Page 168 - TaxAdviser_2022

his word, the Tax Court found that the Pfetzer responded by reiterating his
activity did not provide the Huffs with Procedure & Administration request for a face-to-face hearing and
personal pleasure or recreation. upping the ante by challenging the tax
Having done its analysis, the Tax Lien is invalid because IRS assessments for 2004 through 2012.
Court found that the nine factors of did not verify notices of He also questioned whether the IRS
Regs. Sec. 1.183-2(b) confirmed its deficiency had issued notices of deficiency for all
conclusion that the Huffs had an actual The Tax Court, in a Collection Due the years at issue and claimed that he
and honest profit motive with respect Process (CDP) hearing review, refused had not received any notices for any of
to Ecotone’s donkey-breeding activity to sustain the filing of a Notice of Fed- those years.
in 2013 and 2014. The court believed, eral Tax Lien (NFTL) because the IRS Thereafter, the parties remained at
based mainly on Huff’s testimony, that had failed to properly verify that the loggerheads, with Pfetzer refusing to
the Huffs thought that the activity, once IRS had issued the taxpayer notices of send the unfiled tax returns and other
properly established, would be consis- deficiency for the years at issue and sent documents requested by Smith, and
tently profitable and provide income to them to his last known address. Smith refusing to provide a face-to-
their daughter. The court further found face meeting because Pfetzer had not
that Huff had used an approach similar Background provided the returns or documents. No
to what he used successfully for many Mark Pfetzer failed to file his federal in- telephone conference was held because
other investments. Thus, despite Eco- come tax returns for 2004 through 2012. Pfetzer did not give Smith a valid tele-
tone’s lack of success, the Huffs pursued The IRS eventually prepared substitutes phone number.
the breeding activity through Ecotone for return under Sec. 6020(b) and as- In April 2018, the IRS issued a no-
with the required profit motive under sessed tax for all nine years. tice of determination sustaining the fil-
Sec. 183. Pfetzer also did not pay the assessed ing of the NFTL, which stated Pfetzer
tax deficiencies for those years, and could not challenge his underlying tax
Reflections on June 30, 2016, the IRS sent him a liabilities because for 2004 to 2008 he
Arguably, the most important factor to Letter 3172, Notice of Federal Tax Lien had had a prior opportunity to contest
the Tax Court in showing that Huff had Filing and Your Right to a Hearing (lien the liabilities for each year when the IRS
a profit motive for the donkey-breeding filing notice), covering the liabilities for had previously issued a notice of intent
activity was the fifth factor in Regs. Sec. 2004 through 2012. In response to the to levy and for 2009 through 2012 the
1.183-2(b)(5), success in similar and IRS’s invitation in that letter, Pfetzer IRS had issued notices of deficiency.
dissimilar activities, which the court timely submitted Form 12153, Request Smith had determined that the notices
terms as success in other activities. As for a Collection Due Process or Equivalent of deficiency were sent to Pfetzer’s
Regs. Sec. 1.183-2(b)(5) puts it, for Hearing, requesting an administrative last known address and confirmed
this purpose success means success in hearing. On that form he stated that that the lien filing notice was sent to
turning an unprofitable business into a he: (1) did not owe the asserted tax li- him by perusing the IRS’s computer-
profitable one. abilities for 2010 and 2011; (2) wanted ized transcripts.
While a past history of success in verification that the IRS performed Pfetzer then filed a petition with the
turning around a business may show the procedures required by law; and Tax Court challenging the determina-
that a taxpayer has a higher probability (3) wanted a face-to-face administrative tion. He claimed that Smith had erred
of actually making a profit in his or her hearing at the IRS office closest to him. in failing to verify that all applicable
respective activity, it would seem to shed After receiving the form, the IRS as- administrative procedures required by
little light on whether the taxpayer has signed Settlement Officer Laurel Smith law were followed and refusing to grant
an actual profit motive. Business novices to Pfetzer’s case. She sent Pfetzer an ini- him a face-to-face hearing at the nearest
who have no experience with turning tial contact letter and set up a telephone IRS office.
business losses into profits plausibly conference. Smith told him she would
could have just as much of a profit mo- arrange a face-to-face meeting if he sent Statutory requirements applying
tive when pushing ahead with a money- her the returns for 2010 and 2011 and, to IRS for CDP hearings
losing business as business pros. They if he wanted to be considered for collec- Under Sec. 6320(a)(1), the IRS must
may simply not have enough experience tion alternatives, Form 433-A, Collection give any taxpayer liable to pay tax writ-
to know how difficult it may be to turn Information Statement for Wage Earners ten notice of the filing of an NFTL on
things around. and Self-Employed Individuals, and tax the person’s property, and the notice
Huff, T.C. Memo. 2021-140 returns for 2013, 2014, and 2015. must inform the taxpayer of the right

www.thetaxadviser.com March 2022 59