No economic hardship relief for corporations

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When is a person a taxpayer?

If you’re an individual, you qualify. If you’re a corporation, you’re out of luck.

That’s the message the Tax Court delivered to a nursing home that challenged the appropriateness of a proposed levy on the grounds that the levy would create economic hardship, in Lindsay Manor Nursing Home v. IRS, 148 T.C. No. 9.

The Tax Code provides that the IRS cannot levy on a taxpayer if it creates an economic hardship. But it doesn’t spell out whether “taxpayer” includes corporations or is limited to individuals.

Now, the Tax Court agrees with the IRS that its regulation, Reg. Section 301.6343-1(b)(D), limiting hardship relief to individuals is a reasonable interpretation of the code, and denied a motion for summary judgment made by a nursing home that was in serious financial difficulty.

The Lindsay Manor Nursing Home Inc. served a small rural community in Oklahoma of fewer than 3,000 residents. It filed its Employer’s Quarterly Federal Tax Return for the quarter ending Dec. 31, 2013, but failed to pay the tax of $108,911 reported on the return. In April 2014, the IRS assessed the tax reported on the return, and issued a Letter 1058, Final Notice – Notice of Intent to Levy and Notice of Your Right to a Hearing. The levy notice reflected the IRS’s intent to levy on Lindsay Manor‘s property and right to property to collect the employment tax liability assessed against it, and also informed the nursing home of its right to a collection due process hearing.

At the hearing, Lindsay Manor provided documentation that demonstrated that it had not received a total of $306,600 in accounts receivable due from Medicare, Medicaid, insurance, and private pay for the period April 30 through June 30, 2014. It also challenged the proposed levy on the grounds of economic hardship.

The settlement officer said that she would not consider the economic hardship argument because such relief is not available to corporations under Reg. Section 301.6343-1(b)(4)(i). She explained, “This condition applies if satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses.”

Lindsay Manor asserted that the regulation was invalid because it redefined the term “taxpayer” to include only individuals. In fact, in the definitions section of the code, Sections 7701(a)(1) and 7701(a)(14) define “person” to include a corporation, and “taxpayer” to mean “any person subject to any internal revenue tax.”

The Tax Court examined the legislative history behind Section 6343, and found it silent or ambiguous with regard to whether it provided relief to a non-individual taxpayer. The IRS’s interpretation was permissible, and the regulation is valid, because the construction of the section followed “a permissible interpretation of congressional intent.”

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