Edward F.
Murphy, Petitioner v. Commissioner, Respondent.
Dkt. No. 10239-03L , 125 TC --, No. 15,
December 29, 2005.
[Code
Secs. 6330 and 7122]
Practice and procedure: Offer in compromise:
Effective tax administration: Collectibility:
Collection Due Process hearing: Abuse of
discretion: Tax Court: Testimony: Relevance of.
--
The
IRS did not abuse its discretion when it
rejected an individual's offer in compromise or
when it concluded that it could proceed with a
levy to collect his deficiency. The taxpayer
failed to satisfy the conditions for an offer in
compromise based on effective tax administration
or doubts as to collectibility. The IRS properly
conducted his Collection Due Process (CDP)
hearing. Finally, testimony at trial from the
taxpayer's IRS Appeals officer was limited to
explanations of notations and abbreviations she
used in her case activity reports, and the
taxpayer was not allowed to present additional
testimony regarding his alleged special
circumstances. J.M. Robinette, Dec.
55,698, distinguished. --CCH.
Timothy
J. Burke, for petitioner; Nina P. Ching and
Maureen T. O'Brien, for respondent
P
asks us to review a determination by R's
settlement officer (SO) that R may proceed with
collection by levy of P's unpaid tax liability
for 1999. P claims that the SO abused her
discretion by (1) rejecting P's offer in
compromise, based alternatively on doubt as to
collectibility and the promotion of effective
tax administration, and (2) improperly and
prematurely concluding P's hearing. R objects to
P's testimony as to reasons he did not pay his
1992-2001 tax liabilities as they came due and
the SO's testimony as to entries in her case
activity notes and certain aspects of her
handling of the case.
1.
Held: P's testimony is excluded.
2.
Held, further, SO's testimony is admitted
as to meaning of notations and abbreviations in
her case activity report; the remainder of her
testimony is excluded.
3.
Held, further, SO did not err in
rejecting offer in compromise based,
alternatively, on doubt as to collectibility and
effective tax administration.
4.
Held, further, SO did not err in
concluding hearing following P's failures to
meet various due dates, including due date for
revised offer in compromise.
5.
Held, further, there were no
improprieties in SO's actions or hearing
procedures.
6.
Held, further, SO did not abuse her
discretion in determining that R may proceed by
levy to collect P's unpaid tax liability for
1999.
HALPERN,
Judge: This case is before the Court to review a
determination made by one of respondent's
Appeals officers that respondent may proceed to
collect by levy unpaid taxes with respect to
petitioner's 1999 tax year. We review the
determination pursuant to section
6330(d)(1).
Unless
otherwise indicated, all section references are
to the Internal Revenue Code of 1986, as
amended, and all Rule references are to the Tax
Court Rules of Practice and Procedure. Dollar
amounts have been rounded to the nearest dollar.
FINDINGS OF FACT
Some
facts have been stipulated and are so found. The
stipulation of facts, with accompanying
exhibits, is incorporated herein by this
reference.
Petitioner
resided in Quincy, Massachusetts, at the time
the petition was filed.
On
April 15, 2002, respondent issued to petitioner
a Final Notice - Notice of Intent to Levy and
Notice of Your Right to a Hearing. The notice
pertains to petitioner's unpaid Federal income
tax for 1999, in the amount of $16,560 (the
unpaid tax).
By
letter dated April 23, 2002, petitioner's
representative, Timothy J. Burke, Esq.,
submitted an Internal Revenue Service (IRS) Form
12153, Request for a Collection Due Process
Hearing, to the IRS on petitioner's behalf. On
an attachment to the Form 12153, petitioner
asserts: "It is in the best interest of the
government and the taxpayer that an Offer in
Compromise be entered into." Petitioner
raised no other issue on the Form 12153 or
during the subsequent hearing accorded him (the section
6330 hearing or, sometimes, the hearing).
On
or about September 13, 2002, an Appeals
official, Settlement Officer Lisa Boudreau, was
assigned to petitioner's case. On September 16,
2002, Ms. Boudreau sent Mr. Burke a letter
scheduling a meeting for September 20, 2002. At
Mr. Burke's request, that meeting was
rescheduled for October 3, 2002 (the October 3
meeting). Ms. Boudreau and Mr. Burke, but not
petitioner, attended the October 3 meeting. At
the meeting, Mr. Burke submitted to Ms. Boudreau
certain collection information statements that
had been requested by her and an IRS Form 656,
Offer in Compromise. By the Form 656, petitioner
proposed to compromise his unpaid income tax
liabilities from 1990 through 2001 (later
limited to 1992 through 2001 since the period of
limitations on collection for 1990 and 1991 had
run). Petitioner's unpaid income tax liabilities
for 1992 through 2001 (the 1992-2001 liability)
total $275,777. Petitioner offered to pay
$10,000 in compromise of the 1992-2001 liability
(sometimes, the offer or the offer in
compromise), such amount to be paid within 24
months of acceptance of the offer. Petitioner
checked boxes on the Form 656 justifying the
offer by reason of both "Doubt as to
Collectibility" (i.e., he had insufficient
assets and income to pay the full liability) and
"Effective Tax Administration" (i.e.,
he had sufficient assets to pay the full
liability but, due to his exceptional
circumstances, requiring full payment would
cause an economic hardship or would be unfair
and inequitable). In the portion of the form
requesting an explanation of circumstances
affecting the taxpayer's ability to fully pay
the amount due, petitioner stated: "Please
see attached." No attachment accompanies
the copy of the form stipulated by the parties.
During
the October 3 meeting, Ms. Boudreau asked Mr.
Burke about the exceptional circumstances
claimed by petitioner. Mr. Burke responded that
petitioner was ill, but he would not disclose
the nature of the illness, citing petitioner's
wish on that point. Ms. Boudreau advised Mr.
Burke that, unless petitioner disclosed the
circumstances of his illness, she would be
unable to consider the illness. Mr. Burke said
that he understood and had told his client that
already. Among other things, Mr. Burke did tell
Ms. Boudreau that petitioner was an insurance
salesman, owed money on credit cards, owed about
$90,000 to the Commonwealth of Massachusetts,
and was divorced, with his ex-wife receiving
residual payments from insurance contracts that
petitioner had sold.
Ms.
Boudreau concluded the October 3 meeting by
requesting that petitioner submit by October 31,
2002, additional information and documents
necessary for her to review the offer in
compromise. Petitioner missed that due date.
Indeed, following the October 3 meeting, and
through February 10, 2003, petitioner repeatedly
missed due dates that either Ms. Boudreau or Mr.
Burke himself had set for submitting information
necessary for Ms. Boudreau to review the offer
in compromise. On one occasion during that
period, due to petitioner's failure to meet
submission due dates, Ms. Boudreau closed
petitioner's case and concluded that she should
sustain the proposed levy action. She decided to
reopen the case only after petitioner belatedly
complied with a request for certain information.
By
letter dated February 10, 2003, petitioner
provided to Ms. Boudreau the last of the
information necessary for her to review the
offer in compromise.
By
March 19, 2003, Ms. Boudreau had reviewed the
offer in compromise and supporting information
submitted by petitioner and had concluded that
the offer was too low. By letter dated March 19,
2003 (the March 19 letter), Ms. Boudreau
informed Mr. Burke that an acceptable offer in
compromise would have to be of at least $97,884.
She enclosed copies of the income/expense and
asset/equity tables that she used to compute
that amount. Based principally on information
provided by petitioner, Ms. Boudreau calculated
petitioner's total monthly income to be $4,235
($2,618 of net business income and $1,617 of
pension income) and his necessary monthly living
expenses to be $3,107, with a difference of
$1,128. Ms. Boudreau multiplied the difference
times 60 to determine the amount petitioner
could pay over 60 months; viz, $67,680. Also
based principally on information provided by
petitioner, Ms. Boudreau calculated petitioner's
net realizable equity to be $30,204. The sum
that petitioner could pay over 60 months,
$67,680, and his net realizable equity, $30,204,
is $97,884 (the amount Ms. Boudreau had
identified as an acceptable offer in
compromise). Ms. Boudreau invited petitioner to
submit an amended offer in compromise in the
amount of $97,884 by April 9, 2003.
In
response to the March 19 letter, Mr. Burke
telephoned Ms. Boudreau on April 1, 2003, and
agreed to amend the offer in compromise by April
18, 2003. No amended offer was received by that
date. On April 25, 2003, Mr. Burke telephoned
Ms. Boudreau and reported that petitioner was in
the hospital. He also told Ms. Boudreau that, no
later than April 29, 2003, he would submit a
copy of petitioner's 2002 Federal income tax
return (the 2002 return), which had become due
and was necessary to process any offer in
compromise.
April
29, 2003, passed without Ms. Boudreau's
receiving either the 2002 return or an amended
offer in compromise. On Thursday, May 1, 2003,
she called Mr. Burke and left a voice message
directing him to return her call on Monday, May
5, 2003. Mr. Burke called as requested. He
reported that petitioner was out of the
hospital, although he remained ill and continued
to prohibit Mr. Burke from disclosing the nature
of his illness. Mr. Burke also reported that he
would meet with petitioner later that week and
contact Ms. Boudreau by May 9, 2003.
Neither
Mr. Burke nor petitioner contacted Ms. Boudreau
by May 9, 2003.
On
May 12, 2003, Ms. Boudreau noted in her case
activity record that the deadline set for May 9,
2003, as well as previous deadlines, had been
missed. She also noted that no viable collection
alternative had been proposed and she had
decided that respondent's proposed collection
action should stand.
On
May 14, 2003, Ms. Boudreau submitted an IRS Form
5402-c, Appeals Transmittal and Case Memo, to
her supervisor recommending that the proposed
collection action stand. In an attachment to the
Form 5402-c (the attachment), Ms. Boudreau
states that she has verified that all legal and
administrative requirements that needed to be
satisfied with respect to collection by levy had
been satisfied. She describes petitioner's offer
to compromise the 1992-2001 liability
("approximately $260,000") for
$10,000. She states that the offer was submitted
on the alternative grounds of effective tax
administration and doubt as to collectibility.
She concludes that, because she is prohibited
from accepting an offer in compromise based on
effective tax administration unless the
Commissioner could collect the outstanding
liability in full, and petitioner has
insufficient resources from which the
Commissioner could collect the 1992-2001
liability in full, effective tax administration
is unavailable as a ground for an offer in
compromise. She concludes that, although
petitioner cannot pay the entire 1992-2001
liability and may qualify for an offer in
compromise based on doubt as to collectibility:
"[H]e can pay considerably more than the
$10,000 being offered."
On
the attachment, she calculates the amount she
believes that petitioner can pay in much the
same way that, in the March 19 letter, she
calculated what she described as an acceptable
offer in compromise (at least $97,884). The only
apparent difference is that she reduced her
estimate of petitioner's monthly net business
income from $2,618 to $2,356. She concludes:
"The reasonable collection potential based
on the income and expense figures provided by
Mr. Murphy and calculated utilizing allowable
expenses and accepted practices is
$82,164.00." She recommends that
petitioner's offer in compromise be rejected.
With
respect to balancing the need for the efficient
collection of the taxes due with the concern
that the collection action be no more intrusive
than necessary, she concludes: "This
analysis indicates that this action is now
necessary to provide for the efficient
collection of the taxes despite the potential
intrusiveness of enforced collection."
Ms.
Boudreau's proposed disposition of petitioner's
case was approved by her supervisor on May 19,
2003.
On
May 23, 2003, Ms. Boudreau returned a telephone
call from Mr. Burke. She informed him that she
had rejected the offer in compromise because it
was too low and had closed the case because of
missed deadlines. Mr. Burke said petitioner was
ill and had finally permitted him to disclose
the nature of his illness(which Mr. Burke
disclosed to Ms. Boudreau). After the phone
conversation, Mr. Burke faxed a letter to Ms.
Boudreau asking that she reconsider her decision
to close petitioner's case. The letter contains
no new financial information and makes no new
offer. Ms. Boudreau reviewed the letter and the
case file and concluded that her decision to
reject the offer should stand.
By
Notice of Determination Concerning Collection
Action(s) Under Section
6320 and/or 6330,
dated May 29, 2003 (the notice of
determination), Ms. Boudreau's supervisor
notified petitioner that Appeals had sustained
respondent's decision to proceed with collection
of the unpaid tax by levy. An attachment to the
notice of determination explains in some detail
the matters considered at the hearing and the
conclusions reached. It contains, among other
things, statements that a review of petitioner's
administrative file indicated that the statutory
and administrative requirements that needed to
be met with respect to the proposed levy had
been satisfied, the offer in compromise was not
a viable collection alternative, and collection
by levy was necessary to provide for the
efficient collection of the taxes despite the
potential intrusiveness of enforced collection.
Petitioner
timely petitioned this Court for review of the
notice of determination.
OPINION
I. Introduction
Petitioner
has assigned error to Appeals' (Ms. Boudreau's)
determination that respondent may proceed to
collect the unpaid tax by levy (the
determination). Before addressing the
assignment, we provide a general overview of the
authority of the Secretary of the Treasury
(Secretary) to collect unpaid taxes by levy, the
procedures he must follow to do so, and our
authority to review the determination. We also
describe the Secretary's authority to compromise
a tax case. We then state the parties' arguments
and dispose of respondent's objections to
certain testimony of petitioner's and Ms.
Boudreau's. Finally, we decide whether Ms.
Boudreau erred in making the determination. We
decide that she did not.
II. Sections 6330 and 6331
Section
6331(a) authorizes the Secretary to levy
against property and property rights where a
taxpayer liable for taxes fails to pay those
taxes within 10 days after notice and demand for
payment is made. Section
6331(d) requires the Secretary to send the
taxpayer written notice of the Secretary's
intent to levy, and section
6330(a) requires the Secretary to send the
taxpayer written notice of his right to a section
6330 hearing at least 30 days before any
levy is begun.1
If
a section
6330 hearing is requested, the hearing is to
be conducted by respondent's Appeals Office
(Appeals), and, at the hearing, the Appeals
officer or employee (without distinction,
Appeals officer) conducting it must verify that
the requirements of any applicable law or
administrative procedure have been met. Sec.
6330(b)(1), (c)(1). The taxpayer may raise
at the hearing any relevant issue relating to
the unpaid tax or the proposed levy. Sec.
6330(c)(2)(A). The taxpayer is entitled to
propose an offer in compromise or other
alternative to immediate collection. See sec.
6330(c)(2)(A)(iii). The taxpayer may contest
the existence or amount of the underlying tax
liability at the hearing if the taxpayer did not
receive a statutory notice of deficiency with
respect to the underlying tax liability or did
not otherwise have an opportunity to dispute
that liability. Sec.
6330(c)(2)(B).
At
the conclusion of the hearing, the Appeals
officer must determine whether and how to
proceed with collection, taking into account,
among other things, collection alternatives
(e.g., an offer in compromise) proposed by the
taxpayer and whether any proposed collection
action balances the need for the efficient
collection of taxes with the legitimate concern
of the taxpayer that the collection action be no
more intrusive than necessary. See sec.
6330(c)(3).
We
have jurisdiction to review the Appeals
officer's determination where we have
jurisdiction over the type of tax involved in
the case. Sec.
6330(d)(1)(A); see Iannone v.
Commissioner, 122 T.C. 287, 290 (2004).
Where the underlying tax liability is properly
at issue, we review the determination de novo.
E.g., Goza v. Commissioner, 114 T.C. 176,
181-182 (2000). Where the underlying tax
liability is not at issue, we review the
determination for abuse of discretion. Id.
at 182. In reviewing for an abuse of discretion
under section
6330(d)(1), generally we consider only
arguments, issues, and other matters that were
raised at the section
6330 hearing or otherwise brought to the
attention of Appeals. Magana v. Commissioner,
118 T.C. 488, 493(2002); see also sec.
301.6330-1(f)(2), Q&A-F5, Proced. &
Admin. Regs. Whether an abuse of discretion has
occurred depends upon whether the exercise of
discretion is without sound basis in fact or
law. Freije v. Commissioner, 125 T.C. 14,
23 (2005).
III. Offers in Compromise
Section
7122(a) authorizes the Secretary to
compromise any civil or criminal case arising
under the internal revenue laws. Section
7122(c) authorizes the Secretary to
prescribe guidelines for the officers and
employees of the IRS to determine whether an
offer in compromise is adequate. Regulations
implementing section
7122 set forth three grounds for the
compromise of a liability: (1) Doubt as to
liability, (2) doubt as to collectibility, and
(3) to promote effective tax administration
(effective tax administration). Sec.
301.7122-1(b), Proced. & Admin. Regs. Doubt
as to liability is not at issue in this case.
Doubt
as to collectibility exists in any case where
the taxpayer's assets and income are less than
the full amount of the liability. Sec.
301.7122-1(b)(2), Proced. & Admin. Regs.
Generally, under respondent's administrative
pronouncements, an offer to compromise based on
doubt as to collectibility will be acceptable
only if the offer reflects the reasonable
collection potential of the case (i.e., that
amount, less than the full liability, that the
IRS could collect through means such as
administrative and judicial collection
remedies). Rev.
Proc. 2003-71, sec. 4.02(2), 2003-2 C.B.
517. The offer must include all unpaid tax
liabilities and periods for which the taxpayer
is liable. Internal Revenue Manual (IRM) pt.
5.8.1.7 (Sept. 1, 2005) (Liabilities to be
Compromised).2
In some cases, the Secretary will accept an
offer of less than the reasonable collection
potential of the case if there are special
circumstances. Rev.
Proc. 2003-71, supra. Special circumstances
are (1) circumstances demonstrating that the
taxpayer would suffer economic hardship if the
IRS were to collect from him an amount equal to
the reasonable collection potential of the case
or (2) if no demonstration of such suffering can
be made, circumstances justifying acceptance of
an amount less than the reasonable collection
potential of the case based on public policy or
equity considerations. IRM pt. 5.8.4.3.4 (Sept.
1, 2005) (Effective Tax Administration and Doubt
as to Collectibility with Special
Circumstances). To demonstrate that compelling
public policy or equity considerations justify a
compromise, the taxpayer must be able to
demonstrate that, due to exceptional
circumstances, collection of the full liability
would undermine public confidence that the tax
laws are being administered in a fair and
equitable manner. Sec. 301.7122-1(b)(3)(ii),
Proced. & Admin. Regs.
Where,
because the reasonable collection potential of
the case exceeds the taxpayer's liability, doubt
as to collectibility is not a ground for
compromise, the Secretary may enter into a
compromise on the ground of effective tax
administration. Sec. 301.7122-1(b)(3), Proced.
& Admin. Regs. Before the Secretary will
enter into a compromise on the ground of
effective tax administration, the taxpayer must
show, among other things, that collection in
full would cause him economic hardship or, if he
cannot, that compelling public policy or equity
considerations justify such compromise. Id.
IV. The Parties' Arguments
In
support of his assignment of error, petitioner
avers that (1) acceptance of an offer in
compromise was in the best interests of
respondent and petitioner, and (2) Ms. Boudreau
improperly and prematurely concluded the section
6330 hearing. With respect to the averments,
petitioner asks us to consider not only the
administrative record of the hearing, which
consists of documents stipulated by the parties
(the hearing record), but also petitioner's and
Ms. Boudreau's trial testimony.
Respondent
answers that Ms. Boudreau did not abuse her
discretion in rejecting the offer in compromise
and determining that respondent may proceed to
collect the unpaid tax by levy, nor did she
prematurely and improperly conclude the hearing.
Respondent objects to the admission of both
petitioner's and Ms. Boudreau's trial testimony
on the ground that the testimony is not relevant
to our deciding whether Ms. Boudreau abused her
discretion.
V. Admissibility of Trial Testimony
A.
Trial Testimony
At
the trial of this case, over the objection of
respondent, petitioner testified as to his
marriage and divorce, his military service, his
health, and his credit card debt, all as it
affected his ability to pay his tax liabilities
as they came due. Also over the objection of
respondent, petitioner testified as to the onset
in April 2003 of cardiovascular problems that
limit his ability to work. Over the objection of
respondent, Ms. Boudreau testified as to various
entries in her case activity record and certain
aspects of the process by which she reached her
decisions to reject the offer in compromise and
close petitioner's case. The Court noted
respondent's objections but reserved its ruling.
B.
Positions of the Parties
1.
Respondent's Position
Respondent's
relevancy objection is based on the fact that
petitioner's underlying tax liability was not
raised at the hearing and is not before the
Court. Accordingly, respondent argues, the
appropriate standard for our review of the
determination is abuse of discretion and the
appropriate scope of review, pursuant to the
record rule, is the hearing record. The record
rule is the general rule of administrative law
that a court can engage in judicial review of an
agency action only on the basis of the record
amassed by the agency. 2 Pierce, Administrative
Law, sec. 11.6, at 822 (4th ed. 2002); see United
States v. Carlo Bianchi & Co., 373 U.S.
709, 714 (1963). Respondent recognizes that
there are exceptions to the general rule; e.g.,
"where the administrative record fails to
disclose the factors considered by the
agency",3
"where necessary for background
information",4
and "where the agency failed to consider
all relevant factors".5
Nevertheless, respondent argues that none of
those exceptions exist here.
Respondent
also recognizes that, recently, in Robinette
v. Commissioner, 123 T.C. 85, 101 (2004), we
held that, in reviewing for an abuse of
discretion under section
6330(d), we are not limited to the
administrative record. In Robinette, we
were asked to review an Appeals officer's
determination that the Commissioner could
proceed to collect unpaid taxes that had been
compromised pursuant to an agreement that
required the taxpayer to file his income tax
returns on time for a period of 5 years (or face
collection of the compromised amount). The
taxpayer had breached the agreement by failing
to file timely a return governed by the
agreement. We received into evidence in addition
to the administrative record both testimony and
documents that showed (1) the taxpayer's good
faith efforts to file his return in a timely
manner, (2) the Appeals officer's refusal to
consider certain evidence that the return was
filed timely, and (3) his unwillingness at the
hearing to consider in depth his authority to
reinstate the offer in compromise. Id. at
103-104. We found the testimony and documents
relevant to the question of whether the Appeals
officer had abused his discretion in approving
collection of the compromised taxes. Id.
at 104. We found that he had abused his
discretion, in part because he (1) "had a
closed mind to the arguments presented on
petitioner's behalf" and (2) "failed
to consider the facts and circumstances of this
case." Id. at 107.
If
we do not adopt his implicit suggestion that we
overrule Robinette v. Commissioner, supra,
and apply the record rule in reviewing for abuse
of discretion under section
6330(d), respondent asks that we distinguish
the facts of this case from those of Robinette
and exclude petitioner's and Ms. Boudreau's
trial testimony. Respondent points out that, in Robinette,
some of the Judges of the Court expressed
reservation to, in all circumstances, allowing
testimony or admitting other evidence not
presented to Appeals. E.g., Robinette v.
Commissioner, 123 T.C. at 115 (Wells, J.,
concurring) (distinguishing situation where
taxpayer refuses to furnish relevant evidence
requested at section
6330 hearing), id. at 116 (Thornton,
J., concurring) (suggesting it might be
appropriate not to admit testimony or other
evidence when the taxpayer has failed to
cooperate in presenting relevant evidence at the
section
6330 hearing), id. at 120 (Wherry,
J., concurring) ("[The holding of the case]
should not be construed as sanctioning the
dilatory introduction at trial of new facts or
documents previously withheld and not produced
at the Appeals hearing in order to justify
reversal or remand of the Appeals or settlement
officer's determination."). Respondent
argues that petitioner should not be allowed to
introduce his testimony and the testimony of Ms.
Boudreau because his conduct during the hearing
was marked by missed due dates and constant
requests for extensions of time to provide
requested information. Respondent points out
that the only issue raised by petitioner was an
offer in compromise, and he was given ample
opportunity to present an acceptable offer
before he missed yet another self-established
due date (without warning Ms. Boudreau) and she
closed the case. As a result, respondent
concludes, our review of Ms. Boudreau's exercise
of discretion should be based solely on the
information presented to, and considered by,
her.
2.
Petitioner's Position
On
brief, petitioner argues: "[T]he
infirmities in the Respondent's Determination,
record and procedures require the introduction
of extrinsic evidence for an in depth review of
the Respondent's Hearing."
C.
Discussion
1.
Introduction
Petitioner's
underlying tax liability is not at issue. The
appropriate standard of review is, as respondent
claims, abuse of discretion. See supra
section II. of this report.
We
decline to overrule Robinette v.
Commissioner, 123 T.C. 85 (2004).6
We shall, however, sustain respondent's
objection to the admission of petitioner's trial
testimony and, with one exception, also sustain
it with respect to the admission of Ms.
Boudreau's trial testimony. Our reasons are as
follows.
2.
Petitioner's Trial Testimony
In
Robinette v. Commissioner, supra, we
admitted testimony and documents not provided to
Appeals on a showing that the evidence presented
at trial related to issues raised at the
taxpayer's section
6330 hearing and was relevant and admissible
under the Federal Rules of Evidence.
The
sole issue raised by petitioner at the section
6330 hearing was a collection alternative;
i.e., the offer in compromise. Petitioner
submitted to Ms. Boudreau an IRS Form 656, Offer
in Compromise, on which he checked boxes
indicating that the basis of the offer was
either doubt as to collectibility or effective
tax administration. He indicated on the form
that there were special circumstances (which he
may have neglected to describe). During the
October 3 meeting, Ms. Boudreau asked Mr. Burke
to describe petitioner's special circumstances.
Mr. Burke responded, but not fully, since
petitioner had prohibited him from discussing
the nature of petitioner's illness. At trial,
Mr. Burke stated that petitioner wished to
testify so that he could explain why he had
failed to pay the 1992-2001 liability as it came
due. That explanation, claimed Mr. Burke, would
convince the Court that it would not have been
contrary to public policy for Ms. Boudreau to
have accepted the offer in compromise. On brief,
petitioner argues that he qualifies for an offer
in compromise based on "equity"; i.e.,
"requiring the Respondent to act fairly in
compromising outstanding taxes in those
instances where a rigid interpretation of the
Respondent's rules * * * precludes the
resolution of an issue." Considerations of
hardship, public policy, and equity figure in
compromises grounded on both doubt as to
collectibility and effective tax administration.
See supra section III. of this report. We
accept that, at the section
6330 hearing, petitioner attempted to
convince Ms. Boudreau that special circumstances
justified her agreeing to an offer in compromise
based on hardship, public policy, or equity
considerations. Therefore, as was the case in Robinette
v. Commissioner, supra, petitioner's trial
testimony relates to an issue he raised at the section
6330 hearing.
Nevertheless,
petitioner's testimony regarding special
circumstances is not relevant to the question of
whether Ms. Boudreau abused her discretion in
rejecting the offer in compromise to the extent
the offer was grounded on effective tax
administration. If for no other reason, that is
because Ms. Boudreau's rejection of petitioner's
offer to the extent that the offer was grounded
on effective tax administration was based on her
conclusion that respondent could not collect the
full 1992-2001 liability from petitioner (the
potential of collection in full being a
prerequisite to any consideration of special
circumstances, such as hardship or equity,
justifying an offer in compromise grounded on
effective tax administration). We also think
that petitioner's testimony is not relevant to
the question of whether Ms. Boudreau abused her
discretion in rejecting the offer to the extent
the offer was grounded on doubt as to
collectibility. The 1992-2001 liability
($275,777) exceeds both the amount Ms. Boudreau
determined to be the reasonable collection
potential of the case ($82,164) and the amount
petitioner offered ($10,000). Because the offer
was in an amount less than what she determined
to be the reasonable collection potential, Ms.
Boudreau could not consider the offer unless
there were special circumstances. Nevertheless,
petitioner did not timely provide her with all
of the evidence that he now believes should be
taken into account in determining whether there
are special circumstances. An appeals officer
does not abuse her discretion when she fails to
take into account information that she requested
and that was not provided in a reasonable time.
As explained in the next paragraph, that is the
case here with respect to petitioner's trial
testimony. Here, evidence that petitioner might
have presented at the section
6330 hearing (but chose not to) is not
admissible in a trial conducted pursuant to section
6330(d)(1) because it is not relevant to the
question of whether the Appeals officer abused
her discretion. See Fed. R. Evid. 401; Morlino
v. Commissioner, T.C. Memo. 2005-203.
Petitioner
was represented by counsel, Mr. Burke, at all
stages of the section
6330 hearing. Petitioner had been informed
by Mr. Burke that, unless petitioner disclosed
the nature of his illness, Ms. Boudreau would
not take illness into account. Nevertheless,
petitioner refused to disclose the nature of his
illness until after Ms. Boudreau had twice
decided to close his case for missed due dates
and, in the second instance, lack of a viable
collection alternative. Petitioner had more than
an adequate opportunity to provide Ms. Beaudreau
with all of the evidence he thought necessary to
convince her of special circumstances during the
course of the hearing and before May 12, 2003,
when Ms. Boudreau decided that respondent's
proposed collection action should stand.
Moreover, petitioner does not claim any change
in his circumstances arising after the
conclusion of the hearing. See Magana v.
Commissioner, 118 T.C. at 494 (an allegation
of recent, unusual illness or hardship might
warrant the consideration of that new argument).
We did not in Robinette v. Commissioner,
supra, sanction the dilatory introduction at
trial of new facts or documents previously
withheld and not produced at the section
6330 hearing in order to justify reversal or
remand of the Appeals office determination. See id.
at 115, 116, 120 (Wells, Thornton, and Wherry, JJ.,
concurring, respectively). Accordingly, as
stated, petitioner's testimony with respect to
special circumstances is not admissible because
it is irrelevant.
3.
Ms. Boudreau's Trial Testimony
Petitioner
wishes to introduce Ms. Boudreau's trial
testimony to show infirmities in the
determination, the hearing record, and the
Appeals procedures applicable to section
6330 hearings. Much of that testimony was in
response to Mr. Burke's questions to Ms.
Boudreau concerning the content of her case
activity record and how she arrived at her
decision to reject the offer in compromise.
Among other things, Mr. Burke questioned her as
to abbreviations and notations in the case
activity record, her use of national standards
for determining necessary living expenses in
evaluating offers in compromise, what factors
she took into account in rejecting the offer,
and whether she notified petitioner that he
could appeal her decision to reject the offer in
compromise. On brief, petitioner catalogues the
infirmities that he claims justify Ms.
Boudreau's trial testimony: The notice of
determination fails to state what "current
IRS policy and procedures" were being
relied on by Ms. Boudreau and whether she
rejected the offer in compromise based on doubt
as to collectibility or effective tax
administration. Ms. Boudreau's case activity
report contains unexplained notations and
abbreviations. Respondent made no transcript or
recording of the hearing. The records provided
by respondent fail to include any information on
"National Standards", "Local
Standards", or "other basis for
ascertaining 'allowable expenses'", or
grounds for deviating from those national or
local standards.
Those
are not claims that petitioner made at the
hearing. While in Robinette v. Commissioner,
supra, we admitted at trial evidence not
provided to Appeals on a showing that (besides
being relevant and otherwise admissible under
the Federal Rules of Evidence) the evidence
related to issues raised at the taxpayer's section
6330 hearing, we did not say that such a
showing is prerequisite to admissibility. An
irregularity in the conduct of the hearing or
some defect in the record may not be apparent
until after the hearing is concluded and the
taxpayer receives notice of the resulting
determination. The circumstances may justify
allowing the taxpayer to raise the issue at
trial and introduce evidence notwithstanding the
taxpayer's failure to raise the issue at the section
6330 hearing.7
We address each of the infirmities that
petitioner claims justify the admission of Ms.
Boudreau's testimony.
First,
petitioner claims that the notice of
determination fails to state the current
policies and procedures relied on by Ms.
Boudreau. We have summarized the contents of the
notice of determination (and attachment) in our
findings of fact, and there is no question but
that it addresses all of the issues required by
law. See sec.
6330(c); sec. 301.6330-1(e)(3), A-E10 &
A-E1, Proced. & Admin. Regs. Moreover, as
respondent points out on brief, the policies and
procedures of the IRS, as set forth in the law,
accompanying regulations, and Internal Revenue
Manual, are all available to the general public.8
Respondent concedes that petitioner could have
questioned Ms. Boudreau about any policy or
procedure that he believed she did not follow.
Instead, petitioner questioned her about her use
of national standards for determining necessary
living expenses in evaluating offers in
compromise. Such a discussion is not relevant in
this particular case, argues respondent,
because, with one exception, Ms. Boudreau
accepted the living expenses claimed by
petitioner in the collection information
statements he submitted to her when she decided
that the offer in compromise was unacceptable.
The one exception was her disallowance of an
expense characterized by petitioner as being
attributable to secured debt, when, in truth, as
petitioner later admitted, the expense was
attributable to unsecured credit card debt
(which, according to the collection information
statement petitioner filled out, generally
cannot be claimed as a necessary living
expense). We agree with respondent that, since
national standards for determining necessary
living standards did not enter into her decision
to reject the offer in compromise, Ms.
Boudreau's testimony on that score is
irrelevant, and we exclude it on that basis. See
Fed. R. Evid. 401.
It
is true that the notice of determination does
not state Ms. Boudreau's reason (or reasons) for
rejecting the offer in compromise. An attachment
to the notice states only that the offer in
compromise cannot be accepted under current IRS
policy and procedures. The parties, however,
have stipulated a copy of the Form 5402-c,
Appeals Transmittal and Case Memo, submitted by
Ms. Boudreau on May 14, 2003, to her supervisor.
As we have found, the Form 5402-c does set forth
in detail Ms. Boudreau's analysis leading to her
rejection of the offer in compromise on both
of the grounds (doubt as to collectibility and
effective tax administration) put forth by
petitioner. The hearing record is clear that Ms.
Boudreau rejected the offer in compromise on
both grounds advanced by petitioner, and no
testimony by her on that score is necessary for
us to review the determination. See Fed. R.
Evid. 403 (waste of time or needless
presentation of cumulative evidence grounds for
excluding relevant evidence).
Ms.
Boudreau's case activity report does contain
unexplained notations and abbreviations, and her
testimony is necessary to explain those
notations and abbreviations. Therefore, that
testimony is admissible.
It
is also true, as petitioner claims, that there
is no transcript or recording of the hearing. No
provision of section
6330 requires the recording of a section
6330 hearing, and, in fact, section
301.6330-1(d)(2), A-D6, Proced. & Admin.
Regs., states: "A transcript or recording
of any face-to-face meeting or conversation
between an Appeals officer or employee and the
taxpayer or the taxpayer's representative is not
required." Moreover, petitioner never asked
to record Mr. Burke's meeting with Ms. Boudreau.
Cf. Keene v. Commissioner, 121 T.C. 8, 19
(2003). Here, we need ascertain only whether Ms.
Boudreau abused her discretion when she did not
accept a compromise based on petitioner's
insistence that he could pay no more than
approximately 4 percent of his uncontested tax
liability and concluded that, under the
circumstances, the use of the levy process was
"no more intrusive than necessary." Sec.
6330(c). Petitioner's offer, his responses
and lack thereof to Ms. Boudreau's requests, and
her conclusions, are adequate for such review.
See Fed. R. Evid. 403; cf. Olsen v. United
States, 414 F.3d 144, 155 (1st Cir. 2005).
Petitioner
complains that the records provided by
respondent contain no information on national or
local living expense standards. While that is
true, the Internal Revenue Manual, which is
available to petitioner on the IRS Web site,9
discusses the national standards, local
standards, and other bases for determining
allowable expenses when evaluating offers in
compromise. See, e.g., IRM secs. 5.8.5.5.1
through 5.8.5.5.3 (Sept. 1, 2005). Moreover, as
described supra, Ms. Boudreau allowed in full
petitioner's validly claimed expenses. An
Appeals officer does not abuse her discretion
when she allows a taxpayer's claimed expenses.
See Schulman v. Commissioner, T.C. Memo.
2002-129. Ms. Boudreau's testimony describing
national or local expense standards is,
therefore, irrelevant. See Fed. R. Evid. 401.
In
summary, we shall allow into evidence Ms.
Boudreau's testimony explaining notations and
abbreviations in her case activity report and
exclude the remainder of her testimony.
D.
Conclusion
Respondent's
objection to the admission of petitioner's
testimony is sustained. Respondent's objection
to the admission of Ms. Boudreau's testimony is
sustained in part and overruled in part.
VI. Abuse of Discretion
A.
Introduction
We
must now decide whether Ms. Boudreau abused her
discretion in determining that respondent may
proceed by levy to collect the unpaid tax.
Petitioner claims that Ms. Boudreau did, because
(1) acceptance of an offer in compromise was in
the best interests of respondent and petitioner
and (2) Ms. Boudreau improperly and prematurely
concluded the hearing.
B.
The Appeals Officer Did Not Err in Rejecting
the Offer in Compromise
We
do not conduct an independent review of what
would be an acceptable offer in compromise. Fowler
v. Commissioner, T.C. Memo. 2004-163. The
extent of our review is to determine whether the
Appeals officer's decision to reject the offer
in compromise actually submitted by the taxpayer
was arbitrary, capricious, or without sound
basis in fact or law. Skrizowski v.
Commissioner, T.C. Memo. 2004-229; Fowler
v. Commissioner, supra; see Woodral v.
Commissioner, 112 T.C. 19, 23 (1999).
Ms.
Boudreau concluded that petitioner could not pay
his liability (the 1992-2001 liability) in full
and, therefore, did not qualify for an offer in
compromise based on effective tax
administration. Certainly, her conclusion about
petitioner'sinability to pay in full agrees with
the information petitioner provided her, and we
see no error in that conclusion or in her
decision, based on that conclusion, to reject
effective tax administration as a ground for
compromising the 1992-2001 liability. Section
301.7122-1(b)(3)(ii), Proced. & Admin.
Regs., makes the ability to make full payment a
precondition to any offer in compromise based on
effective tax administration.10
Nor
do we see any error in Ms. Boudreau's decision
to reject petitioner's offer of $10,000 in
settlement of the 1992-2001 liability of
$275,777 on the ground of doubt as to
collectibility. She reviewed the information
submitted by petitioner during the hearing. She
found that petitioner was operating a business
and earning more than $30,000 a year. Combined
with his monthly pension income, and after
subtracting his claimed expenses, she found
that, from his net monthly income alone, he
could, over time, afford to pay more than
$10,000 towards the 1992-2001 liability.11
She also calculated that he had net realizable
equity of $30,204, which was more than the
$10,000 he had offered. She calculated a
reasonable collection potential of $82,164.
Because the offer was less than the reasonable
collection potential she had calculated, the
offer was, in the absence of special
circumstances, unacceptable under the
Commissioner's procedures for the submission and
processing of offers in compromise. See Rev.
Proc. 2003-71, sec. 4.02(2), 2003-2 C.B.
517. Petitioner has not challenged Rev. Proc.
2003-71, supra. Moreover, petitioner provided
Ms. Boudreau with insufficient information to
justify her accepting an offer based on special
circumstances in any amount less than what she
had calculated as the reasonable collection
potential of the case. Therefore, we must
determine only whether the Appeals officer's
calculations are reasonable. See, e.g., Galvin
v. Commissioner, T.C. Memo. 2003-263; McCorkle
v. Commissioner, T.C. Memo. 2003-34; Schulman v.
Commissioner, T.C. Memo. 2002-129. We conclude
that her computations were reasonable, and she
did not err in rejecting the offer in compromise
based on doubt as to collectibility.
C.
The Appeals Officer Did Not Improperly and
Prematurely Conclude the Hearing
1.
Introduction
On
brief, petitioner argues not only that Ms.
Boudreau prematurely concluded the hearing but
also that she (1) did not conduct the hearing in
good faith, (2) failed to negotiate during
consideration of the offer, (3) was inflexible
in considering petitioner's case, (4) was biased
in concluding that the hearing had to be
promptly concluded, and (5) was not impartial
since she both conducted the hearing and
negotiated the
