Merry J. Chandler v. Commissioner.

Dkt. No. 6201-02L , TC Memo. 2005-99, May 9, 2005 .

[Appealable, barring stipulation to the contrary, to CA-4. -- CCH .]

[Code Secs. 6330 and 7122]
Levy: In-person hearing: Abuse of discretion: Evidence: Offer in compromise. --

An Appeals officer's determination that the IRS could proceed with a levy against an individual taxpayer was not an abuse of discretion. The taxpayer's claim that she had requested, but was not granted, a face-to-face interview was not persuasive. Moreover, the taxpayer had been given 30 days to revise her offer in compromise, and her case was not closed for six weeks after that time period had lapsed, but even with the additional time, the taxpayer did not revise her offer or provide the additional information that had been requested. -.

Merry J. Chandler, pro se; Ann M. Welhaf and Jeffrey E. Gold, for respondent.

 

Held: R's Appeals officer did not abuse his discretion by sustaining a determination to proceed with collection by levy of P's unpaid liabilities following a telephonic conversation and an exchange of correspondence with P. P failed to prove that she requested a face-to-face interview with the Appeals officer during the course of the sec. 6330, I.R.C., hearing.

MEMORANDUM FINDINGS OF FACT AND OPINION

 

HALPERN, Judge: This case is before the Court to review a determination (the determination) made by respondent's Appeals Office (Appeals) that respondent may proceed to collect by levy petitioner's tax liabilities for her 1988, 1993, 1994, 1996, 1997, and 1998 taxable (calendar) years. We review the determination pursuant to section 6330(d)(1).¹ At the start of the trial in this case, respondent conceded that petitioner had paid in full her liability for 1993 and that respondent would not pursue a levy with respect to that year. We accept that concession and will reflect it in our decision. We therefore consider only respondent's proposed levy with respect to petitioner's unpaid liabilities for 1988, 1994, 1996, 1997, and 1998 (collectively, the unpaid liabilities). Petitioner's sole argument on brief is that Appeals erred in making the determination because it failed to accord petitioner the face-toface interview that she claims to have requested. Because petitioner has failed to persuade us that she requested a faceto-face interview, we sustain the determination.²

FINDINGS OF FACT

 

The parties filed a stipulation of facts, which, with accompanying exhibits, is incorporated herein by reference.

 

Petitioner resided in Bowie , Maryland , at the time the petition was filed.

 

On July 25, 2000 , respondent issued to petitioner a Final Notice --Notice of Intent To Levy and Notice of Your Right to a Hearing (the notice), which sets forth the unpaid liabilities and describes respondent's intent to levy on petitioner's property to collect those liabilities. On August 7, 2000 , petitioner timely filed a Request for a Collection Due Process Hearing (the request). On June 26, 2001 , the request was assigned to Appeals Officer Francis McNichol, Jr. Mr. McNichol maintained a written record of actions that he took with respect to the request that he considered to be significant, including correspondence and other contacts with petitioner and the final disposition of the request (the case activity record). The entry in the case activity record for October 12, 2001 , chronicles a telephone conversation with petitioner. In pertinent part, it states: "Personal conference is not necessary per [petitioner]. Telephone discussion will be fine." The remainder of the entry discusses (1) an offer in compromise that petitioner claimed to have filed, but as to which Mr. McNichol could find no evidence in an Internal Revenue Service ( IRS ) database, and (2) Mr. McNichol's advice to petitioner that, before an offer in compromise could be considered, she must file her 2000 return.

 

Mr. McNichol's entry in the case activity record for December 4, 2001 , states that petitioner filed her 2000 return and that the IRS received an offer in compromise from petitioner. The entry states that there were problems with the offer and that Mr. McNichol sent a letter to petitioner asking for revisions to the offer and for additional information; the entry further states that petitioner would be allowed 30 days to respond. An entry for January 2, 2002 , states that there had been no word from petitioner and that Mr. McNichol had determined to sustain the collection (levy) action. A further entry for that date states that Mr. McNichol had prepared the case for closing. Besides the entry on October 12, 2001 , no entry in the case activity record references any discussion of a personal conference.

 

On February 19, 2002 , Appeals issued to petitioner the determination.

OPINION

I. Introduction

If any person liable for Federal tax liability neglects or refuses to make payment within 10 days of notice and demand, the Commissioner is authorized to collect the tax by levy on that person's property. See sec. 6331(a). As a general rule, at least 30 days before taking such action, the Commissioner must provide the person with a written final notice of intent to levy that describes, among other things, the administrative appeals available to the person. See sec. 6331(d).

 

Upon request, the person is entitled to an administrative review hearing before Appeals (a collection due process hearing). Sec. 6330(b)(1). Appeals must offer the person an opportunity for a hearing, in person, at the Appeals Office closest to the person's residence. See sec. 301.6330 -1(d)(2), Q&A-D7, Proced. & Admin. Regs. Nevertheless, a collection due process hearing "may, but is not required to, consist of a face-to-face meeting, one or more written or oral communications between an Appeals officer or employee and the taxpayer * * *, or some combination thereof." Id. , Q&A-D6, Proced. & Admin. Regs. The Appeals officer conducting the collection due process hearing must verify that the requirements of any applicable law or administrative procedure have been met. Sec. 6330(c)(1). Section 6330(c) prescribes the relevant matters that a person may raise at the collection due process hearing, including spousal defenses, the appropriateness of respondent's proposed collection action, and possible alternative means of collection. A taxpayer may contest the existence or amount of the underlying tax liability at a collection due process 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).

 

Following the collection due process hearing, the Appeals officer must determine whether the collection action is to proceed, taking into account the verification the Appeals officer has made, the issues raised by the taxpayer at the hearing, and whether the collection action, "balances the need for the efficient collection of taxes with the legitimate concern of the * * * [taxpayer] that any collection action be no more intrusive than necessary." Sec. 6330(c)(3). We have jurisdiction to review such determinations where we have jurisdiction over the type of tax involved in the case. Sec. 6330(d)(1)(A); see Iannone v. Commissioner [Dec. 55,618], 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 [Dec. 53,803], 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. Whether an abuse of discretion has occurred depends upon whether the exercise of discretion is without sound basis in fact or law. See Ansley-Sheppard-Burgess Co. v. Commissioner [Dec. 50,547], 104 T.C. 367, 371 (1995).

II. Arguments of the Parties

Petitioner argues that, because petitioner was not granted a face-to-face interview, Mr. McNichol abused his discretion by determining that collection of the unpaid liabilities by levy was proper. Respondent answers that petitioner received an adequate hearing by telephone and exchange of correspondence and declined a face-to-face interview when, on October 12, 2001 , such an interview was offered.

III . Discussion

We decide whether, before Appeals determined to proceed by levy with collection of the unpaid liabilities, Appeals Officer McNichol accorded petitioner a fair hearing, as required by section 6330(b)(1). Procedures for the conduct of collection due process hearings are set forth in section 301.6330-1(d), Proced. & Admin. Regs. As set forth above, section 301.6330-1(d), Q&A-D6 and D7, Proced. & Admin. Regs., provides that, although a taxpayer must be offered a face-to-face interview, an acceptable hearing can consist of an exchange of correspondence or oral (telephonic) communications, or some combination of the two. See also Katz v. Commissioner [Dec. 54,081], 115 T.C. 329, 334-338 (2000); Armstrong v. Commissioner [Dec. 54,865(M)], T.C. Memo. 2002-224; cf. Parker v. Commissioner [Dec. 55,768(M)], T.C. Memo. 2004-226. Entries made by Mr. McNichol in the case activity record show both an exchange of correspondence and telephone conversations. Based on the testimony of Mr. McNichol and the corroborating October 12, 2001, entry in the case activity record, we believe, and find, that, on that date, Mr. McNichol offered petitioner the opportunity for a face-to-face interview, which she declined. We further find that petitioner did not thereafter change her mind and request a faceto-face interview. Petitioner testified that, at some time, perhaps after she received a letter from Mr. McNichol dated December 4, 2001, she telephoned him and asked to meet with him, and he refused. Mr. McNichol testified that he recalled no such request; indeed, he could recall no conversations with petitioner after December 4, 2001. The case activity record shows no communication with petitioner after December 4, 2001. Petitioner's testimony was inexact as to dates, and she offers nothing to corroborate her testimony. While petitioner may have decided at some point after initially having been contacted by Mr. McNichol on October 12, 2001, and declining a face-to-face interview, that, indeed, she did wish such an interview, we are unconvinced that she communicated that fact to Mr. McNichol.

IV. Conclusion

As we understand her underlying claim, petitioner argues that she should be allowed to make (and Appeals should accept) an offer in compromise of the unpaid liabilities. Petitioner attempted to make an offer in compromise, but Mr. McNichol found problems with the offer and asked petitioner to revise it and to provide him with additional information. Mr. McNichol gave petitioner 30 days to do so. At the end of 30 days, when petitioner had failed to make the revisions or provide the additional information, Mr. McNichol took steps to close petitioner's case and deny the request. It took more than 6 weeks for Appeals to close the case and issue the determination. Despite the additional 6 weeks, petitioner never revised the offer or provided the additional information. We do not think that Appeals abused its discretion in determining to proceed to collect the unpaid liabilities by levy. See Roman v. Commissioner [Dec. 55,522(M)], T.C. Memo. 2004-20 (reasonable to issue adverse section 6330 determination when, after 6 weeks, taxpayer had failed to submit information requested with respect to offer in compromise).

 

To reflect the foregoing,

 

An appropriate decision will be entered for respondent.

¹ Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986.

² During the trial in this case, petitioner also claimed that she had paid in full her liability for 1997 and that Appeals Officer McNichol (the individual in Appeals assigned to her case) had failed to allow her reasonable time to submit an amended offer in compromise. Respondent denied both of those claims. At the conclusion of the trial, the Court instructed petitioner that she was required to file briefs. In particular, we instructed her that, as to any argument she wished to make, she should state in her brief the facts she wished the Court to find and then, based on those facts, argue her case to the Court. Petitioner filed both an opening brief and an answering brief. Although in her opening brief petitioner proposes facts and makes an argument with respect to the issue of whether she requested a face-to-face interview with Appeals Officer McNichols, she neither proposes facts nor makes any argument with respect to her claims that she paid in full her liability for 1997 or that Appeals Officer McNichols failed to allow her reasonable time to submit an amended offer in compromise. If an argument is not pursued on brief, we may conclude that it has been abandoned. E.g., Mendes v. Commissioner [Dec. 55,372], 121 T.C. 308, 312-313 (2003). Because of our instruction to petitioner concerning her brief and her pursuit on brief exclusively of the face-to-face interview issue, we conclude that she has abandoned her other two claims, and we need not discuss them.

 

Alliance Services, Inc., Plaintiff v. United States of America by and through the Commissioner of Internal Revenue Service, Defendant.

U.S. District Court, No. Dist. Ga. , Atlanta Div.; Civ. 1:04-CV-12-BBM, February 10, 2005 .

[ Code Sec. 7122]

Offers in compromise: Abuse of discretion. --

An Appeals officer did not abuse her discretion by denying a taxpayer's offer in compromise, despite the taxpayer's assertion that a change in circumstances had a detrimental effect on his financial position and his ability to earn future wages. In addition, although there were questions regarding whether the taxpayer could obtain the proceeds of a loan, the IRS 's treatment of the loan as an asset was within its discretion and did not constitute an error in judgment..

ORDER

MARTIN, District Judge: This matter is before the court on the Defendant's Motion for Partial Summary Judgment [Doc. No. 19] and Plaintiff's Cross-Motion for Summary Judgment [Doc. No. 23]. ¹



I. Factual and Procedural History

Plaintiff Alliance Services, Inc. (" Alliance "), a Georgia corporation, formerly had two lines of business: (1) providing security guard services and (2) providing ATM services to financial institutions. In 1999 and 2000, Alliance suffered approximately $120,000.00 in losses attributed to theft by employees. For two and a half years, from 2000 until mid-2002, Alliance paid only small portions of federal employment taxes. As of March 29, 2004, Alliance 's tax liability, including the unpaid taxes and penalties, was $3,613,291.77. For the first three quarters of 2000, the IRS assessed trust fund penalties against Robert Savoy ("Savoy"), the president and sole shareholder of Alliance, pursuant to 26 U.S.C. §6672. ²

On April 4, 2002, Alliance and Alliance Service Acquisition, LLC ("ASA"), entered an asset purchase agreement under which Alliance agreed to sell to ASA its assets relating to its ATM services. The asset purchase agreement provided that, at closing, Savoy had the right to borrow up to $800,000.00, subject to ASA's setting off of up to $90,000.00 for amounts, if any, which Savoy was required to indemnify ASA under the asset purchase agreement. On April 7, 2003, Savoy requested the line of credit from ASA. On April 8, 2003, Savoy was terminated by ASA for cause.

As a means to collect some of Alliance 's unpaid federal employment tax liabilities, Defendant, the Internal Revenue Service (" IRS "), determined that a levy should be imposed and placed Alliance on notice of its collection method. ³ On or around March 14, 2001, Alliance filed a request for a collection due process hearing with the IRS . Alliance asserted that (1) the penalties and interest should be abated due to "reasonable cause" for the "late payment and late filing" of its employment taxes; (2) instead of a levy, Alliance should be permitted to pay the tax through an installment agreement; and (3) the federal tax lien should be released. The IRS confirmed its receipt of Alliance 's request, and the hearing was assigned to IRS settlement officer Marilyn Alls ("Alls").

On December 31, 2002, Alliance submitted to Alls an offer to settle its delinquent federal employment tax liabilities of more than $3,000,000.00 for a payment of $250,000.00 ⁴ through the IRS 's Offer-in-Compromise program, explained in further detail below. Joseph Kennedy ("Kennedy"), an IRS offer specialist, reviewed the offer, considering the assets, liabilities, income, and expenses of Alliance and Savoy . ⁵ Kennedy determined that Alliance and Savoy could be expected to pay $1,317,517.00 on an offer and that a payment of $250,000.00 was insufficient. Alliance submitted a response dated September 10, 2003 to Kennedy's analysis. Alls then made adjustments to Kennedy's evaluation and determined that the minimum offer acceptable from Alliance was $687,309.40, which Alls rounded up to $700,000.00. On November 17, 2003, during a telephone conversation, Alliance requested that Alls send a facsimile containing the amended computation of assets, income, and expenses. Alls did so and requested, in her facsimile, a response from Alliance by November 19, 2003. After Alliance had received the facsimile, Alliance contacted Alls and asserted that the following changes in circumstances had occurred, adversely affecting Savoy's financial circumstances: (1) he had lost his job; (2) he had been unable to find a similar position due to a covenant-not-to-compete; (3) he had been fired "for cause," and his former employer had refused to provide severance or other loans provided in the original purchase agreement; and (4) his wife had sued him for divorce. ⁶

The IRS sent a letter dated December 4, 2003, in which it denied Alliance 's offer. ⁷ On December 5, 2003, the IRS issued its Notice of Determination, upholding its decision to collect by levy. ⁸ The parties have filed motions for summary judgment, and both motions are opposed. ⁹



II. Legal Analysis

A. Background

Section 6331(a) of the Internal Revenue Code provides that:

If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax ... by levy upon all property and rights to property ... belonging to such person or on which there is a lien ....

26 U.S.C. §6331(a). "No levy may be made ... unless the Secretary has notified such person in writing of their right to a hearing." 26 U.S.C. §6330(a)(1). The hearing, referred to as a collection due process hearing, includes a meeting between the hearing officer and the taxpayer as well as any written correspondence regarding the substantive issues. See 26 C.F.R. §301.6330-1(d)(2) Q&A-D6. The taxpayer "may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy ...." 26 U.S.C. §6330(c)(2)(A). An IRS official must verify that the requirements of applicable law or administrative procedure have been met. See id. at §6330(c)(1). In this case, no party disputes that the IRS has attempted to collect Alliance 's employment tax liabilities through levy and that the relevant requirements for a collection due process hearing have been satisfied.

Through the IRS 's Offer-in-Compromise program, the IRS and the taxpayer may reach an agreement that resolves the taxpayer's liability. Specifically, the IRS may compromise a liability by accepting less than full payment if there is doubt as to liability, doubt as to collectibility, or to promote effective tax administration. See generally 26 U.S.C. §7122(a); Fed. Tax Coordinator T-9610 (2d ed. 2005). Based on a review of the taxpayer's financial status, the IRS determines the minimum acceptable level of an offer. See 26 C.F.R. §301.7122-1. In this case, Alliance proposed an offer to settle its employment tax liabilities, which was considered and rejected by the IRS .

The instant dispute arises from the question of whether Alls, after considering the proceedings of the due process hearing and the accompanying materials provided by Alliance, exercised discretion properly in rejecting Alliance's offer to compromise its tax liabilities and upholding the levy. If the validity of a tax assessment was properly raised at the collection due process hearing, the decision as to validity is reviewed de novo, but all other determinations, such as those presently at issue in this case, are reviewed under an abuse of discretion standard, an extremely deferential form of review. ¹⁰ See Johnson v. United States [ 2003-2 USTC ¶50,721], No. Civ. A. 1:03CV0475- GET , 2003 WL 22989550, at *3 (N.D. Ga. Oct. 8, 2003) (Tidwell, J.); MRCA Info. Servs. v. United States [ 2000-2 USTC ¶50,683], 145 F.Supp.2d 194, 199 (D. Conn. 2000).

The Eleventh Circuit has observed that an "abuse of discretion" standard of review recognizes that for the matter in question there is a range of permissible choice for the decision-maker below.... So long as the decision under consideration does not amount to a clear error of judgment, a reviewing court may not reverse just because it would have gone the other way had the choice been its to make.

Sillavan v. United States [ 2002-1 USTC ¶50,236], No. 01CV803, 2002 WL 400804, at *4 (N.D. Ala. Jan. 11, 2002 ) (citing McMahan v. Toto, 256 F.3d 1120, 1128 (11th Cir. 2001)). Another district court has also elaborated on the definition of abuse of discretion. "[A]n arbitrary action not justifiable in light of the facts and circumstances presented in the record" or a decision "made without a rational explanation" constitutes an abuse of discretion. Dudley's Commercial & Indus. Coating, Inc. v. United States Internal Revenue Serv. [ 2003-1 USTC ¶50,397], 292 FSupp.2d 976, 985 (M.D. Tenn. 2003) (citations omitted). Because the court will review Alls' action under an abuse of discretion standard, its review will be limited to the administrative record, see Camp v. Pitts, 411 U.S. 138, 142 (1973), which consists of the collection due process hearing and the subsequent communications leading up to the IRS 's ultimate decision. ¹¹

B. Applicable Legal Standard ¹²

Summary judgment is proper "if ... there is no genuine issue as to any material fact" and "the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). In considering a motion for summary judgment, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The plaintiff must do more than show some level of doubt as to the material facts. "The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient ...." Id. at 252. As such, the non-movant may not avoid summary judgment with evidence that is "merely colorable or is not significantly probative." Raney v. Vinson Guard Serv., Inc., 120 F.3d 1192, 1196 (11th Cir. 1997).

C. Motions for Summary Judgment

Alliance moves for summary judgment because it asserts that the IRS abused its discretion in denying Alliance 's offer and thereby abused its discretion in upholding collection by levy of Alliance 's employment tax liabilities. Specifically, Alliance states: (1) the lapsed right to borrow money from ASA is a revoked line of credit and should not be considered an asset; (2) the IRS improperly refused to consider adverse consequences of certain changes in Savoy's life; (3) the IRS based its denial of Alliance's offer on a non-existent policy; (4) the IRS did not provide reasonable time for Alliance to provide collection alternatives before issuing its Notice of Determination; and (5) the levy violated statutory requirements with respect to the fourth quarter of 2000. The IRS moves for summary judgment because it asserts that Alls did not abuse her discretion in sustaining the use of a levy to collect Alliance 's unpaid federal employment tax liabilities.



Consideration of the Loan as an Asset

In April 2002, when Alliance sold a portion of its business to ASA, as part of the consideration, ASA agreed to lend Savoy $710,000. Based upon this, Alls factored in $350,000 as a source of funds from which Savoy could pay his tax liability. ¹³ Savoy asserts that Alls should not have treated the loan as an asset, or at least as an asset with any value, because he was terminated for cause and asserts he could no longer gain access to the loan. ¹⁴ The IRS defends its action on the grounds that Savoy 's right to borrow was not tied to his employment, and Savoy provided no evidence supporting that the loan from ASA was no longer available to him. The court must first determine whether Alliance presented evidence to Alls that the loan was not available to Savoy . If so, then the court must evaluate whether Alls abused her discretion in characterizing the loan as an asset to be factored into the minimum acceptable offer.

The record shows that Joseph Odom ("Odom"), Alliance 's representative, sent a letter dated September 10, 2003 to the IRS , in which he explained that ASA had refused to provide any amount of the line of credit to Savoy . The court recognizes Alls' assertion that Alliance did not provide certain documents related to the litigation between Savoy and ASA over the unpaid loan, yet Alls also acknowledges that Alliance had asserted to her that ASA was refusing to provide the loan to Savoy . Additionally, Odom avers that in previous conversations with the IRS , Odom offered to enter into a collateral agreement ¹⁵ assigning at least a portion of any loan proceeds Savoy ever received under the line of credit, but the offer was ignored. Alls states that she "do[es] not recall this statement, although it may have been made." Based on the evidence in the record, it appears to the court that the IRS was aware that ASA had not paid the loan to Savoy .

Next, the court must evaluate whether it was within the IRS 's discretion to characterize the loan as an asset. According to the IRS 's policies, it is entirely proper for a taxpayer to satisfy a liability with borrowed assets. See generally Internal Revenue Manual §5.8.5.3.3 (noting that the IRS will consider future effects on expenses and income when a taxpayer borrows against an income-producing asset to contribute proceeds to an offer); Internal Revenue Manual §5.8.3.19.2 (noting that the IRS may mandate that taxpayers secure a loan on their equity or enforce collection through levy); Internal Revenue Manual §5.8.5.3.7 (noting that the IRS will adjust the value of a taxpayer's insurance policy if he has borrowed on the policy to help fund an offer). ¹⁶ Moreover, the record shows that, in assessing the value of the loan, Alls did not attribute to the loan its full value, perhaps taking into account that there may be viable legal grounds upon which ASA could be forced to pay the loan, ¹⁷ or, on the other hand, that by failing to seek the loan upon closing of the asset purchase agreement between Alliance and ASA in July 2002, Savoy jeopardized his ability to get the loan proceeds. The court also recognizes the IRS 's alternative contention that the right originally provided by ASA was not a loan but was instead a right to draw, potentially resulting in full forgiveness of any liability Savoy would have to ASA. However, the court is mindful that the documents that provided this information to the IRS were not contained in the administrative record and are therefore outside the review of the court. In any event, the court has determined the IRS 's treatment of the loan as an asset was within its discretion and did not constitute an error in judgment.



Consideration of Future Wages

In calculating the minimum level for an acceptable offer from Alliance , Alls determined that Savoy could pay $12,500 per month in wages for a period of forty-eight months. The IRS asserts that it considers a person's ability to contribute wages as long as he is healthy, even if he is not currently employed. Alliance contends that Alls failed to consider how difficult it will be for Savoy to continue working in light of the following facts: (1) Savoy was fired "for cause" and has not been working for the past seven months; (2) Savoy is 64 years old; (3) Savoy suffers from serious health problems, including diabetes; (4) Savoy is constrained by a covenant-not-to-compete; and (5) Savoy is involved in divorce proceedings.

The Internal Revenue Manual states that future income is "an estimate of the taxpayer's ability to pay based on an analysis of gross income, less necessary living expenses." See Internal Revenue Manual §5.8.5.5. ¹⁸ Generally speaking, it was appropriate for Alls to consider Savoy 's future income even though he was unemployed. For a taxpayer who is unemployed, the IRS analyst should "[u]se the level of income expected if the taxpayer were fully employed." Id.

If Alls had evidence that Savoy 's ability to earn future income was adversely affected, it was incumbent upon her to consider that evidence and make appropriate adjustments. According to the Internal Revenue Manual, if a taxpayer is elderly, in poor health, or both and the ability to continue working is questionable, the IRS analyst should adjust the amount or number of payments to the expected earnings. Id. First, the court will evaluate whether Alls was provided evidence related to the alleged changed circumstances affecting Savoy , and, if so, whether Alls abused her discretion with regard to this evidence.

Although Alls was aware of Savoy 's age, she was not aware that Savoy had a disability. The medical information provided by Alliance simply showed that Savoy and his ex-wife had medical expenses. Alls states that she was aware that Savoy was divorced but had been told by Odom that the details of alimony and permanent support payments had not yet been established. And, finally, Alls notes that she was aware of the existence of a covenant-not-to-compete affecting Savoy , but the covenant was never provided to her during the time of consideration.

The court finds that Alls' determination that Savoy could pay $12,500.00 per month was not an abuse of discretion. The fact that Savoy was at an age when many people retire does not mean he was incapable of earning income. ¹⁹ The court is aware that Savoy suffers from diabetes, a disease with many negative symptoms. However, Savoy provided no evidence that his diabetes prevents him from working. Similarly, knowledge that a taxpayer has been through a divorce, without definite support terms, is alone not enough to show Savoy could not contribute future income. Finally, the court notes that a covenant-not-to-compete does not prohibit someone from working at all, but simply from working in a limited field for a limited time and in a limited area. The court's review of the administrative record shows little evidence about any of these changed circumstances in Savoy's life that adversely affected him financially, and the fact that this limited evidence did not cause Alls to conclude that Savoy could not contribute the determined amount of future income was entirely and reasonably within her discretion.

Alliance urges, however, that Alls' decision was improper because Alls was required to consider Savoy 's changed circumstances and conduct further investigation. To support its position, Alliance relies on Cavanaugh v. United States, No. 03-250, 2004 WL 880442 (D.N.J. Mar. 23, 2004). In Cavanaugh, the taxpayer requested review of the IRS 's determination because the IRS officer failed to take into account the change in the taxpayer's financial and family circumstances. ²⁰ Id. at *2. The IRS officer would not consider the offer because she believed she was prohibited from doing so by 26 U.S.C. §6330(c)(4), which provides that an "issue may not be raised at the ... hearing if the issue was raised and considered at a previous hearing ... and the person seeking to raise the issue participated meaningfully in such hearing." Id. at *7. The Cavanaugh court held that a refusal to consider changed circumstances at a hearing would be an abuse of discretion. Id. The court finds Cavanaugh to be inapposite because, in this case, Alls does not assert that she refused to consider changed circumstances but simply that she considered the evidence presented related to Savoy 's changed circumstances and found it insufficient to contradict her findings that Savoy could gain income in the future. ²¹

Finally, Alliance argues that Alls failed to note in her Notice of Determination that she considered Savoy 's changed circumstances. The Cavanaugh court states:

The IRS ... should give some indication in its Notice of Determination of why it accepted or rejected the arguments the taxpayer raised at the [collection due process] hearing. Post hoc rationalizations are not an adequate basis for judicial review of informal agency action.

Id. at *9 (citations omitted); see also Camp, 411 U.S. at 142 ("the focal point for judicial review should be the administrative record already in existence, not some new record made initially in the reviewing court"). The court acknowledges that Alls' Notice of Determination does not discuss Savoy 's changed circumstances. The court does have an Affidavit from Alls, in which she asserts that she reviewed the relevant evidence submitted by Savoy , but this affidavit is outside the scope of the administrative record. Nevertheless, the court has reviewed the full administrative record containing that evidence, and finds that Alls acted within her discretion to determine that the evidence presented to show changed circumstances was insufficient to cause her to alter her calculation of expected future income. Certainly, the court would have preferred for Alls to outline in detail each item of evidence she reviewed during the decision-making process, but the court also realizes how administratively burdensome it would be to require an IRS official to denote every step she took during her deliberation. In this case, Alls reviewed the record before her, finding certain evidence favorable to Savoy , certain evidence unfavorable to Savoy , and certain evidence immaterial to her decision. In the current posture of this case, reviewing the actions of the IRS by way of an abuse of discretion standard, the court is unwilling to find that an IRS official is required to outline what evidence she finds insubstantial in reaching her ultimate decision. It would be within the court's power to request that Alls resubmit a more detailed Notice of Determination, in which she would likely note that she found the evidence Savoy presented of changed circumstances to be immaterial to her decisions, but based upon Alls' affidavit submitted in this action, it appears to the court that the outcome would be the same. Consequently, the court will not require additional efforts by the IRS .



Upholding the Levy Based on Non-Policy

In a letter dated December 4, 2003, the IRS sent a letter to Alliance that stated:

We are sorry, but your offer is rejected as insufficient since it is not our policy to give favorable consideration to an offer to compromise employment taxes unless the amount offered is equal to the unpaid tax (exclusive of penalty and interest) and the taxpayer's financial condition indicates no greater amount is collectible.

In its Notice of Determination, dated December 5, 2003, the IRS informed Alliance that the levy would be sustained because "[t]he taxpayer corporation has failed to propose a collection alternative other than an Offer in Compromise that has been rejected." Both parties agree that the IRS has no policy as that set forth in the letter dated December 4, 2003. Yet, Alliance speculates that the IRS 's determination was based on the policy as set forth in the letter, and thus the IRS acted improperly. Alliance offers no evidence in support of its position. The IRS has responded that the letter is a standard form letter, sent to Alliance in error, and that the policy announced in the letter was not employed in this case. The court has reviewed the administrative record and the Notice of Determination and cannot find any evidence that the IRS followed the policy outlined in its December 4, 2003 letter to make its determination in this case.



Reasonable Time to Propose Alternatives

Alliance asserts that the IRS 's denial of Alliance's offer was too closely followed by its Notice of Determination sustaining the levy, issued the next day, and that Alliance was not provided adequate time to offer a proposed collection alternative. According to Alliance , after receiving Alls' work papers on November 17, 2003, Odom spoke with Alls about Savoy 's change in circumstances. At that time, Odom believed Alls was going to confer with her supervisor and follow up with Odom. Alls did not contact Odom again and denied the offer and sustained the levy. Alls avers that Odom did not ask her to confer with her supervisor during their conversation. Having requested a response by November 19, 2003 and receiving no alternative offers or detailed response to her work papers, she believed it was proper to deny Alliance 's offer and sustain the levy.

The court has reviewed the administrative record and finds that Alliance was permitted to submit evidence throughout the time Alls was considering Savoy 's offer, a period which extended for more than a year. Savoy submitted evidence of his changed circumstances on many occasions before November 17, 2003, as noted above, and thus Alls would have had such evidence in her possession prior to that time. Alliance provides the court with no authority for the proposition that Alls was required to reconsider evidence of Savoy's changed circumstances, which she had previously received, or for the proposition that the IRS has to wait a certain period of time between rejecting a taxpayer's compromise offer and upholding a levy to collect that taxpayer's outstanding tax liabilities. Thus, the court cannot find the IRS acted improperly in acting quickly to deny Alliance 's offer and uphold the collection levy.



Upholding the Levy Although It Included the Fourth Quarter of 2000

Alliance urges that the levy should be stricken because statutory levy notice requirements were not complied with regarding outstanding tax liabilities for the fourth quarter of 2000, yet the Notice of Determination referred to this quarter. See 26 U.S.C. §6330. The IRS acknowledges its Notice of Determination incorrectly referred to the fourth quarter of 2000 and that the collection levy is related to liabilities from the first three quarters of 2000 only. Because the IRS admits its clerical error, the court does not find grounds on which to strike the entire levy.



III . Summary

In sum, because the IRS did not abuse its discretion in denying Alliance's offer and upholding the collection of Alliance's tax liabilities by levy, Defendant's Motion for Partial Summary Judgment [Doc. No. 19] is GRANTED, and Plaintiff's Cross-Motion for Summary Judgment [Doc. No. 23] is DENIED.

In accordance with the Preliminary Report and Discovery Plan dated May 7, 2004, the Defendant is hereby ORDERED to file its motion regarding this court's subject matter jurisdiction on the issue of abatement of penalties, within fourteen (14) days of the date of this Order. Plaintiff's response brief shall be filed within fourteen (14) days after the filing of Defendant's motion. If no jurisdictional issue is raised, the parties are to proceed with requested discovery, which will expire four (4) months from the date of this Order, on June 10, 2005.

IT IS SO ORDERED.

¹ Defendant has filed a Motion for Partial Summary Judgment because the issues in this case are bifurcated. The first issue to be determined is whether Defendant abused its discretion in upholding the use of a levy to collect Plaintiff's unpaid federal employment tax liabilities. The second issue is whether penalties for failing to timely pay and deposit federal employment tax liabilities should be abated on the grounds that there was reasonable cause for the failure to pay and deposit. If the court finds for Plaintiff on the first issue, the second issue will not need to be evaluated. If the court finds for Defendant on the first issue, the parties will, in accordance with the scheduling order, undertake discovery and present the second issue to the court. The court has reviewed Plaintiff's Cross-Motion for Summary Judgment. Although it is not entitled as a partial motion, it too addresses only the first issue.

² Section 6672 of the Internal Revenue Code provides:

Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.

26 U.S.C. §6672.

³ Based on the Joint Stipulation of Facts, the IRS placed Alliance on notice of its intent to levy for liabilities owed from the first three quarters of 2000.

⁴ Although Alliance was placed on notice that the IRS intended to collect by levy liabilities from the first three quarters of 2000, Alliance's offer of $250,000.00 was intended to excuse all its outstanding employment tax liabilities for 2000 through 2002.

⁵ Because Savoy is the sole shareholder of Alliance and was deemed responsible for the failure to pay employment taxes, the IRS treated Alliance 's corporate assets and Savoy 's personal assets as indistinct. The court will do the same. The court will also refer to Alliance and Savoy interchangeably throughout this Order because they are inseparable for the purposes of the issues relevant in this case.

⁶ Based on the court's review of the record, Alliance did not present evidence of these changes for the first time on November 17, 2003. According to Alliance, evidence that Savoy has diabetes was submitted on March 21, 2003; evidence that Savoy was a party in a covenant-not-to-compete was submitted on May 19, 2003; evidence of Savoy's age was submitted on September 10, 2003, as well as on December 31, 2002; and evidence that Savoy and his wife were engaged in divorce proceedings was submitted on September 10, 2003.

⁷ The denial letter stated:

We are sorry, but your offer is rejected as insufficient since it is not our policy to give favorable consideration to an offer to compromise employment taxes unless the amount offered is equal to the unpaid tax (exclusive of penalty and interest) and the taxpayer's financial condition indicates no greater amount collectible.

As the IRS now admits, no such policy exists. The letter, a standard Appeals form letter, was sent in error. Nevertheless, it is clear to the court that the IRS intended to communicate it was denying Alliance's offer to compromise its tax liabilities for $250,000.00.

⁸ According to the Joint Stipulation of Facts, the Notice of Determination refers to upholding collection by levy for the federal employment tax liabilities for all four calendar quarters of 2000, but the reference to the fourth calendar quarter of 2000 is in error. Alliance has not yet been placed on notice of collection by levy for the fourth calendar quarter of 2000. See 26 U.S.C. §6330.

⁹ The court notes that the Clerk of Court issued a Notice to Respond to Plaintiff's November 1, 2004 Motion for Summary Judgment somewhat belatedly, on January 24, 2005. However, both parties have filed all permissible response and reply briefs to each other's motions. Therefore, the court will await no further filings.

¹⁰ Title 26 U.S.C. §6330(d) provides for judicial review of administrative decisions of the IRS , but the statute is silent with respect to the standard of review a court must apply. Courts have determined the standards of review by examining legislative history. See H. Rep. No. 105-599 at 266 (1998).

¹¹ Plaintiff attempts to persuade the court that Robinette v. C.I.R. [ CCH Dec. 55,698], 123 T.C. No. 5, 101-04 (2004), allows the court to look outside the administrative record in its review. In Robinette, the court held that it could consider relevant evidence that the taxpayer attempted to introduce at the collection due process hearing, but which the IRS official refused to consider. Id. In this case, as is explained more fully below, Alls did not refuse to consider evidence but simply rejected it as insufficient. Thus, the court is not persuaded it should follow the holding of the Robinette court.

¹² Some courts have construed a motion for summary judgment as a motion for judgment, seeking affirmance of the IRS's determination. See MRCA Info. Servs. [ 2000-2 USTC ¶50,683], 145 F.Supp.2d at 195 n.3 ( "'[a] motion for summary judgment ... makes no procedural sense when a district court is asked to undertake judicial review of agency action'") (citation omitted); Siquieros v. United States [ 2005-1 USTC ¶50,244], No. EP-03-CA-0478-FM, 2004 WL 2011367, *3 n.10 (W.D. Tex. 2004).

¹³ Originally, Kennedy had factored in the full amount of the loan as an asset, but Alls reduced the amount.

¹⁴ Savoy does not state that he has no legal rights to the loan. In fact, it appears that he pursued litigation against ASA briefly, but Savoy asserts that he was financially unable to continue his action against ASA. Savoy states, on the other hand, that he has been able to pursue the instant litigation because his lawyer is not billing him for legal services.

¹⁵ A collateral agreement allows the IRS to collect funds in addition to the amount actually secured through the offer or to add additional terms to the offer. See Internal Revenue Manual §5.8.6.1.

¹⁶ The court recognizes that there are differences between the examples described in the Internal Revenue Manual and the facts presented here, but by referring to the Manual, the court is aware that a loan, in general terms, can be used to contribute proceeds to a taxpayer's offer.

Also with regard to the loan, the IRS has pointed out that the loan here was bargained for during the negotiation of the asset purchase agreement. Had the loan not been a part of the deal the parties reached, the parties may have bargained for a higher price, an amount which certainly would have been characterized as an asset.

¹⁷ Alliance argues that the IRS's refusal to enter a collateral agreement, see Internal Revenue Manual §5.8.6.1 and 5.8.6.3, in which it would accept assignment of rights to the loan, evinces the IRS's belief that the loan was without value. The IRS contends that if it had accepted an assignment of rights, it would have had to rely on Savoy 's continued willingness to pursue any legal rights against ASA, and it was unwilling to assume that risk. Considering this, the court finds that the IRS's refusal to enter a collateral agreement does not contradict its position that the loan from ASA has value.

¹⁸ In 2000, this section of the Internal Revenue Manual was known as §5.8.5.4.

¹⁹ The court notes that retirement is not a right. Assuming an individual is not physically or mentally impaired, he chooses to retire because it is no longer necessary to work. The court is not prepared to pronounce that because a taxpayer has reached an age generally considered a retirement age, he does not have to contribute future income to satisfy significant tax liabilities.

²⁰ In Cavanaugh, the taxpayer had fathered a child with a woman other than his wife, his wife had divorced him, he lost his job, he had health problems, and had insolvency and foreclosure proceedings brought against some of his assets. 2004 WL 880442, at *2.

²¹ Alliance also relies on Cavanaugh for the contention that Alls had a duty to investigate if the evidence of changed circumstances was insufficient. Cavanaugh, 2004 WL 880442, at *8-9. The court has already determined that the facts of Cavanaugh are distinguishable from the facts of this case. The court also notes that it is not bound by the holding of the case. In any event, the Cavanaugh court did not hold that there is always a duty to investigate but simply determined that either the IRS official should have followed IRS policy as set forth in the Internal Revenue Manual §5.8.3.3.1, which is not at issue in this case, or discussed the insufficiency of the evidence in the Notice of Determination. Id. Additionally, as a policy matter, the burden cannot be placed entirely upon the IRS to smoke out details of factual assertions that are uniquely within the purview of the taxpayer.

 

William Negron Ramos, Plaintiff v. Internal Revenue Service, Defendant.

U.S. District Court, No. Dist. N.Y. ; 1:04-CV-540 (LEK/RFT), January 3, 2005 .

[ Code Sec. 6330]

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.
.

[ Code Sec. 7122]

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.
.

[ Code Sec. 7433]

Practice and procedure: Jurisdiction: Claim for damages: Administrative Procedures Act. --

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. Back reference: ¶41,778.18

.

[ Code Sec. 7513]

Electronic filing program: Suspension from: Reinstatement: IRS authority. --

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. Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering damages resulting from such actions.

26 U.S.C. §7433(a). ³ However, Negron fails to state a claim under §7433 because he does not allege that any officer violated any provision of the Internal Revenue Code or any regulation promulgated thereunder. CPS Elec. Ltd. v. United States [ 2002-1 USTC ¶50,425], 200 F.Supp.2d 120, 128-29 (N.D. N.Y. 2002) (Scullin, C.J.). The only allegation that Negron makes respecting his investment of $2,500 for which he seeks compensation is the amount of time that it took for the IRS to issue a determination as to his liability, and that it took longer than an IRS officer estimated. Complaint (Dkt. No. 1) at 3. However, this Court is not aware of any statute or regulation that requires a determination to be issued within a certain time period, and Negron has not pointed to any. Furthermore, this section only applies to the collection of a tax, not a determination of a tax, which is what is at issue in this case. See Arnett v. United States [ 95-1 USTC ¶50,319], 889 F.Supp. 1424, 1430 (D. Kan. 1995) ("Congress was undoubtedly aware of the distinction between the 'determination' of a tax and the 'collection' of a tax, and that distinction is clearly evidenced by the language of the statute"). Therefore, §7433 does not provide Negron with an avenue of relief.

3. Suspension from Electronic Filing Program

Negron also asks this Court to alter his suspension from the electronic tax filing program to limit it to the current tax year only. Complaint (Dkt. No. 1) at 4. The Court's authority to review the decision to exclude Negron from the program would have to come from §704 of the APA . See, e.g., Brenner Income Tax Ctrs. Inc. v. Dir. of Practice of the IRS [ 2000-1 USTC ¶50,308], 87 F.Supp.2d 252, 257 (S.D. N.Y. 2000). Although Negron does not phrase his complaint in APA terms, he is proceeding pro se, and this Court will read his complaint liberally. See, e.g., Haines v. Kerner, 404 U.S. 519, 520-21 (1972); Gill v. Pidlypchak, 389 F.3d 379, 385 (2d Cir. 2004). For an agency decision to be reviewed under the APA , it must be a "final agency action." 5 U.S.C. §704. "A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is subject to review on the review of the final agency action." Id.

The IRS contends that Negron is not the subject of a final agency decision, and thus, this Court does not have the authority to review the decision under the APA . IRS Memo. (Dkt. No. 7) at 10. Negron alleges that his appeal of the IRS ' initial decision to suspend him was denied and that he has been suspended from the program. Complaint (Dkt. No. 1) at 3. In this letter denying his first appeal, he was informed of his right to a second appeal. Appeal Denial (Dkt. No. 1) at 13. Negron did not appeal again, and therefore, as of March 2004, the sanction should have been imposed. Id. However, the failure to take advantage of the opportunity to appeal does not necessarily deprive this Court of jurisdiction. Under the APA , "if Congress has not enacted an explicit exhaustion requirement, courts may not exercise their judicial discretion to impose one." Bastek v. Fed. Crop Ins. Corp., 145 F.3d 90, 94 (2d Cir. 1998) (quoting Darby v. Cisneros, 509 U.S. 137, 153-54 (1993)). The Court is not aware of any provision that requires Negron to exhaust all of his administrative remedies before filing suit in district court. It appears that Negron has been subjected to a final agency action, considering that he has no further recourse with the IRS and his suspension should be in effect as of March 2004. Appeal Denial (Dkt. No. 1) at 13. Therefore, the Court will not dismiss this action for a lack of final agency action.

The IRS also contends that Negron fails to state a claim under the APA . IRS Memo. (Dkt. No. 7) at 11. In relevant part, the APA states that agency action, findings, and conclusions can only be set aside when they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. §706(2)(a). "An agency rule may be deemed arbitrary, capricious, or an abuse of discretion 'if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.'" Henley v. Food & Drug Admin., 77 F.3d 616, 620 (2d Cir. 1996) (quoting Motor Vehicle Mfrs. Assoc. of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)).

The IRS has the authority to develop guidelines and procedures for participation in the electronic tax filing program. Rev. Proc. 2000-31. Authorized electronic filers must adhere to all revenue procedures and publications related to the program, and sanctions for violations include suspension. Id. at §4.04, 7.02. The IRS may suspend an electronic filer for, inter alia, failure to pay any tax liability or assessment of penalties. IRS , Pub. No. 3112, IRS e-file Application and Participation, 15, 25 (2004). This rule is rationally related "to the IRS ' mission of assuring taxpayers that paid preparers understand and will abide by all relevant rules." Brenner [ 2000-1 USTC ¶50,308], 87 F.Supp.2d at 257.

In this case, the IRS suspended Negron from the program because he had a balance due based upon the assessment that is the subject of the instant action. Program Denial Letter (Dkt. No. 1) at 10. On appeal, the IRS considered the issues he raised, but as he still had a balance due, his request for authorization was denied. Appeal Denial (Dkt. No. 1) at 13. Negron does not dispute that he owed money to the IRS or that penalties were assessed against him. Complaint (Dkt. No. 1) at 3. He does not assert any wrongdoing on the part of the IRS officials that made the determination to suspend him from the program. Id. Negron offers no reason for this Court to award him this relief under the APA , other than his desire to make money by preparing and electronically filing tax returns and his understandable frustration with the length of time it took the IRS Appeals Office to make a determination. Id. As Negron does not allege any wrongful action on the part of the IRS specifically respecting the decision to suspend him from the electronic tax filing program, the IRS ' motion to dismiss is granted.



IV. Conclusion

Based on the foregoing discussion, it is hereby

ORDERED, that the IRS ' motion to affirm is GRANTED; and it is further

ORDERED, that the IRS ' motion to dismiss Negron's claim for $2,500 in damages is GRANTED; and it is further

ORDERED, that the IRS ' motion to dismiss Negron's claim for an alteration to his suspension from the electronic tax filing program is GRANTED; and it is further

ORDERED, that Negron's complaint is DISMISSED in its entirety; and it is further

ORDERED, that the Clerk serve a copy of this order on all parties.

¹ For printed publication in the Federal Reporter.

² Negron did not file a response to the IRS ' motions to affirm and to dismiss.

³ Section 7432, regarding the failure

 

 

Bobby R. Splawn, Plaintiff v. United States of America , Defendant.

U.S. District Court, East. Dist. Tenn. , at Chattanooga ; 1:03-cv-108, August 3, 2004.

[ Code Secs. 6330 and 7122]

Offer in compromise: Doubt as to collectibility: Judicial review: Abuse of IRS discretion. --

The IRS did not abuse its discretion when it rejected an individual's offer in compromise. The taxpayer made his offer to compromise his tax liability for unpaid trust fund taxes based on doubt as to the collectibility of the taxes. After reviewing the taxpayer's offer and his available assets, the IRS proposed to accept an offer in compromise for a larger sum of money because there was evidence that the taxpayer had additional assets that could be used to pay his tax liability. However, the taxpayer did not respond to the IRS counter offer. Since the taxpayer did not dispute his underlying tax liability, the court's review was limited to whether the IRS abused its discretion. Although the taxpayer submitted an affidavit stating that he did not own certain assets, he failed to produce any evidence or documents to support this statement. Because the taxpayer's offer was based on the uncollectibility of the tax due, the court concluded that the IRS did not abuse its discretion when it rejected the taxpayer's offer in compromise..

MEMORANDUM

EDGAR, Chief District Judge: This action is brought by taxpayer and plaintiff, Bobby R. Splawn ("Splawn"), against the United States of America seeking judicial review pursuant to 26 U.S.C. §6330. Splawn seeks to have this Court review an Internal Revenue Service (" IRS ") Office of Appeals decision and determine that the IRS abused its discretion when it rejected an offer in compromise of $5,000 to settle Splawn's $118,179.99 tax obligation. The IRS has filed a motion for summary judgment [Court File No. 10], Splawn has responded [Court File No. 12], and the IRS has filed a reply [Court File No. 15].



I. Facts

On November 26, 2001, the IRS sent Bobby Splawn a "Final Notice of Intent to Levy" for collection of a trust fund recovery penalty assessed pursuant to 26 U.S.C. §6672 for taxes owed for the second quarter of 1992. The amount of the tax obligation was calculated at $118,179.99, representing the total of an "assessed balance" of $58,392.19 and "statutory additions" of $59,787.80. [Court File No. 11, Ex. 1, Ex. A]. Splawn states that his liability arises due to his role as an owner of John Cuneo, Inc., a corporation which owns Safety Fire Sprinkler, Inc., the company where the debt originated. [Court File No. 13 at 2]. He does not dispute his liability based on this relationship, and neither Splawn, nor the IRS , address the source of Splawn's liability further.

On December 4, 2001, Splawn filed a request for a collection due process hearing pursuant to 26 U.S.C. §6330. This hearing occurred on October 31, 2002, before Scott Biggs ("Biggs"), a Settlement Officer with the IRS Office of Appeals. Biggs had no prior involvement in the determination of Splawn's tax liability. [Court File No. 11 at 2].

After the hearing, Splawn filed an Offer in Compromise using IRS Form 656. [Court File No. 11, Ex. 1, Ex. C]. Splawn offered $5,000 payable within 60 days to settle his tax obligation of $118,179.99. In the area of the form marked "Explanation of Circumstances," Splawn wrote: "Due to age and health considerations my ability to continue to work beyond additional two years is extremely doubtful. I am currently recovering from colon cancer." [Court File No. 11, Ex. 1, Ex. C]. In his affidavit, Splawn specifies that he is 70 years old. [Court File No. 14].

Biggs subsequently informed Splawn, through his attorney, that he would accept a offer in compromise in the amount of $110,994, a figure that includes settlement of the joint income tax liability of Splawn and his wife, or in the amount of $60,602, if the joint income tax liability was not included. [Court file No. 11, Ex. 1, Ex. D]. Splawn did not submit any further offers in compromise to the IRS . On March 6, 2003, a notice of determination was issued which informed Splawn of the denial of his proposed collection alternative and his right to dispute the determination in the United States District Court. [Court File No. 11, Ex. 1, Ex. F]. On April 4, 2003, this action asserting that the IRS Office of Appeals "erred in finding that the collection enforcement action was appropriate," because "[c]ertain factors were considered that should not have been considered, and certain factors were disregarded instead of being appropriately considered." [Court File No. 1].



II. Standard of Review

Summary judgment is appropriate where no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED . R. CIV . P. 56(c). In ruling on a motion for summary judgment, the Court must view the facts contained in the record and all inferences that can be drawn from those facts in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); National Satellite Sports, Inc. v. Eliadis Inc., 253 F.3d 900, 907 (6th Cir. 2001). The Court cannot weigh the evidence or determine the truth of any matter in dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).

The moving party bears the initial burden of demonstrating that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To refute such a showing, the non-moving party must present some significant, probative evidence indicating the necessity of a trial for resolving a material factual dispute. Celotex Corp., 477 U.S. at 322. A mere scintilla of evidence is not enough. Anderson, 477 U.S. at 252; McLean v. Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). The Court's role is limited to determining whether the case contains sufficient evidence from which a jury could reasonably find for the non-moving party. Anderson, 477 U.S. at 248, 249; National Satellite Sports, 253 F.3d at 907.

In addition to the general summary judgment standard, the Court must also consider the standard of review as determined by the relevant portions of the tax code. 26 U.S.C. §6330(d) provides the United States District Courts with jurisdiction over certain appeals from hearings before agents of the Internal Revenue Service regarding levies on taxpayers' assets. Although, §6330(d) does not set forth the appropriate standard of review, the statute's legislative history does:

The determination of the appeals officer may be appealed to Tax Court or, where appropriate, the Federal district court. Where the validity of the tax liability was properly at issue in the hearing, and where the determination with regard to the tax liability is part of the appeal, no levy may take place during the pendency of the appeal. The amount of the tax liability will in such cases be reviewed by the appropriate court on a de novo basis. Where the validity of the tax liability is not properly part of the appeal, the taxpayer may challenge the determination of the appeals officer for abuse of discretion. In such cases, the appeals officer's determination as to the appropriateness of collection activity will be reviewed using an abuse of discretion standard of review.

H.Rep. No. 105-599 at 266 (1998) (emphasis added). In this case, because liability is not contested, the abuse of discretion standard applies. Although the Sixth Circuit has not yet addressed the application of the abuse of discretion standard in the context of 26 U.S.C. §6330, several district courts within the circuit have adopted the abuse of discretion standard. See Dudley's Commercial and Indus. Coating Inc. v. United States Internal Revenue Service [ 2003-1 USTC ¶50,397], 292 F.Supp.2d 976, 985 (M.D. Tenn. 2003) (citing Geller v. United States [ 2001-2 USTC ¶50,703], No. C2-00-1116, 2001 WL 1346669 (S.D. Ohio 2001); Jon H. Berkey, P.C. v. Dept of Treasury [ 2001-2 USTC ¶50,708], No. 00-CV-75149, 2001 WL 1397680 (E.D. Mich. 2001)).

The Sixth Circuit has provided some guidance in defining the application of the abuse of discretion standard when a court reviews an agency's exercise of discretion. See Dudley's, 292 F.Supp.2d at 985 (citing Gonzales v. I.N.S., 996 F.2d 804, 808 (6th Cir. 1993); Balani v. I.N.S., 669 F.2d 1157, 1161 (6th Cir. 1982); N.R.L.B. v. Guernsey-Muskingum Electric Coop., Inc., 285 F.2d.8, 11 (6th Cir. 1960)). "The Sixth Circuit has held that an agency abuses its discretion if its decision 'was made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis ....'" Id.



III . Analysis

Splawn does not dispute the validity of his tax liability and, to the best of the Court's ability to determine, Splawn did not dispute his liability at the hearing before the Office of Appeals. Following his proposal of an offer in compromise during the hearing, Splawn submitted a written offer in compromise as permitted by 26 U.S.C. §7122.

The IRS has identified three grounds for compromising the amount of a tax obligation: (1) "doubt as to liability," (2) "doubt as to collectibility," and (3) to "promote effective tax administration." 26 C.F.R. §301.7122-1(b). On the form used for offers in compromise, Splawn identified "doubt as to collectibility" as the reason for his offer. [Court File No. 11, Ex.1, Ex. C]. The regulations explain that "[d]oubt as to collectibility exists in any case where the taxpayer's assets and income are less than the full amount of the liability." 26 C.F.R. §301.7122-1(b)(3).

Splawn argues that the IRS Office of Appeals abused its discretion when it rejected his offer in compromise in the amount of $5,000 to settle a $118,179.99 tax liability. In his complaint, Splawn suggests that Biggs's refusal of this offer was improperly based on "[c]ertain factors which should not have been considered," and others that were improperly "disregarded." [Court File No. 1].

Although not identified in the complaint, in his response to the government's motion for summary judgment Splawn elaborates on the "factors" that were improperly considered or not considered. It appears that Splawn believes real estate owned by his wife was improperly considered when Biggs reached the determination that the $5,000 offer was insufficient. [Court File No. 13 at 2]. Splawn also suggests that Biggs failed to consider that his age and health would prevent him from continuing employment, and that this resulted in the inaccurate calculation that after allowing for living expenses, from his income, Splawn could pay a total of $28,875 over the 15 months toward satisfying his trust fund recovery penalty tax obligation. [Court File No. 13 at 2; Court File No. 11, Ex.1, E at 3].

In reply, the IRS points out that even if the value of the real estate Splawn argues is owned by his wife ($7,533), and Splawn's estimated future income ($28,875) were subtracted from the amount deemed by Biggs to be a sufficient offer in compromise to settle the trust fund recovery penalty tax obligation ($60,602), the value of Splawn's interest in other collectable assets would be $24,194, a figure nearly five times the amount that Splawn offered in compromise. [Court File No. 15 at 2].

Notably, in response to the motion for summary judgment, Splawn has not offered any evidence of his current income or any other financial documents to suggest that Biggs's calculations inaccurately assessed the value of his assets. While he does submit his own affidavit stating that the real estate included in Biggs's calculation is "owned by ... [his] wife," he provides no further evidence in support of this contention. [Court File No. 14]. Absent some assertion or further evidence identifying the property and the circumstances under which Splawn's wife acquired ownership, it is impossible for this Court to consider Splawn's affidavit statement to be more than a mere scintilla of evidence. See Anderson, 477 U.S. at 252. Accordingly, this statement is insufficient to prevent the Court from granting summary judgment to the government where the IRS 's decision is considered only for an abuse of discretion. Furthermore, the government correctly notes that even without including the real property or income figures that Splawn disputes, his remaining assets suggest he is capable of meeting much more of his tax obligation. Splawn does not contend that the IRS inaccurately attributed ownership of any other assets.

Splawn does point to an unpublished case from the Southern District of Ohio which helpfully summarizes some of the factors upon which a hearing officer may reject a collection alternative.

Decisions by appeals officers to reject collection alternatives may be based upon a number of factors, including, but not limited to: (1) whether the taxpayer had previously agreed to a collection alternative, but failed to fulfill the obligations under the alternative; (2) whether the taxpayer supported a collection alternative with relevant financial information to show that payments could be made under the alternative; (3) whether the taxpayer is current on its tax obligations; (4) the escalating amount of the outstanding tax liability; and (5) the IRS 's need to collect the tax liability.

Stop 26-Riverbend, Inc. v. U.S. [ 2003-1 USTC ¶50,360], No. C2-02-0285, 2003 WL 1908747, *2 (S.D. Ohio March 12, 2003); see also 26 C.F.R. §301.6330-1(e)(1) (matters considered at a Collection Due Process hearing). However, Splawn's response brief does not apply these factors to the facts of the case before this Court. [Court File No. 13].

As the Court applies the factors, the third and fifth appear to weigh strongly against Splawn's position that the IRS abused its discretion in rejecting his offer in compromise. Regarding the third factor, although Splawn repeatedly states that he has offered to pay the approximately $12,000 he and his wife owe in income tax for 2000, beyond stating that he "had agreed to pay those taxes," at no time does he say that he has in fact paid that tax liability. [Court File No. 14; Court File No. 13 at 2]. This suggests that it is questionable whether Splawn is now current on all other tax obligations. Addressing the fifth factor, the IRS 's need to collect a tax liability is hardly satisfied when a taxpayer offers $5,000 to satisfy a $18,179.99 obligation assessed as a trust fund recovery penalty.

Splawn also makes the sweeping and unsupported claim that "[t]he settlement officer's decision [to reject his offer in compromise] failed to balance the need for efficient collection of taxes with Mr. Splawn's legitimate concern that any collection be no more intrusive than necessary, particularly in view of the nature of the tax, the date of the obligation, and statutory additions to the amount owed." [Court File No. 13 at 3]. The Internal Revenue Code provides that a determination by an IRS appeals officer must take into consideration "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." 26 U.S.C. §6330(c)(3)(C). In the absence of additional evidence or argument in support of Splawn's position that the appeals officer failed to consider this balance, this Court will not conclude that the IRS abuses its discretion when rejecting an offer in compromise of $5,000 for a debt of $118,179.99, a mere four percent of the amount owed, and where the appeals officer has determined that after allowing for living expenses, the taxpayer is capable of meeting much more of his tax obligation.



III . Conclusion

For the reasons stated above, the IRS 's motion for summary judgment will be GRANTED. Splawn's claims will be DISMISSED. A judgment will enter.

JUDGMENT

For the reasons stated in the accompanying memorandum, the United States of America 's motion for summary judgment [Court File No. 10] is GRANTED. Bobby R. Splawn's claims are DISMISSED. The parties shall bear their own costs.

This is a final judgment. The Clerk of Court shall close the case.

SO ORDERED.

 

 

 

Alan I. Begner, Cory Begner, Plaintiffs v. USA , Defendant.

U.S. District Court, No. Dist. Ga. , Atlanta Div.; 1:02-cv-1702- GET , April 16, 2004 .

[ Code Sec. 7122]

Compromises: Collateral agreement: Amount due. --

The terms of taxpayers' Form 2261, Future Income Collateral Agreement, executed as a condition of IRS acceptance of their Form 656, Offer in Compromise, did not permit the deduction of collateral agreement payments when calculating the amount due under the compromise agreement. The agreement required the taxpayers to pay specified percentages of excess income if their income exceeded a stated level of annual income. The taxpayers attempted to deduct from annual income collateral payments relating to prior year tax obligations. However, the clear unambiguous language of the agreement limited deductions to payments for the year in which the annual income was computed. Although the IRS provided an incorrect cross reference to Form 656, the agreement as a whole indicated that the deduction of collateral agreement payments was not contemplated and the misreference was no more than a superfluous error. Finally, the taxpayers' argument that they would be taxed at over 100 percent if the collateral payment deduction was not allowed was rejected because income tax for a given tax year is different than prior tax obligations.

ORDER

TIDWELL, District Judge: The above-styled matter is presently before the court on:

1) plaintiffs' motion for summary judgment [docket no. 21];

2) defendant's motion for summary judgment [docket no. 24-2];

3) defendant's motion to dismiss [docket no. 24-1].

Pursuant to 28 U.S.C. §§1340 and 1346, plaintiffs filed the instant action on June 20, 2002 for recovery of $31,884.84 plus interest for taxes allegedly erroneously assessed and collected. On April 8, 2003, plaintiffs filed a motion for summary judgment. On April 9, 2003, defendant filed a motion to dismiss or alternatively a motion for summary judgment. On June 17, 2003, this court denied plaintiffs' motion to compel discovery.



Request for Oral Argument

In plaintiffs' response to defendant's motion to dismiss or alternatively motion for summary judgment, plaintiffs requested oral argument on the pending motions. Upon review of the parties' submissions, the court can rule on the pending motions based on the written record. Accordingly, plaintiffs' request for a hearing is DENIED.



Motion to Dismiss

Defendant argues that because the instant action involves a contract dispute with the federal government, this court does not have subject matter jurisdiction, and thus, the case should be dismissed. "United States District Courts have no jurisdiction over suits against the United States founded on contracts with the United States ." Mark Dunning Indus., Inc. v. Cheney, 934 F.2d 266, 269 (11th Cir. 1991); see 28 U.S.C. §1346(a)(2). However, "the district courts shall have original jurisdiction ... of [a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected...." 28 U.S.C. §1346(a)(1); Mutual Assurance Inc. v. United States [ 95-2 USTC ¶50,361], 56 F.3d 1353, 1355 (11th Cir. 1995). "Tax cases heard in the district courts often involve offers in compromise...." Roberts v. United States [ 2001-1 USTC ¶50,306], 242 F.3d 1065, 1069 (Fed. Cir. 2001).

Here, plaintiffs entered into "Offers-in-Compromise" with the IRS in 1996 for past due tax liabilities. The IRS accepted the offers and required that plaintiffs sign collateral agreements as additional consideration for the offers. The IRS determined that plaintiffs calculated their 1998 collateral payment incorrectly and threatened default collection actions unless plaintiffs paid an additional $31,884.84. The plaintiffs paid this amount, and subsequently filed an administrative claim for a refund. The IRS denied the refund claim, and this suit ensued.

As such, plaintiffs have paid taxes that they allege were illegally or erroneously collected. Plaintiffs also have satisfied the additional jurisdictional requirements for a tax refund suit: (1) they have paid the taxes allegedly owed; (2) they have properly filed administrative claims for a refund, and (3) their refund claim has been denied. See Roberts [ 2001-1 USTC ¶50,306], 242 F.3d at 1067. Therefore, this court has jurisdiction over the case pursuant to 28 U.S.C. §1346(a)(1). See Roberts [ 2001-1 USTC ¶50,306], 242 F.3d at 1068-69. Accordingly, defendant's motion to dismiss [docket no 24-1] is DENIED.



Motions for Summary Judgment

Plaintiffs and defendant have filed motions for summary judgment.

Standard

Courts should grant summary judgment when "there is no genuine issue as to any material fact ... and the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party must "always bear the initial responsibility of informing the district court of the basis of its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). That burden is "discharged by `showing' --that is, pointing out to the district court --that there is an absence of evidence to support the nonmoving party's case." Id. at 325; see also U.S. v. Four Parcels of Real Property, 941 F.2d 1428, 1437 (11th Cir. 1991).

Once the movant has met this burden, the opposing party must then present evidence establishing that there is a genuine issue of material fact. Celotex, 477 U.S. at 325. The nonmoving party must go beyond the pleadings and submit evidence such as affidavits, depositions and admissions that are sufficient to demonstrate that if allowed to proceed to trial, a jury might return a verdict in his favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986). If he does so, there is a genuine issue of fact that requires a trial. In making a determination of whether there is a material issue of fact, the evidence of the non-movant is to be believed and all justifiable inferences are to be drawn in his favor. Id. at 255; Rollins v. TechSouth, Inc., 833 F.2d 1525, 1529 (11th Cir. 1987). However, an issue is not genuine if it is unsupported by evidence or if it is created by evidence that is "merely colorable" or is "not significantly probative." Anderson, 477 U.S. at 249-50. Similarly, a fact is not material unless it is identified by the controlling substantive law as an essential element of the nonmoving party's case. Id. at 248. Thus, to create a genuine issue of material fact for trial, the party opposing the summary judgment must come forward with specific evidence of every element essential to his case with respect to which (1) he has the burden of proof, and (2) the summary judgment movant has made a plausible showing of the absence of evidence of the necessary element. Celotex, 477 U.S. at 323.

Facts

In light of the foregoing standard, the court finds the following facts for the purpose of resolving the parties' motions for summary judgment only.

In 1996, plaintiffs owed several different types of back taxes to the IRS : 1) employment taxes from 1984-1990, 2) unemployment taxes from 1983-1991, 3) and income taxes from 1984-1987. On May 13, 1996 , each plaintiff submitted an "Offer in Compromise" (form 656) to secure release from their liability. Plaintiff Alan Berger [ sic] offered to pay $100,000.00, and plaintiff Cory Begner offered to pay $30,000.00.

As a condition to the offers being accepted, the IRS required plaintiffs to submit "Collateral Agreements" (form 2261). The collateral agreement states that its purpose is "to provide additional consideration for the acceptance of the offer in compromise." The additional consideration consisted of a promise by plaintiffs that, if their annual income for the years 1997-2001 exceeded a stated level, they would pay the IRS specified percentages of the excess income. Specifically, plaintiffs promised to pay:

(a) Nothing on the first $144,000.00 of annual income. (b) 30% of annual income more than $144,000.00 and not more than $154,000.00. (c) 50% of annual income more than $154,001.00 and not more than $164,000.00. (d) 70% of annual income more than $164,001.00.

The term "annual income" is defined in the collateral agreement as:

adjusted gross income ... minus (a) the Federal income tax paid for the year for which annual income is being computed, and (b) any payment made under the terms of the offer in compromise (Form 656), as shown in item 2, for the year in which such payment is made.

On December 17, 1996, the IRS accepted plaintiffs' offer in compromise "subject to the terms and conditions on the ... Form 656, Offer in Compromise and Form 2261, Future Income Collateral Agreement." Plaintiffs' first collateral agreement payment was due on April 15, 1998, encompassing tax year 1997. For tax years 1998 through 2001, annual income computations and payments were due by April 15 in the following year.

In tax year 1997, plaintiffs reported on their income tax return an adjusted gross income ( AGI ) of $225,764.00, and paid income tax of $56,628.00. Under the collateral agreement, plaintiffs reported their "annual income" as $169,136.00 (adjusted gross income minus income tax paid). This calculation resulted in a collateral agreement payment of $11,595.00.

For tax year 1998, plaintiffs reported on their income tax return an AGI of $278,622.00, and paid income tax of $70,534.00. Under the collateral agreement, plaintiffs reported their "annual income" as $196,493.00. Plaintiff reached this amount by deducting from their AGI income tax paid ($70,534.00) and the collateral agreement payment made the previous year ($11,595.00). This calculation led to a collateral agreement payment of $30,745.00.

For tax year 1999, plaintiffs computed their "annual income" in a similar fashion. On their income tax return, plaintiffs reported an AGI of $272,629.00, and paid tax of $63,158.00. Plaintiff calculated their "annual income" of $178,726.00 by subtracting from their AGI both the amount of income tax paid ($63,158.00) and the collateral agreement payment from the previous year ($30,745.00), resulting in a collateral agreement payment of $18,309.00.

Subsequently, the IRS notified plaintiffs that a collateral agreement payment made in a particular year could not be deducted from AGI in calculating "annual income." The IRS computed the amount due without deducting the collateral agreement pavements, and requested that plaintiffs pay $31,884.84, which included interest. Plaintiffs complied with the IRS 's demand, and then filed an administrative action for refund, which was denied.

Discussion

The parties disagree whether the terms of the "Offer-in-Compromise" signed by plaintiffs permit the deduction of collateral agreement payment when calculating "annual income." "It has long been settled that an agreement compromising unpaid taxes is a contract and, consequently, that it is governed by the rules applicable to contracts generally." U.S. v. Lane [ 62-1 USTC ¶9467], 303 F.2d 1, 4 (5th Cir. 1962). The contract in this situation consists of both the "Offer in Compromise" (form 656) and the "Collateral Agreement" (form 2261). See Finen v. C.I.R. [ CCH Dec. 26,616], 41 T.C. 557, 560 (1964).

Under Georgia law, "[t]he cardinal rule of contract construction is to ascertain the intent of the parties and to interpret a contract so that the parties' intentions are given effect." Info. Sys. and Network Corp. v. City of Atlanta , 281 F.3d 1220, 1226 (11th Cir. 2002).

There are three steps in the process of contract construction. The trial court must first decide whether the contract language is ambiguous; if it is ambiguous, the trial court must then apply the applicable rules of construction; if after doing so, the trial court determines that an ambiguity still remains, the jury must then resolve the ambiguity.

Copy Sys. of Savannah, Inc. v. Page, 197 Ga. App. 435, 436 (1990). "Whether a contract is ambiguous is a question of law for the courts to decide." Georgia-Pacific Corp. v. Lieberam, 959 F.2d 901, 904 (11th Cir. 1992). Here, the "Collateral Agreement" (form 2261) specifically states that the term "annual income" means:

adjusted gross income ... minus (a) the Federal income tax paid for the year for which annual income is being computed, and (b) any payment made under the terms of the offer in compromise (Form 656), as shown in item 2, for the year in which such payment is made.

Plaintiffs argue that the phrase "any payment made under the terms of the offer in compromise" means that they should be allowed to deduct their collateral payments when calculating their "annual income." However, plaintiffs fail to consider the entire phrase, which states "any payment under the terms of the offer in compromise (Form 656), line 2, for the year in which such payment is made." Thus, the clear, unambiguous language of the contract indicates that the appropriate deduction is limited to the amount specified in line 2 of form 656.

Plaintiffs next argue that an ambiguity exists because line 2 on plaintiffs' form 656 consists solely of plaintiffs' social security numbers, not a dollar amount; therefore, a taxpayer would never be able to deduct an amount under the contract's terms. The IRS revised form 656 in September 1993. Plaintiffs used a revised form 656, which listed the lump sum amount being offered the IRS in line 5. The IRS also revised form 2261 to reflect that the amount paid with form 656 was now listed at line 5. However, the IRS provided plaintiffs an outdated form 2261 that contained an incorrect cross-reference to line 2 on form 656.

Yet, even with the incorrect cross-reference of line numbers, the agreement as a whole indicates that only payments listed on form 656 may be excluded from annual income. Collateral agreement payments being deductible from AGI is never contemplated. Even if the form 2261 is read literally, it would not support plaintiffs' contention that they are entitled to deduct collateral agreement payments from annual income.

Moreover, assuming an ambiguity were to exist, "a scrivener's error should not be permitted to defeat the clear intention of the parties." Benedict v. Sand, 271 Ga. 585, 586 (1999). Considering the contract as a whole, it is apparent that the mis-reference of line 2 constitutes no more than a superfluous error on the part of the IRS using an outdated form. The only dollar figure listed on either the revised or outdated form 656 is the lump sum amount-in-compromise offered by the taxpayer. This amount is all that can be deducted from AGI "in the year in which such payment is made." Finally, plaintiffs argue that collateral payments must be deductible; otherwise, the IRS would be taxing plaintiffs over 100%. Plaintiffs contend that their tax adviser, who represented plaintiffs during the offer-in-compromise process, concurs with this analysis. However, plaintiffs argument is misguided because they fail to recognize that their federal income tax for a given year is different than the collateral agreement payments, which satisfies a prior, delinquent tax obligation.

Consequently, plaintiffs incorrectly deducted their past collateral agreement payments from their AGI when computing their "annual income" under the terms of their compromise with the IRS . Plaintiffs' motion for summary judgment [docket no. 21] is DENIED. Defendant's motion for summary judgment [docket no. 24-2] is GRANTED.

Summary

1) Plaintiffs' motion for summary judgment [docket no. 21] is DENIED.

2) Defendant's motion for summary judgment [docket no. 24-2] is GRANTED.

3) Defendant's motion to dismiss [docket no. 24-1] is DENIED.

 

 

 

Allglass Systems, Inc., et al., Plaintiffs v. Commissioner of Internal Revenue, Defendant.

U.S. District Court, East. Dist. Pa. ; CIV . 03-4772, August 17, 2004 .

[ Code Secs. 6330 and 7122]

Notice of levy and right to hearing: Judicial review of Appeals determinations: Compromises. --

Taxpayers failed to show they were denied a fair hearing on their appeal of the IRS 's determination to levy their property. The IRS did not abuse its discretion by issuing notices of levy following the taxpayers' failure to submit requested documents in support of an offer in compromise by the designated deadline. Although the taxpayers alleged that a Collection Due Process (CDP) hearing was not properly provided, a series of communications, including a telephone conversation, collectively satisfied the CDP hearing requirement.

ORDER

ROBRENO, District Judge: AND NOW , this day of August 2004, for the reasons set forth in the accompanying memorandum, it is hereby ORDERED that defendant's motion for summary judgment (doc. no. 6) is GRANTED and plaintiffs' cross-motion for summary judgment (doc. no. 9) is DENIED.

It is FURTHER ORDERED that judgment is entered in favor of Defendant and against Plaintiff.

AND IT IS SO ORDERED.

MEMORANDUM

Plaintiffs, AllGlass Systems, Inc., East Coast Fabricators, LLC, and ASI Southeast, LLC (collectively "taxpayers") filed this action, seeking review of the Internal Review Service's (" IRS ") issuance of three Notices of Determination Concerning Collection Action under Internal Revenue Code ("IRC") Sections 6320 and/or 6330. There is no dispute as to taxpayers' liability to the IRS for employment taxes not paid in 2000 and 2001. Taxpayers allege that the IRS issued Notices of Levy without properly providing a Collection Due Process ("CDP") hearing as required under 26 U.S.C. §6330(b). In addition, taxpayers allege that, assuming that the communications between the IRS and taxpayers satisfied the requirements under 26 U.S.C. §6330(b), the IRS abused its discretion under 26 U.S.C. §6330(c)(2)(iii) by failing to consider taxpayers' offers-in-compromise, as collection alternatives, on their merits.

Before the Court are the IRS 's motion for summary judgment pursuant to Fed. R. Civ. P. 56 and taxpayers' cross-motion for summary judgment. The issues are whether the taxpayers were afforded a fair hearing on their appeal of the IRS 's determination to levy certain property and if so, whether the IRS abused its discretion by issuing Notices of Levy because taxpayers' failed to submit requested tax documents by the designated deadline. ¹

The facts are largely undisputed and, if disputed, they are viewed in the light most favorable to taxpayers.



I. FACTUAL BACKGROUND

At issue here are the efforts by the IRS to collect certain employment taxes owed by taxpayers for the tax years 2000 and 2001. Taxpayers do not dispute liability for the amounts due. In March 2002, taxpayers filed offers-in-compromise seeking to compromise their liabilities. On October 28, 2002, the IRS rejected taxpayers' first offers-in-compromise on the ground that the taxpayers were tardy with making their current tax payments. ² Consequently, on October 28, 2002 (AllGlass Systems) and November 11, 2002 (East Coast Fabricators and ASI Southeast), the taxpayers were sent notices of intent to levy against property pursuant to 26 U.S.C. §6330(a). At the same time, taxpayers were notified of their right to a CDP hearing under 26 U.S.C. §6330(b).

On November 22, 2002, taxpayers timely requested a CDP hearing. Initially, ASI 's request was assigned to Officer Lee and East Coast Fabricator's and AllGlass System's requests were assigned to Officer Stanton. ASI 's request was later transferred to Officer Stanton as well.

In February 2003, taxpayers made a second set of offers-in-compromise to the IRS . Counsel for the taxpayers and Officer Stanton had several telephonic discussions concerning the offers-in-compromise. During one such discussion on June 9, 2003, Officer Stanton requested personal financial statement for the taxpayers' principal, Rein Clabbers, to be submitted to her within fifteen days. Taxpayers' counsel expressed his inability to meet the deadline. After the June 9, 2003 discussion, Officer Stanton memorialized the conversation, including the request deadline, in a letter to taxpayers' counsel. The letter reiterated that the deadline for submission of the principal's financial statement was June 26, 2003. Taxpayers' counsel did not respond to Officer Stanton's letter.

Six weeks later, on July 21, 2003, failing to receive the requested tax forms from taxpayers, Officer Stanton upheld the determination to levy taxpayers' property and issued three Notices of Determination Concerning Collection Actions Under IRC Section 6320 and/or 6330. On August 19, 2003 taxpayers filed this suit seeking review of the determination made by Officer Stanton. Taxpayers forwarded the requested tax information to the IRS on August 26, 2003, after this matter had commenced.



II. DISCUSSION

A. Standards of Review

1. Procedural Posture

While the issues presented before the Court are framed as summary judgment issues, a number of courts have noted that the Rule 56 paradigm is not properly suited to accommodate the procedural posture of judicial review of administrative agency decisions in general. See STA Printing Co. v. Internal Revenue Service [ 2004-1 USTC ¶50,174], No. Civ. A. 02-7133, 2004 U.S. Dist. LEXIS 2126, 2004 WL 257393, (E.D. Pa. Feb. 11, 2004 ) (Surrick, J.) ( citing Lodge Tower Condo. Ass'n v. Lodge Props., Inc., 880 F.Supp. 1370, 1374 (D. Colo. 1995) ("[a] motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure ... makes no procedural sense when a district court is asked to undertake judicial review of agency action") (other citations omitted)).

More appropriately, perhaps, is to proceed by way of judgment on the pleadings. In any event, in this case, whether framed as a motion for summary judgment or for judgment on the pleadings, the ultimate question is the same. Based on undisputed facts, is the IRS entitled to judgment as a matter of law?

2. Appeal Officer's Determination

i. Jurisdiction

The Court has jurisdiction over this matter as provided for by Section 6330(d)(1)(B) of Title 26 of the United States Code. Section 6330(d)(1)(B), in pertinent part, provides that, "[t]he person may, within 30 days of a determination under this section, appeal such determination...if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States." 26 U.S.C. §6330(d)(1)(B). Under this section, district courts have jurisdiction over matters where the taxpayer is challenging the "procedure used for collection" and is not challenging the amount of liability or the correctness of the assessment, where the U.S. Tax Court would have exclusive jurisdiction. STA Printing Co. [ 2004-1 USTC ¶50,174], 2004 U.S. Dist. LEXIS 2126, at *7. Thus, this Court has jurisdiction over this matter because taxpayers are challenging the "procedure used for collection" and do not dispute the underlying tax liability.

ii. Abuse of Discretion

Although Section 6330(d)(1)(B) of Title 26 provides for judicial review, it does not specify the standard of review to be applied by the courts. Although no courts of appeals have spoken on the issue, all district courts which have construed this section of the Internal Revenue Code, have concluded that abuse of discretion is the proper standard. See e.g. STA Printing Co. [ 2004-1 USTC ¶50,174], 2004 U.S. Dist. LEXIS 2126, at *7-8; Tilley v. United States [ 2004-1 USTC ¶50,259], No. Civ. A. 03-4579, 2004 U.S. Dist. LEXIS 7792 (E.D. Pa. Apr. 4, 2004 ) (Rufe, J.); Christian v. Comm'r of IRS [ 2003-2 USTC ¶50,562], No. Civ. A. 02-9120, 2003 U.S. Dist. LEXIS 11289 (E.D. Pa. Jun. 5, 2003 ) (O'Neill, Jr., J.). The Court agrees and will apply the abuse of discretion standard in reviewing Officer Stanton's decision to issue the Notices of Levy.

Under the abuse of discretion standard of review of the decision of an administrative agency, the Court "must consider whether the decision was based on consideration of the relevant factors and whether there has been a clear error of judgment .... Although this inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971), overruled on other grounds by, Califano v. Sanders, 430 U.S. 99, 105 (1977); See also Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Auto Ins. Co., 463 U.S. 29, 43 (1983).

B. Taxpayers were given a "fair hearing" under 26 U.S.C. §6330(b).

Taxpayers alleges that a CDP hearing was not properly provided to them as required by 26 U.S.C. §6330(b). Although 26 U.S.C. §6330(b) provides for a taxpayer's right to a CDP hearing, it lends no guidance as to the format or procedures that must be followed in conducting a CDP hearing.

In interpreting the language of 26 U.S.C. §6330(b), the Tax Court has identified certain elements, which at a minimum, must be present to satisfy the requirements of 26 U.S.C. §6330(b): (1) an impartial officer will conduct the hearing; (2) certain issues may be heard such as an offer-in-compromise; (3) the conducting officer will receive verification from the Secretary that the requirements of applicable law and administrative procedure have been met; and (4) a challenge to the underlying tax liability may be raised only if the taxpayer did not receive a statutory notice of deficiency or receive an opportunity to dispute such liability." Day [ CCH Dec. 55,534(M)], T.C. Memo 2004-30, at 5; ( citing 26 U.S.C. 6330(b) and (c); Vossbrinck v. Comm'r [ CCH Dec. 54,713(M)], T.C. Memo 2002-96)). These elements are consistent with ordinary notions of due process and, in the absence of evidence to the contrary suggesting some other unfairness, they will guide the Court's determination of whether the taxpayers were afforded a "fair hearing" in this case.

In regards to the first element, it is undisputed that Officer Stanton is an impartial officer who had no involvement in the matter prior to the taxpayers' current appeal. See Defendant's Motion for Summary Judgment, Declaration of Paula Stanton at 3; See Day [ CCH Dec. 55,534(M)], T.C. Memo 2004-30, at 6 (where the court held "that an Appeal officer is impartial if he or she "did not participate in, and was not involved in, any previous Appeals Office hearing" concerning the taxpayer's tax...").

Next, the second element has been met because the correspondences and conversations between Officer Stanton and taxpayers' counsel included discussions relating to taxpayers' offers-in-compromises and issues and procedures relating to the appeal and CDP hearing itself. See Declaration of Paula Stanton pg. 4-5. These communications satisfy the element that Officer Stanton considered the information offered by the taxpayer.

The recent case of Stewart v. Commissioner of Internal Revenue Service [ 2004-1 USTC ¶50,212], 2004 U.S. Dist. LEXIS 6413 (W.D. Pa. Mar. 1, 2004) (Lancaster, J.), is on point. Stewart involved two disputed claims against taxpayer for different tax periods. Taxpayer claimed that he had been denied a CDP hearing on both claims. The officer on one claim talked to the taxpayer on the phone one day prior to the officially designated CDP hearing date and did not advise the taxpayer that the phone call constituted the CDP hearing. The second officer had an "informal meeting" with the taxpayer and specifically stated to the taxpayer that "this was an informal meeting and was not the due process hearing." Despite the lack of specific advice to taxpayer that the communications were part and parcel of the CDP Hearing process, the Stewart court found that although the officers "did not hold a formal, properly designed 'hearing' in the traditional sense, their reviews of the file and interactions with [taxpayer] complied with the low standard imposed by the applicable regulations. ... In both situations, [plaintiff] had notice of the issue, was informed of the IRS' position, and was given a full opportunity to be heard." Stewart [ 2004-1 USTC ¶50,212], 2004 U.S. Dist. LEXIS 6413, at *7-8.

Similarly, in this case, taxpayers had notice of the issues and were given the opportunity to discuss matters relating to their offers-in-compromise during various telephonic discussions between Officer Stanton and taxpayers' counsel. ³ Moreover, Officer Stanton also discussed with taxpayers the IRS's position and provided taxpayers with the opportunity to submit financial statements, which were necessary for the review of their offers-in-compromise. Under these facts, the Court has no difficulty in concluding that Officer Stanton discussed the issues with taxpayers and considered all of taxpayers' offers.

Taxpayers argue that the IRS has failed to establish that the June 9, 2003 telephone conversation was, in fact, a CDP hearing. This argument imposes upon the IRS a burden not contemplated under 26 U.S.C. §6330(b). To the contrary, there is no burden on the IRS to show that a single meeting or telephone call constitutes the CDP hearing but instead, a series of communications, such as the June 9 ^th telephone conversation, can collectively satisfy the CDP hearing requirement. See Loofbourrow v. Comm'r [ 2002-1 USTC ¶50,465], 208 F.Supp.2d 698, 707 (S.D. Tex. 2002) (where the court found that numerous written communications between taxpayer and appeals officer are sufficient for the purposes of fulfilling the CDP hearing requirement); TTK Mgmt. V. U.S., 2001-[1]01 U.S. Tax Ct., [50,]185 (C.D. Cal. 2000) (where the court held that communications between the parties from the time a request for hearing was submitted to the issuance of the notice of determination are part of the CDP hearing).

Similarly, without merit is the argument that the lack of specific notice that the communications between counsel and Officer Stanton constituted the CDP hearing deprived taxpayers' the fair opportunity to discuss the issues as provided under 26 U.S.C. §6330(b)(2). Again, under the low threshold of 26 U.S.C. §6330(b), there is no requirement that a CDP hearing be specifically designated as such by the conducting officer so long as the taxpayers and IRS officers, inter se, do in fact address the issues on the merits during the communications. See Stewart [ 2004-1 USTC ¶50,212], U.S. Dist. LEXIS 6413, at *3 (where the court found that taxpayers were given their due process hearing even though the appeals officer stated that the meeting "was an informal meeting and was not the due process hearing"). ⁴

The third element has also been fulfilled because Officer Stanton received verification from the Secretary that the requirements of applicable law and administrative procedures have been met. Government Exhibits 8A, 8B, and 8C of the Internal Revenue Service's Motion for Summary Judgment; Declaration of Paula Stanton at 6.

Finally, taxpayers' have stipulated that they do not dispute or challenge the underlying tax liability and therefore the forth element does not apply to this matter.

Given the facts of this case, the Court finds that all of the protections necessary under 26 U.S.C. §6330(b) were afforded to taxpayers in this case and that taxpayers have failed to show that they were not given a fair hearing.

C. The IRS did not abuse its discretion in sustaining the Notices of Determination to Levy Property against taxpayers.

Taxpayers allege that Officer Stanton abused her discretion by upholding the Notice of Levy without considering taxpayers' offers-in-compromise on its merits and "capriciously failed to consider plaintiffs' alternative collection offer" based on the fact that the IRS did not receive taxpayers' principal's tax forms, which were provided in due course. Plaintiffs' Complaint at 5.

Under 26 U.S.C. §7122, a challenge of the rejection of an offer-in-compromise is subject to administrative review. 26 U.S.C. §7122(d). 26 U.S.C. §7122(d) in pertinent part provides, "(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." 26 U.S.C. §7122(d).

Additionally, limited judicial review under the abuse of discretion standard is available but only to the extent that the court may consider whether the IRS 's decision was based on consideration of the relevant factors and whether there has been a clear error of judgment. See Motor Vehicle Manufacturers Ass'n, 463 U.S. at 43. Hence, in this case the scope of the Court's review is limited to whether Officer Stanton abused her discretion when she issued the Notices of Levy.

In evaluating the merits of an offer-in-compromise, 26 U.S.C. §6330(c)(3) requires an appeal officer to consider the following factors: (1) whether requirements and applicable law or administrative procedures are satisfied; (2) any issues relating to the unpaid tax or the proposed levy, such as collection alternatives; and (3) "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." 26 U.S.C. §6330(c)(3). The Court will examine each factor in light of the facts of the case.

As to the first factor, Officer Stanton obtained the "required verification from the Secretary that the requirements of any applicable law or administrative procedure have been met." See Declaration of Paula Stanton at 6. Taxpayers' have presented no evidence contrary.

As to the second factor, the administrative record establishes that taxpayers do not challenge their liability for the unpaid employment taxes. There is no evidence of and neither party has raised that the amounts of the offers-in-compromise are at issue here. Additionally, both parties have represented to the Court that numerous conversations took place, inter se, regarding taxpayers' offers-in-compromise. In particular, Officer Stanton communicated to taxpayers' counsel her request for certain financial information necessary to consider taxpayers' offers-in-compromise. It is not disputed that the financial information expected was not provided to Officer Stanton even four weeks past the deadline she provided to taxpayers' counsel, nor did taxpayers contact Officer Stanton regarding the requested financial information and seek an extension of the deadline. In fact, the financial information was not delivered until after this case was commenced with the Court.

The failure to comply, or to seek an extension for compliance, is fatal to the taxpayers' case. As a consequence of taxpayers' failure to provide the requested information, Officer Stanton was faced with incomplete offers-in-compromise and therefore was unable to consider the offers as an alternative to the levy. See Olsen v. U.S. , 2004 U.S. [ 2004-2 USTC ¶50,360]. LEXIS 13193, at *14 (D. Mass. Jun. 16, 2004) (Lindsay, J.) (where the court concluded that the denial of a taxpayer's offer in compromise due to the taxpayer's failure to submit requested financial documents is not an abuse of discretion on the part of the appeals officer); See Roman v. Comm'r of Internal Revenue Service [ CCH Dec. 55,522(M)], T.C. Memo 2004-20, 14 - 16, 2004 Tax Ct. Memo LEXIS 20 (Jan. 28, 2004) (where the Tax Court found that without the requested information, the IRS is not able to determine if the taxpayer met the conditions necessary for compromise of tax liability; therefore the appeals officer did not abuse his discretion to reject the taxpayer's offer-in-compromise and make the determination to proceed with collection). Because of the deleterious effect it would have on the IRS's efforts to enforce the Revenue laws of the United States , taxpayers are not free to disregard administrative deadlines and, without cause, proceed at their own pace. Given these facts, the Court concludes that Officer Stanton sufficiently considered taxpayers alternative collection offers, with the information available to her.

As to the third factor, taxpayers have presented no evidence and do not raise the issue that Officer Stanton abused her discretion when she decided that the collection action proposed by the IRS appropriately balanced the competing concerns of "whether the proposed collection action balanced the need for the efficient collection of taxes with the legitimate concern that any collection action be no more intrusive than necessary." 26 U.S.C. section 6330(c)(3)(C).

Under these facts, the Court concludes that Officer Stanton considered all the factors necessary for an appropriate determination as provided for by 26 U.S.C. §6630(c) and therefore did not abuse her discretion in sustaining the determination to levy properties against taxpayers.



III. CONCLUSION

For the foregoing reasons, the Court finds that taxpayers have failed to show that they were not provided a "fair hearing" and that Officer Stanton abused her discretion in issuing Notices of Determination to Levy; therefore, the IRS's motion for summary judgment is granted and taxpayers' cross-motion for summary judgment is denied.

¹ To the extent that taxpayers argue for an injunction of the IRS from sustaining the levy action against taxpayers without "due consideration on the merits of plaintiffs' offers-in-compromise," the issue is moot. 26 U.S.C. §6330(e)(1) provides that upon the filing of an action for judicial review, the collection activity is suspended.

² An offer-in-compromise is not processable if all tax returns for which the taxpayer is required to file have not been filed in a timely manner. 2 Administration, Internal Revenue Manual (CCH), sec. 5.8.3.2.1(1)(a), at 16,281 (November 30, 2001). The Internal Revenue Manual specifies: "In-business taxpayers must have timely filed and timely deposited all employment taxes for two quarters proceeding the offer submission. They must have also timely paid all federal tax deposits due in the quarter in which the offer is submitted." Id. The Tax Court has also ruled that the Commissioner's decision not to process an offer-in-compromise from taxpayers who have not filed all required tax returns is not an abuse of discretion. TTK Mgmt. v. United States, 87 AFTR 2d 2001-350, 2001-1 USTC par. 50, 185 (C.D. Cal. 2000).

³ All taxpayers are corporations and were represented by counsel throughout the proceedings. All conversations between the IRS and counsel are imputed to the taxpayers.

⁴ Taxpayers cite to Montijo v. U.S. [ 2002-1 USTC ¶50,321], 2002 U.S. Dist. LEXIS 9602 (D. Nev. Feb. 22, 2002) (Hunt, J.) for support that "a telephonic and unscheduled conversation [does not] constitute[] a legal hearing under the statute." Plaintiffs' Cross-Motion for Summary Judgment at 13. Montijo is not on point. In Montijo, the court did not decide whether a CDP hearing was in fact provided to the plaintiff but rather decided that the admittedly erroneous Notice of Determination was not valid and denied the government's request to remand for continued administrative hearing because the government failed to provide points and authorities in support of its motion as required under the local rules.

In addition, taxpayers cite to Field Service Advisory, I.R.S. FSA 200009007, 2000 WL 1183364 (I.R.S. FSA, Mar 03, 2000). Pursuant to Section 6110(j)(3) of the IRC, the field service advisory memorandum may not be used or cited as precedent and therefore the Court will not address its discussions.

 

Chief Counsel Advice 200127009, March 30, 2001
CCH IRS Letter Rulings Report No. 1271, 07-11-01
IRS REF : Symbol: CC:PA:CBS:Br2-MJLew-GL-129160-00

Uniform Issue List Information:

UIL No. 17.00.00-00

Compromises

UIL No. 9999.98-00

Miscellaneous issues

- Not able to identify under present list

[Code Sec. 7122 ]

MEMORANDUM FOR ABBEY B. GARBER, ASSOCIATE AREA COUNSEL ( SBSE )

FROM: Joseph W. Clark Senior Technician Reviewer, Branch 2 (Collection, Bankruptcy & Summonses)

SUBJECT: Offer in Compromise

This memorandum refers to your request for advice dated December 28, 2000 . This document is not to be cited as precedent.

ISSUE:

Whether the Internal Revenue Service can accept an offer in compromise submitted by one of the general partners to compromise his individual, derivative share of the employment tax obligations of the partnership.

CONCLUSION:

The Internal Revenue Service may not accept an offer in compromise submitted by one of the general partners to compromise his individual, derivative share of the employment tax obligations of the partnership. The employment tax obligations of the partnership represent a single liability assessed against the partnership entity. The partnership liability is the only liability subject to compromise, and any compromise of this liability must involve a thorough analysis of the partnership assets and the assets of the other general partners.

FACTS:

The information provided by your office indicates that ***** is a general partner of a now defunct partnership. She is indebted to the United States for outstanding federal income tax liabilities (Form 1040), sole proprietorship employment tax liabilities (Form 941) and partnership liabilities. The partnership liabilities represent employment tax obligations of the partnership for the first and second quarters of 1993. ***** submitted an offer in compromise intended to cover her personal income tax and sole proprietorship employment tax liabilities, as well as her portion of the partnership's employment tax obligations. She also signed a co-obligor letter agreeing that the compromise of the outstanding partnership taxes is for her liability only, and that the Service is free to collect the remaining debt from the other general partner(s).

You requested our advice as to whether the government can accept an offer in compromise submitted by the general partner, *****, to compromise her individual derivative share of the partnership employment tax liabilities, without also considering the value of the assets of the partnership and the other general partner(s).

DISCUSSION:

The Offer in Compromise Handbook, IRM 5.8, addresses the liabilities of a partnership and provides as follows:

The amount that must be offered to compromise a partnership tax liability must include the maximum collection potential for the partnership and all general partners. Secure Collection Information Statements from the partnership and all partners before beginning your analysis.

The Handbook, however, offers no specific guidance with regard to a derivative portion of a partnership's employment tax liabilities.

The partnership's employment tax liabilities arise when the partnership fails to pay certain taxes as required by the Internal Revenue Code. For example, the partnership, as an employer, is required to pay withheld income taxes (I.R.C. §3403 ), withheld Federal Insurance Contributions Act (FICA) taxes (I.R.C. §3102(b) ), employer's share of FICA taxes (I.R.C. §3111 ), and Federal Unemployment Tax Act (FUTA) taxes (I.R.C. §3301 ).¹

Under Texas state law, the general partners are jointly and severally liable for the partnership's debts and obligations, including its employment tax obligations. See Tex. Civ. Stat. Ann. Art. 6132b-3.04 (2000). However, there is no provision in the Internal Revenue Code with regard to the general partners' individual liability for these tax obligations. Their liability stems from state law.

It is important to note that although the general partners are jointly and severally liable for the unpaid debts of the partnership under state law, the actual partnership employment tax liability is a single liability, assessed once against the partnership and owed by the partnership itself. State law allows the Service to collect the debt from the general partners, but that ability to collect does not alter the nature of the employment tax liability - it remains a singular debt for which the partnership entity is primarily liable. ***** liability for this debt is not based on the internal revenue laws. The Internal Revenue Code does not provide that the partnership employment tax liabilities are joint and several. Consequently, there is no individual partnership employment tax liability for the general partner to compromise under the Internal Revenue Code.

Under I.R.C. §7122(a) , the Secretary has the authority to compromise any "case arising under the internal revenue laws." A "case" is defined to be a "civil or criminal liability." See Temp. Treas. Reg. §301.7122-1T(a)(1). The liability at issue in this case is that of the partnership. Again, *****, as a general partner, does not have an individual liability for partnership employment taxes under the internal revenue laws, only under state law. However, because she is a general partner, she can bind the partnership to a compromise of the partnership liability. See Tex. Civ. Stat. Ann. Art. 6132b-3.02 (2000). The offer in compromise in this case may be considered to be an offer to compromise the partnership liability, submitted by the general partner on behalf of the partnership. If ***** makes this offer in her capacity as a general partner, and it is accepted as such, then it is binding, not just on the partner submitting the offer, but also on the partnership, the Government, and all the other partners. See Temp. Treas. Reg. §301.7122-1T(d)(5).

Accordingly, if the offer in compromise submitted by ***** is accepted, it would serve to compromise the partnership liability, and it would be binding on the partnership, all the partners and the Government, as indicated above. A co-obligor agreement would not be effective to preserve the Service's right to proceed against the other general partner(s) for the full amount of the employment tax debt. The other partners would be liable only for the unpaid portion of the compromise reached with *****.

In order to protect the government's interest, as part of your analysis of whether or not to accept the offer in compromise, the collection potential of the other partners and the partnership must be considered. Based on the information provided, it is not known if there are other general partners, or the circumstances surrounding the dissolution of the defunct partnership (if there was a dissolution). We recommend that appropriate action be taken to ascertain the value of the other general partners' assets at this time, either for the purpose of assisting ***** with a new offer, or for collection purposes. Since the offer in compromise submitted by *****, in its present form, is not acceptable, the Service may seek to collect the outstanding partnership debt from the other general partners.

In the event that the value of the assets of the partnership and the other general partners is not ascertainable, either because the other partners are uncooperative, their whereabouts are not known, or for some other reason, the Service, of course, is not required to accept an offer in compromise for the partnership liability. The Service may seek to collect the outstanding partnership debt administratively as it deems appropriate.²

Another option is that the Service may entertain an offer in compromise submitted by ***** that includes only her personal income tax liabilities (Form 1040) and the sole proprietorship employment tax liabilities (Form 941). Since she is not individually liable for the partnership employment tax liabilities under the internal revenue laws, an offer in compromise submitted by her need not include that liability in order to be considered an acceptable offer.³

If you have any questions, please contact the attorney assigned to this case at (202) 622-3620 .

¹ The partnership is considered an "employer" for purposes of income tax withholding, pursuant to I.R.C. §3401(d) . The term "person", referenced in section 3401(d) , includes an individual, trust, estate, partnership, association, company, or corporation. I.R.C. §7701(a)(1) . In addition, for purposes of the FICA and FUTA provisions, "employer" is defined the same as in section 3401(d) . See Otte v. United States, 419 U.S. 43, 51 (1974) [[74-2 USTC ¶9822 ].

² In accordance with I.R.C. §7122 , an offer in compromise is a discretionary collection tool, and is used if the Service deems a compromise to be in the best interests of both the taxpayer and the government (Policy Statement P-5-100). In any situation where the Commissioner does not believe that a compromise can be constructed so as to adequately protect the interests of the Government, it is within his discretion to exercise other collection methods.

³ Normally, an offer in compromise must include all outstanding tax liabilities (under the internal revenue laws) of the individual or entity submitting the offer. IRM 5.8.1.5.1.

 

 

 

 

Chief Counsel Advice 200129010, March 26, 2001
CCH IRS Letter Rulings Report No. 1273, 07-25-01
IRS REF : Symbol: CC:PA:CBS:Br2-GL-131535-00

Uniform Issue List Information:

UIL No. 17.12.04-00

Compromises

[Code Sec. 7122 ]

MEMORANDUM FOR ASSOCIATE AREA COUNSEL ( SBSE )

FROM: Kathryn A. Zuba, Chief, Branch 2 (Collection, Bankruptcy & Summonses)

SUBJECT: Advisory Opinion-Rejection of Offers in Compromise

This memorandum responds to a request for advice from your office received by email on December 27, 2000 . You have asked us for our assistance in addressing a request by a taxpayer's representative concerning whether the Service may reject an offer in compromise when a taxpayer's non-liable spouse with whom he shares living expenses refuses to provide her personal financial information. This document is not to be cited as precedent.

ISSUE

Whether the Service may consider in rejecting a taxpayer's offer in compromise that the taxpayer's non-liable spouse with whom he shares living expenses has submitted an affidavit stating that the taxpayer's entire income is used for their housing and utilities and that she pays the remainder, but has refused to provide her financial information.

CONCLUSION

The decision to compromise a case under section 7122 of the Internal Revenue Code is discretionary on the part of the Commissioner. Rejecting a taxpayer's offer in compromise, in part because the taxpayer's non-liable spouse refuses to supply financial information which the Service has determined may be needed to evaluate the expenses claimed by the taxpayer, is a permissible exercise of that discretion.

BACKGROUND

The taxpayer at issue has submitted an offer to compromise taxes assessed against him. The taxpayer is currently unemployed, but receives a small payment from his work with the Air Force Reserves. The taxpayer is married and lives with his spouse, but she is not liable for any of the taxes at issue. Pursuant to IRM 5.8.5.6(3), the Service requested financial information from the taxpayer and the non-liable spouse.

The taxpayer submitted a collection information statement which contained information on his current income and living expenses, but the spouse refused to do so. Instead, she submitted a document entitled "certification," which she has signed under penalty of perjury. In this document she states that whenever the taxpayer is employed, he pays his entire income to her for use toward their household expenses. She further states that the taxpayer's income is not sufficient to provide their housing and utility expenses, so she contributes the remainder from her income. She has also provided a handwritten letter stating that she had no part in her husband's tax difficulties, they maintain separate bank accounts, and she does not "feel ... responsibility" to help him pay his tax liabilities. The Service has rejected the taxpayer's offer, and it is currently pending before Appeals.

The Service has received a letter from the taxpayer's counsel setting forth his belief that because the Service cannot collect from the non-liable spouse's assets, and because she has provided a statement under penalty of perjury that all of the taxpayer's income is put toward their living expenses, the Service may not reject his offer on the basis of her refusal to provide personal financial information.

DISCUSSION

The Secretary's authority to compromise tax cases comes from section 7122 of the Internal Revenue Code, which states: "The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense." I.R.C. §7122(a) (emphasis added). Treasury regulations pertaining to that section likewise state: "The Secretary may exercise his discretion to compromise any civil or criminal liability arising under the internal revenue laws ...." Treas. Reg. §301.7122-1T(a)(1). Thus, the Secretary's authority to compromise is discretionary.

The Secretary has delegated this authority to the Commissioner, who has then delegated it to various officials throughout the Service. See Delegation Order No. 11. Implicit with this delegation of authority is the responsibility to exercise sound judgment and discretion when determining whether the Service should accept a taxpayer's proposed offer in compromise. Although the Service's general policy is to accept offers which reasonably reflect what the Service could expect to collect by other means, the "ultimate goal" of the compromise program is to reach agreements which are "in the best interest of both the taxpayer and the Service." Policy Statement P-5-100. Thus, acceptance of such an offer still requires a judgment that compromise is the best resolution of the case and will advance the overall goals of the compromise program. The Commissioner's policy goes on to make clear that realizing the reasonable collection potential in specific cases is just one of the objectives to be achieved by an effective offer in compromise program: "Acceptance of an adequate offer will also result in creating for the taxpayer an expectation of and a fresh start toward compliance with all future filing and payment requirements." Id. Policy Statement P-5-100 further states that the Service will accept an offer when it is unlikely that the tax liability can be collected in full, and the amount offered "reasonably reflects collection potential."

Consistent with these goals, the Service follows a procedure set forth in IRM 5.8.5.6 requesting financial information from non-liable individuals with whom the taxpayer shares living expenses. IRM 5.8.5.6(3) instructs the Service to request the non-liable person's financial information in order to determine the actual household income and expenses, verify the percentage of the taxpayer's portion of the shared expenses, and allocate the expenses to the taxpayer based upon his percentage of income.

In this case, the taxpayer supplied a collection information statement listing his living expenses and his income from past employment. Although his spouse has stated under penalty of perjury that they share expenses and that she essentially pays all their current expenses due to his unemployment, without her financial information, the Service may encounter difficulty verifying the percentage of the taxpayer's portion of their shared expenses and allocating the expenses between them.

You are correct that current procedures do not clearly state that rejection is permissible for this reason. However, neither is acceptance of an offer mandatory where a non-liable spouse refuses to submit any specific financial information and the Service makes the determination that this information is necessary to evaluate the adequacy of the expenses claimed by the taxpayer. Although the Service has made a concerted effort to achieve a degree of uniformity in evaluating offers, as reflected in the IRM , the acceptance decision remains discretionary. The Service's procedure of requesting the non-liable spouse's financial information is not inconsistent with the regulations, and such information may be necessary in order to exercise that discretion. The Service's offer in compromise procedures do not create a presumption that all offers will be accepted, nor do they presume rejection. Rather, each offer in compromise should be evaluated and considered on its own merits, and accepted or rejected as dictated by the facts and circumstances present in the case. Thus, after considering the financial information provided by the taxpayer and the sworn statement provided by the non-liable spouse, the facts and circumstances may lead the Service to conclude that the offer is not in the best interest of the Service, and thus, it may exercise its discretion to reject the offer.

If you have any further questions, please contact the attorney assigned to this matter at (202) 622-3620 .

 

 

 

 

 

 

Scott Roman v. Commissioner.

Docket No. 8931-03L . T.C. Memo. 2004-20. Filed January 28, 2004 . [Appealable, barring stipulation to the contrary, to CA-3. --


[Code Secs. 6330 and 7122]

[Internal Revenue Service: Collection Due Process: Hearing procedures.]

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action is appropriate.

 

Held: Because there was no abuse of discretion by R in rejecting P's offer in compromise, R's determination to proceed with collection action is sustained.

Kirk T. Karaszkiewicz, for the petitioner. Jack T. Anagnostis, for the respondent.

MEMORANDUM OPINION

 

WHERRY, Judge: This case is before the Court on respondent's motion for summary judgment pursuant to Rule 121.¹ The instant proceeding arises from a petition for judicial review filed in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. The issue for decision is whether respondent may proceed with collection of tax liabilities for the years 1994 and 1996 as so determined.

Background

 

Petitioner filed Federal income tax returns for 1994 and 1996 showing balances due and did not fully pay the reported liabilities. Respondent subsequently assessed the unpaid amounts and on March 20, 2002 , issued to petitioner a Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing with regard to the 1994 and 1996 taxable years. The notice reflected a total amount due of $50,725.97, including taxes, penalties, and interest. In response to the notice, petitioner's representative, Kirk T. Karaszkiewicz (Mr. Karaszkiewicz), timely submitted to respondent a Form 12153, Request for a Collection Due Process Hearing. The Form 12153 contained the following explanation of petitioner's disagreement with the notice of levy: "I filed an Offer in Compromise for the tax liabilities in question on March 15, 2002 ."

 

By a letter dated August 30, 2002 , Settlement Officer Ronald J. Kroll (Mr. Kroll) advised petitioner that he had received petitioner's case for Appeals consideration and would write or call to schedule a conference. Mr. Karaszkiewicz responded by a letter dated September 24, 2002 , requesting that Mr. Kroll contact him to arrange a mutually convenient conference.

 

Mr. Kroll investigated concerning the reference to an offer in compromise made in petitioner's Form 12153. He found that while an earlier offer in compromise, apparently submitted in about December of 2000, had been returned to petitioner in December of 2001, Internal Revenue Service records did not reflect a March 15, 2002 , offer. When Mr. Kroll advised Mr. Karaszkiewicz by telephone on October 2, 2002 , of what he had learned, Mr. Karaszkiewicz said that the earlier offer had been returned because additional documentation requested had not been timely submitted. Mr. Karaszkiewicz also indicated that he would send a copy of the subsequent March 15, 2002 , Form 656, Offer in Compromise, and Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals.

 

On November 22, 2002 , having not received the promised copies of Forms 656 and 433-A, Mr. Kroll sent to Mr. Karaszkiewicz a letter referencing the copies and stating, in pertinent part:

 

I have not received these documents. The offer was the only collection alternative proposed in your appeal.

 

Please be advised that I am offering one final opportunity for you to provide the information for consideration as an alternative means of collection. You have 15 days from the date of this letter to file an offer in compromise or send me a written proposal on how you plan to resolve these liabilities. Enclosed are Forms 656 and 433-A.

 

If the documents are not received within 15 days, I will issue a determination letter based on current information. No further extensions or exceptions will be considered.

 

On November 26, 2002 , Mr. Karaszkiewicz sent to Mr. Kroll copies of the requested documents.

 

The offer in compromise proposed to pay a total of $15,000 by remitting $5,000 within 90 days of acceptance and the balance in 10 monthly installments of $1,000. In conjunction with his review of the offer, Mr. Kroll both contacted Mr. Karaszkiewicz by telephone with questions regarding the materials provided and subsequently sent a letter dated January 21, 2003 ,² requesting additional information necessary for consideration of the offer. The letter also advised: "Please see that I receive the requested information no later than February 18, 2003 . Failure to submit the information may result in the recommendation that your client's offer be rejected without further consideration." On February 18, 2003 , Mr. Karaszkiewicz hand-delivered documents to Mr. Kroll in response to the January 21, 2003 , letter.

 

In his examination of the hand-delivered documents, Mr. Kroll found that several of the requested items had not been provided. He further became privy to new facts indicating that additional collection information statements would be required in order to complete consideration of the offer. Specifically, the documents revealed that petitioner owned yet another corporation and had recently married, necessitating collection information with respect to the company and to petitioner's spouse. Mr. Kroll advised Mr. Karaszkiewicz of these developments by telephone on March 10, 2003 , and Mr. Karaszkiewicz said he would try to provide the requested materials by March 25, 2003 .

 

On March 26, 2003 , Mr. Karaszkiewicz sent to Mr. Kroll a brief fax stating as follows: "Mr. Kroll, please excuse the delay in providing the additional documentation which we discussed. This delay has been caused exclusively by my trial commitments. I have not been able to review the documents with Mr. Roman. I assure you that we will quickly provide them." When, 6 weeks later, the requested information had not been submitted, Mr. Kroll determined that the proposed collection alternative could not be accepted and that collection by levy should proceed. The corresponding Notice of Determination Concerning Collection Actions(s) Under Section 6320 and/or 6330was issued to petitioner on May 14, 2003 .

 

The notice summarized respondent's determination: "You proposed an offer in compromise in the amount of $15,000 as your collection alternative. We must reject your offer because you failed to submit the additional information requested which was needed to make a determination regarding the acceptance of your offer. Levy action is, therefore, appropriate." An attachment to the notice provided further details and indicated that, beyond the proposed collection alternative, "No other issues were raised" by the taxpayer.

 

Petitioner's petition challenging this notice of determination was filed with the Tax Court on June 11, 2003 , and reflected an address in Marlton , New Jersey . Petitioner contends in the petition that he did not receive a fair hearing as required by section 6330, and that respondent erred in rejecting petitioner's offer in compromise, due to respondent's decision that "`Six weeks of silence' amounts to a `failure to submit the requested documents' ". Respondent prepared and filed an answer to the petition and subsequently filed the subject motion for summary judgment. Petitioner filed a response to respondent's motion.

Discussion

I. General Rules

A. Summary Judgment

 

Rule 121(a) allows a party to move "for a summary adjudication in the moving party's favor upon all or any part of the legal issues in controversy." Rule 121(b) directs that a decision on such a motion shall be rendered "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law."

 

The moving party bears the burden of demonstrating that no genuine issue of material fact exists and that he or she is entitled to judgment as a matter of law. Sundstrand Corp. v. Commissioner [Dec. 48,191], 98 T.C. 518, 520 (1992), affd. [94-1 USTC ¶50,092] 17 F.3d 965 (7th Cir. 1994). Facts are viewed in the light most favorable to the nonmoving party. Id. However, where a motion for summary judgment has been properly made and supported by the moving party, the opposing party may not rest upon mere allegations or denials contained in that party's pleadings but must by affidavits or otherwise set forth specific facts showing that there is a genuine issue for trial. Rule 121(d). The Court has considered the pleadings and other materials in the record and concludes that there is no genuine justiciable issue of material fact in this case.

B. Collection Actions

 

Section 6331(a) authorizes the Commissioner to levy upon all property and rights to property (except property exempt under section 6334) of a taxpayer where there exists a failure to pay any tax liability within 10 days after notice and demand for payment. Sections 6331(d) and 6330 then set forth procedures generally applicable to afford protections for taxpayers in such levy situations. Section 6331(d) establishes the requirement that a person be provided with at least 30 days' prior written notice of the Commissioner's intent to levy before collection may proceed. Section 6331(d) also indicates that this notification should include a statement of available administrative appeals. Section 6330(a) expands in several respects upon the premise of section 6331(d), forbidding collection by levy until the taxpayer has received notice of the opportunity for administrative review of the matter in the form of a hearing before the Internal Revenue Service Office of Appeals. Section 6330(b) grants a taxpayer who so requests the right to a fair hearing before an impartial Appeals officer.

 

Section 6330(c) addresses the matters to be considered at the hearing:

 

6330(c). Matters Considered at Hearing. --In the case of any hearing conducted under this section --

 

(1) Requirement of investigation. --The appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.

 

(2) Issues at hearing. --

 

(A) In general. --The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including --

 

(i) appropriate spousal defenses;

 

(ii) challenges to the appropriateness of collection actions; and

 

(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.

 

(B) Underlying liability. --The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.

 

Once the Appeals officer has issued a determination regarding the disputed collection action, section 6330(d) allows the taxpayer to seek judicial review in the Tax Court or a District Court. In considering whether taxpayers are entitled to any relief from the Commissioner's determination, this Court has established the following standard of review:

 

where the validity of the underlying tax liability is properly at issue, the Court will review the matter on a de novo basis. However, 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. [Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000).]

C. Offers in Compromise

 

Section 7122(a), as pertinent here, authorizes the Secretary of the Treasury to compromise any civil case arising under the internal revenue laws. Regulations promulgated under section 7122 set forth three grounds for 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(b), Proced. & Admin. Regs.³ With respect to the third-listed ground, a compromise may be entered to promote effective tax administration where: (1)(a) Collection of the full liability would cause economic hardship; or (b) exceptional circumstances exist such that collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner; and (2) compromise will not undermine compliance by taxpayers with the tax laws. Sec. 301.7122 -1(b)(3), Proced. & Admin. Regs.

II. Analysis

Nothing in the record indicates that petitioner has at any time throughout the administrative or judicial proceedings attempted to challenge his underlying tax liability. Accordingly, we review respondent's determination to proceed with collection for abuse of discretion. Action constitutes an abuse of discretion under this standard where arbitrary, capricious, or without sound basis in fact or law. Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999).

 

In arguing that rejection of his offer was an abuse of discretion and deprived him of a fair hearing, petitioner focuses on the "deadline" allegedly set by Mr. Kroll. In his response to respondent's motion, petitioner makes what he characterizes as an "equitable argument" and contends as follows:

 

Settlement Officer Kroll should not have unilaterally decided on a "deadline" for submission of documents, and then not communicated the "deadline" to Petitioner's counsel. The administrative record reveals that the Settlement Officer made repeated requests for additional information, all of which except the last were responded to. Additionally, Petitioner, through his counsel, responded to each request, and also responded when there was a delay in providing the documents responsive to the last request. * * *

 

Petitioner further alleges that the effect of the "deadline" was a failure by Mr. Kroll to take into consideration both the issues raised by the taxpayer and the balancing of efficient collection and taxpayer intrusion.

 

The difficulty with this argument is that, while petitioner may have preferred more time to provide the materials requested, respondent's conduct in these circumstances can hardly be characterized as arbitrary, capricious, or without sound basis in fact or law. The record reflects that throughout the administrative process petitioner was given multiple and repeated opportunities to submit sufficient information to support his offer in compromise. Petitioner's counsel should also have been well aware of the consequences of failure to provide requested materials. An earlier offer had been returned for this reason, and Mr. Kroll's November 22, 2002 , and January 21, 2003 , letters clearly advised Mr. Karaszkiewicz that a failure to supply the additional information requested would lead to rejection of petitioner's subsequent offer and issuance of a determination letter without further consideration.

 

Concerning particularly the final "deadline" of which petitioner complains, respondent issued the notice of determination on May 14, 2003 . This date is more than 2 months after Mr. Kroll's final request for information on March 10, 2003 . It is also 6 weeks after the March 25, 2003 , date by which Mr. Karaszkiewicz initially stated he would try to supply the materials and the March 26, 2003 , date on which Mr. Karaszkiewicz said the information would be "quickly" provided. Moreover, we note that it is more than 2 years after petitioner's initial submission of an offer in compromise. In these circumstances, and especially in light of the absence of any further communication from petitioner to alter the implications of the "quickly" language, waiting for 6 weeks falls within the bounds of reasonableness.

 

Section 6330 entitles taxpayers to "a hearing". No statutory or regulatory provision requires that taxpayers be afforded an unlimited opportunity to supplement the administrative record. Nor are petitioner's contentions regarding lack of warning well taken where the record in this case is replete with explicit deadlines that respondent generously extended for petitioner's benefit. The statute only requires that a taxpayer be given a reasonable chance to be heard prior to the issuance of a notice of determination. The consideration of petitioner's case thus did not fail to comply with the terms for a fair hearing set forth in section 6330.

 

Consequently, we conclude that there was no abuse of discretion in respondent's decision to reject petitioner's offer in compromise. In absence of the requested information, respondent was unable reasonably to determine that petitioner's circumstances satisfied the conditions necessary for compromise of a tax liability. Evaluation of potentially pertinent grounds for compromise, such as doubt as to collectibility or a showing of economic hardship, would require complete financial data. The record is equally bereft of any indication of exceptional circumstances suggesting that collection here could undermine public confidence in tax administration. Hence, the Court holds that respondent's determination to proceed with collection of petitioner's tax liabilities was not an abuse of discretion. See e.g., Van Vlaenderen v. Commissioner [Dec. 55,382(M)], T.C. Memo. 2003-346; Neugebauer v. Commissioner [Dec. 55,303(M)], T.C. Memo. 2003-276. We shall grant respondent's motion.

 

To reflect the foregoing,

 

An appropriate order granting respondent's motion for summary judgment and decision for respondent will be entered.

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.

² We note that Mr. Kroll's case activity record in one instance, specifically the entry for March 10, 2003, apparently refers to this letter erroneously as the "1/31/03 letter".

³ Sec. 301.7122-1, Proced. & Admin. Regs., contains an effective date provision stating that the section applies to offers in compromise pending on or submitted on or after July 18, 2002. Sec. 301.7122-1(k), Proced. & Admin. Regs. Previous temporary regulations by their terms apply to offers in compromise submitted on or after July 21, 1999, through July 19, 2002. Sec. 301.7122-1T(j), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39027 (July 21, 1999). Because the final and temporary regulations do not differ materially in substance in any way relevant here, we need not resolve which section would apply in petitioner's circumstances. We further note that temporary regulations are entitled to the same weight and binding effect as final regulations. Peterson Marital Trust v. Commissioner [Dec. 49,935], 102 T.C. 790, 797 (1994), affd. [96-1 USTC ¶60,225] 78 F.3d 795 (2d Cir. 1996). For simplicity and convenience, citations will be to the final regulations.