Decisions — Rings and Liens

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Image source: Nemo, Pixabay.com, public domain

Image source: Nemo, Pixabay.com, public domain

What’s the value of a 1993 NBA championship ring? And why does the IRS want to know?

In T.C. Memo. 2014-103 (Tucker), the taxpayer, a former basketball player, asked the court to review whether the IRS abused its discretion in denying his offer to settle his debt for less than the amount of tax he owed (an offer in compromise).

In reviewing an abuse of discretion, the court decides whether the determination to deny the taxpayer’s offer in compromise and to file a lien against him was arbitrary, capricious, or without sound basis in fact or law.

The unpaid tax in question arose from a 2009 return. The taxpayer owed $127,761, had $15,187 in federal income tax withholding, and paid $600 when he filed the return.

In February of 2011, the IRS sent the taxpayer a notice of federal tax lien filing in an effort to collect the balance due. Because he didn’t have the money to pay, the taxpayer requested a collection due process hearing from the IRS Appeals Office. He offered to pay $100 for six months, and a balance of $30,000 over three years. He provided some financial records with the filing, but did not itemize his personal assets, including the value of his NBA championship ring, despite repeated requests from the Appeals Office. He made the first three payments of $100, then stopped.

In May of 2012, the Appeals Office rejected the taxpayer’s offer in compromise and decided to proceed with the proposed levy and the notice of federal tax lien to collect the unpaid tax. The Appeals Office based the rejection on the fact that the taxpayer had not made the installments during the appeals process as required by law, and that he had not provided the necessary information—the value of his ring—to determine his “reasonable collection potential.”

The taxpayer says the value of his ring (which his lawyer estimated may have value of approximately $10-20,000) was speculative, that it therefore should not affect his reasonable collection potential, that he was otherwise without substantial assets, and that his failure to itemize his assets was therefore immaterial.

The court said: Property of a delinquent taxpayer is not exempt from levy merely because the property’s value is speculative or unspecified. Internal revenue code section 6334(a) establishes a list of categories of property that are exempt from levy by the IRS. No category on the list includes an NBA championship ring.

The court’s decision: The Appeals Office was reasonable in requiring valuation information about the NBA championship ring, and the taxpayer did not provide such information. Because he failed to submit essential requested financial information about the value of his personal assets, he failed to provide the Appeals Officer with all of the financial information necessary to fully evaluate his ability to pay the tax due. Therefore, the Appeals Office did not abuse its discretion in denying his offer in compromise.

Just for fun: This case contained a surfeit of acronyms. 

Bonus fun question:

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The initial and periodic payments required by section 7122(c)(1)(B) are sometimes referred to as “TIPRA payments” because it was the Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), Pub. L. No. 109-222, sec. 509(a), 120 Stat. at 362, that amended section 7122 to require that “[t]he submission of any periodic payment offer-in-compromise shall be accompanied by the payment of the amount of the first proposed installment”, and to provide that “[a]ny failure to make an installment (other than the first installment) due under such offer-in-compromise during the period such offer is being evaluated * * * may be treated * * * as a withdrawal of such offer-in-compromise.”

(a) Enumeration

There shall be exempt from levy—

(1) Wearing apparel and school books

Such items of wearing apparel and such school books as are necessary for the taxpayer or for members of his family;

(2) Fuel, provisions, furniture, and personal effects

So much of the fuel, provisions, furniture, and personal effects in the taxpayer’s household, and of the arms for personal use, livestock, and poultry of the taxpayer, as does not exceed $6,250 in value;

(3) Books and tools of a trade, business, or profession

So many of the books and tools necessary for the trade, business, or profession of the taxpayer as do not exceed in the aggregate $3,125 in value.

(4) Unemployment benefits

Any amount payable to an individual with respect to his unemployment (including any portion thereof payable with respect to dependents) under an unemployment compensation law of the United States, of any State, or of the District of Columbia or of the Commonwealth of Puerto Rico.

(5) Undelivered mail

Mail, addressed to any person, which has not been delivered to the addressee.

(6) Certain annuity and pension payments

Annuity or pension payments under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act, special pension payments received by a person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of Honor roll (38 U.S.C. 1562), and annuities based on retired or retainer pay under chapter 73 of title 10 of the United States Code.

(7) Workmen’s compensation

Any amount payable to an individual as workmen’s compensation (including any portion thereof payable with respect to dependents) under a workmen’s compensation law of the United States, any State, the District of Columbia, or the Commonwealth of Puerto Rico.

(8) Judgments for support of minor children

If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.

(9) Minimum exemption for wages, salary, and other income

Any amount payable to or received by an individual as wages or salary for personal services, or as income derived from other sources, during any period, to the extent that the total of such amounts payable to or received by him during such period does not exceed the applicable exempt amount determined under subsection (d).

(10) Certain service-connected disability payments

Any amount payable to an individual as a service-connected (within the meaning of section 101 (16) of title 38, United States Code) disability benefit under—

(A) subchapter II, III, IV, V,, [1] or VI of chapter 11 of such title 38, or

(B) chapter 13, 21, 23, 31, 32, 34, 35, 37, or 39 of such title 38.

(11) Certain public assistance payments

Any amount payable to an individual as a recipient of public assistance under—

(A) title IV or title XVI (relating to supplemental security income for the aged, blind, and disabled) of the Social Security Act, or

(B) State or local government public assistance or public welfare programs for which eligibility is determined by a needs or income test.

(12) Assistance under Job Training Partnership Act

Any amount payable to a participant under the Job Training Partnership Act (29 U.S.C. 1501 et seq.) from funds appropriated pursuant to such Act.

(13) Residences exempt in small deficiency cases and principal residences and certain business assets exempt in absence of certain approval or jeopardy

(A) Residences in small deficiency cases

If the amount of the levy does not exceed $5,000—

(i) any real property used as a residence by the taxpayer; or

(ii) any real property of the taxpayer (other than real property which is rented) used by any other individual as a residence.

(B) Principal residences and certain business assets

Except to the extent provided in subsection (e)—

(i) the principal residence of the taxpayer (within the meaning of section 121); and

(ii) tangible personal property or real property (other than real property which is rented) used in the trade or business of an individual taxpayer.

Collection due process (CDP)

Offer in compromise (OIC)

Reasonable collection potential (RCP)

Notice of federal tax lien (NFTL)

The text of the case contains additional acronyms, including TIPRA (Tax Increase Prevention and Reconciliation Act of 2005), POA (Power of Attorney), IA (Installment Agreement), and one that deserves a championship ring for being an acronym with an acronym: COIC (Centralized OIC unit).

And of course, NBA.

Chicago Bulls
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