T.C. Memo. 2021-4
UNITED STATES TAX COURT
MICHAEL J. BOETTCHER AND KATHERINE H. BOETTCHER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7127-17L. Filed January 12, 2021.
Joseph A. Buckles II, for petitioners.
William F. Castor and Vassiliki Economides Farrior, for respondent.
MEMORANDUM OPINION
URDA, Judge: In this collection due process (CDP) case petitioners,
Michael J. Boettcher and Katherine H. Boettcher, seek review under section
6330(d)(1)1 of the determination of the Internal Revenue Service (IRS) Office of
1 Unless otherwise indicated, all section references are to the Internal (continued...)
Served 01/12/21 -2-
[*2] Appeals2 to uphold a notice of intent to levy with respect to their 2011, 2012,
and 2013 Federal income tax liabilities, as well as associated interest and additions
to tax. The record before us is insufficient to decide whether the settlement officer
failed to properly consider the installment agreement requested by the Boettchers,
and we will accordingly remand this case for a supplemental hearing.
Background
The parties have submitted this case under Rule 122 for decision without
trial. The Boettchers lived in Oklahoma when they timely filed their petition.
A. The Boettchers’ Tax Liabilities
Mr. Boettcher, a professor at the University of Oklahoma (previously, a
prominent network news correspondent), and Mrs. Boettcher, an attorney, filed
delinquent Federal income tax returns for 2011, 2012, and 2013. On these returns
they reported taxable income of $208,662, $178,104, and $208,713, respectively,
and Federal income tax of $62,139, $42,710, and $52,874, respectively. The
1 (...continued) 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. 2 On July 1, 2019, the Office of Appeals was renamed the Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, sec. 1001, 133 Stat. at 983 (2019). As the events in this case predated that change, we will use the name in effect at the times relevant to this case, i.e., the Office of Appeals. -3-
[*3] Boettchers’ income tax withholdings for these years, however, covered only a
fraction of their reported liabilities.
The IRS assessed for each year the reported tax, an addition to tax for
failure to timely pay tax under section 6651(a)(2), an addition to tax for failure to
pay estimated tax under section 6654, and statutory interest. For 2011 and 2012
the IRS also assessed additions to tax for failure to timely file tax returns under
section 6651(a)(1).3 As of March 16, 2018, the Boettchers’ assessed tax liabilities
for the years at issue totaled $166,874.
B. CDP Proceeding
As part of its efforts to collect the Boettchers’ unpaid 2011, 2012, and 2013
liabilities the IRS issued to each of the Boettchers a notice of intent to levy, which
apprised them of their right to request a CDP hearing. In response the Boettchers
timely submitted Form 12153, Request for a Collection Due Process or Equivalent
Hearing, on which they checked the box for “Installment Agreement”. They did
not identify any other issues.
3 Although the Boettchers did not file a timely 2013 tax return either, the IRS did not assess an addition to tax for failure to timely file a tax return for that year. -4-
[*4] A settlement officer thereafter was assigned to the case and sent the
Boettchers a Letter 4837 scheduling a telephone CDP hearing for September 30,
2016. In the letter the settlement officer represented that during the hearing she
was required to consider “[a]ny relevant issue(s) you wish to discuss”, including
collection alternatives such as an installment agreement. She explained, however,
that consideration of a collection alternative depended on the Boettchers’ filing
their 2014 and 2015 Federal income tax returns, complying with their estimated
tax obligations, and providing certain financial information. Specifically the
settlement officer asked for (1) a Form 433-A, Collection Information Statement
for Wage Earners and Self-Employed Individuals, including (as specified in a
parenthetical) “3 months of receipts: Income, Banks, Investments, Assets-
statements from lenders on loans, monthly payments, payoffs and expenses”, and
(2) signed tax returns for 2014 and 2015.
In September 2016 the Boettchers sent the settlement officer a cover letter
enclosing a Form 433-A and a copy of Mr. Boettcher’s July 2016 pay stub from
the University of Oklahoma. In the letter the Boettchers stated that they were
unable to provide either their 2014 or 2015 tax return. They explained that the
former return had only recently been mailed to the IRS because of problems with
electronic filing and that the return for the latter year was not yet due. -5-
[*5] The Boettchers’ letter also fleshed out their installment agreement request,
proposing a payment plan of $1,000 per month. The Boettchers stated that they
had included the Form 433-A and a pay stub to verify Mr. Boettcher’s earning
information. They further explained that Mrs. Boettcher had been experiencing
medical problems and had not received a paycheck for the preceding three months.
The Boettchers noted that if Mrs. Boettcher’s health problems persisted, “this case
may become a proper candidate for currently not collectible.” Finally, they
offered to provide “any other documentation in support of the information on * * *
[the Form 433-A]” that the settlement officer required.
On their Form 433-A the Boettchers reported monthly net income of $174.
They based this amount on gross monthly income of $7,662--composed of
monthly wages of $5,062 for Mr. Boettcher and $2,500 for Mrs. Boettcher, as well
as oil royalty of $100--and monthly expenses of $7,488. The Form 433-A
identified various bank and credit card accounts, investments, real property,
personal assets, and vehicles that the Boettchers owned. The pay stub attached to
the Form 433-A reported that for July 2016 Mr. Boettcher’s total gross wages
were $8,416, his Federal taxable gross wages were $6,497, and his net pay was
$5,062. -6-
[*6] The settlement officer held the telephone CDP hearing as scheduled.
During the hearing the Boettchers broached the proposed installment agreement,
but the settlement officer took the position that they were not in compliance with
their estimated tax obligations and thus ineligible for a collection alternative. The
Boettchers disagreed, and the settlement officer gave them a week to address this
issue.
The Boettchers responded by letter that they were wage employees not
required to pay estimated tax and again urged discussion of their proposed
installment agreement. The case then lay dormant for the next three months, aside
from multiple phone calls from the Boettchers’ attorney urging consideration of
the proposed installment agreement.
On January 9, 2017, the Boettchers’ attorney again inquired as to the status
of the case, which spurred the settlement officer to review the case file. The
settlement officer concluded that the Boettchers were barred from collection
alternatives on two new, distinct grounds: (1) failure to file their 2015 tax return
and (2) failure to provide the financial material requested in the initial scheduling
letter. The settlement officer informed the Boettchers of the first problem, which
they addressed by sending her a copy of their 2015 return. The settlement officer
did not apprise the Boettchers of the second purported defect. -7-
[*7] On February 16, 2017, the settlement officer analyzed the Boettchers’ case
file, concluding that their proposed installment agreement should be rejected
because they had a greater ability to pay than reflected in their proposal. In her
notes the settlement officer refused to credit the Boettchers’ Form 433-A, stating
that it was not “fully completed”. Specifically, she stated that the Boettchers had
left “bank info and investments blank” on the second page. She also faulted them
for failing to include business income and distributions from the Boettchers’
outside ventures on the fourth page, although she observed at a later point in her
notes that the Boettchers had “no other income/distributions--only wages” in 2016.
The settlement officer also noted that the amount the Boettchers reported “doesn’t
correlate with 2015 agi”.
Having rejected reliance on the Form 433-A, the settlement officer turned to
IRS information return processing transcripts and national and local expense
allowances to determine the Boettchers’ ability to pay.4 On the basis of transcripts
showing that Mr. Boettcher had earned $78,702 and Mrs. Boettcher had earned
$25,000 in 2016, the settlement officer concluded that they earned monthly gross
income of $8,642.
4 Pursuant to Congress’ directive, the IRS has published “national and local allowances” to ensure that taxpayers entering into collection alternatives have adequate means to provide for basic living expenses. Sec. 7122(d)(1) and (2)(A). -8-
[*8] Using an allowable expenses calculator, the settlement officer produced two
different computations of the Boettchers’ expenses, with the first showing monthly
allowable expenses of $4,594 and the second showing monthly allowable
expenses of $7,914. The difference between the two computations turned on the
expense amount associated with “Housing and Utilities”. The first computation
showed $1,530 for this expense, which was the local housing and utility standard
for a family of three in Oklahoma County, Oklahoma, effective March 28, 2016.
The second computation displayed a checkmark in the “Deviation Allowable” box
and reflected an “Actual Amount Claimed” of $4,850 for “Housing and Utilities”.
The settlement officer adopted the lower housing and utility amount of $1,530,
noting in parenthesis “did not provide substantiation”, which resulted in monthly
allowable expenses of $4,594.
On the basis of these monthly income and expense amounts, the settlement
officer concluded that the Boettchers could pay $4,048 monthly toward their tax
liabilities. After setting forth these amounts, the settlement officer noted that her
Letter 4837 “asked tp to provide substantiation on income and expenses”, but that
“[n]o expense info was provided” despite “more than enough time to provide
requested information.” -9-
[*9] In the wake of her review the settlement officer did not speak with the
Boettchers about their proposed installment agreement or request any additional
information. Neither did she provide the expense calculations to them.
Instead, the Office of Appeals issued a notice of determination sustaining
the proposed levy action and rejecting the installment agreement request. As to
the financial information provided by the Boettchers, the notice stated: “We asked
you to provide the requested information to us by September 16, 2016. We
received your correspondence.” The notice further explained: “[W]e considered
your financial information, unfortunately, we were unable to accept your proposal
based on our review of your income and expenses you have the ability to make
larger monthly payments.” The notice concluded that, “[a]fter considering your
monthly income of $8,642.00 and allowable expenses of $4,594.00, you have
disposable income of $4,048.00 a month to pay towards this debt.”
Discussion
I. Standard of Review
We have jurisdiction to review the Office of Appeals’ determination
pursuant to section 6330(d)(1). Where, as here, the underlying tax liabilities are
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. - 10 -
[*10] 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, 97 T.C.M. (CCH) 1109, 1116
(2009). We do not substitute our judgment for that of the Office of Appeals but
consider “whether, in the course of making its determination, the Appeals Office
complied with the legal requirements of an administrative hearing.” Charnas v.
Commissioner, T.C. Memo. 2015-153, at *7.
II. Abuse of Discretion
A. Legal Background
At the CDP hearing a settlement officer must verify that the requirements of
any applicable law or administrative procedure have been met, consider any
relevant issues the taxpayers raised, and consider whether “any proposed
collection action balances the need for the efficient collection of taxes with the
legitimate concern of * * * [the taxpayers] that any collection action be no more
intrusive than necessary.” Sec. 6330(c)(3).
“CDP hearings are designed to be a forum for considering taxpayers’
legitimate disagreement with collection actions.” Charnas v. Commissioner, - 11 -
[*11] at *12. “It is therefore important to question whether a taxpayer’s concerns
have been properly addressed in the CDP hearing.” Id.; see also Blosser v.
Commissioner, T.C. Memo. 2007-323, 2007 WL 3145516, at *4 (“If
section 6330(b) [providing a taxpayer’s right to a fair hearing before a levy is
made] is to be given any force, the Appeals Office must make its determination
* * * after giving adequate consideration to all meritorious issues the taxpayer has
raised during the hearing.”).
B. Analysis
In the CDP proceeding the Boettchers raised only one issue: an installment
agreement of $1,000 per month as a collection alternative. The notice of
determination rejected this proposal, explaining that, “based on our review of your
income and expenses you have the ability to make larger monthly payments.” We
find ourselves unable to properly evaluate whether the settlement officer abused
her discretion in this regard.
As an initial matter, the IRS may reject an installment agreement when a
taxpayer’s monthly net income exceeds the amount he has offered to pay. See
Bero v. Commissioner, T.C. Memo. 2017-235, at *13. Here, relying on the IRS
internal transcripts and the national and local expense allowances published by the
IRS, the settlement officer calculated that the Boettchers could pay $4,048 per - 12 -
[*12] month toward their tax debt, suggesting that she acted within her discretion
in rejecting the Boettchers’ proposal of $1,000 per month.
Multiple unanswered questions cast doubt on the settlement officer’s
analysis, however. First, we note that in calculating the Boettchers’ income and
expenses, the settlement officer rejected the Form 433-A out of hand because of
perceived omissions with respect to “bank info and investments” on the second
page and business income and distributions on the fourth page. But the Form
433-A in the record before us plainly contains bank and investment information.
The settlement officer herself noted that the Boettchers had no income besides
wages in 2016, suggesting that there would be no business income or distributions
to be reported. We are left perplexed as to the reasons for rejecting the Form
433-A.
The settlement officer’s analysis of the Boettchers’ income likewise raises
questions. The settlement officer concluded that the Boettchers earned monthly
gross income of $8,642, deriving this amount from IRS transcripts showing that
Mr. Boettcher earned $78,702 and Mrs. Boettcher earned $25,000 in 2016. Using
the transcript figures Mr. Boettcher ostensibly earned $6,559 per month ($78,702
÷ 12 = $6,559). This amount is plainly inconsistent with his pay stub from the
University of Oklahoma, which showed for July 2016 total gross wages of $8,416, - 13 -
[*13] Federal taxable gross wages of $6,497, and net pay of $5,062. The
settlement officer did not remark on this inconsistency, much less attempt to
reconcile the numbers. Nor do we see a clear explanation for the discrepancy,
particularly in the light of the settlement officer’s observation that Mr. Boettcher
had no outside income in 2016.
We are also concerned about Mrs. Boettcher’s income. In their September
2016 letter to the settlement officer the Boettchers indicated that Mrs. Boettcher
had not received a paycheck in several months and was facing severe health
problems that might force the case into currently not collectible status. The record
before us is unclear as to whether Mrs. Boettcher was able to continue working or
she was forced to retire because of her medical problems. The record further gives
no insight into whether the settlement officer considered whether the $25,000 in
the IRS transcripts reflected ongoing employment or earnings before retirement--
crucial for determining the Boettchers’ monthly income.
We also are troubled by the settlement officer’s approach to the Boettchers’
monthly allowable expenses. The settlement officer generated two different
computations for the Boettchers, which varied only in their treatment of “Housing
and Utilities”. The second computation reflected a “Housing and Utilities”
expense of $4,850, and included a checkmark for “Deviations Allowable”. - 14 -
[*14] Despite the implication that deviations from the local standard were
permitted, the settlement officer nonetheless adopted the local standard for
“Housing and Utilities”, noting in parentheses “did not provide substantiation”.
We fail to track the settlement officer’s reasoning in this regard. If the Boettchers
failed to provide substantiation such that the settlement officer was required to use
the local standard for “Housing and Utilities”, we do not understand why she
apparently would note that deviations from the local standard were allowable. The
settlement officer did not provide the expense calculations to the Boettchers, much
less explain her reasoning to them, and thus the record before us does not clear up
the point.
The resolution of these concerns is not inconsequential. Had the settlement
officer adopted the higher amount suggested for “Housing and Utilities”, the
Boettchers’ monthly net income would have been $728 ($8,642 in income minus
$7,914 in expenses), less than the $1,000 they were proposing to pay under their
installment agreement. The settlement officer’s reasoning in this regard thus is
crucial to determine whether she abused her discretion in rejecting the installment
agreement.
We finally note that the settlement officer chose to reject the Boettchers’
installment agreement outright rather than giving them the opportunity either to - 15 -
[*15] accept the amount she believed they were able to pay or to make a counter
offer. We have previously found an outright rejection in similar circumstances to
constitute an abuse of discretion. See Leslie v. Commissioner, T.C. Memo. 2016-
171, at *28-*29, aff’d, 725 F. App’x 597 (9th Cir. 2018). Again, the record is
silent, offering us no chance to weigh the propriety of the settlement officer’s
determination.
In his briefs respondent defends the rejection of the installment agreement
on the ground that the Boettchers failed to supply the financial information
requested by the settlement officer in her scheduling letter. This purported failure,
however, was not cited in the notice of determination as a reason for rejection. To
the contrary, the notice suggests that the Boettchers’ financial information
sufficed, stating that “[w]e asked you to provide the requested information to us by
September 16, 2016. We received your correspondence” and later, “we considered
your financial information, unfortunately, we were unable to accept your proposal
based on our review of your income and expenses you have the ability to make
larger monthly payments.” We cannot uphold a notice of determination on
grounds other than those actually relied upon by the settlement officer. See SEC
v. Chenery Corp., 332 U.S. 194, 196 (1947); Leslie v. Commissioner, at *27-*28. - 16 -
[*16] In short, we have a number of significant questions about the settlement
officer’s actions in this case that are directly related to our evaluation of the
exercise of her discretion. As the record does not provide answers, we will order a
remand to allow a supplemental hearing in the Office of Appeals that will give the
Boettchers and the settlement officer an opportunity to fill in the blanks,
addressing these and any other issues relevant to the Boettchers’ installment
agreement.5
III. Conclusion
We will remand this case to the Office of Appeals for a supplemental CDP
hearing. See Kelby v. Commissioner, 130 T.C. 79, 86 n.4 (2008). At the hearing
the Boettchers shall present all information that the settlement officer reasonably
requests and that they wish to have considered and analyzed in deciding their
collection alternative request.
5 The Boettchers also dispute the settlement officer’s calculation of their ability to pay, the IRS’ refusal to reopen their case file after the notice of determination was issued, the IRS’ refusal of their Freedom of Information Act request, and the inadmissibility of the notice of determination under Fed. R. Evid. 603. In view of our foregoing conclusion, we see no need to address these issues at this time. - 17 -
[*17] To reflect the foregoing,
An appropriate order will be issued.