T.C. Memo. 2021-34
UNITED STATES TAX COURT
THOMAS L. SIEBERT AND DEBORAH S. SIEBERT, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25685-15L. Filed March 15, 2021.
Glen E. Frost and Rebecca J. Sheppard, for petitioners.
Erin K. Neugebauer, for respondent.
MEMORANDUM OPINION
JONES, Judge: In this collection due process (CDP) case petitioners seek
review pursuant to section 6330(d)(1)1 of a determination by the Office of Appeals
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 (continued...)
Served 03/15/21 -2-
[*2] (Appeals or Appeal Office) of the Internal Revenue Service (IRS) to proceed
with a proposed levy action to collect their unpaid Federal income tax liability for
the 2013 tax year. Respondent has moved for summary judgment pursuant to Rule
121, contending that there are no disputes of material fact and judgment may be
rendered as a matter of law.
For the reasons discussed below, we conclude that the settlement officer did
not abuse her discretion in sustaining the proposed collection action. No disputes
of material fact remain. Accordingly, we will grant respondent’s motion for
summary judgment.
Background
The following facts are based on the parties’ pleadings and motion papers,
including the attached declarations and exhibits.
I. Petitioners
Petitioners are married and resided in Washington, D.C., when the petition
was filed with the Court. Mr. Siebert is an attorney who ran his own law practice.
Both petitioners are business owners. Mrs. Siebert is the sole member of Siebert
Consulting, and Mr. Siebert is the owner of Siebert Corp. Petitioners timely filed
1 (...continued) nearest dollar. -3-
[*3] (with an extension) their 2013 tax return, and the IRS assessed the resulting
liability, which petitioners did not pay upon notice and demand.
II. IRS Collection Actions
A. Notice of Intent to Levy
On April 27, 2015, the IRS sent petitioners a Notice CP90, Notice of Intent
to Seize Your Assets and Notice of Your Right to a Hearing. On May 27, 2015,
the IRS timely received petitioners’ Form 12153, Request for a Collection Due
Process or Equivalent Hearing. Petitioners indicated they wished to obtain a
collection alternative of an offer-in-compromise (OIC), an installment agreement
(IA), or currently not collectible (CNC) status.2
2 Petitioners also indicated they were eligible for an abatement, but they did not provide information in support of this request. The IRS presumed that petitioners abandoned their penalty abatement argument. The record is devoid of any evidence that petitioners argued the issue of abatement, either in the CDP hearing or this proceeding. It was incumbent upon petitioners to raise this issue, and Appeals did not abuse its discretion by declining to raise this argument sua sponte. See Ramdas v. Commissioner, T.C. Memo. 2013-104, at *40-*41. Absent special circumstances, we do not have authority to consider sec. 6330(c)(2) issues that were not raised before Appeals. See Giamelli v. Commissioner, 129 T.C. 107, 115 (2007); Magana v. Commissioner, 118 T.C. 488, 493-494 (2002). Consequently, we do not overturn Appeals’ determination on the basis of its nonruling. -4-
[*4] B. CDP Hearings
1. First CDP Hearing
Appeals assigned petitioners’ case to Appeals Officer June L. Lee (AO
Lee). In a letter dated July 9, 2015, AO Lee scheduled petitioners’ CDP hearing
for September 1, 2015, and requested that they provide financial documentation to
support their claims by July 30, 2015. Petitioners failed to provide the requested
information to AO Lee before the CDP hearing.
Petitioners did not challenge their underlying liability for the 2013 tax year
during the CDP hearing.3 However, during the hearing petitioners’ representative
requested a 14-day extension to provide updated financial documentation to reflect
a change in their financial circumstances. According to petitioners, AO Lee orally
granted petitioners’ representative an additional 14 days to provide updated
financial information.
But AO Lee’s case notes reflect that she denied petitioners’ request. AO
Lee determined that petitioners did not provide sufficient information before or
during the CDP hearing. On September 10, 2015, Appeals issued the notice of
3 Notice CP90, dated April 27, 2015, lists the total amount owed for the 2013 tax year as $34,108. -5-
[*5] determination, which sustained the proposed levy action. Petitioners timely
filed their petition in this Court on October 9, 2015.4
On August 2, 2016, respondent and petitioners filed a joint motion to
remand, and we granted it on August 4, 2016. The purpose of the remand was to
give petitioners the opportunity to submit financial information for consideration
of a collection alternative.
2. Remanded CDP Hearing--Initial Communications
Petitioners’ remanded CDP hearing was assigned to Settlement Officer
Denise Walsh (SO Walsh) in the Appeals Office in Holtsville, New York. She
reviewed petitioners’ administrative file and transcript and confirmed that the IRS
properly assessed the 2013 liability and met all other requirements of applicable
law and administrative procedure. She noted that petitioners had a balance due
when they requested a CDP hearing and that their balance remained outstanding.
On August 25, 2016, SO Walsh spoke to petitioners’ representative by
telephone and scheduled a conference call for September 15, 2016. Petitioners’
representative stated that petitioners would submit an OIC for consideration, and
SO Walsh requested that they submit a completed Form 433-A, Collection
4 We note that respondent’s answer includes several typographical errors, but it nevertheless provides a sufficient response to the petition. -6-
[*6] Information Statement for Wage Earners and Self-Employed Individuals. On
September 14, 2016, SO Walsh received a fax from petitioners’ representative
which included copies of petitioners’ Form 656, Offer in Compromise, and Form
433-A. Petitioners’ OIC proposed to compromise their unpaid tax liabilities for
the 2013 tax year as well as the 2001, 2003-05, 2008-12, and 2015 tax years
(which at that time totaled approximately $645,314).5 Petitioners proposed to
settle their total outstanding tax liability of $645,314 with a lump-sum payment of
$12,443. Petitioners enclosed a $2,489 check at the time of submission,
representing a 20% downpayment, with the remaining balance payable within five
months of acceptance. Petitioners premised their OIC on doubt as to collectibility.
During the conference call held on September 15, 2016, SO Walsh decided
that petitioners’ OIC would be considered first by the IRS’ OIC unit. She
suspended the remanded CDP hearing until the OIC unit completed its review.
3. Evaluation by OIC Offer Specialist
Petitioners’ OIC was assigned to an offer specialist in the OIC unit,
Revenue Officer Chris Pugh (RO Pugh or offer specialist), for evaluation. During
the review of petitioners’ OIC, RO Pugh considered all of petitioners’ claimed
5 The record includes different figures to refer to petitioners’ total outstanding tax liability. For simplicity, throughout this opinion we refer to petitioners’ total outstanding tax liability as $645,314. -7-
[*7] income sources and necessary living expenses. He used an average of
petitioners’ taxable income from the immediate past three years (2013, 2014, and
2015) as reported on their income tax returns, and determined that their average
monthly income was $20,988. In contrast, petitioners claimed a monthly income
of $7,068 on their Form 433-A.
RO Pugh determined that petitioners’ necessary monthly living expenses
totaled $5,838, rather than the $9,230 they claimed. He disallowed petitioners’
claimed secured debts of $3,098 as unsubstantiated and allowed only $50 for life
insurance rather than the claimed $344. RO Pugh allowed $500 for petitioners’
tax expense. He also reviewed petitioners’ assets and equity and determined that
they had artwork with a net realizable equity of $20,000 and vehicles with a net
realizable equity of $3,334.
RO Pugh found that petitioners formed, owned, and operated their own
business entities throughout their careers. Despite owning and operating Siebert
Corp. and Siebert Consulting, petitioners did not provide RO Pugh with adequate
proof of income and expenses from the businesses. RO Pugh also noted that some
of the bank deposits from the Siebert Consulting account were from a personal
account. -8-
[*8] RO Pugh noted that petitioners failed to comply with a previously granted
IA entered in 2014. In that IA, petitioners agreed to pay $2,000 per month for 12
months to allow time for them to adjust their expenses and to pay $10,071 per
month thereafter. No payments of $10,071 were received by the IRS. RO Pugh
commented that petitioners instead filed the OIC. He remarked that it appeared to
him that petitioners made estimated payments only to keep alive their hopes of
securing approval of an OIC.
RO Pugh documented that Mr. Siebert’s Social Security income of $2,300
per month was being paid to his brother for an alleged unsecured loan. He stated
that this seemed to be clear verification of petitioners’ ability to pay at least the
amount of Mr. Siebert’s Social Security check towards their outstanding tax
liability.
RO Pugh observed that Mr. Siebert had sold his partnership interest for
$171,546 in 2015 and that the proceeds from the sale of the partnership interest
were not used to pay petitioners’ outstanding tax liability. RO Pugh also remarked
that petitioners had previously agreed to use the proceeds from a section 401(k)
account (section 401(k) account) to pay a portion of their outstanding tax liability.
He determined that in 2015 petitioners had dissolved the section 401(k) account
with a value of $151,000, yet the IRS did not receive any payments from the -9-
[*9] proceeds. RO Pugh noted that petitioners did not report the income from the
liquidation of the section 401(k) account on their 2015 tax return.
RO Pugh asked petitioners to substantiate the expenses they paid with the
proceeds from the section 401(k) account. In their response to respondent’s
motion for summary judgment, petitioners argue that they submitted
documentation to RO Pugh on January 16, 2017, to show that the proceeds from
the section 401(k) account and the sale of Mr. Siebert’s partnership interest were
used primarily for ordinary and necessary living expenses. After reviewing the
documentation, RO Pugh concluded that petitioners did not adequately show that
any of the submitted payments were directly traceable to the proceeds from the
section 401(k) account. RO Pugh noted that the expenses petitioners submitted
were payments to creditors for landscaping, legal fees, security, insurance
payments, State of Maryland tax payments, and payments of personal loans. RO
Pugh determined that the funds were not used for ordinary and necessary living
expenses nor were the expenses categorized as debts that had priority over a
Federal income tax liability.
With respect to the sale of Mr. Siebert’s partnership interest, petitioners did
not provide RO Pugh with proof of expenses that were paid with funds from the
sale. RO Pugh included both the proceeds from the section 401(k) account and the - 10 -
[*10] sale of the partnership as dissipated assets in the calculation of petitioners’
assets and equity to determine petitioners’ reasonable collection potential (RCP).
RO Pugh determined that petitioners had $345,880 of assets that could be
used to pay their outstanding tax liability. He calculated that petitioners’ RCP was
$2,012,380. He concluded that petitioners’ RCP was full payment of their
outstanding tax liability and recommended rejection of their OIC as not in the best
interest of the Government.
RO Pugh explained his reasoning in a narrative report. Specifically, the
offer specialist indicated that petitioners had “an egregious history of
noncompliance” spanning 15 years and neglected to pay their tax debts even when
they had the means to do so. RO Pugh also considered that petitioners had a large
outstanding tax liability. Citing Internal Revenue Manual (IRM) pt. 5.8.7.7.1(3)
(Oct. 7, 2016), he observed that petitioners had failed to pay Federal income tax
for the last eight consecutive years. He also observed that during the years of
petitioners’ noncompliance, they lived in a home valued at $4 million and paid
large expenses associated with their lifestyle.
RO Pugh remarked that petitioners were educated and competent
individuals. He indicated that Mr. Siebert has a high upside for potential increases
in income, despite his age, on the basis of prior evidence of his ability to earn. He - 11 -
[*11] wrote that after 15 years of noncompliance, petitioners then claimed their
ability to earn had crashed, which timely coordinated with the submission of an
OIC.
RO Pugh concluded that acceptance of petitioners’ offer to pay $12,443 to
settle their outstanding tax liability of $645,314 would be grossly unfair to
taxpayers who may have sacrificed a certain lifestyle to remain in compliance. He
discussed his findings with petitioners’ representative by telephone on February
13, 2017. Petitioners received a letter dated April 12, 2017, informing them that
the OIC unit’s preliminary decision was to reject their proposed OIC because
acceptance of the offer was not in the best interest of the Government. The letter
also informed them that the final determination would be made by the Appeals
Office during the CDP hearing.
4. Remanded Hearing--Additional Communications
Before receipt of the April 12, 2017, letter, petitioners’ representative
notified SO Walsh of the OIC unit’s preliminary decision and requested that
petitioners’ account be placed in CNC status. Petitioners’ representative premised
this request on the income reported on petitioners’ 2016 tax return, which reflected
monthly income of $3,542. Because this amount was less than the monthly - 12 -
[*12] allowable expenses of $5,838, petitioners’ representative argued that
petitioners had no disposable income to pay toward their outstanding tax liability.
SO Walsh received the OIC file from RO Pugh on April 19, 2017. She
reviewed the OIC, the offer specialist’s narrative report, and the case history. On
May 17, 2017, SO Walsh and petitioners’ representative discussed the proposed
OIC and RO Pugh’s calculations. Petitioners again did not challenge their
underlying liability for the 2013 tax year during the CDP hearing.
Petitioners disagreed with RO Pugh’s method of calculating their average
monthly income. Specifically, they objected to RO Pugh’s use of their taxable
income from the tax years 2013, 2014, and 2015, which resulted in an average
monthly income of $20,988. Petitioners proposed using their adjusted gross
income from 2015 and 2016, resulting in an average monthly income of $4,409.
SO Walsh determined that petitioners’ proposal was calculated using only their
taxable Social Security income rather than the full amount of income received. SO
Walsh reviewed RO Pugh’s work on petitioners’ case and decided to continue
generally with RO Pugh’s approach.
In reviewing the calculation of petitioners’ average monthly income and
expenses, SO Walsh determined that RO Pugh incorrectly included a one-time
individual retirement account distribution from 2014. She recalculated - 13 -
[*13] petitioners’ average monthly income to be $10,905, instead of $20,988. She
accepted the allowed expenses of $5,838, as calculated by RO Pugh. Accordingly,
SO Walsh determined that petitioners’ monthly disposable income was $5,067
after allowing monthly expenses ($10,905 ! $5,838). She calculated that
petitioners’ future income value was $557,370. SO Walsh also recalculated
petitioners’ equity in assets to be $349,331. She lowered the potential collection
amount from petitioners’ artwork and vehicles. But SO Walsh continued to
include the proceeds from the section 401(k) account and the sale of the
partnership interest, which were dissipated in 2015. SO Walsh determined that
petitioners’ RCP was $906,701 ($557,370 + $349,331).
On May 22, 2017, petitioners’ representative faxed SO Walsh a letter in
which petitioners again disputed the method by which the OIC unit and Appeals
calculated their average monthly income. Petitioners’ representative argued that
petitioners’ decrease in income was permanent and disagreed with the calculation
of petitioners’ tax expense. SO Walsh requested that petitioners’ representative
provide her with a calculation of the tax expense. She did not receive it. Rather,
petitioners’ representative proposed a monthly IA of $1,000 on the basis of
petitioners’ 2016 gross monthly income and monthly allowable expenses. - 14 -
[*14] SO Walsh prepared Form 14559, Appeals Offer in Compromise
Memorandum (OIC Memo). Although SO Walsh calculated petitioners’ RCP as
higher than petitioners’ proposed OIC, she did not recommend rejection on this
ground. Instead she upheld the rejection of petitioners’ proposed OIC as not in the
best interest of the Government.
In the OIC Memo, SO Walsh noted that there was equity in petitioners’
artwork, the value of which they did not include in their offer. She referenced RO
Pugh’s observation that Mr. Siebert was paying his Social Security benefit of
$2,300 to his brother for an alleged unsecured loan. SO Walsh rejected the
proposed IA of $1,000 per month because her financial analysis determined that
petitioners had a greater ability to pay.
On June 26, 2017, SO Walsh informed petitioners’ representative of her
decision to reject the OIC as not in the best interest of the Government. On
August 17, 2017, Appeals issued the supplemental notice of determination, which
sustained the proposed levy. The supplemental notice of determination indicated
that SO Walsh verified that all requirements of applicable law and administrative
procedure had been met.
In the supplemental notice of determination, Appeals concurred with the
OIC unit that petitioners’ OIC should be rejected because it was not in the best - 15 -
[*15] interest of the Government. This decision was based on: (1) petitioners’
“egregious compliance history”; (2) petitioners’ high income and commensurate
lifestyle; combined with (3) petitioners’ failure to turn over funds that would have
been available to pay delinquent tax. Appeals repeated the observation that
petitioners’ noncompliance spanned 15 years, including the last 8 consecutive
years in which they had not paid Federal income tax. Appeals also noted that
petitioners’ outstanding tax liability when they submitted their OIC was $645,314.
Appeals stated in the supplemental notice of determination that petitioners were
high-income earners who enjoyed a commensurate lifestyle during the period in
which their tax was not paid, yet they neglected to pay tax even when they
possessed the means to do so. In the notice, Appeals reviewed the prior instances
in which the IRS had reached agreements with petitioners for payment of their tax
liabilities but did not receive payment.
The notice ended with a balancing analysis in which Appeals rejected
petitioners’ OIC as not in the Government’s best interest and rejected the proposed
IA, which called for a monthly payment of $1,000 because Appeals’ financial
analysis determined that petitioners had a greater ability to pay. Appeals
concluded that the proposed levy action balanced the need for efficient collection - 16 -
[*16] of tax with petitioners’ concern that collection be no more intrusive than
necessary.
On March 13, 2018, petitioners submitted financial information to Appeals
in which they proposed an IA of $2,500 per month.
Discussion
I. Summary Judgment Standard
The purpose of summary judgment is to expedite litigation and avoid an
unnecessary (and potentially expensive) trial. Fla. Peach Corp. v. Commissioner,
90 T.C. 678, 681 (1988). Summary judgment may be granted where there is no
genuine dispute of material fact and a decision may be rendered as a matter of law.
Rule 121(b); see 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. Sundstrand Corp. v. Commissioner,
98 T.C. at 520. The nonmoving party may not rest upon the mere allegations or
denials in its pleadings but 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). - 17 -
[*17] We have reviewed respondent’s motion for summary judgment, petitioners’
response, respondent’s reply, and all of the documents submitted in support of
these filings. We are satisfied that we may decide this case on summary judgment
and that, for the reasons detailed below, respondent is entitled to a decision as a
matter of law with respect to the collection action at issue.
II. Standard of Review
Petitioners do not challenge the validity or amount of their underlying
Federal income tax liability for 2013. Therefore, we will review Appeals’
determination for abuse of discretion. See Goza v. Commissioner, 114 T.C. 176,
182 (2000); see also Sego v. Commissioner, 114 T.C. 604, 610 (2000). When we
remand a case to the Appeals Office, and it returns to us after a supplemental
determination is issued, we review the supplemental determination. Hoyle v.
Commissioner, 136 T.C. 463, 467-468 (2011), supplementing 131 T.C. 197
(2008).
An 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); Woodral v. Commissioner, - 18 -
[*18] 112 T.C. 19, 23 (1999).6 In considering a taxpayer’s qualification for a
collection alternative, such as an IA, a settlement officer does not abuse her
discretion by relying on guidelines set forth in the IRM. See Orum v.
Commissioner, 123 T.C. 1, 13 (2004), aff’d, 412 F.3d 819 (7th Cir. 2005);
Margolis-Sellers v. Commissioner, T.C Memo. 2019-165, at *40; Aldridge v.
Commissioner, T.C. Memo. 2009-276, 2009 WL 4282048, at *5. We do not
substitute our own judgment for that of the Appeals officer; i.e., we do not conduct
an independent determination of what would be an acceptable collection
alternative. See, e.g., Johnson v. Commissioner, 136 T.C. 475, 488 (2011), aff’d,
502 F. App’x 1 (D.C. Cir. 2013).
Rather, in reviewing the settlement officer’s determinations for abuse of
discretion, we consider whether she: (1) properly verified that the requirements of
applicable law or administrative procedure have been met, (2) considered any
relevant issues petitioners raised, and (3) considered whether any proposed
collection action balances the Government’s need for the efficient collection of
taxes with petitioners’ legitimate concern that any collection action be no more
6 A decision based on an erroneous view of the law or a clearly erroneous assessment of facts would constitute an abuse of discretion. Keller v. Commissioner, 568 F.3d 710, 716 (9th Cir. 2009) (citing Fargo v. Commissioner, 447 F.3d 706, 709 (9th Cir. 2006), aff’g T.C. Memo. 2004-13), aff’g in part T.C. Memo. 2006-166, and aff’g in part, vacating in part decisions in related cases. - 19 -
[*19] intrusive than necessary. See sec. 6330(c)(3); Sego v. Commissioner, 114
T.C. at 609. Our review of the record establishes that SO Walsh satisfied all three
of these requirements.
III. OIC
A. Not in the Best Interest of the Government
In their response to respondent’s motion for summary judgment, petitioners
challenged SO Walsh’s decision to reject their OIC. The Secretary can
compromise an outstanding tax liability on three grounds: (1) doubt as to liability,
(2) doubt as to collectibility, or (3) the promotion of effective tax administration.
See sec. 7122(a); sec. 301.7122-1(b), Proced. & Admin. Regs. The Secretary may
execute a compromise based on doubt as to collectibility--the ground that
petitioners advanced in their OIC--in situations in which the taxpayer’s assets and
income are less than the full amount of the tax liability. See sec. 301.7122-
1(b)(2), Proced. & Admin. Regs.
Generally, an OIC based on doubt as to collectibility will be accepted if it is
unlikely that the tax can be collected in full and the offer reasonably reflects the
amount the IRS could obtain through other means. See Rev. Proc. 2003-71, sec.
4.02(2), 2003-2 C.B. 517, 517. The Commissioner created guidelines for
settlement officers to follow when evaluating OICs. See id. sec. 2.02. Generally, - 20 -
[*20] the Commissioner will reject an offer based on doubt as to collectibility
when the taxpayer’s RCP exceeds the amount he proposes to pay, absent a
showing of special circumstances. See id. sec. 4.02(2); see also Johnson v.
Commissioner, 136 T.C. at 486.
We judge the settlement officer’s determination on the ground that Appeals
relied upon. See SEC v. Chenery Corp., 332 U.S. 194, 196 (1947); see also
Antioco v. Commissioner, T.C. Memo. 2013-35, at *25. In this case the
supplemental notice of determination explains that petitioners’ OIC was rejected
because its acceptance would not be in the best interest of the Government.
The Commissioner may reject an OIC as not being in the best interest of the
Government in certain circumstances. See IRM pt. 5.8.7.7.1(1) (Oct. 7, 2016); see
also Hauptman v. Commissioner, 831 F.3d 950 (8th Cir. 2016), aff’g T.C. Memo.
2014-214; Elkins v. Commissioner, T.C. Memo. 2020-110, at *23. The IRS may
consider public policy and tax administration concerns when evaluating whether
an offer is acceptable. See IRM pt. 5.8.7.7.1. Reasons for rejection under these
IRS guidelines include a taxpayer’s “egregious history of past noncompliance, as
evidenced by the taxpayer’s failure to report all of their income on recent tax years
and by failing to pay the tax liability when they had the means to do so.” See id.
at (3). Rejection of an OIC as not in the best interest of the Government is not an - 21 -
[*21] abuse of discretion if Appeals has considered all of the facts and
circumstances of the case and its reasoning is thoroughly explained in the notice of
determination. Hauptman v. Commissioner, at *20-*22 (citing Bennett v.
Commissioner, T.C. Memo. 2008-251, and Oman v. Commissioner, T.C. Memo.
2006-231); sec. 301.7122-1(c)(1), Proced. & Admin. Regs.
SO Walsh sustained RO Pugh’s rejection of petitioners’ OIC as not in the
best interest of the Government. See IRM pt. 5.8.7.7.1. In the supplemental
notice of determination, Appeals echoed RO Pugh’s finding that petitioners had an
egregious history of noncompliance coupled with their failure to pay income tax
when they had the means to do so. Appeals observed that petitioners’
noncompliance spanned 15 years, including the last 8 consecutive years during
which petitioners had not paid Federal income tax. Appeals noted that petitioners’
outstanding tax liability when they submitted their OIC was $645,314.
Appeals also stated in the supplemental notice of determination that
petitioners were high-income earners who had enjoyed a commensurate lifestyle
during the period in which their tax was not paid yet had not turned over funds
that would have been available to pay delinquent tax. Finally, Appeals reviewed
prior instances in which the IRS had reached agreements with petitioners for
payment of their tax liabilities but did not receive payment. Considering the above - 22 -
[*22] factors, Appeals’ reasoning for the rejection of petitioners’ OIC is
thoroughly explained in the supplemental notice of determination. We now
consider whether Appeals considered all of the facts and circumstances of
petitioners’ case.
B. Petitioners’ Arguments
Petitioners argue that Appeals did not review and consider the
documentation they provided. Specifically, they allege that RO Pugh and SO
Walsh incorrectly calculated their average monthly income and that RO Pugh
improperly included dissipated assets in the calculation of RCP. We will review
each argument in turn.
1. Future Income
The IRM defines the calculation of future income as an estimate of the
taxpayer’s ability to pay based on an analysis of gross income less necessary living
expenses for a specific number of months into the future. IRM pt. 5.8.5.20(1)
(Sept. 30, 2013). If a taxpayer is unemployed for a long period, then the offer
specialist should not average the income. Id. at (4). But, “[i]f there is a verified
expectation the taxpayer will be securing employment then the use of anticipated
future income may be appropriate. Anticipated future income should not be used
in situations where the future employment is uncertain.” Id. If a taxpayer has a - 23 -
[*23] fluctuating income, then the offer specialist should use the average earnings
over the prior three years to calculate future income. Id. The offer specialist
should generally use the three-year average except when specific circumstances
are present. Id.
Petitioners argue that RO Pugh and SO Walsh erred in using the three prior
years of income to calculate their future income. Petitioners emphasize that they
are septuagenarians and insist that the decrease in their joint income is permanent.
They argue, therefore, that RO Pugh should have used only petitioners’ previous
two years of income (2015 and 2016) to calculate their future income.
Although the IRM does not have the force of law, a settlement officer does
not abuse his discretion if he follows the guidelines set forth in the IRM. See
Orum v. Commissioner, 123 T.C. at 13; Margolis-Sellers v. Commissioner, at *40;
Aldridge v. Commissioner, 2009 WL 4282048, at *5. RO Pugh noted in his
memorandum that while earning large sums of money, petitioners had disregarded
their outstanding tax liability, including tax for the last eight consecutive years,
which was unpaid. He also observed that directly following 15 years of ongoing
noncompliance, petitioners claimed their ability to earn had crashed to timely
coordinate with the submission of an OIC. RO Pugh also noted that despite his
age, Mr. Siebert has a high upside for potential income increases according to the - 24 -
[*24] prior evidence of his ability to earn. In accordance with the IRM’s guidance
for situations in which a taxpayer has fluctuating income, RO Pugh used
petitioners’ previous three years of income to calculate their future monthly
income. See IRM pt. 5.8.5.20(4).
SO Walsh reviewed RO Pugh’s work and decided to continue to calculate
petitioners’ future income by averaging their income from the previous three
years. The record establishes that SO Walsh followed the guidelines set forth in
IRM pt. 5.8.5.20(4). We therefore conclude that SO Walsh did not abuse her
discretion in her calculation of petitioners’ future income.
2. Dissipated Assets
Petitioners further contend that RO Pugh erroneously included a distribution
from the section 401(k) account and the proceeds from the sale of a partnership
interest in his calculation of petitioners’ assets and equity to determine their RCP.
RO Pugh included these items in the calculation of petitioners’ RCP as “dissipated
assets”. When Appeals issued the supplemental notice of determination, IRM pt.
5.8.5.18(1) (Sept. 30, 2013) stated:7
7 We quote the provisions as in effect when Appeals made the determination under review here. See Johnson v. Commissioner, 136 T.C. 475, 486 n. 12 (2011), aff’d, 502 F. App’x 1 (D.C. Cir. 2013). - 25 -
[*25] Inclusion of dissipated assets in the calculation of the reasonable collection potential (RCP) is no longer applicable, except in situations where it can be shown the taxpayer has sold, transferred, encumbered or otherwise disposed of assets in an attempt to avoid the payment of the tax liability or used the assets or proceeds (other than wages, salary, or other income) for other than the payment of items necessary for the production of income or the health and welfare of the taxpayer or their family, after the tax has been assessed * * *
Inclusion of a dissipated asset as part of the RCP determination is not automatic,
and such inclusion must be clearly justified in the case activity record. IRM pt.
8.23.3.3.2.4(2) (Oct. 15, 2014). If taxpayers can substantiate the claim that the
dissipated assets were necessary for the production of income or the health and
welfare of taxpayers or their family, those assets should not be included in the
calculation of RCP. IRM pt. 5.8.5.18(1). The offer specialist generally considers
a three-year look-back period, including the year in which the offer was submitted,
to determine whether it is appropriate to include a dissipated asset in the
calculation of RCP. Id. at (2). The taxpayer must be able to provide a reasonable
accounting of the dissipated asset. IRM pt. 8.23.3.3.2.4(2).
Petitioners submitted their request for an OIC on September 14, 2016.
Under the three-year look-back period provided in the IRM, the offer specialist
was permitted to consider petitioners’ disposition of their assets in 2016, 2015,
and 2014 to determine whether it would be appropriate to include a dissipated - 26 -
[*26] asset in the calculation of RCP. Petitioners argue that they submitted
information on January 16, 2017, to show that the funds from the section 401(k)
account and Mr. Siebert’s partnership interest were used primarily for ordinary
and necessary living expenses, but RO Pugh failed to consider such expenses.
The record shows that petitioners promised to use the funds from the section
401(k) account to pay some of their then-outstanding tax liability, but after the
section 401(k) account was liquidated, the proceeds were not provided to the IRS.
When petitioners dissolved the section 401(k) account in 2015 and received
$151,000 from it, they did not report that income on their tax return for the 2015
tax year.8 The administrative record includes documentation from RO Pugh’s
notes which indicates that he reviewed the information that petitioners provided
regarding the proceeds of the section 401(k) account. RO Pugh determined that
the expenditures were not traceable to the proceeds of the section 401(k) account,
the expenses were not ordinary and necessary living expenses, and the expenses
were not debts that had priority over petitioners’ Federal income tax liability.
Under these facts, we find no abuse of discretion in RO Pugh’s inclusion of the
8 These events occurred after their 2013 tax liability had been assessed. See supra pp. 3, 8-9, 13. - 27 -
[*27] liquidated section 401(k) account as a dissipated asset in his calculation of
petitioners’ RCP. See IRM pt. 5.8.5.18(1).
The record also shows that Mr. Siebert sold his partnership interest in
August 2015 for $171,546. Although inclusion of a dissipated asset in a
taxpayer’s RCP is not automatic, the record shows that RO Pugh justified, in his
case file, his decision to treat the proceeds of the sale of Mr. Siebert’s partnership
interest as a dissipated asset. See IRM pt. 8.23.3.3.2.4(2). As discussed above,
the administrative record shows that RO Pugh reviewed all of the information that
petitioners provided regarding the dissipated assets. Though taxpayers must be
able to provide a reasonable accounting of the dissipated asset, petitioners did not
adequately substantiate the expenses they paid from the proceeds from the sale of
Mr. Siebert’s partnership interest or show that they were used for ordinary and
necessary living expenses. See id. pts. 8.23.3.3.2.4(2), 5.8.5.18(1). On this record
we find no abuse of discretion with regard to RO Pugh’s inclusion of Mr. Siebert’s
partnership interest as a dissipated asset in his calculation of petitioners’ RCP.
See IRM pt. 5.8.5.18(1).
The record establishes that SO Walsh considered all of the facts and
circumstances in the documents petitioners submitted and thoroughly reviewed
RO Pugh’s work. See Bennett v. Commissioner, T.C. Memo. 2008-251; sec. - 28 -
[*28] 301.7122-1(c)(1), Proced. & Admin. Regs. It further shows that SO Walsh
followed the guidelines set forth in the relevant IRM provisions. We therefore
conclude that it was not an abuse of discretion for SO Walsh to include the
proceeds from the section 401(k) account and the sale of Mr. Siebert’s partnership
interest as dissipated assets in the calculation of petitioners’ RCP.
C. OIC Conclusion
After consideration of the reasons set forth in SO Walsh’s OIC Memo in
conjunction with RO Pugh’s documentation and the explanation in the
supplemental notice of determination, we conclude that Appeals’ determination to
sustain the rejection of the OIC was neither arbitrary nor capricious, but to the
contrary, had a sound basis in fact and law. Appeals fully considered the facts and
circumstances of petitioners’ case. Thus, we conclude that SO Walsh did not
abuse her discretion in sustaining the rejections of petitioners’ OIC as not being in
the best interest of the Government.
IV. IA
When petitioners learned that their proposed OIC was going to be rejected,
they proposed a monthly IA which called for them to pay $1,000 per month.
Under section 6159, if a taxpayer cannot timely pay the full amount of tax due,
Appeals may allow the taxpayer to pay the tax in installments if Appeals - 29 -
[*29] determines that such an agreement will facilitate full or partial collection of
the liability. The discretion to accept or reject a taxpayer’s IA lies within the
discretion of the Commissioner. Thompson v. Commissioner, 140 T.C. 173, 179
(2013); sec. 301.6159-1(a), (c)(1), Proced. & Admin. Regs.
Generally, installment agreements “should reflect taxpayers’ ability to pay”.
IRM pt. 5.14.1.4(4) (Sept. 19, 2014). Namely, the settlement officer should
analyze a taxpayer’s income and allowable expenses to determine the amount of
disposable income the taxpayer has available for payment under an IA. Id. The
settlement officer may also analyze other assets of the taxpayer that may be
available to offset the balance due. Id. The IRM also provides that settlement
officers are advised to analyze all relevant facts in considering acceptance of an
IA, including the taxpayer’s compliance history, ability to pay, and equity in
assets. IRM pt. 8.22.7.5(5) (Aug. 9, 2017).
When SO Walsh received petitioners’ file from RO Pugh on April 28, 2017,
she reviewed petitioners’ monthly income and expenses. SO Walsh accepted RO
Pugh’s decision to allow monthly expenses of $5,838 and determined that
petitioners’ disposable monthly income was $5,067. SO Walsh contrasted
petitioners’ disposable monthly income of $5,067 with their proposed IA payment - 30 -
[*30] of $1,000 per month and concluded that their IA was not reasonable because
they could pay more.
SO Walsh also considered that the equity in artwork was not offered
towards petitioners’ debt and found that petitioners’ calculated disposable monthly
income of $5,067 did not support a monthly IA payment of a mere $1,000. SO
Walsh calculated that petitioners had total equity in assets of $349,331 and that
their RCP was $906,701. SO Walsh considered petitioners’ egregious compliance
history and Mr. Siebert’s use of his Social Security income of $2,300 to repay his
brother for an unsecured loan. Accordingly, SO Walsh rejected petitioners’
request for an IA.
Petitioners argue that they submitted a complete financial packet to Appeals
on March 13, 2017, in which they requested an IA of $2,500 per month.
Petitioners allege that the information they submitted was not reviewed,
considered, or denied by Appeals. However, the record shows that this financial
information was submitted on March 13, 2018, not March 13, 2017. As the
supplemental notice of determination was issued on August 17, 2017, these
documents are not relevant to the case at hand.
The explanation in the supplemental notice of determination establishes that
SO Walsh adequately reviewed and considered petitioners’ circumstances in the - 31 -
[*31] process of making her determination. Thus, petitioners failed to show that
the determination to reject their proffered IA was arbitrary, capricious, or without
sound basis in fact or law. On the record before us, we hold that SO Walsh did not
abuse her discretion in declining petitioners’ proposed IA.
V. CNC Status
Petitioners’ representative made a request for CNC status, supported with a
copy of petitioners’ 2016 tax return, after they were notified that Appeals intended
to deny their request for an OIC. CNC status may be available if the taxpayer can
demonstrate that, on the basis of his assets, equity, income, and expenses, he has
no apparent ability to make payments on the outstanding tax liability. See Foley v.
Commissioner, T.C. Memo. 2007-242, 94 T.C.M. (CCH) 210, 212 (2007); IRM pt.
5.16.1.2.9 (Aug. 25, 2014). Under the IRM, an account should not be placed in
CNC status if the taxpayer has income or equity in assets and enforced collection
of the income or assets would not cause hardship. See IRM pt. 5.16.1.2.9(1). A
settlement officer calculates a taxpayer’s ability to make payments by determining
the excess of income over necessary living expenses. Rosendale v. Commissioner,
T.C. Memo. 2018-99, at *9.
Petitioners’ 2016 tax return reflected monthly income of $3,542. As this
amount was less than the monthly allowable expenses of $5,838, petitioners’ - 32 -
[*32] representative argued that petitioners had no disposable income to pay
toward their outstanding tax liability and should therefore qualify for CNC status.
Because SO Walsh determined that petitioners’ disposable monthly income was
$5,067, that they had equity in assets of $349,331, and that their RCP was
$906,701, she apparently concluded that petitioners could make payments.9 Under
these circumstances we conclude it was not an abuse of discretion for SO Walsh to
decide that petitioners failed to qualify for CNC status.
In addition petitioners do not properly raise the argument that SO Walsh
abused her discretion by declining to approve their request for CNC status. Rule
121(d) provides:
When [as here] a motion for summary judgment is made and supported as provided in this Rule, an adverse party may not rest upon the mere allegations or denials of such party’s pleading, but such party’s response, by affidavits or declarations or as otherwise provided in this Rule [i.e., “the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials”, Rule 121(b)], must set forth specific facts showing that there is a genuine dispute for trial. If the adverse party does not so respond, then a decision, if appropriate, may be entered against such party. [Emphasis added.]
9 Although the notice of determination does not make an explicit determination as to this issue, the record establishes that SO Walsh properly determined that enforced collection of petitioners’ income or assets would not cause hardship. - 33 -
[*33] By order of the Court dated October 23, 2018, petitioners’ first response to
respondent’s motion for summary judgment was stricken from the Court’s record.
In an order dated September 28, 2018, we had explained that petitioners had not
set forth specific facts showing that there is a genuine dispute of material fact for
trial. Petitioners’ (second) response, filed October 9, 2018, stated only that they
requested CNC status and provided, among other things, a copy of their 2016 tax
return. Petitioners did not put forth any arguments regarding their request for
CNC status.
As we stated in our September 28, 2018, order, “[w]e are confident that
counsel did not intend to put upon the Court the task of comparing petitioners’
response to respondent’s motion, discerning the factual differences, and then
studying the Commissioner’s exhibits to find support for petitioners’ contrary
assertions.” As they did not set forth a specific dispute of material facts regarding
their request for CNC status, we conclude that petitioners conceded that issue.
VI. Conclusion
There are no disputes of material fact, and judgment may be rendered as a
matter of law. Finding no abuse of discretion in any respect, we will grant
summary judgment for respondent and sustain the proposed levy to collect
petitioners’ unpaid income tax for the 2013 tax year. We have considered all of - 34 -
[*34] the arguments made by the parties and, to the extent they are not addressed
herein, we deem them to be moot, irrelevant, or without merit.
To reflect the foregoing,
An appropriate order and decision
will be entered.