T.C. Summary Opinion 2002-123
UNITED STATES TAX COURT
ROBERT A. WODARCZYK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8845-01S. Filed September 30, 2002.
Tommy E. Swate, for petitioner.
Bruce M. Wilpon, for respondent.
COUVILLION, Special Trial Judge: Respondent filed a motion
for summary judgment under Rule 121. The petition was filed
pursuant to section 7463.1 The decision to be entered is not
reviewable by any other court, and this opinion should not be
cited as authority. The case arises from a petition for judicial
1
Unless otherwise indicated, subsequent section
references are to the Internal Revenue Code in effect for the
year at issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
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review under section 6330(d)(1)(A)2 and involves the propriety of
respondent’s decision to proceed with collection of income tax
petitioner owes for the year 1993. That determination was
preceded by respondent’s issuance of a notice of intent to levy
and of petitioner’s right to a hearing in connection with an
assessed balance of income tax for 1993 in the amount of
$8,750.68, including statutory additions to tax. At the time the
petition was filed, petitioner’s legal residence was in Texas.
No testimonial evidence was adduced at the hearing.
Respondent contends that there is no genuine issue of material
fact and that the notice of determination should be sustained as
a matter of law.
Before proceeding with the merits of respondent’s motion and
the objection thereto, one prominent aspect of the case must
first be addressed. The petition was filed pursuant to
respondent’s issuance of a Notice of Determination Concerning
2
Petitioner, through counsel, filed a response to
respondent’s motion for summary judgment, not only objecting to
respondent’s motion, but affirmatively alleging: “The Petitioner
moves for summary determination that Respondent’s denial of his
allowable transportation cost was arbitrary, capricious and
without reference to administrative rules or law.” Petitioner’s
response was not filed as a motion for summary judgment because
it was not cast in the proper form. At the hearing, the parties
agreed that the case could be considered as cross-motions for
summary judgment. On the basis of these representations, we
conclude that there are no genuine issues of material fact, and
the sole question before the Court is whether, as a matter of
law, respondent’s motion should be granted.
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Collection Action(s) Under Section 6320 and/or 6330 (the notice).
The notice addressed only petitioner’s income tax for the 1993
tax year. The petition, however, addresses not only 1993 but
also petitioner’s unpaid income tax liabilities for the years
1994 through and including 1999.
It is evident from the record that the parties negotiated
petitioner’s tax liabilities for all these years, including the
year 1993. However, there is no evidence in the record that
petitioner’s tax liabilities for the years 1994 through 1999 were
ever assessed; there is no evidence that respondent ever issued a
Notice of Intent To Levy upon petitioner for those years; nor is
there any evidence that a Notice of Determination Concerning
Collection Action(s) Under Section 6320 and/or 6330 was ever
issued for petitioner’s 1994 through 1999 tax years. Since this
Court’s jurisdictional authority in cases of this nature is based
on section 6330(d)(1)(A) and the issuance by the Commissioner of
a Notice of Intent To Levy and a Notice of Determination
regarding such levy, it is evident that this Court lacks
jurisdiction over petitioner’s 1994 through 1999 tax years.
Therefore, this case will be dismissed for lack of jurisdiction
as to the years 1994 through 1999, and all allegations with
respect to those years will be stricken. The sole issue for
decision is whether there was an abuse of discretion by
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respondent in failing to accept petitioner’s collection
alternative with respect to 1993.
Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials. See Fla. Peach Corp. v.
Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be
granted with respect to all or any part of the legal issues in
controversy “if the pleadings, answers to interrogatories,
depositions, admissions, and any other acceptable materials,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that a decision may be
rendered as a matter of law.” Rule 121(b); Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th
Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988);
Naftel v. Commissioner, 85 T.C. 527, 529 (1985).
In a summary judgment proceeding, the burden is on the
moving party to prove the nonexistence of a genuine issue of
material fact and the moving party’s entitlement to judgment as a
matter of law. FPL Group, Inc. & Subs. v. Commissioner, 116 T.C.
73, 74-75 (2001); Naftel v. Commissioner, supra at 529. The
Court views the facts and inferences therefrom in the light most
favorable to the nonmoving party, petitioner. Bond v.
Commissioner, 100 T.C. 32, 36 (1993); Dahlstrom v. Commissioner,
85 T.C. 812, 821 (1985). When a motion for summary judgment is
made, the nonmoving party cannot rely on the allegations or
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denials in its pleading but must demonstrate with specific facts
that there is a genuine issue for trial. King v. Commissioner,
87 T.C. 1213, 1217 (1986); Shepherd v. Commissioner, T.C. Memo.
1997-555.
The facts, viewed in the light most favorable to petitioner,
are as follows. On February 7, 2000, respondent mailed
petitioner IRS Letter 1058, Final Notice-–Notice of Intent to
Levy and Notice of Your Right to a Hearing, relating to
petitioner’s unpaid income tax for 1993, consisting of $4,654.94
in tax and $4,095.74 in statutory additions, totaling $8,750.68.
Petitioner submitted timely IRS Form 12153, Request for a
Collection Due Process Hearing, with respect to that notice. In
the request, petitioner stated: “Taxpayer is going to submit an
offer in compromise. He has unfiled returns that are being
prepared. Once the returns are prepared an offer will be
prepared.” At the time, petitioner had not filed income tax
returns for the 1994 through 1999 tax years.
Respondent assigned petitioner’s case to an Appeals officer,
and a date was set for a hearing. Prior to the hearing,
petitioner filed income tax returns for the years 1994 through
1999. The returns reflected the following amounts due in taxes,
which were not paid:
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Year Amount
1994 $9,914.39
1995 6,738.88
1996 4,225.98
1997 4,990.48
1998 4,274.45
1999 4,433.95
On each of these returns, petitioner reported profits and losses
from a sole proprietorship, Innovative Marketing Group, on a
Schedule C, Profit or Loss From Business.
At the hearing, which was conducted by telephone,
petitioner’s counsel informed the Appeals officer that an offer
in compromise would be submitted. The Appeals officer agreed to
consider that position as a collection alternative to the levy.
Thereafter, the Appeals officer received from petitioner IRS Form
433-A, Collection Information Statement for Wage Earners and
Self-Employed Individuals, and petitioner’s first offer in
compromise (original offer in compromise). On the Form 433-A,
petitioner claimed a monthly transportation expense of $70 for a
vehicle, described as a 1986 Trooper. Before acting on the offer
in compromise, the Appeals officer forwarded the Form 433-A to a
revenue officer for verification. Petitioner satisfied that
verification through IRS Form 433-B, Collection Information
Statement for Businesses, which was sent to the revenue officer.
On the Form 433-B, petitioner also claimed expenses for the 1986
Trooper listed on the Form 433-A.
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In evaluating petitioner’s original offer in compromise, the
revenue officer reviewed bank statements and canceled checks from
petitioner’s business and personal checking accounts. He found
that petitioner had commingled his business and personal funds in
these accounts. The revenue officer also found that petitioner’s
bank deposits exceeded the sources of income shown on his
original offer in compromise. For the 10-month period reflected
on the “Income and Expense Analysis” section of the Form 433-B,
the actual deposits into the business account ($42,861.66)
exceeded the reported sources of income on the original offer in
compromise ($25,470) by $17,391.66. The revenue officer returned
the case to the Appeals officer with his findings.
The revenue officer calculated petitioner’s future monthly
disposable income, described by respondent as an estimate of a
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, to be $991.17.3 That calculation provided for
$70 in monthly transportation expenses (as claimed on
petitioner’s Form 433-A), accounted for the excess deposits,
reflected the net income from petitioner’s business, and allowed
various other expenses. The calculation was as follows:
3
The revenue officer made other findings and
calculations which need not be detailed here.
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Monthly total income
Net business income $ 477.00
Monthly excess deposits 1,739.17 $2,216.17
($17,391.66/10 months)
Monthly total expenses
National standard expenses1 $ 383.00
Housing and utilities 400.00
Transportation 70.00
Taxes (income & FICA) 120.00
Life insurance 34.50
Child support 217.50 (1,225.00)
Disposable income $ 991.17
1
The Internal Revenue Manual provides procedures for
evaluating proposed installment agreements and offers in
compromise. See 2 Administration, Internal Revenue Manual
(CCH), sec. 5.15.1 to 5.15.1.4, at 17,653-17,660. Those
procedures contain guidelines for allowable expenses, which
include necessary and conditional expenses. Necessary
expenses are those reasonable expenses that provide for a
taxpayer’s and his or her family’s health and welfare and/or
the production of income. Id. sec. 5.15.1.3.2, at 17,656.
There are three types of necessary expenses: (1) Those based
on national standards; e.g., food, housekeeping supplies,
apparel and services, and personal care products and
services; (2) those based on local standards; e.g., housing,
utilities, and transportation; and (3) other expenses, which
are not based on national or local standards; e.g., health
care. Id. sec. 5.15.1.3.2.1 to 5.15.1.3.2.3, at 17,656-
17,657.
Petitioner’s original offer in compromise, dated August 31,
2000, proposed to settle the 1993 through 1999 years with a
single cash payment of $720. In a telephone conference, the
Appeals officer informed petitioner’s counsel that he could
recommend an offer in compromise for $24,000, payable in 48
monthly installments of $500. Thereafter the Appeals officer
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received several amended offers. The first amended offer in
compromise, dated April 30, 2001, proposed to settle the 1993
through 1999 tax years with a $20,000 deferred payment, payable
in monthly installments of $277. The second amended offer in
compromise, dated May 7, 2001, proposed to settle the same years
with a $24,500 deferred payment, payable in 96 monthly
installments of $255. The third amended offer in compromise,
dated May 17, 2001, proposed to settle the same years with an
$11,760 deferred payment, payable in 60 monthly installments of
$200.
Throughout the period when petitioner submitted these offers
in compromise, the Appeals officer remained firm on his original
terms.4 However, after submitting the second amended offer in
compromise, petitioner raised a question as to the amount of
transportation costs allowed in the calculation of his disposable
income. Rather than the $70 for transportation costs originally
claimed on petitioner’s Form 433-A, petitioner now argued that he
was entitled to a $352 per month transportation expense.
Petitioner’s counsel raised the transportation expense issue in a
letter, stating in pertinent part:
4
The Appeals officer communicated with petitioner’s
counsel on May 1 and 14, 2001, in writing, and additionally by
telephone, that petitioner’s submissions did not meet
respondent’s terms specified in the telephone conference.
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I noticed on the grid that Mr. Wodarczyk did not take
the standard deduction for car maintenance. The amount
of transportation was listed as $70. The standard expense
that is allowed is $282. No less than $352.00 should be
allowed for transportation. The net difference between
allowed expense and gross income is $196.00.
This letter is intended to amend Mr. Wodarczyk 433-a to
include allowed car maintenance.
Allowing the greater amount of transportation expenses would have
resulted in a reduction of petitioner’s future monthly disposable
income. Petitioner’s attorney submitted the third amended offer
in compromise, which reduced the immediate previous offer by
$12,740, to reflect petitioner’s revised position on the
transportation expenses. There is no indication in the record
that petitioner provided any evidence to substantiate his claim
that his transportation expenses were $352 per month.
The Appeals officer rejected the third amended offer in
compromise. He explained through correspondence:
In your letter you stated that you noticed that Mr.
Wodarczyk did not take the standard deduction for car
maintenance, so you amended his Form 433-A and determined
what an acceptable offer should be.
I did consider all the information provided in this
case and did adjust many of the items on Form 433-A as
appropriate to allow reasonable amounts. Transportation
allowance was not adjusted because Mr. Wodarczyk is self-
employed and claims car and truck expense to reduce his
income from self-employment on his Schedule C. I also
considered the business Account receivables, the 1986
trooper sale value, the cash value of the insurance policy
and the bank deposits over a (10) month period. All these
items were considered. On Form 433-A, Mr. Wodarczyk
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reported his monthly income at $1,100 and his monthly
expenses at $1,305.
In due course, a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 was sent by certified
mail to petitioner, which stated:
The proposed levy action is appropriate. The tax liability
is due and outstanding. Your income tax return, Form 1040,
for the year ended December 31, 1993 was filed on October 3,
1994. It was audited and an additional assessment was made
on May 5, 1997. The outstanding balance is valid and it is
outstanding. You presented no valid alternatives to the
proposed collection action.
Petitioner filed a timely petition in this Court seeking review
of respondent’s determination to reject his third amended offer
in compromise and to proceed with levy.
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, the Secretary may collect the tax
by levy upon the taxpayer’s property. Section 6331(d) provides
that the Secretary must provide the taxpayer with notice,
including notice of the administrative appeals available to the
taxpayer, before proceeding with collection by such a levy.
Section 6330 generally provides that the Commissioner cannot
proceed with the collection of taxes by way of a levy until the
taxpayer has been given notice and an opportunity for
administrative review of the matter in the form of an Appeals
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Office hearing. Judicial review of the administrative
determination is available if the taxpayer petitions this Court
or the appropriate U.S. District Court. Sec. 6330(d); see Davis
v. Commissioner, 115 T.C. 35, 37 (2000); Goza v. Commissioner,
114 T.C. 176, 179 (2000).
Where the validity of the underlying tax liability is
properly at issue, the Court will review the matter de novo.
Where, as here, the underlying liability is not at issue, the
Court will review the Commissioner’s administrative determination
for abuse of discretion. Sego v. Commissioner, 114 T.C. 604, 610
(2000).5 The U.S. Court of Appeals for the Fifth Circuit equates
an abuse of discretion standard with “arbitrary and capricious”.
Matassarin v. Lynch, 174 F.3d 549, 563 (5th Cir. 1999).6
In an Appeals Office hearing prior to levy, a taxpayer may
present any relevant issue relating to the unpaid tax or the
proposed levy, including spousal defenses, the appropriateness of
5
Since no notice of deficiency was ever issued to
petitioner for 1993, petitioner could have, under sec.
6330(c)(2)(B), challenged the underlying tax liability for that
year. Petitioner did not do that but instead presented a
collection alternative under sec. 6330(c)(2)(A)(iii). Thus, the
underlying tax liability is not at issue.
6
But for the provisions of sec. 7463(b), the decision in
this case would be appealable to the U.S. Court of Appeals for
the Fifth Circuit. See sec. 7482(b)(1)(A). This Court generally
applies the law in a manner consistent with the holdings of the
Court of Appeals to which an appeal of its decision lies, see
Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985
(10th Cir. 1971), even in cases subject to sec. 7463(b).
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the collection action, and offers of collection alternatives,
such as posting a bond, substituting other assets, reaching an
installment agreement, or making an offer in compromise. Sec.
6330(c)(2)(A). Under section 6330(c)(3), the Appeals officer’s
determination must consider (A) the verification that the
requirements of applicable law and administrative procedures have
been met, (B) issues raised by the taxpayer, and (C) 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.
With respect to the transportation expense, respondent’s not
allowing an increase in that item to $352 per month so as to
reduce petitioner’s monthly disposable income was not an abuse of
discretion. Respondent accepted the $70 monthly amount
petitioner had claimed on the Form 433-A, and petitioner provided
no evidence to the Appeals officer that his monthly
transportation expense was $352. Moreover, respondent followed
published local standards for transportation expenses, which
provide for the local standard or the amount actually paid,
whichever is less. 2 Administration, Internal Revenue Manual
(CCH), sec. 5.15.1.3.2.2(2), at 17,657. Respondent’s actions
were not arbitrary and capricious where the amount allowed was
the amount petitioner originally provided; that amount was less
than the local standard, and petitioner failed to substantiate
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the subsequently claimed $352 per month. See id. sec.
5.15.1.3(8)(a), at 17,655 (“A taxpayer is required to provide
evidence and justification for claimed expenses, except National
Standards.”). On these premises, the Court finds respondent’s
computations to be reasonable and finds no abuse of discretion by
respondent. Schulman v. Commissioner, T.C. Memo. 2002-129.
With respect to petitioner’s contention that respondent
provided no independent review before rejecting petitioner’s
third amended offer in compromise, there was also no abuse of
discretion. Contrary to petitioner’s contentions, respondent did
have an independent reviewer, the Appeals team manager, review
the offer in compromise. This review occurred after the revenue
officer’s verification and the Appeals officer’s analysis and
recommendations. Petitioner was given the one hearing to which
he was entitled under section 6330(b)(2), where he was
represented by counsel. Petitioner’s contention is rejected.
In sum, petitioner’s third amended offer in compromise was
considered in detail. Respondent followed standard guidelines on
the calculation of petitioner’s monthly disposable income, giving
due consideration to each of the points raised by petitioner.
The record shows that respondent properly considered and
addressed the statutory criteria in analyzing petitioner’s third
amended offer in compromise. Ultimately, respondent concluded
that such offer did not fairly represent petitioner’s ability to
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pay and was not a valid collection alternative to the proposed
levy. This conclusion was not arbitrary and capricious. There
is no genuine issue as to any material fact, and respondent is
entitled to judgment as a matter of law. Accordingly,
respondent’s motion for summary judgment will be granted.
Reviewed and adopted as the report of the Small Tax Case
Division. To reflect the foregoing,
An order granting respondent's
motion for summary judgment and decision
for respondent will be entered.