• Vinatieri - Sea Change or Passing Ripple
  • August 20, 2010 | Author: Daniel L. Britt
  • Law Firm: Britt & Associates Attorneys, LLC - Atlanta Office
  •  At first glance, the United States Tax Court Decision in Vinatieri v. Commissioner, 133 T.C.       (2009), appears to be a marked departure from prior collection standards.  But, whether it marks a significant change in law and practice or will be limited to its particular facts, remains to be seen.  In Vinatieri, a pro se taxpayer filed a petition for review of the IRS settlement officer’s determination to proceed with a levy for unpaid 2002 taxes.  Following long standing practice reflected in its Internal Revenue Manual (IRM), the IRS settlement officer had determined that the taxpayer was not eligible for collection alternatives because the taxpayer had not filed returns for tax years 2005 and 2007.  On appeal to the Tax Court, the IRS filed a motion for summary judgment.  Based upon the record, the Tax Court found that levy would create economic hardship for the taxpayer due to her financial condition and that despite the taxpayer’s failure to file all required tax returns the settlement officer’s decision to sustain the levy was wrong as a matter of law and an abuse of discretion.  

    In 2007, Ms. Vinatieri learned of a proposed levy by the IRS on her wages for unpaid 2002 taxes.  She filed a timely request for a hearing.  As the case proceeded, she explained to the IRS settlement officer that she suffered pulmonary fibrosis, was dying, and only worked part time.  She submitted a Form 433A showing no funds available from her $800 monthly wages and virtually no assets for liquidation. 

    At first, the settlement officer recognized Ms. Vintieri’s dire financial condition and said the account might be placed in “currently not collectible” status.  However, the settlement officer still sustained the proposed levy because Ms. Vinatieri had not filed her 2005 or 2007 tax returns.  Since Ms. Vinatieri was not compliant, the settlement officer summarily decidded Ms. Vinatieri was not eligible for a collection alternative.[1] 

    Ms. Vinatieri filed an appeal of that determination to the Tax Court.  The Commissioner moved for summary judgment arguing the taxpayer’s non-compliance barred relief under its IRM.[2]  Observing the taxpayer’s dire economic situation, the Tax Court ordered the taxpayer to file a response and urged her to contact legal aid and the local bar going to far as to provide contact information.  The taxpayer was unable to travel to secure legal assistance and filed her response pro se.  Her response restated her dire financial condition. 

    In denying the Commissioner’s motion for summary judgment, the Tax Court focused upon I.R.C. §6343 (a)(1) which requires the IRS to release a levy if the levy creates an economic hardship due to the financial condition of the taxpayer.[3]  Next the Court applied that hardship standard to I.R.C. §6330(a) which gives a taxpayer a right to a hearing before a levy is enforced.   

    Applying the abuse of discretion standard, the Tax Court determined that in this taxpayer’s circumstances the proposed levy would create an economic hardship therefore “the settlement officer should consider alternatives to the levy.”   In reaching its decision, the Tax Court surveyed a number of other cases in which the Court had found the Commissioner’s policy requiring compliance to be reasonable.  In those cases, those taxpayers had sufficient income to meet basic living expenses, had assets which could be liquidated to pay the liability in whole or in part, or had not submitted financial information to support the claim of financial hardship. 

    In conclusion, Judge Dawson held that the IRS’ blanket refusal to consider any collection alternative simply because the taxpayer had not filed all required tax returns was as a matter of law an abuse of discretion if the record showed that the levy would result in a financial hardship to the taxpayer. 

    Since Vinatieri, which was decided December 21, 2009, the Tax Court has cited Vinatieri in four cases.  In all four, the Tax Court distinguished Vinatieri and decided for the Commissioner.  In all four, the individual taxpayers were not compliant with filing and had not provided financial information to the hearing officer.  In three of the four, the taxpayers made frivolous arguments which clearly detracted from their claim of economic hardship.  The four cases citing Vinatieri are:

    - Doose v. Commissioner, T.C. Memo. 2010-18, No. 29738-08L (February 1, 2010), Decision for Commissioner.  Taxpayer argued economic hardship but her other frivolous arguments undermined that possibly meritorious issue.

    - Constantine v. Commissioner, T.C. Summary Opinion 2010-24, No. 27172-07S (March 2, 2010), Summary judgment granted to Commissioner.  Taxpayer failed to submit financial information, and presented frivolous arguments at first and second hearings.

    - Coleman v. Commissioner, T.C. Memo. 2010-51, No. 4740-09L (March 18, 2010), Summary judgment granted to Commissioner.  Taxpayer did not submit financial information despite time to do so before and after hearing.[4] 

    - Pitts v. Commissioner, T.C.Memo. 2010-101, 050610 FEDTAX, No. 6463-09L (May 6, 2010), decision for Commissioner.  Appeals Officer did not abuse discretion refusing to conduct a face to face hearing and denying currently uncollectible status.  Taxpayer had refused to submit Form 433A with a frivolous objection under Paperwork Reduction Act. 

    It is abundantly clear from these subsequent cases that a taxpayer must submit a timely Form 433A, 433B, or 433F to substantiate his or her economic hardship and propose a viable collection alternative consistent with his or her economic circumstances. 

    Apart from whether the economic hardship exception to the IRM requirement that a taxpayer be compliant with regard to his or her subsequent tax returns, it remains to be seen whether this economic hardship exception should also apply to the failure of a taxpayer to make timely subsequent deposits.  At present, the IRS will not consider collection alternatives for taxpayers who have failed to make timely estimated tax deposits or have unpaid balances at the time of filing.[5]  

    The requirement of timely federal tax deposits prior to consideration of collection alternatives seems to fly in the face of the economic hardship exception of I.R.C. §6343 (a)(1) as applied in Vinatieri.  If a taxpayer’s financial circumstances are such that he or she would suffer hardship if the Service levied upon his or her assets, then clearly he or she would likely be unable to make subsequent period deposits.  That issue remains unanswered. 

    Even so, one observer, Hale E. Sheppard, writing in Journal of Tax Practice & Procedure, February, 2010, p. 37, argues the Tax Court itself underscored the significance of its decision in Vinatieri:  


    "The taxpayer’s election was initially respected; however, the Tax Court, on its own accord, later issued an order converting the case from a small case to a regular one.  Why the change of status? According to the Tax Court, it realized that “the issues presented in [Vinatieri] may provide precedent for the disposition of a number of other cases,” so characterization as a small case, which would preclude it from being cited by other taxpayers as binding legal precedent, would be inappropriate." at p. 41.


    Thus Vinatieri was intended by the Court to be and is available as precedent. 

    Whether Vinatieri will be limited to its facts or mark a change in IRS Collections practices remains to be seen.  However, its message to the practitioner is clear.  First, substantiate the taxpayer’s financial condition with the hearing officer.  An accurate, current, and complete Form 433A, 433B, or 433F Statement of Financial Condition is essential.  Second, offer of a viable collection alternative consistent with the taxpayer’s financial condition.  And finally, do not make frivolous arguments.   Otherwise, the Tax Court will have no basis in the record to review the case for economic hardship.


    © 2010 Daniel L. Britt, Jr.

                   [1]Collections alternatives include currently not collectible status, installment agreements, partial payment installment agreements, and offers in compromise.

                    [2]IRM § (4)-(6) (Sept. 26, 2008) (installment agreements); IRM §, (2), (4) (Sept. 23, 2008) (offers-in-compromise); IRM § (8) (May 5, 2009) (currently not collectible); and IRM §  (06-02-2004) (June 2, 2004) (General Collection Procedures - Full Compliance Check).

                    [3]This relief is only available to individuals.   Estate of Atkinson v. Commissioner, T.C. Memo. 2007-89. 

                    [4]Apparently the taxpayer in Coleman requested additional time to submit the financial information at the hearing.  But, the taxpayer had ignored two letters prior to the hearing requesting the financial information.  The Tax Court observed that the taxpayer had also received a de facto extension because the hearing officer did not issue the letter of determination for fifteen weeks after the hearing and it is the IRS policy to consider all information up to the date of the determination letter.

                    [5]See Timely payment of estimated taxes and federal tax deposits.  IRM §  (06-02-2004) (June 2, 2004) (General Collection Procedures - Full Compliance Check).