Ms. Jurate Antioco lived in Martha’s Vineyard, where she owned a bed and breakfast with her husband. The B&B was their home. In 2006 they divorced (after 27 years) and sold the B&B for almost $2 million. They used some of the money to pay off marital debt, but over $1 million went to her after she was unable to finish a Section 1031 exchange within the permitted time.
After approximately 1 year, she took the money and borrowed another $950,000 to buy a multifamily in San Francisco. She moved into one unit, moved her 90-something-year-old mother into another and rented the remaining three units as a source of income.
Ms. Antioco made a mistake concerning her taxes, though. She thought that – perhaps because the B&B had been her residence – that she would not owe any taxes. She fell behind in filing her 2006 taxes but did better with 2007. Her accountant informed her that she owed taxes on the sale for 2006. She was unprepared for this, as she had put almost all her money in the multifamily. She filed the tax returns, though.
The IRS of course assessed tax, interest and penalties. It is what they do.
In April, 2009 the IRS sends her a notice of intent to levy. Ms. Antioco has all her money tied up in the multifamily, so she filed for a collection due process (CDP) hearing. She proposed paying $1,000 per month until she could work out a loan. She explained that her mom was having health issues, she was moving into caregiver mode, and anything more than $1,000 at the moment would cause economic hardship. As a show of good faith, she started paying $1,000 a month.
She contacted other lenders about a loan, but she soon learned that she had a problem. Even though she had considerable equity in the property, her current lender had included a nuclear option in the mortgage giving them the right to foreclose if another lien was put on the building
OBSERVATION: There is a very good reason to request a CDP, as the IRS will routinely file a lien to secure its debt. This could have been very bad for Ms. Antioco.
She goes back to the primary lender, and they tell her that they are not interested in loaning her any more money.
She has a problem.
The IRS sends her paperwork (Form 433-A) and schedules a hearing for September, 2009. The IRS tells her that she simply has to try to borrow before they will consider an installment plan. If she cannot, then proof of that must also be submitted.
She finds another lender and a better interest rate. The new lender will refinance but not lend any new money. Still, a lower payment frees-up cash, so Ms. Antioco decides to refinance. The new lender wants her to put her mom on the deed, which she does by granting her mother a joint tenancy in the property.
She sends her financial information (the Form 433-A), along with supporting bank documentation and a copy of her most recent tax return, to the IRS. She hears nothing.
In November, 2009 she received a notice from the IRS stating that they were sustaining the levy. The notice stated that she had requested a payment plan, but she had failed to provide additional financial information. In addition the IRS completely blew off her economic hardship argument.
Ms. Antioco appealed to the Tax Court. She pointed out that she was never asked for additional financial information, and –by the way – what happened to her economic hardship request?
And then something amazing happened: the IRS pulled the case, admitting to the Court that the Appeals officer had never requested additional financial information and had in fact abused her discretion.
The Court sent the matter back to IRS Appeals, hoping that the system would work better this time.
Enter Alan Owyang. The first thing he did was call Ms. Antioco to schedule a face-to-face meeting and review detailed questions. . Ms. Antioco explained that she would call back later that day, as she wanted to collect her documents to help her with the detailed questions. Owyang didn’t wait, and he kept calling her back that same day. At one point her accused her of being “uncooperative’ and that she “put your money where your mouth is.” He added that he had been a witness in her case.
Ms. Antioco was so rattled that she hired an attorney. Sounds like a great idea to me.
Mr. Owyang sent her a letter a few days later, saying that he thought Ms. Antioco had added her mother to the deed to defraud the government and that he also thought she could pay her taxes but “simply chose not to do so.” He asked for all kinds of additional paperwork, but not curiously no new financial information – the very reason the Tax Court sent the matter back to IRS Appeals.
Her attorney submitted a bundle of information and requested another CDP hearing for April, 2011. He explained to Mr. Owyang that Ms. Antioco’s mother was declining and would (likely) not survive a sale and move from the apartment building. All Ms. Antioco wanted was time – to allow her mom to pass away or to finally get a new loan – after which she would able to pay the balance of the tax. She was willing to pay under a short-term installment plan until then.
Mr. Owyang told the attorney that he would not grant an installment agreement because Ms. Antioco had chosen to transfer the equity in the apartment building by adding her mother to the deed. He could not see another reason for it.
Even though he had a letter from the lender stating it wasn’t willing to lend any more money. And to include her mom on the deed if she wanted to refinance.
He refused to consider whether there was any “hardship.”
One of the reasons it went back to the IRS to begin with.
He also thought that all the talk about taking care of a 90-something-year-old mom was a “diversionary argument” that he “would not consider.”
I am stunned.
Mr. Owyang also contacted the IRS Compliance Division. He said that the government’s interest was in “jeopardy,” and he recommended that the IRS file a manual lien. There were problems with the filing, and Mr. Owyang went out of his way to follow up personally.
In May, 2011 Mr. Owyang filed a supplemental notice of determination, concluding that Ms. Antioco had “fraudulently” transferred the building to her mother. He went all Sherlock Holmes explaining how he had deduced that Ms. Antioco had committed fraud, concealed the transfer, became insolvent because of it and was left without any assets to pay the government. It was his judgement that she could have gotten a loan if she really wanted one, and that Ms. Antioco was a “won’t pay taxpayer” who was using her ailing mother as an “emotional diversion.”
This guy is a few clowns short of a circus.
They are back in Tax Court. The IRS this time sees nothing wrong with Mr. Owyang's behavior. They did however acknowledge that Mr. Owyang never ran the numbers to see if Ms. Antioco was insolvent, and that his determination of fraud was … “flawed.”
But Mr. Owyang had not abused his discretion. No sir!! Not a smidgeon.
The IRS wanted the Court to dismiss the case.
The Court instead heard the case.
The Court went through the steps, noting that the Commissioner can file liens to secure the collection of an assessed tax. The IRS however must follow procedures, such as notifying the taxpayer, granting a collections appeal if the taxpayer requests one, and so on. The taxpayer had proposed a payment alternative, and the IRS never completed its analysis of her proposed payment plan. The IRS had also failed to consider her complaint of economic hardship.
The IRS did not follow procedure.
The Court then reviewed Mr. Owyang’s behaviors and assertions, refuting each in turn. The Court even pointed out that Ms. Antioco had paid down her tax debt by $88,000 by the time of trial, not exactly the conduct of someone looking to shirk and run. The Court was not even sure what Mr. Owyang’s real reason was for his determination, as his reasons were contradicted by documentation in file, not to mention changing over time.
The Court decided that Mr. Owyang had abused his discretion.
In February, 2013 the Court sent the case back to the IRS again, as the IRS never reviewed whether the $1,000 was a reasonable payment plan.
Back to the IRS. Introduce a new Appeals officer.
Ms. Antioco then filed suit against the IRS for wrongful action – that is, over the behavior of Mr. Owyang. This type of suit is very difficult to win. Ms. Antioco focused her arguments on Mr. Owyang’s abusive behavior. The District Court determined that this behavior occurred while Mr. Owyang was “reviewing” collection action and not actually “conducting” collection, which barred liability under Section 7433.
OBSERVATION: No, he was “collecting.” What is a lien, if not a collection action?
In June 2013 the IRS finally agreed to an installment payment plan.
In July, 2014 the IRS filed suit to reduce Ms. Antioco’s liability to judgment. Reducing an assessment to judgment gives the IRS the ability to collect long after the 10-year statute of limitations.
Ms. Antioco filed a motion to dismiss.
Her reason for requesting dismissal? The tax Code itself. Code Section 6331(k)(3)(A) bars the IRS from bringing a proceeding in court while an installment agreement is in effect.
The IRS realized it got caught and last month agreed to dismiss.
And that is where we are as of this writing.
For a tax pro, the Jurate Antioco cases have been interesting, as they highlight the importance of following procedural steps when matters get testy with the IRS. From a human perspective, however, this is a study of a government agency run amok. How often does the IRS get spanked twice by the Tax Court for abuse on the same case?
Ms. Antioco’s mom, by the way, is now 97 years old and suffering from congestive heart failure. Ms. Antioco is herself a senior citizen. May they both yet live for a very long time.
About the author
Steven D. Hamilton is a career CPA, with extensive experience involving all aspects of tax practice, including sophisticated income tax planning and handling of tax controversy matters for closely-held businesses and high-income individuals.