Deavrah M. Chandler v. Commissioner.

Docket No. 11710-02L . T.C. Memo. 2004-7. Filed January 6, 2004 . [Appealable, barring stipulation to the contrary, to CA-5. -- CCH .]


[Code Secs. 6330 and 7122]

Internal Revenue Service: Collection Due Process: Hearing procedures. --

The IRS did not act arbitrarily, capriciously or without sound basis in fact or law when it rejected a delinquent taxpayer's offer in compromise. Thus, its determination to proceed with the collection action against her was sustained. The IRS considered the taxpayer's circumstances in light of the prescribed guidelines for accepting offers. It reasonably concluded that the evidence failed to establish either the requisite economic hardship or other exceptional factors demonstrating that compromise of the liability would not undermine voluntary compliance with the tax laws. --

Deavrah M. Chandler, pro se. James A. Kutten, for the respondent.

MEMORANDUM OPINION

 

COHEN, Judge: This proceeding was commenced in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. The issue for decision is whether there was an abuse of discretion in rejecting petitioner's offer to compromise for $100 petitioner's unpaid Federal income tax liabilities for 1997 and 1998 exceeding $13,600. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Background

 

Petitioner resided in Texas at the time the petition was filed. Petitioner filed her 1997 Federal individual income tax return on October 21, 1999 . On December 13, 1999 , the tax liability reflected on that return was assessed in the amount of $16,502. Petitioner's tax liability was partially offset by Federal income tax withholding, and late filing and failure to pay additions to tax and interest were assessed. Subsequently, overpayments from 1999 and 2000 were applied to petitioner's 1997 tax liability.

 

Petitioner filed her 1998 Federal income tax return on February 9, 2001 . On March 5, 2001 , the tax liability reflected on that return was assessed in the amount of $21,244. Petitioner's tax liability was partially offset by Federal income tax withholding, and late filing and failure to pay additions to tax and interest were assessed. As of September 9, 2001 , the total amount owing on petitioner's Federal income tax liabilities for 1997 and 1998 was $14,183.24.

 

On September 9, 2001 , respondent sent to petitioner, in care of Frank L. Zerjav (Zerjav), her authorized representative, a Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing. On behalf of petitioner, Zerjav submitted a Request for Collection Due Process Hearing, Form 12153. On November 7, 2001 , petitioner signed a Form 656, Offer in Compromise, proposing to compromise her 1997 and 1998 Federal income tax liabilities for $100. The offer in compromise, with supporting information, was submitted to the Brookhaven Service Center in Holtsville , New York .

 

On February 8, 2002 , an Appeals officer sent to petitioner a letter advising her that the hearing that she had requested was tentatively scheduled for February 26, 2002 , but that another time for a hearing could be arranged. The letter stated:

 

If you want us to consider any collection alternatives, such as an installment agreement or offer-in-compromise, please complete the enclosed financial statements. These may include Form 433-A, Collection Information Statement for Individuals and/or Form 433-B, Collection Information Statement for Businesses. Provide complete verification of your income and expenses. We must be able to review this information to determine that collection alternatives are possible.

 

Zerjav responded to the Appeals officer's February 8, 2002 , letter. Zerjav stated that an offer in compromise had been submitted to the Brookhaven Service Center , and he requested that the hearing be rescheduled "for after the valuation currently being held with the Brookhaven Service Center ." On February 14, 2002 , the Appeals officer explained in a telephone conference with Zerjav that, because this was a "CDP" (section 6330 collection due process) case, the offer in compromise would be reviewed by the Office of Appeals rather than by the service center.

 

On March 21, 2002 , the Appeals officer sent to Zerjav a letter stating that the offer in compromise had been reviewed but that additional information was needed. Additional information was submitted to the Appeals officer by Zerjav on April 23, 2002 . The Appeals officer reviewed the financial information submitted by Zerjav on behalf of petitioner. She also independently researched petitioner's financial data and assets and concluded that relevant information had not been disclosed by petitioner or by Zerjav. Based on the information that she had obtained, the Appeals officer determined that petitioner could pay her entire 1997 and 1998 income tax liabilities. The Appeals officer considered petitioner's reported income for 1999, 2000, and 2001. The information relied on by the Appeals officer included information about petitioner's income for 2001, including a withdrawal of more than $100,000 from an individual retirement account and $40,000 in gross proceeds from the sale of real property, and petitioner's spouse's income tax returns.

 

On June 11, 2002 , a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 was sent to petitioner. In addition to setting forth a determination that the requirements of applicable law and administrative procedures had been met, explanatory materials attached to the notice of determination stated the following:

The Offer in Compromise

 

An offer to compromise the 1997 and 1998 income tax liabilities as to Doubt as to Collectibility was received on 12-11-2001 by the IRS . The taxpayer offered $100.00 on a liability totaling $13,688.60 as of May 6, 2002 . A Form 433-A was received. Complete verification of the financial statement was not received by Appeals. The financial statement was not accurate. Initial review of the information that was received indicated a net realizable equity in assets of more than $44,719. The household income for 2001 was determined to be an average of $12,438.00. Her allowable expenses were determined to be $4,754. The taxpayer has sufficient assets to full pay and also has the ability to make monthly payments in order to full pay. Because she can full pay, she does not qualify for an offer in compromise. Therefore, an offer in compromise is not currently a viable alternative.

 

The petition in this case asserted:

 

3. The collection action as determined by the Commissioner is for income taxes for the calendar years 1997 through 2001 none of which is in dispute. The Petitioner seeks relief under the Offer in Compromise OIC program.

 

Only the calendar years 1997 and 1998 are involved in this proceeding, however. Among the errors alleged by petitioner in the petition were quarrels with the Appeals officer's computation of petitioner's ability to pay and the absence of "independent review". Specifically, the petition alleges:

 

h) The entire offer consideration process was conducted solely by the Appeals Division which further violates the intent of Congress under the IRS Restructuring and Reform Act of 1998 (the Act) to the extent Petitioner has been denied the opportunity of an independent review of the rejected offer as required under the Act.

 

* * * * * *

 

5. Petitioner has at all times acted in good faith in connection with her tax affairs. Therefore denial of an offer that would give her a "fresh start" is misplaced. Moreover, no alternatives such as income collateral agreements were made available to either the Petitioner or her representative prior to issuance of this Determination.

 

After the case was set for trial, respondent filed a Motion for Summary Judgment. Although petitioner was ordered to serve on respondent and file with the Court a written response to the Motion for Summary Judgment, she failed to do so. However, when the case was called for hearing on the Motion for Summary Judgment, petitioner was permitted to testify and to present the testimony of her representative as a means of explaining her position. See Rule 121(b), (d).

Discussion

 

The primary dispute in this case arises from an apparent misunderstanding by petitioner and her representative of the effect of sections 6320 and 6330. Sections 6320 (pertaining to liens) and 6330 (pertaining to levies) were enacted as part of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3401, 112 Stat. 746, to provide new procedural protections for taxpayers in collection matters. Section 6330 generally provides that the Commissioner may not proceed with collection of taxes by way of a levy on a taxpayer's property until the taxpayer has been given notice of, and the opportunity for, an administrative review of the matter. The statute specifically provides that "such hearing shall be held by the Internal Revenue Service Office of Appeals." Sec. 6330(b)(1). A taxpayer is entitled to only one hearing with respect to the taxable period(s) involved in the proposed lien or levy. Sec. 6330(b)(2). If the taxpayer is dissatisfied with the determination made after the hearing, judicial review of the determination, such as that sought in this case, is available. See generally Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 179-181 (2000).

 

Section 6330(c) specifies the matters considered at the hearing. In this case, there is no dispute that the requirements of applicable laws and procedures regarding the assessment have been met, sec. 6330(c)(1), and there is no dispute with respect to the underlying tax liability, sec. 6330(c)(2)(B). Section 6330(c)(2)(A) provides:

 

(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.

 

The only collection alternative offered by petitioner during the process before Appeals was an offer in compromise for $100. No other issues were raised. We review respondent's determination for abuse of discretion. Goza v. Commissioner, supra at 182.

 

Petitioner asserted during the hearing on the Motion for Summary Judgment that she was faced with more than $300,000 in unpaid taxes, that she had rejected a suggestion to pursue bankruptcy as a means of avoiding her debts, and that she faced hardship in paying her tax liabilities. She also argued that the information submitted with the offer in compromise was out of date and that she was prepared to update the information to establish her inability to pay.

 

Petitioner apparently is seeking relief from taxes for other years that are not involved in the proposed levy and the determination that is the basis of this proceeding. This case involves only unpaid liabilities for 1997 and 1998, totaling approximately $13,600, and not petitioner's total outstanding tax obligations. In any event, petitioner's claims of current financial hardship cannot be considered in this proceeding because they were not raised before the Appeals officer. See Magana v. Commissioner [Dec. 54,765], 118 T.C. 488, 493-494 (2002).

 

Through the testimony of her representative, petitioner also attempted to raise a dispute with the facts set forth in respondent's Motion for Summary Judgment concerning whether petitioner would have been amenable to collection alternatives other than the $100 offer in compromise that she had submitted. The statute, however, contemplates that the taxpayer raise at the hearing relevant issues, including offers of collection alternatives. Sec. 6330(c)(2)(A)(iii). The statute requires the Appeals officer only to consider the "offers of collection alternatives" raised and information presented by the taxpayer. See, e.g., Crisan v. Commissioner [Dec. 55,350(M)], T.C. Memo. 2003-318; Willis v. Commissioner [Dec. 55,334(M)], T.C. Memo. 2003-302; O'Brien v. Commissioner [Dec. 55,321(M)], T.C. Memo. 2003-290; Schulman v. Commissioner [Dec. 54,757(M)], T.C. Memo. 2002-129. It does not require continuous negotiation. In reviewing the determination made by the Appeals Office, we are limited to reviewing the information that petitioner presented. Having reviewed the financial data in the record, we conclude that it was not an abuse of discretion to reject the $100 offer in compromise.

 

Petitioner also complains that there was no review within the Appeals Office and that there was an abuse of discretion by the Appeals officer in not referring the offer in compromise evaluation to IRS collection personnel, with whom petitioner's representative had experience. In some cases, assistance from revenue officers may be sought. See, e.g., Van Vlaenderen v. Commissioner [Dec. 55,382(M)], T.C. Memo. 2003-346. Petitioner does not have a right under section 6330, however, to more than one hearing or to a hearing before anyone other than the Office of Appeals. Sec. 6330(b).

 

We conclude, therefore, that the matters disputed by petitioner are not material, that the material facts are not in dispute, and that respondent is entitled to judgment as a matter of law.

 

An appropriate order and decision will be entered. for respondent.

 

 

 

 

Randall G. Van Vlaenderen v. Commissioner.

Docket No. 15164-02L , TC Memo. 2003-346, 86 TCM 736, Filed December 29, 2003 . [Appealable, barring stipulation to the contrary, to CA-11. --


[Code Secs. 6330 and 7122]

Notice of levy and right to hearing: Hearing procedures: Compromises: Fact finding. --

An IRS Appeals officer's rejection of an individual's Form 656, Offer in Compromise, was not an abuse of discretion. The Tax Court noted the possibility that an IRS revenue officer's financial analysis of the taxpayer, based on information that the taxpayer provided, was flawed. However, the Tax Court declined to conclude that the information the taxpayer provided was reasonable or that consideration of his amended offer in compromise would have changed the Appeals officer's determination. The determination also indicated that a levy was necessary to induce payment, which was reasonable based on the taxpayer's long history of delinquency. Consequently, neither rejection of the taxpayer's initial offer nor his amended offer constituted an abuse of discretion. -- CCH .

Randall G. Van Vlaenderen, pro se. Monica J. Miller, for the respondent.

MEMORANDUM OPINION

 

COHEN, Judge: This case was commenced in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. The notice of determination sustained a proposed levy with respect to petitioner's unpaid taxes for 1986, 1990, 1991, 1992, 1993, 1994, 1995, 1997, and 1999. The issue for decision is whether the Appeals officer's rejection of petitioner's Form 656, Offer in Compromise, was an abuse of discretion. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue.

Background

 

Most of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference. Petitioner resided in Florida at the time that his petition was filed.

 

Petitioner is self-employed and works in the real estate business. He filed Federal income tax returns for 1986, 1990, 1991, 1992, 1993, 1994, 1995, 1997, and 1999, reflecting unpaid balances due. The balances were duly assessed, and, with penalties and accrued interest, the total unpaid liabilities exceed $78,000. Petitioner did not submit a timely Federal income tax return for 1998 and did not file any return for that year prior to May 2002. Petitioner's Federal income tax returns for 2001 and 2002 were filed during the pendency of this dispute.

 

On March 15, 2001 , two forms of Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing were sent to petitioner. One notice related to his liability for 1990, 1991, and 1992 in the total amount of $27,066.28, and a second notice related to his liability for 1986, 1993, 1994, 1995, 1997, and 1999, totaling $40,524.01. Petitioner submitted a Request for a Collection Due Process Hearing in which he asserted that an installment agreement had been inappropriately terminated, that his prior spouse might be partially liable, and that he had requested an offer in compromise.

 

By letter dated February 6, 2002 , Appeals Officer Beverly A. Henry (Appeals Officer Henry) notified petitioner that she had scheduled a conference for March 5, 2002 , and that the hearing that he had requested could be conducted by telephone or correspondence. On March 5, 2002 , Appeals Officer Henry conducted a telephone conference in which petitioner indicated his intention to submit an offer in compromise. On March 29, 2002 , petitioner submitted an offer in compromise relating to the above liabilities, proposing that the sum of $3,763 be paid in more than 90 days but within 24 months from written notice of acceptance of the offer.

 

On April 9, 2002 , Appeals Officer Henry sent a letter to petitioner in which she stated:

 

You have requested consideration of certain issues that require the expertise of the investigative functions of the Service.

 

While the Office of Appeals will maintain jurisdiction of your case, we have requested further assistance to research and verify the information you have provided.

 

It may be necessary for a Revenue Officer to contact you for information necessary to expedite this review. The Revenue Officer may need to contact third parties to verify some of this information. The information we have requested is needed to help us reach a resolution of your appeal.

 

If you have any questions, please contact me at the telephone number shown above.

 

The Appeals officer transmitted the documents for an offer in compromise investigation to IRS Collections (Group 4100). On April 17, 2002 , the offer in compromise was returned to the Appeals officer with the statement that the Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, financial information was not verified; petitioner had not filed his return for 1998; and that the total unpaid liability was over $78,000. On April 17, 2002 , the Appeals officer notified petitioner that the offer in compromise could not be considered because petitioner had not complied with the filing requirements with respect to his 1998 return. On May 2, 2002 , the Appeals officer again wrote to petitioner as follows:

 

This is to follow-up on your Offer in Compromise submitted for consideration.

 

Our records indicate that this 1998 tax return has not been processed. I need an original signature in order to process. Please sign the return and return to me by May 13, 2002 .

 

The law requires you to be in compliance with all filing requirements. This includes filing all federal tax returns and making estimated tax payments if required. The record indicates that you have filed an extension for the year 2001 tax return, and you are not making estimated tax payments.

 

Based on the above, an Offer in Compromise cannot be considered at this time because you are not in compliance with the filing requirements. Please contact me so that we can discuss this further.

 

Petitioner subsequently submitted the documentation requested by the Appeals officer, and, in a memorandum dated May 30, 2002 , the Appeals officer concluded that petitioner was then in compliance with the filing requirements. Thus, the revenue officer proceeded to consider petitioner's offer in compromise.

 

The revenue officer to whom petitioner's offer in compromise was referred by the Appeals officer considered the financial information that petitioner had submitted, including bank records. The information submitted by petitioner claimed that his total monthly income was $1,812 and that his total monthly living expenses were $2,059, reflecting a monthly financial deficit. The revenue officer concluded that the income shown by petitioner was not consistent with the bank deposits reflected on his monthly statements and that the net business income reported by petitioner was not reliable because the claimed business expenses were commingled in the bank account with personal expenses. The revenue officer calculated petitioner's ability to pay based on the value of his vehicle and his average monthly bank deposits, less necessary living expenses, and concluded that the amount of $59,676 was the reasonable collection potential "based on cash offer" shown by the information petitioner had submitted.

 

On July 30, 2002 , the Appeals officer again wrote to petitioner as follows:

 

The Revenue Officer has completed the investigation of your Offer in Compromise submitted as a collection alternative.

 

The investigation reveals that your offer in the amount of $3,763 is not adequate. The financial analysis indicates that your offer should be increased to at least $59,676. I have attached copies of the Asset/Equity Table ( AET ) and Income/Expense Table (IET) to support this determination.

 

I have also enclosed Form 656 [Offer in Compromise] for you to submit an "amended offer" for $59,676 if this is acceptable to you.

 

If you have any questions or wish to discuss further, please contact me at the telephone number shown above. If I do not receive a response from you, I will assume that you no longer wish to pursue this matter. I will issue my determination based on the available information in your case file.

 

Petitioner did not contact the Appeals officer by telephone, as she had suggested. By letter dated August 14, 2002 , mailed August 19, 2002 , and received by the Appeals Office on August 20, 2002 , petitioner submitted an amended offer in compromise in the amount of $9,756. Petitioner's transmittal letter indicated that he believed that his options were to appeal within 30 days to the Office of Appeals or to submit another offer, based on instructions in the Form 656 package. Petitioner also suggested that the revenue officer's method of calculating income did not consider the expenses of running his business, as reflected on his tax returns for 1999, 2000, and 2001.

 

On April 19, 2002 , Appeals Officer Henry signed a memorandum in which she recommended that the Notice of Intent to Levy should not be withdrawn. The memorandum was approved by the Appeals Office team manager on August 21, 2002 . The attachment to the Appeals Office memorandum concluded that the levy was no more intrusive than necessary, the taxpayer's offer was not adequate, and:

 

There is no evidence to indicate that the taxpayer would voluntarily pay the liability if the Notice of Intent to Levy were removed. The proposed levy action balances the need for efficient collection of taxes with the taxpayer's legitimate concern that any collection action be no more intrusive than necessary.

 

On August 28, 2002 , Appeals Officer Henry notified petitioner that the Appeals Office had issued a determination letter. She enclosed another Form 656 package to be completed and sent to "the appropriate office for your area."

Discussion

 

Neither the amount of petitioner's liability nor the procedural facts in this case are in dispute. Petitioner contends that there was an abuse of discretion because he was not provided information on how to appeal Appeals Officer Henry's determination that the levy proposed in March 2001 would not be withdrawn and because the Appeals officer relied on erroneous calculations by the revenue officer with respect to petitioner's monthly income.

 

Respondent argues that, because the matter was already being considered by the Office of Appeals pursuant to petitioner's request for a section 6330 hearing, the Form 656 instructions concerning appeals from rejections of offers in compromise do not apply to this case. Respondent also argues that there is no requirement that the Appeals Office wait a particular period of time after requesting an amended offer. In any event, respondent argues that petitioner's amended offer was inadequate and would not have changed the Appeals officer's determination. Finally, respondent contends that, because the Appeals officer relied on a financial analysis and articulated reasons for her determination, there was no abuse of discretion.

 

Section 7122(a) authorizes compromise of a taxpayer's Federal income tax liability. Grounds for compromise include doubt as to liability, doubt as to collectibility, or promotion of effective tax administration. Sec. 301.7122-1T(b), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999); see sec. 7122(c)(1). The record reflects that doubt as to collectibility exists, but there is disagreement as to the collectible amount. There is no indication in the record that collection of the full liability would create economic hardship or affect voluntary compliance by taxpayers. See sec. 301.7122-1T(b)(4), Temporary Proced. & Admin. Regs., supra.

 

We approach the dispute in this case in the context of review of a hearing conducted under section 6330. Under section 6330, a taxpayer is entitled to one hearing in which he may propose alternatives to collection, such as the levy action proposed by respondent on March 15, 2001 . See sec. 6330(b), (c), and (d). Where, as here, liability is not an issue, the Appeals officer's determination is reviewed for abuse of discretion. Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 181-182 (2000). Generally, we consider only issues raised at the hearing before the Appeals Office. Magana v. Commissioner [Dec. 54,765], 118 T.C. 488, 493 (2002). Thus, we do not conduct an independent review of what would be an acceptable offer in compromise. We review only whether the Appeals officer's refusal to accept the offer in compromise made by petitioner was arbitrary, capricious, or without sound basis in fact or law. See Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999).

 

It is possible, as petitioner contends, that the revenue officer's financial analysis, based on the information that petitioner had provided, was flawed. We cannot, however, conclude that the information that petitioner provided was reliable or that consideration of his amended offer in compromise of $9,756 would have changed the determination. The Appeals officer's determination was based on analysis of the information that petitioner submitted. The Appeals officer adopted the revenue officer's conclusion that petitioner could pay $59,676 in compromise of unpaid liabilities for 9 years exceeding $78,000. The determination also indicated that the proposed levy was necessary to induce payment, which was not an unreasonable conclusion in view of petitioner's long history of delinquency. Based on the information considered by the Appeals officer, we cannot conclude that rejection of petitioner's initial offer was an abuse of discretion or that rejection of petitioner's amended offer would be an abuse of discretion. See Crisan v. Commissioner [Dec. 55,350(M)], T.C. Memo. 2003-318; Willis v. Commissioner [Dec. 55,334(M)], T.C. Memo. 2003-302; O'Brien v. Commisioner [Dec. 55,321(M)], T.C. Memo. 2003-290; Schulman v. Commissioner [Dec. 54,757(M)], T.C. Memo. 2002-129.

 

To reflect the foregoing,

 

 

 

 

James J. Crisan and Veronica L. Crisan v. Commissioner.

Docket No. 11953-02L , T.C. Memo. 2003-318, 86 TCM 601, Filed November 17, 2003 . [Appealable, barring stipulation to the contrary, to CA-6. --.]


Internal Revenue Service: Collection Due Process: Hearing procedures. --

The IRS did not act arbitrarily, capriciously, or without sound basis in fact or law when it rejected a delinquent couple's offer in compromise. Thus, its determination to proceed with the collection action against them was sustained. The IRS considered the taxpayers' circumstances in light of the prescribed guidelines for accepting offers. It reasonably concluded that the evidence failed to establish either the requisite economic hardship or other exceptional factors demonstrating that compromise of the liability would not undermine voluntary compliance with the tax laws. -- CCH .

James J. Crisan and Veronica L. Crisan, pro sese. Michelle M. Lippert, for the respondent.

MEMORANDUM OPINION

 

HAINES, Judge: Respondent sent petitioner James Crisan (Mr. Crisan) and petitioner Veronica Crisan (Mrs. Crisan), collectively petitioners, a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 (notice of determination).¹ The issue for decision is whether there was an abuse of discretion in the determination that collection action could proceed for 1998 and 1999 (years in issue).

Background

 

All of the facts have been stipulated. The stipulated facts and the attached exhibits are incorporated herein by this reference.

 

Petitioners resided in Warren , Ohio , at the time they filed the petition. As of May 15, 2003 , petitioners owed tax liabilities of $25,398 and $6,683 for 1998 and 1999, respectively, including additions to tax and interest.

 

The tax liabilities for the years in issue resulted from petitioners' failure to make sufficient quarterly payments of estimated taxes to cover the taxes that resulted from bonuses received by Mr. Crisan. Petitioners proposed an installment agreement with monthly payments of $100. Respondent rejected this proposal as "unrealistic and unreasonable" given the size of the tax liabilities.

 

When no installment payment amount could be agreed to by the parties, respondent issued each petitioner a Final Notice of Intent to Levy and Notice of Your Right to a Hearing on January 25, 2001 . On February 20, 2001 , petitioners sent respondent a Form 12153, Request for a Collection Due Process Hearing, stating:

 

We are financially unable to pay this tax in full. It would work a substantial financial hardship on us if the IRS would levy on any of our income or few assets. We would like to be considered for an offer in compromise or payment arrangements.

 

After petitioners failed to attend the first scheduled meeting on March 28, 2002 , the section 6330 hearing (the hearing) was rescheduled and held on April 17, 2002 . In the letter scheduling the meeting, the Appeals officer included a Form 433-A, Collection Information Statement for Individuals, which petitioners were asked to complete and bring to the hearing.

 

At the hearing, the Appeals officer preliminarily computed that petitioners had the ability to pay at least $1,200 per month on the basis of Mr. Crisan's income and expenses listed on the Form 433-A. The Appeals officer also noted that Mr. Crisan might be able to settle the tax liabilities from his section 401(k) plan, but was unsure of the amount in the account. The Appeals officer then requested that petitioners finish completing the Form 433-A, indicate the amount they are able to pay each month, and consider taking money out of Mr. Crisan's section 401(k) plan to fully pay the tax liabilities. The requested information was due to respondent by May 20, 2002 .

 

Petitioners submitted an updated Form 433-A, dated April 25, 2002 . On the Form 433-A, petitioners reported that Mr. Crisan is an attorney and attached Mr. Crisan's Form W-2, Wage and Tax Statement, for 2001, which reported $119,120 of wages, tips, and other compensation.

 

During a telephone conversation on April 29, 2002 , the Appeals officer requested again that petitioners provide an offer of a monthly installment amount to pay off the tax liabilities. On May 13, 2002 , Mr. Crisan sent the Appeals officer a letter requesting a 2-week extension of time, stating that he was unable to commit to a monthly payment amount because he wanted to review his pension plan policies. Other than the proposed installment payment amount of $100 per month, petitioners never made a formal offer of an installment agreement and sent no further information or correspondence to respondent.

 

On June 12, 2002 , respondent sent petitioners a notice of determination for the years in issue. Respondent sustained the levy action, stating:

 

We have determined that no relief is to be granted in this case. You have requested that the liability at issue be resolved via an offer in compromise. However, your financial data indicate that you can satisfy the liability by liquidating assets or with an installment agreement. Your request for additional time to consider your options is unrealistic and is denied. Appeals believes that the need for efficient collection of taxes has been balanced with your concern for the intrusiveness of the proposed assessment.

Further, respondent explained:

An offer in compromise, doubt as to collectibility is not appropriate as the taxpayers have the assets to immediately full [sic] pay the tax liability. In addition, the taxpayers have excess monthly income that would allow them to full [sic] pay the tax liability in full. As such an offer in compromise is inappropriate.

 

The file indicates that the Service has been attempting to resolve this matter with the taxpayers since July 2000. It is now almost 2 years later and still the taxpayers need more time. I do not feel that additional time is appropriate.

 

As a result of the notice of determination, petitioners filed the instant petition.

 

The calendar call for the Cleveland , Ohio , trial session was held on June 2, 2003 . Mrs. Crisan did not appear at the calendar call, and her default was entered. Petitioners' motion for continuance, filed May 27, 2003 , and renewed at the trial, was denied as untimely. The Court noted the "continuous delays" caused by petitioners throughout the proceedings. Mr. Crisan requested that he submit a trial memorandum and that the case be submitted fully stipulated. The Court suggested that a trial be held later that afternoon in order for Mr. Crisan to place evidence, such as testimony, on the record. Mr. Crisan refused the offer from the Court. Mr. Crisan stated that he chose to forgo the trial by not testifying or submitting further evidence, relying solely upon the stipulations and trial memoranda. The Court granted Mr. Crisan's request but warned Mr. Crisan that he would be unable to submit any further evidence.

Discussion

 

Petitioners make three arguments regarding the notice of determination: (1) Petitioners lack sufficient assets to satisfy the tax liabilities; (2) petitioners' offer to enter into an installment agreement was improperly rejected by respondent; and (3) respondent did not give petitioners the opportunity to make an offer in compromise.

 

Before a levy may be made on any property or right to property, a taxpayer is entitled to notice of intent to levy and notice of the right to a fair hearing before an impartial officer of the Appeals Office. Secs. 6330(a) and (b), 6331(d). If the taxpayer requests a hearing, he may raise in that hearing any relevant issue relating to the unpaid tax or the proposed levy, including challenges to the appropriateness of the collection action and "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". Sec. 6330(c)(2)(A). A determination is then made which takes into consideration those issues, the verification that the requirements of applicable law and administrative procedures have been met, and "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary". Sec. 6330(c)(3)(C).

 

Petitioners raise issues only as to collection alternatives, in that they dispute respondent's rejection of their proposed installment agreement and rejection of an offer in compromise. We review the determination for an abuse of discretion because the underlying tax liability is not at issue. Lunsford v. Commissioner [Dec. 54,553], 117 T.C. 183, 185 (2001); Nicklaus v. Commissioner [Dec. 54,477], 117 T.C. 117, 120 (2001).

 

Respondent's rejection of petitioners' proposed installment agreement was not an abuse of discretion. Installment agreements are based upon the taxpayers' current financial condition. See 2 Administration, Internal Revenue Manual ( CCH ), sec. 5.19.1.5.4.1, at 18,299-50. Respondent's determination was based on the information provided to the Appeals officer by petitioners. Schulman v. Commissioner [Dec. 54,757(M)], T.C. Memo. 2002-129. At the hearing, respondent preliminarily computed a monthly payment amount of $1,200. The Appeals officer gave petitioners the opportunity to resubmit a monthly installment payment amount, to which petitioners failed to timely respond. We find that the Appeals officer could have reasonably determined that petitioners' proposed installment payment of $100 per month should be rejected on the basis of petitioners' submitted income and expense information.

 

Additionally, respondent's determination not to enter into an offer in compromise agreement with petitioners was not an abuse of discretion. Section 7122(a) authorizes the Secretary to compromise any civil case arising under the internal revenue laws. The regulations set forth three grounds for the compromise of a liability: (1) Doubt as to liability; (2) doubt as to collectibility; or (3) promotion of effective tax administration. Sec. 301.7122 -1T(b), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999); see sec. 7122(c)(1). Doubt as to liability is not at issue in the instant case.

 

The Secretary may compromise a liability on the ground of doubt as to collectibility when "the taxpayer's assets and income are less than the full amount of the assessed liability". Sec. 301.7122 -1T(b)(3)(i), Temporary Proced. & Admin. Regs., supra. Additionally, the Secretary may compromise a liability on the ground of "effective tax administration" when: (1) Collection of the full liability will create economic hardship; or (2) exceptional circumstances exist such that collection of the full liability will be detrimental to voluntary compliance by taxpayers; and (3) compromise of the liability will not undermine compliance by taxpayers with tax laws. Sec. 301.7122 -1T(b)(4), Temporary Proced. & Admin. Regs., supra; see 2 Administration, Internal Revenue Service ( CCH ), sec. 5.8.11.2, at 16,385-15 (taxpayer's liability may be eligible for compromise to promote effective tax administration if not eligible for compromise based on doubt as to liability or doubt as to collectibility, and taxpayer has exceptional circumstances to merit the offer).

 

Petitioners argue that they lack sufficient assets to satisfy the tax liabilities. The Appeals officer reviewed petitioners' submitted financial information at the hearing and determined that an offer in compromise was not appropriate. We received as exhibits the financial information presented to the Appeals officer and find that the Appeals officer could have reasonably concluded that there are sufficient income and assets to satisfy the tax liabilities. On the basis of respondent's consideration of petitioners' information, we conclude that respondent's refusal to enter into an offer in compromise was not an abuse of discretion.

 

As a result, we hold that the issuance of the notice of determination was not an abuse of respondent's discretion, and respondent may proceed with collection.

 

In reaching our holding herein, we have considered all arguments made, and, to the extent not mentioned above, we conclude that they are moot, irrelevant, or without merit.

 

To reflect the foregoing,

 

Decision will be entered for respondent.

¹ Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue. Amounts are rounded to the nearest dollar.

 

 

 

Carl R. Neugebauer v. Commissioner.

Docket No. 8552-02L , T.C. Memo. 2003-292, 86 TCM 467, Filed October 21, 2003. [Appealable, barring stipulation to the contrary, to CA-9. -- CCH .]


[Code Secs. 6330 and 7122]

Offers in compromise: Rejection of offer: Abuse of discretion by IRS : Collection Due Process. --

The IRS did not act arbitrarily, capriciously, or without sound basis in fact or law when it rejected a delinquent taxpayer's offer in compromise. Thus, its determination to proceed with the collection action against him was sustained. The taxpayer failed to submit a properly completed Form 656, Offer in Compromise, and the required financial information for the consideration of his request. --

Carl R. Neugebauer, pro se. Karen Nicholson Sommers, for the respondent.

MEMORANDUM OPINION

 

LARO, Judge: Petitioner, while residing in Murrieta , California , petitioned the Court under section 6330(d) to review respondent's proposed collection activity in the form of a levy. Respondent proposed this action to collect petitioner's Federal income tax liability for 1989. Currently, the case is before the Court on respondent's motion for summary judgment under Rule 121(a). Petitioner responded to respondent's motion under Rule 121(b).

 

We shall grant respondent's motion for summary judgment. Section references are to the applicable versions of the Internal Revenue Code. Rule references are to the Tax Court Rules of Practice and Procedure.

Background

 

Petitioner filed a delinquent Federal income tax return for 1989. Respondent sent a notice of deficiency to petitioner with respect to his income tax liability for that year. Petitioner then petitioned the Court contesting his liability specified in the notice of deficiency. Because the petition was not filed within the time prescribed by section 6213(a) or 7502, we dismissed the case for lack of jurisdiction.

 

On or about April 18, 1994 , an income tax deficiency and related penalties and interest were assessed against petitioner with respect to 1989. Petitioner failed to pay fully the amounts assessed. On or about May 7, 2001 , respondent issued to petitioner a letter entitled "Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing Under IRC 6330".

 

On or about June 8, 2001 , petitioner submitted a Form 12153, Request For A Collection Due Process Hearing. On January 10, 2002 , petitioner submitted an offer in compromise and a collection information statement in connection with his request for a hearing. Respondent's Appeals officer determined that the offer in compromise should not be accepted because the offer and supporting financial information were incomplete. Petitioner did not comply with the Appeals officer's request to provide the complete information. On January 17, 2002 , a hearing was held between respondent's Appeals officer and petitioner's counsel Judy E. Hamilton. In connection with the hearing, the Appeals officer reviewed Internal Revenue Service transcripts of account for petitioner's 1989 tax liability.

 

On April 12, 2002 , respondent sent petitioner a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 (Notice of Determination) regarding petitioner's 1989 Federal income tax liability. On May 13, 2002 , petitioner filed with the Court a Petition for Lien or Levy Action. Neither in the petition nor in the previous request for a hearing did petitioner raise any issues with respect to the existence or the amount of the underlying tax liability. instead, petitioner alleges that he was denied his right to a hearing under section 6330, that he was denied participation in the proceedings relating to offer in compromise, and that he was subjected to punitive conduct by personnel of the Internal Revenue Service ( IRS ). In addition, petitioner maintains that the factual foundation of the Notice of Determination lacked veracity. Petitioner asks the Court to remand this case to Appeals for further consideration of an offer in compromise or, alternatively, to transfer this case to the appropriate Federal District Court .

 

On July 8, 2002 , respondent filed with the Court a Motion to Dismiss for Lack of Jurisdiction and to Strike as to Trust Fund Recovery Penalty Liabilities on the basis that the Court did not have jurisdiction under section 6330(d) to decide respondent's determination as to those liabilities. On September 26, 2002 , we granted the motion.

 

On July 11, 2003 , respondent moved for summary adjudication as to the remaining issues. On August 20, 2003 , petitioner filed with the Court a reply to that motion.

Discussion

 

Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner [Dec. 44,689], 90 T.C. 678, 681 (1988). Summary judgment may be granted with respect to all or any part of the legal issues in controversy "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." Rule 121(a) and (b); 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). The moving party bears the burden of proving that there is no genuine issue of material fact, and factual inferences are drawn in a manner most favorable to the party opposing summary judgment. Dahlstrom v. Commissioner [Dec. 42,486], 85 T.C. 812, 821 (1985); Jacklin v. Commissioner [Dec. 39,278], 79 T.C. 340, 344 (1982).

 

As will be shown in the discussion that follows, petitioner has raised no genuine issue as to any material fact. Respondent supported his motion for summary judgment with the pleadings, exhibits, and an affidavit of one of his attorneys. Petitioner's reply was supported by materials not responsive to the merits of respondent's motion. The reply also did not set forth any specific facts showing a genuine issue for trial. We view "the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits", and find no genuine issue as to any material fact. Rule 121(b). Accordingly, we conclude that this case is ripe for summary judgment. Celotex Corp. v. Catrett, 477 U.S. 317 (1986).

 

Section 6331(a) provides that if any person liable to pay any tax neglects or refuses to pay such tax within 10 days after notice and demand for payment, the Secretary may collect such tax by levy on the person's property. Section 6331(d) states that at least 30 days before enforcing collection by levy on the person's property, the Secretary must furnish the person with a final notice of intent to levy, including notice of the administrative appeals available to the person.

 

Under section 6330, the Commissioner cannot proceed with collection by levy until the person has been given notice and the opportunity for an administrative review of the matter (in the form of an Appeals Office hearing) and, if dissatisfied, with judicial review of the administrative determination. Davis v. Commissioner [Dec. 53,969], 115 T.C. 35, 37 (2000); Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 179 (2000). In the case of such judicial review, the Court will review a taxpayer's liability under the de novo standard where the validity of the underlying tax liability is at issue. A taxpayer's underlying tax liability may be at issue if he or she "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." Sec. 6330(c)(2)(B). The Court will review the Commissioner's administrative determination for abuse of discretion with respect to all other issues. Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000).

 

Here, petitioner does not dispute the existence or the amount of an underlying tax liability. Therefore, the proper standard for our review of respondent's determination is abuse of discretion. Under section 6330(c)(3), the determination of an Appeals officer must take into consideration (A) the verification that the requirements of applicable law and administrative procedures have been met, (B) issues raised by the taxpayer, and (C) whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection be no more intrusive than necessary.

 

Here, the Appeals officer addressed all these matters. He satisfied the first requirement by reviewing the Internal Revenue Service transcripts of petitioner's account. Hill v. Commissioner [Dec. 54,922(M)], T.C. Memo. 2002-272; Weishan v. Commissioner [Dec. 54,704(M)], T.C. Memo. 2002-88; Kuglin v. Commissioner [Dec. 54,661(M)], T.C. Memo. 2002-51.

 

The Appeals officer satisfied the second requirement by considering the issues raised by petitioner. The only issue raised by petitioner was his inability to pay the liability in full, and, in that regard, petitioner requested that he be allowed to satisfy the liabilitythrough an offer in compromise. The Appeals officer addressed this request by reviewing the information submitted, explaining that it was incomplete, and asking for additional information. Petitioner failed to submit a properly completed Form 656, Offerin Compromise, and the required financial information for the consideration of his request.

 

As to the third requirement, the Appeals officer properly balanced the need for efficient collection of taxes through the proposed levy against the concern that any collection action be no more intrusive than necessary. Petitioner failed to provide the information required in order to consider an alternative collection action.

 

Throughout the proceeding, petitioner's conduct demonstrates propensity to cause delay in collecting his outstanding tax liabilities. We sustain respondent's determination regarding the proposed levy as a permissible exercise of discretion. We note as to the allegations set forth in the petition that petitioner did receive a hearing under section 6330, that petitioner was given an opportunity to participate in the proceeding relating to an offer in compromise, and that petitioner's unsupported allegations raise no triable issue of fact concerning "punitive conduct" by the IRS personnel.

 

Regarding the petitioner's request to refer this case to a different forum, we observe that this Court has jurisdiction over the appeal of the administrative determinations where the underlying tax liability concerns unpaid income taxes, as opposed to certain other taxes. See, e.g., Goza v. Commissioner, supra at 182. We decline to grant the petitioner's request.

 

We have considered all arguments raised by the parties and have found those arguments not discussed herein to be irrelevant and/or without merit. Accordingly,

 

An appropriate order and decision will be entered for respondent.

 

 

 

 

Amy H. O'Brien v. Commissioner.

Docket No. 9958-02L , T.C. Memo. 2003-290, 86 TCM 461, Filed October 14, 2003. [Appealable, barring stipulation to the contrary, to CA-2. -- CCH .]

[Code Secs. 6330 and 7122]

[Offers in compromise: Rejection of offer: Abuse of discretion by IRS : Tax liens: Support trust: Collection Due Process.]

P filed a petition for judicial review pursuant to secs. 6320 and 6330, I.R.C., in response to a determination by R to leave in place a filed notice of Federal tax lien.

 

Held : Because the record does not establish an abuse of discretion by R in rejecting P's offer in compromise, R's determination to proceed with collection action is sustained.

Nina P. Ching, for the respondent. Ansel B. Chaplin, for the petitioner.

MEMORANDUM OPINION

 

WHERRY, Judge: This case arises from a petition for judicial review filed in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330.¹ The issue for decision is whether respondent may proceed with collection of tax liabilities for years 1995 through 1999 as so determined.

Background

 

This case was submitted fully stipulated pursuant to Rule 122. The stipulations of the parties, with accompanying exhibits, are incorporated herein by this reference.²

 

Petitioner is an artist who supported herself during the 1995 through 1999 tax years by taking odd jobs as an artist's model. She was born on May 21, 19 51, and has, at all relevant times, been single with no dependents.

 

On July 7, 1999, petitioner filed late Federal income tax returns for 1995, 1996, and 1997 showing balances due. No payments were remitted with the returns. Respondent assessed the reported tax liabilities, as well as delinquency additions to tax and interest, for 1995, 1996, and 1997, and sent corresponding notices of balance due, on August 23, 1999, September 6, 1999, and August 9, 1999, respectively. Similarly, on October 5, 1999 , petitioner filed a late 1998 income tax return showing a balance due, which was not accompanied by any payment. The 1998 tax liability, additions to tax, and accrued interest were assessed by respondent on November 15, 1999, and a notice of balance due was sent.

 

For the 1999 taxable year, petitioner filed a timely return showing an overpayment and claiming an earned income credit. Respondent assessed the 1999 tax liability on February 28, 2000, and transferred an overpayment credit to 1995. Thereafter, on August 7, 2000, respondent made additional assessments to petitioner's 1999 account, and sent a notice of balance due, for tax, additions to tax, and interest resulting from certain uncontested adjustments.

 

After filing her 1995 through 1998 returns, petitioner on October 26, 1999, created the "Amy H. O'Brien 1999 Irrevocable Trust". The trust instrument designated a third party as trustee and established a support trust for petitioner's benefit. Specifically, the trust instrument's "THIRD" term and condition provided as follows with regard to distributions:

 

During my lifetime, the Trustee shall pay the net income from the trust property at least quarter-annually to me or for my benefit. The Trustee shall also pay to me or apply for my benefit so much of the principal of the trust property as she may determine in her sole discretion to be necessary or desirable for my health, welfare, maintenance and support. In so doing, she should be guided by the fact that I have no spouse or other comparably significant object of my affection, and will leave no descendants or collateral descendants for whom the principal should be preserved, if possible.

 

The trust also contained a spendthrift provision as its "SEVENTH" term and condition. At petitioner's death, the trustee was directed to distribute remaining principal and undistributed income to a friend of petitioner's, if then living, or to the friend's descendants.

 

On the same October 26, 1999, date, petitioner executed a quitclaim deed transferring to the trust for nominal consideration a single-family residence located on Cape Cod , Massachusetts . Petitioner had inherited the home from her parents on July 28, 1986. At the time petitioner transferred the property, the residence did not enjoy clear marketable title on account of an outstanding 25-percent interest that had never been obtained by the family members who were her predecessors in title. After transfer of the property, petitioner owned no other significant assets. The home generated rental income of approximately $600 per month, which petitioner admittedly failed to report on her 1995 through 1999 returns.

 

In December of 1999, the trust entered into an agreement to sell the residence. Petitioner's lawyer had been able to negotiate a purchase-and-sale agreement that permitted the downpayment to be used to clear title through a judicial proceeding. The sale closed, and the trust conveyed the property on February 7, 2001, for a purchase price of $290,000, which netted the trust approximately $235,000 after payment of expenses approximating $55,000 to obtain marketable title. The trust now consists entirely of liquid assets.

 

On November 9, 2000, respondent filed a notice of Federal tax lien with the Register's Office of New York County, New York, listing petitioner's income tax liabilities for the 1995 through 1999 years. The lien reflected a total unpaid balance of $12,587.62 and was recorded on November 17, 2000.

 

On November 15, 2000, respondent mailed to petitioner a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 regarding the just-described lien. Petitioner returned to respondent a completed and signed Form 12153, Request for a Collection Due Process Hearing, with the following explanation of her disagreement:

 

It is just impossible for me to pay this amount at this time. I can pay up to $100.00 per month beginning in January `01. I have one full-time job which pays me between $300-$400 per week. After rent + utilities + expenses, I can agree to begin paying $100.00 per month.

 

Thereafter, by a letter dated February 28, 2001, respondent rejected the installment plan as stated on the Form 12153. The proposal was rejected because petitioner had defaulted on a previous installment plan, because information submitted by petitioner showed monthly expenses in excess of income, and because the suggested monthly payments would be insufficient to pay her liabilities within the statute of limitations for collection. After petitioner received this letter, her representative apparently contacted respondent by telephone and discussed possible use of an offer in compromise. Respondent then sent a letter dated May 1, 2001 , confirming the telephone conversation and requesting completion of the enclosed Form 656, Offer in Compromise, and Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals.

 

Respondent received the Form 656 and Form 433-A submitted by petitioner on September 4, 2001. The Form 656 asked petitioner to select as the reason for the offer either doubt as to liability, doubt as to collectibility, or effective tax administration. Petitioner checked effective tax administration, which the form explained as meaning "I owe this amount and have sufficient assets to pay the full amount, but due to my exceptional circumstances, requiring full payment would cause an economic hardship or would be unfair or inequitable." Petitioner proposed to pay a total of $2,400 by remitting $240 for the first month and $180 per month for each of the next 12 months. The Form 656 indicated that the source of the funds would be the "Amy H. O'Brien 1999 Irrevocable Trust account at Fidelity Investments".

 

On September 28, 2001, respondent sent a letter rejecting petitioner's offer in compromise. The letter explained that, because the tax liabilities of approximately $13,000 could be collected from the at least $175,000 remaining in the body of the trust, the offer of $2,400 was not acceptable "due to the fact that the taxpayer has the means to satisfy the entire debt at this time."

 

Petitioner submitted additional information supporting her offer in compromise on October 4, 2001. Specifically, she provided bank statements for the period of May 18 to August 19, 2001, a renewal lease for her apartment, a telephone bill, and a utility bill. Then, in a letter dated October 10, 2001, petitioner requested "further review" of respondent's decision to reject her offer, on grounds that respondent failed to address "mitigating factors" weighing in petitioner's favor. In response, respondent sent a letter reiterating the reasons for the rejection. By a final letter dated October 18, 2001, petitioner's representative continued to argue for acceptance of her offer.

 

On May 9, 2002, respondent issued to petitioner the Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 sustaining use of the lien as an appropriate collection action. The notice, consistent with the earlier correspondence, was premised primarily on the inadequacy of collection alternatives in light of petitioner's ability to pay her tax liabilities in full from the assets of the trust. Petitioner's petition challenging this notice was filed with the Tax Court on June 12, 2002, and reflected an address in New York , New York .

Discussion

I. Collection Actions --General Rules

Section 6321 imposes a lien in favor of the United States upon all property and rights to property of a taxpayer where there exists a failure to pay any tax liability after demand for payment. The lien generally arises at the time assessment is made. Sec. 6322. Section 6323, however, provides that such lien shall not be valid against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until the Secretary files a notice of lien with the appropriate public officials. Section 6320 then sets forth procedures applicable to afford protections for taxpayers in lien situations. Section 6320(a)(1) establishes the requirement that the Secretary notify in writing the person described in section 6321 of the filing of a notice of lien under section 6323. This notice required by section 6320 must be sent not more than 5 business days after the notice of tax lien is filed and must advise the taxpayer of the opportunity for administrative review of the matter in the form of a hearing before the Internal Revenue Service Office of Appeals. Sec. 6320(a)(2) and (3). Section 6320(b) and (c) grants a taxpayer, who so requests, the right to a fair hearing before an impartial Appeals officer, generally to be conducted in accordance with the procedures described in section 6330(c), (d), and (e).

 

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

 

SEC. 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 U.S. 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).]

II. Contentions of the Parties

The parties have stipulated that "petitioner's only argument in this case is that respondent abused his discretion by failing to accept her offer in compromise." Accordingly, petitioner's underlying tax liabilities for the 1995 through 1999 years are not at issue in the instant proceeding.

 

In arguing that rejection of her offer was an abuse of discretion, petitioner on brief "takes the position that she cannot afford to pay her liabilities in full", "agrees that the respondent has the naked power to reach and apply the Trust assets, but contends that it would be grossly unfair to do so." In other words and as summarized by petitioner, although "the O'Brien Trust assets can be reached to satisfy the 1995-1999 tax liability", "it was an abuse of discretion to ignore her over-all financial situation and reject her offer-in-compromise which acknowledged an indebtedness, but sought recognition that to deplete her trust would not be in the public interest."

 

Conversely, respondent asserts that standards reflected in section 7122 and regulations promulgated thereunder regarding evaluation of offers in compromise support respondent's rejection of petitioner's offer. In this connection and relying on principles set forth in caselaw and in Rev. Rul. 55-210, 1955-1 C.B. 544, respondent maintains that petitioner's interest in the trust is properly reachable by Federal tax lien and that petitioner therefore has sufficient assets to pay her liabilities in full. Respondent further contends that petitioner has failed to establish economic hardship or to present compelling public policy or equity considerations, as described in the applicable regulations discussed below, that would show any abuse of discretion in respondent's actions against these trust assets.

III . Analysis

Section 7122(a), as pertinent here, authorizes the Secretary to compromise any civil case arising under the internal revenue laws. Section 7122(c)(1) then addresses standards for evaluation of offers, as follows: "The Secretary shall prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute." In accordance with this directive, section 301.7122 -1T(b), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999)³ , sets 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. Section 301.7122 -1T(b)(4), Temporary Proced. & Admin. Regs., supra, the provision relevant here, reads as follows:

 

(4) Promote effective tax administration. If there are no grounds for compromise under paragraphs (b)(2) and (3) of this temporary regulation, a compromise may be entered into to promote effective tax administration when --

 

(i) Collection of the full liability will create economic hardship within the meaning of §301.6343-1; or

 

(ii) Regardless of the taxpayer's financial circumstances, exceptional circumstances exist such that collection of the full liability will be detrimental to voluntary compliance by taxpayers; and

 

(iii) Compromise of the liability will not undermine compliance by taxpayers with the tax laws.

 

(iv) Special rules for evaluating offers to promote effective tax administration. --(A) The determination to accept or reject an offer to compromise made on the ground that acceptance would promote effective tax administration within the meaning of this section will be based upon consideration of all the facts and circumstances, including the taxpayer's record of overall compliance with the tax laws.

 

(B) Factors supporting (but not conclusive of) a determination of economic hardship under paragraph (b)(4)(i) include --

 

(1) Taxpayer is incapable of earning a living because of a long term illness, medical condition, or disability and it is reasonably foreseeable that taxpayer's financial resources will be exhausted providing for care and support during the course of the condition;

 

(2) Although taxpayer has certain assets, liquidation of those assets to pay outstanding tax liabilities would render the taxpayer unable to meet basic living expenses; and

 

(3) Although taxpayer has certain assets, the taxpayer is unable to borrow against the equity in those assets and disposition by seizure or sale of the assets would have sufficient adverse consequences such that enforced collection is unlikely.

 

(C) Factors supporting (but not conclusive of) a determination that compromise would not undermine compliance by taxpayers with the tax laws include --

 

(1) Taxpayer does not have a history of noncompliance with the filing and payment requirements of the Internal Revenue Code;

 

(2) Taxpayer has not taken deliberate actions to avoid the payment of taxes; and

 

(3) Taxpayer has not encouraged others to refuse to comply with the tax laws.

 

For purposes of appraising respondent's exercise of discretion, we consider petitioner's circumstances, as presented to the Appeals Office, in light of the foregoing standards. The regulations emphasize economic hardship, and petitioner throughout these proceedings has generally asserted her lack of ability to pay. Economic hardship is defined as an inability to meet reasonable basic living expenses. Sec. 301.6343 -1(b)(4), Proced. & Admin. Regs.

 

Petitioner in her Form 433-A alleged an estimated monthly income of $2,000, comprising $1,500 in earnings as an artist's model and $500 in distributions from the trust. The Form 433-A further showed estimated monthly expenses of $1,975.50, including $250 for food, clothing, and miscellaneous; $1,016.50 for housing and utilities; $62 for transportation; $40 for health care; $557 for taxes; and $50 for other expenses. Yet petitioner submitted bank statements reflecting miscellaneous expenditures and cash withdrawals of at least $1,500 to $1,800 per month, which amounts apparently exclude rental expenses. A number of the outlays are to establishments that provide other than "basic necessities", such as Castle Wine & Spirits, Sea Grape Wine & Spirits, Ryan's Irish Pub, Rockefeller Center Cafe, Borders Books & Music, Tower Records, World of Video, Triton Video, Radio Shack, The Gap, and Speedo Authentic Fitness. The discrepancy between the seeming amount of discretionary expenditures shown by the Form 433-A and the bank statements is unexplained and leaves the record ambiguous as regards petitioner's basic living expenses or her ability to meet them.

 

Similarly, the record contains no evidence of any illness, medical condition, or disability that would render petitioner incapable of earning a living or would exhaust all of her financial resources. Although on brief petitioner references uninsured medical expenses incurred in 2002, such uncorroborated information never raised in the administrative proceeding falls short of revealing any abuse of discretion. See Magana v. Commissioner [Dec. 54,765], 118 T.C. 488, 493 (2002) (considering "only arguments, issues, and other matters that were raised at the collection hearing or otherwise brought to the attention of the Appeals Office").

 

Turning to petitioner's assets, we note at the outset that no dispute between the parties exists as to whether the trust is reachable for collection of petitioner's Federal tax liabilities. Further, this view would appear to accord with relevant authorities. State law determines the existence of property rights to which Federal tax consequences, such as a tax lien, may then attach. Aquilino v. United States [60-2 USTC ¶9538], 363 U.S. 509, 512-514 (1960); Magavern v. United States [77-1 USTC ¶9249], 550 F.2d 797, 800 (2d Cir. 1977). As this Court has recognized, the court in In re Rosenberg's Will [35-2 USTC ¶9650], 199 N.E. 206 (N.Y. 1935), cert. denied 298 U.S. 669 (1936), "held that the interest of a beneficiary under a New York spendthrift trust may be reached by the United States under an income tax lien". Mahler v. Commissioner [Dec. 43,678(M)], T.C. Memo. 1987-64.

 

The Court of Appeals for the Second Circuit, to which appeal in the instant case would normally lie, has indicated that where, under State law, a beneficiary can force a trustee to act, as in a support trust, the beneficiary has an interest in property subject to Federal tax lien. Magavern v. United States, supra at 802. In this context, the Court of Appeals has also explained that "New York law clearly establishes * * * that an aggrieved trust beneficiary can enforce his right to trust property or income against a trustee who refuses to exercise his discretion as directed in the trust instrument". Id. (citing In re Rosenberg's Will, supra). Further, "the New York Court of Appeals has included taxes within the definition of the term `support' in a case involving enforcement of a federal tax lien against a beneficiary's rights in a spendthrift trust." Id. (citing In re Rosenberg's Will, supra); see also United States v. Murray [2000-2 USTC ¶50,571], 217 F.3d 59, 65 & n.5 (1st Cir. 2000); United States v. Rye [77-1 USTC ¶9264], 550 F.2d 682, 685 (1st Cir. 1977); Rev. Rul. 55-210, 1955-1 C.B. 544.

 

At the time petitioner's offer in compromise was under consideration, the trust corpus was approximately $175,000. Her tax debt approximated $13,000. The evidence fails to establish that collection against less than one-thirteenth of the asset's value would leave petitioner unable to meet basic living costs in the immediately foreseeable future. Needs over the longer term would be no more than rampant speculation. Hence, the totality of the financial information in the record does not show that respondent committed an abuse of discretion in concluding that the disputed lien would not create economic hardship.

 

In addition, while the regulations also provide that collection that will prove detrimental to voluntary compliance may be inappropriate regardless of financial circumstances, petitioner's overall compliance history does not weigh in favor of compromise. Petitioner repeatedly failed to file timely Federal tax returns and to pay taxes due. She annually omitted from her returns significant rental income from the Cape Cod residence prior to its sale. The record also suggests that petitioner defaulted on an earlier installment agreement. Against this background and in the absence of other unique or compelling circumstances alleged by petitioner, considerations of policy or fairness do not require that petitioner be relieved of her tax liabilities.

 

To summarize, the evidence before us does not indicate that in rejecting petitioner's offer in compromise, respondent acted arbitrarily, capriciously, or without sound basis in fact or law. See Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999). Respondent considered petitioner's circumstances in light of the prescribed guidelines for accepting offers. Respondent then reasonably concluded that the information presented fell short of establishing either the requisite economic hardship or other exceptional factors demonstrating that compromise of the liability will not undermine voluntary compliance with the tax laws. The Court will sustain respondent's collection action.

 

To reflect the foregoing,

 

Decision will be entered for respondent.

¹ Unless otherwise indicated, section references are to the Internal Revenue Code, as amended, and Rule references are to the Tax Court Rules of Practice and Procedure.

² Respondent objected to certain stipulations on the grounds of relevancy and materiality. To the extent we have included information from such stipulations to provide context, we deem respondent's objections moot in light of our opinion and the resolution therein.

³ By their terms, the temporary regulations 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). The temporary regulations thus were effective throughout the period during which petitioner's offer was under consideration by respondent. Final regulations, which do not differ materially in substance, were subsequently issued and are applicable for offers pending on or submitted on or after July 18, 2002. Sec. 301.7122-1, Proced. & Admin. Regs. 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).

 

 

 

Robert M. Galvin and Christine Galvin v. Commissioner.

Docket No. 1994-02L , T.C. Memo. 2003-263, 86 TCM 353, Filed September 9, 2003. [Appealable, barring stipulation to the contrary, to CA-6. -- CCH .]

[Code Secs. 6330 and 7122]

Collection Due Process: Hearing: Procedures: Offer in compromise. --

An IRS Appeals officer did not abuse his discretion in presenting a proposed offer in compromise and refusing an offer in compromise proposed by married taxpayers during a Collection Due Process hearing. The IRS 's proposal for the collection of the taxpayers' delinquent taxes, which spanned 14 years, was computed according to the guidelines provided in the IRS manual, taking into consideration the husband's age and poor health. The taxpayers, who defaulted on installment agreements with the IRS on six prior occasions, offered a significantly lower monthly payment. Because the taxpayers failed to present a credible argument to establish that the Appeals officer abused his discretion, the notice of determination issued in connection with the unpaid taxes was deemed valid. --

Robert M. Galvin and Christine Galvin, pro sese. John M. Tkacik, Jr., for the respondent.

MEMORANDUM OPINION

 

HAINES, Judge: The petition in this case was filed in response to the Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination). The issue for decision is whether there was an abuse of discretion in the determination that collection action could proceed for 1980, 1981, 1982, 1983, 1984, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1997, and 1998 (years in issue).

 

Unless otherwise indicated, all section references are to the Internal Revenue Code for the relevant year. Amounts are rounded to the nearest dollar.

Background

 

All of the facts have been stipulated. The stipulated facts and the attached exhibits are incorporated herein by this reference.

 

Petitioners resided in Port Clinton, Ohio, at the time they filed their petition. At the time of filing the petition, petitioner Robert M. Galvin (Mr. Galvin) was 75 years old and in poor health. Mr. Galvin had practiced law for 26 years.

 

Petitioners entered into six installment agreements to pay their unpaid tax liabilities on which they defaulted by failing to make required payments and to timely pay other tax liabilities.

 

On February 22, 2000, petitioners submitted to respondent Form 433-A, Collection Information Statement for Individuals. Based upon the income and expense information provided by petitioners, respondent determined that $790 per month could be paid. Petitioners rejected the proposal.

 

On May 5, 2000, a Final Notice --Notice of Intent to Levy and Notice of Your Right to a Hearing was sent to petitioners. The taxes owed, as set forth in the final notice, including additions to tax, penalties, and statutory interest, were as follows:

 

                                                           Assessed   

  Year                                                     Liability   

  1980................................................   $56,537

  1981................................................    19,925

  1982................................................    24,517

  1983................................................     8,364

  1984................................................    10,943

  1988................................................       530

  1989................................................     5,992

  1990................................................    15,231

  1991................................................     9,420

  1992................................................     2,709

  1993................................................     1,713

  1994................................................     1,465

  1997................................................     1,865

  1998................................................     2,189

 

On May 22, 2000, petitioners filed Form 12153, Request for a Collection Due Process Hearing. A hearing was conducted on August 3, 2001, with Appeals Officer Douglas Kane (Mr. Kane). Based upon supplemental income and expense information provided by petitioners, Mr. Kane reduced the payment required from $790 to $721 per month.

 

On October 1, 2001, petitioners sent respondent a letter offering $250 per month until the expiration of the statutory period of collection. The earliest statutory period of collection was set to expire during 2005.

 

On October 22, 2001, respondent sent a letter which rejected the $250 per month offered by petitioners and proposed a $721 per month payment for 2 years. Mr. Kane stated in the letter:

 

I do believe that I could justify reducing the number of years that payments would be made on an installment offer in compromise. This would be based on your age, health, and the age of the tax liabilities. ***

 

Mr. Kane and Mr. Galvin also met on November 9, 2001, to discuss collection alternatives. The $721 offer made by Mr. Kane was not accepted, and Mr. Galvin offered no other collection alternatives.

 

On December 28, 2001, a notice of determination was sent to petitioners which stated:

 

It has been determined that the proposed levy action is sustained. The Internal Revenue Service has complied with code and procedural requirements in collecting the tax.

 

*******

 

The only issue that you raised was that you could not pay $790 per month that was determined by the revenue officer to be required. After updating your income and expense information it was determined that payments of $721 per month would be required. The problem is that some of your expenses do not fall within the IRS allowable expense guidelines. These include tuition and related expenses for your children and credit card debt payments.

 

An installment agreement is not possible because payments of even $721 per month would never fully pay the liabilities. The IRS can only grant an installment agreement that provides for full payment within the statutory period for collection. An installment offer in compromise was discussed in detail but you have not pursued this alternative. The proposed levy action is therefore sustained.

 

On January 24, 2002, petitioners filed a Petition for Lien or Levy Action Under Code Section 6320(c) or 6330(d). On February 21, 2002, petitioners filed an Amended Petition for Lien or Levy Action under Code Section 6320(c) or 6330(d) which stated:

 

I have eleven children aged 47 to 21. Six have college degrees; two are close to degree completion. All are taxpaying citizens and student loan paying citizens in some cases. My indirect contribution to tax coffers is large and ongoing.

 

*******

 

Most of our funds help our children who with student loans and in spite of work need help with emergencies and medical matters, etc. These aren't allowable with you, but they are real. This month one my [sic] paychecks paid for my youngest daughter's deductible car insurance in order for her to obtain her car back from repairs after an accident (not her fault) and her car insurance. She has a child, goes to college, work and daycare. You may not call this a necessity I do [sic].

 

*******

 

My petition for relief is simple. Declare this account uncollectible.

 

The amended petition also stated that the "levy or enforcement of lien would be punitive and destructive to taxpaying citizens and their family at a loss not a gain to the Federal Government".

 

Prior to the issuance of this opinion, the Court held a conference call with the parties to determine whether a settlement could be reached. It became apparent to the Court that settlement could not be reached.

Discussion

 

Petitioners do not dispute that the amount of taxes owed, additions to tax, penalties, and statutory interest assessed are correct. Where the validity of the underlying tax liability is not properly at issue, we review respondent's determination for abuse of discretion. Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000); Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 181-182 (2000).

 

From our review of the record, we conclude Mr. Kane attempted to help petitioners substantially by offering a reasonable payment amount with reasonable payment terms to satisfy substantial tax liabilities after appropriately applying the procedures available to petitioners.

 

Pursuant to section 6330, petitioners are entitled to only one hearing during which they may raise any relevant issue relating to the proposed levy, including challenges to the appropriateness of the collection action and offers of collection alternatives. Sec. 6330(b)(2), (c)(2)(A). Respondent, in fact, held two hearings with petitioners, the first on August 3, 2001, with both petitioners present, and the second on November 9, 2001, with only Mr. Galvin present.

 

Petitioners have, on six different occasions, defaulted on installment agreements entered into with respondent for the years in issue. We conclude Mr. Kane's rejection of petitioners' offer to pay $250 per month to satisfy tax liabilities in excess of $160,000 was reasonable.

 

Respondent's proposal for an offer in compromise to pay $721 per month for a 2-year period to fully satisfy petitioners' tax liabilities for the years in issue was based upon income and expense figures provided by petitioners and was computed under the guidelines provided in the Internal Revenue Manual. We reviewed respondent's computations and conclude that they are reasonable. McCorkle v. Commissioner [Dec. 55,039(M)], T.C. Memo. 2003-34; Schulman v. Commissioner [Dec. 54,757(M)], T.C. Memo. 2002-129.

 

The passage of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3462(a), 112 Stat. 764, which added section 7122(c) to the Code, resulted in the issuance of new regulations substantially changing offer-in-compromise procedures found in section 7122. The traditional grounds for compromise had been doubt as to liability and doubt as to collectibility. Sec. 301.7122 -1(b)(1) and (2), Proced. & Admin. Regs.

 

Offers in compromise can now be considered for the "promotion of effective tax administration" if collection of the full amount of the liability creates an economic hardship. Sec. 301.7122 -1(b)(3), Proced. & Admin. Regs. The addition of this category allowed factors such as advanced age and serious illness to be considered to determine if economic hardship existed. 2 Administration, Internal Revenue Manual ( CCH ), sec. 5.8.11.2, at 16,385-15. In addition, the Internal Revenue Service announced it would allow, in appropriate cases, a short-term payment option that gives taxpayers up to 2 years to pay the entire amount offered. 2 Administration, Internal Revenue Manual ( CCH ), sec. 5.8.1.3.5, at 16,256.

 

Mr. Kane properly applied these procedures to arrive at the proposal offered to petitioners. Petitioners' challenges to the appropriateness of the collection action were based upon Mr. Galvin's poor health and the possibility that he would be unable to continue to work. Mr. Kane took these factors, as well as the age of the tax liabilities, into consideration in making respondent's proposal.

 

Petitioners have not presented any evidence or persuasive arguments to convince us that respondent abused his discretion. See Black v. Commissioner [Dec. 54,963(M)], T.C. Memo. 2002-307. As a result, we hold the issuance of the notice of determination was not an abuse of respondent's discretion and respondent may proceed with collection.

 

In reaching our holding herein, we have considered all arguments made, and to the extent not mentioned above, we conclude them to be moot, irrelevant, or without merit.

 

To reflect the foregoing,

 

Decision will be entered for respondent.

 

 

 

 

Dorothy Moorhous v. Commissioner.

Docket No. 10761-00L , T.C. Memo. 2003-183, 85 TCM 1538, Filed June 24, 2003. [Appealable, barring stipulation to the contrary, to CA-4. -- CCH .]

[Code Secs. 6330 and 7121]

Internal Revenue Service: Collection Due Process: Hearing procedures: Offers in compromise. --

An IRS Appeals officer did not abuse her discretion in denying a taxpayer's offer in compromise relating to her underlying tax liability for several tax years. The offer in compromise was considered in detail and it was appropriately concluded that it did not fairly represent the taxpayer's ability to pay her tax debt. Moreover, contrary to the taxpayer's assertion, the IRS 's failure to send her a written rejection of her in compromise for one tax year did not deprive her of any administrative appeal rights. --.

John Frank lin Rodgers, for the petitioner. Jeffery E. Gold, for the respondent.

MEMORANDUM OPINION

 

COLVIN, Judge: On October 6, 2000 , respondent sent petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (the lien or levy determination), in which respondent determined that collection from petitioner of her unpaid tax, additions to tax, and interest for 1989-92 would proceed.

 

The sole issue for decision is whether respondent's refusal to consider petitioner's offer in compromise because petitioner did not provide current financial information was an abuse of discretion. We hold that it was not.

 

Section references are to the Internal Revenue Code in effect for the applicable years. Rule references are to the Tax Court Rules of Practice and Procedure.

Background

 

The parties submitted this case fully stipulated under Rule 122.

A. Petitioner

Petitioner resided in Springfield , Virginia , when she filed the petition in this case. In 1997, she was a budget analyst for the U.S. Department of Commerce, and her husband, Mr. Moorhous, was a retired U.S. Department of Defense employee. Petitioner and Mr. Moorhous filed joint income tax returns for 1989-92.¹

 

Petitioner and Mr. Moorhous filed separate bankruptcy petitions on dates not stated in the record. Petitioner's income tax liability for 1987 and 1988 was discharged in bankruptcy, but Mr. Moorhous's liability for those years was not discharged.

B. Petitioner's Offer in Compromise

In January 1997, petitioner and Mr. Moorhous submitted Form 656, Offer in Compromise, in which they offered $3,618 to compromise his 1987-92 and 1997 tax liability and her 1989-92 tax liability. At least $86,000 was due from petitioner and Mr. Moorhous at that time for those years.

 

On or about March 3, 1997, respondent's examiner, Ms. Vines (Vines), asked petitioner and Mr. Moorhous to provide additional financial information by March 28, 1997. Vines had received no response from petitioner and Mr. Moorhous by April 8, 1997, and she closed the case on that date. Respondent issued a written rejection letter which stated that petitioner and Mr. Moorhous have no administrative appeal rights. Petitioner and Mr. Moorhous then submitted additional financial information, and Vines agreed to reconsider their offer in compromise. Vines again recommended that the offer in compromise be rejected based on her estimate that the net realizable equity² in petitioner and Mr. Moorhous's assets was at least $125,000 greater than the amount they offered in compromise and considerably greater than the $86,388 then due from petitioner and Mr. Moorhous. She told petitioner and Mr. Moorhous that their offer in compromise would be rejected with the right to seek reconsideration by respondent's Appeals office. Respondent did not send a written rejection letter or notice of right to appeal to petitioner. At that time, respondent had a policy of generally not accepting offers in compromise from Federal employees. However, respondent did not apply that policy to petitioner.³ Respondent discontinued the policy effective July 18, 1997. IRS Litig. Bull. 445 (October 1997).

 

On April 27, 1999, respondent sent to petitioner a Notice of Intent To Levy and Notice of Your Right to a Hearing concerning petitioner's tax liability for 1989-92. The notice of intent to levy stated that petitioner owed tax, penalty, and interest of $17,909.98 for 1989, $10,266.83 for 1990, $9,980.32 for 1991, and $19,400.89 for 1992, for a total of $57,558.02. On May 10, 1999, petitioner requested a section 6330(b) hearing for tax years 1987-92. At the hearing, petitioner submitted her 1997 offer in compromise and accompanying 1997 financial information. At the hearing, the hearing officer stated that respondent erred in not issuing a written rejection letter that advised petitioner of her right to appeal the rejection of her 1997 offer in compromise to respondent's Office of Appeals. The hearing officer agreed to consider petitioner's offer in compromise if petitioner would provide current financial information. Petitioner provided only some of her current financial information, and so the hearing officer did not consider the offer in compromise.

 

On October 6, 2000, respondent issued a notice of determination in which respondent determined to proceed with collection from petitioner of her taxes owing for 1989-92.

Discussion

 

Petitioner contends that respondent's refusal to consider her offer in compromise for 1989-92 because she did not provide current financial information was an abuse of discretion.⁴ We disagree. Section 7122(c)(1) provides that the Secretary shall prescribe guidelines for the Internal Revenue Service to use in determining whether to accept an offer in compromise.

 

Treasury regulations provide that the Commissioner will not process an offer in compromise that lacks sufficient information to permit the Commissioner to evaluate its acceptability. Sec. 301.7122 -1T(c)(2), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39020 (July 21, 1999). The Commissioner will not process an offer in compromise if the financial information submitted with it is older than 12 months. 2 Administration ( CCH ), ch. 5.1(1) (Feb. 4, 2000). The hearing officer followed those guidelines by requiring that petitioner provide current financial information to evaluate whether her offer in compromise was adequate and should be accepted. The decision not to process petitioner's offer in compromise on account of her failure to submit current financial information was consistent with prescribed guidelines and was a reasonable exercise of the Commissioner's discretion.

 

Respondent erred in not sending petitioner a written notice that respondent had rejected her 1997 offer in compromise. See former sec. 301.7122 -1(d)(4), Proced. & Admin. Regs. (taxpayer must be given prompt notice in writing of rejection of offer in compromise). Petitioner contends that, because of that error, we should remand this case to respondent's Office of Appeals for consideration of her offer in compromise based on her 1997 financial information. We disagree.

 

In 1997, respondent twice considered and rejected petitioner's $3,618 offer to compromise a tax liability of about $86,000. Respondent concluded that the net realizable equity in petitioner and Mr. Moorhous's assets was at least $125,000 greater than the $3,618 amount offered in compromise. We have no reason to believe that result would change if respondent again considered petitioner's offer in compromise based on her financial information for 1997.

 

Respondent's failure to send petitioner a written rejection of her 1997 offer in compromise did not deprive her of any administrative appeal rights. The hearing officer for petitioner's section 6330 hearing stated that respondent erred in not issuing a written rejection letter that advised petitioner of the right to administratively appeal that rejection. Respondent contends on brief that that statement by the hearing officer was wrong because, in 1997, taxpayers had no appeal rights concerning rejected offers in compromise. Petitioner does not dispute respondent's statement in this regard and offers no contrary authority. We conclude that petitioner was not prejudiced by the hearing officer's failure to consider her offer in compromise based on 1997 financial information or by respondent's failure to give her written notice in 1997 that her 1997 offer in compromise had been rejected. See Rodriguez v. Commissioner [Dec. 55,168(M)], T.C. Memo. 2003-153.

 

Petitioner contends that respondent's refusal to consider her offer in compromise in 1997 was based on respondent's policy then in effect of generally not accepting offers in compromise from Federal employees. We disagree. There is no evidence to support her contention, and there is credible evidence showing that respondent did not apply that policy to her.

 

We conclude that respondent's determination to proceed with collection as to petitioner's 1989-92 tax liabilities was not an abuse of discretion.

 

Decision will be entered for respondent.

¹ Mr. Moorhous is not a party to this case. He received a Notice of Determination Concerning Collection Action(s) Under Sec. 6320 and/or 6330, but he filed his request for a hearing late. Thus, he is not entitled to judicial review under sec. 6320 or sec. 6330. Moorhous v. Commissioner [Dec. 54,316], 116 T.C. 263, 270 (2001); Kennedy v. Commissioner [Dec. 54,315], 116 T.C. 255, 262-263 (2001).

² Internal Revenue Manual sec. 5.8.5.3.1 (Feb. 4, 2000) defines net realizable equity for purposes of an offer in compromise as an estimate (usually about 80 percent of fair market value) of the price a seller could get for the asset where financial pressures motivate the seller to sell in a short period of time (usually 90 days or less) less amounts owed to secured lien holders with priority over the Federal tax lien.

³ Petitioner contends that respondent applied the policy to petitioner in 1997. We decide this issue in the opinion.

⁴ At the hearing, petitioner told the hearing officer that she did not want her offer in compromise to be considered based on current financial information.

 

 

 

Silvia S. Rodriguez v. Commissioner.

Docket No. 9686-00L , T.C. Memo. 2003-153, 85 TCM 1414, Filed May 27, 2003. [Appealable, barring stipulation to the contrary, to CA-4. -- CCH .]

[Code Secs. 6330, 6501, and 6502]

Collection of tax: Failure to file return: Notice of levy and right to hearing: Issues raised at hearing: Time period for collection: Review. --

The IRS 's determination to proceed with collection of delinquent taxes from a nonfiling individual was not time-barred and was not an abuse of discretion. Her claim that the assessment period had expired was a challenge to the underlying tax liability that should have been made in a deficiency proceeding, not a collection proceeding. Further, the IRS was not time-barred under Code Sec. 6501 from collecting or assessing taxes due from the taxpayer because she had not filed returns for the tax years at issue. Moreover, Code Sec. 6502 allowed the collection of taxes by levy since the levy was made within 10 years of the assessment of tax.

 

[Code Sec. 7122]

Compromises: Forms for offers in compromise: Fact finding: Abuse of discretion. --

The IRS 's refusal to consider an individual's offer in compromise because she had not filed all required tax returns was not an abuse of discretion. The taxpayer's testimony and copies of some of her returns were not as persuasive in showing that she had filed returns for the thirteen tax years at issue as the IRS 's certificate of official record and the testimony of agents in showing that her tax returns had not been filed. The IRS required all of the financial information supporting her offer in compromise in order to evaluate its acceptability. Thus, it was a reasonable exercise of discretion for the IRS to deny the taxpayer's offer in compromise. --

Silvia S. Rodriguez, pro se. Nancy C. Carver, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

 

COLVIN, Judge: On August 11, 2000 , respondent sent petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (the lien or levy determination), in which respondent determined to proceed with collection of deficiencies in petitioner's income tax, additions to tax, and interest for 1988-89. Petitioner did not file tax returns for tax years 1988-2000.

 

The issues for decision are:

 

1. Whether respondent was time barred from collecting taxes due for 1988-89. We hold that respondent is not.

 

2. Whether respondent's refusal to consider petitioner's offer in compromise because petitioner had not filed all required tax returns was an abuse of discretion. We hold that it was not.

 

Section references are to the Internal Revenue Code in effect for the applicable years.

FINDINGS OF FACT

 

Some of the facts have been stipulated and are so found.

A. Petitioner

Petitioner is a self-employed real estate broker who lived in Gaithersburg , Maryland , when she filed the petition. She has been a real estate broker from before 1990 to the time of trial. She owned a business known as Sylvia International Realty. She had not filed income tax returns for tax years 1988 through 2000 as of the time of trial.

B. Respondent's Notice of Deficiency and Collection Activity Relating to Petitioner's 1988-89 Tax Years

Respondent issued a notice of deficiency to petitioner for tax years 1988-89, and petitioner timely filed a petition in this Court. Sheryl Fast (Fast), a paralegal for respondent, worked with petitioner in settling that case. In October and November 1996, petitioner signed stipulated decisions in which she agreed that she had deficiencies in income tax of $1,113 for 1988 and $3,426 for 1989 and was liable for additions to tax of $272.30 for 1988 and $1,086.50 for 1989 for failure to file a return under section 6651(a) and failure to pay estimated tax under section 6654. Petitioner also agreed that respondent could assess and collect the deficiencies, additions to tax, and interest. Respondent assessed petitioner's tax for 1988-89 on March 31, 1997.

C. Petitioner's Offer In Compromise

Petitioner contacted Fast because petitioner received a notice (not otherwise described in the record) from respondent stating that she owed taxes for 1988-89. Fast told petitioner how to submit an offer in compromise, and that respondent would not consider her offer in compromise unless petitioner had filed all required tax returns. Fast checked respondent's computer records and discovered that respondent had no record of petitioner's having filed returns for 1991-95. Fast told petitioner that respondent would not collect taxes owed by petitioner for 1988-89 until March 20, 1998, to give petitioner time to submit an offer in compromise.

 

At a time not stated in the record, a friend of petitioner's delivered copies of what appeared to be two or three of petitioner's returns to Fast. Those copies did not have original signatures. On February 2, 1998, petitioner gave Fast a copy of what appeared to be her 1996 return, dated August 11, 1997. It did not have an original signature.

 

On February 17, 1998, petitioner submitted a Form 656, Offer in Compromise, to Fast. In it, petitioner offered to pay $1,500 of the taxes she owed for 1988-89. In a letter dated March 16, 1998, Fast told petitioner that she had received a copy of petitioner's 1991 return that did not have an original signature. Fast also told petitioner that respondent would not consider the offer in compromise because respondent had no record that petitioner had filed original tax returns for 1991-95. Fast also told petitioner that respondent would begin to collect tax from her on March 20, 1998, and that petitioner must file returns for 1991-95 before respondent would process her offer in compromise.

 

In April 1998, petitioner gave Fast what appeared to be copies of her tax returns for 1992, dated August 5, 1993, and for 1993, dated August 1, 1994. Those copies did not bear original signatures.

 

Petitioner had not filed original returns for 1988-2000 as of the time of trial, and had given Fast copies of what appeared to be petitioner's returns for only 4 of those 11 years.

D. Notice of Intent To Levy and Section 6330 Hearing

On October 25, 1999, respondent issued to petitioner a Notice of Intent To Levy and Notice of Your Right to a Hearing relating to petitioner's 1988-89 tax years. On November 16, 1999, petitioner filed a Request for a Collection Due Process Hearing, Form 12153, related to her 1989 tax year in which she stated that she wanted respondent to consider her offer in compromise for that year. In her request for a hearing, she said that she had health and financial difficulties.

 

Respondent's Appeals officer, J. Chris Neighbor (Neighbor), reviewed petitioner's request for a hearing and her offer in compromise. On February 18, 2000, Neighbor told petitioner by letter that respondent would not consider her offer in compromise because she had not filed returns for 1991-98. Neighbor scheduled a hearing for March 14, 2000 , to review petitioner's tax liabilities for 1988-89¹ and asked her to let him know within 10 days if she preferred a different date. He also asked petitioner to give him the following items: (1) A financial statement for petitioner and her business; (2) signed income tax returns for 1991-98; (3) petitioner's most recent mortgage statement showing the remaining balance and the amount of the monthly payment; and (4) information about Silvia International Realty, such as whether it produces income and has employees. Neighbor sent blank financial statement forms for petitioner to complete.

 

Petitioner did not complete the forms or send any mortgage statements to Neighbor. On March 9, 2000, petitioner asked Neighbor to reschedule the hearing because she was ill. On March 22, 2000, Neighbor rescheduled the hearing for May 25,

 

2000, and again asked petitioner to give him the information described above.

 

On May 18, 2000, petitioner sent copies of her 1991, 1992, 1993, and 1996 returns to Neighbor. The copies did not bear original signatures. On May 24, 2000, petitioner asked respondent to postpone the May 25 hearing for health reasons. She told Neighbor she would contact him after June 1, 2000.

 

By letter dated June 19, 2000, Neighbor told petitioner that, in consideration of her health problems, he had postponed the May 25 hearing, and she had until July 20, 2000, to propose collection alternatives. Neighbor told petitioner that respondent had received from petitioner copies of certain returns, but that original returns had not been filed with the IRS . He invited her to contact him so that they could schedule a hearing before July 20, 2000. He told her that he would issue a notice of determination after that time.

 

On July 10, 2000, petitioner told Neighbor that she had filed original returns with the Philadelphia Service Center ; however, she did not say which returns she had filed. She also asked Neighbor to postpone the July 20, 2000, deadline to August 30, 2000, because of her poor health. On July 18, 2000, petitioner sent some of the financial information to Neighbor that he had requested. Petitioner did not give Neighbor any of her mortgage statements.

 

Neighbor checked respondent's records and found that respondent had no record that petitioner had filed returns for 1991-98. Neighbor did not consider petitioner's offer in compromise because the Internal Revenue Manual, Part 5, Section 8, states that respondent will not consider offers in compromise unless the taxpayer has filed all required tax returns.

 

On August 11, 2000 , respondent sent petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (the lien or levy determination), in which respondent determined to proceed with collection of deficiencies in petitioner's income tax, additions to tax, and interest for 1988-89.

OPINION

A. Whether Respondent Is Time Barred From Collecting Petitioner's Taxes for 1988-89

Petitioner contends that respondent is time barred from collecting taxes she owes for 1988-89. For reasons stated next, we conclude that respondent may collect taxes from petitioner for 1988-89.

 

A claim that the time to assess tax has expired is a challenge to the underlying tax liability. Hoffman v. Commissioner [Dec. 54,882], 119 T.C. 140, 145 (2002); Boyd v. Commissioner [Dec. 54,495], 117 T.C. 127, 130 (2001). Thus, petitioner may not now claim that the assessment period expired before respondent issued the notice of deficiency because she received a notice of deficiency and could have raised that issue in her deficiency case. See sec. 6330(c)(2)(B).

 

Respondent is not time barred under section 6501 from collecting or assessing tax due from petitioner for 1988-89 because she did not file returns for those years. Respondent is also not time barred under section 6502 from collecting taxes due from petitioner for 1988-89. The Commissioner may collect tax by levy if the levy is made within 10 years after the assessment of tax. Sec. 6502(a)(1). Petitioner signed decision documents in 1996, and respondent assessed petitioner's taxes due for 1988-89 on March 31, 1997. Thus, respondent has at least until March 31, 2007, to collect petitioner's 1988-89 taxes.

B. Whether Respondent's Refusal To Consider Petitioner's Offer In Compromise for Tax Years 1988-89 Was an Abuse of Discretion

Petitioner contends that respondent's refusal to consider her offer in compromise for 1988-89 because she had not filed all required income tax returns was an abuse of discretion. We disagree.

1. Whether Petitioner Had Filed All Required Tax Returns

Petitioner testified that she filed original income tax returns for 1991-2000 with the Philadelphia Service Center . We are not persuaded by her testimony. The parties stipulated the admission into evidence of respondent's Form 2866, Certificate of Official Record, which states that respondent has no record of petitioner's having filed income tax returns for tax years 1988-2000. Fast and Neighbor both testified that they searched respondent's records. Fast found that respondent had no record that petitioner had filed returns for 1991-95. Neighbor found that respondent had no record that petitioner had filed returns for 1991-98. Respondent's certificate of official record and the testimony of Fast and Neighbor were more persuasive in showing that petitioner had not filed returns for 1988-2000 than petitioner's testimony and the copies of some of her returns were in showing that she had. Thus, we find that petitioner did not file returns for 1988-2000.

 

Petitioner contends that respondent erred in not filing the copies of the returns for 1991, 1992, 1993, and 1996 that she gave to Fast and Neighbor. We disagree. Those returns did not include petitioner's original signature. Sec. 6061(a); Beard v. Commissioner [Dec. 41,237], 82 T.C. 766 (1984), affd. [86-2 USTC ¶9496] 793 F.2d 139 (6th Cir. 1986); sec. 1.6061-1(a), Income Tax Regs. Petitioner did not provide copies of her returns for 1990, 1994, 1995, 1997, 1998, 1999, or 2000. Petitioner does not contend that she was not required to file tax returns for any of these years. We conclude that petitioner had not filed all required tax returns when she filed her offer in compromise.

2. Whether Respondent's Refusal To Consider Petitioner's Offer In Compromise Because Petitioner Had Not Filed All Required Tax Returns Was an Abuse of Discretion

Petitioner contends that respondent's refusal to consider her offer in compromise because she had not filed required income tax returns was unreasonable and thus an abuse of discretion. We disagree.

 

Petitioner did not submit all of the financial information supporting her offer in compromise that was requested by Neighbor. The Commissioner will not process an offer that lacks sufficient information to permit the Commissioner to evaluate its acceptability. Sec. 301.7122 -1T(c)(2), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39020 (July 21, 1999). Section 5.8.3.3(2) and (4) of the Internal Revenue Manual, promulgated on February 4, 2000 , and in effect at all time relevant here, provides that the Commissioner may not process an offer in compromise if the taxpayer has not filed all required tax returns. 2 Administration, Internal Revenue Manual ( CCH ), sec. 5.8.3.3(2), (4), at 16,283. The Commissioner's decision not to process an offer in compromise or a proposed collection alternative from taxpayers who have not filed all required tax returns is not an abuse of discretion. Londono v. Commissioner [Dec. 55,107(M)], T.C. Memo. 2003-99; Ashley v. Commissioner [Dec. 54,939(M)], T.C. Memo. 2002-286; Richter v. United States, 90 AFTR 2d 2002-5998, 2002-2 USTC par. 50,607 (C.D. Cal. 2002); AJP Mgmt. v. United States, 87 AFTR 2d 2001-347, 2001-1 USTC par. 50,184 (C.D. Cal. 2000); TTK Mgmt. v. United States, 87 AFTR 2d 2001-350, 2001-1 USTC par. 50,185 (C.D. Cal. 2000). The Commissioner may set reasonable priorities for Internal Revenue Service staff as needed to effectively administer the revenue laws. The decision not to accept the offer in compromise submitted by petitioner on account of her failure to file all required returns was an entirely reasonable exercise of the Commissioner's discretion in administering the offer in compromise program.

 

We conclude that respondent's determination to proceed with collection as to petitioner's 1988-89 tax liabilities was not an abuse of discretion.

 

Accordingly,

 

Decision will be entered Respondent.

¹ Respondent apparently assumed petitioner requested a hearing under sec. 6330(b) for both 1988 and 1989, even though her request only stated 1989.

 

 

 

Carlos Londono v. Commissioner.

Docket No. 11792-01L , T.C. Memo. 2003-99, 85 TCM 1121, Filed April 9, 2003. [Appealable, barring stipulation to the contrary, to CA-5. -- CCH .]

[Code Secs. 6330 and 7122]

Collection Due Process hearing: Hearing procedures: Offers in compromise: Abuse of discretion. --

An IRS Appeals officer did not abuse her discretion in denying a taxpayer's offer in compromise relating to his underlying tax liability for several tax years. The taxpayer's history of noncompliance, the late filing of his income tax return for one tax year and the delinquency on his estimated tax payments for a subsequent tax year established his failure to be in current compliance with his federal income tax liabilities and supported the Appeals officer's determination to disapprove of the offer in compromise. The taxpayer's argument that the Appeals officer failed to have her proposed rejection of the offer in compromise reviewed by an "independent reviewer" was not supported by the record. -.

Tommy E. Swate, for the petitioner. Brook D. Remick, for the respondent.

MEMORANDUM OPINION

 

SWIFT, Judge: Petitioner seeks our review under section 6330(d)(1)(A) of an adverse Appeals Office collection action determination. Respondent and petitioner cross move for summary judgment on all issues.

 

Unless otherwise indicated, all section references are to the Internal Revenue Code for the years in issue.

Background

The following facts are established by the record.

 

On April 20, 2000, respondent, in connection with petitioner's unpaid assessed Federal income tax liabilities for 1990, 1991, and 1992 in the total cumulative amount of $71,385 (including penalties and accrued interest), issued to petitioner a notice of intent to levy in conformity with the notice requirements of section 6330(a).

 

On May 11, 2000, petitioner requested a collection hearing before respondent's Appeals Office regarding respondent's proposed levy. As of May 11, 2000, petitioner had not filed his Federal income tax returns for 1993 through 1999.

 

In the fall of 2000, respondent's Appeals Office mailed to petitioner and to petitioner's representative a number of letters inviting petitioner to a face-to-face meeting to discuss respondent's proposed levy. Rather than attend a meeting with respondent's Appeals Office, petitioner's representative talked to respondent's Appeals Office over the telephone, and on October 25, 2000, petitioner submitted to respondent's Appeals Office an alternative to respondent's proposed levy, namely, an offer in compromise.

 

Under petitioner's offer in compromise, petitioner offered to pay a total of only $3,741 in 19 monthly installments of $200 each, in full compromise of petitioner's cumulative total outstanding Federal income tax liabilities for 1990 through 1999 of $91,120. In a number of significant respects, petitioner's offer in compromise is incomplete.

 

In late 2000, petitioner filed with respondent his delinquent Federal income tax returns for 1993 through 1999. Three of petitioner's above-mentioned Federal income tax returns were not filed until after respondent had issued audit summonses with regard thereto.

 

On November 9, 2000, respondent's Appeals officer sent a letter to petitioner's representative offering to meet regarding the proposed levy and offer in compromise.

 

Petitioner's representative declined to meet with respondent's Appeals officer, but on November 29, 2000, petitioner's representative did call respondent's Appeals officer and discussed with her petitioner's offer in compromise.

 

On February 20, 2001, respondent's Appeals officer forwarded petitioner's offer in compromise to an "offer group" within respondent's organization that reviews offers in compromise.

 

On July 3, 2001 , after reviewing financial information that petitioner had submitted, respondent's offer in compromise specialist calculated that petitioner likely could afford to make monthly installment payments over 60 months and pay off the full cumulative total of the taxes petitioner owed for 1990, 1991, and 1992 (the years to which respondent's levy relates) as well as for 1993 through 1999, a cumulative total of $91,120.

 

Respondent's Appeals officer also noted that for the prior 10 years petitioner had a poor compliance history with regard to the filing and payment of his Federal income tax liabilities and that petitioner, as of July 3, 2001 , still was not current with regard to his Federal income tax liabilities (namely, petitioner's 2000 Federal income tax return had not yet been filed, and petitioner's estimated tax payments for 2001 were not current).

 

On July 3, 2001 , respondent's Appeals officer discussed on the telephone with petitioner's representative petitioner's offer in compromise and explained that the offer in compromise could not be approved because petitioner's financial information did not demonstrate a genuine doubt as to collectibility of the taxes owed and because of petitioner's then current and long history of delinquency with regard to his Federal income tax liabilities.

 

On July 18, 2001, petitioner filed with respondent's Appeals Office his 2000 Federal income tax return and additional financial information.

 

Respondent's Appeals officer reviewed the additional financial information submitted by petitioner and concluded that petitioner still had not established sufficient doubt as to collectibility of the full taxes due and that petitioner's offer in compromise should be rejected.

 

On August 7, 2001, the Appeals officer's manager reviewed and approved the rejection of petitioner's offer in compromise and signed the Form 5402-c, Appeals Transmittal Memorandum and Case Memo.

 

On August 16, 2001, respondent issued to petitioner the notice of determination rejecting petitioner's offer in compromise and sustaining respondent's proposed levy. Therein, respondent explained, among other things, as follows:

 

Your request for a collection due process hearing stated that you would be filing returns for the taxable years 1993, 1994, 1995, 1996, 1997, 1998, 1999 so that an offer could be considered. These returns were all filed in 2000, after you filed your request for a Collection Due Process Hearing. Three of these returns were filed only after a summons was issued for all books and records in your possession relating to your income and expenses for those years. You filed your return for the 2000 tax year in June 2001. The financial information that was provided during the offer investigation shows that you have the ability to full pay the liabilities. Thus you do not qualify for an offer in compromise doubt as to collectibility. An installment agreement was not considered an appropriate alternative to the levy action due to your past lack of compliance and credit problems.

 

The proposed levy action is appropriate in your case. It balances the need of the government to efficiently collect taxes with your concerns of intrusiveness. Your past compliance history does not demonstrate a good faith effort to comply with the tax laws other than by enforcement actions such as the proposed levy. * * *

 

Petitioner does not deny the facts relating to the late filing of his Federal income tax returns and his history of noncompliance with his Federal income tax filing and payment obligations.

 

On September 20, 2001, petitioner filed his petition herein.

Discussion

At no point herein has petitioner challenged the amount of his underlying Federal income tax liabilities for the years in issue.

 

Where the issue of the underlying tax liability is not before the Court in connection with a collection hearing, the Court reviews respondent's Appeals Office determination only for abuse of discretion. Magana v. Commissioner [Dec. 54,765], 118 T.C. 488, 493 (2002); Sego v. Commissioner [Dec. 53,938], 114 T.C. 604 (2000); Goza v. Commissioner [Dec. 53,803], 114 T.C. 176 (2000).

 

Respondent argues that summary judgment is appropriate on the ground that the undisputed facts establish that petitioner was not in current compliance with his Federal income tax liabilities, and that respondent's determination to reject petitioner's offer in compromise did not constitute an abuse of discretion. We agree.

 

Petitioner's history of noncompliance, the late filing of his Federal income tax return for 2000, and the delinquency on his estimated tax payments for 2001 establish petitioner's failure to be in current compliance with his Federal income tax liabilities and support respondent's determination to disapprove of petitioner's offer in compromise.

 

Relying on respondent's temporary regulations under section 7122, petitioner asserts that respondent's Appeals officer, prior to rejecting petitioner's offer in compromise, failed to have her proposed rejection of the offer in compromise reviewed by an "independent reviewer". See sec. 301.7122-1T(e)(2), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39026 (July 21, 1999).

 

Petitioner apparently believes that respondent's Appeals officer manager who reviewed the Appeals officer's determination to reject petitioner's offer in compromise does not qualify as an "independent" reviewer under the above statute and regulation. To the contrary, in the context of a collection hearing before respondent's Appeals Office, the prescribed independent administrative review of a proposed rejection of an offer in compromise generally is to be performed by an Appeals manager, which in this case occurred on August 7, 2001. 4 Administration, Internal Revenue Manual ( CCH ), sec. 8.7.2.3.5(3)(f), at 27,282 (Nov. 13, 2001), promulgated under the legislative authority of sec. 7122(d).¹

 

In light of our resolution of respondent's motion for summary judgment, other arguments made by petitioner need not be decided.

 

The determination of respondent's Appeals officer properly verified that the requirements of applicable law and administrative procedures have been met, considered the issues raised by petitioner, and balanced the need for efficient collection of taxes with the legitimate concern of petitioner that the collection action be no more intrusive than necessary. As stated in the attachment to the notice of determination, the Appeals officer considered all three of these factors under section 6330(c)(3). Respondent's Appeals officer did not abuse her discretion under section 6330(c)(3). Further, no evidence suggests any impropriety in the review by the Appeals manager of the Appeals officer's rejection of petitioner's offer in compromise.

 

We shall grant respondent's amended motion for summary judgment, and we shall deny petitioner's amended motion for summary judgment.

 

An appropriate order and decision will be entered.

¹ 4 Administration, Internal Revenue Manual ( CCH ), sec. 8.7.2.3.5(3)(f), at 27,282 (Nov. 13, 2001), among other things, provides as follows:

The independent administrative review required for rejected * * * [offers in compromise] will not be done by Compliance on a CDP case. The required independent review is done by the review of the Appeals manager and signing of the Form 5402 * * *.

 

 

 

Allen Charles Schenkel v. Commissioner.

Docket No. 10855-01L , T.C. Memo. 2003-37, 85 TCM 839, Filed February 20, 2003. [Appealable, barring stipulation to the contrary, to CA-9. -- CCH .]

[Code Secs. 6330 and 7122]

Levy and distraint: Offers in compromise: Abuse of discretion: Evidence. --

An IRS Appeals Office agent did not abuse his discretion in denying a taxpayer's second offer in compromise relating to his underlying tax liability for six tax years. Contrary to the taxpayer's assertion, the offer in compromise was considered in detail and it was appropriately concluded that it did not fairly represent the taxpayer's ability to pay his tax debt. Moreover, the taxpayer's claim that the agent did not provide him with a summary of the amounts of the taxes he owed was rejected. The taxpayer received copies of his transcript of account and Forms 4340 for each of the years in issue. --

Allen Charles Schenkel, pro se. Lisa M. Oshiro, for the respondent.

MEMORANDUM OPINION

 

VASQUEZ, Judge: This case is before the Court on respondent's motion for summary judgment.

 

Rule 121(a)¹ provides that either party may move for summary judgment upon all or any part of the legal issues in controversy. Full or partial summary judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact, and a decision may be rendered as a matter of law. Rule 121(b); 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).

 

We conclude that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law.

Background

 

On September 1, 2000, respondent filed a Notice of Federal Tax Lien regarding petitioner's income tax liabilities for 1989, 1990, 1991, 1992, 1993, and 1994 with the county auditor of Pierce County , Tacoma , Washington (tax lien). The tax lien listed the following amounts owed (as of August 27, 2000):

 

  Tax Period                                               Amount Owed 

  1989.................................................      $2,140.33

  1990.................................................       1,947.40

  1991.................................................       2,135.35

  1992.................................................       1,830.55

  1993.................................................         893.56

  1994.................................................       2,036.89

 

On September 7, 2000, respondent issued to petitioner a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 regarding his income tax liabilities for 1989, 1990, 1991, 1992, 1993, and 1994 (hearing notice).

 

On September 19, 2000, petitioner submitted a Form 12153, Request for a Collection Due Process Hearing, regarding his 1989, 1990, 1991, 1992, 1993, and 1994 tax years (hearing request). Petitioner explained his disagreement with the hearing notice as follows: "I have been paying my back taxes with my yearly tax return and have never had an opportunity to have a settlement agreement or meeting with the IRS . I don't feel a lien is necessary."

 

On November 17, 2000, respondent assigned Appeals Officer Malcolm Otterson to petitioner's hearing request.

 

On December 19, 2000, Appeals Officer Otterson sent petitioner a letter scheduling an Appeals Office hearing (hearing) for January 17, 2001, at 10 a.m.

 

On January 16, 2001, petitioner called Appeals Officer Otterson and asked to reschedule the hearing for Friday at the same time. Appeals Officer Otterson agreed.

 

On Friday, January 19, 2001 , petitioner did not appear for the hearing. Appeals Officer Otterson called petitioner. Petitioner thought the hearing was scheduled for January 26, 2001 --the next Friday. Appeals Officer Otterson rescheduled the hearing for January 26, 2001.

 

On January 26, 2001, Appeals Officer Otterson reviewed the administrative file before the hearing. As of January 26, 2001, petitioner's outstanding balance, including penalties and interest, for 1989, 1990, 1991, 1992, 1993, and 1994 totaled $18,390.96. On that same day, petitioner attended the hearing with Appeals Officer Otterson. Petitioner stated that he wanted to pay the tax without paying any interest or penalties. Appeals Officer Otterson gave petitioner a Form 433-A, Collection Information Statement for Individuals, and a Form 656, Offer in Compromise.

 

On February 23, 2001, petitioner submitted an Offer in Compromise to respondent for 1988 through 1994 (first OIC). Under the reason for submission of the offer, petitioner checked both boxes: "Doubt as to Liability" and "Doubt as to Collectibility". Under the box for doubt as to liability, the form stated that the taxpayer was required to include a detailed explanation of the reasons why he believed he did not owe the tax. Petitioner, however, failed to do so. Petitioner checked the box for "Short Term Deferred Payment Offer (offered amount paid in more than 90 days but within 24 months)". He listed the monthly payment as $200 and the monthly payment date as "deducted from paycheck". Petitioner left the line "Balance will be fully paid on" blank.

 

On March 5, 2001, Appeals Officer Otterson wrote to petitioner to inform him that the Form 656 he had provided to petitioner was out of date and enclosed a current Form 656. Appeals Officer Otterson also asked petitioner for an explanation of the $200 figure petitioner offered.

 

On April 2, 2001, petitioner submitted the new Form 656 (second OIC). In the second OIC, petitioner listed the tax years as 1989 through 1994. Petitioner did not check any of the boxes under the reason for submission of the offer --doubt as to liability, doubt as to collectibility, or effective tax administration. Petitioner again checked the box for "Short Term Deferred Payment Offer (offered amount paid in more than 90 days but within 24 months)". He listed the monthly payment as $200, the monthly payment date as "30th Deduction From Pay", and the date the offered amount will be paid in full as "6/2003".

 

Around this time, respondent received a completed Form 433-A from petitioner. Petitioner listed a balance in his bank accounts --including a checking account, a savings account, a section 401(k) account, and a mutual fund --of $11,178.49. Petitioner also listed two cars and two boats, which he owned outright, as assets. Petitioner listed his monthly income to be $2,881 and his total monthly living expenses to be $2,535 --$460 for national standard expenses,² $960 for housing and utilities, $400 for transportation, $660 for income and FICA taxes, $42 for union dues, and $13 for "emply com fund".

 

Appeals Officer Otterson reviewed the second OIC based on the financial information submitted by petitioner. Appeals Officer Otterson, however, calculated petitioner's total allowable monthly living expenses to be $2,409 --$554 for national standard expenses, $933 for housing costs based on a family of one in Pierce County, $292 for transportation, $575 for taxes,³ and $55 for union dues, etc. Appeals Officer Otterson concluded that petitioner had the ability to pay $472 per month --the net difference between petitioner's monthly income and monthly allowable expenses --toward his outstanding 1989, 1990, 1991, 1992, 1993, and 1994 tax liabilities. Appeals Officer Otterson also noted the net value of the assets petitioner listed on the Form 433-A.

 

Based on these results, Appeals Officer Otterson was unable to accept petitioner's second OIC because petitioner could pay his full tax liability within the period of limitations for collection. Appeals Officer Otterson advised petitioner that respondent would be able to accept an installment agreement that would pay off petitioner's tax liability and to contact him during the week of May 14, 2001, if petitioner were interested in discussing this possibility. Petitioner never contacted Appeals Officer Otterson regarding an installment agreement.

 

On July 25, 2001, respondent issued a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 to petitioner regarding his 1989, 1990, 1991, 1992, 1993, and 1994 tax years (notice of determination). In the notice of determination, respondent determined that the Federal tax lien should remain in place. The notice of determination further explained:

 

The taxpayer prepared an offer in compromise form which was analyzed by Appeals *** . It was determined that the full liability could be collected within the collection statute. The taxpayer was given the opportunity to use an installment agreement but he did not respond. *** The taxpayer has not responded to the only available voluntary payment option. This was the installment agreement. The Notice of Federal Tax Lien should remain in place.

 

On August 20, 2001 , petitioner timely filed an imperfect petition for lien or levy action under Code section 6320(c) or 6330(d) seeking review of respondent's determination to proceed with collection of petitioner's 1989, 1990, 1991, 1992, 1993, and 1994 tax liabilities. On August 30, 2001, petitioner filed an amended petition for lien or levy action under Code section 6320(c) or 6330(d).

 

On November 20, 2002, respondent filed a motion for summary judgment. Attached as exhibits to the motion for summary judgment are three different kinds of transcripts of account --dated October 12, 2000 , November 16, 2000 , and January 26, 2001 --and Forms 4340, Certificate of Assessments, Payments and Other Specified Matters --dated July 12, 2002 --for petitioner's 1989, 1990, 1991, 1992, 1993, and 1994 tax years.

 

On November 21, 2002, the Court ordered petitioner to file any objection to respondent's motion for summary judgment on or before December 12, 2002. On December 17, 2002, petitioner filed a response to respondent's motion for summary judgment (response).

Discussion

 

Section 6320 provides that the Secretary shall furnish the person described in section 6321 with written notice (i.e., the hearing notice) of the filing of a notice of lien under section 6323. The hearing notice is to be furnished not more than 5 business days after the filing of the notice of lien. Sec. 6320(a)(2). Section 6320 further provides that the taxpayer may request administrative review of the matter (in the form of a hearing) within the 30-day period beginning on the day after the 5-day period described above. The hearing generally shall be conducted consistent with the procedures set forth in section 6330(c), (d), and (e). Sec. 6320(c).

 

Petitioner argues in his response that he made it clear to Appeals Officer Otterson that he was willing to pay the amount of "tax" he owed but not the penalties and interest. Petitioner's allegations of error are that respondent did not provide him a summary of the amounts of the taxes he owed and did not accept the second OIC. Petitioner does not appear to argue the issue of "doubt as to liability" with regard to the second OIC.⁴ In the second OIC, petitioner did not check the box for doubt as to liability. In his response, petitioner states that he is willing to pay the tax without penalties or interest. Furthermore, we note that although petitioner checked the box for doubt as to liability on the first OIC, he failed to include a detailed explanation of the reasons why he believed he did not owe the tax. Where the validity of the underlying tax liability is not properly in issue, we review the Commissioner's determination for abuse of discretion. Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000).

 

At the hearing, the Commissioner is not required to provide the taxpayer with any form listing the amount the taxpayer owes. Nestor v. Commissioner [Dec. 54,655], 118 T.C. 162, 166-167 (2002). In any event, petitioner has received copies of his transcript of account and Forms 4340 for each of the years in issue. Villwock v. Commissioner [Dec. 54,877(M)], T.C. Memo. 2002-235 n.4. Accordingly, we conclude that respondent did not abuse his discretion by not providing this information to petitioner at the hearing.

 

Respondent reviewed the financial information provided to him by petitioner. The Appeals officer followed prescribed guidelines to determine whether the second OIC was adequate and should be accepted. Sec. 7122(c)(1). The Appeals officer allowed petitioner national standard expenses in accordance with section 7122(c)(2). In accordance with the regulations, respondent prepared a monthly income and allowable expense analysis, based on all of the information provided by petitioner, and determined that petitioner could pay $472 per month toward petitioner's outstanding 1989, 1990, 1991, 1992, 1993, and 1994 tax liabilities. See sec. 301.7122-1T(b)(3), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39020 (July 21, 1999). We have reviewed those computations, and we find them to be reasonable.⁵ See Schulman v. Commissioner [Dec. 54,757(M)], T.C. Memo. 2002-129.

 

Appeals Officer Otterson offered petitioner an alternative to the second OIC. Appeals Officer Otterson advised petitioner that respondent would be able to accept an installment agreement that would pay off petitioner's tax liability. Appeals Officer Otterson told petitioner to let him know if petitioner was interested in discussing this possibility. Petitioner, however, did not contact Appeals Officer Otterson regarding an installment agreement.

 

Respondent's determination was based on a financial analysis of petitioner's income, assets, and allowable expenses and his ability to pay. See id. Petitioner offered to pay less than $5,000 on a liability that as of January 26, 2001 , was in excess of $18,000.⁶ Respondent gave due consideration to collection alternatives. See id. We conclude that respondent's determination was reasonable.

 

Petitioner has failed to raise a spousal defense or make a valid challenge to the appropriateness of respondent's intended collection action. These issues are now deemed conceded. See Rule 331(b)(4). Accordingly, we conclude that respondent did not abuse his discretion, and we sustain respondent's determination.

 

To reflect the foregoing,

 

An appropriate order and decision will be entered.

¹ Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure, and all section references are to the Internal Revenue Code.

² National standard expenses are for clothing and clothing services, food, housekeeping supplies, personal care products and services, and miscellaneous. See Schulman v. Commissioner [Dec. 54,757(M)], T.C. Memo. 2002-129 n.6.

³ The Appeals officer arrived at petitioner's monthly tax figure by (1) annualizing the monthly income figure provided by petitioner, (2) applying the year 2000 income tax rates and FICA tax rate to this amount, and then (3) dividing the total amount of tax by 12:

Petitioner's annual income equaled $34,572: $2,881 (the monthly income figure provided by petitioner)  12.

Petitioner's annual FICA tax equaled $2,645: $34,572  7.65%. Sec. 3101(a) and (b).

The Appeals officer subtracted the standard deduction ($2,800 for 2000) and a personal exemption ($4,400 for 2000) from petitioner's annual income figure to arrive at petitioner's annual taxable income of $27,372: $34,572 - $2,800 - $4,400. Secs. 63, 151. Per the year 2000 tax table, petitioner's annual income tax equaled $4,253. Sec. 1.

Petitioner's total annual FICA and income taxes equaled $6,898: $2,645 (FICA) + $4,253 (income tax). Thus, petitioner's monthly tax equaled $575: $6,898/12.

⁴ We note that petitioner received statutory notices of deficiency for 1989, 1990, 1991, and 1992, that he failed to petition the Court with respect to those years, and that his assessed tax liability for 1993 and 1994 was based upon tax returns for 1993 and 1994 that he filed on November 28, 1999. Accordingly, petitioner cannot contest the underlying liabilities for 1989, 1990, 1991, and 1992. Sec. 6330(c)(2)(B); Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610-611 (2000); Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 182-183 (2000). Furthermore, petitioner has admitted his liability for 1993 and 1994. See Lare v. Commissioner [Dec. 32,748], 62 T.C. 739, 750 (1974), affd. without published opinion 521 F.2d 1399 (3d Cir. 1975).

⁵ We note that under petitioner's own figures $346, and not $200, per month was available to be applied to petitioner's outstanding tax liabilities.

⁶ Furthermore, we note that the amount petitioner offered to pay also is thousands of dollars less than the total amount of petitioner's assessed tax liabilities, excluding penalties and interest, listed on the Forms 4340.

 

 

 

 

 

In re Ragip Sinan Mungan, a/k/a R.S. Mungan, a/k/a Sinan Mungan, a/k/a R. Sinan Mungan, Debtor. Mary Cathryn Jedlicka, a/k/a Mary C. Jedlicka, a/k/a Cathy Jedlicka, Debtor. Kenneth Hundley and wife, Peggy Hunley, Plaintiffs v. Ragip Sinan Mungan, a/k/a R.S. Mungan, a/k/a Sinan Mungan, a/k/a R. Sinan Mungan, Mortgage Masters, Inc., Mortgage Masters Financial Services Corporation, G. Wayne Walls, Trustee, First Tennessee Bank National Association, Mary Cathryn Jedlicka, a/k/a Mary C. Jedlicka, a/k/a Cathy Jedlicka, William T. Hendon, Trustee, Robert Long and wife, Melissa Long, Fidelity National Insurance Company of New York, State of Tennessee, by and through both Department of Labor and Workforce Development and through the Department of Revenue, the United States of America, by and through the Internal Revenue Service, IMC Mortgage Company, Joe M. Kirsch, Trustee, Tennessee Water Service, Inc., New Century Mortgage Corporation, Firstar Bank Milwaukee N.A., as trustee under Salomon Brother Mortgage Securities VII Mortgage Pass-Through Certificates Series 1999- NCS , Michael Hunley and wife, Robin Hunley, Steven J. Lusk, Trustee, Defendants.

U.S. Bankruptcy Court, East. Dist. Tenn. ; 01-31472, 01-31712, 292 BR 613, November 18, 2002 .

[ Code Sec. 7122]

Tax liens: Offer in compromise: Satisfaction of tax debt: Evidence. --

A small payment made by married taxpayers to the IRS did not constitute a compromise for the entire amount of their delinquent tax liabilities that would entitle them to the release of federal tax liens on real property. The parties had no written offer of compromise, and there was no written acceptance by the IRS of such an offer. The record established that the payment related to a tax year for which no liens had been recorded or asserted. Moreover, the IRS did not file a certificate of release relating to the existing tax liens. Finally, the taxpayers failed to prove that the IRS agent who allegedly entered into a compromise with them was authorized to bind the IRS to such an agreement.

[ Code Sec. 6323]

Tax liens: Attachment of lien to real property: Release by IRS . --

Federal tax liens that attached to delinquent taxpayers' real property prior to any alleged conveyances of transfers of the property continued to attach regardless of who currently owned the realty. Once the liens attached, any subsequent purchasers took the property subject to the IRS liens. Despite the taxpayers' contention that certain recorded deeds transferring their property had been fraudulently obtained by third parties, the IRS maintained a security interest in the property pursuant to the liens filed prior to any sort of transfer. Back reference: ¶38,160.108.

J. Myers Morton, Morton & Morton, PLLC, for plaintiffs. Harry S. Mattice, Jr., United States Attorney, Pamela G. Steele, Assistant United States Attorney, Jason S. Zarin, Department of Justice, for I.R.S. F. Chris Cawood, for Robert and Melissa Long.