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