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OIC Cases - Miscellaneous

[CCH Dec. 55,689(M)]
Mark Fowler and Joylyn Souter-Fowler v. Commissioner.

Dkt. No. 6650-02L , TC Memo. 2004-163, July 13, 2004.

[Appealable, barring stipulation to the contrary, to CA-9. --CCH.]

[Code Secs. 6330 and 7122]
Practice and procedure: Collection Due Process hearing: Offer in compromise: Liens and levies: Abuse of discretion. --
An IRS Appeals officer abused his discretion in denying a married couple's offer in compromise on the grounds that the taxpayers had inadequate income to meet their living expenses and pay the proposed monthly payments. The officer appeared to rely exclusively on the IRS's prescribed schedule of national and local average living expenses to determine that the taxpayers' basic living expenses exceeded their monthly income. However, all of the facts and circumstances, including the schedule of actual expenses submitted by the taxpayers, should have been considered to determine whether the taxpayers could pay both (Code Sec. 7122(c)(2)). The filing of the federal tax liens to secure the IRS's interest in the unpaid tax liability was not an abuse of discretion. --CCH.
Mark Fowler and Joylyn Souter-Fowler, pro sese; Guy H. Glaser, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
 
GERBER, Chief Judge: Respondent, on February 21, 2002, sent Mark Fowler (petitioner) a Notice of Determination Concerning Collection Action(s) Under Section 63201 and/or 6330, in which respondent sustained the filing of a Federal tax lien for petitioner's 1990-92 tax liabilities. In that same notice respondent also rejected petitioner's offer in compromise. On that same date respondent sent Mark Fowler and Joylyn Souter-Fowler (petitioners) a second Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. In this notice respondent sustained the filing of a Federal tax lien with respect to petitioners' 1994-96 tax liabilities, and respondent again rejected petitioners' offer in compromise.
 
Prior to these determinations, petitioners sought and were offered an Appeals hearing, but they did not attend due to personal reasons. One month after the scheduled hearing date, the Appeals officer issued the above determinations sustaining the filing of the Federal tax liens and rejecting petitioners' offers in compromise. With respect to both determinations, petitioners appealed to this Court.
 
The issue for consideration is whether respondent abused his discretion by rejecting petitioners' offers in compromise and by sustaining the filing of the Federal tax liens.



FINDINGS OF FACT2
 
Petitioners resided in Garden Grove, California, when the petition in this case was filed.



Separate Liabilities
Petitioner filed his 1990 Federal income tax return late on September 6, 1991. On July 21, 1993, respondent mailed a statutory notice of deficiency to petitioner for his 1990 taxable year. Petitioner did not petition this Court to dispute the deficiency. On December 20, 1993, respondent assessed the $399 income tax deficiency and a $98.74 late-filing penalty under section 6651(a)(1). In addition, $104.40 of interest was assessed. Petitioner does not contest the 1990 tax liability.
 
Petitioner timely filed his 1991 Federal income tax return that contained several mathematical errors. Respondent corrected the mathematical errors in accord with section 6213(b)(1), and assessments were made to correct the errors. Respondent subsequently selected petitioner's 1991 return for an audit examination. On April 5, 1994, respondent mailed petitioner a statutory notice of deficiency for his 1991 taxable year determining a $545 income tax deficiency. Petitioner did not petition this Court with respect to the 1991 notice of deficiency. On September 5, 1994, respondent assessed the $545 deficiency and $103.37 of accrued interest.
 
Petitioner filed his 1992 Federal income tax return late on July 28, 1993. Respondent selected petitioner's 1992 return for an audit examination. On January 11, 1995, respondent mailed petitioner a statutory notice of deficiency for his 1992 taxable year determining a $1,193 income tax deficiency and a $189 penalty for late filing under section 6651(a)(1). On July 17, 1995, respondent assessed the deficiency, the late-filing penalty, and accrued interest in the amount of $265.92. On the same day, the late-filing penalty was abated leaving an unpaid balance of $1,458.92 for 1992.



Joint Liabilities
Petitioners were married in 1993. Under cover of a letter dated September 15, 1997, petitioners submitted their untimely 1994, 1995, and 1996 joint Federal income tax returns. These returns were filed by respondent on September 29, 1997. Petitioners reported tax due for 1994, 1995, and 1996 on their returns in the amounts of $402.04, $402.03, and $1,480.66, respectively.
 
On October 27, 1997, respondent assessed the 1994 income tax liability, a late-filing penalty in the amount of $100, a failure to pay tax penalty in the amount of $62.32, and accrued interest in the amount of $128.35, for a total assessment of $692.71. On that same date, respondent assessed the 1995 income tax liability, a late-filing penalty in the amount of $100, a failure to pay tax penalty in the amount of $38.19, and accrued interest in the amount of $73.03, for a total assessment of $613.25. On November 17, 1997, respondent assessed the 1996 income tax liability, a late-filing penalty in the amount of $333.15, a failure to pay tax penalty in the amount of $59.23, and accrued interest in the amount of $99.21, for a total assessment of $1,972.25.



Events Leading to the Issuance of the Notice of Determination
On December 21, 1999, respondent mailed two separate Notices of Intent to Levy and Notice of Your Right to a Hearing to petitioners. The notices reflected petitioners' unpaid Federal income tax liabilities for 1990 through 1992 and 1994 through 1996. On January 26, 2000, petitioners informed respondent of their desire to submit an offer in compromise to resolve all of their individual and joint liabilities. In response, respondent mailed petitioners a package of materials for the submission of offers in compromise for their outstanding individual and joint liabilities.
 
On April 19, 2000, respondent received petitioners' offer to compromise the 1994 through 1996 joint liabilities for $1,150. On that same date respondent received petitioner's offer to compromise the 1990 through 1992 liabilities for $360. Both offers in compromise were submitted on Form 656, Offer in Compromise. Petitioners' offer was to make monthly payments to satisfy the liabilities. Petitioners planned to pay a portion of the offer amount from their expected tax refund for 1999.
 
On May 19, 2000, respondent's revenue officer advised petitioners that their offers in compromise could not be processed until petitioners' 1999 Federal income tax return was filed. Under respondent's procedures, offers are not processed while taxpayers are not in compliance with the internal revenue laws.
 
Petitioners had already filed for an extension of time to file for 1999 because they were awaiting information from third parties to complete the return. On June 15, 2000, respondent filed two Notices of Federal Tax Lien (NFTL) at the county recorder's office in Orange County, California, with respect to the individual and joint tax liabilities. Respondent sent petitioners the filed NFTLs and Notices of Right to a Collection Due Process Hearing. On July 14, 2000, petitioners submitted Form 12153, Request for a Collection Due Process Hearing (administrative hearing), contesting the NFTLs filed by respondent and noting the pending offers in compromise.
 
Sometime in 2001, petitioners' claims were assigned to respondent's Appeals officer. On June 20, 2001, the Appeals officer and petitioners had a telephone conversation discussing petitioners' desire to compromise all of the liabilities. The Appeals officer requested more information from petitioners, which they timely provided with a copy of their filed 1999 Federal income tax return. At some time in the process, petitioners submitted an amended offer in compromise for $2,400, to be paid in $100-monthly installments. Under those terms, the $2,400-offer could be paid in full in 2 years.
 
On October 16, 2001, respondent's Appeals officer sent petitioners a letter informing them that he had reviewed the offers in compromise. The Appeals officer determined that the minimum offer to compromise both the individual and joint liabilities should be a total of $2,400. The Appeals officer used petitioners' estimate of their primary vehicle3 to calculate a quick sale value of $2,400, which was determined to be the minimum acceptable offer. The Appeals officer then attempted to determine whether petitioners would be able to meet the monthly installment offer obligation. In calculating petitioners' financial capability, the Appeals officer used petitioners' submitted monthly gross income figure of $4,608, but did not use petitioners' submitted $3,989 monthly expense figure. Instead of using the $3,989 expense figure provided by petitioners, the Appeals officer used $4,644, an estimated amount based on national statistical averages. Using $4,644 resulted in petitioners' estimated monthly expenses exceeding their monthly income by $36 and rendering petitioners ineligible due to their projected inability to make the $100-monthly payments.
 
The Appeals officer rejected petitioners' offers in compromise. Petitioners requested an in person hearing, but a hearing was not held due to petitioners' unavailability. On February 21, 2002, respondent issued two separate notices of determination for the individual and joint liabilities sustaining the filing of the notices of Federal tax liens and rejecting petitioners' offers in compromise. Petitioners timely appealed to this Court for review of respondent's determinations.



OPINION
 
Petitioners contend that the Appeals officer abused his discretion by rejecting their offers in compromise and by sustaining the filing of the Federal tax liens.
 
Section 6320 provides that a taxpayer shall be notified in writing by the Secretary of the filing of a Federal tax lien and provided with an opportunity for an administrative hearing. Sec. 6320(b). Hearings under section 6320 are conducted in accordance with the procedural requirements set forth in section 6330. Sec. 6320(c).
 
When an Appeals officer issues a determination regarding a disputed collection action, section 6330(d) allows a taxpayer to seek judicial review with the Tax Court or a District Court. Where the validity of the underlying tax liability is properly at issue, the Court will review the matter on a de novo basis. Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000). However, when the validity of the underlying tax is not at issue, the Court will review the Commissioner's administrative determination for an abuse of discretion. Id. Petitioners do not dispute the validity of the underlying tax. Accordingly, our review is for an abuse of discretion.
 
We do not conduct an independent review of what would be acceptable offers in compromise. We review only whether the Appeals officer's refusal to accept the offers in compromise was arbitrary, capricious, or without sound basis in fact or law. See Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999). The Court considers whether the Commissioner abused his discretion in rejecting a taxpayer's position with respect to any relevant issues, including challenges to the appropriateness of the collections action, and offers of collection alternatives. See sec. 6330(c)(2)(A). This case involves collection alternatives.
 
Section 7122(a) authorizes the Secretary to compromise any civil case arising under the internal revenue laws. There are three standards that the Secretary may use to compromise a liability. The first standard is doubt as to liability, the second being doubt as to ability to collect, and the third being promotion of effective tax administration. Sec. 301.7122-1T(b), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999); see sec. 7122(c)(1). The record reflects that petitioners' offers are with respect to doubt as to collectibility.4
 
Section 7122(c) provides the standards for evaluation of such offers. Under section 7122(c)(2):
 
(A) * * * the Secretary shall develop and publish schedules of national and local allowances designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses.
 
(B) Use of schedules. --The guidelines shall provide that officers and employees of the Internal Revenue Service shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under subparagraph (A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses. [Emphasis added.]
 
The Appeals officer chose to use the national averages and that use resulted in petitioners' being categorized as not having adequate means to provide for basic living expenses.
 
The national average statistics are published by the Internal Revenue Service, but use of the statistics by Appeals officers is not mandatory. The Appeals officer exercised discretion in ignoring petitioners' submitted expense amount and, instead, used the national statistical amount as an estimate of petitioners' expenses. The use of the national averages for petitioners' expenses resulted in petitioners' monthly expenses exceeding their monthly income by $36. Therefore, by using the average expense figure, petitioners' income was $136 short of producing the $100 per month needed to compromise their tax liabilities for $2,400. We note that, percentagewise, the shortfall is less than 3 percent of petitioners' gross income. The Appeals officer chose to use the national statistical averages rather than the expense figures provided by petitioners. If the Appeals officer had used petitioners' submitted expense figure of $3,989, petitioners would have had $619 monthly and would have been financially capable of satisfying the $100 installments.
 
The Appeals officer is allowed to use the national schedules when considering the facts and circumstances of this case. However, if use of the schedules results in petitioners' not having adequate means to provide for basic living expenses, as here when the Appeals officer determined a negative $36 amount for basic living expenses, an installment offer may not be appropriate. See sec. 7122(c)(2)(B).
 
Under the regulations for doubt as to collectibility cases:
 
A determination of doubt as to collectibility will include a determination of ability to pay. In determining ability to pay, the Secretary will permit taxpayers to retain sufficient funds to pay basic living expenses. The determination of the amount of such basic living expenses will be founded upon an evaluation of the individual facts and circumstances presented by the taxpayer's case. To guide this determination, guidelines published by the Secretary on national and local living expense standards will be taken into account. [Sec. 301.7122-1T(b)(3)(ii), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999).]
 
The regulation provides that the guidelines are to be taken into account. When the Appeals officer reviewed petitioners' offers, he decided to use the guidelines because he thought petitioners' actual figures were too low. In that regard, there is no specific explanation why the Appeals officer believed that petitioners' monthly expenses of $3,989 was too low or why the guideline figure of $4,644 was more accurate. The use of the guideline expense figure resulted in a $136 shortfall in petitioners' capability to meet the $100-monthly installment to satisfy the $2,400 compromise. If petitioners' submitted monthly expenses of $3,989 had been used, there would have been a $619 surplus of income over expenses that would have enabled petitioners to meet the $100-monthly installment to satisfy the compromise.
 
In essence, the Appeals officer decided that petitioners could not live less expensively than the national average (guidelines). We find it curious that the Appeals officer relied on petitioners' figures for their vehicle and for their income, but chose not to use petitioners' figures for their monthly expenses. Petitioners made an estimate of $3,000 for the value of their primary car and the Appeals officer used this figure to calculate the quick sale value of $2,400. Based on this premise, the Appeals officer determined that an offer of $2,400 would be an appropriate amount to settle the outstanding liabilities due for 1990-92 and 1994-96. The Appeals officer requested a lump-sum payment through the sale of petitioners' primary vehicle. Petitioners rejected this approach as this was their primary vehicle and to sell it would have caused great financial harm.
 
Petitioners submitted an amended offer in compromise for $2,400, to be paid in $100 monthly installments. Under those terms, the $2,400 compromise could be paid in full in 2 years. That offer was rejected due to the Appeals officer's determination that petitioners were financially unable to make the payments. We note that petitioners had cooperated with all requests from the Internal Revenue Service in an attempt to resolve this matter.
 
Appeals officers, in the consideration of an offer in compromise should verify that the requirements of applicable law and administrative procedures have been met, and "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." See sec. 6330(c)(3)(C). The verification of applicable law and administrative procedure was met in this case. However, it is questionable as to whether the proposed collection action balanced the need for efficient collection of taxes with the concern of petitioners that any collection action be no more intrusive than necessary.
 
Payment plans are one possible option for an offer in compromise. According to the instructions that accompany the Form 656, there are three possible payment plans under the short-term deferred payment offer. One plan requires full payment of the realizable value of assets within 90 days from the date the Internal Revenue Service accepts the offer, and payment, within 2 years of acceptance of the amount that they could collect over 60 months. A second plan permits a cash payment for a portion of the realizable value of petitioners' assets within 90 days of the offer being accepted, and the balance of the realizable value plus the remainder of the amount that could have been collected over 60 months within 2 years. The third plan permits monthly payments of the entire offer amount over a period not to exceed 2 years from the date of acceptance by the Internal Revenue Service. Petitioners offered $100 per month for 2 years or 24 months, which equals the $2,400-compromise amount.5
 
Under the various payment options, respondent would be able to file Federal tax liens to protect his interests until such time as the liability is satisfied. Accordingly, respondent's interest would be protected through the liens while respondent received monthly payments. The result of the Appeals officer's financial analysis, however, was to deny petitioners' offers in compromise. To use the national guidelines rather than actual figures in this instance was arbitrary, capricious, and without a sound basis in fact. Petitioners have stated that they are still willing to compromise their tax liabilities for $2,400, but through monthly payments rather than a lump-sum payment.6
 
Therefore, based on the facts and circumstances of this case, we hold that respondent abused his discretion in denying petitioners' offer to compromise their tax liabilities for $2,400. We further hold that respondent did not abuse his discretion in sustaining the filing of the Notices of Federal Tax Liens.7
 
An appropriate decision will be entered.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code.

2 The parties' stipulation of facts is incorporated by this reference.

3 Petitioners estimated the value of their primary vehicle to be $3,000. Respondent used this figure to calculate the $2,400 quick sale value.

4 Doubt as to collectibility exists in any case where the taxpayer's assets and income are less than the full amount of the assessed liability. Sec. 301.7122-1T(b)(3), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999).

5 Although not relevant to the facts of this case, there is also a deferred payment offer that provides for a plan similar to the short-term deferred plan (the third plan described above). The deferred payment plan allows the entire offer amount to be made in monthly payments over the life of the collection statute. The deferred plan could result in a longer payment period than 24 months.

6 Petitioners and respondent agreed on the amount of the compromise. The only disagreement here is the method of payment. Based on the financial information submitted by petitioners, a payment plan is a reasonable option.

7 Petitioners have made no argument of merit from which an abuse of discretion could be found with respect to respondent's determination that the filing of the Notices of Federal Tax Liens was appropriate.
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There was no acceptance of a compromise settlement, which was negotiated during the trial, where the government's acceptance was not timely and unequivocal and where the taxpayer's counsel decided not to accept the settlement offer. Therefore, the taxpayer was not bound by the settlement agreement.

B.R. Kurio, DC Tex., 71-1 USTC ¶9112.

The Commissioner effectively accepted an offer to compromise a refund claim when he mailed the taxpayer's attorney a letter accepting the offer and informing the taxpayer that the refund settlement would be credited against the unpaid tax liability of a later tax year. The court rejected the taxpayer's argument that the IRS letter constituted a counteroffer rather than an acceptance because it materially altered the terms of the offer.

J.P. Kehoe, DC N.Y., 79-2 USTC ¶9524.

A taxpayer's offer of compromise that contained a waiver of limitations was rejected by the IRS, and, therefore, the IRS could not assert that it accepted the portion of the offer containing the waiver.

G. Hamm, DC Ky., 79-2 USTC ¶9731.

The IRS was not estopped from denying that it settled tax liabilities, even though it retained money offered as a settlement, because the procedures set forth for settling disputes were not followed. Since the statutory requirements were not followed, there could be no settlement, and thus no estoppel.

W.F. Brooks, DC W.Va., 86-2 USTC ¶9548.

Correspondence between a mutual insurance corporation and the government did not reflect an intention that the filing of a stipulation of dismissal would be a condition precedent to the completion of settlement negotiations. Because the parties entered into a valid settlement agreement, the government's acceptance letter merely stated that a stipulation of dismissal would "reflect" the agreement which had already been reached. As such, a stipulation was not essential to the validity of the parties' settlement agreement.

Principal Mutual Life Insurance Co., FedCl, 93-2 USTC ¶50,480, 29 FedCl 157. Aff'd on another issue, CA- FC, 95-1 USTC ¶50,160, 50 F3d 1021.

The co-owner of property foreclosed by a federal tax lien failed to show that he and the government had reached a settlement to release the property from the lien. There was no evidence that the government accepted his offer in compromise.

E.F. Ressler, DC Ala., 98-1 USTC ¶50,417.

A Cayman Islands corporation's suit for refund of federal withholding taxes was dismissed, with prejudice, in accordance with a closing agreement with the government. A letter sent by the taxpayer that purported to modify its settlement offer to include an offer-in-compromise with regard to tax years not at issue was ineffective. The taxpayer presented no evidence that the proper parties received the letter before the government accepted its offer.

Inverworld, Ltd., DC D.C., 2001-1 USTC ¶50,350. Aff'd, per curiam, CA-D.C. (unpublished opinion), 2002-1 USTC ¶50,113.

A proposed tax levy and collection action against an individual was not barred because the government failed to entertain a settlement or other compromise of her liability. The taxpayer failed to assert any Internal Revenue Code provision that establishes the government's legal obligation to compromise its action against her. The government has discretion to accept or reject any offer in compromise of a tax liability but is not legally obligated to even consider such an offer.

D.G. Asbury, DC Pa., 2002-1 USTC ¶50,117.

Married debtors' tender of a check to the government did not constitute an offer in compromise that would have discharged their tax liability. The government and the debtors agreed that an offer to compromise the tax liability of the debtors was never accepted in writing by an authorized official. Moreover, a certificate of assessment reflected that the debtors' offer in compromise was rejected.

L.M. Smallwood, BC-DC Ark., 2002-1 USTC ¶50,166.

A notice of deficiency was not invalidated on account of a prior assessment where it was sent to a taxpayer who, along with her husband (who was also her business partner), had signed a Form 870-L(AD) settlement offer that was not signed by the IRS until after the husband filed for bankruptcy. The settlement agreement was void as to both spouses because acceptance of the offer was precluded by the automatic stay provision of the Bankruptcy Code.

N.J. Gillian, 66 TCM 398, Dec. 49,218(M), TC Memo. 1993-366.

The government was not bound by an alleged proposed settlement between a former attorney and his wife and the IRS. A proposed decision document did not conform to the formalities required to execute a binding settlement. Even if the document constituted a formal settlement offer, there was no evidence that the taxpayers executed the agreement. Moreover, the IRS never executed the agreement, and no such document was filed with the Tax Court.

B.J. O'Sullivan, 68 TCM 407, Dec. 50,046(M), TC Memo. 1994-395. Aff'd, CA-9 (unpublished opinion), 96-2 USTC ¶50,496.

The IRS and an investor did not enter into a binding settlement agreement on deficiencies related to a tax shelter because the parties did not mutually assent to a settlement. The taxpayer failed to indicate his belief that a settlement agreement had been entered into until six months after he received written indications that the IRS did not believe that a settlement agreement existed.

T.W. Heil, 68 TCM 513, Dec. 50,071(M), TC Memo. 1994-417.

Married taxpayers who were assessed deficiencies did not have a binding settlement agreement with the IRS regarding the years at issue. Although the taxpayers submitted several Forms 656, Offer in Compromise in Any Civil or Criminal Case, and District Director's Recommendation, the IRS never accepted any of their settlement offers. An IRS employee's signing of the forms to indicate that the IRS accepted the taxpayers' waiver of the limitations period did not constitute an acceptance of their offers. Further, the IRS employee and the taxpayers' accountant testified that the IRS employee never orally agreed to accept the taxpayers' proposals. Since the husband had a history of dishonest, criminal behavior, his testimony with respect to the alleged oral agreement lacked credibility. Thus, the taxpayers failed to establish that a binding agreement existed.

D.L. Streck, 74 TCM 545, Dec. 52,240(M), TC Memo. 1997-407. Aff'd, CA-6 (unpublished opinion), 99-2 USTC ¶50,650.

The IRS's action in cashing a check submitted by an exempt association with a letter that purported to be an offer in compromise did not amount to an acceptance of the entity's offer and did not bar the IRS from asserting that its income activity gave rise to unrelated business taxable income. Rather, the letter merely constituted a settlement offer to resolve the dispute resulting from the IRS audit of the taxpayer for three of the tax years in issue. Moreover, no compromise was effected because the letter failed to meet the specific requirements of Code Sec. 7122.

Education Athletic Assoc., Inc., 77 TCM 1525, Dec. 53,284(M), TC Memo. 1999-75.

A married couple's offer to settle their tax liability for the amount of their deficiency, but excluding penalties and interest, did not constitute a binding compromise agreement. The taxpayers had received an oral confirmation from the IRS auditor that their offer had been accepted; however, the auditor believed their offer was a request for additional time to pay. In fact, the taxpayers had not submitted the offer on the appropriate form and had not received a written confirmation that the offer was accepted. Further, there was no mutual assent to the offer since the auditor misunderstood the nature of their request.

J. Ringgold, 86 TCM 28, Dec. 55,218(M), TC Memo. 2003-199.

Married taxpayers' challenge to an adverse Collection Due Process determination was rejected because they failed to establish an abuse of discretion on the part of the IRS. The officer's determination that the taxpayers had some ability to pay was supported by their proposed offer in compromise. In light of the unresolved question regarding the taxpayers' ownership of real property, the rejection of their proposed offer in compromise was sustained.

D.G. Willis, 86 TCM 506, Dec. 55,334(M), TC Memo. 2003-302.

Chief Counsel determined that a Compliance Area Director is entitled to compromise a case notwithstanding an opinion by Associate Area Counsel that opposed acceptance of a taxpayer's offer based upon a purported economic hardship that would ensue from collection in full. Although Code Sec. 7122(b) requires the opinion of the Associate Area Counsel whenever an offer in compromise is made, the opinion need not favor acceptance of the compromise in order for the IRS to accept the offer. The ultimate determination of whether an offer is accepted lies with the Area Director or other delegated official. However, an offer may not be accepted unless one of the bases for compromise recognized by Reg. 301.7122-1T has been established.

CCA Letter Ruling 200128054, May 29, 2001.

In a case involving a delinquent taxpayer who entered into a compromise agreement with the IRS to discharge the federal tax lien on her home in order to facilitate its sale, and who subsequently sought to compromise her tax liability after a collateral agreement was signed, Chief Counsel determined that the Service could accept the offer. The taxpayer submitted a separate offer in compromise conditioned on the Service's release of the mortgage on her home. However, acceptance of such an offer did not require the IRS to release the mortgage. A collateral agreement in which the taxpayer grants additional security to the IRS creates an independent cause of action and, thus, the original unpaid taxes giving rise to the statutory liens remain as separate liabilities. Absent language to the contrary in the compromise agreement, the mortgage remains unaffected.

IRS Letter Ruling 200133028, July 17, 2001.

The IRS could exercise its discretion to accept an offer in compromise in spite of the fact that processability rules pertaining to deposit, payment and filing of employment taxes changed prior to acceptance of the offer. Chief Counsel determined that the in-business corporation could not compel the IRS to apply the former rule that it demonstrated compliance by showing that it had been current in the preceding two quarters, rather than demonstrating compliance by having timely filed and timely deposited the previous two quarters' taxes. Nothing in the Internal Revenue Code or regulations prevented the Service from exercising its discretion to process an offer based on criteria that existed when the offer was first submitted.

CCA Letter Ruling 200137001, April 12, 2001.

An IRS Appeals officer abused his discretion in denying a couple's offer in compromise on the grounds that the taxpayers had inadequate income to meet their living expenses and pay the proposed monthly payments. The officer appeared to rely exclusively on the IRS's prescribed schedule of national and local average living expenses to determine that the taxpayers' basic living expenses exceeded their monthly income. However, all of the facts and circumstances, including the schedule of actual expenses submitted by the taxpayers, should have been considered in determining whether the taxpayers could pay both their expenses and the installment payments (Code Sec. 7122(c)(2)). The filing of the federal tax liens to secure the IRS's interest in the unpaid tax liability was not an abuse of discretion.

M. Fowler, 88 TCM 17, Dec. 55,689(M), TC Memo. 2004-163.

A settlement agreement between an individual and the IRS did not allow the taxpayer to claim business losses related to his wife's furniture business in a specific tax year. The IRS disallowed the losses, categorizing the expenses as start-up costs required to be capitalized. The IRS and the taxpayer reached a settlement for that year that included, in part, the disallowance of the business loss. The taxpayer argued, however, that the prior to signing the settlement an agreement was reached to allow the loss in the following year. Although the IRS agreed that the loss might be allowed in a subsequent year, there was no assent to allow the loss in any specific tax year. Moreover, the settlement did not contain any express agreement as to the business losses. Therefore, there was no binding agreement as to the losses.

K.J. Barela, 88 TCM 65, Dec. 55,707(M), TC Memo. 2004-175.

The IRS did not abuse its discretion in refusing to accept an individual's multiple offers to compromise her liability for the trust fund recovery penalty. The taxpayer's first offer was for significantly less than her collection potential, and she failed to explain why the IRS's two counter offers would pose a hardship. In calculating its counter offers, the IRS took into consideration the taxpayer's age and numerous medical problems. The IRS also offered to forgo collection until the taxpayer's financial situation improved, or the collection action expired. The taxpayer made the second offer at a Collection Due Process (CDP) hearing, arguing that there was doubt as to her liability for the penalty. Assuming that the issue of her liability was properly raised at the CDP hearing, sufficient evidence identified her as a responsible person.

A. Siquieros, DC Texas, 2005-1 USTC ¶50,244. Aff'd, per curiam, CA-5 (unpublished opinion), 2005-1 USTC ¶50,245.
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Ronald J. and June M. Speltz, Petitioners v. Commissioner, Respondent, Dkt. No. 15382-03L , 124 TC --, No. 9, March 23, 2005.

Offer in compromise: Abuse of discretion: Effective tax administration: Alternative minimum tax: Equity: Judicial review. --
Timothy J. Carlson, for petitioners; Albert B. Kerkhove and Stuart D. Murray, for respondent.
Ps incurred AMT liability as a result of their exercise of incentive stock options in 2000. The stock declined precipitously in value after the date of exercise. Ps partially paid the tax liability and submitted an offer in compromise with respect to the unpaid balance. The IRS rejected the offer in compromise and filed a lien on Ps' property. Held : It was not an abuse of discretion to reject Ps' offer in compromise and to continue the lien.


OPINION
COHEN, Judge: This case is before the Court on respondent's motion for summary judgment, seeking a determination sustaining an Appeals officer's rejection of petitioners' offer in compromise. Petitioners seek a summary determination that it was an abuse of discretion to refuse their offer in compromise because of the unfair application of the alternative minimum tax (AMT) based on their exercise of incentive stock options (ISOs) where the stock acquired by exercise of the ISOs has lost substantially all of its value subsequent to the acquisition of the stock. Unless otherwise indicated, all section references are to the Internal Revenue Code as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.


Background
In ruling on respondent's motion for summary judgment, factual inferences are viewed in the light most favorable to petitioners. Preece v. Commissioner, 95 T.C. 594, 597 (1990). Thus, the background facts set forth herein are based primarily on petitioners' declaration in opposition to the motion for summary judgment and on other materials submitted by petitioners.
Petitioners resided in Ely, Iowa, at the time that they filed their petition. For some years prior to 2000, petitioner Ronald J. Speltz (petitioner) was employed by McLeodUSA (McLeod). By 2000, petitioner was a senior manager at McLeod earning wages in excess of $75,000. By 2004, petitioner's wages were approximately $90,000 per year. As part of his compensation at McLeod, petitioner received ISOs for acquisition of McLeod stock.
During the year 2000, petitioner exercised certain of the ISOs that he previously had received. On petitioners' Form 1040, U.S. Individual Income Tax Return, for 2000, petitioners reported, for purposes of the AMT, those ISOs as resulting in "excess of AMT income over regular tax income" of $711,118. On their Form 1040, petitioners reported that their "regular" adjusted gross income was $142,070. Their taxable income was $105,461, and their "regular" tax was $18,678. Petitioners reported AMT of $206,191 for a total tax liability of $224,869. After application of Federal income tax withheld, the balance owed on petitioners' tax liability for 2000 was $210,065. Petitioners also filed a 2000 Iowa Individual Income Tax Long Form, IA 1040, on which they reported Iowa minimum tax of $46,792 and a total tax liability of $56,769.
 
The value of petitioners' McLeod stock dropped precipitously. On their tax return for 2000, petitioners reported that they sold 200 shares of McLeod stock on January 14 for a total of $14,011 and 500 shares of McLeod stock on March 10 for a total of $52,282. On their tax return for 2002, petitioners reported that they sold 2,070 shares of McLeod stock on December 30 for a total of $1,647.Petitioners partially paid the liability reported on their 2000 Form 1040 at the time that it was filed and paid an additional $75,000 in installments prior to November 2, 2001. Petitioners borrowed $134,000 from a bank to pay State and Federal taxes reported on their 2000 returns.
On or about November 2, 2001, petitioners submitted to the Internal Revenue Service (IRS) a Form 656, Offer in Compromise. Petitioners offered a cash payment of $4,457, the cash value of petitioner's life insurance policy, against the liability that then exceeded $125,000. On the Form 656, petitioners checked the box for "Doubt as to Collectibility --`I have insufficient assets and income to pay the full amount.' " Petitioners also attached to Form 656 a statement in which they explained that an offer in compromise was necessary because of the impact the AMT in 2000 had on their finances and their lifestyle. Specifically, petitioner's income in 2000 was at a comfortable level for a family of five including three young daughters; the McLeod stock they held was nearly worthless and declining and had been used to secure a $134,000 loan with a bank to pay part of the 2000 Federal and State taxes; and, in the event of a sale of the stock (forced or otherwise), petitioners would be unable to carry back the capital loss to offset their 2000 gain. They began building a new home in 2000 and sold their prior home in 2001, using the proceeds of sale to repay the bank. Lifestyle changes were necessary, including: Petitioner June M. Speltz had to get a job instead of staying home with the children; the oldest daughter had to switch schools; petitioners were unable to contribute to their retirement and to their children's education fund; and they had to reduce their charitable donations. Finally, they could not afford to have a fourth child, which they had wanted.
Petitioners offered in compromise $4,457, the cash surrender value on petitioner's life insurance. In the statement, petitioners expressed their mental anguish and frustration with the unfairness of their situation. Petitioners' offer in compromise was reviewed by Revenue Officer Robert G. Dallas (Dallas), an offer in compromise specialist. Dallas indicated to petitioners that he was rejecting the offer in compromise because petitioners had the ability to pay the outstanding tax liability in full. On October 6, 2002, petitioners wrote to Dallas disputing amounts that Dallas had used in his calculation. On October 9, 2002, Dallas indicated that certain adjustments that were requested by petitioners had been made. He wrote, however:
The adjustments to the Income/Expense table you requested have not been granted because the allowed amount * * * is the allowable housing and utility standard for families of your number in Linn County, Iowa. The excess expenses you have claimed * * * cannot be moved * * * solely to circumvent the allowable standard amount.
Based upon your current financial condition, we have determined that you have the ability to pay your liability in full within the time provided by law. We have made this determination based on the following computations:
                                                                      
                                                                       
  Total net equity in assets: ............................    $77,948.00
                                                                      
  Total future ability to pay and retire debt: ...........   $113,568.00
                                                                       
  Total ability to pay: ..................................   $191,516.00
                                                                      
  Total balance due: .....................................   $148,744.64
                                                                       
  Amount you offered: ....................................     $4,457.00                                                                   
 
Copies of our worksheets are enclosed for your review.
Your options at this time are to pay your liability in full, enter into an installment agreement, withdraw your offer using the withdrawal letter previously provided or withhold your response and appeal your offer's failure to gain acceptance through the appeal procedure that you will be offered. Please advise of your preferred course of action.
Please respond within 14 days of the date of this letter. If you fail to respond or if your response is egregiously inadequate, a Federal Tax Lien will be filed if one is not already a matter of record and the case will be forwarded to an independent reviewer without a recommendation for approval. If the reviewer concurs with the conclusion of my investigation, you will be notified by mail and advised of your appeal rights. If there is a need for additional information you will be notified.
On December 17, 2002, respondent sent to petitioners a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320, with respect to their unpaid income tax liability for 2000, advising that petitioners could request a hearing with respondent's Office of Appeals. On January 13, 2003, petitioners submitted a Form 12153, Request for a Collection Due Process Hearing. Petitioners stated that they were disagreeing with the Notice of Federal Tax Lien because:
Forms 433-A and 656 have been prepared and filed with the IRS as an Offer in Compromise. The only real estate owned by the taxpayers is their personal residence * * *. Such residence constitutes exempt property, and therefore, the IRS' attempted lien is unenforceable.
Petitioners' Request for a Collection Due Process Hearing was signed by their then attorney.
On February 12, 2003, a telephone conference was held between respondent's Appeals Officer Eugene H. DeBoer (DeBoer) and petitioners' attorney. On February 13, 2003, DeBoer wrote to petitioners' attorney a letter summarizing their discussion and stating the following:
In regards to your question about changes to the alternative minimum tax laws. At this time there is no pending legislation that would retroactively change how the AMT was computed for 2000. Accordingly, the tax as reported appears to be correct.
 
Neither petitioners nor their attorney responded to the February 13, 2003, letter from DeBoer. Instead, petitioners' attorney contacted their Senator and the Taxpayer Advocate Service.
 
On August 12, 2003, a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 was sent to petitioners. The attachment to the notice explained the determination as follows:



SUMMARY AND RECOMMENDATION
 
Should the lien be released or withdrawn?
No, the tax as assessed is deemed correct and the offer in compromise proposed by the taxpayers has been rejected.
BRIEF BACKGROUND
Mr. and Mrs. Speltz filed their 2000 return showing a liability of $209,749.77. They made a payment with the return of $17,565. Payments of $70,000 were made prior to an installment agreement which was entered into for $2,500. Two payments of $2,500 made prior to the filing of an offer in compromise of $4,457 on 11/2/2001. The offer was rejected due to the taxpayers having assets and the ability to full pay the liability. A lien was then filed. The taxpayers' representative states on the request for a collection due process hearing that the personal residence constitutes exempt property and therefore the IRS' attempted lien is unenforceable. A phone conference was held with the representative, * * * who questioned whether there was any pending legislation aimed at changing how the alternative minimum tax is computed. A check with the national office shows that there is no pending legislation to retroactively adjust how the alternative minimum tax is computed.


DISCUSSION AND ANALYSIS
 
1. Verification of legal and procedural requirements; Yes
2. Issues raised by the taxpayer; The offer in compromise was rejected.
3. Balancing of need for efficient collection with taxpayer concern that the collection action be no more intrusive than necessary. The collection action balances the need for the efficient collection of taxes with the Speltz's legitimate concern that the collection action be no more intrusive than necessary.
The petition in this case was filed by petitioners pro se; counsel entered his appearance after respondent filed a motion for summary judgment. In their petition, petitioners do not allege any specific abuse of discretion with respect to the notice of determination. Instead, they refer to their communications with the Taxpayer Advocate's Office and to the office of their Senator.



Discussion
 
Section 6321 imposes a lien in favor of the United States on all property and rights to property of a person when a demand for the payment of the person's taxes has been made and the person fails to pay those taxes. Section 6322 provides that such a lien arises when an assessment is made. To protect the Government's rights to recover its unpaid taxes, section 6323(a) provides that the IRS may file a notice of Federal tax lien in order to establish the priority of its claims against the taxpayer's other creditors.
In the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3401, 112 Stat. 746, Congress enacted sections 6320 (pertaining to liens) and 6330 (pertaining to levies) to provide protections for taxpayers in tax collection matters. Section 6320 requires that the Secretary notify a person who has failed to pay a tax liability of the filing of a notice of lien under section 6323. The notice required by section 6320 must be provided not more than 5 business days after the day of the filing of the notice of lien, pursuant to section 6320(a)(2). Section 6320 further provides that the person so notified may request administrative review of the matter (in the form of a hearing) within 30 days beginning on the day after the 5-day period. Under section 6320(c), the hearing generally is to be conducted consistent with the procedures set forth in section 6330(c), (d), and (e). Section 6330(c) permits the person notified to raise collection issues such as spousal defenses, the appropriateness of the Commissioner's intended collection action, and possible alternative means of collection.
Section 6330(d) provides for judicial review of the administrative determination. Where the validity of the underlying tax liability is not properly at issue, the Court will review the Commissioner's administrative determination for abuse of discretion. See Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176, 179 (2000); see also H. Conf. Rept. 105-599, at 266 (1998), 1998-3 C.B. 747, 1020.
Also in 1998, Congress amended section 7122, which authorizes compromise of any civil case arising under the internal revenue laws. RRA 1998, sec. 3462, 112 Stat. 764. Subsections (c) and (d) of section 7122 were amended for proposed offers in compromise and installment agreements submitted after July 22, 1998, and provide as follows:
SEC. 7122(c). Standards for Evaluation of Offers. --
 
(1) In general.--The Secretary shall prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute.
 
(2) Allowances for basic living expenses. --
 
(A) In general.--In prescribing guidelines under paragraph (1), the Secretary shall develop and publish schedules of national and local allowances designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses.
 
(B) Use of schedules.--The guidelines shall provide that officers and employees of the Internal Revenue Service shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under subparagraph (A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses.
 
(3) Special rules relating to treatment of offers.--The guidelines under paragraph (1) shall provide that --
 
(A) an officer or employee of the Internal Revenue Service shall not reject an offer-in-compromise from a low-income taxpayer solely on the basis of the amount of the offer; and
 
(B) in the case of an offer-incompromise which relates only to issues of liability of the taxpayer --
 
(i) such offer shall not be rejected solely because the Secretary is unable to locate the taxpayer's return or return information for verification of such liability; and
 
(ii) the taxpayer shall not be required to provide a financial statement.
 
(d) Administrative Review.--The Secretary shall establish procedures --
 
(1) for an independent administrative review of any rejection of a proposed offer-in-compromise or installment agreement made by a taxpayer under this section or section 6159 before such rejection is communicated to the taxpayer; and
 
(2) which allow a taxpayer to appeal any rejection of such offer or agreement to the Internal Revenue Service Office of Appeals.
 
Regulations adopted pursuant to section 7122 set forth three grounds for the compromise of a liability: (1) Doubt as to liability; (2) doubt as to collectibility; or (3) promotion of effective tax administration. Sec. 301.7122-1, Proced. & Admin. Regs. With respect to the third ground, paragraph (b)(3)(i) of the regulation allows for a compromise to be entered into to promote effective tax administration where collection in full could be achieved but would cause economic hardship. Paragraph (c)(3)(i) sets forth factors that would support (but are not conclusive of) a finding of economic hardship. With respect to the third ground, those regulations state:
 
(3) Compromises to promote effective tax administration.--(i) Factors supporting (but not conclusive of) a determination that collection would cause economic hardship within the meaning of paragraph (b)(3)(i) of this section include, but are not limited to --
 
(A) Taxpayer is incapable of earning a living because of a long term illness, medical condition, or disability, and it is reasonably foreseeable that taxpayer's financial resources will be exhausted providing for care and support during the course of the condition;
 
(B) Although taxpayer has certain monthly income, that income is exhausted each month in providing for the care of dependents with no other means of support; and
 
(C) Although taxpayer has certain assets, the taxpayer is unable to borrow against the equity in those assets and liquidation of those assets to pay outstanding tax liabilities would render the taxpayer unable to meet basic living expenses.
 
The regulation states that no compromise may be entered into if such compromise of liability would undermine compliance by the taxpayer with the tax laws. Sec. 301.7122-1(b)(3)(iii), Proced. & Admin. Regs. Paragraph (c)(3)(ii) then sets forth factors that support (but are not conclusive of) a determination that a compromise would undermine compliance with the tax laws. These factors include: (A) A taxpayer who has a history of noncompliance with the filing and payment requirements of the Internal Revenue Code; (B) a taxpayer who has taken deliberate action to avoid the payment of taxes; and (C) a taxpayer who has encouraged others to refuse to comply with the tax laws. Sec. 301.7122-1(c)(3)(ii), Proced. & Admin. Regs. The regulation continues:
 
(iii) The following examples illustrate the types of cases that may be compromised by the Secretary, at the Secretary's discretion, under the economic hardship provisions of paragraph (b)(3)(i) of this section:
 
Example 1. The taxpayer has assets sufficient to satisfy the tax liability. The taxpayer provides full time care and assistance to her dependent child, who has a serious long-term illness. It is expected that the taxpayer will need to use the equity in his assets to provide for adequate basic living expenses and medical care for his child. The taxpayer's overall compliance history does not weigh against compromise.
 
Example 2. The taxpayer is retired and his only income is from a pension. The taxpayer's only asset is a retirement account, and the funds in the account are sufficient to satisfy the liability. Liquidation of the retirement account would leave the taxpayer without an adequate means to provide for basic living expenses. The taxpayer's overall compliance history does not weigh against compromise.
 
Example 3. The taxpayer is disabled and lives on a fixed income that will not, after allowance of basic living expenses, permit full payment of his liability under an installment agreement. The taxpayer also owns a modest house that has been specially equipped to accommodate his disability. The taxpayer's equity in the house is sufficient to permit payment of the liability he owes. However, because of his disability and limited earning potential, the taxpayer is unable to obtain a mortgage or otherwise borrow against this equity. In addition, because the taxpayer's home has been specially equipped to accommodate his disability, forced sale of the taxpayer's residence would create severe adverse consequences for the taxpayer. The taxpayer's overall compliance history does not weigh against compromise.
 
Under the regulations, a compromise may also be entered into to promote efficient tax administration if there are compelling public policy or equity considerations identified by the taxpayer. Compromise is justified where, due to exceptional circumstances, collection would undermine public confidence that tax laws are being administered fairly. Sec. 301.7122-1(b)(3)(ii), Proced. & Admin. Regs. Some examples where a compromise is allowed for purposes of public policy and equity are: (1) A taxpayer who was hospitalized regularly for a number of years and was unable, at that time, to manage his financial affairs and (2) a taxpayer learns at audit that he was given erroneous advice and is facing additional taxes, penalties, and additions to tax. Sec. 301.7122-1(c)(3)(iv), Proced. & Admin. Regs. In addition to the regulations, detailed instructions concerning offers in compromise are contained in the Internal Revenue Manual, sections 5.8. Relevant portions are as follows:
 
Sec. 5.8.11.2.2 (05-15-2004)
 
Public Policy or Equity Grounds
 
1. Where there is no Doubt as to Liability (DATL), no Doubt as to Collectibility (DATC), and the liability could be collected in full without causing economic hardship, the Service may compromise to promote Effective Tax Administration (ETA) where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for accepting less than full payment. Compromise is authorized on this basis only where, due to exceptional circumstances, collection in full would undermine public confidence that the tax laws are being administered in a fair and equitable manner. Because the Service assumes that Congress imposes tax liabilities only where it determines it is fair to do so, compromise on these grounds will be rare.
 
2. The Service recognizes that compromise on these grounds will often raise the issue of disparate treatment of taxpayers who can pay in full and whose liabilities arose under substantially similar circumstances. Taxpayers seeking compromise on this basis bear the burden of demonstrating circumstances that are compelling enough to justify compromise notwithstanding this inherent inequity.
 
3. Compromise on public policy or equity grounds is not authorized based solely on a taxpayer's belief that a provision of the tax law is itself unfair. Where a taxpayer is clearly liable for taxes, penalties, or interest due to operation of law, a finding that the law is unfair would undermine the will of Congress in imposing liability under those circumstances.
 
Example:
 
The taxpayer argues that collection would be inequitable because the liability resulted from a discharge of indebtedness rather than from wages. Because Congress has clearly stated that a discharge of indebtedness results in taxable income to the taxpayer it would not promote Effective Tax Administration (ETA) to compromise on these grounds. See Internal Revenue Code (IRC) 61(a)(12).
 
Example:
 
In 1983, the taxpayer invested in a nationally marketed partnership which promised the taxpayer tax benefits far exceeding the amount of the investment. * * * [T]he IRS made a global settlement offer in which it offered to concede a substantial portion of the interest and penalties that could be expected to be assessed if the IRS's determinations were upheld by the court. The taxpayer rejected the settlement offer. After several years of litigation, the partnership level proceeding eventually ended in Tax Court decisions upholding the vast majority of the deficiencies asserted in the FPAA on the grounds that the partnership's activities lacked economic substance. The taxpayer has now offered to compromise all the penalties and interest on terms more favorable than those contained in the prior settlement offer, arguing that TEFRA [Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, 96 Stat. 324] is unfair and that the liabilities accrued in large part due to the actions of the Tax Matters Partner (TMP) during the audit and litigation. * * *
 
Note:
 
In both of these examples, the taxpayers are essentially claiming that Congress enacted unfair statutes and are arguing that the Service should use its compromise authority to rewrite those statutes based on a perception of unfairness. Compromise for that reason would not promote effective tax administration. The compromise authority under Section 7122 is not so broad as to allow the Service to disregard or override the judgments of Congress. [1 Administration, Internal Revenue Manual (CCH), sec. 5.8.11.2.2, at 16,385-7 to 16,385-8.]
 
We need not detail in this opinion the complexities of the AMT imposed by sections 55 and 56 or the taxation of ISOs under sections 421 and 422. Petitioners do not dispute the applicability of those sections or the computations under them. The tax liability in this case was based on petitioners' reporting on their Form 1040 for 2000. Nonetheless, petitioners devote a substantial portion of their posthearing memorandum to arguing that:
 
The Speltzes request for relief under the OIC Statute, from the unintended harm being caused them by the rote application of the AMT ISO Statute, does not put the IRS or this Court in a position where Section 7122 is undermining Congressional intent with respect to any other statute--including the AMT ISO Statute. Rather, based on their special circumstances in their particular situation, the rote and literal application of the internal revenue laws is imposing an impossible-to-pay 220% tax rate or 11x the tax required of a similarly situated taxpayer--an unintended result not consistent with the legislative purpose of Congress for any internal revenue law. In such a special case, Congress intended that the OIC Statute would operate to step in and provide relief from this unintended and unfair tax liability arising from unintended results arising from the literal application of the internal revenue laws (in this case, the AMT ISO Statute).
 
Petitioners contend that there was an abuse of discretion because:
 
The IRS failed to consider (or if it did consider it failed to properly consider), under the principles and processes laid out in Section 7122, corresponding regulations 26 CFR 301.7122, and the corresponding IRM provisions, the special circumstances raised by the Speltzes in their offer in compromise.
 
Petitioners argue that "under their special circumstances the tax liability being imposed on them is unfair and inequitable, a situation for which Congress has fashioned a remedy in the law --Section 7122." The crux of petitioners' position is that section 7122 "trumps" the literal application of statutes imposing a tax in their situation and that, therefore, it was an abuse of discretion by the Appeals Office not to accept their offer in compromise.
Respondent, on the other hand, contends that the Appeals officer correctly applied the statute, the regulations, and the Internal Revenue Manual provisions. For the reasons explained below, we agree with respondent.
The unfortunate consequences of the AMT in various circumstances have been litigated since shortly after the adoption of the AMT. In many different contexts, literal application of the AMT has led to a perceived hardship, but challenges based on equity have been uniformly rejected. See, e.g., Alexander v. Commissioner, 72 F.3d 938 (1st Cir. 1995), affg. T.C. Memo. 1995-51; Okin v. Commissioner, 808 F.2d 1338 (9th Cir. 1987), affg. T.C. Memo. 1985-199; Warfield v. Commissioner, 84 T.C. 179 (1985); Huntsberry v. Commissioner, 83 T.C. 742, 747-753 (1984); Prosman v. Commissioner, T.C. Memo. 1999-87; Klaassen v. Commissioner, T.C. Memo. 1998-241, affd. without published opinion 182 F.3d 932 (10th Cir. 1999).
In Kenseth v. Commissioner, 259 F.3d 881, 885 (7th Cir. 2001), affg. 114 T.C. 399 (2000), the Court of Appeals for the Seventh Circuit commented:
 
it is not a feasible judicial undertaking to achieve global equity in taxation * * * especially when the means suggested for eliminating one inequity (that which Kenseth argues is created by the alternative minimum income tax) consists of creating another inequity (differential treatment for purposes of that tax of fixed and contingent legal fees). And if it were a feasible judicial undertaking, it still would not be a proper one, equity in taxation being a political rather than a jural concept. * * *
 
Most recently, in Commissioner v. Banks, 543 U.S. ___, 125 S.Ct. 826 (2005), the U.S. Supreme Court emphasized that the issue of the effect of the AMT on cases such as Kenseth v. Commissioner, supra, involving the deductibility of attorney's fees, has partially been addressed by Congress. We believe that here, too, the solution must be with Congress.
 
Petitioners have submitted materials from congressional, Taxpayer Advocate, and bar association sources, dealing with a widespread perception that application of the AMT to ISOs is unfair and should be the subject of redress. Respondent argues that petitioners did not raise efficient tax administration as a ground in their original offer in compromise and that we should not consider materials beyond the administrative record. The Court has indicated that we are not confined to the administrative record. Robinette v. Commissioner, 123 T.C. 85, 94-104 (2004). However, most of the material that petitioners attached to their filings is not part of the administrative record, is not admissible evidence, and was in large part generated subsequent to the notice of determination that is the basis of this case. Such material does not show that there was an abuse of discretion by the Appeals officer when the notice of determination was sent on August 12, 2003. See Sego v. Commissioner, 114 T.C. 604, 612 (2000).
 
Petitioners' materials, in any event, could support arguments both for and against petitioners' position. Petitioners assert that those materials show "public policy". In our view, however, those materials show that Congress is well aware of the claimed inequities resulting from the application of the AMT and has, so far, declined to act. In the absence of congressional action, we cannot discern public policy from the materials tendered by petitioners. Moreover, the materials submitted by petitioners show that their situation is, unfortunately, not unique.
 
We do not discern in section 7122 an intent of Congress to override application of specific provisions of the tax laws in every instance in which the liability is perceived to be unfair or inequitable. As the Court of Appeals for the Seventh Circuit observed in Kenseth v. Commissioner, supra, this is not a feasible judicial function. A fortiori, individual revenue officers and Appeals officers, carrying out their respective functions in the IRS collection process, cannot be expected to engage in the type of statutory interpretation urged on us by petitioners or to nullify unfortunate consequences of the tax laws on a case-by-case basis. The terms of section 7122, the regulations adopted under it, and the Internal Revenue Manual are consistent with the experience and expertise of IRS personnel in evaluating financial circumstances. Petitioners do not argue that the regulations or the Internal Revenue Manual provisions are invalid. They claim that they were not followed. But terms such as "promotion of effective tax administration", "special circumstances", and "compelling public policy or equity considerations" have a narrower meaning than that urged by petitioners, and the explanations of those terms in the regulations and in the Internal Revenue Manual are not unreasonable.
 
Unlike the examples set forth under section 301.7122-1(c), Proced. & Admin. Regs., petitioners do not claim illness or a medical condition or disability; they do not have income that is exhausted providing for the care of dependents; and they have sufficient income to meet "basic living expenses". Petitioners' hardship argument is essentially that the tax liability is disproportionate to the value that they received from the ISOs and that they have already been forced to change their lifestyle unreasonably. Although we sympathize with their situation, this type of hardship is not unique.
 
Petitioners argue that the AMT imposed on their exercise of ISOs is a "prepayment" of tax on value that they never received. Under the statutory scheme, however, the tax imposed at the time of exercise of ISOs is a deferred tax on a form of compensation that petitioners received at an earlier time. See Commissioner v. LoBue, 351 U.S. 243 (1956). As explained in Luckman v. Commissioner, 418 F.2d 381, 384 (7th Cir. 1969), revg. and remanding on other grounds 50 T.C. 619 (1968), stock options "represent a form of compensation paid to employees in connection with successful present and future business performance. They constitute a particularly rewarding form of bonus." See generally 1 Mertens, Law of Federal Income Taxation, sec. 601 (2005 rev.). Because of sections 421(a) and 422, regular tax at ordinary rates that would normally be imposed on compensation is not imposed on the receipt or exercise of ISOs. See sec. 83(a), (e)(1). The offset, however, is that ISOs are treated as "tax preference items" for AMT purposes in section 56(b)(3).
 
In addition to affecting the time of taxation, the complexity of statutes applicable to stock options involves differences between taxation at ordinary income rates and capital gains rates. See generally Luckman v. Commissioner, supra at 386-387. Accepting petitioners' position would result in nullification of a portion of the statutory scheme by administrative or judicial action. We cannot conclude that section 7122 gives the Court a license to make adjustments to complex tax laws on a case-by-case basis. Cf. Rank v. United States, 345 F.2d 337, 344-345 (5th Cir. 1965) (describing other circumstances in which "the attention of Congress was once again focused on this highly complex, if not controversial, question of employee stock options"). Moreover, we cannot conclude that it is an abuse of discretion for the Appeals officer to decline to do so. In this case, we conclude that the Appeals officer correctly applied the provisions of the regulations and of the Internal Revenue Manual, specifically those portions cautioning against granting relief based on inequity where to do so would undermine congressional intent.
 
The Appeals officer considered and adjusted the financial information submitted by petitioners and concluded that petitioners could pay the balance of their tax liability by use of an installment agreement. See generally Orum v. Commissioner, 123 T.C. 1, 13-14 (2004). Neither the information provided to the Appeals officer nor that provided to the Court in this case shows that it was not reasonable for the Appeals officer to conclude that petitioners have the ability to pay over time the balance of the tax liability. Petitioners contend that they should not be required to pay the full amount. We are not unsympathetic to the burdens and lifestyle changes that petitioners have and may suffer as a result of their tax liability. Petitioners have not contended or shown, however, any invalidity in the Appeals officer's determination of their basic living expenses as that term is used in section 7122. Petitioners seek to have the Court redefine "hardship", "special circumstances", and "efficient tax administration" in a manner different from that set forth in the regulations and in the Internal Revenue Manual.
 
There is a dispute between the parties with respect to the individual adjustments used by the Appeals officer in determining that petitioners could pay the remaining tax liability under an installment plan. Respondent has suggested some revised computations and a remand for further consideration of petitioners' offer in compromise if the motion for summary judgment is denied. Petitioners have repudiated this suggestion and asked us to decide this case on the arguments presented. In view of petitioners' position, for purposes of this case, that they should not be required to pay any more than the amount that they offered, differences as to the calculation of their ability to pay installments are not material and do not preclude resolution of this case on summary judgment. See Rule 121(b). We are not in a position to determine the amount or duration of any installments that petitioners could or should be required to pay. The only issue before us is whether there was an abuse of discretion in refusing the offer in compromise in the amount of $4,457 and concluding that the lien filed by the IRS should remain in place. As respondent points out, any levy on particular assets of petitioners that the IRS proposes to pursue in the future will also require notice and an opportunity to be heard under section 6320 or 6330. Petitioners may submit another offer in compromise. Petitioners' income and expenses may change. We conclude, however, that there was no abuse of discretion in declining to accept petitioners' offer dated November 2, 2001, and continuing the lien in effect.
 
Order and Decision will be entered for respondent.
 
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William Negron Ramos v. Internal Revenue Service,U.S. District Court, No. Dist. N.Y.; 1:04-CV-540 (LEK/RFT), January 3, 2005, 2005-1 USTC 50,160

Practice and procedure: Collection Due Process hearing: IRS abuse of discretion: Notice of determination. --
The IRS properly determined that collection proceedings could proceed against a delinquent accountant. Since the taxpayer did not challenge his underlying tax liability, the court's review of his Collection Due Process (CDP) hearing was limited to whether the IRS abused its discretion. The taxpayer's notice of determination properly explained how the requirements of applicable law and administrative procedure were met, and how the determination balanced efficient tax administration with the least intrusive collection actions. The delay in issuing the notice did not entitle him to damages because the IRS is not required to issue the notice within a certain period, and the damages allegedly arose from IRS collection activities rather than the determination of the taxpayer's liability.

Offer in compromise: Rejection of: Likelihood of collection. --
The IRS properly rejected a delinquent accountant's offer in compromise because he had not questioned his tax liability, and collection of the full liability would not cause him economic hardship. Although the taxpayer was unemployed, that appeared to be a temporary situation. Moreover, he had adequate income and assets to pay the liability; his spouse was employed; and he received financial assistance from his adult children who lived at home. Further, no compelling public policy or equity considerations compelled acceptance of the offer.
The District Court lacked jurisdiction over a delinquent accountant's claim for damages that he alleged were caused by the IRS's delay in reaching a determination after his Collection Due Process (CDP) hearing. CDP jurisdiction did not apply because his claim arose after the hearing, and related to the collection of his liability, rather than its determination. Jurisdiction under the Administrative Procedures Act was limited to relief other than money damages. Finally, the taxpayer was not entitled to damages for unauthorized collection activities because he failed to allege that any IRS officer violated any provision of the Internal Revenue Code or its regulations.]

A delinquent accountant was not entitled to be reinstated in the IRS electronic filing program. The IRS has the authority to suspend program participants for failure to pay any tax liabilities or assessed penalties. The taxpayer did not dispute that he owed money to the IRS for taxes and penalties, nor did he allege any wrongful action on the part of the IRS.


MEMORANDUM-DECISION AND ORDER 1


I. Background

K AHN, District Judge: Plaintiff William Negron Ramos ("Negron") filed this action to dispute Defendant Internal Revenue Service's ("IRS") April 14, 2004 determination ("determination") with respect to his tax liability. Negron seeks to have the Court overturn this determination of the IRS Appeals Office and order in its place Negron's Offer in Compromise ("OIC"). Negron requests damages in the amount of $2,500 for a business investment that he made in reliance on representations made to him by an IRS agent regarding the amount of time it would take the IRS Appeals Office to issue a determination of his tax liability. He also requests that his suspension from the electronic tax filing program based upon his outstanding tax liability be limited to the current tax year only. Currently before the Court are the IRS' motion to affirm its determination concerning collection action and motion to dismiss Negron's claims for damages and alteration of his suspension from the electronic filing program.


II. Facts

The IRS assessed a trust fund recovery penalty against Negron for the tax period ending September 30, 1995 for failure to pay income and Federal Insurance Contribution Act (FICA) taxes owed by a failed business for which he was a principal. Complaint (Dkt. No. 1) at 3; IRS Motion (Dkt. No. 7) at 2. The original debt was approximately $13,000. Complaint (Dkt. No. 1) at 3. On April 17, 2003, the IRS sent him a Final Notice of Intent to Levy and Notice of Your Right to a Hearing letter. Final Notice (Dkt. No. 7, Ex. B) at 1; Complaint (Dkt. No. 1) at 7. According to this letter, Negron owed $23,121.38, which included the assessment of $12,899.73 plus statutory additions of $10,221.65. Final Notice (Dkt. No. 7, Ex. B) at 2. Negron timely requested a Collection Due Process ("CDP") hearing, seeking a reconsideration of his last OIC because he had been unemployed for six months. Request (Dkt. No. 7, Ex. C) at 1; Complaint (Dkt. No. 1) at 4. The CDP hearing was held on September 9, 2003. Complaint (Dkt. No. 1) at 3. Negron claims that at the close of this hearing, the IRS agent said, "I will evaluate your new offer, I will at least like to recover the original debt, but I would not be able to get back to you probable [ sic] until next month." Id.

Negron has been unemployed since November 2002, and his employment benefits ceased in October 2003. Id. After the termination of his unemployment benefits, he started a business providing accounting services, including tax preparation. Id. At the end of October, Negron called the IRS about the status of his case, and was told by an IRS agent that "I am in the middle of finishing another case, your case is next." Id.

Negron was previously authorized to participate in the IRS' electronic tax filing program, but had to be readmitted into the program. Id. He borrowed and invested approximately $2,500 and began the process for readmission. Id. On February 2, 2004, Negron was denied authorization to participate in the program because, although he was trying to rectify the issue, he still had a balance due to the IRS. Program Denial Letter (Dkt. No. 1) at 10. Negron wrote a letter to appeal that denial, explaining that his case was still being decided by the IRS Appeals Office. Program Appeal (Dkt. No. 1) at 12. On February 17, 2004, his appeal of the February 2 decision was denied because, regardless of his situation, his civil penalty issue remained unresolved and his balance was still unpaid. Program Appeal Denial (Dkt. No. 1) at 13. He was suspended from participation in the program until January 1, 2006. Id. This denial stated that Negron had a right to appeal that decision. Id. Negron contends that between February 1 and April 15, 2004, he had 123 inquiries regarding tax preparation services, but he was only able to prepare seven tax returns because the other 116 people wanted electronic filing. Complaint (Dkt. No. 1) at 3.

On April 14, 2004, the IRS Appeals Office issued a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, which stated that the collection action proposed by the IRS could resume and that the OIC submitted by Negron was denied. Determination (Dkt. No. 1) at 7-8. Negron timely commenced this proceeding on May 13, 2004, seeking judicial review of this determination. Complaint (Dkt. No. 1). Negron also seeks $2,500 in damages for his business investment and for a reduction in his suspension from the electronic tax filing program. Id. at 4.


III. Discussion


A. Motion to Affirm IRS Determination

This Court has jurisdiction to review an IRS determination pursuant to 26 U.S.C. §6330(d)(1)(B), which states in pertinent part that a "person may, within 30 days of a determination under this section, appeal such determination ... (B) to a district court of the United States" when, as in this case, the Tax Court does not have jurisdiction. 26 U.S.C. §6330(d)(1)(B); see Pelliccio v. United States [ 2003-1 USTC ¶50,293], 253 F.Supp.2d 258, 262 (D. Conn. 2003); see also Anderson v. Comm'r of Internal Revenue [ CCH Dec. 54,071(M)], 80 T.C.M. (CCH) 461 (2000) (Because the Tax Court's jurisdiction is generally limited to income, estate, gift, and certain excise taxes, it does not have jurisdiction to review an employment tax liability determination under §6330. When the underlying tax liability is not at issue, as is true in this case, the court reviews the determination for abuse of discretion. Pelliccio [ 2003-1 USTC ¶50,293], 253 F.Supp. at 262. For judicial review of administrative appeals, a decision "would be an abuse of discretion if it were made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis, or ... on other considerations that Congress could not have intended to make relevant." MCRA Info. Servs. v. United States [ 2000-2 USTC ¶50,683], 145 F.Supp.2d 194, 199 (D. Conn. 2000) (citing Wong Wing Hang v. I.N.S., 360 F.2d 715, 719 (2d Cir. 1966)) (internal quotations omitted).

Pursuant to §6330(c)(3), in making a determination, the IRS officer must take into consideration (1) the verification that "the requirements of any applicable law or administrative procedure have been met"; (2) the issues raised by the taxpayer, which may include spousal defenses, challenges to the appropriateness of collection actions, and offers of collection alternatives; and (3) "whether any proposed collection action balances the need for efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." 26 U.S.C. §6330(c).

The IRS officer considered each of the three criteria prior to issuing the determination. The Summary and Recommendation included with the Notice of Determination explains how the requirements of applicable laws and administrative procedures were met and how the levy balanced the need for efficient collection with taxpayer concern that the collection action be no more intrusive than necessary. Determination (Dkt. No. 1) at 7-8. Negron did not raise anything relating to these issues at the hearing, nor does he challenge these conclusions in his complaint.

At the hearing, Negron did propose an OIC to reduce his overall liability to $8,000, the acceptance of which he also requests in his complaint. Id.; Complaint (Dkt. No. 1) at 3-4. The IRS has the authority to compromise any civil liability pursuant to 26 U.S.C. §7122(a). Regulations promulgated under that section give broad discretion to the IRS to determine whether an OIC will be accepted. 26 C.F.R. §301.7122-1(a)(1). There are three grounds that make an OIC eligible for acceptance, namely (1) doubt as to liability; (2) doubt as to collectibility; and (3) promotion of effective tax administration ("ETA") when collection of the tax liability would cause the taxpayer economic hardship. 26 C.F.R. §301.7122-1(b)(1)-(3)(i).

The IRS officer determined that Negron did not question the liability, and that he had the income and/or assets available to pay it in full. Determination (Dkt. No. 1) at 7-8. Further, the officer found that collection of the full liability would not cause economic hardship. Id. The IRS officer analyzed Negron's current financial circumstances, as well as his ability to obtain employment based upon his education, experience, and overall good health. Id. He concluded that his unemployment did not appear to be permanent, and that it would not be an economic hardship considering that his spouse was employed, his at-home adult children assist him financially, and he can meet his basic living expenses. Id. Further, the IRS officer noted that he had or had access to assets sufficient to pay the entire liability. Id.

If none of the three grounds listed above are applicable, the IRS may compromise to promote ETA where "compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability." 26 C.F.R. §301.7122-1(b)(3)(ii). For this to apply, there must exist exceptional circumstances which would cause public confidence in the fair administration of the tax laws to be undermined. Id. The taxpayer has the burden of demonstrating such circumstances. Id. The IRS found that no exceptional circumstances existed, and Negron did not allege any in his complaint. Determination (Dkt. No. 1) at 8.

In its determination, the IRS fully addressed all of the factors contained in the regulations for the acceptance of an OIC. There are no allegations by Negron that the IRS officer failed to consider any information, or that any of the factual findings were incorrect. Therefore, the Court finds no basis to conclude that the IRS abused its discretion, and the motion to affirm is granted. See, e.g., Pelliccio [ 2003-1 USTC ¶50,293], 253 F.Supp.2d at 262. Accordingly, Negron's request that his liability be reduced to $8,000 is denied.



B. Motion to Dismiss


1. Standards

A motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure must be denied "'unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). In assessing the sufficiency of a pleading, the Court must "assume all well-pleaded factual allegations to be true, and ... view all reasonable inferences that can be drawn from such allegations in the light most favorable to the plaintiff." Dangler v. New York City Off Track Betting Corp., 193 F.3d 130, 138 (2d Cir. 1999). Consideration is limited to the complaint, written instruments that are attached to the complaint as exhibits, statements or documents that are incorporated in the complaint by reference, and documents on which the complaint heavily relies. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002) (citations omitted).

A motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), however, has a different standard. The Court "need not accept as true contested jurisdictional allegations." Shenandoah v. Halbritter, 275 F.Supp.2d 279, 284 (N.D. N.Y. 2003) (Mordue, J.) (citations omitted). A court "may resolve disputed jurisdictional facts by referring to evidence outside the pleadings." Id. (citing Zappia Middle E. Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 253 (2d Cir. 2000); Filetech S.A. v. France Telecomm. S.A., 157 F.3d 922, 932 (2d Cir. 1998). The burden is on the plaintiff to show that a court has subject matter jurisdiction. Lunney v. United States, 319 F.3d 550, 554 (2d Cir. 2003); Shenandoah, 275 F.Supp. at 285. If at any time it comes to the court's attention, by the parties or otherwise, that subject matter jurisdiction is lacking, the action must be dismissed. Fed. R. Civ. P. 12(h)(3).


2. Damages

Negron requests damages from the IRS in the amount of $2,500 for his business investment, claiming that he spent this amount in reliance upon an IRS officer's representation that he would receive a determination based upon the September 9, 2003 CDP hearing in October 2003. Complaint (Dkt. No. 1) at 3. He also claims that the denial of authorization to participate in the electronic tax filing program resulted from the outstanding case. Id. The IRS contends that the Court does not have jurisdiction to hear this claim. IRS Memo. (Dkt. No. 7) at 9.

The IRS, as part of the United States government, is immune from suit, "except where [C]ongress, by specific statute, has waived sovereign immunity." Liffiton v. Keuker, 850 F.2d 73, 77 (2d Cir. 1988). If Congress has not waived sovereign immunity for this type of claim, the Court does not have subject matter jurisdiction. Chayoon v. Chao, 355 F.3d 141, 142-43 (2d Cir. 2004). Negron does not present any basis upon which to invoke this Court's jurisdiction in his complaint, 2 and a review of the possible bases for subject matter jurisdiction demonstrates that this Court does not have jurisdiction to hear this claim.

There are few provisions that allow suit to be brought in a district court for money damages against the IRS. Section 6330, which is the basis for this Court's review of the IRS determination, does not authorize the Court to provide such relief for Negron in this case. Review under §6330(d) is limited to issues raised in the CDP hearing. Pelliccio [ 2003-1 USTC ¶50,293], 253 F.Supp.2d at 261. As Negron's claim is for money invested after the hearing based upon the length of time it took for a post-hearing determination to be issued, this issue could not have been brought up at the hearing. Therefore, this relief cannot be awarded under §6330.

Further, this Court cannot award money damages under the Administrative Procedure Act ("APA"), 5 U.S.C. §702. Congress waived sovereign immunity under the APA for a "legal wrong because of agency action" only when seeking relief other than money damages. 5 U.S.C. §702; see, e.g., Presidential Gardens Assocs. v. United States, 175 F.3d 132, 143 (2d Cir. 1999). Because Negron is seeking monetary damages as compensation, it cannot be allowed under the APA. Additionally, the Federal Torts Claims Act retains sovereign immunity for "[a]ny claim arising in respect of the assessment or collection of any tax." 28 U.S.C. §2680(c).

The exclusive provision for recovering monetary damages in connection with any collection of a federal tax is 26 U.S.C. §7433(a):
If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States. Exc