayer liable for taxes when a demand for payment of the taxes has been made and the taxpayer fails to pay those taxes. (Code Sec. 6321)

The IRS must furnish the taxpayer with an NFTL within five business days after the notice of lien is filed. (Code Sec. 6320(a))

The taxpayer may request a Collection Due Process (CDP) hearing within 30 days beginning on the day after the 5-day period. (Code Sec. 6320(a)(3)(B))

During the CDP hearing, the IRS may decide to withdraw the NFTL. (Reg. §301.6323(j)-1(c)). In determining whether to withdraw the NFTL, the IRS must (1) verify that the requirements of applicable law and administrative procedure have been met, (2) consider any relevant issue the taxpayer raises that relates to the filing of the NFTL, and (3) determine whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. (Code Sec. 6330(c)(3))

Within 30 days of the IRS issuing a notice of determination, the taxpayer may appeal the determination to the Tax Court. (Code Sec. 6330(d)(1)) Where the validity of the underlying tax liability is not properly in issue, the Tax Court will review the IRS’s determination for abuse of discretion. (Sego, (2000) 114 TC 604)

Facts. Mr. and Ms. Richards jointly filed Forms 1040 for tax years 2009, 2012, and 2015 but failed to pay the amount due for each year.

On February 9, 2017, IRS sent the Richardses a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320, informing them that it had filed an NFTL with respect to their outstanding tax liabilities for tax years 2009, 2012, and 2015.

On March 1, 2017, IRS received from the Richardses a timely Form 12153, Request for Collection Due Process or Equivalent Hearing (CDP hearing request), with respect to NFTL. On the Form 12153, the Richardses checked the “I Cannot Pay Balance” box as a collection alternative. The Richardses requested withdrawal of the NFTL because it would not help them to pay taxes more quickly, it would have a negative impact on their “fragile” credit, and it would prevent them from getting a car loan.

The Richards’s CDP hearing was assigned to an SO.

On March 30, 2017, the SO sent the Richardses a letter stating that the NFTL would remain in place because a negative impact on the Richards’s credit standing did not warrant withdrawal of the NFTL.

On May 3, 2017, the SO held a telephone CDP hearing with Mr. Richards. During the CDP hearing, Mr. Richards again requested that the NFTL be withdrawn because it was impacting his credit. The SO again informed Mr. Richards that a negative impact on a credit standing did not warrant withdrawal of the NFTL.

When the SO asked Mr. Richards whether the NFTL was affecting his ability to earn income, Mr. Richards indicated that it was not because he received only Social Security income.

After finding that the NFTL was not overly intrusive and that none of the conditions for withdrawal pursuant to Code Sec. 6323(j) existed, the SO sustained the NFTL with respect to tax years 2009, 2012, and 2015.

On May 10, 2017, IRS issued to the Richardses a notice of determination.

The Richardses timely filed a petition with the Tax Court for review of the notice of determination.

Decision. The Richardses were not contesting the validity of their underlying tax liabilities for tax years 2009, 2012, and 2015. Accordingly, the Tax Court reviewed the SO’s determination not to withdraw the NFTL for abuse of discretion.

The court’s review of the record confirmed that the SO properly discharged all of the duties under Code Sec. 6330(c)(3) in making her determination.

On their CDP hearing request and during the CDP hearing, the Richardses argued that the NFTL should be withdrawn because it was affecting Mr. Richard’s credit standing and would prevent the Richardses from getting a car loan. The court’s review of the record showed that the SO considered this issue and properly found that, under section Code Sec. 6323(j), none of the conditions that allow the withdrawal of the NFTL applied. The Richards’s bare assertion that the NFTL was negatively affecting their credit was insufficient to establish that lien withdrawal would facilitate collection or would be in the U.S.’s best interests.

The Richardses contended that the SO failed to conduct a proper balancing analysis because she did not consider the totality of circumstances surrounding the negative impact that the NFTL would have on their credit standing and financial conditions. But the court found that, on the basis of the administrative record, it was apparent that the SO duly considered the totality of the Richards’s circumstances and properly performed a balancing analysis.

Finding no abuse of discretion in any respect, the Tax Court sustained the filing of the NFTL.

References: For matters that must be considered in a CDP hearing, see FTC 2d/FIN ¶V-5267United States Tax Reporter ¶63304.

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