                              T.C. Memo. 2019-68



                        UNITED STATES TAX COURT



                      INDUS GROUP, INC., Petitioner v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 15969-17L.                       Filed June 10, 2019.



      Gerald W. Kelly, Jr., Daniel S. Heller, and Vadim D. Ronzhes, for

petitioner.

      Rachel L. Gregory and Bartholomew Cirenza, for respondent.



                          MEMORANDUM OPINION


      LAUBER, Judge: In this collection due process (CDP) case, petitioner

seeks review of the determination by the Internal Revenue Service (IRS or re-

spondent) to uphold a notice of intent to levy. Respondent has moved for sum-

mary judgment, contending that there are no genuine disputes of material fact and
                                         -2-

[*2] that his determination to sustain the proposed collection action was proper as

a matter of law. The question presented is whether the IRS settlement officer (SO)

abused his discretion in declining petitioner’s proposal to discharge its $4,757,745

Federal tax liability by making installment payments of $5,500 per month.1 Find-

ing no abuse of discretion, we will grant respondent’s motion.

                                     Background

      The following facts are based on the parties’ pleadings and motion papers,

including the attached declarations and exhibits. Petitioner had its principal place

of business in Virginia when it timely petitioned this Court.

      Petitioner is a corporation that operates in the information technology con-

sulting industry. Petitioner’s sole shareholder is Ravi Ramanulla. In July 2015

Mr. Ramanulla pleaded guilty to Federal tax crimes. He was ordered to pay resti-

tution in excess of $900,000, and he served four months in Federal custody. He

has a related CDP case pending in this Court. Ramanulla v. Commissioner, T.C.

Dkt. No. 18243-17L (filed Sept. 1, 2017).

      Petitioner employed numerous workers and was required to file employment

tax returns and deposit taxes with respect to their wages. Petitioner failed to file

      1
       All statutory references are to the Internal Revenue Code in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all monetary amounts to the nearest dollar.
                                         -3-

[*3] Forms 941, Employer’s Quarterly Federal Tax Return, and Forms 940,

Employer’s Annual Federal Unemployment (FUTA) Tax Return, for various tax

periods. For most of the periods in question, petitioner also failed to deposit the

employment taxes that were required to be shown on these returns. See sec. 6656.

      The IRS timely assessed petitioner’s Form 941 liabilities for 25 calendar

quarters between March 31, 2008, and December 31, 2015, as well as petitioner’s

Form 940 liabilities for 2008 through 2013. Some of these assessments were

based on substitutes for returns prepared by the IRS. See sec. 6020(b). Some

assessments were based on returns petitioner had filed. The balances due include

penalties under section 6656, failure-to-file additions to tax, and failure-to-pay ad-

ditions to tax. The IRS also assessed a civil penalty under section 6721 for failure

to file correct information returns for 2013. As of May 2016 petitioner’s assessed

but unpaid tax liabilities totaled $4,757,745.

      On May 17, 2016, in an effort to collect these unpaid liabilities, the IRS

mailed petitioner a Letter 1058, Final Notice of Intent to Levy and Notice of Your

Right to a Hearing. Petitioner timely requested a CDP hearing. In its request pe-

titioner checked the boxes “Installment Agreement,” “Offer in Compromise,” and

“I Cannot Pay Balance.” Petitioner stated that it desired a collection alternative
                                         -4-

[*4] and that the levy “would create an undue economic hardship.” Petitioner also

sought “an abatement of penalties based on reasonable cause.”

      After receiving petitioner’s case an SO from the IRS Appeals Office con-

firmed that the tax liabilities and penalties had been properly assessed and that all

other requirements of applicable law and administrative procedure had been met.

On March 27, 2017, the SO mailed petitioner a letter acknowledging receipt of its

hearing request and scheduling a telephone CDP hearing for May 1, 2017.

      The SO informed petitioner that, in order for her to consider a collection al-

ternative, petitioner needed to provide a completed Form 433-B, Collection Infor-

mation Statement for Businesses, supporting financial information, and a specific

proposal for a collection alternative. The SO’s review of petitioner’s account re-

vealed that it had not filed Form 940 for 2016 and had not filed Form 941 for the

first quarter of 2016. The SO asked that petitioner submit proof that it had filed

these delinquent returns. The SO also explained that, if petitioner sought penalty

abatement, it must “provide a written statement with specific information * * * and

grounds for reasonable cause abatement.” The SO requested that petitioner supply

all of this information three weeks before the hearing, i.e., by April 10, 2017.

      The SO did not receive any of the requested information before the hearing.

On May 1, 2017, the day scheduled for the hearing, the SO received a fax from
                                         -5-

[*5] petitioner’s representative that included a proposed installment agreement

offering to pay $5,000 per month, a signed Form 433-B, and copies of the

delinquent Forms 940 and 941. Upon review of petitioner’s financial information

the SO observed certain discrepancies. For example, although petitioner claimed

average monthly expenses of $322,082, it supplied no explanation concerning

$82,719 of these claimed expenses, which the SO regarded as “questionable.”

      At the CDP hearing petitioner did not challenge its underlying liability for

the employment tax liabilities, and it presented no evidence relevant to abatement

of the penalties. Rather, petitioner requested a collection alternative in the form of

an installment agreement. Relying on the financial information accompanying its

Form 433-B, which showed monthly net income of $5,624, petitioner proposed an

installment agreement of $5,000 per month.

      During the hearing petitioner’s representative attempted to answer the SO’s

questions concerning petitioner’s reported income and expenses. The SO was not

satisfied with these responses, and she noted that “there are questions about real

property ownership” that had not been answered. The SO agreed that a revenue

officer would analyze the financial information and be prepared to discuss his

conclusions during a multiparty conference call that the SO scheduled with peti-

tioner’s representative for 2 p.m. on June 12, 2017. This conference call was in
                                        -6-

[*6] tended to address questions concerning petitioner’s case and also concerning

Mr. Ramanulla’s related CDP case.

      Petitioner’s representative did not call in for the 2 p.m. conference call. He

left the SO a voice message at 3:51 p.m. stating that he had “got caught up on

another issue.” Two days later petitioner’s representative submitted another pack-

age of information that included the offer of an increased installment agreement

whereby petitioner would pay $5,500 per month.

      Reviewing the information in petitioner’s file, the SO determined that the

proposed installment agreement should be rejected given the magnitude of the tax

liabilities, petitioner’s “chronic history of noncompliance,” and the lack of credi-

bility surrounding its offer. In making this determination the SO relied in part on

Internal Revenue Manual (IRM) pt. 5.14.7.2(1)(c) (Aug. 5, 2010) advising that

“[t]axpayers identified as repeaters may not immediately be granted installment

agreements.” On June 27, 2017, the IRS issued a notice of determination sustain-

ing the proposed levy, summarizing the SO’s reasoning thus:

      The taxpayer proposed an installment agreement for $5,500 per
      month but was denied due to being a repeater and having a chronic
      history of non-compliance with filing returns and meeting federal
      deposit requirements. In addition, the representative failed to partic-
      ipate in a second conference which was arranged as a 3-way con-
      ference in an effort to facilitate resolution of the account, and pro-
      vided information sporadically and outside of the timeframes estab-
                                        -7-

[*7] lished to allow for adequate review of the taxpayer’s financial situ-
     ation. Thus, the installment agreement proposal also lacked credibility.

                                     Discussion

A.    Summary Judgment Standard

      The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90

T.C. 678, 681 (1988). Under Rule 121(b), we may grant summary judgment when

there is no genuine dispute as to any material fact and a decision may be rendered

as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992),

aff’d, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary judg-

ment, we construe factual materials and inferences drawn from them in the light

most favorable to the nonmoving party. Ibid. However, the nonmoving party may

not rest upon the mere allegations or denials in his pleadings but instead must set

forth specific facts showing that there is a genuine dispute for trial. Rule 121(d);

see Sundstrand Corp., 98 T.C. at 520. We conclude that there are no material facts

in dispute and that this case is appropriate for summary adjudication.2




      2
        Petitioner asserts in its response to the motion for summary judgment that
there are genuine disputes of material fact. Petitioner does not identify what the
disputed material facts are.
                                        -8-

[*8] B.      Standard of Review

      Section 6330(d)(1) does not prescribe the standard of review that this Court

should apply in reviewing an IRS administrative determination in a CDP case.

But our case law tells us what standard to adopt. Where the validity of the taxpay-

er’s underlying tax liability is properly at issue, we review the IRS’ determination

de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). Where (as here)

the taxpayer’s underlying liability is not before us, we review the IRS’ determina-

tion for abuse of discretion only.3 See id. at 182. Abuse of discretion exists when

a determination is arbitrary, capricious, or without sound basis in fact or law. See

Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.

2006).

C.    Analysis

      In deciding whether the SO abused her discretion in sustaining the proposed

levy, we consider whether she: (1) properly verified that the requirements of any

applicable law or administrative procedure have been met, (2) considered any rel-

      3
       Although petitioner in its hearing request mentioned penalty abatement, it
did not address this issue during the CDP hearing or in its petition, and it submit-
ted no evidence concerning reasonable cause despite the SO’s request that it do so.
Petitioner is thus precluded from disputing its liability for the penalties in this
Court. See Thompson v. Commissioner, 140 T.C. 173, 178 (2013) (“A taxpayer is
precluded from disputing the underlying liability if it was not properly raised in
the CDP hearing.”); sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.
                                          -9-

[*9] evant issues petitioner raised, and (3) determined whether “any proposed

collection action balances the need for the efficient collection of taxes with the

legitimate concern of * * * [petitioner] that any collection action be no more

intrusive than necessary.” See sec. 6330(c)(3). Our review of the record

establishes that the SO properly discharged all of her responsibilities under section

6330(c).

      Petitioner contends that the SO did not properly consider its request for a

collection alternative in the form of an installment agreement.4 Section 6159(a)

authorizes the IRS to enter into a written agreement allowing a taxpayer to pay a

tax liability in installments “if the Secretary determines that such agreement will

facilitate full or partial collection of such liability.” Subject to an exception not

relevant here, the decision to accept or reject an installment agreement lies within

      4
        In its hearing request petitioner also indicated a desire for a offer-in-com-
promise (OIC). But it did not submit a completed Form 656, Offer in Compro-
mise, or otherwise pursue an OIC with the SO. “There is no abuse of discretion
when Appeals fails to consider an offer-in-compromise when a Form 656 was not
submitted to Appeals.” Gentile v. Commissioner, T.C. Memo. 2013-175, 106
T.C.M. (CCH) 75, 77, aff’d, 592 F. App’x 824 (11th Cir. 2014). In its hearing re-
quest petitioner asserted that the levy “would create an undue economic hardship,”
apparently referring to section 6343(a)(1)(D). But “economic hardship” relief
from a levy is available only to individual taxpayers, not to corporations. See
Lindsay Manor Nursing Home, Inc. v. Commissioner, 148 T.C. 235 (2017), vaca-
ted on other grounds, 725 F. App’x 713 (10th Cir. 2018); sec. 301.6343-1(b)(4)(i),
Proced. & Admin. Regs. In any event petitioner has not advanced that argument
in this Court.
                                        - 10 -

[*10] the Commissioner’s discretion. See Thompson v. Commissioner, 140 T.C.

173, 179 (2013); sec. 301.6159-1(a), (c)(1)(i), Proced. & Admin. Regs.; see also

Rebuck v. Commissioner, T.C. Memo. 2016-3; Kuretski v. Commissioner, T.C.

Memo. 2012-262, aff’d, 755 F.3d 929 (D.C. Cir. 2014).

      This Court gives due deference to the determinations the SO makes in the

exercise of this discretionary authority. See Woodral v. Commissioner, 112 T.C.

19, 23 (1999); Marascalco v. Commissioner, T.C. Memo. 2010-130, aff’d, 420 F.

App’x 423 (5th Cir. 2011). We will not substitute our judgment for that of the SO,

recalculate a taxpayer’s ability to pay, or independently determine what would be

an acceptable collection alternative. See Thompson, 140 T.C. at 179; Murphy,

125 T.C. at 320; O’Donnell v. Commissioner, T.C. Memo. 2013-247, 106 T.C.M.

477, 481; Lipson v. Commissioner, T.C. Memo. 2012-252, 104 T.C.M. (CCH)

262, 264. Rather, our review is limited to determining whether the SO abused her

discretion, that is, whether her decision to reject the taxpayer’s proposal was arbi-

trary, capricious, or without sound basis in fact or law. See Thompson, 140 T.C.

at 179; Murphy, 125 T.C. at 320. If the SO “followed all statutory and administra-

tive guidelines and provided a reasoned, balanced decision, the Court will not re-

weigh the equities.” Thompson, 140 T.C. at 179.
                                        - 11 -

[*11] Petitioner’s final proposal was an installment agreement under which it

would pay $5,500 per month, relying on financial information reporting average

net income of $5,624 per month. The SO questioned that premise, noting the lack

of support for almost $83,000 of monthly expenses and uncertainty concerning the

ownership of real property. The SO assigned a revenue officer to analyze peti-

tioner’s financial situation and discuss his conclusions during a three-way confer-

ence call. Petitioner did not call in for that conference call, continuing a pattern of

noncompliance with deadlines the SO had set for submitting and reviewing peti-

tioner’s financial information.

      The SO noted that petitioner had a “chronic history of non-compliance” ex-

tending over a period of at least eight years. The IRS had contacted petitioner reg-

ularly during that period but had “received excuses and promises but no tax re-

turns,” with petitioner “return[ing] calls only when action was imminent.” The SO

accurately characterized petitioner as a repeat offender and cited an IRM provision

advising that “[t]axpayers identified as repeaters may not immediately be granted

installment agreements.” IRM pt. 5.14.7.2(1)(c); see IRM pt. 5.7.8.2, 5.7.8.3

(Mar. 9, 2017). An SO does not abuse her discretion by adhering to IRM provi-

sions governing acceptance of collection alternatives. See Veneziano v. Commis-

sioner, T.C. Memo. 2011-160, 102 T.C.M. (CCH) 22, 24; Etkin v. Commissioner,
                                        - 12 -

[*12] T.C. Memo. 2005-245, 90 T.C.M. (CCH) 417, 421; Schulman v.

Commissioner, T.C. Memo. 2002-129, 83 T.C.M. (CCH) 1738, 1742 n.6.

      Petitioner’s outstanding tax liabilities when the SO closed the case totaled

$4,757,745, and petitioner proposed to discharge these liabilities by paying $5,500

per month. Petitioner did not submit an OIC, and it was not proposing a “partial

pay” installment agreement, which would be subject to special procedures.5 Given

the magnitude of petitioner’s outstanding liability, coupled with its history of non-

compliance, the SO did not abuse her discretion in concluding that petitioner’s

overall proposal “lacked credibility.” We will therefore grant summary judgment

for respondent and sustain the proposed collection action.

      To implement the foregoing,


                                                 An appropriate order and decision

                                       will be entered for respondent.




      5
        The IRS may enter into a partial payment installment agreement (PPIA)
when full payment cannot be achieved within the statutory collection period. IRM
pt. 5.14.2.1 (Mar. 11, 2011). However, before a PPIA may be approved a number
of additional requirements must be met, including an investigation of whether the
taxpayer can sell or borrow against assets in order to make payments. IRM pt.
5.14.2.1.1 (Sept. 19, 2014).
