T.C. Memo. 2015-159
UNITED STATES TAX COURT
LYNN EDWARD YORK AND CYNTHIA LEE YORK, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 529-14L. Filed August 13, 2015.
Lynn Edward York and Cynthia Lee York, pro sese.
Harry J. Negro, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
KERRIGAN, Judge: The petition in this case was filed in response to a
Notice of Determination Concerning Collection Action(s) under Section 6320
and/or 6330 (notice of determination) for tax years 2003, 2008, 2009, 2010, and
2011 (years at issue). We must consider whether respondent’s determination to
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[*2] proceed with collection actions regarding unpaid tax liabilities for the tax
years at issue was proper.
Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times. We round all monetary amounts to
the nearest dollar.
FINDINGS OF FACT
Some of the facts are stipulated and are so found. Petitioners resided in
Pennsylvania when the petition was filed. Petitioners are truck drivers and are on
the road frequently.
Petitioners filed Federal income tax returns for the tax years at issue, but
they did not pay the full amount of their self-reported income tax liability for each
tax year.
On March 26, 2013, respondent sent petitioners a Letter 3172, Notice of
Federal Tax Lien Filing and Your Right to a Hearing Under Section 6320 (NFTL),
for the tax years at issue. As of the date of the NFTL, petitioners owed the
following:
Year Unpaid balance
2003 $2,484
2008 2,537
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[*3] 2009 4,958
2010 9,057
2011 8,319
The total balance was $27,355.
Petitioners timely filed a Form 12153, Request for a Collection Due Process
or Equivalent Hearing, regarding the NFTL. On May 20, 2013, separate from the
Form 12153, petitioners filed a request for an offer-in-compromise (OIC) for tax
year 2002 and the tax years at issue. This request included: a Form 656, Offer in
Compromise; a Form 433-A, Collection Information Statement for Wage Earners
and Self-Employed Individuals; bank information; and an explanation of
petitioners’ financial status. Petitioners’ proposed OIC was a lump-sum payment
of $15,000. Petitioners indicated that the reason for their OIC was exceptional
circumstances and effective tax administration. The settlement officer mailed a
letter to petitioners scheduling a telephone collection due process (CDP) hearing
for June 25, 2013. The conference call was held, and petitioners’ request for an
OIC was discussed. The settlement officer informed petitioners that their OIC was
being considered.
After the CDP hearing respondent reassigned petitioners’ case to a different
settlement officer. On September 20, 2013, the new settlement officer sent a letter
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[*4] scheduling a CDP hearing for October 30, 2013. This letter requested the
following information: substantiation of health insurance premiums;
substantiation of out-of-pocket healthcare costs; substantiation of a payment
agreement with the State for delinquent taxes; substantiation of all secured debts;
and a copy of petitioners’ 2012 Form 1040, U.S. Individual Income Tax Return,
with all schedules. Petitioners did not participate in the conference call, nor did
they submit the requested information. On October 30, 2013, the settlement
officer mailed petitioners an additional letter stating that she had not heard from
them and reiterating that the requested information should be submitted within 14
days.
The settlement officer calculated petitioners’ monthly income and expenses
using the information that petitioners provided with their offer-in-compromise.
The settlement officer determined that petitioners had net monthly income of
$1,057 and that they had received death benefits of approximately $30,000 and
$67,000 during 2013.
On November 4, 2013, petitioners left a phone message for the settlement
officer explaining that they did not participate in the hearing on October 30, 2013,
because they were on the road for work. The settlement officer returned their call,
but was unable to reach them and left a message. Since the settlement officer had
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[*5] not heard from petitioners, she called and left another message on November
13, 2013.
On December 2, 2013, respondent issued petitioners a notice of
determination sustaining the NFTL. In the notice of determination the settlement
officer stated that she had verified that all requirements of applicable law and
administrative procedure had been met. On January 8, 2014, petitioners filed a
petition expressing concern about the OIC’s being rejected.
OPINION
Where the validity of the underlying tax liability is properly at issue, we
review the determination de novo. Sego v. Commissioner, 114 T.C. 604, 610
(2000). Petitioners did not raise their underlying tax liabilities. The Court
reviews administrative determinations by the Commissioner’s Appeals Office
regarding nonliability issues for abuse of discretion. Hoyle v. Commissioner, 131
T.C. 197, 200 (2009). We consider whether the determination was 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);
Woodral v. Commissioner, 112 T.C. 19, 23 (1999). The Court does not conduct
an independent review and substitute its judgment for that of the settlement
officer. Murphy v. Commissioner, 125 T.C. at 320. If the settlement officer
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[*6] follows all statutory and administrative guidelines and provides a reasoned,
balanced decision, the Court will not reweigh the equities. Link v. Commissioner,
T.C. Memo. 2013-53, at *12.
Following a CDP hearing the settlement officer must determine whether to
sustain the filing of the NFTL. In making that determination, the settlement
officer is required by section 6330(c)(3) to consider: (1) whether the requirements
of any applicable law or administrative procedure have been met; (2) any issues
appropriately raised by the taxpayer; and (3) whether the proposed collection
action balances the need for the efficient collection of taxes and the legitimate
concern of the taxpayer that any collection action be no more intrusive than
necessary. Lunsford v. Commissioner, 117 T.C. 183, 184 (2001); Diamond v.
Commissioner, T.C. Memo. 2012-90, slip op. at 6-7; see also sec. 6320(c).
Section 6323(j)(1) provides:
(1) In general.--The Secretary may withdraw a notice of a lien
filed under this section and this chapter shall be applied as if the
withdrawn notice had not been filed, if the Secretary determines that--
(A) the filing of such notice was premature or otherwise
not in accordance with administrative procedures of the
Secretary,
(B) the taxpayer has entered into an agreement under
section 6159 to satisfy the tax liability for which the lien was
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[*7] imposed by means of installment payments, unless such
agreement provides otherwise,
(C) the withdrawal of such notice will facilitate the
collection of the tax liability, or
(D) with the consent of the taxpayer or the National
Taxpayer Advocate, the withdrawal of such notice would be in
the best interests of the taxpayer (as determined by the National
Taxpayer Advocate) and the United States.
Petitioners contend that they did not realize the September 20, 2013, letter
was setting up a call for a CDP hearing. The letter explains clearly the purpose of
the call and requests information from petitioners. A settlement officer has the
discretion to decide when to end the administrative CDP proceedings where
requested information and/or completed forms are not provided to her. See sec.
301.6330-1(e)(3), Q&A-E9, Proced. & Admin. Regs. It was not an abuse of
discretion for the settlement officer to recommend the notice of determination be
sustained as a result of petitioners’ failure to provide the requested information in
a reasonable time. See Murphy v. Commissioner, 125 T.C. 301.
A taxpayer may offer to compromise a Federal tax debt as a collection
alternative to a proposed levy. Secs. 6320(b)(4), 6330(c)(2)(A)(iii). Section
7122(c) authorizes the Commissioner to prescribe guidelines to determine whether
an offer-in-compromise should be accepted. The Commissioner may accept an
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[*8] offer-in-compromise on one of three grounds: doubt as to liability, doubt as
to collectibility, and promotion of effective tax administration. Sec. 301.7122-
1(b)(1), (2), and (3), Proced. & Admin. Regs.; see Smith v. Commissioner, T.C.
Memo. 2007-73, slip op. at 14, aff’d in part sub nom. Keller v. Commissioner, 568
F.3d 710 (9th Cir. 2009).
Petitioners contend that they want to have an offer-in-compromise accepted
and the lien removed on the ground of promotion of effective tax administration.
The Secretary may compromise a liability on the ground of effective tax
administration when: (1) collection of the full liability will create economic
hardship or (2) exceptional circumstances exist such that the collection of the full
liability would undermine public confidence that the tax laws are fairly and
equitably administered. Speltz v. Commissioner, 124 T.C. 165, 172-174 (2005),
aff’d, 454 F.3d 782 (8th Cir. 2006); sec. 301.7122-1(b)(3), Proced. & Admin.
Regs.
1. Economic Hardship
Factors supporting (but not conclusive of) a determination that collection
would cause economic hardship include, but are not limited to:
(A) Taxpayer is incapable of earning a living because of a long
term illness, medical condition, or disability, and it is reasonably
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[*9] foreseeable that taxpayer’s financial resources will be exhausted
providing for care and support during the course of the condition;
(B) Although taxpayer has certain monthly income, that income
is exhausted each month in providing for the care of dependents with
no other means of support; and
(C) Although taxpayer has certain assets, the taxpayer is unable
to borrow against the equity in those assets and liquidation of those
assets to pay outstanding tax liabilities would render the taxpayer
unable to meet basic living expenses.
Sec. 301.7122-1(c)(3)(i), Proced. & Admin. Regs.
Petitioners testified that they had gone through much emotional and
financial turmoil over the past several years. They wanted an OIC accepted so that
they could have a fresh start. However, they do not contend that either had a long-
term illness, medical condition, or disability. Nor do they claim that they exhaust
their monthly income providing for the care of dependents with no other means of
support. They do not claim that borrowing against the equity in their real property
interests would render them unable to meet basic living expenses. Accordingly,
they have not shown that the collection of the full liability would cause economic
hardship. Therefore, petitioners do not qualify for an OIC on this ground.
2. Compelling Public Policy or Equity Considerations
The Secretary may enter into a compromise to promote effective tax
administration where compelling public policy or equity considerations identified
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[*10] by the taxpayer provide a sufficient basis for compromising the liability. Id.
para. (b)(3)(ii). A compromise will be justified only where, because of
exceptional circumstances, collection of the full liability would undermine public
confidence that the tax laws are being administered in a fair and equitable manner.
A taxpayer proposing a compromise on the basis of effective tax administration
will be expected to demonstrate circumstances that justify a compromise even
though a similarly situated taxpayer may have paid his liability in full. Id.
Examples of cases where a compromise is allowed for purposes of public policy
and equity include: (1) a taxpayer who was hospitalized regularly for a number of
years and was unable to manage his financial affairs incurs significant tax
liabilities, penalties, and interest and (2) a taxpayer learns at audit that he received
erroneous advice from the Internal Revenue Service and, as a result, is facing
additional taxes, penalties, and additions to tax. Speltz v. Commissioner, 124 T.C.
at 173; sec. 301.7122-1(c)(3)(C)(iv), Proced. & Admin. Regs.
Petitioners have identified no public policy or equity considerations that
would justify a compromise on the basis of effective tax administration.
Accordingly, they do not qualify for an OIC on this ground.
Any contentions we have not addressed are irrelevant, moot, or meritless.
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[*11] To reflect the foregoing,
Decision will be entered
for respondent.