T.C. Memo. 2013-273
UNITED STATES TAX COURT
FINCOURT B SHELTON PC, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1769-11L. Filed December 2, 2013.
Fincourt B. Shelton (an officer), for petitioner.
Harry J. Negro, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
RUWE, Judge: This proceeding was commenced in response to a Notice of
Determination Concerning Collection Action(s) Under Section 6320 and/or 6330.1
1
All section references are to the Internal Revenue Code in effect at all
relevant times, unless otherwise indicated.
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[*2] The issues for decision are: (1) whether there was a valid offer-in-
compromise; (2) whether a compromise should be imputed under the concept of
accord and satisfaction; (3) whether equitable estoppel should be applied against
respondent; and (4) whether the settlement officer abused her discretion in
determining petitioner was not eligible for currently not collectible (CNC) status.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation of
facts and the attached exhibits are incorporated herein by this reference.
At the time the petition was filed, petitioner’s principal place of business
was in Pennsylvania.
Fincourt B. Shelton is an attorney and has been practicing law since 1980.
Fincourt B Shelton PC (hereinafter petitioner) is a professional corporation under
the laws of the Commonwealth of Pennsylvania. Petitioner was incorporated on
December 23, 1996. Mr. Shelton is the president and sole owner of petitioner.
Petitioner filed Forms 941, Employer’s Quarterly Federal Tax Return, for 12
periods ending between March 31, 2003 and 2006, but failed to make timely
payments of the amounts due. Petitioner owed approximately $140,000.
On January 24, 2007, the revenue officer received a Form 656, Offer in
Compromise, from petitioner offering to pay $70,000 to compromise the balance
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[*3] owed. However, petitioner did not submit the $150 application fee or 20% of
the amount offered that are required to be submitted with Form 656. On January
24, 2007, the revenue officer called Mr. Shelton and left a voice mail message
informing him that she did not make offer-in-compromise determinations and that
any decision with respect to the offer would be made by an offer specialist. On
January 29, 2007, Mr. Shelton called the revenue officer, who informed him that
petitioner would need to submit the $150 application fee and 20% of the amount
offered before the revenue officer could forward the offer-in-compromise to an
offer specialist. The parties stipulated that this offer-in-compromise was not
accepted by the Commissioner.
On February 13, 2007, Mr. Shelton called the revenue officer and stated that
he was closing his business and that he would make a $120,000 payment to take
care of the tax due. Mr. Shelton said that he was closing petitioner because he
could no longer run the business. The revenue officer informed Mr. Shelton that
once she received the $120,000 payment she would close the case as a defunct
corporation. On February 20, 2007, the revenue officer received the $120,000
payment from petitioner. After the revenue officer applied the $120,000 payment,
petitioner still had outstanding employment tax balances due for the periods
ending December 31, 2005, and March 31, 2006. The parties stipulated that the
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[*4] $120,000 payment made by petitioner on February 20, 2007, was not part of a
term or condition of a Form 656. Petitioner never received a Form 656, or any
written acceptance, that was signed by an employee of the Commissioner. In other
words, petitioner did not submit the $120,000 payment in conjunction with a Form
656. After receiving the payment, the revenue officer closed petitioner’s case as a
CNC defunct corporation.
Despite Mr. Shelton stating to the revenue officer that he intended to close
petitioner, petitioner filed Forms 1120, U.S. Corporation Income Tax Return, for
the taxable years 2008 and 2009. Additionally, petitioner made Federal tax
deposits for Form 941 for the period ending September 30, 2010. Because
petitioner was still operating and accruing tax liabilities, the CNC defunct
corporation status was reversed.
Respondent sent petitioner a Letter 1058, Final Notice of Intent to Levy and
Notice of Your Right to a Hearing, dated April 15, 2010, advising petitioner that
respondent intended to levy to collect its unpaid employment tax liabilities for the
periods ending December 31, 2005, and March 31, 2006, as well as a civil penalty
for the period ending December 31, 2006, and that petitioner could request a
hearing with respondent’s Office of Appeals. As of April 15, 2010, petitioner
owed $9,361.16 for the period ending December 31, 2005, $14,267.85 for the
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[*5] period ending March 31, 2006, and $1,215.35 for the period ending
December 31, 2006. Petitioner timely submitted a Form 12153, Request for a
Collection Due Process or Equivalent Hearing, in which it stated that the
underlying tax liabilities had been compromised by the payment made in 2007.
By letter dated May 19, 2010, respondent’s settlement officer acknowledged
receipt of petitioner’s collection due process (CDP) hearing request and scheduled
a telephone conference call for June 9, 2010. Mr. Shelton did not call the
settlement officer on June 9, 2010. By letter dated June 9, 2010, the settlement
officer informed Mr. Shelton that he had failed to call the settlement officer for the
scheduled CDP hearing. On June 11, 2010, a CDP hearing was held. Mr. Shelton
informed the settlement officer that petitioner had previously paid $120,000 and
that petitioner was dissolved and had no assets.
Respondent issued to petitioner a Notice of Determination Concerning
Collection Action(s) Under Section 6320 and/or 6330, dated December 17, 2010,
sustaining the levy action. Petitioner timely filed a petition with this Court.
OPINION
Section 6331(a) provides that if any person liable to pay any tax neglects or
refuses to pay the tax within 10 days after notice and demand for payment, then
the Secretary is authorized to collect the tax by levy upon the person’s property.
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[*6] Section 6331(d) provides that, at least 30 days before enforcing collection by
way of a levy on the person’s property, the Secretary is obliged to provide the
person with a final notice of intent to levy, including notice of the administrative
appeals available to the person. If a taxpayer requests a CDP hearing, he may
raise at that hearing any relevant issue relating to the unpaid tax or the proposed
levy. Sec. 6330(c)(2). Relevant issues include requests for collection alternatives.
See sec. 6330(c)(2)(A)(iii).
1. Whether petitioner’s tax liabilities were compromised
Petitioner argues that the $120,000 payment compromised all of its tax
liabilities. Respondent disagrees.
Offer-in-compromise
Respondent argues that there was never a valid offer-in-compromise;
therefore, petitioner’s $120,000 payment did not compromise its remaining tax
liabilities.
The settlement of disputed tax liabilities is governed by sections 7121 and
7122, which authorize the Secretary to settle any tax disputes and compromise any
civil or criminal case arising under the internal revenue laws. Regulations under
section 7122 clarify the procedures required with respect to an offer-in-
compromise. “These procedures are exclusive and must be satisfied in order to
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[*7] effectuate a compromise or settlement which will be binding on both the
taxpayer and the Government.” Rohn v. Commissioner, T.C. Memo. 1994-244,
1994 Tax Ct. Memo LEXIS 248, at *12; see also Broz v. Commissioner, 137 T.C.
46, 56 (2011), aff’d, 727 F.3d 621 (6th Cir. 2013); Harbaugh v. Commissioner,
T.C. Memo. 2003-316, 2003 Tax Ct. Memo LEXIS 317, at *7 (“It is well settled
that section 7122 and the regulations thereunder provide the exclusive method of
effectuating a valid compromise of assessed tax liabilities.”).
Section 301.7122-1(d)(1), Proced. & Admin. Regs., provides that an “offer
to compromise a tax liability pursuant to section 7122 must be submitted
according to the procedures, and in the form and manner, prescribed by the
Secretary. An offer to compromise a tax liability must be made in writing, must be
signed by the taxpayer under penalty of perjury, and must contain all of the
information prescribed or requested by the Secretary.” Rev. Proc. 2003-71, sec.
4.01, 2003-2 C.B. 517, 517, provides that an “offer to compromise a tax liability
must be submitted in writing on the Service’s Form 656, Offer in Compromise.”
See also Godwin v. Commissioner, T.C. Memo. 2003-289, 2003 Tax Ct. Memo
LEXIS 292, at *32 (“Taxpayers who wish to propose an offer in compromise must
submit a Form 656”.), aff’d, 132 Fed. Appx. 785 (11th Cir. 2005). The $120,000
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[*8] payment was not part of a term or condition of a Form 656. Petitioner failed
to submit a Form 656 with the payment.
Section 301.7122-1(e)(1), Proced. & Admin. Regs., specifically provides
that “[a]n offer to compromise has not been accepted until the IRS issues a written
notification of acceptance to the taxpayer or the taxpayer’s representative.” See
also Rev. Proc. 2003-71, sec. 8.01, 2003-2 C.B. at 519. We cannot find that a
valid compromise was made if there is no written acceptance of the purported
agreement from the Commissioner. See Harbaugh v. Commissioner, 2003 Tax Ct.
Memo LEXIS 317, at *8; Ringgold v. Commissioner, T.C. Memo. 2003-199, 2003
Tax Ct. Memo LEXIS 196, at *4. Petitioner never received any written
acceptance from the Commissioner. At trial Mr. Shelton testified that the
Commissioner “never accepted the Offer in Compromise.”
Petitioner failed to submit a Form 656 with the $120,000 payment, and the
Commissioner did not issue a written notice of acceptance. As a result we find
that the Commissioner and petitioner did not enter into a valid offer-in-
compromise. See Harbaugh v. Commissioner, 2003 Tax Ct. Memo LEXIS 317, at
*8; Godwin v. Commissioner, 2003 Tax Ct. Memo LEXIS 292, at *32.
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[*9] Accord and satisfaction
On its two-page opening brief, petitioner argues that Mr. Shelton informed
the revenue officer that he would make the $120,000 payment, which would take
care of all the tax due. Petitioner argues that the revenue officer agreed to this.
Petitioner asks the Court to impute a compromise under the concept of accord and
satisfaction.
“The regulations and procedures under section 7122 provide the exclusive
method of effectuating a compromise.” Ringgold v. Commissioner, 2003 Tax Ct.
Memo LEXIS 196, at *3. “Because of this exclusive method, no theory founded
upon general concepts of accord and satisfaction can be used to impute a
compromise settlement”. Bowling v. United States, 510 F.2d 112, 113 (5th Cir.
1975) (citing Moskowitz v. United States, 285 F.2d 451, 453 (Ct. Cl. 1961)); see
also Dormer v. Commissioner, T.C. Memo. 2004-167, 2004 Tax Ct. Memo LEXIS
172, at *15. Accordingly, we will not impute a compromise.
Equitable estoppel
In its opening brief petitioner briefly argued: “The Service is estopped from
attempting to collect the debt”. Petitioner did not cite any cases supporting this
argument.
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[*10] “[T]he doctrine of equitable estoppel is applied against the Government
‘with the utmost caution and restraint.’” Boulez v. Commissioner, 76 T.C. 209,
214-215 (1981), aff’d, 810 F.2d 209 (D.C. Cir. 1987). In the Court of Appeals for
the Third Circuit, to which this case is appealable, for equitable estoppel to apply
the aggrieved party must prove: “(1) a misrepresentation by another party; (2)
which he reasonably relied upon; (3) to his detriment.” United States v. Asmar,
827 F.2d 907, 912 (3d Cir. 1987); see also Reuben v. Commissioner, T.C. Memo.
2001-193, 2001 Tax Ct. Memo LEXIS 226, at *3. Additionally, in asserting a
claim of equitable estoppel against the Government, the aggrieved party must
prove affirmative misconduct on the part of the Government. See Asmar, 827
F.2d at 912. The burden of proof is on the party claiming estoppel. Id.
We note that there was no affirmative misconduct on the part of the
Government. The revenue officer informed Mr. Shelton that she did not make
offer-in-compromise determinations.
Furthermore, “those who deal with the Government are expected to know
the law”. Heckler v. Cmty. Health Servs. of Crawford Cnty., Inc., 467 U.S. 51, 63
(1984). Section 301.7122-1(e)(1), Proced. & Admin. Regs., provides that an
offer-in-compromise is not accepted until the Commissioner issues a written
notification of acceptance to the taxpayer. Petitioner never received a written
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[*11] notice of acceptance. Mr. Shelton is an attorney and has been practicing law
since 1980. Knowledge of the requirement for a written notice of acceptance is
imputed to petitioner.
Finally, petitioner suffered no detriment that is legally recognizable.
Petitioner is required to pay only the tax that was lawfully owing. Petitioner did
not change a position to its detriment. See Reuben v. Commissioner, 2001 Tax Ct.
Memo LEXIS 226, at *3-*4.
Accordingly, we hold that equitable estoppel should not be applied against
respondent.
Conclusion
We have held that there was not a valid offer-in-compromise, we will not
impute a compromise under the concept of accord and satisfaction, and petitioner
did not satisfy the requirements to apply equitable estoppel against respondent. As
a result petitioner’s remaining tax liabilities were not compromised by the
$120,000 payment.
2. CNC status
Petitioner requested CNC status as an alternative to levy. The settlement
officer determined that petitioner’s account was not eligible for CNC status.
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[*12] The Court reviews administrative determinations by the Commissioner’s
Office of Appeals regarding nonliability issues for abuse of discretion. Hoyle v.
Commissioner, 131 T.C. 197, 200 (2008); Goza v. Commissioner, 114 T.C. 176,
182 (2000). The determination of the Office of Appeals must take into
consideration: (1) the verification that the requirements of applicable law and
administrative procedure have been met; (2) issues raised by the taxpayer; and (3)
whether any proposed collection action balances the need for the efficient
collection of taxes with the legitimate concern of the person that any collection be
no more intrusive than necessary. Sec. 6330(c)(3); see also Lunsford v.
Commissioner, 117 T.C. 183, 184 (2001). The settlement officer properly based
her determination on the factors required by section 6330(c)(3).
In February 2007 Mr. Shelton represented to the revenue officer that he was
closing petitioner. After the $120,000 payment was made on February 20, 2007,
the revenue officer placed petitioner’s account in CNC status and treated petitioner
as a defunct corporation. The notes of the revenue officer indicate that she
received a copy of the dissolution of the business. However, despite the fact that
Mr. Shelton had informed the revenue officer that he was closing petitioner,
petitioner filed Federal income tax returns for the taxable years 2008 and 2009.
Furthermore, petitioner made Federal tax deposits for Form 941 for the period
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[*13] ending September 30, 2010. Finally, on June 11, 2010, Mr. Shelton sent a
check for $749.82 to pay petitioner’s 2008 tax liability. We also note that the Web
site for the Pennsylvania Department of State shows that petitioner’s status was
active as of March 8, 2013.
The filing of tax returns, and payment of taxes, for multiple periods after the
date on which Mr. Shelton informed the revenue officer that he had closed
petitioner indicate that petitioner had not been closed and could have been
operating as of the date of the notice of determination. As a result it was not an
abuse of the settlement officer’s discretion to deny petitioner’s request to be
placed in CNC status.2 Accordingly, respondent’s determination is sustained.
In reaching our decision, we have considered all arguments made by the
parties, and to the extent not mentioned or addressed, they are irrelevant or
without merit.
To reflect the foregoing,
Decision will be entered for
respondent.
2
We note that in its opening brief, petitioner does not argue that the
settlement officer abused her discretion in denying petitioner’s request to be
placed in CNC status.