RUWE, Judge:
This proceeding was commenced in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330.
FINDINGS OF FACT
At the time the petition was filed, petitioner resided in New Jersey. Petitioner is the president of Compliance Innovations, Inc., which is owned by a trust. Petitioner and his wife are the trustees.
Petitioner has been a member of the Church of Jesus Christ of Latter-Day Saints (Church) his entire life and has regularly contributed 10% of his monthly income to the Church. Petitioner is actively involved in the Church and holds a position as a shift coordinator in the Church's Manhattan Temple. Additionally, petitioner is a stake scouting coordinator for the Church and is responsible for overseeing six scout troops in different congregations in New Jersey. Petitioner was not compensated by the Church for his shift coordinator or stake scouting coordinator responsibilities.
At the time petitioner submitted his Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, he was married and had five children. At that time, petitioner had a child enrolled in Brigham Young University and a child enrolled in Sacred Heart University.
CDP Period Section 6672 Penalties
On January 7, 2008, respondent assessed trust fund recovery penalties pursuant to section 6672 against petitioner for employment tax liabilities owed by Compliance Innovations, Inc., of $45,615.67, $23,091.60, $37,269.90, and
Respondent sent petitioner a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing, dated June 4, 2008, advising him that respondent intended to levy to collect the unpaid CDP period tax penalties and that petitioner could request a hearing with respondent's Office of Appeals. Respondent sent petitioner a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320, dated June 19, 2008, advising him that a notice of Federal tax lien (NFTL) had been filed with respect to his unpaid CDP period tax penalties and that he could request a hearing with respondent's Office of Appeals. Petitioner timely submitted Forms 12153, Request for a Collection Due Process or Equivalent Hearing, in which he did not contest the amounts of the underlying CDP period tax penalties. By letter dated August 26, 2008, respondent's settlement officer
Petitioner's Non-CDP Period Tax Liabilities
Respondent had previously assessed trust fund recovery penalties pursuant to section 6672 against petitioner for employment tax liabilities owed by Compliance Innovations, Inc., for the periods ending December 31, 1999, and June 30 and September 30, 2000. Additionally, respondent had previously assessed income tax liabilities owed by petitioner and his wife for the taxable years 1992, 1995, 1996, 1999, and
Proceedings Before IRS Appeals
On September 19, 2008, petitioner's counsel requested a partial payment installment agreement that would encompass all of petitioner's tax liabilities and penalties for the CDP and non-CDP periods. The Internal Revenue Service (IRS) settlement officer requested that petitioner submit a Form 433-A. Petitioner submitted the Form 433-A on February 11, 2009. The Form 433-A reported that petitioner had a monthly income of $27,633 ($331,596 per year) and monthly expenses of $24,416 ($292,992 per year). Included in the total monthly expenses were "other expenses" of $5,294, which consisted of: (1) Church tithing expenses of $2,110; (2) Church service expenses of $232; and (3) college expenses of $2,952.
Allowed expenses Amount
Food, clothing, and miscellaneous $2,680
Housing and utilities 1 4,619
Transportation 1,538
Health care 1,122
Court-ordered alimony 600
Life insurance 117
Taxes 2 8,568
______
Total 19,244
1 The $4,619 allowed for housing and utilities was in excess
of the amount listed on the IRS' national standard guidelines.
2 These are current taxes and do not include the unpaid tax
liabilities and penalties for the CDP and non-CDP periods.
The settlement officer determined that petitioner's claimed "other expenses" of $5,294 did not qualify as necessary expenses under the guidelines of the Internal Revenue Manual. As a result, the settlement officer determined that petitioner could afford a partial payment installment agreement with a monthly payment of $8,389.
Respondent then issued petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/ or 6330, dated April 8, 2009, sustaining the filing of the NFTL and the proposed levy action. Petitioner timely filed a petition with this Court.
OPINION
Section 6331(a) provides that if any person liable to pay any tax neglects or refuses to pay such tax within 10 days after notice and demand for payment, then the Secretary is authorized to collect such tax by levy upon the person's property. Section 6331(d) provides that, at least 30 days before
Section 6321 provides that if any person liable to pay any tax neglects or refuses to do so after demand, the amount shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person. Section 6323 authorizes the Commissioner to file an NFTL. Pursuant to section 6320(a) the Commissioner must provide the taxpayer with notice of and an opportunity for an administrative review of the propriety of the NFTL filing. See Katz v. Commissioner, 115 T.C. 329, 333 (2000).
Under certain circumstances a taxpayer may raise challenges to the underlying liabilities. See sec. 6330(c)(2)(B). If a taxpayer requests a CDP hearing in response to an NFTL or a notice of intent to levy, he may also raise at that hearing any other relevant issue relating to the unpaid tax or the proposed levy or lien. Secs. 6330(c)(2), 6320(c). Relevant issues include possible alternative means of collection such as an installment agreement. Sec. 6330(c)(2)(A)(iii).
If a taxpayer's underlying liability is properly at issue, the Court reviews any determination regarding the underlying liability de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). Petitioner has the burden of proof regarding his underlying liabilities. See Rule 142(a). A taxpayer is precluded from disputing the underlying liability if it was not properly raised in the CDP hearing. See Giamelli v. Commissioner, 129 T.C. 107, 114 (2007). Petitioner did not raise issues regarding the existence or amounts of his underlying tax penalties for the CDP period or his tax liabilities and penalties for the non-CDP period in either his request for a CDP hearing or his petition. Consequently, petitioner's underlying tax liabilities and penalties are not properly before the Court.
The Court reviews administrative determinations by the Commissioner's Office of Appeals regarding nonliability issues for abuse of discretion. Hoyle v. Commissioner, 131 T.C. 197, 200 (2008); Goza v. Commissioner, 114 T.C. at 182. The determination of the Office of Appeals must take into consideration: (1) the verification that the requirements of applicable law and administrative procedure have been met;
The Court does not make an independent determination of what would be an acceptable collection alternative. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006); Lipson v. Commissioner, T.C. Memo. 2012-252, at *9. The extent of our review is to determine whether the settlement officer's decision was arbitrary, capricious, or without sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. at 320. If the settlement officer followed all statutory and administrative guidelines and provided a reasoned, balanced decision, the Court will not reweigh the equities. See Lipson v. Commissioner, at *9 (citing Fifty Below Sales & Mktg., Inc. v. United States, 497 F.3d 828, 830 (8th Cir. 2007)).
Section 6159 authorizes the Commissioner to enter into written agreements allowing taxpayers to pay tax in installment payments if he deems that the "agreement will facilitate full or partial collection of such liability." The decision to accept or reject installment agreements lies within the discretion of the Commissioner.
In evaluating a taxpayer's ability to pay, the Commissioner classifies a taxpayer's expenses into two categories: (1) necessary expenses and (2) conditional expenses. Pixley v. Commissioner, 123 T.C. 269, 272 (2004); IRM pt. 5.14.2.1.1(4) (Sept. 26, 2008). "The total necessary expenses establish the
Issue 1. Tithing
This issue involves whether petitioner's asserted religious obligation to tithe can trump his obligation to pay substantial amounts of delinquent penalties and taxes in a reasonably prompt manner. Petitioner introduced evidence, including a biblical passage from the Old Testament, to support his position. See Malachi 3:8-10. This brings to mind another biblical passage suggesting an answer to this type of dilemma: "Render therefore to Caesar the things that are Caesar's, and to God the things that are God's." Matthew 22:21. However, even this formulation presents the dilemma of determining which things fall into the two respective categories. While we may be incapable of determining what belongs to God, we believe that we can, and must, decide what is Caesar's. Therefore, we will consider this issue using the latter approach based on existing procedures and precedents.
Petitioner argues that the settlement officer abused her discretion by classifying his tithing as a conditional expense in determining the amount he could afford to pay in a partial payment installment agreement. Petitioner makes three separate arguments. First, petitioner argues that given his positions in the Church, tithing is required by the Internal Revenue Manual to be treated as a necessary expense. Second, petitioner argues that classifying his tithing as a conditional expense is a violation of his rights under the Free Exercise Clause of the First Amendment. Third, petitioner argues that classifying his tithing as a conditional expense is a violation of the Religious Freedom Restoration Act of 1993. Respondent disagrees with each of petitioner's arguments. We will discuss each of petitioner's arguments in turn.
An expense must satisfy the necessary expense test to be considered a necessary expense. See IRM pt. 5.15.1.7. The necessary expense test has two prongs, one of which must be satisfied in order for an expense to be considered a necessary expense. The expense must provide for either (1) the taxpayer's health and welfare or (2) the taxpayer's production of income. See id.
Petitioner did not receive compensation for his positions in the Church. As a result, his tithing payments are not for the production of income. Petitioner has failed the second prong of the necessary expense test. Therefore, to be considered a necessary expense the tithing payments must satisfy the first prong of the necessary expense test; i.e., provide for petitioner's "health and welfare". See id. pt. 5.15.1.7(1).
Petitioner relies on a part of the Internal Revenue Manual that specifically discusses whether a minister's
1. Employment
Petitioner argues that the tithes are necessary expenses because tithing is a condition of petitioner's "employment" with the Church, notwithstanding the fact that petitioner received no financial remuneration for his positions with the Church. Respondent disagrees.
Petitioner testified that he is "employed" by the Church as a shift coordinator and stake scouting coordinator. At trial petitioner testified that he must tithe in order to maintain these positions with the Church. Petitioner produced a letter
Petitioner argues that the term "employment" in the Internal Revenue Manual is not limited to compensated employment and can include uncompensated employment. Petitioner cites a dictionary which defines employment as an "[a]ctivity in which one engages and employs his time and energies". Webster's Third New International Dictionary 743 (2002). Respondent cites a different dictionary that defines employment as "[w]ork for which one has been hired and is being paid by an employer." Black's Law Dictionary 566 (8th ed. 2004).
We note that no case has specifically decided whether the term "employment" as used in IRM pt. 5.15.1.10 is limited to compensated employment or can include uncompensated employment. IRM pt. 5.15.1.10 provides that expenses can meet the requirements for being a necessary expense if they provide for the health and welfare of the taxpayer or they are for the production of income and instructs settlement officers to review the minister's employment contract. Employment is generally connected with the production of income. The parts in the Internal Revenue Manual allowing charitable contributions made as a "condition of employment" apply to a broad range of people including ministers, business executives, and employees. See id. ex. 5.15.1-1 Q&A (1). Petitioner's interpretation of the Internal Revenue Manual would seem to allow the expenses associated with any uncompensated activity as a necessary expense. This would make no sense.
On the other hand, the Commissioner's compelling interest in collecting taxes would be harmed if a minister, or any other taxpayer, loses his entire income as a result of the Commissioner not allowing a taxpayer to tithe a portion of his income if tithing is required to receive the income. As a result, the Internal Revenue Manual instructs settlement
2. Health and Welfare
Petitioner also argues that tithing is a necessary expense because it provides for his and his family's "health and welfare" as that phrase is used in Internal Revenue Manual pt. 5.15.1.7(1). Respondent disagrees.
Petitioner testified that not being able to tithe would negatively affect his spiritual welfare. Additionally, petitioner testified that losing his positions with the Church would be a blow to his and his family's welfare. Petitioner argues that the term "health" includes spiritual health and that since his tithing uplifts his spiritual health, his tithing is a necessary expense. Respondent disagrees.
Petitioner provided no evidence of specific spiritual benefits that would be affected whether or not he tithed. Petitioner cited no cases that support his argument that the phrase "health and welfare" in the Internal Revenue Manual encompasses a taxpayer's spiritual health and welfare. Respondent cited Freeman v. Commissioner, 320 Fed. Appx. 651, 652 (9th Cir. 2009), aff'g T.C. Dkt. No. 10251-06L (May 24, 2007) (bench opinion), an unpublished opinion that affirmed a bench opinion of this Court. Freeman was a collection due process proceeding where the Commissioner had filed an
We find that it was reasonable for the settlement officer to interpret the phrase "health and welfare" so as to not include petitioner's "spiritual" health and welfare. Indeed, it would generally be inappropriate for the Commissioner or this Court to make determinations concerning what is or is not necessary for a particular person's religious or "spiritual" health or welfare. See Hernandez v. Commissioner, 490 U.S. 680, 693-694 (1989), for a discussion of the problems of entanglement between church and State if the Government were required to delve into spiritual matters.
B. Free Exercise of Religion
Petitioner argues that the settlement officer's classification of his tithing as a conditional expense violates the Free Exercise Clause of the First Amendment because if he is not able to tithe then his Church will require him to resign his ministerial positions with the Church. Petitioner contends that the settlement officer's classification of petitioner's tithe as a conditional expense is tantamount to the settlement officer deciding who can be a minister in petitioner's Church.
The First Amendment to the Constitution provides that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof". Petitioner is correct that the Free Exercise Clause prevents the Government
Paying taxes "is a burden, common to all taxpayers, on their pocketbooks, rather than a recognizable burden on the free exercise of their religious beliefs." Pixley v. Commissioner, 123 T.C. at 274. "Constitutional protection of fundamental freedoms `does not confer an entitlement to such funds as may be necessary to realize all the advantages of that freedom.'" Id. (quoting Harris v. McRae, 448 U.S. 297, 318 (1980)). Petitioner is not entitled by the Constitution to be relieved of paying his substantial delinquent tax liabilities and penalties in order to pay his tithe. Requiring petitioner to pay taxes may result in his having less money to tithe. However, this is not a violation of the Free Exercise Clause. See id. at 275 (the Commissioner's classification of the taxpayer's tithing expenses as conditional expenses did not violate the Free Exercise Clause); see also Hernandez v. Commissioner, 490 U.S. at 700 ("[P]etitioners' claimed exemption stems from the contention that an incrementally larger tax burden interferes with their religious activities.
Petitioner's position would allow religious organizations to control vital Government functions. This is not the intention or purpose of the Free Exercise Clause of the First Amendment. Rather, it prohibits the Government from exercising control over religious functions. Laws of general applicability that require persons to meet certain general requirements of citizenship, such as paying taxes, cannot be avoided by the fact that they indirectly make it more difficult to fulfill a purely religious duty, such as a member tithing a certain amount to his church or making a pilgrimage to a shrine in a foreign country. See United States v. Lee, 455 U.S. 252, 260 (1982); Pixley v. Commissioner, 123 T.C. at 274-275; Adams v. Commissioner, 110 T.C. 137, 139 (1998), aff'd, 170 F.3d 173 (3d Cir. 1999). "`[T]he tax system could not function if denominations were allowed to challenge the tax system' on the ground that it operated in a manner that violates their religious belief." Hernandez v. Commissioner, 490 U.S. at 700 (quoting United States v. Lee, 455 U.S. at 260). Accordingly, we hold that the settlement officer did not violate petitioner's rights under the Free Exercise Clause by classifying his tithing as a conditional expense.
C. Religious Freedom Restoration Act of 1993
Petitioner argues that not classifying tithing as a necessary expense violates the Religious Freedom Restoration Act of 1993 (RFRA). The RFRA provides:
Petitioner argues that a partial payment installment agreement with a $3,000 monthly payment would have been the
The Commissioner has a compelling interest in collecting taxes and in administering the tax system, which petitioner concedes. See Adams v. Commissioner, 110 T.C. at 139 ("[M]andatory participation in the Federal income tax system, irrespective of religious belief, is a compelling governmental interest."); see also Hernandez v. Commissioner, 490 U.S. at 699-700 (the Government has a "`broad public interest in maintaining a sound tax system,' free of `myriad exceptions flowing from a wide variety of religious beliefs'" (quoting United States v. Lee, 455 U.S. at 260)).
For purposes of this case we will assume, without deciding, that the refusal to allow tithing as a necessary expense substantially burdens petitioner's exercise of religion.
The RFRA does not require the Government to diminish its compelling interest; it is required only to use the least restrictive means to further its compelling interest. See 42 U.S.C. sec. 2000bb-1(b)(2). The fact that there is a less restrictive means than that used by respondent does not violate the RFRA if the less restrictive means requested by petitioner does not further respondent's compelling interest.
The Commissioner's interest in expeditiously collecting taxes is especially compelling given the specific facts of this case. Petitioner has a long history of not paying his income tax liabilities. As of the date of trial petitioner still had not paid his income tax liabilities for the taxable years 1992, 1995, 1996, 1999, and 2000. Additionally, respondent has assessed trust fund recovery penalties under section 6672 against petitioner for seven different tax periods. Trust fund recovery penalties are assessed against any "person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or payment thereof". Sec. 6672(a); see Thompson v. Commissioner, T.C. Memo. 2012-87, 2012 Tax Ct. Memo LEXIS 88, at *6. We note that one of the trust fund recovery penalties was for a tax period that occurred after petitioner had entered into a previous installment agreement with respondent. Given petitioner's history of not paying his own income taxes, his willfully failing to collect and/or pay over taxes that should have been withheld from the wages of the corporation's employees, and his default on a previous installment agreement, respondent has a compelling interest in collecting petitioner's substantial tax liabilities and penalties as soon as possible.
The Commissioner's compelling interest in collecting taxes necessarily implies a compelling interest in collecting a taxpayer's tax liability in a timely manner. See Flora v. United States, 362 U.S. 145, 154 (1960) ("`It is essential to the honor and orderly conduct of the government that its taxes should be promptly paid'." (quoting Cheatham v. United States, 92 U.S. 85, 89 (1876))); Phillips v. Commissioner, 283 U.S. 589,
The Commissioner has created guidelines in the Internal Revenue Manual for settlement officers to follow in determining the terms of a partial payment installment agreement. See IRM pt. 5.14.2.1.1. The settlement officer followed these guidelines in creating the terms of the partial payment installment agreement offered to petitioner. The settlement officer did not abuse her discretion by failing to use the least restrictive means to further respondent's compelling interest of collecting petitioner's significant tax liabilities and penalties in a timely manner.
We hold that the classification of petitioner's tithing as a conditional expense: (1) conformed to the guidelines in the Internal Revenue Manual; (2) was not a violation of petitioner's rights under the Free Exercise Clause; and (3) did not violate the RFRA.
On Form 433-A petitioner reported monthly college expenses of $2,952.
In a partial payment installment agreement only necessary expenses are allowed. See id. pt. 5.14.2.1.1(4). The Internal Revenue Manual discusses both college expenses and education expenses.
IRM ex. 5.15.1-1 Q&A (2) provides:
Petitioner would not fully pay his tax liabilities within five years under the terms of the partial payment installment agreements proposed by either petitioner or the settlement officer. Therefore, the college expenses would not be a necessary expense under IRM ex. 5.15.1-1 Q&A (2).
IRM pt. 5.15.1.10 provides that educational expenses are necessary "[i]f it is required for a physically or mentally challenged child and no public education providing similar services is available." Respondent argues that IRM pt. 5.15.1.10 applies only to expenses for primary or secondary schooling, and does not apply to college expenses. Petitioner argues that the language of IRM pt 5.15.1.10 does not explicitly limit educational expenses to primary or secondary schooling; therefore, it was an abuse of discretion for the settlement officer to not allow his children's college expenses as a necessary expense in computing the amount that petitioner had available to pay his delinquent tax liabilities. Petitioner has not cited any case that supports his interpretation that IRM pt. 5.15.1.10 applies to college expenses.
IRM pt. 5.15.1.10 provides that educational expenses can be considered a necessary expense if "no public education providing similar services is available." If we interpret IRM pt. 5.15.1.10 to apply to college expenses, then expenses for a private college could be a necessary expense while expenses for a public college would per se never be a necessary expense. This makes no sense. IRM pt. 5.15.1.10 is understandable when it is interpreted to apply only to primary or secondary schooling. Public primary and secondary schools are usually paid for by the State and local governments, not the parents of the children who attend them. However, private primary and secondary schools are normally paid for by the parents of the children attending the schools. Private primary and secondary schools can be expensive. The most reasonable interpretation of IRM pt. 5.15.1.10 is that a taxpayer must demonstrate that there is not a free public primary or secondary school that he could send his child to. If there were a free public primary or secondary school that could provide educational services to the mentally challenged child, then the settlement officer would not allow the taxpayer to pay tuition to a private primary or secondary school in lieu of paying the taxes he owes to the Government. We
Petitioner briefly argues that Form 433-A requires the settlement officer to allow his children's college expenses. Form 433-A states that "[w]e generally do not allow you to claim tuition for private schools, public or private college * * * [h]owever, we may allow these expenses, if you can prove that they are necessary for the health and welfare of you or your family or for the production of income." First, we note that Form 433-A does not have the force of law and confers no rights on taxpayers. See Pomeroy v. United States, 864 F.2d 1191, 1194-1195 (5th Cir. 1989) ("`[P]rocedures or rules adopted by the IRS are not law.'" (quoting Keado v. United States, 853 F.2d 1209, 1214 (5th Cir. 1988))); McGaughy v. Commissioner, T.C. Memo. 2010-183, 2010 Tax Ct. Memo LEXIS 215, at *20. Second, we note the discretionary nature of the wording of Form 433-A: "we may allow these expenses". Form 433-A clearly states that the expenses may not be allowed, and that discretion to allow the expenses lies with the IRS. We hold that Form 433-A does not require the settlement officer to classify petitioner's college expenses as a necessary expense.
Conclusion
We hold that the determination to proceed with collection was not an abuse of the settlement officer's discretion, and the proposed collection action is sustained.
In reaching our decision, we have considered all arguments made by the parties, and to the extent not mentioned or addressed, they are irrelevant or without merit.
Decision will be entered for respondent.
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