## Facts

- Living Care Alternatives of Utica, Inc. operated a small Ohio nursing home and derived most revenue from Medicare and Medicaid.
- As an employer, Living Care was required to withhold and remit federal employment (trust-fund) taxes.
- From 1995 to 2001, Living Care intermittently failed to remit withheld payroll taxes to the IRS.
- After an IRS levy in the late 1990s, Living Care entered an installment agreement but defaulted in 1999.
- By the time of the collection proceedings, Living Care’s unpaid employment tax liabilities (with interest and penalties) totaled about $450,000; Living Care asserted it had paid newly accruing taxes since July 2002.
- In May 2001 and May 2002, the IRS issued notices of federal tax lien and intent to levy, advising Living Care of the right to request Collection Due Process (CDP) hearings.
- Living Care timely requested CDP hearings and argued that liens/levies would effectively force closure of the nursing home; it sought alternative collection arrangements.
- The IRS Appeals Office sustained the liens and the proposed levies; federal district courts affirmed in two separate cases, which were consolidated on appeal.

## Issues

1. What standard and scope of judicial review apply to an IRS Appeals Office determination in a CDP case under 26 U.S.C. §§ 6320 and 6330 when the underlying tax liability is not properly at issue?
2. Whether the IRS Appeals Office abused its discretion in sustaining tax liens and proposed levies despite the taxpayer’s proposed alternatives and claimed operational hardship.
3. Whether the Appeals Office satisfied § 6330(c)(3) by verifying legal/procedural compliance, considering taxpayer-raised issues, and balancing efficient tax collection against intrusiveness.

## Decision

- The Sixth Circuit affirmed the district court judgments sustaining the IRS collection actions.
- Because Living Care did not properly contest the underlying tax liability in the CDP proceedings, the court reviewed the Appeals Office determinations for abuse of discretion.
- The court held the Appeals Office did not abuse its discretion in sustaining the liens and levies given Living Care’s repeated noncompliance, the trust-fund nature of the taxes, the size of the arrearage, and Living Care’s prior default on an installment agreement.
- The court concluded the Appeals Office adequately considered Living Care’s proposed alternatives and performed the statutory balancing required by § 6330(c)(3).

## Legal Principles

- In CDP cases, if the taxpayer does not properly place the underlying tax liability in issue, judicial review of the Appeals Office’s determination is for abuse of discretion rather than de novo review.
- Under 26 U.S.C. § 6330(c)(3), an Appeals officer must (1) verify that legal and procedural requirements were met, (2) consider issues raised by the taxpayer (including collection alternatives), and (3) balance efficient collection against the concern that collection be no more intrusive than necessary.
- An Appeals Office decision is not an abuse of discretion if it has a sound factual and legal basis, including reliance on a taxpayer’s history of nonpayment and defaulted agreements when deciding to proceed with liens and levies.

## Conclusion

The Sixth Circuit upheld the IRS’s liens and levies after CDP hearings, holding that when liability is not properly contested the reviewing court applies deferential abuse-of-discretion review and will sustain collection determinations that reflect procedural verification, consideration of the taxpayer’s proposals, and a reasoned balancing under § 6330(c)(3).


Living Care Alternatives of Utica, Inc. v. United States, 411 F.3d 621 (6th Cir. 2005)