James R. O'Donnell

• Court: United States Tax Court
• Decided: November 30, 2021
• Docket: 16881-18
• Status: Unpublished

Opinion

T.C. Memo. 2021-134

UNITED STATES TAX COURT

JAMES R. O’DONNELL, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16881-18L. Filed November 30, 2021.

James R. O’Donnell, pro se.

Christina L. Cook and Lisa R. Jones, for respondent.

MEMORANDUM OPINION

LAUBER, Judge: In this collection due process (CDP) case petitioner seeks

review pursuant to sections 6320(c) and 6330(d)(1) of the determination by the In-

ternal Revenue Service (IRS or respondent) to uphold the filing of a notice of

Served 11/30/21 -2-

[*2] Federal tax lien (NFTL).1 Respondent has moved for summary judgment

under Rule 121, contending that the settlement officer did not abuse his discretion

in upholding the NFTL filing. We agree and accordingly will sustain the

collection action for all years except 2012, as to which we find that we lack

jurisdiction.

Background

The following facts are derived from the parties’ pleadings and motion

papers, including a declaration that attached the administrative record. See Rule

121(b). Petitioner resided in Minnesota when he filed his petition.

Petitioner failed to comply with his Federal income tax obligations for a

very long time. For two decades (if not longer) he failed to file returns and failed

to pay the tax shown on substitutes for return (SFRs) that the IRS prepared for him.

Among the years for which he failed to meet his obligations were 2006, 2010,

2011, 2013, and 2014. The IRS for those years assessed deficiencies, additions to

tax, and interest totaling more than $430,000. As of May 2016 petitioner’s out-

standing liabilities for all open years exceeded $2 million.

1 All statutory references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all monetary amounts to the nearest dollar. -3-

[*3] With a view to addressing these unpaid liabilities petitioner sought an offer-

in-compromise (OIC). On May 9, 2016, he submitted a Form 656, Offer in Com-

promise, in which he offered to pay $280,000 in satisfaction of his liabilities for all

open years, premising his offer on doubt as to collectibility. He included a $56,000

check with the offer, representing a 20% downpayment as required by Form 656.

He concurrently filed 12 years’ worth of delinquent returns.

The IRS referred petitioner’s offer for evaluation to its OIC processing unit

(OIC unit). Upon reviewing petitioner’s delinquent returns and account tran-

scripts, the OIC unit ascertained that he had not made required estimated tax pay-

ments for 2016 or verified that his tax withholdings or estimated tax payments for

2017 were sufficient. The OIC unit accordingly recommended denial of his offer.

In September 2017 the IRS issued petitioner a denial letter, explaining that the IRS

“will only consider an offer when you are in full compliance.”

By letter dated October 19, 2017, petitioner’s representative urged the IRS to

reconsider its denial. His representative asserted that petitioner had no obligation

to pay estimated taxes and that his offer had thus been denied on an incorrect

premise. The IRS subsequently decided to reopen the case.

On October 31, 2017, while petitioner’s OIC remained under review, the

IRS sent him a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a -4-

[*4] Hearing (lien notice). The NFTL covered 2006, 2010, 2011, 2013, and 2014.

Petitioner timely requested a CDP hearing, asserting that “[i]t is premature to take

collection action” and urging the IRS to accept his previously submitted offer.

About nine months later the IRS filed an NFTL for 2012 and on August 14, 2018,

sent petitioner a Letter 3172 for that year.2

On March 27, 2018, the OIC unit rejected petitioner’s offer, concluding that

“acceptance of * * * [his] offer would not be in the best interest of the Govern-

ment.” The OIC unit advised him that he could appeal the rejection to the IRS

Office of Appeals (Appeals Office). He did so on April 25, 2018.

In a letter to the Appeals Office petitioner’s representative urged several

grounds for review. He contended that the OIC unit erred in determining that

acceptance was not in the Government’s best interest. He urged that petitioner was

then in compliance with his tax obligations. And he urged that acceptance of the

OIC would be beneficial because the Government could not collect from petitioner

any more than he offered.

2 Petitioner’s IRS account transcript for 2012 indicates that he submitted a CDP hearing request for 2012 on September 20, 2018. But the record does not include a copy of this hearing request, and it is unclear what relief it requested. -5-

[*5] Petitioner’s representative also questioned the income and asset figures on

which the OIC unit had relied. Petitioner had worked in the insurance and finan-

cial business but changed jobs after his licenses were revoked, allegedly causing a

reduction in his monthly income. He also contested the values the OIC unit had

placed on certain partnership assets that he owned.

The Appeals Office took petitioner’s request for review under advisement.

Meanwhile, the IRS assigned petitioner’s CDP case to a settlement officer (SO) in

a different Appeals Office. The SO reviewed the administrative file and confirmed

that petitioner’s liabilities had been properly assessed and that all other legal re-

quirements had been met. On April 16, 2018, the SO sent petitioner a letter sched-

uling a telephone conference for May 15, 2018, explaining that this would be his

opportunity to explain why he disagreed with the collection action and to propose a

collection alternative.

Petitioner did not participate in the scheduled telephone hearing. He told the

SO that he was unaware of the hearing, asserting that he had never received the

SO’s letter. The SO agreed to reschedule the hearing for June 14, 2018.

On June 12, 2018, the Appeals Office sustained the OIC unit’s rejection of

petitioner’s offer. While determining that petitioner’s reasonable collection poten-

tial ($286,744) was close to the amount offered ($280,000), the Appeals Office -6-

[*6] concluded that acceptance of his offer was not in the Government’s best inter-

est given his history of “blatant disregard for voluntary compliance.” Because

offer acceptance reports are available to the public under section 6103(k)(1), the

Appeals Office concluded that acceptance of petitioner’s OIC would “diminish

future voluntary compliance.”

The June 14, 2018, conference call was held as scheduled. During that call

the SO informed petitioner that the Appeals Office had sustained rejection of his

OIC. The SO advised that petitioner could propose a different collection alterna-

tive, such as an installment agreement. The SO indicated that a proposed install-

ment agreement, accompanied by supporting financial documentation, would need

to be submitted by June 26, 2018. Petitioner declined to make any such submis-

sion. The SO accordingly issued petitioner, on July 20, 2018, a notice of determi-

nation sustaining the NFTL filing for 2006, 2010, 2011, 2013, and 2014. 3

On August 20, 2018, petitioner timely petitioned this Court for review. His

petition purports to challenge the NFTL, not only for 2006, 2010, 2011, 2013, and

3 In an attachment to the notice of determination the SO set forth in a table the relevant tax periods and CDP notice dates. This table includes 2012, but it incorrectly identifies the lien notice for that year as having been issued on October 31, 2017. That was the date on which the IRS issued the lien notice for 2006, 2010, 2011, 2013, and 2014. The lien notice for 2012 was not issued until August 14, 2018, three weeks after the notice of determination was mailed. -7-

[*7] 2014, but also for 2012. He alleged in his petition that the IRS improperly

denied his OIC. He did not dispute his underlying liability for any year.

On July 30, 2019, respondent filed a motion to remand this case for a sup-

plemental CDP hearing. Respondent represented that the SO did not have access

to the complete “Offer in Compromise file” compiled by the OIC unit and by the

Appeals Office when sustaining rejection of petitioner’s OIC. We granted that

motion on August 22, 2019.

After receiving the complete file the SO scheduled a supplemental hearing

for January 28, 2020. During this hearing petitioner agreed in principle to a partial

payment installment agreement (PPIA), under which monthly payments of $2,071

would begin on March 27, 2020. The SO mailed the PPIA to petitioner, instructing

him to execute and return the agreement by March 7, 2020. Petitioner did not re-

turn the PPIA by March 7 or subsequently. Having heard nothing from petitioner,

the SO proceeded to close the case. On March 26, 2020, the day before the first

PPIA payment would have been due, the IRS issued petitioner a supplemental no-

tice of determination sustaining the collection action for 2006, 2010, 2011, 2013,

and 2014. -8-

[*8] On November 10, 2020, respondent filed a motion for summary judgment.

After requesting and receiving several extensions of time, petitioner filed his

response on April 5, 2021. Respondent filed a reply on May 13, 2021.

Discussion

A. Jurisdiction

The Tax Court is a court of limited jurisdiction and may exercise jurisdiction

only to the extent authorized by Congress. See sec. 7442; Ruesch v. Commission-

er, 154 T.C. 289, 294 (2020). In a CDP case such as this, our jurisdiction depends

on the issuance of a notice of determination following a timely request for a CDP

hearing and the filing of a timely petition for review. Sec. 6330(d)(1); Orum v.

Commissioner, 123 T.C. 1, 8, 11-12 (2004), aff’d, 412 F.3d 819 (7th Cir. 2005).

The administrative record fails to establish that the IRS issued petitioner a

notice of determination with respect to 2012. Although the SO referenced 2012 in

an attachment to the notice of determination for 2006, 2010, 2011, 2013, and 2014,

the inclusion of 2012 appears to have been an error. The attachment shows the lien

notice for that year as having been issued on October 31, 2017, but the lien notice

for 2012 was not in fact issued until August 14, 2018, three weeks after the notice

of determination itself was mailed. And there is no reference to petitioner’s 2012

tax year anywhere in the supplemental notice of determination. We accordingly -9-

[*9] conclude that the IRS has not yet made any determination for 2012 that would

confer on this Court jurisdiction over that year.4

B. Summary Judgment Standard

Our decision in this case is appealable to the U.S. Court of Appeals for the

Eighth Circuit. See sec. 7482(b)(1)(G). That court has held that, where de novo

review is not applicable, the scope of review in a CDP case is confined to the ad-

ministrative record. See Robinette v. Commissioner, 439 F.3d 455, 461 (8th Cir.

2006), rev’g 123 T.C. 85 (2004). Petitioner has supplied no reason to believe that

the administrative record in this case is incomplete. Accordingly, in a case such as

this, “summary judgment serves as a mechanism for deciding, as a matter of law,

whether the agency action is supported by the administrative record and is not arbi-

trary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

Belair v. Commissioner, 157 T.C. __, __ (slip op. at 11) (Aug. 2, 2021) (quoting

Van Bemmelen v. Commissioner, 155 T.C. 64, 79 (2020)).

4 Petitioner’s 2012 account transcript indicates that he submitted a CDP hearing request for 2012 on September 20, 2018. But the record does not include a copy of this hearing request, and it is unclear whether petitioner thereby sought a CDP hearing or an “equivalent hearing.” We normally lack jurisdiction to consider a taxpayer’s challenge to the outcome of an equivalent hearing. See Kennedy v. Commissioner, 116 T.C. 255, 263 (2001). - 10 -

[*10] C. Standard of Review

Neither section 6320(c) nor section 6330(d)(1) prescribes the standard of

review that this Court should apply in reviewing an IRS administrative determina-

tion in a CDP case. The general parameters for such review are marked out by our

precedents. Where the validity of the taxpayer’s underlying liability is properly at

issue, we review the IRS’ determination de novo. Goza v. Commissioner, 114

T.C. 176, 181-182 (2000). Where the taxpayer’s underlying liability is not before

us, we review the IRS’ decision for abuse of discretion only. Id. at 182. Because

petitioner did not challenge his underlying tax liabilities at the CDP hearing or in

his petition, our review is for abuse of discretion. Abuse of discretion exists when

a determination is arbitrary, capricious, or without sound basis in fact or law. See

Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.

2006).

D. Abuse of Discretion

In deciding whether the SO abused his discretion in sustaining the collection

action, we consider whether he: (1) properly verified that the requirements of ap-

plicable law or administrative procedure have been met, (2) considered any rele-

vant issues petitioner raised, and (3) considered “whether any proposed collection

action balances the need for the efficient collection of taxes with the legitimate - 11 -

[*11] concern of * * * [petitioner] that any collection action be no more intrusive

than necessary.” Sec. 6330(c)(3). Our review of the record establishes that the SO

properly discharged all of his responsibilities under section 6330(c).

Section 7122(a) authorizes the IRS to compromise an outstanding tax lia-

bility. The statute makes clear that exercise of this authority is discretionary, pro-

viding: “The Secretary may compromise any civil or criminal case arising under

the internal revenue laws.” Ibid. (emphasis added). Possible grounds for compro-

mise include doubt as to collectibility, the ground petitioner urged. See sec.

301.7122-1, Proced. & Admin. Regs. The IRS may compromise a tax liability on

this basis where the taxpayer’s assets and income render full collection unlikely.

Id. para. (b)(2).

We do not independently assess the reasonableness of a taxpayer’s proposal.

Nor do we substitute our judgment for the SO’s as to the acceptability of any par-

ticular offer. See, e.g., Johnson v. Commissioner, 136 T.C. 475, 488 (2011), aff’d,

502 F. App’x 1 (D.C. Cir. 2013). Rather, our review is limited to ascertaining

whether the decision to reject the taxpayer’s offer was arbitrary, capricious, or

without sound basis in fact or law. Murphy, 125 T.C. at 320.

In urging that the IRS abused its discretion, petitioner challenges its determi-

nation that acceptance of his OIC was not in the Government’s best interest. He - 12 -

[*12] asserts that the IRS should have accepted his offer because it represented

“97.6% of what was deemed to be collectable.” Although the IRS’ general policy

is to accept an OIC that reflects the taxpayer’s “reasonable collection potential,”

this is not an ironclad rule.

The Internal Revenue Manual (IRM) provides (and has long provided) that

the IRS may reject an OIC if acceptance would not be in the best interest of the

Government. See IRM pt. 5.8.7.7.1(1) (Dec. 20, 2018); cf. IRM pt. 5.8.7.7.2(1)

(May 10, 2011). “[O]ffers may be rejected on the basis of public policy if accep-

tance might in any way be detrimental to the interests of fair tax administration,

even though it is shown conclusively that the amount offered is greater than could

be collected by any other means.” See IRM pt. 5.8.7.7.2(1). Because reports of

accepted OICs are publicly available, see sec. 6103(k)(1), the IRS may reject an

OIC if it determines that the “public reaction to the acceptance of the offer could

be so negative as to diminish future voluntary compliance,” see IRM pt.

5.8.7.7.2(2).

For two decades (if not longer) petitioner failed to file returns and failed to

pay the tax shown on SFRs that the IRS prepared for him. During this period he

was evidently a successful practitioner in the insurance and finance business. As

of 2016 his outstanding liabilities exceeded $2 million, and he offered to pay only - 13 -

[*13] a small fraction of these liabilities. Because of his lengthy history of

ignoring his tax obligations, the Appeals Office determined that acceptance of his

offer could be viewed as condoning his “blatant disregard for voluntary compli-

ance” and that negative public reaction to acceptance of his offer could lead to

“diminish[ed] future voluntary compliance” by other taxpayers.

Considering petitioner’s history of noncompliance and the magnitude of his

outstanding liabilities, we conclude that the Appeals Office did not act arbitrarily

or capriciously in rejecting his offer. See Hauptman v. Commissioner, 831 F.3d

950, 954 (8th Cir. 2016) (holding that the taxpayer’s history of noncompliance

supplied an adequate basis to reject his OIC), aff’g T.C. Memo. 2014-214. Rejec-

tion of his offer was well within the guidelines set forth in the IRM. We have re-

peatedly held that an SO does not abuse his discretion when he adheres to pub-

lished IRM collection guidelines. See Eichler v. Commissioner, 143 T.C. 30, 39

(2014); Savedoff v. Commissioner, T.C. Memo. 2020-125; Brown v. Commis-

sioner, T.C. Memo. 2019-157.

Petitioner also contends that the SO abused his discretion “by proposing an

installment agreement that exceeded over 50%” of his adjusted gross income and

“by not including Schedule C expenses that would have made * * * [his] payment

significantly lower.” We disagree. During the supplemental hearing the SO dis- - 14 -

[*14] cussed collection alternatives with petitioner, and petitioner agreed in

principle to a PPIA. The terms of the agreement that the SO sent petitioner were

based on the financial information he had supplied. To the extent the proposed

PPIA did not accurately reflect petitioner’s gross income or expenses, he could

have provided relevant documentation to the SO. Instead, petitioner refused

without explanation to return an executed copy of the agreement. After hearing

nothing from petitioner for two months, the SO did not abuse his discretion in

closing the case. See Pough v. Commissioner, 135 T.C. 344, 351 (2010) (“[I]t is

not an abuse of discretion [for an SO] to move ahead if the taxpayer fails to submit

the requested items.”); Bullock v. Commissioner, T.C. Memo. 2017-161, 114

T.C.M. (CCH) 216, 218 (“[A]n SO is not required to negotiate with a taxpayer

indefinitely.”).

Finding no abuse of discretion in any respect, we will grant summary judg-

ment for respondent and sustain the collection action for all years but 2012. We

note that petitioner is free to submit to the IRS at any time, for its consideration

and possible acceptance, a collection alternative in the form of an installment

agreement, supported by the necessary financial information. - 15 -

[*15] To reflect the foregoing,

An appropriate order and decision

will be entered for respondent.