Tax Lawyer's Blog

Allan Barry Marks and Rosalind J. Marks v. Commissioner - In this case the taxpayers represented themselves throughout the IRS collection process up to and including Tax Court. 

The Marks’ were issued a notice of intent to levy and disputed it by filing an appeal with the IRS appeals office. At appeals the taxpayers requested an installment agreement as a collection alternative to the levy and seizure of assets.  The appeals officer considered the taxpayers’ 433A (IRS Collection Information Statement) and determined that the Marks’ could pay a maximum monthly installment payment of $1,826.00.

The Court noted that in making his determination the appeals officer had used the National Standards*:

In making allowance for housing for utilities expenses, the settlement officer allowed $1,291 on the basis of the maximum standard allowance for a family of two living in Miami-Dade County, Florida, rather than the $2,145 that petitioners had listed.

The Commissioner moved for summary judgment arguing that the Marks’ had raised no “genuine issue of material fact” and by application of law their claim should be denied.  Judge Mark Holmes granted summary judgment and said,

In essence, petitioners’ disagreement is with the settlement officer’s use of respondent’s local standards for housing and utilities expenses for Miami-Dade County, Florida. Petitioners do not contend that the settlement officer misapplied these standard allowances or that their use would have deprived petitioners of the means to provide for basic living expenses.

Instead, they seek to challenge the legitimacy of respondent’s standard allowances, contending that they “are not believed to be representative of actual expenses for the applicable categories and grouping of items of expense, not just with respect to the Petitioners, but also with respect to all taxpayers in the Petitioners’ geographic region”. Contrary to Rule 121(d), however, petitioners have set forth no specific facts showing that there is a genuine issue for trial in this regard.

The Marks made the wrong arguments. They should have argued, as Judge Holmes hints, that the use of the national standards “would have deprived [them] of the means to provide basic living expenses.”

In other words, the Marks’ should have sought the advice of a qualified tax lawyer before going to trial. See my blog post Lawyer Up! Unrepresented Taxpayers Likely to Lose in Tax Court.

Authors Note on the IRS’s Use of National Standards: For many years the uniform use by the IRS of the National Standards has been a source of great consternation for taxpayers and their tax representatives alike. In the Marks’ case, the difference between the housing expenses the IRS allowed and those the taxpayers’ were actually incurring on a monthly basis was $854.00. The taxpayers’ lived in Miami in 2006. Strict adherence to the National Standards means that the IRS believes that a couple can find decent housing and provision of basic utilities for $1,291.00 per month.

I lived in Miami once and it cost me at least that much. And that was 1989.

Every indication is that the Marks’ wanted to repay their tax debt. There is no evidence in the record that they attempted to avoid that responsibility. On the contrary, Judge Holmes points out that the parties had stipulated that the Marks’ abandoned their earlier installment agreement because it wasn’t sufficient enough to cover the annual accrual of interest and penalties.

In short, the Marks’ wanted to pay more, not less, than they had been paying.

I don’t blame the Judge or the appeals officer for the result here. It is the system itself that is at fault and something should be done about it. What purpose did it serve the U.S. Government to refuse an installment agreement with the Marks that would have resulted in the collection of approximately $1,375.00 a month? Does that make sense?

No, it doesn’t. But common sense was not permitted to play a part in the payment negotiations between the Marks’ and the IRS. 

In fact, had the Marks’ suggested a monthly payment of $1,825.00 instead of the $1,826.00 proposed by the appeals officer, the rule requiring strict adherence to the National Standards would not have allowed the appeals officer to accept it.**

Either the National Standards need to be adjusted to account for the realities “on the ground” or IRS collection representatives should be given broad discretion to stray from those standards as circumstances warrant. 

* The Judge noted that the National Standard allowance for food, clothing and other items was higher than the amount the Marks’  themselves had claimed and the Appeals officer gave them the higher amount. But I believe and would argue that the Marks either miscalculated the amount of their monthly expenditures in this category or, believing they would be allowed their actual living expenses, intentionally low-balled it in order to increase their monthly payment so that it would  be sufficient to cover the annual accrual of interest and penalty.

** In practice, the appeals officer would, of course, have accepted this counter offer, but he would have been violating the IRS’s own rules by doing so. The National Standards are etched in stone.

Suggested Reading:

IRS Sets National Guidelines for Installment Agreements – how and why the standards came into being.

AAA-CPA Draws Attention to Unfair Treatement of Financially Distressed Taxpayers Caused by IRS’ Failure to Update Cost of Living Allowance – the American Association of Attorney-Certified Public Accountant’s Website on the need for the IRS to make-regular cost-of-living adjustments to the National Standards.

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