T.C. Memo. 2021-97
UNITED STATES TAX COURT
JERRY R. ABRAHAM AND DEBRA J. ABRAHAM, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 760-20L. Filed August 3, 2021.
Jerry R. Abraham and Debra J. Abraham, pro sese.
Derek P. Richman and Daniel C. Munce, for respondent.
MEMORANDUM OPINION
URDA, Judge: In this collection due process (CDP) case petitioners, Jerry
R. Abraham and Debra J. Abraham, seek review pursuant to sections 6320(c) 1 and
6330(d)(1) of the determination by the Internal Revenue Service (IRS) Office of
1 Unless otherwise indicated, all section 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.
Served 08/03/21 -2-
[*2] Appeals to uphold the filing of a notice of Federal tax lien (NFTL) with
respect to their unpaid 2012-16 Federal income tax liabilities.2 The Abrahams
argue that the settlement officer abused her discretion when she rejected their
offer-in-compromise (OIC) of $50,000. The Commissioner has moved for
summary judgment, contending that the settlement officer’s rejection of the OIC
was justified in light of the Abrahams’ disposable income and assets. We agree
and will grant the Commissioner’s motion.
Background
The following facts are based on the parties’ pleadings and motion papers,
including the attached declarations and exhibits. See Rule 121(b). The Abrahams
resided in Michigan when they timely filed their petition.
A. The Abrahams’ Tax Liabilities
Mr. Abraham is a partner at Abraham & Rose, PLC, a Michigan law firm,
while Mrs. Abraham was a teacher until her retirement in 2018. On their 2012-16
Federal income tax returns the Abrahams reported taxable income of $212,891,
$241,832, $269,637, $301,063, and $278,780, respectively, and Federal income tax
due of $55,416, $61,771, $66,987, $79,236, and $69,953, respectively. The
Abrahams, however, failed to fully pay their reported liabilities.
2 On July 1, 2019, the IRS Office of Appeals was renamed the Internal Revenue Service Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, sec. 1001(a), 133 Stat. at 983 (2019). As the events in this case predate that change, we will use the name Office of Appeals in this opinion. -3-
[*3] The IRS assessed for each year the reported liability, an addition to tax for
failure to timely pay under section 6651(a)(2), an addition to tax for failure to pay
estimated tax under section 6654, and statutory interest. As of August 7, 2020, the
Abrahams’ assessed liabilities for these years totaled $204,593.
B. Collection Activities and CDP Proceeding
1. OIC Submission
As part of its efforts to collect the Abrahams’ unpaid 2012-16 liabilities the
IRS issued a notice informing them of the filing of an NFTL with respect to those
years and apprising them of their right to request a CDP hearing pursuant to
section 6320. The Abrahams timely submitted Form 12153, Request for a
Collection Due Process or Equivalent Hearing, on which they indicated their
interest in an OIC.3
The case thereafter was assigned to a settlement officer, who requested that
the Abrahams submit, inter alia, an OIC and supporting documentation. The
Abrahams did so, submitting: (1) Form 656, Offer in Compromise, proposing to
settle their tax liabilities for $50,000, (2) Form 433-A (OIC), Collection
Information Statement for Wage Earners and Self-Employed Individuals, and
(3) their 2017 tax return and supporting financial documentation.
3 On Form 12153, the Abrahams indicated that tax years 2009-11 were also at issue. The Abrahams previously had instituted a CDP proceeding for these years, and the IRS informed them that they were not entitled to challenge them again. -4-
[*4] The Abrahams premised their OIC on doubt as to collectibility, urging
acceptance based upon special circumstances. On Form 656 they asserted that
their liabilities stemmed from a “tax code bias against large families (10 children).”
The Abrahams took the position that Mr. Abraham “is not eligible for SSA benefits
as [a] former federal employee” and predicted “lower income as retirement [is] on
horizon.”
The Abrahams supplied financial details on their Form 433-A (OIC). They
reported monthly household income of $23,000 from Mr. Abraham’s law firm and
expenditures of $22,655. As relevant to this case, they reported food, clothing, and
miscellaneous expenses of $3,122 and religious education expenses of $2,932.
The Abrahams further explained that they supported four of their children (ages 16,
18, 21, and 23), who lived with them.
The Abrahams also identified personal assets on the Form 433-A (OIC):
(1) $3,000 held in a checking account; (2) an individual retirement account (IRA)
with a value of $20,800; (3) their personal residence with net equity of $66,000;
(4) a leased 2018 Nissan Rogue (with a $400 monthly payment); (5) a leased 2017
Infiniti QX50 (with a $552 monthly payment); and (6) clothing, furniture, and
miscellaneous personal effects valued at $5,600. -5-
[*5] 2. Evaluation by Offer Specialist
The settlement officer subsequently transferred the Abrahams’ OIC to the
IRS Centralized Offer in Compromise (COIC) unit for consideration.
a. Correspondence With the Abrahams
In April 2019 an offer specialist from the COIC unit began to analyze the
OIC, asking the Abrahams for documentation to verify their income, expenses, and
assets. The Abrahams complied, providing bank and credit card statements,
insurance policies, vehicle leases, State tax payments, and business and personal
tax returns.
The Abrahams also submitted a revised Form 656, as their initial version
failed to include the required signature page. In addition to providing a signature
page the Abrahams revised their explanation of special circumstances, asserting
that Mr. Abraham would not be entitled to Social Security benefits at retirement
because he had received a lump-sum payment upon leaving Federal Government
service 24 years earlier. They further explained that Mr. Abraham “continues to
support and supplement the families [sic] expenses” even though most of the
Abrahams’ progeny were adults. Finally, the Abrahams represented that they
anticipated the reduction of income and increase of expenses upon the retirement
of Mr. Abraham, who was 63 years old at the time. The parties thereafter had
followup conversations during which they discussed these points in more detail. -6-
[*6] b. Rejection of the OIC
After consideration of the Abrahams’ positions and conducting her own
investigation into their income, expenses, and assets, the offer specialist concluded
that the Abrahams’ OIC should be rejected.
As an initial matter the offer specialist noted that the Abrahams’ three most
recently filed tax returns showed “relatively steady” income amounts. Relying on
the 2018 distribution to Mr. Abraham reported on his law firm’s Form 1065, U.S.
Return of Partnership Income, she calculated a monthly gross income of $31,376.
The offer specialist next concluded that the Abrahams were entitled to claim
$17,215 in monthly living expenses. In reaching this conclusion the offer
specialist determined that the Abrahams could claim two of their children as
dependents, noting that this treatment was consistent with the Abrahams’ tax
returns and the tax returns for the Abrahams’ adult children showed that they had
sufficient income to support themselves. The offer specialist accordingly allowed
$1,786 in food, clothing, and miscellaneous expenses, consistent with the national
and local standards for a household with two dependents. She disallowed,
however, $2,932 in religious education expenses reported by the Abrahams.
Comparing the Abrahams’ monthly income and expenses, the offer specialist
determined that they had monthly disposable income of $14,161. -7-
[*7] Finally, the offer specialist analyzed the Abrahams’ assets. Relying on bank
statements, she determined that the Abrahams had a net realizable equity of
$60,075 in their checking accounts. The offer specialist discovered that Mrs.
Abraham owned a 2005 Honda Accord with a net realizable equity of $5,600,
which was not disclosed on their Form 433-A (OIC). She accepted the claimed
$20,800 value in the Abrahams’ IRA and excluded the claimed $8,790 value of the
Abrahams’ personal effects.
The offer specialist concluded that the Abrahams’ personal residence had a
net realizable equity of $134,283. In reaching this conclusion she considered
county tax records valuing the property at $175,120, as well as Redfin and Zillow
estimates, which valued the property at $305,898 and $250,589, respectively. The
offer specialist valued the property at $223,188, which had been the value used
during the consideration of a prior OIC. The offer specialist then reduced that
amount by 20% to account for the quick sale value of the property and subtracted
the outstanding mortgage balances of $44,267.
The offer specialist subsequently prepared an Asset/Equity Table (AET),
which reflected that the Abrahams had a reasonable collection potential (RCP) 4 of
4 The Commissioner has promulgated guidelines for the evaluation of OICs. See, e.g., Churchill v. Commissioner, T.C. Memo. 2011-182, 2011 WL 3300235, at *3. The calculation of a taxpayer’s RCP occupies a central place in those guidelines. See id.; see also Internal Revenue Manual (IRM) pt. 5.8.5.1 (Mar. 23, 2018). A settlement officer derives the RCP from her estimate of a taxpayer’s -8-
[*8] $688,071 based upon likely future income of $467,313 over 33 months and
net equity in assets of $220,758.5 Finding no doubt as to collectibility and no
special circumstances, the offer specialist concluded that the Abrahams’ OIC
should be rejected.
The offer specialist communicated her conclusion to the Abrahams in
August 2019, explaining that the liability could be paid in full in 33 months on the
basis of the Abrahams’ disposable income. According to the offer specialist’s
notes, Mr. Abraham disagreed with her income and expense calculations. He
contended that, in calculating his monthly disposable income, the offer specialist
had failed to take into account his support of his adult children who were either
underemployed or unemployed. He also challenged the offer specialist’s
downward adjustment of their food, clothing, and miscellaneous expenses and her
disallowance of the religious education expenses. Although the offer specialist
offered a 72-month installment agreement, Mr. Abraham declined.
assets and likely future income. See IRM pt. 5.8.5.4 (Mar. 23, 2018), pt. 5.8.5.20 (Mar. 23, 2018). Likely future income, in turn, is determined by multiplying the taxpayer’s monthly disposable income (gross income minus necessary living expenses) by a certain number of months. See IRM pt. 5.8.5.22 (Oct. 22, 2010), pt. 5.8.5.25 (Mar. 23, 2018).
The offer specialist’s notes reflect that she originally calculated the 5
Abrahams’ likely future income over 12 months. In the AET, however, she used 33 months. -9-
[*9] In August 2019 the offer specialist sent a letter preliminarily rejecting the
Abrahams’ proposed OIC on the ground that the Abrahams “have the ability to pay
[their] liability in full within the time provided by law”. The COIC unit
subsequently transferred the Abrahams’ case file back to the Office of Appeals for
a final determination.
3. CDP Hearing
The settlement officer concurred in the offer specialist’s analysis. She held a
CDP hearing with Mr. Abraham on November 20, 2019, at which she explained
that the Abrahams did not qualify for an OIC because they had sufficient income
and assets to pay their liabilities in full and that there was no indication of any
economic hardship. Like the offer specialist, the settlement officer urged an
installment agreement, which Mr. Abraham rejected. After stating that he “may
file bankruptcy”, Mr. Abraham sought (and received) confirmation that he could
request Tax Court review of the settlement officer’s determination.
On December 12, 2019, the Office of Appeals issued a notice of
determination sustaining both the filing of the NFTL for the years at issue and the
rejection of the Abrahams’ OIC. The notice stated that the OIC was rejected
because the Abrahams had “an ability to full[y] pay [their] tax liability”.
Specifically, the notice explained that the Abrahams had monthly disposable - 10 -
[*10] income of $14,161 and net equity in assets of $220,758, resulting in an RCP
of $688,071 over 33 months.
Discussion
I. Jurisdiction
Before turning to the dispute between the parties over the rejection of the
Abrahams’ OIC, we pause to address a jurisdictional point. In their petition the
Abrahams purport to challenge a notice of determination with respect to their
2012-17 tax years. The notice of determination at issue, however, relates solely to
2012-16. The Abrahams have failed to present any evidence showing that the IRS
issued a notice that would provide us with jurisdiction over 2017, as is their
burden. See David Dung Le, M.D., Inc. v. Commissioner, 114 T.C. 268, 270
(2000), aff’d, 22 F. App’x 837 (9th Cir. 2001). We accordingly dismiss that claim
for lack of jurisdiction. See secs. 6320(c), 6330(d)(1); see also Atl. Pac. Mgmt.
Grp., LLC v. Commissioner, 152 T.C. 330, 333 (2019).
II. Governing Principles
A. Summary Judgment
The purpose of summary judgment is to expedite litigation and avoid costly,
time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90
T.C. 678, 681 (1988). Under Rule 121(b) the Court may grant summary judgment
when there is no genuine dispute as to any material fact and a decision may be - 11 -
[*11] rendered as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C.
518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant
summary judgment, we construe factual materials and inferences drawn from them
in the light most favorable to the nonmoving party. Id. The nonmoving party,
however, may not rest upon the mere allegations or denials of its pleadings but
instead must set forth specific facts showing that there is a genuine dispute for trial.
Rule 121(d); see Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
B. Standard of Review
We have jurisdiction to review the Office of Appeals’ determination
pursuant to sections 6320(c) and 6330(d)(1). Where, as here, the underlying tax
liability is not at issue, we review the determination of the Office of Appeals for
abuse of discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v.
Commissioner, 114 T.C. 176, 182 (2000). In reviewing for abuse of discretion, we
must uphold the Office of Appeals’ determination unless it is arbitrary, capricious,
or without sound basis in fact or law. See, e.g., Murphy v. Commissioner, 125
T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006); Taylor v. Commissioner,
T.C. Memo. 2009-27, 2009 WL 275721, at *9.
III. Abuse of Discretion
The Abrahams contend that the Office of Appeals abused its discretion in
rejecting their OIC. We consider whether the settlement officer: (1) properly - 12 -
[*12] verified that the requirements of any applicable law or administrative
procedure have been met; (2) considered any relevant issues the Abrahams raised;
and (3) considered whether “any proposed collection action balances the need for
the efficient collection of taxes with the legitimate concern of * * * [the Abrahams]
that any collection action be no more intrusive than necessary.” Sec. 6330(c)(3).
Our review of the administrative record establishes that the settlement officer
satisfied all the requirements.
A. Verification
As an initial matter, this Court has authority to review satisfaction of the
verification requirement regardless of whether the taxpayer raised that issue at the
CDP hearing. See Hoyle v. Commissioner, 131 T.C. 197, 200-203 (2008),
supplemented by 136 T.C. 463 (2011). The Abrahams have not challenged
verification, and we conclude, from our review of the record, that the settlement
officer conducted a thorough review of the account transcripts and verified that all
applicable requirements were met. 6
6 “Where the supervisory approval requirement of section 6751(b)(1) applies, the Appeals officer should obtain verification that such approval was obtained”. ATL & Sons Holdings, Inc. v. Commissioner, 152 T.C. 138, 144 (2019). The approval requirement of sec. 6751(b)(1) does not apply to additions to tax under secs. 6651(a)(2) and 6654. See sec. 6751(b)(2)(A). - 13 -
[*13] B. Issue Raised
1. Legal Background
The crux of the controversy here is the settlement officer’s decision to
sustain the offer specialist’s rejection of the Abrahams’ OIC of $50,000.
Section 7122(a) authorizes the Secretary to compromise an outstanding tax liability
on grounds including doubt as to collectibility, the ground that the Abrahams
urged. See sec. 301.7122-1(b)(2), Proced. & Admin. Regs. The Secretary may
compromise a tax liability on this basis where the taxpayer’s assets and income
render full collection unlikely. Id. Conversely, the Secretary may reject an OIC
when the taxpayer’s RCP exceeds the amount he proposes to pay. See Johnson v.
Commissioner, 136 T.C. 475, 486 (2011), aff’d, 502 F. App’x 1 (D.C. Cir. 2013).
Generally, a settlement officer is directed to reject any offer substantially below the
taxpayer’s RCP unless special circumstances justify acceptance of such an offer.
See Mack v. Commissioner, T.C. Memo. 2018-54, at *10; Rev. Proc. 2003-71,
sec. 4.02(2), 2003-2 C.B. 517, 517.
In reviewing the settlement officer’s determination we do not make an
independent evaluation of what would be an acceptable collection alternative. See
Thompson v. Commissioner, 140 T.C. 173, 179 (2013); Murphy v. Commissioner,
125 T.C. at 320; see also Randall v. Commissioner, T.C. Memo. 2018-123, at *9.
Rather, our review is limited to determining whether the settlement officer abused - 14 -
[*14] her discretion--that is, whether her decision to reject a taxpayer’s offer was
arbitrary, capricious, or without sound basis in fact or law. See Thompson v.
Commissioner, 140 T.C. at 179; see also Murphy v. Commissioner, 125 T.C.
at 320. A settlement officer does not abuse her discretion when she relies on
relevant Internal Revenue Manual (IRM) provisions in evaluating collection
alternatives. Eichler v. Commissioner, 143 T.C. 30, 39 (2014).
2. Analysis of the OIC
The settlement officer’s decision to reject the Abrahams’ $50,000 OIC was
not an abuse of discretion in light of the financial analysis of the Abrahams’
income, expenses, and assets, which showed monthly disposable income of
$14,161 and equity in assets of $220,758. Although the Abrahams raise several
objections to the financial analysis, none disturb the bottom-line conclusion that
the Abrahams’ monthly disposable income and available assets vastly exceeded
their OIC and justified the settlement officer’s rejection.
a. RCP
The Abrahams contend that the financial analysis contained three flaws
affecting the RCP. They assert that the offer specialist’s financial analysis
incorrectly disallowed monthly religious education expenses of $2,932 for their
dependent daughters in violation of the Religious Freedom Restoration Act of
1993, Pub. L. No. 103-141, 107 Stat. 1488. The Abrahams further argue that the - 15 -
[*15] financial analysis incorrectly included as assets $61,075 “set aside for taxes
and IRA contributions.” Finally, they contend that the financial analysis
incorrectly computed the RCP by multiplying the monthly disposable income by
33 months rather than 12 months.
Assuming, arguendo, that the Abrahams are correct in each regard, we
nonetheless will uphold the settlement officer’s decision to reject the Abrahams’
OIC. We have previously explained that “even if the settlement officer made
errors in calculating * * * [the taxpayer’s] RCP, we will uphold his decision when
the taxpayer’s offer is far less than the correct RCP.” Alphson v. Commissioner,
T.C. Memo. 2016-84, at *25; see also Gustashaw v. Commissioner, T.C.
Memo. 2018-215, at *24. If the Abrahams are correct on each of their arguments,
their monthly disposable income would be $11,229 ($14,161 − $2,932), their likely
future annual income would be $134,748 ($11,229 × 12), and the net equity in their
assets would be $159,683 ($220,758 − $61,075). Even if the financial analysis
contained the errors that the Abrahams suggest, the RCP would still be $294,431--
nearly six times their $50,000 OIC. Given that the Abrahams’ OIC is far less than
the RCP, even if they were to prevail on each argument, we would uphold the
settlement officer’s decision to reject the OIC.7
In their response to the motion for summary judgment the Abrahams also 7
contend that the settlement officer abused her discretion by not performing a bankruptcy analysis, as purportedly required by IRM pt. 8.23.3.3.2.3(2) (Aug. 18, - 16 -
[*16] b. Special Circumstances
The Abrahams assert that the settlement officer failed to properly consider
special circumstances when she rejected their OIC. See IRM pt. 5.8.11.2(2)
(Oct. 4, 2019). In this context special circumstances include: (1) facts
demonstrating that the taxpayer would suffer “economic hardship” if the IRS were
to collect from him an amount equal to the RCP and (2) compelling public policy
or equity considerations that provide sufficient basis for compromise. See Murphy
v. Commissioner, 125 T.C. at 309; McClanahan v. Commissioner, T.C.
Memo. 2008-161, 2008 WL 2550665, at *3; sec. 301.7122-1(b)(3), Proced. &
Admin. Regs.; IRM pt. 5.8.4.2(4) (May 10, 2013).
The Abrahams fail to show any special circumstances that would weigh
against rejection of their OIC. The Abrahams focus on their retirement prospects,
asserting that Mr. Abraham’s age and his ineligibility for pension and Social
Security benefits from his Federal service constitute special circumstances.
2017), in response to Mr. Abraham’s statement at the CDP hearing that he “may file bankruptcy.” The IRM “does not have the force of law and does not confer rights on taxpayers.” Fargo v. Commissioner, 447 F.3d 706, 713 (9th Cir. 2006), aff’g T.C. Memo. 2004-13. In any event, IRM pt. 8.23.3.3.2.3(2) states that “[s]hould the taxpayer state an intent to file bankruptcy”, the settlement officer should “make a general analysis of collectibility and the liabilities that would be discharged.” As explained at length, such an analysis had been performed by the offer specialist and adopted by the settlement officer, and that analysis demonstrated that the Abrahams could fully pay their outstanding liabilities. - 17 -
[*17] We disagree. Mr. Abraham’s income was “relatively steady” in the years
before the CDP hearing, with the 2018 tax return for Mr. Abraham’s law firm
indicating a distribution to him of $373,300 in that year. The Abrahams fail to
explain why, given Mr. Abraham’s level of education and the nature of his work,
his age (63 years old) would suggest a significant diminution of his income. See
Bergevin v. Commissioner, T.C. Memo. 2008-6, 2008 WL 123931, at *11 (finding
no abuse of discretion in settlement officer’s decision to not treat ages of 70 and 71
as a special circumstance); see also Brombach v. Commissioner, T.C. Memo.
2012-265, at *23-*25 (finding no abuse of discretion in declining to treat prospect
of retirement as a special circumstance). And the fact that Mr. Abraham chose to
relinquish pension and Social Security benefits from his Federal service in
exchange for a lump-sum payment in 1995 is of no moment to the current analysis.
Neither Mr. Abraham’s age nor his ineligibility for benefits from his long-
ago Federal service suggests that the Abrahams would face looming economic
hardship if the IRS were to collect an amount equal to the RCP. 8 And neither
supplies compelling public policy or equity considerations that would justify
compromising the Abrahams’ liabilities.
In summary, we conclude that the settlement officer did not abuse her
discretion in rejecting the Abrahams’ OIC.
8 Of course, if the Abrahams’ financial circumstances change, they are free to submit another OIC to the IRS for consideration. See sec. 6330(d)(3)(B). - 18 -
[*18] C. Balancing
The Abrahams do not allege on petition or argue at any later point that the
settlement officer failed to consider “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.” See
sec. 6330(c)(3)(C). They thus have conceded this issue. See Rule 331(b)(4);
see also Ansley v. Commissioner, T.C. Memo. 2019-46, at *19. In any event the
settlement officer expressly concluded in the notice of determination that the filing
of the NFTL balanced the need for efficient tax collection with the Abrahams’
legitimate concern about intrusiveness because they provided neither a valid
justification to withdraw the lien nor a viable collection alternative. Again, we see
no abuse of discretion.
IV. Conclusion
Finding no abuse of discretion in any respect, we will grant summary
judgment to the Commissioner and affirm the IRS’ determination to sustain the
collection action for the years at issue.
To reflect the foregoing,
An appropriate order and decision
will be entered.